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As filed with the Securities and Exchange Commission on November 4, 2011

Registration No. 333-176971

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

YRC Worldwide Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		4213		48-0948788
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

 

 

10990 Roe Avenue

Overland Park, Kansas 66211

(913) 696-6100

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Jeff P. Bennett

Vice President—Legal, Interim General Counsel and Secretary

10990 Roe Avenue

Overland Park, Kansas 66211

(913) 696-6100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

Dennis M. Myers, P.C.

Kirkland & Ellis LLP

300 North LaSalle

Chicago, IL 60654

(312) 862-2000

Approximate date of commencement of proposed sale to public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:    x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		¨		Accelerated filer		x
Non-accelerated filer		¨  (Do not check if a smaller reporting company)		Smaller reporting company		¨

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CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered		Amount to be Registered		Proposed Maximum Offering Price per Security		Proposed Maximum Aggregate Offering Price		Amount of Registration Fee(1)
10% Series A Convertible Senior Secured Notes due 2015		$   14,993,612		100%		$14,993,612(2)		$  1,741
10% Series A Convertible Senior Secured Notes due 2015 Paid-in-Kind		$6,502,414(3)		100%		$  6,502,414(2)		$     755
10% Series B Convertible Senior Secured Notes due 2015		$  13,401,338		100%		$13,401,338(2)		$  1,556
10% Series B Convertible Senior Secured Notes due 2015 Paid-in-Kind		$5,811,879(4)		100%		$  5,811,879(2)		$    675
Common Stock, par value $0.01 per share		161,339,531		$0.07(5)		$     11,293,767		$  1,311
Common Stock, par value $0.01 per share		500,642,286(6)		—		—		$—  (7)
Guarantees of 10% Series A Convertible Senior Secured Notes due 2015		—		—		—		—  (8)
Guarantees of 10% Series B Convertible Senior Secured Notes due 2015		—		—		—		—  (8)

(1)	These amounts were previously paid in connection with the initial filing of this registration statement with the Securities and Exchange Commission on September 23, 2011.

(2)	Equals the aggregate principal amount of securities being registered. Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).

(3)	Equals the maximum aggregate principal amount of 10% Series A Convertible Senior Secured Notes due 2015 (the “Series A Notes”) paid-in-kind in respect of interest to be paid on the Series A Notes.

(4)	Equals the maximum aggregate principal amount of 10% Series B Convertible Senior Secured Notes due 2015 (the “Series B Notes”) paid-in-kind in respect of interest or make whole premium to be paid on the Series B Notes.

(5)

Estimated solely for the purpose of determining the registration fee in accordance with Rule 457(c) under the Securities Act based on the average of the high and low prices of the registrant’s common stock, par value $0.01 per share (the “common stock”) as reported on the NASDAQ Global Select Market on September 21, 2011.

(6)

Equals the sum of (i) an estimate of the maximum number of shares of the registrant’s common stock issuable in respect of principal and paid-in-kind interest of the Series A Notes being registered (189,637,942 shares), (ii) an estimate of the maximum number of shares of common stock issuable in respect of principal, paid-in-kind interest and make whole premium of the Series B Notes being registered (311,004,344 shares), and (iii) such currently indeterminate number of shares of common stock as may be required for issuance in respect of the Series A Notes and the Series B Notes being registered as a result of anti-dilution provisions thereof.

(7)	No additional consideration will be received for the common stock issuable upon conversion of the Series A Notes and the Series B Notes; therefore no registration fee is required pursuant to Rule 457(i) of the Securities Act of 1933 with respect to such shares.

(8)	The Series A Notes and the Series B Notes are guaranteed by the guarantors named in the Table of Additional Registrants. No separate consideration will be paid in respect of the guarantees pursuant to Rule 457(n) of the Securities Act.

 

 

The registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

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TABLE OF ADDITIONAL REGISTRANTS

 

Exact Name of Co-Registrant as Specified in its Charter		State or Other Jurisdiction  of Incorporation or Organization		I.R.S. Employer Identification  No.
YRC Inc.		Delaware		34-0492670
Roadway LLC		Delaware		20-0453812
Roadway Next Day Corporation		Pennsylvania		23-2200465
YRC Enterprise Services, Inc.		Delaware		20-0780375
YRC Regional Transportation, Inc.		Delaware		36-3790696
USF Sales Corporation		Delaware		36-3799036
USF Holland Inc.		Michigan		38-0655940
USF Reddaway Inc.		Oregon		93-0262830
USF Glen Moore Inc.		Pennsylvania		23-2443760
YRC Logistics Services, Inc.		Illinois		36-3783345
IMUA Handling Corporation		Hawaii		36-4305355
YRC Association Solutions, Inc.		Delaware		20-3720424
Express Lane Service, Inc.		Delaware		20-1557186
YRC International Investments, Inc.		Delaware		20-0890711
USF RedStar LLC		Delaware		N/A
USF Dugan Inc.		Kansas		48-0760565
USF Technology Services Inc.		Illinois		36-4485376
YRC Mortgages, LLC		Delaware		20-1619478
New Penn Motor Express, Inc.		Pennsylvania		23-2209533
Roadway Express International, Inc.		Delaware		34-1504752
Roadway Reverse Logistics, Inc.		Ohio		34-1738381
USF Bestway Inc.		Arizona		86-0104184
USF Canada Inc.		Delaware		20-0211560
USF Mexico Inc.		Delaware		20-0215717
USFreightways Corporation		Delaware		N/A

The address, including zip code and telephone number, including area code, of each additional registrant’s principal executive offices is as shown on the cover page of this Registration Statement on Form S-1, except the address, including zip code and telephone number, including area code for the principal executive offices of (i) New Penn Motor Express, Inc. is 625 South Fifth Ave., Lebanon, PA 17042, (800) 285-5000, (ii) USF Glen Moore Inc. is 1711 Shearer Drive, Carlisle, PA 17013-9970, (717) 245-0788, (iii) USF Holland Inc. is 750 East 40 St., Holland, MI 49423, (616) 395-5000 and (iv) USF Reddaway Inc. is 16277 SE 130 Ave., Clackamas, OR 97015, (503) 650-1286. The name, address, including zip code, of the agent for service for each of the additional registrants is Jeff P. Bennett, Vice President—Legal, Interim General Counsel and Secretary, YRC Worldwide Inc., 10990 Roe Avenue, Overland Park, Kansas 66211.

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The information in this prospectus may change. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED NOVEMBER 4, 2011

PRELIMINARY PROSPECTUS

YRC Worldwide Inc.

UP TO $21,496,026 PRINCIPAL AMOUNT OF 10% SERIES A CONVERTIBLE SENIOR SECURED NOTES DUE 2015 (THE “SERIES A NOTES”) AND COMMON STOCK ISSUABLE UPON THE CONVERSION OF THE SERIES A NOTES

UP TO $19,213,217 PRINCIPAL AMOUNT OF 10% SERIES B CONVERTIBLE SENIOR SECURED NOTES DUE 2015 (THE “SERIES B NOTES”) AND COMMON STOCK ISSUABLE UPON THE CONVERSION OF THE SERIES B NOTES

UP TO 161,339,531 SHARES OF COMMON STOCK

This prospectus covers resales from time to time by selling securityholders of (i) up to $21,496,026 principal amount of our Series A Notes held by certain selling securityholders and shares of our common stock issuable upon conversion of the Series A Notes held by certain securityholders, plus such additional indeterminate number of shares of common stock as may be required for issuance in respect of the Series A Notes as a result of anti-dilution provisions thereof or any liquidation preference associated therewith, (ii) up to $19,213,217 principal amount of our Series B Notes held by certain selling securityholders and shares of our common stock issuable upon conversion of the Series B Notes held by certain securityholders, plus such additional indeterminate number of shares of common stock as may be required for issuance in respect of the Series B Notes as a result of anti-dilution provisions thereof or any liquidation preference associated therewith and (iii) up to 161,339,531 shares of our common stock held by certain selling securityholders. The Series A Notes, the Series B Notes and the shares of our common stock may be sold from time to time by or on behalf of the selling securityholders named in this prospectus or in supplements to this prospectus.

The selling securityholders are offering the Series A Notes, the Series B Notes and shares of our common stock. The selling securityholders may dispose of their securities from time to time through one or more of the means described in the section entitled “Plan of Distribution” beginning on page 197. The selling securityholders will receive all proceeds from the sales of the Series A Notes, the Series B Notes and the shares of our common stock being registered in this registration statement. We will not receive any portion of the proceeds from the sales of the Series A Notes, the Series B Notes or the shares of common stock.

Our common stock is currently listed on the NASDAQ Global Select Market under the symbol “YRCW”; however, our common stock is currently subject to delisting from the NASDAQ Global Select Market. See “Risk Factors—Risks Relating to the Securities—Our common stock currently listed on the NASDAQ is subject to delisting if we do not implement a reverse stock split and demonstrate compliance with bid price rules on or before December 31, 2011.” There is no market for the Series A Notes or the Series B Notes on the NASDAQ Global Select Market or any national or regional securities exchange.

Investing in the securities offered by this prospectus involves risks. See “Risk Factors” beginning on page 15.

NONE OF THE SECURITIES OFFERED HEREBY HAVE BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION (“SEC”) OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY, COMPLETENESS OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE IN THE UNITED STATES.

 

 

The date of this prospectus is             , 2011

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TABLE OF CONTENTS

 

		Page
Where You Can Find More Information			iii
Incorporation of Certain Documents by Reference			iii
Cautionary Note Regarding Forward-Looking Statements			iv
Summary			1
Risk Factors			15
Ratio of Earnings to Combined Fixed Charges and Preference Dividends			38
Use of Proceeds			39
Price Range of Common Stock and Dividend Policy			40
Unaudited Pro Forma Condensed Consolidated Financial Information for the Restructuring			42
Description of Series A Notes			54
Description of Series B Notes			98
Description of Our Capital Stock			177
Registration Rights			182
Security Ownership of Management and Directors			183
Security Ownership of Certain Holders of Record			185
Material United States Federal Income Tax Considerations			192
Selling Securityholders			201
Plan of Distribution			202
Non-U.S. Offer Restrictions			205
Legal Matters			206
Experts			206

 

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This prospectus does not constitute an offer to any person in any jurisdiction where it is unlawful to make such an offer or solicitation. This offering is being made on the basis of this prospectus and is subject to the terms described herein and those that may be set forth in any amendment or supplement thereto or incorporated by reference herein. Any decision to participate in this offering should be based on the information contained in this prospectus or any amendment or supplement thereto or specifically incorporated by reference herein. In making an investment decision or decisions, prospective investors must rely on their own examination of us and the terms of the offering and the securities being offered, including the merits and risks involved. Prospective investors should not construe anything in this prospectus as legal, business or tax advice. Each prospective investor should consult its advisors as needed to make its investment decision and to determine whether it is legally permitted to participate in the offering under applicable legal investment or similar laws or regulations.

Each prospective investor must comply with all applicable laws and regulations in force in any jurisdiction in which it participates in the offering or possesses or distributes this prospectus and must obtain any consent, approval or permission required by it for participation in the offering under the laws and regulations in force in any jurisdiction to which it is subject, and neither we, the selling securityholders nor any of our or their respective representatives shall have any responsibility therefor.

No action with respect to this offering has been or will be taken in any jurisdiction (except the United States) that would permit a public offering of the offered securities, or the possession, circulation or distribution of this prospectus or any material relating to the Company or the offered securities where action for that purpose is required. Accordingly, the offered securities may not be offered, sold or exchanged, directly or indirectly, and neither this prospectus nor any other offering material or advertisement in connection with this offering may be distributed or published, in or from any such jurisdiction, except in compliance with any applicable rules or regulations of any such country or jurisdiction. A holder outside the United States may participate in this offering but should refer to the disclosure under “Non-U.S. Offer Restrictions.”

This prospectus contains summaries believed to be accurate with respect to certain documents, but reference is made to the actual documents for complete information. All of those summaries are qualified in their entirety by this reference. Copies of documents referred to herein will be made available to prospective investors upon request to us at the address and telephone number set forth in “Incorporation of Certain Documents by Reference.”

This prospectus, including the documents incorporated by reference herein contain important information that should be read before any decision is made with respect to participating in this offering.

The delivery of this prospectus shall not under any circumstances create any implication that the information contained herein is correct as of any time subsequent to the date hereof or that there has been no change in the information set forth herein or in any attachments hereto or in the affairs of YRC Worldwide Inc. or any of its subsidiaries or affiliates since the date hereof.

No one has been authorized to give any information or to make any representations with respect to the matters described in this prospectus, other than those contained in this prospectus. If given or made, such information or representation may not be relied upon as having been authorized by us or the selling securityholders.

In this prospectus, “we”, “us”, “our” and “the Company” refers to YRC Worldwide Inc. and its subsidiaries, unless otherwise stated or the context otherwise requires. “YRCW” refers expressly to YRC Worldwide Inc. and not its subsidiaries.

 

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WHERE YOU CAN FIND MORE INFORMATION

This prospectus is a part of a registration statement on Form S-1 under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the securities to be offered by the selling securityholders, which we have filed with the SEC. This prospectus does not contain all of the information in the registration statement and its related exhibits and schedules. For further information regarding us and our securities, please see the registration statement and our other filings with the SEC, including our annual, quarterly and current reports and proxy statements, which you may read and copy at the Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information about the Public Reference Room by calling the SEC at 1-800-SEC-0330.

Our common stock is currently listed on the NASDAQ Global Select Market under the symbol “YRCW”; however, our common stock is currently subject to delisting from the NASDAQ Global Select Market. See “Risk Factors—Risks Relating to the Securities—Our common stock currently listed on the NASDAQ is subject to delisting if we do not implement a reverse stock split and demonstrate compliance with bid price rules on or before December 31, 2011.”

Our SEC filings are also available to the public on the SEC’s internet website at http://www.sec.gov and on our website at http://www.yrcw.com. Information contained on our internet website is not a part of this prospectus.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The SEC allows us to “incorporate by reference” the information we have filed with the SEC, which means that we can disclose important information to you without actually including the specific information in this prospectus by referring you to those documents. The information incorporated by reference is considered part of this prospectus. We incorporate by reference the documents listed below:

 

•

Our Annual Reports on Form 10-K and Form 10-K/A for the fiscal year ended December 31, 2010, except for the consolidated financial statements and schedule of the Company as of December 31, 2010 and 2009, and for each of the years in the three-year period ended December 31, 2010, and the report thereon of KPMG LLP, independent registered public accounting firm, included in Part II, Item 8, “Financial Statements and Supplementary Data” of such Annual Report;

 

•

Our Quarterly Reports on Form 10-Q for the quarterly period ended March 31, 2011 (except for the consolidated financial statements of the Company as of March 31, 2011, included in Item 1 “Financial Statements” of such Quarterly Report) and the quarterly period ended June 30, 2011;

 

•

Our Definitive Proxy Statement on Schedule 14A filed with the SEC on October 20, 2011; and

 

•

Our Current Reports on Form 8-K filed with the SEC in 2011 on the following dates: January 3; February 11 and 28; March 1 and 10; April 1 and 29; May 17 (which report includes the consolidated financial statements and schedule of the Company as of December 31, 2010 and 2009, and for each of the years in the three-year period ended December 31, 2010, and the report thereon of KPMG LLP, independent registered public accounting firm, and the consolidated financial statements of the Company as of March 31, 2011 (each of which financial statements and schedule were prepared assuming we would continue as a going concern; however, our significant declines in operations, cash flows and liquidity raise substantial doubt about our ability to continue as a going concern), which have been reissued to provide condensed consolidating financial information required by Rule 3-10 of Regulation S-X); July 8 and 25 (two filings); August 3, 4 and 31; September 16 (two filings) and 29; October 27.

 

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We will provide, without charge, to each person to whom a copy of this prospectus has been delivered, upon written or oral request of such person, a copy of any or all of the documents incorporated by reference herein (other than certain exhibits to such documents not specifically incorporated by reference). Requests for such copies should be directed to:

Jeff P. Bennett

Corporate Secretary

YRC Worldwide Inc.

10990 Roe Avenue

Overland Park, Kansas 66211

(913) 696-6100

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements.” Any statements about our expectations, beliefs, plans, objectives, assumptions, future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” and similar words or phrases. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of several factors more fully described under the caption “Risk Factors” and elsewhere in this prospectus, including the exhibits hereto and those incorporated by reference herein. All forward-looking statements are necessarily only estimates of future results and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus.

Forward-looking statements regarding future events and our future performance involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include, without limitation, the following items:

 

•

our recurring losses from operations and negative operating cash flows raise substantial doubt as to our ability to continue as a going concern

 

•

the volatility of our common stock’s market price and possible delisting of our common stock from the NASDAQ Global Select Market;

 

•

income tax liability as a result of our recently completed exchange offer;

 

•

increases in pension expense and funding obligations, including obligations to pay surcharges;

 

•

economic downturn, downturns in our customers’ business cycles and changes in their business practices;

 

•

competitor pricing activity;

 

•

the effect of any deterioration in our relationship with our employees;

 

•

self-insurance and claims expenses exceeding historical levels;

 

•

adverse changes in equity and debt markets and our ability to raise capital;

 

•

adverse changes in the regulatory environment;

 

•

effects of anti-terrorism measures on our business;

 

•

adverse legal proceeding or Internal Revenue Service audit outcomes;

 

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failure to obtain projected benefits and cost savings from operational and performance initiatives;

 

•

covenants and other restrictions in our credit and other financing arrangements; and

 

•

the other risk factors that are from time to time included in our reports filed with the SEC.

Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct.

Many of the factors set forth above are described in greater detail in our filings with the SEC. All forward-looking statements included in this prospectus are expressly qualified in their entirety by the foregoing cautionary statements. All future written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the previous statements. Except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement was made or to reflect the occurrence of unanticipated events.

 

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RISK FACTORS

Before investing in the securities offered by this prospectus, you should carefully consider the risks described below. You should also consider the other information included or incorporated by reference in this prospectus before deciding whether to invest in the securities offered by this prospectus.

Risks Relating to the Securities

We issued a substantial number of shares of our common stock in connection with the restructuring, and we cannot predict the price at which our common stock will trade in the future.

We issued 1,863,110,599 shares of our common stock upon the automatic conversion of all shares of our Series B Convertible Preferred Stock on September 16, 2011 or 97.5% of the common equity of the Company (based on 1,910,884,994 shares of our common stock outstanding as of September 19, 2011). On July 22, 2011, we also issued $140.0 million in aggregate principal amount of Series A Notes and $100.0 million in aggregate principal amount of Series B Notes, which, together with additional Series A Notes and Series B Notes issuable as payment-in-kind interest or make whole premium, are convertible under certain conditions into approximately 1.8 billion and 2.3 billion shares of our common stock, respectively. As of November 2, 2011, $6.3 million in aggregate principal amount of Series B Notes have been converted into 143.1 million shares of our common stock.

We cannot predict what the demand for our common stock will be in the future, how many shares of our common stock will be offered for sale or be sold in the future, or the price at which our common stock will trade in the future. Some of our common stock investors may not be able to or may be unwilling to hold equity securities and may therefore seek to sell their shares of common stock or the shares of common stock they receive upon conversion of the Series A Notes and the Series B Notes (together with the Series A Notes, the “Convertible Notes”). There are no agreements or other restrictions that prevent the sale of a large number of our shares of our common stock. The issuance of the shares of common stock upon conversion of the Series B Convertible Preferred Stock, the Series A Notes and the Series B Notes has been registered with the SEC. As a consequence, those securities and the common stock into which they are convertible will, in general, be freely tradable. Sales of a large number of such securities or shares of common stock in the future could materially depress the trading price of such securities or our common stock.

The price of our common stock, and therefore of the Convertible Notes, may fluctuate significantly, and this may make it difficult for you to resell the Convertible Notes, or any shares of our common stock (including those issuable upon conversion of the Convertible Notes) when you want or at prices you find attractive.

The price of our common stock on the NASDAQ Global Select Market constantly changes. We expect that the market price of our common stock will continue to fluctuate. In addition, because the Convertible Notes are convertible into shares of our common stock, volatility or depressed prices for our common stock could have a similar effect on the trading price of the notes.

In addition, the stock markets from time to time experience price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies and that may be extreme. These fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance.

We are subject to restrictions on paying dividends on our common stock and we do not intend to pay dividends on our common stock in the foreseeable future.

We do not anticipate that we will be able to pay any dividend on shares of our common stock in the foreseeable future. We intend to retain any future earnings to fund operations, debt service requirements and other corporate needs. In addition, our amended and restated credit agreement restricts, the payment of dividends on our common stock other than in additional shares of our common stock.

 

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Our common stock currently listed on the NASDAQ is subject to delisting if we do not implement a reverse stock split and demonstrate compliance with bid price rules on or before December 31, 2011.

On July 22, 2011, we received a staff determination letter from The NASDAQ Stock Market (“NASDAQ”) stating that our common stock should be delisted because we issued the Series B Convertible Preferred Stock, the Series A Notes and the Series B Notes at the closing of the restructuring in violation of NASDAQ Listing Rules 5635(b) and 5635(d) and because such issuance raises public interest concerns under NASDAQ Listing Rule 5101. On September 12, 2011, we received an additional staff determination letter from NASDAQ stating that, based on the closing bid price of our common stock for the last 30 consecutive business days, a deficiency exists with regard to NASDAQ Listing Rule 5450(a)(1), which requires a minimum bid price of $1.00 per share. Pursuant to NASDAQ’s broad discretionary authority under Listing Rule 5101, the staff determination letter did not provide us with a compliance period of 180 days generally provided under the Listing Rules, and that, accordingly, this matter serves as an additional basis for delisting our common stock from NASDAQ.

We appealed the staff’s determination, including its determination with respect to the closing bid price deficiency, to a hearings panel pursuant to the procedures set forth in the NASDAQ Listing Rule 5800 series. On September 21, 2011, we appeared before a NASDAQ Hearings Panel (the “Panel”) to review the staff’s determination and to request the continued listing of our common stock on NASDAQ.

On October 25, 2011, we received a letter from the Panel notifying us that the Panel had granted our request that our common stock remain listed on NASDAQ, subject to the condition that, on or before December 31, 2011, we must implement a reverse stock split and demonstrate a closing bid price for our common stock in excess of $1.00 per share for a minimum of ten consecutive trading days. We must also be able to demonstrate compliance with all requirements for continued listing on NASDAQ. In the event we are unable to do so, our common stock may be delisted from NASDAQ. We cannot guarantee that we can obtain stockholder approval of a reverse stock split, and, in the event we are able to obtain such stockholder approval, that we can implement a reverse stock split and demonstrate a closing bid price for our common stock in excess of $1.00 per share for a minimum of ten consecutive trading days, on or prior to December 31, 2011.

Delisting of our common stock would have an adverse effect on the market liquidity of our common stock and, as a result, the market price for our common stock could become more volatile. Furthermore, delisting also could make it more difficult for us to raise additional capital.

There may be a delay or difficulty in our being able to relist our common stock on an exchange.

As discussed above, if our common stock is delisted by the NASDAQ, it may take some time before we are able to relist our common stock on NASDAQ or to list our common stock on another national stock exchange. In such circumstances, it is possible that we will not be able to list our common stock on NASDAQ or another national stock exchange within the first year after the closing of the restructuring. If our common stock is not listed on NASDAQ or another national stock exchange, there may be an adverse effect on the market liquidity of our common stock and, as a result, the market price for our common stock could become more volatile. Furthermore, the absence of a listing of our common stock on a national stock exchange could also make it more difficult for us to raise additional capital.

If an active trading market does not develop for the Convertible Notes, you may not be able to resell such notes.

There is currently no public market for the Convertible Notes. We have not listed, and we have no plans to list, the Convertible Notes on any national securities exchange or to include these notes in any automated quotation system upon their registration. This may limit the trading market for the Convertible Notes. The lack of a trading market could adversely affect your ability to sell such notes and the price at which you may be able to sell such notes. The Convertible Notes may trade at a discount from their initial offering price and the liquidity of

 

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the trading market, if any, and future trading prices of the Convertible Notes will depend on many factors, including, among other things, the market price of our common stock, prevailing interest rates, our operating results, financial performance and prospects, the market for similar securities and the overall securities market, and may be adversely affected by unfavorable changes in these factors. Historically, the market for convertible debt has been subject to disruptions that have caused volatility in prices. It is possible that any market for the Convertible Notes which develops will be subject to disruptions which may have a negative effect on you, regardless of our operating results, financial performance or prospects.

Future sales of our common stock or equity-related securities in the public market, including sales of our common stock in short sales transactions by purchasers of the Convertible Notes, could adversely affect the trading price of our common stock and the value of the Convertible Notes and our ability to raise funds in new stock offerings.

In the future, we may sell additional shares of our common stock to raise capital. In addition, shares of our common stock are reserved for issuance on the exercise of stock options and on conversion of the Convertible Notes. We cannot predict the size of future issuances or the effect, if any, that such issuances may have on the market price for our common stock. Sales of significant amounts of our common stock or equity-related securities in the public market, or the perception that such sales may occur, could adversely affect prevailing trading prices of our common stock and the value of the Convertible Notes and could impair our ability to raise capital through future offerings of equity or equity-related securities. Further sales of shares of our common stock or the availability of shares of our common stock for future sale, including sales of our common stock by investors who view the Convertible Notes as a more attractive means of equity participation in our company or in connection with hedging and arbitrage activity that may develop with respect to our common stock, could adversely affect the trading price of our common stock or the value of the Convertible Notes.

The conversion rates of the Convertible Notes may not be adjusted for all dilutive events that may adversely affect the price of the Convertible Notes or the common stock issuable upon conversion of the Convertible Notes.

The conversion rates of the Convertible Notes are subject to adjustment upon certain events (see “Description of Series A Notes—Conversion Rights—Conversion Rate Adjustments” and “Description of Series B Notes—Conversion Rights—Conversion Rate Adjustments”). We will not adjust the conversion rate for other events, including offerings of common stock for cash by us or in connection with acquisitions. There can be no assurance that an event that adversely affects the value of the Convertible Notes, but does not result in an adjustment to the conversion rate, will not occur. Further, if any of these other events adversely affects the market price of our common stock, it may also adversely affect the market price of the Convertible Notes. We are generally not restricted from offering common stock in the future or engaging in other transactions that could dilute our common stock.

Our substantial indebtedness and lease obligations could adversely affect our financial flexibility and our competitive position.

We have a significant amount of indebtedness. As of June 30, 2011, on an as adjusted basis after giving effect to the restructuring, we would have had approximately $1.3 billion in aggregate principal of outstanding indebtedness. Our substantial level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. We also have, and will continue to have, significant lease obligations. As of June 30, 2011, our minimum rental expense under operating leases for the remainder of 2011 and full year 2012 was $28.7 million and $43.4 million, respectively. As of June 30, 2011, our total operating lease obligations totaled $148.5 million. Our substantial indebtedness and lease obligations could have other important consequences to you and significant effects on our business. For example, it could:

 

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increase our vulnerability to adverse changes in general economic, industry and competitive conditions;

 

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•

require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness and leases, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;

 

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limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

 

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restrict us from taking advantage of business opportunities;

 

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make it more difficult to satisfy our financial obligations;

 

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place us at a competitive disadvantage compared to our competitors that have less debt and lease obligations; and

 

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limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes on satisfactory terms or at all.

In addition, the indenture governing our Series B Notes contains, and the agreements evidencing or governing our existing or future indebtedness may contain, restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness.

Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could increase the risks associated with our substantial leverage.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although covenants under the indenture governing the Series B Notes, our amended and restated credit agreement and other agreements limit our ability and the ability of our present and future subsidiaries to incur additional indebtedness, the terms of the indenture governing the Series B Notes, our amended and restated credit agreement and other agreements permit us to incur significant additional indebtedness. In addition, the indentures governing our Convertible Notes do not prohibit us from incurring obligations that do not constitute indebtedness as defined therein. To the extent that we incur additional indebtedness or such other obligations, the risks associated with our substantial indebtedness described above, including our possible inability to service our debt, will increase.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations could harm our business, financial condition and results of operations.

Our ability to make payments on and to refinance our indebtedness and to fund working capital needs and planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control.

If our business does not generate sufficient cash flow from operations or if future borrowings are not available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness on or before the maturity thereof, reduce or delay capital investments or seek to raise additional capital, any of which could have a material adverse effect on our operations. In addition, we may not be able to effect any of these actions, if necessary, on commercially reasonable terms or at all. Our ability to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments, including the indentures governing the

 

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Convertible Notes offered hereby, may limit or prevent us from taking any of these actions. In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on commercially reasonable terms or at all. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would have an adverse effect, which could be material, on our business, financial condition and results of operations, as well as on our ability to satisfy our obligations in respect of the notes.

In addition, if we are unable to meet our debt service obligations under our existing and future indebtedness, the holders of such indebtedness would have the right, following any applicable cure period, to cause the entire principal amount thereof to become immediately due and payable. If our outstanding indebtedness was accelerated, we cannot assure you that our assets would be sufficient to repay in full the money owed, including holders of the Convertible Notes.

Restrictive covenants in the documents governing our existing and future indebtedness may limit our current and future operations, particularly our ability to respond to changes in our business or to pursue our business strategies.

The documents governing our existing indebtedness contain and the documents governing any of our future indebtedness will likely contain, a number of restrictive covenants that impose significant operating and financial restrictions, including restrictions on our ability to take actions that we believe may be in our interest. The documents governing our existing indebtedness, among other things, limit our ability to:

 

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incur additional indebtedness and guarantee indebtedness;

 

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pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments;

 

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enter into agreements that restrict distributions from restricted subsidiaries;

 

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sell or otherwise dispose of assets, including capital stock of restricted subsidiaries;

 

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enter into transactions with affiliates;

 

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create or incur liens;

 

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enter into sale/leaseback transactions;

 

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merge, consolidate or sell substantially all of our assets;

 

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make investments and acquire assets; and

 

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make certain payments on indebtedness;

The restrictions could adversely affect our ability to:

 

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finance our operations;

 

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make needed capital expenditures;

 

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make strategic acquisitions or investments or enter into alliances;

 

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withstand a future downturn in our business or the economy in general;

 

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engage in business activities, including future opportunities, that may be in our interest; and

 

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plan for or react to market conditions or otherwise execute our business strategies.

Our ability to obtain future financing or to sell assets could be adversely affected because a very large majority of our assets have been secured as collateral for the benefit of the holders of our indebtedness.

 

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Our failure to comply with the covenants in the documents governing our existing and future indebtedness could materially adversely affect our financial condition and liquidity.

The documents governing our indebtedness contain financial covenants requiring us to take certain actions and negative covenants restricting our ability to take certain actions. In the past, we have failed to meet certain of these covenants. A breach of any of the covenants in the documents governing our indebtedness, if uncured, could lead to an event of default under any such document, which in some circumstances could give our creditors the right to demand that we accelerate repayment of amounts due. This would likely in turn trigger cross-acceleration or cross-default rights in other documents governing our indebtedness. Therefore, in the event of any such breach, we may need to seek covenant waivers or amendments from our creditors or seek alternative or additional sources of financing, and we cannot assure you that we would be able to obtain any such waivers or amendments or alternative or additional financing on acceptable terms, if at all. In addition, any covenant breach or event of default could harm our credit rating and our ability to obtain additional financing on acceptable terms. The occurrence of any of these events could have a material adverse effect on our financial condition and liquidity.

Not all of our subsidiaries are guarantors of our obligations under the Convertible Notes and therefore the notes are structurally subordinated in right of payment to the indebtedness and other liabilities of our existing and future subsidiaries that do not guarantee the notes. Your right to receive payments on the Convertible Notes could be adversely affected if any of these non-guarantor subsidiaries declare bankruptcy, liquidate or reorganize.

The guarantors include only our existing and future domestic subsidiaries that guarantee any indebtedness of the Company or any of its subsidiaries in an aggregate amount of $5.0 million or more. The borrower under the ABL facility is not a guarantor under the Convertible Notes or the amended and restated credit agreement. In addition, any subsidiary that we properly designate as an unrestricted subsidiary under the indentures governing the Series B Notes, will not provide guarantees of the Series B Notes. None of our foreign subsidiaries will guarantee the Convertible Notes.

The Convertible Notes and guarantees thereof are structurally subordinated to all of the liabilities of any of our subsidiaries that do not guarantee the notes including our foreign subsidiaries and such liabilities will be required to be paid before the holders of the notes have a claim, if any, against those subsidiaries and their assets. Therefore, if there were a dissolution, bankruptcy, liquidation or reorganization of any such subsidiary, the holders of the Convertible Notes would not receive any amounts with respect to the notes from the assets of such subsidiary until after the payment in full of the claims of creditors, including trade creditors and preferred stockholders, of any such subsidiary.

Our non-guarantor subsidiaries accounted for approximately $214.6 million or 5% of our total revenues and $122.7 million or 5% of our total assets, respectively, for the year ended December 31, 2010.

The pledge of the capital stock or other securities of the issuer’s subsidiaries that secure the Convertible Notes will automatically be released from the lien on them and no longer constitute collateral for so long as the pledge of such capital stock or such other securities would require the filing of separate financial statements with the SEC for that subsidiary.

The Convertible Notes and the guarantees are secured by a second-priority security interest in the stock of our domestic subsidiaries (including the guarantors and the borrower under the ABL facility) and 65% of the voting capital stock (and 100% of the non-voting capital stock) of our first-tier foreign subsidiary directly owned by the Company or any domestic guarantor. Under the SEC regulations in effect as of the issue date of the Convertible Notes, if the par value, book value as carried by us or market value (whichever is greatest) of the capital stock or other securities of a subsidiary pledged as part of the collateral is greater than or equal to 20% of the aggregate principal amount of the Convertible Notes then outstanding, such a subsidiary would be required to

 

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provide separate financial statements to the SEC. Under the indentures governing the Convertible Notes and the collateral documents, the capital stock and other securities of any subsidiary of the issuer that have been pledged as collateral to secure the Convertible Notes or the guarantees would be excluded from the collateral securing the Convertible Notes to the extent liens thereon would trigger the requirement to file separate financial statements of that subsidiary with the SEC under Rule 3-16 of Regulation S-X (as in effect from time to time). As of December 31, 2010, the common stock of our largest operating companies, such as YRC Inc., USF Holland Inc., New Penn Motor Express, Inc. and USF Reddaway Inc., would be excluded as collateral under these kick-out provisions.

As a result, holders of the Convertible Notes could lose a portion or all of their security interest in the capital stock or other securities of those subsidiaries during such period. It may be more difficult, costly and time-consuming for holders of the Convertible Notes to foreclose on the assets of a subsidiary than to foreclose on its capital stock or other securities, so the proceeds realized upon any such foreclosure could be significantly less than those that would have been received upon any sale of the capital stock or other securities of such subsidiary. See “Description of Series A Notes—Security for the Series A Notes” and “Description of Series B Notes—Security for the Series B Notes.”

Other secured indebtedness and obligations, including under our amended and restated credit agreement, will be effectively senior to the Convertible Notes to the extent of the value of senior priority collateral securing such indebtedness and obligations. If there is a default, the value of such collateral may not be sufficient to repay both the first-priority creditors and the holders of the Convertible Notes.

The Convertible Notes are secured on a second-priority basis by the same collateral (subject to certain limitations) securing, on a first-priority basis, our amended and restated credit agreement, certain of our hedging obligations and certain of our cash management obligations. The Convertible Notes are also secured on a third-priority basis by the same collateral (subject to certain limitations), securing, on a first-priority basis, our Contribution Deferral Agreement. In addition, under the terms of the indentures governing the Convertible Notes, we are permitted in the future to incur additional indebtedness and other obligations that may share in the second-priority liens on the collateral securing the Convertible Notes and, in certain circumstances, in the first-priority liens on the collateral. The first-priority liens on the collateral securing our amended and restated credit agreement, our Contribution Deferral Agreement, certain of our hedging obligations and certain of our cash management obligations and any such future indebtedness and obligations are higher in priority as to such collateral than the security interests securing the Convertible Notes and the guarantees.

The holders of obligations secured by the first-priority liens on the collateral will be entitled to receive proceeds from any realization of such senior priority collateral to repay their obligations in full before the holders of the Convertible Notes and other obligations secured by second-priority or third-priority liens, as applicable, will be entitled to any recovery from such collateral. As a result, the Convertible Notes are effectively junior in right of payment to indebtedness under our amended and restated credit agreement, our Contribution Deferral Agreement, certain of our hedging obligations and certain of our cash management obligations and any other indebtedness and obligations collateralized by a higher priority lien on the collateral, to the extent of the realizable value of such collateral. We cannot assure you that, in the event of a foreclosure, the proceeds from the sale of all of such collateral would be sufficient to satisfy the amounts outstanding under the Convertible Notes and other obligations secured by the second-priority or third-priority liens, as applicable, if any, after payment in full of all obligations secured by the first-priority or second-priority liens, as applicable, on the collateral. If such proceeds were not sufficient to repay amounts outstanding under the Convertible Notes, then holders of the Convertible Notes, to the extent not repaid from the proceeds of the sale of the collateral, would only have an unsecured claim against our remaining assets, which claim will rank equal in priority with the unsecured claims with respect to any unsatisfied portion of the obligations secured by the first-priority and second-priority liens, as applicable, and our other unsecured senior indebtedness.

Under the indentures governing the Convertible Notes, we could also incur additional indebtedness and obligations secured by first-priority liens and second-priority liens on our assets so long as such first- and

 

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second-priority liens are securing indebtedness and obligations permitted to be incurred by the covenants described under “Description of Series A Notes” and “Description of Series B Notes” and certain other conditions are met. The value of the lien on the secured subordinated intercompany notes owed to certain restricted subsidiaries by the borrower under the ABL facility, which is collateral for the amended and restated credit agreement and the Convertible Notes, shall be directly affected by the incurrence of additional indebtedness under the ABL facility as permitted by the covenants described under “Description of Series A Notes” and “Description of Series B Notes.”

Our ability to designate future indebtedness as either first-priority secured or second-priority secured and, in either event, to enable the holders thereof to share in the collateral on either a priority basis or a pari passu basis with holders of the Convertible Notes and our obligations secured by first-priority and second-priority liens, as applicable, may have the effect of diluting the ratio of the value of such collateral to the aggregate amount of the obligations secured by the collateral.

There are certain categories of property that are excluded from the collateral.

Certain assets are excluded from the collateral securing the Convertible Notes and the guarantees. Excluded assets are summarized as follows: (i) leasehold interests, (ii) any property to the extent any grant of a security interest therein (a) is prohibited by applicable law or governmental authority or (b) is prohibited by or constitutes a breach or default under or results in the termination of, or requires any consent not obtained under any applicable shareholder or similar agreement, (iii) any lease, license, contract, property right or agreement to which any grantor is a party or any of its rights or interests thereunder if, and only for so long as, the grant of a security interest shall constitute or result in a breach, termination or default under any such lease, license, contract, property right or agreement, other than in the case of each of clause (ii) and (iii), to the extent that any such term would be rendered ineffective pursuant to applicable specified provisions of Article 9 of the UCC of any relevant jurisdiction, (iv) certain de minimis motor vehicles (other than tractor trailers and other rolling stock and equipment), (v) deposit accounts for the sole purpose of funding payroll obligations, tax obligations or holding funds owned by persons other than the Company, (vi) intent-to-use trademark applications to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark applications under applicable law, (vii) equity interests of subsidiaries which would require separate financial statements if pledged and (viii) accounts receivable and related assets sold pursuant to a Qualified Receivables Financing, including the ABL facility. See “Description of Series A Notes—Security for the Series A Notes” and “Description of Series B Notes—Security for the Series B Notes.” If an event of default occurs and the Convertible Notes are accelerated, the Convertible Notes and the guarantees will rank equally in right with the holders of other unsubordinated and unsecured indebtedness of the relevant entity with respect to such excluded property.

It may be difficult to realize the value of the collateral securing the Convertible Notes.

The collateral securing the Convertible Notes is subject to any and all exceptions, defects, encumbrances, liens and other imperfections as may be accepted by the administrative agent for our amended and restated credit agreement and any other creditors that also have the benefit of first liens on the collateral securing the Convertible Notes from time to time, whether on or after the date the Convertible Notes are issued. We have neither analyzed the effect of, nor participated in any negotiations relating to, such exceptions, defects, encumbrances, liens and other imperfections. The existence of any such exceptions, defects, encumbrances, liens and other imperfections could adversely affect the value of the collateral securing the Convertible Notes as well as the ability of the administrative agent for our amended and restated credit agreement, or the holders of the Convertible Notes, to realize or foreclose on such collateral.

No appraisals of any collateral have been prepared in connection with this offering. The value of the collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers. By their nature, some or all of the pledged assets may be illiquid and may have no readily ascertainable

 

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market value. We cannot assure you that the fair market value of the collateral as of the date of this prospectus exceeds the principal amount of the debt secured thereby. The value of the assets pledged as collateral for the Convertible Notes could be impaired in the future as a result of changing economic conditions, our failure to implement our business strategy, competition and other future trends. Any claim for the difference between the amount, if any, realized by holders of the Convertible Notes from the sale of the collateral securing the Convertible Notes and the obligations under the Convertible Notes will rank equally in right of payment with all of our other unsecured unsubordinated indebtedness and other obligations, including trade payables. Additionally, in the event that a bankruptcy case is commenced by or against us, if the value of the collateral is less than the amount of principal and accrued and unpaid interest on the Convertible Notes and all other senior secured obligations, interest may cease to accrue on the Convertible Notes from and after the date the bankruptcy petition is filed.

We are not required to provide new surveys with respect to our owned real properties intended to constitute collateral for the Convertible Notes. To the extent accurate, we will, however, be required to give affidavits stating that there have been no changes made to the properties for which surveys were prepared when we last encumbered such properties in 2009 for the benefit of some of our lenders. As to real properties for which there were no surveys so provided in 2009 or with respect to which affidavits cannot be provided because changes have been made to such properties, there is no independent assurance that, among other things, (i) the real property encumbered by each mortgage includes all of the property owned by us or the subsidiary guarantors that was intended to be mortgaged, or (ii) no encroachments, adverse possession claims, zoning or other restrictions exist with respect to such real properties which could result in a material adverse effect on the value of such real properties.

In addition, because a portion of the collateral consists of pledges of voting capital stock and non-voting capital stock of certain of the issuer’s foreign subsidiaries, the validity of those pledges under local law, if applicable, and the ability of the holders of the Convertible Notes to realize upon that collateral under local law, to the extent applicable, may be limited by such local law, which limitations may or may not affect the liens securing the Convertible Notes.

To the extent that third parties enjoy prior liens, such third parties may have rights and remedies with respect to the property subject to such liens that, if exercised, could adversely affect the value of the collateral. The indentures governing the Convertible Notes do not require that we maintain the current level of collateral or maintain a specific ratio of indebtedness to asset value. Releases of collateral from the liens securing the indenture governing the Convertible Notes will be permitted under some circumstances (as discussed below).

In the future, the obligation to grant additional security over assets, or a particular type or class of assets, whether as a result of the acquisition or creation of future assets or subsidiaries, the designation of a previously unrestricted subsidiary or otherwise, is subject to the provisions of the indentures, collateral documents and an intercreditor agreement. The collateral documents and intercreditor agreement set out certain limitations on the rights of the holders of the Convertible Notes offered hereby to require security or perfection of such security in certain circumstances, which may result in, among other things, the amount recoverable under any security provided by any subsidiary being limited and/or security not being granted over a particular type or class of assets. Accordingly, this may affect the value of the security provided by us. Furthermore, upon enforcement against any collateral or in insolvency, under the terms of the intercreditor agreement, the claims of the holders of the Convertible Notes offered hereby to the proceeds of such enforcement will rank behind claims of the holders of obligations under our amended and restated credit agreement and the Contribution Deferral Agreement, each of which are secured by first-priority liens with respect to certain shared collateral, and holders of additional indebtedness and obligations secured by senior liens (in each case, to the extent such liens are permitted liens and limited to the value of the collateral subject to the senior lien).

The security interest of the collateral trustee for the Convertible Notes is subject to practical problems generally associated with the realization of security interests in collateral. For example, the collateral trustee may

 

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need to obtain the consent of a third party to obtain or enforce a security interest in a contract. We cannot assure you that the collateral trustee for the Convertible Notes will be able to obtain any such consent. We also cannot assure you that the consents of any third parties will be given when required to facilitate a foreclosure on such assets. Accordingly, the collateral trustee for the Convertible Notes may not have the ability to foreclose upon those assets and the value of the collateral may significantly decrease. Further, in the event of a foreclosure, liquidation, bankruptcy or similar proceeding, the collateral may not be sold in a timely or orderly manner.

Holders of the Convertible Notes will not control decisions regarding collateral.

The lenders under our amended and restated credit agreement and multi-employer pension funds under the Contribution Deferral Agreement, as holders of first-priority lien obligations, will control substantially all matters related to the collateral subject to such first-priority liens pursuant to the terms of the intercreditor agreement. The holders of the first-priority lien obligations may cause the collateral trustee thereunder, which we refer to as the “first lien agent,” to dispose of, release, or foreclose on, or take other actions with respect to, the first-priority lien collateral (including certain amendments of and waivers under the collateral documents) with which holders of the Convertible Notes may disagree or that may be contrary to the interests of holders of the Convertible Notes, even after a default under the Convertible Notes. The collateral documents governing the second-priority liens may not be amended in any manner inconsistent with or in violation of the intercreditor agreement absent the consent of the first lien agent.

Furthermore, until the first-priority lien obligations are paid in full, the holders of the second-priority lien obligations and the collateral trustee for the Convertible Notes, which we refer to as the “second lien agent,” will not be permitted to enforce the second lien security interests in the collateral even if an event of default under the indenture has occurred and the Convertible Notes have been accelerated, except: (i) to file a proof of claim or statement of interest with respect to the Convertible Notes in any insolvency or liquidation proceeding; (ii) as necessary to take any action in order to create, prove, perfect, preserve or protect (but not enforce) its rights in, and the perfection and priority of its lien on, the collateral securing the second-priority liens (to the extent not adverse to the first-priority liens or the rights of the first lien agent to exercise remedies in respect of such liens); or (iii) if, after the passage of a period of 180 days following the date the second lien agent delivers written notice to the first lien agent of acceleration of the obligations under either of the indentures governing the Convertible Notes, neither the first lien agent nor or any holder of the first-priority lien obligations has commenced and is diligently exercising the rights of the holders of the first-priority lien obligations in the collateral.

We cannot assure you that in the event of a foreclosure by the holders of the first-priority lien obligations and, as applicable, the second priority lien obligations, the proceeds from the sale of collateral will be sufficient to satisfy all or any of the amounts outstanding under the Convertible Notes after payment in full of the obligations secured by first-priority liens and, if applicable, second-priority liens, on the collateral.

We will in most cases have control over the collateral unless and until there is an event of default, and the sale of particular assets by us could reduce the pool of assets securing the Convertible Notes and the guarantees.

The collateral documents generally allow us to remain in possession of, retain exclusive control over, freely operate, and collect, invest and dispose of any income from, the collateral securing the Convertible Notes and the guarantees unless and until there is an event of default. Subject to the limitations in the indentures governing the Convertible Notes and our amended and restated credit agreement and the Contribution Deferral Agreement, we may sell or dispose of certain of our assets, which could decrease the value of the collateral securing the Convertible Notes.

 

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Your rights in the collateral may be adversely affected by the failure to perfect security interests in collateral.

Applicable law provides that a security interest in certain tangible and intangible assets can be properly perfected and its priority retained only through certain actions undertaken by the secured party. The liens in the collateral securing the Convertible Notes may not be perfected with respect to the claims of the Convertible Notes if the actions necessary to perfect any of these liens are not taken on or prior to the date of the indentures governing the Convertible Notes. There can be no assurance that the collateral agent on behalf of the lenders under our amended and restated credit agreement or the multi-employer pensions funds under the Contribution Deferral Agreement has taken all actions necessary to create properly perfected security interests in the collateral securing the indebtedness under the amended and restated credit agreement or Contribution Deferral Agreement, which, as a result of the intercreditor agreement, may result in the loss of the priority of the security interest in favor of the noteholders to which they would have been entitled. In addition, applicable law provides that certain property and rights acquired after the grant of a general security interest can only be perfected at the time such property and rights are acquired and identified. The issuer and the guarantors have limited obligations to perfect the noteholders’ security interest in specified collateral. There can be no assurance that the collateral trustee for the Convertible Notes will monitor, or that we will inform such agent of, the future acquisition of property and rights that constitute collateral, and that the necessary action will be taken to properly perfect the security interest in such after-acquired collateral. The collateral trustee for the Convertible Notes has no obligation to monitor the acquisition of additional property or rights that constitute collateral or the perfection of any security interest. Such failure may result in the loss of the security interest in the collateral or the priority of the security interest in favor of the Convertible Notes against third parties.

Additionally, the indentures and the collateral documents entered into in connection with the issuance of the Convertible Notes do not require us to take certain actions that might improve the perfection or priority of the liens of the collateral trustee in the collateral. The actions being required include (i) the filing of UCC-1 financing statements in the jurisdictions of incorporation of the issuer and the subsidiary guarantors, (ii) the filing in the applicable federal office of U.S. intellectual property security agreements at closing (with periodic supplements thereafter) with respect to U.S. registered intellectual property included in the collateral, (iii) the granting of mortgages over owned real properties (iv) the recordation and notation of a second lien on rolling stock (including tractor trailers) certificates of title (including through a security and collateral agency agreement with the first lien agent in certain states not permitting recordation of a second lien on certificates of title), (v) the entering into of deposit account control agreements and securities account control agreements (if applicable) with the collateral trustee for the Convertible Notes as a party thereto, (vi) the holding by the first lien agents of certain physical collateral as agent for the collateral trustee for the Convertible Notes for the purposes of perfection, (vii) at any time when such items are not required to be taken in favor of the collateral agent under our amended and restated credit agreement, the delivery of stock certificates and certain other physical collateral to the collateral trustee for the Convertible Notes and (viii) other actions required pursuant to the collateral documents, including actions required on a post closing basis with respect to existing and after-acquired collateral. As a result of these limitations, the security interest of the collateral trustee for the Convertible Notes in a portion of the collateral may not be perfected or enforceable (or may be subject to other liens) under applicable U.S. law or foreign law.

Security interests over certain collateral are not in place or are not perfected.

Certain security interests were not in place or were not perfected as of September 22, 2011. In particular, certain security interests relating to our rolling stock (including tractor trailers) were not perfected as of September 22, 2011.

In the case of rolling stock (including tractor trailers), we have up to 6 months after the date of issuance of the Convertible Notes to perfect the security interest. Any issues that we are unable to resolve in connection with the perfection of such security interests may negatively impact the value of the collateral. To the extent a security

 

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interest in certain collateral is perfected following the date of issuance of the Convertible Notes, it might be avoidable in bankruptcy.

Additionally, certain mortgages, together with standard American Land Title Company commitments for the issuance of mortgage title insurance policies in the amounts of the fair market values of the properties, were delivered after the issue date of the Convertible Notes. If the issuer or any guarantor were to become subject to a bankruptcy proceeding after the issue date of the Convertible Notes, any mortgage delivered after the issue date of the Convertible Notes would face a greater risk of being invalidated than if we had delivered it at the issue date. Any mortgage delivered after the issue date, will be treated under bankruptcy law as if it were delivered to secure previously existing debt, which is materially more likely to be avoided as a preference by the bankruptcy court than if the mortgage were delivered and promptly recorded at the time of the issue date of the Convertible Notes. To the extent that the grant of any such mortgage is avoided as a preference, you would lose the benefit of the security interest in the real property that the mortgage was intended to provide.

There are circumstances, other than repayment or discharge of the Convertible Notes, under which the collateral securing the Convertible Notes and guarantees will be released, without your consent, the consent of the trustee or the consent of the collateral trustee for the Convertible Notes.

Under various circumstances, all or a portion of the collateral may be released, including:

 

•

in whole, upon satisfaction and discharge of the indentures governing the Convertible Notes, as described below under “Description of Series A Notes—Satisfaction and Discharge” and “Description of Series B Notes—Satisfaction and Discharge”;

 

•

in part, as to any property that (a) is sold, transferred or otherwise disposed of by us or any guarantor, other than to us or another guarantor, in a transaction permitted or otherwise not prohibited by the indenture at the time of such sale, transfer or other disposition or (b) is owned or at any time acquired by a guarantor that has been released from its guarantee in accordance with the indenture, concurrently with the release of such guarantee;

 

•

automatically upon release by (i) the lenders under our amended and restated credit agreement of their first-priority security interest in such collateral (other than as a result of the discharge of such first lien obligations) or (ii) the multi-employer pension funds under the Contribution Deferral Agreement of their first-priority security interest in such collateral (other than as a result of the discharge of such first lien obligations), in each case pursuant to the intercreditor agreement;

 

•

in part, in accordance with the applicable provisions of the collateral documents; and

 

•

as otherwise set forth in the intercreditor agreement and collateral trust agreement.

In addition, the guarantee of a guarantor will be released in connection with a sale or merger of such guarantor in a transaction permitted or not prohibited by the applicable indentures. The indenture governing the Series B Notes also permits the issuer to designate one or more of its restricted subsidiaries that is a guarantor of the Series B Notes as an unrestricted subsidiary. If we designate a guarantor as an unrestricted subsidiary, all of the liens on any collateral owned by such subsidiary or any of its subsidiaries and any guarantees of the Series B Notes by such subsidiary or any of its subsidiaries will be released under the indenture governing the Series B Notes. Designation of an unrestricted subsidiary will reduce the aggregate value of the collateral securing the Series B Notes to the extent that liens on the assets of the unrestricted subsidiary and its subsidiaries are released. In addition, the creditors of the unrestricted subsidiary and its subsidiaries will have a senior claim on the assets of such unrestricted subsidiary and its subsidiaries. See “Description of Series B Notes—Certain Covenants—Future Guarantors.”

 

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The collateral is subject to casualty risks.

Although we maintain insurance policies to insure against losses, there are certain losses that may be either uninsurable or not economically insurable, in whole or in part. As a result, it is possible that the insurance proceeds will not compensate us fully for our losses in the event of a catastrophic loss. We cannot assure you that any insurance proceeds received by us upon the total or partial loss of the pledged collateral will be sufficient to satisfy all of our secured obligations, including the Convertible Notes.

In the event of a total or partial loss to any of the mortgaged facilities, certain items of equipment and inventory may not be easily replaced. Accordingly, even though there may be insurance coverage, the extended period needed to manufacture replacement units or inventory could cause significant delays.

State law may limit the ability of the second lien agent to foreclose on the real property and improvements included in the collateral.

The Convertible Notes are secured by, among other things, liens on owned real property and improvements located in the states of Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New York, New Mexico, Nevada, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, West Virginia, and Wisconsin. The laws of those states may limit the ability of the second lien agent and the holders of the Convertible Notes to foreclose on the improved real property collateral located in those states. Laws of those states govern the perfection, enforceability and foreclosure of mortgage liens against real property interests which secure debt obligations such as the Convertible Notes. These laws may impose procedural requirements for foreclosure different from and necessitating a longer time period for completion than the requirements for foreclosure of security interests in personal property. Debtors may have the right to reinstate defaulted debt (even if it has been accelerated) before the foreclosure date by paying the past due amounts and a right of redemption after foreclosure. Governing laws may also impose security first and one form of action rules which can affect the ability to foreclose or the timing of foreclosure on real and personal property collateral regardless of the location of the collateral and may limit the right to recover a deficiency following a foreclosure.

The holders of the Convertible Notes, the trustee and the collateral trustee for the Convertible Notes also may be limited in their ability to enforce a breach of the “no liens” covenant in the indenture governing the Convertible Notes. Some decisions of state courts have placed limits on a lenders’ ability to accelerate debt secured by real property upon breach of covenants prohibiting the creation of certain junior liens or leasehold estates, and the holders of the Convertible Notes, the trustee and the second lien agent may need to demonstrate that enforcement is reasonably necessary to protect against impairment of their security or to protect against an increased risk of default. Although these court decisions may have been preempted, at least in part, by certain federal laws, the scope of such preemption, if any, is uncertain. Accordingly, a court could prevent the trustee, the second lien agent and the holders of the Convertible Notes from declaring a default and accelerating the Convertible Notes by reason of a breach of the “no liens” covenant, which could have a material adverse effect on the ability of holders to enforce the covenant.

Lien searches may not reveal all liens on the collateral.

We cannot guarantee that the lien searches on the collateral that secure the Convertible Notes will reveal any or all existing liens on such collateral. Any such existing lien, including undiscovered liens, could be significant, could be prior in ranking to the liens securing the Convertible Notes and could have an adverse effect on the ability of the second lien agent to realize or foreclose upon the collateral securing the Convertible Notes.

 

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Any future pledge of collateral might be avoidable in bankruptcy.

Any future pledge of collateral in favor of the collateral trustee for the Convertible Notes, including pursuant to collateral documents delivered after the respective dates of the indentures governing the Convertible Notes, might be avoidable by the pledgor (as debtor-in-possession) or by its trustee in bankruptcy if certain events or circumstances exist or occur, including, among others, if the pledgor is insolvent at the time of the pledge, the pledge permits the holders of the Convertible Notes to receive a greater recovery than if the pledge had not been given and a bankruptcy proceeding in respect of the pledgor is commenced within 90 days following the pledge or, in certain circumstances, a longer period.

In the event of our bankruptcy, the ability of the holders of the Convertible Notes to realize upon the collateral will be subject to certain bankruptcy law limitations.

The ability of holders of the Convertible Notes to realize upon the collateral will be subject to certain bankruptcy law limitations in the event of our bankruptcy. Under applicable U.S. federal bankruptcy laws, secured creditors are prohibited from, among other things, repossessing their security from a debtor in a bankruptcy case without bankruptcy court approval and may be prohibited from retaining security repossessed by such creditor without bankruptcy court approval. Moreover, applicable U.S. federal bankruptcy laws generally permit the debtor to continue to retain collateral, including cash collateral, even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given “adequate protection.”

The secured creditor is entitled to “adequate protection” to protect the value of the secured creditor’s interest in the collateral as of the commencement of the bankruptcy case but the adequate protection actually provided to a secured creditor may vary according to the circumstances. Adequate protection may include cash payments or the granting of additional security if and at such times as the court, in its discretion and at the request of such creditor, determines after notice and a hearing that the collateral has diminished in value as a result of the imposition of the automatic stay of repossession of such collateral or the debtor’s use, sale or lease of such collateral during the pendency of the bankruptcy case. In view of the lack of a precise definition of the term “adequate protection” and the broad discretionary powers of a U.S. bankruptcy court, we cannot predict:

 

•

how long payments under the Convertible Notes could be delayed following commencement of a bankruptcy case;

 

•

whether or when the collateral trustee for the Convertible Notes could repossess or dispose of the collateral;

 

•

the value of the collateral at the time of the bankruptcy petition; or

 

•

whether or to what extent holders of the Convertible Notes would be compensated for any delay in payment or loss of value of the collateral through the requirement of “adequate protection.”

In addition, the intercreditor agreement provides that, in the event of a bankruptcy, the second lien agent may not object to a number of important matters with respect to the first-priority collateral of the lenders under our amended and restated credit agreement or the multi-employer pension funds under the Contribution Deferral Agreement, as applicable, following the filing of a bankruptcy petition so long as any first-priority lien obligations are outstanding. After such a filing, the value of such collateral securing the Convertible Notes could materially deteriorate and you would be unable to raise an objection. The right of the holders of obligations secured by first-priority liens on the collateral to foreclose upon and sell the collateral upon the occurrence of an event of default also would be subject to limitations under applicable bankruptcy laws if we or any of our subsidiaries become subject to a bankruptcy proceeding.

Moreover, the second lien agent may need to evaluate the impact of the potential liabilities before determining to foreclose on collateral consisting of real property, if any, because secured creditors that hold a security interest in real property may be held liable under environmental laws for the costs of remediating or

 

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preventing the release or threatened releases of hazardous substances at such real property. Consequently, the second lien agent may decline to foreclose on such collateral or exercise remedies available in respect thereof if it does not receive indemnification to its satisfaction from the holders of the Convertible Notes.

In the event of a bankruptcy of the issuer or any of the guarantors, holders of the Convertible Notes may be deemed to have an unsecured claim to the extent that our obligations in respect of the Convertible Notes exceed the fair market value of the collateral securing the Convertible Notes.

In any bankruptcy proceeding with respect to the issuer or any of the guarantors, it is possible that the bankruptcy trustee, the debtor-in-possession or competing creditors will assert that the fair market value of the collateral with respect to the Convertible Notes on the date of the bankruptcy filing was less than the then-current principal amount of the Convertible Notes. Upon a finding by the bankruptcy court that the Convertible Notes are under collateralized, the claims in the bankruptcy proceeding with respect to the Convertible Notes would be bifurcated between a secured claim in an amount equal to the value of the collateral and an unsecured claim with respect to the remainder of its claim which would not be entitled to the benefits of security in the collateral. Other consequences of a finding of under collateralization would be, among other things, a lack of entitlement on the part of the Convertible Notes to receive post-petition interest and a lack of entitlement on the part of the unsecured portion of the Convertible Notes to receive “adequate protection” under U.S. federal bankruptcy laws. In addition, if any payments of post-petition interest had been made at any time prior to such a finding of under collateralization, those payments would be recharacterized by the bankruptcy court as a reduction of the principal amount of the secured claim with respect to the Convertible Notes.

The value of the collateral securing the Convertible Notes may not be sufficient to secure post-petition interest.

In the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding by or against us, holders of the Convertible Notes will only be entitled to post-petition interest under applicable U.S. federal bankruptcy laws to the extent that the value of their security interest in the collateral is greater than their pre-bankruptcy claim. Holders of the Convertible Notes that have a security interest in collateral with a value equal to or less than their pre-bankruptcy claim will not be entitled to post-petition interest under applicable U.S. federal bankruptcy laws. No appraisal of the fair market value of the collateral has been prepared in connection with this offering and therefore the value of the noteholders’ interest in the collateral may not equal or exceed the sum of the first-lien obligations and the principal amount of the Convertible Notes.

Fraudulent conveyance laws allow courts, under certain circumstances, to avoid or subordinate guarantees and require noteholders to return payments received from guarantors.

The Convertible Notes are guaranteed by certain of the issuer’s subsidiaries. If a guarantor becomes the subject of a bankruptcy case or a lawsuit filed by unpaid creditors, the guarantee of the Convertible Notes by such guarantor may be reviewed under U.S. federal bankruptcy laws and comparable provisions of state fraudulent transfer laws. Under these laws, a guarantee of the Convertible Notes could be avoided, or claims in respect of such guarantee could be subordinated to other obligations of the guarantor, if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee, incurred such guarantee with the intent of hindering, delaying or defrauding its creditors or:

 

•

received less than reasonably equivalent value or fair consideration for entering into such guarantee; and

 

•

either:

 

•

was insolvent by reason of entering into such guarantee;

 

•

was engaged in a business or transaction for which such guarantor’s remaining assets constituted unreasonably small capital; or

 

•

intended to incur, or believed that it would incur, debts or contingent liabilities beyond its ability to pay such debts or contingent liabilities as they become due.

 

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The measure of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if:

 

•

the sum of its debts, including contingent liabilities, was greater than the fair saleable value of its assets;

 

•

the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

 

•

it could not pay its debts or contingent liabilities as they become due.

There can be no assurance as to what standard a court would apply to determine whether or not a guarantor was solvent at the relevant time or, regardless of the standard used, that its guarantees would not be subordinated to such guarantor’s other debt.

A subsidiary’s guarantee of the Convertible Notes could be subject to the claim that, since the subsidiary incurred its guarantee for the benefit of its parent (the issuer of the Convertible Notes), and only indirectly for the benefit of the subsidiary, its obligations under its guarantee were incurred for less than reasonably equivalent value or fair consideration. If a court held that the guarantee should be avoided as a fraudulent conveyance, the court could avoid, or hold unenforceable, the guarantee, which would mean that noteholders would not receive any payments under such guarantee, and the court could direct holders of the Convertible Notes to return any amounts that they have already received from the applicable guarantor. Furthermore, the holders of the Convertible Notes would cease to have any direct claim against the guarantor. Consequently, the guarantor’s assets would be applied first to satisfy its other liabilities, before any portion of its assets might be available (directly or indirectly) to pay the Convertible Notes. Sufficient funds to repay the Convertible Notes may not be available from other sources, including the remaining guarantors, if any. Moreover, the avoidance of a guarantee could result in acceleration of the Convertible Notes (if not otherwise accelerated due to the issuer’s or the guarantor’s insolvency or bankruptcy filing).

Each guarantee contains a provision intended to limit the guarantor’s liability to the maximum amount that it could incur without causing its guarantee to be a fraudulent transfer. However, this provision may automatically reduce the guarantor’s obligations to an amount that effectively makes the guarantee worthless and, in any case, this provision may not be effective to protect a guarantee from being avoided under fraudulent transfer laws. For example, in a recent Florida bankruptcy case, a similar provision was found to be ineffective to protect similar guarantees.

Because each guarantor’s liability under its guarantee may be reduced to zero, avoided or released under certain circumstances, you may not receive any payments from some or all of the guarantors.

Holders of the Convertible Notes have the benefit of the guarantees of the guarantors. However, the guarantees by the guarantors are limited to the maximum amount that the guarantors are permitted to guarantee under applicable law. As a result, a guarantor’s liability under its guarantee could be reduced to zero, depending upon the amount of other obligations of such guarantor. Further, under the circumstances discussed more fully above, a court under federal or state fraudulent conveyance and transfer statutes could avoid the obligations under a guarantee or further subordinate it to all other obligations of the guarantor. In addition, you will lose the benefit of a particular guarantee if it is released under certain circumstances described under. See “Description of Series A Notes—Guarantees,” and “Description of Series B Notes-Guarantees.”

Any adverse rating of the Convertible Notes may cause their trading price to fall.

If Moody’s Investors Service, Standard & Poor’s or another rating service rates the Convertible Notes and if any of such rating services lowers its rating on the Convertible Notes below the rating initially assigned to the Convertible Notes, announces its intention to put the Convertible Notes on credit watch or withdraws its rating of the Convertible Notes, the trading price of the Convertible Notes could decline.

 

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Our credit ratings may not reflect all risks of an investment in the Convertible Notes.

Our credit ratings may not reflect the potential impact of all risks related to the market values of the Convertible Notes. However, real or anticipated changes in our credit ratings will generally affect the market values of the Convertible Notes.

We may not be able to repurchase the Series B Notes when required.

Upon the occurrence of a change of control, holders of the Series B Notes may require us to repurchase their Series B Notes for cash. We may not have sufficient funds at the time of any such events to make the required repurchases or our ability to make such repurchases may be restricted by the terms of our other then outstanding debt. The source of funds for any repurchase required as a result of any such events will be our available cash or cash generated from operating activities or other sources, including borrowings, sales of assets, sales of equity or funds provided by a new controlling entity. We cannot assure you, however, that sufficient funds will be available or that the terms of our other then outstanding debt will permit us at the time of any such events to make any required repurchases of the Series B Notes tendered. Furthermore, the use of available cash to fund the repurchase of the Series B Notes may impair our ability to obtain additional financing in the future.

Conversion of the Convertible Notes may dilute the ownership interest of existing shareholders, including holders who have previously converted their Convertible Notes, depress the price of our common stock, and in some cases, cause holders to become affiliates of the Company.

The conversion of some or all of the Convertible Notes may dilute the ownership interests of existing shareholders. Any sales in the public market of any common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the anticipated conversion of the Convertible Notes into shares of our common stock could depress the price of our common stock. Furthermore, holders of a sufficient aggregate principal amount of our Convertible Notes may become affiliates of the Company upon issuance of our common stock to those holders on account of such a mandatory conversion. An affiliate of the Company is subject to the reporting requirements of Section 16 of the Exchange Act and may be subject to the purchase and sale provisions thereof with respect to their common stock. Further, the holder’s common stock could only be sold pursuant to Rule 144 of the Securities Act or pursuant to an effective registration statement covering its shares of common stock.

The issuance of preferred stock to the holders of credit agreement claims and to the IBT 401(k) plan in connection with the restructuring may have constituted a change in control under certain agreements to which we are a party.

Immediately following the consummation of the exchange offer, holders of credit agreement claims held approximately 72.5% of our capital stock and the IBT 401(k) plan held approximately 25% of our capital stock. Also, over a majority of the members of our board of directors were replaced. Therefore, the consummation of the exchange offer may have constituted a change in control under certain agreements to which we are a party, including contracts with customers. A change in control may give the counterparties the right to terminate the contracts, accelerate the amounts due under the contracts or demand payment, or materially change the terms of the contracts. In such a case, our business or liquidity may be adversely affected.

Other Risks Relating to Our Business

In addition to the risks and uncertainties contained elsewhere in this prospectus or in our other SEC filings, the following risk factors should be carefully considered in evaluating us. These risks could have a material adverse effect on our business, financial condition and results of operations.

 

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We are a holding company, and we are dependent on the ability of our subsidiaries to distribute funds to us.

We are a holding company and our subsidiaries conduct substantially all of our consolidated operations and own substantially all of our consolidated assets. Consequently, our cash flow and our ability to make payments on our indebtedness, including the new term loans, substantially depends upon our subsidiaries’ cash flow and payments of funds to us by our subsidiaries. Our subsidiaries’ ability to make any advances, distributions or other payments to us may be restricted by, among other things, debt instruments, tax considerations and legal restrictions. If we are unable to obtain funds from our subsidiaries as a result of these restrictions, we may not be able to pay principal of, or interest on, the new term loans when due, and we cannot assure you that we will be able to obtain the necessary funds from other sources.

Our significant declines in operations, cash flows, and liquidity and need to generate adequate positive cash flow from operations or obtain adequate funding to fund our business raise substantial doubt as to our ability to continue as a going concern.

Our consolidated financial statements have been prepared assuming that we will continue as a going concern, which implies that we will continue to meet our obligations and continue our operations for at least the next 12 months. However, our significant declines in operations, cash flows, and liquidity raise substantial doubt about our ability to continue as a going concern. Realization values may be substantially different from carrying values as shown, and our consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded asset amounts or the amount and classification of liabilities that might be necessary as a result of this uncertainty.

We are subject to general economic factors that are largely out of our control, any of which could have a material adverse effect on our business, financial condition and results of operations.

Our business is subject to a number of general economic factors that may adversely affect our business, financial condition and results of operations, many of which are largely out of our control. These factors include recessionary economic cycles and downturns in customers’ business cycles and changes in their business practices, particularly in market segments and industries, such as retail and manufacturing, where we have a significant concentration of customers. Economic conditions may adversely affect our customers’ business levels, the amount of transportation services they need and their ability to pay for our services. Due to our high fixed-cost structure, in the short-term it is difficult for us to adjust expenses proportionally with fluctuations in volume levels. Customers encountering adverse economic conditions represent a greater potential for loss, and we may be required to increase our reserve for bad-debt losses.

We are subject to business risks and increasing costs associated with the transportation industry that are largely out of our control, any of which could have a material adverse effect on our business, financial condition and results of operations.

We are subject to business risks and increasing costs associated with the transportation industry that are largely out of our control, any of which could adversely affect our business, financial condition and results of operations. The factors contributing to these risks and costs include weather, excess capacity in the transportation industry, interest rates, fuel prices and taxes, fuel surcharge collection, impact on liquidity from the lag between higher payments for fuel and the collection of higher fuel surcharges in a rising fuel cost environment, terrorist attacks, license and registration fees, insurance premiums and self-insurance levels, difficulty in recruiting and retaining qualified drivers, the risk of outbreak of epidemical illnesses, the risk of widespread disruption of our technology systems, and increasing equipment and operational costs. Our results of operations may also be affected by seasonal factors.

 

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We operate in a highly competitive industry, and our business will suffer if we are unable to adequately address potential downward pricing pressures and other factors that could have a material adverse effect on our business, financial condition and results of operations.

Numerous competitive factors could adversely affect our business, financial condition and results of operations. These factors include the following:

 

•

We compete with many other transportation service providers of varying sizes, some of which have a lower cost structure, more equipment and greater capital resources than we do or have other competitive advantages.

 

•

Some of our competitors periodically reduce their prices to gain business, especially during times of reduced growth rates in the economy, which limits our ability to maintain or increase prices or maintain or grow our business.

 

•

Our customers may negotiate rates or contracts that minimize or eliminate our ability to offset fuel price increases through a fuel surcharge on our customers.

 

•

Many customers reduce the number of carriers they use by selecting so-called “core carriers” as approved transportation service providers, and in some instances, we may not be selected.

 

•

Many customers periodically accept bids from multiple carriers for their shipping needs, and this process may depress prices or result in the loss of some business to competitors.

 

•

The trend towards consolidation in the ground transportation industry may create other large carriers with greater financial resources and other competitive advantages relating to their size.

 

•

Advances in technology require increased investments to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments.

 

•

Competition from non-asset-based logistics and freight brokerage companies may adversely affect our customer relationships and prices.

If our relationship with our employees were to deteriorate, we may be faced with labor disruptions or stoppages, which could have a material adverse effect on our business, financial condition and results of operations and place us at a disadvantage relative to non-union competitors.

Virtually all of our operating subsidiaries have employees who are represented by the IBT. These employees represent approximately 77% of our workforce at June 30, 2011.

Each of our YRC, New Penn, and Holland subsidiaries employ most of their unionized employees under the terms of a common national master freight agreement with the IBT, as supplemented by additional regional supplements and local agreements, which will expire on March 31, 2015. The IBT also represents a number of employees at Reddaway, and Reimer under more localized agreements, which have wages, benefit contributions and other terms and conditions that better fit the cost structure and operating models of these business units.

Certain of our subsidiaries are regularly subject to grievances, arbitration proceedings and other claims concerning alleged past and current non-compliance with applicable labor law and collective bargaining agreements.

Neither we nor any of our subsidiaries can predict the outcome of any of the matters discussed above. These matters, if resolved in a manner unfavorable to us, could have a material adverse effect on our business, financial condition and results of operations.

 

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Our pension expense and funding obligations could increase significantly and have a material adverse effect on our business, financial condition and results of operations.

Our future funding obligations for our U.S. single-employer defined benefit pension plans qualified with the Internal Revenue Service depend upon their funded status, the future performance of assets set aside in trusts for these plans, the level of interest rates used to determine funding levels and actuarial experience and any changes in government laws and regulations.

Pursuant to the terms of the IBT Agreement, the Company’s subsidiaries began making contributions to most of the multi-employer pension funds (“the Funds”) for the month beginning June 1, 2011 at the rate of 25% of the contribution rate in effect on July 1, 2009. However, legislative changes to current law or other satisfactory action or arrangements are required to enable certain of the Funds (based on their funded status) to accept contributions at a reduced rate. Absent such legislative changes or other satisfactory action, the IBT Agreement provides that a Fund that cannot allow the Company’s subsidiaries to begin to make contributions at a reduced rate to the Fund by June 1, 2011 may elect to either (i) apply the amount of the contributions toward paying down previously deferred contributions under our Contribution Deferral Agreement, (ii) have the amount of the contributions placed in escrow until such time when the Fund is able to accept re-entry at the reduced rate, or (iii) if options (i) or (ii) are not available under applicable law or fund documentation, agree on other terms acceptable to the Company’s subsidiaries and the applicable Fund.

If the funding of the Funds does not reach certain goals (including those required not to enter endangered or critical status or those required by a Fund’s funding improvement or rehabilitation plan), our pension expenses and required cash contributions could further increase upon the expiration of our collective bargaining agreements and, as a result, could materially adversely affect our business, financial condition and results of operations. Decreases in investment returns that are not offset by contributions could also increase our obligations under such plans.

The Pension Protection Act provides that certain plans with a funded percentage of less than 65%, or that fail other tests, will be deemed to be in critical status. Plans in critical status must create a rehabilitation plan to exit critical status within periods that the Pension Protection Act prescribes. We believe that based on information obtained from public filings and from plan administrators and trustees, many of the multi-employer pension funds, including The Central States Southeast and Southwest Areas Pension Plan, which is our largest multi-employer fund, are in critical status.

We believe that based on information obtained from public filings and from plan administrators and trustees, our portion of the contingent liability in the case of a full withdrawal or termination from all of the multi-employer pension plans would be an estimated $8 billion on a pre-tax basis before taking into consideration the recent market volatility. If the Company were subject to withdrawal liability with respect to a plan, ERISA provides that a withdrawing employer can pay the obligation in a lump sum or over time based upon an annual payment that is the product of the highest contribution rate to the relevant plan multiplied by the average of the three highest consecutive years measured in contribution base units, which, in some cases, could be up to 20 years. Even so, our applicable subsidiaries have no current intention of taking any action that would subject us to payment of material withdrawal obligations, however we cannot provide any assurance that such obligations will not arise in the future which would have a material adverse effect on our business, financial condition and results of operations.

Ongoing self-insurance and claims expenses could have a material adverse effect on our business, financial condition and results of operations.

Our future insurance and claims expenses might exceed historical levels. We currently self-insure for a majority of our claims exposure resulting from cargo loss, personal injury, property damage and workers’ compensation. If the number or severity of claims for which we are self-insured increases, our business, financial

 

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condition and results of operations could be adversely affected, and we may have to post additional letters of credit to state workers’ compensation authorities or insurers to support our insurance policies. If we lose our ability to self insure, our insurance costs could materially increase, and we may find it difficult to obtain adequate levels of insurance coverage.

We have significant ongoing capital requirements that could have a material adverse effect on our business, financial condition and results of operations if we are unable to generate sufficient cash from operations.

Our business is capital intensive. If we are unable to generate sufficient cash from operations to fund our capital requirements, we may have to limit our growth, utilize our existing capital, or enter into additional financing arrangements, including leasing arrangements, or operate our revenue equipment (including tractors and trailers) for longer periods resulting in increased maintenance costs, any of which could reduce our income. If our cash from operations and existing financing arrangements are not sufficient to fund our capital requirements, we may not be able to obtain additional financing at all or on terms acceptable to us. In addition, our credit facilities contain provisions that limit our level of capital expenditures.

We operate in an industry subject to extensive government regulations, and costs of compliance with, or liability for violation of, existing or future regulations could significantly increase our costs of doing business.

The U.S. Departments of Transportation and Homeland Security and various federal, state, local and foreign agencies exercise broad powers over our business, generally governing such activities as authorization to engage in motor carrier operations, safety and permits to conduct transportation business. We may also become subject to new or more restrictive regulations that the Departments of Transportation and Homeland Security, the Occupational Safety and Health Administration, the Environmental Protection Agency or other authorities impose, including regulations relating to engine exhaust emissions, the hours of service that our drivers may provide in any one time period, security and other matters. Compliance with these regulations could substantially impair equipment productivity and increase our costs.

We are subject to various environmental laws and regulations, and costs of compliance with, or liabilities for violations of, existing or future laws and regulations could significantly increase our costs of doing business.

Our operations are subject to environmental laws and regulations dealing with, among other things, the handling of hazardous materials, underground fuel storage tanks and discharge and retention of storm water. We operate in industrial areas, where truck terminals and other industrial activities are located, and where groundwater or other forms of environmental contamination may have occurred. Our operations involve the risks of fuel spillage or seepage, environmental damage and hazardous waste disposal, among others. If we are involved in a spill or other accident involving hazardous substances, or if we are found to be in violation of applicable environmental laws or regulations, it could significantly increase our cost of doing business. Under specific environmental laws and regulations, we could be held responsible for all of the costs relating to any contamination at our past or present terminals and at third-party waste disposal sites. If we fail to comply with applicable environmental laws and regulations, we could be subject to substantial fines or penalties and to civil and criminal liability.

In addition, as climate change initiatives become more prevalent, federal, state and local governments and our customers are beginning to promulgate solutions for these issues. This increased focus on greenhouse gas emission reductions and corporate environmental sustainability may result in new regulations and customer requirements that could negatively affect us. This could cause us to incur additional direct costs or to make changes to our operations in order to comply with any new regulations and customer requirements, as well as increased indirect costs or loss of revenue resulting from, among other things, our customers incurring additional compliance costs that affect our costs and revenues. We could also lose revenue if our customers divert business from us because we haven’t complied with their sustainability requirements. These costs, changes and loss of revenue could have a material adverse affect on our business, financial condition and results of operations.

 

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The ability of our board of directors and new management team to lead our company will be critical to our ability to succeed, and our business, financial condition and results of operations could be materially adversely affected if they are unsuccessful.

On July 22, 2011, pursuant to the terms of the restructuring, our then existing board of directors resigned and was replaced by a new board of directors and our current chief executive officer began employment. In addition, our current chief financial officer took office on August 9, 2011. It is important to our success that our new board of directors quickly understand our industry and that our board of directors and management team understand the challenges and opportunities facing our company. If they are unable to do so, and as a result are unable to provide effective guidance and leadership, our business, financial condition and results of operations could be materially adversely affected.

Our business may be harmed by anti-terrorism measures.

In the aftermath of the terrorist attacks on the United States, federal, state and municipal authorities have implemented and are implementing various security measures, including checkpoints and travel restrictions on large trucks. Although many companies will be adversely affected by any slowdown in the availability of freight transportation, the negative impact could affect our business disproportionately. For example, we offer specialized services that guarantee on-time delivery. If the security measures disrupt or impede the timing of our deliveries, we may fail to meet the needs of our customers, or may incur increased expenses to do so. We cannot assure you that these measures will not significantly increase our costs and reduce our operating margins and income.

The outcome of legal proceedings and IRS audits to which the Company and its subsidiaries are a party could have a material adverse effect on our businesses, financial condition and results of operations.

The Company and its subsidiaries are a party to various legal proceedings, including claims related to personal injury, property damage, cargo loss, workers’ compensation, employment discrimination, breach of contract, multi-employer pension plan withdrawal liability, class actions and antitrust violations. See the “Commitments, Contingencies and Uncertainties” footnote to our consolidated financial statements incorporated by reference herein. The IRS may issue adverse tax determinations in connection with its audit of our 2010 and prior years tax returns or the returns of a consolidated group that we acquired in 2005. See the “Income Taxes” footnote to our 2010 consolidated financial statements incorporated by reference herein. We may incur significant expenses defending these legal proceedings and IRS audits. In addition, we may be required to pay significant awards, settlements or taxes, or lose the benefits under existing agreements, in connection with these proceedings and audits, which could have a material adverse effect on our businesses, financial condition and results of operations.

We may not obtain further benefits and cost savings from operational changes and performance improvement initiatives.

In response to our business environment, we initiated operational changes and process improvements to reduce costs and improve financial performance. The changes and initiatives included integrating our Yellow Transportation and Roadway networks, reorganizing our management, reducing overhead costs, closing redundant facilities and eliminating unnecessary activities. There is no assurance that these changes and improvements will be successful or that we will not have to initiate additional changes and improvements in order to achieve the projected benefits and cost savings.

 

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Our actual operating results may differ significantly from our projections.

From time to time, we release projections and similar guidance regarding our future performance that represent our management’s estimates as of the date of release. These projections, which are forward-looking statements, are prepared by our management and are qualified by, and subject to, the assumptions and the other information contained or referred to in the release. Our projections are not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither our registered public accountants nor any other independent expert or outside party compiles or examines the projections and, accordingly, no such person expresses any opinion or any other form of assurance with respect thereto.

Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change.

Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions and estimates relating to the projections furnished by us will not materialize or will vary significantly from actual results. Accordingly, our projections are only an estimate of what management believes is realizable as of the date of release. Actual results will vary from the projections and the variations may be material. Investors should also recognize that the reliability of any forecasted financial data diminishes the farther in the future that the data is projected. In light of the foregoing, investors are urged not to rely upon, or otherwise consider, our projections in making an investment decision in respect of the securities offered hereby.

Any failure to successfully implement our operating strategy, the failure of some or all of the assumptions and estimates relating to the projections furnished by us or the occurrence of any of the adverse events or circumstances set forth in this prospectus and the documents incorporated by reference herein could result in the actual operating results being different from the projections, and such differences may be adverse and material.

 

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RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERENCE DIVIDENDS

We have computed the ratio of earnings to fixed charges for each of the following periods on a consolidated basis. You should read the following ratios in conjunction with our consolidated financial statements and the notes to those financial statements that are incorporated by reference in this prospectus. While there are preference securities outstanding as of the date of this prospectus, such preference securities do not accrue or otherwise pay any dividends. Additionally, while there were preference securities outstanding during a portion of the fiscal year ended 2010, such preference securities did not accrue or otherwise pay any dividends. Therefore, the ratios of earnings to combined fixed charges and preference dividends are identical to the ratios of earnings to fixed charges.

 

		Pro Forma								Historical
		Six Months Ended June 30, 2011 (3)				Fiscal Year Ended December 31, 2010 (3)				Six Months Ended June 30, 2011 (2)				Fiscal Year Ended December 31,
														2010 (2)				2009 (2)				2008 (2)				2007 (2)				2006
Ratio of Earnings to Fixed Charges (1)			(1.0x	)			(1.6x	)			(0.9x	)			(1.3x	)			(4.0x	)			(9.7x	)			(5.4x	)			5.2x

 

(1)

The ratio of earnings to fixed charges is computed by dividing the sum of earnings before provision for taxes on income, income or loss from equity investees and fixed charges by fixed charges. Fixed charges represent interest expense, amortization of debt premium, discount, and capitalized expenses, and an appropriate interest factor for operating leases.

(2)

The deficiency in earnings necessary to achieve a 1.0x ratio was $669.7 million for the year ended December 31, 2007, $1,004.0 million for the year ended December 31, 2008, $863.1 million for the year ended December 31, 2009, $391.0 million for the year ended December 31, 2010 and $153.2 million for the six months ended June 30, 2011.

(3)	The deficiency in pro forma earnings to achieve a 1.0x pro forma ratio was $373.8 million for the year ended December 31, 2010, and $148.0 million for the six months ended June 30, 2011.

 

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USE OF PROCEEDS

The proceeds from the sale of the Series A Notes, the Series B Notes and the common stock offered pursuant to this prospectus are solely for the account of the selling securityholders. Accordingly, we will not receive any proceeds from the sale of the Series A Notes, the Series B Notes or the shares of common stock offered by this prospectus.

 

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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Our common stock is currently listed on the NASDAQ Global Select Market under the symbol “YRCW.” The following table contains, for the periods indicated, the high and low sale prices per share of our common stock. The presentation below has been retroactively adjusted for a 1-for-25 reverse stock split of our common stock, which became effective on NASDAQ on October 1, 2010.

 

		High				Low
2009
First Quarter		$	136.25			$	37.00
Second Quarter		$	148.50			$	38.00
Third Quarter		$	154.50			$	22.25
Fourth Quarter		$	120.75			$	20.00
2010
First Quarter		$	29.50			$	8.75
Second Quarter		$	20.00			$	3.75
Third Quarter		$	11.00			$	2.50
Fourth Quarter		$	6.54			$	3.10
2011
First Quarter		$	5.28			$	1.19
Second Quarter		$	2.21			$	0.55
Third Quarter		$	1.41			$	0.04
Fourth Quarter (through November 2, 2011)		$	0.08			$	0.03

There were 3,157 holders of record of our common stock as of September 19, 2011.

As of November 2, 2011, the last reported sale price of our common stock on the NASDAQ Global Select Market was $0.05. We did not declare any cash dividends on our common stock in each of 2006 through 2010 and through 2011 (year-to-date).

Our common stock is currently listed on the NASDAQ Global Select Market under the symbol “YRCW”; however, our common stock is currently subject to delisting from the NASDAQ Global Select Market. See “Risk Factors—Risks Relating to the Securities—Our common stock currently listed on the NASDAQ is subject to delisting if we do not implement a reverse stock split and demonstrate compliance with bid price rules on or before December 31, 2011.” There is no market for the Series A Notes or the Series B Notes on NASDAQ or any national or regional securities exchange.

We do not intend to list the Series A Notes or the Series B Notes on any national securities exchange or automated quotation system.

Our payment of dividends in the future will be determined by our board of directors and will depend on business conditions, our financial condition, our earnings, restrictions and limitations imposed under our various debt instruments or credit agreements, and other factors.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2011 on a historical basis and on an as adjusted basis to give effect to the consummation of the restructuring. The financial information included below has been derived by applying certain pro forma adjustments described under “Unaudited Pro Forma Condensed Consolidated Financial Information for the Restructuring” to our historical unaudited consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011 filed with the SEC on August 8, 2011, which has been incorporated by reference into this prospectus. See “Where You Can Find More Information.” No adjustments have been made to reflect normal course operation by us or other developments with our business after June 30, 2011, and thus the pro forma information provided below is not indicative of our actual cash position or capitalization at any date.

 

		As of June 30, 2011 (in thousands except per share data) (unaudited)
		Historical												As Adjusted
		Par Value				Premium/ (Discount)				Book Value				Par Value				Premium/ (Discount)				Book Value
Cash and cash equivalents		$	155,926			$	—			$	155,926			$	150,423			$	—			$	150,423
Debt (1)
Credit agreement:
Revolving credit facility		$	173,603			$	—			$	173,603			$	—			$	—			$	—
Term loan			251,645				486				252,131				—				—				—
ABS facility			164,237				—				164,237				—				—				—
Lease financing obligations			331,170				—				331,170				331,170				—				331,170
Pension contribution deferral agreement			146,595								146,595				151,088				(674	)			150,414
6% Notes			69,410				(11,879	)			57,531				69,410				(11,879	)			57,531
Contingent convertible notes			1,870				—				1,870				1,870				—				1,870
Other			1,138				—				1,138				1,138				—				1,138
Amended credit facility
New term loan			—				—				—				294,146				111,596				405,742
ABL facility			—				—				—				255,000				(22,750	)			232,250
Convertible notes
Series A Notes			—				—				—				140,000				(36,729	)			103,271
Series B Notes			—				—				—				100,000				(41,708	)			58,292
Total debt		$	1,139,668			$	(11,393	)		$	1,128,275			$	1,343,822			$	(2,144	)		$	1,341,678
Common stock, $0.01 par value per share			479				—				479				19,111								19,111
Preferred stock, $1 par value per share			—				—				—				1								1
Capital surplus			1,644,694				—				1,644,694				1,736,624								1,736,624
Accumulated deficit			(1,643,429	)			—				(1,643,429	)			(1,652,465	)							(1,652,465	)
Accumulated other comprehensive loss			(234,710	)			—				(234,710	)			(234,710	)							(234,710	)
Treasury stock, at cost (123 shares)			(92,737	)			—				(92,737	)			(92,737	)							(92,737	)
Total YRC Worldwide shareholders’ deficit			(325,703	)			—				(325,703	)			(224,176	)			—				(224,176	)
Non-controlling interest			(3,090	)			—				(3,090	)			(3,090	)							(3,090	)
Total shareholder’s deficit			(328,793	)			—				(328,793	)			(227,266	)			—				(227,266	)
Total capitalization		$	810,875			$	(11,393	)		$	799,482			$	1,116,556			$	(2,144	)		$	1,114,412

 

(1)

Our outstanding indebtedness as of June 30, 2011 does not include: (i) outstanding letters of credit of $512,464 of which $447,784 were issued under the revolving credit facility and $64,680 were issued under the ABS facility or (ii) deferred interest and fees of $196,332, of which $166,066 relates to the credit agreement, $25,773 relates to the ABS facility and $4,493 relates to the pension contribution deferral agreement.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION FOR THE RESTRUCTURING

The following sets forth unaudited pro forma condensed consolidated financial information for the restructuring as of and for the six months ended June 30, 2011 and for the year ended December 31, 2010. The data set forth has been derived by applying the pro forma adjustments to our historical consolidated financial statements as of and for the six months ended June 30, 2011 and for the year ended December 31, 2010, which are incorporated into this prospectus by reference from our from our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011 filed with the SEC on August 8, 2011 and our Current Report on Form 8-K filed with the SEC on May 17, 2011, respectively.

Pursuant to the requirements under Article 11 of Regulation S-X, the unaudited pro forma condensed consolidated statements of operations for the restructuring gives effect to adjustments for transactions expected to have a continuing impact on us, that (1) are directly attributable to the restructuring and are factually supportable, and (2) represent material events that have occurred and had, or will have, a material effect on our financial statements and capital structure. The unaudited pro forma condensed consolidated balance sheet gives effect to adjustments for transactions regardless of whether they have a continuing impact on us or are non-recurring, that are (1) directly attributable to the restructuring and are factually supportable, and (2) represent material events which have occurred after June 30, 2011 and had, or will have, a material effect on our financial statements and capital structure.

The unaudited pro forma condensed consolidated financial information for the restructuring assumes that each of the adjustments below that are directly attributable to the restructuring and factually supportable had occurred as of June 30, 2011 for the unaudited pro forma condensed consolidated balance sheet, and as of the beginning of the respective periods for the unaudited pro forma condensed consolidated statements of operations:

 

•

consummation of the transactions contemplated by the exchange offer, including the payment of related fees and expenses;

 

•

amendment and restatement of our existing credit agreement;

 

•

entry, through a special purpose, bankruptcy remote subsidiary of ours, into the ABL facility;

 

•

amendment and restatement of our contribution deferral agreement and pension notes;

 

•

issuance of shares of our Series B Convertible Preferred Stock to the IBT 401(k) plan; and

 

•

conversion of the Series B Convertible Preferred Stock into common stock.

The restructuring resulted in very significant dilution to our common shareholders, and resulted in pro forma ownership levels of approximately 2.5%, 72.5% and 25% for existing shareholders, credit agreement claimholders and IBT employees, respectively, immediately after giving effect to the restructuring.

The unaudited pro forma condensed consolidated financial information for the restructuring is based on assumptions that we believe are reasonable and should be read in conjunction with “Capitalization” included elsewhere in this prospectus, and to our historical consolidated financial statements as of and for the six months ended June 30, 2011 and for the year ended December 31, 2010, which are incorporated into this prospectus by reference from our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011 filed with the SEC on August 8, 2011 and our Current Report on Form 8-K filed with the SEC on May 17, 2011, respectively.

The unaudited pro forma condensed consolidated financial information for the restructuring is presented for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have actually been reported had the restructuring been consummated as of June 30, 2011 or as of the beginning of the period, respectively, nor is it necessarily indicative of our future financial position or results of operations. The actual effects of the restructuring and other pro forma events on our financial position or results of operations may be different than what we have assumed or estimated, and these differences may be material.

 

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YRC WORLDWIDE INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

As of June 30, 2011

(in thousands)

 

		Historical				Credit Agreement Claims (1)				CDA (2)				Union Grant (3)				Series B Notes (4)				ABL/ABS Facility (5)				Pro Forma
Assets
Current Assets:
Cash and cash equivalents		$	155,926			$	(15,428	)D		$	(3,852	)F			—			$	100,000	I		$	232,250	K		$	150,423
							7,833	A											(2,140)	J			(164,237	)K
																							(64,680	)K,M
																							(90,000 (5,249	)O  )N
Restricted cash (Standby LOC)			—				—				—				—				—				64,680	M			64,680
Accounts receivable, net			540,515				—				—				—				—				—				540,515
Prepaid expenses and other			190,053				—				—				—				—				—				190,053
Total current assets			886,494				(7,595	)			(3,852)								97,860				(27,236)				945,671
Net property and equipment			1,454,607				—				—				—				—				—				1,454,607
Intangibles, net			130,348																								130,348
Other assets			117,973				(35,066	)A			(674	)E			—				2,140	J			5,249	K,N			87,394
																							(2,228	)L
Restricted cash (ABL escrow)			—				—				—				—				—				90,000	O			90,000
Total assets		$	2,589,422			$	(42,661	)		$	(4,526	)			—			$	100,000			$	65,785			$	2,708,020
Liabilities and Shareholders’ Deficit
Current Liabilities:
Accounts payable		$	157,136				—				—				—				—			$	(15,000	)L		$	142,136
Wages, vacations and employees’ benefits			222,618				—				—				—				—								222,618
Other current and accrued liabilities			318,306				—				—				—				—				(10,773	)L			307,533
Current maturities of long–term debt			8,008				—				—				—				—				—				8,008
Total current liabilities			706,068				—				—				—				—				(25,773)				680,295
Other Liabilities:
Long–term debt, less current portion			1,290,826				405,742	C			55,844	E			—				58,292	I			232,250	K			1,333,670
							103,271	C			(54,674	)E											(164,237	)K
							(252,131	)A			(1,844	)E
							(173,603	)A
							(166,066	)A
Deferred income taxes, net			104,391				—				—				—				—				—				104,391
Pension and postretirement			450,087				—				—				—				—				—				450,087
Claims and other liabilities			366,843				—				—				—				—				—				366,843

 

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		Historical				Credit Agreement Claims (1)				CDA (2)				Union Grant (3)				Series B Notes (4)				ABL/ABS Facility (5)				Pro Forma
Commitments and contingencies
Shareholders’ Deficit:
Common stock, $0.01 par value per share			479				13,855	B			—				4,777	G			—				—				19,111
Preferred stock, $1 par value per share			—				—				—				1	H			—				—				1
Capital surplus			1,644,694				(1,584)	D			—				10,107	G			41,708	I			—				1,736,624
							29,309	B
							12,390	A
Accumulated deficit			(1,643,429	)			(13,844)	D			(3,852)	F			(14,884)	G			—				23,545	L			(1,652,465	)
															(1)	H
Accumulated other comprehensive loss			(234,710	)			—				—				—				—				—				(234,710	)
Treasury stock, at cost (123 shares)			(92,737	)			—				—				—				—				—				(92,737	)
Total YRC Worldwide Inc. shareholders’ deficit			(325,703	)			40,126				(3,852	)			—				41,708				23,545				(224,176	)
Non-controlling interest			(3,090	)			—				—				—				—				—				(3,090	)
Total shareholders’ deficit			(328,793	)			40,126				(3,852	)			—				41,708				23,545				(227,266	)
Total liabilities and shareholders’ deficit		$	2,589,422			$	(42,661	)		$	(4,526	)		$	—			$	100,000			$	65,785			$	2,708,020

See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information for the Restructuring.

 

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YRC WORLDWIDE INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2011

(in thousands except per share data)

 

		Historical				Credit Agreement (1)				CDA (2)				Union Grant (3)				Series B Notes (4)				ABL/ABS Facility (5)				Pro Forma
Operating Revenue		$	2,380,098				—				—				—				—				—			$	2,380,098
Operating Expenses:
Salaries, wages and employees’ benefits			1,385,445				(16,264	)AA			—				—				—				—				1,387,947
							18,766	BB
Equity based compensation benefit			(648	)			—				—				—				—				—				(648	)
Operating expenses and supplies			584,530				—				—				—				—				—				584,530
Purchased transportation			260,440				—				—				—				—				—				260,440
Depreciation and amortization			96,853				—				—				—				—				—				96,853
Other operating expenses			136,855				—				—				—				—				—				136,855
Gains on property disposals, net			(10,236	)			—				—				—				—				—				(10,236	)
Total operating expenses			2,453,239				2,502				—				—				—				—				2,455,741
Operating Loss			(73,141	)			(2,502	)			—				—				—				—				(75,643	)
Nonoperating (Income) Expenses:
Interest expense			78,872				(36,222	)AA			(4,738	)CC			—				7,526	EE			(12,478	)FF			71,142
							9,658	BB			5,732	DD											22,792	GG
Other, net			(34	)			—				—				—				—				—				(34	)
Nonoperating expenses, net			78,838				(26,564	)			994				—				7,526				10,314				71,108
Income (Loss) Before Income Taxes			(151,979	)			24,062				(994	)			—				(7,526	)			(10,314	)			(146,751	)
Income tax benefit			(7,127	)			—				—				—				—				—				(7,127	)
Net Loss from Continuing Operations			(144,852	)			24,062				(994	)			—				(7,526	)			(10,314	)			(139,624	)
Less: Net Loss Attributable to Non-Controlling Interest			(937	)			—				—				—				—				—				(937	)
Net Loss Attributable to YRC Worldwide Inc.		$	(143,915	)		$	24,062			$	(994	)			—			$	(7,526	)		$	(10,314	)		$	(138,687	)
Weighted Average Common Shares Outstanding—Basic and Diluted
			47,697				—				—				—				—				—				1,910,808
Basic and Diluted Loss Per Share from Continuing Operations attributable to YRC Worldwide Inc.		$	(3.02	)			—				—				—				—				—			$	(0.07	)

See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information for the Restructuring.

 

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YRC WORLDWIDE INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2010

(in thousands except per share data)

 

						(1)				(2)				(3)				(4)				(5)
		Historical				Credit Agreement				CDA				Union  Grant				Series B Notes				ABL/ ABS Facility				Pro Forma
Operating Revenue		$	4,334,640				—				—				—				—				—			$	4,334,640
Operating Expenses:
Salaries, wages and employees’ benefits			2,671,468				(33,276)	AA			—				—				—				—				2,676,587
							38,395	BB
Equity based compensation expense			31,205				—				—				—				—				—				31,205
Operating expenses and supplies			949,224				—				—				—				—				—				949,224
Purchased transportation			455,800				—				—				—				—				—				455,800
Depreciation and amortization			198,508				—				—				—				—				—				198,508
Other operating expenses			248,142				—				—				—				—				—				248,142
Losses on property disposals, net			5,572				—				—				—				—				—				5,572
Impairment charges			5,281				—				—				—				—				—				5,281
Total operating expenses			4,565,200				5,119				—				—				—				—				4,570,319
Operating loss			(230,560	)			(5,119	)			—				—				—				—				(235,679	)
Nonoperating (Income) Expenses:
Interest expense			159,192				(73,811)	AA			(9,582)	CC			—				16,061	EE			(32,427)	FF			136,887
							20,219	BB			11,469	DD											45,766	GG
Equity investment impairment			12,338				—				—				—				—				—				12,338
Other, net			1,510				—				—				—				—				—				1,510
Nonoperating expenses, net			173,040				(53,592	)			1,887				—				16,061				13,339				150,735
Income (Loss) Before Income Taxes			(403,600	)			48,473				(1,887	)			—				(16,061	)			(13,339	)			(386,414	)
Income tax benefit			(102,487	)			—				—				—				—				—				(102,487	)
Net Income (Loss) from continuing operations			(301,113	)			48,473				(1,887	)			—				(16,061	)			(13,339	)			(283,927	)
Less: Net Loss Attributable to Non-Controlling Interest			(1,963	)			—				—				—				—				—				(1,963	)
Net Loss Attributable to YRC Worldwide Inc.		$	(299,150	)		$	48,473			$	(1,887	)		$	—			$	(16,061	)		$	(13,339	)		$	(281,964	)
Weighted Average Common Shares Outstanding—Basic and Diluted			39,601				—				—				—				—				—				1,902,712
Basic and Diluted Earnings (Loss) Per Share from continuing operations Attributable to YRC Worldwide Inc.		$	(7.55	)			—				—				—				—				—			$	(0.15	)

See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information for the Restructuring.

 

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YRC WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION FOR THE RESTRUCTURING

Notes

Consolidated Balance Sheet as of June 30, 2011 and Consolidated Statement of Operations for the six months ended June 30, 2011 and the year ended December 31, 2010

 

1.	Restructure existing Credit Agreement Claims and revise maturity to March 31, 2015

In connection with the restructuring, we exchanged $305.0 million of credit agreement claims for 3,717,948 shares of our Series B Convertible Preferred Stock and $140.0 million in aggregate principal amount of our Series A Notes. We also modified our Credit Agreement as it relates to term loan borrowings and letters of credit to, among other things, extend the maturity date to March 31, 2015.

 

(A)	The following table shows carrying values of the various credit agreement claims outstanding prior to the restructuring and estimated carrying values of the securities outstanding upon effecting the exchange and Credit Agreement modifications described above:

 

Credit Agreement Claims prior to Restructuring		Amount (in thousands)				Securities and Indebtedness Post- Restructuring		Amount (in thousands)
Principal amount of term loan		$	251,645			Principal amount of term loan		$	294,146
Revolving credit facility borrowings			181,436			Premium on term loan			111,596
Letters of credit			447,784			Principal amount of Series
						A Notes			140,000
Deferred interest on term loan			32,358			Discount on Series
						A Notes			(36,729	)
Deferred interest on revolving credit facility						Conversion feature in Series
			133,708			A Notes			12,390
Total Deferred Interest and Fees			166,066			Letters of credit			447,784
						Series B Convertible Preferred Stock			43,164
Principal amount of Credit Agreement Claims			1,046,931
Premium on term loan borrowings			486
Less: Deferred charges on Credit Agreement Claims			(35,066	)
Less: Letters of Credit			(447,784	)		Less: Letters of Credit			(447,784	)
Basis of Credit Agreement Claims to allocate in troubled debt restructuring		$	564,567					$	564,567

The Company borrowed all remaining availability under the existing Credit Agreement of approximately $7.8 million prior to closing the restructuring.

This element of the restructuring is being accounted for as a troubled debt restructuring. Pro forma adjustments have been made to establish the carryover basis of the new debt securities, as well as to indicate the estimated fair value of the equity issued pursuant to the exchange.

 

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(B)	The $43.2 million shown above represents the issuance of Series B Convertible Preferred Stock in exchange for credit agreement claims. For purposes of this pro forma presentation, we have made the following assumptions regarding the Series B Convertible Preferred Stock:

 

•

The Series B Convertible Preferred Stock converted into 1,385 million shares of our common stock at a ratio of 372.6222 to 1

 

•

The estimated fair value of our common stock is approximately $0.03 per share. This assumption was derived based on an estimate of enterprise value, less the estimated fair value of debt instruments post-restructuring, to arrive at a post-restructuring equity value for the Company. Such equity value was then divided by estimated common shares outstanding, including as-converted shares of our Series B Convertible Preferred Stock and conversion of the Series B Notes. Enterprise value was estimated based on a contemporaneous valuation using assumptions related to market multiples of earnings, a market approach and Level 3 fair value measurement. The market approach used publicly traded peer companies within our industry. The resulting estimated fair value of common stock of $43.2 million was shown as a proforma adjustment of $13.8 million par value and $29.3 million capital surplus.

 

(C)	Pro forma adjustments have been made to record the remaining carryover basis of the credit agreement claims as Series A Notes and term loan borrowings. The remaining carryover basis has been allocated between the principal amount of Series A Notes and term loan borrowing.

 

		(Amount in thousands)
Basis of Credit Agreement claims to allocate in troubled debt restructuring		$	564,567
Less estimated fair value of preferred stock			(43,164	)
Less conversion feature in Series A Notes			(12,390	)
Carryover basis		$	509,013
Allocation to Series A Notes (par value $140 million)		$	103,271
Allocation to term loan (par value $294.1 million)			405,742
		$	509,013

We made a pro forma adjustment to the carrying value of the new Series A Notes in the amount of $12.4 million representing the estimated fair value of the conversion feature within the Series A Notes. The conversion feature was estimated based on a contemporaneous valuation using an option pricing model, a Level 3 fair value measurement. The conversion feature has been bifurcated as an equity-classified derivative.

 

(D)

Pro forma adjustments have been made for $15.4 million of estimated professional fees related to this element of the restructuring. Of this amount, $13.8 million is related to the issuance of the Series A Notes and modifications to the Credit Agreement. Such amount has been recognized as a reduction in shareholders’ equity (deficit), as such costs are not expected to have a continuing impact in connection with the restructuring. This treatment is consistent with troubled debt restructuring accounting, where such costs would be charged to expense. Estimated costs of $1.6 million are related to the issuance of the Series B Convertible Preferred Stock and have been presented as a reduction to capital surplus. Debt costs have been allocated to the debt and equity issuances of the restructuring on a relative fair value basis, for the purpose of this pro forma presentation.

 

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(AA)	Represents the elimination of all interest expense, amortization of premium on term loan borrowings, letter of credit fee expense, and amortization of deferred charges historically related to credit agreement claims:

 

		Six-months ended June 30,  2011 (in thousands)				Year-ended December 31,2010 (in  thousands)
Term loan interest expense		$	12,606			$	16,941
Term loan premium amortization			(208	)			(417	)
Revolving credit facility interest expense			8,983				30,114
Amortization of deferred charges			14,841				27,173
Interest expense		$	36,222			$	73,811
Letter of credit fee expense		$	16,264			$	33,276

 

(BB)

Pro forma adjustments have been made to record estimated interest expense and amortization of discount and premium, related to the securities issued, (resulting in estimated effective interest rates of 0.0% and 18.0% for the Term Loan and Series A Notes, respectively,) assuming such securities were outstanding at the beginning of the respective periods:

 

		Six-months ended June 30, 2011 (in thousands)				Year-ended December 31, 2010 (in  thousands)
Term loan interest expense		$	14,707			$	29,415
Amortization of premium on term loan			(14,707	)			(29,415	)
Interest expense on Series A Notes			7,088				14,442
Amortization of discount on Series A Notes			2,570				5,777
		$	9,658			$	20,219
Letter of credit fee expense		$	18,766			$	38,395

 

2.	Restructure existing Contribution Deferral Agreement and revise maturity to March 31, 2015

In connection with the restructuring, we entered into an amendment and restatement of the contribution deferral agreement we have with certain multi-employer pension funds to which we contribute (the “Contribution Deferral Agreement”). Such amendment, among other things, increased the interest rate for the Central States Pension Fund, revised the maturity date to March 31, 2015 for amounts outstanding at the date of the restructuring, which consist of $146.6 million of pension contribution deferral obligations and $4.5 million of deferred interest, and converted deferred interest to principal.

This element of the restructuring is being accounted for in two separate transactions, one for the amount owed to the Central States Pension Fund and one for amounts owed to the 25 other pension funds that are party to the Contribution Deferral Agreement. For the amount owed to the Central States Pension Fund, this portion of the restructuring is accounted for as a modification of the outstanding indebtedness.

With regards to the amounts owed to the 25 other pension funds, this portion is being accounted for as a troubled debt restructuring. Pro forma adjustments have been made to establish the carryover basis of the new debt.

 

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(E)	The following table shows carrying values of the various amounts outstanding under the Contribution Deferral Agreement for the 25 other pension funds prior to the restructuring and estimated carrying values of the amounts outstanding upon effecting the modifications described above:

 

Outstanding indebtedness prior to the restructuring		Amount (in thousands)				Outstanding indebtedness after the restructuring		Amount (in thousands)
Outstanding principal		$	54,674			Principal amount of Contribution Deferral Agreement		$	56,518
Deferred interest			1,844			Discount on the Contribution Deferral Agreement			(674	)
Less: Deferred charges on Contribution Deferral Agreement			(674	)
Basis of Contribution Deferral Agreement to allocate in troubled debt restructuring		$	55,844					$	55,844

 

(F)

Pro forma adjustments have been made for $3.9 million of estimated professional fees related to this element of the restructuring. Of this amount, $1.5 million is related to the 25 pension funds other than the Central States Pension Fund. Such amount has been recognized as a reduction in shareholders’ equity (deficit), as such costs are not expected to have a continuing impact in connection with the restructuring. This treatment is consistent with troubled debt restructuring accounting, where such costs would be charged to expense. Estimated costs of approximately $2.4 million relate to the amount outstanding for the Central States Pension Funds. Such amount has been recognized as a reduction in shareholders’ equity (deficit), as such costs are not expected to have a continuing impact in connection with the restructuring. This treatment is consistent with non-substantial modification accounting where such costs would be charged to expenses.

 

(CC)	Represents the elimination of all interest expense historically related to the Contribution Deferral Agreement

 

		Six-months ended June 30, 2011 (in thousands)				Year-ended December 31, 2010 (in thousands)
Interest expense		$	4,172			$	8,573
Deferred charges amortization			566				1,009
		$	4,738			$	9,582

 

(DD)

Pro forma adjustments have been made to record estimated interest expense, amortization of discount, and amortization of deferred charges related to the new Contribution Deferral Agreement (resulting in an estimated effective interest rate of 7.50% for the Central States Pension Fund and 7.15% for all other funds), assuming such issuance had occurred at the beginning of the respective periods:

 

		Six-months ended June 30, 2011 (in thousands)				Year-ended December 31, 2010 (in thousands)
Interest expense		$	5,527			$	11,057
Amortization of discount			80				162
Deferred charges amortization			125				250
		$	5,732			$	11,469

 

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3.	Issue new equity to IBT 401(k) in exchange for ratification of labor contract modifications through March 31, 2015

In connection with the restructuring, we issued 1,282,051 shares of our Series B Convertible Preferred Stock to the IBT 401(k).

This element of the restructuring is being accounted for as the grant of a share-based payment award to employees. For purposes of this pro forma presentation we have made the following assumptions:

 

•

a grant date has been achieved

 

•

the Series B Convertible Preferred Stock has converted into 477.7 million shares of our common stock at a ratio of 372.6222 to 1

 

•

the grant date estimated fair value assumptions used to value this award at $0.03 per share of as-converted common stock are consistent with the discussion above at (B)

 

(G)	Represents the grant of as-converted common stock to the IBT 401(k)

 

		Amount (in thousands)
Share-based payment expense		$	14,884
Par value of common stock at $0.01 per share			4,777
Increase in capital surplus		$	10,107

The pro forma adjustment related to the share-based payment expense has been made to shareholders’ equity (deficit) as such expense is not expected to have a continuing impact in connection with the Restructuring.

 

(H)

In connection with the restructuring, we issued one share of Series A Voting Preferred Stock to the IBT in order to confer board rights upon the IBT. The share of Series A Voting Preferred Stock has a liquidation preference of $1.00 and does not pay any dividends. The IBT will be permitted to appoint two directors to the Company’s board of directors, until such time at which the share is redeemed by the Company in accordance with its terms.

The substance of this element of the restructuring is the conveyance of one additional board seat to the IBT. As such, for the purposes of this pro forma presentation, the one share is being recorded at its liquidation value of $1.00.

 

4.	Issue $100 million new money convertible notes due March 31, 2015

In connection with the restructuring, we issued subscription rights up to $100 million in aggregate principal amount of our new Series B Notes.

 

(I)

Reflects the cash proceeds of $100.0 million and the recognition of the equity and debt components of the Series B Notes. The estimated fair value of the conversion feature within the Series B Notes of $41.7 million has been bifurcated as an equity-classified derivative. The conversion feature was estimated based on a contemporaneous valuation using an option pricing model, a Level 3 fair value measurement. The value attributed to the debt component of the Series B Notes is the residual amount of $58.3 million.

 

(J)	Pro forma adjustments have been made for $2.1 million of estimated professional fees related to this element of the restructuring. Such amount has been capitalized as debt issue costs and will be recognized as interest expense over the life of the Series B Notes.

 

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(EE)

Pro forma adjustments have been made to record estimated interest expense, amortization of discount, and amortization of deferred charges related to the Series B Notes (resulting in an estimated effective interest rate of 25.6%,) assuming the Series B Notes were outstanding at the beginning of the respective periods:

 

		Six-months ended June 30, 2011 (in thousands)				Year-ended December 31, 2010 (in  thousands)
Interest expense on Series B Notes		$	5,063			$	10,316
Amortization of discount on Series B Notes			2,341				5,458
Amortization of deferred charges			122				287
Total		$	7,526			$	16,061

 

5.	Refinance existing 364-Day $325 million ABS facility with new 3-year $400 million credit facility

In connection with the restructuring, the Company entered into a new $400.0 million credit facility (“New Facility”), the proceeds of which were used to refinance the ABS facility, provide working capital and for other general corporate purposes. The new $400.0 million credit facility consists of a $175.0 million first-out term facility (“First Out Facility”) and a $225.0 million last-out term facility (“Last Out Facility”), both of which were funded by lenders that did not participate in the ABS facility.

 

(K)	Reflects the estimated uses of funds in connection with this element of the restructuring.

 

Sources of Funds		Amount (in thousands)				Uses of Funds		Amount (in thousands)
Borrowings net of original issue discount		$	232,250			Repayment of principal amount of ABS facility		$	164,237
						Arrangement and professional fees related to the New Facility			5,249
Company cash			1,916			Collateralization of letters-of-credit under the ABS facility			64,680
Total		$	234,166			Total		$	234,166

This element of the restructuring is being accounted for as an extinguishment of existing debt and issuance of new debt, as none of the lenders participating in the New Facility, currently participate in the ABS facility.

 

(L)	Pro forma adjustments have been made to shareholders’ equity (deficit) for those income statement items that are not expected to have a continuing impact in connection with the restructuring as follows:

 

		Amount (in thousands)
Write-off of deferred charges on ABS facility		$	2,228
Gain recognized on forgiveness of deferred ABS facility amendment fees and accrued interest			(25,773	)
		$	(23,545	)

 

(M)	Represents the cash collateralization of the $64.7 million of undrawn letters of credit outstanding under the ABS facility at the transaction closing date.

 

(N)	Represents the capitalization of the estimated arrangement and professional fees related to the New Facility of $5.2 million. Such costs will be recognized as interest expense over the life of the New Facility.

 

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(O)	Pro forma adjustments have been made to present $90.0 million deposited into escrow as a non-current asset as such funds will be restricted in accordance with the terms of the New Facility.

 

(FF)	Represents the elimination of all interest expense and amortization of deferred charges historically related to the ABS facility:

 

		Six-months ended June 30, 2011 (in thousands)				Year-ended December 31, 2010 (in thousands)
ABS facility interest		$	9,159			$	16,597
ABS facility deferred charges amortization			3,319				15,830
Total interest expense		$	12,478			$	32,427

 

(GG)	Pro forma adjustments have been made to record estimated interest expense, discount amortization, and amortization of deferred charges related to the New Facility, assuming the New Facility has a 39-month term and was established at the beginning of the respective periods:

 

		Six-months ended June 30, 2011 (in thousands)				Year-ended December 31, 2010 (in thousands)
Facility interest and commitment fees		$	19,006			$	38,013
Amortization of the original issue discount			3,131				6,393
Facility deferred charges amortization			655				1,360
Total interest expense		$	22,792			$	45,766

 

6.	Income taxes

The pro forma pre-tax changes have no net effect on the tax benefit or the balance of current or deferred income taxes because their initial tax impact is expected to fully offset by the related change in the valuation allowance for deferred tax assets.

 

7.	Outstanding shares

The pro forma weighted average common shares outstanding below include the effect of issuing new equity to the IBT 401(k) in exchange for ratification of labor contract modifications through March 31, 2015 and the issuance of equity to the Credit Agreement lenders in exchange for credit agreement claims.

 

		Six-months ended June 30, 2011 (in thousands)				Year-ended December 31, 2010 (in thousands)
Existing common shares outstanding			47,697				39,601
Shares issued to the IBT 401(k)			477,721				477,721
Shares issued to the credit facility lenders			1,385,390				1,385,390
Total shares outstanding			1,910,808				1,902,712

 

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DESCRIPTION OF SERIES A NOTES

You can find the definitions of certain terms used in this description under the subheading “—Certain Definitions.” In this description, the terms “Company,” “us” or “we” refer only to YRC Worldwide Inc. and not to any of its subsidiaries or affiliates.

The Company issued on the Issue Date $140.0 million aggregate principal amount of 10% Series A Convertible Senior Secured Notes due 2015 (the “Series A Notes”) under an indenture (the “Series A Indenture”), dated July 22, 2011, among itself, the Guarantors and U.S. Bank National Association, as trustee (the “Trustee”). The terms of the Series A Notes include those stated in the Series A Indenture and those made part of the Series A Indenture by reference to the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”).

The Series A Notes have the benefit of certain collateral security as provided in the Collateral Documents and discussed below under “—Security for the Series A Notes”. The Collateral Trustee entered into, on behalf of and binding as to all present and future Holders, the Senior Priority Lien Intercreditor Agreement, dated July 22, 2011, which contains, for the benefit of the applicable Senior Secured Party with respect to any Collateral, provisions relating to (i) the junior status of the Liens in favor of the Collateral Trustee for the benefit of the Secured Parties and various related limitations on the rights of the Collateral Trustee (on behalf of the Trustee, the Other Notes Trustee, the Holders and the Other Note Holders) with respect to the Collateral and (ii) turn-over requirements with respect to payments to the Collateral Trustee, the Trustee or Holders from proceeds of Collateral. See “—Security for the Series A Notes—Payments Over in Violation of Senior Priority Lien Intercreditor Agreement.”

The Series A Notes are convertible into shares of our Common Stock as described under “—Conversion Rights.”

The following description is only a summary of the material provisions of the Series A Indenture, the Registration Rights Agreement and the Collateral Documents. It does not purport to be complete and is qualified in its entirety by reference to the provisions of those agreements, including the definitions therein of certain terms used below.

Brief Description of the Series A Notes

The Series A Notes:

 

•

are senior obligations of the Company;

 

•

are convertible into shares of Common Stock as described under “—Conversion Rights”;

 

•

are secured by junior-priority Liens in the Collateral that are subject only to Permitted Liens, as described under “—Security for the Series A Notes”;

 

•

are guaranteed on a senior secured basis by each Guarantor;

 

•

are structurally subordinated to any existing and future Indebtedness of Subsidiaries of the Company that are not Guarantors;

 

•

are effectively junior to the Company’s and the Guarantors’ indebtedness and other obligations that are either (i) secured by Liens on the Collateral that are senior or prior to the Liens securing the Series A Notes and the Other Notes, including the obligations secured pursuant to an Asset Backed Credit Facility, if any, the Bank Group Obligations and the Pension Fund Obligations, in each case, to the extent of the value of such senior priority Lien Collateral, as described under “—Security for the Series A Notes” or (ii) secured by assets that are not part of the Collateral securing the Series A Notes to the extent of the value of the assets securing such obligations;

 

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•

are pari passu in right of payment with all existing and future Indebtedness of the Company that is not subordinated in right of payment to the Series A Notes;

 

•

are effectively senior, together with the Other Notes on an equal and ratable basis, to all Indebtedness that is secured by a Lien on the Collateral that is junior in priority to the Liens securing the Series A Notes and unsecured Indebtedness of the Company to the extent that the value of the Collateral exceeds the amount of such senior obligations;

 

•

are secured on an equal priority basis with the Other Notes by Liens on the Collateral; and

 

•

are senior in right of payment to any future subordinated obligations of the Company.

Principal, Maturity and Interest

The Series A Indenture provides for the issuance of up to $140.0 million of Series A Notes thereunder and an amount of additional notes issued in respect of interest payments on any such Series A Notes (“Series A PIK Notes”). The Series A Notes and any Series A PIK Notes were or will be issued in fully registered form only, without coupons, in minimum denominations of $1.00 and any integral multiple thereof. The Series A Notes will mature on March 31, 2015.

Interest will be payable on a semiannual basis in arrears on March 31 and September 30 of each year (each, an “Interest Payment Date”), commencing on September 30, 2011. The Company will make each interest payment to the Holders of record on the March 15 and September 15 immediately preceding the related Interest Payment Date. Interest on the Series A Notes will be computed on the basis of a 360-day year comprised of twelve 30-day months. Upon the occurrence and during the continuation of an Event of Default, the interest rate will be increased by 2% per annum.

Interest on the Series A Notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be paid only in-kind through the issuance of Series A PIK Notes or by an increase in the outstanding principal amount of Series A Notes (the “PIK Interest”) and will accrue for each interest period at 10% per annum. As used in this description, the term “Series A Notes” includes any Series A PIK Notes.

Methods of Receiving Payments on the Series A Notes

The Company will make all cash payments of principal and premium on each Note in global form registered in the name of DTC or its nominee in immediately available funds to DTC or its nominee, as the case may be, as the Holder of such global Note.

On each Interest Payment Date, the Company shall request the Trustee to, and the Trustee shall upon the Company’s request, authenticate and deliver Series A PIK Notes for original issuance to the Holders of the Series A Notes on the relevant record date, in an aggregate principal amount necessary to pay the PIK Interest. With respect to Series A PIK Notes represented by one or more global notes registered in the name of DTC or its nominee on the relevant record date, the principal amount of such Series A PIK Notes shall be increased by an amount equal to the amount of PIK Interest for the applicable interest period. Any Series A PIK Note so issued will be dated as of the applicable Interest Payment Date, will bear interest from and after such date and will be issued with the designation “PIK” on the face thereof. Notwithstanding anything to the contrary in this description, the Company may not issue Series A PIK Notes in lieu of paying interest in cash if such interest is payable with respect to any principal that is due and payable, whether at stated maturity, upon redemption, repurchase or otherwise.

Paying Agent and Registrar for the Series A Notes

The Trustee is initially acting as paying agent and registrar in respect of the Series A Indenture. The Company may change the paying agent or registrar without prior notice to the Holders of the Series A Notes, and the Company or any of its Subsidiaries may act as paying agent.

 

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Guarantees

The Guarantors jointly and severally Guarantee, on a senior secured basis, our obligations under the Series A Notes and the other Documents (as well as the Other Notes and Other Note Documents). The initial Guarantors are all of the Company’s domestic Subsidiaries that guarantee any Indebtedness of the Company or any of its or any of its Restricted Subsidiaries in an aggregate amount equal to or greater than $5.0 million. Not all of the Company’s Subsidiaries Guarantee the Series A Notes. The ABL Borrower under the ABL Credit Agreement is not a Guarantor under the Series A Notes and the Other Note Documents. In the event of a bankruptcy, liquidation or reorganization of any of these non-guarantor Subsidiaries, the non-guarantor Subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to the Company.

Each Guarantor that makes a payment under its Guarantee will be entitled upon payment in full of all guaranteed obligations under the Documents to a contribution from each other Guarantor in an amount equal to such other Guarantor’s pro rata portion of such payment based on the respective net assets of all the Guarantors at the time of such payment determined in accordance with GAAP.

The obligations of each Guarantor under its Guarantee are designed to be limited as necessary to prevent such Guarantee from constituting a fraudulent conveyance under applicable law and, therefore, are limited to the amount that such Guarantor could Guarantee without such Guarantee constituting a fraudulent conveyance; this limitation, however, may not be effective to prevent such Guarantee from constituting a fraudulent conveyance. If a Guarantee was rendered voidable, it could be subordinated by a court to all other Indebtedness (including Guarantees and other contingent liabilities) of the applicable Guarantor, and, depending on the amount of such Indebtedness, a Guarantor’s liability on its Guarantee could be reduced to zero. See “Risk Factors—Risks Relating to The Securities—Fraudulent conveyance laws allow courts, under certain circumstances, to avoid or subordinate guarantees and require noteholders to return payments received from guarantors.”

Pursuant to the Series A Indenture, no Guarantor shall consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guarantor (but excluding any consolidation, amalgamation or merger if the surviving corporation is no longer a Subsidiary) unless (i) subject to the provisions of the Series A Indenture, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the Notes Obligations of such Guarantor pursuant to a supplemental indenture under the Series A Notes and the Series A Indenture and (ii) immediately after giving effect to such transaction, no default or event of default exists.

A Guarantor shall be deemed automatically and unconditionally released and discharged from all obligations under the Series A Indenture without any further action required on the part of the Trustee or any Holder upon:

 

1.

the sale or other transfer of all or substantially all of the Capital Stock or all or substantially all of the assets of a Guarantor to any Person in compliance with the terms of the Series A Indenture (including, without limitation, the preceding paragraph) and in a transaction that does not result in a default or an event of default being in existence or continuing immediately thereafter;

 

2.

the release or discharge of the guarantee of any other Indebtedness which resulted in the obligation to guarantee the Notes Obligations; or

 

3.

the applicable Guarantor ceasing to be a Subsidiary as a result of any foreclosure of any pledge or security interest in favor of Senior Priority Lien Obligations, subject to, in each case, the application of the proceeds of such foreclosure in the manner described in the Intercreditor Agreements.

 

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Ranking

Other Indebtedness versus Series A Notes

The Indebtedness evidenced by the Series A Notes is senior Indebtedness of the Company, ranks pari passu in right of payment with all existing and future senior Indebtedness of the Company, including the Other Notes, have the benefit, together with the Other Notes, of the junior-priority Liens on the Collateral described below under “—Security for the Series A Notes” and are senior in right of payment to all future Indebtedness of the Company that is, by its terms, expressly subordinated in right of payment to the Series A Notes. Pursuant to the Senior Priority Lien Intercreditor Agreement and the other applicable Collateral Documents, the Liens on the Collateral securing the Series A Notes are junior in priority (subject to Permitted Liens described under “—Security for the Series A Notes”) to all Liens on the Collateral at any time granted to secure obligations secured pursuant to an Asset Backed Credit Facility, if any, the Bank Group Obligations and the Pension Fund Obligations, in each case to the extent of the value of the senior priority Lien Collateral. In addition, pursuant to the Series A Indenture and the Collateral Trust Agreement, the Liens on the Collateral granted to the Collateral Trustee secure the Other Notes Obligations on an equal priority and ratable basis with the Notes Obligations. As of June 30, 2011, after giving effect to the Transactions, the Company would have had aggregate principal amount of Indebtedness of approximately $1.3 billion.

Liabilities of Subsidiaries versus Series A Notes

The Series A Notes are guaranteed by the Guarantors. The Indebtedness evidenced by the Guarantees is senior Indebtedness of the applicable Guarantor, ranks pari passu in right of payment with all existing and future senior Indebtedness of such Guarantor, including the Other Notes, have the benefit, together with the Other Notes, of the junior-priority Liens on the Collateral described below under “—Security for the Series A Notes” and are senior in right of payment to all future Indebtedness of such Guarantor that is, by its terms, expressly subordinated in right of payment to the Guarantees. Pursuant to the Senior Priority Lien Intercreditor Agreement and the other applicable Collateral Documents, the Liens on the Collateral securing the Guarantees are junior in priority (subject to Permitted Liens described under “—Security for the Series A Notes”) to all Liens on the Collateral at any time granted to secure obligations secured pursuant to an Asset Backed Credit Facility, if any, the Bank Group Obligations and the Pension Fund Obligations, in each case to the extent of the value of the senior priority Lien Collateral. In addition, pursuant to the Series A Indenture and the Collateral Trust Agreement, Liens on the Collateral granted to the Collateral Trustee secure the Other Notes Obligations on an equal priority and ratable basis with the Notes Obligations.

As of June 30, 2011, after giving effect to the Transactions, the Guarantors would have had Indebtedness of approximately $1.1 billion.

All of the Company’s operations are conducted through its Subsidiaries. Some of its Subsidiaries, including the ABL Borrower, are not guaranteeing the Series A Notes, and, as described above under “—Guarantees,” Guarantees may be released under certain circumstances. In addition, under certain circumstances, the Company’s future Subsidiaries may not be required to guarantee the Series A Notes. Claims of creditors of such non-guarantor Subsidiaries, including trade creditors and creditors holding Indebtedness or guarantees issued by such non-guarantor Subsidiaries and claims of preferred stockholders of such non-guarantor Subsidiaries generally will have priority with respect to the assets and earnings of such non-guarantor Subsidiaries over the claims of the Company’s creditors, including Holders. Accordingly, the Series A Notes are structurally subordinated to creditors (including trade creditors) and preferred stockholders, if any, of the Company’s non-guarantor Subsidiaries.

At June 30, 2011, after giving effect to the Transactions, the total liabilities of the Company’s non-guarantor Subsidiaries were approximately $109.9 million, including trade payables.

 

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Security for the Series A Notes

The Series A Notes and the Guarantees and all Notes Obligations with respect thereto under the Series A Indenture are secured by junior-priority Liens on (subject to Permitted Liens) the Collateral in favor of the Collateral Trustee. The Collateral consists of substantially the same assets securing the Bank Group Obligations; namely, substantially all of the tangible and intangible assets of the Company and the Guarantors, but in any event not including Excluded Property and any issued and outstanding equity interests of any foreign subsidiary (other than up to 65% of the issued and outstanding equity interests of any first tier foreign subsidiary) until the Bank Group Representative determines to include all or any portion of such equity interests in the collateral securing the Bank Group Obligations at which time such equity interests will secure the Secured Obligations.

The Liens in favor of the Collateral Trustee securing the Notes Obligations and the Other Notes Obligations and the Guarantees are junior in priority to any and all Liens at any time granted:

 

•

with respect to Pension Fund Priority Collateral, in favor of the Pension Fund Agent (on a first-priority basis) for the benefit of the Pension Fund Secured Parties and the Bank Group Agent (on a second-priority basis) for the benefit of the Bank Group Secured Parties, to secure, respectively, Pension Fund Obligations and Bank Group Obligations; and

 

•

with respect to Bank Group Priority Collateral, in favor of the Bank Group Agent (on a first-priority basis) for the benefit of the Bank Group Secured Parties.

The security interests in favor of the Collateral Trustee are also subject to Permitted Liens, which include Liens granted pursuant to an Asset Backed Credit Facility.

With respect to Pension Fund Priority Collateral and Bank Group Priority Collateral: (i) the Person holding a Senior Lien on such priority Collateral, together with any other Persons on whose behalf such Person is holding such Senior Liens, are collectively referred to as the “Senior Secured Party” as to such priority Collateral; and (ii) any other Person holding a Lien on such priority Collateral (including the Collateral Trustee), together with any other Persons on whose behalf such Person is holding such Liens, are collectively referred to herein as a “Junior Secured Party” as to such priority Collateral.

A “Senior Lien” with respect to any Collateral is initially the Lien of the Person who holds a first-priority Lien (as described above) on such Collateral until the obligations of such Person and the other Persons on whose behalf such Person is holding such Liens are paid in full and then is the Person (if any) who holds a second-priority Lien on such Collateral (such Lien, a “Junior Second Lien”) until the obligations of such Person and the other Persons whose behalf such Person is holding such Liens are paid in full. A “Junior Third Lien” with respect to any Collateral is a third priority Lien junior to the Senior Lien and Junior Second Lien with respect to such Collateral.

With respect to any Collateral, the Senior Secured Party for such Collateral, and any other Person that has a Lien on such Collateral that is senior to the Collateral Trustee’s, may have rights and remedies that, if exercised, could adversely affect the value of the Collateral or the ability of the Collateral Trustee to realize or foreclose on the Collateral on behalf of Holders and the Other Notes Holders.

On the Issue Date, the Collateral Trustee entered into the Senior Priority Lien Intercreditor Agreement with the Company, the Guarantors, the ABL Agent (solely for purposes of acknowledging the ABL Standstill Period), the Pension Fund Agent, the Bank Group Agent, to provide for, among other things, the relative priorities of Liens on the Collateral, as set forth above.

In addition, on the Issue Date, the Company and the Guarantors entered into the Collateral Trust Agreement with the Collateral Trustee, the Trustee and the Other Notes Trustee. The Collateral Trust Agreement sets forth the terms on which the Collateral Trustee will receive, hold, administer, maintain, enforce and distribute the proceeds of all Liens upon all Collateral for the benefit of all present and future holders of Notes Obligations and Other Notes Obligations (if any) and all other Secured Parties.

 

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The Collateral Trustee will act for the benefit of:

 

•

the Holders;

 

•

the Other Notes Holders; and

 

•

the other Secured Parties.

The Collateral Trustee will hold (directly or through co-trustees or separate trustees), and will be entitled to enforce on behalf of the holders of the Secured Obligations, all Liens on the Collateral created by the Collateral Documents for their benefit, subject to the provisions of the Intercreditor Agreements, each as described below.

Except as provided in the Collateral Trust Agreement or as directed by the Directing Parties in accordance with the Collateral Trust Agreement, as further described below in “—Enforcement of Liens”, the Collateral Trustee will not be obligated:

 

(1)

to act upon directions purported to be delivered to it by any Person;

 

(2)

to foreclose upon or otherwise enforce any Lien; or

 

(3)

to take any other action whatsoever with regard to any or all of the Collateral Documents, the Liens created thereby or the Collateral.

After-Acquired Collateral

From and after the Issue Date and subject to the terms, conditions and provisions set forth in the Collateral Documents, the Company and the Guarantors will agree that all Senior Priority After-Acquired Property shall be Collateral under the Series A Indenture and all appropriate Collateral Documents and shall take all necessary action, including the execution and delivery of such mortgages, deeds of trust, security instruments, supplements and joinders to security instruments, financing statements, certificates and opinions of counsel (in each case, in accordance with the applicable terms and provisions of the Series A Indenture and the Collateral Documents), so that such Senior Priority After-Acquired Property is subject to the Lien of appropriate Collateral Documents and such Lien is perfected and has priority over other Liens in each case to the extent required by and in accordance with the applicable terms and provisions of the Series A Indenture and the applicable Collateral Documents.

Information Regarding Collateral

The Company will furnish to the Collateral Trustee, with respect to the Company or any Guarantor, ten days’ prior written notice of any change in (i) such Person’s corporate name, (ii) the location at which certain Collateral owned by such Person is located, (iii) such Person’s form or jurisdiction of organization, (iv) such Person’s organizational taxpayer identification number or (v) such Person’s mailing address. The Company will also furnish other customary collateral reports.

Further Assurances

Subject to the terms of the Collateral Documents, the Company and the Guarantors shall promptly (as applicable) make, execute, endorse, acknowledge, file and/or deliver to the Collateral Trustee from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to its receivables, equipment, contracts, instruments, investment property, chattel paper, and other property or rights covered by the security interest hereby granted, as may be required and as the Collateral Trustee may reasonably request to perfect, preserve and protect its security interest in the Collateral. The Company shall also be bound by the further assurances clauses contained in the other Collateral Documents, including the Collateral Trust Agreement.

 

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Collateral Documents

The Company, the Guarantors and the Collateral Trustee entered into the Collateral Documents defining the terms of the security interests that secure the Series A Notes and the Guarantees and the Other Notes (and related guarantees). These security interests secure the payment and performance when due of all of the Secured Obligations.

The applicable Collateral Documents provide that, so long as no Notice of Acceleration is in effect, and subject to certain terms and conditions, the Company and the Guarantors will be entitled to exercise any voting and other consensual rights pertaining to all Capital Stock pledged pursuant to the applicable Collateral Documents and to remain in possession and retain exclusive control over the Collateral (other than as set forth in the Collateral Documents), to operate the Collateral, to alter the Collateral and to collect, invest and dispose of any income thereon. Subject to the provisions of the Intercreditor Agreements, the Bank Group Agent will maintain in its possession certificates evidencing pledges of Capital Stock to the extent such Capital Stock is certificated and will also hold such certificates as agent for the Collateral Trustee for perfection purposes. Further, pursuant to the Security Agreement, other than deposit accounts constituting Excluded Property, all deposit accounts and securities accounts of the Company and the Guarantors shall be subject to deposit account control agreements or securities account control agreements. The deposit account control agreements will be among the Company or any Guarantor, a banking institution holding the Company’s or such Guarantor’s funds, the Collateral Trustee, the Bank Group Agent, if any, and the Asset Backed Agent, if any and to the extent applicable, with respect to collection and “control” for purposes of perfection under Article 9 of the Uniform Commercial Code of all deposits and balances held in all deposit accounts maintained by the Company or such Guarantor with such banking institution. The securities account control agreements will be among the Company or any Guarantor, the securities intermediary with which the Company or such Guarantor maintains a securities account, the Collateral Trustee, the Bank Group Agent, if any, and the Asset Backed Agent, if any and to the extent applicable, with respect to collection and “control” for purposes of perfection under Article 9 of the Uniform Commercial Code of all assets held in such securities account maintained by the Company or such Guarantor with such securities intermediary.

When a Notice of Acceleration is in effect, to the extent permitted by law and subject to the provisions of the Collateral Documents:

(a) Grantor will permit the Collateral Trustee or its nominee, with prior notice to such Grantor, to exercise or refrain from exercising any and all voting and other consensual rights pertaining to Investment Property that is included in the Collateral and owned by such Person or any part thereof, and to receive all dividends and interest in respect of such Collateral;

(b) the Collateral Trustee may take possession of and sell the Collateral or any part thereof in accordance with the terms of applicable law; and

(c) the Collateral Trustee will have all other rights and remedies under the Collateral Documents.

In the event of the enforcement of the security interests in the Collateral, the holder of the Senior Lien, in accordance with the terms of the security agreements in respect of the obligations secured pursuant to an Asset Backed Credit Facility, if any, Bank Group Obligations and the Pension Fund Obligations, the Senior Priority Lien Intercreditor Agreement described below and the other applicable Collateral Documents, will determine the time and method by which the security interests in such Senior Lien Collateral will be enforced and, if applicable, will distribute all cash proceeds (after payment of the costs of enforcement and collateral administration) of such Collateral received by it for the ratable benefit of the holders of such Senior Liens.

Intercreditor Arrangements

The Senior Priority Lien Intercreditor Agreement

On the Issue Date, the Collateral Trustee, on behalf of all Secured Parties, entered into the Senior Priority Lien Intercreditor Agreement with the Company, the Guarantors, the ABL Agent (solely for purposes of

 

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acknowledging the ABL Standstill Period), on behalf of all ABL Secured Parties, the Pension Fund Agent, on behalf of all Pension Fund Secured Parties and the Bank Group Agent, on behalf of all Bank Group Secured Parties, to provide for, among other things, the junior nature of the Collateral Trustee’s Liens. The Senior Priority Lien Intercreditor Agreement includes certain intercreditor arrangements relating to the junior rights of the Collateral Trustee in the Bank Group Priority Collateral and the Pension Fund Priority Collateral as described under the caption “—Security for the Series A Notes” above.

The Senior Priority Lien Intercreditor Agreement permits the Bank Group Obligations, the Pension Fund Obligations, and the Secured Obligations to be refunded, refinanced or replaced by certain permitted replacement facilities without affecting the lien priorities set forth in the Senior Priority Lien Intercreditor Agreement, in each case without the consent of any Secured Party or any holder of Bank Group Obligations or Pension Fund Obligations, subject to certain restrictions, including the restrictions set forth in the caption “—Amendments” below.

Limitation on Enforcement of Remedies

The Senior Priority Lien Intercreditor Agreement provides that the Senior Secured Party with respect to any Collateral shall have the exclusive right to exercise any rights and remedies with respect to such Collateral or to commence or prosecute the enforcement of any of the rights and remedies under the collateral documents securing the obligations of the Senior Secured Party or applicable law, including without limitation the exercise of any rights of set-off or recoupment, and the exercise of any rights or remedies of a secured creditor under the Uniform Commercial Code of any applicable jurisdiction or under the United States Bankruptcy Code (any such action, an “Enforcement Action”) with respect to any Senior Lien the Senior Secured Party has in such Collateral, without any consultation with or consent of any Junior Secured Party. The Senior Priority Lien Intercreditor Agreement provides that, notwithstanding the foregoing, any Junior Secured Party may, subject to the provisions described in “—Releases” below, with respect to any Collateral, to the extent such Junior Secured Party is secured by a Lien that is immediately junior to the then Senior Lien with respect to such Collateral (the “Secondary Secured Parties”) take any Enforcement Action with respect to such Collateral or join with any person in commencing, or petition for or vote in favor of any Enforcement Action with respect to such Collateral, after a period of 180 days has elapsed since the date on which the Secondary Secured Party has delivered to the Senior Secured Party with respect to such Collateral written notice of the acceleration of the indebtedness owing to it (the “Standstill Period”).

Notwithstanding the expiration of the Standstill Period or anything in the Senior Priority Lien Intercreditor Agreement to the contrary, the Senior Priority Lien Intercreditor Agreement provides that the Secondary Secured Party will not be able take any Enforcement Action with respect to the applicable Collateral, or commence, join with any Person in commencing, or petition for or vote in favor of any resolution for, any Enforcement Action with respect to such Collateral, if the Senior Secured Party shall have commenced, and shall be diligently pursuing (or shall have sought or requested relief from or modification of the automatic stay or any other stay in any insolvency proceeding to enable the commencement and pursuit thereof), any Enforcement Action with respect to such Collateral or any such action or proceeding (prompt written notice thereof to be given to the Secondary Secured Party by the Senior Secured Party).

After the expiration of the Standstill Period, so long as the Senior Secured Party with respect to any Collateral shall have not commenced any action to enforce its Lien on any material portion of such Collateral, in the event that and for so long as such Secondary Secured Party has commenced any actions to enforce its Lien with respect to all or any material portion of such Collateral to the extent permitted under the Senior Priority Lien Intercreditor Agreement and is diligently pursuing such actions, the Senior Secured Party will not be able take any action of a similar nature with respect to such Collateral.

In addition, the Senior Priority Lien Intercreditor Agreement provides that neither the Bank Group Agent, any other Bank Group Secured Party, the Pension Fund Agent, any other Pension Fund Secured Party, the

 

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Collateral Trustee nor any holder of the Series A Notes or any holder of the Other Notes shall take any Enforcement Action with respect to, or join with any person in commencing, or petition for or vote in favor of any Enforcement Action with respect to, any of the Company’s or any of its Subsidiaries’ trucks, other vehicles, rolling stock, terminals, depots or other storage facilities, in each case, whether leased or owned, until after a period of 10 business days has elapsed since the date on which such Person has delivered to the ABL Representative written notice of such Person’s intention to exercise any Enforcement Action under the applicable loan documents governing the indebtedness held by the applicable secured parties (the “ABL Standstill Period”) provided, however, that the applicable representative or secured parties may take any such Enforcement Action or join with any Person in commencing, or petitioning for or voting in favor of any such Enforcement Action prior to the end of the ABL Standstill Period if (i) an exigent circumstance arising as a result of fraud, theft, concealment, destruction, waste or abscondment then exists or (ii) an exigent circumstance other than an exigent circumstance as described in clause (i) above then exists, and, after notice thereof has been provided by the applicable representative to the ABL Representative, the ABL Representative has consented thereto. The Senior Priority Lien Intercreditor Agreement shall also provide that during the ABL Standstill Period, the Company and its Subsidiaries may use trucks, equipment and other properties of the Company and its Subsidiaries to finish in-transit deliveries and collections upon the occurrence of a termination event under the ABL Credit Agreement so long as the costs associated with such use, including insurance, maintenance and security costs related to the use of such property, are paid from amounts maintained in the Escrow Accounts.

Waivers of Remedies

The Senior Priority Lien Intercreditor Agreement requires the Collateral Trustee, on behalf of the Secured Parties, to agree that, subject to the exception described under the caption “—Limitation on Enforcement of Remedies”:

 

•

they will not take or cause to be taken any action, the purpose or effect of which is to make (i) any junior Lien on any applicable Collateral pari passu with or senior to, or to give any holder of a junior Lien on any applicable Collateral any preference or priority relative to, the Senior Liens with respect to any applicable Collateral or (ii) any Junior Third Lien on any applicable Collateral pari passu with or senior to, or to give any holder of a Junior Third Lien on any applicable Collateral any preference or priority relative to, the Junior Second Liens with respect to any applicable Collateral;

 

•

they will not contest, oppose, object to, interfere with, hinder or delay, in any manner, whether by judicial proceedings (including without limitation the filing of an insolvency proceeding) or otherwise, any foreclosure, sale, lease, exchange, transfer or other disposition of any applicable Collateral by any holder of a Senior Lien or any other Enforcement Action taken (or any forbearance from taking any Enforcement Action) by or on behalf of any holder of a Senior Lien with respect to any applicable Collateral;

 

•

they have no right to (i) direct the holder of a Senior Lien to exercise any right, remedy or power with respect to any applicable Collateral or (ii) consent or object to the exercise by the holder of a Senior Lien of any right, remedy or power with respect to its Senior Lien on any applicable Collateral or to the timing or manner in which any such right is exercised or not exercised (or, to the extent they may have any such right described in this clause (c), whether as a junior Lien creditor or otherwise, they will irrevocably waive such right);

 

•

they will not institute any suit or other proceeding or assert in any suit, insolvency proceeding or other proceeding any claim against any holder of a Senior Lien seeking damages from or other relief by way of specific performance, instructions or otherwise with respect to any applicable Collateral;

 

•

they will not make any judicial or nonjudicial claim or demand or commence any judicial or non-judicial proceedings with respect to a junior Lien on any applicable Collateral (other than filing a proof of claim) or exercise any right, remedy or power under or with respect to, or otherwise take any action to enforce a junior Lien on any applicable Collateral, other than filing a proof of claim;

 

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•

they will not commence judicial or nonjudicial foreclosure proceedings with respect to a junior Lien on any applicable Collateral; and

 

•

they will not seek, and hereby waive any right, to have any applicable Collateral or any other assets or any part thereof marshalled upon any foreclosure or other disposition of the Collateral.

Reciprocal waivers will be provided by the Bank Group Secured Parties and the Pension Fund Secured Parties.

Relative Lien Priorities

The Senior Priority Lien Intercreditor Agreement provides that notwithstanding the date, manner or order of grant, attachment or perfection of any Senior Lien, any Junior Second Lien or any Junior Third Lien, and notwithstanding any provision of the Uniform Commercial Code, any applicable law, any security agreement, any alleged or actual defect or deficiency in any of the foregoing or any other circumstances whatsoever:

 

•

any Senior Lien in respect of such Collateral, regardless of how acquired, whether by grant, statute, operation of law, segregation or otherwise, shall be and shall remain senior and prior to any junior Lien in respect of such Collateral;

 

•

any Junior Second Lien in respect of such Collateral, regardless of how acquired, whether by grant, statute, operation of law, segregation or otherwise, shall be and shall remain senior and prior to any to any Junior Third Lien in respect of such Collateral;

 

•

any Junior Second Lien in respect of such Collateral, regardless of how acquired, whether by grant, statute, operation of law, segregation or otherwise, shall be junior and subordinate in all respects to any Senior Lien in respect of such Collateral; and

 

•

any Junior Third Lien in favor of the Collateral Trustee in respect of such Collateral, regardless of how acquired, whether by grant, statute, operation of law, segregation or otherwise, shall be junior and subordinate in all respects to any Senior Lien and any Junior Second Lien in respect of such Collateral.

Prohibition on Contesting Liens

The Senior Priority Lien Intercreditor Agreement provides that no Bank Group Secured Party, Secured Party or Pension Fund Secured Party shall object to or contest, or support any other Person in contesting or objecting to, in any proceeding (including without limitation, any insolvency proceeding), the validity, extent, perfection, priority or enforceability of any security interest of any Bank Group Secured Parties, Secured Parties or Pension Fund Secured Parties in any applicable Collateral. Notwithstanding any failure by any Bank Group Secured Party, Secured Party or Pension Fund Secured Party to perfect its security interests in any applicable Collateral or any avoidance, invalidation or subordination by any third party or court of competent jurisdiction of the security interests in any applicable Collateral granted to the Bank Group Secured Parties, Secured Parties or Pension Fund Secured Parties, the priority and rights as between the Bank Group Secured Parties, Secured Parties and Pension Fund Secured Parties with respect to any applicable Collateral shall be as set forth above under the caption “—Security for the Series A Notes”.

Access to Facility, Books and Records

Under the Senior Priority Lien Intercreditor Agreement, the Pension Fund Agent acknowledged and agreed that:

 

•

in connection with the exercise of the Collateral Trustee’s remedies against the Company or any other Guarantor with respect to any Collateral on which the Collateral Trustee has a Junior Second Lien; or