| COPART INC Item 1A Risk Factors Set forth below and elsewhere in this report and in other documents we file with the SEC are descriptions of the risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report We depend on a limited number of major suppliers of salvage vehicles |
| The loss of one or more of these major suppliers could adversely affect our results of operations and financial condition, and an inability to increase our sources of vehicle supply could adversely affect our growth rates |
| Historically, a limited number of vehicle suppliers have accounted for a substantial portion of our revenues |
| In fiscal 2006, vehicles supplied by our two largest suppliers accounted for approximately 21prca of our revenues |
| Supplier arrangements are either written or oral agreements typically subject to cancellation by either party upon 30 to 90 days notice |
| Vehicle suppliers have terminated agreements with us in the past in particular markets, which has affected the pricing for sales services in those markets |
| There can be no assurance that our existing agreements will not be cancelled |
| Furthermore, there can be no assurance that we will be able to enter into future agreements with vehicle suppliers or that we will be able to retain our existing supply of salvage vehicles |
| A reduction in vehicles from a significant vehicle supplier or any material changes in the terms of an arrangement with a substantial vehicle supplier could have a material adverse effect on our results of operations and financial condition |
| In addition, a failure to increase our sources of vehicle supply could adversely affect our earnings and revenue growth rates |
| Our strategic shift from live salvage sales to an entirely Internet-based sales model presents new risks, including substantial technology risks |
| In fiscal 2004, we converted all our salvage sales from a live auction process to an entirely Internet-based auction-style model based on technology developed internally by us |
| The conversion represents a significant change in the way we conduct business and presents numerous risks, including our increased reliance on the availability and reliability of our network systems |
| In particular, we believe the conversion presents the following risks, among others: · Our operating results in a particular period could be adversely affected in the event our networks are not operable for an extended period of time for any reason, as a result of Internet viruses, or as a result of any other technological circumstance that makes us unable to conduct our virtual sales |
| · Our business is increasingly reliant on internally developed technology, and we have limited historic experience developing technologies or systems for large-scale implementation and use |
| · Our general and administrative expenses have tended to increase as a percentage of revenue as our information technology payroll has increased |
| · The change in our business model may make it more difficult for management, investment analysts, and investors to model or predict our future operating results until sufficient historic data is available to evaluate the effect of the VB2 implementation over a longer period of time and in different economic environments |
| · Our increasing reliance on proprietary technology subjects us to intellectual property risks, including the risk of third party infringement claims or the risk that we cannot establish or protect intellectual property rights in our technologies |
| We have filed patent applications for VB2 in the United States, Netherlands, and Europe, but we cannot provide any 15 ______________________________________________________________________ assurances that patents will actually issue or that, if issued, the patent could not later be found to be unenforceable or invalid |
| Our operating results were adversely affected by abnormal expenses associated with hurricanes Katrina and Rita during the year ended July 31, 2006, and our operating margins in future periods could be adversely affected by the hurricanes |
| During the year ended July 31, 2006, we recognized substantial additional costs associated with hurricanes Katrina and Rita |
| These additional costs, characterized as “abnormal” under FAS 151, were recognized during the year ended July 31, 2006, and include the additional subhauling, payroll, equipment and facilities expenses directly related to the operating conditions created by the hurricanes |
| We expect these costs to continue in future periods |
| These “abnormal” costs do not include the normal expenses associated with the increased unit volume created by the hurricanes, which are deferred until the sale of the unit and are reflected in vehicle pooling costs on the balance sheet |
| As of July 31, 2006, approximately 28prca of the incremental salvage vehicles received as a result of the hurricanes remained unsold and in inventory |
| The Company expects that the majority of these vehicles will be disposed of primarily in the next two quarters |
| The Company’s expectation that we will sell the balance of the unsold hurricane-related vehicles primarily within the next two quarters is based on management’s current expectations, which assumes, among other things, that the Gulf Coast region will not experience any additional adverse weather events, including any additional hurricanes during the remainder of the 2006 hurricane season |
| The normal costs that have been capitalized will be recognized as yard expense as the vehicles are sold |
| Our results of operations may not continue to benefit from the implementation of VB2 to the extent we have experienced in recent periods |
| We believe that the implementation of our proprietary VB2 sales technologies across our salvage operations has had a favorable impact on our results of operations by increasing the size and geographic scope of our buyer base and increasing the average selling price for vehicles sold through our sales |
| VB2 was implemented across all our salvage yards beginning in the third quarter of fiscal 2004 |
| We do not believe, however, that we will continue to experience improvements in our results of operations at the same relative rates we have experienced in the last year |
| Failure to have sufficient capacity to accept additional cars at one or more of our salvage yards could adversely affect our relationships with insurance companies or other suppliers of salvage vehicles |
| Capacity at our salvage yards varies from period to period and from region to region |
| For example, following adverse weather conditions in a particular area, our yards in that area may fill and limit our ability to accept additional salvage vehicles while we process existing inventories |
| For example, as discussed above, hurricanes Katrina and Rita had an adverse effect on our operating results, in part because of yard capacity constraints in the Gulf Coast area |
| We regularly evaluate our capacity in all our markets and, where appropriate, seek to increase capacity through the acquisition of additional land and yards |
| We may not be able to reach agreements to purchase independent salvage yards in markets where we have limited excess capacity, and zoning restrictions or difficulties obtaining use permits may limit our ability to expand our capacity through acquisitions of new land |
| Failure to have sufficient capacity at one or more of our yards could adversely affect our relationships with insurance companies or other suppliers of salvage vehicles, which could have an adverse effect on our operating results |
| 16 ______________________________________________________________________ Factors such as mild weather conditions in the United States can have an adverse effect on our revenues and operating results as well as our revenue and earnings growth rates |
| Mild weather conditions in the United States tend to result in a decrease in the available supply of salvage vehicles because traffic accidents decrease and fewer automobiles are damaged |
| Accordingly, mild weather can have an adverse effect on our salvage vehicle inventories, which would be expected to have an adverse effect on our revenue and operating results and related growth rates |
| Conversely, our inventories will tend to increase in poor weather such as a harsh winter or as a result of adverse weather-related conditions such as flooding |
| During periods of mild weather conditions, our ability to increase our revenues and improve our operating results and related growth will be increasingly dependent on our ability to obtain additional vehicle suppliers and to compete more effectively in the market, each of which is subject to the other risks and uncertainties described in these sections |
| High fuel prices in the United States and Canada may have an adverse effect on our revenues and operating results as well as our earnings growth rates |
| Significant increases in the cost of fuel could lead to a reduction in miles driven per car and a reduction in accident rates |
| A material reduction in accident rates could have a material impact on revenue growth |
| In addition, under our PIP contracts the cost of towing the vehicle to one of our facilities is included in the PIP fee |
| We may incur increased fees which we will not be able to pass on to the insurance companies |
| A material increase in tow rates could have a material impact on our operating results |
| The salvage vehicle sales industry is highly competitive and we may not be able to compete successfully |
| We face significant competition for the supply of salvage vehicles and for the buyers of those vehicles |
| We believe our principal competitors include other vehicle sales and auction companies with whom we compete directly in obtaining vehicles from insurance companies and other suppliers, and large vehicle dismantlers, who may buy salvage vehicles directly from insurance companies, bypassing the salvage sales process |
| Many of the insurance companies have established relationships with competitive sales and auction companies and large dismantlers |
| Certain of our competitors may have greater financial resources than us |
| Due to the limited number of vehicle suppliers, the absence of long-term contractual commitments between us and our suppliers and the increasingly competitive market environment, there can be no assurance that our competitors will not gain market share at our expense |
| We may also encounter significant competition for local, regional and national supply agreements with vehicle suppliers |
| There can be no assurance that the existence of other local, regional or national contracts entered into by our competitors will not have a material adverse effect on our business or our expansion plans |
| Furthermore, we are likely to face competition from major competitors in the acquisition of salvage vehicle sales facilities, which could significantly increase the cost of such acquisitions and thereby materially impede our expansion objectives or have a material adverse effect on our results of operations |
| These potential new competitors may include consolidators of automobile dismantling businesses, organized salvage vehicle buying groups, automobile manufacturers, automobile auctioneers and software companies |
| While most vehicle suppliers have abandoned or reduced efforts to sell salvage vehicles directly without the use of service providers such as us, there can be no assurance that this trend will continue, which could adversely affect our market share, results of operations and financial condition |
| Additionally, existing or new competitors may be significantly larger and have greater financial and marketing resources than us; therefore, there can be no assurance that we will be able to compete successfully in the future |
| 17 ______________________________________________________________________ Because the growth of our business has been due in large part to acquisitions and development of new salvage vehicle sales facilities, the rate of growth of our business and revenues may decline if we are not able to successfully complete acquisitions and development of new facilities |
| We seek to increase our sales and profitability through the acquisition of other salvage vehicle sales facilities and the development of new salvage vehicle storage facilities |
| There can be no assurance that we will be able to: · continue to acquire additional facilities on favorable terms; · expand existing facilities in no-growth regulatory environments; · increase revenues and profitability at acquired and new facilities; · maintain the historical revenue and earnings growth rates we have been able to obtain through facility openings and strategic acquisitions; or · create new salvage vehicle storage facilities that meet our current revenue and profitability requirements |
| As we continue to expand our operations, our failure to manage growth could harm our business and adversely affect our results of operations and financial condition |
| Our ability to manage growth is not only dependent on our ability to successfully integrate new facilities, but also on our ability to: · hire, train and manage additional qualified personnel; · establish new relationships or expand existing relationships with vehicle suppliers; · identify and acquire or lease suitable premises on competitive terms; · secure adequate capital; and · maintain the supply of vehicles from vehicle suppliers |
| Our inability to control or manage these growth factors effectively could have a material adverse effect on our financial position, results of operations, or cash flows |
| Our annual and quarterly performance may fluctuate, causing the price of our stock to decline |
| Factors that may affect our operating results include, but are not limited to, the following: · fluctuations in the market value of salvage and used vehicles; · the availability of salvage vehicles; · variations in vehicle accident rates; · buyer participation in the Internet bidding process; · delays or changes in state title processing; 18 ______________________________________________________________________ · changes in state or federal laws or regulations affecting salvage vehicles; · changes in state laws affecting who may purchase salvage vehicles; · our ability to integrate and manage our acquisitions successfully; · the timing and size of our new facility openings; · the announcement of new vehicle supply agreements by us or our competitors; · severity of weather and seasonality of weather patterns; · the amount and timing of operating costs and capital expenditures relating to the maintenance and expansion of our business, operations and infrastructure; · the availability and cost of general business insurance; · labor costs and collective bargaining; · availability of subhaulers at competitive rates; · acceptance of buyers and sellers of our Internet-based model deploying VB2, a proprietary Internet auction-style sales technology; · changes in the current levels of out of state and foreign demand for salvage vehicles; · the introduction of a similar Internet product by a competitor; and · the ability to obtain necessary permits to operate salvage storage facilities |
| Due to the foregoing factors, our operating results in one or more future periods can be expected to fluctuate |
| As a result, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance |
| In the event such fluctuations result in our financial performance being below the expectations of public market analysts and investors, the price of our common stock could decline substantially |
| Our strategic shift to an Internet-based sales model has increased the relative importance of intellectual property assets to our business, and any inability to protect those rights could have a material adverse effect on our business, financial condition, or results of operations |
| Implementation of VB2 across our salvage operations has increased the relative importance of intellectual property rights to our business |
| Our intellectual property rights include pending patent applications for VB2 as well as trademarks, trade secrets, copyrights and other intellectual property rights |
| We are in the process of prosecuting an initial patent application relating to VB2 and cannot predict whether a patent will actually issue from that application |
| Even if a patent is issued, the scope of the protection gained may be insufficient or any issued patent could subsequently be deemed invalid or unenforceable |
| In addition, we are increasingly entering into agreements with third parties regarding the license or other use of our intellectual property in foreign jurisdictions |
| Effective intellectual property protection may not be available in every country in which our products and services are distributed, deployed, or made available |
| We seek to maintain certain intellectual property rights as trade secrets |
| The secrecy could be compromised by third parties, or intentionally or accidentally by our employees, which would cause us to lose the competitive advantage resulting from those trade secrets |
| Any significant impairment of our intellectual property rights, 19 ______________________________________________________________________ or any inability to protect our intellectual property rights, could have a material adverse effect on our financial position, results of operations, or cash flows |
| We have in the past been and may in the future be subject to intellectual property rights claims, which are costly to defend, could require us to pay damages, and could limit our ability to use certain technologies in the future |
| Litigation based on allegations of infringement or other violations of intellectual property rights are common among companies who rely heavily on intellectual property rights |
| Our reliance on intellectual property rights has increased significantly in recent years as we have implemented our VB2 auction-style sales technologies across our business and abandoned live auctions |
| As we face increasing competition, the possibility of intellectual property rights claims against us grows |
| Litigation and any other intellectual property claims, whether with or without merit, can be time-consuming, expensive to litigate and settle, and can divert management resources and attention from our core business |
| An adverse determination in current or future litigation could prevent us from offering our products and services in the manner currently conducted |
| We may also have to pay damages or seek a license for the technology, which may not be available on reasonable terms and which may significantly increase our operating expenses, if it is available for us to license at all |
| We could also be required to develop alternative non-infringing technology, which could require significant effort and expense |
| New accounting pronouncements or new interpretations of existing standards could require us to make adjustments in our accounting policies that could adversely affect our financial statements |
| The Financial Accounting Standards Board, the Securities and Exchange Commission, or other accounting organizations or governmental entities issue new pronouncements or new interpretations of existing accounting standards that may require us to change our accounting policies and procedures |
| To date, we do not believe any new pronouncements or interpretations have had an adverse effect on our financial condition or results of operations, but future pronouncements or interpretations could require us to change our policies or procedures |
| Moreover, we continually review our critical accounting policies in light of the accounting literature and changes in our operations |
| Government regulation of the salvage vehicle sales and auction industry may impair our operations, increase our costs of doing business and create potential liability |
| Participants in the salvage vehicle sales and auction industry are subject to, and may be required to expend funds to ensure compliance with a variety of US or Canadian, federal, state, provincial and local governmental, regulatory and administrative rules, regulations, land use ordinances, licensure requirements and procedures, including those governing vehicle registration, the environment, zoning and land use |
| Failure to comply with present or future regulations or changes in interpretations of existing regulations may result in impairment of our operations and the imposition of penalties and other liabilities |
| At various times, we may be involved in disputes with local governmental officials regarding the development and/or operation of our business facilities |
| We believe that we are in compliance in all material respects with applicable regulatory requirements |
| We may be subject to similar types of regulations by federal, provincial, state, and local governmental agencies in new markets |
| In addition, new regulatory requirements or changes in existing requirements may delay or increase the cost of opening new facilities, may limit our base of salvage vehicle buyers and may decrease demand for our vehicles |
| 20 ______________________________________________________________________ The operation of our storage facilities poses certain environmental risks, which could adversely affect our financial position, results of operations or cash flows |
| Our operations are subject to federal, state, provincial and local laws and regulations regarding the protection of the environment |
| In the salvage vehicle sales industry, large numbers of wrecked vehicles are stored at storage facilities and, during that time, spills of fuel, motor oil and other fluids may occur, resulting in soil, surface water or groundwater contamination |
| In addition, certain of our facilities generate and/or store petroleum products and other hazardous materials, including waste solvents and used oil |
| We could incur substantial expenditures for preventative, investigative or remedial action and could be exposed to liability arising from our operations, contamination by previous users of certain of our acquired facilities, or the disposal of our waste at off-site locations |
| Environmental laws and regulations could become more stringent over time and there can be no assurance that we or our operations will not be subject to significant costs in the future |
| Although we have obtained indemnification for pre-existing environmental liabilities from many of the persons and entities from whom we have acquired facilities, there can be no assurance that such indemnifications will be adequate |
| Any such expenditures or liabilities could have a material adverse effect on our results of operations and financial condition |
| If we experience problems with our providers of fleet operations, our business could be harmed |
| We rely upon independent subhaulers to pick up and deliver vehicles to and from our storage facilities |
| Our failure to pick up and deliver vehicles in a timely and accurate manner could harm our reputation and brand, which could have a material adverse effect on our business |
| Further, an increase in fuel cost may lead to increased prices charged by our independent subhaulers, which may significantly increase our cost |
| We are partially self-insured for certain losses |
| We are partially self-insured for certain losses related to medical insurance, general liability, workers’ compensation and auto liability |
| Our liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet date |
| The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates |
| While we believe these estimates are reasonable based on the information currently available, if actual trends, including the severity of claims and medical cost inflation, differ from our estimates, our results of operations could be impacted |
| Further, we rely on independent actuaries to assist us in establishing the proper amount of reserves for anticipated payouts associated with these self-insured exposures |
| Our executive officers, directors and their affiliates hold a large percentage of our stock and their interests may differ from other shareholders |
| Our executive officers, directors and their affiliates beneficially own, in the aggregate, approximately 21prca of our common stock as of July 31, 2006 |
| If they were to act together, these shareholders would have significant influence over most matters requiring approval by shareholders, including the election of directors, any amendments to our articles of incorporation and certain significant corporate transactions, including potential merger or acquisition transactions |
| In addition, without the consent of these shareholders, we could be delayed or prevented from entering into transactions that could be beneficial to us or our other investors |
| These shareholders may take these actions even if they are opposed by our other investors |
| 21 ______________________________________________________________________ We have a shareholder rights plan, or poison pill, which could affect the price of our common stock and make it more difficult for a potential acquirer to purchase a large portion of our securities, to initiate a tender offer or a proxy contest, or to acquire us |
| In March 2003, our board of directors adopted a shareholder rights plan, commonly known as a poison pill |
| The poison pill may discourage, delay, or prevent a third party from acquiring a large portion of our securities, initiating a tender offer or proxy contest, or acquiring us through an acquisition, merger, or similar transaction |
| Such an acquirer could be prevented from consummating one of these transactions even if our shareholders might receive a premium for their shares over then-current market prices |
| If we lose key management or are unable to attract and retain the talent required for our business, we may not be able to successfully manage our business or achieve our objectives |
| Our future success depends in large part upon the leadership and performance of our executive management team, all of whom are employed on an at-will basis and none of whom are subject to any agreements not to compete |
| If we lose the service of one or more of our executive officers or key employees, in particular Willis J Johnson, our Chief Executive Officer, and A Jayson Adair, our President, or if one or more of them decides to join a competitor or otherwise compete directly or indirectly with us, we may not be able to successfully manage our business or achieve our business objectives |
| Compliance with new rules and regulations concerning corporate governance may be costly and time consuming |
| The Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, requires, among other things, that companies adopt new corporate governance measures, imposes comprehensive reporting and disclosure requirements, sets stricter independence and financial expertise standards for board and audit committee members and imposes increased civil and criminal penalties for companies, their chief executive officers and chief financial officers for securities law violations |
| In addition, the Nasdaq Global Select Market, on which our common stock is traded, has adopted additional comprehensive rules and regulations relating to corporate governance |
| These laws, rules and regulations will increase the scope, complexity and cost of our corporate governance, reporting and disclosure practices, which could harm our results of operations and divert management’s attention from business operations |
| These new rules and regulations may also make it more difficult and more expensive for us to obtain director and officer liability insurance and make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee |
| Executive Officers of the Registrant Executive Officers Our executive officers and their ages as of July 31, 2006 were as follows: Name Age Position Willis J Johnson 59 Chairman of the Board, Chief Executive Officer and Director A Jayson Adair 36 President and Director James E Meeks 56 Executive Vice President, Chief Operating Officer and Director William E Franklin 50 Senior Vice President and Chief Financial Officer Paul A Styer 50 Senior Vice President, General Counsel and Secretary Vincent W Mitz 43 Senior Vice President of Marketing David L Bauer 45 Senior Vice President of Information Technology and Chief Information Officer Russell D Lowy 47 Senior Vice President of Operations Thomas E Wylie 55 Senior Vice President of Human Resources Simon E Rote 34 Vice President of Finance 22 ______________________________________________________________________ Willis J Johnson, our founder, has served as our Chairman of the Board since 2004, Chief Executive Officer since 1986 and as a director since 1982 |
| Johnson served as our President from 1986 until May 1995 |
| Johnson was an officer and director of U-Pull-It, Inc |
| (“UPI”), a self-service auto dismantler which he co-founded in 1982, from 1982 through September 1994 |
| Johnson sold his entire interest in UPI in September 1994 |
| Johnson has over 30 years of experience in owning and operating auto dismantling companies |
| A Jayson Adair has served as our President since November 1996 and as a director since September 1992 |
| From April 1995 until October 1996, Mr |
| Adair served as our Executive Vice President |
| From August 1990 until April 1995, Mr |
| Adair served as our Vice President of Sales and Operations and from June 1989 to August 1990, Mr |
| Adair served as our Manager of Operations |
| James E Meeks has served as our Vice President and Chief Operating Officer since September 1992 when he joined us concurrent with our purchase of South Bay Salvage Pool (“San Martin Operation”) |
| From April 1986 to September 1992, Mr |
| Meeks, together with his family, owned and operated the San Martin Operation |
| Meeks was also an officer, director and part owner of Cas & Meeks, Inc, a towing and subhauling service company, which he operated from 1991 to March 2001 |
| Meeks has over 30 years of experience in the vehicle dismantling business |
| Franklin has over 20 years of international finance and executive management experience |
| From October 2001 to March 2004, he served as the Chief Financial Officer of Ptek Holdings, Inc, an international telecommunications company |
| Prior to that he was the President and CEO of Clifford Electronics, an international consumer electronics company |
| Franklin received a Master’s degree in Business Administration from the University of Southern California and his Bachelor’s of Science degree in Finance from California State University, Bakersfield |
| Franklin is a Certified Public Accountant |
| Paul A Styer has served as our General Counsel since September 1992, served as our Senior Vice President since April 1995 and as our Vice President from September 1992 until April 1995 |
| Styer served as one of our directors from September 1992 until October 1993 |
| Styer has served as our Secretary since October 1993 |
| From August 1990 to September 1992, Mr |
| Styer conducted an independent law practice |
| Styer received a BA from the University of California, Davis and a JD from the University of the Pacific |
| Styer is a member of the California State Bar Association |
| Vincent W Mitz has served as our Senior Vice President of Marketing since May 1995 |
| Mitz was employed by NER Auction Systems from 1981 until its acquisition by Copart in 1995 |
| Mitz held numerous positions culminating as Vice President of Sales and Operations for NER’s New York region from 1990 to 1993 and Vice President of Sales & Marketing from 1993 to 1995 |
| David L Bauer has served as our Senior Vice President of Information Technology and Chief Information Officer since joining Copart in December 1995 |
| Bauer was an independent systems consultant from 1987 to 1995 |
| Prior to working independently, Mr |
| Bauer spent 1983 to 1987 working in Arthur Andersen & Company’s Management Information Consulting Division, leaving in 1987 as a Consulting Manager |
| Bauer earned a BA in Economics from the University of California, San Diego in 1981 and an MBA from University of California, Davis in 1983 |
| Russell D Lowy has served as our Senior Vice President of Operations since July 2002 |
| Lowy served as Vice President of Operations, Eastern Division from December 1999 to July 2002 |
| From December 1998 to December 1999, Mr |
| Lowy served as Director of Training and Auditing |
| Lowy served as Assistant Vice President of Operations from 1996 to 1997, Regional Manager of Northern California from 1995 to 1996 and Marketing Manager from 1993 to 1994 |
| Lowy spent 23 ______________________________________________________________________ nine years with ADP—Claims Solutions Group |
| Lowy received a BS in Business Administration from California State University, Chico in 1982 |
| Thomas E Wylie has served as our Senior Vice President of Human Resources since September 2003 |
| Wylie has over 25 years of human resources and organizational change management experience |
| From January 2001 to November 2003 he served as Vice President, Human Resources, Systems and Administration for the California Division of Kaiser Permanente, a health care organization headquartered in Oakland, California |
| He held several other positions with Honeywell starting in 1979 |
| Wylie received a bachelor’s degree from Hamline University in St |
| Paul, Minnesota |
| Simon E Rote has served as our Vice President of Finance since March 2003 |
| Rote served as our Controller from December 1998 to March 2003, and as our Assistant Controller from December 1997 to December 1998 |
| Rote was an auditor with KPMG LLP from 1994 to 1997 |
| Rote received a BS in Accounting from St |
| Mary’s College in 1994 |
| Our executive officers are elected by our board of directors and serve at the discretion of the board |
| There are no family relationships among any of our directors or executive officers, except that A Jayson Adair is the son-in-law of Willis J Johnson |