-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IhYs1wIsI4YnTWqOIRgEL0wRHzQxxhTBF6dODl3XfvR1ycofFxvAUcM7Dxo4r+JU oVoU66lR4f+CkMMkSsbGsA== 0000790372-01-500008.txt : 20010402 0000790372-01-500008.hdr.sgml : 20010402 ACCESSION NUMBER: 0000790372-01-500008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MS CARRIERS INC CENTRAL INDEX KEY: 0000790372 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 621014070 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14781 FILM NUMBER: 1587596 BUSINESS ADDRESS: STREET 1: 3171 DIRECTORS ROW CITY: MEMPHIS STATE: TN ZIP: 38116 BUSINESS PHONE: 9013322500 MAIL ADDRESS: STREET 1: 3171 DIRECTORS ROW CITY: MEMPHIS STATE: TN ZIP: 38116 10-K 1 msc10k.txt M.S. CARRIERS United States Securities and Exchange Commission Washington, D.C. 20549 -------------- Form 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2000 Commission file number 0-14781 M.S. Carriers, Inc. (Exact name of registrant as specified in its charter) Tennessee 62-1014070 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 3171 Directors Row, Memphis, TN 38131 (Address of principal executive offices) (Zip Code) (901) 332-2500 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value Nasdaq National Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to filed such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the registrant's $.01 par value common stock held by non-affiliates of the registrant as of March 15, 2000 was $213,166,460 (based on the closing sale price of $25.234 per share on that date, as reported by NASDAQ). As of March 15, 2000, 11,339,101 shares of the registrant's common stock were outstanding. Table of Contents PART I Item 1. Business. . . . . . . . . . . . . . . . . . . . . . 3 Item 2. Properties . . . . . . . . . . . . . . . . . . 7 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 8 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . 8 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . . . 9 Item 6. Selected Financial Data . . . . . . . . . . . . . .10 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . .11 Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . .16 Item 8. Financial Statements and Supplementary Data . . . .16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures . . . . . .17 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . 17 Item 11. Executive Compensation . . . . . . . . . . . . . . 17 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . 17 Item 13. Certain Relationships and Related Transactions . . 17 PART IV Item 14. Exhibits, Financial Statements and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . 17 2 PART I ITEM 1. BUSINESS GENERAL M.S. Carriers, Inc. (with its subsidiaries, the "Company" or "M.S. Carriers") is a transportation company primarily engaged in the hauling of truckload shipments of general commodities throughout the United States and the provinces of Quebec and Ontario in Canada. M.S. Carriers is a Tennessee corporation headquartered in Memphis, Tennessee. The Company's principal executive offices are located at 3171 Directors Row, Memphis, Tennessee 38131, and its telephone number is (901) 332-2500. M.S. Carriers has both common and contract authority to transport any type of freight (except certain types of explosives, household goods and commodities in bulk) from any point in the continental United States to any other point in any state over any route selected by the Company. The Company has authority in Canada granted by the Quebec Transport Commission and the Ontario Highway Transport Board to haul general commodities from points in the United States to points in Quebec and Ontario and from points in Quebec and Ontario into the United States. The Company also provides interline service to and from Mexico. The Company's primary line-haul traffic flows are between the Middle South and the Southwest, Midwest, Central States, Southeast and Northeast. In addition, the Company operates regional networks which serve the West, Southeast, Southwest, Middle South, Central States and Northeast. The average length of a trip (one-way) was approximately 701 miles in 2000 and 729 miles in 1999. The principal types of freight transported are packages, retail goods, nonperishable foodstuffs, paper and paper products, household appliances, furniture and packaged petroleum products. BUSINESS STRATEGY M.S. Carriers has targeted the service-sensitive segment of the transportation market rather than that segment which uses price as its primary consideration. The Company has chosen to provide premium services and charge compensating rates rather than to compete solely on the basis of price. The principal elements of the Company's premium service are on-time deliveries, dependable late-model equipment, fully integrated computer systems to monitor shipment status and variations from schedules, on-board communications systems, multiple and appointment pickups and deliveries, assistance in loading and unloading, the availability of extra trailers which can be placed for the convenience of customers and sufficient equipment to respond promptly to customers' varying requirements. OPERATIONS The Company's operations are designed to maximize efficiency while maintaining the emphasis placed on providing premium service to customers. Through the use of the Company's information and satellite tracking systems, the location of all shipments and equipment is continuously monitored to coordinate routes and increase equipment utilization. The Company's usual hauling method requires the unit carrying the shipment to proceed directly from origin to destination with no delay enroute occasioned by a change of drivers, relays or circuitous routing. The Company's customer service department maintains constant customer contact regarding overall service requirements and specific freight movements and also attempts to produce backhauls for each unit. Because the average trip has been approximately 701 miles, most of the Company's shipments are hauled by one driver rather than two. The relatively short trips 3 ordinarily run by the Company make this method of operation preferable to team operations. Each of the Company's over-the-road tractors is equipped with a sleeper cab so that the driver can comply with the Department of Transportation's hours of service guidelines. MARKETING The Company's individualized service requires a strong commitment to marketing. The Company's marketing efforts concentrate on attracting customers that ship multiple loads from numerous locations that complement the Company's existing traffic flows. As shipping patterns of existing customers expand or change, the Company attempts to obtain additional customers to complement the new traffic flows. Thus, the effort to attract new customers varies from time to time depending upon growth or changes in the shipping patterns of existing customers. The Company's major revenue source is the irregular route dry van truckload market. In this market, the Company focuses on customers who value the broad geographic coverage, premium services and flexibility available from a larger carrier. These customers generally prefer to have their freight handled by a few carriers with whom they can establish long-term relationships. The Company also provides dedicated fleet services. These services supplement the Company's strengths in its traditional market and position the Company to meet the anticipated needs of its customers. The Company had revenues of $144.6 million in 2000 and $129.7 million in 1999 from freight shipments having either a point of origin or a point of destination in Mexico. These shipments represented approximately 20.7% and 20.9%, respectively, of total revenues for 2000 and 1999. The largest 25, 10 and 5 customers accounted for approximately 50%, 31% and 22%, respectively, of the Company's revenues during 2000. Most of these customers are large, publicly-held companies. One customer, Sears, accounted for approximately 10% of the Company's revenues during 2000 and 11% in 1999. No other customer accounted for more than 10% of the Company's revenues during 2000 or 1999. DRIVERS AND EMPLOYEES The Company recognizes the importance of maintaining a professional driver work force. The Company has established several programs to increase driver loyalty and to give drivers a stake in the Company. The drivers are compensated on the basis of miles driven and other services such as loading and unloading and number of deliveries. Base pay for miles driven increases with a driver's length of employment with the Company. Drivers are selected in accordance with specific Company guidelines relating primarily to safety records, driving experience and personal evaluations. Once selected, a driver is trained in all phases of Company policies and operations as well as safety techniques and fuel efficient operation of equipment. In addition, all new drivers must pass a road test prior to assignment to a vehicle. Recognizing the importance of driver contact while on the road for extended periods, the Company maintains an electronic mailbox system which allows the drivers to transmit and receive messages 24 hours a day, equips each of its tractors with a mobile two-way satellite communication system and maintains regular telephonic contact between dispatchers and drivers. The Company also recognizes that owner-operators provide the Company with another source of drivers to support its operations. Traditional owner-operators are independent contractors who supply their own tractors and drivers, and are responsible for their operating expenses in return for a negotiated fee based upon number of miles driven and accessorial services provided. While the Company's primary benefit from traditional owner-operators is the acquisition of 4 the services of a qualified driver, an additional benefit is the Company requires less capital for growth as owner-operators provide their own tractors. In late 1997, the Company began utilizing leased owner-operators. A leased owner-operator is an independent contractor who enters into an agreement with the Company or one of its subsidiaries to lease, with the option to purchase, a tractor and supplies that tractor and a driver to the Company. The Company has determined that there are many drivers who desire to own a tractor but who are unable to acquire a tractor without financial accommodations from the Company. The Company intends to continue its emphasis on recruiting and retaining owner-operators. Since competition for qualified drivers is intense, the Company emphasizes the importance of attracting and retaining qualified drivers. The Company employs driver recruiters and owner-operator recruiters. The competitive compensation programs, together with the Company's late-model equipment, relatively short trips and get-home policies provide important incentives to attract and retain qualified drivers. In addition, the Company operates a professional driving academy to train new drivers and employs full-time recruiters in connection therewith. Despite these incentives and programs, the Company experiences difficulty from time to time in attracting and retaining qualified drivers. At December 31, 2000, the Company employed 5,708 persons, of whom 4,373 were drivers, 274 were mechanics and other equipment maintenance personnel, and 1061 were support personnel including management and administration. The Company also leased 678 tractors with qualified drivers from traditional owner-operators and had 718 tractors in its leased owner-operator program. None of the Company's employees are represented by a collective bargaining unit, and management considers the Company's relationship with its employees to be excellent. ACQUISITIONS The trucking industry has historically been a fragmented industry which management of the Company believes will experience substantial consolidation in the near future. In 1997, the Company adopted a strategy of seeking to acquire small-to-medium trucking companies throughout the United States. Management of the Company believed any acquisition should be accretive to earnings within six months and should place the Company in new markets for customers and drivers or provide additional capacity for other new business opportunities. In March 1998, the Company concluded the purchase of certain assets of the U.S. operations of Challenger Motor Freight (U.S.), Inc., adding 195 tractors and 481 trailers to its fleet. In November 1998, the Company hired 280 drivers and added 803 trailers to its fleet in connection with a transaction with Interstate Trucking Corporation of America. Although several opportunities were reviewed during 1999, management was unable to identify a candidate which met the Company's acquisition criteria. The Company did not pursue any acquisition candidates during 2000. LOGISTICS SERVICES AND TRANSPLACE.COM In addition to its trucking operations, the Company provided third party logistics services to its customers. The logistics operations arranged freight transportation for customers using various carriers, including the Company, through agency relationships with the customers. In April 2000, the Company entered into an Operating Agreement with five other trucking companies to form Transplace.com, an internet-based global transportation venture that would create a marketplace for shippers and carriers. Pursuant to the agreement, each of the six companies agreed to contribute their respective existing logistics operations and cash of up to $5 million to fund 5 working capital. Transplace.com commenced operations effective July 1, 2000. The Company contributed all of its logistics operations, plus $5 million of cash, in exchange for an approximate 13% ownership interest in Transplace.com. The Company accounts for its investment in Transplace.com by the equity method and its investment in Transplace.com is classified as other long-term assets on its balance sheet. The Company's logistics operations generated approximately $35.4 million of operating revenues and $1.1 million of operating income for the six-month period ended June 30, 2000. During the six-month period ended December 31, 2000, the Company reported $1.6 million of operating revenues and $0.3 million of operating income from its logistics operations. These amounts are related to logistics services that were in process at the time of the Company's transfer of its logistics operations to Transplace.com. PROPOSED MERGER WITH SWIFT TRANSPORTATION CO., INC. On December 11, 2000, the Company entered into a merger agreement with Swift Transportation Co., Inc. (Swift). Under the agreement, the Company will become a wholly-owned subsidiary of Swift. In the merger, 1.7 shares of Swift common stock will be exchanged for each share of M.S. Carriers common stock. The merger is expected to be accounted for as a pooling-of-interests. Prior to the merger, the Company expects to offer approximately 300,000 shares of its common stock. The merger is expected to close in the second quarter of 2001. COMPETITION The entire transportation industry, including the trucking industry, is highly competitive. The Company competes primarily with other truckload carriers. Competition for the freight transported by the Company is based, in the long-term, primarily on service and efficiency and, to a lesser degree, on freight rates. However, in recent years the Company has experienced an increased focus on freight rates in certain of the markets served by the Company. Several other truckload carriers have substantially greater financial resources, own more equipment or carry a larger volume of freight than the Company. REGULATION The Company is a motor carrier regulated by the United States Department of Transportation. Additionally, such matters as weight and dimensions of equipment are subject to federal, state and international regulations. The Company believes that it is in substantial compliance with all licensing and regulatory requirements in each jurisdiction in which it operates. SEASONALITY In the trucking industry generally, results of operations tend to show a seasonal pattern as some customers reduce shipments during and after the winter holiday season and during the summer months due to temporary plant closings for vacations. Revenues can also be affected by bad weather and holidays, since revenue is directly related to available working days. Furthermore, operating expenses historically have been higher in the winter months due primarily to decreased fuel efficiency and increased maintenance costs of revenue equipment in cold weather. FUEL During the latter part of 1999 and continuing throughout 2000, fuel prices were significantly higher than those in recent years. The Company implemented a fuel surcharge program in response to these higher fuel prices which only partially 6 passed these higher costs to customers. Accordingly, the profitability of the Company was negatively impacted by high fuel costs in 2000. Fuel prices remain high at the beginning of 2001. Shortages of fuel or further increases in fuel prices could have an adverse effect on the operations and profitability of the Company. The Company maintains fuel storage tanks at certain of its terminals. Leakage or damage to these tanks could subject the Company to environmental clean-up costs. The Company believes it is in substantial compliance with all environmental laws and regulations. ITEM 2. PROPERTIES OFFICE AND TERMINAL FACILITIES The Company's executive offices and principal terminal are located in Memphis, Tennessee on 3-acre and 48-acre tracts of land, respectively, both of which are owned by the Company. The executive offices have 57,000 square feet of office space. The principal terminal consists of 52,000 square feet of office space and 41,000 square feet of maintenance facilities. The Company owns office and maintenance facilities of 34,500 square feet in Columbus, Ohio, 16,500 square feet in Laredo, Texas, 16,500 square feet in Martinsburg, West Virginia and 45,500 square feet in Atlanta, Georgia. Additionally, the Company owns a 3,000 square foot office and terminal on a 4-acre tract of land in Tupelo, Mississippi. The Company leases several small offices and/or trailer parking yards throughout the country. REVENUE EQUIPMENT The Company has a policy of utilizing standardized tractors and trailers manufactured to the Company's specifications. At December 31, 2000, the Company had 3,733 Company-operated tractors; leased 678 tractors owned by traditional owner-operators; and had 718 tractors in its leased owner-operator program. The Company has 14,939 van trailers which are 102 inches wide with a minimum of 109.5 inches of inside height and 132 specialty trailers for a dedicated account. Most of the tractors are manufactured by Freightliner and most of the trailers are manufactured by Lufkin or Trailmobile. Standardization enables the Company to simplify driver training, control the cost of spare parts inventory and enhance its preventive maintenance program. The Company adheres to a comprehensive maintenance program, based on the amount of use of the tractor, designed to minimize equipment down-time and enhance the resale value of all of its equipment. The Company constantly monitors the fuel efficiency of its power equipment. 7 The following table shows the age of Company-operated tractors and trailers at December 31, 2000: Model Year Tractors Trailers 2001 418 855 2000 1,466 2,391 1999 787 3,234 1998 791 3,081 1997 265 1,317 1996 6 1,204 1995 - 2,285 1994 - 600 1993 - 76 1992 - 28 ----- ----- 3,733 15,071 ===== ====== ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation incidental to its business, primarily involving claims for personal injuries and property damage incurred in the transportation of freight. The Company believes adverse results in one or more of these cases would not have a material adverse effect on its financial position or its results of operations. Effective January 1, 1999, the Company self-insures the first $500,000 of liability for each occurrence involving bodily injury and property damage during the policy year. The Company also self-insures the second $500,000 of liability for each occurrence until an aggregate of $1,000,000 of liability has been paid by the Company on claims exceeding $500,000. The Company maintains insurance which covers liability in excess of the self-insured amounts at coverage levels that management considers adequate. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 2000. 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK The Company's Common Stock is traded in the Nasdaq National Market ("Nasdaq") under the symbol "MSCA". The following table sets forth, for the calendar periods indicated, the high and low sales prices for the Company's Common Stock as reported by Nasdaq for the periods indicated. High Low ----------------------------------- 2000 1st Quarter $25.6875 $19.5000 2nd Quarter 25.8750 16.1250 3rd Quarter 20.3750 14.5625 4th Quarter 34.3125 13.6250 1999 1st Quarter $32.9375 $24.8438 2nd Quarter 33.2500 26.6250 3rd Quarter 32.1563 24.3125 4th Quarter 29.0313 22.8125 On March 15, 2001, the last reported sales price of the Company's common stock was $25.234 per share. At that date, the number of shareholders of record was 161. The Company estimates that there are approximately 3,000 beneficial owners of the Company's outstanding shares of Common Stock. DIVIDEND POLICY The Company has never paid a cash dividend on its Common Stock. It is the current intention of the Company's Board of Directors to continue to retain earnings to finance the growth of the Company's business rather than to pay dividends. The merger agreement with Swift contains restrictions on the payment of cash dividends pending the consummation of the merger which is expected to occur in the second quarter of 2001. 9 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein. For the year ended December 31 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------ [In Thousands, except per share amounts] Statement of income data: Operating revenues $697,522 $620,414 $528,841 $415,933 $340,236 Operating expenses: Salaries, wages and benefits 236,726 184,676 163,225 133,517 127,237 Operations and maintenance 128,975 97,947 84,260 71,381 66,224 Taxes and licenses 14,690 12,664 11,425 10,708 8,973 Insurance and claims 23,213 21,987 20,833 18,462 18,777 Communications and utilities 9,307 7,908 6,914 5,711 5,209 Depreciation and amortization 70,666 62,401 49,794 40,094 37,010 Gains on disposals of revenue equipment (1,108) (941) (1,200) (490) (2,397) Rent and purchased transportation 166,982 171,572 142,766 99,584 53,014 Other 6,116 5,407 3,901 2,077 2,362 - ------------------------------------------------------------------------------ Total operating expenses 655,567 563,621 481,918 381,044 316,409 - ------------------------------------------------------------------------------ Operating income 41,955 56,793 46,923 34,889 23,827 Other expense (income): Interest expense 18,244 12,592 8,484 5,775 4,844 Other income (1,447) (3,221) (1,353) (320) (487) - ------------------------------------------------------------------------------ Income before income taxes 25,158 47,422 39,792 29,434 19,470 Income taxes 8,816 16,835 14,524 10,472 7,031 - ------------------------------------------------------------------------------ Net income $16,342 $30,587 $25,268 $18,962 $12,439 - ------------------------------------------------------------------------------ Basic earnings per share $1.43 $2.49 $2.06 $1.57 $1.03 - ------------------------------------------------------------------------------ Diluted earnings per share $1.42 $2.39 $1.99 $1.54 $1.02 - ------------------------------------------------------------------------------ At December 31 2000 1999 1998 1997 1996 As As As As Restated* Restated* Restated* Restated* - ------------------------------------------------------------------------------ [In thousands] Balance sheet data: Total assets $620,452 $595,533 $488,009 $366,246 $294,662 Long-term obligations, less current maturities 207,816 202,405 146,595 79,977 45,373 Stockholders' equity 218,155 228,310 196,853 170,491 147,311 *See Note 17 to the Notes to Consolidated Financial Statements. 10 The following tables set forth data regarding the freight revenues, operations, revenue equipment and employees of the Company. 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------ For the year ended December 31: Operating ratio(1) 94.0% 90.9% 91.1% 91.6% 93.0% Average number of truckloads per week(2) 12,717 10,964 9,839 9,385 9,277 Average revenues per tractor per week(2) $ 2,590 $2,721 $2,702 $2,652 $2,575 Average miles per trip(2) 701 729 689 633 534 Average revenue per mile(2) $ 1.23 $ 1.20 $ 1.20 $ 1.19 $ 1.23 At December 31: Total tractors operated: Company owned 3,733 3,283 2,750 2,370 2,046 Owner-Operator owned 678 743 739 711 419 Owner-Operator leased 718 562 264 60 - - ------------------------------------------------------------------------------ Total tractors 5,129 4,588 3,753 3,141 2,465 Total trailers 15,071 14,369 12,164 8,981 7,156 Number of employees 5,708 4,667 3,336 3,112 2,886 (1) Operating expenses as a percentage of operating revenues. (2) Excludes logistics services. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following table sets forth the percentage relationship of revenue and expense items to operating revenues for the periods indicated. Percentage of Operating Revenues -------------------------------- Year ended December 31 2000 1999 1998 - ----------------------------------------------------------------------------- Operating revenues 100.0% 100.0% 100.0% Operating expenses: Salaries, wages and benefits 33.9 29.8 30.9 Operations and maintenance 18.5 15.8 15.9 Taxes and licenses 2.1 2.0 2.2 Insurance and claims 3.3 3.5 3.9 Communications and utilities 1.3 1.3 1.3 Depreciation and amortization 10.1 10.1 9.4 Gains on disposals of revenue equipment (0.2) (0.2) (0.2) Rent and purchased transportation 23.9 27.7 27.0 Other 1.1 0.9 0.7 - ----------------------------------------------------------------------------- Total operating expenses 94.0 90.9 91.1 - ------------------------------------------------------------------------------ Operating income 6.0 9.1 8.9 Other expense (income): Interest expense 2.6 2.0 1.6 Other income (0.2) (0.5) (0.2) - ------------------------------------------------------------------------------ Income before income taxes 3.6 7.6 7.5 Income taxes 1.3 2.7 2.7 - ------------------------------------------------------------------------------ Net income 2.3% 4.9% 4.8% - ------------------------------------------------------------------------------ 11 The sources of the Company's operating revenues were as follows: For the year ended December 31 2000 1999 1998 - ----------------------------------------------------------------------------- [in Thousands] Trucking Revenues: Domestic Irregular Route $410,264 $355,083 $316,236 International Irregular Route(1) 144,589 129,704 112,211 Dedicated Route 107,609 83,978 53,203 - ------------------------------------------------------------------------------ Total Trucking Revenues 662,462 568,765 481,650 Logistics Revenues 36,952 68,214 60,939 Intersegment Eliminations and Other (1,892) (16,565) (13,748) - ----------------------------------------------------------------------------- Total Operating Revenues $697,522 $620,414 $528,841 ============================================================================= (1) International Irregular Route includes loads originating or terminating in Laredo, TX, Brownsville, TX, El Paso, TX, Nogales, AZ, San Diego, CA and Calexico, CA. The operating ratios (operating expenses as a percentage of operating revenues) for the trucking and logistics segments and the Company's total business were as follows: For the year ended December 31 2000 1999 1998 - ------------------------------------------------------------------------------ Trucking Segment 93.9% 90.4% 90.8% Logistics Segment 96.2% 97.0% 96.1% Total Company 94.0% 90.9% 91.1% 2000 COMPARED TO 1999 Operating revenues grew 12.4% to $698 million in 2000 from $620 million in 1999. The Company's increase in revenues was due primarily to increased capacity and increased trucking revenues. Total trucking revenues during 2000 increased 16.5% compared to 1999. The Company's fleet, including owner- operators, increased to 5,129 tractors at December 31, 2000 from 4,588 at December 31, 1999, an increase of 541 tractors. Logistics revenues during 2000 decreased 45.8% compared to 1999 as a result of the contribution of the Company's logistics operations to Transplace.com in July 2000 in exchange for an ownership interest in Transplace.com. The Company accounts for its investment in Transplace.com by the equity method and its investment in Transplace.com is classified as other long-term assets on the Company's balance sheet. Revenues per mile increased to $1.23 in 2000 from $1.20 in 1999 as a result of rate increases implemented in 2000. Average length of haul decreased to 701 miles in 2000 from 729 miles in 1999. Average revenue per tractor per week decreased to $2,590 in 2000 from $2,721 in 1999. During 2000, there was a decline in the general truckload freight market and a lower demand for the Company's services in some of the markets which it serves. 12 The operating ratio (operating expenses as a percentage of operating revenues) for 2000 was 94.0% compared to 90.9% for 1999. For the trucking segment of the Company's business, the operating ratio for 2000 was 93.9% compared to 90.4% in 1999. For the logistics segment of the Company's business, the operating ratio for 2000 was 96.2% compared to 97.0% for 1999. The Company's logistics operations were contributed to Transplace.com in July 2000 and the Company is restricted from engaging in logistics operations in the future. Salaries, wages and benefits increased to 33.9% of revenues in 2000 compared to 29.8% in 1999. This increase was due primarily to (i) a significant driver pay increase implemented in March 2000; and (ii) lower logistics revenues as a result of the Company's contribution of its logistics operations to Transplace.com. Operations and maintenance increased to 18.5% of revenues in 2000 from 15.8% of revenues in 1999. This increase was due primarily to higher fuel costs and lower logistics revenues during 2000. Fuel price swaps which the Company utilized to convert floating fuel prices to fixed fuel prices on a portion of the Company's monthly fuel requirements throughout 1999 and the first five months of 2000 expired in May 2000. These swaps had lessened the impact of higher fuel prices. Further increases in fuel costs, to the extent not offset by rate increases or fuel surcharges, could have an adverse effect on the operations and profitability of the Company. Insurance and claims expense was 3.3% of revenues in 2000 compared to 3.5% of revenues in 1999. During 2000, the Company modified its method of estimating and accruing its ultimate cost related to accident, workers' compensation, cargo and physical damage claims. The Company began applying loss development factors to its accident and workers' compensation claims history. This new method results in a more accurate estimate of the Company's ultimate loss from claims than its prior method. Expenses for workers' compensation claims are classified as salaries, wages and benefits and expenses for all other claims are classified as insurance and claims on the Company's income statement. The new method resulted in a $1.6 million increase to workers' compensation claims expense during 2000 and restatement of the following balances at December 31, 1997: a decrease in retained earnings of $6.9 million, an increase in claims payable of $10.9 million, and an increase in deferred tax assets of $4.0 million. Depreciation and amortization was 10.1% of revenues in 2000 and in 1999. Increases in depreciation and amortization expenses as a percentage of revenues attributable to lower logistics revenues in 2000 were offset by the Company's implementation of a change from a three-year trade cycle to a four-year trade cycle with respect to Company-owned tractors and the utilization of operating leases in 2000 to expand the Company's fleet. Expenses relating to operating leases are recorded as rent and purchased transportation. Rent and purchased transportation decreased to 23.9% of revenues in 2000 from 27.7% of revenues in 1999. This decrease was due primarily to the contribution of the Company's logistics operations to Transplace.com in July 2000 as expenses related to logistics operations were recorded as rent and purchased transportation. Interest expense was $18,244,136 in 2000 compared to $12,591,491 in 1999. This increase was due to (i) an increase in average outstanding debt during 2000 as compared to 1999; and (ii) higher interest rates during 2000 as compared to 1999. The Company incurred additional debt during 2000 to finance its expanded operations and the repurchase of 1,270,100 shares of its common stock. The effective income tax rate decreased to 35.0% in 2000 compared to 35.5% in 1999, as described in Note 7 to the Notes to Consolidated Financial Statements. 13 1999 COMPARED TO 1998 Operating revenues grew 17.3% to $620 million in 1999 from $529 million in 1998. The Company's increase in revenues was due primarily to increased demand from customers, expansion of the Company's fleet and increased logistics revenues. Total trucking revenues during 1999 increased 18.1% compared to 1998, and logistics revenues during 1999 increased 11.9% compared to 1998. The Company's fleet, including owner-operators, increased to 4,588 tractors at December 31, 1999, from 3,753 at December 31, 1998, an increase of 835 tractors. Revenues per mile were $1.20 in 1999 and in 1998. Average length of haul increased to 729 miles in 1999 up from 689 miles in 1998. The operating ratio (operating expenses as a percentage of operating revenues) for 1999 was 90.9% compared to 91.1% for 1998. For the trucking segment of the Company's business, the operating ratio for 1999 was 90.4% compared to 90.8% for 1998. For the logistics segment of the Company's business, the operating ratio for 1999 was 97.0% compared to 96.1% for 1998. Salaries, wages and benefits decreased to 29.8% of revenues in 1999 compared to 30.9% of revenues in 1998. This decrease was due primarily to the owner-operator tractors representing a larger percentage of the average number of total tractors in service during 1999 compared to 1998, which caused a shift in operating expenses as amounts paid to owner-operators are recorded as purchased transportation. The Company had 1,305 owner-operators at December 31, 1999, compared to 1,003 at December 31, 1998. Operations and maintenance expenses decreased to 15.8% of revenues in 1999 from 15.9% of revenues in 1998. This slight decrease resulted from the expanded use of owner-operators. Higher fuel costs experienced by the Company during the latter part of 1999 kept the decrease from being larger. Insurance and claims expense was 3.5% of revenues in 1999 compared to 3.9% of revenues in 1998. This decrease was due primarily to an improved accident and health claims experience in 1999. Depreciation and amortization increased to 10.1% of revenues in 1999 compared to 9.4% of revenues in 1998. This increase resulted primarily from the expansion of the leased owner-operator program. Rent and purchased transportation increased to 27.7% of revenues in 1999 from 27.0% of revenues in 1998. This increase was attributable primarily to the expanded use of owner-operators by the Company and increased expenses related to logistics services. Interest expense was $12,591,491 in 1999 compared to $8,483,852 in 1998. This increase in interest expense was due to an increase in average outstanding debt during 1999 as compared to 1998 as the Company incurred debt to finance its expanded operations. Other income increased to .5% of revenues in 1999 from .2% of revenues in 1998 primarily as a result of the recognition of income relating to the Company's investment in Transportes EASO S.A. de C.V. increasing to $2,905,000 in 1999 from $955,000 in 1998. The effective income tax rate decreased to 35.5% in 1999 compared to 36.5% in 1998, as described in Note 7 to the Notes to Consolidated Financial Statements. 14 LIQUIDITY AND CAPITAL RESOURCES The Company's business continues to require significant investments in new revenue equipment and office and terminal facilities. The Company has historically financed these investments largely from cash provided by operating activities, secured borrowings, and secured and unsecured credit facilities. During 2000, the Company began leasing various revenue equipment under operating leases. Net cash provided by operating activities was approximately $75.9 million in 2000, $73.1 million in 1999 and $74.3 million in 1998. At December 31, 2000, the Company has outstanding long-term obligations, including current maturities, of $273.4 million and future minimum lease payments under noncancelable operating leases of $71.8 million. In December 1999, the Company's Board of Directors authorized the repurchase of up to 1 million shares of the Company's common stock. In June 2000, the Company's Board of Directors authorized the repurchase of up to an additional 2 million shares of the Company's common stock. The Company purchased 1,270,100 shares of its common stock for approximately $26.9 million during 2000. In July 2000, Transplace.com commenced operations. The Company contributed all of its logistics operations and $5 million of cash to Transplace.com in exchange for an approximate 13% ownership interest in Transplace.com. In addition, the Company provided various services to Transplace.com under a shared service agreement, the terms of which expired on December 31, 2000. The Company had a receivable from Transplace.com of approximately $11 million at December 31, 2000 for freight, fees related to the shared service agreement and funding of a portion of Transplace.com's working capital requirements. Transplace.com established its own credit facilities during the first quarter of 2001 and paid the $11 million receivable in full. Additional funding of Transplace.com activities by the Company is not anticipated. In October 2000, the Company restructured its credit facility with its primary bank to provide for a $55 million reducing revolving note and a $30 million revolving note, with interest based on a leverage ratio defined therein and ranging from the 30-LIBOR rate plus .50% to 1.90% (7.16% at December 31, 2000). There was approximately $63.5 million outstanding under this credit facility at December 31, 2000. Management expects to retire the reducing revolving note through cash provided by operating activities or secured borrowings and expects to maintain the revolving note for an indefinite period. In December 2000, the Company entered into a merger agreement with Swift pursuant to which the Company would become a wholly owned subsidiary of Swift. The merger is expected to close in the second quarter of 2001. The Company anticipates that planned revenue equipment purchases and the financing thereof will be coordinated through Swift following the merger. RECENTLY ISSUED ACCOUNTING STANDARDS During 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). This statement requires companies to record derivative instruments on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the value of a derivative would be accounted for depending on the use of a derivative and whether it qualifies for hedge accounting. In June 1999, the FASB issued Statement No. 137, which delayed the effective date of SFAS No. 133 to the Company's fiscal year 2001. In June 2000, the FASB issued SFAS No. 138 which amends certain provisions of SFAS No. 133 and must be adopted concurrently with the Company's adoption of SFAS No. 133. The Company recorded a $1.4 million liability upon adoption of SFAS No. 133 to reflect the fair market 15 value of interest rate swaps. The adoption of SFAS No. 133 has not had a significant effect on the results from operations or on the financial position of the Company. FORWARD-LOOKING STATEMENTS Certain statements and information included herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This information is in accordance with the Company's current expectations and is subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. With respect to the Company's financial results these uncertainties include, without limitation, the following: the Company will have reasonable success recruiting and retaining experienced drivers and owner operators at the Company's current compensation level; demand and pricing for the markets served by the Company will remain at historical levels; fuel will remain available and without rapid price fluctuations; the Company's accident experience will remain at historical levels; the Company will be able to develop and implement operational and financial systems to manage growing operations; and the Company will be able to obtain financing on acceptable terms to finance the Company's growth and operations. With respect to the proposed merger transaction with Swift these uncertainties include, without limitation, the following: the inability to obtain governmental approvals of the merger on the proposed terms and schedule; the failure of M.S. Carriers and Swift stockholders to approve the merger; the risk that the businesses will not be integrated successfully; the risk that the revenue synergies and costs savings anticipated from the merger may not be fully realized or may take longer to realize than expected; disruptions from the merger making it more difficult to maintain relationships with customers, employees or suppliers; and increased competition and its effect on pricing, spending, third-party relationships and revenues. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK The Company has market risk exposure to changing interest rates. The Company's policy is to manage interest rates through the use of a combination of fixed and floating rate debt. Interest rate swaps may be used to adjust interest rate exposure based on market conditions. These swaps are entered into with a group of financial institutions with investment grade credit ratings, thereby minimizing the risk of credit loss. At December 31, 2000 and 1999, the fair value of the Company's total long-term debt is approximately $273 million and $242 million, respectively, using yields obtained for similar types of borrowing arrangements and taking into consideration the underlying terms of the debt. Market risk is estimated as the potential change in fair value resulting from a hypothetical ten percent decrease in interest rates and amounts to $446,000 and $351,000 at December 31, 2000 and 1999, respectively. At December 31, 2000, the Company had $210 million of variable-rate debt. The Company has entered into interest rate swaps which convert floating rates to fixed rates for a total notional amount of $70 million. If interest rates on the Company's variable-rate debt, after considering interest rate swaps, were to increase by ten percent from their 2000 year-end rates for the whole of 2001, the increase in interest expense for 2001 would be approximately $929,000. The potential change in fair value of the Company's interest rate swaps resulting from a hypothetical ten percent decrease in interest rates would not be material to the Company's financial position at December 31, 2000. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's Consolidated Financial Statements and Financial Statement Schedule are included on pages 21 to 39. 16 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT To be provided by amendment. ITEM 11. EXECUTIVE COMPENSATION To be provided by amendment. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT To be provided by amendment. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS To be provided by amendment. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedules. (1) Financial Statements. Report of Independent Auditors . . . . . . . . . . . . . 21 Consolidated Balance Sheets. . . . . . . . . . . . . . . 22 Consolidated Statements of Income. . . . . . . . . . . . 24 Consolidated Statements of Stockholders' Equity. . . . . 25 Consolidated Statements of Cash Flows. . . . . . . . . . 26 Notes to Consolidated Financial Statements . . . . . . . 27 (2) Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts for the Company is included herein on page 39. No other financial statement schedules are required. (b) Reports on Form 8-K. The Company did not file any report on Form 8-K during the last quarter of 2000. (c) Exhibits. An Exhibit Index of the exhibits required by Item 601 of Regulation S-K is included on page 19. 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. M.S. Carriers, Inc. By: s/ Michael S. Starnes Michael S. Starnes Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. s/ Michael S. Starnes Chairman of the Board, President, March 30, 2001 Michael S. Starnes Chief Executive Officer and Date Director s/ James W. Welch Senior Vice President - March 30, 2001 James W. Welch Marketing and Director Date s/ M.J. Barrow Senior Vice President - March 30, 2001 M.J. Barrow Finance and Administration, Date Secretary-Treasurer and Director s/ Pierce Crockett Controller March 30, 2001 Pierce Crockett Date s/ Jack H. Morris, III Director March 30, 2001 Jack H. Morris, III Date s/ Morris H. Fair Director March 30, 2001 Morris H. Fair Date s/ Edward A. Labry, III Director March 30, 2001 Edward A. Labry, III Date 18 EXHIBIT INDEX Exhibit Number Description 3(i).1 Restated Charter of M.S. Carriers, Inc. filed as an exhibit to Registrant's Registration Statement on Form S-1 (Registration Number 33-12070). 3(i).2 Articles of Amendment to Charter of M.S. Carriers, Inc. filed as an exhibit to Registrant's Registration Statement on Form S-3 (Registration Number 33-63280). 3(ii) Amended and Restated By-Laws of M.S. Carriers, Inc. filed as an exhibit to Registrant's Registration Statement on Form S-3 (Registration Number 33-63280). 10.1 Incentive Stock Option Plan of M.S. Carriers, Inc. filed as an exhibit to Registrant's Registration Statement on Form S-1 (Registration Number 33-12070).* 10.2 Amendment to Incentive Stock Option Plan of M.S. Carriers, Inc. filed as an exhibit to Registrant's Registration Statement on Form S-1 (Registration Number 33-12070).* 10.3 1993 Stock Option Plan of M.S. Carriers, Inc. filed as an exhibit to Registrant's Registration Statement on Form S-3 (Registration Number 33-63280).* 10.4 Non-Employee Directors Stock Option Plan of M.S. Carriers, Inc. filed as an exhibit to Registrant's Proxy Statement dated March 31, 1995.* 10.5 Employment Agreements with James W. Welch and M.J. Barrow of M.S. Carriers, Inc. filed as an exhibit to Registrant's Statement on Form S-1 (Registration Number 33-12070).* 10.6 Employment Agreement with Michael S. Starnes of M.S. Carriers, Inc. filed as an exhibit to Registrant's Form 10-Q for the quarter ended June 30, 1995.* 10.7 M.S. Carriers, Inc. 1996 Stock Option Plan filed as an exhibit to Registrant's Proxy Statement dated April 4, 1996.* 10.8 Operating Agreement of Transplace.com, LLC filed as an exhibit to Registrant's Form 10-Q for the quarter ended June 30, 2000. 10.9 Initial Subscription Agreement of Transplace.com, LLC filed as an exhibit to Registrant's Form 10-Q for the quarter ended June 30, 2000. 10.10 Ninth Amended and Restated Loan Agreement with Bank of America, N.A. filed as an exhibit to Registrant's Form 10-Q for the quarter ended September 30, 2000. 10.11 Merger Agreement dated December 11, 2000, among Swift Transportation Co., Inc., Sun Merger, Inc. and M.S. Carriers, Inc. filed herewith. 10.12 Voting Agreement dated December 11,2000, among M.S. Carriers, Inc., Jerry and Vicki Moyes Family Trust dated 12/11/87 and Jerry Moyes filed herewith. 19 10.13 Voting Agreement dated December 11, 2000, among Swift Transportation Co., Inc., Sun Merger, Inc. and Michael S. Starnes filed herewith. 10.14 First Amendment to Ninth Amended and Restated Loan Agreement with Bank of America, N.A. filed herewith. 21. Subsidiaries of M.S. Carriers, Inc. filed herewith. ____________ * Indicates a compensation plan. 20 Report of Independent Auditors Board of Directors M.S. Carriers, Inc. We have audited the accompanying consolidated balance sheets of M.S. Carriers, Inc. as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of M.S. Carriers, Inc. at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As more fully described in Note 17, retained earnings and deferred income taxes at December 31, 1997, have been restated to reflect an increase in claims payable. s/ Ernst & Young LLP Memphis, Tennessee February 1, 2001 21 M.S. Carriers, Inc. Consolidated Balance Sheets December 31 2000 1999 (As Restated) --------------------------------- Assets Current assets: Cash and cash equivalents $ 442,188 $ 242,606 Receivables: Trade accounts, less allowance for doubtful accounts of $9,954,000 in 2000 and $7,987,000 in 1999 84,547,281 74,235,169 Affiliate - Transplace.com 11,007,081 - Officers and employees 1,657,217 1,372,312 --------------------------------- 97,211,579 75,607,481 Recoverable income taxes 3,080,972 4,391,692 Deferred income taxes 14,113,152 13,558,000 Prepaid expenses and other 8,590,836 6,627,602 --------------------------------- Total current assets 123,438,727 100,427,381 Property and equipment: Land and land improvements 13,469,040 8,563,092 Buildings 39,987,066 33,853,177 Revenue equipment 567,967,605 538,170,367 Service equipment and other 56,118,261 50,764,814 Construction in progress 2,895,443 7,051,494 --------------------------------- 680,437,415 638,402,944 Accumulated depreciation and amortization 204,637,683 157,129,859 --------------------------------- 475,799,732 481,273,085 Other assets 21,213,310 13,832,915 --------------------------------- Total assets $620,451,769 $595,533,381 ================================= 22 M.S. Carriers, Inc. Consolidated Balance Sheets (continued) December 31 2000 1999 (As Restated) ------------------------------ Liabilities and stockholders' equity Current liabilities: Trade accounts payable $ 7,398,017 $ 7,300,275 Accrued compensation and related costs 4,611,314 5,625,679 Other accrued expenses 13,139,878 16,562,822 Claims payable 33,842,957 30,814,990 Current maturities of long-term obligations 65,558,795 39,189,255 ------------------------------ Total current liabilities 124,550,961 99,493,021 Long-term obligations, less current maturities 207,816,118 202,404,874 Deferred income taxes 69,929,823 65,325,276 Commitments and contingencies Stockholders' equity: Common stock, $.01 par value: Authorized shares - 20,000,000 Issued and outstanding shares - 11,168,501 in 2000 and 12,301,601 in 1999 111,685 123,016 Additional paid-in capital 60,567,768 66,222,158 Retained earnings 160,321,332 164,052,739 Notes receivable from officers (851,719) - Cumulative other comprehensive loss (1,994,199) (2,087,703) ------------------------------ Total stockholders' equity 218,154,867 228,310,210 ------------------------------ Total liabilities and stockholders' equity $ 620,451,769 $595,533,381 ============================== See accompanying notes. 23 M.S. Carriers, Inc. Consolidated Statements of Income Year ended December 31 2000 1999 1998 --------------------------------------------- Operating revenues $697,521,957 $620,414,137 $528,841,314 Operating expenses: Salaries, wages and benefits 236,726,123 184,676,598 163,224,933 Operations and maintenance 128,975,476 97,946,624 84,260,614 Taxes and licenses 14,690,488 12,663,778 11,425,054 Insurance and claims 23,212,634 21,986,637 20,832,807 Communications and utilities 9,306,977 7,907,923 6,913,782 Depreciation and amortization 70,665,611 62,400,797 49,794,229 Gains on disposals of revenue equipment (1,108,415) (940,944) (1,199,851) Rent and purchased transportation 166,982,436 171,572,280 142,765,753 Other 6,115,739 5,407,423 3,901,274 --------------------------------------------- 655,567,069 563,621,116 481,918,595 --------------------------------------------- Operating income 41,954,888 56,793,021 46,922,719 Other expense (income): Interest expense 18,244,136 12,591,491 8,483,852 Other (1,447,566) (3,220,837) (1,353,558) --------------------------------------------- 16,796,570 9,370,654 7,130,294 --------------------------------------------- Income before income taxes 25,158,318 47,422,367 39,792,425 Income taxes 8,816,069 16,834,942 14,524,236 --------------------------------------------- Net income $ 16,342,249 $30,587,425 $ 25,268,189 ============================================= Basic earnings per share $1.43 $2.49 $2.06 ============================================= Diluted earnings per share $1.42 $2.39 $1.99 ============================================= See accompanying notes. 24
M.S. Carriers, Inc. Consolidated Statements of Stockholders' Equity Notes Additional Receivable Other Common Stock Paid-In Retained From Comprehensive Shares Amount Capital Earnings Officers Income (Loss) Total ------------------------------------------------------------------------------------------- Balance at January 1, 1998 (As Restated - Note 17) 12,210,601 $122,106 $64,175,260 $108,197,125 $ - $(2,003,654) $170,490,837 Net income 25,268,189 25,268,189 Exercise of stock options 49,500 495 1,093,755 1,094,250 ------------------------------------------------------------------------------------------- Balance at December 31, 1998 (As Restated - Note 17) 12,260,101 122,601 65,269,015 133,465,314 - (2,003,654) 196,853,276 Comprehensive income: Net income 30,587,425 30,587,425 Other comprehensive income: Foreign currency translation (84,049) (84,049) Comprehensive income 30,503,376 Exercise of stock options 41,500 415 953,143 953,558 ------------------------------------------------------------------------------------------- Balance at December 31, 1999 (As Restated - Note 17) 12,301,601 123,016 66,222,158 164,052,739 - (2,087,703) 228,310,210 Comprehensive income: Net income 16,342,249 16,342,249 Other comprehensive income: Foreign currency translation 93,504 93,504 Comprehensive income 16,435,753 Exercise of stock options 137,000 1,370 1,182,849 (851,719) 332,500 Repurchase of common stock (1,270,100) (12,701) (6,837,239) (20,073,656) (26,923,596) ------------------------------------------------------------------------------------------- Balance at December 31, 2000 11,168,501 $111,685 $60,567,768 $160,321,332 $(851,719) $(1,994,199) $218,154,867 ===========================================================================================
See accompanying notes. 25
M.S. Carriers, Inc. Consolidated Statements of Cash Flows Year Ended December 31 2000 1999 1998 ------------------------------------------- Operating activities Net income $ 16,342,249 $ 30,587,425 $ 25,268,189 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 69,977,237 61,898,985 49,580,210 Amortization 688,374 501,812 214,019 Gain on disposals of revenue equipment (1,108,415) (940,944) (1,199,851) Other (91,113) Deferred income taxes 4,049,395 9,132,537 (6,021,780) Changes in operating assets and liabilities: Accounts receivable (10,597,017) (19,429,143) (10,966,653) Other (2,127,779) (5,366,207) (3,150,798) Trade accounts payable 97,742 (7,555,780) 9,407,945 Other current liabilities (1,409,342) 4,290,472 11,253,899 ------------------------------------------- Net cash provided by operating activities 75,912,444 73,119,157 74,294,067 Investing activities Purchases of property and equipment (82,732,227) (94,177,749) (75,114,762) Investment in and advances to joint venture (16,007,081) Proceeds from disposals of property and equipment 79,195,590 46,049,919 29,754,012 Business acquisitions (17,033,000) Other (1,500,000) ------------------------------------------- Net cash used in investing activities (21,043,718) (48,127,830) (62,393,750) Financing activities Proceeds from long-term obligations 3,498,617 Net change in line of credit obligations 4,798,546 171,454 10,102,811 Principal payments on long-term obligations (32,876,594) (30,837,653) (21,983,994) Repurchase of common stock (26,923,596) Proceeds from issuance of common stock 332,500 953,558 1,094,250 ------------------------------------------- Net cash used in financing activities (54,669,144) (26,214,024) (10,786,933) ------------------------------------------- Increase (decrease) in cash and cash equivalents 199,582 (1,222,697) 1,113,384 Cash and cash equivalents at beginning of year 242,606 1,465,303 351,919 ------------------------------------------- Cash and cash equivalents at end of year $442,188 $242,606 $1,465,303 =========================================== Notes issued to officers for the exercise of stock options $ 851,719 $ - $ - =========================================== See accompanying notes.
26 M.S. Carriers, Inc. Notes to Consolidated Financial Statements December 31, 2000 1. Nature of Business M.S. Carriers, Inc. (the Company) is an irregular route, truckload carrier transporting a wide range of commodities throughout the United States and between the United States and the provinces of Ontario and Quebec, Canada. The Company also provides interline service to and from Mexico. The Company's primary traffic flows are between the Middle South and the Southwest, Midwest, Central States, Southeast and Northeast. The principal types of freight transported are packages, retail goods, non-perishable foodstuffs, paper and paper products, household appliances, furniture and packaged petroleum products. 2. Significant Accounting Policies Organization and Principles of Consolidation The consolidated financial statements include the accounts of M.S. Carriers, Inc. and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. The Company accounts for its 50% investment in Transportes EASO S.A. de C.V. (EASO), a Mexican trucking company, by the equity method. This investment is classified as other long-term assets in the consolidated balance sheets and is approximately $6,140,000 and $5,279,000 at December 31, 2000 and 1999, respectively. The Company recognized other income of approximately $1,084,000 in 2000, $2,905,000 in 1999 and $955,000 in 1998 from its investment in EASO. The Company accounts for its approximate 13% investment in Transplace.com (see Note 16) by the equity method. This investment is classified as other long-term assets in the consolidated balance sheets and was $5,000,000 at December 31, 2000. The Company recognized other income of approximately $250,000 in 2000 from its investment in Transplace.com. At December 31, 2000, approximately $5.25 million of the Company's retained earnings relate to undistributed earnings of EASO. Revenue Recognition Operating revenues are recognized on the date freight is delivered. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Property and Equipment Property and equipment are stated at cost. Depreciation, which includes amortization of assets held under capital leases, is computed on the straight- line method over the estimated useful lives as follows: Buildings 15-30 years Revenue equipment 3-8 years Service equipment and other 3-5 years Tires and tubes purchased as part of revenue equipment are capitalized as a cost of the equipment. Replacement tires and tubes are expensed when placed in service. 27 Goodwill and Other Intangible Assets Goodwill and other intangible assets of $5,413,211 and $5,373,211 are included in other long-term assets at December 31, 2000 and 1999, respectively. Goodwill represents the excess of the cost of businesses acquired over fair value of net tangible and identifiable intangible assets at the date of acquisition. Goodwill and other intangible assets, which are net of accumulated amortization of $1,401,684 and $715,831 at December 31, 2000 and 1999, respectively, are being amortized using the straight-line method over periods of up to 10 years. Foreign Currency Translation Prior to January 1, 1999, the functional currency of the Company's foreign subsidiary and equity investee was the reporting currency because Mexico was designated as a highly inflationary economy. Translation gains and losses prior to January 1, 1999, were recorded in the statement of income rather than as a separate component of stockholders' equity. Effective January 1, 1999, Mexico is no longer designated as a highly inflationary economy. Therefore, translation gains and losses subsequent to that date are recorded as other comprehensive income and presented as a separate component of stockholders' equity. Foreign currency translation is the only component of the Company's other comprehensive income (loss). Income Taxes The Company accounts for income taxes using the liability method. Earnings Per Share Basic earnings per share has been computed based on the weighted-average number of common shares outstanding. Diluted earnings per share reflects the increase in weighted-average common shares outstanding that would result from the assumed exercise of dilutive outstanding stock options, calculated using the treasury stock method. Risks and Uncertainties The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. Valuation of Long-Lived Assets Management periodically evaluates carrying values of long-lived assets, including property and equipment, strategic investments, goodwill and other intangible assets, to determine whether events and circumstances indicate that these assets have been impaired. An asset is considered impaired when undiscounted cash flows to be realized from such asset are less than its carrying value. In that event, a loss is determined based on the amount that the carrying value exceeds the fair market value of such asset. Stock-Based Compensation The Company accounts for employee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25) and related interpretations as permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). 28 Interest Rate Swaps The Company enters into interest rate swap agreements to modify the interest characteristics of its outstanding debt. These agreements involve the exchange of amounts based on a fixed interest rate for amounts based on variable interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt. The related amount payable to or receivable from counterparties is included in accrued expenses or other current assets. The fair value of the swap agreements and changes in the fair value as a result of changes in market interest rates are not recognized in the financial statements. Concentrations of Credit and Market Risks Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company's customer base and their dispersion across many different industries. The Company performs ongoing credit evaluations and generally does not require collateral. The Company's sales are principally denominated and collected in the U.S. dollar. Recently Issued Accounting Pronouncements During 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). This statement requires companies to record derivative instruments on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the value of a derivative would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. In June 1999, the FASB issued SFAS No. 137, which delayed the effective date of SFAS No. 133 to the Company's fiscal year 2001. In June 2000, the FASB issued SFAS No. 138 which amends certain provisions of SFAS No. 133 and must be adopted concurrently with the Company's adoption of SFAS No. 133. The Company recorded a $1.4 million liability upon adoption of SFAS No. 133 to reflect the fair market value of interest rate swaps. The adoption of SFAS No. 133 has not had a significant effect on the results of operations or financial position of the Company. Reclassifications Certain amounts in the 1999 financial statements have been reclassified to conform with the 2000 financial statement presentation. 3. Business Acquisitions In March 1998, the Company acquired substantially all of the assets, consisting primarily of revenue equipment, and assumed certain liabilities of a truckload carrier located in Ohio. In connection with this acquisition, the Company paid cash of approximately $7,556,000 and recorded a holdback liability of $700,000. In November 1998, the Company acquired substantially all of the assets, consisting primarily of revenue equipment, and assumed certain liabilities of a truckload carrier located in Wisconsin. In connection with this acquisition, the Company paid cash of approximately $9,477,000 and recorded a holdback liability of $250,000. Each of the acquisitions was accounted for using the purchase method of accounting. Therefore, the results of operations of the acquired businesses are included in the consolidated financial statements of the Company from their respective acquisition dates. The pro-forma results of operations as if the 29 acquisitions had occurred at the beginning of 1998 would not differ materially from the reported results. 4. Long-Term Obligations Long-term obligations consist of the following: December 31 2000 1999 -------------------------------------- Capitalized lease obligations $206,331,296 $179,349,058 Equipment loan 3,498,617 3,498,617 Revolving notes 63,545,000 - Revolving lines of credit - 58,746,454 -------------------------------------- 273,374,913 241,594,129 Less current maturities (65,558,795) (39,189,255) -------------------------------------- $207,816,118 $202,404,874 ====================================== In October, 2000, the Company amended and restated its line of credit agreements to form two separate notes. These notes consist of a $55,000,000 reducing revolving note and a $30,000,000 revolving note. Interest is charged under both notes based on the total leverage ratio of the Company, as defined in the loan agreement, and ranges from 30-day LIBOR plus .50% - 1.90% (7.16% at December 31, 2000). The reducing revolving note is reduced by $5,000,000 each quarter beginning on December 31, 2000, until its maturity on October 15, 2003. The revolving note matures on June 1, 2002. Both notes are secured by Company trailers with a net book value of $92,963,000 at December 31, 2000. The balance of these notes as of December 31, 2000, is $63,545,000. At December 31, 1999, the Company had an unsecured line of credit available for borrowings of up to $80,000,000 with interest at the lower of the bank's prime rate or the 30-day LIBOR rate plus .45%. The balance outstanding under this line of credit was $38,746,454 at December 31, 1999. At December 31, 1999, the Company also maintained two separate agreements with banks that each provided for borrowings of up to $10,000,000 under unsecured lines of credit. The lines of credit bore interest at varying rates based upon the lower of the bank's prime rate or the 30-day LIBOR rate plus .45%. The balance outstanding under both lines of credit was an aggregate of $20,000,000 at December 31, 1999. The Company issued a promissory note to a bank in the amount of $3,498,617. This note is secured by related equipment and bears interest at a varying rate based on the 90-day LIBOR rate plus 1% (7.76% at December 31, 2000). Interest payments are to be made quarterly for the term of the note, with a single principal payment being due in November, 2004. The Company entered into capital lease agreements to lease revenue equipment with a fair value of approximately $59,859,000 in 2000, $94,952,000 in 1999 and $86,802,000 in 1998. Additionally, in connection with the 1998 acquisitions described in Note 3, the Company assumed approximately $3,174,000 in capitalized lease obligations related to acquired revenue equipment with a fair value of approximately $10,330,000 at the time of acquisition. The Company's capital leases have remaining lease terms of 1 to 5 years and contain guarantees of residual value at the end of the lease terms. Certain of the leases contain renewal or fixed-price purchase options. The leases are secured by revenue equipment with a net book value at December 31, 2000 and 1999, of approximately $202,270,000 and $156,922,000, respectively, which is net of accumulated amortization of $53,661,000 and $52,286,000, respectively, and bear interest at fixed and variable rates ranging from 3.1% to 7.8%. The weighted average interest rate on the Company's fixed-rate capital leases is approximately 5.56% at December 31, 2000. 30 At December 31, 2000, the Company has entered into interest rate swaps which convert floating interest rates to fixed interest rates ranging from 5.63% to 6.50% for a total notional amount of $70 million. Certain of the Company's debt agreements contain covenants including required ratios of funded debt to earnings before interest, taxes, depreciation and amortization, and earnings before interest, taxes, depreciation and amortization to total debt service. The future maturities of long-term debt and future minimum lease payments under capitalized lease obligations, by year and in the aggregate, consist of the following at December 31, 2000: Capitalized Long-Term Lease Debt Obligations --------------------------------- 2001 $14,805,000 $ 60,988,170 2002 38,740,000 71,981,029 2003 10,000,000 57,752,340 2004 3,498,617 23,894,385 2005 17,089,138 --------------------------------- 67,043,617 231,705,062 Amounts representing interest 25,373,766 --------------------------------- Total long-term obligations $67,043,617 $ 206,331,296 ================================= The Company paid interest of approximately $17,067,000 in 2000, $12,422,000 in 1999, and $8,344,000 in 1998. The Company has outstanding letters of credit primarily for workers' compensation and accident liability self-insurance of $11,300,000 at December 31, 2000. 5. Operating Leases The Company began leasing various revenue equipment under operating leases in 2000. Rental expense was approximately $4,569,000 for 2000. At December 31, 2000, the future minimum lease payments under noncancelable operating leases are as follows: 2001 $12,358,608 2002 12,358,608 2003 18,800,514 2004 23,323,946 2005 4,914,079 -------------- $ 71,755,755 ============== 6. Claims Payable Claims payable represent accruals for the uninsured portion of pending accident liability, workers' compensation, physical damage, cargo damage and employee health claims. These accruals are estimated based on management's evaluation of the nature and severity of individual claims and an estimate of future claims development based on the Company's past claims experience. Claims payable were restated as of December 31, 1997 (See Note 17). Under an agreement with its insurance underwriters through December 31, 1998, the Company was self-insured for accident liabilities of $1,500,000 for the initial occurrence per policy year, $1,250,000 for the second occurrence per policy year, and $1,000,000 for each occurrence thereafter involving bodily injury and property damage. Effective January 1, 1999, the Company entered into a new agreement to reduce its self-insured retention limit for accident claims. Under this new agreement, the Company self-insures the first $500,000 of liability for 31 each occurrence involving bodily injury and property damage. The Company also self-insures the second $500,000 of liability for each occurrence until an aggregate of $1,000,000 of liability has been paid by the Company on claims exceeding $500,000 of liability. Excess liability is assumed by the insurance underwriters. The Company self-insures employee health claims up to $175,000 per employee per policy year and workers' compensation claims up to $300,000 per employee per policy year. 7. Income Taxes The liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Income tax expense (benefit) consists of the following: Year ended December 31 2000 1999 1998 --------------------------------------------- Current: Federal $ 11,820,590 $ 6,571,326 $ 17,616,578 State 1,044,874 1,131,079 2,929,438 --------------------------------------------- 12,865,464 7,702,405 20,546,016 Deferred: Federal (3,521,421) 8,404,084 (5,163,198) State (527,974) 728,453 (858,582) --------------------------------------------- (4,049,395) 9,132,537 (6,021,780) --------------------------------------------- $ 8,816,069 $16,834,942 $14,524,236 ============================================= The effective tax rate varied from the statutory federal income tax rate of 35% as follows: Year ended December 31 2000 1999 1998 ------------------------------------------- Taxes at statutory rate $ 8,805,411 $16,597,828 $ 13,927,349 State income taxes, net of federal tax benefits 332,780 1,208,695 1,346,056 Other (322,122) (971,581) (749,169) ------------------------------------------- $ 8,816,069 $16,834,942 $ 14,524,236 =========================================== Income tax payments (net of refunds) were approximately $3,391,000 in 2000, $14,832,000 in 1999, and $13,078,000 in 1998. Significant components of the Company's deferred tax liabilities and assets as of December 31 are as follows: 2000 1999 (As Restated) ---------------------------------- Deferred tax liabilities: Property and equipment $71,084,091 $65,325,337 Deferred tax assets: Claims payable 12,871,830 11,720,173 Other-net 2,395,590 1,837,888 ---------------------------------- Total deferred tax assets 15,267,420 13,558,061 ---------------------------------- Net deferred tax liabilities $ 55,816,671 $51,767,276 ================================== 32 8. Employee Benefit Plans The M.S. Carriers, Inc. Retirement Savings Plan (the Plan) is a defined contribution plan under Section 401(k) of the Internal Revenue Code (IRC) and provides for voluntary contributions by employees and matching contributions by the Company. All employees who are 19 years of age or older and have completed six months of service are eligible for the Plan. The Plan provides each participant with the option of contributing from 1% to 15% of the employee's annual compensation subject to IRC limitations. The Company matches the employee contribution up to 50% of the participant's contribution, but limited to a maximum of 3% of the participant's compensation. The Company's contribution to the Plan, net of forfeitures, was approximately $1,590,000 in 2000, $1,571,000 in 1999, and $1,318,000 in 1998. 9. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: Year Ended December 31 2000 1999 1998 ------------------------------------------- Numerator: Net income available to common stockholders $ 16,342,249 $ 30,587,425 $ 25,268,189 =========================================== Denominator: Weighted-average shares for basic earnings per share 11,425,063 12,291,349 12,254,067 Dilutive employee stock options 113,594 524,266 475,339 ------------------------------------------- Adjusted weighted-average shares for diluted earnings per share 11,538,657 12,815,615 12,729,406 =========================================== Basic earnings per share $ 1.43 $ 2.49 $ 2.06 =========================================== Diluted earnings per share $ 1.42 $ 2.39 $ 1.99 =========================================== Stock options that could potentially dilute basic earnings per share in the future, which were not included in the fully diluted computation because they would have been anti-dilutive, were 861,103 at December 31, 2000. 10. Stock Options The Company has elected to follow APB No. 25 and related Interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under SFAS No. 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company's Stock Option Plans (the Option Plans) provide for the granting of either qualified or nonqualified stock options. Options are subject to terms and conditions determined by the Compensation Committee of the Board of Directors. Options granted under the 1986 Incentive Stock Option Plan generally are exercisable in increments of one-third per year beginning two years from the date of grant. Options granted under the 1993 and 1996 Stock Option Plans are 33 exercisable five years from the date of grant. All options expire ten years from the date of grant. Under the Option Plans, the Company may grant options to purchase up to a total of 2,600,000 shares of common stock at the prevailing market price at the date of grant. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value for the Company's options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 2000, 1999, and 1998, respectively: risk-free interest rates of 7.2% in 2000, 6.9% in 1999, and 5.7% in 1998, a volatility factor of the expected market price of the Company's common stock of .36 in 2000, .37 in 1999, and .30 in 1998, a weighted-average expected life of the options of 7 years, and no dividend payments. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the respective options' vesting periods. The Company's SFAS No. 123 pro forma information follows: Year ended December 31 2000 1999 1998 -------------------------------------------- Net income $ 16,342,249 $ 30,587,425 $ 25,268,189 Pro forma compensation expense (2,138,266) (1,925,059) (1,308,983) -------------------------------------------- Pro forma net income $ 14,203,983 $ 28,662,366 $ 23,959,206 ============================================ Pro forma basic earnings per share $ 1.31 $ 2.39 $ 1.98 ============================================ Pro forma diluted earnings per share $ 1.30 $ 2.29 $ 1.90 ============================================ Because SFAS No. 123 applies only to stock-based compensation awards for 1995 and future years, the pro forma disclosures under SFAS No. 123 are not likely to be indicative of future disclosures until the disclosures reflect all outstanding, nonvested awards. 34 A summary of the Company's stock option plan activity is as follows: Number of Shares Under Weighted-Average Option Exercise Price ----------------------------------- Balance at January 1, 1998 1,736,000 $19.01 Granted 758,000 28.85 Exercised (49,500) 22.11 Canceled (476,500) 23.92 ----------------------------------- Balance at December 31, 1998 1,968,000 21.53 Granted 757,000 28.23 Exercised (41,500) 18.28 Canceled (644,000) 25.97 ----------------------------------- Balance at December 31, 1999 2,039,500 21.64 Granted 171,000 20.06 Exercised (137,000) 8.63 Canceled (317,000) 24.82 ----------------------------------- Balance at December 31, 2000 1,756,500 $21.86 =================================== Options exercisable were 486,726, 513,526, and 315,500 at December 31, 2000, 1999, and 1998, respectively. The weighted-average fair value of options granted during 2000, 1999, and 1998 was $10.50, $14.67, and $11.43, respectively. Exercise prices for options outstanding as of December 31, 2000, ranged from $15.44 to $34.25. At December 31, 2000, the Company had reserved 438,667 shares of its common stock for issuance pursuant to stock option plans. The following table segregates option information between ranges of exercise prices as of December 31, 2000: Exercise Price ------------------------------- Less Than Greater Than $25 $25 Total --------------------------------------- Number of shares under option 1,401,000 355,000 1,756,500 Weighted-average exercise price $19.95 $29.38 $21.86 Weighted-average years of remaining contractual life 5.89 7.88 6.29 Exercisable options 481,226 5,500 486,726 Weighted-average exercise price of exercisable options $19.89 $25.59 $19.96 11. Commitments and Contingencies The Company is involved in certain legal actions and claims arising in the ordinary course of business. It is the opinion of management that such litigation and claims will be resolved without material effect to the Company's financial position or results of operations. The Company guarantees certain debt obligations of EASO for revenue equipment. At December 31, 2000, the amount guaranteed was approximately $20.8 million. The guaranteed obligations have maturity dates from June 1, 2001, to September 1, 2006. 12. Stock Repurchase Program On December 16, 1999, the Company's Board of Directors authorized the repurchase of up to one million shares of the Company's common stock from time- to-time 35 through open market transactions. The stock repurchase program was authorized through December 31, 2000. On June 7, 2000, the Board of Directors authorized an additional two million shares for repurchase. This stock repurchase program is authorized through December 31, 2001. The Company will have no obligation to purchase any shares and may cancel, suspend or extend the time period for the purchase of shares at any time. Through December 31, 2000, the Company had repurchased 1,270,100 shares under this program. 13. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value. The book value of long-term obligations, including current portion, approximates fair value based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company's interest rate swap agreements is a liability of approximately $1.4 million and $2.2 million at December 31, 2000 and 1999, respectively. 14. Industry Segments The Company's two reportable segments are trucking operations and logistics. These segments are classified primarily by the type of services they provide. Performance of the segments is generally evaluated by their operating income. The trucking operations provide irregular route freight transport services to customers. The logistics operations arrange freight transportation for customers using various carriers, including the trucking segment of the Company, through agency relationships with its customers. Customers of both the trucking operations and logistics operations primarily include manufacturing, retail, wholesale and courier service companies. Effective July 1, 2000, the Company contributed its logistics operations to Transplace.com as described in Note 16. Summarized segment information is shown in the following table: Year ended December 31 2000 1999 1998 ----------------------------------------- (in thousands) Operating revenues: Trucking (including trucking revenues received from logistics) $ 662,462 $ 568,765 $ 481,650 Logistics 36,952 68,214 60,939 Elimination of trucking revenues received from logistics (1,892) (16,565) (13,748) ----------------------------------------- $ 697,522 $ 620,414 $ 528,841 ========================================= Operating income: Trucking $ 40,567 $ 54,771 $ 44,546 Logistics 1,388 2,022 2,377 ----------------------------------------- $ 41,955 $ 56,793 $ 46,923 ========================================= Due to the minimal amount of long-lived assets required by the logistics operations, the Company does not separately report such assets and related depreciation and amortization expense in its financial records used for 36 allocating Company resources and evaluating operating performance. The Company allocated operating overhead costs of approximately $3,312,000, $3,942,000, and $2,930,000 in 2000, 1999, and 1998, respectively, to the logistics operations for purposes of determining operating income and evaluating performance. Cost allocations to the logistics operations are based primarily on payroll costs. A trucking customer, Sears, accounted for 10% or more of revenues in 2000, 1999, and 1998 with revenues of $70,264,000 and $69,594,000, and $66,428,000, respectively. 15. Selected Quarterly Data (Unaudited) Summarized quarterly data for 2000 and 1999 follows:
2000 March 31 June 30 September 30 December 31 ------------------------------------------------------------ Operating revenues $164,169,693 $180,002,316 $176,112,824 $177,237,124 Operating expenses 154,303,193 165,888,067 165,366,526 170,009,283 ------------------------------------------------------------ Operating income 9,866,500 14,114,249 10,746,298 7,227,841 Other expense 2,793,740 4,540,490 4,481,365 4,980,975 ------------------------------------------------------------ Income before taxes 7,072,760 9,573,759 6,264,933 2,246,866 Income taxes 2,458,472 3,397,264 2,177,689 782,644 ------------------------------------------------------------ Net income $ 4,614,288 $ 6,176,495 $ 4,087,244 $ 1,464,222 ============================================================ Basic earnings per share $ 0.39 $ 0.54 $ 0.37 $ 0.13 ============================================================ Diluted earnings per share $ 0.38 $ 0.53 $ 0.37 $ 0.13 ============================================================
1999 March 31 June 30 September 30 December 31 -------------------------------------------------------------- Operating revenues $142,814,475 $153,596,736 $160,434,754 $163,568,172 Operating expenses 131,484,497 138,934,555 144,886,110 148,315,954 -------------------------------------------------------------- Operating income 11,329,978 14,662,181 15,548,644 15,252,218 Other expense 2,440,964 1,687,636 2,199,252 3,042,802 -------------------------------------------------------------- Income before taxes 8,889,014 12,974,545 13,349,392 12,209,416 Income taxes 3,155,600 4,605,963 4,724,764 4,348,615 -------------------------------------------------------------- Net income $ 5,733,414 $ 8,368,582 $ 8,624,628 $ 7,860,801 ============================================================== Basic earnings per share $ 0.47 $ 0.68 $ 0.70 $ 0.64 ============================================================== Diluted earnings per share $ 0.45 $ 0.65 $ 0.67 $ 0.62 ==============================================================
16. Investment in Affiliated Company In March 2000, the Company, along with five other motor carriers, announced the intent to contribute its logistics operations into a joint venture, Transplace.com (TPC). TPC is an internet-based global transportation logistics company. TPC commenced operations effective July 1, 2000. The Company contributed all of its logistics operations, plus $5 million of cash, in exchange for an approximate 13% initial membership interest in TPC. The Company accounts for its approximate 13% interest in TPC utilizing the equity method of accounting. The Company's investment in TPC is classified as other assets on its consolidated 37 balance sheet. No gain or loss was recognized upon formation and contribution of the logistics operations to TPC. The excess of the Company's share of TPC's net assets over its cost basis is being amortized over 20 years on a straight- line basis. Equity in earnings of TPC was not significant in 2000. The Company's logistics operations generated approximately $35.4 million of operating revenues and $1.1 million of operating income for the six-month period ended June 30, 2000. During the six-month period ended December 31, 2000, the Company reported $1.6 million of operating revenues and $0.3 million of operating income from its logistics operations. These amounts are related to logistics services that were in process at the time of the Company's transfer of its logistics operations to TPC. The Company provided various services to TPC under a shared service agreement, the terms of which expired on December 31, 2000. The services included the following: payroll and benefits; accounting; computer system maintenance; office facilities; and telecommunications. The fees from these services approximated $2,634,000 in 2000 and were recorded in the consolidated statement of income as reimbursements of salaries, wages and benefits and other operating expenses. The Company has a receivable from TPC of $11.0 million at December 31, 2000, for freight, fees related to the shared service agreement and funding of a portion of TPC's working capital requirements. An additional $309,000 due from TPC is included in trade accounts receivable for freight services provided by the Company. The Company earned revenues of $8,615,000 from TPC in providing transportation services in the last six months of 2000. 17. Restatement In 2000, the Company modified its method of estimating and accruing its ultimate cost related to accident, workers' compensation, cargo and physical damage claims in accordance with accounting principles generally accepted in the United States. The Company began applying loss development factors to its accident and workers' compensation claims history. This new method results in a more accurate estimate of the Company's ultimate loss from claims than its prior method. This new method resulted in a restatement of the following balances at December 31, 1997: a decrease in retained earnings of $6.9 million, an increase in claims payable of $10.9 million, and an increase in deferred tax assets of $4.0 million. This restatement had no material impact on the 1999 and 1998 consolidated statements of income. 18. Proposed Merger with Swift Transportation Co., Inc. On December 11, 2000, the Company entered into a merger agreement with Swift Transportation Co., Inc. (Swift). Under the agreement, the Company will become a wholly-owned subsidiary of Swift. The merger is expected to be accounted for as a pooling-of-interests. Prior to the merger, the Company expects to offer approximately 300,000 shares of its common stock. 38
Schedule II Valuation and Qualifying Accounts M.S. Carriers, Inc. Column A Column B Column C Column D Column E - ----------------------------------------------------------------------------------------------------------------------- Additions ------------------------------- Balance at Charged to Charged to Balance at Beginning Costs and Other End Description of Period Expenses Accounts Deductions(1) of Period - ----------------------------------------------------------------------------------------------------------------------- Year ended December 31, 2000 Deducted from asset accounts: Allowance for doubtful accounts receivable $7,986,872 $ 660,000 $1,644,022(2) $336,475 $9,954,419 Year ended December 31, 1999 Deducted from asset accounts: Allowance for doubtful accounts receivable $2,418,476 $ 624,912 $5,136,479(2) $192,995 $7,986,872 Year ended December 31, 1998 Deducted from asset accounts: Allowance for doubtful accounts receivable $1,497,651 $1,122,289 $201,464 $2,418,476 (1)Uncollectible accounts written off, net of recoveries. (2)The Company recognized an estimate of credits to be issued related to detention charges by reducing operating revenues.
39 EX-10.11 2 ex1011.txt MERGER AGREEMENT Exhibit 1 MERGER AGREEMENT AMONG SWIFT TRANSPORTATION CO., INC., a Nevada corporation SUN MERGER, INC., a Tennessee corporation AND M. S. CARRIERS, INC., a Tennessee corporation December 11, 2000 TABLE OF CONTENTS Page ---- 1. Definitions............................................................... 1 2. Basic Transaction......................................................... 6 (a) The Merger........................................................... 7 (b) The Closing.......................................................... 7 (c) Actions at the Closing............................................... 7 (d) Effect of Merger..................................................... 7 (e) Procedure for Payment................................................ 10 3. Representations and Warranties of the Parent and the Merger Sub........... 12 (a) Organization, Qualification, and Corporate Power..................... 12 (b) Capitalization....................................................... 13 (c) Authorization of Transaction......................................... 15 (d) Noncontravention..................................................... 15 (e) Company Public Reports............................................... 15 (f) Financial Statements................................................. 16 (g) Events Subsequent to Most Recent Fiscal Quarter End.................. 16 (h) Undisclosed Liabilities.............................................. 16 (i) Brokers' Fees........................................................ 16 (j) Disclosure........................................................... 16 (k) Employee Benefit Plans............................................... 17 (l) Employment and Labor Matters......................................... 19 (m) Environmental Matters................................................ 20 (n) Takeover Statutes.................................................... 22 (o) Tax Matters.......................................................... 23 (p) Insurance Bonds...................................................... 24 (q) Compliance........................................................... 25 (r) Absence of Litigation................................................ 25 (s) Title to Assets...................................................... 25 (t) Pooling-Tax Matters.................................................. 25 (u) Opinion of Financial Advisor......................................... 26 (v) Material Agreements.................................................. 26 (w) Intellectual Property................................................ 27 4. Representations and Warranties of the Parent and the Merger Sub........... 27 (a) Organization, Qualification, and Corporate Power..................... 27 (b) Capitalization....................................................... 28 (c) Authorization of Transaction......................................... 30 (d) Noncontravention..................................................... 30 (e) Parent Public Reports................................................ 30 i (f) Financial Statements................................................. 31 (g) Events Subsequent to Most Recent Fiscal Quarter End.................. 31 (h) Undisclosed Liabilities.............................................. 31 (i) Brokers' Fees........................................................ 31 (j) Disclosure........................................................... 31 (k) Employee Benefit Plans............................................... 32 (l) Employment and Labor Matters......................................... 34 (m) Environmental Matters................................................ 35 (n) Material Agreements.................................................. 37 (o) Tax Matters.......................................................... 37 (p) Insurance Bonds...................................................... 38 (q) Compliance........................................................... 39 (r) Absence of Litigation................................................ 39 (s) Title to Assets...................................................... 40 (t) Pooling-Tax Matters.................................................. 40 (u) Intellectual Property................................................ 40 5. Covenants................................................................. 41 (a) General.............................................................. 41 (b) Conduct of Business by the Parent Pending the Merger................. 41 (c) Conduct of Business by the Company Pending the Merger................ 44 (d) Registration Statement; Proxy Statement.............................. 46 (e) Shareholders Meeting................................................. 48 (f) Additional Shareholder Meeting Matters............................... 48 (g) Access to Information................................................ 48 (h) Other Offers......................................................... 49 (i) Pooling; Reorganization.............................................. 51 (j) Notification of Certain Matters...................................... 52 (k) Listing on the Nasdaq National Market................................ 53 (l) Public Announcements................................................. 53 (m) Takeover Laws........................................................ 53 (n) Accountant's Letters................................................. 53 (o) Additional Parent Directors.......................................... 54 (p) Hart-Scott-Rodino Act................................................ 54 (q) Company Stock Options and Company Stock Plans; Outstanding Company Stock Options.................................. 54 (r) Insurance and Indemnification........................................ 56 6. Conditions to Obligation to Close......................................... 57 (a) Conditions to Obligation of the Parent and the Merger Sub............ 57 (b) Conditions to Obligation of the Company.............................. 59 ii 7. Termination............................................................... 61 (a) Termination of Agreement............................................. 63 (b) Effect of Termination................................................ 63 (c) Fees and Expenses.................................................... 63 8. Miscellaneous............................................................. 64 (a) Survival............................................................. 64 (b) Reserved............................................................. 64 (c) No Third-Party Beneficiaries......................................... 64 (d) Entire Agreement..................................................... 64 (e) Succession and Assignment............................................ 64 (f) Counterparts......................................................... 64 (g) Headings............................................................. 64 (h) Notices.............................................................. 64 (i) Governing Law........................................................ 65 (j) Amendments and Waivers............................................... 65 (k) Severability......................................................... 65 (l) Expenses............................................................. 67 (m) Incorporation of Exhibits and Schedules.............................. 67 Exhibit A-1 - Voting Agreement (Parent) Exhibit A-2 - Voting Agreement (Company) Exhibit B - Articles of Merger Exhibit C - Company Disclosure Schedule Exhibit D - Parent Disclosure Schedule Exhibit E - Form of Affiliate Pooling Agreement Exhibit F-1 - Employment Agreement Exhibit F-2 - Employment Agreement Exhibit F-3 - Employment Agreement Exhibit F-4 - Employment Agreement iii THIS MERGER AGREEMENT (this "Agreement") is made and entered into as of December 11, 2000, by and among Swift Transportation Co., Inc., a Nevada corporation (the "Parent"), Sun Merger, Inc., a Tennessee corporation and a wholly-owned Subsidiary of the Parent (the "Merger Sub"), and M. S. Carriers, Inc., a Tennessee corporation (the "Company"). The Parent, the Merger Sub, and the Company are referred to herein individually as a "Party" and collectively herein as the "Parties." WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have each determined that it is in the best interests of their respective stockholders (the "Stockholders") for Parent to participate in the merger of Merger Sub with and into the Company (the "Merger") upon the terms and subject to the conditions set forth herein; WHEREAS, in furtherance of the Merger, the Boards of Directors of Parent, Merger Sub and the Company have each approved the Merger in accordance with the Tennessee Business Corporation Act and subject to the conditions set forth herein, which Merger will result in, among other things, the Company becoming a wholly owned Subsidiary of Parent; WHEREAS, as a condition to the willingness of, and an inducement to, Parent, Merger Sub, and the Company to enter into this Agreement, contemporaneously with the execution and delivery of this Agreement, certain holders of Parent Shares and Company Shares are entering into agreements dated as of the date hereof (the "Voting Agreements"), in the forms of Exhibits A-1 and A-2 attached hereto, respectively, providing for certain actions relating to the transactions contemplated by this Agreement; WHEREAS, for federal income tax purposes, it is intended that the Merger shall qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, for accounting purposes, it is intended that the Merger shall qualify for pooling-of-interests treatment. Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows. 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings set forth below: "Acquisition Proposal" has the meaning set forth in Section 5(h)(i) below. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act. "Agreement" has the meaning set forth in the preface above. "Alternative Transaction" has the meaning set forth in Section 5(h)(vi) below. "Articles of Merger" has the meaning set forth in Section 2(c) below. "Authority" means each and every federal, state, local, and foreign judicial, governmental, quasi-governmental, or regulatory agency, official, or department; every arbitrator, mediator, and other similar official; and every other entity to whose jurisdiction or decision making authority a Party has submitted. "Benefit Plan" means all contracts, plans, arrangements, policies, and understandings providing for any compensation or benefit other than base wages or salaries that are maintained by a Person or affect either its employees or independent contractors, regardless of whether defined as an "employee benefit plan" under ERISA or subject to any provision of ERISA, including, without limitation: all pension, profit-sharing, retirement, thrift, 401(k), ESOP, and other similar plans and arrangements (defined benefit and defined contribution); all health and welfare, disability, insurance (including self-insurance), workers' compensation, supplemental unemployment, severance, vacation, and similar plans and arrangements; and all bonus, stock option, incentive compensation, stock appreciation rights, phantom stock, overtime guaranty, employment contract, employee handbook, and other similar plans or arrangements. A "Company Benefit Plan" is a Benefit Plan that relates to the Company or the employees and independent contractors of the Company and its Subsidiaries. A "Parent Benefit Plan" is a Benefit Plan that relates to the Parent or the employees and independent contractors of the Parent and its Subsidiaries. "Certificates" has the meaning set forth in Section 2(e)(iii) below. "Charter" means charter, articles of incorporation, certificate of incorporation or similar documents. "Claim" has the meaning set forth in Section 5(r)(ii) below. "Closing" has the meaning set forth in Section 2(b) below. "Closing Date" has the meaning set forth in Section 2(b) below. "Code" has the meaning set forth in the recitals. "Company" has the meaning set forth in the preface above. 2 "Company Affiliate Pooling Agreement" has the meaning set forth in Section 5(i)(iii) below. "Company Base Year" has the meaning set forth in Section 3(p) below. "Company Disclosure Schedule" has the meaning set forth in Section 3 below. "Company Material Agreements" has the meaning set forth in Section 3(v) below. "Company Materially Adverse Effect" has the meaning set forth in Section 3(a) below. "Company Public Reports" has the meaning set forth in Section 3(e) below. "Company Share" means any share of the common stock, $.01 par value per share, of the Company. "Company Special Meeting" has the meaning set forth in Section 5(d)(i) below. "Company Stock Option Plans" has the meaning set forth in Section 3(b)(i) below. "Company Stockholder" means any Person who or which holds any Company Shares. "D&O Insurance" has the meaning set forth in Section 5(r)(iv) below. "Definitive Proxy Materials" means the definitive proxy materials relating to the Special Meetings. "Disclosure Schedules" means the Company Disclosure Schedule and the Parent Disclosure Schedule. "Effective Time" has the meaning set forth in Section 2(d)(i) below. "Employment Agreements" has the meaning set forth in Section 5(s) below. "Environmental Laws" has the meaning set forth in Section 3(m) below. "Environmental Permit" has the meaning set forth in Section 3(m) below. "ERISA Affiliate" has the meaning set forth in Section 3(k)(v) below. "Exchange Agent" has the meaning set forth in Section 2(e)(i) below. "Fairness Opinion" has the meaning set forth in Section 3(i) below. "Fiduciary Finding" has the meaning set forth in Section 5(h)(i) below. 3 "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Hazardous Materials" has the meaning set forth in Section 3(m) below. "Indemnified Party" has the meaning set forth in Section 5(r)(ii) below. "Intellectual Property" has the meaning set forth in Section 3(w) below. "IRS" has the meaning set forth in Section 3(k) below. "Joint Proxy Statement" has the meaning set forth in Section 5(d)(i) below. "Knowledge," as to each of the Parent and the Company, means the actual knowledge of such entity's executive officers after reasonable investigation. "Law" means any constitution, statute, law, ordinance, rule, regulation, Order, judgment, injunction, decree, ruling, or other pronouncement by any Authority (including, without limitation, the following types: environmental, energy, safety, health, zoning, anti-discrimination, antitrust, employment, transportation, tax, and employee benefit (including ERISA)). "Lien" means any mortgage, lien, pledge, security interest, mechanics' or materialmens' or similar lien, conditional sale agreement, charge, claim, right, condition, restriction, or other encumbrance or defect of title of any nature whatsoever (including, without limitation, any assessment, charge, or other type of notice which is levied or given by any Authority and for which a lien could be filed). "Litigation" means any claim, suit, action, arbitration, cause of action, claim, complaint, criminal prosecution, investigation, demand letter, or proceeding, whether at law or at equity, before or by any Authority. "Merger" has the meaning set forth in the recitals. "Merger Consideration" has the meaning set forth in Section 2(d)(v) below. "Merger Sub" has the meaning set forth in the preface above. "Most Recent Fiscal Quarter End" means at the given time, the most recent of September 30, 2000, December 31, 2000, or March 31, 2001. 4 "Multiemployer Plan" has the meaning set forth in Section 3(k)(vi) below. "Nevada General Corporation Law" means the Nevada General Corporation Law, as amended. "Order" means any judgment, order, writ, injunction, ruling or decree of, or any settlement under the jurisdiction of, any Authority. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Outstanding Company Stock Options" has the meaning set forth in Section 3(b)(i) below. "Outstanding Parent Stock Options" has the meaning set forth in Section 4(b)(i) below. "Parent" has the meaning set forth in the preface above. "Parent Base Year" has the meaning set forth in Section 4(p) below. "Parent Disclosure Schedule" has the meaning set forth in Section 4 below. "Parent Material Agreement" has the meaning set forth in Section 4(n) below. "Parent Materially Adverse Effect" has the meaning set forth in Section 4(a) below. "Parent Public Reports" has the meaning set forth in Section 4(e) below. "Parent Share" means any share of the common stock, $0.01 par value per share, of the Parent. "Parent Special Meeting" has the meaning set forth in Section 5(d)(i) below. "Parent Stock Option Plans" has the meaning set forth in Section 4(b)(i) below. "Parties" has the meaning set forth in the preface above. "Party" has the meaning set forth in the preface above. "Payment Event" has the meaning set forth in Section 5(h)(v) below. "Person" means an individual, partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization, governmental body (or any department, agency, or political subdivision thereof), or other entity. 5 "Pre-Merger Matters has the meaning set forth in Section 5(r)(ii) below. "Registration Statement" has the meaning set forth in Section 5(d)(i) below. "Representatives" has the meaning set forth in Section 5(g) below. "Requisite Stockholder Approval" means the affirmative vote of the holders of a majority of the voting power of outstanding common stock of (i) the Parent and (ii) the Company, in each case as applicable, in favor of the matters submitted to the respective stockholders pursuant to the Definitive Proxy Materials. "Returns" the meaning set forth in Section 3(o)(i). "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Special Meetings" means the Company Special Meeting together with the Parent Special Meeting. "Stockholders" has the meaning set forth in the recitals. "Stockholders Agreements" has the meaning set forth in the recitals. "Subsidiary" means any corporation or other business entity with respect to which a specified Person (or a Subsidiary thereof) owns twenty percent (20%) or more of the common stock or other equity interests or otherwise has the power to vote or direct sufficient voting power to elect a majority of the directors or other managers. "Surviving Corporation" has the meaning set forth in Section 2(a) below. "Taxes" or "Tax" shall mean all taxes, charges, fees, levies, or other assessments of whatever kind or nature, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, fuel, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp, occupancy, or property taxes, customs duties, fees, assessments, or charges of any kind whatsoever (together with any interest and any penalties, additions to tax, or additional amounts) imposed by any Authority. "Tennessee Business Combination Act" means the Tennessee Business Combination Act, as amended. "Tennessee Business Corporation Act" means the Tennessee Business Corporation Act, as amended. 6 "Third Party" has the meaning set forth in Section 5(h)(vi) below. 2. BASIC TRANSACTION. (a) THE MERGER. On and subject to the terms and conditions of this Agreement, the Merger Sub will merge with and into the Company at the Effective Time. The Company shall be the corporation surviving the Merger (the "Surviving Corporation"). (b) THE CLOSING. Unless this Agreement shall have been terminated and the transactions contemplated by this Agreement abandoned pursuant to the provisions of Section 7 and subject to the provisions of Section 6, the closing of the Merger (the "Closing") will take place at noon (Eastern time) on a date (the "Closing Date") to be mutually agreed upon by the Parties, which date shall be the third business day after all the conditions set forth in Section 6 shall have been satisfied (or waived in accordance with Section 6, to the extent the same may be waived), unless another time and/or date is agreed by the Parties hereto. The Closing shall take place at the offices of the Parent or such other place as the Parties hereto otherwise agree. (c) ACTIONS AT THE CLOSING. At the Closing, (i) the Company will deliver to the Parent and the Merger Sub the various certificates, instruments, and documents referred to in Section 6(a) below, (ii) the Parent and the Merger Sub will deliver to the Company the various certificates, instruments, and documents referred to in Section 6(b) below, and (iii) the Company and the Merger Sub will file with the Secretary of State of the State of Tennessee Articles of Merger in the form attached hereto as Exhibit B (the "Articles of Merger"). (d) EFFECT OF MERGER. (i) GENERAL. The Merger shall become effective at the time (the "Effective Time") the Articles of Merger are validly filed with the Secretary of State of the State of Tennessee by the Company and the Merger Sub or at such later date and time as may be specified in the Articles of Merger by mutual agreement of the Company, the Parent, and the Merger Sub. The Merger shall have the effect set forth in the Tennessee Business Corporation Act. Without limiting the generality of the foregoing, at the Effective Time, all of the assets, property, rights, privileges, immunities, powers, and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities, duties, and obligations of the Company and Merger Sub shall become the debts, liabilities, duties and obligations of the Surviving Corporation. The Surviving Corporation may, at any time after the Effective Time, take any action (including executing and delivering any document) in the name and on behalf of either the Company or the Merger Sub in order to carry out and effectuate the transactions contemplated by this Agreement. 7 (ii) CERTIFICATE OF INCORPORATION. The Charter of the Surviving Corporation shall be amended and restated at and as of the Effective Time to read as did the Charter of the Merger Sub immediately prior to the Effective Time (except that the name of the Surviving Corporation will remain unchanged). (iii) BYLAWS. The bylaws of the Surviving Corporation shall be amended and restated at and as of the Effective Time to read as did the bylaws of the Merger Sub immediately prior to the Effective Time (except that the name of the Surviving Corporation will remain unchanged). (iv) DIRECTORS AND OFFICERS. The directors of the Merger Sub shall become the directors of the Surviving Corporation at and as of the Effective Time, and the officers of the Surviving Corporation from and after the Effective Time shall be as set forth in Section 2(d) of the Parent Disclosure Schedule. (v) CONVERSION OF COMPANY SHARES. (A) At and as of the Effective Time, and without any action on the part of the Parties hereto or any holder of the Company Shares, each Company Share issued and outstanding immediately prior to the Effective Time, by virtue of this Merger, shall be converted automatically into the right to receive one and seven tenths (1.7) fully paid and nonassessable Parent Shares (the "Merger Consideration") subject to the terms and provisions set forth in this Section 2. (B) Each Company Share issued and outstanding immediately prior to the Effective Time shall automatically be redeemed and canceled and shall cease to exist as of the Effective Time, and each holder of a certificate representing any such Company Share shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration and any cash in lieu of fractional Parent Shares to be issued or paid in consideration therefor upon surrender of such certificate in accordance with Section 2(d)(ix) hereof, without interest. (C) Each Company Share held in the treasury of the Company, if any, and each Company Share, if any, owned by Parent or Merger Sub, in each case immediately prior to the Effective Time, shall be canceled and extinguished without any conversion thereof and no payment or distribution shall be made with respect thereto. 8 (vi) CONVERSION OF COMPANY STOCK OPTIONS. (A) At and as of the Effective Time, and without any action on the part of the holder thereof, each then outstanding option to purchase Company Shares shall be converted into an option to purchase Parent Shares in the manner set forth in Section 5(q); provided, that in any event any such conversion shall be in accordance with the terms and conditions of all applicable Company Stock Option Plans, option agreements thereunder, and all other relevant documentation immediately prior to the Effective Time. (B) The Company and its Board of Directors shall promptly take all actions necessary to ensure that following the Effective Time no holder of any options or other rights pursuant to, nor any participant in or party to, the Company Stock Option Plans or any other Benefit Plan or other plan, program, arrangement, agreement or other commitment providing for the issuance or grant of any interest in respect of the capital stock of the Company or any Subsidiary of the Company will have any rights thereunder to acquire equity securities, or any right to payment in respect of the equity securities, of Parent, the Company, or the Surviving Corporation or any of their Subsidiaries, except as provided herein. (vii) ADJUSTMENT OF MERGER CONSIDERATION. Without limiting any of the provisions of this Agreement, the Merger Consideration shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Parent Shares or Company Shares), reorganization, recapitalization or other like change with respect to Parent Shares of Company Shares occurring after the date hereof and prior to the Effective Time. (viii) CONVERSION OF CAPITAL STOCK OF THE MERGER SUB. At and as of the Effective Time, each share of common stock, $.01 par value per share, of the Merger Sub shall be converted automatically into one share of common stock, $.01 par value per share, of the Surviving Corporation and shall thereafter constitute all of the issued and outstanding capital stock of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any shares of Merger Sub common stock shall, after the Effective Time, evidence ownership of such shares of capital stock of the Surviving Corporation. (ix) FRACTIONAL SHARES. No certificates or scrip representing fractional Parent Shares shall be issued in connection with the Merger, and such fractional interests will not entitle the owner thereof to any rights of a stockholder of Parent. In lieu thereof, each holder of Company Shares exchanged pursuant to Section 2(d)(v) or of options or warrants exchanged pursuant to 9 Section 2(d)(vi) who would otherwise be entitled to a fraction of a Parent Share (after aggregating all fractional Parent Shares to have been otherwise received by such holder) shall receive from Parent an amount of cash (rounded down to the nearest whole cent and without interest) equal to the product of such fractional part of a Parent Share multiplied by the average closing price per Parent Share (rounded to the nearest cent) on the Nasdaq National Market (as reported in the Wall Street Journal, or, if not reported therein, any other authoritative source selected by Parent) for the ten (10) trading days ending on the date two (2) trading days immediately prior to (and excluding the date of) the Effective Time. (e) PROCEDURE FOR PAYMENT. (i) EXCHANGE AGENT. Prior to the Effective Time, Parent shall designate a bank or trust company to act as the Exchange Agent in the Merger (the "Exchange Agent"). (ii) PARENT TO PROVIDE PARENT SHARES. When and as needed, Parent shall make available to the Exchange Agent for exchange in accordance with this Section 2, through such reasonable procedures as Parent may adopt, sufficient Parent Shares to be exchanged pursuant to Section 2(d). (iii) EXCHANGE PROCEDURES. Promptly after the Effective Time, the Surviving Corporation shall cause to be mailed to each holder of record of a certificate or certificates (the "Certificates") that represented as of the Effective Time outstanding Company Shares to be exchanged pursuant to Section 2, a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Parent may reasonably specify) and instructions for use in effecting the surrender of the Certificates in exchange for certificates representing Parent Shares. Upon surrender of a Certificate to the Exchange Agent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor a certificate representing the number of whole Parent Shares and payment in lieu of fractional shares which such holder has the right to receive pursuant to Sections 2(d)(v) and 2(d)(vi), after giving effect to any required Taxes, and the Certificate so surrendered shall forthwith be canceled. At any time following six (6) months after the Effective Time, all or any number of Parent Shares (and any or all cash payable in lieu of fractional Parent Shares) deposited with or made available to the Exchange Agent which remain undistributed to the holders of the Certificates 10 representing Company Shares, shall be delivered to Parent upon demand, and thereafter such holders of unexchanged Company Shares shall be entitled to look only to Parent (subject to abandoned property, escheat or other similar Law) only as general creditors thereof with respect to the Parent Shares for payment upon due surrender of their Certificates. (iv) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other distributions declared or made after the Effective Time with respect to Parent Shares with a record date after the Effective Time will be paid to the holder of any unsurrendered Certificate with respect to the whole Parent Shares represented thereby until the holder of record of such Certificate shall surrender such Certificate. Subject to applicable Law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole Parent Shares issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time and payable between the Effective Time and the time of such surrender with respect to such whole Parent Shares. (v) TRANSFERS OF OWNERSHIP. If any certificate for Parent Shares is to be issued in a name other than the name in which the Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that (A) the Certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the Person requesting such exchange will have paid any transfer or other Taxes required by reason of the issuance of a certificate for Parent Shares in a name other than the name of the registered holder of the Certificate surrendered or (B) established to the satisfaction of Parent, or any agent designated by Parent, that such Taxes have been paid or are not applicable. (vi) NO LIABILITY. Notwithstanding anything to the contrary in this Agreement, none of the Exchange Agent, Parent, or the Surviving Corporation shall be liable to a holder of a Certificate for any Parent Shares (and any cash payable for fractional Parent Shares or any other amount due, if any) that was properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law. (vii) WITHHOLDING OF TAX. Parent or the Exchange Agent will be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Company Shares such amounts as Parent (or any Affiliate thereof) or the Exchange Agent shall determine in good faith they are required to deduct and withhold with respect to the making of such payment under the Code, or any provision of federal, state, local or foreign Law. To the extent that amounts are so withheld by Parent or the Exchange Agent, such withheld amounts will be treated for all purposes of this Agreement as having been paid to the holder of the Company Shares in respect of whom such deduction and withholding were made by Parent. 11 (viii) NO FURTHER OWNERSHIP RIGHTS IN COMPANY SHARES. All Parent Shares issued upon the surrender for exchange of Company Shares in accordance with the terms of this Section 2 (including any cash paid in respect thereof) shall be deemed to have been issued in full satisfaction of all rights pertaining to such Company Shares. At the Effective Time, the stock transfer books of the Company shall be closed, and thereafter there shall be no further registration of transfers of Company Shares on the records of the Surviving Corporation. From and after the Effective Time, the holders of Certificates evidencing ownership of Company Shares outstanding shall cease to have any rights with respect to such Company Shares except as otherwise provided for herein. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Section 2. (ix) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates evidencing Company Shares shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, such Parent Shares and cash for fractional shares, if any, as may be required pursuant to this Section 2; provided, however, that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed. (x) TAX CONSEQUENCES. For federal income tax purposes, the Parties intend that the Merger be treated as a reorganization within the meaning of Section 368(a) of the Code, and that this Agreement shall be, and is hereby, adopted as a plan of reorganization for purposes of Section 368 of the Code. The Parties shall not take a position on any Returns inconsistent with this Section 2(e)(x). 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the disclosure schedule prepared by the Company and attached as Exhibit C (the "Company Disclosure Schedule"), which is arranged to correspond to the lettered and numbered paragraphs contained in the applicable sections of this Agreement, the Company represents and warrants to the Parent and the Merger Sub as follows: 12 (a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. Section 3(a) of the Company Disclosure Schedule sets forth, as of the date hereof, a true and complete list of all of the Company's directly and indirectly owned Subsidiaries, together with the jurisdiction of incorporation or organization of each Subsidiary and the percentage of each Subsidiary's outstanding capital stock or other equity or other interest owned by the Company or another Subsidiary of the Company. Except as set forth in Section 3(a) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries owns any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, directly or indirectly, any equity or similar interest in, any Person. Each of the Company and its Subsidiaries is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the lack of such qualification would not have a materially adverse effect on the business, financial condition, operations, results of operations, or future prospects of the Company and its Subsidiaries taken as a whole (a "Company Materially Adverse Effect"). Each of the Company and all of its Subsidiaries has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. The Company has heretofore furnished to Parent a true and complete copy of each of its and each of its Subsidiaries' Charter and bylaws or equivalent organizational documents, as amended or restated to the date hereof. Such Charter and bylaws and equivalent organizational documents of the Company and each of its Subsidiaries are in full force and effect, and no other organizational documents are applicable to or binding upon the Company or its Subsidiaries. (b) CAPITALIZATION. (i) The entire authorized capital stock of the Company consists of 20,000,000 Company Shares. As of the date hereof, (i) 11,150,001 Company Shares were issued and outstanding; (ii) no Company Shares were held in the treasury of the Company; (iii) no Company Shares were held by any Subsidiary of the Company; and (iv) 2,331,000 Company Shares were duly reserved for future issuance pursuant to employee and director stock options granted pursuant to the Company's four stock option plans (the "Company Stock Option Plans"), of which 1,876,500 represented Company Shares reserved for options that had been granted prior to the date hereof (the "Outstanding Company Stock Options"). (ii) None of the outstanding Company Shares is subject to, nor was any of them issued in violation of any, purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right. Except as set forth above and in Section 3(b) of the Company Disclosure Schedule, no shares of voting or non-voting capital stock, other equity interests, or other voting 13 securities of the Company were issued, reserved for issuance or outstanding. Except as described in Section 3(b) of the Company Disclosure Schedule, all outstanding options to purchase Company Shares were granted under Company Stock Option Plans. The Company has delivered to Parent a true and complete list of all outstanding options and similar rights to purchase Company Shares, the record holder thereof and the exercise prices thereof. All outstanding shares of capital stock of the Company are, and all shares which may be issued upon the exercise of stock options and similar purchase rights will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to any kind of preemptive (or similar) rights. There are no bonds, debentures, notes or other indebtedness of the Company with voting rights (or convertible into, or exchangeable for, securities with voting rights) on any matters on which stockholders of the Company may vote. (iii) Section 3(b) of the Company Disclosure Schedule sets forth the number of authorized and outstanding shares of capital stock, and ownership thereof, of each of the Company's Subsidiaries. Except as set forth in Section 3(h) of the Company Disclosure Schedule, all of the outstanding shares of capital stock of each of the Company's Subsidiaries have been duly authorized, validly issued, fully paid and nonassessable, are not subject to, and were not issued in violation of, any preemptive (or similar) rights, and are owned, of record and beneficially, by the Company or one of its direct or indirect Subsidiaries, free and clear of all Liens whatsoever. Except as set forth in Section 3(b) of the Company Disclosure Schedule, there are no restrictions of any kind which prevent the payment of dividends by any of the Company's Subsidiaries, and neither the Company nor any of its Subsidiaries is subject to any obligation or requirement to provide funds for or to make any investment (in the form of a loan or capital contribution) to or in any Person. (iv) Except as described in Section 3(b) of the Company Disclosure Schedule, there are no outstanding securities, options, warrants, calls, rights, convertible or exchangeable securities, commitments, agreements, arrangements or undertakings of any kind (contingent or otherwise) to which the Company or any of its Subsidiaries is a party or by which any of them is bound obligating the Company or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Company or of any of its Subsidiaries or obligating the Company or any of its Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. There are no outstanding contractual obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock (or options or warrants to acquire any such shares) of the Company or its Subsidiaries. Except as 14 described in Section 3(b) of the Company Disclosure Schedule, as of the date hereof, there are no stock-appreciation rights, stock-based performance units, "phantom" stock rights or other agreements, arrangements or commitments of any character (contingent or otherwise) pursuant to which any Person is or may be entitled to receive any payment or other value based on the revenues, earnings or financial performance, stock price performance or other attribute of the Company or any of its Subsidiaries or assets or calculated in accordance therewith (other than ordinary course payments or commissions to sales representatives of the Company based upon revenues generated by them without augmentation as a result of the transactions contemplated hereby) or to cause the Company or any of its Subsidiaries to file a registration statement under the Securities Act, or which otherwise relate to the registration of any securities of the Company. Except as set forth in Section 3(b) of the Company Disclosure Schedule, there are no voting trusts, proxies or other agreements, commitments or understandings of any character to which the Company or any of its Subsidiaries or, to the Knowledge (as defined herein) of the Company, any of the Company's stockholders is a party or by which any of them is bound with respect to the issuance, holding, acquisition, voting or disposition of any shares of capital stock of the Company or any of its Subsidiaries. (c) AUTHORIZATION OF TRANSACTION. The Company has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder; provided, however, that the Company cannot consummate the Merger unless and until it receives the Requisite Stockholder Approval. This Agreement constitutes the valid and legally binding obligation of the Company, enforceable in accordance with its terms and conditions. (d) NONCONTRAVENTION. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any Law or other restriction of any Authority to which the Company or any of its Subsidiaries is subject or any provision of the Charter or bylaws (or equivalent organizational documents) of the Company or any of its Subsidiaries or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any Party the right to accelerate, terminate, modify, or cancel, or require any notice or consent under any agreement, contract, lease, license, instrument, or other arrangement to which the Company or any of its Subsidiaries is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Lien upon any of its assets), except in each case as set forth in Section 3(d) of the Company Disclosure Schedule or as would not reasonably be expected, individually or in the aggregate, to result in a Company Materially Adverse Effect (including by reason of any cross-default). Other than in connection with the provisions of the Hart-Scott-Rodino Act, the Tennessee 15 Business Corporation Act, the Tennessee Business Combination Act, the Securities Exchange Act, the Securities Act, the state securities laws, and the rules and regulations of The Nasdaq Stock Market, neither the Company nor any of its Subsidiaries needs to give notice to, make any filing with, or obtain any authorization, consent, or approval of any Authority in order for the Parties to consummate the transactions contemplated by this Agreement. (e) COMPANY PUBLIC REPORTS. The Company has filed all forms, reports, schedules, statements, and documents required to be filed by it with the SEC since January 1, 1998 (collectively, the "Company Public Reports"). Each of the Company Public Reports was filed on a timely basis and complied with the Securities Act and the Securities Exchange Act in all material respects. None of the Company Public Reports, as of their respective dates, (or if amended or superseded, at the time of such subsequent filing), contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company has delivered to the Parent a correct and complete copy of each Company Public Report (together with all exhibits and schedules thereto and as amended to date). (f) FINANCIAL STATEMENTS. Each of the audited and unaudited financial statements included in or incorporated by reference into the Company Public Reports (including the related notes and schedules) (i) complied in all material respects with applicable requirements of the SEC with respect thereto; (ii) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby; and (iii) present fairly the financial condition of the Company and its Subsidiaries as of the indicated dates and the results of operations of the Company and its Subsidiaries for the indicated periods, provided, however, that the interim statements are subject to normal and recurring year-end adjustments that have not been and to the Company's Knowledge will not be material. (g) EVENTS SUBSEQUENT TO MOST RECENT FISCAL QUARTER END. Since the Most Recent Fiscal Quarter End, there has not been any event, circumstance, act, or omission that has resulted in, or reasonably would be expected to result in, a Company Materially Adverse Effect. (h) UNDISCLOSED LIABILITIES. Neither the Company nor any of its Subsidiaries has liabilities or obligations of any nature, (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes, which individually or in the aggregate would reasonably be expected to have a Company Materially Adverse Effect, except for (i) liabilities or obligations set forth on the face of the balance sheet dated as of the Most Recent Fiscal Quarter End (rather than in any notes thereto) and filed in the Company Public Reports; (ii) liabilities or obligations which have arisen after the Most Recent Fiscal Quarter End in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or 16 was caused by any breach of contract, breach of warranty, tort, infringement, or violation of Law); and (iii) liabilities or obligations set forth in Section 3(h) of the Company Disclosure Schedule. (i) BROKERS' FEES. Except for the fee payable to Merrill Lynch & Co. for issuing its opinion as to the fairness of the Merger Consideration to the holders of Company Shares from a financial point of view (the "Fairness Opinion") and financial advisory services described in Section 3(i) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (j) DISCLOSURE. None of the information supplied by the Company for inclusion in the Registration Statement or any amendment or supplement thereto, shall, at the time such document is filed, at the time amended or supplemented and at the time the Registration Statement is declared effective by the SEC, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the information supplied by the Company for inclusion in the Definitive Proxy Materials shall, on the date such materials are first mailed to the stockholders of the Company and Parent, at the time of the Special Meetings, and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the Special Meetings which has become false or misleading. If at any time prior to the Effective Time any event relating to the Company or any of its respective Affiliates, officers or directors should be discovered by the Company which should be set forth in an amendment or supplement to the Registration Statement or an amendment or supplement to the Definitive Proxy Materials, the Company shall promptly inform Parent and Merger Sub. The Definitive Proxy Materials shall comply in all material respects as to form and substance with the requirements of the Exchange Act and the regulations promulgated thereunder. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information supplied by the Company which is contained in the Registration Statement or Definitive Proxy Materials. (k) EMPLOYEE BENEFIT PLANS. (i) Section 3(k) of the Company Disclosure Schedule includes a complete list of all Company Benefit Plans. (ii) With respect to each Company Benefit Plan, the Company has provided to the Parent a true, correct and complete copy of: (i) all plan documents, benefit schedules, trust agreements, and insurance contracts and other funding vehicles; (ii) the most recent Annual Report (Form 5500 Series) and accompanying 17 schedule, if any; (iii) the current summary plan description, if any; (iv) the most recent annual financial report, if any; (v) the most recent actuarial report, if any; and (vi) the most recent determination letter from the Internal Revenue Service (the "IRS"), if any. (iii) The Company and each of its Subsidiaries has complied, and is now in compliance in all material respects with, all provisions of ERISA, the Code, and all Laws applicable to the Company Benefit Plans. With respect to each Company Benefit Plan that is intended to be a "qualified plan" within the meaning of Section 401(a) of the Code, the IRS has issued a favorable determination letter, and to the Knowledge of the Company nothing has occurred at the date hereof that reasonably would be expected to cause the loss of such qualification. (iv) All contributions required to be made to any Company Benefit Plan by applicable Law or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Company Benefit Plan, for any period through the date hereof have been timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof, have been fully reflected in the financial statements of the Company included in the Company Public Reports to the extent required under GAAP. (v) With respect to each Company Benefit Plan which is subject to Title IV or Section 302 of ERISA or Section 412 of the Code maintained or contributed to (or required to be contributed to) by the Company, any of its Subsidiaries or any ERISA Affiliate, (i) there does not now exist, nor do any circumstances exist that could result in, any liability of the Company or any of its Subsidiaries under Title IV of ERISA (other than for the payment of premiums, all of which have been paid when due), (ii) neither the Company nor any of its Subsidiaries has incurred any accumulated funding deficiency within the meaning of Section 302 of ERISA or Section 412 of the Code (whether or not waived) and there has been no waiver or application for a waiver of any minimum funding standard or extension of any amortization period under Section 412 of the Code or Part 3 of Subtitle B of Title I of ERISA, (iii) no "reportable event" (as such term is defined in Section 4043 of ERISA and the regulations thereunder) has occurred or is expected to occur, (iv) no notice of intent to terminate has been filed with the Pension Benefit Guaranty Corporation, (v) the Pension Benefit Guaranty Corporation has not instituted any proceedings to terminate the plan or to appoint a trustee to administer the plan, and (vi) there has been no event requiring disclosure under Section 4063(a) of ERISA. For purposes of this Section 3(k), the term "ERISA Affiliate" shall mean any business or entity (whether or not incorporated) which is a member of the same "controlled group of corporations," under "common control," or an "affiliated service group" with the 18 Company or any of its Subsidiaries within the meaning of Section 414(b), (c) or (m) of the Code, or is under "common control" with the Company or any of its Subsidiaries within the meaning of Section 4001(a)(14) of ERISA. (vi) Neither the Company nor any of its Subsidiaries nor any ERISA Affiliate has been required to contribute to, or incurred any withdrawal liability (within the meaning of Section 4201 of ERISA) with respect to any plan which is a multiemployer plan as defined in Section 3(37) of ERISA (a "Multiemployer Plan"). Neither the Company nor any of its Subsidiaries nor any ERISA Affiliate has completely or partially withdrawn from any Multiemployer Plan. No Multiemployer Plan as to which the Company, any of its Subsidiaries or any ERISA Affiliate is required to contribute is in reorganization within the meaning of Part 3 of Subtitle E of Title IV of ERISA. The Company shall deliver to Parent, prior to the Closing, a schedule showing the contributions of the Company, any of its Subsidiaries, and any ERISA Affiliates to each of the Multiemployer Plans for the most recent five plan years. (vii) There are no pending actions, claims or lawsuits which have been asserted, instituted or, to the Knowledge of the Company, threatened in connection with any of the Company Benefit Plans (other than routine claims for benefits) which would reasonably be expected, individually or in the aggregate, to result in a Company Materially Adverse Effect. (viii) Neither the Company nor any of its Subsidiaries maintains or contributes to any plan or arrangement which provides or has any liability to provide life insurance or medical or other welfare benefits to any employee, former employee, director or former director upon his retirement or termination of service, and neither the Company nor any of its Subsidiaries has ever represented, promised, or contracted (whether in oral or written form) to any employee, former employee, director or former director that such benefits would be provided. (ix) The Company and its Subsidiaries are in compliance in all material respects with the continuation coverage provisions of Section 601 et seq. of ERISA and Section 4980B of the Code. (l) EMPLOYMENT AND LABOR MATTERS. (i) Section 3(l) of the Company Disclosure Schedule identifies all employees and consultants employed or engaged by the Company with an annual base salary or compensation rate of $80,000 or higher and sets forth each such individual's rate of pay or annual compensation, job title and date of hire. Except as set forth in Section 3(l) of the Company Disclosure Schedule, there are no 19 employment, consulting, collective bargaining, severance pay, continuation pay, termination or indemnification agreements or other similar contracts of any nature (whether in writing or not) between the Company or any Subsidiary and any current or former stockholder, officer, director, employee, consultant, labor organization or other representative of any of the Company's or Subsidiary's employees, nor is any such contract presently being negotiated. Except as set forth in Section 3(l) of the Company Disclosure Schedule, no individual will accrue or receive additional benefits, service or accelerated rights to payments under any Benefit Plan or any of the agreements set forth in Section 3(l) of the Company Disclosure Schedule, including the right to receive any parachute payment, as defined in Section 280G of the Code, or become entitled to severance, termination allowance or similar payments as a result of the Merger that could result in the payment of any such benefits or payments. Neither the Company nor any Subsidiary is delinquent in payments to any of its employees or consultants for any wages, salaries, commissions, bonuses, benefits or other compensation for any services or otherwise arising under any policy, practice, agreement, plan, program or Law. Except as set forth in Section 3(l) of the Company Disclosure Schedule, neither the Company nor any Subsidiary is liable for any severance pay or other payments to any employee or former employee arising from the termination of employment, nor will the Company or any Subsidiary have any liability under any benefit or severance policy, practice, agreement, plan, or program which exists or arises, or may be deemed to exist or arise, under any applicable Law or otherwise, as a result of or in connection with the transactions contemplated hereunder or as a result of the termination by the Company or any Subsidiary of any Persons employed by the Company or any Subsidiary on or prior to the Effective Time. (ii) Except as set forth in Section 3(l) of the Company Disclosure Schedule, none of the Company's or any Subsidiary's employment policies or practices is currently being audited or investigated by any Authority. Except as set forth in Section 3(l) of the Company Disclosure Schedule, there is no pending or, to the Knowledge of the Company, threatened Litigation, unfair labor practice charge, or other charge or inquiry against the Company or any Subsidiary brought by or on behalf of any employee, prospective employee, former employee, retiree, labor organization or other representative of the Company's or Subsidiary's employee, or other individual or any Authority with respect to employment practices brought by or before any Authority. Except as set forth in Section 3(l) of the Company Disclosure Schedule, there are no controversies pending or threatened, between the Company or any of its Subsidiaries and any of their respective employees; neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or other labor union contract applicable to Persons 20 employed by the Company or its Subsidiaries nor are there any activities or proceedings of any labor union to organize any such employees of the Company or any of its Subsidiaries; during the past five years there have been no strikes, slowdowns, work stoppages, disputes, lockouts, or threats thereof, by or with respect to any employees of the Company or any of its Subsidiaries. Except as set forth in Section 3(l) of the Company Disclosure Schedule, there are no grievances pending or, to the Knowledge of the Company or any Subsidiary, threatened, which could reasonably be expected to have a Company Materially Adverse Effect. Neither the Company nor any Subsidiary is a party to, or otherwise bound by, any consent decree with, or citation or other Order by, any Authority relating to employees or employment practices. The Company and each of its Subsidiaries are in compliance in all material respects with all applicable Laws, contracts, and policies relating to employment. (m) ENVIRONMENTAL MATTERS. Except as set forth in Section 3(m) of the Company Disclosure Schedule or except as would not reasonably be expected, individually or in the aggregate, to have a Company Materially Adverse Effect, (i) no Hazardous Materials are present at, on or under any real property currently or, to the Company's Knowledge, formerly owned, leased, or operated by the Company or any of its Subsidiaries to an extent or in a manner or condition now requiring investigation, response, corrective action, or other action, or, to the Company's Knowledge, that could result in liability of, or costs to, the Company or any of its Subsidiaries, under any Environmental Law, (ii) there is currently no civil, criminal, or administrative action, suit, demand, hearing, proceeding notice of violation, investigation, notice or demand letter, or request for information pending or to the knowledge of the Company, threatened, under any Environmental Law against the Company or any of its Subsidiaries, (iii) the Company and its Subsidiaries have not received any claims or notices alleging liability under any Environmental Law, and the Company has no knowledge of any circumstances that would reasonably be expected to result in such claims or notices, (iv) the Company and each of its Subsidiaries are currently in compliance, and within the period of applicable statutes of limitation have complied, with all, and, to the Company 's Knowledge, have no liability under any, applicable Environmental Laws, (v) the Company has not been notified about any property or facility currently or, to the Company's Knowledge as of the date hereof, formerly owned, leased, or operated by the Company or any of its Subsidiaries or any of their respective predecessors-in-interest, or at which Hazardous Materials of the Company or any of its Subsidiaries have been stored, treated, or disposed of is listed or proposed for listing on the National Priorities List or the Comprehensive Environmental Response, Compensation and Liability Information System, both promulgated under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or on any comparable state or foreign list established under any Environmental Law, (vi) the execution, delivery, 21 and performance of this Agreement and the consummation of the transactions contemplated hereby will not affect the validity or require the transfer of any Environmental Permits held by the Company or any of its Subsidiaries, and will not require any notification, disclosure, registration, reporting, filing, investigation, remediation, or other action under any Environmental Law, (vii) no friable asbestos is present in, on, or at any property, facility or equipment of the Company or any of its Subsidiaries, (viii) there are no past or present events, conditions, activities, or practices which could reasonably be expected to prevent the Company and its Subsidiaries' compliance with any Environmental Law, or which would reasonably be expected to give rise to any liability of the Company or any of its Subsidiaries under any Environmental Law, (ix) no Lien has been asserted or recorded, or to the Knowledge of the Company and each of its Subsidiaries threatened, under any Environmental Law with respect to any assets, facility, inventory, or property currently owned, leased or operated by the Company or any of its Subsidiaries, (x) neither the Company nor any of its Subsidiaries has assumed by contract or agreement any liabilities or obligations arising under any Environmental Law including, without limitation, any such liabilities or obligations with respect to formerly owned, leased or operated real property or facilities, or former divisions or Subsidiaries, (xi) neither the Company nor any of its Subsidiaries has entered into or agreed to any Order by any judicial or administrative tribunal or agency and neither the Company nor any of its Subsidiaries is subject to any Order or agreement, in each case relating to compliance with any Environmental Law or requiring the Company or any of its Subsidiaries to conduct any investigation, response, corrective or other action with respect to any Hazardous Materials under any Environmental Law, and (xii) other than disclosed on Schedule 3(m) of the Company Disclosure Schedule there are no underground storage tanks or above-ground storage tanks or related piping at any real property owned, operated, or leased by the Company or any of its Subsidiaries, and any former such tanks and piping on any such property which have been removed or closed, have been removed or closed in accordance with applicable Environmental Laws. For purposes of this Agreement, the term "Environmental Laws" means the common law and all applicable federal, state, local, and foreign Laws, rules, regulations, codes, or Orders issued, promulgated, approved, or entered thereunder relating to pollution or protection of human health and safety or the environment (including, without limitation, ambient air, indoor air, surface water, ground water, land surface, subsurface strata, and natural resources such as wetlands, flora, fauna), including without limitation, Laws relating to emissions, discharges, releases or threatened releases of Hazardous Materials into the environment, or otherwise relating to the manufacture, processing, generation, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials. For purposes of this Agreement, the term "Hazardous Materials" means any pollutant, contaminant, toxic, hazardous or extremely hazardous substance, constituent or waste, or any other constituent, waste, 22 chemical, compound, material or substance, including without limitation, petroleum or any petroleum product, including crude oil or any fraction thereof, subject to regulation by or that can give rise to liability under any Environmental Law. For purposes of this Agreement, the term "Environmental Permit" means any permit, license, approval, consent, or other authorization provided or issued by any government or regulatory Authority pursuant to an Environmental Law. The Company has made available to the Parent all records and files, including, but not limited to, all assessments, reports, studies, audits, analyses, tests, and data in the possession or control of the Company or any of its Subsidiaries relating to the existence of Hazardous Materials at facilities or properties currently or formerly owned, operated, leased or used by the Company or any of its Subsidiaries or in any way concerning compliance by the Company and any of its Subsidiaries with, or liability of any of them, under, any Environmental Law. (n) TAKEOVER STATUTES. The Board of Directors of the Company has taken all appropriate and necessary actions such that Parent and the Merger Sub will not be prohibited from entering into a "business combination" with the Company as an "interested stockholder" (in each case as such term is used in Section 48-103-205 of the Tennessee Business Combination Act) as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. No other "fair price," "moratorium," "control share acquisition," or other similar anti-takeover statute or regulation as in effect on the date hereof is applicable to the Company, the Company Shares, the Merger, or the other transactions contemplated by this Agreement. No takeover statute or similar Law and no provision of the Charter or bylaws, or other organizational documents or governing instruments of the Company or any of its Subsidiaries or any material agreement to which any of them is a party (a) would or would purport to impose restrictions which might adversely affect or delay the consummation of the transactions contemplated by this Agreement, or (b) as a result of the consummation of the transactions contemplated by this Agreement, or the acquisition of securities of the Company or the Surviving Corporation by Parent or Merger Sub (i) would or would purport to restrict or impair the ability of Parent to vote or otherwise exercise the rights of a Stockholder with respect to securities of the Company or any of its Subsidiaries that may be acquired or controlled by Parent or (ii) would or would purport to entitle any Person to acquire securities of the Company or the Parent (except for the Parent Shares issued as Merger Consideration in accordance with Section 2 hereof). (o) TAX MATTERS. With respect to Taxes except as set forth in Section 3(o) of the Company Disclosure Schedule: (i) To the best Knowledge of the Company, the Company has filed, within the time and in the manner prescribed by Law, all returns, declarations, reports, estimates, information returns, and 23 statements (the "Returns") required to be filed under applicable Law, and all such Returns are true, correct, and complete. The Company has within the time and in the manner prescribed by Law, paid all Taxes that are due and payable with respect to it and its consolidated group. The Company has established on the balance sheet dated as of the Most Recent Fiscal Quarter End reserves, charges, and accruals that are adequate for the payment of all Taxes not yet due and payable that are attributable to periods ending on such date. There are no Liens for Taxes upon the assets of the Company except for Liens for Taxes not yet delinquent. (ii) To the best Knowledge of the Company, no action, suit, proceeding, investigation, claim or audit has formally commenced and no written notice has been given that such audit or other proceeding is pending or threatened with respect to the Company or any of its Subsidiaries or any group of corporations of which any of the Company and its Subsidiaries has been a member in respect of any Taxes, and all deficiencies proposed as a result of such actions, suits, proceedings, investigations, claims or audits have been paid, reserved against or settled. There are no outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Tax or Return that have been requested or given by or that relate to the Company. (iii) The Company and, if applicable, its agents and contracted service providers, have complied in all respects with all applicable Laws relating to the payment and withholding of Taxes and have, within the time and in the manner prescribed by applicable Law, withheld, collected, and paid over to the proper Authority all amounts required to be so withheld, collected, and paid over under all applicable Laws. (iv) The Company and its Subsidiaries have not made any payments, are not obligated to make any payments, and are not a party to any agreements that under any circumstances could obligate any of them to make any payments, that will not be deductible under Section 280G of the Code. Neither the Company nor any of its Subsidiaries has made an election under Section 341(f) of the Code. None of the Company and its Subsidiaries will be required to include any material amount in taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of a change in the method of accounting for a taxable period ending prior to the Closing Date, any "closing agreement" as described in Section 7121 of the Code (or any corresponding provision of state, local or foreign Tax Laws) entered into prior to the Closing Date, any sale reported on the installment method that occurred prior to the Closing Date, or any taxable income attributable to any amount that is economically accrued prior to the Closing Date. 24 (p) INSURANCE; BONDS. Section 3(p) of the Company Disclosure Schedule contains a list of, and the Parent has been furnished true and complete copies of, all material insurance policies and fidelity bonds covering the Company's assets, business, properties, operations, employees, officers, and directors, and other matters for which the Company carries insurance. Section 3(p) of the Company Disclosure Schedule describes any self-insurance arrangement by or affecting the Company, including any reserves established thereunder, covering any years in which there are outstanding claims (the earliest of such years referred to as the "Company Base Year"). Except as set forth in Section 3(p) of the Company Disclosure Schedule, there is no claim by any insured pending under any of such policies or bonds as to which coverage has been questioned, denied, or disputed by the underwriters of such policies or bonds. All premiums payable under all such policies and bonds have been paid, and the Company is otherwise in full compliance with the terms and conditions of all such policies and bonds. As to all claims that might be covered by such policies or bonds, the Company has promptly and within any prescribed time period notified the insuring or bonding party in the proper manner. Except for claims listed on Section 3(p) of the Company Disclosure Schedule, there have been no notices given to the insurer of any claims that may be insured by insurer. Such policies of insurance and bonds (or other policies and bonds providing substantially similar insurance coverage) have been in effect continuously since the beginning of the Company Base Year, and remain in full force and effect. Such policies of insurance and bonds are of the type and in amounts customarily carried by Persons conducting similar businesses and do not exclude coverage for punitive damages. Except as set forth in Section 3(p) of the Company Disclosure Schedule, there is no threatened termination of, or premium increase with respect to, any of such policies or bonds. (q) COMPLIANCE. The Company and each of its Subsidiaries are in compliance with, and are not in default or violation of, (i) its Charter and bylaws or the equivalent organizational documents of such Subsidiary, (ii) any Law or Order by which any of their respective assets or properties are bound or affected, and (iii) the terms of all notes, bonds, mortgages, indentures, contracts, permits, franchises and other instruments or obligations to which any of them is a party or by which any of them or any of their respective assets or properties is bound or affected, except, in the case of clauses (ii) and (iii), for any such failures of compliance, defaults and violations which could not, individually or in the aggregate, reasonably be expected to have a Company Materially Adverse Effect. The Company and its Subsidiaries are in compliance with the terms of all approvals of Authorities, except where the failure to so comply could not, individually or in the aggregate, reasonably be expected to have a Company Materially Adverse Effect. Except as set forth in Section 3(q) of the Company Disclosure Schedule or as could not, individually or in the aggregate, reasonably be expected to have a Company Materially Adverse Effect, neither the Company nor any of its Subsidiaries has received notice of any revocation or modification of any license, permit, consent, or approval of any Authority that is material to the Company or any of its Subsidiaries. 25 (r) ABSENCE OF LITIGATION. Except as described in Section 3(r) of the Company Disclosure Schedule or expressly described in the Company Public Reports filed and publicly available prior to the date hereof, there is no Litigation pending on behalf of or against or, to the Knowledge of the Company, threatened against the Company, any of its Subsidiaries, or any of their respective properties or rights, before or subject to any court or governmental Authority which could, individually or in the aggregate, reasonably be expected to have a Company Materially Adverse Effect. Neither the Company nor any of its Subsidiaries is subject to any outstanding Litigation or Order which, individually or in the aggregate, has had or could reasonably be expected to have a Company Materially Adverse Effect. (s) TITLE TO ASSETS. Except as described in Section 3(s) of the Company Disclosure Schedule, the Company and each of its Subsidiaries has good and marketable title to all of their real or personal properties (whether owned or leased) and assets, free and clear of all Liens other than Liens which are reflected on the Company's consolidated balance sheet filed in its Form 10-Q for the Most Recent Fiscal Quarter End. (t) POOLING; TAX MATTERS. (i) The Company intends that the Merger be accounted for under the "pooling of interests" method under the requirements of Opinion No. 16 (Business Combinations) of the Accounting Principles Board of the American Institute of Certified Public Accountants, the Financial Accounting Standards Board, and the regulations of the SEC. (ii) To the Knowledge of the Company, neither the Company nor any of its Affiliates has taken or agreed to take any action, failed to take any action or is aware of any fact or circumstance that would prevent (i) the Merger from being treated for financial accounting purposes as a "pooling of interests" in accordance with GAAP and the regulations of the SEC; provided, that the sale of Company Shares described in Section 5(i) are taken; or (ii) the Merger from constituting a reorganization within the meaning of Section 368(a) of the Code. (iii) Assuming the issuance of Company Shares described in Section 5(i), the Company has no Knowledge of any reason why it may not receive a letter from its independent accountants dated as of the Closing Date and addressed to the Company in which such accountants will concur with the Company's management's conclusion that no conditions exist related to the Company that would preclude Parent from accounting for the Merger as a "pooling of interests." 26 (iv) Section 3(t) of the Company Disclosure Schedule contains a true and complete list of all Persons who, to the Knowledge of the Company, may be deemed to be Affiliates of the Company, excluding all of its Subsidiaries but including all directors and executive officers of the Company. (u) OPINION OF FINANCIAL ADVISOR. The Company has no knowledge of any reason why it may not receive the written opinion of Merrill Lynch & Co. to the effect that, in its opinion, as of the date hereof, the Merger Consideration is fair to the holders of the Company Shares from a financial point of view. The aggregate fees and expenses paid or to be paid to Merrill Lynch & Co. shall not exceed $500,000. (v) MATERIAL AGREEMENTS. Except as described on Section 3(v) of the Company Disclosure Schedule, there are no agreements of the Company or its Subsidiaries (i) containing an unexpired covenant not to compete or similar restriction applying to the Company or any of its Subsidiaries; (ii) providing for interest rate, currency, or commodity hedging, swap or similar derivative transactions to which the Company or its Subsidiaries is a party; (iii) providing for payment based on revenues, sales or profits; (iv) between the Company or any of its Subsidiaries, on the one hand, and any Affiliate of the Company, on the other hand; (v) which, if terminated by the Company upon not more than 30 days' notice would result in liability to the Company of more than $1 million; or (vi) that would be required to be filed and have not been filed as an exhibit to a Form 10-K filed by the Company with the SEC as of the date of this Agreement (collectively, the "Company Material Agreements"). Assuming each Company Material Agreement constitutes a valid and binding obligation of each other Party thereto, each Company Material Agreement is a valid and binding obligation of the Company or the applicable Subsidiary, as the case may be. To the Company's Knowledge, each Company Material Agreement is a valid and binding obligation of each other Party thereto, and each such Company Material Agreement is in full force and effect. To the Knowledge of the Company, there are no existing defaults (or circumstances or events that, with the giving of notice or lapse of time or both would become defaults) of the Company, any Subsidiary, or any third party under any of the Company Material Agreements. (w) INTELLECTUAL PROPERTY. (i) Except as would not, individually and in the aggregate, have a Company Materially Adverse Effect, (i) the Company and each of its Subsidiaries owns, has the right to acquire or is licensed or otherwise has the right to use (in each case, clear of any Liens of any kind), all Intellectual Property used in or necessary for the conduct of its business as currently conducted, (ii) no claims are pending or, to the Knowledge of the Company, 27 threatened that the Company or any of its Subsidiaries is infringing on or otherwise violating the rights of any Person with regard to any Intellectual Property and (iii) to the Knowledge of the Company, no Person is infringing on or otherwise violating any right of the Company or any of its Subsidiaries with respect to any Intellectual Property owned by and/or licensed to the Company or its Subsidiaries. (ii) Section 3(w) of the Company Disclosure Schedule sets forth, as of the date hereof, a true and complete list of all Intellectual Property of the Company and each of its Subsidiaries, the loss or impairment of which would cause a Company Materially Adverse Effect. (iii) For purposes of this Agreement, "Intellectual Property" shall mean patents, copyrights, trademarks (registered or unregistered), service marks, brand names, trade dress, trade names, computer software programs and applications (including imbedded software), the goodwill associated with the foregoing and registrations in any jurisdiction of, and applications in any jurisdiction to register, the foregoing; and trade secrets and rights in any jurisdiction to limit the use or disclosure thereof by any person. 4. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE MERGER SUB. Except as set forth in the disclosure schedule prepared by the Parent and attached as Exhibit I (the "Parent Disclosure Schedule"), which is arranged to correspond to the numbered and lettered paragraphs contained in the applicable sections of this Agreement, each of the Parent and the Merger Sub represents and warrants to the Company as follows: (a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of Parent and Merger Sub is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. Section 4(a) of the Parent Disclosure Schedule sets forth, as of the date hereof, a true and complete list of all of the Parent's directly and indirectly owned Subsidiaries, together with the jurisdiction of incorporation or organization of each Subsidiary and the percentage of each Subsidiary's outstanding capital stock or other equity or other interest owned by the Parent or another Subsidiary of the Parent. Except as set forth in Section 4(a) of the Parent Disclosure Schedule, neither the Parent nor any of its Subsidiaries owns any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, directly or indirectly, any equity or similar interest in, any Person. Each of the Parent and its Subsidiaries is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the lack of such qualification would not have a materially adverse effect on the business, financial condition, operations, results of operations, or future prospects of the Parent and its Subsidiaries taken as a whole (a "Parent Materially Adverse Effect"). Each of the Parent and all of its Subsidiaries has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. The Parent has 28 heretofore furnished to the Company a true and complete copy of each of its and each of its Subsidiaries' Charter and bylaws or equivalent organizational documents, as amended or restated to the date hereof. Such Charter and bylaws and equivalent organizational documents of the Parent and each of its Subsidiaries are in full force and effect, and no other organizational documents are applicable to or binding upon the Parent or its Subsidiaries. (b) CAPITALIZATION. (i) The entire authorized capital stock of the Parent consists of 150,000,000 Parent Shares and 1,000,000 shares of Parent's preferred stock par value $.01 per share. As of the date hereof, (i) 63,260,791 Parent Shares were issued and outstanding and zero shares of Parent's preferred stock were issued and outstanding; (ii) 2,917,850 Parent Shares were held in the treasury of Parent; (iii) no Parent Shares were held by any Subsidiary of Parent; and (iv) 5,341,652 Parent Shares were duly reserved for future issuance pursuant to employee and director stock options granted pursuant to the Parent's three stock option plans (the "Parent Stock Option Plans"), of which 5,001,102 represented Parent Shares reserved for options that had been granted prior to the date hereof (the "Outstanding Parent Stock Options"). (ii) None of the outstanding Parent Shares are subject to, nor were they issued in violation of any, purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right. Except as set forth above and in Section 4(b) of the Parent Disclosure Schedule, no shares of voting or non-voting capital stock, other equity interests, or other voting securities of the Parent were issued, reserved for issuance or outstanding. All outstanding shares of capital stock of the Parent are, and all shares which may be issued upon the exercise of stock options and similar purchase rights will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to any kind of preemptive (or similar) rights. There are no bonds, debentures, notes or other indebtedness of the Parent with voting rights (or convertible into, or exchangeable for, securities with voting rights) on any matters on which stockholders of the Parent may vote. (iii) All of the outstanding shares of capital stock of each of the Parent's Subsidiaries have been duly authorized, validly issued, fully paid and nonassessable, are not subject to, and were not issued in violation of, any preemptive (or similar) rights, and are owned, of record and beneficially, by the Parent or one of its direct or indirect Subsidiaries, free and clear of all Liens whatsoever. Except as set forth in Section 4(b) of the Parent Disclosure Schedule, there are no restrictions of any kind which prevent the payment of dividends by any of the Parent 's Subsidiaries, and neither the Parent nor any of its Subsidiaries is subject to any obligation or requirement to provide funds for or to make any investment (in the form of a loan or capital contribution) to or in any Person. 29 (iv) Except as described in Section 4(b) of the Parent Disclosure Schedule, there are no outstanding securities, options, warrants, calls, rights, convertible or exchangeable securities, commitments, agreements, arrangements or undertakings of any kind (contingent or otherwise) to which the Parent or any of its Subsidiaries is a party or by which any of them is bound obligating the Parent or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Parent or of any of its Subsidiaries or obligating the Parent or any of its Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. There are no outstanding contractual obligations of the Parent or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock (or options or warrants to acquire any such shares) of the Parent or its Subsidiaries. Except as described in Section 4(b) of the Parent Disclosure Schedule, as of the date hereof, there are no stock-appreciation rights, stock-based performance units, "phantom" stock rights or other agreements, arrangements or commitments of any character (contingent or otherwise) pursuant to which any Person is or may be entitled to receive any payment or other value based on the revenues, earnings or financial performance, stock price performance or other attribute of the Parent or any of its Subsidiaries or assets or calculated in accordance therewith (other than ordinary course payments or commissions to sales representatives of the Parent based upon revenues generated by them without augmentation as a result of the transactions contemplated hereby) or to cause the Parent or any of its Subsidiaries to file a registration statement under the Securities Act, or which otherwise relate to the registration of any securities of the Parent. Except as set forth in Section 4(b) of the Parent Disclosure Schedule, there are no voting trusts, proxies or other agreements, commitments or understandings of any character to which the Parent or any of its Subsidiaries or, to the Knowledge of the Parent, any of the Parent 's stockholders is a party or by which any of them is bound with respect to the issuance, holding, acquisition, voting or disposition of any shares of capital stock of the Parent or any of its Subsidiaries. (c) AUTHORIZATION OF TRANSACTION. Each of the Parent and the Merger Sub has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder; provided, however, that the Parent cannot consummate the Merger unless and until it receives the Requisite Stockholder Approval. This Agreement constitutes the valid and legally binding obligation of each of the Parent and the Merger Sub, enforceable in accordance with its terms and conditions. 30 (d) NONCONTRAVENTION. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any Law or other restriction of any Authority to which either the Parent or the Merger Sub is subject or any provision of the Charter or bylaws of either the Parent or the Merger Sub or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any Party the right to accelerate, terminate, modify, or cancel, or require any notice or consent under any agreement, contract, lease, license, instrument, or other arrangement to which either the Parent or the Merger Sub is a party or by which either is bound or to which any of their assets is subject (or result in the imposition of any Lien upon any of its assets), except in each case as set forth in Section 4(d) of the Parent Disclosure Schedule or as would not reasonably be expected, individually or in the aggregate, to have a Parent Materially Adverse Effect (including by reason of any cross-default). Other than in connection with the provisions of the Hart-Scott-Rodino Act, the Tennessee Business Corporation Act, the Tennessee Business Combination Act, the Nevada General Corporation Law, the Securities Exchange Act, the Securities Act, state securities laws, and the rules and regulations of The Nasdaq Stock Market, neither the Parent nor any of its Subsidiaries needs to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Authority in order for the Parties to consummate the transactions contemplated by this Agreement. (e) PARENT PUBLIC REPORTS. The Parent has filed all forms, reports, schedules, statements, and documents required to be filed by it with the SEC since January 1, 1998 (collectively, the "Parent Public Reports"). Each of the Parent Public Reports has complied with the Securities Act and the Securities Exchange Act in all material respects. None of the Parent Public Reports, as of their respective dates (or if amended or superseded, at the time of such subsequent filing), contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Parent has delivered to the Company a correct and complete copy of each Parent Public Report (together with all exhibits and schedules thereto and as amended to date). (f) FINANCIAL STATEMENTS. Each of the audited and unaudited financial statements included in or incorporated by reference into the Parent Public Reports (including the related notes and schedules) (i) complied in all material respects with applicable requirements of the SEC with respect thereto; (ii) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby; and (iii) present fairly the financial condition of the Parent and its Subsidiaries as of the indicated dates and the results of operations of the Parent and its Subsidiaries for the indicated periods, provided, however, that the interim statements are subject to normal and recurring year-end adjustments that have not been and to the Parent's Knowledge will not be material. 31 (g) EVENTS SUBSEQUENT TO MOST RECENT FISCAL QUARTER END. Since the Most Recent Fiscal Quarter End, there has not been any event, circumstance, act, or omission that has resulted in, or reasonably would be expected to result in, a Parent Materially Adverse Effect. (h) UNDISCLOSED LIABILITIES. Neither the Parent nor any of its Subsidiaries has liabilities or obligations of any nature, (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes, which individually or in the aggregate would reasonably be expected to have a Parent Materially Adverse Effect, except for (i) liabilities set forth on the face of the balance sheet dated as of the Most Recent Fiscal Quarter End (rather than in any notes thereto) and filed in the Parent Public Reports; (ii) liabilities or obligations which have arisen after the Most Recent Fiscal Quarter End in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of Law); and (iii) liabilities or obligations set forth in Section 4(h) of the Parent Disclosure Schedule. (i) BROKERS' FEES. Neither the Parent nor any of its Subsidiaries has any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Company could become liable or obligated. (j) DISCLOSURE. None of the information supplied by the Parent for inclusion in the Registration Statement or any amendment or supplement thereto, shall, at the time such document is filed, at the time amended or supplemented and at the time the Registration Statement is declared effective by the SEC, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the information supplied by the Parent for inclusion in the Definitive Proxy Materials shall, on the date such materials are first mailed to the stockholders of the Company and Parent, at the time of the Special Meetings, and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the Special Meetings which has become false or misleading. If at any time prior to the Effective Time any event relating to the Parent or any of its respective Affiliates, officers or directors 32 should be discovered by the Parent which should be set forth in an amendment or supplement to the Registration Statement or an amendment or supplement to the Definitive Proxy Materials, the Parent shall promptly inform Company and Merger Sub. The Definitive Proxy Materials shall comply in all material respects as to form and substance with the requirements of the Exchange Act and the regulations promulgated thereunder. Notwithstanding the foregoing, the Parent makes no representation or warranty with respect to any information supplied by Parent or Merger Sub which is contained in the Registration Statement or Definitive Proxy Materials. (k) EMPLOYEE BENEFIT PLANS. (i) Section 4(k) of the Parent Disclosure Schedule includes a complete list of all Parent Benefit Plans. (ii) With respect to each Parent Benefit Plan, the Parent shall provide prior to the Closing a true, correct and complete copy of: (i) all plan documents, benefit schedules, trust agreements, and insurance contracts and other funding vehicles; (ii) the most recent Annual Report (Form 5500 Series) and accompanying schedule, if any; (iii) the current summary plan description, if any; (iv) the most recent annual financial report, if any; (v) the most recent actuarial report, if any; and (vi) the most recent determination letter from the IRS, if any. (iii) The Parent and each of its Subsidiaries has complied, and is now in compliance in all material respects with, all provisions of ERISA, the Code, and all Laws applicable to the Parent Benefit Plans. With respect to each Parent Benefit Plan that is intended to be a "qualified plan" within the meaning of Section 401(a) of the Code, the IRS has issued a favorable determination letter, and to the Knowledge of the Parent nothing has occurred at the date hereof that reasonably would be expected to cause the loss of such qualification. (iv) All contributions required to be made to any Parent Benefit Plan by applicable Law or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Parent Benefit Plan, for any period through the date hereof have been timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof, have been fully reflected in the financial statements of the Parent included in the Parent Public Reports to the extent required under GAAP. (v) With respect to each Parent Benefit Plan which is subject to Title IV or Section 302 of ERISA or Section 412 of the Code maintained or contributed to (or required to be contributed to) by the Parent, any of its Subsidiaries or any ERISA Affiliate (as hereinafter defined), (i) there does not now exist, nor do any 33 circumstances exist that could result in, any liability of the Parent or any of its Subsidiaries under Title IV of ERISA (other than for the payment of premiums, all of which have been paid when due), (ii) neither the Parent nor any of its Subsidiaries has incurred any accumulated funding deficiency within the meaning of Section 302 of ERISA or Section 412 of the Code (whether or not waived) and there has been no waiver or application for a waiver of any minimum funding standard or extension of any amortization period under Section 412 of the Code or Part 3 of Subtitle B of Title I of ERISA, (iii) no "reportable event" (as such term is defined in Section 4043 of ERISA and the regulations thereunder) has occurred or is expected to occur, (iv) no notice of intent to terminate has been filed with the Pension Benefit Guaranty Corporation, (v) the Pension Benefit Guaranty Corporation has not instituted any proceedings to terminate the plan or to appoint a trustee to administer the plan, and (vi) there has been no event requiring disclosure under Section 4063(a) of ERISA. For purposes of this Section 4(k), the term "ERISA Affiliate" shall mean any business or entity (whether or not incorporated) which is a member of the same "controlled group of corporations," under "common control," or an "affiliated service group" with the Parent or any of its Subsidiaries within the meaning of Section 414(b), (c) or (m) of the Code, or is under "common control" with the Parent or any of its Subsidiaries within the meaning of Section 4001(a)(14) of ERISA. (vi) Neither the Parent nor any of its Subsidiaries nor any ERISA Affiliate has been required to contribute to, or incurred any withdrawal liability (within the meaning of Section 4201 of ERISA) with respect to any plan which is a multiemployer plan as defined in Section 3(37) of ERISA. Neither the Parent nor any of its Subsidiaries nor any ERISA Affiliate has completely or partially withdrawn from any Multiemployer Plan. No Multiemployer Plan as to which the Parent, any of its Subsidiaries or any ERISA Affiliate is required to contribute is in reorganization within the meaning of Part 3 of Subtitle E of Title IV of ERISA. The Parent shall deliver to the Company, prior to the Closing, a schedule showing the contributions of the Parent, any of its Subsidiaries, and any ERISA Affiliates to each of the Multiemployer Plans for the most recent five plan years. (vii) There are no pending actions, claims or lawsuits which have been asserted, instituted or, to the Knowledge of the Parent, threatened in connection with any of the Parent Benefit Plans (other than routine claims for benefits) which reasonably would be expected, individually or in the aggregate, to result in a Parent Materially Adverse Effect. (viii) Neither the Parent nor any of its Subsidiaries maintains or contributes to any plan or arrangement which provides or has any liability to provide life insurance or medical or other welfare benefits to any employee, former employee, director or former 34 director upon his retirement or termination of service, and neither the Parent nor any of its Subsidiaries has ever represented, promised, or contracted (whether in oral or written form) to any employee, former employee, director or former director that such benefits would be provided. (ix) The Parent and its Subsidiaries are in compliance in all material respects with the continuation coverage provisions of Section 601 et seq. of ERISA and Section 4980B of the Code. (l) EMPLOYMENT AND LABOR MATTERS. (i) Except as set forth in Section 4(l) of the Parent Disclosure Schedule, there are no employment, consulting, collective bargaining, severance pay, continuation pay, termination or indemnification agreements or other similar contracts of any nature (whether in writing or not) between the Parent or any Subsidiary and any current or former stockholder, officer, director, employee, consultant, labor organization or other representative of any of the Parent's or Subsidiary's employees, nor is any such contract presently being negotiated. Except as set forth in Section 4(l) of the Parent Disclosure Schedule, no individual will accrue or receive additional benefits, service or accelerated rights to payments under any Benefit Plan or any of the agreements set forth in Section 4(l) of the Parent Disclosure Schedule, including the right to receive any parachute payment, as defined in Section 280G of the Code, or become entitled to severance, termination allowance or similar payments as a result of the Merger that could result in the payment of any such benefits or payments. Neither the Parent nor any Subsidiary is delinquent in payments to any of its employees or consultants for any wages, salaries, commissions, bonuses, benefits or other compensation for any services or otherwise arising under any policy, practice, agreement, plan, program or Law. Except as set forth in Section 4(l) of the Parent Disclosure Schedule, neither the Parent nor any Subsidiary is liable for any severance pay or other payments to any employee or former employee arising from the termination of employment, nor will the Parent or any Subsidiary have any liability under any benefit or severance policy, practice, agreement, plan, or program which exists or arises, or may be deemed to exist or arise, under any applicable Law or otherwise, as a result of or in connection with the transactions contemplated hereunder or as a result of the termination by the Parent or any Subsidiary of any Persons employed by the Parent or any Subsidiary on or prior to the Effective Time. (ii) Except as set forth in Section 4(l) of the Parent Disclosure Schedule, none of the Parent's or any Subsidiary's employment policies or practices is currently being audited or investigated by any Authority. Except as set forth in Section 4(l) of the Parent Disclosure Schedule, there is no pending or, to the 35 Knowledge of the Parent, threatened Litigation, unfair labor practice charge, or other charge or inquiry against the Parent or any Subsidiary brought by or on behalf of any employee, prospective employee, former employee, retiree, labor organization or other representative of the Parent 's or Subsidiary's employee, or other individual or any Authority with respect to employment practices brought by or before any Authority. Except as set forth in Section 4(l) of the Parent Disclosure Schedule, there are no controversies pending or threatened, between the Parent or any of its Subsidiaries and any of their respective employees; neither the Parent nor any of its Subsidiaries is a party to any collective bargaining agreement or other labor union contract applicable to Persons employed by the Parent or its Subsidiaries nor are there any activities or proceedings of any labor union to organize any such employees of the Parent or any of its Subsidiaries; during the past five years there have been no strikes, slowdowns, work stoppages, disputes, lockouts, or threats thereof, by or with respect to any employees of the Parent or any of its Subsidiaries. Except as set forth in Section 4(l) of the Parent Disclosure Schedule, there are no grievances pending or, to the Knowledge of the Parent or any Subsidiary, threatened, which could reasonably be expected to have a Parent Materially Adverse Effect. Neither the Parent nor any Subsidiary is a party to, or otherwise bound by, any consent decree with, or citation or other Order by, any Authority relating to employees or employment practices. The Parent and each of its Subsidiaries are in compliance in all material respects with all applicable Laws, contracts, and policies relating to employment. (m) ENVIRONMENTAL MATTERS. Except as set forth in Section 4(m) of the Parent Disclosure Schedule or except as would not reasonably be expected, individually or in the aggregate, to have a Parent Materially Adverse Effect, (i) no Hazardous Materials are present at, on or under any real property currently or, to the Parent's Knowledge, formerly owned, leased, or operated by the Parent or any of its Subsidiaries to an extent or in a manner or condition now requiring investigation, response, corrective action, or other action, or, to the Parent's Knowledge, that could result in liability of, or costs to, the Parent or any of its Subsidiaries, under any Environmental Law; (ii) there is currently no civil, criminal, or administrative action, suit, demand, hearing, proceeding notice of violation, investigation, notice or demand letter, or request for information pending or to the Knowledge of the Parent, threatened, under any Environmental Law against the Parent or any of its Subsidiaries, (iii) the Parent and its Subsidiaries have not received any claims or notices alleging liability under any Environmental Law, and the Parent has no Knowledge of any circumstances that would reasonably be expected to result in such claims or notices, (iv) the Parent and each of its Subsidiaries are currently in compliance, and within the period of applicable statutes of limitation have complied, with all, and, to the Parent's Knowledge, have no liability under any, applicable 36 Environmental Laws, (v) the Parent has not been notified about any property or facility currently or, to the Parent's Knowledge as of the date hereof, formerly owned, leased, or operated by the Parent or any of its Subsidiaries or any of their respective predecessors-in-interest, or at which Hazardous Materials of the Parent or any of its Subsidiaries have been stored, treated, or disposed of is listed or proposed for listing on the National Priorities List or the Comprehensive Environmental Response, Compensation and Liability Information System, both promulgated under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or on any comparable state or foreign list established under any Environmental Law, (vi) the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby will not affect the validity or require the transfer of any Environmental Permits held by the Parent or any of its Subsidiaries, and will not require any notification, disclosure, registration, reporting, filing, investigation, remediation, or other action under any Environmental Law, (vii) no friable asbestos is present in, on, or at any property, facility or equipment of the Parent or any of its Subsidiaries, (viii) there are no past or present events, conditions, activities, or practices which could reasonably be expected to prevent the Parent and its Subsidiaries' compliance with any Environmental Law, or which would reasonably be expected to give rise to any liability of the Parent or any of its Subsidiaries under any Environmental Law, (ix) no Lien has been asserted or recorded, or to the Knowledge of the Parent and each of its Subsidiaries threatened, under any Environmental Law with respect to any assets, facility, inventory, or property currently owned, leased or operated by the Parent or any of its Subsidiaries, (x) neither the Parent nor any of its Subsidiaries has assumed by contract or agreement any liabilities or obligations arising under any Environmental Law including, without limitation, any such liabilities or obligations with respect to formerly owned, leased or operated real property or facilities, or former divisions or Subsidiaries, (xi) neither the Parent nor any of its Subsidiaries has entered into or agreed to any judgment, decree or Order by any judicial or administrative tribunal or agency and neither the Parent nor any of its Subsidiaries is subject to any judgment, decree, Order, or agreement, in each case relating to compliance with any Environmental Law or requiring the Parent or any of its Subsidiaries to conduct any investigation, response, corrective or other action with respect to any Hazardous Materials under any Environmental Law, and (xii) other than disclosed on Schedule 4(m) of the Parent Disclosure Schedule there are no underground storage tanks or above-ground storage tanks or related piping at any real property owned, operated, or leased by the Parent or any of its Subsidiaries, and any former such tanks and piping on any such property which have been removed or closed, have been removed or closed in accordance with applicable Environmental Laws. The Parent has made available to the Company all records and files, including, but not limited to, all assessments, reports, studies, audits, analyses, tests, and data in the possession or control of the Parent or any of its Subsidiaries relating to the existence of 37 Hazardous Materials at facilities or properties currently or formerly owned, operated, leased or used by the Parent or any of its Subsidiaries or in any way concerning compliance by the Parent and any of its Subsidiaries with, or liability of any of them, under, any Environmental Law. (n) MATERIAL AGREEMENTS. Except as described in Section 4(n) of the Parent Disclosure Schedule, there are no agreements of the Parent or its Subsidiaries (i) containing an unexpired covenant not to compete or similar restriction applying to the Parent or any of its Subsidiaries; (ii) providing for interest rate, currency, or commodity hedging, swap or similar derivative transactions to which the Parent or its Subsidiaries is a party; (iii) providing for payment based on revenues, sales or profits; (iv) between the Parent or any of its Subsidiaries, on the one hand, and any Affiliate of the Parent, on the other hand; (v) which, if terminated by the Parent upon not more than 30 days' notice would result in liability to the Parent of more than $1 million; or (vi) that would be required to be filed and have not been filed as an exhibit to a Form 10-K filed by the Parent with the SEC as of the date of this Agreement (collectively, the "Parent Material Agreements"). Assuming each Parent Material Agreement constitutes a valid and binding obligation of each other party thereto, each Parent Material Agreement is a valid and binding obligation of the Parent or the applicable Subsidiary, as the case may be. To the Parent's Knowledge, each Parent Material Agreement is a valid and binding obligation of each other party thereto, and each such Parent Material Agreement is in full force and effect. To the Knowledge of the Parent, there are no existing defaults (or circumstances or events that, with the giving of notice or lapse of time or both would become defaults) of the Parent, any Subsidiary, or any third party under any of the Parent Material Agreements. (O) TAX MATTERS. With respect to Taxes except as set forth in Section 4(o) of the Parent Disclosure Schedule: (i) To the best Knowledge of the Parent, the Parent has filed, within the time and in the manner prescribed by Law, all Returns required to be filed under applicable Law, and all such Returns are true, correct, and complete. The Parent has within the time and in the manner prescribed by Law, paid all Taxes that are due and payable with respect to it and its consolidated group. The Parent has established on the balance sheet dated as of the Most Recent Fiscal Quarter End reserves, charges, and accruals that are adequate for the payment of all Taxes not yet due and payable that are attributable to periods ending on such date. There are no Liens for Taxes upon the assets of the Parent or the Merger Sub, except for Liens for Taxes not yet delinquent. (ii) To the best Knowledge of the Parent, no action, suit, proceeding, investigation, claim or audit has formally commenced and no written notice has been given that such audit or other proceeding is pending or threatened with respect to the Parent or any of its 38 Subsidiaries or any group of corporations of which any of the Parent and its Subsidiaries has been a member in respect of any Taxes, and all deficiencies proposed as a result of such actions, suits, proceedings, investigations, claims or audits have been paid, reserved against or settled. There are no outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Tax or Return that have been requested or given by or that relate to the Parent. (iii) The Parent and, if applicable, its agents and contracted service providers, have complied in all respects with all applicable Laws relating to the payment and withholding of Taxes and have, within the time and in the manner prescribed by applicable Law, withheld, collected, and paid over to the proper Authority all amounts required to be so withheld, collected, and paid over under all applicable Laws. (iv) The Parent and its Subsidiaries have not made any payments, are not obligated to make any payments, and are not a party to any agreements that under any circumstances could obligate any of them to make any payments, that will not be deductible under Section 280G of the Code. Neither the Parent nor any of its Subsidiaries has made an election under Section 341(f) of the Code. None of the Parent and its Subsidiaries will be required to include any material amount in taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of a change in the method of accounting for a taxable period ending prior to the Closing Date, any "closing agreement" as described in Section 7121 of the Code (or any corresponding provision of state, local or foreign Tax Laws) entered into prior to the Closing Date, any sale reported on the installment method that occurred prior to the Closing Date, or any taxable income attributable to any amount that is economically accrued prior to the Closing Date. (p) INSURANCE; BONDS. Section 4(p) of the Parent Disclosure Schedule contains a list of, and the Company has been furnished true and complete copies of, all material insurance policies and fidelity bonds covering the Parent's assets, business, properties, operations, employees, officers, and directors, and other matters for which the Parent carries insurance. Section 4(p) of the Parent Disclosure Schedule describes any self-insurance arrangement by or affecting the Parent, including any reserves established thereunder, covering any years in which there are outstanding claims (the earliest of such years referred to as the "Parent Base Year"). Except as set forth in Section 4(p) of the Parent Disclosure Schedule, there is no claim by any insured pending under any of such policies or bonds as to which coverage has been questioned, denied, or disputed by the underwriters of such policies or bonds. All premiums payable under all such policies and bonds have been paid, and the Parent is otherwise in full compliance with the terms and conditions of all such policies and bonds. As to all claims that might be covered by such policies or 39 bonds, the Parent has promptly and within any prescribed time period notified the insuring or bonding party in the proper manner. Except for claims listed on Section 4(p) of the Parent Disclosure Schedule, there have been no notices given to the insurer of any claims that may be insured by insurer. Such policies of insurance and bonds (or other policies and bonds providing substantially similar insurance coverage) have been in effect continuously since the beginning of the Parent Base Year, and remain in full force and effect. Such policies of insurance and bonds are of the type and in amounts customarily carried by Persons conducting similar businesses and do not exclude coverage for punitive damages. Except as set forth in Section 4(p) of the Parent Disclosure Schedule, there is no threatened termination of, or premium increase with respect to, any of such policies or bonds. (q) COMPLIANCE. The Parent and each of its Subsidiaries are in compliance with, and are not in default or violation of, (i) its Charter and bylaws or the equivalent organizational documents of such Subsidiary, (ii) any Law or Order by which any of their respective assets or properties are bound or affected, and (iii) the terms of all notes, bonds, mortgages, indentures, contracts, permits, franchises and other instruments or obligations to which any of them is a party or by which any of them or any of their respective assets or properties is bound or affected, except, in the case of clauses (ii) and (iii), for any such failures of compliance, defaults and violations which could not, individually or in the aggregate, reasonably be expected to have a Parent Materially Adverse Effect. The Parent and its Subsidiaries are in compliance with the terms of all approvals of Authorities, except where the failure to so comply could not, individually or in the aggregate, reasonably be expected to have a Parent Materially Adverse Effect. Except as set forth in Section 4(q) of the Parent Disclosure Schedule or as could not, individually or in the aggregate, reasonably be expected to have a Parent Materially Adverse Effect, neither the Parent nor any of its Subsidiaries has received notice of any revocation or modification of any license, permit, consent, or approval of any Authority that is material to the Parent or any of its Subsidiaries. (r) ABSENCE OF LITIGATION. Except as described in Section 4(r) of the Parent Disclosure Schedule or expressly described in the Parent Public Reports filed and publicly available prior to the date hereof, there is no Litigation pending on behalf of or against or, to the Knowledge of the Parent, threatened against the Parent, any of its Subsidiaries, or any of their respective properties or rights, before or subject to any court or governmental Authority which could, individually or in the aggregate, reasonably be expected to have a Parent Materially Adverse Effect. Neither the Parent nor any of its Subsidiaries is subject to any outstanding Litigation or Order which, individually or in the aggregate, has had or could reasonably be expected to have a Parent Materially Adverse Effect. (s) TITLE TO ASSETS. Except as described in Section 4(s) of the Parent Disclosure Schedule, the Parent and each of its Subsidiaries has good and marketable title to all of their real or personal properties 40 (whether owned or leased) and assets, free and clear of all Liens other than Liens which are reflected on the Parent's consolidated balance sheet filed in its Form 10-Q for the Most Recent Fiscal Quarter End. (t) POOLING; TAX MATTERS. (i) The Parent intends that the Merger be accounted for under the "pooling of interests" method under the requirements of Opinion No. 16 (Business Combinations) of the Accounting Principles Board of the American Institute of Certified Public Accountants, the Financial Accounting Standards Board, and the Regulations of the SEC. (ii) To the Knowledge of the Parent, neither the Parent nor any of its Affiliates has taken or agreed to take any action, failed to take any action or is aware of any fact or circumstance that would prevent (i) the Merger from being treated for financial accounting purposes as a "pooling of interests" in accordance with GAAP and the regulations of the SEC; provided, that the sale of Parent Shares described in Section 5(i) are taken; or (ii) the Merger from constituting a reorganization within the meaning of Section 368(a) of the Code. (iii) Assuming the issuance of Parent Shares described in Section 5(i), the Parent has no Knowledge of any reason why it may not receive a letter from its independent accountants dated as of the Closing Date and addressed to the Parent in which such accountants will concur with the Parent's management's conclusion that no conditions exist related to the Parent that would preclude Parent from accounting for the Merger as a "pooling of interests." (iv) Section 4(t) of the Parent Disclosure Schedule contains a true and complete list of all Persons who, to the Knowledge of the Parent, may be deemed to be Affiliates of the Parent, excluding all of its Subsidiaries but including all directors and executive officers of the Parent. (u) INTELLECTUAL PROPERTY. (i) Except as would not, individually and in the aggregate, have a Parent Materially Adverse Effect, (i) the Parent and each of its Subsidiaries owns, has the right to acquire or is licensed or otherwise has the right to use (in each case, clear of any Liens of any kind), all Intellectual Property (as defined below) used in or necessary for the conduct of its business as currently conducted, (ii) no claims are pending or, to the Knowledge of the Parent, threatened that the Parent or any of its Subsidiaries is infringing on or otherwise violating the rights of any Person with regard to any Intellectual Property and (iii) to the Knowledge of the Parent, no Person is infringing on or otherwise 41 violating any right of the Parent or any of its Subsidiaries with respect to any Intellectual Property owned by and/or licensed to the Parent or its Subsidiaries. (ii) Section 4(u) of the Parent Disclosure Schedule sets forth, as of the date hereof, a true and complete list of all Intellectual Property of the Parent and each of its Subsidiaries, the loss or impairment of which would cause a Parent Materially Adverse Effect. 5. COVENANTS. The Parties agree as follows with respect to the period from and after the execution of this Agreement. (a) GENERAL. Each of the Parties will use its best efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the Closing conditions set forth in Section 6 below). (b) CONDUCT OF BUSINESS BY THE PARENT PENDING THE MERGER. The Parent covenants and agrees that, between the date hereof and the Effective Time, except as expressly required or permitted by this Agreement or unless Company shall otherwise agree in writing in advance, the Parent shall conduct and shall cause the businesses of each of its Subsidiaries to be conducted only in, and the Parent and its Subsidiaries shall not take any action except in, the Ordinary Course of Business and in a manner consistent with past practice and in compliance with applicable Law. The Parent shall use its reasonable best efforts to preserve intact the business organization and assets of the Parent and each of its Subsidiaries, and to operate, and cause each of its Subsidiaries to operate, according to plans and budgets provided to Company, to keep available the services of the present officers, employees and consultants of the Parent and each of its Subsidiaries, to maintain in effect material agreements and to preserve the present relationships of the Parent and each of its Subsidiaries with advertisers, sponsors, customers, licensees, suppliers and other Persons with which the Parent or any of its Subsidiaries has business relations. By way of amplification and not limitation, neither the Parent nor any of its Subsidiaries shall, between the date hereof and the Effective Time, directly or indirectly do, or propose to do, any of the following without the prior written consent of Company: (i) amend or otherwise change the Charter or bylaws or equivalent organizational document of the Parent or any of its Subsidiaries or alter through merger, liquidation, reorganization, restructuring or in any other fashion the corporate structure or ownership of the Parent or any of its Subsidiaries; (ii) issue, grant, sell, transfer, deliver, pledge, promise, dispose of or encumber, or authorize the issuance, grant, sale, transfer, deliverance, pledge, promise, disposition or encumbrance of, any shares of capital stock of any class (common or preferred), or 42 any options, warrants, convertible or exchangeable securities or similar rights of any kind to acquire any shares of capital stock or any other ownership interest or similar rights of the Parent Shares or any of its Subsidiaries (except for the issuance of Parent Shares issuable pursuant to the Outstanding Parent Stock Options and the sale of approximately 2,000,000 Parent Shares to the public as contemplated by Section 5(i)); adopt, ratify or effectuate a stockholders' rights plan or agreement; or redeem, purchase or otherwise acquire, directly or indirectly, any of the capital stock of the Parent or interest in or securities of any Subsidiary; (iii) declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock (except that a wholly owned Subsidiary of the Parent may declare and pay a dividend to the Parent); split, combine or reclassify any of its capital stock, or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for, shares of its capital stock; or amend the terms of, repurchase, redeem or otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of its Subsidiaries; or propose to do any of the foregoing; (iv) except as disclosed on Section 5(b) of the Parent Disclosure Schedule, sell, transfer, deliver, lease, license, sublicense, mortgage, pledge, encumber or otherwise dispose of (in whole or in part), or create, incur, assume or subject any Lien on, any of the assets of the Parent or any of its Subsidiaries (including any Intellectual Property), except in connection with the acquisition or disposition of assets in the Ordinary Course of Business, and in a manner consistent with past practice; (v) except as otherwise disclosed to the Company prior to the date hereof, acquire (by merger, consolidation, acquisition of stock or assets or otherwise) or organize any corporation, limited liability Parent, partnership, joint venture, trust or other entity or any business organization or division thereof; (vi) other than in the Ordinary Course of Business, incur any indebtedness for borrowed money or issue any debt securities or any warrants or rights to acquire any debt security or assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any Person, or make any loans, advances or enter into any financial commitments; or authorize or make any capital expenditures; (vii) hire or terminate any employee or consultant, except in the Ordinary Course of Business; increase the compensation or fringe benefits (including, without limitation, bonus) payable or to 43 become payable to its officers or employees, except for increases in salary or wages of employees of the Parent or its Subsidiaries who are not officers of the Parent in the Ordinary Course of Business; or loan or advance any money or other asset or property to, or grant any bonus, severance or termination pay to, or enter into any employment or severance agreement with, any director, officer or other employee of the Parent or any of its Subsidiaries, or establish, adopt, enter into, terminate or amend any Benefit Plan or any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, stock purchase, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any current or former directors, officers or employees; (viii) change any accounting policies or procedures (including procedures with respect to reserves, revenue recognition, payments of accounts payable and collection of accounts receivable) unless required by a change in Law or GAAP used by it; (ix) other than in the Ordinary Course of Business, enter into or modify, amend, terminate, waive any rights under, or assign any material agreement, including, but not limited to, any agreement with or for the direct or indirect benefit of any Affiliate. (x) except as disclosed on Section 5(b) of the Parent Disclosure Schedule, make any material Tax election or settle or compromise any Tax liability or agree to an extension of a statute of limitations; (xi) pay, discharge, satisfy or settle any Litigation or waive, assign or release any material rights or claims except any settlements of routine liability, workers' compensation, physical damage, and cargo claims arising in the Ordinary Course of Business that would not impose any injunctive or similar Order on the Parent or any of its Subsidiaries or restrict in any way the business of the Parent or any of its Subsidiaries; (xii) fail to maintain in full force and effect all self-insurance and insurance, as the case may be, currently in effect; (xiii) take (or fail to take) any action that (without regard to any action taken, or agreed to be taken, by Parent or any of its Affiliates) would prevent (i) Parent from accounting for the business combination to be effected by the Merger as a "pooling of interests" or (ii) the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code; or 44 (xiv) authorize, recommend, propose or announce an intention to do any of the foregoing, or agree or enter into or amend any contract or arrangement to do any of the foregoing. (c) CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The Company covenants and agrees that, between the date hereof and the Effective Time, except as expressly required or permitted by this Agreement or unless Parent shall otherwise agree in writing in advance, the Company shall conduct and shall cause the businesses of each of its Subsidiaries to be conducted only in, and the Company and its Subsidiaries shall not take any action except in, the Ordinary Course of Business and in a manner consistent with past practice and in compliance with applicable Law. The Company shall use its reasonable best efforts to preserve intact the business organization and assets of the Company and each of its Subsidiaries, and to operate, and cause each of its Subsidiaries to operate, according to plans and budgets provided to Parent, to keep available the services of the present officers, employees and consultants of the Company and each of its Subsidiaries, to maintain in effect material agreements and to preserve the present relationships of the Company and each of its Subsidiaries with advertisers, sponsors, customers, licensees, suppliers and other Persons with which the Company or any of its Subsidiaries has business relations. By way of amplification and not limitation, neither the Company nor any of its Subsidiaries shall, between the date hereof and the Effective Time, directly or indirectly do, or propose to do, any of the following without the prior written consent of Parent: (i) amend or otherwise change the Charter or bylaws or equivalent organizational document of the Company or any of its Subsidiaries or alter through merger, liquidation, reorganization, restructuring or in any other fashion the corporate structure or ownership of the Company or any of its Subsidiaries; (ii) issue, grant, sell, transfer, deliver, pledge, promise, dispose of or encumber, or authorize the issuance, grant, sale, transfer, deliverance, pledge, promise, disposition or encumbrance of, any shares of capital stock of any class (common or preferred), or any options, warrants, convertible or exchangeable securities or similar rights of any kind to acquire any shares of capital stock or any other ownership interest or similar rights of the Company Shares or any of its Subsidiaries (except for the issuance of Company Shares issuable pursuant to the Outstanding Company Stock Options and the sale of approximately 300,000 Company Shares to the public as contemplated by Section 5(i)); adopt, ratify or effectuate a stockholders' rights plan or agreement; or redeem, purchase or otherwise acquire, directly or indirectly, any of the capital stock of the Company or interest in or securities of any Subsidiary; (iii) declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock (except that a wholly 45 owned Subsidiary of the Company may declare and pay a dividend to the Company); split, combine or reclassify any of its capital stock, or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for, shares of its capital stock; or amend the terms of, repurchase, redeem or otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of its Subsidiaries; or propose to do any of the foregoing; (iv) sell, transfer, deliver, lease, license, sublicense, mortgage, pledge, encumber or otherwise dispose of (in whole or in part), or create, incur, assume or subject any Lien on, any of the assets of the Company or any of its Subsidiaries (including any Intellectual Property), except in connection with the acquisition or disposition of assets in the Ordinary Course of Business, and in a manner consistent with past practice; (v) acquire (by merger, consolidation, acquisition of stock or assets or otherwise) or organize any corporation, limited liability company, partnership, joint venture, trust or other entity or any business organization or division thereof; (vi) other than in the Ordinary Course of Business, incur any indebtedness for borrowed money or issue any debt securities or any warrants or rights to acquire any debt security or assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any Person, or make any loans, advances or enter into any financial commitments; or authorize or make any capital expenditures; (vii) hire or terminate any employee or consultant, except in the Ordinary Course of Business; increase the compensation or fringe benefits (including, without limitation, bonus) payable or to become payable to its officers or employees, except for increases in salary or wages of employees of the Company or its Subsidiaries who are not officers of the Company in the Ordinary Course of Business; or loan or advance any money or other asset or property to, or grant any bonus, severance or termination pay to, or enter into any employment or severance agreement with, any director, officer or other employee of the Company or any of its Subsidiaries, or establish, adopt, enter into, terminate or amend any Benefit Plan or any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, stock purchase, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any current or former directors, officers or employees; (viii) change any accounting policies or procedures (including procedures with respect to reserves, revenue recognition, payments of accounts payable and collection of accounts receivable) unless required by a change in Law or GAAP used by it; 46 (ix) other than in the Ordinary Course of Business, enter into or modify, amend, terminate, waive any rights under, or assign any material agreement, including, but not limited to, any agreement with or for the direct or indirect benefit of any Affiliate. (x) make any material Tax election or settle or compromise any Tax liability or agree to an extension of a statute of limitations; (xi) pay, discharge, satisfy or settle any Litigation or waive, assign or release any material rights or claims except any settlements of routine liability, workers' compensation, physical damage, and cargo claims arising in the Ordinary Course of Business that would not impose any injunctive or similar Order on the Company or any of its Subsidiaries or restrict in any way the business of the Company or any of its Subsidiaries; (xii) fail to maintain in full force and effect all self-insurance and insurance, as the case may be, currently in effect; (xiii) take (or fail to take) any action that (without regard to any action taken, or agreed to be taken, by Parent or any of its Affiliates) would prevent (i) Parent from accounting for the business combination to be effected by the Merger as a "pooling of interests" or (ii) the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code; or (xiv) authorize, recommend, propose or announce an intention to do any of the foregoing, or agree or enter into or amend any contract or arrangement to do any of the foregoing. (d) REGISTRATION STATEMENT; PROXY STATEMENT. (i) As promptly as practical after the execution of this Agreement, the Company and Parent shall prepare and file with the SEC a joint proxy statement/prospectus to be sent to the shareholders of the Company and Parent in connection with the meeting of Parent's shareholders (the "Parent Special Meeting") and the Company's shareholders (the "Company Special Meeting") to consider the Merger and the other matters to be approved as contemplated herein (the "Joint Proxy Statement"), and Parent shall prepare and file with the SEC a registration statement on Form S-4 pursuant to which the Parent Shares to be issued as a result of the Merger will be registered with the SEC (the "Registration Statement"), in which the Joint Proxy Statement will be included as a prospectus. Parent and the Company shall use all reasonable efforts to cause the Registration Statement to become effective as soon after such filing as practical. The 47 Joint Proxy Statement shall include the recommendation of the Board of Directors of the Company in favor of this Agreement and the Merger and the recommendation of the Board of Directors of Parent in favor of the issuance of Parent Shares pursuant to the Merger and the other matter required by this Agreement, provided that the Board of Directors of the Company may withdraw such recommendation if such Board of Directors has received an Acquisition Proposal and as a result shall have determined in good faith upon the written advice of its outside legal counsel, that the withdrawal of such recommendation is necessary for the Board of Directors to comply with its fiduciary duties under applicable law. Parent and Company shall make all other necessary filings with respect to the Merger under the Securities Act and the Exchange Act and the rules and regulations thereunder. (ii) The Company shall take such action as may be necessary to insure that (A) the information to be supplied by the Company for inclusion in the Registration Statement shall not at the time the Registration Statement is declared effective by the SEC contain any untrue statement of a material fact or omit to state any material fact, required to be stated in the Registration Statement or necessary in order to make the statements in the Registration Statement, in light of the circumstances under which they were made, not misleading, and (B) the information supplied by the Company for inclusion in the Joint Proxy Statement shall not, on the date the Joint Proxy Statement is first mailed to shareholders of the Company or Parent, at the time of the Company Special Meeting and the Parent Special Meeting, and at the Effective Time, contain any statement which, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements made in the Joint Proxy Statement not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Company Special Meeting or Parent Special Meeting which has become false or misleading. If at any time prior to the Effective Time any event relating to Parent or any of its Affiliates, officers, or directors should be discovered by the Company which should be set forth in as amendment to the Registration Statement or a supplement to the Joint Proxy Statement, the Company shall promptly so inform Parent. (iii) Parent shall take such action as may be necessary to insure that (A) the information supplied by Parent for inclusion in the Registration Statement shall not at the time the Registration Statement is declared effective by the SEC contain any untrue statement of a material fact or omit to state any material fact, required to be stated in the Registration Statement or necessary in order to make the statements in the Registration Statement, in light of the circumstances under which they were made, not misleading, and (B) the information supplied by Parent for inclusion in the Joint Proxy Statement shall not on the date the 48 Joint Proxy Statement is first mailed to shareholders of Parent or the Company, at the time of the Parent Special Meeting and the Company Special Meeting, and at the Effective Time, contain any statement which, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements made in the Joint Proxy Statement not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Parent Special Meeting or the Company Special Meeting which has become false or misleading. If at any time prior to the Effective Time any event relating to Parent or any of its Affiliates, officers, or directors should be discovered by Parent which should be set forth in an amendment to the Registration Statement or a supplement to the Joint Proxy Statement, Parent shall promptly so inform the Company. (e) SHAREHOLDERS MEETING. Parent and the Company each shall call a meeting of its respective shareholders to be held as promptly as practicable for the purpose of voting, in the case of the Company, upon this Agreement and the Merger and, in the case of Parent, upon the issuance of shares of Parent Shares pursuant to the Merger and the other matter required by this Agreement. Subject to Section 5(d) and (h), the Company and Parent will, through their respective Boards of Directors, recommend to their respective shareholders approval of such matters and will coordinate and cooperate with respect to the timing of such meetings and shall use their best efforts to hold such meetings on the same day and as soon as practicable after the date hereof. Subject to Section 5(d), each Party shall use all reasonable efforts to solicit from its shareholders proxies in favor of such matters. (f) ADDITIONAL SHAREHOLDER MEETING MATTERS. Each of the Parent and the Company shall use all reasonable efforts to obtain the Requisite Stockholder Approval of its stockholders. Once the Special Meetings have been called and noticed, neither the Parent nor the Company, respectively, shall postpone or adjourn (other than for the absence of a quorum and then only to a future date mutually agreed by the other Party) the applicable Special Meeting without the consent of the other Party unless this Agreement has been terminated pursuant to Section 7. (g) ACCESS TO INFORMATION. Upon reasonable notice, each of the Company and the Parent shall (and shall cause each of its Subsidiaries to) afford to the officers, employees, accountants, counsel and other representatives and agents of the other Party (collectively "Representatives"), reasonable access, during the period prior to the Effective Time, to all its properties, books, contracts, commitments and records and, during such period, each of the Company and the Parent shall (and shall cause each of its Subsidiaries to) furnish promptly to the other all information concerning its business, properties, books, contracts, commitments, record and personnel as the other Party may reasonably request. Each of the Company and the Parent 49 shall (and shall cause each of its Subsidiaries to) make available to the other Party the appropriate individuals for discussion of such entity's business, properties and personnel as the other Party or its Representatives may reasonably request. No investigation pursuant to this Section 5(g) shall affect any representations or warranties of the parties herein or the conditions to the obligations of the parties hereto. (h) OTHER OFFERS. (i) The Company shall not, whether directly or indirectly through advisors, agents, or other intermediaries, nor shall the Company authorize or permit any of its officers, directors, agents, representatives, or advisors to (A) solicit, initiate, or encourage any inquiries or proposals that constitute a proposal or offer for a merger, consolidation, recapitalization, liquidation, dissolution, business combination, sale of substantial assets, sale of shares of capital stock (including without limitation by way of a tender offer or exchange offer), or similar transaction involving the Company, other than the transactions contemplated by this Agreement, or any other transaction the consummation of which could reasonably be expected to impede, interfere with, prevent, or materially delay the Merger or which could reasonably be expected to materially dilute the benefits to Parent of the transactions contemplated hereby (each such transaction, inquiries, or proposals being referred to in this Agreement as an "Acquisition Proposal"), (B) engage in negotiations or discussions concerning, or provide any non-public information to any person or entity relating to, any Acquisition Proposal, or (C) agree to, approve, or recommend any Acquisition Proposal; provided, however, that nothing contained in this Agreement shall prevent the Company or its Board of Directors from furnishing non-public information to, or entering into discussions or negotiations with, any person or entity, or taking any other action deemed necessary, in connection with an unsolicited bona fide written Acquisition Proposal by such person or entity or recommending an unsolicited bona fide written Acquisition Proposal to the shareholders, if and only to the extent that the Board of Directors determines in good faith upon the written advice of outside legal counsel that such action is necessary for it to comply with its fiduciary duties to shareholders under applicable law (a "Fiduciary Finding"); (ii) The Company shall notify Parent promptly (and no later than 24 hours) after receipt by the Company (or its advisors), of any Acquisition Proposal or any request for non-public information in connection with an Acquisition Proposal or for access to the properties, books, or records of the Company by any person or entity that informs the Company that it is considering making, or has made, an Acquisition Proposal. Such notice to Parent shall be made orally and in writing and shall indicate in reasonable detail the identity of the offeror and the terms and conditions of such proposal, inquiry, or contact, including, specifically, a copy of any written Acquisition Proposal; 50 (iii) The Board of Directors of the Company shall not take any of the actions referred to in clause (C) first sentence of Section 5(h)(i) until after giving at least five (5) days' written notice to Parent with respect to its intent to take such action and providing Parent all of the information called for in this Section 5(h). During the five-day notice period the Parent shall have the opportunity to amend its offer to match or exceed the Acquisition Proposal. If in the opinion of the Company's Board of Directors the consideration offered by Parent represents substantially equivalent or greater value than the Acquisition Proposal, then this Agreement shall be amended to reflect such revised consideration offered by Parent and in such event, this Agreement shall continue in force, as so amended; (iv) The Company shall immediately cease and cause its advisors, agents, and other intermediaries to cease any and all existing activities, discussions, or negotiations with any Parties conducted heretofore with respect to any Acquisition Proposal; (v) If a Payment Event occurs, the Company shall pay to Parent, within one business day following such event, a fee of $10,000,000 by wire transfer of immediately available funds. Such fee obligation shall be in addition to any payment obligation of the termination pursuant to Section 7(c). "Payment Event" means this Agreement has been terminated pursuant to any of the following events: (A) the termination of this Agreement by Parent pursuant to Section 7(a)(iv) or the Company pursuant to Section 7(a)(v) and the Company shall have signed a definitive agreement for an Alternative Transaction within twelve (12) months of the termination of this Agreement; (B) the termination of this Agreement by Parent pursuant to Section 7(a)(viii) after a willful breach by the Company of this Agreement; or (C) the termination of this Agreement by Parent or the Company pursuant to Section 7(a)(vi) as a result of the failure to receive the Requisite Shareholder Approval of this Agreement and the Merger by the shareholders of the Company at a duly held meeting of the Company's Stockholders or any adjournment thereof if, (I) at the time of such failure, there shall have been announced an Alternative Transaction (as defined below) which shall not have been absolutely and unconditionally withdrawn and abandoned and (II) the Company shall have signed a definitive agreement for such Alternative Transaction within twelve (12) months of such failure. 51 (vi) As used in this Agreement, "Alternative Transaction" means a merger, consolidation, recapitalization, liquidation, dissolution, business combination, sale of substantial assets, sale of shares of capital stock (including without limitation by way of a tender offer or exchange offer), or similar transaction involving the Company in which (A) any person (or group of persons) other than Parent or its Affiliates (a "Third Party") acquires more than 30% of the outstanding Company Shares or equity interests of the entity surviving such transaction, (B) any other transaction pursuant to which any Third Party acquires control of assets of the Company having a fair market value equal to more than 30% of the fair market value of all the assets of the Company, and its Subsidiaries, taken as a whole, immediately prior to such transaction, or (C) any public announcement of a proposal, plan, or intention to do any of the foregoing or any agreement to engage in any of the foregoing. (vii) this Section 5(h) shall survive any termination of this Agreement, however caused. (i) POOLING; REORGANIZATION (i) The Company shall take or cause to be taken all reasonable acts (without breaching any obligation to any other Person) required in order to permit the Company to be eligible to have the Merger be accounted for as a pooling of interests, including but not limited to, issuing approximately 300,000 Company Shares. (ii) The Company shall not knowingly take, or knowingly permit any controlled Affiliate of the Company to take, any action that could prevent the Merger from being treated (A) for financial accounting purposes as a "pooling of interests" under GAAP; it being understood and agreed that if the Company's independent accountants advise the Company in writing that such an action would not prevent the Merger from being so treated, such action will be conclusively deemed not to constitute a breach of this Section 5(i) or (B) as a "reorganization" within the meaning of Section 368 of the Code. (iii) The Company shall use its reasonable best efforts to obtain an executed affiliate pooling agreement substantially in the form attached hereto as Exhibit E from each of the Persons identified in Section 5(i) of the Company Disclosure Schedule concurrently with the execution of this Agreement and thereafter from any other person who may be deemed an affiliate of the Company regarding compliance with Rule 145 under the Securities Act and the requirements for accounting treatment of the Merger as a "pooling of interests" (each such agreement, a "Company Affiliate Pooling Agreement") 52 (iv) The Parent shall take or cause to be taken all reasonable acts (without breaching any obligation to any other Person) required in order to permit the Parent to be eligible to have the Merger be accounted for as a pooling of interests, including but not limited to, issuing approximately 2,000,000 Parent Shares currently held in treasury. (v) Parent shall not knowingly take or knowingly permit any controlled Affiliate of Parent to take, any action that could prevent the Merger from being treated (A) for financial accounting purposes as a "pooling of interests" under GAAP; it being understood and agreed that if Parent's independent accountants advise Parent in writing that such an action would not prevent the Merger from being so treated, such action will be conclusively deemed not to constitute a breach of this Section 5(i); or (B) as a "reorganization" within the meaning of Section 368 of the Code. (vi) Parent shall use its reasonable efforts to obtain an executed affiliate pooling agreement in substantially the form of attached Exhibit E from each of the Persons identified in Section 5(i) of the Parent Disclosure Schedule regarding compliance with the requirements for accounting treatment of the Merger as a "pooling of interests" (each such agreement a "Parent Affiliate Pooling Agreement"). (j) NOTIFICATION OF CERTAIN MATTERS. (i) The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which results in any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect (or, in the case of any representation or warranty qualified by its terms by materiality, Parent Materially Adverse Effect or Company Materially Adverse Effect, then untrue or inaccurate in any respect) and any failure of the Company, Parent or Merger Sub, as the case may be, to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5(j) shall not limit or otherwise affect the remedies available hereunder to the Party receiving such notice. (ii) Each of the Company and Parent shall give prompt notice to the other of (A) any notice or other communication from any Person alleging that the approval of such Person is or may be required in connection with the Merger and the transactions contemplated hereby; (B) any notice or other communication from any Authority in connection with the Merger and the transactions contemplated hereby; (C) any Litigation, relating to or involving or otherwise 53 affecting the Company, Parent, or their respective Subsidiaries that relates to the Merger and the transactions contemplated hereby; or (D) the occurrence of a default or event that, with notice or lapse of time or both, will become a default under any Company Material Agreement or Parent Material Agreement; and (E) any change that could reasonably be expected to have a Company Materially Adverse Effect or Parent Materially Adverse Effect or is likely to delay or impede the ability of either Parent or the Company to consummate the transactions contemplated by this Agreement or to fulfill their respective obligations set forth herein. (iii) Each of the Company and Parent shall give (or shall cause their respective Subsidiaries to give) any notices to third Persons, and use, and cause their respective Subsidiaries to use, its reasonable best efforts to obtain any consents from third Persons (A) necessary, proper or advisable to consummate the transactions contemplated by this Agreement; (B) otherwise required under any contracts in connection with the consummation of the transactions contemplated hereby; or (C) required to prevent a Company Materially Adverse Effect or Parent Materially Adverse Effect from occurring. If any Party shall fail to obtain any such consent from a third Person, such Party shall use its reasonable best efforts, and will take any such actions reasonably requested by the other Parties, to limit the adverse effect upon the Company and Parent, their respective Subsidiaries, and their respective businesses resulting, or which would result after the Effective Time, from the failure to obtain such consent. (k) LISTING ON THE NASDAQ NATIONAL MARKET. Parent shall use its reasonable best efforts to cause the Parent Shares to be issued in the Merger and pursuant to Parent's options to be issued pursuant to Section 5(q) to be approved for listing on the Nasdaq National Market, subject to official notice of issuance, prior to the Effective Time. (l) PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult with and obtain the approval of the other Party before issuing any press release or other public announcement with respect to the Merger or this Agreement and shall not issue any such press release prior to such consultation and approval, except as may be required by Law or any listing agreement related to the trading of the shares of either Party on any national securities exchange or national automated quotation system, in which case the Party proposing to issue such press release or make such public announcement shall use its reasonable best efforts to consult in good faith with the other Party before issuing any such press release or making any such public announcement. 54 (m) TAKEOVER LAWS. If any form of anti-takeover Law, regulation, Charter or bylaw provision, or contract is or shall become applicable to the Merger or the transactions contemplated hereby, the Company and the Board of Directors of the Company shall grant such approvals and take such actions as are necessary under such Law, provisions, and contracts so that the transactions contemplated hereby and thereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate or minimize the effects of such Law, provision, or contract on the transactions contemplated hereby. (n) ACCOUNTANT'S LETTERS. (i) The Company shall use its reasonable best efforts to cause to be delivered to Parent a "comfort" letter of the Company's accountants, dated a date within two business days before the date on which the Registration Statement shall become effective and addressed to Parent and the Company, in form and substance reasonably satisfactory and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. (ii) Parent shall use its reasonable best efforts to cause to be delivered to the Company a "comfort" letter of Parent's accountants dated a date within two business days before the date on which the Registration Statement shall become effective and addressed to Parent and the Company, in form and substance reasonably satisfactory and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. (o) ADDITIONAL PARENT DIRECTORS. Immediately following the Effective Time, Parent shall expand its Board of Directors and add as directors the current CEO of the Company and one other person (who shall qualify as an "independent director") designated by the current CEO of the Company. The current CEO of the Company shall be designated a Class II director and the other nominee shall be designated a Class I director on Parent's Board of Directors. The Parent agrees to nominate the Company's current CEO as part of its slate of directors for which the Parent seeks proxies in connection with the election of directors next following the Effective Time. (p) HART-SCOTT-RODINO ACT. Each of the Parties will file any notification and report forms and related material that it may be required to file with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice under the Hart-Scott-Rodino Act, will use its best efforts to obtain an early termination of the applicable waiting period, will make any further filings pursuant thereto that may be necessary, proper, or advisable, and will not terminate or withdraw such application without the consent of the other Parties. The Parent shall pay the filing fee associated with such filings. 55 (q) COMPANY STOCK OPTIONS AND COMPANY STOCK PLANS; OUTSTANDING COMPANY STOCK OPTIONS. (i) At the Effective Time, each Outstanding Company Stock Option, whether vested or unvested, will be assumed by Parent automatically and without further action in accordance with this Agreement. Each such Outstanding Company Stock Option so assumed by Parent under this Agreement shall continue to have, and be subject to, the same terms and conditions set forth in the Company Stock Option Plans, option agreements thereunder and other relevant documentation immediately prior to the Effective Time, except that such Outstanding Company Stock Option will be exercisable solely for that number of whole Parent Shares equal to the product of the number of Company Shares that were purchasable under such Outstanding Company Stock Option immediately prior to the Effective Time multiplied by 1.7, rounded down to the nearest whole number of Parent Shares, and the per-share exercise price for the Parent Shares issuable upon exercise of such assumed Outstanding Company Stock Option will be equal to the quotient determined by dividing the exercise price per share of Company Shares at which such Outstanding Company Stock Option was exercisable immediately prior to the Effective Time by 1.7, and rounding the resulting exercise price up to the nearest whole cent; provided, however, that in the case of any option to which section 421 of the Code applies by reason of its qualification under section 422 of the Code ("incentive stock options"), the option price, the number of shares purchasable pursuant to such option and the terms and conditions of exercise of such option shall be determined in accordance with the method set forth above unless use of such method will not preserve the status of such options as incentive stock options, in which case the manner of determination shall be adjusted in a manner that both complies with Section 424(a) of the Code and results in the smallest modification in the economic values that otherwise would be achieved by the holder pursuant to the method set forth above; and provided further, that notwithstanding any other provisions of this Section 5(q), if use of the above methods would disqualify the Merger as a "pooling of interests" for financial accounting purposes, then such methods will be adjusted to the extent necessary to preserve such accounting treatment. (ii) Parent shall reserve for issuance a sufficient number of Parent Shares for delivery upon exercise of Outstanding Company Stock Options assumed by Parent under this Agreement. Parent shall file as soon as practicable after the Effective Date a registration statement on Form S-8 under the Securities Act covering the Parent Shares issuable upon the exercise of the Outstanding Company Stock Options assumed by Parent pursuant to this Section, and shall use its reasonable efforts to cause such registration 56 statement to become effective as soon thereafter as practicable and to maintain such registration in effect until the exercise or expiration of such assumed Outstanding Company Stock Options. (iii) The vesting of each Outstanding Company Stock Option shall not accelerate as a result of, or in connection with, the transactions contemplated hereby, except to the extent required by the existing terms of the Company Stock Option Plans or the option agreement pursuant to which it was granted. In addition, the Company shall ensure that no discretion is exercised by the Board of Directors or any committee thereof or any other body or Person so as to cause the vesting of any Outstanding Company Stock Option or any other warrant or right to acquire Company Shares to accelerate. (r) INSURANCE AND INDEMNIFICATION. (i) The Parent will not take any action to alter or impair any exculpatory or indemnification provisions now existing in the Charter or bylaws of the Company for the benefit of any individual who is serving or has served as a director or officer of the Company or is or was otherwise entitled to indemnification thereunder at any time prior to the Effective Time; (ii) From and after the Effective Time, Parent shall indemnify, defend and hold harmless any person who is on the date hereof, or has been at any time prior to the date hereof, or who becomes prior to the Effective Time, an officer, director, employee or agent (the "Indemnified Party") of the Company or any of its Subsidiaries against all losses, claims, damages, liabilities, costs and expenses (including attorneys' fees and expenses), judgments, fines, and amounts paid in settlement in connection with any actual or threatened action, suit, claim, proceeding or investigation (each, a "Claim") to the extent that any such Claim is based on or arises out of, (A) the fact that any person is or was a director, officer, employee or agent of the Company or any of its Subsidiaries at any time prior to the Effective Time or is or was serving at the request of the Company or any of its Subsidiaries as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise at any time prior to the Effective Time, or (B) this Agreement or any of the transactions contemplated hereby or thereby in each case to the extent that any such Claim pertains to any matter or fact arising, existing, or occurring prior to or at the Effective Time, regardless of whether such Claim is asserted or claimed prior to, at or after the Effective Time (the matters described in clauses (A) and (B), the "Pre-Merger Matters"), to the fullest extent indemnified under the Company's Charter, bylaws or any indemnification agreements in effect as of the date hereof, or under the Tennessee Business Corporation Act, including in each case provisions relating to the advancement of expenses incurred in the defense of any action or suit. 57 (iii) Parent agrees that all right to indemnification and all limitations or exculpation of liabilities existing in favor of any Indemnified Party as provided in the Company's Charter, bylaws or the Tennessee Business Corporation Act as in effect as of the Effective Time shall continue in full force and effect with respect to Pre-Merger Matters, without any amendment thereto, for a period of six years from the Effective Time to the extent such rights are consistent with the Tennessee Business Corporation Act, provided, that in the event any Claim or Claims with respect to any such Pre-Merger Matters are asserted or made within such six-year period, all rights to indemnification in respect of any such Claim or Claims shall continue until disposition of any such Claim or Claims; provided, however, that any determination required to be made with respect to whether an Indemnified Party's conduct complies with the standards set forth under the Tennessee Business Corporation Act, the Company's Charter or bylaws, as the case may be, shall be made by independent legal counsel selected by the Indemnified Party and reasonably acceptable to the Parent, retained at the Parent's expense, and provided further that nothing in this Section shall impair any rights or obligations of any present or former directors or officers of the Company. (iv) Parent shall maintain in effect the Company's directors' and officers' liability insurance policy at the Effective Time ("D&O Insurance") with respect to Pre-Merger Matters for a period of not less than six years after the Effective Time, provided, that the Parent may substitute therefor policies of substantially similar coverage and amounts containing terms no less advantageous to such former directors or officers. (v) The provisions of this Section 5(o) are intended to be for the benefit of, and shall be enforceable by, each Person entitled to indemnification hereunder and the heirs and representatives of such Person. (s) ADDITIONAL AGREEMENTS. Each of the Parent and the Company shall use its best efforts to cause (i) the Voting Agreements to be executed and delivered contemporaneously herewith; (ii) each of the Persons identified in Section 5(i) of the Company Disclosure Schedule to execute and deliver a Company Affiliate Pooling Agreement as soon as reasonably practicable after the date hereof; (iii) each of the Persons identified in Section 5(i) of the Parent Disclosure Schedule to execute and deliver a Parent Affiliate Pooling Agreement as soon as reasonably practicable after the date hereof; and (iv) each of the individuals listed in Section 5(s) of the Company Disclosure Schedule to execute and deliver an Employment Agreement effective from and after the Effective Time (the "Employment Agreements"), substantially in the form attached hereto as Exhibit F-1, F-2, F-3, and F-4, 58 respectively. In addition, at the Effective Time and contemporaneously with entering into the Employment Agreements, the Parent shall enter into stock option agreements with the Executives entering into the Employment Agreements in a form similar to those customarily used by Parent for its executive officers and providing for a grant of an option to purchase the number of Parent Shares set forth opposite the name of each such executive in Section 5(s) of the Parent Disclosure Schedule. 6. CONDITIONS TO OBLIGATION TO CLOSE. (a) CONDITIONS TO OBLIGATION OF THE PARENT AND THE MERGER SUB. The obligation of each of the Parent and the Merger Sub to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) the Company shall have received the Requisite Stockholder Approval of this Agreement and the Merger at the Company Special Meeting, and the Parent shall have received the Requisite Stockholder Approval of the issuance of Parent Shares and the other matters required to be submitted to the Parent's stockholders in accordance with this Agreement; (ii) the Company shall have procured all of the third party consents specified in Section 3(d) of the Company Disclosure Schedule, except where the failure to obtain such consents would not have a Company Materially Adverse Effect; (iii) the representations and warranties set forth in Section 3 above shall be true and correct in all material respects at and as of the Effective Time, with the same force and effect as if made on and as of the Effective Time (other than representations and warranties which address matters only as of a particular date, in which case such representations and warranties shall be true and correct, on and as of such particular date) except where the failure to be true and correct would not reasonably be expected to result in a Company Materially Adverse Effect; (iv) the Company shall have performed and complied with all of its covenants and agreements hereunder in all material respects through the Closing; (v) no temporary restraining order, preliminary or permanent injunction, or other Order of an Authority with competent jurisdiction shall have been issued and shall be in effect at the Effective Time which would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (C) affect adversely the right of the Parent to own the capital stock of the Surviving Corporation and to control the Surviving Corporation, or (D) affect adversely the right of the Surviving Corporation to own its assets and to operate its businesses; 59 (vi) the Company shall have delivered to the Parent and the Merger Sub a certificate to the effect that each of the conditions specified above in Section 6(a)(i) through (v) is satisfied in all respects; (vii) the Registration Statement shall have become effective under the Securities Act, no stop order suspending the effectiveness of the Registration Statement or the use of the Joint Proxy Statement shall have been issued by the SEC; and no proceedings for that purpose shall have been initiated or, to the Knowledge of the Parent or the Company, threatened by the SEC; and the Parent Shares issuable hereunder shall have been approved for listing on The Nasdaq National Market subject to official notice of issuance; (viii) all applicable waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been terminated and the Parties shall have received all other authorizations, consents, and approvals of Authorities referred to in Section 3(d) and Section 4(d) above; (ix) the Parent and the Merger Sub shall have received from counsel to the Company an opinion in form and substance reasonably satisfactory to the Parent, addressed to the Parent and the Merger Sub, and dated as of the Closing Date; (x) all actions to be taken by the Company in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Parent and the Merger Sub; (xi) each of the Employment Agreements, in form and substance shall have been executed and delivered; (xii) no Company Materially Adverse Effect shall have occurred; (xiii) Parent shall have received a letter from its independent accountants in form and substance reasonably satisfactory to Parent, dated the Closing Date, concurring with management's conclusions that the transactions contemplated by this Agreement, including the Merger, will qualify as a "pooling of interests" business combination in accordance with GAAP and the criteria of Accounting Principles Board Opinion No. 16 and the regulations of 60 the SEC, such letter shall not have been revoked or modified in any material respect, and Parent shall not have received any indication from the SEC that the Merger may not so qualify; (xiv) each of the Persons identified in Section 5(i) of the Company Disclosure Schedule shall have executed and delivered a Company Affiliate Pooling Agreement which shall be in full force and effect. The Parent and the Merger Sub may waive any condition specified in this Section 6(a) if they execute a writing so stating at or prior to the Closing. (b) CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the Company to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) the Registration Statement shall have become effective under the Securities Act, no stop order suspending the effectiveness of the Registration Statement or the use of the Proxy Statement shall have been issued by the SEC; no proceedings for that purpose shall have been initiated or, to the Knowledge of the Parent or the Company, threatened by the SEC; and the Parent Shares issuable hereunder shall have been approved for listing on The Nasdaq National Market subject to official notice of issuance; (ii) the Parent shall have procured all of the third-party consents specified in Section 4(d) of the Parent Disclosure Schedule, except where the failure to obtain such consents would not have a Parent Materially Adverse Effect; (iii) the representations and warranties set forth in Section 4 above shall be true and correct in all material respects at and as of the Effective Time, with the same force and effect as if made on and as of the Effective Time (other than representations and warranties which address matters only as of a particular date, in which case such representations and warranties shall be true and correct, on and as of such particular date) except where the failure to be true and correct would not reasonably be expected to result in a Parent Materially Adverse Effect; (iv) each of the Parent and the Merger Sub shall have performed and complied with all of its covenants and agreements hereunder in all material respects through the Closing; (v) no temporary restraining order, preliminary of permanent injunction, or other Order of an Authority with competent jurisdiction shall have been issued and shall be in effect at the Effective Time which would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded 61 following consummation, (C) affect adversely the right of the Parent to own the capital stock of the Surviving Corporation and to control the Surviving Corporation, or (D) affect adversely the right of the Surviving Corporation to own its assets and to operate its businesses; (vi) each of the Parent and the Merger Sub shall have delivered to the Company a certificate to the effect that each of the conditions specified above in Section 6(b)(i) through (v) is satisfied in all respects; (vii) all applicable waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been terminated and the Parties shall have received all other authorizations, consents, and approvals of Authorities referred to in Section 3(d) and Section 4(d) above; (viii) the Company shall have received from counsel to the Parent and the Merger Sub an opinion in form and substance reasonably satisfactory to the Company, addressed to the Company, and dated as of the Closing Date; (ix) all actions to be taken by the Parent and the Merger Sub in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Company; (x) no Parent Materially Adverse Effect shall have occurred; (xi) the Company shall have received a letter from its independent accountants in form and substance reasonably satisfactory to the Company, dated the Closing Date, concurring with management's conclusions that the transactions contemplated by this Agreement, including the Merger, will qualify as a "pooling of interests" business combination in accordance with GAAP and the criteria of Accounting Principles Board Opinion No. 16 and the Regulations of the SEC; and the Company shall not have received any indication from the SEC that the Merger may not so qualify; (xii) each of the Persons identified in Section 5(i) of the Company Disclosure Schedule shall have executed and delivered a Parent Affiliate Pooling Agreement which shall be in full force and effect; 62 (xiii) each of the persons listed on Section 5(s) of the Company Disclosure Schedule shall have entered into an Employment Agreement with the Company; (xiv) the Fairness Opinion shall remain in full force and effect and shall not have been revoked or modified in any material respect; (xv) the Company shall have received the Requisite Stockholder Approval of this Agreement and the Merger at the Company Special Meeting; and (xvi) the Company shall have received the opinion of its tax counsel, in the form and substance reasonably satisfactory to the Company, and dated as of the Effective Time, to the effect that the Merger will constitute a transaction described in Section 368(a) of the Code and neither the Company nor its shareholders shall recognize gain or loss for federal income tax purposes as a result of the Merger (other than with respect to cash paid in lieu of fractional shares). The Company may waive any condition specified in this Section 6(b) if it executes a writing so stating at or prior to the Closing. 7. Termination. (a) TERMINATION. This Agreement may be terminated prior to the Effective Time as follows (notwithstanding any approval of the Merger by the stockholders of the Parent, Merger Sub, and the Company): (i) by mutual written consent duly authorized by the Boards of Directors of Parent and the Company at any time; (ii) by Parent or Company if the Closing shall not have occurred on or before September 30, 2001; provided that such right shall not be available to any Party whose willful failure to fulfill any material obligation under this Agreement has been the cause of, or has resulted in, the failure of the Merger to be consummated on or before such date; (iii) by the Parent if there shall be any Law that makes consummation of the Merger illegal or otherwise prohibited; or if any Order enjoining Parent or the Company from consummating the Merger is entered and such Order shall become final and non-appealable; (iv) by Parent, if (A) the Board of Directors of the Company shall have withdrawn or modified its recommendation of this Agreement or the Merger in a manner adverse to Parent or shall have resolved to do any of the foregoing; (B) the Board of Directors of the Company shall have recommended to the shareholders of the 63 Company an Alternative Transaction; or (C) a tender offer or exchange offer for 30% or more of the outstanding Company Shares is commenced and the Board of Directors of the Company fails to timely recommend that the shareholders of the Company not tender their shares in such tender or exchange offer; (v) by the Company if prior to the Effective Time, in good faith, the Board of Directors of the Company shall have made a Fiduciary Finding and have withdrawn or modified or amended, in a manner adverse to Parent, its approval or recommendation of this Agreement and the Merger or its recommendation that stockholders of the Company adopt and approve this Agreement and the Merger in order to permit the Company to execute a definitive agreement providing for the acquisition of the Company or in order to approve a tender or exchange offer for any or all of the Company Shares; provided that the Company shall be in compliance with Section 5(h); (vi) by either the Company or Parent if, at a duly held stockholders meeting of the Company or any adjournment thereof at which this Agreement and the Merger is voted upon, the Requisite Stockholder Approval shall not have been obtained; (vii) by either the Company or Parent if, at a duly held stockholders meeting of the Parent or any adjournment thereof at which issuance of Parent Shares as required under Section 2 is voted upon, the Requisite Stockholder Approval shall not have been obtained; (viii) by Parent, if neither Parent nor Merger Sub is in material breach of its obligations under this Agreement, and if (A) at any time that any of the representations and warranties of the Company herein become untrue or inaccurate such that Section 6(a)(iii) would not be satisfied (treating such time as if it were the Effective Time for purposes of this Section 7(a)(viii)) or (B) there has been a breach on the part of the Company of any of its covenants or agreements contained in this Agreement such that Section 6(a)(iv) would not be satisfied (treating such time as if it were the Effective Time for purposes of this Section 7(a)(viii)), and, in both case (A) and case (B), such breach (if curable) has not been cured within 30 days after notice to the Company; (ix) by the Company, if it is not in material breach of its obligations under this Agreement, and if (A) at any time that any of the representations and warranties of Parent or Merger Sub herein become untrue or inaccurate such that Section 6(b)(iii) would not be satisfied (treating such time as if it were the Effective Time for purposes of this Section 7(a)(ix)) or (B) there has been a breach on the part of Parent or Merger Sub of 64 any of their respective covenants or agreements contained in this Agreement such that Section 6(b)(iv) would not be satisfied (treating such time as if it were the Effective Time for purposes of this Section 7(a)(ix)), and such breach (if curable) has not been cured within 30 days after notice to Parent; or (x) by the Company, if the Board of Directors of Parent shall have withdrawn or modified its recommendation in favor of the issuance of Parent Shares pursuant to the Merger in a manner adverse to the Company or shall have resolved to do any of the foregoing. The Party desiring to terminate this Agreement pursuant to Section 7(a)(ii) through (x) shall give written notice of such termination to the other Party in accordance with Section 8(h). (b) EFFECT OF TERMINATION. In the event of termination of this Agreement as provided in Section 7(a), this Agreement shall immediately become void and there shall be no liability or obligation on the part of Parent, Merger Sub, the Company or their respective officers, directors, shareholders, or Affiliates, except as set forth in Section 5(h) and Section 7(c) and such Section 5(h) and Section 7(c) of this Agreement shall remain in full force and effect and survive any termination of this Agreement. (c) FEES AND EXPENSES. (i) Except as set forth in this Section 7(c), all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such expenses, regardless of whether the Merger is consummated; provided, however, that Parent and the Company shall share equally all fees and expenses, other than attorneys' fees, incurred in relation to the printing and filing of the Joint Proxy Statement (including any related preliminary materials) and the Registration Statement (including financial statements and exhibits). (ii) Company shall pay Parent a termination fee equal to $1,000,000 plus the aggregate amount of Parent's documented expenses not to exceed $1,000,000, upon the earliest to occur of the following events: (A) the termination of this Agreement by Parent pursuant to Section 7(a)(iv) or the Company pursuant to Section 7(a)(v); (B) the termination of this Agreement by Parent pursuant to Section 7(a)(viii) after a willful breach by the Company; or (C) the termination of this Agreement by Parent or the Company pursuant to Section 7(a)(vi) as a result of the failure to receive the requisite vote for approval of this Agreement and the Merger by the shareholders of the Company at the Company's Special Meeting if, (I) at the time of such failure, there shall 65 have been announced an Alternative Transaction which shall not have been absolutely and unconditionally withdrawn and abandoned and (II) the Company shall have signed a definitive agreement for such Alternative Transaction within twelve (12) months of such failure. (iii) Parent shall pay the Company a termination fee equal to $1,000,000 plus the aggregate amount of the Company's documented expenses not to exceed $1,000,000, upon the earliest to occur of the following events: (A) the termination of this Agreement by the Company pursuant to Section 7(a)(x); or (B) the termination of this Agreement by the Company pursuant to Section 7(a)(ix) after a willful breach by Parent of this Agreement. (iv) The expenses and fees, if applicable, payable pursuant to this Section 7 shall be paid within thirty (30) days after submission by Parent or the Company, as the case may be. 8. Miscellaneous. (a) SURVIVAL. None of the representations and warranties of the Parties will survive the Effective Time. (b) Reserved. (c) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns; provided, however, that (i) the provisions in Section 2 above concerning payment of the Merger Consideration are intended for the benefit of the Company Stockholders and (ii) the provisions in Section 5(r) above concerning insurance and indemnification are intended for the benefit of the individuals specified therein and their respective legal representatives. (d) ENTIRE AGREEMENT. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof. (e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Parties. 66 (f) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. (g) HEADINGS. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (h) NOTICES. Any notice, request, demand, waiver, consent, approval, or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if delivered personally (including by nationally recognized overnight courier service) or sent by telegram or by certified mail, postage prepaid, and sent by telecopier as follows: If to Parent or the Merger Sub, to: Swift Transportation Co., Inc. 2200 South 75th Avenue Phoenix, Arizona 85043 (623) 269-9700 Telephone (623) 907-7503 Fax Attn: William F. Riley, III With a required copy to: Mark A. Scudder Scudder Law Firm, P.C. 411 S. 13th Street, Suite 200 Lincoln, Nebraska 68508 (402) 435-3223 Telephone (402) 435-4239 Fax If to the Company, to: M. S. Carriers, Inc. 3171 Directors Row Memphis, Tennessee 38131 (901) 332-2500 Telephone (901) 344-4607 Fax Attn: M. J. Barrow 67 With a required copy to: Robert E. Orians Martin, Tate, Morrow & Marston, P.C. 22 N. Front Street, Suite 1100 Memphis, Tennessee 38103 (901) 522-9000 Telephone (901) 527-3746 Fax or to such other address as the addressee shall have specified in a notice duly given to the sender as provided herein. Such notice, request, demand, waiver, consent, approval, or other communication shall be deemed to have been given as of the date so personally delivered, telegraphed, or deposited in the mail and telecopied. (i) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Tennessee without giving effect to any choice or conflict of law provision or rule (whether of the State of Tennessee or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Tennessee. (j) AMENDMENTS AND WAIVERS. The Parties may mutually amend any provision of this Agreement at any time prior to the Effective Time with the prior authorization of their respective boards of directors; provided, however, that any amendment effected subsequent to stockholder approval will be subject to the restrictions contained in the Tennessee Business Corporation Act. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by all of the Parties. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (k) SEVERABILITY. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. (l) EXPENSES. Each of the Parties shall bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. (m) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Disclosure Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. 68 (n) ENFORCEMENT OF AGREEMENT. The Parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with its specific terms or were otherwise breached. Accordingly, the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are entitled at law or in equity. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed and delivered by their duly authorized representative as of the date first above written. Swift Transportation Co., Inc., a Nevada corporation By: /s/ Jerry Moyes ------------------------------------ Jerry Moyes, Chairman, President and Chief Executive Officer Sun Merger, Inc., a Tennessee Corporation By: /s/ Jerry Moyes --------------------------------------- Jerry Moyes, President M. S. Carriers, Inc. a Tennessee Corporation By: /s/ Michael S. Starnes --------------------------------------- Michael S. Starnes, Chariman, President and Chief Executive Officer 69 EX-10.12 3 ex1012.txt VOTING AGREEMENT - JERRY MOYES VOTING AGREEMENT This VOTING AGREEMENT ("Agreement") is made as of December 11, 2000, among M. S. Carriers Inc., a Tennessee corporation (the "Company"), the Jerry and Vickie Moyes Family Trust dated 12/11/87, a stockholder ("Stockholder") of Swift Transportation Co., Inc., a Nevada corporation ("Parent"), and Jerry Moyes, individually ("CEO"). WHEREAS, Parent, Merger Sub, and the Company are, concurrently with the execution and delivery of this Agreement, entering into a Merger Agreement, dated as of the date hereof (the "Merger Agreement") pursuant to which Merger Sub will merge with and into the Company (the "Merger"); WHEREAS, as of the date hereof, Stockholder and CEO together, the "Holders" are the record and/or beneficial owners of Parent Shares (such Parent Shares the "Existing Shares" and, together with any Parent Shares as to which record and/or beneficial ownership is acquired after the date hereof, whether upon the exercise of warrants, options, conversion of convertible securities, or otherwise, the "Shares"); WHEREAS, as an inducement and a condition to entering into the Merger Agreement, the Company has required that the Holders agree, and the Holders have agreed, to enter into this Agreement; and WHEREAS, among other things, the Holders and the Company desire to set forth their agreement with respect to the voting of the Shares in connection with the Merger, upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants, and agreements herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Agreement to Vote. The Holders hereby agree that they shall, and shall cause any applicable holder of record on any applicable record date to, from time to time, at the request of the Company, at any meeting (whether annual or special and whether or not an adjourned or postponed meeting) of stockholders of Parent, however called, or in connection with any written consent of the holders of Parent Shares, (a) if a meeting is held, appear at such meeting or otherwise cause the Shares to be counted as present thereat for purposes of establishing a quorum, and (b) vote or consent (or cause to be voted or consented), in person or by proxy, all Shares, and any other voting securities of Parent (whether acquired heretofore or hereafter) that are beneficially owned or held of record by Holder or as to which such Holder has, directly or indirectly, the right to vote or direct the voting, in favor of the approval of the issuance of Parent Shares in the Merger, and any action required in furtherance thereof. 2. No Ownership Interest. Nothing contained in this Agreement shall be deemed to vest in the Company any direct or indirect ownership or incidence of ownership of or with respect to any Shares. All rights, ownership, and economic benefits of and relating to the Shares shall 1 remain vested in and belong to the Holders. The Company shall have no authority to manage, direct, superintend, restrict, regulate, govern, or administer any of the policies or operations of Parent or exercise any power or authority to direct the Holders in the voting of any of the Shares, except as otherwise provided herein, or in the performance of the Holders' duties or responsibilities as a stockholder of Parent. 3. No Inconsistent Agreements. Each Holder hereby covenants and agrees that, except as contemplated by this Agreement and the Merger Agreement, it (i) has not entered, and shall not enter at any time while this Agreement remains in effect, into any voting agreement or voting trust with respect to the Shares and (ii) has not granted, and shall not grant at any time while this Agreement remains in effect, a proxy, power of attorney, or any similar agreement with respect to the Shares, in either case, which is inconsistent with such Holder's obligations pursuant to this Agreement. 4. Agreement of CEO. CEO hereby agrees that he will use his best efforts cause any entity controlled by him to vote any Parent Shares held of record by such entity in favor of the approval and adoption of the issuance of Parent Shares in the Merger, and any action required in furtherance thereof. 5. Authorization; Validity of Agreement; Necessary Action. Each of the Holders has full power and authority to execute and deliver this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by each of the Holders, and, assuming this Agreement constitutes a valid and binding obligation of the Company, constitutes a valid and binding obligation of each Holder, enforceable against it in accordance with its terms. 6. Adjustments. In the event of a stock dividend or distribution, or any change in Parent Shares by reason of any stock dividend, split-up, recapitalization, combination, exchange of shares, or the like, the term "Shares" shall be deemed to refer to and include the Shares as well as all such stock dividends and distributions and any shares into which or for which any or all of the Shares may be changed or exchanged. The Holders shall be entitled to receive any cash dividend paid by the Parent during the term of this Agreement. 7. Termination. This Agreement shall terminate and no party shall have any rights or duties hereunder upon the earlier of (a) the Effective Time or (b) termination of the Merger Agreement. Nothing in this Section 8 shall relieve or otherwise limit any party of liability for breach of this Agreement. 8. Capacity. The obligations of each Holder herein are made only in its capacity as a stockholder of Parent. 9. Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally or sent by nationally recognized overnight courier or by registered or certified mail, postage prepaid, return receipt requested, or by electronic mail, with a copy thereof to be delivered or sent as provided above or by facsimile or telecopier. All such notices or communications shall be deemed to be received (i) 2 in the case of personal delivery, nationally recognized overnight courier, or registered or certified mail, on the date of such delivery and (ii) in the case of facsimile or telecopier or electronic mail, upon confirmed receipt. 10. Severability. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible. 11. Amendments; Assignment. This Agreement may not be amended except by written agreement by all the parties. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interests, or obligations under this Agreement shall be assigned, in whole or in part, by any of the parties without the prior written consent of the other parties, and any purported assignment without such consent shall be void. 12. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any party hereto in the exercise of any right hereunder will impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty, or agreement herein, nor will any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive to, and not exclusive of, any rights or remedies otherwise available. 13. Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Holders with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, between the Company and either Holder with respect to the subject matter hereof. 14. Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. 15. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Nevada applicable to contracts executed in and to be performed entirely within that state. 16. Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement is not performed in accordance with the terms 3 hereof, and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. 17. Definitions. Capitalized terms used herein and not otherwise defined herein shall have the meanings given in the Merger Agreement. IN WITNESS WHEREOF, the Company and the Holders have caused this Agreement to be signed by their respective officers or other authorized person thereunto duly authorized as of the date first written above. M. S. Carriers, Inc. a Tennessee corporation By: /s Michael S. Starnes Chairman of the Board, President and Chief Executive Officer THE JERRY AND VICKIE MOYES FAMILY TRUST DATED 12/11/87 By:/s Jerry Moyes Jerry Moyes, Trustee By:/s Vickie Moyes Vickie Moyes, Trustee /s Jerry Moyes Jerry Moyes, Individually 4 EX-10.13 4 ex1013.txt VOTING AGREEMENT - MICHAEL S. STARNES VOTING AGREEMENT This VOTING AGREEMENT ("Agreement"), is made as of December 11, 2000 among Swift Transportation Co., Inc., a Nevada corporation ("Parent"), Sun Merger, Inc., a corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and Michael S. Starnes a stockholder ("Stockholder") of M. S. Carriers, Inc. a Tennessee corporation (the "Company"). WHEREAS, Parent, Merger Sub, and the Company are, concurrently with the execution and delivery of this Agreement, entering into a Merger Agreement, dated as of the date hereof (the "Merger Agreement") pursuant to which Merger Sub will merge with and into the Company (the "Merger"); WHEREAS, as of the date hereof, Stockholder is the record and/or beneficial owner of the number of Company Shares set forth on the signature page hereof beneath such Stockholder's name (with respect to the Stockholder, such Stockholder's "Existing Shares" and, together with any Company Shares as to which record and/or beneficial ownership is acquired after the date hereof, whether upon the exercise of warrants, options, conversion of convertible securities, or otherwise, such Stockholder's "Shares") and the record owner of options to purchase the number of Company Shares set forth on the signature page hereof beneath such Stockholder's name; WHEREAS, as an inducement and a condition to entering into the Merger Agreement, Parent and Merger Sub have required that Stockholder agree, and Stockholder has agreed, to enter into this Agreement; and WHEREAS, among other things, Stockholder, Parent, and Merger Sub desire to set forth their agreement with respect to the voting of the Shares in connection with the Merger, upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants, and agreements herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Agreement to Vote. Stockholder hereby agrees that he shall, and shall cause the holder of record on any applicable record date to, from time to time, at the request of Parent, at any meeting (whether annual or special and whether or not an adjourned or postponed meeting) of stockholders of the Company, however called, or in connection with any written consent of the holders of Company Shares, (a) if a meeting is held, appear at such meeting or otherwise cause the Shares to be counted as present thereat for purposes of establishing a quorum, and (b) vote or consent (or cause to be voted or consented), in person or by proxy, all Shares, and any other voting securities of the Company (whether acquired heretofore or hereafter) that are beneficially owned or held of record by Stockholder or as to which Stockholder has, directly or indirectly, the right to vote or direct the voting, in favor of the approval and adoption of the Merger Agreement, the Merger, and any action required in furtherance thereof. 1 2. No Ownership Interest. Nothing contained in this Agreement shall be deemed to vest in Parent any direct or indirect ownership or incidence of ownership of or with respect to any Shares. All rights, ownership, and economic benefits of and relating to the Shares shall remain vested in and belong to Stockholder. Parent shall have no authority to manage, direct, superintend, restrict, regulate, govern, or administer any of the policies or operations of the Company or exercise any power or authority to direct Stockholder in the voting of any of the Shares, except as otherwise provided herein, or in the performance of the Stockholder's duties or responsibilities as a stockholder of the Company. 3. No Inconsistent Agreements. Stockholder hereby covenants and agrees that, except as contemplated by this Agreement and the Merger Agreement, the Stockholder (i) has not entered, and shall not enter at any time while this Agreement remains in effect, into any voting agreement or voting trust with respect to the Shares and (ii) has not granted, and shall not grant at any time while this Agreement remains in effect, a proxy, power of attorney, or any similar agreement with respect to the Shares, in either case, which is inconsistent with such Stockholder's obligations pursuant to this Agreement. 4. Authorization; Validity of Agreement; Necessary Action. Stockholder has full power and authority to execute and deliver this Agreement, to perform Stockholder's obligations hereunder, and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Stockholder, and, assuming this Agreement constitutes a valid and binding obligation of Parent and Merger Sub, constitutes a valid and binding obligation of Stockholder, enforceable against him in accordance with its terms. 5. Adjustments. In the event of a stock dividend or distribution, or any change in the Company Shares by reason of any stock dividend, split-up, recapitalization, combination, exchange of shares, or the like, the term "Shares" shall be deemed to refer to and include the Shares as well as all such stock dividends and distributions and any shares into which or for which any or all of the Shares may be changed or exchanged. Stockholder shall be entitled to receive any cash dividend paid by the Company during the term of this Agreement. 6. Termination. This Agreement shall terminate and no party shall have any rights or duties hereunder upon the earlier of (a) the Effective Time or (b) termination of the Merger Agreement. Nothing in this Section 7 shall relieve or otherwise limit any party of liability for breach of this Agreement. 7. Capacity. The obligations of Stockholder herein are made only in his capacity as a stockholder of the Company. 8. Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally or sent by nationally recognized overnight courier or by registered or certified mail, postage prepaid, return receipt requested, or by electronic mail, with a copy thereof to be delivered or sent as provided above or by facsimile or telecopier. All such notices or communications shall be deemed to be received (i) in the case of personal delivery, nationally recognized overnight courier, or registered or certified 2 mail, on the date of such delivery and (ii) in the case of facsimile or telecopier or electronic mail, upon confirmed receipt. 9. Severability. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible. 10. Amendments; Assignment. This Agreement may not be amended except by written agreement by all the parties. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interests, or obligations under this Agreement shall be assigned, in whole or in part, by any of the parties without the prior written consent of the other parties, and any purported assignment without such consent shall be void. 11. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any party hereto in the exercise of any right hereunder will impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty, or agreement herein, nor will any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive to, and not exclusive of, any rights or remedies otherwise available. 12. Entire Agreement. This Agreement constitutes the entire agreement between Parent, Merger Sub, and Stockholder with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, between Parent, Merger Sub, and Stockholder with respect to the subject matter hereof. 13. Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. 14. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Tennessee applicable to contracts executed in and to be performed entirely within that state. 15. Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement is not performed in accordance with the terms hereof, and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. 3 16. Definitions. Capitalized terms used herein and not otherwise defined herein shall have the meanings given in the Merger Agreement. IN WITNESS WHEREOF, Parent, Merger Sub, and Stockholder have caused this Agreement to be signed by their respective officers or other authorized person thereunto duly authorized as of the date first written above. Swift Transportation Co., Inc. a Nevada corporation By:/s Jerry Moyes Jerry Moyes, Chairman of the Board, President, and Chief Executive Officer Sun Merger, Inc., a Tennessee corporation By: /s Jerry Moyes Jerry Moyes, President /s Michael S. Starnes Michael S. Starnes, Individually Number of Existing Shares: 2,688,730 4 EX-10.14 5 ex1014.txt FIRST AMD TO NINTH AMD AND RESTATED LOAN AGMT FIRST AMENDMENT TO NINTH AMENDED AND RESTATED LOAN AGREEMENT This First Amendment to Ninth Amended and Restated Loan Agreement ("First Amendment") entered into the 24th day of October, 2000, by and between M.S. CARRIERS, INC., a Tennessee corporation ("Borrower"), and BANK OF AMERICA, N.A., Agent, a national banking association ("Lender"). W I T N E S S E T H WHEREAS, on October 24, 2000, Borrower and Lender entered into that certain Ninth Amended and Restated Loan Agreement (the "Loan Agreement"); and WHEREAS, Borrower and Lender wish to amend certain provision of the Loan Agreement; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, it is agreed as follows: 1. Capitalized terms not defined herein shall have the meaning contained in the Loan Agreement. 2. Section 1 (a) of the Loan Agreement is deleted in its entirety and in lieu thereof shall read as follows: "(a) [Reserved]" 3. Section 1 (d) of the Loan Agreement is deleted in its entirety and in lieu thereof shall read as follows: "(d) "Applicable Margin" means for any Fiscal Quarter the applicable rate per annum in excess of the LIBOR Rate set forth in the table below: Total Leverage Ratio Applicable Level (as defined in Section 35 (a)) Margin Over LIBOR Rate -------------------------------------------------------------- I Less than 1.75 .50% II Less than 2.50, .60% but greater than or equal to 1.75 III Less than 2.75, .80% but greater than or equal to 2.5 IV Less than 3.0, 1.75% But greater than or equal to 2.75 V Greater than 3.0 1.90% 4. Section 1 (f) of the Loan Agreement is deleted in its entirety and in lieu thereof shall 1 read as follows: "(f)"Base Rate" means the Lender's LIBOR Rate for a LIBOR Period plus the Applicable Margin. For purposes hereof, the Applicable Margin will be that shown as Level IV in the table contained in the definition of Applicable Margin for the period from October 24, 2000 until December 31, 2000, Level V in the table contained in the definition of Applicable Margin for the period from January 1, 2001 through April 30, 2001 and thereafter as Level V in the table contained in the definition of Applicable Margin, provided, however, that if the Borrower delivers to the Lender the quarterly financial statements of the Borrower within the time limits contained in Section 19, which financial statements indicate that the applicable ratio set forth in the table in the definition of Applicable Margin justifies resetting the Applicable Margin to another Level, then the Applicable Margin shall be retroactively adjusted as of the first day of the then Fiscal Quarter to Level I, II, III, IV or V as applicable and shall continue to the last day of such Fiscal Quarter. The Applicable Margin will then be reset to Level V on the first day of the next Fiscal Quarter, subject to being again retroactively reset as set forth above. This will continue each Fiscal Quarter thereafter." 5. Section 1 (bbb) of the Loan Agreement is deleted in its entirety and in lieu thereof shall read as follows: "(bbb)[Reserved]" 6. Section 1 (ppp) of the Loan Agreement is deleted in its entirety and in lieu thereof shall read as follows: "(ppp)"Unused Fee Rate" means .15% if the then Applicable Margin is at Level I, .175% if the then Applicable Margin is at Level II, .225% if the then Applicable Margin is at Level III, .300% if the then Applicable Margin is at Level IV and .400% if the then Applicable Margin is at Level V (computed on a 360 day basis)." 7. Section 3(a) of the Loan Agreement is hereby deleted in its entirety and in lieu thereof shall read as follows: "(a) Issuance. Subject to the terms and conditions hereof and the LOC Documents, if any, and any other terms and conditions which the Issuing Lender may reasonably require, the Issuing Lender shall from time to time upon request issue, in Dollars, letters of credit (the "Letters of Credit") for the account of the Borrower, from the Effective Date until the Revolving Loan Maturity Date, in a form reasonably acceptable to the Issuing Lender; provided, however, that (i) the aggregate amount of LOC Obligations shall not at any time exceed Fifteen Million and 00/100 ($15,000,000.00), (ii) and the sum of the aggregate amount of LOC Obligations outstanding plus Revolving Loans outstanding shall not exceed the Revolving Committed Amount. The issuance and expiration date of each Letter of Credit shall be a Business Day. The quarterly fee for each Letter of Credit shall be the face amount of the Letter of Credit times the applicable percentage in the table set forth in the following sentence, payable in advance. If the Applicable Margin is at Level I, the fee shall be 2 .50%; if the Applicable Margin is at Level II the fee shall be .60%, if the Applicable Margin is at Level III the fee shall be .80%, if the Applicable Margin is at Level IV the fee shall be 1.75%, and if the Applicable Margin is at Level V the fee shall be 1.90%. Notwithstanding the foregoing, the quarterly fee will be 1.75% for the period from October 24, 2000 until December 31, 2000 and 1.90% for the period from January 1, 2001 through April 30, 2001. The fee shall be fully earned upon issuance and shall not be refunded or pro rated in the event the Letter of Credit is released, expires or is drawn prior to the quarter-annual anniversary of the Letter of Credit. No Letter of Credit shall have an original expiry date more than one year from the date of issuance, or, as extended, shall have an expiry date extending beyond the Revolving Loan Maturity Date. Each Letter of Credit shall be either (x) a standby letter of credit issued to support the obligations of the Borrower which finance the working capital and business of the Borrower in the ordinary course of business or (y) a commercial letter of credit in respect to the purchase of goods or services by the Borrower in the ordinary course of business. Each Letter of Credit shall comply with the related LOC Documents." 8. Section 34 (k) of the Loan Agreement is deleted in its entirety and in lieu thereof shall read as follows: "(k)Collateral Coverage. Permit the fair market value of the trailers owned by Borrower in which Lender has a perfected first security interest to be less than one hundred twenty five percent (125%) of the aggregate amount of Revolving Loans outstanding, the aggregate amount of Reducing Revolving Loans outstanding and Letters of Credit issued. Borrower agrees to apply for liens no later than December 31, 2000 and this coverage will be reported to Lender at each fiscal quarter end beginning on March 21, 2001." 9. Section 35 (a) of the Loan Agreement is deleted in its entirety and in lieu thereof shall read as follows: "(a)Total Leverage Ratio. Maintain a ratio of Total Funded Debt divided by (Borrower's EBITDA plus the payments made by Borrower on Operating Leases during the applicable twelve month period plus the income or loss of Transportes EASO reported on Borrower's income statement plus the rental income (or loss) of the Joint Venture), of not more than 3.10 to 1.0 through June 29, 2001, not more than 2.85 to 1.0 from June 30, 2001 through September 29, 2001 and not more than 2.75 to 1.0 at the end of each Fiscal Quarter thereafter." 10. M.S. Carriers Warehousing & Distribution, Inc. ("Guarantor"), joins in the execution of this First Amendment to consent to the transactions contemplated hereby and to ratify, affirm and restate the provisions of the Guaranty Agreement executed by Guarantor in favor of Lender. 11. Borrower shall pay all costs incidental to this First Amendment, including, but not limited to, the fees and expenses of Lender's counsel. 12. Borrower warrants and represents that (a) the Loan Documents are valid, binding and enforceable against the Borrower according to their terms; (b) all warranties and representations 3 made by Borrower in the Loan Documents are hereby again warranted and represented to be true as of the date hereof, except with regard to matters expressed only as of a specific time or which have been supplemented or superseded by disclosures to Lender in writing and (c) no default presently exists under the Loan Documents. Borrower further acknowledges that Borrower's obligations evidenced by the Loan Documents are not subject to any counterclaim, defense or right of set-off and Borrower does hereby release Lender from any claim, known or unknown, that Borrower may have against Lender as of the execution of this First Amendment. 13. As amended hereby, the Loan Agreement remains in full effect, and all agreements among the parties with respect to the subject hereof are represented fully in this First Amendment and the other written documents among the parties. The provisions of the Loan Agreement regarding the arbitration of disputes and other general matters also govern this First Amendment. The validity, construction and enforcement hereof shall be determined according to the substantive laws of the State of Tennessee. IN WITNESS WHEREOF, the parties have executed this First Amendment to be effective the day and year first above written. BANK OF AMERICA, N.A., Agent By: /s Michael R. Frick Its: Vice President M.S. CARRIERS, INC. By: /s M.J. Barrow Its: CFO M.S. CARRIERS WAREHOUSING & DISTRIBUTION, INC. By: /s M.J. Barrow Its: CFO 4 EX-21 6 ex21.txt SUBSIDIARIES Exhibit 21 Subsidiaries of M.S. Carriers, Inc. Jurisdiction of Subsidiary Incorporation M.S. Carriers Warehousing & Distribution, Inc. Tennessee M.S. Nationwide, Inc. (inactive) Tennessee M.S. Carriers Logistics Mexico, S.A. de C.V. Mexico M.S. International, Inc. Nevada M.S. Global, Inc. Nevada M.S. Air, Inc. Tennessee -----END PRIVACY-ENHANCED MESSAGE-----