-----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, VI9yP0ZQfQIGM0aiaiMBk3yCv7RmBNjN48JLjH205PYR5vqGOP/d0clubWUJQrHp DpRsDBV5WvRKcoCbd+4uuQ== 0000931763-97-001084.txt : 19970630 0000931763-97-001084.hdr.sgml : 19970630 ACCESSION NUMBER: 0000931763-97-001084 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970627 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: US XPRESS ENTERPRISES INC CENTRAL INDEX KEY: 0000923571 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 621378182 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24806 FILM NUMBER: 97631464 BUSINESS ADDRESS: STREET 1: 2931 SOUTH MARKET ST CITY: CHATTANOOGA STATE: TN ZIP: 37410 BUSINESS PHONE: 6156967377 MAIL ADDRESS: STREET 1: 2931 SOUTH MARKET ST CITY: CHATTONOOGA STATE: TN ZIP: 37410 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED). For the transition period from ____________________ to ____________________ Commission file number 0-24806 ------- U.S. XPRESS ENTERPRISES, INC. (Exact name of registrant as specified in its charter) Nevada 62-1378182 (State or Other Jurisdiction (I.R.S. Employer Identification No.) of Incorporation or Organization) 2931 South Market Street Chattanooga, Tennessee 37410 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (423) 697-7377 -------------- Securities Registered Pursuant to Section 12(b) of the Act: None ---- Securities Registered Pursuant to Section 12(g) of the Act: Class A Common -------------- Stock, $0.01 Par Value - ---------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [____] The aggregate market value of the voting stock held by non-affiliates of the registrant was $66,603,787 as of June 6, 1997 (based upon the $19.25 per share average of the closing bid and asked price on that date as reported by NASDAQ). In making this calculation the registrant has assumed, without admitting for any purpose, that all executive officers, directors, and holders of more than 10% of a class of outstanding common stock, and no other persons, are affiliates. As of June 6, 1997, the registrant had 9,073,674 shares of Class A Common Stock and 3,040,262 shares of Class B Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III, Items 11, 12, and 13 of this Report is incorporated by reference from the registrant's definitive proxy statement dated June 25, 1997 for the 1997 annual meeting of stockholders. 1 CROSS REFERENCE INDEX The following cross reference index indicates the document and location of the information contained herein and incorporated by reference into the Form 10-K.
Part I Document and Location ------ --------------------- Item 1 Business Pages 3 to 14 herein Item 2 Properties Page 14 to 15 herein Item 3 Legal Proceedings Page 15 herein Item 4 Submission of matters to a Vote of Security Holders Page 15 herein Part II ------- Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters Page 15 herein Item 6 Selected Financial Data Page 16 herein Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Pages 17 to 21 herein Item 8 Financial Statements and Supplementary Data Pages 22 to 37 herein Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Page 37 herein Part III -------- Item 10 Directors and Executive Officers of the Registrant Pages 38 and 39 herein Item 11 Executive Compensation Pages 7 to 9 of the Proxy Statement Item 12 Security Ownership of Certain Beneficial Owners and Management Pages 3 and 4 of the Proxy Statement Item 13 Certain Relationships and Related Transactions Page 6 of the Proxy Statement Part IV ------- Item 14 Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K Pages 40 to 44 herein
2 PART I ITEM 1. BUSINESS General Except for the historical information contained herein, the following "Business" section contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed herein. U.S. Xpress Enterprises, Inc. (the "Company") provides transportation and logistics services in the United States, Canada and Mexico. The Company has two operating subsidiaries, U.S. Xpress, Inc. ("U.S. Xpress") and CSI/Crown, Inc. ("CSI/Crown"). U.S. Xpress, the Company's largest subsidiary, accounted for 82% of the Company's fiscal 1997 revenues. U.S. Xpress targets customers that require time-definite and expedited truckload services. These services are provided in three ways: i) long-haul services utilizing two-person driver teams that travel over lengths of haul ranging generally from 800 to 3,000 miles; ii) regional services with lengths of haul from 100 to 1,000 miles in the Western and Southeastern regions of the United States; and iii) expedited truckload transportation brokerage services that primarily serve the air freight industry. CSI/Crown's target market is the floorcovering industry. CSI/Crown consolidates floorcovering products into truckload quantities, arranges truckload transportation to distribution centers throughout the United States and agent facilities throughout the U.S. and Canada for local delivery, provides warehousing facilities and sells floorcovering installation supplies. The Company's operating strategy is focused on seizing the opportunities that are emerging from five evolving trends in the transportation industry. These trends are: 1) Growth opportunities are attractive for high-service providers. U.S. Xpress was founded in 1985 to provide high levels of transportation- related services utilizing technology. Over the last five years, the Company's revenues have grown at a 24% compounded annual rate. The Company's services have attracted customers across many industries, particularly among those who operate just-in-time systems in manufacturing and distribution. In addition, the Company's growth is attributable to providing services that are unique or differentiated from other carriers in the truckload industry. The Company was one of the first in the industry to establish time-definite pickups and deliveries to exact appointment times as a standard for service quality. Time- definite service is a critical element of efficient supply chain and distribution systems management as practiced by an ever-increasing number of shippers. In addition, the Company is one of only a few truckload carriers that provides expedited, time-definite service to and from any point in the Continental United States and bordering provinces of Canada. This is particularly important to shippers that operate multiple, geographically-separated facilities. The Company also has consistently utilized leading-edge technologies that provide value to customers. The most recent service enhancement is the Xpress Connect(TM) system which enables U.S. Xpress and CSI/Crown customers to trace freight, tender loads, exchange invoice information and perform other functions through the Internet. Management believes that this system is a distinct competitive advantage in the truckload industry and establishes a basis for the Company to enhance its Internet-based services. 2) Shippers are increasingly eliminating or reducing the size of their private fleets and reducing the number of "core carriers" they use. This trend provides full-service carriers such as U.S. Xpress with opportunities for growth. In order to be considered as a core carrier by major shippers, the 3 Company has positioned itself with national and regional truckload capabilities, expedited and time-definite service, industry-leading technology that adds value to customers' supply chain and administrative systems, modern and efficient operating equipment, specialized equipment to serve specific customer needs, quality management processes and equipment and drivers that can be assigned to dedicated customers and routes. In seeking customers, the Company emphasizes its commitment to flexibility, responsiveness, analytical planning and information management systems that position the Company to serve customers' demands for time-definite pickup and delivery, expedited service, instant information and logistics planning. The Company is a core carrier for many of its major customers, including Federal Express, Hewlett Packard, Avery Dennison, Carrier Corporation and Amana. 3) The labor market for qualified professional truck drivers is extremely competitive, providing a competitive advantage to driver-friendly employers like the Company. Due to the continuing shortage of qualified drivers in the truckload transportation industry, particularly in the longer haul market, the recruiting, training and retention of qualified drivers is essential to support the Company's continued growth. The Company focuses significant resources and attention on the successful recruiting, hiring, and retention of qualified professional drivers. In fiscal 1997, the Company increased its fleet size to 2,246 tractors, a 14% increase over fiscal 1996, and employed a sufficient number of drivers to operate this larger fleet. The Company plans to increase its fleet size in fiscal 1998 through internal growth and strategic acquisitions. Two acquisitions were completed after the close of fiscal 1997 and the Company may pursue other acquisitions. Hiring and retaining drivers to fuel continued growth is an essential element of the Company's continuing growth and profitability. In fiscal 1997, the competition for professional drivers intensified, as several competing carriers raised driver mileage pay. Some carriers reported that they increased wages more than ten percent. While the Company has not had a significant problem with hiring and retaining sufficient numbers of drivers, management believes it is critical that the Company remain in the upper tier of carriers for total driver compensation in order to continue to keep its growing fleet fully staffed. Therefore, mileage pay for U.S. Xpress drivers will be increased between 0.5 to 3 cents per mile effective July 6, 1997. Most drivers will receive a 2 cent per mile increase. 4) Shippers are increasingly outsourcing their logistics and transportation requirements to logistics firms, providing opportunities for the Company to obtain significant new customer accounts by establishing working relationships with important logistics suppliers. Some shippers recognize significant cost savings and improved performance by outsourcing transportation requirements and focusing their resources on their core businesses. A small number of logistics providers have jumped to the forefront of this young industry and have obtained significant business volumes from large shippers. The Company has established relationships with three of the leading logistics suppliers and these relationships have resulted in significant business opportunities. The Company believes that as it demonstrates its capabilities and performs to the demanding requirements of logistics suppliers, it could earn additional business opportunities with these logistics providers. In addition, relationships are being developed with other logistics providers. 5) The trucking industry is consolidating, with financial and service pressures on many carriers offering attractive opportunities for well- capitalized carriers like the Company to acquire other carriers. Many carriers are having difficulty growing, or even surviving, in an increasingly competitive industry. This provides growth opportunities for the Company through acquisitions that fit its strategies, such as national or regional truckload carriers, carriers specializing in expedited services, floorcovering logistics providers and other high- service providers. The Company seeks strategic acquisition opportunities that fit the Company's established market niches and complement its existing business. Management believes that market and financial forces will continue to make acquisition opportunities attractive. The Company recently made three such acquisitions: 1) in July, 1996, the Company purchased equipment assets and assumed a customer contract of Michael Lima 4 Transportation, a California carrier involved in providing expedited truckload services; 2) effective April 1, 1997, the Company purchased assets of Rosedale Transport, Inc., a floorcovering logistics provider based in Georgia in which CSI/Crown assumed the management of eight distribution centers in the Midwest and East.; and 3) effective May 1, 1997, the Company acquired JTI, Inc., a Nebraska-based regional carrier. Management continues to explore other acquisition opportunities that fit its strategic direction. Services The Company's principal service specialty is time-definite service, which is the pickup and delivery of freight to prescribed schedules over distances ranging from 200 to 3,000 miles. Time-definite transportation requires pickups and deliveries to be performed to exact appointment times or within a specified number of minutes. This service is a key point of differentiation from many other trucking companies, which typically provide service only within windows ranging from several hours to a few days. Time-definite service is particularly important to the Company's customers that operate just-in-time manufacturing, distribution and retail inventory systems, and to the Company's customers that operate in the air freight industry. Management estimates that over half of the Company's typical freight volume is of a time-definite nature. Industry analysts estimate that about one-third of transportation shipments in the U.S. are made on a just-in-time basis, but that number is expected to increase to 40% by 2000. As more shippers value time-definite service for its impact on improving asset utilization through improved inventory management, the Company believes it is positioned to capitalize on this growth. Management has targeted five markets and is striving to achieve 20% annual growth in each market: expedited services, regional services, logistics partnerships, dedicated fleets and floorcovering logistics. In fiscal 1997, growth in each of these areas exceeded 20%. Revenue reported for these markets do, however, have some overlap. For example, freight that was shipped for a logistics customer, on an expedited basis, within a defined regional service area, using a dedicated truck and driver, would be counted as revenue in each of the target markets. Expedited Service U.S. Xpress specializes in the pickup and delivery of freight on a time- definite schedule at transit times competitive to deferred air freight service. In fiscal 1997, revenue from expedited services was $124.8 million, an increase of 176% from fiscal 1996. Customers in the air freight industry accounted for 21% of expedited services revenue, with the remainder provided by manufacturers, distributors, retailers, freight forwarders and consolidators. Examples of this service are as follows:
Transit Times Origin Destination Miles (in hours) - ------------------------------------------------------------------------------------------------ Charlotte, NC Los Angeles, CA 2,381 53 Atlanta, GA San Francisco, CA 2,482 55 Seattle, WA Miami, FL 3,263 73 Dallas, TX Chicago, IL 923 20 Newark, NJ Columbus, OH 527 12
Expedited truckload service is provided at a much lower cost than typical deferred air freight service. It is used by manufacturers, distributors, air cargo services and freight forwarders that operate geographically separated, but tightly controlled just-in-time manufacturing, distribution and express delivery systems. 5 Expedited service is provided primarily by two-person driver teams. In addition, freight relays are often used among U.S. Xpress' solo drivers. While expedited service is time critical, management directs the Company's drivers to observe all speed limits and the Company's tractors are equipped with electronic speed controls. The Company monitors its drivers to assure that they comply with DOT regulations regarding hours-of-service compliance that specify the maximum number of hours drivers may drive in 24-hour and 70-hour periods. The Company's integrated information and satellite communications systems provide real-time information to the Company's operations and customers and are used to manage all aspects of its expedited service. U.S. Xpress also operates a logistics group that provides expedited services. This group, formerly a separate operating subsidiary of the Company, National Xpress Logistics ("NXL"), was merged into U.S. Xpress on December 1, 1996. The logistics group obtains its business through relationships with agents who secure freight accounts and through direct relationships with customers. Freight services are provided by U.S. Xpress equipment and drivers and by independent contractors. In fiscal 1997, the Company almost entirely discontinued its coordination of freight services using other transportation modes, such as truck-rail intermodal, and its marketing of contract logistics management services. The logistics group now focuses on truckload services for expedited customers, with most of the customers participating in the air freight industry. Other freight business opportunities, such as non-expedited truckload services, are provided by the Company through its logistics group when these opportunities do not fit U.S. Xpress' targeted market segments or when U.S. Xpress equipment is not available. Prior to the formation of NXL, these opportunities were declined and the Company lost revenue opportunities. Likewise, other carriers utilize the Company's logistics group to reposition previously unloaded equipment, fill unused capacity with dedicated fleet opportunities and provide flexibility to reposition fleets and manage traffic lanes. Regional Service About 70% of the freight transported in the U.S. moves over distances of less than 1,000 miles. In addition, shippers are reducing the number of core carriers they use and are seeking carriers that offer a range of services to meet their needs. Many shippers are also bringing the various elements of their supply and distribution chains into closer geographical proximity. These trends lead shippers to use carriers, like the Company, that can provide short-haul, medium-haul and long- haul services in key areas of the U.S. The ability to provide regional service is an important factor to the Company obtaining certain core carrier accounts. Prior to 1994, the Company primarily offered medium and long-haul services. Recognizing the strategic importance of offering regional services, the Company embarked on a strategy to expand regional service. In 1994, the Company began providing regional service in the Southeast when it acquired Hall Systems, Inc., based in Birmingham, Alabama. Hall Systems, Inc. was merged into U.S. Xpress in December 1996. In 1995, the Company began providing regional service in the West. Regional service in the Midwest was offered by U.S. Xpress on a limited basis as a service to key customers and to reposition equipment. In fiscal 1997, revenue from regional services was $77.0 million, an increase of 92.5% from fiscal 1996. Effective May 1, 1997, the Company acquired JTI, Inc. ("JTI"), based in Lincoln, Nebraska, to expand regional service in the Midwest. Management expects that JTI's customer base, which has little overlap with the Company's customer base, offers opportunities to provide long- haul service outside of JTI's operating area. In addition, JTI has opportunities to expand regional service in the Midwest with U.S. Xpress customers. 6 Logistics Provider Relationships Manufacturers and distributors are increasingly outsourcing management of their logistics and transportation requirements to third parties. The Company has established working relationships with several premier logistics suppliers, and in particular, with the three largest in the industry. Logistics providers typically manage transportation purchasing, coordination and freight allocation for their customers. Industry analysts have estimated that about 5% of freight in the U.S. is being managed by logistics providers, and this share is expected to grow to 10% by the year 2000. Management believes that establishing a reputation for consistent and excellent performance is critical to future growth with these logistics providers. Revenue from logistics provider relationships in fiscal 1997 was $33.1 million, an increase of 196% from fiscal 1996. Dedicated Fleets The Company provides equipment and drivers that are dedicated to specific customers and specific traffic lanes. In fiscal 1996, the Company increased its emphasis on providing dedicated equipment and drivers to key customers as part of its core carrier strategy. The Company and its drivers experience significant benefits from its dedicated operations. The Company benefits by receiving increased business volume from key customers, improving planning of equipment requirements and enhancing the safety of its drivers who travel the same lanes repeatedly. Drivers benefit through enhanced predictability of their schedules, reduced downtime between loads and more predictable off-duty time. At March 31, 1997 the Company operated 301 tractors that were dedicated to specific customers or lanes, compared with 60 tractors at March 31, 1996. Floorcovering Logistics In 1994, the Company acquired Crown Transport Systems, Inc. ("Crown Transport") as the first step in building a floorcovering logistics business that serves the U.S. and Canada. In 1995, the Company acquired CSI/Reeves, Inc. and merged it with Crown Transport in January 1996 to form CSI/Crown. CSI/Crown picks up floorcovering products from manufacturers; consolidates shipments into truckloads bound for specific destinations; contracts with U.S. Xpress and other truckload carriers to deliver the products to CSI/Crown service centers or to contract agents and delivery services; and delivers the products to floorcovering distributors and retailers in all 50 states, Canada and Mexico. In addition, CSI/Crown provides warehouse facilities, cutting services and retail sales of installation supplies to the floorcovering industry. CSI/Crown, in coordination with U.S. Xpress and other truckload carriers, delivers floorcovering products from its primary dock operations in North Georgia (located in close proximity to many carpet manufacturers) to its service centers throughout the continental U.S. with transit times that are among the best in the floorcovering industry. In conjunction with the acquisition and merger, CSI/Crown replaced all of its outdated tractors, trailers and forklifts with updated equipment. The newer equipment significantly improved equipment reliability and enabled CSI/Crown to show immediate improvements in customer service and equipment utilization. Revenue from floorcovering logistics in fiscal 1997 was $65.8 million, an increase of 38% from fiscal 1996. In April 1997, CSI/Crown purchased the floorcovering distribution system assets, including dock and material handling equipment, and assumed leases of terminal facilities and customer agreements of Dalton, Georgia-based Rosedale Transport, Inc. Eight distribution centers in the Midwest and East were added to CSI/Crown's network through the transaction. At fiscal year-end, CSI/Crown operated 20 distribution centers and contracted with others to provide distribution services at 31 other locations. 7 Technology The Company utilizes proven new technologies that yield both competitive service advantages and the ability to more profitably serve its niche markets. The Company has developed a computerized information system that is integrated with the QUALCOMM Omnitracs satellite communication system ("the QUALCOMM system") to enhance customer service and equipment utilization. The Company's Electronic Data Interchange ("EDI") capabilities provide customers with an efficient means of tracing freight and performing several administrative functions. In November, 1996, the Company introduced its proprietary Internet-based "Xpress Connect" system which enables customers to trace freight, tender loads and exchange invoice information via the Internet. Management believes that this system is a base from which it will provide enhanced customer service, and ultimately provide direct connectivity between customers and drivers via the Internet. The Company is a leader in the innovation of computer information systems that are integrated with the QUALCOMM system. Management believes that proven technologies provide both competitive service advantages and the ability to more profitably serve its niche markets. Operating Systems Management believes that the Company's information systems are one of principal competitive advantages. These systems integrate operations systems and the principal back-office functions of payroll, billing, fuel and accounting with the QUALCOMM system. Satellite Communications The QUALCOMM system was first implemented by the Company in 1990. The QUALCOMM system simplifies the location of equipment and permits timely and efficient communication of critical operating data, such as shipment orders, loading instructions, routing, fuel, taxes paid and mileage operated, payroll, safety, traffic and maintenance information. For example, load planners assign loads by entering the required information into the system. Drivers then access the previously-planned load from the system and acquire all the necessary customer, order and routing information through their onboard display unit, thus eliminating waiting time and inefficient dependence on truck stop telephones. Management estimates that carriers without satellite communications typically lose one hour or more of productive time per driver per day waiting for telephones. The QUALCOMM system permits transmission of load assignments directly to the onboard display unit, and will even signal a driver when an assignment is available so that he or she may sleep in the tractor pending an assignment. In addition, through the QUALCOMM system, drivers have direct access to the Company's IBM AS/400 computer. This capability enables the driver to access information from operations and payroll systems, such as requesting and receiving cash advances on the road. Load Planning/Dispatch The Company operates the QUALCOMM Decision Support System ("QDSS"), a dispatch optimization software system. This software package provides the capability to efficiently allocate equipment and drivers to available loads. QDSS maximizes utilization of the Company's equipment and contributes to improved customer and driver satisfaction. Load planners convert customer orders into daily pre-planned freight dispatches. Driver managers then send instructions to drivers via the QUALCOMM system. Drivers access the order when they are ready for the next load assignment. Drivers can obtain shipment orders, pickup and delivery instructions, customer location and routing information through the onboard computer. Through QDSS, the Company seeks to identify potential problems of too much or too little freight in a particular geographic region. The Company seeks additional freight in the affected area, or through its logistics group, seeks alternative carriers to handle overflow loads. 8 Electronic Data Interchange The Company's automated administrative (e.g. billing, fuel tax, payroll) and operating systems enable dial-up tracing and full EDI of administrative and shipment status information between the Company and its customers. This system provides significant operating advantages to U.S. Xpress and its customers, including real-time information flow, reduction or elimination of paperwork, error-free transcription and reductions in clerical personnel. EDI allows the Company to exchange data with its customers in a variety of formats, depending on individual customer's capabilities, which can significantly enhance quality control, customer service and customer efficiency. Xpress Connect The Company's Xpress Connect system is an Internet-based system that makes it easier for shippers to track freight, tender loads and communicate with the Company via Internet e-mail. The system, which is a featured part of the Company's World Wide Web site, is designed to assist shippers in better managing their transportation shipments by providing up-to-date information on the location and status of active shipments, as well as historical information on completed shipments. The Company believes that Xpress Connect is the first World Wide Web application of its type that permits a customer to track shipments without prior knowledge of shipment or order numbers. Xpress Connect is customer-specific and password protected to guarantee the security of proprietary information. The system is being continually improved and upgraded, and in fiscal 1998, management expects to add enhancements that provide: 1) customers the ability to obtain proofs of delivery from the Company's document imaging system; 2) an on-line freight rating system; and 3) automatic notifications to customers' pagers of expected delays in transit. Customer Service The Company's customer service functions are handled by three-person teams in each geographic region. Each customer has a primary contact within the Company who enters orders, monitors delivery status at various times each day, coordinates order revisions and special needs and alerts customers when scheduling revisions are required. The Company's technology provides instant information concerning location and estimated delivery time for shipments in transit. Tractor and Trailer Technology The Company's management and a group of its drivers have worked with the Company's principal tractor supplier, Freightliner, to design improvements in its conventional tractors, such as more spacious and functional sleeper compartments and improved aerodynamics. In fiscal 1997, the Company was among the first to purchase the new Freightliner Century Class tractors, which provide superior levels of operating safety, fuel efficiency, information management capabilities and driver comforts. At March 31, 1997, 842 Century Class tractors were operating in the Company's fleet. The Company was among the first to use Detroit Diesel 60 Series engines, which provide significant performance improvements and maintenance cost reductions over non-electronic engines. The Company's engines are designed with enough power to enable the tractor to stay with the flow of traffic on most upgrades, which enhances safety and minimizes driver frustration. In addition, they contain electronic speed controls. Many of the Company's tractors are also equipped with anti-lock braking systems for improved safety. The Company's custom- designed trailers feature cubic capacity that is among the largest in the industry. The Company primarily uses Dorsey Cargo Guard trailers, many of which include translucent trailer tops that enhance safety in loading and unloading. In fiscal 1998, the Company will begin purchasing composite plate trailers from Wabash National Corporation that are more durable, have greater cubic capacity and stiffer sidewalls and do not fracture as easily as conventional aluminum trailers. 9 Eaton Vorad Eaton Vorad collision avoidance systems are specified equipment on Century Class tractors used by U.S. Xpress. These radar-based systems are designed to detect traffic ahead and to the side of trucks. The Eaton Vorad system is designed to provide drivers with additional response time, resulting in a safer vehicle for drivers and the motoring public. Over 800 such systems were in operation at fiscal year-end. In fiscal 1997, there were 87 accidents in the U.S. Xpress fleet involving lane changes or right turns. Seven of those involved Vorad-equipped trucks. There were 32 accidents during the fiscal year in which U.S. Xpress trucks were involved in rear-end collisions. Four of those involved Vorad-equipped trucks. Document Scanning The Company has installed an optical character recognition system that scans documents such as bills of lading, driver logs and fuel receipts onto optical disks or other storage media. This system has reduced clerical and management time required to enter and retrieve information, while enhancing the availability and increasing the utilization of data by customers. Debit Cards for Long Distance Telephone and Internet E-Mail The Company also makes available to all of its drivers a debit card, which enables a driver to prepay long distance telephone calls and Internet e-mail. The prepaid debit card system offers per minute rates lower than those currently offered by the three primary long distance carriers. Drivers have the capability to easily "reload" capacity, or add value, to the cards when the prepaid portion has been used. Drivers At March 31, 1997, the Company employed 3,154 drivers at U.S. Xpress. Over 41% of the Company's drivers have been employed at least one year with the Company, and over 29% have been employed at least three years with the Company. Employment turnover of over-the-road drivers is a significant industry-wide problem. Recruiting, training and retention of qualified drivers is essential to support the Company's continued growth. Management believes that one of the key elements to retaining professional drivers is providing competitive compensation. Most companies in the truckload industry pay drivers based on the miles that they drive and provide various additional bonuses and incentives. Management believes that drivers' primary interest in compensation is their take-home pay rather than their base mileage pay. While other carriers may offer marginally higher mileage pay, management believes that the Company's drivers' compensation is comparable to those of other carriers because the Company's high equipment utilization maximizes driver productivity, miles driven and pay. To maintain high equipment utilization, particularly during periods of rapid additions of equipment to the fleet and periods of soft freight demand, the Company has implemented a number of ongoing initiatives to retain existing drivers and recruit new ones, such as handling driver- friendly freight, adopting an attractive compensation and benefits package, providing equipment with desirable driver amenities and providing a Company-wide culture of support for drivers' needs. Recruiting Management believes that meeting drivers' reasonable expectations is critical to driver satisfaction and retention. Driver recruiters are trained to provide candidates with a realistic view of work requirements and the lifestyles required of a long-haul, over-the-road driver. The Company's recruiting efforts include targeted advertising, recruitment by the Company drivers and other methods. Detailed statistics are continually maintained and evaluated to determine the effectiveness of recruiting efforts. The Company compensates its drivers for successful recruiting efforts and periodically holds special incentive contests to encourage drivers to assist with recruiting. 10 The Company also maintains a "quick response" system that investigates prospective drivers' credentials and driving histories and in most instances approves drivers for hiring within one business day of application. Management believes that this system is critical to hiring quality drivers who are making a job change and may have applied to several prospective employers at the same time. New driver candidates are carefully screened on the basis of prior driving and safety records. In accordance with DOT requirements, the Company operates a drug-free workplace. Accordingly, all drivers are required to submit to pre-employment, random, reasonable cause, post-accident and post-injury drug testing. Training The Company works closely with a community college in Oklahoma to recruit and train prospective drivers. All new drivers, regardless of experience, are trained under strict guidelines. A two-day orientation program provides drivers with information about the Company, its equipment and its expectations. The orientation program also stresses safety instruction and proper operation of the tractors and trailers used by the Company. New drivers with less over-the-road experience are placed in the Company's driver training program and teamed with driver trainers to gain additional over-the-road experience. Driver trainers are carefully selected based on driving and safety records and receive additional instruction prior to being assigned to the driver training program. The Company has found that drivers completing this driver training program tend to have better safety and retention records. Driver Managers An important aspect of driver retention is driver managers. Each Company driver is assigned a driver manager who is responsible for all aspects of driver satisfaction: miles, home time and helping drivers resolve work-related issues. Driver managers' performance is evaluated based on equipment utilization, driver turnover, driver miles and driver safety performance. The driver managers communicate with drivers daily through the satellite communications system and by telephone when personal communication is warranted. Typical matters in which assistance is provided include payroll issues and scheduling a driver's load so that he or she can return home. The Company recognizes that the first 90 days of employment is a critical retention and safety period for new drivers. New drivers are assigned to specific driver managers who are specially trained to assist new drivers. Each driver manager is responsible for approximately 45 trucks. Driver-Friendly Freight Management believes that the kind of freight the Company typically handles is a significant factor in driver retention. Although drivers do occasionally load and unload freight, the Company focuses much of its marketing efforts on customers with freight which is "driver- friendly" in that it requires minimal or no loading or unloading by drivers. The Company also is increasingly extending this driver- friendly concept to customers that do not keep drivers waiting for extensive periods of time while trailers are loaded and those whose employees, usually loading dock personnel, treat the Company's drivers as professionals. Compensation and Benefits The Company's compensation and benefits package has been structured to attract and retain quality drivers. Company drivers are compensated primarily on the basis of miles driven, with base pay per mile increasing with a driver's length of employment. Because the Company has an average length of haul that is longer than most truckload carriers, drivers accumulate more miles and thus earn above average pay. Drivers also can earn additional mileage pay through safety and mileage incentive bonuses. Based on recent surveys performed by the Company with respect to compensation paid by competitors, management believes the Company's driver compensation ranks among the highest in the truckload industry. Employee benefits include paid holidays and vacations, health insurance and a 11 401(k) retirement plan in which the Company matches 50% of employee contributions, up to six percent of compensation. Driver Amenities The Company's late-model, conventional tractors are designed for driver comfort and safety. Standard equipment includes double sleeper bunks, extra large cabs, air-ride suspensions and additional storage for personal items. The Company also has developed specific satellite communications applications that enable drivers to remain in touch with their families, receive information about pay and expense advances, directions to customer locations, weather updates and load assignments. The Company also provides pre-paid telephone calling cards that contain 30 minutes of free calling time per month to drivers. Drivers have the ability to add time to the cards by charging a personal credit card or through payroll deduction. In July 1996 the Company began testing a system in which drivers could send and receive electronic mail via the Internet using their satellite communications system. The costs of e-mail messaging are paid by drivers through their telephone calling cards. The test was successful and in October 1996, Internet e-mail capability was provided to the entire fleet. In fiscal 1997, the Company began purchasing Freightliner Century Class tractors, which set a new industry standard for efficiency and driver amenities. Equipment U.S. Xpress operated 2,246 Freightliner conventional tractors and 5,470 dry van trailers at March 31, 1997. Most of the trailers are 53' x 102" high-cubic capacity vans. At fiscal year-end, management was implementing a program to reduce the size of the trailer fleet to an approximate 2:1 trailer to tractor ratio. Growth of the Company's tractor and trailer fleets is managed based on market conditions and the Company's experience and expectations with respect to equipment utilization levels. During fiscal 1997, the Company focused on improving equipment utilization. The fleet size was increased only as utilization goals were achieved. Utilization of the U.S. Xpress fleet in fiscal 1997 (including tractors associated with Hall Systems, which was merged into U.S. Xpress during the year) was $2,761 in revenue per tractor per week, a 4.3% increase from fiscal 1996. The U.S. Xpress fleet size increased 13.7% during fiscal 1997, less than its revenue growth of 17.9%. The Company determines the specifications of equipment purchases based on such factors as vehicle and component quality, warranty service, driver preferences, new vehicle prices and the likely resale market. Because the fleet is standardized and has warranty maintenance agreements with original equipment suppliers, the Company has minimized parts inventories and maintenance costs. Tractors are typically replaced every 36 to 48 months, generally well in advance of the need for major engine overhauls. This schedule can be accelerated or delayed based on resale values in the used truck market and the differential between those values and new truck prices. The Company maintains third party relationships that enable it to retail, rather than wholesale, a large percentage of used equipment. Management believes that this practice has resulted in significant gains through the sale of used trucks over what could have been obtained from trade- in values offered by the manufacturer. With respect to tractors and trailers scheduled for purchase during fiscal 1998, the Company has negotiated attractive repurchase commitments from its primary equipment vendors. These agreements reduce the Company's risks related to equipment disposal values. Competition The transportation services business is extremely competitive. The Company competes primarily with other truckload carriers and, particularly in the longer haul markets, with intermodal transportation, railroads and providers of deferred air-freight service. Competition from railroads and 12 intermodal transportation likely would increase if state or federal highway fuel taxes were increased without a corresponding increase in taxes imposed on fuel used by railroads. Generally, competition for the freight transported by the Company is based more on service and efficiency than on freight rates. However, historically, increased competition has created downward pressure on the truckload industry's pricing structure. Prolonged weakness in freight markets or downward pressure on freight rates could adversely effect the Company's results of operations or financial condition. Some competitors do have greater financial resources, operate more equipment and transport more freight than the Company. Regulation The Company is a motor carrier that ascribes to safety rules and regulations promulgated by the Department of Transportation ("DOT") and various laws and regulations enforced by state agencies. These regulatory authorities have broad powers, generally governing activities such as authority to engage in motor carrier operations, accounting systems, certain mergers, consolidations, acquisitions and periodic financial reporting. Subject to federal, state and provincial regulatory authorities, the Company may transport most types of freight to and from any point in the United States, Mexico and certain Canadian provinces over any route selected by the Company. The trucking industry is subject to possible regulatory and legislative changes (such as increasingly stringent environmental regulations or limits on vehicle weight and size) that may affect the economics of the industry by requiring changes in operating practices or by affecting the cost of providing truckload services. The Company has underground storage tanks for diesel fuel in use at terminals in Chattanooga, Tennessee, Tunnel Hill, Georgia, Oklahoma City, Oklahoma and Birmingham, Alabama. JTI has an underground storage tank in Lincoln, Nebraska. As a result, the Company is subject to regulations promulgated by the EPA in 1988 governing the design, construction and operation of underground fuel storage tanks from installation to closure. For underground fuel storage tanks in existence at the time the regulations were promulgated in 1988, which include tanks at the terminal in Chattanooga, the regulations require that tanks be upgraded to meet specified standards concerning corrosion protection, spill or overfill protection and release detection on a phased timetable which began in 1989 and ends in 1998. The Company believes all of its tanks are in compliance with EPA regulations. Safety and Risk Management The Company is committed to ensuring that it has safe drivers. The Company regularly communicates with drivers to promote safety and to instill safe work habits through Company media, safety review sessions and ethics and responsibility training. These programs reinforce the importance of driving safely, abiding by all laws and regulations such as speed limits and driving hours, performing regular equipment inspections and acting as good citizens on the road. The Company's accident review committee meets regularly to review any new accidents, take appropriate action related to drivers, examine accident trends and implement changes in procedures or communications to address any safety issues. Management's emphasis on safety also is demonstrated through its equipment specifications, such as anti-lock brakes, electronic engines, special mirrors, conspicuity tape and the implementation of Eaton Vorad collision avoidance systems on all Freightliner Century Class tractors. The Eaton Vorad systems are designed to provide drivers with visible and audible warnings when other vehicles are beside them and when vehicles ahead are traveling at slower speeds than the truck. The system provides drivers with additional response time to prevent accidents. The Company requires prospective drivers to meet higher qualification standards than those required by the DOT. The DOT requires the Company's drivers to obtain national commercial driver's licenses 13 pursuant to the regulations promulgated by the DOT. The DOT also requires that the employer implement a drug-testing program in accordance with DOT regulations. The Company's program includes pre- employment, random, reasonable cause, post-accident and post-injury drug testing. Interstate motor carrier operations are subject to safety requirements prescribed by the DOT. Such matters as equipment weight and dimensions are also subject to federal and state regulations. An unpublished March 1993 change in the enforcement standards applied by the DOT has resulted in the reclassification of a number of motor carriers' safety ratings from "satisfactory" to "conditional" or "unsatisfactory". Currently, U.S. Xpress, JTI and CSI/Crown each have satisfactory ratings. The Company's Director of Risk Management and Chief Financial Officer are responsible for securing appropriate insurance coverage at cost effective rates. The primary claims arising in the Company's business consist of cargo loss and damage and auto liability (personal injury and property damage). The Company currently purchases primary and excess coverage for these types of claims in levels which management believes are sufficient to adequately protect the Company from significant claims. The Company also maintains primary and excess coverage for employee medical expenses and hospitalization, damage to physical properties and equipment damage resulting from collisions or other losses. Personnel The Company considers relations with its employees, all of whom are non-union, to be good. At March 31, 1997, the Company and its subsidiaries employed 4,416 persons, including 3,154 drivers at U.S. Xpress. In addition, 50 independent contractor/drivers provided services to U.S. Xpress. On August 1, 1996, the Company ended its arrangement with a third-party leasing company in which the Company leased its drivers and most office and maintenance employees. On that date, all persons employed through the leasing company became employees of the Company or its subsidiaries. On January 1, 1997, the Company entered into an arrangement with a third party in which the Company outsources payroll and benefits administration, unemployment insurance and workers' compensation. Under this arrangement, the Company pays the third party a fixed amount per employee. The Company believes that this arrangement enables it to achieve cost savings on payroll administration, personnel benefits and insurance premiums. ITEM 2. PROPERTIES All of the Company's offices and terminals are leased. The Company's headquarters are located in two leased buildings in Chattanooga, Tennessee. U.S. Xpress is also based in Chattanooga. CSI/Crown is based in Tunnel Hill, Georgia, approximately 25 miles from the Chattanooga location. In addition to the headquarters locations, U.S. Xpress operates 14 terminal facilities and CSI/Crown operates 20 distribution service centers. Effective April 1, 1997, the Company purchased assets from Rosedale Transport, Inc. and assumed the operation and existing leases of floorcovering service centers in Eagan, Minnesota; Grand Rapids and Detroit, Michigan; Akron, Ohio; Pittsburgh, Pennsylvania; Newark, Delaware; and Rochester and Syracuse, New York. Effective May 1, 1997 the Company acquired JTI, Inc., which owns a headquarters facility and terminal in Lincoln, Nebraska and leases terminals in N. Sioux City, South Dakota, Green Bay, Wisconsin and Loudon, Tennessee. Each of the Company's terminals and service centers are headed by a terminal or service center manager. Six U.S. Xpress terminals and one JTI terminal include maintenance facilities. Several terminals include driver lounges and customer service functions for local pickups and deliveries. In fiscal 1997, expansion of the CSI/Crown consolidation dock facility was completed and expansion of the U.S. Xpress maintenance facility at Tunnel Hill was begun. The Company believes that its current facilities are suitable and adequate for its present needs. The Company also periodically seeks improved locations and facilities and has not encountered any significant impediments to the location of new or additional facilities. 14 ITEM 3. LEGAL PROCEEDINGS The Company is party to various legal proceedings arising in the normal course of its business. Management does not believe that the outcome of any of these proceedings will have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the year ended March 31, 1997, no matters were submitted to a vote of security holders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Common Stock and Stockholder Data Class A Common Stock is traded on the NASDAQ National Market System under the symbol XPRSA. At June 6, 1997, there were 164 registered stockholders and an estimated 1,650 beneficial owners. At June 6, 1997 there were 9,073,674 shares of Class A Common Stock outstanding and 3,040,262 shares of Class B Common Stock outstanding. Listed below is the trading activity for each quarter in the last two fiscal years.
Average Quarter Ending High Low Daily Volume ---------------------------------------------------------------------------------- June 30, 1995 11.125 8.125 37,881 September 30, 1995 11.125 7.00 22,099 December 31, 1995 9.50 6.75 20,395 March 31, 1996 8.75 6.625 5,154 June 30, 1996 8.50 6.625 8,998 September 30, 1996 9.75 5.75 19,869 December 31, 1996 16.125 8.50 36,735 March 31, 1997 17.75 12.25 22,081
Dividends The Company does not pay cash dividends and intends to continue to retain earnings to finance growth of the Company. 15 ITEM 6. SELECTED FINANCIAL DATA (In thousands, except per share and operating data)
Year Ended March 31, 1997 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------- Income Statement Data/(1)/ Operating revenue U.S. Xpress $ 296,974 $ 251,880 $ 230,416 $ 191,403 $ 164,856 $ 135,389 CSI/Crown 65,845 47,817 23,915 24,001 21,288 21,827 ----------------------------------------------------------------------------- Consolidated $ 362,819 $ 299,697 $ 254,331 $ 215,404 $ 186,144 $ 157,216 ============================================================================= Income from operations $ 19,716 $ 5,251 $ 18,159 $ 14,095 $ 7,790 $ 6,038 Income before taxes and cumulative effect of change in accounting method 14,236 75 13,557 9,714 3,313 3,678 Net income 7,878 94 8,263 6,042 1,867 2,454 Earnings per share .65 .01 .76 .63 .19 .25 Weighted average number of shares outstanding 12,168 12,003 10,806 9,665 9,665 9,665 Truckload Operating Data/(2)/ Total revenue miles (in thousands) 261,596 222,496 204,804 180,609 160,664 134,770 Average revenue per mile $ 1.15 $ 1.14 $ 1.14 $ 1.09 $ 1.08 $ 1.06 Tractors (at end of period) 2,246 1,975 1,721 1,504 1,323 1,095 Average revenue per tractor per week $ 2,761 $ 2,646 $ 2,807 $ 2,796 $ 2,795 $ 2,637 Balance Sheet Data Working capital $ 33,829 $ 19,606 $ 10,786 $ 2,636 $ 8,611 $ 10,949 Total assets 178,084 177,821 146,070 103,385 89,412 53,267 Long-term debt, net of current maturities 59,318 61,789 46,157 49,871 51,628 29,307 Stockholders' equity/(3)/ 63,162 55,086 54,082 13,436 7,394 5,527
/(1)/ Data for U.S. Xpress includes data for all truckload operations. Data for CSI/Crown includes data for CSI/Reeves from its date of acquisition in August 1995. /(2)/ Data for U.S. Xpress truckload operations. Average revenue per mile is net of fuel surcharges. Tractor data includes owned and leased tractors. /(3)/ Reflects the sale by the Company of 2,500,000 shares of Class A Common Stock on October 6, 1994. 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparison of the Year Ended March 31, 1997 to the Year Ended March 31, 1996 The Company's initiatives to improve equipment utilization and to reduce operating expenses as a percent of revenue had favorable results for the fiscal year ended March 31, 1997. In this period, utilization for the combined truckload operations increased 4.3% to $2,761 in revenue per tractor per week, compared to $2,646 during the same period in 1996. The operating ratio (operating expenses as a percentage of revenue) improved 3.6 percentage points, reflecting a 21% increase in revenue versus a 16.5% increase in operating expenses. The smaller increase in operating expenses, compared to revenues, was due to reductions in several fixed and variable expense items. Operating revenue during the fiscal year ended March 31, 1997 increased $63.1 million, or 21.1%, to $362.8 million, compared to $299.7 million during the same period in 1996. This increase resulted partially from the fiscal 1996 acquisitions of CSI/Reeves and Hall Systems, which together contributed $29.7 million of the $63.1 million increase. U.S. Xpress linehaul operations contributed $33.4 million to the increase. Increased U.S. Xpress linehaul revenue resulted from increased revenue miles and a slight increase in the rate per revenue mile. Operating expenses represented 94.6% of operating revenue for the year ended March 31, 1997, compared to 98.2% during the same period in 1996. Salaries, wages and employee benefits as a percentage of operating revenue was 41.0% for the year ended March 31, 1997, compared to 43.0% during the same period in 1996. This decrease is a result of salaries and wages for both Hall Systems and CSI/Crown representing a lower percentage of operating revenue due to the utilization of owner-operators at Hall Systems and the utilization of outside linehaul carriers at CSI/Crown. All owner-operator expenses and purchased linehaul services are reflected as purchased transportation. Fuel and fuel taxes as a percentage of operating revenue was 16.9% for the year ended March 31, 1997, compared to 16.3% during the same period in 1996. This increase was primarily attributable to an 11.0% increase in the average prices per gallon, offset by a 2.2% increase in average miles per gallon. Vehicle rents as a percentage of operating revenue was 6.0% for the year ended March 31, 1997, compared to 5.8% for the same period in 1996. Depreciation and amortization as a percentage of operating revenue was 4.0% for the year ended March 31, 1997, compared to 5.6% during the same period in 1996. Overall, as a percentage of operating revenue, vehicle rents and depreciation were 10.0% for the year ended March 31, 1997, compared to 11.4% during the same period in 1996. This decrease was due in part to increased non-transportation revenue from CSI/Crown and an increase in owner-operator revenue from Hall Systems, both of which do not require expenditures for revenue equipment. Additionally, utilization for U.S. Xpress linehaul operations increased to $2,761 in revenue per tractor per week for the year ended March 31, 1997, a 4.3% increase from the previous fiscal year, which reduced the number of tractors required. Purchased transportation as a percentage of operating revenue was 6.3% for the fiscal year 1997, compared to 6.6% in the same period in 1996. This decrease is due to increased non-transportation revenue at CSI/Crown which does not require expenditures for purchased transportation. Operating expenses and supplies as a percentage of operating revenue was 6.3% for the year ended March 31, 1997, compared to 7.1% during the same period in 1996. This decrease results from two factors: 1) an increase in non-transportation revenue from CSI/Crown and an increase in owner- operator revenue from Hall Systems, which do not require 17 incremental company expenditures for operating expenses and supplies; and 2) reductions in maintenance expenses. Cost of installation supplies sold during the year ended March 31, 1997 was $8.2 million, compared to $5.2 million during the same period in 1996. This increase is due to an increase in installation supplies sold to $11.0 million in 1997, from $6.6 million in 1996. This expense item reflects the cost of carpet installation supplies which are sold through CSI/Crown retail outlets. Income from operations for the year ended March 31, 1997 increased $14.5 million, or 275.5 %, to $19.7 million from $5.3 million during the same period in 1996. As a percentage of operating revenue, income from operations was 5.4% during the year ended March 31, 1997, compared to 1.8% during the same period in 1996. Income tax provision for the year ended March 31, 1997 was $6.4 million, compared to a $19,000 benefit during the same period in 1996. This reflects an effective federal and state income tax rate of 44.7% for fiscal 1997 as compared to the statutory federal and state rate of approximately 39.0%. This higher rate is primarily the result of non- deductible per diems paid to drivers during part of fiscal 1997. Subsequent to December 31, 1996 per diems paid to drivers were eliminated. Comparison of the Year Ended March 31, 1996 to the Year Ended March 31, 1995. 18 Operating expenses represented 98.2% of operating revenue during the year ended March 31, 1996 and 92.9% during the same period in 1995. Salaries, wages and employee benefits as a percentage of operating revenue was 43.0% during the year ended March 31, 1996, compared to 42.5% during the same period in 1995. This increase was due to a 6.0% increase in driver pay in mid-March 1995 and an increase in the empty miles percentage to 6.9% of total miles in fiscal 1996, compared to 5.5% in fiscal 1995. Partly offseting these factors was lower salaries and wages at Hall Systems as a percentage of operating revenue, due to that company's utilization of owner-operators. All owner-operator expenses are reflected as purchased transportation. Fuel and fuel taxes as a percentage of operating revenue was 16.3% during the year ended March 31, 1996, compared to 16.8% during the same period in 1995. This decrease resulted from an increase of $5.4 million in logistics revenues and the addition of $7.9 million of non- transportation revenue from the newly acquired CSI/Reeves, both of which do not require Company expenditures for fuel and fuel taxes. As a percentage of operating revenue, excluding the increase in logistics and non-transportation revenue, fuel and fuel taxes was 17.0% during the year ended March 31, 1996. Vehicle rents as a percentage of operating revenue was 5.8% during the year ended March 31, 1996, compared to 6.6% during the same period in 1995. Depreciation and amortization represented 5.6% of operating revenue in 1996, compared to 5.9% in 1995. Overall, as a percentage of operating revenue, vehicle rents and depreciation were 11.4% during the year ended March 31, 1996, compared to 12.5% during the same period in 1995. This decrease was primarily attributable to increased revenues from warehousing, transportation logistics services and the sale of installation supplies, none of which required significant expenditures for revenue equipment. Revenue from warehousing, logistics services and the sale of installation supplies was $19.2 million during the year ended March 31, 1996, compared to $5.9 million in the same period in 1995. As a percentage of operating revenue, excluding the increase in logistics and non-transportation revenue, vehicle rents and depreciation were 11.9% during the year ended March 31, 1996. Purchased transportation as a percentage of operating revenue was 6.6% during the year ended March 31, 1996, compared to 4.1% during the same period in 1995. This increase resulted primarily from increased third-party transportation purchases by CSI/Reeves and NXL, and owner-operator expense from Hall Systems. The majority of transportation services provided by NXL and CSI/Reeves result in the purchase of transportation from third parties. Operating expenses and supplies as a percentage of operating revenue was 7.1% during the year ended March 31, 1996, compared to 6.8% during the same period in 1995. This increase reflected high parts, tires and repair costs incurred in fiscal 1996 associated with preparing used tractors for disposal during the Company's second quarter. Cost of installation supplies sold during the year ended March 31, 1996 reflects costs of carpet installation supplies sold through CSI/Reeves retail outlets from the date of acquisition (August 31, 1995). 19 Building rental as a percentage of operating revenue was 1.2% during the year ended March 31, 1996, compared to 0.8% during the same period in 1995. This increase is primarily attributable to building rental expenses associated with the acquired warehousing operations of CSI/Reeves. Gain on sales of equipment as a percentage of operating revenue was 0.4% during the year ended March 31, 1996, compared to 1.1% during the same period in 1995. Proceeds from the disposals of used equipment were $17,383 during the year ended March 31, 1996, compared to $17,582 during the same period in 1995. Income from operations for the year ended March 31, 1996 decreased $12.9 million, or 71.1%, to $5.3 million from $18.2 million. As a percentage of operating revenue, income from operations was 1.8% in the year ended March 31, 1996, compared to 7.1% during the same period in 1995. Special Considerations - ---------------------- Certain factors affect U.S. Xpress Enterprises and the transportation industry. The trucking industry is affected by economic risks and uncertainties, some of which are beyond its control. These include economic recessions and downturns in customers' business cycles, increases in fuel prices, the availability of qualified drivers and fluctuations in interest rates. The trucking industry is highly competitive and includes numerous regional, inter-regional and national truckload carriers. Many of these carriers have greater financial resources, equipment and freight capacity than the Company. Management believes its strategies of controlled growth and focused marketing will continue to provide freight at sufficient volumes and prices to remain profitable. Changes in economic conditions could reduce both the amount of freight available and freight rates, which could have a material adverse effect on the Company's results. Fuel is one of the Company's largest expenditures. In April 1996, the industry experienced a rapid increase in fuel prices. These increased prices remained throughout fiscal 1997. The Company partially offset the effect of these increases through fuel surcharges to customers or rate increases in lieu of fuel surcharges. Future increases or decreases in fuel prices are uncertain. To the extent the Company is unable to offset fuel price increases through fuel surcharges or rate increases, increased fuel prices could have a material adverse effect on the Company's results. Competition for available qualified drivers in the truckload industry is intense, and will likely remain so for the foreseeable future. The Company and many of its competitors experience high rates of turnover and occasionally have difficulty in attracting and retaining qualified drivers in sufficient numbers to operate all available equipment. Management believes the Company's current pay structure, benefits, policies and procedures related to drivers are effective in attracting and retaining drivers. However, there can be no assurance that it will not be affected by a shortage of qualified drivers in the future. The inability to attract and retain qualified drivers would have a material adverse effect on the Company's results. The trucking industry is extremely capital intensive. The Company depends on operating leases, lines of credit, secured equipment financing and cash flows from operations to finance the expansion and maintenance of its modern and cost efficient revenue equipment and facilities. At present, the Company is more highly leveraged than some of its competitiors. If the Company were unable in the future to obtain financing at acceptable levels it could be forced to limit the growth or replacement of its equipment and facilities. If interest rates increased significantly it could have a material adverse effect on the Company's results. 20 Liquidity and Capital Resources - ------------------------------- The Company's primary sources of liquidity during the year ended March 31, 1997 were funds provided by operations, borrowings under long-term debt facilities, lines of credit and proceeds from the sales of used property and equipment. At March 31, 1997, the Company had in place a $50.0 million credit facility with a group of banks, of which $14.5 million was available for borrowing. In fiscal 1998, the Company's primary sources of liquidity are expected to be funds provided by operations, borrowings under installment notes payable and borrowings under lines of credit. Cash generated from operations decreased to $7.9 million in fiscal 1997 from $9.0 million in fiscal 1996. Net cash used in investment activities was $3.2 million in fiscal 1997 and $17.3 million in fiscal 1996. Of the cash used in investment activities in fiscal 1997, $24.8 million was used to acquire additional property and equipment, compared to $28.2 million in fiscal 1996. The decrease in amounts expended for purchases of new equipment in fiscal 1997, compared to fiscal 1996, reflects the Company's leasing of more revenue equipment under operating leases rather than purchasing such equipment. Net cash used for financing activities was $4.1 million in fiscal 1997, compared to $6.3 million provided in fiscal 1996. This decrease relates primarily to the Company's greater use of leased equipment in fiscal 1997. As a result, the net repayments under lines of credit and long- term debt during the year ended March 31, 1997 was $4.1 million, compared to net borrowings of $5.4 million during fiscal 1996. Net borrowings under lines of credit were $1.0 million during the year ended March 31, 1997, compared to net borrowings of $30.3 million during fiscal 1996. During fiscal 1996, the Company obtained a new revolving line of credit with capacity up to $50.0 million. A portion of the availability under this new line was immediately used to repay certain existing long-term indebtedness bearing higher interest rates. Management believes that funds provided by operations, borrowings under installment notes payable and available borrowings under the Company's existing line of credit will be sufficient to fund its cash needs and anticipated capital expenditures through at least the next twelve months. Inflation - --------- Inflation has not had a material effect on the Company's results of operations or financial condition during the past three years. However, inflation higher than experienced during the past three years could have an adverse effect on the Company's future results. Seasonality - ----------- In the trucking industry, revenue generally shows a seasonal pattern as customers reduce shipments during and after the winter holiday season and its inherent weather variations. The Company's operating expenses also have historically been higher in the winter months, due primarily to decreased fuel efficiency and increased maintenance costs for revenue equipment in colder weather. 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information set forth under the following captions are contained on the following pages in this Form 10K. Report of Independent Public Accountants................................ 22 Consolidated Statements of Operations................................... 23 Consolidated Balance Sheets.............................................24-25 Consolidated Statements of Cash Flows................................... 26 Consolidated Statements of Stockholders' Equity......................... 27 Notes to Consolidated Financial Statements..............................28-37 Financial Statement Schedules...........................................40-41 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of U.S. Xpress Enterprises, Inc.: We have audited the accompanying consolidated balance sheets of U.S. Xpress Enterprises, Inc. (a Nevada corporation) and subsidiaries as of March 31, 1997 and 1996 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of U.S. Xpress Enterprises, Inc. and subsidiaries as of March 31, 1997 and 1996 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1997 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Chattanooga, Tennessee May 7, 1997 22 CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Year Ended March 31, 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- Operating Revenue $ 362,819 $299,697 $ 254,331 ------------------------------------------------ Operating Expenses: Salaries, wages and employee benefits, including contract wages 148,850 129,311 108,074 Fuel and fuel taxes 61,268 48,782 42,586 Vehicle rents 21,603 17,263 16,767 Depreciation and amortization 14,492 16,765 15,070 Purchased transportation 22,682 19,929 10,493 Operating expenses and supplies 22,503 21,321 17,398 Insurance premiums and claims 15,265 12,874 10,457 Operating taxes and licenses 5,984 5,227 4,608 Communications and utilities 6,301 5,343 4,332 Cost of installation supplies sold 8,180 5,214 -- Building rental 4,878 3,495 2,063 Bad debt expense 880 784 543 General and other operating expenses 11,506 9,582 6,949 Gain on sales of equipment (1,289) (1,320) (2,979) Equity in earnings of unconsolidated affiliate -- (124) (189) ------------------------------------------------- Total operating expenses 343,103 294,446 236,172 ------------------------------------------------- Income from Operations 19,716 5,251 18,159 ------------------------------------------------- Other Income (Expense): Interest expense, net (5,542) (5,251) (4,796) Other income, net 62 75 194 ------------------------------------------------- Total other expense (5,480) (5,176) (4,602) ------------------------------------------------- Income Before Income Tax Provision 14,236 75 13,557 Income Tax (Provision) Benefit (6,358) 19 (5,294) ------------------------------------------------- Net Income $ 7,878 $ 94 $ 8,263 ================================================= Earnings Per Share $ .65 $ .01 $ .76 ================================================= Weighted Average Common Shares and Common Share Equivalents Outstanding 12,168 12,003 10,806 =================================================
The accompanying notes are an integral part of these consolidated statements. 23 CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts)
March 31, 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 5,092 $ 4,378 Customer receivables, net of allowance of $2,733 in 1997 and $3,033 in 1996 50,056 41,910 Other receivables 3,969 4,318 Prepaid insurance and licenses 3,853 4,837 Operating and installation supplies 4,904 4,033 Deferred income taxes 4,443 3,888 Other current assets 719 482 -------------------------------- Total current assets 73,036 63,846 -------------------------------- Property and Equipment, at cost Land and buildings 2,717 2,232 Revenue and service equipment 112,076 126,501 Furniture and equipment 11,265 10,325 Leasehold improvements 7,619 5,086 -------------------------------- 133,677 144,144 Less accumulated depreciation and amortization (39,803) (39,702) -------------------------------- Net property and equipment 93,874 104,442 -------------------------------- Other Assets Goodwill, net 7,700 6,579 Other 3,474 2,954 -------------------------------- Total other assets 11,174 9,533 -------------------------------- Total Assets $ 178,084 $ 177,821 ================================
The accompanying notes are an integral part of these consolidated balance sheets. 24 CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts)
March 31, 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 8,708 $ 10,025 Accrued wages and benefits 5,086 5,543 Claims and insurance accruals 9,601 11,465 Other accrued liabilities 2,804 3,378 Current maturities of long-term debt 13,008 13,829 -------------------------------- Total current liabilities 39,207 44,240 -------------------------------- Long-Term Debt, net of current maturities 59,318 61,789 -------------------------------- Deferred Income Taxes 14,543 10,885 -------------------------------- Other Long-Term Liabilities 1,854 5,821 -------------------------------- Commitments and Contingencies (Notes 6 and 8) Stockholders' Equity Preferred Stock, $.01 par value, 2,000,000 shares authorized, no shares issued -- -- Common Stock Class A, $.01 par value, 30,000,000 shares authorized, 9,046,044 and 9,034,884 shares issued and outstanding at March 31, 1997 and 1996, respectively 90 89 Common Stock Class B, $.01 par value, 7,500,000 shares authorized, 3,040,262 shares issued and outstanding at March 31, 1997 and 1996 30 30 Additional paid-in capital 33,832 33,774 Retained earnings 29,443 21,565 Notes receivable from stockholders (233) (372) -------------------------------- Total stockholders' equity 63,162 55,086 -------------------------------- Total Liabilities and Stockholders' Equity $ 178,084 $ 177,821 ================================
The accompanying notes are an integral part of these consolidated balance sheets. 25 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
For the Year Ended March 31, 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net income $ 7,878 $ 94 $ 8,263 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income tax provision 3,103 2,737 1,953 Depreciation and amortization 14,492 16,765 15,070 Gain on sales of equipment (1,289) (1,320) (2,979) Equity in earnings of unconsolidated affiliate -- (124) (189) Increase in receivables (7,309) (9,674) (3,279) (Increase) decrease in prepaid insurance and licenses 984 (497) (1,484) (Increase) decrease in operating supplies (575) (688) 10 (Increase) decrease in other assets (1,141) (559) 190 Increase (decrease) in accounts payable and other accrued liabilities (7,722) 3,606 2,669 Increase (decrease) in accrued wages and benefits (457) (1,317) 2,190 Other 18 16 -- ------------------------------------------------------------- Net cash provided by operating activities 7,982 9,039 22,414 ------------------------------------------------------------- Cash Flows from Investing Activities: Payments for purchases of property and equipment (24,868) (28,247) (61,072) Proceeds from sales of property and equipment 24,618 17,383 17,582 Repayment of notes receivable from stockholders 94 -- 838 Acquisition of business, net of cash acquired (3,048) (6,227) (308) Acquisition of remaining 50% of unconsolidated affiliate, net of cash acquired -- (239) -- ------------------------------------------------------------- Net cash used in investing activities (3,204) (17,330) (42,960) ------------------------------------------------------------- Cash Flows from Financing Activities: Net borrowings (payments) under lines of credit 1,000 30,325 (7,158) Payment of long-term debt (26,450) (36,355) (31,305) Borrowings under long-term debt 21,300 11,468 32,215 Proceeds from exercise of stock options 128 -- -- Proceeds from issuance of common stock -- -- 31,588 Repurchase of restricted common stock (42) (42) (42) Increase in other liabilities -- 906 481 ------------------------------------------------------------- Net cash provided by (used in) financing activities (4,064) 6,302 25,779 ------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 714 (1,989) 5,233 Cash and Cash Equivalents, beginning of year 4,378 6,367 1,134 ------------------------------------------------------------- Cash and Cash Equivalents, end of year $ 5,092 $ 4,378 $ 6,367 ============================================================= Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $ 5,643 $ 5,198 $ 5,227 ============================================================= Cash paid (refunded) during the year for income taxes, net $ 2,766 $ (470) $ 2,621 ============================================================= Supplemental Disclosure of Significant Noncash Investing and Financing Activities: Issuance of long-term debt in connection with purchase of business $ 792 $ -- $ 600 =============================================================
The accompanying notes are an integral part of these consolidated statements. 26 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands)
Notes Additional Receivable For the years ended March 31, Common Stock Paid-In Retained From 1995, 1996 and 1997 Class A Class B Capital Earnings Stockholders Total - --------------------------------------------------------------------------------------------------------------------------------- Balance, March 31, 1994 $ 73 $ 22 $ 1,433 $ 13,208 $ (1,300) $ 13,436 Net income -- -- -- 8,263 -- 8,263 Conversion of 815,680 shares of Class A Common Stock to Class B Common Stock (8) 8 -- -- -- -- Issuance of 2,500,000 shares of Class A Common Stock in initial public offering 25 -- 31,563 -- -- 31,588 Repayment of notes receivable from stockholders -- -- -- -- 838 838 Repurchase of 18,390 shares of restricted stock (1) -- (87) -- 45 (43) -------------------------------------------------------------------------------------- Balance, March 31, 1995 89 30 32,909 21,471 (417) 54,082 Net income -- -- -- 94 -- 94 Repurchase of 18,390 shares of restricted stock (1) -- (87) -- 45 (43) Issuance of 1,744 shares of Class A Common Stock for non-employee director compensation -- -- 16 -- -- 16 Issuance of 110,182 shares of Class A Common Stock for purchase of Hall Systems 1 -- 936 -- -- 937 -------------------------------------------------------------------------------------- Balance, March 31, 1996 89 30 33,774 21,565 (372) 55,086 Net income -- -- -- 7,878 -- 7,878 Repurchase of 18,390 shares of restricted stock -- -- (87) -- 45 (42) Repayment of notes receivable from stockholders -- -- -- -- 94 94 Issuance of 2,542 shares of Class A Common Stock for non-employee director compensation -- -- 18 -- -- 18 Proceeds from exercise of 27,008 stock options 1 -- 127 -- -- 128 -------------------------------------------------------------------------------------- Balance, March 31, 1997 $ 90 $ 30 $ 33,832 $ 29,443 $ (233) $ 63,162 ======================================================================================
The accompanying notes are an integral part of these consolidated statements. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Operations - ------------------------------- U. S. Xpress Enterprises, Inc. (the "Company") provides transportation services through two subsidiaries. U.S. Xpress, Inc. ("U.S. Xpress") is a truckload carrier serving the Continental United States, Canada and Mexico. CSI/Crown, Inc. ("CSI/Crown") provides transportation and logistics services to the floorcovering industry. 2. Acquisitions - ---------------- Effective March 31, 1994, the Company acquired 50% of the outstanding stock of Hall Systems, Inc. ("Hall Systems") for $625,000 cash and a $625,000 note payable. Effective October 31, 1995, the Company acquired the remaining 50% of the outstanding stock of Hall Systems for $1,000,000 cash and 110,182 shares of the Company's Class A Common Stock in a transaction accounted for by the purchase method of accounting. Effective August 31, 1995, the Company acquired 100% of the outstanding stock of CSI/Reeves, Inc. ("CSI/Reeves") for cash of $6,240,000 in a transaction accounted for by the purchase method of accounting. Effective January 1, 1996, CSI/Reeves was merged into the Company's existing freight consolidator (Crown Transport Systems, Inc.) to form CSI/Crown, Inc. The results of operations of CSI/Reeves and Hall Systems are included in the accompanying consolidated financial statements from the dates of their respective acquisition. On a pro forma (unaudited) basis, operating revenue for the Company would have been approximately $332 million and $310 million, respectively, for fiscal 1996 and 1995, had the acquisitions taken place at the beginning of the respective periods. The impact on net income and earnings per share is insignificant. This information is for comparative purposes only and does not purport to be indicative of the results of operations had the transactions been completed at the beginning of the respective periods or indicative of the results which may occur in the future. In June 1996, the Company acquired certain equipment and the right to fulfill a contract to provide expedited truckload services in the Western United States to a major air freight company from Michael Lima Transportation for $3,048,000 cash and a $792,000 note payable. In addition, $1,000,000 will be paid to the seller if the Company is able to extend the contract. The pro forma effect of this transaction on prior period financial statements is immaterial. Subsequent to March 31, 1997, the Company acquired eight distribution centers and certain equipment from Rosedale Transport, Inc. and acquired JTI, Inc. 3. Summary of Significant Accounting Policies - ---------------------------------------------- Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investment instruments with an original maturity of three months or less. 28 Recognition of Revenue For financial reporting purposes, the Company recognizes revenue and direct cost when shipments are completed. Concentration of Credit Risk Concentrations of credit risk with respect to customer receivables 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. Operating and Installation Supplies Operating supplies consist primarily of tires, parts, materials and supplies for servicing the Company's revenue and service equipment. Installation supplies consist of various accessories used in the installation of floorcoverings and are held for sale at various CSI/Crown distribution centers. Operating and installation supplies are recorded at the lower of cost (on a first-in, first-out basis) or market. Tires and tubes purchased as part of revenue and service equipment are capitalized as part of the cost of the equipment. Replacement tires and tubes are charged to expense when placed in service. Property and Equipment Property and equipment is carried at cost. Depreciation and amortization of property and equipment are computed using the straight-line method for financial reporting purposes and accelerated methods for tax purposes over the estimated useful lives of the related assets (net of salvage value) as follows: Buildings............... 10-30 years Revenue and service equipment............... 3-7 years Furniture and equipment............... 3-7 years Leasehold improvements............... 5-6 years
The Company recognized $13,837,000, $16,066,000 and $14,813,000 in depreciation expense during the years ended March 31, 1997, 1996 and 1995, respectively. Upon the retirement of property and equipment, the related asset cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the Company's statement of operations with the exception of gains on trade-ins, which are included in the basis of the new asset. Expenditures for normal maintenance and repairs are expensed. Renewals or betterments that affect the nature of an asset or increase its useful life are capitalized. Goodwill The excess of the consideration paid by the Company over the estimated fair value of net assets acquired has been recorded as goodwill and is being amortized on the straight-line basis over periods ranging from 20 to 40 years. The Company continually evaluates whether subsequent events and circumstances have occurred that indicate that the remaining estimated useful life of goodwill may warrant revision or that the remaining balance may not be recoverable. The Company recognized $272,000, $220,000 and $204,000 of goodwill amortization expense during the years ended March 31, 1997, 1996 and 1995, respectively. Accumulated amortization was $1,028,000 and $756,000 at March 31, 1997 and 1996, respectively. Claims and Insurance Accruals The primary claims in the Company's business are cargo loss and damage, physical damage and automobile liability. Prior to January 1, 1997, most of the Company's insurance provided for large self-insurance levels with excess coverage sufficient to protect the Company from catastrophic claims. Beginning January 1997, the Company began purchasing policies with low deductibles which essentially fully insure cargo and auto liability, while physical damage has an annual 29 aggregate deductible. For claims with self-insurance levels, estimated costs are accrued based upon information provided by insurance adjustors for reported claims and adjusted for expected loss development factors. Other Long-Term Liabilities Periodically, the Company receives volume rebates from vendors related to certain operating leases for new revenue and service equipment. Additionally, certain equipment leases include spare tires, which increase tire inventories. The Company defers recognition of these rebates and amortizes such amounts as a reduction of vehicle rent expense over the respective lease terms. At March 31, 1997 and 1996, other long-term liabilities include deferred rents of $1,295,000 and $1,802,000, respectively. Income Taxes Deferred tax assets and liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period. Contract Wages Prior to August 1996, the Company leased a substantial portion of its personnel, including drivers, from an independent personnel leasing company. Under the lease agreements, the Company paid a contracted amount per person and the personnel leasing company had the responsibility for payroll, unemployment insurance and workers' compensation claims. In August 1996, the lease agreements with the independent personnel leasing company were terminated and the personnel previously leased under these agreements became employees of the Company. Effective January 1, 1997, the Company entered into an agreement with a Professional Employer Organization (PEO) in which the PEO is a co-employer with the Company for all of the Company's personnel. The PEO is responsible for processing and administration of the Company's payroll, including tax reporting, and provides group health benefits and worker's compensation coverage. Hedging Instruments For a small percentage of the Company's fuel requirements, the Company hedges the effects of fluctuations in the price of fuel. The resulting gains or losses are accounted for as a decrease or increase in fuel expense. The impact of the Company's hedging program is not significant in relation to total fuel purchases. Earnings Per Share Earnings per share is computed based on the weighted average number of common shares outstanding plus the dilutive effect of outstanding common stock options. The weighted average number of shares and equivalents used in the computation were 12,167,890, 12,002,754, and 10,806,336 for fiscal 1997, 1996 and 1995, respectively. Reclassifications Certain reclassifications have been made in the fiscal 1996 and 1995 financial statements to conform with the 1997 presentation. Stock-Based Compensation The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). Effective fiscal 1997, the Company adopted the disclosure option of SFAS No. 123, "Accounting for Stock-Based Compensation." Recent Accounting Pronouncements In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 changes the criteria for reporting earnings per share ("EPS") by replacing primary EPS with basic EPS and fully diluted EPS with diluted EPS. The Company is required to adopt SFAS 128 for periods ending after December 15, 1997, and all prior period EPS data must be restated. The impact of adopting SFAS 128 will not have a material impact on EPS for any period presented. 30 4. Income Taxes - ---------------- The income tax provision (benefit) in fiscal 1997, 1996 and 1995 consisted of the following (in thousands):
1997 1996 1995 --------------------------------- Current Federal $ 2,726 $ (2,876) $ 2,989 State 529 120 352 --------------------------------- 3,255 (2,756) 3,341 Deferred 3,103 2,737 1,953 --------------------------------- $ 6,358 $ (19) $ 5,294 =================================
The income tax provision (benefit) as reported in the consolidated statements of operations differs from the amounts computed by applying federal statutory rates due to the following (in thousands):
1997 1996 1995 --------------------------------- Federal income tax at statutory rate $ 4,840 $ 25 $ 4,609 State income taxes, net of federal income tax benefit 349 73 419 Goodwill amortization 75 75 78 Nondeductible driver per diems 650 -- -- Other 444 (192) 188 --------------------------------- Income tax provision (benefit) $ 6,358 $ (19) $ 5,294 =================================
The tax effect of temporary differences that give rise to significant portions of deferred tax assets and liabilities at March 31, 1997 and 1996 consisted of the following (in thousands):
1997 1996 --------------------------------- Deferred tax assets Allowance for doubtful accounts $ 952 $ 1,133 Insurance reserves 3,721 3,743 Net operating loss carryforwards -- 6,117 Alternative minimum tax credit carryforwards 2,362 2,883 Claims and other reserves 826 694 Other 284 84 --------------------------------- Total deferred tax assets $ 8,145 $ 14,654 ================================= Deferred tax liabilities Book over tax basis of property and equipment $ 16,880 $ 20,376 Prepaid license fees 1,279 1,248 Other 86 27 --------------------------------- Total deferred tax liabilities $ 18,245 $ 21,651 =================================
31 5. Long-Term Debt - ------------------ Long-term debt at March 31, 1997 and 1996 consisted of the following (in thousands):
1997 1996 --------------------- Obligation under line of credit with a group of banks, weighted average interest rate of 6.77% at March 31, 1997, maturing August 1998 $ 32,500 $ 31,500 Installment notes with banks, weighted average interest rate of 7.19% at March 31, 1997, maturing at various dates ranging from November 1997 to December 2002 14,673 23,160 Installment notes with finance companies, weighted average interest rate of 7.73% at March 31, 1997, maturing at various dates ranging from May 1997 to December 1998 23,598 20,055 Note payable to former stockholder of National Freight Systems, interest payable at 7% at March 31, 1997, due in annual installments through October 1997 200 400 Note payable to stockholder of Lima Transportation, Inc., interest payable at 9%, due July 1998 792 -- Other 563 503 -------------------- $ 72,326 $ 75,618 Less: current maturities of long-term debt (13,008) (13,829) -------------------- $ 59,318 $ 61,789 ====================
The aggregate annual maturities of long-term debt for each of the next five years ending March 31 are (in thousands): 1998 $ 13,008 1999 50,079 2000 5,465 2001 768 2002 1,592
The installment notes with banks and finance companies are collateralized by certain property and equipment of the Company. In November 1995, the Company entered into an unsecured credit agreement (the "Credit Agreement") with a group of banks. The Credit Agreement operates as a revolving credit facility until August 1998, at which time it will convert to a three year installment loan, if not extended or renewed. Borrowings (including letters of credit) under the Credit Agreement are limited to the lesser of: (a) 90% of the book value of eligible revenue equipment plus 85% of eligible accounts receivable; or (b) $50,000,000. 32 Borrowings under the Credit Agreement bear interest rates, at the option of the Company, equal to either: (i) the greater of the bank prime rate or the federal funds rate plus 1/2%, (ii) the rate offered in the Eurodollar market for amounts and periods comparable to the relevant loan plus a margin that is determined by several financial covenants, or (iii) the rate offered to the Company for a loan of a specific amount and maturity by any of the participating banks under a competitive bid process. At March 31, 1997, the margin applicable to the Eurodollar interest rate was equal to 1.25%. The Credit Agreement contains covenants that limit, among other things, the payment of dividends, the incurrence of additional debt, and the pledging of assets as security on other indebtedness. The Credit Agreement also requires the Company to meet certain financial tests, including a minimum amount of tangible net worth, a minimum fixed charge coverage and a maximum amount of leverage. 6. Leases - --------- The Company leases certain revenue and service equipment and office and terminal facilities under long-term non-cancelable operating lease agreements expiring at various dates through December 2002. For the years ended March 31, 1997, 1996 and 1995, rental expense under these agreements was approximately $26,388,000, $ 19,437,000 and $17,092,000, respectively. Approximate aggregate minimum future rentals payable under these operating leases for each of the next five years are (in thousands): 1998 $ 30,481 1999 27,774 2000 15,010 2001 4,751 2002 686
7. Related Party Transactions - ----------------------------- The Company leases certain office and terminal facilities from entities owned by the two principal stockholders of the Company. The lease agreements are for five-year terms and provide the Company with the option to renew the lease agreements for four three-year terms. Rent expense of approximately $1,639,000, $1,256,000 and $1,210,000 was recognized in connection with these leases during the years ended March 31, 1997, 1996 and 1995, respectively. The two principal stockholders of the Company own 100% of the outstanding common stock of Paragon Leasing LLC ("Paragon"). Paragon leases certain revenue and service equipment to the Company on a temporary basis. Rent expense of approximately $869,000, $1,028,000, and $1,181,000 was recognized in connection with these leases during the years ended March 31, 1997, 1996 and 1995, respectively. Prior to December 31, 1995, a principal stockholder of the Company directly controlled 50% of the outstanding stock of LTL Express Systems. During the years ended March 31, 1996 and 1995, the Company recognized operating revenue from LTL Express Systems of approximately $427,000 and $897,000, respectively. The principal stockholder disposed of his interest in LTL Express Systems effective December 31, 1995. The two principal stockholders of the Company and certain partnerships controlled by their families own 43% of the outstanding common stock of Transcom Technologies, Inc. ("Transcom"). Transcom makes 33 a debit card system available to the Company's drivers through which phone calls and Internet e-mail can be credited while the driver is on the road. Total payments by the Company to Transcom were approximately $143,000, $148,000 and $87,000 in the years ended March 31, 1997, 1996 and 1995, respectively. 8. Commitments and Contingencies - -------------------------------- The Company is party to certain legal proceedings incidental to its business. The ultimate disposition of these matters, in the opinion of management, based in part on the advice of legal counsel, will not have a material adverse effect on the Company's financial position or results of operations. Letters of credit of $3,055,000 were outstanding at March 31, 1997. The letters of credit are maintained primarily to support the Company's insurance program (see Note 3). Commitment fees of 1% on the outstanding portion of the letters of credit are paid by the Company. 9. Employee Benefit Plans - ------------------------- The Company has in place an employee profit-sharing plan covering substantially all non-driver employees. The plan provides for additional compensation to employees, the amount of which is based on results of operations exceeding certain goals. The Company has a 401(k) retirement plan covering substantially all employees of the Company, whereby participants may contribute a percentage of their compensation, as allowed under applicable laws. The plan provides for a matching contribution by the Company. Participants are 100% vested in participant contributions and become vested in employer matching contributions over a period of four years. During 1997, 1996 and 1995, the Company recognized $400,000, $290,000 and $2,827,000, respectively, of expense under these employee benefit plans. 10. Stockholders' Equity - ------------------------ Initial Public Offering In October 1994, the Company completed its initial public offering through the issuance of 2,500,000 shares of Class A Common Stock. As a result of this offering, the Company received proceeds, net of underwriting discounts and commissions and issuance costs, of $31,588,000. The Company utilized the net proceeds to reduce outstanding debt and acquire certain equipment previously leased under operating leases. Common Stock Holders of Class A Common Stock are entitled to one vote per share. Holders of Class B Common Stock are entitled to two votes per share. Once the Class B Common Stock is no longer held by the two principal stockholders of the Company, or their families, as defined, the stock is automatically converted into Class A Common Stock on a share per share basis. Preferred Stock Effective December 31, 1993, the Board of Directors approved the designation of 2,000,000 shares of preferred stock with par value of $.01 per share. The Board of Directors has the authority to issue these shares and to determine the rights, terms and conditions of the preferred stock as needed. Incentive Stock Plan In November 1993, the Company adopted the U.S. Xpress Enterprises, Inc. Incentive Stock Plan (the "Plan"). The Plan provides for the issuance of shares of restricted common stock of the Company, as well as both incentive and nonstatutory stock options. There may be issued under the Plan (as restricted stock, in payment of performance grants, or pursuant to the exercise of stock options) an aggregate of not more than the greater of (a) 1,038,138 shares of Class A Common Stock, or (b) 8% of 34 the total number of common shares of the Company outstanding at any given time. Participants of the Plan may include key employees as selected by the compensation committee of the Board of Directors. Under the terms of the Plan, the Company may sell restricted shares of common stock, grant options, or issue performance grants to participants in amounts and for such prices as determined by the compensation committee. All options will vest immediately in the event of a change in control of the Company, or the death, disability, or retirement of the employee. On November 30, 1993, 289,195 shares of restricted stock were sold to employees at $4.72 per share, which approximated the fair market value of the shares at the date of sale. Employees issued recourse notes payable to the Company in the aggregate amount of $1,365,000 as proceeds for the issuance of the restricted shares. The notes bear interest at 6% and are due in three equal annual installments beginning November 30, 1999. The restricted stock may not be sold, assigned, transferred, pledged or otherwise disposed of during the restriction period. In fiscal 1995, the board authorized, upon the completion of the initial public offering, the removal of the restrictions on 91,800 shares scheduled to expire on November 30, 1996. In exchange for the removal of restrictions on these shares, the affected employees repaid an aggregate of $837,800 of the related notes receivable. During each of the years ended March 31, 1997, 1996 and 1995, 18,390 shares of restricted stock were forfeited, and related notes receivable of $44,900 were canceled in each year. At March 31, 1997, 91,750 shares of restricted stock were outstanding. The restrictions expire on November 30, 1997 and 1998. Restrictions also expire in the event of a change in control of the Company or upon the death, disability or retirement of the employee. Non-Employee Directors Stock Plan In August 1995, the Company adopted the 1995 Non-Employee Directors Stock Award and Option Plan (the "Directors Stock Plan") providing for the issuance of stock options to non- employee directors upon their election to the Company's Board of Directors. The Directors Stock Plan also provides non-employee directors the option to receive certain board-related compensation in the form of stock. The number of shares of Class A Common Stock available for option or issue under the Directors Stock Plan may not exceed 50,000 shares. The Directors Stock Plan provides for grant of 1,200 options to purchase the Company's Class A Common Stock to each non-employee director upon the election of each such director to the Board. The exercise price of options issued under the plan is set at the fair market value of the Company's stock on the date granted. Options vest at the rate of 400 options on each of the first, second and third anniversaries of the date of grant. In August 1996 and 1995, 2,400 options were granted to non-employee directors with an exercise price of $6.625 and $9.50, respectively. The Directors Stock Plan also provides non-employee directors the option to receive compensation earned for board-related activities in the form of the Company's Class A Common Stock in lieu of cash. If a board member elects to receive board-related compensation in the form of stock, the number of shares issued to each director in lieu of cash is determined based on the amount of earned compensation divided by the fair market value of the Company's stock on the date compensation is earned. During the years ended March 31, 1997 and 1996, 2,542 and 1,744 shares, respectively, of the Company's Class A Common Stock were issued to non-employee directors in lieu of cash compensation of $18,000 and $16,000, respectively, for each of those years. Accounting for Stock Based Compensation The Company accounts for its stock-based compensation under APB No. 25, under which no compensation expense has been recognized for stock options granted with exercise prices equal to the fair value of the Company's common stock on the date of grant. The Company adopted SFAS No. 123 for disclosure purposes only in fiscal 1997. For SFAS No. 123 purposes, the fair value of each option grant has been estimated as of the date of grant using the Black- 35 Scholes option pricing model with the following weighted average assumptions for 1997 and 1996, respectively: risk-free interest rate of 6.56% and 6.24%, expected life of five years, expected dividend yield of 0% and expected volatility of 58% for 1997 and 1996. Using these assumptions, the fair value of the stock options granted in 1997 and 1996 is $294,000 and $9,000, respectively, which would be amortized as compensation expense over the vesting period of the options. Had compensation cost for the plan been determined in accordance with SFAS No. 123, utilizing the assumptions detailed above, the Company's pro forma net income would have been $7,816,000 and $93,000 for the years ended March 31, 1997 and 1996, respectively. Pro forma net income per share would have been $.64 and $.01 for the years ended March 31, 1997 and 1996, respectively. The pro forma effect on net income in this pro forma disclosure may not be representative of the pro forma effect on net income in future years, because it does not take into consideration pro forma compensation expense related to grants made prior to fiscal 1996. A summary of the Company's stock option activity for 1997, 1996 and 1995 follows:
Weighted-Average Shares Option Price Exercise Price ------------------------------------------------------------ Outstanding at March 31, 1995 165,064 $ 4.72 $ 4.72 Granted at market price 2,400 $ 9.50 $ 9.50 -------- Outstanding at March 31, 1996 167,464 $ 4.72-$ 9.50 $ 4.79 Granted at market price 99,400 $ 6.63-$ 6.80 $ 6.87 Exercised (27,008) $ 4.72 $ 4.72 Canceled or expired (40,514) $ 4.72-$ 9.50 $ 5.12 -------- Outstanding at March 31, 1997 199,342 $ 4.72-$ 9.50 $ 5.77 ========
There was no option activity in fiscal 1995. The weighted-average fair value of options granted during 1997 and 1996 was $3.89 and $5.35, respectively. Shares subject to options outstanding at March 31, 1997 have a weighted-average remaining contractual life of 8.38 years. Of the options outstanding at March 31, 1997, 73,050 are currently exercisable with a weighted-average exercise price of $5.66 per share. As of March 31, 1996, 33,412 of the options outstanding were exercisable with a weighted average exercise price of $4.78 per share. No options were exercisable at March 31, 1995. 11. Fair Value of Financial Instruments - ---------------------------------------- The carrying values of cash and cash equivalents, customer and other receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short maturity of these financial instruments. Based on the borrowing rates available to the Company for long-term debt with similar terms and average maturities, the carrying amounts approximate the fair value of such financial instruments. 36 12. Quarterly Financial Data (Unaudited) - ---------------------------------------- (In thousands, except share amounts)
First Second Third Fourth Full Quarter Quarter Quarter Quarter Year ------------------------------------------------------------------------------ Fiscal 1997 Operating revenue $ 87,817 $ 92,259 $ 91,179 $ 91,564 $ 362,819 Income from operations 2,241 6,026 6,473 4,976 19,716 Income before income tax provision 896 4,611 5,120 3,609 14,236 Net income 552 2,745 2,411 2,170 7,878 Earnings per share/(1)/ $ 0.05 $ 0.23 $ 0.20 $ 0.18 $ 0.65 Fiscal 1996 Operating revenue $ 65,031 $ 71,744 $ 81,807 $ 81,115 $ 299,697 Income from operations 1,055 1,780 2,168 248 5,251 Income (loss) before income tax provision (203) 571 906 (1,199) 75 Net income (loss) (88) 351 551 (720) 94 Earnings (loss) per share $ (0.01) $ 0.03 $ 0.05 $ (0.06) $ 0.01
/(1)/ The sum of quarterly earnings per share amounts differs from annual earnings per share because of differences in the weighted average number of common shares used in the quarterly and annual computations. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No items have occurred within the 24 months prior to March 31, 1997 involving a change of accountants or disagreements on accounting and financial disclosure. 37 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position - ------------------------------------------------------------------------------------------------------------------------- James B. Baker 51 Director Steven J. Cleary 39 CEO and General Manager of CSI/Crown, Inc. Thor N. Edman, Jr. 53 President of CSI/Crown, Inc. William K. Farris 44 Director, Executive Vice President of Operations and President, U.S. Xpress, Inc. Max L. Fuller 44 Co-Chairman of the Board of Directors, Vice President and Secretary Ray M. Harlin 47 Chief Financial Officer Alan J. Hingst 50 President, JTI, Inc. E. William Lusk, Jr. 41 Director and Executive Vice President of Marketing L.D. Miller, III 43 Chairman of CSI/Crown, Inc. David R. Parker 57 Chairman, JTI, Inc. Ronald E. Pate 54 President of U.S. Xpress Leasing, Inc. Patrick E. Quinn 51 Co-Chairman of the Board of Directors, President and Treasurer A. Alexander Taylor, II 44 Director
James B. Baker has served as a director of the Company since 1994. Mr. Baker has been a partner in River Associates, LLC since 1993. Previously, Mr. Baker was employed by CONSTAR International, Inc. as a Senior Vice President from 1988 to 1991 and as the President and Chief Operating Officer from 1991 to 1992. Mr. Baker is also a director of Wellman, Inc. (chemical company). Steven J. Cleary joined the Company in 1991 as Director of Human Resources and was named Vice President of Human Resources and Safety in 1994. He was named Executive Vice President of Human Resources in 1996 and Chief Executive Officer and General Manager of CSI/Crown in 1997. Prior to joining the Company, he served in operations and human resources management positions for Ryder Distribution Services and Rollins Transportation Services. Thor N. Edman, Jr., served as President and Chief Executive Officer of CSI/Reeves, Inc. from September 1990 until August 1995, when the Company acquired CSI/Reeves, Inc. Mr. Edman now serves as President of CSI/Crown. He has been employed in the floorcovering industry for 29 years. William K. Farris was named Executive Vice President of Operations of the Company and President of U.S. Xpress in 1996. He previously had served as Vice President of Operations of the Company since 1993. Prior to that, Mr. Farris was Vice President of Operations of Southwest Motor Freight, a former operating subsidiary of the Company, from 1991 to 1993. Mr. Farris was first elected a director of the Company in 1994. Max L. Fuller has served as Co-Chairman of the Board of the Company since March 1994 and Vice President and Secretary of the Company since 1985. Mr. Fuller was first elected a director of the Company in 1985. 38 Ray M. Harlin joined the Company effective June 15, 1997. Mr. Harlin was employed for 25 years with the public accounting firm of Arthur Andersen LLP. He was a partner with that firm for the last 14 years. Alan J. Hingst co-founded JTI, Inc. in 1985 with David R. Parker and has served as its President since 1986. He has been employed in the transportation industry for 33 years. E. William Lusk, Jr. has served as Vice President of Marketing of the Company since 1991 and was named an Executive Vice President of the Company in 1996. Mr. Lusk previously served as Vice President of U.S. Xpress, an operating subsidiary of the Company, from 1987 to 1990. Mr. Lusk was first elected a director of the Company in 1994. L.D. Miller, III served as President of Crown Transport from its inception in 1985 until the merger of Crown Transport and CSI/Reeves in January, 1996. He now serves as Chairman of CSI/Crown. He has been employed in the transportation industry since 1974. David R. Parker has served as Chairman of JTI, Inc. since co-founding the company with Alan J. Hingst in 1985. Prior to that, Mr. Parker served as Vice President and General Counsel of Crete Carrier Corp. and affiliated companies. Ronald E. Pate joined the Company in 1994 as Assistant Director of Maintenance. He was named Director of Maintenance later that year and was named Executive Vice President of U.S. Xpress Leasing, Inc., the Company's equipment leasing and maintenance subsidiary, in 1995. He was named President of U.S. Xpress Leasing, Inc. in 1996. Prior to joining the Company, Mr. Pate was Vice President of Chattanooga Operations for Universal Tire Company in Chattanooga, Tennessee. Patrick E. Quinn has served as Co-Chairman of the Board of the Company since March 1994 and President and Treasurer of the Company since 1985. Mr. Quinn was first elected a director of the Company in 1985. A. Alexander Taylor, II has served as a director of the Company since 1994. Mr. Taylor has been a partner with the law firm of Miller & Martin since 1983. Mr. Taylor is also a director of Chattem, Inc. (consumer products). ITEM 11. EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation and Other Information" on pages 7 through 8 of the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "Voting Securities and Principal Holders Thereof" on pages 3 and 4 of the Proxy Statement is incorporated herein by reference. 39 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Election of Directors" on pages 4 and 5 and "Certain Transactions" on page 6 of the Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS: The financial statements are set forth in the Index to Financial Statements and Schedules found in Part II, Item 8. 2. FINANCIAL STATEMENT SCHEDULES: Report of Independent Public Accountants Schedule II--Valuation and Qualifying Accounts 3. EXHIBITS See the Exhibit Index on page 42 of this Form 10-K (B) REPORTS ON FORM 8-K There were no reports on Form 8-K filed during the quarter ended March 31, 1997. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF U. S. XPRESS ENTERPRISES, INC. We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of U. S. XPRESS ENTERPRISES, INC. (a Nevada corporation) AND SUBSIDIARIES in this Form 10-K and have issued our report thereon dated May 7, 1997. Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. Schedule II is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in elation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Chattanooga, Tennessee May 7, 1997 40 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, on the 26th day of June, 1997. U.S. XPRESS ENTEPRISES, INC. Date: June 26, 1997 By: /s/ Ray M. Harlin ----------------------- ----------------------------- Ray M. Harlin Chief Financial 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 in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Patrick E. Quinn Co-Chairman of the Board of Directors, June 26, 1997 - -------------------------- President and Treasurer Patrick E. Quinn /s/ Max L. Fuller Co-Chairman of the Board of Directors, June 26, 1997 - -------------------------- Vice President and Secretary Max L. Fuller /s/ Ray M. Harlin Executive Vice President of Finance and June 26, 1997 - -------------------------- Chief Financial Officer (principal financial Ray M. Harlin and accounting officer) /s/ E. William Lusk, Jr. Director and Executive Vice President of June 26, 1997 - -------------------------- Marketing E. William Lusk, Jr. /s/ William K. Farris Director and Executive Vice President June 26, 1997 - -------------------------- of Operations William K. Farris /s/ A. Alexander Taylor, II Director June 26, 1997 - -------------------------- A. Alexander Taylor, II /s/ James B. Baker Director June 26, 1997 - -------------------------- James B. Baker
45 (c) Exhibits Exhibit No. Description - ------------------------- * 3.1 Restated Articles of Incorporation of the Company. * 3.2 By-Laws of the Company. * 4.1 Restated Articles of Incorporation of the Company filed as Exhibit 3.1 and incorporated herein by reference. * 4.2 By-Laws of the Company filed as Exhibit 3.2 and incorporated herein by reference. * 4.3 Stock Purchase Agreement dated June 10, 1993 by and among Max L. Fuller, Patrick E. Quinn and the Company. * 4.4 Agreement of Right of First Refusal with regard to Class B Shares of the Company dated May 11, 1994 by and between Max L. Fuller and Patrick E. Quinn. * 10.1 Accounts Financing Agreement (Security Agreement) dated February 2, 1988, as amended, between Congress Financial Corp. (Southern) and Southwest Motor Freight, Inc. * 10.2 Security Agreement dated December 18, 1985, as amended, by and between Exchange National Bank of Chicago and U.S. Xpress, Inc. * 10.3 Security Agreement dated September 17, 1987, as amended, by and between Exchange National Bank of Chicago and Crown Transport Systems, Inc. * 10.4 1993 Incentive Stock Plan of the Company. * 10.5 Stock Option Agreement Under 1993 Incentive Stock Plan. * 10.6 Stock Rights and Restrictions Agreement for Restricted Stock Award Under 1993 Incentive Stock Plan. * 10.7 Self-Funded Employee Benefits Plan Document of the Company. * 10.8 Service Agreement dated May 2, 1994 by and between TTC, Illinois, Inc. and the Company for the provision of leased personnel to the Company. * 10.9 Salary Continuation Agreement dated June 10, 1993 by and between the Company and Max L. Fuller. * 10.10 Salary Continuation Agreement dated June 10, 1993 by and between the Company and Patrick E. Quinn. * 10.11 Stock Purchase Agreement dated November 28, 1990 by and between the Company and Clyde Fuller for the acquisition by the Company of the capital stock of Southwest Motor Freight, Inc. held by Mr. Fuller, such stock constituting all of the issued and outstanding capital stock of Southwest Motor Freight, Inc. * 10.12 Stock Purchase Agreement dated September 30, 1992 by and between the Company and Clyde Fuller for the acquisition by the Company of the capital stock of Chattanooga Leasing, Inc. held by Mr. Fuller, such stock constituting all of the issued and outstanding capital stock of Chattanooga Leasing, Inc. 42 Exhibit No. Description - ---------------------------- * 10.13 Articles of Merger and Plan of Merger filed February 24, 1993, pursuant to which Chattanooga Leasing, Inc. was merged with and into Southwest Motor Freight, Inc. * 10.14 Stock Purchase Agreement dated January 1, 1993 by and among Max L. Fuller, Patrick E. Quinn and the Company for the acquisition by the Company of the capital stock of U.S. Xpress, Inc. held by Messrs. Fuller and Quinn, such stock constituting all of the issued and outstanding capital stock of U.S. Xpress, Inc. * 10.15 Stock Purchase Agreement dated January 1, 1993 by and among Max L. Fuller, Patrick E. Quinn and the Company for the acquisition by the Company of the capital stock of U.S. Xpress Leasing, Inc. held by Messrs. Fuller and Quinn, such stock constituting all of the issued and outstanding capital stock of U.S. Xpress Leasing, Inc. * 10.16 Stock Purchase Agreement dated March 10, 1994 by and between the Company and L.D. Miller, III for the acquisition by the Company of the capital stock of Crown Transport Systems, Inc. held by Mr. Miller, such stock constituting 40% of the issued and outstanding capital stock of Crown Transport Systems, Inc. * 10.17 Stock Purchase Agreement dated March 17, 1994 by and between the Company, Patrick E. Quinn and Max L. Fuller for the acquisition by the Company of the capital stock of Crown Transport Systems, Inc. held by Messrs. Quinn and Fuller, such stock constituting 60% of the issued and outstanding capital stock of Crown Transport Systems, Inc. * 10.18 Stock Purchase Agreement dated March 18, 1994 by and between the Company and Ken Adams for the acquisition by the Company of 50% of the capital stock of Hall Systems, Inc. held by Mr. Adams and the grant of an option to the Company to purchase the remaining 50% of the capital stock of Hall Systems, Inc. from Mr. Adams, exercisable beginning April 1, 1997. *** 10.19 Software Acquisition Agreement dated September 15, 1994 by and among QUALCOMM Incorporated, XPRESS Data Services, Inc., U.S. Xpress Enterprises, Inc., Patrick E. Quinn, Max L. Fuller, Information Management Solutions, Inc. and James Coppinger. **** 10.20 Stock Purchase Agreement dated October 31, 1994 by and between the Company and Ken Frohlich for the acquisition by the Company of the capital stock of National Freight Systems, Inc. held by Mr. Frohlich, such stock constituting all of the issued and outstanding capital stock of National Freight Systems, Inc. ***** 10.21 Asset Purchase Agreement with respect to acquisition of CSI/Reeves, Inc. ****** 10.22 Stock Purchase Agreement with respect to Hall Systems, Inc. ****** 10.23 Credit Agreement with NationsBank. *******10.24 Amendment No. 1 to Credit Agreement with NationsBank. 10.25 Asset Purchase Agreement dated June 18, 1996 with respect to acquisition of Michael Lima Transportation, Inc. 10.26 Asset Purchase Agreement dated April 1, 1997 with respect to acquisition of assets from Rosedale Transport, Inc. and Rosedale Transport, Ltd. 43 Exhibit No. Description - ---------------------------- 10.27 Asset Purchase Agreement dated April 25, 1997 with respect to acquisition of JTI, Inc. 22 List of the current subsidiaries of the Company. 23 Consent of Arthur Andersen LLP, Independent Public Accountants. 27 Financial Data Schedule - ---------------------------------- * Filed in Registration Statement on Form S-1 dated May 20, 1994. (SEC File No. 33-79208) *** Filed in Pre-Effective Amendment No. 2 to Registration Statement on Form S-1 dated October 4, 1994. (SEC File No. 33-79208) **** Filed in Form 10-Q dated November 17, 1994 ***** Filed in Form 10-Q dated November 10, 1995 ****** Filed in Form 10-Q dated February 13, 1996 ******* Filed in Form 10-Q dated November 14, 1996 44 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997 (In Thousands)
Balance at Beginning Charged to Charged to Balance at Description of Period Cost/Expenses Other (1) Deductions(2) End of Period - ---------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED 3/31/95 Reserve for doubtful accounts $ 1,212 $ 543 $ 181 $ 306 $ 1,630 FOR THE YEAR ENDED 3/31/96 Reserve for doubtful accounts $ 1,630 $ 784 $ 1,036 $ 417 $ 3,033 FOR THE YEAR ENDED 3/31/97 Reserve for doubtful accounts $ 3,033 $ 1,259 $ 113 $ 1,672 $ 2,733
(1) For the year ended 3/31/95 Recoveries on accounts written off $ 181 --------- For the year ended 3/31/96 Recoveries on accounts written off $ 25 Balance acquired through purchase of CSI/Reeves 886 Balance acquired through purchase of Hall Systems 125 --------- 1,036 For the year ended 3/31/97 Recoveries on accounts written off $ 113 ---------
(2) Accounts written off 41 EX-10.25 2 ASSET PURCHASE AGREEMENT Exhibit 10.25 ASSET PURCHASE AGREEMENT ------------------------ This Agreement made and entered into as of this 18/th/ day of June, 1996, by and between U.S. Xpress Enterprises, Inc., a Nevada Corporation, having its principal place of business in Chattanooga, Tennessee ("Buyer") and Michael Lima Transportation Inc., a California Corporation, having its principal place of business in City of Industry, California ("Seller"). W I T N E S S E T H: In consideration of the promises and agreements contained herein, the parties hereto agree as follows: 1. On the terms and conditions contained herein: (a) Seller agrees to sell, transfer and convey to Buyer, and Buyer agrees to accept and purchase from Seller, that certain equipment listed on the attached Schedule 1 free and clear of all claims, mortgages, liens or encumbrances of any kind or any conditional sales agreement or title retention agreement. (b) Seller agrees to assign and transfer and Buyer agrees to assume that certain Transportation Agreement dated November 19, 1995, by and between Seller and Federal Express Corporation including all rates and traffic lanes specified in said Agreement with Federal Express Corporation. Seller agrees to obtain the written consent and approval of Federal Express Corporation for such assignment and assumption. (C) Seller agrees to assign, transfer and convey to Buyer the exclusive ownership of and all right, title and interest in and to the name "Michael Lima Transportation" for the time period from the date of this Agreement through July 1, 2000, and Seller specifically agrees not to use in any manner the name "Michael Lima Transportation" or any similar name during such time period. The foregoing are hereinafter collectively referred to as (the "Purchased Assets"). 2. The total purchase price to be paid by Buyer to Seller for the Purchased Assets shall be as follows: (a) $2,256,615.80 at closing; (b) $792,000, together with interest at 9% per annum from the date of closing, on or before July 1, 1998. The right to prepayment without penalty is reserved by Buyer. (C) In the event that Buyer is able to renew with Federal Express Corporation the traffic lanes and other substantive provisions specified in the Transportation Agreement dated November 19, 1995, by and between Seller and Federal Express Corporation which is to be assigned and transferred by Seller to Buyer hereunder, for an additional 3 year term after November 19, 1998, then Buyer will pay to Seller as additional consideration the sum of $1,000,000 on January 1, 1999. Provided, however, that in the event the traffic lanes and other substantive provisions specified in the Transportation Agreement with Federal Express Corporation are not renewed with Buyer by Federal Express Corporation because of the failure of Buyer to comply with Federal Express Corporation service requirements, Buyer shall, nevertheless, be obligated to pay the additional consideration of $1,000,000 on January 1, 1999. 3. Seller hereby represents and warrants to Buyer that Seller has and will have at closing good and marketable title with respect to the Purchased Assets free and clear of all claims, mortgages, liens or encumbrances of any kind, or any conditional sales agreement or title retention agreement, and that the Purchased Assets are and will be at closing in good and merchantable condition. Additionally, with respect to the equipment specified in Section 1 (a) above, Seller represents and warrants to Buyer that the equipment is and will be at closing in good working order and road worthy condition. Also, with respect to the Transportation Agreement specified in Section 1 (b) above, Seller represents and warrants that the Transportation Agreement is and will be at closing in full force and effect and that neither Seller nor Federal Express are or will be in default thereunder. 4. As a condition to the closing of the transaction specified herein and as a requirement and condition of this Agreement, Michael Lima, Loretta Mae Lima, Gary Lima, Sophia Lima, Cherlyn Converse and Dan Converse, shall execute a Non-Competition Agreement in the form attached hereto as Exhibit A. 5. As a condition to the closing of the transaction specified herein and as a requirement and condition of this Agreement, Charles Lawlor, shall execute an Employment Agreement with Buyer in the form attached hereto as Exhibit B. 6. Seller shall indemnify, defend and hold Buyer forever harmless from and against, and reimburse and promptly pay to Buyer the full amount of any and all loss, damage, liability, obligation or expense (including reasonable expenses and fees of counsel) incurred by Buyer directly or indirectly as a result of: (I) a breach of any representation or warranty or inaccuracy of any representation of Seller contained in this Agreement or in any document delivered to Buyer by Seller in connection with this transaction; (ii) a failure by Seller to perform or comply with any covenant, agreement or obligation required by this Agreement to be performed or complied with by Seller; and (iii) any liability that may be asserted against Buyer as a matter of law as a result of its being a transferee of Seller pursuant to this Agreement. 7. This document and the documents referenced herein constitute the entire agreement of the parties and supersede any and all other agreements, oral or written, with respect to the subject matter contained herein. 8. This Agreement shall be interpreted and construed in accordance with the substantive law of the State of Tennessee excluding its principles of conflicts of laws. The parties hereby agree that any action or proceeding with respect to this Agreement may be brought in the Courts of the State of Tennessee in Hamilton County, Tennessee, and in the Courts of the United States for the district encompassing Hamilton County, Tennessee, and Seller hereby irrevocably accepts, generally and unconditionally, the jurisdiction of such Courts. 9. All representatives and warranties set forth herein shall survive the execution hereof and the closing and completion of the transactions herein described. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 10. The closing date of this Agreement shall be on a business day mutually agreeable to the parties but no later than July 1, 1996. 11. Each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all action and to do or cause to be done, all things necessary, proper or advisable to consummate or make effective the transactions contemplated by this Agreement. In case at any time after the execution of this Agreement any further action is necessary or desirable to carry out the purposes of this Agreement, the parties shall take all such necessary action without further consideration. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the day and year first above written. Seller: Michael Lima Transportation, Inc. By: /s/ Michael Lima ----------------------------- Buyer: U.S. Xpress Enterprises, Inc. By: /s/ Max L. Fuller ----------------------------- President EX-10.26 3 ASSET PURCHASE AGREEMENT Exhibit 10.26 ASSET PURCHASE AGREEMENT ------------------------ This Agreement made and entered into as of this 1st day of April, 1997, by and between CSI/Crown Inc., a Georgia Corporation, a wholly owned subsidiary of U.S. Xpress Enterprises, Inc., which has its principal place of business in Chattanooga, Tennessee ("Buyer"), and Rosedale Transport, Inc., a Georgia Corporation, having its principal place of business in Dalton, Georgia, and Rosedale Transport Limited, a Canadian Corporation, having its principal place of business in Mississauga, Ontario, Canada (hereinafter collectively "Sellers"). W I T N E S S E T H: In consideration of the promises and agreements contained herein, the parties hereto agree as follows: 1. (a) Sellers agree to sell, transfer and convey to Buyer, and Buyer agrees to accept and purchase from Sellers, that certain equipment consisting of tractor, trailer and lift trucks listed on the attached Schedule 1, free and clear of all claims, mortgages, liens or encumbrances of any kind or any conditional sales agreement or title retention agreement. (b) Sellers agree to assign and transfer and Buyer agrees to assume those certain Terminal Leases specified in the attached Schedule 2 on the terms therein specified and Sellers represent and warrant to Buyer that such leases are freely assignable by Sellers to Buyer upon such terms. Sellers agree to obtain the written consent and approval of the lessors for such assignment and assumption. (c) Sellers agree to assign, transfer and convey and Buyer agrees to assume those certain Fork Lift Leases specified in Schedule 2 and those certain office equipment leases specified in Schedule 3, on the terms therein specified and Sellers represent and warrant to Buyer that such leases are freely assignable by Sellers to Buyer upon such terms. Sellers agree to obtain the written consent and approval of the lessors for such assignment and assumption. (d) Sellers agree to sell, transfer and convey to Buyer and Buyer hereby accepts all of Sellers' furniture, fixtures, equipment and other tangible personal property located at the terminals specified in Schedule 2. (e) Sellers agree to assign, transfer and convey to Buyer and Buyer agrees to assume those certain tariffs, rates and contracts of Sellers specified in Schedule 4 attached hereto. (f) Sellers agree to sell, transfer and convey to Buyer and Buyer hereby accepts Sellers' list of customers and books and records specified in Schedule 4 attached hereto. (g) Buyer agrees to reimburse Sellers for all terminal lease and utility deposits as specified in Schedule 5 within two weeks of closing. The foregoing are hereinafter collectively referred to as (the "Purchased Assets"). 2. The total purchase price to be paid by Buyer to Sellers for the Purchased Assets shall be as follows: (a) $3,464,000.00 in immediately available United States funds at closing. 3. Sellers hereby represent and warrant to Buyer that Sellers have and will have at closing (unless otherwise specified herein or in an attached schedule) good and marketable title with respect to the Purchased Assets free and clear of all claims, mortgages, liens or encumbrances of any kind, or any conditional sales agreement or title retention agreement, and that the Purchased Assets are and will be at closing in good and merchantable condition. Additionally, with respect to the equipment specified in Section 1(a) above, Sellers represent and warrant to Buyer that the equipment is and will be at closing in good working order and road worthy condition. Also, with respect to all contracts, leases or other agreements to be assigned to Buyer pursuant hereto, Sellers represent and warrant that such contracts, leases and agreements are and will be at closing in full force and effect and that neither Sellers nor any other party thereto are or will be in default thereunder. 4. As a material inducement to Buyer to enter into this Agreement, Sellers hereby agree that for a period of five years from April 1, 1997, Sellers will tender to Buyer all of Sellers' business of consolidation of floor covering and related articles in the continental United States at the following rates: In the counties of Whitfield, Catoosa, Murray, Walker, Gordon, Floyd and Chattooga, in the State of Georgia the initial rate shall be seven cents (7c) per square yard for consolidation of less than truckload or one hundred ($100.00) dollars per trailer per mill for headloads from April 1, 1997 through July 30, 1997, after which time the rate shall be eight cents (8c) per square yard for consolidation of less than truckload or one hundred ($100.00) dollars per trailer per mill for headloads. For freight originating from all other locations in the continental United States the rate shall be as negotiated in good faith by Sellers and CSI/Crown Inc. Sellers shall meet with Buyer in March of 1998 and annually thereafter to negotiate rates for the next succeeding year. 5. Sellers agrees to assign to Buyer and Buyer agrees to assume the balance of William Love's Employment Contract with Sellers in the amount of $50,000 annually ending June 30, 1999. 6. As a condition to the closing of the transactions specified herein and as a requirement and condition of this Agreement, Barry Smith, Rolly Uloth, Arvis Harris, Henry Heptinstahl, and Sellers, shall execute a Non- Competition Agreement in the form attached hereto as Exhibit A. 7. As a condition to the closing of the transactions specified herein and as a requirement and condition of this Agreement, CSI/Crown, Inc. and Rosedale Transport Limited will enter into and execute a Non-competition Agreement in the form attached hereto as Exhibit B. 8. As a condition to the closing of the transactions specified herein and as a requirement and condition of this Agreement, Buyer and Sellers shall enter into and execute a Transportation Agreement in the form attached hereto as Exhibit C. 9. Sellers shall indemnify, defend and hold Buyer forever harmless from and against, and reimburse and promptly pay to Buyer the full amount of any and all loss, damage, liability, obligation or expense (including reasonable expenses and fees of counsel) incurred by Buyer directly or indirectly as a result of: (i) a breach of any representation or warranty or inaccuracy of any representation of Sellers contained in this Agreement or in any document delivered to Buyer by Sellers in connection with this transaction; (ii) a failure by Sellers to perform or comply with any covenant, agreement or obligation required by this Agreement to be performed or complied with by Sellers; and (iii) any liability that may be asserted against Buyer as a matter of law as a result of its being a transferee of Sellers pursuant to this Agreement which has not been expressly assumed herein by Buyer. The obligations of Sellers under this Paragraph 6 shall survive the closing of the transactions specified herein. 10. This document and the documents referenced herein constitute the entire agreement of the parties and supersede any and all other agreements, oral or written, with respect to the subject matter contained herein. 11. This Agreement shall be interpreted and construed in accordance with the substantive law of the State of Tennessee excluding its principles of conflicts of laws. The parties hereby agree that any action or proceeding with respect to this Agreement may be brought in the Courts of the State of Tennessee in Hamilton County, Tennessee, and in the Courts of the United States for the district encompassing Hamilton County, Tennessee, and Sellers hereby irrevocably accept, generally and unconditionally, the jurisdiction of such Courts. 12. All representations and warranties set forth herein shall survive the execution hereof and the closing and completion of the transactions herein described. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 13. The closing date of this Agreement shall be on a business day mutually agreeable to the parties but no later than April 1, 1997. 14. Each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all action and to do or cause to be done, all things necessary, proper or advisable to consummate or make effective the transactions contemplated by the this Agreement. In case at any time after the execution of this Agreement any further action is necessary or desirable to carry out the purposes of this Agreement, the parties shall take all such necessary action without further consideration. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the day and year first above written. Sellers: Rosedale Transport, Inc. Rosedale Transport Limited By: /s/ Arvis Harris By: /s/ Rolly Uloth ---------------- --------------- President President Buyer: CSI/Crown, Inc. By: /s/ L.D. Miller, III -------------------- Chairman Agreement Between CSI/Crown, Inc. and Rosedale Transport, Inc. -------------------------------------------------------------- and Rosedale Transport Limited Re: Purchase of Equipment -------------------------------------------------------- Notwithstanding the provisions of Section 2 of that Certain Purchase Agreement by and between Rosedale Transport, Inc. and Rosedale Transport Limited ("Sellers") and CSI/Crown, Inc. ("Buyer"), Sellers and Buyer agree that of the $3,464,000 to be paid by Buyer to Sellers, $1,164,000 of such sum shall be paid by Buyer to Sellers at such time as titles to the equipment specified in Schedule 1 to the Asset Purchase Agreement have been transferred and delivered by Sellers to Buyer. In witness whereof the parties have executed this Agreement effective as of the 1st day of April, 1997. CSI/Crown, Inc. By: /s/ L.D. Miller, III -------------------- Chairman Rosedale Transport, Inc. By: /s/ Arvis Harris ---------------- President Rosedale Transport Limited By: /s/ Rolly Uloth --------------- President EX-10.27 4 ASSET PURCHASE AGREEMENT Exhibit 10.27 ASSET PURCHASE AGREEMENT ------------------------ THIS AGREEMENT, made by and among JTI, Inc., a Nebraska corporation, Logistics, Inc., a Nebraska corporation, Bison Enterprises, Inc., a Nebraska corporation, HI/PAR Systems, Inc., a Nebraska corporation, and Roadside Enterprises, Inc., a Nebraska corporation (hereinafter the forenamed corporations shall hereinafter be referred to collectively as "Sellers") and David R. Parker, a Nebraska resident ("Parker"), and Alan J. Hingst, a Nebraska resident ("Hingst") (Parker and Hingst shall hereinafter be referred to as "Shareholders") and U.S. Xpress Enterprises, Inc., a Nevada corporation (hereinafter "Buyer") (this "Agreement") is made as of the 25th day of April, 1997. W I T N E S S E T H: WHEREAS, Sellers are the owners and operators of assets utilized in the business of the transportation of non-household goods and the operation of four terminals (the "Business"); and WHEREAS, Sellers desires to sell and Buyer desires to purchase said assets used in the Business to the extent and pursuant to the terms and conditions of this Agreement; and WHEREAS, Shareholders own all the issued and outstanding shares of stock of JTI, Inc. and will substantially benefit by the sale of said assets. NOW THEREFORE, in consideration of the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I Prefatory Matters ----------------- 1.1 DEFINITIONS. -----------
Defined Term Section Where Defined Page Reference - ------------ --------------------- -------------- Agreement Preamble 1 Assets 2.1 5 Assets Assignment and Bill of Sale 3.1 8 Assumed Liabilities 3.2 8 Balance Sheet 2.1 5 Benefit Plans 7.24 24 Business Preamble 1 Buyer Preamble 1 Cash Portion 3.2 8 Closing Art. IV 9 Closing Date Art. IV 9 Code 7.24 22 Contracts 7.17 17 DEFRA 7.24 23 Earn Out Amount 3.2 8 Environmental Laws 7.29 27 ERISA 7.24 23 Facilities 2.1 5 Improvements 2.1 5 Initial Amount 3.2 8 Land 2.1 5 Material Adverse Change 7.14 15 Material Adverse Effect 7.18 19 Material 7.14 16 Purchase Price 3.2 8 Purchased Assets 2.1 5 REA 7.24 23 Real Estate 2.1 5 Retirement Plan 7.24 22 Sellers Preamble 1 Sellers Financial Statements 7.3 12 Spare Parts 2.1 6 Supplies and Miscellaneous Items 2.1 6
Tax or Taxes 7.7 13 Tax Returns 7.7 13 TEFRA 7.24 23
1.2 List of Schedules and Exhibits. ------------------------------
Schedules. - ---------- Schedule 3.2(ii) Incremental Tax Liability 7 Schedule 7.2 Officers and Directors of each Seller 12 Schedule 7.4 Liens and Encumbrances 12 Schedule 7.6 Accounts Receivable 12 Schedule 7.7 Tax Returns and Reports 13 Schedule 7.8 Bank Accounts 14 Schedule 7.10 Undisclosed Liabilities 19 Schedule 7.16 Major Customers 17 Schedule 7.17 Material Contracts and Commitments 22 Schedule 7.20(c) Licenses and Permits 20 Schedule 7.21 Litigation 21 Schedule 7.23 Employee Contracts, Union 21 Agreements and Benefit Plans Schedule 7.29(b) Environmental Licenses and Permits 27
Exhibits. - --------- Exhibit A 2.1 5 - --------- Legal Description of Real Property Exhibit B 2.1 6 - --------- Assets Exhibit C 2.1 7 - --------- Leases and Contracts Exhibit D 2.2 8 - --------- Excluded Assets Exhibit E 3.1 8 - --------- Assets Assignment and Bill of Sale Exhibit F 3.1 8 - --------- Warranty Deeds Exhibit G - --------- Shareholders' Notes Exhibit H 3.2 8 - --------- Liabilities Assignment and Bill of Sale Exhibit I 3.2 8 - --------- Assumed Liabilities Exhibit J 3.3 9 - --------- Sellers' Wire Transfer Instructions Exhibit K 7.1 11 - --------- Sellers' Resolutions Exhibit L 8.1 29 - --------- Buyer's Resolutions Exhibit M 9.1 31 - --------- Buyer's Approvals and Consents ARTICLE II PURCHASE AND SALE OF ASSETS --------------------------- 2.1 Sale of Assets. Upon the terms and conditions contained herein, -------------- Sellers agree to sell to Buyer, and Buyer agrees to purchase from Sellers, all of the assets of Sellers located at the facilities of Sellers located at Lincoln, Nebraska, Green Bay, Wisconsin, Loudon, Tennessee, and North Sioux City, South Dakota (the "Facilities") or used in the Business of Sellers, whether tangible, intangible, real, personal, mixed, booked or unbooked, and wherever located which are reflected on the balance sheet of Sellers dated December 31, 1996, and any subsequent balance sheet reflecting pre-Closing assets (the "Balance Sheet") hereinafter collectively referred to as the "Purchased Assets". The Purchased Assets include, without limitation, all of Sellers' right, title and interest in the following property used in the Business: (a) certain real property located in Lincoln, Nebraska, Green Bay, Wisconsin, Loudon, Tennessee, and North Sioux City, South Dakota, and certain other trailer drop lots, all specifically described by Exhibit A hereto, together with all right, title and interest, if any, of --------- Sellers in and to all (i) land lying in the bed of any street, road or avenue opened, closed or proposed, public or private, in front of or adjoining the land, (ii) any strips or gores in front of or adjacent to the land, (iii) any water ways, courses, streams or ditches in front of or adjoining the land, (iv) any reversionary rights which Sellers may have in any easement or license granted with respect to the foregoing (the foregoing being collectively hereinafter referred to as the "Land") and (v) and all buildings, improvements and fixtures appurtenant thereto (hereinafter referred to as the "Improvements") situated on such Land (the Land and Improvements hereinafter collectively referred to as the "Real Estate"); (b) all rolling stock, trucks, trailers and other vehicles, furniture and furnishings used or usable in connection with the Facilities, as described in Exhibit B hereto (the "Assets"); --------- (c) all supplies and miscellaneous items used or usable in connection with the Facilities, including but not limited to all repair, instruction, safety and maintenance manuals which are necessary or convenient to the operation and utilization of the Purchased Assets (the "Supplies and Miscellaneous Items"); (d) all spare parts, tools and accessories used or usable in connection with the Purchased Assets (the "Spare Parts"); (e) all cash and cash equivalents; (f) all accounts and notes receivable; (g) all financial, business and other records relating to the Business of Sellers, including but not limited to customer records, personnel records, reports to any governmental or regulatory agency (provided that Sellers may retain copies of said reports); (h) trade secrets, contracts, licenses, production records, accounts (including bank accounts and safe deposit boxes), prepaid expenses, miscellaneous investments (including capital stock of others) and any other items of intangible property, including but not limited to any and all rights to the exclusive use of the names JTI, Inc., Logistics, Inc., Bison Enterprises, Inc., HI/PAR Systems, Inc. and Roadside Enterprises, Inc. d/b/a Senate Inn and all variations thereof. (i) to the extent transferable, all product warranties that relate to the Purchased Assets; (j) all rights of Sellers in and to its rights and obligations under the leases and contracts listed on Exhibit C; --------- (k) all rights of Sellers in and to all licenses, certificates and permits from all federal, state and other public authorities issued in connection with the operation of the Business; and 2.2 Excluded Assets. Notwithstanding anything contained herein to the --------------- contrary, the parties acknowledge and agree that the Purchased Assets expressly exclude those assets listed on Exhibit D hereto. --------- ARTICLE III TRANSFER AND PURCHASE PRICE OF PURCHASED ASSETS ----------------------------------------------- 3.1 Transfer. Subject to the terms and conditions of this Agreement -------- and by way of an "Assets Assignment and Bill of Sale" in substantially the form attached hereto as Exhibit E and the warranty deeds in --------- substantially the form attached hereto as Exhibit F, Sellers shall sell, --------- transfer and convey to Buyer, and Buyer shall purchase, receive and accept the Purchased Assets from Sellers on the Closing Date. 3.2 Purchase Price. The purchase price for the Purchased Assets, -------------- shall be: (i) Two Million Dollars ($2,000,000); plus (ii) the difference, as determined by Buyer's auditors and set forth on Schedule 3.2(ii), between the Sellers' tax liability resulting from the ---------------- purchase of the Purchased Assets by Buyer and the Sellers' tax liability had Buyer purchased all of the issued and outstanding shares of stock of each Seller; ((i) and (ii) are hereafter referred to as the "Cash Portion"); plus (iii) Buyer shall pay to Shareholders an amount equal to 25% of the yearly net income after income taxes produced by the Purchased Assets and addition and replacements thereto for a period of approximately ten years, beginning on the Closing Date and ending on March 31, 2007 (the "Earn Out Amount"). The Earn Out Amount calculation for the first such year, however, shall be based only on the net income after income taxes for the period from the Closing Date until March 31, 1998. For each year thereafter, the Earn Out Amount calculation shall be based on the net income after income taxes for the fiscal year in question. The Earn Out Amount shall be paid to Sellers annually within 90 days after the end of Buyer's fiscal year. The payment of the Earn Out Amount shall be equal to 12 1/2% of the yearly net income after income taxes produced by the Purchased Assets (the "Initial Amount") until the total of all Initial Amounts equals the aggregate amounts payable under the Shareholders' Notes (including the interest thereon), which are attached hereto as Exhibit G; plus --------- (iv) the assumption by Buyer of the Assumed Liabilities pursuant to the terms of an "Liabilities Assignment and Bill of Sale" in substantially the form attached hereto as Exhibit H. For purposes hereof, "Assumed --------- Liabilities" means only those liabilities of Sellers incurred prior to the Closing Date in the ordinary course of business, and which are listed on --- Exhibit I hereto. Buyer agrees to use its best efforts to remove --------- Shareholders from any and all obligations of Sellers for which Shareholders are signers, co-signers and/or guarantors, and Buyer shall indemnify Shareholders in a manner acceptable to Shareholders where their respective names may not be removed from any such obligation of Sellers. The Cash Portion, the Earn Out Amount and the assumption of the Assumed Liabilities, is collectively referred to as the "Purchase Price". 3.3 Payment of Cash Portion. All of the Cash Portion shall be paid to ----------------------- Sellers in immediately available funds at Closing pursuant to the wire transfer instructions set forth in Exhibit J hereto. --------- 3.4 Allocation of Purchase Price. The Purchase Price shall be allocated ---------------------------- by Buyer among the Purchased Assets subsequent to Closing. The allocation shall be delivered to Sellers. So long as such allocation is not unreasonable, each of the parties agrees to report this transaction for state and federal tax purposes in accordance with such allocation. The allocation shall be deemed to have been made as of the close of business on the Closing Date. ARTICLE IV CLOSING ------- 4.1 Closing. The delivery of the Purchase Price pursuant to Section 3.2 ------- hereof, the sale, transfer, assignment and delivery of the Purchased Assets pursuant to Sections 3.2 and 3.3 hereof and the delivery of the other instruments and certificates required hereunder (the "Closing"), shall take place on Wednesday, April 30, 1997 at a mutually agreeable time and place (the date and time of the Closing being referred to herein as the "Closing Date"). At the Closing, (a) Sellers shall convey the Purchased Assets to the Buyer by delivery of warranty deeds, bills of sale and instruments of transfer and assignment satisfactory to Buyer and its counsel, including all documents necessary to transfer bank accounts, and shall deliver all certificates and other instruments and documents contemplated hereby all in form and substance reasonably satisfactory to Buyer and Buyer's counsel, and (b) Buyer shall deliver to Sellers the Cash Portion of the Purchase Price, the instruments of assumption pertaining to Sellers' liabilities and obligations to be assumed hereunder and all certificates and other instruments and documents contemplated hereby, all in form and substance reasonably satisfactory to Sellers and Sellers' counsel. 4.2 Shipments in Transit. All shipments in transit delivered prior to -------------------- 11:59 p.m. CDT on the Closing Date shall be the responsibility of Sellers and those in transit after 11:59 p.m. CDT on the Closing date shall be the responsibility of the Buyer. This Section 4.3 is subject to the provisions of Sections 2.1 and 3.2 hereof. ARTICLE V LIABILITIES NOT ASSUMED ----------------------- Buyer expressly assumes no liabilities or obligations of Sellers whatsoever except for those liabilities specifically set forth on Exhibit I hereof. --------- Without limiting the foregoing, Buyer specifically does not assume any liability of Sellers with respect to (i) obligations for past pension, profit-sharing or other employee benefit programs or termination or unemployment benefits, whether funded or unfunded, (ii) liability arising under or pursuant to any law or regulation relating to health or the environment, or (iii) liability which may hereinafter be asserted as the result of acts or omissions on the part of Sellers prior to the Closing Date. ARTICLE VI SALES AND TRANSFER TAXES, PROPERTY TAXES, ----------------------------------------- RECORDING FEES, AND PROFESSIONAL FEES ------------------------------------- 6.1 Sales and Transfer Taxes. Buyer shall be responsible for payment to ------------------------- the appropriate state or local governmental authorities of all transfer taxes, whether for personal property or real property, with respect to the sale contemplated herein. Buyer shall be responsible for all sales taxes, if any, with respect to the sale contemplated herein. 6.2 Recording or Filing Fees. The party receiving a conveyance by deed, ------------------------ lease, assignment or otherwise shall pay any applicable recording or filing fees thereon. 6.3 Attorney's and Accountant's Fees, Etc. Each party shall pay its own ------------------------------------- attorney's and accountant's fees and fees of other applicable professionals. ARTICLE VII REPRESENTATIONS AND WARRANTIES OF SELLERS AND SHAREHOLDERS ---------------------------------------------------------- As a material inducement to Buyer entering into this Agreement and consummating the transactions contemplated hereby, Sellers and Shareholders, jointly and severally, hereby make the following representations and warranties to Buyer, each of which shall be continuing, shall be true at the date of execution hereof and on the Closing Date, and shall survive the Closing and the sale of the Purchased Assets and other transactions contemplated hereby: 7.1 Corporate Existence and Authority. Each of Sellers is a corporation ---------------------------------- duly organized, validly existing, and in good standing under the laws of the State of Nebraska with each having full power and authority to own its properties and conduct the Business as now being conducted. Each of Sellers has full corporate power and authority to execute this Agreement and consummate the transactions contemplated hereby, and each of their respective shareholders and Board of Directors have properly approved the transactions contemplated by this Agreement. True and correct copies of the resolutions by the Directors and Shareholders of each of the Sellers authorizing each Seller to enter into this transaction, properly certified by the President and Secretary of each Seller, are attached hereto as Exhibit K. Upon execution and delivery, this Agreement, --------- the warranty deeds, Assignment and Bill of Sale, and the Assignment and Assumption Agreement attached as exhibits hereto, shall be valid and legally binding documents, enforceable in accordance with their terms, subject to equitable principles of any bankruptcy, insolvency and other similar laws generally affecting creditors' rights. 7.2 Organizational Documents. The Articles of Incorporation and By-Laws ------------------------- of each Seller that have been furnished to Buyer are true and complete and contain all amendments thereto to date. Schedule 7.2 contains a true and ------------ complete list of all of the current officers and directors of each Seller. 7.3 Financial Statements. Prior to the date hereof, Sellers have -------------------- delivered to Buyer the following financial statements: the internal, unaudited profit and loss and balance sheets for the Sellers for the years 1990, 1991, 1992, 1993, 1994, 1995 and 1996 and the audited profit and loss and balance sheets for the Sellers for the years 1990, 1991, 1992, 1993, 1994 and 1995 (the "Sellers Financial Statements") all of which have been prepared in accordance with GAAP consistently applied in each of the periods indicated and respectively present fairly the financial position of Sellers as of the respective dates of the statements. 7.4 Liens and Good Title. Except as disclosed in Schedule 7.4, Sellers --------------------- ------------ own, of record, the legal title and beneficial and equitable interest in and to all of the Purchased Assets. Sellers have, and on the Closing Date will have, good and marketable title to all of the Purchased Assets, free and clear of any and all mortgages, deeds of trust, liens, security interests, pledges, encumbrances, easements, leases, agreements, covenants, charges, restrictions, options, joint ownership or adverse claims or rights whatsoever other than those evidenced in Schedule 7.4. ------------ 7.5 Authority. Neither the execution and delivery of this Agreement, nor --------- the consummation by Sellers of the transactions contemplated hereby, will conflict with or result in a breach of or default under any of the terms, conditions or provisions of any loan, note, bond, mortgage, lease, indenture, license, agreement, or other instrument or obligation to which any of Sellers is a party or by which any of its respective properties or assets are bound. 7.6 Accounts Receivable. Except as disclosed on Schedule 7.6, all ------------------- -------- --- accounts receivable reflected on the Sellers Financial Statements will have arisen from transactions in the ordinary course of business, credit being extended in a manner consistent with Sellers' regular credit practices and such accounts will be collectible within ninety (90) days in the ordinary course of business without resort to litigation, subject to the allowance for doubtful accounts set forth therein. 7.7 Tax Returns and Reports. Except as set forth in Schedule 7.7: ----------------------- ------------ (a) Each Seller has filed all federal, state, local and foreign tax returns and reports required under the laws of the United States or any foreign country or any state or municipal or political subdivision of any of the foregoing ("Tax Returns") to be filed by the Sellers in respect of any Tax or Taxes. For purposes of this Agreement "Tax" or "Taxes" shall mean all income, gross receipt, gains, sales, use, employment, franchise, license, school, profits, property, ad valorem, excise or other taxes, estimated, import duties, fees, stamp, taxes and assessments or charges of any kind whatsoever (whether payable directly or by withholding), together with any additional charges, interest and any penalties, additions to tax or additional amounts imposed by any taxing authority with respect thereto, or any charges, interest or penalties imposed by any taxing authority as the result of the failure to file any return. (b) Each Seller has paid or provided for all Taxes shown on the Tax Returns, and all deficiencies and assessments of Tax, interest or penalties. (c) No Seller has any penalty or other charge which is, or will become, due with respect to late filing of any Tax Returns. (d) No Seller has had any of the Tax Returns audited for any fiscal year beginning after January 1, 1992. If any audits have occurred since January 1, 1992, all material results are summarized in Schedule 7.7. ------------ All of the Tax Returns as filed were true and correct. 7.8 Bank Accounts. Schedule 7.8 sets forth a complete and accurate ------------- ------------ list of each bank or financial institution in which any of the Sellers has an account or safety deposit box (giving the address and account numbers) and the names of the persons authorized to draw thereon or who have access thereto. 7.9 Occupational Safety, Health and Other Filings. Sellers have ---------------------------------------------- previously delivered to Buyer all reports and filings made or filed by each Seller pursuant to all applicable occupational safety and health legislation, regulations and orders since January 1, 1992. 7.10 Absence of Undisclosed Liabilities. Except as disclosed on ---------------------------------- Schedule 7.10 and all other schedules and exhibits hereto, there are no - ------------- liabilities of any nature, whether accrued, unaccrued, absolute, contingent or otherwise, which exist presently or which may arise in the future as a result of activities of each Sellers or the Business on or prior to the Closing Date which would impose any transferee liability on Buyer, other than any liability incurred in the ordinary course of business.. 7.11 Compliance with Laws. None of the Sellers or the Business is in -------------------- Material violation of any applicable federal, state or local law, statute, ordinance, order, rule or regulation relating to or affecting the ownership of the Purchased Assets or the operation or conduct of the Business. 7.12 No Consents. All consents necessary to consummate the ----------- transactions contemplated herein shall be obtained prior to or at the Closing and, except as otherwise provided herein, no consent or approval of, or declaration, filing or registration with, any non-governmental third party or any governmental authority is required to be obtained by Sellers (i) in connection with the execution of this Agreement, (ii) for the consummation of the transactions contemplated hereby or (iii) for the operation of the Business. 7.13 Condition and Use of the Assets. All of the tangible Purchased ------------------------------- Assets are generally in good working order and condition and are fit for the purpose for which such Purchased Assets are being used. The use of the Purchased Assets conforms in all material respects to all applicable building, zoning, platting, subdivision, land use, fire, health, and other laws, ordinances, rules or regulations, and no notice of any violation with respect thereto has been received by any of the Sellers. 7.14 Absence of Change. From December 31, 1996, and through the ----------------- Closing Date: (a) The Business has been conducted in the ordinary course consistent with historical methods of operation. (c) There has been no Material Adverse Change in the Business, and no event or condition shall have occurred which materially affects the Purchased Assets or the intended use thereof, or the prospects of the Business. For purposes of this Agreement, a "Material Adverse Change" shall mean a Material adverse change to Sellers' financial condition, results of operations or Business, taken as a whole. (d) Each Seller and each Shareholder has not sold, contracted to sell, conveyed, transferred, assigned, distributed or otherwise disposed of any of the Purchased Assets, or any rights thereto. (e) Each Seller and each Shareholder has not mortgaged, pledged, or granted any security interests in, and has not encumbered or otherwise caused a lien to be placed against any of the Purchased Assets other than as evidenced in the exhibits hereto. (f) None of the Sellers or the Business has incurred any uninsured Material loss, damage, liability or destruction of property which would or might have a Material Adverse Effect on Buyer's intended use of the Purchased Assets or operation of the Business. As used in this Agreement, an item is "Material", if it the monetary exposure with regard to the item could exceed One Hundred Thousand Dollars ($100,000). (g) No Seller has granted any Material increase, in the aggregate, in any salary, bonus, fringe benefits, incentive or other compensation payable, or to become payable, to any employee or agent of the Business in, or made any commitment to adopt any bonus incentive compensation, deferred compensation, profit sharing, pension, or other employee benefit plan. (h) Each Seller has not made any changes in its respective business policies in any Material respect, including, without limitation, its advertising, purchasing, pricing and employment policies. (i) Each Seller has not made any declaration, setting aside or payment of any dividend or other distribution of assets (whether in cash, stock or property) with respect to the capital stock of Sellers or any direct or indirect redemption, purchase or other acquisition of such capital stock. 7.15 Licenses and Permits. Each Seller and the Business possess all -------------------- Material approvals, authorizations, consents, licenses, orders, franchises, rights, registrations and permits from all governmental and non-governmental agencies and authorities required to permit the operation of the Business as presently conducted. 7.16 Major Customers. Schedule 7.16 sets forth a list of each --------------- ------------- customer of Sellers to whom Sellers sold more than $50,000 of services during the most recent completed fiscal year together with the amount of service sold during such period. Sellers have no knowledge that any customer listed on Schedule 7.16, intends to Materially diminish the amount of business which (i) - ------------- it will engage in with each Seller prior to the Closing Date, or (ii) it will engage in with Buyer subsequent to the Closing Date other than Lozier, which has indicated that it does not intend to do business with Buyer but Sellers are using and will use their best efforts to retain this business. 7.17 Material Contracts and Commitments. Schedule 7.17 contains a ---------------------------------- ------------- complete and accurate list of all contracts, agreements, commitments or understandings, whether oral or written, to which the Business or the Purchased Assets are subject ("Contracts"), including but not limited to any: (a) Contract or commitment relating to the Business outside the scope of the ordinary course of the Business; (b) bonus, incentive compensation, retirement agreement, deferred compensation agreement, vacation plan, sick leave plan, group insurance plan, or other employee benefit or welfare plan of any nature whatsoever which could impose a transferee liability on Buyer; (c) agreement with any labor union, group of employees or other employee representatives, or employment contract, agreement, or commitment to or with any individual employees or agents; (d) agreements for the purchase of goods, materials, services, supplies, machinery, or capital assets; (e) agreement with any sales agent or representative; (f) franchise agreement or agreement with any manufacturer or supplier with respect to discounts, allowances or extended payment terms; (g) agreement guaranteeing, indemnifying, or otherwise causing the Purchased Assets to be subject to or liable for the obligations or liabilities of another; (h) agreement, statute, rule or regulation giving any party the right to negotiate or require a reduction in prices or the repayment of any amount previously paid; (i) partnership or joint venture agreement; (j) contract or commitment requiring payment based in any manner upon revenues, expenses, or net or gross income of Sellers; (k) license or royalty agreement; (l) indenture, mortgage, note or credit agreement or other contract or obligation pertaining to the borrowing of money by any Seller which relates to the business; (m) leases of property, personal or real, whether as Lessor or Lessee, other than those identified in Exhibit A; --------- (n) other contract, agreement or lease commitment Material to he Purchases Assets. Each of the Contracts is valid, in full force and effect, and enforceable in accordance with its terms, except to the extent that the same may be limited by laws concerning insolvency, bankruptcy, or similar laws or equitable principles affecting the enforcement of creditors' rights generally. 7.18 Change in Business. For purposes of this Agreement, a Material ------------------ Adverse Effect" shall mean a Material adverse effect on Sellers' financial condition, results of operations or Business, taken as a whole. Sellers is aware of no significant changes in the Business, including but not limited to, changes with respect to its services, customers, employees, equipment needs, markets, suppliers, or legislation to which either of the Sellers or the Business are subject, which would or might have a Material Adverse Effect upon any Seller, the Business or the Purchased Assets. 7.19 Business Records. All of the Sellers' respective business ---------------- records have been maintained in accordance with good and sound accounting and business practices. 7.20 Real Estate. ----------- (a) General. Except for the Real Estate set forth as Exhibit A, -------- --------- there is no real property owned or continuously occupied by any of the Sellers and used or connected with the Business. (b) Codes, Ordinances, Use and Notice of Condemnation. There are no ------------------------------------------------- existing, pending, or proposed violations of any fire or health codes, building ordinances, or rules of the Board of Fire Underwriters (or organization exercising functions similar thereto), with respect to the Real Estate, nor is there, any defect in the Real Estate which would render all or any part thereof unsuitable for its proposed use by Buyer (assuming for this purposes that Buyer will engage in a business identical to the Business of Sellers). No Seller has received any notice of any condemnation proceeding in process or proposed that would affect the Real Estate. Sellers shall advise Buyer forthwith of any notice concerning violations, condemnation proceeding, and tax or utility rate increases that may affect the Real Estate. (c) Licenses and Permits. Each Seller holds all licenses, -------------------- certificates, permits, franchises and rights from all appropriate federal, state, local and other public authorities necessary for the conduct of its current operations at the Facilities, which licenses, certificates, permits, franchises and rights are specified on Schedule 7.20 (c). ----------------- (d) No Notice of Violations. Sellers' Business is in compliance ----------------------- with all applicable laws, rules and regulations. Sellers have not received any notice of violations of any federal, state or local laws, ordinances, rules, regulations or orders relating to the Business or the Purchased Assets. (e) Utility Connections. All public utility connections located on -------------------- the Real Estate have been completed, installed, activated, paid for and are in operational condition and are in compliance with all appropriate codes, rules and regulations. (f) Taxes and Utilities. No Seller or Shareholder is aware of, nor ------------------- has any Seller received, any notice or information of any condition which would result in a Material increase in the assessments covering the Real Estate or utility rates affecting the Real Estate or the Business. (g) Access. Each Seller presently has the unencumbered right to use ------ (and to transfer to Buyer) all accesses from the Real Estate to and from public thoroughfares, as such accesses are presently configured and utilized. (h) Right to operate. Sellers have the legal right to operate all ----------------- parts of the Real Estate in the manner in which it is currently being operated as a terminal facility for interstate motor carriers. 7.21 Litigation. Except as set forth on Schedule 7.21, there is no ----------- ------------- governmental or private litigation, investigation, proceeding, claim, suit or audit of any kind whatsoever pending or, to the best knowledge of each Seller and Shareholder, threatened against any Seller, the Business, or any of the Purchased Assets. To the best of each Seller and Shareholder's knowledge after due and diligent inquiry, there is no private person or governmental agency who has any basis for any cause of action, whether or not known or asserted, which would cause any Seller, the Business or Buyer, as a transferee, to suffer any Material loss or liability not disclosed herein. 7.22 Labor Relations. None of Sellers or the Business is, or has --------------- been, involved in any labor discussion with any unit or group seeking to become the bargaining unit for any of its employees, nor does any Seller or Shareholder have any notice or knowledge that any such unit or group has announced an intention to commence any organizational activities among the employees of the Business. No Seller has been accused, notified or made aware of any unfair labor or employment practice, discriminatory act or omission, nor is there any pending or threatened strike, work stoppage, or other labor dispute affecting any of the Sellers or the Business. 7.23 Employee Contracts, Union Agreements and Benefit Plans. Schedule ------------------------------------------------------- -------- 7.23 sets forth a complete and accurate list and description of all employment, - ---- consulting or collective bargaining contracts, deferred compensation, profit- sharing, bonus, option, share purchase or other benefit or compensation commitments, benefit plans, arrangements or plans, including all welfare plans of or pertaining to the present or former employees of each of the Sellers, or any of the Seller's respective predecessors in interest. Except as set forth on Schedule 7.23, each Seller and its respective predecessors in interest have - ------------- complied with all of their respective obligations, including the payment of all contributions, the filing of all reports, and the payment or accrual of all expenses for the period between the end of the previous plan year and the Closing Date, with respect to such contracts, commitments, arrangements and plans. The plans have been maintained in compliance with all applicable laws and regulations in all Material respects. The levels of insurance reserves and accrued liabilities with regard to all such plans are reasonable and are sufficient to provide for all incurred but unreported claims and any retroactive premium adjustments. 7.24 Employee Benefit Plans. ---------------------- (a) The only employee pension benefit plan as defined in Section 3(2) of ERISA (and including unless otherwise specified trusts executed in connection therewith and including any multi-employer Plan), adopted or sponsored or maintained by Sellers with respect to which or as the result of which Sellers has had or may have any liability (the term "Sellers" specifically includes for the purposes of this Section 7.24, any subsidiary or predecessor in interest of any of the Sellers) is the JTI, Inc. 401(k) Plan (the "Retirement Plan"). The Retirement Plan has never been a Multi- employer Plan. (b) The Retirement Plan is a qualified plan under Section 401(a) of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the "Code"), the trust with respect to such plan is exempt from taxation under Section 501(a) of the Code and, in either case, is subject to a favorable determination letter which will be in effect at the Closing Date; and all amendments made to the Retirement Plan prior to the Closing Date have been considered in the determination letter. No action has been taken (or failure to take action has occurred) which would cause such determination letter to be revoked. The determination letter is effective for those provisions required by Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), the Tax Reform Act of 1984 ("DEFRA") and the Retirement Equity Act of 1984 ("REA") at the time such letter was requested. The Retirement Plan has been administered and operated in accordance with its terms and in a manner so as to preserve such qualification, including those provisions required by TEFRA, DEFRA, and REA, as well as such provisions of all subsequent laws (including the 1986 Tax Reform Act) whose effective date is prior to the Closing Date. (c) The Retirement Plan has not at any time been subject to Title IV of the Employee Retirement Income Security Act of 1974 ("ERISA"). (d) Prior to the Closing Date, Sellers will take all actions necessary to terminate the Retirement Plan and will have filed a Form 5310 with the Internal Revenue Service with respect to requesting a favorable determination letter with respect to such termination. Sellers will thereafter take such actions as may be necessary to receive such favorable determination letter and within 60 days after the receipt of such letter will distribute all assets held in the Retirement Plan to or for the benefit of the participants or beneficiaries, as the case may be, requiring such elections and taking all actions and making all payments (including payment of expenses) required by the terms of the Retirement Plan and by ERISA to maintain the favorable determination letter. (e) Buyer, its officers, employees, or agents will have no liability with respect to any employer benefit plans within the meaning of Section 3(3) of ERISA or any other employee arrangements and benefits of any type maintained, established or contributed to by Sellers, (the foregoing collectively referred to as "Benefit Plans"), including but not limited to, any liability arising from any of the following: (i) Claims of any nature by employees of any of Sellers, former employees of any of Sellers, beneficiaries of any Benefit Plan, or the spouses or dependents of the foregoing; (ii) Failure to pay premiums in whole or in part in a timely manner; (iii) Failure to file and distribute reports and notices (or to file such reports and notices accurately) in a timely manner, including the annual reports on the Form 5500 series, Summary Plan Description, Summary Annual Reports, and all notices and information required by COBRA. (iv) Any action (or failure to act) resulting in a breach of fiduciary responsibility; (v) Failure to administer any Benefit Plan in accordance with its terms and in accordance with applicable laws, including ERISA; (vi) Termination of any Benefit Plan or benefit under any benefit Plan by Sellers or by Buyer; (vii) The requirement that any Benefit Plan be continued by Buyer after Closing Date; or (viii) Any expense relating to any Benefit Plan. (f) With respect to each Benefit Plan: (i) no action, suit, grievance, arbitration or other manner of litigation, or claim with respect to the assets of the Benefit Plan (other than routine claims for benefits made in the ordinary course of Benefit Plan administration of which Benefit Plan administrative review procedures have not been exhausted) are pending, and to the best knowledge of the Sellers and Shareholders threatened or imminent against or with respect to the Benefit Plan, Sellers or other fiduciary (as defined in ERISA Section 3(21)) or the Benefit Plan (including any action, suit, grievance, arbitration or other manner of litigation, or claim regarding conduct which allegedly interferes with the attainment of rights under the Benefit Plan; and (ii) neither Sellers, either Shareholder nor any other fiduciary has any knowledge of any facts which would give rise to or could give rise to any action, suit, grievance, arbitration or other manner of litigation, or claim. 7.25 Antitrust Matters. Each Seller and the Business is and ----------------- throughout the applicable statutory period of limitations has been in compliance with all laws and regulations, whether federal or state, pertaining or relating in any way to the regulation of competition or trade among or between business entities, including but not limited to, Section 1 and 2 of the Sherman Act, Section 3 of the Clayton Act, the Robinson-Patman Act, the Lanham Act, Section 5 of the Federal Trade Commission Act and applicable state antitrust and trade laws and regulations, and the business and operations of Sellers, or any predecessor, affiliate, parent or subsidiary thereof, have been conducted in full and complete compliance with any and all such laws and regulations. To the knowledge of Sellers and Shareholders, there is no grand jury or other federal or state investigation pending with regard to the antitrust matters involving any of the Sellers or the Business. 7.26 Absence of Certain Payments. Other than for services --------------------------- legitimately and openly performed under applicable law and nominal non-cash gifts (with a total per donee retail value of less than $100.00 in any year), none of Sellers, nor, to Sellers and Shareholders' best knowledge, any agent, employee or representative of any of Sellers have made to any present or prospective customer, supplier, government official, insurance carrier, referral source, employee or agent or any other person, any payment, gratuity, gift or thing of value. 7.27 No Broker or Finder. Sellers have not had discussions with, ------------------- negotiated with, been represented by, employed any broker or finder or incurred any liability for any brokerage fees, commissions or finder's fees to any individual or entity in connection with this Agreement or any of the transactions contemplated hereby. 7.28 No Material Omission. To the best knowledge of Sellers and each -------------------- Shareholder after due inquiry, all facts material to the financial condition, assets, supplies, customers, business prospects, and result of operations of the Business have been disclosed to Buyer in writing in this Agreement or otherwise in connection with negotiations with respect to this transaction. To the best knowledge of Sellers and each Shareholder after due inquiry, no representation or warranty contained in this Agreement, and no Exhibit, certificate, Schedule, list or other information furnished by or on behalf of Sellers or Shareholders to Buyer in connection herewith, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. 7.29 Environmental Status. -------------------- (a) Each Seller is in full compliance (including record keeping and reporting requirements) with all federal, state, local and any other applicable laws and regulations relating to pollution, environmental protection, occupational safety, or protection of the health, safety and welfare of persons and/or property, including but not limited to all laws, regulations, codes, plans, orders, decrees, judgments, notices, demand letters, consent agreements and directives ("Environmental Laws"). (b) Each Seller has obtained all material permits, licenses and other authorizations and filed all notices which are required to be obtained or filed by Sellers for the operation of Business by all Environmental Laws, and a copy of all such permits is set forth in Schedule 7.29(b). ---------------- (c) Each Seller is in compliance in all Material respects with all terms and conditions of such required permits, licenses and authorizations. (d) No Seller has received any communication, written or oral, whether from a governmental authority, citizens group, lender, employee or otherwise, that alleges that any Sellers is not in full compliance with any Environmental Law, and there are no circumstances or conditions presently existing relating to the Business or the Real Estate that would prevent or interfere with such full compliance in the future. (e) All waste materials generated by the Business or at or on the Real Estate has been disposed of properly and in full compliance with Environmental Laws. (f) The Real Estate does not contain any asbestos or PCBs in any form. No Facility is constructed of, or does not contain as a component part thereof, any material which (either in its present form or as such material may reasonably be expected to change through aging and normal use and service) releases any substance, whether gaseous, liquid or solid, which is or may be, either in a single dose or through repeated and prolonged exposure, injurious or hazardous to the health of persons or animals, or otherwise harmful to the environment. (g) There are no past or present events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent continued compliance with Environmental Laws, or which may give rise to any common-law or statutory liability, or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, or hazardous or toxic material or waste with respect to each Sellers or the Business whether or not occurring on the Real Estate. (h) All underground storage tank systems located on the Real Estate are free from leaks required by Applicable Law to be reported to any governmental authority and there has been no contamination of either the surrounding soil or ground water either from any existing underground storage tank systems or any underground storage tank system previously removed from, abandoned or closed in place on the Real Estate. VIII BUYER'S REPRESENTATIONS AND WARRANTIES -------------------------------------- Buyer hereby makes the following representations and warranties to Sellers, each of which shall be continuing, shall be true at the date of execution hereof and on the Closing Date, and shall survive the Closing and the sale of Purchased Assets and other transactions contemplated hereby. 8.1. Incorporation, Good Standing and Power. Buyer is a corporation duly -------------------------------------- organized, validly existing, and in good standing under the laws of the State of Nevada, with full power and authority to execute this Agreement and consummate the transactions contemplated hereby. Buyer's Board of Directors has properly approved the execution of this Agreement and the consummation of the transactions contemplated hereby and a copy of the resolutions of Buyer's Directors authorizing Buyer to execute this Agreement and consummate the transactions contemplated hereby, properly certified by the Secretary is attached hereto as Exhibit L. Upon execution, this Agreement shall be valid, --------- legal and binding, enforceable in accordance with its terms, subject to equitable principles of any bankruptcy, insolvency, and other similar laws generally affecting creditors' rights. 8.2. Effect of Agreement. The execution, delivery and performance of ------------------- this Agreement and the consummation of the transactions contemplated hereby will not violate any law or regulation to which Buyer is subject, or conflict with or cause a default under the terms of any agreement to which the Buyer is a party, or by which it or any of its assets may be bound. IX COVENANTS OF SELLERS -------------------- Sellers covenant and agree with Buyer as follows: 9.1 Conduct of Business Through the Closing Date. From the date hereof --------------------------------------------- and through the Closing Date: (a) Sellers shall operate the Business only in the usual, ordinary and customary manner and use its best efforts to preserve its present business organizations intact so as to keep available the services of its present employees and agents, and to preserve its present business relationships with customers, suppliers, and others having business dealings with Sellers. (b) Sellers shall maintain all properties necessary for the conduct of the Business, whether owned or leased, real or personal; (c) Sellers shall maintain their respective books, records, and accounts in the usual manner on a basis consistent with prior periods utilizing historical bookkeeping practices. (d) Sellers shall duly comply with all laws Material to the conduct of the Business. (e) Sellers shall not enter into any contract, commitment, lease or sublease relating to or affecting the Business, other than in the ordinary course of business, without the prior written approval of Buyer. (f) Sellers shall use their best efforts to preserve for Buyer the relationships existing with Sellers' respective suppliers, customers, employees and others having business relationships with Sellers. (g) Sellers shall maintain insurance upon the Purchased Assets until Closing, and, unless this transaction is not closed, Sellers shall pay to Buyer all amounts received under such insurance for an insured loss. (i) Sellers shall take all action necessary to maintain the utility services being provided to the Real Estate. 9.2 Representations and Warranties. Sellers and each Shareholder shall ------------------------------ cause the representations and warranties of Article VII to be true and correct at all times in every material respect. 9.3 Completion of Transactions. Sellers and each Shareholder shall use -------------------------- its respective best efforts to assure that the conditions set forth in Article XI hereof are satisfied on or prior to the Closing Date. 9.4 Approvals, Consents. Sellers shall obtain in writing prior to ------------------- Closing all approvals and consents, if any, required to be obtained in order to effectuate the transactions contemplated hereby, and shall deliver to Buyer copies, satisfactory in form and substance to Buyer's counsel, of such approvals and consents. All such approvals and consents shall be attached hereto as Exhibit M. - --------- 9.5 Access to Properties and Records. Sellers shall have given to Buyer -------------------------------- and to its counsel, accountants, and other representatives reasonable access during normal business hours to all of the properties and records of the Business as Buyer or its representatives may reasonably request and as shall be necessary to effectuate full disclosure to Buyer of all Material facts affecting the financial condition, business operations and assets of the Business. No investigation by Buyer shall, however, diminish or limit in any way the representations or warranties of Sellers and each Shareholder as set forth in Article VII hereof. In the event that Buyer discovers facts or circumstances that leads it to believe, in its sole discretion, that the transactions contemplated by this Agreement would be uneconomical to Buyer, then Buyer shall have the absolute right to terminate this Agreement without liability or obligation to Sellers. 9.6 Advise of Changes. From date hereof through the Closing Date, ----------------- Sellers shall advise Buyer promptly in writing of any Material damage to or diminution in value of the Purchased Assets or the Business, any condition or event that would cause any representation or warranty of Sellers and each Shareholder to be untrue in any respect, or any other fact that, if obtained or known on the date hereof, would have been required to be set forth or disclosed pursuant to this Agreement. 9.7 Refrain From Negotiations With Others. Sellers and Shareholders ------------------------------------- shall refrain from negotiations or discussions with others on the subject of the sale of the Purchased Assets. 9.8 Nonpublicity and Nondisclosure of Terms. Sellers and Shareholders --------------------------------------- shall take all reasonable steps to minimize any publicity regarding this transaction to third parties without prior approval of Buyer, and Sellers and each Shareholder shall not, without the prior written consent of Buyer, disclose the Purchase Price or any other terms of this Agreement or the transactions contemplated hereby to any third party. 9.9 Termination of Employees. On the Closing Date, Sellers shall ------------------------- terminate the employment of all employees of the Business so as to make the services of such person available to Buyer. Buyer may, at its sole discretion, employ such persons under arrangements which are terminable at will. Buyer expressly reserves the right to terminate the employment of any such employee at any time. 9.10 Name Change of Sellers. Within a reasonable time after the Closing ----------------------- Date, Sellers shall file with the Nebraska Secretary of State to (i)amend their respective Articles of Incorporation and change their respective names to ones dissimilar to any of the names constituting part of the Purchased Assets under Section 2.1(h) or (ii) Articles of Dissolution or other relevant filings to effect the dissolution and liquidation of each Seller. X COVENANTS OF BUYER ------------------ Buyer hereby covenants and agrees as follows: 10.1 Representations and Warranties. Buyer shall cause the representa- ------------------------------- tions and warranties of Article VIII to be true and correct at all times in every material respect. 10.2 Completion of Transactions. Buyer shall use its best efforts to -------------------------- assure that the conditions set forth in Article XI hereof are satisfied on or before the Closing Date. 10.3 Nondisclosure of Proprietary Information. All proprietary and ----------------------------------------- confidential information of Sellers or the Business made available to Buyer shall remain the property of Sellers pending Closing. Other than in connection with the transactions contemplated by this Agreement, Buyer and its agents shall not reproduce, use, or disclose to others any proprietary information of Sellers or the Business without the prior written consent of Sellers. Nevertheless, Buyer may make such proprietary information available to its Board of Directors, officers, counsel, accountants and other advisors who may use such information as necessary in the performance of their functions in this transaction. XI CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE --------------------------------------------------- The obligations of Buyer to complete the Closing are subject to the satisfaction on or before the Closing Date of each of the following conditions precedent; provided, however, that the election of Buyer to complete the Closing, notwithstanding that any such condition is not fulfilled by such time, shall not preclude Buyer from seeking redress from Sellers for breach of the terms of this Agreement: 11.1 Accuracy of Representations and Warranties. The representations ------------------------------------------ and warranties of Sellers and Shareholders set forth in Article VII shall have been true and correct in all material respects on the date made and shall be true and correct on the Closing Date. Buyer shall have received a certificate to that effect signed by each Shareholder and a duly authorized officer of each Seller. 11.2 Performance of Covenants. Sellers and Shareholders shall have ------------------------- performed and complied with all the covenants, obligations, and conditions required to be performed or complied with by Sellers on or before the Closing Date pursuant to this Agreement. Buyer shall have received a certificate to that effect signed by each Shareholder and a duly authorized officer of Sellers. 11.3 Certified Copy of Authorizing Resolutions. Buyer shall have ----------------------------------------- received a copy of each Seller's respective board of director and shareholder resolutions approving this transaction, duly certified by the respective Secretary of each Seller. 11.4 No Damage to Purchased Assets. None of the Purchased Assets or the ----------------------------- Business shall have been adversely affected in any Material respect as the result of any fire, accident, act of war, casualty, labor disturbance, legislation, regulation, or any other adverse circumstance. 11.5 Approval of Counsel for Buyer. All of the actions, proceedings, ----------------------------- consents, instruments, and documents delivered by Sellers and each Shareholder hereunder or incident to the performance hereof, and all other related matters shall, in the reasonable judgment thereof, be satisfactory to Witt, Gaither & Whitaker, P.C., counsel for Buyer. 11.6 Licenses and Permits Necessary For Buyer to Conduct Business. ------------------------------------------------------------ Buyer shall have received all licenses and permits necessary for it to conduct its business and affairs utilizing the Purchased Assets subsequent to the Closing; provided that Buyer shall use its best efforts to obtain such items. 11.7 Results of Due Diligence Investigation. Buyer shall have -------------------------------------- completed its due diligence investigation. Nothing shall have been revealed by Buyer's due diligence investigation that would give Buyer grounds to terminate this Agreement pursuant to the provisions of Section 9.5. XII CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE ---------------------------------------------------- The obligations of Sellers to complete the Closing are subject to the satisfaction on or before the Closing Date of each of the following conditions precedent; provided, however, that the election by Sellers to complete the Closing notwithstanding that any such condition is not fulfilled by such time shall not preclude Sellers from seeking redress from Buyer for breach of the terms of this Agreement: 12.1 Accuracy of Representations and Warranties. The representations and ------------------------------------------ warranties of Buyer set forth in Article VIII shall have been true and correct in all material respects on the date made, and shall be true and correct on the Closing Date. Sellers shall have received a certificate to that effect signed by a duly authorized officer of Buyer. 12.2 Performance of Covenants. Buyer shall have performed and complied ------------------------ with all covenants, obligations, and conditions required to be performed or complied with by Buyer on or before the Closing Date pursuant to this Agreement. Sellers shall have received a certificate to that effect signed by a duly authorized officer of Buyer. 12.3 Approval of Counsel to Sellers. All actions, proceeding, consents, ------------------------------- instruments, and documents delivered by Buyer hereunder or incident to the performance hereof and all other related matters shall, in the reasonable judgment thereof, be satisfactory to counsel for Sellers. XIII INDEMNIFICATION --------------- 13.1 Indemnification by Sellers and Shareholders. Sellers and ------------------------------------------- Shareholders, jointly and severally, shall indemnify and hold Buyer harmless from and against, and reimburse and promptly pay to Buyer the full amount of, any and all loss, damage, liability, cost, obligation or expense (including reasonable expenses and fees of counsel) incurred by Buyer, directly or indirectly, as a result of: (a) a breach of any representation or warranty or inaccuracy of any representation of Sellers and each Shareholder contained in this Agreement or in any certificate or document delivered to Buyer by Sellers or Shareholders in connection with this transaction; (b) a failure of Sellers or Shareholders to perform or comply with any covenant, agreement or obligation required by this Agreement to be performed or complied with by Sellers or Shareholders; or (c) any event or circumstance arising out of or relating to the conduct of the Business on or prior to the Closing Date. 13.2 Indemnification by Buyer. Buyer shall indemnify and hold ------------------------ Sellers harmless from and against, and reimburse and promptly pay to Sellers the full amount of, any and all loss, damage, liability, cost, obligation or expense (including reasonable expenses and fees of counsel) incurred by Sellers, directly or indirectly, as a result of: (a) a breach of any representation or warranty of Buyer contained in this Agreement or in any certificate or document delivered to Sellers by Buyer in connection with this transaction; (b) a failure of Buyer to perform or comply with any covenant, agreement or obligation required by this Agreement to be performed or complied with by the Buyer; or (c) an event or circumstance arising out of or relating to the conduct of the Business subsequent to the Closing Date. 13.3 Notice of Potential Claims and Opportunity to Participate in ------------------------------------------------------------ Defense. Promptly after either Buyer or Sellers becomes aware of any claim - -------- whatsoever which would be subject to indemnification set forth in Sections 13.1 or 13.2 above, such party shall provide the other party with prompt written notice of such claim stating all information regarding the claim that the party possesses. The potential indemnifying party shall have the opportunity to participate (at its own expense) in the defense of any such claims. Nothing herein shall be deemed to prevent either party from making a claim for indemnification hereunder for potential or contingent claims or demands provided the notice sets forth the specific basis for any such potential or contingent claim or demand to the extent then feasible and that such party has reasonable grounds to believe that such a claim or demand may be made. All claims shall bear interest at the prime rate of interest announced from time to time by The --- Wall Street Journal from the date on which notice of claim is given to the other - ------------------- party until the date the claim is paid. XIV MISCELLANEOUS ------------- 14.1 Risk Of Loss. The risk of loss or damage to the Purchased Assets ------------- from fire, strike, war, act of God or other casualty shall be borne by Sellers through the Closing Date. 14.2 Simultaneous Closing. All transactions at Closing including --------------------- execution of collateral documents referenced herein shall be deemed to take place simultaneously and none shall be deemed to take place until all shall have taken place. 14.3 Survival of Representations and Warranties. The respective ------------------------------------------- representations, warranties, obligations, covenants and agreements contained herein shall survive the Closing. 14.4 Counterparts. This Agreement may be executed in any number of ------------- counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 14.5 Captions. The captions and subject headings are for convenience of --------- reference only, and shall not affect the meaning or construction to be given any of the provisions hereof. 14.6 Gender. All pronouns and any variations thereof shall be deemed to ------- refer to the masculine, feminine or neuter, singular or plural, as the identity of the parties and context may require. 14.7 Notices. Any notice, demand, request, consent, approval or other -------- communications required or permitted to be given hereunder shall be in writing and shall be delivered personally or sent either by facsimile transmission, or nationally recognized overnight courier (utilizing guaranteed next business morning or day delivery), addressed to the party to be notified at the following address, or to such other address as such party shall specify by like notice: If to Sellers and Shareholders, then to: JTI, Inc. P.O. Box 84550 Lincoln, NE 68501 Attn: David R. Parker/Alan J. Hingst Facsimile: (402) 474-6628 Telephone No.: (402) 475-5419 Courier Address: 201 Southwest 27th Street Lincoln, NE 68522 If to Buyer, then to: U.S. Xpress Enterprises, Inc. 2931 South Market Street Chattanooga, TN 37410 Attention: Patrick E. Quinn Facsimile: (423)756-6820 Telephone No.: (423)756-7511 With copy to: Carter J. Lynch, III Witt, Gaither & Whitaker, P.C. 1100 SunTrust Bank Building Chattanooga, Tennessee 37402 Facsimile: (423) 266-4138 Telephone No.: (423) 265-8881 Notices given as provided above shall be deemed given on the day of transmission if by facsimile, or if by recognized overnight courier, on the business day following the dispatch thereof. 14.8 Entire Agreement, Modification. This instrument contains the entire ------------------------------- agreement of the parties with respect to the subject matter hereof; all previous agreements and discussions relating to the same or similar subject matter being merged herein. The parties acknowledge and agree that neither of them has made any representation with respect to the subject matter of this Agreement or any representations inducing the execution and delivery hereof except as specifically set forth herein. Each of the parties hereto acknowledges that it has relied on its own judgment in entering into this Agreement. This Agreement may not be changed, amended, or modified including specifically the provisions ------------------------------------- of this paragraph, except by a writing signed by both parties hereto. The - ----------------- provisions of this paragraph may not be changed, amended, modified, terminated, or waived as a result of any failure to enforce any provision or the waiver of any specific breach or breaches thereof or any course of conduct of the parties. 14.9 Assignment. This Agreement and the rights, obligations and duties of ----------- the parties hereto shall not be assignable or otherwise transferable to any party other than to a related party of Buyer. 14.10 Binding Effect and Benefit. This Agreement shall inure to the --------------------------- benefit of, and shall be binding upon, the parties, their heirs, executors and administrators, successors and permitted assigns. 14.11 Further Assurances. Sellers shall on the Closing Date, and from ------------------ time to time thereafter promptly at Buyer's request and without further consideration, execute and deliver to Buyer such instruments of transfer, conveyance and assignment as Buyer shall reasonably request to transfer, convey and assign more effectively the Purchased Assets to Buyer. 14.12 Partial Invalidation. If any portion of this Agreement is held --------------------- invalid, illegal or unenforceable, such determination shall not impair the enforceability of the remaining terms and provisions contained herein. In such event, this Agreement shall be construed and interpreted as if such invalid, illegal or unenforceable terms were limited to the minimum extent whereby such terms would be valid, legal and enforceable. If such limitation is not possible, this Agreement shall be construed and interpreted as if such invalid, illegal or unenforceable terms were severed and not included herein. 14.13 Waiver. No waiver of a breach or violation of any provision of ------- this Agreement shall operate or be construed as a waiver of any subsequent breach. 14.14 Exhibits and Schedules. All Exhibits, Schedules and documents ----------------------- referred to in this Agreement shall be deemed to be incorporated herein by any reference thereto as if fully set out, yet no matter disclosed in one Schedule or Exhibit shall be deemed disclosed in another Schedule or Exhibit in the absence of an express cross-reference. 14.15 No Third Party Beneficiaries. This Agreement shall not create any ----------------------------- rights for the benefit of any third party. 14.16 Governing Law. This Agreement shall be interpreted and construed -------------- in accordance with the laws of the State of Tennessee. ******************************************* this space intentionally left blank IN WITNESS WHEREOF, the parties have executed this Agreement the day and year aforesaid. SELLERS: - ------- JTI, Inc. /s/Alan J. Hingst Attest:/s/ David R. Parker - -------------------------- ---------------------------- Alan J. Hingst, President David R. Parker, Secretary Logistics, Inc. /s/ Alan J. Hingst Attest:/s/ David R. Parker - -------------------------- ---------------------------- Alan J. Hingst, President David R. Parker, Secretary Bison Enterprises, Inc. /s/ Alan J. Hingst Attest:/s/ David R. Parker - -------------------------- ---------------------------- Alan J. Hingst, President David R. Parker, Secretary HI/PAR Systems, Inc. /s/ Alan J. Hingst Attest:/s/ David R. Parker - -------------------------- ---------------------------- Alan J. Hingst, President David R. Parker, Secretary Road Enterprises, Inc. /s/ Alan J. Hingst Attest:/s/ David R. Parker - -------------------------- ---------------------------- Alan J. Hingst, President David R. Parker, Secretary SHAREHOLDERS: /s/ David R. Parker - -------------------------- David R. Parker /s/ Alan J. Hingst - -------------------------- Alan J. Hingst BUYER: - ------ U.S. Xpress Enterprises, Inc. /s/ Patrick E. Quinn Attest:/s/ Max L. Fuller - -------------------------- ---------------------------- Patrick E. Quinn Max L. Fuller President Secretary EX-22 5 LIST OF THE CURRENT SUBSIDIARIES EXHIBIT 22 SUBSIDIARIES OF U.S. XPRESS ENTERPRISES, INC. FOR FISCAL YEAR ENDED MARCH 31, 1997 U.S. Xpress, Inc. CSI/Crown, Inc. JTI, Inc. U.S. Xpress Leasing, Inc. Xpress Air, Inc. EX-23 6 ARTHUR ANDERSON CONSENT EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included (or incorporated by reference) in this Form 10-K into the Company's previously filed Registration Statements on Form S-8 (File No. 33-91238, File No. 33-94878, and File No. 33-99728). ARTHUR ANDERSEN LLP Chattanooga, Tennessee June 26, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR MAR-31-1997 APR-01-1996 MAR-31-1997 5,092 0 52,789 2,733 4,904 73,036 133,677 39,803 178,084 39,207 0 0 0 120 63,042 178,084 0 362,819 0 342,223 62 880 5,542 14,236 6,358 0 0 0 0 7,878 .65 .65
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