-----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, PoNDP8QUUfNVzPIWw57T78XqMXMi7HleUKhqBDe5XDtncZMK/xO6vfhmhCKDBuNx 0sATz6e1RuG8xgh2mZ8VTA== 0000931763-02-001061.txt : 20020415 0000931763-02-001061.hdr.sgml : 20020415 ACCESSION NUMBER: 0000931763-02-001061 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 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: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24806 FILM NUMBER: 02597450 BUSINESS ADDRESS: STREET 1: 4080 JENKINS ROAD CITY: CHATTANOOGA STATE: TN ZIP: 37421 BUSINESS PHONE: 6156967377 MAIL ADDRESS: STREET 1: 4080 JENKINS ROAD CITY: CHATTONOOGA STATE: TN ZIP: 37421 10-K 1 d10k.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 of Incorporation or Organization) (I.R.S. Employer Identification No.) 4080 Jenkins Road Chattanooga, Tennessee 37421 (Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (423) 510-3000 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 $63,125,000 as of March 21, 2002 (based upon the $10.75 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 March 21, 2002, the registrant had 10,811,882 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 10, 11, 12, and 13 of this Report is incorporated by reference from the registrant's definitive proxy statement mailed to stockholders for the 2002 annual meeting of stockholders to be held on May 14, 2002. PART I ITEM 1. BUSINESS This report contains forward-looking statements relating to future events or the future financial performance of the Company. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements may include, but not be limited to, projections of revenues, income or loss, capital expenditures, acquisitions, plans for growth and future operations, financing needs or plans or intentions relating to acquisitions by the Company, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Such risks and uncertainties include, without limitation, those detailed in Item 7 of this Report under the heading "Special Considerations". Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. General U.S. Xpress Enterprises, Inc. (the "Company") provides transportation services in the continental United States, Canada and Mexico. The Company is the fifth largest publicly owned truckload carrier in the United States. The Company has two operating segments, U.S. Xpress, Inc. ("U.S. Xpress") and CSI/Crown, Inc. ("CSI/Crown"). U.S. Xpress accounted for approximately 89.6% of the Company's 2001 revenues. See Note 15 of the Company's 2001 Consolidated Financial Statements for quantitative segment information. The Company also offers logistics services through its 13% equity ownership interest in Transplace, Inc. ("Transplace"), an Internet-based global transportation logistics company. U.S. Xpress provides three principal services: i) over-the-road or long-haul services with lengths of haul generally in the range of 400 to 3,000 miles; ii) regional services with lengths of haul generally in the range of 200 to 550 miles in the Western, Midwestern and Southeastern regions of the United States; and iii) dedicated contract carriage services. CSI/Crown is a leading provider of logistics services to the floorcovering industry. Services include: i) consolidation and distribution of less-than-truckload shipments; ii) coordination of line-haul transportation to Company operated service centers and third-party agent facilities for local delivery; iii) warehousing and distribution services; and iv) retail sales of installation supplies, including the Company's private-label "Installer's Choice" brand of floorcovering installation products. In February of 2001, CSI/Crown further broadened its services to include airport-to-airport transportation services to the airfreight and airfreight forwarding industries. The Company provides scheduled ground transportation of air cargo for integrated air cargo carriers, airlines and airfreight forwarders. These services are provided to 75 major destination markets, nationwide, on a one to four day basis through its 12 regional hub facilities. The Company's mission is to provide high levels of service to customers utilizing proven technologies and skilled employees. The Company's operating and growth strategies are focused on its target markets, while capitalizing on evolving trends and growth markets in the transportation industry. These strategies include: 1) Position the Company as the premier high service provider. The Company specializes in providing time-definite and expedited truckload services to customers that operate supply chain management systems, particularly those that manage their flow of raw materials, in-process products and finished goods on a "just-in-time" basis. The Company was one of the first in the industry to establish time-definite pickups and deliveries as a standard for service quality. Time-definite service is a critical element in efficient supply chain and distribution systems management. In addition, the Company provides expedited service throughout the continental United States and in parts of Canada and Mexico. This is particularly important to shippers that operate multiple, geographically diverse facilities. In addition, the Company has consistently been a leader in the truckload industry in providing customers with easy access to operating and service-related technologies that provide value to shippers. The Company's electronic commerce ("E-Commerce") capabilities, in particular, differentiate the Company from many other truckload suppliers. The Company provides its customers with the ability to use E-Commerce through the Internet, private networks and third-party networks. 2 2) Expand core carrier relationships with shippers. Most of the larger shippers are reducing the number of carriers they use and are expanding relationships with their most capable carriers. Those companies selected for the most significant supplier relationships with shippers are called "core carriers". The Company offers long-haul, mid-range and regional truckload services, time-definite and expedited services and dedicated fleet services. This range of capabilities, coupled with the capacity of 5,238 U.S. Xpress owned, leased and owner-operator tractors at December 31, 2001, has positioned the Company as a core carrier for many of the largest shippers in North America. In seeking these relationships, the Company emphasizes its service capabilities and capacity, as well as its commitment to flexibility, responsiveness and analytical planning. Customers that have designated the Company as a core carrier include: Sears, E.I. DuPont, Federal Express, Proctor and Gamble, Hewlett-Packard, Burlington Air Express and Kimberly Clark. 3) Position the Company as a driver-friendly employer. The labor market for qualified professional truck drivers is extremely competitive, providing an advantage to driver-friendly employers like the Company. The Company focuses significant resources and attention on the successful recruiting, hiring, training and retention of qualified solo and team drivers. At December 31, 2001, the Company operated 5,238 tractors in its fleet, an increase of 7.8% from December 31, 2000. Management believes that its success in hiring and retaining qualified drivers is due to its high-quality equipment; better than average miles, which translates into better take-home pay for drivers; "driver-friendly freight" that does not require labor or lengthy delays; flexible work schedules that enable drivers to better meet their personal obligations and lifestyles; and creative recruiting strategies that recognize the changing demographics of the American work force and that seek to expand the diversity of the driver fleet. Ongoing success in recruiting, hiring, training and retaining sufficient drivers is critical to the Company in achieving its growth objectives. 4) Pursue acquisition opportunities. The Company has grown significantly through eleven strategic acquisitions in the 1990s. U.S. Xpress now includes the operations of Southwest Motor Freight, Hall Systems, National Freight Systems, Michael Lima Transportation, JTI, Inc., Victory Express, Inc. and PST Vans, Inc. CSI/Crown's operations include several acquired companies, including Crown Transport Systems and CSI/Reeves and assets purchased from Great Southern Xpress and Rosedale Transport. These acquisitions have significantly expanded the Company's capabilities and capacity and have been a significant contributor to the Company's growth. While acquisitions remain a part of the Company's long-term strategy, the Company is placing its primary emphasis in 2002 on internal growth and improving its operating results. Services U.S. Xpress - ----------- Long-haul/Over-the-Road U.S. Xpress' principal service specialty is over-the-road or long-haul services with lengths of haul generally in the range of 400 to 3,000 miles. U.S. Xpress offers time-definite and expedited services within long-haul/over-the-road. Time-definite transportation requires that pickups and deliveries be performed to exact appointment times or within a specified number of minutes. This service is an essential point of differentiation from many other transportation companies, which typically provide service only within time "windows" ranging from a few hours to a few days. Time-definite service is particularly important to U.S. Xpress' customers that operate in a "just-in-time" environment, distribution and retail inventory systems and to customers in the air-freight and logistics industries. U.S. Xpress' expedited service consists of the pick up and delivery of freight on prescribed schedules at transit times comparable to deferred airfreight service. U.S. Xpress is able to meet these transit times using team drivers or relays at much lower cost than deferred airfreight. Regional Service About 70% of the freight transported in the U.S. moves over distances of less than 1,000 miles. In addition, the average length of haul of shipments is shrinking as manufacturers and distributors increasingly bring the various elements of their supply and distribution chains into closer geographical proximity. These factors make regional service capabilities an important aspect in qualifying U.S. Xpress for core carrier relationships. U.S. Xpress provides regional service involving shipments of 200 to 550 miles in the Western, Midwestern and Southeastern regions of the United States. Dedicated Contract Carriage Service Some shippers use transportation or logistics companies to manage or operate their private trucking operations. Many of these shippers historically have operated their own fleets to transport their products. U.S. Xpress' management expertise, capacity and 3 systems have positioned it to provide dedicated contract carriage services in which specific tractors, drivers and, at times, on-site personnel are assigned to a specific customer account. As a replacement or extension of a customer's private fleet, U.S. Xpress can provide the assurance of extra capacity to "flex" the fleet to meet surges in the business cycle. Through dedicated service relationships, customers obtain assurance of capacity to meet their requirements. U.S. Xpress benefits by generating better equipment utilization, increasing business volume from key customers and improving planning of resources. Drivers benefit through consistent wages, enhanced scheduling, reduced downtime between loads and more predictability of their off-duty time. CSI/Crown - --------- Floorcovering Logistics CSI/Crown is a leading provider of logistics services to the floorcovering industry. CSI/Crown picks up floorcovering products from manufacturers; consolidates shipments into truckloads bound for specific destinations; contracts with truckload carriers, including U.S. Xpress, to deliver the products to CSI/Crown service centers or to contract agents and delivery services; and delivers the products to floorcovering distributors, retailers and large-scale end users in the continental United States, Canada and Mexico. In addition, CSI/Crown provides warehousing and other specialized services, such as custom carpet cutting and the sale of floorcovering installation supplies. Additional distribution-related services, such as pool distribution and warehousing, have been introduced to industries other than the floorcovering industry. These services allow CSI/Crown to better utilize its facilities and provide an avenue for further diversification. Airfreight and Distribution Services CSI/Crown offers nationwide, scheduled ground transport of air cargo to customers in the airfreight and airfreight forwarding industries as a cost-effective and reliable alternative to traditional air transportation. Service is provided to over 75 major markets throughout the United States and Canada in one of the industry's largest road-feeder networks. Driven by Federal Aviation Administration mandated changes in cargo security guidelines, many air carriers and integrators need to shift certain goods to ground transport. Further, these restrictions have reduced available lift capacity in passenger aircraft resulting in more expedited traffic moving through ground networks such as the system operated by CSI/Crown. Marketing and Customers U.S. Xpress' success in marketing its services is a result of commitment to service, capabilities, capacity, flexibility, responsiveness, analytical planning and information technology management. The Company's marketing department and sales personnel identify new business prospects and implement programs to obtain and retain customer accounts. The Company employs 33 full-time marketing and national account representatives who have responsibility for specific geographic areas. U.S. Xpress' top 50 customers, most of which have designated U.S. Xpress as a core carrier, accounted for approximately 60.3% of its revenues in 2001. During 2001, no single customer accounted for more than 4.5% of U.S. Xpress' revenues. CSI/Crown's top 5 customers accounted for approximately 24.8% of its revenues in 2001. During 2001, no single customer accounted for more than 8.4% of CSI/Crown's revenue. Equipment 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 agreements with original equipment suppliers, the Company has minimized parts inventories and maintenance costs. The Company has negotiated agreements in principle concerning the essential terms of trade-in and/or repurchase commitments from its primary equipment vendors for disposal of a substantial portion of its equipment. These agreements in principle are expected to reduce the Company's risks related to equipment disposal values. 4 The following table shows the numbers, type and age of U.S. Xpress and CSI/Crown company-owned and leased equipment at December 31, 2001: Model Year Tractors Trailers ---------- -------- -------- 2002 698 1,049 2001 865 1,198 2000 1,102 2,544 1999 1,922 3,720 1998 64 1,503 1997 0 1,274 1996 90 1,119 1995 & Prior 28 932 -------- -------- Total 4,769 13,339 ======== ======== Tractors The Company purchases or leases Freightliner or Volvo tractors for substantially all of the additions and replacements to its over-the-road fleet. Tractors are generally replaced every 42 to 54 months, generally well in advance of the need for major engine overhauls. This schedule can be accelerated or delayed, subject to certain limitations, based on resale values in the used truck market and the differential between those values and new truck prices. All Company over-the-road tractors are equipped with Eaton Vorad anti-collision systems, electronic speed controls, anti-lock braking systems for improved safety and Qualcomm and in cab e-mail for improved communications. Over 97% of the tractor fleet is equipped with Eaton automatic shift transmissions, and a substantial portion of the fleet is equipped with automatic traction control. All engines have fuel incentive programming for increased fuel economy. Trailers The Company's dry van trailers have cubic capacity that is among the largest in the industry. In 1997, the Company began 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. The Company currently purchases Wabash Duraplate trailers for substantially all of the additions and replacements to its fleet. In addition, substantially all of the trailers are equipped with air ride suspension, leading to softer rides that result in less load damage. Competition The transportation services business is extremely competitive. The Company competes primarily with other truckload carriers and providers of deferred airfreight service. Competition from railroads and providers of intermodal transportation likely would increase if service standards for these modes were improved dramatically. Generally, competition for the freight transported by the Company is based on service, efficiency and pricing. 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 affect the Company's results of operations or financial condition. Some competitors have greater financial resources, operate more equipment and transport more freight than the Company. Regulation The Company is a motor carrier that is subject to safety regulations promulgated by the Federal Motor Carrier Safety Administration of 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 and certain Canadian provinces, over any route selected by the Company. The trucking industry is subject to possible regulatory and legislative change that could affect the economics of the industry. 5 The Company's operations are also subject to various federal, state and local environmental laws dealing with transportation, storage, presence, use, disposal and handling of hazardous materials, discharge of storm water and underground fuel storage tanks. The Company believes that its operations are in substantial compliance with current laws and regulations and does not know of any existing condition that would cause non-compliance with applicable environmental regulations to have a material adverse effect on the Company's business or operating results. Safety and Risk Management The Company is committed to safe operations. The Company's emphasis on safety is demonstrated through equipment specifications and active safety and loss prevention programs. 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 tractors. The Eaton Vorad system is 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 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 and post-accident 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. The DOT evaluates carriers and provides safety fitness ratings based on conformance with requirements and accident frequency. U.S. Xpress and CSI/Crown each have satisfactory safety fitness ratings. The Company secures appropriate insurance coverage at cost-effective rates. The primary claims arising in the Company's business consist of cargo loss and damage, auto liability (personal injury and property damage) and workers' compensation. The Company currently purchases primary and excess coverage for these types of claims, subject to certain retention levels at amounts that management believes are sufficient to adequately protect the Company. Human Resources At December 31, 2001, the Company and its subsidiaries employed 7,287 full-time associates, of whom 5,424 were drivers, 174 were mechanics and other maintenance personnel, 1,047 were office associates for U.S. Xpress, the truckload division, and 642 were employed by CSI/Crown, the non-truckload division. U.S. Xpress also had active contracts with independent contractors (owner-operators) for the services of 807 tractors that provide both tractor and qualified drivers. None of the Company's employees are represented by a union or collective bargaining agreement, and the Company considers relations with its employees to be good. Driver Recruiting, Training and Retention The Company recognizes that it is paramount to recruit, train and retain a professional driver workforce. The Company also realizes that competition for qualified drivers will remain high and will be impacted by declining unemployment rates, changes in workforce demographics and reduced government funding of training programs. Although the Company has experienced no significant inability to attract qualified drivers, no assurance can be given that a shortage of qualified drivers in the future will not adversely affect the Company. 6 All Company drivers must meet or exceed specific guidelines relating to their safety records, driving experience, and personal evaluations, including a physical examination and mandatory drug testing as outlined in DOT regulations. After an offer of employment is extended, a driver must successfully complete training in all aspects of Company policies and operations, safety philosophy and fuel efficiency. In addition, all drivers must successfully complete a Company driving exam and possess a valid Commercial Drivers License. The Company maintains an ongoing safety and efficiency program to ensure that drivers comply with safe and efficient operating procedures. Senior management is actively involved with the development and retention of drivers. Recognizing the shortage of new drivers entering the industry, since January 1998, the Company has operated a professional driving school at its facility in Medway, Ohio. The school was certified in 1998 by the Professional Truck Driving Institute of America and re-certified in 2000 through 2005. The Company also contracts with driver schools managed by independent organizations as well as community college programs throughout the United States. Management believes that there are several key elements to recruiting and retaining experienced professional drivers, such as an attractive compensation and benefits package, meeting reasonable driver expectations, providing equipment with desirable driver amenities and providing a company-wide culture of support for driver needs. Drivers are compensated on the basis of miles driven. The starting rate per mile is determined by the driver's experience level and will increase with the driver's length of service with the Company. Additional compensation may be earned through loading/unloading or stop pay and mileage bonuses. Drivers employed by the Company are eligible to participate in Company sponsored health, life, dental and vision plans. Further, they are eligible to participate in a 401(k) Retirement Plan and an Employee Stock Purchase Plan. Additional benefits include paid holidays, vacation pay and pre-paid phone cards. The Company believes that meeting and managing drivers' reasonable expectations is critical to driver satisfaction and retention. From the solicitation of driver friendly freight (no loading/unloading, decreased dwell time, drop/hook, etc.), to training recruiters to provide candidates with a realistic view of work requirements and the lifestyle of a long-haul driver, to getting drivers home on a regular basis, the Company is dedicated to meeting its commitments. The Company's late model Freightliner and Volvo conventional tractors are designed for driver comfort and safety. Standard equipment includes automatic transmissions, air ride suspensions, double sleeper bunks, air conditioning, power steering, electronic engine brakes and Eaton Vorad collision avoidance systems. Management believes that maintaining a culture of driver support through flexible work schedules that enable drivers to accommodate personal obligations and lifestyles, leveraging technology (in cab e-mail, Internet services, etc.) that enables drivers to remain in touch with their families when on the road, managing driver home time, seeking drivers' input in the decision making process seeking mutually satisfactory solutions and providing career advancement opportunities for drivers are key factors for developing one of the Company's most valuable assets. Independent Contractors The Company recognizes the benefits of augmenting its service capacity through the use of independent contractors. Independent contractors provide their own tractors and pay for all the expenses of operating their own equipment, including wages and benefits, fuel, physical damage insurance, maintenance, highway use taxes and debt service. Therefore, less capital is required for the Company's growth. The Company has an aggressive independent contractor recruiting program, with 807 contractors under active contract at December 31, 2001. The Company intends to continue adding independent contractors. Fuel Shortages of fuel or increases in fuel prices could have a materially adverse effect on the operations and profitability of the Company. Many of the Company's customer contracts contain fuel surcharge provisions to mitigate increases in the cost of fuel (the Company recognized $25.9 million of fuel surcharge revenue for the year ended December 31, 2001, compared to $29.5 million for the year ended December 31, 2000). However, there is no assurance that such fuel surcharges can be used to offset future increases in fuel prices. Additionally, at times, fuel purchase contracts are used to mitigate the effects of increases in the price of fuel. The Company maintains fuel storage tanks at certain of its terminals. Leakage or damage to these tanks could subject the Company to environmental clean-up costs. The Company believes it is in compliance with all laws and regulations relating to maintenance of such fuel storage tanks. 7 ITEM 2. PROPERTIES The following table provides information regarding the Company's facilities at December 31, 2001:
Company Location Facility Functions Owned or Leased - ---------------- ------------------ --------------- U.S. Xpress: Austell, Georgia Drop Yard Leased Birmingham, Alabama Terminal Leased Boise, Idaho Drop Yard Leased Bordentown, New Jersey Drop Yard Leased Bowling Green, Kentucky Drop Yard Leased Calexico, California Drop Yard Leased Chattanooga, Tennessee Corporate Office Leased Chicago, Illinois Drop Yard Leased Colton, California Terminal, Maintenance, Customer Service, Owned Fleet Services, Driver Training Dallas, Texas Drop Yard Leased Denver, Colorado Drop Yard Leased El Paso, Texas Drop Yard Leased Greenville, South Carolina Drop Yard Leased Houston, Texas Drop Yard Leased Indianapolis, Indiana Drop Yard Leased Jacksonville, Florida Drop Yard Leased Kent, Washington Drop Yard Leased Laredo, Texas Drop Yard Leased Lincoln, Nebraska Terminal, Maintenance, Customer Service, Owned Fleet Services, Driver Training, Independent Contractor Recruiting Long Beach, California Drop Yard Leased Medway, Ohio Terminal, Maintenance, Customer Service, Leased Driver Recruiting, Terminal Services, Driver School Memphis, Tennessee Terminal, Driver Recruiting Leased New Boston, Michigan Drop Yard Leased Newport, Minnesota Drop Yard Leased Oklahoma City, Oklahoma Terminal, Maintenance, Customer Service, Leased Fleet Services, Driver Training, Driver Recruiting Otay Mesa, California Drop Yard Leased Phoenix, Arizona Drop Yard Leased Portland, Oregon Drop Yard Leased Reno, Nevada Drop Yard Leased Sacramento, California Terminal, Fleet Services Leased Salt Lake City, Utah Terminal, Maintenance, Customer Service, Owned Fleet Services, Driver Training Sioux City, South Dakota Terminal Leased Troutdale, Oregon Drop Yard Leased Tunnel Hill, Georgia Terminal, Maintenance, Fleet Services, Driver Training Leased CSI/Crown: Albany, New York Distribution Center Leased Baltimore, Maryland Distribution Center Leased Bensenville, Illinois Distribution Center Leased Denver, Colorado Distribution Center Leased
8
Company Location Facility Functions Owned or Leased - ---------------- ------------------ --------------- Eagan, Minnesota Distribution Center Leased Everett (Boston), Massachusetts Distribution Center Leased Fresno, California Distribution Center Leased Grand Prairie, Texas Distribution Center Leased Grapevine, Texas Distribution Center Leased Hapeville (Atlanta), Georgia Distribution Center Leased Hawthorne, California Distribution Center Leased Hayward, California Distribution Center Leased Houston, Texas Distribution Center Leased La Mirada, California Distribution Center Leased Oklahoma City, Oklahoma Distribution Center Leased Orlando, Florida Distribution Center Leased Pittsburgh, Pennsylvania Distribution Center Leased Rancho Cordova, California Distribution Center Leased Rochester, New York Distribution Center Leased Romeoville, Illinois Distribution Center Leased Salt Lake City, Utah Distribution Center Leased San Antonio, Texas Distribution Center Leased San Diego, California Distribution Center Leased S. San Francisco, California Distribution Center Leased Spokane, Washington Distribution Center Leased St. Louis, Missouri Distribution Center Leased Tampa, Florida Distribution Center Leased Tunnel Hill, Georgia Corporate Office, Distribution Center Leased
In late 1998, the Company entered into a long-term lease of a newly constructed corporate office and operations facility in Chattanooga, Tennessee. The facility encompasses nearly 100,000 square feet of office space and includes state-of-the-art information management and communications systems. CSI/Crown is based in Tunnel Hill, Georgia, approximately 25 miles from the Chattanooga location. The Tunnel Hill facility includes a 101-door loading dock facility in which floorcovering shipments from multiple manufacturers are consolidated into truckloads for delivery to Company-owned and agent-operated distribution service centers. Substantially all CSI/Crown facilities operate as distribution centers performing consolidation, warehousing and local distribution. In the opinion of the Company, its facilities are suitable and adequate for the Company's needs. 9 ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in a lawsuit filed by Forward Air, Inc. ("Forward Air"), a deferred airfreight service provider, in the United States District Court in Greeneville, Tennessee, in which Forward Air has asserted a variety of claims primarily for trademark infringement and unfair competition allegedly arising out of the Company's use of the name "Dedicated Xpress Services, Inc." In its lawsuit, Forward Air asserts that after Forward Air purchased the assets of Dedicated Transportation Services, Inc. ("DTSI"), an airfreight provider, the Company entered the deferred air freight logistics service business and is unfairly competing with Forward Air. Forward Air seeks unspecified damages and injunctive relief preventing the Company from using the name "Dedicated Xpress Services, Inc." In a related case, SouthTrust Bank ("SouthTrust"), the secured lender to DTSI, which foreclosed upon and sold the assets of DTSI to Forward Air, has filed a lawsuit against the Company concerning certain events surrounding such foreclosure and sale. In November 2000, the Company signed an agreement with SouthTrust to purchase certain assets of DTSI at foreclosure by SouthTrust. After the agreement was signed, SouthTrust advised the Company that it had received a higher offer for the assets from Forward Air and that it would cancel the agreement with the Company unless the Company matched the higher offer. SouthTrust then sold the assets of DTSI to Forward Air. In its lawsuit, SouthTrust claims the Company acted wrongfully and attempted to interfere with SouthTrust's sale of DTSI's assets to Forward Air. The lawsuit seeks damages in an unspecified amount from the Company, and seeks to have the Court declare that actions taken by SouthTrust in connection with the foreclosure and sale of DTSI's assets were lawful and did not violate any legal rights of the Company. The Company believes that the claims asserted by Forward Air and SouthTrust are without merit and intends to vigorously defend the lawsuits. The Company is party to certain other legal proceedings incidental to its business. The ultimate disposition of these matters, in the opinion of management, based in part on the assessment of the likelihood of an adverse disposition of such matters, will not have a material adverse effect on the Company's financial position or results of operations. 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the quarter ended December 31, 2001, no matters were submitted to a vote of security holders. Executive Officers of the Company Information with respect to the executive officers of the Company is set forth below:
Name Age Position - ----------------------------------------------------- Cort J. Dondero 51 Director, Executive Vice President, Chief Operating Officer Max L. Fuller 49 Co-Chairman of the Board of Directors, Vice President and Secretary Ray M. Harlin 52 Director, Executive Vice President - Finance and Chief Financial Officer E. William Lusk, Jr. 46 President, CSI/Crown, Inc. Patrick E. Quinn 55 Co-Chairman of the Board of Directors, President and Treasurer
Cort J. Dondero has served as Executive Vice President and Chief Operating Officer of the Company since July 2000. Previously, Mr. Dondero was President of Trimac Logistics, Inc. from 1999 to July 2000 and President and founder of Service and Administrative Institute from 1988 to 1999. Mr. Dondero has been a director of the Company since July 2000. Max L. Fuller has served as Co-Chairman of the Board of the Company since 1994 and Vice President and Secretary of the Company since its formation in 1989. Mr. Fuller is a director of SunTrust Bank, Chattanooga, N. A. Mr. Fuller has served as an officer and director of U.S. Xpress, Inc. since 1985. Ray M. Harlin has served as Executive Vice President - Finance and Chief Financial Officer of the Company since 1997. Previously, Mr. Harlin served for 25 years in auditing and managerial positions, and as a partner with Arthur Andersen LLP. Mr. Harlin has been a director of the Company since 1997. E. William Lusk, Jr. has served as President of CSI/Crown, Inc. since 2001. Previously, Mr. Lusk was Executive Vice President of the Company from 1996 to 2000, Vice President of Marketing of the Company from 1991 to 1996 and Executive Vice President of U.S. Xpress, Inc. from 1987 to 1994. Patrick E. Quinn has served as Co-Chairman of the Board of the Company since 1994 and President and Treasurer of the Company since its formation in 1989. Mr. Quinn has served as an officer and director of U.S. Xpress, Inc. since 1985. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Common Stock and Stockholder Data The Company's Class A Common Stock is traded on the NASDAQ National Market System under the symbol XPRSA. No market exists for the Company's Class B Common Stock. At March 21, 2002, there were 199 registered stockholders and an estimated 1,600 beneficial owners of the Company's Class A Common Stock and 2 beneficial owners of the Company's Class B Common Stock. At March 21, 2002, there were 10,811,882 shares of Class A Common Stock outstanding and 3,040,262 shares of Class B Common Stock outstanding. On March 21, 2002, the closing price for the Common Stock was $10.75. Listed below is the trading activity for each quarter in the last two fiscal years: Quarter Ending High Low - --------------------------------------------------------------------- March 31, 2000 10.00 5.12 June 30, 2000 8.87 6.25 September 30, 2000 8.75 5.87 December 31, 2000 7.50 5.13 March 31, 2001 8.00 5.50 June 29, 2001 7.82 5.81 September 28, 2001 9.10 5.35 December 31, 2001 9.40 4.60 Dividends The Company does not pay cash dividends and intends to continue to retain earnings to finance the growth of the Company for the foreseeable future. 12 ITEM 6. SELECTED FINANCIAL DATA (In thousands, except per share and operating data)
Year Ended Nine Months Ended December 31, December 31, ------------------------------------------------- ----------------------- 2001 2000 1999 1998 1997/(4)/ - ------------------------------------------------------------------------------------------------------- ----------------------- Income Statement Data/(1)/ Operating revenue: U.S. Xpress $ 736,895 $ 733,583 $ 656,029 $ 513,154 $ 290,800 CSI/Crown 83,079 58,161 57,713 74,533 57,645 Intercompany (21,942) (4,659) (5,530) (6,286) (6,173) ------------------------------------------------- ----------------------- Consolidated $ 798,032 $ 787,085 $ 708,212 $ 581,401 $ 342,272 ================================================= ======================= Income from operations $ 13,479 $ 19,931 $ 31,527 $ 44,405 $ 26,151 Income (Loss) before income taxes $ (1,458) $ 4,482 $ 19,139 $ 34,497 $ 21,983 Net income (loss) $ (1,128) $ 2,065 $ 11,381 $ 20,717 $ 13,191 Earnings (Loss) per share - basic $ (0.08) $ .15 $ .77 $ 1.38 $ .98 Weighted average number of shares outstanding - basic 13,757 14,095 14,785 15,038 13,467 Earnings (Loss) per share - diluted $ (0.08) $ .15 $ .77 $ 1.37 $ .97 Weighted average number of shares outstanding - diluted 13,757 14,148 14,852 15,162 13,582 Truckload Operating Data/(2)/ Total revenue miles (in thousands) 578,186 573,271 533,628 418,665 241,541 Average revenue per mile $ 1.22 $ 1.22 $ 1.19 $ 1.18 $ 1.16 Tractors at end of period 5,238 4,861 4,734 4,425 2,839 Trailers at end of period 12,836 11,871 11,718 10,413 5,875 Average revenue per tractor, per week $ 2,633 $ 2,726 $ 2,633 $ 2,661 $ 2,734 Total loads 643,011 603,189 578,572 464,586 239,730 Average tractors during period 5,144 4,932 4,651 3,572 2,615 Total miles (in thousands) 643,162 632,023 587,917 459,643 265,102 Balance Sheet Data Working capital $ 51,092 $ 72,870 $ 87,836 $ 98,306 $ 44,813 Total assets $ 417,468 $ 423,461 $ 409,037 $ 426,539 $ 233,777 Long-term debt, net of current maturities $ 151,540 $ 179,908 $ 181,256 $ 202,450 $ 52,120 Stockholders' equity/(3)/ $ 155,610 $ 156,935 $ 161,527 $ 153,667 $ 128,493
/(1)/ Data for U.S. Xpress includes data for all truckload operations, including the following from their date of acquisition: JTI, Inc. in April 1997; Victory Express, Inc. in January 1998; and PST Vans, Inc. in August 1998. /(2)/ Average revenue per mile and average revenue per tractor per week are net of fuel surcharges. Tractor and trailer data includes owned, leased and owner-operated. /(3)/ Reflects the sale by the Company of 2,885,000 shares of Class A Common Stock during the 1997 transition period. Reflects in fiscal 1999 and 1998, the issuance of 41,901 and 994,447 shares of Class A Common Stock, respectively, in connection with the purchase of PST. Reflects the repurchase of 925,100, 485,000 and 1,134,289 shares of Class A Common Stock in fiscal 2000, 1999 and 1998, respectively. /(4)/ Effective December 31, 1997, the Company changed its fiscal year-end to December 31 from March 31. As a result, the transition period ended December 31, 1997 is a nine-month period. 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth, for the periods indicated, the components of the consolidated statements of operations expressed as a percentage of operating revenue:
Year Ended December 31, 2001 2000 1999 ---------------------------------------------------- Operating Revenue 100.0 % 100.0% 100.0% ---------------------------------------------------- Operating Expenses: Salaries, wages and benefits 38.2 37.0 39.2 Fuel and fuel taxes 15.9 17.3 14.2 Vehicle rents 8.5 7.6 7.7 Depreciation and amortization, net of gain/loss 4.4 4.4 4.1 Purchased transportation 13.2 13.2 11.8 Operating expense and supplies 6.4 6.5 6.3 Insurance premiums and claims 4.0 3.7 3.6 Operating taxes and licenses 1.8 1.7 2.1 Communications and utilities 1.4 1.4 1.7 General and other operating expenses 4.5 4.7 4.8 ---------------------------------------------------- Total operating expenses 98.3 97.5 95.5 ---------------------------------------------------- Income from Operations 1.7 2.5 4.5 Interest expense, net 1.9 1.9 1.8 ---------------------------------------------------- Income (Loss) before income tax provision (0.2) 0.6 2.7 Income taxes (0.1) 0.3 1.1 ---------------------------------------------------- Net Income (Loss) (0.1)% 0.3% 1.6% ====================================================
14 Comparison of the Year Ended December 31, 2001 to the Year Ended December 31, 2000 Operating revenue in 2001 increased $10.9 million, or 1.4%, to $798.0 million, compared to $787.1 million in 2000. U.S. Xpress revenue increased $3.3 million, or 0.5%, due primarily to a 0.9% increase in revenue miles and a 0.2% increase in average revenue per mile, net of fuel surcharges, to $1.222 from $1.220 in 2000, offset by a $3.6 million decrease in fuel surcharge revenue. CSI/Crown revenues increased $24.9 million, or 42.8%. This increase reflects a $25.8 million increase due primarily to the revenues of the new deferred air business, which began operations in February 2001. Intersegment revenue in 2001 increased $17.3 million compared to 2000, due to truckload services provided by U.S. Xpress for the deferred air business of CSI/Crown. Operating expenses represented 98.3% of operating revenue for 2001, compared to 97.5% during 2000. Salaries, wages and benefits as a percentage of revenue were 38.2% during 2001, compared to 37.0% during 2000. U.S. Xpress wages increased $7.6 million, due primarily to increases in workers compensation premiums and claims and group health claims, combined with a 1.4% increase in Company driver miles to 544.1 million miles in 2001, compared to 536.7 million miles in 2000. CSI/Crown wages increased $6.5 million due primarily to the expansion of the new deferred air services, which were introduced in February 2001. Fuel and fuel taxes as a percentage of operating revenue were 15.9% during 2001, compared to 17.3% during 2000. This decrease was primarily due to the approximate 7% decrease in average fuel price per gallon. The Company's exposure to increases in fuel prices is partially mitigated by fuel surcharges to its customers. Vehicle rents as a percentage of operating revenue were 8.5% during 2001, compared to 7.6% during 2000.This increase is due to a 10.9% increase in the average number of tractors leased and a 23.1% increase in the average number of trailers leased during 2001, compared to 2000. Depreciation and amortization as a percentage of operating revenue were 4.4% for 2001 and 2000. Depreciation for revenue equipment decreased 10.0% during 2001, to $21.5 million, compared to $23.9 million during 2000. Other depreciation and amortization increased 26.0% during 2001, to $13.6 million, compared to $10.8 million during 2000. This increase was primarily attributable to increased amortization of other operating assets and deferred loan costs. The Company includes gains and losses from the sale of revenue equipment in depreciation expense. Net losses from the sale of revenue equipment for 2001 were $.2 million, compared to a gain of $.3 million in 2000. Overall, as a percentage of operating revenue, vehicle rents and depreciation were 12.9% during 2001, compared to 12.0% during 2000. Purchased transportation as a percentage of revenue was 13.2% during 2001 and 2000. During 2001, owner-operator miles increased 3.8%, or 3.6 million miles, to 98.9 million miles compared to 95.3 million miles in 2000. The increase in owner-operator miles was offset by the Company's contribution of the logistics business to Transplace, Inc. in July 2000. Most of the costs associated with the logistics business contributed to Transplace were reflected in purchased transportation. Operating taxes and licenses as a percentage of revenue were 1.8% during 2001, compared to 1.7% in 2000. This increase was primarily due to the 4.3% increase in average number of tractors, combined with a 3.4% decrease in utilization as measured by revenue per tractor per week. Insurance premiums and claims as a percentage of operating revenue were 4.0% during 2001, compared to 3.7% during 2000. The increase is due primarily to an increase in premiums and claims related to liability and physical damage insurance. General and other operating expenses as a percentage of operating revenue were 4.5% during 2001, compared to 4.7% during 2000. During 2000, the Company recorded a one-time charge of $2.0 million, due to the write-off of outstanding receivables and other related expenses of a long-term customer. Income from operations for 2001 decreased $6.4 million, or 32.4%, to $13.5 million from $19.9 million during 2000. As a percentage of operating revenue, income from operations was 1.7% for 2001 and 2.5% for 2000. 15 Comparison of the Year Ended December 31, 2000 to the Year Ended December 31, 1999 Operating revenue in 2000 increased $78.9 million, or 11.1%, to $787.1 million, compared to $708.2 million in 1999. U.S. Xpress revenue increased $78.4 million, or 12.1%, due primarily to a 7.4% increase in revenue miles, a 2.3% increase in average revenue per mile, net of fuel surcharges, to $1.220 from $1.193 in 1999 and a $27.4 million increase in fuel surcharge revenue. Revenue miles increased due to an increase in the average number of tractors by 281, or 6.0%, to 4,932 from 4,651, and a 3.5% increase in utilization as measured by revenue per tractor per week. CSI/Crown revenues increased $.4 million due primarily to a 6.5% linehaul rate increase. Operating expenses represented 97.5% of operating revenue for 2000, compared to 95.5% during 1999. Salaries, wages and benefits as a percentage of revenue were 37.0% during 2000, compared to 39.2% during 1999. The decrease was primarily attributable to the increase in the number of owner-operators, which accounted for 13.6% of the Company's total fleet in 2000, compared to 10.5% during 1999. The average number of owner-operators increased to 673 in 2000, compared to 487 in 1999. All owner-operator expenses are reflected as purchased transportation. Fuel and fuel taxes as a percentage of operating revenue were 17.3% during 2000, compared to 14.2% during 1999. This increase was due to the 32.0% increase in average fuel cost per mile during 2000, compared to 1999, the effect of which was partially offset by the increased use of owner-operators who are responsible for their fuel expense. The Company's exposure to increases in fuel prices is partially mitigated by fuel surcharges to its customers. Vehicle rents as a percentage of operating revenue were 7.6% during 2000, compared to 7.7% during 1999. Depreciation and amortization as a percentage of operating revenue were 4.4% for 2000, compared to 4.1% during 1999. The Company includes gains and losses from the sale of revenue equipment in depreciation expense. Net gains from the sale of revenue equipment for 2000 were $.3 million, compared to a gain of $.8 million in 1999. Overall, as a percentage of operating revenue, vehicle rents and depreciation were 12.0% during 2000, compared to 11.8% during 1999. Purchased transportation as a percentage of operating revenue was 13.2% during 2000, compared to 11.8% during 1999. The increase was primarily due to an increase in the average owner-operator fleet to 673 for 2000, compared to 487 in 1999. Owner-operators provide a tractor and driver incurring substantially all of their operating expenses in exchange for a fixed payment per mile, which is included in purchased transportation. Owner-operator miles increased to 95.3 million miles in 2000, compared to 66.9 million miles in 1999. Insurance premiums and claims as a percentage of operating revenue were 3.7% during 2000, compared to 3.6% during 1999. The increase is due primarily to an increase in premiums and increases in claims and losses related to cargo and physical damage. Operating taxes and licenses as a percentage of operating revenue were 1.7% during 2000, compared to 2.1% in 1999. This decrease was primarily due to a 3.5% increase in utilization, as measured by revenue per tractor per week. Communications and utilities as a percentage of operating revenue were 1.4% during 2000, compared to 1.7% in 1999. This decrease was primarily due to the redesign of voice and data networks, which eliminated several communication circuits. General and other operating expenses as a percentage of operating revenue were 4.7% during 2000, compared to 4.8% during 1999. During 2000, the Company recorded a one-time charge of $2.0 million, due to the write-off of outstanding receivables and other related expenses of a long-term customer. During 1999, the Company recorded a one-time charge of $1.3 million related to the settlement of litigation with a professional employer organization that formerly administered the Company's payroll and benefit systems. Interest expense increased $3.0 million, or 24.7%, to $15.4 million, compared to $12.4 million during 1999. The increase was primarily due to the average interest rate on the Company's line of credit increasing 29.3% to 8.1% during 2000, compared to 6.3% in 1999. 16 Income from operations for 2000 decreased $11.6 million, or 36.8%, to $19.9 million from $31.5 million during 1999. As a percentage of operating revenue, income from operations was 2.5% for 2000 and 4.5% for 1999. The Company's effective tax rate increased to 53.9% in 2000, compared to 40.5% for 1999, due primarily to non-deductible goodwill amortization being a larger percentage of income before income taxes. Special Considerations 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. Some 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 provide freight at sufficient volumes and prices to be 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. Shortages of fuel or increases in fuel prices could have a materially adverse effect on the operations and profitability of the Company. Many of the Company's customer contracts contain fuel surcharge provisions to mitigate increases in the cost of fuel (the Company recognized $25.9 million of fuel surcharge revenue for the year ended December 31, 2001, compared to $29.5 million for the same period in 2000). However, there is no assurance that such fuel surcharges can be used to offset future increases in fuel prices. Additionally, at times, fuel purchase contracts are used to mitigate the effects of increases in the prices of fuel. 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 competitors. 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. A significant increase in interest rates could have a material adverse effect on the Company's results. The Company is self-insured for cargo loss, damage, liability (personal injury and property damage) and workers' compensation claims within the Company's established retention levels. The current retention level per occurrence is $200,000 for Cargo Loss and $250,000 for Workers' Compensation. The first retention level for Liability is $250,000 per claim. The Company also carries the risk for the $1 million to $3 million level of cost per occurrence. If the number of claims or severity of claims for which the Company is self-insured increase from historical levels, operating results could be adversely affected. Also, the Company maintains insurance with licensed insurance companies above the amounts for which it is self-insured. After several years of aggressive pricing, insurance carriers have raised premiums, which have increased the Company's insurance and claims expense. If these expenses continue to increase and the Company is unable to offset the increase with higher freight rates, earnings could be materially and adversely affected. The Company is regulated by the United States Department of Transportation ("DOT"). The DOT has broad powers and generally governs activities such as authorization to engage in motor carrier operations, safety and other matters. The Company may be subjected to new or more comprehensive regulations relating to fuel emissions, driver hours of service, or other items mandated by the DOT. For example, new engine emissions standards will become effective for truck engine manufacturers in October 2002. These new engines have not been available for adequate testing and may be more costly and less fuel-efficient. Liquidity and Capital Resources The Company's primary sources of liquidity and capital resources during 2001 were funds provided by operations, borrowings under lines of credit and equipment installment notes, proceeds from sales of used revenue equipment and the use of long-term operating leases for revenue equipment acquisitions. In December 2001, the Company entered into approximately $107.0 million in equipment installment notes, the proceeds of which were used primarily to reduce borrowings under the Company's revolving line of credit. In connection therewith, the Company's revolving line of credit with a syndicate of banks was amended. Under the terms of the amended agreement, the facility was reduced from $190 million to $87 million, and the maturity date was extended to July 2003. In June 2002, the amended facility will be reduced to $80 million. At December 31, 2001, the weighted average interest rate on the line of credit was 5.40%, and $23.3 million was available for borrowing. Interest on outstanding borrowings is based upon the London Interbank Offered Rate plus 3.5%. The facility is collateralized by accounts receivable and substantially all other assets of the Company, not otherwise encumbered. In September 2000, the Company entered into a long-term loan agreement for $10.0 million to finance the new Colton, California terminal facility. The term of the loan is 10 years, with amortization based on 20 years, and carries a variable interest rate that is based on the 30-day commercial paper rate, plus a margin. This rate can be converted to a fixed rate at any time up to September 2002. In 2002, the Company's primary sources of liquidity are expected to be funds provided by operations, borrowings under lines of credit, proceeds from sale of used revenue equipment and long-term operating lease financing for the acquisition of revenue equipment. 17 Cash generated from operations decreased to $43.5 million in 2001 from $54.7 million in 2000, due in part to a $5.9 million decline in pretax income. Net cash used in investing activities was $13.1 million in 2001 and $49.2 million in 2000. Such amounts were used primarily to acquire net revenue equipment and, in 2000, for the acquisition and construction of the new Colton, California terminal facility. During 2000, the Company made a $5.0 million cash investment to acquire a 13% equity interest in Transplace. In 2001, $53.4 million was used to acquire additional property and equipment, compared to $56.2 million in 2000. Proceeds from the sale of property and equipment were $40.2 million in 2001, compared to $12.0 million in 2000. The increase in proceeds in 2001 reflects a greater number of owned revenue equipment dispositions compared to 2000. During 2000 a significant portion of revenue equipment dispositions were related to leased equipment. Net cash used in financing activities was $22.2 million in 2001 and $5.7 million in 2000. Borrowings under the line of credit were reduced by $123.2 million, primarily with the proceeds of $106.8 million from equipment installment notes in 2001 and $9.8 million in 2000. As authorized by the Company's board of directors, 925,100 shares of the Company's Class A Common Stock were repurchased in 2000 for $7.1 million. Management believes that funds provided by operations, borrowings under its lines of credit, equipment installment loans and long-term operating lease financing will be sufficient to fund its cash needs and anticipated capital expenditures through 2002. The following table represents the Company's outstanding contractual obligations at December 31, 2001 excluding letters of credit. Letters of credit of $18,660 were outstanding at December 31, 2001. The letters of credit are maintained primarily to support the Company's insurance program and are renewed on an annual basis.
------------------------------------------------------------------------------------------------------------------- Payments Due By Period ---------------------------------------------------------------------- Contractual Obligations Less than Total 1 year 1-3 years 4-5 years After 5 years ------------------------------------------------------------------------------------------------------------------- Long-Term Debt $ 160,163 $ 23,355 $ 81,310 $ 29,169 $ 26,329 ------------------------------------------------------------------------------------------------------------------- Capital Lease Obligations 14,868 136 13,691 632 409 ------------------------------------------------------------------------------------------------------------------- Operating Leases - Revenue Equipment 120,112 57,380 55,803 4,906 2,023 ------------------------------------------------------------------------------------------------------------------- Operating Leases - Other 32,335 9,284 12,997 7,592 2,462 ------------------------------------------------------------------------------------------------------------------- Total Contractual Cash Obligations $ 327,478 $ 90,155 $ 163,801 $ 42,299 $ 31,223 -------------------------------------------------------------------------------------------------------------------
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, shipments generally show a seasonal pattern as customers increase shipments prior to and reduce shipments during and after the winter holiday season. Additionally, shipments can be adversely impacted by winter weather conditions. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets" (collectively the "Standards"). The Standards are effective for fiscal years beginning after December 15, 2001. SFAS No. 141 requires companies to recognize acquired identifiable assets separately from goodwill if control over the future economic benefits of the assets results from contractual or other legal rights or the intangible asset is capable of being separated or divided and sold, transferred, licensed, rented or exchanged. The Standards require the value of a separately identifiable intangible asset meeting any of the criteria to be measured at its fair value. SFAS No. 142 requires that goodwill not be amortized and that amounts recorded as goodwill be tested for impairment. Upon adoption of SFAS No. 142, goodwill will be reduced if it is found to be impaired. Annual impairment tests will have to be performed at the lowest level of an entity that is a business and that can be 18 distinguished, physically and operationally and for internal reporting purposes, from the other activities, operations and assets of the entity. The Company is required to adopt SFAS 142 effective January 1, 2002. Based on the current levels of goodwill, the adoption of the Standards in fiscal 2002 will decrease annual amortization expense by approximately $1.8 million through the elimination of goodwill amortization. The adoption of SFAS No. 142 could have an adverse effect on the Company's future results of operations if an impairment occurs. Management is currently evaluating the effect of this Statement on the Company's results of operations and financial position. In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-lived Assets". SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be disposed of" and among other factors, establishes criteria beyond that previously specified in SFAS No. 121 to be determined when a long-lived asset is to be considered as held for sale. The Company adopted SFAS No. 144 effective January 1, 2002 and is currently evaluating its impact. 19 ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Interest Rate Risk The Company has interest rate exposure arising from the Company's variable rate debt. At December 31, 2001, the Company had $68.1 million of variable rate debt. The Company has interest rate swap agreements which convert floating rates to fixed rates for a total notional amount of $45 million. If interest rates on the Company's existing variable rate debt, after considering interest rate swaps, were to increase by 10% from their December 31, 2001 rates for the next twelve months, there would be no material adverse impact on the Company's results of operations. Commodity Price Risk Fuel is one of the Company's largest expenditures. The price and availability of diesel fuel fluctuates due to changes in production, seasonality and other market factors generally outside the Company's control. Many of the Company's customer contracts contain fuel surcharge provisions to mitigate increases in the cost of fuel. However, there is no assurance that such fuel surcharges could be used to offset future increases in fuel prices. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Public Accountants To 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 December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States. 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 December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. /s/ ARTHUR ANDERSEN LLP Chattanooga, Tennessee January 29, 2002 21 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Year Ended December 31, --------------------------------------- 2001 2000 1999 - ---------------------------------------------------------------------------------------------------------- Operating Revenue $ 798,032 $ 787,085 $ 708,212 --------------------------------------- Operating Expenses: Salaries, wages and benefits 304,687 290,862 278,011 Fuel and fuel taxes 126,737 135,992 100,295 Vehicle rents 67,754 59,440 54,522 Depreciation and amortization, net of gain/loss on disposition of equipment 35,345 34,430 29,250 Purchased transportation 105,623 104,279 83,897 Operating expenses and supplies 51,195 51,382 44,629 Insurance premiums and claims 32,277 29,020 25,490 Operating taxes and licenses 14,154 13,542 14,709 Communications and utilities 11,556 11,216 12,174 General and other operating expenses (Note 3) 35,225 36,991 33,708 --------------------------------------- Total operating expenses 784,553 767,154 676,685 --------------------------------------- Income from Operations 13,479 19,931 31,527 Interest Expense, net 14,937 15,449 12,388 --------------------------------------- Income (Loss) Before Income Tax Provision (1,458) 4,482 19,139 Income Tax Provision (Benefit) (330) 2,417 7,758 --------------------------------------- Net Income (Loss) $ (1,128) $ 2,065 $ 11,381 ======================================= Earnings (Loss) Per Share - basic $ (.08) $ .15 $ .77 ======================================= Weighted average shares - basic 13,757 14,095 14,785 ======================================= Earnings (Loss) Per Share - diluted $ (.08) $ .15 $ .77 ======================================= Weighted average shares - diluted 13,757 14,148 14,852 =======================================
The accompanying notes are an integral part of these consolidated statements. 22 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share amounts)
December 31, ---------------------- 2001 2000 - -------------------------------------------------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 8,185 $ 34 Customer receivables, net of allowance of $3,419 and $4,019 in 2001 and 2000, respectively 83,296 89,184 Other receivables 7,824 14,294 Prepaid insurance and licenses 5,112 2,664 Operating and installation supplies 3,833 4,312 Deferred income taxes 1,406 2,249 Other current assets 6,594 4,051 ---------- ---------- Total current assets 116,250 116,788 ---------- ---------- Property and Equipment, at cost 299,208 315,480 Less accumulated depreciation and amortization (84,926) (96,578) ---------- ---------- Net property and equipment 214,282 218,902 ---------- ---------- Other Assets Goodwill, net 68,875 70,717 Investment in Transplace 5,815 5,815 Other 12,246 11,239 ---------- ---------- Total other assets 86,936 87,771 ---------- ---------- Total Assets $ 417,468 $ 423,461 ========== ========== Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 15,402 $ 19,060 Book overdraft - 2,940 Accrued wages and benefits 9,299 8,523 Claims and insurance accruals 13,590 8,704 Other accrued liabilities 3,376 3,190 Current maturities of long-term debt 23,491 1,501 ---------- ---------- Total current liabilities 65,158 43,918 ---------- ---------- Long-Term Debt, net of current maturities 151,540 179,908 ---------- ---------- Deferred Income Taxes 41,852 40,121 ---------- ---------- Other Long-Term Liabilities 3,308 2,579 ---------- ---------- Commitments and Contingencies (Notes 8 and 10) 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, 13,300,466 and 13,210,467 shares issued at December 31, 2001 and 2000, respectively 133 132 Common Stock Class B, $.01 par value, 7,500,000 shares authorized, 3,040,262 shares issued and outstanding at December 31, 2001 and 2000 30 30 Additional paid-in capital 105,586 105,124 Retained earnings 75,669 76,797 Other comprehensive loss (778) -- Treasury Stock, Class A, at cost (2,544,389 shares at December 31, 2001 and 2000) (24,483) (24,483) Notes receivable from stockholders (211) (233) Unamortized compensation on restricted stock (336) (432) ---------- ---------- Total stockholders' equity 155,610 156,935 ---------- ---------- Total Liabilities and Stockholders' Equity $ 417,468 $ 423,461 ========== ==========
The accompanying notes are an integral part of these consolidated balance sheets. 23 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, ------------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net income (loss) $ (1,128) $ 2,065 $ 11,381 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Deferred income tax provision (benefit) 2,574 10,275 1,181 Depreciation and amortization 35,119 34,711 30,014 (Gain)/loss on disposition of equipment 226 (281) (764) Changes in operating assets and liabilities, net of acquisitions: Receivables 12,358 6,655 4,113 Prepaid insurance and licenses (2,448) (586) 54 Operating and installation supplies 1,029 1,807 (616) Other assets (8,399) (5,850) (4,058) Accounts payable and other accrued liabilities 3,057 4,527 (7,424) Accrued wages and benefits 776 1,306 606 Other 317 86 56 -------------------------------------- Net cash provided by operating activities 43,481 54,715 34,543 -------------------------------------- Cash Flows from Investing Activities: Payments for purchases of property and equipment (53,400) (56,187) (74,622) Proceeds from sales of property and equipment 40,231 11,966 60,773 Repayment of notes receivable from stockholders 22 -- -- Acquisition of business, net of cash acquired -- -- (1,798) Investment in Transplace -- (5,000) -- -------------------------------------- Net cash used in investing activities (13,147) (49,221) (15,647) -------------------------------------- Cash Flows from Financing Activities: Net repayments under lines of credit (123,199) (9,801) (21,000) Borrowings under long-term debt agreements 106,839 10,000 -- Payments of long-term debt (3,317) (1,229) (852) Book overdraft (2,940) 2,054 886 Proceeds from exercise of stock options 103 8 -- Proceeds from issuance of common stock 331 340 242 Purchase of Class A Common Stock -- (7,091) (4,526) -------------------------------------- Net cash used in financing activities (22,183) (5,719) (25,250) -------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 8,151 (225) (6,354) Cash and Cash Equivalents, beginning of year 34 259 6,613 -------------------------------------- Cash and Cash Equivalents, end of year $ 8,185 $ 34 $ 259 ====================================== Supplemental Information: Cash paid during the year for interest, net of capitalized interest $ 14,943 $ 16,003 $ 12,838 ====================================== Cash (refunded) paid during the year for income taxes, net $ (8,365) $ (1,452) $ 6,967 ====================================== Addition to property and equipment financed through capital lease obligation $ 13,299 $ -- $ -- ======================================
The accompanying notes are an integral part of these consolidated statements. 24 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands)
Notes Unamortized Additional Receivable Compensation Common Stock Paid-In Retained Treasury From On Restricted ------------ Class A Class B Capital Earnings Stock Stockholders Stock Total - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 $ 130 $ 30 $103,255 $ 63,351 $(12,866) $ (233) $ -- $153,667 Net income -- -- -- 11,381 -- -- -- 11,381 Issuance of 5,068 shares of Class A Common Stock for non-employee director compensation -- -- 56 -- -- -- -- 56 Issuance of 22,709 shares of Class A Common Stock for employee stock purchase plan -- -- 242 -- -- -- -- 242 Issuance of 41,901 shares of Class A Common Stock for PST acquisition 1 -- 706 -- -- -- -- 707 Repurchase of 485,000 shares of Class A Common Stock -- -- -- -- (4,526) -- -- (4,526) ------------------------------------------------------------------------------------ Balance, December 31, 1999 131 30 104,259 74,732 (17,392) (233) -- 161,527 Net income -- -- -- 2,065 -- -- -- 2,065 Issuance of 5,322 shares of Class A Common Stock for non-employee director compensation -- -- 38 -- -- -- -- 38 Proceeds from exercise of 1,200 options -- -- 8 -- -- -- -- 8 Issuance of 56,400 shares of Class A Common Stock for employee stock purchase plan -- -- 340 -- -- -- -- 340 Issuance of 60,000 shares of restricted Class A Common Stock to officers 1 -- 479 -- -- -- (480) -- Amortization of restricted stock -- -- -- -- -- -- 48 48 Repurchase of 925,100 shares of Class A Common Stock -- -- -- -- (7,091) -- -- (7,091) ------------------------------------------------------------------------------------ Balance, December 31, 2000 132 30 105,124 76,797 (24,483) (233) (432) 156,935 Net loss -- -- -- (1,128) -- -- (1,128) Issuance of 4,258 shares of Class A Common Stock for non-employee director compensation -- -- 29 -- -- -- -- 29 Issuance of 70,491 shares of Class A Common Stock for employee stock purchase plan 1 -- 330 -- -- -- -- 331 Proceeds from exercise of 15,250 options -- -- 103 -- -- -- -- 103 Other comprehensive loss, net of tax -- -- -- (778) -- -- -- (778) Repayment of notes receivable from stockholders -- -- -- -- -- 22 -- 22 Amortization of restricted stock -- -- -- -- -- -- 96 96 ------------------------------------------------------------------------------------ Balance, December 31, 2001 $ 133 $ 30 $105,586 $ 74,891 $(24,483) $ (211) $ (336) $155,610 ====================================================================================
The accompanying notes are an integral part of these consolidated statements. 25 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 1. Organization and Operations U.S. Xpress Enterprises, Inc. (the "Company") provides transportation services through two business segments. U.S. Xpress, Inc. ("U.S. Xpress") is a truckload carrier serving the continental United States and parts of Canada and Mexico. CSI/Crown, Inc. ("CSI/Crown") provides transportation services primarily to the floorcovering industry and deferred airfreight logistics services from airport to airport. 2. 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. Recognition of Revenue For financial reporting purposes, the Company generally recognizes revenue and direct costs 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 floor coverings 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 are carried at cost. Depreciation of property and equipment is 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). The cost and lives at December 31, 2001 and 2000 are as follows: Cost ---------------------- Lives 2001 2000 ------------- ---------- --------- Land and buildings 10-30 years $ 44,768 $ 24,952 Revenue and service equipment 3-7 years 216,934 249,773 Furniture and equipment 3-7 years 19,758 21,299 Leasehold improvements 5-6 years 17,748 19,456 --------- --------- $ 299,208 $ 315,480 ========= ========= 26 The Company recognized $28,445, $30,593 and $27,101 in depreciation expense in 2001, 2000 and 1999, respectively. Gains/(losses) on sale of equipment of $(226), $281 and $764 for 2001, 2000 and 1999, respectively, are included in depreciation and amortization expense in the consolidated statements of operations. The Company capitalized $41 and $483 of interest in 2001 and 2000, 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 identifiable net assets acquired has been recorded as goodwill and has been 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 the remaining estimated useful life of goodwill might warrant revision or that the remaining balance may not be recoverable. When factors indicate that goodwill should be evaluated for possible impairment, the Company uses an estimate of the future undiscounted net cash flows of the related businesses over the remaining life of the goodwill in measuring whether goodwill is recoverable. The Company recognized $1,842, $1,999 and $1,977 of goodwill amortization expense in 2001, 2000 and 1999, respectively. Accumulated amortization was $8,258, and $6,416 at December 31, 2001 and 2000, respectively. Deferred Financing Costs Deferred financing costs are included in other assets in the accompanying consolidated balance sheets and include fees and costs incurred to obtain long- term financing, and are being amortized over the terms of the respective obligation. Amortization expense was $1,931, $387 and $175 in 2001, 2000 and 1999, respectively. Accumulated amortization was $2,347 and $707 as of December 2001 and 2000, respectively. Computer Software The Company accounts for computer software in accordance with the AICPA's Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". Computer software is included in other long-term assets and is being amortized on a straight-line basis over three years. The Company recognized $2,901, $1,732 and $761 of amortization expense in 2001, 2000 and 1999, respectively. Accumulated amortization was $5,852 and $3,461 at December 31, 2001 and 2000, respectively. Book Overdraft Book overdraft represents outstanding checks in excess of current cash levels. The Company funds its book overdraft from its line of credit and operating cash flows. Investment in Transplace On July 1, 2000, the Company and five other large transportation companies merged their logistics business units into a commonly owned, Internet-based global transportation logistics company, Transplace. The Company's approximate 13% interest is carried on a cost basis. See Note 9 regarding certain relationships and related transactions. Claims and Insurance Accruals Claims and insurance accruals consist of cargo loss, damage, liability (personal injury and property damage) and workers' compensation claims within the Company's established retention levels. Claims in excess of retention levels are generally covered by insurance in amounts the Company considers adequate. Claims accruals represent the uninsured portion of pending claims at December 31, 2001 and 2000, plus an estimated liability for incurred but not reported claims. Accruals for cargo loss, damage, liability and workers' compensation claims are estimated based on the Company's evaluation of the type and severity of individual claims. 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 December 31, 2001 and 2000, other long-term liabilities include deferred credits of $1,650 and $2,231, respectively. Earnings Per Share The difference between basic and diluted earnings per share is due to the assumed conversion of dilutive outstanding options resulting in approximately 53,000 and 67,000 equivalent shares in 2000 and 1999, respectively. Due to the loss in 2001, the outstanding options are anti-dilutive and are not considered in earnings per share. 27 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") and has elected the disclosure option of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets" (collectively the "Standards"). The Standards are effective for fiscal years beginning after December 15, 2001. SFAS No. 141 requires companies to recognize acquired identifiable assets separately from goodwill if control over the future economic benefits of the assets results from contractual or other legal rights or the intangible asset is capable of being separated or divided and sold, transferred, licensed, rented or exchanged. The Standards require the value of a separately identifiable intangible asset meeting any of the criteria to be measured at its fair value. SFAS No. 142 requires that goodwill not be amortized and that amounts recorded as goodwill be tested for impairment. Upon adoption of SFAS No. 142, goodwill will be reduced if it is found to be impaired. Annual impairment tests will have to be performed at the lowest level of an entity that is a business and that can be distinguished, physically and operationally and for internal reporting purposes, from the other activities, operations and assets of the entity. The Company is required to adopt SFAS 142 effective January 1, 2002. Based on the current levels of goodwill, the adoption of the Standards in fiscal 2002 will decrease annual amortization expense by approximately $1.8 million through the elimination of goodwill amortization. The adoption of SFAS No. 142 could have an adverse effect on the Company's future results of operations if an impairment occurs. Management is currently evaluating the effect of this Statement on the Company's results of operations and financial position. In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-lived Assets". SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be disposed of" and among other factors, establishes criteria beyond that previously specified in SFAS No. 121 to be determined when a long-lived asset is to be considered as held for sale. The Company adopted SFAS No. 144 effective January 1, 2002 and is currently evaluating its impact. Reclassifications Certain reclassifications have been made in the prior year financial statements to conform to the 2001 presentation. 3. Certain Transactions In December 2000, the Company recorded a one-time, pre-tax charge of $2,000 to general and other operating expenses related to the write-off of outstanding receivables with Dedicated Transportation Services, Inc. and other related expenses. On May 27, 1999, a settlement agreement and release was completed between the Company and Employee Solutions, Inc., pursuant to which certain pending claims between the Company and ESI were resolved. As a result of the settlement, the Company recorded a charge to general and other operating expenses of $1,250 in 1999. 4. Acquisitions Under the terms of the purchase agreements for acquisitions prior to 1999 and in settlement of certain contingent purchase price arrangements, the Company recorded approximately $4,000 of additional consideration in 1999, of which approximately $1,800 was paid in cash. 28 5. Income Taxes The income tax provision (benefit) for 2001, 2000 and 1999 consisted of the following: 2001 2000 1999 -------------------------------------------- Current: Federal $ (3,139) $ (7,976) $ 5,979 State 235 118 598 -------------------------------------------- (2,904) (7,858) 6,577 Deferred 2,574 10,275 1,181 -------------------------------------------- $ (330) $ 2,417 $ 7,758 ============================================ A reconciliation of the income tax provision (benefit) as reported in the consolidated statements of operations to the amounts computed by applying federal statutory rates is as follows:
2001 2000 1999 ------------------------------------- Federal income tax at statutory rate $ (510) $ 1,524 $ 6,699 State income taxes, net of federal income tax benefit (38) 78 395 Nondeductible goodwill amortization 391 553 548 Other, net (173) 262 116 ----------------------------------- Income tax provision (benefit) $ (330) $ 2,417 $ 7,758 ====================================
The tax effect of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2001 and 2000 consisted of the following:
2001 2000 ---------------------- Deferred tax assets: Allowance for doubtful accounts $ -- $ 567 Insurance and claims reserves 2,255 2,307 Alternative minimum tax credit carry forwards 5,416 4,808 Other reserves 323 200 Net operating loss carry forwards 5,338 5,687 Other 17 794 ---------------------- Total deferred tax assets $ 13,349 $ 14,363 ====================== Deferred tax liabilities: Allowance for doubtful accounts $ 359 $ -- Book over tax basis of property and equipment 45,061 44,025 Deductible goodwill amortization 7,127 7,312 Prepaid license fees 306 269 Other 942 629 ---------------------- Total deferred tax liabilities $ 53,795 $ 52,235 ======================
At December 31, 2001, the Company had approximately $8,951 of net operating loss ("NOL") carry forwards from the PST acquisition, which will expire in 2010 and 2011. The utilization of the NOL carry forwards is limited to future taxable income. Management believes it will be able to utilize the NOL carry forwards prior to their expiration. The Company also has approximately $5,416 of alternative minimum tax ("AMT") credit carry forwards. AMT credits may generally be carried forward indefinitely and used in future years to the extent the Company's regular tax liability exceeds the AMT liability for such future years. 29 6. Long-Term Debt Long-term debt at December 31, 2001 and 2000 consisted of the following:
2001 2000 ---------------------------- Obligation under line of credit with a group of banks, weighted average interest rate of 5.40% at December 31, 2001, maturing July 2003 $ 45,000 $ 168,000 Installment notes with finance companies, weighted average interest rate of 7.43% at December 31, 2001, due in monthly installments with final maturities at various dates ranging from December 2002 to September 2008 105,469 -- Mortgage note payable, interest rate of 4.19% at December 31, 2001, due in monthly installments through October 2010, with final payment of $7.1 million in October 2010 9,556 9,969 Capital lease obligation, interest rate of 5.4% at December 31, 2001, due July 2003 13,299 -- Capital lease obligation maturing January 2008 1,569 1,676 Other 138 1,764 ---------------------------- 175,031 181,409 Less: current maturities of long-term debt (23,491) (1,501) ---------------------------- $ 151,540 $ 179,908 ============================
In December 2001, the Company entered into approximately $107 million in equipment installment notes, the proceeds of which were used primarily to reduce borrowings under the Company's revolving line of credit. In connection therewith, the Company's revolving line of credit with a syndicate of banks was amended. Under the terms of the amended agreement, the facility was reduced from $190 million to $87 million, and the maturity date was extended to July 2003. In June 2002, the amended facility will be reduced to $80 million. Borrowings under the line of credit bear interest, at the option of the Company, equal to either (i) the greater of the bank's prime rate or the federal funds rate plus 2.0% or (ii) the rate offered in the Eurodollar market for amounts and periods comparable to the relevant loan plus 3.5%. Borrowings (including letters of credit) under the line of credit are limited to a specified percentage of eligible accounts receivable and the net book value of specified revenue equipment. Letters of credit are limited to an aggregate of $25,000 under the line. The credit agreement is collateralized by substantially all of the assets of the Company not otherwise encumbered. Letters of credit outstanding at December 31, 2001 against the line of credit were $18,660. At December 31, 2001, $23,340 was available for borrowing under the facility. During 1998, the Company entered into a long-term operating lease of a corporate office and operations facility. In connection with the amendment of the revolving credit facility in 2001, the Company amended the terms of the lease whereby the lease is now accounted for as a capital lease. Payments under the lease are based on LIBOR rates plus 3.5% with a final termination payment of $13.3 million due in July 2003. Borrowings under the mortgage note payable bear interest based on the 30-day commercial paper rate, plus a margin. This rate can be converted to a fixed rate at any time up to September 2002. The line of credit agreement subjects the Company to certain restrictions and financial covenants related to, among other matters, dividends, net worth, additional borrowings, acquisitions and dispositions and maintenance of certain financial ratios. The aggregate annual maturities of long-term debt for each of the next five years are: 2002 $ 23,491 ------------------------------ 2003 82,297 ------------------------------- 2004 12,704 ------------------------------ 2005 11,301 ------------------------------ 2006 18,500 ------------------------------ 30 7. Comprehensive Income (Loss) Comprehensive income (loss) consisted of the following components for the years ended December 31, 2001, 2000 and 1999, respectively:
2001 2000 1999 ---- ---- ---- Net income (loss) $ (1,128) $ 2,065 $ 11,381 Net loss on current period cash flow hedges (778) 0 0 -------- ------- -------- Total $ (1,906) $ 2,065 $ 11,381 ======== ======= ========
8. 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 September 2009. Rental expense under non-cancelable operating leases was approximately $77,533, $65,950 and $60,335 for 2001, 2000 and 1999, respectively. Revenue equipment lease terms are generally 3 years for tractors and 5-7 years for trailers. Substantially all revenue equipment leases provide for guarantees by the Company of a portion of the residual amount under certain circumstances at the end of the lease term. Approximate aggregate minimum future rentals payable under these operating leases for each of the next five years are: ------------------------------------------------- Revenue Equipment Other Total ------------------------------------------------- 2002 $57,380 $9,284 $66,664 ------------------------------------------------- 2003 40,128 6,759 46,887 ------------------------------------------------- 2004 15,675 6,239 21,914 ------------------------------------------------- 2005 2,883 4,722 7,605 ------------------------------------------------- 2006 2,023 2,870 4,893 ------------------------------------------------- Thereafter 2,023 2,461 4,484 ------------------------------------------------- 9. 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 $888, $851 and $868 was recognized in connection with these leases during 2001, 2000 and 1999, respectively. The two principal stockholders of the Company and certain partnerships controlled by their families own 100% of the outstanding common stock of Paragon Leasing LLC ("Paragon"). Paragon leased certain revenue and service equipment to the Company. Rent expense of approximately $326, $473 and $590 was recognized in connection with these leases during 2001, 2000 and 1999, respectively. The two principal stockholders of the Company and certain partnerships controlled by their families own 45% of the outstanding common stock of Transcommunications, Inc. ("Transcom"). Beginning in 1999, the Company began utilizing Transcom charge cards for over-the-road fuel purchases. The Company paid Transcom $230, $212 and $204 in fees for these services in 2001, 2000 and 1999 respectively. Transcom provides communications services to the Company and its drivers. Total payments by the Company to Transcom for these services were approximately $445, $511 and $441 in 2001, 2000 and 1999, respectively. On July 1, 2000, the Company and five other large transportation companies contributed their non-asset based logistics business units into a commonly owned, Internet-based transportation logistics company, Transplace. The Company earned revenues of approximately $30.8 million and $12.6 million from Transplace in 2001 and 2000, respectively, for providing transportation services. 31 10. Commitments and Contingencies The Company is a defendant in a lawsuit filed by Forward Air, Inc. ("Forward Air"), a deferred airfreight service provider, in the United States District Court in Greeneville, Tennessee, in which Forward Air has asserted a variety of claims primarily for trademark infringement and unfair competition allegedly arising out of the Company's use of the name "Dedicated Xpress Services, Inc." In its lawsuit, Forward Air asserts that after Forward Air purchased the assets of Dedicated Transportation Services, Inc. ("DTSI"), an airfreight provider, the Company entered the deferred air freight logistics service business and is unfairly competing with Forward Air. Forward Air seeks unspecified damages and injunctive relief preventing the Company from using the name "Dedicated Xpress Services, Inc." In a related case, SouthTrust Bank ("SouthTrust"), the secured lender to DTSI, which foreclosed upon and sold the assets of DTSI to Forward Air, has filed a lawsuit against the Company concerning certain events surrounding such foreclosure and sale. In November 2000, the Company signed an agreement with SouthTrust to purchase certain assets of DTSI at foreclosure by SouthTrust. After the agreement was signed, SouthTrust advised the Company that it had received a higher offer for the assets from Forward Air and that it would cancel the agreement with the Company unless the Company matched the higher offer. SouthTrust then sold the assets of DTSI to Forward Air. In its lawsuit, SouthTrust claims the Company acted wrongfully and attempted to interfere with SouthTrust's sale of DTSI's assets to Forward Air. The lawsuit seeks damages in an unspecified amount from the Company, and seeks to have the Court declare that actions taken by SouthTrust in connection with the foreclosure and sale of DTSI's assets were lawful and did not violate any legal rights of the Company. The Company believes that the claims asserted by Forward Air and SouthTrust are without merit and intends to vigorously defend the lawsuits. The Company is party to certain other legal proceedings incidental to its business. The ultimate disposition of these matters, in the opinion of management, based in part on the assessment of the likelihood of an adverse disposition of such matters, will not have a material adverse effect on the Company's financial position or results of operations. Letters of credit of $18,660 were outstanding at December 31, 2001. The letters of credit are maintained primarily to support the Company's insurance program (see Note 2). The Company pays commitment fees of 3.50% on the outstanding portion of the letters of credit. 11. Derivative Financial Instruments The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, on January 1, 2001. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. The Company has designated its interest rate swap agreements as cash flow hedge instruments. The swap agreements are used to manage exposure to interest rate movement by effectively changing the variable rate to a fixed rate. The critical terms of the interest rate swap agreements and the related debt are different with regard to maturity date; therefore, the Company expects some hedge ineffectiveness in the hedge relationship. Changes in fair value of the interest rate agreements will be recognized in other comprehensive income until the hedged items are recognized in earnings. The adoption of SFAS No. 133 resulted in recording a cumulative effect of a change in accounting principle of $99. Due to the immateriality of this amount, the cumulative effect of adoption was not broken out separately in the Statement of Stockholders' Equity, but was included in other comprehensive loss for the year ended December 31, 2001. At December 31, 2001, the fair market value of the swap agreements decreased due primarily to a reduction in interest rates, and accumulated other comprehensive income was adjusted to an accumulated loss of $778, net of tax. For the year ended at December 31, 2001, the interest rate swaps were deemed to be partially ineffective cash flow hedges, and, accordingly, the Company recorded $192 of interest expense in the income statement related to the hedge ineffectiveness. Under these agreements, the Company receives interest payments at rates equal to LIBOR reset quarterly, and pays interest at fixed rates shown below:
Notional Fixed Rate Variable Rate Effective Expiration Amounts Component Component Date Date ------- --------- ----------- ----------------- ------------------ $10,000 5.730% 2.200% February 6, 1998 February 6, 2003 15,000 5.705 2.200 February 6, 1998 February 6, 2003 10,000 5.145 2.200 August 6, 1999 February 6, 2003 10,000 5.565 2.020 September 8, 1998 September 8, 2003
32 The Company is exposed to credit losses, in the event of non-performance by the counterparties, to its interest rate swap agreements. The Company anticipates, however, that the counterparties will be able to fully satisfy their obligations under the contracts. The Company does not obtain collateral or other security to support financial instruments subject to credit risk but monitors the credit-worthiness of counterparties. The fair value of the interest rate swap agreements is defined as the amount the Company would receive or would be required to pay to terminate further obligations under the agreements. At December 31, 2001, the Company estimates the amount it would be required to pay to terminate the agreements approximates $1,639. 12. Employee Benefit Plan 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 six years. The Company recognized $1,277, $1,127 and $1,425 in expense under this employee benefit plan for 2001, 2000 and 1999, respectively. 13. Stockholders' Equity 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. Stock Buyback As authorized by its Board of Directors, the Company purchased 925,100 and 485,000 shares of the Company's outstanding Class A Common Stock in the open market and in private transactions at a cost of $7,091 and $4,526 for 2000 and 1999, respectively. Incentive Stock Plan The Company maintains 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 1,038,138 shares of Class A Common Stock. 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 issue 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 upon the death, disability or retirement of the employee. Under a 1993 sale of restricted stock to certain stockholder employees, notes receivable from stockholders were issued. The notes bear interest at 6% and are due to the Company upon demand. On July 1, 2000, 60,000 restricted shares of Class A Common Stock were issued to certain executive officers. The restrictions on these 60,000 shares expire ratably over a five-year period beginning July 3, 2001. Restrictions on these shares 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 the Company's Class A Common Stock in lieu of cash. 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 the grant of 1,200 options to purchase the Company's Class A Common Stock to each non-employee director upon the election or re-election of each such director to the board. The exercise price of options issued under 33 the Directors Stock Plan is set at the fair market value of the Company's stock on the date granted. Options vest ratably on each of the first, second and third anniversaries of the date of grant. 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. Employee Stock Purchase Plan In August 1997, the Company adopted an Employee Stock Purchase Plan (the "ESPP") through which employees meeting certain eligibility criteria may purchase shares of the Company's common stock at a discount. Under the ESPP, eligible employees may purchase shares of the Company's common stock, subject to certain limitations, at a 15% discount. Common stock is purchased for employees in January and July of each year. Employees may not purchase more than 1,250 shares in any six-month period or purchase stock having a market value of more than $25 per calendar year. The Company has reserved 300,000 shares for issuance under the ESPP. In January and July 2001, employees purchased 22,042 and 48,449 shares of the Company's Class A Common Stock at $4.73 and $4.68 per share, respectively. In January and July 2000, employees purchased 30,899 and 25,501 shares of the Company's Class A Common Stock at $6.27 and $5.74 per share, respectively. In January and July 1999, employees purchased 9,752 and 12,957 shares of the Company's Class A Common Stock at $12.75 and $9.09 per share, respectively. At December 31, 2001, 124,392 shares were available for purchase under the ESPP. In January 2002, employees purchased 50,796 shares of the Company's Class A Common Stock at $5.76 per share. Stock Options Stock options generally vest over periods ranging from three to six years and expire ten years from the date of grant. As options were granted at fair value, no compensation expense has been recognized. A summary of the Company's stock option activity for 2001, 2000 and 1999 follows:
Weighted Average Shares Option Price Exercise Price ----------------------------------------------------------------------- Outstanding at December 31, 1998 357,126 $ 4.72 - $20.88 $ 11.70 Granted at market price 51,300 10.13 - 15.00 13.13 Canceled or expired (14,000) 12.25 - 19.13 14.71 --------------- Outstanding at December 31, 1999 394,426 4.72 - 20.88 11.78 Granted at market price 387,150 6.50 - 8.06 7.11 Exercised (1,200) 6.63 6.63 Canceled or expired (73,950) 6.50 - 20.88 10.84 --------------- Outstanding at December 31, 2000 706,426 4.72 - 20.88 9.33 Granted at market price 50,600 6.88 - 7.10 6.89 Exercised (15,250) 6.50 - 6.88 6.75 Canceled or expired (76,000) 6.50 - 19.13 10.11 --------------- Outstanding at December 31, 2001 665,776 $ 4.72 - $20.88 $ 9.11 ===============
For SFAS No. 123 purposes, the fair value of each option grant and each stock purchase right under the ESPP has been estimated as of the date of grant using the Black-Scholes pricing model with the following weighted average assumptions for 2001, 2000 and 1999, respectively: risk-free interest rate of 5.09%, 6.44% and 5.26%, expected life of five years, expected dividend yield of 0% and expected volatility of 62.5%, 60% and 60%. Using these assumptions, the fair value of the awards granted in 2001, 2000 and 1999 is $453, $1,292 and $473, respectively, which would be amortized as compensation expense over the vesting period. 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 (loss) would have been $(1,788), $1,592 and $11,083 for 2001, 2000 and 1999, respectively. Pro forma basic earnings (loss) per share would have been $(0.13), $0.11 and $0.75 for 2001, 2000 and 1999, respectively. Pro forma diluted earnings (loss) per share would have been $(0.13), $0.11 and $0.75 for the same periods. The weighted average fair value of options granted during 2001, 2000 and 1999 was $3.97, $4.10 and $7.42, respectively. Of the options outstanding at December 31, 2001, 489,076 have exercise prices between $4.72 and $8.06, with a weighted average exercise price of $6.77 and a weighted average remaining contractual life of 7.0 years. Of these options, 195,926 are exercisable at a weighted average exercise price of $6.11. Options to exercise 68,100 shares have exercise prices between $9.50 and $12.25, with a weighted average exercise price of $12.06 and a weighted average remaining contractual life of 6.8 years. Of these options, 50,175 are exercisable at a weighted average exercise price of $12.08. Options to exercise the 34 remaining 108,600 shares have exercise prices between $15.00 and $20.88, with a weighted average exercise price of $17.84 and a weighted average remaining contractual life of 6.0 years. Of these options, 63,600 were exercisable at a weighted average exercise price of $18.93. As of December 31, 2001, 309,701 of the options outstanding were exercisable with a weighted average exercise price of $9.71 per share. As of December 31, 2000, 235,731 of the options outstanding were exercisable with a weighted average exercise price of $10.11 per share. As of December 31, 1999, 209,564 of the options outstanding were exercisable with a weighted average exercise price of $9.13 per share. 14. 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. 15. Operating Segments The Company has two reportable segments based on the types of services it provides to its customers: U.S. Xpress, which provides truckload operations throughout the continental United States and parts of Canada and Mexico, and CSI/Crown, which provides transportation services to the floorcovering industry and deferred airfreight logistics services from airport to airport. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Substantially all intersegment sales prices are market based. The Company evaluates performance based on operating income of the respective business units.
U.S. Xpress CSI/Crown Consolidated ----------- --------- ------------ 1999 ---- Revenues - external customers $ 650,499 $ 57,713 $ 708,212 Intersegment revenues 5,530 0 5,530 Operating income 28,869 2,658 31,527 Depreciation and amortization 28,932 1,082 30,014 Total assets 390,922 18,115 409,037 Capital expenditures 74,180 442 74,622 2000 ---- Revenues - external customers $ 728,924 $ 58,161 $ 787,085 Intersegment revenues 4,659 0 4,659 Operating income 17,107 2,824 19,931 Depreciation and amortization 33,447 1,264 34,711 Total assets 403,440 20,021 423,461 Capital expenditures 55,455 732 56,187 2001 ---- Revenues - external customers $ 714,953 $ 83,079 $ 798,032 Intersegment revenues 21,942 0 21,942 Operating income (loss) 15,103 (1,624) 13,479 Depreciation and amortization 33,730 1,389 35,119 Total assets 391,256 26,212 417,468 Capital expenditures 52,505 895 53,400
The difference in consolidated operating income as shown above and consolidated income before income tax provision on the consolidated statements of operations is net interest expense of $14,937, $15,449 and $12,388 in 2001, 2000 and 1999, respectively. The difference in consolidated depreciation and amortization as shown above and consolidated depreciation and amortization, net of gain/loss on disposition of equipment on the consolidated statements of operations is gain/(loss) on sale of equipment of $(226), $281 and $764 in 2001, 2000 and 1999, respectively. 35 16. Quarterly Financial Data (Unaudited)
Quarter Ended ----------------------------------------------------------- March 31 June 30 September 30 December 31 Total ------------------------------------------------------------------------- Year Ended December 31, 2001 Operating revenue $ 186,478 $ 202,541 $ 207,464 $ 201,549 $ 798,032 Income from operations 2,134 4,784 4,152 2,409 13,479 Income (loss) before income taxes (2,031) 643 629 (699) (1,458) Net income (loss) (1,220) 387 304 (599) (1,128) Earnings (loss) per share - basic (.09) .03 .02 (.04) (.08) Earnings (loss) per share - diluted (.09) .03 .02 (.04) (.08) Year Ended December 31, 2000 Operating revenue $ 191,841 $ 202,427 $ 197,135 $ 195,682 $ 787,085 Income (loss) from operations 4,842 9,122 6,626 (659) 19,931 Income (loss) before income taxes 1,447 5,150 2,481 (4,596) 4,482 Net income (loss) 868 3,084 1,368 (3,255) 2,065 Earnings (loss) per share - basic /(1)/ 0.06 0.22 0.10 (0.24) 0.15 Earnings (loss) per share - diluted /(1)/ 0.06 0.22 0.10 (0.24) 0.15
/(1)/ The sum of quarterly earnings per share 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 December 31, 2001 involving a change of accountants or disagreements on accounting and financial disclosure matters. 36 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The section entitled "Nominees for Directorships" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 14, 2002 is incorporated herein by reference. Information regarding the executive officers of the registrant is presented in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation and Other Information" 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" of the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Election of Directors" and "Certain Transactions" of the Proxy Statement is incorporated herein by reference. 37 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 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 listing on Page 41 of this Form 10-K. (b) Reports on Form 8-K A Form 8-K was filed on December 28, 2001 with the Securities and Exchange Commission to report the amendment of the Company's Revolving Credit Agreement and certain revenue equipment borrowings. 38 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To U.S. Xpress Enterprises, Inc.: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of U.S. XPRESS ENTERPRISES, INC. (a Nevada corporation) AND SUBSIDIARIES included in this Form 10-K and have issued our report thereon dated January 29, 2002. 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 relation to the basic consolidated financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP Chattanooga, Tennessee January 29, 2002 - ------------------ 39 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001 (In Thousands)
Balance at Beginning Charged to Charged to Balance at End Description of Period Cost/Expenses Other /(1)/ Deductions/(2)/ of Period - ------------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED 12/31/99 Reserve for doubtful accounts $ 3,751 $ 1,419 $ 683 $ 2,598 $ 3,255 FOR THE YEAR ENDED 12/31/00 Reserve for doubtful accounts $ 3,255 $ 4,500 $ 204 $ 3,940 $ 4,019 FOR THE YEAR ENDED 12/31/01 Reserve for doubtful accounts $ 4,019 $ 1,223 $ 194 $ 2,017 $ 3,419
/(1)/ For the year ended 12/31/99 Recoveries on accounts written off $ 283 Final adjustment resulting from purchase of PST Vans 400 ----------- $ 683 =========== For the year ended 12/31/00 Recoveries on accounts written off $ 204 =========== For the year ended 12/31/01 Recoveries on accounts written off $ 194 =========== /(2)/ Accounts written off 40 (c) Exhibits Exhibit No. Description - ----------------------------- /(1)/ 3.1 Restated Articles of Incorporation of the Company. /(1)/ 3.2 By-Laws of the Company. /(1)/ 4.1 Restated Articles of Incorporation of the Company filed as Exhibit 3.1 and incorporated herein by reference. /(1)/ 4.2 By-Laws of the Company filed as Exhibit 3.2 and incorporated herein by reference. /(1)/ 4.3 Stock Purchase Agreement dated June 10, 1993 by and among Max L. Fuller, Patrick E. Quinn and the Company. /(1)/ 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. /(1)/ 10.1 Accounts Financing Agreement (Security Agreement) dated February 2, 1988, as amended, between Congress Financial Corp. (Southern) and Southwest Motor Freight, Inc. /(1)/ 10.2 Security Agreement dated December 18, 1985, as amended, by and between Exchange National Bank of Chicago and U.S. Xpress, Inc. /(1)/ 10.3 Security Agreement dated September 17, 1987, as amended, by and between Exchange National Bank of Chicago and Crown Transport Systems, Inc. /(1)/ 10.4 1993 Incentive Stock Plan of the Company. /(1)/ 10.5 Stock Option Agreement Under 1993 Incentive Stock Plan. /(1)/ 10.6 Stock Rights and Restrictions Agreement for Restricted Stock Award Under 1993 Incentive Stock Plan. /(1)/ 10.7 Self-Funded Employee Benefits Plan Document of the Company. /(1)/ 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. /(1)/ 10.9 Salary Continuation Agreement dated June 10, 1993 by and between the Company and Max L. Fuller. /(1)/ 10.10 Salary Continuation Agreement dated June 10, 1993 by and between the Company and Patrick E. Quinn. /(1)/ 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. /(1)/ 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. /(1)/ 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. 41 Exhibit No. Description - ----------------------------- /(1)/ 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. /(1)/ 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. /(1)/ 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. /(1)/ 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. /(1)/ 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. /(2)/ 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. /(3)/ 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. /(4)/ 10.21 Asset Purchase Agreement with respect to acquisition of CSI/Reeves, Inc. /(5)/ 10.22 Stock Purchase Agreement with respect to Hall Systems, Inc. /(5)/ 10.23 Credit Agreement with NationsBank. /(6)/ 10.24 Amendment No. 1 to Credit Agreement with NationsBank. /(7)/ 10.25 Asset Purchase Agreement dated June 18, 1996 with respect to acquisition of Michael Lima Transportation, Inc. /(7)/ 10.26 Asset Purchase Agreement dated April 1, 1997 with respect to acquisition of assets from Rosedale Transport, Inc. and Rosedale Transport, Ltd. /(7)/ 10.27 Asset Purchase Agreement dated April 25, 1997 with respect to acquisition of JTI, Inc. /(8)/ 10.28 Loan and Security Agreement dated June 24, 1997 by and between Wachovia Bank, N.A. and U.S. Xpress Leasing. 42 Exhibit No. Description - ----------------------------- /(9)/ 10.29 Stock Purchase Agreement dated as of December 24, 1997 by and between U.S. Xpress Enterprises, Inc. and Richard H. Schaffer, Richard H. Schaffer Irrevocable Trust dated December 24, 1991 and Richard H. Schaffer Irrevocable Non-Withdrawal Trust dated December 24, 1991. /(9)/ 10.30 Credit Agreement dated as of January 15, 1998 among U.S. Xpress Enterprises, Inc., Wachovia Bank, N.A., NationsBank, N.A., BankBoston, N.A., SunTrust Bank, Chattanooga, N.A. and the banks listed therein. /(10)/ 10.31 Investment and Participation Agreement between U.S. Xpress Enterprises, Inc. and Wachovia Capital Markets, Inc. /(10)/ 10.32 Acquisition, Agency, Indemnity and Support Agreement between U.S. Xpress Enterprises, Inc. and Wachovia Capital Markets, Inc. /(10)/ 10.33 Lease Agreement between U.S. Xpress Enterprises, Inc. and Wachovia Capital Markets, Inc. /(11)/ 10.34 Agreement and Plan of Merger dated as of July 7, 1998 among U.S. Xpress Enterprises, Inc., PST Acquisition Corp. and PST Vans, Inc. /(12)/ 10.35 First Amendment to Credit Agreement dated as of January 15, 1998 among U.S. Xpress Enterprises, Inc., Wachovia Bank, N.A., NationsBank, N.A., BankBoston, N.A., SunTrust Bank, Chattanooga, N.A. and the banks listed therein. /(12)/ 10.36 Second Amendment to Credit Agreement dated as of January 15, 1998 among U.S. Xpress Enterprises, Inc., Wachovia Bank, N.A., NationsBank, N.A., BankBoston, N.A., SunTrust Bank, Chattanooga, N.A. and the banks listed therein. /(12)/ 10.37 Third Amendment to Credit Agreement dated as of January 15, 1998 among U.S. Xpress Enterprises, Inc., Wachovia Bank, N.A., NationsBank, N.A., BankBoston, N.A., SunTrust Bank, Chattanooga, N.A. and the banks listed therein. /(12)/ 10.38 Fourth Amendment to Credit Agreement dated as of January 15, 1998 among U.S. Xpress Enterprises, Inc., Wachovia Bank, N.A., NationsBank, N.A., BankBoston, N.A., SunTrust Bank, Chattanooga, N.A. and the banks listed therein. /(13)/ 10.39 First Amendment to the Investment and Participation Agreement dated as of November 12, 2000, among U.S. Xpress Enterprises, Inc. and Wachovia Capital Investments, Inc. /(13)/ 10.40 Second Amendment to the Investment and Participation Agreement dated as of March 30, 2000, among U.S. Xpress Enterprises, Inc. and Wachovia Capital Investments, Inc. /(13)/ 10.41 Third Amendment to the Investment and Participation Agreement dated as of June 13, 2000, among U.S. Xpress Enterprises, Inc. and Wachovia Capital Investments, Inc. /(13)/ 10.42 U.S. Xpress Enterprises Employment Agreement with Cort J. Dondero dated as of June 13, 2000 by and between U.S. Xpress Enterprises, Inc. and Cort J. Dondero. /(13)/ 10.43 Initial Subscription Agreement of Transplace.com, LLC, entered into as of April 19, 2000 by Transplace.com, LLC, a Nevada Limited Liability Company, and Covenant Transport, Inc., J.B. Hunt Transport Services, Inc., M.S. Carriers, Inc., Swift Transportation Co., Inc., U.S. Xpress Enterprises, Inc., and Werner Enterprises, Inc. /(13)/ 10.44 Operating Agreement of Transplace.com, LLC, made and entered into as of April 19, 2000 by Transplace.com, LLC, a Nevada Limited Liability Company, and Covenant Transport, Inc., J.B. Hunt Transport Services, Inc., M.S. Carriers, Inc., Swift Transportation Co., Inc., U.S. Xpress Enterprises, Inc., and Werner Enterprises, Inc. and Transplace.com, LLC. 43 Exhibit No. Description - ----------------------------- /(14)/ 10.45 Amended and Restated Credit Agreement dated as of January 31, 2001 among U.S. Xpress Enterprises, Inc., Wachovia Bank, N.A., Bank of America, N.A., Fleet National Bank, SunTrust Bank, and the banks listed therein. /(15)/ 10.46 Waiver under and First Amendment to Credit Agreement dated April 27, 2001, but effective as of March 31, 2001, among U.S. Xpress Enterprises, Inc., the banks listed in the waiver and amendment, and Wachovia Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, Fleet National Bank, as Documentation Agent, and SunTrust Bank, as Co-Agent. /(15)/ 10.47 Second Amendment to and Waiver under Amended and Restated Credit Agreement dated July 11, 2001, by and among U.S. Xpress Enterprises, Inc., Wachovia Bank, N.A. as Administrative Agent, Bank of America, N.A., as Syndication Agent, Fleet National Bank, N.A., Bank of America, N.A., Fleet National Bank, SunTrust Bank, AmSouth Bank, The Chase Manhattan Bank, LaSalle Bank National Association, and first Tennessee Bank, N.A. /(16)/ 10.48 Fourth Amendment to Amended and Restated Credit Agreement dated December 21, 2001, by and among U.S. Xpress Enterprises, Inc., Wachovia Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, Fleet National Bank, as Documentation Agent, SunTrust Bank, as Co-Agent, and Wachovia Bank, N.A., Bank of America, N.A., Fleet National Bank, SunTrust Bank, AmSouth Bank, JP Morgan Chase Bank (formerly, The Chase Manhattan Bank), LaSalle Bank National Association, and First Tennessee Bank, N.A., as Banks. 10.49 Term Loan Agreement, dated December 21, 2001, by and between U.S. Xpress Leasing, Inc. and DaimlerChrysler Services North America LLC. 10.50 Security Agreement dated December 21, 2001, by and between U.S. Xpress Leasing, Inc. and DaimlerChrysler Services North America LLC. 10.51 First Amendment to Security Agreement dated January 30, 2002, by and between U.S. Xpress Leasing, Inc. and DaimlerChrysler Services North America LLC 10.52 Security Agreement dated December 21, 2001, and related form of Promissory Note by and between U.S. Xpress, Leasing, Inc. and Transport International Pool, Inc. 21 List of the current subsidiaries of the Company. 23 Consent of Independent Public Accountants. 99 Letter from the Company to the SEC with respect to representations received from Arthur Andersen LLP ---------------------------------- /(1)/ Filed in Registration Statement on Form S-1 dated May 20, 1994. (SEC File No. 33-79208) /(2)/ Filed in Pre-Effective Amendment No. 2 to Registration Statement on Form S-1 dated October 4, 1994. (SEC File No. 33-79208) /(3)/ Filed in Form 10-Q dated November 17, 1994 (SEC Commission File No. 0-24806) /(4)/ Filed in Form 10-Q dated November 10, 1995 (SEC Commission File No. 0-24806) /(5)/ Filed in Form 10-Q dated February 13, 1996 (SEC Commission File No. 0-24806) /(6)/ Filed in Form 10-Q dated November 14, 1996 (SEC Commission File No. 0-24806) /(7)/ Filed in Form 10-K dated March 31, 1997 (SEC Commission File No. 0-24806) /(8)/ Filed in Registration Statement Form S-1 dated August 19, 1997 /(9)/ Filed in Form 8-K dated January 29, 1998 (SEC Commission File No. 0-24806) /(10)/ Filed in Form 10-Q dated March 31, 1998 (SEC Commission File No. 0-24806) /(11)/ Filed in Form S-4 dated July 30, 1998 (SEC Commission File No. 333-59377) /(12)/ Filed in Form 10-Q dated March 31, 2000 (SEC Commission File No. 0-24806) /(13)/ Filed in Form 10-Q dated June 30, 2000 (SEC Commission File No. 0-24806) /(14)/ Filed in Form 10-K dated April 2, 2001 (SEC Commission File No. 0-24806) /(15)/ Filed in Form 10-Q dated June 30, 2001 (SEC Commission File No. 0-24806) /(16)/ Filed in Form 8-K dated December 28, 2001 (SEC Commission File No. 0-24806) 44 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 1st day of April, 2002. U.S. XPRESS ENTERPRISES, INC. Date: April 1, 2002 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, April 1, 2002 ----------------------------- -------------- Patrick E. Quinn President and Treasurer /s/ Max L. Fuller Co-Chairman of the Board of Directors, April 1, 2002 ----------------------------- -------------- Max L. Fuller Vice President and Secretary /s/ Ray M. Harlin Director, Executive Vice President of Finance April 1, 2002 ----------------------------- -------------- Ray M. Harlin and Chief Financial Officer (principal financial and accounting officer) /s/ Cort J. Dondero Director and Chief Operating Officer April 1, 2002 ----------------------------- -------------- Cort J. Dondero /s/ James E. Hall Director April 1, 2002 ----------------------------- -------------- James E. Hall /s/ Robert J. Sudderth, Jr. Director April 1, 2002 ----------------------------- -------------- Robert J. Sudderth, Jr. /s/ A. Alexander Taylor, II Director April 1, 2002 ----------------------------- -------------- A. Alexander Taylor, II
45 EX-10.49 3 dex1049.txt TERM LOAN AGREEMENT Exhibit 10.49 TERM LOAN AGREEMENT THIS TERM LOAN AGREEMENT ("Agreement") is entered into as of the ________ day of December, 2001 between U.S. XPRESS LEASING, INC., a Tennessee corporation ("Borrower") and DAIMLERCHRYSLER SERVICES NORTH AMERICA LLC ("Lender"). WITNESSETH: ----------- WHEREAS, Borrower has applied to Lender for a loan (the "Loan") in the amount of Fifty-Three Million Three Hundred Ten Thousand Nine Hundred One and 58/100 Dollars ($53,310,901.58) for the purposes set forth in Section 1.3 of this Agreement; and Lender and Borrower desire to enter into this Agreement for the purposes of establishing the terms, conditions and agreements under which Lender is willing to make the Loan; and NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender agree as follows: ARTICLE 1. AMOUNT OF LOAN -------------- 1.1 Commitment to Lend. Subject to and upon the terms, covenants and ------------------ conditions hereinafter set forth, Lender will hereafter lend and advance to Borrower the sum of $53,310,901.58, which shall be evidenced by a promissory note (the "Note") in form and substance acceptable to Lender. The Note shall be secured by, among other collateral: (a) 886 tractors of Borrower described on Exhibit A attached to the Security Agreement (the "Equipment"), and (b) the "Collateral" as defined in that certain Blanket Assignment dated August 29, 2001 and executed by Borrower in favor of Lender (as the same may from time to time be amended, modified, extended, renewed or restated, the "Blanket Assignment"), and all proceeds thereof and is guaranteed by a Continuing Cross-Guaranty executed by U.S. Xpress Leasing, Inc., U.S. Xpress Enterprises, Inc. and U.S. Xpress, Inc. dated August 29, 2001 (as the same may from time to time be amended, modified, extended, renewed or restated, the "Guaranty"; U.S. Xpress Enterprises and U.S. Xpress, Inc. are together referred to as the "Guarantors"). The Equipment (and the proceeds thereof) is more completely defined and described as the "Collateral" in, and Lender's security interest in the Equipment (and the proceeds thereof) are created and perfected by, a security agreement (as the same may from time to time be amended, modified, extended, renewed or restated, the "Security Agreement") and a UCC Financing Statement (the "Financing Statement") in form and substance acceptable to Lender. The Security Agreement, the Blanket Assignment and the Financing Statement, together with any other assignments, security agreements or other collateral documents executed in connection with the Loan are herein collectively called the "Security Instruments." 1.2 Loan. As used herein, the term "Loan" includes: (a) the ---- indebtedness evidenced by the Note; (b) any and all indebtedness, obligations and liabilities arising under or pursuant to any and all of the Security Instruments; (c) all loans and advances Lender may hereafter make to Borrower under this Agreement, the Note and/or the Security Instruments; and (d) any and all renewals, modifications and/or extensions of all or any part of the indebtedness, obligations, debts, loans, advances and liabilities described in (a) through (c) preceding. 1.3 Proceeds of the Loan. The proceeds of the Loan shall be disbursed -------------------- solely for the purpose of refinancing existing indebtedness of the Borrower secured by the Equipment. 1.4 Payments of Interest and Principal. Accrued but unpaid interest on ---------------------------------- the Note at the rate set forth in the Note shall be due and payable monthly during the term of the Loan as set forth in the Note. All principal and any accrued but unpaid interest on the Note shall be payable as set forth in the Note and elsewhere in this Agreement. 1.5 Obligations. The term "Obligations" means the Loan and any and all ----------- other indebtedness, liabilities and obligations, present or future, of every kind or nature, owed by Borrower to Lender, whether direct or indirect, absolute or contingent, now existing, due or owing or in the future existing, due or owing, including, without limitation, (a) all indebtedness evidenced by any and all promissory note(s) now or in the future executed and delivered by Borrower to Lender and all renewals, replacements, increases and modifications thereof, (b) all leases and financings of the inventory, fixtures and equipment of Borrower by Lender, (c) all loans and advances of money from Lender to Borrower, for any use or purpose, (d) all obligations of Borrower to Lender in connection with the purchase, acceptance or discounting by Lender of notes, retail installment contracts, leases and other chattel paper or instruments originated by Borrower in the conduct of its business, (e) all guaranties by Borrower of the debt of other entities and (f) all other financial or credit accommodations extended by Lender to or for the benefit of Borrower. ARTICLE 2. CONDITIONS PRECEDENT TO THE LOAN -------------------------------- 2.1 Lender shall not be obligated to make the Loan unless, prior to the advancement of any funds by Lender, Borrower has delivered to Lender the duly executed documents, certificates and other instruments required herein, including, without limitation the following: (a) this Agreement; (b) the Note; (c) the Security Agreement (which must be in form and substance satisfactory to Lender) and such Uniform Commercial Code financing statements and other documents as Lender may require in connection therewith; (d) the Confirmation of Blanket Assignment (which must be in form and substance satisfactory to Lender) and such Uniform Commercial Code financing statements and other documents as Lender may require in connection therewith; (e) A Notice of Assignment and a Blanket Lessee Acknowledgment (which must be in form and substance satisfactory to Lender), evidencing the acknowledgement of the interests -2- of Lender in every lease of any item of Equipment and such other documents as Lender may require in connection therewith; (f) the Consent of Guarantors (which must be in form and substance satisfactory to Lender), duly executed by each of the Guarantors; (g) Certified copies of the Articles of Incorporation and ByLaws or other organizational documents forming or creating Borrower and each Guarantor; (h) Certifications from the Tennessee Secretary(ies) of State that Borrower and each Guarantor is in existence and is in good standing in the State of Tennessee; (i) Certified copies of resolutions, certificates of authority or similar authorization documents from Borrower's board of directors approving the Loan; (j) Original incumbency certificates certifying as to the officers of Borrower and each Guarantor authorized to sign the Loan Documents on behalf of Borrower and each Guarantor, respectively; (k) an opinion of counsel of the Scudder Law Firm, outside counsel to Borrower and the Guarantors, in form and substance satisfactory to Lender and Lender's counsel; (l) A list of all Equipment, including year, make, model, state of titling/registration and all leases involving the Equipment certified as true, correct and complete by Borrower; (m) the Borrowing Notice (which must be in form and substance satisfactory to Lender); and (n) evidence of the proper filing of UCC-1 Financing Statements evidencing first priority security interests in favor of Lender in all of the Collateral and all of the Third Party Collateral; (o) a Termination of Security Interest (which must be in form and substance satisfactory to Lender) and UCC-3 Termination Statements for all UCC-1 Financing Statements filed of record against Borrower relating to the Collateral; (p) Evidence satisfactory to Lender of the insurance required by this Agreement and the other Loan Documents together with loss payable endorsements in form and substance satisfactory to Lender, duly executed by the insurance company; (q) Copies of all financial statements and other Exhibits and Schedules required by this Agreement and the other Loan Documents; (r) A letter of direction from Borrower with respect to the disbursement of the proceeds of the Loan; (s) A pay-off letter from Wachovia Bank N.A. in form and substance satisfactory to Lender; -3- (t) A UCC search from the Tennessee Secretary(ies) of State or other evidence satisfactory to Lender to demonstrate that Lender will have a first lien on the Collateral; and (u) Such other agreements, documents, instruments and certificates as Lender may reasonably request. Any one or more of the conditions set forth above which have not been satisfied by Borrower on or prior to the date of disbursement of the Loan hereunder shall not be deemed permanently waived by Lender unless Lender shall waive the same in a writing which expressly states that the waiver is permanent, and in all cases in which the waiver is not stated to be permanent Lender may at any time subsequent to the date specified in the waiver, if any, insist upon compliance and satisfaction of any such condition and failure to Borrower to comply with any such condition on or before shall constitute a Default under this Agreement. ARTICLE 3. CERTAIN REPRESENTATIONS AND WARRANTIES OF BORROWER -------------------------- 3.1 Borrower represents and warrants that: (a) Borrower is a corporation that is duly organized in the State of Tennessee and possesses all necessary and lawful authority and power to carry on its business and to comply with the terms, covenants and conditions of this Agreement, any and all documents, instruments and agreements evidencing, securing or pertaining to all or any part of the Loan, including, without limitation, the Note and the Security Instruments, and any extensions, renewals or modifications thereof (this Agreement and all such documents, instruments and agreements, including, without limitation, all those instruments described in Sections 1.1 and 1.2 hereof (other than the Guaranty), being sometimes herein and in any of such other documents and instruments collectively called the "Loan Documents"); (b) Borrower is duly authorized to execute and deliver the Loan Documents, and is and will continue to be duly authorized to perform all obligations of Borrower under the Loan Documents; (c) Neither the execution and delivery of the Loan Documents nor any Guaranty, nor consummation of any of the transactions herein or therein contemplated, nor compliance with the terms and provisions thereof, will contravene any provision of law, statute, rule or regulation to which Borrower or any Guarantor is subject or any judgment, decree, license, order or permit applicable to Borrower or any Guarantor, or will conflict or will be inconsistent with, or will result in any breach of any of the terms of the covenants, conditions or provisions of, or constitute a delay under, or result in the creation or imposition of a lien (except liens in favor of Lender) upon any of the Equipment or assets of Borrower or any Guarantor pursuant to the terms of any indenture, mortgage, deed of trust, agreement or other instrument to which Borrower or any Guarantor are parties or by which Borrower or any Guarantor may be bound, or to which Borrower or any Guarantor may be subject, or violate any provision of the organizational documents forming or creating Borrower or any Guarantor; -4- (d) No consent, approval, authorization or order of any court or governmental authority or third party (other than those which have been obtained prior to the date hereof and of which Borrower has notified Lender in writing on the date hereof) is required in connection with the execution and delivery by Borrower of the Loan Documents or the Guarantors of any Guaranty; (e) The Loan Documents and Guaranty, when duly executed and delivered, will be the legal and binding obligations of Borrower and the Guarantors, respectively, as the case may be, enforceable in accordance with their respective terms, except as the same may be limited by applicable bankruptcy, insolvency, rearrangement, moratorium, reorganization, liquidation, conservatorship or similar debtor relief laws of general application and the power of courts to grant equitable remedies; (f) All federal, state, local, and other taxes, assessments, fees and other governmental charges imposed upon Borrower or Borrower's assets or on the Equipment or any portion thereof (all such taxes, assessments, fees and charges being herein collectively called "Taxes") which are due and payable, have been paid or will be paid before they are delinquent; (g) Borrower's principal place of business is located in the State of Tennessee; (h) Borrower's exact legal name is the name indicated in the signature block for Borrower at the end of this Agreement; (i) The Loan is being incurred for commercial purposes and is not a "consumer transaction" or a "consumer-goods transaction" (both as described and defined in the Uniform Commercial Code, as amended and replaced from time to time - the "UCC") and the proceeds of the Loan will be used only for commercial purposes and not consumer purposes; (j) All of the Equipment is, has been or will be used, acquired or held for commercial purposes and does not constitute "consumer goods" (as described and defined in the UCC); and (k) All financial statements delivered or to be delivered in the future by Borrower or any Guarantor to Lender do and shall fairly represent the financial condition of the entities covered by such financial statements as of the date that such financial statements are delivered to Lender. ARTICLE 4. AFFIRMATIVE COVENANTS OF BORROWER --------------------------------- 4.1 Until payment and performance in full of the Loan and the other Obligations, Borrower covenants to: (a) Promptly pay, or cause to be paid, when due, any and all federal, state and local taxes before delinquency; (b) Promptly pay and discharge, when due, all of its debts, claims, liabilities and obligations with respect to the Equipment; -5- (c) Promptly pay, or cause to be paid, when due, any and all other costs and expenses required by this Agreement or the Loan Documents or otherwise or arising in connection with the Loan, this Agreement or the Loan Documents, including, without limitation, all fees for filing or recording the Security Instruments and for having the lien in favor of Lender noted on the certificate of title for each item of Equipment; (d) Keep or cause to be kept, at its principal place of business or the principal place of business of its parent located in ________________________, proper and complete books of record and account concerning the transactions and financial records and affairs of Borrower and, at Lender's request, make such records available for Lender's inspection during normal business hours and permit Lender to make and keep copies thereof; (e) Furnish, or cause to be furnished, to Lender such other information, not otherwise required herein, respecting the business affairs, assets and liabilities of Borrower and any Guarantor as Lender shall from time to time require; (f) Upon request, Borrower will, within thirty (30) days after the date on which they are filed, deliver to Lender all Forms 10-K and 10-Q filed with the Securities and Exchange Commission by its parent with respect to its consolidated group. Any and all financial statements submitted and to be submitted to Lender have and will have been prepared on a basis of generally accepted accounting principles, and are and will be complete and correct and fairly present Borrower's parent's financial condition as at the date thereof. (g) Permit Lender and its agents and representatives, to enter at all reasonable times upon any premises where any of the Equipment is located for the purpose of inspecting the Equipment; (h) Protect the Equipment from removal, destruction or damage, and maintain, with financially sound and reputable insurance companies or associations, insurance of the kinds, in such amounts and covering such risks as Lender shall reasonably require, and, at Lender's request, deliver to Lender evidence of the maintenance of such insurance; (i) Promptly notify Lender in writing of any change in any fact or circumstance represented or warranted herein, in any of the Loan Documents, or in any other document furnished to Lender in connection with this Agreement; (j) Execute and deliver to Lender, from time to time as requested by Lender, such other documents as shall reasonably be necessary to provide the rights and remedies to Lender granted or provided for herein, by the Security Instruments or by the other Loan Documents; and (k) Promptly pay or cause to be paid when due all costs and expenses incurred in connection with the Collateral and keep the Collateral free and clear of any liens, charges or claims other than the liens of the Security Instruments. Notwithstanding anything to the contrary contained in this Agreement, Borrower may (i) contest the validity or amount of any claim of any contractor, consultant, architect or other person providing labor, materials or services with respect to the Equipment, (ii) contest any tax or special assessment levied by any governmental authority, and (iii) contest the enforcement of or compliance with any governmental requirements, and such contest on the part of Borrower shall not be a default hereunder; -6- provided, however, that Borrower shall pay any contested sum before a judgment resulting from any such contest is subject to foreclosure or execution upon the Equipment. ARTICLE 5. NEGATIVE COVENANTS OF BORROWER ------------------------------ 5.1 Until payment and performance in full of the Loan and the other Obligations, Borrower shall not, without the prior written consent of Lender: (a) Merge into, be acquired by or consolidate with any other person or entity unless Lender shall have received thirty (30) days advance notice of such Event, and upon the occurrence of such Event (x) such person shall be organized and existing under the laws of the United States or any state and execute and deliver to Lender an agreement containing an effective assumption by such person or entity of the due and punctual performance of this Agreement, and (y) the financial condition of the combined companies shall be no less favorable than that of the Borrower; or (b) Change (i) the state in which Borrower is organized, (ii) the type of entity of which Borrower is comprised (i.e. change Borrower from a limited liability company to a corporation or partnership or from a corporation to a limited liability company or partnership, etc.) or (iii) the legal name of Borrower. ARTICLE 6. DEFAULT ------- 6.1 The term "Default," as used herein, shall mean the occurrence of any one or more of the following events: (a) The failure or refusal of Borrower to make any payment of principal or interest on the Note or under the Loan, or any part thereof, as it becomes due in accordance with the terms of the Note or any of the other Loan Documents (whether at stated maturity, by acceleration or otherwise), which failure or refusal shall remain insured for a period of ten (10) days; (b) The failure or refusal of Borrower to pay any of the Obligations as and when the same shall become due and payable, (whether at slated maturity, by acceleration or otherwise), which failure or refusal shall remain insured for a period of ten (10) days; (c) Any event that results in the acceleration of the maturity of Borrower's indebtedness, liabilities and obligations to others in an aggregate amount in excess of $5 million, whether under any indenture, agreement or undertaking or otherwise; (d) The failure or refusal of Borrower punctually and properly to perform any covenant, agreement, obligation or condition contained in this Agreement, the Note, the Security Instruments or in any of the other Loan Documents, or in any of the instruments executed in connection herewith or therewith, and the continuation of such default for a period of fifteen (15) days after Lender sends to Borrower written notice specifying such default; -7- (e) The levy against the Equipment, or any part thereof, or any execution, attachment, sequestration or other writ in connection with the Equipment; (f) This Agreement or any of the other Loan Documents shall at any time for any reason (other than the termination of this Agreement or such other Loan Document, as the case may be, in accordance with its terms) cease to be in full force and effect or shall be declared to be null and void by a court, or if the validity or enforceability thereof shall be contested or denied by Borrower and/or any Guarantor, or if the transactions completed hereunder or thereunder shall be contested by Borrower and/or any Guarantor or if Borrower and/or any Guarantor shall deny that it has any further liability or obligation hereunder or thereunder; (g) The Guaranty shall at any time for any reason cease to be in full force and effect or shall be declared to be null and void by a court, or if the validity or enforceability thereof shall be contested or denied by any of the Guarantors, or if any of the Guarantors shall deny that it has any further liability or obligation thereunder or if any of the Guarantors shall fail to comply with or observe any of the terms, provisions or conditions contained in the Guaranty; (h) The insolvency, liquidation or dissolution of Borrower or any Guarantor; (i) The appointment of a trustee or receiver for the assets, or any part thereof, of Borrower or any Guarantor or for any material portion of the Equipment or assets of Borrower or any Guarantor; (j) The making by Borrower or any Guarantor of a transfer in fraud of creditors or a general assignment for the benefit of creditors; (k) The entry into bankruptcy of an order for relief for or against Borrower or any Guarantor; (l) The filing, by way of petition (if not dismissed within sixty (60) days of such filing) or answer admitting the material allegations of any petition, or other pleading seeking adjudication of Borrower or any Guarantor, whether in bankruptcy, or an adjustment of said parties' debts, or any other relief under any bankruptcy, reorganization, debtor's relief or insolvency laws now or hereafter existing, including without limitation, a petition or answer seeking reorganization or admitting the material allegations of a petition filed against any of said parties in any bankruptcy or reorganization proceeding, or the act of said parties in instituting or voluntarily being or becoming a party to any other judicial proceedings intended to effect a discharge of the debts of any of said parties, in whole or in part, or a postponement of the maturity of the collection thereof, or a suspension of any of the rights or powers of a trustee or of any of the rights or powers granted to the holder hereof herein, or in any other documents executed in connection therewith; (m) The receipt by Lender of information establishing that any representation or warranty made by Borrower or any Guarantor herein, in any Guaranty, in any of the other Loan Documents or in any other document or instrument modifying, renewing, extending, evidencing, securing or pertaining to this Agreement or the Loan, is materially deceptive, misleading, false or erroneous; -8- (n) Borrower or any Guarantor shall have a judgment in excess of $5 million entered against it by a court and such judgment shall not be appealed in good faith or satisfied by Borrower or such Guarantor within thirty (30) days after the entry of such judgment; or (o) The admission of Borrower or any Guarantor in writing, of its inability to pay its debts as they become due. ARTICLE 7. RIGHTS AND REMEDIES ------------------- 7.1 Remedies upon Default. Should a Default occur and be continuing, --------------------- Lender may, at its election, do any one or more of the following: (a) Lender may, without notice (except as provided above), demand or presentment, which are hereby expressly waived, declare the entire unpaid balance of the Loan and all of the other Obligations, immediately due and payable and in the case of any event described in Sections 6.1(k) or 6.1(l), the entire unpaid balance of the Loan and all of the other Obligations shall automatically become immediately due and payable, notwithstanding any other terms hereof or thereof. (b) Lender may require Borrower to assemble the Equipment and make it available to Lender at any place or places to be designated by Lender within the continental United States. (c) Lender may, without notice to Borrower, which notice is hereby expressly waived by Borrower, peaceably enter upon any premises where any of the Equipment may be located and take possession of the Equipment, and, at the option of Lender, (i) reduce any claim to judgment and (ii) sell and foreclose or otherwise enforce Lender's liens on all or any part of the Equipment, by any available judicial or nonjudicial procedure to the fullest extent permitted by the UCC. (d) Lender may retain some or all of the Equipment in either full or partial satisfaction of the Loan and the other Obligations and, in connection with such retention, Borrower acknowledges and agrees that (i) Borrower will remain liable to Lender for any deficiency amoun remaining after crediting against the Loan and the other Obligations the value received by Lender as a result of the Equipment that was so retained and (ii) Lender's mere re-possession of some or all of the Equipment shall not constitute a retention of such Equipment in either full or partial satisfaction of the Loan and the other Obligations unless Lender notifies Borrower in writing that Lender is retaining some or all of the Equipment in partial or full satisfaction of the Loan and the other Obligations. (e) Lender may collect and enforce, directly against the account debtors under, lessees under, obligors under, makers of or other counterparties to any Equipment, all Equipment that is comprised of accounts, chattel paper, electronic chattel paper, contract rights, leases, instruments, promissory notes, supporting obligations, documents, general intangibles, payment intangibles, factory credits or insurance proceeds and, in connection therewith, (i) Lender may, in its sole discretion, (A) notify all account debtors, lessees, obligors, makers and other counterparties to all of such Equipment of the assignment of such Equipment, (B) direct such -9- account debtors, lessees, obligors, makers and other counterparties to pay all rentals, payments and other proceeds under such Equipment directly to Lender for application to the Loan and the other Obligations and (C) instruct such account debtors, lessees, obligors, makers and other counterparties to respond to direct inquiries and requests for information from Lender with respect to any and all matters and transactions involving Borrower or its affiliates and (ii) Borrower waives all rights of confidentiality and privacy and instructs such account debtors, lessees, obligors, makers and other counterparties to provide Lender with whatever information and schedules Lender may require. (f) Lender may pursue any and all other rights and remedies available to it at law, under the UCC, in equity or under the Note, any Security Instruments, any of the other Loan Documents or any other document, agreement or instrument from Borrower to Lender or between Borrower and Lender. (g) Lender may apply for and obtain, by appropriate judicial action, appointment of a receiver or receivers for all or any part of the Equipment, without regard to the sufficiency of the security, without any showing of insolvency, fraud or mismanagement on the part of Borrower, to protect or enforce the rights of Lender. Borrower hereby consents to any such appointment. (h) Lender shall have the right, but not the obligation, to advance funds to satisfy any of Borrower's obligations hereunder or for such other purposes or in such other proportions as Lender may, in its sole discretion, deem necessary or advisable. Any advance by Lender for such purposes shall be part of the Loan and shall be secured by the Loan Documents. Lender will notify Borrower in writing of any disbursements made directly by Lender. Borrower hereby authorizes Lender to hold, use, disburse and apply proceeds for payment of expenses incident to the Loan and the Equipment, and the payment or performance of the obligations incident thereto. Lender may advance and incur such expenses as Lender deems necessary to preserve the Equipment, and any other security for the Loan, and all such expenses, even though in excess of the amount of the Loan, shall be secured by the Loan Documents, and payable to Lender upon demand. Lender may disburse funds at any time, and from time to time, to persons other than Borrower for the purposes specified herein irrespective of the other provisions of this Agreement. 7.2 Use or Operation by Lender. Should all or any part of the -------------------------- Equipment come into the possession of Lender prior to foreclosure or sale, Lender may use or operate the same for the purpose of preserving it or its value, or pursuant to the order of a court of appropriate jurisdiction, or in accordance with any other rights held by Lender in respect thereof. In such event, the risk of accidental loss or damage to the Equipment shall be on Borrower, and Lender shall have no liability whatsoever for failure to obtain or maintain insurance, or to determine whether any insurance ever in force is adequate as to amounts or as to the risks insured, or for decline in the value of the Equipment. 7.3 Disposition; Application of Proceeds. Lender will give Borrower ------------------------------------ reasonable notice of the time and place of any public sale or of the time after which any private sale or any other intended disposition of the Equipment is to be made. The requirements of reasonable notice shall be met if the notice is mailed, postage prepaid, to Borrower at least ten (10) days before the time of sale or disposition. Expenses of retaking, holding, preparing for sale, selling -10- or the like shall include Lender's reasonable attorney's fees and legal expenses of both in-house and outside counsel. Lender shall be entitled to apply the proceeds of any public, private or other sale or disposition of all or any part of the Equipment toward payment of the Loan and the other Obligations in such order and manner as Lender, in its discretion, may deem advisable. Lender shall account to Borrower for any surplus remaining after payment in full of the Loan and the other Obligations and all reasonable costs and expenses, including, without limitation, all reasonable attorneys' fees of both in-house and outside counsel incurred in connection with any such sale or disposition and Borrower shall remain liable to Lender for the deficiency amount of the Loan and other Obligations that remains unpaid after the proceeds of any such sale or disposition are credited against the loan and other Obligations. 7.4 Sale of Equipment. With respect to any sale or disposition of the ----------------- Equipment by Lender under this Agreement, the UCC, any Security Instrument or any other Loan Documents: (a) Lender has no obligation to clean-up or otherwise prepare any of the Equipment for sale or disposition; (b) Lender may, in any such sale or disposition, specifically disclaim any warranties of title or fitness or any other warranties that are legally waivable; (c) Lender may comply with any applicable state or federal law requirements in connection with the Equipment, and the sale or disposition thereof, and such compliance will not be considered to adversely affect the commercial reasonableness of any sale or disposition of the Equipment; (d) if Lender sells any of the Equipment upon credit (i) the Loan and the other Obligations will be credited only with payments actually made by the purchaser of the Equipment that are received by Lender and applied to the indebtedness of the purchaser to Lender in connection with the sale of the Equipment and (ii) in the event the purchaser fails to pay for the Equipment, Lender may resell the Equipment and no portion of the unpaid sales price to the purchaser will be credited against the Loan and the other Obligations. 7.5 Performance of Borrower's Obligations. Should any covenant, duty ------------------------------------- or agreement of Borrower fail to be performed in accordance with the terms of this Agreement or the other Loan Documents, Lender may at its election perform or attempt to perform such covenant, duty or agreement on behalf of Borrower. Borrower shall, at the request of Lender promptly pay any amount expended by Lender at its address stated herein, together with interest thereon the lesser of 18% per annum or at the highest lawful rate from date of such expenditure by Lender until paid; provided that Lender does not assume and shall never, except by express written consent of Lender, have any liability for the performance of any duties or obligations of Borrower under or in connection with all or any part of the Equipment or any of the Loan Documents. 7.6 No Liability of Lender. Lender shall have no liability, obligation ---------------------- or responsibility whatsoever with respect to the management, conduct or operation of the business affairs of Borrower or any Guarantor. Nothing, including without limitation any advance of funds or acceptance of any document or instrument, shall be construed as a representation or warranty, express or implied, to any party by Lender, and no condition hereof, or of any of the Loan Documents, shall be construed so as to deem the relationship between Borrower, any Guarantor and Lender to be other than that of borrower, guarantor or lender, and Borrower shall at all times represent that the relationship between Borrower, any Guarantor and Lender is solely of borrower, guarantor and lender. Borrower hereby indemnifies and agrees to hold Lender safe and harmless from and against any cost, expense or liability incurred or suffered by Lender as a result of any assertion or claim of any obligation or responsibility of Lender for the management, -11- operation and conduct of the business and affairs of Borrower or any Guarantor, or as a result of any assertion or claim of any liability or responsibility of Lender for the payment or performance of any indebtedness or obligation of Borrower or any Guarantor. 7.7 Right of Offset. Borrower hereby grants to Lender a right of --------------- offset, to secure the repayment of the Loan and the other Obligations, upon any and all monies, securities or other Equipment of Borrower, and the proceeds therefrom, now or hereafter held or received by or in transit to Lender, from or for the account of Borrower, whether for safekeeping, custody, pledge, transmission, collection or otherwise, and also upon any and all deposits (general or special) and credits of Borrower with Lender, and upon any and all claims of Borrower against Lender at any time existing. Upon the occurrence of any Default, Lender is hereby authorized at any time and from time to time, without notice to Borrower, to offset, appropriate, apply and enforce said liens against any and all items hereinabove referred to against the Loan and the other Obligations. 7.8 Waivers. The acceptance by Lender at any time and from time to ------- time of partial payment on the Loan or any other Obligations shall not be deemed to be a waiver of any Default then existing. No waiver by Lender of any Default shall be deemed to be a waiver of any other Default nor shall any such waiver by Lender be deemed to be a continuing waiver. No delay or omission by Lender in exercising any right, power, privilege or remedy under the Loan Documents ("Right") shall impair any such Right or be construed as a waiver thereof or any acquiescence therein, nor shall any single or partial exercise of any Right preclude other or further exercise thereof, or the exercise of any other Right. Borrower waives and agrees not to assert: (a) any right Borrower may have to require Lender to pursue (i) any third parties that may be liable for the Loan or the other Obligations or (ii) any other collateral for the Loan and the other Obligations, in each case, before Lender pursues its rights and remedies under this Agreement, the Note, the Security Instruments or any of the other Loan Documents; and (b) any and all other claims and defenses that are legally waivable. 7.9 Cumulative Rights. All rights of Lender hereunder shall be ----------------- cumulative and in addition to all other rights, powers, privileges and remedies granted to Lender at law or in equity, or otherwise, and may be exercised from time to time, and as often as may be deemed expedient by Lender, whether or not the Loan or any of the other Obligations are due and payable and whether or not Lender shall have taken other action in connection with this Agreement or any other of the Loan Documents. ARTICLE 8. MISCELLANEOUS ------------- 8.1 Governing Law. Except where preempted by the laws of the United ------------- States, the laws of the State of Tennessee shall govern the validity, construction, enforcement and interpretation of this Agreement and all of the other Loan Documents. 8.2 Notice. Whenever this Agreement requires or permits any notice, ------ demand or request by one party to another, it shall be in writing, enclosed in an envelope, addressed to the party to be notified at the address set forth below (or at such other address as may have been designated by a party by written notice to the other party), properly stamped, sealed and deposited in the United States mail or sent by overnight courier. Notice shall be deemed to have -12- been given or the demand or request made on the date on which it shall have been deposited in the mails or with such overnight courier, as stated above. Lender: DaimlerChrysler Services North America LLC Attention: Robert D. Konneker 1011 Warrenville Road Lisle, IL 60532 Borrower: U.S. Xpress Leasing, Inc. 4080 Jenkins Road Chattanooga, TN 37421 8.3 Assignment. This Agreement shall be binding on the parties' ---------- respective successors and assigns. Notwithstanding the foregoing, Borrower may not assign its rights or obligations hereunder without Lender's prior written consent. Lender may assign its rights hereunder with or without notice to Borrower. 8.4 Invalid Provisions. If any provision of this Agreement is held to ------------------ be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, the legality, validity and enforceability of the remaining provisions of this Agreement shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 8.5 Time of Essence. Time is of the essence in this Agreement. --------------- 8.6 Changes in Writing. This Agreement may not be changed, waived, ------------------ discharged or terminated without an instrument in writing signed by the party against whom the change, waiver, discharge or termination is sought. 8.7 Cost and Expenses. Borrower agrees, whether or not any Loan is ----------------- made under this Agreement, to pay Lender upon demand for (a) all out-of-pocket costs and expenses and all in-house and outside attorneys' fees incurred by Lender in connection with the preparation, documentation, negotiation, execution and/or administration of this Agreement, the Note and/or any of the other Loan Documents, (b) all recording, filing and search fees and expenses incurred by Lender in connection with this Agreement and the other Loan Documents, (c) all out-of-pocket costs and expenses and all in-house and outside attorneys' fees incurred by Lender in connection with the (i) the preparation, documentation, negotiation and execution of any amendment, modification, extension, renewal or restatement of this Agreement, the Note and/or any of the other Loan Documents, (ii) the preparation of any waiver or consent under this Agreement and/or under any other Loan Document or (iii) any Default or alleged Default hereunder, (d) if a Default occurs, all out-of-pocket costs and expenses and all in-house and outside attorneys' fees incurred by Lender in connection with such Default and collection and other enforcement proceedings resulting therefrom and (e) all other in-house and outside attorneys' fees incurred by Lender relating to or arising out of or in connection with this Agreement and/or any other Loan Document. Borrower further agrees to pay or reimburse -13- Lender for any stamp or other taxes which may be payable with respect to the execution, delivery, recording and/or filing of this Agreement, the Note or any of the other Loan Documents. All of the obligations of Borrower under this Section 8.7 shall survive the satisfaction and payment of the Obligations and the termination of this Agreement. 8.8 General Indemnity. In addition to the payment of expenses pursuant ----------------- to Section 8.7, whether or not the transactions contemplated hereby shall be consummated, Borrower hereby agrees to defend, indemnify, pay and hold Lender and any holder(s) of the Note, and the officers, directors, employees, agents and affiliates of Lender and such holder(s) (collectively, the "Indemnitees") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitees shall be designated a party thereto), that may be imposed on, incurred by or asserted against the Indemnitees, in any manner relating to or arising out of this Agreement, any of the other Loan Documents or any other agreement, document or instrument executed and delivered by Borrower or any Guarantor in connection herewith or therewith, the statements contained in any commitment letters delivered by Lender, Lender's agreement to make the Loan under this Agreement or the use or intended use of the proceeds of any Loan under this Agreement (collectively, the "indemnified liabilities"); provided that Borrower shall have no obligation to an Indemnitee -------- hereunder with respect to indemnified liabilities arising from the gross negligence or willful misconduct of that Indemnitee as determined by a court of competent jurisdiction in a final nonappealable order. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, Borrower shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all indemnified liabilities incurred by the Indemnitees or any of them. The provisions of the undertakings and indemnification set out in this Section 8.8 shall survive satisfaction and payment of the Obligations and the termination of this Agreement. 8.9 Consent to Jurisdiction; Waiver of Jury Trial. BORROWER HEREBY --------------------------------------------- IRREVOCABLY (A) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE COURT SITTING IN ILLINOIS OR ANY UNITED STATES OF AMERICA COURT SITTING IN ILLINOIS, AS LENDER MAY ELECT, IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, (B) AGREES THAT ALL CLAIMS IN RESPECT TO SUCH SUIT, ACTION OR PROCEEDING MAY BE HELD AND DETERMINED IN ANY OF SUCH COURTS, (C) WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH BORROWER MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, (D) WAIVES ANY CLAIM THAT SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND (E) WAIVES ALL RIGHTS OF ANY OTHER JURISDICTION WHICH BORROWER MAY NOW OR HEREAFTER HAVE BY REASON OF ITS PRESENT OR SUBSEQUENT DOMICILES. BORROWER AUTHORIZES THE SERVICE OF PROCESS UPON BORROWER BY REGISTERED MAIL SENT TO BORROWER AT ITS ADDRESS REFERENCED IN SECTION 8.2. BORROWER AND LENDER HEREBY -14- IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY ACTION IN WHICH BORROWER AND LENDER ARE PARTIES RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. -15- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. DEBTOR: U.S. XPRESS LEASING, INC. By:_______________________________________ Title:____________________________________ SECURED PARTY: DAIMLERCHRYSLER SERVICES NORTH AMERICA LLC By:_______________________________________ Title:____________________________________ -16- PROMISSORY NOTE $53,310,901.58 Date: December 20, 2001 U.S. XPRESS LEASING, INC., a Tennessee corporation, ("Borrower") promises to pay to the order of DAIMLERCHRYSLER SERVICES NORTH AMERICA LLC ("Lender") at its office at 1011 Warrenville Road, Lisle, IL 60532, or at such other place as Lender may designate in writing, in lawful money of the United States of America, the principal sum of Fifty-Three Million Three Hundred Ten Thousand Nine Hundred One and 58/100 Dollars ($53,310,901.58) together with interest from the date hereof equal to seven and one quarter percent (7.25%) per annum as follows: Attached hereto are Schedules numbered 1 through 23 (the "Payment Schedules") which are incorporated herein and made a part hereof. Borrower agrees to make payments of principal and interest on the 6th day of each month for payments described on Payment Schedules 1-8 commencing January 6, 2002, and on the 25th day of each month for payments described on Payment Schedules 9-23 commencing January 25, 2002 (each a "Payment Date"). Each payment of principal and interest shall equal the aggregate total amount shown in the "Amount" column on each of the Payment Schedules for each Payment Date. All payments shall be made in accordance with the payment instructions set forth below. Notwithstanding the foregoing, if any payment is not made within ten (10) days of its due date and from and after the declaration of a Default by Lender and so long as such Default has not been waived in writing by Lender, Borrower shall pay to Lender the greater of (a) interest on the entire unpaid principal balance of this Note at a rate equal to ten percent (10%) per annum, and (b) a late charge equal to five percent (5%) of the total amount not paid when due. At the Maturity Date, all accrued interest and principal remaining unpaid shall be due and payable in full. Interest on the unpaid balance shall be calculated daily. Interest shall be calculated on the basis of a 360-day year. For purposes hereof, each month (regardless of the actual number of days elapsed) shall be presumed to have thirty (30) days. In no event shall Borrower be obligated to pay interest at a rate in excess of the highest rate permitted by applicable law from time to time in effect. Subject to the terms of the Loan Agreement referred to below, Borrower shall have the right to prepay all at any time or any portion from time to time of the unpaid principal of this Note prior to maturity, without penalty or premium, provided that: (i) partial prepayments shall be applied to the payment of the installments of principal of this Note in the inverse order of their stated maturities; and (ii) on each prepayment date, Borrower shall pay to the order of Lender all accrued and unpaid interest on the principal portion of this Note being prepaid to and including the date of such prepayment. This Note is the Note described in that certain Loan Agreement between Borrower and Lender dated the date hereof (as the same may from time to time be amended, modified, extended, renewed or restated, the "Loan Agreement"). The Loan Agreement, among other things, contains provisions for acceleration of the maturity of this Note upon the occurrence of certain stated events and also for prepayments on account of the principal of this Note and interest on this Note prior to the maturity of this Note upon the terms and conditions specified therein. Each capitalized term not otherwise defined in this Note shall have the meaning set forth in the Loan Agreement. This Note is secured by, among other things, that certain Security Agreement dated the date hereof and executed by Borrower in favor of Lender (as the same may from time to time be amended, modified, extended or renewed, the "Security Agreement"), and that certain Blanket Assignment dated August 29, 2001, and executed by Borrower in favor of Lender (as the same may from time to time be amended, modified, extended or renewed, the "Blanket Assignment"), to which Security Agreement and Blanket Assignment reference is hereby made for a description of the security and a statement of the terms and conditions upon which this Note is secured. If Borrower shall fail to make any payment of any principal or interest due under this Note as and when the same shall become due and payable, or if any Default shall occur under or within the meaning of the Loan Agreement, then the entire outstanding principal balance of this Note and all accrued and unpaid interest thereon may be declared to be immediately due and payable in the manner and with the effect as provided in the Loan Agreement. This Note is guaranteed by a Continuing Cross-Guaranty executed by U.S. Xpress Leasing, Inc., U.S. Xpress Enterprises, Inc., and U.S. Xpress, Inc. dated August 29, 2001. In the event that any payment of any principal or interest due under this Note is not paid when due, whether by reason of maturity, acceleration or otherwise, and this Note is placed in the hands of an attorney or attorneys for collection or for foreclosure of the Security Agreement or the Blanket Assignment, or if this Note is placed in the hands of an attorney or attorneys for representation of Lender in connection with bankruptcy or insolvency proceedings relating hereto, Borrower promises to pay to the order of Lender, in addition to all other amounts otherwise due hereon, the costs and expenses of such collection, foreclosure and representation, including, without limitation, attorneys' fees and expenses of both in-house and outside counsel (whether or not litigation shall be commenced in aid thereof). All parties hereto severally waive presentment for payment, demand for payment, notice of dishonor, protest and notice of protest. -2- This Note shall be governed by, and construed in accordance with, the laws of the State of Tennessee. BORROWER: U.S. XPRESS LEASING, INC. By:________________________________ Title: _____________________________ Payment Instructions - -------------------- Regular Mail DaimlerChrysler Services Payment Processing P.O. Box 2916 Milwaukee, WI 53201-2916 Overnight/Priority Mail M&I Data Services-Lockbox BDX2 Freightliner 2916 4900 W. Brown Deer Road Brown Deer, WI 53223 -3- EX-10.50 4 dex1050.txt SECURITY AGREEMENT Exhibit 10.50 SECURITY AGREEMENT This Security Agreement ("Agreement") is made and entered into as of December ___, 2001, by and between U.S. XPRESS LEASING, INC., a Tennessee corporation ("Debtor"), and DAIMLERCHRYSLER SERVICES NORTH AMERICA LLC, 1011 Warrenville Road, Lisle, Illinois 60532 ("Secured Party"). Article One - SECURITY INTEREST For value received, Debtor grants to Secured Party a security interest in all of Debtor's right, title, and interest on, to and under the following property and interests in property of Debtor, whether presently in existence or whether now owned or hereafter arising, acquired or created by Debtor at any time hereafter, wherever located, and any replacements, additions, accessions or substitutions thereto (collectively, the "Collateral"): 1.1 the eight hundred eighty-six (886) tractors of Borrower described on Exhibit A attached hereto and made a part hereof (collectively --------- referred to as the "Equipment" and individually referred to as a "Unit of Equipment"), together with; 1.2 all proceeds and products of any and all of the foregoing, including but not limited to all chattel paper, electronic chattel paper, goods (including, without limitation, motor vehicles, tractors, trailers, chassis and equipment taken in trade), contract rights, leases, accounts, documents, instruments, promissory notes, general intangibles, payment intangibles, supporting obligations, claims and tort recoveries, money, insurance proceeds and refunds of insurance premiums, in each case, relating to or arising out of any of the types of collateral described in Section 1.1 above, and all proceeds of such proceeds and products; and 1.3 all books, records, computer records, computer disks, ledger cards, programs and other computer materials, customer and supplier lists, invoices, orders and other property and general intangibles at any time evidencing or relating to any of the Collateral. The definitions of the types of Collateral described in paragraph 1.2 are intended to expand as the definitions and descriptions of such types of Collateral that are set forth in the Code expand. The term "Code" means the Uniform Commercial Code, as enacted in the State of Tennessee, as amended and replaced from time to time. To secure: (1) Debtor's Promissory Note to the Secured Party, of even date herewith, in the principal amount of $53,310,901.58 (as the same may from time to time be amended, modified, extended, renewed or restated, the "Note"), principal and interest payable as provided in said Note; (2) the Loan (as defined in the Loan Agreement) and all obligations of Debtor to Secured Party under the Loan Agreement, of even date herewith, between the parties (as the same may from time to time be amended, modified, extended, renewed or restated, the "Loan Agreement"); (3) all expenditures by Secured Party for taxes, insurance, repairs to, and maintenance and preservation of the Collateral, and all costs and expenses incurred by Secured Party in the collection and enforcement of the Note, the Loan and the other Obligations (as defined in the Loan Agreement) or in representation of Secured Party in connection with bankruptcy or insolvency proceedings, including, without limitation, legal fees and expenses of both in-house and outside counsel; and (4) all of the Obligations (as defined in the Loan Agreement) of Debtor to Secured Party now existing or incurred in the future, matured or unmatured, direct or contingent, and any renewals and extensions of, and substitutions for such Obligations. The security rights and interests of Secured Party in the Collateral will continue until the Loan and all of the other Obligations, including possible contingent Obligations, are fully paid and satisfied and Secured Party elects to cancel and terminate its security interests in writing. This is a continuing security agreement, which will continue in effect until canceled by Secured Party even though all or any part of the Loan and the other Obligations may be paid in full, and even though for a period of time Debtor may not be then obligated to Secured Party. Article Two - USE AND LOCATION OF COLLATERAL Debtor warrants and covenants that: 2.1 The Collateral is to be used in Debtor's business as a truck transportation company and shall not be used for personal, family, household or agricultural uses or purposes. 2.2 Debtor's headquarters and principal place of business is located at 4080 Jenkins Road, Chattanooga, TN 37421. 2.3 The Collateral will be kept in Debtor's control and possession (except in accordance with and subject to the terms and conditions of Section 2.4) and will be used only in the continental United States of America, Canada, and Mexico. 2.4 Debtor shall be permitted to enter into lease agreements covering Items of Equipment in the ordinary course of its business, provided that the following conditions are met (such leases are referred to as "Permitted Leases"): (a) all leases must be in writing using the term of lease delivered by Debtor to Secured Party, (b) the term of each lease shall not extend beyond the maturity date of the Note, and (c) the number of Units of Equipment subject to leases shall not exceed the lesser of (i) eighty (80) Units of Equipment and (ii) ten percent (10%) of the total number of Units of Equipment then subject to this Security Agreement in -2- each case reduced by the number of vehicles financed by Secured Party after the date hereof which are leased. Article Three - TITLE TO AND MAINTENANCE OF COLLATERAL Debtor warrants, covenants, and agrees as follows: 3.1 Title. Except for the security interest granted by this Agreement, Debtor has full title to, rights in and the power to transfer the Collateral free from any lien, security interest, encumbrance, lease, other than those listed in Schedule 3.1 hereto and leases permitted by Section 2.4, restriction, pledge, or transfer or other claim and the Debtor will, at Debtor's cost and expense, defend any action that may affect Secured Party's security interest in, or Debtor's title to, the Collateral. 3.2 Perfection of Security Interests. Secured Party may file whatever financing and continuation statements, amendments, and other documents, and may take whatever additional actions, it deems to be necessary and proper to perfect and continue the perfection of Secured Party's security interests in the Collateral. To the extent that Secured Party may have previously filed financing statements affecting any of the Collateral, Debtor ratifies and confirms Secured Party's authority to do so and the contents and binding effectiveness of such financing statements. Secured Party may file a carbon, photographic, facsimile, other reproduction or electronically authenticated or maintained copy of any financing statement or of this Agreement for use as a financing statement. Secured Party may make electronic filings of financing and other statements. All filings under this Section, including, without limitation, electronic filings, will be deemed to be complete and perfected for all purposes when made by Secured Party and may be made by Secured Party without the necessity that Debtor (or Secured Party on Debtor's behalf) sign any such financing statements or other perfection documents. Debtor shall reimburse Secured Party for all expenses incurred with respect to the perfection and continuation of the perfection of its security interests in the Collateral. Without limitation of the generality of the foregoing: (a) to the extent that any of the Collateral is held by a third party (such as consignee or bailee) (i) notice of the security interests created by this Agreement in such Collateral shall be given to each such third party and (ii) Debtor shall, upon the request of Secured Party, obtain and deliver to Secured Party a written and signed acknowledgment from each such third party that it is holding the Collateral for the benefit of Secured Party; (b) to the extent that any of the Collateral is comprised of electronic chattel paper, Debtor will ensure that (i) there is only one identifiable authoritative copy of the electronic chattel paper record, (ii) the authoritative electronic chattel paper record for all electronic chattel paper in which Secured Party has a security interest will identify Secured Party as the first lien-holder, (iii) the authoritative electronic chattel paper record for all electronic chattel paper in which Secured Party has a security interest will be transferred to and maintained by Secured Party or a third party custodian designated by Secured Party and (iv) changes or additions to the electronic chattel paper may not be made without the consent of Secured Party; (c) to the extent that any of the -3- Collateral is comprised of types of Collateral that can be perfected by possession or by either possession or filing, all such Collateral shall be delivered to Secured Party; and (d) Debtor agrees to execute any further documents, and to take any further actions, reasonably requested by Secured Party to evidence, perfect or protect the security interests granted herein or to effectuate the rights granted to Secured Party herein. Secured Party is also authorized, at Debtor's cost and expense, to obtain all post-filing searches from all jurisdictions that Secured Party deems advisable to confirm the proper priority of all filings made by Secured Party under this Agreement. Debtor appoints Secured Party its true and lawful attorney-in-fact, coupled with an interest, for Debtor and in its name, to execute and sign on Debtor's behalf, and to take all acts on Debtor's behalf, that are required under this Section or that may otherwise be required to perfect, maintain and protect Secured Party's security interests in the Collateral, including the execution of financing statements and other documents on Debtor's behalf. Such power of attorney may not be revoked. 3.3 Titled Collateral. A certificate of title or similar titling or registration document has been issued by the state of Tennessee for each item of Equipment. Such Equipment shall be titled/registered in the name of Debtor and Secured Party shall be shown as the first priority and only lienholder on the certificate of title/registration for each such item of Equipment. A copy of the certificate of origin, application for certificate of title or registration and/or any other forms required to satisfy the foregoing titling/registration requirements and to perfect Secured Party's first priority security interests in such Collateral shall be delivered to Secured Party, (a) immediately and (b) immediately upon Debtor's acquisition of any such Collateral in the future. In addition, a copy or the original, as required by Secured Party, of the issued certificate of title/registration for each such item of Collateral shall be delivered to Secured Party as soon as it is issued. Secured Party may retain physical possession of those certificates. Debtor shall not change the state in which any of the Equipment covered by this Section is titled/registered to other than the state of Tennessee without the prior written consent of Secured Party. 3.4 Sale, Lease or Disposition of Collateral. Except for Permitted Leases, Secured Party does not authorize, and Debtor will not, without the prior written consent of Secured Party, sell, contract to sell, lease, license, encumber, grant any security interest in or dispose of the Collateral or any interest in it until this Agreement, the Loan and all of the other Obligations have been fully satisfied; provided, however, that Debtor may sell, convert or write down its inventory, in the ordinary course of business. 3.5 Insurance. Debtor will insure the Collateral on a replacement cost basis with companies acceptable to Secured Party against the casualties and in the amounts that Secured Party shall reasonably require with a loss payable clause in favor of Secured Party. Without limiting the foregoing, Debtor shall continuously maintain physical damage insurance with Secured Party as sole loss payee with a deductible of not more than $5,000 per item of Equipment and liability insurance -4- with Secured Party as additional insured with a combined single limit coverage of not less than $750,000. Unless a Default shall have occurred and be continuing, Debtor shall be permitted to collect the proceeds of insurance and to use such proceeds to repair the item of Equipment with respect to which the proceeds are received or, with the prior consent of Secured Party, to obtain a replacement item of Equipment. In all other cases, Secured Party is authorized to collect proceeds from any of the insurance policies and apply them to the Obligations, or to allow repairs or purchase of a replacement item of Equipment at its sole discretion. 3.6 Assignment of Insurance. Debtor hereby assigns to the Lender, as additional security for payment of the Note and other Obligations, any and all moneys due or to become due under, and all other rights of Debtor with respect to, any and all policies of insurance covering the Collateral. Debtor hereby directs the issuer of any such policy to pay any such moneys directly to Lender following the occurrence and during the continuance of a Default, during which Lender may (but need not), in its own name or in Debtor's name, execute and deliver proofs of claim, receive such moneys, endorse checks and other instruments representing such moneys and settle or litigate any claim against the issuer of any such policy. 3.7 Protection of Collateral. Debtor will keep the Collateral in good order and repair and will not waste or destroy the Collateral or any part thereof. Debtor will not use the Collateral in violation of any statute or ordinance and Secured Party will have the right to examine and inspect the Collateral at any reasonable time. 3.8 Taxes. Debtor will pay promptly when due all fees, costs, taxes, assessments or expenses on or in connection with the Collateral and/or for its use, operation and titling. Article Four - PROTECTION OF SECURITY 4.1 Attorney in Fact. Debtor hereby appoints and constitutes Secured Party and its agents and designees, as Debtor's attorney-in-fact, at Debtor's own cost and expense, to exercise at any time following the occurrence and during the continuation of a Default under the Loan Agreement all or any of the following powers, which, being coupled with an interest, shall be irrevocable until all of the Obligations have been paid in full: to receive, take, endorse, assign, deliver, accept and deposit, in the name of Secured Party and/or Debtor, any and all checks, notes, remittances, drafts and other documents and instruments and documents relating to the Collateral; to receive, open and dispose of all mail addressed to Debtor relating to the Collateral and to notify postal authorities to change the address for delivery of mail to such address as Secured Party may designate; and to take or bring, in Secured Party's and/or Debtor's name, all steps, actions or proceedings deemed by Secured Party to be necessary or desirable to effect collection of the Collateral or to preserve, protect or enforce Secured Party's interests therein. Said attorney, agent or designee shall not be liable for any acts or omissions, nor for any error of judgment or mistake of fact or law. -5- 4.2 No Liability of Secured Party. Nothing herein contained shall be construed to constitute Debtor as Secured Party's agent for any purpose whatsoever. Secured Party shall not be responsible nor liable for any shortage, discrepancy, damage, loss or destruction of any Collateral wherever the same may be located and regardless of the cause thereof. Secured Party shall not, under any circumstances, have any liability for any error or omission or delay of any kind occurring in the settlement, collection or payment of the Collateral or any instrument received in payment thereof or for any damage resulting therefrom. Secured Party may, without notice to or consent from Debtor, sue upon or otherwise collect, extend the time of payment of, or compromise or settle for cash, credit or otherwise upon any terms, any of the Collateral or any securities, instruments or insurance applicable thereto and release any obligor thereon. Secured Party shall not, by anything herein or in any assignment or otherwise, assume any of Debtor's obligations under any contract or agreement assigned to Secured Party, and Secured Party shall not be responsible in any way for the performance by Debtor of any of the terms and conditions thereof. 4.3 Debtor Responsible for Expenses. Any fees, costs and expenses, of whatever kind and nature, including taxes of any kind, which Secured Party may incur in filing public notices, as well as expenses incurred by Secured Party (including all attorneys' fees of both in-house and outside counsel), in protecting, maintaining, preserving or enforcing the Obligations, the Collateral or the pledges, liens and security interests granted to Secured Party hereunder, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions or proceedings arising out of or related to any of the Obligations or Secured Party's transactions with Debtor, including actions or proceedings which may involve any person asserting a priority or claim with respect to the Collateral, shall be paid for by Debtor on demand and until paid by Debtor shall be added to and deemed part of the Obligations. 4.4 Decrease in Value of Collateral. If in Secured Party's reasonable judgment the Collateral has materially decreased in value or if Secured Party shall deem that the Collateral at any time is not of sufficient value to secure fully the total Obligations of Debtor to Secured Party, Debtor shall, within ten (10) days following notice from Secured Party, either provide enough additional Collateral or reduce the total Obligations by a sufficient amount to satisfy Secured Party that its security is adequate. 4.5 Reimbursement of Expenses. At its option, Secured Party may discharge taxes, liens and interest, may perform or cause to be performed for and on behalf of Debtor any actions and conditions, obligations, or covenants that Debtor has failed or refused to perform, and may pay for the repair, maintenance and preservation of the Collateral, and all sums so expended, including but not limited to attorney's fees (of both in-house and outside counsel), court costs, insurance premiums, agent's fees, or commissions, or any other costs or expenses, shall bear interest from the date of payment at the annual rate of eighteen percent -6- (18.00%) or, if lower, the maximum lawful rate and shall be payable at the place designated in the Note and shall be secured by this Agreement. Article Five - DUTIES OF DEBTOR 5.1 Payment. Debtor will pay and/or perform the Obligations in accordance with their terms and will repay immediately all sums expended by Secured Party in accordance with the terms and provisions of this Agreement. 5.2 Change of Place of Business. Debtor will promptly notify Secured Party of any change of Debtor's places of business, or places where records concerning the Collateral are kept. 5.3 Waiver. Secured Party's acceptance of partial or delinquent payments, or the failure of Secured Party to exercise any right or remedy, shall not be a waiver of any obligation of Debtor or right of Secured Party or any other similar default subsequently occurring. Article Six - DEFAULT AND REMEDIES 6.1 Default. Debtor shall be in "Default" under this Agreement on the occurrence of any Default under Article 6 of the Loan Agreement. 6.2 Remedies. Upon the occurrence of any Default, Secured Party shall have all of the legal remedies set forth in Article 7 of the Loan Agreement and all other remedies created or existing under applicable law, under the Code, in equity, under the Loan Documents or under any other agreement between Debtor and Secured Party or from Debtor to Secured Party. Article Seven - MISCELLANEOUS 7.1 Time of Essence. Time is of the essence in this Agreement. 7.2 Tennessee Law to Apply. This Agreement shall be governed by the Code and other applicable laws of the State of Tennessee, and the parties hereby submit to the jurisdiction of the courts of that State; provided, however, that Secured Party shall have the right, but not the obligation, to litigate in any state or country in which Debtor, any Guarantor, or any of their assets may be located. 7.3 Parties Bound. This Agreement shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding the foregoing, Debtor may not assign its rights or duties hereunder without the prior written consent of Secured Party. 7.4 Notices. All notices and payments shall be mailed to the respective addresses of the parties at the addresses set forth at the beginning of this Agreement, or such other address as either party may provide to the other from time to time in -7- writing. Notices sent to Secured Party shall be sent to the attention of Robert D. Konneker. 7.5 Legal Construction. In case any one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 7.6 Prior Agreements Superseded; Changes in Writing. This Agreement may not be changed, waived, discharged or terminated without an instrument in writing signed by the party against whom the change, waiver, discharge or termination is sought. -8- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. DEBTOR: U.S. XPRESS LEASING, INC. By: ----------------------------------------------- Signature Title:____________________________________________ SECURED PARTY: DAIMLERCHRYSLER SERVICES NORTH AMERICA LLC By: ----------------------------------------------- Signature Title:____________________________________________ -9- SCHEDULE 3.1 ------------ TO U.S. XPRESS LEASING, INC. SECURITY AGREEMENT Liens on the vehicles in favor of Wachovia Bank, N.A. which will be released in connection with this transaction. EX-10.51 5 dex1051.txt FIRST AMENDMENT TO SECURITY AGREEMENT Exhibit 10.51 FIRST AMENDMENT TO SECURITY AGREEMENT THIS FIRST AMENDMENT TO SECURITY AGREEMENT is made and entered into as of the ____ day of January, 2002, by and between U.S. XPRESS LEASING, INC., a Tennessee corporation ("Debtor") and DAIMLERCHRYSLER SERVICES NORTH AMERICA LLC ("Secured Party"). RECITALS -------- WHEREAS, Debtor and Secured Party have previously executed that certain Security Agreement dated as of December 21, 2001 (the "Security Agreement"); WHEREAS, Debtor and Secured Party have agreed to amend the Security Agreement on the terms and conditions described herein: NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants contained herein, the parties hereto agree as follows: 1. The text of Section 4.4 of the Security Agreement (Decrease in Value of Collateral) is deleted in its entirety and replaced with the phrase "Intentionally Omitted." 2. Except to the extent specifically amended by this Amendment, all of the terms, provisions, conditions, covenants, representations and warranties contained in the Security Agreement shall be and remain in full force and effect and the same are hereby ratified and confirmed. 3. This Amendment shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. 4. This Amendment may be executed in multiple counterparts, each of which shall constitute an original and all of which taken together, shall constitute a single agreement. It shall not be necessary that all signatures appear on every counterpart so long as each party executes at least one counterpart. 5. In the event of any inconsistency or conflict between this Amendment and the Agreement, the terms, provisions and conditions contained in this Amendment shall govern and control. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Security Agreement. 6. This Amendment shall be governed by and construed in accordance with the internal laws of the state of Tennessee. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Security Agreement to be executed by their duly authorized representatives as of the day and year first above written. DEBTOR: U.S. XPRESS LEASING, INC. By: ------------------------------------------- Signature Title:________________________________________ SECURED PARTY: DAIMLERCHRYSLER SERVICES NORTH AMERICA LLC By: ------------------------------------------- Signature Title: _______________________________________ -2- EX-10.52 6 dex1052.txt MASTER SECURITY AGREEMENT Exhibit 10.52 MASTER SECURITY AGREEMENT THIS MASTER SECURITY AGREEMENT, made as of December 21, 2001 ("Agreement"), by and between Transport International Pool, Inc., a Pennsylvania corporation with an address at 426 West Lancaster Avenue, Devon, PA 19333 (together with its successors and assigns, if any, "Secured Party"), and U.S. XPRESS LEASING, INC., a Tennessee corporation with offices at 4080 Jenkins Road, Chattanooga, TN 37421 ("Debtor"). In consideration of the promises herein contained and of certain other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Debtor and Secured Party hereby agree as follows: 1. CREATION OF SECURITY INTEREST. Debtor hereby gives, grants and assigns to Secured Party, its successors and assigns forever, a security interest in and against any and all property listed on any collateral schedule now or hereafter annexed hereto or made a part hereof ("Collateral Schedule"), and in and against any and all additions, attachments, accessories and accessions thereto (except for any trailer tracking units not presently attached thereto and which may be removed without damaging the Collateral), any and all substitutions, replacements or exchanges therefor, and any and all insurance and/or other proceeds thereof (all of the foregoing being hereinafter individually and collectively referred to as the "Collateral"). The foregoing security interest is given to secure the payment and performance of any and all debts, obligations and liabilities of any kind, nature or description whatsoever (whether primary, secondary, direct, contingent, sole, joint or several, or otherwise, and whether due or to become due) of Debtor to Secured Party, now existing or hereafter arising, including but not limited to the payment and performance of certain Promissory Notes from time to time identified on any Collateral Schedule (collectively "Notes" and each a "Note"), and any renewals, extensions and modifications of such debts, obligations and liabilities (all of the foregoing being hereinafter referred to as the "Indebtedness"). 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR. Debtor hereby represents, warrants and covenants as of the date hereof and as of the date of execution of each Collateral Schedule hereto that: (a) Debtor is, and will remain, duly organized, existing and in good standing under the laws of the State set forth in the first paragraph of this Agreement, has its chief executive offices at the location set forth in such paragraph, and is, and will remain, duly qualified and licensed in every jurisdiction wherever necessary to carry on its business and operations; (b) Debtor has adequate power and capacity to enter into, and to perform its obligations, under this Agreement, each Note and any other documents evidencing, or given in connection with, any of the Indebtedness (all of the foregoing being hereinafter referred to as the "Debt Documents"); (c) This Agreement and the other Debt Documents have been duly authorized, executed and delivered by Debtor and constitute legal, valid and binding agreements enforceable under all applicable laws in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws; (d) No approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into, or performance by, Debtor of any of the Debt Documents, except such as may have already been obtained; (e) The entry into, and performance by, Debtor of the Debt Documents will not (i) violate any of the organizational documents of Debtor or any judgment, order, law or regulation applicable to Debtor, or (ii) result in any breach of, constitute a default under, or result in the creation of any lien, claim or encumbrance on any of Debtor's property (except for liens in favor of Secured Party) pursuant to, any indenture mortgage, deed of trust, bank loan, credit agreement, or other agreement or instrument to which Debtor is a party; (f) There are no suits or proceedings pending or threatened in court or before any commission, board or other administrative agency against or affecting Debtor which could, in the aggregate, have a material adverse effect on Debtor, its business or operations, or its ability to perform its obligations under the Debt Documents; (g) All financial statements delivered to Secured Party in connection with the Indebtedness have been prepared in accordance with generally accepted accounting principles, and since the date of the most recent financial statement, there has been no material adverse change; (h) The Collateral is not, and will not be, used by Debtor for personal, family or household purposes; (i) The Collateral is, and will remain, in good condition and repair and Debtor will not be negligent in the care and use thereof; (j) Debtor is, and will remain, the sole and lawful owner, and in possession of (except as otherwise provided for herein), the Collateral, and has the sole right and lawful authority to grant the security interest described in this Agreement; and (k) The Collateral is, and will remain, free and clear of all liens, claims and encumbrances of every kind, nature and description, except for (i) liens in favor of Secured Party, (ii) liens for taxes not yet due or for taxes being contested in good faith and which do not involve, in the reasonable judgment of Secured Party, any risk of the sale, forfeiture or loss of any of the Collateral, and (iii) inchoate materialmen's, mechanic's, repairmen's and similar liens arising by operation of law in the normal course of business for amounts which are not delinquent (all of such permitted liens being hereinafter referred to as "Permitted Liens"). 3. COLLATERAL. (a) Until the declaration of any default hereunder, Debtor shall remain (except as otherwise provided for herein) in possession of the Collateral; provided, however, that Secured Party shall have the right to possess (i) any chattel paper or instrument that constitutes a part of the Collateral, and (ii) any other Collateral which because of its nature may require that Secured Party's security interest therein be perfected by possession. Secured Party, its successors and assigns, and their respective agents, shall have the right to examine and inspect any of the Collateral at any time during normal business hours. Upon any request from Secured Party, Debtor shall provide Secured Party with notice of the then current location of the Collateral. (b) Debtor shall (i) use the Collateral only in its trade or business, (ii) maintain all of the Collateral in good condition and working order, (iii) use and maintain the Collateral only in compliance with all applicable laws, and (iv) keep all of the Collateral free and clear of all liens, claims and encumbrances (except for Permitted Liens). (c) Debtor shall not, without the prior written consent of Secured Party (which consent shall not be unreasonably withheld), (i) part with possession of any of the Collateral (except to Secured Party or for maintenance and repair), (ii) remove any of the Collateral from the continental United States, Mexico or Canada, provided however that no more than ten percent (10%) of the Collateral shall be outside of the United States at any given time, or (iii) sell, 2 rent, lease, mortgage, grant a security interest in or otherwise transfer or encumber (except for Permitted Liens) any of the Collateral, provided however Debtor may sell, rent or lease the Collateral to any member of its consolidated group upon written notice to Secured Party. (d) Debtor shall pay promptly when due all taxes, license fees, assessments and public and private charges levied or assessed on any of the Collateral, on the use thereof, or on this Agreement or any of the other Debt Documents. At its option, Secured Party may discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral and may pay for the maintenance, insurance and preservation of the Collateral or to effect compliance with the terms of this Agreement or any of the other Debt Documents. Debtor shall reimburse Secured Party, on demand, for any and all costs and expenses incurred by Secured Party in connection therewith and agrees that such reimbursement obligation shall be secured hereby. (e) Debtor shall, at all times, keep accurate and complete records of the Collateral, and Secured Party, its successors and assigns, and their respective agents, shall have the right to examine, inspect, and make extracts from all of Debtor's books and records relating to the Collateral at any time during normal business hours. (f) If agreed by the parties, Secured Party may, but shall in no event be obligated to, accept substitutions and exchanges of property for property, and additions to the property, constituting all or any part of the Collateral. Such substitutions, exchanges and additions shall be accomplished at any time and from time to time, by the substitution of a revised Collateral Schedule for the Collateral Schedule now or hereafter annexed. Any property which may be substituted, exchanged or added as aforesaid shall constitute a portion of the Collateral and shall be subject to the security interest granted herein. Additions to, reductions or exchanges of, or substitutions for, the Collateral, payments on account of any obligation or liability secured hereby, increases in the obligations and liabilities secured hereby, or the creation of additional obligations and liabilities secured hereby, may from time to time be made or occur without affecting the provisions of this Agreement or the provisions of any obligation or liability which this Agreement secures. (g) Any third person at any time and from time to time holding all or any portion of the Collateral shall be deemed to, and shall, hold the Collateral as the agent of, and as pledge holder for, Secured Party. At any time and from time to time, Secured Party may give notice to any third person holding all or any portion of the Collateral that such third person is holding the Collateral as the agent of, and as pledge holder for, the Secured Party. 4. ASSIGNMENT OF RESIDUAL AGREEMENTS. (a) Debtor hereby conveys, transfers and assigns to Secured Party, all of Debtor's rights, interest and privileges which Debtor has or may have in or arising from any and all Residual Agreements, now existing or hereafter made between Debtor and Wabash National Corporation (the "Residual Agreements") with respect to the Collateral. (b) Until an Event of Default (as described in Section 8) occurs, this assignment shall not affect the right of Debtor to exercise any rights of Debtor arising from such Residual Agreements. 5. INSURANCE. The Collateral shall at all times be held at Debtor's risk, and Debtor shall keep it insured against loss or damage by fire and extended coverage perils, theft, burglary, and for any or all Collateral which are vehicles, for risk of loss by collision, auto liability insurance as required by law, and where requested by Secured Party, against other risks as required thereby, for the full 3 replacement value thereof, with companies, in amounts and under policies acceptable to Secured Party. Debtor shall deliver to Secured Party policies or certificates of insurance evidencing such coverage. Each policy shall name Secured Party as loss payee thereunder, shall provide for coverage to Secured Party regardless of the breach by Debtor of any warranty or representation made therein, shall not be subject to co-insurance, and shall provide for thirty (30) days written notice to Secured Party of the cancellation or material modification thereof. Debtor hereby appoints Secured Party as its attorney in fact to make proof of loss, claim for insurance and adjustments with insurers, and to execute or endorse all documents, checks or drafts in connection with payments made as a result of any such insurance policies. Unless an Event of Default shall have occurred and be uncured, Debtor shall have the right to collect the proceeds of insurance and to use such proceeds to replace or repair the Collateral. If Debtor chooses not to exercise such right or such right is not available, proceeds of insurance shall be applied, at the option of Secured Party, to repair or replace the Collateral or to reduce any of the Indebtedness secured hereby. 6. REPORTS. (a) Debtor shall promptly notify Secured Party in the event of (i) any change in the name of Debtor, (ii) any relocation of its chief executive offices, (iii) any relocation of any of the Collateral, (iv) any of the Collateral being lost, stolen, missing, or destroyed, or (v) any lien, claim or encumbrance attaching or being made against any of the Collateral other than Permitted Liens. (b) Upon request, Debtor will, within thirty (30) days after the date on which they are filed, deliver to Secured Party all Forms 10-K and 10-Q filed with the Securities and Exchange Commission by its parent with respect to its consolidated group. Upon request, Debtor will deliver to Secured Party one copy of each financial statement, report, notice or proxy statement sent by Debtor's parent to shareholders generally and one copy of each regular or periodic report, registration statement or prospectus filed by Debtor's parent with any securities exchange or the Securities and Exchange Commission or any successor agency, such copies to be delivered to Secured Party within thirty (30) days after they become available or are otherwise filed. Any and all financial statements submitted and to be submitted to Secured Party have and will have been prepared on a basis of generally accepted accounting principles, and are and will be complete and correct and fairly present Debtor's parent's financial condition as at the date thereof. Secured Party may at any reasonable time examine the books and records of Debtor and make copies thereof. (c) Within thirty (30) days after any request by Secured Party, Debtor will furnish a certificate of an authorized officer of Debtor stating that he has reviewed the activities of Debtor and that, to the best of his knowledge, there exists no Event of Default or event which with notice or lapse of time (or both) would become an Event of Default. 7. FURTHER ASSURANCES. (a) Debtor shall, upon request of Secured Party, furnish to Secured Party such further information, execute and deliver to Secured Party such documents and instruments (including, without limitation, Uniform Commercial Code financing statements) and do such other acts and things, as Secured Party may at any time reasonably request relating to the perfection or protection of the security interest created by this Agreement or for the purpose of carrying out the intent of this Agreement. Without limiting the foregoing, Debtor shall cooperate and do all acts deemed necessary or advisable by Secured Party to continue in Secured Party a perfected first security interest in the Collateral, and shall obtain and furnish to Secured Party any subordinations, releases, landlord, lessor, or mortgagee waivers, and similar documents as may be from time to time requested by, and which are in form and substance satisfactory to, Secured Party. 4 (b) Debtor hereby grants to Secured Party the power to sign Debtor's name and generally to act on behalf of Debtor to execute and file applications for title, transfers of title, financing statements, notices of lien and other documents pertaining to any or all of the Collateral. Debtor shall, if any certificate of title be required or permitted by law for any of the Collateral, obtain such certificate showing the lien hereof with respect to the Collateral and promptly deliver same to Secured Party. (c) Debtor shall indemnify and defend the Secured Party, its successors and assigns, and their respective directors, officers and employees, from and against any and all claims, actions and suits (including, without limitation, related attorneys' fees) of any kind, nature or description whatsoever arising, directly or indirectly, in connection with any of the Collateral. 8. EVENTS OF DEFAULT. Debtor shall be in default under this Agreement and each of the other Debt Documents upon the occurrence of any of the following "Event(s) of Default": (a) Debtor fails to pay any installment or other amount due or coming due under any of the Debt Documents within ten (10) days after its due date; (b) Any attempt by Debtor, without the prior written consent of Secured Party, to sell, rent, lease, mortgage, grant a security interest in, or otherwise transfer or encumber (except for Permitted Liens) any of the Collateral, provided however Debtor may sell, rent or lease the Collateral to any member of its consolidated group upon written notice to Secured Party; (c) Debtor fails to procure, or maintain in effect at all times, any of the insurance on the Collateral in accordance with Section 5 of this Agreement; (d) Debtor breaches any of its other obligations under any of the Debt Documents and fails to cure the same within thirty (30) days after written notice thereof; (e) Any warranty, representation or statement made by Debtor in any of the Debt Documents or otherwise in connection with any of the Indebtedness shall be false or misleading in any material respect; (f) Any of the Collateral being subjected to, or being threatened with, attachment, execution, levy, seizure or confiscation in any legal proceeding or otherwise; (g) Any default by Debtor under any other agreement between Debtor or an affiliate of Debtor and Secured Party, provided that such default has been declared and is continuing; (h) Any insolvency or business failure of Debtor or any guarantor or other obligor for any of the Indebtedness (collectively "Guarantor"); (i) The appointment of a receiver for all or of any part of the property of Debtor or any Guarantor, or any assignment for the benefit of creditors by Debtor or any Guarantor; (j) The filing of a petition by Debtor or any Guarantor under any bankruptcy, insolvency or similar law, or the filing of any such petition against Debtor or any Guarantor if the same is not dismissed within thirty (30) days of such filing; (k) Any uncured default by Debtor under any obligation for borrowed money, for the deferred purchase price of property or any lease if such default allows for the acceleration of such obligations or repossession of the collateral; 5 (l) Any dissolution, termination of existence, merger or consolidation (other than a merger or consolidation with or into a member of Debtor's consolidated group) of Debtor or any Guarantor (such action being referred to as an "Event"), unless Secured Party shall have received thirty (30) days advance notice of such Event, and upon the occurrence of such Event such person shall be (x) organized and existing under the laws of the United States or any state, and executes and delivers to Secured Party an agreement containing an effective assumption by such person of the due and punctual performance of this Agreement; and (y) Secured Party is reasonably satisfied as to the credit worthiness of such person; (m) If Debtor or any Guarantor is a privately held corporation and effective control of Debtor's or any Guarantor's voting capital stock, issued and outstanding from time to time, is not retained by the present stockholders (unless Debtor shall have provided sixty (60) days' prior written notice to Secured Party of the proposed disposition of stock and Secured Party shall have consented thereto in writing); or (n) If Debtor or any Guarantor is a publicly held corporation as a result of or in connection with a material change in the ownership of Debtor's or any Guarantor's capital stock, Debtor's consolidated group's debt-to-worth ratio equals or exceeds twice Debtor's consolidated group's debt-to-worth ratio as of the date of this Agreement (unless Secured Party shall have given its prior written consent thereto). As used herein, "debt-to-worth ratio" shall mean the ratio of (x) total liabilities which, in accordance with generally accepted accounting principles ("GAAP") would be included in the liability side of a balance sheet, to (y) tangible net worth including the sum of the par or stated value of all outstanding capital stock, surplus and undivided profits, less any amounts attributable to goodwill, patents, copyrights, mailing lists, catalogs, trademarks, bond discount and underwriting expenses, organization expense and other intangibles, all determined in accordance with GAAP. 9. REMEDIES ON DEFAULT. (a) Upon the occurrence of an Event of Default under this Agreement, the Secured Party, at its option, may declare any or all of the Indebtedness, including without limitation the Notes, to be immediately due and payable, without demand or notice to Debtor or any Guarantor. The obligations and liabilities accelerated thereby shall bear interest (both before and after any judgment) until paid in full at the lower of thirteen and four tenths percent (13.4%) per annum or the maximum rate not prohibited by applicable law. (b) Upon such declaration of default, Secured Party shall have all of the rights and remedies of a Secured Party under the Uniform Commercial Code, and under any other applicable law. Without limiting the foregoing, Secured Party shall have the right to (i) notify any account debtor of Debtor or any obligor on any instrument which constitutes part of the Collateral to make payment to the Secured Party, (ii) with or without legal process, enter any premises where the Collateral may be and take possession and/or remove said Collateral from said premises, (iii) sell the Collateral at public or private sale, in whole or in part, and have the right to bid and purchase at said sale, and/or (iv) lease or otherwise dispose of all or part of the Collateral, applying proceeds therefrom to the obligations then in default. If requested by Secured Party, Debtor shall promptly assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties. Secured Party may also render any or all of the Collateral unusable at the Debtor's premises and may dispose of such Collateral on such premises without liability for rent or costs. Any notice which Secured Party is required to give to Debtor under the Uniform Commercial Code of the time and place of any public sale or the time after which any private sale or other intended disposition of the Collateral is to be made shall be deemed to constitute reasonable notice if such notice is given to the last known address of Debtor at least five (5) business days prior to such action. 8 (c) Proceeds from any sale or lease or other disposition shall be applied: first, to all costs of repossession, storage, and disposition including without limitation attorneys', appraisers', and auctioneers' fees; second, to discharge the obligations then in default; third, to discharge any other Indebtedness of Debtor to Secured Party, whether as obligor, endorser, guarantor, surety or indemnitor; fourth, to expenses incurred in paying or settling liens and claims against the Collateral; and lastly, to Debtor, if there exists any surplus. Debtor shall remain fully liable for any deficiency. (d) In the event this Agreement, any Note or any other Debt Documents are placed in the hands of an attorney for collection of money due or to become due or to obtain performance of any provision hereof, Debtor agrees to pay all reasonable attorneys' fees incurred by Secured Party, and further agrees that payment of such fees is secured hereunder. (e) Secured Party's rights and remedies hereunder or otherwise arising are cumulative and may be exercised singularly or concurrently. Neither the failure nor any delay on the part of the Secured Party to exercise any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Secured Party shall not be deemed to have waived any of its rights hereunder or under any other agreement, instrument or paper signed by Debtor unless such waiver be in writing and signed by Secured Party. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. (f) Secured Party may exercise any rights of Debtor arising under the Residual Agreements. (g) DEBTOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE INDEBTEDNESS SECURED HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DEBT DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 10. MISCELLANEOUS. (a) This Agreement, any Collateral Schedules, any Note and/or any of the other Debt Documents may be assigned, in whole or in part, by Secured Party without notice to Debtor, and Debtor hereby waives any defense, counterclaim or cross-complaint by Debtor against any assignee, agreeing that Secured Party shall be solely responsible therefor. Debtor agrees that if Debtor receives written notice of an assignment from Secured Party, Debtor shall pay all payments and other amounts due under the assigned Note and Collateral Schedule to such assignee or as instructed by Secured Party. Debtor further agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by Assignee. 7 (b) All notices to be given in connection with this Agreement shall be in writing, shall be addressed to the parties at their respective addresses set forth hereinabove (unless and until a different address may be specified in a written notice to the other party), and shall be deemed given (i) on the date of receipt if delivered in hand or by facsimile transmission, (ii) on the next business day after being sent by express mail, and (iii) on the fourth business day after being sent by regular, registered or certified mail. As used herein, the term "business day" shall mean and include any day other than Saturdays, Sundays, or other days on which commercial banks in New York, New York are required or authorized to be closed. (c) Secured Party may correct patent errors herein and fill in all blanks herein or in any Collateral Schedule consistent with the agreement of the parties. (d) Time is of the essence hereof. This Agreement shall be binding, jointly and severally, upon all parties described as the "Debtor" and their respective heirs, executors, representatives, successors and assigns, and shall inure to the benefit of Secured Party, its successors and assigns. (e) This Agreement and its Collateral Schedules constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior understandings (whether written, verbal or implied) with respect thereto. This Agreement and its Collateral Schedules shall not be changed or terminated orally or by course of conduct, but only by a writing signed by both parties hereto. Section headings contained in this Agreement have been included for convenience only, and shall not affect the construction or interpretation hereof. (f) This Agreement shall continue in full force and effect until all of the Indebtedness has been indefeasibly paid in full to Secured Party. The surrender, upon payment or otherwise, of any Note or any of the other documents evidencing any of the Indebtedness shall not affect the right of Secured Party to retain the Collateral for such other Indebtedness as may then exist or as it may be reasonably contemplated will exist in the future. This Agreement shall automatically be 8 reinstated in the event that Secured Party is ever required to return or restore the payment of all or any portion of the Indebtedness (all as though such payment had never been made). IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally bound hereby, have duly executed this Agreement in one or more counterparts, each of which shall be deemed to be an original, as of the day and year first aforesaid. - -------------------------------------------------------------------------------- SECURED PARTY: DEBTOR: TRANSPORT INTERNATIONAL POOL, INC. U.S. XPRESS LEASING, INC. - -------------------------------------------------------------------------------- By:_________________ By:_________________ Print Name:_______________ Print Name:______________ Title:______________ Title:______________ - -------------------------------------------------------------------------------- 9 ACTION OF DIRECTORS OF U.S. XPRESS LEASING, INC. BY WRITTEN CONSENT DECEMBER ___, 2001 The undersigned, being all the directors of U.S. XPRESS LEASING, INC., a Tennessee corporation (the "Corporation"), acting pursuant to Section 48-18-202 of the Tennessee Business Corporation Act, hereby consent in lieu of a special meeting of directors to the actions set forth in the following resolutions, declare that such consent shall have the same force and effect as a unanimous vote at a meeting regularly noticed and held, adopt the same all as of the date hereof, and direct that this written consent be filed with the minutes of proceedings of the Board of Directors: "RESOLVED, that each of the officers of this Corporation, whose name appears below, or the duly elected or appointed successor in office of any or all of them, be and hereby is authorized and empowered in the name and on behalf of this Corporation to borrow from TRANSPORT INTERNATIONAL POOL, INC. and/or its assigns (hereinafter referred to as "TIP") from time to time, such sum or sums of money as in the judgment of such officer or officers the Corporation may require and to execute on behalf of the Corporation and to deliver to TIP in the form required by TIP a promissory note or notes of this Corporation evidencing the amount or amounts borrowed or any renewals and/or extensions thereof, such note or notes to bear such rate of interest and be payable in such installments and on such terms and conditions as such officer may agree to by his signature thereon. FURTHER RESOLVED, that any of the aforesaid officers, or his duly elected or appointed successor in office, be and hereby is authorized and empowered to do any acts, including, but not limited to, the mortgage, pledge, or hypothecation from time to time with TIP of any or all the assets of this Corporation to secure such loan or loans and any other indebtedness or obligations, now existing or hereafter arising, of this Corporation to TIP, and to execute in the name of and on behalf of this Corporation, any chattel mortgages, notes, security agreements, financing statements, renewal, extension or consolidation agreements, and any other instruments or agreements deemed necessary or proper by TIP in respect of the collateral securing any indebtedness of this Corporation, and to affix the seal of this Corporation to any mortgage, pledge, or other such instrument if so required or requested by TIP. FURTHER RESOLVED, that each said officer of this Corporation is hereby authorized to do and perform all other acts and deeds that may be requisite or necessary to carry fully into effect the foregoing resolutions. FURTHER RESOLVED, that the officers referred to in the foregoing resolutions, their names and signatures are as follows: NAME TITLE SIGNATURE - -------------------------------------------------------------------------------- Max L. Fuller President - -------------------------------------------------------------------------------- Patrick E. Quinn Secretary - -------------------------------------------------------------------------------- Ray M. Harlin Assistant Secretary - -------------------------------------------------------------------------------- FURTHER RESOLVED, that TIP is authorized to rely upon the aforesaid resolutions until receipt by it of written notice of any change, which changes of whatever nature shall not be effective as to TIP to the extent that it has theretofore relied upon the aforesaid resolutions in the above form." IN WITNESS WHEREOF, we have hereunto signed our names as of the date set forth above. _____________________________________ Max L.Fuller, Director _____________________________________ Patrick E. Quinn, Director TO BE TYPED ON BORROWER'S LETTERHEAD ------------------------------------ Transport International Pool, Inc. 426 West Lancaster Avenue Devon, Pennsylvania 19333 RE: LOAN AND SECURITY AGREEMENT BETWEEN U.S. XPRESS LEASING, INC., AS BORROWER, AND TRANSPORT INTERNATIONAL POOL, INC., AS SECURED PARTY COLLATERAL SCHEDULE NO. ____ Gentlemen: This letter serves as the authorization for Transport International Pool, Inc., a Pennsylvania corporation with an address at 426 West Lancaster Avenue, Devon, PA 19333 (together with its successors and assigns, if any, "Secured Party"), to insert certain specific information into the above-referenced Collateral Schedule and ancillary documents, including the date of execution where appropriate, and any other factually correct information necessary to complete the required documentation. In addition, this letter authorizes to disburse funds as follows: Payee Invoice No. Dollar Amount ----- ----------- ------------- U.S. XPRESS LEASING, INC. By:_____________________________ PROMISSORY NOTE NO. ---------------------- December 21, 2001 (Date) 4080 Jenkins Road, Chattanooga, Hamilton Tennessee 37421 - -------------------------------------------------------------------------------- (Street Address of Maker) (Town) (County) (State) (Zip Code) FOR VALUE RECEIVED, U.S. XPRESS LEASING, INC. ("Maker") promises, jointly and severally if more than one, to pay to the order of Transport International Pool, Inc. or any subsequent holder hereof (each, a "Payee") at its office located at 426 West Lancaster Avenue, Devon, PA 19333 or at such other place as Payee may designate, the principal sum of ___________ Dollars ($______________ ), with interest thereon, from the date hereof through and including the dates of payment, at a fixed interest rate of eight and four tenths percent (8.4%) per annum, to be paid in advance in lawful money of the United States, in ____________ (_____) consecutive monthly installments of principal and interest of _________________Dollars ($______________ ) each (each, a "Periodic Installment") and a final installment in the amount of $_______________. The first Periodic Installment shall be due and payable on December 21, , 2001, and the following Periodic Installments and the final installment shall be due and payable on the same day of each succeeding month (each, a "Payment Date"). Such installments have been calculated on the basis of 360 day year of twelve 30-day months. Each payment may, at the option of the Payee, be calculated and applied on an assumption that such payment would be made on its due date. Payments shall be paid by wire transfer of immediately available funds to Bankers Trust, NY, NY, Account No.: 50 233 099, ABA No. 021 001 033, or to such other account as holder may request. The acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee's right to receive payment in full at such time or at any prior or subsequent time. The Maker hereby expressly authorizes the Payee to insert the date value is actually given in the blank space on the face hereof. This Promissory Note is secured by Collateral Schedule No. _____ to Master Security Agreement dated __________________, 2001 ("Security Agreement.") Time is of the essence hereof. If any installment or any other sum due under this Note or any Security Agreement is not received within ten (10) days after its due date, the Maker agrees to pay, in addition to the amount of each such installment or other sum, a late payment charge of two percent (2%) of the amount of said installment or other sum, but not exceeding any lawful maximum. In the event that (i) Maker fails to make payment of any amount due hereunder within ten (10) days after the same becomes due and payable; or (ii) Maker is in default under, or fails to perform under any term or condition contained in any Security Agreement following any applicable notice and/or cure period, then the entire principal sum remaining unpaid, together with all accrued interest thereon and any other sum payable under this Note or any Security Agreement, at the election of Payee, shall immediately become due and payable, with interest thereon at the lesser of 500 basis points over the fixed interest rate payable hereunder or the highest rate not prohibited by applicable law from the date of such accelerated maturity until paid (both before and after any judgment). It is the intention of the parties hereto to comply with the applicable usury laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in this Note or any Security Agreement, in no event shall this Note or any Security Agreement require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under this Note or any Security Agreement, or if all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Note or any Security Agreement on the principal balance shall exceed the maximum amount of interest permitted by applicable law, then in such event (a) the provisions of this paragraph shall govern and control, (b) neither Maker nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Maker, at the option of the Payee, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Note or any Security Agreement which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise by Payee in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for the Payee to receive a greater interest per annum rate than is presently allowed, the Maker agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America. The Maker and all sureties, endorsers, guarantors or any others (each such person, other than the Maker, an "Obligor") who may at any time become liable for the payment hereof jointly and severally consent hereby to any and all extensions of time, renewals, waivers or modifications of, and all substitutions or releases of, security or of any party primarily or secondarily liable on this Note or any Security Agreement or any term and provision of either, which may be made, granted or consented to by Payee, and agree that suit may be brought and maintained against any one or more of them, at the election of Payee without joinder of any other as a party thereto, and that Payee shall not be required first to foreclose, proceed against, or exhaust any security hereof in order to enforce payment of this Note. The Maker and each Obligor hereby waives presentment, demand for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other notices in connection herewith, as well as filing of suit (if permitted by law) and diligence in collecting this Note or enforcing any of the security hereof, and agrees to pay (if permitted by law) all reasonable expenses incurred in collection, including Payee's actual attorneys' fees. THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court (including, without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. In the event of litigation, this Note may be filed as a written consent to a trial by the court. This Note and any Security Agreement constitute the entire agreement of the Maker and Payee with respect to the subject matter hereof and supersedes all prior understandings, agreements and representations, express or implied. No variation or modification of this Note, or any waiver of any of its provisions or conditions, shall be valid unless in writing and signed by an authorized representative of Maker and Payee. Any such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given. Any provision in this Note or any Security Agreement which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto. 2 U.S. XPRESS LEASING, INC. _________________________ By:___________________________ (Witness) _____________________________________________ ______________________________ Print Name (and title, if applicable) Print Name ______________________________ Print Title _____________________________________________ Print Address ______________________________ Print Address 62-1374294 ------------------------------ Federal Tax ID Number 3 COLLATERAL SCHEDULE NO. ___ THIS COLLATERAL SCHEDULE NO. ___ incorporates that certain Master Security Agreement dated as of December 21, 2001 between TRANSPORT INTERNATIONAL POOL, INC. as Secured Party and U.S. XPRESS LEASING, INC. as Debtor. Debtor hereby gives, grants and assigns to Secured Party a security interest in and against property listed below, and in and against any and all additions, attachments, accessories and accessions thereto (except for any trailer tracking units not presently attached thereto and which may be removed without damaging the Collateral), any and all substitutions, replacements or exchanges therefor, and any and all insurance and/or other proceeds thereof. The foregoing security interest is given to secure the payment and performance of any and all debts, obligations and liabilities of any kind, nature or description whatsoever (whether primary, secondary, direct, contingent, sole, joint or several, or otherwise, and whether due or to become due) of Debtor to TRANSPORT INTERNATIONAL POOL, INC., now existing or hereafter arising, including without limitation that certain Promissory Note No. ___ dated December 21, 2001 in the original principal amount of $_______________ (the "Note") and any renewals, extensions and modifications of the Note and such other debts, obligations and liabilities. ================================================================================ Description Year/Model Serial # Location ================================================================================ ================================================================================ Debtor agrees that its obligations under the Note to make payments to TRANSPORT INTERNATIONAL POOL, INC. in the amounts set forth in the Note are absolute and unconditional and are independent of, and will not assert against any assignee of TRANSPORT INTERNATIONAL POOL, INC., any defense, claim, setoff, recoupment, abatement or other right, existing or future, which Debtor may have against TRANSPORT INTERNATIONAL POOL, INC. or any other person or entity. SECURED PARTY: DEBTOR: TRANSPORT INTERNATIONAL POOL, INC. U.S. XPRESS LEASING, INC. By: ___________________________________ By: _______________________ Title: ________________________________ Title: ____________________ Date: _________________________________ Date: _____________________ 2 CERTIFICATE OF DELIVERY/INSTALLATION The undersigned hereby certifies that all equipment and property covered by the Master Security Agreement dated December 21, 2001 and Promissory Note No. __ dated December 21, 2001 between TRANSPORT INTERNATIONAL POOL, INC. ("Secured Party") and undersigned has been delivered to the undersigned and found satisfactory, and that any and all installation has been satisfactorily completed. In order to induce Secured Party to advance the loan evidenced by such Note, the undersigned hereby waives any defense, counterclaim or offset thereunder as against Secured Party. U.S. XPRESS LEASING, INC. By: ______________________ Title: ______________________ Date: ______________________ EX-21 7 dex21.txt LIST OF SUBSIDIARIES EXHIBIT 21 Subsidiaries of U.S. Xpress Enterprises, Inc. For Year Ended December 31, 2001 U.S. Xpress, Inc., a Nevada corporation CSI/Crown, Inc., a Georgia corporation U.S. Xpress Leasing, Inc., a Tennessee corporation Xpress Company Store, Inc., a Tennessee corporation Xpress Air, Inc., a Tennessee corporation Xpress Holdings, Inc., a Nevada corporation EX-23 8 dex23.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included 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, File No. 33-99728 and File No. 333-37795). /s/ ARTHUR ANDERSEN LLP Chattanooga, Tennessee January 29, 2002 ------------------------ EX-99 9 dex99.txt LETTER TO SEC Exhibit 99 U.S. Xpress Enterprises, Inc. 4080 Jenkins Road Chattanooga, Tennessee 37421 March 29, 2002 SECURITIES AND EXCHANGE COMMISSION 450 5/th/ Street, NW Washington DC 20549 Dear Sirs: Re: U.S. Xpress Enterprises, Inc. Form 10-K for the year ended December 31, 2001 Filed March 29, 2002 This letter is written in accordance with your Temporary Final Rule and Final Rule: Requirements for Arthur Andersen LLP Auditing Clients Release Nos. 33-8070, 34-45590; 35-27503; 39-2395; IA-2018; IC-25464; FR-62; File No. S7-03-02. Our Annual Report on Form 10-K for the year ended December 31, 2001 was filed with the Securities and Exchange Commission on March 29, 2002 and included the accountant's reports of Arthur Andersen LLP ("Andersen") on our consolidated financial statements. In accordance with Temporary Note 3T to Article 3 of Regulation S-X (as announced in the Andersen Release), please be advised that Andersen has represented to us in writing the audit was subject to Andersen's quality control system for the U.S. accounting and auditing practice, that the engagement was conducted in compliance with professional standards and that there was appropriate continuity of Andersen personnel working on audits, availability of national office consultation and availability of personnel at foreign affiliates of Andersen to conduct the relevant portions of the audit. Very truly yours, U.S. XPRESS ENTERPRISES, INC. By: /s/ Ray M. Harlin ---------------------------- Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----