-----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, DAPj1NXIfdDznSdj6pufsX70veR7ppDMRxY03BXsVYf+rWsfX9kiMh6/NrG0ofnx 5nJ/Y+Dfg7G02Tcnzy9eCQ== 0000931763-97-001136.txt : 19970711 0000931763-97-001136.hdr.sgml : 19970711 ACCESSION NUMBER: 0000931763-97-001136 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19970710 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: US XPRESS ENTERPRISES INC CENTRAL INDEX KEY: 0000923571 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 621378182 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-31063 FILM NUMBER: 97639144 BUSINESS ADDRESS: STREET 1: 2931 SOUTH MARKET ST CITY: CHATTANOOGA STATE: TN ZIP: 37410 BUSINESS PHONE: 6156967377 MAIL ADDRESS: STREET 1: 2931 SOUTH MARKET ST CITY: CHATTONOOGA STATE: TN ZIP: 37410 S-1 1 FORM S-1 REG STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1997 REGISTRATION NO. 33- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- U.S. XPRESS ENTERPRISES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) NEVADA 4213 62-1378182 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) ---------------- 2931 SOUTH MARKET STREET CHATTANOOGA, TENNESSEE 37410 (423) 697-7377 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- RAY M. HARLIN CHIEF FINANCIAL OFFICER U.S. XPRESS ENTERPRISES, INC. 2931 SOUTH MARKET STREET CHATTANOOGA, TENNESSEE 37410 (423) 697-7377 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- COPIES TO: A. ALEXANDER TAYLOR, II, ESQ. RICHARD C. TILGHMAN, JR., ESQ. MILLER & MARTIN PIPER & MARBURY L.L.P. 1000 VOLUNTEER BUILDING 36 SOUTH CHARLES STREET CHATTANOOGA, TENNESSEE 37402 BALTIMORE, MARYLAND 21201 (423) 756-6600 (410) 539-2530 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. ---------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] _____________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering: [_] __________________________________________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH CLASS OF AMOUNT OFFERING AGGREGATE AMOUNT OF SECURITIES TO BE TO BE PRICE OFFERING REGISTRATION REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE - ------------------------------------------------------------------------------- Class A Common Stock, $0.01 par value....... 3,910,000 shares $18.56 $72,569,600 $21,991
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Includes 510,000 shares that the Underwriters have the option to purchase solely to cover over-allotments, if any. (2) Estimated solely for the purpose of calculating the registration fee. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION AND AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE + +WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES + +LAWS OF ANY SUCH JURISDICTION. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION JULY 10, 1997 3,400,000 Shares [LOGO OF U.S. XPRESS ENTERPRISES, INC. APPEARS HERE] Class A Common Stock -------- Of the 3,400,000 shares of Class A Common Stock offered hereby, 2,500,000 shares are being sold by U.S. Xpress Enterprises, Inc. (the "Company") and 900,000 shares are being sold by certain of the Company's stockholders (the "Selling Stockholders"). See "Principal and Selling Stockholders." The Company will not receive any proceeds from the sale of the Class A Common Stock by the Selling Stockholders. The Company's Class A Common Stock is traded on The Nasdaq National Market under the symbol "XPRSA." On July 9, 1997, the last reported sale price of the Company's Class A Common Stock, as reported by The Nasdaq National Market, was $18.75 per share. The Class A Common Stock offered hereby is entitled to one vote per share, while the Class B Common Stock is entitled to two votes per share so long as it is held by its existing holders or certain members of their immediate families. The rights of the holders of the Class A and Class B Common Stock are otherwise identical. See "Description of Capital Stock." -------- SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK OFFERED HEREBY. -------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO TO DISCOUNTS AND TO SELLING PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS - -------------------------------------------------------------------------------- Per Share........................ $ $ $ $ - -------------------------------------------------------------------------------- Total(2)......................... $ $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Before deducting estimated expenses of $250,000 payable by the Company. (2) The Company and certain of the Selling Stockholders have granted the Underwriters a 30-day option to purchase up to 510,000 additional shares of Class A Common Stock solely to cover over-allotments, if any. To the extent that the option is exercised, the Underwriters will offer the additional shares to the public at the Price to Public shown above. If the option is exercised in full, the Price to Public, Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to Selling Stockholders will be $ , $ , $ and $ , respectively. See "Underwriting." -------- The shares of Class A Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, and subject to the right of the Underwriters to reject any order in whole or in part. It is expected that delivery of the shares will be made at the offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about , 1997. Alex. Brown & Sons INCORPORATED Morgan Stanley Dean Witter Morgan Keegan & Company, Inc. Schroder & Co. Inc. THE DATE OF THIS PROSPECTUS IS JULY , 1997 AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission ("the Commission") a Registration Statement on Form S-1 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act of 1933 with respect to the Common Stock offered hereby. This Prospectus, which constitutes part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock, reference is made to the Registration Statement and the exhibits and schedules filed as a part thereof. Statements made in this Prospectus as to the contents of any contract, agreement or other document are not necessarily complete, and, in each instance, reference is made to the copy of such contract, agreement or document. The Registration Statement and the exhibits thereto filed by the Company with the Commission may be inspected and copies may be obtained (at prescribed rates) at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commission's Regional Offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048 and at the website maintained by the Commission at http://www.sec.gov. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Company is subject to the information requirements of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files reports, proxy statements and other information with the Commission. These reports, proxy statements and other information also are available from the Commission's public reference facilities and its website. So long as the Company is subject to periodic reporting requirements of the Exchange Act, it will continue to furnish the reports, proxy statements and other information required thereby to the Commission. The Company furnishes its shareholders annual reports containing financial statements audited by its independent auditors and quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. ---------------- CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE COMMON STOCK OFFERING AND PURCHASE COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF THE ACTIVITIES, SEE "UNDERWRITING." IN CONNECTION WITH THIS OFFERING, CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN PASSING MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M OF THE SECURITIES AND EXCHANGE COMMISSION. SEE "UNDERWRITING." 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Consolidated Financial Statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option. Unless the context otherwise requires, references in this Prospectus to the "Company" refer to U.S. Xpress Enterprises, Inc. and each of its consolidated subsidiaries. THE COMPANY U.S. Xpress Enterprises, Inc. (the "Company") is one of the ten largest truckload carriers in the United States. The Company provides transportation and logistics services throughout the United States and in parts of Canada and Mexico, specializing in time-definite and expedited longhaul and regional truckload services. The Company is a leader in the adoption of proven new technologies as a means of reducing costs and providing better service. The Company has two operating subsidiaries, U.S. Xpress, Inc. ("U.S. Xpress") and CSI/Crown, Inc. ("CSI/Crown"). U.S. Xpress, which accounted for 82% of the Company's fiscal 1997 revenues, provides time-definite and expedited longhaul and regional truckload services as well as transportation and logistics services to the air freight industry. CSI/Crown is the leader in providing logistics services to manufacturers and retailers in the floorcovering industry. The Company's top 50 customers, most of which have designated the Company as a core carrier, include Federal Express, Carrier, Amana, Hewlett Packard, DuPont, Compaq and Armstrong. The Company has increased its revenues at a compounded annual growth rate of 18.2% over the past five fiscal years to $363 million for fiscal 1997 through the expansion of business from existing customers, the development of relationships with new customers and strategic acquisitions. The Company's strategy for future revenue growth is to continue to establish strategic alliances with its top customers, target high-service market segments, make strategic acquisitions and leverage its technological advantage. The Company also seeks to sustain growth through programs designed to recruit and retain quality drivers for its expanding fleet. In addition to its focus on internal growth, the Company maintains an active acquisition program. Competitive pressures within the truckload industry and high levels of service demanded by customers require today's carriers to demonstrate financial stability, critical mass and technological capabilities. Carriers that do not possess these characteristics have begun to exit the truckload industry through liquidation or through continued industry consolidation. The Company has capitalized on this industry consolidation by successfully making strategic acquisitions focusing on high-service providers, air freight service providers and regional carriers in specific geographic areas. Since 1990, the Company has completed the following key acquisitions: . JTI, Inc. ("JTI"), a Midwest regional truckload carrier, in May 1997; . the Midwest and East Coast floorcovering and logistics operations of Rosedale Transport, Inc. ("Rosedale"), in April 1997; . the West Coast air freight service operations of Michael Lima Transportation, in July 1996; . CSI/Reeves, Inc. ("CSI/Reeves"), a floorcovering logistics provider, in August 1995; . Hall Systems, Inc. ("Hall Systems"), a Southeast regional truckload carrier, completed in October 1995; and . Southwest Motor Freight, Inc. ("Southwest"), a medium and longhaul truckload carrier, in November 1990. 3 The Company has initiated a strategy to enhance profitability and sustain growth by improving efficiency, reducing costs and introducing technologies to improve service. The Company realigned its operations into two subsidiaries to combine various operating, marketing, maintenance and administrative functions, thereby reducing costs and improving equipment utilization. The Company has improved the predictability of and reduced costs by eliminating five maintenance facilities and outsourcing some maintenance activities, revising insurance programs, modifying its revenue equipment acquisition strategy and improving fuel economy. These initiatives increased profitability in fiscal 1997, and management believes that these strategies will have a more significant effect on results of operations in the future. The Company is a leader in the innovation and adoption of proven new technologies as a means of reducing costs and enhancing customer service. For example, the newly-introduced Xpress Connect(TM) Internet connection, a fully integrated customer-to-truck communications system, enables customers to trace freight, tender loads and exchange invoice information via the Internet as well as communicate with the Company via e-mail. The Company was incorporated in Nevada in 1989. The Company's principal offices are located at 2931 South Market Street, Chattanooga, Tennessee 37410; and its telephone number is (423) 697-7377. Internet: www.usxpress.com. THE OFFERING Class A Common Stock offered by the Company ..... 2,500,000 shares Class A Common Stock offered by the Selling Stockholders ................................... 900,000 shares Common Stock to be outstanding after the offering: Class A Common Stock .......................... 11,587,007 shares(1) Class B Common Stock .......................... 3,040,262 shares Total ....................................... 14,627,269 shares(1) Use of proceeds ................................. To acquire revenue equipment currently leased by the Company and reduce indebtedness. Nasdaq National Market symbol ................... XPRSA - -------- (1) Excludes currently outstanding options to acquire 218,509 shares of Class A Common Stock, at a weighted average exercise price of $8.78 per share. See "Management--Stock Incentive Plan." 4 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
YEAR ENDED MARCH 31, -------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- INCOME STATEMENT DATA(1): Operating revenue: U.S. Xpress.................... $164,856 $191,403 $230,416 $251,880 $296,974 CSI/Crown...................... 21,288 24,001 23,915 47,817 65,845 -------- -------- -------- -------- -------- Consolidated.................. 186,144 215,404 254,331 299,697 362,819 Income from operations.......... 7,790 14,095 18,159 5,251 19,716 Income before taxes............. 3,313 9,714 13,557 75 14,236 Net income...................... 1,867 6,042 8,263 94 7,878 Net income per share............ .19 .63 .76 .01 .65 Weighted average number of shares outstanding............. 9,665 9,665 10,806 12,003 12,168 TRUCKLOAD OPERATING DATA: Total revenue miles (in thousands)..................... 160,664 180,609 204,804 222,496 261,596 Average revenue per mile........ $ 1.08 $ 1.09 $ 1.14 $ 1.14 $ 1.15 Tractors (at end of period)..... 1,323 1,504 1,721 1,975 2,246 Average revenue per tractor per week........................... $ 2,795 $ 2,796 $ 2,807 $ 2,646 $ 2,761
MARCH 31, 1997 ----------------------- ACTUAL AS ADJUSTED(3) -------- -------------- BALANCE SHEET DATA: Working capital....................................... $ 33,829 $ 33,829 Total assets.......................................... 178,084 218,084 Long-term debt, net of current portion(2)............. 59,318 55,037 Stockholders' equity.................................. 63,162 107,443
- -------- (1) Includes the results of operations of the following acquired businesses from dates of acquisition: the air freight service operations of Michael Lima Transportation from July 1996 and CSI/Reeves from August 1995. The Company's 50% acquisition of Hall Systems in March 1994 was accounted for under the equity method until the remaining 50% of Hall Systems was acquired in October 1995. (2) Does not include $20 million of indebtedness incurred subsequent to March 31, 1997 in connection with the Rosedale and JTI acquisitions. (3) Adjusted to give effect to the sale of the 2,500,000 shares of Class A Common Stock offered by the Company hereby at an assumed public offering price of $18.75 per share and application of the estimated net proceeds therefrom as described in "Use of Proceeds." RECENT RESULTS On July 10, 1997, the Company reported preliminary first quarter 1998 operating results. Operating revenues for the quarter ending June 30, 1997 totaled $107.9 million, an increase of 22.9% over first quarter 1997 revenues of $87.8 million. Income from operations for the first quarter 1998 totaled $8.0 million compared to $2.2 million for the same period in 1997, an increase of 263.6%. The Company generated net income of $3.9 million for the quarter, compared to $552,000 for the same period in 1997. Earnings per share for the first quarter of fiscal 1998 were $0.32 compared to $0.05 for the first quarter of fiscal 1997. 5 RISK FACTORS In addition to the other information contained in this Prospectus, the following factors should be carefully considered in evaluating an investment in the shares of Class A Common Stock offered hereby. ECONOMIC FACTORS The trucking industry has historically been highly cyclical as a result of various economic factors, such as excess capacity in the industry, the availability of qualified drivers, changes in fuel prices and the supply of fuel, increases in fuel or energy taxes, interest rate fluctuations, insurance costs, fluctuations in the resale value of revenue equipment, economic recessions and downturns in customers' business cycles and shipping requirements. The Company has little or no control over these economic factors. Significant increases or rapid fluctuations in fuel or other operating costs and interest rates, to the extent not offset by increases in freight rates, would reduce the Company's profitability. Economic recessions or downturns in customers' business cycles also could have a materially adverse effect on the operating results of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." AVAILABILITY OF DRIVERS Competition for drivers is intense within the trucking industry, and the Company periodically experiences difficulties in attracting and retaining qualified drivers. There can be no assurance that the Company's operations will not be affected by a shortage of qualified drivers in the future which could result in temporary under-utilization of revenue equipment, difficulty in meeting shipper demands and increased compensation levels for drivers. Difficulty in attracting or retaining qualified drivers could require the Company to limit its growth and could have a materially adverse effect on the Company's operations. See "Business--Drivers." COMPETITION The trucking industry is highly competitive and fragmented and includes numerous regional, inter-regional and national truckload carriers, none of which dominates the market. The Company also competes with logistics providers and alternative forms of surface transportation, such as intermodal transportation, railroads and air freight carriers, particularly in the longer haul segments of its business. Historically, this competition has created downward pressure on the truckload industry's pricing structure. Competition for the freight transported by the Company is based on service, efficiency, the ability to meet shipping deadlines and freight rates. Prolonged weakness in the freight markets or downward pressure on freight rates could adversely affect the Company's results of operations or financial condition. Some truckload carriers and many railroad companies do have greater financial resources, operate more equipment and transport more freight than the Company. See "Business--Competition." RISKS RELATED TO COMPANY'S GROWTH STRATEGY The Company's growth strategy includes the acquisition and deployment of additional revenue equipment and the expansion and development of its national operations and of its regional operations beyond the Midwestern, Western and Southeastern United States. These expanded operations will require the commitment of additional revenue equipment and personnel, as well as management resources, for future development. The Company's strategy for continued growth also includes the continued acquisition of small and medium-sized transportation companies. The Company will face competition from various transportation companies or other third parties for future acquisition opportunities. There can be no assurance that the Company can successfully acquire additional companies in the future. Any future acquisitions by the Company are likely to result in additional debt and amortization of goodwill and intangible assets, which 6 could adversely affect the Company's profitability, or could involve the potentially dilutive issuance of additional equity securities. In addition, acquisitions involve numerous risks, including difficulties in assimilating the acquired company's operations, the diversion of management's attention from other business concerns, risks of entering markets in which the Company has little or no direct experience and the potential loss of customers, key employees and drivers of the acquired company, any of which could have a materially adverse effect on the Company's business and operating results. The Company does not have any commitments with respect to any acquisitions as of the date of this Prospectus. See "Business--Strategy." SEASONALITY In the trucking industry, revenue generally shows a seasonal pattern as customers reduce shipments during and after the winter holiday season and its inherent weather variations. While the Company has reduced the seasonality of its business by obtaining new customers with more balanced shipping patterns, the Company's operating expenses have historically been higher in the winter months, due primarily to decreased fuel efficiency and increased maintenance costs for revenue equipment in colder weather. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Seasonality." ACQUISITION OF REVENUE EQUIPMENT The Company's growth is dependent, in part, on its ability to acquire and deploy additional revenue equipment on a timely basis. Delays in the availability of equipment could occur due to a number of factors beyond the Company's control, including equipment and supply shortages and work stoppages at the equipment supplier. Any delay or interruption in the availability of equipment in the future could have a materially adverse effect on the Company's operations and could force it to curtail its plans for growth. See "Business--Equipment." CAPITAL REQUIREMENTS The trucking industry is 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. If the Company were unable in the future to enter into acceptable operating or capital lease arrangements, raise additional equity or borrow sufficient funds, it would be forced to limit its growth and operate its revenue equipment for longer periods, which could adversely affect the Company's operating results. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." FUEL Fuel is one of the Company's largest operating expenses. Fuel prices tend to fluctuate, and the Company hedges against such fluctuations only on a limited basis. Any increase in fuel taxes or in fuel prices, to the extent not offset by freight rate increases or fuel surcharges to customers, or any interruption in the supply of fuel, could have a materially adverse effect on the Company's operating results because the Company bears the risk of changes in operating costs. REGULATION The Company is regulated by the United States Department of Transportation ("DOT") and by various state agencies. These regulatory authorities exercise broad powers, generally governing activities such as authorization to engage in motor carrier operations, rates and charges, operations, safety, financial reporting, and certain mergers, consolidations and acquisitions. The trucking industry is subject to possible regulatory and legislative changes (such as increasingly stringent environmental regulations or limits on vehicle weight and size) that may affect the economics of the industry by requiring changes in operating practices or by affecting the cost of providing truckload services. In addition, the Company's operations are subject to various environmental laws and regulations dealing with underground fuel storage tanks, the transportation and handling of hazardous materials and discharge of stormwater. If the 7 Company were to be involved in a spill or accident involving hazardous substances or if the Company were found to be in violation of applicable laws or regulations, the Company's business and operating results could be materially adversely affected. See "Business--Regulation." DEPENDENCE ON CERTAIN CUSTOMERS For the fiscal year ended March 31, 1997, the Company's 25, 10 and 5 largest customers accounted for 35.4%, 21.9% and 14.1% of revenues, respectively. The Company does not have long-term contractual relationships with its customers, and there can be no assurance that the Company's relationships with its largest customers will continue. A reduction in or termination of services provided by the Company to one or more large customers could have a materially adverse effect on the Company's business and operating results. See "Business-- Marketing and Customers." CLAIMS EXPOSURE; INSURANCE Prior to December 31, 1996, the Company was self-insured for personal injury and property damage in the amount of $500,000 per occurrence and could become subject to one or more as yet unasserted claims as a result of accidents which occurred prior to that date, which, if decided adversely to the Company, could have a materially adverse effect on the Company's operating results. The Company's effective insurance costs also could increase significantly as a result of adverse claims experience or as a result of general increases in insurance premiums. See "Business--Legal Proceedings." DEPENDENCE ON MANAGEMENT The success of the Company is highly dependent on the continued services of the Company's senior management team, particularly Max L. Fuller and Patrick E. Quinn, the Company's Co-Chairmen of the Board, neither of whom has an employment agreement with the Company. The loss of either or both of their services could have a materially adverse effect on the Company. In addition, the Company's continued growth depends on its ability to attract and retain skilled management and other employees. There can be no assurance that the Company will be able to attract and retain additional qualified management or other employees in the future. See "Management." VOTING RIGHTS OF CLASS A AND CLASS B COMMON STOCK; VOTING CONTROL BY PRINCIPAL STOCKHOLDERS The voting rights of the Class A Common Stock are limited by the Company's Amended and Restated Articles of Incorporation ("Restated Articles"). On all matters with respect to which the Company's stockholders have a right to vote, including the election of directors, each share of Class A Common Stock is entitled to one vote, while each share of Class B Common Stock is entitled to two votes. Except as otherwise required by law or expressly provided in the Restated Articles, the Class A Common Stock and Class B Common Stock vote together as a single class. Class B Common Stock can be converted into shares of Class A Common Stock on a share-for-share basis at the election of the holder and will be automatically converted to shares of Class A Common Stock upon transfer, except certain transfers among existing holders of Class B Common Stock and their respective immediate family members. See "Description of Capital Stock." Upon completion of this offering, Messrs. Fuller and Quinn will own approximately 39.9% of the outstanding shares of Class A Common Stock and all of the outstanding shares of Class B Common Stock, which together will represent approximately 60.6% of the total voting power of both classes of Common Stock. As long as Messrs. Fuller and Quinn control a majority of the voting stock of the Company, they will be able, acting together, to elect the entire Board of Directors of the Company and to determine the outcome of all matters involving a stockholder vote. See "Principal and Selling Stockholders" and "Description of Capital Stock." 8 SHARES ELIGIBLE FOR FUTURE SALE Sales of a substantial number of shares of the Class A Common Stock or their availability for sale in the public market following this offering may have an adverse effect on prevailing market prices for the Class A Common Stock. Following this offering, the 3,400,000 shares offered hereby and the 3,335,000 shares sold in the Company's initial public offering will be freely tradeable unless acquired by affiliates of the Company. The Selling Stockholders, who after giving effect to this offering will beneficially own 8,059,735 shares of the Company's outstanding Class A and Class B Common Stock, along with the Company and its officers and directors as well as certain other principal stockholders have agreed with the Underwriters that they will not sell, offer or otherwise dispose of any of their shares for 90 days from the date of this offering without the prior consent of Alex. Brown & Sons Incorporated. After this 90-day period, all of such shares will be eligible for sale under, subject to the limitations of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"). See "Shares Eligible for Future Sale." DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This Prospectus 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. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. 9 USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the 2,500,000 shares of Class A Common Stock offered by the Company are estimated to be $44.3 million ($52.2 million if the Underwriters' over-allotment option is exercised in full), assuming a public offering price of $18.75 per share, after deduction of underwriting discounts and commissions and estimated offering expenses payable by the Company. Approximately $40 million of the net proceeds will be used to acquire revenue equipment leased by the Company under operating leases with current aggregate monthly lease payments of approximately $787,000. The balance of the net proceeds will be used to pay installment notes that have a weighted average interest rate of 8.53% and maturities ranging from March 1998 to January 1999. The Company will not receive any proceeds from the sale of shares of Class A Common Stock by the Selling Stockholders. PRICE RANGE OF COMMON STOCK The Company's Common Stock is traded on The Nasdaq National Market under the symbol "XPRSA." The following table sets forth, for the periods indicated, the high and low last sale prices for the Class A Common Stock, as reported by The Nasdaq National Market:
HIGH LOW ------ ----- FISCAL 1996: First quarter............................................. $11.13 $8.125 Second quarter............................................ 11.13 7.00 Third quarter............................................. 9.50 6.75 Fourth quarter............................................ 8.75 6.63 FISCAL 1997: First quarter............................................. 8.50 6.63 Second quarter............................................ 9.75 5.75 Third quarter............................................. 16.13 8.50 Fourth quarter............................................ 17.75 12.25 FISCAL 1998: First quarter............................................. 20.25 14.38 Second quarter (through July 9)........................... 19.00 18.50
As of June 30, 1997, there were 9,077,007 shares of the Class A Common Stock outstanding, which were held by approximately 165 stockholders of record. 10 CAPITALIZATION The following table sets forth the current maturities of long-term debt and the capitalization of the Company as of March 31, 1997, and as adjusted for the sale of the 2,500,000 shares of the Class A Common Stock offered hereby by the Company (assuming a public offering price of $18.75 per share) and application of the estimated net proceeds therefrom as set forth in "Use of Proceeds."
MARCH 31, 1997 --------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Current maturities of long-term debt(1).................. $ 13,008 $ 13,008 ======== ======== Long-term debt, net of current maturities(1)............. $ 59,318 $ 55,037 -------- -------- Stockholders' equity: Preferred stock, $0.01 par value 2,000,000 shares authorized; no shares issued and outstanding.......... -- -- Common stock, Class A $0.01 par value, 30,000,000 shares authorized; 9,046,044 shares issued and outstanding, actual; 11,546,174 shares issued and outstanding, as adjusted(2)........................... 90 115 Common stock, Class B $0.01 par value, 7,500,000 shares authorized; 3,040,262 shares issued and outstanding, actual and as adjusted................................ 30 30 Additional paid-in capital............................. 33,832 78,088 Retained earnings...................................... 29,443 29,443 Notes receivable from stockholders(3).................. (233) (233) -------- -------- Total stockholders' equity........................... 63,162 107,443 -------- -------- Total capitalization............................... $122,480 $162,480 ======== ========
- -------- (1) Does not include indebtedness of $20 million incurred subsequent to March 31, 1997 in connection with the Rosedale and JTI acquisitions. (2) Excludes currently outstanding options to acquire 218,509 shares of Class A Common Stock at a weighted average price of $8.78 per share. See "Management--Stock Incentive Plan." (3) Represents notes payable to the Company for the purchase of restricted stock on November 30, 1993 by certain key employees of the Company. See "Management--Stock Incentive Plan." DIVIDEND POLICY The Company has never paid cash dividends on its Class A or Class B Common Stock and does not intend to pay cash dividends on its Common Stock for the foreseeable future. The declaration and payment of any future cash dividends will be determined by the Company's Board of Directors, based on the Company's results of operations, financial condition, cash requirements, certain corporate law restrictions, restrictions under loan agreements and other factors deemed relevant. 11 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA) The selected consolidated financial data presented below for the past five fiscal years have been derived from the Company's Consolidated Financial Statements, which have been audited by Arthur Andersen LLP, independent public accountants. The selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus.
YEAR ENDED MARCH 31, -------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- INCOME STATEMENT DATA(1): Operating revenue: U.S. Xpress.................... $164,856 $191,403 $230,416 $251,880 $296,974 CSI/Crown...................... 21,288 24,001 23,915 47,817 65,845 -------- -------- -------- -------- -------- Consolidated.................. 186,144 215,404 254,331 299,697 362,819 Income from operations.......... 7,790 14,095 18,159 5,251 19,716 Income before taxes............. 3,313 9,714 13,557 75 14,236 Net income...................... 1,867 6,042 8,263 94 7,878 Net income per share............ .19 .63 .76 .01 .65 Weighted average number of shares outstanding............. 9,665 9,665 10,806 12,003 12,168 TRUCKLOAD OPERATING DATA: Total revenue miles (in thousands)..................... 160,664 180,609 204,804 222,496 261,596 Average revenue per mile........ $ 1.08 $ 1.09 $ 1.14 $ 1.14 $ 1.15 Tractors (at end of period)..... 1,323 1,504 1,721 1,975 2,246 Average revenue per tractor per week........................... $ 2,795 $ 2,796 $ 2,807 $ 2,646 $ 2,761 BALANCE SHEET DATA: Working capital................. $ 8,611 $ 2,636 $ 10,786 $ 19,606 $ 33,829 Total assets.................... 89,412 103,385 146,070 177,821 178,084 Long-term debt, net of current maturities(2). 51,628 49,871 46,157 61,789 59,318 Stockholders' equity............ 7,394 13,436 54,082 55,086 63,162
- -------- (1) Includes the results of operations of the following acquired businesses from dates of acquisition: the air freight service operations of Michael Lima Transportation from July 1996 and CSI/Reeves from August 1995. The Company's 50% acquisition of Hall Systems in March 1994 was accounted for under the equity method until the remaining 50% of Hall Systems was acquired in October 1995. (2) Does not include indebtedness of $20 million incurred subsequent to March 31, 1997 in connection with the Rosedale and JTI acquisitions. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company has initiated a strategy to enhance profitability and sustain growth by improving efficiency, reducing costs and introducing technologies to improve service. During fiscal 1997 the Company significantly improved operating results. Operating revenue for fiscal 1997 was $363 million, up from $300 million in fiscal 1996. Operating income was $19.7 million, compared to $5.2 million in fiscal 1996. Net income for fiscal 1997 was $7.9 million compared to $94,000 in fiscal 1996. Principal reasons for the Company's improved performance include: . the realignment of operations into two subsidiaries to combine various operating, marketing, maintenance and administrative functions to improve operating efficiencies, reduce costs, improve customer service and increase equipment utilization; . the reduction and increased predictability of costs by eliminating five maintenance facilities and outsourcing some maintenance activities, revising insurance programs, changing the Company's revenue equipment acquisition strategy and improving fuel economy; . the improvement of customer service and equipment utilization through a new bonus system that rewards operations personnel for exceeding equipment utilization and customer and driver satisfaction goals; . an increase in the Company's market share in its target markets of expedited freight, regional freight, services to third party logistics providers, dedicated fleet services and floorcovering logistics; and . a reduction in the seasonality of the Company's business by obtaining new customers with more predictable shipping patterns. These initiatives increased profitability in fiscal 1997, and management believes that these strategies will have a more significant effect on results of operations in the future. The acquisition of CSI/Reeves in August 1995 has resulted in a change in the Company's revenue mix and associated costs by increasing non-transportation revenues and costs. For example, the revenue and operating costs associated with the sale of installation supplies and the warehousing of floorcoverings by CSI/Crown affects the comparability of the Company's year-to-year results of operations as well as the comparability of the Company with other truckload carriers. 13 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 consolidated operating revenue:
YEAR ENDED MARCH 31, ---------------- 1995 1996 1997 ---- ---- ---- Operating revenue............................................ 100% 100% 100% Operating expenses: Salaries, wages and employee benefits, including contract wages..................................................... 42.5 43.0 41.0 Fuel and fuel taxes........................................ 16.8 16.3 16.9 Vehicle rents.............................................. 6.6 5.8 6.0 Depreciation and amortization.............................. 5.9 5.6 4.0 Purchased transportation................................... 4.1 6.6 6.3 Operating expenses and supplies............................ 6.8 7.1 6.3 Insurance premiums and claims.............................. 4.2 4.3 4.2 Operating taxes and licenses............................... 1.8 1.7 1.6 Communications and utilities............................... 1.7 1.8 1.7 Cost of installation supplies sold......................... -- 1.7 2.3 Building rental............................................ 0.8 1.2 1.3 Bad debt expense........................................... 0.2 0.3 0.2 General and other operating expenses....................... 2.7 3.2 3.2 Gain on sales of equipment................................. (1.1) (0.4) (0.4) Equity in earnings of unconsolidated affiliate............. (0.1) -- -- ---- ---- ---- Total operating expenses................................. 92.9 98.2 94.6 ---- ---- ---- Income from operations....................................... 7.1 1.8 5.4 Interest and other income (expense), net..................... (1.8) (1.8) (1.5) ---- ---- ---- Income before income tax provision........................... 5.3 -- 3.9 Income tax provision......................................... (2.1) -- (1.7) ---- ---- ---- Net income................................................... 3.2% -- 2.2% ==== ==== ====
COMPARISON OF FISCAL 1997 TO FISCAL 1996 The Company's initiatives to improve equipment utilization and to reduce operating expenses as a percent of revenue had favorable results for fiscal 1997. In this period, utilization for the combined truckload operations increased 4.3% to $2,761 in revenue per tractor per week, compared to $2,646 during fiscal 1996. The operating ratio (operating expenses as a percentage of revenue) improved 3.6 percentage points, reflecting a 21% increase in revenue versus a 16.5% increase in operating expenses. The smaller increase in operating expenses, compared to revenues, was due to reductions in several fixed and variable expense items. Operating revenue during fiscal 1997 increased $63.1 million, or 21.1%, to $362.8 million, compared to $299.7 million during fiscal 1996. This increase resulted partially from the fiscal 1996 acquisitions of CSI/Reeves and Hall Systems, which together contributed $29.7 million of the $63.1 million increase. U.S. Xpress linehaul operations contributed $33.4 million to the increase. Increased U.S. Xpress linehaul revenue resulted from increased revenue miles and a slight increase in the rate per revenue mile. Operating expenses represented 94.6% of operating revenue for fiscal 1997, compared to 98.2% during fiscal 1996. 14 Salaries, wages and employee benefits as a percentage of operating revenue were 41.0% for fiscal 1997, compared to 43.0% during fiscal 1996. This decrease was a result of salaries and wages for both Hall Systems and CSI/Crown representing a lower percentage of operating revenue due to the utilization of owner-operators at Hall Systems and the utilization of outside linehaul carriers at CSI/Crown. All owner-operator expenses and purchased linehaul services are reflected as purchased transportation. Fuel and fuel taxes as a percentage of operating revenue were 16.9% for fiscal 1997, compared to 16.3% during fiscal 1996. This increase was primarily attributable to an 11.0% increase in the average price per gallon, offset by a 2.2% increase in average miles per gallon. Vehicle rents as a percentage of operating revenue were 6.0% for fiscal 1997, compared to 5.8% for fiscal 1996. Depreciation and amortization as a percentage of operating revenue was 4.0% for fiscal 1997, compared to 5.6% during fiscal 1996. Overall, as a percentage of operating revenue, vehicle rents and depreciation were 10.0% for fiscal 1997, compared to 11.4% during fiscal 1996. This decrease was due in part to increased non-transportation revenue from CSI/Crown and an increase in owner-operator revenue from Hall Systems, both of which do not require expenditures for revenue equipment. Additionally, utilization for U.S. Xpress linehaul operations increased to $2,761 in revenue per tractor per week for fiscal 1997, a 4.3% increase from the previous fiscal year, which reduced the number of tractors required. Purchased transportation as a percentage of operating revenue was 6.3% for fiscal 1997, compared to 6.6% in fiscal 1996. This decrease was due to increased non-transportation revenue at CSI/Crown which does not require expenditures for purchased transportation. Operating expenses and supplies as a percentage of operating revenue were 6.3% for fiscal 1997, compared to 7.1% during fiscal 1996. This decrease resulted from two factors: (i) an increase in non-transportation revenue from CSI/Crown and an increase in owner-operator revenue from Hall Systems which do not require incremental Company expenditures for operating expenses and supplies; and (ii) reductions in maintenance expenses. Cost of installation supplies sold during fiscal 1997 was $8.2 million, compared to $5.2 million during fiscal 1996. This increase was due to an increase in installation supplies sold in fiscal 1997 to $11.0 million from $6.6 million in fiscal 1996. This expense item reflects the cost of carpet installation supplies that are sold to CSI/Crown's customers. Income from operations for fiscal 1997 increased $14.5 million, or 275.5%, to $19.7 million from $5.3 million during fiscal 1996. As a percentage of operating revenue, income from operations was 5.4% during fiscal 1997, compared to 1.8% during fiscal 1996. Income tax provision for fiscal 1997 was $6.4 million, compared to a $19,000 benefit in fiscal 1996. This reflects an effective federal and state income tax rate of 44.7% in fiscal 1997 as compared to the statutory federal and state rate of approximately 39.0%. This higher rate was primarily the result of non-deductible per diem allowances paid to drivers during part of fiscal 1997. Subsequent to December 31, 1996, per diem allowances paid to drivers were eliminated. COMPARISON OF FISCAL 1996 TO FISCAL 1995 Operating revenue for fiscal 1996 increased $45.4 million, or 17.8%, to $299.7 million, compared to $254.3 million in fiscal 1995. This increase resulted primarily from the acquisitions of CSI/Reeves and Hall Systems, which contributed $25.8 and $10.0 million of revenues, respectively, and a 5.1% increase in revenue miles operated by U.S. Xpress. Operating expenses represented 98.2% of operating revenue during fiscal 1996 and 92.9% during fiscal 1995. 15 Salaries, wages and employee benefits as a percentage of operating revenue were 43.0% during fiscal 1996, compared to 42.5% in fiscal 1995. This increase was due to a 6.0% increase in driver pay in mid-March 1995 and an increase in the empty miles percentage to 6.9% of total miles in fiscal 1996, compared to 5.5% in fiscal 1995. Partly offsetting these factors were lower salaries and wages at Hall Systems, as a percentage of operating revenue, due to that company's utilization of owner- operators. All owner-operator expenses are reflected as purchased transportation. Fuel and fuel taxes as a percentage of operating revenue were 16.3% during fiscal 1996, compared to 16.8% in fiscal 1995. This decrease resulted from an increase of $5.4 million in logistics revenues and the addition of $7.9 million of non-transportation revenue from the newly acquired CSI/Reeves, both of which do not require Company expenditures for fuel and fuel taxes. As a percentage of operating revenue, excluding the increase in logistics and non- transportation revenue, fuel and fuel taxes were 17.0% during fiscal 1996. Vehicle rents as a percentage of operating revenue were 5.8% during fiscal 1996, compared to 6.6% in fiscal 1995. Depreciation and amortization represented 5.6% of operating revenue in fiscal 1996, compared to 5.9% in fiscal 1995. Overall, as a percentage of operating revenue, vehicle rents and depreciation and amortization were 11.4% during fiscal 1996, compared to 12.5% during fiscal 1995. This decrease was primarily attributable to increased revenues from warehousing, transportation logistics services and the sale of installation supplies, none of which required significant expenditures for revenue equipment. Revenue from warehousing, logistics services and the sale of installation supplies was $19.2 million during fiscal 1996, compared to $5.9 million in fiscal 1995. As a percentage of operating revenue, excluding the increase in logistics and non-transportation revenue, vehicle rents and depreciation were 11.9% during fiscal 1996. Purchased transportation as a percentage of operating revenue was 6.6% during fiscal 1996, compared to 4.1% during fiscal 1995. This increase resulted primarily from increased third-party transportation purchases by CSI/Reeves and Xpress Logistics, and owner-operator expense from Hall Systems. The majority of transportation services provided by Xpress Logistics and CSI/Reeves are provided by third parties. Operating expenses and supplies as a percentage of operating revenue were 7.1% during fiscal 1996, compared to 6.8% in fiscal 1995. This increase reflected high parts, tires and repair costs incurred in fiscal 1996 associated with preparing used tractors for disposal during the Company's second quarter. Cost of installation supplies sold during fiscal 1996 reflects costs of carpet installation supplies sold through CSI/Reeves to retail customers from the date of acquisition on August 31, 1995. Building rental as a percentage of operating revenue was 1.2% during fiscal 1996, compared to 0.8% during fiscal 1995. This increase was primarily attributable to building rental expenses associated with the acquired warehousing operations of CSI/Reeves. Gain on sales of equipment as a percentage of operating revenue was 0.4% during fiscal 1996, compared to 1.1% during fiscal 1995. Proceeds from the disposals of used equipment were $17.4 million during fiscal 1996, compared to $17.6 million during fiscal 1995. Income from operations for fiscal 1996 decreased $12.9 million, or 71.1%, to $5.3 million from $18.2 million in fiscal 1995. As a percentage of operating revenue, income from operations was 1.8% in fiscal 1996, compared to 7.1% in fiscal 1995. 16 LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity during fiscal 1997 were funds provided by operations, borrowings under long-term debt facilities, lines of credit and proceeds from the sales of used property and equipment. At March 31, 1997, the Company had in place a $50.0 million credit facility with a group of banks with a weighted average interest rate of 6.77%, of which $14.5 million was available for borrowing. In fiscal 1998, the Company's primary sources of liquidity are expected to be the net proceeds of this offering, funds from operations, borrowings under installment notes payable and borrowings under the line of credit. Cash generated from operations decreased to $7.9 million in fiscal 1997 from $9.0 million in fiscal 1996. Net cash used in investment activities was $3.2 million in fiscal 1997 and $17.3 million in fiscal 1996. Of the cash used in investment activities in fiscal 1997, $24.8 million was used to acquire additional property and equipment, compared to $28.2 million in fiscal 1996. The decrease in amounts expended for purchases of new equipment in fiscal 1997, compared to fiscal 1996, reflects the Company's greater use of operating leases in fiscal 1997 as opposed to purchasing such equipment. The Company anticipates that expenditures (net of trade-ins) for the acquisition of revenue equipment will be approximately $68 million in fiscal 1998 and will be either acquired by purchases or financed through operating leases. Net cash used for financing activities was $4.1 million in fiscal 1997, compared to $6.3 million provided in fiscal 1996. This decrease resulted primarily from the Company's greater use of leased equipment in fiscal 1997. As a result, net repayments under lines of credit and long-term debt during fiscal 1997 were $4.1 million, compared to net borrowings of $5.4 million during fiscal 1996. Net borrowings under lines of credit were $1.0 million during fiscal 1997, compared to net borrowings of $30.3 million during fiscal 1996. During fiscal 1996, the Company obtained a new revolving line of credit with capacity up to $50.0 million. A portion of the availability under this new line was immediately used to repay an equal amount of existing long-term indebtedness bearing higher interest rates. Management believes that the net proceeds of this offering, funds provided by operations, borrowings under installment and bank notes payable and available borrowings under the Company's existing line of credit will be sufficient to fund its cash needs and anticipated capital expenditures through at least the next twelve months. Management also believes that the use of the net proceeds of this offering to acquire revenue equipment currently under operating leases and pay indebtedness will result in a reduction in interest rates under the existing line of credit and will increase the Company's flexibility to finance its planned future growth. However, if the Company were to make a significant cash acquisition, it is likely that the Company would need to increase its borrowing capability under its existing line of credit. INFLATION Inflation has not had a material effect on the Company's results of operations or financial condition during the past three years. However, inflation higher than experienced during the past three years could have an adverse effect on the Company's future results. SEASONALITY In the trucking industry, revenue generally shows a seasonal pattern as customers reduce shipments during and after the winter holiday season and its inherent weather variations. While the Company has reduced the seasonality of its business by obtaining new customers with more balanced shipping patterns, the Company's operating expenses have historically been higher in the winter months, due primarily to decreased fuel efficiency and increased maintenance costs for revenue equipment in colder weather. 17 INDUSTRY OVERVIEW INDUSTRY OVERVIEW Truckload carriers such as the Company typically transport full trailer loads directly from origin to destination without the delays and expense of en route handling and multiple shipper load consolidation that characterize less- than-truckload ("LTL") carriers. As the service-sensitive, flexible mode of transportation, leading truckload carriers have consistently gained market share at the expense of more costly or less flexible modes such as LTL or rail. The Company estimates the for-hire truckload market segment of the transportation industry accounted for $60 billion in revenue in 1996 and the private fleet segment of the truckload industry generated $115 billion in 1996 revenues. The for-hire truckload segment is highly fragmented, with the ten largest for-hire truckload carriers accounting for less than 13% of total for- hire truckload revenues in 1996. Subsequent to deregulation in 1980, the truckload industry has experienced significant changes that affect both shippers and carriers. Five trends currently evolving in the truckload industry are: . Significant growth opportunities for high-service providers. Many shippers are focusing on improving the logistical efficiency of their manufacturing and distribution systems. With the adoption of just-in- time manufacturing and distribution systems, expedited product movement has become increasingly important and the demand for time-definite pickup and delivery of freight has increased. In addition, air freight customers are increasingly using truckload carriers for less costly expedited transportation services. . Increasing reliance on core carriers. Shippers are seeking to reduce the number of authorized carriers they use and establish long-term relationships with a small group of "core carriers." These relationships: (i) help to ensure consistent, high quality service for the shipper, (ii) enhance the likelihood for advanced electronic interface between shipper and carrier and (iii) provide the carrier the opportunity for higher equipment utilization and more predictable revenue streams. . Growing role of logistics providers. An increasing number of shippers are focusing their capital resources on their primary business and, therefore, are outsourcing their freight transportation management and logistics functions. Logistics providers coordinate the transportation of shipments on behalf of customers, often tailoring their services to meet the specific requirements of the shippers. . Driver shortage. A shortage of qualified drivers continues to constrain the truckload industry. In response, truckload carriers are constantly seeking methods such as better equipment, improved communications and increased compensation, to attract and retain drivers. . Industry consolidation. Competitive pressures within the truckload industry and high levels of service demanded by customers require today's carriers to demonstrate financial stability, critical mass and technological capabilities. Carriers that do not possess these characteristics have begun to exit the truckload industry through liquidation or through continued industry consolidation. Economies of scale in the industry favor large carriers with modern fleets, excellent service, superior technology and a strong capital base. 18 BUSINESS INTRODUCTION The Company is one of the ten largest truckload carriers in the United States. The Company provides transportation and logistics services throughout the United States and in parts of Canada and Mexico, specializing in time- definite and expedited longhaul and regional truckload services. The Company is a leader in the adoption of proven new technologies as a means of reducing costs and providing better service. The Company has two operating subsidiaries, U.S. Xpress and CSI/Crown. U.S. Xpress, which accounted for 82% of the Company's fiscal 1997 revenues, provides time-definite and expedited longhaul and regional truckload services as well as transportation and logistics services to the air freight industry. CSI/Crown is the leader in providing logistics services to manufacturers and retailers in the floorcovering industry. The Company's top 50 customers, most of which have designated the Company as a core carrier, include Federal Express, Carrier, Amana, Hewlett Packard, DuPont, Compaq and Armstrong. The Company has increased its revenues at a compounded annual growth rate of 18.2% over the past five fiscal years to $363 million for fiscal 1997 through the expansion of business from existing customers, the development of relationships with new customers and strategic acquisitions. The Company's strategy for future revenue growth is to continue to establish strategic alliances with its top customers, target high-service market segments, make strategic acquisitions and leverage its technology advantage. The Company also seeks to sustain growth through programs designed to recruit and retain quality drivers for its expanding fleet. The Company has initiated a strategy to enhance profitability and sustain growth by improving efficiency, reducing costs and introducing technology to improve service. The Company realigned its operations into two subsidiaries to combine various operating, marketing, maintenance and administrative functions thereby reducing costs and improving equipment utilization. The Company has improved the predictability of and further reduced costs by eliminating five maintenance facilities and outsourcing some maintenance activities, revising insurance programs, modifying its revenue equipment acquisition strategy and improving fuel economy. These initiatives increased profitability in fiscal 1997, and management believes that these strategies will have a more significant effect on results of operations in the future. The Company is a leader in the innovation and adoption of proven new technologies as a means of reducing costs and enhancing customer service. For example, the newly-introduced Xpress Connect Internet connection, a fully integrated customer-to-truck communications system, enables customers to trace freight, tender loads and exchange invoice information via the Internet as well as communicate with the Company via e-mail. STRATEGY The Company's operating and growth strategy is focused on taking advantage of opportunities and evolving trends in the truckload transportation industry. These strategies include: . Position the Company as a premier high-service provider. The Company's services have attracted customers across many industries, particularly those that operate just-in-time manufacturing and distribution systems. A large portion of the Company's growth has been attributable to providing services that are differentiated from other truckload carriers. The Company was one of the first in the industry to establish time-definite pickups and deliveries as a standard for service quality. In addition, the Company is one of the few truckload carriers to provide expedited service throughout the continental United States and in parts of Canada and Mexico. This is particularly important to shippers that operate multiple, geographically-separated facilities. The Company has consistently utilized proven new technologies that provide value to customers, such as the newly-introduced Xpress Connect system that enables U.S. Xpress and CSI/Crown customers to trace freight, tender loads, exchange invoice information and perform other functions through the Internet. 19 . Expand core carrier relationships with shippers. Through its service capabilities, the Company is positioned to act as a core carrier to major shippers. The Company provides longhaul and regional truckload service, expedited and time-definite service, dedicated fleets and services to third party logistics providers. In seeking customers, the Company emphasizes its commitment to flexibility, responsiveness, analytical planning and information systems. The Company's top 50 customers, most of which have designated the Company as a core carrier, include Federal Express, Carrier, Amana, Hewlett Packard, DuPont, Compaq and Armstrong and accounted for approximately 46% of revenues in fiscal 1997. . Emphasize driver-friendly practices. The Company focuses significant resources and attention on the successful recruiting, hiring, training and retention of qualified professional drivers. Hiring and retaining drivers is an essential element of the Company's continuing growth and profitability. The Company has implemented a number of ongoing initiatives to retain and recruit drivers, such as handling driver- friendly freight, adopting attractive compensation and benefits packages, providing equipment with desirable driver amenities and emphasizing a Company-wide culture of support for drivers' needs. . Continue to emphasize relationships with logistics providers. As shippers continue to focus on their core competencies and outsource their transportation needs, shippers' use of logistics providers is increasing. The Company believes that its service capabilities and high quality service will result in additional business opportunities with these logistics providers. The Company has established close working relationships with a number of leading third party logistics providers, such as Menlo Logistics, J.B. Hunt Logistics and Ryder Integrated Logistics. Revenues from logistics providers grew 196% to $33.1 million in fiscal 1997. . Continue to pursue attractive acquisition opportunities. The Company seeks strategic acquisition opportunities within the Company's established market segments or that complement its existing business. Management believes that market and financial forces will continue to create attractive acquisition opportunities. The Company has completed two acquisitions since the end of fiscal 1997. SERVICES The Company provides six principal services: time-definite service, expedited service, regional service, service to third party logistics providers, dedicated fleets and floorcovering logistics. Time-Definite Service. This is the Company's principal service speciality and involves the pickup and delivery of freight on time-specific schedules over distances ranging from 200 to 3,000 miles. Time-definite transportation requires pickups and deliveries to be performed to exact appointment times or within a specified number of minutes without necessarily involving expedited transit times. This service is a key point of differentiation for U.S. Xpress from many other trucking companies that typically provide service only within windows ranging from several hours to a few days. Time-definite service is particularly important to the Company's customers that operate just-in-time manufacturing or distribution systems. Expedited Service. A substantial portion of the time-definite freight transported by the Company is handled on an expedited basis. The Company's expedited service consists of the pickup and delivery of freight on a prescribed schedule at transit times competitive to deferred air freight service. The Company is able to meet these transit times through the use of team drivers or relays at a much lower cost than deferred air freight. In fiscal 1997, expedited revenue grew 176% to $124.8 million, and accounted for 44% of U.S. Xpress' truckload revenue. Customers in the air freight industry accounted for approximately one-quarter of expedited services revenue, with the remainder provided by manufacturers, distributors and retailers. 20 Examples of this service are as follows:
TRANSIT TIME ORIGIN DESTINATION MILES (IN HOURS) ------ ----------- ----- ------------ Charlotte, NC Los Angeles, CA 2,381 53 Atlanta, GA San Francisco, CA 2,482 55 Seattle, WA Miami, FL 3,263 73 Dallas, TX Chicago, IL 923 20 Newark, NJ Columbus, OH 527 12
Regional Service. The ability to provide regional service is an important factor in obtaining many core carrier accounts. Recognizing the strategic importance of offering regional services, the Company acquired Hall Systems, a Southeast regional truckload carrier, in 1994. In 1995, the Company established regional truckload carrier service in the West and in July 1996, significantly expanded its Western regional operations with the acquisition of the air freight service operations of Michael Lima Transportation. Prior to fiscal 1998, regional service in the Midwest was offered by U.S. Xpress on a limited basis as a service to key customers and to reposition equipment. This service is expected to expand significantly as a result of the acquisition of JTI, a truckload carrier primarily serving the Midwest. Services to Third Party Logistics Providers. The Company has established strategic alliances with several major third party logistics suppliers. Logistics providers and air freight forwarders typically manage transportation purchasing, coordination and freight allocation for their customers. As shippers continue to focus on their core competencies and outsource their transportation needs, the use of logistics providers by shippers is expected to increase. Revenues from logistics providers increased 196% to $33.1 million in fiscal 1997. Dedicated Fleets. The Company provides equipment and drivers that are dedicated to specific customers and specific traffic lanes. The Company benefits from its dedicated operations through increased freight volume from key customers and improved planning of equipment requirements while drivers benefit from more predictable schedules and traveling regular routes. As of June 30, 1997, the Company operated 200 tractors dedicated to specific customers or lanes, compared with 83 tractors as of June 30, 1996. Floorcovering Logistics. CSI/Crown picks up floorcovering products from manufacturers; consolidates shipments into truckloads bound for specific destinations; contracts with U.S. Xpress and other truckload carriers to deliver the products to CSI/Crown service centers or to contract agents; and delivers or arranges for delivery of the products to floorcovering distributors and retailers throughout the United States and in parts of Canada and Mexico. In addition, CSI/Crown provides warehouse facilities, cutting services and installation supplies to floor covering distributors and retailers. The Company's revenues from floor covering logistics in fiscal 1997 were $65.8 million, an increase of 38% from fiscal 1996. In April 1997, CSI/Crown purchased Rosedale's floor covering distribution system assets, including dock and material handling equipment and assumed Rosedale's leases of eight terminal facilities and several customer agreements. As a result, CSI/Crown now operates 28 distribution centers and contracts with others to provide distribution services at 31 other locations. MARKETING AND CUSTOMERS Marketing personnel target customers for each of the Company's six major services. The Company's services are marketed on the basis of the Company's commitment to high levels of service, flexibility, responsiveness, analytical planning and high technology information management. The Company's marketing department is primarily responsible for identifying new business prospects and implementing marketing programs to obtain and retain customer accounts. The marketing staff also is responsible for offering the Company's logistics capabilities to existing and new customers and to third party logistics providers. 21 Mr. Quinn, the Company's Co-Chairman, and Mr. Lusk, the Executive Vice President of Marketing, are directly involved in marketing the Company's services at the national account level and supporting local sales activities. In addition, the Company employs 17 full-time marketing representatives, who are geographically dispersed. The Company's top 50 customers, most of which have designated the Company as a core carrier include Federal Express, Carrier, Amana, Hewlett Packard, DuPont, Compaq and Armstrong, and accounted for approximately 57.3% of revenues in fiscal 1997. During fiscal 1997, no single customer accounted for more than 6% of the Company's revenue. TECHNOLOGY The Company adopts proven new technologies that result in both competitive service advantages and more profitable service to its customers. Within the past five years, the Company developed a computerized information system that has been integrated with the QUALCOMM Omnitracs satellite communication system (the "QUALCOMM system"). The QUALCOMM system provides direct communication between the Company and its drivers to enhance customer service and equipment utilization. The Company's Electronic Data Interchange ("EDI") capabilities provide customers with an efficient means of tendering loads, tracing freight, directly paying invoices and performing other administrative functions. Management believes that this system is a base from which it will be able to provide enhanced customer service and ultimately provide direct connectivity between customers and drivers via the Internet. Xpress Connect. In November 1996, the Company introduced its proprietary Internet-based Xpress Connect system that enables customers to trace freight, tender loads and exchange invoice information via the Internet and communicate with the Company via e-mail. The system, which is a featured part of the Company's World Wide Web site, is designed to assist shippers in better managing their transportation shipments by providing up-to-date information on the location and status of active shipments as well as historical information on completed shipments. The Company believes that Xpress Connect is the first World Wide Web application to permit a customer to track shipments without prior knowledge of shipment or order numbers. Xpress Connect is customer- specific and password protected to guarantee the security of each customer's proprietary information. Eaton Vorad. This collision avoidance system is specified equipment on the Freightliner's Century Class tractors now being deployed by U.S. Xpress. This radar-based system is designed to detect traffic ahead and to the side of trucks, thereby providing drivers with additional response time to avoid side and front impact collision. The U.S. Xpress fleet had more than 1,100 such systems in operation at June 30, 1997. Transit Technologies. The Pre-Pass(TM) and Advantage 75(TM) technologies enable a tractor to stop at one weigh station and receive clearance for travel on participating highways. After the truck conducts an initial visit to a weigh station, information regarding the truck and its contents are downloaded onto a transponder located on the tractor. Thereafter, a sensor located along the highway reads the information contained in the transponder and allows the truck and its contents to be electronically cleared without the delays associated with multiple weigh station visits. The Company participated in beta tests for these technologies and equipped a majority of its tractors with these systems as of June 30, 1997. The Company has begun to implement a similar technology to expedite movement through toll plazas. These technologies enhance fuel economy, improve equipment utilization, improve transit times and reduce accidents. DRIVERS At June 30, 1997, U.S. Xpress employed 3,461 drivers. Recruiting, training and retention of qualified drivers are all essential to support the Company's continued growth and to maintain high equipment 22 utilization. The Company has implemented a number of ongoing initiatives to retain and recruit drivers, such as handling driver-friendly freight, adopting an attractive compensation and benefits package, providing equipment with desirable driver amenities and providing a Company-wide culture of support for drivers' needs. Recruiting. The Company's recruiting efforts include targeted advertising and recruitment by Company drivers. New driver candidates are carefully screened on the basis of prior driving experience and safety records and are required to pass mandatory drug tests. The Company also maintains a "quick response" system that investigates prospective drivers' credentials and driving histories and in many instances qualifies drivers for hiring within one business day of application. Training. All new drivers, regardless of experience, are trained under strict guidelines. The Company provides a two-day orientation program to inform drivers about the Company, its equipment and its expectations. The orientation program also stresses safety instruction and proper operation of the tractors and trailers used by the Company. Driver Managers. Each Company driver is assigned a driver manager who is responsible for all aspects of driver satisfaction, including miles, home time and resolution of work-related issues. Driver managers' performance is evaluated based on equipment utilization, driver turnover, driver miles, on time service and driver safety performance. The driver managers communicate with drivers daily through the satellite communications system and by telephone when personal communication is warranted. Driver-Friendly Freight. The Company focuses much of its marketing effort on customers with freight which is driver-friendly in that it requires minimal or no loading or unloading by drivers and minimizes waiting time for drivers while trucks are loaded or unloaded. Compensation and Benefits. Company drivers are compensated primarily on the basis of miles driven, with base pay per mile increasing with a driver's length of employment. Drivers also earn additional mileage pay through safety and mileage incentive bonuses. Employee benefits include paid holidays and vacations, health insurance, a 401(k) retirement plan under which the Company matches 50% of employee contributions up to 6% of compensation and pre-paid telephone calling cards that contain 30 minutes of free calling time per month. The Company recently increased its driver pay an average of $.02 per mile in order to provide a competitive wage. Driver Amenities. The Company's late-model, conventional tractors are designed for driver comfort and safety. In fiscal 1997, the Company began purchasing Freightliner Century Class tractors, which contain additional driver amenities, such as double sleeper bunks, extra large cabs, air-ride suspensions and additional storage for personal items. The Company also has developed specific satellite communications applications that enable drivers to remain in touch with their families and receive information about pay and expense advances, directions to customer locations, weather updates and load assignments. In October 1996, the Company introduced Internet e-mail capability to its entire fleet. EQUIPMENT At June 30, 1997, U.S. Xpress operated 2,474 Freightliner conventional tractors and 5,824 dry van trailers. Over 97% of the trailers are 53' x 102" high-cubic capacity vans, many of which include air ride suspension. During fiscal 1997, management implemented a program designed to reduce the Company's trailer to tractor ratio as a part of its cost reduction strategies. Growth of the Company's tractor and trailer fleets is managed based on market conditions and the Company's experience and expectations with respect to equipment utilization levels. The Company determines the specifications of equipment purchases based on such factors as vehicle and component quality, warranty service, driver preferences, new vehicle prices and the likely resale market. Because the fleet is standardized and has warranty maintenance agreements with original equipment suppliers, the Company has reduced parts inventories and maintenance costs. 23 Tractors are typically replaced every 36 months, generally well in advance of the need for major engine overhauls. This schedule can be accelerated or delayed based on trade-in values of existing revenue equipment. The Company has negotiated favorable arrangements from its primary equipment vendors for its scheduled 1998 purchases of tractors, which reduce the Company's risks related to equipment resale values. The Company purchases all of its tractors from Freightliner and has begun purchasing composite plate trailers from Wabash. The air ride suspension trailers provide a more comfortable ride for the drivers and allow the Company to haul sensitive freight such as electronic equipment. The lighter Wabash composite trailers reduce fuel consumption and increase capacity. SAFETY AND RISK MANAGEMENT The Company is committed to ensuring that it has safe drivers. The Company regularly communicates with drivers to promote safety and to instill safe work habits through Company media, safety review sessions and ethics and responsibility training. These programs reinforce the importance of driving safely, abiding by all laws and regulations such as speed limits and driving hours, performing regular equipment inspections and acting as good citizens on the road. The Company's accident review committee meets weekly to review any new accidents, take appropriate action related to drivers, examine accident trends and implement changes in procedures or communications to address safety issues. Management's emphasis on safety also is demonstrated through its equipment specifications, such as anti-lock brakes on tractors and trailers, automatic engine brakes, electronic engines, special mirrors, conspicuity tape and the implementation of the Eaton Vorad collision avoidance system on all Freightliner Century Class tractors. 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, post- accident and post-injury drug testing. The primary claims arising in the Company's business consist of cargo loss and damage, vehicle liability (personal injury and property damage). The Company currently purchases primary and excess coverage for these types of claims in levels which management believes are sufficient to adequately protect the Company from significant claims. The Company also maintains primary and excess coverage for employee medical expenses and hospitalization, damage to physical properties and equipment damage resulting from collisions or other losses. PERSONNEL At June 30, 1997, the Company employed 4,916 persons, including 3,461 drivers at U.S. Xpress. In addition, 108 independent contractor/drivers provided services to U.S. Xpress. The Company considers relations with its employees, all of whom are non-union, to be satisfactory. On August 1, 1996, the Company ended its arrangement with a third-party leasing company under which the Company leased its drivers and most office and maintenance employees. On that date, all persons employed through the leasing company became employees of the Company or its subsidiaries. On January 1, 1997, the Company entered into an arrangement with a third party, under which the Company out-sourced administration of payroll, benefits, unemployment insurance and workers' compensation. Under this arrangement, the Company pays the third party for its services a fixed amount per employee. The Company believes that this arrangement enables it to achieve cost savings on personnel benefits and insurance premiums. COMPETITION The trucking industry is highly competitive and fragmented and includes numerous regional, inter-regional and national truckload carriers, none of which dominates the market. The Company also 24 competes with logistics providers and alternative forms of surface transportation, such as intermodal transportation, railroads and air freight carriers, particularly in the longer haul segments of its business. Historically, this competition has created downward pressure on the truckload industry's pricing structure. Competition for the freight transported by the Company is based on service, efficiency, the ability to meet shipping deadlines and freight rates. Prolonged weakness in the freight markets or downward pressure on freight rates could adversely affect the Company's results of operations or financial condition. Some truckload carriers and many railroad companies do have greater financial resources, operate more equipment and transport more freight than the Company. REGULATION The Company, as a motor carrier, is subject to rules and regulations promulgated by the DOT and by 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 continental United States and in parts of Mexico and Canada over any route selected by the Company. The trucking industry is subject to possible regulatory and legislative changes (such as increasingly stringent environmental regulations or limits on vehicle weight and size) that may affect the economics of the industry by requiring changes in operating practices or by affecting the cost of providing truckload services. The Company has underground storage tanks for diesel fuel at its terminals in Chattanooga, Tennessee; Tunnel Hill, Georgia; Oklahoma City, Oklahoma; Birmingham, Alabama; and Lincoln, Nebraska. As a result, the Company is subject to regulations promulgated by the EPA governing the design, construction and operation of underground fuel storage tanks from installation to closure. The Company believes all of its tanks are in substantial compliance with EPA regulations. PROPERTIES Most of the Company's offices and terminals are leased. The Company's and U.S. Xpress' headquarters are located in two leased buildings in Chattanooga, Tennessee. CSI/Crown is based in Tunnel Hill, Georgia, approximately 25 miles from the Chattanooga location. In addition to the headquarters locations, U.S. Xpress operates 18 terminal facilities and CSI/Crown operates 28 distribution service centers. Each of the Company's terminals and service centers is headed by a terminal or service center manager. Seven U.S. Xpress terminals include maintenance facilities. Several terminals include driver lounges and customer service functions for local pickups and deliveries. In fiscal 1997, an expansion of the CSI/Crown dock facility in Tunnel Hill was completed, and expansion of the U.S. Xpress maintenance facility at Tunnel Hill was begun. The Company believes that its current facilities are adequate for its present needs although the Company may consider consolidation of some office operations into a new headquarters facility in the next several years. The Company also periodically seeks additional locations and facilities and has not encountered any significant difficulty in locating additional facilities. LEGAL PROCEEDINGS The Company is routinely a party to litigation incidental to its business, primarily involving claims for worker's compensation or for personal injury and property damage incurred in the transportation of freight. The Company maintains insurance which covers liability in excess of retained amounts for personal injury and property damage claims. Prior to December 31, 1996, the Company was self-insured for personal injury and property damage in the amount of $500,000 per occurrence and could become subject to one or more as yet unasserted claims as a result of accidents which occurred prior to that date, which, if decided adversely to the Company, could have a materially adverse affect on the Company's operating results. 25 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company are as follows:
NAME AGE POSITION ---- --- -------- Max L. Fuller........... 44 Co-Chairman of the Board, Vice President and Secretary, Director Patrick E. Quinn........ 51 Co-Chairman of the Board, President and Treasurer, Director Ray M. Harlin........... 47 Chief Financial Officer, Director Nominee E. William Lusk, Jr. ... 41 Executive Vice President of Marketing, Director William K. Farris....... 44 Executive Vice President of Operations and President, U.S. Xpress, Inc., Director L. D. Miller, II........ 43 Chairman of CSI/Crown, Inc. Steven J. Cleary........ 39 Chief Executive Officer and General Manager of CSI/Crown, Inc. Thor N. Edman, Jr. ..... 52 President of CSI/Crown, Inc. Ronald E. Pate.......... 54 President of U.S. Xpress Leasing, Inc. James B. Baker.......... 51 Director A. Alexander Taylor, 44 Director II.....................
All directors are elected for one-year terms by the Company's stockholders and hold office until their successors are elected and qualified. Executive officers of the Company are appointed annually by the Board of Directors and serve at the Board's discretion. Mr. Fuller has served as Co-Chairman of the Board of the Company since March 1994 and was first elected a director, Vice President and Secretary of the Company in 1985. Mr. Fuller has been employed in the transportation industry continuously since 1970 and served as Vice President of Southwest Equipment Rental, Inc., a transportation company, from 1974 to July 1985, when he left to form U.S. Xpress with Mr. Quinn. Mr. Fuller currently serves as a director of the Tennessee and Georgia Trucking Associations, is a past director of the University of Georgia Trucking Profitability Studies Conference and is active in the Young Presidents Organization. Mr. Quinn has served as Co-Chairman of the Board since March 1994 and also as President and Treasurer of the Company since 1985. Mr. Quinn was first elected a director of the Company in 1985. In 1977, he joined Southwest Equipment Rental, Inc., a transportation company, as Vice President and General Counsel and became Executive Vice President and General Manager in 1984. Mr. Quinn left Southwest Equipment Rental, Inc. in July 1985 to form U.S. Xpress with Mr. Fuller. Mr. Quinn is Chairman of the American Trucking Association's Communications and Image Advisory Committee, a Director and the Treasurer of the American Trucking Association's Litigation Center and a member of the Board of Directors of the Truckload Carriers Association. Mr. Harlin has served as Chief Financial Officer of the Company since June 1997 and is a nominee for election to the Board of Directors. Prior to joining the Company, Mr. Harlin was employed for 25 years with the public accounting firm of Arthur Andersen LLP. He was a Partner with that firm for the last 14 years serving in the Chattanooga, Tennessee office. Mr. Harlin is a member of the American Institute of Certified Public Accountants. Mr. Lusk has served as an Executive Vice President of the Company since 1996 and was Vice President of Marketing of the Company from 1991 to 1996. He previously served as Executive Vice 26 President of U.S. Xpress, an operating subsidiary of the Company, from 1987 to 1990 and has been employed in the transportation industry in various capacities for the past 19 years. Mr. Farris was named Executive Vice President of Operations of the Company and President of U.S. Xpress in 1996. He previously served as Vice President of Operations of the Company from 1993 to 1996. Mr. Farris was Vice President of Operations of Southwest from 1991 to 1993 and Vice President of Customer Service of U.S. Xpress from 1988 to 1991. Mr. Cleary joined the Company in 1991 as Director of Human Resources and was named Vice President of Human Resources and Safety in 1994. He was named Executive Vice President of Human Resources in 1996 and Chief Executive Officer and General Manager of CSI/Crown in 1997. Prior to joining the Company, he served in operations and human resources management positions for Ryder Distribution Services and Rollins Transportation Services. Mr. Miller served as President of Crown Transport from its inception in 1985 until the merger of Crown Transport and CSI/Reeves in 1996. He now serves as Chairman of CSI/Crown. He has been employed in the transportation industry since 1974. Mr. Edman served as President and Chief Executive Officer of CSI/Reeves, Inc. from 1990 to 1995, when the Company acquired CSI/Reeves, Inc. Mr. Edman has served as President of CSI/Crown since the acquisition. He has been employed in the floor covering industry since 1968. Mr. Pate joined the Company in 1994 as Assistant Director of Maintenance. He became Director of Maintenance later that year and Executive Vice President of U.S. Xpress Leasing, Inc., the Company's equipment leasing and maintenance subsidiary. He was named President of U.S. Xpress Leasing, Inc. in 1996. Prior to joining the Company, Mr. Pate was Vice President of Chattanooga operations for Universal Tire Company and had been employed in the tire business for 25 years. Mr. Baker has served as a director of the Company since 1994. Mr. Baker has been a partner in River Associates, LLC, an investment firm, since 1993. Previously, Mr. Baker was employed by CONSTAR International, Inc., a plastic container manufacturer, as a Senior Vice President from 1988 to 1991 and as the President and Chief Operating Officer from 1991 to 1992. Mr. Baker is also a director of Wellman, Inc., a chemical company. Mr. Taylor has served as a director of the Company since 1994. Mr. Taylor has been a partner with the law firm of Miller & Martin since 1983. Mr. Taylor is also a director of Chattem, Inc., a publicly-held consumer products company. 27 COMMITTEES The Board of Directors has established an Audit Committee and a Compensation Committee. The functions of the Audit Committee are to meet with the independent public accountants of the Company, to review the audit plan for the Company, to review the annual audit of the Company with the accountants, together with any other reports or recommendations made by the accountants, to recommend whether the auditors should be continued as auditors of the Company and, if other auditors are to be selected, to recommend the auditors to be selected. The Audit Committee also reviews with the auditors for the Company the adequacy of the Company's internal controls and perform such other duties as shall be delegated to the Committee by the Board of Directors. Messrs. Baker, Quinn and Taylor serve as the members of the Audit Committee, with Mr. Taylor serving as Chairman. The functions of the Compensation Committee are to recommend to the Board of Directors policies and plans concerning the salaries, bonuses and other compensation of the senior executives of the Company, including reviewing the salaries of the senior executives; recommending bonuses, stock options and other forms of additional compensation for them; establishing and reviewing policies regarding management perquisites and performing such other duties as shall be delegated to the Committee by the Board. Messrs. Baker, Fuller and Taylor serve as members of the Compensation Committee, with Mr. Baker serving as Chairman. DIRECTOR COMPENSATION Directors who receive no other compensation from the Company receive a $5,000 annual retainer, $1,000 for each Board meeting attended, and $1,000 for each committee meeting not held in conjunction with a Board of Directors' meeting. In accordance with the terms of the 1995 Non-Employee Directors Stock Award and Option Plan, each of the current non-employee directors has currently elected to receive shares of the Company's Class A Common Stock in lieu of cash compensation for their service on the Board. In addition, each non-employee director is granted an option to purchase 1,200 shares of Class A Common Stock on the date he is elected or re-elected. Options have an exercise price equal to the fair market value of the Company's Class A Common Stock as of the grant date and vest over a three-year period. 28 SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION The following table sets forth information concerning compensation paid or accrued to the Co-Chairman of the Board and the four other most highly compensated executive officers of the Company for the past three fiscal years: SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION ---------------------------------- ---------------- AWARDS PAYOUTS -------- ------- NAME AND OTHER ANNUAL LTIP ALL OTHER PRINCIPAL FISCAL SALARY BONUS COMPENSATION OPTIONS/ PAYOUTS COMPENSATION POSITION YEAR ($) ($) ($)(1) SARS ($) ($) ($)(2) --------- ------ ------- ------ ------------ -------- ------- ------------ Patrick E. Quinn........ 1997 500,000 -- 1,458 -- -- 3,505 Co-Chairman, 1996 500,000 -- 260 -- -- 3,364 President and Treasurer 1995 534,952 -- 6,065 -- -- 675,176(3)(4) Max L. Fuller........... 1997 500,000 -- 1,594 -- -- 2,964 Co-Chairman, Vice 1996 500,000 -- 1,463 -- -- 2,848 President and Secretary 1995 534,952 -- 6,366 -- -- 651,192(3)(4) L. D. Miller, III....... 1997 244,629 40,000 8,400 10,000 -- 43,375 Chairman, CSI/Crown 1996 211,578 25,000 8,400 -- -- 37,500 1995 228,089 -- 8,400 -- -- 42,746 William K. Farris....... 1997 135,962 -- 8,400 10,000 -- -- Executive Vice President-- 1996 123,077 -- 5,600 -- -- -- Operations and President, 1995 107,981 -- -- -- -- 30,705(4) U.S. Xpress E. William Lusk, Jr..... 1997 135,962 -- 8,400 10,000 41,712 3,090 Executive Vice 1996 123,077 -- 6,114 -- -- 3,090 President--Marketing 1995 107,981 -- 1,454 -- -- 33,430(4) Thor N. Edman, Jr....... 1997 124,900 -- 8,400 10,000 -- 3,210 President, CSI/Crown 1996 72,116 -- 4,200 -- -- 2,049 1995 -- -- -- -- -- --
- -------- (1) Amounts represent compensation for auto expenses. (2) Amounts in 1997 represent the Company's contribution pursuant to the Company's 401(k) Plan of $2,500, $2,500, $4,750, $3,090 and $3,210, for each of Messrs. Quinn, Fuller, Miller, Lusk and Edman, respectively, and life insurance premiums of $1,005, $464 and $38,625 paid by the Company for Messrs. Quinn, Fuller and Miller, respectively. (3) Amounts in 1995 include an annual payment of $406,875 for each of Messrs. Quinn and Fuller pursuant to a compensation arrangement in which the Company paid Messrs. Quinn and Fuller 0.5% of the total amount of the Company's indebtedness and certain future operating lease payments that were secured by their personal guarantees. As a result of the Company's initial public offering in October 1994, the Company was able to obtain the release of the personal guarantees of Messrs. Quinn and Fuller on the Company's indebtedness and future operating lease commitments. Accordingly, compensation related to such personal guarantees was eliminated in January 1995. (4) Amounts in 1995 also include the Company's contribution to a profit- sharing plan of $205,403, $205,403, $30,705 and $30,523 for each of Messrs. Quinn, Fuller, Farris and Lusk, respectively. 29 OPTION EXERCISES AND HOLDINGS The following table sets forth information with respect to the named executives concerning the exercise of options during the last fiscal year and unexercised options held as of March 31, 1997: AGGREGATED EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED ACQUIRED VALUE OPTIONS AT 3/31/97 OPTIONS AT 3/31/97 ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ----------- -------- ------------------------- ------------------------- Patrick E. Quinn........ -- -- -- -- Max L. Fuller........... -- -- -- -- L.D. Miller, III........ -- -- 3,333/ 6,667 $ 23,747/$ 47,502 William K. Farris....... -- -- 25,341/39,680 $227,982/$353,863 E. William Lusk, Jr. ... 5,000 $40,150 20,341/39,680 $181,582/$353,863 Thor N. Edman, Jr. ..... -- -- 3,333/ 6,667 $ 23,747/$ 47,502
The following table shows information concerning the individual grants of stock options made during fiscal 1997 to each of the named executive officers of the Company and the potential realizable values of the grants assuming annually compounded stock price appreciation rates of 5% and 10% per annum over the option term. The 5% and 10% rates of appreciation are set by the rules of the Securities and Exchange Commission and are not intended to forecast possible future appreciation, if any. OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE INDIVIDUAL GRANTS AT ASSUMED ANNUAL ---------------------------------------------------- RATES OF STOCK NUMBER OF PERCENT OF TOTAL PRICE SECURITIES OPTIONS/SARS APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OR OPTION TERM OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ----------------- NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($) ---- ------------ ---------------- ----------- ---------- -------- -------- Patrick E. Quinn........ -- -- -- -- -- -- Max L. Fuller........... -- -- -- -- -- -- L.D. Miller, III........ 10,000 9.57% $6.875 8/27/2006 $111,987 $178,320 William K. Farris....... 10,000 9.57% $6.875 8/27/2006 $111,987 $178,320 E. William Lusk, Jr. ... 10,000 9.57% $6.875 8/27/2006 $111,987 $178,320 Thor N. Edman, Jr. ..... 10,000 9.57% $6.875 8/27/2006 $111,987 $178,320
SALARY CONTINUATION AGREEMENT Messrs. Quinn and Fuller have each entered into an agreement with the Company, pursuant to which the Company is obligated, in the event of either of their deaths, to continue paying 50% of their current salary for a period of six months and, in the event of either of their disabilities, to continue paying their current salary in full for a period of 12 months and 50% of their current salary for an additional 12 months thereafter. The agreements also provide that Messrs. Quinn and Fuller will receive payments on account of personal guarantees of Company indebtedness at the current rate if either of them or their estates personally guarantee any Company indebtedness. 30 STOCK INCENTIVE PLAN In November 1993, the Company adopted the U.S. Xpress Enterprises, Inc. Incentive Stock Plan (the "Plan"). The Plan provides for the issuance of shares of restricted common stock of the Company, as well as both incentive and nonstatutory stock options. There may be issued under the Plan (as restricted stock, in payment of performance grants, or pursuant to the exercise of stock options) an aggregate of not more than the greater of (a) 1,038,138 shares of Class A Common Stock, or (b) 8% of the total number of shares of Common Stock of all classes outstanding at any given time. Participants in the Plan may include key employees as selected by the Compensation Committee. Under the terms of the Plan, the Company may sell restricted shares, grant options, or issue performance grants to participants in amounts and for such prices as determined by the Compensation Committee. All options will vest immediately in the event of a change in control of the Company, or the death, disability, or retirement of the employee. On November 30, 1993, 289,195 shares of restricted Class A Common Stock were sold to employees at $4.72 per share, which approximated the fair market value of the shares at the date of sale. Employees issued recourse notes payable to the Company in the aggregate amount of $1,365,000 as payment for the restricted shares. The notes bear interest at 6% and are due in three equal annual installments beginning November 30, 1999. The restricted stock may not be sold, assigned, transferred, pledged or otherwise disposed of during the restriction period. In fiscal 1995, the Board authorized, upon the completion of the Company's initial public offering, the removal of the restrictions on 91,800 shares scheduled to expire on November 30, 1995. In exchange for the removal of restrictions on these shares, the affected employees repaid an aggregate of $837,800 of the related recourse notes. During each of the years ended March 31, 1997, 1996 and 1995, 18,390 shares of restricted stock were forfeited, and related recourse notes receivable of $44,900 were canceled. At March 31, 1997, 91,750 shares of restricted stock were outstanding. The restrictions expire on November 30, 1997 and 1998. Restrictions also expire in the event of a change in control of the Company or upon the death, disability or retirement of the employee. Effective as of July 3, 1997, the Board authorized the grant of options to acquire 50,000 shares of Class A Common Stock at an exercise price of $18.75 per share and the issuance of 10,000 shares of restricted Class A Common Stock to Mr. Harlin. The options vest ratably over five years from the first anniversary date of grant. The restrictions on the restricted shares expire ratably over five years from the first anniversary date of the issuance. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION There are no members of the Company's Compensation Committee who serve as a member of another company's compensation committee. See "Certain Relationship and Transactions" for a discussion of certain transactions between the Company and certain members of the Board of Directors. 31 CERTAIN RELATIONSHIPS AND TRANSACTIONS The information set forth herein briefly describes certain transactions between the Company and certain affiliated parties. The Company believes that the terms of these transactions, are comparable to the terms that could be obtained from unaffiliated parties. Future transactions, if any, with affiliated parties will be approved by the Audit Committee and will be on terms no less favorable to the Company than those that could be obtained from unaffiliated parties. Messrs. Quinn and Fuller together own 100% of Paragon Leasing, LLC ("Paragon"). Paragon purchases, sells and leases used tractors and trailers. In fiscal 1997, the Company paid Paragon approximately $869,000 in rent for leased trailers. Messrs. Quinn and Fuller, together with the Quinn Family Partnership and the Fuller Family Partnership, own approximately 43% of Transcom Technologies, Inc. ("Transcom"). Transcom operates a debit card system that is marketed to, among others, truck drivers through which long distance phone calls and Internet e- mail access can be debited to the customer's account. The Company purchases $10 per month of telephone time per tractor for its drivers through Transcom, in lieu of reimbursing drivers for telephone expenses. Total payments by the Company to Transcom in fiscal 1997 were $142,919. Six terminals used by the Company during fiscal 1997 are owned by Q&F Realty, LLC and California Q&F Realty, LLC, of which Messrs. Quinn and Fuller own 100% of the membership interests, and leased to the Company, in management's opinion, at fair market rent. In the aggregate, rental payments to the LLCs from the Company and its subsidiaries in fiscal 1997 were $1,639,000. Substantially all of Messrs. Quinn and Fuller's business time is spent on the Company's business and affairs. In the case of each of the other companies in which Messrs. Quinn and Fuller own an interest, that company has other active, full-time management personnel who operate that company's business. During fiscal 1997, the Company incurred fees for legal services to the law firm of Miller & Martin, of which A. Alexander Taylor, II, a director of the Company, is a partner. 32 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth information regarding the ownership of the Class A and Class B Common Stock as of July 10, 1997 and as adjusted to reflect the sale of the shares of Class A and Class B Common Stock offered hereby with respect to (i) each person known by the Company to own beneficially more than 5% of the outstanding shares of either class of Common Stock, (ii) each director and nominee, (iii) the Co-Chairmen of the Board and the four other most highly compensated executive officers who earned in excess of $100,000 during the 1997 fiscal year, and (iv) all directors and executive officers as a group. Unless otherwise indicated, each of the stockholders has sole voting and investment power with respect to the shares beneficially owned.
SHARES BENEFICIALLY SHARES TO BE BENEFICIALLY OWNED BEFORE OFFERING OWNED AFTER OFFERING ----------------------------- SHARES ----------------------------- PERCENT OFFERED PERCENT NAME CLASS A CLASS B (1)(2)(3) NUMBER CLASS A CLASS B (1)(2)(3) ---- --------- --------- --------- ------- --------- --------- --------- Max L. Fuller(4)(6)..... 2,800,018 1,520,131 35.7 450,000 2,350,018 1,520,131 26.5 Patrick E. Quinn(5)(6).. 2,674,539 1,520,131 34.6 405,084 2,269,455 1,520,131 25.9 Quinn Family Partnership............ 444,916 -- 3.7 44,916 400,000 -- 2.7 J. & W. Seligman and Co., Incorporated(7)... 1,449,899 -- 12.0 1,449,899 -- 9.9 William K. Farris(1).... 52,021 -- * 52,021 -- * E. William Lusk, Jr.(1)................. 47,021 -- * 47,021 -- * Ray M. Harlin........... 10,000 -- * 10,000 -- * James B. Baker(1)(8).... 5,508 -- * 5,508 -- * A. Alexander Taylor, II(1).......... 4,008 -- * 4,008 -- * Thor N. Edman, Jr.(1)... 3,333 -- * 3,333 -- * L.D. Miller, III(1)(9).. 3,333 -- * 3,333 -- * All Executive Officers and Directors as a Group (11 Persons)..... 5,623,737 3,040,262 71.4 4,768,653 3,040,262 53.4
- -------- * Less than 1% of the Class A and Class B Common Stock. (1) Share amounts include shares issuable pursuant to stock options that are exercisable within 60 days of July 10, 1997 held by the following individuals: Mr. Farris--15,341 shares, Mr. Lusk--10,341 shares, Mr. Edman--3,333 shares, Mr. Baker--800 shares and Mr. Taylor--800 shares. (2) Percentage of total number of outstanding shares of both Class A and Class B Common Stock. (3) For the purpose of computing the percentage of outstanding shares owned by each beneficial owner, the shares issuable pursuant to presently exercisable stock options held by such beneficial owner are deemed to be outstanding. Such options are not deemed to be outstanding for the purpose of computing the percentage owned by any other person. (4) Does not include 444,916 shares of Class A Common stock held by the Fuller Family Partnership, as to which shares Mr. Fuller disclaims beneficial ownership. (5) Does not include 444,916 shares of Class A Common Stock held by the Quinn Family Partnership, as to which shares Mr. Quinn disclaims beneficial ownership. (6) The principal business address for Messrs. Quinn and Fuller is 2931 South Market Street, Chattanooga, Tennessee 37410. (7) The principal business address of J. & W. Seligman and Co., Incorporated is 100 Park Avenue, New York, New York 10017. The reported information is based upon the Schedule 13G filed by J. & W. Seligman and Co., Incorporated with the Securities and Exchange Commission on February 13, 1997. (8) Does not include 500 shares of Class A Common Stock held by Mr. Baker's son, as to which shares Mr. Baker disclaims beneficial ownership. (9) Does not include a total of 6,000 shares of Class A Common Stock held by Mr. Miller's wife and two children, as to which shares Mr. Miller disclaims beneficial ownership. 33 DESCRIPTION OF CAPITAL STOCK GENERAL The Company is authorized to issue up to 30,000,000 shares of Class A Common Stock, par value $0.01 per share, 7,500,000 shares of Class B Common Stock, par value $0.01 per share and up to 2,000,000 shares of preferred stock, par value $0.01 per share. As of July 10, 1997, 9,087,007 shares of Class A Common Stock and 3,040,262 shares of Class B Common Stock were issued and outstanding. No shares of preferred stock have been issued. CLASS A AND CLASS B COMMON STOCK Voting. 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. All actions submitted to a vote of stockholders are voted on by holders of Class A and Class B Common Stock voting together as a single class, except as otherwise set forth below or provided by law. Conversion. Class A Common Stock has no conversion rights. Class B Common Stock may be converted into Class A Common Stock, in whole or in part, at any time and from time to time on the basis of one share of Class A Common Stock for each share of Class B Common Stock. If at any time any shares of Class B Common Stock are beneficially owned by any person other than Messrs. Fuller and Quinn (or certain immediate family members), such shares shall automatically be converted into an equal number of shares of Class A Common Stock. Dividends. Holders of Class A Common Stock are entitled to receive cash dividends on the same basis as Class B Common Stock if and when such dividends are declared by the Board of Directors of the Company from funds legally available therefor. In the case of any dividend paid in stock, holders of Class A Common Stock are entitled to receive the same percentage dividend (payable in shares of Class A Common Stock) as the holders of Class B Common Stock receive (payable in shares of Class B Common Stock). Liquidation. Holders of Class A and Class B Common Stock share with each other on a ratable basis as a single class in the net assets of the Company available for distribution in respect of Class A and Class B Common Stock in the event of liquidation. Other Terms. Neither the Class A nor the Class B Common Stock may be subdivided, consolidated, reclassified or otherwise changed unless contemporaneously therewith the other class of shares is subdivided, consolidated, reclassified or otherwise changed in the same proportion and in the same manner. In any merger, consolidation or business combination, the consideration to be received per share by holders of either Class A or Class B Common Stock must be identical to that received by holders of the other class of Common Stock, except that in any such transaction in which shares of capital stock are distributed, such shares may differ as to voting rights only to the extent that voting rights now differ between Class A and Class B Common Stock. The rights, preferences and privileges of holders of both classes of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock which the Company may designate and issue in the future. PREFERRED STOCK The Board of Directors of the Company is authorized, without further action of the stockholders of the Company, to issue up to 2,000,000 shares of preferred stock in classes or series and to fix the voting powers, designations, preferences or other rights of the shares of each such class or series and the 34 qualifications, limitations and restrictions thereon. Such preferred stock may rank prior to the Common Stock as to dividend rights, liquidation preferences or both, may have full or limited voting rights and may be convertible into shares of either class of the Company's Common stock. The purpose of authorizing the Board of Directors to issue preferred stock is, in part, to eliminate delays associated with a stockholder vote in specific instances. The issuance of preferred stock, for example in connection with a stockholder rights plan, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of the outstanding existing stock of the Company. The Company has no present plans to issue any shares of the preferred stock. CERTAIN PROVISIONS OF RESTATED ARTICLES AND BYLAWS Provisions with Anti-takeover Implications. A number of provisions of the Company's Restated Articles and Bylaws deal with matters of corporate governance and the rights of stockholders. The Company's Restated Articles provide the Board of Directors the ability to issue shares of preferred stock and to set the voting rights, preferences and other terms thereof. This ability afforded to the Board of Directors by the Restated Articles may be deemed to have an anti-takeover effect and may discourage takeover attempts not first approved by the Board of Directors (including takeovers which certain stockholders may deem to be in their best interest). To the extent takeover attempts are discouraged, temporary fluctuations in the market price of the Company's Class A Common Stock, which may result from actual or rumored takeover attempts, will be inhibited. The Company's Bylaws provide that a special meeting of stockholders may be called only by the Chairman of the Board of the Company, if one is elected, by the President or by a majority of the directors. The Company's Bylaws provide that only those matters set forth in the notice of the special meeting may be considered or acted upon at that special meeting. The Company's Bylaws also set forth certain advance notice or information requirements and time limitations on any director nomination or any new business which a stockholder wishes to propose for consideration at an annual or special meeting of stockholders. Any such nomination or new business must be stated in writing and filed with the Secretary of the Company (a) at least 30 days before the anniversary date of the notice of the immediately preceding annual meeting of stockholders; or (b) in the event of a special meeting, at least 10 days after notice of such special meeting. The notice must contain certain information relating to the nominee for director or new business proposal. The Board of Directors of the Company may reject any nomination or new business proposal not timely made or supported by insufficient information. The foregoing provisions, together with the provisions of the Nevada General Corporation Law discussed below (see Statutory Business Combination Provision), also could discourage or make more difficult a merger, tender offer or proxy contest, even if they could be favorable to the interests of stockholders, and could potentially depress the market price of the Class A Common Stock. The Board of Directors of the Company adopted these provisions upon the recommendation of management that these provisions are appropriate to protect the interests of the Company and all of its stockholders. Indemnification. The Company's Bylaws provide that directors and officers of the Company will be indemnified by the Company to the fullest extent authorized by Nevada law, as it now exists or may in the future be amended, against all expenses and liabilities reasonably incurred in connection with service for or on behalf of the Company. The Bylaws of the Company also provide that the right of directors and officers to indemnification is not exclusive of any other right now possessed or hereafter acquired under any statute, agreement or otherwise. 35 Limitation of Liability. The Restated Articles provide that to the fullest extent permitted by Nevada law directors and officers of the Company are not personally liable for monetary damages to the Company for certain breaches of their fiduciary duty as directors or officers. This provision would have no effect on the availability of equitable remedies or non-monetary relief, such as an injunction or rescission for breach of the duty of care. In addition, the provision applies only to claims against a director or officer arising out of his role as a director or officer and not in any other capacity. Further, liability of a director or officer for violations of the federal securities laws are not limited by this provision. Directors and officers, however, will no longer be liable for monetary damages arising from decisions involving violations of the duty of care which could be deemed grossly negligent. STATUTORY BUSINESS COMBINATION PROVISION The Company is subject to the provisions of Section 78.411 et seq. of the Nevada General Corporation Law ("Business Combination Act"). The Business Combination Act provides, with certain exceptions, that a Nevada corporation may not engage in any of a broad range of business combinations with a person or affiliate, or associate of such person, who is an "interested stockholder" for a period of three years from the date that such person became an interested stockholder, unless the transaction resulting in a person becoming an interested stockholder, or the business combination, is approved by the board of directors of the corporation before the person becomes an interested stockholder. The Business Corporation Act further provides that a Nevada corporation may not engage in such a business combination after the expiration of three years from the date that such person became an interested stockholder, unless the business combination is approved by the board of directors of the corporation before the person became an interested stockholder or by the affirmative vote of a majority of outstanding votes not beneficially owned by the interested stockholder at a meeting called not earlier than three years after the interested stockholder's date of acquiring shares. Under the Business Combination Act, an "interested stockholder" is defined as any person that is (i) the owner of 10% or more of the outstanding voting stock of the corporation or (ii) an affiliate or associate of the corporation and was the owner of 10% or more of the outstanding voting stock of the corporation at any time within the three year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder. At its option, a corporation may exclude itself from the coverage of the Business Combination Act by amending its Restated Articles by action of its stockholders, other than interested stockholders and their affiliates and associates, to exempt itself from coverage, provided that such charter amendment may not become effective until 18 months after the date it is adopted and does not apply to any combination of the corporation with an interested stockholder whose date of acquiring shares is on or before the effective date of the amendment. The Company has not adopted such an amendment to its Restated Articles. TRANSFER AGENT AND REGISTRAR Boston EquiServe, L.P. is the Transfer Agent and Registrar for the Class A Common Stock. 36 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have outstanding 11,587,007 shares of Class A Common Stock and 3,040,262 shares of Class B Common Stock that may be converted into Class A Common Stock. Of these shares, all of the 3,400,000 shares (3,910,000 shares if the Underwriters' over- allotment option is exercised in full) sold in this offering will be and the 3,335,000 shares sold in the Company's initial public offering are freely transferable by persons other than "affiliates" of the Company, without restriction or further restriction under the Securities Act. The remaining 4,852,007 shares of Class A Common Stock and all of the shares of Class B Common Stock that may be converted into Class A Common Stock outstanding are "restricted securities" within the meaning of Rule 144 ("Rule 144") under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemption contained in Rule 144. Certain principal stockholders and the officers and directors of the Company, beneficially holding an aggregate of 8,653,831 shares, and the Company have agreed, subject to certain exceptions, not to sell or otherwise dispose of such shares, for 90 days after the date of this offering without the prior written consent of Alex. Brown & Sons Incorporated. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned his or her shares for at least one year, including an "affiliate" of the Company (as that term is defined under the Securities Act), is entitled to sell, within any three-month period, that number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of Class A Common Stock of the Company or (ii) the average weekly trading volume of the then outstanding shares during the four calendar weeks preceding each such sale. A person (or persons whose shares are aggregated) who is not deemed an "affiliate" of the Company and who has beneficially owned shares for at least two years is entitled to sell such shares under Rule 144 without regard to the volume limitations described above. Affiliates, including members of the Board of Directors and senior management, continue their respective to be subject to such limitations. No predictions can be made of the effect, if any, that market sales of restricted securities or the availability of restricted securities for sale will have on the market price prevailing from time to time. Nevertheless, sales of substantial amounts of the Class A Common Stock in the public market, or the perception that such sales could occur, could have an adverse impact on the market price. 37 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below (the "Underwriters"), through their Representatives, Alex. Brown & Sons Incorporated, Morgan Stanley & Co. Incorporated, Morgan Keegan & Company, Inc. and Schroder & Co. Inc. (the "Representatives"), have severally agreed to purchase from the Company the following respective number of shares of Common Stock at the initial public offering price less the underwriting discounts and commission set forth on the cover page of this Prospectus.
NUMBER OF UNDERWRITERS SHARES ------------ --------- Alex. Brown & Sons Incorporated.................................... Morgan Stanley & Co. Incorporated.................................. Morgan Keegan & Company, Inc. ..................................... Schroder & Co. Inc. ............................................... --------- Total............................................................ 3,400,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will purchase the total number of shares of Class A Common Stock offered hereby if any of such shares are purchased. The Company and certain of the Selling Stockholders have been advised by the Representatives of the Underwriters that the Underwriters propose to offer the shares of Class A Common Stock to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not to exceed $ per share to certain other dealers. After commencement of the public offering, the offering price and other selling terms may be changed by Representatives of the Underwriters. The Company and the Selling Stockholders have granted to the Underwriters an option, exercisable not later than 30 days after the date of this Prospectus, to purchase up to 442,500 and 67,500 shares of the Class A Common Stock, respectively, at the public offering price set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of Class A Common Stock purchased by each of them as shown in the above table, bears to 3,400,000, and the Selling Stockholders will be obligated, pursuant to the option, to sell such shares to the Underwriters. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of the Class A Common Stock offered hereby. If purchased, the Underwriters will offer such additional shares on the same terms as those on which the 3,400,000 shares are being offered. In connection with this offering, certain Underwriters may engage in passive market making transactions in the Class A Common Stock on The Nasdaq National Market immediately prior to the commencement of sales in this offering in accordance with Rule 103 of Regulation M. Passive market making consists of displaying bids on The Nasdaq National Market limited by the bid prices of independent market makers and making purchases limited by such prices and effected in response to order flow. Net purchases by a passive market maker on each day are limited to a specified percentage of the passive 38 market maker's average daily trading volume in the Class A Common Stock during a specified period and must be discontinued when such limit is reached. Passive market making may stabilize the market price of the Class A Common Stock at a level above that which might otherwise prevail and, if commenced, may be discontinued at any time. Subject to applicable limitations, the Underwriters, in connection with this offering, may place bids for or make purchases of the Class A Common Stock in the open market or otherwise, for long or short account, or cover short positions incurred, to stabilize, maintain or otherwise affect the price of the Class A Common Stock, which may be higher than the price that might otherwise prevail in the open market. There can be no assurance that the price of the Class A Common Stock will be stabilized, or that stabilizing, if commenced, will not be discontinued at any time. Subject to applicable limitations, the Underwriters may also place bids or make purchases on behalf of the underwriting syndicate to reduce a short position created in connection with this offering. The Underwriters are not required to engage in these activities and may end these activities at any time. The Underwriting Agreement contains covenants of indemnity and contribution between the Underwriters and the Company and the Selling Stockholders with respect to certain civil liabilities, including liabilities under the Securities Act. Certain of the Company's principal stockholders and the directors and officers, who following the offering will beneficially own an aggregate of 5,613,569 shares of Class A Common Stock and 3,040,262 shares of Class B Common Stock, and the Company have agreed not to offer, sell or otherwise dispose of any of such Common Stock or any shares of Common Stock issuable upon exercise of any options for Common Stock for a period of 90 days after the date of this Prospectus without the prior written consent of Alex. Brown & Sons Incorporated. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Miller & Martin, Chattanooga, Tennessee. A. Alexander Taylor, II, a Director of the Company, is a partner in the law firm of Miller & Martin. Certain legal matters in connection with this offering are being passed upon for the Underwriters by Piper & Marbury L.L.P., Baltimore, Maryland. EXPERTS The consolidated financial statements and schedules included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. 39 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants.................................. F-2 Consolidated Statements of Operations for the Years Ended March 31, 1995, 1996 and 1997............................................................ F-3 Consolidated Balance Sheets as of March 31, 1996 and 1997................. F-4 Consolidated Statements of Cash Flows for the Years Ended March 31, 1995, 1996 and 1997............................................................ F-5 Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 1995, 1996 and 1997................................................................. F-6 Notes to Consolidated Financial Statements................................ F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of U.S. Xpress Enterprises, Inc.: We have audited the accompanying consolidated balance sheets of U.S. Xpress Enterprises, Inc. (a Nevada corporation) and subsidiaries as of March 31, 1996 and 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of U.S. Xpress Enterprises, Inc. and subsidiaries as of March 31, 1996 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1997 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP _____________________________________ ARTHUR ANDERSEN LLP Chattanooga, Tennessee May 7, 1997 F-2 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED MARCH 31, ---------------------------- 1995 1996 1997 -------- -------- -------- Operating Revenue............................... $254,331 $299,697 $362,819 -------- -------- -------- Operating Expenses: Salaries, wages and employee benefits, including contract wages...................... 108,074 129,311 148,850 Fuel and fuel taxes............................ 42,586 48,782 61,268 Vehicle rents.................................. 16,767 17,263 21,603 Depreciation and amortization.................. 15,070 16,765 14,492 Purchased transportation....................... 10,493 19,929 22,682 Operating expenses and supplies................ 17,398 21,321 22,503 Insurance premiums and claims.................. 10,457 12,874 15,265 Operating taxes and licenses................... 4,608 5,227 5,984 Communications and utilities................... 4,332 5,343 6,301 Cost of installation supplies sold............. -- 5,214 8,180 Building rental................................ 2,063 3,495 4,878 Bad debt expense............................... 543 784 880 General and other operating expenses........... 6,949 9,582 11,506 Gain on sales of equipment..................... (2,979) (1,320) (1,289) Equity in earnings of unconsolidated affiliate..................................... (189) (124) -- -------- -------- -------- Total operating expenses...................... 236,172 294,446 343,103 -------- -------- -------- Income from Operations.......................... 18,159 5,251 19,716 -------- -------- -------- Other Income (Expense): Interest expense, net.......................... (4,796) (5,251) (5,542) Other income, net.............................. 194 75 62 -------- -------- -------- Total other expense........................... (4,602) (5,176) (5,480) -------- -------- -------- Income Before Income Tax Provision.............. 13,557 75 14,236 Income Tax (Provision) Benefit.................. (5,294) 19 (6,358) -------- -------- -------- Net Income...................................... $ 8,263 $ 94 $ 7,878 ======== ======== ======== Earnings Per Share.............................. $ .76 $ .01 $ .65 ======== ======== ======== Weighted Average Common Shares and Common Share Equivalents Outstanding........................ 10,806 12,003 12,168 ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. F-3 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 31, ------------------ 1996 1997 -------- -------- ASSETS Current Assets Cash and cash equivalents................................. $ 4,378 $ 5,092 Customer receivables, net of allowance of $3,033 in 1996 and $2,733 in 1997....................................... 41,910 50,056 Other receivables......................................... 4,318 3,969 Prepaid insurance and licenses............................ 4,837 3,853 Operating and installation supplies....................... 4,033 4,904 Deferred income taxes..................................... 3,888 4,443 Other current assets...................................... 482 719 -------- -------- Total current assets................................... 63,846 73,036 -------- -------- Property and Equipment, at cost Land and buildings........................................ 2,232 2,717 Revenue and service equipment............................. 126,501 112,076 Furniture and equipment................................... 10,325 11,265 Leasehold improvements.................................... 5,086 7,619 -------- -------- 144,144 133,677 Less accumulated depreciation and amortization............ (39,702) (39,803) -------- -------- Net property and equipment............................. 104,442 93,874 -------- -------- Other Assets Goodwill, net............................................. 6,579 7,700 Other..................................................... 2,954 3,474 -------- -------- Total other assets..................................... 9,533 11,174 -------- -------- Total Assets........................................... $177,821 $178,084 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable.......................................... $ 10,025 $ 8,708 Accrued wages and benefits................................ 5,543 5,086 Claims and insurance accruals............................. 11,465 9,601 Other accrued liabilities................................. 3,378 2,804 Current maturities of long-term debt...................... 13,829 13,008 -------- -------- Total current liabilities.............................. 44,240 39,207 -------- -------- Long-Term Debt, net of current maturities.................. 61,789 59,318 -------- -------- Deferred Income Taxes...................................... 10,885 14,543 -------- -------- Other Long-Term Liabilities................................ 5,821 1,854 -------- -------- Commitments and Contingencies (Notes 6 and 8) Stockholders' Equity Preferred Stock, $.01 par value, 2,000,000 shares authorized, no shares issued............................. -- -- Common Stock Class A, $.01 par value, 30,000,000 shares authorized, 9,034,884 and 9,046,044 shares issued and outstanding at March 31, 1996 and 1997, respectively..... 89 90 Common Stock Class B, $.01 par value, 7,500,000 shares authorized, 3,040,262 shares issued and outstanding at March 31, 1996 and 1997.................................. 30 30 Additional paid-in capital................................ 33,774 33,832 Retained earnings......................................... 21,565 29,443 Notes receivable from stockholders........................ (372) (233) -------- -------- Total stockholders' equity............................. 55,086 63,162 -------- -------- Total Liabilities and Stockholders' Equity............. $177,821 $178,084 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. F-4 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED MARCH 31, ------------------------------- 1995 1996 1997 --------- --------- --------- Cash Flows from Operating Activities: Net income.................................. $ 8,263 $ 94 $ 7,878 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income tax provision............. 1,953 2,737 3,103 Depreciation and amortization............. 15,070 16,765 14,492 Gain on sales of equipment................ (2,979) (1,320) (1,289) Equity in earnings of unconsolidated affiliate................................ (189) (124) -- Increase in receivables................... (3,279) (9,674) (7,309) (Increase) decrease in prepaid insurance and licenses............................. (1,484) (497) 984 (Increase) decrease in operating supplies................................. 10 (688) (575) (Increase) decrease in other assets....... 190 (559) (1,141) Increase (decrease) in accounts payable and other accrued liabilities............ 2,669 3,606 (7,722) Increase (decrease) in accrued wages and benefits................................. 2,190 (1,317) (457) Other..................................... -- 16 18 --------- --------- --------- Net cash provided by operating activities.. 22,414 9,039 7,982 --------- --------- --------- Cash Flows from Investing Activities: Payments for purchases of property and equipment.................................. (61,072) (28,247) (24,868) Proceeds from sales of property and equipment.................................. 17,582 17,383 24,618 Repayment of notes receivable from stockholders............................... 838 -- 94 Acquisition of business, net of cash acquired................................... (308) (6,227) (3,048) Acquisition of remaining 50% of unconsolidated affiliate, net of cash acquired................................... -- (239) -- --------- --------- --------- Net cash used in investing activities...... (42,960) (17,330) (3,204) --------- --------- --------- Cash Flows from Financing Activities: Net borrowings (payments) under lines of credit..................................... (7,158) 30,325 1,000 Payment of long-term debt................... (31,305) (36,355) (26,450) Borrowings under long-term debt............. 32,215 11,468 21,300 Proceeds from exercise of stock options..... -- -- 128 Proceeds from issuance of common stock...... 31,588 -- -- Repurchase of restricted common stock....... (42) (42) (42) Increase in other liabilities............... 481 906 -- --------- --------- --------- Net cash provided by (used in) financing activities................................ 25,779 6,302 (4,064) --------- --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents................................. 5,233 (1,989) 714 Cash and Cash Equivalents, beginning of year........................................ 1,134 6,367 4,378 --------- --------- --------- Cash and Cash Equivalents, end of year....... $ 6,367 $ 4,378 $ 5,092 ========= ========= ========= Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest...... $ 5,227 $ 5,198 $ 5,643 ========= ========= ========= Cash paid (refunded) during the year for income taxes, net.......................... $ 2,621 $ (470) $ 2,766 ========= ========= ========= Supplemental Disclosure of Significant Noncash Investing and Financing Activities: Issuance of long-term debt in connection with purchase of business........................ $ 600 $ -- $ 792 ========= ========= =========
The accompanying notes are an integral part of these consolidated statements. F-5 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
NOTES COMMON STOCK ADDITIONAL RECEIVABLE --------------- PAID-IN RETAINED FROM CLASS A CLASS B CAPITAL EARNINGS STOCKHOLDERS TOTAL ------- ------- ---------- -------- ------------ ------- Balance, March 31, 1994................... $73 $22 $ 1,433 $13,208 $(1,300) $13,436 Net income............. -- -- -- 8,263 -- 8,263 Conversion of 815,680 shares of Class A Common Stock to Class B Common Stock........ (8) 8 -- -- -- -- Issuance of 2,500,000 shares of Class A Common Stock in initial public offering.............. 25 -- 31,563 -- -- 31,588 Repayment of notes receivable from stockholders.......... -- -- -- -- 838 838 Repurchase of 18,390 shares of restricted stock................. (1) -- (87) -- 45 (43) --- --- ------- ------- ------- ------- Balance, March 31, 1995................... 89 30 32,909 21,471 (417) 54,082 Net income............. -- -- -- 94 -- 94 Repurchase of 18,390 shares of restricted stock................. (1) -- (87) -- 45 (43) Issuance of 1,744 shares of Class A Common Stock for non- employee director compensation.......... -- -- 16 -- -- 16 Issuance of 110,182 shares of Class A Common Stock for purchase of Hall Systems............... 1 -- 936 -- -- 937 --- --- ------- ------- ------- ------- Balance, March 31, 1996................... 89 30 33,774 21,565 (372) 55,086 Net income............. -- -- -- 7,878 -- 7,878 Repurchase of 18,390 shares of restricted stock................. -- -- (87) -- 45 (42) Repayment of notes receivable from stockholders.......... -- -- -- -- 94 94 Issuance of 2,542 shares of Class A Common Stock for non- employee director compensation.......... -- -- 18 -- -- 18 Proceeds from exercise of 27,008 stock options............... 1 -- 127 -- -- 128 --- --- ------- ------- ------- ------- Balance, March 31, 1997................... $90 $30 $33,832 $29,443 $ (233) $63,162 === === ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated statements. F-6 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND OPERATIONS U. S. Xpress Enterprises, Inc. (the "Company") provides transportation services through two subsidiaries. U.S. Xpress, Inc. ("U.S. Xpress") is a truckload carrier serving the Continental United States, Canada and Mexico. CSI/Crown, Inc. ("CSI/Crown") provides transportation and logistics services to the floorcovering industry. 2. ACQUISITIONS Effective March 31, 1994, the Company acquired 50% of the outstanding stock of Hall Systems, Inc. ("Hall Systems") for $625,000 cash and a $625,000 note payable. Effective October 31, 1995, the Company acquired the remaining 50% of the outstanding stock of Hall Systems for $1,000,000 cash and 110,182 shares of the Company's Class A Common Stock in a transaction accounted for by the purchase method of accounting. Effective August 31, 1995, the Company acquired 100% of the outstanding stock of CSI/Reeves, Inc. ("CSI/Reeves") for cash of $6,240,000 in a transaction accounted for by the purchase method of accounting. Effective January 1, 1996, CSI/Reeves was merged into the Company's existing freight consolidator (Crown Transport Systems, Inc.) to form CSI/Crown, Inc. The results of operations of CSI/Reeves and Hall Systems are included in the accompanying consolidated financial statements from the dates of their respective acquisition. On a pro forma (unaudited) basis, operating revenue for the Company would have been approximately $310 million and $332 million, respectively, for fiscal 1995 and 1996, had the acquisitions taken place at the beginning of the respective periods. The impact on net income and earnings per share is insignificant. This information is for comparative purposes only and does not purport to be indicative of the results of operations had the transactions been completed at the beginning of the respective periods or indicative of the results which may occur in the future. In June 1996, the Company acquired certain equipment and the right to fulfill a contract to provide expedited truckload services in the Western United States to a major air freight company from Michael Lima Transportation for $3,048,000 cash and a $792,000 note payable. In addition, $1,000,000 will be paid to the seller if the Company is able to extend the contract. The pro forma effect of this transaction on prior period financial statements is immaterial. Subsequent to March 31, 1997, the Company acquired eight distribution centers and certain equipment from Rosedale Transport, Inc. and acquired JTI, Inc. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated. Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents. Cash and cash equivalents include all highly liquid investment instruments with an original maturity of three months or less. F-7 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Recognition of Revenue. For financial reporting purposes, the Company recognizes revenue and direct cost when shipments are completed. Concentration of Credit Risk. Concentrations of credit risk with respect to customer receivables are limited due to the large number of entities comprising the Company's customer base and their dispersion across many different industries. The Company performs ongoing credit evaluations and generally does not require collateral. Operating and Installation Supplies. Operating supplies consist primarily of tires, parts, materials and supplies for servicing the Company's revenue and service equipment. Installation supplies consist of various accessories used in the installation of floorcoverings and are held for sale at various CSI/Crown distribution centers. Operating and installation supplies are recorded at the lower of cost (on a first-in, first-out basis) or market. Tires and tubes purchased as part of revenue and service equipment are capitalized as part of the cost of the equipment. Replacement tires and tubes are charged to expense when placed in service. Property and Equipment. Property and equipment is carried at cost. Depreciation and amortization of property and equipment are computed using the straight-line method for financial reporting purposes and accelerated methods for tax purposes over the estimated useful lives of the related assets (net of salvage value) as follows: Buildings..................................................... 10-30 years Revenue and service equipment................................. 3-7 years Furniture and equipment....................................... 3-7 years Leasehold improvements........................................ 5-6 years
The Company recognized $14,813,000, $16,066,000 and $13,837,000 in depreciation expense during the years ended March 31, 1995, 1996 and 1997, respectively. Upon the retirement of property and equipment, the related asset cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the Company's statement of operations with the exception of gains on trade-ins, which are included in the basis of the new asset. Expenditures for normal maintenance and repairs are expensed. Renewals or betterments that affect the nature of an asset or increase its useful life are capitalized. Goodwill. The excess of the consideration paid by the Company over the estimated fair value of net assets acquired has been recorded as goodwill and is being amortized on the straight-line basis over periods ranging from 20 to 40 years. The Company continually evaluates whether subsequent events and circumstances have occurred that indicate that the remaining estimated useful life of goodwill may warrant revision or that the remaining balance may not be recoverable. The Company recognized $204,000, $220,000 and $272,000 of goodwill amortization expense during the years ended March 31, 1995, 1996 and 1997, respectively. Accumulated amortization was $756,000 and $1,028,000 at March 31, 1996 and 1997, respectively. Claims and Insurance Accruals. The primary claims in the Company's business are cargo loss and damage, physical damage and automobile liability. Prior to January 1, 1997, most of the Company's insurance provided for large self- insurance levels with excess coverage sufficient to protect the Company from catastrophic claims. Beginning January 1997, the Company began purchasing policies with low deductibles which essentially fully insure cargo and auto liability, while physical damage has an annual aggregate deductible. For claims with self-insurance levels, estimated costs are accrued based upon F-8 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) information provided by insurance adjustors for reported claims and adjusted for expected loss development factors. Other Long-Term Liabilities. Periodically, the Company receives volume rebates from vendors related to certain operating leases for new revenue and service equipment. Additionally, certain equipment leases include spare tires, which increase tire inventories. The Company defers recognition of these rebates and amortizes such amounts as a reduction of vehicle rent expense over the respective lease terms. At March 31, 1996 and 1997, other long-term liabilities include deferred rents of $1,802,000 and $1,295,000, respectively. Income Taxes. Deferred tax assets and liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period. Contract Wages. Prior to August 1996, the Company leased a substantial portion of its personnel, including drivers, from an independent personnel leasing company. Under the lease agreements, the Company paid a contracted amount per person and the personnel leasing company had the responsibility for payroll, unemployment insurance and workers' compensation claims. In August 1996, the lease agreements with the independent personnel leasing company were terminated and the personnel previously leased under these agreements became employees of the Company. Effective January 1, 1997, the Company entered into an agreement with a Professional Employer Organization (PEO) in which the PEO is a co-employer with the Company for all of the Company's personnel. The PEO is responsible for processing and administration of the Company's payroll, including tax reporting, and provides group health benefits and worker's compensation coverage. Hedging Instruments. For a small percentage of the Company's fuel requirements, the Company hedges the effects of fluctuations in the price of fuel. The resulting gains or losses are accounted for as a decrease or increase in fuel expense. The impact of the Company's hedging program is not significant in relation to total fuel purchases. Earnings Per Share. Earnings per share is computed based on the weighted average number of common shares outstanding plus the dilutive effect of outstanding common stock options. The weighted average number of shares and equivalents used in the computation were 10,806,336, 12,002,754 and 12,167,890 for fiscal 1995, 1996 and 1997, respectively. Reclassifications. Certain reclassifications have been made in the fiscal 1995 and 1996 financial statements to conform with the 1997 presentation. Stock-Based Compensation. The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). Effective fiscal 1997, the Company adopted the disclosure option of SFAS No. 123, "Accounting for Stock-Based Compensation." Recent Accounting Pronouncements. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 changes the criteria for reporting earnings per share ("EPS") by replacing primary EPS with basic EPS and fully diluted EPS with diluted EPS. The Company is required to adopt SFAS 128 for periods ending after December 15, 1997, and all prior period EPS data must be restated. The impact of adopting SFAS 128 will not have a material impact on EPS for any period presented. F-9 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. INCOME TAXES The income tax provision (benefit) in fiscal 1995, 1996 and 1997 consisted of the following:
1995 1996 1997 ------ ------- ------ (IN THOUSANDS) Current Federal............................................. $2,989 $(2,876) $2,726 State............................................... 352 120 529 ------ ------- ------ 3,341 (2,756) 3,255 Deferred.............................................. 1,953 2,737 3,103 ------ ------- ------ $5,294 $ (19) $6,358 ====== ======= ======
The income tax provision (benefit) as reported in the consolidated statements of operations differs from the amounts computed by applying federal statutory rates due to the following:
1995 1996 1997 ------ ----- ------ (IN THOUSANDS) Federal income tax at statutory rate.................. $4,609 $ 25 $4,840 State income taxes, net of federal income tax bene- fit.................................................. 419 73 349 Goodwill amortization................................. 78 75 75 Nondeductible driver per diems........................ -- -- 650 Other................................................. 188 (192) 444 ------ ----- ------ Income tax provision (benefit)........................ $5,294 $ (19) $6,358 ====== ===== ======
The tax effect of temporary differences that give rise to significant portions of deferred tax assets and liabilities at March 31, 1996 and 1997 consisted of the following:
1996 1997 ------- ------- (IN THOUSANDS) Deferred tax assets Allowance for doubtful accounts............................ $ 1,133 $ 952 Insurance reserves......................................... 3,743 3,721 Net operating loss carryforwards........................... 6,117 -- Alternative minimum tax credit carryforwards............... 2,883 2,362 Claims and other reserves.................................. 694 826 Other...................................................... 84 284 ------- ------- Total deferred tax assets................................. $14,654 $ 8,145 ======= ======= Deferred tax liabilities Book over tax basis of property and equipment.............. $20,376 $16,880 Prepaid license fees....................................... 1,248 1,279 Other...................................................... 27 86 ------- ------- Total deferred tax liabilities............................ $21,651 $18,245 ======= =======
F-10 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. LONG-TERM DEBT Long-term debt at March 31, 1996 and 1997 consisted of the following:
1996 1997 -------- -------- (IN THOUSANDS) Obligation under line of credit with a group of banks, weighted average interest rate of 6.77% at March 31, 1997, maturing August 1998............................... $ 31,500 $ 32,500 Installment notes with banks, weighted average interest rate of 7.19% at March 31, 1997, maturing at various dates ranging from November 1997 to December 2002........ 23,160 14,673 Installment notes with finance companies, weighted average interest rate of 7.73% at March 31, 1997, maturing at various dates ranging from May 1997 to December 1998..... 20,055 23,598 Note payable to former stockholder of National Freight Systems, interest payable at 7% at March 31, 1997, due in annual installments through October 1997................. 400 200 Note payable to stockholder of Lima Transportation, Inc., interest payable at 9%, due July 1998.................... -- 792 Other..................................................... 503 563 -------- -------- $ 75,618 $ 72,326 Less: current maturities of long-term debt................ (13,829) (13,008) -------- -------- $ 61,789 $ 59,318 ======== ========
The aggregate annual maturities of long-term debt for each of the next five years ending March 31 are:
(IN THOUSANDS) 1998...................................................... $ 13,008 1999...................................................... 50,079 2000...................................................... 5,465 2001...................................................... 768 2002...................................................... 1,592
The installment notes with banks and finance companies are collateralized by certain property and equipment of the Company. In November 1995, the Company entered into an unsecured credit agreement (the "Credit Agreement") with a group of banks. The Credit Agreement operates as a revolving credit facility until August 1998, at which time it will convert to a three year installment loan, if not extended or renewed. Borrowings (including letters of credit) under the Credit Agreement are limited to the lesser of: (a) 90% of the book value of eligible revenue equipment plus 85% of eligible accounts receivable; or (b) $50,000,000. Borrowings under the Credit Agreement bear interest rates, at the option of the Company, equal to either: (i) the greater of the bank prime rate or the federal funds rate plus 1/2%, (ii) the rate offered in the Eurodollar market for amounts and periods comparable to the relevant loan plus a margin that is determined by several financial covenants, or (iii) the rate offered to the Company for a loan of a specific amount and maturity by any of the participating banks under a competitive bid process. At March 31, 1997, the margin applicable to the Eurodollar interest rate was equal to 1.25%. F-11 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Credit Agreement contains covenants that limit, among other things, the payment of dividends, the incurrence of additional debt, and the pledging of assets as security on other indebtedness. The Credit Agreement also requires the Company to meet certain financial tests, including a minimum amount of tangible net worth, a minimum fixed charge coverage and a maximum amount of leverage. 6. LEASES The Company leases certain revenue and service equipment and office and terminal facilities under long-term non-cancelable operating lease agreements expiring at various dates through December 2002. For the years ended March 31, 1995, 1996 and 1997, rental expense under these agreements was approximately $17,092,000, $19,437,000 and, $26,388,000 respectively. Approximate aggregate minimum future rentals payable under these operating leases for each of the next five years are:
(IN THOUSANDS) 1998....................................................... $30,481 1999....................................................... 27,774 2000....................................................... 15,010 2001....................................................... 4,751 2002....................................................... 686
7. RELATED PARTY TRANSACTIONS The Company leases certain office and terminal facilities from entities owned by the two principal stockholders of the Company. The lease agreements are for five-year terms and provide the Company with the option to renew the lease agreements for four three-year terms. Rent expense of approximately $1,210,000, $1,256,000 and $1,639,000 was recognized in connection with these leases during the years ended March 31, 1995, 1996 and 1997, respectively. The two principal stockholders of the Company own 100% of the outstanding common stock of Paragon Leasing LLC ("Paragon"). Paragon leases certain revenue and service equipment to the Company on a temporary basis. Rent expense of approximately $1,181,000, $1,028,000, and $869,000 was recognized in connection with these leases during the years ended March 31, 1995, 1996 and 1997, respectively. Prior to December 31, 1995, a principal stockholder of the Company directly controlled 50% of the outstanding stock of LTL Express Systems. During the years ended March 31, 1995 and 1996, the Company recognized operating revenue from LTL Express Systems of approximately $897,000 and $427,000, respectively. The principal stockholder disposed of his interest in LTL Express Systems effective December 31, 1995. The two principal stockholders of the Company and certain partnerships controlled by their families own 43% of the outstanding common stock of Transcom Technologies, Inc. ("Transcom"). Transcom makes a debit card system available to the Company's drivers through which phone calls and Internet e-mail can be credited while the driver is on the road. Total payments by the Company to Transcom were approximately $87,000, $148,000 and $143,000 in the years ended March 31, 1995, 1996 and 1997, respectively. F-12 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. COMMITMENTS AND CONTINGENCIES The Company is party to certain legal proceedings incidental to its business. The ultimate disposition of these matters, in the opinion of management, based in part on the advice of legal counsel, will not have a material adverse effect on the Company's financial position or results of operations. Letters of credit of $3,055,000 were outstanding at March 31, 1997. The letters of credit are maintained primarily to support the Company's insurance program (see Note 3). Commitment fees of 1% on the outstanding portion of the letters of credit are paid by the Company. 9. EMPLOYEE BENEFIT PLANS The Company has in place an employee profit-sharing plan covering substantially all non-driver employees. The plan provides for additional compensation to employees, the amount of which is based on results of operations exceeding certain goals. The Company has a 401(k) retirement plan covering substantially all employees of the Company, whereby participants may contribute a percentage of their compensation, as allowed under applicable laws. The plan provides for a matching contribution by the Company. Participants are 100% vested in participant contributions and become vested in employer matching contributions over a period of four years. During 1995, 1996 and 1997, the Company recognized $2,827,000, $290,000 and $400,000, respectively, of expense under these employee benefit plans. 10. STOCKHOLDERS' EQUITY Initial Public Offering. In October 1994, the Company completed its initial public offering through the issuance of 2,500,000 shares of Class A Common Stock. As a result of this offering, the Company received proceeds, net of underwriting discounts and commissions and issuance costs, of $31,588,000. The Company utilized the net proceeds to reduce outstanding debt and acquire certain equipment previously leased under operating leases. Common Stock Holders of Class A. Common Stock are entitled to one vote per share. Holders of Class B Common Stock are entitled to two votes per share. Once the Class B Common Stock is no longer held by the two principal stockholders of the Company, or their families, as defined, the stock is automatically converted into Class A Common Stock on a share per share basis. Preferred Stock. Effective December 31, 1993, the Board of Directors approved the designation of 2,000,000 shares of preferred stock with par value of $.01 per share. The Board of Directors has the authority to issue these shares and to determine the rights, terms and conditions of the preferred stock as needed. Incentive Stock Plan. In November 1993, the Company adopted the U.S. Xpress Enterprises, Inc. Incentive Stock Plan (the "Plan"). The Plan provides for the issuance of shares of restricted common stock of the Company, as well as both incentive and nonstatutory stock options. There may be issued under the Plan (as restricted stock, in payment of performance grants, or pursuant to the exercise of stock options) an aggregate of not more than the greater of (a) 1,038,138 shares of Class A Common Stock, or (b) 8% of the total number of common shares of the Company outstanding at any given time. Participants of the Plan may include key employees as selected by the compensation committee of the Board of Directors. Under the terms of the Plan, the Company may sell restricted shares of common stock, grant options, or F-13 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) issue performance grants to participants in amounts and for such prices as determined by the compensation committee. All options will vest immediately in the event of a change in control of the Company, or the death, disability, or retirement of the employee. On November 30, 1993, 289,195 shares of restricted stock were sold to employees at $4.72 per share, which approximated the fair market value of the shares at the date of sale. Employees issued recourse notes payable to the Company in the aggregate amount of $1,365,000 as proceeds for the issuance of the restricted shares. The notes bear interest at 6% and are due in three equal annual installments beginning November 30, 1999. The restricted stock may not be sold, assigned, transferred, pledged or otherwise disposed of during the restriction period. In fiscal 1995, the board authorized, upon the completion of the initial public offering, the removal of the restrictions on 91,800 shares scheduled to expire on November 30, 1996. In exchange for the removal of restrictions on these shares, the affected employees repaid an aggregate of $837,800 of the related notes receivable. During each of the years ended March 31, 1997, 1996 and 1995, 18,390 shares of restricted stock were forfeited, and related notes receivable of $44,900 were canceled in each year. At March 31, 1997, 91,750 shares of restricted stock were outstanding. The restrictions expire on November 30, 1997 and 1998. Restrictions also expire in the event of a change in control of the Company or upon the death, disability or retirement of the employee. Non-Employee Directors Stock Plan. In August 1995, the Company adopted the 1995 Non-Employee Directors Stock Award and Option Plan (the "Directors Stock Plan") providing for the issuance of stock options to non- employee directors upon their election to the Company's Board of Directors. The Directors Stock Plan also provides non-employee directors the option to receive certain board- related compensation in the form of stock. The number of shares of Class A Common Stock available for option or issue under the Directors Stock Plan may not exceed 50,000 shares. The Directors Stock Plan provides for grant of 1,200 options to purchase the Company's Class A Common Stock to each non-employee director upon the election of each such director to the Board. The exercise price of options issued under the plan is set at the fair market value of the Company's stock on the date granted. Options vest at the rate of 400 options on each of the first, second and third anniversaries of the date of grant. In August 1996 and 1995, 2,400 options were granted to non-employee directors with an exercise price of $6.625 and $9.50, respectively. The Directors Stock Plan also provides non-employee directors the option to receive compensation earned for board-related activities in the form of the Company's Class A Common Stock in lieu of cash. If a board member elects to receive board-related compensation in the form of stock, the number of shares issued to each director in lieu of cash is determined based on the amount of earned compensation divided by the fair market value of the Company's stock on the date compensation is earned. During the years ended March 31, 1997 and 1996, 2,542 and 1,744 shares, respectively, of the Company's Class A Common Stock were issued to non-employee directors in lieu of cash compensation of $18,000 and $16,000, respectively, for each of those years. Accounting for Stock-Based Compensation. The Company accounts for its stock- based compensation under APB No. 25, under which no compensation expense has been recognized for stock options granted with exercise prices equal to the fair value of the Company's common stock on the date of grant. The Company adopted SFAS No. 123 for disclosure purposes only in fiscal 1997. For SFAS No. 123 purposes, the fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for 1996 and 1997, F-14 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) respectively: risk-free interest rate of 6.24% and 6.56%, expected life of five years, expected dividend yield of 0% and expected volatility of 58% for 1996 and 1997. Using these assumptions, the fair value of the stock options granted in 1996 and 1997 is $9,000 and $294,000, respectively, which would be amortized as compensation expense over the vesting period of the options. Had compensation cost for the plan been determined in accordance with SFAS No. 123, utilizing the assumptions detailed above, the Company's pro forma net income would have been $93,000 and $7,816,000 for the years ended March 31, 1996 and 1997, respectively. Pro forma net income per share would have been $.01 and $.64 for the years ended March 31, 1996 and 1997, respectively. The pro forma effect on net income in this pro forma disclosure may not be representative of the pro forma effect on net income in future years, because it does not take into consideration pro forma compensation expense related to grants made prior to fiscal 1996. A summary of the Company's stock option activity for 1995, 1996 and 1997 follows:
WEIGHTED-AVERAGE SHARES OPTION PRICE EXERCISE PRICE ------- ------------ ---------------- Outstanding at March 31, 1995......... 165,064 $ 4.72 $4.72 Granted at market price.............. 2,400 $ 9.50 $9.50 ------- Outstanding at March 31, 1996......... 167,464 $4.72-$9.50 $4.79 Granted at market price.............. 99,400 $6.63-$6.80 $6.87 Exercised............................ (27,008) $ 4.72 $4.72 Canceled or expired.................. (40,514) $4.72-$9.50 $5.12 ------- Outstanding at March 31, 1997......... 199,342 $4.72-$9.50 $5.77 =======
There was no option activity in fiscal 1995. The weighted-average fair value of options granted during 1996 and 1997 was $5.35 and $3.89, respectively. Shares subject to options outstanding at March 31, 1997 have a weighted-average remaining contractual life of 8.38 years. Of the options outstanding at March 31, 1997, 73,050 are currently exercisable with a weighted-average exercise price of $5.66 per share. As of March 31, 1996, 33,412 of the options outstanding were exercisable with a weighted average exercise price of $4.78 per share. No options were exercisable at March 31, 1995. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values of cash and cash equivalents, customer and other receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short maturity of these financial instruments. Based on the borrowing rates available to the Company for long- term debt with similar terms and average maturities, the carrying amounts approximate the fair value of such financial instruments. F-15 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 12. QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH FULL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- ------- -------- (IN THOUSANDS, EXCEPT SHARE AMOUNTS) Fiscal 1996 Operating revenue................. $65,031 $71,744 $81,807 $81,115 $299,697 Income from operations............ 1,055 1,780 2,168 248 5,251 Income (loss) before income tax provision........................ (203) 571 906 (1,199) 75 Net income (loss)................. (88) 351 551 (720) 94 Earnings (loss) per share......... $ (0.01) $ 0.03 $ 0.05 $ (0.06) $ 0.01 Fiscal 1997 Operating revenue................. $87,817 $92,259 $91,179 $91,564 $362,819 Income from operations............ 2,241 6,026 6,473 4,976 19,716 Income before income tax provision........................ 896 4,611 5,120 3,609 14,236 Net income........................ 552 2,745 2,411 2,170 7,878 Earnings per share(1)............. $ 0.05 $ 0.23 $ 0.20 $ 0.18 $ 0.65
- -------- (1) The sum of quarterly earnings per share amounts differs from annual earnings per share because of differences in the weighted average number of common shares used in the quarterly and annual computations. F-16 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR- MATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CON- NECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR SINCE THE DATES AS OF WHICH INFORMATION IS SET FORTH HEREIN. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. ----------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 6 Use of Proceeds.......................................................... 10 Price Range of Common Stock.............................................. 10 Capitalization........................................................... 11 Dividend Policy.......................................................... 11 Selected Consolidated Financial Data..................................... 12 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 13 Industry Overview........................................................ 18 Business................................................................. 19 Management............................................................... 26 Certain Relationships and Transactions................................... 32 Principal and Selling Stockholders....................................... 33 Description of Capital Stock............................................. 34 Shares Eligible for Future Sale.......................................... 37 Underwriting............................................................. 38 Legal Matters............................................................ 39 Experts.................................................................. 39 Index to Consolidated Financial Statements............................... F-1
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3,400,000 Shares U.S. XPRESS ENTERPRISES, INC. Class A Common Stock ------------ PROSPECTUS ------------ Alex. Brown & Sons INCORPORATED Morgan Stanley Dean Witter Morgan Keegan & Company, Inc. Schroder & Co. Inc. , 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Set forth below is an itemized statement of all expenses to be incurred by the Company in connection with the sale and distribution of the securities being registered by this Registration Statement, other than the underwriting discount. All amounts are estimated except the SEC registration fee, the NASD filing fee and the NASDAQ listing fee. SEC registration fee............................................... $ 21,991 NASD filing fee.................................................... 7,757 NASDAQ listing fee................................................. 17,500 Accounting fees and expenses....................................... 45,000 Legal fees and expenses............................................ 75,000 Printing........................................................... 80,000 Registrar and transfer agent fees.................................. 2,500 Miscellaneous...................................................... 252 -------- Total............................................................ $250,000 ========
The Company will bear the expenses shown above. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article 12 of the Company's Restated Articles of Incorporation ("Restated Articles") provides as follows: To the fullest extent permitted by the Nevada General Corporation Law, as the same exists or may hereafter be amended, a director or officer of this corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of his or her fiduciary duty as a director or officer. To the fullest extent permitted by the Nevada General Corporation Law, as the same exists or may hereafter be amended, the corporation shall indemnify any person who is made or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal, by reason of the fact that such person is or was a director or officer of the corporation or of any of its subsidiaries, or is or was serving at the direction of the corporation in any such capacity with any other entity whatsoever. The requirement that the corporation shall provide indemnification pursuant to this Article 12 shall not preclude any other or additional provision of indemnification, whether provided by law, by insurance, by agreement between this corporation and the parties to be indemnified or otherwise. In addition to the rights of indemnification granted herein, this corporation shall, to the fullest extent now or hereafter permitted by the Nevada General Corporation Law, provide for the advancement of expenses as they are incurred by any director or officer of the corporation in the defense of any proceeding of the type described above, in advance of the final disposition of such proceeding. Article 11 of the Company's Bylaws provides as follows: "[a]ny director or officer, or the executor or administrator of any director or officer, is entitled to indemnification to the fullest extent permissible under the laws of this state." The Underwriting Agreement between the Registrant, the Selling Stockholders and the Underwriters named therein contains provisions pursuant to which the Underwriters, under certain specified circumstances, have agreed to indemnify the officers and directors of the Company. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. None. II-1 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. a. Exhibits
NUMBER DESCRIPTION ------ ----------------------------------------------------------------------- *1 Form of Underwriting Agreement. 3.1 Restated Articles of Incorporation of the Company.(1) 3.2 By-Laws of the Company.(1) 4.1 Stock Purchase Agreement dated June 10, 1993 by and among Max L. Fuller, Patrick E. Quinn, and the Company.(1) 4.2 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) *5 Opinion, including consent of Miller & Martin, counsel to the Company, as to the legality of the securities being registered. 10.1 Accounts Financing Agreement (Security Agreement) dated February 2, 1988, as amended, between Congressional 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.(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)
II-2
NUMBER DESCRIPTION ------ ----------------------------------------------------------------------- 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.(1) 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.(2) 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.(3) 10.21 Asset Purchase Agreement with respect to acquisition of CSI/Reeves, Inc.(4) 10.22 Stock Purchase Agreement with respect to Hall Systems, Inc.(5) 10.23 Credit Agreement with NationsBank.(5) 10.24 Amendment No. 1 to Credit Agreement with NationsBank.(6) 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.(7) *10.28 Loan and Security Agreement dated June 24, 1997 by and between Wachovia Bank, N.A. and U.S. Xpress Leasing, Inc. 22 List of the current subsidiaries of the Company.(7) *23.1 Consent of Miller & Martin (included in their opinion filed as Exhibit 5 to this Registration Statement). *23.2 Consent of Arthur Andersen LLP, independent certified public accountants.
- -------- * Filed herewith (1) Filed as an exhibit to Registration Statement on Form S-1 dated May 20, 1994 (SEC File No. 33-79208) and incorporated herein by reference. (2) Filed as an exhibit to Pre-Effective Amendment No. 2 to Registration Statement on Form S-1 dated October 4, 1994 (SEC File No. 33-79208) and incorporated herein by reference. (3) Filed as an exhibit to Quarterly Report on Form 10-Q for quarter ended September 30, 1994 and incorporated herein by reference. (4) Filed as an exhibit to Quarterly Report on Form 10-Q for quarter ended September 30, 1995 and incorporated herein by reference. (5) Filed as an exhibit to Quarterly Report on Form 10-Q for quarter ended December 31, 1995 and incorporated herein by reference. (6) Filed as an exhibit to Quarterly Report on Form 10-Q for quarter ended September 30, 1996 and incorporated herein by reference. (7) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended March 31, 1997 and incorporated herein by reference. II-3 b. Financial Statement Schedules Report of Independent Public Accountants on Financial Statement Schedules........................................................... S-1 Schedule II -- Valuation and Qualifying Accounts..................... S-2
All other schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the provisions set forth in Item 14, or otherwise, the Company has been advised in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and the Company will be governed by the final adjudication of such issue. The Company hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. POWER OF ATTORNEY The Company and each person whose signature appears below hereby appoints Max L. Fuller, Patrick E. Quinn and Ray M. Harlin, and each of them, as attorneys-in-fact with full power of substitution, to execute in their respective names and on behalf of the Company and each such person, individually and in each capacity stated below, any and all amendments (including post-effective amendments) to this registration statement as the attorney-in-fact and to file any such amendment to the registration statement with the Securities and Exchange Commission, granting unto said attorneys-in- fact and their substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and their substitutes may lawfully do or cause to be done by virtue hereof. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHATTANOOGA, STATE OF TENNESSEE ON JULY 10, 1997. U.S. XPRESS ENTERPRISES, INC. By: /s/ Patrick E. Quinn ------------------------------ Patrick E. Quinn, President and Co-Chairman of the Board PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURES TITLE DATE /s/ Max L. Fuller Co-Chairman of the July 10, 1997 - ---------------------------- Board; Director MAX L. FULLER (principal executive officer) /s/ Patrick E. Quinn Co-Chairman of the July 10, 1997 - ---------------------------- Board; President and PATRICK E. QUINN Treasurer; Director (principal executive officer) /s/ Ray M. Harlin Chief Financial Officer; July 10, 1997 - ---------------------------- (principal financial and RAY M. HARLIN accounting officer) /s/ E. William Lusk, Jr. Executive Vice President July 10, 1997 - ---------------------------- of Marketing; Director E. WILLIAM LUSK, JR. /s/ William K. Farris Executive Vice President July 10, 1997 - ---------------------------- of Operations; Director WILLIAM K. FARRIS /s/ James B. Baker Director July 10, 1997 - ---------------------------- JAMES B. BAKER /s/ A. Alexander Taylor, II Director July 10, 1997 - ---------------------------- A. ALEXANDER TAYLOR, II II-5 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of U.S. Xpress Enterprises, Inc. We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of U.S. XPRESS ENTERPRISES, INC. (a Nevada corporation) AND SUBSIDIARIES in this Form 10-K and have issued our report thereon dated May 7, 1997. Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. Schedule II is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ Arthur Andersen LLP _____________________________________ Arthur Andersen LLP Chattanooga, Tennessee May 7, 1997 S-1 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997 (IN THOUSANDS)
BALANCE AT BEGINNING CHARGED TO CHARGED TO BALANCE AT DESCRIPTION OF PERIOD COST/EXPENSES OTHER (1) DEDUCTIONS (2) END OF PERIOD ----------- ---------- ------------- ---------- -------------- ------------- FOR THE YEAR ENDED 3/31/95 Reserve for doubtful accounts.............. $1,212 $ 543 $ 181 $ 306 $1,630 FOR THE YEAR ENDED 3/31/96 Reserve for doubtful accounts.............. $1,630 $ 784 $1,036 $ 417 $3,033 FOR THE YEAR ENDED 3/31/97 Reserve for doubtful accounts.............. $3,033 $1,259 $ 113 $1,672 $2,733
(1)For the year ended 3/31/95 Recoveries on accounts written off............................... $ 181 ------ For the year ended 3/31/96 Recoveries on accounts written off............................... $ 25 Balance acquired through purchase of CSI/Reeves.................. 886 Balance acquired through purchase of Hall Systems................ 125 ------ 1,036 For the year ended 3/31/97 Recoveries on accounts written off............................... $ 113 ------ (2)Accounts written off
S-2 EX-1 2 FORM OF UNDERWRITING AGREEMENT EXHIBIT 1 3,400,000 Shares U.S. XPRESS ENTERPRISES, INC. Class A Common Stock UNDERWRITING AGREEMENT ---------------------- ___________, 1997 ALEX. BROWN & SONS INCORPORATED MORGAN STANLEY & CO. INCORPORATED MORGAN KEEGAN & COMPANY, INC. SCHRODER & CO. INC. As Representatives of the Several Underwriters c/o Alex. Brown & Sons Incorporated One South Street Baltimore, Maryland 21202 Ladies and Gentlemen: U.S. Xpress Enterprises, Inc., a Nevada corporation (the "Company"), and certain shareholders of the Company (the "Selling Stockholders") propose to sell to the several underwriters (the "Underwriters") named in Schedule I hereto for whom you are acting as representatives (the "Representatives") an aggregate of 3,400,000 shares of the Company's Class A Common Stock, $.01 par value (the "Firm Shares"), of which 2,500,000 shares will be sold by the Company and 900,000 shares will be sold by the Selling Stockholders. The respective amounts of the Firm Shares to be so purchased by the several Underwriters are set forth opposite their names in Schedule I hereto, and the respective amounts to be sold by the Selling Stockholders are set forth opposite their names in Schedule II hereto. The Company and the Selling Stockholders are sometimes referred to herein collectively as the "Sellers." The Company and certain Selling Stockholders also propose to sell at the Underwriters' option an aggregate of up to 510,000 additional shares of the Company's Class A Common Stock (the "Option Shares") as set forth below. -1- As the Representatives, you have advised the Company and the Selling Stockholders (a) that you are authorized to enter into this Agreement on behalf of the several Underwriters and (b) that the several Underwriters are willing, acting severally and not jointly, to purchase the numbers of Firm Shares set forth opposite their respective names in Schedule I, plus their pro rata portion of the Option Shares if you elect to exercise the over-allotment option in whole or in part for the accounts of the several Underwriters. The Firm Shares and the Option Shares (to the extent the aforementioned option is exercised) are herein collectively called the "Shares." In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto agree as follows: 1. Representations and Warranties of the Company and the Selling ------------------------------------------------------------- Stockholders. ------------ (a) The Company represents and warrants to each of the Underwriters as follows: (i) A registration statement on Form S-1 (File No. 33-_______) with respect to the Shares has been carefully prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended, (the "Act") and the Rules and Regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and has been filed with the Commission. Copies of such registration statement, including any amendments thereto, the preliminary prospectuses (meeting the requirements of the Rules and Regulations) contained therein and the exhibits, financial statements and schedules, as finally amended and revised, have heretofore been delivered by the Company to you. Such registration statement, together with any registration statement filed by the Company pursuant to Rule 462(b) of the Act, herein referred to as the "Registration Statement," which shall be deemed to include all information omitted therefrom in reliance upon Rule 430A and contained in the Prospectus referred to below, has become effective under the Act and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. "Prospectus" means (a) the form of prospectus first filed by the Company with the Commission pursuant to its Rule 424(b) (b) the last preliminary prospectus included in the Registration Statement filed prior to the time it becomes effective or filed pursuant to Rule 424(a) under the Act that is delivered by the Company to the Underwriters for delivery to purchasers of the Shares, together with the term sheet or abbreviated term sheet filed with the Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus included in the Registration Statement prior to the time it becomes effective is herein referred to as a "Preliminary Prospectus." (ii) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Nevada, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement. Each of the subsidiaries of the Company, as listed in Exhibit 22 to Item 16(a) of the Registration Statement, or incorporated therein by reference (collectively, the "Subsidiaries"), has been duly organized and is validly existing as a corporation in good standing under the laws of -2- the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement. The Company and each of the Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification and a failure to qualify would have a materially adverse effect upon the business or financial condition of the Company and the Subsidiaries taken as a whole. The outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and are owned by the Company free and clear of all liens, encumbrances and equities and claims; and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into shares of capital stock or ownership interests in the Subsidiaries are outstanding. (iii) The outstanding shares of Common Stock of the Company, including all shares to be sold by the Selling Stockholders, have been duly authorized and validly issued and are fully paid and non-assessable; the Shares to be issued and sold by the Company have been duly authorized and when issued and paid for as contemplated herein will be validly issued, fully-paid and non-assessable; and no preemptive rights of stockholders exist with respect to any of the Shares or the issue and sale thereof. Neither the filing of the Registration Statement nor the offering or sale of the Shares as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration of any shares of Common Stock. (iv) The information set forth under the caption "Capitalization" in the Prospectus is true and correct. All of the Shares conform to the description thereof contained in the Registration Statement. The form of certificates for the Shares conforms to the corporate law of the State of Nevada. (v) The Commission has not issued an order preventing or suspending the use of any Prospectus relating to the proposed offering of the Shares nor instituted proceedings of which the Company has been made aware for that purpose. The Registration Statement contains and the Prospectus and any amendments or supplements thereto will contain, all statements which are required to be stated therein by, and in all respects conform or will conform, as the case may be, to the requirements of the Act and the Rules and Regulations. Neither the Registration Statement nor any amendment thereto, and neither the Prospectus nor any amendment or supplement thereto, contains or will contain, as the case may be, any untrue statement of a material fact or omits or will omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from the Registration Statement or the Prospectus, or any such amendment or supplement, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter through the Representatives, specifically for use in the preparation thereof. -3- (vi) The consolidated financial statements of the Company and the Subsidiaries, together with related notes and schedules as set forth in the Registration Statement, present fairly in all material respects the financial position and the results of operations and cash flows of the Company and the consolidated Subsidiaries, at the indicated dates and for the indicated periods. Such financial statements and related schedules have been prepared in accordance with generally accepted principles of accounting, consistently applied throughout the periods involved, and all adjustments necessary for a fair presentation of results for such periods have been made. The selected and summary financial and statistical data included in the Registration Statement presents fairly the information shown therein and has been compiled on a basis consistent with the financial statements presented therein and the books and records of the Company. (vii) Arthur Andersen LLP, which have certified certain of the financial statements filed with the Commission as part of the Registration Statement, have certified to the Company that they are independent public accountants as required by the Act and the Rules and Regulations. (viii) There is no action, suit, claim or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries before any court or administrative agency or otherwise which if determined adversely to the Company or any of its Subsidiaries might result in any material adverse change in the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and of the Subsidiaries taken as a whole or to prevent the consummation of the transactions contemplated hereby, except as set forth in the Registration Statement. (ix) The Company and the Subsidiaries have good and marketable title to all of the properties and assets reflected as being owned by them in the financial statements (or as described in the Registration Statement) hereinabove described, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those reflected in such financial statements (or as described in the Registration Statement) or which are not material in amount or for taxes not yet due and payable. The Company and the Subsidiaries occupy their leased properties under valid and binding leases conforming in all material respects to the description thereof set forth in the Registration Statement. (x) The Company and the Subsidiaries have filed all Federal, State and foreign income tax returns which have been required to be filed and have paid all taxes indicated by said returns and all assessments received by them or any of them to the extent that such taxes have become due and are not being contested in good faith. (xi) Since the respective dates as of which information is given in the Registration Statement, as it may be amended or supplemented, there has not been any material adverse change or any development which could reasonably be expected to involve a prospective -4- material adverse change in or affecting the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise), or prospects of the Company and its Subsidiaries taken as a whole, whether or not occurring in the ordinary course of business, and there has not been any material transaction entered into or any material transaction that is probable of being entered into by the Company or the Subsidiaries, other than transactions in the ordinary course of business and changes and transactions contemplated by the Registration Statement, as it may be amended or supplemented. The Company and the Subsidiaries have no material contingent obligations which are not disclosed in the Registration Statement or the financial statements included therein, as it may be amended or supplemented. (xii) Neither the Company nor any of the Subsidiaries is in default under its Articles of Incorporation or By-Laws or under any agreement, lease, contract, indenture or other instrument or obligation to which it is a party or by which it, or any of its properties, is bound and which default is of material significance in respect of the business or financial condition of the Company and the Subsidiaries, taken as a whole or the business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole. The execution and delivery of this Agreement and the consummation of the transactions herein contemplated and the fulfillment of the terms hereof will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any material indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any Subsidiary is a party, or of the Articles of Incorporation or By-Laws of the Company or any order, rule or regulation applicable to the Company or any Subsidiary of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction. (xiii) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated (except such additional steps as may be required by the National Association of Securities Dealers, Inc. (the "NASD") or may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws) has been obtained or made and is in full force and effect. (xiv) The Company and each of the Subsidiaries holds all material licenses, certificates and permits from governmental authorities which are necessary to the conduct of their businesses; and neither the Company nor any of the Subsidiaries has infringed any patents, patent rights, trade names, trademarks or copyrights, which infringement is material to the business of the Company and the Subsidiaries taken as a whole. The Company knows of no material infringement by others of patents, patent rights, trade names, trademarks or copyrights owned by or licensed to the Company. -5- (xv) To the best of the Company's knowledge, there are no affiliations or associations between any member of the National Association of Securities Dealers, Inc. and any of the Company's officers, directors or 5% or greater security holders, except as set forth in the Registration Statement or as otherwise disclosed in writing to the Representatives. (xvi) Neither the Company, nor to the Company's best knowledge, any of its affiliates, has taken or will take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Common Stock to facilitate the sale or resale of the Shares. (xvii) Neither the Company nor any Subsidiary is an "investment company" within the meaning of such term under the 1940 Act and the rules and regulations of the Commission thereunder. (xiii) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (xix) The Company and each of its Subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar industries. (xx) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. -6- (b) Each of the Selling Stockholders severally and not jointly represents and warrants as follows: (i) Such Selling Stockholder now has and at the Closing Date and the Option Closing Date, as the case may be (as such dates are hereinafter defined) will have good and valid title to the Firm Shares and the Option Shares to be sold by such Selling Stockholder, free of any liens, encumbrances, equities and claims, and full right, power and authority to effect the sale and delivery of such Firm Shares and the Option Shares; and upon the delivery of, against payment for, such Firm Shares and the Option Shares pursuant to this Agreement, the Underwriters will acquire good and marketable title thereto, free and clear of any liens, encumbrances, equities and claims. (ii) Such Selling Stockholder has full right, power and authority to execute and deliver this Agreement, the Power of Attorney, and the Custodian Agreement referred to below and to perform its obligations under such agreements. The execution and delivery of this Agreement and the consummation by such Selling Stockholder of the transactions herein contemplated and the fulfillment by such Selling Stockholder of the terms hereof will not require any consent, approval, authorization, or other order of any court, regulatory body, administrative agency or other governmental body (except as may be required under the Act, state securities laws or Blue Sky laws) and will not result in a breach of any of the terms and provisions of, or constitute a default under, organizational documents of such Selling Stockholder, if not an individual, or any indenture, mortgage, deed of trust or other agreement or instrument to which such Selling Stockholder is a party, or of any order, rule or regulation applicable to such Selling Stockholder of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction. (iii) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to, or which has constituted, or which might reasonably be expected to cause or result in stabilization or manipulation of the price of the Class A Common Stock of the Company and, other than as permitted by the Act, the Selling Stockholder will not distribute any prospectus or other offering material in connection with the offering of the Shares. (iv) No offering, sale or other disposition of any Common Stock of the Company, any options or warrants to purchase shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock will be made for a period of 90 days after the date of this Agreement, directly or indirectly, by such Selling Stockholder otherwise than hereunder or with the prior written consent of Alex. Brown & Sons Incorporated. (v) Without having undertaken to determine independently the accuracy or completeness of either the representations and warranties of the Company contained herein or the information contained in the Registration Statement, such Selling Stockholder has no reason to -7- believe that the representations and warranties of the Company contained in this Section 1 are not true and correct, is familiar with the Registration Statement and has no knowledge of any material fact, condition or information not disclosed in the Registration Statement which has adversely affected or may adversely affect the business of the Company or any of the Subsidiaries; and the sale of the Firm Shares and the Option Shares by such Selling Stockholder pursuant hereto is not prompted by any material, non-public information concerning the Company or any of the Subsidiaries which is not set forth in the Registration Statement. The information pertaining to such Selling Stockholder under the caption "Selling Stockholders" in the Prospectus is complete and accurate in all material respects. 2. Purchase, Sale and Delivery of the Firm Shares. ---------------------------------------------- (a) On the basis of the representations, warranties and covenants herein contained, and subject to the conditions herein set forth, the Sellers agree to sell to the Underwriters and each Underwriter agrees, severally and not jointly, to purchase, at a price of $______ per share, the number of Firm Shares set forth opposite the name of each Underwriter in Schedule I hereof, subject to adjustments in accordance with Section 9 hereof. The number of Firm Shares to be purchased by each Underwriter from each Seller shall be as nearly as practicable in the same proportion to the total number of Firm Shares being sold by each Seller as the number of Firm Shares being purchased by each Underwriter bears to the total number of Firm Shares to be sold hereunder. The obligations of the Company and of each of the Selling Stockholders shall be several and not joint. (b) Certificates in negotiable form for the total number of the Shares to be sold hereunder by the Selling Stockholders have been placed in custody with Ray M. Harlin as custodian (the "Custodian") pursuant to the Custodian Agreement executed by each Selling Stockholder for delivery of all Firm Shares and any Option Shares to be sold hereunder by the Selling Stockholders. Each of the Selling Stockholders specifically agrees that the Firm Shares and any Option Shares represented by the certificates held in custody for the Selling Stockholders under the Custodian Agreement are subject to the interests of the Underwriters hereunder, that the arrangements made by the Selling Stockholders for such custody are to that extent irrevocable, and that the obligations of the Selling Stockholders hereunder shall not be terminable by any act or deed of the Selling Stockholders (or by any other person, firm or corporation including the Company, the Custodian or the Underwriters) or by operation of law (including the death of an individual Selling Stockholder or the dissolution of a partnership Selling Stockholder) or by the occurrence of any other event or events, except as set forth in the Custodian Agreement. If any such event should occur prior to the delivery to the Underwriters of the Firm Shares or the Option Shares hereunder, certificates for the Firm Shares or the Option Shares, as the case may be, shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such event has not occurred. The Custodian is authorized to receive and acknowledge receipt of the proceeds of sale of the Shares held by it against delivery of such Shares. -8- (c) Payment for the Firm Shares to be sold hereunder is to be made in same day funds via wire transfer to the order of the Company for the shares to be sold by it and to the order of "Ray M. Harlin" for the shares to be sold by the Selling Stockholders, in each case against delivery of certificates therefor to the Representatives for the several accounts of the Underwriters. Such payment and delivery are to be made at the offices of Alex. Brown & Sons Incorporated, One South Street, Baltimore, Maryland, at 10:00 a.m., Baltimore time, on the third business day after the date of this Agreement or at such other time and date not later than five business days thereafter as you and the Company shall agree upon, such time and date being herein referred to as the "Closing Date." (As used herein, "business day" means a day on which the New York Stock Exchange is open for trading and on which banks in New York are open for business and not permitted by law or executive order to be closed.) The certificates for the Firm Shares will be delivered in such denominations and in such registrations as the Representatives request in writing not later than the second full business day prior to the Closing Date, and will be made available for inspection by the Representatives at least one business day prior to the Closing Date. (d) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company and certain Selling Stockholders listed on Schedule III hereto hereby grant an option to the several Underwriters to purchase the Option Shares at the price per share as set forth in the first paragraph of this Section 2. The maximum number of Option Shares to be sold by the Company and the Selling Stockholders is set forth opposite their respective names on Schedule III hereto. The option granted hereby may be exercised in whole or in part but only once and at any time upon written notice given within 30 days after the date of this Agreement, by you, as Representatives of the several Underwriters, to the Company, the Attorney-in-Fact and the Custodian setting forth the number of Option Shares as to which the several Underwriters are exercising the option, the names and denominations in which the Option Shares are to be registered and the time and date at which such certificates are to be delivered. If the option granted hereby is exercised in part, the respective number of Option Shares to be sold by the Company and each of the Selling Stockholders listed in Schedule III hereto shall be determined on a pro rata basis in accordance with the percentages set forth opposite their names in Schedule III hereto, adjusted by you in such manner as to avoid fractional shares. The time and date at which certificates for Option Shares are to be delivered shall be determined by the Representatives but shall not be earlier than three nor later than 10 full business days after the exercise of such option, nor in any event prior to the Closing Date (such time and date being herein referred to as the "Option Closing Date"). If the date of exercise of the option is three or more days before the Closing Date, the notice of exercise shall set the Closing Date as the Option Closing Date. The number of Option Shares to be purchased by each Underwriter shall be in the same proportion to the total number of Option Shares being purchased as the number of Firm Shares being purchased by such Underwriter bears to the total number of Firm Shares, adjusted by you in such manner as to avoid fractional shares. The option with respect to the Option Shares granted hereunder may be exercised only to cover -9- over-allotments in the sale of the Firm Shares by the Underwriters. You, as Representatives of the several Underwriters, may cancel such option at any time prior to its expiration by giving written notice of such cancellation to the Company and the Attorney-in-Fact. To the extent, if any, that the option is exercised, payment for the Option Shares shall be made on the Option Closing Date in same day funds via wire transfer to the order of the Company for the Option Shares to be sold by it and to the order of "Ray M. Harlin, as Custodian" for the Option Shares to be sold by the Selling Stockholders against delivery of certificates therefor at the offices of Alex. Brown & Sons Incorporated, One South Street, Baltimore, Maryland. (e) If on the Closing Date or Option Closing Date, as the case may be, any Selling Stockholder fails to sell the Firm Shares or Option Shares which such Selling Stockholder has agreed to sell on such date as set forth in Schedule II ----------- or Schedule III hereto, the Company agrees that it will sell or arrange for the ------------ sale of that number of shares of Common Stock to the Underwriters which represents Firm Shares or the Option Shares which such Selling Stockholder has failed to so sell, as set forth in Schedule II or Schedule III hereto, or such ----------- ------------- lesser number as may be requested by the Representatives. 3. Offering by the Underwriters. It is understood that the several ---------------------------- Underwriters are to make a public offering of the Firm Shares as soon as the Representatives deem it advisable to do so. The Firm Shares are to be initially offered to the public at the initial public offering price set forth in the Prospectus. The Representatives may from time to time thereafter change the public offering price and other selling terms. To the extent, if at all, that any Option Shares are purchased pursuant to Section 2 hereof, the Underwriters will offer them to the public on the foregoing terms. It is further understood that you will act as the Representatives for the Underwriters in the offering and sale of the Shares in accordance with a Master Agreement Among Underwriters entered into by you and the several other Underwriters. 4. Covenants of the Company and the Selling Stockholders. ----------------------------------------------------- (a) The Company covenants and agrees with the several Underwriters that: (i) The Company will (A) use its best efforts to cause the Registration Statement to become effective or, if the procedure in Rule 430A of the Rules and Regulations is followed, to prepare and timely file with the Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form approved by the Representatives containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rule 430A of the Rules and Regulations, and (B) not file any amendment to the Registration Statement or supplement to the Prospectus of which the Representatives shall not previously have been advised and furnished with a copy or to which the Representatives shall have reasonably objected in writing or which is not in compliance with the Rules and Regulations and (C) file on a timely basis all reports and -10- any definitive proxy or information statements required to be filed by the Company with the Commission subsequent to the date of the Prospectus and prior to the termination of the offering of the Shares by the Underwriters. (ii) The Company will advise the Representatives promptly (A) when the Registration Statement or any post-effective amendment thereto shall have become effective, (B) of receipt of any comments from the Commission, (C) of any request of the Commission for amendment of the Registration Statement or for supplement to the Prospectus or for any additional information and (D) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus or of the institution of any proceedings for that purpose. The Company will use its best efforts to prevent the issuance of any such stop order preventing or suspending the use of the Prospectus and to obtain as soon as possible the lifting thereof, if issued. (iii) The Company will cooperate with the Representatives in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions as the Representatives may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports, and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Representatives may reasonably request for distribution of the Shares. (iv) The Company will deliver to, or upon the order of, the Representatives, from time to time, as many copies of any Preliminary Prospectus as the Representatives may reasonably request. The Company will deliver to, or upon the order of, the Representatives during the period when delivery of a Prospectus is required under the Act, as many copies of the Prospectus in final form, or as thereafter amended or supplemented, as the Representatives may reasonably request. The Company will deliver to the Representatives at or before the Closing Date, four signed copies of the Registration Statement and all amendments thereto including all exhibits filed therewith, and will deliver to the Representatives such number of copies of the Registration Statement(including such number of copies of the exhibits filed therewith that may reasonably be requested), and of all amendments thereto, as the Representatives may reasonably request. (v) The Company will comply with the Act and the Rules and Regulations, and the Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and regulations of the Commission thereunder, so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and the Prospectus. If during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it -11- becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading, or, if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company promptly will prepare and file with the Commission an appropriate amendment to the Registration Statement or supplement to the Prospectus so that the Prospectus as so amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with the law. (vi) The Company will make generally available to its security holders, as soon as it is practicable to do so, but in any event not later than 15 months after the effective date of the Registration Statement, an earnings statement (which need not be audited) in reasonable detail, covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement, which earning statement shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you in writing when such statement has been so made available. (vii) The Company will, for a period of five years from the Closing Date, deliver to the Representatives copies of annual reports and copies of all other documents, reports and information furnished by the Company to its stockholders or filed with any securities exchange pursuant to the requirements of such exchange or with the Commission pursuant to the Act or the Exchange Act. The Company will deliver to the Representatives similar reports with respect to significant subsidiaries, as that term is defined in the Rules and Regulations, which are not consolidated in the Company's financial statements. (viii) No offering, sale, short sale or other disposition of any shares of Common Stock of the Company or other securities convertible into or exchangeable or exercisable for shares of Common Stock or derivative of Common Stock (or agreement for such) will be made for a period of 90 days after the date of this Agreement, directly or indirectly, by the Company otherwise than hereunder or with the prior written consent of Alex. Brown & Sons Incorporated except that the Company may, without such consent, issue shares upon the exercise of options outstanding on the date hereof. (ix) The Company will obtain the approval of The Nasdaq Stock Market in connection with the issuance and listing of the applicable portion of the Shares. (x) The Company has caused each executive officer and director and the Selling Stockholders of the Company to furnish to you, on or prior to the date of this agreement, a letter or letters, in form and substance satisfactory to the Underwriters, pursuant to which each such person shall agree not to offer, sell, sell short or otherwise dispose of any shares of Common Stock of the Company or other capital stock of the Company, or any other securities convertible, exchangeable or exercisable for Common Shares or derivative of Common Shares owned by such person or request the registration for the offer or sale of any of the foregoing (or as to -12- which such person has the right to direct the disposition of) for a period of 90 days after the date of this Agreement, directly or indirectly, except with the prior written consent of Alex. Brown & Sons Incorporated ("Lockup Agreements"). (xi) The Company shall not invest, or otherwise use the proceeds received by the Company from its sale of the Shares in such a manner as would require the Company or any of the Subsidiaries to register as an investment company under the 1940 Act. (xii) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Common Stock. (xiii) The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company. (b) Each of the Selling Stockholders severally and not jointly covenants and agrees with the several Underwriters that: (i) No offering, sale, short sale or other disposition of any shares of Common Stock of the Company or other capital stock of the Company or other securities convertible, exchangeable or exercisable for Common Stock or derivative of Common Stock owned by the Selling Stockholder or request the registration for the offer or sale of any of the foregoing (or as to which the Selling Stockholder has the right to direct the disposition of) will be made for a period of 90 days after the date of this Agreement, directly or indirectly, by such Selling Stockholder otherwise than hereunder or with the prior written consent of Alex. Brown & Sons Incorporated. (ii) In order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with respect to the transactions herein contemplated, each of the Selling Stockholders agrees to deliver to you prior to or at the Closing Date a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof). (iii) Such Selling Stockholder will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company. 5. Costs and Expenses. The Company will pay all costs, expenses and fees ------------------ incident to the performance of the obligations of the Sellers under this Agreement, including, without limiting the generality of the foregoing, the following: accounting fees of the Company; the fees and disbursements of counsel for the Company and the Selling Stockholders; the cost of printing and delivering to, or as requested by, the Underwriters copies of the Registration Statement, -13- Preliminary Prospectuses, the Prospectus, this Agreement, the Underwriters' Invitation Letter, the Listing Application, the Blue Sky Survey and any supplements or amendments thereto; the filing fees of the Commission; and the filing fees of the NASD. The Selling Stockholders have agreed with the Company to reimburse the Company for a portion of such expenses. To the extent, if at all, that any of the Selling Stockholders engage special legal counsel to represent them in connection with this offering, the fees and expenses of such counsel shall be borne by such Selling Stockholder. Any transfer taxes imposed on the sale of the Shares to the several Underwriters will be paid by the Sellers pro rata. The Company shall not, however, be required to pay for any of the Underwriters' expenses (other than those related to qualification under State securities or Blue Sky laws or NASD regulation) except that, if this Agreement shall not be consummated because the conditions in Section 6 hereof are not satisfied, or because this Agreement is terminated by the Representatives pursuant to Section 11 hereof, or by reason of any failure, refusal or inability on the part of the Company or the Selling Stockholders to perform any undertaking or satisfy any condition of this Agreement or to comply with any of the terms hereof on their part to be performed, unless such failure to satisfy said condition or to comply with said terms be due to the default or omission of any Underwriter, then the Company shall reimburse the several Underwriters for reasonable out-of-pocket expenses, including fees and disbursements of counsel, reasonably incurred in connection with investigating, marketing and proposing to market the Shares or in contemplation of performing their obligations hereunder; but the Company and the Selling Stockholders shall not in any event be liable to any of the several Underwriters for damages on account of loss of anticipated profits from the sale by them of the Shares. 6. Conditions of Obligations of the Underwriters. The several obligations --------------------------------------------- of the Underwriters to purchase the Firm Shares on the Closing Date and the Option Shares, if any, on the Option Closing Date are subject to the accuracy, as of the Closing Date or the Option Closing Date, as the case may be, of the representations and warranties of the Company and the Selling Stockholders contained herein, and to the performance by the Company and the Selling Stockholders of their covenants and obligations hereunder and to the following additional conditions: (a) The Registration Statement and all post-effective amendments thereto shall have become effective and any and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and any request of the Commission for additional information (to be included in the Registration Statement or otherwise) shall have been disclosed to the Representatives and complied with to their reasonable satisfaction. No stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company or the Selling Stockholders, shall be contemplated by the Commission and no injunction, restraining order, or order of any nature by a Federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance of the Shares. -14- (b) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Miller & Martin, counsel for the Company and the Selling Stockholders, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters (and stating that it may be relied upon by counsel to the Underwriters) to the effect that: (i) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Nevada, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement; each of the Subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement; the Company and each of the Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification, or in which the failure to qualify would have a materially adverse effect upon the business of the Company and the Subsidiaries taken as a whole; and the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable and are owned by the Company or Subsidiary; and, to the best of such counsel's knowledge, the outstanding shares of capital stock of each of the Subsidiaries is owned free and clear of all liens, encumbrances and equities and claims, and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into any shares of capital stock or of ownership interests in the Subsidiaries are outstanding. (ii) The Company has authorized and outstanding capital stock as set forth under the caption "Capitalization" in the Prospectus; the authorized shares of the Company's Common Stock have been duly authorized; the outstanding shares of the Company's Common Stock, including the Shares to be sold by the Selling Stockholders, have been duly authorized and validly issued and are fully paid and non-assessable; all of the Shares conform to the description thereof contained in the Prospectus; the certificates for the Shares, assuming they are in the form filed with the Commission, are in due and proper form; the shares of Common Stock, including the Option Shares, if any, to be sold by the Company pursuant to this Agreement have been duly authorized and will be validly issued, fully paid and non-assessable when issued and paid for as contemplated by this Agreement; and no preemptive rights of stockholders exist with respect to any of the Shares or the issue or sale thereof. (iii) Except as described in or contemplated by the Prospectus, to the knowledge of such counsel, there are no outstanding securities of the Company convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of capital stock of the Company and there are no outstanding or authorized options, warrants or rights of any character obligating the Company to issue any shares of its capital stock or any securities convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of such stock; -15- and except as described in the Prospectus, to the knowledge of such counsel, no holder of any securities of the Company or any other person has the right, contractual or otherwise, which has not been satisfied or effectively waived, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, any of the Shares or the right to have any Common Shares or other securities of the Company included in the Registration Statement or the right, as a result of the filing of the Registration Statement, to require registration under the Act of any shares of Common Stock or other securities of the Company. (iv) The Registration Statement has become effective under the Act and, to the best of the knowledge of such counsel, no stop order proceedings with respect thereto have been instituted or are pending or threatened under the Act. (v) The Registration Statement, the Prospectus and each amendment or supplement thereto comply as to form in all material respects with the requirements of the Act or the 1934 Act, as applicable and the applicable rules and regulations thereunder (except that such counsel need express no opinion as to the financial statements, schedules and other financial information included therein). (vi) The statements under the captions "Business-Regulation," "Executive Compensation and Other Information-Stock Incentive Plan," "Description of Capital Stock" and "Shares Eligible for Future Sale" in the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, are accurate summaries and fairly and correctly present the information called for with respect to such documents and matters. (vi) Such counsel does not know of any contracts or documents required to be filed as exhibits to or incorporated by reference in the Registration Statement or described in the Registration Statement or the Prospectus which are not so filed, incorporated by reference or described as required, and such contracts and documents as are summarized in the Registration Statement or the Prospectus are fairly summarized in all material respects. (vii) Such counsel knows of no material legal or governmental proceedings pending or threatened against the Company or any of the Subsidiaries except as set forth in the Prospectus. (viii) The execution and delivery of this Agreement and the consummation of the transactions herein contemplated do not and will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, the Articles of Incorporation or By-Laws of the Company, or any agreement or instrument known to such counsel to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries may be bound. -16- (ix) This Agreement has been duly authorized, executed and delivered by the Company. (x) No approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body is necessary in connection with the execution and delivery of this Agreement and the consummation of the transactions herein contemplated (other than as may be required by the NASD or as required by State securities and Blue Sky laws as to which such counsel need express no opinion) except such as have been obtained or made, specifying the same. (xi) This Agreement has been duly authorized, executed and delivered on behalf of the Selling Stockholders. (xii) The Company is not, and will not become, as a result of the consummation of the transactions contemplated by this Agreement and application of the net proceeds therefrom as described in the Prospectus, required to register as an investment company under the 1940 Act. (xiii) Each Selling Stockholder has full legal right, power and authority, and any approval required by law (other than as required by State securities and Blue Sky laws as to which such counsel need express no opinion), to sell, assign, transfer and deliver the portion of the Shares to be sold by such Selling Stockholder. (xiv) The Custodian Agreement and the Power of Attorney executed and delivered by each Selling Stockholder is valid and binding. (xv) The Underwriters (assuming that they are bona fide purchasers within the meaning of the Uniform Commercial Code) have acquired good and marketable title to the Shares being sold by each Selling Stockholder on the Closing Date, and the Option Closing Date, as the case may be, free and clear of all liens, encumbrances, equities and claims. In rendering such opinion, Miller & Martin may rely as to matters governed by the laws of states other than Tennessee and Nevada or Federal laws on local counsel in such jurisdictions and as to the matters set forth in subparagraphs (xiii), (xiv) and (xv) on opinions of other counsel representing the respective Selling Stockholders, provided that in each case Miller & Martin shall state that they believe that they and the Underwriters are justified in relying on such other counsel. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that (i) the Registration Statement, at the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be -17- stated therein or necessary to make the statements therein not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading (except that such counsel need express no view as to financial statements, schedules and other financial or statistical information included or incorporated by reference therein). With respect to such statement, Miller & Martin may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (c) The Representatives shall have received from Piper & Marbury L.L.P., counsel for the Underwriters, an opinion dated the Closing Date or the Option Closing Date, as the case may be, substantially to the effect specified in subparagraphs (ii), (iii), (iv), (x) and (xi) of Paragraph (b) of this Section 6, and that the Company is a duly organized and validly existing corporation under the laws of the State of Nevada. In rendering such opinion Piper & Marbury L.L.P. may rely as to all matters governed other than by the laws of the States of Maryland and Delaware or Federal laws on the opinion of counsel referred to in paragraph (b) of this Section 6. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that (i) the Registration Statement, or any amendment thereto, as of the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact, necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading (except that such counsel need express no view as to financial statements, schedules and statistical information therein). With respect to such statement, Piper & Marbury L.L.P. may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (d) The Representatives shall have received, on each of the dates hereof, the Closing Date and the Option Closing Date, as the case may be, a letter dated the date hereof, the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to you, of Arthur Andersen LLP confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating that in their opinion the financial statements and schedules examined by them and included in the Registration Statement comply in form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; and containing such other statements and information as is ordinarily included in accountants' "comfort letters" to -18- Underwriters with respect to the financial statements and certain financial and statistical information contained in the Registration Statement and Prospectus. (e) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, a certificate or certificates of the President and the Chief Financial Officer of the Company to the effect that, as of the Closing Date or the Option Closing Date, as the case may be, each of them severally represents as follows: (i) The Registration Statement has become effective under the Act and no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for such purpose have been taken or are, to his knowledge, contemplated by the Commission; (ii) The representations and warranties of the Company contained in Section 1 hereof are true and correct as of the Closing Date or the Option Closing Date, as the case may be; (iii) All filings required to have been made pursuant to Rules 424 or 430A under the Act have been made; (iv) He or she has carefully examined the Registration Statement and the Prospectus and, in his opinion, as of the effective date of the Registration Statement, the statements contained in the Registration Statement, were true and correct, and such Registration Statement and Prospectus did not omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and, in his opinion, since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement to or an amendment of the Prospectus which has not been so set forth in such supplement or amendment; and (v) Since the respective dates as of which information is given in the Registration Statement and Prospectus, there has not been any material adverse change or any development which could reasonably be expected to result in a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole or the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole, whether or not arising in the ordinary course of business. (f) The Company and the Selling Stockholders shall have furnished to the Representatives such further certificates and documents confirming the representations and warranties, covenants and conditions contained herein and related matters as the Representatives may reasonably have requested. -19- (g) The Firm Shares, and Option Shares, if any, have been approved for designation upon official notice of issuance on The Nasdaq Stock Market. (h) The Lockup Agreements described in Section 4(a)(x) are in full force and effect. The opinions and certificates mentioned in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in all material respects satisfactory to the Representatives and to Piper & Marbury L.L.P., counsel for the Underwriters. If any of the conditions hereinabove provided for in this Section 6 shall not have been fulfilled when and as required by this Agreement to be fulfilled, the obligations of the Underwriters hereunder may be terminated by the Representatives by notifying the Company and the Selling Stockholders of such termination in writing or by telegram at or prior to the Closing Date or the Option Closing Date, as the case may be. In such event, the Selling Stockholders, the Company and the Underwriters shall not be under any obligation to each other (except to the extent provided in Sections 5 and 8 hereof). 7. Conditions of the Obligations of the Sellers. The obligations of the -------------------------------------------- Sellers to sell and deliver the portion of the Shares required to be delivered as and when specified in this Agreement are subject to the conditions that at the Closing Date or the Option Closing Date, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued and in effect or proceedings therefor initiated or threatened. 8. Indemnification --------------- (a) The Company and the Selling Stockholders, jointly and severally, agree to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act against any losses, claims, damages or liabilities to which such Underwriter or such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter and each such controlling person upon demand for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage or liability, action or proceeding or in responding to a subpoena or governmental inquiry relating to the offering of the Shares, whether or not such Underwriter or controlling person is a party to the action or proceeding; provided, however, that the Company and the Selling Stockholders will not be liable in any such case to the extent that any such loss, -20- claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof. In no event, however, shall the liability of any Selling Stockholder for indemnification under this Section 8(a) exceed the proceeds received by such Selling Stockholder from the Underwriters in the offering. This indemnity agreement will be in addition to any liability which the Company or the Selling Stockholders may otherwise have. (b) Each Underwriter severally and not jointly will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement, the Selling Stockholders, and each person, if any, who controls the Company within the meaning of the Act, against any losses, claims, damages or liabilities to which the Company or any such director, officer, Selling Stockholder or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, (ii) the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, Selling Stockholder or controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that each Underwriter will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in the Registration Statement, any Preliminary Prospectus, the Prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 8, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 8(a) or (b) shall be available to any party who shall fail to give notice as provided in this Section 8(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of the provisions of Section 8(a) or (b). In case any such proceeding -21- shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or within 30 days of presentation) the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them or (iii) the indemnifying party shall have failed to assume the defense and employ counsel reasonably acceptable to the indemnified party within a reasonable period of time after notice of commencement of the action. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by you in the case of parties indemnified pursuant to Section 8(a) and by the Company [and the Selling Stockholders] in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. In addition, the indemnifying party will not, without the prior written consent of the indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding of which indemnification may be sought hereunder (whether or not any indemnified party is an actual or potential party to such claim, action or proceeding) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action or proceeding. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the -22- statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation, and (iii) no Selling Stockholder shall be required to contribute any amount in excess of the proceeds received by such Selling Stockholder from the Underwriters in the offering. The Underwriters' obligations in this Section 8(d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) In any proceeding relating to the Registration Statement, any Preliminary Prospectus, the Prospectus or any supplement or amendment thereto, each party against whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 8 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or -23- expenses are incurred. If, after the indemnified party receives such payments for indemnification, it shall be determined that the indemnified party was not entitled to such indemnification, the indemnified party shall reimburse the indemnifying party for all such payments. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers or any persons controlling the Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 8. 9. Default by Underwriters. If on the Closing Date or the Option Closing ----------------------- Date, as the case may be, any Underwriter shall fail to purchase and pay for the portion of the Shares which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company or a Selling Stockholder), you, as Representatives of the Underwriters, shall use your reasonable efforts to procure within 36 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company and the Selling Stockholders such amounts as may be agreed upon and upon the terms set forth herein, the Firm Shares or Option Shares, as the case may be, which the defaulting Underwriter or Underwriters failed to purchase. If during such 36 hours you, as such Representatives, shall not have procured such other Underwriters, or any others, to purchase the Firm Shares or Option Shares, as the case may be, agreed to be purchased by the defaulting Underwriter or Underwriters, then (a) if the aggregate number of shares with respect to which such default shall occur does not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the other Underwriters shall be obligated, severally, in proportion to the respective numbers of Firm Shares or Option Shares, as the case may be, which they are obligated to purchase hereunder, to purchase the Firm Shares or Option Shares, as the case may be, which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of shares of Firm Shares or Option Shares, as the case may be, with respect to which such default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the Company and the Selling Stockholders or you as the Representatives of the Underwriters will have the right, by written notice given within the next 36-hour period to the parties to this Agreement, to terminate this Agreement without liability on the part of the non-defaulting Underwriters or of the Company or of the Selling Stockholders except to the extent provided in Section 8 hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or Option Closing Date, as the case may be, may be postponed for such period, not exceeding seven days, as you, as Representatives, may determine in order that the required changes in the Registration Statement or in the Prospectus or in any other documents or arrangements may be effected. The term "Underwriter" includes any person substituted for a defaulting Underwriter. Any action -24- taken under this Section 9 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. Notices. All communications hereunder shall be in writing and, except ------- as otherwise provided herein, will be mailed, delivered or telegraphed and confirmed as follows: if to the Underwriters, to Alex. Brown & Sons Incorporated, One South Street, Baltimore, Maryland 21202, Attention: Robert P. Irwin, Principal; if to the Company or the Selling Stockholders, to U.S. Xpress Enterprises, Inc., 2931 South Market Street, Chattanooga, Tennessee 37410, Attention: Ray M. Harlin, Chief Financial Officer. 11. Termination. This Agreement may be terminated by you by notice to the ----------- Sellers as follows: (a) at any time prior to the earlier of (i) the time the Shares are released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on the first business day following the date of this Agreement; (b) at any time prior to the Closing Date if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole or the earnings, business management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole, whether or not arising in the ordinary course of business; (ii) any outbreak or escalation of hostilities or declaration of war or political emergency or other national or international calamity or crisis or change in economic or political conditions if the effect of such outbreak, escalation, declaration, emergency, calamity, crisis or change on the financial markets of the United States would, in your reasonable judgment, make it impracticable to market the Shares or to enforce contracts for the sale of the Shares; (iii) suspension of trading in securities generally on the New York Stock Exchange or the American Stock Exchange or limitation on prices (other than limitations on hours or numbers of days of trading) for securities on either such Exchange; (iv) the enactment, publication, decree or other promulgation of any statute, regulation, rule or order of any court or other governmental authority which in your reasonable opinion materially and adversely affects or may materially and adversely affect the business or operations of the Company; (v) declaration of a banking moratorium by United States or New York State authorities; (vi) the suspension of trading of the Company's Common Stock by the Commission on The Nasdaq Stock Market or (vii) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in your reasonable opinion has a material adverse effect on the securities markets in the United States; or (c) as provided in Sections 6 and 9 of this Agreement. -25- 12. Successors. This Agreement has been and is made solely for the benefit ---------- of the Underwriters, the Company and the Selling Stockholders and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign merely because of such purchase. 13. Information Provided by Underwriters. The Company, the Selling ------------------------------------ Stockholders and the Underwriters acknowledge and agree that the only information furnished or to be furnished by any Underwriter to the Company for inclusion in any Prospectus or the Registration Statement consists of the information set forth in the last paragraph on the front cover page (insofar as such information relates to the Underwriters), legends required by Item 502(d) of Regulation S-K under the Act and the information under the caption "Underwriting" in the Prospectus. 14. Miscellaneous. The reimbursement, indemnification and contribution ------------- agreements contained in this Agreement and the representations, warranties and covenants in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of any Underwriter or controlling person thereof, or by or on behalf of the Company or its directors or officers and (c) delivery of and payment for the Shares under this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Maryland. If the foregoing letter is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Selling Stockholders, the Company and the several Underwriters in accordance with its terms. -26- Any person executing and delivering this Agreement as Attorney-in-Fact for a Selling Stockholder represents by so doing that he has been duly appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and binding Power of Attorney which authorizes such Attorney-in-Fact to take such action. Very truly yours, U.S. XPRESS ENTERPRISES, INC. By ------------------------------------------ Patrick E. Quinn, President and Treasurer Selling Stockholders listed on Schedule II By ------------------------------------------ Attorney-in-Fact The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. ALEX. BROWN & SONS INCORPORATED MORGAN STANLEY & CO. INCORPORATED MORGAN KEEGAN & COMPANY, INC. SCHRODER & CO. INC. As Representatives of the several Underwriters listed on Schedule I By ALEX. BROWN & SONS INCORPORATED By -------------------------------- Authorized Officer -27- SCHEDULE I Schedule of Underwriters Number of Firm Shares Underwriter to be Purchased ----------- -------------------------- Alex. Brown & Sons Incorporated Morgan Stanley & Co. Incorporated Morgan Keegan & Company, Inc. Schroder & Co. Inc. ____________ Total 3,400,000 ____________ -28- SCHEDULE II Schedule of Selling Stockholders Number of Firm Shares Selling Stockholder to be Sold - ------------------- ---------------------------------- Max L. Fuller 450,000 Patrick E. Quinn 405,084 Quinn Family Partnership 44,916 ------- Total 900,000 ------- -29- SCHEDULE III Schedule of Option Shares Maximum Number Percentage of of Option Shares Total Number of Name of Seller to be Sold Option Shares - -------------- -------------------------- --------------------- _________ ________ Total 510,000 100% _________ ________ -30- EX-5 3 OPINION OF MILLER & MARTIN EXHIBIT 5 Miller & Martin 1000 Volunteer Building Chattanooga, Tennessee 37402 July 10, 1997 U.S. Xpress Enterprises, Inc. 2931 South Market Street Chattanooga, TN 37410 Re: Registration Statement on Form S-1 - 3,910,000 Shares of Class A Common Stock ---------------------------------------- Gentlemen: We are special counsel to U.S. Xpress Enterprises, Inc., a Nevada corporation (the "Company"), and have acted as such in the preparation and filing of its Registration Statement on Form S-1 dated July 10, 1997 (the "Registration Statement") with the Securities and Exchange Commission (the "SEC"), pursuant to the requirements of the Securities Act of 1933, as amended, and the General Rules and Regulations of the SEC promulgated thereunder for the registration of 3,910,000 shares of Class A Common Stock of the Company, of which up to 2,942,500 shares of Class A Common Stock will be sold by the Company and 967,500 shares of Class A Common Stock will be sold by certain selling stockholders (the "Selling Stockholders"). In connection with the following opinions, we have examined and have relied upon such documents, records, certificates, statements and instruments as we have deemed necessary and appropriate to render the opinions herein set forth. Based upon the foregoing, it is our opinion that: 1. The Company's shares of Class A Common Stock, when and if issued and sold in the manner set forth in the Registration Statement, will be legally and validly issued, fully paid and nonassessable. 2. The shares of Class A Common Stock to be sold by the Selling Stockholders were, when issued by the Company, duly authorized, legally and validly issued, fully paid and nonassessable. The undersigned hereby consents to filing this opinion as Exhibit 5 to the Registration Statement and using its name in the U.S. Xpress Enterprises, Inc. July 10, 1997 page 2 Registration Statement under the caption of the prospectus entitled "Legal Matters." Very truly yours, /s/ Miller & Martin --------------------- MILLER & MARTIN EX-10.28 4 LOAN AND SECURITY AGREEMENT EXHIBIT 10.28 LOAN AND SECURITY AGREEMENT THIS AGREEMENT, made, entered into and effective as of the 24th day of June, 1997, by and between WACHOVIA BANK, N.A. and U.S. XPRESS LEASING, INC., a Tennessee corporation; WITNESSETH: WHEREAS, Borrower has applied to Lender for financing of the type more particularly described hereinbelow; and WHEREAS, Lender is willing to extend financing to Borrower in accordance with the terms hereof upon the execution of this Agreement by Borrower, compliance by Borrower with all of the terms and provisions of this Agreement and fulfillment of all conditions precedent to Lender's obligations herein contained; NOW, THEREFORE, in consideration of the sum of ONE HUNDRED DOLLARS ($100.00), the foregoing premises, to induce Lender to extend the financing provided for herein, and for other good and valuable consideration, the sufficiency and receipt of all of which are acknowledged by Borrower, Lender and Borrower agree as follows: 1. DEFINITIONS, TERMS AND REFERENCES. --------------------------------- 1.1 Certain Definitions. In addition to such other terms as elsewhere ------------------- defined herein, as used in this Agreement and in any Exhibits, the following terms shall have the following meanings, unless the context requires otherwise: "Adjusted London Interbank Offered Rate" applicable to any Interest Period -------------------------------------- shall mean a rate per annum equal to the quotient obtained (rounded upwards, if necessary, to the next higher 1/1OOth of 1%) by dividing (i) the applicable London Interbank Offered Rate for such Interest Period by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. "Affiliate" shall have the meaning set forth in the Existing Syndicated --------- Credit Agreement. "Agreement" shall meaning this Loan and Security Agreement, as amended or --------- supplemented from time to time. "Applicable Interest Rate Margin" shall mean, with respect to Euro-Dollar ------------------------------- Loans for any fiscal quarter, (i) 1.40% per annum if the Consolidated Leverage Ratio as of the last day of the prior fiscal quarter (computed for the four fiscal quarterly periods then ending) is greater than 2.8 to 1.0, (ii) 1.25% per annum if the Consolidated Leverage Ratio as of the last day of the prior fiscal quarter (computed for the four fiscal quarterly periods then ending) is equal to or less than 2.8 to 1.0 but greater than 2.5 to 1.0, (iii) 1.0% per annum if the Consolidated Leverage Ratio as of the last day of the prior fiscal quarter (computed for the four fiscal quarterly periods then ending) is equal to or less than 2.5 to 1.0 but greater than 2.0 to 1.0, (iv) .75% per annum if the Consolidated Leverage Ratio as of the last day of the prior fiscal quarter (computed for the four fiscal quarterly periods then ending) is equal to or less than 2.0 to 1.0 but greater then 1.5 to 1.0 and (v) .625% per annum if the Consolidated Leverage Ratio as of the last day of the prior fiscal quarter (computed for the four fiscal quarterly periods then ending) is equal to or less than 1.5 to 1.0. Changes in the Applicable Interest Rate Margin shall be effective as provided in the Existing Syndicated Credit Agreement. "Asset Sale" shall have the meaning set forth in the Existing Syndicated ---------- Credit Agreement. "Bankruptcy Code" shall mean Title 11 of the United States Code, as amended --------------- from time to time. "Base Rate" means for any Base Rate Loan for any day, the rate per annum --------- equal to the higher as of such day of (i) the Prime Rate, and (ii) one-half of one percent above the Federal Funds Rate for such day. For purposes of determining the Base Rate for any day, changes in the Prime Rate and the Federal Funds Rate shall be effective on the date of each such change. "Base Rate Loan" shall mean the Term Loan during Interest Periods when the -------------- applicable interest rate is calculated by reference to the Base Rate. "Benefit Arrangement" shall have the meaning set forth in the Existing ------------------- Syndicated Credit Agreement. "Borrower" shall mean U.S. XPRESS LEASING, INC., a corporation organized -------- and existing under the laws of the State of Tennessee, and its successors and permitted assigns. "Business Day" shall mean a day on which Lender is open for the conduct of ------------ banking business at its principal office in Atlanta, Georgia. "Change of Law" shall have the meaning set forth in Section 2.9. ------------- "Collateral" shall mean the Property of Borrower described in Article 3, or ---------- any part thereof, as the context shall require, in which Lender has, or is to have, a security interest pursuant thereto, as security for payment of the Obligations. "Company" shall mean U.S. Xpress Enterprises, Inc., a Nevada corporation. ------- 2 "Consolidated Leverage Ratio" shall have the meaning set forth in, shall be --------------------------- calculated in accordance with and shall be equal to the amount determined under the Existing Syndicated Credit Agreement. "Debt" (and the defined terms used in such definition) shall have the ---- meaning set forth in the Existing Syndicated Credit Agreement. "Default Condition" shall mean the occurrence of any event which, after ----------------- satisfaction of any requirement for the giving of notice or the lapse of time, or both, would become an Event of Default. "Default Rate" shall mean that interest rate per annum equal to 2% plus the ------------ stated interest rate effective under the Note from time to time. "Dollars" and "$" mean lawful money of the United States of America. ------- - "Domestic Business Day" means any day except a Saturday, Sunday or other --------------------- day on which commercial banks in Georgia are authorized by law to close. "Environmental Laws," "ERISA," and "ERISA Group" shall have the meaning set ------------------- ------ ----------- forth in the Existing Syndicated Credit Agreement. "Euro-Dollar Business Day" means any Domestic Business Day on which ------------------------ dealings in Dollar deposits are carried out in the London interbank market. "Euro-Dollar Loan" shall mean the Term Loan during Interest Periods when ---------------- the applicable interest rate is calculated by reference to the Euro-Dollar Rate. "Euro-Dollar Rate" applicable to any Euro-Dollar Loan for any Interest ---------------- Period means a rate per annum equal to the Applicable Interest Rate Margin plus the Adjusted London Interbank Offered Rate applicable to such Interest Period. "Euro-Dollar Reserve Percentage" means for any day that percentage ------------------------------ (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on EuroDollar Loans is determined or any category of extension of credit or other assets which includes loans by a non-United States office of the Lender to United States residents). The Euro-Dollar Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. 3 "Event of Default" shall mean any of the events or conditions described in ---------------- Section 7.01, provided that any requirement for the giving of notice or the lapse of time, or both, has been satisfied. "Executive Office" shall mean 2931 South Market Street, Chattanooga, TN ---------------- 37410. "Existing Syndicated Credit Agreement" shall mean that certain Credit ------------------------------------ Agreement dated November 21, 1995, by and among the Company, the banks party thereto and NationsBank of Georgia, N.A., as amended by an Amendment No. 1 to Credit Agreement dated as of March 31, 1996, and an Amendment No. 2 to Credit Agreement dated as of July 1, 1996, as in effect on the date hereof, without regard and without giving effect to any waivers given by the Banks (as defined in the Existing Syndicated Credit Agreement) or amendments agreed to by the Company and the Banks (as defined in the Credit Agreement). Any definitions, terms, covenants or other provisions of the Existing Syndicated Credit Agreement that are incorporated herein will continue to be effective for purposes of this Agreement, not withstanding that the indebtedness under the Existing Syndicated Credit Agreement has been or hereafter may be partially or fully repaid or the fact that the Existing Syndicated Credit Agreement otherwise might be terminated. "Federal Funds Rate" means, for any day, the rate per annum (rounded ------------------ upward, if necessary, to the next higher 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to Lender on such day on such transactions as determined by the Lender. "Final Maturity Date" means July 1, 2001. ------------------- "Foreign Government," "Foreign Person," "Government," "Guarantee," and ------------------- -------------- ----------- ---------- "Hazardous Substance" shall have the meanings set forth in the Existing - -------------------- Syndicated Credit Agreement. "GAAP" shall mean generally accepted accounting principles, consistently ---- applied. "Guarantor" shall mean individually and collectively, (x) the Company, and --------- each of the Company's Subsidiaries (other than the Borrower and XPRESS AIR, INC.), and (y) any and all other accommodation makers, endorsers, guarantors or sureties from whom Lender may require the endorsement of any note or the execution of any contract of guaranty or suretyship guaranteeing payment of any of the Obligations. "Guaranty Agreement" shall mean (x) the respective Guaranty Agreements ------------------ dated of even date herewith, as amended or supplemented from time to time, executed by the Guarantors, and (y) any 4 other agreement or other writing executed by a Guarantor guaranteeing payment of any of the Obligations. "Interest Period" means: (1) with respect to each Euro-Dollar Loan, the --------------- period commencing on the date the Loan is first made as a Euro-Dollar Loan, is continued from the preceding Interest Period as a Euro-Dollar Loan, or is converted to a Euro-Dollar Loan from another Type of Loan, as the case may be, and ending on the numerically corresponding day in the first, second, or third month thereafter, as the Borrower may elect in accordance with the terms of this Agreement; provided that: (a) any Interest Period (other than an Interest Period determined pursuant to clause (c) below), which would otherwise end on a day which is not a Euro- Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro- Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of the appropriate subsequent calendar month; and (c) any Interest Period which begins before the Due Date and would otherwise end after the Final Maturity Date shall end on the Final Maturity Date. (2) with respect to each Base Rate Loan, the period commencing on the date the Loan is first made as a Base Rate Loan, is continued from the preceding Interest Period as a Base Rate Loan, or is converted to a Base Rate Loan from another Type of Loan, as the case may be, and ending 30 days thereafter; provided that: (a) any Interest Period (other than an Interest Period determined pursuant to clause (b) below) which would otherwise end on a day which is not a Domestic Business Day shall be extended to the next succeeding Domestic Business Day; and (b) any Interest Period which begins before the Final Maturity Date and would otherwise end after the Final Maturity Date shall end on the Final Maturity Date. "Initial Call Date" shall have the meaning set forth in Section 2.2(b). ----------------- "Internal Revenue Code" and "Investment" shall have the meanings set forth --------------------- ---------- in the Existing Syndicated Credit Agreement. "Lender" shall mean WACHOVIA BANK, N.A. with its principal office in ------ Atlanta, Georgia, and its successors and assigns. 5 "Lending Office" means the Lender's office located in Atlanta, Georgia or -------------- such other office as the Lender may hereafter designate from time to time as its Lending Office by notice to the Borrower. "Lien" shall mean any deed to secure debt, deed of trust, mortgage or ---- similar instrument, and any lien, security interest, preferential arrangement which has the practical effect of constituting a security interest, security title, pledge, charge, encumbrance or servitude of any kind, whether by consensual agreement or by operation of statute or other law, and whether voluntary or involuntary, including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof. "Loan Documents" shall mean this Agreement, the Note, the Guaranty -------------- Agreements, any financing statements covering portions of the Collateral, and any and all other documents, instruments, certificates and agreements executed and/or delivered by Borrower and/or any Guarantor in connection herewith, or any one, more, or all of the foregoing, as the context shall require. "London Interbank Offered Rate" applicable to any Euro-Dollar Loan for any ----------------------------- Interest Period means the rate per annum determined on the basis of the rate for deposits in Dollars of amounts equal or comparable to the principal amount of such Euro-Dollar Loan offered for a term comparable to such Interest Period, which rate appears on the display designated as Page "3750" of the Telerate Service (or such other page as may replace page 3750 of that service or such other service or services as may be nominated by the British Banker's Association for the purpose of displaying London Interbank Offered Rates for U.S. dollar, deposits) determined as of 1:00 p.m. New York City time, two (2) Euro-Dollar Business Days prior to the first day of such Interest Period. "Margin Stock," "Material Plan" and "Multiemployer Plan" shall have the ------------ ------------- ------------------ meanings set forth in the Existing Syndicated Credit Agreement. "Note" shall mean the term promissory note, dated of even date herewith, as ---- amended or supplemented from time to time, in the principal amount of the Term Loan, together with any renewals or extensions thereof, in whole or in part. The Note shall be substantially in the form of Exhibit "C". ---------- "Obligations" shall mean any and all indebtedness, liabilities and ----------- obligations of the Borrower and any or all of the Guaranties to Lender evidenced by, arising under or as a result of this Agreement, the Note, the Guaranty Agreements or any of the other Loan Documents, and any and all extensions or renewals thereof in whole or in part; and whether direct, indirect, absolute or contingent, as maker, endorser, guarantor, surety or otherwise, and whether evidenced by, arising out of, or relating to the Loan Documents, or otherwise. "Obligor" shall mean individually and collectively (x) the Borrower and (y) ------- any Guarantor. 6 "PBGC" and "Plan" shall have the meanings set forth in the Existing ---- ---- Syndicated Credit Agreement. "Permitted Encumbrances" shall mean those Liens, if any, set forth and ---------------------- described on Exhibit "B", pertaining to the type of Collateral involved, as ---------- shown thereon. "Person" shall mean any individual, sole proprietorship, partnership, joint ------ venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (whether territorial, national, federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Prime Rate" means that interest rate so denominated and set by the Lender ---------- from time to time as an interest rate basis for borrowings. The Prime Rate is but one of several interest rate bases used by the Lender. The Lender lends at interest rates above and below the Prime Rate. "Property(ies)" shall mean any interest in any property or asset of any ------------- kind, whether real, personal or mixed, or tangible or intangible. "Regulation D" means Regulation D of the Board of Governors of the Federal ------------ Reserve System, as in effect from time to time. "Regulation G," "Regulation T," "Regulation U", "Regulation X" "Responsible ------------ ------------ ------------ ------------ ----------- Officer" and "Solvent" shall have the meanings set forth in the Existing - ------- ------- Syndicated Credit Agreement. "Subsequent Call Date" shall have the meaning set forth in Section 2.2(b). -------------------- "Subsidiary" shall have the same meaning as set forth in the Existing ---------- Syndicated Credit Agreement. "Term Loan" means a Base Rate Loan or a Euro-Dollar Loan and "Term Loans" --------- means Base Rate Loans or Euro-Dollar Loans or both. "Type" as to a Term Loan shall mean its nature as a Euro-Dollar Loan or ---- Base Rate Loan. "UCC" shall mean the Uniform Commercial Code Secured Transactions of --- Georgia (O.C.G.A. Art. 11-9), as in effect on the date hereof. "Unfunded Liabilities" and "Wholly-Owned Subsidiary" shall have the same -------------------- ----------------------- meanings as set forth in the Existing Syndicated Credit Agreement. 1.2 Use of Defined Terms. All terms defined in this Agreement and the -------------------- Exhibits shall have the same defined meanings when used in any other Loan Documents, unless the context shall require otherwise. 7 1.3 Accounting Terms. All accounting terms not specifically defined herein ---------------- shall have the meanings generally attributed to such terms under GAAP. 1.4 UCC Terms. The terms "accounts", "chattel paper", "instruments", --------- "general intangibles", "inventory" and "equipment", as and when used in the Loan Documents, shall have the same meanings given such terms under the UCC. 1.5 Terminology. All personal pronouns used in this Agreement, whether used ----------- in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural, and the plural shall include the singular. Titles of Articles and Sections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement, and all references in this Agreement to Articles, Sections, Subsections, paragraphs, clauses, subclauses or Exhibits shall refer to the corresponding Article, Section, Subsection, paragraph, clause, subclause of, or Exhibit attached to, this Agreement, unless specific reference is made to the articles, sections or other subdivisions divisions of, or Exhibit to, another document or instrument. 1.6 Exhibits. All Exhibits attached hereto are by reference made a part -------- hereof. 2. THE FINANCING. ------------- 2.1 Term Loan. Upon the execution of this Agreement and compliance --------- with its terms and conditions, and so long as there is not in existence any Default Condition or Event of Default, Lender agrees to make the Term Loan in the principal amount of $10,000,000 to Borrower, the proceeds from which shall be used by Borrower for the sole purposes of working capital and other general corporate purposes. The indebtedness represented by the Term Loan shall be evidenced by the Note, which shall be executed and delivered simultaneously herewith by Borrower. 2.2 Principal. ---------- (a) Subject to the terms of Section 2.2(b), the principal amount of the Term Loan shall be repaid as follows: (i) $1,000,000 shall be due and payable on July 1, 1998 (the "First Payment Date"); (ii) $1,000,000 shall be due and payable on July 1, 1999 (the "Second Payment Date"); (iii) $1,000,000 shall be due and payable on July 1, 2000 (the "Third Payment Date"); and (iv) the outstanding principal amount of the Term Loan and any and all accrued and unpaid interest thereon shall be due and payable in full on the Final Maturity Date. (b) Notwithstanding anything herein to the contrary, and in furtherance and not in limitation of the rights and remedies provided in Sections 8.1 through 8.4, inclusive, the Bank may, at its sole option: (1) upon at least ten (10) Domestic Business Days' prior written notice to the Borrower, declare the outstanding principal of the Term Loan and the 8 Note and any and all accrued and unpaid interest due thereon, due and payable in full as of July 1, 1998 (unless earlier accelerated pursuant to Sections 8.1 through 8.4) (the "Initial Call Date"); and (2) at any time after July 1, 1998, upon at least ninety (90) calendar days' prior written notice to the Borrower, declare the outstanding principal of the Term Loan and the Note and any and all accrued and unpaid interest due thereon, due and payable in full as of the date specified in the written notice (unless earlier accelerated pursuant to Sections 8.1 through 8.4) (which date, referred to herein as a "Subsequent Call Date", shall be at least ninety (90) days after the date such notice is given) which the Bank delivers to the Borrower exercising the Bank's option under this Section 2.2(b)(2). A failure by the Bank to exercise its rights under this Section 2.2 on any date shall not adversely affect the right of the Bank to exercise its rights on any subsequent date. 2.3 Interest. -------- (a) The Term Loan shall at all times be either a Euro-Dollar Loan or a Base Rate Loan and bear interest as provided in this Section 2.3, provided that except as provided in Section 2.3(e), at any time the Term Loan may be only one Type of Loan and there may be in effect only one Interest Period. Prior to the commencement of each Interest Period, the Borrower may elect, and shall give the Lender notice of its election, whether the Term Loan shall be a Euro-Dollar Loan or a Base Rate Loan during such Interest Period and the applicable Interest Period, provided that (1) such notice shall be delivered to the Lender (A) not later than 11:00 A.M. (Atlanta, Georgia time) on the third Euro-Dollar Business Day prior to the first day of such Interest Period if the Borrower elects for the Term Loan to be a Euro-Dollar Loan during such Interest Period, or (B) not later than 11:00 A.M. (Atlanta, Georgia time) on the Domestic Business Day prior to the first day of such Interest Period if the Borrower elects for the Term Loan to be a Base Rate Loan during such Interest Period, (2) if the Borrower shall fail to deliver such notice to the Lender in a timely manner as a set forth in clause (1) of this sentence, then the Term Loan shall be a Euro-Dollar Loan with an Interest Period of one month, and (3) at any time in which there exists an Event of Default which has not been waived by the Lender, the Borrower may not so elect for the Term Loan to be a Euro-Dollar Loan. (b) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Term Loan is made until it becomes due, at a rate per annum equal to the Base Rate for 9 such day plus the Applicable Interest Rate Margin. Such interest shall be payable on each Interest Payment Date. Any overdue principal of and, to the extent permitted by law, overdue interest on any Base Rate Loan shall bear interest, payable on demand for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Euro-Dollar Rate for such Interest Period; provided that if any Euro-Dollar Loan shall, as a result of clause (l)(c) of the definition of Interest Period, have an Interest Period of less than 30 days, such Euro-Dollar Loan shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable on each Interest Payment Date. Any overdue principal of and, to the extent permitted by law, overdue interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (d) The Lender shall determine each interest rate applicable to the Term Loan hereunder. Upon request by the Borrower, the Lender shall give prompt notice to the Borrower of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (e) Notwithstanding anything herein to the contrary, if the first Payment Date, the Second Payment Date, the Third Payment Date, the Initial Call Date or any Subsequent Call Date is scheduled to occur during an Interest Period in which the Term Loan is a Euro-Dollar Loan other than on the last day of such Interest Period, then during such Interest Period a portion of the outstanding balance of the Term Loan which is equal to the aggregate amount of the principal payment due on the Term Loan on such date shall be a Base Rate Loan, and only the remaining portion of the outstanding principal of the Term Loan shall constitute a Euro-Dollar Loan. 2.4 Optional Prepayments. -------------------- (i) The Borrower may, upon at least one Domestic Business Days' notice to the Lender, prepay any Base Rate Loan in whole at any time, or 10 from time to time in part in an amount of at least $1,000,000 (or integral multiples thereof of $500,000), by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such prepayment shall be applied to installments of principal in their inverse order of maturity. (ii) Except as provided in paragraph (2.9) below, the Borrower may not prepay all or any portion of the principal amount of the Term Loan during any Interest Period in which the Term Loan is a Euro-Dollar Loan except on the last day of such Interest Period. The Borrower shall give the Lender at least three (3) Euro-Dollar Business Days' prior notice of any such permitted prepayment of a Euro-Dollar Loan and any such prepayment, in part, shall be in an amount of at least $1,000,000 (or integral multiples thereof of $500,000). (iii) Upon receipt of a notice of prepayment pursuant to this paragraph, such notice shall not thereafter be revocable by the Borrower. 2.5 General Provisions as to Payments. --------------------------------- (i) The Borrower shall make each payment of principal of, and interest on, the Term Loan and of fees hereunder, not later than 11:00 A.M. (Atlanta, Georgia time) on the date when due, in Federal or other funds immediately available in Atlanta, Georgia, to the Lender at its address referred to herein. (ii) Whenever any payment of principal of, or interest on, a Base Rate Loan or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, a Euro- Dollar Loan shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. 2.6 Funding Losses. If the Borrower makes any payment or prepayment of ---------------- principal with respect to any Euro-Dollar Loan (pursuant to the express terms of this Agreement, or by reason of acceleration or otherwise) on any day other than the last day of the Interest Period applicable thereto, or the end of an applicable period fixed pursuant to 11 paragraph 2.3 (c), the Borrower shall reimburse the Lender on demand for any resulting loss or expense incurred by it (or by any existing or prospective participant in the related Term Loan), including, without limitation, any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure, provided that the Lender shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. 2.7 Computation of Interest and Fees. Interest on the Term Loan shall be -------------------------------- computed on the basis of a year of 360 days and paid for the actual number of days elapsed, calculated as to each Interest Period or period fixed pursuant to paragraph 2.3 (c) from and including the first day thereof to but excluding the last day thereof. 2.8 Basis for Determining Interest Rate Inadequate or Unfair. If on or -------------------------------------------------------- prior to the first day of any Interest Period: (a) the Lender determines that deposits in Dollars (in the applicable amounts) are not being offered to the relevant market for such interest period, or (b) the Lender determines that the London Interbank Offered Rate, as determined by the Lender will not adequately and fairly reflect the cost to the Lender of funding the Euro-Dollar Loan for such Interest Period, the Lender shall forthwith give notice thereof to the Borrower whereupon until the Lender notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Lender to make Euro-Dollar Loans shall be suspended. 2.9 Illegality. If, after the date hereof, the adoption of any applicable ---------- law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof (any such agency being referred to as an "Authority" and any such event being referred to as a "Change of Law"), or compliance by the Lender (or its Lending Office) with any request or directive (whether or not having the force of law) of any Authority shall make it unlawful or impossible for the Lender (or its Lending Office) to make, maintain or fund its Euro-Dollar Loans, the Lender shall forthwith give notice thereof to the Borrower, whereupon until the Lender notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of the Lender to make or maintain Euro-Dollar Loans shall be suspended. Before giving any notice to the Borrower, pursuant to this paragraph, the Lender shall designate a different Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment 12 of the Lender, be otherwise disadvantageous to the Lender. If the Lender shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to the maturity of the applicable Interest Period and shall so specify in such notice, such Term Loan shall immediately be converted to a Base Rate Loan and concurrently with such conversion, the Borrower shall pay all accrued and unpaid interest on such Term Loan. 2.10 Increased Cost and Reduced Return. ---------------------------------- (i) If after the date hereof, a Change of Law or compliance by the Lender (or its Lending Office) with any request or directive (whether or not having the force of law) of any Authority: (1) shall subject the Lender (or its Lending Office) to any tax, duty or other charge with respect to its Euro-Dollar Loans, this Agreement, the Note or the Lender's obligation to make Euro-Dollar Loans, or shall change the basis of taxation of payments to the Lender (or its Lending Office) of the principal of or interest on its Euro-Dollar Loans or any other amounts due under this Agreement or the Note in respect of its Euro-Dollar Loans or its obligation to make or maintain Euro-Dollar Loans (except for changes in the rate of tax on the overall net income of the Lender or its Lending Office imposed by the jurisdiction in which such Lender's principal executive office or Lending Office is located); or (2) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement with respect to which the Lender is entitled to compensation during the relevant Interest Period under paragraph 2.8 against assets of, deposits with or for the account of, or credit extended by, the Lender (or its Lending Office); or (3) shall impose on the Lender (or its Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Euro-Dollar Loans, this Note, or the Lender's obligation to make or maintain Euro-Dollar Loans; and the result of any of the foregoing is to increase the cost to the Lender (or its Lending Office) of making or maintaining any Euro-Dollar Loan, or to reduce the amount of any sum 13 received or receivable by the Lender (or its Lending Office) under this Note with respect thereto, by an amount deemed by the Lender to be material, then, within 15 days after demand by the Lender, the Borrower shall pay to the Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction. (ii) If after the date hereof, the Lender shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy or any change in the interpretation or administration thereof, or compliance by the Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any Authority, has or would have the effect of reducing the rate of return on the Lender's capital as a consequence of its obligations hereunder to a level below that which it could have achieved but for such adoption, change or compliance (taking into consideration the Lender's policies with respect to capital adequacy) by an amount deemed by the Lender to be material, then, from time to time within ten (10) days after demand by the Lender, the Borrower shall pay to the Lender such additional amount or amounts as will compensate the Lender for such reduction. (iii) The Lender will promptly notify the Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle the Lender to compensation pursuant to this Section and will designate a different Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of the Lender, be otherwise disadvantageous to the Lender. A certificate of the Lender claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, the Lender may use any reasonable averaging and attribution methods. 2.11 Base Rate Loans Substituted for Affected Euro-Dollar Loans. If (i) the ----------------------------------------------------------- obligation of the Lender to make Euro-Dollar Loan has been suspended pursuant to paragraph 2.8 or 2.9 or (ii) the Lender has demanded compensation under paragraph 2.10 and the Borrower shall, by at least five Euro-dollar Business Days' prior notice to the Lender have elected that the provisions of this paragraph 2.11 shall apply to the Lender, then, unless and until the Lender notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply, the Term Loan if it is to be made by the Lender as a Euro-Dollar Loan, shall be made or maintained instead as a Base Rate Loan. 14 2.12 Indemnification of Lender. At all times prior to and after the ------------------------- consummation of the transactions contemplated by this Agreement, Borrower will hold Lender, its respective directors, officers, employees, agents, Affiliates, successors and assigns harmless from and indemnify Lender, its respective directors, officers, employees, agents, Affiliates, successors and assigns against, all loss, damages, costs and expenses (including, without limitation, reasonable actual attorney's fees, costs and expenses) incurred by any of the foregoing, whether direct, indirect or consequential, as a result of or arising from or relating to any "Proceedings" (as defined below) by any Person, whether threatened or initiated, asserting a claim for any legal or equitable remedy against any Person under any statute, case or regulation, including, without limitation, any federal or state securities laws or under any common law or equitable case or otherwise, arising from or in connection with this Agreement, and any other of the transactions contemplated by this Agreement except to the extent such losses, damages, costs or expenses are due to the wilful misconduct or gross negligence of Lender. As used herein, "Proceedings" shall mean actions, suits or proceedings before any court, governmental or regulatory authority. At the request of Lender, Borrower will indemnify any Person to whom Lender transfers or sells all or any portion of its interest in the Obligations or participations therein on terms substantially similar to the terms set forth above. Lender shall not be responsible or liable to any Person for consequential damages which may be alleged as a result of this Agreement or any of the transactions contemplated hereby. The obligations of Borrower under this Section 2.12 shall survive the termination of this Agreement and payment of the Obligations. 3. SECURITY INTEREST -- COLLATERAL. As security for the payment for the ------------------------------- Note and all Obligations whatsoever to the Lender, Borrower hereby grants to Lender a continuing, general lien upon and security interest and title in and to the following described Property, wherever located, whether now existing or hereafter acquired or arising, namely: (a) the trailers and other equipment and property described on Exhibit A; and (b) all products and/or proceeds of any and all of the foregoing, including, without limitation, all cash and non-cash proceeds of any type, insurance proceeds, all Property received wholly or partly in trade or exchange for any of the foregoing, and all rents, revenues, issues, profits and proceeds arising from the sale, lease, license, encumbrance, collection or any other temporary or permanent disposition of any of the foregoing or any interest therein. The Borrower shall execute and file such certificates, authorizations, documents, financing statements and other items (the "Lien Documents") as the Lender may request and the Lender is authorized, at its option, after exercising reasonable efforts to have the Borrower execute such Lien Documents, and to the extent lawful, to file such Lien Documents or amendments thereto without the signature of the Borrower with respect to any of the Collateral; the Borrower agrees to reimburse the Lender for the expense of any such filing. The Borrower agrees that a carbon, photographic, or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed 15 in any appropriate office in lieu thereof. To the extent lawful, the Borrower hereby appoints the Lender as its attorney-in-fact (without requiring the Lender to act as such) to execute any financing statement in the name of the Borrower, and to perform all other acts that the Lender deems appropriate to perfect and continue its security interest in, and to protect and preserve, the Collateral. 4. GENERAL REPRESENTATIONS AND WARRANTIES. -------------------------------------- The Borrower represents and warrants that: 4.01 Corporate Existence and Power. The Borrower and each of its ----------------------------- Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 4.02 Corporate and Governmental Authorization; No Contravention. The ---------------------------------------------------------- execution and delivery by the Borrower of the Loan Documents to which the Borrower is a party and the performance by the Borrower of its obligations thereunder are within the corporate power of the Borrower, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (except for any such action or filing that has been taken and is in full force and effect) and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the articles of incorporation or bylaws of the Borrower or of any material agreement, judgment, injunction, order, decree or other material instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower other than Liens created pursuant to the Loan Documents. 4.03 Binding Effect. This Agreement constitutes a valid and binding -------------- agreement of the Borrower, and the other Loan Documents to which the Borrower is a party, when executed and delivered as contemplated by this Agreement, will constitute valid and binding obligations of the Borrower. 4.04 Litigation. Except as set forth on Schedule 4.04 attached to the ---------- Existing Syndicated Credit Agreement, there is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which would materially adversely affect the business or the consolidated results of operations of the Borrower and its Subsidiaries, or which in any manner draws into question the validity of any Loan Document. 4.05 Compliance with ERISA. Except as set forth on Schedule 4.05 attached --------------------- to the Existing Syndicated Credit Agreement, each member of the ERISA Group has fulfilled its obligations in all material aspects under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. Except as previously disclosed to the Bank in writing prior to the date hereof, no member of the 16 ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which in either event has resulted or could reasonably be expected to result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums or similar items under Section 4007 of ERISA. 4.06 Environmental Matters. Except as set forth in Schedule 4.06 attached --------------------- to the Existing Syndicated Credit Agreement: (a) No written notice, notification, demand, request for information, citation, summons, complaint or order has been received by the Borrower or any of its Subsidiaries and to the knowledge of the Borrower, no penalty has been, assessed and no investigation or review is pending or threatened by any governmental or other entity, (i) with respect to any alleged violation of any Environmental Laws in connection with the conduct of the Borrower or any of its Subsidiaries and relating to a Hazardous Substance or (ii) with respect to any alleged failure to have any permit, certificate, license, approval, registration or authorization required in connection with the conduct of the Borrower or any of its Subsidiaries relating to a Hazardous Substance or (iii) with respect to any generation, treatment, storage, recycling, transportation, disposal, or release (including a release as defined in 42 U.S.C. Section 9601(22)) ("Release") of any Hazardous Substance used by the Borrower or any of its Subsidiaries, which alleged violation, alleged failure to have any required permit, certificate, license, approval, or registration, or generation, treatment, storage, recycling, transportation, disposal or release, individually or in the aggregate, is reasonably likely to result in liability to the Borrower and its Subsidiaries in excess of $500,000.00. (b) (i) To the best knowledge of the Borrower, there has been no Release of a Hazardous Substance at, on or under any property used by the Borrower or any of its Subsidiaries or for which the Borrower or any of its Subsidiaries would be liable, which Release, individually, is reasonably likely to result in liability to the Borrower and its Subsidiaries in excess of $500,000.00; (ii) neither the Borrower nor any of its Subsidiaries has, other than as a generator or in a manner not regulated under the Environmental Laws, stored or treated any "hazardous waste" (as defined in 42 U.S.C. Section 6903(5)) on any property used by the Borrower or any of its Subsidiaries or for which the Borrower or any of its Subsidiaries would be liable, except for such storage or treatment which individually or in the aggregate is not reasonably likely to result in liability to the Borrower or any of its Subsidiaries in excess of $500,000.00; and (iii) no polychlorinated biphenyl ("PCB") in concentrations greater than 50 parts per million, friable asbestos, or underground storage tank (in use or abandoned) is at any property used by the Borrower or any of its Subsidiaries or for which the Borrower or any of its Subsidiaries would be liable, except for such PCBs, friable asbestos or underground storage tanks that are not reasonably likely, individually or in the aggregate, to result in liability to the Borrower or any of its Subsidiaries in excess of $500,000.00 17 (c) To the best knowledge of the Borrower, neither the Borrower nor any of its Subsidiaries has transported or arranged for the transportation (directly or indirectly) of any Hazardous Substance to any location which is listed under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), on the Comprehensive Environmental Response, Compensation and Liability Information System, as amended ("CERCLIS"), or on any similar state list or which is the subject of any federal, state or local enforcement action or other investigation which may lead to claims for clean-up costs, remedial work, damages to natural resources or for personal injury claims, including, but not limited to, claims under CERCLA that are reasonably likely, individually or in the aggregate, to result in liability to the Borrower or any of its Subsidiaries in excess of $500,000.00. (d) No written notification of a Release of a Hazardous Substance has been filed by or on behalf of the Borrower or any of its Subsidiaries, which individually or in combination with other such Releases, is reasonably likely to result in liability for the Borrower or any of its Subsidiaries in excess of $500,000.00. (e) There have been no environmental audits or similar investigations conducted by or which are in the possession of the Borrower or any of its Subsidiaries in relation to any property used by the Borrower or any of its Subsidiaries or for which the Borrower or any of its Subsidiaries would be liable, which identify one or more environmental liabilities of the Borrower or any of its Subsidiaries which are reasonably likely to exceed $500,000.00 individually or in the aggregate. 4.07 Subsidiaries. Set forth on Schedule 4.07 attached to the Existing ------------ Syndicated Credit Agreement is a complete and accurate list of all of the Subsidiaries of the Company showing as to each such Subsidiary the jurisdiction of its organization, the number of shares of each class of capital stock or other equity interests outstanding and the percentage of the outstanding shares of each such class owned (directly or indirectly) by the Company or any other Subsidiary of the Company and the number of shares covered by all outstanding options, warrants, rights of conversion or purchase, and similar rights. All of the outstanding capital stock or other equity interests of all of such Subsidiaries identified in such Schedule 4.07 as being owned by the Company or any of its Subsidiaries has been validly issued, is fully paid and nonassessable and is owned directly or indirectly by the Company or any of its Subsidiaries (other than directors' qualifying shares or nominee shares which are required for Foreign Subsidiaries pursuant to local law), as the case may be, free and clear of all Liens other than a Lien described in and permitted by Section 5.08(d) of the Existing Syndicated Credit Agreement. Each corporate Subsidiary of the Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 4.08 Not an Investment Company. Neither the Borrower nor any of its ------------------------- Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 18 4.09 Margin Stock. No proceeds of the Term Loan will be used to purchase or ------------ carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock in violation of Regulations U, G, T or X. 4.10 Compliance With Laws. The Borrower and each of its Subsidiaries is in -------------------- compliance in all material respects with all applicable laws, rules and regulations, and is not in violation of, or in default under, any term or provision of any charter, by-law, mortgage, indenture, agreement, instrument, statute, rule, regulation, judgment, decree, order, writ or injunction applicable to it, except for any such non-compliance, violation, default or failure to comply which would not be reasonably expected, individually or in the aggregate, to have a material adverse effect on the business, financial position or results of operations of the Borrower or any of its Subsidiaries, or on the ability of the Borrower or any of its Subsidiaries to perform its obligations under the Loan Documents. 4.11 Absence of Liens. There are no Liens of any nature whatsoever on any ---------------- properties or assets of the Borrower or any of its Subsidiaries existing as of the date hereof, except as otherwise permitted under Section 5.08 of the Existing Syndicated Credit Agreement. 4.12 Debt. There is no Debt of the Borrower and its Subsidiaries ---- outstanding as of the date hereof other than the Debt set forth on Schedule 4.12 attached to the Existing Syndicated Credit Agreement and/or Schedule 5.08 attached to the Existing Syndicated Credit Agreement, (ii) Debt permitted by Section 5.07 of the Existing Syndicated Credit Agreement and (iii) other Debt not exceeding $250,000 in the aggregate. 4.13 Contingent Liabilities. There are no material contingent liabilities ---------------------- (other than contingent liabilities that constitute Debt) of the Borrower or its Subsidiaries as or the date hereof other than as set forth in the financial statements referred to in Section 4.17 of the Existing Syndicated Credit Agreement. 4.14 Investments. Set forth on Schedule 4.14 attached to the Existing ----------- Syndicated Credit Agreement is a complete and accurate list as of the date hereof of all investments by the Company or any of its Subsidiaries in any Person, other than (i) Permitted Investments and (ii) investments by the Borrower or any of its Subsidiaries in a Subsidiary. 4.15 Solvency. The Borrower is Solvent after giving effect to the -------- transactions contemplated by this Agreement. 4.16 Taxes. The Borrower and its Subsidiaries have filed, or caused to be ----- filed or properly extended, all material tax returns (federal, state, local and foreign) required to be filed and paid all amounts of taxes shown thereon to be due (including interest and penalties) and have paid all other taxes, fees, assessments and other governmental charges owing by them, except for such taxes (i) which are not yet delinquent or (ii) as are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with generally accepted 19 accounting principles. Except as set forth on Schedule 4.16 attached to the Existing Syndicated Credit Agreement, the Borrower is not aware of any proposed material tax assessments against it or any of its Subsidiaries. 4.17 Financial Condition. The financial statements and financial ------------------- information provided to the Bank, consisting of, among other things, (i) an audited consolidated balance sheet of the Company dated as of March 31, 1996, together with related consolidated statements of income, retained earnings and cash flows, certified by the Company's certified public accountants, as true and correct, fairly represent the financial condition of the Company as of such date; such financial statements were prepared in accordance with generally accepted accounting principles applied on a consistent basis; and since the date of such financial statements there have occurred no changes or circumstances which have had or are reasonably likely to have a material adverse effect on the financial condition of the Borrower. 5. GENERAL COVENANTS. ----------------- The Borrower hereby covenants and agrees that until the Term Loan, together with interest, fees and other obligations hereunder, have been paid in full, the Borrower shall, and shall cause its Subsidiaries to, perform and comply with the following covenants: 5.01 Information. The Borrower will mail or deliver to the Bank: ----------- (a) as soon as available and in any event within 90 days after the end of each fiscal year of the Company, a consolidated and consolidating balance sheet of the Company and its Subsidiaries as of the end of such fiscal year and the related consolidated and consolidating statements of income and consolidated statement of cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, and, with respect to such financial information for the Company, such consolidated (but not consolidating) statements shall be audited statements by Arthur Andersen LLP or other independent public accountants of nationally recognized standing and containing an unqualified opinion of such accountants; (b) as soon as available and in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Company, a consolidated balance sheet of the Company and its Subsidiaries as of the end of such quarter and the related consolidated statements of income and consolidated statement of cash flows for such quarter and for the portion of the Company's fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by a Responsible Officer; 20 (c) simultaneously with the delivery of each set of financial statements referred to in subsections (a) and (b) of this Section, a certificate of the treasurer, chief accounting officer or chief financial officer of the Company (i) stating whether, to the best of such officer's knowledge after due inquiry, there exists on the date of such certificate any Default Condition and, if any Default Condition then exists, setting forth the details thereof and the action that the Company and Borrower are taking or propose to take with respect thereto and (ii) stating whether, since the date of the most recent financial statements previously delivered pursuant to subsection (a) or (b) of this Section, there has been a change in the generally accepted accounting principles applied in preparing the financial statements then being delivered from those applied in preparing the most recent audited financial statements so delivered which is material to the financial statements then being delivered and which is not otherwise disclosed in the financial statements then being delivered, (iii) furnishing calculations demonstrating the compliance by the Company of the covenants contained in Sections 5.19, 5.20 and 5.21 of the Existing Syndicated Credit Agreement, and (iv) attaching management's summary of the results contained in such financial statements; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements whether anything has come to their attention to cause them to believe that any Default Condition existed on the date of such statements; (e) as soon as available and in any event within ninety (90) days after the end of each fiscal year of the Company, financial forecasts and projections of the Company and its Subsidiaries for each fiscal quarter in the first succeeding fiscal year and financial forecasts and projections of the Company and its Subsidiaries for the second succeeding fiscal year together with a certificate of the chief financial officer, chief accounting officer or the treasurer of the Company setting forth that such financial forecasts and projections (i) have in all material respects been prepared in accordance with the Company's normal accounting procedures on the basis of reasonable assumptions, (ii) fairly represent in all material respects the expectations of the Company as to the matters covered thereby based on currently available information, (iii) were prepared by the Company in good faith and (iv) remain unchanged in all material respects as of the date delivered; (f) within five Business Days after any Responsible Officer obtains knowledge of any Default Condition, if such Default Condition is then continuing, a certificate of a Responsible Officer setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (g) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (h) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and 21 reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Company shall have filed with the Securities and Exchange Commission; (i) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability with respect to any Multiemployer Plan under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is not Solvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of its intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) except as previously disclosed to the Bank in writing prior to the date hereof, fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code, a certificate of the chief financial officer, the chief accounting officer or the treasurer of the Company setting forth details as to such occurrence and the action, if any, which the Company or any applicable member of the ERISA Group is required or proposes to take; (j) as soon as reasonably practicable after any Responsible Officer of the Company obtains knowledge of the commencement of, or of a material threat of the commencement of, an action, suit or proceeding against the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable likelihood of an adverse decision which could after the application of applicable insurance materially and adversely affect the business, financial position or results of operations of the Company and its Subsidiaries, in each case considered as a whole, or which in any manner questions the validity of any Loan Document, a written report informing the Bank in reasonable detail of the nature of such pending or threatened action, suit or proceeding; and (k) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries, as the Bank may reasonably request. 5.02 Payment of Obligations. The Borrower will pay and discharge, and will ---------------------- cause each of its Subsidiaries to pay and discharge, at or before maturity, all their respective material obligations 22 and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each of its Subsidiaries to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same. 5.03 Maintenance of Property: Insurance. ---------------------------------- (a) The Borrower will keep, and will cause each of its Subsidiaries to keep, all property materially useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower will maintain, and will cause each of its Subsidiaries to maintain, with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against such risks (and with such risk retention) as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business, and will furnish to the Bank, upon request from the Bank, information presented in reasonable detail as to the insurance so carried. 5.04 Conduct of Business and Maintenance of Existence. The Borrower will ------------------------------------------------ continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and each of its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each of its Subsidiaries to preserve, renew and keep in full force and effect their respective corporate existences and, except for any such rights, privileges and franchises the failure to preserve which would not in the aggregate have a material adverse effect on the Borrower and its Subsidiaries or the ability of the Borrower or any Subsidiary to perform any of their respective obligations under any Loan Document, their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided -------- that nothing in this Section 5.04 shall prohibit (a) the merger of a Subsidiary of the Borrower into the Borrower or the merger or consolidation of any Subsidiary of the Borrower with or into another Person if the corporation surviving such consolidation or merger is a Wholly-Owned Subsidiary of the Borrower and if, in each case, after giving effect thereto, no Default shall have occurred and be continuing or (b) the termination of the corporate existence of any Subsidiary of the Borrower or the discontinuation of any line of business of the Borrower or any of its Subsidiaries if the Borrower in good faith determines that such termination is in the best interest of the Borrower or such Subsidiary, as the case may be, and is not materially disadvantageous to the Banks. 5.05 Compliance with Laws. The Borrower will comply, and cause each of its -------------------- Subsidiaries to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) the failure to comply with which would have a material adverse effect on the Borrower and its Subsidiaries or their ability to perform any of its obligations under any Loan Document, except where the necessity of compliance therewith is contested in good faith by appropriate proceedings. 23 5.06 Inspection of Property, Books and Records. The Borrower will keep, and ----------------------------------------- will cause each of its Subsidiaries to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and, except to the extent prohibited by applicable law, rule, regulations or orders, will permit, and will cause each of its Subsidiaries to permit, representatives of any Bank at such Bank's expense to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. 5.07 Consolidations, Mergers and Sales of Assets. ------------------------------------------- (a) The Borrower will not, nor will it permit any of its Subsidiaries to, consolidate or merge with or into any other Person except as permitted in accordance with Section 5.04. (b) The Borrower will not, nor will it permit any of its Subsidiaries to, make any Asset Sale. 5.08 Creation of Subsidiaries. The Borrower will not, nor will it permit ------------------------ any of its Subsidiaries to, create any Subsidiary except for Subsidiaries in existence on the date hereof. 5.09 Transactions with Affiliates. The Borrower will not, nor will it ---------------------------- permit any of its Subsidiaries to, directly or indirectly, pay any funds to or for the account of, make any Investment in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any of their Affiliates unless such transactions are made on an arms-length basis; provided, however, that the foregoing provisions of this ----------------- Section shall not prohibit (i) any Subsidiaries of the Borrower from declaring or paying any lawful dividend to the Borrower or any of its Subsidiaries or (ii) the payment of ordinary and customary directors fees to outside directors of the Borrower. 5.10 Use of Proceeds. The proceeds of the Loans will be used for working --------------- capital purposes and to finance the general corporate purposes of the Borrower and its Subsidiaries. 5.11 Constitutional Documents. Subject to changes, including any ------------------------ dissolutions permitted pursuant to this Agreement, the Borrower will not, nor will it permit any of its Subsidiaries to, amend their respective articles of incorporation or bylaws in any manner which could materially adversely affect the rights of the Bank under the Loan Documents or their ability to enforce the same. 6. REPRESENTATIONS. WARRANTIES AND COVENANTS APPLICABLE TO COLLATERAL. With ------------------------------------------------------------------ respect to the Collateral, Borrower hereby represents, warrants and covenants to Lender as set forth in Section 6.1 through 6.5, inclusive. 24 6.1 Sale of Collateral. Borrower will not sell, lease, exchange, or ------------------ otherwise dispose of any of the Collateral without the prior written consent of Lender; provided, however, that, with notice to, but without the necessity of consent of, Lender, from time to time hereafter, in the ordinary course of Borrower's business, Borrower may sell, exchange or otherwise dispose of portions of its Collateral which are obsolete, worn-out or unsuitable for continued use by Borrower if such Collateral is replaced promptly upon its disposition with equipment constituting Collateral having a market value equal to or greater than the Collateral so disposed of and in which Lender shall obtain and have a first priority security interest pursuant hereto; provided, that the Borrower shall not be obligated to replace an item of the Collateral if such item is damaged by a casualty and the outstanding principal balance of the Term Loan is an amount less than ninety percent of the fair market value of the remaining Collateral. 6.2 Insurance. Borrower agrees that it will obtain and maintain insurance --------- on the Collateral with such companies and in such amounts and against such risks as Lender may reasonably request, with loss payable to Lender as its interests may appear. The loss payable clause of each such insurance policy shall be in form and substance satisfactory to Lender and shall provide that all proceeds thereunder are payable to Lender and the payment of such proceeds shall not be affected by any act or neglect of the insured or owner of property described in such policy. Such insurance shall not be cancellable by Borrower, unless with the prior written consent of Lender, or by Borrower's insurer, unless with at least 10 days advance written notice to Lender. 6.3 Good Title; No Existing Encumbrances. Borrower owns the Collateral free ------------------------------------ and clear of any prior Lien thereon other than with respect to any Permitted Encumbrances and no financing statements or other evidences of the grant of a security interest respecting the Collateral exist on the public records as of the date hereof other than any evidencing any Permitted Encumbrances. 6.4 Right to Grant Security Interest; No Further Encumbrances. Borrower has --------------------------------------------------------- the right to grant a security interest in the Collateral. Borrower will pay all taxes and other charges against the Collateral. Borrower will not use the Collateral illegally or allow the Collateral to be encumbered except for the security interest in favor of Lender granted herein. 6.5 Location. As of the date hereof, the Collateral is titled in the state -------- of [Tennessee] and, hereafter, Borrower covenants with Lender not to title (or permit any state to issue a new or replacement title) with respect to any of the Collateral, without the Lender's prior written consent. 7. EVENTS OF DEFAULT. ----------------- 7.01 Events of Default. The occurrence of any of the following events shall ----------------- constitute an event of default hereunder (individually, an "Event of Default" and collectively the "Events of Default"): 25 (a) The Borrower shall fail to pay (i) when due any principal of the Term Loan; or (ii) within five days after the same shall become due, any interest on the Term Loan or any fees or any other amount payable hereunder; (b) The Borrower shall fail to observe or perform any covenant contained in Section 5.01 hereof (other than in Section 5.01(f) hereof) for 15 days after written notice of such failure shall have been given to the Borrower by the Bank; (c) The Borrower shall fail to observe or perform any covenant contained in Section 5.01(f), 5.07, or 5.10; (d) (i) Any Obligor shall fail to observe or perform any covenant or agreement contained in any Loan Document (other than those covered by clause (a), (b) or (c) above) for 30 days after the earlier of the receipt of written notice of such failure by the Borrower from the Bank or any Responsible Officer becomes aware of such failure; (e) Any representation, warranty, certification or statement made or deemed made by any Obligor in any Loan Document or in any certificate, financial statement or other document delivered pursuant thereto shall prove to have been incorrect in any material respect when made (or deemed made); (f) The Company or any of its Subsidiaries shall fail to make any payment in respect of any Material Debt when due or within any applicable grace period (for purposes of the foregoing, "Material Debt" shall be Debt in excess of $500,000.00); (g) Any event or condition shall occur which results in the acceleration of the maturity of any Debt of the Company or any of its Subsidiaries in excess of $500,000.00 or enables the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; (h) The Company or any of its Subsidiaries shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (i) An involuntary case or other proceeding shall be commenced against the Company or any of its Subsidiaries seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or 26 hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Company or any of its Subsidiaries under the federal bankruptcy laws as now or hereafter in effect and the Company or such Subsidiary, as the case may be, shall have failed to appeal such order and to have obtained a stay pending the outcome of such appeal; (j) The Company shall admit its inability to pay its debts as and when they fall due; (k) Any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $500,000.00 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate any Plan which is then a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Plan which is then a Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Plan which is then a Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(S) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation, that is, an obligation or series of obligations payable within 12 months, in excess of $500,000.00; (l) An uninsured judgment or order for the payment of money in excess of $500,000.00 shall be rendered against the Company or any of its Subsidiaries and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; (m) The occurrence of a "Default" or an "Event of Default" as such terms are defined in the Existing Syndicated Credit Agreement; (n) The Company shall at any time fail to have, directly or indirectly, beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of outstanding shares of the voting stock of the Borrower possessing 100% of the voting power of all outstanding shares of the voting stock of the Borrower; or (o) Max Fuller and/or Patrick Quinn and their respective family members and/or family trusts shall fail to own in the aggregate at least 25% of the voting rights of the Company. 27 8. REMEDIES. Upon the occurrence of any Default Condition or Event of -------- Default, Lender's obligation to disburse any undisbursed portion of the Term Loan shall immediately cease; provided, however, that if such obligation has ceased due to the occurrence of a Default Condition, and such Default Condition does not become an Event of Default due to its having been cured or waived before it has matured into an Event of Default, then such obligation shall be reinstated as of the date such Default Condition is cured or waived. Upon the occurrence or existence of any Event of Default, or at any time thereafter, without prejudice to the rights of Lender to enforce its claims against Borrower for damages for failure by Borrower to fulfill any of its obligations hereunder, subject only to prior receipt by Lender of payment in full of all Obligations then outstanding in a form acceptable to Lender, Lender shall have all of the rights and remedies described in Sections 8.1 through 8.4, inclusive, and it may exercise any one, more, or all of such remedies, in its sole discretion, without thereby waiving any of the others. 8.1 Acceleration of the Obligations. Lender, at its option, may declare all --------------------------------- of the Obligations (including but not limited to that portion thereof evidenced by the Note) to be immediately due and payable, and in the event a voluntary or involuntary case is commenced under the Bankruptcy Code by or against Borrower as a debtor, all Obligations automatically will be due and payable without any notice or declaration by Lender, whereupon the same shall become immediately due and payable without presentment, demand, protest, notice of non-payment or any other notice required by law relative thereto, all of which are hereby expressly waived by Borrower, anything contained herein to the contrary notwithstanding and, in connection therewith, the rate of interest charged on the Note then outstanding shall automatically and without further~xx notice increase to a rate per annum equal to the Default Rate. If any promissory note of Borrower to Lender constituting Obligations, including, without limitation, the Note, shall be a demand instrument, however, the recitation of the right of Lender to declare any and all Obligations to be immediately due and payable, whether such recitation is contained in such promissory note or in this Agreement, as well as the recitation of the above events permitting Lender to declare all Obligations due and payable, shall not constitute an election by Lender to waive its right to demand payment under such promissory note at any time and in any event, as Lender in its discretion may deem appropriate. Thereafter, Lender, at its option, may, but shall not be obligated to, accept less than the entire amount of Obligations due, if tendered, provided, however, that unless then agreed to in writing by Lender, no such acceptance shall or shall be deemed to constitute a waiver of any Event of Default of Lender hereunder. 8.2 Remedies of a Secured Party. Lender shall thereupon have the rights and ----------------------------- remedies of a secured party under the UCC in effect on the date thereof (regardless of whether the same has been enacted in the jurisdiction where the rights or remedies are asserted), including, without limitation, the right to take the Collateral or any portion thereof into its possession, by such means (without breach of the peace) and through agents or otherwise as it may elect (and, in connection therewith, demand that Borrower assemble the Collateral at a place or places and in such manner as Lender shall prescribe), and sell, lease or otherwise dispose of the Collateral or any portion thereof in its then condition or following any commercially reasonable preparation or processing, which disposition may be by public or private proceedings, by one or more contracts, as a unit or in parcels, 28 at any time and place and on any terms, so long as the same are commercially reasonable. Lender may apply the proceeds of any such sale or disposition to any of the Obligations in such order as Lender, in its sole discretion, may elect. Lender shall give Borrower written notice of the time and place of any public sale of the Collateral or the time after which any other intended disposition thereof is to be made, except when the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. The requirement of sending reasonable notice shall be met if such notice is given to Borrower pursuant to Section 9.9 at least 5 days before such disposition. Expenses of retaking, holding, insuring, preserving, protecting, preparing for sale or selling or the like with respect to the Collateral shall include, in any event, reasonable actual attorneys' fees and other legally recoverable collection expenses, all of which shall constitute Obligations. 8.3 Set Offs. The Borrower hereby grants to the Bank, as security for the -------- full and punctual payment and performance of the Obligations, a continuing lien on and security interest in all deposits and other sums credited by or due from the Bank to the Borrower or subject to withdrawal by the Borrower; and regardless of the adequacy of any collateral or other means of obtaining repayment of such obligations, the Bank may at any time upon or after the occurrence of any Event of Default, and without notice to the Borrower, set off the whole or any portion or portions of any or all such deposits and other sums against such obligations, whether or not any other Person or Persons could also withdraw money therefrom. 8.4 Other Remedies. Unless and except to the extent expressly provided for -------------- to the contrary herein, the rights of Lender specified herein shall be in addition to, and not in limitation of, Lender's rights under the UCC, as amended from time to time, or any other statute or rule of law or equity, or under any other provision of any of the Loan Documents, or under the provisions of any other document, instrument or other writing executed by Borrower or any third party in favor of Lender, all of which may be exercised successively or concurrently. 9. MISCELLANEOUS. ------------- 9.1 Waiver. Each and every right granted to Lender under this Agreement, or ------ any of the other Loan Documents, or any other document delivered hereunder or in connection herewith or allowed it by law or in equity, shall be cumulative and may be exercised from time to time. No failure on the part of Lender to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise by Lender of any right preclude any other or future exercise thereof or the exercise of any other right. No waiver by Lender of any Default Condition or Event of Default shall constitute a waiver of any subsequent Default Condition or Event of Default. 9.2 Governing Law. This Agreement and the other Loan Documents, and the ------------- rights and obligations of the parties hereunder and thereunder, shall be governed by, and construed and interpreted in accordance with, the laws of the State of Georgia. 29 9.3 Survival. All representations, warranties and covenants made herein -------- shall survive the execution and delivery of all of the Loan Documents. The terms and provisions of this Agreement shall continue in full force and effect, notwithstanding the payment of the Note, until all of the Obligations have been paid in full and Lender has terminated this Agreement in writing. 9.4 No Assignment by Borrower. No assignment hereof shall be made by ------------------------- Borrower without the prior written consent of Lender. Lender may assign, or sell participations and undivided ownership interests in, its right, title and interest herein and in the Loan Documents at any time hereafter without notice to or consent of Borrower. 9.5 Counterparts. This Agreement may be executed in two or more -------------- counterparts, each of which when fully executed shall be an original, and all of said counterparts taken together shall be deemed to constitute one and the same agreement. 9.6 Reimbursement. Borrower shall pay to Lender on demand all reasonable --------------- out-of-pocket costs and expenses that Lender pays or incurs in connection with the negotiation, preparation, consummation, enforcement and termination of this Agreement and the other Loan Documents, including, without limitation: (a) reasonable attorneys' fees and paralegals' fees and disbursements of outside counsel; (b) reasonable costs and expenses (including reasonable outside attorneys' and paralegals' fees and disbursements) for any amendment, supplement, waiver, consent or subsequent closing in connection with the Loan Documents and the transactions contemplated thereby; (c) reasonable and actual costs and expenses of lien and title searches and title insurance; (d) actual taxes, fees and other charges for recording any deeds to secure debt, deeds of trust, mortgages, filing financing statements and continuations, and other actions to perfect, protect and continue the Lien of Lender in the Collateral; (e) upon the occurrence and during the continuation of an Event of Default, sums paid or incurred to pay for any amount or to take any action required of Borrower under the Loan Documents that Borrower fails to pay or take; (f) if an Event of Default exists, costs of appraisals, inspections, and verifications of the Collateral, including, without limitation, reasonable costs of travel, lodging, and meals for inspections of the Collateral and Borrower's operations by Lender; (g) pursuant to Section 9.18, costs and expenses of preserving and protecting the Collateral; and (h) after an Event of Default, costs and expenses (including reasonable attorneys' and paralegals' fees and disbursements) paid or incurred to obtain payment of the Obligations, enforce the Lien in the Collateral, sell or otherwise realize upon the Collateral, and otherwise enforce the provisions of the Loan Documents or to defend any claims made or threatened against Lender arising out of the transactions contemplated hereby (including, without limitation, preparations for and consultations concerning any such matters). The foregoing shall not be construed to limit any other provisions of the Loan Documents regarding costs and expenses to be paid by Borrower. Borrower will pay all expenses incurred by it in the transaction. In the event Borrower becomes a debtor under the Bankruptcy Code, Lender's secured claim in such case shall include all fees, costs and charges provided for herein (including, either limitation, reasonable attorneys' fees). 9.7 Successors and Assigns. This Agreement shall be binding upon and inure ---------------------- to the benefit of the successors and permitted assigns of the parties hereto. 30 9.8 Severability. If any provision of any of the Loan Documents or the ------------ application thereof to any party thereto or circumstances shall be invalid or unenforceable to any extent, the remainder of such Loan Documents and the application of such provisions to any other party thereto or circumstance shall not be affected thereby and shall be enforced to the greatest extent permitted by law. Without limiting the foregoing, the obligations of Borrower under this Agreement and the Note shall be subject to the limitation that payments of interest shall not be required to the extent that receipt thereof would be contrary to provisions of law applicable to Lender limiting rates of interest which may be charged or collected by Lender. 9.9 Notices. All notices, requests and demand to or upon the respective ------- parties hereto shall be deemed to have been properly given or made when personally delivered or deposited in the mail, registered or certified mail, return receipt requested, postage prepaid, addressed as follows or to such other address as may be designated hereafter in writing by the respective parties hereto: Borrower: c/o U.S. Xpress Enterprises, Inc. 2931 South Market Street Chattanooga, Tennessee 37410 Telephone: 800-251-6291 Facsimile: 423-265-5715 Lender: Wachovia Bank, N.A. Southeast Corporate Division 191 Peachtree Street, N.E. (29th Floor) Atlanta, Georgia 30303 Attention: John Tibe Telephone: 404-332-1040 Facsimile: 404-332-5016 except in cases where it is expressly provided herein or by applicable law that such notice, demand or request is not effective until received by the party to whom it is addressed in which instance rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given shall be deemed to be receipt of the notice, demand or request sent. By giving at least 30 days written notice thereof, Borrower or Lender shall have the right from time to time and at any time to change their respective addresses and each shall have the right to specify any other address within the continental United States of America. 9.10 Entire Agreement - Amendment. This Agreement constitutes the entire ------------------------------ agreement between the parties hereto with respect to the subject matter hereof. Neither this Agreement nor any 31 provision hereof may be changed, waived, discharged, modified or terminated orally, but only by an instrument in writing signed by the party against whom enforcement is sought. 9.11 Time of the Essence. Time is of the essence in this Agreement and the ------------------- other-Loan Documents. 9.12 Interpretation. No provision of this Agreement shall be construed -------------- against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. 9.13 Lender Not a Joint Venturer. Neither this Agreement nor any --------------------------- agreements, instruments, documents or transactions contemplated hereby (including the Loan Documents) shall in any respect be interpreted, deemed or construed as making Lender a partner or joint venturer with Borrower or as creating any similar relationship or entity, and Borrower agrees that it will not make any contrary assertion, contention, claim or counterclaim in any action, suit or other legal proceeding involving Lender and Borrower. 9.14 Jurisdiction. Borrower agrees that any legal action or proceeding with ------------ respect to this Agreement may be brought in the courts of the State of Georgia or the United States District Court, Northern District of Georgia, Atlanta Division, all as Lender may elect. By execution of this Agreement, Borrower hereby submits to each such jurisdiction, hereby expressly waiving whatever rights may correspond to it by reason of its present or future domicile. Nothing herein shall affect the right of Lender to commence legal proceedings or otherwise proceed against Borrower in any other jurisdiction or to serve process in any manner permitted or required by law. In furtherance of the foregoing, Borrower hereby appoints the Secretary of State of the State of Georgia as its agent for service of process. 9.15 Acceptance. This Agreement, together with the other Loan Documents, ---------- shall not become effective unless and until delivered to Lender at its principal office in Atlanta, Georgia and accepted in writing by Lender thereafter at such office as evidenced by its execution hereof (notice of which delivery and acceptance are hereby waived by Borrower). 9.16 Payment on Non-Business Days. Whenever any payment to be made ---------------------------- hereunder or under the Notes shall be stated to be due on a day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest hereunder or under the Notes. 9.17 Waiver of Rights. Borrower hereby waives all rights which Borrower has ---------------- or may have under and by virtue of O.C.G.A. Ch. 44-14, including, without limitation, the right of Borrower to notice and to a judicial hearing prior to seizure of any Collateral by Lender. In addition, Borrower waives any right which it has or may have under UCC (S) 9-404(1) to have Lender file UCC 32 termination statements unless and until all Obligations have been paid in full and Lender shall have terminated this Agreement in writing. 9.18 Cure of Defaults by Lender. If, hereafter, Borrower defaults in the ---------------------------- performance of any duty or obligation to Lender hereunder, Lender may, at its option, but without obligation, cure such default and any costs, fees and expenses incurred by Lender in connection therewith including, without limitation, for the purchase of insurance, the payment of taxes and the removal or settlement of liens and claims, shall be deemed to be payable upon demand and shall accrue interest at the Default Rate overadvance under the Master Note, and shall be payable in accordance with its terms. 9.19 Recitals. All recitals contained herein are hereby incorporated by ---------- reference into this Agreement and made part thereof. 9.20 Attorney-in-Fact. Borrower hereby designates, appoints and empowers ---------------- Lender irrevocably as its attorney-in-fact, at Borrower's cost and expense, to do in the name of Borrower any and all actions which Lender may deem necessary or advisable to carry out the terms hereof upon the failure, refusal or inability of Borrower to do so and Borrower hereby agrees to indemnify and hold Lender harmless from any costs, damages, expenses or liabilities arising against or incurred by Lender in connection therewith. This power of attorney, being coupled with an interest, shall be irrevocable, shall continue until all Obligations have been satisfied in full and this Agreement has been terminated by Lender in writing and shall be in addition to Lender's other rights, powers and remedies. 9.21 Sole Benefit. The rights and benefits set forth in this Agreement and ------------ in all the other Loan Documents are for the sole and exclusive benefit of the parties thereto and may be relied upon only by them. l0. CONDITIONS PRECEDENT. Unless waived in writing by Lender at or prior -------------------- to the execution and delivery of this Agreement, the conditions set forth in Section 10.1 through 10.8 shall constitute express conditions precedent to any obligation of Lender hereunder. 10.1 Board Resolutions and Incumbency Certificate of Borrower. Receipt by ---------------------------------------------------------- Lender of a certificate from the Secretary (or Assistant Secretary) of Borrower, certifying to Lender that appropriate resolutions have been entered into by the Board of Directors of Borrower incident hereto and that the officers of Borrower whose signatures appear hereinbelow, on the other Loan Documents, and on any and all other documents, instruments and agreements executed in connection herewith, are duly authorized by the Board of Directors of Borrower for and on behalf of Borrower to execute and deliver this Agreement, the other Loan Documents and such other documents, instruments and agreements, and to bind Borrower accordingly thereby, all in form and substance satisfactory to the Bank. 33 10.2 Certificate of Good Standing of Borrower. Receipt by Lender of a ---------------------------------------- certificate of good standing or valid existence or other appropriate equivalent with respect to Borrower from the secretaries of state of the state of incorporation of Borrower, dated within 10 days of the date hereof. 10.3 Articles/Bylaws of Borrower. Receipt by Lender of copies of the --------------------------- articles of incorporation and bylaws of Borrower as in effect on date hereof, certified as to truth and accuracy by the corporate secretary of Borrower. 10.4 Loan Documents and any Guaranty. Receipt by Lender of all the other ------------------------------- Loan Documents and the Guaranty Agreements, duly executed in form and substance acceptable to Lender. 10.5 Hazard Insurance Certificate. Receipt by Lender of a certificate ---------------------------- respecting all hazard insurance required hereunder, in form and substance acceptable to Lender. l0.6 Opinion of Counsel to Borrower. Receipt by Lender of an opinion of ----------------------------- counsel from independent legal counsel to Borrower in substantially the form of Exhibit "G". - ---------- 10.7 Board Resolutions and Incumbency Certificates of Guarantors. Receipt ----------------------------------------------------------- by Lender of a certificate from the Secretary (or Assistant Secretary) of Guarantor, certifying to Lender that appropriate resolutions have been entered into by the Board of Directors of each Guarantor incident to the Guaranty Agreements and that the officers of such Guarantor whose signatures appear on the Guaranty Agreements, and on any and all other documents, instruments and agreements executed in connection therewith, are duly authorized by the Board of Directors of such Guarantor for and on behalf of such Guarantor to execute and deliver the Guaranty Agreement and such other documents, instruments and agreements, and to bind such Guarantor accordingly thereby, all in form and substance satisfactory to the Bank. 10.8 Certificates of Good Standing of Guarantors. Receipt by Lender of a ------------------------------------------- certificate of good standing or valid existence or other appropriate equivalent with respect to each Guarantor from the secretary of state of the state of incorporation of such Guarantor. 10.9 Articles/Bylaws of Guarantors. Receipt by Lender of copies of the ----------------------------- articles of incorporation and bylaws of each Guarantor as in effect on date hereof, certified as to truth and accuracy by the corporate secretary of such Guarantor. 10.10 Opinions of Counsel to Guarantors. Receipt by Lender of an opinion of --------------------------------- counsel from independent legal counsel to each Guarantor in substantially the form of Exhibit "G". ---------- 1O.11 Miscellaneous. Receipt by Lender of such other documents, ------------- certificates, instruments and agreements as shall be required hereunder or provided for herein or as Lender or Lender's counsel may require in connection herewith. 34 IN WITNESS WHEREOF, Borrower and Lender each have set its hand and seal, as of the day and year first above written. "BORROWER" U.S. XPRESS LEASING, INC. By: /s/ Donald A. Rutledge ---------------------- (SEAL) Title: Assistant Secretary Attest: /s/ Mark Patterson Title: Director of Treasury and Finance "LENDER" WACHOVIA BANK, N.A. By: /s/ John B. Tibe ----------------- (SEAL) Title: Assistant Vice President Attest: /s/ Patrick A. Phelan Title: Assistant Vice President 35 EX-23.2 5 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports and to all references to our Firm included in or made a part of this Registration Statement. /s/ Arthur Andersen LLP _____________________________________ ARTHUR ANDERSEN LLP Chattanooga, Tennessee July 10, 1997 -----END PRIVACY-ENHANCED MESSAGE-----