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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-1
Registration Statement Under The Securities Act of 1933
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CENTRAL FREIGHT LINES, INC.
(Exact name of registrant as specified in its charter)
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NEVADA 4213 74-2914331
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization Classification Code Number) Number)
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5601 WEST WACO DRIVE
WACO, TEXAS 76702-2638
(254) 772-2120
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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JOE E. HALL
PRESIDENT, CHIEF EXECUTIVE OFFICER, AND DIRECTOR
CENTRAL FREIGHT LINES, INC.
5601 WEST WACO DRIVE
WACO, TEXAS 76702-2638
(254) 772-2120
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
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MARK A. SCUDDER, ESQ. SETH R. MOLAY, P.C.
HEIDI HORNUNG SCHERR, ESQ. RICHARD J. WILKIE, ESQ.
SCUDDER LAW FIRM, P.C. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
411 SOUTH 13TH STREET 1700 PACIFIC AVENUE
SUITE 200 SUITE 4100
LINCOLN, NEBRASKA 68508 DALLAS, TEXAS 75201-4675
(402) 435-3223 (214) 969-2800
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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, 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 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(d)
under the Securities Act, check the following box and list the Securities Act
registration statement 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,
check the following box [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
AGGREGATE OFFERING REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) FEE
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Class A common stock, $.001 par value................... $74,750,000 $20,781
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
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.
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EXPLANATORY NOTE
This registration statement contains two separate prospectuses. The first
prospectus relates to an underwritten public offering of up to 5,000,000 shares
of our Class A common stock. The second prospectus relates to our concurrent
offering of our Class A common stock to participants in our 401(k) Savings Plan
and Trust. Up to 400,000 of the 5,000,000 shares of Class A common stock
allocated in the offering to the public may be sold in the 401(k) offering
through our 401(k) Savings Plan and Trust. Both prospectuses are identical in
all respects, other than the front cover page, the section entitled "The
Offering," the section entitled "Legal Matters," the section entitled
"Underwriting," which in the prospectus for the 401(k) offering will be replaced
with a section entitled "Plan of Distribution," and the back cover page. The
alternate pages for the 401(k) offering appear in this registration statement
immediately following the first prospectus.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities, in any state where the offer or sale is prohibited.
Subject to Completion
May 6, 1999
5,000,000 SHARES
[CENTRAL FREIGHT LINES, INC. LOGO]
CLASS A COMMON STOCK
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- Central Freight Lines, Inc. is a non-union, regional, less-than-truckload
motor carrier. We operate primarily in the south-central and southwestern
United States.
- This is our initial public offering. We are offering 4,000,000 shares of
our Class A common stock and existing stockholders are offering 1,000,000
shares of Class A common stock. Up to 400,000 of the 4,000,000 shares of
Class A common stock that we are offering may be sold to participants in
our 401(k) plan in a concurrent offering made pursuant to a separate
prospectus.
- We anticipate that the offering price will be between $ and
$ per share.
- Our Class A common stock has been proposed for trading on the Nasdaq
National Market under the symbol "CFLI."
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THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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PER SHARE TOTAL
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Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds to Central......................................... $ $
Proceeds to selling stockholders............................ $ $
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The underwriters have an option to purchase up to an additional 750,000
shares from the selling stockholders to cover over-allotments. The underwriters
expect to deliver the shares of Class A common stock to purchasers on
, 1999.
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SCHRODER & CO. INC.
ABN AMRO ROTHSCHILD
a division of ABN AMRO
Incorporated
BT ALEX. BROWN
MERRILL LYNCH & CO.
The date of this prospectus is , 1999
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TABLE OF CONTENTS
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Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Use of Proceeds............................................. 13
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Historical and Pro Forma Consolidated Financial and
Operating Data............................................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
The Regional LTL Industry................................... 28
History of Central Freight Lines and Management Buyout...... 29
Business.................................................... 30
Management.................................................. 36
Certain Relationships and Related Transactions.............. 41
Principal and Selling Stockholders.......................... 43
Description of Capital Stock................................ 44
Shares Eligible For Future Sale............................. 46
Underwriting................................................ 47
Legal Matters............................................... 48
Experts..................................................... 48
Index to Consolidated Financial Statements.................. F-1
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Explanatory Notes:
The holding company formed to conduct this offering was incorporated in
Nevada on April 7, 1999. Our wholly owned operating subsidiary is a Texas
corporation formed in April 1997. Both are named Central Freight Lines, Inc.,
and, except where the content otherwise requires, references to "Central," "we,"
"our," and similar expressions refer to both companies.
Effective June 28, 1997, we acquired certain physical assets and operations
of the Southwestern Division of Viking Freight Lines, Inc., a subsidiary of
Caliber Systems, Inc. The Southwestern Division of Viking included operations of
the old Central Freight Lines Inc., a less-than-truckload carrier with
operations dating to 1925. Although it is not a predecessor for accounting
purposes, we refer to the acquired operations as "Old Central" for ease of
reference.
Except as otherwise noted, information in this prospectus assumes that the
underwriters' over-allotment option is not exercised.
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You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. We are not, and the underwriters are not, making
an offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
prospectus is accurate as of the date on the front cover of this prospectus
only.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in the prospectus.
This summary does not contain all information you should consider before
deciding to purchase shares of Class A common stock in this offering. You should
read the entire prospectus carefully, including the financial statements and the
notes thereto, and especially the information under "Risk Factors," beginning on
page 7. References to "Old Central" mean the Southwestern Division of Viking
Freight Lines, Inc. and its predecessor, a corporation named Central Freight
Lines that was formed in 1925. We purchased the name and substantially all of
the terminal network and physical assets of the Southwestern Division in a
management buyout. Old Central is not a predecessor for accounting purposes.
CENTRAL FREIGHT LINES
OUR COMPANY
Central Freight Lines, Inc. is a non-union, regional, less-than-truckload
motor carrier. As a less-than-truckload, or LTL, carrier, we transport multiple
shipments for multiple customers in each trailer. We pick up, transport, and
deliver the freight on strict schedules to provide the next day and second day
service required by our many time-sensitive customers. Ninety-two percent of our
freight originates or terminates in Texas, and our 38 terminals in Texas form
the largest LTL network in the state. Fifty-eight of our 66 terminals are
strategically located in our five-state core region of Texas, Louisiana,
Arkansas, Oklahoma, and New Mexico to take advantage of the large freight volume
into and out of Texas. We have additional terminals outside our core region in
locations with strong freight flows to and from our core region.
Effective June 28, 1997, Jerry Moyes, who is the Chairman of our Company
and also the Chairman and Chief Executive Officer of Swift Transportation
(Nasdaq: SWFT), and our executive officers led a management buyout of a 72
year-old company, Old Central, that had historically been the leading Texas
intrastate LTL carrier. The previous owner, Caliber System, decided to sell the
assets of Old Central after failing to combine Old Central and three other
regional carriers into a successful national LTL carrier. After closing the
buyout, we expanded from $57.4 million in operating revenues and $3.0 million in
earnings before income taxes for the twelve weeks ended March 28, 1998, to $64.1
million in operating revenues and $3.9 million in earnings before income taxes
in the comparable 1999 period. We generated $259.9 million in operating revenues
and $15.0 million in earnings before income taxes during 1998, our first full
year of operation.
THE REGIONAL LTL INDUSTRY
Regional LTL operations are generally defined by the ability to deliver
freight by the end of the second day after pick-up. We believe regional LTL
operations afford several advantages as compared with national and
inter-regional LTL operations. Regional operations are characterized by
relatively short trips and efficient pick-up and delivery schedules. A
concentrated terminal network within a region increases the freight on a given
route and minimizes intermediate sorting and handling between origin and
destination. This raises revenue per load while lowering costs and reducing the
chance of damage and delay. In addition, many regional LTL carriers generally
have remained non-union. Regional LTL carriers are positioned to benefit from
the following trends: (1) shippers are moving to just-in-time deliveries and
inventory control; (2) overnight ground transportation is increasingly being
utilized by shippers as it provides a reliable, cost-effective alternative to
air freight; (3) regional distribution is growing faster than general freight
levels; and (4) shippers are diverting freight to non-union carriers to avoid
service disruption.
By concentrating on regional operations, we are able to provide:
- Direct delivery. We load 70% of our freight directly from the originating
terminal to the destination terminal, which minimizes labor expense, loss
and damage claims, and delays caused by sorting and handling at a
rehandling or "breakbulk" facility.
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- Rapid service. We offer next day delivery on 80% of our freight and
delivery within two days on 93% of our freight.
- Density of operations. We increase freight flows in and out of our system
by establishing new terminals in locations that have heavy freight flows
to and from our core region, forming marketing alliances with trucking
companies that serve the eastern and western United States, and
distributing freight to selected locations within our core region for
national LTL carriers that lack our terminal density.
- Quality work environment. We offer desirable working conditions for our
drivers, who are able to work on more predictable schedules and return
home more often than they would if they worked in other segments of the
trucking industry.
OUR OPERATING STRATEGY
Our operating strategy is to grow in a disciplined manner and to focus on
asset productivity. We integrate our operations, sales, and financial
decision-making processes and maintain information systems that allow each
terminal to monitor operating and financial statistics daily. Using this
integrated approach, we are able to evaluate the profitability of significant
new business and analyze the potential returns before investing capital. The
main features of our operating strategy are:
- Disciplined internal growth. Since the management buyout, we have been
targeting shippers with significant and growing distribution needs in our
region and have added customers such as Home Depot, Maytag, Michelin,
Sears, and Wal-Mart. Increasing the number of shippers that we serve and
the volume of freight that we carry increases the utilization of our
trailers and reduces the distance between pickups and deliveries. We use
our costing model to analyze freight movements and pursue those that meet
our profitability criteria.
- Asset productivity. We have designed our information systems to allow us
to monitor daily the productivity of our labor force and our major
physical assets. In late 1997, we began upgrading and expanding our
tractor and trailer fleet to improve productivity and efficiency compared
with the equipment we purchased in the buyout. Between late 1997 and the
end of 2001, we expect our fleet upgrade to include approximately 1,600
new tractors, 500 used trailers, and 4,500 new trailers that are
specially equipped to permit double stacking of freight. Based on our
experience with the equipment already in service, we believe the program
will:
- Reduce the average age of our tractors from 11.1 years to 3.5 years and
the average age of our trailers from 15.9 years to 8.5 years.
- Increase the amount of freight transported per trailer by up to 27%,
which would allow us to improve our revenue per load and reduce the
number of trips between terminals.
- Reduce overall maintenance requirements, which should allow us to
continue to operate only six maintenance facilities, down from the 16 we
operated at the time of the buyout.
- Improve our tractor fleet's fuel efficiency by approximately 15%, to
approximately 7.0 miles per gallon from 6.1 miles per gallon.
- Selective expansion to major freight centers. We have opened our own
terminals in Chicago, St. Louis, Denver, Kansas City, and Memphis as well
as initiated an agency relationship in Phoenix to capitalize on strong,
existing freight flows to and from our five-state core region. We focus
initially on large cities outside our core region where our existing
customer base can provide immediate freight demand. We then expand
service when justified by customer demand rather than immediately
providing service to all points in a given state. We typically are able
to provide service to and from these cities by the end of the second day
after pick-up, which we believe provides us a service advantage over
non-regional LTL competitors. We intend to continue adding service to and
from major freight centers that complement our regional operations.
- Marketing alliances for national coverage. We have established alliances
with regional LTL carriers in the eastern and western United States.
These alliances have allowed us to market on a multi-
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regional basis to national accounts, obtain freight into and out of these
regions, provide efficient service to customers beyond our core region,
and capitalize on the trend among shippers to concentrate their business
with fewer "core carriers" who have the capacity to handle larger freight
volumes.
- Growth through selected acquisitions. The goal of our acquisition
strategy is to operate several regional LTL carriers, each of which
focuses on next day and second day service in an individual region and is
linked by direct transportation service. We believe that our
post-offering capitalization and Jerry Moyes' industry and acquisition
experience position us to take advantage of acquisition opportunities.
THE OFFERING
Class A common stock offered by
Central................................. 4,000,000 shares(1)
Class A common stock offered by the
selling stockholders.................... 1,000,000 shares(1)(2)
Common stock to be outstanding after
this offering:
Class A common stock.................. 6,289,478 shares(3)
Class B common stock.................. 8,713,834 shares(2)
Total................................... 15,003,312 shares(3)
Use of proceeds......................... We intend to use the proceeds to
repay all borrowings other than our
real estate financing, to purchase
new tractors and trailers, and for
general corporate purposes,
including working capital. See "Use
of Proceeds."
Proposed Nasdaq National Market
symbol.................................. CFLI
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(1) Up to 400,000 of the 4,000,000 shares of Class A common stock we are
offering may be sold to participants in our 401(k) Savings Plan and Trust in
a concurrent offering made pursuant to a separate prospectus. Such shares
are being offered at a price per share equal to the per share public
offering price set forth on the cover of this prospectus less a discount of
approximately %. The discount addresses certain matters involving the
administration under ERISA of our 401(k) Savings Plan and Trust. Since we
are not offering such shares through the underwriters, no underwriting
discount will be paid on such shares. The sale of shares in the concurrent
offering will reduce the number of shares sold in this offering.
(2) Selling stockholders are offering 1,000,000 shares of Class B common stock,
which will automatically convert to Class A common stock upon sale. The
Class A common stock is entitled to one vote per share. The Class B common
stock is entitled to three votes per share while beneficially owned by Jerry
Moyes or certain members of his immediate family. The Class A and Class B
common stock vote together as a single class except as required by law and
are substantially identical except with respect to voting rights. See
"Description of Capital Stock."
(3) Excludes approximately 3,000,000 shares of Class A common stock reserved for
issuance under our incentive stock plan. Options to purchase approximately
2,661,334 shares of Class A common stock currently are outstanding under the
plan.
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SUMMARY HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
We commenced our operations effective June 28, 1997. The following table
sets forth our summary historical and pro forma consolidated financial and
operating data. You should read the information below, together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes included
elsewhere in this prospectus.
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TWENTY-SEVEN TWENTY-EIGHT TWELVE WEEKS ENDED
WEEKS ENDED WEEKS ENDED YEAR ENDED ---------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 28, MARCH 27,
1997(1)(2) 1998(2) 1998 1998(2) 1999(2)
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STATEMENT OF OPERATIONS DATA:
Operating revenues......................................... $ 111,869 $ 141,283 $ 259,941 $ 57,379 $ 64,075
Operating earnings......................................... 5,685 10,451 18,500 3,924 4,640
Interest expense and other, net............................ 1,595 1,599 3,452 889 715
Earnings before income taxes............................... 4,090 8,852 15,048 3,035 3,925
Income tax expense......................................... 1,715 247 5,497 1,251 142
Net earnings............................................... 2,375 8,605 9,551 1,784 3,783
Net earnings per common share:
Basic.................................................... $ 0.21 $ 0.78 $ 0.87 $ 0.16 $ 0.34
Diluted.................................................. 0.18 0.65 0.72 0.14 0.29
PRO FORMA DATA:(3)
Pro forma provision for income taxes....................... (3) $ 3,232 $ 7,182 (3) $ 1,558
Pro forma net earnings..................................... (3) 5,620 7,866 (3) 2,367
Pro forma net earnings per common share:(4)
Basic.................................................... (3) $ 0.51 $ 0.68 (3) $ 0.20
Diluted.................................................. (3) 0.42 0.57 (3) 0.17
OPERATING DATA:(5)
Operating ratio............................................ 94.9% 92.6% 92.9% 93.2% 92.8%
LTL revenue per hundredweight.............................. $ 8.40 $ 8.40 $ 8.37 $ 8.36 $ 8.64
Linehaul load factor....................................... 19,252 20,421 20,246 19,468 21,227
LTL pounds per hour -- pickup and delivery................. 2,277 2,421 2,420 2,379 2,504
LTL pounds per hour -- dock................................ 3,163 3,315 3,303 3,251 3,532
Total tonnage.............................................. 883,353 1,058,177 1,984,444 448,836 474,361
Total number of freight bills.............................. 1,458,635 1,639,832 3,069,300 697,278 736,726
Average length of haul in miles............................ 272 301 298 288 309
Average age of tractors by model year (end of period)...... 11.3 8.9 8.9 9.3 7.4
Average age of trailers by model year (end of period)...... 16.2 15.7 15.7 16.3 13.6
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MARCH 27, 1999
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PRO FORMA
ACTUAL AS ADJUSTED(6)
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BALANCE SHEET DATA:
Net property and equipment................................ $ 95,665 $
Total assets.............................................. 133,136
Long-term debt, including current portion................. 57,440
Stockholders' equity...................................... 27,254
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(1) This period includes start-up expenses of approximately $989,000 incurred
from inception on April 1, 1997, to commencement of operations effective
June 28, 1997.
(2) Our fiscal year includes twelve weeks in each of the first three fiscal
quarters and approximately sixteen weeks in the fourth fiscal quarter.
(3) Beginning April 1, 1998, we elected to be treated as an S corporation for
federal income tax purposes. An S corporation passes through essentially all
taxable income and losses to its stockholders and does not pay income taxes
at the corporate level. Contemporaneously with this offering we will convert
into a C corporation. For comparative purposes, we have included a pro forma
provision for income taxes assuming we had been taxed as a C corporation in
all periods our S corporation election was in effect. We did not reflect the
approximately $628,000 one-time, non-cash benefit for recognition of
deferred income taxes we will record when we convert from an S corporation
to a C corporation contemporaneously with this offering.
(4) Pro forma net earnings per common share for the year ended December 31,
1998, and the twelve weeks ended March 27, 1999, give effect to the issuance
of shares of our Class A common stock at an assumed price of $
as if such shares had been sold to fund the distribution of S corporation
earnings contemporaneously with this offering.
(5) For a discussion of the manner in which operating data is derived, please
refer to footnotes (5) through (10) of the Selected Historical and Pro Forma
Consolidated Financial and Operating Data on page 18 and Management's
Discussion and Analysis of Financial Condition and Results of Operations
beginning on page 19.
(6) Adjusted to reflect (a) the one-time, non-cash benefit of approximately
$628,000 for recognition of deferred income taxes upon our conversion from
an S corporation to a C corporation contemporaneously with this offering;
(b) an approximately $7.0 million distribution of S corporation earnings to
our existing stockholders contemporaneously with this offering; (c) the sale
of 4,000,000 shares of Class A common stock at an assumed public offering
price of $ per share by us in this offering; and (d) repayment of
$ of debt with a portion of the net proceeds of this offering.
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RISK FACTORS
You should carefully consider the risks described below as well as the
other information contained in this prospectus before buying shares in this
offering. These risks are not the only ones we face. Additional risks not
presently known to us or that we currently deem immaterial also may impair our
business operations. If any of these risks occur, our business, financial
condition, and operating results could be materially and adversely affected, the
trading price of the Class A common stock could decline, and you might lose all
or part of your investment.
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipate," "believe," "expect," "plan,"
"future," "scheduled," and "intend," and similar expressions to identify
forward-looking statements. You should not place undue reliance on these
forward- looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks described below
and elsewhere in this prospectus.
UNION ORGANIZATION WOULD DISRUPT OUR OPERATIONS
Our employees do not belong to a union, and no collective bargaining
agreement governs their compensation or terms of employment. If our employees
voted to join a union and we signed a collective bargaining agreement, the
results probably would be adverse for several reasons.
- Some shippers have announced that they intend to limit their use of
unionized trucking companies because of the threat of strikes and other
work stoppages. A loss of customers would impair our revenue base.
- Restrictive work rules would hamper our efficiency.
- A strike or work stoppage would hurt our profitability and could damage
customer and other relationships.
- The election and bargaining process would distract management's time and
attention and impose significant expenses.
In 1989 and 1991, the employees of Old Central voted against being represented
by the International Brotherhood of Teamsters. In 1998, the Teamsters attempted
an organizing drive at Central but did not generate sufficient interest to
require an election. A substantial organizing effort or the signing of a
collective bargaining agreement could materially and adversely affect Central.
OUR BUSINESS IS SUBJECT TO GENERAL ECONOMIC CONDITIONS
We are directly affected by the state of the national economy. General
economic factors over which we have no control, such as fuel prices, fuel taxes,
interest rates, recessions, and customers' business cycles, may affect our
business. Low fuel prices and interest rates in 1998 contributed to the
improvement in our profit margin. Fuel prices have been rising in 1999. An
extended period of elevated fuel prices or significant increases in other costs
would adversely affect our profitability if they could not be recovered from our
customers. A significant decline in shipments as a result of economic
recessions, inventory imbalances, or downturns in our customers' business cycles
also could impair our growth and profitability. In 1998, 92% of our freight was
either picked up or delivered in Texas. Accordingly, we are also directly
impacted by economic conditions in and affecting Texas over which we have no
control.
WE HAVE A LIMITED OPERATING HISTORY AS AN INDEPENDENT COMPANY
We started our operations effective June 28, 1997, after acquiring the name
"Central Freight Lines" and substantially all of the operating assets of the
Southwestern Division of Viking from Caliber System. Caliber System, Viking's
owner, had abandoned its strategy of establishing a national LTL carrier and
decided to sell the assets of the Southwestern Division. Our operating history
is brief and does not reflect results in periods of
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depressed economic conditions, high interest rates, high fuel prices, and other
difficult conditions. There can be no assurance that we can continue to operate
our business profitably.
WE MAY NOT SUCCESSFULLY IMPLEMENT OUR FLEET UPGRADE
Approximately 67% of the nearly 1,600 tractors and 4,900 trailers we
acquired when we purchased the assets of the Southwestern Division of Viking
were over ten years old. Such older tractors and trailers require substantially
more maintenance than new equipment. In addition, the old tractors are less fuel
efficient and the old trailers lack the freight capacity of new trailers. We
anticipate delivery of a total of approximately 1,600 new tractors and 4,500 new
trailers between 1998 and the end of 2001. The new tractors and trailers will
result in increased depreciation and interest expense. If the delivery schedule
of the new equipment were delayed or we were unable to recover the increased
cost of the new equipment from operating efficiencies and lower fuel and
maintenance expenses, our profitability would suffer.
WE MAY EXPERIENCE DIFFICULTIES IN MANAGING OUR GROWTH
We plan to grow substantially by purchasing additional equipment,
selectively adding new terminals, hiring additional personnel, increasing our
marketing efforts, and, when available, acquiring other regional LTL companies.
Our growth strategy exposes us to a number of risks, including the following:
- Scheduled equipment deliveries might not occur on time, which would slow
our rate of growth and disrupt our plans.
- Rapid growth may strain our management, capital resources, and computer
and other systems.
- Hiring many new employees will increase training costs and is likely to
result in temporary inefficiencies as the new employees learn their jobs.
- Geographic expansion will entail start-up costs, may require lower rates
to generate initial business, and may disrupt existing transportation
alliances with carriers in those regions.
- If demand for our services weakens, we may be forced to reduce our rates.
We cannot assure you that we will overcome the risks of rapid growth.
ANY FUTURE ACQUISITIONS MAY BE DIFFICULT AND DISRUPTIVE
As part of our business strategy, we intend to acquire other regional LTL
carriers. This strategy involves substantial risks, including the following:
- Investigating, negotiating, and closing acquisitions will take a
significant amount of our management's time and energy away from daily
operations.
- Cultural, computer system, geographic, and other differences may hamper
our efforts to integrate acquired operations.
- Acquired companies could have undisclosed or unanticipated liabilities
for which we may become liable.
- Large, one-time write-offs and amortization expenses related to goodwill
and other intangible assets could depress future earnings.
- We may not be able to obtain financing for acquisitions on favorable
terms or at all.
- Cash payments or assumption of debt or other liabilities of companies we
acquire could increase our leverage.
- Issuing equity securities will dilute your ownership interest.
- There are uncertainties inherent in entering markets in which we have
little or no experience.
8
<PAGE> 11
- Losing key employees of the acquired companies may make integration more
difficult.
As a result, there can be no assurance that we will successfully complete any
acquisitions or, if we do, that we will recognize the anticipated benefits of an
acquisition as soon as we expected or at all.
WE RENT MOST OF OUR TERMINALS FROM A RELATED PARTY, AND THE RELATED PARTY CAN
DEVELOP OR SELL ALL OR PART OF OUR TERMINAL PROPERTIES
We have 66 terminals in our freight transportation network. We lease 37 of
those terminals from Southwest Premier Properties, LLC, which is owned by our
existing stockholders, substantially all of whom are officers and directors. At
28 of those locations, Southwest has the right to develop or sell the portions
of the properties not used in our operations without a reduction in rent and the
right to sell or develop the land now used in our operations if it provides us
with comparable replacement facilities based upon size, layout, accessibility,
and convenience to customer base. The leased terminals include our Dallas
terminal, which is our largest and busiest location with over 25% of our total
pounds handled in 1998. The replacement of this or our other terminals could
disrupt our business and customer relationships.
RELATED PARTY TRANSACTIONS
We have engaged in multiple transactions with related parties. These
transactions include the sale-and-leaseback transaction with Southwest and the
contracting for services and the lease of space to Swift, which is controlled by
Jerry Moyes, our Chairman of the Board. As a result, our directors and executive
officers may have interests that conflict with the interests of persons
acquiring shares in the offering. Although we have adopted a policy requiring
that all future related party transactions be approved by a majority of our
disinterested directors, we cannot assure you that the policy will be successful
in eliminating the influence of conflicts.
OUR INDUSTRY IS HIGHLY COMPETITIVE
The trucking industry is highly competitive and fragmented. We compete with
many other trucking companies, including regional, inter-regional, and national
LTL carriers of varying sizes. To a lesser extent, we compete with truckload
carriers, railroads, and overnight delivery companies. Many competitors have
substantially greater financial resources, operate more equipment, or carry a
larger volume of freight than we do. The risks of competition include:
- In particular markets, other carriers may have greater lane density or
economies of scale that allow them to compete more effectively on the
basis of service or price.
- Competition in the less-than-truckload industry from time to time has
resulted in aggressive rate discounting and narrow margins or losses.
- Deregulation has eased market entry generally, including in Texas, our
largest market.
- Future expansion to new territories could expose us to additional
competitors and might require us to reduce our rates to gain market
share.
- Rate increases necessary to cover increased costs, including changes in
employee wages and benefits, might be unobtainable.
THE MOYES FAMILY WILL HAVE VOTING CONTROL AFTER THIS OFFERING
After the offering, Jerry Moyes, our Chairman of the Board, and members of
his immediate family will beneficially own 8,713,834 shares of Class B common
stock. This stock will represent 58.1% of all outstanding shares of common stock
and 80.6% of the total voting power of all our common stock. As a result, the
Moyes family will be able to decide all matters voted on by the stockholders
without the affirmative vote of any other stockholders. These matters typically
include the election of directors, approval of mergers or consolidations, and
the sale of all or substantially all of our assets. Further, because each share
of Class B common stock is
9
<PAGE> 12
entitled to three votes, the Moyes family will maintain voting control as long
as their ownership percentage remains over 25.0% of all of our outstanding
stock. This concentration of ownership could delay, deter, or prevent a change
in control, which in turn could reduce the market price of our stock.
WE RELY HEAVILY ON TRANSPORTATION ALLIANCES
As a regional LTL carrier, we primarily pick up and deliver freight within
our own operating region. Freight originating outside our territory for delivery
inside our territory is brought to us by several other trucking companies with
which we have formed transportation alliances. In return, we deliver to them
freight that originates in our territory for delivery in their territories. In
1998, transportation alliances generated approximately 16% of our revenue. These
alliances subject us to certain risks, including:
- Expanding our operations into an alliance company's territory might cause
it to stop using our alliance.
- We may not control the customer relationship on freight moving into our
territory.
- The other party can end the alliance at any time and could choose to form
an alliance with one of our competitors in our territory.
OUR STOCK PRICE MAY BE VOLATILE
Prior to this offering, there has been no public market for our Class A
common stock or any of our other securities. The initial public offering price
will be determined through negotiations between us and representatives of the
underwriters. The market price for our shares is likely to be volatile. If you
decide to purchase our shares, you may not be able to resell your shares at or
above the initial public offering price due to a number of factors, including:
- Actual or anticipated fluctuations in operating results.
- The loss of significant customers.
- Changes in earnings estimates by analysts.
- General conditions in the trucking and transportation industries.
- Other events or factors that negatively affect the stock market.
The stock market in general has experienced extreme price and volume
fluctuations that have affected the market price for many companies and that
have been unrelated to these companies' operating performances. These broad
market fluctuations could depress the market price of our Class A common stock.
FUTURE SALES OF OUR CLASS A COMMON STOCK MAY DEPRESS OUR STOCK PRICE
After this offering, we will have 15,003,312 shares of Class A and Class B
common stock outstanding. Sales of a substantial number of shares of stock in
the public market following this offering, or the perception that such sales may
occur, could materially and adversely affect the market price of our Class A
common stock. All the shares sold in this offering will be freely tradable,
except for any shares purchased by our "affiliates" as defined in Rule 144 under
the Securities Act of 1933. The remaining 10,003,312 shares of common stock
outstanding after this offering will be "restricted securities" and will be
available for sale in the public market, subject to volume limitations and other
conditions of Rule 144 under the Securities Act, on , 1999 (180 days
after the date of this prospectus).
WE FACE THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs that were written
using two digits rather than four to define the year. As a result, beginning on
January 1, 2000, computer systems and software used by many companies will
produce erroneous results or fail unless they have been modified or upgraded to
process date information correctly. Significant uncertainty exists concerning
the scope and magnitude of problems associated with the century change.
Sophisticated information systems are vital to our growth and profitability.
10
<PAGE> 13
We are working to identify and resolve Year 2000 problems that are under our
control. However, we cannot provide you with assurance that we or our suppliers,
trucking companies with which we have alliances, customers, or other third
parties that we rely upon will identify and resolve all Year 2000 issues on a
timely basis.
WE ARE EXPOSED TO INSURANCE AND CLAIMS COSTS
Our business involves loading and unloading millions of pounds of freight
and driving millions of miles each year. The nature of the business exposes us
to claims for traffic accidents, cargo damage, employee injuries, and other
events. We carry insurance to cover many of these risks but remain liable for
deductible amounts and claims above policy limits. During 1998, we experienced
higher than expected claims for accidents and freight damage, and the payments
and reserves for these claims adversely affected our operating results for that
year. If our claims continue at this level or increase, our overall cost of
insurance and claims would be expected to rise as a percentage of operating
revenues. Additionally, new employees hired in connection with our expansion are
more likely to be involved in accidents and other events resulting in claims.
Significant increases in claims and insurance cost would reduce our
profitability.
OUR BUSINESS REQUIRES LARGE CAPITAL EXPENDITURES
The trucking industry requires extensive investment in revenue equipment.
We anticipate capital expenditures of approximately $50 million in each of 1999
and 2000 and $36.0 million in 2001, primarily for new tractors and trailers.
Thereafter, net capital investments will continue to be substantial.
Historically, we have relied upon debt, related party financing, and the capital
contributed by the existing stockholders to finance our capital investments. If
we cannot trade or sell our used equipment for acceptable prices or obtain
sufficient financing in the future, we may be forced to operate our equipment
for longer periods and limit new equipment deliveries.
WE DEPEND ON CERTAIN KEY EMPLOYEES
We depend heavily on our management team and Jerry Moyes, our Chairman of
the Board. Our primary management personnel have an average of 25 years of
experience in the trucking business and more than eight years with Central and
Old Central. It would be difficult for us to replace Mr. Moyes or the members of
our management team, and the loss of one or more of them could impair our
continued growth and profitability. We have employment agreements with Joe E.
Hall, Douglas E. Quicksall, Thomas K. Morehouse, and Patrick J. Curry that are
terminable by them on 60 days' notice. We do not have employment agreements or
non-competition contracts with any other management personnel or carry key-man
insurance on any of our management personnel.
HIGHER FUEL PRICES OR AN INTERRUPTION IN FUEL SUPPLY WOULD IMPACT OUR
PROFITABILITY
Since the commencement of our operations effective June 28, 1997, fuel has
approximated 5.5% of our operating expenses, but fuel prices tend to fluctuate.
In the first quarter of 1999, fuel prices were at historically low levels of
4.3% of our operating expenses, which has contributed to our increased
profitability. In April 1999, fuel prices rose 11% over the average level during
the twelve weeks ended March 27, 1999. Any increase in fuel prices or taxes
could reduce our profitability. We attempt to obtain fuel surcharges when fuel
prices rise. Our inability to implement fuel surcharges or loss of customers due
to fuel surcharges could materially and adversely affect Central. Any
interruption in the supply of fuel would seriously damage our ability to
operate.
WE MAY NOT RECRUIT AND RETAIN ENOUGH QUALIFIED DRIVERS
Competition for drivers is intense in the trucking industry. There is, and
historically has been, a shortage of qualified drivers. We believe the driver
shortage has primarily affected truckload carriers, but we could experience
problems in hiring enough drivers. Failing to attract and retain enough
qualified drivers could result in equipment sitting idle, slower growth, or
difficulty in meeting customer demands. Since the buyout,
11
<PAGE> 14
we have hired many new and less experienced drivers, who are more likely to be
involved in accidents. We may be forced to raise our drivers' compensation to
attract sufficient numbers of qualified drivers.
PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS AND NEVADA LAW MAY
RESTRICT TAKEOVERS
Our articles of incorporation and bylaws contain certain provisions that
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. These include provisions authorizing
the issuance of preferred stock or additional shares of Class B common stock
without stockholder approval and limitations on who can call a special meeting
of stockholders. In addition, provisions of Nevada law could delay or make more
difficult a merger or tender offer involving us, including limitations on
"combinations" with "interested stockholders."
OUR BUSINESS IS SEASONAL
We experience seasonal fluctuations in freight volumes and expenses.
Historically, this has been most apparent in the first quarter, when shipments
generally decrease and our operating expenses are higher due to decreased fuel
efficiency and increased maintenance costs in colder weather. Our operating
results may vary as a result of seasonal factors. Accordingly, results of
operations in any period should not be considered indicative of the results to
be expected for any future period. Fluctuations in our operating results could
cause fluctuations in the price of the Class A common stock.
WE ARE EXPOSED TO ENVIRONMENTAL LIABILITY
We maintain above ground petroleum fuel storage tanks at five terminals and
underground petroleum fuel storage tanks at four terminals. We have ongoing
remediation costs at our Fort Worth and Odessa terminals. As of March 27, 1999,
we expect the future remediation costs to be approximately $400,000 at Odessa
and $10,000 at Fort Worth. The actual costs, however, may be significantly
higher in the event future environmental damage is found or if we become
involved in litigation involving these or other sites. We routinely handle
hazardous materials. If we were to be involved in a fuel spill or a spill
involving hazardous substances that we transport, we would be responsible for
clean-up costs, property damage, and other penalties.
GOVERNMENT POLICY AND REGULATIONS COULD ADVERSELY AFFECT OUR BUSINESS
Transportation. Portions of our operation are regulated by various federal
and state agencies, including the U.S. Department of Transportation. These
regulatory authorities have broad powers and could make regulatory changes that
would require changes in our operating practices. Certain changes, such as
stricter air emission standards, limits on vehicle weights and lengths, and
limits on drivers' hours of service, could affect the economics of our business
or influence the demand for, and the costs of providing, service to shippers.
Environmental. The Environmental Protection Agency and similar state
authorities regulate many aspects of our operation, including:
- The transportation, storage, presence, use, disposal, and handling of
hazardous materials.
- The discharge of storm water.
- Facility and vehicle emissions into the atmosphere.
- Underground storage tanks.
The cost of complying with governmental regulations could impair our growth and
profitability.
YOU WILL EXPERIENCE DILUTION WHEN PURCHASING IN THIS OFFERING
Our current stockholders acquired their shares of common stock at a cost
substantially below the public offering price of the shares of Class A common
stock being sold in this offering. You will experience immediate, substantial
dilution of approximately upon purchasing shares in this offering.
12
<PAGE> 15
WE DO NOT INTEND TO DECLARE DIVIDENDS AFTER THIS OFFERING
We currently intend to retain our earnings to finance the growth and
development of our business. We do not anticipate paying cash dividends in the
foreseeable future, after the distribution of S corporation earnings to
pre-offering stockholders contemporaneously with this offering. Any payments of
cash dividends in the future will be at the discretion of our Board and will
depend upon our results of operations, earnings, capital requirements, and other
factors deemed relevant by the Board. In addition, our credit agreement
currently prohibits us from paying dividends.
USE OF PROCEEDS
We estimate that our net proceeds of this offering will be $ . Our
estimate is based on selling 4,000,000 shares at an assumed public offering
price of $ , then deducting underwriting fees and our expenses. We
intend to use our net proceeds as follows:
- Approximately $ to retire all long-term debt except our real
estate financing.
- Up to $ to purchase new tractors and trailers scheduled for
delivery in 1999.
- The remainder, if any, for working capital and general corporate
purposes.
The debt to be retired includes $ under a revolving line of credit
facility, which currently bears interest at LIBOR plus 1.5% and matures in July
2000, $ under a term loan credit facility, which bears interest at
7.19% and matures in March 2006, and $ under equipment notes which bear
interest at a weighted average annual rate of 7.3% and mature at various dates
between December 2000, and January 2002. We borrowed approximately $ of
the debt within the previous year and used such borrowing for the following
purposes:
- $ to fund purchases of new tractors and trailers.
- $ to fund the distribution of S corporation earnings
contemporaneously with this offering.
Our growth plan includes the possible acquisition of other regional LTL
carriers outside our core territory. We have negotiated with several companies,
but we do not have an agreement to acquire any company at the present time. If
we negotiate such an agreement, we might fund the acquisition with a portion of
the proceeds from this offering. In that case, we may have to borrow to purchase
all or a portion of the tractors and trailers scheduled for delivery in 1999.
We intend to invest our net proceeds in short-term U.S. government
securities pending application in the uses described above.
We will not receive any proceeds from the shares sold by the selling
stockholders.
13
<PAGE> 16
DIVIDEND POLICY
We will distribute approximately $7.0 million in pre-offering S corporation
earnings to our pre-offering stockholders contemporaneously with this offering.
You will not receive any portion of this distribution.
We currently intend to retain all our earnings to finance the growth,
development, and expansion of our business, and do not anticipate paying any
cash dividends on our common stock in the foreseeable future. Any future
dividends will be determined at the discretion of our Board of Directors. The
Board may consider our financial condition and results of operations, cash flows
from operations, current and anticipated capital requirements and expansion
plans, the income tax laws then in effect, and any legal or contractual
requirements.
Our credit agreement currently prohibits us from paying dividends other
than periodic amounts equal to 40% of pre-offering S corporation earnings to
fund our existing stockholders' tax payments on S corporation earnings. We paid
$2.6 million in such dividends during 1998 and $458,000 to date during 1999.
14
<PAGE> 17
CAPITALIZATION
The following table displays our actual, pro forma, and pro forma as
adjusted capitalization as of March 27, 1999. Capitalization consists of
long-term debt, including the current portion, and stockholders' equity. Our pro
forma capitalization reflects the following: (a) a one-time, non-cash benefit of
approximately $628,000 for recognition of deferred income taxes upon our
conversion from an S corporation to a C corporation contemporaneously with this
offering; (b) our distribution of approximately $7.0 million in S corporation
earnings to our existing stockholders contemporaneously with this offering; (c)
the elimination of treasury stock upon the creation of the Nevada holding
company; and (d) reclassification of remaining retained earnings to additional
paid-in capital upon conversion from an S corporation to a C corporation
contemporaneously with this offering. Our pro forma as adjusted capitalization
reflects the pro forma adjustments described in the previous sentence and: (a)
the conversion of 1,000,000 shares of Class B common stock to Class A common
stock upon sale by the selling stockholders in this offering; (b) the sale of
4,000,000 shares of Class A common stock at an assumed public offering price of
$ by us in this offering; and (c) our application of $ to repay
outstanding debt with a portion of the estimated net proceeds of this offering.
<TABLE>
<CAPTION>
MARCH 27, 1999
----------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, including current portion:
Revolving line of credit facility......................... $ 7,333 $14,352 $
Term loan credit facility................................. 7,572 7,572
Related party sale-and-leaseback financing................ 26,837 26,837
Equipment notes payable................................... 15,698 15,698
------- -------
Total long-term debt.............................. 57,440 64,459
------- ------- -------
Stockholders' equity(1)(2):
Preferred stock, $.001 par value; 5,000,000 shares
authorized; none issued and outstanding................ -- --
Class A common stock, $.001 par value; 50,000,000 shares
authorized; 1,396,166 shares issued and 1,289,478
outstanding; shares and shares issued and
outstanding pro forma and pro forma as adjusted,
respectively........................................... 1 1
Class B common stock, $.001 par value; 10,000,000 shares
authorized; 9,713,834 shares issued and outstanding;
shares and shares issued and outstanding pro
forma and pro forma as adjusted, respectively.......... 10 10
Additional paid-in capital................................ 14,989 20,852
Retained earnings......................................... 12,398 --
Treasury stock at cost, 106,688 shares.................... (144) --
------- ------- -------
Total stockholders' equity........................ 27,254 20,863
------- ------- -------
Total capitalization.............................. $84,694 $85,322 $
======= ======= =======
</TABLE>
- ---------------
(1) Excludes approximately 3,000,000 shares of Class A common stock reserved for
issuance under our incentive stock plan. Options to purchase 2,661,334
shares of Class A common stock are currently outstanding under the plan.
(2) The shares of Class B common stock sold by selling stockholders in this
offering will automatically convert to Class A common stock upon sale. See
"Description of Capital Stock."
15
<PAGE> 18
DILUTION
The public offering price of the Class A common stock will be higher than
the tangible book value per share of our common stock after this offering.
Accordingly, you will experience dilution from this offering.
Our pro forma net tangible book value at March 27, 1999, was approximately
$20.9 million, or $1.90 per share of common stock. Pro forma net tangible book
value per share is determined by dividing the total number of outstanding shares
of Class A and B common stock into our pro forma net tangible book value. Net
tangible book value is total tangible assets less total liabilities. Pro forma
net tangible book value gives effect to (a) the approximately $628,000 one-time,
non-cash benefit for recognition of deferred income taxes we will record upon
conversion from an S corporation to a C corporation contemporaneously with this
offering; and (b) the dividend of approximately $7.0 million in S corporation
earnings to our pre-offering stockholders contemporaneously with this offering.
Pro forma as adjusted net tangible book value dilution per share represents
the difference between the amount per share you will pay in this offering and
the pro forma net tangible book value per share of common stock immediately
after completion of this offering. After giving effect to application of our
estimated net proceeds of this offering and the pro forma adjustments described
above, our net tangible book value at March 27, 1999, would have been
$ million or $ per share of common stock. This represents an immediate
increase in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution in net tangible book value of $ per
share to purchasers in this offering. The following table illustrates this per
share dilution at March 27, 1999:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma tangible book value per share before this
offering............................................... $
Increase per share attributable to new investors..........
------
Pro forma as adjusted net tangible book value per share
after this offering.......................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table shows the difference between existing stockholders and
the purchasers in this offering (at an assumed public offering price of $
per share) with respect to the number of shares purchased from Central, the
total consideration paid, and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED(1)(2) TOTAL CONSIDERATION
---------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 11,003,312 73.3%
New investors.................... 4,000,000 26.7%
---------- ----- -------- -----
Total.................. 15,003,312 100.0% 100.0%
========== ===== ======== =====
</TABLE>
- ---------------
(1) The Class A common stock has one vote per share, and the Class B common
stock has three votes per share. After giving effect to this offering, the
outstanding shares of the Class A common stock held by new investors will
represent approximately 15.4% of the total combined voting power of both
classes of common stock outstanding, and the outstanding shares of Class A
and Class B common stock held by existing stockholders will represent
approximately 84.6% of the total combined voting power of both classes of
common stock outstanding.
(2) The sale of 1,000,000 shares by selling stockholders will reduce the common
stock held by existing stockholders to 10,003,312 shares, or 66.7%, and
increase the number of shares owned by new investors to 5,000,000 shares, or
33.3%, of the total shares of common stock outstanding after this offering.
The information above does not reflect dilution from the options to
purchase 2,661,334 shares of Class A common stock that are currently
outstanding. The options have exercise prices ranging from $1.35 to $3.45 per
share. Approximately 550,000 are exercisable and the remainder become
exercisable by 2008. An additional 338,666 shares of Class A common stock are
reserved for issuance under our incentive stock plan.
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<PAGE> 19
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
The following table presents historical and pro forma consolidated financial
and operating data since our inception on April 1, 1997. The selected historical
statement of operations and balance sheet data as of and for the period ended
December 31, 1997, and the year ended December 31, 1998, are derived from our
audited consolidated financial statements. The selected historical and pro forma
statement of operations and balance sheet data as of and for the twelve week
periods ended March 28, 1998, and March 27, 1999, are derived from our unaudited
consolidated financial statements. The selected historical and pro forma
statement of operations data for the twenty-eight weeks ended December 31, 1998,
are derived from our financial records and are unaudited. In our opinion, our
unaudited consolidated financial statements and data include all adjustments
(consisting only of normal recurring adjustments) necessary to present the
information fairly. The results for partial years are not necessarily indicative
of results we would achieve for a full year. You should read the information
below together with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and related
notes.
<TABLE>
<CAPTION>
APRIL 1, 1997 TWENTY-EIGHT TWELVE WEEKS ENDED
(INCEPTION) TO WEEKS ENDED YEAR ENDED ---------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 28, MARCH 27,
1997(1)(2) 1998(2) 1998 1998(2) 1999(2)
-------------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues............................... $ 111,869 $ 141,283 $ 259,941 $ 57,379 $ 64,075
Operating expenses:
Salaries, wages, and benefits.................. 73,579 90,499 167,205 37,430 41,912
Operating supplies and expenses................ 8,905 10,596 19,405 4,379 4,262
General and administrative..................... 7,115 6,548 12,404 2,807 2,879
Operating taxes and licenses................... 4,278 4,761 9,169 2,164 2,333
Insurance and claims........................... 3,631 5,407 9,043 1,502 1,842
Depreciation and amortization.................. 2,130 3,893 6,764 1,345 1,803
Communications and utilities................... 2,125 2,366 4,374 984 1,101
Rent and purchased transportation.............. 4,421 6,762 13,077 2,844 3,303
---------- ---------- ---------- -------- --------
Total operating expenses................... $ 106,184 $ 130,832 $ 241,441 $ 53,455 $ 59,435
---------- ---------- ---------- -------- --------
Operating earnings............................... 5,685 10,451 18,500 3,924 4,640
Interest expense and other, net.................. 1,595 1,599 3,452 889 715
---------- ---------- ---------- -------- --------
Earnings before income taxes..................... 4,090 8,852 15,048 3,035 3,925
Income tax expense............................... 1,715 247 5,497 1,251 142
---------- ---------- ---------- -------- --------
Net earnings..................................... $ 2,375 $ 8,605 $ 9,551 $ 1,784 $ 3,783
========== ========== ========== ======== ========
Net earnings per share:
Basic.......................................... $ 0.21 $ 0.78 $ 0.87 $ 0.16 $ 0.34
Diluted........................................ 0.18 0.65 0.72 0.14 0.29
PRO FORMA:(3)
Pro forma provision for income taxes............. (3) 3,232 7,182 (3) 1,558
---------- ---------- --------
Pro forma net earnings........................... (3) $ 5,620 $ 7,866 (3) $ 2,367
========== ========== ========
Pro forma net earnings per common share:(4)
Basic.......................................... (3) $ 0.51 $ 0.68 (3) $ 0.20
Diluted........................................ (3) 0.42 0.57 (3) 0.17
OPERATING DATA:
Operating ratio(5)............................... 94.9% 92.6% 92.9% 93.2% 92.8%
LTL revenue per hundredweight(6)................. $ 8.40 $ 8.40 $ 8.37 $ 8.36 $ 8.64
Linehaul load factor(7).......................... 19,252 20,421 20,246 19,468 21,227
LTL pounds per hour -- pick-up and delivery(8)... 2,277 2,421 2,420 2,379 2,504
LTL pounds per hour -- dock(9)................... 3,163 3,315 3,303 3,251 3,532
Total tonnage.................................... 883,353 1,058,177 1,984,444 448,836 474,361
Total number of freight bills.................... 1,458,635 1,639,832 3,069,300 697,278 736,726
Average length of haul in miles(10).............. 272 301 298 288 309
Average age of tractors by model year (end of
period)........................................ 11.3 8.9 8.9 9.3 7.4
Average age of trailers by model year (end of
period)........................................ 16.2 15.7 15.7 16.3 13.6
</TABLE>
<TABLE>
<CAPTION>
MARCH 27, 1999
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED(11)
-------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Net property and equipment................................ $ 95,665
Total assets.............................................. 133,136
Long-term debt, including current portion................. 57,440
Stockholders' equity...................................... 27,254
</TABLE>
(Footnotes
on following page)
17
<PAGE> 20
- ---------------
(1) This period includes start-up expenses of approximately $989,000 incurred
from inception on April 1, 1997 to commencement of operations effective
June 28, 1997.
(2) Our fiscal year includes twelve weeks in each of the first three fiscal
quarters and approximately sixteen weeks in the fourth fiscal quarter.
(3) Beginning April 1, 1998, we elected to be treated as an S corporation for
federal income tax purposes. An S corporation passes through essentially
all taxable income and losses to its stockholders and does not pay income
taxes at the corporate level. Contemporaneously with this offering we will
convert to a C corporation. For comparative purposes, we have included a
pro forma provision for income taxes assuming we had been taxed as a C
corporation in all periods our S corporation election was in effect. We did
not reflect the approximately $628,000 one-time, non-cash benefit for
recognition of deferred income taxes we will record when we convert from an
S corporation to a C corporation contemporaneously with this offering.
(4) Pro forma net earnings per common share for the periods ended December 31,
1998, and the twelve weeks ended March 27, 1999, give effect to the
issuance of shares of our Class A common stock at an assumed price
of $ as if such shares had been sold to fund the distribution of S
corporation earnings contemporaneously with this offering.
(5) Operating expenses as a percentage of operating revenues.
(6) This measures the average revenue we receive from transporting 100 pounds
of LTL freight.
(7) This measure of the efficiency of our linehaul operation is the average
weight of the freight transported per trailer on each movement between our
terminals, weighted by distance from origin to destination and including
the effect of any unloaded miles.
(8) This measure of the efficiency of our pick-up and delivery operations is
the total pounds of LTL freight hauled by our pick-up and delivery drivers
during a given period divided by the number of hours the drivers worked
during the period.
(9) This measure of the efficiency of our dock operations is the total pounds
of LTL freight moved through our terminals during a given period divided by
the number of working hours in the period.
(10) Weighted by the weight of each shipment.
(11) Adjusted to reflect (a) the one-time, non-cash benefit of approximately
$628,000 for recognition of deferred income taxes we will record when we
convert from an S corporation to a C corporation contemporaneously with
this offering; (b) an approximately $7.0 million distribution of S
corporation earnings to our existing stockholders contemporaneously with
this offering; (c) the sale of 4,000,000 shares of Class A common stock at
an assumed public offering price of $ by us in this offering; and (d)
repayment of $ of debt with our estimated net proceeds of this
offering.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We were incorporated on April 1, 1997, and commenced operations effective
June 28, 1997, after closing a management buyout from Caliber System. In the
buyout, we purchased the "Central Freight Lines" name, tractors, trailers,
terminal network, and certain other assets that Caliber had operated as the
Southwestern Division of its Viking Freight subsidiary. The purchase price was
approximately $43.0 million in cash and $14.0 million in assumed liabilities.
Because of our short operating history, our results of operations since
inception may not be indicative of future results. You should read this
discussion in conjunction with our consolidated financial statements and related
notes and keep in mind the following important facts concerning the management
buyout and our financial performance:
- The Southwestern Division of Viking is not a predecessor for accounting
purposes; accordingly, we are not able to provide you with financial
statement information for any periods prior to inception.
- We are replacing substantially all of our tractors and trailers with new
equipment. The price we paid for the assets we are replacing was
substantially less than the depreciated book value reflected on Caliber's
financial statements for those assets. The new equipment will increase
our depreciation expense in future periods. We expect to achieve benefits
which will more than offset our increased depreciation from better fuel
mileage, reduced maintenance, and greater freight capacity, but these
benefits are not certain.
We expanded from $57.4 million in operating revenues and $3.0 million in
earnings before income taxes for the twelve weeks ended March 28, 1998, to $64.1
million in operating revenues and $3.9 million in earnings before income taxes
in the comparable 1999 period. We generated $259.9 million in revenue and $15.0
million in earnings before income taxes during 1998, our first full year of
operation.
Our operating revenues vary based upon the volume of freight we transport
and the revenue per hundredweight we charge to customers. Revenue per
hundredweight measures the rates we receive from customers and varies with the
classification of the commodities being shipped and the distance the goods are
transported. Since the management buyout, we have improved our revenue per
hundredweight by monitoring shipper-supplied weights and freight classifications
and increasing our freight rates. We intend to double the number of shipments
monitored and seek additional rate increases in 1999. Because of our short
average length of haul, our revenue per hundredweight is generally less than for
carriers with longer average lengths of haul.
We monitor our operating efficiency through three main measure: linehaul
load factor; LTL pick-up and delivery pounds per hour; and LTL dock pounds per
hour. Linehaul load factor is the average weight of the freight transported per
trailer on each movement between our terminals, weighted by distance from origin
to destination and including the effect of any unloaded miles. A higher linehaul
load factor indicates greater efficiency in our operation because more freight
per trailer generates greater revenue with little incremental cost. As part of
our fleet upgrade, we are adding trailers that will increase the amount of
freight transported per trailer by up to 27%. We expect improvements in our
linehaul load factor to continue as approximately 4,500 of the high-capacity
trailers are delivered through 2001.
Pick-up and delivery pounds per hour is the total LTL pounds hauled by our
pick-up and delivery drivers during a given period divided by the number of
hours the drivers worked during the period. It measures how efficiently we
transport freight between customer locations and our local terminals. Pick-up
and delivery pounds per hour varies with several factors, including trailer
capacity, customer concentration on routes, and tractor and trailer
maneuverability.
Dock pounds per hour is the total pounds of LTL freight moved through our
terminals during a given period divided by the number of working hours in the
period. It measures how efficiently we move freight through our terminals.
Increasing our dock pounds per hour means that we obtain greater production per
employee.
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<PAGE> 22
Salaries, wages, and benefits is our largest expense. Effective March 1,
1999, we increased hourly wages and employee salaries by 3% and increased the
matching component of our 401(k) plan from 50% of the employee's contribution,
with a maximum matching contribution of 2.5%, to 75% of the employee's
contribution, with a maximum matching contribution of 3.75%.
Fuel, equipment, and maintenance expenses vary with the age of our fleet.
Since initiating our fleet upgrade, we have closed ten of the 16 maintenance
facilities we had at the time of the management buyout. Additionally, based upon
the results of the new tractors already operating, we expect our fleet-wide fuel
mileage to improve by approximately 15%, to 7.0 miles per gallon, after all new
tractors are in service.
We have operated as an S corporation since April 1, 1998. An S corporation
passes through essentially all taxable income and losses to its stockholders and
does not pay income taxes at the corporate level. For comparative purposes, we
have included a pro forma provision for income taxes assuming we had been taxed
as a C corporation in all periods our S corporation election was in effect. The
pro forma provision does not reflect the approximately $628,000 one-time,
non-cash benefit for recognition of deferred income taxes we will record when we
convert from an S corporation to a C corporation contemporaneously with this
offering.
For financial reporting purposes, each of our first three fiscal quarters
consists of twelve weeks and our fourth fiscal quarter consists of the remainder
of the year, or approximately sixteen weeks.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of the specified
items to operating revenues for the periods indicated:
<TABLE>
<CAPTION>
APRIL 1, 1997 TWENTY-EIGHT TWELVE WEEKS ENDED
(INCEPTION) TO WEEKS ENDED YEAR ENDED ---------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 28, MARCH 27,
1997(1) 1998 1998 1998 1999
-------------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Operating revenues.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages, and benefits....... 65.8% 64.1% 64.3% 65.2% 65.4%
Operating supplies and expenses..... 8.0% 7.5% 7.5% 7.6% 6.7%
General and administrative.......... 6.4% 4.6% 4.8% 4.9% 4.5%
Operating taxes and licenses........ 3.8% 3.4% 3.5% 3.8% 3.6%
Insurance and claims................ 3.3% 3.8% 3.5% 2.6% 2.9%
Depreciation and amortization....... 1.9% 2.8% 2.6% 2.3% 2.8%
Communications and utilities........ 1.9% 1.7% 1.7% 1.7% 1.7%
Rent and purchased transportation... 4.0% 4.8% 5.0% 5.0% 5.2%
------ ------ ------ ------ ------
Total operating expenses.... 94.9% 92.6% 92.9% 93.2% 92.8%
------ ------ ------ ------ ------
Operating earnings.................... 5.1% 7.4% 7.1% 6.8% 7.2%
Interest expense and other, net....... 1.4% 1.1% 1.3% 1.5% 1.1%
------ ------ ------ ------ ------
Earnings before income taxes.......... 3.7% 6.3% 5.8% 5.3% 6.1%
Pro forma provision for income
taxes(2)............................ 1.5% 2.3% 2.8% 2.2% 2.4%
------ ------ ------ ------ ------
Pro forma net earnings(2)............. 2.1% 4.0% 3.0% 3.1% 3.7%
====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) This period includes start-up expenses of approximately $989,000 incurred
from inception on April 1, 1997, to our commencement of operations effective
June 28, 1997.
(2) Provision for income taxes and net earnings for the periods ended December
31, 1997, and March 28, 1998, are actual as we were a C corporation for tax
purposes for these periods.
COMPARISON OF TWELVE WEEKS ENDED MARCH 28, 1998, TO TWELVE WEEKS ENDED MARCH 27,
1999
Operating revenues increased $6.7 million, or 11.7%, from $57.4 million for
the 1998 period to $64.1 million for the 1999 period. The operating revenues
increase was primarily attributable to an overall increase in freight tonnage,
as well as higher LTL revenue per hundredweight. Total tonnage increased 25,525
20
<PAGE> 23
tons, or 5.7%, from 448,836 tons in the 1998 period to 474,361 tons in the 1999
period. LTL revenue per hundredweight increased 3.4%, from $8.36 in the 1998
period to $8.64 in the 1999 period. Our general measures of operating efficiency
also improved. Linehaul load factor increased 1,759 pounds, or 9.0%, from 19,468
pounds for the 1998 period to 21,227 in the 1999 period. Pick-up and delivery
operations transported an additional 125 pounds of LTL freight per hour, a 5.3%
increase, from 2,379 LTL pounds per hour in the 1998 period to 2,504 in the 1999
period. Dock operations moved an additional 281 pounds of LTL freight per hour,
an 8.6% increase, from 3,251 LTL pounds per hour in the 1998 period to 3,532 in
the 1999 period.
Salaries, wages, and benefits increased $4.5 million, or 12.0%, from $37.4
million for the 1998 period to $41.9 million for the 1999 period. As a
percentage of operating revenues, salaries, wages, and benefits increased
slightly from 65.2% for the 1998 period to 65.4% for the 1999 period, primarily
because in the 1998 period we received a one-time $648,000 refund of
unemployment taxes that we did not receive in the 1999 period. Excluding the
effect of this refund, salaries, wages, and benefits decreased as a percentage
of operating revenues from 66.4% in the 1998 period to 65.4% in the 1999 period,
as increases in productivity and LTL revenue per hundredweight more than offset
higher wages. Hourly wages and salaries were increased effective March 1, 1999,
by 3.0% and March 1, 1998, by 5%. Effective March 1, 1999, we increased the
matching component of our 401(k) plan from 50% of the employee's contribution,
with a maximum matching contribution of 2.5%, to 75% of the employee's
contribution, with a maximum matching contribution of 3.75%. The cost of
salaries, wages, and benefits as a percentage of operating revenues will
increase in future periods unless we continue to generate sufficient
productivity gains to offset the additional expense.
Operating supplies and expenses, which consist primarily of fuel,
maintenance, and operating supplies, decreased $117,000, or 2.7%, from $4.4
million for the 1998 period to $4.3 million for the 1999 period. As a percentage
of operating revenues, operating supplies and expenses decreased from 7.6% for
the 1998 period to 6.7% for the 1999 period. The decrease as a percentage of
operating revenues reflected a decrease in maintenance costs, as the new
tractors and trailers delivered as part of our fleet upgrade required less
maintenance than the older equipment and allowed us to close ten of our 16
maintenance facilities between the 1998 period and the 1999 period. We also
benefited from the improved fuel mileage of the new tractors. We expect
maintenance costs to continue to decrease as a percentage of operating revenues,
and our fuel mileage to continue to improve as the fleet upgrade continues. Fuel
prices decreased from an average of $.527 per gallon before fuel taxes in the
1998 period to $.429 per gallon before fuel taxes in the 1999 period. Fuel
prices rose 11% in April 1999 over the average level during the twelve weeks
ended March 27, 1999 and will result in higher costs in future periods if they
remain at elevated levels.
General and administrative increased $72,000, or 2.6%, from $2.8 million in
the 1998 period to $2.9 million in the 1999 period. As a percentage of operating
revenues, general and administrative decreased from 4.9% in the 1998 period to
4.5% in the 1999 period, as a result of an increased revenue base over which
these costs were spread.
Operating taxes and licenses increased $169,000, or 7.8%, from $2.2 million
for the 1998 period to $2.3 million for the 1999 period. As a percentage of
operating revenues, operating taxes and licenses decreased from 3.8% for the
1998 period to 3.6% for the 1999 period. Greater productivity per licensed unit
more efficiently spread this fixed cost per unit.
Insurance and claims increased $340,000, or 22.6%, from $1.5 million for
the 1998 period to $1.8 million for the 1999 period. As a percentage of
operating revenues, insurance and claims increased from 2.6% for the 1998 period
to 2.9% for the 1999 period, as a result of an increase in cargo damage claims.
We have implemented several claims prevention programs to raise employee
awareness concerning the handling of freight without damage.
Depreciation and amortization increased $458,000, or 34.1%, from $1.3
million for the 1998 period to $1.8 million for the 1999 period. As a percentage
of operating revenues, depreciation and amortization increased from 2.3% for the
1998 period to 2.8% for the 1999 period, as a result of a newer and larger fleet
being depreciated in the 1999 period compared with the 1998 period. We expect
depreciation and amortization to continue to rise as a percentage of operating
revenues in future periods as our fleet upgrade continues.
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<PAGE> 24
Communications and utilities increased $117,000, or 11.9%, from $984,000 in
the 1998 period to $1.1 million in the 1999 period. As a percentage of operating
revenues, communications and utilities remained constant at 1.7% of operating
revenues.
Rent and purchased transportation increased $459,000, or 16.1%, from $2.8
million for the 1998 period to $3.3 million for the 1999 period. As a percentage
of operating revenues, rent and purchased transportation increased from 5.0% for
the 1998 period to 5.2% for the 1999 period, as a result of increased
outsourcing of linehaul movements to third party carriers in an attempt to
decrease the number of empty miles being driven. We expect our outsourcing to
these carriers will increase in future periods.
As a result of the foregoing, our operating ratio improved from 93.2% for
the 1998 period to 92.8% for the 1999 period.
Interest expense and other, net decreased $174,000, or 19.6%, from $889,000
for the 1998 period to $715,000 for the 1999 period. As a percentage of
operating revenues, interest expense and other, net decreased from 1.5% for the
1998 period to 1.1% for the 1999 period. Our average debt balances increased
from $44.8 million in the 1998 period to $50.4 million in the 1999 period, and
our average interest rates decreased from 8.2% in the 1998 period, to 7.7% in
the 1999 period.
As a result of the factors described above, earnings before income taxes
increased $890,000, or 29.3%, from $3.0 million for the 1998 period to $3.9
million for the 1999 period. As a percentage of operating revenues, earnings
before income taxes increased from 5.3% for the 1998 period to 6.1% for the 1999
period.
Our effective combined federal and state income tax rate for the 1998
period was 41.2%, compared with pro forma combined federal and state income tax
rate of 39.7% used for the 1999 period, which is consistent with the effective
rate we expect going forward.
As a result of the factors described above, net earnings increased
$583,000, or 32.7%, from net earnings of $1.8 million for the 1998 period to pro
forma net earnings of $2.4 million for the 1999 period. Our net margin improved,
as net earnings increased from 3.1% of operating revenues for the 1998 period to
pro forma net earnings of 3.7% for the 1999 period.
YEAR ENDED DECEMBER 31, 1998
Operating revenues were $259.9 million in 1998. Total tonnage transported
in 1998 was 1,984,444 tons and LTL revenue per hundredweight was $8.37.
Throughout the year we increased our monitoring of shipper-supplied weights and
freight classifications and increased our freight rates on new and expiring
contracts on two occasions, January 1, 1998, and October 1, 1998. Pick-up and
delivery drivers transported 2,420 pounds of LTL freight per hour while our dock
operations moved 3,303 pounds of LTL freight per hour for the year. Linehaul
load factor was 20,246 pounds for the year and we expect this number to improve
as approximately 4,500 new high-capacity trailers are delivered through 2001.
Salaries, wages, and benefits represented 64.3% of operating revenues, or
$167.2 million in 1998. The productivity of our pick-up and delivery and dock
operations helped offset an hourly wage and salary increase of 5%, effective
March 1, 1998.
Operating supplies and expenses, representing 7.5% of operating revenues,
was $19.4 million in 1998. These costs vary with the age of our fleet and cost
of fuel. Average fuel cost was $.489 per gallon before fuel taxes in 1998. We
expect maintenance costs to continue to decrease as a percentage of operating
revenues and our fuel mileage to continue to improve as our fleet upgrade
continues.
General and administrative, representing 4.8% of operating revenues, was
$12.4 million in 1998.
Operating taxes and licenses, representing 3.5% of operating revenues, was
$9.2 million in 1998. These costs vary according to the amount of fuel purchased
and the number of vehicles registered each year. The fleet upgrade will increase
our licensing costs; however, the sale of older equipment will partially offset
the increase.
Insurance and claims, representing 3.5% of operating revenues, was $9.0
million in 1998.
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<PAGE> 25
Depreciation and amortization, representing 2.6% of operating revenues, was
$6.8 million in 1998. As we continue the fleet upgrade, depreciation and
amortization will increase as a percentage of operating revenues.
Communications and utilities, representing 1.7% of operating revenues, was
$4.4 million in 1998.
Rent and purchased transportation, representing 5.0% of operating revenues,
was $13.1 million in 1998. The costs included loads contracted for transport by
third party carriers, which decreases the number of empty miles being driven.
This category was also impacted in 1998 by the opening of terminals in Chicago,
St. Louis, Kansas City, Memphis, and Denver and the leasing of terminals in
Eagle Pass, Temple, and Fort Worth, Texas following the sale-and-leaseback
transaction.
Interest expense and other, net was $3.5 million in 1998, representing 1.3%
of operating revenues.
In 1998, earnings before income taxes were $15.0 million, representing 5.8%
of operating revenues. Pro forma net earnings were $7.9 million, representing
3.0% of operating revenues. Our pro forma effective tax rate during 1998 was
47.7%. We expect our effective tax rate in future periods to be approximately
39.7%.
COMPARISON OF PERIOD FROM INCEPTION TO DECEMBER 31, 1997, TO TWENTY-EIGHT WEEKS
ENDED DECEMBER 31, 1998
The 1997 period includes $989,000 of start-up expenses incurred from our
inception on April 1, 1997, to commencement of operations effective June 28,
1997. The 1998 period includes one additional week of operations.
Operating revenues increased $29.4 million, or 26.3%, from $111.9 million
for the 1997 period to $141.3 million for the 1998 period. The increase in
operating revenues was attributable primarily to an overall increase in tonnage
from new and existing customers as well as rate increases on new or expiring
contracts. Total tonnage increased 174,824 tons, or 19.8%, from 883,353 tons in
the 1997 period to 1,058,177 tons in the 1998 period. One rate increase was
effective as of January 1, 1998, while a second was effective as of October 1,
1998, with three months of effect on the 1998 period. LTL revenue per
hundredweight was $8.40 in both periods. Our general measures of operating
efficiency improved period over period. Linehaul load factor increased 1,169
pounds, or 6.1%, from 19,252 pounds for the 1997 period to 20,421 in the 1998
period. Pick-up and delivery operations transported an additional 144 LTL pounds
per hour, a 6.3% increase, from 2,277 in the 1997 period to 2,421 in the 1998
period. Dock operations moved an additional 152 LTL pounds per hour, a 4.8%
increase, from 3,163 in the 1997 period to 3,315 in the 1998 period.
Salaries, wages, and benefits increased $16.9 million, or 23.0%, from $73.6
million for the 1997 period to $90.5 million for the 1998 period. As a
percentage of operating revenues, salaries, wages, and benefits decreased from
65.8% for the 1997 period to 64.1% for the 1998 period as increases in the
productivity of pick-up and delivery and dock drivers more than offset higher
wages.
Operating supplies and expenses increased $1.7 million, or 19.0%, from $8.9
million for the 1997 period to $10.6 million for the 1998 period. As a
percentage of operating revenues, operating supplies and expenses decreased from
8.0% for the 1997 period to 7.5% for the 1998 period. The decrease as a
percentage of operating revenues reflected a decrease in maintenance costs, as
new tractors and trailers delivered as part of our fleet upgrade required less
maintenance than the older equipment and allowed us to close two of our
maintenance facilities during the 1998 period. We also benefited from the
slightly improved fuel mileage of the new tractors and decreased fuel prices
from an average of $.613 per gallon before fuel taxes in the 1997 period to
$.468 per gallon before fuel taxes in the 1998 period.
General and administrative decreased $567,000, or 8.0%, from $7.1 million
for the 1997 period to $6.5 million for the 1998 period. As a percentage of
operating revenues, general and administrative decreased from 6.4% for the 1997
period to 4.6% for the 1998 period, as a result of $989,000 in start-up expenses
associated with the management buyout during 1997 which was partially offset by
an increase in office supplies expense.
Operating taxes and licenses increased $483,000, or 11.3%, from $4.3
million for the 1997 period to $4.8 million for the 1998 period. As a percentage
of operating revenues, operating taxes and licenses decreased from 3.8% for the
1997 period to 3.4% for the 1998 period. The decrease was attributable to the
refund of real
23
<PAGE> 26
estate taxes resulting from the lowering of tax values of certain properties,
which was partially offset by increased taxes associated with a higher quantity
of fuel being purchased due to a growing fleet and increased licensing costs as
we continue to upgrade our fleet.
Insurance and claims increased $1.8 million, or 48.9%, from $3.6 million
for the 1997 period to $5.4 million for the 1998 period. As a percentage of
operating revenues, insurance and claims increased from 3.3% for the 1997 period
to 3.8% for the 1998 period, primarily as a result of increased freight damage
and accident claims in the 1998 period.
Depreciation and amortization increased $1.8 million, or 82.8%, from $2.1
million for the 1997 period to $3.9 million for the 1998 period. As a percentage
of operating revenues, depreciation and amortization increased from 1.9% for the
1997 period to 2.8% for the 1998 period. The increase in the 1998 period
resulted from a newer and larger fleet being depreciated as the fleet upgrade
continues. We expect depreciation and amortization to continue to rise as a
percentage of operating revenues in future periods as the upgrade continues.
Communications and utilities increased $241,000, or 11.3%, from $2.1
million for the 1997 period to $2.4 million for the 1998 period. As a percentage
of revenue, communications and utilities decreased slightly from 1.9% in the
1997 period to 1.7% in the 1998 period as these primarily fixed costs were
spread over a larger revenue base.
Rent and purchased transportation increased $2.3 million, or 53.0%, from
$4.4 million for the 1997 period to $6.8 million for the 1998 period. As a
percentage of operating revenues, rent and purchased transportation increased
from 4.0% for the 1997 period to 4.8% for the 1998 period. The increase resulted
from increased outsourcing of linehaul movements to third party carriers in an
effort to decrease the number of empty miles being driven, the opening of
terminals in Chicago, Illinois, and Denver, Colorado, and the leasing of
terminals in Eagle Pass, Temple, and Fort Worth, Texas in the 1998 period
following the sale-and-leaseback transaction. We expect our outsourcing to these
carriers will increase in future periods.
As a result of the foregoing, our operating ratio improved from 94.9% in
the 1997 period to 92.6% in the 1998 period.
Interest expense and other, net remained constant at $1.6 million in each
period. As a percentage of operating revenues, interest expense and other, net
decreased from 1.4% in the 1997 period to 1.1% in the 1998 period. Our average
debt balances increased from $34.5 million in the 1997 period to $44.2 million
in the 1998 period, and our average interest rates decreased from 8.5% in the
1997 period to 7.8% in the 1998 period.
As a result of the factors described above, earnings before income taxes
increased $4.8 million, or 116.4% from $4.1 million in the 1997 period to $8.9
million in the 1998 period. As a percentage of operating revenues, earnings
before income taxes increased from 3.7% in the 1997 period to 6.3% in the 1998
period.
Our effective combined federal and state income tax rate for the 1997
period was 41.9%, and our pro forma effective rate for the 1998 period was
36.5%. The effective rate for 1998 was reduced by the effects of a state tax
refund.
As a result of the factors described above, pro forma net earnings
increased $3.2 million, or 136.6%, from net earnings of $2.4 million in the 1997
period to pro forma net earnings of $5.6 million in the 1998 period. Our net
margin improved, as net earnings increased from 2.1% of operating revenues in
the 1997 period to pro forma net earnings of 4.0% of operating revenues in the
1998 period.
LIQUIDITY AND CAPITAL RESOURCES
Our business requires substantial, ongoing capital investments,
particularly for new tractors and trailers. Our primary sources of liquidity
have been cash provided by operations, borrowings under a bank credit agreement
to fund equipment purchases and working capital needs, borrowing under secured
equipment notes, and a real estate financing transaction with a related party.
We intend to use a portion of the net proceeds of this offering to repay all
borrowings under our credit facility and other secured debt. This will leave
only the real estate financing transaction as a long-term debt immediately
following this offering. The
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<PAGE> 27
trucking industry requires extensive investment in revenue equipment. We
anticipate capital expenditures of approximately $50.0 million in each of 1999
and 2000 and $36.0 million in 2001, primarily consisting of new tractors and
trailers. Thereafter, net capital investments will continue to be substantial.
We believe the net proceeds of the offering, cash generated from operations, and
borrowings under credit facilities will be sufficient to fund our operations at
least through the end of 2000.
The extent to which these existing sources of capital will also be adequate
to fund our acquisition program is dependent upon such factors as the number of
attractive acquisitions available to us, their size, and the profitability of
our operations and the operations we intend to acquire. Should these factors be
such that currently available capital resources are inadequate, we may seek
additional sources of capital. Such sources could include additional bank
borrowings or the issuance of debt or equity securities. If sources of capital
are unavailable or available only on terms that we find unattractive, we may be
forced to reduce or delay our acquisition strategy.
Net cash (used in) provided by operating activities was ($123,000) for the
period from inception to December 31, 1997, $26.3 million for the year ended
December 31, 1998, $1.1 million for the twelve weeks ended March 28, 1998, and
$5.7 million for the comparable 1999 period. Our accounts receivable increased
$22.9 million during the period from inception to December 31, 1997, $6.7
million during the year ended December 31, 1998, $6.7 million during the twelve
weeks ended March 28, 1998, and $2.1 million during the twelve weeks ended March
27, 1999. The increase in 1997 resulted from the start-up of our business. The
average age of our accounts receivable was 36.9 days for the period from
inception to December 31, 1997, 43.9 days for the year ended December 31, 1998,
43.3 days for the twelve weeks ended March 28, 1998, and 43.7 days for the
comparable 1999 period.
Net cash used in investing activities was $55.4 million for the period from
inception to December 31, 1997, $26.0 million for the year ended December 31,
1998, $6.3 million for the twelve weeks ended March 28, 1998, and $14.2 million
for the comparable 1999 period. These capital expenditures were financed with
long-term debt and cash flows from operations. Our budget for capital
expenditures is approximately $50.0 million for each of 1999 and 2000 and
approximately $36.0 million for 2001, before considering the proceeds from sales
or trades of equipment. Our capital expenditures will consist primarily of the
acquisition of new tractors and trailers in connection with our fleet upgrade.
We expect to pay for the projected capital expenditures with our proceeds from
this offering, borrowings, and cash flows from operations.
Net cash provided by (used in) financing activities was $56.3 million for
the period from inception to December 31, 1997, ($237,000) for the year ended
December 31, 1998, $5.3 million for the twelve weeks ended March 28, 1998, and
$9.0 million for the comparable 1999 period. In 1997, the net cash provided by
financing activities consisted primarily of net borrowings of $5.9 million under
our credit agreement with Compass Bank, $35.4 million in other secured long-term
debt, and $15.0 million in proceeds from the issuance of our common stock to
existing stockholders. We paid S corporation dividends to our stockholders of
$2.6 million in 1998, and $458,000 in the twelve weeks ended March 27, 1999. We
plan to pay an additional $7.0 million in S corporation dividends to our
existing stockholders contemporaneously with this offering.
At March 27, 1999, we had outstanding long-term debt (including current
portion) of $57.4 million, most of which was for the purchase of revenue
equipment and the refinancing of the note payable to the bank which was used to
consummate the management buyout. We are a party to a credit agreement with
Compass Bank which consists of a $22.0 million term loan facility to fund the
purchase of new pick-up and delivery tractors and a $22.5 million revolving line
of credit. At March 27, 1999, $7.3 million was outstanding under the revolving
credit facility and $7.6 million was outstanding under the term loan. Borrowings
under the credit agreement are secured by accounts receivable, equipment, and
other assets. We intend to repay all outstanding borrowings under the credit
facility with a portion of the net proceeds of this offering. Following such
repayment, aggregate borrowing capacity under the credit agreement will be $32.0
million. We currently pay interest under the revolving line of credit facility
at 1.5% above the 30-day London Interbank Offered Rate in effect from time to
time. Our remaining long-term debt at March 27, 1999, consisted of $26.8 million
under the real estate financing with Southwest and $15.7 million in secured
equipment notes. The equipment
25
<PAGE> 28
notes and credit agreement may be prepaid at any time without penalty. All
amounts outstanding under such notes and the credit agreement will be repaid
with a portion of our offering proceeds.
From time to time we experience a working capital deficit. This is common
to many trucking companies that expand by financing revenue equipment purchases.
We believe our working capital deficits have had little impact upon liquidity.
When we finance revenue equipment through borrowing, a portion of the
indebtedness is categorized as a current liability, although the revenue
equipment is classified as a long-term asset. Consequently, each purchase of
financed revenue equipment decreases working capital. We had a working capital
(deficit) surplus of ($4.9 million) at December 31, 1997, $3.1 million at
December 31, 1998, and ($3.1 million) at March 27, 1999.
INFLATION
Inflation has had a minimal effect on our profitability since we commenced
operations. Most of our operating expenses are inflation-sensitive. We expect
that inflation will affect our costs no more than it affects those of other LTL
carriers.
SEASONALITY
We experience some seasonal fluctuations in freight volume. Historically,
our shipments decrease during winter months. Our operating expenses historically
have been higher in the winter months due to decreased fuel efficiency and
increased maintenance costs for our tractors and trailers in colder weather. Our
southern operating region lessens the seasonal impact.
YEAR 2000 ISSUES
Many currently-installed computer and communications systems and software
products are unable to distinguish between twentieth century dates and
twenty-first century dates. This situation could result in system failures or
miscalculations causing disruptions in the operations of many businesses,
including, among other things, their ability to process transactions, send
invoices, or engage in similar normal business activities. As a result, many
companies' software and computer and communications systems need to be upgraded
or replaced.
We are heavily dependent upon the proper functioning of our computer and
data dependent systems. These include, but are not limited to our billing,
dispatch, electronic data interchange, fueling, payroll, telephone, vehicle
maintenance, and yard and equipment inventory systems. Any failure or
malfunctioning on the part of these or other systems could adversely affect our
business in ways that can not be entirely known, discerned, quantified, or
otherwise anticipated.
On January 3, 1998, we initiated a comprehensive evaluation of those areas
of our business that we believed could be affected by the Year 2000 phenomenon.
As part of this comprehensive evaluation we identified those information systems
and non-information systems within our organization that we believe require
remediation in order to be Year 2000 compliant and established a remediation
schedule which anticipates addressing all critical Year 2000 issues by July
1999. As of April 30, 1999, we had completed approximately 95% of the
remediation process and testing on 15% of the remediated systems.
As part of the remediation process, we have also opened communications with
our significant suppliers, our 500 largest customers, and those trucking
companies with whom we have formed marketing alliances in order to determine the
extent to which we are vulnerable to a failure on the part of such third parties
to remedy their own Year 2000 issues. To the best of our knowledge, these third
parties are either Year 2000 compliant or are taking steps to become Year 2000
compliant by the end of 1999. If these third parties do not timely achieve Year
2000 compliance, however, it is conceivable that their operations could be
adversely affected. This could, in turn, have an adverse impact on our
operations.
The cost of testing and remedying all of our systems and applications is
not expected to exceed $742,000 from inception in calendar year 1998 through
completion in calendar year 1999. Of these costs, approximately $600,000 were
paid through March 27, 1999. All estimated costs have been budgeted and are
expected to be
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<PAGE> 29
funded by cash flows from operations. We do not expect the total cost to us of
Year 2000 compliance issues to be material to our business, financial condition,
or operating results.
Because we have taken precautionary steps in advance of the new millennium,
we do not foresee that the coming of the Year 2000 will have a material adverse
effect on our business. We cannot, however, guarantee that we will successfully
complete our remediation as scheduled, or that completion of our remediation
will prevent all negative impacts to our operations resulting from the Year 2000
phenomenon. If our remediation is not timely completed, or if it is not
completely successful in preventing the negative effects of the Year 2000
phenomenon, our business operations may be negatively affected. Furthermore,
there can be no guarantee that the systems of other companies on which our
system relies will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with our system, would not have a
material adverse effect on our operations.
Because we cannot guarantee that our precautionary measures will prevent
the occurrence of any and all problems resulting from the Year 2000 phenomenon,
we have established a contingency plan based on our existing capabilities and
resources. A team of our information systems employees will be assigned to each
area of operations. There will be no development or enhancement work scheduled
while Year 2000 issues remain outstanding. Our information systems employees
will be dedicated solely to resolving such issues. To insure that there will be
an adequate number of information systems employees available, no information
system employee will be allowed to take a vacation from December 30, 1999
through January 15, 2000. In the event we lose electrical power, the computer
center at our corporate headquarters in Waco, Texas, can be powered by backup
generators so that it can operate without public utilities. These generators
operate as stand alone units so that the failure of a single generator will not
interrupt operations. In addition, large external fuel tanks and large fuel
storage facilities at the Waco terminal insure prolonged utilization of the
generators if required. Even if we completely lost the use of our computer
system, our freight operation could proceed. While operations efficiency may be
affected, business transactions could be recorded on paper and entered into the
computer system at a later date.
ENVIRONMENTAL CAPITAL REQUIREMENTS
At two of our Texas terminal facilities, Fort Worth and Odessa, we have not
completed our remediation efforts related to petroleum storage tanks. The State
of Texas has a reimbursement fund that is available to those who follow the
State's guidelines and include State officials in the decision making process.
The State of Texas limits reimbursement at any single site to $1.0 million.
Approximately $800,000 in remediation costs, including $200,000 following the
management buyout, have been incurred at Odessa, and $20,000 in such costs have
been incurred at Fort Worth. We expect the future remediation costs to be
approximately $400,000 at Odessa and $10,000 at Fort Worth. We have accrued a
reserve on our balance sheet to reflect the amount we do not expect to recover.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which we are exposed are interest rates
on our debt and real estate financing. Our revolving line of credit, provided
there has been no default, carries a maximum variable interest rate of LIBOR
plus 2% and is currently at LIBOR plus 1.5%. This variable interest rate exposes
us to the risk that interest rates may rise. Assuming borrowing equal to the
$7.3 million drawn on the line of credit at March 27, 1999, a one percentage
point increase in the LIBOR would increase our annual interest expense by
$73,000. Our real estate financing of approximately $26.8 million carries a
ten-year fixed interest rate of 8.09%. In addition our term notes payable to the
bank of $7.6 million and other equipment notes payable of approximately $15.7
million carry fixed interest rates. These fixed interest rates expose us to the
risk that interest rates may fall. A one percentage point decline in interest
rates would have the effect of increasing the premium we pay over the market
interest rate by one percentage point or approximately $510,000 annually.
We have not engaged in any fuel hedging transactions since inception. Thus,
we are exposed to fluctuations in fuel prices but are not exposed to any market
risk involving hedging costs.
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<PAGE> 30
THE REGIONAL LTL INDUSTRY
We are a regional, less-than-truckload, LTL, carrier headquartered in Texas
serving shippers primarily within a five-state region of the southwestern United
States. We transport LTL shipments, categorized as shipments weighing less than
10,000 pounds, on scheduled routes from multiple shippers to multiple
consignees.
LTL carriers typically utilize a network of terminals together with fleets
of linehaul and pick-up and delivery tractors and trailers. In general, the more
freight an LTL carrier transports within a geographic area, the lower its
per-shipment operating expenses. This is particularly true with respect to its
pick-up and delivery operations, where increased freight volumes typically
result in more shipments per stop, referred to as greater route density.
As route density increases, an LTL carrier is able to make more pick-ups
and deliveries with fewer stops, thereby improving customer service and lowering
costs per shipment. Similarly, the more freight an LTL carrier hauls between two
given terminals, referred to as lane density, the greater the opportunity to
increase revenue per mile, minimize empty miles, improve customer service, and
reduce costs from intermediate handling and reconsolidation.
We believe that major distribution trends in the United States favor
regional LTL carriers, which generally are defined as LTL carriers that deliver
substantially all of their freight by the end of the second day after pick-up.
We believe that these trends were the major factor in the compounded annual
revenue growth, from 1995 to 1998, of 15.3% among publicly traded regional LTL
carriers as compared with 2.7% among publicly traded national LTL carriers. With
increasingly sophisticated information systems fueling the growth and
reliability of just-in-time inventory management, U.S. companies increasingly
are adopting regional distribution strategies to replace national distribution
strategies. This trend opens opportunities to regional LTL carriers that can
offer a service advantage over non-regional LTL carriers and a cost advantage
over air freight companies. Successful regional LTL carriers can thereby make
themselves an integral part of regional supply chains and function as a
"warehouse on wheels" for corporate America.
A major characteristic of many regional LTL carriers, including Central, is
that their route density enables them to minimize the time consuming and costly
resorting of freight at intermediate points that more frequently occurs at
non-regional LTLs. At Central, for example, 70% of all shipments are loaded
directly from their terminal of origin to their terminal of destination. Another
key characteristic of many regional LTLs is speed of service. Our management
team believes that by delivering 80% of our freight by the end of the first day
following pickup and 93% by the second day following pickup, as we did in 1998,
we gain a competitive advantage over non-regional LTL carriers.
Inter-regional and national LTL carriers, classified as LTL carriers with
average lengths of haul of 500 to 1,000 miles and greater than 1,000 miles,
respectively, comprise the balance of the LTL segment. These carriers typically
employ a series of hub-and-spoke terminals, which entail multiple cargo
reloadings and rehandlings, as a means of improving truck utilization. Although
national and inter-regional LTL carriers typically have more total terminals
than regional carriers, they may not, as is the case with Central in its region,
have as many terminals in a given region as a leading regional carrier. We
believe that our high terminal density in our region operates both as a service
and cost advantage and as a barrier to entry with regard to inter-regional and
national LTL carriers. We believe this is illustrated by the fact that we count
among our customers the four largest national LTL carriers.
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<PAGE> 31
HISTORY OF CENTRAL FREIGHT LINES AND MANAGEMENT BUYOUT
Our company began its operations effective June 28, 1997, after we acquired
the assets of the Southwestern Division of Viking Freight Lines. The history of
the name Central Freight Lines and its Texas franchise, however, date back to
1925, when Central Freight Lines was founded in Waco, Texas. That entity, which
we refer to as Old Central, was a regional LTL carrier that served the
intrastate Texas LTL market for decades. Old Central grew until, in the early
1990s, it had over 100 terminals in Texas.
In 1993, national LTL carrier Roadway Services, Inc. purchased Old Central.
Roadway initially operated Old Central as an independent subsidiary. Beginning
in 1995, however, several events occurred that fundamentally changed Old
Central's operations. In August 1995, Roadway Services spun off to its
stockholders its unionized LTL operations, including Roadway Express, Inc., and
changed its name to Caliber System, Inc. On January 1, 1996, Caliber merged Old
Central and three other non-union regional LTL carriers from other regions into
one operation under the name of the largest regional carrier, Viking Freight
Lines. Following the merger, Viking centralized all accounting, computer
systems, and upper management functions in its headquarters in San Jose,
California and thereby formed a national LTL carrier from the four regional
carriers. In that process, Viking de-emphasized regional marketing, solicited
more transcontinental, long-haul freight, and lost alliances with other
carriers. This strategy was not successful, and Viking incurred substantial
losses. Caliber decided to sell the assets of Old Central and the two other
former regional carriers it had merged into Viking.
Our management team believed that it could purchase the assets of the
Southwestern Division of Viking and operate them profitably by returning to
regional operations. In April 1997, the members of our management team asked
Jerry Moyes to join in bidding for the assets of Old Central. Mr. Moyes is the
Chairman, Chief Executive Officer, and largest stockholder of Swift
Transportation (Nasdaq: SWFT). He has guided Swift from $33 million in reported
annual revenue in 1984 to $873 million in 1998 through a combination of internal
growth and eight significant acquisitions. Mr. Moyes, who now serves as the
Chairman of our Board of Directors, invested over 95% of the equity capital and
personally guaranteed the $43 million in bank financing necessary to fund the
purchase. Our management team invested the remaining equity and has been granted
options under our incentive stock plan to purchase an additional 2.3 million
shares. The shares and options together represent 20% of our pre-offering equity
on a fully diluted basis.
On April 1, 1997, our company, the new Central Freight Lines, Inc. was
incorporated. On May 13, 1997, we agreed to purchase the assets of the
Southwestern Division of Viking. These assets included approximately 1,600
tractors; approximately 4,900 trailers; additional revenue and non-revenue
equipment; owned and leased real property; owned and leased tangible property;
inventories of parts, tires, fuel, and oil; contracts, records, licenses,
permits and approvals; and the Central name. We had approximately 45 days to
fund the transaction, assemble an employee base, and prepare to open operations.
During that period, dozens of former Old Central employees, some of whom had
found other jobs, joined us at the new Central. Effective June 28, 1997, we
opened for operations with nearly 4,000 employees.
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<PAGE> 32
BUSINESS
OPERATIONS AND TERMINAL NETWORK
We offer regional LTL services primarily in the south-central and
southwestern region of the United States. As an LTL carrier, we typically
transport multiple shipments for multiple customers in each trailer. Our drivers
pick up freight during the day and deliver it to the origin terminal by early
evening. Upon arrival at the origin terminal, the freight is unloaded, logged
into our computerized tracking system, and reloaded onto a linehaul inter-city
trailer that is bound for the destination city. Upon arrival at the destination
terminal, the freight is unloaded, sorted, and delivered by local delivery
trucks. We move the freight on strict schedules throughout our region to provide
the next day and second day service required by our many time-sensitive
customers. Our computerized tracking system provides information on a daily
basis for us to monitor our service standards and for our customers to track
their shipments.
Given our terminal density in our five-state core region, we are able to
load approximately 70% of our freight for transport directly from the origin
terminal to the destination terminal. We emphasize direct loading of freight
between terminals to avoid intermediate sorting and re-routing which increases
labor costs, damage claims, and delays. The remaining 30% of our freight goes
from the origin terminal to a single, intermediate stop where the freight is
unloaded, consolidated, and re-loaded with other freight headed for the same
destination. Very little of our freight travels through the multiple
intermediate stops that are common with national, inter-regional, and some other
regional LTL carriers.
Texas has the third largest economy of any state in the United States and
is an important production and consumption state. This leads to heavy freight
volume into and out of Texas. Approximately 92% of our freight originates or
terminates in Texas. Our 38 terminals in Texas form the largest LTL network in
the state, and we believe our Dallas facility is the world's largest LTL
terminal operated by a single company. Fifty-eight of our 66 terminals are
strategically located in our five-state core region of Texas, Louisiana,
Arkansas, Oklahoma, and New Mexico to take advantage of this freight volume. Our
remaining terminals are located in geographic areas with strong freight flows to
and from our core region.
By concentrating our operations in a defined region we limit our average
length of haul to approximately 300 miles. During 1998, the short transit times
and efficient pick-up and delivery schedules enabled us to deliver 80% of our
freight the next day and 93% within two days. We believe this service level is
difficult for competitors to match throughout our region.
We use our strong market position in our core region to selectively expand
into locations with significant traffic to and from our region. We focus
initially on large cities outside our core region where our existing customers
have substantial freight volume flowing both ways and the customers have been
willing to commit freight to us as we open service in these new locations. This
allows us to operate profitably while expanding geographically. We then expand
service when justified by customer demand rather than immediately offering
service to all points in a given state. We believe this strategy minimizes the
productivity shortfalls and additional personnel and capital expenditures that
can hamper some carriers that expand with all points service. To date we have
opened our own terminals in Chicago, Denver, Kansas City, Memphis, and St. Louis
and initiated an agency relationship in Phoenix.
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<PAGE> 33
We operate 66 terminals in our freight transportation network. Our five
largest terminals by number of loading doors are listed below:
<TABLE>
<CAPTION>
AVERAGE POUNDS
NUMBER OF OF FREIGHT
LOADING HANDLED DAILY IN
LOCATION DOORS 1998
- -------- --------- ----------------
<S> <C> <C>
Dallas, Texas............................................... 525 7.3 million
Houston, Texas.............................................. 335 3.8 million
Fort Worth, Texas........................................... 203 2.4 million
San Antonio, Texas.......................................... 147 1.3 million
Austin, Texas............................................... 132 0.7 million
61 others................................................... 1,925 10.9 million
----- ------------
Total............................................. 3,267 26.4 million
===== ============
</TABLE>
We lease all 66 of our terminals. Forty of these terminals are leased from
related parties. You should review "Certain Relationships and Related
Transactions" for a discussion of these leasing arrangements.
REVENUE EQUIPMENT AND FLEET UPGRADE
We operate a fleet of approximately 1,670 tractors and 5,900 trailers. We
are in the process of upgrading the fleet with new tractors and trailers. We
expect the new equipment to improve our operating efficiencies.
Most of the tractors and trailers we purchased in the management buyout
were over ten years old. This older equipment is inefficient and requires
substantial maintenance. We operated 16 maintenance facilities to service this
older fleet. The fleet of trailers we purchased in the management buyout
included substantial numbers of both 26 foot trailers with 92.5 and 96 inch
doors and 45 foot long trailers. We are in the process of replacing these
trailers because they carry substantially less freight than our new trailers.
We began to upgrade our fleet shortly after the management buyout. In late
1997, we purchased 500 used, 28-foot by 102-inch trailers from Viking to replace
the oldest and smallest trailers we had acquired in the buyout. We expect to
place in service approximately 1,600 new tractors and 4,500 new trailers during
the course of our fleet upgrade. The new trailers are 28 feet long, have
102-inch doors, and are equipped with the Kinedyne(R) retractable beam system
that allows us to stack freight on two levels inside the trailers. The new
pick-up and delivery tractors are covered by a seven-year warranty.
We expect the following operating efficiencies from our new equipment:
- Parts and maintenance expense should decrease substantially. We have
closed ten of our 16 original maintenance facilities since August 1997.
In addition, we have been certified to perform warranty work on our new
Freightliner tractors for which we will be reimbursed by the
manufacturer.
- Dock and linehaul productivity should improve because the new trailers
transport up to 27% more freight per trailer than the old trailers
without the Kinedyne(R) system.
- Fuel mileage should improve by approximately 15%. Our new tractors have
averaged approximately 7.0 miles per gallon over their several months in
service. This compares with a fleetwide average of 6.1 miles per gallon
for the old tractors in 1997.
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<PAGE> 34
The charts below illustrate the currently anticipated delivery schedules
for our new tractors and trailers. Based upon these anticipated deliveries, we
expect the benefits of our fleet upgrade to be phased in through the end of
2001.
3 CHARTS
CUSTOMERS AND MARKETING
We target customers with significant and growing distribution needs in our
region that have freight that enhances our overall efficiency and profitability.
We accomplish this by involving sales, operations, and finance personnel in
evaluating and targeting potential new accounts. Our operations personnel
identify areas in our region where additional freight could increase the amount
of freight carried on partially full trailers, fill trailers that return empty
from scheduled trips, or complement existing pick-up and delivery schedules. Our
sales personnel solicit business from these potential customers and our finance
personnel apply our costing model to ensure that the freight would contribute to
our overall profitability.
We have 92 field sales people and seven national accounts representatives.
Our sales people are compensated with a base salary plus incentives. Sales force
incentives reinforce our strategy of profitably increasing volumes with existing
customers and adding new customers only when returns are acceptable.
We serve over 50,000 customer locations in our operating territory. These
customers represent a broad range of industries, with the largest concentration
coming from the retail sector. In the twelve weeks ended March 27, 1999, Home
Depot was our largest customer, generating 6% of our revenues, and our five
largest customers were Home Depot, Wal-Mart, JCPenney, Michelin, and
Kelly-Springfield, generating 15% of our revenue. Since our inception, no
customer has represented more than 10% of our operating revenues. We believe the
diversity of customers and industries lessens the impact of business cycles
affecting any one company or industry.
We have established transportation alliances with regional LTL carriers in
the eastern and western United States. In these arrangements, we exchange
shipments for delivery in each other's service territory. This practice helps
each carrier in several respects. First, the freight inflows from the other
regions add tonnage to the delivering company's operation. This improves
profitability by increasing freight density over the terminal network and
linehaul operation. Second, the alliances permit regional carriers to provide
out-of-territory service for their customers. This maintains customer
relationships and prevents regional carriers from losing revenue to national
carriers that could deliver the freight from pick-up to delivery. Third, the
alliances permit multiple regional carriers to bid for national accounts and
bring the advantages of non-union regional operations to national accounts.
Transportation alliances generated approximately 16% of our operating
revenues in 1998 and 9% of our operating revenues in the twelve weeks ended
March 27, 1999. In February 1999, Central, Estes Express, and other associated
regional carriers began serving as Home Depot's national LTL distribution team.
Our alliance replaced the national LTL carrier that formerly had served the
account.
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<PAGE> 35
GROWTH OPPORTUNITIES FROM INDUSTRY TRENDS
Changes in freight distribution patterns favor regional LTL carriers. Many
companies have moved toward regional distribution centers and time-sensitive
deliveries, and away from on-site warehousing, as a means of reducing their
inventory costs. According to Cass Logistics and Ohio State University, 44% of
the freight shipped in the United States in the year 2000 will be shipped
just-in-time, up from just 13% in 1990. Our strong terminal network and
approximately 300-mile average length of haul produce short transit times and
dependable pick-up and delivery schedules for our customers.
Large shippers are consolidating business with fewer carriers. Many large
shippers have attempted to cut costs and streamline their transportation
departments by concentrating their business with a small group of carriers.
These shippers seek large, financially stable companies that provide high
quality service and have substantial available capacity. We believe our large
presence in the south-central and southwestern regions of the United States,
growing fleet, and service standards are well-suited to take advantage of this
trend. In the past year we have been named a preferred regional carrier for 3M,
Academy Sports, Ecolab, Georgia Pacific, Home Depot, JCPenney, Levi Strauss,
Lowe's, Michelin, Office Depot, Sally's Beauty, Sunbeam, Target, Wal-Mart, and
W.W. Grainger.
Shippers seek non-union alternatives to avoid service disruptions. Over the
past several years, unionized transportation companies have faced a number of
threatened and actual work stoppages. Many shippers have announced their
intention to limit business with unionized transportation providers to protect
their own businesses from interruptions in service. Because our workforce is
non-union, we believe that we will benefit from this trend within our region and
nationally through alliances with other regional carriers. As companies grow
more dependent upon just-in-time and other expedited deliveries, we believe this
trend will continue.
Industry consolidation leads to acquisition opportunities. Over the past
several years, our industry has been consolidating. Larger carriers gain
economies of scale and benefit from the trend toward shippers' use of smaller
numbers of large, preferred carriers. This makes it increasingly difficult for
smaller carriers to compete effectively. We believe our post-offering
capitalization and Jerry Moyes' industry and acquisition experience position us
to pursue selected acquisitions of regional LTL carriers that will complement
our operations and provide us with opportunities to add freight formerly
transported by smaller carriers which have shut down. The goal of our
acquisition strategy is to operate several regional LTL carriers each of which
focuses on next day and second day service in its region and is linked by direct
linehaul service.
EMPLOYEES
As of March 31, 1999, we employed approximately 4,050 people, none of whom
is represented by a union. They work in the following areas of the company:
<TABLE>
<CAPTION>
APPROXIMATE AVERAGE COMBINED
NUMBER OF TENURE WITH OLD
CATEGORY EMPLOYEES CENTRAL AND CENTRAL
- -------- ----------- -------------------
<S> <C> <C>
Pick-up and delivery drivers............................ 1,400 13
Linehaul drivers........................................ 500 13
Dock workers............................................ 1,000 7
Maintenance personnel................................... 150 13
Sales and marketing personnel........................... 100 5
Management, professional, and administrative
personnel............................................. 900 11
-----
Total......................................... 4,050 11
===== ==
</TABLE>
As our new tractors and trailers are delivered over the next few years, we
anticipate shifting some of our maintenance personnel to dock and driver
positions as our fleet upgrade progresses and the new equipment requires less
maintenance.
We could not have commenced our operations effective June 28, 1997 without
a tremendous effort from our employees. Viking was in the process of closing the
headquarters facility in Waco, Texas and had laid off most of the administrative
personnel. Our management team and over 100 former Old Central employees who had
been laid off by Viking assembled the information, billing, collection,
dispatch, accounting, and all
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<PAGE> 36
other systems in approximately 45 days. They also re-established our
transportation alliances and contacted major accounts. We intend to continue to
recognize our employees' contributions to our company through a combination of
fair pay, open communication of goals and responsibilities, and opportunities to
invest in the company. We believe the combination of existing stock ownership
and stock options for management and offering up to 400,000 shares of our Class
A common stock in the offering to the 401(k) participants will motivate our
employees and align their interests with those of the stockholders.
COMPETITION
We compete primarily in the LTL market, which has estimated 1999 annual
aggregate revenue of $20 billion. The LTL market is highly competitive. Our
primary competitors are regional, inter-regional, and national LTL carriers,
and, to a lesser extent, truckload carriers, railroads, airfreight companies,
and overnight package companies. Competition is based on service and price. The
Big Four carriers -- Yellow Corporation, Consolidated Freightways Corporation,
Roadway Express, Inc., and Arkansas Best Corporation -- dominate the national
LTL segment. The Big Four have combined annual revenues of approximately $10
billion. Although they compete in our region, they lack the dense concentration
of terminals and coverage of smaller cities we offer. In addition, their largely
unionized workforce and hub and spoke terminal network impose a higher cost
structure than our operations. We believe our primary competitors are American
Freightways, Con-Way Southern, and Saia Motor Freight Line. We attempt to
compete primarily on the basis of the service we provide through our terminal
network and through competitive pricing. We believe that our extensive terminal
network and traffic density offer competitive advantages within our region. Many
of our competitors are larger, operate more equipment, and have greater
financial resources than we do.
INSURANCE AND LEGAL PROCEEDINGS
We are involved in litigation incidental to our operations. These lawsuits
primarily involve claims for workers' compensation, personal injury, or property
damage incurred in the transportation of freight. We are not presently a party
to any legal proceedings other than litigation arising from workers'
compensation claims and vehicle accidents and are not aware of any claims that
could materially affect our financial position or profitability.
We carry insurance for our primary business risks with the following limits
and deductibles:
<TABLE>
<CAPTION>
INSURANCE LIMIT DEDUCTIBLE
- --------- ----------- ----------
<S> <C> <C>
General liability.......................................... $28,000,000 $250,000
Auto liability............................................. $28,000,000 $300,000
Cargo/Physical damage...................................... $ 500,000(1) $100,000
Real and personal property................................. $30,000,000 $ 50,000
Workers' compensation...................................... $20,000,000 $250,000
Nonsubscriber -- Excess indemnity.......................... $20,000,000 $500,000
</TABLE>
- ---------------
(1) Coverage is on any one vehicle. For physical damage to our terminals we have
$2.0 million in coverage for each terminal and additional coverage of $1.0
million to $18.0 million on terminals that conduct intermediate sorting and
re-routing activity.
REGULATION
The trucking industry has been substantially deregulated. Carriers can now
readily enter the trucking industry, and rates and services are largely free of
regulatory controls. However, the Department of Transportation and various state
agencies still regulate matters such as safety, weight, and dimension of
equipment, drug and alcohol testing of drivers and certain other personnel, and
financial responsibility. Since 1995, states have been prohibited from
regulating entry, pricing, or service levels, but still retain the ability to
require compliance with safety and insurance requirements. This initially
increased competition in our home state because Texas historically had tightly
regulated the intrastate LTL market. We do not believe that regulation by
federal and state transportation authorities in their remaining areas of
jurisdiction will affect us more than any other trucking company.
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<PAGE> 37
Our operations are subject to various environmental laws and regulations
dealing with, among other things, the transportation, storage, presence, use,
disposal, and handling of hazardous materials, discharge of storm water, and
underground fuel storage tanks. We routinely handle hazardous materials. All
employees are trained before handling hazardous materials and receive follow-up
training on an annual basis. Our budget for clean-up costs is $242,000 in 1999,
$140,000 in 2000, and $50,000 in 2001. Two of our Texas terminal facilities,
Fort Worth and Odessa, are active petroleum storage tank sites in need of
remediation. There is ongoing environmental remediation at these terminals. We
have sought reimbursement at Odessa and will seek reimbursement at Fort Worth.
The State of Texas Department of Environmental Affairs places a $1.0 million
limit on reimbursement of any one site. Payment is usually delayed. As of March
27, 1999, a total of $800,000 in remediation costs have been incurred at Odessa.
The State of Texas has reimbursed $470,000 of the costs. We believe the cost to
obtain closure of Odessa could reach $1.2 million. Accordingly, we do not expect
to recover all of our environmental remediation expenditures and have accrued a
reserve on our balance sheet for environmental costs we do not expect to
recover. We have incurred $20,000 in remediation costs at Fort Worth, none of
which has to date been reimbursed by the State of Texas. We believe the cost to
obtain closure on Fort Worth is immaterial to our growth and profitability. We
anticipate that all presently known environmental clean-up activities will be
completed by the end of 2001.
Certain regulatory and legislative changes can affect the economics of our
industry by requiring changes in operating practices or influencing the demand
for and the costs of providing services to shippers. These changes include size
and weight limits on equipment, air emission, and fuel standards, and federal,
state, or local taxes, including taxes on motor fuels. We cannot predict
whether, or in what form, any regulatory or legislative change may be enacted.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth information concerning the Company's executive
officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
<S> <C> <C>
Jerry Moyes........................... 55 Chairman of the Board of Directors
Joe E. Hall........................... 60 President, Chief Executive Officer,
and Director
Douglas E. Quicksall.................. 53 Senior Vice President -- Finance and
Chief Financial Officer and Director
Thomas K. Morehouse................... 41 Senior Vice President -- Sales and
Marketing and Director
Patrick Curry......................... 33 Senior Vice President -- Logistics and
Director
Joseph Gentry......................... 64 Vice President -- Operations
Ronald Moyes.......................... 50 Director
Earl H. Scudder....................... 56 Director
Joseph M. Clapp....................... 63 Director Nominee
</TABLE>
Jerry Moyes has served as our Chairman of the Board since we were founded.
Mr. Moyes has served as Chairman of the Board, President, and Chief Executive
Officer of Swift Transportation since 1984. Mr. Moyes has guided Swift's revenue
growth from $33 million in 1985 to $873 million in 1998. He is a past president
of the Arizona Motor Carriers Association and a member of the Greater Phoenix
Economic Council. He received his degree in business administration in 1966 from
Weber State University.
Joe E. Hall has served as our President and Chief Executive Officer and as
a director since we were founded. He has held management positions in the LTL
trucking industry for over 35 years. Mr. Hall served as President of Old Central
from 1995 until June 30, 1997. Mr. Hall served as Chief Executive Officer of
35
<PAGE> 38
Transcon and G.I. Trucking before joining Old Central as Vice
President -- Operations in 1991. Mr. Hall attended Memphis State University as a
business administration student from 1957 to 1959.
Douglas E. Quicksall has served as our Senior Vice President -- Finance and
Chief Financial Officer and as a director since we were founded. He joined Old
Central in 1982 as its Chief Financial Officer and served in that capacity until
June 30, 1997. Mr. Quicksall graduated from Baylor and holds a Master's Degree
in Business Administration from North Texas University. Mr. Quicksall is a
certified public accountant.
Thomas K. Morehouse has served as our Senior Vice President -- Sales and
Marketing and as a director since we were founded. He has held a variety of
sales, marketing, and operations positions in the trucking industry since 1979.
Mr. Morehouse joined Old Central in 1990 as Senior Vice President -- Sales and
Marketing and served in that capacity until June 30, 1997. Mr. Morehouse is a
graduate of the University of North Florida.
Patrick Curry has served as our Senior Vice President -- Logistics and as a
director since we were founded. At our request, Mr. Curry continues to serve as
President of truckload carrier Aggie Express, a position he has held since
August 1996. Mr. Curry previously served as President of truckload carrier
Universal Express from May 1995 to August 1996, and textile manufacturer Lortex,
Inc. from July 1992 to May 1995. Mr. Curry is a graduate of Texas A&M
University.
Joseph Gentry has served as our Vice President -- Operations since July 1,
1997. He has more than 40 years experience in the LTL trucking industry. Mr.
Gentry joined Old Central in 1993 as Vice President in charge of linehaul
operations.
Ronald Moyes has served on our Board of Directors since the company was
founded. He has served as Chairman of the Board and President of boat
manufacturer North American Sleekcraft since 1994, tire and wheel retailer Total
Auto Pros since 1988, and Moments hair salons since 1990. Mr. Moyes is the
brother of Jerry Moyes and served as Vice President of Swift from 1970 until
1984.
Earl H. Scudder has served on our Board of Directors since the company was
founded. He has served as President of Scudder Law Firm since 1990. Mr. Scudder
has also served as a director of Swift since 1993, long distance telephone
carrier Transcom Technologies since 1996, Internet education company Class.com
since April 1999, and truckload carrier Heartland Express from 1986 until 1996.
He graduated from the University of Nebraska College of Business Administration
in 1964 and the College of Law in 1966.
Joseph M. Clapp is the retired Chairman and Chief Executive Officer of
Roadway Services, Inc. Mr. Clapp served as Chairman and Chief Executive Officer
of the $5.0 billion revenue transportation services and logistics company from
1986 to 1995. During his 40-year career in the transportation industry, Mr.
Clapp served in a number of business and industry positions, including Chairman
of the Transportation Research Board of the National Academy of Sciences and a
member of the Business Roundtable. He was a three-time recipient of the Wall
Street Transcript's CEO Gold Award for the trucking industry. Since retiring
from Roadway Services, Mr. Clapp has served on the boards of several community
and private business organizations, including truckload carrier Roberson
Transportation and the Eno Transportation Foundation. Mr. Clapp graduated from
the University of North Carolina in 1958 with a degree in traffic and
transportation.
COMMITTEES
Compensation Committee. Jerry Moyes, Joe E. Hall, and Earl H. Scudder serve
on our compensation committee. This committee reviews executive officers'
compensation and makes recommendations to our Board of Directors on such
matters.
Audit Committee. Earl H. Scudder and Ronald Moyes serve on our audit
committee. This committee makes recommendations to our Board of Directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent auditors, and
reviews our audit and control functions.
36
<PAGE> 39
Non-officer Stock Option Committee. Joe E. Hall, Thomas K. Morehouse, and
Douglas E. Quicksall serve on our non-officer stock option committee. This
committee identifies non-officer employees who contribute substantially to our
growth and profitability and makes awards to them under our incentive stock
plan.
DIRECTOR COMPENSATION
Before this offering, our directors were not compensated for their
services. Following this offering, non-employee directors will be paid an annual
retainer of $8,000 plus $1,000 for each meeting of the Board of Directors or
Board Committee they attend. On March 29, 1999, we granted each non-employee
director an option to purchase 8,500 shares of Class A common stock at $10.00
per share. The option vests 20% annually on each anniversary of the grant date
and expires on the tenth anniversary of the grant date. We will also reimburse
directors for their expenses incurred in serving as directors.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation received by our chief
executive officer and the four other most highly compensated executive officers,
our named executive officers, for services rendered in all capacities during the
year ended December 31, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- ----------------------- -------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND SALARY(1) BONUS COMPENSATION(2) AWARD(S) OPTIONS(3) LTIP COMPENSATION(4)
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) PAYOUTS ($)
- ------------------ ---- --------- ------- --------------- ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joe E. Hall.............. 1998 227,000 113,500 -- -- -- -- 8,510
President and Chief
Executive Officer
Douglas E. Quicksall..... 1998 180,000 90,000 -- -- 29,628 -- 6,007
Senior Vice
President -- Finance
and Chief Financial
Officer
Thomas K. Morehouse...... 1998 180,000 90,000 -- -- 53,060 -- 4,949
Senior Vice
President -- Sales and
Marketing
Patrick Curry............ 1998 180,000 90,000 -- -- 24,000 -- 2,488
Senior Vice
President -- Logistics
Joseph Gentry............ 1998 150,000 75,000 -- -- -- -- 7,457
Vice President --
Operations
</TABLE>
- ---------------
(1) Includes amounts deferred pursuant to our 401(k) plan.
(2) Excludes $40,651 for Joe E. Hall, $10,846 for Thomas K. Morehouse, $17,276
for Douglas E. Quicksall, and $54,390 for Patrick Curry in S corporation
distributions to fund taxes on our S corporation income attributed to them.
(3) Represents stock options granted under our incentive stock plan in exchange
for the redemption of shares held in individual retirement accounts to
facilitate our S corporation election effective April 1, 1998. The options
were fully vested when granted.
(4) Includes our 1998 contributions to the 401(k) plan in the amounts of $5,000
for Joe E. Hall, $4,740 for Douglas E. Quicksall, $4,500 for Thomas K.
Morehouse, $2,250 for Patrick Curry, and $5,000 for
37
<PAGE> 40
Joseph Gentry. Also includes the value of premiums paid on life insurance
policies for Joe E. Hall of $3,510, Douglas E. Quicksall of $1,267, Thomas
K. Morehouse of $449, Patrick Curry of $238, and Joseph Gentry of $2,457.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------------
NAME GRANTED(1) 1998(2) PRICE DATE 5% 10%
- ---- ---------- ------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joe E. Hall..................... -- -- -- -- -- --
Douglas E. Quicksall............ 29,628 23.3% $1.35 3/9/08 $25,154 $ 63,700
Thomas K. Morehouse............. 53,060 41.7% $1.35 3/9/08 $45,048 $114,079
Patrick Curry................... 24,000 18.9% $1.35 3/9/08 $20,376 $ 51,600
Joseph Gentry................... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Each option represents the right to purchase one share of Class A common
stock under our incentive stock plan. The options were immediately
exercisable on the date of grant.
(2) During 1998 we granted employees options to purchase an aggregate of 127,238
shares of Class A common stock.
(3) We show the potential realizable values net of the options' exercise price,
but before the payment of taxes associated with exercise. The potential
realizable values represent hypothetical gains if the holders exercised
their options at the end of the option term. The Securities and Exchange
Commission's rules provide the assumed 5% and 10% annual rates of stock
price appreciation and measure the appreciation from the grant date. You
should be aware that, at the assumed public offering price of $ ,
the potential realizable value of the options is already greater than the
values reflected in the table. Using the assumed rates of appreciation from
the assumed public offering price over the remaining term of the options
would yield $ at 5% and $ at 10% to Mr. Quicksall, $ at 5% and
$ at 10% to Mr. Morehouse, and $ at 5% and $ at 10% to Mr.
Curry. The actual gains our employees might realize will depend on our
future performance and overall stock market conditions. The amounts
reflected in the table may not be achieved.
STOCK OPTIONS
The following table sets forth information with respect to the named
executive officers concerning the exercise and ownership of options held at
December 31, 1998:
AGGREGATED OPTION EXERCISES AND HOLDINGS IN FISCAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
OPTIONS
EXERCISED NUMBER OF OPTIONS VALUE OF OPTIONS
-------------- AT 12/31/98 AT 12/31/98
NAME SHARES VALUE EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---- ------ ----- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Joe E. Hall.......................... -- -- 110,777/443,107
Douglas E. Quicksall................. -- -- 140,405/443,107
Thomas K. Morehouse.................. -- -- 163,837/443,107
Patrick Curry........................ -- -- 134,777/443,107
Joseph Gentry........................ -- -- -/36,926
</TABLE>
- ---------------
(1) Based on the $ assumed public offering price of the Class A common
stock.
We do not have a long-term incentive plan, a defined benefit, or an
actuarial plan. We have never issued any stock appreciation rights.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Joe E. Hall, Douglas E.
Quicksall, Thomas K. Morehouse, and Patrick J. Curry. The agreements provide
each officer with an annual salary of $180,000,
38
<PAGE> 41
except for Joe E. Hall who receives an annual salary of $227,000. The officers
are eligible for an additional bonus equal to a percentage of salary for meeting
certain performance goals tied to our profitability. The agreements extend
through May 15, 2000, during which time the executive officers are prohibited
from competing with us. We may extend the non-competition obligations for an
additional three year term upon continuation of the annual salary. We also have
the right to repurchase shares underlying stock options at the exercise price
upon violation of these non-competition provisions. The agreements do not
provide for any mandatory severance. The agreements may be terminated, with no
impairment of the non-competition provision, upon 60 days' written notice from
the officer, or by us immediately for cause.
EXECUTIVE BONUS PROGRAM
We adopted an executive bonus program in 1998. The compensation committee
selects the executive officers and key employees that participate, establishes
the bonus pool, and allocates the pool among participants. Each of Joe E. Hall,
Douglas E. Quicksall, Thomas K. Morehouse, Patrick Curry, and Joseph Gentry
received an amount equal to 50% of his annual salary as a bonus in 1998. The
amounts they received constituted approximately 75% of the total bonus pool.
INCENTIVE STOCK PLAN
We have an incentive stock plan. The key terms of the incentive stock plan
are as follows:
- We can grant incentive stock options, non-qualified stock options, bonus
stock, reload options, or any other stock-based award to employees,
consultants, and directors.
- We reserved 3,000,000 shares of Class A common stock for issuance under
the plan and have outstanding options covering 2,661,334 of those shares.
- Our Board of Directors administers the plan and has made all of the
grants to date.
- Only the stockholders can extend the ten-year term of the plan, increase
the number of shares available under the plan, or extend the exercise
period of outstanding options.
- Options that are canceled, forfeited, expire, or are tendered for tax
withholding or to pay the exercise price become available again for use
under the plan.
We have granted the following options to our executive officers at prices
ranging from $1.35 to $3.375 per share. All options vest 20% annually beginning
June 30, 1998 except shares underlying options which were fully vested on grant
as follows: Douglas E. Quicksall -- 29,628; Thomas K. Morehouse -- 53,060; and
Patrick Curry -- 24,000.
<TABLE>
<CAPTION>
NAME NUMBER
- ---- -------
<S> <C>
Joe E. Hall............................................... 553,884
Douglas E. Quicksall...................................... 583,512
Thomas E. Morehouse....................................... 606,944
Patrick Curry............................................. 577,884
Joseph Gentry............................................. 36,926
</TABLE>
Each of the individuals listed above, other than Mr. Gentry, holds options
representing more than five percent of the shares subject to this plan. We have
not granted any awards under the plan to Jerry Moyes, our Chairman of the Board.
You should review "Certain Relationships and Related Transactions" for
additional information concerning transactions between the Company and its
directors and executive officers.
401(K) PROFIT SHARING PLAN
We have a defined contribution retirement plan, sometimes called a "401(k)
plan." All employees age 21 or older are eligible to participate after one year
of service and generally may contribute up to 15% of their annual compensation
to the plan. These participant contributions vest immediately. We made
contributions
39
<PAGE> 42
of $831,000 in 1997 and $1.9 million in 1998. The amounts we contribute vest 20%
each year from the second through the sixth year after contribution. We
increased the matching component from 50% of the employee's contribution, with a
maximum contribution of 2.5%, to 75% of the employee's contribution, with a
maximum matching contribution of 3.75%. We have amended the 401(k) plan to
include a company stock fund.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Jerry Moyes, Joe E. Hall, and Earl H. Scudder have made all of our
executive officer compensation decisions. On March 29, 1999, the Board of
Directors formally appointed them as our compensation committee. Joe E. Hall is
our President and Chief Executive Officer. You should review the disclosures
concerning members of the compensation committee that are listed under "Certain
Relationships and Related Transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time prior to this offering, we engaged in transactions with
affiliated parties. We intend that our future transactions with affiliated
parties will be approved by a majority of disinterested members of our Board of
Directors and will be on terms, on the whole, no less favorable to us than those
that we could obtain from unaffiliated parties.
On May 22, 1998, Southwest purchased 36 of our terminal properties and one
additional Waco, Texas property for an aggregate of $27.8 million in a
sale-and-leaseback transaction. For financial accounting purposes, this
transaction was accounted for as a financing transaction. We paid $2.1 million
in lease payments to Southwest in the partial year 1998, which appears as
principal and interest in our financial statements. Rent over a full year is
$3.1 million. The lease has a primary term of ten years extending through May
21, 2008. We have two five-year (or one ten year) options to extend the term
through May 21, 2018, at the then fair market rental value. After May 21, 2008,
we have an option to purchase all or any of the properties subject to the lease
for the then fair market value. At 28 locations, Southwest reserved the right to
exclude from our lease designated surplus property (i.e., property not used in
our operations) upon 60 days written notice, without any reduction in rent. The
lease agreement specifies the "surplus property" at each location. With the
exception of surplus property, we have a right of first refusal to purchase any
of the leased property that Southwest tries to sell. Any purchaser from
Southwest would take the property subject to our lease. Southwest is owned by
our existing stockholders, including 73% by Jerry Moyes, 5% by Joe E. Hall, and
.6% by Earl H. Scudder. Only Mr. Moyes owns more than 10% of Southwest.
For 28 of the 37 properties leased to us, Southwest has the power to sell
or lease such properties to third parties and substitute comparable facilities.
Upon such substitution, there will be no change in rent during the primary term.
The determination as to whether or not a particular property constitutes a
comparable facility will be based upon whether the new location has business
utility at least comparable to the existing facility being replaced or is
otherwise acceptable to us, in our sole discretion. If we cannot agree with
Southwest on whether a particular property is comparable, the determination
shall be made by a qualified appraiser under the terms of the lease, or we may
elect to terminate the lease for that particular property.
In March 1998, we sold three Texas terminals to Jerry Moyes and his spouse
for $2.6 million. We rent the three terminals from the Moyes for annual rent of
$218,000. We paid them rent of $188,000 in 1998 under the lease. The term of the
lease is for ten years, to March 19, 2008, with an option for another ten year
term on the same terms and conditions.
Jerry Moyes loaned us $2.3 million between April 1, 1997, and July 1, 1997,
at 8.5% interest, to fund our start-up costs. We paid $71,000 in interest to Mr.
Moyes under these loans. We repaid the loans on July 1, 1997, with the proceeds
of bank loans that Mr. Moyes personally guaranteed. He continues to personally
guarantee our credit agreement with Compass Bank. We anticipate the guaranty
will be released after this offering.
40
<PAGE> 43
In December 1998, we loaned $4.9 million to Jerry Moyes and $876,000 to the
Moyes Childrens' Trust at 6.9% interest. The loans were repaid by Mr. Moyes on
February 22, 1999, and by the trust on March 17, 1999. Mr. Moyes paid us $62,000
in interest and the trust paid us $13,000 in interest under the loans.
We paid Swift Transportation $1.2 million in 1997 and $5.3 million in 1998
for transportation services and $261,000 in 1998 for used equipment. In
addition, at December 31, 1998 we owed Swift an additional $401,000 for
transportation services rendered during 1998 that had not yet been paid. Jerry
Moyes is the Chairman and Chief Executive Officer of Swift. He and his family
beneficially own approximately 40% of Swift's outstanding stock. We believe that
the amounts paid to Swift are equivalent to rates that could have been obtained
in an arm's length transaction with an unrelated third party. We expect our use
of Swift for transportation services to continue.
We sublease portions of our terminal facilities to Swift at four different
locations in Texas. Swift pays us $18,000 per month to lease property in Dallas,
Texas pursuant to a five year lease expiring August 31, 2003, but which may be
terminated by either party upon six months written notice. Swift pays us $6,000
per month to lease property in Waco, Texas pursuant to a one year lease expiring
December 31, 1999. Swift pays us $3,000 per month to lease property in Tyler,
Texas pursuant to one-year lease expiring August 31, 1999. Swift pays us $5,650
per month to lease property in Houston, Texas on a month-to-month basis. Swift
also pays for yard security at El Paso in exchange for parking privileges. In
1998, we received $227,000 from Swift under these subleases.
Central executive Patrick Curry owned Aggie Express until August 1998.
Ronald Moyes, a director of Central, purchased Aggie from Mr. Curry in August
1998. In connection with the purchase, Ronald Moyes granted Central an option to
purchase Aggie at his $100,000 cost, plus any out-of-pocket expenses and the
equivalent of 7.5% interest on $100,000 to the date of exercise. The option
expires on August 10, 2003. In addition, we have a right of first refusal in the
event Ronald Moyes contracts to sell Aggie to a third party. Central paid Aggie
$95,000 in 1997 and $511,000 in 1998 for handling linehaul services. Mr. Curry
acts as Aggie's President, for which Aggie reimburses Central a portion of Mr.
Curry's compensation at a cost to Aggie of $100,000 per year.
We paid Earl Scudder's law firm, approximately $300,000 in 1997 and $95,000
in 1998. Scudder Law Firm also provides legal services to Swift, Jerry Moyes
personally, and other companies controlled by Mr. Moyes. Scudder Law Firm
received an aggregate $176,000 from these other parties in 1997 and $148,000 in
1998. Earl Scudder serves on the Board of Directors of Swift Transportation.
We supply tires to Total Auto Pros Ltd., an Arizona corporation d/b/a Auto
Express. Ronald Moyes is the Chairman of the Board and President of Total Auto
Pros Ltd. As consideration for these tires, we received approximately $422,000
in 1997, and approximately $697,000 in 1998. These amounts represent a zero
percent markup from our invoice price, plus any out-of-pocket expenses we incur.
On March 19, 1998, we redeemed all of our shares of stock held in IRA
accounts at a redemption price of $1.35 per share. This redemption was made as
part of our S corporation election, because IRA accounts are ineligible S
corporation stockholders. The IRA stockholders consisted of three members of our
senior management, Douglas Quicksall, Thomas Morehouse, and Patrick Curry, one
of our directors, Earl Scudder, and two other consultants. Contemporaneously
with our redemption of the IRA shares, we granted the IRA stockholders options
to buy an equivalent number of shares at $1.35 per share, which was determined
to be the fair market value by the Board of Directors.
41
<PAGE> 44
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Class A and Class B common stock as of March 27, 1999 and as
adjusted to reflect the sale of shares in the offering by: (1) each person known
to us to beneficially own more than 5% of the outstanding shares of common
stock; (2) each of our directors; (3) our director nominee; (4) each of the
executive officers identified in the summary compensation table; and (5) 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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES SHARES TO BE BENEFICIALLY
OWNED BEFORE OFFERING(1) OFFERED OWNED AFTER OFFERING(1)
------------------------------- --------- -------------------------------
CLASS A CLASS B CLASS A CLASS B
COMMON COMMON COMMON COMMON
OWNER STOCK STOCK PERCENT NUMBER STOCK STOCK PERCENT
- ----- --------- --------- ------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Jerry and Vickie Moyes(2)... -- 9,713,834 88.3% 1,000,000 -- 8,713,834 58.1%
Ronald and Krista
Moyes(3).................. 740,668 -- 6.7% -- 740,668 -- 4.9%
Joe E. Hall................. 258,911 -- 2.3% -- 258,911 -- 1.7%
Douglas E. Quicksall........ 203,359 -- 1.8% -- 203,359 -- 1.3%
Thomas K. Morehouse(4)...... 203,359 -- 1.8% -- 203,359 -- 1.3%
Patrick Curry(5)............ 332,977 -- 3.0% -- 332,977 -- 2.2%
Joseph Gentry............... -- -- -- -- -- -- --
Earl H. Scudder............. 74,074 -- * -- 74,074 -- *
Joseph M. Clapp............. -- -- -- -- -- -- --
All directors and executive
officers as a group....... 1,813,348 9,713,834 99.8% 1,000,000 1,813,348 8,713,834 67.7%
</TABLE>
- ---------------
* Less than one percent.
(1) Assumes no exercise of the underwriters' over-allotment option. Ownership
percentages reflect the total number of outstanding shares of Class A and
Class B common stock. The ownership percentages for each executive officer
gives effect to options granted to such officer that are currently
exercisable or will become exercisable within 60 days (Joe E. Hall
(110,777), Douglas E. Quicksall (140,405), Thomas K. Morehouse (163,837),
and Patrick Curry (134,777)), and assumes no exercise of any other options.
Ownership is calculated based upon 11,003,312 shares of Class A and Class B
common stock outstanding as of March 27, 1999, and 15,003,312 shares of
Class A and Class B common stock outstanding after the offering, in each
case prior to the exercise of any exercisable stock options.
(2) Of the shares attributed to Jerry Moyes, 4,905,486 are held by Jerry and
Vickie Moyes as trustees of the Jerry and Vickie Moyes Family Trust and
4,808,348 are held by Gerald F. Ehrlich as trustee of the Moyes' Childrens'
Trust, which shares were purchased by the trust with funds loaned by Mr.
Moyes. Mr. Ehrlich has sole voting and investment power for the childrens'
trust. The 1,000,000 shares being sold will come from the Jerry and Vickie
Moyes Family Trust. Because the Class B common stock is entitled to three
votes per share, Mr. Moyes controls 95.8% of the combined voting power of
the common stock before the offering and 80.6% after the offering or 78.8%
if the Underwriters' over-allotment option is exercised in full. The
business address of these individuals and trusts is 2200 South 75th Avenue,
Phoenix, AZ 85043.
(3) Ronald Moyes is the brother of Jerry Moyes. The business address of Ronald
and Krista Moyes is 4720 North 16th Street, Phoenix, AZ 85016.
(4) Shares are owned by Mr. Morehouse and his wife as joint tenants with rights
of survivorship.
(5) All shares, except shares underlying options, are held by Mr. Curry's wife.
42
<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 50,000,000 shares of Class A
common stock, 10,000,000 shares of Class B common stock, and 5,000,000 shares of
preferred stock. All shares have a par value of $.001 per share. Immediately
prior to this offering, there will be 1,289,478 shares of Class A common stock
and 9,713,834 shares of Class B common stock issued and outstanding, and no
shares of preferred stock issued and outstanding. Immediately after this
offering, there will be 6,289,478 shares of Class A common stock and 8,713,834
shares of Class B common stock issued and outstanding, and no shares of
preferred stock issued and outstanding. All of the outstanding shares of common
stock are, and all the shares we are offering will be upon issuance and sale,
fully paid and non-assessable.
CLASS A AND CLASS B COMMON STOCK
Voting. If you purchase shares in the offering, you will receive Class A
common stock entitled to one vote per share. Shares of Class B common stock are
entitled to three votes per share. Both classes vote together as a single class,
except as otherwise required by law. You are not entitled to cumulative voting
in the election of directors.
Conversion. Class A common stock has no conversion rights. Owners of Class
B common stock may convert to an equal number of shares of Class A common stock
at any time. The Class B common stock automatically converts into an equal
number of shares of Class A common stock if beneficially owned by any person
other than Jerry Moyes and certain members of his immediate family.
Dividends. If a dividend is declared, owners of Class A common stock and
Class B common stock receive dividends on an equal basis in cash or property
other than common stock, subject to any preference in favor of outstanding
shares of preferred stock. If there is a dividend payable in common stock, each
holder of common stock will receive the same percentage dividend, but you will
receive Class A common stock and the holders of Class B common stock will
receive shares of Class A or Class B common stock, as determined by the Board of
Directors.
Liquidation. If there is a liquidation, all common stockholders will
receive, on a pro rata basis, our assets that remain after paying or providing
for all liabilities and any liquidation preference on our preferred stock.
Other terms. Neither the Class A nor the Class B common stock may be
subdivided, consolidated, reclassified, or otherwise changed unless the other
class of shares is changed in the same proportion and in the same manner. In any
merger, consolidation, reorganization, or other business combination, the amount
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. However, if after such
business combination, Jerry Moyes or members of his immediate family
beneficially own, in the aggregate, more than one-fourth of the surviving
entity, any securities received by them may differ as to voting rights only to
the extent that voting rights now differ between Class A and Class B common
stock. You are not entitled to preemptive rights and your stock is not subject
to redemption.
Your rights, preferences, and privileges as owners of Class A common stock,
are subject to, and may be adversely affected by, the rights of the owners of
any series of preferred stock which we may designate and issue in the future.
PREFERRED STOCK
Our Board of Directors is authorized to issue up to 5,000,000 shares of
preferred stock in one or more series. The Board of Directors may fix for each
series:
- The distinctive serial designation and number of shares of the series.
- The voting powers and the right, if any, to elect a director or
directors.
43
<PAGE> 46
- The terms of office of any directors the holders of preferred shares are
entitled to elect.
- The dividend rights, if any.
- The terms of redemption, and the amount of and provisions regarding any
sinking fund for the purchase or redemption thereof.
- The liquidation preferences and the amounts payable on dissolution or
liquidation.
- The terms and conditions under which shares of the series may or shall be
converted into any other series or class of stock or debt of the
corporation.
- Any other terms or provisions which the Board of Directors is legally
authorized to fix or alter.
We do not need stockholder approval to issue or fix the terms of the
preferred stock. The actual effect of the authorization of the preferred stock
upon your rights as holders of Class A common stock is unknown until our Board
determines the specific rights of owners of any series of preferred stock.
Depending upon the rights granted to any series of preferred stock, your voting
power, liquidation preference, or other rights could be adversely affected.
Preferred stock may be issued in acquisitions or for other corporate purposes.
Issuance in connection with a stockholder rights plan or other takeover defense
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring, control of Central. We have no
present plans to issue any shares of preferred stock.
CERTAIN PROVISIONS OF ARTICLES AND BYLAWS
Provisions with anti-takeover implications. Our articles of incorporation
and bylaws deal with how we are governed and your rights as stockholders. Under
our articles, the Board of Directors may issue preferred stock and set the
voting rights, preferences, and other terms of the preferred stock. Our Board of
Directors may also issue Class B common stock, which is entitled to three votes
per share while beneficially owned by Jerry Moyes or members of his immediate
family. Our bylaws state that a special meeting of stockholders may be called
only by the Chairman of the Board or a majority of the directors. Such
provisions and certain provisions of the Nevada General Corporation Law could be
deemed to discourage takeover attempts not first approved by the Board of
Directors. Certain stockholders may deem these takeovers to be in their best
interest. Any such discouraging effect upon takeover attempts could potentially
depress the market price of the Class A common stock or cause temporary
fluctuations in the market price of the Class A common stock that otherwise
could result from actual or rumored takeover attempts.
Indemnification and limitation of liability. Under our articles of
incorporation and bylaws, we will indemnify our officers, directors, and agents
against all liabilities and expenses they reasonably incur in connection with
service to us to the full extent permitted by Nevada law. We also may advance
expenses, purchase insurance, enter into indemnification agreements, and
otherwise grant broader indemnification rights. We have purchased director and
officer liability insurance. Our articles of incorporation also state our
directors are not liable for monetary damages for breach of fiduciary duty
except where an exemption from liability or limitation of liability is not
permitted under the Nevada General Corporation Law. Our articles of
incorporation do not eliminate the duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Nevada law. In addition, our
directors are liable for monetary damages for acts or omissions involving
intentional misconduct, fraud, knowing violations of law, and unlawful
distributions. We believe these provisions of our articles of incorporation and
bylaws are necessary to attract and retain qualified persons as directors and
officers.
STATUTORY ANTI-TAKEOVER PROVISIONS
Nevada's Combination with Interested Stockholders Statute and Control Share
Acquisition Statute may prohibit or delay mergers or other takeover or change in
control attempts. This could discourage attempts to acquire us.
44
<PAGE> 47
The Combination with Interested Stockholders Statute prohibits an
applicable Nevada corporation from entering into a combination with an
interested stockholder. The combination is prohibited for a period of three
years after the date of the transaction in which the person became an interested
stockholder. The combination may be finalized prior to the three years, if the
interested stockholder attained such status with the approval of the Board of
Directors or the combination is approved in a prescribed manner. A combination
includes mergers, asset sales, and other transactions resulting in a financial
benefit to the interested stockholder. An interested stockholder means the
beneficial owner of 10% or more of the voting shares of a corporation or one of
its affiliates or associates.
Nevada's Control Share Acquisition Statute prohibits an acquiror, under
certain circumstances, from voting shares of a target's stock after crossing
certain threshold ownership percentages, unless the acquiror obtains the
approval of the target corporation's disinterested stockholders. Once an
acquiror crosses one of these thresholds, those shares acquired within 90 days
become control shares and are deprived of the right to vote until disinterested
stockholders restore the right. If the voting rights are restored and the
acquiror has a majority or more of all voting power, any stockholder who did not
vote in favor of authorizing voting rights is entitled to demand fair value for
its shares. This statute applies only to Nevada corporations doing business in
the state and that have at least 200 stockholders, at least 100 of whom are
stockholders of record and residents of Nevada.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar issues stock certificates and keeps track
of the registered holders of our stock. Our transfer agent and registrar is UMB
Bank, n.a., 928 Grand Avenue, Kansas City, Missouri 64106.
SHARES ELIGIBLE FOR FUTURE SALE
After this offering, we will have outstanding 15,003,312 shares of common
stock, assuming no exercise of the underwriters' over-allotment option. Of these
shares, all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless such shares
are purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act. The remaining shares of common stock held by existing
stockholders are "restricted securities" under Rule 144. Restricted securities
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144.
There will be 10,003,312 shares of common stock that are "restricted
securities" and will be available for sale in the public market on ,
1999 (180 days after the date of this prospectus).
The selling stockholders and all of our executive officers and directors
have agreed not to dispose of any of our shares of common stock for 180 days
from the date of this prospectus without the prior written consent of Schroder &
Co. Inc. Any sales after such times must be made in compliance with Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of: 1% of the then outstanding shares of
Class A common stock; or the average weekly trading volume of the Class A common
stock during the four calendar weeks preceding the filing of a notice on Form
144 with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements, and to the availability of
current public information about us. In addition, a person who is not deemed to
have been an affiliate of Central at any time during the three months preceding
a sale and who has beneficially owned the shares proposed to be sold for at
least two years would be entitled to sell such shares under Rule 144(k) without
regard to the requirements described above. To the extent that shares were
acquired from an affiliate of Central, such affiliates' holding period for the
purpose of effecting a sale under Rule 144 commences on the date of transfer
from the affiliate.
Prior to this offering, we have not had a public market for our Class A
common stock. No determination can be made as to the effect, if any, that the
sale or availability for sale of additional shares of the Class A common stock
will have on the market price of the Class A common stock prevailing from time
to time.
45
<PAGE> 48
Nevertheless, sales of substantial amounts of the shares in the public market
could adversely affect the market price of the Class A common stock and could
impair our ability to raise capital through sales of our equity securities.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Schroder & Co. Inc., ABN
AMRO Incorporated, BT Alex. Brown Incorporated, and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, have severally agreed to purchase from us and the
selling stockholders the following respective numbers of shares of Class A
common stock at the public offering price less the underwriting fees set forth
on the cover page of this prospectus.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Schroder & Co. Inc..........................................
ABN AMRO Incorporated.......................................
BT Alex. Brown Incorporated.................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
---------
Total.......................................... 5,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters' obligation to
purchase the shares of Class A common stock is subject to certain conditions.
The underwriters are obligated to purchase all of the shares of Class A common
stock in this offering, other than those covered by the overallotment option
described below, if any such shares are purchased. The representatives of the
underwriters have informed us that the underwriters do not intend to confirm
sales to any account over which they exercise discretionary authority.
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 a price that represents a concession not in
excess of $ per share under the public offering price. The underwriters may
allow and such dealers may reallow a concession not in excess of $ per share
to certain other brokers and dealers. After this offering, the offering price,
the concession, and reallowances to dealers and other selling terms may be
changed by the representatives of the underwriters.
The selling stockholders have granted to the underwriters an option,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of 750,000 additional shares to cover overallotments, if any, at the
same price per share to be paid by the underwriters for the other shares of
Class A common stock offered hereby. If the underwriters purchase any such
additional shares pursuant to the overallotment option, each underwriter will be
committed, subject to certain conditions, to purchase a number of the additional
shares proportionate to such underwriter's initial commitment. The selling
stockholders will be obligated, pursuant to the option, to sell such shares to
the underwriters to the extent the option is exercised. If any additional shares
are purchased, the underwriters will offer additional shares on the same terms
on which the shares are being offered hereby.
Of the 4,000,000 shares of Class A common stock we are offering, up to
400,000 shares may be sold to participants in our 401(k) plan in a concurrent
offering pursuant to a separate prospectus. The number of shares available for
sale to the general public in the underwritten offering will be reduced to the
extent such persons purchase those shares. Any such shares which are not orally
confirmed for purchase by participants in our 401(k) plan within one day prior
to the pricing of this offering will be offered by the underwriters to the
general public on the same terms as the other shares we are offering.
We and each of our directors, executive officers, and stockholders have
agreed for a period of 180 days after the date of this prospectus, not to issue,
sell, offer to sell, grant any options for the sale of, or otherwise dispose of
any shares of Class A common stock or Class B common stock or any rights to
purchase shares of Class A common stock other than stock issued or options
granted pursuant to our incentive stock plan and
46
<PAGE> 49
401(k) plan, without the prior written consent of Schroder & Co., Inc. Such
consent may be given at any time without public notice.
We and the selling stockholders have severally agreed to indemnify the
underwriters against certain liabilities that may be incurred in connection with
the sale of the shares of Class A common stock, including liabilities arising
under the Securities Act, and to contribute to payments that the underwriters
may be required to make with respect thereto.
In order to facilitate the offering of the shares of Class A common stock,
the underwriters may engage in transactions that stabilize, maintain, or
otherwise affect the market price of the Class A common stock. Specifically, the
underwriters may overallot the shares of Class A common stock in connection with
this offering. Additionally, to cover such overallotments or to stabilize the
market price of the Class A common stock, the underwriters may bid for and
purchase shares of the Class A common stock in the open market. These activities
may stabilize or maintain the market price of the Class A common stock at a
level above that which might otherwise prevail in the open market. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
Prior to this offering, there has been no public market for the Class A
common stock. Consequently, the initial public offering price for shares of
Class A common stock will be determined through negotiations among us, the
selling stockholders, and representatives of the underwriters. Among the factors
to be considered in making such determination will be: prevailing market
conditions; our results of operations in recent periods; the demand for
securities of other companies which we and the representatives of the
underwriters believe are comparable to us; and estimates of our business
potential.
LEGAL MATTERS
Scudder Law Firm, P.C. of Lincoln, Nebraska, will opine on the validity of
our shares of Class A common stock. Akin, Gump, Strauss, Hauer & Feld, L.L.P.
will opine on certain legal matters in connection with this offering for the
underwriters. Earl Scudder, a member of the Scudder Law Firm, P.C., is one of
our directors. Mr. Scudder and certain members of his firm own, in the
aggregate, 100,000 shares of Class A common stock.
EXPERTS
The consolidated financial statements and schedule of Central Freight
Lines, Inc. and subsidiary as of December 31, 1997 and 1998 and for the period
from April 1, 1997 (inception) to December 31, 1997 and the year ended December
31, 1998, have been included herein and in the registration statement in
reliance upon the reports of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
47
<PAGE> 50
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report -- KPMG LLP.................... F-2
Consolidated Balance Sheets at December 31, 1997 and 1998,
and March 27, 1999 (unaudited) and March 27, 1999 (pro
forma).................................................... F-3
Consolidated Statements of Operations for the period April
1, 1997 (inception) to December 31, 1997, the year ended
December 31, 1998, and the twelve weeks ended March 28,
1998 (unaudited) and March 27, 1999 (unaudited)........... F-4
Consolidated Statements of Stockholders' Equity for the
period from April 1, 1997 (inception) to December 31,
1997, the year ended December 31, 1998, and the twelve
weeks ended March 27, 1999 (unaudited).................... F-5
Consolidated Statements of Cash Flows for the period April
1, 1997 (inception) to December 31, 1997, the year ended
December 31, 1998, and the twelve weeks ended March 28,
1998 (unaudited) and March 27, 1999 (unaudited)........... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 51
When the transaction referred to in Note 1(b) of the Notes to the Consolidated
Financial Statements has been consummated, we will be in a position to render
the following report.
KPMG LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Central Freight Lines, Inc.:
We have audited the accompanying consolidated balance sheets of Central
Freight Lines, Inc. and subsidiary as of December 31, 1997 and 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the period April 1, 1997 (inception) to December 31, 1997 and the year
ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Central
Freight Lines, Inc. and subsidiary as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for the period from April 1,
1997 (inception) to December 31, 1997 and for the year ended December 31, 1998,
in conformity with generally accepted accounting principles.
Dallas, Texas
February 9, 1999, except as
to Note 1(b) which is as of
, 1999
F-2
<PAGE> 52
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 27,
----------------- MARCH 27, 1999 (NOTE 15)
1997 1998 1999 PRO FORMA
ASSETS ------- ------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash........................................................ $ 767 818 1,211 1,211
Accounts receivable:
Trade, less allowance for doubtful accounts of $555 in
1997, $859 in 1998 and $893 in 1999..................... 22,663 28,964 30,849 30,849
Other receivables......................................... 248 613 869 869
Refundable federal income taxes............................. 1,044 -- -- --
Inventories................................................. 1,463 914 930 930
Prepaid expenses............................................ 2,180 1,800 2,507 2,507
Deferred income taxes....................................... 2,498 -- -- 3,142
Advances to stockholder..................................... -- 5,750 -- --
------- ------- ------- -------
Total current assets................................ 30,863 38,859 36,366 39,508
Property and equipment, net................................. 64,522 77,490 95,665 95,665
Other assets................................................ 951 653 1,105 1,105
------- ------- ------- -------
$96,336 117,002 133,136 136,278
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt........................ $12,824 4,024 4,726 11,745
Trade accounts payable...................................... 11,790 19,983 21,700 21,700
Income taxes payable........................................ 469 408 501 501
Claims and insurance accruals............................... 4,039 3,041 2,842 2,842
Other accrued expenses...................................... 6,686 8,307 9,732 9,732
------- ------- ------- -------
Total current liabilities........................... 35,808 35,763 39,501 46,520
Long-term debt, excluding current maturities................ 32,744 44,005 52,714 52,714
Claims and insurance accruals............................... 758 2,298 2,591 2,591
Accrued postretirement benefits............................. 9,364 9,229 9,292 9,292
Deferred income taxes....................................... 287 1,778 1,784 4,298
------- ------- ------- -------
Total liabilities................................... 78,961 93,073 105,882 115,415
------- ------- ------- -------
Stockholders' equity:
Preferred stock, par value $.001 per share; 5,000,000
shares authorized; none issued and outstanding.......... -- -- -- --
Class A common stock, par value $.001 per share;
50,000,000 shares authorized; 1,396,166 issued;
1,396,166, 1,289,478 and 1,289,478 outstanding in 1997,
1998 and 1999, respectively............................. 1 1 1 1
Class B common stock, par value $.001 per share;
10,000,000 shares authorized; 9,713,834 issued and
outstanding............................................. 10 10 10 10
Additional paid-in capital................................ 14,989 14,989 14,989 20,852
Retained earnings......................................... 2,375 9,073 12,398 --
Class A treasury stock at cost, 106,688 shares............ -- (144) (144) --
------- ------- ------- -------
Total stockholders' equity.......................... 17,375 23,929 27,254 20,863
Commitments and contingencies
------- ------- ------- -------
$96,336 117,002 133,136 136,278
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 53
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM TWELVE WEEKS ENDED
APRIL 1, 1997 YEAR ENDED -------------------------
(INCEPTION) TO DECEMBER 31, MARCH 28, MARCH 27,
DECEMBER 31, 1997 1998 1998 1999
----------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Operating revenues........................ $111,869 259,941 57,379 64,075
-------- -------- ------ ------
Operating expenses:
Salaries, wages and benefits............ 73,579 167,205 37,430 41,912
Operating supplies and expenses......... 8,905 19,405 4,379 4,262
General and administrative.............. 7,115 12,404 2,807 2,879
Operating taxes and licenses............ 4,278 9,169 2,164 2,333
Insurance and claims.................... 3,631 9,043 1,502 1,842
Depreciation and amortization........... 2,130 6,764 1,345 1,803
Communications and utilities............ 2,125 4,374 984 1,101
Rent and purchased transportation....... 4,421 13,077 2,844 3,303
-------- -------- ------ ------
Total operating expenses........ 106,184 241,441 53,455 59,435
-------- -------- ------ ------
Operating earnings.............. 5,685 18,500 3,924 4,640
Other (income) expense:
Interest expense........................ 1,759 3,986 982 972
Other income............................ (164) (534) (93) (257)
-------- -------- ------ ------
Earnings before income taxes.... 4,090 15,048 3,035 3,925
Income taxes.............................. 1,715 5,497 1,251 142
-------- -------- ------ ------
Net earnings.................... $ 2,375 9,551 1,784 3,783
======== ======== ====== ======
Earnings per share:
Basic................................... $ 0.21 0.87 0.16 0.34
======== ======== ====== ======
Diluted................................. $ 0.18 0.72 0.14 0.29
======== ======== ====== ======
Pro forma data (unaudited) (note 15):
Income taxes............................ $ 7,182 1,558
-------- ------
Net earnings............................ $ 7,866 2,367
======== ======
Earnings per share:
Basic................................... $ 0.68 0.20
======== ======
Diluted................................. $ 0.57 0.17
======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 54
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL TOTAL
COMMON COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS STOCK EQUITY
------- ------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock, as
adjusted (note 1)................ $ 1 10 14,989 -- -- 15,000
Net earnings....................... -- -- -- 2,375 -- 2,375
--- -- ------ ------ ---- ------
Balances at December 31, 1997...... 1 10 14,989 2,375 -- 17,375
Net earnings....................... -- -- -- 9,551 -- 9,551
Purchase of treasury stock, 197,428
shares........................... -- -- -- -- (267) (267)
Issuance of treasury stock, 90,740
shares........................... -- -- -- -- 123 123
Distributions paid................. -- -- -- (2,554) -- (2,554)
Excess of carrying values over
proceeds received from properties
sold to a stockholder (note
12).............................. -- -- -- (299) -- (299)
--- -- ------ ------ ---- ------
Balances at December 31, 1998...... 1 10 14,989 9,073 (144) 23,929
Net earnings (unaudited)........... -- -- -- 3,783 -- 3,783
Distributions paid (unaudited)..... -- -- -- (458) -- (458)
--- -- ------ ------ ---- ------
Balances at March 27, 1999
(unaudited)...................... $ 1 10 14,989 12,398 (144) 27,254
=== == ====== ====== ==== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 55
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1997
(INCEPTION) TO TWELVE WEEKS ENDED
YEAR ENDED YEAR ENDED -------------------------
DECEMBER 31, DECEMBER 31, MARCH 28, MARCH 27,
1997 1998 1998 1999
-------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................................. $ 2,375 9,551 1,784 3,783
Adjustments to reconcile net earnings to net cash from
operating activities:
Depreciation........................................... 2,130 6,764 1,345 1,803
Deferred income taxes.................................. (2,210) 4,183 (352) 6
Changes in assets and liabilities, net of purchase
accounting effects:
Accounts receivable.................................. (22,911) (6,666) (6,670) (2,141)
Refundable federal income taxes...................... (1,044) 1,044 1,044 --
Inventories and other assets......................... 347 847 (160) (468)
Prepaid expenses..................................... (2,180) 380 (462) (707)
Trade accounts payable............................... 11,790 8,193 3,377 1,717
Income taxes payable................................. 469 (61) 271 93
Claims and insurance accruals........................ 4,797 542 (1,498) 94
Other accrued expenses and post retirement
benefits........................................... 6,314 1,486..... 2,388 1,488
-------- -------- ------ -------
Net cash (used in) provided by operating
activities....................................... (123) 26,263 1,067 5,668
-------- -------- ------ -------
Cash flows from investing activities:
Additions to property and equipment...................... (12,385) (24,231) (9,094) (20,842)
Proceeds from sale of property and equipment............. -- 4,006 2,789 864
Advances to stockholder.................................. -- (5,750) -- --
Proceeds from payment of advances to stockholder......... -- -- -- 5,750
Cash paid for acquisition of business.................... (43,000) -- -- --
-------- -------- ------ -------
Net cash used in investing activities.............. (55,385) (25,975) (6,305) (14,228)
-------- -------- ------ -------
Cash flows from financing activities:
Proceeds from long-term debt............................. 127,028 350,309 7,530 10,172
Repayments of long-term debt............................. (85,753) (347,848) (1,953) (761)
Proceeds from issuance of common stock................... 15,000 123 -- --
Payments for treasury stock.............................. -- (267) (267) --
Distributions to shareholders............................ -- (2,554) -- (458)
-------- -------- ------ -------
Net cash provided by (used in) financing
activities....................................... 56,275 (237) 5,310 8,953
-------- -------- ------ -------
Net increase in cash....................................... 767 51 72 393
Cash at beginning of period................................ -- 767 767 818
-------- -------- ------ -------
Cash at end of period...................................... $ 767 818 839 1,211
======== ======== ====== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 1,676 3,895 956 720
======== ======== ====== =======
Income taxes........................................... $ 4,200 330 -- 43
======== ======== ====== =======
Assumption of acquisition liabilities.................... $ 14,029 -- -- --
======== ======== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 56
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 27, 1999 IS UNAUDITED)
(TABLES IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
(1) GENERAL AND FORMATION OF THE COMPANY
(a) Description of Business
Central Freight Lines, Inc. is a Nevada holding company that, through its
wholly-owned subsidiary, Central Freight Lines, Inc. of Texas (collectively, the
"Company"), is a regional less than truckload ("LTL") trucking company. The
Company has operations in eleven states, primarily in the southwestern and
south-central United States and maintains alliances with other similar companies
to complete transportation of shipments outside of those states. In 1998 the
preponderance of the Company's freight was either picked up or delivered in
Texas, representing a concentration of risk to economic conditions of Texas.
Prior to April 1, 1997, the Company had no operations or related activities.
(b) Formation of Holding Company
The Company has filed a registration statement on Form S-1 with the
Securities and Exchange Commission for the issuance of common stock (the
"Offering"). In connection with the Offering, the stockholders of Central
Freight Lines, Inc. of Texas (the "Operating Company") contributed all of the
outstanding common shares of stock of the Operating Company for an equivalent
number of Class A and Class B common shares of Central Freight Lines, Inc. of
Nevada (the "Holding Company"). The accompanying consolidated financial
statements have been restated to reflect the formation of the Holding Company
and the exchange of shares as if the transaction had occurred at the inception
of the Company.
(c) Acquisition
Effective June 28, 1997, the Company purchased certain operating assets for
a purchase price of $43,000,000 in cash plus the assumption of approximately
$14,029,000 of liabilities from Viking Freight, Inc. in a transaction accounted
for as a purchase. The purchase price was funded with $15,000,000 of initial
capital contributions to the Company by certain investors and members of senior
management in exchange for common stock and a bank loan of $28,000,000. Results
of operations from this acquisition have been included in the accompanying
statements of operations from the date of acquisition.
The purchase price has been allocated to the assets acquired and
liabilities assumed based on fair values at the date of the acquisition. A
summary of the assets acquired and the liabilities assumed follows:
<TABLE>
<S> <C>
Current assets -- materials and supplies inventory.......... $ 1,778
Property and equipment, primarily real estate, terminals,
tractors and trailers..................................... 54,268
Other assets................................................ 983
Current liabilities......................................... (463)
Accrued postretirement benefits............................. (9,273)
Industrial revenue bonds.................................... (4,293)
-------
Cash paid......................................... $43,000
=======
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reporting of revenues and expenses during the reporting periods to prepare
the
F-7
<PAGE> 57
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 27, 1999 IS UNAUDITED)
(TABLES IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
(b) Inventories
Inventories are stated at the lower of cost or market and consist of repair
parts and supplies. Cost is determined on an average cost basis.
(c) Tires in Service
The Company capitalizes tires placed in service on new revenue equipment as
a part of the equipment cost. Replacement tires and costs for recapping tires
are expensed at the time the tires are placed in service.
(d) Property and Equipment
Depreciation of property and equipment is calculated on the straight-line
method over the estimated useful lives of 3 to 7 years for revenue and service
equipment, 3 to 39 years for structures and improvements, and 3 to 7 years for
furniture and office equipment.
(e) Revenue Recognition
The Company recognizes revenue upon the delivery of the related freight.
Costs and related expenses are recorded as incurred.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Effective April 1, 1998, the Company elected S corporation status under
which federal income tax attributes of the Company flow directly to its
stockholders. Accordingly, the accompanying consolidated financial statements do
not include a provision for federal income taxes for operations subsequent to
March 31, 1998 (see notes 9 and 15).
(g) Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the Company's large number of customers and the diverse range of industries
which they represent. As of December 31, 1997 and 1998, the Company had no
significant concentrations of credit risk.
(h) Management Incentive Stock Plan
The Company utilizes the provisions of Statement of Financial Accounting
Standard ("SFAS") No. 123, Accounting for Stock-Based Compensation, which
permits entities to recognize as expense over the
F-8
<PAGE> 58
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 27, 1999 IS UNAUDITED)
(TABLES IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
vesting period the fair value of all stock-based awards on the date of grant, or
alternatively to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net earnings and earnings per share for employee stock-based
awards as if the fair-value-based method defined in SFAS No. 123 had been
applied. Under APB Opinion No. 25, if the exercise price of the Company's
employee stock options equals or exceeds the fair value of the underlying stock
on the date of grant, no compensation expense is recognized. The Company has
elected to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosures of SFAS No. 123.
(i) Claims and Insurance Accruals
Claims accruals represent reserves for estimated costs to repair and
replace damaged goods resulting from cargo claims. Insurance accruals reflect
the estimated cost of claims for bodily injury and property damage, workers'
compensation and employee health care not covered by insurance. These
liabilities for self-insurance are accrued based on claims incurred and on
estimates of both unasserted and unsettled claims which are assessed based on
management's evaluation of the nature of the claims and the Company's past
claims experience. The portion of the accrual classified as a current liability
represents management's estimate of that portion of the claims that will be
settled in the next twelve months.
While management believes that amounts included in the accompanying
consolidated financial statements are adequate, such estimates may be more or
less than the amounts ultimately paid when the claims are settled. The estimates
are periodically reviewed and any changes are reflected in current operations.
(j) Earnings Per Share
Earnings per share is calculated using the weighted average number of
shares outstanding of 11,110,000, 10,996,222, 11,044,191 and 11,003,312 for
basic and 13,229,275, 13,235,591, 13,194,629 and 13,233,292 for diluted for the
periods from April 1, 1997 (inception) to December 31, 1997, the year ended
December 31, 1998, and the twelve weeks ended March 28, 1998 and March 27, 1999,
respectively. The weighted average shares outstanding used in the calculation of
diluted earnings per share includes the dilutive effect of options to purchase
common stock, calculated using the treasury stock method at the anticipated
offering price of $13 per share (see note 10).
(k) Interim Financial Statements
In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the consolidated financial
position of the Company as of March 27, 1999 and the consolidated results of
operations and cash flows for the twelve weeks ended March 27, 1998 and 1999.
Interim results are not necessarily indicative of the results to be expected for
the entire fiscal year.
(l) Fiscal Periods
The Company uses 13 four-week accounting periods with 12 weeks in each of
the first three fiscal quarters and 16 weeks in the fourth fiscal quarter.
F-9
<PAGE> 59
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 27, 1999 IS UNAUDITED)
(TABLES IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
(3) ADVANCES TO STOCKHOLDER
At December 31, 1998, the Company had advances to its principal stockholder
of $5,750,000. The advances are unsecured, due on demand and bear interest at
6.9%. Interest income recognized in 1998 amounted to $13,000. These advances
were repaid subsequent to year end.
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Revenue and service equipment............................... $26,159 $46,518
Land........................................................ 12,445 11,286
Structures and improvements................................. 23,951 23,090
Furniture and office equipment.............................. 4,127 5,653
------- -------
66,682 86,547
Less accumulated depreciation............................... 2,160 9,057
------- -------
$64,522 $77,490
======= =======
</TABLE>
(5) ACCRUED EXPENSES
Other accrued expenses consist of the following at December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Employee related compensation and benefits.................. $5,942 $8,166
Other accrued expenses...................................... 744 141
------ ------
$6,686 $8,307
====== ======
</TABLE>
(6) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and 1998 and
March 27, 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 27,
1997 1998 1999
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Line of credit facility............................... $ 5,903 $ 4,673 $ 7,333
Term loan facility.................................... -- -- 7,572
Note payable to bank.................................. 28,000 -- --
Related party sale and leaseback financing............ -- 26,993 26,837
Equipment notes payable............................... 8,084 16,363 15,698
Industrial revenue bonds.............................. 3,156 -- --
Other................................................. 425 -- --
------- ------- -------
45,568 48,029 57,440
Less current portion.................................. 12,824 4,024 4,726
------- ------- -------
$32,744 $44,005 $52,714
======= ======= =======
</TABLE>
F-10
<PAGE> 60
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 27, 1999 IS UNAUDITED)
(TABLES IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
On February 24, 1999, the Company entered into an amended and restated
revolving and advancing credit and security agreement with a bank which amended
certain provisions of its $22,500,000 revolving line of credit and provided for
a $22,000,000 advancing line of credit available in the form of term notes.
Aggregate borrowings available under this credit and security agreement are
$32,000,000 and are secured by substantially all of the Company's assets. Under
this credit facility the Company is subject to certain covenants which restrict,
among other things, the Company's ability to incur additional indebtedness, pay
dividends in excess of 40% of S corporation earnings, consummate mergers,
acquisitions or dispositions and enter into certain transactions with
affiliates. The credit facility also contains financial covenants which require
the maintenance of certain ratios of interest and fixed charge coverage, debt to
tangible net worth and require the Company to maintain a minimum tangible net
worth. As of December 31, 1998, and March 27, 1999, management believes the
Company was in compliance with all covenants under the credit facility.
Borrowings under this credit and security agreement are guaranteed by a
stockholder of the Company. Amounts outstanding under the revolving credit
facility bear interest at LIBOR (the London Interbank Offered Rate) plus 1.50%
to 2.00% (6.90% at December 31, 1998) and matures on July 1, 2000. The Company
must pay an annual commitment fee of .5% on the unused portion of the
commitment.
On March 12, 1999, the Company entered into a promissory note for
approximately $7,572,000 under the above credit facility. This notes bears
interest at 7.19%, requires monthly payments of principal and interest with
balance due at maturity on March 12, 2006.
On June 30, 1997, the Company entered into a promissory note agreement with
a bank to borrow $28,000,000 to finance the purchase of certain assets. The
note, due December 31, 2003, bore interest at a variable rate based on the prime
rate with monthly payments of principal and interest. This note payable was
fully paid in May, 1998.
On May 22, 1998, the Company entered into an agreement with an entity owned
by the Company's then-existing stockholders for the sale and leaseback of the
land, structures and improvements of thirty-six of the Company's terminals and
one additional Waco, Texas property. The sale price for the properties was
$27,755,000. For financial accounting purposes, this transaction has been
accounted for as a financing arrangement. The initial lease term is for ten
years with options for an additional ten years at the then fair market rental
rate. After May 21, 2008, the Company has an option to purchase all of the
properties subject to the financing for the then fair market value. Annual
rental payments are equal to 11.1% of the $27,755,000 sales price. The Company
computed interest on the financing using its incremental borrowing rate of 8.09%
based upon a twenty year amortization schedule. Total interest costs accrued
under such related party financing was $1,362,000 in 1998.
The Company has entered into a number of note agreements with a third party
to acquire equipment for use in its operations. These notes with fixed interest
rates ranging from 6.75% to 7.50% mature at various dates through January 2002
and require monthly principal and interest payments through maturity. These
notes are secured by the equipment acquired.
The industrial revenue bonds were collateralized by land and buildings at
various terminals, bore interest at rates ranging from .75 to 1.245 times a
prime rate and were scheduled to mature in various amounts through February
2002. These bonds were retired in May 1998.
F-11
<PAGE> 61
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 27, 1999 IS UNAUDITED)
(TABLES IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Aggregate maturities of long-term debt and financing obligation for each of
the five years following December 31, 1998 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999.................................................... $ 4,024
2000.................................................... 11,530
2001.................................................... 8,325
2002.................................................... 1,142
2003.................................................... 1,240
Thereafter.............................................. 21,768
</TABLE>
(7) CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Class A common stock, 10,000,000 shares of Class B common stock and 5,000,000
shares of preferred stock. Class A and Class B common stock vote together as a
single class, except as required by law, with holders of Class A common stock
entitled to one vote per share and owners of Class B common stock entitled to
three votes per share. Except with respect to voting rights, the Class A and
Class B common stocks are substantially identical.
Class B common stock is convertible to an equal number of shares of Class A
common stock at any time and automatically are converted to shares of Class A
common stock if they are beneficially owned by any person other than the
principal stockholder and certain members of his immediate family.
No shares of preferred stock have been issued.
In connection with the June 28, 1997 acquisition by the Company (see note
1), the stockholders contributed $15,000,000 in cash to the Company in exchange
for 11,110,000 shares of common stock ($1.35 per share).
In March 1998, the Company purchased as treasury stock (106,688 common
shares) from executive management and (90,740 common shares) from a director of
the Company and his associates all at $1.35 per share. The director and his
associates perform various legal services for the Company. In connection with
this purchase the Company granted stock options that immediately vested to these
individuals ($1.35 exercise price) in the same number as shares purchased.
(8) MANAGEMENT INCENTIVE STOCK PLAN
Effective June 30, 1997, the Company established an incentive stock plan
that provides multiple alternatives to compensate eligible employees and
consultants, including non-employee directors, with the Company's Class A common
stock. Under the plan, the Company is authorized to award, in aggregate, not
more than 3,000,000 options to purchase shares of Class A common stock. Grants
to optionees shall have a per share exercise price of no less than fair market
value of the underlying Class A common stock on the date of grant. At December
31, 1997 and 1998, there were approximately 465,904 and 338,666 shares,
respectively, available for grant under the plan.
The awards are issuable at the discretion of the board of directors. All
option grants to date expire 10 years from date of grant. Options granted under
the plan to senior management (2,215,536 at December 31, 1997 and 2,322,224 at
December 31, 1998) generally vest 20% on the first anniversary of the date of
grant and 20% on each subsequent anniversary until fully vested. If an employee
is granted options at
F-12
<PAGE> 62
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 27, 1999 IS UNAUDITED)
(TABLES IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
multiple exercise prices, the options vest first with respect to the lowest
exercise price and continuing to the highest exercise price. Options granted
under the plan to junior management (318,560 at December 31, 1997 and 339,110 at
December 31, 1998) vest 20% on the fifth anniversary of the date of grant and
20% on each subsequent anniversary until fully vested. Termination of the
employee for any reason other than death, disability or certain cases of
retirement causes the unvested portion of the award to be forfeited.
Options granted to employees in 1997 consisted of 1,107,768
options -- $1.35 exercise price, 1,057,072 options -- $2.70 exercise price and
369,256 options -- $3.375 exercise price. All of such options expire in 2007.
Options granted to employees in 1998 consisted of 106,688 options -- $1.35
exercise price (see note 7) and 20,550 options -- $4.00 exercise price. These
options expire in 2008.
In March 1998, the Company's board of directors authorized a reduction in
the exercise price of $0.55 per share on 318,560 options granted with an
original exercise price of $2.70 per share, and 20,550 options granted with an
original exercise price of $4.00 per share. There were no other revisions to the
terms of these option grants.
In March 1998, the Company issued 90,740 nonqualified stock options to a
director and his associates who perform legal services for the Company (see note
7). These options were issued at an exercise price of $1.35 per share and were
exercisable at the date of grant. These options were all exercised during 1998.
Stock option activity for the period from April 1, 1997 (inception) through
December 31, 1997 and during the year ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Granted in July 1997........................................ 2,534,096 $2.21
Exercised................................................. -- --
Forfeited................................................. -- --
--------- -----
Balance at December 31, 1997................................ 2,534,096 2.21
Granted................................................... 217,978 1.39
Exercised................................................. (90,740) 1.35
Forfeited................................................. -- --
--------- -----
Balance at December 31, 1998................................ 2,661,334 $2.11
========= =====
</TABLE>
Options outstanding and exercisable at December 31, 1998 are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING WEIGHTED
OPTIONS EXERCISE CONTRACTUAL OPTIONS AVERAGE
EXERCISE PRICE OUTSTANDING PRICE LIFE EXERCISABLE EXERCISE PRICE
- -------------- ----------- -------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.35...................... 1,214,456 $1.35 8.6 549,796 $1.35
$ 2.15-2.70...................... 1,057,072 2.54 8.5 -- --
$3.375-3.45...................... 389,806 3.38 8.5 -- --
--------- ----- ------- -----
2,661,334 $2.11 549,796 $1.35
========= ===== ======= =====
</TABLE>
F-13
<PAGE> 63
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 27, 1999 IS UNAUDITED)
(TABLES IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
The Company applies APB Opinion No. 25 in accounting for options issued to
employees under the plan and, accordingly, no compensation cost has been
recognized for its stock options in the financial statements. In accordance with
SFAS No. 123, the fair value of options granted was estimated using the
Black-Scholes option pricing model with the following assumptions for 1997 and
1998 grants to employees: risk-free interest rates of 6.10% and 5.66%,
respectively, zero and 15% expected volatility, respectively, an expected life
of 10 years and a zero dividend yield. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net earnings for the period from April 1, 1997
(inception) to December 31, 1997 and for the year ended December 31, 1998 would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1997
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
-------------- ------------
<S> <C> <C>
Net earnings:
As reported............................................... $2,375 9,551
Pro forma................................................. 2,332 9,346
Pro forma earnings per share:
Basic..................................................... 0.21 0.85
Diluted................................................... 0.18 0.71
</TABLE>
The fair value of options granted or repriced during 1997 and 1998 were as
follows:
<TABLE>
<CAPTION>
FAIR VALUE
EXERCISE PRICE OF OPTION
-------------- ----------
<S> <C> <C>
Granted during 1997:........................................ $1.35 0.60
2.70 --
3.375 --
Granted or repriced during 1998:............................ 1.35 0.61
2.15 0.28
3.45 0.09
</TABLE>
(9) INCOME TAXES
On April 1, 1998, the Company elected S corporation status, under which
federal income tax attributes of the Company flow directly to its stockholders.
Accordingly, the accompanying consolidated financial statements do not include a
provision for federal income taxes for any period subsequent to March 31, 1998.
Prior to electing S corporation status, the Company was a C corporation and
subject to federal income taxes.
As a result of the conversion to an S corporation, the Company eliminated
net deferred tax assets of $3,619,000 as of April 1, 1998. The effect of this
elimination is reflected as a component of the 1998 deferred income tax expense
in the accompanying consolidated statement of operations.
F-14
<PAGE> 64
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 27, 1999 IS UNAUDITED)
(TABLES IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
The components of income tax expense consist of:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1997
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
-------------- ------------
<S> <C> <C>
Current tax expense:
Federal................................................... $3,456 $ 801
State..................................................... 469 513
Deferred tax expense (benefit):
Federal................................................... (1,959) 3,938
State..................................................... (251) 245
------ ------
$1,715 $5,497
====== ======
</TABLE>
A reconciliation of income tax expense computed using the U.S. federal
statutory income tax rate of 35% of earnings before income taxes to the actual
provision for income taxes follows:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1997
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
-------------- ------------
<S> <C> <C>
Expected tax at U.S. statutory rate......................... $1,432 $5,267
State tax, net of federal benefit........................... 142 694
S corporation earnings...................................... -- (4,304)
Deferred tax assets eliminated on conversion to S
corporation............................................... -- 3,619
Other, net.................................................. 141 221
------ ------
$1,715 $5,497
====== ======
</TABLE>
F-15
<PAGE> 65
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 27, 1999 IS UNAUDITED)
(TABLES IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1998 are presented below:
<TABLE>
<CAPTION>
1997 1998
------ -------
<S> <C> <C>
Net deferred tax assets:
Accounts receivable and other assets...................... $1,426 $ --
Unamortized start-up costs -- tax basis................... 311 --
Claims and insurance accrual.............................. 1,306 --
Accrued postretirement benefits........................... 3,278 --
State deferred taxes...................................... 251 6
------ -------
Total deferred tax asset.......................... 6,572 6
------ -------
Net deferred tax liabilities:
Property and equipment due to differences in depreciation
and basis.............................................. 4,020 1,784
Prepaid insurance......................................... 292 --
Other..................................................... 49 --
------ -------
Total deferred tax liability...................... 4,361 1,784
------ -------
Net deferred tax asset (liability)................ $2,211 $(1,778)
====== =======
</TABLE>
(10) EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution employee retirement plan,
which includes a 401(k) option, under which employees are eligible to
participate after they complete 90 days of service. Employees are eligible for
Company matching contributions after one year of service. Company contributions
to the plan each year are made at the discretionary amount determined by the
Company's board of directors. For the period from April 1, 1997 (inception) to
December 31, 1997 and the year ended December 31, 1998, total Company
contributions to the plan, including matching 401(k) contributions, were
$831,000 and $1,884,000, respectively.
In addition to the Company's defined contribution employee retirement plan,
the Company sponsors a defined benefit health care plan that provides
postretirement medical benefits to full-time employees who meet minimum age and
service requirements. The plan is contributory, with retiree contributions
adjusted annually, and contains other cost-sharing features such as deductibles
and coinsurance. The accounting for the plan anticipates future cost-sharing
changes to the written plan that are consistent with the Company's expressed
intent to increase the retiree contribution rate annually for the expected
general inflation rate for that year. The Company's policy is to fund the cost
of medical benefits in amounts determined at the
F-16
<PAGE> 66
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 27, 1999 IS UNAUDITED)
(TABLES IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
discretion of management. The plan has no assets, and accordingly, no
reconciliation of fair value of plan assets is provided and the funded status is
based solely on the benefit obligation.
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period................. $ -- $9,800
Acquisition............................................... 9,273 --
Service cost.............................................. 87 193
Interest cost............................................. 344 516
Benefits paid............................................. (392) (750)
Actuarial (gain) loss..................................... 488 (1,156)
------ ------
Benefit obligation at end of period....................... 9,800 8,603
Unrecognized net gain (loss).............................. (436) 626
------ ------
Accrued benefit cost...................................... $9,364 $9,229
====== ======
Components of net periodic benefit cost:
Service cost.............................................. $ 87 $ 193
Interest cost............................................. 344 516
Amortization of actuarial gain............................ -- (94)
------ ------
$ 431 $ 615
====== ======
</TABLE>
For measurement purposes, a 1% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed, which
is also the maximum employer provided increase per year. An increase in the
health care cost trend assumption has no effect on the amounts reported because
the amounts are provided assuming the maximum employer provided increase per
year.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% and 6.75% at December 31, 1997 and
1998, respectively.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
(a) Accounts Receivable and Trade Accounts Payable
The carrying amount approximates fair value because of the short maturities
of these instruments.
(b) Advances to Stockholder
The fair value of this instrument cannot be determined without incurring
excessive costs due to the related party nature of the investment.
(c) Long-Term Debt
At December 31, 1997 and 1998, the carrying value of the revolving credit
facility and the promissory note (1997 only) approximate fair value because
these liabilities bear or bore interest at current market rates. At December 31,
1998, the fair value of the related party financing arrangement cannot be
determined without incurring excessive costs due to the related party nature of
the instrument. At December 31, 1998, the carrying value of other long-term debt
approximates fair value.
F-17
<PAGE> 67
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 27, 1999 IS UNAUDITED)
(TABLES IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
(12) LEASES
On March 20, 1998, the Company entered into agreements with its principal
stockholder for the sale and leaseback of the land and related improvements of
three terminals for cash of $2,566,000. The leases are for 10 years with a
renewal option for an additional ten year term. The annual lease payments over
the initial term of the lease are $218,000. The leases have been accounted for
as operating leases. As of the date of the sale, land and improvements with a
net book value of $3,060,000 were removed from the balance sheet and the
difference between the carrying value of the property and the proceeds received,
net of $195,000 tax effect, were recorded as a deemed dividend in the
accompanying consolidated statements of stockholders' equity.
The Company also has noncancelable operating leases for tractors, trailers
and other equipment that have remaining terms ranging from one to five years.
Rental expense was $860,000 for the period ended December 31, 1997 and
$3,020,000 for the year ended December 31, 1998.
The following is a schedule of minimum rental payments under the operating
leases at December 31, 1998:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1999...................................................... $2,194
2000...................................................... 1,368
2001...................................................... 708
2002...................................................... 619
2003...................................................... 461
Thereafter................................................ 908
</TABLE>
(13) COMMITMENTS
At December 31, 1998, the Company had placed orders totaling approximately
$61 million for revenue and service equipment with delivery dates scheduled
through 1999, 2000, and into 2001. Of that amount, approximately $21 million of
equipment had been delivered and placed in service as of March 27, 1999. The
remaining $40 million is subject to a 90 day cancellation clause at the
Company's discretion, with an outstanding commitment at any one time of
approximately $6 million.
(14) CONTINGENCIES
The Company is involved in certain claims and pending litigation arising
from the normal conduct of business. Based on its present knowledge of the
facts, management believes the resolution of claims and pending litigation will
not have a material adverse effect on the financial condition, results of
operations or liquidity of the Company.
The Company is subject to loss contingencies pursuant to federal, state and
local environmental regulations dealing with the transportation, storage,
presence, use, disposal and handling of hazardous materials, discharge of storm
water and fuel storage tanks. Environmental liabilities including remediation
costs are accrued when amounts are probable and can be reasonably estimated.
The Company has terminals in Odessa and Fort Worth, Texas, at which it has
not completed its remediation efforts related to contamination caused by
underground storage tanks. Total expected costs to be
F-18
<PAGE> 68
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 27, 1999 IS UNAUDITED)
(TABLES IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
incurred related to these remediation efforts as of December 31, 1998 is
approximately $432,000. The Company has recognized provisions and related
reimbursement receivables from the State of Texas related to these costs.
(15) PRO FORMA INFORMATION (UNAUDITED)
In connection with the Offering, the Company will convert from an S
corporation to a C corporation for federal income tax purposes. The unaudited
pro forma consolidated balance sheet is based upon the historical unaudited
consolidated balance sheet and gives effect to (i) the estimated distribution of
$7,019,000 of undistributed S corporation retained earnings to the Company's
existing stockholders immediately prior to the Offering through an increase in
current maturities of long-term debt, (ii) the reclassification of remaining
retained earnings to additional paid-in capital, (iii) the elimination of
treasury stock upon formation of the Holding Company, and (iv) the establishment
of deferred tax assets of $3,142,000 and deferred tax liabilities of $2,514,000
as a result of the conversion to C corporation status.
The pro forma entries to the consolidated balance sheet at March 27, 1999
are summarized as follows:
<TABLE>
<CAPTION>
DEFERRED CURRENT DEFERRED ADDITIONAL
INCOME TAX MATURITIES OF INCOME PAID-IN RETAINED TREASURY
ASSET -- CURRENT LONG-TERM DEBT TAXES CAPITAL EARNINGS STOCK
---------------- -------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(i) Distribution.............. $ -- 7,019 -- -- (7,019) --
(ii) Elimination of remaining
retained earnings........ -- -- -- 5,379 (5,379) --
(iii) Elimination of treasury
stock..................... -- -- -- (144) -- 144
(iv) Establishment of deferred
tax assets and
liabilities.............. 3,142 -- 2,514 628 -- --
</TABLE>
The unaudited pro forma consolidated statements of operations data for the
year ended December 31, 1998 and the twelve weeks ended March 27, 1999 are based
upon the historical consolidated statements of operations and give effect to (i)
pro forma income taxes as if the Company were a C corporation for the entire
duration of both periods, and (ii) for purposes of earnings per share, the
number of shares sold in the offering (using the assumed public offering price
of $ per share) whose proceeds will be used to pay the
F-19
<PAGE> 69
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 27, 1999 IS UNAUDITED)
(TABLES IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
distribution of $7,019,000. The pro forma entries to the consolidated statements
of operations data are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE SHARES
INCOME ------------------------
TAXES BASIC DILUTED
------- ---------- ----------
<S> <C> <C> <C>
Year ended December 31, 1998:
Historical income taxes............................. $ 5,497
(i) Reversal of April 1, 1998 elimination of
deferred taxes................................... (3,619)
(i) Pro forma income taxes for period April 1, 1998
to December 31, 1998............................ 5,304
-------
Income tax expense -- pro forma....................... $ 7,182
=======
(i) Incremental number of shares from Offering used
to fund distribution............................ 539,923 539,923
======= =======
Twelve weeks ended March 27, 1999:
Historical income taxes............................. $ 142
(i) Pro forma income taxes.......................... 1,416
-------
Income tax expense -- pro forma..................... $ 1,558
=======
(i) Incremental number of shares from Offering used
to fund distribution............................ 539,923 539,923
======= =======
</TABLE>
In the period that the Offering is consummated and the conversion to C
corporation status occurs, the Company's provision for income taxes will include
the effect of the establishment of cumulative deferred income tax assets and
liabilities. As of March 27, 1999, this amount represented a net deferred tax
asset of $628,000.
(16) RELATED PARTY TRANSACTIONS
During the period from April 1, 1997 (inception) to December 31, 1997 and
the year ended December 31, 1998, the Company paid $1.2 million and $5.3
million, respectively, for transportation services provided by a company for
which the Company's principal shareholder is the Chairman and Chief Executive
Officer.
See also Notes 6 and 12 for additional disclosures regarding related party
transactions.
F-20
<PAGE> 70
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 SHARES
[CENTRAL FREIGHT LINES, INC.]
CLASS A COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
SCHRODER & CO. INC.
ABN AMRO ROTHSCHILD
a division of ABN AMRO Incorporated
BT ALEX. BROWN
MERRILL LYNCH & CO.
, 1999
Until , 1999 (25 days after the commencement of this offering),
all dealers that buy, sell, or trade our Class A common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the obligations of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 71
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities, in any state where the offer or sale is prohibited.
[ALTERNATE PAGE]
Subject to Completion
May , 1999
400,000 SHARES
[CENTRAL FREIGHT LINES, INC. LOGO]
CLASS A COMMON STOCK
---------------------
- - We are offering up to 400,000 shares of our Class A common stock directly to
participants in our 401(k) Savings Plan and Trust.
- - We are concurrently conducting our initial public offering and are offering to
the public up to 4,000,000 shares of our Class A common stock and existing
stockholders are offering 1,000,000 shares of Class A common stock, with the
offering to the public being reduced by the 401(k) purchases.
- - Our offering to you is contingent upon our offering to the public.
- - We anticipate that the offering price to you will be between $ and
$ per share, which represents a discount of approximately % from the
price in the offering to the public.
- - If you purchase in this offering you will acquire shares through an investment
in the Central Stock Fund, a new investment option available under our 401(k).
- - To purchase you will be required to transfer funds in your 401(k) account into
the Central Stock Fund in an amount per share purchased equal to the offering
price to the public.
- - The amount of the discount may be maintained in cash and cash equivalents in
your 401(k) account to provide liquidity in connection with administering the
Central Stock Fund.
---------------------
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
401(k) offering price....................................... $ $
Proceeds to Central......................................... $ $
</TABLE>
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We expect to deliver the shares of Class A common stock to the 401(k)
participants on, 1999.
---------------------
The date of this prospectus is , 1999
<PAGE> 72
[ALTERNATE PAGE]
PLAN OF DISTRIBUTION
We are offering directly to participants in our 401(k) Savings Plan and
Trust up to 400,000 shares of our Class A common stock at the price set forth on
the cover page of this prospectus. Any of such shares which are not orally
confirmed for purchase within one day prior to pricing this offering will be
offered by the underwriters to the general public on the same terms as the other
shares being offered to the public. Since we are offering the shares directly
and not through the underwriters, no underwriting discount will be paid to the
underwriters with respect to such shares. Our offering to you under the 401(k)
plan is contingent upon the closing of our offering to the public.
The price you will pay is equal to the price the public will pay less a
discount of approximately %. If you participate in the offering you will
acquire our Class A common stock through an investment in the Central Stock
Fund, a new investment option available under the 401(k) plan. You will be
required to transfer funds within your 401(k) account into the Central Stock
Fund in an amount per share equal to the price paid by the public. At the
request of the 401(k) administrator, the difference between the price paid by
the public and the price you pay may be maintained in cash and cash equivalents
in your 401(k) account to provide liquidity in connection with administering the
Central Stock Fund.
We and each of our directors, executive officers, and stockholders have
agreed for a period of 180 days after the date of this prospectus, not to issue,
sell, offer to sell, grant any options for the sale of, or otherwise dispose of
any shares of Class A common stock or Class B common stock or any rights to
purchase shares of Class A common stock other than stock issued or options
granted pursuant to our incentive stock plan and 401(k) plan without the prior
written consent of Schroder & Co., Inc. Such consent may be given at any time
without public notice.
In order to facilitate the concurrent underwritten offering of the shares
of Class A common stock, the underwriters may engage in transactions that
stabilize, maintain, or otherwise affect the market price of the Class A common
stock. Specifically, the underwriters may overallot the shares of Class A common
stock in connection with the offering to the public. Additionally, to cover such
over-allotments or to stabilize the market price of the Class A common stock,
the underwriters may bid for and purchase shares of the Class A common stock in
the open market. These activities may stabilize or maintain the market price of
the Class A common stock at a level above that which might otherwise prevail in
the open market. The underwriters are not required to engage in these
activities, and may end any of these activities at any time.
<PAGE> 73
[ALTERNATE PAGE]
Prior to this offering, there has been no public market for the Class A
common stock. Consequently, the price for shares of Class A common stock offered
to the public will be determined through negotiations among us, the selling
stockholders, and representatives of the underwriters. Among the factors to be
considered in making such determination will be:
- Prevailing market conditions.
- Our results of operations in recent periods.
- The demand for securities of other companies which we and the
representatives of the underwriters believe are comparable to us.
- Estimates of our business potential.
[INSERT LEGAL MATTERS, IF REQUIRED]
<PAGE> 74
[ALTERNATE PAGE]
THE OFFERING
Class A common stock offered by
Central................................. 400,000 shares(1)
Common stock to be outstanding after
this offering:
Class A common stock.................. 6,289,478 shares(2)
Class B common stock.................. 8,713,834 shares(3)
Total................................... 15,003,312 shares(2)
Use of Proceeds......................... We intend to use the proceeds to
repay all borrowings other than our
real estate financing, to purchase
new tractors and trailers, and for
general corporate purposes,
including working capital. See "Use
of Proceeds."
Proposed Nasdaq National Market
symbol.................................. CFLI
- ---------------
(1) Any of the 400,000 shares of Class A common stock not purchased in this
offering and an additional 3,600,000 shares of Class A common stock will be
sold to the public in a concurrent offering made pursuant to a separate
prospectus.
(2) Excludes approximately 3,000,000 shares of Class A common stock reserved for
issuance under our incentive stock plan. Options to purchase approximately
2,661,334 shares of Class A common stock are currently outstanding under the
plan.
(3) The Class A common stock is entitled to one vote per share. The Class B
common stock is entitled to three votes per share while beneficially owned
by Jerry Moyes or certain members of his immediate family. The Class A and
Class B common stock vote together as a single class except as required by
law and are substantially identical except with respect to voting rights.
See "Description of Capital Stock."
<PAGE> 75
[ALTERNATE PAGE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
400,000 SHARES
[CENTRAL FREIGHT LINES, INC.]
CLASS A COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
, 1999
Until , 1999 (25 days after the commencement of this offering),
all dealers that buy, sell, or trade our Class A common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the obligations of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 76
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 Registrant in connection with the sale and distribution of the securities
being registered by this Registration Statement, other than the underwriting
discounts and commissions. All amounts are estimated except the SEC registration
fee, the NASD filing fee, and the Nasdaq filing fee. The selling stockholders
will not bear any expenses of this offering other than the underwriters'
discount applicable to the shares sold by them.
<TABLE>
<S> <C>
SEC registration fee........................................ $20,781
NASD filing fee............................................. 7,975
Nasdaq filing fee...........................................
Blue sky fees and expenses.................................. 2,000
Accounting fees and expenses................................
Legal fees and expenses.....................................
Printing and engraving......................................
Registrar and transfer agent fees...........................
Miscellaneous...............................................
-------
Total............................................. $
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XII of the Registrant's Articles of Incorporation and Article IX of
the Registrant's Bylaws provide that the Registrant's directors and officers
shall be indemnified against liabilities they may incur while serving in such
capacities to the fullest extent allowed by the Texas Business Corporation Act.
Under these indemnification provisions, the Registrant is required to indemnify
its directors and officers against any reasonable expenses (including attorney
fees) incurred by them in the defense of any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, to which they were
made a party, or in defense of any claim, issue, or matter therein, by reason of
the fact that they are or were a director or officer of the Registrant or while
a director or officer of the Registrant are or were serving at the Registrant's
request as a director, officer, partner, trustee, employee, or agent of another
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise unless it is ultimately determined by a court of competent
jurisdiction that they failed to act in a manner they believed in good faith to
be in, or not opposed to, the best interests of the Registrant, and with respect
to any criminal proceeding, had reasonable cause to believe their conduct was
lawful. The Registrant will advance expenses incurred by directors or officers
in defending any such action, suit, or proceeding upon receipt of written
confirmation from such officers or directors that they have met certain
standards of conduct and an undertaking by or on behalf of such officers or
directors to repay such advances if it is ultimately determined that they are
not entitled to indemnification by the Registrant. The Registrant may, through
indemnification agreements, insurance, or otherwise, provide additional
indemnification. We maintain insurance for directors and officers for liability
they may incur while serving in such capacities. The policy has $5,000,000 in
coverage with a $50,000 deductible.
Article XII of the Registrant's Articles of Incorporation eliminates, to
the fullest extent permitted by law, the liability of directors and officers for
monetary or other damages for breach of fiduciary duties to the Registrant and
its stockholders as a director or officer.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
We have operated since June 28, 1997, as Central Freight Lines, Inc., a
Texas corporation. In preparation for this offering, all of our existing
stockholders formed Central Freight Lines, Inc., a Nevada corporation, and
agreed to cause the Texas corporation to become a wholly owned subsidiary. The
information below reports the sales of stock of the Texas corporation prior to
the time it became a subsidiary. All shares were
II-1
<PAGE> 77
purchased for $1.35 per share, with the price and share numbers adjusted for our
October 3, 1997, two-for-one share dividend.
<TABLE>
<CAPTION>
OWNER NUMBER DATE PURCHASED
- ----- --------- --------------
<S> <C> <C>
Joe E. Hall................................................. 148,134 5/10/97
Douglas E. Quicksall........................................ 62,954 5/10/97
Thomas K. Morehouse(1)...................................... 39,522 5/10/97
Gina C. Curry(2)............................................ 198,200 5/10/97
Jerry and Vickie Moyes(3)................................... 9,713,834 5/2/97(3)
Ronald and Krista Moyes(4).................................. 740,668 6/30/97
Earl H. Scudder............................................. 74,074 6/5/98
Alison Armstrong............................................ 9,259 7/23/98
Christine S. Schroff........................................ 7,407 7/23/98
</TABLE>
- ---------------
(1) Shares are owned by Mr. Morehouse and his wife as joint tenants with rights
of survivorship.
(2) Spouse of Patrick Curry.
(3) Of the shares attributed to Jerry Moyes, 4,905,486 are held by Jerry and
Vickie Moyes as trustees of the Jerry and Vickie Moyes Family Trust and
4,808,348 are held by Gerald F. Ehrlich as trustee of the Moyes' Childrens'
Trust, which shares were purchased by the trust with funds loaned by Mr.
Moyes. Mr. Ehrlich has sole voting and investment power for the childrens'
trust. Jerry Moyes purchased 3,703,704 individually on 5/2/97 and through
the Moyes Investment Limited Partnership, an Arizona limited partnership,
purchased 6,110,130 shares on 6/30/97. On March 31, 1998, 4,905,486 shares
were transferred to the Jerry and Vickie Moyes Family Trust, and 4,808,348
shares were transferred to the Moyes' Childrens' Trust.
(4) Ronald Moyes is the brother of Jerry Moyes.
Effective , 1999, our existing stockholders exchanged their shares
of the Texas corporation on a one-for-one basis for shares of the Nevada
corporation. Shares owned by the Jerry and Vickie Moyes Family Trust and the
Moyes Childrens' Trust received Class B common stock and all other stockholders
received Class A common stock. The transactions comprised a plan of tax-free
transfers to a controlled corporation pursuant to Section 351 of the Internal
Revenue Code of 1986, as amended. There have not been any sales of stock of the
Nevada corporation.
All shares were issued in private offerings, which did not involve the
public offer or sale of securities, in reliance upon the exemption from
registration afforded by Section 4(2) of the Securities Act. No underwriters,
brokers or finders were involved in the above transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(c) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1 -- Form of Underwriting Agreement.*
2.1 -- Exchange Agreement dated , 1999,
among Jerry and Vickie Moyes as trustees of the Jerry and
Vickie Moyes Family Trust, dated December 11, 1987,
Gerald F. Ehrlich as trustee of the Moyes' Childrens'
Trust, dated December 11, 1987, Ronald Moyes and Krista
Moyes, Gina C. Curry, Joe E. Hall, Earl H. Scudder,
Douglas E. Quicksall, Thomas K. Morehouse and Dee Ann
Morehouse, JTWROS, Mark A. Scudder, Alison Armstrong,
Christine S. Schroff, and Central Freight Lines, Inc., a
Nevada corporation.*
2.2 -- Asset Purchase Agreement dated May 13, 1997, between
Central Freight Lines, Inc., a Texas corporation, and
Viking Freight, Inc., a California corporation
3.1 -- Articles of Incorporation.
</TABLE>
II-2
<PAGE> 78
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
3.2 -- Bylaws.
4.1 -- Articles of Incorporation filed as Exhibit 3.1 to this
Registration Statement and incorporated herein by
reference.
4.2 -- Bylaws filed as Exhibit 3.2 to this Registration
Statement and incorporated herein by reference.
5 -- Opinion, including consent of Scudder Law Firm, P.C.,
counsel to Central Freight Lines, Inc., as to the
legality of the securities being registered.*
10.1 -- Central Freight Lines, Inc. 401(k) Savings Plan.*
10.2 -- Incentive Stock Plan.
10.3 -- Exchange Agreement dated , 1999, among Jerry
and Vickie Moyes as trustees of the Jerry and Vickie
Moyes Family Trust, dated December 11, 1987, Gerald F.
Ehrlich as trustee of the Moyes' Childrens' Trust, dated
December 11, 1987, Ronald Moyes and Krista Moyes, Gina C.
Curry, Joe E. Hall, Earl H. Scudder, Douglas E.
Quicksall, Thomas K. Morehouse and Dee Ann Morehouse,
JTWROS, Mark A. Scudder, Alison Armstrong, Christine S.
Schroff, and Central Freight Lines, Inc., a Nevada
corporation, filed as Exhibit 2.1 to this Registration
Statement and incorporated herein by this reference.*
10.4 -- Asset Purchase Agreement dated May 13, 1997, between
Central Freight Lines, Inc., a Texas corporation, and
Viking Freight, Inc., a California corporation, filed as
Exhibit 2.2 to this Registration Statement and
incorporated herein by this reference.
10.5 -- Amended Revolving and Advancing Credit and Security
Agreement dated February 24, 1999, between Central
Freight Lines, Inc., a Texas corporation, and Compass
Bank, a Texas state-chartered banking institution.
10.6 -- Amended and Restated Master Lease Agreement revised as of
April 5, 1999 between Southwest Premier Properties,
L.L.C. and Central Freight Lines, Inc.
10.7 -- Form of Agent Carrier Agreement between Central Freight
Lines, Inc. and its agent carriers.
10.8 -- Interline Division Agreement dated October 2, 1997,
between Central Freight Lines, Inc. and Estes Express
Lines.
10.9 -- Interline Agreement dated June 28, 1997, between Viking
Freight, Inc. and Central Freight Lines, Inc.
10.10 -- Description of Executive Bonus Program.
10.11 -- Employment Agreement dated May 15, 1997, between Central
Freight Lines, Inc. and Joe E. Hall.
10.12 -- Employment Agreement dated May 15, 1997, between Central
Freight Lines, Inc. and Douglas E. Quicksall.
10.13 -- Employment Agreement dated May 15, 1997, between Central
Freight Lines, Inc. and Thomas K. Morehouse.
10.14 -- Employment Agreement dated May 15, 1997, between Central
Freight Lines, Inc. and Patrick J. Curry.
21 -- Subsidiary of the Registrant.
23.1 -- Consent of Scudder Law Firm, P.C. (included in their
opinion filed as Exhibit 5 to this Registration
Statement).*
</TABLE>
II-3
<PAGE> 79
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
23.2 -- Consent of KPMG LLP, independent public accountants.
23.3 -- Consent of Joseph M. Clapp.
24 -- Power of Attorney (included on signature page of this
Registration Statement).
27 -- Financial Data Schedule.**
</TABLE>
- ---------------
* To be filed by amendment.
** Contained in electronically filed version only.
(b) Financial statement schedule
Financial Statement Schedule II -- Valuation and Qualifying Accounts
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
Registrant pursuant to the provisions set forth in Item 14, or otherwise, the
Registrant has been advised that 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 Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
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 Registrant 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 of whether such indemnification by it is against
public policy as expressed in the Act, and the Registrant will be governed by
the final adjudication of such issue.
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
The Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act,
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 Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, 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.
II-4
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Waco, State
of Texas, on May 3, 1999.
CENTRAL FREIGHT LINES, INC.
By: /s/ JOE E. HALL
----------------------------------
Joe E. Hall,
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Jerry Moyes, Joe
E. Hall, and Mark A. Scudder, and each of them, as attorneys-in-fact with full
power of substitution, to execute in their respective names, 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, exhibits thereto and documents
required in connection therewith 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.
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOE E. HALL President, Chief Executive May 3, 1999
- --------------------------------------------------- Officer and Director
Joe E. Hall
/s/ DOUGLAS E. QUICKSALL Senior Vice May 3, 1999
- --------------------------------------------------- President -- Finance, Chief
Douglas E. Quicksall Financial Officer, and
Director
/s/ THOMAS K. MOREHOUSE Senior Vice President -- Sales May 4, 1999
- --------------------------------------------------- and Marketing, and Director
Thomas K. Morehouse
/s/ PATRICK CURRY Senior Vice May 4, 1999
- --------------------------------------------------- President -- Logistics, and
Patrick Curry Director
/s/ JERRY MOYES Director April 27, 1999
- ---------------------------------------------------
Jerry Moyes
/s/ RONALD MOYES Director April 27, 1999
- ---------------------------------------------------
Ronald Moyes
/s/ EARL H. SCUDDER Director May 4, 1999
- ---------------------------------------------------
Earl H. Scudder
</TABLE>
II-5
<PAGE> 81
SCHEDULE II
CENTRAL FREIGHT LINES, INC.
AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT AMOUNTS CHARGED BALANCE AT
BEGINNING OF CHARGED TO TO OTHER END OF
DESCRIPTION PERIOD EXPENSE ACCOUNTS DEDUCTIONS PERIOD
- ----------- ------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Period from April 1, 1997 (inception)
to December 31, 1997
Allowance for doubtful accounts..... $ -- 566 -- (11) 555
Year ended December 31, 1998
Allowance for doubtful accounts..... $ 555 1,397 -- (1,093) 859
</TABLE>
S-1
<PAGE> 82
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1 -- Form of Underwriting Agreement.*
2.1 -- Exchange Agreement dated , 1999,
among Jerry and Vickie Moyes as trustees of the Jerry and
Vickie Moyes Family Trust, dated December 11, 1987,
Gerald F. Ehrlich as trustee of the Moyes' Childrens'
Trust, dated December 11, 1987, Ronald Moyes and Krista
Moyes, Gina C. Curry, Joe E. Hall, Earl H. Scudder,
Douglas E. Quicksall, Thomas K. Morehouse and Dee Ann
Morehouse, JTWROS, Mark A. Scudder, Alison Armstrong,
Christine S. Schroff, and Central Freight Lines, Inc., a
Nevada corporation.*
2.2 -- Asset Purchase Agreement dated May 13, 1997, between
Central Freight Lines, Inc., a Texas corporation, and
Viking Freight, Inc., a California corporation
3.1 -- Articles of Incorporation.
3.2 -- Bylaws.
4.1 -- Articles of Incorporation filed as Exhibit 3.1 to this
Registration Statement and incorporated herein by
reference.
4.2 -- Bylaws filed as Exhibit 3.2 to this Registration
Statement and incorporated herein by reference.
5 -- Opinion, including consent of Scudder Law Firm, P.C.,
counsel to Central Freight Lines, Inc., as to the
legality of the securities being registered.*
10.1 -- Central Freight Lines, Inc. 401(k) Savings Plan.*
10.2 -- Incentive Stock Plan.
10.3 -- Exchange Agreement dated , 1999, among Jerry
and Vickie Moyes as trustees of the Jerry and Vickie
Moyes Family Trust, dated December 11, 1987, Gerald F.
Ehrlich as trustee of the Moyes' Childrens' Trust, dated
December 11, 1987, Ronald Moyes and Krista Moyes, Gina C.
Curry, Joe E. Hall, Earl H. Scudder, Douglas E.
Quicksall, Thomas K. Morehouse and Dee Ann Morehouse,
JTWROS, Mark A. Scudder, Alison Armstrong, Christine S.
Schroff, and Central Freight Lines, Inc., a Nevada
corporation, filed as Exhibit 2.1 to this Registration
Statement and incorporated herein by this reference.*
10.4 -- Asset Purchase Agreement dated May 13, 1997, between
Central Freight Lines, Inc., a Texas corporation, and
Viking Freight, Inc., a California corporation, filed as
Exhibit 2.2 to this Registration Statement and
incorporated herein by this reference.
10.5 -- Amended Revolving and Advancing Credit and Security
Agreement dated February 24, 1999, between Central
Freight Lines, Inc., a Texas corporation, and Compass
Bank, a Texas state-chartered banking institution.
10.6 -- Amended and Restated Master Lease Agreement revised as of
April 5, 1999 between Southwest Premier Properties,
L.L.C. and Central Freight Lines, Inc.
10.7 -- Form of Agent Carrier Agreement between Central Freight
Lines, Inc. and its agent carriers.
10.8 -- Interline Division Agreement dated October 2, 1997,
between Central Freight Lines, Inc. and Estes Express
Lines.
10.9 -- Interline Agreement dated June 28, 1997, between Viking
Freight, Inc. and Central Freight Lines, Inc.
10.10 -- Description of Executive Bonus Program.
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.11 -- Employment Agreement dated May 15, 1997, between Central
Freight Lines, Inc. and Joe E. Hall.
10.12 -- Employment Agreement dated May 15, 1997, between Central
Freight Lines, Inc. and Douglas E. Quicksall.
10.13 -- Employment Agreement dated May 15, 1997, between Central
Freight Lines, Inc. and Thomas K. Morehouse.
10.14 -- Employment Agreement dated May 15, 1997, between Central
Freight Lines, Inc. and Patrick J. Curry.
21 -- Subsidiary of the Registrant.
23.1 -- Consent of Scudder Law Firm, P.C. (included in their
opinion filed as Exhibit 5 to this Registration
Statement).*
23.2 -- Consent of KPMG LLP, independent public accountants.
23.3 -- Consent of Joseph M. Clapp.
24 -- Power of Attorney (included on signature page of this
Registration Statement).
27 -- Financial Data Schedule.**
</TABLE>
- ---------------
* To be filed by amendment.
** Contained in electronically filed version only.
<PAGE> 1
EXHIBIT 2.2
================================================================================
ASSET PURCHASE AGREEMENT
Between
CENTRAL FREIGHT LINES, INC.
and
VIKING FREIGHT, INC.
Dated as of May 13, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions........................................................ 2
2. Sale and Purchase of Assets........................................ 2
2.1 Assets to be Sold............................................. 2
2.1.1 Owned Real Property.................................... 2
2.1.2 Leased Real Property................................... 3
2.1.3 Owned Revenue Equipment and Certain
Non-Revenue Equipment.............................. 4
2.1.4 Inventory.............................................. 5
2.1.5 Owned Tangible Personal Property....................... 5
2.1.6 Leased Tangible Personal Property...................... 5
2.1.7 Assumed Contracts...................................... 5
2.1.8 Licenses, Permits and Approvals........................ 6
2.1.9 Records................................................ 7
2.1.10 Rights to the Central Name............................. 7
2.1.11 Environmental Refunds.................................. 7
2.2 Excluded Assets............................................... 8
2.2.1 Cash................................................... 8
2.2.2 Accounts Receivable..................................... 8
2.2.3 Assets of Other Division............................... 8
2.2.4 Insurance Policies..................................... 8
2.2.5 Excluded Corporate Records............................. 8
2.2.6 Tax Claims............................................. 9
2.2.7 Excluded Contracts..................................... 9
2.2.8 Other Assets........................................... 9
2.3 Nonassigned Interests and Rights.............................. 9
3. Assumption of Liabilities.......................................... 10
3.1 Assumed Liabilities........................................... 10
3.1.1 Contract Liabilities................................... 10
3.1.2 Industrial Revenue Bonds............................... 10
3.1.3 Retiree Medical Obligations............................ 10
3.1.4 Assumed Environmental Liabilities...................... 11
3.1.5 Accrued Vacation....................................... 12
3.1.6 Other Liabilities...................................... 12
3.2 Excluded Liabilities.......................................... 12
3.3 Indemnification............................................... 12
4. Closing; Consideration............................................. 13
4.1 Place and Time of Closing..................................... 13
4.2 Consideration................................................. 14
4.3 Allocation of Consideration................................... 16
4.4 Post Closing Inventory Adjustment............................. 16
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
5. Representations and Warranties of Seller............................... 18
5.1 Organization, Power and Authority................................. 18
5.2 [INTENTIONALLY LEFT BLANK]........................................ 18
5.3 Authorization and Effect of Agreement............................. 18
5.4 No Breach......................................................... 19
5.5 Approval of Transactions.......................................... 19
5.6 Orders and Actions................................................ 19
5.7 Compliance with Laws.............................................. 20
5.8 Title to Real Property............................................ 20
5.9 Title to Personal Property........................................ 20
5.10 Personal Property Leases and Assumed Contracts.................... 21
5.11 Permits........................................................... 21
5.12 Environmental Matters............................................. 21
5.13 Disclaimer........................................................ 22
5.14 Brokerage......................................................... 23
6. Representations and Warranties of Buyer................................ 23
6.1 Organization, Power and Authority................................. 23
6.2 Legal and Authorized Transactions................................. 23
6.3 No Breach......................................................... 24
6.4 Consents and Approvals............................................ 24
6.5 Orders and Actions................................................ 25
6.6 No Reliance....................................................... 25
6.7 Brokerage......................................................... 25
6.8 Seller's Representations and Warranties........................... 26
7. Employees; Employee Pension and Welfare Plans.......................... 26
7.1 Employment; Medical Benefits...................................... 26
7.2 Employee Pension Plans and Benefits............................... 26
7.3 Employee Welfare Plans, Worker's Compensation..................... 29
7.4 WARN and Severance Pay............................................ 30
8. Pre-Closing Covenants and Agreements................................... 31
8.1 Reasonable Access................................................. 31
8.2 HSR Act........................................................... 32
8.3 Transition Services Agreement..................................... 32
8.4 Guaranties........................................................ 33
9. Conditions to Obligations of Buyer and Seller.......................... 33
9.1 Conditions to Obligations of Buyer................................ 33
9.1.1 Accuracy of Representations and Warranties................. 33
9.1.2 Performance of Covenants and Agreements.................... 34
9.1.3 Receipt of Documents....................................... 34
9.1.4 No Actions................................................. 35
9.1.5 HSR Act.................................................... 36
9.2 Conditions to Obligations of Seller............................... 36
9.2.1 Accuracy of Representations and Warranties................. 36
9.2.2 Performance of Covenants and Agreements.................... 36
9.2.3 Receipt of Documents....................................... 36
9.2.4 No Actions................................................. 37
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
9.2.5 HSR Act; Governmental Action.................................... 38
10. Other Covenants and Agreements......................................... 38
10.1 Access to Financial books and Records
and Tax Returns................................................ 38
10.2 Delivery of Property after Closing;
Accounts Receivable............................................ 42
10.3 Cooperation...................................................... 43
10.4 Freight Claims................................................... 43
10.5 Confidentiality.................................................. 43
11. Termination............................................................ 43
11.1 Termination...................................................... 43
11.2 Effects of Termination........................................... 46
12. Miscellaneous.......................................................... 46
12.1 Survival of Representations and Warranties
and Covenants................................................. 46
12.2 Assignment; Successors and Assigns............................... 46
12.3 Notices.......................................................... 47
12.4 Waiver; Remedies................................................. 48
12.5 No Recourse Against Others....................................... 48
12.6 Amendment........................................................ 48
12.7 Further Assurances............................................... 48
12.8 Counterparts..................................................... 49
12.9 Governing Law; Jurisdiction; Language.............................49
12.10 Bulk Sales Laws.................................................. 50
12.11 Schedules........................................................ 50
12.12 Passage of Title and Risk of Loss................................ 50
12.13 Apportionment of Taxes, Charges and Payments..................... 50
12.14 Transfer Taxes................................................... 51
12.15 Expenses of Sale................................................. 52
12.16 Communications................................................... 52
12.17 Freight in Transit............................................... 53
12.18 Captions......................................................... 53
12.19 Rights of Third Parties.......................................... 53
</TABLE>
APPENDICES
Appendix A - Defined Terms
SCHEDULES
Schedule 2.1.1 - Owned Real Property
Schedule 2.1.2 - Leased Real Property
Schedule 2.1.3(i) - Owned Revenue Equipment
Schedule 2.1.3(iii) - Owned Revenue Equipment
Schedule 2.1.3(iv) - Owned Revenue Equipment
Schedule 2.1.3(v) - Non-Revenue Equipment
Schedule 2.1.3(vi) - Out of Service Revenue Equipment
Schedule 2.1.5 - Description of the Equipment not Owned by Seller
Schedule 2.1.6 - Leased Tangible Property
Schedule 2.1.7 - Assumed Contracts
iii
<PAGE> 5
Schedule 2.1.7(ii) - Leased Managers Schedule 2.2.8 - Excluded Equipment
Schedule 3.1.2 - Industrial Revenue Bonds
Schedule 3.1.3 - Retiree Medical Obligations
Schedule 4.2(b) - Escrow Agreement
Schedule 5.5 - Required Governmental Consents
Schedule 5.6 - Orders and Actions
Schedule 5.8(a) - Real Property Permitted Liens
Schedule 5.9 - Personal Property Permitted Liens
Schedule 5.12 - Environmental Matters
Schedule 6.4 - Required Governmental Consents
Schedule 7.1 - Other Employees
Schedule 7.4.2 - Severance Plans
Schedule 8.3 - Transition Services Agreement
Schedule 8.4 - Guaranty
Schedule 9.1.3(e) - Viking License Agreement
Schedule 9.1.3(g) - Central License Agreement
Schedule 9.1.5 - Consents
Schedule 10.5 - Confidentiality
Schedule 12.14 - Type of Property Subject to Sales Tax
Schedule 12.16 - Communication Policy
Schedule 12.17(a) - Freight in Transit
Schedule 12.17(b) - Actions by Buyer with Respect to Freight in
Transit
iv
<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of May 13,
1997 between Central Freight Lines, Inc., a newly formed Texas corporation
("Buyer") and Viking Freight, Inc., a California corporation ("Seller").
RECITALS
A. Seller, a wholly-owned subsidiary of Caliber System, Inc., an Ohio
corporation ("Caliber"), has operated a division referred to as the "Viking
Southwestern Division" that engages in less-than-truckload freight service to
customers primarily in the states of Texas, Arkansas, Kansas, Louisiana,
Mississippi, Missouri, New Mexico and Oklahoma (formerly the business of
Seller's former subsidiary, Central Freight Lines Inc.) (such division to be
referred to herein as the "Business"); and
B. Seller desires to sell and transfer to Buyer, and Buyer desires to
purchase and assume from Seller, certain of Seller's assets, liabilities and
obligations related to the Business upon the terms and subject to the conditions
contained in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and undertakings set forth in this
Agreement, and subject to the terms and conditions set forth in this Agreement,
the parties hereto hereby agree as follows:
1
<PAGE> 7
1. Definitions. As used in this Agreement, all capitalized terms shall
have the meanings set forth in Appendix A, unless the context otherwise
requires.
2. Sale and Purchase of Assets.
2.1 Assets to be Sold. Upon the terms and subject to the conditions
of this Agreement, Seller shall sell, transfer, assign, convey and deliver, or
cause to be sold, transferred, assigned, conveyed and delivered, to Buyer, and
Buyer shall purchase and acquire from Seller, at the Closing, all of Seller's
right, title and interest in and to the following assets as such assets may
exist on the Closing Date (collectively, the "Acquired Assets"): 2.1.1 Owned
Real Property. The real property owned by Seller and listed on Schedule 2.1.1 to
this Agreement, together with (i) all buildings, fixtures, structures, parking
areas, landscaping, facilities and other improvements currently constructed and
located thereon, if any, as well as any additions or replacements of same
occurring prior to the Closing and (ii) all transferable licenses, rights,
privileges, easements and appurtenances pertaining to (i) above (the "Owned Real
Property").
2.1.2 Leased Real Property. Subject to Section 2.3, all rights and
incidents of interest of Seller in and to the real property leased by Seller
(the "Leased Real Property") pursuant to the leases set forth on Schedule 2.1.2
(the "Real Property Leases").
2
<PAGE> 8
2.1.3 Owned Revenue Equipment and Certain Non-Revenue Equipment.
The following revenue equipment and non-revenue equipment or their reasonable
equivalent owned by Seller and used exclusively in the Business:
(i) 1,296 tractors (including 483 linehaul tractors) from
the tractors listed on Schedule 2.1.3(i) which may
contain more than 1,296 tractors; provided, however,
Seller shall sell to Buyer 483 linehaul tractors
whether or not such linehaul tractors are listed on
Schedule 2.1.3(i) and provided further Seller's
obligation under this Section 2.1.3(i) is only to
deliver (A) 1,296 tractors (which shall included 483
linehaul tractors) plus (B) such other tractors listed
on Schedule 2.1.3 as are located by Seller or Buyer in
accordance with Section 2.1.3(ii) notwithstanding that
Schedule 2.1.3 may contain tractors in excess of 813
non-linehaul tractors ("Excess Tractors").
(ii) If the Excess Tractors are used by the Business as of
the date hereof and can be located at Closing by Seller
or Buyer, Seller will deliver such Excess Tractors to
Buyer so as to bring the total owned tractors
(including the tractors to be delivered pursuant to
3
<PAGE> 9
Section 2.1.3(i)) to a maximum of 1,446. In attempting
to locate the Excess Tractors, Seller will cooperate
with Buyer and use reasonable, good faith efforts to
locate the Excess Tractors, but if any Excess Tractors
cannot be located by Seller in its possession, Seller
shall have no obligation to Buyer with respect to such
Excess Tractors. Notwithstanding anything contained
elsewhere in this Agreement, Seller shall have no risk
of loss with respect to the Excess Tractors;
(iii) 4,892 trailers listed on Schedule 2.1.3(iii);
(iv) 773 units of other revenue equipment listed on Schedule
2.1.3(iv);
(v) 640 units of non-revenue equipment (including cars)
listed on Schedule 2.1.3(v); and
(vi) 65 out of service units of revenue equipment listed on
Schedule 2.1.3(vi).
2.1.4 Inventory. Inventories of parts, tires and supplies and fuel
and oil inventories located on the Real Property (together "Inventory") on the
Closing Date.
4
<PAGE> 10
2.1.5 Owned Tangible Personal Property. The tangible personal
property owned by Seller (other than of the nature described in Sections 2.1.1,
2.1.3, 2.1.4 and 2.2.8) located on the Real Property and used exclusively in the
Business on the date hereof with such changes as may occur in the ordinary
course of the Business between the date hereof and the Closing Date (the "Owned
Personal Property"). Schedule 2.1.5 contains a description of certain of the
equipment not owned or leased by Seller which may be located on the Real
Property and is not being sold or transferred to Buyer.
2.1.6 Leased Tangible Personal Property. Subject to Section 2.3, all
rights and incidents of interest of Seller in and to the leases relating to
tangible personal property (including, but not limited to, 143 leased tractors)
leased by Seller and used exclusively in the Business (the "Leased Personal
Property"), including without limitation those leases listed on Schedule 2.1.6
as such exist by their terms on the Closing Date and any leases of personal
property used exclusively in the Business entered into by Seller between the
date hereof and Closing (the "Personal Property Leases" and, together with the
Real Property Leases, the "Leases").
2.1.7 Assumed Contracts. Subject to Section 2.3, all rights and
incidents of interest of, and benefits accruing to, Seller in and to all
contracts, leases, agreements, licenses, sales and purchase orders, and other
agreements and commitments other than the Leases (collectively, the "Contracts")
to which Seller is a party that relate exclusively to the Business consisting of
the Contracts listed on Schedule 2.1.7 in existence
5
<PAGE> 11
on the Closing Date and any other Contracts related exclusively to the Business
consisting of:
(i) any contract entered into in the ordinary course of Business
between the date hereof and the Closing Date;
(ii) any contract entered into by an employee of the Business
that reported directly or indirectly to any person listed on
Schedule 2.1.7(ii) ("Listed Managers");
(iii) any contract terminable on thirty days or less notice; or
(iv) any contract entered into in the ordinary course of the
Business with remaining obligation of Seller of $10,000 or
less or where the bargained for consideration from the other
party to the contract will accrue to Buyer.
Together with the Leases all contracts described in this Section 2.1.7 shall be
collectively referred to as the "Assumed Contracts".
2.1.8 Licenses, Permits and Approvals. Subject to Section 2.3, all
transferable licenses, permits, vehicle registrations with respect to vehicles
constituting part of the Acquired Assets, authorizations, approvals,
qualifications or similar documents or authority that are issued or granted by
any Governmental Body to Seller and related exclusively to the Business to the
extent still in effect and transferable on the Closing Date (collectively, the
"Permits"). Seller shall have no
6
<PAGE> 12
obligations to Buyer with respect to any Permits that are not transferable to
Buyer. Buyer shall be entitled to any refunds available to it or Seller with
respect to nontransferable vehicle registrations with respect to registrations
of vehicles constituting part of the Acquired Assets.
2.1.9 Records. Except as otherwise provided in Section 2.2.5 and
subject to Section 10.1 which shall govern Seller's obligations with respect to
Business Financial Books and Records, all documents, records, files, phone and
fax numbers and reports of Seller on the Closing Date that relate exclusively to
the Business or the Acquired Assets; provided, however, that Seller shall have
the right to retain copies of such documents and records.
2.1.10 Rights to the Central Name. All of Seller's right, title and
interest to (i) the name "Central Freight Lines Inc." and any name which uses
the words Central Freight and (ii) the service marks "Central Freight Lines Inc.
- - Delivering Results" and "Central Freight Lines Inc. - Loaded with Pride."
2.1.11 Environmental Refunds. All refunds and claims related thereto
from the Texas Natural Resource Conservation Commission with respect to
environmental expenditures paid by Seller relating exclusively to the Owned Real
Property and the Leased Real Property transferred to Buyer pursuant to Sections
2.1.1 and 2.1.2, relating to contamination from underground storage tanks.
7
<PAGE> 13
2.2 Excluded Assets. Notwithstanding anything to the contrary
contained in this Agreement, Seller shall retain and not transfer, and Buyer
shall not purchase or acquire, any assets (the "Excluded Assets") of Seller that
are not Acquired Assets, including but not limited to the following:
2.2.1 Cash. All of Seller's cash on hand or on deposit in banks,
checks in transit, certificates of deposits, time deposits and securities.
2.2.2 Accounts Receivable. All of Seller's accounts receivable as of
the Closing Date arising out of the conduct of the Business and all revenues
from accounts receivable generated from shipments in transit of the Business on
the Closing Date.
2.2.3 Assets of Other Divisions. All rights, properties and assets
of Seller related to or used in Seller's other divisions.
2.2.4 Insurance Policies. All of Seller's rights to any insurance
and under any insurance policies related to or used in the Business.
2.2.5 Excluded Corporate Records. The corporate minute books and
related corporate records, stock books and ledgers, corporate seals and tax
records and returns of Seller, personnel records and all records relating to the
Excluded Assets.
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2.2.6 Tax Claims. All claims of Seller for refunds or credits with
respect to any Federal, state, municipal, local or real estate taxes of any kind
("Taxes").
2.2.7 Excluded Contracts. All contracts of Seller that do not relate
exclusively to the Business.
2.2.8 Other Assets. Other assets of Seller described on Schedule
2.2.8.
2.3 Nonassigned Interests and Rights.
(a) Notwithstanding any provision to the contrary, to the extent
that any Contract or Permit included in the Acquired Assets ("Nonassigned
Assets") is not capable of being validly assigned, transferred, conveyed,
subleased or reissued to Buyer ("Assignment") without the consent, approval,
authorization, waiver or notification (individually, a "Consent") of a
Governmental Body or other Person, or that any such Assignment or attempted
Assignment without such Consent would constitute a breach of such Contract or
Permit or a violation of any Law, this Agreement shall not constitute an
Assignment thereof, and Seller shall not be obligated to make an Assignment
thereof without first having obtained all Consents; provided, however, this
Section 2.3(a) shall not apply to the Industrial Revenue Bonds which shall be
assigned notwithstanding that prior consents, approvals, authorizations and
modifications to assignments have not been received as of the Closing Date.
(b) Promptly after the date of this Agreement and for a period of
six months following Closing, Seller shall use reasonable efforts, and Buyer
shall cooperate with Seller, to obtain all Consents that are necessary for the
valid Assignment
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of all Nonassigned Assets. Seller's reasonable effort shall not include (i) the
payment of any fees related to an Assignment or (ii) the guarantee by Seller of
any performance of Buyer under any Contract or Permit included in the Acquired
Assets.
3. Assumption of Liabilities
3.1 Assumed Liabilities. Upon the terms and subject to the
conditions of this Agreement, Buyer shall assume on the Closing Date effective
as of the Effective Date and thereafter shall promptly pay, perform and fully
satisfy when due, all of the following liabilities and obligations (which
together with the obligations of Buyer pursuant to Sections 7, 12.13, 12.14 and
12.15 constitute the "Assumed Liabilities"):
3.1.1 Contract Liabilities. All liabilities and obligations of
Seller from and after the Effective Date arising under the Assumed Contracts,
the Leases and the Permits.
3.1.2 Industrial Revenue Bonds. All liabilities and obligations of
Seller arising from and after the Effective Date under the industrial revenue
bonds relating to the Business and listed on Schedule 3.1.2 (the "Industrial
Revenue Bonds") whether or not any necessary consents, approvals, authorizations
and modifications of such Industrial Revenue Bonds have been obtained prior to
Closing.
3.1.3 Retiree Medical Obligations. All liabilities and obligations
of Seller and Caliber from and after the Effective Date under Seller's and
Caliber's plans and policies and benefits identified or listed on Schedule 3.1.3
providing post-employment medical, dental, vision, prescription drugs and
similar benefits to those present and former employees
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of Seller related to the Business and the former employees of the predecessors
of the Business as of the Effective Date. Buyer shall become the plan sponsor of
the Central Freight Lines Inc. Employees Security Plan listed on Schedule 3.1.3
and Seller and Caliber shall withdraw as plan sponsor effective the Effective
Date. Seller and Caliber shall amend the Caliber System, Inc. Medical, Dental
and Vision Care Plan to cease eligibility for Employees of the Business after
the Effective Date. Nothing herein shall preclude Buyer's right to so amend,
modify or terminate the Central Freight Lines Inc. Employee Security Plan;
provided, however, Buyer shall indemnify and hold Seller and Caliber harmless
against all liabilities and obligations of Seller and Caliber resulting from any
such amendment, modification or termination.
3.1.4 Assumed Environmental Liabilities. All liabilities and
obligations of Seller resulting from the generation, storage, transportation,
treatment, recycling, reuse, reclamation, release or threatened release,
disposal or use or handling in any way of any substances, pollutant, contaminant
or waste classified as hazardous or toxic under any Environmental Laws as such
Environmental Laws may exist at any time or any other applicable Laws or any
other waste materials in connection with the conduct of the Business at or from
the Real Property or the use, operation, ownership or possession of the Acquired
Assets by Seller prior to the Closing Date.
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3.1.5 Accrued Vacation. All liabilities and obligations of
Seller as of the Closing Date to Employees (as defined in Section 7.1) for
vacation pay with respect to past service.
3.1.6 Other Liabilities. (a) Buyer shall assume any obligation
of Seller authorized by an employee of the Business prior to the Closing Date
who reported directly or indirectly to any of the Listed Managers.
(b) Buyer shall assume liability for compliance with all
obligations under the Permits transferred to Buyer.
3.2 Excluded Liabilities. Notwithstanding anything to the contrary
contained in this Agreement, Buyer shall have no responsibility for and shall
not assume or be liable for any liabilities or obligations other than the
Assumed Liabilities (the "Excluded Liabilities").
3.3 Indemnification. (a) From and after the Closing Date, Buyer
shall indemnify Seller and its Affiliates and hold them harmless from and
against and in respect of any and all damages, claims, losses, expenses,
obligations, and liabilities, including, without limitation, reasonable
attorneys' fees (collectively, "Losses"), claimed or assessed against Seller or
its Affiliates as to which any of them may become subject in connection with the
operation of the Business by Buyer after the Effective Date or the Assumed
Liabilities.
(b) From and after the Closing Date, Seller shall indemnify Buyer
and its Affiliates and hold them harmless from and against any and all Losses
claimed or assessed against any of them with respect to the Excluded
Liabilities.
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4. Closing; Consideration.
4.1 Place and Time of Closing.
(a) The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Jones, Day, Reavis & Pogue,
North Point, 901 Lakeside Avenue, Cleveland, Ohio 44114 at 9:30 a.m. (EDT) on
June 30, 1997. The effective date of the Closing and all transactions,
transfers, assumptions of liability and other actions provided for hereunder
shall be 12:01 a.m., June 29, 1997 ("Effective Date") unless extended or changed
as set forth herein. The Closing may be extended pursuant to Sections 4.1(b),
9.1.4 or 9.2.4, accelerated pursuant to 11.1.4 or may take place at such other
place or at such other time as the parties may agree in writing (June 30, 1997
or such other date and time being referred to in this Agreement as the "Closing
Date"). If the Closing Date is so extended or accelerated to a date other than
June 30, 1997, the date to which the Closing Date is extended or accelerated
also shall be the "Effective Date").
(b) In the event Buyer shall not have completed Phase I as described
in the Transition Services Agreement by June 30, 1997; Buyer will have the
option to extend the Closing Date to July 31, 1997 by written notice received by
Seller by June 22, 1997 of Buyer's exercise of its option accompanied by Buyer's
cashier check or wire transfer payable to Seller in the amount of Four Million
Dollars (U.S.$4,000,000) ("Option Price"); provided, however, payment of the
Option Price shall not be required in the event the failure to complete Phase I
is caused directly by a material breach by Seller of its obligations with
respect to
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Phase I as defined in the Transition Services Agreement. The Option Price shall
not constitute part of the Purchase Price but shall be in addition thereto.
4.2 Consideration.
(a) In consideration of the sale, assignment, transfer, conveyance
and delivery of the Acquired Assets by Seller to Buyer and the other
undertakings of Seller in this Agreement, Buyer shall (a) pay to Seller at the
Closing the amount of Forty-three Million Dollars (U.S.$43,000,000) (the
"Purchase Price"), including the Deposit pursuant to Section 4.2(b)(i)(A), by
wire transfer of immediately available funds to an account designated in writing
by Seller and (b) assume the Assumed Liabilities as of the Closing Date as
provided in Section 3.
(b) Upon execution of this Agreement, Buyer shall pay to Seller a
deposit ("Deposit") in the amount of Five Million Dollars (U.S.$5,000,000) which
shall be deposited in an escrow account pursuant to the terms of the Escrow
Agreement attached hereto as Schedule 4.2(b) as executed this date by Buyer and
Seller.
(i) The Deposit shall be paid in full to Seller by the Escrow Agent:
(A) at Closing and the Deposit and any Escrow Funds Interest (as
defined in the Escrow Agreement) shall constitute partial
payment of the Purchase Price; or
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(B) if the Closing does not occur on the Closing Date
established pursuant to Section 4.1(a), 4.1(b), 9.1.4, 9.2.4
or 11.1.4, whichever Section may be applicable, unless Buyer
shall have exercised by written notice to Seller one of the
conditions to the obligations of Buyer contained in Section
9.1 of the Agreement or Seller shall be in material breach
of its obligations with respect to Phase I under the
Transition Services Agreement.
(ii) A portion of the Deposit shall be paid to Seller by the Escrow
Agent equal to the amount to be paid to Seller pursuant to the
terms of Section 11.1.3 of this Agreement in the event Buyer
delivers to Seller Buyers's MAC Notice pursuant to Section
11.1.3 and the Closing does not occur.
(iii) The Deposit shall be paid in full to Buyer by the Escrow
Agent:
(A) if the Closing does not occur pursuant to the terms of this
Agreement because Buyer shall have exercised by written
notice to Seller one of the conditions to the obligations of
Buyer contained in Section 9.1 of this Agreement or Seller
shall be in material breach of its
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obligations with respect to Phase I under the Transition
Services Agreement.
(B) in the event Seller delivers to Buyer Seller's MAC notice
pursuant to Section 11.1.4 of this Agreement and the Closing
does not occur.
(iv) The portion of the Deposit not payable to the Seller pursuant
to Section 4.2(b)(ii) shall be paid to Buyer pursuant to the
terms of Section 11.1.3 of this Agreement in the event Buyer
delivers to Seller Buyer's MAC Notice pursuant to Section
11.1.3.
4.3 Allocation of Consideration. Seller and Buyer shall allocate
the consideration paid or given by Buyer to Seller among the Acquired Assets in
accordance with the values therefor determined jointly by Seller and Buyer at or
prior to the Closing, and Seller and Buyer shall reflect such allocation in all
returns, reports and documents filed with the Internal Revenue Service or any
other Governmental Body.
4.4 Post Closing Inventory Adjustment.
(a) As of the Closing Date, Buyer, with a representative(s) of
Seller present at Seller's option, will take an inventory, at Buyer's sole
expense, of parts, tires, and miscellaneous supplies and fuel and oil
inventories valued consistently with Seller's past practice ("Closing Date
Inventory"). To the extent the Closing Date Inventory is more than $1,778,000,
Buyer shall pay the difference to Seller; if the Closing Date Inventory is less
than $1,778,000, Seller shall pay
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the Buyer the difference. Payments shall be made by cashier's check within five
(5) business days of receipt of the Final Closing Date Inventory Statement as
defined below.
(b) Within ten (10) days after the Closing Date, Buyer shall
prepare and deliver to Seller a Statement of Closing Date Inventory detailing
the value of items of Inventory by location. If Seller does not deliver written
notice of any objections to the Statement of Closing Date Inventory within ten
(10) days of receipt, the Statement of Closing Date Inventory shall become the
Final Closing Date Inventory Statement. Within ten (10) days following receipt
of the Statement of Closing Date Inventory, Seller shall deliver written notice
to Buyer of any objections thereto, and Buyer and Seller will attempt in good
faith to reach an agreement as to any matters in dispute. If Buyer and Seller,
notwithstanding such good faith effort, fail to resolve any matters in dispute
within five (5) days after Seller advises Buyer of its objections, then any
remaining disputed matters will be finally and conclusively determined by an
independent auditing firm of recognized national standing (the "Arbiter")
selected by Buyer and Seller, which will not be the regular auditing firm of
Buyer or Seller. Promptly, after its acceptance of its appointment, the Arbiter
will determine (based solely on presentations by Seller and Buyer to the Arbiter
and the terms of this Section 4.4 and not by independent review) only those
issues in dispute and will render a report as to the disputes and the resulting
calculation of the Final Closing Date Inventory Statement, which report will be
conclusive and binding upon the parties. In resolving any disputed item, the
Arbiter may not
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assign a value to any particular item greater than the greatest value for such
item claimed by either party or less than the lowest value for such item claimed
by either party, in each case as presented to the Arbiter. All fees and expenses
of the Arbiter will be paid by Buyer.
5. Representations and Warranties of Seller. Seller represents
and warrants to Buyer as follows:
5.1 Organization, Power and Authority. Seller is a corporation
duly organized and validly existing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to carry on its business
as now being conducted, except where the failure to have such power or authority
would not, in the aggregate, have a material adverse effect on the value or use
of the Acquired Assets. Seller is qualified or otherwise authorized to transact
business as a foreign corporation in each jurisdiction in which the nature of
its business or location of its properties requires such qualification or
authorization, except in such jurisdictions where the failure to be so qualified
or authorized would not, in the aggregate, have a material adverse effect on the
value or use of the Acquired Assets by Buyer.
5.2 [INTENTIONALLY LEFT BLANK.]
5.3 Authorization and Effect of Agreement. Seller has the
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations under this Agreement. The execution and delivery
by Seller of this Agreement and the performance by Seller of its obligations
under this Agreement have been duly authorized by all necessary
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corporate action on the part of Seller. This Agreement has been duly executed
and delivered by Seller and, assuming the due execution and delivery of this
Agreement by Buyer, constitutes a valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms.
5.4 No Breach. Neither the execution and delivery of this
Agreement by Seller, nor the performance of its obligations under this
Agreement, will (i) violate any provision of the Charter Documents of Seller
(ii) violate any Order against, or binding upon, Seller with respect to the
Acquired Assets or (iii) constitute a violation by Seller of any applicable
material Law.
5.5 Approval of Transactions. Except as set forth on Schedule
5.5, to the knowledge of Seller, no consent, approval, authorization, license,
permit or other action by, or filing with, any Governmental Body is required
with respect to the actions of Seller in connection with the execution and
delivery of this Agreement by Seller or the performance by Seller of its
obligations under this Agreement.
5.6 Orders and Actions. Except as set forth on Schedule 5.6,
there are no (i) outstanding Orders against Seller or (ii) Actions pending or,
to the knowledge of Seller, threatened against Seller, which are reasonably
likely to have a material adverse effect on the value or use of the Acquired
Assets, as a whole, or impair the ability of Seller to perform its obligations
under this Agreement.
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5.7 Compliance with Laws. To the knowledge of Seller, Seller is
in material compliance with all applicable Orders and Laws, except for the
Environmental Laws which are the subject of Section 5.12.
5.8 Title to Real Property. (a) Title to the Owned Real Property
is free from any Liens except for (i) Liens for current taxes not yet due and
payable, (ii) any other Liens for which Seller undertakes to remain liable after
the Closing, which Liens shall be treated as Excluded Liabilities, (iii)
mechanics', carriers', workers', construction and other similar Liens arising or
incurred in the ordinary course of business of the Business consistent with past
practice which shall be treated as Excluded Liabilities and (iv) Liens set forth
on Schedule 5.8(a) (the "Real Property Permitted Liens").
(b) The Real Property Leases are valid and binding agreements of
Seller and there are no material defaults by Seller or, to the knowledge of
Seller, the lessor under the Real Property Leases. All rent and other charges
due and payable by Seller under the Real Property Leases have been or will be
paid in full for all periods through and including the Closing Date.
5.9 Title to Personal Property. (a) Seller owns the Owned
Personal Property free from any Liens except for (i) Liens for current taxes not
yet due and payable, (ii) any other Liens for which Seller undertakes to remain
liable after the Closing, which Liens shall be treated as Excluded Liabilities,
(iii) mechanics', carriers', workers', construction and other similar Liens
arising or incurred in the ordinary course of
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business of the Business consistent with past practice which shall be treated as
Excluded Liabilities and (iv) Liens set forth on Schedule 5.9 (the "Personal
Property Permitted Liens" and, together with the Real Property Permitted Liens,
the "Permitted Liens").
5.10 Personal Property Leases and Assumed Contracts. Each of the
Personal Property Leases and Assumed Contracts is a valid and binding agreement
of Seller and there are no material defaults by Seller or, to the knowledge of
Seller, the lessor or other party under any such Personal Property Lease or
Assumed Contract. All rent and other amounts and charges due and payable by
Seller under each of the Personal Property Leases and Assumed Contracts has been
or will be paid for all periods through and including the Closing Date.
5.11 Permits. To the knowledge of Seller, Seller is in
substantial compliance with the terms of all material Permits, except where such
non-compliance would not have a material adverse effect on Buyer's ability to
operate the Business in a manner substantially similar to the operation of the
Business by Seller. This representation excludes the matters covered by Section
5.12.
5.12 Environmental Matters. As of the date of this Agreement,
except as set forth in Schedule 5.12, to the knowledge of Seller, Seller
possesses, and is in substantial compliance with, all material permits, licenses
and government authorizations required for the conduct of its business under
Federal, state and local laws and regulations relating to pollution and the
discharge of materials into the environment
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("Environmental Laws"), and, to the knowledge of Seller, Seller is otherwise in
compliance with all applicable Environmental Laws, except where the failure to
be in compliance would not have a material adverse effect on the value of, or
use of, the Acquired Assets, as a whole. As of the date of this Agreement,
except as set forth in Schedule 5.12, to Seller's knowledge, Seller has not
received any written notices from any Governmental Body that the operations of
the Business violate any applicable Environmental Laws. For the purposes of this
Section 5.12, the term "knowledge of Seller" shall mean the knowledge of Mr.
Kerry Hill and Mr. Jerry Swart, Caliber's Director of Environmental Services.
For purposes of this Section 5.12, Seller shall be deemed to have disclosed all
matters known to the Listed Managers. Buyer agrees that it will have no right to
assert any inaccuracy of this Section 5.12 based on any investigation or studies
by or on behalf of Buyer between the date hereof and the Closing Date except for
those inaccuracies based on written evidence in existence on the date of this
Agreement.
5.13 Disclaimer. THE ACQUIRED ASSETS ARE FURNISHED TO BUYER AS
IS, WHERE IS, AND, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT,
SELLER DISCLAIMS ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. Buyer agrees that it will have no right to assert any
inaccuracy of this Section 5.12 based on any investigation or studies by or on
behalf of Buyer between the date hereof and the Closing Date except for those
inaccuracies
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based on written evidence in existence on the date of this Agreement.
5.14 Brokerage. Except for the compensation payable to Goldman
Sachs & Co. in connection with the transactions contemplated by this Agreement,
which shall be paid by Seller or an Affiliate of Seller, no broker, finder or
similar agent has been employed by or on behalf of Seller.
6. Representations and Warranties of Buyer. Buyer represents
and warrants to Seller as follows:
6.1 Organization, Power and Authority. Buyer is a corporation
duly organized and validly existing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to carry on its business
as now being conducted, except where the failure to have such power or authority
would not, in the aggregate, have a material adverse effect on the results of
operations and financial condition of Buyer and Buyer's ability to perform its
obligations under this Agreement. Buyer has the requisite corporate power and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement. The copies of the Charter Documents of Buyer that have
been delivered to Seller by Buyer are correct and complete copies thereof.
6.2 Legal and Authorized Transactions. The execution and delivery
by Buyer of this Agreement and the performance of its obligations under this
Agreement have been duly authorized by all necessary corporate action on the
part of Buyer. This Agreement has been duly executed and delivered by Buyer and,
assuming the due execution and delivery of this
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Agreement by Seller, constitutes the valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms.
6.3 No Breach. Neither the execution and delivery of this
Agreement by Buyer, nor the performance of its obligations under this Agreement,
will (i) violate any provision of the Charter Documents of Buyer, (ii) conflict
with or result in a material breach of, or otherwise give any other contracting
party the right to terminate, or constitute a material default under the terms
of, any material agreement to which Buyer is a party or by which Buyer or any of
its properties or assets is bound or subject, (iii) violate any Order against,
or binding upon, Buyer or any of the properties or assets of Buyer, or (iv)
constitute a violation by Buyer of any applicable Law; except, as to clauses
(ii) through (iv), where such violations, breaches, defaults, terminations or
rights of termination are not, in the aggregate, reasonably likely to have a
material adverse effect on the results of operations and financial condition of
Buyer or impair the ability of Buyer to perform its obligations under this
Agreement.
6.4 Consents and Approvals. Except as set forth on Schedule 6.4,
to the knowledge of Buyer, no third party consent or approval, or approval,
authorization, license, permit or other action by, or filing with, any
Governmental Body, is required, with respect to the actions of Buyer in
connection with the execution and delivery of this Agreement by Buyer or in
order for Buyer to perform its obligation under this Agreement.
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6.5 Orders and Actions. There are no (i) outstanding Orders
against Buyer or (ii) Actions pending or, to the knowledge of Buyer, threatened
against Buyer, in each case, which are reasonably likely to have a material
adverse effect on the results of operations and financial condition of Buyer or
impair the ability of Buyer to perform its obligations under this Agreement.
6.6 No Reliance. Buyer or its representatives have inspected and
conducted a review and analysis (financial and otherwise) of Seller, the
Acquired Assets and the Business, and Seller has cooperated with Buyer in the
completion of Buyer's due diligence. The purchase of the Acquired Assets and
assumption of the Assumed Liabilities by Buyer and the consummation of the
transactions contemplated hereunder by Buyer will not be done in reliance upon
any warranty or representation by, or information from Seller of any sort, oral
or written, except the warranties and representations specifically set forth in
this Agreement. Such purchase, assumption and consummation instead will be done
entirely on the basis of Buyer's own investigation, analysis, judgment and
assessment of the present and potential value and earning power of the Business
and the Acquired Assets as well as those representations and warranties by
Seller specifically set forth in this Agreement.
6.7 Brokerage. No broker, finder or similar agent has been
employed by or on behalf of Buyer or any Affiliate of Buyer in connection with
the transactions contemplated in this Agreement, and no Person with which Buyer
or any Affiliate of Buyer has had any dealings or communications of any kind is
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entitled to any brokerage commission, finder's fee or any similar compensation
in connection with this Agreement or the transactions contemplated hereby.
6.8 Seller's Representations and Warranties. Buyer, its
shareholders and the Listed Managers know of no facts alone, or with notice or
lapse of time, which make or are reasonably likely to make, untrue or incorrect
any of Seller's representations or warranties set forth in this Agreement.
7. EMPLOYEES; EMPLOYEE PENSION AND WELFARE PLANS.
7.1 Employment; Medical Benefits. For purposes of this
Agreement, the capitalized term "Employees" means the employees of Seller
employed in the Business including those on layoff and leave of absence and
those disabled and receiving disability benefits from a disability program of
Seller immediately before the Closing and those employees of Seller and its
Affiliates listed on Schedule 7.1. Effective as of the Closing Date, Buyer shall
offer employment to substantially all Employees. With respect to any Employee
who becomes employed by Buyer, Buyer shall provide a medical, dental and vision
benefit plan with terms comparable to plans generally prevalent in non-
unionized companies in the industry.
7.2 Employee Pension Plans and Benefits.
7.2.1 Unless a transfer occurs pursuant to Section 7.2.4,
Buyer shall not assume any obligation and shall have no liability whatsoever to
Seller, and any Affiliates of Seller, or any Employee or former employee thereof
or any other person or entity with respect to the funding, payment or provision
of any "employee pension benefit plan," as such term is
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defined in Section 3(2) of ERISA, earned or accrued prior to the Closing Date,
if any, under any employee pension benefit plan maintained for the benefit of
employees of Seller or Seller's Affiliates, whether or not any Employees become
employees of Buyer.
7.2.2 As of the Closing Date, Seller shall cause the Caliber
System, Inc. 401(k) Savings Plan ("Caliber Savings Plan") to be amended so that
all Employees who become employees of Buyer shall become fully vested in their
account balances in the Caliber Savings Plan.
7.2.3 As of the Closing Date, Buyer shall establish or
designate one or more defined contribution plans for Employees who become
employees of Buyer ("Buyer's Savings Plan").
7.2.4(a) As soon as practicable after the later of (i) the
receipt by Seller of the representation or determination letter described in
subparagraph (b) below and (ii) the receipt by Buyer of the representation or
determination letter described in subparagraph (b) below, to the extent provided
in the Caliber Savings Plan and permitted by law, Seller shall cause the trustee
of the Caliber Savings Plan to transfer to the trust forming a part of the
Buyer's Savings Plan cash (or with respect to participant loans granted prior to
the Closing Date, if any, such loans and any promissory notes or other documents
evidencing such loans) and/or other property designated by Seller and acceptable
to Buyer and the trustee of Buyer's Savings Plan which is held in the trust
forming a part of the Caliber Savings Plan, in an amount equal to the vested
account
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balances of those participants who become employees of Buyer, valued as of the
date of such transfer.
(b) Within 60 days after the Closing Date, (i) Buyer shall
provide Seller with a copy of Buyer's Savings Plan and related trust and either
(A) provide Seller with a representation acceptable to Seller that the Buyer's
Savings Plan and related trust satisfy the requirements for qualification under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") as
of the later of its effective date or the date of transfer of account balances
or (B) deliver to Seller a favorable determination letter issued by the Internal
Revenue Service ("IRS") that Buyer's Savings Plan and related trust satisfy the
requirements of qualification under Section 401(a) of the Code as of the later
of its effective date or the date of transfer of account balances, and (ii)
Seller shall either (A) provide Buyer with a representation acceptable to Buyer
that the Caliber Savings Plan and related trust satisfy the requirements for
qualification under Section 401(a) of the Code as of the date of transfer of
account balances or (B) deliver to Buyer a favorable determination letter issued
by the IRS that the Caliber Savings Plan and related trust satisfies the
requirements for qualification under Section 401(a) of the Code as of the date
of transfer of account balances. No transfer shall be made unless Buyer provides
Seller and Seller provides Buyer with the representation or determination
letters referred to in this subparagraph.
(c) In consideration for the transfer of assets described in
this subsection, Buyer assumes, effective as of the
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date of transfer of account balances, all of the liabilities and obligations of
Seller and its Affiliates in respect of the account balances so transferred and
their beneficiaries, and Seller and its affiliates and Seller's Savings Plan
shall have no liabilities or obligations to such Employees and their
beneficiaries arising out of Buyer's Savings Plan.
7.3 Employee Welfare Plans, Workers' Compensation. Except as
provided in Section 3.1.3 or as otherwise provided in this Agreement, Buyer
shall have no liability whatsoever to Employees or former employees of Seller
with respect to incurred workers' compensation claims or to benefits provided,
earned or accrued under any "employee welfare benefit plan," as such term is
defined in Section 3(1) of ERISA, sponsored or maintained by the Seller or
Caliber for employees of the Business prior to the Closing Date. Except as
provided in this Agreement, Buyer shall not assume any obligation and shall have
no liability whatsoever with respect to any welfare benefit claims, including
without limitation medical, dental, vision, life, or disability claims incurred
by an Employee or his family prior to the Closing Date or workers' compensation
claims incurred prior to the Closing Date. A medical, dental or vision claim
shall be deemed to have been incurred when the services relating to that event
that is the subject of the claim were performed. A life or disability claim is
deemed to have been incurred on the date of death or disability. A workers'
compensation claim is deemed to have been incurred on the date of accident or,
if the workers' compensation claim relates to an occupational disease or an
injury or condition that was not
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caused by a specific accident, the date on which such occupational disease,
injury or condition is deemed to have occurred under Central Freight Lines Inc.
Voluntary Employee Injury Benefit Plan or the workers' compensation laws of the
state of employee's employment, as applicable.
7.4 WARN and Severance Pay.
7.4.1 Buyer shall be responsible for and shall assume,
indemnify and hold Seller harmless from any and all liabilities which may arise
under or in connection with the Workers' Assistance and Retraining Notification
Act of 1989, as amended, and all rules and regulations promulgated thereunder
("WARN"), relating to the transaction contemplated by this Agreement, including
all losses, expenses, penalties or other liabilities imposed or incurred as a
result of any failure to give the requisite WARN notice or from Buyer's
implementing a "mass layoff" or "plant closing" (as defined by WARN) on or after
the Closing Date. Seller represents that neither it nor its Affiliates have
taken any action prior to the date hereof that would impose any liability under
WARN with respect to this transaction; provided, however, Seller makes no
representations as to the effect, if any, that any actions taken by Buyer on or
after the Closing Date may have in conjunction with any actions taken by Seller
before the Closing Date.
7.4.2 Buyer shall pay, be responsible for and assume,
indemnify and hold Seller harmless from any and all severance liability of
Seller (a) to any Employee in any way caused by or triggered as a result of the
transactions contemplated by this Agreement and (b) to Employees hired by
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Buyer whose employment thereafter terminates. Schedule 7.4.2 lists all severance
pay plans applicable to the Employees.
7.4.3 In addition to Buyer's covenants in this Section 7,
Buyer represents that (i) it will offer employment to at least 100 persons
formerly employed at the Waco, Texas headquarters of the Business who were
terminated in connection with the consolidation of Seller's divisions or who are
currently employed by Seller but to whom WARN notices previously were issued by
Seller if such persons are available and qualified; and (ii) it is Buyer's
present intention after suitable audited financial statements of Buyer are
available to establish an unleveraged ESOP for employees of Buyer into which
employees may invest their own money.
8. Pre-Closing Covenants and Agreements.
8.1 Reasonable Access. (a) From the date hereof until the
Closing, Seller shall give Buyer and a reasonable number of its representatives
reasonable access, during normal business hours and upon reasonable notice to
Seller, to the assets, properties, books, records, agreements and commitments of
Seller relating exclusively to the Business and furnish Buyer during such period
with all such information relating exclusively to the Business or the Acquired
Assets as Buyer may reasonably request; provided, however, that Buyer's right of
access to financial information books and records relating exclusively to the
Business and to tax returns relating exclusively to the Business or the Acquired
Assets shall be governed by Section 10.1 hereof.
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(b) All such information reviewed or obtained by Buyer and its
representatives (and the access thereto) pursuant to Section 8.1(a), 10.1 or
otherwise shall be subject to the terms and conditions of Section 10.5 hereof.
8.2 HSR Act. In connection with this Agreement and the
transactions contemplated in this Agreement, each of Seller and Buyer shall use
its best efforts, to the extent required, prepare and file by May 16, 1997, and
cooperate in the preparation and filing of, adequate and appropriate
notifications with the Federal Trade Commission (the "FTC") and the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
pursuant to the HSR Act and the rules and regulations promulgated pursuant
thereto and to comply with requests of the FTC and the Antitrust Division for
supplementing information. In no event shall such filings be made later than May
21, 1997. Such notification filings shall be accompanied by a request for early
termination of the applicable waiting periods under the HSR Act. The Seller and
Buyer will cooperate and use their respective reasonable efforts to have such
waiting periods terminated on the earliest practicable date.
8.3 Transition Services Agreement. Contemporaneously with the
execution of this Agreement, Buyer and Seller shall enter into the Transition
Services Agreement ("Transition Services Agreement") in the form attached hereto
as Schedule 8.3.
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8.4 Guaranties. Contemporaneously with the execution of this
Agreement, the persons listed below each shall execute and deliver Guaranties in
the form of Schedule 8.4 in the amount set forth opposite his name below:
<TABLE>
<CAPTION>
Name Amount of Guaranty
---- ------------------
<S> <C>
J. Moyes $14,250,000
D. Quicksall $ 125,000
J. Hall $ 200,000
T. Morehouse $ 125,000
P. Curry $ 300,000
</TABLE>
9. Conditions to Obligations of Buyer and Seller.
9.1 Conditions to Obligations of Buyer. The obligation of
Buyer to consummate the transactions contemplated by this Agreement to be
performed at the Closing shall be subject to the fulfillment, at or prior to the
Closing, of the following conditions (any of which may be waived in whole or in
part in a writing signed by Buyer):
9.1.1 Accuracy of Representations and Warranties. The
representations and warranties of Seller in this Agreement shall be true and
correct in all material respects as of the Closing except for representations
made as of a specified date, which shall be true and correct in all material
respects as of the specified date; provided, however, that in the event that
Seller's representation or warranty in Section 5.12, was not true and correct in
all material respects as of the date of this Agreement and has not been
corrected as of the Closing, Seller may at its option (i) retain the liability
with respect to the specific matter which causes Section 5.12 to be untrue, (ii)
reduce the Purchase Price by an amount agreed to by Buyer and Seller or (iii) do
neither (i) nor (ii). In the event of either
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(i) or (ii), this Section 9.1.1 shall not operate as a condition to Buyer's
obligation to close the transactions contemplated by this Agreement. Buyer shall
give Seller prompt written notice of any facts or circumstances which Buyer may
know prior to Closing which Buyer believes may cause Seller's representations or
warranties to be untrue or incorrect. Buyer's failure to do so shall constitute
a waiver of this Section 9.1.1.
9.1.2 Performance of Covenants and Agreements. Seller shall
have performed or complied with, in all material respects, all covenants and
agreements contemplated by this Agreement to be performed or complied with by it
at or prior to the Closing.
9.1.3 Receipt of Documents. Seller shall have delivered, or
caused to be delivered, to Buyer each of the following:
(a) a certificate of Seller, signed by an executive officer
of Seller, to the effect that the conditions set forth
in Sections 9.1.1 and 9.1.2 have been satisfied;
(b) a certificate of the Secretary or Assistant Secretary
of Seller, in form and substance reasonably
satisfactory to Buyer, certifying as to (i) the
resolutions of the directors of Seller approving and
authorizing this Agreement and the transactions
contemplated hereby and (ii) the By-laws of Seller;
(c) a good standing certificate of Seller issued by the
Secretary of State of California;
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(d) a bill of sale, deeds and vehicle titles and other
instruments of assignment covering the Acquired Assets
in forms reasonably acceptable to Buyer;
(e) the Viking License Agreement executed by Seller in the
form set forth as Schedule 9.1.3(e); and
(f) mutual releases of the Listed Managers in the form of
Schedule 9.1.3(f) from the Seller.
(g) the Central License Agreement executed by Seller in the
form set forth as Schedule 9.1.3(g).
9.1.4 No Actions. No request by a third party for a temporary
restraining order ("TRO") attempting to prevent the sale of the Acquired Assets
to Buyer shall be pending in any court of competent jurisdiction, and no
effective preliminary or permanent injunction or other order, including
sufficient bond, shall have been issued by any court of competent jurisdiction
preventing consummation of the sale of the Acquired Assets to Buyer; provided,
however, that a pending request for a TRO shall not terminate Buyer's
obligations to close under this Agreement. If the request for a TRO is rejected,
the Closing shall occur on the later of (i) the Closing Date as provided in this
Agreement or (ii) one business day after the denial of the request for the TRO.
If the TRO is granted and not vacated, Buyer may exercise its rights pursuant to
this Section 9.1.4 to terminate its obligation to close the transactions
contemplated by this
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Agreement only upon the issuance of an effective preliminary or permanent
injunction, including sufficient bond.
9.1.5 HSR Act. Any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
relating to the sale of the Acquired Assets shall have expired or otherwise been
terminated.
9.2 Conditions to Obligations of Seller. The obligation of
Seller to consummate the transactions contemplated by this Agreement to be
performed at the Closing shall be subject to the fulfillment at or prior to the
Closing of the following conditions (any of which may be waived in whole or in
part in a writing signed by Seller):
9.2.1 Accuracy of Representations and Warranties. The
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects as of the Closing.
9.2.2 Performance of Covenants and Agreements. Buyer shall
have performed or complied with, in all material respects, all covenants and
agreements contemplated by this Agreement to be performed or complied with by
Buyer at or prior to the Closing.
9.2.3 Receipt of Documents. Buyer shall have delivered, or
caused to be delivered, to Seller each of the following:
(a) the Purchase Price;
(b) a certificate of Buyer, signed by an executive officer
of Buyer, to the effect
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that the conditions set forth in Sections 9.2.1 and
9.2.2 have been satisfied;
(c) a certificate of the Secretary or Assistant Secretary
of Buyer, in form and substance reasonably satisfactory
to Seller, certifying as to (i) the resolutions of the
directors of Buyer approving and authorizing this
Agreement and the transactions contemplated hereby and
(ii) the By-laws of Buyer;
(d) Charter of Buyer certified by the Secretary of State of
the State of Texas;
(e) a good standing certificate of Buyer issued by the
Secretary of State of the State of Texas;
(f) an instrument of assumption evidencing Buyer's
assumption of the Assumed Liabilities in form
reasonably acceptable to Seller;
(g) mutual releases in the form of Schedule 9.1.3(f) from
each of the Listed Managers;
(h) the Viking License Agreement executed by Buyer in the
form set forth as Schedule 9.1.3(e); and
(i) the Central License Agreement executed by Buyer in the
form set forth as Schedule 9.1.3(g).
9.2.4 No Actions. No request by a third party for a TRO
attempting to prevent the sale of the Acquired Assets to Buyer shall be pending
in any court of competent jurisdiction,
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and no effective preliminary or permanent injunction or other order, including
sufficient bond, shall have been issued by any court of competent jurisdiction
preventing consummation of the sale of the Acquired Assets to Buyer; provided,
however, that a pending request for a TRO shall not terminate Seller's
obligations to close under this Agreement. If the request for a TRO is rejected,
the Closing shall occur on the later of (i) the Closing Date as provided in this
Agreement or (ii) one business day after the court denial of the request for the
TRO. If the TRO is granted and not vacated, Seller may exercise its rights
pursuant to this Section 9.2.4 to terminate its obligations to close the
transactions contemplated by this Agreement only upon the issuance of an
effective preliminary or permanent injunction, including sufficient bond.
9.2.5 HSR Act; Governmental Action. Any applicable waiting
period under the HSR Act relating to the sale of the Acquired Assets shall have
expired or otherwise been terminated.
10. Other Covenants and Agreements.
10.1 Access to Financial Books and Records and Tax Returns.
(a) Prior to Closing. In addition to the provisions of the
Transition Services Agreement governing Phase I, Seller shall permit Buyer to
consult with Seller's independent auditors and, to a limited extent, Buyer's
officers and management, with respect to Buyer's and Buyer's independent
auditor's planning to determine the feasibility of the post- Closing creation of
audited historical financial statements
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(balance sheet, income statement and cash flow) for the Business for periods
prior to Closing. Prior to Closing, Seller will not provide Buyer access to
Seller's financial information, books and records and tax returns related to the
Business ("Business Financial Books and Records"). Buyer understands that for
certain periods, including all times since January 1, 1996, Business Financial
Books and Records are not available in a separate form from that of the
remainder of the business of Seller. All fees and expenses of SELLER'S
INDEPENDENT AUDITORS for such services shall be billed to and paid by Buyer.
(b) Post-Closing.
(1) At the Seller's sole expense, for a period of five years
after the Closing, Buyer shall provide Seller (or any successor of Seller) with
access to Buyer's officers and employees and shall retain and make available to
the Seller (or any successor) any of the books, records and tax returns of
Seller or Buyer relating to the Business (or copies or extracts thereof), at any
reasonable time during normal business hours for any reasonable purpose
including, without limitation, settling or defending any claim or responding to
any tax audit and preparing financial statements and, upon request, shall
provide reasonable assistance and guidance to the Seller (or any successor) and
its agents in connection with the retrieval, organization and review of such
records. Buyer shall maintain such records during such five-year period in the
format (electronic or otherwise) in which such records are maintained as part of
the Buyer's normal business. After expiration of such five-year period, Buyer
shall have the right to cause the disposition of any such books and
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records, but shall do so only upon providing the Seller (or any successor) with
30 days' advance written notice. Seller (or any successor) shall have the right,
at its own expense within 30 days after receipt of such notice, to make copies
or extracts of such books and records, or to obtain the originals thereof for
its own.
(2) Except for the matters covered in Section 2.1.9 and
Sections 10.1(b)(3) and (4) below, at the Buyer's sole expense, for a period of
five years after the Closing, Seller shall provide Buyer (or any successor of
Buyer) with access to Seller's officers and employees and shall retain and make
available to the Buyer (or any successor) any of the books, records and tax
returns of Seller or Buyer relating to the Business (or copies or extracts
thereof), at any reasonable time during normal business hours for any reasonable
purpose including, without limitation, settling or defending any claim or
responding to any tax audit and preparing financial statements and, upon
request, shall provide reasonable assistance and guidance to the Buyer (or any
successor) and its agents in connection with the retrieval, organization and
review of such records. Seller shall maintain such records during such five-year
period in the format (electronic or otherwise) in which such records are
maintained as part of the Buyer's normal business. After expiration of such
five-year period, Seller shall have the right to cause the disposition of any
such books and records, but shall do so only upon providing the Buyer (or any
successor) with 30 days' advance written notice. Buyer (or any successor) shall
have the right, at its own expense within 30 days after receipt
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<PAGE> 46
of such notice, to make copies or extracts of such books and records, or to
obtain the originals thereof for its own.
(3) At Buyer's sole expense after Closing, Seller shall provide
Buyer with:
(i) such records regarding the Employees and retirees of Seller
related exclusively to the Business and related to the
Assumed Liabilities as Buyer may request, other than any
Business Financial Books and Records;
(ii) for a period of one year after Closing: (x) authorization to
contract with Seller's independent auditors to make
reasonable attempt to provide Buyer with compilations of any
relevant Business Financial Books and Records as relates
exclusively to the Business to assist Buyer in its attempt
to prepare financial statements for calendar years 1996 and
1997; (y) access through Seller's independent auditors to
such general ledgers, accounts and other source documents,
as may be required in order to permit Buyer's independent
auditors to audit such financial statements; provided,
however, Seller makes no representation that any such
general ledgers, accounts or other documents exist or can be
segregated exclusively to the Business for such periods.
(4) With respect to Section 10.1(b)(2)(ii), above, Seller
shall provide to Seller's independent auditors limited assistance and guidance
from Seller's officers and employees. Such assistance shall be provided during
normal business hours and in a manner that does not interfere with the
performance of the normal duties of such officers and employees. In addition,
Seller shall provide Seller's independent auditors access to Seller's financial
information, books and records, tax returns and other information regarding
other parts of Seller's business to the extent related to the Business.
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(5) With respect to Section 10.1(b)(3) and (4), above, all
fees and expenses of Seller's independent auditors, contractors, or service
providers, as well as the time of Seller's officers and employees shall be paid
by Buyer on the same rates and basis as set forth in the Transition Services
Agreement.
10.2 Delivery of Property after Closing; Accounts Receivable.
(a) From and after the Closing, Buyer shall (i) transfer and deliver to Seller,
promptly after Buyer's receipt thereof, any property which Buyer may receive
that belongs to Seller and (ii) provide reasonable cooperation to Seller in
collecting any accounts receivable of Seller relating to Seller's operation of
the Business ("Seller A/R"). Following the procedures set forth in 49 CFR
Sections 1008.5 - 1008.9, to the extent Buyer receives a payment from a customer
who owes money under a Seller A/R and also to Buyer, such payment shall be
applied against the oldest outstanding freight bill of the customer to Buyer and
then to Seller, unless the customer specifically identifies the freight bill to
which the remittance applies. Buyer shall promptly forward all amounts so
collected to Seller.
(b) From and after the Closing, Seller shall transfer and
deliver to Buyer, promptly after Seller's receipt thereof, any property,
including any payments of Buyer's invoices pursuant to the method described in
Section 10.2(a), which Seller may receive that belongs to Buyer.
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10.3 Cooperation. From and after the Closing, Buyer shall
cooperate and use its reasonable best efforts to assist Seller in investigating
any claims or demands and in defending any Orders or Actions related to Seller's
or its predecessors ownership or operation of the Business, including but not
limited to, making available to Seller for discovery, testimonial or any other
legitimate purpose relevant documents and employees who may have information
related to such claims, demands, Orders or Actions.
10.4 Freight Claims. Seller shall be responsible for all
claims for damaged or lost freight ("Freight Claims") incurred with respect to
deliveries made prior to the Effective Date and Buyer shall be responsible for
all Freight Claims for freight delivered by Buyer on or after the Effective
Date, notwithstanding when such Freight Claims may be made and regardless of any
setoffs or reductions taken by customers of either Buyer or Seller.
10.5 Confidentiality. Buyer agrees to be bound by the
provisions set forth on Schedule 10.5 hereto.
11. Termination.
11.1 Termination. Anything herein to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date only:
11.1.1 By mutual written consent of Seller and Buyer;
11.1.2 By Seller or Buyer, if the Closing does not occur on or
before June 30, 1997, unless extended
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pursuant to Section 4.1(a), 4.1(b), 9.1.4, 9.2.4, or 11.1.4; or
11.1.3 By Buyer, in the event the average daily freight bill
count of the Business (including both outbound and inbound) for any consecutive
four-week period commencing with the four-week period beginning on May 11, 1997,
falls below 13,300, and Buyer shall have given written notice to Seller of its
intention to terminate this Agreement pursuant to this Section 11.1.3 ("Buyer's
MAC Notice") and shall have paid to Seller an amount equal to Seller's
out-of-pocket expenses with respect to this transaction to the date of
termination by Buyer. The average daily freight bill count will be determined by
reference to the TAR015P4 report produced by Seller by dividing the total COUNT
column for the Valley, Plains, Prairie and Gulf regions for both OUTBOUND and
INBOUND, on each week's report by five (5) (excluding any legal holidays).
Seller's out-of-pocket expenses shall include its legal fees and the expenses of
Seller's counsel, any amounts owing by Buyer to Seller under the Transition
Services Agreement, fees and expenses of Seller's outside auditors, HSR Act
filing fees and the out-of-pocket expenses of Goldman Sachs & Co. with respect
to this transaction.
11.1.4 By Seller, in the event the average daily freight bill
count of the Business (including both outbound and inbound) for any consecutive
four-week period commencing with the four-week period beginning on May 11, 1997
falls below 15,100, and Seller shall have given written notice to
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Buyer of its intention to terminate this Agreement pursuant to this Section
11.1.4 ("Seller's MAC Notice") and shall have paid to Buyer an amount equal to
Buyer's out-of-pocket expenses with respect to this transaction to the date of
termination by Seller up to a maximum of $2.0 million. The average daily freight
bill count will be determined in the same manner as described in Section 11.1.3
with reference to the TAR015P4 report produced by Seller. Buyer's out-of-pocket
expenses shall consist of the legal fees and expenses of Buyer's counsel, any
amounts expended by Buyer under the Transition Services Agreement and for data
processing and communication equipment and personnel related to the Transition
Services Agreement net of the fair market value of such equipment on the date of
termination. Notwithstanding the foregoing, if Seller shall have given Buyer
Seller's MAC Notice, Buyer shall have the right to accelerate the Closing Date
to a date which is ten (10) days after the date of Seller's MAC Notice
hereunder. Buyer shall give Seller notice of its election to accelerate the
Closing Date not later than two business days after the date of Seller's MAC
Notice. Upon Buyer's election to accelerate the Closing hereunder, (i) Buyer
shall be deemed to have waived all conditions in this Section 9 other than those
in Section 9.1.3 and 9.1.6, (ii) Seller shall have no obligation to pay any
amounts to Buyer pursuant to this Section 11.1.4 and Seller's MAC Notice shall
be of no further force and effect and (iii) the Transition Services Agreement
shall terminate except for Buyer's obligations for amounts owed thereunder and
Buyer's confidentiality obligation.
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11.2 Effects of Termination. If this Agreement is terminated
pursuant to Section 11.1 and the transactions contemplated hereby are not
consummated as described above, this Agreement shall become void and of no
further force and effect, except for the provisions of Section 8.1 relating to
the obligations of Buyer under the Confidentiality Agreement, Section 12.15
relating to expenses and Section 12.16 relating to publicity.
12. Miscellaneous.
12.1 Survival of Representations and Warranties and Covenants.
The representations and warranties of Seller contained in this Agreement (or in
any certificate delivered pursuant to Section 9.1.3 and 9.2.3 of this Agreement)
shall not survive the Closing. Seller shall have no liability to Buyer for any
breach or claimed breach or inaccuracy thereof.
12.2 Assignment; Successors and Assigns. Prior to the Closing,
no party to this Agreement shall convey, assign or otherwise transfer any of its
rights or obligations under this Agreement without the express written consent
of the other party to this Agreement; provided, however, that Seller may assign
its rights hereunder to any of its Affiliates without the consent of Buyer;
provided, further, however, that an assignment of rights under this Agreement
shall in no way diminish the obligations of the parties to this Agreement. This
Agreement shall be binding upon and shall inure to the benefit of the parties to
this Agreement and their respective successors and permitted assigns.
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12.3 Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent by telecopy or by reputable overnight courier service, and shall be
deemed given when so delivered by hand, telecopied or one business day after
sending in the case of overnight courier service as follows:
12.3.1 If to Seller, copies to:
Viking Freight, Inc.
c/o Caliber System, Inc.
3925 Embassy Parkway
Akron, Ohio 44333
Attention: General Counsel
Telecopy No.: (330) 665-8937
Copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Leslie D. Dunn, Esq.
Telecopy No.: (216) 579-0212
12.3.2 If to Buyer, as follows:
Central Freights Lines, Inc.
5601 West Waco Drive
Waco, Texas 76710
Attention: Doug Quicksall
Telecopy No.: (817) 741-5223
Copy to:
Scudder Law Firm, P.C.
411 South 13th Street, Suite 200
Lincoln, Nebraska 68501
Attention: Earl H. Scudder, Jr., Esq.
Telecopy No.: (402) 435-4639
or in any case to such other address or telecopy number as hereinafter shall be
furnished as provided in this Section 12.3 by any of the parties to this
Agreement to Seller and Buyer.
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12.4 Waiver; Remedies. No delay on the part of Buyer or Seller
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of Buyer or Seller of any right, power
or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder.
12.5 No Recourse Against Others. No director, officer,
employee or agent, in his capacity as such, of Seller or Caliber shall have any
liability hereunder or for any claim related to this Agreement. Buyer hereby
waives and releases all such liability as part of the consideration for the
Acquired Assets.
12.6 Amendment. This Agreement may be modified or amended only
by written agreement of the parties.
12.7 Further Assurances. Seller shall, at the written request
and expense of Buyer, at any time and from time to time following the Closing
hereunder, execute and deliver to Buyer all such further instruments and take
all such further action as may be reasonably necessary or appropriate in order
to more effectively sell, assign, transfer and convey to Buyer the Acquired
Assets or otherwise to confirm or carry out the provisions of this Agreement.
Buyer shall at any time and from time to time following the Closing hereunder,
execute and deliver to Seller all such further instruments and take all such
further action as may be reasonably necessary or appropriate in order to
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more effectively assume the Assumed Liabilities or otherwise to confirm or carry
out the provisions of this Agreement.
12.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
together shall constitute a single instrument.
12.9 Governing Law; Jurisdiction; Language. This Agreement
shall be governed by, and construed in accordance with, the laws of the State of
Ohio without regard to principles of conflicts of law. Each party hereto agrees
that it shall bring any action or proceeding in respect of any claim arising out
of or related to this Agreement or the transactions contained in or contemplated
by this Agreement, whether in tort or contract or at law or in equity,
exclusively in the United States District Court for the Southern District of
Ohio in Columbus or any state court in the State of Ohio sitting in Columbus
(the "Chosen Courts") and (i) irrevocably submits to the exclusive jurisdiction
of the Chosen Courts, (ii) waives any objection to laying venue in any such
action or proceeding in the Chosen Courts, (iii) waives any objection that the
Chosen Courts are an inconvenient forum or do not have jurisdiction over any
party hereto and (iv) agrees that service of process upon such party in any such
action or proceeding shall be effective if notice is given in accordance with
Section 12.3 of this Agreement. Buyer irrevocably designates Earl H. Scudder,
Jr., Esq., 411 South 13th Street, Suite 200, Lincoln, Nebraska 68501, as its
agent and attorney-in-fact for the acceptance of service of process and making
an appearance on its behalf in any such claim or proceeding and
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taking all such acts as may be necessary or appropriate in order to confer
jurisdiction over it upon the Chosen Courts and Buyer stipulates that such
consent and appointment is irrevocable and coupled with an interest.
12.10 Bulk Sales Laws. Buyer waives compliance by Seller with
the provisions of any bulk transfer laws of any jurisdiction in connection with
the transactions contemplated by this Agreement.
12.11 Schedules. The Schedules attached to this Agreement are
incorporated in this Agreement and shall be part of this Agreement for all
purposes, and information disclosed in response to any Section shall, should the
existence of such information be relevant to any other Section, be deemed to be
disclosed with respect to such Section whether or not a specific cross-reference
appears.
12.12 Passage of Title and Risk of Loss. Legal title,
equitable title and risk of loss with respect to the Acquired Assets shall pass
to Buyer at the Closing.
12.13 Apportionment of Taxes, Charges and Payments. All
rentals, real property taxes, personal property taxes, charges, payments and
fees (including any accruals or prepayments of any thereof) relating to any of
the Acquired Assets or the Business or arising under any Permits (other than
refunds with respect to vehicle registrations transferred pursuant to Section
2.1.8), Leases or Contracts transferred to and assumed by Buyer under this
Agreement which relate to periods of time which include the Effective Date,
shall be apportioned between Buyer and Seller as of the Effective Date with
Seller
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<PAGE> 56
bearing the proportionate expense (or being entitled to receive reimbursement)
thereof attributable to the number of days in such period which precede the
Effective Date to which such rental, tax, charge, payment or fee relates and
Buyer bearing the proportionate expense (or being entitled to receive
reimbursement) thereof attributable to the number of days in such period
including and following the Closing Date. On the Closing Date, Buyer shall pay
to Seller, or Seller shall pay to Buyer (or consent to a deduction therefor from
the Purchase Price), as the case may be, the net amount estimated by Buyer and
Seller to be owed by one party to the other party as a result of such
apportionments, and Buyer or Seller, as the case may be, shall make appropriate
adjusting payment(s) to the other after the Closing in respect of any rentals,
taxes, charges, payments or fees not capable of being estimated or ascertained
on the Closing Date, or for which the actual charges vary from the estimated
amounts thereof used in calculating the estimated amounts to be apportioned at
Closing.
12.14 Transfer Taxes. Notwithstanding anything in this
Agreement to the contrary, all stamp, goods and services, sales, use, real
estate transfer and other such taxes, fees and duties (including any penalties
and interest thereon) as well as title and licensing fees incurred in connection
with this Agreement and the transactions contemplated hereby (other than those
imposed on or measured by the income or net worth of Seller) (collectively, the
"Transfer Taxes") shall be timely paid by Buyer to the appropriate Governmental
Body or to Seller if such Transfer Taxes are imposed on Seller or if Seller is
51
<PAGE> 57
required to collect such taxes from Buyer (in which event such payment shall be
made to Seller at the Closing). Schedule 12.14 sets forth a partial list of the
states with respect to which Transfer Taxes will be either imposed upon Seller
or where Seller is required to collect such taxes from Buyer and with respect to
which Buyer shall make payment to Seller at Closing. Failure by Seller to
collect any Transfer Taxes at Closing, whether or not noted on Schedule 12.14
shall not release Buyer from its obligations under this Section 12.14. In
addition and except for tax returns relating to Transfer Taxes that are required
by law to be filed by Seller (which returns shall be timely filed by Seller),
Buyer shall timely file all tax returns and other necessary documentation
relating to any Transfer Tax.
12.15 Expenses of Sale. Except as otherwise expressly provided
in this Agreement, Seller, on the one hand, and Buyer, on the other hand, shall
bear its own direct and indirect expenses incurred in connection with the
negotiation and preparation of this Agreement and the consummation and
performance of the transactions contemplated hereby, including, without
limitation, all legal and accounting fees and brokers' and finders' fees.
12.16 Communications. No publicity release or announcement
concerning the transactions contemplated hereby shall be issued by either party
without the advance consent of the other party, except any such release or
announcement as may be required by applicable Law or by obligations pursuant to
any listing agreement with any national securities exchange; provided, however,
that the foregoing shall not apply to any
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announcements or materials distributed by Seller to it employees. Buyer and
Seller agree to follow the communications policy attached hereto as Schedule
12.16.
12.17 Freight in Transit. (a) Notwithstanding the provisions
of Section 2.2.2 of this Agreement, with respect to freight in transit at the
Effective Date, Buyer and Seller shall share the revenue for such freight as set
forth on Schedule 12.17(a).
(b) Buyer agrees to take the actions set forth on Schedule
12.17(b) with respect to all freight picked up prior to the Effective Date by
Seller and delivered after the Effective Date.
12.18 Captions. All section titles or captions contained in
this Agreement and the table of contents to this Agreement are for convenience
only, shall not be deemed a part of this Agreement and shall not affect the
meaning or interpretation of this Agreement. Unless otherwise indicated, all
references herein to numbered Sections are to Sections of this Agreement.
12.19 Rights of Third Parties. Nothing in this Agreement is
intended, or shall be construed, to confer upon or give any person or entity
other than the parties to this Agreement any rights or remedies under or by
reason of this Agreement except as expressly set forth in this Agreement.
[End of Text]
53
<PAGE> 59
IN WITNESS WHEREOF, the parties have caused this Asset
Purchase Agreement to be duly executed and delivered as of the date first above
written.
BUYER:
CENTRAL FREIGHT LINES, INC.
By: /s/Patrick J. Curry
--------------------------------------
Name: Patrick J. Curry
Title: Senior Vice President
SELLER:
VIKING FREIGHT, INC.
By: /s/Louis J. Valerio
---------------------------------------
Name: Louis J. Valerio
Title: Attorney In Fact
54
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
CENTRAL FREIGHT LINES, INC.
a Nevada corporation
ARTICLE I. NAME
The name of the corporation is Central Freight Lines, Inc.
ARTICLE II. RESIDENT AGENT
The name and street address of the corporation's initial resident agent
is The Corporation Trust Company of Nevada, One East First Street, Reno, Washoe
County, Nevada 89501.
ARTICLE III. PURPOSE
The purpose of the corporation is to engage in, promote, conduct, and
carry on any lawful acts or activities for which corporations may be organized
under the Nevada General Corporation Law.
ARTICLE IV. AUTHORIZED SHARES
The total number of shares of capital stock of all classes which the
corporation shall have authority to issue is Sixty-Five Million (65,000,000)
shares, all having a par value of One-Tenth of One Cent ($0.001) per share,
consisting of the following: Fifty Million (50,000,000) shares of Class A Common
Stock; Ten Million (10,000,000) shares of Class B Common Stock; and Five Million
(5,000,000) shares of Preferred Stock.
The voting powers, designations, preferences, limitations,
restrictions, and special or relative rights with respect to each class of stock
are or shall be fixed as follows:
A. Common Stock. Except as otherwise stated herein, the holders of Class
A Common Stock and Class B Common Stock shall have all of the rights afforded
holders of common stock under the Nevada corporation law, including the right to
vote on all matters submitted to a vote of the common stockholders, and, subject
to the rights, if any, of holders of the Preferred Stock, the right to receive
the net assets of the corporation upon dissolution. The Class A Common Stock and
Class B Common Stock shall vote together as a single class and shall receive any
dividends and distributions payable to holders of common stock on a pro rata
basis; provided, that: (i) holders of Class A Common Stock shall be entitled to
one (1) vote per share on all matters submitted to a vote of the common
stockholders; (ii) holders of Class B Common Stock shall be entitled to three
(3) votes per share (except on matters affecting the terms of the Class B Common
Stock, as to which holders of Class B Common Stock shall be entitled to one (1)
vote per share) on all matters submitted to a vote of the common stockholders so
long as the holder is Jerry C. Moyes ("Moyes"), any spouse or child (by birth or
adoption) of Moyes ("Moyes' Relatives"), any trust for the benefit of one or
more of Moyes or the Moyes' Relatives ("Moyes Trust"), or any other entity that
is 100% owned by any combination of Moyes or the Moyes' Relatives ("Moyes
Entity"); (iii) holders of Class B Common Stock may receive dividends payable in
the corporation's common stock in Class A Common Stock or Class B Common Stock,
as designated by the board of directors when declaring any such dividend, and
(iv) the rights afforded holders of Class A Common Stock may not be modified
except by a majority vote of each individual class of the Class A Common Stock
and the Class B Common Stock. Holders of Class B Common Stock may convert such
shares into Class A Common Stock, at any time and from time to time, on the
basis of one share
<PAGE> 2
of Class A Common Stock for each share of Class B Common Stock. If any shares of
Class B Common Stock cease to be owned by Moyes, the Moyes' Relatives, any Moyes
Trust or any Moyes Entity, such shares that are no longer so owned shall be
converted automatically into Class A Common Stock and shall be entitled to one
(1) vote per share. In any merger, consolidation, reorganization, or other
business combination, the consideration to be received per share by holders of
the Class A Common Stock and Class B Common Stock shall be identical; provided
that if, after such business combination, Moyes, the Moyes' Relatives, any Moyes
Trust or any Moyes Entity collectively own more than one-third (1/3) of the
surviving entity, any securities received may differ to the extent that the
voting rights differ between Class A Common Stock and Class B Common Stock.
Holders of Class A Common Stock and Class B Common Stock shall not be entitled
to cumulative voting in the election of directors.
B. Preferred Stock. The Board of Directors is expressly authorized to
issue the Preferred Stock from time to time, in one or more series, provided
that the aggregate number of shares issued and outstanding at any time of all
such series shall not exceed Five Million (5,000,000). The Board of Directors is
further authorized to fix or alter, with respect to each such series, the
following terms and provisions of any authorized and, except for (vi) below,
unissued shares of such stock:
(i) the distinctive serial designation;
(ii) the number of shares of the series, which number may at any
time or from time to time be increased or decreased (but not
below the number of shares of such series then outstanding) by
the Board of Directors;
(iii) the voting powers, if any, and, if voting powers are granted,
the extent of such voting powers including whether cumulative
voting is allowed and the right, if any, to elect a director
or directors;
(iv) the election, term of office, filling of vacancies, and other
terms of the directorship of directors, if any, to be elected
by the holders of any one or more classes or series of such
stock;
(v) the dividend rights, if any, including, without limitation,
the dividend rates, dividend preferences with respect to other
series or classes of stock, the dates on which any dividends
shall be payable, and whether dividends shall be cumulative;
(vi) the date from which dividends on shares issued prior to the
date for payment of the first dividend thereon shall be
cumulative, if any;
(vii) the redemption price, terms of redemption, and the amount of
and provisions regarding any sinking fund for the purchase or
redemption thereof;
(viii) the liquidation preferences and the amounts payable on
dissolution or liquidation;
(ix) the terms and conditions under which shares of the series may
or shall be converted into any other series or class of stock
or debt of the corporation; and
(x) any other terms or provisions that the Board of Directors by
law may be authorized to fix or alter.
C. Provisions Applicable to Common and Preferred Stock. No holder of
shares of the corporation of any class, now or hereafter authorized, shall have
any preferential or preemptive right to
2
<PAGE> 3
subscribe for, purchase or receive any shares of stock of the corporation of any
class, now or hereafter authorized, or any options or warrants for such shares,
or any rights to subscribe to or purchase such shares, or any securities
convertible into or exchangeable for such shares, which may at any time or from
time to time be issued, sold or offered for sale by the corporation.
ARTICLE V. DIRECTORS
The governing board of the corporation shall be known as directors.
Initially, the number of directors of the corporation shall be seven, however,
the number of directors may from time to time be increased or decreased in such
manner as shall be provided by the bylaws of the corporation.
The names and addresses of the members of the initial board of
directors are:
<TABLE>
<CAPTION>
================================================================================
Director Address
================================================================================
<S> <C>
Joe E. Hall 5601 West Waco Drive
P.O. Box 2638
Waco, TX 76702-2638
- -------------------------------------------------------------------------------
Douglas E. Quicksall 5601 West Waco Drive
P.O. Box 2638
Waco, TX 76702-2638
- -------------------------------------------------------------------------------
Thomas K. Morehouse 5601 West Waco Drive
P.O. Box 2638
Waco, TX 76702-2638
- -------------------------------------------------------------------------------
Patrick J. Curry 5601 West Waco Drive
P.O. Box 2638
Waco, TX 76702-2638
- -------------------------------------------------------------------------------
Jerry C. Moyes 5601 West Waco Drive
P.O. Box 2638
Waco, TX 76702-2638
- -------------------------------------------------------------------------------
Ronald Moyes 5601 West Waco Drive
P.O. Box 2638
Waco, TX 76702-2638
- -------------------------------------------------------------------------------
Earl H. Scudder P.O. Box 81277
Second Floor
411 S. 13th Street
Lincoln, NE 68508
================================================================================
</TABLE>
ARTICLE VI. LIMITATION OF LIABILITY
To the fullest extent permitted by the laws of the State of Nevada, as
the same exist or may hereafter be amended, any director or officer of the
corporation shall not be liable to the corporation or its stockholders
3
<PAGE> 4
for monetary or other damages for breach of fiduciary duties as a director or
officer. No repeal, amendment, or modification of this Article VI, whether
direct or indirect, shall eliminate or reduce its effect with respect to any act
or omission of a director or officer of the corporation occurring prior to such
repeal, amendment, or modification.
ARTICLE VII. INDEMNIFICATION
To the fullest extent allowable by the Nevada General Corporation Law
(including pursuant to the expanded rights and financial arrangements that may
be granted to persons under the Articles of Incorporation, Bylaws, agreements,
votes of stockholders or disinterested directors or otherwise under such law),
the corporation shall indemnify those persons entitled to indemnification, as
hereinafter provided, in the manner and under the circumstances described in
this Article VII.
A. General Indemnification. The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative, including any action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding unless a final adjudication by a court of competent
jurisdiction establishes that his acts or omissions involved intentional
misconduct, fraud, or a knowing violation of law and were material to the cause
of action. The termination of any action, suit, or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person's acts or
omissions involved intentional misconduct, fraud, or a knowing violation of law.
B. Mandatory Indemnification. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in paragraph
A, or in defense of any claim, issue or matter therein, he shall be indemnified
by the corporation against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with such defense.
C. Advancement of Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding shall be paid by the corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if final adjudication by a court of competent jurisdiction
establishes that his acts or omissions involved intentional misconduct, fraud,
or a knowing violation of law and were material to the cause of action.
D. Other Rights. The indemnification provided by this Article VII does
not exclude any other rights to which a person seeking indemnification may be
entitled under any law, bylaw, agreement, vote of stockholders of disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. The indemnification
provided by this Article VII shall continue as to a person who has ceased to be
a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. No amendment to repeal
this Article VII shall apply to or have any effect on the rights of any
director, officer, employee or agent under this Article VII, which rights came
into existence by virtue of acts or omissions of such director, officer,
employee or agent occurring prior to such amendment or repeal.
E. Insurance. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of
4
<PAGE> 5
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under the provisions of this
Article VII.
F. Definition of Corporation. For the purposes of this Article VII,
references to "the corporation" include, in addition to the corporation
resulting from the filing of these Articles of Incorporation and its surviving
corporation in any merger, any constituent corporation (including any
constituent of a constituent) absorbed in consolidation or merger which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees and agents so that any person who
is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article VII with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued.
G. Other Definitions. For purposes of this Article VII, references to
"other enterprise" shall include employee benefit plans; references to "fine"
shall include any excise tax assessed on a person with respect to an employee
benefit plan; references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the corporation
that imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its participants,
or beneficiaries; and masculine references shall include the feminine.
ARTICLE VIII. DURATION
The corporation shall have perpetual existence.
ARTICLE IX. INCORPORATOR
The name and address of the sole incorporator is William J. Strait of
411 South 13th Street, Suite 200, Lincoln, NE 68508.
/s/ William J. Strait
--------------------------------
William J. Strait, Incorporator
STATE OF NEBRASKA )
) Section:
LANCASTER COUNTY )
The foregoing instrument was acknowledged before me this 1st day of
April, 1999 by William J. Strait.
/s/ Tisha Gilreath Mullen
--------------------------------
Notary Public
5
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
CENTRAL FREIGHT LINES, INC.
a Nevada corporation
ARTICLE I
OFFICES
1. Principal Office. The principal office of the Corporation shall be
in Washoe County, Nevada, which initially shall be its known place of business.
2. Other Offices. The Corporation may also have offices at such other
places both within and without the State of Nevada as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
1. Annual Meeting. The annual meeting of the Stockholders shall be held
at such date and time as the Board of Directors shall determine, for the purpose
of electing Directors and for the transaction of such other business as may
properly come before the meeting.
2. Special Meetings. Special meetings of the Stockholders may be called
for any purpose or purposes at any time by a majority of the Board of Directors
or the Chairman of the Board of Directors.
3. Place of Meetings. Annual and special meetings of the Stockholders
may be held at such time and place within or without the State of Nevada as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
4. Notice of Meeting. Written notice stating the place, date, and hour
of the meeting and the purpose or purposes for which the meeting is called,
shall be delivered to each Stockholder of record entitled to vote at such
meeting not less than ten (10) nor more than sixty (60) days before the date of
the meeting. Notice may be delivered either personally or by first class,
certified or registered mail, postage prepaid, and signed by an officer of the
Corporation at the direction of the person or persons calling the meeting. If
mailed, notice shall be deemed to be delivered when mailed to the Stockholder at
his address as it appears on the stock transfer books of the Corporation.
Delivery of any such notice to any officer of a corporation or association, or
to any member of a partnership shall constitute delivery of such notice to such
corporation, association or partnership. In the event of the transfer of stock
after delivery or mailing of the notice of and prior to the holding of the
meeting it shall not be necessary to deliver or mail notice of the meeting to
the transferee. Notice need not be given of an adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken,
provided that such adjournment is for less than thirty (30) days and further
provided that a new record date is not fixed for the adjourned meeting, in
either of which events, written notice of the adjourned meeting shall be given
to each Stockholder of record entitled to vote at such meeting. At any adjourned
meeting, any business may be transacted which might have been transacted at the
meeting as originally noticed. A written waiver of notice, whether given before
or after the meeting to which it relates, shall be equivalent to the giving of
notice of such meeting to the Stockholder or Stockholders signing such waiver.
Attendance of a Stockholder at a meeting shall constitute a waiver of notice of
such meeting, except when the Stockholder attends for the express purpose of
objecting to the transaction of any business because the meeting is not lawfully
called or convened.
<PAGE> 2
5. Fixing Date for Determination of Stockholders Record. In order that
the Corporation may determine the Stockholders entitled to notice of and to vote
at any meeting of Stockholders or any adjournment thereof, or to express consent
to corporate action in writing without a meeting, or to receive payment of any
dividend or other distribution or allotment of any rights, or to exercise any
rights in respect of any other change, conversion or exchange of stock or for
the purpose of any other lawful action, the Board of Directors may fix in
advance a record date, which shall not be more than sixty (60) nor less than ten
(10) days prior to the date of such meeting or such action, as the case may be.
If the Board of Directors has not fixed a record date for determining the
Stockholders entitled to notice of and to vote at a meeting of Stockholders, the
record date shall be at the close of business on the day next preceding the day
on which the notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. If the Board of
Directors has not fixed a record date for determining the Stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, the record date shall be
the day on which the first written consent is expressed by any Stockholder. If
the Board of Directors has not fixed a record date for determining Stockholders
for any other purpose, the record date shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating thereto. A
determination of Stockholders of record entitled to notice of or to vote at a
meeting of Stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
6. Record of Stockholders. The Secretary or other officer having charge
of the stock transfer books of the Corporation shall make, or cause to be made,
at least ten (10) days before every meeting of Stockholders, a complete record
of the Stockholders entitled to vote at a meeting of Stockholders or any
adjournment thereof, arranged in alphabetical order, with the address of and the
number of shares registered in the name of each Stockholder. Such list shall be
open to the examination of any Stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place specified in the notice of the meeting
or if not so specified, at the Corporation's principal place of business. The
list shall also be produced and kept at the time and place of the meeting during
the whole time thereof and may be inspected by any Stockholder who is present.
7. Quorum and Manner of Acting. At any meeting of the Stockholders, the
presence, in person or by proxy, of the holders of a majority of the outstanding
voting power entitled to vote shall constitute a quorum for the transaction of
business except as otherwise provided by the Nevada General Corporation Law or
by the Articles of Incorporation of the Corporation, as amended from time to
time (the "Articles of Incorporation"). All votes represented and entitled to be
cast on any single subject matter that may be brought before the meeting shall
be counted for quorum purposes. Only those votes entitled to be cast on a
particular subject matter shall be counted for the purpose of voting on that
subject matter. Business may be conducted once a quorum is present and may
continue to be conducted until adjournment sine die, notwithstanding the
withdrawal or temporary absence of Stockholders leaving less than a quorum.
Except as otherwise provided in the Nevada General Corporation Law or the
Articles of Incorporation, the affirmative vote of the holders of a majority of
the voting power then represented at the meeting and entitled to vote thereat
shall be the act of the Stockholders; provided, however, that if the voting
power so represented is less than that number required to constitute a quorum,
Stockholders may nonetheless take actions if the affirmative vote for any such
action is such as would constitute a majority if a quorum were present, except
that the affirmative vote of the holders of a majority of the shares of stock
then present is sufficient in all cases to adjourn a meeting.
8. Voting of Shares of Stock. Each Stockholder shall be entitled to the
number of votes (or corresponding fraction thereof) authorized for shares of
such class or series in the Corporation's Articles of Incorporation or any
certificate of designation for such class or series for each share of stock (or
fraction thereof) standing in his or its name on the books of the Corporation on
the record date. A Stockholder may vote either in person or by valid proxy, as
defined in Section 11 of this Article II, executed in writing by the Stockholder
or by his or its duly authorized attorney in fact. Voting power belonging to the
Corporation or to another corporation, if a majority of the votes entitled to be
cast in the election of directors of such other corporation is
2
<PAGE> 3
held, directly or indirectly, by the Corporation, shall neither be entitled to
vote nor counted for quorum purposes; provided, however, that the foregoing
shall not limit the right of any corporation to vote stock, including but not
limited to its own stock, when held by it in a fiduciary capacity. Shares of
stock standing in the name of another corporation may be voted by such officer,
agent or proxy as the bylaws of such other corporation may prescribe or, in the
absence of such provision, as the Board of Directors of such other corporation
may determine. Unless demanded by a Stockholder present in person or by proxy at
any meeting of the Stockholders and entitled to vote thereat, or unless so
directed by the chairman of the meeting, the vote thereat on any question need
not be by ballot. If such demand or direction is made, a vote by ballot shall be
taken, and each ballot shall be signed by the Stockholder voting, or by his
proxy, and shall state the number of votes cast.
9. Organization. At each meeting of the Stockholders, the Chairman of
the Board, or, if he is absent therefrom, the CEO, or, if he is absent
therefrom, the President, or, if he is absent therefrom, the CFO, or if he is
absent therefrom, the Treasurer, or if he is absent therefrom, one of the Vice
Presidents or, if all are absent therefrom, another officer of the Corporation
chosen as chairman of such meeting by Stockholders holding a majority of the
voting power present in person or by proxy and entitled to vote thereat, or, if
all the officers of the Corporation are absent therefrom, a Stockholder of
record so chosen, shall act as chairman of the meeting and preside thereat. The
Secretary, or, if he is absent from the meeting or is required pursuant to the
provisions of this Section 9 to act as chairman of such meeting, the person (who
shall be an Assistant Secretary, if any and if present) whom the chairman of the
meeting shall appoint shall act as secretary of the meeting and keep the minutes
thereof.
10. Order of Business. The order of business at each meeting of the
Stockholders shall be determined by the chairman of such meeting, but the order
of business may be changed by the vote of Stockholders holding a majority of the
shares present in person or by proxy at such meeting and entitled to vote
thereat.
11. Voting by Proxy. At any meeting of the Stockholders, any
Stockholder may be represented and vote by a proxy or proxies appointed by an
instrument in writing. In the event that any such instrument in writing shall
designate two (2) or more persons to act as proxies, a majority of such persons
present at the meeting, or, if only one shall be present, then that one shall
have and may exercise all of the powers conferred by such written instrument
upon all of the persons so designated unless the instrument shall otherwise
provide. No such proxy shall be valid after the expiration of six (6) months
from the date of its execution, unless coupled with an interest or unless the
person executing it specifies therein the length of time for which it is to
continue in force, which in no case shall exceed the maximum length of time
specified by the Nevada General Corporation Law. Subject to the above, any proxy
duly executed is not revoked and continues in full force and effect until an
instrument revoking it or a duly executed proxy bearing a later date is filed
with the Secretary of the Corporation, or the Stockholder appears to vote in
person.
12. Action by Stockholders Without a Meeting. Unless otherwise
restricted by the Articles of Incorporation, these Bylaws, or the Nevada General
Corporation Law, any action required or permitted to be taken at a meeting of
the Stockholders may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken, is
signed by Stockholders holding at least a majority of the voting power (except
that if a different proportion of voting power is required for such an action at
a meeting, then that proportion of written consent is required) and such consent
is filed with the minutes of the proceedings of the Stockholders.
13. Irregularities. All information and/or irregularities in calls,
notices of meetings and in the manner of voting, form of proxies, credentials,
and method of ascertaining those present, shall be deemed waived if no objection
is made at the meeting or if waived in writing.
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ARTICLE III
BOARD OF DIRECTORS
1. General Powers. The property, business, and affairs of the
Corporation shall be managed by the Board of Directors.
2. Number, Term of Office and Qualifications. Subject to the
requirements of the Nevada General Corporation Law and the Articles of
Incorporation, the Board of Directors may from time to time determine the number
of Directors, such number to be between the fixed minimum of one Director and
the fixed maximum of twelve Directors. Until the Board of Directors shall
otherwise determine, the number of Directors shall be as set forth in the
Corporation's Articles of Incorporation. Each director shall hold office until
his successor is duly elected or until his earlier death or resignation in the
manner hereinafter provided. Directors need not be Stockholders.
3. Place of Meeting. The Board of Directors may hold its meetings,
either within or without the State of Nevada, at such place or places as it may
from time to time by resolution determine or as shall be designated in any
notices or waivers of notice thereof. Any such meeting, whether regular or
special, may be held by conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting in such manner shall constitute presence in
person at such meeting.
4. Annual Meetings. As soon as practicable after each annual election
of Directors and on the same day, the Board of Directors shall meet for the
purpose of organization and the transaction of other business at the place where
regular meetings of the Board of Directors are held, and no notice of such
meeting shall be necessary in order to legally hold the meeting, provided that a
quorum is present. If such meeting is not held as provided above, the meeting
may be held at such time and place as shall be specified in a notice given as
hereinafter provided for a special meeting of the Board of Directors, or in the
event of waiver of notice as specified in the written waiver of notice.
5. Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such times as the Board of Directors shall from time to
time by resolution determine.
6. Special Meetings: Notice. Special meetings of the Board of Directors
shall be held, either within or without the State of Nevada, whenever called by
the Chairman of the Board, the CEO or a majority of the Directors at the time in
office. Notice shall be given, in the manner hereinafter provided, of each such
special meeting, which notice shall state the time and place of such meeting,
but need not state the purposes thereof. Except as otherwise provided in Section
9 of this Article III, notice of each such meeting shall be mailed to each
Director, addressed to him at his residence or usual place of business, at least
five (5) days before the day on which such meeting is to be held, or shall be
sent addressed to him at such place by telegraph, cable, wireless or other form
of recorded communication or delivered personally or by telephone not later than
the day before the day on which such meeting is to be held. A written waiver of
notice, whether given before or after the meeting to which it relates, shall be
equivalent to the giving of notice of such meeting to the Director or Directors
signing such waiver. Attendance of a Director at a special meeting of the Board
of Directors shall constitute a waiver of notice of such meeting, except when he
attends the meeting for the express purpose of objecting to the transaction of
any business because the meeting is not lawfully called or convened.
7. Quorum and Manner of Acting. A majority of the whole Board of
Directors shall be present in person at any meeting of the Board of Directors in
order to constitute a quorum for the transaction of business at such meeting,
and except as otherwise specified in these Bylaws, and except also as otherwise
expressly provided by the Nevada General Corporation Law, the vote of a majority
of the Directors present at any such meeting at which a quorum is present shall
be the act of the Board of Directors. In the absence of a quorum from any such
meeting, a majority of the Directors present thereat may adjourn such meeting
from time to time to
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another time or place, with notice to the entire Board of Directors, until a
quorum shall be present thereat. The Directors shall act only as a Board of
Directors and the individual Directors shall have no power as such.
8. Organization. At each meeting of the Board of Directors, the
Chairman of the Board or, if he is absent therefrom, the CEO, or if he is absent
therefrom, the President, shall act as chairman of such meeting and preside
thereat. The Secretary, or if he is absent, the person (who shall be an
Assistant Secretary, if any and if present) whom the chairman of such meeting
shall appoint, shall act as secretary of such meeting and keep the minutes
thereof.
9. Action by Directors Without a Meeting. Unless otherwise restricted
by the Articles of Incorporation, these Bylaws, or the Nevada General
Corporation Law, any action required or permitted to be taken at a meeting of
the Board of Directors may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken, is
signed by all Directors and such consent is filed with the minutes of the
proceedings of the Board of Directors.
10. Resignations. Any Director may resign at any time by giving written
notice of his resignation to the Corporation. Any such resignation shall take
effect at the time specified therein, or if the time when it shall become
effective is not specified therein, it shall take effect immediately upon its
receipt by the Chairman of the Board, or the Secretary; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
11. Vacancies. Vacancies and newly created directorships resulting from
any increase in the authorized number of Directors to be elected by all of the
Stockholders having the right to vote as a single class may be filled by a
majority of the Directors then in office, although less than a quorum, or by a
sole remaining Director. If at any time, by reason of death or resignation or
other cause, the Corporation has no Directors in office, then any officer or any
Stockholder or an executor, administrator, trustee or guardian of a Stockholder,
may call a special meeting of Stockholders for the purpose of filling vacancies
in the Board of Directors. If one or more Directors shall resign from the Board
of Directors, effective at a future date, a majority of the Directors then in
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each Director so chosen shall hold
office as provided in this section for the filling of other vacancies.
12. Compensation. The Board of Directors may at any time and from time
to time by resolution provide that the Directors may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
Director or both, in either case payable in cash, the Corporation's stock, or
such other form designated by the Board of Directors. In addition, the Board of
Directors may at any time and from time to time by resolution provide that
Directors shall be paid their actual expenses, if any, of attendance at each
meeting of the Board of Directors. Nothing in this section shall be construed as
precluding any Director from serving the Corporation in any other capacity and
receiving compensation therefor, but the Board of Directors may by resolution
provide that any Director receiving compensation for his services to the
Corporation in any other capacity shall not receive additional compensation for
his services as a Director.
ARTICLE IV
OFFICERS
1. Number. The Corporation shall have the following officers: a Chief
Executive Officer ("CEO"), a President, a Chief Financial Officer ("CFO"), a
Treasurer, and a Secretary. At the discretion of the Board of Directors, the
Corporation may also have one or more Vice Presidents, one or more Assistant
Vice Presidents, one or more Assistant Secretaries, and one or more Assistant
Treasurers.
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2. Election and Term of Office. The officers of the Corporation shall
be elected annually by the Board of Directors or at a special meeting of the
Board of Directors called for that purpose. Each such officer shall hold office
until his successor is duly elected or until his earlier death or resignation or
removal in the manner hereinafter provided.
3. Agents. In addition to the officers mentioned in Section 1 of this
Article IV, the Board of Directors may appoint such agents as the Board of
Directors may deem necessary or advisable, each of which agents shall have such
authority and perform such duties as are provided in these Bylaws or as the
Board of Directors may from time to time determine. The Board of Directors may
delegate to any officer or to any committee the power to appoint or remove any
such agents.
4. Removal. Any officer may be removed, with or without cause, at any
time by resolution adopted by a majority of the Board of Directors.
5. Resignations. Any officer may resign at any time by giving written
notice of his resignation to the Board of Directors, the CEO, or the Secretary.
Any such resignation shall take effect at the times specified therein, or, if
the time when it shall become effective is not specified therein, it shall take
effect immediately upon its receipt by the Board of Directors, the CEO, or the
Secretary; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
6. Vacancies. A vacancy in any office due to death, resignation,
removal, disqualification or any other cause may be filled for the unexpired
portion of the term thereof by the Board of Directors.
7. Chief Executive Officer. Subject to the authority of the Board of
Directors, the CEO shall have the general oversight of the conduct of the
business and affairs of the Corporation and its executive officers. The CEO may
sign, alone or with any other officer of the Corporation or other person
authorized by the Board of Directors, certificates for shares of the
Corporation, deeds, mortgages, bonds, contracts, trust deeds, or other
instruments, and shall perform all duties incident to the office of CEO, as well
as those which may be authorized, from time to time, by the Chairman of the
Board or the Board of Directors.
8. President. In the absence of the CEO, in the event of his death,
inability to act, or refusal to carry out a lawful order of the Board of
Directors, the President shall perform the duties of the CEO, and when so
acting, shall have all powers of and be subject to all the restrictions upon the
CEO. To the extent authorized in Article VII, the President may sign, alone or
with any other officer of the Corporation or other person authorized by the
Board of Directors, certificates for shares of the Corporation, deeds,
mortgages, bonds, contracts, trust deeds, or other instruments. The President
shall perform such other duties as from time to time may be assigned to him by
the Chairman of the Board, the CEO, or the Board of Directors.
9. Vice-President. In the absence of the CEO and the President, in the
event of either individual's death, inability to act, or refusal to carry out a
lawful order of the Board of Directors, or, with respect to the President, a
lawful order of the CEO, a Vice-President shall perform the duties of the CEO or
President, respectfully, and when so acting, shall have all powers of and be
subject to all the restrictions upon the CEO, or President, respectfully. A
Vice-President shall perform such other duties as from time to time may be
assigned to him by the Chairman of the Board, the CEO, the President, or the
Board of Directors.
10. Chief Financial Officer. If required by the Board of Directors, the
CFO shall give a bond for the faithful discharge of his duties in such sum and
with such surety or sureties as the Directors shall determine. The CFO shall
have charge and custody of and be responsible for all funds and securities of
the corporation; receive and give receipts for monies due and payable to the
Corporation from any source whatsoever, and deposit all such monies in the name
of the Corporation in such banks, trust companies or other depositories as shall
be selected in accordance with these Bylaws. The CFO shall, in general, perform
all of the duties incident to the
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office of CFO and such other duties as from time to time may be assigned by the
Chairman of the Board, the CEO, or the Board of Directors.
11. Treasurer. In the absence of the CFO, in the event of his death,
inability to act, or refusal to carry out a lawful order of the Board of
Directors or the CEO, the Treasurer shall perform the duties of the CFO, and
when so acting, shall have all powers of and be subject to all the restrictions
upon the CFO. The Treasurer shall, general, perform such other duties as from
time to time may be assigned to him by the Chairman of the Board, the CEO, the
CFO, or the Board of Directors.
12. Secretary. The Secretary shall keep the minutes of the
stockholders', and of the Directors', meetings in one or more books provided for
that purpose, cause all notices to be duly given in accordance with the
provisions of these Bylaws or as required, be custodian of the corporate records
and of the seal of the Corporation and keep a register of the post office
address of each stockholder which shall be furnished to the Secretary by such
stockholders. The Secretary shall have general charge of the stock transfer
books of the Corporation and perform all duties incident to the office of
Secretary, as well as such other duties as from time to time may be assigned to
him by the Chairman of the Board, the CEO, or the Board of Directors.
13. Assistant Officers. Any persons elected as assistant officers shall
assist in the performance of the duties of the designated office and such other
duties as shall be assigned to them by the Chairman of the Board, any Vice
President, the Secretary, the Treasurer, the CFO, the President, the CEO, or the
Board of Directors.
14. Combination of Offices. Any two or more of the offices hereinabove
enumerated may be held by one and the same person, if such person is so elected
or appointed.
15. Compensation. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors, and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
Director of the Corporation.
ARTICLE V
CHAIRMAN
1. Chairman of the Board. From its members, a Chairman of the Board of
Directors shall be appointed annually by the Board of Directors or at a special
meeting of the Board of Directors called for that purpose. If no Chairman of the
Board is appointed pursuant to this Article V, Section 1, the Chairman of the
Board then in office shall continue in that position until his successor is duly
elected or until his earlier death, resignation, or removal in the manner
hereinafter provided. The Chairman of the Board shall perform all duties
incident to the office of the Chairman of the Board, as well as those which may
be authorized, from time to time, by a majority of the whole Board of Directors.
2. Removal. The Chairman of the Board may be removed from the office of
the Chairman of the Board, with or without cause, at any time by resolution
adopted by a majority of the whole Board of Directors.
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3. Resignation. The Chairman of the Board may resign from the office of
the Chairman of the Board at any time by giving written notice of his
resignation to another member of the Board of Directors, the CEO, the President,
or the Secretary. Any such resignation shall take effect at the time specified
therein, or, if the time when it shall become effective is not specified
therein, it shall take effect immediately upon its receipt by another member of
the Board of Directors, the CEO, the President, or the Secretary; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
4. Vacancy. A vacancy in the office of the Chairman of the Board due to
death, resignation, removal, disqualification or any other cause may be filled
for the unexpired portion of the term thereof by a resolution adopted by a
majority of the remaining members of the Board of Directors.
5. Compensation. The compensation, if any, to be received by the
Chairman of the Board shall be fixed by the Board of Directors.
ARTICLE VI
COMMITTEES
1. Executive Committee; How Constituted and Powers. The Board of
Directors, by resolution adopted by a majority of the whole Board of Directors,
may designate one or more of the Directors then in office to constitute an
Executive Committee, which shall have and may exercise between meetings of the
Board of Directors all the delegable powers of the Board of Directors to the
extent not expressly prohibited by the Nevada General Corporation Law or by
resolution of the Board of Directors. The Board of Directors may designate one
or more Directors as alternate members of the Committee who may replace any
absent or disqualified member at any meeting of the Committee. Each member of
the Executive Committee shall continue to be a member thereof only at the
pleasure of a majority of the whole Board of Directors.
2. Executive Committee; Organization. The chairman appointed by the
Board of Directors shall act as chairman at all meetings of the Executive
Committee and the Secretary shall act as secretary thereof. In case of the
absence from any meeting of such chairman or the secretary, the Committee may
appoint a chairman or secretary, as the case may be, of the meeting.
3. Executive Committee; Meetings. Regular meetings of the Executive
Committee may be held without notice on such days and at such places as shall be
fixed by resolution adopted by a majority of the Committee and communicated to
all its members. Special meetings of the Committee shall be held whenever called
by the chairman of the Committee or a majority of the members thereof then in
office. Notice of each special meeting of the Committee shall be given in the
manner provided in Section 6 of Article III of these Bylaws for special meetings
of the Board of Directors. Notice of any such meeting of the Committee, however,
need not be given to any member of the Committee if waived by him in writing or
by telegraph, cable, wireless or other form of recorded communication either
before or after the meeting, or if he is present at such meeting, except when he
attends for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Subject to the
provisions of this Article VI, the Committee, by resolution adopted by a
majority of the whole Committee, shall fix its own rules of procedure and it
shall keep a record of its proceedings and report them to the Board of Directors
at the next regular meeting thereof after such proceedings have been taken. All
such proceedings shall be subject to revision or alteration by the Board of
Directors; provided, however, that third parties shall not be prejudiced by any
such revision or alteration.
4. Executive Committee; Quorum and Manner of Acting. A majority of the
Executive Committee shall constitute a quorum for the transaction of business,
and, except as specified in Section 3 of this Article VI, the act of a majority
of those present at a meeting thereof at which a quorum is present shall be the
act of the Committee. The members of the Committee shall act only as a
committee, and the individual members shall have no power as such.
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5. Other Committees. The Board of Directors, by resolution adopted by a
majority of the whole Board, may constitute other committees, which shall in
each case consist of one or more of the Directors and, at the discretion of the
Board of Directors, such officers who are not Directors. The Board of Directors
may designate one or more Directors or officers who are not Directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Each such committee shall have and may
exercise such powers as the Board of Directors may determine and specify in the
respective resolutions appointing them; provided, however, that (a) unless all
of the members of any committee shall be Directors, such committee shall not
have authority to exercise any of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and (b) if any
committee shall have the power to determine the amounts of the respective fixed
salaries of the officers of the Corporation or any of them, such committee shall
consist of not less than three (3) members and none of its members shall have
any vote in the determination of the amount that shall be paid to him as a fixed
salary. A majority of all the members of any such committee may fix its rules of
procedure, determine its action and fix the time and place of its meetings and
specify what notice thereof, if any, shall be given, unless the Board of
Directors shall otherwise by resolution provide.
6. Committee Minutes. The Executive Committee and any other committee
shall keep regular minutes of their proceedings and report the same to the Board
of Directors when required.
7. Action by Committees Without a Meeting. Any action required or
permitted to be taken at a meeting of the Executive Committee or any other
committee of the Board of Directors may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, is signed by all members of the committee and such consent is
filed with the minutes of the proceedings of the committee.
8. Resignations. Any member of the Executive Committee or any other
committee may resign therefrom at any time by giving written notice of his
resignation to the chairman or the secretary thereof. Any such resignation shall
take effect at the time specified therein, or if the time when it shall become
effective is not specified therein, it shall take effect immediately upon its
receipt by the chairman or the secretary; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
9. Vacancies. Any vacancy in the Executive Committee or any other
committee shall be filled by the vote of a majority of the whole Board of
Directors.
10. Compensation. The Board of Directors may at any time and from time
to time by resolution provide that committee members shall be paid a fixed sum
for attendance at each committee meeting or a stated salary as a committee
member in either case payable in cash, the Corporation stock, or such other form
designated by the Board of Directors. In addition, the Board of Directors may at
any time and from time to time by resolution provide that such committee members
shall be paid their actual expenses, if any, of attendance at each committee
meeting. Nothing in this section shall be construed as precluding any committee
member from serving the Corporation in any other capacity and receiving
compensation therefor, but a majority of the whole Board of Directors may by
resolution provide that any committee member receiving compensation for his
services to the Corporation in any other capacity shall not receive additional
compensation for his services as a committee member.
11. Dissolution of Committees; Removal of Committee Members. The Board
of Directors, by resolution adopted by a majority of the whole Board, may, with
or without cause, dissolve the Executive Committee or any other committee, and,
with or without cause, remove any member thereof.
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ARTICLE VII
MISCELLANEOUS
1. Execution of Contracts. Except as otherwise required by law or by
these Bylaws, any contract or other instrument may be executed and delivered in
the name of the Corporation and on its behalf by the Chairman of the Board or
the CEO, and, at the direction of the Board of Directors, Chairman of the Board,
or the CEO, such contracts or instruments may be signed by the President, the
CFO, the Treasurer, or any Vice President. In addition, the Board of Directors
may authorize any other officer or officers or agent or agents to execute and
deliver any contract or other instrument in the name of the Corporation and on
its behalf, and such authority may be general or confined to specific instances
as the Board of Directors may by resolution determine.
2. Attestation. The CEO, the President, the CFO, the Treasurer, the
Secretary, any Vice President, or any Assistant Secretary may attest the
execution of any instrument or document by the Chairman of the Board, the CEO,
or any other duly authorized officer or agent of the Corporation, other than
himself, and may affix the corporate seal, if any, in witness thereof, but
neither such attestation nor the affixing of a corporate seal shall be requisite
to the validity of any such document or instrument.
3. Checks, Drafts. All checks, drafts, orders for the payment of money,
bills of lading, warehouse receipts, obligations, bills of exchange and
insurance certificates shall be signed or endorsed (except endorsements for
collection for the account of the Corporation or for deposit to its credit,
which shall be governed by the provisions of Section 4 of this Article VII) by
such officer or officers or agent or agents of the Corporation and in such
manner as shall from time to time be determined by resolution of the Board of
Directors.
4. Deposits. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation or otherwise as
the Board of Directors or the CEO shall direct in general or special accounts at
such banks, trust companies, savings and loan associations, or other
depositories as the Board of Directors may select or as may be selected by any
officer or officers or agent or agents of the Corporation to whom power in that
respect has been delegated by the Board of Directors. For the purpose of deposit
and for the purpose of collection for the account of the Corporation, checks,
drafts and other orders for the payment of money which are payable to the order
of the Corporation may be endorsed, assigned, and delivered by any officer or
agent of the Corporation. The Board of Directors may make such special rules and
regulations with respect to such accounts, not inconsistent with the provisions
of these Bylaws, as it may deem expedient.
5. Proxies in Respect of Stock or Other Securities of Other
Corporations. Unless otherwise provided by resolution adopted by the Board of
Directors, the Chairman of the Board, the CEO, the President, the CFO, the
Treasurer, or any Vice President may exercise in the name and on behalf of the
Corporation the powers and rights which the Corporation may have as the holder
of stock or other securities in any other corporation, including without
limitation the right to vote or consent with respect to such stock or other
securities.
6. Fiscal Year. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors, and may thereafter be changed from time to
time by action of the Board of Directors. Initially, the fiscal year shall begin
on January 1 and end on December 31.
7. Gender. Any masculine reference in these Bylaws shall also include
the feminine.
ARTICLE VIII
STOCK
1. Certificates. Every holder of stock in the Corporation shall be
entitled to have a certificate signed by or in the name of the Corporation by
the Chairman of the Board, the CEO, the President, or a Vice President, and by
the CFO, the Treasurer, the Secretary or an Assistant Treasurer or Assistant
Secretary. The signatures of such officers upon such certificate may be
facsimiles if the certificate is manually signed by a transfer agent or
registered by a registrar, other than the Corporation itself or one of its
employees. If any officer who has signed or whose facsimile signature has been
placed upon a certificate has ceased for any reason to be
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such officer prior to issuance of the certificate, the certificate may be issued
with the same effect as if that person were such officer at the date of issue.
All certificates for stock of the Corporation shall be consecutively numbered,
shall state the number of shares represented thereby and shall otherwise be in
such form as shall be determined by the Board of Directors, subject to such
requirements as are imposed by the Nevada General Corporation Law. The names and
addresses of the persons to whom the shares represented by certificates are
issued shall be entered on the stock transfer books of the Corporation, together
with the number of shares and the date of issue, and in the case of
cancellation, the date of cancellation. Certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificate shall be
issued in exchange for such shares until the original certificate has been
cancelled; except that in the case of a lost, stolen, destroyed, or mutilated
certificate, a new certificate may be issued in accordance with Section 4 of
this Article VIII.
2. Transfer of Stock. Transfers of shares of stock of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by his legal representative or attorney in fact, who shall
furnish proper evidence of authority to transfer to the Secretary, or a transfer
clerk or a transfer agent, and upon surrender of the certificate or certificates
for such shares properly endorsed and payment of all taxes thereon. The person
in whose name shares of stock stand on the books of the Corporation shall be
deemed the owner thereof for all purposes as regards the Corporation.
3. Regulations. The Board of Directors may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for stock of the
Corporation. The Board of Directors may appoint, or authorize any officer or
officers or any committee to appoint, one or more transfer clerks or one or more
transfer agents and one or more registrars, and may require all certificates for
stock to bear the signature or signatures of any of them.
4. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
destroyed, or mutilated, upon the making of an affidavit of the fact by the
person claiming the certificate of stock to be lost, destroyed, or mutilated.
When authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, destroyed, or mutilated certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, destroyed, or
mutilated.
5. Registered Stockholders. The Corporation (i) shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner, (ii) shall hold liable
for calls and assessments a person registered on its books as the owner of
shares, and (iii) shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by the laws of Nevada.
ARTICLE IX
DIVIDENDS
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares of stock in the manner
and upon the terms and conditions provided in the Articles of Incorporation and
the Nevada General Corporation Law.
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ARTICLE X
SEAL
A corporate seal shall not be requisite to the validity of any
instrument executed by or on behalf of the Corporation. Nevertheless, if in any
instance a corporate seal is used, the same shall bear the full name of the
Corporation and the year and state of incorporation, or words or figures of
similar import.
ARTICLE XI
AMENDMENTS
These Bylaws may be repealed, altered or amended, or new bylaws may be
adopted by the affirmative vote of the entire Board of Directors. These Bylaws
may also be repealed, altered or amended, or new bylaws may be adopted by the
affirmative vote of a majority of the combined voting power of the then
outstanding capital stock of the Corporation, and in such instance the
provisions so adopted by the stockholders may be repealed or amended only by the
subsequent affirmative vote of a majority of the combined voting power of the
then outstanding capital stock of the Corporation.
The undersigned Secretary of Central Freight Lines, Inc. hereby
certifies the foregoing to be the Bylaws of the Corporation, as adopted by the
Board of Directors on the 7 day of April, 1999.
/s/ Douglas E. Quicksall
------------------------------
Douglas E. Quicksall, Secretary
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EXHIBIT 10.2
CENTRAL FREIGHT LINES, INC.
INCENTIVE STOCK PLAN
1. PURPOSE AND SCOPE OF THE PLAN. The purpose of this incentive stock
plan is to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company, and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options,
Nonstatutory Stock Options, Restricted Stock Awards, Reload Options, Other Stock
Based Awards, or Other Benefits at the discretion of the Board and, if required
by the Board, as reflected in the terms of written Award agreements. Incentive
Stock Options shall only be granted to Employees. The Plan shall not confer upon
any Participant any right with respect to continuation of an employment or
consulting relationship with the Company, nor shall it interfere in any way with
an employee's right or the Company's right to terminate the employment or
consulting relationship at any time.
2. DEFINITIONS. As used in this Incentive Stock Plan, the following
definitions shall apply:
(a) "Award" shall mean Incentive Stock Options, Nonstatutory
Stock Options, Restricted Stock Awards, Reload Options, Other Stock
Based Awards, or Other Benefits granted pursuant to the Plan.
(b) "Board" shall mean the Committee, if one has been
appointed, or the Board of Directors of the Company, if no Committee is
appointed.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Common Stock" shall mean the Common Stock of the Company,
par value $1.00 per share.
(e) "Company" shall mean Central Freight Lines, Inc., a Texas
corporation, or any permitted successor that assumes the obligations
under this Plan by agreement or operation of law.
(f) "Committee" shall mean the Committee appointed by the
Board of Directors in accordance with Section 4 of the Plan, if one is
appointed.
(g) "Consultant" shall mean any person who is engaged by the
Company, Parent, or any Subsidiary to render consulting services and is
compensated for such consulting services or any other person determined
by the Board to have performed services for or on behalf of the Company
which merits the grant of an Award, and any director of the Company
whether compensated for such services or not.
<PAGE> 2
(h) "Continuous Status as an Employee" shall mean the absence
of any interruption or termination of service as an Employee.
Continuous Status as an Employee shall not be considered interrupted in
the case of sick leave, military leave, or any other leave of absence
approved by the Board; provided that such leave is for a period of not
more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(i) "Director" shall mean a member of the Board of Directors
of the Company, Parent, or any Subsidiary.
(j) "Employee" shall mean any person, including officers and
directors, employed by the Company, Parent, or any Subsidiary of the
Company. The payment of a director's fee shall not be sufficient to
constitute "employment."
(k) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(l) "Fair Market Value" shall mean:
(i) If the Common Stock is not at the time listed or
admitted to trading on a stock exchange, the mean between the
lowest reported bid price and the highest reported asked price
of the Common Stock in the over-the-counter market on the date
the Award is granted, as such prices are reported by The
Nasdaq Stock Market or in a publication of general circulation
selected by the Board and regularly reporting the market price
of the Common Stock in such market; or
(ii) If the Common Stock is at the time listed or
admitted to trading on any stock exchange, the mean between
the lowest and highest reported sales price of the Common
Stock on the date of the grant of the Award on the principal
exchange on which the Common Stock is then listed or admitted
to trading.
If no reported quotation or sale of Common Stock takes place on the
date in question, the last reported closing sale price of the Common
Stock prior to such date shall be determinative.
(m) "Immediate Family Member" shall mean the spouse, children,
or grandchildren of the Participant.
(n) "Incentive Stock Option" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422
of the Code.
(o) "Nonstatutory Stock Option" shall mean an Option not
intended to qualify as an Incentive Stock Option.
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<PAGE> 3
(p) "Option" shall mean a stock option granted pursuant to the
Plan.
(q) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(r) "Other Stock Based Awards" shall mean awards valued in
whole or in part by reference to, or otherwise based on, the Company's
Common Stock.
(s) "Other Benefits" shall mean types of Awards granted under
this Plan as determined by the Board in addition to those specifically
provided.
(t) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(u) "Participant" shall mean an Employee or Consultant who
receives an Award.
(v) "Plan" shall mean this Incentive Stock Plan.
(w) "Reload Option" shall mean an Option to purchase for cash
or shares a number of shares of Common Stock up to (i) the number of
shares of Common Stock used to exercise the underlying option, and (ii)
the number of shares of Common Stock used to satisfy any tax
withholding requirement incident to the exercise of the underlying
option, in either case through the use of shares of Common Stock or
vested options.
(x) "Restricted Stock" shall mean shares of Common Stock which
are subject to the restrictions described in this Plan and such other
terms and conditions as the Board may prescribe.
(y) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 12 of the Plan.
(z) "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the
Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of shares which may be optioned, sold, or
granted through Awards under the Plan is 1,500,000 shares of Common Stock. The
Shares may be authorized, but unissued, or reacquired Common Stock. If an Option
should expire or become unexercisable for any reason without having been
exercised in full, the unpurchased Shares which were subject to the Option shall
become available for future grant under the Plan, unless the Plan shall have
been terminated. Any shares of Restricted Stock which are forfeited shall again
be available for Awards under the Plan. Fractional shares shall not be issued.
The Board will determine the manner in which fractional share values will be
treated. Each Award shall state the total number of shares of Common Stock
subject to such Award. Shares issued under the Plan and later repurchased by the
Company shall become available for future grant or sale under the Plan.
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<PAGE> 4
4. ADMINISTRATION OF THE PLAN.
(a) Procedure. The Plan shall be administered by the Board of
Directors of the Company or a committee appointed by the Board in
accordance with this Section 4.
(i) Subject to Section 4.(a)(ii), the Board of
Directors may appoint a committee consisting of not less than
two members of the Board of Directors to administer the Plan
on behalf of the Board of Directors, subject to such terms and
conditions as the Board of Directors may prescribe. Once
appointed, the committee shall continue to serve until
otherwise directed by the Board of Directors. Members of the
Board who are either eligible for Awards or have been granted
Awards may vote on any matters affecting the administration of
the Plan or the grant of any Awards pursuant to the Plan,
except that no such member shall act upon the granting of an
Award to himself or herself, but may be counted in determining
the existence of a quorum at any meeting of the Board during
which action is taken with respect to the granting of Awards
to him or her. Anything to the contrary notwithstanding,
Awards granted to Directors shall be approved by the full
Board of Directors.
(ii) If the Company registers any class of any equity
security pursuant to Section 12 of the Exchange Act, from the
effective date of such registration until six months after the
termination of such registration, any grants of Awards to
officers or directors shall only be made by the Board of
Directors or a Committee satisfying the provisions of Rule
16b-3(b)(3) under the Exchange Act, or any successor rule,
each as amended from time-to-time with respect to exempting
grants under employee benefit plans. Once appointed, the
Committee shall continue to serve until otherwise directed by
the Board of Directors.
(iii) Subject to Sections 4.(a)(i) and 4.(a)(ii),
from time to time the Board of Directors may increase the size
of the Committee and appoint additional members of the
Committee, remove members (with or without cause), and appoint
new members, fill vacancies however caused, or remove all
members of the Committee and thereafter directly administer
the Plan.
(b) Powers of the Board. Subject to the provisions of the
Plan, the Board shall have the authority, in its discretion: (i) to
grant Incentive Stock Options, Nonstatutory Stock Options, Restricted
Stock Awards, Reload Options concurrently with the grant of any Award
of Incentive Stock Options or Nonstatutory Stock Options, Other Stock
Based Awards, and Other Benefits; (ii) to determine, upon review of
relevant information and in accordance with Section 2.(l) of the Plan,
the Fair Market Value of the Common Stock; (iii) to determine the
exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 8.(a) of the Plan; (iv)
to determine the Employees and Consultants to whom, and the time or
times at which, Awards shall be granted and the number of shares to be
represented by each Award; (v) to interpret the
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<PAGE> 5
Plan; (vi) to prescribe, amend, and rescind rules and regulations
relating to the Plan; (vii) to determine the terms and provisions of
each Award granted (which need not be identical) and, with the consent
of the holder of the Award, modify or amend each Award; (viii) to
accelerate or defer (with the consent of the Participant) the exercise
or vesting date of any Award, consistent with the provisions of Section
5 of the Plan; (ix) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Award
previously granted by the Board; and (x) to make all other
determinations deemed necessary or advisable for the administration of
the Plan.
(c) Effect of Board's Decision. All decisions, determinations,
and interpretations of the Board shall be final and binding on all
Participants and any other holders of any Awards granted under the
Plan.
5. ELIGIBILITY.
(a) Generally. Awards may be granted only to Employees and
Consultants. Incentive Stock Options may be granted only to Employees.
An Employee or Consultant who has been granted an Award may, if he is
otherwise eligible, be granted an additional Award or Awards.
(b) Limitations on Incentive Stock Options. The aggregate Fair
Market Value (determined as of the date of grant) of Common Stock with
respect to which Incentive Stock Options are exercisable for the first
time by any Participant during any calendar year (under all plans of
the Company, Parent, or any Subsidiary) shall not exceed $100,000. If
the Fair Market Value (determined as of the date of grant) of Common
Stock with respect to which Incentive Stock Options are exercisable for
the first time by any Participant during any calendar year exceeds
$100,000, then the Options for the first $100,000 worth of Common Stock
to become exercisable in such calendar year shall be Incentive Stock
Options and the Options for the amount in excess of $100,000 that
become exercisable in that calendar year shall be Nonstatutory Stock
Options. In the event that the Code or the regulations promulgated
thereunder are amended after the date of the Plan to provide for a
different limit on the Fair Market Value of Common Stock permitted to
be subject to Incentive Stock Options, such different limit shall be
automatically incorporated in this Section 5.(b) and shall apply to any
Incentive Stock Options granted after the effective date of such
amendment.
(c) Other Stock Based Awards. The Board shall have the right
to grant Other Stock Based Awards which may include, without
limitation, the grant of Common Stock based on certain conditions,
including short-term incentives or the issuance of Common Stock in lieu
of cash under other incentive or deferred compensation programs of the
Company.
(d) Other Benefits. The Board shall have the right to provide
Other Benefits, if the Board believes that such Awards would further
the purposes for which this Plan was established.
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<PAGE> 6
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. TERM OF AWARDS. The term of each Incentive Stock Option shall be ten
(10) years from the date of grant or such shorter term as may be provided in any
notice or agreement evidencing such Award; provided, however, in the case of an
Incentive Stock Option granted to a Participant who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years from
the date of grant or such shorter time as may be provided in the Incentive Stock
Option agreement. The foregoing notwithstanding, if the Code or regulations
promulgated thereunder are subsequently amended to provide for a different
percentage of voting power or maximum option term for Incentive Stock Options,
such new limits shall be automatically incorporated in this Section 7 and shall
apply to any Incentive Stock Options granted after the effective date of such
amendment. The term of each Reload Option shall be equal to the remaining option
term of the underlying Option. The term of each Award, if applicable, that is
not an Incentive Stock Option or Reload Option shall be determined by the Board
and set forth in the agreement or notification relating to Nonstatutory Stock
Options, Restricted Stock, Other Stock Based Awards, or Other Benefits.
8. EXERCISE PRICE AND CONSIDERATION.
(a) Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be such
price as is determined by the Board, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option, any
restrictions imposed by the Code at the time of grant, which
restrictions currently are as follows:
(A) grants to an Employee who, at the time
of the grant of such Incentive Stock Option, owns
stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company
or any Parent or Subsidiary, shall have a per Share
exercise price no less than 110% of the Fair Market
Value per Share on the date of grant; or
(B) grants to any other Employee shall have
a per Share exercise price no less than 100% of the
Fair Market Value per Share on the date of grant.
(ii) In the case of Nonstatutory Stock Options, at
any price per Share determined by the Board.
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<PAGE> 7
(iii) In the case of Reload Options, unless otherwise
established by the Board, the exercise price per share of
Common Stock deliverable upon the exercise of a Reload Option
shall be the Fair Market Value of a share of Common Stock on
the date the grant of the Reload Option becomes effective.
(b) Consideration for Restricted Stock, Other Stock Based
Awards, and Other Benefits. In the case of Restricted Stock, an award
of Restricted Stock may provide that the Participant be required to
furnish such consideration for the Award as the Board shall determine,
or may be issued in exchange for past services or other legal
consideration. An Award of Restricted Stock may provide that such
Restricted Stock may be exchanged during the Restricted Period for
other Restricted Stock upon such terms and conditions as the Board may
permit or shall require. Payment under or a settlement of any Other
Stock Based Awards and Other Benefits shall be made in such manner and
at such times as the Board may determine.
(c) Form of Consideration. The consideration to be paid for
the Shares to be issued upon exercise of an Option or grant of an
Award, including the method of payment, shall be determined by the
Board and may consist entirely of (i) cash, (ii) check, (iii) other
Shares of Common Stock having a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to
which the Option shall be exercised, (iv) vested and exercisable (but
unexercised) Options valued at the difference between the exercise
price and Fair Market Value of the Shares, or (v) any combination of
such methods of payment, or other consideration and method of payment
for the issuance of Shares to the extent permitted under the Texas
Business Corporation Act. In making its determination as to the type of
consideration to accept, the Board shall consider whether acceptance of
the consideration may be reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) Generally. Any Option granted under the Plan shall be
exercisable at such times and under such conditions as determined by
the Board, including performance criteria with respect to the Company
and/or the Participant, and as shall be permissible under the terms of
the Plan. An Option may not be exercised for a fraction of a Share.
Anything to the contrary notwithstanding, each Reload Option is fully
exercisable two years from the effective date of grant (or if fewer
than two years remain until the termination of this Plan, then such
Reload Option shall be exercisable within 90 days prior to termination
of the Plan).
(b) Procedure. An Option shall be deemed to be exercised when
written notice of exercise (if applicable, in the form required by the
Nonstatutory or Incentive Stock Option agreement or notice) has been
given to the Company in accordance with the terms of the Option by the
person entitled to exercise the Option and full payment for the Shares
with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8 of the
Plan. Until the issuance (as evidenced by the
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<PAGE> 8
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such
Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or
cause to be issued) the stock certificate promptly upon exercise of the
Option. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is
issued, except as provided in Section 12 of the Plan. Exercise of an
Option in any manner shall result in a decrease in the number of Shares
which may be available, both for purposes of the Plan and for purchase
under the Option, by the number of Shares as to which the Option is
exercised.
10. CONDITIONS AND RESTRICTIONS AFFECTING AWARDS.
(a) Certain Events Affecting Exercisability of Incentive Stock
Options.
(i) Termination of Status as an Employee. With
respect to Incentive Stock Options, in the event of
termination of a Participant's Continuous Status as an
Employee, such Participant may, but only within three (3)
months after such event of termination of a Participant's
Continuous Status as an Employee (but in no event later than
the date of expiration of the term of the Incentive Stock
Option as set forth in the Incentive Stock Option agreement or
notice), exercise his Incentive Stock Option to the extent
that he was entitled to exercise it at the date of
termination. To the extent that he was not entitled to
exercise the Incentive Stock Option at the date of such
termination, or if he does not exercise the Incentive Stock
Option (which he was entitled to exercise) within the time
specified in this Subsection 10.(a) the Incentive Stock Option
shall terminate.
(ii) Disability of Participant. With respect to
Incentive Stock Options, notwithstanding the provision of
Section 10.(a)(i) above, in the event of termination of a
Participant's Continuous Status as an Employee as a result of
his total and permanent disability (as defined in Section
22(e)(3) of the Code), he may, but only within twelve (12)
months following the date of termination (but in no event
later than the date of expiration of the term of the Incentive
Stock Option as set forth in the Incentive Stock Option
agreement or notice), exercise his Incentive Stock Option to
the extent he was entitled to exercise it at the date of
termination. To the extent that he was not entitled to
exercise the Incentive Stock Option at the date of
termination, or if he does not exercise the Incentive Stock
Option (which he was entitled to exercise) within the time
specified herein, the Incentive Stock Option shall terminate.
(iii) Death of Participant. With respect to Incentive
Stock Options, in the event of the death of a Participant:
(A) who is at the time of his death an
Employee of the Company and who shall have been in
Continuous Status as an Employee since the
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<PAGE> 9
date of grant of the Incentive Stock Option, the
Incentive Stock Option may be exercised, at any time
within twelve (12) months following the date of death
(but in no event later than the date of expiration of
the term of the Incentive Stock Option as set forth
in the Incentive Stock Option agreement or notice),
by the Participant's estate or by a person who
acquired the right to exercise the Incentive Stock
Option by bequest or inheritance, but only to the
extent that the Participant had the right to exercise
the Incentive Stock Option at the date of death; or
(B) which occurs within three (3) months
after the termination of Continuous Status as an
Employee, the Incentive Stock Option may be
exercised, at any time within twelve (12) months
following the date of death (but in no event later
than the date of expiration of the term of the
Incentive Stock Option as set forth in the Incentive
Stock Option agreement or notice), by the
Participant's estate or by a person who or entity
which acquired the right to exercise the Incentive
Stock Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued
at the date of termination.
(b) Certain Conditions Affecting Restricted Stock Awards.
(i) Restriction. Except as provided in Section
10.(b)(iii), at the time of an Award of Restricted Stock, the
Board may establish in its discretion, for each Participant a
vesting schedule and a period of time ("Restricted Period")
during which Restricted Stock may not be sold, assigned,
transferred, pledged, or otherwise encumbered, except as
hereinafter provided. Except for such restrictions as may be
provided in the Restricted Stock agreement or notice and
subject to this Subsection 10.(b), the Participant shall have
all rights of a stockholder with respect to such Restricted
Stock. The Board, in its discretion, may accelerate the time
at which any or all of the restrictions shall lapse with
respect to any shares of Restricted Stock prior to the
expiration of the Restricted Period or remove any or all of
such restrictions, as it deems appropriate.
(ii) Registration and Redelivery of Restricted Stock.
Each certificate of Restricted Stock shall be registered in
the name of the Participant and deposited by the Participant,
together with a stock power endorsed in blank, with the
Company. During the Restricted Period, the Restricted Stock
shall remain in the possession of the Company. At the end of
the Restricted Period, the Company shall redeliver to the
Participant (or the Participant's legal representative or
personal representative) the certificates of Common Stock
deposited pursuant to this Subsection 10.(b)(ii). The Common
Stock so delivered to the Participant shall no longer be
subject to the provisions of this Subsection 10.(b).
(iii) Termination of Employment. Unless the
Restricted Stock agreement otherwise provides, in the event
the Participant's employment with the Company
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<PAGE> 10
and/or its Subsidiaries or Parent is terminated for reasons
other than death, total and permanent disability (as defined
in Section 22(e)(3) of the Code), or retirement, all
Restricted Stock awarded to such Participant which is still
subject to restriction shall be forfeited. For the purposes of
this Subsection 10.(b)(iii), the forfeiture period for each
Award of Restricted Stock shall be separately calculated from
the date of the Award. Unless the Restricted Stock agreement
otherwise provides, the restrictions contained in Subsection
10.(b)(i) shall terminate on the Participant's death, total
and permanent disability (as defined in Section 22(e)(3) of
the Code), or attainment of age sixty-five (65).
(c) Certain Conditions Affecting Reload Options.
(i) Non-Qualification as Incentive Stock Option.
Notwithstanding the fact that the underlying Option may be an
Incentive Stock Option, a Reload Option is not intended to
qualify as an Incentive Stock Option.
(ii) Reload Option Amendment. Each Incentive Stock
Option and Nonstatutory Stock Option agreement or notice shall
state whether the Board has authorized Reload Options with
respect to the underlying options. Upon the exercise of an
underlying option, any additional Reload Option must be
evidenced by an amendment to the underlying agreement or
notice or by a new notice from the Board.
(iii) Termination of Employment. No additional Reload
Options shall be granted to Participants when Options are
exercised pursuant to the terms of this Plan following
termination of the Participant's employment.
(iv) Application Sections. Applicable sections
regarding the manner of payment, restrictions, death,
retirement, total or permanent disability (as defined in
Section 22(e)(3) of the Code) of the Participant, and similar
provisions relating to the underlying Option, are incorporated
by reference in this Subsection 10.(c) as though fully set
forth herein.
(d) Certain Conditions Affecting Other Stock Based Awards and
Other Benefits. Unless the agreement or notice relating to the Other
Stock Based Awards or Other Benefits otherwise provides, except in the
event of the Participant's death, total or permanent disability (as
defined in Section 22(e)(3) of the Code), or retirement after attaining
age 65, in the event that the Participant terminates employment with
the Company and/or its Subsidiaries or Parent prior to the time
benefits become payable pursuant to Awards of Other Stock Based Awards
or Other Benefits, such Awards shall be immediately forfeited. Unless
the agreement or notice relating to the Other Stock Based Awards or
Other Benefits otherwise provides, in the event of the Participant's
death, total or permanent disability (as defined in Section 22(e)(3) of
the Code), or retirement after attaining age 65, the Company shall pay
to the Participant (or the Participant's legal representative or
personal representative) the amount that would have been payable to the
Participant had the
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<PAGE> 11
Participant satisfied all of the requirements contained in the
agreement relating to such Award calculated as of the date of the
occurrence of an event described in this sentence.
11. TRANSFERABILITY OF OPTIONS.
(a) Incentive Stock Options. Incentive Stock Options may not
be sold, pledged, assigned, hypothecated, transferred, or disposed of
in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the
Participant, only by the Participant.
(b) Awards Other than Incentive Stock Options. All Awards
other than Incentive Stock Options may be transferred by the
Participant to (i) Immediate Family Members, (ii) a trust or trusts for
the exclusive benefit of Immediate Family Members Approved Trusts,
(iii) a partnership, limited liability company, or corporation in which
Immediate Family Members or Approved Trusts are the only partners,
members, or stockholders, or (iv) if specifically permitted in the
agreement or notice, other persons or entities, provided that
subsequent transfers of transferred Awards shall be prohibited except
for transfers to the Participant or transfers by will or the laws of
descent and distribution. Following transfer, the Awards shall continue
to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that the term "Participant"
shall be deemed to refer to the transferee.
12. ADJUSTMENTS UPON CERTAIN CHANGES.
(a) In the event of any change in the outstanding Common Stock
by reason of a stock split, stock dividend, combination,
reclassification, or exchange of Common Stock, recapitalization,
merger, consolidation, or other event, the shares of Common Stock
authorized hereunder and outstanding Awards, as applicable, shall be
proportionately adjusted by the Board in its sole discretion and any
such judgment shall be binding and conclusive on all persons. Provided,
however, in the case of Incentive Stock Options, no such adjustment
shall be made if the result thereof would be that the excess of (i) the
aggregate Fair Market Value of the new or substituted shares over (ii)
the aggregate exercise price of such shares is more than (x) the excess
of the aggregate Fair Market Value of all shares subject to the Option
immediately before such substitutions or assumption over (y) the
aggregate exercise price of such shares, or that the new Option or the
assumption of the old Option gives the Participant additional benefits
which the Participant did not have under the old Option.
(b) Notwithstanding anything in the Plan to the contrary,
agreements or notices with respect to Awards may contain change of
control provisions for the benefit of the Participant as the Board
shall approve (such approval to be conclusively evidenced by the
execution and delivery of such agreements or notices to the
Participants). Change of control provisions shall mean provisions to
protect Participant's interest in the Plan should the Company, its
stock or its assets be acquired by another person or entity, or should
the Participant's employment terminate in connection therewith.
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<PAGE> 12
13. TIME OF GRANTING AWARDS. The date of grant of an Award, for all
purposes, shall be the date on which the Board makes the determination granting
that Award or such other effective date as the Board may specify in its grant of
the Award. Notice of the determination shall be given to each Employee or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may
deem advisable; provided that the following revisions or amendments
shall require approval of the stockholders of the Company:
(i) any change in the designation of the class of
persons eligible to be granted Awards;
(ii) if the Company has a class of equity securities
registered under Section 12 of the Exchange Act at the time of
such revision or amendment, any material increase in the
benefits accruing to Participants under the Plan who have
already received Awards; or
(iii) if otherwise required by any applicable laws.
(b) Effect of Amendment or Termination. Any amendment or
termination of the Plan shall not affect Awards already granted and
those Awards shall remain in full force and effect as if this Plan had
not been amended or terminated, unless mutually agreed otherwise
between the Participant and the Board, which agreement must be in
writing and signed by the Participant and the Company.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise or grant of an Award unless the exercise or grant of
such Award and the issuance and delivery of Shares shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or quotation system upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. In the case
of officers and other persons subject to Section 16(b) of the Exchange Act, the
Board, in its discretion, may impose limitations upon the exercise, delivery, or
payment of any Award which it believes are necessary or desirable in order to
comply with Section 16(b) of the Act and the rules and regulations thereunder.
The Board may require any person receiving Common Stock hereunder to acknowledge
that such Common Stock is being acquired for investment purposes and not with a
view for resale or distribution and such Common Stock shall not be sold or
transferred unless in accordance with applicable law and regulations. If the
Company, as part of an offering of securities or otherwise, finds it desirable
because of legal or regulatory requirements to reduce the period during which
Options may be exercised, the Board
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<PAGE> 13
may, in its discretion and without the holders' consent, so reduce such period
on not less than fifteen (15) days' written notice to the holders thereof.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available the number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance or sale of any Shares under the Plan, shall relieve the Company of any
liability in respect of the failure to issue or sell the Shares as to which the
requisite authority shall not have been obtained.
17. AWARD AGREEMENT. Awards shall be evidenced by written agreements or
notices in form as the Board shall approve.
18. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval as required by law by the stockholders of the Company within twelve
(12) months after the date the Plan is adopted by the Board of Directors.
19. TAX WITHHOLDING. The Board shall have sole discretion whether to
withhold stock sufficient to satisfy any withholding or other tax due with
respect the exercise of an Option, the vesting of Restricted Stock or any
similar transaction under the Plan, or to demand such amounts in cash. Any tax
withholding effected in shares of Common Stock must comply with Rule 16b-3 (or
any successor), if applicable, and other applicable laws.
20. NON-UNIFORM DETERMINATIONS. The Board's determinations, including
without limitation, (a) the Participants' right to receive Awards, (b) the form,
amount, and timing of Awards, (c) the terms, conditions, and provisions of
Awards (including vesting and forfeiture provisions), and (d) the agreements or
notices evidencing the same, need not be uniform and may be made by it
selectively among Participants who receive, or who are eligible to receive,
Awards under the Plan, whether or not such Participants are similarly situated.
21. RESTRICTIONS ON EXERCISE. To the extent required to comply with
Rule 16b-3, no Participant receiving an award under this Plan may dispose of
Common Stock awarded under the Plan prior to the expiration of six months from
the date of grant or dispose of an Option awarded under the Plan, or its
underlying Common Stock, prior to the expiration of six months from the date of
acquisition of the Option.
22. INDEMNIFICATION. Board members shall be indemnified and held
harmless by the Company from any loss, liability, or expense that may be imposed
upon or incurred by such present or past Board member in connection with or
resulting from any claim, action, or proceeding in which the member is involved
by reason of any action taken or failure to act under the Plan; provided such
member shall give the Company an opportunity, at its own expense, to defend the
same. The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the
Company's Articles of
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<PAGE> 14
Incorporation or Bylaws, as a matter or law, or otherwise, or any power that the
Company may have to indemnify them or hold them harmless.
23. REQUIREMENTS OF LAW. Awards, agreements, notices, and the issuance
of shares of Common Stock shall be subject to applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or securities
exchanges or quotation systems as may be required. The Board shall determine
whether any Option or Common Stock issued hereunder is required to be registered
under the Securities Act of 1933 or may be issued under an exemption. In its
sole discretion, the Company may, but is not obliged to, file a registration
statement covering Common Stock issued under the Plan.
24. LEGEND ON STOCK CERTIFICATES. Unless Common Stock issued under the
Plan has been previously registered, issued Common Stock shall bear the
following or similar legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "1933 Act") or under
the securities laws of any state and may not be transferred, assigned,
sold, or hypothecated unless a registration statement under the 1933
Act and the applicable state laws shall be in effect with respect
thereto or an opinion of counsel satisfactory to the Corporation shall
be received to the effect that registration under the 1933 Act and
applicable state securities laws is not required."
* * * * * * *
Adopted by joint action of the Board of Directors and sole shareholder
of Central Freight Lines, Inc. on May 6, 1997.
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<PAGE> 1
EXHIBIT 10.5
FIRST AMENDED AND RESTATED REVOLVING
AND ADVANCING CREDIT AND SECURITY AGREEMENT
BETWEEN
COMPASS BANK
AND
CENTRAL FREIGHT LINES, INC.
FEBRUARY 24, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1
BANK'S AGREEMENT TO MAKE ADVANCES ....................................... 7
1.1 Advancing Loan ................................................. 7
1.2 Revolving Line ................................................. 7
1.3 Borrower's Loan Account ........................................ 8
1.4 Additional Mandatory Payments .................................. 8
1.5 Post Maturity Advances ......................................... 9
1.6 Borrowing Base ................................................. 9
1.7 Borrowing Procedure for Revolving Note and Term Notes .......... 9
1.8 Purpose ........................................................10
1.9 Commitment Fees ................................................10
SECTION 2
CONDITIONS PRECEDENT ....................................................11
2.1 Conditions Precedent to Initial Advance ........................11
2.2 Conditions Precedent to Future Advances ........................13
2.3 Conditions to Each Advancing Line Term Loan ....................13
SECTION 3
BORROWER'S REPRESENTATIONS AND WARRANTIES ...............................14
3.1 Representations and Warranties .................................14
(a) Organization, Licenses, Qualifications, Etc. ..........15
(b) Power and Authority; Enforceability....................15
(c) Liens .................................................15
(d) Representations Regarding Accounts ....................15
(e) Financial Statements ..................................16
(f) Locations of Collateral ...............................16
(g) Judgments/Actions......................................16
(h) Compliance With Laws ..................................17
(i) No Untrue Statements or Omissions .....................17
(j) Borrower's Name .......................................17
(k) Absence of Defaults Under Other Agreements ............17
(l) Taxes .................................................17
(m) Margin Stock ..........................................18
(n) Investment Company ....................................18
(o) Solvency ..............................................18
(p) No Collective Bargaining ..............................18
(q) No Event of Default ...................................18
(r) No Change in Customers ................................19
(s) Repurchase Agreement ..................................19
(t) Superfund Sites .......................................19
(u) No Release of Hazardous Substances ....................19
(v) No Environmental Complaints ...........................20
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
SECTION 4
SECURITY INTEREST OF BANK IN COLLATERAL .................................20
4.1 Creation of Security Interest ..................................20
4.2 Security Interest in Collateral Created/Acquired Hereafter .....21
4.3 Perfection of Security Interests ...............................21
4.4 Other Laws; Power of Attorney ..................................21
4.5 Obligations Secured ............................................22
4.6 Miscellaneous Collateral Provisions ............................22
4.7 Filing Reproductions ...........................................22
SECTION 5
COLLECTION OF ACCOUNTS ..................................................22
5.1 Collection .....................................................22
5.2 Collection of Accounts by Borrower .............................23
SECTION 6
AFFIRMATIVE COVENANTS ...................................................23
6.1 Affirmative Covenants ..........................................23
(a) Defend Collateral .....................................23
(b) Pay Taxes .............................................24
(c) Change in Name or Address .............................24
(d) Financial Reporting ...................................25
(e) Diminutions in Value ..................................26
(f) Inspections ...........................................27
(g) Insurance .............................................27
(h) Maintain Operating Account ............................27
(i) Compliance With Laws ..................................27
(j) Notices ...............................................28
(k) Copyright .............................................29
(l) Qualifications ........................................29
(m) Perform Services ......................................29
(n) Maintain Computer Backup ..............................29
(o) INDEMNIFICATION .......................................29
(p) Further Assurances ....................................31
(q) Repurchase Agreement ..................................31
(r) Reimbursement .........................................31
(s) Year 2000 .............................................31
(t) Delivery of Titles ....................................32
(u) Subsidiaries ..........................................32
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
SECTION 7
NEGATIVE COVENANTS ......................................................32
7.1 Negative Covenants of Borrower .................................32
(a) No Change in Location .................................32
(b) No Transfers or Liens .................................32
(c) No Change in Accounting Practices .....................33
(d) No Indebtedness .......................................33
(e) No Dividends ..........................................34
(f) No Acquisitions .......................................34
(g) No Dissolutions and Mergers ...........................34
(h) No Subordinated Debt Payments .........................34
(i) Interest Coverage Ratio ...............................35
(j) Fixed Charge Coverage Ratio ...........................35
(k) Tangible Net Worth Requirement ........................35
(l) Debt to Tangible Net Worth ............................35
(m) No Loans to Affiliates ................................35
(n) No Transactions With Affiliates .......................36
(o) No Adverse Transactions ...............................36
(p) No Ownership of Margin Stock ..........................36
(q) Repurchase Agreement ..................................36
SECTION 8
EVENTS OF DEFAULT; ACCELERATION .........................................37
8.1 Events of Default ..............................................37
SECTION 9
POWER TO SELL OR COLLECT COLLATERAL;
RIGHTS AND REMEDIES .....................................................40
9.1 Rights and Remedies With Respect to Collateral .................40
9.2 Uniform Commercial Code and Other Remedies .....................41
9.3 Proceeds .......................................................42
9.4 Deficiency .....................................................42
9.5 Bank's Duties ..................................................42
9.6 Non-Judicial Remedies ..........................................42
9.7 Remedies Not Exclusive .........................................42
9.8 Successive Sales ...............................................43
9.9 Enforcement Against Particular Collateral ......................43
9.10 Suit Against Borrower ..........................................43
9.11 Dilution Reserve ...............................................43
SECTION 10
DEPOSITS;
RIGHTS AND REMEDIES .....................................................44
10.1 Deposits .......................................................44
</TABLE>
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<TABLE>
<S> <C>
SECTION 11
WAIVERS BY BORROWER .....................................................44
11.1 Waivers ........................................................44
SECTION 12
EXPENSES: PROCEEDS OF COLLATERAL ........................................45
12.1 Expenses .......................................................45
12.2 Collection Costs ...............................................45
SECTION 13
DURATION: EXTENSION .....................................................45
13.1 No Commitment to Extend ........................................45
SECTION 14
GENERAL .................................................................46
14.1 Defined Terms and Certain Matters of Construction ..............46
14.2 Replacement of Prior Credit Agreement ..........................46
14.3 Notices ........................................................46
14.4 Transfers by Bank ..............................................47
14.5 GOVERNING LAW ..................................................47
14.6 Controlling Agreement ..........................................47
14.7 Savings Provision ..............................................47
14.8 Entire Agreement ...............................................48
14.9 Construction and Severability ..................................48
14.10 Other Advances .................................................49
14.11 No Duty or Special Relationship ................................49
14.12 NO CONTROL BY BANK .............................................49
14.13 No Partnership .................................................50
14.14 Calculation of Financial Covenants .............................50
14.15 Binding Effect .................................................50
14.16 Renewal of Indebtedness ........................................50
14.17 Bank's Discretion ..............................................50
14.18 Counterparts ...................................................50
14.19 Business Loans .................................................50
14.20 JURISDICTION AND VENUE .........................................51
14.21 DECEPTIVE TRADE PRACTICES ......................................51
</TABLE>
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<PAGE> 6
ADDENDUM
Addendum A - Glossary
EXHIBITS
Exhibit A - Accounts Receivable Reconciliation Report
Exhibit B - Certificate of Representations and Warranties
Exhibit C - List of Subsidiaries
Exhibit D - Locations of Records Regarding Accounts
Exhibit E - Disclosed Indebtedness
Exhibit F - Disclosed Litigation
Exhibit G - Promissory Note
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<PAGE> 7
FIRST AMENDED AND RESTATED REVOLVING
AND ADVANCING CREDIT AND SECURITY AGREEMENT
THIS FIRST AMENDED AND RESTATED REVOLVING AND ADVANCING CREDIT AND
SECURITY AGREEMENT (the "AGREEMENT") is executed and delivered as of February
24, 1999, by and between Central Freight Lines, Inc., a Texas corporation (the
"BORROWER"), with its principal office at 5601 West Waco Drive, Waco, Texas
76702-2638, and COMPASS BANK, an Alabama state chartered bank (the "BANK"), with
an office at 313 East Central Avenue, Belton, Texas 76513, and a mailing address
at P. O. Box 510, Belton, Texas 76513-0510.
W I T N E S S E T H:
WHEREAS, Borrower has applied to Bank for the following credit
facilities (sometimes collectively referred to herein as the "CREDIT
FACILITIES"):
(a) a revolving line of credit (the "REVOLVING LINE") not to
exceed an aggregate principal amount at any one time outstanding in the
sum of TWENTY TWO MILLION FIVE HUNDRED THOUSAND AND NO/100 Dollars
($22,500,000.00) which is evidenced by a Master Revolving Promissory
Note (as may be renewed, extended, increased, replaced, restated,
modified, and rearranged from time to time, the "REVOLVING NOTE") dated
July 1, 1998, in such amount; and
(b) an advancing line of credit (the "ADVANCING LINE") not to
exceed an aggregate principal amount at any one time outstanding in the
sum of TWENTY-TWO MILLION AND NO/100 DOLLARS ($22,000,000.00), each
advance thereunder to be evidenced by single advance Promissory Notes
in substantially the form of Exhibit G (as may be renewed, extended,
increased, replaced, restated, modified, and rearranged from time to
time, the "TERM NOTES"), dated the date of the advance, in the amount
of the advance;
WHEREAS, each of the Credit Facilities will be secured by, among other
things, a security interest in all of the Collateral (as such term is
hereinafter defined and used) now owned or hereafter acquired by Borrower, on
the terms hereinafter set forth; and
WHEREAS, Bank is willing to make each of the Credit Facilities
available to Borrower upon the security of, among other things, such Collateral
and on the terms and subject to the conditions hereinafter set forth.
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<PAGE> 8
AGREEMENT:
NOW, THEREFORE, in consideration of the above premises, the credit to
be extended hereunder, the mutual agreements of the parties as set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties, intending to be legally bound hereby,
agree as follows:
SECTION 1
BANK'S AGREEMENT TO MAKE ADVANCES
1.1 Advancing Loan. Subject to the full, complete, and timely
satisfaction by Borrower of each of the applicable terms and conditions of
Section 2 and as elsewhere set forth herein, and relying on the representations
and warranties of Borrower hereinafter set forth, from the date hereof until the
Advancing Line Expiration Date, Bank agrees to make single advance term loans up
to an aggregate principal amount at any one time outstanding equal to the lesser
of (a) an amount equal to the Available Loan Amount, minus the outstanding
principal balance of the Revolving Note, minus the aggregate face amount of all
outstanding Letters of Credit, or (b) $22,000,000.00, which term loans shall be
each evidenced by the issuance, execution, and delivery, of a Term Note.
1.2 Revolving Line. Subject to the full, complete, and timely
satisfaction of each of the terms and conditions of Section 2 and as elsewhere
set forth herein, and relying on the representations and warranties of Borrower
hereinafter set forth, from the date hereof until the Revolving Line Termination
Date, Bank agrees to extend to Borrower an open-end revolving credit line
pursuant to which Borrower may borrow, repay, and reborrow under the terms of
this Agreement amounts not exceeding at any one time outstanding the aggregate
principal amount equal to the lesser of (a) $22,500,000.00, minus the aggregate
face amount of all outstanding Letters of Credit, (b) the Available Loan Amount,
minus the aggregate outstanding principal balances of the Term Notes, or (c) the
Borrowing Base, minus the aggregate face amount of all outstanding Letters of
Credit, which revolving loan shall be evidenced by the issuance, execution, and
delivery of the Revolving Note. If at any time, prior to the expiration of the
Revolving Line, Borrower is not entitled to any advances or payments by the
terms of this Agreement, notwithstanding the terms of Section 1.7 and elsewhere
in this Agreement, Bank may, in its sole discretion, make requested advances and
payments; provided, however, it is expressly acknowledged and agreed that, in
such event, Bank shall have the right, in its sole discretion, to decline to
make any such requested advance or payment and
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<PAGE> 9
to demand any payment required under, and otherwise to enforce, Section 1.4
hereof and any other applicable term of this Agreement and the other Credit
Documents without prior notice to Borrower and the making of any such advances
and payments shall not be construed as a waiver of such right by Bank.
1.3 Borrower's Loan Account. Each time an advance is made under the
Revolving Line against the Revolving Note as provided for herein, Bank shall
make an appropriate entry of such advance as a debit to Borrower's Loan Account.
Bank also shall record in Borrower's Loan Account other charges, expenses, and
items properly chargeable to Borrower hereunder, all payments made by Borrower
on account of indebtedness hereunder, and other appropriate debits and credits.
The debit balance of Borrower's Loan Account shall reflect the aggregate amount
of Borrower's indebtedness under the Revolving Line and this Agreement from time
to time existing hereunder. At least once each month, Bank shall render a
statement of account for Borrower's Loan Account. Such statement shall be
considered correct and accepted by Borrower and presumptively binding upon
Borrower, except to the extent that Bank receives a written notice of Borrower's
exceptions within thirty (30) days after such statement has been mailed by
ordinary mail to Borrower. Notwithstanding the foregoing, no failure by Bank to
properly reflect any advance actually made or any such charge, expense, or item
actually incurred in Borrower's Loan Account, or to otherwise discharge its
obligation under this Section, shall relieve or affect Borrower from its
obligation to pay all amounts advanced by Bank under the Revolving Note and
otherwise pursuant to this Agreement.
1.4 Additional Mandatory Payments. (a) If, at any time and for any
reason, the outstanding balance of Borrower's Loan Account exceeds the lesser of
(i) the Borrowing Base minus the aggregate face amount of all outstanding
Letters of Credit, (ii) the Available Loan Amount minus the aggregate
outstanding principal balances of the Term Notes, or (iii) $22,500,000.00 minus
the aggregate face amount of all outstanding Letters of Credit, Borrower
immediately shall remit to Bank good funds sufficient to eliminate such excess.
Without limiting any other right or remedy of Bank hereunder, Borrower shall not
be entitled to any advances under the Revolving Line while such excess exists.
If Borrower fails immediately to remit to Bank good funds sufficient to
eliminate such excess, Bank may, without notice to or demand on Borrower, at
Bank's option (in addition to and without waiving any and all other rights and
remedies of Bank) apply against such excess (i) any collections on and Proceeds
from Accounts forwarded to Bank and/or in Bank's possession; (ii) any other
property of Borrower and the Proceeds thereof now or hereafter held by Bank
(whether for safekeeping, custody, pledge, transmission, collection or
otherwise); and (iii) any of Borrower's deposit balances (general or special)
and credits with Bank. Borrower shall pay to Bank on the Revolving Line
Termination Date the aggregate amount in Borrower's Loan Account at the close of
business on the Revolving Line Termination Date.
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<PAGE> 10
(b) If, at any time and for any reason, the aggregate outstanding
principal balances of the Term Notes exceeds the Available Loan Amount minus the
aggregate principal balance of the Revolving Note, minus the aggregate face
amount of all outstanding Letters of Credit, Borrower immediately shall remit to
Bank good funds sufficient to eliminate such excess.
1.5 Post Maturity Advances. Without limiting any other term or
provision of this Agreement, Bank, in its sole discretion, may agree to make
requested advances and payments after the Revolving Line Termination Date (which
advances and payments shall be treated, for purposes of this Agreement, as
advances made prior to the Revolving Line Termination Date); however, it is
expressly acknowledged and agreed that, in such event, Bank shall thereafter
have the right, in its sole discretion, to decline to make any further requested
advance after the Revolving Line Termination Date and may require payment in
full of Borrower's Loan Account without prior notice to Borrower and the making
of any such advances after the Revolving Line Termination Date shall not be
construed as a waiver of such right by Bank.
1.6 Borrowing Base. The Borrowing Base shall be determined on the basis
of information supplied by Borrower in the Reconciliation Report in accordance
with the terms of this Agreement. Notwithstanding the foregoing, unless and
until a notification is communicated by Bank to Borrower, that it has approved
the Borrowing Base set forth in a particular Reconciliation Report, the
effective Borrowing Base shall be the Borrowing Base set forth in the
Reconciliation Report which has been most recently approved by Bank in
accordance with this Section.
1.7 Borrowing Procedure for Revolving Note and Term Notes.
(a) Subject to the terms and provisions of this Agreement (including,
without limitation, Section 1.2), the Lockbox Agreement, and all other
applicable cash management agreements entered into by and between Borrower and
Bank (or any affiliate or Bank), all checks and other items of Borrower drawn on
control disbursement account number 71064492, located at Compass Bank,
Pensacola, Florida, and presented to a duly authorized representative of Bank
shall be paid by Bank. Each payment by Bank shall constitute an advance on the
Revolving Note. Bank shall have no duty or obligation hereunder to pay any
checks or other items presented pursuant to this subsection which, as a result
of such payment, would cause the balance of the Borrower's Loan Account to
exceed the lesser of (i) $22,500,000.00 minus the aggregate face amount of all
outstanding Letters of Credit, (ii) the Available Loan Amount minus the
aggregate outstanding principal balances of the Term Notes, or (iii) the
Borrowing Base minus the aggregate face amount of all outstanding Letters of
Credit. Furthermore, except for any applicable Requirement of Law, Bank shall
have no duty or obligation hereunder to investigate
-9-
<PAGE> 11
the validity of any check or item presented, except as expressly provided for in
the Lockbox Agreement or in any other applicable cash management agreement
entered into by and between Borrower and Bank (or any affiliate of Bank).
(b) Subject to the terms and provisions of this Agreement, Borrower may
also request advances under either Credit Facility directly from Bank. Each such
request by Borrower for an advance under the Revolving Line shall be received by
a duly authorized representative of Bank not later than 12:00 p.m., Houston,
Texas time, on the date of the requested advance, which shall be on a Business
Day, and each such request for an advance under the Advancing Line shall be
received by a duly authorized representative of Bank at least three Business
Days prior to the date of the requested advance. Further, each such request for
advance shall specify: (i) the Credit Facility to which the request applies;
(ii) the amount of the requested advance; and (iii) the proposed date of the
advance (which shall be a Business Day). Bank, at its option, may accept
telephonic requests for advances, provided that such acceptance shall not
constitute a waiver of the Bank's right to delivery of a written notice in
connection with subsequent advances and further provided that all such
telephonic requests are immediately confirmed by Borrower in writing, whether by
facsimile or otherwise. On the date specified for each advance hereunder,
subject to the terms and conditions of this Agreement (including, without
limitation, that no Event of Default has occurred and is then existing and that
no representation or warranty set forth in this Agreement is then false or
untrue), Bank shall make such advances available to Borrower by depositing the
same, in immediately available funds, in an account of Borrower (designated by
the Borrower) maintained with Bank, or by such other means as is acceptable to
Bank and Borrower. For purposes of this Section, "BUSINESS DAY" shall mean a
day, other than Saturday or Sunday, when Bank is open for conducting all of its
normal commercial lending and other business activities.
(c) Borrower shall also be permitted to request that Bank issue Letters of
Credit (subject to the terms provided for in the definition of Letter of Credit
in the attached Glossary) provided that (i) the amount of the requested Letter
of Credit, when added to aggregate face amount of all outstanding Letters of
Credit does not cause any amounts to be due under Section 1.4, and (ii) the
expiration date of the requested Letter of Credit is on or before the Revolving
Line Termination Date.
1.8 Purpose. All funds borrowed pursuant to this Agreement (a) for the
Revolving Line shall be used for working capital and general corporate purposes
and for the Letters of Credit; and (b) for the Advancing Line shall be used to
finance one hundred percent (100%) of the purchase price of Eligible Equipment
for Borrower.
1.9 Commitment Fees. In addition to interest at the rate as provided
herein and to compensate the Lender for maintaining funds available for the
Revolving
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<PAGE> 12
Note, Borrower shall pay to the Bank, in immediately available funds, beginning
on the 31st day of March, 1999, and on the last day of each third calendar month
thereafter through and including the Revolving Line Termination Date, (a) a fee
in the amount of one-eighth percent (1/8%) per annum, calculated on the basis of
a year of 360 days and actual days elapsed (including the first day but
excluding the last day), on the average daily portion of the Available Revolving
Loan Commitment during the preceding ninety-day period which is less than
$10,000,000.00, plus (b) a fee in the amount of one-quarter percent (1/4%) per
annum, calculated on the basis of a year of 360 days and actual days elapsed
(including the first day but excluding the last day), on the average daily
portion of the Available Revolving Loan Commitment during the preceding
ninety-day period which is greater than or equal to $10,000,000.00. For purposes
of this section, "AVAILABLE REVOLVING LOAN COMMITMENT" shall mean the lesser of
(i) $22,500,000.00, minus the average outstanding balance of the Revolving Note,
minus the aggregate face amount of all outstanding Letters of Credit, or (ii)
the Available Loan Amount, minus the aggregate outstanding principal balances of
the Term Notes.
SECTION 2
CONDITIONS PRECEDENT
2.1 Conditions Precedent to Initial Advance. Subject to the terms and
provisions of Sections 1.1 and 1.2, the obligation of Bank to make its initial
advance hereunder is subject to the full and complete satisfaction of each of
the following conditions precedent:
(a) Bank shall have received and approved:
(i) each of the Credit Documents, in properly executed
form;
(ii) the Repurchase Agreement, and all other documents and
agreements pertaining thereto;
(iii) the certificate of incorporation, articles of
incorporation, and bylaws of Borrower, together with
any and all modifications thereof as of the date
hereof;
(iv) all Certificates of Authority, Certificates of
Existence, Certificates of Good Standing (or such
other evidence, as is satisfactory to Bank, that
Borrower is in good standing in the
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<PAGE> 13
State of Texas, and in all other states in which
Borrower is transacting business, as is satisfactory
to Lender), borrowing resolutions (with secretary's
certificate), Secretary's Certificates of Incumbency,
and all other documents required by Bank to evidence
Borrower and its representatives are empowered and
duly authorized to enter into the agreements
evidenced by the Credit Documents;
(v) current certificates of insurance for the insurance
required by this Agreement, together with copies of
all policies relating thereto as requested by Bank
(each naming Bank as loss payee thereunder); and
(vi) an opinion of counsel of Borrower and Guarantor, in
form and substance reasonably satisfactory to Bank,
stating, among other things, that Borrower is
authorized to enter into this Agreement and the other
Credit Documents and that this Agreement and the
other Credit Documents constitute legally binding and
enforceable obligations of Borrower;
(b) No Material Adverse Change shall have occurred;
(c) The representations and warranties contained in Section 3 shall,
except as affected by the transactions contemplated by this Agreement, be
true and unbreached;
(d) No Event of Default shall have occurred and be continuing;
(e) All other applicable requirements of this Agreement and the other
Credit Documents shall have been fully and completely satisfied;
(f) All legal matters incident to the consummation of the transactions
contemplated under this Agreement shall be
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<PAGE> 14
reasonably satisfactory to Messrs. Gardere Wynne Sewell & Riggs, L.L.P.,
special counsel for Bank; and
(g) As security for the payment of the Notes and the payment and
performance of the Liabilities, Bank shall have received, in addition to
the items set forth elsewhere in this Section, all other instruments
reasonably required by Bank to give Bank (including, without limitation,
landlord's waivers) a first and prior perfected security interest and lien
in and to the Collateral (except for security interests otherwise permitted
herein).
2.2 Conditions Precedent to Future Advances. The obligation of the
Bank under this Agreement to make any advances or payments after the date of
this Agreement under any Note, in accordance with the terms and provisions of
this Agreement, is subject to the full and complete satisfaction of each of the
following conditions precedent as of the date of such advance or payment:
(a) The representations and warranties set forth in Section 3 of this
Agreement shall be true and correct as of the date of the making of such
advance or payment with the effect as though the representation or warranty
had been made on this date, except to the extent such representations and
warranties expressly relate specifically to an earlier date (in which case
such representation and warranty shall be true and correct in all material
respects on and as of such earlier date);
(b) For each advance under the Advancing Line, all of the conditions
listed in Section 2.3 shall have been fully and completely satisfied;
(c) No Event of Default shall have occurred, or will result from, the
making of such advance, and no event shall have occurred, which with lapse
of time would constitute an Event of Default; and
(d) All requirements for making the initial advance under the Notes in
accordance with the terms and provisions of Section 2.1 of this Agreement
shall then be fully and completely satisfied (including, without
limitation, any conditions waived, in whole or in part, by Bank in
connection with any prior advance).
2.3 Conditions to Each Advancing Line Term Loan. The obligation of the
Bank to fund a term loan requested by Borrower under the Advancing Line, in
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<PAGE> 15
accordance with the terms of this Agreement, is subject to the full and complete
satisfaction of each of the following conditions precedent as of the date of
such advance or payment:
(a) Receipt by Bank of an original Term Note, in the amount of the
requested advance, executed by Borrower;
(b) Receipt by Bank of either (i) the original certificate of title or
titles for the Eligible Equipment to be purchased with the proceeds of the
Term Note, evidencing Bank as the sole lienholder, or (ii) if no
certificate of title has been issued, a copy of the manufacturer's
statement of origin for that Eligible Equipment to be purchased with the
proceeds of the Term Note, together with evidence that Borrower has applied
for a certificate of title with respect thereto which shall evidence Bank
as the sole lienholder;
(c) The Repurchase Agreement and all other agreements between Borrower
and Freightliner Corporation provided to Bank pursuant to Section 2.1, and
otherwise, shall be in full force and effect and shall not have been
modified or amended in any way;
(d) The amount of the requested advance shall not cause any amounts to
be due under Section 1.4(b);
(e) Receipt by Bank of all invoices, documents, and agreements required
by Bank in connection with the foregoing in order to provide Bank with a
first lien and security interest in and to the Eligible Equipment to be
purchased with the proceeds of the Term Note, together with all other items
to be required by Bank; and
(f) All of the conditions precedent listed in Section 2.1 and 2.2
shall have been fully and completely satisfied in connection with the
requested advance (including, without limitation, any conditions waived, in
whole or in part, by Bank in connection with any prior advance).
SECTION 3
BORROWER'S REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties. To induce Bank to enter into this
Agreement, Borrower represents and warrants to Bank (which representations and
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<PAGE> 16
warranties are made in addition to the representations and warranties now or
hereafter made in the other Credit Documents and will survive the delivery of
this Agreement) as follows:
(a) Organization, Licenses, Qualifications, Etc. Borrower (i) is a
duly organized corporation, which is validly existing and in good standing
under the laws of the State of Texas, (ii) is duly qualified and in good
standing (and will remain so qualified and in good standing) in every state
in which it is doing business or in which the failure so to qualify would
or could have an adverse effect on its business or properties or Bank,
(iii) has no Subsidiaries, other than as listed on Exhibit C attached
hereto, and (iv) has all necessary licenses, permits, and corporate power
and authority to own its assets and conduct its business as now or
presently proposed to be conducted;
(b) Power and Authority; Enforceability. The execution, delivery, and
performance hereof and of all other agreements or instruments contemplated
hereby are within Borrower's corporate powers, have been duly authorized,
and are not in contravention of the law or the terms of Borrower's articles
of incorporation, bylaws, or other organizational documents, or of any
indenture, agreement, or undertaking to which Borrower is a party or by
which it or any of its properties is bound. This Agreement, the Notes, the
other Credit Documents, and all other agreements and instruments executed
by Borrower in connection herewith have been validly executed and delivered
by Borrower, as applicable, and constitute legal, valid, and binding
obligations of Borrower enforceable against Borrower in accordance with
their respective terms;
(c) Liens. Except for the security interest granted herein by Borrower
or by any other document executed in favor of Bank and the liens permitted
in Section 7.1(b), Borrower is the sole owner of the Accounts, Equipment
(including, without limitation, all Eligible Equipment), and each and every
other item of Collateral free from any lien, security interest, or
encumbrance;
(d) Representations Regarding Accounts. Each Eligible Account used for
purposes of calculating the Borrowing Base, represents an undisputed, bona
fide indebtedness incurred by the Account Debtor named therein, for
merchandise held subject to delivery instructions or theretofore shipped or
delivered pursuant
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<PAGE> 17
to a contract of sale, lease, or rental, or for services theretofore
performed by Borrower with or for said Account Debtor; there are no
set-offs, counterclaims, or disputes against any such Eligible Account
except as indicated in some written list, statement, or invoice furnished
to Bank with reference thereto; and Borrower is duly authorized to subject
the same to a security interest in favor of Bank. If any Account shall be
in violation of any one or more of the warranties expressed in this
subsection, or otherwise does not meet the requirements of an Eligible
Account as defined herein, it shall not be deemed an Eligible Account for
purposes of this Agreement;
(e) Financial Statements. Subject to any limitations stated therein or
in connection therewith, the Financial Statements and all other balance
sheets, earnings statements, and other financial data which have been
furnished to Bank to induce it to enter into this Agreement, or otherwise
furnished in connection herewith, (i) do fairly represent the financial
condition and results of operations of Borrower (or other Person, as
applicable), as of the dates and for the periods for which the same are
furnished, and (ii) have been prepared in accordance with GAAP, subject to
normal year end adjustments. No Material Adverse Change has occurred in the
condition, financial or otherwise, of Borrower since the date of the
Financial Statements. Borrower has not made investments in, advances to, or
guaranties of the obligations of any Person, except as disclosed on the
Financial Statements;
(f) Locations of Collateral. Set forth on Exhibit D is a list of each
location at which Equipment and other tangible Collateral is kept, whether
for storage, like purposes, or otherwise, as of the date hereof. Also set
forth on Exhibit D is a list of each office of Borrower at which records of
Borrower pertaining to Accounts are kept, as of the date hereof. The
address of Borrower's chief executive office, as of the date hereof, is as
set forth on page 1 of this Agreement;
(g) Judgments/Actions. Except as specifically disclosed in Exhibit F
attached hereto, as of the date hereof, there are no actions, suits, or
proceedings pending or, to the knowledge of Borrower, threatened against
Borrower or Guarantor or any Collateral at law, or in equity, or by or
before any Governmental Authority, governmental department, commission,
board, bureau,
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agency, or instrumentality, or any arbitrator, that are not at least eighty
percent (80%) covered by insurance;
(h) Compliance With Laws. Borrower is in material compliance with all
Requirements of Law applicable to, governing, or affecting Borrower, its
operations, its property, the Collateral, or any part of any of the
foregoing;
(i) No Untrue Statements or Omissions. Neither this Agreement, nor any
document, certificate, exhibit, or statement furnished to Bank by or on
behalf of Borrower pursuant to or in connection with this Agreement
contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein and
therein, not misleading. There is no fact known to Borrower that materially
and adversely affects, or will materially and adversely affect, the assets,
business, operations, or condition of Borrower that has not been
specifically set forth in this Agreement or otherwise disclosed by Borrower
to Bank in writing;
(j) Borrower's Name. Borrower's name always has been as set forth on
the first page of this Agreement, except as otherwise disclosed in writing
to Bank. Borrower has not, and does not intend to in the future operate
under any assumed name, except as disclosed to Bank in writing;
(k) Absence of Defaults Under Other Agreements. Borrower is not in
default (i) in the performance, observance, or fulfillment of any of the
obligations, covenants, or conditions contained in any agreement or
instrument to which it is a party, (ii) under any Requirement of Law, or
(iii) as a result of a demand of any Governmental Authority, which default
or violation might cause a Material Adverse Change;
(l) Taxes. Borrower has filed all tax returns required to be filed and
has paid all taxes shown thereon to be due, including interest and
penalties, or due pursuant to any assessment received by Borrower, except
such taxes, if any, under contest in good faith and for which adequate
reserves have been provided. The charges, accruals, and reserves on the
books of Borrower for any taxes or other governmental charges are, in the
opinion of Borrower, adequate. Borrower has paid all franchise and other
taxes which are now due;
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<PAGE> 19
(m) Margin Stock. Borrower owns no, and is not engaged in the business
of extending credit for the purpose of carrying or purchasing, "margin
stock" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System (herein called "margin stock"). None of the proceeds
of the Notes will be used for (i) the purpose of purchasing or carrying any
margin stock, (ii) the purpose of reducing or retiring any indebtedness
which was originally incurred to purchase or carry a margin stock, or (iii)
any other purpose which might constitute this transaction as a "purpose"
credit within the meaning of said Regulation U, as now in effect or as it
may hereinafter be amended. Neither Borrower nor any agent acting on its
behalf has taken or will take any action which might cause this Agreement
or any Note to violate Regulation U or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities
Exchange Act of 1934, in each case as now in effect or as the same may
hereafter be in effect on the date of any advance under any Note;
(n) Investment Company. Borrower is not an "investment company" within
the meaning of the Investment Company Act of 1940, as amended;
(o) Solvency. Borrower is now and, after giving effect to initial
advances to be made hereunder and the security interest granted hereunder,
and Guarantor, after giving effect to its delivery of the Guaranty at all
times will be, solvent and will be adequately capitalized to pay its debts
as they become due;
(p) No Collective Bargaining. Except as disclosed to Bank prior to the
date hereof in writing, Borrower is not a party to any collective
bargaining agreement, and there are no material grievances, disputes, or
controversies with any union or any other organization of any of their
employees, or threats of strikes, work stoppages, or any asserted pending
demands for collective bargaining by any union or organization;
(q) No Event of Default. No event has occurred and no condition exists
which would, upon the execution and delivery of this Agreement or
Borrower's performance hereunder, constitute an Event of Default;
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<PAGE> 20
(r) No Change in Customers. There exists no actual or threatened
termination, cancellation, or limitation of, or any modification or change
in, the business relationship between Borrower with any customer or any
group of customers whose purchases individually or in the aggregate are
material to the business of Borrower, or with any material supplier, and
there exists no present condition or state of facts or circumstances which
would materially affect adversely Borrower or prevent Borrower from
conducting such business after the consummation of the transaction
contemplated by this Agreement in substantially the same manner in which it
has heretofore been conducted;
(s) Repurchase Agreement. The Repurchase Agreement and all agreements
issued in connection with (as delivered to Bank pursuant to Section 2.1)
are in full force and effect, no party is in default thereunder, and have
not been modified, amended, or supplemented in any way.
(t) Superfund Sites. Except as heretofore disclosed to Bank in writing
and otherwise in compliance with all applicable Requirements of Law, no
Hazardous Substances have been generated, transported, and/or disposed of
by Borrower or any other Person, at a site which was, at the time of such
generation, transportation and/or disposal, or has since become, a
Superfund Site. For purposes of this subsection, "SUPERFUND SITE" shall
mean those sites listed on the Environmental Protection Agency National
Priority List and eligible for remedial action or any comparable state
registries or list in any state of the United States;
(u) No Release of Hazardous Substances. Except as heretofore disclosed
to Bank in writing and in accordance with all Requirements of Law or the
terms of a valid permit, license, certificate, or approval of the
Governmental Authority, no Release of Hazardous Substances has been made by
Borrower or any other Person, from, affecting, or related to any property
of Borrower, any property leased by Borrower, or any property on which
Borrower is conducting any of its respective business operations; and
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(v) No Environmental Complaints. Except as heretofore disclosed to
Bank in writing, no Environmental Complaint has been received by Borrower.
SECTION 4
SECURITY INTEREST OF BANK IN COLLATERAL
4.1 Creation of Security Interest. In order to secure the prompt and
unconditional payment and performance of the Notes and all other Liabilities,
Bank shall have and is hereby granted by Borrower a continuing lien on, a
security interest in, and a right of set-off against the following Collateral:
(a) all Accounts of Borrower, whether now or hereafter existing,
created, arising or acquired;
(b) all of Borrower's Equipment (including, without limitation, the
Eligible Equipment), whether now or hereafter existing, created, arising or
acquired;
(c) all General Intangibles of Borrower, whether now or hereafter
existing, created, arising, or acquired;
(d) all contract rights, chattel paper, documents, documents of title,
warehouse receipts, bills of lading, notes, and notes receivable
instruments of Borrower, whether now owned or hereafter arising;
(e) all goods, instruments, notes, notes receivable, documents,
documents of title, warehouse receipts, bills of lading, certificates of
title, policies and certificates of insurance, securities, chattel paper,
deposits, cash, or other property now or hereafter owned by Borrower or in
which it now or hereafter has an interest, which are now or may hereafter
be in the possession of or deposited with Bank, or which are otherwise
assigned to Bank, or as to which Bank may now or hereafter control
possession by documents of title or otherwise;
(f) all books and records now owned and hereafter acquired relating to
any other Collateral and all files, correspondence, computer programs,
tapes, disks, and related data processing software owned by Borrower or in
which Borrower has an interest that contains information concerning or
relating to any of the other Collateral or any item thereof; and
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(g) all substitutions, accessions, additions, parts, accessories,
attachments, replacements, Proceeds and products of, for and to any and all
of the foregoing, including, without limitation, insurance and tort
proceeds, and any and all such substitutions, accessions, additions, parts,
accessories, attachments, replacements, Proceeds and products in the form
of any of the property described or referenced in (a) through (g) above,
whether now or hereafter owned, existing, created, arising or acquired.
4.2 Security Interest in Collateral Created/Acquired Hereafter. No
submission by Borrower to Bank of any schedule, certificate of title, or other
particular identification of Collateral shall be necessary to vest in Bank a
security interest in each and every item of Collateral now existing or hereafter
acquired, but rather, such security interest shall vest in Bank immediately upon
the creation or acquisition of any item of Collateral, without the necessity for
any other or further action by Borrower or Bank. In addition to and without
limitation of the rights and remedies of Bank with respect to any patent,
trademark, service mark, copyright or other Collateral under this Agreement or
otherwise, Borrower hereby grants, assigns and transfers to Bank a fully-paid,
royalty-free, perpetual, nonexclusive, unrestricted license to use, modify,
reproduce, distribute and sublicense any such patent, trademark, service mark,
copyright or other such Collateral during the continuance of an Event of
Default. Borrower shall execute such other and additional documents,
instruments, and agreements as reasonably may be required by Bank to evidence
the security interests contemplated hereby.
4.3 Perfection of Security Interests. To the extent applicable, the
UCC governs the security interests provided for herein. In connection therewith,
without limiting any other term or provision of this Agreement, Borrower shall
take such steps and execute and deliver (or cause the execution and delivery of)
such financing statements, continuation statements, agreements (including,
without limitation, security agreements and landlord, creditor and mortgagee
subordination agreements), documents and other papers (all in form and substance
reasonably acceptable to Bank) as Bank may from time to time request, including,
but not limited to, such documents as are required to perfect or preserve the
validity, perfection and priority of Bank's security interests granted hereby or
by any of the other documents securing the Liabilities.
4.4 Other Laws; Power of Attorney. If, by reason of location of
Collateral or otherwise, the creation, validity, or perfection of security
interests provided for herein are governed by the law of a jurisdiction other
than Texas, Borrower shall take such steps and execute and deliver such papers
as Bank may from time to time request to comply with the Uniform Commercial
Code, the Uniform
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Trust Receipts Act, the Factors Lien Act, the Federal Food Security Act, or
other laws of other states or jurisdictions. Borrower hereby appoints and
empowers Bank, or any employee of Bank which Bank may designate for the sole
purpose, as its attorney-in-fact, to execute on its behalf any financing
statements which, in Bank's sole judgment, are necessary to be filed in order to
perfect or preserve the perfection and priority of Bank's security interests
granted hereby.
4.5 Obligations Secured. The security interest in, general lien upon,
and right of set-off against the Collateral provided for in Section 4.1 is
granted to secure the payment and other performance of all Liabilities whether
now existing or hereafter arising, under or in connection with this Agreement,
the Notes, or the other Credit Documents, and any amendments, modifications,
restatements, or substitutions thereof.
4.6 Miscellaneous Collateral Provisions. The security interest and
other rights of Bank hereunder shall not be impaired by any indulgence,
moratorium, or release granted by Bank (other than a release given in connection
with the full and final payment of the Notes and the other Liabilities),
including, but not limited to: (a) any renewal, extension, or modification which
Bank may grant with respect to any Note; (b) any surrender, compromise, release,
renewal, extension, exchange, or substitution which Bank may grant in respect of
any item of the Collateral, or any part thereof or any interest therein; or (c)
any release or indulgence granted to any endorser, guarantor, or surety of the
Notes.
4.7 Filing Reproductions. At the option of Bank, a photocopy or other
reproduction of this Agreement or of a financing statement covering the
Collateral shall be sufficient and may be filed as a financing statement.
SECTION 5
COLLECTION OF ACCOUNTS
5.1 Collection. (a) Borrower shall (i) execute, maintain in full force
and effect, and comply in all respects with the provisions of such documentation
as may be reasonably required by Bank to establish (or continue its use, as the
case may be) the Lockbox and the Remittances Account and all other cash
management services of Bank and its affiliates provided in connection with this
Agreement; (ii) direct all Large Account Debtors to make remittance directly to
the Lockbox; and (iii) immediately after the receipt thereof, deposit directly
into the Remittances Account all Proceeds received by Borrower from any Account
Debtors (whether from Large Account Debtors or otherwise). Funds received in the
Lockbox shall be transferred daily by Bank to the Remittances Account, and
thereafter credited by Bank first to the Borrower's Loan Account and any other
unpaid Liabilities in such manner as Bank desires, and then (unless an Event of
Default shall have occurred and be then
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continuing) to the extent there are any Proceeds remaining, shall be made
available to Borrower by deposit into Borrower's operating account or in such
other manner acceptable to Bank and Borrower.
(b) Borrower shall, at the request of Bank, which request may be made
prior to or after the occurrence of an Event of Default, notify the Account
Debtors of the security interest of Bank in Borrower's Accounts.
(c) Without limiting the terms of Section 5.1(a), any Proceeds
received by Borrower shall be received by Borrower in trust for Bank and
immediately turned over to Bank for deposit into the Remittances Account.
(d) Bank shall not be required to credit Borrower's Loan Account with
the amount of any check or other instrument constituting provisional payment
until Bank has received final payment thereof at its office in cash or solvent
credits accepted by Bank.
5.2 Collection of Accounts by Borrower. Borrower agrees that no court
action or other legal proceeding or garnishment, attachment, repossession of
property, or any other attempt to repossess any merchandise covered by an
Account shall be attempted by Borrower except by or under the direction of
competent legal counsel. WITHOUT IN ANY WAY LIMITING ANY OTHER INDEMNITY
AGREEMENT PROVIDED FOR HEREIN, BORROWER HEREBY AGREES TO INDEMNIFY AND HOLD BANK
AND ITS OFFICERS, DIRECTORS, REPRESENTATIVES, EMPLOYEES, AND ATTORNEYS HARMLESS
FOR ANY LOSS OR LIABILITY OF ANY KIND OR CHARACTER WHICH MAY BE ASSERTED AGAINST
BANK BY VIRTUE OF ANY SUIT FILED, PROCESS ISSUED, OR ANY REPOSSESSION OR
ATTEMPTED REPOSSESSION DONE OR ATTEMPTED BY BORROWER OR BY VIRTUE OF ANY OTHER
ENDEAVORS WHICH BORROWER MAY MAKE TO COLLECT ANY ACCOUNTS OR REPOSSESS ANY SUCH
MERCHANDISE.
SECTION 6
AFFIRMATIVE COVENANTS
6.1 Affirmative Covenants. In addition to the covenants and agreements
of Borrower made elsewhere in this Agreement, unless Bank shall otherwise
consent in writing, until all of the Liabilities have been paid and satisfied,
Borrower shall:
(a) Defend Collateral. Borrower shall defend the Accounts, the
Equipment, and each and every other item of Collateral and all Proceeds and
products thereof against all claims and demands of all Persons at any time
claiming the same or any
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interest therein adverse to Bank, except for permitted liens provided for
in Section 7.1(b);
(b) Pay Taxes. Borrower shall pay all taxes or charges levied on or
with respect to the Collateral, except for such taxes or charges which
Borrower is in good faith diligently protesting or contesting, but only to
the extent Borrower has made adequate reserves therefor. Borrower agrees to
take all actions that Bank may request to establish and maintain a valid
security interest in the Accounts, the Equipment and each and every other
item of Collateral, free and clear of all other liens, claims, charges,
security interests, and encumbrances whatsoever, except as otherwise
expressly provided herein. If such taxes or other assessments remain unpaid
after the date fixed for the payment of same (unless they are being
challenged or contested as provided for hereinabove), or if any lien,
charge, claim, security interest, or encumbrance shall arise, or be claimed
or asserted with respect to the Accounts, the Equipment, or any other item
of Collateral, Bank may, without notice to Borrower, pay such taxes,
assessments, charges, or claims, and take any and all other actions
(including the payment of money) deemed desirable by Bank to remove any
such lien, charge, claim, security interest, or encumbrance, and Borrower
agrees that the amounts thereof shall be charged to Borrower's Loan Account
created hereby and shall bear interest at the rate of interest then borne
by Borrower's obligations under the Revolving Note;
(c) Change in Name or Address. Borrower shall give Bank thirty (30)
days prior written notice of any change in Borrower's name and execute and
deliver to Bank all financing statement amendments and other documents
requested by Bank prior to such name change becoming effective. Further,
without limiting any other term of this Agreement, prior to moving any
Equipment, for any purpose other than the normal operation of tractors and
trailers in Borrower's business or for the sale thereof, into any location,
other than a location in which Borrower has heretofore disclosed in writing
to Bank, Borrower shall (i) promptly inform Bank of such move, (ii) execute
and deliver appropriate financing statements necessary to perfect the
security interest granted herein in the particular state in which the
Equipment is to be located, and (iii) cause the landlord, tenant, and/or
subtenant at the particular location to execute and deliver to Bank a lien
waiver, in form and substance satisfactory to Bank;
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<PAGE> 26
(d) Financial Reporting. Borrower shall deliver to Bank such
information regarding the business affairs, financial condition, assets,
liabilities, operations, and transactions of Borrower as Bank may
reasonably request, and, without limiting the foregoing, furnish to Bank
the following:
(i) As soon as available, and in any event within 120 days
following the end of Borrower's fiscal year, an audited
financial statement for Borrower, prepared by an independent
certified public accountant acceptable to Bank, showing the
financial condition of Borrower, on a consolidated basis
with, at the close of such fiscal year and the results of
its operations during such fiscal year, which financial
statements shall be materially complete and correct,
prepared in accordance with GAAP, and shall include, but
shall not be limited to, an operating statement, an income
statement, a balance sheet, a reconciliation of equity
amounts, a source and application of funds report, and such
other matters as Bank may request;
(ii) If and to the extent requested by Bank, as soon as
available, and in any event within 30 days after the filing
thereof, a copy of the federal income tax return of Borrower
(and in any event no less frequently than annually) and all
requests for extensions;
(iii) As soon as available, and in any event within 20 days
following the end of each calendar month, internally
prepared financial statements for Borrower, signed by a duly
authorized representative, and showing the results of its
operations during such calendar month, on a consolidated
basis, which statements shall include, but shall not be
limited to, an operating statement, an income statement, a
balance sheet, profit and loss statement, a Compliance
Certificate, and such other matters as Bank may reasonably
request;
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(iv) As soon as available, and in any event within 10 days
following the end of each calendar month, (x) a
Reconciliation Report for the calendar month then ending,
signed by a duly authorized officer of Borrower, reflecting
any information regarding accounts receivable, collections,
and sales deemed appropriate by Bank, (y) reports (including
agings) in form acceptable to Bank of the accounts
receivable and the accounts payable of Borrower as of the
last day of the immediately preceding calendar month, and
the period of time which has elapsed with respect to such
accounts receivable and accounts payable since the invoice
date with respect thereto, and (z) information and reports
regarding any reduction or diminution in the face value of
any Account and, if requested by Bank, copies of all credit
memos issued by Borrower;
(v) if requested by Bank, daily sales and invoice registers or
journals, and daily cash receipts, registers or journals,
all reflecting, on a daily basis, the information described
above;
(vi) such other documents, instruments, data or information of
any type reasonably requested by Bank with respect to the
accounts receivable, collections, remittances and any other
Collateral; and
(vii) Within 120 days from the end of each calendar year, a
signed personal financial statement for Guarantor, prepared
on a form and in a manner reasonably acceptable to Bank;
(e) Diminutions in Value. Borrower shall promptly upon any material
reduction or diminution in the face value of any
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<PAGE> 28
Account due from a Large Account Debtor, or of any diminution in value
which would cause an amount to be due under Section 1.4, Borrower shall
advise Bank thereof and, if requested by Bank, submit a signed writing
explaining the circumstances resulting in such reduction;
(f) Inspections. Borrower shall at all times and from time to time
allow Bank, by or through any of its officers, agents, employees,
independent contractors, attorneys, or accountants (i) to examine, inspect,
or make extracts from Borrower's books and records and cash and accounts;
(ii) to analyze financial statements; (iii) to arrange for verification of
Accounts under reasonable procedures, directly with Account Debtors or by
other methods; and (iv) to inspect and audit Equipment and other tangible
property constituting Collateral at any time during normal business hours,
without prior notice to Borrower;
(g) Insurance. Borrower shall (i) continue to maintain insurance in
form, amount, and substance acceptable to Bank including, without
limitation, worker's compensation and general liability insurance written
by companies acceptable to Bank upon all facets of its business, including
without limitation, the Collateral pledged to Bank, its property, and its
equipment, of such character and amounts as are customarily maintained by
companies engaged in like business; (ii) furnish to Bank, upon request, a
statement of the insurance coverage; and (iii) cause Bank to be named as
loss payee as to all property constituting Collateral hereunder, pursuant
to a lender loss payable endorsement to all certificates of insurance and
to be named as an additional insured on all policies;
(h) Maintain Operating Account. Borrower shall maintain with Bank or
its affiliate designated by Bank an operating account, which may be a
controlled disbursement account, and Bank, at Bank's option, may make all
advances hereunder into such operating account, and Borrower expressly
agrees that Bank may, at Bank's option, debit against such operating
account any and all sums, amounts, charges, and payments due under or in
connection with this Agreement and the Notes;
(i) Compliance With Laws. Borrower shall at all times comply in all
material respects with all present and future Requirements of Law
applicable to, governing or affecting
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Borrower, its operations, its property, the Collateral, or any part of any
of the foregoing, and shall immediately notify Bank of any and all alleged
or asserted violations of any such law, ordinance, or regulation;
(j) Notices. In addition to, and without in any way limiting, the
other requirements in this Agreement to provide certain notices to Bank,
Borrower shall deliver to Bank, promptly upon any officer of Borrower
having knowledge following events or circumstances, a written statement
with respect thereto, signed by the chief financial officer of Borrower, or
other authorized representative of Borrower designated from time to time
pursuant to written designation by Borrower delivered to Bank, advising
Bank of the occurrence of such event or circumstance and the steps, if any,
being taken by Borrower with respect thereof:
(i) any Default or Event of Default;
(ii) any litigation or proceeding involving Borrower as a
defendant or in which any property of Borrower is subject,
directly or indirectly, to a claim and in which the amount
involved is $250,000.00 or more and which is not covered by
insurance or Borrower's self-insured retention;
(iii) any labor dispute to which Borrower may become a party, any
strikes or walkouts relating to any of its plants or other
facilities, and the expiration of any labor contract to
which any of them is a party or by which they are bound, in
each case where the same could reasonably be expected to
cause a Material Adverse Effect;
(iv) any material change to Borrower and its operations,
including, but not limited to, a change in the amounts or
collectibility of any Accounts, or the filing of any lawsuit
or administrative or
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other proceeding against or involving Borrower;
(v) any change in the number, nature, and holder of outstanding
stock of Borrower; and
(vi) any other event or occasion which could reasonably be
expected to have a Material Adverse Effect.
(k) Copyright. Borrower shall, prior to the time any Collateral is
copyrighted, licensed, patented, or trademarked by Borrower or any
Affiliate, pursuant to any duly filed registration or otherwise, or is
subjected to any registered copyright, license, patent, or trademark by
Borrower or any Affiliate, notify Bank thereof and take (or cause to be
taken) all actions necessary to preserve the perfection and first priority
of Bank's security interest in and to such property.
(l) Qualifications. Borrower shall qualify as a foreign corporation in
all other jurisdictions wherein the business now or hereafter transacted by
Borrower makes such qualifications necessary;
(m) Perform Services. Borrower shall perform all obligations of
Borrower with respect to the goods or services, the sale or lease or
rendition of which gave rise or will give rise to each Account;
(n) Maintain Computer Backup. Borrower shall maintain any system
reasonably requested by Bank for creating backup data on computer hardware,
software, or firmware, such as lists of Account Debtors and Accounts, and
deliver and pledge to Bank such tapes or discs with respect thereto as may
be required by Bank;
(o) INDEMNIFICATION. BORROWER SHALL INDEMNIFY AND HOLD BANK AND ALL
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, ATTORNEYS-IN-FACT, AND
AFFILIATES OF BANK (EACH SUCH PERSON AN "INDEMNITEE") HARMLESS FROM ANY AND
ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS,
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<PAGE> 31
SUITS, COSTS, EXPENSES, AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES AND
DISBURSEMENTS, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT
OF, IN ANY WAY CONNECTED WITH, OR AS A RESULT OF (i) THE EXECUTION OR
DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, (ii) THE PERFORMANCE
BY THE PARTIES TO THE CREDIT DOCUMENTS OF THEIR RESPECTIVE OBLIGATIONS
THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, OR
(iii) THE ENFORCEMENT OF THIS AGREEMENT OR THE OTHER CREDIT DOCUMENTS,
INCLUDING, WITHOUT LIMITATION, ANY MATTER ARISING BY REASON OF ANY DEFENSE,
SET-OFF, COUNTERCLAIM, RECOUPMENT, OR REDUCTION OF LIABILITY WHATSOEVER OF
THE OBLIGOR UNDER ANY CONTRACT, AGREEMENT, INTEREST, OR OBLIGATION WHICH
GIVES RISE TO ANY ACCOUNT CONSTITUTING PART OF THE COLLATERAL, AS THE
RESULT OF A BREACH BY BORROWER OF ANY OBLIGATION THEREUNDER OR OF ANY OTHER
AGREEMENT, INDEBTEDNESS, OR LIABILITY AT ANY TIME OWING TO OR IN FAVOR OF
ANY SUCH OBLIGOR FROM BORROWER, SUCH OBLIGATIONS OF BORROWER BEING
ENFORCEABLE AGAINST AND ONLY AGAINST BORROWER AND NOT AGAINST BANK (ALL THE
FOREGOING IN THIS SECTION, COLLECTIVELY, THE "INDEMNIFIED LIABILITIES"),
INCLUDING, WITHOUT LIMITATION, INDEMNIFIED LIABILITIES ARISING FROM THE
NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF ANY INDEMNITEE; PROVIDED THAT
BORROWER SHALL HAVE NO OBLIGATION UNDER THIS SUBSECTION TO ANY INDEMNITEE
WITH RESPECT TO INDEMNIFIED LIABILITIES THAT ARE DETERMINED BY A COURT OF
COMPETENT JURISDICTION BY FINAL AND NON- APPEALABLE JUDGMENT OR PURSUANT TO
BINDING ARBITRATION TO HAVE RESULTED FROM THE NEGLIGENCE OR MISCONDUCT OF
SUCH INDEMNITEE OR FROM THE BREACH BY SUCH INDEMNITEE OF ITS OBLIGATIONS
UNDER ANY LOAN DOCUMENT. THE OBLIGATIONS OF BORROWER UNDER THIS SUBSECTION
SHALL SURVIVE THE SATISFACTION OF ALL LIABILITIES, THE TERMINATION OF THIS
AGREEMENT, AND THE NONASSUMPTION OF THIS AGREEMENT IN A CASE COMMENCED
UNDER TITLE 11 OF THE UNITED STATES CODE OR OTHER SIMILAR LAW OF THE UNITED
STATES, THE STATE OF TEXAS, OR ANY OTHER JURISDICTION AND BE BINDING UPON
BORROWER AND ANY TRUSTEE,
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<PAGE> 32
RECEIVER, OR LIQUIDATOR OF BORROWER APPOINTED IN ANY SUCH CASE;
(p) Further Assurances. Borrower shall (i) promptly correct, or cause
to be promptly corrected, any defect, error, or omission which may be
discovered in the contents of this Agreement or in any other instrument
executed in connection herewith or in the execution or acknowledgment
thereof; and (ii) execute, acknowledge, deliver, and record or file, or
cause to be executed, acknowledged, delivered, and recorded or filed, such
further instruments, and do such further acts as may be necessary,
desirable, or proper to carry out more effectively the purposes of this
Agreement and such other instruments, including specifically, but without
limitation, causing any renewals, additions, substitutions, replacements,
or appurtenances to the then Collateral;
(q) Repurchase Agreement. Borrower shall perform in accordance with
the terms and provisions of the Repurchase Agreement;
(r) Reimbursement. As an additional condition precedent to Bank's
obligations under this Agreement, Borrower shall reimburse Bank for all of
its reasonable legal fees, plus all other reasonable attorneys' and other
fees and expenses incurred by Bank in connection with the negotiation,
preparation, execution, and recordation of this Agreement and all other
documents and agreements required by Bank in connection with this
Agreement;
(s) Year 2000. On or prior to July 31, 1999 (the "Compliance Date"),
Borrower shall have taken all actions necessary to ensure that the
automated systems used by Borrower that are material to its operations
(collectively, "Mission-Critical Systems"), including, without limitation,
software, hardware and other data processing devices, shall not fail,
malfunction or produce incorrect results with respect to data, calculations
and other processing involving dates before, as of or after December 31,
1999, regardless of the form the date data is received or processed
(collectively "Year 2000 Compliant" or "Year 2000 Compliance"). Without
limiting the generality of the foregoing, on or prior to the Compliance
Date, Borrower shall test and certify that its Mission-Critical Systems are
Year 2000
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<PAGE> 33
Compliant in accordance with commercially reasonable practices and industry
standards. Borrower agrees that upon the reasonable request of Bank,
Borrower will make its employees, consultants, premises, records and
documentation available to Bank with respect to Borrower's Year 2000
Compliance efforts.
(t) Delivery of Titles. To the extent not provided pursuant to Section
2.3, Borrower shall cause to be delivered to Bank original certificates of
title of all Eligible Equipment purchased with proceeds of the Term Note,
reflecting Bank as the sole lienholder, promptly after the issuance
thereof.
(u) Subsidiaries. Borrower shall cause all of its Subsidiaries
(including, without limitation, Subsidiaries formed or acquired after the
date of this Agreement) to guaranty the Liabilities, in a manner
satisfactory to Bank, and to pledge its assets as security for the
Liabilities, in a priority and manner satisfactory to Bank.
SECTION 7
NEGATIVE COVENANTS
7.1 Negative Covenants of Borrower. So long as Borrower may borrow
additional advances hereunder and in accordance with the terms and provisions of
this Agreement and until payment in full of the Notes and the payment and
performance of all other Liabilities of Borrower hereunder, Borrower covenants
and agrees, unless Bank shall otherwise consent in writing, that Borrower shall
not, either directly or indirectly:
(a) No Change in Location. Borrower shall not change any office or
location, or move any of the Collateral, except in the ordinary course of
business, without (i) at least thirty (30) days prior written notice to
Bank, and (ii) prior to making any such change, executing and delivering to
Bank any additional financing statements or other documents that Bank may
request;
(b) No Transfers or Liens. Borrower shall not sell, transfer, lease,
otherwise dispose of, or suffer to exist any lien, charge, claim, security
interest, or encumbrance (except as otherwise expressly provided herein)
with respect to, any of the Accounts and the other Collateral or any
interest therein (or any of the Proceeds thereof, whether money, checks,
money orders, drafts, notes, instruments, documents, chattel paper,
Accounts,
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<PAGE> 34
returns, or repossessions) or of any equipment or other property of
Borrower, except for (i) the sale of Equipment in the ordinary course of
business; (ii) liens for taxes, assessments, or governmental charges not
yet payable; (iii) liens of landlords and vendors arising in the ordinary
course of business for sums not yet due; (iv) liens set forth on Exhibit E
attached hereto or approved in advance in writing by Bank; (v) liens
securing indebtedness permitted under Section 7.1(d)(v); and (vi) liens and
security interests granted to Bank herein;
(c) No Change in Accounting Practices. Borrower shall not materially
change accounting practices, methods, or standards or the reporting format
for any information furnished Bank under the terms and provisions of this
Agreement, which accounting practices shall conform with GAAP throughout
the term of this Agreement;
(d) No Indebtedness. Borrower shall not incur, create, issue, assume,
guarantee, endorse or permit to exist any indebtedness for borrowed money
(collectively, "INDEBTEDNESS"), except:
(i) Indebtedness of Borrower to Bank provided for in the Credit
Agreement;
(ii) all Subordinated Debt;
(iii) all existing loans and borrowings by Borrower as reflected
in the Financial Statements;
(iv) accrued expenses and trade payables incurred in the ordinary
course of business; and
(v) Indebtedness for the purchase of Equipment and rolling stock
in the ordinary course of business to the extent consented
to Bank in writing, and the existing indebtedness listed on
Exhibit E attached hereto (and any refinancing of any such
existing indebtedness, provided that Borrower provides Bank
with notice of the terms of such refinancing and that such
refinancing does not occur after a default in the payment
thereof and does not
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<PAGE> 35
increase the outstanding balance of the particular
indebtedness being refinanced), and Borrower shall not
guarantee, endorse, or assume, either directly or
indirectly, any indebtedness of any other Person, except as
otherwise permitted under this subsection;
(e) No Dividends. Borrower shall not declare, make or pay any
dividends or bonuses upon its outstanding shares, or make any capital stock
repurchases, except for, so long as Borrower is a subchapter S corporation,
cash distributions to Borrower's subchapter S shareholders up to 40% of the
pass through income per such shareholders for purposes of meeting income
tax obligations;
(f) No Acquisitions. Borrower shall not purchase or acquire, directly
or indirectly, any shares of stock, evidence of indebtedness, or other
securities of any person, corporation, or other entity, except in
settlement of customers' Accounts;
(g) No Dissolutions and Mergers. Borrower shall not (i) liquidate, or
discontinue or materially reduce its normal operations with intention to
liquidate, (ii) merge or consolidate with or into any corporation,
partnership, or other entity, (iii) sell, lease, transfer, or otherwise
dispose of all or any substantial part of its assets, other than sales and
trades to the extent such assets are replaced with new assets, or (iv)
acquire any corporation, partnership, or other entity (or any interest
therein), whether by stock or asset purchase or acquisition or otherwise.
Borrower shall not cause, allow, or suffer to occur a change in the
ownership, nature, or senior management of Borrower. Borrower shall not
change its name or identity without notifying Bank of such change in
writing at least thirty (30) days prior to the effective date of such
change and Borrower shall take all steps necessary prior to any such change
to maintain at all times the validity, perfection, and priority of all
liens and security interests contemplated by and created in this Agreement
and in the other Credit Documents;
(h) No Subordinated Debt Payments. Borrower shall not make any payment
upon any outstanding Subordinated Debt owing to a shareholder, except as
expressly permitted under the terms of a subordination agreement executed
by Bank and the holder of the Subordinated Debt;
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<PAGE> 36
(i) Interest Coverage Ratio. Borrower shall not cause, allow, or
suffer to occur its Interest Coverage Ratio to be less than 2.0 to 1.0 at
any time on or after January 31, 1998. For purposes of this subsection,
"INTEREST COVERAGE RATIO" shall mean a ratio of (a) Net Income (before
interest expense and taxes) for the calendar year to date to (b) Interest
Expense for the calendar year to date;
(j) Fixed Charge Coverage Ratio. Borrower shall not cause, allow, or
suffer to occur its Fixed Charge Coverage Ratio as of the end of Borrower's
fiscal year for that fiscal year to be less than 1.2 to 1.0 for any fiscal
year ending on or after December 31, 1998. For purposes of this subsection,
"FIXED CHARGE COVERAGE RATIO" shall mean the ratio of (a) an amount equal
to the sum of (i) Borrower's Net Income, plus (ii) Borrower's Interest
Expense, plus (iii) Borrower's amortization, depreciation, and any other
expenses which would be classified as non cash expenses in accordance with
GAAP, plus (iv) Borrower's lease and rental expenses, to (b) an amount
equal to the sum of (i) Borrower's Interest Expense, plus (ii) Borrower's
lease and rental expense, plus (iii) the sum of Borrower's current
maturities of long term debt, calculated in accordance with GAAP;
(k) Tangible Net Worth Requirement. Borrower shall not cause, allow,
or suffer to occur its Tangible Net Worth to be less than (i)
$16,000,000.00 at any time from and after June 30, 1998, through but not
including December 31, 1998; (ii) $20,000,000.00 at any time on or after
December 31, 1998, through but not including December 31, 1999, and (iii)
$25,000,000.00 at any time on or after December 31, 1999;
(l) Debt to Tangible Net Worth. Borrower shall not cause, allow, or
suffer to occur its Debt to Tangible Net Worth ratio to exceed (i) 5.25 to
1.0 at any time on or after June 30, 1998, and prior to July 1, 1999; (ii)
4.50 to 1.0 at any time on or after July 1, 1999, and prior to December 31,
1999; and (iii) 3.50 to 1.0 at any time on or after December 31, 1999. For
purposes of this subsection, "DEBT TO TANGIBLE NET WORTH RATIO" shall mean,
for any period, the ratio of (i) an amount equal to Borrower's total
liabilities (in accordance with GAAP), plus off balance sheet liabilities,
minus the outstanding principal balance of the Revolving Note, to (ii)
Borrower's Tangible Net Worth;
(m) No Loans to Affiliates. Borrower shall not make any loans,
investments, or advances to or in any Affiliate, except for a $5,000,000.00
loan made prior to the date hereof to Guarantor and
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inter-company loans to Affiliates made in the ordinary course of business
(but only to the extent any such loan is made prior to the occurrence of an
Event of Default and no Event of Default would occur after giving effect to
the loan);
(n) No Transactions With Affiliates. Borrower shall not enter into any
transaction with an Affiliate, including, without limitation, the purchase,
sale, or exchange of Property of Borrower or the rendering of any service,
unless the transaction is in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to Borrower than would be obtained in a comparable
arm's length transaction with a Person not an Affiliate;
(o) No Adverse Transactions. Borrower shall not enter into any
transaction which materially and adversely affects or may materially and
adversely affect any of the Collateral or Borrower's ability to pay the
Liabilities or permit or agree to any material extension, compromise, or
settlement or make any material change or modification of any kind or
nature with respect to any Account, including any of the terms relating
thereto, other than discounts and allowances in the ordinary course of
business;
(p) No Ownership of Margin Stock. Borrower shall not own, purchase, or
acquire, (or enter into any contract to purchase or acquire), any "margin
security" as defined by any regulation of the Federal Reserve Board as now
in effect or as the same may hereafter be in effect unless, prior to any
such purchase or acquisition or entering into any such contract, Bank shall
have received an opinion of counsel satisfactory to the effect that such
purchase or acquisition will not cause this Agreement to violate Regulation
U or any other regulation of the Federal Reserve Board then in effect; and
(q) Repurchase Agreement. Borrower shall not amend, modify, or
supplement the Repurchase Agreement or any of the agreements pertaining
thereto, or permit the Repurchase Agreement to terminate or expire.
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SECTION 8
EVENTS OF DEFAULT; ACCELERATION
8.1 Events of Default. Any or all of the liabilities of Borrower to
Bank, including, without limitation, the Liabilities, shall be, at the option of
Bank and notwithstanding any time or credit allowed by any instrument evidencing
a Liability, immediately due and payable without the necessity of notice of
intent, to accelerate notice of acceleration, or any other notice or demand
(each of which are expressly waived herein by Borrower), and the obligation of
Bank to make advances hereunder shall immediately cease and terminate, unless
earlier terminated hereunder, upon the occurrence of any of the following events
of default (the "EVENTS OF DEFAULT"):
(a) Failure of Borrower to pay when due any interest payment or
principal installment on the Notes, or to pay when due any other Liability
of Borrower;
(b) Failure by Borrower to fully and completely perform in a timely
manner any covenant, agreement, act, or obligation imposed hereby by any
other Credit Document, or by any other agreement to which Bank and Borrower
are parties, or Borrower's failure to abide by the terms of this Agreement,
any other Credit Document or any other document or instrument executed in
connection herewith, or any other agreement to which Bank and Borrower are
parties;
(c) Failure by Guarantor to fully and completely perform on a timely
basis any covenant, agreement, or act under and as required by the
Guaranty;
(d) (i) Except as otherwise provided in this Agreement, failure of
Borrower to pay when due any tax or (ii) failure of Borrower to pay within
any applicable grace period any premium on (x) any insurance policy
hereafter assigned to Bank, or (y) any insurance required by this Agreement
covering any Collateral;
(e) Failure by Borrower to fully cooperate and permit Bank to inspect
Borrower's books and records and its Collateral in the manner set forth in
this Agreement;
(f) A default by any Person in the performance of their obligations
under the Repurchase Agreement or the termination or expiration of the
Repurchase Agreement;
(g) Calling of a meeting of creditors, appointment of a committee of
creditors or liquidation agents, or offering of a composition or extension
to creditors by, for or of Borrower;
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<PAGE> 39
(h) Any change in the ownership, nature, or senior management of
Borrower or its business without the prior written consent of Bank, other
than (x) the transfers of Borrower's stock among family members of the
present shareholders, (y) the sale of newly issued shares of Borrower for
cash at a per share price greater than the price paid by the present
shareholder, or (z) the issuance of shares from the exercise of stock
options;
(i) Fraud or misrepresentation by or on behalf of Borrower in its
transactions with Bank;
(j) A bankruptcy trustee, or any other Person terminates or attempts
to terminate any Credit Document with Bank, whether or not such termination
or attempted termination constitutes a breach under such Credit Document;
(k) Any representation or warranty made by Borrower or Guarantor in
any of the Credit Documents proves to have been untrue in any material
respect or any representation, statement (including Financial Statements),
certificate or data furnished or made to Bank as an inducement for Bank
agreeing to enter in to this Agreement, or in accordance with the terms of
this Agreement, proves to have been untrue in any material respect as of
the date the facts therein set forth were stated or certified;
(l) Failure by Borrower or Guarantor whether as principal or guarantor
or other surety, to pay or perform under any bond, debenture, note or other
evidence of indebtedness, or under any credit agreement, loan agreement,
indenture, promissory note, or similar agreement or instrument executed in
connection with any of the foregoing, if the effect of such failure is to
accelerate or to permit the acceleration of any of the foregoing;
(m) Borrower shall be unable to fully, completely, and timely satisfy
any condition to a particular advance as specified in Section 2;
(n) Borrower or Guarantor shall (i) apply for or consent to the
appointment of a receiver, trustee or liquidator of it or all or a
substantial part of their respective assets, (ii) file a voluntary petition
commencing a bankruptcy or other insolvency proceeding, (iii) make a
general assignment for the benefit of creditors, (iv) be unable, or admit
in writing their respective inability, to pay their respective debts
generally as they
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become due, or (v) file an answer admitting the material allegations of a
petition filed against it in a bankruptcy or other insolvency proceeding;
(o) An order, judgment, or decree shall be entered against Borrower or
Guarantor by any court of competent jurisdiction or by any other duly
authorized authority, on the petition of a creditor or otherwise, granting
relief in a bankruptcy or other insolvency proceeding or approving a
petition seeking reorganization or an arrangement of its debts or
appointing a receiver, trustee, conservator, custodian, or liquidator of it
or all or any substantial part of its assets and such order, judgment, or
decree shall not be dismissed or stayed within 90 days;
(p) The levy against any significant portion of the property of
Borrower or any execution, garnishment, injunction, attachment,
sequestration, or other writ or similar proceeding which is not permanently
dismissed or discharged within 30 days after the levy;
(q) A final and non-appealable order, judgment, or decree, which is
uninsured in an amount in excess of $5,000,000.00, shall be entered against
Borrower or Guarantor and such order, judgment, or decree shall not be
dismissed or stayed within 30 days;
(r) Cessation of a substantial part of the business of Borrower for a
period which significantly affects Borrower's capacity to continue its
business, on a profitable basis; or Borrower shall suffer the loss or
revocation of any license or permit now held or hereafter acquired by
Borrower which is necessary to continue the lawful operation of its
business; or Borrower shall be enjoined, restrained, or in any way
prevented by court, governmental, or administrative order from conducting
all or any material part of its business affairs; or Borrower shall be
required by a Governmental Authority to dissolve, liquidate, or wind-up its
business affairs; or any material lease or agreement pursuant to which
Borrower now or hereafter leases, uses, or occupies any property where a
material part of the tangible Collateral is located or stored shall be
canceled or terminated prior to the expiration of its stated term;
(s) Borrower, Guarantor, or any Affiliate shall challenge or contest
in any action, suit, or proceeding the validity or enforceability of this
Agreement or any of the other Credit Documents, the legality or
enforceability of any of the Liabilities, or the perfection or priority of
any lien granted to Bank;
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<PAGE> 41
(t) Borrower or Guarantor shall be criminally indicted or convicted
under any law that could lead to a forfeiture of more than 10% of the
property of Borrower or Guarantor;
(u) Borrower or Guarantor shall have (i) concealed, removed, or
diverted, or permitted to be concealed, removed, or diverted, any part of
their respective property, with intent to hinder, delay, or defraud their
respective creditors or any of them; (ii) made or suffered a transfer of
any of their respective property which may be fraudulent under any
bankruptcy, fraudulent transfer, or similar law; or (iii) shall have
suffered or permitted, while insolvent, any creditor to obtain a lien upon
any of their respective property through legal proceedings or otherwise
which is not vacated within 90 days from the date thereof;
(v) The security interests and liens granted herein or in any other
Credit Documents shall not constitute a first and prior lien and security
interest, except as otherwise disclosed to and agreed by Bank in writing or
as otherwise permitted by this Agreement;
(w) Except as otherwise permitted herein, title to any of the stock or
other interest in Borrower directly or indirectly shall be transferred,
pledged, or otherwise encumbered; or
(x) Any lawsuit or other proceeding is commenced against or involving
Borrower, that survives a motion for summary judgment, and which if
determined adversely, would cause a Material Adverse Change to Borrower.
SECTION 9
POWER TO SELL OR COLLECT COLLATERAL;
RIGHTS AND REMEDIES
9.1 Rights and Remedies With Respect to Collateral. Notwithstanding
anything herein to the contrary, upon the occurrence of any Event of Default,
Bank is fully authorized and empowered (without the necessity of any further
consent or authorization from Borrower) and the right is expressly granted to
Bank, and Bank hereby appoints and makes Bank as Borrower's true and lawful
attorney-in-fact and agent for Borrower and in Borrower's name, place, and stead
with full power of substitution, in Bank's name or Borrower's name or otherwise,
for Bank's use and benefit, but at Borrower's cost and expense, to exercise,
without notice, all or any of the following powers at any time with respect to
all or any of the Collateral: (a) notify Account Debtors to make and deliver
payment and/or provide performance
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<PAGE> 42
directly to Bank; (b) demand, sue for, collect, receive, and give acquittance
for any and all moneys due or to become due by virtue of the Collateral, and
otherwise deal with Proceeds; (c) receive, take, endorse, assign and deliver any
and all checks, notes, drafts, documents and other negotiable and non-negotiable
instruments and chattel paper taken or received by Bank in connection therewith;
(d) settle, compromise, compound, prosecute, or defend any action or proceeding
with respect thereto; (e) deal in or with the Collateral as fully and
effectively as if Bank were the absolute owner thereof; and (f) extend or alter
the time or manner of payment or performance of any or all thereof, grant
waivers and make any allowance or other adjustment with reference thereto;
provided, however, Bank shall be under no obligation or duty to exercise any of
the powers hereby conferred upon it and shall be without liability for any act
or failure to act in connection with the collection of, or the preservation of
any rights under or the depreciation in value of, any Collateral. After the
occurrence of an Event of Default, Bank may receive and open mail addressed to
Borrower. Borrower hereby irrevocably authorizes and directs each person or
entity who shall be a party to or liable for the performance or payment of any
of the Accounts, upon receipt of written notice from Bank (as provided
hereinabove) to pay or otherwise perform or accept performance of the
obligations under the Accounts to, with, or for Bank directly, and to continue
to do so until otherwise notified by Bank. Each such person or entity shall have
no duty to inquire or investigate as to whether an Event of Default shall have
actually occurred or whether this Agreement shall have terminated, and no such
person or entity shall be liable to Borrower, its successors or assigns for
acting in reliance on Bank's notification as provided in this Section.
9.2 Uniform Commercial Code and Other Remedies. Upon the occurrence of
any Event of Default, Bank shall have, in addition to and without limiting all
other rights and remedies provided for herein and at law, the remedies of a
secured party under the UCC (regardless of whether the Uniform Commercial Code
has been enacted in the jurisdiction where rights or remedies are asserted) and
all applicable certificate of title acts (and other acts and statutes),
including, without limitation, the right to take possession of the Collateral,
and for that purpose Bank may, so far as Borrower can give authority therefor,
enter upon any premises on which the Collateral may be situated and remove the
same therefrom or take possession of same and store same on such premises
pending disposition under the terms of this Agreement or applicable law. Bank
may require Borrower to assemble the Collateral and make it available to Bank at
a place designated by Bank which is reasonably convenient to both parties.
Unless the Collateral is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, Bank shall give to
Borrower at least ten (10) business days' written notice of the time and place
of any public sale of Collateral or of the time after which any private sale or
any other intended disposition is to be made. Bank may, at any time, in its sole
and reasonable discretion, transfer any securities or other property
constituting Collateral
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<PAGE> 43
into its own name or that of its nominee, and receive the income thereon and
hold the same as security for the Liabilities or apply it on principal or
interest due on the Liabilities.
9.3 Proceeds. After the occurrence of any Event of Default, the
proceeds of any sale of the Collateral and all sums received or collected by
Bank from or on account of the Collateral shall be applied by Bank in the manner
set forth in Section 9.504 of the UCC.
9.4 Deficiency. Borrower shall remain liable to Bank for any unpaid
Liabilities, advances, costs, charges, and expenses incurred by Bank in
connection herewith, together with interest thereon, and shall pay the same
immediately to Bank at Bank's offices.
9.5 Bank's Duties. The powers conferred upon Bank by this Agreement
are solely to protect Bank's interest in the Collateral, and shall not impose
any duty upon Bank to exercise any such powers. Bank shall be under no duty
whatsoever to make or give any presentment, demand for performance, notice of
nonperformance, protest, notice of protest, notice of dishonor, notice of intent
to accelerate, notice of acceleration, or other notice or demand in connection
with any Collateral or the Liabilities, except as specifically provided in this
Agreement, or to take any steps necessary to preserve any rights against prior
parties. Bank shall not be liable for failure to collect or realize upon any or
all of the Accounts or the Collateral, or for any delay in so doing, nor shall
Bank be under any duty to take any action whatsoever with regard thereto. Bank
shall use reasonable care in the custody and preservation of any Collateral in
its possession but need not take any steps to keep the Collateral identifiable.
Bank shall have no duty to comply with any recording, filing, or other legal
requirements necessary to establish or maintain the validity, priority or
enforceability of, or Bank's rights in, any of the Collateral.
9.6 Non-Judicial Remedies. To the fullest extent permitted by law,
Bank may enforce its rights hereunder without prior judicial process or judicial
hearing, and Borrower expressly waives, renounces, and knowingly relinquishes
any and all legal rights which might otherwise require Bank to enforce its
rights by judicial process. In so providing for non-judicial remedies, Borrower
recognizes that such remedies are consistent with the usage of the trade, are
responsive to commercial necessity, and are the result of bargain at arm's
length. Nothing herein is intended to prevent Bank from resorting to judicial
process at its option.
9.7 Remedies Not Exclusive. No right, power, or remedy conferred in
this Agreement, the Notes, any other Credit Document or any other agreement
executed in connection herewith or any other document or agreement to which
Borrower and Bank are parties, or now or hereafter existing at law, in equity,
or
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<PAGE> 44
admiralty, by statute or otherwise, shall be exclusive, and each such right,
power, or remedy, shall, to the full extent permitted by law, be cumulative and
in addition to every other such right, power, or remedy.
9.8 Successive Sales. The sale by Bank of less than the whole of the
Collateral (including, without limitation, the collection of certain Accounts)
shall not exhaust the rights of Bank hereunder, and Bank is specifically
empowered to make successive sales and notices to Account Debtors hereunder
until the whole of the Collateral shall be sold and collected. If the proceeds
of any sale of less than the whole of the Collateral shall be less than the
aggregate of Borrower's Liabilities, this Agreement and the security interests
created hereby shall remain in full force and effect as to the unsold portion of
the Collateral just as though no sale had been made, provided, however, that
Borrower shall never have any right to require sale of less than the whole of
the Collateral, but Bank shall have the right, at its sole election, to sell
less than the whole of the Collateral.
9.9 Enforcement Against Particular Collateral. Bank may resort to any
security given by this Agreement or to any other security now existing or
hereafter given to secure the payment of Borrower's Liabilities, in whole or in
part, and in such portions and in such order as may seem best to Bank in its
sole discretion, and any such action shall not in any way be considered as a
waiver of any of the rights, benefits, or security interests evidenced by this
Agreement.
9.10 Suit Against Borrower. Bank may, at all times, proceed directly
against Borrower to enforce payment of Borrower's Liabilities and shall not be
required first to enforce its rights in the Collateral or any other security
granted to it. Except as required by applicable law, Bank shall not be required
to take any action of any kind to preserve, collect, or protect its or
Borrower's rights in the Collateral or any other security granted to it.
9.11 Dilution Reserve. In addition to its other rights hereunder,
prior to or after the occurrence of an Event of Default, Bank may establish a
reserve percentage for dilution of accounts in the event that Borrower's
previous returns or non-cash credits exceed three percent (3%) on a historical
basis as determined by Bank (the "DILUTION RESERVE"). The Dilution Reserve shall
be multiplied by the value of otherwise Eligible Accounts and the product shall
be excluded from Eligible Accounts.
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<PAGE> 45
SECTION 10
DEPOSITS;
RIGHTS AND REMEDIES
10.1 Deposits. In addition to the other liens and security interest
granted and created herein, Bank, any participant, and any other holder of all
or any part of the Liabilities are hereby given and granted a continuing lien as
additional security for all Liabilities hereunder upon any and all moneys,
securities, and other property of Borrower, and the proceeds thereof, now or
hereafter held or received by or in transit to bank, such participant, or such
holder from or for Borrower, whether for safekeeping, custody, pledge,
transmission, collection, or otherwise, and also upon any and all deposit
balances (general or special) and credits of Borrower with, and any and all
claims of borrower against Bank, such participant, or such holder at any time
existing, and upon the occurrence of an Event of Default hereunder, or after
maturity of the Notes, Bank, such participant, or such holder may apply or set
off the same against the liabilities and indebtedness hereby secured, without
notice and without liability. Borrower agrees that any other person or entity
purchasing a participation from Bank may exercise all its rights of payment
(including the right of set off) with respect to such participation as fully as
if such person or entity was the direct creditor of Borrower in the amount of
such participation.
SECTION 11
WAIVERS BY BORROWER
11.1 Waivers. Without limiting any other term or provision of this
Agreement, and except as otherwise provided for herein, Borrower, any
accommodation party, surety, endorser, or other person or entity liable for the
payment or collection of the Liabilities expressly waive demand, presentment for
payment, notice of protest, notice of intent to accelerate, notice of
acceleration, notice of acceptance of this Agreement, and notice of loans made,
credit extended, Collateral received or delivered, or other action taken in
reliance hereon and all other demands and notices of any description. With
respect both to the Liabilities and Collateral, Borrower assents to any
extension or postponement of the time of payment or any other indulgence, to any
substitution, exchange, or release of any or all of the Collateral, to the
addition or release of any party or person primarily or secondarily liable, to
the acceptance of partial payments thereon and the settlement, compromising, or
adjusting of any thereof, all in such manner and at such time or times as Bank
may deem advisable. Bank shall not be deemed to have waived any of its rights
upon or under any of the Liabilities or Collateral unless such waiver be in
writing and signed by Bank. No course of dealing and no delay or omission on the
part of Bank in exercising any right shall operate as a waiver of such right or
any other right. A waiver on any one occasion by Bank of any of its rights
hereunder shall not be construed as a bar to or waiver of any right on any
further occasion.
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<PAGE> 46
SECTION 12
EXPENSES: PROCEEDS OF COLLATERAL
12.1 Expenses. Subject to the limitation set forth in Section 2.1,
Borrower shall pay all reasonable expenses, including, without limitation, legal
expenses, incurred by Bank from time to time in connection with the preparation,
administration, amendment, or modification of this Agreement, the Notes, the
other Credit Documents and other documents executed in connection with the
creation of the Credit Facilities and those associated with the perfection and
creation of the security interests granted pursuant hereto. Notwithstanding any
of the foregoing (including the reference to Section 2.1), Borrower shall
promptly reimburse Bank upon request for all reasonable amounts expended,
advanced, or incurred by Bank as are reasonably necessary (a) to satisfy any
Liability of Borrower under this Agreement, (b) to protect the assets or
business of Borrower, (c) to collect the Notes, or any other amounts advanced
under this Agreement or otherwise on behalf of Borrower, or (d) to enforce the
rights of Bank under this Agreement and the other Credit Documents, which
amounts will include, without limitation, all reasonable court costs, attorneys'
fees, and fees of auditors, accountants, and investigators incurred by Bank in
connection with any such matters, together with interest at the default rate
stated in the Notes, on each such amount from 30 days after the date of
notification to Borrower that the same was expended, advanced, or incurred by
Bank until the date it is repaid to Bank (all such amounts shall be charged to
Borrower's Loan Account).
12.2 Collection Costs. Without limiting any of the foregoing, Borrower
shall pay to Bank on demand any and all expenses and costs of collection,
including, without limitation, counsel fees, incurred or paid by Bank in
protecting or enforcing its right upon or with respect to any of the Liabilities
or the Collateral. After deducting all of said expenses, the residue of any
proceeds of collection or sale of Liabilities or Collateral shall be applied to
the payment of principal or interest on Liabilities in such order or preference
as Bank may determine, proper allowance for interest on Liabilities not then due
being made, and any excess shall be returned to Borrower and Borrower shall
remain liable for any deficiency.
SECTION 13
DURATION: EXTENSION
13.1 No Commitment to Extend. Notwithstanding anything in this
Agreement to the contrary, the obligation of Bank to make advances under the
Revolving Line shall terminate on the Revolving Line Termination Date and under
the Advancing Line on the Advancing Line Expiration Date; provided however,
Borrower and Bank recognize that, in the future, they may wish to extend such
expiration
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<PAGE> 47
dates by mutual agreement. No modification or amendment of this Agreement or
extension of the Revolving Line Termination Date and/or the Advancing Line
Expiration Date shall be effective unless placed in writing and duly executed by
Bank and Borrower. The termination or expiration of the obligation of Bank to
make advances under any of the Credit Facilities shall in no way affect any
transactions entered into or rights created or obligations incurred prior to
such termination or expiration; rather, such rights and obligations shall be
fully operative until the same are fully disposed of, concluded, and/or
liquidated. Without limiting the generality of the foregoing, such termination
or expiration shall not release nor diminish any of Borrower's obligations and
agreements hereunder until payment in full of all of the Liabilities (including,
without limitation, payment of all Liabilities arising after the Revolving Line
Termination Date and/or the Advancing Line Expiration Date as a result of
advances made by Bank at the request of Borrower or on behalf of Borrower) and
all other sums and amounts payable under or pursuant to this Agreement. This
Agreement and the other Credit Documents shall be a continuing agreement in
every respect.
SECTION 14
GENERAL
14.1 Defined Terms and Certain Matters of Construction. Capitalized
terms not otherwise defined in this Agreement shall have the meanings assigned
to each of them in the Glossary attached as Addendum A to this Agreement and
made a part hereof for all purposes, which Glossary also contains certain rules
of construction which govern this Agreement.
14.2 Replacement of Prior Credit Agreement. Borrower and Bank agree
and acknowledge that this Agreement shall restate, modify, and fully replace the
Prior Credit Agreement and that the terms and provisions of this Agreement shall
govern and control the relationship between Borrower and Bank, except that
Borrower agrees that the representations and warranties made by Borrower in the
Prior Credit Agreement were true and correct as of the date of the Prior Credit
Agreement.
14.3 Notices. All notices or other communications required or
permitted under this Agreement shall be deemed to have been given (a) on the
date of service if served personally on the party to whom notice is to be given,
(b) on the day of transmission if sent by confirmed facsimile transmission, (c)
on the day after delivery to Federal Express or similar overnight courier,
properly addressed for prepaid delivery the next day, or (d) on the day after
mailing, if mailed to the party to whom notice is to be given, by registered or
certified mail, postage prepaid, and properly addressed, return receipt
requested, to such party.
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<PAGE> 48
14.4 Transfers by Bank. If at any time or times by assignment or
otherwise Bank transfers any of the Liabilities (either separately or together
with the Collateral therefor), such transfer shall carry with it Bank's powers
and rights under this Agreement with respect to the Liabilities and Collateral
transferred, and the transferee shall become vested with said powers and rights
whether or not they are specifically referred to in the transfer. If and to the
extent Bank retains any other of the Liabilities or Collateral, Bank will
continue to have the rights and powers herein set forth with respect thereto.
14.5 GOVERNING LAW. THIS AGREEMENT AND THE CREDIT DOCUMENTS AND ALL
RIGHTS AND OBLIGATIONS HEREUNDER AND THEREUNDER, INCLUDING MATTERS OF
CONSTRUCTION, VALIDITY, AND PERFORMANCE, SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF TEXAS, EXCEPT THAT CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH
REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY
ACCOUNTS), SHALL NOT APPLY TO THIS AGREEMENT, THE NOTES, THE CREDIT FACILITIES,
OR ANY TRANSACTION CONTEMPLATED HEREBY.
14.6 Controlling Agreement. It is the intention of Bank and Borrower
to conform strictly to any applicable usury laws. Accordingly, if the
transactions contemplated hereby (including, without limitation, by virtue of
Section 1.10) would be usurious under any applicable law, then, in that event,
notwithstanding anything to the contrary in this Agreement, the Notes, or any
other agreement or instrument entered into in connection with or as security for
or guaranteeing this Agreement or the Notes, it is agreed as follows: (a) the
aggregate of all consideration that constitutes interest under applicable law
that is contracted for, taken, reserved, charged, or received by Bank under this
Agreement, the Notes, or under any other agreement entered into in connection
with or as security for or guaranteeing this Agreement or the Notes shall under
no circumstances exceed the Highest Lawful Rate, and any excess shall be
canceled automatically and, if theretofore paid, shall, at the option of Bank,
be credited by Bank on the principal amount of any indebtedness owed to Bank by
Borrower or refunded by Bank to Borrower, and (b) in the event that the maturity
of any of the Notes or any other of the Liabilities are accelerated or in the
event of any required or permitted prepayment, then such consideration that
constitutes interest under law applicable to Bank may never include more than
the Highest Lawful Rate and excess interest, if any, provided for in this
Agreement or the Notes or otherwise shall be canceled automatically as of the
date of such acceleration or prepayment and, if theretofore paid, shall, at the
option of Bank, be credited by Bank on the principal amount of any indebtedness
owed to Bank by Borrower or refunded by Bank to Borrower.
14.7 Savings Provision. Notwithstanding anything herein to the
contrary, in no event will interest payable to Bank exceed the maximum amount
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<PAGE> 49
permitted by the law applicable to Bank (after taking into account all charges
payable to Bank that constitute interest under such applicable law), but if any
amount referred to in any of this Agreement, the Notes, or any other agreement
or instrument to which Bank and Borrower are parties that would be payable to
Bank but for the applicability of usury or other laws limiting the consideration
payable to Bank is not paid to Bank as a result of the applicability of such
laws, then interest on the outstanding principal balance of the Liabilities
payable to Bank shall, to the extent permitted by law, accrue at the Highest
Lawful Rate (after taking into account all charges payable to Bank that
constitute interest under applicable law) until the total amount received by
Bank equals the amount it would have received had no such laws been applicable.
14.8 Entire Agreement. This Agreement, the other Credit Documents, and
the documents delivered hereunder or in connection herewith contain the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements relating to the subject matter hereof
and thereof, including but not limited to that certain commitment letter dated
December 7, 1998, between Bank and Borrower. In the event of actual conflict in
the terms and provisions of this Agreement and any other Credit Document or any
of such other documents or any other instrument or agreement executed in
connection with this Agreement or described or referred to in this Agreement,
the terms and provisions of this Agreement shall control. No modification,
consent, amendment, or waiver or any provision of this Agreement or any other
Credit Document, nor consent to any departure by Borrower therefrom, shall be
effective unless the same shall be in writing and signed by Bank, and then shall
be effective only in the specific instance and for the purpose for which given.
This Agreement is binding upon Borrower, its successors and assigns, and inures
to the benefit of Bank, its successors and assigns. All representations and
warranties of Borrower herein or in any other Credit Document, and all covenants
and agreements herein, in any other Credit Document or in any document delivered
hereunder or in connection herewith that are not fully performed before the
effective date of this Agreement shall survive such date. THIS AGREEMENT
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
14.9 Construction and Severability. In the event any one or more of
the terms or provisions contained in this Agreement, in any other Credit
Document or in any other instrument or agreement referred to herein or executed
in connection with or as security for the Liabilities, or any application
thereof to any person or circumstances, shall be declared prohibited, illegal,
invalid or unenforceable to any extent in any jurisdiction, as determined by a
court of competent jurisdiction, such term or provision, in that jurisdiction,
shall be ineffective only to the extent of such
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<PAGE> 50
prohibition, illegality, invalidity or unenforceability, or as applied to such
persons or circumstances, without invalidating or rendering unenforceable the
remaining terms or provisions hereof or thereof or affecting the validity or
enforceability of such term or provision in any other jurisdiction or as to
other persons or circumstances in such jurisdiction, unless such would effect a
substantial deviation from the general intent and purpose of the parties, make a
significant change in the economic effect of the transactions contemplated
herein on Bank, or impair the validity, perfection or priority of Bank's
security interest in any Collateral or the validity of any guaranty or other
security for the Liabilities, in which event a substitute provision shall be
supplied by the court in order to provide Bank with the benefits intended by
such invalid term or provision.
14.10 Other Advances. Borrower and Bank acknowledge and agree that in
the future, Borrower may apply for and Bank may agree to fund additional loans
to Borrower. Borrower and Bank agree that all existing and hereafter created
loans and other advances from Bank, or any of its predecessors or successors in
interest, to Borrower, whether or not such loans are particularly described in
this Agreement, as may be amended from time to time, shall constitute
Liabilities for purposes of this Agreement and shall be subject to the terms,
provisions, covenants, and agreements set forth in this Agreement.
14.11 No Duty or Special Relationship. Borrower acknowledges that Bank
has no duty to Borrower with respect to the loan transactions set forth in this
Agreement except as expressly provided for in this Agreement and the other
Credit Documents, and acknowledge that no fiduciary, trust, or other special
relationship exists between Bank and Borrower.
14.12 NO CONTROL BY BANK. BORROWER AGREES AND ACKNOWLEDGES THAT ALL OF
THE COVENANTS AND AGREEMENTS PROVIDED FOR AND MADE BY BORROWER IN THIS AGREEMENT
AND IN THE OTHER CREDIT DOCUMENTS ARE THE RESULT OF EXTENSIVE AND ARMS-LENGTH
NEGOTIATIONS BETWEEN BORROWER AND BANK. BANK'S RIGHTS AND REMEDIES PROVIDED FOR
IN THIS AGREEMENT AND IN THE OTHER CREDIT DOCUMENTS ARE INTENDED TO PROVIDE BANK
WITH A RIGHT TO OVERSEE BORROWER'S ACTIVITIES AS THEY RELATE TO THE LOAN
TRANSACTIONS PROVIDED FOR IN THIS AGREEMENT, WHICH RIGHT IS BASED ON BANK'S
VESTED INTEREST IN BORROWER'S ABILITY TO PAY THE NOTES AND PERFORM THE OTHER
LIABILITIES. NONE OF THE COVENANTS OR OTHER PROVISIONS CONTAINED IN THIS
AGREEMENT SHALL, OR SHALL BE DEEMED TO, GIVE BANK THE RIGHT OR POWER TO EXERCISE
CONTROL OVER, OR OTHERWISE IMPAIR, THE DAY-TO-DAY AFFAIRS, OPERATIONS, AND
MANAGEMENT OF BORROWER; PROVIDED THAT IF BANK BECOMES THE OWNER OF ANY STOCK OF
ANY ENTITY, WHICH ENTITY OWNS AN INTEREST IN BORROWER, WHETHER THROUGH
FORECLOSURE OR OTHERWISE, BANK
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<PAGE> 51
THEREAFTER SHALL BE ENTITLED TO EXERCISE SUCH LEGAL RIGHTS AS IT MAY HAVE BY
BEING A SHAREHOLDER OF SUCH ENTITY.
14.13 No Partnership. Nothing herein is intended, nor shall it be
deemed or construed as, to create a partnership, joint venture, or common
interest in profits or income between Borrower and Bank, or to make Bank in any
way responsible for the debts or losses of Borrower or with respect to the
Collateral. Borrower and Bank disclaim any sharing of liabilities, losses, costs
or expenses.
14.14 Calculation of Financial Covenants. All financial covenants in
this Agreement shall be calculated by Borrower on a consolidated basis.
14.15 Binding Effect. All covenants and agreements of Borrower under
this Agreement shall bind the respective successors and assigns of Borrower and
shall inure to the benefit of Bank and its successors and assigns. The rights of
Borrower under this Agreement are not assignable.
14.16 Renewal of Indebtedness. All provisions of this Agreement
relating to the Notes shall apply with equal force and effect to each and all
promissory notes hereafter executed which in whole or in part represent a
renewal, extension or rearrangement of any part of the indebtedness originally
represented by the Notes, or either of them, provided that nothing herein shall
constitute a commitment or offer by Bank to such a renewal, extension or
rearrangement.
14.17 Bank's Discretion. All matters hereunder that require Bank's
discretion, (including, without limitation, whether Borrower has satisfied any
condition precedent), Bank shall use its sole discretion, except as otherwise
provided for herein. Notwithstanding the foregoing, Bank may in its sole
discretion waive any of its rights with respect to a particular Event of
Default.
14.18 Counterparts. This Agreement may be executed in two or more
counterparts, and it shall not be necessary that any one counterparts be
executed by all of the parties hereto. Each fully or partially executed
counterpart shall be deemed an original, but all such counterparts taken
together shall constitute but one and the same instrument.
14.19 Business Loans. Borrower warrants and represents to Bank, and to
all other holders of any debt evidenced by the Notes, that the loans evidenced
by the Notes are and shall be for business, commercial, investment or other
similar purpose and not primarily for personal, family, household or
agricultural use, as such terms are used in Chapter One of the Texas Credit
Code.
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14.20 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR
FROM THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS MAY BE LITIGATED, AT THE SOLE
DISCRETION AND ELECTION OF BANK, IN COURTS HAVING SITUS IN HOUSTON, HARRIS
COUNTY, TEXAS. BORROWER SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR
FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND WAIVES ANY RIGHTS IT
MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION
BROUGHT AGAINST IT BY BANK IN ACCORDANCE WITH THIS SECTION.
14.21 DECEPTIVE TRADE PRACTICES. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, BORROWER HEREBY EXPRESSLY WAIVES EACH AND EVERY OF ITS RIGHTS AND REMEDIES
ARISING UNDER OR PURSUANT TO THE PROVISIONS OF SUBCHAPTER E, CHAPTER 17, TITLE 2
OF THE TEXAS BUSINESS AND COMMERCE CODE (OTHER THAN THE PROVISIONS OF SECTION
17.555 THEREOF), WHICH SUBCHAPTER IS KNOWN AS THE "DECEPTIVE TRADE PRACTICES--
CONSUMER PROTECTION ACT". BORROWER REPRESENTS AND WARRANTS THAT IT HAS KNOWLEDGE
AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE IT TO EVALUATE THE
MERITS AND RISKS OF THE TRANSACTIONS CONTEMPLATED BY THIS LOAN AGREEMENT AND
THAT IT IS NOT IN A SIGNIFICANT DISPARATE BARGAINING POSITION VIS A VIS BANK AT
THE TIME OF ENTERING INTO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BORROWER:
CENTRAL FREIGHT LINES, INC.
By: /s/ Douglas E. Quicksall
-------------------------------------
Douglas E. Quicksall
Senior Vice President - Finance/CFO
BANK:
COMPASS BANK
By: /s/ Wendell C. Williams
-------------------------------------
Wendell C. Williams, President,
Central Texas Region
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<PAGE> 1
EXHIBIT 10.6
AMENDED AND RESTATED
MASTER LEASE AGREEMENT
BETWEEN
SOUTHWEST PREMIER PROPERTIES, L.L.C.
AND
CENTRAL FREIGHT LINES, INC.
(revised as of April 5, 1999)
THIS MASTER LEASE AGREEMENT (the "Lease") is made between SOUTHWEST PREMIER
PROPERTIES, L.L.C., (the "Landlord") and CENTRAL FREIGHT LINES, INC., (the
"Tenant").
DEFINITIONS
For the purpose of this Lease, as amended from time to time, unless the context
otherwise requires, the following terms shall have the following meanings:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
"Parcel" Any one of the 37 real properties listed on Exhibit A
- --------------------------------------------------------------------------------
"Property" Collectively, the 37 properties described in Exhibit A
- --------------------------------------------------------------------------------
"Premises" The Property, subject to (i) Landlord's right under Section
2.1 to exclude Surplus Property, (ii) Landlord's right under
Section 2.4 to delete from the Premises any of the Revised
Exhibit B Parcels and substitute Comparable Facilities, and
(iii) Tenant's right under Section 2.4.8 to exclude a
Parcel. The Premises, as outlined in red on Exhibits B-1
through B-28, shows the Premises after Surplus Property has
been excluded. However, until the effective date of
Landlord's exercise of its right to exclude any particular
Parcel of Surplus Property, Premises shall refer to all
Property that has not yet been excluded.
- --------------------------------------------------------------------------------
"Surplus Property" Those portions, defined in Section 2.1 and in the Revised
Exhibit B, of the 28 Parcels that are not needed for the
operations of the Tenant.
- --------------------------------------------------------------------------------
"Comparable The replacement facility described in Section 2.4.3 of the
Facilities" First Amendment, which becomes the subject of a New Lease
under Section 2.4.6 of the First Amendment
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE> 2
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
"New Lease" A lease separate and apart from this Lease that Landlord and
Tenant enter into under Section 2.4.6 for the Comparable
Facilities.
- --------------------------------------------------------------------------------
"Upgrades" Significant improvements for replacement facilities over
existing facilities, as described in Section 2.4.5 of the
First Amendment
- --------------------------------------------------------------------------------
"Primary Term" May 22, 1998 through May 21, 2008, as defined in Section 3.1
- --------------------------------------------------------------------------------
"Five Year As defined in Section 3.2
Extensions"
- --------------------------------------------------------------------------------
"Ten Year Term" As defined in Section 3.2
- --------------------------------------------------------------------------------
"Extension Terms" As defined in Section 3.2
- --------------------------------------------------------------------------------
"Rent" As defined in Section 4.1
- --------------------------------------------------------------------------------
"FMRV" Fair market rental value, as defined in Section 4.2
- --------------------------------------------------------------------------------
"Landlord As defined in Sections 4.3 and 29
Appraiser"
- --------------------------------------------------------------------------------
"Tenant Appraiser" As defined in Sections 4.3 and 29
- --------------------------------------------------------------------------------
"Independent As defined in Sections 4.3 and 29
Appraiser"
- --------------------------------------------------------------------------------
"Indemnitor" As defined in Section 21
- --------------------------------------------------------------------------------
"Indemnitee" As defined in Section 21
- --------------------------------------------------------------------------------
"Losses" As defined in Section 21
- --------------------------------------------------------------------------------
</TABLE>
1 DEMISE: In consideration of the undertakings of the parties contained
herein, Landlord leases to Tenant, and Tenant leases from Landlord, the
Thirty-Seven (37) properties described in Section 2 (herein collectively
referred to as the "Premises"), on the terms and conditions contained in this
instrument.
2 PREMISES: Subject to the reservation of Surplus Property (as described
below) and to the other terms and conditions herein contained, the Landlord
leases to Tenant the Thirty-Seven (37) properties described in Exhibit A,
attached hereto.
2.1 RESERVATION OF SURPLUS PROPERTY BY LANDLORD: Attached hereto as Revised
Exhibit B is a list describing portions of the Premises, including portions in
Waco, Dallas, and Houston, that are not needed for the operations of the Tenant
(herein, each itemized parcel, and the aggregate of all parcels identified on
Revised Exhibit B, are referred to interchangeably as "Surplus Property").
Landlord hereby reserves the right to exclude from the Premises and the scope of
this Master Lease Agreement, any or all Surplus Property, without reduction in
rent.
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2.2 LANDLORD'S EXERCISE OF RIGHT TO EXCLUDE SURPLUS PROPERTY: Landlord
shall exercise its right to exclude Surplus Property from the scope of this
Lease by providing Tenant at least sixty (60) days prior written notice,
identifying with particularity which parcel or parcels are to be excluded, and
the effective date of such exclusion. Thereafter, Landlord shall have all rights
of a fee simple owner of the excluded Surplus Property, including the rights to
subdivide, develop, and/or to sell it.
2.3 TENANT'S USE OF SURPLUS PROPERTY PRIOR TO EXCLUSION FROM LEASE.: At any
time prior to the effective date designated in Landlord's notice of exercise of
its right to exclude Surplus Property, Tenant may use the Surplus Property
subject to the terms of this Lease for all lawful purposes, including subleasing
it for trailer pads. No improvements shall be constructed on the Surplus
Property by Tenant without the prior written consent of Landlord.
2.4 LANDLORD'S RIGHT TO SUBSTITUTE COMPARABLE FACILITIES: Landlord has the
right to substitute "Comparable Facilities" (as defined below) for any of the
Revised Exhibit B Parcels containing Surplus Property, under the following terms
and conditions:
2.4.1 When Exercisable. The right is exercisable whenever Landlord
receives an offer to purchase, lease, or joint venture any of the Revised
Exhibit B Parcels that Landlord is willing to accept.
2.4.2 Notices; Timing; Procedure. To exercise the right, Landlord
shall provide Tenant written notice, which notice shall identify the
affected Parcel and shall propose a replacement facility for Tenant.
Thereafter, Tenant shall select one of the following options:
(i) accept the replacement facility,
(ii) reject the replacement facility and, instead, opt out of
the Lease under Section 2.4.8, or
(iii) submit the question to binding arbitration under Section
2.4.3,
and shall notify Landlord within 30 days following the date on which Tenant
received Landlord's Section 2.4.2 notice. In the absence of a response from
Tenant, Tenant shall be deemed to have selected option (ii). Thereafter,
Landlord shall have 30 days following its receipt of Tenant's notice to
notify Tenant that Landlord has selected one of the following options:
(i) either that Landlord will agree to provide the replacement
facility or that Landlord will agree to Tenant's opting
out of the Lease under Section 2.4.8 for the affected
Parcel, or
(ii) to rescind Landlord's initial Section 2.4.2 notice and
return to the status quo (prior to Landlord's Section
2.4.2 notice) with respect to the affected Parcel.
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Following the expiration of the second 30-day period, and in the event
Tenant does not plan to remain at the affected Parcel, Tenant shall have
six (6) months within which to vacate the Parcel, unless the parties agree
otherwise, or unless, if Landlord is providing the replacement facility,
such facility is not ready for occupancy, in which event Tenant shall
vacate the affected Parcel when the replacement facility is ready for
occupancy.
2.4.3 "Comparable Facilities". Landlord, at Landlord's expense, shall
provide Tenant "Comparable Facilities", meaning a replacement facility for
use as a trucking terminal either (i) having business utility at least
comparable to the existing facility being replaced or (ii) that is
otherwise acceptable to Tenant, in Tenant's sole judgment. In determining
business utility, the following factors shall be taken into consideration:
(a) Whether the replacement facility is comparable to the
existing facility;
(b) Size, in square footage, of property and of building;
(c) Layout, including internal circulation;
(d) Location and accessibility in relation to major roadways;
(e) Ease of accessibility to site by a tractor-trailer;
(f) Convenience of location in relation to customer base (within
10 miles of the existing facility is presumed to have convenient
location to customer base);
(g) Adequacy of security or ease in providing adequate security;
(h) Appropriate zoning;
(i) Absence of environmental concerns;
(j) Physical condition of the premises.
In the event a proposed replacement facility is not otherwise acceptable to
Tenant and Landlord and Tenant cannot agree as to whether any proposed
Comparable Facilities has comparable business utility to the facility being
replaced, the parties may submit, for binding arbitration, such question to
a duly qualified appraiser in the same manner as is provided in Sections
4.3 and 29 of the Lease for determining Fair Market Rental Value or Fair
Market Value for purposes of the Options to Extend or the Option to
Purchase granted therein. In the event the parties agree to such
submission, the appraiser's determination shall be binding upon the parties
as to the issues presented to such appraiser.
2.4.4 Irving/Dallas. In addition to the factors set forth in Section
2.4.3 above, for the Irving/Dallas Parcel only, Tenant may require Landlord
to provide two separate facilities in the Irving/Dallas greater
metropolitan area that together have business utility comparable to the
existing facility.
2.4.5 Upgrades. In the event Tenant desires to upgrade its facilities
(meaning, to make any significant quantitative or qualitative improvement
over what would otherwise be a facility having comparable business utility,
in any of the factors listed in Section 2.4.3 above) in connection with
Landlord's exercising its Section 2.4 right to substitute ("Upgrades"),
Tenant may do so at its cost and expense, upon written request to Landlord.
At Tenant's option, Tenant may require Landlord to pay initially for the
Upgrades, and Tenant shall repay Landlord in the form of additional rent,
as provided in Section 2.4.7, under the New Lease
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described in Section 2.4.6. Tenant shall provide Landlord adequate notice
of its desire to upgrade.
2.4.6 New Lease for substitute premises. In the event Landlord
exercises its right to substitute and the parties agree on Comparable
Facilities, the Premises being vacated shall be deleted from this Lease and
the parties shall enter into a new lease for the replacement facility ("New
Lease"), for the rent described in Section 2.4.7 and upon substantially the
same other terms and conditions as this Lease, except where the fact
pattern obviously differs. This Lease shall be amended accordingly to
reflect the deletion of the vacated Parcel from the Premises being leased
and to reflect a rent decrease by the amount allocated to the vacated
Parcel as shown on Exhibit C, prorated to the date Tenant vacates such
Parcel.
2.4.7 Rent for the Comparable Facilities. Annual base rent for the
Comparable Facilities, without regard for any Upgrades provided upon
Tenant's request, shall be:
(i) for the balance of the Primary Term of this Lease, that
amount allocated to the vacated Parcel as shown on Exhibit
C, and
(ii) in the event the initial term of the New Lease for the
replacement facility extends beyond the Primary Term of
this Lease, the annual base rent payable under the New
Lease for such extended period shall be negotiated between
Landlord and Tenant; subject to a three year rent
guarantee, computed as follows, for the first three years
of the New Lease for the Comparable Facility. The three
year rent guarantee applies when Tenant vacates the
existing Parcel and first occupies the replacement facility
anytime on or after May 22, 2005 but on or before May 21,
2008, in which event, the rent for the first three years
shall be at two different rates: (1) for the balance of the
Primary Term of this Lease, it shall be that amount
allocated to the vacated Parcel as shown on Exhibit C, and
(2) for the balance of the first three years of the New
Lease of the replacement facility, it shall be no greater
than the FMRV of the vacated Parcel would have been had the
Tenant remained in such vacated Parcel beyond the Primary
Term.
Tenant may elect to pay for Upgrades by amortizing their cost over the term
of the New Lease for the Comparable Facilities, under terms acceptable to
both Landlord and Tenant.
2.4.8 Tenant's Right to Exclude any Particular Revised Exhibit B
Parcel from Lease. If Landlord has given the Section 2.4.2 notice to
exercise its Section 2.4 right to substitute Comparable Facilities, and
Landlord and Tenant are unable to agree on all of the material terms
associated with implementing such arrangement, including, but not limited
to, (i) whether a replacement facility constitutes Comparable Facilities,
(ii) the rent amount for the
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substitute premises under the Section 2.4.6 New Lease for the portion of
the term extending beyond the Primary Term of this Lease, or (iii) the
terms of payment for any Upgrades, then Tenant may, by written notice to
Landlord, elect to have the subject Parcel excluded from the Lease, and the
rent payable under the Lease shall be reduced by the amount allocated to
such excluded Parcel as shown on Exhibit C, prorated to the effective date
of such exclusion.
3 TERM
3.1 PRIMARY TERM: The term of this Lease shall be for a period of ten (10)
years, commencing May 22, 1998 through May 21, 2008 ( the "Primary Term") unless
sooner terminated as hereinafter provided.
3.2 EXTENSION TERMS: Subject to Sections 3.3 and 18, Tenant shall have the
option to extend the Primary Term for two (2) successive extension terms of five
(5) years each (the Five Year Extensions"), or for one ten (10) year term (the
"Ten Year Term"), hereafter collectively called the "Extension Terms". The Ten
Year Extension Term shall begin on May 22, 2008, and shall terminate on May 21,
2018. Alternatively, the Five Year Extension Term(s) shall begin and end as
follows:
1st five year option: May 22, 2008 through May 21, 2013.
2nd five year option: May 22, 2013 through May 21, 2018.
3.3 EXTENSION TERM NOTIFICATION: As a condition precedent to its exercise
of any option to renew this Lease under any of the aforementioned Extension
Terms, Tenant shall give to Landlord one-hundred and twenty (120) days advance
written notice of Tenant's intention to renew this Lease. The notice shall
specify whether the Extension Term is for five or ten years. In the event that
notice to extend the Lease is given, but Tenant fails to specify which Extension
Term is being chosen, the Extension Term will be for five (5) years.
3.4 TERM OF THIS LEASE: The Primary Term and all Extension Terms elected by
Tenant are referred to collectively as the "Term of this Lease".
4 RENT
4.1. PRIMARY TERM: During the Term of this Lease, Tenant shall pay rent to
Landlord in equal monthly installments (the "Rent") an annual rental equivalent
to 11.1% of the $27,755,326 purchase price. The first monthly installment of
Rent shall be payable in advance on or before May 22, 1998 ( the "Rent
Commencement Date"), and on or before the first business day of each calendar
month thereafter. Rent for partial months at the inception or the termination of
the Lease shall be prorated.
4.2 EXTENSION TERMS: The Rent for any Extension Term shall be equal to the
fair market rental value ("FMRV") at the time the notice to exercise on
Extension Term is given. The FMRV shall be as agreed to in good faith by the
Landlord and Tenant; if no agreement as been
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reached within 30 days of the written notice of intent, then the parties shall
proceed as directed in Section 4.3.
4.3 APPRAISAL: If no agreement has been reached by the parties regarding
the FMRV, then the FMRV shall be determined by an independent and duly qualified
appraiser mutually agreeable to the Landlord and Tenant and the cost of such
appraisal shall be borne equally by the Landlord and the Tenant. If no agreement
can be reached in choosing such an appraiser, then the Landlord shall select an
appraiser (the "Landlord Appraiser") and the Tenant shall select an appraiser
(the "Tenant Appraiser") and such appraisers shall mutually agree upon the FMRV.
Each party shall bear the cost of its selected appraiser. If the Landlord
Appraiser and the Tenant Appraiser are unable to agree to the FMRV, then the
Landlord Appraiser and the Tenant Appraiser are unable to agree to the FMRV,
then the Landlord Appraiser and the Tenant Appraiser shall select a mutually
agreeable independent and duly qualified appraiser (the "Independent
Appraiser"). The determination of the FMRV by the Independent Appraiser shall be
binding on the parties. "Appraiser," as used in this paragraph, shall include
duly licensed real estate brokers.
5 REAL ESTATE TAXES AND ASSESSMENTS: During the Term of this Lease, Tenant
shall pay, as the same may become due and payable and before any fine, penalty,
interest or other charge may be added for nonpayment, all real estate taxes and
assessments, general and special, against the Premises.
6 UTILITIES: During the Term of this Lease, Tenant shall pay all charges
for utility services supplied upon or in connection with the Premises, including
without limitation, gas and electricity, sanitary and storm sewer, water,
telephone services, heat, light and power.
7 CONDITIONS OF PREMISES: The Tenant has examined the Premises and is
satisfied with the physical condition thereof, including all equipment and
appurtenances, and its taking possession thereof shall be conclusive evidence of
its receipt thereof in good and satisfactory order and repair, unless otherwise
specified herein. Tenant acknowledges that no representation as to the condition
or repair of the Premises has been made by or on behalf of the Landlord, except
as herein expressed, and likewise acknowledges that no agreement or promise to
decorate, alter, repair or improve the Premises, including all equipment and
appurtenances, either before or after the execution hereof, has been made by or
on behalf of the Landlord, except as stated herein. The occupancy by Tenant of
the leased Premises shall constitute an acknowledgment by Tenant that the
Premises are in the condition called for by this Lease and that Landlord has
performed all of the Landlord's work with respect thereto and that all
construction and/or remodeling required in accordance with the terms of this
Lease have been fully and satisfactorily completed in accordance with the terms
hereof.
8 POSSESSION OF PREMISES: Landlord shall deliver possession of the Premises
to Tenant on or before the commencement date of this Lease.
9 TENANT IMPROVEMENTS: Tenant, at its sole cost and expense, shall have the
right, but shall not be obligated, prior to and during the Term of this Lease,
to improve, alter and renovate the Premises in any manner which Tenant deems
necessary or desirable to adapt the same for the conduct of its business
operations, including without limitation, painting, decorating, redecorating and
installing partitions, floor coverings, wall coverings, drop ceilings, light
fixtures.
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10 TRADE FIXTURES: Personal Property: Tenant, at its sole cost and expense,
shall have the right, but shall not be obligated, to install, use, replace, and
remove its trade fixtures and personal property, such as, without limitation,
telephone, teletype and other communications equipment, machinery, dock
levelers, task lights, office furniture, office trailers and its Roof Antenna.
Upon the expiration of the Term of this Lease, Tenant shall have the right to
remove such trade fixtures and personal property from the Premises, provided
that Tenant shall repair all damage to the Premises resulting from such removal.
11 MAINTENANCE AND REPAIRS BY LANDLORD
11.1 BY LANDLORD: In consideration of this Lease and the rate of rent
contained in this Lease, the Tenant agrees that during the Term of the Lease,
the Tenant will, at its own expense, pay all maintenance and repair expenses for
the Premises. In the event any of the Tenant's maintenance repair is performed
by the Landlord or its designees, the Landlord shall be entitled to
reimbursement for any expenses incurred by Landlord. Amounts advanced shall bear
interest from the date of the advance. Nothing in the paragraph shall be
interpreted as requiring the Landlord to perform any such acts independent of
the other provisions of this Lease.
12 MAINTENANCE AND REPAIRS BY TENANT: Tenant, at its sole cost and expense,
shall keep the Premises in a clean and orderly condition and shall perform all
maintenance and repair to the Premises including but not limited to the
following:
(A) The structure and exterior of Landlord's buildings including without
limitation, the roof and roof membrane, walls, floors, foundations, supports,
windows, overhead doors, skylights, roof vents, drains, downspouts and
landscaping;
(B) The mechanical and utility systems serving the Premises including
without limitation, heating ventilation, air conditioning, lighting, electrical,
plumbing, gas, water supply, sanitary sewers and septic systems, storm sewers
and storm water drainage systems, sprinkler systems, exterior telephone and
communications lines and circuits and underground or overhead electrical supply;
(C) All periodic repaving and any patching and pothole maintenance of the
yard, parking, drive and other hard-surfaced areas of the Premises, together
with curbs and walkways; and
(D) Any repair occasioned or caused by Tenant's negligence or misconduct.
13 INSURANCE: At all times during the Term of this Lease, Tenant, at its
sole cost and expense, shall provide and maintain in full force and effect an
insurance policy or policies protecting Landlord and Tenant, and their officers,
employees, members, and managers against any loss, liability or expense from
personal injury, death, property damage or otherwise arising or occurring upon
or in connection with the Premises or by reason of the Tenant's operations upon
or occupancy of the premises, whether the same occurs or the cause arises on or
off the Premises. This coverage shall include, but not be limited to, fire and
extended coverage insurance (including flooding, vandalism, malicious mischief
and special extended perils or all risk) in an amount not less than the full
replacement cost of the damaged portion of the Premises, with a standard
inflation
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guard endorsement or, in the event the parties have agreed upon a fixed amount
of insurance, with a fixed amount endorsement. Tenant shall maintain in full
force and effect a public liability insurance policy for the Premises with
coverage limits of $2,000,000 for bodily injury and $250,000 for property
damage. Certificates of insurance showing compliance with the foregoing
requirements shall be furnished, if requested, by Tenant to Landlord. Each such
certificate shall contain an agreement by the insurer that such insurance
coverage shall not be modified or canceled without delivery of at least thirty
(30) days written notice to the Landlord.
14 DENIAL OF SUBROGATION RIGHTS: Neither the Landlord nor the Tenant shall
be liable to the other for any business interruption or any loss or damage to
property or injury to or death of persons occurring on the Premises or the
adjoining property, or in any manner growing out of or connected with the
Tenant's use and occupancy of the Premises, or the condition thereof, or of the
adjoining property, whether or not caused by the negligence or other fault of
the Landlord or the Tenant or of their respective agents, employees, subtenants,
licensees, managers, members, or assignees. This release shall apply only to the
extent that such business interruption, loss or damage to property or injury to
or death of persons is covered by insurance, regardless of whether such
insurance is payable to or protects the Landlord or the Tenant or both. Nothing
in this paragraph shall be construed to impose any other or greater liability
upon either the Landlord or the Tenant than would have existed in the absence of
this paragraph.
15 RENT ADJUSTMENT UPON DAMAGE BY FIRE OR OTHER CASUALTY: In the event that
one or more of the thirty-seven (37) properties constituting the Premises shall
be partially or wholly destroyed or damaged by fire or other casualty, without
the fault of the Tenant, so that the same shall be unfit for use or occupancy,
then Tenant shall give Landlord immediate written notice of the same, and a Rent
Adjustment, according to the nature and extent of the damage sustained in loss
of use or occupancy, shall occur.
16 CONDEMNATION OF PREMISES: In the event that one or more of the
thirty-seven (37) properties constituting the Premises shall be, in whole or
part, condemned or taken, then Landlord shall give Tenant written notice of the
same, and effective as of the date of vesting of title, a Rent Adjustment shall
occur.
17 DEFAULT OF TENANT: A default by Tenant under this lease shall occur if
any of the following occur, but a default is not limited to the following:
(A) Any one or more rent payments due from the Tenant to the Landlord shall
be and remain unpaid in whole or part after they are due and payable;
(B) The Tenant fails to provide insurance as required by this Lease and the
default continues for more than ten (10) days after notice from Landlord;
(C) The Tenant violates or defaults in any of the other covenants,
agreements, stipulations or conditions herein and such violation or default
shall continue for a period of thirty (30) days after written notice from the
Landlord of such violation of default; or
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(D) If the Tenant shall become insolvent, make an assignment for the
benefit of its creditors, or if a receiver is appointed for the Tenant.
18 LANDLORD'S REMEDIES UPON TENANT'S DEFAULT: The remedies provided in this
paragraph are not exclusive and are in addition to any other remedies now or
later allowed by law. Upon default of the Tenant:
(A) The Landlord may, at its option, declare this Lease forfeited, the
Lease term ended, have the right to reenter the Premises and have the right to
take possession of the Premises without any further obligation to Tenant.
Landlord may remove all persons and property at the cost of Tenant.
(B) Landlord may instead elect to keep Tenant in possession and continue to
have all rights and remedies under this Lease. If Landlord elects to keep Tenant
in possession, Landlord shall have the rights under subparagraph (A) for any
future defaults or for any previous default which remains uncured.
(C) If Landlord elects under subparagraph (B) to keep the Lease in force,
Landlord may lease the Premises at a rate of rent determined by Landlord to be
reasonable. Tenant shall pay to Landlord any costs incurred in leasing the
property and any rents under this lease in excess of the rent which Landlord
actually receives from new Tenant. The new Tenant may pay rents directly to
Landlord.
19 LANDLORD'S DEFAULT: In the event of any failure by Landlord to perform
any term, condition, covenant or obligation of this Lease on the part of
Landlord to be performed within fifteen (15) days after the date on which
Landlord receives from Tenant notice by certified or registered mail
specifically describing such failure, Tenant (in addition to all other remedies
to which Tenant may be entitled under this instrument or at law or in equity)
may cure such default by Landlord on behalf of, and at the sole cost and expense
of Landlord, including a supervision charge of twenty percent (20%) of all costs
and expenses in connection therewith within thirty (30) days after Tenant's
delivery to Landlord of an invoice therefor, failing which Tenant may offset
such costs and expenses against any Rent and other amounts payable by Tenant
hereunder. The foregoing notwithstanding, if Landlord shall exercise in good
faith diligent efforts within such fifteen (15) day period to cure the failure
specified in the notice but shall not be able to do so because of acts of God,
riots, or labor strikes, then any such failure shall not be considered a default
of this Lease by Landlord so long as Landlord shall continue to exercise in good
faith such diligent efforts to cure such failure and shall do so within a
reasonable period of time.
20 LANDLORD'S RIGHTS OF ENTRY: Following reasonable notice to Tenant,
Landlord may enter upon the Premises as often as Landlord may deem reasonably
necessary for the purposes of inspecting the Premises, offering the Premises for
lease (but only during the period which commences sixty (60) days prior to the
expiration of the then existing Primary Term or Extension Term), offering the
Premises for sale or transfer, or any other reason which the Landlord, in good
faith, believes necessary in its business judgment. Landlord's right of entry
shall be exercised in a manner and at times such that there shall be no
unreasonable interference with the use and occupancy of the Premises by Tenant
for the conduct of its business operations.
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21 MUTUAL INDEMNIFICATION: Each party (the "Indemnitor") agrees to
indemnify, defend and hold the other party (the "Indemnitee") harmless from and
against any and all losses, damages, claims, suits, actions, judgments,
liabilities and expenses, including, without limitation, environmental damages
and remediation expenses, reasonable attorneys' fees (collectively, "Losses"),
arising out of , or with respect to: (a) any breach of any warranty or
representation or any covenant or agreement of the Indemnitor under this Lease;
or (b) any injury to, or death of, persons and/or any damage to, or destruction
of, property, on or about the Premises and attributable to the negligence or
misconduct of the Indemnitor, or its officers, employees, agents, contractors or
invitees, except for any such breach, any injury or death or any damage or
destruction arising out of, or with respect to, the negligence or misconduct of
the Indemnitee, or any of its officers, employees, agents, contractors or
invitees, or at otherwise specifically provided in this Lease; provided,
however, that the indemnification obligation created by this Section shall be
expressly conditioned upon the Indemnitee (i) delivering to the Indemnitor
prompt notice of any event giving rise to such indemnification obligation and
(ii) providing the Indemnitor the opportunity to defend itself from and against
any Losses.
22 TRANSFERS
22.1 ASSIGNMENT AND SUBLETTING: Tenant shall have the right to assign this
Lease and/or sublet any portion of the Premises, with or without the consent of
Landlord. Absent the written agreement of Landlord, no assignment of this Lease
or subletting of all or any portion of the Premises shall relieve Tenant of any
of the terms, conditions, covenants and obligations of this Lease on the part of
Tenant to be performed.
22.2 NOTICE OF SALE/RIGHT OF FIRST REFUSAL: It is understood by the parties
that the Landlord may, at any time, desire to sell all or part of the Premises.
If Landlord desires to sell all or a portion (i.e. one or more of the 37 parcels
described previously in Exhibit A) of the Premises during the Term of this
Lease, and receives a signed offer or other such contract under terms and
conditions acceptable to the Landlord, Landlord will give notice to Tenant,
including the terms and conditions of the offer for transfer or sale. If within
sixty (60) days of said notice, Tenant shall decide to purchase the property,
Landlord and Tenant will execute a contract of sale under the same terms and
conditions of said offer. Landlord may sell Surplus Property, which is not
subject to this Right of First Refusal.
23 HOLDING OVER: If Tenant shall continue to occupy the Premises after the
expiration of the Term of this Lease or the earlier termination of this Lease,
without exercising an Extension Term, then Tenant shall be deemed to be
occupying the Premises as a tenant from month-to-month, subject to the terms and
conditions of this Lease; provided, however, that either party shall have the
right to terminate such month-to-month tenancy upon delivery of thirty (30)
days' notice to the other.
24 QUIET ENJOYMENT
24.1 LANDLORD'S COVENANT: Landlord covenants and agrees that Tenant shall
have the peaceful and quiet possession and enjoyment of the Premises (subject to
all mortgages and other matters to which this Lease, is or shall become,
subordinate in accordance with the provisions of Section 25) for the conduct of
its business operations during the Term of this Lease, without hindrance by
Landlord or any party whatsoever.
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25 SUBORDINATION OF LEASE TO MORTGAGES: This Lease shall be subject and
subordinate at all times to the lien of existing mortgages and of mortgages
which hereafter may be made a lien on the Premises. Although no instrument or
act on the part of the Tenant shall be necessary to effectuate such
subordination, the Tenant will nevertheless execute and deliver such further
instruments subordinating this Lease to the lien of any such mortgages as may be
desired by the mortgagee. The Tenant hereby irrevocably appoints the Landlord
his attorney-in-fact to execute and deliver any such instrument for the Tenant.
Provided, however, and notwithstanding the foregoing provisions hereof, upon
foreclosure of the mortgage with the mortgagee succeeding to the rights of the
Landlord, the Tenant shall, at the option of said mortgagee, attorn to the
mortgagee as follows:
(A) Tenant shall be bound to the mortgagee under all the terms of the
Lease for the balance of the term hereof remaining with the same force and
effect as if the mortgagee were the Landlord under the Lease, and Tenant hereby
attorns to the mortgagee as its Landlord, such attornment to be effective and
self-operative, without the execution of further instrument on the part of
either of the parties hereto, and immediately upon the mortgagee succeeding to
the interest of Landlord under this lease and having given written notice of the
same to Tenant. The respective rights and obligations of Tenant and of the
mortgagee upon such attornment shall to the extent of the remaining term of the
lease be the same as now set.
(B) The mortgagee shall be bound to the Tenant under all of the terms of
this Lease, and the Tenant shall, from and after such event, have the same
remedies against the mortgagee for the breach of an agreement contained in this
Lease that the Tenant might have had under this Lease against the Landlord
hereunder. In no event, however, shall the mortgagee be liable for any act or
omission of any prior Landlord, be subject to any offsets or defenses which
Tenant might have against any prior Landlord, or be bound by any rent or
additional rent which the Tenant might have paid to any prior Landlord for more
than the current month.
26 SURRENDER OF PREMISES: Upon the expiration or earlier termination of the
Term of this Lease, Tenant shall deliver up and surrender the Premises to
Landlord in the same condition as it was at the Rent Commencement Date, subject
to: (a) Tenant's improvements, alterations and renovations to the Premises; (b)
normal wear and tear; and (c) damage by fire, explosion or other casualty which
is not covered by insurance .
27 RENT AND NOTICES: Rent and any and all notices or demands required or
permitted to be given hereunder deemed to be properly served if hand-delivered
or sent by registered or certified mail, postage prepaid, addressed to the
Landlord at
Southwest Premier Properties, L.L.C.
Attn: Joe Hall
P.O. Box 2638
Waco, TX 76702
or addressed to the Tenant at
Central Freight Lines, Inc.
Attn: Clay Embry
P.O. Box 2638
Waco, TX 76702
12
<PAGE> 13
or at such other address as either party may hereafter designate in writing to
the other. Any notice or demand so mailed shall be effective for all purposes at
the time of deposit thereof in the United States mail.
28 SIGNS: Tenant shall have exclusive sign rights for the Premises,
exterior and interior, and shall have the right to erect and display signs on
the Premises and on such other areas of the Premises as Tenant reasonably may
request, subject only to compliance with applicable laws, ordinances and
requirements of governmental authorities with competent jurisdiction.
29 OPTION TO PURCHASE: At any time after the expiration of the Primary Term
but while Tenant is still a Tenant under this Lease, Tenant shall have the
option to purchase that portion of the Premises utilized and occupied by the
Tenant in its truck line operations, or an integral part of any land or building
so utilized or occupied, but shall not have the option to purchase the Surplus
Property. In the event Landlord sells any parcels comprising the Premises prior
to Tenant's exercise of this option, this option shall extend only to the
remaining Premises. The purchase price shall be equal to the Fair Market Value
of the Premises, as determined by a duly qualified appraiser mutually agreeable
to the Landlord and Tenant and the cost of such appraisal shall be borne equally
by the Landlord and the Tenant. If no agreement can be reached in choosing such
an appraiser, then the Landlord shall select an appraiser (the "Landlord
Appraiser") and the Tenant shall select an appraiser (the "Tenant Appraiser")
and such appraisers shall mutually agree upon the Fair Market Value. Each party
shall bear the cost of its selected appraiser. If the Landlord Appraiser and the
Tenant Appraiser are unable to agree to the Fair Market Value, then the Landlord
Appraiser and the Tenant Appraiser shall select a mutually agreeable independent
and duly qualified appraiser (the "Independent Appraiser"). The determination of
the Fair Market Value by the Independent Appraiser shall be binding on the
parties. "Appraiser," as used in this paragraph, shall include duly licensed
real estate brokers. Tenant may exercise the option to purchase by delivering
written notice to Landlord of its election to exercise the option.
30 AMENDMENTS. The Tenant and Landlord agree that amendments to this Master
Lease may be necessary from time to time to reflect changes in the number of
properties constituting the Premises, the Rent, and other such changes described
in the Lease. The parties agree that any amendments will be made in writing and
signed by Landlord and Tenant, or will have no effect on this Master Lease.
31 MISCELLANEOUS:
(A) This Lease: (i) contains the entire agreement between the parties and
no promise, representation, warranty, covenant, agreement, or understanding not
specifically set forth in this Lease shall be binding upon either party; (ii)
may not be amended, modified, or supplemented in any manner except in writing
signed by the parties; (iii) shall be construed and governed under the laws of
Texas; (iv) shall not be construed more stringently in favor of one party
against the other regardless of which party has prepared the same; (v) shall be
binding upon, and inure to the benefit of, the parties and their respective
heirs, executors, administrators, personal and legal representatives,
successors, and permitted assigns; (vi) shall not be binding until this Lease
shall be executed and delivered by the parties, to each other; and (vii) may be
executed in counter parts, each of which shall be deemed an original, but which
all together constitute the same instrument.
13
<PAGE> 14
(B) Any person executing this Lease on behalf of a corporation or limited
liability company represents and warrants that such person is authorized to
execute and deliver this Lease on behalf of the entity.
(C) The invalidity or unenforceability of any term or provision shall not
affect the validity or enforceability of the remainder of this Lease.
32. ENVIRONMENTAL COMPLIANCE: Tenant shall, at its expense, comply with all
Environmental Laws, as defined below, and furnish satisfactory evidence of such
compliance upon request of Landlord. Should any discharge, leakage, spillage,
emission, or pollution of any type occur upon or from the Premises due to
Tenant's use and occupancy thereof, Tenant, at its expense shall be obligated to
perform appropriate remediation. The term "Environmental Laws" shall mean any
federal, state or local law, statute, ordinance, or regulation pertaining to any
Hazardous Substances, as defined below, or to health, industrial hygiene, or the
environmental conditions on, under or about the Premises, including without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA"), as amended, the Resource Conservation and
Recovery Act of 1976 ("RCRA") and state laws regarding underground storage
tanks. The term "Hazardous Substances" means and includes any petroleum products
and any substances included within the definitions of hazardous substances or
hazardous materials in CERCLA, RCRA, and other federal, state or local statutes,
laws, ordinances, codes, rules, or regulations relating to, or imposing
liability or standards of conduct concerning any hazardous, toxic or dangerous
wastes, substance or material, as now or at any time hereafter in effect. Tenant
hereby (i) acknowledges that it has assumed certain environmental liabilities
and obligations of Viking Freight, Inc., and (ii) agrees to indemnify and hold
harmless Landlord from and against any and all claims, damages and liabilities
arising in connection with the presence, use, storage, disposal, transport,
generation, recycling, treatment, reuse, reclamation, handling, release, or
threatened release of any Hazardous Substances on, from or about the Premises.
IN WITNESS WHEREOF, the parties have caused this Amended and Restated Lease to
be duly executed by each of their respective authorized representatives
effective as of April 5, 1999.
SOUTHWEST PREMIER CENTRAL FREIGHT LINES, INC.
PROPERTIES, L.L.C.
By: /s/ Joe E. Hall By: /s/ Douglas E. Quicksall
-------------------------------- -----------------------------------
Joe E. Hall Douglas E. Quicksall
Its: President Its: Senior Vice President of Operations
Dated: April 5, 1999 Dated: April 5, 1999
----------------------------- ---------------------------------
By: /s/ Clay Embry
-----------------------------------
Clay Embry
Its: Director of Administration
Dated: April 5, 1999
EXHIBITS
Exhibit A - Property
Revised Exhibit B - List of Surplus Property
Exhibit C - Value and Rent Allocation by Parcel
<PAGE> 1
EXHIBIT 10.7
[FORM OF]
AGENT CARRIER AGREEMENT
This agreement is made and entered into this __th day of _________, 1999 by and
between Central Freight Lines, Inc., of 5601 West Waco Drive, Waco, Texas,
76702, hereafter called "Prime Carrier", and ________________________, hereafter
called "Agent Carrier". As used herein the terms Prime Carrier and Agent Carrier
include all employees, agents, servants of said Prime Carrier and Agent Carrier.
1. RESPONSIBILITIES AND DUTIES OF AGENT CARRIER:
1.1 The Agent Carrier shall efficiently, and in a manner satisfactory to
the Prime Carrier, provide handling, pickup, delivery, and other specified
services within its operating area for the Prime Carrier.
1.2 In the performance of the services herein described, the Agent Carrier
shall provide and assume full responsibility for the maintenance and
operation of its vehicles, equipment, and terminal facilities, and for the
direction and control of its employees, agents, and servants, as an
independent contractor.
1.3 The Agent Carrier shall be absolutely liable as an insurer for the
Prime Carrier's freight in its possession and the records of the Prime
Carrier as to the condition of freight when delivered by Prime Carrier to
the Agent Carrier shall be conclusive evidence as between the parties
hereto; the Agent Carrier shall be liable for any and all loss, damage,
delay, or injury to person or property arising during or incident to the
performance of any of the services specified herein and the Agent Carrier
shall procure and maintain, at it's own expense, adequate policies of
insurance as may be required by the Prime Carrier covering the liability
hereby assumed which shall not be limited by the amount of such policies
and that the Agent Carrier shall be fully liable herein. The basis from
which discrepancies arising from the exchange of freight will be settled as
follows. Any deviation from this agreement must have the joint written
consent of all parties:
A. FREIGHT INTERCHANGE
a. All freight moving between the Prime Carrier and the Agent
Carrier will be on a transfer without joint check basis.
b. Tendering carrier, be it the Prime Carrier or the Agent
Carrier, will provide a transfer document (unload report) for
each shipment transferred.
<PAGE> 2
c. Transfer document(s) will provide all pertinent information
necessary to facilitate delivery of the shipment(s).
d. Receiving carrier personnel will check, count, and inspect
each shipment for proper billing, proper labeling (delivery name
and address), piece count and condition.
e. After counting, checking and inspecting the shipment(s), the
receiving carrier personnel will record discrepancies (OS&D) on
the unload report.
f. Receiving carrier personnel will record discrepancies with
descriptive notations and will legibly note employee name and
identification number, pieces transferred, and date transferred
on the transfer document(s).
g. The original copy of the transfer document(s) will be retained
by the tendering carrier. A copy of the transfer document(s) will
be tendered to the receiving carrier with the shipment(s).
h. No freight will be transferred without proper billing.
i. The receiving carrier must forward via fax message, a copy of
the "Trailer Unload Report" to the tendering carrier, no later
than 12:00 noon local time, following unloading of the trailer
(excluding weekends and holidays).
j. On freight interchanged from the Prime Carrier to the Agent
Carrier, the original delivery receipt will be used to note
exceptions at the time of interchange and a duplicate of the
delivery receipt will be used by the Agent Carrier to note
exceptions at time of delivery.
k. On freight interchanged from the Agent Carrier to the Prime
Carrier the original bill of lading will be used to note
exceptions at the time of pickup with a photocopy to be retained
by the Agent Carrier. At time of interchange the Prime Carrier
shall note any subsequent exceptions on the original bill of
lading.
B. OVERAGES, SHORTAGES, AND DAMAGE
a. Overages will not be transferred by either carrier without
prior written approval by the shipper. A copy of the shipper's
written approval must be attached to the tendering carrier's
transfer document(s). Overages transferred in error will be
recorded by the
<PAGE> 3
receiving carrier on the transfer documents and will be stopped
in transit pending disposition from the tendering carrier.
b. Shortages discovered during interchange must be recorded on
the transfer document(s) with a complete description of the
item(s) short when possible. In the interest of providing
service, partial shipments will be accepted by the receiving
carrier and moved to destination for delivery to the consignee.
c. Damages discovered at time of transfer will be recorded on the
transfer document(s) with a descriptive notation of the extent of
damage.
C. INSPECTIONS
a. Inspections will be performed by an independent inspection
agency on all damages, in excess of $350, discovered after
delivery and reported by the consignee.
b. Written notice of waived inspection will be kept on file for
all damages reported by the consignee to be less than $350.
c. Inspection costs will be assumed by the carrier requesting the
inspection, and when necessary, will be adjusted at time of the
claim. If claim is prorated, costs of inspection will be adjusted
accordingly.
D. APPORTIONMENT OF CLAIMS
a. Apportionment of claims for cargo loss, damage or delay will
be determined by exception recorded on the transfer document(s)
for the claim shipment(s). Exceptions recorded on the transfer
document(s) will be the liability of the tendering carrier.
Receiving carrier will be liable for shipment(s) received in good
order but delivered to the consignee with exception.
b. Liability for concealed damage will be shared on a pro-rated
revenue basis.
E. TRANSMITTAL, SETTLEMENT, AND LITIGATION OF CLAIMS
a. The transmittal, settlement and litigation of claims with the
claimant shall be responsibility of the Prime Carrier.
<PAGE> 4
b. All Agent Carrier claims liability shall be settled with the
Prime Carrier.
1.4 In furtherance of Para. 1.3, the Agent Carrier shall carry cargo
loss and damage insurance in an amount acceptable to the Prime
Carrier. The Agent Carrier shall provide to the Prime Carrier a
current Certified Certificate of Insurance on an ongoing basis. The
Agent Carrier shall also name the Prime Carrier as an additional
insured.
1.5 The Agent Carrier shall indemnify and hold harmless the Prime
Carrier against any and all detention and/or demurrage bills in
connection with units handled exclusively by the Agent Carrier.
1.6 The Agent Carrier shall at all time comply with all applicable
Federal, State, and Municipal laws, ordinances, tax requirements,
rules and regulations and that it shall indemnify and hold harmless
the Prime Carrier against any and all liability resulting from failure
to comply with such laws, ordinances, tax requirements, rules or
regulations.
1.7 The Agent Carrier shall permit examination at any reasonable time
by authorized representatives of the Prime Carrier of any and all
records maintained pertaining to services provided for herein.
1.8 The Agent Carrier Invoice to the Prime Carrier For Services
Rendered: Presentation of invoice for services rendered, on a weekly
basis, to include the Prime Carrier's freight bill number, weight,
charges collected, if applicable, and the Agent Carrier's charges for
each delivery or handling; said invoice is to be presented on a per
trailer basis and should be accomplished by the register of shipments,
a copy of the consist, a copy of the Prime Carrier's bill of lading to
the Agent Carrier, and a copy of the Agent Carrier delivery receipt.
For the purpose of this agreement a week will run from Sunday through
Saturday.
1.9 Collect On Delivery Shipments: No delivery of freight shipped on
Order Bills of Lading or on a COD basis shall be made by the Agent
Carrier until the Order bill of lading, properly endorsed, or COD
monies have been surrendered to the Agent Carrier, unless said
shipment is released by the Prime Carrier in writing; the Agent
Carrier shall collect all COD monies in cash, cashier's check or money
order unless otherwise authorized by the Prime Carrier in writing. All
documents and/or monies shall be promptly delivered to the Prime
Carrier's offices. COD fees shall accrue to the delivering carrier. If
for any reason the Agent Carrier is unable to effect delivery, the
Agent Carrier shall immediately contact the Prime Carrier for further
instructions.
1.10 The Agent Carrier shall not assess pricing established by the
Prime Carrier for single-line service nor shall it disclose the Prime
Carrier's joint line pricing
<PAGE> 5
information to any person other than customers and prospective
customers of the Prime Carrier.
2. EQUIPMENT INTERCHANGE AGREEMENT
2.1 Interchange of trailers or equipment between the parties to this
agreement will be governed by the terms and conditions of separate
written agreements.
3. RESPONSIBILITIES AND DUTIES OF THE PRIME CARRIER
3.1 The Prime Carrier shall provide the Agent Carrier with prompt and
accurate information as to the shipments which are in route to the
Agent Carrier.
3.2 In furtherance of Para. 3.1, the Prime Carrier shall provide the
Agent Carrier with delivery receipts, bills of lading, and such other
documents as may be necessary for the handling and/or delivery of said
shipments.
3.3 Upon receipt of the Agent Carrier invoices for services rendered
under this agreement, the Prime Carrier shall pay the Agent Carrier
the amounts due according to the "Basis for Division of Revenue"
provided in "Appendix A".
3.4 The Prime Carrier will bill and collect all transportation charges
from the "bill to" party, unless the Prime Carrier delivery document
clearly indicates "Driver Collect", in which case Agent Carrier will
collect and immediately remit freight charges to the Prime Carrier.
3.5 It will be the responsibility of the Prime Carrier to handle and
resolve all freight refusals and on hand freight.
4. DEFAULT
4.1 In the event of default by the Agent Carrier of any of the Agent
Carrier's duties or responsibilities as contained in this agreement,
the Agent Carrier shall be liable to the Prime Carrier for any
damages, including incidental or consequential, which the Prime
Carrier incurs as a result of said default.
5. MISCELLANEOUS CONDITIONS
5.1 Accessorial and/or arbitrary charges shall accrue to the carrier
on whose line the services were performed.
5.2 Fractions of a cent or percent will be omitted if less than one
half of a cent or percent and increased to the next whole number if
one half or more of a cent or percent.
<PAGE> 6
5.3 It is understood by the Prime Carrier and the Agent Carrier, that
in applying provisions of this agreement revenue accruing to either
the Prime Carrier or the Agent Carrier will not exceed the local
published rate for its portion of the through revenue.
5.4 This agreement will not be construed in any manner , shape, or
form as an exclusive agency relationship, and it is clearly understood
that the Prime Carrier or the Agent Carrier have the absolute right to
enter into similar agreements with any other parties without any
limitations or restrictions whatsoever.
5.5 This contract may be terminated by either party by giving the
other party thirty (30) days notice in writing; or by either party
immediately by written notice to the other party in the event of a
breach by such party of any of the conditions of this agreement.
5.6 This agreement shall not be assignable by either party hereto, nor
shall the performance of any of the duties hereunder be delegable by
either party hereto, without the written consent of the other party.
This agreement shall not be assignable by operation of law.
5.7 Nothing contained in this agreement shall be deemed or construed
by the parties hereto or by any third person to create the
relationship of partnership of joint venture or any association
between any of the parties hereto other than the independent
contracting parties.
5.8 If either party hereto shall bring any suit or action against the
other for relief, declaratory or otherwise, arising out of this
agreement, the prevailing party shall have and recover against the
other party, in addition to all court costs and disbursements, such
sum as the Court may adjudge to be reasonable attorneys' fees.
5.9 Each party shall indemnify and save harmless the other party and
its subsidiaries and affiliates and their respective officers,
directors, and employees (hereinafter collectively referred to as
"Other Party") from and against all liabilities, obligations, losses,
damages, penalties, claims, actions, suits, costs, charges, and
expenses, including without limitation, fees and expenses of legal
counsel and expert witnesses, which may be imposed upon or incurred by
or asserted against the Other Party, or any of them, by reason of: (I)
injury or death to persons (including without limitation, employees of
the Other Party); (II) damage to the property of any person or legal
entity (including without limitation, the property of the Other
Party); or (III) misrepresentation, breach of warranty or other
breaches or defaults by the Other Party as a result of or arising out
of any of the work or services performed under this agreement,
provided, however, this agreement to indemnify and hold harmless the
Other Party shall not be applicable to the extent that such
liabilities, obligations, losses, damages, penalties, claims,
<PAGE> 7
actions, suits, costs, charges and expenses are attributable to the
sole negligence or intentional conduct of the Other Party.
5.10 Time is of the essence with respect to the performance of each of
the covenants and agreements herein set forth.
5.11 Except to the extent provided in Para. 2 "Equipment Interchange
Agreement", this agreement contains the entire agreement and
understanding of the parties with respect to the entire subject matter
hereof, and there are no representations, inducements, promises, or
agreements, oral or otherwise, not embodied herein. Any and all prior
discussions, negotiations, commitments and understandings relating
thereto are merged herein.
Central Freight Lines, Inc. -----------------
-----------------
P.O. Box 2638
Waco, Texas 76702
----------------------------
---------------------------- ---------------------------
Clay Embry
Director of Administration
---------------------------- ---------------------------
------------ ------------
Appendices
Appendix A - Basis for the Division of Revenue
<PAGE> 1
EXHIBIT 10.8
INTERLINE DIVISION AGREEMENT
BETWEEN
CENTRAL FREIGHT LINES INC.
AND
ESTES EXPRESS LINES (EXLA)
1. The parties hereto, being motor common carriers of property in
interstate and/or intrastate and/or foreign commerce, agree that each
will accept from the other the freight tendered them and which is
consigned to points on their lines.
2. INTERCHANGE POINTS
(a) Except as otherwise specifically provided herein, the following
basis will be observed in the division of revenue of traffic
interchanged at all recognized interchange points named in Appendix B.
(b) Except as may otherwise be specifically agreed upon or when
operational conditions warrant, the carrier making delivery to the
other carrier shall arrange for such delivery the warehouse or
platform of the others respective terminal.
3. DIVISIONS
Except as otherwise provided, division of revenue will be based upon
the Rocky Mountain Division Sheet D-83.
4. MINIMUM DIVISIONS
(a) Except as provided in (b) or (c), on 2-line haul, the minimum
division will be as published in the uniform division sheet D-83 and
successive issues thereof issued by RMTB, Inc. When the charges are
not sufficient to protect this minimum division for all carriers
involved the charges will be divided equally among the carriers.
(b) Except as provided in (c), on 3-line haul, the division of revenue
will be route of movement. When the charges are not sufficient to
protect the minimum division as provided in Item 25, the charges will
be equally divided among all three carriers.
(c) When for the account of Central Freight Lines shipments destined
to the following states will be factored as 2-line haul.
AR, KS, LA, MS, MO, NM, OK AND TX
1
<PAGE> 2
5. AFFILIATED MOTOR CARRIERS
Two or more carriers shown in applicable tariffs as being considered
as one carrier in the application of rates, shall be considered as
such in ascertaining divisions of revenue or between interchange
points, as the case may be.
6. COMBINATION RATES
When the through rate from origin to destination is constructed by the
use of a combination of local rates, the division of revenue under
this agreement shall be applicable only to that proportion of revenue
accruing from or to the point over which the combination of rates
apply.
7. DISPOSITION OF FRACTIONS
(a) In arriving at percentage factors, fractions of less than .5%
shall be dropped and fractions of .5% or over shall be increased to
the next even percentage.
(b) When the total of the percentage factors ascertained under the
provisions of Paragraphs 3 and 8(a) exceed 100%, then the highest
percentage factor shall be reduced so that the total of all percentage
factors equals 100%.
(c) When the total of the percentage factors ascertained under the
provisions of Paragraphs 3 and 8(a) is less than 100%, then the lowest
percentage factor shall be increased so that the total of all
percentage factors equal 100%.
(d) In the division of actual revenue, fractions of a cent shall be
disposed of according to the formula provided in Paragraph 8(a).
8. ACCESSORIAL CHARGES
(a) COD fees shall accrue solely for the account of the delivering
carrier, and the delivering carrier shall remit each COD direct to the
shipper or other properly designated payee in accordance with
delivering carrier's tariffs.
(b) Charges for Storage, Reconsignment, Stopping-in-transit, or other
accessorial charges permitted under the applicable tariffs, shall
accrue for the account of the carrier performing such services.
9. SHIPMENTS STOPPED TO PARTLY LOAD OR UNLOAD
Except as otherwise specifically provided herein, divisions of revenue
on shipments stopped in transit for partial loading or unloading
(where such transit privileges are allowed under the through published
rate) shall be determined as follows. The total through charges based
on the total weight upon which the through rate is assessed shall be
the revenue to be prorated among all participating carriers. Except,
in no event shall the proportion accruing to any carrier exceed its
normal percentage proportion, based on the through rate (origin to
destination) on the actual weight transported by such carrier.
2
<PAGE> 3
10. SETTLEMENT OF CLAIMS
Claims for overcharge or for loss and/or damage shall be handled
according to the provisions of the current edition of the Freight
Claim Rule Book, published by the National Motor Freight Claim Council
and found in the National Motor Freight Classification.
(a) Overcharge claims will be assumed by each carrier on the same
basis as was used to determine the division of revenue on the same
shipment.
(b) For operating convenience, the parties to this agreement may agree
to handle trailers loaded with one or more shipments and moving as
origin carrier's load and count where such procedure is followed, it
shall be the obligation of the receiving carrier to report all
overages, shortages or damages to the origin carrier via telephone
within 24 hours of unloading of such freight and via written notice
within 48 hours of unloading of such freight confirming such report.
Failure to report such shortages or damages as provided herein shall
result in the receiving carrier becoming fully responsible for such
unreported shortages or damages.
11. EXCEPTIONS
(a) On shipment that have been previously handled through interline
settlement for the division of the through revenue on which balance
dues occur due to reversal of charge, balance due will be settled
promptly between carriers party to this agreement whether or not
collection has been attempted for the customer. Upon attempting
collection of the additional charges from the customer it develops
that the charges cannot be collected the carrier attempting collection
from the customer will bill the other carrier for the amount involved
which will be paid promptly upon explanation as to why collection
cannot be accomplished.
(b) Undercharge adjustments shall be the responsibility of both
parties to the agreement. The responsibility of collection shall rest
upon the carrier collecting the revenue, the other party shall render
all reasonable assistance therein. If the undercharge cannot be
collected, the carrier attempting collection from the customer shall
bill the other for the amount involved so that the interline
settlement will then be based on what was collected.
12. INTERLINE SETTLEMENTS
(a) Revenue division settlements shall be made on a weekly basis by
each carrier to the other.
(b) Each statement issued must be paid within thirty (30) days from
the date thereof. Items in dispute are to be reviewed, resolved and
settled within sixty (60) days from the original statement date.
3
<PAGE> 4
(c) Freight bills on shipments received from the origin carrier at the
time of interchange must contain the origin carrier's freight charges.
(d) Each party to this agreement agrees to furnish to the other, upon
request, a copy of its most recent balance sheet together with such
other financial information as may be appropriate and useful in
passing on credit standing. Such requests may be made at any time
during the life of this agreement.
(e) Interline settlements shall be made in accordance with the
appropriate rule or rules of the A.T.A. National Freight Claim Council
Rule Book.
(f) After interline settlement has been made, no correction or
interline adjustment shall be honored by either carrier when such
carriers proportion is less than $10.00 on any shipment (except
balance due bills on government freight moving on GBL's pursuant to
Section 10721 or duplicate payments are recoverable regardless of
amount).
13. The origin carrier may waive accessorial charges for their customers
if they so choose to do so, but the delivering carrier will assess its
published accessorial charges for services it performs. The origin
carrier will be responsible for paying those accessorial charges to
the delivering carrier on prepaid shipments (except on those
accessorials requested by the non-payor of the freight charges, the
accessorial services will be paid by the requesting party and billed
by the carrier performing such services).
14. This agreement is to be reciprocal in nature, allowing both parties
listed consistent treatment regardless of whether they are the origin
or destination carrier.
It is mutually agreed that there shall be no change or alterations in operation
of this agreement without the written consent of both parties and that change
or termination is to be upon 30 days written notice, unless both parties agree
to an earlier date.
The above agreement supersedes and cancels all previous Interline Division
Agreements and is accepted by us to become effective:
October 2, 1997
-------------------------------
DATE
CENTRAL FREIGHT LINES INC. ESTES EXPRESS LINES
Carrier Carrier
/s/ Eddie Sherman /s/ Paul J. Dugent
- ------------------------------ ----------------------------
By: Eddie Sherman By: Paul J. Dugent
Title: Director of Pricing Title: V.P. Pricing & Traffic
4
<PAGE> 5
Appendices
Appendix A
Appendix B
Appendix C
5
<PAGE> 1
EXHIBIT 10.9
INTERLINE AGREEMENT
This agreement made and entered into this, the 28th day of June 1997
by and between Viking Freight, Inc. (Viking) of 6411 Guadalupe Mines Road, San
Jose, CA 95120 and Central Freight Lines, Inc. (CFL) of 5601 W. Waco Drive,
Waco, TX 78702.
Witness: That whereas the parties hereto desire to interchange freight
shipments one with the other, and whereas it is to be the mutual interest of
the parties hereto so to do. Now THEREFORE, in consideration of the mutual
promises to interchange freight shipments, the parties hereto agree to such
interchange one with the other subject to the following terms and conditions,
to wit:
1) All freight interchanged will be handled in accordance with and
subject to tariffs maintained or on file, as required by law.
2) Freight charges will be settled between the parties by proper
payment or other credit within not more than fifteen (15) days from the date a
statement is presented, unless and until otherwise agreed upon in writing by
the parties to this agreement.
3) Division of freight revenue will be made as provided in APPENDIX
(A) which is attached to and made a part of this agreement.
4) Any and all claims for overcharge or undercharge shall be prorated
in the same percentage as the agreed division of revenue.
5) Claims for cargo loss, damage, or delay shall be settled in
accordance with the Freight Claim Rules of the American Trucking Association
National Freight Claim Council.
6) Freight interchanged under this agreement shall be fully covered by
insurance by both parties and evidence thereof furnished upon demand of either
party together with such evidence of financial responsibility as may be from
time to time considered necessary.
7) Rules 128, 130, and 131 governing adjustment of Overcharge Claims
and Interline Settlements as published in the Freight Claim Rule Book by the
National Freight Claim Council will have no application in connection with
Interline Settlements, Minimum Adjustments, Overcharge and/or Balance Due
Bills.
(a) Viking will accept customer filed overcharge claims from CFL
when the prorated portion of the overcharge is $10.00 or more
per freight bill except when two or more bills are included in a
single claim, the combined pro-rated overcharge amounts must
aggregate an average of $10.00 or more per freight bill. Viking
will in turn transmit claims to CFL on the same basis,
(b) Viking will accept CFL overcharge claims up to (6) months from
the date the claim was received by CFL with whom the claim is
filed, and will present such claims to CFL in a similar manner.
<PAGE> 2
(c) Resettlements, corrected freight bills, and balance dues: will
be accepted by Viking up to six (6) months from the date of the
original settlement and will be transmitted on the same basis.
Neither party will present to the other a balance due bill for
less than $10.00 per freight bill after the settlement of the
original charges.
(d) On shipments that have been previously handled through Interline
settlement for the division of the through revenue on which
balance dues occur due to reversal of charge or increased
revenue, balance due will be settled promptly between carriers
party to this agreement whether or not Collection has been
attempted from the Customer. If, after attempting collection of
the additional charges from the customer the charges cannot be
collected the carrier attempting collection from the customer
will bill the other carrier for the amount involved which will
be paid promptly after satisfactory explanation as to why
collection cannot be accomplished.
8) Purchased transportation or carrier operated line transportation
shall be considered single line in ascertaining the Percentage factors.
9) C.O.D. fees shall accrue to the delivering carrier. Accessorial
and/or arbitrary charges shall accrue to the carrier on whose line the services
are performed.
10) Fractions of a cent or percent shall be omitted if less than one
half of a cent or percent and increased to the next whole number K one half or
more of a cent or percent.
11) Shipments stopped to partially load or partially unload: when
shipments are stopped to partially load or partially unload short of the
interchange points named on this agreement, the division of revenue accruing to
the carrier handling only a portion of the shipment shall be computed at the
volume rate on the weight actually transported (subject to the volume minimum
weight applicable from origin to destination) or the LTL rate from origin to
destination, whichever is lower. All provisions of this item are further
subject to Item No. 12 of this agreement.
12) It is understood by Viking and CFL, that in applying provisions of
this agreement that revenue accruing to either carrier will not exceed the
local published rate for its portion of the through movement.
13) On both Westbound and Eastbound moves, trailers will be dropped at
the other carrier's respective terminals for unloading. The other carrier's
driver need not be present at time of unloading.
a) Each carrier should fax and/or overnight mail to the other a
copy of its trailer unload report, with the exceptions noted on
the report.
b) See APPENDIX (B) for operating procedures for handling Overages,
Shortages and Damages (OS&D).
<PAGE> 3
14) On refused shipments, the delivering carrier is to notify the
shipper in writing, with a copy to the origin carrier, asking for disposition.
Copies to Viking should be sent to Claims Department, 410 E. Plumeria Street,
Suite 1172, San Jose, CA 95134.
15) No change, alteration, or amendment in the provisions of this
agreement shall be made except by agreement of the parties in writing. The
party initiating such change, alteration, or amendment must serve the other
party thirty (30) days' written notice of its intentions prior to the effective
date of any such change, alteration, or amendment.
16) Any promotion of freight between carriers' territories using the
name of the interline carrier will be confined to traffic moving between
Arkansas, Kansas, Louisiana, Mississippi, Missouri. New Mexico, Oklahoma and
Texas, on the one hand, and, on the other Arizona, California, Colorado, Idaho,
Montana, Nevada, Oregon, Utah, Washington, Wyoming, Alaska, and Hawaii.
17) This agreement shall remain in full force and effect without need
for renewal except that it may be terminated by either party upon thirty (30)
days written notice served on the other party.
18) This agreement supersedes and cancels any and all other previous
interchange agreements now in force and effect between the parties to this
agreement.
Witness our duty authorized signatures on the date noted below.
VIKING FREIGHT, INC. CENTRAL FREIGHT LINES, INC.
BY: /s/ Bruce Gebhardt BY: /s/ Tom Morehouse
--------------------------------- --------------------------------
Bruce Gebhardt Tom Morehouse
TITLE: Vice President Marketing TITLE: Senior Vice President
Sales and Marketing
DATE: 7/10/97 DATE: 7/10/97
------------------------------- ------------------------
EFFECTIVE
(See Item No. 17)
Appendices
Appendix A - Basis for Division of Revenue
<PAGE> 1
EXHIBIT 10.10
Description of Executive Bonus Program
We adopted an executive bonus program in 1998. The compensation
committee selects the executive officers and key employees that participate,
establishes the bonus pool, and allocates the pool among participants. Each of
Joe E. Hall, Douglas E. Quicksall, Thomas K. Morehouse, Patrick Curry, and
Joseph Gentry received an amount equal to 50% of his annual salary as a bonus in
1998. The amounts they received constituted approximately 75% of the total bonus
pool.
<PAGE> 1
Exhibit 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of May 15, 1997, by and between CENTRAL FREIGHT LINES, INC., a Texas corporation
(the "Company"), and JOE HALL (the "Executive").
WHEREAS, the Company desires to employ the Executive as President and
the Executive is willing to render his services to the Company on the terms,
covenants, and conditions with respect to such employment as hereinafter set
forth;
NOW, THEREFORE, in consideration of the promises, terms, and conditions
hereof, the Company and the Executive agree as follows:
1. Employment. The Company employs the Executive and the Executive accepts
such employment with the Company upon the terms and conditions
hereinafter set forth. The Executive represents and warrants that
neither the execution by him of this Agreement nor the performance by
him of his duties and obligations hereunder will violate any agreement
to which he is a party or by which he is bound.
2. Term. The term of employment hereunder shall be three (3) years and
shall commence on the date and year first above written and end on the
third anniversary of such date (the "Base Term") unless sooner
terminated pursuant to Section 8 of this Agreement.
3. Duties. The Executive is employed as President and shall render his
services at the principal business offices of the Company. As
President of the Company, the Executive has full responsibility and
authority for the day-to-day operation of the business of the Company.
The Executive shall report directly to the Board of Directors of the
Company (the "Board") and the Chairman of the Board (the "Chairman")
and shall have such authority and shall perform such duties as are
customarily performed by one holding the position as described in this
Section 3; subject, however, to such limitations, instructions,
directions, and control as the Board or Chairman may specify from time
to time in its sole discretion.
4. Exclusive Services. The Executive shall devote all necessary working
time, ability, and attention to the business of the Company during the
term of this Agreement and shall not, directly or indirectly, render
any material services of a business, commercial, or professional nature
to any other person, corporation, or organization for compensation
without the prior consent of the Board.
<PAGE> 2
5. Compensation. As compensation for his services in any capacity rendered
under this Agreement, the Executive shall be entitled to receive the
following:
a. Salary. During the Base Term or Optional Term, as hereinafter defined,
the Company shall pay the Executive a salary at the rate of $227,000
per annum (the "Salary"). The Salary shall be payable in accordance
with the ordinary payroll practices of the Company. Upon termination
of the Executive's employment in accordance with Section 8 or
expiration of the Base Term, the Salary shall be discontinued;
provided, however, the Company shall have the option upon such
termination or expiration to continue to pay the Executive an amount
equal to the Salary for the length of time equal to the Base Term to
bind the Executive to the non-competition provisions of Section 7
hereof and as consideration therefore (the "Optional Term").
b. Bonus. During the Base Term and so long as the Executive's employment
continues under this Agreement, the Board shall conduct, or cause to
be conducted at annual or approximate annual intervals after the end
of each fiscal year, a review of the Executive's performance, giving
attention to all pertinent factors, including without limitation, the
attainment of a 92.5% operating ratio as a minimum qualification for
receipt of such bonus and otherwise the general performance and growth
of the Company (excluding the effects of all transaction and financing
costs associated with the Acquisition Agreement, as hereinafter
defined). Following such review, the Board may award and pay a
performance-based bonus, paid as a lump sum to the Executive, in an
amount of up to fifty-percent (50%) of the Salary.
c. Benefits. The Company shall (i) provide the Executive the use
(business and personal) of an automobile valued at up to $30,000; (ii)
to the extent the Executive or his spouse does not otherwise receive
compensation therefor, pay any expenses incurred by the Executive in
the initial move, if any, by the Executive and his immediate family to
the greater metropolitan area in which the Company's principal place
of business is located; and (iii) permit the Executive to participate
in any and all employee benefit plans, including but not limited to
health and medical insurance, group term life insurance, disability
insurance, and retirement plan contributions, as may be in effect for
other senior executives of the Company.
6. Business Expenses. The Company shall reimburse the Executive for all
business expenses incurred in the performance of his duties under this
Agreement in a manner consistent with the Company-wide policies for
reimbursing business expenses generally as such policies existed on the day
immediately prior to the date first written above.
7. Non-Competition. For a period from the date and year first above written
until the latest of (a) the expiration of the Base Term or (b) the last day
of the payroll period after which the Company gives notice to the Executive
of its desire to discontinue payment of the Salary during the Optional
Term, neither Executive nor any entity of which Executive
<PAGE> 3
directly or indirectly owns more than 5% shall (a) own, operate, manage, be
employed or retained as a consultant by, or in any other manner assist any
truckload or less-than-truckload carrier, broker, agent, consolidator,
third-party logistics provider, or other company engaged in the business of
transporting or arranging for the transportation of general commodity
freight that conducts operations in the United States; (b) divert or
solicit any person who is or was a customer of Company or any affiliated
entity during such period; (c) induce or influence any employee, agent,
owner-operator, or other representative of Company, or any affiliated
entity to leave any of such corporations in order to engage in a
competitive business; or (d) use or allow anyone to use the name of the
Company or any affiliated or successor entity, or any derivation of the
foregoing. The parties deem the restrictions contained in this Section
reasonable and necessary to secure for Company the benefits of employing
the Executive and obtaining for Company's stockholders the benefits of the
Asset Purchase Agreement among the Company and the Southwestern Division of
Viking Freight, Inc., a subsidiary of Caliber System, Inc., a Delaware
corporation (the "Acquisition Agreement"). However, if a court of competent
jurisdiction determines that such restrictions are unreasonable, the
restrictions shall be reduced by the court to a reasonable level and
enforced in accordance therewith pursuant to Section 10.b. hereof. Although
subject to the terms of this Agreement (and in particular Section 10.b.
hereof), the covenants set forth in this Section 7 shall be deemed and
construed as a separate agreement independent of any other provisions of
the Acquisition Agreement, this Agreement, and any other agreement between
the Company and the Executive. The existence of any claim or cause of
action by the Executive against the Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of this covenant. It is expressly agreed, in addition to the
obligation to reimburse the Company for any amount received by the
Executive after any breach of this Section 7, that the remedy at law for
the breach of any such covenant is inadequate and injunctive relief shall
be available to prevent the breach or any threatened breach thereof.
8. Termination. This Executive's employment hereunder may be terminated as
follows:
a. By the Executive. The Executive may terminate his employment at any
time by giving sixty (60) days' prior written notice of termination to
the Board. The Executive shall receive any compensation accrued on the
date of termination and shall not be entitled to any compensation
beyond the actual date of termination.
b. By the Company with Cause. The Board may, in its reasonable discretion
and judgment and upon written notice effective immediately, terminate
Executive's employment under this Agreement at any time for "Cause."
Cause shall mean:
i. If the Executive is convicted of a felony under any applicable
criminal code or statute or of any misdemeanor involving fraud or
dishonesty against the Company or any affiliated or successor
entity;
ii. If the Executive breaches Section 7 of this Agreement;
<PAGE> 4
iii. If the Executive breaches any fiduciary duties as a director of
the Company;
iv. If the Executive wilfully fails to comply with the terms and
conditions of this Agreement and fails to cure any such material
breach or failure within ten (10) days after written notice
thereof given by the Company to the Executive; or
v. If the Executive wilfully and continually neglects to
substantially perform his duties hereunder, and fails to cure
such performance within ten (10) days after demand for
substantial performance is delivered in writing by the Board or
Chairman that specifically identifies the manner in which the
Board or Chairman believes the Executive has not substantially
performed his duties.
The Executive shall receive any Salary accrued on the date of such
termination and shall not be entitled to any compensation, including
rights to any bonus or other benefits set forth herein.
c. Physical or Mental Illness Incapacity. Executive's employment under
this Agreement shall be terminable by the Company, as a result of the
Executive's incapacity due to physical or mental illness, on the
earlier of either: (i) the date when the Executive is eligible for
coverage under the Company's long-term disability insurance plan; or
(ii) the date when the Executive shall have been absent from his
duties hereunder on a full-time basis for a period of six consecutive
months (unless within ten (10) days after written notice to return is
given, which may occur at or after the end of such six month period,
Executive shall have returned to the performance of his duties
hereunder on a full-time basis). During any period that the Executive
fails to perform his duties due to incapacity, the Executive shall
continue to receive from the Company his Salary and any declared or
announced bonus until termination of the Base Term. The rights and
benefits of the Executive under employee benefit and fringe benefit
plans, and other programs of the Company shall be determined in
accordance with the terms and provisions of such plans and programs.
d. Death. Executive's employment under this Agreement shall terminate as
a result of the death of the Executive. The designated beneficiary or
beneficiaries shall be entitled to receive any Salary installments and
any accrued reimbursable expenses or declared or announced bonus. The
rights under the benefit plans and programs of the Company shall be
determined in accordance with the terms and provisions of such plans
and programs.
<PAGE> 5
9. Notices. Any notices to be given hereunder by either party to the other may
be effected either by personal delivery in writing or by mail, registered
or certified, postage prepaid, with return receipt requested. Mailed
notices shall be addressed as follows:
If to the Company: Doug Quicksall
5601 West Waco Drive
Waco, TX 76702
With required copy to: Earl H. Scudder, Jr.
Scudder Law Firm, P.C.
411 South 13th Street, Suite 200
Lincoln, NE 68508
If to the Executive: Joe Hall
5601 West Waco Drive
Waco, TX 76702
Either party may change its address for notice by giving notice in
accordance with the terms of this Section 9.
10. General Provisions.
a. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
b. Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully
severable and this Agreement shall be construed and enforced as if
such illegal, invalid, or unenforceable provision had never comprised
a part hereof; and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance therefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and still be legal, valid
or enforceable.
c. Attorney Fees. If any action at law or in equity is brought to enforce
or interpret the provisions of this Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees from the other
party. These fees shall be in addition to any other relief that may be
awarded.
d. Entire Agreement. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements or understandings,
whether written or oral, with respect to the subject matter hereof. No
terms, conditions, warranties,
<PAGE> 6
other than those contained herein, and no amendments or modifications
hereto shall be binding unless made in writing and signed by the
parties hereto.
e. Binding Effect. This Agreement shall extend to and be binding upon and
inure to the benefit of the parties hereto, their respective heirs,
representatives, successors, and assigns. This Agreement may not be
assigned by the Executive.
f. Waiver. The waiver by either party hereto of a breach of any term or
provision of this Agreement shall not operate or be construed as a
waiver of a subsequent breach of the same provision by any party or of
the breach of any other term or provision of this Agreement.
g. Titles. Titles of the sections herein are used solely for convenience
and shall not be used for interpretation or construing any word,
clause, paragraph, or provision of this Agreement.
h. Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed an original, but which together shall
constitute one and the same instrument.
i. Contingency. This terms and conditions of this Agreement are expressly
contingent upon the closing of the Acquisition Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
EXECUTIVE CENTRAL FREIGHT LINES, INC.
/s/Joe Hall By: /s/Doug Quicksall
- ------------------------ ------------------------------------
Joe Hall Doug Quicksall, Senior Vice President of
Finance, Secretary, and Treasurer
<PAGE> 1
Exhibit 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
May 15, 1997, by and between CENTRAL FREIGHT LINES, INC., a Texas corporation
(the "Company"), and DOUG QUICKSALL (the "Executive").
WHEREAS, the Company desires to employ the Executive as Senior Vice
President of Finance, Secretary, and Treasurer and the Executive is willing to
render his services to the Company on the terms, covenants, and conditions with
respect to such employment as hereinafter set forth;
NOW, THEREFORE, in consideration of the promises, terms, and conditions
hereof, the Company and the Executive agree as follows:
1. Employment. The Company employs the Executive and the Executive accepts
such employment with the Company upon the terms and conditions hereinafter
set forth. The Executive represents and warrants that neither the execution
by him of this Agreement nor the performance by him of his duties and
obligations hereunder will violate any agreement to which he is a party or
by which he is bound.
2. Term. The term of employment hereunder shall be three (3) years and shall
commence on the date and year first above written and end on the third
anniversary of such date (the "Base Term") unless sooner terminated
pursuant to Section 8 of this Agreement.
3. Duties. The Executive is employed as Senior Vice President of Finance,
Secretary, and Treasurer and shall render his services at the principal
business offices of the Company. As Senior Vice President of Finance,
Secretary, and Treasurer of the Company, the Executive has full
responsibility and authority for the day-to-day operation of the business
of the Company as they relate to such position. The Executive shall report
directly to the Chairman of the Board of Directors of the Company (the
"Chairman") and the President of the Company (the "President") and shall
have such authority and shall perform such duties as are customarily
performed by one holding the position as described in this Section 3;
subject, however, to such limitations, instructions, directions, and
control as the Chairman or President may specify from time to time in their
sole discretion.
4. Exclusive Services. The Executive shall devote all necessary working time,
ability, and attention to the business of the Company during the term of
this Agreement and shall not, directly or indirectly, render any material
services of a business, commercial, or professional nature to any other
person, corporation, or organization for compensation without the prior
consent of the Board of Directors of the Company (the "Board").
<PAGE> 2
5. Compensation. As compensation for his services in any capacity rendered
under this Agreement, the Executive shall be entitled to receive the
following:
a. Salary. During the Base Term or Optional Term, as hereinafter defined,
the Company shall pay the Executive a salary at the rate of $180,000
per annum (the "Salary"). The Salary shall be payable in accordance
with the ordinary payroll practices of the Company. Upon termination
of the Executive's employment in accordance with Section 8 or
expiration of the Base Term, the Salary shall be discontinued;
provided, however, the Company shall have the option upon such
termination or expiration to continue to pay the Executive an amount
equal to the Salary for the length of time equal to the Base Term to
bind the Executive to the non-competition provisions of Section 7
hereof and as consideration therefore (the "Optional Term").
b. Bonus. During the Base Term and so long as the Executive's employment
continues under this Agreement, the Board shall conduct, or cause to
be conducted at annual or approximate annual intervals after the end
of each fiscal year, a review of the Executive's performance, giving
attention to all pertinent factors, including without limitation, the
attainment of a 92.5% operating ratio as a minimum qualification for
receipt of such bonus and otherwise the general performance and growth
of the Company (excluding the effects of all transaction and financing
costs associated with the Acquisition Agreement, as hereinafter
defined). Following such review, the Board may award and pay a
performance-based bonus, paid as a lump sum to the Executive, in an
amount of up to fifty-percent (50%) of the Salary.
c. Benefits. The Company shall (i) provide the Executive the use
(business and personal) of an automobile valued at up to $30,000; (ii)
to the extent the Executive or his spouse does not otherwise receive
compensation therefor, pay any expenses incurred by the Executive in
the initial move, if any, by the Executive and his immediate family to
the greater metropolitan area in which the Company's principal place
of business is located; and (iii) permit the Executive to participate
in any and all employee benefit plans, including but not limited to
health and medical insurance, group term life insurance, disability
insurance, and retirement plan contributions, as may be in effect for
other senior executives of the Company.
6. Business Expenses. The Company shall reimburse the Executive for all
business expenses incurred in the performance of his duties under this
Agreement in a manner consistent with the Company-wide policies for
reimbursing business expenses generally as such policies existed on the day
immediately prior to the date first written above.
7. Non-Competition. For a period from the date and year first above written
until the latest of (a) the expiration of the Base Term or (b) the last day
of the payroll period after which the Company gives notice to the Executive
of its desire to discontinue payment of the Salary during the Optional
Term, neither Executive nor any entity of which Executive
<PAGE> 3
directly or indirectly owns more than 5% shall (a) own, operate, manage, be
employed or retained as a consultant by, or in any other manner assist any
truckload or less-than-truckload carrier, broker, agent, consolidator,
third-party logistics provider, or other company engaged in the business of
transporting or arranging for the transportation of general commodity
freight that conducts operations in the United States; (b) divert or
solicit any person who is or was a customer of Company or any affiliated
entity during such period; (c) induce or influence any employee, agent,
owner-operator, or other representative of Company, or any affiliated
entity to leave any of such corporations in order to engage in a
competitive business; or (d) use or allow anyone to use the name of the
Company or any affiliated or successor entity, or any derivation of the
foregoing. The parties deem the restrictions contained in this Section
reasonable and necessary to secure for Company the benefits of employing
the Executive and obtaining for Company's stockholders the benefits of the
Asset Purchase Agreement among the Company and the Southwestern Division of
Viking Freight, Inc., a subsidiary of Caliber System, Inc., a Delaware
corporation (the "Acquisition Agreement"). However, if a court of competent
jurisdiction determines that such restrictions are unreasonable, the
restrictions shall be reduced by the court to a reasonable level and
enforced in accordance therewith pursuant to Section 10.b. hereof. Although
subject to the terms of this Agreement (and in particular Section 10.b.
hereof), the covenants set forth in this Section 7 shall be deemed and
construed as a separate agreement independent of any other provisions of
the Acquisition Agreement, this Agreement, and any other agreement between
the Company and the Executive. The existence of any claim or cause of
action by the Executive against the Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of this covenant. It is expressly agreed, in addition to the
obligation to reimburse the Company for any amount received by the
Executive after any breach of this Section 7, that the remedy at law for
the breach of any such covenant is inadequate and injunctive relief shall
be available to prevent the breach or any threatened breach thereof.
8. Termination. This Executive's employment hereunder may be terminated as
follows:
a. By the Executive. The Executive may terminate his employment at any
time by giving sixty (60) days' prior written notice of termination to
the Board. The Executive shall receive any compensation accrued on the
date of termination and shall not be entitled to any compensation
beyond the actual date of termination.
b. By the Company with Cause. The Board may, in its reasonable discretion
and judgment and upon written notice effective immediately, terminate
Executive's employment under this Agreement at any time for "Cause."
Cause shall mean:
i. If the Executive is convicted of a felony under any applicable
criminal code or statute or of any misdemeanor involving fraud or
dishonesty against the Company or any affiliated or successor
entity;
ii. If the Executive breaches Section 7 of this Agreement;
<PAGE> 4
iii. If the Executive breaches any fiduciary duties as a director of
the Company;
iv. If the Executive wilfully fails to comply with the terms and
conditions of this Agreement and fails to cure any such material
breach or failure within ten (10) days after written notice
thereof given by the Company to the Executive; or
v. If the Executive wilfully and continually neglects to
substantially perform his duties hereunder, and fails to cure
such performance within ten (10) days after demand for
substantial performance is delivered in writing by the Board,
Chairman, or President that specifically identifies the manner in
which the Board, Chairman, or President believes the Executive
has not substantially performed his duties.
The Executive shall receive any Salary accrued on the date of such
termination and shall not be entitled to any compensation, including
rights to any bonus or other benefits set forth herein.
c. Physical or Mental Illness Incapacity. Executive's employment under
this Agreement shall be terminable by the Company, as a result of the
Executive's incapacity due to physical or mental illness, on the
earlier of either: (i) the date when the Executive is eligible for
coverage under the Company's long-term disability insurance plan; or
(ii) the date when the Executive shall have been absent from his
duties hereunder on a full-time basis for a period of six consecutive
months (unless within ten (10) days after written notice to return is
given, which may occur at or after the end of such six month period,
Executive shall have returned to the performance of his duties
hereunder on a full-time basis). During any period that the Executive
fails to perform his duties due to incapacity, the Executive shall
continue to receive from the Company his Salary and any declared or
announced bonus until termination of the Base Term. The rights and
benefits of the Executive under employee benefit and fringe benefit
plans, and other programs of the Company shall be determined in
accordance with the terms and provisions of such plans and programs.
d. Death. Executive's employment under this Agreement shall terminate as
a result of the death of the Executive. The designated beneficiary or
beneficiaries shall be entitled to receive any Salary installments and
any accrued reimbursable expenses or declared or announced bonus. The
rights under the benefit plans and programs of the Company shall be
determined in accordance with the terms and provisions of such plans
and programs.
<PAGE> 5
9. Notices. Any notices to be given hereunder by either party to the other may
be effected either by personal delivery in writing or by mail, registered
or certified, postage prepaid, with return receipt requested. Mailed
notices shall be addressed as follows:
If to the Company: Joe Hall
5601 West Waco Drive
Waco, TX 76702
With required copy to: Earl H. Scudder, Jr.
Scudder Law Firm, P.C.
411 South 13th Street, Suite 200
Lincoln, NE 68508
If to the Executive: Doug Quicksall
5601 West Waco Drive
Waco, TX 76702
Either party may change its address for notice by giving notice in
accordance with the terms of this Section 9.
10. General Provisions.
a. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
b. Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully
severable and this Agreement shall be construed and enforced as if
such illegal, invalid, or unenforceable provision had never comprised
a part hereof; and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance therefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and still be legal, valid
or enforceable.
c. Attorney Fees. If any action at law or in equity is brought to enforce
or interpret the provisions of this Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees from the other
party. These fees shall be in addition to any other relief that may be
awarded.
d. Entire Agreement. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements or understandings,
whether written or oral, with respect to the subject matter hereof. No
terms, conditions, warranties,
<PAGE> 6
other than those contained herein, and no amendments or
modifications hereto shall be binding unless made in writing and
signed by the parties hereto.
e. Binding Effect. This Agreement shall extend to and be binding
upon and inure to the benefit of the parties hereto, their
respective heirs, representatives, successors, and assigns. This
Agreement may not be assigned by the Executive.
f. Waiver. The waiver by either party hereto of a breach of any term
or provision of this Agreement shall not operate or be construed
as a waiver of a subsequent breach of the same provision by any
party or of the breach of any other term or provision of this
Agreement.
g. Titles. Titles of the sections herein are used solely for
convenience and shall not be used for interpretation or
construing any word, clause, paragraph, or provision of this
Agreement.
h. Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
i. Contingency. This terms and conditions of this Agreement are
expressly contingent upon the closing of the Acquisition
Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
EXECUTIVE CENTRAL FREIGHT LINES, INC.
/s/Doug Quicksall By: /s/Joe Hall
- --------------------- -------------------------------
Doug Quicksall Joe Hall, President
<PAGE> 1
Exhibit 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
May 15, 1997, by and between CENTRAL FREIGHT LINES, INC., a Texas corporation
(the "Company"), and THOMAS K. MOREHOUSE (the "Executive").
WHEREAS, the Company desires to employ the Executive as Senior Vice
President of Sales and Marketing and the Executive is willing to render his
services to the Company on the terms, covenants, and conditions with respect to
such employment as hereinafter set forth;
NOW, THEREFORE, in consideration of the promises, terms, and conditions
hereof, the Company and the Executive agree as follows:
1. Employment. The Company employs the Executive and the Executive accepts
such employment with the Company upon the terms and conditions hereinafter
set forth. The Executive represents and warrants that neither the execution
by him of this Agreement nor the performance by him of his duties and
obligations hereunder will violate any agreement to which he is a party or
by which he is bound.
2. Term. The term of employment hereunder shall be three (3) years and shall
commence on the date and year first above written and end on the third
anniversary of such date (the "Base Term") unless sooner terminated
pursuant to Section 8 of this Agreement.
3. Duties. The Executive is employed as Senior Vice President of Sales and
Marketing and shall render his services at the principal business offices
of the Company. As Senior Vice President of Sales and Marketing of the
Company, the Executive has full responsibility and authority for the
day-to-day operation of the business of the Company as they relate to such
position. The Executive shall report directly to the Chairman of the Board
of Directors of the Company (the "Chairman") and the President of the
Company (the "President") and shall have such authority and shall perform
such duties as are customarily performed by one holding the position as
described in this Section 3; subject, however, to such limitations,
instructions, directions, and control as the Chairman or President may
specify from time to time in its sole discretion.
4. Exclusive Services. The Executive shall devote all necessary working time,
ability, and attention to the business of the Company during the term of
this Agreement and shall not, directly or indirectly, render any material
services of a business, commercial, or professional nature to any other
person, corporation, or organization for compensation without the prior
consent of the Board of Directors of the Company (the "Board").
<PAGE> 2
5. Compensation. As compensation for his services in any capacity rendered
under this Agreement, the Executive shall be entitled to receive the
following:
a. Salary. During the Base Term or Optional Term, as hereinafter defined,
the Company shall pay the Executive a salary at the rate of $180,000
per annum (the "Salary"). The Salary shall be payable in accordance
with the ordinary payroll practices of the Company. Upon termination
of the Executive's employment in accordance with Section 8 or
expiration of the Base Term, the Salary shall be discontinued;
provided, however, the Company shall have the option upon such
termination or expiration to continue to pay the Executive an amount
equal to the Salary for the length of time equal to the Base Term to
bind the Executive to the non-competition provisions of Section 7
hereof and as consideration therefore (the "Optional Term").
b. Bonus. During the Base Term and so long as the Executive's employment
continues under this Agreement, the Board shall conduct, or cause to
be conducted at annual or approximate annual intervals after the end
of each fiscal year, a review of the Executive's performance, giving
attention to all pertinent factors, including without limitation, the
attainment of a 92.5% operating ratio as a minimum qualification for
receipt of such bonus and otherwise the general performance and growth
of the Company (excluding the effects of all transaction and financing
costs associated with the Acquisition Agreement, as hereinafter
defined). Following such review, the Board may award and pay a
performance-based bonus, paid as a lump sum to the Executive, in an
amount of up to fifty-percent (50%) of the Salary.
c. Benefits. The Company shall (i) provide the Executive the use
(business and personal) of an automobile valued at up to $30,000; (ii)
to the extent the Executive or his spouse does not otherwise receive
compensation therefor, pay any expenses incurred by the Executive in
the initial move, if any, by the Executive and his immediate family to
the greater metropolitan area in which the Company's principal place
of business is located; and (iii) permit the Executive to participate
in any and all employee benefit plans, including but not limited to
health and medical insurance, group term life insurance, disability
insurance, and retirement plan contributions, as may be in effect for
other senior executives of the Company.
6. Business Expenses. The Company shall reimburse the Executive for all
business expenses incurred in the performance of his duties under this
Agreement in a manner consistent with the Company-wide policies for
reimbursing business expenses generally as such policies existed on the day
immediately prior to the date first written above.
7. Non-Competition. For a period from the date and year first above written
until the latest of (a) the expiration of the Base Term or (b) the last day
of the payroll period after which the Company gives notice to the Executive
of its desire to discontinue payment of the Salary during the Optional
Term, neither Executive nor any entity of which Executive
<PAGE> 3
directly or indirectly owns more than 5% shall (a) own, operate, manage, be
employed or retained as a consultant by, or in any other manner assist any
truckload or less-than- truckload carrier, broker, agent, consolidator,
third-party logistics provider, or other company engaged in the business of
transporting or arranging for the transportation of general commodity
freight that conducts operations in the United States; (b) divert or
solicit any person who is or was a customer of Company or any affiliated
entity during such period; (c) induce or influence any employee, agent,
owner-operator, or other representative of Company, or any affiliated
entity to leave any of such corporations in order to engage in a
competitive business; or (d) use or allow anyone to use the name of the
Company or any affiliated or successor entity, or any derivation of the
foregoing. The parties deem the restrictions contained in this Section
reasonable and necessary to secure for Company the benefits of employing
the Executive and obtaining for Company's stockholders the benefits of the
Asset Purchase Agreement among the Company and the Southwestern Division of
Viking Freight, Inc., a subsidiary of Caliber System, Inc., a Delaware
corporation (the "Acquisition Agreement"). However, if a court of competent
jurisdiction determines that such restrictions are unreasonable, the
restrictions shall be reduced by the court to a reasonable level and
enforced in accordance therewith pursuant to Section 10.b. hereof. Although
subject to the terms of this Agreement (and in particular Section 10.b.
hereof), the covenants set forth in this Section 7 shall be deemed and
construed as a separate agreement independent of any other provisions of
the Acquisition Agreement, this Agreement, and any other agreement between
the Company and the Executive. The existence of any claim or cause of
action by the Executive against the Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of this covenant. It is expressly agreed, in addition to the
obligation to reimburse the Company for any amount received by the
Executive after any breach of this Section 7, that the remedy at law for
the breach of any such covenant is inadequate and injunctive relief shall
be available to prevent the breach or any threatened breach thereof.
8. Termination. This Executive's employment hereunder may be terminated as
follows:
a. By the Executive. The Executive may terminate his employment at any
time by giving sixty (60) days' prior written notice of termination to
the Board. The Executive shall receive any compensation accrued on the
date of termination and shall not be entitled to any compensation
beyond the actual date of termination.
b. By the Company with Cause. The Board may, in its reasonable discretion
and judgment and upon written notice effective immediately, terminate
Executive's employment under this Agreement at any time for "Cause."
Cause shall mean:
i. If the Executive is convicted of a felony under any applicable
criminal code or statute or of any misdemeanor involving fraud or
dishonesty against the Company or any affiliated or successor
entity;
ii. If the Executive breaches Section 7 of this Agreement;
<PAGE> 4
iii. If the Executive breaches any fiduciary duties as a director of
the Company;
iv. If the Executive wilfully fails to comply with the terms and
conditions of this Agreement and fails to cure any such material
breach or failure within ten (10) days after written notice
thereof given by the Company to the Executive; or
v. If the Executive wilfully and continually neglects to
substantially perform his duties hereunder, and fails to cure
such performance within ten (10) days after demand for
substantial performance is delivered in writing by the Board,
Chairman, or President that specifically identifies the manner in
which the Board, Chairman, or President believes the Executive
has not substantially performed his duties.
The Executive shall receive any Salary accrued on the date of such
termination and shall not be entitled to any compensation, including
rights to any bonus or other benefits set forth herein.
c. Physical or Mental Illness Incapacity. Executive's employment under
this Agreement shall be terminable by the Company, as a result of the
Executive's incapacity due to physical or mental illness, on the
earlier of either: (i) the date when the Executive is eligible for
coverage under the Company's long-term disability insurance plan; or
(ii) the date when the Executive shall have been absent from his
duties hereunder on a full-time basis for a period of six consecutive
months (unless within ten (10) days after written notice to return is
given, which may occur at or after the end of such six month period,
Executive shall have returned to the performance of his duties
hereunder on a full-time basis). During any period that the Executive
fails to perform his duties due to incapacity, the Executive shall
continue to receive from the Company his Salary and any declared or
announced bonus until termination of the Base Term. The rights and
benefits of the Executive under employee benefit and fringe benefit
plans, and other programs of the Company shall be determined in
accordance with the terms and provisions of such plans and programs.
d. Death. Executive's employment under this Agreement shall terminate as
a result of the death of the Executive. The designated beneficiary or
beneficiaries shall be entitled to receive any Salary installments and
any accrued reimbursable expenses or declared or announced bonus. The
rights under the benefit plans and programs of the Company shall be
determined in accordance with the terms and provisions of such plans
and programs.
<PAGE> 5
9. Notices. Any notices to be given hereunder by either party to the other may
be effected either by personal delivery in writing or by mail, registered
or certified, postage prepaid, with return receipt requested. Mailed
notices shall be addressed as follows:
If to the Company: Joe Hall
5601 West Waco Drive
Waco, TX 76702
With required copy to: Earl H. Scudder, Jr.
Scudder Law Firm, P.C.
411 South 13th Street, Suite 200
Lincoln, NE 68508
If to the Executive: Thomas K. Morehouse
5601 West Waco Drive
Waco, TX 76702
Either party may change its address for notice by giving notice in
accordance with the terms of this Section 9.
10. General Provisions.
a. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
b. Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully
severable and this Agreement shall be construed and enforced as if
such illegal, invalid, or unenforceable provision had never comprised
a part hereof; and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance therefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and still be legal, valid
or enforceable.
c. Attorney Fees. If any action at law or in equity is brought to enforce
or interpret the provisions of this Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees from the other
party. These fees shall be in addition to any other relief that may be
awarded.
d. Entire Agreement. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements or understandings,
whether written or oral, with respect to the subject matter hereof. No
terms, conditions, warranties,
<PAGE> 6
other than those contained herein, and no amendments or modifications
hereto shall be binding unless made in writing and signed by the
parties hereto.
e. Binding Effect. This Agreement shall extend to and be binding upon and
inure to the benefit of the parties hereto, their respective heirs,
representatives, successors, and assigns. This Agreement may not be
assigned by the Executive.
f. Waiver. The waiver by either party hereto of a breach of any term or
provision of this Agreement shall not operate or be construed as a
waiver of a subsequent breach of the same provision by any party or of
the breach of any other term or provision of this Agreement.
g. Titles. Titles of the sections herein are used solely for convenience
and shall not be used for interpretation or construing any word,
clause, paragraph, or provision of this Agreement.
h. Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed an original, but which together shall
constitute one and the same instrument.
i. Contingency. This terms and conditions of this Agreement are expressly
contingent upon the closing of the Acquisition Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
EXECUTIVE CENTRAL FREIGHT LINES, INC.
/s/Thomas K. Morehouse By: /s/Joe Hall
- ------------------------------- -------------------------
Thomas K. Morehouse Joe Hall, President
<PAGE> 1
Exhibit 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
May 15, 1997, by and between CENTRAL FREIGHT LINES, INC., a Texas corporation
(the "Company"), and PATRICK J. CURRY (the "Executive").
WHEREAS, the Company desires to employ the Executive as Senior Vice
President and the Executive is willing to render his services to the Company on
the terms, covenants, and conditions with respect to such employment as
hereinafter set forth;
NOW, THEREFORE, in consideration of the promises, terms, and conditions
hereof, the Company and the Executive agree as follows:
1. Employment. The Company employs the Executive and the Executive accepts
such employment with the Company upon the terms and conditions hereinafter
set forth. The Executive represents and warrants that neither the execution
by him of this Agreement nor the performance by him of his duties and
obligations hereunder will violate any agreement to which he is a party or
by which he is bound.
2. Term. The term of employment hereunder shall be three (3) years and shall
commence on the date and year first above written and end on the third
anniversary of such date (the "Base Term") unless sooner terminated
pursuant to Section 8 of this Agreement.
3. Duties. The Executive is employed as Senior Vice President and shall render
his services at the principal business offices of the Company. As Senior
Vice President of the Company, the Executive has full responsibility and
authority for the day-to-day operation of the business of the Company as
they relate to such position. The Executive shall report directly to the
Chairman of the Board of Directors of the Company (the "Chairman") and
President of the Company (the "President") and shall have such authority
and shall perform such duties as are customarily performed by one holding
the position as described in this Section 3; subject, however, to such
limitations, instructions, directions, and control as the Chairman or
President may specify from time to time in its sole discretion.
4. Exclusive Services. The Executive shall devote all necessary working time,
ability, and attention to the business of the Company during the term of
this Agreement and shall not, directly or indirectly, render any material
services of a business, commercial, or professional nature to any other
person, corporation, or organization for compensation without the prior
consent of the Board of Directors of the Company (the "Board").
<PAGE> 2
5. Compensation. As compensation for his services in any capacity rendered
under this Agreement, the Executive shall be entitled to receive the
following:
a. Salary. During the Base Term or Optional Term, as hereinafter defined,
the Company shall pay the Executive a salary at the rate of $180,000
per annum (the "Salary"). The Salary shall be payable in accordance
with the ordinary payroll practices of the Company. Upon termination
of the Executive's employment in accordance with Section 8 or
expiration of the Base Term, the Salary shall be discontinued;
provided, however, the Company shall have the option upon such
termination or expiration to continue to pay the Executive an amount
equal to the Salary for the length of time equal to the Base Term to
bind the Executive to the non-competition provisions of Section 7
hereof and as consideration therefore (the "Optional Term").
b. Bonus. During the Base Term and so long as the Executive's employment
continues under this Agreement, the Board shall conduct, or cause to
be conducted at annual or approximate annual intervals after the end
of each fiscal year, a review of the Executive's performance, giving
attention to all pertinent factors, including without limitation, the
attainment of a 92.5% operating ratio as a minimum qualification for
receipt of such bonus and otherwise the general performance and growth
of the Company (excluding the effects of all transaction and financing
costs associated with the Acquisition Agreement, as hereinafter
defined). Following such review, the Board may award and pay a
performance-based bonus, paid as a lump sum to the Executive, in an
amount of up to fifty-percent (50%) of the Salary.
c. Benefits. The Company shall (i) provide the Executive the use
(business and personal) of an automobile valued at up to $30,000; (ii)
to the extent the Executive or his spouse does not otherwise receive
compensation therefor, pay any expenses incurred by the Executive in
the initial move, if any, by the Executive and his immediate family to
the greater metropolitan area in which the Company's principal place
of business is located; and (iii) permit the Executive to participate
in any and all employee benefit plans, including but not limited to
health and medical insurance, group term life insurance, disability
insurance, and retirement plan contributions, as may be in effect for
other senior executives of the Company.
6. Business Expenses. The Company shall reimburse the Executive for all
business expenses incurred in the performance of his duties under this
Agreement in a manner consistent with the Company-wide policies for
reimbursing business expenses generally as such policies existed on the day
immediately prior to the date first written above.
7. Non-Competition. For a period from the date and year first above written
until the latest of (a) the expiration of the Base Term or (b) the last day
of the payroll period after which the Company gives notice to the Executive
of its desire to discontinue payment of the Salary during the Optional
Term, neither Executive nor any entity of which Executive
<PAGE> 3
directly or indirectly owns more than 5% shall (a) own, operate, manage, be
employed or retained as a consultant by, or in any other manner assist any
truckload or less-than-truckload carrier, broker, agent, consolidator,
third-party logistics provider, or other company engaged in the business of
transporting or arranging for the transportation of general commodity
freight that conducts operations in the United States; (b) divert or
solicit any person who is or was a customer of Company or any affiliated
entity during such period; (c) induce or influence any employee, agent,
owner-operator, or other representative of Company, or any affiliated
entity to leave any of such corporations in order to engage in a
competitive business; or (d) use or allow anyone to use the name of the
Company or any affiliated or successor entity, or any derivation of the
foregoing. The parties deem the restrictions contained in this Section
reasonable and necessary to secure for Company the benefits of employing
the Executive and obtaining for Company's stockholders the benefits of the
Asset Purchase Agreement among the Company and the Southwestern Division of
Viking Freight, Inc., a subsidiary of Caliber System, Inc., a Delaware
corporation (the "Acquisition Agreement"). However, if a court of competent
jurisdiction determines that such restrictions are unreasonable, the
restrictions shall be reduced by the court to a reasonable level and
enforced in accordance therewith pursuant to Section 10.b. hereof. Although
subject to the terms of this Agreement (and in particular Section 10.b.
hereof), the covenants set forth in this Section 7 shall be deemed and
construed as a separate agreement independent of any other provisions of
the Acquisition Agreement, this Agreement, and any other agreement between
the Company and the Executive. The existence of any claim or cause of
action by the Executive against the Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of this covenant. It is expressly agreed, in addition to the
obligation to reimburse the Company for any amount received by the
Executive after any breach of this Section 7, that the remedy at law for
the breach of any such covenant is inadequate and injunctive relief shall
be available to prevent the breach or any threatened breach thereof.
8. Termination. This Executive's employment hereunder may be terminated as
follows:
a. By the Executive. The Executive may terminate his employment at any
time by giving sixty (60) days' prior written notice of termination to
the Board. The Executive shall receive any compensation accrued on the
date of termination and shall not be entitled to any compensation
beyond the actual date of termination.
b. By the Company with Cause. The Board may, in its reasonable discretion
and judgment and upon written notice effective immediately, terminate
Executive's employment under this Agreement at any time for "Cause."
Cause shall mean:
i. If the Executive is convicted of a felony under any applicable
criminal code or statute or of any misdemeanor involving fraud or
dishonesty against the Company or any affiliated or successor
entity;
ii. If the Executive breaches Section 7 of this Agreement;
<PAGE> 4
iii. If the Executive breaches any fiduciary duties as a director of
the Company;
iv. If the Executive wilfully fails to comply with the terms and
conditions of this Agreement and fails to cure any such material
breach or failure within ten (10) days after written notice
thereof given by the Company to the Executive; or
v. If the Executive wilfully and continually neglects to
substantially perform his duties hereunder, and fails to cure
such performance within ten (10) days after demand for
substantial performance is delivered in writing by the Board,
Chairman, or President that specifically identifies the manner in
which the Board, Chairman, or President believes the Executive
has not substantially performed his duties.
The Executive shall receive any Salary accrued on the date of such
termination and shall not be entitled to any compensation, including
rights to any bonus or other benefits set forth herein.
c. Physical or Mental Illness Incapacity. Executive's employment under
this Agreement shall be terminable by the Company, as a result of the
Executive's incapacity due to physical or mental illness, on the
earlier of either: (i) the date when the Executive is eligible for
coverage under the Company's long-term disability insurance plan; or
(ii) the date when the Executive shall have been absent from his
duties hereunder on a full-time basis for a period of six consecutive
months (unless within ten (10) days after written notice to return is
given, which may occur at or after the end of such six month period,
Executive shall have returned to the performance of his duties
hereunder on a full-time basis). During any period that the Executive
fails to perform his duties due to incapacity, the Executive shall
continue to receive from the Company his Salary and any declared or
announced bonus until termination of the Base Term. The rights and
benefits of the Executive under employee benefit and fringe benefit
plans, and other programs of the Company shall be determined in
accordance with the terms and provisions of such plans and programs.
d. Death. Executive's employment under this Agreement shall terminate as
a result of the death of the Executive. The designated beneficiary or
beneficiaries shall be entitled to receive any Salary installments and
any accrued reimbursable expenses or declared or announced bonus. The
rights under the benefit plans and programs of the Company shall be
determined in accordance with the terms and provisions of such plans
and programs.
<PAGE> 5
9. Notices. Any notices to be given hereunder by either party to the other may
be effected either by personal delivery in writing or by mail, registered
or certified, postage prepaid, with return receipt requested. Mailed
notices shall be addressed as follows:
If to the Company: Joe Hall
5601 West Waco Drive
Waco, TX 76702
With required copy to: Earl H. Scudder, Jr.
Scudder Law Firm, P.C.
411 South 13th Street, Suite 200
Lincoln, NE 68508
If to the Executive: Patrick J. Curry
5601 West Waco Drive
Waco, TX 76702
Either party may change its address for notice by giving notice in
accordance with the terms of this Section 9.
10. General Provisions.
a. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
b. Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully
severable and this Agreement shall be construed and enforced as if
such illegal, invalid, or unenforceable provision had never comprised
a part hereof; and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance therefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and still be legal, valid
or enforceable.
c. Attorney Fees. If any action at law or in equity is brought to enforce
or interpret the provisions of this Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees from the other
party. These fees shall be in addition to any other relief that may be
awarded.
d. Entire Agreement. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements or understandings,
whether written or oral, with respect to the subject matter hereof. No
terms, conditions, warranties,
<PAGE> 6
other than those contained herein, and no amendments or modifications
hereto shall be binding unless made in writing and signed by the
parties hereto.
e. Binding Effect. This Agreement shall extend to and be binding upon and
inure to the benefit of the parties hereto, their respective heirs,
representatives, successors, and assigns. This Agreement may not be
assigned by the Executive.
f. Waiver. The waiver by either party hereto of a breach of any term or
provision of this Agreement shall not operate or be construed as a
waiver of a subsequent breach of the same provision by any party or of
the breach of any other term or provision of this Agreement.
g. Titles. Titles of the sections herein are used solely for convenience
and shall not be used for interpretation or construing any word,
clause, paragraph, or provision of this Agreement.
h. Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed an original, but which together shall
constitute one and the same instrument.
i. Contingency. This terms and conditions of this Agreement are expressly
contingent upon the closing of the Acquisition Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
EXECUTIVE CENTRAL FREIGHT LINES, INC.
/s/Patrick J. Curry By: /s/Joe Hall
- -------------------------- -------------------------------
Patrick J. Curry Joe Hall, President
<PAGE> 1
EXHIBIT 21
Subsidiary of the Registrant
<TABLE>
<CAPTION>
State or Jurisdiction of
Name of Subsidiary Incorporation or Organization
------------------ -----------------------------
<S> <C>
Central Freight Lines, Inc. Texas
</TABLE>
<PAGE> 1
EXHIBIT 23.2
Independent Auditors' Consent and Report on Schedule
The Board of Directors
Central Freight Lines, Inc.:
The audits referred to in our report dated February 9, 1999, included the
related financial statement schedule for the period from April 1, 1997
(inception) to December 31, 1997 and for the year ended December 31, 1998,
included in the registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG, LLP
Dallas, Texas
May 6, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT
I, Joseph M. Clapp, hereby consent to be named as a director of Central
Freight Lines, Inc., a Nevada corporation (the "Company"), in this registration
statement on Form S-1 of the Company (including any and all amendments or
supplements thereto).
Dated: May 4, 1999
/s/ Joseph M. Clapp
-------------------
Joseph M. Clapp
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CENTRAL FREIGHT LINES, INC. FOR THE TWENTY-SIX WEEKS
ENDED DECEMBER 31, 1997, THE YEAR ENDED DECEMBER 31, 1998, AND THE TWELVE WEEKS
ENDED MARCH 27, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<PERIOD-START> JUL-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 MAR-27-1999
<CASH> 767 818 1,211
<SECURITIES> 0 0 0
<RECEIVABLES> 23,955 29,577 31,718
<ALLOWANCES> 3,054 4,321 893
<INVENTORY> 1,463 914 930
<CURRENT-ASSETS> 30,863 38,859 36,366
<PP&E> 64,522 77,490 95,665
<DEPRECIATION> 2,131 6,764 1,345
<TOTAL-ASSETS> 96,336 117,002 133,136
<CURRENT-LIABILITIES> 35,808 35,763 39,501
<BONDS> 32,744 44,005 52,714
0 0 0
0 0 0
<COMMON> 11 11 11
<OTHER-SE> 17,364 23,918 27,243
<TOTAL-LIABILITY-AND-EQUITY> 96,336 117,002 133,136
<SALES> 0 0 0
<TOTAL-REVENUES> 111,869 259,941 57,379
<CGS> 0 0 0
<TOTAL-COSTS> 106,183 241,441 53,455
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1,759 3,953 889
<INCOME-PRETAX> 4,091 15,048 3,035
<INCOME-TAX> 1,715 5,302 1,056
<INCOME-CONTINUING> 2,376 9,746 1,979
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,376 9,746 1,979
<EPS-PRIMARY> .21 .89 .18
<EPS-DILUTED> .18 .74 .15
</TABLE>
