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SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
WASHINGTON, D. C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (N0 FEE REQUIRED)
For the transition period from ___________________ to __________________
Commission File No. 34-0-17570
AMERICAN FREIGHTWAYS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ARKANSAS 74-2391754
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION IDENTIFICATION NUMBER)
2200 FORWARD DRIVE 72601
HARRISON, ARKANSAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including Area Code: (501) 741-9000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. [X] YES [_] NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [_]
Aggregate market value of voting stock held by nonaffiliates of the
registrant at February 13, 1995: $626,110,959.00.
Number of shares of common stock outstanding at February 13, 1995:
30,541,998.00.
The Registrant's Annual Report to Shareholders for the fiscal year ended
December 31, 1994 is incorporated by reference into Parts II and IV.
The Proxy Statement for Registrant's March 28, 1995 Annual meeting is
incorporated by reference into Parts III and IV.
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TABLE OF CONTENTS
<TABLE>
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ITEM PAGE
- ---- ----
PART I
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1. and 2. Business and Properties 1
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security Holders 5
PART II
<S> <C> <C>
5. Market for Registrant's Common Equity
and Related Stockholder Matters 6
6. Selected Financial Data 7
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
8. Financial Statements and Supplementary Data 9
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 9
PART III
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10. Directors and Executive Officers of the Registrant 10
11. Executive Compensation 10
12. Security Ownership of Certain Beneficial
Owners and Management 10
13. Certain Relationships and Related Transactions 10
PART IV
<S> <C>
14. Exhibits, Financial Statement Schedules and
Current Reports on Form 8-K 11
Signatures 14
Financial Statements and Financial Statement Schedules 15
</TABLE>
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
THE COMPANY
American Freightways is a scheduled, for-hire, less-than-truckload (LTL)
carrier transporting a wide range of general commodities. The Company
transports primarily LTL shipments, which the Interstate Commerce Commission
(ICC) defines as shipments weighing less than 10,000 pounds. The Company
operates in a region comprised of Alabama, Arkansas, Georgia, Illinois, Indiana,
Kansas, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, Ohio,
Oklahoma, South Carolina, Tennessee, Texas and Southeastern Iowa pursuant to
operating authority, both contract and common, granted by the ICC.
THE LTL INDUSTRY
Generally, LTL carriers move freight from multiple shippers to multiple
consignees on a scheduled basis. American Freightways competes against
regional, interregional and national LTL carriers. To a much less extent, the
Company competes against truckload carriers, railroads and overnight package
companies.
LTL carriers are generally referred to as national, interregional or regional
carriers, depending upon the average length of haul. National carriers, which
generally operate coast to coast, are those carriers whose average length of
haul exceeds 1,000 miles. Carriers with an average length of haul between 500
and 1,000 miles are referred to as interregional carriers. American
Freightways, with an average length of haul of 567 miles during the year ending
December 31, 1994, operates as a multiregional carrier targeting shipments
within several regions to increase the density within its network.
In general, the more business an LTL carrier has within a given geographical
area, the lower its incremental operating costs. This is particularly true with
respect to its pickup and delivery operation where there is less distance
between stops and more shipments per stop. Similarly, the more business a
carrier experiences in a given traffic lane (or route), resulting in greater
linehaul density, the lower its incremental costs. Other areas such as computer
operations, sales, collections, purchases of equipment, fuel, tires, parts,
insurance, supplies, and corporate management also lend themselves to economies
of scale. More LTL freight moves short distances than long distances.
Typically, national carriers are less effective from an operational, service or
cost standpoint in short-haul markets and, therefore, usually avoid such
markets. Thus, due to greater activity in a given region, a regional carrier
may achieve greater economies in such region or market than a national carrier.
During 1994, Congress passed legislation that effectively deregulated
intrastate traffic, freight moving within the borders of a given state,
effective in January 1995. The Company has requested and received intrastate
authority of the respective state agencies in its service territory.
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EXPANSION
The history of American Freightways has been growth. Twelve years ago, the
Company began serving all points in one state, Arkansas. Today the Company's
all-points service coverage extends to 16 states stretching over 1,600 miles
from north to south and east to west. Perhaps the most distinguishing feature
of the Company's operations is this all-points coverage. Management knows of no
other LTL carrier that duplicates this coverage.
The Company began operations by opening 20 terminals on October 25, 1982.
From 1983 through 1985, 11 terminals were added to the system, including
Chicago, Illinois; Oklahoma City and Tulsa, Oklahoma; and Houston, Texas.
Thirteen terminals were added in 1986, 20 terminals in 1987, 12 terminals in
1988, nine terminals in 1989, 15 terminals in 1990, 11 terminals in 1991 and ten
terminals in 1992. During 1993, the opening of seven new terminals in the state
of Georgia and nine new terminals in the state of Kentucky brought all-points
coverage to these two states as well as the southern portions of the states of
Indiana and Ohio. During 1994, the Company opened 14 new terminals in Indiana
and Ohio. On January 1, 1995, the Company opened 13 terminals and extended its
all-points coverage to the entire states of North Carolina and South Carolina.
SERVICE FEATURES
The principal service features of American Freightways are its all-points
coverage, scheduled LTL service, clean and efficient fleet, total information
services, its customer satisfaction and cargo care programs, and its total
quality and people development processes.
All-Points Coverage. To differentiate itself from its competitors, the
Company offers all-points coverage to entire states. This feature fulfills
shippers' needs by simplifying how freight is routed and assuring that the
Company's service standards will apply from pickup through delivery.
Scheduled LTL Service. The Company publishes very compressed service
standards between the points in its system. It maintains scheduled runs between
the terminals each night to ensure that these standards are met. The Company's
consistent achievement of these standards results in a high rate of customer
retention which, together with the Company's vigorous pursuit of new customers,
has resulted in sustained growth.
Clean and Efficient Fleet. The Company's policy is to purchase equipment
having uniform specifications that are, to the greatest possible extent,
compatible with design improvements and resale values. This standardization
enables the Company to simplify mechanic and driver training, to control the
cost of spare parts and tire inventory, and in general to provide for a more
efficient vehicle maintenance program. American Freightways utilizes twin
trailers for movement of almost 100% of the freight among its terminals to gain
greater flexibility. The use of twin trailers (which can be operated singly or
in tandem) provides more options for the achievement of the Company's service
standards. At December 31, 1994, the Company utilized 8,390 van trailers, 7,367
of which were twin trailers, and 3,344 tractors. The average ages of the
tractors and trailers were 2.8 and 3.4 years, respectively, at December 31,
1994.
Total Information Services. An important aspect of customer service is the
instantaneous access by shippers to information concerning their shipments and
the Company's performance. The Company continues to invest in upgrading its
electronic information system because it believes that the right information
needs to be available at the right time to the relevant person in a convenient
form. Accordingly, American Freightways provides its customers the ability to
customize information they need and how and when they receive it.
2
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Customer Satisfaction. The Company recognizes that it is in the customer
satisfaction business as well as the transportation business. In recognition of
its commitment to customer satisfaction, American Freightways maintains a
Customer Satisfaction Department and a Cargo Care Department. Access to each is
provided through the use of nationwide toll-free telephone lines. Management
believes American Freightways was the first LTL carrier to create a department
to deal exclusively with customer satisfaction. The Customer Satisfaction
Department is an integral part of an effort to make American Freightways
accessible and accountable to its customers, providing special attention to
customers' needs such as tracing freight, expediting shipments, and meeting
unusual delivery requirements. The Cargo Care Department educates Company
personnel on the correct care of shipments, such as proper loading to avoid loss
and damage. This department also assists customers with proper packaging of
shipments and settles cargo claims with customers.
Total Quality Process. The Company has for over five years utilized a "Total
Quality Process" to improve the quality and efficiency of its services. The
quality process involves management, education and training techniques, some of
which are developed by associates. These techniques are designed to, among
other things, identify and complete job responsibilities, including
identification of customer needs. The process measures improvement in associate
performance, enhances communication among management and associates and provides
a common Company language. Implementation of this process is accomplished with
customer satisfaction surveys, performance benchmarking and educating of
personnel. The total quality initiative is ongoing. Educating of personnel and
further integration of the process into operations are focal points for 1995.
People Development Process. The building blocks for American Freightways have
always been its people and its business principles. To continue its growth, the
Company must continue to attract, retain and educate quality people who can and
will grow with the Company. To facilitate this process, the Company in 1993,
initiated a "People Development Process" in which Company personnel at all
levels and in all functions receive training on Company principles, job
responsibilities and critical skills on performance of their responsibilities.
The Company's people follow six business principles:
. Take care of our customers
. Take care of our people
. Honor our commitments
. Work hard, work smart, work together
. Prevent costs
. Have fun!
At December 31, 1994, the Company employed 6,506 persons, including 3,241
drivers, 1,683 dock workers and 171 mechanics and other maintenance personnel.
All drivers utilized by American Freightways are selected in accordance with
specific Company guidelines relating primarily to safety records and driving
experience. Drivers, as well as dockmen and mechanics, are required to pass
drug tests upon employment, randomly and for cause. State and federal
regulations require drug testing of drivers and require drivers to comply with
commercial driver's licensing requirements. Management believes that the
Company is substantially in compliance with these regulations.
3
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The Company has not experienced a shortage of qualified drivers in the past,
and management does not expect a significant shortage in the near future.
None of the Company's personnel is currently represented by a collective
bargaining unit. In the opinion of management, the Company's relationship with
its drivers, other associates and independent contractors is excellent. The
Company's policy is to share its success with its associates through increased
wages and benefits.
MARKETING
The Company's marketing strategy emphasizes to the customer the value of the
Company's reliable performance and innovative services. This has resulted in a
high level of repeat business from existing customers, which is used as a
springboard for business in the areas to which the Company expands. American
Freightways also aggressively seeks new customers as it expands its service
territory.
The Company established a national advertising program in 1984, utilizing
full-page, four-color ads in national transportation and distribution magazines.
American Freightways also utilizes direct mail advertising and surveys its
customers to solicit suggestions for improvements in its services.
The Company has designed and implemented its own 48-state class rate tariff
and rules tariff with simplified formats, no single shipment charges and no
arbitrary charges.
TECHNOLOGY
American Freightways has always believed in the use of advanced technology to
increase the value of service to its customers and to lower the cost of
providing this service. The Company uses computer and electronic technology to
compress time in the performance of operating and other processes and to
compress the number of levels within the organization necessary to complete
tasks. From the customer's call for a pickup through the capture of a signature
verifying delivery of the freight, the Company's information technology captures
information on the status of each shipment. In most cases the recovery of the
data is achieved automatically as the freight is moved. See also "Service
Features - Total Information Services."
TERMINALS
The Company owns its general office located in Harrison, Arkansas and 55
terminal facilities in 14 states. At December 31, 1994, 89 of the Company's
terminals are leased. The terms of the leases on the facilities range from
month-to-month to ten years. The Company prefers to lease when suitable
facilities are available; however, it may be necessary to construct or acquire
additional facilities when facilities of sufficient size are not available for
lease.
One of the principal features distinguishing American Freightways from its
competitors is its extensive terminal network, placing terminals nearer to the
customer. During 1993 and 1994, the Company added terminal capacity through the
purchase of existing facilities, the construction of new terminals or additions
to existing terminals in several strategic locations such as Chicago, Illinois;
Lincoln, Illinois; Jackson, Mississippi; St. Louis, Missouri; Memphis,
Tennessee; Nashville, Tennessee; and Dallas, Texas. The Company has plans to
purchase or construct several terminals during 1995; the largest will be
Atlanta, Georgia; Indianapolis, Indiana; and San Antonio, Texas. The Company
added 13 terminals in January 1995, in the states of North Carolina and South
Carolina for a total of 157 terminals.
4
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At December 31, 1994, the Company's terminal network consisted of 144
terminals. Of these terminals, 135 were managed by Company associates and 9
were operated and managed by 7 independent contractors. Company-operated
terminals involve relatively fixed costs (such as operating taxes, salaries and
wages and depreciation), whereas costs of independent contractor-operated
terminals generally are variable as a flat percentage of revenue. It is
American Freightways' intent to primarily utilize Company-operated terminals in
future expansions.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business,
primarily involving claims for personal injuries and property damage incurred in
the transportation of freight. The Company believes adverse results in one or
more of these cases would not have a material adverse effect on its competitive
position, financial position or its results of operations. The Company
maintains insurance in an amount which Management believes is currently
sufficient to cover its risks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
5
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
American Freightways Corporation's Common Stock has been traded under the
symbol "AFWY" on the National Market System of the National Association of
Securities Dealers Automated Quotation System (NASDAQ). The following table sets
forth, for the periods indicated, the range of high and low prices for the
Company's Common Stock as reported by NASDAQ through February 13, 1995. The
latest price for the Company's Common Stock on February 13, 1995, as reported by
the NASDAQ was $20.50 per share. At February 13, 1995, there were approximately
2,116 holders of record of the Company's Common Stock. The following market
prices have been adjusted to reflect a 2-for-1 stock split paid on May 27, 1993,
to shareholders of record on May 7, 1993.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
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<S> <C> <C>
FISCAL YEAR 1993:
First Quarter 14-5/8 11-3/8
Second Quarter 19 13-5/8
Third Quarter 20-1/2 16-1/4
Fourth Quarter 20-1/4 16-3/4
FISCAL YEAR 1994:
First Quarter 20-3/4 15-1/2
Second Quarter 21-3/4 18-1/4
Third Quarter 24-7/8 20-3/4
Fourth Quarter 24-3/8 17-3/4
FISCAL YEAR 1995:
First Quarter (through February 13, 1995) 21-3/4 18-5/8
</TABLE>
The Company has not paid cash dividends in the past and does not intend to pay
cash dividends in the foreseeable future. Under certain of the Company's loan
agreements, the Company is subject to certain restrictions on its ability to pay
dividends. See Note 3 to the Consolidated Financial Statements incorporated by
reference herein.
6
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from consolidated financial
statements of the Company. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements, related notes and other
financial information included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
(Dollars in thousands, except per share data) 1990 1991 1992 1993 1994
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue............................. $142,780 $198,258 $262,011 $328,464 $465,588
Operating expenses and costs:
Salaries, wages and benefits................. 62,975 94,312 125,152 168,770 247,049
Operating supplies and
expenses.................................... 9,814 12,084 17,169 22,099 30,710
Operating taxes and licenses................. 4,997 7,218 9,647 12,340 19,251
Insurance.................................... 5,164 7,011 8,705 7,891 15,360
Communications and utilities................. 2,572 3,484 4,357 6,907 9,117
Depreciation and amortization................ 9,224 14,541 17,059 21,519 27,888
Rents and purchased
transportation.............................. 25,546 31,877 39,683 42,250 45,633
Other........................................ 7,780 11,848 13,895 15,782 20,880
----------------------------------------------------
Total operating expenses.................... 128,072 182,375 235,667 297,558 415,888
----------------------------------------------------
Operating income.............................. 14,708 15,883 26,344 30,906 49,700
Interest expense.............................. (3,670) (3,642) (4,844) (4,246) (6,832)
Other income, net............................. 590 312 453 329 442
Gain (loss) on disposal of
assets....................................... 81 (3) 9 1 292
----------------------------------------------------
Income before income taxes, extraordinary
charge and cumulative effect of
accounting change............................ 11,709 12,550 21,962 26,990 43,602
Income taxes.................................. 4,265 4,518 8,016 10,238 16,571
----------------------------------------------------
Income before extraordinary charge and
cumulative effect of accounting change....... 7,444 8,032 13,946 16,752 27,031
Extraordinary charge for early retirement
of debt, net of tax benefit of $205.......... - - - - (335)
Cumulative effect of accounting change........ - - (383) - -
----------------------------------------------------
Net income.................................... $ 7,444 $ 8,032 $ 13,563 $ 16,752 $ 26,696
====================================================
Per share:
Income before extraordinary charge and
cumulative effect of accounting change...... $ 0.33 $ 0.30 $ 0.50 $ 0.59 $ 0.89
Extraordinary charge......................... - - - - (0.01)
Cumulative effect of
accounting change........................... - - (0.02) - -
----------------------------------------------------
Net income................................... $ 0.33 $ 0.30 $ 0.48 $ 0.59 $ 0.88
====================================================
Average shares outstanding (000's)............ 22,400 26,644 28,132 28,581 30,357
Proforma Data (1):
Net income.................................... $ 7,359 $ 7,807 $ 13,946 $ 16,752 $ 26,696
Net income per share.......................... $0.33 $0.29 $ 0.50 $ 0.59 $ 0.88
</TABLE>
7
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<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1990 1991 1992 1993 1994
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<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
(Dollars in thousands)
Current assets................................ $21,216 $ 58,129 $ 34,729 $ 37,660 $ 54,247
Current liabilities........................... 17,364 18,218 19,348 35,083 44,378
Total assets.................................. 97,953 168,131 175,531 251,130 355,348
Long-term debt (including
current portion)............................. 46,138 70,896 55,304 97,537 111,181
Shareholders' equity.......................... $35,936 $ 74,636 $ 89,709 $109,460 $177,180
Working capital............................... 3,852 39,911 15,381 2,577 9,869
Debt to equity ratio.......................... 1.28 0.95 0.62 0.89 0.63
Return on shareholders' equity................ 23.2% 14.5% 16.5% 16.8% 18.6%
KEY OPERATING STATISTICS:
Operating ratio............................... 89.7% 92.0% 89.9% 90.6% 89.3%
Total tractors................................ 1,195 1,634 1,955 2,453 3,344
Terminals..................................... 100 111 116 132 144
Number of employees........................... 2,209 3,058 3,655 4,964 6,506
Gross tonnage hauled (000's).................. 937 1,238 1,615 2,051 2,759
Shipments (000's)............................. 1,693 2,179 2,654 3,237 4,267
Average length of haul........................ 395 454 525 550 567
Revenue per hundred weight.................... $ 7.62 $ 8.01 $ 8.11 $ 8.01 $ 8.46
</TABLE>
(1) Assumes the change in accounting method for recognition of revenue as
required by EITF 91-9 occurred January 1, 1990.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Item is incorporated by this reference to Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1994, pages 25 through 31.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial statements
included on pages 32 through 40 of the Annual Report to Shareholders for the
year ended December 31, 1994, are incorporated herein by reference.
Quarterly Results of Operations on page 39 of the Annual Report to
Shareholders for the year ended December 31, 1994, is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
9
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The executive officers and directors of American Freightways as of February
13, 1995, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
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<S> <C> <C>
F. S. (Sheridan) Garrison 60 Chairman of the Board of Directors, President
and Chief Executive Officer
Tom Garrison 34 Vice President; Secretary/Treasurer;
Director
James R. Dodd 45 Executive Vice President-Accounting & Finance;
Chief Financial Officer; Director
Tony R. Balisle 56 Executive Vice President-Operations
Frank Conner 45 Vice President-Special Projects; Director
Ben A. Garrison 63 Director
T. J. Jones 58 Director
Ken Reeves 47 Director
Will Garrison 31 Vice President
Daniel Garrison 40 Account Executive
Joe Dobbs 48 Vice President-Properties
Thomas D. Doty 47 Vice President-Marketing
James Hearn 60 Vice President-Maintenance
Hugh Payne 47 Vice President-Transportation
Carl Thomas 44 Vice President-Safety and Security
</TABLE>
The remainder of this Item 10, Directors and Executive Officers of the
Registrant, is incorporated by this reference to Registrant's Notice and Proxy
Statement for its Annual Meeting of Shareholders to be held on Tuesday,
March 28, 1995.
ITEM 11. EXECUTIVE COMPENSATION
This Item is incorporated by this reference to applicable portions of the
Registrant's Notice and Proxy Statement for its 1995 Annual Meeting of
Shareholders to be held on Tuesday, March 28, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This Item is incorporated by this reference to applicable portions of the
Registrant's Notice and Proxy Statement for its 1995 Annual Meeting of
Shareholders to be held on Tuesday, March 28, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
This Item is incorporated by this reference to applicable portions of the
Registrant's Notice and Proxy Statement for its 1995 Annual Meeting of
Shareholders to be held on Tuesday, March 28, 1995.
10
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (l) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) The exhibits as listed in the Exhibit Index, are submitted as a
separate section of this report.
(b) Current Reports on Form 8-K:
None.
(c) See Item 14(a)(3) above.
(d) The response to this portion of Item 14 is submitted as a separate section
of this report.
11
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INDEX TO EXHIBITS
3(a) Amended and Restated Articles of Incorporation of American Freightways
Corporation.
3(b) Amended and Restated Bylaws of American Freightways Corporation.
10(a) Loan and Security Agreement among Union Planters National Bank, the
Registrant and certain subsidiaries dated January 18, 1989, incorporated
by reference from the Registrant's Registration Statement on Form S-1
dated March 30, 1989, No. 33-27073.
10(b) Amended Stock Purchase Plan for Certain employees of Registrant and
subsidiaries incorporated by reference to Registrant's Registration
Statement on Form S-1 dated February 19, 1991, No. 33 38997.
10(c) Non-statutory Stock Option Plan for Independent Directors incorporated by
reference to Registrant's Registration Statement on Form S-1 dated
February 19, 1991, No. 33-38997.
10(d) Note Agreement among Prudential Capital Corporation, the Registrant and
certain subsidiaries dated December 5, 1991 incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.
10(e) Credit Agreement among NationsBank of Texas, N. A., as Agent, the
Registrant and certain subsidiaries dated April 14, 1992 incorporated by
reference to Registrant's Form 10-Q for the quarterly period ended
March 31, 1992.
10(f) Amendment Number 1 to Note Agreement among Prudential Capital
Corporation, the Registrant and certain subsidiaries dated December 5,
1991 incorporated by reference to Registrant's Form 10-Q for the
quarterly period ended June 30, 1992.
10(g) Promissory Note among NationsBank of Texas, N.A., the Registrant and
certain subsidiaries dated August 15, 1992, incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.
10(h) First Amendment to Credit Agreement among NationsBank of Texas, N.A., as
Agent, the Registrant and certain subsidiaries dated December 30, 1992,
incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992.
10(i) 1993 Chairman Stock Option Plan incorporated by reference to Registrant's
Notice and Proxy Statement for its Annual Meeting of Shareholders held on
Thursday, April 22, 1993.
10(j) 1993 Non-Employee Director Stock Option Plan incorporated by reference to
Registrant's Notice and Proxy Statement for its Annual Meeting of
Shareholders held on Thursday, April 22, 1993.
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10(k) 1993 Stock Option Plan for Key Employees incorporated by reference to
Registrant's Registration Statement on Form S-8 dated June 2, 1993.
10(l) $50,000,000 Master Shelf Agreement ($10,000,000 note attached) with The
Prudential Insurance Company of America dated September 3, 1993,
incorporated by reference to Registrant's Form 10-Q for the quarterly
period ended September 30, 1993.
10(m) Second Amendment to Credit Agreement among NationsBank of Texas, N.A., as
Agent, the Registrant and certain subsidiaries dated February 1, 1994,
incorporated by reference to Registrant's Form 10-K for the fiscal year
ended December 31, 1993.
10(n) $10,000,000 Note dated February 2, 1994, issued under the $50,000,000
Master Shelf Agreement with The Prudential Insurance Company of America
dated September 3, 1993, incorporated by reference to Registrant's
Form 10-K for the fiscal year ended December 31, 1993.
10(o) American Freightways Corporation Excess Benefit Plan dated September 1,
1993, incorporated by reference to Registrant's Form 10-K for the fiscal
year ended December 31, 1993.
10(p) American Freightways Corporation Amended and Restated Excess Benefit Plan
dated December 28, 1993, incorporated by reference to Registrant's Form
10-K for the fiscal year ended December 31, 1993.
10(q) Amended Stock Purchase Plan for Certain employees of Registrant and
subsidiaries incorporated by reference to Registrant's Registration
Statement on Form S-8 dated March 18, 1994.
10(r) $10,000,000 Note dated April 13, 1994, issued under the $50,000,000
Master Shelf Agreement with The Prudential Insurance Company of America
dated September 3, 1993, incorporated by reference to Registrant's Form
10-Q for the quarterly period ended June 30, 1994.
10(s) Amended and Restated Credit Agreement among NationsBank of Texas, N.A.,
as Agent, the Registrant and certain subsidiaries dated October 20, 1994.
10(t) Letter Amendment No. 3 to Note Agreement with The Prudential
Insurance Company of America dated October 19, 1994.
10(u) Letter Amendment No. 1 to Master Shelf Agreement with The Prudential
Insurance Company of America dated October 19, 1994.
10(v) Letter Amendment No. 2 to Master Shelf Agreement with The Prudential
Insurance Company of America dated December 14, 1994.
13 Annual Report to Stockholders for the fiscal year ended December 31,
1994.
22 Subsidiaries of Registrant
24 Consent of Ernst & Young LLP
27 Financial Data Schedule
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. Dated this 13th day of
February, 1995.
American Freightways Corporation
By: /s/James R. Dodd
----------------
James R. Dodd
Chief Financial Officer; Director
(Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/F. S. Garrison February 13, 1995
- --------------------------------------- -----------------
F. S. Garrison Date
Chairman of the Board of Directors,
Chief Executive Officer
(Principal Executive Officer)
/s/James R. Dodd February 13, 1995
- --------------------------------------- -----------------
James R. Dodd Date
Chief Financial Officer; Director
(Chief Accounting Officer)
/s/Tom Garrison February 13, 1995
- --------------------------------------- -----------------
Tom Garrison Date
Director
/s/T. J. Jones February 13, 1995
- --------------------------------------- -----------------
T. J. Jones Date
Director
/s/Frank Conner February 13, 1995
- --------------------------------------- -----------------
Frank Conner Date
Director
/s/Ben A. Garrison February 13, 1995
- --------------------------------------- -----------------
Ben A. Garrison Date
Director
/s/Ken Reeves February 13, 1995
- --------------------------------------- -----------------
Ken Reeves Date
Director
14
<PAGE>
ANNUAL REPORT ON FORM 10-K--ITEM 8, ITEM 14(A)(1) AND (2), (C) AND (D)
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of American Freightways
Corporation and subsidiaries included in the Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1994 are incorporated by
reference in Item 8:
Consolidated Balance Sheets as of December 31, 1994 and 1993.
Consolidated Statements of Income for the years ended December 31, 1994, 1993
and 1992.
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1993 and 1992.
Notes to Consolidated Financial Statements--December 31, 1994.
The following consolidated financial statement schedules of American
Freightways Corporation and subsidiaries are included in Item 14(d):
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
Consolidated Financial Statement Schedule:
Schedule VIII Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
15
<PAGE>
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
AMERICAN FREIGHTWAYS CORPORATION
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------
Additions
--------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other Account Deductions at End
Description of Period Expenses -Describe -Describe of Period
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1992:
Allowance for Doubtful Accounts $669,951 $ 727,908 $101,229 (1) $ 699,088 (2) $800,000
========================================================================
Year ended December 31, 1993:
Allowance for Doubtful Accounts $800,000 $ 513,464 $430,379 (1) $1,250,804 (2) $493,039
========================================================================
Year ended December 31, 1994:
Allowance for Doubtful Accounts $493,039 $1,125,840 $423,029 (1) $1,403,102 (2) $638,806
========================================================================
</TABLE>
Note 1 - Recoveries of amounts previously written off.
Note 2 - Uncollectible accounts written off.
<PAGE>
EXHIBIT 10(S)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
CREDIT AGREEMENT
AMONG
AMERICAN FREIGHTWAYS CORPORATION,
AMERICAN FREIGHTWAYS, INC.
AND
NATIONSBANK OF TEXAS, N.A.
as Agent
DATED AS OF OCTOBER 20, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<C> <S> <C>
ARTICLE I
DEFINITIONS
-----------
Section 1.01. Definitions............................................. 1
-----------
Section 1.02. Accounting and Other Terms............................. 13
--------------------------
ARTICLE II
AMOUNTS AND TERMS OF ADVANCES
-----------------------------
Section 2.01. Advances............................................... 13
--------
Section 2.02. Making Advances........................................ 13
---------------
Section 2.03. Fees................................................... 14
----
Section 2.04. Reduction of Commitment................................ 15
-----------------------
Section 2.05. Prepayment and Repayment of Advances................... 15
------------------------------------
Section 2.06. Interest on Advances................................... 16
--------------------
Section 2.07. Computations and Manner of Payments.................... 16
-----------------------------------
Section 2.08. Yield Protection; Taxes................................ 17
-----------------------
Section 2.09. Calculation of LIBOR Rate.............................. 19
-------------------------
Section 2.10. Quotation of Rates..................................... 19
------------------
Section 2.11. Booking Loans.......................................... 19
-------------
Section 2.12. Extension of the Commitment............................ 19
---------------------------
ARTICLE III
CONDITIONS PRECEDENT
--------------------
Section 3.01. Conditions Precedent to Effectiveness.................. 20
-------------------------------------
Section 3.02. Conditions Precedent to All Advances................... 21
------------------------------------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.01. Organization; Qualification; Corporate Authority....... 22
------------------------------------------------
Section 4.02. Financial Statements................................... 22
--------------------
Section 4.03. Actions Pending........................................ 22
---------------
Section 4.04. Outstanding Debt....................................... 22
----------------
Section 4.05. Environmental Compliance............................... 23
------------------------
Section 4.06. Taxes.................................................. 23
-----
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
Section 4.07. Conflicting Agreements and Other Matters............... 23
----------------------------------------
Section 4.08. Compliance With Laws Regulating the Incurrence of Debt. 23
------------------------------------------------------
Section 4.09. ERISA.................................................. 24
-----
Section 4.10. Governmental Consent................................... 24
--------------------
Section 4.11. Enforceability......................................... 24
--------------
Section 4.12. Licenses and Title to Properties....................... 24
--------------------------------
Section 4.13. No Improper Payment or Influence....................... 24
--------------------------------
Section 4.14. Labor and Employee Relations Matters................... 25
------------------------------------
Section 4.15. Disclosure............................................. 25
----------
Section 4.16. Common Enterprise...................................... 26
-----------------
ARTICLE V
<CAPTION>
COVENANTS
---------
<C> <S> <C>
Section 5.01. Company Debt........................................... 26
------------
Section 5.02. Subsidiary Debt........................................ 26
---------------
Section 5.03. Fixed Charge Ratio..................................... 27
------------------
Section 5.04. Current Ratio.......................................... 27
-------------
Section 5.05. Dividend Limitation.................................... 27
-------------------
Section 5.06. Liens.................................................. 27
-----
Section 5.07. Loans, Advances, Investments and Contingent Liabilities 29
-------------------------------------------------------
Section 5.08. Sale of Stock and Debt of Subsidiaries................. 30
--------------------------------------
Section 5.09. Merger and Sales of Assets............................. 30
--------------------------
Section 5.10. Capital Expenditures................................... 31
--------------------
Section 5.11. Business............................................... 31
--------
Section 5.12. Transaction with Affiliates............................ 31
---------------------------
Section 5.13. Financial Statements................................... 31
--------------------
Section 5.14. Inspection of Property................................. 33
----------------------
Section 5.15. Covenant to Secure Notes Equally....................... 33
--------------------------------
Section 5.16. Compliance with Laws, Etc.............................. 34
-------------------------
Section 5.17. Insurance.............................................. 34
---------
Section 5.18. Use of Proceeds........................................ 34
---------------
Section 5.19. Subsidiary Guaranty.................................... 34
-------------------
ARTICLE VI
<CAPTION>
EVENTS OF DEFAULT
-----------------
<C> <S> <C>
Section 6.01. Events of Default...................................... 34
-----------------
Section 6.02. Remedies Upon Default.................................. 37
---------------------
Section 6.03. Cumulative Rights...................................... 37
-----------------
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
Section 6.04. Waivers................................................ 37
-------
Section 6.05. Performance by Agent................................... 37
--------------------
Section 6.06. Expenditures........................................... 38
------------
Section 6.07. Control................................................ 38
-------
ARTICLE VII
<CAPTION>
THE AGENT
---------
<C> <S> <C>
Section 7.01. Authorization and Action............................... 38
------------------------
Section 7.02. Agent's Reliance, Etc.................................. 38
---------------------
Section 7.03. NationsBank of Texas, N.A. and Affiliates.............. 39
-----------------------------------------
Section 7.04. Lender Credit Decision................................. 39
----------------------
Section 7.05. Indemnification by Lenders............................. 39
--------------------------
Section 7.06. Successor Agent........................................ 40
---------------
ARTICLE VIII
<CAPTION>
MISCELLANEOUS
-------------
<C> <S> <C>
Section 8.01. Amendments and Waivers................................. 40
----------------------
Section 8.02. Notices................................................ 41
-------
Section 8.03. Parties in Interest.................................... 42
-------------------
Section 8.04. Assignments and Participations......................... 42
------------------------------
Section 8.05. Sharing of Payments.................................... 43
-------------------
Section 8.06. Right of Set-off....................................... 43
----------------
Section 8.07. Costs, Expenses, and Taxes............................. 43
--------------------------
Section 8.08. Indemnification by Companies........................... 44
----------------------------
Section 8.09. Rate Provision......................................... 44
--------------
Section 8.10. Severability........................................... 45
------------
Section 8.11. Exceptions to Covenants................................ 45
-----------------------
Section 8.12. Counterparts........................................... 45
------------
SECTION 8.13. GOVERNING LAW; WAIVER OF JURY TRIAL.................... 45
-----------------------------------
SECTION 8.14. ENTIRE AGREEMENT....................................... 46
----------------
</TABLE>
iii
<PAGE>
Schedules and Exhibits
Exhibit A Promissory Note
Exhibit B Request for Maturity Date Extension
Exhibit C Officer's Certificate
Schedule I List of Subsidiaries
Schedule II Labor and Employee Relations
Schedule III Existing Debt of Subsidiaries
Schedule IV Liens on Properties
iv
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
THIS AMENDED AND RESTATED CREDIT AGREEMENT is dated as of the 20th day
of October, 1994, among American Freightways Corporation, an Arkansas
corporation ("AFC"), American Freightways, Inc., an Arkansas corporation ("AFI";
AFC and AFI are referred to collectively as the "Companies" and individually as
a "Company"), the Lenders from time to time party hereto, and NationsBank of
Texas, N.A., a national banking association, individually and as Agent (in such
latter capacity, the "Agent").
WITNESSETH:
----------
WHEREAS, AFC (then known as Arkansas Freightways Corporation), AFI
(then known as Arkansas Freightways, Inc.), certain of the Lenders, and the
Agent entered into that certain Credit Agreement, dated as of April 14, 1992
(said Credit Agreement, as amended by that certain First Amendment to Credit
Agreement, dated as of December 30, 1992, and that certain Second Amendment to
Credit Agreement, dated as of February 1, 1994, the "Original Credit
Agreement");
WHEREAS, Wachovia Bank of Georgia, N.A., became a Lender under the
Credit Agreement pursuant to the Second Amendment to Credit Agreement, dated as
of February 1, 1994; and
WHEREAS, the Company has requested loans in a maximum aggregate amount
of $75,000,000 from the Lenders, and the Lenders have agreed to amend and
restate the Original Credit Agreement to make such loans pursuant to the terms
and conditions of this Agreement;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.01. Definitions. As used in this Agreement, the following
-----------
terms have the respective meanings indicated below (such meanings to be
applicable equally to both the singular and plural forms of such terms):
"Advance" means an advance made by a Lender to the Companies pursuant
-------
to Section 2.01 hereof.
"Affiliate" means a Person that directly, or indirectly through one or
---------
more intermediaries, controls or is controlled by or is under common control
with another Person. A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power to direct or
<PAGE>
cause the direction of the management and policies of such corporation, whether
through ownership of voting securities, by contract or otherwise.
"Agent" means NationsBank of Texas, N.A., a national banking
-----
association, in its capacity as Agent hereunder, or any successor Agent
appointed pursuant to Section 7.06 hereof.
"Aggregate Advance" means, collectively, each set of Advances made by
-----------------
the Lenders on the same date, bearing interest at the same rate, and having the
same Interest Period.
"Agreement" means this Credit Agreement, as hereafter amended,
---------
modified, or supplemented in accordance with its terms.
"Applicable Law" means (i) in respect of any Person, all provisions of
--------------
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person, and all orders and decrees of all
courts and arbitrators in proceedings or actions to which the Person in question
is a party and (ii) in respect of contracts made or performed in the State of
Texas, "Applicable Law" shall also mean the laws of the United States of
America, including, without limiting the foregoing, 12 USC Sections 85 and
86(a), as amended to the date hereof and as the same may be amended at any time
and from time to time hereafter, and any other statute of the United States of
America now or at any time hereafter prescribing the maximum rates of interest
on loans and extensions of credit, and the laws of the State of Texas,
including, without limitations, Articles 5069-1.04 and 5069-1.07(a), Title 79,
Revised Civil Statutes of Texas, 1925, as amended ("Art. 1.04"), and any other
statute of the State of Texas now or at any time hereafter prescribing maximum
rates of interest on loans and extensions of credit, provided however, that
pursuant to Article 5069-15.10(b), Title 79, Revised Civil Statutes of Texas,
1925, as amended, the Companies agree that the provisions of Chapter 15, Title
79, Revised Civil Statutes of Texas, 1925, as amended, shall not apply to the
Advances hereunder.
"Art. 1.04" shall have the meaning given to such term in the
---------
definition herein of "Applicable Law".
"Bankruptcy Law" shall have the meaning specified in Section 6.01(h).
--------------
"Base Rate" means a fluctuating rate per annum as shall be in effect
---------
from time to time equal the higher of:
(a) The prime interest rate charge by NationsBank as announced or
published from time to time, and which may not necessarily be the lowest
interest rate charged by NationsBank; or
(b) 0.50% per annum above the latest three-week moving average of
secondary market morning offering rates in the United States for three-month
certificates of deposit of major United States money market banks, such three-
week moving average being determined weekly on each
2
<PAGE>
Monday (or, if any such day is not a Business Day, on the next succeeding
Business Day) for the three-week period ending on the previous Friday by the
Agent on the basis of such rates reported by certificate of deposit dealers to
and published by the Federal Reserve Bank of Dallas or, if such publication
shall be suspended or terminated, on the basis of quotations for such rates
received by the Agent from three New York certificate of deposit dealers of
recognized standing selected by the Agent, in either case adjusted to the
nearest 0.25% or, if there is no nearest 0.25%, to the next higher 0.25%.
"Base Rate Advance" means an Advance bearing interest at the Base
-----------------
Rate.
"Business Day" means a day of the year on which banks are not required
------------
or authorized to close in Dallas, Texas, and, if the applicable Business Day
relates to a LIBOR Advance, on which dealings are carried on in the London
Interbank Market.
"Capitalized Lease Obligation" means any rental of property which,
----------------------------
under GAAP, is or will be required to be capitalized on the books of the
Companies or any Subsidiary, taken at the amount thereof accounted for as
indebtedness (net of interest expense) in accordance with GAAP.
"Cash Equivalents" means investments (directly or through a money
----------------
market fund) in (a) certificates of deposit, repurchase agreements, and other
interest bearing deposits or accounts with United States commercial banks
having a combined capital and surplus of at least $100,000,000, or with
insurance companies whose debt obligations have one of the three highest
ratings obtainable from Standard & Poor's Corporation or Moody's Investors
Services, Inc., which certificates, repurchase agreements, deposits, and
accounts mature within one year from the date of investment, (b) obligations
issued or unconditionally guaranteed by the United States government, or issued
by an agency thereof and backed by the full faith and credit of the United
States government, which obligations mature within one year from the date of
investment, (c) direct obligations issued by any state or political subdivision
of the United States, which mature within one year from the date of investment
and have the highest rating obtainable from Standard & Poor's Corporation or
Moody's Investors Services, Inc. on the date of investment, and (d) commercial
paper which has one of the three highest ratings obtainable from Standard &
Poor's Corporation or Moody's Investors Services, Inc.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Commitment" means $75,000,000, as reduced from time to time pursuant
----------
to Section 2.04 hereof.
"Confidential Information" shall have the meaning specified in Section
------------------------
8.04(c).
"Current Assets" means with respect to the Companies and their
--------------
Subsidiaries on a consolidated basis as at any date of determination the total
assets which may properly be classified as current assets
3
<PAGE>
in accordance with GAAP, after (i) eliminating all intercompany transactions and
(ii) appropriate reserves.
"Current Debt" means any obligation for borrowed money (and any notes
------------
payable and drafts accepted representing extensions of credit whether or not
representing obligations for borrowed money) payable on demand or within a
period of one year from the date of the creation thereof and any guaranty with
respect thereto; provided that any obligation shall be treated as Funded Debt,
--------
regardless of its term, if such obligation is renewable pursuant to the terms
thereof or of a revolving credit or similar agreement effective for more than
one year after the date of the creation of such obligation, or may be payable
out of the proceeds of a similar obligation pursuant to the terms of such
obligation or of any such agreement.
"Current Liabilities" means with respect to the Companies and their
-------------------
Subsidiaries on a consolidated basis as at any date of determination the total
liabilities which may properly be classified as current liabilities in
accordance with GAAP, after eliminating all intercompany transactions but
excluding as current liabilities any portion of the Funded Debt of the Companies
and their Subsidiaries outstanding at the date of determination which by its
terms or the terms of any instrument or agreement relating thereto matures
within one year from such date of determination.
"Debt" means Funded Debt and/or Current Debt, as the case may be. Any
----
obligation secured by a Lien on, or payable out of the proceeds of production
from, property of the Companies or any Subsidiary shall be deemed to be Funded
or Current Debt, as the case may be, of such Company or such Subsidiary even
though such obligation shall not be assumed by such Company or such Subsidiary.
"EBDITA" means with respect to the Companies and their Subsidiaries on
------
a consolidated basis the sum of (a) Net Earnings for the applicable period and
(b) to the extent the following were deducted in determining such Net Earnings,
the sum of (i) depreciation, depletion, obsolescence and amortization of
property as well as any other noncash charges to Net Earnings (excluding
ordinary expense accruals), (ii) interest expense, (iii) the interest portion of
capitalized lease expense and (iv) tax expense, each for the applicable period
and determined in accordance with GAAP.
"Default" means any event specified in Section 6.01 hereof, whether or
-------
not any requirement in connection with such event for the giving of notice,
lapse of time, or happening of any further condition has been satisfied.
"Eligible Assignee" means (a) a commercial bank organized under the
-----------------
laws of the United States, or any state thereof, and having total assets in
excess of $1,000,000,000; (b) a savings and loan association or savings bank
organized under the laws of the United States, or any state thereof, having
total assets in excess of $500,000,000, and not in receivership or
conservatorship; (c) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic Cooperation and
Development, or a political subdivision of any such country, and having
4
<PAGE>
total assets in excess of $1,000,000,000, provided that such bank is acting
through a branch or agency located in the country in which it is organized or
another country which is described in this clause; and (d) the central bank of
any country which is a member of the Organization for Economic Cooperation and
Development.
"Environmental Law" means any federal, state, or local Law or duties
-----------------
under the common law designed to protect human health and welfare or the
environment (including, without limitation, the Federal Water Pollution Control
Act, 33 U.S.C. (S) 1251 et seq., the Resource Conservation and Recovery Act, 42
-- ---
U.S.C. (S) 6901 et seq., the Clean Air Act, 42 U.S.C. (S) 7401 et seq., the
-- --- -- ---
Emergency Planning and Community Right-To-Know-Act, 42 U.S.C. (S) 2601 et seq.,
-- ---
the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S) 136 et
--
seq.; the Comprehensive Environmental Response, Compensation and Liability Act,
- ---
42 U.S.C. 49601 et seq., the Endangered Species Act, 16 U.S.C. (S)(S) 1531-1544,
-- ---
the Toxic Substances Control Act, 15 U.S.C. 42601 et seq., Arkansas Hazardous
-- ---
Waste Management Act of 1979, Ark. Code Ann. (S) 8-7-201 et seq. (1991 Supp.),
-- ---
Arkansas Resource Reclamation Act of 1979, Ark. Code Ann. (S) 8-7-301 et seq.
-- ---
(1991 Supp.), Emergency Response Fund Act, Ark. Code Ann. (S) 8-7-401 et seq.
-- ---
(1991 Supp.), and Remedial Action Trust Fund Act, Ark. Code Ann. (S) 8-7-501 et
--
seq. (1991 Supp.)) as each may be amended from time to time.
- ---
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and the rulings and regulations issued thereunder, as from time to time
in effect.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Event of Default" means any of the events specified in Section 6.01
----------------
of this Agreement, provided there has been satisfied any requirement in
connection therewith for the giving of notice, lapse of time, or happening of
any further condition.
"Federal Funds Rate" means, for any period, a fluctuating interest
------------------
rate per annum equal for each day during such period to the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of Dallas, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations for such date on such
transactions received by the Agent from three federal funds brokers of
recognized standing selected by it.
"Fixed Charges" means with respect to the Companies and their
-------------
Subsidiaries on a consolidated basis the sum of (i) interest expense, (ii)
scheduled principal payments (including mandatory reduction in any fully-funded
revolving credit facility), (iii) operating lease expense, (iv) rental expense
and (v) capital lease payments (including both interest and principal
components), each for the applicable period and determined in accordance with
GAAP.
"Funded Debt" means,
-----------
5
<PAGE>
(i) any obligation payable more than one year from the date of
creation thereof, which under GAAP is shown on the balance sheet as a
liability (including Capitalized Lease Obligations but excluding reserves
for deferred income taxes and other reserves to the extent that such
reserves do not constitute an obligation),
(ii) indebtedness payable more than one year from the date of
creation thereof which is secured by any Lien on property owned by either
Company or any Subsidiary, whether or not the indebtedness secured thereby
shall have been assumed by such Company or such Subsidiary,
(iii) guarantees, endorsements (other than endorsements of
negotiable instruments for collection in the ordinary course of business)
and other contingent liabilities (whether direct or indirect) in connection
with the obligations, stock or dividends of any Person,
(iv) obligations under any contract providing for the making of
loans, advances or capital contributions to any Person, or for the purchase
of any property from any Person, in each case in order to enable such
Person primarily to maintain working capital, net worth or any other
balance sheet condition or to pay debts, dividends or expenses,
(v) obligations under any contract for the purchase of materials,
supplies or other property or services if such contract (or any related
document) requires that payment for such materials, supplies or other
property or services shall be made regardless of whether or not delivery of
such materials, supplies or other property or services is ever made or
tendered,
(vi) obligations under any contract to rent or lease (as lessee)
any real or personal property if such contract (or any related document)
provides that the obligation to make payments thereunder is absolute and
unconditional under conditions not customarily found in commercial leases
then in general use or requires that the lessee purchase or otherwise
acquire securities or obligations of the lessor,
(vii) obligations under any contract for the sale or use of
materials, supplies or other property or services if such contract (or any
related document) requires that payment for such materials, supplies or
other property or services, or the use thereof, shall be subordinated to
any indebtedness (of the purchaser or user of such materials, supplies or
other property or the Person entitled to the benefit of such services) owed
or to be owed to any Person,
(viii) obligations under any other contract which, in economic
effect, is substantially equivalent to a guarantee, and
(ix) liabilities in respect of unfunded vested benefits under plans
covered by Title IV of ERISA,
6
<PAGE>
all as determined in accordance with GAAP.
"GAAP" means generally accepted accounting principles applied on a
----
consistent basis. Application on a consistent basis shall mean that the
accounting principles observed in a current period are comparable in all
material respects to those applied in a preceding period, except for new
developments or statements promulgated by the Financial Accounting Standards
Board.
"Highest Lawful Rate" means at the particular time in question the
-------------------
maximum rate of interest which, under Applicable Law, any Lender is then
permitted to charge on the Obligation. If the maximum rate of interest which,
under Applicable Law, any Lender is permitted to charge on the Obligation shall
change after the date hereof, the Highest Lawful Rate shall be automatically
increased or decreased, as the case may be, from time to time as of the
effective time of each change in the Highest Lawful Rate without notice to the
Companies. For purposes of determining the Highest Lawful Rate under Applicable
Law, the applicable rate ceiling shall be (i) the indicated rate ceiling
described in and computed in accordance with the provisions of Section (a)(l) of
Art. l.04; or (ii) provided notice is given as required in Section (h)(l) of
said Art. 1.04, either the annualized ceiling or quarterly ceiling computed
pursuant to Section (d) of said Art. 1.04; provided, however, that at any time
the indicated rate ceiling, the annualized ceiling or the quarterly ceiling, as
applicable, shall be less than 18% per annum or more than 24% per annum, the
provisions of Sections (b)(1) and (2) of said Art. l.04 shall control for
purposes of such determination, as applicable.
"Income Available for Fixed Charges" means with respect to the
----------------------------------
Companies and their Subsidiaries on a consolidated basis the sum of (a) EBDITA
for the applicable period and (b) to the extent the following were deducted in
determining the Net Earnings component of such EBDITA, the sum of (i) operating
lease expense and (ii) rental expense, each for the applicable period and
determined in accordance with GAAP.
"Increased Cost" has the meaning set forth in Section 2.08(b) hereof.
--------------
"Interest Period" means, (a) with respect to any LIBOR Advance, the
---------------
period beginning on the date the Advance is made or continued as a LIBOR
Advance, and ending one, two, or three months thereafter, and (b) with respect
to any Base Rate Advance, the period beginning on the date the Advance is made
or continued as a Base Rate Advance, and ending on the first Business Day of the
succeeding calendar quarter.
"Law" means any statute, law, ordinance, regulation, rule, order,
---
writ, injunction, or decree of any Tribunal.
"Lenders" means the Lenders listed on the signature pages hereof, and
-------
each Eligible Assignee that hereafter becomes a party hereto pursuant to Section
9.04 hereof.
7
<PAGE>
"LIBOR Advance" means an Advance bearing interest at the LIBOR Rate.
-------------
"LIBOR Rate" means a per annum rate equal to 0.625% plus the rate
----------
determined pursuant to the following formula:
London Interbank Rate
-------------------------------
100% - LIBOR Reserve Percentage
"LIBOR Reserve Percentage" means the reserve requirement including any
------------------------
supplemental and emergency reserves (expressed as a percentage) applicable to
member banks of the Federal Reserve System in respect of "eurocurrency
liabilities" under Regulation D of the Board of Governors of the Federal Reserve
System, or any substituted or amended reserve requirement hereafter applicable
to member banks of the Federal Reserve System.
"License" means, as to any Person, any license, permit, certificate of
-------
need, authorization, certification, accreditation, franchise, approval, or grant
of rights by any Tribunal or third Person necessary or appropriate for such
Person to own, maintain, or operate its business or Property, unless the failure
to obtain, retain or comply with same would not constitute a Material Adverse
Change.
"Lien" means any mortgage, pledge, security interest, encumbrance,
----
deposit arrangement, lien (statutory or otherwise) or charge of any kind
(including any agreement to give any of the foregoing, any conditional sale or
other title retention agreement, any lease in the nature thereof, and the filing
of, or agreement to give, any financing statement under the Uniform Commercial
Code of any jurisdiction) or any other type of preferential arrangement for the
purpose of, or having the effect of, protecting a creditor against loss or
securing with assets the payment or performance of an obligation; provided that
--------
this term does not include any agreement or obligation to refrain from placing
any encumbrance on any asset.
"Litigation" means any proceeding, claim, lawsuit, arbitration, and/or
----------
investigation conducted or threatened by or before any Tribunal, including
without limitation proceedings, claims, lawsuits, and/or investigations under or
pursuant to any environmental, occupational, safety and health, antitrust,
unfair competition, securities, Tax, or other Law, or under or pursuant to any
contract, agreement, or other instrument.
"Loan Papers" means this Agreement, the Notes and all other documents,
-----------
instruments, agreements, or certificates executed or delivered by any Person in
connection with this Agreement.
"London Interbank Market" means the buying and selling of dollar
-----------------------
deposits payable by financial institutions located in London between the Agent
and other financial institutions in the ordinary course of the Agent's business.
8
<PAGE>
"London Interbank Rate" means, for any Interest Period for any
---------------------
Aggregate Advance bearing interest at the LIBOR Rate, the per annum rate of
interest at which dollar deposits are offered by the principal office of the
Agent in the London Interbank Market at 11:00 a.m., London time, two Business
Days prior to the first day of such Interest Period, which deposits are for a
period equal to the Interest Period, and in principal amounts similar to the
Agent's Specified Percentage of the Aggregate Advance.
"Majority Lenders" means any combination of Lenders having at least
----------------
66-2/3% of the aggregate amount of outstanding Advances; provided, however, that
if no Advances are outstanding, such term means any combination of Lenders
having Specified Percentages equal to at least 66-2/3%.
"Material Adverse Change" or "Material Adverse Effect" means any
----------------------- -----------------------
circumstance or event that is or could reasonably be expected to be material and
adverse to the business, condition (financial or otherwise), operations, or
Properties of the Companies and their Subsidiaries as a whole.
"Maturity Date" means April 1, 1999, or such earlier date the
-------------
Obligation becomes due and payable (whether by acceleration, prepayment in full
or otherwise) or such later date as extended pursuant to Section 2.12.
"Maximum Amount" means the maximum amount of interest which, under
--------------
Applicable Law, any Lender is permitted to charge on the Obligation.
"Multiemployer Plan" means any Plan which is a "multiemployer plan"
------------------
(as such term is defined in section 4001(a)(3) of ERISA).
"Net Earnings Available For Restricted Payments" means with respect to
----------------------------------------------
the Companies and their Subsidiaries on a consolidated basis an amount equal to
75% of Net Earnings. If the preceding calculation results in a number less than
zero, such amount shall be considered to be zero.
"Net Earnings" means with respect to the Companies and their
------------
Subsidiaries on a consolidated basis an amount equal to gross revenues and other
proper income credits of the Companies and their Subsidiaries less all operating
and non-operating expenses of the Companies and their Subsidiaries including all
charges of a proper character (including current and deferred taxes on income,
provision for taxes on unremitted foreign earnings which are included in gross
revenues, and current additions to reserves), but not including in gross
revenues any gains (net of expenses and taxes applicable thereto) in excess of
losses resulting from the sale, conversion or other disposition of capital
assets (i.e., assets other than current assets), any gains resulting from the
write-up of assets any equity of the Companies or any Subsidiary in the
unremitted earnings of any corporation which is not a Subsidiary, any earnings
of any Person acquired by the Companies or any Subsidiary through purchase,
merger or consolidation or otherwise for any year prior to the year of
acquisition, or any deferred credit representing the excess of equity in any
Subsidiary at the date of acquisition over the cost of the investment in such
Subsidiary; each for the applicable period and determined in accordance with
GAAP.
9
<PAGE>
"Net Worth" means with respect to the Companies and their Subsidiaries
---------
on a consolidated basis as of any date of determination the excess of (a) the
par value (or value stated on the books of the Companies) of the capital stock
(but excluding treasury stock and capital stock subscribed and unissued) plus
(or minus in the case of a surplus deficit) the amount of the consolidated
surplus (capital surplus and retained earnings) of the Companies and their
Subsidiaries which would appear on a consolidated balance sheet of AFC and its
Subsidiaries over (b) the sum, without duplication, of treasury stock,
unamortized debt discount and expense, goodwill, trademarks, trade names,
patents, deferred charges and other intangible assets and any write-up of the
value of assets after December 31, 1993; all determined in accordance with GAAP,
including the making of appropriate deductions for minority interest (if any) in
Subsidiaries.
"Note" means each promissory note of the Company evidencing Advances
----
and obligations owing hereunder to a Lender, in substantially the form of
Exhibit A attached hereto, payable to the order of such Lender and in a maximum
- ---------
principal amount equal to such Lender's Specified Percentage of the Commitment,
as each seed note may be amended, substituted, replaced, increased or decreased
from time to time.
"Obligation" means all present and future obligations, indebtedness
----------
and liabilities, and all renewals and extensions of all or any part thereof, of
the Company and its Subsidiaries to Lenders arising from, by virtue of, or
pursuant to this Agreement, any of the Loan Papers and any and all renewals and
extensions thereof or any part thereof, or future amendments thereto, all
interest accruing on all or any part thereof and attorneys' fees incurred by
each Lender for the administration, execution of waivers, amendments and
consents, and in connection with any restructuring, workouts or in the
enforcement or the collection of all or any part thereof, whether such
obligations, indebtedness and liabilities are direct, indirect, fixed,
contingent, joint, several or joint and several.
"Officer's Certificate" means a certificate signed in the name of a
---------------------
Company by its President, one of its Vice Presidents or its Treasurer.
"Permitted Banks" shall have the meaning specified in Section
---------------
5.07(iv).
"Person" means an individual, partnership, joint venture, corporation,
------
trust, Tribunal, unincorporated organization, and government, or any department,
agency, or political subdivision thereof.
"Plan" means an "employee pension benefit plan" (as defined in section
----
3 of ERISA) which is or has been established or maintained, or to which
contributions are or have been made, by a Company or by any trade or business,
whether or not incorporated, which, together with a Company, is under common
control, as described in section 414(b) or (c) of the Code.
10
<PAGE>
"Pro Rata" means, as to any Lender, in accordance with its percentage
--------
of the aggregate amount of outstanding Advances; provided, however, that if no
Advances are outstanding, such term means in accordance with such Lender's
Specified Percentage.
"Property" means all types of real, personal, tangible, intangible, or
--------
mixed property, whether owned in fee simple or leased.
"Prudential Debt" means the obligations of the Companies under (a)
---------------
that certain Note Agreement dated November 30, 1991, and (b) that certain Master
Shelf Agreement dated September 3, 1993, both of which are among the Companies
and The Prudential Insurance Company of America, together with the promissory
notes, mortgages and security agreements executed in connection therewith, all
as they may be amended from time to time.
"Quarterly Date" means the first day of April, July, October and
--------------
January.
"Ratable" means, as to any Lender, in accordance with its Specified
-------
Percentage.
"Refinancing Advance" means an Advance that is used to pay the
-------------------
principal amount of an existing Advance at the end of its Interest Period and
which, after giving effect to such application, does not result in an increase
in the aggregate amount of outstanding Advances.
"Regulatory Change" means any change after the date hereof in federal,
-----------------
state, or foreign Laws (including the introduction of any new Law) or the
adoption or making after such date of any interpretations, directives, or
requests of or under any federal, state, or foreign Laws (whether or not having
the force of Law) by any Tribunal charged with the interpretation or
administration thereof, applying to a class of financial institutions that
includes any Lender, excluding, however, any such change which results in an
adjustment of the LIBOR Reserve Percentage and the effect of which is reflected
in a change in the LIBOR Rate as provided in the definition of such term.
"Request for Maturity Date Extension" shall have the meaning specified
-----------------------------------
in Section 2.12.
"Rights" means rights, remedies, powers, and privileges.
------
"Rolling Stock" means road tractors, city tractors and trailers and
-------------
freight handling equipment used in the ordinary course of business.
"Senior Debt" means the Notes, the Prudential Debt, and Funded Debt
-----------
(which is not Subordinate Debt) of the Companies which is secured by a Lien
permitted by the provisions of Section 5.06.
"Solvent" means, with respect to any Person, that on such date (a) the
-------
fair value of the Property of such Person is greater than the total amount of
liabilities, including without limitation
11
<PAGE>
Contingent Liabilities of such Person, (b) the present fair salable value of the
assets of such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature, and (d) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's Property would constitute an unreasonably small capital.
"Specified Percentage" means, as to any Lender, the percentage
--------------------
indicated beside its name on the signature pages hereof, or specified in a
notice by the Agent to the Company in connection with an assignment pursuant to
Section 8.04 hereof.
"Subordinate Debt" means Funded Debt of the Companies which is
----------------
expressly and validly subordinated to the Notes under conditions and pursuant to
terms and provisions approved by the Majority Lenders in writing and which is
payable as to principal and interest only out of Net Earnings Available For
Restricted Payments pursuant to Section 5.05.
"Subsidiary" means any corporation or other entity organized under the
----------
Laws of any state of the United States of America, Canada or any province of
Canada, which conducts the major portion of its business in and makes the major
portion of its sales to Persons located in the United States of America or
Canada, and at least 50% of the total combined voting power of all classes of
Voting Stock of which shall, at the time as of which any determination is being
made, be owned by a Company either directly or through Subsidiaries.
"Taxes" means all taxes, assessments, imposts, fees, or other charges
-----
at any time imposed by any Laws or Tribunal.
"Total Capitalization" means, as of any date of determination, an
--------------------
amount equal to the sum of (a) aggregate Debt of the Companies and their
Subsidiaries on a consolidated basis plus (b) Net Worth.
"Total Tangible Assets" means with respect to the Companies and their
---------------------
Subsidiaries on a consolidated basis as of any date of determination their
assets less, without duplication, good will, trademarks, brand names, patents
and other intangible assets and any write-up of the value of any assets after
December 31, 1993; all as determined in accordance with GAAP, including the
making of appropriate deductions for minority interest (if any) in Subsidiaries.
"Tribunal" means any state, commonwealth, federal, foreign,
--------
territorial, or other court or government body, subdivision, agency, department,
commission, board, bureau, or instrumentality of a governmental body.
"Unused Commitment" means the Commitment, minus all outstanding
-----------------
Advances.
12
<PAGE>
"Voting Stock" means, with respect to any corporation, any shares of
------------
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
"Wholly-Owned Subsidiary" means any corporation organized under the
-----------------------
laws of any state of the United States of America, Canada, or any province of
Canada, which conducts the major portion of its business in and makes the major
portion of its sales to Persons located in the United States of America or
Canada and all of the stock of every class of which (except directors'
qualifying shares, if any) shall, at the time of determination, be owned by a
Company either directly or through Wholly-Owned Subsidiaries.
Section 1.02. Accounting and Other Terms. All references in this
--------------------------
Agreement to GAAP shall be deemed to refer to generally accepted accounting
principles in effect in the United States at the time of application thereof,
subject to the next sentence. Unless otherwise specified herein, all accounting
terms used herein shall be interpreted, all determinations with respect to
accounting matters hereunder shall be made, and all financial statements and
certificates and reports as to financial matters required to be furnished
hereunder shall be prepared, in accordance with GAAP, applied on a basis
consistent with the audited consolidated financial statements of the Companies
and their Subsidiaries delivered pursuant to Section 6.14. References herein to
one gender shall be deemed to include all other genders.
ARTICLE II
AMOUNTS AND TERMS OF ADVANCES
-----------------------------
Section 2.01. Advances.
--------
(c) Each Lender severally agrees, on the terms and conditions
hereinafter set forth, to make Advances to the Companies until the Maturity Date
in an aggregate outstanding amount not to exceed such Lender's Specified
Percentage of the Commitment. The Companies may borrow, repay, and reborrow in
accordance with this Agreement. Notwithstanding any provision of any Loan Papers
to the contrary, in no event shall the aggregate outstanding Advances exceed the
Commitment.
(d) Each Advance shall be a Base Rate Advance or a LIBOR Advance,
as specified in the related notice of borrowing or conversion. Base Rate
Advances and LIBOR Advances may be outstanding at the same time, but no more
than five Aggregate Advances bearing interest at the LIBOR Rate may be
outstanding at any time. Each Aggregate Advance bearing interest at the Base
Rate shall be in the amount of $500,000 or an integral multiple of $100,000 in
excess thereof; provided, however, that an Aggregate Advance bearing interest at
the Base Rate may be made in an amount equal to the Unused Commitment. Each
Aggregate Advance bearing interest at the LIBOR
13
<PAGE>
Rate shall be in an aggregate amount of $1,000,000 or an integral multiple of
$100,000 in excess thereof.
Section 2.02. Making Advances.
---------------
(e) The Companies shall notify the Agent (if telephonic, to be
confirmed by telecopy or in writing before the date of borrowing), not later
than 1:00 p.m. (Dallas time) one Business Day before any proposed Base Rate
Advance, specifying the amount and date of the Aggregate Advance. The Companies
shall notify the Agent (if telephonic, to be confirmed by telecopy or in writing
before the date of borrowing), not later than 1:00 p.m. (Dallas time) two
Business Days before any proposed LIBOR Advance, specifying the amount, date,
and Interest Period of the Aggregate Advance. All such telephonic notices shall
be made to the NationsBank of Texas, N.A., attn: Gilda Digges, 901 Main Street,
13th Floor, Dallas, Texas 75202, (214) 508-2138 or such other person as the
Agent may from time to time specify. The Agent shall promptly notify the Lenders
of each such notice. Each Lender shall, before 1:00 p.m. (Dallas time) on the
date of each Advance hereunder, make available to the Agent, at its office at
901 Main Street, 67th Floor, Dallas, Texas 75202, such Lender's Specified
Percentage of the Aggregate Advance in immediately available funds. The Agent
shall promptly make available to the Companies the funds so received.
(f) Each date of borrowing must be a Business Day. If any notice to
the Agent requesting a LIBOR Advance fails to specify an Interest Period, the
Interest Period shall be one month. If any notice does not specifically request
a LIBOR Advance, the Company shall be deemed to have requested a Base Rate
Advance.
(g) Unless a Lender shall have notified the Agent prior to the date
of any Advance that it will not make available its Specified Percentage of the
Aggregate Advance, the Agent may assume that such Lender has made the
appropriate amount available in accordance with subsection (a) above, and the
Agent may, in reliance upon such assumption, make available to the Companies a
corresponding amount. If and to the extent any Lender shall not have made such
amount available to the Agent, such Lender and Company severally agree to repay
to the Agent forthwith on demand such corresponding amount together with
interest thereon, from the date such amount is made available to the Companies
until the date such amount is repaid to the Agent, at (i) in the case of the
Companies, the Base Rate, and (ii) in the case of such Lender, the Federal Funds
Rate; provided, however, if any Lender wrongfully fails to make any LIBOR
Advance available to the Agent, the Companies shall have a claim against such
Lender for an amount equal to the difference (based upon such Lender's Specified
Percentage of such LIBOR Advance) between the LIBOR Rate for such LIBOR Advance
and the interest paid by the Companies pursuant to the immediately preceding
clause.
(h) The failure by any Lender to make available its Specified
Percentage of an Aggregate Advance hereunder shall not relieve any other Lender
of its obligation, if any, to make available its Specified Percentage of any
Aggregate Advance. In no event, however, shall any Lender be responsible for the
failure of any other Lender to make available any portion of an Aggregate
Advance.
14
<PAGE>
Section 2.03. Fees. Subject to Section 8.09 hereof, the Companies,
----
jointly and severally, agree to pay to the Agent, for the Ratable account of the
Lenders, a commitment fee on the average daily amount of the Unused Commitment,
from the date hereof through the Maturity Date, at the rate of 0.20% per annum,
payable in arrears on each Quarterly Date and on the Maturity Date.
Section 2.04. Reduction of Commitment.
-----------------------
(i) The Companies shall have the right from time to time, upon
notice to the Agent not later than 1:00 p.m. (Dallas time), three Business Days
in advance, to reduce the Commitment, in whole or in part; provided, however,
that the Companies shall pay any accrued but unpaid commitment fee on the amount
of such reduction, and any partial reduction shall be in an aggregate amount
which is an integral multiple of $500,000.
(j) To the extent outstanding Advances exceed the Commitment after
any reduction thereof, the Companies shall repay, on the date of such reduction,
any such excess amount and all accrued interest thereon, together with any
amounts incurred in connection with such repayment under Section 2.08(c) hereof.
Once reduced or terminated, the Commitment may not be increased or reinstated.
(k) At each time, if any, that Senior Debt is repaid pursuant to
Section 5.08 or 5.09 of this Agreement, the Commitment shall be reduced by an
amount equal to the product of (i) the aggregate principal amount of the Senior
Debt repaid at such time, multiplied by (ii) a fraction, the numerator of which
is the Commitment then in effect at such time, and the denominator of which is
equal to the sum of (A) the aggregate principal amount of the Senior Debt (other
than the Obligation) outstanding immediately prior to such repayment plus (B)
the Commitment then in effect at such time. Any reduction of the Commitment
pursuant to this Section 2.04(c) shall not be subject to the requirements of
Section 2.04(a) hereof.
Section 2.05. Prepayment and Repayment of Advances.
------------------------------------
(l) The Companies may from time to time prepay Aggregate Advances,
in whole or in part, without premium or penalty, upon notice to the Agent (if
telephonic, to be confirmed by telecopy or in writing before the date of
prepayment), not later than 1:00 p.m. (Dallas time) one Business Day before the
date of prepayment, which notice shall specify the Aggregate Advance being
prepaid, and the amount and date of prepayment.
(m) The Companies shall repay the principal amount of each Advance
on the last day of its Interest Period and on the Maturity Date. Unless the
Companies shall otherwise notify the Agent (if telephonic, to be confirmed by
telecopy or in writing before the applicable date), not later than 1:00 p.m.
(Dallas time) one Business Day before any Advance is required to be repaid on
the last day of its Interest Period pursuant to this subsection, a Refinancing
Advance bearing interest at the Base
15
<PAGE>
Rate shall be made (subject to Section 3.02 hereof) to the Companies on such
date in an amount equal to the lesser of the maturing Advance or the Unused
Commitment, and the proceeds of the Refinancing Advance shall be used to repay
the maturing Advance. No Refinancing Advance shall be made as a LIBOR Advance,
except upon compliance with all applicable requirements of Section 2.02(a)
hereof.
(n) Each prepayment and repayment hereunder shall be accompanied by
all interest accrued on the principal amount being prepaid, together with any
amounts incurred in connection with the prepayment under Section 2.08(c) hereof.
Unless otherwise specified by the Companies, all prepayments will be applied
first to outstanding Base Rate Advances. All telephonic notices under this
Section shall be made to NationsBank of Texas, N.A., attn: Gilda Digges, 901
Main Street, 13th Floor, Dallas, Texas 75202, (214) 508-2138, or such other
person as the Agent may from time to time specify.
Section 2.06. Interest on Advances. Subject to Section 8.09 hereof,
--------------------
Base Rate Advances shall bear interest at the lesser of (a) the Highest Lawful
Rate and (b) the Base Rate as in effect from time to time. Subject to Section
8.09 hereof, each LIBOR Advance shall bear interest at the lesser of (a) the
Highest Lawful Rate and (b) the LIBOR Rate applicable thereto. Accrued interest
on each Advance shall be due and payable on the last day of its Interest Period.
If the amount of interest payable for the account of any Lender on any interest
payment date in respect of any Interest Period for any Base Rate Advance would
exceed the Maximum Amount, the amount of interest payable on such interest
payment date shall be automatically reduced to the Maximum Amount. If the amount
of interest payable for the account of any Lender in respect of any interest
computation period is reduced pursuant to the immediately preceding sentence and
the amount of interest payable for its account in respect of any subsequent
interest computation period would be less than the Maximum Amount, then the
amount of interest payable for its account in respect of such subsequent
interest computation period shall be automatically increased to such Maximum
Amount; provided that at no time shall the aggregate amount by which interest
paid for the account of any Lender has been increased pursuant to this sentence
exceed the aggregate amount by which interest paid for its account has
theretofore been reduced pursuant to the immediately preceding sentence. All
past due principal and interest shall upon notice by the Administrative Lender
to the Companies, bear interest at the lesser of (i) the Base Rate as in effect
from time to time, plus 3% or (ii) the Highest Lawful Rate, due and payable on
demand.
Section 2.07. Computations and Manner of Payments.
-----------------------------------
(o) Except as otherwise provided in Section 2.05(b) hereof, the
Companies shall make each payment hereunder and under the other Loan Papers not
later than 1:00 p.m. (Dallas time) on the day when due in same day funds to the
Agent, for the Ratable account of the Lenders unless otherwise specifically
provided herein, at the Agent's office at 901 Main Street, 67th Floor, Dallas,
Texas 75202. No later than the end of each day when each payment hereunder is
made, the Companies shall notify NationsBank of Texas, N.A., attn: Gilda Digges,
901 Main Street, 13th Floor, Dallas, Texas 75202, (214) 508-2138, or such other
person as the Agent may from time to time specify.
16
<PAGE>
(p) Unless the Agent shall have received notice from the Companies
prior to the date on which any payment is due hereunder that the Companies will
not make payment in full, the Agent may assume that such payment is so made on
such date and may, in reliance upon such assumption, make distributions to the
Lenders. If and to the extent the Companies shall not have made such payment in
full, each Lender shall repay to the Agent forthwith on demand the applicable
amount distributed, together with interest thereon at the Federal Funds Rate,
from the date of distribution until the date of repayment. The Companies hereby
authorize each Lender, if and to the extent payment is not made when due
hereunder, to charge the amount so due against any account of the Companies with
such Lender.
(q) Subject to Section 8.09 hereof, all computations of interest
and fees hereunder shall be made on the basis of a year of 360 days, for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or fee is payable. All payments
under the Loan Papers shall be made in United States dollars, and without
setoff, counterclaim, or other defense.
(r) Whenever any payment to be made hereunder or under any other
Loan Papers shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall be included in the computation of interest or fees, if applicable.
Notwithstanding the foregoing, if any payment relating to a LIBOR Advance falls
due on a day that is not a Business Day and no further Business Day occurs in
that calendar month, then the due date thereof shall be the preceding Business
Day.
Section 2.08. Yield Protection; Taxes.
-----------------------
(s) Notwithstanding anything in this Agreement to the contrary, if
any Lender shall have reasonably determined that (i) by reason of changes
affecting the London Interbank Market, adequate and fair means do not exist for
reasonably ascertaining the London Interbank Rate or the continuation of LIBOR
Advances has been made impracticable by the occurrence of a contingency which
materially and adversely effects the London Interbank Market, or (ii) any
Regulatory Change shall make it unlawful for any Lender to make or maintain any
LIBOR Advances or to match eurodollar liabilities thereto, such Lender shall
forthwith give written notice thereof to the Companies. After said written
notice and until such time as such Lender shall determine that said adverse
conditions no longer exist, (A) no additional LIBOR Advances shall be made by
such Lender, and all requests for LIBOR Advances shall be deemed to request a
Base Rate Advance from such Lender, and (B) each outstanding LIBOR Advance made
by such Lender shall be converted into a Base Rate Advance on the last day of
its Interest Period.
(t) If, as a result of any Regulatory Change,
17
<PAGE>
(i) the basis of taxation of payments to any Lender of the
principal of or interest on any LIBOR Advance or any other amounts payable
hereunder in respect thereof (other than Taxes imposed on the overall net
income of the Lender) is changed;
(ii) any reserve, special deposit, or similar requirements relating
to any extensions of credit or other assets of, or any deposits with or
other liabilities of, any Lender are imposed, modified, or deemed
applicable; or
(iii) any other condition affecting this Agreement or LIBOR Advances
is imposed on any Lender;
and the Lender reasonably determines that, by reason thereof, the cost to it of
making or maintaining any LIBOR Advance is increased by an amount deemed by it
to be material, or any amount receivable by such Lender in respect of any LIBOR
Advance is reduced by an amount deemed by it to be material (any such increase
in cost or reduction in amounts receivable being an "Increased Cost"), then the
--------------
Companies shall pay promptly upon written demand to such Lender such additional
amounts as such Lender reasonably determines will compensate it for such
Increased Cost; provided, however, that notwithstanding any provision herein to
the contrary, the Companies shall have the right to convert outstanding LIBOR
Advances made by such Lender into Base Rate Advances following such demand, so
long as it pays such Lender all Increased Costs associated therewith and any
other amounts accruing as a result of such conversion under subsection (c)
hereof.
(u) Without prejudice to any provisions of this Section, the
Companies hereby agree to indemnify each Lender against any loss or expense
which it may incur as a result of (i) any principal payment, prepayment, or
conversion of a LIBOR Advance on a day other than the last day of its Interest
Period, (ii) any failure by the Companies to borrow or convert on a date
specified therefor pursuant to Section 2.02 or 2.05 hereof, or (iii) any failure
by the Companies to comply with Section 2.05 hereof, including failure to prepay
following notice under Section 2.05(a) hereof.
(v) If any Lender reasonably determines that compliance with any
Applicable Law (including without limitation existing and future Laws), or any
guideline or request from any central bank or other Tribunal (whether or not
having the force of Law), regarding capital adequacy has or would have the
effect of reducing the rate of return on such Lender's capital or such
Affiliate's capital or affects or would affect the amount of capital required or
expected to be maintained by such Lender or any of its Affiliates, and that the
amount of such capital is increased or the rate of return on such capital is
decreased by or based upon the existence of any commitment or Advance (or
similar commitments or loans), then, upon written demand by such Lender, the
Company shall immediately pay to such Lender, from time to time as specified,
additional amounts sufficient to compensate it or any of its Affiliates in the
light of such circumstances, to the extent that such Lender or Affiliate
reasonably determines such increase in capital or decrease in rate of return on
capital to be allocable to the existence or maintenance of or any participation
in any commitment or Advance. No failure by any Lender to immediately demand
payment of any additional amounts payable hereunder shall constitute a
18
<PAGE>
waiver of such Lender's right to demand payment of such amounts at any
subsequent time. Nothing herein contained shall be construed or so operate as to
require the Companies to pay interest, fees, costs or charges greater than is
permitted by Applicable Law.
(w) Provided that notice shall have been given to the Companies of
the reasons therefor and in reasonable detail, determinations by any Lender for
purposes of this Section shall be conclusive, absent manifest error.
(x) The obligations of the Company under this Section 2.08 shall
survive the termination of this Agreement and/or the Commitment and repayment of
the Obligation.
Section 2.09. Calculation of LIBOR Rate. The provisions of this
-------------------------
Agreement relating to calculation of the LIBOR Rate are included only for the
purpose of determining the rate of interest or other amounts to be paid
hereunder that are based upon such rate. It is acknowledged that each Lender
shall be entitled to fund and maintain any LIBOR Advance as it sees fit. All
determinations hereunder, however, shall be made as if each Lender had actually
funded and maintained each LIBOR Advance through the purchase in the London
Interbank Market of one or more eurodollar deposits in an amount equal to the
principal amount of such Advance and having a maturity corresponding to its
Interest Period.
Section 2.10. Quotation of Rates. It is hereby acknowledged that the
------------------
Companies may call the Agent on or before the date on which notice of an
elective interest rate is to be given by the Companies in order to receive an
indication of the LIBOR Rate then in effect, but that such indication shall not
be binding upon the Agent and Lenders, nor affect the rate of interest which is
thereafter actually in effect when the election is made.
Section 2.11. Booking Loans. Each Lender may make, carry, or transfer
-------------
Advances at, to, or for the account of any of its branch offices or the office
of any Affiliate.
Section 2.12. Extension of the Commitment. The Companies may notify
---------------------------
the Agent in writing by March 31 of each year ("Request for Maturity Date
-------------------------
Extension", in the form of Exhibit B attached hereto) while this Agreement is in
- --------- ---------
effect (commencing March 31, 1995) of their desire to extend the Maturity Date
for an additional 12 months beyond the then existing Maturity Date. If the
Request for Maturity Date Extension notice is given by Borrowers, the Lenders,
by May 31 of each such year while this Agreement is in effect, will notify the
Companies of their decision to extend the Maturity Date for an additional 12
months by returning to the Companies the Request for Maturity Date Extension as
completed by the Lenders. Extension of the Maturity Date shall be at the option
and in the sole discretion of the Lenders. The extension of the Maturity Date
shall become, and will be deemed exclusively evidenced by, the Lenders
indicating their unanimous decision to extend the Maturity Date on the Request
for Maturity Date Extension. If the Lenders or the Company fail to deliver the
Request for Maturity Date Extension within the time prescribed above, the
Commitment will be terminated as of the then present Maturity Date unless the
parties hereto agree otherwise. The
19
<PAGE>
parties hereto agree that any extension of the Maturity Date pursuant to this
Section 2.12 shall not require any (i) amendment of or supplement to this
Agreement or any other Loan Documents or (ii) execution and delivery of any
renewal Notes.
ARTICLE III
CONDITIONS PRECEDENT
--------------------
Section 3.01 Conditions Precedent to Effectiveness. The
-------------------------------------
effectiveness of this Agreement is subject to fulfillment of the following
conditions precedent:
(y) The making of the Commitment shall not contravene any Law
applicable to the Agent or any Lender.
(z) No Material Adverse Change, as determined by the Agent, shall
have occurred and be continuing since December 31, 1993.
(aa) Each Company shall have delivered to the Agent a Certificate,
dated the effective date, executed by a duly authorized officer, certifying as
an officer of such Company that (i) no Default or Event of Default has occurred
and is continuing, (ii) the representations and warranties set forth in Article
IV hereof with respect to such Company are true and correct, and (iii) it has
complied with all agreements and conditions to be complied with by it under the
Loan Papers by such date.
(bb) Each Company shall have delivered to the Agent a Secretary's
Certificate, dated the effective date, certifying (i) that copies of its
certificate of incorporation and bylaws previously delivered to the Agent are
true and complete, and in full force and effect, without amendment except as
shown, (ii) that a copy of its resolutions authorizing execution and delivery of
this Agreement and any Loan Papers attached thereto is true and complete, and
that such resolutions are in full force and effect, were duly adopted, have not
been amended, modified, or revoked, and constitute all resolutions adopted with
respect to this loan transaction, and (iii) to the incumbency, name, and
signature of each officer authorized to sign this Agreement and any amendments
to Loan Papers on its behalf. The Agent and Lenders may conclusively rely on
the certificate delivered pursuant to this subsection until they receive notice
in writing to the contrary.
(cc) The Agent shall have received opinions of counsel to the
Companies, dated the effective date, which counsel shall be acceptable to the
Agent, (i) to the effect that the Companies have full power and authority to
execute, deliver, and perform this Agreement, the Notes and the other Loan
Papers delivered by it; (ii) to the effect that all such Loan Papers constitute
the legal, valid, and binding obligations of the Company, enforceable in
accordance with their respective terms (subject as to enforcement of remedies to
any applicable bankruptcy, reorganization, moratorium, fraudulent conveyance, or
similar Laws or principles of equity affecting the enforcement of creditors'
rights
20
<PAGE>
generally); and (iii) as to such other matters, and otherwise in form and
substance, satisfactory to the Agent.
(dd) The Agent shall have received, in form and substance
satisfactory to it, (i) certificates from the Secretary of State and other
appropriate officials of the state of organization certifying that the Companies
are corporations duly organized, validly existing, and in good standing in said
state as of the respective dates thereof, and (ii) certificates of appropriate
authorities of all jurisdictions where the Companies should be qualified to do
business, to the effect that they are in good standing and duly qualified to
transact business in such jurisdictions.
(ee) The Agent shall have received copies of the executive summaries
from the most recent environmental reports prepared on each of the terminals
operated by either Company or any Subsidiary, together with such other
information as the Agent may reasonably request concerning the Companies'
compliance with Environmental Laws.
(ff) The Agent shall have received a certified copy of an amendment
to the Prudential Debt which shall (i) provide that the Obligation shall be
"Senior Debt" thereunder and (ii) cause the covenants in the Prudential Debt to
be similar to the covenants in this Agreement.
(gg) The Agents shall have received a Note for each Lender, duly
executed with all blanks appropriately filled.
(hh) All proceedings of the Companies and their Subsidiaries taken
in connection with the transactions contemplated hereby, and all documents
incidental thereto, shall be satisfactory in form and substance to the Agent.
The Agent shall have received copies of all documents or other evidence that it
may reasonably request in connection with such transactions.
Section 3.02. Conditions Precedent to All Advances. The obligation of
------------------------------------
each Lender to make each Advance (including the initial Advance) shall be
subject to the further conditions precedent that on the date of such Advance (a)
the following statements shall be true (and the delivery of each notice of
borrowing under Section 2.02(a) hereof or the failure to deliver a notice under
Section 2.05(b) hereof shall constitute a representation that on the
disbursement date they are true):
(i) The representations and warranties contained in Article
IV hereof are true and correct on such date, as though made on and as of
such date, and
(ii) No event has occurred and is continuing, or would
result from such Advance (including the intended application of the
proceeds of such Advance), that does or could constitute a Default or Event
of Default;
and (b) the Agent shall have received, in form and substance acceptable to it,
such other approvals, documents, certificates, opinions, and information as it
may deem necessary or appropriate.
21
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
The Company represents and warrants that the following are true and
correct:
Section 4.01. Organization; Qualification; Corporate Authority. Each
------------------------------------------------
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Arkansas, and each Subsidiary is duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated. Each Company has and each Subsidiary has the corporate
power to own its respective property and to carry on its respective business as
now being conducted. The execution, delivery and performance by each Company of
this Agreement and the Notes are within such Company's corporate powers and have
been duly authorized by all necessary corporate action. Set forth on Schedule I
----------
attached hereto is a complete and accurate listing of each Subsidiary of each
Company, showing (a) the jurisdiction of its incorporation, (b) the classes of
capital stock, and the number of shares authorized and outstanding, and (c) each
owner of outstanding shares on the date of this Agreement.
Section 4.02. Financial Statements. The Companies have furnished each
--------------------
Lender with the following financial statements, identified by a principal
financial officer of the Companies: (i) a consolidated balance sheet of AFC and
its Subsidiaries as at December 31, 1993 and a consolidated statement of income
and statement of cash flows of AFC and its Subsidiaries for such year, all
reported on by Ernst & Young. Such financial statements (including any related
schedules and/or notes) are true and correct in all material respects have been
prepared in accordance with GAAP consistently followed throughout the periods
involved and show all liabilities, direct and contingent, of AFC and its
Subsidiaries required to be shown in accordance with such principles. The
balance sheets fairly present the condition of AFC and its Subsidiaries as at
the dates thereof, and the statements of income and statements of cash flows
fairly present the results of the operations of AFC and its Subsidiaries for the
periods indicated. There has been no Material Adverse Change since December 31,
1993. Each Company and each of their respective Subsidiaries is Solvent.
Section 4.03. Actions Pending. There is no Litigation pending or, to
---------------
the knowledge of the Companies, threatened against the Companies or any of their
Subsidiaries, or any properties or rights of the Companies or any of their
Subsidiaries, by or before any Tribunal which might result in any Material
Adverse Change. There is no Litigation or proceeding pending or threatened
against the Companies or any of their Subsidiaries which purports to affect the
validity or enforceability of this Agreement or any Note.
Section 4.04. Outstanding Debt. Neither Company nor any of their
----------------
Subsidiaries has outstanding any Debt except as permitted pursuant to Section
5.01. There exists no default under the
22
<PAGE>
provisions of any instrument evidencing such Debt or of any agreement relating
thereto. The obligations of the Companies under the Loan Papers constitute
"senior" debt within the meaning of the subordination provisions of each issue
of Subordinate Debt, if any.
Section 4.05. Environmental Compliance. The Companies and their
------------------------
Subsidiaries and all of their respective properties and facilities have complied
at all time and in all respects with all Environmental Laws except, in any such
case, where failure to comply would not have a Material Adverse Effect.
Section 4.06. Taxes. Each Company has and each of their Subsidiaries
-----
has filed all federal, state and other Tax returns which, to the best knowledge
of the officers of the Companies, are required to be filed, and each has paid
all Taxes as shown on such returns and on all assessments received by it to the
extent that such taxes have become due, except such taxes as are being contested
in good faith by appropriate proceedings and for which adequate reserves have
been established in accordance with GAAP.
Section 4.07. Conflicting Agreements and Other Matters. Neither
----------------------------------------
Company nor any of their Subsidiaries is a party to any contract or agreement or
subject to any charter or other corporate restriction which materially and
adversely affects its business, property or assets, or financial condition.
Neither the execution nor delivery of this Agreement or the Notes, nor
fulfillment of nor compliance with the terms and provisions hereof and of the
Notes will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in any violation of, or
result in the creation of any Lien upon any of the properties or assets of the
Companies or any of their Subsidiaries pursuant to, the charter or by-laws of
the Companies or any of their Subsidiaries, any award of any arbitrator or any
agreement (including any agreement with stockholders), instrument, order, or Law
to which the Companies or any of their Subsidiaries is subject. Neither Company
nor any of their Subsidiaries is a party to, or otherwise subject to any
provision contained in, any instrument evidencing indebtedness of such Company
or such Subsidiary, any agreement relating thereto or any other contract or
agreement (including its charter) which limits the amount of, or otherwise
imposes restrictions on the incurring of, Debt of the Companies of the type to
be evidenced by the Notes except as set forth in the agreement relating to the
Prudential Debt, a copy of which have previously been delivered to each Lender.
Section 4.08. Compliance With Laws Regulating the Incurrence of Debt.
------------------------------------------------------
No proceeds of any Advance will be used directly or indirectly to acquire any
security in any transaction which is subject to Sections 13 and 14 of the
Exchange Act. The Companies and their Subsidiaries are not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U issued by the Board of Governors of
the Federal Reserve System), and no proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock. Following the Companies' intended
use of the proceeds of each Advance, not more than 25% of the value of the
assets of the Companies, both individually and on a consolidated basis with
their Subsidiaries, will be
23
<PAGE>
"margin stock" within the meaning of Regulation U. The Companies and their
Subsidiaries are not subject to regulation under any Law that would limit the
incurrence of Debt or restrict their ability to enter into this Agreement or
perform their obligations under this Agreement or the Notes.
Section 4.09. ERISA. No accumulated funding deficiency (as defined
-----
in section 302 of ERISA and section 412 of the Code), whether or not waived,
exists with respect to any Plan (other than a Multiemployer Plan). No liability
to the Pension Benefit Guaranty Corporation has been or is expected by the
Companies to be incurred with respect to any Plan by the Companies or any of
their Subsidiaries which would have a Material Adverse Effect. Neither Company
nor any of their Subsidiaries has incurred or presently expects to incur any
withdrawal liability under Title IV of ERISA with respect to any Multiemployer
Plan which would have a Material Adverse Effect. No Plan providing welfare
benefits to retired former employees of the Companies or any of their
Subsidiaries has been established or is maintained for which the present value
of future benefits payable, in excess of irrevocably designated funds for such
purpose, would have a Material Adverse Effect.
Section 4.10. Governmental Consent. Neither the nature of the
--------------------
Companies or of any Subsidiary, nor any of their respective businesses or
properties, nor any relationship between the Companies or any Subsidiary and any
other Person, nor any circumstance in connection with this Agreement or the
other Loan Papers is such as to require any authorization, consent, approval,
exemption or other action by or notice to or filing with any Tribunal (other
than routine filings after the date of this Agreement with the Securities and
Exchange Commission and in connection with the execution and delivery of this
Agreement or fulfillment of or compliance with the terms and provisions hereof
or of the Notes.
Section 4.11. Enforceability. This Agreement is, and the Notes when
--------------
delivered hereunder will be, legal, valid and binding obligations of each
Company enforceable against each Company in accordance with their terms.
Section 4.12. Licenses and Title to Properties. Each Company
possesses and each of their Subsidiaries possesses all Licenses and are not in
violation thereof in any material respect. Each Company has and each of their
Subsidiaries has good and indefeasible title to its respective real Properties
(other than Properties which it leases) and good title to all of its other
respective Properties and assets, including the Properties and assets reflected
in the balance sheet as at December 31, 1993 referred to in Section 4.02 (other
than Properties and assets disposed of in the ordinary course of business),
subject to no Lien of any kind except Liens permitted by Section 5.06. All
leases necessary in any material respect for the conduct of the respective
businesses of the Companies and their Subsidiaries are valid and subsisting and
are in full force and effect.
Section 4.13. No Improper Payment or Influence. Neither Company nor
--------------------------------
any Subsidiary has directly or indirectly paid or delivered any fee, commission
or other money or property, or engaged in any lobbying, influencing or other
behavior, however characterized, to any agent, government official, regulatory
body, governmental agency or other Person, in the United States or any other
country,
24
<PAGE>
related to the business or operations of the Companies or any of their
Subsidiaries, and neither Company or any Subsidiary knows or has reason to
believe to have been illegal under any Federal, state, or local law of the
United States or any other country having jurisdiction, or to have been for the
purpose of, and to have had the effect of, inducing or encouraging the breach by
the recipient thereof of any legal duties, whether as an employee or otherwise
to another Person.
Section 4.14. Labor and Employee Relations Matters. Except as set
------------------------------------
forth on Schedule II:
-----------
(i) neither Company nor any Subsidiary is or expects to be the
subject of any union organizing activity or labor dispute, nor has there
been any strike of any kind called, or, to the knowledge of the Companies,
threatened to be called against it or any Subsidiary; and neither Company
nor any Subsidiary has violated any applicable federal or state law or
regulation relating to labor or labor practices;
(ii) no present or former employees of the Companies or any
Subsidiary have advanced claims in writing against the Companies or any
Subsidiary (whether under any foreign, federal, state or common law,
through a government agency, under an employment agreement, collective
bargaining agreement, personal service or independent contractor agreement
or otherwise) that are currently pending for (A) overtime pay, other than
overtime pay for the current period; (B) wages, salaries or profit sharing
(excluding wages, salaries or profit sharing for the current payroll
period); (C) vacations, time off (including without limitation, potential
sick leave) or pay in lieu of vacation or time off, other than vacation or
time off (or pay in lieu thereof) earned in respect of either Company's
current fiscal year; (D) any violation of any statute, ordinance or
regulation relating to minimum wages or maximum hours of work; (E)
discrimination against employees on any basis; (F) unlawful employment or
termination practices; (G) unfair labor practices or alleged violations of
collective bargaining agreements; (H) any violation of occupational safety
and/or health standards; (I) benefits under any employee plans or
compensation arrangement; and (J) breach of any employment, personal
service or independent contractor agreement that, in the aggregate, exceed
$500,000;
(iii) there is not pending against either Company or any subsidiary
or, to the knowledge of the Companies threatened, any labor dispute, strike
or work stoppage that materially affects or materially interferes with, or
may materially affect or materially interfere with, such Company's or such
Subsidiary's operations after the date hereof;
(iv) there is not pending or, to the knowledge of the Companies
threatened, any charge or complaint against the Companies or any Subsidiary
by or before the National Labor Relations Board, any representative
thereof, or any comparable foreign or state agency or authority; and
25
<PAGE>
(v) there are no collective bargaining agreements to which the
Companies or any Subsidiary is a party.
Section 4.15. Disclosure. Neither this Agreement nor any other
----------
documents, certificate or statement furnished to you by or on behalf of the
Companies in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact peculiar to the
Companies or any of their Subsidiaries which materially adversely affects or in
the future may (so far as the Companies can now reasonably foresee) materially
adversely affect the business, property or assets, or financial condition of the
Companies or any of their Subsidiaries and which has not been set forth in this
Agreement or in the other documents, memoranda, certificates and statements
furnished to you by or on behalf of the Companies prior to the date hereof in
connection with the transactions contemplated hereby.
Section 4.16. Common Enterprise. The Companies are engaged in the
-----------------
transportation, common and contract motor carrier, trucking and truck terminal
business, as well as in certain other businesses. These operations require
financing on an integrated basis such that the credit supplied can be made
available from time to time to either Company as required for the continued
successful operation of the Companies, and the integrated operation as a whole.
The Companies have requested the Lenders to make credit available to the
Companies hereunder primarily for the purposes of financing the integrated
operations of the Companies. Each Company expects to derive benefit (and the
Board of Directors of each Company has determined that such Company may
reasonably be expected to derive benefit) directly or indirectly, from the
credit extended by the Lenders hereunder, both in its separate capacity and as a
member of the integrated group, since the successful operation and condition of
each Company is dependent on the continued successful performance of the
functions of the integrated group as a whole.
ARTICLE V
COVENANTS
---------
So long as the Commitment or any Advance is outstanding, or the
Companies owe any other amount hereunder:
Section 5.01. Company Debt. The Companies will not permit at any
------------
time the ratio of the aggregate amount of Debt of the Companies and their
Subsidiaries on a consolidated basis to Total Capitalization to be greater than
(a) 0.65 to 1.00, during the period from the date of this Agreement to and
including December 31, 1997, and (b) 0.60 to 1.00, thereafter.
Section 5.02. Subsidiary Debt. The Companies will not permit any
---------------
Subsidiary to directly or indirectly create, incur, assume, guarantee or
otherwise become or remain directly or indirectly liable
26
<PAGE>
with respect to any Debt other than (a) the existing Debt of their Subsidiaries
outstanding on the date hereof and set forth on Schedule III, which debt may be
------------
extended or renewed beyond its existing maturity provided that there is no
increase in the outstanding principal amount of such Debt and (b) Debt of
Subsidiaries which, together with the aggregate principal amount of Debt secured
by Liens permitted by clauses (iii), (iv), (v) and (v) of Section 5.06 (Debt of
Subsidiaries and such Debt secured by such Liens, collectively, "Priority
--------
Debt"), does not exceed an amount equal to 10% of Net Worth; provided, further,
- ---- -------- -------
that the aggregate outstanding principal amount of the Arkansas Development
Finance Authority Economic Development Revenue Bonds (Arkansas Freightways
Corporation Project) Series 1989 issued in the original, aggregate principal
amount of $8,670,000 shall not be deemed to be Priority Debt.
Section 5.03. Fixed Charge Ratio. The Companies will not permit at
any time the ratio of Income Available for Fixed Charges (based on the four
fiscal quarters immediately prior to the date of determination) to Fixed Charges
(based on the four fiscal quarters immediately prior to the date of
determination) to be less than 2.00 to 1.00.
Section 5.04. Current Ratio. The Companies will not permit at any
-------------
time the ratio of Current Assets to Current Liabilities to be less than 1.00 to
1.00.
Section 5.05. Dividend Limitation. The Companies covenant that they
-------------------
will not (a) pay or declare any dividend on any class of their stock; (b) make
any other distribution on account of any class of their stock, or redeem,
purchase or otherwise acquire, directly or indirectly, any shares of their
stock; (c) make or permit to remain outstanding any loan or advance to, or
guarantee, endorse or otherwise be or become contingently liable, directly or
indirectly, for any obligation of any Affiliate or stockholder (excluding AFC as
a stockholder of AFI); or (d) make any unscheduled payments of principal of, or
retire, redeem, defease, purchase or otherwise acquire, any Subordinated Debt
(all of the foregoing being herein called "Restricted Payments") unless (i) the
-------------------
sum of such Restricted Payment and all other Restricted Payments made in the
current fiscal year does not exceed Net Earnings Available For Restricted
Payments for such year, and (ii) no Default or Event of Default has occurred and
is continuing or would exist after giving effect to such Restricted Payment.
There shall not be included in Restricted Payments (w) any payments under clause
(d) above which are made solely out of the net proceeds of a concurrent sale of
capital stock of AFC or which are paid solely in shares of capital stock of AFC;
(x) dividends paid, or distributions made, in capital stock of AFC; (y) exchange
of capital stock of one or more classes of AFC for capital stock of AFC or for
capital stock of AFC of the same class, except to the extent that cash or other
value is involved in such exchange; or (z) the payment of dividends or
distributions by AFI to AFC. The term "capital stock" as used in this Section
5.05 shall include warrants, options or rights to purchase or subscribe for
capital stock.
Section 5.06. Liens. The Companies will not, and will not permit any
-----
Subsidiary to, create, assume or suffer to exist any Lien upon any of its
properties or assets, whether now owned or hereafter acquired (whether or not
provision is made for the equal and ratable securing of the Notes in accordance
with the provisions of Section 5.15), except
------
27
<PAGE>
(i) (a) Liens for Taxes not yet due or which are being
actively contested in good faith by appropriate proceedings, (b) Liens
(other than any Lien imposed by ERISA or Environmental Laws) incurred or
deposits or reserves made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, reclamation bonds, bids, leases,
government contracts or progress payments, performance and return-of-money
bonds and other similar obligations (exclusive of obligations made or
incurred in connection with the borrowing of money, the obtaining of
advances or credit or the payment of the deferred purchase price of
property); (c) easements, rights-of-way, restrictions, adverse claims,
charges or encumbrances, provided that such easements, rights-of-way,
restrictions, adverse claims, charges and encumbrances do not (or, if
exercised or availed of, will not), individually or in the aggregate,
materially impair the usefulness of the affected property for the purposes
for which it is held by the Companies or their Subsidiaries; or (d) the
rights of collecting banks having a right of setoff, revocation, refund or
chargeback with respect to money or instruments of the Companies or their
Subsidiaries on deposit with or in the possession of such banks,
(ii) other statutory Liens incidental to the conduct of its
business or the ownership of its property and assets which are not incurred
in connection with the borrowing of money or the obtaining of advances or
credit or guaranteeing the obligations of a Person (including landlord
liens), and which do not in the aggregate materially detract from the value
of its property or assets or materially impair the use thereof in the
operation of its business,
(iii) Liens on property of the Companies and their
Subsidiaries described in Schedule IV) attached hereto and extensions and
renewals
thereof provided that (a) there is no increase in the outstanding principal
amount of the debt secured thereby and (b) no additional property of any
Company or Subsidiary is encumbered in connection with such extension or
renewal.
(iv) Liens existing on any real property of any corporation
at the time it becomes a Subsidiary, or existing prior to the time of
acquisition upon any property acquired by the Companies or any Subsidiary
through purchase, merger or consolidation or otherwise, whether or not
assumed by the Companies or such Subsidiary, or placed on any property at
the time of acquisition by the Companies or any Subsidiary to secure all or
a portion of (or to secure Debt incurred to pay all or a portion of) the
purchase price thereof, provided that (a) all of such property is not or
--------
shall not thereby become encumbered by Debt having an outstanding principal
amount in excess of the lesser of the cost thereof or fair value thereof
(as of the date of such purchase) and (b) any such Lien shall not encumber
any other property of the Companies or such Subsidiary,
28
<PAGE>
(v) any Lien renewing, extending or refunding any Lien
permitted by clause (iv) above, provided that the principal amount secured
--------
is not increased, and the Lien is not extended to other property, and
(vi) other Liens on the property of the Companies;
provided that Priority Debt shall not exceed an amount equal to 10% of Net
--------
Worth; provided, further, that the aggregate outstanding principal amount
-------- -------
of the Arkansas Development Finance Authority Economic Development Revenue
Bonds (Arkansas Freightways Corporation Project) Series 1989 issued in the
original, aggregate principal amount of $8,670,000 shall not be deemed to
be Priority Debt.
Section 5.07. Loans, Advances, Investments and Contingent
-------------------------------------------
Liabilities. The Companies will not, and will not permit any Subsidiary to, make
- -----------
or permit to remain outstanding any loan or advance to, or extend credit (other
than credit extended in the normal course of business to any Person who is not
an Affiliate of the Companies) to, or guarantee, endorse or otherwise be or
become contingently liable, directly or indirectly, in connection with the
obligations, stock or dividends of, or own, purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any Person, except that the Companies or any Subsidiary may
------
(i) make or permit to remain outstanding loans or advances to one
another,
(ii) own, purchase or acquire stock, obligation or securities of a
Wholly-Owned Subsidiary or of a corporation or other entity which
immediately after such purchase or acquisition will be a Wholly-Owned
Subsidiary,
(iii) acquire and own stock, obligations or securities received in
settlement of debts (created in the ordinary course of business) owing to
the Companies or any Subsidiary,
(iv) own, purchase or acquire (a) certificates of deposit of
commercial banks organized under the laws of the United States (having
capital and surplus in excess of $100,000,000 and a rating of "B" or better
by Thomson Bank Watch; "Permitted Banks"), (b) commercial paper issued by
---------------
any Person rated A-1 by Standard and Poor's Corporation or P-1 by Moody's
Investors Services, Inc. (in each case under (a) and (b), due within one
year from the date of purchase and payable in the United States in United
States dollars), (c) obligations of the United States Government or any
agency thereof, and obligations guaranteed by the United States Government
and (d) repurchase agreements of Permitted Banks for terms of less than one
year in respect of the foregoing certificates and obligations,
(v) endorse negotiable instruments for collection in the ordinary
course of business, and
29
<PAGE>
(vi) make or permit to remain outstanding loans and other like
advances to stockholders, officers and employees in the ordinary course of
business in an aggregate amount up to $750,000;
provided that notwithstanding anything above to the contrary, loans or advances
- --------
to, or investments in, Garrison Corporation by the Companies shall be limited to
(i) loans, advances and investments in existence on the date of this Agreement
and (ii) loans, advances and investments made after the date of this Agreement
not to exceed $2,000,000 in aggregate principal amount.
Section 5.08. Sale of Stock and Debt of Subsidiaries. The Companies
--------------------------------------
will not, and will not permit any Subsidiary to, sell or otherwise dispose of,
or part with control of, or permit any Subsidiary to issue, sell or otherwise
transfer to any Person, any shares of stock or Debt of any Subsidiary, except to
a Company or another Wholly-Owned Subsidiary, and except that all shares of
stock and Debt of any Subsidiary at the time owned by or owed to the Companies
and all Subsidiaries may be sold as an entirety for a cash consideration which
represents the fair value (as determined in good faith by the Boards of
Directors of the Company(ies)) at the time of sale of the shares of stock and
Debt so sold, provided that (a) the assets of such Subsidiary together with the
--------
assets of any other Subsidiary the stock of which was sold in the preceding 12-
month period do not represent more than 10% of the Total Tangible Assets of the
Companies and their Subsidiaries on a book value basis as reflected on the most
recent annual or quarterly consolidated balance sheet or (b) if the sale does
not satisfy the requirements of clause (a), the proceeds of such sale are either
(i) reinvested within 12 months of the date of such sale in either (A) Rolling
Stock of the Companies or (B) assets similar to those of the Subsidiary sold (or
stock of a Subsidiary holding such similar assets) and, prior to reinvestment,
such proceeds shall be invested in instruments that satisfy the requirements of
Section 5.07(iv), or (ii) used at the time of such sale to repay Senior Debt of
the Companies pro rata based on the amount of Senior Debt that is owed to each
payee thereof at such time bears to the aggregate amount of Senior Debt
outstanding at such time , and, in either case, at the time of such sale, such
Subsidiary shall not own, directly or indirectly, any shares of stock or Debt of
any other Subsidiary (unless all of the shares of stock and Debt of such other
Subsidiary owned, directly or indirectly, by the Companies and all Subsidiaries
are simultaneously being sold as permitted by this Section 5.08).
Section 5.09. Merger and Sales of Assets. The Companies will not,
--------------------------
and will not permit any Subsidiary to, merge or consolidate with or into any
other Person or convey, lease, transfer or otherwise dispose of all or a
substantial part (i.e. assets which constitute more than 10% of the Total
Tangible Assets of the Companies and their Subsidiaries) of its assets to any
Person, or acquire all or substantially all of the assets of any Person except
------
that
(i) any Subsidiary may merge with a Company (provided that
a Company shall be the continuing or surviving corporation) or with any one
or more other Wholly-Owned Subsidiaries (provided that a Wholly-Owned
Subsidiary shall be the continuing or surviving corporation);
30
<PAGE>
(ii) any Subsidiary may sell, lease, transfer or otherwise
dispose of any of its assets to a Company or a Wholly-Owned Subsidiary;
(iii) AFC may merge with any other corporation, provided that
AFC shall be the continuing or surviving corporation;
(iv) the Companies and any Subsidiary may sell or otherwise
dispose of inventory in the ordinary course of business; and
(v) the Companies and any Subsidiary may sell a substantial
part of their assets (as herein defined) if the proceeds of such sale are
either (i) reinvested within 12 months of the date of such sale in either
(A) Rolling Stock of the Companies or (B) assets similar to those assets
sold and, prior to reinvestment, such proceeds shall be reinvested in
instruments that satisfy the requirements of Section 5.07(iv), or (ii) used
at the time of such sale to repay Senior Debt of the Companies pro rata
based on the amount of Senior Debt that is owed to each payee thereof at
such time bears to the aggregate amount of Senior Debt outstanding at such
time .
Section 5.10. Capital Expenditures. The Companies will not, and will
--------------------
not permit any Subsidiary to, make or commit to make any capital expenditure (as
determined in accordance with GAAP) unless, immediately after the making of any
such expenditure, the Companies will be in compliance with Sections 5.01 through
5.04.
Section 5.11. Business. The Companies and each of their Subsidiaries
--------
will not conduct any business except businesses presently conducted and other
businesses related thereto.
Section 5.12. Transaction with Affiliates. The Companies will not,
---------------------------
and will not permit any Subsidiary to, enter into or be a party to a transaction
with any Affiliate, except on terms no less favorable than could be obtained on
an arm's-length basis with a Person that is not an Affiliate.
Section 5.13. Financial Statements. The Companies will deliver to
--------------------
each Lender:
(i) as soon as practicable and in any event no later than
45 days after the end of each quarterly period (other than the last
quarterly period) in each fiscal year, comparative consolidated
statements of income and statements of cash flows of AFC and its
Subsidiaries for the period from the beginning of the current fiscal
year to the end of such quarterly period, and comparative consolidated
balance sheets of AFC and its Subsidiaries as at the end of such
quarterly period, setting forth in each case in comparative form
figures for the corresponding period in the preceding fiscal year, all
in reasonable detail and satisfactory in form to the Majority Lenders
and certified by an authorized financial officer of each Company,
subject to changes resulting from year-end adjustments; provided,
--------
however, that delivery pursuant to clause (iii) below of copies of the
-------
Quarterly Report on Form 10-Q of AFC for such quarterly
31
<PAGE>
period as filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this clause (i);
(ii) as soon as practicable and in any event no later than
90 days after the end of each fiscal year, consolidated statements of
income and statements of cash flows of AFC and its Subsidiaries for
such year, and consolidated balance sheets of AFC and its Subsidiaries
as at the end of such year, setting forth in each case in comparative
form corresponding consolidated figures from the preceding annual
audit, all in reasonable detail and satisfactory in form to the
Majority Lenders (it being understood that no special audit procedures
or form of report, other than those required by generally accepted
auditing standards, shall be required) and reported on by independent
public accountants of recognized national standing selected by AFC
whose report shall be without limitation as to the scope of the audit
and satisfactory in substance to the Majority Lenders; provided,
--------
however, that delivery pursuant to clause (iii) below of copies of the
-------
Annual Report on Form 10-K of AFC for such fiscal year filed with the
Securities and Exchange Commission shall be deemed to satisfy the
requirements of this clause (ii);
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as they
shall send to their public stockholders and copies of all registration
statements (without exhibits) and all reports which they file with the
Securities and Exchange Commission (or any governmental body or agency
succeeding to the functions of the Securities and Exchange
Commission);
(iv) promptly upon receipt thereof, a copy of any report or
notice received by a Company or any Subsidiary from independent
accountants that describes any event or condition which could
reasonably be expected to cast doubt on the scope of any audit or
materially impair the ability of such accountants to deliver an
unqualified opinion or report with respect to any audit;
(v) as soon as practicable and in any event within five
days after any officer of any Company obtaining knowledge (a) of any
Default or Event of Default hereunder; (b) of any condition or event
which, in the opinion of management of such Company, would have a
material adverse effect on the business, condition (financial or
other), assets, properties, operations or prospects of the Companies
and their Subsidiaries; (c) that any Person has given any notice to
the Companies or any of their Subsidiaries or taken any other action
with respect to a claimed default or event or condition of the type
referred to in Section 6.01(c); (d) of the institution of any
Litigation involving claims against the Companies or any of their
Subsidiaries equal to or greater than $1,500,000 with respect to any
single cause of action or of any adverse determination in any court
proceeding in any Litigation involving a potential liability to the
Companies or any of their Subsidiaries equal to or greater than
$1,500,000 with respect to any single cause of action, which
determination makes the likelihood of a final adverse determination in
such litigation against such Company or such Subsidiary substantially
more probable; or (e) of any regulatory proceeding which could
reasonably be expected to have a
32
<PAGE>
material adverse effect on the Companies or any of their Subsidiaries;
an Officer's Certificate of such Company specifying the nature and
period of existence of any such Default or Event of Default, condition
or event, or specifying the notice given or action taken by such
Person and the nature of any such claimed default, event or condition,
or specifying the details of such proceeding, litigation or dispute
and what action the Companies or any of their Subsidiaries has taken,
is taking or proposes to take with respect thereto; and
(vi) with reasonable promptness, such other information
respecting the condition or operations, financial or otherwise, of the
Companies or any of their Subsidiaries as any Lender may reasonably
request.
Together with each delivery of financial statements required by
clauses (i) and (ii) above, each Company will deliver to each Lender an
Officer's Certificate (in substantially the form of Exhibit C attached hereto
---------
demonstrating (with computations in reasonable detail) compliance by the
Companies and their Subsidiaries with the provisions of Sections 5.01 through
5.07 and stating that there exists no Event of Default or Default, or, if any
Event of Default or Default exists, specifying the nature and period of
existence thereof and what action the Companies propose to take with respect
thereto. Together with each delivery of financial statements required by clause
(ii) above, the Companies will deliver to each Lender a certificate of such
accountants stating that, in making the audit necessary for their report on such
financial statements, they have obtained no knowledge of any Event of Default or
Default, or, if they have obtained knowledge of any Event of Default or Default,
specifying the nature and period of existence thereof. Such accountants,
however, shall not be liable to anyone by reason of their failure to obtain
knowledge of any Event of Default or Default which would not be disclosed in the
course of an audit conducted in accordance with generally accepted auditing
standards. The Companies also covenant that forthwith upon the chief executive
officer, chief operating officer, principal financial officer or principal
accounting officer of either Company obtaining knowledge of an Event of Default
or Default, it will deliver to each Lender an Officer's Certificate specifying
the nature and period of existence thereof and what action such Company proposes
to take with respect thereto.
Section 5.14. Inspection of Property. The Companies covenant that
----------------------
they will permit any Person designated by any Lender in writing, at such
Lender's expense (provided that if a Default or Event of Default shall occur and
be continuing, at the Companies' expense), to visit and inspect any of the
properties of the Companies and their Subsidiaries, to examine the corporate
books and financial records of the Companies and their Subsidiaries and make
copies thereof or extracts therefrom and to discuss the affairs, finances and
accounts of any of such corporations with the principal officers of the
Companies and their independent public accountants, all at such reasonable times
and as often as such Lender may reasonably request .
Section 5.15. Covenant to Secure Notes Equally. The Companies
--------------------------------
covenant that, if either of them or any Subsidiary shall create or assume any
Lien upon any of its property or assets, whether now owned or hereafter
acquired, other than Liens permitted by the provisions of Section 5.06 (unless
prior written consent to the creation or assumption thereof shall have been
obtained pursuant to
33
<PAGE>
Section 8.01), it will make or cause to be made effective
provision whereby the Notes will be secured by such Lien equally and ratably
with any and all other Debt thereby secured so long as any such other Debt shall
be so secured.
Section 5.16. Compliance with Laws, Etc. The Companies will comply,
--------------------------
and cause each of their Subsidiaries to comply, in all material respects with
all applicable laws, rules, regulations and orders the noncompliance with which
could result in a material adverse effect on the Companies or any of their
Subsidiaries, such compliance to include, without limitation, complying with all
applicable Environmental Laws and paying before the same become delinquent all
Taxes imposed upon it or upon its property, except to the extent such taxes,
charges or assessments contested in good faith.
Section 5.17. Insurance. The Companies will and will cause each
---------
Subsidiary, at all times, to maintain (a) insurance of such types and in such
amounts as is consistent with prudent practices and standards for companies of
the same size as and engaged in businesses similar to that of the Companies and
(b) key man life insurance with respect to F. S. Garrison in an amount not less
than $5,000,000. All such insurance will be maintained with financially sound
and reputable insurance companies; provided, however, that nothing herein shall
prohibit any of the Companies or their Subsidiaries from establishing or
maintaining self-insurance if, in the opinion of the Board of Directors of the
Companies, to do so would be consistent with prudent practices and in the best
interest of the Companies or their Subsidiaries.
Section 5.18. Use of Proceeds. The Companies shall use the proceeds
---------------
of Advances hereunder solely to refinance the debt outstanding under the
Original Credit Agreement (provided that LIBOR Advances outstanding under the
Original Credit Agreement shall be deemed to be outstanding under this
Agreement, with adjustments being made with respect to the LIBOR Rate for such
Advances as of the date of this Agreement), finance working capital needs and
for other general corporate purposes.
Section 5.19. Subsidiary Guaranty. The Companies covenant that, if
-------------------
either of them shall form or acquire a Subsidiary, it will promptly deliver to
the Agent a guaranty by such Subsidiary of the Obligation in form and substance
satisfactory to the Agent, together with an opinion of counsel in form and
substance satisfactory to the Agent and such other documents and certificates as
the Agent shall request.
ARTICLE VI
EVENTS OF DEFAULT
-----------------
Section 6.01. Events of Default. Any one or more of the following
-----------------
shall be an "Event of Default" hereunder, if the same shall occur for any reason
whatsoever, whether voluntary or involuntary, by operation of Law, or otherwise:
34
<PAGE>
(ii) the Companies default in the payment of any principal payable
under any Loan Papers when due; or
(jj) the Companies default in the payment of any interest, fees or
other amounts payable under any Loan Papers when due and such default shall
continue for the earlier (i) 5 days after the date due or (ii) 2 Business Days
after notice (which may be oral) by the Agent to the Companies; or
(kk) a Company or any Subsidiary defaults (whether as primary
obligor or as guarantor or other surety) in any payment of principal of or
interest on any other obligation for money borrowed (or any Capitalized Lease
Obligation, any obligation under a conditional sale or other title retention
agreement, any obligation issued or assumed as full or partial payment for
property whether or not secured by a purchase money mortgage or any obligation
under notes payable or drafts accepted representing extensions of credit) beyond
any period of grace provided with respect thereto, or a Company or any
Subsidiary fails to perform or observe any other agreement, term or condition
contained in any agreement under which any such obligation is created (or if any
other event thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to cause, or to
permit the holder or holders of such obligation (or a trustee on behalf of such
holder or holders) to cause, such obligation to become due (or to be repurchased
by a Company or any Subsidiary) prior to any stated maturity, provided that the
--------
aggregate principal amount of all obligations as to which such a payment default
shall occur and be continuing or such a failure or other event causing or
permitting acceleration (or causing or permitting rescission to a Company or any
Subsidiary) shall occur and be continuing exceeds $500,000; or
(ll) any representation or warranty made by the Companies herein or
by the Companies or any of their officers in any writing furnished in connection
with or pursuant to this Agreement shall be false in any material respect on the
date as of which made; or
(mm) the Companies fail to perform or observe any term, covenant or
agreement contained in Sections 5.01 through 5.12; or
(nn) the Companies fail to perform or observe any other agreement,
covenant, term or condition contained herein and such failure shall not be
remedied within 30 days after the earlier of (i) the date on which any officer
of a Company obtains actual knowledge thereof or (ii) written notice by the
Agent to the Companies; or
(oo) either Company or any Subsidiary makes an assignment for the
benefit of creditors or is generally not paying its debts as such debts become
due; or
(pp) any decree or order for relief in respect of either Company or
any Subsidiary is entered under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt,
35
<PAGE>
dissolution or liquidation or similar law, whether now or hereafter in effect
(the "Bankruptcy Law"), of any jurisdiction; or
--------------
(qq) either Company or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar official of a Company or any
Subsidiary, or of any substantial part of the assets of a Company or any
Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United
States or any proceedings (other than proceedings for the voluntary liquidation
and dissolution of a Subsidiary) relating to a Company or any Subsidiary under
the Bankruptcy Law of any other jurisdiction; or
(rr) any such petition or application is filed, or any such
proceedings are commenced, against either Company or any Subsidiary and such
Company or such Subsidiary by any act indicates its approval thereof, consent
thereto or acquiescence therein, or an order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or similar
official, or approving the petition in any such proceedings, and such order,
judgment or decree remains unstayed and in effect for more than 30 days; or
(ss) any final order, judgment or decree is entered in any
proceedings against either Company decreeing the dissolution of such Company and
such order, judgment or decree remains unstayed and in effect for more than 60
days; or
(tt) any final order, judgment or decree is entered in any
proceedings against either Company or any Subsidiary decreeing a split-up of
such Company or such Subsidiary which requires the divestiture of assets
representing a substantial part, or the divestiture of the stock of a Subsidiary
whose assets represent a substantial part, of the consolidated assets of the
Companies and their Subsidiaries (determined in accordance with GAAP) or which
requires the divestiture of assets, or stock of a Subsidiary, which shall have
contributed a substantial part of the consolidated net income of the Companies
and their Subsidiaries (determined in accordance with GAAP) for any of the three
fiscal years then most recently ended, and such order, judgment or decree
remains unstayed and in effect for more than 60 days; or
(uu) any final judgment or order, or series of judgments or orders,
for the payment of money in an aggregate amount in excess of $1,000,000 is
rendered against a Company or any Subsidiary and either (a) enforcement
proceedings have been commenced by any creditor upon such judgment or order, (b)
within 60 days after entry thereof, such judgment is not discharged or execution
thereof stayed pending appeal, or (c) within 60 days after the expiration of any
such stay, such judgment is not discharged;
(vv) (a) a Company or any other Person who is a member of the
Companies' "control group" (as such term is defined under ERISA) fails to make
all or any portion of a required installment payment under 29 U.S.C. (S)1082(e)
with respect to any Plan, (b) the aggregate unpaid balance of such installment
together with the unpaid balance of all prior installments and other payments
due under 20
36
<PAGE>
U.S.C. (S)1082 (including any accrued interest on such amounts)
exceeds $1,000,000, and (c) such amounts remain unpaid for more than 30 days
after the due date of the installment referred to in clause (a); or
(ww) a Company or any of their Affiliates as employer under a
Multiemployer Plan shall have made a complete or partial withdrawal from such
Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have
notified such withdrawing employer that such employer has incurred a withdrawal
liability in an annual amount exceeding $1,000,000.
Section 6.02. Remedies Upon Default. If an Event of Default
---------------------
described in Section 6.01(g), (h), (i) or (j) hereof shall occur with respect to
the Company, the aggregate unpaid principal balance of and accrued interest on
all Advances shall, to the extent permitted by applicable Law, thereupon become
due and payable concurrently therewith, without any action by the Agent or any
Lender, and without diligence, presentment, demand, protest, notice of protest
or intent to accelerate, or notice of any other kind, all of which are hereby
expressly waived. Subject to the foregoing sentence, if any Event of Default
shall occur and be continuing, the Agent may at its election, and shall upon the
request of the Majority Lenders, do any one or more of the following:
(xx) Declare the entire unpaid balance of all Advances immediately
due and payable, whereupon it shall be due and payable without diligence,
presentment, demand, protest, notice of protest or intent to accelerate, or
notice of any other kind (except notices specifically provided for under Section
6.01 hereof), all of which are hereby expressly waived (except to the extent
waiver of the foregoing is not permitted by Applicable Law);
(yy) Terminate the Commitment;
(zz) Reduce any claim of the Agent or Lenders to judgment; and
(aaa) Exercise any Rights afforded under any Loan Papers, by Law, at
equity, or otherwise.
Section 6.03. Cumulative Rights. All Rights available to the Agent
-----------------
and Lenders under the Loan Papers shall be cumulative of and in addition to all
other Rights granted thereto at Law or in equity, whether or not amounts owing
thereunder shall be due and payable, and whether or not the Agent or any Lender
shall have instituted any suit for collection or other action in connection with
the Loan Papers.
Section 6.04. Waivers. The acceptance by the Agent or any Lender at
-------
any time and from time to time of partial payment of any amount owing under any
Loan Papers shall not be deemed to be a waiver of any Event of Default then
existing. No waiver by the Agent or any Lender of any Event of Default shall be
deemed to be a waiver of any Event of Default other than such Event of Default.
No delay or omission by the Agent or any Lender in exercising any Right under
the Loan Papers shall impair such Right or be construed as a waiver thereof or
an acquiescence therein, nor shall any single
37
<PAGE>
or partial exercise of any such Right preclude other or further exercise
thereof, or the exercise of any other Right under the Loan Papers or otherwise.
Section 6.05. Performance by Agent. Should any covenant of the
--------------------
Companies or any of their Subsidiaries fail to be performed in all material
respects in accordance with the terms of the Loan Papers, the Agent may, at its
option, perform or attempt to perform such covenant on behalf of the Company or
such Subsidiary. Notwithstanding the foregoing, it is expressly understood that
the Agent and Lenders do not assume, and shall not ever have, except by express
written consent of the Agent or any such Lender, any liability or responsibility
for the performance of any duties or covenants of the Company or any of its
Subsidiaries.
Section 6.06. Expenditures. The Companies, jointly and severally,
------------
agree to reimburse the Agent and Lenders for any sums spent by any of them in
connection with the exercise of any Right provided herein. Such sums shall bear
interest at the (i) lesser of the Base Rate as in effect from time to time, plus
3% or (ii) the Highest Lawful Rate, from the date spent until the date of
repayment by the Company.
Section 6.07. Control. None of the covenants or other provisions
-------
contained in this Agreement shall, or shall be deemed to, give the Agent or
Lenders any Rights to exercise control over the affairs and/or management of the
Companies or any of their Subsidiaries, the power of the Agent and Lenders being
limited to the Rights to exercise the remedies provided in this Article;
provided, however, that if the Agent or any Lender becomes the owner of any
stock or other equity interest in any Person, whether through foreclosure or
otherwise, it shall be entitled to exercise such legal Rights as it may have by
being an owner of such stock or other equity interest in such Person.
38
<PAGE>
ARTICLE VII
THE AGENT
---------
Section 7.01. Authorization and Action. Each of the Lenders hereby
------------------------
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the other Loan Papers as are
delegated to the Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement and the other Loan Papers (including without limitation
enforcement or collection of the Notes), the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Majority Lenders (or all Lenders, if
required under Section 8.01 hereof), and such instructions shall be binding upon
all Lenders; provided, however, that the Agent shall not be required to take any
action which exposes the Agent to personal liability or which is contrary to any
Loan Papers or applicable Law. The Agent agrees to give to each Lender prompt
notice of each notice given to it by the Companies pursuant to the terms of this
Agreement, and to distribute promptly to each applicable Lender in like funds
all amounts delivered to the Agent by the Companies for the Ratable or
individual account of any Lender.
Section 7.02. Agent's Reliance, Etc. Neither the Agent, nor any of
---------------------
its directors, officers, agents, employees, or representatives shall be liable
for any action taken or omitted to be taken by it or them under or in connection
with this Agreement or any other Loan Papers, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Agent (a) may treat the payee of any Note as the holder thereof
until the Agent receives written notice of the assignment or transfer thereof
signed by such payee and in form satisfactory to the Agent; (b) may consult with
legal counsel (including counsel for the Companies or any of their
Subsidiaries), independent public accountants, and other experts selected by it,
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants, or
experts; (c) makes no warranty or representation to any Lender and shall not be
responsible to any Lender for any statements, warranties, or representations
made in or in connection with this Agreement or any other Loan Papers; (d) shall
not have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants, or conditions of this Agreement or any other
Loan Papers on the part of the Companies or their Subsidiaries or to inspect the
Property (including the books and records) of the Company or its Subsidiaries;
(e) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency, or value of this Agreement,
any other Loan Papers, or any other instrument or document furnished pursuant
hereto; and (f) shall incur no liability under or in respect of this Agreement
or any other Loan Papers by acting upon any notice, consent, certificate, or
other instrument or writing (which may be by telegram, cable, telex, or
telecopy) believed by it to be genuine and signed or sent by the proper party or
parties.
Section 7.03. NationsBank of Texas, N.A. and Affiliates. With respect
-----------------------------------------
to its Commitment, its Advances, and any Loan Papers, NationsBank of Texas, N.A.
shall have the same Rights under this
39
<PAGE>
Agreement as any other Lender and may exercise the same as though it were not
the Agent. NationsBank of Texas, N.A., and its Affiliates may accept deposits
from, lend money to, act as trustee under indentures of, and generally engage in
any kind of business with, the Companies, any Affiliate thereof, and any Person
who may do business therewith, all as if NationsBank of Texas, N.A. were not the
Agent and without any duty to account therefor to any Lender.
Section 7.04. Lender Credit Decision. Each Lender acknowledges that
----------------------
it has, independently and without reliance upon the Agent or any other Lender,
and based on the financial statements referred to in Section 4.02 hereof and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Papers.
Section 7.05. Indemnification by Lenders. Lenders agree to indemnify
--------------------------
the Agent, Pro Rata, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by, or asserted against the Agent in any way relating to or arising out of any
Loan Papers or any action taken or omitted by the Agent thereunder, including
any negligence of the Agent; provided, however, that no Lender shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, or disbursements resulting from the
Agent's gross negligence or willful misconduct. Without limitation of the
foregoing, Lenders agree to reimburse the Agent, Pro Rata, promptly upon demand
for any out-of-pocket expenses (including attorneys' fees) incurred by the Agent
in connection with the preparation, execution, delivery, administration,
modification, amendment, or enforcement (whether through negotiation, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, the Loan Papers.
Section 7.06. Successor Agent. The Agent may resign at any time by
---------------
giving written notice thereof to the Lenders and Company, and may be removed at
any time with or without cause by the action of all Lenders (other than the
Agent, if it is a Lender); provided, however, that if a successor Agent is
appointed without the consent of the Majority Lenders pursuant to the third
sentence of this Section, such successor Agent may be removed by the Majority
Lenders and Company. Upon any such resignation or removal, the Majority Lenders
shall have the right to appoint a successor Agent, with the consent of the
Company (which shall not be unreasonably withheld). If no successor Agent shall
have been so appointed and shall have accepted such appointment within 30 days
after the retiring Agent's giving of notice of resignation or the Lenders'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent, which shall be a commercial bank organized
under the Laws of the United States of America or of any State thereof and
having a combined capital and surplus of at least $50,000,000. Upon the
acceptance of any appointment as the Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the Rights
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under the Loan Papers, provided that if the
retiring or removed Agent is
40
<PAGE>
unable to appoint a successor Agent, the Agent shall, after the expiration of a
60 day period from the date of notice, be relieved of all obligations as Agent
hereunder. Notwithstanding any Agent's resignation or removal hereunder, the
provisions of this Article shall continue to inure to its benefit as to any
actions taken or omitted to be taken by it while it was the Agent under this
Agreement.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.01. Amendments and Waivers. No amendment or waiver of any
----------------------
provision of this Agreement or any other Loan Papers, nor consent to any
departure by the Companies or any of its Subsidiaries therefrom, shall be
effective unless the same shall be in writing and signed by the Agent with the
consent of the Majority Lenders, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver, or consent shall, unless in
writing and signed by all of the Lenders, (a) increase the Commitment, (b)
reduce any principal, interest, fees, or other amounts payable hereunder, or
waive any Event of Default under Section 6.01(a) hereof, (c) postpone any date
fixed for any payment of principal, interest, fees, or other amounts payable
hereunder, (d) release any collateral or guaranties securing the Companies'
obligations hereunder, other than releases contemplated hereby, (e) change the
meaning of Specified Percentage or the number of Lenders required to take any
action hereunder, (f) extend the Maturity Date, or (g) amend this Section. No
amendment, waiver, or consent shall affect the Rights or duties of the Agent
under any Loan Papers, unless it is in writing and signed by the Agent in
addition to the requisite number of Lenders.
Section 8.02. Notices. Unless otherwise provided herein, all
-------
notices, requests, consents, demands, and other communications shall be in
writing and shall be personally delivered, sent by telecopy or telex (answerback
received), or mailed, by certified mail, postage prepaid, to the following
addresses:
(bbb) If to the Companies:
American Freightways Corporation
2200 Forward Drive
Harrison, Arkansas 72601
Attention: Chief Financial Officer
41
<PAGE>
American Freightways, Inc.
2200 Forward Drive
Harrison, Arkansas 72601
Attention: Chief Financial Officer
(ccc) If to the Agent:
NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Attention: Corporate Banking Department
(ddd) If to any Lender, to its address shown on the signature
pages hereto
or to such other address as any party may designate in written notice to the
other parties. All notices, requests, consents, demands, and other
communications hereunder will be effective when so personally delivered or sent
by telecopy or telex, or five days after being so mailed; provided, however,
that notices to the Agent pursuant to Article II hereof shall be effective when
received. The Companies agree that the Agent shall have no duty or obligation
to verify or otherwise confirm telephonic notices given pursuant to Article II
hereof, and agree to indemnify and hold harmless the Agent and Lenders for any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, and expenses resulting, directly or indirectly,
from acting upon any such notice.
Section 8.03. Parties in Interest. All covenants and agreements
-------------------
contained in this Agreement and all other Loan Papers shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto. The
Lenders may from time to time assign or transfer their interests hereunder
pursuant to Section 8.04 hereof. The Companies may not assign or transfer their
respective Rights or obligations hereunder without the prior written consent of
all Lenders.
Section 8.04. Assignments and Participations.
------------------------------
42
<PAGE>
(eee) Each Lender may assign its Rights and obligations as a Lender
under the Loan Papers to one or more Eligible Assignees, so long as each
assignment shall be of a constant, and not a varying, percentage of all Rights
and obligations thereunder, and the Companies shall approve of the assignee
(which approval shall not be unreasonably withheld). Within five Business Days
after notice of any such assignment, the Companies shall execute and deliver to
the Agent, in exchange for the Note issued to such Lender, new Notes to the
order of such Lender and its assignee in amounts equal to their respective
Specified Percentages of the Commitment. Such new Notes shall be dated the
effective date of the assignment. It is specifically acknowledged and agreed
that on and after the effective date of each assignment, the assignee shall be a
party hereto and shall have the Rights and obligations of a Lender under the
Loan Papers.
(fff) Each Lender may sell participations to one or more banks or
other entities in all or any of its Rights and obligations under the Loan
Papers; provided, however, that (i) such Lender's obligations under the Loan
Papers shall remain unchanged, (ii) such Lender shall remain solely responsible
to the other parties hereto for the performance of such obligations, (iii) such
Lender shall remain the holder of its Note for all purposes of the Loan Papers,
(iv) the participant shall be granted the Right to vote on or consent to only
those matters described in subsections (a) through (d) of Section 8.01 hereof,
and (v) the Companies, Agent, and other Lenders shall continue to deal solely
and directly with such Lender in connection with its Rights and obligations
under the Loan Papers.
(ggg) Any Lender may, in connection with any assignment or
participation, or proposed assignment or participation, disclose to the assignee
or participant, or proposed assignee or participant, any information relating to
the Company or any of its Subsidiaries furnished to such Lender by or on behalf
of the Company or its Subsidiaries; provided, however, that, prior to any such
disclosure, the assignee or participant or proposed assignee or participant
shall agree to preserve the confidentiality of any Confidential Information
received by it from such Lender. For purposes of this Section 8.04(c), the term
"Confidential Information" shall mean information about the Companies or any
------------------------
Subsidiary furnished by the Companies or any Subsidiary to a Lender, but does
include any information (i) which is publicly known, or otherwise known to such
Lender, at the time of disclosure, (ii) which subsequently becomes publicly
known through no act or omission by such Lender or (iii) which otherwise becomes
known to such Lender other than through disclosure by the Companies or any
Subsidiary.
(hhh) Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Advances owing to it and the Note or Notes held by it) in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of the
Federal Reserve System.
Section 8.05. Sharing of Payments. If any Lender shall obtain any
-------------------
payment (whether voluntary, involuntary, through the exercise of any Right of
set-off, or otherwise) on account of its Advances in excess of its Pro Rata
share of payments made by the Companies, such Lender shall
43
<PAGE>
forthwith purchase participations in Advances made by the other Lenders as shall
be necessary to share the excess payment Pro Rata with each of them; provided,
however, that if any of such excess payment is thereafter recovered from the
purchasing Lender, its purchase from each Lender shall be rescinded and each
Lender shall repay the purchase price to the extent of such recovery together
with a Pro Rata share of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Companies
agree that any Lender so purchasing a participation from another Lender pursuant
to this Section may, to the fullest extent permitted by Law, exercise all its
Rights of payment (including the Right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Companies in the amount of such participation.
Section 8.06. Right of Set-off. Upon the occurrence and during the
----------------
continuance of any Event of Default, each Lender is hereby authorized at any
time and from time to time, to the fullest extent permitted by Law, to set-off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender to or for the credit or the account of either Company against any and all
of the obligations of the Companies now or hereafter existing under this
Agreement and the other Loan Papers, whether or not such Lender shall have made
any demand under this Agreement or the other Loan Papers, and even if such
obligations are unmatured. Each Lender shall promptly notify the Companies
after any such set-off and application, provided that the failure to give such
notice shall not affect the validity of such set-off and application. The
Rights of each Lender under this Section are in addition to other Rights
(including, without limitation, other Rights of set-off) which each Lender may
have.
Section 8.07. Costs, Expenses, and Taxes.
--------------------------
(iii) The Companies, jointly and severally, agree to pay on demand
(i) all costs and expenses of the Agent in connection with the preparation,
negotiation, and administration of any Loan Papers, including without limitation
the reasonable fees and out-of-pocket expenses of counsel for the Agent, (ii)
all costs and expenses (including reasonable attorneys' fees and expenses) of
the Agent in connection with modification, amendment, waiver, or release of any
Loan Papers, and (iii) all costs and expenses (including reasonable attorneys'
fees and expenses) of the Agent and Lenders in connection with any
restructuring, work-out, or collection of any portion of the Obligation or the
enforcement of any Loan Papers.
(jjj) In addition, the Companies, jointly and severally, shall pay
any and all stamp, debt, and other Taxes payable or determined to be payable in
connection with any payment hereunder (other than Taxes on the overall net
income of the Agent or any Lender), or the execution, delivery, or recordation
of any Loan Papers, and agrees to save the Agent and Lenders harmless from and
against any and all liabilities with respect to, or resulting from any delay in
paying or omission to pay any Taxes in accordance with this Section, including
any penalty, interest, and expenses relating thereto. All payments by the
Companies or any Subsidiary under any Loan Papers shall be made free and clear
of and without deduction for any present or future Taxes (other than Taxes on
the overall net income of the Agent or any Lender) of any nature now or
hereafter existing, levied, or withheld, including all
44
<PAGE>
interest, penalties, or similar liabilities relating thereto. If the Companies
or any Subsidiary shall be required by Law to deduct or to withhold any Taxes
from or in respect of any amount payable hereunder, (i) the amount so payable
shall be increased to the extent necessary so that, after making all required
deductions and withholdings (including Taxes on amounts payable to the Agent or
any Lender pursuant to this sentence), the payee receives an amount equal to the
sum it would have received had no such deductions or withholdings been made,
(ii) the Companies or such Subsidiary shall make such deductions or
withholdings, and (iii) the Companies or such Subsidiary shall pay the full
amount deducted or withheld to the relevant taxing authority in accordance with
applicable Law.
Section 8.08. Indemnification by Companies. The Companies agree to
----------------------------
indemnify, defend, and hold harmless the Agent, the Lenders, and their
Affiliates, directors, officers, agents, employees, and representatives, from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses, and disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against any of them in any way relating to or arising out of any Loan Papers
(including in connection with or as a result, in whole or in part, of the
negligence of any of them), any transaction related hereto or thereto, or any
act, omission, or transaction of the Companies and their respective Affiliates,
or any of their directors, officers, agents, employees, or representatives;
provided, however, that the Agent and Lenders, as applicable, shall be liable to
the Company and its Subsidiaries only to the extent of any direct (as opposed to
consequential) damages suffered by the Companies and its Subsidiaries; and
provided further, that the Agent and Lenders shall not be indemnified, defended,
and held harmless pursuant to this Section for any losses or damages which the
Companies prove were caused by the indemnified party's willful misconduct or
gross negligence. The obligations of the Companies under this Section 8.08
shall survive the termination of this Agreement and/or the Commitment and the
repayment of the Obligation.
Section 8.09. Rate Provision. It is not the intention of any party
--------------
to any Loan Papers to make an agreement violative of the Laws of any applicable
jurisdiction relating to usury. In no event shall the Companies or any of their
Subsidiaries be obligated to pay any amount in excess of the Maximum Amount. If
any Lender ever receives, collects or applies, as interest, any such excess,
such amount which would be excessive interest shall be deemed a partial
repayment of principal and treated hereunder as such; and if principal is paid
in full, any remaining excess shall be paid to the Companies. In determining
whether or not the interest paid or payable, under any specific contingency,
exceeds the Maximum Amount, the Companies and Lenders shall, to the maximum
extent permitted under Applicable Laws, (i) characterize any nonprincipal
payment as an expense, fee or premium rather than as interest, (ii) exclude
voluntary prepayments and the effect thereof, and (iii) amortize, prorate,
allocate and spread in equal parts, the total amount of interest throughout the
entire contemplated term of the Obligation so that the interest rate is uniform
throughout the entire term of the Obligation; provided that if the Obligation is
paid and performed in full prior to the end of the full contemplated term
thereof, and if the interest received for the actual period of existence thereof
exceeds the Maximum Amount, Lenders shall refund to the Companies the amount of
such excess or credit the amount of such excess against the total principal
amount owing, and, in such event, no Lender shall be
45
<PAGE>
subject to any penalties provided by any Laws for contracting for, charging or
receiving interest in excess of the Maximum Amount. This Section 8.09 shall
control every other provision of all agreements among the parties to this
Agreement pertaining to the transactions contemplated by or contained in the
Loan Papers.
Section 8.10. Severability. If any provision of any Loan Papers is
------------
held to be illegal, invalid, or unenforceable under present or future Laws
during the term thereof, such provision shall be fully severable, the
appropriate Loan Paper shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part thereof, and the
remaining provisions thereof 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 such
Loan Paper a legal, valid, and enforceable provision as similar in terms to the
illegal, invalid, or unenforceable provision as may be possible.
Section 8.11. Exceptions to Covenants. Neither Company nor any of
-----------------------
their Subsidiaries shall be deemed to be permitted to take any action or to fail
to take any action that is permitted as an exception to any covenant in any Loan
Papers, or that is within the permissible limits of any covenant, if such action
or omission would result in a violation of any other covenant in any Loan
Papers.
Section 8.12. Counterparts. This Agreement and the other Loan Papers
------------
may be executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument. In making proof of any such agreement,
it shall not be necessary to produce or account for any counterpart other than
one signed by the party against which enforcement is sought.
SECTION 8.13. GOVERNING LAW; WAIVER OF JURY TRIAL.
-----------------------------------
(kkk) THIS AGREEMENT AND ALL OTHER LOAN PAPERS SHALL BE DEEMED TO BE
CONTRACTS MADE IN DALLAS, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO
CONFLICT OF LAWS) AND THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, THE COMPANY AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS
LOCATED IN DALLAS, TEXAS, WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION
HEREWITH. TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE COMPANIES HEREBY WAIVE ANY
RIGHT THAT THEY MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN
TORT, CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS
AGREEMENT, THE OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY
SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
46
<PAGE>
(lll) THE COMPANIES HEREBY WAIVE PERSONAL SERVICE OF ANY LEGAL
PROCESS UPON THEM. UNDER THE LOAN PAPERS, IN ADDITION, THE COMPANIES AGREE THAT
SERVICE OF PROCESS MAY BE MADE UPON THEM BY REGISTERED MAIL (RETURN RECEIPT
REQUESTED) DIRECTED TO THE COMPANIES AT THEIR ADDRESS DESIGNATED FOR NOTICE
UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE
DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL. NOTHING IN THIS SECTION SHALL
AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW.
SECTION 8.14. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN
----------------
PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
47
<PAGE>
IN WITNESS WHEREOF, this Credit Agreement is executed as of the date
first set forth above.
COMPANIES: AMERICAN FREIGHTWAYS CORPORATION
By /s/ James R. Dodd
--------------------------------------
Title: Executive VP-Accounting & Finance
----------------------------------
AMERICAN FREIGHTWAYS, INC.
By /s/ James R. Dodd
--------------------------------------
Title: Executive VP-Accounting & Finance
----------------------------------
48
<PAGE>
AGENT: NATIONSBANK OF TEXAS, N.A., as Agent
By /s/ Steven A. Deily
--------------------------------------
Title: Senior Vice President
----------------------------------
LENDERS:
Specified Percentage: 46.0% NATIONSBANK OF TEXAS, N.A., Individually
Address:
901 Main Street, 67th Floor
Dallas, Texas 75202
By /s/ Steven A. Deily
--------------------------------------
Title: Senior Vice President
----------------------------------
Attn: Corporate Banking Department
49
<PAGE>
Specified Percentage: 34.0% TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
Address:
2200 Ross Avenue, 3rd Floor
Dallas, Texas 75201
By /s/ Scot Brunke
--------------------------------------
Title: Vice President
----------------------------------
Attn: Regional Banking Department
50
<PAGE>
Specified Percentage: 20.0% WACHOVIA BANK OF GEORGIA, N.A.
Address:
191 Peachtree Street
Atlanta, Georgia 30303
By /s/ F. Alan Smith
--------------------------------------
Title: Vice President
----------------------------------
Attn: Atlanta Corporate
-------------------------
51
<PAGE>
EXHIBIT A
PROMISSORY NOTE
U.S. $_______ $Dated: October 20, 1994
FOR VALUE RECEIVED, the undersigned, AMERICAN FREIGHTWAYS CORPORATION,
an Arkansas corporation, and AMERICAN FREIGHTWAYS, INC., an Arkansas
corporation (collectively, the "Companies"), HEREBY, JOINTLY AND SEVERALLY,
PROMISE TO PAY to the order of _________________ (the "Lender") the lesser of
_____________ MILLION AND NO/100 Dollars ($_________) and the unpaid principal
amount of the Advances made by the Lender to the Companies pursuant to the
Credit Agreement, payable at such times, and in such amounts, as are specified
in the Credit Agreement.
The Companies, jointly and severally, promise to pay interest on the
unpaid principal amount of the Advances from the date made until such
principal amount is paid in full, at such interest rates, and payable at such
times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to NationsBank of Texas, N.A. as Agent for the Lender, at
901 Main Street, Dallas, Texas 75202 in immediately available funds.
This Note is one of the Notes referred to in, and is entitled to the
benefits of, the Amended and Restated Credit Agreement dated as of October 20,
1994 among the Companies, the Lender and certain other banks parties thereto,
and NationsBank of Texas, N.A., as Agent for the Lender and such other banks
(as from time to time amended, modified or supplemented, the "Credit
Agreement"). The Credit Agreement, among other things, contains provisions for
acceleration of the maturity hereof upon the happening of certain stated
events and also for prepayments on account of principal hereof prior to the
maturity hereof upon the terms and conditions therein specified.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS.
AMERICAN FREIGHTWAYS CORPORATION
By:_________________________________
Title:___________________________
AMERICAN FREIGHTWAYS, INC.
By:_________________________________
Title:___________________________
<PAGE>
EXHIBIT B
REQUEST FOR MATURITY DATE EXTENSION
NationsBank of Texas, N.A., Agent
901 Main Street, 67th Floor
Dallas, Texas 75202
Attention: Corporate Banking Department
Re: Amended and Restated Credit Agreement, dated October 20, 1994,
among American Freightways Corporation, American Freightways, Inc., NationsBank
of Texas, N.A., as Agent, and the Lenders parties thereto ("Credit Agreement";
capitalized terms used herein shall have the same meaning given to them in the
Credit Agreement)
Gentlemen:
Pursuant to Section 2.12 of the Credit Agreement, Companies hereby
request the Lenders to extend the Maturity Date of the Credit Agreement for an
additional 12 months to ___________, 199__.
Please have each Lender indicate its decision with respect to such
request by checking the appropriate box as indicated below and returning a
copy of this letter.
Very truly yours,
AMERICAN FREIGHTWAYS CORPORATION
By:_________________________________
Its:_____________________________
AMERICAN FREIGHTWAYS, INC.
By:_________________________________
Its:_____________________________
<PAGE>
NationsBank of Texas, N.A.
Page 2
(LENDER) hereby:
[_] agrees to extend the Maturity Date
for an additional 12 months
[_] declines to extend the Maturity Date
for an additional 12 months
By:____________________________
Title:___________________
2
<PAGE>
EXHIBIT C
OFFICER'S CERTIFICATE - FINANCIAL
---------------------------------
NationsBank of Texas, N.A., as
Agent, and Lenders as defined
in the Credit Agreement
referred to below
Gentlemen:
This Officer's Certificate is made as of ____________, 19__. Capitalized
terms used herein shall have the meanings set forth in the Credit Agreement
(hereafter defined). The undersigned certifies that:
(2) He is the duly elected ______________________ of American
Freightways Corporation, an Arkansas corporation, and American
Freightways, Inc., an Arkansas corporation (collectively,
"Companies").
---------
(3) He has reviewed the terms of the Amended and Restated Credit
Agreement ("Credit Agreement"), dated as of October 20, 1994, among
----------------
Company, NationsBank of Texas, N.A. as Administrative Lender, and
the Lenders parties thereto and he has made, or has caused to be
made under his supervision a detailed review of the transactions
and conditions of Companies and their Subsidiaries during the
accounting period covered by the attached financial statements;
(4) The examinations described in Paragraph (2) did not
-------------
disclose, and he has no knowledge of, the existence of any
condition or event which constitutes an Event of Default or Default
during or at the end of the accounting period covered by the
attached financial statements or as of the date of this Officer's
Certificate, except as set forth below; and
(5) As of the date of this Officer's Certificate, Companies and
their Subsidiaries are not in default under any covenant set forth
in Article V of the Credit Agreement.
(6) The attached financial statements are complete and correct
in all material respects (subject to normal year-end audit
adjustments) and have been prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods
reflected therein.
Describe below (or in a separate attachment to this Officer's
Certificate) the exceptions, if any, to Paragraph (3) by listing, in detail, the
-------------
nature of the condition or event, the period during which it has
<PAGE>
existed and the action which the Companies have taken, is taking, or proposes to
take with respect to each such condition or event:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The foregoing certifications together with the computations set forth
in Attachment No. 1 hereto, and the financial statements delivered with this
----------------
Officer's Certificate in support hereof, are made and delivered this ____ day of
______________, 19__ pursuant to Section 5.13 of the Credit Agreement.
------------
AMERICAN FREIGHTWAYS CORPORATION
By:_________________________________
______________,___________________
(Print Name) (Print Title)
AMERICAN FREIGHTWAYS, INC.
By:_________________________________
______________,___________________
(Print Name) (Print Title)
2
<PAGE>
ATTACHMENT "1" TO OFFICER'S CERTIFICATE - FINANCIAL
(The Officer's Certificate attached hereto is as of ___________, 19__
and pertains to the period from ______________, 19__ to __________, 19__.)
Capitalized terms used herein shall have the meanings set forth in the
Amended and Restated Credit Agreement ("Credit Agreement") dated as of
----------------
October 20, 1994 among American Freightways Corporation, American Freightways,
Inc., NationsBank of Texas, N.A., as Agent, and the Lenders parties thereto.
Section references herein relate to the Sections of the Credit Agreement and
000's omitted.
<TABLE>
<CAPTION>
5.01 Company Debt
------------
<S> <C>
(A) Total Debt = $_____
(B) Total Capitalization = $_____
(C) A/B = ______
Covenant = C less than 0.65 (for the period from date of Credit Agreement
through 12/31/97)
C less than 0.60 (thereafter)
</TABLE>
<TABLE>
<CAPTION>
5.02 Subsidiary Debt
---------------
<S> <C>
(A) Subsidiary Debt = $_____
(B) Liens = $_____ (taken from 5.06(A) below)
(C) Net Worth X 10% = $_____
</TABLE>
Covenant = (A + B) less than C
<TABLE>
<CAPTION>
5.03 Fixed Charge Ratio
------------------
<S> <C>
(A) Income Available for Fixed Charges = $_____
(B) Pro Forma Fixed Charges = $_____
(C) A / B = $_____
</TABLE>
Covenant = C greater than 2.00
<TABLE>
<CAPTION>
5.04 Current Ratio
-------------
<S> <C>
(A) Current Assets = $_____
(B) Current Liabilities = $_____
(C) A / B = ______
Covenant = C greater than 1.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5.05 Dividend Limitation
-------------------
<S> <C>
(A) Net Earnings = $_____
(B) A x 75% = $_____
(C) Restricted Payments = $_____
Covenant = C less than B
</TABLE>
5.06 Liens
-----
(A) Princ. amt. of secured debt permitted by 5.06 (iii), (iv), (v) &
(vi) and 5.02
= $_________ (excluding ADFAED Revenue Bonds)
(B) Net Worth X 10% = $
Covenant = A less than B
5.07 Loans, Advances, Investments and Contingent Liabilities
-------------------------------------------------------
(A) Loans and advances to stockholders, officers and employees = $______
Covenant = A less than or = to $750,000
12626.01
100-199
2
<PAGE>
EXHIBIT 10(t)
American Freightways Corporation
2200 Forward Drive
Harrison, Arkansas 72601
American Freightways, Inc.
2200 Forward Drive
Harrison, Arkansas 72601
October 19, 1994
The Prudential Insurance Company
of America
c/o Prudential Capital Group
1201 Elm St., Suite 4900
Dallas, Texas 75270
LETTER AMENDMENT NO. 3 TO NOTE AGREEMENT
Ladies and Gentlemen:
We refer to the Note Agreement dated as of November 30, 1991 (as
previously amended, the "AGREEMENT"), by and between the undersigned and you,
regarding the purchase of the 8.91% Senior Notes due November 30, 2001. Unless
otherwise defined herein, the terms defined in the Agreement shall be used
herein as therein defined.
The Agreement is, effective the date first above written, hereby
amended as follows:
(a) PARAGRAPH 6A(1). Paragraph 6A(1) is amended in full to read as
follows:
6A(1). DEBT. The Companies will not permit at any time the ratio
of the aggregate amount of Debt of the Companies and their Subsidiaries
on a consolidated basis to Total Capitalization to be greater than (a)
0.65 to 1.00, for the period from the date of this Agreement to and
including December 31, 1997, and (b) 0.60 to 1.00, thereafter.
(b) PARAGRAPH 6A(3). Paragraph 6A(3) is amended in full to read as
follows:
6A(3). FIXED CHARGE RATIO. The Companies will not permit at any
time the ratio of Income Available for Fixed Charges (based on the four
fiscal quarters prior to the date of determination) to Fixed Charges
(based on the four fiscal quarters prior to the date of determination)
to be less than 2.00 to 1.00.
(c) PARAGRAPH 6A(4). Paragraph 6A(4) is amended by deleting the figure
"1.10" therein and substituting for such figure the figure "1.00."
<PAGE>
(d) PARAGRAPH 6A(5). Paragraph 6A(5) is deleted in full.
(e) PARAGRAPH 10B.
(i) Paragraph 10B is amended by adding thereto the following
definitions:
"FIXED CHARGES" means with respect to the Companies and their
Subsidiaries on a consolidated basis the sum of (i) interest expense,
(ii) scheduled principal payments (including mandatory reduction in any
fully-funded revolving credit facility), (iii) operating lease
expenses, (iv) rental expense and (v) capital lease payments (including
both interest and principal components), each for the applicable period
and determined in accordance with GAAP.
"TOTAL CAPITALIZATION" means, as of any date of
determination, an amount equal to the sum of (a) aggregate Debt of the
Companies and their Subsidiaries on a consolidated basis plus (b) Net
Worth.
(ii) Paragraph 10B is further amended by deleting the figure "50%"
set forth in the definition of "NET EARNINGS AVAILABLE FOR RESTRICTED
PAYMENTS" and substituting for such figure the figure "75%".
(iii) Paragraph 10B is further amended by deleting the definition
of "PRO FORMA FIXED CHARGES" in its entirety.
On and after the effective date of this letter amendment, each
reference in the Agreement to "this Agreement", "hereunder", "hereof", or words
of like import referring to the Agreement, and each reference in the Notes to
"the Agreement", "thereunder", "thereof", or words of like import referring to
the Agreement, shall mean the Agreement as amended by this letter amendment. The
Agreement, as amended by this letter amendment, is and shall continue to be in
full force and effect and is hereby in all respects ratified and confirmed. The
execution, delivery and effectiveness of this letter amendment shall not, except
as expressly provided herein, operate as a waiver of any right, power or remedy
under the Agreement nor constitute a waiver of any provision of the Agreement.
This letter amendment may be executed in any number of counterparts and
by any combination of the parties hereto in separate counterparts, each of which
counterparts shall be an original and all of which taken together shall
constitute one and the same letter amendment.
If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning at least a counterpart of this letter
amendment to The Prudential Insurance Company of America, c/o Prudential Capital
Group, 1201 Elm St., Suite 4900, Dallas, Texas 75270, Attention of William N.
Bentley. This letter amendment shall become effective as of the date first
-2-
<PAGE>
above written when and if counterparts of this letter amendment shall have been
executed by us and you on or before October 31, 1994 and you shall have entered
into that certain proposed Amended and Restated Credit Agreement, between the
Companies and NationsBank of Texas, N.A., as agent, a draft of which has been
provided to you under cover of a letter dated October 14, 1994, from A. Lamar
Youngblood of Donohoe, Jameson & Carroll, P.C.
Very truly yours,
AMERICAN FREIGHTWAYS CORPORATION
By: /s/ James R. Dodd
------------------------------------
Title: Executive Vice President
Accounting & Finance
AMERICAN FREIGHTWAYS, INC.
By: /s/ James R. Dodd
------------------------------------
Title: Executive Vice President
Accounting & Finance
Agreed as of the date
first above written:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By /s/ Paul L. Meiring
----------------------------
Vice President
-3-
<PAGE>
EXHIBIT 10(u)
American Freightways Corporation
2200 Forward Drive
Harrison, Arkansas 72601
American Freightways, Inc.
2200 Forward Drive
Harrison, Arkansas 72601
October 19, 1994
The Prudential Insurance Company
of America
c/o Prudential Capital Group
1201 Elm St., Suite 4900
Dallas, Texas 75270
LETTER AMENDMENT NO. 1 TO MASTER SHELF AGREEMENT
Ladies and Gentlemen:
We refer to the Master Shelf Agreement dated as of September 3, 1993
(the "AGREEMENT") by and between the undersigned and you. Unless otherwise
defined herein, the terms defined in the Agreement shall be used herein as
therein defined.
The Agreement is, effective the date first above written, hereby
amended as follows:
(a) PARAGRAPH 6A(1). Paragraph 6A(1) is amended in full to read as
follows:
6A(1). DEBT. The Companies will not permit at any time the ratio
of the aggregate amount of Debt of the Companies and their Subsidiaries
on a consolidated basis to Total Capitalization to be greater than (a)
0.65 to 1.00, for the period from the date of this Agreement to and
including December 31, 1997, and (b) 0.60 to 1.00, thereafter.
(b) PARAGRAPH 6A(3). Paragraph 6A(3) is amended in full to read as
follows:
6A(3). FIXED CHARGE RATIO. The Companies will not permit at any
time the ratio of Income Available for Fixed Charges (based on the four
fiscal quarters prior to the date of determination) to Fixed Charges
(based on the four fiscal quarters prior to the date of determination)
to be less than 2.00 to 1.00.
(c) PARAGRAPH 6A(4). Paragraph 6A(4) is amended by deleting the figure
"1.10" therein and substituting for such figure the figure "1.00."
<PAGE>
(d) PARAGRAPH 6A(5). Paragraph 6A(5) is deleted in full.
(e) PARAGRAPH 10B.
(i) Paragraph 10B is amended by adding thereto the following
definitions:
"FIXED CHARGES" means with respect to the Companies and
their Subsidiaries on a consolidated basis the sum of (i) interest
expense, (ii) scheduled principal payments (including mandatory
reduction in any fully-funded revolving credit facility), (iii)
operating lease expenses, (iv) rental expense and (v) capital lease
payments (including both interest and principal components), each for
the applicable period and determined in accordance with GAAP.
"TOTAL CAPITALIZATION" means, as of any date of
determination, an amount equal to the sum of (a) aggregate Debt of the
Companies and their Subsidiaries on a consolidated basis plus (b) Net
Worth.
(ii) Paragraph 10B is further amended by deleting the figure "50%"
set forth in the definition of "NET EARNINGS AVAILABLE FOR RESTRICTED
PAYMENTS" and substituting for such figure the figure "75%".
(iii) Paragraph 10B is further amended by deleting the definition
of "PRO FORMA FIXED CHARGES" in its entirety.
On and after the effective date of this letter amendment, each
reference in the Agreement to "this Agreement", "hereunder", "hereof", or words
of like import referring to the Agreement, and each reference in the Notes to
"the Agreement", "thereunder", "thereof", or words of like import referring to
the Agreement, shall mean the Agreement as amended by this letter amendment. The
Agreement, as amended by this letter amendment, is and shall continue to be in
full force and effect and is hereby in all respects ratified and confirmed. The
execution, delivery and effectiveness of this letter amendment shall not, except
as expressly provided herein, operate as a waiver of any right, power or remedy
under the Agreement nor constitute a waiver of any provision of the Agreement.
This letter amendment may be executed in any number of counterparts and
by any combination of the parties hereto in separate counterparts, each of which
counterparts shall be an original and all of which taken together shall
constitute one and the same letter amendment.
If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning at least a counterpart of this letter
amendment to The Prudential Insurance Company of America, c/o Prudential Capital
Group, 1201 Elm St., Suite 4900, Dallas, Texas 75270, Attention of William N.
Bentley. This letter amendment shall become effective as of the date first
above written when and if counterparts of this letter amendment shall have been
executed by us and
-2-
<PAGE>
you on or before October 31, 1994 and you shall have entered into that certain
proposed Amended and Restated Credit Agreement, between the Companies and
NationsBank of Texas, N.A., as agent, a draft of which has been provided to you
under cover of a letter dated October 14, 1994, from A. Lamar Youngblood of
Donohoe, Jameson & Carroll, P.C.
Very truly yours,
AMERICAN FREIGHTWAYS CORPORATION
By: /s/ James R. Dodd
------------------------------------
Title: Executive Vice President
Accounting & Finance
AMERICAN FREIGHTWAYS, INC.
By: /s/ James R. Dodd
------------------------------------
Title: Executive Vice President
Accounting & Finance
Agreed as of the date
first above written:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By /s/ Paul L. Meiring
----------------------------
Vice President
-3-
<PAGE>
EXHIBIT 10(v)
AMERICAN FREIGHTWAYS CORPORATION
2300 FORWARD DRIVE
HARRISON, ARKANSAS 72601
AMERICAN FREIGHTWAYS, INC.
2200 FORWARD DRIVE
HARRISON, ARKANSAS 72601
LETTER AMENDMENT NO. 2 TO MASTER SHELF AGREEMENT
December 14, 1994
The Prudential Insurance Company
of America
c/o Prudential Capital Group
1201 Elm St., Suite 4900
Dallas, Texas 75270
Ladies and Gentlemen:
We refer to the Master Shelf Agreement dated as of September 3, 1993,
as amended on October 19, 1994 (the "AGREEMENT"), among American Freightways
Corporation and American Freightways, Inc. (collectively, the "COMPANIES") and
The Prudential Insurance Company of America ("PRUDENTIAL"), pursuant to which
the Companies have issued and Prudential has purchased Senior Notes of the
Companies in the aggregate principal amount of $30,000,000. Unless otherwise
defined herein, the terms defined in the Agreement shall be used herein as
therein defined.
The Companies desire to extend the term of the Facility (subject to
earlier termination in accordance with the Agreement ) and to increase the
amount of Notes available to be issued under the Agreement to an aggregate
principal amount of $90,000,000 (creating an Available Facility Amount of
$60,000,000 as of the date hereof).
Therefore, Prudential and the Companies, in consideration of the
mutual promises and Agreements set forth herein and in the Agreement, agree as
follows:
(a) AMENDMENT TO PARAGRAPH 1. Paragraph 1 of the Agreement is amended
in full to read as follows:
<PAGE>
1. AUTHORIZATION OF ISSUE OF NOTES. The Companies will authorize the
issue of their senior promissory notes (the "NOTES") in the aggregate
principal amount of up to $90,000,000, to be dated the date of issue
thereof, to mature, in the case of each Note so issued, no more than 10
years from the date of issue thereof, to have an average life of no more
than 8 years, to bear interest on the unpaid balance thereof from the date
thereof at the rate per annum, and to have such other particular terms, as
shall be set forth, in the case of each Note so issued, in the Confirmation
of Acceptance with respect to such Note delivered pursuant to paragraph 2F,
and to be substantially in the form of Exhibit A attached hereto. The term
---------
"NOTES" as used herein shall include each Note delivered pursuant to any
provision of this Agreement and each Note delivered in substitution or
exchange for any such Note pursuant to any such provision. Notes which
have (i) the same final maturity, (ii) the same installment payment dates,
(iii) the same installment payment amounts (as a percentage of the original
principal amount of each Note), (iv) the same interest rate, and (v) the
same interest payment periods, are herein called a "SERIES" of Notes.
(b) AMENDMENT TO PARAGRAPH 2B. Paragraph 2B of the Agreement is amended in
full to read as follows:
2B. ISSUANCE PERIOD. Notes may be issued and sold pursuant to this
Agreement until the earlier of (i) December 14, 1996 and (ii) the thirtieth
day after Prudential shall have given to the Companies, or the Companies
shall have given to Prudential, a notice stating that it elects to
terminate the issuance and sale of Notes pursuant to this Agreement (or if
such thirtieth day is not a Business Day, the Business Day next preceding
such thirtieth day). The period during which Notes may be issued and sold
pursuant to this Agreement is herein called the "ISSUANCE PERIOD".
(c) CONDITIONS PRECEDENT. The effectiveness of this Amendment is
contingent on (1) the Companies providing to Prudential certified copies of (i)
a resolution of their Boards of Directors approving the amendments to the
Agreement herein contained and (ii) all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to the
amendments to the Agreement herein contained and (2) receipt by Prudential of a
facility fee of $10,000 in immediately available funds.
On and after the effective date of this letter amendment, each reference in
the Agreement to "this Agreement", "hereunder", "hereof", or words of like
import referring to the Agreement, and each reference in the Notes to "the
Agreement", "thereunder", "thereof", or words of like import referring to the
Agreement, shall mean the Agreement as amended by this letter amendment. The
Agreement, as amended by this letter amendment, is and shall continue to be in
full force and effect and is hereby in all respects ratified and confirmed. The
execution, delivery and effectiveness of this letter amendment shall not, except
as expressly provided herein, operate as a waiver of any right, power or remedy
under the Agreement nor constitute a waiver of any provision of the Agreement.
2
<PAGE>
This letter amendment may be executed in any number of counterparts and by
any combination of the parties hereto in separate counterparts, each of which
counterparts shall be an original and all of which taken together shall
constitute one and the same letter amendment.
If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning at least two counterparts of this letter
amendment to American Freightways Corporation, 2200 Forward Drive, Harrison,
Arkansas 72601, Attention: Stephen Bruffett and American Freightways, Inc. 2200
Forward Drive, Harrison, Arkansas 72601, Attention: Stephen Bruffett. This
letter amendment shall become effective as of the date first above written when
and if counterparts of this letter amendment shall have been executed by us and
you and the condition set forth above shall have been satisfied.
Very truly yours,
AMERICAN FREIGHTWAYS CORPORATION
By /s/ James R. Dodd
-------------------------------------
Title: Executive Vice President
Accounting & Finance
AMERICAN FREIGHTWAYS, INC.
By /s/ James R. Dodd
-------------------------------------
Title: Executive Vice President
Accounting & Finance
Agreed as of the date
first above written:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By /s/ Randall M. Kob
------------------------
Vice President
3
<PAGE>
EXHIBIT 13
Year In Review:
Growth is a Way of Life at AF.
Management expects that growth in operating revenue is sustainable.
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations
The following table sets forth, for the years indicated, the percentages of
operating expenses and other items to operating revenue:
<TABLE>
<CAPTION>
1994 1993 1993
<S> <C> <C> <C>
Operating revenue 100.0% 100.0% 100.0%
Operating expenses and costs:
Salaries, wages and benefits 53.1 51.4 47.8
Operating supplies and expenses 6.6 6.7 6.5
Operating taxes and licenses 4.1 3.8 3.7
Insurance 3.3 2.4 3.3
Communications and utilities 1.9 2.1 1.7
Depreciation and amortization 6.0 6.5 6.5
Rents and purchased transportation 9.8 12.9 15.1
Other 4.5 4.8 5.3
Total operating expenses 89.3 90.6 89.9
Operating income 10.7 9.4 10.1
Interest expense 1.5 1.3 1.9
Other income, net 0.2 0.1 0.2
Income before taxes 9.4 8.2 8.4
Income taxes 3.6 3.1 3.1
Income before extraordinary item and
cumulative effect of accounting change 5.8% 5.1% 5.3%
</TABLE>
Results of Operations
1994 compared to 1993
Revenue
Operating revenue for 1994 was $465,588,000, up 41.7%, compared to
$328,464,000 for 1993. The growth in operating revenue was primarily
attributable to a 34.5% increase in tonnage handled by the Company from new and
existing customers. The major causes of this increase in tonnage were:
. On April 5, 1993, the Company opened nine new terminals to extend all-points
coverage to the State of Kentucky and the Southern regions of Indiana and
Ohio. The year 1994 included a full year of operation of these terminals.
1
<PAGE>
. On January 1, 1994, the Company expanded its all-points coverage to the states
of Indiana and Ohio with the opening of fourteen new terminals.
. The Company continued to increase its market penetration into service
territory that existed on January 1, 1994.
. The one-time increase in tonnage as a result of a strike in April 1994, by the
International Brotherhood of Teamsters against several companies in the less-
than-truckload industry. This one-time strike-related increase in tonnage
resulted in extra operating revenue of approximately $12,000,000. In addition
to the one-time impact of the strike, tonnage increased due to the retention
of a portion of the strike-related tonnage. Management estimates that
approximately 20% - 25% of strike-related freight volumes were retained by the
Company.
In addition to the increase in tonnage, operating revenue was increased by
a 5.5% increase in revenue per hundred weight. The major factors contributing
to this increase in revenue per hundred weight were:
. A general rate increase of 2.8% effective January 1, 1994. General rate
increases initially affect approximately 50% of the Company's customers. The
remaining customers' rates are determined by contracts and guarantees and are
negotiated throughout the year.
. The Company's average length of haul increased 3.1% in 1994 as a result of the
Company's expanded service territory.
. The percentage of the Company's total revenue that was truckload (shipments
greater than 10,000 pounds) declined to 8.1% in 1994 compared to 8.8% in 1993.
Management expects that growth in operating revenue is sustainable in the
near future. However, the rate of growth will most likely occur at a slower
rate than that experienced in 1994. Any growth in operating revenue will
primarily be the result of increased tonnage handled by the Company, as any rate
increases (other than the rate increase effective as of January 1, 1995) can be
expected to be closely tied to the overall rate of inflation and general
economic conditions.
[Graph appears here]
Shareholders' Equity (In Millions of Dollars)
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1984 $0.80
1985 $1.71
1986 $2.50
1987 $4.28
1988 $7.75
1989 $28.30
1990 $35.94
1991 $74.64
1992 $89.71
1993 $109.46
1994 $177.18
</TABLE>
2
<PAGE>
[Graph appears here]
Operating Revenue (In Millions of Dollars)
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1984 $17.83
1985 $25.04
1986 $34.45
1987 $47.07
1988 $73.08
1989 $97.59
1990 $142.78
1991 $198.26
1992 $262.01
1993 $328.46
1994 $465.59
</TABLE>
Operating Expenses
Operating expenses as a percentage of operating revenue improved to
89.3% in 1994 from 90.6% in 1993. This overall improvement was primarily
attributable to:
. Rents and purchased transportation as a percentage of operating revenue
decreased to 9.8% in 1994 from 12.9% in 1993. This decrease was due to the
Company's philosophy of utilizing Company-operated terminals rather than
contractor-operated terminals in expansions of service territory, along with
the conversion of four contractor-operated terminals to Company-operated
terminals during 1994. Management does not expect significant additional
conversions of contractor-operated terminals to Company-operated terminals.
At year end, of the Company's 144 terminals, 9 were contractor-operated. The
increased utilization of Company-operated terminals was one of two primary
reasons salaries, wages and benefits as a percentage of operating revenue
increased to 53.1% in 1994 from 51.4% in 1993. The other reason for the
increase in salaries, wages and benefits as a percentage of operating revenue
was the Company's ongoing philosophy of sharing its success with its
associates through increased wages and enhanced benefit packages. On March 6,
1994, the Company increased the wages of its drivers, dockmen and clerical
workers by approximately 5.5%.
. Depreciation and amortization as a percentage of operating revenue decreased
to 6.0% in 1994 from 6.5% in 1993. This improvement was primarily due to three
factors. The first factor was the increased tonnage handled by the existing
fixed cost structure of the Company. The second factor was the one-time surge
in tonnage related to the Teamster strike in April (where there was not a
comparable surge in equipment in use). The third factor was the extension of
the useful lives of a portion of the Company's revenue equipment by two years,
effective July 1, 1994. Based on the historical experience of the Company,
management expects the extended useful lives to better match the economic
benefits received from the equipment.
These improvements in operating expenses as a percentage of operating
revenue were partially offset by increases in the following areas:
. Insurance as a percentage of operating revenue increased to 3.3% in 1994 from
2.4% in 1993. This increase was primarily a result of the Company's increased
experience
3
<PAGE>
of accidents and cargo claims during 1994, particularly in the areas of cargo
care and liability insurance. Accidents and cargo claims returned to
historical levels during 1994, after being somewhat lower in the prior two
years. Management does not expect a continuation of the upward trend in
insurance expenses as they relate to operating revenue but expects
stabilization of these expenses near historical levels.
. Operating taxes and licenses as a percentage of operating revenue increased to
4.1% in 1994 from 3.8% in 1993. The primary cause for this increase was an
increase in federal fuel taxes in October 1993.
[Graph appears here]
Net Income (In Millions of Dollars)
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1984 $0.63
1985 $0.55
1986 $0.78
1987 $1.41
1988 $3.47
1989 $5.21
1990 $7.44
1991 $8.03
1992 $13.56
1993 $16.75
1994 $26.70
</TABLE>
[Graph appears here]
Total Terminals
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1984 31
1985 31
1986 44
1987 64
1988 76
1989 85
1990 100
1991 111
1992 116
1993 132
1994 144
</TABLE>
Other
The effective tax rate of the Company was 38.0% for 1994, up from
37.9% for 1993. The Revenue Reconciliation Act of 1993 increased the corporate
federal tax rate 1% retroactively to January 1, 1993.
4
<PAGE>
Net income for 1994 was $26,696,000, up 59.4%, compared to $16,752,000
for 1993. Included in net income for 1994 was a one-time extraordinary charge
of $335,000, net of income taxes, related to the retirement of debt.
1993 Compared to 1992
Operating revenue for 1993 increased 25.4% from 1992. This increase
primarily resulted from a 27.0% increase in tonnage handled by the Company.
This increase in tonnage was primarily attributable to the addition of new
customers and an increased number of shipments from existing customers. There
were three primary causes that resulted in this increase in tonnage from new and
existing customers:
. On January 4, 1993, the Company opened seven new terminals in the state of
Georgia to bring all-points coverage to that state.
. On April 5, 1993, the Company opened nine new terminals which extended its
service territory to include all points in the state of Kentucky and the
southern regions of Indiana and Ohio.
. The Company continued to increase its market penetration into service
territory that existed on January 1, 1993.
Revenue per hundred weight (cwt) was basically unchanged in 1993 from 1992
despite the Company effecting a rate increase of approximately 4.6% on January
4, 1993. The primary reasons were:
. The continuation of industry discounting practices that began in 1980 when the
industry was deregulated. The discounting of rates intensified in 1993 as the
less than truckload ("LTL") industry struggled to utilize excess capacity in
an economy that grew slowly, and as competition for available freight
intensified.
. An increase in the average weight per LTL shipment. Rates per hundred pounds
generally decrease as shipment sizes increase.
Operating expenses as a percentage of operating revenue increased to 90.6%
in 1993 from 89.9% in 1992. This increase was primarily attributable to:
. Salaries, wages and benefits as a percentage of operating revenue rose to
51.4% in 1993 from 47.8% in 1992. This increase was primarily due to two
factors. The first is the Company's ongoing philosophy of sharing its success
with its associates through increased wages and enhanced benefit packages. On
March 1, 1993, the Company increased the wages of its drivers, dockmen and
clerical associates by approximately 6.6%. The second factor was the Company's
philosophy of utilizing Company-operated terminals rather than contractor-
operated terminals in expansions of service territory and the conversion of
several contractor-operated terminals to Company-operated in 1993. The
conversion was also the major cause of the decrease in rents and purchased
transportation as a percentage of operating revenue to 12.9% in 1993 from
15.1% in 1992.
. Communications and utilities as a percentage of operating revenue increased to
2.1% in 1993 from 1.7% in 1992. This increase was primarily due to the
additional investments the Company made in 1993 in new communication equipment
and networks. As the Company has grown, the need to develop and maintain
advanced communication systems to aid in the efficient movement of information
and freight has become more critical. For a portion of 1993, duplicate
expenses were incurred as the
5
<PAGE>
Company was purchasing and installing new communication systems while still
operating the old systems.
[Graph appears here]
Average Shares Outstanding (In Millions)
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1984 10.60
1985 12.56
1986 14.79
1987 15.25
1988 16.63
1989 20.91
1990 22.40
1991 26.64
1992 28.13
1993 28.58
1994 30.36
</TABLE>
[Graph appears here]
Book Value Per Share (In Dollars)
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1984 $0.08
1985 $0.14
1986 $0.17
1987 $0.28
1988 $0.47
1989 $1.36
1990 $1.61
1991 $2.80
1992 $3.19
1993 $3.83
1994 $5.84
</TABLE>
These increases in operating expenses as a percentage of operating
revenue were partially offset by the decrease in insurance as a percentage of
operating revenue to 2.4% in 1993 from 3.3% in 1992. The primary cause for this
decrease was the improved experience with accidents and claims during 1993,
particularly in the areas of liability and cargo claims.
The Company's interest expense as a percentage of operating revenue
declined to 1.3% in 1993 from 1.9% in 1992. This decline is primarily
attributable to:
. The ongoing retirement during 1993 of long-term debt bearing high interest
rates.
. The general decline in interest rates made short-term borrowings on the
Company's revolving line of credit less expensive.
6
<PAGE>
[Graph appears here]
Total Number of Tractors
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1984 233
1985 270
1986 382
1987 516
1988 714
1989 968
1990 1195
1991 1634
1992 1955
1993 2453
1994 3344
</TABLE>
[Graph appears here]
Total Assets (In Millions of Dollars)
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1984 $7.47
1985 $11.66
1986 $15.37
1987 $23.20
1988 $43.47
1989 $68.90
1990 $97.95
1991 $168.13
1992 $175.53
1993 $251.13
1994 $355.35
</TABLE>
Liquidity and Capital Resources
Significant capital resources were required by the Company during
1994, primarily due to continued growth in operating revenue. Capital resources
were also required for the expansion of service territory in 1994 and the
startup costs associated with the expansion of service territory initiated on
January 1, 1995.
Capital requirements during 1994 consisted primarily of $115,327,000
in investing activities. The Company invested $116,272,000 in capital
expenditures during 1994 comprised of $82,551,000 in additional revenue
equipment, $12,313,000 in new terminal facilities or the expansion of existing
terminal facilities and $21,408,000 in other equipment. Approximately
$21,149,000 of the capital expenditures for revenue equipment were incurred in
the fourth quarter of 1994, but not placed in service until early 1995 as the
Company opened thirteen new terminals in the states of North Carolina and South
Carolina. Management expects a similar amount of capital expenditures will be
required in 1995. However, the amount of capital expenditures required in 1995
will be dependent on the growth rate of the Company and the timing and size of
any future
7
<PAGE>
geographical expansions. At December 31, 1994, the Company had commitments for
land, terminals, revenue and other equipment of approximately $43,100,000. These
commitments were for the completion of projects in process at December 31, 1994,
and for the purchase of additional revenue equipment in anticipation of
increased revenue levels during 1995.
The Company provided for its capital resource requirements in 1994
with cash from operations and financing activities. Cash from operations
totaled $65,501,000 in 1994 compared to $46,820,000 in 1993. This increase was
primarily attributable to the increase in net income in 1994 compared to 1993.
Financing activities augmented cash flow by $53,582,000 in 1994, utilizing three
primary sources of financing; the revolving line of credit, the Master Shelf
Agreement, and the issuance of additional shares of common stock.
. The Company experiences periodic cash flow fluctuations common to the
industry. Cash outflows are heaviest during the first part of any given year
while cash inflows are normally weighted towards the last two quarters of the
year. To smooth these fluctuations and to provide flexibility to fund future
growth, the Company utilizes a variable-rate, unsecured revolving line of
credit of $75,000,000 provided by NationsBank of Texas, N.A., Texas Commerce
Bank, N.A. and Wachovia Bank of Georgia, N.A., amended in 1994 to increase
total availability from $50,000,000 to $75,000,000. At December 31, 1994, the
Company had $38,000,000 available under this agreement. The Company also had
$5,000,000 available under its short-term, unsecured revolving line of credit
with NationsBank of Texas, N.A. In addition, the Company maintains a
$10,000,000 line of credit with NationsBank, N.A. to obtain letters of credit
to back premiums for excess coverage on its self-insurance program. At
December 31, 1994, the Company had obtained letters of credit totaling
$5,500,000 for this purpose.
. To assist in financing longer-lived assets, the Company has an uncommitted
Master Shelf Agreement with the Prudential Insurance Company of America which
provides for the issuance of medium to long-term unsecured notes at an
interest rate calculated at issuance. Effective October 20, 1994, the Company
amended this agreement to increase the uncommitted limit to $90,000,000 from
$50,000,000. During 1994, the Company utilized this facility to issue a
$10,000,000 note at 6.25% and a $10,000,000 note at 7.55%, both with seven
year maturities. As of December 31, 1994, the Company had $60,000,000
available under this agreement.
. To help meet capital resource requirements and to provide a solid base of
equity for future growth, the Company completed a public offering of 1,750,000
shares of its common stock during 1994. On May 18, 1994, the Company received
net proceeds of approximately $30,145,000. The Company also received net
proceeds of approximately $6,506,000 on June 17, 1994, when the underwriters
of the offering exercised an over-allotment option to issue an additional
375,000 shares. The proceeds of the stock offering were used to retire debt
under the Company's unsecured, revolving line of credit.
8
<PAGE>
[Graph appears here]
Gross Tonnage Hauled (In Thousands)
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1984 218
1985 289
1986 334
1987 432
1988 586
1989 711
1990 937
1991 1238
1992 1615
1993 2051
1994 2759
</TABLE>
[Graph appears here]
Average Length of Haul (Miles)
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1984 264
1985 290
1986 289
1987 274
1988 300
1989 360
1990 395
1991 454
1992 525
1993 550
1994 567
</TABLE>
Working capital at December 31, 1994, increased $7,292,000 compared to
December 31, 1993. This increase was primarily the result of the Company's
improved operating efficiency and the timing and size of the expansion in
service territory on January 1, 1995, compared to that of January 1, 1994.
Management expects that the Company's existing working capital and its
available lines of credit are sufficient to meet the Company's commitments as of
December 31, 1994, and to fund current operating and capital needs. However, if
additional financing is required, management believes it will be available.
The Company uses off-balance sheet financing in the form of operating
leases primarily in two areas; terminal facilities and computer equipment. At
December 31, 1994, future rental commitments on operating leases were
$36,422,000. The Company prefers to utilize operating leases for these two
areas and plans to use them in the future when such financing is available and
suitable.
Environmental
At December 31, 1994, the Company had no outstanding inquiries
with any state or federal environmental agency.
9
<PAGE>
[Graph appears here]
Total Number of Shipments (In Thousands)
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1984 227
1985 313
1986 437
1987 613
1988 949
1989 1252
1990 1693
1991 2179
1992 2654
1993 3237
1994 4267
</TABLE>
[Graph appears here]
Total Numer of People
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1984 288
1985 340
1986 385
1987 745
1988 1156
1989 1516
1990 2209
1991 3058
1992 3655
1993 4964
1994 6506
</TABLE>
Inflation
During 1994, the effect of inflation on the Company's operating
results was minimal. However, most of the Company's expenses are sensitive to
inflation as increases in inflation generally result in increased costs.
Seasonality
In the trucking industry, results of operations generally show a
seasonal pattern because customers reduce shipments during winter months. In
addition, the Company's operating expenses as a percentage of operating revenues
have historically been higher during the winter.
Legislation
The less-than-truckload industry within which the Company operates was
impacted in 1994 by two acts of legislation by the United States Congress:
10
<PAGE>
. The Federal Aviation Administration Authorization Act of 1994 was passed by
Congress on August 8, 1994. This legislation effectively deregulated
intrastate commerce as of January 1, 1995. Management expects the Company's
all-points coverage to its entire service area will enable the Company to
offer competitive service to intrastate shippers. However, the timing and
amount of any benefits to the Company from this legislation will be largely
dependent on the decisions made by intrastate shippers and competing carriers.
. The Trucking Industry Regulatory Reform Act of 1994 was passed by Congress and
became effective August 26, 1994. This law eliminated the requirement that
common carriers file their individual class tariffs with the Interstate
Commerce Commission. The elimination of these filing requirements will reduce
the administrative duties required from both shippers and carriers.
Recent Events
On January 1, 1995, the Company opened thirteen new terminals and extended
its all-points coverage to the states of North Carolina and South Carolina.
On January 1, 1995, the Company effected a general rate increase of
approximately 3.5%. This rate initially affected approximately 50% of the
customers. Rates for other customers are covered by contracts and guarantees
and are negotiated throughout the year.
11
<PAGE>
American Freightways Corporation and Subsidiaries
Consolidated Balance Sheets
(thousands, except per share data)
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,999 $ 243
Trade receivables, less allowance
for doubtful accounts
(1994--$639; 1993--$493) 39,818 29,423
Operating supplies and inventories 1,519 855
Prepaid expenses 4,247 3,261
Deferred income taxes (Note 4) 4,664 2,758
Income taxes receivable - 1,120
-----------------------
Total current assets 54,247 37,660
Property and equipment (Notes 3 and 6):
Land and structures 83,244 42,573
Revenue equipment 230,732 157,937
Service, office and other equipment 49,324 29,113
Leasehold improvements 1,439 1,076
Construction in progress 31,855 50,791
Allowances for depreciation and
amortization (deduction) (98,701) (71,412)
-----------------------
297,893 210,078
Other assets:
Bond funds (Note 3) 888 876
Other 2,320 2,516
-----------------------
3,208 3,392
-----------------------
$355,348 $251,130
=======================
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
--------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 13,358 $ 9,824
Accrued expenses (Note 2) 24,449 16,768
Federal and state income taxes 233 -
Current portion of long-term debt 6,338 8,491
--------------------------
Total current liabilities 44,378 35,083
Long-term debt, less current portion
(Note 3) 104,843 89,046
Deferred income taxes (Note 4) 28,947 17,541
Shareholders' equity (Notes 3 and 5):
Common stock, par value $.01 per
share; authorized 250,000 shares;
issued and outstanding 30,496
shares in 1994 and 28,023 in 1993 305 280
Additional paid-in capital 93,347 52,348
Retained earnings 83,528 56,832
--------------------------
177,180 109,460
Commitments (Note 6)
--------------------------
$355,348 $251,130
==========================
</TABLE>
See accompanying notes.
13
<PAGE>
American Freightways Corporation and Subsidiaries
Consolidated Statements of Income
(thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
-----------------------------------
<S> <C> <C> <C>
Operating revenue $465,588 $328,464 $262,011
Operating expenses and costs:
Salaries, wages and benefits 247,049 168,770 125,152
Operating supplies and expenses 30,710 22,099 17,169
Operating taxes and licenses 19,251 12,340 9,647
Insurance 15,360 7,891 8,705
Communications and utilities 9,117 6,907 4,357
Depreciation and amortization 27,888 21,519 17,059
Rents and purchased transportation 45,633 42,250 39,683
Other 20,880 15,782 13,895
-----------------------------------
415,888 297,558 235,667
-----------------------------------
Operating income 49,700 30,906 26,344
Other income (expense):
Interest expense (6,832) (4,246) (4,844)
Interest income 195 132 389
Gain on disposal of assets 292 1 9
Other, net 247 197 64
-----------------------------------
(6,098) (3,916) (4,382)
-----------------------------------
Income before income taxes,
extraordinary charge, and cumulative effect of
accounting change 43,602 26,990 21,962
Federal and state income taxes (Note 4):
Current 7,071 4,189 5,309
Deferred 9,500 6,049 2,707
-----------------------------------
16,571 10,238 8,016
-----------------------------------
Income before extraordinary charge and cumulative
effect of accounting change 27,031 16,752 13,946
Extraordinary charge for early retirement of debt,
net of tax benefit of $205 (Note 3) (335) - -
Cumulative effect of accounting change (Note 1) - - (383)
-----------------------------------
Net income $ 26,696 $ 16,752 $ 13,563
===================================
Per share (Note 1):
Income before extraordinary charge and
cumulative effect of accounting change $0.89 $0.59 $0.50
Extraordinary charge (0.01) - -
Cumulative effect of accounting change - - (0.02)
-----------------------------------
Net income $0.88 $0.59 $0.48
===================================
</TABLE>
14
<PAGE>
American Freightways Corporation and Subsidiaries
Consolidated Statements of Income
(thousands, except per share data)
=================================
Average shares outstanding (Note 1) 30,357 28,581 28,132
=================================
Pro forma amounts assuming the effect
of the accounting change is applied
retroactively:
Net income $ 26,696 $ 16,752 $ 13,946
=================================
Net income per share $0.88 $0.59 $0.50
=================================
See accompanying notes.
15
<PAGE>
American Freightways Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL
PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS TOTAL
----------------------------------------------------------------------
(thousands)
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1992 27,460 $275 $47,844 $26,517 $ 74,636
Stock option and purchase plans 234 2 1,508 - 1,510
Net income - - - 13,563 13,563
----------------------------------------------------------------------
Balances at December 31, 1992 27,694 277 49,352 40,080 89,709
Stock option and purchase plans 329 3 2,996 - 2,999
Net income - - - 16,752 16,752
----------------------------------------------------------------------
Balances at December 31, 1993 28,023 280 52,348 56,832 109,460
Sale of stock (Note 7) 2,125 21 36,630 - 36,651
Stock option and purchase plans 348 4 4,369 - 4,373
Net income - - - 26,696 26,696
----------------------------------------------------------------------
Balances at December 31, 1994 30,496 $305 $93,347 $83,528 $177,180
======================================================================
</TABLE>
See accompanying notes.
16
<PAGE>
American Freightways Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
-----------------------------------
(thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Cash received from customers $ 454,308 $ 323,298 $ 266,328
Cash paid to suppliers and employees (377,424) (266,724) (213,571)
Interest received 195 132 389
Interest paid (7,152) (4,157) (5,034)
Income taxes paid (4,426) (5,729) (4,567)
-----------------------------------
Net cash provided by operating activities 65,501 46,820 43,545
INVESTING ACTIVITIES
Proceeds from sales of equipment 945 1,162 586
Capital expenditures (116,272) (95,085) (48,962)
-----------------------------------
Net cash used by investing activities (115,327) (93,923) (48,376)
FINANCING ACTIVITIES
Proceeds from notes payable and long-term
borrowings 74,500 44,000 1,300
Principal payments on long-term debt (60,856) (1,767) (16,892)
Proceeds from issuance of common stock 39,938 2,172 1,174
-----------------------------------
Net cash provided (used) by financing
activities 53,582 44,405 (14,418)
-----------------------------------
Net increase (decrease) in cash and cash
equivalents 3,756 (2,698) (19,249)
Cash and cash equivalents at beginning
of year 243 2,941 22,190
-----------------------------------
Cash and cash equivalents at end of year $ 3,999 $ 243 $ 2,941
===================================
</TABLE>
17
<PAGE>
American Freightways Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
----------------------------------
(thousands)
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 26,696 $ 16,752 $ 13,563
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 27,888 21,519 17,059
Provision for losses on accounts receivable 1,126 513 728
Tax effect of exercise of stock options 1,086 826 337
Gain on sale of equipment (292) (1) (9)
Deferred income taxes 9,500 6,049 2,491
Changes in operating assets and liabilities:
Trade accounts receivable (11,521) (5,403) 6,599
Operating supplies and inventories (664) (284) (63)
Prepaid expenses (986) (781) (228)
Other assets 100 (262) 526
Trade accounts payable 3,534 7,779 (754)
Accrued expenses 7,681 1,653 2,554
Federal and state income taxes 1,353 (1,540) 742
--------------------------------------
Total adjustments 38,805 30,068 29,982
--------------------------------------
Net cash provided by operating activities $ 65,501 $46,820 $43,545
======================================
</TABLE>
See accompanying notes.
18
<PAGE>
American Freightways Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of American
Freightways Corporation and its subsidiaries (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated.
BUSINESS
The Company primarily operates as a regional, scheduled, for hire, less-than-
truckload motor carrier, serving all points in Alabama, Arkansas, Georgia,
Illinois, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, North
Carolina, Ohio, Oklahoma, South Carolina, Tennessee, and Texas and southeastern
Iowa. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Historically, credit losses have not been
significant.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. For financial reporting purposes,
the cost of such property is depreciated principally by the straight-line method
over the estimated useful lives of the individual assets. For tax reporting
purposes, accelerated depreciation or applicable cost recovery methods are used.
Gains and losses are recognized in the year of disposal.
REVENUE RECOGNITION
In January 1992, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus that recognition of revenue for freight when
it is received from the shipper with expenses recognized as incurred is not an
acceptable method. This method had been used by the Company since its inception
and was the method commonly used in the industry.
Effective January 1, 1992, the Company changed its accounting method to
recognize revenue and direct shipment costs upon the delivery of the related
freight. This change in accounting method resulted in a charge to earnings
having a cumulative effect of $383,000 (net of income tax benefit of $216,000)
in the first quarter of 1992.
19
<PAGE>
American Freightways Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INSURANCE
As of December 31, 1994, the Company was self-insured up to specified limits for
the following types of claims:
<TABLE>
<CAPTION>
<S> <C>
Workers' compensation:
State of Illinois $ 300,000
All other states of operation (with the exception
of Indiana, Iowa, Ohio and Texas) 250,000
</TABLE>
In the states of Indiana, Iowa, and Texas, workers' compensation claims are
insured under a $250,000 deductible plan. In the state of Ohio, workers'
compensation claims are insured under the mandatory State Plan as private plans
are not permitted.
All other types of claims are self-insured with a retention limit of $250,000
per occurrence.
At December 31, 1994, the Company had an Excess Indemnity Contract providing for
the reimbursement of up to $75,000,000 per occurrence on a claim in excess of
the self-insured retention.
INCOME TAXES
Deferred income taxes are accounted for under the liability method. Deferred
income tax assets and liabilities reflect the effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes.
EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of shares
outstanding during each year, adjusted to include common stock equivalents
attributable to dilutive stock options and retroactively adjusted for the effect
of 2-for-1 stock splits declared February 5, 1992 and April 22, 1993.
20
<PAGE>
American Freightways Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
RECLASSIFICATIONS
Certain amounts previously reported in 1993 have been reclassified to conform
with the 1994 presentation.
<TABLE>
<CAPTION>
2. ACCRUED EXPENSES
1994 1993
-----------------------
(thousands)
<S> <C> <C>
Accrued salaries, wages and benefits $ 10,518 $ 8,140
Taxes other than income 2,575 1,401
Loss, injury, damage and workers' compensation
claims reserves 10,536 6,580
Other 820 647
-----------------------
$ 24,449 $ 16,768
=======================
3. LONG-TERM DEBT
<CAPTION>
1994 1993
-----------------------
(thousands)
<S> <C> <C>
Bonds payable /(1)/ $ 7,580 $ 7,830
Revolving credit agreements /(2)/ 37,000 34,000
Mortgage notes /(3)/ 419 3,641
Capitalized lease obligations /(4)/ 1,182 2,066
Unsecured senior notes /(5)/ 65,000 50,000
-----------------------
111,181 97,537
Less current portion (6,338) (8,491)
-----------------------
$104,843 $89,046
=======================
</TABLE>
21
<PAGE>
American Freightways Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Long-Term Debt (continued)
(1) Represents the Company's liability under a loan agreement with Arkansas
Development Finance Authority, issuer of economic development revenue bonds
to construct terminals and a general office facility. The loan agreement
provides that the Company will make payments sufficient to pay the principal
and interest on the bonds. The bonds include a $1,590,000 term bond due in
1999 and a $5,990,000 term bond due in 2009. The bonds bear interest at
fixed rates of 8.25% and 8.50%, respectively, and are collateralized by land
and structures with a net book value of $8,523,000 at December 31, 1994. The
loan agreement requires that certain bond service funds be maintained. As of
December 31, 1994, there was $888,000 in a debt service reserve fund. In
addition, the loan agreement requires sinking fund redemption serial
payments beginning in 1995.
(2) The revolving credit agreements at December 31, 1994, include an unsecured
revolving credit agreement which provides for available borrowings of
$75,000,000. Borrowings under this revolving credit agreement at
December 31, 1994 totaled $37,000,000. The term of this agreement extends to
April , 1999 (unless terminated or renewed). Interest is applied to
outstanding borrowings at variable interest rates based on the London
Interbank rate or prime rate in effect at the time of borrowing. The
agreement contains covenants which limit, among other things, indebtedness,
loans, investments and dividend payments, as well as require the Company to
meet certain financial tests. The Company pays an annual commitment fee of
.20% of the available borrowings. As of December 31, 1994, the amount
available for additional borrowing under this line of credit was
$38,000,000.
The Company also has $5,000,000 of available borrowings at December 31, 1994,
under a separate unsecured revolving credit agreement. The terms of this
agreement provide for borrowings up to $5,000,000 at the prime rate of
interest or at a rate of interest agreed upon at the time of any borrowings.
No borrowings were outstanding at December 31, 1994 under this agreement.
This agreement matures May 31, 1995, unless terminated or renewed.
In addition, the Company maintains a $10,000,000 line of credit to obtain
letters of credit. At December 31, 1994, the Company has utilized this line
of credit to obtain letters of credit totaling $5,500,000. The Company pays
an annual letter of credit fee of .63% of the face amount of outstanding
letters of credit.
(3) Mortgage notes are due monthly or quarterly to October 1998 at an average
interest rate of 10.75%. The notes are collateralized by land and structures
with a net book value of $966,000 at December 31, 1994.
22
<PAGE>
American Freightways Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT (CONTINUED)
(4) Capitalized lease obligations consists primarily of installment obligations
for revenue equipment purchases; payable in various monthly installments
through April 1996, at a weighted average interest rate of 9.33% and
collateralized by revenue equipment with a net book value of approximately
$2,700,000 at December 31, 1994.
(5) Includes an unsecured senior note for $35,000,000 payable in equal annual
installments of $5,000,000 through November 2001. The note bears interest at
a fixed rate of 8.91% payable semi-annually.
Also includes three notes of $10,000,000 each; all issued under an unsecured
and uncommitted $90,000,000 Master Shelf Agreement. The notes mature October
2000, August 2000, and April 2001 and bear fixed interest rates at 6.00%,
6.25%, and 7.55%, respectively, payable quarterly. These note agreements
contain covenants which limit, among other things, loans, indebtedness,
investments and dividend payments, and require the Company to meet certain
financial tests.
Annual maturities on long-term debt, excluding capitalized lease obligations, in
1995 through 1999 aggregate $5,368,000, $8,148,000, $11,431,000, $11,441,000,
and $48,370,000, respectively.
Interest costs of $1,002,000, $1,568,000 and $542,000 in 1994, 1993, and 1992,
respectively, were capitalized as part of the acquisition cost of certain
property and equipment.
In 1994, the Company paid a note prior to its maturity date and incurred a
prepayment charge of $540,000 which has been classified as an extraordinary
charge in the 1994 statement of income, net of the related income tax benefit of
$205,000.
4. FEDERAL AND STATE INCOME TAXES
The Revenue Reconciliation Act of 1993 increased the corporate federal income
tax rate from 34% to 35%, effective January 1, 1993. The increase in the
Company's 1993 income tax expense as a result of the effect of the retroactive
rate increase on deferred income taxes was approximately $400,000.
23
<PAGE>
American Freightways Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. FEDERAL AND STATE INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1994 and 1993, respectively, are as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------
(THOUSANDS)
<S> <C> <C>
Noncurrent deferred tax liabilities:
Tax over book depreciation $ 31,361 $ 20,329
Noncurrent deferred tax assets:
Capitalized leases - (198)
-----------------------
Net noncurrent deferred tax liabilities before alternative 31,361 20,131
minimum tax credit
Alternative minimum tax credit carryover (2,414) (2,590)
-----------------------
Net noncurrent deferred tax liabilities $ 28,947 $ 17,541
=======================
Current deferred tax assets:
Accrued expenses not deductible until paid $ 5,346 $ 3,373
Allowance for doubtful accounts 154 124
Revenue recognition differences 241 79
---------------------
Total current deferred tax assets 5,741 3,576
Current deferred tax liabilities:
Prepaid expenses (1,077) (818)
---------------------
Net current deferred tax assets $ 4,664 $ 2,758
=====================
</TABLE>
The reconciliation between the effective income tax rate and the statutory
federal income tax rate is presented in the following table:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------
(thousands)
<S> <C> <C> <C>
Income tax at the statutory federal
rate of 35% for 1994 and 1993, and 34% $15,261 $ 9,446 $7,467
for 1992
Federal income tax effects of:
Retroactive tax rate change
effect on deferred taxes -- 270 --
State income taxes (613) (334) (264)
Nondeductible expenses 214 90 77
Lower rates on taxable income
below $15,000,000 (100) (80)
Other 58 (108) (40)
-------------------------------
Federal income taxes 14,820 9,284 7,240
</TABLE>
24
<PAGE>
American Freightways Corporation and Subsidiaries
Notes to Consolidate Financial Statements (continued)
<TABLE>
<S> <C> <C> <C>
State income taxes 1,751 954 776
--------------------------------
$ 16,571 $ 10,238 $ 8,016
================================
Effective income tax rate 38.0% 37.9% 36.3%
================================
</TABLE>
25
<PAGE>
American Freightways Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. FEDERAL AND STATE INCOME TAXES (CONTINUED)
The Company has alternative minimum tax credit carryovers of approximately
$2,414,000 which have reduced the deferred tax liability. These credits can
carry over indefinitely.
Tax benefits of stock option and purchase plans recorded as paid-in capital and
which did not reduce income tax expense amounted to $1,086,000, $826,000 and
$337,000 in 1994, 1993 and 1992, respectively.
5. EMPLOYEE BENEFIT AND COMPENSATION PLANS
STOCK PURCHASE PLAN
The Company maintains a stock purchase plan covering substantially all employees
of the Company. A total of 453,006 shares of common stock remain reserved for
issuance under this plan at December 31, 1994. Annually, an eligible employee
can purchase shares having a fair market value on the date of grant of up to a
maximum of the greater of $1,200 or the fair market value of 100 shares. The
price per share is 85% of the lower of the fair market value at the date of
grant or the date of exercise, which is one year from the date of grant.
Shares have been issued during 1992, 1993 and 1994 as follows:
<TABLE>
<CAPTION>
NUMBER OF PER SHARE
ISSUE DATE SHARES ISSUED EXERCISE PRICE
- ---------------------------------------------------------------------------
<S> <C> <C>
April 30, 1992 49,636 $ 5.37
October 31, 1992 38,700 8.29
May 1, 1993 53,734 9.56
November 1, 1993 63,328 9.46
April 30, 1994 91,199 12.75
October 31, 1994 55,795 16.58
</TABLE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
During 1993, the Company adopted the 1993 Stock Option Plan (the "Employee
Plan"), the Chairman Stock Option Plan, and the Non-Employee Director Stock
Option Plan. The Employee Plan is a successor to a nonstatutory stock option
plan adopted in February 1989. The Employee Plan provides for the issuance of
qualified or non-qualified options
26
<PAGE>
American Freightways Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT AND COMPENSATION PLANS (CONTINUED)
to purchase common stock of the Company, and the awarding of stock appreciation
rights payable in shares or cash. The stock appreciation rights issued in 1993
are payable only in cash. No option or right may be issued for less than the
fair market value of the stock on the date of grant. The options and rights vest
over a five year period from the date of grant and will expire if not exercised
after ten years from the date of grant.
Collective activity within the plans is summarized as follows:
<TABLE>
<CAPTION>
STOCK SHARES
APPRECIATION UNDER
RIGHTS OPTION PRICE RANGE
------------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 1, 1992 - 1,050,800 $3.00 - $9.75
Granted - 501,600 7.63 - 10.75
Exercised - (152,010) 3.00 - 6.32
Canceled - (127,040) 3.00 - 7.63
------------------------------------------------------
Outstanding at December 31, 1992 - 1,273,350 3.00 - 10.75
Granted 198,900 705,300 12.81 - 19.88
Exercised - (218,320) 3.00 - 10.75
Canceled (3,600) (50,470) 3.00 - 13.06
------------------------------------------------------
Outstanding at December 31, 1993 195,300 1,709,860 3.00 - 19.88
Granted - 154,500 17.88 - 22.13
Exercised (10,690) (201,600) 3.00 - 13.06
Canceled (9,490) (29,020) 3.00 - 17.88
------------------------------------------------------
Outstanding at December 31, 1994 175,120 1,633,740 3.00 - $22.13
======================================================
</TABLE>
The number of shares of common stock reserved for granting future options under
these plans was 2,172,820, 2,644,090 and 298,920, at December 31, 1994, 1993,
and 1992, respectively. At December 31, 1994, options were exercisable to
purchase 426,680 shares.
The Company recorded expense of $256,000 and $244,000 in 1994 and 1993,
respectively, related to stock appreciation rights.
27
<PAGE>
American Freightways Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT AND COMPENSATION PLANS (CONTINUED)
RETIREMENT PLAN
The Company maintains a profit sharing plan for the benefit of all eligible
employees. The plan qualifies under Section 401(k) of the Internal Revenue Code
thereby allowing eligible employees to make tax deferred contributions to the
plan. The plan permits, at the discretion of the Board of Directors, annual
employer contributions to a maximum (generally) of 6% of the participants'
compensation.
The Company's contributions to the plan totaled $4,254,000 for 1994, $2,979,000
for 1993 and $2,272,000 for 1992.
6. LEASES AND COMMITMENTS
Rent expense, exclusive of amounts related to purchased transportation, totaled
approximately $18,576,000 for 1994, $11,296,000 for 1993 and $8,477,000 for
1992.
The future minimum rental commitments under noncancelable operating leases
having initial or remaining terms in excess of one year as of December 31, 1994
are as follows:
<TABLE>
<CAPTION>
REVENUE OTHER
TOTAL STRUCTURES EQUIPMENT EQUIPMENT
------------------------------------------------------------
(thousands)
<S> <C> <C> <C> <C>
1995 $16,763 $ 2,512 $ 21 $14,230
1996 11,226 1,101 -- 10,125
1997 7,016 615 -- 6,401
1998 449 328 -- 121
1999 266 261 -- 5
Thereafter 702 702 -- --
------------------------------------------------------------
$36,422 $ 5,519 $ 21 $30,882
============================================================
</TABLE>
Certain leases have renewal options for periods from one to five years at the
fair rental value of the related property at renewal.
28
<PAGE>
6. LEASES AND COMMITMENTS (CONTINUED)
The future minimum lease payments under capitalized leases consist of the
following at December 31, 1994 (thousands):
<TABLE>
<S> <C>
1995 $ 1,035
1996 220
----------
Total minimum payments 1,255
Amount representing interest 73
----------
Present value of minimum lease payments included
in long-term debt (Note 3) $ 1,182
==========
<CAPTION>
1994 1993
---------------------
(thousands)
Revenue equipment $ 4,136 $ 4,136
Service, office and other equipment 23 23
Less accumulated amortization (1,456) (1,126)
---------------------
$ 2,703 $ 3,033
=====================
</TABLE>
Lease amortization is included in depreciation expense.
Certain of the lease agreements contain fixed price purchase options. The lease
agreements require the lessee to pay property taxes, maintenance and operating
expenses.
Commitments for land, terminals and revenue equipment (including the cost to
complete construction in progress) aggregated approximately $43,100,000 at
December 31, 1994.
7. COMMON STOCK
In 1994, the Company completed a public offering of 2,125,000 shares (including
over-allotment option) of common stock at $18.25 per share. The net proceeds to
the Company were $36,651,000.
29
<PAGE>
American Freightways Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1994 and 1993:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-----------------------------------------------------
(thousands, except per share data)
<S> <C> <C> <C> <C>
1994
Operating revenue $ 99,272 $ 123,656 $ 124,134 $ 118,525
Operating expenses and costs 91,677 106,576 110,256 107,378
Income before extraordinary charge 3,933 9,486 7,774 5,838
Net income 3,933 9,486 7,439 5,838
Income per share before
extraordinary charge $.14 $.32 $.25 $.19
Net income per share $.14 $.32 $.24 $.19
Average shares outstanding 28,881 29,906 31,342 31,302
1993
Operating revenue $ 72,551 $ 80,944 $ 87,604 $ 87,365
Operating expenses and costs 66,291 72,934 77,399 80,934
Net income 3,376 4,490 5,506 3,380
Net income per share $.12 $.16 $.19 $.12
Average shares outstanding 28,387 28,606 28,828 28,846
</TABLE>
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:
Cash and cash equivalents - the carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value.
Bond funds - the carrying amount reported in the balance sheet for bond funds
approximates fair value.
Long-term debt - the fair values of the Company's long-term debt are estimated
using discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
30
<PAGE>
9. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments at
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
-------------------------------
<S> <C> <C>
1994
Cash and cash equivalents $ 3,999 $ 3,999
Bond funds 888 888
Long-term debt 111,181 112,995
1993
Cash and cash equivalents $ 243 $ 243
Bond funds 876 876
Long-term debt 97,537 103,309
</TABLE>
31
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
American Freightways Corporation
We have audited the accompanying consolidated balance sheets of American
Freightways Corporation and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of income, shareholdersO equity and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the CompanyOs management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Freightways Corporation and subsidiaries at December 31, 1994 and 1993,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1992 the
Company changed its method of revenue recognition.
ERNST & YOUNG LLP
Little Rock, Arkansas
January 20, 1995
32
<PAGE>
EXHIBIT 22
Subsidiaries of Registrant
1. American Freightways, Inc., An Arkansas Corporation
<PAGE>
EXHIBIT 24
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of American Freightways Corporation and Subsidiaries of our report dated January
20, 1995, included in the 1994 Annual Report to Shareholders of American
Freightways Corporation.
Our audits also included the financial statement schedule of American
Freightways Corporation and Subsidiaries listed in Item 14(a). This schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 N. 33-63674) pertaining to the American Freightways Corporation Stock
Option Plan and in the Registration Statement (Form S-8 No. 33-76788) pertaining
to the American Freightways Corporation Stock Purchase Plan of our report dated
January 20, 1995, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) of American Freightways Corporation and Subsidiaries.
ERNST & YOUNG LLP
Little Rock, Arkansas
February 20, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1994
CONSOLIDATED FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 3,999
<SECURITIES> 0
<RECEIVABLES> 40,457
<ALLOWANCES> 639
<INVENTORY> 1,519
<CURRENT-ASSETS> 54,247
<PP&E> 396,594
<DEPRECIATION> 98,701
<TOTAL-ASSETS> 355,348
<CURRENT-LIABILITIES> 44,378
<BONDS> 104,843
<COMMON> 305
0
0
<OTHER-SE> 176,875
<TOTAL-LIABILITY-AND-EQUITY> 355,348
<SALES> 0
<TOTAL-REVENUES> 465,588
<CGS> 0
<TOTAL-COSTS> 415,888
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 6,832
<INCOME-PRETAX> 43,602
<INCOME-TAX> 16,571
<INCOME-CONTINUING> 27,031
<DISCONTINUED> 0
<EXTRAORDINARY> (335)
<CHANGES> 0
<NET-INCOME> 26,696
<EPS-PRIMARY> .88
<EPS-DILUTED> .88
<FN>
<F1>Provision for doubtful accounts included in costs and expenses applicable to
revenues.
</FN>
</TABLE>
