<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1999
REGISTRATION NO. 333-75853
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
FORWARD AIR CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TENNESSEE 62-1120025
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
</TABLE>
430 AIRPORT ROAD
GREENEVILLE, TENNESSEE 37745
(423) 636-7100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RICHARD H. ROBERTS
430 AIRPORT ROAD
GREENEVILLE, TENNESSEE 37745
(423) 636-7100
(Name and address, including zip code and telephone number, including area code,
of agent for service)
<TABLE>
<S> <C> <C>
COPIES OF COMMUNICATIONS TO:
LEIGH WALTON RICHARD C. TILGHMAN, JR.
BASS, BERRY & SIMS PLC PIPER & MARBURY L.L.P.
FIRST AMERICAN CENTER 36 SOUTH CHARLES STREET
NASHVILLE, TENNESSEE 37238 BALTIMORE, MARYLAND 21201
(615) 742-6200 (410) 539-2530
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] --------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES NOR DOES IT SEEK OFFERS TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION
APRIL 23, 1999
3,000,000 Shares
(FORWARD AIR LOGO)
Common Stock
Forward Air Corporation provides scheduled ground transportation of cargo as a
cost effective, reliable alternative to air transportation.
Of the 3,000,000 shares of common stock offered, Forward Air Corporation is
offering 1,000,000 shares and the selling shareholder is offering 2,000,000
shares. Our common stock is traded on The Nasdaq National Market under the
symbol "FWRD." On April 22, 1999, the last reported sale price of our common
stock was $21.625 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. PLEASE READ THE RISK FACTORS
BEGINNING ON PAGE 5 BEFORE MAKING A DECISION TO INVEST IN OUR COMMON STOCK.
<TABLE>
<CAPTION>
PER
SHARE TOTAL
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<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Forward Air Corporation, before expenses........ $ $
Proceeds to selling shareholder............................. $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
Several of our shareholders have granted the underwriters an option to purchase
up to 450,000 additional shares to cover any over-allotments the underwriters
may make in this offering. The underwriters may exercise this option until 30
days after the date of this prospectus.
------------------------
BT Alex. Brown
Morgan Keegan & Company, Inc.
Scott & Stringfellow, Inc.
APRIL , 1999
<PAGE> 3
Omitted Graphic and Image Material
The following graphic and image material is omitted from the form of the
prospectus filed electronically:
Inside Front Cover:
A picture of the Company's Columbus, Ohio central sorting facility and the
following caption: "The heart of Forward Air's deferred freight operations is
the hub in Columbus, a state-of-the-art 100-door cross dock sorting facility."
Inside Front Cover Fold-out:
A map of the United States depicting the location of the Company's
regional sorting hubs, Company operated terminals and agent stations, and the
Company's overnight, second day direct, and Columbus hub transit routes. The
Company's logo and the caption "North America's Most Complete Road Feeder
Network" accompany the map.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.......................................... 1
The Offering................................................ 3
Summary Consolidated Financial and Operating Data........... 4
Risk Factors................................................ 5
Use of Proceeds............................................. 9
Market Price of Our Common Stock............................ 9
Dividend Policy............................................. 9
Capitalization.............................................. 10
Selected Financial and Operating Data....................... 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Business.................................................... 16
Management.................................................. 25
Principal and Selling Shareholders.......................... 27
Underwriting................................................ 29
Legal Matters............................................... 30
Experts..................................................... 30
Where You Can Find More Information......................... 30
Index to Financial Statements............................... F-1
</TABLE>
i
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information in this prospectus and may not
contain all of the information that is important to you. You should read the
entire prospectus carefully, including "Risk Factors" and our financial
statements and the notes thereto, before making an investment decision. Unless
otherwise indicated, all information in this prospectus (i) assumes no exercise
of the underwriters' over-allotment option and (ii) gives effect to a
two-for-one split of our common stock distributed on March 19, 1999.
OUR BUSINESS
We provide scheduled ground transportation of cargo as a cost effective,
reliable alternative to air transportation. We transport cargo that must be
delivered at a specific time but is less time-sensitive than traditional air
freight. This type of cargo is frequently referred to in the transportation
industry as "deferred air freight." We operate a network of 68 terminals located
on or near airports in the United States and Canada, a central sorting facility
in Columbus, Ohio and regional hubs serving key markets. Rather than owning our
own trucks, we purchase our transportation requirements from owner-operators
and, to a lesser extent, from truckload carriers. Our typical shipment consists
of a pallet load of freight, often computers, telecommunications equipment,
machine parts, trade show exhibit materials or medical equipment. During 1998,
our average shipment weighed over 750 pounds. We have experienced rapid revenue
growth from $31.2 million in 1993 to $130.4 million in 1998, a 33% compound
annual growth rate. Our operating income grew from $2.8 million to $16.0 million
over the same period, a 42% compound annual growth rate.
We focus our services on: air freight forwarders, which are businesses that
arrange transportation of cargo for third parties; integrated air cargo
carriers; and airlines. We serve our customers by locating terminals on or near
airports and maintaining regularly scheduled transportation service between
major cities. We receive shipments at our terminals and transport them by truck
to our central sorting facility or one of our regional hubs, where we unload and
sort them. After sorting, we reload the shipments and deliver them to the
terminals nearest their destinations. We ship freight directly between terminals
when justified by the volume of shipments. In 1998, shipments we handled arrived
within 30 minutes of their scheduled arrival time over 98% of the time, with
only 1.7 incidents of loss or damage per 1,000 shipments. We typically do not
provide local pickup and delivery services and, therefore, do not market our
services directly to shippers. Since we do not place significant size or weight
restrictions on shipments, we do not compete directly with small or overnight
package delivery services such as DHL Worldwide, UPS and Airborne. Approximately
20% of the shipments we handle are for overnight delivery, with the rest for
delivery within two to four days.
Businesses are increasingly requiring expedited delivery services as they
minimize inventory levels, perform manufacturing and assembly operations in
multiple locations and distribute their products through many channels.
Expedited delivery service means freight must be delivered by an established
time and date, usually overnight or within two or three days. The Colography
Group, Inc., an independent industry market research and consulting company,
estimates the domestic air freight market for 1999 to be approximately $6.3
billion, nearly 44% of which is for overnight delivery, with the remaining 56%
for delivery within two to three days. Shippers with expedited delivery
requirements have four principal alternatives to transport freight. They may use
a fully integrated air cargo carrier, an airline, a less-than-truckload carrier
or an air freight forwarder. Shippers are outsourcing more of their
transportation logistics needs to air freight forwarders because of their
reliability and cost effectiveness. We believe that we will benefit from the
expected growth in demand for logistics management by air freight forwarders as
shippers emphasize just-in-time inventory practices and reduce the number of
transportation suppliers with whom they contract.
1
<PAGE> 6
COMPETITIVE ADVANTAGES
We believe that our principal competitive advantages are:
- We focus exclusively on providing ground transportation to the deferred
air freight market. We believe this enables us to provide a higher level
of service in a more cost effective manner than our competitors.
- We concentrate our marketing on air freight forwarders, integrated air
cargo carriers and airlines, and do not market our services directly to
shippers. We generally do not compete with small or overnight package
delivery services.
- Our nationwide network of terminals and sorting facilities would be
difficult to replicate.
- Our low-capital-intensive business model enables us to respond quickly to
changing demands and opportunities in our industry.
- Our enhanced information systems will enable us to increase the volume of
freight we handle in our network and reduce our operating costs and those
of our customers.
- We have a broad customer base, with no single customer accounting for
more than five percent of our operating revenue.
GROWTH STRATEGY
The key elements of our growth strategy are to:
- Increase the volume of freight transported through our network for our
existing customers.
- Improve the efficiency of our transportation network.
- Develop new customers.
- Enhance our information systems.
- Expand our logistics services.
- Pursue selected acquisitions that can increase our penetration of a
geographic area, add customers or freight density or allow us to offer
additional services.
OUR HISTORY
We commenced operating our deferred air freight business in November 1990.
Until September 1998, we operated both this business and a national truckload
carrier business. In September 1998, we spun off our truckload carrier business,
operated as Landair Transport, Inc., to our shareholders. Our historical
financial statements show the financial results of the truckload carrier
business as a discontinued operation.
Our address is 430 Airport Road, Greeneville, Tennessee 37745, and our
telephone number is (423) 636-7100.
2
<PAGE> 7
RECENT DEVELOPMENTS
On April 15, 1999, we announced selected financial results for the quarter
ended March 31, 1999. Operating revenue for the quarter increased to $37.7
million compared to $28.9 million for the same period in 1998. Operating income
from continuing operations for the quarter increased 96.4% to $5.5 million,
compared to $2.8 million for the prior-year first quarter. Income from
continuing operations for the quarter increased 93.8% to $3.1 million, compared
to $1.6 million for the prior-year first quarter. Diluted earnings per share
from continuing operations for the first quarter of 1999 was $0.24, a 100.0%
increase over diluted earnings per share of $0.12 in the prior-year first
quarter.
THE OFFERING
Common stock offered by Forward Air
Corporation......................... 1,000,000 shares
Common stock offered by the selling
shareholder........................... 2,000,000 shares
Total................................. 3,000,000 shares
Common stock to be outstanding after
this offering......................... 13,678,480 shares(1)
Use of proceeds....................... We will use the proceeds of this
offering to repay debt and for
general corporate purposes.
Nasdaq National Market symbol......... FWRD
- ---------------
(1) Excludes options outstanding at April 14, 1999 to acquire 1,387,450 shares
of common stock with a weighted average exercise price of $7.79 per share.
3
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue........................ $57,914 $63,557 $80,737 $105,140 $130,438
Total operating expenses................. 53,392 57,160 72,221 92,076 114,427
------- ------- ------- -------- --------
Operating income......................... 4,522 6,397 8,516 13,064 16,011
Interest expense......................... (365) (694) (743) (796) (1,206)
Other income (expense), net.............. 98 83 2 (84) 37
------- ------- ------- -------- --------
Income from continuing operations before
income taxes.......................... 4,255 5,786 7,775 12,184 14,842
Income taxes............................. 1,642 2,206 2,891 4,740 5,653
------- ------- ------- -------- --------
Income from continuing operations........ $ 2,613 $ 3,580 $ 4,884 $ 7,444 $ 9,189
======= ======= ======= ======== ========
Income from continuing operations per
share:
Basic................................. $ .23 $ .31 $ .41 $ .62 $ .74
Diluted............................... .22 .30 .40 .60 .72
Average common shares and equivalents
outstanding:
Basic................................. 11,534 11,700 11,856 11,936 12,393
Diluted............................... 12,192 12,054 12,098 12,354 12,846
OPERATING DATA:
Operating margin......................... 7.8% 10.1% 10.5% 12.4% 12.3%
Terminal facilities...................... 55 56 60 62 67
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 7,035 $12,233
Total assets of continuing operations..................... 56,808 58,104
Long-term obligations of continuing operations, net of
current portion........................................ 20,126 5,488
Shareholders' equity...................................... 19,071 38,907
</TABLE>
- ---------------
(1) Adjusted for the sale of the 1,000,000 shares of common stock we are
offering, at an assumed offering price of $21.625 per share, and our use of
the net proceeds to repay debt and for general corporate purposes.
4
<PAGE> 9
RISK FACTORS
You should carefully consider the risks described below and the other
information in this prospectus before deciding to invest in shares of our common
stock. If any of the following risks actually occurs, our business, financial
condition, and results of operations would likely suffer. This is also likely to
cause the trading price of our common stock to decline.
OUR BUSINESS HAS SUBSTANTIAL FIXED OPERATING COSTS
Our operations, particularly our network of terminals, represent
substantial fixed costs. Therefore, a decline in the volume of freight we handle
would have an adverse effect on our operating margin and our results of
operations. The actual shippers of the freight moved through our network include
various manufacturers and distributors of computers, telecommunications
equipment, machine parts, trade show exhibit materials and medical equipment.
Adverse business conditions affecting these shippers or our loss of a
significant customer would cause a decline in the volume of freight shipped
through our network.
EFFECT OF INCREASES IN OPERATING COSTS
If we are unable to anticipate and react to increases in our operating
costs, including labor and purchased transportation, our profitability will
decline. Many of the factors affecting our operating costs are beyond our
control. We may be unable to anticipate and react to changing operating costs
through higher prices without a material adverse effect on our business, results
of operations and financial condition.
WE MAY HAVE DIFFICULTY EFFECTIVELY MANAGING OUR GROWTH
Our growth plans will place significant demands on our management and
operating personnel. Our ability to manage our future growth effectively will
require us to regularly improve our operating and management information systems
and to continue to attract, retain, train, motivate and manage key employees. If
we are unable to manage our growth effectively, our business, results of
operations and financial condition will be adversely affected.
OUR MARKET IS HIGHLY COMPETITIVE
The air freight transportation industry is highly competitive and very
fragmented. Our competitors include regional trucking companies that specialize
in handling deferred air freight and regional and national less-than-truckload
carriers. To a lesser extent, we compete with integrated air cargo carriers and
airlines. Our competition ranges from small operators that compete within a
limited geographic area to companies with substantially greater financial and
other resources and larger freight capacity. We also face competition from our
air freight forwarder customers who decide to establish their own networks to
transport deferred air freight. We believe competition is based on service,
primarily on-time delivery and reliability, as well as rates. This competition
may cause a decrease in our volume of freight, require us to lower the prices we
charge for our services and adversely affect our growth prospects.
WE MUST CONTINUE TO UPGRADE OUR TECHNOLOGY AND INFORMATION SYSTEMS
We must regularly upgrade our information systems to remain competitive and
handle higher volumes of freight through our network. If our information systems
are unable to handle additional freight volumes, our service levels, operating
efficiency and freight
5
<PAGE> 10
volumes will decline. We expect customers to continue to demand more
sophisticated, fully integrated information systems from their transportation
providers. If we are unable to upgrade our information systems to handle
additional freight volumes and meet the demands of our customers, our business
and results of operations will be adversely affected.
POTENTIAL LIABILITY FOR PROPERTY DAMAGE AND PERSONAL INJURIES
Under United States Department of Transportation regulations, we are liable
for property damage or personal injuries caused by owner-operators while they
are operating on our behalf. We currently maintain liability insurance that we
believe is adequate to cover third-party claims and self-insure for property
damage to our own equipment. We could incur claims in excess of our policy
limits or incur claims not covered by our insurance. Any claims beyond the
limits or scope of our insurance coverage could have a material adverse effect
on us. In addition, we may not be able to obtain sufficient liability insurance
in the future, or if we can, it may become very expensive.
WE RELY ON OWNER-OPERATORS AND FREIGHT HANDLERS IN OUR BUSINESS
We depend on owner-operators for most of our transportation needs. In 1998,
owner-operators provided 67.9% of our transportation requirements. Competition
for owner-operators is intense, and sometimes there are shortages of available
owner-operators. In addition, we need a large number of freight handlers to
operate our business efficiently. In periods of low unemployment in the areas
where our terminals are located, we may have difficulty employing a sufficient
number of freight handlers. If we have difficulty attracting and retaining
qualified owner-operators and freight handlers, we may be forced to increase
wages and benefits, which would increase our operating costs. We may also be
unable to maintain our current delivery schedules, which could make our service
less competitive, and we may be forced to curtail our planned growth. If our
labor costs increase, we may not be able to offset the increased cost by
increasing rates without adversely affecting our business.
At times, the Internal Revenue Service, the Department of Labor and state
authorities have asserted that owner-operators are "employees," rather than
"independent contractors." Therefore, one or more governmental authorities may
challenge our position that the owner-operators we use are not employees. There
also may be changes to the applicable federal or state tax or other laws, or
interpretations thereof. If this happens, we are likely to incur additional
taxes, as well as higher workers' compensation and employee benefit costs, and
possibly penalties and interest for prior periods. This could have an adverse
effect on our results of operations.
OUR SUCCESS IS DEPENDENT ON OUR KEY PERSONNEL
We are highly dependent on the continued services and efforts of our senior
management team, especially Scott M. Niswonger, our Chairman and Chief Executive
Officer, and Bruce A. Campbell, our President and Chief Operating Officer. The
loss of the services of any member of our senior management could have a
material adverse effect on our business. Mr. Niswonger, Edward W. Cook, our
Senior Vice President, Chief Financial Officer and Treasurer, and Richard H.
Roberts, our Senior Vice President, General Counsel and Secretary, also serve as
officers of Landair Corporation. Therefore, they do not devote all of their
attention to our business.
6
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RISK OF LOSS OF TAX-FREE TREATMENT OF THE SPIN-OFF
We have received a private letter ruling from the IRS that the spin-off of
the truckload carrier business qualifies as a tax-free distribution for federal
income tax purposes under Section 355 of the Internal Revenue Code. This ruling
is based on the accuracy of a number of assumptions and factual representations
we and Landair Corporation made to the IRS. It is possible that some of these
assumptions or representations will turn out to have been incorrect. If this
happened, the IRS may decide that the spin-off was a taxable event. If the
spin-off were determined to be taxable, we would have to pay tax on the
difference between the fair market value of the Landair Corporation common stock
we distributed in the spin-off and our tax basis in the Landair Corporation
common stock at the time of the spin-off. Landair Corporation would be
responsible for reimbursing us for this tax only if we could show that the tax
resulted from an act, misrepresentation or omission by Landair Corporation.
The IRS ruling is dependent, in part, upon our representation that, within
12 months of the date of the spin-off, we would publicly offer newly issued
shares of our common stock representing approximately 15% of the total number of
shares of common stock outstanding at the time of the spin-off. To comply with
this representation, we would have to publicly issue approximately 900,000
shares of our common stock in addition to the 1,000,000 shares we are offering
under this prospectus. We have determined that, as a result of our current
capital requirements and operating performance, we do not need to offer these
additional shares. Therefore, we have requested a supplemental ruling from the
IRS that our failure to offer these additional shares will not affect the
tax-free treatment of the spin-off. If we do not receive this supplemental
ruling, we will increase the number of shares of common stock we are selling in
this offering or offer the additional shares of common stock to the public at
some time after this offering.
OUR QUARTERLY OPERATING RESULTS FLUCTUATE
Revenue and operating results are generally seasonal in the air freight
transportation industry because customers usually reduce shipments during the
winter after the holiday season. Our operating margins have been lower in the
winter months primarily because of lower freight volumes. This seasonal pattern
is likely to continue.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO OUR BUSINESS
We are licensed by the Department of Transportation as a broker and motor
carrier to arrange for the transportation of freight by truck. Our domestic
customs brokerage operations are licensed by the United States Customs Service,
and the Federal Maritime Commission regulates our ocean freight forwarding
operations. We are also subject to federal and state environmental laws and
regulations if we transport hazardous materials. If we do not comply with these
laws and regulations, we could be required to pay substantial fines or have our
licenses revoked. This would limit the services we can provide. The
transportation industry is subject to legislative and regulatory changes that
can affect the economics of our business by requiring changes in operating
practices or influencing the demand for, and the cost of providing,
transportation services. In addition, changes to current environmental laws or
regulations may increase our operating costs and adversely affect our results of
operations.
CONTROL BY MANAGEMENT
After this offering, Scott M. Niswonger, our Chairman and Chief Executive
Officer and the selling shareholder, will own or have voting control over
4,001,200 shares of our
7
<PAGE> 12
common stock. These shares will represent approximately 29.3% of all outstanding
shares of our common stock. Therefore, Mr. Niswonger will continue to be able to
significantly influence the outcome of all matters voted on by shareholders,
such as the election of directors.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
As a Tennessee corporation, we are subject to the Tennessee Business
Combination Act and the Tennessee Greenmail Act, each of which may have
anti-takeover effects. In addition, our Board of Directors is currently
considering adopting a shareholder rights plan that is designed to deter persons
from acquiring us or a significant interest in us unless the acquisition has
first been approved by our Board of Directors. The Tennessee Business
Combination Act, the Tennessee Greenmail Act or, if adopted by the Board of
Directors, the shareholder rights plan could delay, deter or prevent a takeover
attempt that shareholders might consider to be in their best interest.
OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT
We depend upon a significant number of computer software programs and
operating systems to conduct our business. Some of our older software programs
are not year 2000 compliant. We are in the process of replacing most of our key
financial and operating systems as a part of the normal upgrading of our
systems. In addition to our replacement program, we intend to modify some of our
software and hardware so that our computer systems will function properly in and
after the year 2000. We expect to complete this process by June 30, 1999.
We are in the process of obtaining year 2000 compliance letters and reports
from our significant suppliers and customers. We presently do not anticipate any
major interruption in our business as a result of year 2000 issues. Therefore,
we do not expect that year 2000 issues will have a material adverse effect on
our business or operations or that we will incur any material expense associated
with year 2000 compliance. We have not established a contingency plan to address
potential year 2000 noncompliance in our systems or in those of our major
suppliers or customers. We are currently considering whether we need a
contingency plan. Because of our dependence on systems outside our control and
because third parties with whom we have relationships may not have adequately
addressed year 2000 issues, we could face unexpected problems associated with
year 2000 issues. These problems could affect our operations, business or
financial condition.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT MAY NOT PROVE TO BE
ACCURATE
This prospectus contains forward-looking statements relating to future
events and our future financial performance. These forward-looking statements
are within the meaning of that term in Section 27A of the Securities Act and
Section 21E of the Exchange Act and are intended to be covered by the safe
harbors created thereby. These statements include all statements regarding our
intent, belief and expectations such as statements concerning projections of
revenue, income or loss, capital expenditures, plans for growth, future
operations, financing needs and plans relating to acquisitions by us.
Forward-looking statements are inherently subject to risks and uncertainties,
many of which we cannot predict or quantify for many reasons, including the
factors we have discussed in "Risk Factors." Future events and our actual
results may differ materially from what we expect.
8
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USE OF PROCEEDS
We estimate that we will receive approximately $19.8 million from the sale
of the 1,000,000 shares of common stock we are offering, assuming a public
offering price of $21.625 per share. We will not receive any proceeds from the
sale of common stock by the selling shareholder.
We will use approximately $18.5 million of these net proceeds to repay
outstanding debt. We borrowed this money to purchase operating equipment, to
provide working capital and to make a $5.0 million capital contribution to
Landair Corporation at the time of the spin-off in September 1998. This debt
bears interest at LIBOR plus applicable rates (6.25% to 6.56% at March 31, 1999)
and is due between September and December 2000. We will use the balance of the
net proceeds for general corporate purposes. Until used, we will invest the net
proceeds in short-term, investment grade securities.
MARKET PRICE OF OUR COMMON STOCK
Our common stock trades on The Nasdaq National Market under the symbol
"FWRD." Before September 1998, our business was combined with the truckload
carrier business and traded under the symbol "LAND." Beginning on September 24,
1998, our common stock began to trade separately from the truckload carrier
business. The following table shows the range of high and low sale prices for
our common stock for the periods indicated, as reported by The Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
1998
Third quarter (September 24-30, 1998)....................... $ 8.31 $ 6.25
Fourth quarter.............................................. 10.44 6.56
1999
First quarter............................................... $15.75 $ 9.25
Second quarter (through April 22, 1999)..................... 23.00 13.00
</TABLE>
DIVIDEND POLICY
We have not paid cash dividends on our capital stock since our initial
public offering in November 1993. It is our current policy to retain earnings to
finance the growth of our business. Any future payment of cash dividends will
depend on our financial condition, results of operations, contractual
restrictions and capital requirements and other factors our Board of Directors
considers relevant.
9
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CAPITALIZATION
The following table shows our capitalization as of December 31, 1998 (i) on
an actual basis and (ii) as adjusted for our sale of the 1,000,000 shares of
common stock we are offering hereby, at an assumed offering price of $21.625 per
share, and use of the estimated net proceeds to repay debt.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capital lease
obligations.............................................. $ 5,205 $ 1,303
======= =======
Long-term debt and capital lease obligations, less current
portion.................................................. $20,126 $ 5,488
------- -------
Shareholders' equity:
Preferred stock, $0.01 par value:
5,000,000 shares authorized, no shares outstanding.... -- --
Common stock, $0.01 par value:
20,000,000 shares authorized; issued and outstanding:
12,587,818 shares actual, and 13,587,818 shares as
adjusted.............................................. 126 136
Additional paid-in capital............................... 15,768 35,594
Retained earnings........................................ 3,177 3,177
------- -------
Total shareholders' equity....................... 19,071 38,907
------- -------
Total capitalization............................. $39,197 $44,395
======= =======
</TABLE>
10
<PAGE> 15
SELECTED FINANCIAL AND OPERATING DATA
We derived the selected financial and operating data shown below from our
financial statements, which have been audited by Ernst & Young LLP. The data
below excludes the truckload carrier business, which has been accounted for as a
discontinued operation, and includes allocations of corporate administrative
expenses between the two businesses. We have not included balance sheet data for
1994 through 1997 because that data does not fully reflect the spin-off of the
truckload carrier business and, therefore, is not representative of the
financial position and capitalization of our deferred air freight business on a
stand-alone basis. During 1997, we estimate that we received $2.3 million of
non-recurring revenue as a result of the UPS strike. We estimate this revenue,
less our variable costs and income taxes but not allocated fixed costs, gave us
additional income from continuing operations of approximately $1.2 million and
an additional $0.06 of diluted earnings per share. Our shareholders' equity at
December 31, 1998 has been reduced for the spin-off of Landair Corporation,
which had net assets of $44.3 million at the date of the spin-off.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue................ $57,914 $63,557 $80,737 $105,140 $130,438
Total operating expenses......... 53,392 57,160 72,221 92,076 114,427
------- ------- ------- -------- --------
Operating income................. 4,522 6,397 8,516 13,064 16,011
Interest expense................. (365) (694) (743) (796) (1,206)
Other income (expense), net...... 98 83 2 (84) 37
------- ------- ------- -------- --------
Income from continuing operations
before income taxes........... 4,255 5,786 7,775 12,184 14,842
Income taxes..................... 1,642 2,206 2,891 4,740 5,653
------- ------- ------- -------- --------
Income from continuing
operations.................... $ 2,613 $ 3,580 $ 4,884 $ 7,444 $ 9,189
======= ======= ======= ======== ========
Income from continuing operations
per share:
Basic......................... $ .23 $ .31 $ .41 $ .62 $ .74
Diluted....................... .22 .30 .40 .60 .72
Average common shares and
equivalents outstanding:
Basic......................... 11,534 11,700 11,856 11,936 12,393
Diluted....................... 12,192 12,054 12,098 12,354 12,846
OPERATING DATA:
Operating margin................. 7.8% 10.1% 10.5% 12.4% 12.3%
Terminal facilities.............. 55 56 60 62 67
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
BALANCE SHEET DATA: -----------------
(IN THOUSANDS)
<S> <C>
Working capital........................................... $ 7,035
Total assets of continuing operations..................... 56,808
Long-term obligations of continuing operations, net of
current portion........................................ 20,126
Shareholders' equity...................................... 19,071
</TABLE>
11
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
We provide scheduled ground transportation of cargo on a time-definite
basis. As a result of our established transportation schedule and network of
terminals, our operating cost structure includes significant fixed costs. Our
ability to improve our operating margins will depend on our ability to increase
the volume of freight moved through our network. As an example, in the third
quarter of 1997, we estimate that we received $2.3 million of non-recurring
revenue as a result of the UPS strike, which gave us additional income from
continuing operations of approximately $1.2 million.
The following does not include a discussion and analysis of the truckload
carrier business, which has been accounted for as a discontinued operation as a
result of the spin-off.
RESULTS OF OPERATIONS
The following table shows the percentage relationship of expense items to
operating revenue for the past three years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Operating revenue...................................... 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation............................. 44.5 43.5 43.2
Salaries, wages and employee benefits................ 22.6 23.6 23.9
Operating leases..................................... 6.1 5.6 5.3
Depreciation and amortization........................ 2.6 2.8 3.3
Insurance and claims................................. 2.1 2.0 1.8
Other operating expenses............................. 11.6 10.1 10.2
----- ----- -----
Total operating expenses..................... 89.5 87.6 87.7
----- ----- -----
Income from operations................................. 10.5 12.4 12.3
----- ----- -----
Interest expense....................................... 0.9 0.7 0.9
Other expense, net..................................... -- 0.1 --
----- ----- -----
Income from continuing operations before income
taxes................................................ 9.6 11.6 11.4
Income taxes........................................... 3.6 4.5 4.4
----- ----- -----
Income from continuing operations...................... 6.0% 7.1% 7.0%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Operating revenue increased by $25.3 million, or 24.1%, to $130.4 million
for 1998 from $105.1 million in 1997. This increase resulted primarily from
increased volume from domestic and international air cargo customers, increased
operating terminals and direct shuttles, and enhanced logistics services, which
were offset in part by an increase in the number of shipments during the UPS
strike in the third quarter of 1997.
Purchased transportation was 43.2% of operating revenue in 1998 compared to
43.5% in 1997. This decrease was primarily attributable to operating
efficiencies resulting from
12
<PAGE> 17
increased volumes of freight transported through our network, coupled with an
increase in logistics services revenue, which does not involve the
transportation of freight.
Salaries, wages and employee benefits were 23.9% of operating revenue in
1998 compared to 23.6% in 1997. This increase was due primarily to additional
cargo handling wages and supervisory salaries required to operate
company-operated terminals that were added since the preceding period, coupled
with an increase in labor costs associated with the expansion of our logistics
services.
Operating leases, the largest component of which is terminal rent, were
5.3% of operating revenue in 1998 compared to 5.6% in 1997. This decrease was
attributable to increased operating revenue.
Depreciation and amortization expense as a percentage of operating revenue
was 3.3% in 1998, compared to 2.8% in 1997. This increase was attributable to
the implementation of our integrated freight order entry, tracking and billing
information system during 1997 coupled with additional operating equipment
required to operate company-operated terminals that were added since the
preceding period.
Insurance and claims as a percentage of revenue was 1.8% of operating
revenue in 1998, compared with 2.0% in 1997. This decrease was due primarily to
a decrease in the frequency and severity of accidents and lower premium costs.
Other operating expenses remained relatively constant at 10.2% of operating
revenue in 1998 compared to 10.1% in 1997.
Income from operations increased by $2.9 million, or 22.1%, to $16.0
million for 1998 compared to $13.1 million for 1997. This increase is due
primarily to a lower operating cost structure resulting from an increase in
operating revenue, which allowed us to spread the fixed costs of our network
over a larger revenue base. Income from operations during 1997 benefited from
non-recurring revenue as a result of the UPS strike.
Interest expense was $1.2 million, or 0.9%, of operating revenue in 1998,
compared to $796,000, or 0.7%, in 1997. This increase was due to higher average
net borrowing, primarily as a result of a $5.0 million capital contribution to
Landair Corporation and the settlement of intercompany balances with Landair
Corporation prior to the spin-off.
The combined federal and state effective tax rate for 1998 was 38.1%,
compared to a rate of 38.9% for 1997. For information concerning income taxes,
as well as information regarding differences between effective tax rates and
statutory rates, see note 6 of the notes to our financial statements.
As a result of the foregoing factors, income from continuing operations
increased by $1.8 million, or 24.3%, to $9.2 million for 1998, from $7.4 million
in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Operating revenue increased by $24.4 million, or 30.2%, to $105.1 million
for 1997 from $80.7 million in 1996. This increase resulted primarily from
increased freight volume from domestic and international air cargo customers,
which was attributable in part to an increased number of shipments during the
UPS strike in the third quarter of 1997, increased operating terminals and
direct shuttles and enhanced logistics services.
Purchased transportation was 43.5% of operating revenue in 1997 compared to
44.5% in 1996. This decrease was primarily attributable to operating
efficiencies resulting from increased volumes of freight transported through our
network, coupled with an increase in logistics services revenue, which does not
involve the transportation of freight.
13
<PAGE> 18
Salaries, wages and employee benefits were 23.6% of operating revenue in
1997 compared to 22.6% in 1996. This increase resulted primarily from additional
cargo handling wages and supervisory salaries required to operate
company-operated terminals that were added since the preceding period, coupled
with an increase in labor costs associated with the expansion of our logistics
services.
Operating leases, the largest component of which is terminal rent, were
5.6% of operating revenue in 1997 compared to 6.1% in 1996. This decrease was
attributable to increased operating revenue.
Depreciation and amortization expense as a percentage of operating revenue
was 2.8% in 1997 compared to 2.6% in 1996. This increase was attributable to the
implementation of our integrated freight order entry, tracking and billing
information system during the second half of 1997, coupled with additional
operating equipment required to operate company-operated terminals that were
added since the preceding period.
Insurance and claims as a percentage of operating revenue was 2.0% of
operating revenue in 1997, compared with 2.1% in 1996. This decrease was due
primarily to a decrease in the frequency and severity of accidents and lower
premium costs.
Other operating expenses were 10.1% of operating revenue in 1997 compared
to 11.6% in 1996. This decrease was attributable to a lower operating cost
structure as a result of increased operating revenue and a reduction in
commissions paid to agent terminals.
Income from operations increased by $4.6 million, or 54.1%, to $13.1
million in 1997 compared to $8.5 million for the same period of 1996. This
increase is primarily attributable to a lower operating cost structure resulting
from an increase in operating revenue, which allowed us to spread the fixed cost
of our network over a larger revenue base. Income from operations during 1997
benefited from non-recurring revenue as a result of the UPS strike.
Interest expense was $796,000, or 0.7% of operating revenue in 1997
compared to $743,000, or 0.9%, in 1996. This decrease was the result of lower
average net borrowing.
The combined federal and state effective tax rate for 1997 was 38.9%,
compared to a rate of 37.2% for 1996. For information concerning income taxes,
as well as information regarding differences between effective tax rates and
statutory rates, see note 6 of the notes to our financial statements.
As a result of the foregoing factors, income from continuing operations
increased by $2.5 million, or 51.0%, to $7.4 million for 1997 from $4.9 million
in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the spin-off in September 1998, we operated our business and the
truckload carrier business together. As a result, our statements of cash flows
do not reflect the cash flows of our business as a stand-alone company.
We have historically financed our working capital needs, including capital
purchases, with cash flows from operations and borrowings under our bank lines
of credit. Net cash provided by operating activities totaled approximately $1.9
million for 1998, $6.3 million in 1997 and $3.2 million in 1996.
Net cash used in investing activities was approximately $17.0 million in
1998, $4.8 million in 1997 and $2.6 million in 1996. Our investing activities
consisted primarily of the $5.0 million capital contribution to Landair
Corporation in 1998, the acquisition of the air
14
<PAGE> 19
cargo operating assets of Adams Air Cargo, Inc. in 1997 and the acquisition of a
terminal facility in 1996, along with the purchase of operating equipment and
management information systems during all three years.
Net cash provided by financing activities was $14.6 million in 1998,
compared to cash used in financing activities of $766,000 in 1997 and $518,000
in 1996. Our financing activities included the continued financing of operating
equipment and working capital needs, repayment of long-term debt and capital
leases and the amounts received from the exercise of stock options, and common
stock we issued under our employee stock purchase plan.
We expect net capital expenditures in 1999 for operating equipment and
management information systems to be less than $8.0 million. We expect to fund
these expenditures through cash provided by operating activities and borrowings
under our credit facilities.
Our credit facilities include a working capital line of credit and an
equipment financing facility. As long as we comply with several financial
covenants and ratios, these credit facilities permit us to borrow up to $20.0
million under the working capital line of credit and up to $25.0 million under
equipment financing facilities. Interest rates for advances under the facilities
vary based on covenants related to total indebtedness, cash flows, results of
operations and other ratios. The facilities bear interest at LIBOR plus .80% to
1.90%, expire in September and December 2000 and are secured by accounts
receivable and most of our equipment. The amount we can borrow under the line of
credit is reduced by the amount of any outstanding letters of credit.
We believe that our available cash, together with the amount we will
receive from this offering, expected cash generated from future operations and
borrowings under available lines of credit, will be sufficient to satisfy our
anticipated cash needs for at least the next 12 months.
15
<PAGE> 20
BUSINESS
RECENT SPIN-OFF
We commenced operating our deferred air freight business in November 1990.
Until September 1998, we operated our deferred air freight business and a
national truckload carrier business. In September 1998, we spun off our
truckload carrier business, operated as Landair Transport, Inc., to our
shareholders. In connection with the spin-off, we received a private letter
ruling from the IRS that the spin-off qualifies as a tax-free distribution for
federal income tax purposes.
INDUSTRY OVERVIEW
As businesses minimize inventory levels, perform manufacturing and assembly
operations in multiple locations and distribute their products through many
channels, they more frequently require expedited delivery services. Expedited
shipments are those shipments that the customer requires to be delivered the
next day or within two to three days, usually at a specified time or within a
specified time window. The Colography Group, Inc., an independent industry
market research and consulting company, estimates the domestic air freight
market for 1999 to be approximately $6.3 billion, nearly 44% of which is for
overnight delivery, with the remaining 56% for delivery within two to three
days.
Shippers with expedited delivery requirements have four principal
alternatives to transport freight: they may use a fully integrated air cargo
carrier, an airline, a less-than-truckload carrier or an air freight forwarder.
Integrated air cargo carriers provide pick-up and delivery services primarily
using their own fleet of trucks and provide transportation services using their
own fleet of aircraft. Airlines provide airport to airport service, but have
limited cargo space and generally accept only shipments weighing less than 150
pounds. Less-than-truckload carriers provide pick-up and delivery services
through their own fleet of trucks. The national less-than-truckload carriers
operate terminals where freight is unloaded, sorted and reloaded multiple times
in a single shipment. The additional handling increases transit time, handling
costs and the likelihood of cargo damage. An air freight forwarder obtains
shipments from customers, makes arrangements for transportation of the cargo by
a third party carrier and usually arranges for both delivery from the shipper to
the carrier and from the carrier to the recipient.
Although expedited freight is primarily transported by aircraft,
transportation by truck often is a viable alternative, especially for shipments
requiring deferred delivery. Generally, the cost of shipping freight, especially
heavy freight, by truck is substantially less than shipping by aircraft. We
believe there are several trends that are increasing demand for lower-cost truck
transportation of expedited freight. These trends include:
Increased Outsourcing of Logistics Management to Third Parties. Air
freight forwarders are playing an increasingly important role in logistics
management. As the growing emphasis on just-in-time processes has added to
the complexity of logistics management, companies are finding it more
advantageous to outsource their logistics management functions to third
parties. In contrast to integrated air cargo carriers and
less-than-truckload carriers that are focused on utilizing their own,
fixed-cost assets, air freight forwarders can select from various
transportation modes and suppliers to meet their customers' shipping
requirements, thereby serving their customers less expensively. Air freight
forwarders generally handle shipments of any size and offer customized
shipping options, unlike integrated air cargo carriers and less-than-
truckload carriers.
16
<PAGE> 21
Integrated Air Cargo Carriers' Increased Focus on Expedited
Freight. Integrated air cargo carriers that transport heavy freight, such
as Emery Worldwide and BAX Global, are increasingly targeting their
marketing efforts at higher yielding expedited or overnight freight to
better utilize their high fixed-cost infrastructures. As a result, these
carriers are increasingly outsourcing deferred freight to surface
transportation providers like us.
Reduced Airline Cargo Capacity. Since the 1980's, when the airlines
eliminated many of their all-cargo aircraft, growth in demand for air cargo
services has generally outpaced the growth of aircraft cargo capacity. More
recently, airlines have been modifying their domestic route systems to
provide higher frequency service to more destinations, therefore replacing
many of their wide-body aircraft with narrow-body aircraft that have less
cargo capacity. Federal Aviation Administration mandates have also reduced
air cargo capacity because most all-cargo aircraft are older, and it often
is not economically feasible to modify these older aircraft to meet the
FAA's noise reduction standards.
COMPETITIVE ADVANTAGES
We believe that our competitive advantages are:
- Exclusive focus on the deferred air freight market. We focus exclusively
on providing ground transportation services to the deferred air freight
market. We believe that this exclusive focus and our commitment to
reliable service has enabled us to provide a higher level of service in a
more cost effective manner than our competitors. In 1998, shipments we
handled arrived within 30 minutes of their scheduled arrival times over
98% of the time, with only 1.7 incidents of loss or damage per 1,000
shipments.
- Concentrated marketing strategy. We provide our services to air freight
forwarders, integrated air cargo carriers and airlines rather than
marketing our services directly to shippers. We do not place significant
size or weight restrictions on shipments and, therefore, do not compete
with small or overnight package delivery services such as DHL Worldwide,
UPS and Airborne. We believe that air freight forwarders prefer to
purchase their transportation services from us because we do not market
our services to their shipper customers and are not competing with them
for customers.
- Established nationwide network of terminals and sorting facilities. We
have built a network throughout the United States and Canada located on
or near airports. We believe it would be difficult for a competitor to
duplicate our nationwide network without the expertise we have acquired
and without expending significant management resources and capital. Our
network enables us to provide regularly scheduled service between most
markets, on-time delivery with minimal freight damage or loss, all at
rates significantly below air freight rates.
- Low-capital-intensive business model. We purchase virtually all of our
transportation requirements from owner-operators or truckload carriers,
rather than acquiring and operating our own tractors. This allows us to
respond quickly to changing demands and opportunities in our industry and
to generate a higher return on assets with lower capital expenditures.
- Enhanced technology. We are committed to using information technology to
improve our service and reduce our operating costs. Technology allows us
to
17
<PAGE> 22
increase the volume of freight that we can handle in our network and
provides real-time tracking and tracing of shipments throughout the
transportation process. We are currently enhancing our systems to permit
all participants in a shipment to obtain real-time information about that
shipment via the Internet.
- Broad customer base. We have established close relationships with a
large number of air freight forwarders, integrated air cargo carriers and
airlines. Our five largest customers only accounted for approximately 17%
of our operating revenue in 1998, and no single customer accounted for
more than five percent.
GROWTH STRATEGY
The key elements of our growth strategy are to:
- Increase freight volume from existing customers. Many of our customers
currently use us for only a portion of their overall transportation
needs. In addition, many of our air freight forwarder customers are
growing rapidly, and we expect that they will have a greater need for our
services as their businesses grow. We will continue to market directly to
these customers to capture additional freight volume.
- Improve efficiency of our transportation network. We constantly seek to
improve the efficiency of our network without changing our infrastructure
or incurring significant capital expenses. As the volume of freight
between key markets increases, we intend to continue to add regional hubs
and direct shuttles. Additional regional hubs and direct shuttles improve
our efficiency by reducing the number of miles freight must be
transported and reducing the number of times freight must be handled and
sorted. Increased freight volumes should increase our profits and
operating margins because these additional shipments help cover the
substantial fixed costs of our operations.
- Develop new customers. We will actively market our services to potential
new air freight forwarder customers. We believe air freight forwarders
will move away from integrated air cargo carriers because of those
carriers' higher costs and away from less-than-truckload carriers because
of those carriers' less reliable service. We also believe that there is
significant potential for increased freight volume from airlines as well
as from the integrated air cargo carriers.
- Enhance information systems. We are committed to continued enhancement
of our information systems in ways that can provide us both competitive
service advantages and increased productivity. We believe that our
customers will increasingly demand more sophisticated information systems
to track and trace shipments. We believe our enhanced systems will enable
us to retain existing customers and encourage them to increase the volume
of freight they send through our network. We also believe these enhanced
information systems will attract new customers, particularly air freight
forwarders who do not want to develop their own information systems.
- Expand logistics services. We will continue to expand our national and
international logistics services to increase revenue and improve
utilization of our terminal facilities and labor force. We have added a
number of services in the past few years, such as subletting dock,
warehouse or office space and insurance, customs brokerage and terminal
handling services. These services directly benefit our customers,
particularly air freight forwarders who cannot justify providing the
18
<PAGE> 23
services for themselves, attract new customers and improve utilization of
our network by increasing our revenue without significantly increasing
our costs.
- Pursue acquisitions. We intend to pursue acquisitions that can increase
our penetration of a geographic area, add customers or freight density or
allow us to offer additional services.
OPERATIONS
We receive freight from air freight forwarders, airlines and integrated air
cargo carriers at our terminals, which are located on or near airports in the
United States and Canada. We consolidate and transport these shipments by truck
through our network to the terminals nearest the ultimate destinations of the
shipments. We operate regularly scheduled service to and from each of our
terminals through our Columbus, Ohio central sorting facility or through one of
our regional hubs. We also operate regularly scheduled shuttle service directly
between cities where the volume of freight warrants bypassing our Columbus
sorting facility or a regional hub. When a shipment arrives at the terminal
nearest its destination, the customer arranges for the shipment to be picked up
at the terminal and delivered to its final destination.
A typical shipment consists of a pallet load of freight, often computers,
telecommunications equipment, machine parts, trade show exhibit materials or
medical equipment. Since we commenced operations in November 1990, the weekly
volume of freight moving through our network has increased from an average of
approximately 1.2 million pounds to over 15.3 million pounds in the year ended
December 31, 1998. During 1998, our average shipment weighed over 750 pounds.
Shipments range from small boxes weighing only a few pounds to large shipments
of several thousand pounds. Although we impose no significant size or weight
restrictions, we focus our marketing and price structure on shipments of 200
pounds or more. As a result, we do not directly compete for most of our business
with overnight couriers or small package delivery companies.
19
<PAGE> 24
TERMINALS
Our terminals are located in the following cities:
<TABLE>
<CAPTION>
AIRPORT
CITY SERVED
---- -------
<S> <C>
Albany, NY.................... ALB
Atlanta, GA................... ATL
Austin, TX.................... AUS
Baltimore, MD................. BWI
Baton Rouge, LA............... BTR
Birmingham, AL................ BHM
Boston, MA.................... BOS
Buffalo, NY................... BUF
Charleston, SC................ CHS
Charlotte, NC................. CLT
Chicago, IL................... ORD
Cincinnati, OH................ CVG
Cleveland, OH................. CLE
Columbia, SC.................. CAE
Columbus, OH.................. CMH
Dallas/Ft. Worth, TX.......... DFW
Dayton, OH.................... DAY
Denver, CO.................... DEN
Detroit, MI................... DTW
El Paso, TX................... ELP
Greensboro, NC................ GSO
Greenville, SC................ GSP
Hartford, CT.................. BDL
Houston, TX................... IAH
Huntsville, AL................ HSV
Indianapolis, IN.............. IND
Jacksonville, FL.............. JAX
Kansas City, MO............... MCI
Lafayette, LA................. LFT
Las Vegas, NV................. LAS
Los Angeles, CA............... LAX
Louisville, KY................ SDF
Memphis, TN................... MEM
Miami, FL..................... MIA
</TABLE>
<TABLE>
<CAPTION>
AIRPORT
CITY SERVED
---- -------
<S> <C>
Milwaukee, WI................. MKE
Minneapolis, MN............... MSP
Mobile, AL.................... MOB
Montreal, Canada.............. YUL
Nashville, TN................. BNA
Newark, NJ.................... EWR
Newburgh, NY.................. SWF
New Orleans, LA............... MSY
New York, NY.................. JFK
Norfolk, VA................... ORF
Oklahoma City, OK............. OKC
Omaha, NE..................... OMA
Orlando, FL................... MCO
Ottawa, Canada................ YOW
Philadelphia, PA.............. PHL
Phoenix, AZ................... PHX
Pittsburgh, PA................ PIT
Portland, OR.................. PDX
Raleigh, NC................... RDU
Richmond, VA.................. RIC
Rochester, NY................. ROC
Sacramento, CA................ SMF
Salt Lake City, UT............ SLC
San Antonio, TX............... SAT
San Diego, CA................. SAN
San Francisco, CA............. SFO
Seattle, WA................... SEA
St. Louis, MO................. STL
Syracuse, NY.................. SYR
Tampa, FL..................... TPA
Toledo, OH.................... TOL
Toronto, Canada............... YYZ
Tulsa, OK..................... TUL
Washington, DC................ IAD
</TABLE>
Independent agents operate 12 of these terminals, which typically handle
relatively low volumes of freight.
SHUTTLE SERVICE AND REGIONAL HUBS
We operate direct terminal-to-terminal shuttles and regional overnight
service between cities where justified by freight volumes. We currently provide
regional overnight service to many of the markets within our network. Direct
service allows us to provide quicker scheduled service at a lower cost because
we can transport freight over the most direct route and eliminate the added time
and cost of handling the freight at our central or a regional hub sorting
facility. Direct shipments also reduce the likelihood of damage because of
reduced handling and sorting of the freight. As we continue to increase volume
20
<PAGE> 25
between various cities, we intend to continue to add direct shuttles. For
example, our Northeast Shuttle transports freight between Albany, Baltimore,
Boston, Buffalo, Hartford, Newark, Newburgh, New York, Philadelphia, Rochester,
Syracuse and Washington. We accomplished this by direct shipment, as from Boston
to Newark, or by overnight service routed through our Newburgh regional hub.
Where warranted by sufficient volume in a region, we utilize larger terminals as
regional sorting hubs, which allows us to bypass the Columbus sorting facility.
These regional hubs improve our operating efficiency and enhance our customer
service. We currently operate regional hubs in Atlanta, Dallas/Ft. Worth, Kansas
City, Los Angeles, New Orleans, Newburgh, Orlando and San Francisco.
CUSTOMERS AND MARKETING
Our customers are air freight forwarders, airlines and integrated air cargo
carriers. Our air freight forwarder customers vary in size from small,
independent, single facility companies to large, international logistics
companies, such as USF Seko Worldwide, Associated Global Systems, Pilot Air
Freight, AIT Freight Systems, and Eagle USA Air Freight. Our airline customers
include Virgin Atlantic, Lufthansa, Air Nippon, Air France, Korean Airlines, KLM
and Japan Airlines. Because of our reputation for dependable service, integrated
air cargo carriers such as Emery Worldwide, Airborne and BAX Global utilize our
services to provide overflow capacity and other services.
We market our services through a sales and marketing staff located in
various regions of the United States. Our senior management also is actively
involved in sales and marketing at the national account level and supports local
sales activity. We have a strong commitment to marketing and focus on air
freight forwarders, airlines and integrated air cargo carriers that have time
sensitive shipping requirements requiring customized services. We also
participate in air cargo trade shows and advertise our services through direct
mail programs and point of sale material.
LOGISTICS SERVICES
Customers increasingly demand more than the movement of freight from their
transportation providers. To meet these demands, we continually seek ways to
customize our logistics services and add new services. Logistics services
increase our profit margins by increasing our revenue without corresponding
increases in our costs.
Our logistics services include providing:
- dock, warehouse and office space;
- customs brokerage, such as assistance with customs procedures for both
import and export shipments; and
- terminal handling, such as shipment build-up and break-down and
reconsolidation of air or ocean pallets or containers.
TECHNOLOGY AND INFORMATION SYSTEMS
The regular enhancement of our information systems is a key component of
our growth strategy. We have invested and will continue to invest significant
management and financial resources on improving our information systems in an
effort to provide accurate, real-time information to our management and
customers. We believe the ability to provide accurate, real-time information on
the status of shipments will become increasingly important and that our efforts
in this area will result in both competitive service advantages and increased
productivity throughout our network.
21
<PAGE> 26
In 1995, we began development of a comprehensive freight order entry,
tracking and billing system. We began to implement Phase I of the system in the
second quarter of 1997 and completed installation of Phase I in the first
quarter of 1998. As part of Phase I, we implemented a real-time, dedicated
communications network to link all of our terminals, customer service and
administrative locations. The system permits us to track and trace a shipment
from initial entry through the transportation process to the point of delivery.
We can access daily financial information covering the entire network, a
particular terminal, a particular customer or a given shipment.
We have also begun development of our Air Cargo Services or "ACS" system.
ACS is designed to seamlessly integrate all of the participants in a shipment,
including shippers, air freight forwarders and other service providers. The
system is based on Internet technology. Its functions will include:
- shipment data capture;
- transportation service scheduling;
- on-line status tracking;
- service rating;
- consolidated billing;
- EDI communications;
- report generating; and
- customer access to shipment analysis reporting.
ACS will allow all of these functions to be viewed in real-time. Web
hosting services, integrated with ACS functions, will allow air freight
forwarders to use our technology and information systems to help them compete
more effectively with integrated air cargo carriers. During the second quarter
of 1999, we plan to provide the ACS system to a core group of airline customers
for in-service testing. Following that testing, we will target air freight
forwarders. Full implementation of ACS is scheduled to be completed within the
next two years.
The ACS system and our other major information systems are being developed
through Logistics Technology, Inc., one of our wholly-owned subsidiaries.
Logistics Technology provides Internet services and technology support for us
and other companies. John H. Traendly, our Vice President, Information Systems,
is the President and Chief Executive Officer of Logistics Technology. He has an
option to purchase from us up to 20% of the common stock of Logistics
Technology.
Each of our owner-operators has installed a two-way satellite communication
system to provide us with continuous communications capability. This allows us
to locate a truck at any time and to follow its progress while in transit. The
information received through this system has been integrated into and can be
accessed through our other information systems.
PURCHASED TRANSPORTATION
We contract for most of our transportation services from owner-operators.
These contracts can generally be terminated by either party upon 30 days'
notice. The owner-operators own, operate and maintain their own vehicles and
employ their own drivers. We also purchase transportation from Landair
Corporation and from other truckload carriers to
22
<PAGE> 27
handle overflow volume. Of the $56.3 million of purchased transportation in
1998, we purchased 67.9% from owner-operators, 7.9% from Landair Corporation and
24.2% from other common carriers.
We establish long-term relationships with owner-operators to assure
dependable service and availability, and we have experienced turnover of less
than 10% per year during the past five years. We have established guidelines
relating to safety records, driving experience and personal evaluations that we
use to select our owner-operators. To enhance our relationship with the
owner-operators, we pay per mile rates above prevailing market rates and offer
each driver a consistent work schedule, typically to the same destination.
COMPETITION
The air freight transportation industry is highly competitive and very
fragmented. Our competitors include regional trucking companies that specialize
in handling deferred air freight and regional and national less-than-truckload
carriers. To a lesser extent, we compete with integrated air cargo carriers and
airlines. Our competition ranges from small operators that compete within a
limited geographic area to companies with substantially greater financial and
other resources and larger freight capacity. We also face competition from our
air freight forwarder customers who decide to establish their own networks to
transport deferred air freight. We believe competition is based on service,
primarily on-time delivery and reliability, as well as rates. We believe we
offer our services at rates that are substantially below the charge to transport
the same shipment to the same destination by air. We believe we have an
advantage over less-than-truckload carriers based upon our reputation for
faster, more reliable service between many cities.
EMPLOYEES
As of December 31, 1998, we employed 1,279 persons, 750 of whom were
freight handlers and customer service personnel. None of our employees is
covered by a collective bargaining agreement. We recognize that our workforce,
including our freight handlers, is one of our most valuable assets. The
recruitment, training and retention of qualified employees are essential to
support our continued growth and to meet the service requirements of our
customers.
RISK MANAGEMENT AND LITIGATION
Under Department of Transportation regulations, we are liable for property
damage or personal injuries caused by owner-operators while they are
transporting freight on our behalf. We currently maintain liability insurance
that we believe is adequate. We are self-insured for property damage to our own
equipment. We believe that our insurance coverage is sufficient to adequately
protect us from significant claims.
From time to time, we are a party to litigation arising in the normal
course of our business, most of which involves claims for personal injury,
property damage related to the transportation and handling of freight or
workers' compensation. We do not believe that any pending actions, individually
or in the aggregate, will have a material adverse effect on our business,
financial condition or results of operations.
REGULATION
We are licensed by the Department of Transportation as a broker and motor
carrier to arrange for the transportation of freight by truck. Our air freight
business is subject to regulation as an indirect air cargo carrier under the
Federal Aviation Act, although freight
23
<PAGE> 28
brokers have been exempted from most of the requirements of the Federal Aviation
Act by the Economic Aviation Regulations promulgated thereunder. In addition,
our domestic customs brokerage operations are subject to the licensing
requirements of the United States Department of the Treasury and are regulated
by the United States Customs Service. The Federal Maritime Commission regulates
our ocean freight forwarding operations.
We are also licensed as an interstate motor carrier by the Federal Highway
Administration. Interstate motor carriers are subject to safety requirements
prescribed by the FHA and state agencies. Matters such as weight and dimensions
of equipment are also subject to federal and state regulations. Our Canadian
operations are subject to similar requirements.
We believe that we are in substantial compliance with applicable regulatory
requirements relating to our operations. If we do not comply with applicable
laws and regulations, we could be required to pay substantial fines and could
have our licenses revoked.
We are also subject to federal and state environmental laws and
regulations, including those dealing with the transportation of hazardous
materials and storage of fuel. We believe that we are in substantial compliance
with applicable environmental laws and regulations. We do not expect any
material expenditures for compliance with federal, state or local environmental
laws and regulations in 1999.
PROPERTIES AND EQUIPMENT
Our headquarters are located in a facility we share with Landair
Corporation in Greeneville, Tennessee. We lease this building from the
Greeneville-Greene County Airport Authority. We constructed our central sorting
facility in Columbus, Ohio in 1994. We own our facility in Atlanta.
We lease 54 additional terminal facilities for terms typically ranging from
three to five years. We share four of our terminals with Landair Corporation. We
believe that in most of the markets we serve, replacement space comparable to
these terminal facilities is readily obtainable. We believe that our facilities
are adequate to support our current operations. Our remaining 12 terminals are
agent stations operated by independent agents who handle freight for us on a
commission basis.
We own or lease the trailers we use to move freight through our network.
Substantially all of our trailers are 53' long, and many have specialized roller
bed equipment required to serve air cargo industry customers. The average age of
our company-owned trailer fleet was approximately 1.2 years at December 31,
1998.
24
<PAGE> 29
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following are our executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Scott M. Niswonger............. 51 Chairman of the Board and Chief Executive Officer
Bruce A. Campbell.............. 47 President, Chief Operating Officer and Director
Edward W. Cook................. 40 Senior Vice President, Chief Financial Officer,
Treasurer and Director
Richard H. Roberts............. 44 Senior Vice President, General Counsel,
Secretary and Director
David E. Queen................. 52 Senior Vice President, Operations
Michael A. Roberts............. 54 Senior Vice President, Sales and Marketing
James R. Weiland............... 54 Senior Vice President, Sales
John H. Traendly............... 53 Vice President, Information Systems
James A. Cronin, III........... 44 Director
Hon. Robert Keith Gray......... 73 Director
</TABLE>
There are no family relationships between any of our executive officers or
directors. All officers serve at the pleasure of the Board of Directors.
Scott M. Niswonger is a co-founder of Forward Air Corporation, has served
as a director since its founding in 1981 and as our Chairman of the Board and
Chief Executive Officer since February 1988. Mr. Niswonger also served as our
President from 1981 until August 1998. Mr. Niswonger serves as Chairman, Chief
Executive Officer and a director of Landair Corporation and on the Regional
Advisory Board of First Tennessee Bank National Association.
Bruce A. Campbell has served as our Chief Operating Officer since April
1990, a director since April 1993 and our President since August 1998. Mr.
Campbell was our Executive Vice President from April 1990 until August 1998.
Prior to joining us, Mr. Campbell served as Vice President of Ryder-Temperature
Controlled Carriage in Nashville, Tennessee from September 1985 until December
1989.
Edward W. Cook has served as our Senior Vice President, Chief Financial
Officer and a director since September 1994 and as our Treasurer since May 1995.
Prior to joining us, Mr. Cook was employed as a certified public accountant by
Ernst & Young LLP for 11 years, most recently as a senior manager in the
Nashville, Tennessee office. Mr. Cook also serves as Senior Vice President,
Chief Financial Officer and Treasurer of Landair Corporation.
Richard H. Roberts has served as our Senior Vice President and General
Counsel since July 1994 and as Secretary and a director since May 1995. Prior to
joining us, Mr. Roberts was a partner with the Baker, Worthington, Crossley &
Stansberry law firm from January 1991 until July 1994. Mr. Roberts also serves
as a director of Miller Industries, Inc. and as Senior Vice President, General
Counsel, Secretary and a director of Landair Corporation.
25
<PAGE> 30
David E. Queen has served as our Senior Vice President, Operations since
October 1997. He served as our Vice President of Operations and General Manager
from November 1987 until October 1997. From 1984 to November 1987, Mr. Queen was
Manager of the Columbus, Ohio hub for The Flying Tiger Line.
Michael A. Roberts has served as our Senior Vice President, Sales and
Marketing since April 1990. He served as our Vice President of Marketing from
November 1987 until April 1990. Mr. Roberts served as a consultant to our
company from 1982 to 1987.
James R. Weiland has served as our Senior Vice President, Sales since
October 1997. He served as our Vice President, Sales from November 1990 until
October 1997. From May 1984 to October 1990, Mr. Weiland served us in a number
of capacities, including Regional Operations Manager and Director of Sales and
Marketing.
John H. Traendly has served as our Vice President, Information Systems
since March 1998. Since July 1998, Mr. Traendly has also served as President and
Chief Executive Officer of Logistics Technology, Inc., our wholly-owned
subsidiary that provides Internet services and technology support for us and
other companies. From November 1994 to February 1998, Mr. Traendly was Managing
Director, Air, Ground, Terminals and Transportation, Surface Movement Systems,
for Federal Express Corporation. From May 1994 to November 1994, Mr. Traendly
served as a consultant for Federal Express Corporation.
James A. Cronin, III has served as a director since 1993. Since June 1996,
Mr. Cronin has served as Chief Operating Officer, Executive Vice President,
Finance and a director of Ascent Entertainment Group, Inc., and a director of On
Command Corp., both multimedia entertainment companies. From June 1992 until
June 1996, he was a private investor. Mr. Cronin was a partner in Alfred Checchi
Associates, a private investment firm in Los Angeles, California, from 1989 to
1992. Mr. Cronin served as President and Chief Executive Officer of Tiger
International, Inc. and The Flying Tiger Line from 1987 to 1989.
Robert Keith Gray has served as a director since 1993. Mr. Gray has been
Chairman and Chief Executive Officer of Gray and Company II, a public relations
company, since November 1992. Since 1981, Mr. Gray has also been Chairman of
Gray Investment Companies and Powerhouse Leasing Corp. From 1991 to 1992, Mr.
Gray was Chairman of Hill & Knowlton Public Affairs Worldwide/USA and was its
Chief Executive Officer from 1986 to 1991. Mr. Gray has served in various
government positions, including Special Assistant to the Secretary of the Navy,
Secretary of the Cabinet and Special Assistant to President Eisenhower.
26
<PAGE> 31
PRINCIPAL AND SELLING SHAREHOLDERS
The following table shows ownership of our common stock by (i) each
director, (ii) our chief executive officer and our four other highest paid
executive officers, (iii) all directors and executive officers as a group and
(iv) each other person known to own more than five percent of our common stock.
The rules of the Securities and Exchange Commission require that every person
who has or shares the power to vote or dispose of shares of stock be reported as
the owner of those shares. As a result, more than one person may be deemed to be
the owner of the same shares. The SEC rules also consider shares of stock that a
person has the right to acquire within 60 days upon the exercise of stock
options to be outstanding for the purpose of calculating that person's
ownership, but those shares are not deemed outstanding for the purpose of
calculating the ownership of any other person. Except as otherwise indicated,
each shareholder listed in the table has sole voting and investment power over
the capital stock owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THIS AFTER
OFFERING THIS OFFERING
--------------------- NUMBER OF ---------------------
NUMBER OF SHARES NUMBER OF
NAME SHARES PERCENT OFFERED(1) SHARES PERCENT
---- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Scott M. Niswonger(2)............ 6,001,200 47.3% 2,000,000 4,001,200 29.3%
Merrill Lynch & Co., Inc.(3)..... 1,288,200 10.2 -- 1,288,200 9.4
Wellington Management Company,
LLP(4)......................... 1,046,800 8.3 -- 1,046,800 7.7
Bruce A. Campbell(5)............. 166,068 1.3 -- 166,068 1.2
Hon. Robert Keith Gray(6)........ 141,450 1.1 -- 141,450 1.0
Michael A. Roberts(7)............ 124,386 * -- 124,386 *
Richard H. Roberts(8)............ 110,884 * -- 110,884 *
Edward W. Cook(9)................ 94,760 * -- 94,760 *
James A. Cronin, III(6).......... 78,050 * -- 78,050 *
David E. Queen(10)............... 45,938 * -- 45,938 *
John Traendly(11)................ -- -- -- -- --
All directors and executive
officers as a group (10
persons)(12)................... 6,816,174 53.8% 2,000,000 4,816,174 35.2%
</TABLE>
- ---------------
* Less than one percent.
(1) Several shareholders, including some of our executive officers listed
above, have granted the underwriters an option to purchase up to an
aggregate of 450,000 shares to cover over-allotments. No officer will sell
more than one-third of the aggregate of his shares and the shares that
underlie the options granted to him.
(2) Includes 600 shares held by Mr. Niswonger as custodian for his grandson and
600 shares that are held by Mr. Niswonger's spouse as custodian for one of
her children. Address: c/o Forward Air Corporation, 430 Airport Road,
Greeneville, Tennessee 37745.
(3) Merrill Lynch is a parent holding company. Two of Merrill Lynch's
indirectly-owned asset management subsidiaries reported shared voting and
dispositive power over all shares. Address: World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10381.
27
<PAGE> 32
(4) Wellington is an investment adviser registered under the Investment
Advisers Act of 1940, as amended. Wellington reported shared voting power
over 625,200 shares and shared dispositive power over all shares. Address:
75 State Street, Boston, Massachusetts 02109.
(5) Mr. Campbell holds options to purchase 289,592 shares, 58,340 of which are
exercisable and included above.
(6) Messrs. Gray and Cronin each hold options to purchase 75,000 shares, 56,250
of which are exercisable and included above.
(7) Includes 2,370 shares held by Mr. Roberts' spouse. Mr. Roberts holds
options to purchase 87,688 shares, 45,188 of which are exercisable and
included above.
(8) Mr. Roberts holds options to purchase 142,500 shares, 93,750 of which are
exercisable and included above.
(9) Includes 2,000 shares held by Mr. Cook's spouse. Mr. Cook holds options to
purchase 108,200 shares, 59,450 of which are exercisable and included
above.
(10) Mr. Queen holds options to purchase 87,688, 45,188 of which are exercisable
and included above.
(11) Mr. Traendly holds options to purchase 20,000 shares.
(12) Includes 467,854 options that are exercisable and included above.
28
<PAGE> 33
UNDERWRITING
We and the selling shareholder have entered into an underwriting agreement
with the underwriters named below in which they have severally agreed to
purchase from us and the selling shareholder the number of shares of common
stock set forth beside their names below. BT Alex. Brown Incorporated, Morgan
Keegan & Company, Inc. and Scott & Stringfellow, Inc. are the representatives of
the underwriters.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
BT Alex. Brown Incorporated.................................
Morgan Keegan & Company, Inc................................
Scott & Stringfellow, Inc...................................
---------
Total............................................. 3,000,000
=========
</TABLE>
The obligation of the underwriters to purchase the common stock is subject
to the terms and conditions set forth in the underwriting agreement. The
underwriting agreement requires the underwriters to purchase all of the shares
of the common stock offered by this prospectus, if any are purchased. The shares
of common stock offered by the underwriters pursuant to this prospectus are
subject to prior sale, when, as and if delivered to and accepted by the
underwriters, and subject to the underwriters' right to reject any order in
whole or in part.
The underwriters have advised us and the selling shareholder that they
propose to offer the shares of common stock to the public at the public offering
price of $ per share. Any shares sold by the underwriters to securities
dealers may be sold at a discount of up to $ per share from the public
offering price. Any such securities dealers may resell any shares purchased from
the underwriters to certain other brokers or dealers at a discount of up to
$ per share from the public offering price. The underwriters may change the
public offering price after the common stock is released for sale to the public.
The underwriters may sell more shares than the total number set forth in
the table above. To cover these sales, several of our shareholders have granted
the underwriters an option to purchase up to an aggregate of 450,000 additional
shares of common stock at the public offering price, less the underwriting
discounts and commissions. The underwriters may exercise this option for 30 days
after the date of this prospectus only to cover these sales. To the extent the
underwriters exercise this option, each of the underwriters will purchase shares
in approximately the same proportion as the number of shares of common stock to
be purchased by it shown in the above table bears to 3,000,000, and the selling
shareholders will be obligated, pursuant to the option, to sell those shares to
the underwriters. If purchased, the underwriters will offer the additional
shares on the same terms as those on which the 3,000,000 shares are being
offered.
We and the selling shareholders have agreed to indemnify the underwriters
with respect to certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
29
<PAGE> 34
To facilitate the offering of the common stock, the underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the common stock. Specifically, the underwriters may over-allot shares of the
common stock in connection with this offering, thereby creating a short position
in the underwriters' account. A short position results when an underwriter sells
more shares of common stock than such underwriter is committed to purchase.
Additionally, to cover over-allotments or to stabilize the market price of the
common stock, the underwriters may bid for, and purchase, shares of the common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities, and, if they
do, they may discontinue doing so at any time. The underwriters also may reclaim
selling concessions allowed to an underwriter or dealer, if the underwriters
repurchase shares distributed by the underwriter or dealer.
We have agreed not to offer, sell or make any other disposition of any
shares of our common stock or other securities convertible into or exchangeable
or exercisable for shares of our common stock or derivatives of our common stock
for a period of 90 days after the date of this prospectus, directly or
indirectly, without the prior written consent of BT Alex. Brown Incorporated. We
may, however, without this consent, issue options granted under our stock option
plan and issue shares (1) upon exercise of options granted under the stock
option plan, (2) in connection with acquisitions of businesses and (3) to the
extent necessary to comply with the IRS letter ruling related to the spin-off.
Our executive officers and directors have agreed not to offer, sell,
contract to sell, transfer, hypothecate, pledge, or otherwise dispose of any
shares of common stock or any of our other securities in any manner or request
the registration of any of our securities for a period of 90 days from the date
of this prospectus without the prior written consent of BT Alex. Brown
Incorporated. These restrictions will be applicable to any shares acquired by
any of those persons during the applicable restricted period.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us and the selling shareholders by Richard H. Roberts, our Senior Vice
President, General Counsel and Secretary. Various legal matters relating to the
offering will be passed upon for us and certain of the selling shareholders by
Bass, Berry & Sims PLC, Nashville, Tennessee. Various legal matters relating to
this offering will be passed upon for the underwriters by Piper & Marbury
L.L.P., Baltimore, Maryland.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1997 and 1998, and for each of
the three years in the period ended December 31, 1998, as set forth in their
reports. We have included and incorporated by reference our financial statements
and schedule in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's reports, given on their authority as experts in
accounting and auditing.
30
<PAGE> 35
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information we file with the SEC at the SEC's public reference room located at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the SEC: Chicago Regional Office, Citicorp Center, Suite 1400, 500
West Madison Street, Chicago, Illinois 60661; and New York Regional office,
Seven World Trade Center, Suite 1300, New York, New York 10048. You may obtain
information on the operation of the public reference rooms by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet web site (www.sec.gov) that
contains periodic reports, proxy statements and other information regarding
registrants, including us.
We have filed a Registration Statement on Form S-3 to register the common
stock offered by this prospectus. This prospectus is a part of the registration
statement. This prospectus does not contain all of the information you can find
in the registration statement or the exhibits and schedules to the registration
statement.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered part of this prospectus, except for any
information superseded by information contained directly in this prospectus or
in later filed documents incorporated by reference in this prospectus.
This prospectus incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
information about us.
1. Our Annual Report on Form 10-K for the year ended December 31, 1998;
2. Our Current Report on Form 8-K, dated April 16, 1999; and
3. The description of our common stock contained in our registration
statement on Form 8-A, including all amendments and reports filed for
the purpose of updating such description prior to the termination of
this offering.
We also incorporate by reference additional documents that may be filed
with the SEC between the date of this prospectus and the completion of the
offering contemplated by this prospectus. These include periodic reports, such
as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as proxy statements.
If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them from us, the SEC, or
the SEC's Internet web site as described above. Documents incorporated by
reference are available from us without charge, excluding all exhibits, except
that if we have specifically incorporated by reference an exhibit in this
prospectus, the exhibit will also be available without charge. You may obtain
documents incorporated by reference in this prospectus by requesting them in
writing or by telephone from Richard H. Roberts, Senior Vice President, General
Counsel, and Secretary, at our principal executive offices located at 430
Airport Road, Greeneville, Tennessee 37745, (423) 636-7100.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information that is different from, or in addition to, what is contained in this
prospectus. This prospectus is dated April , 1999. You should not assume that
the information contained in this prospectus is accurate as of any date other
than that date.
31
<PAGE> 36
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets -- December 31, 1997 and
1998...................................................... F-3
Consolidated Statements of Income -- Years Ended December
31, 1996, 1997 and 1998................................... F-4
Consolidated Statements of Shareholders' Equity -- Years
Ended December 31, 1996, 1997 and 1998.................... F-5
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1996, 1997 and 1998.......................... F-6
Notes to Consolidated Financial Statements -- December 31,
1998...................................................... F-7
</TABLE>
F-1
<PAGE> 37
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Forward Air Corporation
We have audited the accompanying consolidated balance sheets of Forward Air
Corporation (formerly Landair Services, Inc.) as of December 31, 1997 and 1998,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Forward Air
Corporation at December 31, 1997 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Nashville, Tennessee
February 2, 1999, except for
Note 13, as to which the
date is February 24, 1999
F-2
<PAGE> 38
FORWARD AIR CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
-------- -------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 895 $ 455
Accounts receivable, less allowance of $753 in 1997 and
$952 in 1998........................................... 17,671 19,754
Inventories............................................... 300 389
Prepaid expenses.......................................... 1,088 2,545
Deferred income taxes..................................... 364 273
-------- -------
Total current assets.............................. 20,318 23,416
Property and equipment:
Land...................................................... 3,477 3,368
Buildings................................................. 6,497 6,883
Equipment................................................. 8,998 28,818
Leasehold improvements.................................... 568 1,003
-------- -------
19,540 40,072
Accumulated depreciation and amortization................. 3,755 10,152
-------- -------
15,785 29,920
Other assets................................................ 3,290 3,472
Deferred income taxes....................................... 572 --
Assets of discontinued operations........................... 97,208 --
-------- -------
Total assets...................................... $137,173 $56,808
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 72 $ 4,120
Accrued payroll and related items......................... -- 1,769
Insurance and claims accruals............................. 1,329 1,568
Income taxes payable...................................... 150 1,249
Other accrued expenses.................................... 212 2,470
Current portion of long-term debt......................... 625 4,529
Current portion of capital lease obligations.............. 974 676
Due to Truckload Business subsidiaries.................... 17,447 --
-------- -------
Total current liabilities......................... 20,809 16,381
Long-term debt, less current portion........................ 3,508 15,403
Capital lease obligations, less current portion............. 4,746 4,723
Deferred income taxes....................................... -- 1,230
Liabilities of discontinued operations...................... 57,650 --
Commitments and contingencies............................... -- --
Shareholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 5,000,000
No shares issued....................................... -- --
Common stock, $.01 par value:
Authorized shares -- 20,000,000
Issued and outstanding shares -- 12,048,776 in 1997 and
12,587,818 in 1998.................................... 120 126
Additional paid-in capital................................ 26,744 15,768
Retained earnings......................................... 23,596 3,177
-------- -------
Total shareholders' equity........................ 50,460 19,071
-------- -------
Total liabilities and shareholders' equity........ $137,173 $56,808
======== =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 39
FORWARD AIR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- -------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Operating revenue........................................... $80,737 $105,140 $130,438
Operating expenses:
Purchased transportation:
Provided by non-affiliated entities.................... 30,041 39,647 51,914
Provided by Truckload Business......................... 5,881 6,137 4,431
Salaries, wages and employee benefits..................... 18,211 24,808 31,191
Operating leases.......................................... 4,889 5,867 6,876
Depreciation and amortization............................. 2,085 2,902 4,346
Insurance and claims...................................... 1,710 2,089 2,402
Other operating expenses.................................. 9,404 10,626 13,267
------- -------- --------
72,221 92,076 114,427
------- -------- --------
Income from operations...................................... 8,516 13,064 16,011
Other income (expense):
Interest expense.......................................... (743) (796) (1,206)
Other, net................................................ 2 (84) 37
------- -------- --------
(741) (880) (1,169)
------- -------- --------
Income from continuing operations before income taxes....... 7,775 12,184 14,842
Income taxes................................................ 2,891 4,740 5,653
------- -------- --------
Income from continuing operations........................... 4,884 7,444 9,189
------- -------- --------
Discontinued operations:
Income (loss) from operations (less income taxes (benefit)
of $(432), $751 and $850, respectively)................ (905) 1,150 1,345
Loss on Spin-off (less income taxes of $-0-, $-0- and
$440, respectively).................................... -- -- (380)
------- -------- --------
(905) 1,150 965
------- -------- --------
Net income.................................................. $ 3,979 $ 8,594 $ 10,154
======= ======== ========
Income per share:
Basic:
Income from continuing operations...................... $ .41 $ .62 $ .74
Income (loss) from discontinued operations............. (.07) .10 .08
------- -------- --------
Net income........................................ $ .34 $ .72 $ .82
======= ======== ========
Diluted:
Income from continuing operations...................... $ .40 $ .60 $ .72
Income (loss) from discontinued operations............. (.07) .10 .07
------- -------- --------
Net income........................................ $ .33 $ .70 $ .79
======= ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 40
FORWARD AIR CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995............. 5,864 $ 59 $ 25,562 $ 11,023 $ 36,644
Stock split effected in the form of a
stock dividend...................... 5,864 59 (59) -- --
Net income for 1996.................... -- -- -- 3,979 3,979
Exercise of stock options.............. 166 1 580 -- 581
Common Stock issued under employee
stock purchase plan................. 12 -- 60 -- 60
------ ---- -------- -------- --------
Balance at December 31, 1996............. 11,906 119 26,143 15,002 41,264
Net income for 1997.................... -- -- -- 8,594 8,594
Exercise of stock options.............. 122 1 489 -- 490
Common Stock issued under employee
stock purchase plan................. 21 -- 112 -- 112
------ ---- -------- -------- --------
Balance at December 31, 1997............. 12,049 120 26,744 23,596 50,460
Net income for 1998.................... -- -- -- 10,154 10,154
Exercise of stock options.............. 532 6 2,404 -- 2,410
Common Stock issued under employee
stock purchase plan................. 7 -- 69 -- 69
Income tax benefit from stock options
exercised........................... -- -- 232 -- 232
Spin-off of Landair Corporation........ -- -- (13,681) (30,573) (44,254)
------ ---- -------- -------- --------
Balance at December 31, 1998............. 12,588 $126 $ 15,768 $ 3,177 $ 19,071
====== ==== ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 41
FORWARD AIR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities
Net income.................................................. $ 3,979 $ 8,594 $ 10,154
Adjustments to reconcile net income to net cash provided by
operating activities:
(Income) loss from discontinued operations................ 905 (1,150) (2,075)
Depreciation and amortization............................. 2,085 2,902 4,346
Gain on sale of property and equipment.................... (321) -- (128)
Provision for losses on receivables....................... 495 515 438
Provision for revenue adjustments......................... 760 1,488 1,641
Deferred income taxes..................................... (251) 1,747 1,893
Changes in operating assets and liabilities, net of
effects from acquisition of business:
Accounts receivable.................................... (6,737) (5,677) (4,162)
Inventories............................................ 2 (88) (89)
Prepaid expenses....................................... (84) (644) (1,191)
Accounts payable and accrued expenses.................. 77 666 8,314
Income taxes........................................... 204 (53) 203
Due to Truckload Business subsidiaries................. 2,044 (1,980) (17,447)
------- ------- --------
Net cash provided by operating activities................... 3,158 6,320 1,897
Investing Activities
Purchases of property and equipment......................... (4,086) (3,602) (11,764)
Proceeds from disposal of property and equipment............ 1,654 -- 117
Acquisition of business..................................... -- (1,209) --
Contribution of capital to discontinued operation........... -- -- (5,000)
Other....................................................... (197) (6) (335)
------- ------- --------
Net cash used in investing activities....................... (2,629) (4,817) (16,982)
Financing Activities
Proceeds from long-term debt................................ 897 812 21,792
Payments of long-term debt.................................. (1,054) (954) (8,631)
Payments of capital lease obligations....................... (1,002) (1,226) (995)
Proceeds from exercise of stock options..................... 581 490 2,410
Proceeds from Common Stock issued under employee stock
purchase plan............................................. 60 112 69
------- ------- --------
Net cash provided by (used in) financing activities......... (518) (766) 14,645
------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 11 737 (440)
Cash and cash equivalents at beginning of year.............. 147 158 895
------- ------- --------
Cash and cash equivalents at end of year.................... $ 158 $ 895 $ 455
======= ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 42
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements of the Company include
Forward Air Corporation (formerly Landair Services, Inc. until August 26, 1998)
and its subsidiaries. Significant intercompany accounts and transactions have
been eliminated in consolidation.
On July 9, 1998 (the "Measurement Date"), the Board of Directors of the
Company authorized the separation of the Company into two publicly-held
corporations, one owning and operating the deferred air freight operations and
the other owning and operating the truckload operations (the "Spin-off").
The Spin-off was effected on September 23, 1998 through the distribution to
shareholders of the Company of all of the outstanding shares of common stock of
a new truckload holding company, Landair Corporation. Pursuant to the Spin-off,
the common stock of Landair Corporation was distributed on a pro rata basis of
one share of Landair Corporation common stock for every one share of the
Company's common stock held. Subsequent to the Spin-off, the Company has
continued as the legal entity that owns and operates the deferred air freight
operations through its operating subsidiaries and Landair Corporation is the
legal entity that owns and operates the truckload operations. Additionally, the
name Landair Services, Inc. was changed to Forward Air Corporation on August 26,
1998. As a result of the Spin-off, the results of operations and cash flows of
the Truckload Business have been reported as discontinued operations for all
periods presented in the accompanying consolidated financial statements (see
Note 2).
As used in the accompanying consolidated financial statements, the term
"Forward Air Business" refers to the deferred air freight operations; the term
"Truckload Business" refers to the truckload operations; and the "Company"
refers to the entity which, prior to the Spin-off, operated both the Forward Air
Business and the Truckload Business and which, after the Spin-off, continues to
operate the Forward Air Business.
The continuing operations of the Company included in these financial
statements include the assets and liabilities and results of operations directly
related to the Forward Air Business for all periods presented. Significant
changes could have occurred in the funding and operations of the Forward Air
Business had it been operated as an independent stand-alone entity during those
periods, which could have had a significant impact on its financial position and
results of operations. As a result, the financial information included in these
financial statements is not necessarily indicative of the financial position and
results of operations of the Forward Air Business which might have occurred had
it been a stand-alone entity.
The Company operates a comprehensive national network for the time-definite
surface transportation of deferred freight. The Company provides its
transportation services through a network of terminals located on or near
airports in the United States and Canada. The Company's customers consist
primarily of freight forwarders, domestic and international airlines and
integrated air cargo carriers. The Company's operations involve receiving
deferred freight shipments at its terminals and transporting them by truck to
the terminal nearest their destination.
F-7
<PAGE> 43
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
OWNERSHIP
Scott M. Niswonger (Chairman and Chief Executive Officer) was the majority
shareholder of the Company during all periods presented.
OPERATING REVENUE
Operating revenue and related costs are recognized as of the date shipments
are completed. No single customer accounted for more than 10% of operating
revenue from continuing operations in 1996, 1997 or 1998.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories of tires, replacement parts, supplies, and fuel for revenue
equipment are stated at the lower of cost or market utilizing the FIFO
(first-in, first-out) method of determining cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated based upon the cost of the asset, reduced by its
estimated salvage value, using the straight-line method over the estimated
useful lives as follows:
<TABLE>
<S> <C>
Buildings................................................... 30-40 years
Equipment................................................... 3-10 years
Leasehold improvements...................................... 1-15 years
</TABLE>
Interest payments during 1996, 1997 and 1998 were $746,000, $825,000 and
$1,154,000, respectively. No interest was capitalized during the three years
ended December 31, 1998. During 1996, 1997 and 1998, the Company added equipment
of $2,417,000, $-0- and $-0-, through capital leases, respectively.
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. The measurement of possible impairment is based upon determining
whether projected undiscounted future cash flows from the use of the asset over
the remaining depreciation or amortization period are less than the carrying
value of the asset. As of December 31, 1998, in the opinion of management, there
has been no such impairment.
F-8
<PAGE> 44
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INSURANCE AND CLAIMS ACCRUALS
The primary claims in the Company's business are workers' compensation,
property damage, auto liability and medical benefits. Most of the Company's
insurance coverage provides for self-insurance levels with primary and excess
coverage which management believes is sufficient to adequately protect the
Company from catastrophic claims. In the opinion of management, adequate
provision has been made for all incurred claims up to the self-insured limits.
INCOME PER SHARE
The Company calculates income per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. Under SFAS
No. 128, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share includes any
dilutive effects of options, warrants and convertible securities, and uses the
treasury stock method in calculating dilution. All earnings per share data
included in the consolidated financial statements and notes thereto have been
restated to give effect to a two-for-one stock split (see Note 13).
EMPLOYEE STOCK OPTIONS
The Company grants options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the grant date. The
Company accounts for employee stock option grants in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and,
accordingly, recognizes no compensation expense for the stock option grants.
COMMON EXPENSES
Prior to 1998, certain administrative expenses, consisting of payroll,
legal, accounting, rent and depreciation for shared facilities, and other common
expenses which could not be specifically identified to either the deferred air
freight operations or the truckload operations have been allocated between the
Forward Air Business and the Truckload Business based on their relative
percentages of operating revenue. In 1998, certain administrative and back
office functions continue to be shared by both the Forward Air Business and the
Truckload Business. The expenses related to these services were allocated to the
Forward Air Business and the Truckload Business in accordance with the
provisions of a Transition Services Agreement as discussed in Note 2. These
administrative expenses, which would have been incurred by the Forward Air
Business and the Truckload Business if each had been operated as an independent
stand-alone entity, totaled $3,157,000, $5,039,000 and $2,794,000 for the
Forward Air Business and $3,225,000, $4,420,000 and $3,208,000 for the Truckload
Business in 1996, 1997, and for the period January 1, 1998 through September 23,
1998, respectively.
Interest expense of $743,000, $796,000 and $661,000 for the Forward Air
Business and $2,221,000, $1,826,000 and $1,382,000 for the Truckload Business in
1996, 1997, and for the period from January 1, 1998 through September 23, 1998,
respectively, has been allocated by the Company on an annual basis based upon
the pro rata share of average operating assets of the Truckload Business and the
Forward Air Business.
Management believes these allocation methods are reasonable.
F-9
<PAGE> 45
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING PRONOUNCEMENTS
In 1998, the Company adopted a new disclosure pronouncement, SFAS No. 130,
Reporting Comprehensive Income. The Company had no items of other comprehensive
income and, accordingly, adoption of the Statement had no effect on the
consolidated financial statements.
In 1998, the Company also adopted another new disclosure pronouncement,
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information. SFAS No. 131 requires companies to report selected segment
information when certain size tests are met. Management has determined that the
Company operates in only one segment meeting the applicable tests.
In 1998, the Company early-adopted Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. SOP 98-1 requires capitalization of certain costs to purchase or develop
internal-use software, and amortization of these costs over their estimated
useful life. The adoption of SOP 98-1 did not materially change the accounting
for internal-use software development costs from that previously followed by the
Company. During 1997 and 1998, the Company capitalized approximately $402,000
and $451,000 of internal-use software development costs. In 1998, the Company
also capitalized in accordance with SFAS No. 86, Accounting for Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed, approximately
$234,000 of costs related to software being developed for both internal and
external use. In years prior to 1998, the Company did not incur significant
external-use software development costs.
Costs related to software developed for internal use are amortized using
the straight-line method over an estimated five year life. Costs related to
software developed for both internal and external use will be amortized using
either a revenue-based method or the straight-line method, whichever provides
the greater amortization amount. No amortization of capitalized external-use
software development costs was recorded in 1998 since the projects were under
development throughout the period.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 is
required to be adopted by the Company in 2000. Management does not anticipate
that the adoption of the Statement will have a significant effect on the
financial position or results of operations of the Company.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the 1998 presentation. These reclassifications had no
effect on net income as previously reported.
2. DISCONTINUED OPERATIONS
As discussed in Note 1, on July 9, 1998, the Board of Directors of the
Company authorized the separation of the Company into two publicly-held
corporations, one owning and operating the Forward Air Business and the other
owning and operating the Truckload Business. The Spin-off was effected on
September 23, 1998.
F-10
<PAGE> 46
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the net assets distributed to Landair Corporation on September
23, 1998 is as follows (in thousands):
<TABLE>
<S> <C>
Current assets.............................................. $ 22,754
Property and equipment, net................................. 62,244
Other assets................................................ 39
--------
Assets of discontinued operations......................... 85,037
--------
Current liabilities......................................... (21,009)
Long-term debt and capital lease obligations................ (7,972)
Deferred income taxes....................................... (11,802)
--------
Liabilities of discontinued operations.................... (40,783)
--------
Net assets of discontinued operations..................... $ 44,254
========
</TABLE>
Prior to the Spin-off, the Company made a $5.0 million contribution of
capital in the form of cash to Landair Corporation. In addition, Landair
Corporation contributed to the Company approximately $2.4 million of net assets
related to the Forward Air Business. The above net assets include these
transactions. The distribution of the net assets of Landair Corporation on
September 23, 1998,was charged to retained earnings, to the extent that the
Company had positive retained earnings, with the remainder to additional paid-in
capital.
Summarized income statement information relating to the Truckload Business
(as reported in discontinued operations) is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998(1)
------- ------- -------
<S> <C> <C> <C>
Operating revenue..................................... $82,242 $91,398 $51,543
Operating expenses.................................... 81,417 87,659 48,450
------- ------- -------
Income from operations................................ 825 3,739 3,093
Interest expense...................................... (2,221) (1,826) (924)
Other income (expense)................................ 59 (12) 26
------- ------- -------
Income (loss) before income taxes..................... (1,337) 1,901 2,195
Income taxes (benefit)................................ (432) 751 850
------- ------- -------
Income (loss) from discontinued operations............ $ (905) $ 1,150 $ 1,345
======= ======= =======
</TABLE>
- ---------------
(1) The fiscal 1998 summarized income statement information above includes the
results of operations only through the July 9, 1998 Measurement Date.
The loss on Spin-off in the amount of $380,000 recorded in 1998 includes
the net of the after-tax income of the discontinued operations from the
Measurement Date through the date of the Spin-off of $730,000 ($1,170,000 on a
pre-tax basis), and costs associated with the Spin-off of $1,110,000. The costs
associated with the Spin-off represent the cost of separating the two businesses
which are non-deductible for income tax purposes.
In connection with the Spin-off, the Company and Landair Corporation
entered into certain agreements which were effective upon the actual separation
of the two companies. The agreements were entered into to facilitate orderly
changes from an integrated transportation company to separate deferred air
freight and truckload operating companies in a way which is minimally disruptive
to each entity. Following are summaries of the principal agreements:
F-11
<PAGE> 47
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DISTRIBUTION AGREEMENT
The Distribution Agreement provided for, among other things, the principal
corporate transactions required to effect the Spin-off and the allocation of
certain assets and liabilities between the Company and Landair Corporation. The
Distribution Agreement provides that the Company and Landair Corporation each
have sole responsibility for claims arising out of their respective activities
after the Spin-off. It also provides that each party will indemnify the other in
the event of certain liabilities arising under the federal securities laws, and
that, for a period of three years after the Spin-off, neither the Company nor
Landair Corporation will directly solicit the employment of any employee of the
other company or its affiliates without the prior written consent of such other
company.
TRANSITION SERVICES AGREEMENT
The Transition Services Agreement describes the services which the Company
and Landair Corporation provide to each other following the Spin-off. Services
performed under the Transition Services Agreement are negotiated and paid for on
an arm's-length basis. The Transition Services Agreement has an eighteen-month
term, except that information technology services to be provided by the Company
to Landair Corporation have a thirty-six month term. Notwithstanding the stated
term of the Transition Services Agreement, the Company or Landair Corporation,
as recipients of the services, may terminate any or all such services at any
time on thirty days' irrevocable written notice, and the Company or Landair
Corporation, as providers of the services, may at any time after the first
anniversary of the Spin-off, terminate any or all of the services, other than
the information technology services, on three months' irrevocable notice.
EMPLOYEE BENEFIT MATTERS AGREEMENT
The Employee Benefit Matters Agreement provides for the treatment of
employee benefit matters and other compensation arrangements for the employees
of the Company and Landair Corporation after the Spin-off. Pursuant to this
agreement, the Company is continuing sponsorship of the various employee benefit
plans and welfare plans of the Company with respect to employees of the Company
after the Spin-off, and Landair Corporation is required to establish such
similar plans which will allow Landair Corporation to provide to its employees
after the Spin-off substantially the same benefits previously provided to them
as employees of the Company. This Employee Benefit Matters Agreement also
provided for the adjustment and conversion of the existing non-exercisable stock
options of the Company into options of Landair Corporation for those employees
that continued employment with Landair Corporation after the Spin-off. (See Note
5).
TAX SHARING AGREEMENT
The Tax Sharing Agreement describes the responsibilities of the Company and
Landair Corporation with respect to all tax matters occurring prior to and after
the Spin-off. The Tax Sharing Agreement provides for the allocation of tax
expense, assessments, refunds and other tax benefits. The Agreement also sets
forth the responsibility for filing tax returns and provides for reasonable
cooperation in the event of any audit, litigation or other proceeding with
respect to any federal, state or local tax.
F-12
<PAGE> 48
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITION OF BUSINESS
On October 27, 1997, the Company acquired the air cargo operating assets of
Adams Air Cargo, Inc., a surface transportation contractor to the air cargo
industry based in Arbuckle, California. The Company paid approximately
$1,209,000 in cash, issued a note payable of $1,800,000, and assumed debt and
capital lease obligations of $967,000 and $1,563,000, respectively. The
acquisition was accounted for as a purchase. Accordingly, the purchase price was
allocated on the basis of the estimated fair value of the net assets acquired,
resulting in goodwill of approximately $2,922,000. The goodwill is being
amortized on a straight-line basis over a life of 20 years. Accumulated
amortization of the goodwill totaled $23,000 and $161,000 at December 31, 1997
and 1998, respectively. The results of operations for the acquired business have
been included in the consolidated statements of income from the acquisition date
forward. Pro forma results of operations for 1996 and 1997 would not differ
materially from the Company's historical results.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ -------
(IN THOUSANDS)
<S> <C> <C>
Line of credit.............................................. $2,163 $ --
Installment Equipment Loan Agreements....................... -- 18,540
Other notes payable, including interest ranging from 6.9% to
7.9%...................................................... 1,970 1,392
------ -------
4,133 19,932
Less current portion........................................ 625 4,529
------ -------
$3,508 $15,403
====== =======
</TABLE>
Effective with the Spin-off of Landair Corporation on September 23, 1998,
the Company entered into a $20.0 million working capital line of credit facility
with a Tennessee bank which expires in September 2000. Interest rates for
advances under the facility vary from LIBOR plus 1.0% to 1.9% based upon
covenants related to total indebtedness, cash flows, results of operations and
other ratios (6.9% at December 31, 1998). Advances are collateralized primarily
by accounts receivable. The agreement contains, among other things, restrictions
that do not allow the payment of dividends, and requires the maintenance of
certain levels of net worth and other financial ratios. At December 31, 1998,
the Company had no borrowings outstanding under the line and had utilized $3.6
million of availability for outstanding letters of credit.
Prior to the Spin-off, the Company had a $15.0 million line of credit
agreement with the same Tennessee bank. Advances outstanding under the line
carried interest at the bank's base rate less 1.0% (7.5% at December 31, 1997)
and were collateralized primarily by accounts receivable. The agreement
contained restrictive financial covenants similar to those contained in the
current agreement. At December 31, 1997, the Company had $2.2 million
outstanding under the line and had utilized $2.9 million of availability for
outstanding letters of credit.
The Company has equipment loan agreements (the "Equipment Loan Agreements")
with two Tennessee banks which permit the Company to borrow up to $25.0 million
for the purchase of operating equipment. Interest rates for advances under the
facilities vary from LIBOR plus .8% to 1.9% based upon covenants related to
total indebtedness, cash flows, results of operations and other
F-13
<PAGE> 49
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ratios (5.9% to 7.0% at December 31, 1998). The advances are collateralized by
equipment purchased with the proceeds from the Equipment Loan Agreements, and
contain restrictions and covenants similar to the line of credit agreement
described above. At December 31, 1998, the Company had additional borrowing
capacity available of $6.5 million under the Equipment Loan Agreements.
Equipment collateralizing these agreements has a carrying value of approximately
$14,091,000 at December 31, 1998.
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 4,529
2000........................................................ 5,508
2001........................................................ 5,414
2002........................................................ 2,308
2003........................................................ 2,173
Thereafter.................................................. --
-------
$19,932
=======
</TABLE>
5. SHAREHOLDERS' EQUITY AND STOCK OPTIONS
Preferred Stock -- The Board of Directors is authorized to issue, at its
discretion, up to 5,000,000 shares of preferred stock, par value $.01. The terms
and conditions of the preferred shares are to be determined by the Board of
Directors. No shares have been issued to date.
Employee Stock Option and Incentive Plan -- The Company follows Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations in accounting for its employee stock options. Under
Opinion No. 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
At December 31, 1996, 1997 and 1998, the Company had reserved 2,000,000
shares of common stock under a Stock Option and Incentive Plan. Options issued
under the Plan have eight to ten year terms and vest over a four to five year
period.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, Accounting for Stock Based Compensation, which also
requires that the information be determined as if the Company has accounted for
its stock options granted subsequent to December 31, 1994 under the fair value
method of that Statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996, 1997 and 1998, respectively: risk-free
interest rates of 6.4%, 5.8% and 4.7%; dividend ratio of zero; volatility
factors of the expected market price of the common stock of 0.5; and a
weighted-average expected life of the option of seven years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
F-14
<PAGE> 50
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
stock options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Pro forma net income..................................... $3,506 $7,980 $9,839
Pro forma net income per share:
Basic.................................................. $ .30 $ .67 $ .79
Diluted................................................ $ .29 $ .65 $ .77
</TABLE>
Because SFAS No. 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect is not fully reflected above.
A summary of the Company's employee stock option activity and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------------------------- -------------------------- --------------------------
OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE (000) EXERCISE PRICE
------- ---------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of
year........................ 842 $5 1,150 $6 1,209 $6
Granted/converted........... 570 7 222 6 170 7
Exercised................... (166) 4 (122) 4 (472) 4
Forfeited................... (96) 5 (41) 7 (142) 5
----- -- ------ -- ------ --
Outstanding -- end of year.... 1,150 $6 1,209 $6 765 $6
===== == ====== == ====== ==
Exercisable at end of year.... 398 $5 536 $6 403 $6
===== == ====== == ====== ==
Options available for grant... 418 236 209
===== ====== ======
Weighted-average fair value of
options granted during the
year........................ $3.00 $ 3.07 $ 5.06
===== ====== ======
</TABLE>
Exercise prices for options outstanding, as of December 31, 1996, 1997 and
1998 ranged from $2.50 to $12.813.
Under the provisions of the Company's stock option plan, options to
purchase shares of the Company's common stock that were exercisable at the time
of the Spin-off, and that were held by those employees who terminated employment
with the Company and became employees of Landair Corporation upon the Spin-off,
were canceled if not exercised prior to such employees' termination of
employment with the Company. Accordingly, employees that were leaving the
Company and continuing as employees of Landair Corporation exercised 198,000
vested options during 1998 prior to the Spin-off. Unexercisable options held by
employees of the Company who remained or became employees of Landair Corporation
upon consummation of the Spin-off which totaled 102,000 were converted into
options to purchase Landair Corporation common stock under Landair Corporation's
Stock Option and Incentive Plan. Such conversion was on the basis of a formula
designed to preserve the fair market value of such converted options on the date
of the Spin-off. All options held by employees of the Company who remained or
became employees of the Company upon consummation of the Spin-off were adjusted
on the basis of a formula designed to preserve the fair market value of
F-15
<PAGE> 51
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
such options on the date of the Spin-off. The adjustment of these options
resulted in the grant of options to purchase 150,000 additional shares during
the year ended December 31, 1998.
Non-Employee Director Options -- In May 1996 and 1997 and August 1998,
options to purchase 45,000, 30,000 and 30,000 shares of common stock,
respectively, were granted to the non-employee directors of the Company at
option prices of $7.50, $7.00 and $11.50 per share, respectively. All options
held by directors of the Company were adjusted on the basis of a formula
designed to preserve the fair market value of such options on the date of the
Spin-off. The adjustment of these options resulted in the grant of options to
purchase 30,000 additional shares during the year ended December 31, 1998.
The options have terms of ten years and are exercisable in installments
which vest over two-year periods from the date of grant. At December 31, 1998,
150,000 options are outstanding and will expire in May 2005 through July 2008,
unless a non-employee director resigns or is not re-elected, in which event the
options expire 90 days after the option holder is no longer a non-employee
director.
Employee Stock Purchase Plan -- The Company implemented an employee stock
purchase plan effective January 1, 1996 at which time participating employees
became entitled to purchase common stock through payroll deduction of up to 10%
of the employee's annual compensation. The issue price of the common stock is
equal to the lesser of (1) 85% of market price on the first trading day of the
semi-annual enrollment period or (2) 85% of market price on the last trading day
of the semi-annual enrollment period. The Company has reserved 600,000 shares of
common stock for issuance pursuant to the plan. At December 31, 1998,
approximately 40,000 shares had been issued under the Plan.
F-16
<PAGE> 52
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share -- The following table sets forth the computation of
basic and diluted income per share (in thousands, except per share data):
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted income per share:
Income from continuing operations.................. $4,884 $7,444 $ 9,189
Income (loss) from discontinued operations......... (905) 1,150 965
------ ------ -------
Net income......................................... $3,979 $8,594 $10,154
====== ====== =======
Denominator:
Denominator for basic income per
share-weighted-average shares...................... 11,856 11,936 12,393
Effect of dilutive stock options...................... 242 418 453
------ ------ -------
Denominator for diluted income per share-adjusted
weighted-average shares............................ 12,098 12,354 12,846
====== ====== =======
Income per share -- basic:
Income from continuing operations.................. $ .41 $ .62 $ .74
Income (loss) from discontinued operations......... (.07) .10 .08
------ ------ -------
Net income......................................... $ .34 $ .72 $ .82
====== ====== =======
Income per share -- diluted:
Income from continuing operations.................. $ .40 $ .60 $ .72
Income (loss) from discontinued operations......... (.07) .10 .07
------ ------ -------
Net income......................................... $ .33 $ .70 $ .79
====== ====== =======
Securities that could potentially dilute basic net
income per share in the future that were not included
in the computation of diluted net income per share
because to do so would have been antidilutive for the
periods presented..................................... 902 38 --
====== ====== =======
</TABLE>
6. INCOME TAXES
The Company and Landair Corporation entered into a Tax Sharing Agreement in
connection with the Spin-off (see Note 2).
F-17
<PAGE> 53
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes from continuing operations consists of the
following:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................ $2,708 $2,368 $3,246
State.................................................. 434 625 514
------ ------ ------
3,142 2,993 3,760
Deferred:
Federal................................................ (221) 1,510 1,807
State.................................................. (30) 237 86
------ ------ ------
(251) 1,747 1,893
------ ------ ------
$2,891 $4,740 $5,653
====== ====== ======
</TABLE>
The historical income tax expense differs from the amounts computed by
applying the federal statutory rate of 35% to income before income taxes as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense at the statutory rate........................ $2,644 $4,142 $5,195
State income taxes, net of federal benefit............... 209 547 397
Meals and entertainment.................................. 38 51 61
------ ------ ------
$2,891 $4,740 $5,653
====== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued expenses.......................................... $ 483 $ 713
Alternative minimum tax credits........................... 1,020 --
Allowance for doubtful accounts........................... 276 358
Other..................................................... -- 198
------ ------
Total deferred tax assets................................. 1,779 1,269
Deferred tax liabilities:
Tax over book depreciation................................ 263 1,346
Prepaid expenses deductible when paid..................... 396 586
Other..................................................... 184 294
------ ------
Total deferred tax liabilities............................ 843 2,226
------ ------
Net deferred tax assets (liabilities)....................... $ 936 $ (957)
====== ======
</TABLE>
F-18
<PAGE> 54
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The balance sheet classification of deferred income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
---- -------
(IN THOUSANDS)
<S> <C> <C>
Current assets.............................................. $364 $ 273
Noncurrent assets (liabilities)............................. 572 (1,230)
---- -------
$936 $ (957)
==== =======
</TABLE>
Total income tax payments, net of refunds, during fiscal 1996, 1997 and
1998 were $2,939,000, $3,046,000 and $3,388,000, respectively.
7. LEASES
The Company has a capital lease agreement (with a bargain purchase option)
extending to 2008 with the Director of Development of the State of Ohio for a
terminal facility located in Columbus, Ohio. The amounts due under the lease
have been included in capital lease obligations. The Company is responsible for
all taxes, assessments and other costs of ownership under the lease agreement.
The lease also requires, among other things, restrictions on the payment of
dividends and the maintenance of certain levels of net worth and other financial
ratios.
The Company leases certain equipment under capital leases. These equipment
leases expire in various years through 2001.
Property and equipment include the following amounts for leases that have
been capitalized:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $2,605 $2,605
Buildings................................................... 3,675 3,675
Equipment................................................... 2,417 3,611
------ ------
8,697 9,891
Less accumulated amortization............................... 973 1,995
------ ------
$7,724 $7,896
====== ======
</TABLE>
Amortization of leased assets is included in depreciation and amortization
expense.
The Company also leases certain facilities and equipment under
noncancellable operating leases that expire in various years through 2006.
Certain of these leases may be renewed for periods varying from one to ten
years. The Truckload Business shares certain facilities leased by the Company,
and has been allocated a portion of the rent expense related thereto (see Note
1 -- Common Expenses). As discussed below, the Company entered into lease or
sublease agreements with Landair Corporation related to certain facilities on or
prior to the date of the Spin-off.
Included in operating leases is an aircraft leased under a dry lease
arrangement from a limited liability corporation owned by the Company's majority
shareholder which expired in July 1998 and was renewed for an additional one
year period. Under the terms of the lease agreement, the Company pays the
limited liability corporation $700 per hour of usage subject to a 400 hour per
year minimum
F-19
<PAGE> 55
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
usage guarantee. The total net amount of rent expense for this lease was
$120,000, $280,000 and $423,000 in 1996, 1997 and 1998, respectively.
On or prior to the date of the Spin-off, the Company entered into subleases
with Landair Corporation pursuant to which the Company is subleasing to Landair
Corporation (i) a portion of its terminal facility in Columbus, Ohio that is
leased by the Company from the Director of Development of the State of Ohio;
(ii) a portion of its terminal facility in Atlanta, Georgia; (iii) a portion of
its facility in Indianapolis, Indiana; (iv) a portion of its terminal facility
in Chicago, Illinois; (v) a portion of its terminal facility in Detroit,
Michigan; and (vi) a portion of the headquarters of the Company in Greeneville,
Tennessee that is leased from the Greeneville-Greene County Airport Authority.
The Company subleases the Columbus and Atlanta terminal facilities for
consideration based upon the cost of such facilities to the Company and an
agreed upon percentage of usage. The Company subleases the Indianapolis,
Chicago, Detroit and Greeneville facilities for consideration based upon an
agreed upon percentage of usage.
Future minimum rental payments under capital leases and noncancellable
operating leases with initial terms of one year or more consisted of the
following at December 31, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- ------- ---------
(IN THOUSANDS)
<S> <C> <C>
1999................................................... $1,059 $ 7,085
2000................................................... 1,076 4,490
2001................................................... 741 2,644
2002................................................... 701 1,511
2003................................................... 710 560
Thereafter................................................ 3,212 151
------ -------
Total minimum lease payments.............................. 7,499 $16,441
====== =======
Amounts representing interest............................. 2,100
------
Present value of net minimum lease payments (including
current portion of $676)............................... $5,399
======
</TABLE>
8. TRANSACTIONS WITH THE TRUCKLOAD BUSINESS
The Company and the Truckload Business routinely engage in intercompany
transactions as the Truckload Business hauls a portion of the deferred air
freight shipments for the Company which are in excess of the Company's scheduled
capacity. The cost of the shipments hauled by the Truckload Business is shown
separately in the accompanying statements of income as purchased transportation
provided by the Truckload Business.
In accordance with the terms included in the Transition Services Agreement,
subsequent to the Spin-off in 1998 the Company provided accounts payable,
payroll, human resources, employee benefit plan administration, owner-operator
settlement, central purchasing, accounting and legal, general administrative,
and information technology services to the Truckload Business. The Company
charged the Truckload Business $797,000 during the period September 24, 1998
through December 31, 1998 for these services. In addition, the Truckload
Business provided the Company safety, licensing, permitting and fuel tax,
recruiting and retention, and driver training center services subsequent to the
F-20
<PAGE> 56
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Spin-off in 1998. The Truckload Business charged the Company $193,000 during the
period September 24, 1998 through December 31, 1998 for these services.
At December 31, 1998, accounts payable included $687,000 of amounts due to
Landair Corporation related to services covered under the Transition Services
Agreement and various other transactions between both entities.
As discussed in Note 7, the Company subleases a portion of certain
facilities to Landair Corporation.
The Due to Truckload Business subsidiaries in the accompanying December 31,
1997 balance sheet represented the net balance resulting from various
intercompany transactions between the Company and the Truckload Business. There
were no terms of settlement or interest charges associated with the account
balance. The balance was primarily the result of Truckload's participation in
the Company's central cash management program, wherein all of the Company's cash
receipts were remitted to a Truckload Business subsidiary and all cash
disbursements were funded by a Truckload Business subsidiary. Other transactions
included intercompany freight transactions as discussed above, the federal
income tax liability (benefit) provided by the Truckload Business to the
consolidated tax liability, and miscellaneous other common expenses incurred
between the Company and the Truckload Business. In connection with the Spin-off,
the Company settled all intercompany balances for cash.
An analysis of transactions in the Due to Truckload Business subsidiaries
account follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year....................... $(17,383) $(19,427) $(17,447)
Net cash remitted to the Truckload Business........ 1,492 2,065 17,366
Net intercompany freight transactions.............. (5,881) (6,137) (4,431)
Current federal income tax benefit provided by the
Truckload Business............................... (3,101) (194) (78)
Net administrative expenses and interest allocated
to the Truckload Business........................ 5,446 6,246 4,590
-------- -------- --------
Balance at end of year............................. $(19,427) $(17,447) $ --
======== ======== ========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involve claims for personal injury
and property damage incurred in connection with the transportation of freight.
Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the financial condition or
results of operations of the Company.
10. EMPLOYEE BENEFIT PLAN
The Company has a retirement savings plan (the "401(k) Plan"). The 401(k)
Plan is a defined contribution plan whereby employees who have completed one
year of service, a minimum of 1,000 hours of service and are age 21 or older are
eligible to participate. The 401(k) Plan allows eligible employees to make
contributions of 2% to 10% of their annual compensation. Employer contributions
are made at 25% of the employee's contribution up to a maximum of 4% of total
annual
F-21
<PAGE> 57
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compensation. Employer contributions vest 20% after two years of service and
continue vesting 20% per year until fully vested. The Company's matching
contribution included in income from continuing operations for 1996, 1997 and
1998 was approximately $53,000, $69,000 and $71,000, respectively. In connection
with the Spin-off, the account balances of Truckload employees will be
transferred to a Landair Corporation plan in a trust-to-trust transfer during
1999.
11. FINANCIAL INSTRUMENTS
OFF BALANCE SHEET RISK
At December 31, 1998, the Company had letters of credit outstanding
totaling $3,572,000, all of which guarantee obligations carried on the balance
sheet.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable. The Company does not generally require collateral from its
customers. Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of entities comprising the
Company's customer base and their dispersion across many different industries.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair value.
Accounts receivable and accounts payable: The carrying amounts
reported in the balance sheet for accounts receivable and accounts payable
approximate their fair value.
Long- and short-term debt: The carrying amounts of the Company's
borrowings under its revolving credit arrangement approximate fair value.
The fair value of the Company's long-term debt and capital lease
obligations is estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements.
The carrying amounts and fair values of the Company's financial instruments
at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1998
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 895 $ 895 $ 455 $ 455
Accounts receivable.......................... 17,671 17,671 19,754 19,754
Accounts payable............................. 72 72 4,120 4,120
Long-term debt and capital lease
obligations................................ 9,853 9,853 25,331 25,331
</TABLE>
F-22
<PAGE> 58
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Operating revenue............................. $21,611 $24,845 $ 28,901 $29,783
Income from operations........................ 1,766 3,190 4,553 3,555
Income from continuing operations............. 964 1,773 2,611 2,096
Income (loss) from discontinued operations.... (194) 171 566 607
Net income.................................... 770 1,944 3,177 2,703
Income per share:
Basic:
Income from continuing operations........ $ .08 $ .15 $ .22 $ .17
Income (loss) from discontinued
operations............................. $ (.01) $ .01 $ .05 $ .05
Net income............................... $ .07 $ .16 $ .27 $ .22
Diluted:
Income from continuing operations........ $ .08 $ .14 $ .21 $ .17
Income (loss) from discontinued
operations............................. $ (.01) $ .02 $ .05 $ .04
Net income............................... $ .07 $ .16 $ .26 $ .21
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Operating revenue............................. $28,850 $30,739 $ 33,354 $37,495
Income from operations........................ 2,785 3,709 4,212 5,305
Income from continuing operations............. 1,565 2,167 2,468 2,989
Income from discontinued operations........... 676 289 -- --
Net income.................................... 2,241 2,456 2,468 2,989
Income per share:
Basic:
Income from continuing operations........ $ .13 $ .17 $ .20 $ .24
Income from discontinued operations...... $ .06 $ .03 $ -- $ --
Net income............................... $ .19 $ .20 $ .20 $ .24
Diluted:
Income from continuing operations........ $ .12 $ .17 $ .20 $ .23
Income from discontinued operations...... $ .06 $ .02 $ -- $ --
Net income............................... $ .18 $ .19 $ .20 $ .23
</TABLE>
During the third quarter of 1997, the Company benefited from non-recurring
revenue that resulted from the UPS strike. This additional revenue net of
variable costs and income taxes, but not allocated fixed costs, resulted in an
estimated additional $1.2 million of pre-tax income from continuing operations
and $.06 of diluted income from continuing operations per share during the
quarter.
F-23
<PAGE> 59
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUBSEQUENT EVENT
On February 24, 1999, the Board of Directors approved a two-for-one split
of the common shares which will be distributed on March 19, 1999 to shareholders
of record as of March 12, 1999. Common stock issued and additional paid-in
capital have been restated to reflect this split for all years presented. All
common share and per share data included in the consolidated financial
statements and notes thereto have been restated to give effect to the stock
split.
F-24
<PAGE> 60
Omitted Graphic and Image Material
The following graphic and image material is omitted from the form of
prospectus filed electronically:
Inside Back Cover:
The title "Overnight Shuttles" and maps depicting the routes of the
Company's "West Coast Shuttle," "Northeast Shuttle," "Atlanta Shuttle," "Dallas
Shuttle," and "Grain Train Shuttle."
<PAGE> 61
3,000,000 Shares
(FORWARD AIR LOGO)
Common Stock
-----------------------
PROSPECTUS
-----------------------
BT Alex. Brown
Morgan Keegan & Company, Inc.
Scott & Stringfellow, Inc.
April , 1999
<PAGE> 62
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized statement of the amounts of all expenses
expected to be incurred by the Registrant in connection with the issuance and
distribution of the shares of common stock to be registered hereby, other than
underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 12,769
NASD filing fee............................................. 5,093
NASDAQ fee.................................................. 17,500
Blue sky fees and expenses.................................. 2,500
Printing expenses........................................... 125,000
Legal fees and expenses..................................... 175,000
Accounting fees and expenses................................ 150,000
Transfer Agent and Registrar fees........................... 5,000
Miscellaneous expenses...................................... 107,138
--------
Total............................................. $600,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Tennessee Business Corporation Act ("TBCA") provides that a corporation
may indemnify any director or officer against liability incurred in connection
with a proceeding if (i) the director or officer acted in good faith, (ii) the
director or officer reasonably believed, in the case of conduct in his or her
official capacity with the corporation, that such conduct was in the
corporation's best interest, or, in all other cases, that his or her conduct was
not opposed to the best interests of the corporation, and (iii) in connection
with any criminal proceeding, the director or officer had no reasonable cause to
believe that his or her conduct was unlawful. In actions brought by or in the
right of the corporation, however, the TBCA provides that no indemnification may
be made if the director or officer is adjudged to be liable to the corporation.
Similarly, the TBCA prohibits indemnification in connection with any proceeding
charging improper personal benefit to a director or officer, if such director or
officer is adjudged liable on the basis that a personal benefit was improperly
received. In cases where the director or officer is wholly successful, on the
merits or otherwise, in the defense of any proceeding instigated because of his
or her status as a director or officer of a corporation, the TBCA mandates that
the corporation indemnify the director or officer against reasonable expenses
incurred in the proceeding. Notwithstanding the foregoing, the TBCA provides
that a court of competent jurisdiction, upon application, may order that a
director or officer be indemnified for reasonable expense if, in consideration
of all relevant circumstances, the court determines that such individual is
fairly and reasonably entitled to indemnification, whether or not the standard
of conduct set forth above was met.
The Bylaws of the Company provide that the Company will indemnify from
liability, and advance expenses to, any present or former director or officer of
the Company to the fullest extent allowed by law. Additionally, the Restated
Charter of the Company limits the liability of directors of the Company to the
Company or its shareholders to the fullest extent allowed by law.
The Company has purchased a directors and officers insurance policy
providing for coverage for certain liabilities of the Company's directors and
officers.
The form of the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement contains certain provisions relating to the
indemnification of the Company and its controlling persons by the Underwriters
and relating to the indemnification of the Underwriters by the Company and its
controlling persons and the selling shareholders.
II-1
<PAGE> 63
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
2.1(a) -- Form of Distribution Agreement between Forward Air
Corporation and Landair Corporation dated as of September
18, 1998
4.1(b) -- Restated Charter of the Registrant
4.2(c) -- Bylaws of the Registrant, as amended
4.3(c) -- Specimen Stock Certificate
5.1 -- Opinion of Richard H. Roberts
23.1(d) -- Consent of Ernst & Young LLP
23.2 -- Consent of Richard H. Roberts (included in Exhibit 5.1)
24 -- Power of Attorney (included in signature page)
</TABLE>
- ---------------
(a) Filed as an exhibit to Landair Corporation's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1998.
(b) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998.
(c) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1998.
(d) Previously filed.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered hereunder, the
Registrant will, unless in the opinion of its counsel the question has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to
II-2
<PAGE> 64
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Greeneville, State of Tennessee, on April 23,
1999.
FORWARD AIR CORPORATION
By: *
------------------------------------
Scott M. Niswonger
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<C> <S> <C>
* Chairman and Chief Executive April 23, 1999
- -------------------------------------------------------- Officer (Principal
Scott M. Niswonger Executive Officer)
* President and Chief April 23, 1999
- -------------------------------------------------------- Operating Officer;
Bruce A. Campbell Director
* Senior Vice President, Chief April 23, 1999
- -------------------------------------------------------- Financial Officer and
Edward W. Cook Treasurer; Director
(Principal Financial and
Accounting Officer)
/s/ RICHARD H. ROBERTS Senior Vice President, April 23, 1999
- -------------------------------------------------------- General Counsel and
Richard H. Roberts Secretary; Director
* Director April 23, 1999
- --------------------------------------------------------
James A. Cronin, III
* Director April 23, 1999
- --------------------------------------------------------
Hon. Robert Keith Gray
* /s/ RICHARD H. ROBERTS
- --------------------------------------------------------
Richard H. Roberts,
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
2.1(a) -- Form of Distribution Agreement between Forward Air
Corporation and Landair Corporation dated as of September
18, 1998
4.1(b) -- Restated Charter of the Registrant
4.2(c) -- Bylaws of the Registrant, as amended
4.3(c) -- Specimen Stock Certificate
5.1 -- Opinion of Richard H. Roberts
23.1(d) -- Consent of Ernst & Young LLP
23.2 -- Consent of Richard H. Roberts (included in Exhibit 5.1)
24 -- Power of Attorney (included in signature page)
</TABLE>
- ---------------
(a) Filed as an exhibit to Landair Corporation's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1998.
(b) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998.
(c) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1998.
(d) Previously filed.
<PAGE> 1
EXHIBIT 1.1
3,000,000 Shares
Forward Air Corporation
Common Stock
UNDERWRITING AGREEMENT
April __, 1999
BT Alex. Brown Incorporated
Morgan Keegan & Company, Inc.
Scott and Stringfellow, Inc.
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Forward Air Corporation, a Tennessee corporation (the "Company"), and
Scott M. Niswonger (the "Selling Shareholder") propose to sell to the several
underwriters (the "Underwriters") named in Schedule I hereto, for whom you are
acting as representatives (the "Representatives"), an aggregate of 3,000,000
shares of the Company's Common Stock, $0.01 par value (the "Firm Shares"), of
which 1,000,000 shares will be sold by the Company and 2,000,000 shares will be
sold by the Selling Shareholder. Certain other shareholders of the Company's
Common Stock named in Schedule II hereto (the "Option Shareholders") also
propose to sell at the Underwriters' option an aggregate of up to 450,000
additional shares of the Company's Common Stock (the "Option Shares") as set
forth below. The Company, the Selling Shareholder and the Option Shareholders
are sometimes referred to herein collectively as the "Sellers." The respective
amounts of the Firm Shares to be so purchased by the several Underwriters are
set forth opposite their names in Schedule I hereto, and the amount to be sold
by each of the Option Shareholders is set forth opposite each of their names in
Schedule II hereto.
As the Representatives, you have advised the Company, the Selling
Shareholder and the Option Shareholders (a) that you are authorized to enter
into this Agreement on behalf of the several Underwriters and (b) that the
several Underwriters are willing, acting severally and not jointly, to purchase
the numbers of Firm Shares set forth opposite their respective names in
<PAGE> 2
Schedule I, plus their pro rata portion of the Option Shares if you elect to
exercise the over-allotment option in whole or in part for the accounts of the
several Underwriters. The Firm Shares and the Option Shares (to the extent the
option is exercised) are herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE SELLING SHAREHOLDER
AND THE OPTION SHAREHOLDERS.
(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form S-3 (File No. 333-75853) with
respect to the Shares has been prepared by the Company in conformity in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the Rules and Regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder and has
been filed with the Commission. The Company has complied with the conditions for
the use of Form S-3. Copies of such registration statement, including any
amendments thereto, the preliminary prospectuses (meeting the requirements of
the Rules and Regulations in all material respects) contained therein and the
exhibits, financial statements and schedules, as finally amended and revised,
have heretofore been delivered by the Company to you. Such registration
statement, together with any registration statement filed by the Company
pursuant to Rule 462(b) of the Act, herein referred to as the "Registration
Statement," which shall be deemed to include all information omitted therefrom
in reliance upon Rule 430A and contained in the Prospectus referred to below,
has become effective under the Act, and no post-effective amendment to the
Registration Statement has been filed as of the date of this Agreement. As used
in this Agreement, "Prospectus" means (a) the form of prospectus first filed
with the Commission pursuant to Rule 424(b) or (b) the last preliminary
prospectus included in the Registration Statement filed prior to the time it
becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Shares, together with any term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus." Any reference herein to the
Registration Statement, any Preliminary Prospectus or to the Prospectus shall be
deemed to refer to and include any documents incorporated by reference therein
as of the date hereof or the date of the Prospectus, and, in the case of any
reference herein to any Prospectus, also shall be deemed to include any
documents incorporated by reference therein as of the date of the Prospectus,
and any supplements or amendments thereto, filed with the Commission after the
date of filing of the Prospectus under Rules 424(b) or 430A, and prior to the
termination of the offering of the Shares by the Underwriters.
- 2 -
<PAGE> 3
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Tennessee, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. Each of the subsidiaries of
the Company listed in Schedule III hereto (collectively, the "Subsidiaries") has
been duly organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with corporate power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement. The Subsidiaries are the only
subsidiaries, direct or indirect, of the Company. The Company and each of the
Subsidiaries are duly qualified to transact business in all jurisdictions in
which the conduct of their business requires such qualification, except where
the failure to be so qualified would not have a material adverse effect on the
Company and the Subsidiaries, taken as a whole. The outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and non-assessable and are owned by the Company or
another Subsidiary free and clear of all liens, encumbrances and equities and
claims, except as described in the Registration Statement, the Prospectus, on
Schedule III hereto or those liens, encumbrances, equities and claims that do
not materially affect the value of such securities; and except as described in
the Registration Statement, the Prospectus or on Schedule III hereto, no
options, warrants or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations into shares of capital stock
or ownership interests in the Subsidiaries are outstanding.
(iii) The outstanding shares of Common Stock of the Company, including
all shares to be sold by the Selling Shareholder and the Option Shareholders,
have been duly authorized and validly issued and are fully paid and
non-assessable; the portion of the Shares to be issued and sold by the Company
have been duly authorized and when issued and paid for as contemplated herein
will be validly issued, fully paid and non-assessable; and no preemptive rights
of stockholders exist with respect to any of the Shares or the issue and sale
thereof. Neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock.
(iv) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct in all material respects. All of the Shares
conform in all material respects to the description thereof contained in the
Registration Statement. The form of certificates for the Shares conforms in all
material respects to the corporate law of the jurisdiction of the Company's
incorporation.
(v) The Commission has not issued an order preventing or suspending the
use of any Prospectus relating to the proposed offering of the Shares nor
instituted, to the knowledge of the Company, proceedings for that purpose. The
Registration Statement, when it was declared effective, the Prospectus, when it
is filed with the Commission pursuant to Rule 424(b) and any amendment or
supplement thereto, when it is filed with the Commission, contained or will
contain, all statements that are required to be stated therein by, and will
conform in all material
- 3 -
<PAGE> 4
respects to the requirements of the Act and the Rules and Regulations. The
documents incorporated by reference in the Prospectus, at the time filed with
the Commission, conformed in all material respects, to the requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") or the Act, as applicable,
and the rules and regulations of the Commission thereunder. When declared
effective and as of the date hereof, the Registration Statement and any
amendment thereto did not contain, and does not contain, any untrue statement of
a material fact and did not omit, and does not omit, to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. As of the date it is filed with the Commission pursuant to Rule
424(b) and as of the date hereof, the Prospectus and any amendments and
supplements thereto did not contain, and will not contain, any untrue statement
of material fact; and did not omit, and will not omit, to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the Company
makes no representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of the Selling Shareholder, any Option
Shareholder, or any Underwriter through the Representatives, specifically for
use in the preparation thereof.
(vi) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the financial position and the results of
operations and cash flows of the Company and the consolidated Subsidiaries, at
the indicated dates and for the indicated periods. Such financial statements and
related schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods involved,
except as disclosed therein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data included or incorporated by reference in the Registration
Statement presents fairly the information shown therein and such data has been
compiled on a basis consistent with the financial statements presented therein
and the books and records of the Company.
(vii) Ernst & Young L.L.P., who have certified certain of the financial
statements filed with the Commission as part of, or incorporated by reference
in, the Registration Statement, are independent public accountants as required
by the Act and the Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any court or administrative agency or otherwise that if
determined adversely to the Company or any of its Subsidiaries might result in
any material adverse change in the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and of the Subsidiaries taken as a whole or to prevent the
consummation of the transactions contemplated hereby, except as set forth or
incorporated by reference in the Registration Statement.
- 4 -
<PAGE> 5
(ix) The Company and the Subsidiaries have good and marketable title to
all of the properties and assets reflected in the financial statements (or as
described in the Registration Statement or any document incorporated therein by
reference) hereinabove described, subject to no lien, mortgage, pledge, charge
or encumbrance of any kind except those reflected in such financial statements
(or as described in the Registration Statement or any document incorporated
therein by reference) or which are not material in amount. The Company and the
Subsidiaries occupy their leased properties under valid and binding leases
conforming in all material respects to the description thereof set forth in the
Registration Statement or the documents incorporated therein by reference.
(x) The Company and the Subsidiaries have filed all Federal, state,
local and foreign income tax returns that have been required to be filed and
have paid all taxes indicated by said returns and all assessments received by
them or any of them to the extent that such taxes have become due and are not
being contested in good faith, except where the failure to file or pay would not
reasonably be expected to have a material adverse effect of the Company and the
Subsidiaries, taken as a whole. All tax liabilities have been adequately
provided for in the financial statements of the Company.
(xi) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there has not been
any material adverse change or any development involving a prospective material
adverse change in or affecting the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and its Subsidiaries taken as a whole, whether or not occurring in
the ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered into
by the Company or the Subsidiaries, other than transactions in the ordinary
course of business and changes and transactions described in the Registration
Statement, as it may be amended or supplemented. The Company and the
Subsidiaries have no material contingent obligations that are not disclosed in
the Company's financial statements that are included or incorporated by
reference in the Registration Statement.
(xii) Neither the Company nor any of the Subsidiaries is, or with the
giving of notice or lapse of time or both will be, in violation of or in default
under its Charter, as amended or restated, or By-Laws, as amended or restated,
or under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its properties, is
bound and which violation or default would have a material adverse effect on the
condition (financial or otherwise) of the Company and its Subsidiaries taken as
a whole or the business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and the
Subsidiaries taken as a whole. The execution and delivery of this Agreement and
the consummation of the transactions herein contemplated and the fulfillment of
the terms hereof will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, any material indenture,
mortgage, deed of trust or other agreement or instrument to which the Company or
any Subsidiary is a party, or of the Charter, as amended or
- 5 -
<PAGE> 6
restated, or By-Laws, as amended or restated, of the Company or any order, rule
or regulation applicable to the Company or any Subsidiary of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission
or the National Association of Securities Dealers, Inc. (the "NASD")) has been
obtained or made and is in full force and effect.
(xiv) The Company and each of the Subsidiaries holds all material
licenses, certificates and permits from governmental authorities that are
necessary to the conduct of their businesses; and neither the Company nor any of
the Subsidiaries has infringed any patents, patent rights, trade names,
trademarks or copyrights, which infringement is material to the business of the
Company and the Subsidiaries taken as a whole. The Company knows of no material
infringement by others of patents, patent rights, trade names, trademarks or
copyrights owned by or licensed to the Company.
(xv) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken or will take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which would
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares. The Company acknowledges that the Underwriters may engage in passive
market making transactions in the Shares on the Nasdaq National Market in
accordance with Rule 103 under Regulation M of the Exchange Act.
(xvi) Neither the Company nor any Subsidiary is an "investment company"
within the meaning of such term under the Investment Company Act of 1940, as
amended (the "1940 Act") and the rules and regulations of the Commission
thereunder.
(xvii) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xviii) The Company and each of its Subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as management of the
Company believes is adequate for the
- 6 -
<PAGE> 7
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
(xix) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, that would cause the loss of
such qualification.
(b) The Selling Shareholder and each of the Option Shareholders,
severally and not jointly, represent and warrant as follows:
(i) The Selling Shareholder or such Option Shareholder at the Closing
Date (as such date is hereinafter defined) will have good and marketable title
to the Firm Shares or the Option Shares, as the case may be, to be sold by the
Selling Shareholder or such Option Shareholder, free and clear of any liens,
encumbrances, equities and claims, and full right, power and authority to effect
the sale and delivery of such Firm Shares or Option Shares, as the case may be;
and upon the delivery of, against payment for, such Firm Shares or Option
Shares, as the case may be, pursuant to this Agreement, the Underwriters will
acquire good and marketable title thereto, free and clear of any liens,
encumbrances, equities and claims.
(ii) The Selling Shareholder or such Option Shareholder has full right,
power and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement. The execution and delivery of this Agreement
and the consummation by the Selling Shareholder or such Option Shareholder of
the transactions herein contemplated and the fulfillment by the Selling
Shareholder or such Option Shareholder of the terms hereof will not require any
consent, approval, authorization, or other order of any court, regulatory body,
administrative agency or other governmental body (except as may be required
under the Act) and will not result in a breach of any of the terms and
provisions of, or constitute a default under, any material indenture, mortgage,
deed of trust or other agreement or instrument to which the Selling Shareholder
or such Option Shareholder is a party, or of any order, rule or regulation
applicable to the Selling Shareholder or such Option Shareholder of any court or
of any regulatory body or administrative agency or other governmental body
having jurisdiction.
(iii) The Selling Shareholder or such Option Shareholder has not taken
and will not take, directly or indirectly, any action designed to, or which has
constituted, or which would reasonably
- 7 -
<PAGE> 8
be expected to cause or result in the stabilization or manipulation of the price
of the Common Stock of the Company and, other than as permitted by the Act, the
Selling Shareholder or any Option Shareholder will not distribute any prospectus
or other offering material in connection with the offering of the Shares.
(iv) Without having undertaken to determine independently the accuracy
or completeness of the information contained or incorporated by reference in the
Registration Statement, the Selling Shareholder or such Option Shareholder is
familiar with the Registration Statement and has no knowledge of any material
fact, condition or information not disclosed or incorporated by reference in the
Registration Statement that has adversely affected or will adversely affect the
business of the Company or any of the Subsidiaries taken as a whole; and the
sale of the Firm Shares or Option Shares, as the case may be, by the Selling
Shareholder or such Option Shareholder pursuant hereto is not prompted by any
information concerning the Company or any of the Subsidiaries that is not set
forth in the Registration Statement or the documents incorporated by reference
therein. The information pertaining to the Selling Shareholder or such Option
Shareholder under the captions "Principal and Selling Shareholders" and
"Underwriting" in the Prospectus is complete and accurate in all material
respects.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
and the Selling Shareholder agree to sell to the Underwriters and each
Underwriter agrees, severally and not jointly, to purchase, at a price of $_____
per share, the number of Firm Shares set forth opposite the name of each
Underwriter in Schedule I hereof, subject to adjustments in accordance with
Section 9 hereof. The number of Firm Shares to be purchased by each Underwriter
from each Seller shall be as nearly as practicable in the same proportion to the
total number of Firm Shares being sold by each Seller as the number of Firm
Shares being purchased by each Underwriter bears to the total number of Firm
Shares to be sold hereunder. The obligations of the Company and of the Selling
Shareholder shall be several and not joint.
(b) Certificates in negotiable form for the total number of the Shares
to be sold hereunder by the Selling Shareholder have been placed in custody with
Bass, Berry & Sims PLC as custodian (the "Custodian") pursuant to the Custody
Agreement and Power of Attorney executed by the Selling Shareholder for delivery
of all Firm Shares to be sold hereunder by the Selling Shareholder. The Selling
Shareholder specifically agrees that the Firm Shares represented by the
certificates held in custody for the Selling Shareholder under the Custody
Agreement and Power of Attorney are subject to the interests of the Underwriters
hereunder, that the arrangements made by the Selling Shareholder for such
custody are to that extent irrevocable, and that the obligations of the Selling
Shareholder hereunder shall not be terminable by any act or deed of the Selling
Shareholder (or by any other person, firm or corporation including the Company,
the Custodian or the Underwriters) or by operation of law (including the death
of the Selling
- 8 -
<PAGE> 9
Shareholder) or by the occurrence of any other event or events, except as set
forth in the Custody Agreement and Power of Attorney. If any such event should
occur prior to the delivery to the Underwriters of the Firm Shares hereunder,
certificates for the Firm Shares shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as if such event has
not occurred. The Custodian is authorized to receive and acknowledge receipt of
the proceeds of sale of the Shares held by it against delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be made in
same day funds via wire transfer to the order of the Company for the shares to
be sold by it and to the order of Bass, Berry & Sims PLC as Custodian for the
Selling Shareholder for the shares to be sold by the Selling Shareholder, in
each case against delivery of the Firm Shares to the Representatives for the
several accounts of the Underwriters. Such payment and delivery are to be made
at the offices of BT Alex. Brown Incorporated, 1 South Street, Baltimore,
Maryland, at 10:00 a.m., Baltimore time, on the third business day after the
date of this Agreement or at such other time and date not later than five
business days thereafter as you and the Company shall agree upon, such time and
date being herein referred to as the "Closing Date." As used herein, "business
day" means a day on which the New York Stock Exchange is open for trading and on
which banks in New York are open for business and not permitted by law or
executive order to be closed.
(d) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Option Shareholders listed on Schedule II hereto hereby grant an option to the
several Underwriters to purchase the Option Shares at the price per share as set
forth in the first paragraph of this Section 2. The maximum number of Option
Shares to be sold by the Option Shareholders is set forth opposite their
respective names on Schedule II hereto. The option granted hereby may be
exercised in whole or in part by giving written notice (i) at any time before
the Closing Date and (ii) only once thereafter within 30 days after the date of
this Agreement, by you, as Representatives of the several Underwriters, to the
Company and the Option Shareholders setting forth the number of Option Shares as
to which the several Underwriters are exercising the option, the names and
denominations in which the Option Shares are to be registered and the time and
date at which such certificates are to be delivered. The time and date at which
certificates for Option Shares are to be delivered shall be determined by the
Representatives but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option Closing
Date"). If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The number of Option Shares to be purchased by each Underwriter
shall be in the same proportion to the total number of Option Shares being
purchased as the number of Firm Shares being purchased by such Underwriter bears
to the total number of Firm Shares, adjusted by you in such manner as to avoid
fractional shares. The option with respect to the Option Shares granted
hereunder may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters. You, as Representatives of the several Underwriters,
may cancel such
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<PAGE> 10
option at any time prior to its expiration by giving written notice of such
cancellation to the Company and the Option Shareholders. To the extent, if any,
that the option is exercised, payment for the Option Shares shall be made on the
Option Closing Date in same day funds via wire transfer to the order of the
custodian for the Option Shareholders against delivery of the Option Shares at
the offices of BT Alex. Brown Incorporated, 1 South Street, Baltimore, Maryland.
The obligations of the Option Shareholders shall be several and not joint.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY, THE SELLING SHAREHOLDER AND THE OPTION
SHAREHOLDERS.
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (A) use its reasonable best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, (B) not file any amendment to the Registration
Statement or supplement to the Prospectus or document incorporated by reference
therein of which the Representatives shall not previously have been advised and
furnished with a copy or to which the Representatives shall have reasonably
objected in writing or that is not in compliance in all material respects with
the Rules and Regulations and (C) file on a timely basis all reports and any
definitive proxy or information statements required to be filed by the Company
with the Commission subsequent to the date of the Prospectus and prior to the
termination of the offering of the Shares by the Underwriters.
(ii) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the
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<PAGE> 11
Registration Statement or for supplement to the Prospectus or for any additional
information and (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that purpose. The
Company will use its reasonable best efforts to prevent the issuance of any such
stop order preventing or suspending the use of the Prospectus and to obtain as
soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify or exempt the Shares for sale under the securities laws
of such jurisdictions as the Representatives may reasonably have designated in
writing and will make such applications, file such documents and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications or exemptions in effect for so
long a period as the Representatives may reasonably request for distribution of
the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four (4) signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), including documents incorporated by reference therein,
and of all amendments thereto, as the Representatives may reasonably request.
(v) The Company will comply with the Act and the Rules and Regulations,
and the Exchange Act, and the rules and regulations of the Commission
thereunder, so as to permit the completion of the distribution of the Shares as
contemplated in this Agreement and the Prospectus. If during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, any
event shall occur as a result of which, in the judgment of the Company, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will either (i) prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus or (ii) prepare and file with the Commission an appropriate filing
under the Exchange Act that shall be incorporated by reference in the Prospectus
so that the Prospectus as so
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<PAGE> 12
amended or supplemented will not, in the light of the circumstances existing
when it is so delivered, be misleading, or so that the Prospectus will comply
with the law.
(vi) The Company will make generally available to its security holders,
as soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earnings statement
(which need not be audited) in reasonable detail, covering a period of at least
12 consecutive months beginning after the effective date of the Registration
Statement, which earnings statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(vii) The Company will, for a period of five years from the Closing
Date, deliver to the Representatives copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
shareholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Exchange Act.
The Company will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and Regulations,
that are not consolidated in the Company's financial statements.
(viii) No offering, sale or other disposition of any shares of Common
Stock of the Company or other securities convertible into or exchangeable or
exercisable for shares of Common Stock or derivatives of Common Stock (or any
agreement for such) will be made for a period of 90 days after the date of this
Agreement, directly or indirectly, by the Company otherwise than hereunder or
with the prior written consent of BT Alex. Brown Incorporated, except for (i)
shares issued pursuant to the Company's stock incentive and stock purchase plans
approved by the Board of Directors of the Company prior to the date hereof, (ii)
shares issued as consideration for the Company's acquisition of businesses or
(iii) shares issued to the extent necessary to comply with the Internal Revenue
Service Private Letter Ruling issued to the Company in connection with the
spin-off of the Company's truckload carrier business in September 1998.
(ix) The Company will use its reasonable best efforts to list, subject
to notice of issuance, the Shares on the Nasdaq National Market.
(x) The Company will apply the net proceeds of its sale of the Shares
as set forth in the Prospectus.
(xi) The Company will not invest or otherwise use the proceeds received
by it from its sale of the Shares in such a manner as would require the Company
or any of the Subsidiaries to register as an investment company under the 1940
Act.
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<PAGE> 13
(xii) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(xiii) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or would reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
(b) The Selling Shareholder and each of the Option Shareholders,
severally and not jointly, covenant and agree with the several Underwriters
that:
(i) No offering, sale, short sale, transfer, hypothecation, pledge or
other disposition of any shares of Common Stock of the Company or other capital
stock of the Company or other securities convertible, exchangeable or
exercisable for Common Stock or derivative of Common Stock owned by the Selling
Shareholder or the Option Shareholder either of record or beneficially or
request for registration for the offer or sale of any of the foregoing (or as to
which the Selling Shareholder or such Option Shareholder has the right to direct
the disposition of) will be made for a period of 90 days after the date of this
Agreement, directly or indirectly, by the Selling Shareholder or such Option
Shareholder, other than bona fide gifts of shares of Common Stock if the first
donee agrees in writing to be bound by the terms of this Section 4(b)(i),
otherwise than hereunder or with the prior written consent of BT Alex. Brown
Incorporated.
(ii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with
respect to the transactions herein contemplated, the Selling Shareholder and
each of the Option Shareholders agree to deliver to you prior to or at the
Closing Date a properly completed and executed United States Treasury Department
Form W-9 (or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
(iii) The Selling Shareholder and each of the Option Shareholders will
not take, directly or indirectly, any action designed to cause or result in, or
that has constituted or would reasonably be expected to constitute, the
stabilization or manipulation of the price of any securities of the Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company, the
Selling Shareholder and the Option Shareholders; the cost of printing and
delivering to, or as requested by, the Underwriters copies of the Registration
Statement, Preliminary Prospectuses, the Prospectus, and this Agreement; the
filing fees of the Commission;
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<PAGE> 14
the filing fee of the NASD; and the Listing Fee of the Nasdaq National Market.
To the extent, if at all, that any of the Option Shareholders engage special
legal counsel to represent them in connection with this offering, the fees and
expenses of such counsel shall be borne by such Option Shareholder. Any transfer
taxes imposed on the sale of the Shares to the several Underwriters will be paid
by Sellers pro rata. The Sellers shall not, however, be required to pay for any
of the Underwriters' expenses (other than those related to qualification under
the NASD's regulations), except that, if this Agreement shall not be consummated
because the conditions in Section 6 hereof are not satisfied, or because this
Agreement is terminated by the Representatives pursuant to Section 11 hereof, or
by reason of any failure, refusal or inability on the part of the Sellers to
perform any undertaking or satisfy any condition of this Agreement or to comply
with any of the terms hereof on their part to be performed, unless such failure
to satisfy said condition or to comply with said terms be due to the default or
omission of any Underwriter, then the Company shall reimburse the several
Underwriters for their reasonable out-of-pocket expenses, including fees and
disbursements of counsel, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder; but the Sellers shall not in any event be liable to
any of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Shares
on the Closing Date and the Option Shares, if any, on the Option Closing Date
are subject to the accuracy in all material respects, as of the Closing Date or
the Option Closing Date, as the case may be, of the representations and
warranties of the Company, the Selling Shareholder and the Option Shareholders
contained herein, and to the performance by the Company, the Selling Shareholder
and the Option Shareholders of their covenants and obligations hereunder and to
the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company or the Selling Shareholder or any of the Option
Shareholders, shall be contemplated by the Commission and no injunction,
restraining order, or order of any nature by a Federal or state court of
competent jurisdiction shall have been issued as of the Closing Date that would
prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Bass, Berry & Sims PLC,
counsel for the Company, the
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<PAGE> 15
Selling Shareholder and certain of the Option Shareholders, the opinion of
Woolf, McClane, Bright, Allen & Carpenter, PLLC, counsel for the East Tennessee
Foundation, one of the Option Shareholders, and the opinion of Richard H.
Roberts, Esq., Senior Vice President, General Counsel and Secretary of the
Company as to certain matters described in this Section 6, dated the Closing
Date or the Option Closing Date, as the case may be, addressed to the
Underwriters (and both stating that such opinion may be relied upon by counsel
to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Tennessee, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; each of the Subsidiaries
has been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, with corporate
power and authority to own or lease its properties and conduct its business as
described in the Registration Statement; the Company and each of the
Subsidiaries are duly qualified to transact business in all jurisdictions in
which the conduct of their business requires such qualification, or in which the
failure to qualify would have a materially adverse effect upon the business of
the Company and the Subsidiaries taken as a whole; and the outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued and are fully paid and non-assessable and are owned by the Company or a
Subsidiary; and, to the best of such counsel's knowledge, except as set forth in
the Registration Statement and the Prospectus or on Schedule III hereto, the
outstanding shares of capital stock of each of the Subsidiaries is owned free
and clear of all perfected liens, encumbrances, equities and claims, and no
options, warrants or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations into any shares of capital
stock or of ownership interests in the Subsidiaries are outstanding.
(ii) As of the date specified therein, the Company had authorized and
outstanding capital stock as set forth under the caption "Capitalization" in the
Prospectus; the authorized shares of the Company's Common Stock have been duly
authorized; the outstanding shares of the Company's Common Stock, including the
Shares to be sold by the Option Shareholders, have been duly authorized and
validly issued and are fully paid and non-assessable; all of the Shares conform
in all material respects to the description thereof contained or incorporated by
reference in the Prospectus; the certificates for the Shares, assuming they are
in the form filed with the Commission, are in due and proper form; the shares of
Common Stock to be sold by the Company pursuant to this Agreement have been duly
authorized and will be validly issued, fully paid and non-assessable when issued
and paid for as contemplated by this Agreement; and no preemptive rights of
shareholders exist with respect to any of the Shares or the issue or sale
thereof.
(iii) Except as described in or contemplated by the Prospectus, to the
knowledge of such counsel, there are no outstanding securities of the Company
convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the
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<PAGE> 16
Company to issue any shares of its capital stock or any securities convertible
or exchangeable into or evidencing the right to purchase or subscribe for any
shares of such stock; and except as described in the Prospectus, to the
knowledge of such counsel, no holder of any securities of the Company or any
other person has the right, contractual or otherwise, that has not been
satisfied or effectively waived, to cause the Company to sell or otherwise issue
to them, or to permit them to underwrite the sale of, any of the Shares or the
right to have any Common Stock or other securities of the Company included in
the Registration Statement or the right, as a result of the filing of the
Registration Statement, to require registration under the Act of any shares of
Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the Act,
and, to the best of the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus and each amendment or
supplement thereto and document incorporated by reference therein, as of their
respective effective or filing dates, complied as to form in all material
respects with the requirements of the Act or the Exchange Act, as applicable,
and the applicable rules and regulations thereunder (except that such counsel
need express no opinion as to the financial statements and related schedules
included or incorporated by reference therein). The conditions for the use of
Form S-3, set forth in the General Instructions thereto, have been satisfied.
(vi) Such counsel does not know of any contracts or documents required
to be filed as exhibits to or incorporated by reference in the Registration
Statement or described in the Registration Statement or the Prospectus that are
not so filed, incorporated by reference or described as required, and such
contracts and documents as are summarized in the Registration Statement or the
Prospectus are accurately summarized in all material respects.
(vii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the Subsidiaries
except as set forth or incorporated by reference in the Prospectus.
(viii) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Charter or By-Laws of the Company, as amended or
restated, or any material agreement or instrument known to such counsel to which
the Company or any of the Subsidiaries is a party or by which the Company or any
of the Subsidiaries may be bound.
(ix) This Agreement has been duly authorized, executed and delivered by
the Company.
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<PAGE> 17
(x) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD), except such as have been obtained
or made.
(xi) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
(xii) This Agreement has been duly authorized, executed and delivered
by or on behalf of the Selling Shareholder and the Option Shareholders.
(xiii) To the knowledge of such counsel, the Selling Shareholder and
each of the Option Shareholders has full legal right, power and authority, and
any approval required by law, to sell, assign, transfer and deliver the portion
of the Shares to be sold by the Selling Shareholder or the Option Shareholder.
(xiv) The Underwriters (assuming that they are bona fide purchasers
within the meaning of the Uniform Commercial Code) have acquired good and
marketable title to the Shares being sold by the Selling Shareholder on the
Closing Date and the Option Shareholders on the Option Closing Date, as the case
may be, free and clear of all liens, encumbrances, equities and claims.
In rendering such opinion, such counsel may rely as to matters governed
by the laws of states other than Tennessee, Delaware or Federal laws on local
counsel in such jurisdictions, provided that in each case Bass, such counsel
shall state that they believe that they and the Underwriters are justified in
relying on such other counsel. In addition to the matters set forth above, the
opinion of Bass, Berry & Sims PLC shall also include a statement to the effect
that nothing has come to the attention of such counsel which leads them to
believe that (i) the Registration Statement, at the time it became effective
under the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the light of
the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, financial schedules or
statistical information therein). With respect to such statement, Bass, Berry &
Sims PLC may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
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<PAGE> 18
(c) The Representatives shall have received from Piper & Marbury
L.L.P., counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect specified
in subparagraphs (ii), (iii), (iv), (ix) and (xii) of Paragraph (b) of this
Section 6, and that the Company is a duly organized and validly existing
corporation under the laws of the State of Tennessee. In rendering such opinion,
Piper & Marbury L.L.P. may rely as to all matters governed other than by the
laws of Maryland or Delaware or Federal laws on the opinion of counsel referred
to in Paragraph (b) of this Section 6. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that nothing
has come to the attention of such counsel that leads them to believe that (i)
the Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, financial schedules or
statistical information therein). With respect to such statement, Piper &
Marbury L.L.P. may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification.
(d) You shall have received, on each of the date hereof, the Closing
Date or the Option Closing Date, as the case may be, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in form
and substance satisfactory to you, of Ernst & Young LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating that in their opinion the
financial statements and schedules examined by them and included in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(e) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
President and the Chief Financial Officer of the Company to the effect that, as
of the Closing Date or the Option Closing Date, as the case may be, each of them
severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration Statement
has been issued, and no
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<PAGE> 19
proceedings for such purpose have been taken or are, to his knowledge,
contemplated by the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct in all material respects as
of the Closing Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and
the Prospectus and, in his opinion, as of the effective date of the Registration
Statement and the date the Prospectus was filed with the Commission pursuant to
Rule 424(b), the Registration Statement and the Prospectus, respectively, did
not contain an untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, and since the effective date of the Registration
Statement, no event has occurred that should have been set forth in a supplement
to or an amendment of the Prospectus that has not been so set forth in such
supplement or amendment; and
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a whole,
whether or not arising in the ordinary course of business.
(f) The Company, the Selling Shareholder and the Option Shareholders
shall have furnished to the Representatives such further certificates and
documents confirming the representations and warranties, covenants and
conditions contained herein and related matters as the Representatives may
reasonably have requested.
(g) The Firm Shares have been approved for designation upon notice of
issuance on the Nasdaq National Market.
(h) The Company has caused each officer and director to furnish to you,
on or prior to the date of this agreement, a letter or letters, in form and
substance satisfactory to the Underwriters, pursuant to which each such person
has agreed not to offer, sell, sell short, contract to sell, transfer,
hypothecate, pledge or otherwise dispose of any shares of Common Stock of the
Company or other capital stock of the Company, or any other securities
convertible, exchangeable or exercisable for shares of Common Stock or
derivative of shares of Common Stock owned by such person or request the
registration for the offer or sale of any of the foregoing (or as to
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<PAGE> 20
which such person has the right to direct the disposition of) for a period of 90
days after the date of this Agreement, directly or indirectly, other than gifts
of shares of the Company's common stock if the donee agrees in writing to be
bound by the terms of this Agreement, except with the prior written consent of
BT Alex. Brown Incorporated ("Lockup Agreements"). The Lockup Agreements shall
be in full force and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects reasonably satisfactory to the Representatives and to Piper &
Marbury L.L.P., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company, the Selling Shareholder and the
Option Shareholders of such termination in writing at or prior to the Closing
Date or the Option Closing Date, as the case may be.
In such event, the Selling Shareholder, the Option Shareholders, the
Company and the Underwriters shall not be under any obligation to each other
(except to the extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company and the Selling Shareholder agree to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act, against any losses, claims, damages or
liabilities to which such Underwriter or any such controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances under which they were made; and will reimburse each Underwriter
and each such controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such
- 20 -
<PAGE> 21
loss, claim, damage or liability, action or proceeding or in responding to a
subpoena or governmental inquiry related to the offering of the Shares, whether
or not such Underwriter or controlling person is a party to any action or
proceeding; provided, however, that the Company and the Selling Shareholder will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement, or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically for use
in the preparation thereof. The foregoing indemnity agreement with respect to
any Preliminary Prospectus or the Prospectus shall not inure to the benefit of
any Underwriter from whom the person asserting any such losses, claims, damages
or liabilities purchased Shares, or any person controlling such Underwriter, if
a copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as amended or supplemented) would
have cured the defect giving rise to such loss, claim, damage or liability. In
no event, however, shall the liability of the Selling Shareholder for
indemnification under this Section 8(a) exceed the lesser of (i) that proportion
of the total of such losses, claims, damages or liabilities indemnified against
equal to the proportion of the total Shares sold hereunder that is being sold by
the Selling Shareholder, or (ii) the proceeds received by the Selling
Shareholder from the Underwriters in the offering. This indemnity agreement will
be in addition to any liability which the Company and the Selling Shareholder
may otherwise have.
(b) Each of the Option Shareholders, severally and not jointly, agree
to indemnify the Underwriters and each person, if any, who controls any
Underwriter within the meaning of the Act, against any losses, claims, damages
or liabilities to which such Underwriter or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages and
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement of any material fact concerning such Option
Shareholder contained in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact concerning such Option
Shareholder required to be stated therein or necessary to make the statement
therein not misleading in light of the circumstances under which they were made;
and will reimburse each Underwriter and each such controlling person upon demand
for any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such loss,
claim, damage or liability, action or proceeding or in responding to a subpoena
or governmental inquiry related to the offering of the Shares, whether or not
such Underwriter or controlling person is a party to any action or proceeding;
provided, however, that the Company and such Option Shareholder will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an
- 21 -
<PAGE> 22
untrue statement or alleged untrue statement, or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the Prospectus,
or such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. The foregoing indemnity
agreement with respect to any Preliminary Prospectus or the Prospectus shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
amended or supplemented) would have cured the defect giving rise to such loss,
claim, damage or liability. In no event, however, shall the liability of any
Option Shareholder for indemnification under this Section 8(b) exceed the
proceeds received by such Option Shareholder from the Underwriters in the
offering. This indemnity obligation will be in addition to any liability which
any Option Shareholder may otherwise have.
(c) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, the Selling Shareholder, the Option
Shareholders and each person, if any, who controls the Company within the
meaning of the Act, against any losses, claims, damages or liabilities to which
the Company or any such director, officer, the Selling Shareholder, Option
Shareholder or controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, the Selling Shareholder,
Option Shareholder or controlling person upon demand for any legal or other
expenses reasonably incurred by the Company or any such director, officer,
Option Shareholder or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding or in
responding to a subpoena or governmental inquiry relating to the offering of the
Shares, whether or not the Company or any such director, officer, the Selling
Shareholder, Option Shareholder or controlling person is a party to any action
or proceeding; provided, however, that each Underwriter will be liable in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the
- 22 -
<PAGE> 23
Company by or through the Representatives specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability that such Underwriter may otherwise have.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a), (b) or (c) shall be available to any party who shall fail to give notice
as provided in this Section 8(d) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability that it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a), (b) or (c). In case
any such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party and shall pay as incurred the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified party shall
have the right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the indemnified
party in the event (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel, (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them or (iii) the indemnifying party shall have failed to
assume the defense and employ counsel reasonably acceptable to the indemnified
party within a reasonable period of time after notice of commencement of the
action. It is understood that the indemnifying party shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you in the case
of parties indemnified pursuant to Section 8(a) or (b) and by the Company and
the Option Shareholders in the case of parties indemnified pursuant to Section
8(c). The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or
- 23 -
<PAGE> 24
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action or proceeding.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company, the
Selling Shareholder and the Option Shareholders on the one hand and the
Underwriters on the other hand from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the
Company, the Selling Shareholder and the Option Shareholders on the one hand and
the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
Selling Shareholder and the Option Shareholders on the one hand and the
Underwriters on the other hand shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Company, the Selling Shareholder and the Option Shareholders bear to the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Selling Shareholder or the Option Shareholders on the one hand or
the Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company, the Selling Shareholder, each of the Option Shareholders
and the Underwriters agree that it would not be just and equitable if
contributions pursuant to this Section 8(e) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to above in this Section 8(e). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (e), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter, (ii) no person guilty of
- 24 -
<PAGE> 25
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation and (iii) the Selling Shareholder or any of the
Option Shareholders shall not be required to contribute any amount in excess of
the lesser of (A) that proportion of the total of such losses, claims, damages
or liabilities indemnified or contributed against equal to the proportion of the
total Shares sold hereunder that are being sold by the Selling Shareholder or
the Option Shareholders or (B) the proceeds received by the Selling Shareholder
or any of the Option Shareholders from the Underwriters in the offering. The
Underwriters' obligations in this Section 8(e) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, the Selling Shareholder, the Option
Shareholders, its directors or officers, or any person controlling the Company,
shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
that such Underwriter has agreed to purchase and pay for on such date (otherwise
than by reason of any default on the part of the Company, the Selling
Shareholder or any Option Shareholder), you, as Representatives of the
Underwriters, shall use your reasonable efforts to procure within 36 hours
thereafter one or more of the other Underwriters, or any others, to purchase
from the Company, the Selling Shareholder and each of the Option Shareholders
such amounts as may be agreed upon and upon the terms set forth herein, the Firm
Shares or Option Shares, as the case may be, that the defaulting Underwriter or
Underwriters failed to purchase. If during such 36 hours you, as such
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<PAGE> 26
Representatives, shall not have procured such other Underwriters, or any others,
to purchase the Firm Shares or Option Shares, as the case may be, agreed to be
purchased by the defaulting Underwriter or Underwriters, then (a) if the
aggregate number of shares with respect to which such default shall occur does
not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the other Underwriters shall be obligated, severally, in proportion to
the respective numbers of Firm Shares or Option Shares, as the case may be, that
they are obligated to purchase hereunder, to purchase the Firm Shares or Option
Shares, as the case may be, that such defaulting Underwriter or Underwriters
failed to purchase or (b) if the aggregate number of Firm Shares or Option
Shares, as the case may be, with respect to which such default shall occur
exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the Company, the Selling Shareholder and the Option Shareholders or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company or of the Selling Shareholder or of the Option
Shareholders except to the extent provided in Section 8 hereof. In the event of
a default by any Underwriter or Underwriters, as set forth in this Section 9,
the Closing Date or Option Closing Date, as the case may be, may be postponed
for such period, not exceeding seven days, as you, as Representatives, may
determine in order that the required changes in the Registration Statement or in
the Prospectus or in any other documents or arrangements may be effected. The
term "Underwriter" includes any person substituted for a defaulting Underwriter.
Any action taken under this Section 9 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to BT Alex. Brown
Incorporated, 1 South Street, Baltimore, MD 21202, Attention: Robert P. Irwin,
Managing Director; with a copy to BT Alex. Brown Incorporated, 1 South Street,
Baltimore, MD 21202, Attention: General Counsel; if to the Company, the Selling
Shareholder or the Option Shareholders, to Forward Air Corporation, 430 Airport
Road, Greenville, TN 37745 Attention: Richard H. Roberts, Senior Vice President;
with a copy to Bass, Berry & Sims PLC, 2700 First American Center, Nashville, TN
37238, Attention: Leigh Walton, Esq.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Sellers as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters or (ii) 11:30 a.m. on the
date of this Agreement;
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<PAGE> 27
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
its Subsidiaries taken as a whole, whether or not arising in the ordinary course
of business; (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment would make it
impracticable to market the Shares or to enforce contracts for the sale of the
Shares; (iii) trading generally shall have been suspended or materially limited
on or by, as the case may be, any of the New York Stock Exchange, the American
Stock Exchange, the NASD, the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade; (iv) the enactment,
publication, decree or other promulgation of any statute, regulation, rule or
order of any court or other governmental authority which in your opinion
materially and adversely affects or may materially and adversely affect the
business or operations of the Company; (v) declaration of a banking moratorium
by United States or New York State authorities; (vi) any downgrading in the
rating of the Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g) under
the Exchange Act); (vii) the suspension of trading of the Company's Common Stock
on the Nasdaq National Market; or (viii) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal affairs that in
your reasonable opinion has a material adverse effect on the securities markets
in the United States or would make it impracticable to market the Shares or to
enforce contracts for the sale of the Shares; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company, the Selling Shareholder and each of the Option
Shareholders and their respective successors, executors, administrators, heirs
and assigns, and the officers, directors and controlling persons referred to
herein, and no other person will have any right or obligation hereunder. No
purchaser of any of the Shares from any Underwriter shall be deemed a successor
or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company, the Selling Shareholder, each of the Option Shareholders
and the Underwriters acknowledge and agree that the only information furnished
or to be furnished by any
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<PAGE> 28
Underwriter to the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the last paragraph on the
front cover page (insofar as such information relates to the Underwriters),
legends required by Item 502(d) of Regulation S-K under the Act and the
information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers, the Selling Shareholder or the Option Shareholders
and (c) delivery of and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
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<PAGE> 29
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Option Shareholders, the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
FORWARD AIR CORPORATION
By:
---------------------------------
Name:
----------------
Title:
---------------
SCOTT M. NISWONGER
By:
---------------------------------
Attorney-In-Fact
OPTION SHAREHOLDERS
By:
---------------------------------
Attorney-In-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. BROWN INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
SCOTT AND STRINGFELLOW, INC.
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Brown Incorporated
By:
------------------------------
Authorized Officer
- 29 -
<PAGE> 30
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
- ----------- ---------------
<S> <C>
BT Alex. Brown Incorporated
Morgan Keegan & Company, Inc.
Scott and Stringfellow, Inc.
----------
Total 3,000,000
==========
</TABLE>
- 30 -
<PAGE> 31
SCHEDULE II
SCHEDULE OF OPTION SHARES
<TABLE>
<CAPTION>
Maximum Number Percentage of
of Option Shares Total Number of
Name of Seller to be Sold Option Shares
- -----------------------------------------------------------------------
<S> <C> <C>
Total 450,000 100%
=======
</TABLE>
- 31 -
<PAGE> 32
SCHEDULE III
SCHEDULE OF SUBSIDIARIES AND ENCUMBRANCES
- 32 -
<PAGE> 1
FORWARD AIR CORPORATION
430 Airport Road
Greeneville, Tennessee 37745
April 23, 1999
The Board of Directors of Forward Air Corporation
430 Airport Road
Greeneville, Tennessee 37745
Re: REGISTRATION STATEMENT ON FORM S-3
Gentlemen:
I am Senior Vice President, General Counsel and Secretary of Forward Air
Corporation (the "Company"). In that capacity, I have acted as counsel for the
Company in connection with the preparation of a Registration Statement on Form
S-3 (the "Registration Statement") filed by the Company with the Securities and
Exchange Commission on April 7, 1999, covering 3,450,000 shares of Company
common stock, par value $0.01 per share (the "Common Stock") to be sold by the
Company and certain shareholders of the Company (the "Selling Shareholders") to
the underwriters represented by BT Alex. Brown Incorporated, Morgan Keegan &
Company, Inc. and Scott and Stringfellow, Inc. (the "Underwriters") for public
distribution pursuant to the Underwriting Agreement between the Company, the
Selling Shareholders, and the Underwriters to be filed as an exhibit to the
Registration Statement. Such 3,450,000 shares of Common Stock include (i)
1,000,000 shares to be sold by the Company and (ii) 2,450,000 shares to be sold
by the Selling Shareholders (including 450,000 shares that may be purchased by
the Underwriters upon the exercise of an option to cover over-allotments).
In so acting, I have examined and relied upon such records, documents,
certificates, and other instruments as in my judgment are necessary or
appropriate in order to express the opinions hereinafter set forth and have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to me as originals, and the conformity to original documents of all
documents submitted to me as certified or photostatic copies.
On the basis of the foregoing, I am of the opinion that the shares of Common
Stock to be sold by the Company, when issued and delivered in the manner and on
the terms described in the Registration Statement (after the same is declared
effective), will be validly issued, fully paid, and nonassessable, and that the
shares of Common Stock to be sold by the Selling Shareholders are validly
issued, fully paid, and nonassessable.
I hereby consent to the reference to me in the Registration Statement under the
caption "Legal Matters" and to the use of this opinion as an exhibit to the
Registration Statement.
Sincerely,
/s/ Richard H. Roberts
- ------------------------------
Richard H. Roberts
Senior Vice President, General Counsel and Secretary
