STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of April 19, 2000, by and among Knight Transportation, Inc., an Arizona
corporation ("Buyer"); John R. Fayard, Jr., a resident of Mississippi (the
"Stockholder"); and John Fayard Fast Freight, Inc., a Mississippi corporation
(the "Company").
RECITALS
1. The Stockholder owns all of the issued and outstanding capital stock of
the Company, consisting of 1,000 shares of common stock, no par value per share
(the "Common Stock").
2. The Buyer proposes to acquire 100% of the Company's issued and
outstanding Common Stock.
3. The parties desire that the transaction be accomplished as stated
herein, in accordance with their respective representations, warranties, and
agreements, subject to the conditions contained herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the covenants, representations,
warranties, and agreements herein contained, and for other good and valuable
consideration, the parties agree as follows:
ARTICLE I
Definitions
For the purposes of this Agreement, unless otherwise provided, the
following terms, when capitalized, shall have the meanings ascribed to them
below:
1.1 "Adjusted Closing Stockholder's Equity" means the stockholder's equity
reflected on the Audited Closing Balance Sheet with increases and reductions, as
applicable to reflect the following:
(i) the distribution of the Redemption Assets and Liabilities and
redemption of shares of the Company's Common Stock from the
Stockholder in accordance with Section 2.3 hereof;
(ii) the repayment of all amounts owed to the Company by the
Stockholder and to the Stockholder by the Company;
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(iii) all Restricted Payments made after March 31, 2000, or which
are not reserved for and reflected on the face of the balance sheet
included in the Most Recent Financial Statements;
(iv) all of the other adjustments referenced in this agreement,
including but not limited to, those in Section 5.14, 5.17, and 5.19;
(v) any other entries required to reflect transactions outside
the Ordinary Course of Business between January 1, 2000, and the
Closing; and
(vi) a reduction of $155,000 to reflect the cash transfer to the
Redeemed Business prior to March 31, 2000.
1.2 "Affiliate" means any person or entity controlling, controlled by, or
under common control with another person or entity, including, but not limited
to, the following: all officers, directors, and persons owning 10% or more of
the equity interests of an entity.
1.3 "Accounting Firm" has the meaning ascribed in Section 2.7(f).
1.4 "Audited Closing Balance Sheet" has the meaning ascribed in Section
2.7(a).
1.5 "Authority" means each and every federal, state, local, and foreign
judicial, governmental, quasi-governmental, or regulatory agency, official, or
department; every arbitrator, mediator, and other similar official; and every
other entity to whose jurisdiction or decision making authority a party has
submitted.
1.6 "Benefit Plans" means all contracts, plans, arrangements, policies, and
understandings providing for any compensation or benefit other than base wages
or salaries that are maintained by the Company or affect its employees or
independent contractors, regardless of whether defined as an "employee benefit
plan" under ERISA or subject to any provision of ERISA, including, without
limitation: all pension, profit-sharing, retirement, thrift, 401(K), ESOP, and
other similar plans and arrangements (defined benefit and defined contribution);
all health and welfare, disability, insurance (including self-insurance),
workers' compensation, supplemental unemployment, severance, vacation, and
similar plans and arrangements; and all bonus, stock option, incentive
compensation, stock appreciation rights, phantom stock, overtime guaranty,
employment contract, employee handbook, and other similar plans or arrangements.
1.7 "Bill of Sale" has the meaning ascribed in Section 2.3(a).
1.8 "Bonus Recipients" has the meaning ascribed in Section 2.5(h).
1.9 "Buyer Group" has the meaning ascribed in Section 7.1.
1.10 "Closing" and "Closing Date" have the meanings ascribed in
Section 3.1.
1.11 "Code" means the Internal Revenue Code of 1986, as amended, or any
successor federal tax law.
1.12 "Commission" means the United States Securities and Exchange
Commission.
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1.13 "Company Retained Debt" has the meaning ascribed in Section 2.3(b),
and is listed on Part 2.3(b) of the Disclosure Exhibit.
1.14 "Competitive Business" has the meaning ascribed in Section 5.9(c).
1.15 "Contract" means any mortgage, note, indenture, agreement, contract,
commitment, lease, plan, license, permit, insurance policy or binder,
authorization, or other instrument, document, or understanding, oral or written,
including in each case, all amendments, modifications, waivers, supplements, and
consents relating thereto.
1.16 "Damages" means any and all losses, Liabilities, claims, damages,
deficiencies, obligations, fines, payments, Taxes, Liens, costs and expenses,
matured or unmatured, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated, known or unknown, whenever arising and whether or not resulting
from a third-party claim, including, without limitation, the costs and expenses
of any and all Proceedings or other legal matters; all amounts paid in
connection with any demands, assessments, judgments, settlements, and
compromises relating thereto; interest and penalties recovered by a third party
with respect thereto; out-of-pocket expenses and reasonable attorneys',
accountants', and other experts' fees and expenses reasonably incurred in
investigating, preparing, or defending against any such Proceedings or other
legal matters or in asserting, preserving, or enforcing a party's rights
hereunder; and any losses that may result from the granting of injunctive relief
as a result of any such Proceedings or other legal matters.
1.17 "Deeds" has the meaning ascribed in Section 2.3(a).
1.18 "Disclosure Exhibit" means the document attached hereto as Exhibit A.
1.19 "Disputed Statement" has the meaning ascribed in Section 2.7(e).
1.20 "Disputed Tax Matters" has the meaning ascribed in Section 2.8.
1.21 "Earn-Out" has the meaning ascribed in Section 2.5.
1.22 "EBITDAR" has the meaning ascribed in Section 2.7(d).
1.23 "Employment Agreement" has the meaning ascribed in Section 5.11.
1.24 "Environmental Laws" has the meaning ascribed in Section 4.3(u).
1.25 "Final Statement" has the meaning ascribed in Section 2.7(e).
1.26 "First Year Bonus" has the meaning ascribed in Section 2.5(h).
1.27 "First Year Target" has the meaning ascribed in Section 2.5(a).
1.28 "First Year Value" has the meaning ascribed in Section 2.5(d).
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1.29 "GAAP" means generally accepted accounting principles, consistently
applied throughout all periods, provided, that interim, unaudited financial
statements lack footnotes and other presentation items.
1.30 "Historical Financial Statements" has the meaning ascribed in Section
4.3(f).
1.31 "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976 or any successor law, and regulations and rules issued pursuant to that Act
or any successor law.
1.32 "Indemnifying Party" has the meaning ascribed in Section 7.3(a).
1.33 "Indemnitee" has the meaning ascribed in Section 7.3(a).
1.34 "Judgment" means any judgment, order, writ, injunction, decree, award,
or settlement of any Proceeding.
1.35 "Law" means any constitution, statute, Judgment, law, ordinance, rule,
regulation, or other pronouncement by any Authority (including, without
limitation, the following types: environmental, energy, safety, health, zoning,
antidiscrimination, antitrust, employment, transportation, Tax, and employee
benefit (including ERISA)).
1.36 "Lease" has the meaning ascribed in Section 5.12.
1.37 "Liability" means any and all debts, liabilities, obligations, and
commitments, whether known or unknown, asserted or unasserted, fixed, absolute,
or contingent, matured or unmatured, accrued or unaccrued, liquidated or
unliquidated, due or to become due, whenever or however arising (including,
without limitation, whether arising out of any Contract or tort based on
negligence, strict liability, or otherwise) and whether or not the same would be
required by GAAP to be reflected as a liability in financial statements or
disclosed in the notes thereto.
1.38 "Lien" means any reservation, restriction, right of way, charge,
claim, community property interest, condition, equitable interest, easement,
encumbrance, option, lien, pledge, charge, hypothecation, assignment, deposit
arrangement, security interest (preference, priority or other security agreement
or preferential arrangement of any kind), mortgage, deed of trust, retention of
title agreement, right of first refusal, right of first offer, preemptive right,
or other restriction or granting of any rights of any kind (including any
restriction on, or right granted with respect to, the use, voting, transfer,
receipt of income, or exercise of any other attribute of ownership), or
statutory lien (including, without limitation, any assessment, charge, or other
type of notice which is levied or given by any Authority and for which a lien
could be filed).
1.39 "Maximum Value" has the meaning ascribed in Section 2.5(d).
1.40 "Most Recent Financial Statements" means the financial statements
(including balance sheet and statements of income, cash flows, and retained
earnings, as applicable) of the Company at and for the period ending on the
month-end immediately preceding the Closing.
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1.41 "Noncompete Parties" has the meaning ascribed in Section 5.9(a).
1.42 "Notice of Disagreement" has the meaning ascribed in Section 2.7(e).
1.43 "Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
1.44 "Outside Target" has the meaning ascribed in Section 2.5(d).
1.45 "Permits" has the meaning ascribed in Section 4.4(l).
1.46 "Permitted Businesses" has the meaning ascribed in Section 5.9.
1.47 "person" has the meaning ascribed in Section 8.11.
1.48 "Proceeding" means any action, suit, litigation, arbitration,
investigation, hearing, notice of violation, order, claim, citation, charge,
demand, complaint, review, or penalty assessment, in each case whether formal or
informal, administrative, civil or criminal, at law or in equity, and whether or
not in front of any Authority.
1.49 "Purchase Price" has the meaning ascribed in Section 2.2.
1.50 "Purchased Shares" has the meaning ascribed in Section 2.1.
1.51 "Real Estate" means the real estate and improvements thereon, and all
rights and appurtenances thereto, currently owned by the Company, all as legally
described on Exhibit B.
1.52 "Redeemed Business" means the warehousing and storage business,
offsite storage business, the household goods moving and storage business, and
the record storage, retrieval and management business operated by the Company.
1.53 "Redemption Assets and Liabilities" means the assets and liabilities
listed on attached Exhibit C. Exhibit C also contains a list of the employees of
the Company who are and will become employees of the Redeemed Business at
Closing.
1.54 "Release" has the meaning ascribed in Section 5.7.
1.55 "Restricted Payment" shall mean with respect to the Stockholder or any
Affiliate or relative of the Stockholder (i) any dividend or other distribution
on the Common Stock; (ii) any payment (other than regularly scheduled wage or
lease payments in the Ordinary Course of Business); (iii) any acquisition of
Common Stock, other than as contemplated under this Agreement with respect to
the Redeemed Business; (iv) any transaction that was not disclosed to Buyer on
the Disclosure Exhibit and was inconsistent with the Company's Ordinary Course
of Business as it existed prior to December 31, 1999; (v) any transaction not
pursuant to the reasonable requirements of the business of the Company; or (vi)
any transaction on terms less favorable to the Company than would be obtained in
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a comparable arm's-length transaction with a person not the Stockholder or an
Affiliate of the Stockholder.
1.56 "Rights" means all patents, trademarks, copyrights, franchises,
licenses, permits, easements, computer software programs, rights (including,
without limitation, rights to trade secrets and proprietary information and
know-how), certificates, approvals, and other authorizations including those
issued by or filed with any Authority, and any applications for any of the
foregoing.
1.57 "Second Year Bonus" has the meaning ascribed in Section 2.5(h).
1.58 "Second Year Maximum" has the meaning ascribed in Section 2.5(d).
1.59 "Second Year Target" has the meaning ascribed in Section 2.5(b).
1.60 "Second Year Value" has the meaning ascribed in Section 2.5(d).
1.61 "Securities Agreement" has the meaning ascribed in Section 2.2(a).
1.62 "Seller Group" has the meaning ascribed in Section 7.2.
1.63 "Spousal Consent" has the meaning ascribed in Section 5.10.
1.64 "Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
1.65 "Taxes" shall mean all taxes, charges, duties, fees, levies, charges,
or other assessments of whatever kind or nature, and any interest, penalty, or
other addition thereto, including, without limitation, those relating to taxable
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, motor vehicles, motor vehicle registration,
withholding, payroll, employment, excise, estimated, severance, stamp,
occupancy, real or personal property, customs, social security, medicare,
unemployment, disability, value added, unclaimed property, alternative or add-on
minimum, or any other imposed by any Authority.
1.66 "Third-Party Claim" has the meaning ascribed in Section 7.3(a).
1.67 "Threshold" has the meaning ascribed in Section 7.4(b).
1.68 "Transfer Agent Letter" has the meaning ascribed in Section 3.4.
1.69 "Unpaid Bonus" has the meaning ascribed in Section 2.5(h).
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ARTICLE II
Stock Purchase and Sale
2.1 Transfer of Common Stock. Subject to the terms and conditions of this
Agreement, at the Closing, the Stockholder shall sell, convey, transfer, assign,
and deliver to Buyer, and Buyer shall acquire, 100% of the issued and
outstanding Common Stock that is not redeemed under Section 2.3 (the "Purchased
Shares") free and clear of all Liens.
2.2 Purchase Price. (a) In consideration for the transfer of the Purchased
Shares, Buyer agrees to pay the following (the "Purchase Price"):
(i) 228,788 shares of Buyer's common stock, issued in accordance
with the Securities Purchase and Registration Agreement attached as
Exhibit D (the "Securities Agreement"); plus
(ii) Four Million Dollars ($4,000,000); plus or minus
(iii) the amount by which the Adjusted Closing Stockholder's
Equity is greater than (increasing the Purchase Price) or less than
(decreasing the Purchase Price) the sum of $350,000; plus
(iv) an amount, up to $64,000, of accounts receivable from
Kimberly-Clark that had been written off as uncollectible in 1999, to
the extent such amounts are collected in calendar 2000 (it being
understood that any such amounts collected shall be paid over to the
Stockholder promptly after collection under this subsection as an
adjustment to December 31, 1999 pro forma net worth and shall not be
included in the EBITDAR calculation under Sections 2.5 and 2.7(d));
plus or minus
(v) all other adjustments provided for in connection with this
Agreement.
(b) The Purchase Price shall be subject to final adjustment under
Section 2.7(c) pursuant to the Final Statement of the Audited Closing
Balance Sheet and Adjusted Closing Stockholder's Equity.
(c) For purposes of calculating the Purchase Price at Closing, the
parties shall use the March 31, 2000, Stockholder's equity and pro forma
adjustments, as set forth on Part 2.2(c) of the Disclosure Exhibit. Thus
for purposes of the payment of the cash portion of the Purchase Price at
Closing, the Adjusted Closing Stockholder's Equity shall be assumed to be
$_________________.
(d) To the extent the is Adjusted Closing Stockholder's Equity is less
than $350,000 or more than $350,000, the difference shall be an adjustment
to the cash portion of the Purchase Price. If necessary to adjust the
portion of the Purchase Price payable in stock, such adjustment shall be
made on the basis of $16.50 per share.
(e) A calculation of the Purchase Price payable at Closing is included
in Part 2.2(e) of the Disclosure Exhibit.
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2.3 Redemption.
(a) At Closing, the Company shall redeem 600 shares of the Common
Stock from the Stockholder in exchange for transferring to Stockholder, all
of the Company's right, title, and interest in and to, and Stockholders
acceptance and assumption of, the Redemption Assets and Liabilities. The
Company shall deliver the Bill of Sale, Assignment and Assumption attached
as Exhibit E (the "Bill of Sale"), Deeds generally in the form of Exhibit F
(the "Deeds"), and such other documents as may be reasonably required to
transfer the Redemption Assets and Liabilities to the Stockholder. The
Stockholder shall provide the Buyer with a reasonable, fair market
valuation of the Redemption Assets and Liabilities and any supporting
materials, including real estate appraisals, within forty-five (45) days
after Closing. Subject to the procedures set forth in Section 2.8, the
valuation supplied by Stockholder shall be presumed to be correct for
purposes of preparing the short period tax return referenced therein.
(b) Effective as of the Closing, the Stockholder hereby assumes, and
agrees to pay, perform, and discharge, all Liabilities of, or in any way
relating to, the Redeemed Business, whether arising before or after
Closing, including liabilities for accounts payable and accrued expenses,
but not including the indebtedness for borrowed money listed on Part 2.3(b)
of the Disclosure Exhibit (the "Company Retained Debt"), which shall remain
an obligation of the Company.
(c) Effective as of the Closing, the Stockholder shall hire the
employees of the Company listed on Exhibit C and be responsible for all of
their accrued vacation, employee benefits, and other compensation,
including all compensation due since the most recent pay day. The
Stockholder represents that the employees listed on Exhibit C are employed
by the Company primarily in the Redeemed Business, and that employment of
such employees by the Stockholder (directly or through any entity formed to
operate the Redeemed Business) will not adversely affect the business of
the Company.
(d) The Stockholder shall pay, perform, and discharge, and be
responsible for, all Liabilities for Taxes that relate in any manner to the
redemption and distribution described in this Section 2.3.
2.4 Release of Stockholder. Subject to the provisions in this Section 2.4,
as soon as practicable after the Closing, the Buyer shall (a) pay in full the
principal amount and current period accrued interest on the mortgage with
Peoples Bank that is secured by the Redemption Assets (which shall occur in any
event within two (2) business days of receiving a payoff statement) ; and (b)
obtain a release of the Stockholder as a guarantor of all of the other Company
Retained Debt. In order to obtain a release of Stockholders' guaranties, the
Buyer shall offer its guaranty. If that does not suffice with respect to any
such obligation, within 60 days after Stockholder's request, Buyer shall retire
such obligation in full; provided, that Stockholder shall be responsible for any
prepayment or similar penalty resulting from the early retirement of such
obligation. Regardless of whether the obligation is paid off, Buyer hereby
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indemnifies, defends, and holds the Stockholder harmless against any liability
under any guaranties of the Company Retained Debt.
2.5 Earn-Out Adjustment. As additional consideration for the Purchased
Shares, and subject to the adjustment set forth in Section 2.5(h), the Buyer
shall issue additional shares of its common stock to the Stockholder, in
accordance herewith, if, and to the extent, the Company's operations generate
the levels of EBITDAR during the time periods indicated below (this shall be
referred to as the "Earn-Out").
(a) First Year Earn-Out. If the Company generates EBITDAR of at least
$10,536,000 plus $30,425 for each weighted average tractor in excess of 240
operated by the Company during the twelve-month period from April 1, 2000,
through March 31, 2001 (the "First Year Target"), the Buyer shall issue to
the Stockholder 15,000 shares of its common stock. In addition, if the
Company generates EBITDAR that is greater than the First Year Target, then
the Buyer shall issue an additional number of shares between 1 and 30,000
that is equal to one share for each $13.33 by which EBITDAR exceeds the
First Year Target, up to a maximum of 30,000 such shares.
(b) Second Year Earn-Out.
(i) If the Company generates EBITDAR of at least $11,982,000 plus
$30,425 for each weighted average tractor in excess of 263 operated by
the Company during the twelve-month period from April 1, 2001, through
March 31, 2002 (the "Second Year Target"), the Buyer shall issue to
the Stockholder 30,000 shares of its common stock. In addition, if the
Company generates EBITDAR that is greater than the Second Year Target,
then the Buyer shall issue an additional number of shares between 1
and 30,000 that is equal to one share for each $13.33 by which EBITDAR
exceeds the Second Year Target, up to a maximum of 30,000 such shares.
(ii) The Second Year Earn Out shall be increased by the number of
shares equal to the Unpaid Bonus (as defined in Section 2.5(h))
divided by $16.50.
(c) The aggregate number of shares that could be issued in the
Earn-Out is 105,000 (45,000 in respect of the first year earn-out and
60,000 in respect of the second year earn-out), plus any shares issued in
respect of the Unpaid Bonus.
(d) Anything to the contrary notwithstanding, the maximum value of the
shares issued in respect of the Earn-Out (the "Maximum Value") shall be
$2,520,000 (plus $24.00 for each share issued to the Stockholder in respect
of the Unpaid Bonus); provided, however, that if during the period of the
Second Year Earn-Out the Company generates EBITDAR that exceeds the Second
Year Target by at least $1,400,000 (the "Outside Target"), then the Maximum
Value shall be increased to $3,120,000 (plus $24.00 for each share issued
to the Stockholder in respect of the Unpaid Bonus) (it being understood
that there shall not be any proration of the Maximum Value between
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$2,520,000 (plus $24.00 for each share issued to the Stockholder in respect
of the Unpaid Bonus) and $3,120,000 (plus $24.00 for each share issued to
the Stockholder in respect of the Unpaid Bonus) for partial achievement of
the Outside Target). For purposes of this paragraph, the value of the
shares shall be determined by the average closing price of the Buyer's
common stock on the thirty (30) trading days prior to the date on which the
shares were issued. Whether the Maximum Value has been reached shall be
determined as follows: For the First Year Earn-Out, the number of shares
earned under Section 2.5(a) shall be multiplied by the share price
determined according to the immediately preceding sentence, with the
product being referred to as the "First Year Value." If the First Year
Value is less than $2,520,000 (plus $24.00 for each share issued to the
Stockholder in respect of the Unpaid Bonus), then all of the shares that
were earned under the First Year Earn-Out shall be issued to the
Stockholder. If the First Year Value is greater than $2,520,000 (plus
$24.00 for each share issued to the Stockholder in respect of the Unpaid
Bonus), then the number of shares issued in respect of the First Year
Earn-Out shall be reduced until the First Year Value is equal to $2,520,000
(plus $24.00 for each share issued to the Stockholder in respect of the
Unpaid Bonus), rounded to the nearest whole share and the Earn-Out shall
terminate altogether. For the Second Year Earn-Out, the number of shares
earned under Section 2.5(b) shall be multiplied by the share price
determined according to this Section 2.5(d), with the product being
referred to as the "Second Year Value." Prior to issuing any shares in
respect of the Second Year Earn-Out, (unless terminated pursuant to the
preceding sentence) the First Year Value shall be subtracted from the
Maximum Value, with the difference being known as the "Second Year
Maximum." If the Second Year Value is equal to or less than the Second Year
Maximum, then all of the shares that were earned under the Second Year
Earn-Out shall be issued to the Stockholder. If the Second Year Value is
greater than the Second Year Maximum, then the number of shares issued
shall be reduced until the Second Year Value is equal to the Second Year
Maximum, rounded to the nearest whole share.
(e) For purposes of this Section 2.5 and Section 2.7, references to
the Company shall include its successor division if it is not retained as a
separate corporation after Closing. The Buyer and the Company agree to
maintain sufficient accounting systems, procedures and controls to properly
account for the revenue and expenses of the Company (or its successor
division) after the Closing for the purpose of determining EBITDAR during
the period of the Earn-Out Adjustment..
(f) In the event of any stock split, reverse stock split, stock
dividend, merger, recapitalization, reorganization, or similar transaction
involving a proportionate change in the Buyer's outstanding common stock,
if appropriate given the context of such event, the number of shares
issuable under the Earn-Out shall be adjusted reasonably and
proportionately to reflect such event, with the Board of Directors of Buyer
to determine, in its reasonable discretion, the appropriate adjustment, if
any. The maximum value stated in Section 2.5(d) shall not be adjusted.
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To the extent earned, the shares issued in respect of the Earn-Out shall be
issued by the Buyer to the Stockholder within ten (10) days after the
issuance of the Buyer's consolidated audit report by its independent public
accountants or, to the extent a Notice of Disagreement is filed, within ten
(10) days after delivery of a Final Statement.
(h) (i) If the Company achieves the First Year Target, the Company
shall be obligated to pay an amount (the "First Year Bonus") equal
to $165,000 plus $0.825 for each dollar by which EBITDAR for such year
exceeds the First Year Target, up a maximum First Year Bonus of
$495,000, to the persons identified by the Stockholder in writing at
Closing (the "Bonus Recipients"), as set forth below.
(ii) In addition to the First Year Bonus, if the Company achieves
the Second Year Target, the Company shall be obligated to pay an
amount (the "Second Year Bonus") equal to $330,000 plus $0.825 for
each dollar by which EBITDAR for such year exceeds the Second Year
Target, up to a maximum Second Year Bonus of $660,000, to the Bonus
Recipients as set forth below.
(iii) The First Year Bonus and the Second Year Bonus shall be
paid to the Bonus Recipients who are at the payment date, and have
been from Closing through such date, continuously employed as
full-time employees of the Company. The First Year Bonus and Second
Year Bonus shall be paid to the recipients in four quarterly
installments beginning on the date ten (10) days following delivery of
the Final Statement with respect to the Second Year Earn Out and on
the same date each third month following until paid in full.
(iv) If any part of the First Year Bonus or Second Year Bonus
shall go unpaid, such amount (the "Unpaid Bonus") shall be delivered
to the Stockholder in accordance with Section 2.5(b)(ii) and the
Company and its Affiliates shall have no further obligation with
respect to either bonus amount.
(v) The First Year Bonus and Second Year Bonus shall not be
included as expenses in the calculation of EBITDAR.
2.6 Stock Price Floor. If, during the ninety (90) days following the third
anniversary of the Closing Date, the average closing price of Buyer's common
stock during any two-week period is lower than $10.00 per share, subject to
appropriate adjustment in the event of an event described in Section 2.5(f), at
the Stockholder's request, Buyer shall, at its option, either (a) pay to the
Stockholder within ten (10) days an amount equal to the difference between
$10.00 per share and the average closing price during the ninety (90) day
measuring period; or (b) be entitled to repurchase all shares of common stock of
Buyer issued under this Agreement and still held by Buyer. The price paid by the
Buyer for the shares would be $10.00 per share, subject to appropriate
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adjustment in the event of an event described in Section 2.5(f). The Buyer would
pay for the shares in cash within thirty (30) days following the Stockholder's
request. If the Buyer exercises its purchase option, the Stockholder must tender
certificates representing all of the shares subject to the Stockholder's
request, free and clear of Liens.
2.7 Accounting Procedures.
(a) As soon as practicable, but in any event within 45 days after
Closing, the Company shall prepare an audited balance sheet as of the
Closing Date (the "Audited Closing Balance Sheet"), with the audit report
being given by Horne CPA Group or Arthur Andersen LLP, as selected by
Buyer. If the Stockholder selects Arthur Andersen, representatives of Horne
CPA Group shall be entitled to participate at the Stockholder's election,
and if Horne CPA Group is selected to give the audit report,
representatives of Arthur Andersen LLP shall be entitled to participate at
the Buyer's election, in each case being given access to work papers,
personnel, and draft statements, as well as the opportunity to provide
input into the draft and final Audited Closing Balance Sheet.
(b) Contemporaneously with the preparation of the Audited Closing
Balance Sheet, the Company and the accountants, as provided above, shall
calculate the Adjusted Closing Stockholder's Equity.
(c) Upon completion and acceptance by the parties of a Final Statement
of the Audited Closing Balance Sheet and the Adjusted Closing Stockholder's
Equity, the parties shall make appropriate final adjustments to the
Purchase Price based on any differences between the assumed Adjusted
Closing Stockholder's Equity of $229,000 assumed for Closing and the actual
Adjusted Closing Stockholder's Equity as determined pursuant to this
Section 27. All amounts due between the Buyer and Stockholder as a result
on the aforesaid adjustments to the Purchase Price shall be settled at that
time. Any amount owed under this paragraph shall bear interest from the
date due until the date of payment at the rate of ten percent (10%) per
annum.
(d) For purposes of determining whether, and the extent to which, the
Earn-Out has been achieved, the Buyer shall prepare a calculation of
EBITDAR (as defined below) contemporaneously with the preparation of the
audit and such EBITDAR calculation shall be delivered promptly to the
Stockholder. The calculation of EBITDAR shall start with the consolidating
financial information for the Company used in Buyer's financial statements
for the four calendar quarters ending March 31, 2001 and 2002,
respectively. The consolidating income statement for the Company shall be
prepared in accordance with GAAP, applied in the same manner used in the
Buyer's consolidated, audited financial statements for such periods. For
purposes of this Agreement, EBITDAR shall be determined as follows
12
("EBITDAR"): the Company's operating income, plus depreciation expense,
plus capitalized revenue equipment lease amortization expense, plus revenue
equipment operating lease rental expense (but not including payments to
owner-operators or under short-term rentals). For purposes of calculating
EBITDAR, neither the transaction expenses nor the amortization of goodwill
associated with this transaction (nor the transaction expenses or
amortization of goodwill associated with any subsequent acquisition
transaction by Buyer or the Company) shall be included, notwithstanding the
requirements of "push-down" accounting or the Buyer's accounting methods.
To the extent not already reflected in the consolidating income statement,
the Company's operating income shall reflect (x) any costs savings that
were attributable to efficiencies generated by Buyer; and (y) an overhead
allocation for any function formerly performed by the Company but which
after Closing is being performed all or in part by the Buyer or one of its
Affiliates other than the Company; provided, that the amount of the
overhead calculation shall not exceed the percentage of revenue
attributable to such function in the Company's 1999 income statement
included in the Historical Financial Statements. It is understood that any
gain or loss on sale of revenue equipment is included in operating income.
(e) The Audited Closing Balance Sheet, Adjusted Closing Stockholder's
Equity and each calculation of EBITDAR will be deemed to be final, binding,
and conclusive (a "Final Statement") for all purposes on the 10th business
day after delivery unless Stockholder or the Buyer, as the case may be,
delivers to the other a written notice of its disagreement (a "Notice of
Disagreement") prior to such date specifying in reasonable detail the
nature of such party's objections to the item in question (the "Disputed
Statement"). Buyer will cause its employees to assist the Stockholder in
the preparation of a Notice of Disagreement; provided such assistance will
not interfere with the normal work duties of such employees. To be
assertable in a Notice of Disagreement, an objection must specify the
objectionable line items in reasonable detail and may also allege
mathematical errors. If a Notice of Disagreement is delivered to Buyer
within such 10-day period, then the Disputed Statement (adjusted, if
necessary) will be deemed to be a Final Statement for all purposes on the
earlier of (x) the date the Buyer and the Stockholder resolve in writing
all differences they have with respect to the Disputed Statement or (y) the
date the disputed matters are resolved in writing by the Accounting Firm.
In the event that disputed matters are resolved by the Accounting Firm, the
Final Statement will consist of the applicable amounts from the Disputed
Statement (or amounts otherwise agreed to in writing by the Buyer and the
Stockholder) as to items that have not been submitted for resolution to the
Accounting Firm, and the amounts determined by the Accounting Firm as to
items that were submitted for resolution by the Accounting Firm.
(f) During the 10 business days following the delivery of a Notice of
Disagreement, the Buyer and the Stockholder will seek in good faith to
resolve any differences they may have with respect to matters specified in
the Notice of Disagreement and such discussions will be deemed to be for
settlement purposes. If, at the end of such 10-day period, the Buyer and
the Stockholder have not reached agreement on such matters, the Buyer and
the Stockholder will jointly engage a "Big Five" accounting firm other than
Arthur Andersen LLP (the "Accounting Firm") to resolve the matters which
remain in dispute. In connection with such engagement, each of the Buyer
and the Stockholder agrees to execute, if requested by the Accounting Firm,
13
a reasonable engagement letter including customary indemnities. Promptly
after such engagement of the Accounting Firm, the Buyer or the Stockholder
will provide the Accounting Firm with a copy of this Agreement, the
Disputed Statement, the Notice of Disagreement, and any statement either
party may wish to make in support of its position. The Accounting Firm will
have the authority to request in writing such additional written
submissions as it deems appropriate; provided, however, that a copy of any
such submission will be provided to the other party at the same time as it
is provided to the Accounting Firm. No party hereto will communicate (nor
permit any of its subsidiaries or Affiliates to communicate) with the
Accounting Firm without providing the other party a reasonable opportunity
to participate in such communication with the Accounting Firm (other than
with respect to written submissions in response to the written request of
the Accounting Firm). The Accounting Firm will have 20 business days to
review the documents provided to it pursuant to this Section 2.7(f). Within
such 20-day period, the Accounting Firm will furnish simultaneously to both
parties its written determination with respect to each of the adjustments
in dispute submitted to it for resolution. The Accounting Firm will resolve
the differences regarding the Disputed Statement based solely on the
information provided by the Buyer and the Stockholder pursuant to the terms
of this Agreement (and not independent review). The Accounting Firm's
authority will be limited to resolving disputes with respect to whether the
Disputed Statement was prepared in accordance with the Agreement with
respect to the individual items in dispute (it being understood that the
Accounting Firm will have no authority to make any adjustments to any
financial statements or amounts other than the amounts that are in
dispute). In resolving any disputed item, the Accounting Firm may not
assign a value to such item greater than the greatest value for such items
asserted by either party or less than the smallest value for such item
asserted by either party. The decision of the Accounting Firm will be, for
all purposes, conclusive, non-appealable, final, and binding upon the
parties hereto. The fees of the Accounting Firm will be borne by the Buyer
and the Stockholder in the same proportion that the dollar amount of
disputed items lost by a party bears to the total dollar amount in dispute
resolved by the Accounting Firm. Each party will bear the fees, costs, and
expenses of its own accountants and all of its other expenses in connection
with matters contemplated by this Section 2.7.
2.8 Tax Returns. The Company's tax return for the year ended December 31,
1999, shall be prepared by the Horne CPA Group, subject to a 10-day review and
approval process by Buyer and its accountants and the Company's tax return for
the short period from January 1, 2000, to the Closing Date shall be prepared by
a firm selected by Buyer. In the case of each return, both Buyer and Stockholder
shall have the right to review and approve or request modifications to the
returns for a period of fifteen (15) days after being furnished a copy of the
return. If any items in a return are disputed, the Buyer and Stockholder will,
for an additional ten (10) days, seek in good faith to resolve any differences
they may have with respect to the tax return. If, at the end of such 10-day
period, the Buyer and the Stockholder have not reached agreement on the return
an Accounting Firm will jointly be engaged to resolve the matters which remain
in dispute ("Disputed Tax Matters"). In connection with such engagement, each of
14
the Buyer and the Stockholder agrees to execute, if requested by the Accounting
Firm, a reasonable engagement letter including customary indemnities. Promptly
after such engagement of the Accounting Firm, the Buyer or the Stockholder will
provide the Accounting Firm with a copy of this Agreement, the tax return,
relevant supporting documentation, and any statement either party may wish to
make in support of its position on the Disputed Tax Matters. The Accounting Firm
will have the authority to request in writing such additional written
submissions as it deems appropriate; provided, however, that a copy of any such
submission will be provided to the other party at the same time as it is
provided to the Accounting Firm. No party hereto will communicate (nor permit
any of its subsidiaries or Affiliates to communicate) with the Accounting Firm
without providing the other party a reasonable opportunity to participate in
such communication with the Accounting Firm (other than with respect to written
submissions in response to the written request of the Accounting Firm). The
Accounting Firm will have 20 business days to review the documents provided to
it pursuant to this Section 2.8. Within such 20-day period, the Accounting Firm
will furnish simultaneously to both parties its written determination with
respect to the Disputed Tax Matters. The Accounting Firm will resolve the
differences regarding the Disputed Tax Matters based solely on the information
provided by Buyer and the Stockholder pursuant to the terms of this Agreement
(and not independent review). The Accounting Firm's authority will be limited to
resolving the Disputed Tax Matters. In resolving any disputed item, the
Accounting Firm may not assign a value to such item greater than the greatest
value for such items asserted by either party or less than the smallest value
for such item asserted by either party. The decision of the Accounting Firm will
be, for all purposes, conclusive, non-appealable, final, and binding upon the
parties hereto. The fees of the Accounting Firm will be borne by the Buyer and
the Stockholder in the same proportion that the dollar amount of disputed items
lost by a party bears to the total dollar amount in dispute resolved by the
Accounting Firm. Each party will bear the fees, costs, and expenses of its own
accountants and all of its other expenses in connection with matters
contemplated by this Section 2.8. If the Internal Revenue Service or any state
counterpart audits either of the tax returns referenced in this Section 2.8, the
Stockholder shall be entitled to have a representative participate in such audit
process; provided that the Buyer and the Company shall not be required to take
any action that could result in a waiver of any attorney-client or similar
privilege.
ARTICLE III
Closing
3.1 Date. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Newton and Hoff, L.L.P, 2019
23rd Avenue, Gulfport, Mississippi 39502 on the date two business days following
the satisfaction of all of the conditions precedent to the obligations of the
parties as set forth in Article VI or such other date as the parties may
mutually determine (the "Closing Date"). The transactions contemplated herein
shall be effective as of 12:01 a.m. on the Closing Date which shall be the
Effective Date and Time.
15
3.2 Delivery of Certificates. At the Closing, (i) the Company and the
Stockholder shall deliver to Buyer the various certificates, stock instruments,
and documents referred to in Section 6.1; and (ii) Buyer shall deliver to the
Stockholder the various certificates, instruments, and documents referred to in
Section 6.2. The parties shall take all such other actions necessary or
advisable to implement the transactions contemplated by this Agreement (provided
that no party shall be required to waive any condition to closing or other
right, hereunder or otherwise).
3.3 Delivery of Stock. At the Closing, the Stockholder shall deliver to
Buyer certificates representing all shares of Common Stock, duly endorsed in
blank (or accompanied by duly executed stock powers in blank).
3.4. Delivery of Purchase Price. At the Closing, the Buyer shall deliver to
the Stockholder the cash component of the Purchase Price by check or wire
transfer of immediately available funds; provided that $250,000 of such amount
shall be placed in escrow with a mutually agreed escrow agent until the date
fifteen (15) days after the date on which a Final Statement of the Pro Forma
1999 Balance Sheet is delivered in order to secure the Buyer's right to any
adjustment under Section 2.7(c) and any claims for indemnification made by Buyer
prior to such date. The escrow account shall bear interest and the Stockholder
shall receive all interest accrued thereon. The stock component of the Purchase
Price shall be evidenced by the delivery of an irrevocable instruction letter to
the Company's transfer agent in substantially the form attached as Exhibit H
(the "Transfer Agent Letter") authorizing the issuance to the Stockholder of the
number of shares set forth in Section 2.2(a)(i).
ARTICLE IV
Representations and Warranties
4.1 General Statement. The parties hereto represent and warrant to each
other that the statements contained in this Article IV are correct and complete
as of the date of this Agreement and shall be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement). The survival of all such
representations and warranties shall be in accordance with Section 8.3 hereof.
Unless otherwise specified herein or on the Disclosure Exhibit, all
representations and warranties of the parties are made subject to the exceptions
which are noted in the Disclosure Exhibit. Copies of all documents referenced in
the Disclosure Exhibit shall be attached thereto or delivered separately.
4.2 Representations and Warranties of Buyer. Buyer represents and warrants
to the Stockholder that:
(a) Corporate Status. Buyer is a corporation, duly organized, validly
existing, and in good standing under the laws of the State of Arizona, with
all requisite power and authority to carry on its business.
(b) Authority. Buyer has full right, power, and authority to execute
and deliver this Agreement and to consummate and perform the transactions
contemplated hereby. The execution and delivery of this Agreement and every
other Contract contemplated hereunder by Buyer and the consummation and
16
performance of the transactions contemplated hereby and thereby have been
duly and validly authorized by all necessary corporate and other
proceedings. This Agreement has been duly executed and delivered by Buyer
and constitutes the legal, valid, and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms. Anything to the
contrary notwithstanding, the representations and warranties of this
Section 4.2(b) are subject to receipt of Board approval under Section
6.1(k).
(c) Validity of Contemplated Transaction. The execution and delivery
of this Agreement by Buyer does not, and the performance of this Agreement
by Buyer will not (i) violate or conflict with any existing Law or any
Judgment which is applicable to Buyer or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any person the right to accelerate, terminate, modify, or cancel,
or require any notice under the articles of incorporation or other charter
documents, bylaws, or any securities of Buyer or any Contract to which
Buyer is a party or by which it is otherwise bound. No authorization,
approval, or consent of, and no registration, filing, or notice to any
Authority or any other party to any Contract is required in connection with
the execution, delivery, and performance of this Agreement by Buyer.
(d) Brokers or Finders. Buyer and its officers and agents have
incurred no Liability for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.
(e) Buyer and the Stockholder agree that the Buyer has relied solely
upon the terms and conditions of this Agreement, including the Exhibits
hereto in determining whether to consummate this Agreement, and Buyer
acknowledges (in reliance upon the Stockholder's representation in Section
4.3(z)) that the information herein updates any information previously
supplied to the Buyer and its representatives.
4.3 Representations and Warranties of the Stockholder. The Stockholder
represents and warrants to Buyer that:
(a) Corporate Status. The Company is a corporation, duly organized,
validly existing, and in good standing under the laws of the State of
Mississippi, with all requisite power, authority, and Permits to carry on
its business as it has been and is now being conducted and to own, lease,
and operate its properties used in connection therewith. Except as set
forth on Part 4.3(a) of the Disclosure Exhibit, the Company is duly
qualified to do business and in good standing as a foreign corporation in
each jurisdiction where the character of its properties or the nature of
its business requires it to be so qualified. The Company conducts business
only under its own name. The Company has no subsidiaries and no entities
affiliated through common ownership or otherwise that conduct any business
related to that which they conduct.
17
(b) Capitalization. The entire authorized capital stock of the Company
consists of 5,000 shares of Common Stock, of which 1,000 shares are issued
and outstanding and owned by the Stockholder. The Company does not have any
stockholders or issued and outstanding stock, whether voting or non-voting,
common or preferred, other than the Stockholder and the aforesaid shares
owned by the Stockholder. The Stockholder is the record and beneficial
owner of the Common Stock, free and clear of all Liens. All of such shares
have been duly authorized and validly issued, are fully paid and
non-assessable, and are free of all adverse claims. None of the Common
Stock was issued in violation of the Securities Act of 1933 or any other
Law. There are no outstanding or authorized (i) options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, or other
Contracts or commitments that could require the Company (or any successor,
parent, or acquiror of the Company) to issue, sell, or otherwise cause to
become outstanding any capital stock or other securities or obligations;
(ii) stock appreciation, phantom stock, profit participation, or similar
rights; or (iii) voting trusts, proxies, rights of first refusal,
registration rights, transfer restrictions, or other Contracts relating to
the capital stock or other securities or obligations of the Company.
(c) Officers; Directors; Bank Accounts; Powers of Attorney. Part
4.3(c) of the Disclosure Exhibit lists all directors and officers of the
Company; all bank accounts, lock boxes, safe deposit boxes, and borrowing
authority of the Company, specifying with respect to each, the name and
address of the bank or other financial institution and the account number
and all persons having signing authority or authority to withdraw therefrom
or thereon; and all persons having power of attorney, authority as an
agent, or other authority to act on behalf of the Company.
(d) Authority. The Company and the Stockholder, as appropriate, have
full right, power, and authority to execute and deliver this Agreement and
every other Contract contemplated hereunder and to consummate and perform
the transactions contemplated hereby. The execution and delivery of this
Agreement and every other Contract contemplated hereunder by the Company
and the Stockholder and the consummation and performance of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate and other proceedings. This Agreement
has been duly executed and delivered by the Company and the Stockholder and
constitutes the legal, valid, and binding obligation of each, enforceable
against each, in accordance with its terms.
(e) Validity of Contemplated Transactions. The execution and delivery
of this Agreement and every other Contract contemplated hereby by the
Company and the Stockholder do not, and the performance of this Agreement
and every other Contract contemplated hereby by the Company and the
Stockholder will not, (i) violate or conflict with any existing Law or any
Judgment which is applicable to the Company or the Stockholder; or (ii)
conflict with, result in a breach of, constitute a default under, result in
acceleration of, create in any person the right to accelerate, terminate,
modify, or cancel, or require any notice under the articles of
18
incorporation or other charter documents, bylaws, or any securities of the
Company or any Contract to which the Company or the Stockholder is a party
or by which either is otherwise bound. Except under the HSR Act, and as
listed on Part 4.3(e) of the Disclosure Exhibit, no authorization,
approval, or consent of, and no registration, filing, or notice to any
Authority or other party to any Contract is required in connection with the
execution, delivery, and performance of this Agreement by the Company or
the Stockholder.
(f) Financial Information.
(i) The Company has delivered to Buyer the annual, audited
financial statements (including balance sheets and statements of
income, cash flows, and retained earnings) of the Company at and for
the years ended December 31, 1997, 1998, and 1999 as well as the
internal financial statements of the Company at and for the period
ended March 31, 2000 (collectively, the "Historical Financial
Statements"). The Historical Financial Statements and all notes
thereto (A) are (and the Most Recent Financial Statements will be)
true, correct, and complete, (B) have been (and the Most Recent
Financial Statements will be) prepared in accordance with GAAP, (C)
present (and the Most Recent Financial Statements will present) fairly
the financial condition and results of operations, changes in
stockholder's equity and cash flows of the Company at and for all
periods reflected therein, and (D) are (and the Most Recent Financial
Statements will be) consistent with the books and records of the
Company, which books and records are correct and complete. Copies of
the Historical Financial Statements and Most Recent Financial
Statements are attached as Part 4.3(f) of the Disclosure Exhibit.
Anything to the contrary notwithstanding, interim financial statements
do not include statements of cash flows or stockholder's equity or
footnotes.
(ii) All accounts receivable of whatever nature of the Company
represent valid obligations arising from sales actually made or
services actually performed in the Ordinary Course of Business. All
accounts receivable reflected on the balance sheets included in the
Historical Financial Statements are, and all accounts receivable
reflected on the Audited Closing Balance Sheet shall be, collectible
net of the reserves shown thereon. There is no contest, claim, or
right of set-off, other than returns in the Ordinary Course of
Business, under any Contract with any obligor of an accounts
receivable relating to the amount or validity of such accounts
receivable.
(iii) The Company's Adjusted Closing Stockholder's Equity shall
be at least equal to the Company's earnings between January 1, 2000,
and Closing, and in no event shall be less than zero.$350,000.
19
(iv) All reserves accrued for liabilities on the Company's
December 31, 1999, Balance Sheet included in the Historical Financial
Statements are, and shall be, adequate to cover the full amount of the
associated liabilities as such liabilities come due.
(v) The Company's indebtedness for borrowed money, net of cash
and cash equivalents, is not greater than the amount reflected on the
March 31, 2000 balance sheet included in the Historical
FinancialStatements [plus any debt incurred after such date for the
purchase of new revenue equipment for use by the Company after
Closing]. Statements.
(g) Absence of Undisclosed Liabilities. The Company has no liabilities
or obligations, accrued or unaccrued, contingent or absolute, liquidated or
unliquidated, and whether due or to become due, except for (i) liabilities
that are reflected and adequately accrued on the face of the balance sheet
included in the Most Recent Financial Statements, and (ii) liabilities
arising in the Ordinary Course of Business since such date (none of which
arises from or relates to any breach of contract or warranty, tort,
infringement, or violation of Law, or would have to be disclosed on any
Schedule to this Agreement). The Company is not directly or contingently
liable on any indebtedness of any person or entity (including without
limitation, Liability to purchase, to provide funds for payment, to supply
funds to or otherwise invest in or otherwise to assure any person or entity
against loss) whether as a result of the assumption, guaranty, or
endorsement of any debt or otherwise.
(h) Absence of Changes or Events. Except as disclosed on Part 4.3(h)
of the Disclosure Exhibit, or with respect to the transactions contemplated
under Article II of this Agreement, since December 31, 1999, there has not
been any adverse change in the business, operations, results of operations,
or future prospects of the Company. Without limiting the generality of the
foregoing, since that date, except as disclosed on Part 4.3(h) of the
Disclosure Exhibit, the Company has not:
(i) declared, set aside, or paid any dividend or made any other
distribution or payment in respect of its capital stock; redeemed,
purchased, or otherwise acquired any of its capital stock; issued any
capital stock or other securities; granted any stock option or right
to purchase shares of capital stock or any other securities of the
Company; issued any security convertible into capital stock; or
granted any registration rights concerning its securities;
(ii) discharged or satisfied any Lien or paid any material
liabilities, other than in the Ordinary Course of Business or failed
to pay or discharge any liabilities when due;
(iii) sold, assigned, or transferred or agreed to sell, assign,
or transfer any of its assets or any interest therein, other than
trades or disposals of assets in the Ordinary Course of Business for
which replacement assets of equal or greater value were purchased;
20
(iv) created, incurred, assumed, or guaranteed any indebtedness
for money borrowed or any other indebtedness or obligation of any
nature (absolute or contingent) other than in the Ordinary Course of
Business, or mortgaged, pledged, or subjected to any Lien, any of its
assets, other than in the Ordinary Course of Business;
(v) acquired any substantial assets, properties, securities, or
interests of another person;
(vi) reduced or canceled any amounts owed to it other than in the
Ordinary Course of Business;
(vii) settled any claims against it other than in the Ordinary
Course of Business;
(viii) granted or entered into any agreement or policy with any
employee that grants severance or termination pay, increases
compensation, increases benefits under any current Benefit Plan, or
creates any continuing employment relationship;
(ix) experienced any labor unrest or union organizing activity;
(x) suffered any adverse change in its business other than
changes that affect the industry generally;
(xi) changed any of the accounting principles which it follows or
the methods of applying such principles;
(xii) amended, terminated, or entered into any Contract other
than in the Ordinary Course of Business;
(xiii) suffered to its assets any damage, destruction, or loss,
whether or not covered by insurance other than in the Ordinary Course
of Business;
(xiv) amended its articles of incorporation or bylaws or made any
changes in its authorized or issued capital stock or other securities;
(xv) directly or indirectly engaged in any transaction,
arrangement, or Contract with any Affiliate other than as disclosed
elsewhere in this Agreement;
(xvi) entered into any transactions outside the Ordinary Course
of Business; or
(xvii) agreed, whether orally or in writing, to do any of the
foregoing.
21
(i) Asset Schedule. Part 4.3(i) of the Disclosure Exhibit sets forth
copies of the Company's financial book depreciation schedule and tax
depreciation schedule at March 31, 2000; (ii) all material assets acquired
or disposed of after March 31, 2000, other than those included in the
Redemption Assets and Liabilities; (iii) a list of all material leased
assets added or disposed of after December 31, 1999; and (iv) a list of all
Redeemed Assets. For purposes of this Section 4.3(i) "material" means
having a value of $5,000 or greater.
(j) Title and Condition of Assets. All of the Company's owned and
leased assets are in good repair and condition and adequate for the
ordinary course of operation of the Company's business as presently
conducted, and all leased assets are in compliance with any applicable
lease provisions. All inventory is usable and not obsolete. Neither the
Company nor the Stockholder has received notice from any Authority of a
Proceeding in the nature of condemnation or eminent domain relating to any
of the property which the Company owns, leases, or utilizes in its
operations, including the Real Estate. Except as set forth on Part 4.3(j)
of the Disclosure Exhibit, the Company possesses good and marketable title
to all of its owned assets and a valid leasehold interest in all leased
assets, free and clear of all Liens, except Liens for current taxes not yet
due and payable. The Company does not use any assets in its businesses
other than assets owned by it or assets leased under valid and continuing
leases that are identified on Part 4.3(o) of the Disclosure Exhibit. There
are no developments affecting any of the Company's properties or assets,
owned or leased, that might materially detract from the value of such
property or assets, interfere with any present or intended use of such
property or assets, or adversely affect the marketability of such property
or assets. There are no pending or threatened actions relating to any
change of the present zoning, building, or other land use Laws or of any
recorded restrictions that would affect the use of the Real Estate for a
trucking operation. All buildings, plants, and structures owned or used by
the Company lie wholly within the boundaries of the Real Estate and do not
encroach upon the property of, or otherwise conflict with the property
rights of, any other third party. Neither the use nor the occupancy of the
Real Estate is in violation of any building, zoning, flood plain,
environmental, or land use Laws or of any recorded restriction. The
buildings, plants, structures, and equipment owned or used by the Company
are structurally sound, are in good operating condition and repair, and are
adequate for the uses to which they are being put, and none of such
buildings, plants, structures, or equipment is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost. The buildings, plants, structures, and
equipment owned or used by the Company are sufficient for the continued
conduct of the Company's business after the Closing Date in substantially
the same manner as conducted prior to the Closing Date. After removal of
the Redemption Assets and Liabilities, the assets owned and leased by the
Company constitute all of the assets necessary and useful in the operation
of the Company's trucking business in a manner consistent with its trucking
business prior to Closing.
22
(k) Additional Warranties Concerning Tractors and Trailers. All
tractors and trailers operated by the Company are in good operating
condition and repair, do not require any engine, drive train, or other
mechanical system repair, meet all Department of Transportation
requirements, and have been maintained in compliance with all applicable
manufacturers' specifications and warranties. All tractors and trailers
have been operated at all times in compliance with applicable leases or
other financing documents. All leased tractors and trailers satisfy the
"turn-in" requirements under applicable leases such that there would not be
any penalty, reconditioning fee, or other amount owed if such leased
tractors and trailers were returned at the Closing Date. Each leased
tractor (and if applicable, leased trailer) has been operated within the
mileage allowance of the applicable lease, prorated for the portion of the
lease period that has expired. There are no late fees, penalties, or other
amounts owing under any tractor or trailer lease or other financing
document, other than any current month payment that is not yet due. All
tractors that are owned or covered by leases are either financed under a
three-year walk-away lease or have a buyback commitment from the
manufacturer after three years for at least 50% of the original cost, such
that the manufacturer is obligated to repurchase the tractor at such price
without any further consideration from the Company. After removal of the
Redemption Assets and Liabilities at Closing, the Company will own 430
trailers and 129 tractors, lease under five-year (original term) operating
leases 158 trailers, and lease under three-year (original term) operating
leases 93 tractors.
(l) Tax Matters. With respect to Taxes:
(i) Except as set forth on Part 4.3(l) of the Disclosure Exhibit,
the Company has filed, within the time and in the manner prescribed by
law, all Tax Returns required to be filed under applicable Laws, and
all such Tax Returns are true, correct, and complete. The Company has
within the time and in the manner prescribed by Law, paid all Taxes
that are due and payable. The Company has delivered to Buyer correct
and complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to
by the Company since January 1, 1995. The Company has established on
the December 31, 1999, Balance Sheet included in the Historical
Financial Statements and the balance sheet included in the Most Recent
Financial Statements reserves, charges, and accruals that are adequate
for the payment of all Taxes not yet due and payable that are
attributable to periods ending on such date. There are no Liens for
Taxes upon the assets of the Company except for Liens for Taxes not
yet due and payable.
(ii) None of the Tax Returns of the Company is presently under
audit by any Authority nor has a deficiency for any Taxes been
proposed, asserted, or assessed against the Company. The Company and
the Stockholder do not expect any Authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There are
23
no outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any Tax or
Return that have been given by or on behalf of the Company. There are
no Liens on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
(iii) The Company and, if applicable, its agents and contracted
service providers, have complied in all respects with all applicable
Laws relating to the payment and withholding of Taxes and have, within
the time and in the manner prescribed by applicable Law, withheld,
collected, and paid over to the proper governmental authorities all
amounts required to be so withheld, collected, and paid over under all
applicable Laws.
(iv) None of the liabilities of the Company reflected on the
December 31, 1999, Balance Sheet included in the Historical Financial
Statements or the balance sheet included in the Most Recent Financial
Statements is an obligation to make a payment that will not be
deductible under Code ss.280G. The Company has disclosed on its
federal income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the
meaning of Code ss.6662. The Company is not a party to any Tax
allocation or sharing agreement. The Company (A) has not been a member
of an Affiliated Group filing a consolidated federal income Tax Return
or (B) has no Liability for the Taxes of any person (other than the
Company) under Code Reg. ss.1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(m) Litigation. Except as set forth in Part 4.3(m) of the Disclosure
Exhibit, there is no Proceeding pending or threatened against the Company.
Neither the Company nor the Stockholder has reason to believe that any
Proceeding may be brought or threatened against the Company or the
Stockholder.
(n) Insurance; Bonds. Part 4.3(n) of the Disclosure Exhibit contains a
list of, and Buyer has been furnished true and complete copies of, all
insurance policies and fidelity bonds covering the Company's assets,
business, properties, operations, employees, officers, and directors, and
other matters for which the Company carries insurance and describes any
self-insurance arrangement by or affecting the Company, including any
reserves established thereunder, covering the period since January 1, 1993.
Except as set forth in Part 4.3(n) of the Disclosure Exhibit, there is no
claim by any insured pending under any of such policies or bonds as to
which coverage has been questioned, denied, or disputed by the underwriters
of such policies or bonds. All premiums payable under all such policies and
bonds have been paid, and the Company is otherwise in full compliance with
the terms and conditions of all such policies and bonds. As to all claims
that might be covered by such policies or bonds, the Company has promptly
and within any prescribed time period notified the insuring or bonding
party in the proper manner. Such policies of insurance and bonds (or other
policies and bonds providing substantially similar insurance coverage) have
24
been in effect continuously since January 1, 1993, and remain in full force
and effect. Such policies of insurance and bonds are of the type and in
amounts customarily carried by persons conducting similar businesses and do
not exclude coverage for environmental, employment, or punitive damages.
Except as set forth in Part 4.3(n) of the Disclosure Exhibit, neither the
Company nor the Stockholder knows of any threatened termination of, or
premium increase with respect to, any of such policies or bonds. Except for
claims listed on Part 4.3(m) of the Disclosure Exhibit, the Company has not
given notice to the insurer of any claims that may be insured thereby.
(o) Material Contracts. Part 4.3(o) of the Disclosure Exhibit contains
a list of all material Contracts to which the Company is a party, including
but not limited to any Contract that is not by its terms cancelable on
notice of not longer than 30 days without Liability, or which, if
performed, would involve the payment by the Company of more than $25,000;
any Contract restricting or limiting the Company from carrying on its
business or competing in any line of business; any Contract involving a
joint venture, partnership, or other profit or loss sharing arrangement;
any Contract with the Stockholder, or any other Affiliate; any Contract
relating to indebtedness for borrowed money, deferred purchase price of
property, or the guaranty of the obligations of any person; any Contract
concerning leased assets used by the Company; any Contract respecting
Rights, Real Estate, or employees; any power of attorney or similar
instrument; any Contract between the Company and its ten largest customers;
and any other Contract not made in the Ordinary Course of Business. Each
Contract disclosed on the Disclosure Exhibit or required to be disclosed
pursuant to this Section 4.3(o) is a valid and binding agreement of the
parties thereto, is in full force and effect, no party thereto is in
default thereunder, and there exists no condition that with notice or lapse
of time or both would constitute a default thereunder.
(p) Employee Benefit Plans and Arrangements. Parts 4.3(p) of the
Disclosure Exhibit identifies each of the Company's Benefit Plans, copies
of which, amended to date, have been furnished to Buyer. No Benefit Plan is
a multi-employer or a defined benefit plan. Neither the Company, any
Affiliate, nor any predecessor of any has been a party to or sponsored a
multi-employer or defined benefit plan. The Company and all Benefit Plan
fiduciaries have fully complied with their obligations with respect to all
Benefit Plans and all duties under ERISA. There has been no prohibited
transaction (under Section 4975 of the Code or 406 of ERISA or otherwise)
with respect to any Benefit Plan. Each Benefit Plan that is intended to be
qualified under Section 401(a) of the Code is so qualified and has been
since inception. Each trust created under any Benefit Plan is exempt from
tax under Section 501(a) of the Code and has been exempt from tax from
creation. The Company has received determination letters from the Internal
Revenue Service for each such Benefit Plan at inception and after each
amendment. Each Benefit Plan has been maintained in compliance with its
terms and all applicable Laws. There has not been any event that would
threaten the tax-qualified status of any Benefit Plan. All payments and
contributions due or accrued under each Benefit Plan, determined in
25
accordance with the terms of such plans and prior funding and accrual
practices, have been paid or are reflected as a liability on the December
31, 1999, Balance Sheet included in the Historical Financial Statements or,
if arising thereafter, on the balance sheet included in the Most Recent
Financial Statements. The "plan year" of each Benefit Plan is the calendar
year. The Company has no current or projected Liability with respect to
post-employment or post-retirement welfare benefits for former or retired
employees.
(q) Employees; Independent Contractors. Part 4.3(q) of the Disclosure
Exhibit sets forth a list of the names, employment status, location of
employment, and rates of compensation (including salaries, wages,
commissions, and bonuses) of all employees and all independent contractors
of the Company, each separately identified. The Company is not, nor has it
been in the past five years, a party to any collective bargaining agreement
relating to its employees, nor does any such agreement determine the terms
and conditions of employment of any employee. The Company is not a party to
any pending or threatened labor dispute and neither has it been the subject
of any attempt to unionize its employees. The Company has not experienced
any actual or threatened employee strike, or employee related work
stoppage, slowdown, or lockout. There are no agreements, plans, or policies
which would give rise to any severance, termination, change-in-control, or
other similar payment to the Company's employees as a result of the
consummation of the transactions contemplated hereunder. The Company has no
employment agreements, written or oral, with employees. The Company
maintains files on all employee and independent contractor truck drivers.
Each employee and independent contractor driver of the Company meets all
DOT requirements, and all driver files contain all required materials. All
independent contractors providing equipment and/or services to the Company
have been retained under valid contracts and qualify for independent
contractor status under all applicable Laws, including existing Internal
Revenue Service rules and interpretations. A copy of the form of contract
used for any independent contractor operators of rolling stock has been
delivered to Buyer. All such contracts are terminable by the Company upon
30 days' written notice. The Company has taken no action in respect of its
employees that would require notice or create Liability under the Worker
Adjustment and Retraining Notification Act, and the Company has no present
plans to take such action.
(r) Compliance with Labor Laws. Except for the non-compliance
disclosed in Part 4.3(r) of the Disclosure Exhibit, the Company has
complied in all material respects with all applicable Laws relating to the
employment of labor, including, but not limited to, Laws governing wages
and hours, collective bargaining, payment of Social Security, unemployment
and withholding taxes, equal employment opportunity, advancement of
minorities and women, or discrimination based on age or disability. The
Company is not liable for any wage or any tax arrearages or any penalties
or assessments for failure to pay timely Taxes or wages or to comply with
any employment related Laws. At the Closing Date, the employees of the
Company will be terminable at-will. The Company has not received notice
from any employee listed on Part 4.3(r) of the Disclosure Exhibit that such
26
employee is terminating or intends to terminate employment with the
Company. The Company has not received notice that any employee who is a key
employee or critical to any operations of the Company is terminating or
intends to terminate his or her employment. There are no pending or
threatened actions, proceedings, or claims against the Company involving
allegations of unlawful employment discrimination or unlawful employment
practices of any type, including, without limitation, violation of any
employee health, safety, or payment laws. Except as specifically disclosed
on Part 4.3(r) of the Disclosure Exhibit, the Company has not received
written notice of any employee complaints or grievances or any alleged
violations of any labor, wage, or employment laws, including the Age
Discrimination in Employment Act, Occupational Health and Safety Act, Title
VII of the Civil Rights Act, Fair Labor Standards Act, any Civil Rights Act
adopted by the State of Mississippi, Americans with Disabilities Act, and
Family Medical Leave Act, as each is amended, from time to time.
(s) Unemployment Contributions. Except for those amounts due after
Closing, the Company has paid, or prior to the Closing will have timely
paid or adequately accrued all contributions required to be paid by the
Company to any unemployment compensation fund or other fund to which the
Company is required to contribute under the laws of the State of
Mississippi (and any other applicable state) with respect to periods
through Closing.
(t) Salaries and Employment Taxes. The Company has, and as of the
Closing will have, paid or adequately accrued all wages, salaries, bonuses,
vacation time, sick leave, other leave or time off, owner operator
settlements, per diems, commissions, and other amounts owed to employees or
independent contractors of the Company relating to periods through the
Closing, and has, and as of the Closing will have, withheld and paid over
to the proper Authorities all Taxes (including, without limitation, state
and federal income tax, Federal Insurance Contribution Act ("FICA") taxes,
federal unemployment tax, state unemployment tax, and franchise taxes)
required to be withheld or paid on a timely basis.
(u) Customer Relationships. Since September 30, 1999, the Company has
not experienced, and the Stockholder is not aware of any reason that would
reasonably be expected to result in the Company experiencing, a substantial
decrease in freight revenue from, any of its top twenty (20) customers
based upon revenue generated for the fiscal year ended December 31, 1999.
(v) Safety Rating. The Company has received and maintained a
"satisfactory" safety rating from the DOT. There is no investigation,
audit, or other Proceeding pending or threatened by the DOT. The Company
does not require or permit any violation ofhas operated in material
compliance with DOT regulations, including the safety fitnessregulations or
other DOT rules or regulations. The Company regularly and strictly enforces
applicable hours in service and other DOT requirements. The Company has
reported all accidents on a timely basis in compliance with applicable
Laws.
27
(w) Rights. All Rights owned, licensed, or otherwise used by the
Company are listed on Part 4.3(w) of the Disclosure Exhibit. The Company
owns or uses such Rights under valid license in the operation of its
business. The Company's interest in each of such Rights, to the extent
possible, has been registered under applicable state and federal Laws. The
Company has not interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Rights of third parties. The Company
has not received any charge, complaint, demand, or notice alleging any such
interference, infringement, misappropriation, violation, or conflict
(including any claim that the Company must license or refrain from using
any Rights of third parties).
(x) Compliance With Laws; Permits. The Company has owned, leased, and
used all of its properties and assets, and has conducted its business, in
compliance in all respects with all applicable Laws. Neither the Company
nor the Stockholder has been charged with any violation of Law. No
Proceeding is pending or threatened by any Authority with respect to any
violation of Law by the Company or the Stockholder. No Judgment is
unsatisfied against the Company or the Stockholder. Neither the Company nor
the Stockholder is subject to any stipulation, order, consent, or decree
arising from an action before any Authority. The Company possesses all
permits, licenses, franchises, and other approvals of Authorities including
common and contract carrier and brokerage authority (collectively,
"Permits") required to operate its business, such Permits are in full force
and effect, any applications for renewal have been duly filed on a timely
basis, no Proceeding is pending or threatened to revoke or limit any
Permit, and each is operating in compliance with all Permits. To the
Stockholder's knowledge, there is no pending change in any applicable Law,
which, if accepted, would interfere with or have a material adverse effect
on the Company's operations or its assets.
(y) Environment, Health, and Safety.
(i) Each of the Company, its Affiliates, and any predecessors of
either have complied with all Laws concerning pollution or protection
of the environment, public health and safety, and employee health and
safety, including Laws relating to emissions, discharges, releases, or
threatened release of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes (including
petroleum and any fraction or derivative thereof) into ambient air,
surface water, ground water, or lands, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or hauling of such substances (collectively,
"Environmental Laws"). No Proceeding has been filed or commenced
against the Company, its Affiliates, or any predecessor of either
alleging any failure to comply with any Environmental Laws. Without
limiting the generality of the preceding sentence, each of the
Company, its Affiliates, and any predecessors of either has obtained
and been in compliance with all of the terms and conditions of all
Permits which are required under, and has complied with all other
28
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, all Environmental Laws.
(ii) The Company has no any Liability (and neither the Company,
its Affiliates, nor any predecessor of either has handled or disposed
of any substance, arranged for the disposal of any substance, exposed
any employee or other individual to any substance or condition, or
owned, operated, or used any property or facility in any manner that
could form the basis for any present or future Proceeding against the
Company giving rise to any Liability) for damage to any site,
location, or body of water (surface or subsurface), for any illness
of, or personal injury to, any employee or other individual, or for
any reason under any Environmental Law.
(iii) All properties and equipment used in the business of the
Company, its Affiliates, and any predecessors of either have been free
of asbestos, PCB's, methylene chloride, trichloroethylene,
1,2-transdichloroethylene, dioxins, dibenzofurans, and other extremely
hazardous substances as defined by any Law.
(iv) Any fuel or other storage tanks located at properties
presently or previously owned or used by the Company in its business,
including the Real Estate, comply in all respects with applicable
Laws, do not leak, are registered with the appropriate state agency
(and all required actions in connection therewith have been taken) in
the manner permitting the Company to take advantage of any state
liability limitation, insurance, or similar program relating to fuel
storage tanks, and such tanks are not scheduled for removal in the
next five years.
(v) The Company has delivered to Buyer true and complete copies
and results of any reports, studies, analyses, tests, or monitoring
concerning the Company or any property owned or used by the Company
concerning compliance with Environmental Laws.
(z) Disclosure. The representations and warranties of the Company and
the Stockholder contained in this Agreement and the contents of every
document delivered in connection herewith, do not contain any untrue
statement of a material fact and do not omit to state any fact necessary to
make any statement herein or therein not misleading or necessary to a
correct presentation of all material aspects of the Company's business and
the matters contemplated under this Agreement. The information represented
or otherwise provided by the Stockholder under this Agreement is the most
current information available and updates any previous information supplied
to the Buyer and its representatives.
(aa) Brokers or Finders. The Company, the Stockholder, and their
agents and Affiliates have incurred no Liability for brokerage or finders'
fees or agents' commissions or other similar payment in connection with
29
this Agreement, except for the fee owed Morgan Keegan & Company, Inc.,
which shall be paid by the Stockholder.
(bb) Prepayment of Indebtedness. All indebtedness of the Company may
be prepaid at any time without penalty.
(cc) Financial and Operating Information. The Company has provided to
Buyer operating information, including customer lists, rates charged
customers, miles per tractor, empty miles, and other information underlying
the financial statements as set forth in Part 4.3 (cc) of the Disclosure
Exhibit provided to Buyer.statements. All of such information is accurate
and fairly depicts the operations represented by such information.
(dd) No Reliance. Buyer and the Stockholder agree that the Stockholder
has relied solely upon the terms and conditions of this Agreement,
including the Exhibits hereto, in determining whether to consummate this
Agreement.
ARTICLE V
Covenants and Agreements
5.1 Conduct of Business Pending the Closing. The Company and the
Stockholder agree that from the date hereof to the Closing or earlier
termination of this Agreement:
(a) The Company shall carry on its business diligently and
substantially in the same manner as heretofore and shall not make or
institute any unusual or novel method of purchase, sale, lease, management,
accounting, or operation. The Company and the Stockholder shall use their
best efforts to preserve the assets, goodwill, and value of the Company's
business, including keeping the Company's present management intact,
keeping available the Company's present employees, and preserving the
present relationships with suppliers, customers, landlords, creditors,
employees, agents, and others having business relations with the Company.
(b) The Company and the Stockholder shall not, without the prior
written consent of Buyer, take, or permit to be taken, any action which
would render untrue any representation or warranty contained in Sections
4.3(a)_(cc).
5.2 Access. The Company and the Stockholder shall give the officers,
employees, counsel, accountants, and other authorized representatives of Buyer
free and full access to and the right to inspect, at a time agreeable to the
Stockholder upon advance notice, all of the premises, properties, assets,
records, Contracts, and other documents relating to the Company's businesses and
shall permit them to consult with the Stockholder and, upon advance approval of
the Stockholder, employees of the Company and other persons having business
dealings with the Company or knowledge of its business, operations, assets,
liabilities, actual or potential litigation and claims, properties, and
prospects. Furthermore, the Company and the Stockholder shall promptly provide
to Buyer (and its representatives) all such reports, surveys, documents, and
copies of documents and records and information with respect to the business of
30
the Company and copies of any working papers relating thereto as they shall from
time to time reasonably request.
5.3 Approval of Directors. Buyer shall submit for the required approval of
its directors all matters relating to the adoption and approval of this
Agreement, every other Contract contemplated hereby, and all related matters.
5.4 Approvals and Consents. Each party to this Agreement shall use its best
efforts to obtain (and assist the other in obtaining), as soon as reasonably
practicable, all Permits, authorizations, consents, and waivers from third
parties or Authorities necessary to consummate this Agreement and the
transactions contemplated hereby or thereby. The parties acknowledge that they
have filed the required pre-merger notification under the HSR Act and agree (x)
not to withdraw, and (y) to use reasonable efforts to pursue, such filing until
expiration or early termination of the waiting period.
5.5 Notification. Each party shall give prompt written notice to the others
of any development causing a breach of any of its own representations and
warranties or that would prevent the fulfillment of any of its covenants or
agreements contained in this Agreement or any document contemplated hereby.
5.6 Exclusivity. Each of the Company and the Stockholder agree that unless
this Agreement is terminated pursuant to Section 8.1, the Company and the
Stockholder shall deal exclusively with Buyer, and neither the Company, the
Stockholder, nor any of their Affiliates, employees, representatives, or agents
will directly or indirectly:
(a) enter into any transaction with any person other than Buyer
relative to any disposition of the Company or any part thereof (whether by
merger, sale or exchange of shares, sale of assets, or otherwise);
(b) engage in any negotiations or discussions with any other person
regarding any disposition of the Company or any part thereof (whether by
merger, sale or exchange of shares, sale of assets, or otherwise);
(c) solicit or encourage submission of inquiries, proposals, or offers
from any other person relative to any potential disposition of the Company
or any part thereof (whether by merger, sale or exchange of shares, sale of
assets, or otherwise); or
(d) provide further information to any person other than Buyer
relating to any possible disposition of the Company or any part thereof
(whether by merger, sale or exchange of shares, sale of assets, or
otherwise).
Each of the Company and the Stockholder agrees that if the Company, the
Stockholder, or any Affiliate receives an offer or proposal relating to the
possible acquisition of the Company or any part thereof (whether by merger, sale
or exchange of shares, sale of assets, or otherwise), the Company and the
Stockholder shall immediately notify Buyer of said offer or proposal, the
identity of the party making the offer or proposal, and the specific terms of
the offer or proposal.
31
5.7 Stockholder Liability. At the Closing, the Stockholder and his
Affiliates shall pay in full all obligations (including interest) owed by them
to the Company, regardless of whether such amounts are then due under applicable
documents evidencing such indebtedness or whether evidenced in writing at all.
All related party transactions after December 31, 1999, shall cease unless
approved by Buyer (it being understood that the continuation of the oral leases
of the Destin, Florida properties described on Part 4.3(o) of the Disclosure
Exhibit has been approved by Buyer). In addition, the Stockholder, individually
and on behalf of all his Affiliates, shall execute a full and final waiver and
release of any and all claims against the Company in substantially the form
attached hereto as Exhibit I (the "Release").
5.8 Best Efforts. Between the date of this Agreement and the Closing Date,
the parties shall use their best efforts to cause the conditions of Article VI
to be satisfied.
5.9 Non-Competition.
(a) The parties to this Section 5.9 include the Stockholder and his
spouse (together, the "Noncompete Parties"). The Noncompete Parties have
negotiated the non-competition provisions of this Agreement as an integral
part of the transaction. The Noncompete Parties acknowledge that the Buyer
is willing to pay the Purchase Price and proceed with the transaction
because of the Company's customer relationships, growth potential, and
other prospects, and that such prospects would be severely and irreparably
harmed by competition from the Noncompete Parties and/or their Affiliates.
The Noncompete Parties further acknowledge that the Buyer would not have
entered into this Agreement without the non-competition provisions
contained herein. The Noncompete Parties willingly agree to the
non-competition provisions of Section 5.9(b) hereof and agree that the
non-competition provisions are reasonable and are necessary to induce the
Buyer to enter into this Agreement.
(b) For a period of five (5) years following the later of (x) the
Closing or (y) the last day of the Stockholder's employment by the Company,
Buyer, or an Affiliate of either, the Noncompete Parties agree that they
will not, directly or indirectly, through any Affiliate or otherwise,
(i) except in the course of employment with Buyer or an
Affiliate, engage or invest in, own, manage, operate, finance,
control, or participate in the ownership, management, operation,
financing, or control of, be employed by, associated with, or in any
manner connected with, lend their name or any similar name to, lend
their credit to or render services or advice to, any Competitive
Business that engages in business in the United States; provided,
however, that any such person may purchase or otherwise acquire up to
(but not more than) one percent as an aggregate of all such purchases
and acquisitions of any class of securities of any enterprise (but
without otherwise participating in the activities of such enterprise)
if such securities are listed on any national or regional securities
32
exchange or have been registered under Section 12(g) of the Securities
Exchange Act of 1934;
(ii) whether for their own account or for the account of any
other person, at any time after the Closing, solicit business of the
same or similar type being carried on by Buyer or any Affiliate, from
any person that is or was a customer of the Company, Buyer, or any
Affiliate, whether or not they had personal contact with such person
during and by reason of employment with the Company, Buyer, or an
Affiliate;
(iii) whether for their own account or the account of any other
person at any time after Closing solicit, employ, or otherwise engage
as an employee, independent contractor, or otherwise, any person who
is or was an employee or independent contractor of the Company, Buyer,
or an Affiliate, or in any manner induce or attempt to induce any
employee of the Company, Buyer, or an Affiliate to terminate his or
her employment with the Company, Buyer, or an Affiliate; or at any
time interfere with the Company's relationship with any person,
including any person who at any time was an employee, contractor,
supplier, or customer of the Company, Buyer, or an Affiliate
(provided, that (A) the Stockholder shall employ the persons who are
employed at Closing in the Redeemed Business as listed on Exhibit C
and (B) at any time after January 1, 2001, the Stockholder or any
Affiliate may employ any of C);the persons listed on Part 5.9(b)(iii)
of the Disclosure Exhibit in a business that does not violate the
other provisions hereof so long as the Buyer's CEO approves the
employment or the individual provides at least 180 days' notice of his
or her intent to accept such employment to the Buyers CEO); or
(iv) at any time after Closing, disparage the Company, Buyer, or
any Affiliate, or any of their shareholders, directors, officers,
employees, or agents.
(c) For purposes of this Agreement, "Competitive Business" shall mean
the interstate and/or intrastate transportation of freight, including
truckload and less-than-truckload carriage, intermodal service, and
brokerage, logistics, agent, consolidation, and other freight-related
operations. Competitive Business shall include, but not be limited to, dry
van, temperature-controlled van, and flatbed operations. Competitive
Business shall not include the Stockholder's continued operation of the
Redeemed Business if it involves a "Permitted Business", which includes
only (i) the movement of household goods and (ii) the movement of goods for
a customer of the Redeemed Business, involving freight being moved 150
miles or less and to or from a warehouse owned by the Redeemed Business, in
each case as limited by the next four sentences. In the household goods
operation, the Stockholder (directly or indirectly through the Redeemed
Business or otherwise) shall be permitted to operate up to ten (10) trucks.
In other permitted operations the Stockholder (directly or indirectly
through The operation in connection with the Redeemed Business may usethe
Redeemed Business or otherwise) shall be permitted to operate up to five
33
(5) tractors without the consent of Buyer. The Stockholder/Redeemed
BusinessSuch non-household goods operation may increase up to ten (10)
tractors (and no further) without Buyer's consent; provided that the Buyer
is givesgiven the right of first refusal to haul the incremental loads. The
preceding three sentences notwithstanding the total number of tractors
operated by the Stockholder (directly or indirectly through the Redeemed
Business or otherwise) shall not exceed fifteen (15) without the Buyer's
consent. The Stockholder/Redeemed Business may not operate more than ten
(10) tractors without Buyer's consent. In no event shall the operation of a
Permitted Business violate Section 5.9(b)(ii) or (iii).
(d) If any covenant in Section 5.9 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Noncompete Parties.
(e) The Noncompete Parties acknowledge that the injury that would be
suffered by Buyer as a result of a breach of the provisions of this Section
5.9 would be irreparable and that even the award of monetary damages for
such breach would be an inadequate remedy. Consequently, the Buyer shall
have the right, in addition to any other rights it may have, to obtain
injunctive relief to restrain any breach or threatened breach or otherwise
to specifically enforce any provision of this Agreement, and Buyer shall
not be obligated to post bond or other security in seeking such relief.
Without limiting Buyer's rights under this Section 5.9 or any other
remedies of Buyer, if any of the Noncompete Parties breaches any of the
provisions of Section 5.9, Buyer will have the right to offset against any
amounts owing Stockholder without notice.
(f) In the event (i) any person or group (as such terms are used under
Section 13(d) of the Securities Exchange Act of 1934) that does not include
one or more members of the Knight family obtains beneficial ownership of
more than 50% of the outstanding voting common stock of Buyer and no member
of the Knight family remains involved in the senior management of Buyer or
(ii) Buyer after Closing disposes of the truckload business of the Company
to any person that is not an Affiliate of Buyer in any sale, lease, merger,
or similar transaction and no member of the Knight family remains involved
in a management position with the disposed business, then, if not sooner
terminated hereunder, the restrictive covenants and agreements of the
Noncompete Parties contained in this Section 5.9 shall terminate on the
date two (2) years following the later of (x) the closing date of the
transaction giving rise to (i) or (ii) above, or (y) the Stockholder's last
day of employment with the disposed business.
5.10 Consent of Stockholder's Spouse. The Stockholder shall obtain from his
spouse a consent to the terms of this Agreement, including the non-competition
provisions of Section 5.9, waive any marital, community property, or other
beneficial interest in the Common Stock purchased by the Buyer hereunder,
release all claims against the Company arising prior to the Closing Date, and
irrevocably agree to be bound by this Agreement with respect to such interest,
all in the form of attached Exhibit J (the "Spousal Consent").
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5.11 Stockholder Employment. At Closing, the Company and the Stockholder
shall execute and deliver an Employment Agreement in substantially the form
attached hereto as Exhibit K (the "Employment Agreement"). The Employment
Agreement shall provide that the Stockholder is employed as President of the
Company and shall have responsibility and authority for the day-to-day operation
of the business of the Company, subject to oversight by the CEO and Board of
Directors.
5.12 Lease. At Closing, the Company and the Stockholder shall execute and
deliver a lease for the Company's Gulfport and Mobile locations that are
distributed to the Stockholder under Section 2.3 in substantially the form
attached hereto as Exhibits L-1 and L-2, respectively (the "Lease"). From and
after the Closing until the later of three years after Closing or the
termination of Stockholder's employment with the Company, Stockholder shall, and
shall cause his Affiliates to, permit Buyer and its Affiliates to park trailers
at Stockholder's Houston drop yard and conduct other incidental operations free
of any cost; provided that the number of trailers and activities are consistent
with the Company's use prior to Closing.
5.13 Other Agreements. At Closing, the Stockholder shall execute and
deliver the Securities Agreement. At Closing, the Buyer and Company, as
appropriate, shall execute and deliver the Bill of Sale, Deeds, Securities
Agreement, and Transfer Agent Letter.
5.14 Payment of Transaction Expenses. Each party to this Agreement shall
pay its own costs and expenses. With respect to all of Stockholder's and the
Company's costs, fees and expenses relating to the evaluation, negotiation,
documentation, and consummation of the transactions contemplated by this
Agreement, including the fees and expenses of attorneys, accountants, and other
financial professionals, and specifically including any amounts owed Morgan
Keegan & Company, Inc. and any other brokers or finders, either (a) the
Stockholder shall pay all of such amounts directly and the Company, Buyer, and
their Affiliates (other than Stockholder) shall have no liability therefor; or
(b) all such amounts paid by the Company shall be deemed adjustments in
calculating the Pro Forma 1999 Balance Sheet.
5.15 Business Relationships. Subject to cost and service considerations and
the overall business relationships of Buyer and its consolidated group, the
Buyer agrees to reasonably consider maintaining the Company's business
relationships with certain of its historical vendors for up the two years after
Closing.
5.16 Condominium Leases. At Closing, the Company shall execute leases with
John Fayard, Jr. and John Fayard, Sr. providing for month-to-month rental of
certain condominium units located in Destin, Florida, at the rate of $2,000 per
month and $1,500 per month, respectively, plus the payment of expenses which
have historically been paid by the Company. These leases shall be substantially
in the form attached hereto as Exhibits L-3 and L-4, respectively.
5.17 Key-Man Insurance. At least through December 31, 2002, absent mutual
agreement of the Stockholder and Buyer to the contrary, the Company shall
continue to pay the premiums of certain key-man life insurance as described in
Part 5.17(a) of the Disclosure Exhibit to this Agreement. Upon the death of one
of the covered individuals, the insurance proceeds from such coverage shall be
used first to repay the premiums advanced by the Company, with the balance being
35
paid to such employee's designated beneficiary. Upon the termination of the
policy or the employment of any covered individual, the cash surrender value of
such insurance, if any, shall be retained by the Company. At any time prior to
December 31, 2002, any covered person shall have the option to purchase the
policy from the Company at its cash surrender value. The Stockholder and other
individuals listed on Part 5.17(b) of the Disclosure Exhibit shall purchase
their life insurance policies from the Company for the cash surrender value at
closing, and such transaction shall be paid for by a reduction in the pro forma
net worth of the Company. After closing, the purchasing individuals shall be
responsible for all obligations under the policies, and the Company shall have
no further obligations.
5.18 Use of Fayard Name. After Closing, the Buyer and the Company shall not
use the name "John Fayard" in any business other than businesses related to the
transportation industry. Buyer and the Company may continue to use the name
"John Fayard" in such businesses after Closing; provided, that if one of the
events described in Section 5.9(f) occurs, the use of the name John Fayard may
continue for one year and then, thereafter as to then-existing assets, but new
and replacement assets must cease references to "John Fayard". Stockholder shall
be entitled to use the name "John Fayard" in connection with his moving and
storage business.
5.19 Tractor and Trailer Inspections. Prior to Closing, Buyer and the
Company shall cooperate in inspecting as many of the Company's tractors and
trailers (owned and leased) as possible through physical inspection, maintenance
and other records, and any other practical means using the following standard:
no broken or cracked glass, $250 or less damage, all tires with at least 50%
tread depth, all brakes with at least 50% wear remaining, all mechanical systems
functioning properly, no engine or drive train damage, and any possible lease
turn-in requirements, including any mileage penalty that would be incurred if
the mileage to date would result in a penalty if increased proportionately for
the remaining lease term. The parties shall quantify the dollar amount required
to bring the inspected equipment into compliance with the above condition. The
dollar amount shall then be increased proportionately to reflect the same costs
for the uninspected portion of the fleet. The result shall then be and
adjustment to the Adjusted Closing Stockholder's Equity.
5.20 Health Insurance. It is the intention of the Buyer and the Company to
maintain the Company's existing health insurance coverage in place at least
through December 31, 2000. Buyer agrees to maintain such coverage in
substantially the form it exists at Closing unless continuing such coverage
would entail a significant disadvantage to Buyer and Buyer elects to change to
alternative coverage that is not less favorable than the coverage afforded
Buyer's employees generally after consultation with the Stockholder and
determining that the change in coverage cannot reasonably wait until January 1,
2001. Regardless of the health insurance coverage in effect, Buyer shall permit
employees of the Redeemed Business to continue under the plan until December 31,
2000 on the same basis as they participated prior to Closing to the extent such
participation is permitted by the plan documents and applicable law. The
Stockholder agrees, directly or indirectly, to cause the Company and Buyer to be
reimbursed promptly each month for all costs and expenses of every kind and
character borne by Buyer or the Company in connection with provision of coverage
36
for such individuals to the extent such amounts have not been paid by the
Company prior to Closing or accrued on the Audited Closing Balance Sheet.
5.21 Telephone Numbers. The parties will cooperate during the period from
Closing until expiration of the original term of Stockholder's employment
agreement to transition in an orderly manner the local telephone numbers of the
Company in Gulfport and Mobile to the Redeemed Business. During the transition
period, the local number may be used also by the Company and all incoming calls
will be forwarded to the Company or the Redeemed Business, as appropriate. Not
later than the end of the transition period, the Company shall have established
and disseminated new local telephone numbers, and the Redeemed Business shall no
longer be obligated to accept and forward calls for the Company on the
transitional numbers. All toll-free numbers used in the Company's operation are,
and shall remain to Company's.
ARTICLE VI
Conditions To Closing
6.1 Conditions Precedent to the Obligations of Buyer. The obligation of
Buyer to consummate this Agreement is subject to the fulfillment of all of the
following conditions precedent (any of which may be waived in writing by Buyer,
in whole or in part) at or prior to the Closing Date.
(a) Representations and Warranties True as of the Closing Date. The
representations and warranties of the Company and the Stockholder contained
in this Agreement or in any document delivered by such parties pursuant to
the provisions hereof shall be true in all material respects as of the date
of this Agreement and at and as of the Closing Date with the same effect as
though such representations and warranties were made as of such date.
(b) Compliance with Agreements. The Company and the Stockholder shall
have performed and complied in all material respects with all agreements,
covenants, and conditions required to be performed or complied with by them
under this Agreement. Each of the documents required to be delivered
hereunder and each of the covenants and obligations hereunder must have
been performed and complied with in all respects.
(c) No Bar to Consummation of Transaction. There shall not exist any
Law or Judgment of any Authority which would prevent the consummation of
the transactions contemplated hereby or adversely affect the rights of
Buyer after consummation of said transactions. There shall be no pending or
threatened Proceeding that seeks to enjoin the transactions contemplated by
this Agreement. All consents and approvals from any Authority and any other
person required for the consummation of this Agreement shall have been
obtained.
(d) Bring-Down Certificate. The Company and the Stockholder shall have
delivered to Buyer a duly signed certificate to the effect that each of the
conditions in Sections 6.1(a)-(c) has been satisfied in all respects.
37
(e) Opinion of Counsel. Counsel for the Company and the Stockholder
shall have delivered to Buyer its written opinion, dated as of the Closing
Date, covering matters such as the organization and existence of the
Company, the authorization, execution, binding nature, and enforceability
of this Agreement, the validity and freedom from Liens of the Purchased
Shares, the enforceability of the noncompetition provisions of Section 5.9,
and such other matters customarily addressed in transactions of this nature
in form and substance satisfactory to Buyer and its counsel.
(f) Stock Certificates; No Claim Regarding Stock Ownership or Sale
Proceeds. The Stockholder shall have delivered certificates representing
100% of the Company's outstanding Common Stock, duly endorsed for transfer
to Buyer (or, as to the shares being redeemed by the Company under Section
2.3, to the Company) or accompanied by stock powers duly executed in blank.
There must not have been made or threatened by any person any claim
asserting that such person (i) is the holder or the beneficial owner of, or
has the right to acquire or obtain beneficial ownership of, the Common
Stock or any ownership interest in the Company or (ii) is entitled to all
or any portion of the Purchase Price.
(g) Other Agreements. The Release, Spousal Consent, Lease, Employment
Agreement, Securities Agreement, and each other document required to be
executed by a party other than Buyer in connection with this Agreement
shall have been duly executed and delivered by the applicable parties
thereto.
(h) Adverse Change. There shall not have been any materially adverse
change in the Company's business or the condition of its assets.
(i) Completion of Due Diligence. Buyer shall have completed its due
diligence investigation of the business, assets, and liabilities of the
Company and shall be satisfied, in its sole discretion, with the results of
such investigation.
(j) Termination of Related Party Transactions. Prior to Closing, the
Stockholder shall have delivered to Buyer documents evidencing termination
of all transactions (including repayment of any receivables from
Stockholder, or any Affiliates of Stockholder) between the Company, any
person related to the Company, and any Affiliates of the foregoing in form
satisfactory to counsel for Buyer.
(k) Board Approval. Buyer shall have received the approval of the
terms and conditions of this Agreement from its Board of Directors.
6.2 Conditions Precedent to the Obligations of the Stockholder. The
obligation of the Stockholder to consummate this Agreement is subject to the
fulfillment of all of the following conditions precedent (any of which may be
waived in writing by the Stockholder, in whole or in part) at or prior to the
Closing.
38
(a) Representations and Warranties True as of the Closing Date. The
representations and warranties of Buyer contained in this Agreement or in
any document delivered by Buyer pursuant to the provisions hereof shall be
true in all material respects at and as of the Closing Date with the same
effect as though such representations and warranties were made as of such
date.
(b) Compliance with Agreement. Buyer shall have performed and complied
in all material respects with all agreements, covenants, and conditions
required to be performed or complied with by it under this Agreement.
(c) No Bar to Consummation of Transaction. There shall not exist any
Law or Judgment of any Authority which would prevent the consummation of
the transactions contemplated hereby, nor any pending or threatened
litigation or other Proceeding that seeks to enjoin the transactions
contemplated by this Agreement. All consents and approvals from any
Authority and any other person required for the consummation of this
Agreement shall have been obtained.
(d) Bring-Down Certificate. Buyer shall have delivered to the Company
and the Stockholder a duly signed certificate to the effect that each of
the conditions in Sections 6.2(a)_(c) has been satisfied in all respects.
(e) Other Agreements. The Lease, Employment Agreement, Bill of Sale,
Deeds, Securities Agreement, Transfer Agent Letter, and each other document
required to be executed by Buyer in connection with this Agreement shall
have been duly executed and delivered by Buyer.
6.3 Conditions Precedent to the Obligations of all Parties. The obligations
of the Company, the Stockholder, and Buyer to consummate this Agreement are
subject to expiration or termination of the applicable waiting period under the
HSR Act.
ARTICLE VII
Indemnification
7.1 Indemnification by the Stockholder. Subject to the other provisions of
this Article 7, the Stockholder shall save, indemnify, defend, and hold harmless
Buyer, its Affiliates, and their respective partners, members, principals,
employees, directors, officers, stockholders, successors, assigns,
representatives, and agents (collectively, the "Buyer Group") from and against,
and pay or reimburse, as the case may be, the Buyer Group, and each of them,
for, any and all Damages, as incurred, suffered by Buyer or any other member of
the Buyer Group based upon, arising out of, or otherwise in any way relating to
or in respect of:
(a) the failure of any of the representations and warranties of the
Stockholder contained herein or in any other documents executed and
delivered in connection with this Agreement to have been true and correct
as of the date hereof and as of the Closing Date, it being understood that
to the extent that any of such representations and warranties were
expressly made as of a specified date the same shall apply only to the
39
failure of such representations and warranties to be true and correct as of
such specified date;
(b) any breach or violation of any covenant or agreement of the
Stockholder contained herein or in any certificate or other document
delivered pursuant hereto;
(c) all Liabilities relating to the Redeemed Business, whether arising
before or after Closing, except for the Company Retained Debt;
(d) all Liabilities for Taxes that relate to the redemption and
distribution described in Section 2.3 or the Company's failure (if any) to
file Tax Returns in all states in which Tax Returns may have been due (net
of any refund obtained from states in which Taxes were overpaid);
(e) all Liabilities of the Company, determined as such amounts are
ultimately known and resolved, which exist at or as of the Closing Date or
which arise after the Closing Date but which are based upon or arise from
any act, omission, transaction, circumstance, state of facts, or other
condition which occurred or existed on or before the Closing Date, whether
or not then known, due or payable, except to the extent(A) such Liabilities
are adequately reflected or reserved against on the face of the Audited
Closing Balance Sheet (excluding any notes thereto) or (B) were thereto);
incurred after March 31, 2000, in the Ordinary Course of Business and in
conformity with the representations, warranties, and covenants contained in
this Agreement;
(f) the amount of any pre-tax loss suffered by the Company between
January 1, 2000, and the Closing Date;
(g)(f) any Liabilities of the Company arising from the warranties made
in the Deeds; and
(h)(g) the enforcement by the Buyer Group of their rights to be
indemnified, defended, and held harmless under this Agreement.
7.2 Indemnification by Buyer. Subject to the other provisions of this
Article 7, Buyer shall save, indemnify, defend, and hold harmless the
Stockholder and his heirs and assigns (collectively, the "Seller Group") from
and against, and pay or reimburse, as the case may be, the Seller Group for, any
and all Damages, as incurred, suffered by Stockholder or any other member of the
Seller Group based upon, arising out of, or otherwise in any way relating to or
in respect of:
(a) the failure of any of the representations and warranties of Buyer
contained herein or in any other documents executed and delivered in
connection with this Agreement to have been true and correct as of the date
hereof and as of the Closing Date, it being understood that to the extent
that any of such representations and warranties were expressly made as of a
specified date the same shall apply only to the failure of such
representations and warranties to be true and correct as of such specified
date;
(b) any breach or violation of any covenant or agreement of Buyer
contained herein or in any certificate or other document delivered pursuant
hereto;
40
(c) the Company Retained Debt and other Liabilities of the Company
that do not relate to the Redeemed Business, to the extent reflected or
reserved against on the face of the Audited Closing Pro Forma 1999 Balance
Sheet; Balance Sheet (excluding any notes thereto);
(d) all Liabilities of the Company, which arise after the Closing Date
and are based upon or arise from any act, omission, transaction,
circumstance, or state of facts which first occurred after the Closing
Date;
(e) all Liabilities arising from the operations of Buyer either before
or after Closing; and
(f) the enforcement by the Seller Group of their rights to be
indemnified, defended, and held harmless under this Agreement.
7.3 Procedures for Indemnification.
(a) If a claim or demand is made against a person entitled to
indemnification under this Agreement (an "Indemnitee"), or an Indemnitee
shall otherwise learn of an assertion, by any person who is not a party to
this Agreement or an Affiliate hereto (a "Third-Party Claim") as to which a
party (the "Indemnifying Party") may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee will notify the
Indemnifying Party in writing of the Third-Party Claim (and specifying in
reasonable detail the factual basis for the Third-Party Claim and to the
extent known, the amount of the Third-Party Claim) within a reasonable
period of time after becoming aware of such Third Party Claim; provided;
however, that failure to give such notification will not affect the
indemnification provided hereunder except to the extent the Indemnifying
Party shall have been actually prejudiced as a result of such failure.
(b) If a Third-Party Claim is made against an Indemnitee and the
Indemnifying Party unconditionally and irrevocably acknowledges in writing
its obligation to indemnify the Indemnitee therefor, the Indemnifying Party
will be entitled, within twenty (20) days after receipt of written notice
from the Indemnitee of the commencement or assertion of any such
Third-Party Claim, to assume the defense thereof (at the expense of the
Indemnifying Party) with counsel selected by the Indemnifying Party and
reasonably satisfactory to the Indemnitee. Should the Indemnifying Party so
elect to assume the defense of a Third-Party Claim, the Indemnifying Party
will not be liable to the Indemnitee for any legal or other expenses
subsequently incurred by the Indemnitee in connection with the defense
thereof, provided that, if in any Indemnitee's reasonable judgment based on
advice of counsel a conflict of interest exists in respect to such claim,
such Indemnitee shall have the right to employ separate counsel to
represent such Indemnitee and in that event the reasonable fees and
expenses of such separate counsel shall be paid by such Indemnifying Party;
provided, further, that the Indemnifying Party shall only be responsible
for the reasonable fees and expenses of one separate counsel for such
Indemnitee. If the Indemnifying Party assumes the defense of any
41
Third-Party Claim, the Indemnitee shall have the right to participate in
the defense thereof and to employ counsel, at its own expense, separate
from the counsel employed by the Indemnifying Party. The Indemnifying Party
shall be liable for the fees and expenses of counsel employed by the
Indemnitee if it does not expressly elect to assume the defense of any
Third-Party Claim within the 20-day period specified above (including
acknowledging its indemnification obligation as aforesaid). If the
Indemnifying Party assumes the defense of any Third-Party Claim, the
Indemnifying Party will promptly supply to the Indemnitee copies of all
correspondence and documents relating to or in connection with such
Third-Party Claim and keep the Indemnitee informed of developments relating
to or in connection with such Third-Party Claim, as may be reasonably
requested by the Indemnitee (including, without limitation, providing to
the Indemnitee on reasonable request updates and summaries as to the status
thereto). If the Indemnifying Party chooses to defend a Third-Party Claim,
all the Indemnitees shall reasonably cooperate with the Indemnifying Party
in the defense thereof (such cooperation to be at the expense, including
reasonable legal fees and expenses, of the Indemnifying Party). If the
Indemnifying Party does not elect to assume control of the defense of any
Third-Party Claim within the 20-day period set forth above, the Indemnitee
shall have the right to undertake the defense of the Third-Party Claim for
the account of the Indemnifying Party, subject to the right of the
Indemnifying Party, at its expense, to assume the defense of the
Third-Party Claim at any time prior to final determination thereof by
notifying the Indemnitee in writing of its election to so assume the
defense of such Third-Party Claim and unconditionally and irrevocably
acknowledging in writing its obligation to indemnify the Indemnitee
therefor.
(c) If the Indemnifying Party acknowledges in writing its obligation
to indemnify the Indemnitee for a Third-Party Claim, the Indemnitee will
agree to any settlement, compromise, or discharge of such Third-Party Claim
which the Indemnifying Party may recommend and which by its terms obligates
the Indemnifying Party to pay the full amount of Damages (whether through
settlement or otherwise) in connection with such Third-Party Claim and
unconditionally and irrevocably releases the Indemnitee completely from all
Liability in connection with such Third-Party Claim; provided, however,
that, without the Indemnitee's prior written consent, the Indemnifying
Party shall not consent to any settlement, compromise, or discharge
(including the consent to entry of any judgment), and the Indemnitee may
refuse to agree to any such settlement, compromise, or discharge (i) that
provides for injunctive or other nonmonetary relief affecting the
Indemnitee or (ii) that, in the reasonable opinion of the Indemnitee would
otherwise adversely affect the Indemnitee. If the Indemnifying Party
unconditionally and irrevocably acknowledges in writing its obligation to
indemnify the Indemnitee for a Third-Party Claim, the Indemnitee shall not
(unless required by law) admit any Liability with respect to, or settle,
compromise, or discharge, such Third-Party Claim without the Indemnifying
Party's prior written consent (which consent shall not be unreasonably
withheld).
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(d) Any claim on account of Damages which does not involve a
Third-Party Claim shall be asserted by reasonably prompt written notice
given by the Indemnitee to the Indemnifying Party from whom such
indemnification is sought. The failure by any Indemnitee to notify the
Indemnifying Party shall not relieve the Indemnifying Party from any
liability which it may have to such Indemnitee under this Agreement, except
to the extent that the Indemnifying Party shall have been actually
prejudiced by such failure. If the Indemnifying Party does not notify the
Indemnitee prior to the expiration of a 30-calendar-day period following
its receipt of such notice that the Indemnifying Party disputes its
liability to the Indemnitee under this Agreement, such claim specified by
the Indemnitee in such notice shall be conclusively deemed a liability of
the Indemnifying Party under this Agreement and the Indemnifying Party
shall pay the amount of such liability to the Indemnitee on demand or, in
the case of any notice in which the amount of the claim (or any portion
thereof) is estimated, on such later date when the amount of such claim (or
such portion thereof) becomes finally determined. During such
30-calendar-day period, the Indemnifying Party shall be entitled to make
any investigation of such claim that the Indemnifying Party deems
reasonably necessary or desirable and, in connection with such
investigation, the Indemnitee agrees to make available to the Indemnifying
Party and its authorized representatives the information relied upon by the
Indemnitee to substantiate such claim. If the Indemnifying Party has timely
disputed its liability with respect to such claim, as provided above, the
Indemnifying Party and the Indemnitee shall proceed in good faith to
negotiate a resolution of such dispute and, if not resolved through
negotiations by the 90th day after notice of such claim was given to the
Indemnifying Party, the Indemnifying Party and the Indemnitee will be free
to pursue such remedies as may be available to such parties under this
Agreement or under applicable Law.
7.4 Certain Limitations.
(a) No loss, Liability, damage, or deficiency shall constitute Damages
to any party to the extent of any insurance proceeds actually received by
such party with respect to such loss, Liability, damage, or deficiency
(after deducting reasonable costs and expenses incurred in connection with
recovery of such proceeds).
(b) No monetary amount shall be payable by the Stockholder to any
member of the Buyer Group with respect to the indemnification of any claims
pursuant to Section 7.1(a) until the aggregate amount of Damages actually
incurred by the Buyer Group with respect to such claims shall exceed on a
cumulative basis $75,000 (the "Threshold"), in which event the Stockholder
shall be responsible for all amounts in excess of the Threshold up to a
maximum indemnification equal to the consideration received by the
Stockholder under this Agreement.
(c) The Stockholder shall have no Liability under this Article 7 with
respect to a breach of a representation or warranty, any noncompliance with
or nonperformance of an agreement, obligation, or covenant under this
43
Agreement, to the extent that Buyer has effected any adjustment to the
Purchase Price under Section 2.7 with respect to such breach,
noncompliance, or nonperformance, it being the intent of the parties to
avoid double recovery by Buyer or Buyer's Affiliates for such items of
Damages.
7.5 Termination of Indemnification Obligations. The obligations of each
party to indemnify, defend, and hold harmless the other party and other
Indemnitees pursuant to Sections 7.1(a) and 7.2(a) shall terminate when the
applicable representation or warranty expires pursuant to the terms of this
Agreement; provided, however, that such obligations to indemnify, defend, and
hold harmless shall not terminate with respect to any individual item as to
which the Indemnitee shall have, before the expiration of the applicable period,
made a claim by delivering a notice (stating in reasonable detail the basis of
such claim) to the Indemnifying Party. The obligations of each party to
indemnify, defend, and hold harmless the other party and the other Indemnitees
pursuant to the other provisions of Sections 7.1 and 7.2 shall continue after
the Closing without time limitation.
7.6 Other Matters.
(a) The parties acknowledge and agree that, except as set forth in
Article 8 and for claims of fraud or similar claims, the sole and exclusive
remedy with respect to any and all claims for indemnification relating to
the subject matter of this Agreement shall be pursuant to the
indemnification provisions set forth in this Article 7; provided, however,
that nothing in this Section 7.6(a) shall limit rights or remedies
expressly provided for in this Agreement or any other document executed and
delivered in connection herewith or rights or remedies which, as a matter
of applicable Law or public policy, cannot be limited or waived.
(b) In the event of payment in full by an Indemnifying Party to any
Indemnitee in connection with any Third-Party Claim, such Indemnifying
Party will be subrogated to and shall stand in the place of such Indemnitee
as to any events or circumstances in respect of which such Indemnitee may
have any right or claim relating to such Third-Party Claim against any
claimant or plaintiff asserting such Third-Party Claim or against any other
person. Such Indemnitee will cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense of such Indemnifying Party,
in prosecuting any subrogated right or claim.
(c) The right to indemnification, payment of Damages, or other remedy
based upon a breach of representations, warranties, covenants, agreements,
or obligations will not be affected by any investigation conducted with
respect to, or knowledge acquired (or capable of being acquired) at any
time, whether before or after the execution and delivery of this Agreement
or the Closing Date, with respect to the accuracy or inaccuracy of or
compliance with any such representation, warranty, covenant, agreement, or
obligation.
(d) The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant, agreement, or obligation, will not affect the right to
44
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, agreements, and obligations.
(e) In addition to all other remedies available under this Agreement,
the Buyer Group shall be entitled upon five (5) days' written notice to (i)
withhold and set-off payments due under the Lease, the Employment
Agreement, and shares to be issued under the Earn-Out if the Stockholder
fails to promptly pay any amount due the Buyer Group in respect of
indemnification hereunder; provided, that this right of immediate setoff
shall not apply to any individual claim valued at $100,000 or higher. Any
Earn-Out shares withheld shall be valued at the average closing price for
the thirty (30) trading days prior to the date of the written notice
referenced above.
(f) All amounts owed to the Seller Group or the Buyer Group, as the
case may be, for indemnification shall bear interest at the rate of ten
percent (10%) per annum from the date thirty (30) days after the claim is
made until paid.
(g) To the extent the Stockholder is obligated to indemnify the Buyer
because of any breach of the warranty contained in the penultimate sentence
of Section 4.3(k), because the Buyer or any Affiliate (including the
Company) is unable to obtain the buyback from the dealer or manufacturer
when the subject tractor has reached 36 months of use, at such time, the
Stockholder shall be entitled to purchase any tractor that gives rise to a
claim by Buyer for 50% of its original cost in full satisfaction of his
obligation to indemnify Buyer for such breach of warranty. It shall not be
a breach of the Stockholder's noncompetition obligations set forth in
Section 5.9 for him to thereafter sell or lease any such tractor on an
arm's-length basis to a third party so long as the Stockholder does not
take any other action that would violate his noncompetition obligations.
ARTICLE VIII
Miscellaneous
8.1 Termination.
(a) Termination of Agreement. The parties may terminate this Agreement
as provided below:
(i) The parties may terminate this Agreement by mutual written
consent at any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving written notice
to the Company and the Stockholder at any time prior to the Closing,
if it is not satisfied with the results of its continuing business,
legal, and accounting due diligence;
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(iii) Buyer may terminate this Agreement by giving written notice
to the Company and the Stockholder at any time prior to the Closing
(A) if the Company or the Stockholder has breached any representation,
warranty, or covenant contained in this Agreement in any material
respect, and the breach has continued after notice to the Company and
the Stockholder by Buyer without cure for a period of ten (10) days or
(B) if the Closing shall not have occurred on or before May 15, 2000,
by reason of the failure of any condition precedent under Section 6.1
hereof (unless the failure results primarily from Buyer breaching any
representation, warranty, or covenant contained in this Agreement);
and
(iv) The Company and the Stockholder may terminate this Agreement
by giving written notice to Buyer at any time prior to the Closing (A)
in the event Buyer has breached any representation, warranty, or
covenant contained in this Agreement in any material respect, and the
breach has continued after notice to Buyer without cure for a period
of ten (10) days, or (B) if the Closing shall not have occurred on or
before May 15, 2000, by reason of the failure of any condition
precedent under Section 6.2 hereof (unless the failure results
primarily from the Company or the Stockholder breaching any
representation, warranty, or covenant contained in this Agreement).
(b) Effect of Termination. Each party's right of termination under
Section 8.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of the right of termination shall
not be an election of remedies. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement
shall terminate, except that the obligations of Section 8.2 shall survive.
However, if this Agreement is terminated by a party because of a breach of
the Agreement, of any type, by the other party, the non-defaulting party's
right to pursue all legal remedies will survive such termination
unimpaired.. In addition, the non-defaulting party shall be entitled to
collect its expenses incurred at any time in connection with pursuing or
consummating the Agreement and the transactions contemplated by the
Agreement, including, but not limited to, fees and expenses of business
brokers, legal counsel, accountants, and other facilitators and advisors.
8.2 Costs and Expenses; Fees. Except as provided in Section 8.1(b) with
respect to a breach of the Agreement, each party shall be solely responsible for
and bear all of its own respective expenses incurred at any time in connection
with pursuing or consummating the Agreement and the transactions contemplated by
the Agreement, including, but not limited to, fees and expenses of business
brokers, legal counsel, accountants, and other facilitators and advisors.
8.3 Survival of Representations and Warranties. The representations and
warranties of the Stockholder and the Buyer contained in this Agreement or in
any Contract delivered or in connection herewith shall survive the Closing for a
period of three years; provided, however, that representations and warranties of
the Stockholder relating to tax, environmental, and employee benefit plan
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matters shall survive until the date sixty (60) days after the expiration of the
applicable statutes of limitation.
8.4 Complete Agreement, etc.. All Exhibits referred to herein and the
Disclosure Exhibit are intended to be and hereby are specifically made a part of
this Agreement. This Agreement sets forth the entire understanding of the
parties hereto with respect to the transactions contemplated hereby, and any and
all previous agreements and understandings between or among the parties
regarding the subject matter hereof, whether written or oral, are superseded by
this Agreement. It shall not be amended or modified except by written instrument
duly executed by each of the parties hereto.
8.5 Assignment and Binding Effect. This Agreement shall not be assigned
prior to the Closing by any party hereto without the prior written consent of
the other parties and any assignment without consent shall be void; provided,
that Buyer may assign its rights hereunder to any subsidiary. Subject to the
foregoing, all of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the successors and
assigns of any party. Nothing expressed or referred to in this Agreement will be
construed to give any person other than the parties to this Agreement any legal
or equitable right, remedy, or claim under or with respect to this Agreement or
any provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and assigns.
8.6 Waiver. Any term or provision of this Agreement may be waived at any
time by the party entitled to the benefit thereof by a written instrument duly
executed by such party.
8.7 Time. Time is of the essence in connection with this Agreement and each
and every provision hereof. Any extension of time granted for the performance of
any duty under this Agreement shall not be considered an extension of time for
the performance of any other duty under this Agreement.
8.8 Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given only if delivered personally (including by nationally
recognized overnight courier service) or sent by telegram or by certified mail,
postage prepaid, and sent by telecopier as follows:
If to Buyer, to: Kevin P. Knight
Knight Transportation, Inc.
5601 West Buckeye Road
Phoenix, Arizona 85043
(602) 269-2000 Telephone
(602) 606-6504 Fax
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With a required copy to: Mark A. Scudder
Scudder Law Firm, P.C.
411 S. 13th Street, Suite 200
Lincoln, Nebraska 68508
(402) 435-3223 Telephone
(402) 435-4239 Fax
If to the Company (prior to John R. Fayard, Jr.
Closing) or the Stockholder, 19 Lawrence Place
to: Gulfport, Mississippi 39503
(228) 896-3533 Telephone
With a required copy to: Frederick T. Hoff
Newton and Hoff, L.L.P.
2019 23rd Avenue
Gulfport, Mississippi 39502
(228) 863-8827 Telephone
(228) 868-6007 Fax
or to such other address as the addressee shall have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval, or other communication shall be deemed to have been given as
of the date so personally delivered, telegraphed, or deposited in the mail and
telecopied.
8.9 Cooperation. Subject to the terms and conditions herein provided, the
parties hereto shall use their best efforts to take, or cause to be taken, such
action, to execute and deliver, or cause to be executed and delivered, such
additional documents and instruments and to do, or cause to be done, all things
necessary, proper, or advisable under the provisions of this Agreement and under
applicable law to consummate and make effective the transactions contemplated by
this Agreement.
8.10 Governing Law. This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of Arizona, without regard to
conflict-of-law principles.
8.11 Headings, Gender, and Person. All section headings contained in this
Agreement are for convenience and reference only, do not form a part of this
Agreement, and shall not affect in any way the meaning or interpretation of this
Agreement. Words used herein, regardless of the number and gender specifically
used, shall be deemed and construed to include any other number, singular or
plural, and any other gender, masculine, feminine, or neuter, as the context
requires. Any reference to a "person" herein shall include an individual, firm,
corporation, partnership, trust, governmental authority, or any other entity.
8.12 Severability. Any provision of this Agreement that is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
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the remaining provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
8.13 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties. It shall
not be necessary in making proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
8.14 Public Announcements. Buyer shall be entitled to issue a press release
announcing the execution of this Agreement and basic information concerning the
Company and the proposed transaction. Buyer shall submit the press release to
Stockholder in advance and shall make such changes as may be reasonably
requested; provided, that Buyer shall not be required to make changes contrary
to the advice of its counsel.
* * * * * * * * * * * * * * *
Signature Page Follows
* * * * * * * * * * * * * * *
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Signature Page to the Stock Purchase Agreement
among Knight Transportation, Inc., John Fayard Fast Freight, Inc.,
and John R. Fayard, Jr.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the date first written.
KNIGHT TRANSPORTATION, INC., JOHN FAYARD FAST FREIGHT, INC.,
an Arizona corporation a Mississippi corporation
By: /s/ Clark A. Jenkins By: /s/ John R. Fayard, Jr.
------------------------------ ------------------------------------
Clark A. Jenkins John R. Fayard, Jr., President
Executive Vice President
By: /s/ John R. Fayard, Jr.
------------------------------------
John R. Fayard, Jr., Individually
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EXHIBIT LIST TO STOCK PURCHASE AGREEMENT
Exhibit A - Disclosure Exhibit
Part 2.2(c) - Preliminary Calculation of Adjusted Closing Stockholder's
Equity
Part 2.2(e) - Purchase Price
Part 2.3(b) - Company Retained Debt
Part 4.3(a) - Corporate Status
Part 4.3(c) - Officers; Directors; Bank Accounts; Powers of Attorney
Part 4.3(e) - Validity of Contemplated Transactions
Part 4.3(f)(i) - Financial Information
Part 4.3(h) - Absence of Changes or Events
Part 4.3(i) - Asset Schedule
Part 4.3(j) - Title and Condition of Assets
Part 4.3(l)(i) - Tax Matters
Part 4.3(m) - Litigation
Part 4.3(n) - Insurance; Bonds
Part 4.3(o) - Material Contracts
Part 4.3(p) - Employee Benefit Plans and Arrangements
Part 4.3(q) - Employees; Independent Contractors
Part 4.3(r) - Compliance With Labor Laws
Part 4.3(w) - Rights
Part 4.3(cc) - Financial and Operating Information
Part 5.17 - Key-Man Insurance
Exhibit B - Real Estate
Exhibit C - Redemption Assets and Liabilities; Employees of Redeemed Business
Exhibit D - Securities Purchase and Registration Agreement
Exhibit E - Bill of Sale, Assignment and Assumption
Exhibit F - Deeds
Exhibit G - Intentionally omitted
Exhibit H - Instruction Letter to Transfer Agent
Exhibit I - Release Exhibit J - Spousal Consent
Exhibit K - Employment Agreement
Exhibit L-1 - Lease (Gulfport)
Exhibit L-2 - Lease (Mobile)
Exhibit L-3 - John Fayard, Jr. Condominium Lease
Exhibit L-4 - John Fayard, Sr. Condominium Lease