-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, R9qPKJtqwKys1K2M+zMJvVRsE2Qbyw0Ad5PwIDCuXr/Rq0/+WAi5P9lus2cbOFHn QaqN70kGHG2wb84Iq1jK/A== 0000950109-95-000416.txt : 19950222 0000950109-95-000416.hdr.sgml : 19950222 ACCESSION NUMBER: 0000950109-95-000416 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950221 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN FREIGHTWAYS CORP CENTRAL INDEX KEY: 0000846729 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 742391754 STATE OF INCORPORATION: AR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17570 FILM NUMBER: 95513802 BUSINESS ADDRESS: STREET 1: 2200 FORWARD DR CITY: HARRISON STATE: AR ZIP: 72601 BUSINESS PHONE: 5017419000 MAIL ADDRESS: STREET 1: 2200 FORWARD DR CITY: HARRISON STATE: AR ZIP: 72601 10-K 1 FORM 10-K =============================================================================== SECURITIES AND EXCHANGE COMMISSION FORM 10-K WASHINGTON, D. C. 20549 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (N0 FEE REQUIRED) For the transition period from ___________________ to __________________ Commission File No. 34-0-17570 AMERICAN FREIGHTWAYS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ARKANSAS 74-2391754 (STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER OR ORGANIZATION IDENTIFICATION NUMBER) 2200 FORWARD DRIVE 72601 HARRISON, ARKANSAS (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) Registrant's telephone number, including Area Code: (501) 741-9000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of class) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. [X] YES [_] NO INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [_] Aggregate market value of voting stock held by nonaffiliates of the registrant at February 13, 1995: $626,110,959.00. Number of shares of common stock outstanding at February 13, 1995: 30,541,998.00. The Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1994 is incorporated by reference into Parts II and IV. The Proxy Statement for Registrant's March 28, 1995 Annual meeting is incorporated by reference into Parts III and IV. ================================================================================ TABLE OF CONTENTS
ITEM PAGE - ---- ---- PART I 1. and 2. Business and Properties 1 3. Legal Proceedings 5 4. Submission of Matters to a Vote of Security Holders 5 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters 6 6. Selected Financial Data 7 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 8. Financial Statements and Supplementary Data 9 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 9 PART III 10. Directors and Executive Officers of the Registrant 10 11. Executive Compensation 10 12. Security Ownership of Certain Beneficial Owners and Management 10 13. Certain Relationships and Related Transactions 10 PART IV 14. Exhibits, Financial Statement Schedules and Current Reports on Form 8-K 11 Signatures 14 Financial Statements and Financial Statement Schedules 15
PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES THE COMPANY American Freightways is a scheduled, for-hire, less-than-truckload (LTL) carrier transporting a wide range of general commodities. The Company transports primarily LTL shipments, which the Interstate Commerce Commission (ICC) defines as shipments weighing less than 10,000 pounds. The Company operates in a region comprised of Alabama, Arkansas, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas and Southeastern Iowa pursuant to operating authority, both contract and common, granted by the ICC. THE LTL INDUSTRY Generally, LTL carriers move freight from multiple shippers to multiple consignees on a scheduled basis. American Freightways competes against regional, interregional and national LTL carriers. To a much less extent, the Company competes against truckload carriers, railroads and overnight package companies. LTL carriers are generally referred to as national, interregional or regional carriers, depending upon the average length of haul. National carriers, which generally operate coast to coast, are those carriers whose average length of haul exceeds 1,000 miles. Carriers with an average length of haul between 500 and 1,000 miles are referred to as interregional carriers. American Freightways, with an average length of haul of 567 miles during the year ending December 31, 1994, operates as a multiregional carrier targeting shipments within several regions to increase the density within its network. In general, the more business an LTL carrier has within a given geographical area, the lower its incremental operating costs. This is particularly true with respect to its pickup and delivery operation where there is less distance between stops and more shipments per stop. Similarly, the more business a carrier experiences in a given traffic lane (or route), resulting in greater linehaul density, the lower its incremental costs. Other areas such as computer operations, sales, collections, purchases of equipment, fuel, tires, parts, insurance, supplies, and corporate management also lend themselves to economies of scale. More LTL freight moves short distances than long distances. Typically, national carriers are less effective from an operational, service or cost standpoint in short-haul markets and, therefore, usually avoid such markets. Thus, due to greater activity in a given region, a regional carrier may achieve greater economies in such region or market than a national carrier. During 1994, Congress passed legislation that effectively deregulated intrastate traffic, freight moving within the borders of a given state, effective in January 1995. The Company has requested and received intrastate authority of the respective state agencies in its service territory. 1 EXPANSION The history of American Freightways has been growth. Twelve years ago, the Company began serving all points in one state, Arkansas. Today the Company's all-points service coverage extends to 16 states stretching over 1,600 miles from north to south and east to west. Perhaps the most distinguishing feature of the Company's operations is this all-points coverage. Management knows of no other LTL carrier that duplicates this coverage. The Company began operations by opening 20 terminals on October 25, 1982. From 1983 through 1985, 11 terminals were added to the system, including Chicago, Illinois; Oklahoma City and Tulsa, Oklahoma; and Houston, Texas. Thirteen terminals were added in 1986, 20 terminals in 1987, 12 terminals in 1988, nine terminals in 1989, 15 terminals in 1990, 11 terminals in 1991 and ten terminals in 1992. During 1993, the opening of seven new terminals in the state of Georgia and nine new terminals in the state of Kentucky brought all-points coverage to these two states as well as the southern portions of the states of Indiana and Ohio. During 1994, the Company opened 14 new terminals in Indiana and Ohio. On January 1, 1995, the Company opened 13 terminals and extended its all-points coverage to the entire states of North Carolina and South Carolina. SERVICE FEATURES The principal service features of American Freightways are its all-points coverage, scheduled LTL service, clean and efficient fleet, total information services, its customer satisfaction and cargo care programs, and its total quality and people development processes. All-Points Coverage. To differentiate itself from its competitors, the Company offers all-points coverage to entire states. This feature fulfills shippers' needs by simplifying how freight is routed and assuring that the Company's service standards will apply from pickup through delivery. Scheduled LTL Service. The Company publishes very compressed service standards between the points in its system. It maintains scheduled runs between the terminals each night to ensure that these standards are met. The Company's consistent achievement of these standards results in a high rate of customer retention which, together with the Company's vigorous pursuit of new customers, has resulted in sustained growth. Clean and Efficient Fleet. The Company's policy is to purchase equipment having uniform specifications that are, to the greatest possible extent, compatible with design improvements and resale values. This standardization enables the Company to simplify mechanic and driver training, to control the cost of spare parts and tire inventory, and in general to provide for a more efficient vehicle maintenance program. American Freightways utilizes twin trailers for movement of almost 100% of the freight among its terminals to gain greater flexibility. The use of twin trailers (which can be operated singly or in tandem) provides more options for the achievement of the Company's service standards. At December 31, 1994, the Company utilized 8,390 van trailers, 7,367 of which were twin trailers, and 3,344 tractors. The average ages of the tractors and trailers were 2.8 and 3.4 years, respectively, at December 31, 1994. Total Information Services. An important aspect of customer service is the instantaneous access by shippers to information concerning their shipments and the Company's performance. The Company continues to invest in upgrading its electronic information system because it believes that the right information needs to be available at the right time to the relevant person in a convenient form. Accordingly, American Freightways provides its customers the ability to customize information they need and how and when they receive it. 2 Customer Satisfaction. The Company recognizes that it is in the customer satisfaction business as well as the transportation business. In recognition of its commitment to customer satisfaction, American Freightways maintains a Customer Satisfaction Department and a Cargo Care Department. Access to each is provided through the use of nationwide toll-free telephone lines. Management believes American Freightways was the first LTL carrier to create a department to deal exclusively with customer satisfaction. The Customer Satisfaction Department is an integral part of an effort to make American Freightways accessible and accountable to its customers, providing special attention to customers' needs such as tracing freight, expediting shipments, and meeting unusual delivery requirements. The Cargo Care Department educates Company personnel on the correct care of shipments, such as proper loading to avoid loss and damage. This department also assists customers with proper packaging of shipments and settles cargo claims with customers. Total Quality Process. The Company has for over five years utilized a "Total Quality Process" to improve the quality and efficiency of its services. The quality process involves management, education and training techniques, some of which are developed by associates. These techniques are designed to, among other things, identify and complete job responsibilities, including identification of customer needs. The process measures improvement in associate performance, enhances communication among management and associates and provides a common Company language. Implementation of this process is accomplished with customer satisfaction surveys, performance benchmarking and educating of personnel. The total quality initiative is ongoing. Educating of personnel and further integration of the process into operations are focal points for 1995. People Development Process. The building blocks for American Freightways have always been its people and its business principles. To continue its growth, the Company must continue to attract, retain and educate quality people who can and will grow with the Company. To facilitate this process, the Company in 1993, initiated a "People Development Process" in which Company personnel at all levels and in all functions receive training on Company principles, job responsibilities and critical skills on performance of their responsibilities. The Company's people follow six business principles: . Take care of our customers . Take care of our people . Honor our commitments . Work hard, work smart, work together . Prevent costs . Have fun! At December 31, 1994, the Company employed 6,506 persons, including 3,241 drivers, 1,683 dock workers and 171 mechanics and other maintenance personnel. All drivers utilized by American Freightways are selected in accordance with specific Company guidelines relating primarily to safety records and driving experience. Drivers, as well as dockmen and mechanics, are required to pass drug tests upon employment, randomly and for cause. State and federal regulations require drug testing of drivers and require drivers to comply with commercial driver's licensing requirements. Management believes that the Company is substantially in compliance with these regulations. 3 The Company has not experienced a shortage of qualified drivers in the past, and management does not expect a significant shortage in the near future. None of the Company's personnel is currently represented by a collective bargaining unit. In the opinion of management, the Company's relationship with its drivers, other associates and independent contractors is excellent. The Company's policy is to share its success with its associates through increased wages and benefits. MARKETING The Company's marketing strategy emphasizes to the customer the value of the Company's reliable performance and innovative services. This has resulted in a high level of repeat business from existing customers, which is used as a springboard for business in the areas to which the Company expands. American Freightways also aggressively seeks new customers as it expands its service territory. The Company established a national advertising program in 1984, utilizing full-page, four-color ads in national transportation and distribution magazines. American Freightways also utilizes direct mail advertising and surveys its customers to solicit suggestions for improvements in its services. The Company has designed and implemented its own 48-state class rate tariff and rules tariff with simplified formats, no single shipment charges and no arbitrary charges. TECHNOLOGY American Freightways has always believed in the use of advanced technology to increase the value of service to its customers and to lower the cost of providing this service. The Company uses computer and electronic technology to compress time in the performance of operating and other processes and to compress the number of levels within the organization necessary to complete tasks. From the customer's call for a pickup through the capture of a signature verifying delivery of the freight, the Company's information technology captures information on the status of each shipment. In most cases the recovery of the data is achieved automatically as the freight is moved. See also "Service Features - Total Information Services." TERMINALS The Company owns its general office located in Harrison, Arkansas and 55 terminal facilities in 14 states. At December 31, 1994, 89 of the Company's terminals are leased. The terms of the leases on the facilities range from month-to-month to ten years. The Company prefers to lease when suitable facilities are available; however, it may be necessary to construct or acquire additional facilities when facilities of sufficient size are not available for lease. One of the principal features distinguishing American Freightways from its competitors is its extensive terminal network, placing terminals nearer to the customer. During 1993 and 1994, the Company added terminal capacity through the purchase of existing facilities, the construction of new terminals or additions to existing terminals in several strategic locations such as Chicago, Illinois; Lincoln, Illinois; Jackson, Mississippi; St. Louis, Missouri; Memphis, Tennessee; Nashville, Tennessee; and Dallas, Texas. The Company has plans to purchase or construct several terminals during 1995; the largest will be Atlanta, Georgia; Indianapolis, Indiana; and San Antonio, Texas. The Company added 13 terminals in January 1995, in the states of North Carolina and South Carolina for a total of 157 terminals. 4 At December 31, 1994, the Company's terminal network consisted of 144 terminals. Of these terminals, 135 were managed by Company associates and 9 were operated and managed by 7 independent contractors. Company-operated terminals involve relatively fixed costs (such as operating taxes, salaries and wages and depreciation), whereas costs of independent contractor-operated terminals generally are variable as a flat percentage of revenue. It is American Freightways' intent to primarily utilize Company-operated terminals in future expansions. ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation incidental to its business, primarily involving claims for personal injuries and property damage incurred in the transportation of freight. The Company believes adverse results in one or more of these cases would not have a material adverse effect on its competitive position, financial position or its results of operations. The Company maintains insurance in an amount which Management believes is currently sufficient to cover its risks. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS American Freightways Corporation's Common Stock has been traded under the symbol "AFWY" on the National Market System of the National Association of Securities Dealers Automated Quotation System (NASDAQ). The following table sets forth, for the periods indicated, the range of high and low prices for the Company's Common Stock as reported by NASDAQ through February 13, 1995. The latest price for the Company's Common Stock on February 13, 1995, as reported by the NASDAQ was $20.50 per share. At February 13, 1995, there were approximately 2,116 holders of record of the Company's Common Stock. The following market prices have been adjusted to reflect a 2-for-1 stock split paid on May 27, 1993, to shareholders of record on May 7, 1993.
PERIOD HIGH LOW ------------------------------------------------------------ FISCAL YEAR 1993: First Quarter 14-5/8 11-3/8 Second Quarter 19 13-5/8 Third Quarter 20-1/2 16-1/4 Fourth Quarter 20-1/4 16-3/4 FISCAL YEAR 1994: First Quarter 20-3/4 15-1/2 Second Quarter 21-3/4 18-1/4 Third Quarter 24-7/8 20-3/4 Fourth Quarter 24-3/8 17-3/4 FISCAL YEAR 1995: First Quarter (through February 13, 1995) 21-3/4 18-5/8
The Company has not paid cash dividends in the past and does not intend to pay cash dividends in the foreseeable future. Under certain of the Company's loan agreements, the Company is subject to certain restrictions on its ability to pay dividends. See Note 3 to the Consolidated Financial Statements incorporated by reference herein. 6 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data are derived from consolidated financial statements of the Company. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements, related notes and other financial information included elsewhere herein.
YEARS ENDED DECEMBER 31 (Dollars in thousands, except per share data) 1990 1991 1992 1993 1994 ----------------------------------------------------- INCOME STATEMENT DATA: Operating revenue............................. $142,780 $198,258 $262,011 $328,464 $465,588 Operating expenses and costs: Salaries, wages and benefits................. 62,975 94,312 125,152 168,770 247,049 Operating supplies and expenses.................................... 9,814 12,084 17,169 22,099 30,710 Operating taxes and licenses................. 4,997 7,218 9,647 12,340 19,251 Insurance.................................... 5,164 7,011 8,705 7,891 15,360 Communications and utilities................. 2,572 3,484 4,357 6,907 9,117 Depreciation and amortization................ 9,224 14,541 17,059 21,519 27,888 Rents and purchased transportation.............................. 25,546 31,877 39,683 42,250 45,633 Other........................................ 7,780 11,848 13,895 15,782 20,880 ---------------------------------------------------- Total operating expenses.................... 128,072 182,375 235,667 297,558 415,888 ---------------------------------------------------- Operating income.............................. 14,708 15,883 26,344 30,906 49,700 Interest expense.............................. (3,670) (3,642) (4,844) (4,246) (6,832) Other income, net............................. 590 312 453 329 442 Gain (loss) on disposal of assets....................................... 81 (3) 9 1 292 ---------------------------------------------------- Income before income taxes, extraordinary charge and cumulative effect of accounting change............................ 11,709 12,550 21,962 26,990 43,602 Income taxes.................................. 4,265 4,518 8,016 10,238 16,571 ---------------------------------------------------- Income before extraordinary charge and cumulative effect of accounting change....... 7,444 8,032 13,946 16,752 27,031 Extraordinary charge for early retirement of debt, net of tax benefit of $205.......... - - - - (335) Cumulative effect of accounting change........ - - (383) - - ---------------------------------------------------- Net income.................................... $ 7,444 $ 8,032 $ 13,563 $ 16,752 $ 26,696 ==================================================== Per share: Income before extraordinary charge and cumulative effect of accounting change...... $ 0.33 $ 0.30 $ 0.50 $ 0.59 $ 0.89 Extraordinary charge......................... - - - - (0.01) Cumulative effect of accounting change........................... - - (0.02) - - ---------------------------------------------------- Net income................................... $ 0.33 $ 0.30 $ 0.48 $ 0.59 $ 0.88 ==================================================== Average shares outstanding (000's)............ 22,400 26,644 28,132 28,581 30,357 Proforma Data (1): Net income.................................... $ 7,359 $ 7,807 $ 13,946 $ 16,752 $ 26,696 Net income per share.......................... $0.33 $0.29 $ 0.50 $ 0.59 $ 0.88
7
YEARS ENDED DECEMBER 31 1990 1991 1992 1993 1994 -------- --------- --------- --------- --------- BALANCE SHEET DATA: (Dollars in thousands) Current assets................................ $21,216 $ 58,129 $ 34,729 $ 37,660 $ 54,247 Current liabilities........................... 17,364 18,218 19,348 35,083 44,378 Total assets.................................. 97,953 168,131 175,531 251,130 355,348 Long-term debt (including current portion)............................. 46,138 70,896 55,304 97,537 111,181 Shareholders' equity.......................... $35,936 $ 74,636 $ 89,709 $109,460 $177,180 Working capital............................... 3,852 39,911 15,381 2,577 9,869 Debt to equity ratio.......................... 1.28 0.95 0.62 0.89 0.63 Return on shareholders' equity................ 23.2% 14.5% 16.5% 16.8% 18.6% KEY OPERATING STATISTICS: Operating ratio............................... 89.7% 92.0% 89.9% 90.6% 89.3% Total tractors................................ 1,195 1,634 1,955 2,453 3,344 Terminals..................................... 100 111 116 132 144 Number of employees........................... 2,209 3,058 3,655 4,964 6,506 Gross tonnage hauled (000's).................. 937 1,238 1,615 2,051 2,759 Shipments (000's)............................. 1,693 2,179 2,654 3,237 4,267 Average length of haul........................ 395 454 525 550 567 Revenue per hundred weight.................... $ 7.62 $ 8.01 $ 8.11 $ 8.01 $ 8.46
(1) Assumes the change in accounting method for recognition of revenue as required by EITF 91-9 occurred January 1, 1990. 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Item is incorporated by this reference to Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1994, pages 25 through 31. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The report of independent auditors and consolidated financial statements included on pages 32 through 40 of the Annual Report to Shareholders for the year ended December 31, 1994, are incorporated herein by reference. Quarterly Results of Operations on page 39 of the Annual Report to Shareholders for the year ended December 31, 1994, is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The executive officers and directors of American Freightways as of February 13, 1995, are as follows:
NAME AGE POSITION ---- --- -------- F. S. (Sheridan) Garrison 60 Chairman of the Board of Directors, President and Chief Executive Officer Tom Garrison 34 Vice President; Secretary/Treasurer; Director James R. Dodd 45 Executive Vice President-Accounting & Finance; Chief Financial Officer; Director Tony R. Balisle 56 Executive Vice President-Operations Frank Conner 45 Vice President-Special Projects; Director Ben A. Garrison 63 Director T. J. Jones 58 Director Ken Reeves 47 Director Will Garrison 31 Vice President Daniel Garrison 40 Account Executive Joe Dobbs 48 Vice President-Properties Thomas D. Doty 47 Vice President-Marketing James Hearn 60 Vice President-Maintenance Hugh Payne 47 Vice President-Transportation Carl Thomas 44 Vice President-Safety and Security
The remainder of this Item 10, Directors and Executive Officers of the Registrant, is incorporated by this reference to Registrant's Notice and Proxy Statement for its Annual Meeting of Shareholders to be held on Tuesday, March 28, 1995. ITEM 11. EXECUTIVE COMPENSATION This Item is incorporated by this reference to applicable portions of the Registrant's Notice and Proxy Statement for its 1995 Annual Meeting of Shareholders to be held on Tuesday, March 28, 1995. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This Item is incorporated by this reference to applicable portions of the Registrant's Notice and Proxy Statement for its 1995 Annual Meeting of Shareholders to be held on Tuesday, March 28, 1995. ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS This Item is incorporated by this reference to applicable portions of the Registrant's Notice and Proxy Statement for its 1995 Annual Meeting of Shareholders to be held on Tuesday, March 28, 1995. 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (l) and (2) The response to this portion of Item 14 is submitted as a separate section of this report. (3) The exhibits as listed in the Exhibit Index, are submitted as a separate section of this report. (b) Current Reports on Form 8-K: None. (c) See Item 14(a)(3) above. (d) The response to this portion of Item 14 is submitted as a separate section of this report. 11 INDEX TO EXHIBITS 3(a) Amended and Restated Articles of Incorporation of American Freightways Corporation. 3(b) Amended and Restated Bylaws of American Freightways Corporation. 10(a) Loan and Security Agreement among Union Planters National Bank, the Registrant and certain subsidiaries dated January 18, 1989, incorporated by reference from the Registrant's Registration Statement on Form S-1 dated March 30, 1989, No. 33-27073. 10(b) Amended Stock Purchase Plan for Certain employees of Registrant and subsidiaries incorporated by reference to Registrant's Registration Statement on Form S-1 dated February 19, 1991, No. 33 38997. 10(c) Non-statutory Stock Option Plan for Independent Directors incorporated by reference to Registrant's Registration Statement on Form S-1 dated February 19, 1991, No. 33-38997. 10(d) Note Agreement among Prudential Capital Corporation, the Registrant and certain subsidiaries dated December 5, 1991 incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. 10(e) Credit Agreement among NationsBank of Texas, N. A., as Agent, the Registrant and certain subsidiaries dated April 14, 1992 incorporated by reference to Registrant's Form 10-Q for the quarterly period ended March 31, 1992. 10(f) Amendment Number 1 to Note Agreement among Prudential Capital Corporation, the Registrant and certain subsidiaries dated December 5, 1991 incorporated by reference to Registrant's Form 10-Q for the quarterly period ended June 30, 1992. 10(g) Promissory Note among NationsBank of Texas, N.A., the Registrant and certain subsidiaries dated August 15, 1992, incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 10(h) First Amendment to Credit Agreement among NationsBank of Texas, N.A., as Agent, the Registrant and certain subsidiaries dated December 30, 1992, incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 10(i) 1993 Chairman Stock Option Plan incorporated by reference to Registrant's Notice and Proxy Statement for its Annual Meeting of Shareholders held on Thursday, April 22, 1993. 10(j) 1993 Non-Employee Director Stock Option Plan incorporated by reference to Registrant's Notice and Proxy Statement for its Annual Meeting of Shareholders held on Thursday, April 22, 1993. 12 10(k) 1993 Stock Option Plan for Key Employees incorporated by reference to Registrant's Registration Statement on Form S-8 dated June 2, 1993. 10(l) $50,000,000 Master Shelf Agreement ($10,000,000 note attached) with The Prudential Insurance Company of America dated September 3, 1993, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended September 30, 1993. 10(m) Second Amendment to Credit Agreement among NationsBank of Texas, N.A., as Agent, the Registrant and certain subsidiaries dated February 1, 1994, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1993. 10(n) $10,000,000 Note dated February 2, 1994, issued under the $50,000,000 Master Shelf Agreement with The Prudential Insurance Company of America dated September 3, 1993, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1993. 10(o) American Freightways Corporation Excess Benefit Plan dated September 1, 1993, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1993. 10(p) American Freightways Corporation Amended and Restated Excess Benefit Plan dated December 28, 1993, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1993. 10(q) Amended Stock Purchase Plan for Certain employees of Registrant and subsidiaries incorporated by reference to Registrant's Registration Statement on Form S-8 dated March 18, 1994. 10(r) $10,000,000 Note dated April 13, 1994, issued under the $50,000,000 Master Shelf Agreement with The Prudential Insurance Company of America dated September 3, 1993, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended June 30, 1994. 10(s) Amended and Restated Credit Agreement among NationsBank of Texas, N.A., as Agent, the Registrant and certain subsidiaries dated October 20, 1994. 10(t) Letter Amendment No. 3 to Note Agreement with The Prudential Insurance Company of America dated October 19, 1994. 10(u) Letter Amendment No. 1 to Master Shelf Agreement with The Prudential Insurance Company of America dated October 19, 1994. 10(v) Letter Amendment No. 2 to Master Shelf Agreement with The Prudential Insurance Company of America dated December 14, 1994. 13 Annual Report to Stockholders for the fiscal year ended December 31, 1994. 22 Subsidiaries of Registrant 24 Consent of Ernst & Young LLP 27 Financial Data Schedule 13 SIGNATURES Pursuant to the requirements of Section 13 or 15 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated this 13th day of February, 1995. American Freightways Corporation By: /s/James R. Dodd ---------------- James R. Dodd Chief Financial Officer; Director (Chief Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/F. S. Garrison February 13, 1995 - --------------------------------------- ----------------- F. S. Garrison Date Chairman of the Board of Directors, Chief Executive Officer (Principal Executive Officer) /s/James R. Dodd February 13, 1995 - --------------------------------------- ----------------- James R. Dodd Date Chief Financial Officer; Director (Chief Accounting Officer) /s/Tom Garrison February 13, 1995 - --------------------------------------- ----------------- Tom Garrison Date Director /s/T. J. Jones February 13, 1995 - --------------------------------------- ----------------- T. J. Jones Date Director /s/Frank Conner February 13, 1995 - --------------------------------------- ----------------- Frank Conner Date Director /s/Ben A. Garrison February 13, 1995 - --------------------------------------- ----------------- Ben A. Garrison Date Director /s/Ken Reeves February 13, 1995 - --------------------------------------- ----------------- Ken Reeves Date Director 14 ANNUAL REPORT ON FORM 10-K--ITEM 8, ITEM 14(A)(1) AND (2), (C) AND (D) AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of American Freightways Corporation and subsidiaries included in the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1994 are incorporated by reference in Item 8: Consolidated Balance Sheets as of December 31, 1994 and 1993. Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1993 and 1992. Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992. Notes to Consolidated Financial Statements--December 31, 1994. The following consolidated financial statement schedules of American Freightways Corporation and subsidiaries are included in Item 14(d): AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES Consolidated Financial Statement Schedule: Schedule VIII Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 15 SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AMERICAN FREIGHTWAYS CORPORATION
Column A Column B Column C Column D Column E - ------------------------------------------------------------------------------------------------------------------ Additions -------------------------- Balance at Charged to Charged to Balance Beginning Costs and Other Account Deductions at End Description of Period Expenses -Describe -Describe of Period - ------------------------------------------------------------------------------------------------------------------ Year ended December 31, 1992: Allowance for Doubtful Accounts $669,951 $ 727,908 $101,229 (1) $ 699,088 (2) $800,000 ======================================================================== Year ended December 31, 1993: Allowance for Doubtful Accounts $800,000 $ 513,464 $430,379 (1) $1,250,804 (2) $493,039 ======================================================================== Year ended December 31, 1994: Allowance for Doubtful Accounts $493,039 $1,125,840 $423,029 (1) $1,403,102 (2) $638,806 ========================================================================
Note 1 - Recoveries of amounts previously written off. Note 2 - Uncollectible accounts written off. EX-10.S 2 AMENDED CREDIT AGREEMENT EXHIBIT 10(S) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMENDED AND RESTATED CREDIT AGREEMENT AMONG AMERICAN FREIGHTWAYS CORPORATION, AMERICAN FREIGHTWAYS, INC. AND NATIONSBANK OF TEXAS, N.A. as Agent DATED AS OF OCTOBER 20, 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS ----------------- ARTICLE I DEFINITIONS ----------- Section 1.01. Definitions............................................. 1 ----------- Section 1.02. Accounting and Other Terms............................. 13 -------------------------- ARTICLE II AMOUNTS AND TERMS OF ADVANCES ----------------------------- Section 2.01. Advances............................................... 13 -------- Section 2.02. Making Advances........................................ 13 --------------- Section 2.03. Fees................................................... 14 ---- Section 2.04. Reduction of Commitment................................ 15 ----------------------- Section 2.05. Prepayment and Repayment of Advances................... 15 ------------------------------------ Section 2.06. Interest on Advances................................... 16 -------------------- Section 2.07. Computations and Manner of Payments.................... 16 ----------------------------------- Section 2.08. Yield Protection; Taxes................................ 17 ----------------------- Section 2.09. Calculation of LIBOR Rate.............................. 19 ------------------------- Section 2.10. Quotation of Rates..................................... 19 ------------------ Section 2.11. Booking Loans.......................................... 19 ------------- Section 2.12. Extension of the Commitment............................ 19 --------------------------- ARTICLE III CONDITIONS PRECEDENT -------------------- Section 3.01. Conditions Precedent to Effectiveness.................. 20 ------------------------------------- Section 3.02. Conditions Precedent to All Advances................... 21 ------------------------------------ ARTICLE IV REPRESENTATIONS AND WARRANTIES ------------------------------ Section 4.01. Organization; Qualification; Corporate Authority....... 22 ------------------------------------------------ Section 4.02. Financial Statements................................... 22 -------------------- Section 4.03. Actions Pending........................................ 22 --------------- Section 4.04. Outstanding Debt....................................... 22 ---------------- Section 4.05. Environmental Compliance............................... 23 ------------------------ Section 4.06. Taxes.................................................. 23 -----
Section 4.07. Conflicting Agreements and Other Matters............... 23 ---------------------------------------- Section 4.08. Compliance With Laws Regulating the Incurrence of Debt. 23 ------------------------------------------------------ Section 4.09. ERISA.................................................. 24 ----- Section 4.10. Governmental Consent................................... 24 -------------------- Section 4.11. Enforceability......................................... 24 -------------- Section 4.12. Licenses and Title to Properties....................... 24 -------------------------------- Section 4.13. No Improper Payment or Influence....................... 24 -------------------------------- Section 4.14. Labor and Employee Relations Matters................... 25 ------------------------------------ Section 4.15. Disclosure............................................. 25 ---------- Section 4.16. Common Enterprise...................................... 26 ----------------- ARTICLE V COVENANTS --------- Section 5.01. Company Debt........................................... 26 ------------ Section 5.02. Subsidiary Debt........................................ 26 --------------- Section 5.03. Fixed Charge Ratio..................................... 27 ------------------ Section 5.04. Current Ratio.......................................... 27 ------------- Section 5.05. Dividend Limitation.................................... 27 ------------------- Section 5.06. Liens.................................................. 27 ----- Section 5.07. Loans, Advances, Investments and Contingent Liabilities 29 ------------------------------------------------------- Section 5.08. Sale of Stock and Debt of Subsidiaries................. 30 -------------------------------------- Section 5.09. Merger and Sales of Assets............................. 30 -------------------------- Section 5.10. Capital Expenditures................................... 31 -------------------- Section 5.11. Business............................................... 31 -------- Section 5.12. Transaction with Affiliates............................ 31 --------------------------- Section 5.13. Financial Statements................................... 31 -------------------- Section 5.14. Inspection of Property................................. 33 ---------------------- Section 5.15. Covenant to Secure Notes Equally....................... 33 -------------------------------- Section 5.16. Compliance with Laws, Etc.............................. 34 ------------------------- Section 5.17. Insurance.............................................. 34 --------- Section 5.18. Use of Proceeds........................................ 34 --------------- Section 5.19. Subsidiary Guaranty.................................... 34 ------------------- ARTICLE VI EVENTS OF DEFAULT ----------------- Section 6.01. Events of Default...................................... 34 ----------------- Section 6.02. Remedies Upon Default.................................. 37 --------------------- Section 6.03. Cumulative Rights...................................... 37 -----------------
ii
Section 6.04. Waivers................................................ 37 ------- Section 6.05. Performance by Agent................................... 37 -------------------- Section 6.06. Expenditures........................................... 38 ------------ Section 6.07. Control................................................ 38 ------- ARTICLE VII THE AGENT --------- Section 7.01. Authorization and Action............................... 38 ------------------------ Section 7.02. Agent's Reliance, Etc.................................. 38 --------------------- Section 7.03. NationsBank of Texas, N.A. and Affiliates.............. 39 ----------------------------------------- Section 7.04. Lender Credit Decision................................. 39 ---------------------- Section 7.05. Indemnification by Lenders............................. 39 -------------------------- Section 7.06. Successor Agent........................................ 40 --------------- ARTICLE VIII MISCELLANEOUS ------------- Section 8.01. Amendments and Waivers................................. 40 ---------------------- Section 8.02. Notices................................................ 41 ------- Section 8.03. Parties in Interest.................................... 42 ------------------- Section 8.04. Assignments and Participations......................... 42 ------------------------------ Section 8.05. Sharing of Payments.................................... 43 ------------------- Section 8.06. Right of Set-off....................................... 43 ---------------- Section 8.07. Costs, Expenses, and Taxes............................. 43 -------------------------- Section 8.08. Indemnification by Companies........................... 44 ---------------------------- Section 8.09. Rate Provision......................................... 44 -------------- Section 8.10. Severability........................................... 45 ------------ Section 8.11. Exceptions to Covenants................................ 45 ----------------------- Section 8.12. Counterparts........................................... 45 ------------ SECTION 8.13. GOVERNING LAW; WAIVER OF JURY TRIAL.................... 45 ----------------------------------- SECTION 8.14. ENTIRE AGREEMENT....................................... 46 ----------------
iii Schedules and Exhibits Exhibit A Promissory Note Exhibit B Request for Maturity Date Extension Exhibit C Officer's Certificate Schedule I List of Subsidiaries Schedule II Labor and Employee Relations Schedule III Existing Debt of Subsidiaries Schedule IV Liens on Properties iv AMENDED AND RESTATED CREDIT AGREEMENT ------------------------------------- THIS AMENDED AND RESTATED CREDIT AGREEMENT is dated as of the 20th day of October, 1994, among American Freightways Corporation, an Arkansas corporation ("AFC"), American Freightways, Inc., an Arkansas corporation ("AFI"; AFC and AFI are referred to collectively as the "Companies" and individually as a "Company"), the Lenders from time to time party hereto, and NationsBank of Texas, N.A., a national banking association, individually and as Agent (in such latter capacity, the "Agent"). WITNESSETH: ---------- WHEREAS, AFC (then known as Arkansas Freightways Corporation), AFI (then known as Arkansas Freightways, Inc.), certain of the Lenders, and the Agent entered into that certain Credit Agreement, dated as of April 14, 1992 (said Credit Agreement, as amended by that certain First Amendment to Credit Agreement, dated as of December 30, 1992, and that certain Second Amendment to Credit Agreement, dated as of February 1, 1994, the "Original Credit Agreement"); WHEREAS, Wachovia Bank of Georgia, N.A., became a Lender under the Credit Agreement pursuant to the Second Amendment to Credit Agreement, dated as of February 1, 1994; and WHEREAS, the Company has requested loans in a maximum aggregate amount of $75,000,000 from the Lenders, and the Lenders have agreed to amend and restate the Original Credit Agreement to make such loans pursuant to the terms and conditions of this Agreement; NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS ----------- Section 1.01. Definitions. As used in this Agreement, the following ----------- terms have the respective meanings indicated below (such meanings to be applicable equally to both the singular and plural forms of such terms): "Advance" means an advance made by a Lender to the Companies pursuant ------- to Section 2.01 hereof. "Affiliate" means a Person that directly, or indirectly through one or --------- more intermediaries, controls or is controlled by or is under common control with another Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through ownership of voting securities, by contract or otherwise. "Agent" means NationsBank of Texas, N.A., a national banking ----- association, in its capacity as Agent hereunder, or any successor Agent appointed pursuant to Section 7.06 hereof. "Aggregate Advance" means, collectively, each set of Advances made by ----------------- the Lenders on the same date, bearing interest at the same rate, and having the same Interest Period. "Agreement" means this Credit Agreement, as hereafter amended, --------- modified, or supplemented in accordance with its terms. "Applicable Law" means (i) in respect of any Person, all provisions of -------------- constitutions, statutes, rules, regulations and orders of governmental bodies or regulatory agencies applicable to such Person, and all orders and decrees of all courts and arbitrators in proceedings or actions to which the Person in question is a party and (ii) in respect of contracts made or performed in the State of Texas, "Applicable Law" shall also mean the laws of the United States of America, including, without limiting the foregoing, 12 USC Sections 85 and 86(a), as amended to the date hereof and as the same may be amended at any time and from time to time hereafter, and any other statute of the United States of America now or at any time hereafter prescribing the maximum rates of interest on loans and extensions of credit, and the laws of the State of Texas, including, without limitations, Articles 5069-1.04 and 5069-1.07(a), Title 79, Revised Civil Statutes of Texas, 1925, as amended ("Art. 1.04"), and any other statute of the State of Texas now or at any time hereafter prescribing maximum rates of interest on loans and extensions of credit, provided however, that pursuant to Article 5069-15.10(b), Title 79, Revised Civil Statutes of Texas, 1925, as amended, the Companies agree that the provisions of Chapter 15, Title 79, Revised Civil Statutes of Texas, 1925, as amended, shall not apply to the Advances hereunder. "Art. 1.04" shall have the meaning given to such term in the --------- definition herein of "Applicable Law". "Bankruptcy Law" shall have the meaning specified in Section 6.01(h). -------------- "Base Rate" means a fluctuating rate per annum as shall be in effect --------- from time to time equal the higher of: (a) The prime interest rate charge by NationsBank as announced or published from time to time, and which may not necessarily be the lowest interest rate charged by NationsBank; or (b) 0.50% per annum above the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three- week moving average being determined weekly on each 2 Monday (or, if any such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by the Agent on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of Dallas or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by the Agent from three New York certificate of deposit dealers of recognized standing selected by the Agent, in either case adjusted to the nearest 0.25% or, if there is no nearest 0.25%, to the next higher 0.25%. "Base Rate Advance" means an Advance bearing interest at the Base ----------------- Rate. "Business Day" means a day of the year on which banks are not required ------------ or authorized to close in Dallas, Texas, and, if the applicable Business Day relates to a LIBOR Advance, on which dealings are carried on in the London Interbank Market. "Capitalized Lease Obligation" means any rental of property which, ---------------------------- under GAAP, is or will be required to be capitalized on the books of the Companies or any Subsidiary, taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with GAAP. "Cash Equivalents" means investments (directly or through a money ---------------- market fund) in (a) certificates of deposit, repurchase agreements, and other interest bearing deposits or accounts with United States commercial banks having a combined capital and surplus of at least $100,000,000, or with insurance companies whose debt obligations have one of the three highest ratings obtainable from Standard & Poor's Corporation or Moody's Investors Services, Inc., which certificates, repurchase agreements, deposits, and accounts mature within one year from the date of investment, (b) obligations issued or unconditionally guaranteed by the United States government, or issued by an agency thereof and backed by the full faith and credit of the United States government, which obligations mature within one year from the date of investment, (c) direct obligations issued by any state or political subdivision of the United States, which mature within one year from the date of investment and have the highest rating obtainable from Standard & Poor's Corporation or Moody's Investors Services, Inc. on the date of investment, and (d) commercial paper which has one of the three highest ratings obtainable from Standard & Poor's Corporation or Moody's Investors Services, Inc. "Code" means the Internal Revenue Code of 1986, as amended from time ---- to time. "Commitment" means $75,000,000, as reduced from time to time pursuant ---------- to Section 2.04 hereof. "Confidential Information" shall have the meaning specified in Section ------------------------ 8.04(c). "Current Assets" means with respect to the Companies and their -------------- Subsidiaries on a consolidated basis as at any date of determination the total assets which may properly be classified as current assets 3 in accordance with GAAP, after (i) eliminating all intercompany transactions and (ii) appropriate reserves. "Current Debt" means any obligation for borrowed money (and any notes ------------ payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money) payable on demand or within a period of one year from the date of the creation thereof and any guaranty with respect thereto; provided that any obligation shall be treated as Funded Debt, -------- regardless of its term, if such obligation is renewable pursuant to the terms thereof or of a revolving credit or similar agreement effective for more than one year after the date of the creation of such obligation, or may be payable out of the proceeds of a similar obligation pursuant to the terms of such obligation or of any such agreement. "Current Liabilities" means with respect to the Companies and their ------------------- Subsidiaries on a consolidated basis as at any date of determination the total liabilities which may properly be classified as current liabilities in accordance with GAAP, after eliminating all intercompany transactions but excluding as current liabilities any portion of the Funded Debt of the Companies and their Subsidiaries outstanding at the date of determination which by its terms or the terms of any instrument or agreement relating thereto matures within one year from such date of determination. "Debt" means Funded Debt and/or Current Debt, as the case may be. Any ---- obligation secured by a Lien on, or payable out of the proceeds of production from, property of the Companies or any Subsidiary shall be deemed to be Funded or Current Debt, as the case may be, of such Company or such Subsidiary even though such obligation shall not be assumed by such Company or such Subsidiary. "EBDITA" means with respect to the Companies and their Subsidiaries on ------ a consolidated basis the sum of (a) Net Earnings for the applicable period and (b) to the extent the following were deducted in determining such Net Earnings, the sum of (i) depreciation, depletion, obsolescence and amortization of property as well as any other noncash charges to Net Earnings (excluding ordinary expense accruals), (ii) interest expense, (iii) the interest portion of capitalized lease expense and (iv) tax expense, each for the applicable period and determined in accordance with GAAP. "Default" means any event specified in Section 6.01 hereof, whether or ------- not any requirement in connection with such event for the giving of notice, lapse of time, or happening of any further condition has been satisfied. "Eligible Assignee" means (a) a commercial bank organized under the ----------------- laws of the United States, or any state thereof, and having total assets in excess of $1,000,000,000; (b) a savings and loan association or savings bank organized under the laws of the United States, or any state thereof, having total assets in excess of $500,000,000, and not in receivership or conservatorship; (c) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having 4 total assets in excess of $1,000,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is described in this clause; and (d) the central bank of any country which is a member of the Organization for Economic Cooperation and Development. "Environmental Law" means any federal, state, or local Law or duties ----------------- under the common law designed to protect human health and welfare or the environment (including, without limitation, the Federal Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq., the Resource Conservation and Recovery Act, 42 -- --- U.S.C. (S) 6901 et seq., the Clean Air Act, 42 U.S.C. (S) 7401 et seq., the -- --- -- --- Emergency Planning and Community Right-To-Know-Act, 42 U.S.C. (S) 2601 et seq., -- --- the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S) 136 et -- seq.; the Comprehensive Environmental Response, Compensation and Liability Act, - --- 42 U.S.C. 49601 et seq., the Endangered Species Act, 16 U.S.C. (S)(S) 1531-1544, -- --- the Toxic Substances Control Act, 15 U.S.C. 42601 et seq., Arkansas Hazardous -- --- Waste Management Act of 1979, Ark. Code Ann. (S) 8-7-201 et seq. (1991 Supp.), -- --- Arkansas Resource Reclamation Act of 1979, Ark. Code Ann. (S) 8-7-301 et seq. -- --- (1991 Supp.), Emergency Response Fund Act, Ark. Code Ann. (S) 8-7-401 et seq. -- --- (1991 Supp.), and Remedial Action Trust Fund Act, Ark. Code Ann. (S) 8-7-501 et -- seq. (1991 Supp.)) as each may be amended from time to time. - --- "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended, and the rulings and regulations issued thereunder, as from time to time in effect. "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "Event of Default" means any of the events specified in Section 6.01 ---------------- of this Agreement, provided there has been satisfied any requirement in connection therewith for the giving of notice, lapse of time, or happening of any further condition. "Federal Funds Rate" means, for any period, a fluctuating interest ------------------ rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of Dallas, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such date on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. "Fixed Charges" means with respect to the Companies and their ------------- Subsidiaries on a consolidated basis the sum of (i) interest expense, (ii) scheduled principal payments (including mandatory reduction in any fully-funded revolving credit facility), (iii) operating lease expense, (iv) rental expense and (v) capital lease payments (including both interest and principal components), each for the applicable period and determined in accordance with GAAP. "Funded Debt" means, ----------- 5 (i) any obligation payable more than one year from the date of creation thereof, which under GAAP is shown on the balance sheet as a liability (including Capitalized Lease Obligations but excluding reserves for deferred income taxes and other reserves to the extent that such reserves do not constitute an obligation), (ii) indebtedness payable more than one year from the date of creation thereof which is secured by any Lien on property owned by either Company or any Subsidiary, whether or not the indebtedness secured thereby shall have been assumed by such Company or such Subsidiary, (iii) guarantees, endorsements (other than endorsements of negotiable instruments for collection in the ordinary course of business) and other contingent liabilities (whether direct or indirect) in connection with the obligations, stock or dividends of any Person, (iv) obligations under any contract providing for the making of loans, advances or capital contributions to any Person, or for the purchase of any property from any Person, in each case in order to enable such Person primarily to maintain working capital, net worth or any other balance sheet condition or to pay debts, dividends or expenses, (v) obligations under any contract for the purchase of materials, supplies or other property or services if such contract (or any related document) requires that payment for such materials, supplies or other property or services shall be made regardless of whether or not delivery of such materials, supplies or other property or services is ever made or tendered, (vi) obligations under any contract to rent or lease (as lessee) any real or personal property if such contract (or any related document) provides that the obligation to make payments thereunder is absolute and unconditional under conditions not customarily found in commercial leases then in general use or requires that the lessee purchase or otherwise acquire securities or obligations of the lessor, (vii) obligations under any contract for the sale or use of materials, supplies or other property or services if such contract (or any related document) requires that payment for such materials, supplies or other property or services, or the use thereof, shall be subordinated to any indebtedness (of the purchaser or user of such materials, supplies or other property or the Person entitled to the benefit of such services) owed or to be owed to any Person, (viii) obligations under any other contract which, in economic effect, is substantially equivalent to a guarantee, and (ix) liabilities in respect of unfunded vested benefits under plans covered by Title IV of ERISA, 6 all as determined in accordance with GAAP. "GAAP" means generally accepted accounting principles applied on a ---- consistent basis. Application on a consistent basis shall mean that the accounting principles observed in a current period are comparable in all material respects to those applied in a preceding period, except for new developments or statements promulgated by the Financial Accounting Standards Board. "Highest Lawful Rate" means at the particular time in question the ------------------- maximum rate of interest which, under Applicable Law, any Lender is then permitted to charge on the Obligation. If the maximum rate of interest which, under Applicable Law, any Lender is permitted to charge on the Obligation shall change after the date hereof, the Highest Lawful Rate shall be automatically increased or decreased, as the case may be, from time to time as of the effective time of each change in the Highest Lawful Rate without notice to the Companies. For purposes of determining the Highest Lawful Rate under Applicable Law, the applicable rate ceiling shall be (i) the indicated rate ceiling described in and computed in accordance with the provisions of Section (a)(l) of Art. l.04; or (ii) provided notice is given as required in Section (h)(l) of said Art. 1.04, either the annualized ceiling or quarterly ceiling computed pursuant to Section (d) of said Art. 1.04; provided, however, that at any time the indicated rate ceiling, the annualized ceiling or the quarterly ceiling, as applicable, shall be less than 18% per annum or more than 24% per annum, the provisions of Sections (b)(1) and (2) of said Art. l.04 shall control for purposes of such determination, as applicable. "Income Available for Fixed Charges" means with respect to the ---------------------------------- Companies and their Subsidiaries on a consolidated basis the sum of (a) EBDITA for the applicable period and (b) to the extent the following were deducted in determining the Net Earnings component of such EBDITA, the sum of (i) operating lease expense and (ii) rental expense, each for the applicable period and determined in accordance with GAAP. "Increased Cost" has the meaning set forth in Section 2.08(b) hereof. -------------- "Interest Period" means, (a) with respect to any LIBOR Advance, the --------------- period beginning on the date the Advance is made or continued as a LIBOR Advance, and ending one, two, or three months thereafter, and (b) with respect to any Base Rate Advance, the period beginning on the date the Advance is made or continued as a Base Rate Advance, and ending on the first Business Day of the succeeding calendar quarter. "Law" means any statute, law, ordinance, regulation, rule, order, --- writ, injunction, or decree of any Tribunal. "Lenders" means the Lenders listed on the signature pages hereof, and ------- each Eligible Assignee that hereafter becomes a party hereto pursuant to Section 9.04 hereof. 7 "LIBOR Advance" means an Advance bearing interest at the LIBOR Rate. ------------- "LIBOR Rate" means a per annum rate equal to 0.625% plus the rate ---------- determined pursuant to the following formula: London Interbank Rate ------------------------------- 100% - LIBOR Reserve Percentage "LIBOR Reserve Percentage" means the reserve requirement including any ------------------------ supplemental and emergency reserves (expressed as a percentage) applicable to member banks of the Federal Reserve System in respect of "eurocurrency liabilities" under Regulation D of the Board of Governors of the Federal Reserve System, or any substituted or amended reserve requirement hereafter applicable to member banks of the Federal Reserve System. "License" means, as to any Person, any license, permit, certificate of ------- need, authorization, certification, accreditation, franchise, approval, or grant of rights by any Tribunal or third Person necessary or appropriate for such Person to own, maintain, or operate its business or Property, unless the failure to obtain, retain or comply with same would not constitute a Material Adverse Change. "Lien" means any mortgage, pledge, security interest, encumbrance, ---- deposit arrangement, lien (statutory or otherwise) or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of, or agreement to give, any financing statement under the Uniform Commercial Code of any jurisdiction) or any other type of preferential arrangement for the purpose of, or having the effect of, protecting a creditor against loss or securing with assets the payment or performance of an obligation; provided that -------- this term does not include any agreement or obligation to refrain from placing any encumbrance on any asset. "Litigation" means any proceeding, claim, lawsuit, arbitration, and/or ---------- investigation conducted or threatened by or before any Tribunal, including without limitation proceedings, claims, lawsuits, and/or investigations under or pursuant to any environmental, occupational, safety and health, antitrust, unfair competition, securities, Tax, or other Law, or under or pursuant to any contract, agreement, or other instrument. "Loan Papers" means this Agreement, the Notes and all other documents, ----------- instruments, agreements, or certificates executed or delivered by any Person in connection with this Agreement. "London Interbank Market" means the buying and selling of dollar ----------------------- deposits payable by financial institutions located in London between the Agent and other financial institutions in the ordinary course of the Agent's business. 8 "London Interbank Rate" means, for any Interest Period for any --------------------- Aggregate Advance bearing interest at the LIBOR Rate, the per annum rate of interest at which dollar deposits are offered by the principal office of the Agent in the London Interbank Market at 11:00 a.m., London time, two Business Days prior to the first day of such Interest Period, which deposits are for a period equal to the Interest Period, and in principal amounts similar to the Agent's Specified Percentage of the Aggregate Advance. "Majority Lenders" means any combination of Lenders having at least ---------------- 66-2/3% of the aggregate amount of outstanding Advances; provided, however, that if no Advances are outstanding, such term means any combination of Lenders having Specified Percentages equal to at least 66-2/3%. "Material Adverse Change" or "Material Adverse Effect" means any ----------------------- ----------------------- circumstance or event that is or could reasonably be expected to be material and adverse to the business, condition (financial or otherwise), operations, or Properties of the Companies and their Subsidiaries as a whole. "Maturity Date" means April 1, 1999, or such earlier date the ------------- Obligation becomes due and payable (whether by acceleration, prepayment in full or otherwise) or such later date as extended pursuant to Section 2.12. "Maximum Amount" means the maximum amount of interest which, under -------------- Applicable Law, any Lender is permitted to charge on the Obligation. "Multiemployer Plan" means any Plan which is a "multiemployer plan" ------------------ (as such term is defined in section 4001(a)(3) of ERISA). "Net Earnings Available For Restricted Payments" means with respect to ---------------------------------------------- the Companies and their Subsidiaries on a consolidated basis an amount equal to 75% of Net Earnings. If the preceding calculation results in a number less than zero, such amount shall be considered to be zero. "Net Earnings" means with respect to the Companies and their ------------ Subsidiaries on a consolidated basis an amount equal to gross revenues and other proper income credits of the Companies and their Subsidiaries less all operating and non-operating expenses of the Companies and their Subsidiaries including all charges of a proper character (including current and deferred taxes on income, provision for taxes on unremitted foreign earnings which are included in gross revenues, and current additions to reserves), but not including in gross revenues any gains (net of expenses and taxes applicable thereto) in excess of losses resulting from the sale, conversion or other disposition of capital assets (i.e., assets other than current assets), any gains resulting from the write-up of assets any equity of the Companies or any Subsidiary in the unremitted earnings of any corporation which is not a Subsidiary, any earnings of any Person acquired by the Companies or any Subsidiary through purchase, merger or consolidation or otherwise for any year prior to the year of acquisition, or any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary; each for the applicable period and determined in accordance with GAAP. 9 "Net Worth" means with respect to the Companies and their Subsidiaries --------- on a consolidated basis as of any date of determination the excess of (a) the par value (or value stated on the books of the Companies) of the capital stock (but excluding treasury stock and capital stock subscribed and unissued) plus (or minus in the case of a surplus deficit) the amount of the consolidated surplus (capital surplus and retained earnings) of the Companies and their Subsidiaries which would appear on a consolidated balance sheet of AFC and its Subsidiaries over (b) the sum, without duplication, of treasury stock, unamortized debt discount and expense, goodwill, trademarks, trade names, patents, deferred charges and other intangible assets and any write-up of the value of assets after December 31, 1993; all determined in accordance with GAAP, including the making of appropriate deductions for minority interest (if any) in Subsidiaries. "Note" means each promissory note of the Company evidencing Advances ---- and obligations owing hereunder to a Lender, in substantially the form of Exhibit A attached hereto, payable to the order of such Lender and in a maximum - --------- principal amount equal to such Lender's Specified Percentage of the Commitment, as each seed note may be amended, substituted, replaced, increased or decreased from time to time. "Obligation" means all present and future obligations, indebtedness ---------- and liabilities, and all renewals and extensions of all or any part thereof, of the Company and its Subsidiaries to Lenders arising from, by virtue of, or pursuant to this Agreement, any of the Loan Papers and any and all renewals and extensions thereof or any part thereof, or future amendments thereto, all interest accruing on all or any part thereof and attorneys' fees incurred by each Lender for the administration, execution of waivers, amendments and consents, and in connection with any restructuring, workouts or in the enforcement or the collection of all or any part thereof, whether such obligations, indebtedness and liabilities are direct, indirect, fixed, contingent, joint, several or joint and several. "Officer's Certificate" means a certificate signed in the name of a --------------------- Company by its President, one of its Vice Presidents or its Treasurer. "Permitted Banks" shall have the meaning specified in Section --------------- 5.07(iv). "Person" means an individual, partnership, joint venture, corporation, ------ trust, Tribunal, unincorporated organization, and government, or any department, agency, or political subdivision thereof. "Plan" means an "employee pension benefit plan" (as defined in section ---- 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by a Company or by any trade or business, whether or not incorporated, which, together with a Company, is under common control, as described in section 414(b) or (c) of the Code. 10 "Pro Rata" means, as to any Lender, in accordance with its percentage -------- of the aggregate amount of outstanding Advances; provided, however, that if no Advances are outstanding, such term means in accordance with such Lender's Specified Percentage. "Property" means all types of real, personal, tangible, intangible, or -------- mixed property, whether owned in fee simple or leased. "Prudential Debt" means the obligations of the Companies under (a) --------------- that certain Note Agreement dated November 30, 1991, and (b) that certain Master Shelf Agreement dated September 3, 1993, both of which are among the Companies and The Prudential Insurance Company of America, together with the promissory notes, mortgages and security agreements executed in connection therewith, all as they may be amended from time to time. "Quarterly Date" means the first day of April, July, October and -------------- January. "Ratable" means, as to any Lender, in accordance with its Specified ------- Percentage. "Refinancing Advance" means an Advance that is used to pay the ------------------- principal amount of an existing Advance at the end of its Interest Period and which, after giving effect to such application, does not result in an increase in the aggregate amount of outstanding Advances. "Regulatory Change" means any change after the date hereof in federal, ----------------- state, or foreign Laws (including the introduction of any new Law) or the adoption or making after such date of any interpretations, directives, or requests of or under any federal, state, or foreign Laws (whether or not having the force of Law) by any Tribunal charged with the interpretation or administration thereof, applying to a class of financial institutions that includes any Lender, excluding, however, any such change which results in an adjustment of the LIBOR Reserve Percentage and the effect of which is reflected in a change in the LIBOR Rate as provided in the definition of such term. "Request for Maturity Date Extension" shall have the meaning specified ----------------------------------- in Section 2.12. "Rights" means rights, remedies, powers, and privileges. ------ "Rolling Stock" means road tractors, city tractors and trailers and ------------- freight handling equipment used in the ordinary course of business. "Senior Debt" means the Notes, the Prudential Debt, and Funded Debt ----------- (which is not Subordinate Debt) of the Companies which is secured by a Lien permitted by the provisions of Section 5.06. "Solvent" means, with respect to any Person, that on such date (a) the ------- fair value of the Property of such Person is greater than the total amount of liabilities, including without limitation 11 Contingent Liabilities of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's Property would constitute an unreasonably small capital. "Specified Percentage" means, as to any Lender, the percentage -------------------- indicated beside its name on the signature pages hereof, or specified in a notice by the Agent to the Company in connection with an assignment pursuant to Section 8.04 hereof. "Subordinate Debt" means Funded Debt of the Companies which is ---------------- expressly and validly subordinated to the Notes under conditions and pursuant to terms and provisions approved by the Majority Lenders in writing and which is payable as to principal and interest only out of Net Earnings Available For Restricted Payments pursuant to Section 5.05. "Subsidiary" means any corporation or other entity organized under the ---------- Laws of any state of the United States of America, Canada or any province of Canada, which conducts the major portion of its business in and makes the major portion of its sales to Persons located in the United States of America or Canada, and at least 50% of the total combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned by a Company either directly or through Subsidiaries. "Taxes" means all taxes, assessments, imposts, fees, or other charges ----- at any time imposed by any Laws or Tribunal. "Total Capitalization" means, as of any date of determination, an -------------------- amount equal to the sum of (a) aggregate Debt of the Companies and their Subsidiaries on a consolidated basis plus (b) Net Worth. "Total Tangible Assets" means with respect to the Companies and their --------------------- Subsidiaries on a consolidated basis as of any date of determination their assets less, without duplication, good will, trademarks, brand names, patents and other intangible assets and any write-up of the value of any assets after December 31, 1993; all as determined in accordance with GAAP, including the making of appropriate deductions for minority interest (if any) in Subsidiaries. "Tribunal" means any state, commonwealth, federal, foreign, -------- territorial, or other court or government body, subdivision, agency, department, commission, board, bureau, or instrumentality of a governmental body. "Unused Commitment" means the Commitment, minus all outstanding ----------------- Advances. 12 "Voting Stock" means, with respect to any corporation, any shares of ------------ stock of such corporation whose holders are entitled under ordinary circumstances to vote for the election of directors of such corporation (irrespective of whether at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "Wholly-Owned Subsidiary" means any corporation organized under the ----------------------- laws of any state of the United States of America, Canada, or any province of Canada, which conducts the major portion of its business in and makes the major portion of its sales to Persons located in the United States of America or Canada and all of the stock of every class of which (except directors' qualifying shares, if any) shall, at the time of determination, be owned by a Company either directly or through Wholly-Owned Subsidiaries. Section 1.02. Accounting and Other Terms. All references in this -------------------------- Agreement to GAAP shall be deemed to refer to generally accepted accounting principles in effect in the United States at the time of application thereof, subject to the next sentence. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the audited consolidated financial statements of the Companies and their Subsidiaries delivered pursuant to Section 6.14. References herein to one gender shall be deemed to include all other genders. ARTICLE II AMOUNTS AND TERMS OF ADVANCES ----------------------------- Section 2.01. Advances. -------- (c) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Advances to the Companies until the Maturity Date in an aggregate outstanding amount not to exceed such Lender's Specified Percentage of the Commitment. The Companies may borrow, repay, and reborrow in accordance with this Agreement. Notwithstanding any provision of any Loan Papers to the contrary, in no event shall the aggregate outstanding Advances exceed the Commitment. (d) Each Advance shall be a Base Rate Advance or a LIBOR Advance, as specified in the related notice of borrowing or conversion. Base Rate Advances and LIBOR Advances may be outstanding at the same time, but no more than five Aggregate Advances bearing interest at the LIBOR Rate may be outstanding at any time. Each Aggregate Advance bearing interest at the Base Rate shall be in the amount of $500,000 or an integral multiple of $100,000 in excess thereof; provided, however, that an Aggregate Advance bearing interest at the Base Rate may be made in an amount equal to the Unused Commitment. Each Aggregate Advance bearing interest at the LIBOR 13 Rate shall be in an aggregate amount of $1,000,000 or an integral multiple of $100,000 in excess thereof. Section 2.02. Making Advances. --------------- (e) The Companies shall notify the Agent (if telephonic, to be confirmed by telecopy or in writing before the date of borrowing), not later than 1:00 p.m. (Dallas time) one Business Day before any proposed Base Rate Advance, specifying the amount and date of the Aggregate Advance. The Companies shall notify the Agent (if telephonic, to be confirmed by telecopy or in writing before the date of borrowing), not later than 1:00 p.m. (Dallas time) two Business Days before any proposed LIBOR Advance, specifying the amount, date, and Interest Period of the Aggregate Advance. All such telephonic notices shall be made to the NationsBank of Texas, N.A., attn: Gilda Digges, 901 Main Street, 13th Floor, Dallas, Texas 75202, (214) 508-2138 or such other person as the Agent may from time to time specify. The Agent shall promptly notify the Lenders of each such notice. Each Lender shall, before 1:00 p.m. (Dallas time) on the date of each Advance hereunder, make available to the Agent, at its office at 901 Main Street, 67th Floor, Dallas, Texas 75202, such Lender's Specified Percentage of the Aggregate Advance in immediately available funds. The Agent shall promptly make available to the Companies the funds so received. (f) Each date of borrowing must be a Business Day. If any notice to the Agent requesting a LIBOR Advance fails to specify an Interest Period, the Interest Period shall be one month. If any notice does not specifically request a LIBOR Advance, the Company shall be deemed to have requested a Base Rate Advance. (g) Unless a Lender shall have notified the Agent prior to the date of any Advance that it will not make available its Specified Percentage of the Aggregate Advance, the Agent may assume that such Lender has made the appropriate amount available in accordance with subsection (a) above, and the Agent may, in reliance upon such assumption, make available to the Companies a corresponding amount. If and to the extent any Lender shall not have made such amount available to the Agent, such Lender and Company severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, from the date such amount is made available to the Companies until the date such amount is repaid to the Agent, at (i) in the case of the Companies, the Base Rate, and (ii) in the case of such Lender, the Federal Funds Rate; provided, however, if any Lender wrongfully fails to make any LIBOR Advance available to the Agent, the Companies shall have a claim against such Lender for an amount equal to the difference (based upon such Lender's Specified Percentage of such LIBOR Advance) between the LIBOR Rate for such LIBOR Advance and the interest paid by the Companies pursuant to the immediately preceding clause. (h) The failure by any Lender to make available its Specified Percentage of an Aggregate Advance hereunder shall not relieve any other Lender of its obligation, if any, to make available its Specified Percentage of any Aggregate Advance. In no event, however, shall any Lender be responsible for the failure of any other Lender to make available any portion of an Aggregate Advance. 14 Section 2.03. Fees. Subject to Section 8.09 hereof, the Companies, ---- jointly and severally, agree to pay to the Agent, for the Ratable account of the Lenders, a commitment fee on the average daily amount of the Unused Commitment, from the date hereof through the Maturity Date, at the rate of 0.20% per annum, payable in arrears on each Quarterly Date and on the Maturity Date. Section 2.04. Reduction of Commitment. ----------------------- (i) The Companies shall have the right from time to time, upon notice to the Agent not later than 1:00 p.m. (Dallas time), three Business Days in advance, to reduce the Commitment, in whole or in part; provided, however, that the Companies shall pay any accrued but unpaid commitment fee on the amount of such reduction, and any partial reduction shall be in an aggregate amount which is an integral multiple of $500,000. (j) To the extent outstanding Advances exceed the Commitment after any reduction thereof, the Companies shall repay, on the date of such reduction, any such excess amount and all accrued interest thereon, together with any amounts incurred in connection with such repayment under Section 2.08(c) hereof. Once reduced or terminated, the Commitment may not be increased or reinstated. (k) At each time, if any, that Senior Debt is repaid pursuant to Section 5.08 or 5.09 of this Agreement, the Commitment shall be reduced by an amount equal to the product of (i) the aggregate principal amount of the Senior Debt repaid at such time, multiplied by (ii) a fraction, the numerator of which is the Commitment then in effect at such time, and the denominator of which is equal to the sum of (A) the aggregate principal amount of the Senior Debt (other than the Obligation) outstanding immediately prior to such repayment plus (B) the Commitment then in effect at such time. Any reduction of the Commitment pursuant to this Section 2.04(c) shall not be subject to the requirements of Section 2.04(a) hereof. Section 2.05. Prepayment and Repayment of Advances. ------------------------------------ (l) The Companies may from time to time prepay Aggregate Advances, in whole or in part, without premium or penalty, upon notice to the Agent (if telephonic, to be confirmed by telecopy or in writing before the date of prepayment), not later than 1:00 p.m. (Dallas time) one Business Day before the date of prepayment, which notice shall specify the Aggregate Advance being prepaid, and the amount and date of prepayment. (m) The Companies shall repay the principal amount of each Advance on the last day of its Interest Period and on the Maturity Date. Unless the Companies shall otherwise notify the Agent (if telephonic, to be confirmed by telecopy or in writing before the applicable date), not later than 1:00 p.m. (Dallas time) one Business Day before any Advance is required to be repaid on the last day of its Interest Period pursuant to this subsection, a Refinancing Advance bearing interest at the Base 15 Rate shall be made (subject to Section 3.02 hereof) to the Companies on such date in an amount equal to the lesser of the maturing Advance or the Unused Commitment, and the proceeds of the Refinancing Advance shall be used to repay the maturing Advance. No Refinancing Advance shall be made as a LIBOR Advance, except upon compliance with all applicable requirements of Section 2.02(a) hereof. (n) Each prepayment and repayment hereunder shall be accompanied by all interest accrued on the principal amount being prepaid, together with any amounts incurred in connection with the prepayment under Section 2.08(c) hereof. Unless otherwise specified by the Companies, all prepayments will be applied first to outstanding Base Rate Advances. All telephonic notices under this Section shall be made to NationsBank of Texas, N.A., attn: Gilda Digges, 901 Main Street, 13th Floor, Dallas, Texas 75202, (214) 508-2138, or such other person as the Agent may from time to time specify. Section 2.06. Interest on Advances. Subject to Section 8.09 hereof, -------------------- Base Rate Advances shall bear interest at the lesser of (a) the Highest Lawful Rate and (b) the Base Rate as in effect from time to time. Subject to Section 8.09 hereof, each LIBOR Advance shall bear interest at the lesser of (a) the Highest Lawful Rate and (b) the LIBOR Rate applicable thereto. Accrued interest on each Advance shall be due and payable on the last day of its Interest Period. If the amount of interest payable for the account of any Lender on any interest payment date in respect of any Interest Period for any Base Rate Advance would exceed the Maximum Amount, the amount of interest payable on such interest payment date shall be automatically reduced to the Maximum Amount. If the amount of interest payable for the account of any Lender in respect of any interest computation period is reduced pursuant to the immediately preceding sentence and the amount of interest payable for its account in respect of any subsequent interest computation period would be less than the Maximum Amount, then the amount of interest payable for its account in respect of such subsequent interest computation period shall be automatically increased to such Maximum Amount; provided that at no time shall the aggregate amount by which interest paid for the account of any Lender has been increased pursuant to this sentence exceed the aggregate amount by which interest paid for its account has theretofore been reduced pursuant to the immediately preceding sentence. All past due principal and interest shall upon notice by the Administrative Lender to the Companies, bear interest at the lesser of (i) the Base Rate as in effect from time to time, plus 3% or (ii) the Highest Lawful Rate, due and payable on demand. Section 2.07. Computations and Manner of Payments. ----------------------------------- (o) Except as otherwise provided in Section 2.05(b) hereof, the Companies shall make each payment hereunder and under the other Loan Papers not later than 1:00 p.m. (Dallas time) on the day when due in same day funds to the Agent, for the Ratable account of the Lenders unless otherwise specifically provided herein, at the Agent's office at 901 Main Street, 67th Floor, Dallas, Texas 75202. No later than the end of each day when each payment hereunder is made, the Companies shall notify NationsBank of Texas, N.A., attn: Gilda Digges, 901 Main Street, 13th Floor, Dallas, Texas 75202, (214) 508-2138, or such other person as the Agent may from time to time specify. 16 (p) Unless the Agent shall have received notice from the Companies prior to the date on which any payment is due hereunder that the Companies will not make payment in full, the Agent may assume that such payment is so made on such date and may, in reliance upon such assumption, make distributions to the Lenders. If and to the extent the Companies shall not have made such payment in full, each Lender shall repay to the Agent forthwith on demand the applicable amount distributed, together with interest thereon at the Federal Funds Rate, from the date of distribution until the date of repayment. The Companies hereby authorize each Lender, if and to the extent payment is not made when due hereunder, to charge the amount so due against any account of the Companies with such Lender. (q) Subject to Section 8.09 hereof, all computations of interest and fees hereunder shall be made on the basis of a year of 360 days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fee is payable. All payments under the Loan Papers shall be made in United States dollars, and without setoff, counterclaim, or other defense. (r) Whenever any payment to be made hereunder or under any other Loan Papers shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest or fees, if applicable. Notwithstanding the foregoing, if any payment relating to a LIBOR Advance falls due on a day that is not a Business Day and no further Business Day occurs in that calendar month, then the due date thereof shall be the preceding Business Day. Section 2.08. Yield Protection; Taxes. ----------------------- (s) Notwithstanding anything in this Agreement to the contrary, if any Lender shall have reasonably determined that (i) by reason of changes affecting the London Interbank Market, adequate and fair means do not exist for reasonably ascertaining the London Interbank Rate or the continuation of LIBOR Advances has been made impracticable by the occurrence of a contingency which materially and adversely effects the London Interbank Market, or (ii) any Regulatory Change shall make it unlawful for any Lender to make or maintain any LIBOR Advances or to match eurodollar liabilities thereto, such Lender shall forthwith give written notice thereof to the Companies. After said written notice and until such time as such Lender shall determine that said adverse conditions no longer exist, (A) no additional LIBOR Advances shall be made by such Lender, and all requests for LIBOR Advances shall be deemed to request a Base Rate Advance from such Lender, and (B) each outstanding LIBOR Advance made by such Lender shall be converted into a Base Rate Advance on the last day of its Interest Period. (t) If, as a result of any Regulatory Change, 17 (i) the basis of taxation of payments to any Lender of the principal of or interest on any LIBOR Advance or any other amounts payable hereunder in respect thereof (other than Taxes imposed on the overall net income of the Lender) is changed; (ii) any reserve, special deposit, or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, any Lender are imposed, modified, or deemed applicable; or (iii) any other condition affecting this Agreement or LIBOR Advances is imposed on any Lender; and the Lender reasonably determines that, by reason thereof, the cost to it of making or maintaining any LIBOR Advance is increased by an amount deemed by it to be material, or any amount receivable by such Lender in respect of any LIBOR Advance is reduced by an amount deemed by it to be material (any such increase in cost or reduction in amounts receivable being an "Increased Cost"), then the -------------- Companies shall pay promptly upon written demand to such Lender such additional amounts as such Lender reasonably determines will compensate it for such Increased Cost; provided, however, that notwithstanding any provision herein to the contrary, the Companies shall have the right to convert outstanding LIBOR Advances made by such Lender into Base Rate Advances following such demand, so long as it pays such Lender all Increased Costs associated therewith and any other amounts accruing as a result of such conversion under subsection (c) hereof. (u) Without prejudice to any provisions of this Section, the Companies hereby agree to indemnify each Lender against any loss or expense which it may incur as a result of (i) any principal payment, prepayment, or conversion of a LIBOR Advance on a day other than the last day of its Interest Period, (ii) any failure by the Companies to borrow or convert on a date specified therefor pursuant to Section 2.02 or 2.05 hereof, or (iii) any failure by the Companies to comply with Section 2.05 hereof, including failure to prepay following notice under Section 2.05(a) hereof. (v) If any Lender reasonably determines that compliance with any Applicable Law (including without limitation existing and future Laws), or any guideline or request from any central bank or other Tribunal (whether or not having the force of Law), regarding capital adequacy has or would have the effect of reducing the rate of return on such Lender's capital or such Affiliate's capital or affects or would affect the amount of capital required or expected to be maintained by such Lender or any of its Affiliates, and that the amount of such capital is increased or the rate of return on such capital is decreased by or based upon the existence of any commitment or Advance (or similar commitments or loans), then, upon written demand by such Lender, the Company shall immediately pay to such Lender, from time to time as specified, additional amounts sufficient to compensate it or any of its Affiliates in the light of such circumstances, to the extent that such Lender or Affiliate reasonably determines such increase in capital or decrease in rate of return on capital to be allocable to the existence or maintenance of or any participation in any commitment or Advance. No failure by any Lender to immediately demand payment of any additional amounts payable hereunder shall constitute a 18 waiver of such Lender's right to demand payment of such amounts at any subsequent time. Nothing herein contained shall be construed or so operate as to require the Companies to pay interest, fees, costs or charges greater than is permitted by Applicable Law. (w) Provided that notice shall have been given to the Companies of the reasons therefor and in reasonable detail, determinations by any Lender for purposes of this Section shall be conclusive, absent manifest error. (x) The obligations of the Company under this Section 2.08 shall survive the termination of this Agreement and/or the Commitment and repayment of the Obligation. Section 2.09. Calculation of LIBOR Rate. The provisions of this ------------------------- Agreement relating to calculation of the LIBOR Rate are included only for the purpose of determining the rate of interest or other amounts to be paid hereunder that are based upon such rate. It is acknowledged that each Lender shall be entitled to fund and maintain any LIBOR Advance as it sees fit. All determinations hereunder, however, shall be made as if each Lender had actually funded and maintained each LIBOR Advance through the purchase in the London Interbank Market of one or more eurodollar deposits in an amount equal to the principal amount of such Advance and having a maturity corresponding to its Interest Period. Section 2.10. Quotation of Rates. It is hereby acknowledged that the ------------------ Companies may call the Agent on or before the date on which notice of an elective interest rate is to be given by the Companies in order to receive an indication of the LIBOR Rate then in effect, but that such indication shall not be binding upon the Agent and Lenders, nor affect the rate of interest which is thereafter actually in effect when the election is made. Section 2.11. Booking Loans. Each Lender may make, carry, or transfer ------------- Advances at, to, or for the account of any of its branch offices or the office of any Affiliate. Section 2.12. Extension of the Commitment. The Companies may notify --------------------------- the Agent in writing by March 31 of each year ("Request for Maturity Date ------------------------- Extension", in the form of Exhibit B attached hereto) while this Agreement is in - --------- --------- effect (commencing March 31, 1995) of their desire to extend the Maturity Date for an additional 12 months beyond the then existing Maturity Date. If the Request for Maturity Date Extension notice is given by Borrowers, the Lenders, by May 31 of each such year while this Agreement is in effect, will notify the Companies of their decision to extend the Maturity Date for an additional 12 months by returning to the Companies the Request for Maturity Date Extension as completed by the Lenders. Extension of the Maturity Date shall be at the option and in the sole discretion of the Lenders. The extension of the Maturity Date shall become, and will be deemed exclusively evidenced by, the Lenders indicating their unanimous decision to extend the Maturity Date on the Request for Maturity Date Extension. If the Lenders or the Company fail to deliver the Request for Maturity Date Extension within the time prescribed above, the Commitment will be terminated as of the then present Maturity Date unless the parties hereto agree otherwise. The 19 parties hereto agree that any extension of the Maturity Date pursuant to this Section 2.12 shall not require any (i) amendment of or supplement to this Agreement or any other Loan Documents or (ii) execution and delivery of any renewal Notes. ARTICLE III CONDITIONS PRECEDENT -------------------- Section 3.01 Conditions Precedent to Effectiveness. The ------------------------------------- effectiveness of this Agreement is subject to fulfillment of the following conditions precedent: (y) The making of the Commitment shall not contravene any Law applicable to the Agent or any Lender. (z) No Material Adverse Change, as determined by the Agent, shall have occurred and be continuing since December 31, 1993. (aa) Each Company shall have delivered to the Agent a Certificate, dated the effective date, executed by a duly authorized officer, certifying as an officer of such Company that (i) no Default or Event of Default has occurred and is continuing, (ii) the representations and warranties set forth in Article IV hereof with respect to such Company are true and correct, and (iii) it has complied with all agreements and conditions to be complied with by it under the Loan Papers by such date. (bb) Each Company shall have delivered to the Agent a Secretary's Certificate, dated the effective date, certifying (i) that copies of its certificate of incorporation and bylaws previously delivered to the Agent are true and complete, and in full force and effect, without amendment except as shown, (ii) that a copy of its resolutions authorizing execution and delivery of this Agreement and any Loan Papers attached thereto is true and complete, and that such resolutions are in full force and effect, were duly adopted, have not been amended, modified, or revoked, and constitute all resolutions adopted with respect to this loan transaction, and (iii) to the incumbency, name, and signature of each officer authorized to sign this Agreement and any amendments to Loan Papers on its behalf. The Agent and Lenders may conclusively rely on the certificate delivered pursuant to this subsection until they receive notice in writing to the contrary. (cc) The Agent shall have received opinions of counsel to the Companies, dated the effective date, which counsel shall be acceptable to the Agent, (i) to the effect that the Companies have full power and authority to execute, deliver, and perform this Agreement, the Notes and the other Loan Papers delivered by it; (ii) to the effect that all such Loan Papers constitute the legal, valid, and binding obligations of the Company, enforceable in accordance with their respective terms (subject as to enforcement of remedies to any applicable bankruptcy, reorganization, moratorium, fraudulent conveyance, or similar Laws or principles of equity affecting the enforcement of creditors' rights 20 generally); and (iii) as to such other matters, and otherwise in form and substance, satisfactory to the Agent. (dd) The Agent shall have received, in form and substance satisfactory to it, (i) certificates from the Secretary of State and other appropriate officials of the state of organization certifying that the Companies are corporations duly organized, validly existing, and in good standing in said state as of the respective dates thereof, and (ii) certificates of appropriate authorities of all jurisdictions where the Companies should be qualified to do business, to the effect that they are in good standing and duly qualified to transact business in such jurisdictions. (ee) The Agent shall have received copies of the executive summaries from the most recent environmental reports prepared on each of the terminals operated by either Company or any Subsidiary, together with such other information as the Agent may reasonably request concerning the Companies' compliance with Environmental Laws. (ff) The Agent shall have received a certified copy of an amendment to the Prudential Debt which shall (i) provide that the Obligation shall be "Senior Debt" thereunder and (ii) cause the covenants in the Prudential Debt to be similar to the covenants in this Agreement. (gg) The Agents shall have received a Note for each Lender, duly executed with all blanks appropriately filled. (hh) All proceedings of the Companies and their Subsidiaries taken in connection with the transactions contemplated hereby, and all documents incidental thereto, shall be satisfactory in form and substance to the Agent. The Agent shall have received copies of all documents or other evidence that it may reasonably request in connection with such transactions. Section 3.02. Conditions Precedent to All Advances. The obligation of ------------------------------------ each Lender to make each Advance (including the initial Advance) shall be subject to the further conditions precedent that on the date of such Advance (a) the following statements shall be true (and the delivery of each notice of borrowing under Section 2.02(a) hereof or the failure to deliver a notice under Section 2.05(b) hereof shall constitute a representation that on the disbursement date they are true): (i) The representations and warranties contained in Article IV hereof are true and correct on such date, as though made on and as of such date, and (ii) No event has occurred and is continuing, or would result from such Advance (including the intended application of the proceeds of such Advance), that does or could constitute a Default or Event of Default; and (b) the Agent shall have received, in form and substance acceptable to it, such other approvals, documents, certificates, opinions, and information as it may deem necessary or appropriate. 21 ARTICLE IV REPRESENTATIONS AND WARRANTIES ------------------------------ The Company represents and warrants that the following are true and correct: Section 4.01. Organization; Qualification; Corporate Authority. Each ------------------------------------------------ Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Arkansas, and each Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated. Each Company has and each Subsidiary has the corporate power to own its respective property and to carry on its respective business as now being conducted. The execution, delivery and performance by each Company of this Agreement and the Notes are within such Company's corporate powers and have been duly authorized by all necessary corporate action. Set forth on Schedule I ---------- attached hereto is a complete and accurate listing of each Subsidiary of each Company, showing (a) the jurisdiction of its incorporation, (b) the classes of capital stock, and the number of shares authorized and outstanding, and (c) each owner of outstanding shares on the date of this Agreement. Section 4.02. Financial Statements. The Companies have furnished each -------------------- Lender with the following financial statements, identified by a principal financial officer of the Companies: (i) a consolidated balance sheet of AFC and its Subsidiaries as at December 31, 1993 and a consolidated statement of income and statement of cash flows of AFC and its Subsidiaries for such year, all reported on by Ernst & Young. Such financial statements (including any related schedules and/or notes) are true and correct in all material respects have been prepared in accordance with GAAP consistently followed throughout the periods involved and show all liabilities, direct and contingent, of AFC and its Subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present the condition of AFC and its Subsidiaries as at the dates thereof, and the statements of income and statements of cash flows fairly present the results of the operations of AFC and its Subsidiaries for the periods indicated. There has been no Material Adverse Change since December 31, 1993. Each Company and each of their respective Subsidiaries is Solvent. Section 4.03. Actions Pending. There is no Litigation pending or, to --------------- the knowledge of the Companies, threatened against the Companies or any of their Subsidiaries, or any properties or rights of the Companies or any of their Subsidiaries, by or before any Tribunal which might result in any Material Adverse Change. There is no Litigation or proceeding pending or threatened against the Companies or any of their Subsidiaries which purports to affect the validity or enforceability of this Agreement or any Note. Section 4.04. Outstanding Debt. Neither Company nor any of their ---------------- Subsidiaries has outstanding any Debt except as permitted pursuant to Section 5.01. There exists no default under the 22 provisions of any instrument evidencing such Debt or of any agreement relating thereto. The obligations of the Companies under the Loan Papers constitute "senior" debt within the meaning of the subordination provisions of each issue of Subordinate Debt, if any. Section 4.05. Environmental Compliance. The Companies and their ------------------------ Subsidiaries and all of their respective properties and facilities have complied at all time and in all respects with all Environmental Laws except, in any such case, where failure to comply would not have a Material Adverse Effect. Section 4.06. Taxes. Each Company has and each of their Subsidiaries ----- has filed all federal, state and other Tax returns which, to the best knowledge of the officers of the Companies, are required to be filed, and each has paid all Taxes as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such taxes as are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP. Section 4.07. Conflicting Agreements and Other Matters. Neither ---------------------------------------- Company nor any of their Subsidiaries is a party to any contract or agreement or subject to any charter or other corporate restriction which materially and adversely affects its business, property or assets, or financial condition. Neither the execution nor delivery of this Agreement or the Notes, nor fulfillment of nor compliance with the terms and provisions hereof and of the Notes will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Companies or any of their Subsidiaries pursuant to, the charter or by-laws of the Companies or any of their Subsidiaries, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, or Law to which the Companies or any of their Subsidiaries is subject. Neither Company nor any of their Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing indebtedness of such Company or such Subsidiary, any agreement relating thereto or any other contract or agreement (including its charter) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Companies of the type to be evidenced by the Notes except as set forth in the agreement relating to the Prudential Debt, a copy of which have previously been delivered to each Lender. Section 4.08. Compliance With Laws Regulating the Incurrence of Debt. ------------------------------------------------------ No proceeds of any Advance will be used directly or indirectly to acquire any security in any transaction which is subject to Sections 13 and 14 of the Exchange Act. The Companies and their Subsidiaries are not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. Following the Companies' intended use of the proceeds of each Advance, not more than 25% of the value of the assets of the Companies, both individually and on a consolidated basis with their Subsidiaries, will be 23 "margin stock" within the meaning of Regulation U. The Companies and their Subsidiaries are not subject to regulation under any Law that would limit the incurrence of Debt or restrict their ability to enter into this Agreement or perform their obligations under this Agreement or the Notes. Section 4.09. ERISA. No accumulated funding deficiency (as defined ----- in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan (other than a Multiemployer Plan). No liability to the Pension Benefit Guaranty Corporation has been or is expected by the Companies to be incurred with respect to any Plan by the Companies or any of their Subsidiaries which would have a Material Adverse Effect. Neither Company nor any of their Subsidiaries has incurred or presently expects to incur any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan which would have a Material Adverse Effect. No Plan providing welfare benefits to retired former employees of the Companies or any of their Subsidiaries has been established or is maintained for which the present value of future benefits payable, in excess of irrevocably designated funds for such purpose, would have a Material Adverse Effect. Section 4.10. Governmental Consent. Neither the nature of the -------------------- Companies or of any Subsidiary, nor any of their respective businesses or properties, nor any relationship between the Companies or any Subsidiary and any other Person, nor any circumstance in connection with this Agreement or the other Loan Papers is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any Tribunal (other than routine filings after the date of this Agreement with the Securities and Exchange Commission and in connection with the execution and delivery of this Agreement or fulfillment of or compliance with the terms and provisions hereof or of the Notes. Section 4.11. Enforceability. This Agreement is, and the Notes when -------------- delivered hereunder will be, legal, valid and binding obligations of each Company enforceable against each Company in accordance with their terms. Section 4.12. Licenses and Title to Properties. Each Company possesses and each of their Subsidiaries possesses all Licenses and are not in violation thereof in any material respect. Each Company has and each of their Subsidiaries has good and indefeasible title to its respective real Properties (other than Properties which it leases) and good title to all of its other respective Properties and assets, including the Properties and assets reflected in the balance sheet as at December 31, 1993 referred to in Section 4.02 (other than Properties and assets disposed of in the ordinary course of business), subject to no Lien of any kind except Liens permitted by Section 5.06. All leases necessary in any material respect for the conduct of the respective businesses of the Companies and their Subsidiaries are valid and subsisting and are in full force and effect. Section 4.13. No Improper Payment or Influence. Neither Company nor -------------------------------- any Subsidiary has directly or indirectly paid or delivered any fee, commission or other money or property, or engaged in any lobbying, influencing or other behavior, however characterized, to any agent, government official, regulatory body, governmental agency or other Person, in the United States or any other country, 24 related to the business or operations of the Companies or any of their Subsidiaries, and neither Company or any Subsidiary knows or has reason to believe to have been illegal under any Federal, state, or local law of the United States or any other country having jurisdiction, or to have been for the purpose of, and to have had the effect of, inducing or encouraging the breach by the recipient thereof of any legal duties, whether as an employee or otherwise to another Person. Section 4.14. Labor and Employee Relations Matters. Except as set ------------------------------------ forth on Schedule II: ----------- (i) neither Company nor any Subsidiary is or expects to be the subject of any union organizing activity or labor dispute, nor has there been any strike of any kind called, or, to the knowledge of the Companies, threatened to be called against it or any Subsidiary; and neither Company nor any Subsidiary has violated any applicable federal or state law or regulation relating to labor or labor practices; (ii) no present or former employees of the Companies or any Subsidiary have advanced claims in writing against the Companies or any Subsidiary (whether under any foreign, federal, state or common law, through a government agency, under an employment agreement, collective bargaining agreement, personal service or independent contractor agreement or otherwise) that are currently pending for (A) overtime pay, other than overtime pay for the current period; (B) wages, salaries or profit sharing (excluding wages, salaries or profit sharing for the current payroll period); (C) vacations, time off (including without limitation, potential sick leave) or pay in lieu of vacation or time off, other than vacation or time off (or pay in lieu thereof) earned in respect of either Company's current fiscal year; (D) any violation of any statute, ordinance or regulation relating to minimum wages or maximum hours of work; (E) discrimination against employees on any basis; (F) unlawful employment or termination practices; (G) unfair labor practices or alleged violations of collective bargaining agreements; (H) any violation of occupational safety and/or health standards; (I) benefits under any employee plans or compensation arrangement; and (J) breach of any employment, personal service or independent contractor agreement that, in the aggregate, exceed $500,000; (iii) there is not pending against either Company or any subsidiary or, to the knowledge of the Companies threatened, any labor dispute, strike or work stoppage that materially affects or materially interferes with, or may materially affect or materially interfere with, such Company's or such Subsidiary's operations after the date hereof; (iv) there is not pending or, to the knowledge of the Companies threatened, any charge or complaint against the Companies or any Subsidiary by or before the National Labor Relations Board, any representative thereof, or any comparable foreign or state agency or authority; and 25 (v) there are no collective bargaining agreements to which the Companies or any Subsidiary is a party. Section 4.15. Disclosure. Neither this Agreement nor any other ---------- documents, certificate or statement furnished to you by or on behalf of the Companies in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Companies or any of their Subsidiaries which materially adversely affects or in the future may (so far as the Companies can now reasonably foresee) materially adversely affect the business, property or assets, or financial condition of the Companies or any of their Subsidiaries and which has not been set forth in this Agreement or in the other documents, memoranda, certificates and statements furnished to you by or on behalf of the Companies prior to the date hereof in connection with the transactions contemplated hereby. Section 4.16. Common Enterprise. The Companies are engaged in the ----------------- transportation, common and contract motor carrier, trucking and truck terminal business, as well as in certain other businesses. These operations require financing on an integrated basis such that the credit supplied can be made available from time to time to either Company as required for the continued successful operation of the Companies, and the integrated operation as a whole. The Companies have requested the Lenders to make credit available to the Companies hereunder primarily for the purposes of financing the integrated operations of the Companies. Each Company expects to derive benefit (and the Board of Directors of each Company has determined that such Company may reasonably be expected to derive benefit) directly or indirectly, from the credit extended by the Lenders hereunder, both in its separate capacity and as a member of the integrated group, since the successful operation and condition of each Company is dependent on the continued successful performance of the functions of the integrated group as a whole. ARTICLE V COVENANTS --------- So long as the Commitment or any Advance is outstanding, or the Companies owe any other amount hereunder: Section 5.01. Company Debt. The Companies will not permit at any ------------ time the ratio of the aggregate amount of Debt of the Companies and their Subsidiaries on a consolidated basis to Total Capitalization to be greater than (a) 0.65 to 1.00, during the period from the date of this Agreement to and including December 31, 1997, and (b) 0.60 to 1.00, thereafter. Section 5.02. Subsidiary Debt. The Companies will not permit any --------------- Subsidiary to directly or indirectly create, incur, assume, guarantee or otherwise become or remain directly or indirectly liable 26 with respect to any Debt other than (a) the existing Debt of their Subsidiaries outstanding on the date hereof and set forth on Schedule III, which debt may be ------------ extended or renewed beyond its existing maturity provided that there is no increase in the outstanding principal amount of such Debt and (b) Debt of Subsidiaries which, together with the aggregate principal amount of Debt secured by Liens permitted by clauses (iii), (iv), (v) and (v) of Section 5.06 (Debt of Subsidiaries and such Debt secured by such Liens, collectively, "Priority -------- Debt"), does not exceed an amount equal to 10% of Net Worth; provided, further, - ---- -------- ------- that the aggregate outstanding principal amount of the Arkansas Development Finance Authority Economic Development Revenue Bonds (Arkansas Freightways Corporation Project) Series 1989 issued in the original, aggregate principal amount of $8,670,000 shall not be deemed to be Priority Debt. Section 5.03. Fixed Charge Ratio. The Companies will not permit at any time the ratio of Income Available for Fixed Charges (based on the four fiscal quarters immediately prior to the date of determination) to Fixed Charges (based on the four fiscal quarters immediately prior to the date of determination) to be less than 2.00 to 1.00. Section 5.04. Current Ratio. The Companies will not permit at any ------------- time the ratio of Current Assets to Current Liabilities to be less than 1.00 to 1.00. Section 5.05. Dividend Limitation. The Companies covenant that they ------------------- will not (a) pay or declare any dividend on any class of their stock; (b) make any other distribution on account of any class of their stock, or redeem, purchase or otherwise acquire, directly or indirectly, any shares of their stock; (c) make or permit to remain outstanding any loan or advance to, or guarantee, endorse or otherwise be or become contingently liable, directly or indirectly, for any obligation of any Affiliate or stockholder (excluding AFC as a stockholder of AFI); or (d) make any unscheduled payments of principal of, or retire, redeem, defease, purchase or otherwise acquire, any Subordinated Debt (all of the foregoing being herein called "Restricted Payments") unless (i) the ------------------- sum of such Restricted Payment and all other Restricted Payments made in the current fiscal year does not exceed Net Earnings Available For Restricted Payments for such year, and (ii) no Default or Event of Default has occurred and is continuing or would exist after giving effect to such Restricted Payment. There shall not be included in Restricted Payments (w) any payments under clause (d) above which are made solely out of the net proceeds of a concurrent sale of capital stock of AFC or which are paid solely in shares of capital stock of AFC; (x) dividends paid, or distributions made, in capital stock of AFC; (y) exchange of capital stock of one or more classes of AFC for capital stock of AFC or for capital stock of AFC of the same class, except to the extent that cash or other value is involved in such exchange; or (z) the payment of dividends or distributions by AFI to AFC. The term "capital stock" as used in this Section 5.05 shall include warrants, options or rights to purchase or subscribe for capital stock. Section 5.06. Liens. The Companies will not, and will not permit any ----- Subsidiary to, create, assume or suffer to exist any Lien upon any of its properties or assets, whether now owned or hereafter acquired (whether or not provision is made for the equal and ratable securing of the Notes in accordance with the provisions of Section 5.15), except ------ 27 (i) (a) Liens for Taxes not yet due or which are being actively contested in good faith by appropriate proceedings, (b) Liens (other than any Lien imposed by ERISA or Environmental Laws) incurred or deposits or reserves made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, reclamation bonds, bids, leases, government contracts or progress payments, performance and return-of-money bonds and other similar obligations (exclusive of obligations made or incurred in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property); (c) easements, rights-of-way, restrictions, adverse claims, charges or encumbrances, provided that such easements, rights-of-way, restrictions, adverse claims, charges and encumbrances do not (or, if exercised or availed of, will not), individually or in the aggregate, materially impair the usefulness of the affected property for the purposes for which it is held by the Companies or their Subsidiaries; or (d) the rights of collecting banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of the Companies or their Subsidiaries on deposit with or in the possession of such banks, (ii) other statutory Liens incidental to the conduct of its business or the ownership of its property and assets which are not incurred in connection with the borrowing of money or the obtaining of advances or credit or guaranteeing the obligations of a Person (including landlord liens), and which do not in the aggregate materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business, (iii) Liens on property of the Companies and their Subsidiaries described in Schedule IV) attached hereto and extensions and renewals thereof provided that (a) there is no increase in the outstanding principal amount of the debt secured thereby and (b) no additional property of any Company or Subsidiary is encumbered in connection with such extension or renewal. (iv) Liens existing on any real property of any corporation at the time it becomes a Subsidiary, or existing prior to the time of acquisition upon any property acquired by the Companies or any Subsidiary through purchase, merger or consolidation or otherwise, whether or not assumed by the Companies or such Subsidiary, or placed on any property at the time of acquisition by the Companies or any Subsidiary to secure all or a portion of (or to secure Debt incurred to pay all or a portion of) the purchase price thereof, provided that (a) all of such property is not or -------- shall not thereby become encumbered by Debt having an outstanding principal amount in excess of the lesser of the cost thereof or fair value thereof (as of the date of such purchase) and (b) any such Lien shall not encumber any other property of the Companies or such Subsidiary, 28 (v) any Lien renewing, extending or refunding any Lien permitted by clause (iv) above, provided that the principal amount secured -------- is not increased, and the Lien is not extended to other property, and (vi) other Liens on the property of the Companies; provided that Priority Debt shall not exceed an amount equal to 10% of Net -------- Worth; provided, further, that the aggregate outstanding principal amount -------- ------- of the Arkansas Development Finance Authority Economic Development Revenue Bonds (Arkansas Freightways Corporation Project) Series 1989 issued in the original, aggregate principal amount of $8,670,000 shall not be deemed to be Priority Debt. Section 5.07. Loans, Advances, Investments and Contingent ------------------------------------------- Liabilities. The Companies will not, and will not permit any Subsidiary to, make - ----------- or permit to remain outstanding any loan or advance to, or extend credit (other than credit extended in the normal course of business to any Person who is not an Affiliate of the Companies) to, or guarantee, endorse or otherwise be or become contingently liable, directly or indirectly, in connection with the obligations, stock or dividends of, or own, purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any Person, except that the Companies or any Subsidiary may ------ (i) make or permit to remain outstanding loans or advances to one another, (ii) own, purchase or acquire stock, obligation or securities of a Wholly-Owned Subsidiary or of a corporation or other entity which immediately after such purchase or acquisition will be a Wholly-Owned Subsidiary, (iii) acquire and own stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to the Companies or any Subsidiary, (iv) own, purchase or acquire (a) certificates of deposit of commercial banks organized under the laws of the United States (having capital and surplus in excess of $100,000,000 and a rating of "B" or better by Thomson Bank Watch; "Permitted Banks"), (b) commercial paper issued by --------------- any Person rated A-1 by Standard and Poor's Corporation or P-1 by Moody's Investors Services, Inc. (in each case under (a) and (b), due within one year from the date of purchase and payable in the United States in United States dollars), (c) obligations of the United States Government or any agency thereof, and obligations guaranteed by the United States Government and (d) repurchase agreements of Permitted Banks for terms of less than one year in respect of the foregoing certificates and obligations, (v) endorse negotiable instruments for collection in the ordinary course of business, and 29 (vi) make or permit to remain outstanding loans and other like advances to stockholders, officers and employees in the ordinary course of business in an aggregate amount up to $750,000; provided that notwithstanding anything above to the contrary, loans or advances - -------- to, or investments in, Garrison Corporation by the Companies shall be limited to (i) loans, advances and investments in existence on the date of this Agreement and (ii) loans, advances and investments made after the date of this Agreement not to exceed $2,000,000 in aggregate principal amount. Section 5.08. Sale of Stock and Debt of Subsidiaries. The Companies -------------------------------------- will not, and will not permit any Subsidiary to, sell or otherwise dispose of, or part with control of, or permit any Subsidiary to issue, sell or otherwise transfer to any Person, any shares of stock or Debt of any Subsidiary, except to a Company or another Wholly-Owned Subsidiary, and except that all shares of stock and Debt of any Subsidiary at the time owned by or owed to the Companies and all Subsidiaries may be sold as an entirety for a cash consideration which represents the fair value (as determined in good faith by the Boards of Directors of the Company(ies)) at the time of sale of the shares of stock and Debt so sold, provided that (a) the assets of such Subsidiary together with the -------- assets of any other Subsidiary the stock of which was sold in the preceding 12- month period do not represent more than 10% of the Total Tangible Assets of the Companies and their Subsidiaries on a book value basis as reflected on the most recent annual or quarterly consolidated balance sheet or (b) if the sale does not satisfy the requirements of clause (a), the proceeds of such sale are either (i) reinvested within 12 months of the date of such sale in either (A) Rolling Stock of the Companies or (B) assets similar to those of the Subsidiary sold (or stock of a Subsidiary holding such similar assets) and, prior to reinvestment, such proceeds shall be invested in instruments that satisfy the requirements of Section 5.07(iv), or (ii) used at the time of such sale to repay Senior Debt of the Companies pro rata based on the amount of Senior Debt that is owed to each payee thereof at such time bears to the aggregate amount of Senior Debt outstanding at such time , and, in either case, at the time of such sale, such Subsidiary shall not own, directly or indirectly, any shares of stock or Debt of any other Subsidiary (unless all of the shares of stock and Debt of such other Subsidiary owned, directly or indirectly, by the Companies and all Subsidiaries are simultaneously being sold as permitted by this Section 5.08). Section 5.09. Merger and Sales of Assets. The Companies will not, -------------------------- and will not permit any Subsidiary to, merge or consolidate with or into any other Person or convey, lease, transfer or otherwise dispose of all or a substantial part (i.e. assets which constitute more than 10% of the Total Tangible Assets of the Companies and their Subsidiaries) of its assets to any Person, or acquire all or substantially all of the assets of any Person except ------ that (i) any Subsidiary may merge with a Company (provided that a Company shall be the continuing or surviving corporation) or with any one or more other Wholly-Owned Subsidiaries (provided that a Wholly-Owned Subsidiary shall be the continuing or surviving corporation); 30 (ii) any Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to a Company or a Wholly-Owned Subsidiary; (iii) AFC may merge with any other corporation, provided that AFC shall be the continuing or surviving corporation; (iv) the Companies and any Subsidiary may sell or otherwise dispose of inventory in the ordinary course of business; and (v) the Companies and any Subsidiary may sell a substantial part of their assets (as herein defined) if the proceeds of such sale are either (i) reinvested within 12 months of the date of such sale in either (A) Rolling Stock of the Companies or (B) assets similar to those assets sold and, prior to reinvestment, such proceeds shall be reinvested in instruments that satisfy the requirements of Section 5.07(iv), or (ii) used at the time of such sale to repay Senior Debt of the Companies pro rata based on the amount of Senior Debt that is owed to each payee thereof at such time bears to the aggregate amount of Senior Debt outstanding at such time . Section 5.10. Capital Expenditures. The Companies will not, and will -------------------- not permit any Subsidiary to, make or commit to make any capital expenditure (as determined in accordance with GAAP) unless, immediately after the making of any such expenditure, the Companies will be in compliance with Sections 5.01 through 5.04. Section 5.11. Business. The Companies and each of their Subsidiaries -------- will not conduct any business except businesses presently conducted and other businesses related thereto. Section 5.12. Transaction with Affiliates. The Companies will not, --------------------------- and will not permit any Subsidiary to, enter into or be a party to a transaction with any Affiliate, except on terms no less favorable than could be obtained on an arm's-length basis with a Person that is not an Affiliate. Section 5.13. Financial Statements. The Companies will deliver to -------------------- each Lender: (i) as soon as practicable and in any event no later than 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, comparative consolidated statements of income and statements of cash flows of AFC and its Subsidiaries for the period from the beginning of the current fiscal year to the end of such quarterly period, and comparative consolidated balance sheets of AFC and its Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, all in reasonable detail and satisfactory in form to the Majority Lenders and certified by an authorized financial officer of each Company, subject to changes resulting from year-end adjustments; provided, -------- however, that delivery pursuant to clause (iii) below of copies of the ------- Quarterly Report on Form 10-Q of AFC for such quarterly 31 period as filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (i); (ii) as soon as practicable and in any event no later than 90 days after the end of each fiscal year, consolidated statements of income and statements of cash flows of AFC and its Subsidiaries for such year, and consolidated balance sheets of AFC and its Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding consolidated figures from the preceding annual audit, all in reasonable detail and satisfactory in form to the Majority Lenders (it being understood that no special audit procedures or form of report, other than those required by generally accepted auditing standards, shall be required) and reported on by independent public accountants of recognized national standing selected by AFC whose report shall be without limitation as to the scope of the audit and satisfactory in substance to the Majority Lenders; provided, -------- however, that delivery pursuant to clause (iii) below of copies of the ------- Annual Report on Form 10-K of AFC for such fiscal year filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (ii); (iii) promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices and reports as they shall send to their public stockholders and copies of all registration statements (without exhibits) and all reports which they file with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission); (iv) promptly upon receipt thereof, a copy of any report or notice received by a Company or any Subsidiary from independent accountants that describes any event or condition which could reasonably be expected to cast doubt on the scope of any audit or materially impair the ability of such accountants to deliver an unqualified opinion or report with respect to any audit; (v) as soon as practicable and in any event within five days after any officer of any Company obtaining knowledge (a) of any Default or Event of Default hereunder; (b) of any condition or event which, in the opinion of management of such Company, would have a material adverse effect on the business, condition (financial or other), assets, properties, operations or prospects of the Companies and their Subsidiaries; (c) that any Person has given any notice to the Companies or any of their Subsidiaries or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 6.01(c); (d) of the institution of any Litigation involving claims against the Companies or any of their Subsidiaries equal to or greater than $1,500,000 with respect to any single cause of action or of any adverse determination in any court proceeding in any Litigation involving a potential liability to the Companies or any of their Subsidiaries equal to or greater than $1,500,000 with respect to any single cause of action, which determination makes the likelihood of a final adverse determination in such litigation against such Company or such Subsidiary substantially more probable; or (e) of any regulatory proceeding which could reasonably be expected to have a 32 material adverse effect on the Companies or any of their Subsidiaries; an Officer's Certificate of such Company specifying the nature and period of existence of any such Default or Event of Default, condition or event, or specifying the notice given or action taken by such Person and the nature of any such claimed default, event or condition, or specifying the details of such proceeding, litigation or dispute and what action the Companies or any of their Subsidiaries has taken, is taking or proposes to take with respect thereto; and (vi) with reasonable promptness, such other information respecting the condition or operations, financial or otherwise, of the Companies or any of their Subsidiaries as any Lender may reasonably request. Together with each delivery of financial statements required by clauses (i) and (ii) above, each Company will deliver to each Lender an Officer's Certificate (in substantially the form of Exhibit C attached hereto --------- demonstrating (with computations in reasonable detail) compliance by the Companies and their Subsidiaries with the provisions of Sections 5.01 through 5.07 and stating that there exists no Event of Default or Default, or, if any Event of Default or Default exists, specifying the nature and period of existence thereof and what action the Companies propose to take with respect thereto. Together with each delivery of financial statements required by clause (ii) above, the Companies will deliver to each Lender a certificate of such accountants stating that, in making the audit necessary for their report on such financial statements, they have obtained no knowledge of any Event of Default or Default, or, if they have obtained knowledge of any Event of Default or Default, specifying the nature and period of existence thereof. Such accountants, however, shall not be liable to anyone by reason of their failure to obtain knowledge of any Event of Default or Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards. The Companies also covenant that forthwith upon the chief executive officer, chief operating officer, principal financial officer or principal accounting officer of either Company obtaining knowledge of an Event of Default or Default, it will deliver to each Lender an Officer's Certificate specifying the nature and period of existence thereof and what action such Company proposes to take with respect thereto. Section 5.14. Inspection of Property. The Companies covenant that ---------------------- they will permit any Person designated by any Lender in writing, at such Lender's expense (provided that if a Default or Event of Default shall occur and be continuing, at the Companies' expense), to visit and inspect any of the properties of the Companies and their Subsidiaries, to examine the corporate books and financial records of the Companies and their Subsidiaries and make copies thereof or extracts therefrom and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Companies and their independent public accountants, all at such reasonable times and as often as such Lender may reasonably request . Section 5.15. Covenant to Secure Notes Equally. The Companies -------------------------------- covenant that, if either of them or any Subsidiary shall create or assume any Lien upon any of its property or assets, whether now owned or hereafter acquired, other than Liens permitted by the provisions of Section 5.06 (unless prior written consent to the creation or assumption thereof shall have been obtained pursuant to 33 Section 8.01), it will make or cause to be made effective provision whereby the Notes will be secured by such Lien equally and ratably with any and all other Debt thereby secured so long as any such other Debt shall be so secured. Section 5.16. Compliance with Laws, Etc. The Companies will comply, -------------------------- and cause each of their Subsidiaries to comply, in all material respects with all applicable laws, rules, regulations and orders the noncompliance with which could result in a material adverse effect on the Companies or any of their Subsidiaries, such compliance to include, without limitation, complying with all applicable Environmental Laws and paying before the same become delinquent all Taxes imposed upon it or upon its property, except to the extent such taxes, charges or assessments contested in good faith. Section 5.17. Insurance. The Companies will and will cause each --------- Subsidiary, at all times, to maintain (a) insurance of such types and in such amounts as is consistent with prudent practices and standards for companies of the same size as and engaged in businesses similar to that of the Companies and (b) key man life insurance with respect to F. S. Garrison in an amount not less than $5,000,000. All such insurance will be maintained with financially sound and reputable insurance companies; provided, however, that nothing herein shall prohibit any of the Companies or their Subsidiaries from establishing or maintaining self-insurance if, in the opinion of the Board of Directors of the Companies, to do so would be consistent with prudent practices and in the best interest of the Companies or their Subsidiaries. Section 5.18. Use of Proceeds. The Companies shall use the proceeds --------------- of Advances hereunder solely to refinance the debt outstanding under the Original Credit Agreement (provided that LIBOR Advances outstanding under the Original Credit Agreement shall be deemed to be outstanding under this Agreement, with adjustments being made with respect to the LIBOR Rate for such Advances as of the date of this Agreement), finance working capital needs and for other general corporate purposes. Section 5.19. Subsidiary Guaranty. The Companies covenant that, if ------------------- either of them shall form or acquire a Subsidiary, it will promptly deliver to the Agent a guaranty by such Subsidiary of the Obligation in form and substance satisfactory to the Agent, together with an opinion of counsel in form and substance satisfactory to the Agent and such other documents and certificates as the Agent shall request. ARTICLE VI EVENTS OF DEFAULT ----------------- Section 6.01. Events of Default. Any one or more of the following ----------------- shall be an "Event of Default" hereunder, if the same shall occur for any reason whatsoever, whether voluntary or involuntary, by operation of Law, or otherwise: 34 (ii) the Companies default in the payment of any principal payable under any Loan Papers when due; or (jj) the Companies default in the payment of any interest, fees or other amounts payable under any Loan Papers when due and such default shall continue for the earlier (i) 5 days after the date due or (ii) 2 Business Days after notice (which may be oral) by the Agent to the Companies; or (kk) a Company or any Subsidiary defaults (whether as primary obligor or as guarantor or other surety) in any payment of principal of or interest on any other obligation for money borrowed (or any Capitalized Lease Obligation, any obligation under a conditional sale or other title retention agreement, any obligation issued or assumed as full or partial payment for property whether or not secured by a purchase money mortgage or any obligation under notes payable or drafts accepted representing extensions of credit) beyond any period of grace provided with respect thereto, or a Company or any Subsidiary fails to perform or observe any other agreement, term or condition contained in any agreement under which any such obligation is created (or if any other event thereunder or under any such agreement shall occur and be continuing) and the effect of such failure or other event is to cause, or to permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due (or to be repurchased by a Company or any Subsidiary) prior to any stated maturity, provided that the -------- aggregate principal amount of all obligations as to which such a payment default shall occur and be continuing or such a failure or other event causing or permitting acceleration (or causing or permitting rescission to a Company or any Subsidiary) shall occur and be continuing exceeds $500,000; or (ll) any representation or warranty made by the Companies herein or by the Companies or any of their officers in any writing furnished in connection with or pursuant to this Agreement shall be false in any material respect on the date as of which made; or (mm) the Companies fail to perform or observe any term, covenant or agreement contained in Sections 5.01 through 5.12; or (nn) the Companies fail to perform or observe any other agreement, covenant, term or condition contained herein and such failure shall not be remedied within 30 days after the earlier of (i) the date on which any officer of a Company obtains actual knowledge thereof or (ii) written notice by the Agent to the Companies; or (oo) either Company or any Subsidiary makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due; or (pp) any decree or order for relief in respect of either Company or any Subsidiary is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, 35 dissolution or liquidation or similar law, whether now or hereafter in effect (the "Bankruptcy Law"), of any jurisdiction; or -------------- (qq) either Company or any Subsidiary petitions or applies to any tribunal for, or consents to, the appointment of, or taking possession by, a trustee, receiver, custodian, liquidator or similar official of a Company or any Subsidiary, or of any substantial part of the assets of a Company or any Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United States or any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Subsidiary) relating to a Company or any Subsidiary under the Bankruptcy Law of any other jurisdiction; or (rr) any such petition or application is filed, or any such proceedings are commenced, against either Company or any Subsidiary and such Company or such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 30 days; or (ss) any final order, judgment or decree is entered in any proceedings against either Company decreeing the dissolution of such Company and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (tt) any final order, judgment or decree is entered in any proceedings against either Company or any Subsidiary decreeing a split-up of such Company or such Subsidiary which requires the divestiture of assets representing a substantial part, or the divestiture of the stock of a Subsidiary whose assets represent a substantial part, of the consolidated assets of the Companies and their Subsidiaries (determined in accordance with GAAP) or which requires the divestiture of assets, or stock of a Subsidiary, which shall have contributed a substantial part of the consolidated net income of the Companies and their Subsidiaries (determined in accordance with GAAP) for any of the three fiscal years then most recently ended, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (uu) any final judgment or order, or series of judgments or orders, for the payment of money in an aggregate amount in excess of $1,000,000 is rendered against a Company or any Subsidiary and either (a) enforcement proceedings have been commenced by any creditor upon such judgment or order, (b) within 60 days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or (c) within 60 days after the expiration of any such stay, such judgment is not discharged; (vv) (a) a Company or any other Person who is a member of the Companies' "control group" (as such term is defined under ERISA) fails to make all or any portion of a required installment payment under 29 U.S.C. (S)1082(e) with respect to any Plan, (b) the aggregate unpaid balance of such installment together with the unpaid balance of all prior installments and other payments due under 20 36 U.S.C. (S)1082 (including any accrued interest on such amounts) exceeds $1,000,000, and (c) such amounts remain unpaid for more than 30 days after the due date of the installment referred to in clause (a); or (ww) a Company or any of their Affiliates as employer under a Multiemployer Plan shall have made a complete or partial withdrawal from such Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have notified such withdrawing employer that such employer has incurred a withdrawal liability in an annual amount exceeding $1,000,000. Section 6.02. Remedies Upon Default. If an Event of Default --------------------- described in Section 6.01(g), (h), (i) or (j) hereof shall occur with respect to the Company, the aggregate unpaid principal balance of and accrued interest on all Advances shall, to the extent permitted by applicable Law, thereupon become due and payable concurrently therewith, without any action by the Agent or any Lender, and without diligence, presentment, demand, protest, notice of protest or intent to accelerate, or notice of any other kind, all of which are hereby expressly waived. Subject to the foregoing sentence, if any Event of Default shall occur and be continuing, the Agent may at its election, and shall upon the request of the Majority Lenders, do any one or more of the following: (xx) Declare the entire unpaid balance of all Advances immediately due and payable, whereupon it shall be due and payable without diligence, presentment, demand, protest, notice of protest or intent to accelerate, or notice of any other kind (except notices specifically provided for under Section 6.01 hereof), all of which are hereby expressly waived (except to the extent waiver of the foregoing is not permitted by Applicable Law); (yy) Terminate the Commitment; (zz) Reduce any claim of the Agent or Lenders to judgment; and (aaa) Exercise any Rights afforded under any Loan Papers, by Law, at equity, or otherwise. Section 6.03. Cumulative Rights. All Rights available to the Agent ----------------- and Lenders under the Loan Papers shall be cumulative of and in addition to all other Rights granted thereto at Law or in equity, whether or not amounts owing thereunder shall be due and payable, and whether or not the Agent or any Lender shall have instituted any suit for collection or other action in connection with the Loan Papers. Section 6.04. Waivers. The acceptance by the Agent or any Lender at ------- any time and from time to time of partial payment of any amount owing under any Loan Papers shall not be deemed to be a waiver of any Event of Default then existing. No waiver by the Agent or any Lender of any Event of Default shall be deemed to be a waiver of any Event of Default other than such Event of Default. No delay or omission by the Agent or any Lender in exercising any Right under the Loan Papers shall impair such Right or be construed as a waiver thereof or an acquiescence therein, nor shall any single 37 or partial exercise of any such Right preclude other or further exercise thereof, or the exercise of any other Right under the Loan Papers or otherwise. Section 6.05. Performance by Agent. Should any covenant of the -------------------- Companies or any of their Subsidiaries fail to be performed in all material respects in accordance with the terms of the Loan Papers, the Agent may, at its option, perform or attempt to perform such covenant on behalf of the Company or such Subsidiary. Notwithstanding the foregoing, it is expressly understood that the Agent and Lenders do not assume, and shall not ever have, except by express written consent of the Agent or any such Lender, any liability or responsibility for the performance of any duties or covenants of the Company or any of its Subsidiaries. Section 6.06. Expenditures. The Companies, jointly and severally, ------------ agree to reimburse the Agent and Lenders for any sums spent by any of them in connection with the exercise of any Right provided herein. Such sums shall bear interest at the (i) lesser of the Base Rate as in effect from time to time, plus 3% or (ii) the Highest Lawful Rate, from the date spent until the date of repayment by the Company. Section 6.07. Control. None of the covenants or other provisions ------- contained in this Agreement shall, or shall be deemed to, give the Agent or Lenders any Rights to exercise control over the affairs and/or management of the Companies or any of their Subsidiaries, the power of the Agent and Lenders being limited to the Rights to exercise the remedies provided in this Article; provided, however, that if the Agent or any Lender becomes the owner of any stock or other equity interest in any Person, whether through foreclosure or otherwise, it shall be entitled to exercise such legal Rights as it may have by being an owner of such stock or other equity interest in such Person. 38 ARTICLE VII THE AGENT --------- Section 7.01. Authorization and Action. Each of the Lenders hereby ------------------------ appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Papers as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement and the other Loan Papers (including without limitation enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders (or all Lenders, if required under Section 8.01 hereof), and such instructions shall be binding upon all Lenders; provided, however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to any Loan Papers or applicable Law. The Agent agrees to give to each Lender prompt notice of each notice given to it by the Companies pursuant to the terms of this Agreement, and to distribute promptly to each applicable Lender in like funds all amounts delivered to the Agent by the Companies for the Ratable or individual account of any Lender. Section 7.02. Agent's Reliance, Etc. Neither the Agent, nor any of --------------------- its directors, officers, agents, employees, or representatives shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any other Loan Papers, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent (a) may treat the payee of any Note as the holder thereof until the Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Agent; (b) may consult with legal counsel (including counsel for the Companies or any of their Subsidiaries), independent public accountants, and other experts selected by it, and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants, or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties, or representations made in or in connection with this Agreement or any other Loan Papers; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants, or conditions of this Agreement or any other Loan Papers on the part of the Companies or their Subsidiaries or to inspect the Property (including the books and records) of the Company or its Subsidiaries; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement, any other Loan Papers, or any other instrument or document furnished pursuant hereto; and (f) shall incur no liability under or in respect of this Agreement or any other Loan Papers by acting upon any notice, consent, certificate, or other instrument or writing (which may be by telegram, cable, telex, or telecopy) believed by it to be genuine and signed or sent by the proper party or parties. Section 7.03. NationsBank of Texas, N.A. and Affiliates. With respect ----------------------------------------- to its Commitment, its Advances, and any Loan Papers, NationsBank of Texas, N.A. shall have the same Rights under this 39 Agreement as any other Lender and may exercise the same as though it were not the Agent. NationsBank of Texas, N.A., and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Companies, any Affiliate thereof, and any Person who may do business therewith, all as if NationsBank of Texas, N.A. were not the Agent and without any duty to account therefor to any Lender. Section 7.04. Lender Credit Decision. Each Lender acknowledges that ---------------------- it has, independently and without reliance upon the Agent or any other Lender, and based on the financial statements referred to in Section 4.02 hereof and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Papers. Section 7.05. Indemnification by Lenders. Lenders agree to indemnify -------------------------- the Agent, Pro Rata, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of any Loan Papers or any action taken or omitted by the Agent thereunder, including any negligence of the Agent; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, Lenders agree to reimburse the Agent, Pro Rata, promptly upon demand for any out-of-pocket expenses (including attorneys' fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiation, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, the Loan Papers. Section 7.06. Successor Agent. The Agent may resign at any time by --------------- giving written notice thereof to the Lenders and Company, and may be removed at any time with or without cause by the action of all Lenders (other than the Agent, if it is a Lender); provided, however, that if a successor Agent is appointed without the consent of the Majority Lenders pursuant to the third sentence of this Section, such successor Agent may be removed by the Majority Lenders and Company. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Agent, with the consent of the Company (which shall not be unreasonably withheld). If no successor Agent shall have been so appointed and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the Laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of any appointment as the Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the Rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Papers, provided that if the retiring or removed Agent is 40 unable to appoint a successor Agent, the Agent shall, after the expiration of a 60 day period from the date of notice, be relieved of all obligations as Agent hereunder. Notwithstanding any Agent's resignation or removal hereunder, the provisions of this Article shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement. ARTICLE VIII MISCELLANEOUS ------------- Section 8.01. Amendments and Waivers. No amendment or waiver of any ---------------------- provision of this Agreement or any other Loan Papers, nor consent to any departure by the Companies or any of its Subsidiaries therefrom, shall be effective unless the same shall be in writing and signed by the Agent with the consent of the Majority Lenders, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver, or consent shall, unless in writing and signed by all of the Lenders, (a) increase the Commitment, (b) reduce any principal, interest, fees, or other amounts payable hereunder, or waive any Event of Default under Section 6.01(a) hereof, (c) postpone any date fixed for any payment of principal, interest, fees, or other amounts payable hereunder, (d) release any collateral or guaranties securing the Companies' obligations hereunder, other than releases contemplated hereby, (e) change the meaning of Specified Percentage or the number of Lenders required to take any action hereunder, (f) extend the Maturity Date, or (g) amend this Section. No amendment, waiver, or consent shall affect the Rights or duties of the Agent under any Loan Papers, unless it is in writing and signed by the Agent in addition to the requisite number of Lenders. Section 8.02. Notices. Unless otherwise provided herein, all ------- notices, requests, consents, demands, and other communications shall be in writing and shall be personally delivered, sent by telecopy or telex (answerback received), or mailed, by certified mail, postage prepaid, to the following addresses: (bbb) If to the Companies: American Freightways Corporation 2200 Forward Drive Harrison, Arkansas 72601 Attention: Chief Financial Officer 41 American Freightways, Inc. 2200 Forward Drive Harrison, Arkansas 72601 Attention: Chief Financial Officer (ccc) If to the Agent: NationsBank of Texas, N.A. 901 Main Street, 67th Floor Dallas, Texas 75202 Attention: Corporate Banking Department (ddd) If to any Lender, to its address shown on the signature pages hereto or to such other address as any party may designate in written notice to the other parties. All notices, requests, consents, demands, and other communications hereunder will be effective when so personally delivered or sent by telecopy or telex, or five days after being so mailed; provided, however, that notices to the Agent pursuant to Article II hereof shall be effective when received. The Companies agree that the Agent shall have no duty or obligation to verify or otherwise confirm telephonic notices given pursuant to Article II hereof, and agree to indemnify and hold harmless the Agent and Lenders for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, and expenses resulting, directly or indirectly, from acting upon any such notice. Section 8.03. Parties in Interest. All covenants and agreements ------------------- contained in this Agreement and all other Loan Papers shall bind and inure to the benefit of the respective successors and assigns of the parties hereto. The Lenders may from time to time assign or transfer their interests hereunder pursuant to Section 8.04 hereof. The Companies may not assign or transfer their respective Rights or obligations hereunder without the prior written consent of all Lenders. Section 8.04. Assignments and Participations. ------------------------------ 42 (eee) Each Lender may assign its Rights and obligations as a Lender under the Loan Papers to one or more Eligible Assignees, so long as each assignment shall be of a constant, and not a varying, percentage of all Rights and obligations thereunder, and the Companies shall approve of the assignee (which approval shall not be unreasonably withheld). Within five Business Days after notice of any such assignment, the Companies shall execute and deliver to the Agent, in exchange for the Note issued to such Lender, new Notes to the order of such Lender and its assignee in amounts equal to their respective Specified Percentages of the Commitment. Such new Notes shall be dated the effective date of the assignment. It is specifically acknowledged and agreed that on and after the effective date of each assignment, the assignee shall be a party hereto and shall have the Rights and obligations of a Lender under the Loan Papers. (fff) Each Lender may sell participations to one or more banks or other entities in all or any of its Rights and obligations under the Loan Papers; provided, however, that (i) such Lender's obligations under the Loan Papers shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of its Note for all purposes of the Loan Papers, (iv) the participant shall be granted the Right to vote on or consent to only those matters described in subsections (a) through (d) of Section 8.01 hereof, and (v) the Companies, Agent, and other Lenders shall continue to deal solely and directly with such Lender in connection with its Rights and obligations under the Loan Papers. (ggg) Any Lender may, in connection with any assignment or participation, or proposed assignment or participation, disclose to the assignee or participant, or proposed assignee or participant, any information relating to the Company or any of its Subsidiaries furnished to such Lender by or on behalf of the Company or its Subsidiaries; provided, however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from such Lender. For purposes of this Section 8.04(c), the term "Confidential Information" shall mean information about the Companies or any ------------------------ Subsidiary furnished by the Companies or any Subsidiary to a Lender, but does include any information (i) which is publicly known, or otherwise known to such Lender, at the time of disclosure, (ii) which subsequently becomes publicly known through no act or omission by such Lender or (iii) which otherwise becomes known to such Lender other than through disclosure by the Companies or any Subsidiary. (hhh) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. Section 8.05. Sharing of Payments. If any Lender shall obtain any ------------------- payment (whether voluntary, involuntary, through the exercise of any Right of set-off, or otherwise) on account of its Advances in excess of its Pro Rata share of payments made by the Companies, such Lender shall 43 forthwith purchase participations in Advances made by the other Lenders as shall be necessary to share the excess payment Pro Rata with each of them; provided, however, that if any of such excess payment is thereafter recovered from the purchasing Lender, its purchase from each Lender shall be rescinded and each Lender shall repay the purchase price to the extent of such recovery together with a Pro Rata share of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Companies agree that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by Law, exercise all its Rights of payment (including the Right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Companies in the amount of such participation. Section 8.06. Right of Set-off. Upon the occurrence and during the ---------------- continuance of any Event of Default, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by Law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of either Company against any and all of the obligations of the Companies now or hereafter existing under this Agreement and the other Loan Papers, whether or not such Lender shall have made any demand under this Agreement or the other Loan Papers, and even if such obligations are unmatured. Each Lender shall promptly notify the Companies after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The Rights of each Lender under this Section are in addition to other Rights (including, without limitation, other Rights of set-off) which each Lender may have. Section 8.07. Costs, Expenses, and Taxes. -------------------------- (iii) The Companies, jointly and severally, agree to pay on demand (i) all costs and expenses of the Agent in connection with the preparation, negotiation, and administration of any Loan Papers, including without limitation the reasonable fees and out-of-pocket expenses of counsel for the Agent, (ii) all costs and expenses (including reasonable attorneys' fees and expenses) of the Agent in connection with modification, amendment, waiver, or release of any Loan Papers, and (iii) all costs and expenses (including reasonable attorneys' fees and expenses) of the Agent and Lenders in connection with any restructuring, work-out, or collection of any portion of the Obligation or the enforcement of any Loan Papers. (jjj) In addition, the Companies, jointly and severally, shall pay any and all stamp, debt, and other Taxes payable or determined to be payable in connection with any payment hereunder (other than Taxes on the overall net income of the Agent or any Lender), or the execution, delivery, or recordation of any Loan Papers, and agrees to save the Agent and Lenders harmless from and against any and all liabilities with respect to, or resulting from any delay in paying or omission to pay any Taxes in accordance with this Section, including any penalty, interest, and expenses relating thereto. All payments by the Companies or any Subsidiary under any Loan Papers shall be made free and clear of and without deduction for any present or future Taxes (other than Taxes on the overall net income of the Agent or any Lender) of any nature now or hereafter existing, levied, or withheld, including all 44 interest, penalties, or similar liabilities relating thereto. If the Companies or any Subsidiary shall be required by Law to deduct or to withhold any Taxes from or in respect of any amount payable hereunder, (i) the amount so payable shall be increased to the extent necessary so that, after making all required deductions and withholdings (including Taxes on amounts payable to the Agent or any Lender pursuant to this sentence), the payee receives an amount equal to the sum it would have received had no such deductions or withholdings been made, (ii) the Companies or such Subsidiary shall make such deductions or withholdings, and (iii) the Companies or such Subsidiary shall pay the full amount deducted or withheld to the relevant taxing authority in accordance with applicable Law. Section 8.08. Indemnification by Companies. The Companies agree to ---------------------------- indemnify, defend, and hold harmless the Agent, the Lenders, and their Affiliates, directors, officers, agents, employees, and representatives, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses, and disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against any of them in any way relating to or arising out of any Loan Papers (including in connection with or as a result, in whole or in part, of the negligence of any of them), any transaction related hereto or thereto, or any act, omission, or transaction of the Companies and their respective Affiliates, or any of their directors, officers, agents, employees, or representatives; provided, however, that the Agent and Lenders, as applicable, shall be liable to the Company and its Subsidiaries only to the extent of any direct (as opposed to consequential) damages suffered by the Companies and its Subsidiaries; and provided further, that the Agent and Lenders shall not be indemnified, defended, and held harmless pursuant to this Section for any losses or damages which the Companies prove were caused by the indemnified party's willful misconduct or gross negligence. The obligations of the Companies under this Section 8.08 shall survive the termination of this Agreement and/or the Commitment and the repayment of the Obligation. Section 8.09. Rate Provision. It is not the intention of any party -------------- to any Loan Papers to make an agreement violative of the Laws of any applicable jurisdiction relating to usury. In no event shall the Companies or any of their Subsidiaries be obligated to pay any amount in excess of the Maximum Amount. If any Lender ever receives, collects or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial repayment of principal and treated hereunder as such; and if principal is paid in full, any remaining excess shall be paid to the Companies. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Maximum Amount, the Companies and Lenders shall, to the maximum extent permitted under Applicable Laws, (i) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii) amortize, prorate, allocate and spread in equal parts, the total amount of interest throughout the entire contemplated term of the Obligation so that the interest rate is uniform throughout the entire term of the Obligation; provided that if the Obligation is paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Maximum Amount, Lenders shall refund to the Companies the amount of such excess or credit the amount of such excess against the total principal amount owing, and, in such event, no Lender shall be 45 subject to any penalties provided by any Laws for contracting for, charging or receiving interest in excess of the Maximum Amount. This Section 8.09 shall control every other provision of all agreements among the parties to this Agreement pertaining to the transactions contemplated by or contained in the Loan Papers. Section 8.10. Severability. If any provision of any Loan Papers is ------------ held to be illegal, invalid, or unenforceable under present or future Laws during the term thereof, such provision shall be fully severable, the appropriate Loan Paper shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part thereof, and the remaining provisions thereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of such Loan Paper a legal, valid, and enforceable provision as similar in terms to the illegal, invalid, or unenforceable provision as may be possible. Section 8.11. Exceptions to Covenants. Neither Company nor any of ----------------------- their Subsidiaries shall be deemed to be permitted to take any action or to fail to take any action that is permitted as an exception to any covenant in any Loan Papers, or that is within the permissible limits of any covenant, if such action or omission would result in a violation of any other covenant in any Loan Papers. Section 8.12. Counterparts. This Agreement and the other Loan Papers ------------ may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. In making proof of any such agreement, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. SECTION 8.13. GOVERNING LAW; WAIVER OF JURY TRIAL. ----------------------------------- (kkk) THIS AGREEMENT AND ALL OTHER LOAN PAPERS SHALL BE DEEMED TO BE CONTRACTS MADE IN DALLAS, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO CONFLICT OF LAWS) AND THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE COMPANY AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS, WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE COMPANIES HEREBY WAIVE ANY RIGHT THAT THEY MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. 46 (lll) THE COMPANIES HEREBY WAIVE PERSONAL SERVICE OF ANY LEGAL PROCESS UPON THEM. UNDER THE LOAN PAPERS, IN ADDITION, THE COMPANIES AGREE THAT SERVICE OF PROCESS MAY BE MADE UPON THEM BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE COMPANIES AT THEIR ADDRESS DESIGNATED FOR NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. SECTION 8.14. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN ---------------- PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. ================================================================================ REMAINDER OF PAGE LEFT INTENTIONALLY BLANK ================================================================================ 47 IN WITNESS WHEREOF, this Credit Agreement is executed as of the date first set forth above. COMPANIES: AMERICAN FREIGHTWAYS CORPORATION By /s/ James R. Dodd -------------------------------------- Title: Executive VP-Accounting & Finance ---------------------------------- AMERICAN FREIGHTWAYS, INC. By /s/ James R. Dodd -------------------------------------- Title: Executive VP-Accounting & Finance ---------------------------------- 48 AGENT: NATIONSBANK OF TEXAS, N.A., as Agent By /s/ Steven A. Deily -------------------------------------- Title: Senior Vice President ---------------------------------- LENDERS: Specified Percentage: 46.0% NATIONSBANK OF TEXAS, N.A., Individually Address: 901 Main Street, 67th Floor Dallas, Texas 75202 By /s/ Steven A. Deily -------------------------------------- Title: Senior Vice President ---------------------------------- Attn: Corporate Banking Department 49 Specified Percentage: 34.0% TEXAS COMMERCE BANK NATIONAL ASSOCIATION Address: 2200 Ross Avenue, 3rd Floor Dallas, Texas 75201 By /s/ Scot Brunke -------------------------------------- Title: Vice President ---------------------------------- Attn: Regional Banking Department 50 Specified Percentage: 20.0% WACHOVIA BANK OF GEORGIA, N.A. Address: 191 Peachtree Street Atlanta, Georgia 30303 By /s/ F. Alan Smith -------------------------------------- Title: Vice President ---------------------------------- Attn: Atlanta Corporate ------------------------- 51 EXHIBIT A PROMISSORY NOTE U.S. $_______ $Dated: October 20, 1994 FOR VALUE RECEIVED, the undersigned, AMERICAN FREIGHTWAYS CORPORATION, an Arkansas corporation, and AMERICAN FREIGHTWAYS, INC., an Arkansas corporation (collectively, the "Companies"), HEREBY, JOINTLY AND SEVERALLY, PROMISE TO PAY to the order of _________________ (the "Lender") the lesser of _____________ MILLION AND NO/100 Dollars ($_________) and the unpaid principal amount of the Advances made by the Lender to the Companies pursuant to the Credit Agreement, payable at such times, and in such amounts, as are specified in the Credit Agreement. The Companies, jointly and severally, promise to pay interest on the unpaid principal amount of the Advances from the date made until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America to NationsBank of Texas, N.A. as Agent for the Lender, at 901 Main Street, Dallas, Texas 75202 in immediately available funds. This Note is one of the Notes referred to in, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of October 20, 1994 among the Companies, the Lender and certain other banks parties thereto, and NationsBank of Texas, N.A., as Agent for the Lender and such other banks (as from time to time amended, modified or supplemented, the "Credit Agreement"). The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. AMERICAN FREIGHTWAYS CORPORATION By:_________________________________ Title:___________________________ AMERICAN FREIGHTWAYS, INC. By:_________________________________ Title:___________________________ EXHIBIT B REQUEST FOR MATURITY DATE EXTENSION NationsBank of Texas, N.A., Agent 901 Main Street, 67th Floor Dallas, Texas 75202 Attention: Corporate Banking Department Re: Amended and Restated Credit Agreement, dated October 20, 1994, among American Freightways Corporation, American Freightways, Inc., NationsBank of Texas, N.A., as Agent, and the Lenders parties thereto ("Credit Agreement"; capitalized terms used herein shall have the same meaning given to them in the Credit Agreement) Gentlemen: Pursuant to Section 2.12 of the Credit Agreement, Companies hereby request the Lenders to extend the Maturity Date of the Credit Agreement for an additional 12 months to ___________, 199__. Please have each Lender indicate its decision with respect to such request by checking the appropriate box as indicated below and returning a copy of this letter. Very truly yours, AMERICAN FREIGHTWAYS CORPORATION By:_________________________________ Its:_____________________________ AMERICAN FREIGHTWAYS, INC. By:_________________________________ Its:_____________________________ NationsBank of Texas, N.A. Page 2 (LENDER) hereby: [_] agrees to extend the Maturity Date for an additional 12 months [_] declines to extend the Maturity Date for an additional 12 months By:____________________________ Title:___________________ 2 EXHIBIT C OFFICER'S CERTIFICATE - FINANCIAL --------------------------------- NationsBank of Texas, N.A., as Agent, and Lenders as defined in the Credit Agreement referred to below Gentlemen: This Officer's Certificate is made as of ____________, 19__. Capitalized terms used herein shall have the meanings set forth in the Credit Agreement (hereafter defined). The undersigned certifies that: (2) He is the duly elected ______________________ of American Freightways Corporation, an Arkansas corporation, and American Freightways, Inc., an Arkansas corporation (collectively, "Companies"). --------- (3) He has reviewed the terms of the Amended and Restated Credit Agreement ("Credit Agreement"), dated as of October 20, 1994, among ---------------- Company, NationsBank of Texas, N.A. as Administrative Lender, and the Lenders parties thereto and he has made, or has caused to be made under his supervision a detailed review of the transactions and conditions of Companies and their Subsidiaries during the accounting period covered by the attached financial statements; (4) The examinations described in Paragraph (2) did not ------------- disclose, and he has no knowledge of, the existence of any condition or event which constitutes an Event of Default or Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Officer's Certificate, except as set forth below; and (5) As of the date of this Officer's Certificate, Companies and their Subsidiaries are not in default under any covenant set forth in Article V of the Credit Agreement. (6) The attached financial statements are complete and correct in all material respects (subject to normal year-end audit adjustments) and have been prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein. Describe below (or in a separate attachment to this Officer's Certificate) the exceptions, if any, to Paragraph (3) by listing, in detail, the ------------- nature of the condition or event, the period during which it has existed and the action which the Companies have taken, is taking, or proposes to take with respect to each such condition or event: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The foregoing certifications together with the computations set forth in Attachment No. 1 hereto, and the financial statements delivered with this ---------------- Officer's Certificate in support hereof, are made and delivered this ____ day of ______________, 19__ pursuant to Section 5.13 of the Credit Agreement. ------------ AMERICAN FREIGHTWAYS CORPORATION By:_________________________________ ______________,___________________ (Print Name) (Print Title) AMERICAN FREIGHTWAYS, INC. By:_________________________________ ______________,___________________ (Print Name) (Print Title) 2 ATTACHMENT "1" TO OFFICER'S CERTIFICATE - FINANCIAL (The Officer's Certificate attached hereto is as of ___________, 19__ and pertains to the period from ______________, 19__ to __________, 19__.) Capitalized terms used herein shall have the meanings set forth in the Amended and Restated Credit Agreement ("Credit Agreement") dated as of ---------------- October 20, 1994 among American Freightways Corporation, American Freightways, Inc., NationsBank of Texas, N.A., as Agent, and the Lenders parties thereto. Section references herein relate to the Sections of the Credit Agreement and 000's omitted.
5.01 Company Debt ------------ (A) Total Debt = $_____ (B) Total Capitalization = $_____ (C) A/B = ______ Covenant = C less than 0.65 (for the period from date of Credit Agreement through 12/31/97) C less than 0.60 (thereafter)
5.02 Subsidiary Debt --------------- (A) Subsidiary Debt = $_____ (B) Liens = $_____ (taken from 5.06(A) below) (C) Net Worth X 10% = $_____
Covenant = (A + B) less than C
5.03 Fixed Charge Ratio ------------------ (A) Income Available for Fixed Charges = $_____ (B) Pro Forma Fixed Charges = $_____ (C) A / B = $_____
Covenant = C greater than 2.00
5.04 Current Ratio ------------- (A) Current Assets = $_____ (B) Current Liabilities = $_____ (C) A / B = ______ Covenant = C greater than 1.00
5.05 Dividend Limitation ------------------- (A) Net Earnings = $_____ (B) A x 75% = $_____ (C) Restricted Payments = $_____ Covenant = C less than B
5.06 Liens ----- (A) Princ. amt. of secured debt permitted by 5.06 (iii), (iv), (v) & (vi) and 5.02 = $_________ (excluding ADFAED Revenue Bonds) (B) Net Worth X 10% = $ Covenant = A less than B 5.07 Loans, Advances, Investments and Contingent Liabilities ------------------------------------------------------- (A) Loans and advances to stockholders, officers and employees = $______ Covenant = A less than or = to $750,000 12626.01 100-199 2 EX-10.T 3 LTR AM #3 TO NOTE AGREEMENT EXHIBIT 10(t) American Freightways Corporation 2200 Forward Drive Harrison, Arkansas 72601 American Freightways, Inc. 2200 Forward Drive Harrison, Arkansas 72601 October 19, 1994 The Prudential Insurance Company of America c/o Prudential Capital Group 1201 Elm St., Suite 4900 Dallas, Texas 75270 LETTER AMENDMENT NO. 3 TO NOTE AGREEMENT Ladies and Gentlemen: We refer to the Note Agreement dated as of November 30, 1991 (as previously amended, the "AGREEMENT"), by and between the undersigned and you, regarding the purchase of the 8.91% Senior Notes due November 30, 2001. Unless otherwise defined herein, the terms defined in the Agreement shall be used herein as therein defined. The Agreement is, effective the date first above written, hereby amended as follows: (a) PARAGRAPH 6A(1). Paragraph 6A(1) is amended in full to read as follows: 6A(1). DEBT. The Companies will not permit at any time the ratio of the aggregate amount of Debt of the Companies and their Subsidiaries on a consolidated basis to Total Capitalization to be greater than (a) 0.65 to 1.00, for the period from the date of this Agreement to and including December 31, 1997, and (b) 0.60 to 1.00, thereafter. (b) PARAGRAPH 6A(3). Paragraph 6A(3) is amended in full to read as follows: 6A(3). FIXED CHARGE RATIO. The Companies will not permit at any time the ratio of Income Available for Fixed Charges (based on the four fiscal quarters prior to the date of determination) to Fixed Charges (based on the four fiscal quarters prior to the date of determination) to be less than 2.00 to 1.00. (c) PARAGRAPH 6A(4). Paragraph 6A(4) is amended by deleting the figure "1.10" therein and substituting for such figure the figure "1.00." (d) PARAGRAPH 6A(5). Paragraph 6A(5) is deleted in full. (e) PARAGRAPH 10B. (i) Paragraph 10B is amended by adding thereto the following definitions: "FIXED CHARGES" means with respect to the Companies and their Subsidiaries on a consolidated basis the sum of (i) interest expense, (ii) scheduled principal payments (including mandatory reduction in any fully-funded revolving credit facility), (iii) operating lease expenses, (iv) rental expense and (v) capital lease payments (including both interest and principal components), each for the applicable period and determined in accordance with GAAP. "TOTAL CAPITALIZATION" means, as of any date of determination, an amount equal to the sum of (a) aggregate Debt of the Companies and their Subsidiaries on a consolidated basis plus (b) Net Worth. (ii) Paragraph 10B is further amended by deleting the figure "50%" set forth in the definition of "NET EARNINGS AVAILABLE FOR RESTRICTED PAYMENTS" and substituting for such figure the figure "75%". (iii) Paragraph 10B is further amended by deleting the definition of "PRO FORMA FIXED CHARGES" in its entirety. On and after the effective date of this letter amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof", or words of like import referring to the Agreement, and each reference in the Notes to "the Agreement", "thereunder", "thereof", or words of like import referring to the Agreement, shall mean the Agreement as amended by this letter amendment. The Agreement, as amended by this letter amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this letter amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy under the Agreement nor constitute a waiver of any provision of the Agreement. This letter amendment may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same letter amendment. If you agree to the terms and provisions hereof, please evidence your agreement by executing and returning at least a counterpart of this letter amendment to The Prudential Insurance Company of America, c/o Prudential Capital Group, 1201 Elm St., Suite 4900, Dallas, Texas 75270, Attention of William N. Bentley. This letter amendment shall become effective as of the date first -2- above written when and if counterparts of this letter amendment shall have been executed by us and you on or before October 31, 1994 and you shall have entered into that certain proposed Amended and Restated Credit Agreement, between the Companies and NationsBank of Texas, N.A., as agent, a draft of which has been provided to you under cover of a letter dated October 14, 1994, from A. Lamar Youngblood of Donohoe, Jameson & Carroll, P.C. Very truly yours, AMERICAN FREIGHTWAYS CORPORATION By: /s/ James R. Dodd ------------------------------------ Title: Executive Vice President Accounting & Finance AMERICAN FREIGHTWAYS, INC. By: /s/ James R. Dodd ------------------------------------ Title: Executive Vice President Accounting & Finance Agreed as of the date first above written: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By /s/ Paul L. Meiring ---------------------------- Vice President -3- EX-10.U 4 LTR AM #1 TO SHELF AGREEMENT EXHIBIT 10(u) American Freightways Corporation 2200 Forward Drive Harrison, Arkansas 72601 American Freightways, Inc. 2200 Forward Drive Harrison, Arkansas 72601 October 19, 1994 The Prudential Insurance Company of America c/o Prudential Capital Group 1201 Elm St., Suite 4900 Dallas, Texas 75270 LETTER AMENDMENT NO. 1 TO MASTER SHELF AGREEMENT Ladies and Gentlemen: We refer to the Master Shelf Agreement dated as of September 3, 1993 (the "AGREEMENT") by and between the undersigned and you. Unless otherwise defined herein, the terms defined in the Agreement shall be used herein as therein defined. The Agreement is, effective the date first above written, hereby amended as follows: (a) PARAGRAPH 6A(1). Paragraph 6A(1) is amended in full to read as follows: 6A(1). DEBT. The Companies will not permit at any time the ratio of the aggregate amount of Debt of the Companies and their Subsidiaries on a consolidated basis to Total Capitalization to be greater than (a) 0.65 to 1.00, for the period from the date of this Agreement to and including December 31, 1997, and (b) 0.60 to 1.00, thereafter. (b) PARAGRAPH 6A(3). Paragraph 6A(3) is amended in full to read as follows: 6A(3). FIXED CHARGE RATIO. The Companies will not permit at any time the ratio of Income Available for Fixed Charges (based on the four fiscal quarters prior to the date of determination) to Fixed Charges (based on the four fiscal quarters prior to the date of determination) to be less than 2.00 to 1.00. (c) PARAGRAPH 6A(4). Paragraph 6A(4) is amended by deleting the figure "1.10" therein and substituting for such figure the figure "1.00." (d) PARAGRAPH 6A(5). Paragraph 6A(5) is deleted in full. (e) PARAGRAPH 10B. (i) Paragraph 10B is amended by adding thereto the following definitions: "FIXED CHARGES" means with respect to the Companies and their Subsidiaries on a consolidated basis the sum of (i) interest expense, (ii) scheduled principal payments (including mandatory reduction in any fully-funded revolving credit facility), (iii) operating lease expenses, (iv) rental expense and (v) capital lease payments (including both interest and principal components), each for the applicable period and determined in accordance with GAAP. "TOTAL CAPITALIZATION" means, as of any date of determination, an amount equal to the sum of (a) aggregate Debt of the Companies and their Subsidiaries on a consolidated basis plus (b) Net Worth. (ii) Paragraph 10B is further amended by deleting the figure "50%" set forth in the definition of "NET EARNINGS AVAILABLE FOR RESTRICTED PAYMENTS" and substituting for such figure the figure "75%". (iii) Paragraph 10B is further amended by deleting the definition of "PRO FORMA FIXED CHARGES" in its entirety. On and after the effective date of this letter amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof", or words of like import referring to the Agreement, and each reference in the Notes to "the Agreement", "thereunder", "thereof", or words of like import referring to the Agreement, shall mean the Agreement as amended by this letter amendment. The Agreement, as amended by this letter amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this letter amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy under the Agreement nor constitute a waiver of any provision of the Agreement. This letter amendment may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same letter amendment. If you agree to the terms and provisions hereof, please evidence your agreement by executing and returning at least a counterpart of this letter amendment to The Prudential Insurance Company of America, c/o Prudential Capital Group, 1201 Elm St., Suite 4900, Dallas, Texas 75270, Attention of William N. Bentley. This letter amendment shall become effective as of the date first above written when and if counterparts of this letter amendment shall have been executed by us and -2- you on or before October 31, 1994 and you shall have entered into that certain proposed Amended and Restated Credit Agreement, between the Companies and NationsBank of Texas, N.A., as agent, a draft of which has been provided to you under cover of a letter dated October 14, 1994, from A. Lamar Youngblood of Donohoe, Jameson & Carroll, P.C. Very truly yours, AMERICAN FREIGHTWAYS CORPORATION By: /s/ James R. Dodd ------------------------------------ Title: Executive Vice President Accounting & Finance AMERICAN FREIGHTWAYS, INC. By: /s/ James R. Dodd ------------------------------------ Title: Executive Vice President Accounting & Finance Agreed as of the date first above written: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By /s/ Paul L. Meiring ---------------------------- Vice President -3- EX-10.V 5 LTR AM #2 TO SHELF AGREEMENT EXHIBIT 10(v) AMERICAN FREIGHTWAYS CORPORATION 2300 FORWARD DRIVE HARRISON, ARKANSAS 72601 AMERICAN FREIGHTWAYS, INC. 2200 FORWARD DRIVE HARRISON, ARKANSAS 72601 LETTER AMENDMENT NO. 2 TO MASTER SHELF AGREEMENT December 14, 1994 The Prudential Insurance Company of America c/o Prudential Capital Group 1201 Elm St., Suite 4900 Dallas, Texas 75270 Ladies and Gentlemen: We refer to the Master Shelf Agreement dated as of September 3, 1993, as amended on October 19, 1994 (the "AGREEMENT"), among American Freightways Corporation and American Freightways, Inc. (collectively, the "COMPANIES") and The Prudential Insurance Company of America ("PRUDENTIAL"), pursuant to which the Companies have issued and Prudential has purchased Senior Notes of the Companies in the aggregate principal amount of $30,000,000. Unless otherwise defined herein, the terms defined in the Agreement shall be used herein as therein defined. The Companies desire to extend the term of the Facility (subject to earlier termination in accordance with the Agreement ) and to increase the amount of Notes available to be issued under the Agreement to an aggregate principal amount of $90,000,000 (creating an Available Facility Amount of $60,000,000 as of the date hereof). Therefore, Prudential and the Companies, in consideration of the mutual promises and Agreements set forth herein and in the Agreement, agree as follows: (a) AMENDMENT TO PARAGRAPH 1. Paragraph 1 of the Agreement is amended in full to read as follows: 1. AUTHORIZATION OF ISSUE OF NOTES. The Companies will authorize the issue of their senior promissory notes (the "NOTES") in the aggregate principal amount of up to $90,000,000, to be dated the date of issue thereof, to mature, in the case of each Note so issued, no more than 10 years from the date of issue thereof, to have an average life of no more than 8 years, to bear interest on the unpaid balance thereof from the date thereof at the rate per annum, and to have such other particular terms, as shall be set forth, in the case of each Note so issued, in the Confirmation of Acceptance with respect to such Note delivered pursuant to paragraph 2F, and to be substantially in the form of Exhibit A attached hereto. The term --------- "NOTES" as used herein shall include each Note delivered pursuant to any provision of this Agreement and each Note delivered in substitution or exchange for any such Note pursuant to any such provision. Notes which have (i) the same final maturity, (ii) the same installment payment dates, (iii) the same installment payment amounts (as a percentage of the original principal amount of each Note), (iv) the same interest rate, and (v) the same interest payment periods, are herein called a "SERIES" of Notes. (b) AMENDMENT TO PARAGRAPH 2B. Paragraph 2B of the Agreement is amended in full to read as follows: 2B. ISSUANCE PERIOD. Notes may be issued and sold pursuant to this Agreement until the earlier of (i) December 14, 1996 and (ii) the thirtieth day after Prudential shall have given to the Companies, or the Companies shall have given to Prudential, a notice stating that it elects to terminate the issuance and sale of Notes pursuant to this Agreement (or if such thirtieth day is not a Business Day, the Business Day next preceding such thirtieth day). The period during which Notes may be issued and sold pursuant to this Agreement is herein called the "ISSUANCE PERIOD". (c) CONDITIONS PRECEDENT. The effectiveness of this Amendment is contingent on (1) the Companies providing to Prudential certified copies of (i) a resolution of their Boards of Directors approving the amendments to the Agreement herein contained and (ii) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the amendments to the Agreement herein contained and (2) receipt by Prudential of a facility fee of $10,000 in immediately available funds. On and after the effective date of this letter amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof", or words of like import referring to the Agreement, and each reference in the Notes to "the Agreement", "thereunder", "thereof", or words of like import referring to the Agreement, shall mean the Agreement as amended by this letter amendment. The Agreement, as amended by this letter amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this letter amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy under the Agreement nor constitute a waiver of any provision of the Agreement. 2 This letter amendment may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same letter amendment. If you agree to the terms and provisions hereof, please evidence your agreement by executing and returning at least two counterparts of this letter amendment to American Freightways Corporation, 2200 Forward Drive, Harrison, Arkansas 72601, Attention: Stephen Bruffett and American Freightways, Inc. 2200 Forward Drive, Harrison, Arkansas 72601, Attention: Stephen Bruffett. This letter amendment shall become effective as of the date first above written when and if counterparts of this letter amendment shall have been executed by us and you and the condition set forth above shall have been satisfied. Very truly yours, AMERICAN FREIGHTWAYS CORPORATION By /s/ James R. Dodd ------------------------------------- Title: Executive Vice President Accounting & Finance AMERICAN FREIGHTWAYS, INC. By /s/ James R. Dodd ------------------------------------- Title: Executive Vice President Accounting & Finance Agreed as of the date first above written: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By /s/ Randall M. Kob ------------------------ Vice President 3 EX-13 6 ANNUAL REPORT EXHIBIT 13 Year In Review: Growth is a Way of Life at AF. Management expects that growth in operating revenue is sustainable. MANAGEMENT'S DISCUSSION AND ANALYSIS of Financial Condition and Results of Operations The following table sets forth, for the years indicated, the percentages of operating expenses and other items to operating revenue:
1994 1993 1993 Operating revenue 100.0% 100.0% 100.0% Operating expenses and costs: Salaries, wages and benefits 53.1 51.4 47.8 Operating supplies and expenses 6.6 6.7 6.5 Operating taxes and licenses 4.1 3.8 3.7 Insurance 3.3 2.4 3.3 Communications and utilities 1.9 2.1 1.7 Depreciation and amortization 6.0 6.5 6.5 Rents and purchased transportation 9.8 12.9 15.1 Other 4.5 4.8 5.3 Total operating expenses 89.3 90.6 89.9 Operating income 10.7 9.4 10.1 Interest expense 1.5 1.3 1.9 Other income, net 0.2 0.1 0.2 Income before taxes 9.4 8.2 8.4 Income taxes 3.6 3.1 3.1 Income before extraordinary item and cumulative effect of accounting change 5.8% 5.1% 5.3%
Results of Operations 1994 compared to 1993 Revenue Operating revenue for 1994 was $465,588,000, up 41.7%, compared to $328,464,000 for 1993. The growth in operating revenue was primarily attributable to a 34.5% increase in tonnage handled by the Company from new and existing customers. The major causes of this increase in tonnage were: . On April 5, 1993, the Company opened nine new terminals to extend all-points coverage to the State of Kentucky and the Southern regions of Indiana and Ohio. The year 1994 included a full year of operation of these terminals. 1 . On January 1, 1994, the Company expanded its all-points coverage to the states of Indiana and Ohio with the opening of fourteen new terminals. . The Company continued to increase its market penetration into service territory that existed on January 1, 1994. . The one-time increase in tonnage as a result of a strike in April 1994, by the International Brotherhood of Teamsters against several companies in the less- than-truckload industry. This one-time strike-related increase in tonnage resulted in extra operating revenue of approximately $12,000,000. In addition to the one-time impact of the strike, tonnage increased due to the retention of a portion of the strike-related tonnage. Management estimates that approximately 20% - 25% of strike-related freight volumes were retained by the Company. In addition to the increase in tonnage, operating revenue was increased by a 5.5% increase in revenue per hundred weight. The major factors contributing to this increase in revenue per hundred weight were: . A general rate increase of 2.8% effective January 1, 1994. General rate increases initially affect approximately 50% of the Company's customers. The remaining customers' rates are determined by contracts and guarantees and are negotiated throughout the year. . The Company's average length of haul increased 3.1% in 1994 as a result of the Company's expanded service territory. . The percentage of the Company's total revenue that was truckload (shipments greater than 10,000 pounds) declined to 8.1% in 1994 compared to 8.8% in 1993. Management expects that growth in operating revenue is sustainable in the near future. However, the rate of growth will most likely occur at a slower rate than that experienced in 1994. Any growth in operating revenue will primarily be the result of increased tonnage handled by the Company, as any rate increases (other than the rate increase effective as of January 1, 1995) can be expected to be closely tied to the overall rate of inflation and general economic conditions. [Graph appears here] Shareholders' Equity (In Millions of Dollars)
Year Amount 1984 $0.80 1985 $1.71 1986 $2.50 1987 $4.28 1988 $7.75 1989 $28.30 1990 $35.94 1991 $74.64 1992 $89.71 1993 $109.46 1994 $177.18
2 [Graph appears here] Operating Revenue (In Millions of Dollars)
Year Amount 1984 $17.83 1985 $25.04 1986 $34.45 1987 $47.07 1988 $73.08 1989 $97.59 1990 $142.78 1991 $198.26 1992 $262.01 1993 $328.46 1994 $465.59
Operating Expenses Operating expenses as a percentage of operating revenue improved to 89.3% in 1994 from 90.6% in 1993. This overall improvement was primarily attributable to: . Rents and purchased transportation as a percentage of operating revenue decreased to 9.8% in 1994 from 12.9% in 1993. This decrease was due to the Company's philosophy of utilizing Company-operated terminals rather than contractor-operated terminals in expansions of service territory, along with the conversion of four contractor-operated terminals to Company-operated terminals during 1994. Management does not expect significant additional conversions of contractor-operated terminals to Company-operated terminals. At year end, of the Company's 144 terminals, 9 were contractor-operated. The increased utilization of Company-operated terminals was one of two primary reasons salaries, wages and benefits as a percentage of operating revenue increased to 53.1% in 1994 from 51.4% in 1993. The other reason for the increase in salaries, wages and benefits as a percentage of operating revenue was the Company's ongoing philosophy of sharing its success with its associates through increased wages and enhanced benefit packages. On March 6, 1994, the Company increased the wages of its drivers, dockmen and clerical workers by approximately 5.5%. . Depreciation and amortization as a percentage of operating revenue decreased to 6.0% in 1994 from 6.5% in 1993. This improvement was primarily due to three factors. The first factor was the increased tonnage handled by the existing fixed cost structure of the Company. The second factor was the one-time surge in tonnage related to the Teamster strike in April (where there was not a comparable surge in equipment in use). The third factor was the extension of the useful lives of a portion of the Company's revenue equipment by two years, effective July 1, 1994. Based on the historical experience of the Company, management expects the extended useful lives to better match the economic benefits received from the equipment. These improvements in operating expenses as a percentage of operating revenue were partially offset by increases in the following areas: . Insurance as a percentage of operating revenue increased to 3.3% in 1994 from 2.4% in 1993. This increase was primarily a result of the Company's increased experience 3 of accidents and cargo claims during 1994, particularly in the areas of cargo care and liability insurance. Accidents and cargo claims returned to historical levels during 1994, after being somewhat lower in the prior two years. Management does not expect a continuation of the upward trend in insurance expenses as they relate to operating revenue but expects stabilization of these expenses near historical levels. . Operating taxes and licenses as a percentage of operating revenue increased to 4.1% in 1994 from 3.8% in 1993. The primary cause for this increase was an increase in federal fuel taxes in October 1993. [Graph appears here] Net Income (In Millions of Dollars)
Year Amount 1984 $0.63 1985 $0.55 1986 $0.78 1987 $1.41 1988 $3.47 1989 $5.21 1990 $7.44 1991 $8.03 1992 $13.56 1993 $16.75 1994 $26.70
[Graph appears here] Total Terminals
Year Amount 1984 31 1985 31 1986 44 1987 64 1988 76 1989 85 1990 100 1991 111 1992 116 1993 132 1994 144
Other The effective tax rate of the Company was 38.0% for 1994, up from 37.9% for 1993. The Revenue Reconciliation Act of 1993 increased the corporate federal tax rate 1% retroactively to January 1, 1993. 4 Net income for 1994 was $26,696,000, up 59.4%, compared to $16,752,000 for 1993. Included in net income for 1994 was a one-time extraordinary charge of $335,000, net of income taxes, related to the retirement of debt. 1993 Compared to 1992 Operating revenue for 1993 increased 25.4% from 1992. This increase primarily resulted from a 27.0% increase in tonnage handled by the Company. This increase in tonnage was primarily attributable to the addition of new customers and an increased number of shipments from existing customers. There were three primary causes that resulted in this increase in tonnage from new and existing customers: . On January 4, 1993, the Company opened seven new terminals in the state of Georgia to bring all-points coverage to that state. . On April 5, 1993, the Company opened nine new terminals which extended its service territory to include all points in the state of Kentucky and the southern regions of Indiana and Ohio. . The Company continued to increase its market penetration into service territory that existed on January 1, 1993. Revenue per hundred weight (cwt) was basically unchanged in 1993 from 1992 despite the Company effecting a rate increase of approximately 4.6% on January 4, 1993. The primary reasons were: . The continuation of industry discounting practices that began in 1980 when the industry was deregulated. The discounting of rates intensified in 1993 as the less than truckload ("LTL") industry struggled to utilize excess capacity in an economy that grew slowly, and as competition for available freight intensified. . An increase in the average weight per LTL shipment. Rates per hundred pounds generally decrease as shipment sizes increase. Operating expenses as a percentage of operating revenue increased to 90.6% in 1993 from 89.9% in 1992. This increase was primarily attributable to: . Salaries, wages and benefits as a percentage of operating revenue rose to 51.4% in 1993 from 47.8% in 1992. This increase was primarily due to two factors. The first is the Company's ongoing philosophy of sharing its success with its associates through increased wages and enhanced benefit packages. On March 1, 1993, the Company increased the wages of its drivers, dockmen and clerical associates by approximately 6.6%. The second factor was the Company's philosophy of utilizing Company-operated terminals rather than contractor- operated terminals in expansions of service territory and the conversion of several contractor-operated terminals to Company-operated in 1993. The conversion was also the major cause of the decrease in rents and purchased transportation as a percentage of operating revenue to 12.9% in 1993 from 15.1% in 1992. . Communications and utilities as a percentage of operating revenue increased to 2.1% in 1993 from 1.7% in 1992. This increase was primarily due to the additional investments the Company made in 1993 in new communication equipment and networks. As the Company has grown, the need to develop and maintain advanced communication systems to aid in the efficient movement of information and freight has become more critical. For a portion of 1993, duplicate expenses were incurred as the 5 Company was purchasing and installing new communication systems while still operating the old systems. [Graph appears here] Average Shares Outstanding (In Millions)
Year Amount 1984 10.60 1985 12.56 1986 14.79 1987 15.25 1988 16.63 1989 20.91 1990 22.40 1991 26.64 1992 28.13 1993 28.58 1994 30.36
[Graph appears here] Book Value Per Share (In Dollars)
Year Amount 1984 $0.08 1985 $0.14 1986 $0.17 1987 $0.28 1988 $0.47 1989 $1.36 1990 $1.61 1991 $2.80 1992 $3.19 1993 $3.83 1994 $5.84
These increases in operating expenses as a percentage of operating revenue were partially offset by the decrease in insurance as a percentage of operating revenue to 2.4% in 1993 from 3.3% in 1992. The primary cause for this decrease was the improved experience with accidents and claims during 1993, particularly in the areas of liability and cargo claims. The Company's interest expense as a percentage of operating revenue declined to 1.3% in 1993 from 1.9% in 1992. This decline is primarily attributable to: . The ongoing retirement during 1993 of long-term debt bearing high interest rates. . The general decline in interest rates made short-term borrowings on the Company's revolving line of credit less expensive. 6 [Graph appears here] Total Number of Tractors
Year Amount 1984 233 1985 270 1986 382 1987 516 1988 714 1989 968 1990 1195 1991 1634 1992 1955 1993 2453 1994 3344
[Graph appears here] Total Assets (In Millions of Dollars)
Year Amount 1984 $7.47 1985 $11.66 1986 $15.37 1987 $23.20 1988 $43.47 1989 $68.90 1990 $97.95 1991 $168.13 1992 $175.53 1993 $251.13 1994 $355.35
Liquidity and Capital Resources Significant capital resources were required by the Company during 1994, primarily due to continued growth in operating revenue. Capital resources were also required for the expansion of service territory in 1994 and the startup costs associated with the expansion of service territory initiated on January 1, 1995. Capital requirements during 1994 consisted primarily of $115,327,000 in investing activities. The Company invested $116,272,000 in capital expenditures during 1994 comprised of $82,551,000 in additional revenue equipment, $12,313,000 in new terminal facilities or the expansion of existing terminal facilities and $21,408,000 in other equipment. Approximately $21,149,000 of the capital expenditures for revenue equipment were incurred in the fourth quarter of 1994, but not placed in service until early 1995 as the Company opened thirteen new terminals in the states of North Carolina and South Carolina. Management expects a similar amount of capital expenditures will be required in 1995. However, the amount of capital expenditures required in 1995 will be dependent on the growth rate of the Company and the timing and size of any future 7 geographical expansions. At December 31, 1994, the Company had commitments for land, terminals, revenue and other equipment of approximately $43,100,000. These commitments were for the completion of projects in process at December 31, 1994, and for the purchase of additional revenue equipment in anticipation of increased revenue levels during 1995. The Company provided for its capital resource requirements in 1994 with cash from operations and financing activities. Cash from operations totaled $65,501,000 in 1994 compared to $46,820,000 in 1993. This increase was primarily attributable to the increase in net income in 1994 compared to 1993. Financing activities augmented cash flow by $53,582,000 in 1994, utilizing three primary sources of financing; the revolving line of credit, the Master Shelf Agreement, and the issuance of additional shares of common stock. . The Company experiences periodic cash flow fluctuations common to the industry. Cash outflows are heaviest during the first part of any given year while cash inflows are normally weighted towards the last two quarters of the year. To smooth these fluctuations and to provide flexibility to fund future growth, the Company utilizes a variable-rate, unsecured revolving line of credit of $75,000,000 provided by NationsBank of Texas, N.A., Texas Commerce Bank, N.A. and Wachovia Bank of Georgia, N.A., amended in 1994 to increase total availability from $50,000,000 to $75,000,000. At December 31, 1994, the Company had $38,000,000 available under this agreement. The Company also had $5,000,000 available under its short-term, unsecured revolving line of credit with NationsBank of Texas, N.A. In addition, the Company maintains a $10,000,000 line of credit with NationsBank, N.A. to obtain letters of credit to back premiums for excess coverage on its self-insurance program. At December 31, 1994, the Company had obtained letters of credit totaling $5,500,000 for this purpose. . To assist in financing longer-lived assets, the Company has an uncommitted Master Shelf Agreement with the Prudential Insurance Company of America which provides for the issuance of medium to long-term unsecured notes at an interest rate calculated at issuance. Effective October 20, 1994, the Company amended this agreement to increase the uncommitted limit to $90,000,000 from $50,000,000. During 1994, the Company utilized this facility to issue a $10,000,000 note at 6.25% and a $10,000,000 note at 7.55%, both with seven year maturities. As of December 31, 1994, the Company had $60,000,000 available under this agreement. . To help meet capital resource requirements and to provide a solid base of equity for future growth, the Company completed a public offering of 1,750,000 shares of its common stock during 1994. On May 18, 1994, the Company received net proceeds of approximately $30,145,000. The Company also received net proceeds of approximately $6,506,000 on June 17, 1994, when the underwriters of the offering exercised an over-allotment option to issue an additional 375,000 shares. The proceeds of the stock offering were used to retire debt under the Company's unsecured, revolving line of credit. 8 [Graph appears here] Gross Tonnage Hauled (In Thousands)
Year Amount 1984 218 1985 289 1986 334 1987 432 1988 586 1989 711 1990 937 1991 1238 1992 1615 1993 2051 1994 2759
[Graph appears here] Average Length of Haul (Miles)
Year Amount 1984 264 1985 290 1986 289 1987 274 1988 300 1989 360 1990 395 1991 454 1992 525 1993 550 1994 567
Working capital at December 31, 1994, increased $7,292,000 compared to December 31, 1993. This increase was primarily the result of the Company's improved operating efficiency and the timing and size of the expansion in service territory on January 1, 1995, compared to that of January 1, 1994. Management expects that the Company's existing working capital and its available lines of credit are sufficient to meet the Company's commitments as of December 31, 1994, and to fund current operating and capital needs. However, if additional financing is required, management believes it will be available. The Company uses off-balance sheet financing in the form of operating leases primarily in two areas; terminal facilities and computer equipment. At December 31, 1994, future rental commitments on operating leases were $36,422,000. The Company prefers to utilize operating leases for these two areas and plans to use them in the future when such financing is available and suitable. Environmental At December 31, 1994, the Company had no outstanding inquiries with any state or federal environmental agency. 9 [Graph appears here] Total Number of Shipments (In Thousands)
Year Amount 1984 227 1985 313 1986 437 1987 613 1988 949 1989 1252 1990 1693 1991 2179 1992 2654 1993 3237 1994 4267
[Graph appears here] Total Numer of People
Year Amount 1984 288 1985 340 1986 385 1987 745 1988 1156 1989 1516 1990 2209 1991 3058 1992 3655 1993 4964 1994 6506
Inflation During 1994, the effect of inflation on the Company's operating results was minimal. However, most of the Company's expenses are sensitive to inflation as increases in inflation generally result in increased costs. Seasonality In the trucking industry, results of operations generally show a seasonal pattern because customers reduce shipments during winter months. In addition, the Company's operating expenses as a percentage of operating revenues have historically been higher during the winter. Legislation The less-than-truckload industry within which the Company operates was impacted in 1994 by two acts of legislation by the United States Congress: 10 . The Federal Aviation Administration Authorization Act of 1994 was passed by Congress on August 8, 1994. This legislation effectively deregulated intrastate commerce as of January 1, 1995. Management expects the Company's all-points coverage to its entire service area will enable the Company to offer competitive service to intrastate shippers. However, the timing and amount of any benefits to the Company from this legislation will be largely dependent on the decisions made by intrastate shippers and competing carriers. . The Trucking Industry Regulatory Reform Act of 1994 was passed by Congress and became effective August 26, 1994. This law eliminated the requirement that common carriers file their individual class tariffs with the Interstate Commerce Commission. The elimination of these filing requirements will reduce the administrative duties required from both shippers and carriers. Recent Events On January 1, 1995, the Company opened thirteen new terminals and extended its all-points coverage to the states of North Carolina and South Carolina. On January 1, 1995, the Company effected a general rate increase of approximately 3.5%. This rate initially affected approximately 50% of the customers. Rates for other customers are covered by contracts and guarantees and are negotiated throughout the year. 11 American Freightways Corporation and Subsidiaries Consolidated Balance Sheets (thousands, except per share data)
DECEMBER 31 1994 1993 ----------------------- ASSETS Current assets: Cash and cash equivalents $ 3,999 $ 243 Trade receivables, less allowance for doubtful accounts (1994--$639; 1993--$493) 39,818 29,423 Operating supplies and inventories 1,519 855 Prepaid expenses 4,247 3,261 Deferred income taxes (Note 4) 4,664 2,758 Income taxes receivable - 1,120 ----------------------- Total current assets 54,247 37,660 Property and equipment (Notes 3 and 6): Land and structures 83,244 42,573 Revenue equipment 230,732 157,937 Service, office and other equipment 49,324 29,113 Leasehold improvements 1,439 1,076 Construction in progress 31,855 50,791 Allowances for depreciation and amortization (deduction) (98,701) (71,412) ----------------------- 297,893 210,078 Other assets: Bond funds (Note 3) 888 876 Other 2,320 2,516 ----------------------- 3,208 3,392 ----------------------- $355,348 $251,130 =======================
12
DECEMBER 31 1994 1993 -------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 13,358 $ 9,824 Accrued expenses (Note 2) 24,449 16,768 Federal and state income taxes 233 - Current portion of long-term debt 6,338 8,491 -------------------------- Total current liabilities 44,378 35,083 Long-term debt, less current portion (Note 3) 104,843 89,046 Deferred income taxes (Note 4) 28,947 17,541 Shareholders' equity (Notes 3 and 5): Common stock, par value $.01 per share; authorized 250,000 shares; issued and outstanding 30,496 shares in 1994 and 28,023 in 1993 305 280 Additional paid-in capital 93,347 52,348 Retained earnings 83,528 56,832 -------------------------- 177,180 109,460 Commitments (Note 6) -------------------------- $355,348 $251,130 ==========================
See accompanying notes. 13 American Freightways Corporation and Subsidiaries Consolidated Statements of Income (thousands, except per share data)
YEAR ENDED DECEMBER 31 1994 1993 1992 ----------------------------------- Operating revenue $465,588 $328,464 $262,011 Operating expenses and costs: Salaries, wages and benefits 247,049 168,770 125,152 Operating supplies and expenses 30,710 22,099 17,169 Operating taxes and licenses 19,251 12,340 9,647 Insurance 15,360 7,891 8,705 Communications and utilities 9,117 6,907 4,357 Depreciation and amortization 27,888 21,519 17,059 Rents and purchased transportation 45,633 42,250 39,683 Other 20,880 15,782 13,895 ----------------------------------- 415,888 297,558 235,667 ----------------------------------- Operating income 49,700 30,906 26,344 Other income (expense): Interest expense (6,832) (4,246) (4,844) Interest income 195 132 389 Gain on disposal of assets 292 1 9 Other, net 247 197 64 ----------------------------------- (6,098) (3,916) (4,382) ----------------------------------- Income before income taxes, extraordinary charge, and cumulative effect of accounting change 43,602 26,990 21,962 Federal and state income taxes (Note 4): Current 7,071 4,189 5,309 Deferred 9,500 6,049 2,707 ----------------------------------- 16,571 10,238 8,016 ----------------------------------- Income before extraordinary charge and cumulative effect of accounting change 27,031 16,752 13,946 Extraordinary charge for early retirement of debt, net of tax benefit of $205 (Note 3) (335) - - Cumulative effect of accounting change (Note 1) - - (383) ----------------------------------- Net income $ 26,696 $ 16,752 $ 13,563 =================================== Per share (Note 1): Income before extraordinary charge and cumulative effect of accounting change $0.89 $0.59 $0.50 Extraordinary charge (0.01) - - Cumulative effect of accounting change - - (0.02) ----------------------------------- Net income $0.88 $0.59 $0.48 ===================================
14 American Freightways Corporation and Subsidiaries Consolidated Statements of Income (thousands, except per share data) ================================= Average shares outstanding (Note 1) 30,357 28,581 28,132 ================================= Pro forma amounts assuming the effect of the accounting change is applied retroactively: Net income $ 26,696 $ 16,752 $ 13,946 ================================= Net income per share $0.88 $0.59 $0.50 ================================= See accompanying notes. 15 American Freightways Corporation and Subsidiaries Consolidated Statements of Shareholders' Equity
COMMON STOCK ----------------------- ADDITIONAL PAR PAID-IN RETAINED SHARES VALUE CAPITAL EARNINGS TOTAL ---------------------------------------------------------------------- (thousands) Balances at January 1, 1992 27,460 $275 $47,844 $26,517 $ 74,636 Stock option and purchase plans 234 2 1,508 - 1,510 Net income - - - 13,563 13,563 ---------------------------------------------------------------------- Balances at December 31, 1992 27,694 277 49,352 40,080 89,709 Stock option and purchase plans 329 3 2,996 - 2,999 Net income - - - 16,752 16,752 ---------------------------------------------------------------------- Balances at December 31, 1993 28,023 280 52,348 56,832 109,460 Sale of stock (Note 7) 2,125 21 36,630 - 36,651 Stock option and purchase plans 348 4 4,369 - 4,373 Net income - - - 26,696 26,696 ---------------------------------------------------------------------- Balances at December 31, 1994 30,496 $305 $93,347 $83,528 $177,180 ======================================================================
See accompanying notes. 16 American Freightways Corporation and Subsidiaries Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31 1994 1993 1992 ----------------------------------- (thousands) OPERATING ACTIVITIES Cash received from customers $ 454,308 $ 323,298 $ 266,328 Cash paid to suppliers and employees (377,424) (266,724) (213,571) Interest received 195 132 389 Interest paid (7,152) (4,157) (5,034) Income taxes paid (4,426) (5,729) (4,567) ----------------------------------- Net cash provided by operating activities 65,501 46,820 43,545 INVESTING ACTIVITIES Proceeds from sales of equipment 945 1,162 586 Capital expenditures (116,272) (95,085) (48,962) ----------------------------------- Net cash used by investing activities (115,327) (93,923) (48,376) FINANCING ACTIVITIES Proceeds from notes payable and long-term borrowings 74,500 44,000 1,300 Principal payments on long-term debt (60,856) (1,767) (16,892) Proceeds from issuance of common stock 39,938 2,172 1,174 ----------------------------------- Net cash provided (used) by financing activities 53,582 44,405 (14,418) ----------------------------------- Net increase (decrease) in cash and cash equivalents 3,756 (2,698) (19,249) Cash and cash equivalents at beginning of year 243 2,941 22,190 ----------------------------------- Cash and cash equivalents at end of year $ 3,999 $ 243 $ 2,941 ===================================
17 American Freightways Corporation and Subsidiaries Consolidated Statements of Cash Flows (continued)
YEAR ENDED DECEMBER 31 1994 1993 1992 ---------------------------------- (thousands) RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income $ 26,696 $ 16,752 $ 13,563 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 27,888 21,519 17,059 Provision for losses on accounts receivable 1,126 513 728 Tax effect of exercise of stock options 1,086 826 337 Gain on sale of equipment (292) (1) (9) Deferred income taxes 9,500 6,049 2,491 Changes in operating assets and liabilities: Trade accounts receivable (11,521) (5,403) 6,599 Operating supplies and inventories (664) (284) (63) Prepaid expenses (986) (781) (228) Other assets 100 (262) 526 Trade accounts payable 3,534 7,779 (754) Accrued expenses 7,681 1,653 2,554 Federal and state income taxes 1,353 (1,540) 742 -------------------------------------- Total adjustments 38,805 30,068 29,982 -------------------------------------- Net cash provided by operating activities $ 65,501 $46,820 $43,545 ======================================
See accompanying notes. 18 American Freightways Corporation and Subsidiaries Notes to Consolidated Financial Statements December 31, 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of American Freightways Corporation and its subsidiaries (collectively, the "Company"). All significant intercompany accounts and transactions have been eliminated. BUSINESS The Company primarily operates as a regional, scheduled, for hire, less-than- truckload motor carrier, serving all points in Alabama, Arkansas, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, and Texas and southeastern Iowa. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Historically, credit losses have not been significant. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost. For financial reporting purposes, the cost of such property is depreciated principally by the straight-line method over the estimated useful lives of the individual assets. For tax reporting purposes, accelerated depreciation or applicable cost recovery methods are used. Gains and losses are recognized in the year of disposal. REVENUE RECOGNITION In January 1992, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus that recognition of revenue for freight when it is received from the shipper with expenses recognized as incurred is not an acceptable method. This method had been used by the Company since its inception and was the method commonly used in the industry. Effective January 1, 1992, the Company changed its accounting method to recognize revenue and direct shipment costs upon the delivery of the related freight. This change in accounting method resulted in a charge to earnings having a cumulative effect of $383,000 (net of income tax benefit of $216,000) in the first quarter of 1992. 19 American Freightways Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INSURANCE As of December 31, 1994, the Company was self-insured up to specified limits for the following types of claims:
Workers' compensation: State of Illinois $ 300,000 All other states of operation (with the exception of Indiana, Iowa, Ohio and Texas) 250,000
In the states of Indiana, Iowa, and Texas, workers' compensation claims are insured under a $250,000 deductible plan. In the state of Ohio, workers' compensation claims are insured under the mandatory State Plan as private plans are not permitted. All other types of claims are self-insured with a retention limit of $250,000 per occurrence. At December 31, 1994, the Company had an Excess Indemnity Contract providing for the reimbursement of up to $75,000,000 per occurrence on a claim in excess of the self-insured retention. INCOME TAXES Deferred income taxes are accounted for under the liability method. Deferred income tax assets and liabilities reflect the effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. EARNINGS PER SHARE Earnings per share is computed based on the weighted average number of shares outstanding during each year, adjusted to include common stock equivalents attributable to dilutive stock options and retroactively adjusted for the effect of 2-for-1 stock splits declared February 5, 1992 and April 22, 1993. 20 American Freightways Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. RECLASSIFICATIONS Certain amounts previously reported in 1993 have been reclassified to conform with the 1994 presentation.
2. ACCRUED EXPENSES 1994 1993 ----------------------- (thousands) Accrued salaries, wages and benefits $ 10,518 $ 8,140 Taxes other than income 2,575 1,401 Loss, injury, damage and workers' compensation claims reserves 10,536 6,580 Other 820 647 ----------------------- $ 24,449 $ 16,768 ======================= 3. LONG-TERM DEBT 1994 1993 ----------------------- (thousands) Bonds payable /(1)/ $ 7,580 $ 7,830 Revolving credit agreements /(2)/ 37,000 34,000 Mortgage notes /(3)/ 419 3,641 Capitalized lease obligations /(4)/ 1,182 2,066 Unsecured senior notes /(5)/ 65,000 50,000 ----------------------- 111,181 97,537 Less current portion (6,338) (8,491) ----------------------- $104,843 $89,046 =======================
21 American Freightways Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 3. Long-Term Debt (continued) (1) Represents the Company's liability under a loan agreement with Arkansas Development Finance Authority, issuer of economic development revenue bonds to construct terminals and a general office facility. The loan agreement provides that the Company will make payments sufficient to pay the principal and interest on the bonds. The bonds include a $1,590,000 term bond due in 1999 and a $5,990,000 term bond due in 2009. The bonds bear interest at fixed rates of 8.25% and 8.50%, respectively, and are collateralized by land and structures with a net book value of $8,523,000 at December 31, 1994. The loan agreement requires that certain bond service funds be maintained. As of December 31, 1994, there was $888,000 in a debt service reserve fund. In addition, the loan agreement requires sinking fund redemption serial payments beginning in 1995. (2) The revolving credit agreements at December 31, 1994, include an unsecured revolving credit agreement which provides for available borrowings of $75,000,000. Borrowings under this revolving credit agreement at December 31, 1994 totaled $37,000,000. The term of this agreement extends to April , 1999 (unless terminated or renewed). Interest is applied to outstanding borrowings at variable interest rates based on the London Interbank rate or prime rate in effect at the time of borrowing. The agreement contains covenants which limit, among other things, indebtedness, loans, investments and dividend payments, as well as require the Company to meet certain financial tests. The Company pays an annual commitment fee of .20% of the available borrowings. As of December 31, 1994, the amount available for additional borrowing under this line of credit was $38,000,000. The Company also has $5,000,000 of available borrowings at December 31, 1994, under a separate unsecured revolving credit agreement. The terms of this agreement provide for borrowings up to $5,000,000 at the prime rate of interest or at a rate of interest agreed upon at the time of any borrowings. No borrowings were outstanding at December 31, 1994 under this agreement. This agreement matures May 31, 1995, unless terminated or renewed. In addition, the Company maintains a $10,000,000 line of credit to obtain letters of credit. At December 31, 1994, the Company has utilized this line of credit to obtain letters of credit totaling $5,500,000. The Company pays an annual letter of credit fee of .63% of the face amount of outstanding letters of credit. (3) Mortgage notes are due monthly or quarterly to October 1998 at an average interest rate of 10.75%. The notes are collateralized by land and structures with a net book value of $966,000 at December 31, 1994. 22 American Freightways Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 3. LONG-TERM DEBT (CONTINUED) (4) Capitalized lease obligations consists primarily of installment obligations for revenue equipment purchases; payable in various monthly installments through April 1996, at a weighted average interest rate of 9.33% and collateralized by revenue equipment with a net book value of approximately $2,700,000 at December 31, 1994. (5) Includes an unsecured senior note for $35,000,000 payable in equal annual installments of $5,000,000 through November 2001. The note bears interest at a fixed rate of 8.91% payable semi-annually. Also includes three notes of $10,000,000 each; all issued under an unsecured and uncommitted $90,000,000 Master Shelf Agreement. The notes mature October 2000, August 2000, and April 2001 and bear fixed interest rates at 6.00%, 6.25%, and 7.55%, respectively, payable quarterly. These note agreements contain covenants which limit, among other things, loans, indebtedness, investments and dividend payments, and require the Company to meet certain financial tests. Annual maturities on long-term debt, excluding capitalized lease obligations, in 1995 through 1999 aggregate $5,368,000, $8,148,000, $11,431,000, $11,441,000, and $48,370,000, respectively. Interest costs of $1,002,000, $1,568,000 and $542,000 in 1994, 1993, and 1992, respectively, were capitalized as part of the acquisition cost of certain property and equipment. In 1994, the Company paid a note prior to its maturity date and incurred a prepayment charge of $540,000 which has been classified as an extraordinary charge in the 1994 statement of income, net of the related income tax benefit of $205,000. 4. FEDERAL AND STATE INCOME TAXES The Revenue Reconciliation Act of 1993 increased the corporate federal income tax rate from 34% to 35%, effective January 1, 1993. The increase in the Company's 1993 income tax expense as a result of the effect of the retroactive rate increase on deferred income taxes was approximately $400,000. 23 American Freightways Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 4. FEDERAL AND STATE INCOME TAXES (CONTINUED) Significant components of the Company's deferred tax liabilities and assets as of December 31, 1994 and 1993, respectively, are as follows:
1994 1993 --------------------- (THOUSANDS) Noncurrent deferred tax liabilities: Tax over book depreciation $ 31,361 $ 20,329 Noncurrent deferred tax assets: Capitalized leases - (198) ----------------------- Net noncurrent deferred tax liabilities before alternative 31,361 20,131 minimum tax credit Alternative minimum tax credit carryover (2,414) (2,590) ----------------------- Net noncurrent deferred tax liabilities $ 28,947 $ 17,541 ======================= Current deferred tax assets: Accrued expenses not deductible until paid $ 5,346 $ 3,373 Allowance for doubtful accounts 154 124 Revenue recognition differences 241 79 --------------------- Total current deferred tax assets 5,741 3,576 Current deferred tax liabilities: Prepaid expenses (1,077) (818) --------------------- Net current deferred tax assets $ 4,664 $ 2,758 =====================
The reconciliation between the effective income tax rate and the statutory federal income tax rate is presented in the following table:
1994 1993 1992 ------------------------------- (thousands) Income tax at the statutory federal rate of 35% for 1994 and 1993, and 34% $15,261 $ 9,446 $7,467 for 1992 Federal income tax effects of: Retroactive tax rate change effect on deferred taxes -- 270 -- State income taxes (613) (334) (264) Nondeductible expenses 214 90 77 Lower rates on taxable income below $15,000,000 (100) (80) Other 58 (108) (40) ------------------------------- Federal income taxes 14,820 9,284 7,240
24 American Freightways Corporation and Subsidiaries Notes to Consolidate Financial Statements (continued) State income taxes 1,751 954 776 -------------------------------- $ 16,571 $ 10,238 $ 8,016 ================================ Effective income tax rate 38.0% 37.9% 36.3% ================================
25 American Freightways Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 4. FEDERAL AND STATE INCOME TAXES (CONTINUED) The Company has alternative minimum tax credit carryovers of approximately $2,414,000 which have reduced the deferred tax liability. These credits can carry over indefinitely. Tax benefits of stock option and purchase plans recorded as paid-in capital and which did not reduce income tax expense amounted to $1,086,000, $826,000 and $337,000 in 1994, 1993 and 1992, respectively. 5. EMPLOYEE BENEFIT AND COMPENSATION PLANS STOCK PURCHASE PLAN The Company maintains a stock purchase plan covering substantially all employees of the Company. A total of 453,006 shares of common stock remain reserved for issuance under this plan at December 31, 1994. Annually, an eligible employee can purchase shares having a fair market value on the date of grant of up to a maximum of the greater of $1,200 or the fair market value of 100 shares. The price per share is 85% of the lower of the fair market value at the date of grant or the date of exercise, which is one year from the date of grant. Shares have been issued during 1992, 1993 and 1994 as follows:
NUMBER OF PER SHARE ISSUE DATE SHARES ISSUED EXERCISE PRICE - --------------------------------------------------------------------------- April 30, 1992 49,636 $ 5.37 October 31, 1992 38,700 8.29 May 1, 1993 53,734 9.56 November 1, 1993 63,328 9.46 April 30, 1994 91,199 12.75 October 31, 1994 55,795 16.58
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS During 1993, the Company adopted the 1993 Stock Option Plan (the "Employee Plan"), the Chairman Stock Option Plan, and the Non-Employee Director Stock Option Plan. The Employee Plan is a successor to a nonstatutory stock option plan adopted in February 1989. The Employee Plan provides for the issuance of qualified or non-qualified options 26 American Freightways Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 5. EMPLOYEE BENEFIT AND COMPENSATION PLANS (CONTINUED) to purchase common stock of the Company, and the awarding of stock appreciation rights payable in shares or cash. The stock appreciation rights issued in 1993 are payable only in cash. No option or right may be issued for less than the fair market value of the stock on the date of grant. The options and rights vest over a five year period from the date of grant and will expire if not exercised after ten years from the date of grant. Collective activity within the plans is summarized as follows:
STOCK SHARES APPRECIATION UNDER RIGHTS OPTION PRICE RANGE ------------------------------------------------------ Outstanding at January 1, 1992 - 1,050,800 $3.00 - $9.75 Granted - 501,600 7.63 - 10.75 Exercised - (152,010) 3.00 - 6.32 Canceled - (127,040) 3.00 - 7.63 ------------------------------------------------------ Outstanding at December 31, 1992 - 1,273,350 3.00 - 10.75 Granted 198,900 705,300 12.81 - 19.88 Exercised - (218,320) 3.00 - 10.75 Canceled (3,600) (50,470) 3.00 - 13.06 ------------------------------------------------------ Outstanding at December 31, 1993 195,300 1,709,860 3.00 - 19.88 Granted - 154,500 17.88 - 22.13 Exercised (10,690) (201,600) 3.00 - 13.06 Canceled (9,490) (29,020) 3.00 - 17.88 ------------------------------------------------------ Outstanding at December 31, 1994 175,120 1,633,740 3.00 - $22.13 ======================================================
The number of shares of common stock reserved for granting future options under these plans was 2,172,820, 2,644,090 and 298,920, at December 31, 1994, 1993, and 1992, respectively. At December 31, 1994, options were exercisable to purchase 426,680 shares. The Company recorded expense of $256,000 and $244,000 in 1994 and 1993, respectively, related to stock appreciation rights. 27 American Freightways Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 5. EMPLOYEE BENEFIT AND COMPENSATION PLANS (CONTINUED) RETIREMENT PLAN The Company maintains a profit sharing plan for the benefit of all eligible employees. The plan qualifies under Section 401(k) of the Internal Revenue Code thereby allowing eligible employees to make tax deferred contributions to the plan. The plan permits, at the discretion of the Board of Directors, annual employer contributions to a maximum (generally) of 6% of the participants' compensation. The Company's contributions to the plan totaled $4,254,000 for 1994, $2,979,000 for 1993 and $2,272,000 for 1992. 6. LEASES AND COMMITMENTS Rent expense, exclusive of amounts related to purchased transportation, totaled approximately $18,576,000 for 1994, $11,296,000 for 1993 and $8,477,000 for 1992. The future minimum rental commitments under noncancelable operating leases having initial or remaining terms in excess of one year as of December 31, 1994 are as follows:
REVENUE OTHER TOTAL STRUCTURES EQUIPMENT EQUIPMENT ------------------------------------------------------------ (thousands) 1995 $16,763 $ 2,512 $ 21 $14,230 1996 11,226 1,101 -- 10,125 1997 7,016 615 -- 6,401 1998 449 328 -- 121 1999 266 261 -- 5 Thereafter 702 702 -- -- ------------------------------------------------------------ $36,422 $ 5,519 $ 21 $30,882 ============================================================
Certain leases have renewal options for periods from one to five years at the fair rental value of the related property at renewal. 28 6. LEASES AND COMMITMENTS (CONTINUED) The future minimum lease payments under capitalized leases consist of the following at December 31, 1994 (thousands): 1995 $ 1,035 1996 220 ---------- Total minimum payments 1,255 Amount representing interest 73 ---------- Present value of minimum lease payments included in long-term debt (Note 3) $ 1,182 ==========
1994 1993 --------------------- (thousands) Revenue equipment $ 4,136 $ 4,136 Service, office and other equipment 23 23 Less accumulated amortization (1,456) (1,126) --------------------- $ 2,703 $ 3,033 =====================
Lease amortization is included in depreciation expense. Certain of the lease agreements contain fixed price purchase options. The lease agreements require the lessee to pay property taxes, maintenance and operating expenses. Commitments for land, terminals and revenue equipment (including the cost to complete construction in progress) aggregated approximately $43,100,000 at December 31, 1994. 7. COMMON STOCK In 1994, the Company completed a public offering of 2,125,000 shares (including over-allotment option) of common stock at $18.25 per share. The net proceeds to the Company were $36,651,000. 29 American Freightways Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended December 31, 1994 and 1993:
THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ----------------------------------------------------- (thousands, except per share data) 1994 Operating revenue $ 99,272 $ 123,656 $ 124,134 $ 118,525 Operating expenses and costs 91,677 106,576 110,256 107,378 Income before extraordinary charge 3,933 9,486 7,774 5,838 Net income 3,933 9,486 7,439 5,838 Income per share before extraordinary charge $.14 $.32 $.25 $.19 Net income per share $.14 $.32 $.24 $.19 Average shares outstanding 28,881 29,906 31,342 31,302 1993 Operating revenue $ 72,551 $ 80,944 $ 87,604 $ 87,365 Operating expenses and costs 66,291 72,934 77,399 80,934 Net income 3,376 4,490 5,506 3,380 Net income per share $.12 $.16 $.19 $.12 Average shares outstanding 28,387 28,606 28,828 28,846
9. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments: Cash and cash equivalents - the carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value. Bond funds - the carrying amount reported in the balance sheet for bond funds approximates fair value. Long-term debt - the fair values of the Company's long-term debt are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. 30 9. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) The carrying amounts and fair values of the Company's financial instruments at December 31 are as follows (in thousands):
CARRYING AMOUNT FAIR VALUE ------------------------------- 1994 Cash and cash equivalents $ 3,999 $ 3,999 Bond funds 888 888 Long-term debt 111,181 112,995 1993 Cash and cash equivalents $ 243 $ 243 Bond funds 876 876 Long-term debt 97,537 103,309
31 Report of Ernst & Young LLP, Independent Auditors The Board of Directors and Shareholders American Freightways Corporation We have audited the accompanying consolidated balance sheets of American Freightways Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholdersO equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the CompanyOs management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Freightways Corporation and subsidiaries at December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in 1992 the Company changed its method of revenue recognition. ERNST & YOUNG LLP Little Rock, Arkansas January 20, 1995 32 EX-22 7 LIST OF SUBSIDIARIES EXHIBIT 22 Subsidiaries of Registrant 1. American Freightways, Inc., An Arkansas Corporation EX-24 8 ERNST & YOUNG CONSENT EXHIBIT 24 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of American Freightways Corporation and Subsidiaries of our report dated January 20, 1995, included in the 1994 Annual Report to Shareholders of American Freightways Corporation. Our audits also included the financial statement schedule of American Freightways Corporation and Subsidiaries listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 N. 33-63674) pertaining to the American Freightways Corporation Stock Option Plan and in the Registration Statement (Form S-8 No. 33-76788) pertaining to the American Freightways Corporation Stock Purchase Plan of our report dated January 20, 1995, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of American Freightways Corporation and Subsidiaries. ERNST & YOUNG LLP Little Rock, Arkansas February 20, 1995 EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1994 CONSOLIDATED FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 3,999 0 40,457 639 1,519 54,247 396,594 98,701 355,348 44,378 104,843 305 0 0 176,875 355,348 0 465,588 0 415,888 0 0 6,832 43,602 16,571 27,031 0 (335) 0 26,696 .88 .88 Provision for doubtful accounts included in costs and expenses applicable to revenues.
-----END PRIVACY-ENHANCED MESSAGE-----