INITIAL SUBSCRIPTION AGREEMENT
OF
XXXXXXXXXX.XXX, LLC
THIS INITIAL SUBSCRIPTION AGREEMENT (the "Subscription Agreement") is
entered into as of April 19, 2000 by Xxxxxxxxxx.xxx, LLC, a Nevada limited
liability company (the "Company") and Covenant Transport, Inc., a Nevada
corporation ("Covenant"), X.X. Xxxx Transport Services, Inc., an Arkansas
corporation ("Xxxx"), M.S. Carriers, Inc., a Tennessee corporation ("M.S."),
Swift Transportation Co., Inc., a Nevada corporation ("Swift"), U.S. Xpress
Enterprises, Inc., a Nevada corporation ("U.S. Xpress"), and Xxxxxx Enterprises,
Inc., a Nebraska corporation ("Xxxxxx") (all of which are referred to
collectively as the "Initial Subscribers" or the "parties"), or the respective
Affiliates of the foregoing six corporations.
WHEREAS, the Initial Subscribers, on March 13, 2000, entered into an
Agreement in Principal to Form Xxxxxxxxxx.xxx, an Internet-based global
transportation logistics company; and
WHEREAS, the Company was formed on April 18, 2000; and
WHEREAS, the Initial Subscribers and the Company wish to enter into an
agreement whereby the Initial Subscribers will transfer all of their freight
brokerage and non-asset based transportation logistics operations owned by them
or their subsidiaries (the "Transportation Logistics Businesses") into the
Company in return for all of the initial membership interests of the Company.
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. INITIAL SUBSCRIPTION. The Initial Subscribers hereby subscribe,
and the Company accepts the Initial Subscribers' subscription, for the initial
Membership Interests (the "Membership Interests") in the Company as described
below:
Covenant - 13% Swift - 16%
Xxxx - 28% U.S. Xpress - 13%
M.S. - 14% Xxxxxx - 16%
SECTION 2. CONSIDERATION. In consideration of the Membership Interests
described above, the Initial Subscribers agree as follows:
(a) Capital. Each of the Initial Subscribers shall contribute the sum of
Five Million Dollars ($5,000,000.00) (the "Individual Subscription
Capital") toward the capital of the Company, payable as follows:
(i) Within five (5) business days following the execution of this
Subscription Agreement, each of the Initial Subscribers shall
transfer, in immediately available funds, the sum of Fifty
Thousand Dollars ($50,000.00) to the Company;
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(ii) Thereafter, not less than three (3) business days after notice
by the Chief Executive Officer of the Company of the Company's
need for additional working capital, each of the Initial
Subscribers shall transfer to the Company, in immediately
available funds, one-sixth (1/6) of the total amount of
additional working capital then deemed necessary for the
Company's operations;
(iii) Not less than three (3) business days prior to conversion of
the Company's form to a corporation each Initial Subscriber
shall transfer to the Company, in immediately available funds,
any unfunded balance of its Individual Subscription Capital.
(iv) Up to the time of any conversion of the Company from a limited
liability company to a corporation, no portion of any
Individual Subscription Capital may be returned or distributed
by the Company to any party absent the unanimous consent of
all of the Initial Subscribers.
(b) Contribution of Assets. On or before June 30, 2000, each of the
Initial Subscribers shall contribute, and cause any applicable
Affiliate to contribute, to the Company all of the intangible
assets of its Transportation Logistics Businesses to the Company,
including, but not limited to all contracts with customers (to
the extent assignable), goodwill, Post Office boxes and telephone
and telefax numbers dedicated to its Transportation Logistics
Business software and software licenses, patents, trademarks,
service marks, copyrights, Internet websites and domain names and
registrations dedicated to its Transportation Logistics Business,
trade secrets, know-how, and other intellectual property
(collectively referred to as the "Contributed Assets").
SECTION 3. NON-COMPETITION.
(a) As a condition of its ownership of a Membership Interest in the
Company, each of the Initial Subscribers acknowledges and agrees
that it will have access to and become familiar with certain
confidential information and trade secrets relating to the
Company's operations, customers, and other information, and that
much of the information that the Initial Subscribers will be
exposed to constitute trade secrets of the Company. The Initial
Subscribers understand and agree that the Company has a
legitimate interest in assuring that such confidential
information and trade secrets are not used by any of the Initial
Subscribers in a manner that would be disadvantageous to the
Company. As a result, in exchange for the consideration provided
pursuant to this Subscription Agreement, for a period equal to
the greater of (i) five (5) years from the date of signing of
this Subscription Agreement; or (ii) two (2) years after such
time as any Initial Subscriber shall have transferred or sold
such portion of its Membership Interest in the Company so as to
result in total ownership of less than a two percent (2%) equity
interest in the Company, and resigned from the management of the
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Company, each of the Initial Subscribers agree that it will not,
directly or indirectly, whether voluntarily or involuntarily,
engage in any business activity within the United States that is
in competition or is reasonably expected to be in competition
with the Company or which performs services or sells goods which
are similar to those provided, sold, or contemplated to be
provided or sold, by the Company.
(b) Since the damages to the Company resulting from a breach of these
provisions could not adequately be compensated by money damages,
the Company shall be entitled to, in addition to any other right
or remedy available to it, an injunction restraining such breach
or threatened breach, and in any case no bond or other security
shall be required in connection therewith except as required by
law. The Initial Subscribers agree that the provisions of this
paragraph are necessary and reasonable to protect the Company in
the conduct of its business. If any restriction contained in this
paragraph shall be deemed invalid, illegal or unenforceable by
reason of extent, duration, geographical scope hereof, or
otherwise, then the Court making such determination shall have
the right to reduce such extent, duration, geographical scope or
other provisions hereof, and, in its reduced form, such
restriction shall then be enforceable in the manner contemplated
hereby.
SECTION 4. ADDITIONAL AGREEMENTS.
(a) Transfer of Contributed Assets to the Company. Notwithstanding
the Agreement of the Initial Subscribers to contribute the
Contributed Assets to the Company on or before June 30, 2000, the
parties acknowledge and agree that the Company may not be fully
prepared to conduct its business in all respects as of that date.
Each of the Initial Subscribers agrees, therefore, that it will,
as requested by the Company, continue after June 30, 2000 to
operate its Transportation Logistics Businesses for the benefit
of the Company pursuant to an Outsourcing Agreement to be entered
into between the parties as the Company deems reasonably
necessary (the "Outsourcing Agreement") in order to effectuate a
smooth transition to the Company operations. In connection with
the Outsourcing Agreement, each Initial Subscriber agrees to
account for and remit to the Company all net revenues derived
therefrom, less the reasonable and customary expenses associated
with its continued operation of that business.
(b) Preparation of Audited Financial Statements. The Initial
Subscribers acknowledge the necessity of the Company preparing
audited year-end financial statements for each Initial
Subscriber's Transportation Logistics Business for fiscal years
1997, 1998, and 1999, as well as reviewed interim financial
statements through June 30, 2000. In connection therewith, each
of the Initial Subscribers commits and agrees to provide such
information as is necessary for the Company's preparation of the
audited financial statements by not later than June 30, 2000, and
the information necessary for preparation of the interim
statements by not later than August 30, 2000. All costs
associated with preparation of the financial statements described
herein shall be borne by the Company.
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(c) Other Assets. The Initial Subscribers acknowledge and agree that
the Company may desire to purchase additional assets from each of
the Initial Subscribers which are necessary for the smooth
transition of its business, including, but not limited to
computer hardware and furnishings. Each of the Initial
Subscribers hereby agree, to the extent such additional assets
are reasonably severable from any Initial Subscriber's other
operations, to transfer such additional assets as the Company
might reasonably require in return for payment by the Company to
the transferring Initial Subscriber of an amount equal to the
net-book value of any such additional assets.
(d) Best Efforts. Each of the Initial Subscribers shall use its best
efforts to obtain any required consents to the assignment of the
Contributed Assets. In the event any such requisite consent is
withheld by any third party, such Initial Subscriber shall
subcontract its transportation brokerage or logistics obligations
to the Company unless prohibited by the underlying contract, in
which case the parties acknowledge and agree that the Initial
Subscriber at issue will be free to perform the balance of its
contractual obligations thereunder, pursuant to the provisions of
an Outsourcing Agreement consistent with the terms of Section
4(a) above.
(e) Intellectual Property. If intellectual property is co-owned or
co-licensed by both a Initial Subscriber's Transportation
Logistics Business and the Initial Subscriber's other businesses,
both the Company and the Initial Subscriber will have ownership
and/or licensing rights after Closing. If a software program is
developed and owned by an Initial Subscriber's Transportation
Logistics Business and if one or more of its other businesses
have had the right to use such software program, the Initial
Subscriber will continue to have the same right after Closing,
but such software program shall become the property of the
Company. If a software program directly related to an Initial
Subscriber's Transportation Logistics Business is developed and
owned by an Initial Subscriber's other business(es) and its
Transportation Logistics Business has had the right to use such
software program, the Company will receive the same right to use
the software program after Closing. Each Initial Subscriber shall
also be entitled to the use of software that is derived from
software it contributed that was substantially developed by that
Initial Subscriber. The Initial Subscribers shall use their best
efforts to obtain consents to the assignment of software licensed
from third parties.
(f) Employment of Jun-Xxxxx Xx. Each of the Initial Subscribers
agrees that Jun-Xxxxx Xx shall be employed as the Company's
Chairman, President and Chief Executive Officer in accordance
with the terms of an Employment Agreement to be negotiated
between Jun-Xxxxx Xx and the Initial Subscribers' Compensation
Committee, and approved by the Initial Subscribers (the
"Employment Agreement"). Each of the Initial Subscribers further
acknowledges and agrees that, pursuant to the Employment
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Agreement, and in exchange for Employee's assigning to the
Company all rights he may have in, under, and to the Dense
Network Efficiency optimization computer algorithm on or before
June 30, 2000, the Company shall transfer to Employee on the same
day four and one half percent (4.5%) of the equity ownership of
the Company ("Equity Interest"), which shall be subject to a
substantial risk of forfeiture and which Employee shall not be
permitted to sell or otherwise transfer prior to its vesting over
a seven-year period.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PARTIES
(a) Representations of the Initial Subscribers. Each of the Initial
Subscribers warrants and represents solely with respect to itself
as follows:
(i) Organization, Good Standing and Qualification. Each of
the Initial Subscribers is a corporation duly organized,
validly existing and in good standing under the laws of
its state of incorporation. Each of the Initial
Subscribers has all requisite corporate power and
authority to own and operate its properties and assets,
to execute and deliver this Subscription Agreement and
to carry on its business as presently conducted and as
presently proposed to be conducted. Each of the Initial
Subscribers is duly qualified and is authorized to do
business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of
its activities and of its properties (both owned and
leased) makes such qualification necessary.
(ii) Authorization; Binding Obligations. All corporate action
on the part of each of the Initial Subscribers and their
respective officers, directors and stockholders
necessary for the authorization of this Subscription
Agreement and the performance of all their respective
obligations hereunder have been taken. This Subscription
Agreement, when executed and delivered, will be a valid
and binding obligation of each of the Initial
Subscribers, enforceable in accordance with its terms,
except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors'
rights and (b) general principles of equity that
restrict the availability of equitable remedies.
(iii) Compliance with Other Instruments. No Initial Subscriber
will be by virtue of entering into and performing this
Subscription Agreement and the transactions contemplated
hereunder in violation or default of any term of its
Certificate of Incorporation or Bylaws or any term or
provision of any material mortgage, indenture,
agreement, instrument or contract to which it is party
or by which it is bound, nor, by virtue of entering into
and performing this Subscription Agreement and the
transactions contemplated hereunder, in violation of any
order addressed specifically to the Initial Subscriber,
as applicable, nor, to the best of the Initial
Subscriber's knowledge, any material order, statute,
rule or regulation applicable to it, other than any of
the foregoing such violations that do
Page 5 of 10 - Xxxxxxxxxx.xxx Initial Subscription Agreement
not, either individually or in the aggregate have a
material adverse effect on its businesses as presently
conducted or planned to be conducted.
(iv) Acquisition for Own Account. Each of the Initial
Subscribers is acquiring the Membership Interest being
issued hereunder for its own account for investment
only, and not with a view towards their distribution.
(v) Lack of Public Market for Shares. The Initial
Subscribers understand that (1) the Membership Interests
being issued pursuant to this Subscription Agreement
have not been registered under the Securities Act of
1933 or any applicable state law (the "Securities Act")
and that as such, such Membership Interests are subject
to restrictions on transfer and bear a restrictive
legend to such effect, (2) the Membership Interests
issued pursuant hereto may not be transferred until
registered under the Securities Act, unless an exemption
from registration is available, (3) the Company has no
present intention of registering the Membership
Interests, and (4) each Initial Subscriber also
acknowledges that any certificate evidencing Membership
Interests shall bear a legend noting restrictions on
transfer contained in the Company's Operating Agreement,
in addition to the private offering legend referenced
above. The Initial Subscribers also understand that
there is no assurance that any exemption from
registration under the Securities Act will be available
and that, even if available, such exemption may not
allow the Initial Subscribers to transfer all or any
portion of the Membership Interest held by it under the
circumstances, in the amounts or at the times the
Initial Subscribers might propose.
(b) Representations of the Company. The Company hereby represents and
warrants as follows:
(i) Organization, Good Standing and Qualification. The
Company is a limited liability company duly organized,
validly existing and in good standing under the laws of
the State of Nevada. The Company has all requisite power
and authority to own and operate its properties and
assets, to execute and deliver this Subscription
Agreement and to carry on its business as presently
conducted and as presently proposed to be conducted. The
Company is or will be, as soon as is practicable
following execution of this Subscription Agreement, duly
qualified and authorized to do business and in good
standing as a foreign corporation in all jurisdictions
in which the nature of its activities and of its
properties (both owned and leased) makes such
qualification necessary.
(ii) Authorization; Binding Obligations. All action on the
part of the Company, necessary for the authorization of
this Subscription Agreement, the performance of all
obligations of the Company hereunder and the
Page 6 of 10 - Xxxxxxxxxx.xxx Initial Subscription Agreement
authorization, issuance and delivery of the Membership
Interests pursuant hereto has, in the case of this
Subscription Agreement, been taken. This Subscription
Agreement, when executed and delivered, will be the
valid and binding obligation of the Company enforceable
in accordance with its terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application
affecting enforcement of creditors' rights and (b)
general principles of equity that restrict the
availability of equitable remedies.
(iii) Compliance with Other Instruments. The Company will not
be by virtue of entering, into and performing this
Subscription Agreement and the transactions contemplated
hereunder, in violation or default of any term of its
Certificate of Organization ("Charter") or Operating
Agreement or any term or provision of any material
mortgage, indenture, agreement, instrument or contract
to which it is party or by which it is bound, and is
not, and will not by virtue of entering into and
performing this Subscription Agreement and the
transactions contemplated hereunder be, in violation of
any order addressed specifically to the Company, nor, to
the best knowledge of the Company any material order,
statute, rule or regulation applicable to the Company,
other than any of the foregoing such violations that do
not, either individually or in the aggregate have a
material adverse affect on the Company's businesses as
presently conducted or planned to be conducted.
(iv) Issuance of Membership Interests. When issued in
compliance with the provisions of this Subscription
Agreement and the Charter and Operating Agreement of the
Company, and upon payment of the Individual Subscription
Capital as described herein, the Membership Interests
will be validly issued, fully paid and nonassessable,
and will be free of any liens or encumbrances other than
liens and encumbrances created by or imposed upon the
Initial Subscribers; provided, however, that the
Membership Interests may be subject to restrictions on
transfer under state and/or federal securities laws, the
Charter or the Operating Agreement of the Company.
SECTION 6. COMMUNICATIONS; MARKETING. Except as required by law, neither
the Initial Subscribers nor the Company shall issue any press release or other
communication (including investor communications) regarding the existence or the
nature of this Subscription Agreement or the relationship of the parties or use
the name of the other party in any press release, other communication (including
investor communications), marketing materials or advertising, without the prior
written consent of the other party. Notwithstanding the foregoing, the Company
and the Initial Subscribers hereby agree to work together in good faith to
develop mutually agreeable advertising and marketing programs to exploit the
relationship for the benefit of both parties.
SECTION 7. GOVERNING LAW. This Subscription Agreement shall be governed in
all respects by the laws of the State of Nevada without reference to principles
of conflict-of-law.
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SECTION 8. SUCCESSORS AND ASSIGNS. With the exception of an assignment by
an Initial Subscriber to any of its Affiliates as provided by and subject to,
the provisions of the Operating Agreement between the Company and its Members ,
this Subscription Agreement shall not be assignable by any Initial Subscriber
without the prior consent of all parties to this Subscription Agreement, except
that the benefits of, but not the obligations under, this Subscription Agreement
may be assigned by any party to any person acquiring a majority of the
outstanding voting capital stock of such party. Subject to the foregoing, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
SECTION 9. AFFILIATE. As used throughout this Subscription Agreement,
"Affiliate" means any person that is, directly or indirectly, through one or
more intermediaries, controlling, controlled by, or under common control with an
Initial Subscriber. The term "control," as used in the immediately preceding
sentence, means, with respect to a limited liability company or corporation, the
right to exercise, directly or indirectly, more than 50% of the voting rights of
such limited liability company or corporation and, with respect to any other
person, the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies thereof.
SECTION 10. ENTIRE AGREEMENT. This Subscription Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subject matter hereof and no party shall be liable or bound to any other in
any manner by any representations, warranties, covenants and agreements except
as specifically set forth herein and therein.
SECTION 11. SEVERABILITY. In case any provision of the Subscription
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 12. AMENDMENT. This Subscription Agreement may be amended or
modified only upon the written consent of the parties hereto.
SECTION 13. DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any party upon any breach,
default or noncompliance by another party under this Subscription Agreement
shall impair any such right, power or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of or in any similar breach, default or noncompliance thereafter
occurring.
SECTION 14. NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, or (c) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt. All
communications shall be sent, if to the Company, to the Attention of the Chief
Executive Officer; and if to an Initial Subscriber, to the Initial Subscriber's
address of record set forth in the records of the Company or at such other
address as any party may designate by five (5) days' advance written notice to
the other parties hereto.
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SECTION 15. EXPENSES. Each party shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
the Subscription Agreement.
SECTION 16. DISPUTE RESOLUTION. Any disagreement between the parties with
respect to this Agreement shall be resolved by arbitration conducted in
accordance with the rules of the American Arbitration Association. Upon written
request of any party hereto tendered to all other parties, such arbitration
shall be conducted before a panel of three arbitrators (unless the parties agree
to one arbitrator) with each side to the dispute selecting one arbitrator and
the arbitrators so selecting the third arbitrator. The arbitration award shall
be final and binding upon the parties, and judgment on the award may be entered
by and enforced in any court having competent jurisdiction. The expenses of the
arbitration proceedings shall be borne by the non-prevailing thereto. All
arbitration proceedings hereunder shall be conducted in Dallas, Texas.
SECTION 17. ATTORNEYS' FEES. In the event that any suit or action is
instituted to enforce any provision in this Subscription Agreement, the
prevailing party in such dispute shall be entitled to recover from the losing
party all fees, costs and expenses of enforcing any right of such prevailing
parry under or with respect to this Subscription Agreement, including without
limitation, such reasonable fees and expenses of attorneys and accountants,
which shall include, without limitation. all fees. costs and expenses of
appeals.
SECTION 18. TITLES AND SUBTITLES. The titles of the sections and
subsections of the Subscription Agreement are for convenience of reference only
and are not to be considered in construing this Subscription Agreement.
SECTION 19. COUNTERPARTS. This Subscription Agreement may be executed in
any number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
SECTION 20. EFFECTIVE DATE. This Agreement shall become effective upon
execution.
[THE FOLLOWING PAGE IS THE SIGNATURE PAGE]
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SIGNATURE PAGE OF
INITIAL SUBSCRIPTION AGREEMENT
OF XXXXXXXXXX.XXX. LLC
DATE INITIAL SUBSCRIBERS
- ---- -------------------
April 19, 2000 COVENANT TRANSPORT, INC.
By: Xxxxx X. Xxxxxx
Chairman, President & CEO
April 19, 2000 X.X. XXXX TRANSPORT SERVICES, INC.
By: Xxxxx Xxxxxxxx
Chairman
April 19, 2000 M.S. CARRIERS, INC.
By: Xxxxxxx X. Xxxxxxx
Chairman, President & CEO
April 19, 2000 SWIFT TRANSPORTATION CO., INC.
By: Xxxxx X. Xxxxx
Chairman, President & CEO
April 19, 2000 U.S. XPRESS ENTERPRISES, INC.
By: Xxx X. Xxxxxx
Co-Chairman
April 19, 2000 XXXXXX ENTERPRISES, INC.
By: Xxxxxxxx X. Xxxxxx
Chairman & CEO
XXXXXXXXXX.XXX, LLC
By: Xxxxx Xxxxxxxx
Tax Matters Manager
Page 10 of 10 - Xxxxxxxxxx.xxx Initial Subscription Agreement
