UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2009
OR
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                                                  to

Commission file number   0-24960
COVENANT LOGO
COVENANT TRANSPORTATION GROUP, INC.
(Exact name of registrant as specified in its charter)

Nevada
 
88-0320154
(State / other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
400 Birmingham Hwy.
   
Chattanooga, TN
 
37419
(Address of principal executive offices)
 
(Zip Code)

Registrant's telephone number, including area code:
423 - 821-1212
   
 
$0.01 Par Value Class A Common Stock – The NASDAQ Global Select Market
Securities registered pursuant to Section 12(b) of the Act:
(Title of class)
   
Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[  ] Yes   [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
[  ] Yes   [X] No

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 Exchange Act of 1934 during the preceding 12 months (or for 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 checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[  ] 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 amendments to this Form 10-K.  [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated filer and large accelerated filer" in rule 12b-2 of the Exchange Act.

[   ] Large Accelerated Filer
[   ] Accelerated Filer
[ X ] Non-Accelerated Filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[  ] Yes  [X] No

The aggregate market value of the common equity held by non-affiliates of the registrant as of June 30, 2009, was approximately $47 million (based upon the $5.50 per share closing price on that date as reported by NASDAQ).  In making this calculation the registrant has assumed, without admitting for any purpose, that all executive officers, directors, and affiliated holders of more than 10% of a class of outstanding common stock, and no other persons, are affiliates.

As of March 23, 2010, the registrant had 11,840,568 shares of Class A common stock and 2,350,000 shares of Class B common stock outstanding.

Materials from the registrant's definitive proxy statement for the 2010 Annual Meeting of Stockholders to be held on May 6, 2010, have been incorporated by reference into Part III of this Form 10-K.

 
 

 

Table of Contents
Part I
   
 
Item 1.
Business
 
Item 1A.
Risk Factors
 
Item 1B.
Unresolved Staff Comments
 
Item 2.
Properties
 
Item 3.
Legal Proceedings
 
Item 4.
Reserved and Removed
       
Part II
   
 
Item 5.
Market for Registrant's Common Equity and Related Stockholder Matters  
 
Item 6.
Selected Financial Data
 
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
 
Item 8.
Financial Statements and Supplementary Data
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
Item 9A(T).
Controls and Procedures
 
Item 9B.
Other Information
       
Part III
   
 
Item 10.
Directors, Executive Officers, and Corporate Governance
 
Item 11.
Executive Compensation
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
Item 13.
Certain Relationships and Related Transactions, and Director Independence
 
Item 14.
Principal Accountant Fees and Services
       
Part IV
   
 
Item 15.
Exhibits and Financial Statement Schedules

Signatures
   
Report of Independent Registered Public Accounting Firm
   
Financial Data
 
 
Consolidated Balance Sheets
 
Consolidated Statements of Operations
 
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
 
Consolidated Statements of Cash Flows
 
Notes to Consolidated Financial Statements



PART I

ITEM 1.                       BUSINESS

This Annual Report on Form 10-K contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended and such statements are subject to the safe harbor created by those sections.  All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of earnings, revenues, or other financial items; any statement of plans, strategies, and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; and any statements of belief and any statement of assumptions underlying any of the foregoing.  Such statements may be identified by their use of terms or phrases such as "expects," "estimates," "projects," "believes," "anticipates," "intends," and similar terms and phrases.  Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements.  Readers should review and consider the factors discussed in "Risk Factors" of this Annual Report on Form 10-K, along with various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.

All such forward-looking statements speak only as of the date of this Annual Report on Form 10-K.  You are cautioned not to place undue reliance on such forward-looking statements.  The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in the events, conditions, or circumstances on which any such statement is based.

References in this Annual Report to "we," "us," "our," or the "Company" or similar terms refer to Covenant Transportation Group, Inc. and its subsidiaries.

General

We focus on targeted markets throughout the United States where we believe our service standards can provide a competitive advantage.  We are a major carrier for transportation companies such as freight forwarders, less-than-truckload carriers, and third-party logistics providers that require a high level of service to support their businesses, as well as for traditional truckload customers such as manufacturers, retailers, and food and beverage shippers.  We also generate revenue through a subsidiary that provides freight brokerage services.

We were founded as a provider of expedited long-haul freight transportation, primarily using two-person driver teams in transcontinental lanes.  A combination of customer demand for additional services and changes in freight distribution patterns caused us to seek to provide additional services.  Through several acquisitions in the late 1990's and continuing through 2006, we entered the refrigerated, solo, and regional markets.  In addition, over the past several years, we internally developed the capacity to provide dedicated fleet and freight brokerage services.

We have two reportable segments: Asset-Based Truckload Services ("Truckload") and our Brokerage Services, also known as Covenant Transport Solutions, Inc. ("Solutions").

The Truckload segment consists of three asset-based operating fleets that are aggregated because they have similar economic characteristics and meet the aggregation criteria.  The three operating fleets that comprise our Truckload segment are as follows: (i) Covenant Transport, Inc. ("Covenant Transport"), our historical flagship operation, which provides expedited long haul, dedicated, and regional solo-driver service; (ii) Southern Refrigerated Transportation, Inc. ("SRT"), which provides primarily long-haul and regional temperature-controlled service; and (iii) Star Transportation, Inc. ("Star"), which provides regional solo-driver service.

The Solutions segment provides freight brokerage service directly and through freight brokerage agents who are paid a commission for the freight they provide.  The brokerage operation has helped us continue to serve customers when we lacked capacity in a given area or when the load has not met the operating profile of our Truckload segment.

 
The following chart reflects the size of each of our subsidiaries measured by 2009 freight revenue:
 
   DISTRIBUTION OF REVENUE AMONG SUBSIDIARIES (CHART)

Asset-Based Truckload Services

Our truckload segment comprised approximately 91%, 91%, and 97% of our total operating revenue in 2009, 2008, and 2007, respectively.

We primarily generate revenue by transporting freight for our customers.  Generally, we are paid a predetermined rate per mile for our truckload services.  We enhance our truckload revenue by charging for tractor and trailer detention, loading and unloading activities, and other specialized services, as well as through the collection of fuel surcharges to mitigate the impact of increases in the cost of fuel.  The main factors that affect our truckload revenue are the revenue per mile we receive from our customers, the percentage of miles for which we are compensated, and the number of shipments and miles we generate.  These factors relate, among other things, to the general level of economic activity in the United States, inventory levels, specific customer demand, the level of capacity in the trucking industry, and driver availability.

The main factors that impact our profitability in terms of expenses are the variable costs of transporting freight for our customers.  These costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and purchased transportation expenses, which include compensating independent contractors and providers of expedited intermodal rail services.  Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims.  These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency, and other factors.  Our main fixed costs include rentals and depreciation of long-term assets, such as revenue equipment and terminal facilities, and the compensation of non-driver personnel.

We operate tractors driven by a single driver and also tractors assigned to two-person driver teams.  Our single driver tractors generally operate in shorter lengths of haul, generate fewer miles per tractor, and experience more non-revenue miles, but the lower productive miles are expected to be offset by generally higher revenue per loaded mile and the reduced employee expense of compensating only one driver.  We expect operating statistics and expenses to shift with the mix of single and team operations.

At December 31, 2009, we operated 3,113 tractors and 8,005 trailers.  Of these tractors, 2,784 were owned, 236 were financed under operating leases, and 93 were provided by independent contractors, who own and drive their own tractors.  Of these trailers, 2,018 were owned, 5,687 were financed under operating leases, and 300 were financed under capital leases.

Independent contractors (owner-operators) provide a tractor and a driver and are responsible for all operating expenses in exchange for a fixed payment per mile.  We do not have the capital outlay of purchasing the tractor.  The payments to independent contractors are recorded in revenue equipment rentals and purchased transportation.  Expenses associated with owned equipment, such as interest and depreciation, are not incurred, and for independent contractor-tractors, driver compensation, fuel, and other expenses are not incurred.  Because obtaining equipment from independent contractors and under operating leases effectively shifts financing expenses from interest to "above the line" operating expenses, we evaluate our efficiency using net margin as well as operating ratio.

 
The development of our business has affected our operating metrics over time.  We measure performance of our Truckload segment and the related subsidiaries’ service offerings in four areas: average length of haul, average freight revenue per total mile (excluding fuel surcharges), average miles per tractor, and average freight revenue per tractor per week (excluding fuel surcharges).  A description of each follows:

 
Average Length of Haul in Miles.   Our average length of haul has decreased over time as we have increased the use of solo-driver tractors and increased our focus on regional markets.  Shorter lengths of haul frequently involve higher rates per mile from customers, fewer miles per truck, and a greater percentage of non-revenue miles caused by re-positioning of equipment.
AVERAGE LENGTH OF HAUL IN MILES (CHART)

 
Average Freight Revenue Per Total Mile.   Our average freight revenue per mile dropped significantly in 2009 because of overcapacity in our industry in comparison to freight demand in a recessionary economic environment.  All freight revenue per mile numbers exclude fuel surcharge revenue.
AVERAGE FREIGHT REVENUE PER TOTAL MILE (CHART)

 
Average Miles Per Tractor.   Average miles per tractor reflects economic demand, our ability to match fleet size to demand, and the percentage of team-driven tractors in our fleet.
AVERAGE MILES PER TRACTOR (CHART)

 
Average Freight Revenue Per Tractor Per Week.   We use average freight revenue per tractor per week (which excludes fuel surcharges) as our main measure of asset productivity.  This operating metric takes into account the effects of freight rates, non-revenue miles, and miles per tractor. In addition, because we calculate average freight revenue per tractor using all of our trucks, it takes into account the percentage of our fleet that is unproductive due to lack of drivers, repairs, and other factors.
AVERAGE FREIGHT REVENUE PER TRACTOR PER WEEK (CHART)

 
Brokerage Services

Our Solutions segment comprised approximately 9%, 9%, and 3% of our total operating revenue in 2009, 2008, and 2007, respectively.  Solutions derives revenue from arranging transportation services for customers through relationships with thousands of third-party carriers and integration with our Truckload segment.  Solutions provides freight brokerage services through freight brokerage agents, who are paid a commission for the freight brokerage service they provide, and directly through in-house brokerage personnel working in direct contact with customers.  The main factors that impact profitability in terms of expenses are the variable costs of outsourcing the transportation freight for our customers and managing selling, general, and administrative expenses.  Our brokerage loads decreased to 24,769 in 2009, from 27,117 in 2008.  Average revenue per load also decreased approximately 5% to $1,912 in 2009, from $2,017 in 2008, primarily due to a decrease in fuel surcharge collection and an overall decrease in rates paid to carriers as a result of the weakened economic climate.

Customers and Operations

Our primary customers include manufacturers and retailers, as well as other transportation companies.  In 2009, our five largest customers were Estes Express Lines, Georgia Pacific, Transplace, UPS, and Wal-Mart.  Estes Express Lines, Transplace, and UPS are other transportation providers who seek our services when our team-driven tractors or other service capabilities offer them an advantage.  No customer accounted for more than 10% of our consolidated revenue in 2009, 2008, or 2007.  Our top five customers accounted for approximately 26%, 20%, and 22% of our revenue in 2009, 2008, and 2007, respectively.

We operate tractors driven by a single driver and also tractors assigned to two-person driver teams.  Over time, the percentage of our revenue generated by driver teams has generally trended down, although the mix will depend on a variety of factors over time.  Our single driver tractors generally operate in shorter lengths of haul, generate fewer miles per tractor, and experience more non-revenue miles, but the lower productive miles are expected to be offset by generally higher revenue per loaded mile and the reduced employee expense of compensating only one driver.

We equip our tractors with a satellite-based tracking and communications system that permits direct communication between drivers and fleet managers.  We believe that this system enhances our operating efficiency and improves customer service and fleet management.  This system also updates the tractor's position every thirty (30) minutes, which allows us and our customers to locate freight and accurately estimate pick-up and delivery times.  We also use the system to monitor engine idling time, speed, performance, and other factors that affect operating efficiency.

As an additional service to customers, we offer electronic data interchange and Internet-based communication for customer usage in tendering loads and accessing information such as cargo position, delivery times, and billing information.  These services allow us to communicate electronically with our customers, permitting real-time information flow, reductions or eliminations in paperwork, and the employment of fewer clerical personnel.  We use a document imaging system to reduce paperwork and enhance access to important information.

Our operations generally follow the seasonal norm for the trucking industry.  Equipment utilization is usually at its highest from May to August, maintains high levels through October, and generally decreases during the winter, around holidays, and as inclement weather impedes operations.

We operate throughout the United States and in parts of Canada and Mexico, with substantially all of our revenue generated from within the United States.  All of our assets are domiciled in the United States, and for the past three years, less than one percent of our revenue has been generated in Canada and Mexico.  We do not separately track domestic and foreign revenue from customers or domestic and foreign long-lived assets, and providing such information would be impracticable.

In 2009, we began a multi-year project to upgrade the hardware and software of our information systems.  The goal upon completion of the project is to have uniform operational and financial systems across the entire company as we believe this will improve customer service, utilization, and enhance our visibility into and across the organization.  The Company incurred approximately $2.6 million in 2009 related to this system upgrade, and all related amounts are included in construction in progress in the consolidated balance sheet as the related systems were not implemented as of December 31, 2009.

Drivers and Other Personnel

Driver recruitment, retention, and satisfaction are essential to our success, and we have made each of these factors a primary element of our strategy.  We recruit both experienced and student drivers as well as independent contractor drivers who own and drive their own tractor and provide their services to us under lease.  We conduct recruiting and/or driver orientation efforts from five of our locations, and we offer ongoing training throughout our terminal network.  We emphasize driver-friendly operations throughout our organization.  We have implemented automated programs to signal when a driver is scheduled to be routed toward home, and we assign fleet managers specific tractor units, regardless of geographic region, to foster positive relationships between the drivers and their principal contact with us.

 
The truckload industry has periodically experienced difficulty in attracting and retaining enough qualified truck drivers.  It is also common for the driver turnover rate of individual carriers to exceed 100% in a year.  At times, there are driver shortages in the trucking industry.  In past years, when there were driver shortages, the number of qualified drivers had not kept pace with freight growth because of (i) changes in the demographic composition of the workforce; (ii) alternative employment opportunities other than truck driving that became available in a growing economy; and (iii) individual drivers' desire to be home more often.

While the driver recruiting market was less difficult than prior years, retention remained challenging in 2009.  We believe weakness in the housing market contributed favorably to our recruiting and retention efforts for much of 2009.  Our results of operations could be negatively impacted by the new Comprehensive Safety Analysis regulations that will go into effect in late 2010 and, if adopted, recent rules proposed by the Federal Motor Carrier Safety Administration ("FMCSA") requiring additional training for potential drivers to obtain a commercial driver's license, as these regulations could materially impact the number of potential new drivers entering the industry or the qualifications of drivers already in the industry.  We anticipate that competition for qualified drivers will remain high, particularly if the economy improves, and cannot predict whether we will experience future shortages.  If such a shortage was to occur and a driver pay rate increase became necessary to attract and retain drivers, our consolidated results of operations could be negatively impacted to the extent that we may be unable to obtain corresponding freight rate increases.

We use driver teams in a substantial portion of our tractors.  Driver teams permit us to provide expedited service on selected long-haul lanes because teams are able to handle longer routes and drive more miles while remaining within U.S. Department of Transportation ("DOT") hours of service rules.  The use of teams contributes to greater equipment utilization of the tractors they drive than obtained with single drivers.  The use of teams, however, increases personnel costs as a percentage of revenue and the number of drivers we must recruit.  At December 31, 2009, teams operated approximately 29% of our tractors.

We are not a party to a collective bargaining agreement.  At December 31, 2009, we employed approximately 4,065 drivers and approximately 754 non-driver personnel.  At December 31, 2009, we also contracted with approximately 93 independent contractor drivers.  We believe that we have a good relationship with our personnel.

Revenue Equipment

We believe that operating high quality, late-model equipment contributes to operating efficiency, helps us recruit and retain drivers, and is an important part of providing excellent service to customers.  Our policy is to operate a low age fleet of tractors, with the majority of units under warranty, to minimize repair and maintenance costs and reduce service interruptions caused by breakdowns.  We also order most of our equipment with uniform specifications to reduce our parts inventory and facilitate maintenance.  At December 31, 2009, our tractor fleet had an average age of approximately 22 months and our trailer fleet had an average age of approximately 58 months.  At December 31, 2009, approximately 64% of our tractors were equipped with 2007 emission-compliant engines.  Approximately 82% of our trailers were dry vans and the remainder were refrigerated vans.

Over the past several years, the price of new tractors has risen dramatically, while the resale value has generally not changed or has decreased.  This has substantially increased our costs of operation over the past several years.  Tractor manufacturers have indicated that they intend to continue increasing prices prior to and following the introduction of 2010 emission-compliant engines.

Industry and Competition

The U.S. market for truck-based transportation services generates total revenues of greater than an estimated $600 billion and is projected to follow the overall U.S. economy.  The trucking industry includes both private fleets and "for-hire" carriers.  We operate in the highly fragmented for-hire truckload segment of this market, which generates estimated revenues of approximately $300 billion.  Our dedicated business also competes in the estimated $280 billion-plus private fleet portion of the overall trucking market, by seeking to convince private fleet operators to outsource or supplement their private fleets.

 
The United States trucking industry is highly competitive and includes thousands of "for-hire" motor carriers, none of which dominate the market.  Service and price are the principal means of competition in the trucking industry.  We compete to some extent with railroads and rail-truck intermodal service but differentiate ourselves from them on the basis of service.  Rail and rail-truck intermodal movements are more often subject to delays and disruptions arising from rail yard congestion, which reduce the effectiveness of such service to customers with time-definite pick-up and delivery schedules.  In times of high fuel prices or less consumer demand, however, rail-intermodal competition becomes more significant.

We believe that the cost and complexity of operating trucking fleets are increasing and that economic and competitive pressures are likely to force many smaller competitors and private fleets to consolidate or exit the industry.  As a result, we believe that larger, better-capitalized companies, like us, will have opportunities to increase profit margins and gain market share.  In the market for dedicated services, we believe that truckload carriers, like us, have a competitive advantage over truck lessors, who are the other major participants in the market, because we can offer lower prices by utilizing back-haul freight within our network that traditional lessors may not have.

Regulation

Our operations are regulated and licensed by various U.S. agencies.  Our company drivers and independent contractors also must comply with the safety and fitness regulations of the DOT, including those relating to drug and alcohol testing and hours-of-service.  Such matters as weight and equipment dimensions are also subject to U.S. regulations.  We also may become subject to new or more restrictive regulations relating to fuel emissions, drivers' hours-of-service, ergonomics, or other matters affecting safety or operating methods.  Other agencies, such as the Environmental Protection Agency ("EPA") and the Department of Homeland Security ("DHS"), also regulate our equipment, operations, and drivers.

The DOT, through the FMCSA, imposes safety and fitness regulations on us and our drivers.  New rules that limit driver hours-of-service were adopted effective January 4, 2004, and then modified effective October 1, 2005 (the "2005 Rules").  In July 2007, a federal appeals court vacated portions of the 2005 Rules.  Two of the key portions that were vacated include the expansion of the driving day from 10 hours to 11 hours, and the "34-hour restart," which allowed drivers to restart calculations of the weekly on-duty time limits after the driver had at least 34 consecutive hours off duty.  The court indicated that, in addition to other reasons, it vacated these two portions of the 2005 Rules because FMCSA failed to provide adequate data supporting its decision to increase the driving day and provide for the 34-hour restart.  In November 2008, following the submission of additional data by FMCSA and a series of appeals and related court rulings, FMCSA published its final rule, which retains the 11 hour driving day and the 34-hour restart (the "Final Rule").  However, advocacy groups have continued to challenge the Final Rule and on October 26, 2009, the FMCSA agreed pursuant to a settlement agreement with certain advocacy groups that the Final Rule on driver hours-of-service would not take effect pending the publication of a new Notice of Proposed Rulemaking.  Under the settlement agreement, the FMCSA will submit the draft Notice of Proposed Rulemaking to the Office of Management and Budget by July 2010, and the FMCSA will issue a final rule by 2012.  The current hours-of-service rules, adopted in 2005, will remain in effect during the rulemaking proceedings.  In December 2009, the FMCSA issued a notice soliciting data and research information the FMCSA may consider in drafting the forthcoming Notice of Proposed Rulemaking.

We are unable to predict what form the new rules may take, how a court may rule on such challenges to such rules, and to what extent the FMCSA might attempt to materially revise the rules under the current presidential administration.  On the whole, however, we believe any modifications to the current rules will decrease productivity and cause some loss of efficiency, as drivers and shippers may need to be retrained, computer programming may require modifications, additional drivers may need to be employed or engaged, additional equipment may need to be acquired, and some shipping lanes may need to be reconfigured.

The FMCSA's new Comprehensive Safety Analysis 2010 initiative introduces a new enforcement and compliance model, which implements driver standards in addition to the Company standards currently in place.  Under the new regulations, the methodology for determining a carrier's DOT safety rating will be expanded to include the on-road safety performance of the carrier's drivers.  Implementation of the new regulations is set for July 1, 2010, and enforcement will begin in late 2010.  As a result of new regulations, including the expanded methodology for determining a carrier's DOT safety rating, there may be an adverse effect on our DOT safety rating.  The Company currently has a satisfactory DOT safety rating, which is the highest available rating.  A conditional or unsatisfactory DOT safety rating could adversely affect our business because some of our customer contracts may require a satisfactory DOT safety rating, and a conditional or unsatisfactory rating could negatively impact or restrict our operations.  The new regulations also may result in a reduced number of eligible drivers.  If current or potential drivers are eliminated due to the Comprehensive Safety Analysis 2010 initiative, we may have difficulty attracting and retaining qualified drivers.

 
The Transportation Security Administration ("TSA") has adopted regulations that require determination by the TSA that each driver who applies for or renews his or her license for carrying hazardous materials is not a security threat.  This could reduce the pool of qualified drivers, which could require us to increase driver compensation, limit our fleet growth, or result in trucks sitting idle.  These regulations also could complicate the matching of available equipment with hazardous material shipments, thereby increasing our response time on customer orders and our non-revenue miles.  As a result, it is possible we could fail to meet the needs of our customers or could incur increased expenses to do so.

Certain states and municipalities continue to restrict the locations and amount of time where diesel-powered tractors, such as ours, may idle, in order to reduce exhaust emissions.  These restrictions could force us to alter our drivers' behavior, purchase on-board power units that do not require the engine to idle, or face a decrease in productivity.

We are subject to various environmental laws and regulations dealing with the hauling and handling of hazardous materials, fuel storage tanks, air emissions from our vehicles and facilities, engine idling, discharge and retention of storm water, and other environmental matters that import inherent environmental risks.  We operate in industrial areas, where truck terminals and other industrial activities are located, and where groundwater or other forms of environmental contamination have occurred.  Our operations involve the risks of fuel spillage or seepage, environmental damage, and hazardous waste disposal, among others.  We also maintain above-ground bulk fuel storage tanks and fueling islands at three of our facilities.  A small percentage of our freight consists of low-grade hazardous substances, which subjects us to a wide array of regulations.  Although we have instituted programs to monitor and control environmental risks and promote compliance with applicable environmental laws and regulations, if we are involved in a spill or other accident involving hazardous substances, if there are releases of hazardous substances we transport, or if we are found to be in violation of applicable laws or regulations, we could be subject to liabilities, including substantial fines or penalties or civil and criminal liability, any of which could have a materially adverse effect on our business and operating results.

Regulations limiting exhaust emissions became more restrictive in 2010.  Compliance with such regulations has increased the cost of our new tractors and could impair equipment productivity, lower fuel mileage, and increase our operating expenses.  These adverse effects, combined with the uncertainty as to the reliability of the newly designed diesel engines and the residual values of these vehicles, could materially increase our costs or otherwise adversely affect our business or operations.

Fuel Availability and Cost

We actively manage our fuel costs by routing our drivers through fuel centers with which we have negotiated volume discounts.  During the past several years, fuel cost per gallon has increased, though the cost of fuel was lower in 2009 than 2008 considering the historical highs for petroleum products in 2008.  We have also reduced the maximum speed of many of our trucks, implemented strict idling guidelines for our drivers, encouraged the use of shore power units in truck stops, and imposed standards for accepting broker freight that include a minimum combined rate and assumed fuel surcharge component.  This combination of initiatives has contributed to significant improvements in fleet wide average fuel mileage.  Moreover, we have a fuel surcharge revenue program in place with the majority of our customers, which has historically enabled us to recover some of the higher fuel costs; however, even with the fuel surcharges, the price of fuel has affected our profitability.  Most of these programs automatically adjust weekly depending on the cost of fuel.  There can be timing differences between a change in our fuel cost and the timing of the fuel surcharges billed to our customers.  In addition, we incur additional costs when fuel prices rise that cannot be fully recovered due to our engines being idled during cold or warm weather, empty or out-of-route miles, and for fuel used by refrigerated trailer units that generally are not billed to customers.  In addition, during 2008 and 2009, many customers attempted to modify their surcharge programs, some successfully, which has resulted in recovery of a smaller portion of fuel price increases.  Rapid increases in fuel costs or shortages of fuel could have a material adverse effect on our operations or future profitability.

The Company engages in activities that expose it to market risks, including the effects of changes in fuel prices.  Financial exposures are evaluated as an integral part of the Company's risk management program, which seeks, from time to time, to reduce potentially adverse effects that the volatility of fuel markets may have on operating results.  In an effort to seek to reduce the variability of the ultimate cash flows associated with fluctuations in diesel fuel prices, we periodically enter into various derivative instruments, including forward futures swap contracts.  The Company does not engage in speculative transactions, nor does it hold or issue financial instruments for trading purposes.

 
The Company did not enter into any derivatives until the third quarter of 2009; however, in September 2009 we entered into forward futures swap contracts, which pertain to 2.5 million gallons of diesel, or approximately 4%, of our projected January through December 2010 fuel requirements.  Under these contracts, we pay a fixed rate per gallon of heating oil and receive the monthly average price of New York heating oil.  The retrospective and prospective regression analyses provided that changes in the prices of diesel fuel and heating oil were deemed to be highly effective based on the relevant authoritative guidance.

Seasonality

Our tractor productivity generally decreases during the winter season because inclement weather impedes operations, and some shippers reduce their shipments after the winter holiday season.  Revenue can also be affected by bad weather and holidays, since revenue is directly related to available working days of shippers.  At the same time, operating expenses increase, with fuel efficiency declining because of engine idling and harsh weather sometimes creating higher accident frequency, increased claims, and more equipment repairs.  We can also suffer short-term impacts from weather-related events such as hurricanes, blizzards, ice storms, and floods that could harm our results or make our results more volatile.

Additional Information

At December 31, 2009, our corporate structure included Covenant Transportation Group, Inc., a Nevada holding company organized in May 1994, and its wholly owned subsidiaries: Covenant Transport, Inc., a Tennessee corporation; Southern Refrigerated Transport, Inc., an Arkansas corporation; Star Transportation, Inc., a Tennessee corporation; Covenant Transport Solutions, Inc., a Nevada corporation; Covenant Logistics, Inc., a Nevada corporation; Covenant Asset Management, Inc., a Nevada corporation; CTG Leasing Company, a Nevada corporation; and Volunteer Insurance Limited, a Cayman Islands company.

Our headquarters is located at 400 Birmingham Highway, Chattanooga, Tennessee 37419, and our website address is www.covenanttransport.com .  Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all other reports we file with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") are available free of charge through our website.  Information contained in or available through our website is not incorporated by reference into, and you should not consider such information to be part of, this Annual Report on Form 10-K.

ITEM 1A.                       RISK FACTORS

Factors That May Affect Future Results

Our future results may be affected by a number of factors over which we have little or no control.  The following discussion of risk factors contains forward looking statements as discussed in Item 1 above.  The following issues, uncertainties, and risks, among others, should be considered in evaluating our business and growth outlook.

Our business is subject to general economic and business factors affecting the trucking industry that are largely out of our control, any of which could have a materially adverse effect on our operating results.

Our business is dependent on a number of factors that may have a materially adverse effect on our results of operations, many of which are beyond our control.  Some of the most significant of these factors include excess tractor and trailer capacity in the trucking industry, declines in the resale value of used equipment, strikes or other work stoppages, increases in interest rates, fuel taxes, tolls, and license and registration fees, and rising costs of healthcare.

 
We also are affected by recessionary economic cycles, changes in customers' inventory levels, and downturns in customers' business cycles, particularly in market segments and industries, such as retail and manufacturing, where we have a significant concentration of customers, and regions of the country, such as California, Texas, and the Southeast, where we have a significant amount of business.  The risks associated with these factors are heightened in the current, severe recession facing the U.S. economy.  Some of the principal risks are as follows:
 
We may experience a reduction in overall freight levels, which may impair our asset utilization;
Certain of our customers are facing credit issues and could experience cash flow problems that may lead to payment delays, increased credit risk, bankruptcies, and other financial hardships that could result in even lower freight demand and may require us to increase our allowance for doubtful accounts;
Freight patterns may change as supply chains are redesigned, resulting in an imbalance between our capacity and our customers' freight demand;
Customers may bid out freight or select competitors that offer lower rates from among existing choices in an attempt to lower their costs, and we might be forced to lower our rates or lose freight; and
We may be forced to accept more freight from freight brokers, where freight rates are typically lower, or may be forced to incur more non-revenue miles to obtain loads.

In addition, it is not possible to predict the effects of actual or threatened terrorist attacks, efforts to combat terrorism, military action against any foreign state, heightened security requirements, or other related events.  Such events, however, could negatively impact the economy and consumer confidence in the United States.  Such events could also have a materially adverse effect on our future results of operations.

We may not be successful in improving our profitability.

In mid-2005, we undertook a strategic plan designed to improve our profitability.  Among other things, this plan included changes to items such as the customer base, rate structure, routes served, driver domiciles, management, reporting structure, and operating procedures.  These changes, and others that we did not expect, have presented, and are expected to continue to present, significant challenges, particularly in light of weak freight demand and increased fuel prices that have persisted since the second half of 2006, as well as the negative impact economic conditions have had on freight rates and volumes since mid-2008.  Despite our efforts to execute the strategic plan, we experienced a net loss in 2009 and also may experience a net loss in 2010.  If we are unable to improve our profitability, then our liquidity, financial position, and results of operations may be adversely affected.

Our Credit Facility and other financing arrangements contain certain covenants, restrictions, and requirements, and we may be unable to comply with the covenant, restrictions, and requirements.  A default could result in the acceleration of all or part of our outstanding indebtedness, which could have an adverse effect on our financial condition, liquidity, results of operations, and the price of our common stock.

We have an $85.0 million Credit Facility with a group of banks and numerous other financing arrangements.  The Credit Facility contains certain restrictions and covenants relating to, among other things, dividends, liens, acquisitions and dispositions outside of the ordinary course of business, affiliate transactions, and a fixed charge coverage ratio.  On February 25, 2010, the Company obtained an amendment to its Credit Facility, which, among other things (i) amended certain defined terms in the Credit Facility, (ii) retroactively to January 1, 2010, amended the fixed charge coverage ratio covenant through June 30, 2010, which prevented a default of that covenant for January 2010, (iii) restarted the look back requirements of the fixed coverage ratio covenant beginning on January 1, 2010, and (iv) required the Company to order updated appraisals for certain real estate described in the Credit Facility.  In consideration of these changes, we agreed to certain fees in connection with the amendment.  We have had difficulty meeting budgeted results in the past.  If we are unable to meet budgeted results or otherwise comply with our Credit Facility, we may be unable to obtain a further amendment or waiver under our Credit Facility, or doing so may result in additional fees.  See "Material Debt Agreements" below for additional information.

Certain other financing arrangements contain certain restrictions and covenants, as well.  If we fail to comply with any of our financing arrangement covenants, restrictions, and requirements, we will be in default under the relevant agreement, which could cause cross-defaults under our other financing arrangements.  In the event of any such default, if we failed to obtain replacement financing, amendments to, or waivers under the applicable financing arrangements, our lenders could cease making further advances, declare our debt to be immediately due and payable, fail to renew letters of credit, impose significant restrictions and requirements on our operations, institute foreclosure procedures against their collateral, or impose significant fees and transaction costs.  If acceleration occurs, the current credit market crisis may make it difficult or expensive to refinance the accelerated debt or we may have to issue equity securities, which would dilute stock ownership.  Even if new financing is made available to us, the current lack of available credit and consequent more stringent borrowing terms may mean that credit is not available to us on acceptable terms.  A default under our financing arrangements could cause a materially adverse effect on our liquidity, financial condition, and results of operations.

 
Our substantial indebtedness and capital and operating lease obligations could adversely affect our ability to respond to changes in our industry or business.
 
As a result of our level of debt, capital leases, operating lease obligations, and encumbered assets:

Our vulnerability to adverse economic conditions and competitive pressures is heightened;
We will continue to be required to dedicate a substantial portion of our cash flows from operations to operating lease payments and repayment of debt, limiting the availability of cash for other purposes;
Our flexibility in planning for, or reacting to, changes in our business and industry will be limited;
Our profitability is sensitive to fluctuations in interest rates because some of our debt obligations are subject to variable interest rates, and future borrowings and lease financing arrangements will be affected by any such fluctuations;
Our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, or other purposes may be limited; and
We may be required to issue additional equity securities to raise funds, which would dilute the ownership position of our stockholders.

Our financing obligations could negatively impact our future operations, our ability to satisfy our capital needs, or our ability to engage in other business activities.  We also cannot assure you that additional financing will be available to us when required or, if available, will be on terms satisfactory to us.

Fluctuations in the price or availability of fuel, hedging activities, and the volume and terms of diesel fuel purchase commitments, and surcharge collection and surcharge policies approved by customers may increase our costs of operation, which could materially and adversely affect our profitability.

Fuel is one of our largest operating expenses.  Diesel fuel prices fluctuate greatly due to economic, political, weather, and other factors beyond our control each of which may lead to an increase in the cost of fuel.  Fuel also is subject to regional pricing differences and often costs more on the West Coast, where we have significant operations.  From time-to-time, we use hedging contracts and volume purchase arrangements to attempt to limit the effect of price fluctuations.  We may be forced to make cash payments under the hedging arrangements.  We use a fuel surcharge program to recapture a portion of the increases in fuel prices over a base rate negotiated with our customers.  Our fuel surcharge program does not protect us against the full effect of increases in fuel prices.  The terms of each customer's fuel surcharge program vary and certain customers have sought to modify the terms of their fuel surcharge programs to minimize recoverability for fuel price increases.  A failure to improve our fuel price protection through these measures, increases in fuel prices, or a shortage of diesel fuel, could materially and adversely affect our results of operations.

We self-insure for a significant portion of our claims exposure, which could significantly increase the volatility of, and decrease the amount of, our earnings.

Our future insurance and claims expense could reduce our earnings and make our earnings more volatile.  We self-insure for a significant portion of our claims exposure and related expenses.  We accrue amounts for liabilities based on our assessment of claims that arise and our insurance coverage for the periods in which the claims arise, and we evaluate and revise these accruals from time-to-time based on additional information.  Due to our significant self-insured amounts, we have significant exposure to fluctuations in the number and severity of claims and the risk of being required to accrue or pay additional amounts if our estimates are revised or the claims ultimately prove to be more severe than originally assessed.  Historically, we have had to significantly adjust our reserves on several occasions, and future significant adjustments may occur.

We maintain insurance above the amounts for which we self-insure with licensed insurance carriers.  If any claim was to exceed our coverage, we would bear the excess, in addition to our other self-insured amounts.  Our insurance and claims expense could increase when our current coverage expires, or we could raise our self-insured retention.  Although we believe our aggregate insurance limits are sufficient to cover reasonably expected claims, it is possible that one or more claims could exceed those limits.  Our insurance and claims expense could increase, or we could find it necessary to again raise our self-insured retention or decrease our aggregate coverage limits when our policies are renewed or replaced.  Our operating results and financial condition may be adversely affected if these expenses increase, if we experience a claim in excess of our coverage limits, if we experience a claim for which we do not have coverage, or if we have to increase our reserves again.

 
We operate in a highly competitive and fragmented industry, and numerous competitive factors could impair our ability to improve our profitability.
 
These factors include:

We compete with many other truckload carriers of varying sizes and, to a lesser extent, with less-than-truckload carriers, railroads, intermodal companies, and other transportation companies, many of which have more equipment and greater capital resources than we do.
Many of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase freight rates or maintain significant growth in our business.
Many of our customers are other transportation companies, and they may decide to transport their own freight.
Many customers reduce the number of carriers they use by selecting "core carriers" as approved service providers, and in some instances we may not be selected.
Many customers periodically accept bids from multiple carriers for their shipping needs, and this process may depress freight rates or result in the loss of some business to competitors.
The trend toward consolidation in the trucking industry may create other large carriers with greater financial resources and other competitive advantages relating to their size.
Advances in technology require increased investments to remain competitive, and our customers may not be willing to accept higher freight rates to cover the cost of these investments.
Competition from non-asset-based logistics and freight brokerage companies may adversely affect our customer relationships and freight rates.
Economies of scale that may be passed on to smaller carriers by procurement aggregation providers may improve their ability to compete with us.

We derive a significant portion of our revenue from our major customers, the loss of one or more of which could have a materially adverse effect on our business.

A significant portion of our revenue is generated from our major customers.  Generally, we do not have long-term contractual relationships with our major customers, and our customers may not continue to use our services or could reduce their use of our services.  For some of our customers, we have entered into multi-year contracts, and the rates we charge may not remain advantageous.  A reduction in or termination of our services by one or more of our major customers could have a materially adverse effect on our business and operating results.

Increases in driver compensation or difficulty in attracting and retaining qualified drivers could adversely affect our profitability.

Like many truckload carriers, we experience substantial difficulty in attracting and retaining sufficient numbers of qualified drivers, including independent contractors.  In addition, due in part to current economic conditions, including the cost of fuel, insurance, and tractors, the available pool of independent contractor drivers has been declining.  Regulatory requirements, including the new Comprehensive Safety Analysis 2010 initiative (discussed below), and an improvement in the economy could reduce the number of eligible drivers or force us to pay more to attract and retain drivers.  A shortage of qualified drivers and intense competition for drivers from other trucking companies will create difficulties in increasing the number of our drivers, including independent contractor drivers.  The compensation we offer our drivers and independent contractors is subject to market conditions, and we may find it necessary to increase driver and independent contractor compensation in future periods.  In addition, we and our industry suffer from a high turnover rate of drivers.  Our high turnover rate requires us to continually recruit a substantial number of drivers in order to operate existing revenue equipment.  If we are unable to continue to attract and retain a sufficient number of drivers, we could be forced to, among other things, adjust our compensation packages, increase the number of our tractors without drivers, or operate with fewer trucks and face difficulty meeting shipper demands, any of which could adversely affect our growth and profitability.

We operate in a highly regulated industry, and changes in regulations or increased costs of compliance with, or liability for violation of, existing or future regulations could have a materially adverse effect on our business.

Our operations are regulated and licensed by various U.S., Canadian, and Mexican agencies.  Our company drivers and independent contractors also must comply with the safety and fitness regulations of the United States DOT, including those relating to drug and alcohol testing and hours-of-service.  Such matters as weight and equipment dimensions also are subject to U.S. and Canadian regulations.  We also may become subject to new or more restrictive regulations relating to fuel emissions, drivers' hours-of-service, ergonomics, or other matters affecting safety or operating methods.  Other agencies, such as the EPA, and the DHS, also regulate our equipment, operations, and drivers.  Future laws and regulations may be more stringent and require changes in our operating practices, influence the demand for transportation services, or require us to incur significant additional costs.  Higher costs incurred by us or by our suppliers who pass the costs onto us through higher prices could adversely affect our results of operations.

 
The DOT, through the FMCSA, imposes safety and fitness regulations on us and our drivers.  New rules that limit driver hours-of-service were adopted, effective January 4, 2004, and then modified, effective October 1, 2005 (the "2005 Rules").  In July 2007, a federal appeals court vacated portions of the 2005 Rules.  Two of the key portions that were vacated include the expansion of the driving day from 10 hours to 11 hours, and the "34-hour restart," which allowed drivers to restart calculations of the weekly on-duty time limits after the driver had at least 34 consecutive hours off duty.  The court indicated that, in addition to other reasons, it vacated these two portions of the 2005 Rules because FMCSA failed to provide adequate data supporting its decision to increase the driving day and provide for the 34-hour restart.  In November 2008, following the submission of additional data by FMCSA and a series of appeals and related court rulings, FMCSA published its final rule, which retains the 11 hour driving day and the 34-hour restart (the "Final Rule").  However, advocacy groups have continued to challenge the Final Rule and on October 26, 2009, the FMCSA agreed pursuant to a settlement agreement with certain advocacy groups that the Final Rule on driver hours-of-service would not take effect pending the publication of a new Notice of Proposed Rulemaking.  Under the settlement agreement, the FMCSA will submit the draft Notice of Proposed Rulemaking to the Office of Management and Budget by July 2010, and the FMCSA will issue a final rule by 2012.  The current hours-of-service rules, adopted in 2005, will remain in effect during the rulemaking proceedings.  In December 2009, the FMCSA issued a notice soliciting data and research information the FMCSA may consider in drafting the forthcoming Notice of Proposed Rulemaking.

We are unable to predict what form the new rules may take, how a court may rule on such challenges to such rules, and to what extent the FMCSA might attempt to materially revise the rules under the current presidential administration.  On the whole, however, we believe any modifications to the current rules will decrease productivity and cause some loss of efficiency, as drivers and shippers may need to be retrained, computer programming may require modifications, additional drivers may need to be employed or engaged, additional equipment may need to be acquired, and some shipping lanes may need to be reconfigured.

The FMCSA's new Comprehensive Safety Analysis 2010 initiative introduces a new enforcement and compliance model, which implements driver standards in addition to the Company standards currently in place.  Under the new regulations, the methodology for determining a carrier's DOT safety rating will be expanded to include the on-road safety performance of the carrier's drivers.  Implementation of the new regulation is set for July 1, 2010, and enforcement will begin in late 2010.  As a result of these new regulations, including the expanded methodology for determining a carrier's DOT safety rating, there may be an adverse effect on our DOT safety rating.  The Company currently has a satisfactory DOT rating, which is the highest available rating.  A conditional or unsatisfactory DOT safety rating could adversely affect our business because some of our customer contracts may require a satisfactory DOT safety rating, and a conditional or unsatisfactory rating could negatively impact or restrict our operations.  The new regulations also may result in a reduced number of eligible drivers.  If current or potential drivers are eliminated due to the Comprehensive Safety Analysis 2010 initiative, we may have difficulty attracting and retaining qualified drivers.

On December 26, 2007, the FMCSA published a Notice of Proposed Rule Making in the Federal Register regarding minimum requirements for entry level driver training.  Under the proposed rule, a commercial driver's license applicant would be required to present a valid driver training certificate obtained from an accredited institution or program.  Entry-level drivers applying for a Class A commercial driver's license would be required to complete a minimum of 120 hours of training, consisting of 76 classroom hours and 44 driving hours.  The current regulations do not require a minimum number of training hours and require only classroom education.  Drivers who obtain their first commercial driver's license during the three-year period after the FMCSA issues a final rule would be exempt.  The FMCSA has not established a deadline for issuing the final rule, but the comment period expired on May 23, 2008.  If the rule is approved as written, this rule could materially affect the number of potential new drivers entering the industry and, accordingly, negatively affect our results of operations.

In the aftermath of the September 11, 2001 terrorist attacks, federal, state, and municipal authorities have implemented and continue to implement various security measures, including checkpoints and travel restrictions on large trucks.  The Transportation Security Administration, or TSA, of the DHS has adopted regulations that require determination by the TSA that each driver who applies for or renews his license for carrying hazardous materials is not a security threat.  This could reduce the pool of qualified drivers, which could require us to increase driver compensation, limit our fleet growth, or let trucks sit idle.  These regulations also could complicate the matching of available equipment with hazardous material shipments, thereby increasing our response time on customer orders and our non-revenue miles.  As a result, it is possible we may fail to meet the needs of our customers or may incur increased expenses to do so.  These security measures could negatively impact our operating results.

 
On December 1, 2008, the FMCSA issued a final rule that will require CDL holders to provide an original or current copy of the medical examiners certification to their State Driver Licensing Agency.  This action is the preamble to merge the CDL and the Medical Examination Certificate into a single electronic record.  We are unable to predict the effect of this rule on our industry, but we expect that this rule could increase costs and potentially could decrease productivity and the availability of qualified CDL drivers.

Some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors, such as ours, may idle, in order to reduce exhaust emissions.  These restrictions could force us to alter our drivers' behavior, purchase on-board power units that do not require the engine to idle, or face a decrease in productivity.

In general, the increasing burden of regulation raises our costs and lowers our efficiency.  Future laws and regulations may be more stringent and require changes in our operating practices, influence the demand for transportation services, or require us to incur significant additional costs.  Higher costs incurred by us or by our suppliers who pass the costs on to us through higher prices could adversely affect our results of operations.

We have significant ongoing capital requirements that could affect our profitability if we are unable to generate sufficient cash from operations and obtain financing on favorable terms.

The truckload industry is capital intensive, and our policy of operating newer equipment requires us to expend significant amounts annually.  We expect to pay for projected capital expenditures with cash flows from operations, borrowings under our Credit Facility, proceeds under our financing facilities, and leases of revenue equipment.  If we are unable to generate sufficient cash from operations and obtain financing on favorable terms in the future, we may have to limit our fleet size, enter into less favorable financing arrangements, or operate our revenue equipment for longer periods, any of which could have a materially adverse effect on our profitability.

We currently have trade-in or fixed residual agreements with certain equipment suppliers concerning a portion of our tractor fleet.  If the suppliers refuse or are unable to meet their financial obligations under these agreements or if we decline to purchase the relevant number of replacement units from the suppliers, we may suffer a financial loss upon the disposal of our equipment.

We may not make acquisitions in the future, or if we do, we may not be successful in our acquisition strategy.

We made ten acquisitions between 1996 and 2006.  Accordingly, acquisitions have provided a substantial portion of our growth.  We may not have the financial capacity or be successful in identifying, negotiating, or consummating any future acquisitions.  If we fail to make any future acquisitions, our historical growth rate could be materially and adversely affected.  Any acquisitions we undertake could involve the dilutive issuance of equity securities and/or incurring indebtedness.  In addition, acquisitions involve numerous risks, including difficulties in assimilating the acquired company's operations, the diversion of our management's attention from other business concerns, risks of entering into markets in which we have had no or only limited direct experience, and the potential loss of customers, key employees, and drivers of the acquired company, all of which could have a materially adverse effect on our business and operating results.  If we make acquisitions in the future, we may not be able to successfully integrate the acquired companies or assets into our business.

Our operations are subject to various environmental laws and regulations, the violation of which could result in substantial fines or penalties.

We are subject to various environmental laws and regulations dealing with the hauling and handling of hazardous materials, fuel storage tanks, air emissions from our vehicles and facilities, engine idling, and discharge and retention of storm water.  We operate in industrial areas where truck terminals and other industrial activities are located, and where groundwater or other forms of environmental contamination have occurred.  Our operations involve the risks of fuel spillage or seepage, environmental damage, and hazardous waste disposal, among others.  We also maintain above-ground bulk fuel storage tanks and fueling islands at three of our facilities.  A small percentage of our freight consists of low-grade hazardous substances, which subjects us to a wide array of regulations.  Although we have instituted programs to monitor and control environmental risks and promote compliance with applicable environmental laws and regulations, if we are involved in a spill or other accident involving hazardous substances, if there are releases of hazardous substances we transport, or if we are found to be in violation of applicable laws or regulations, we could be subject to liabilities, including substantial fines or penalties or civil and criminal liability, any of which could have a materially adverse effect on our business and operating results.

 
Regulations limiting exhaust emissions became more restrictive in 2010.  Engines meeting new emissions standards generally cost more and require additional maintenance compared with earlier models.  Compliance with such regulations has increased the cost of our new tractors and could impair equipment productivity, lower fuel mileage, and increase our operating expenses.  These adverse effects, combined with the uncertainty as to the reliability of the newly designed diesel engines and the residual values of these vehicles, could materially increase our costs or otherwise adversely affect our business or operations.

Concern over climate change, including the impact of global warming, has led to significant legislative and regulatory efforts to limit greenhouse gas emissions, and some form of federal climate change legislation is possible in the relatively near future.  Regulations related to climate change that potentially impose restrictions, caps, taxes, or other controls on emissions of greenhouse gases could adversely affect our operations and financial results.  More specifically, legislative or regulatory actions related to climate change could adversely impact the Company by increasing our fuel costs and reducing fuel efficiency and could result in the creation of substantial additional capital expenditures and operating costs in the form of taxes, emissions allowances, or required equipment upgrades.  Until the timing, scope, and extent of any future regulation becomes known, we cannot predict its effect on our cost structure or our operating results; however, any future regulation could impair our operating efficiency and productivity and result in higher operating costs.

Increased prices, reduced productivity, and scarcity of financing for new revenue equipment may adversely affect our earnings and cash flows.

We are subject to risk with respect to higher prices for new tractors.  Prices may increase, due, in part, to government regulations applicable to newly manufactured tractors and diesel engines and due to the pricing power among equipment manufacturers.  More restrictive EPA emissions standards have required vendors to introduce new engines.  Additional EPA mandated emissions standards became effective for newly manufactured trucks in January 2010.  Compliance with such regulations has increased the cost of our new tractors and could impair equipment productivity, lower fuel mileage, and increase our operating expenses.  These adverse effects, combined with the uncertainty as to the reliability of the vehicles equipped with the newly designed diesel engines and the residual values realized from the disposition of these vehicles, could increase our costs or otherwise adversely affect our business or operations as the regulations become effective.

In addition, our financial results and shrinking capacity of lenders and lessors that provide tractor and trailer financing have made it increasingly difficult for us to finance acquisitions of new equipment.  As a result, we expect to continue to pay increased prices for equipment and incur additional expenses and related financing costs for the foreseeable future.

We have a combination of agreements and non-binding statements of indicative trade values covering the terms of trade-in commitments from our primary equipment vendors for disposal of a portion of our revenue equipment.  The prices we expect to receive under these arrangements may be higher than the prices we would receive in the open market.  We may suffer a financial loss upon disposition of our equipment if these vendors refuse or are unable to meet their financial obligations under these agreements, if we fail to enter into definitive agreements consistent with the indicative trade values, if we fail to enter into similar arrangements in the future, or if we do not purchase the required number of replacement units from the vendors.

Near the end of 2008, we lowered our tractor disposal proceeds expectations in response to a combination of sharply lower economic indicators, a worsening credit market, and significantly lower prices received for disposals of our used revenue equipment.  Based on these factors and the expected remaining useful lives of some of our equipment, we recorded impairments of the carrying values of most of the tractors and trailers recorded as held for sale that were expected to be traded or sold in 2009 as well as most of our in-use tractors that were expected to be traded or sold in 2009 or 2010.  Although we do not expect to be required to make any future cash expenditures as a result of this impairment charge, cash proceeds of future disposals of revenue equipment are anticipated to be lower than expected prior to this impairment charge.  Additional impairments of the carrying values of our revenue equipment could have a materially adverse effect on our business and operating results.

If we are unable to retain our key employees, our business, financial condition, and results of operations could be harmed.

We are highly dependent upon the services of the following key employees: David R. Parker, our Chairman of the Board, Chief Executive Officer, and President; Joey B. Hogan, our Senior Executive Vice President and Chief Operating Officer, and President of our Covenant subsidiary; Richard B. Cribbs, our Senior Vice President and Chief Financial Officer; Tony Smith, our President of SRT; James Brower, our President of Star; M. David Hughes, our Senior Vice President, Corporate Treasurer, and Covenant subsidiary's Senior Vice President of Fleet Management and Procurement; and R.H. Lovin, Jr., our Covenant subsidiary's Executive Vice President of Administration.  We currently do not have employment agreements with any of the employees referenced above.  The loss of any of their services could negatively impact our operations and future profitability.  We must continue to develop and retain a core group of managers if we are to realize our goal of improving our profitability.

 
Our Chief Executive Officer and President and his wife control a large portion of our stock and have substantial control over us, which could limit other stockholders’ ability to influence the outcome of key transactions, including changes of control.

Our Chairman of the Board, Chief Executive Officer, and President, David Parker, and his wife, Jacqueline Parker, beneficially own approximately 40% of our outstanding Class A and Class B common stock and 100% of our Class B common stock.  On all matters with respect to which our stockholders have a right to vote, including the election of directors, each share of Class A common stock is entitled to one vote, while each share of Class B common stock is entitled to two votes.  All outstanding shares of Class B common stock are owned by the Parkers and are convertible to Class A common stock on a share-for-share basis at the election of the Parkers or automatically upon transfer to someone outside of the Parker family.  This voting structure gives the Parkers approximately 48% of the voting power of all of our outstanding stock.  The Parkers are able to substantially influence decisions requiring stockholder approval, including the election of our entire board of directors, the adoption or extension of anti-takeover provisions, mergers, and other business combinations.  This concentration of ownership could limit the price that some investors might be willing to pay for the Class A common stock, and could allow the Parkers to prevent or delay a change of control, which other stockholders may favor.  The interests of the Parkers may conflict with the interests of other holders of Class A common stock, and they may take actions affecting us with which other stockholders disagree.

We depend on the proper functioning and availability of our information systems and a system failure or inability to effectively upgrade our information systems could cause a significant disruption to our business and have a materially adverse effect on our results of operation.

We depend on the proper functioning and availability of our information systems, including financial reporting and operating systems, in operating our business.  Our operating system is critical to understanding customer demands, accepting and planning loads, dispatching equipment and drivers, and billing and collecting for our services.  Our financial reporting system is critical to producing accurate and timely financial statements and analyzing business information to help us manage effectively.  We have begun a multi-year project to upgrade the hardware and software of our information systems.  If any of our critical information systems fail or become otherwise unavailable, whether as a result of the upgrade project or otherwise, we would have to perform the functions manually, which could temporarily impact our ability to manage our fleet efficiently, to respond to customers' requests effectively, to maintain billing and other records reliably, and to bill for services and prepare financial statements accurately or in a timely manner.  Our business interruption insurance may be inadequate to protect us in the event of an unforeseeable and extreme catastrophe.  Any system failure, delays, or complications in the upgrade, security breach, or other system failure could interrupt or delay our operations, damage our reputation, cause us to lose customers, or impact our ability to manage our operations and report our financial performance, any of which could have a materially adverse effect on our business.

If our stock does not continue to be traded on an established exchange or our public float is diminished, an active trading market may not exist and the trading price of our stock may decline.

Our common stock is listed on the NASDAQ Global Select Market.  Nasdaq's continued listing standards for our common stock require, among other things, that (i) the closing bid price for our common stock not fall below $1.00; (ii) we have at least 400 beneficial holders and/or holders of record of our common stock; (iii) our stockholders' equity not fall below $10 million; (iv) we have more than 750,000 shares held by the public (excluding officers, directors, and beneficial holders of 10% or more) with a market value of at least $5.0 million; and (v) we have at least two registered and active dealers meeting the requirements set forth in the standards.  A failure to meet these continued listing requirements is generally required to exist for a period of 10 to 30 consecutive business days (depending upon the type of failure) before a deficiency will be determined to exist.  If our common stock was threatened with delisting from the NASDAQ Global Select Market, we may, depending on the circumstances, seek to extend the period for regaining compliance with NASDAQ listing requirements or we may pursue other strategic alternatives to meet the continuing listing standards.

 
In addition, we may choose to voluntarily delist from NASDAQ, or "go dark", in the event we believe we may be subject to a delisting proceeding or for any other reason our Board of Directors determines it to be in the best interest of our stockholders.

If our common stock is delisted by, or we voluntarily delist from, NASDAQ, our common stock may be eligible to trade on the NYSE Alternext U.S., the OTC Bulletin Board, or the Pink OTC Markets.  In such an event, it could become more difficult to dispose of, or obtain accurate quotations for the price of, our common stock, and there also would likely be a reduction in our coverage by security analysts and the news media, which could cause the price of our common stock to decline further.

The stock market has recently experienced price and volume fluctuations.  This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operating performance.  These broad market fluctuations may materially adversely affect the market price of our common stock, regardless of our operating results.  In addition, as a result of our small public float and limited trading volume, our common stock may be more susceptible to volatility arising from any of these factors.

Seasonality and the impact of weather affect our operations and profitability.

Our tractor productivity decreases during the winter season because inclement weather impedes operations, and some customers reduce their shipments after the winter holiday season.  Revenue also can be affected by bad weather and holidays, since revenue is directly related to available working days of shippers.  At the same time, operating expenses increase due to declining fuel efficiency because of engine idling and due to harsh weather creating higher accident frequency, increased claims, and more equipment repairs.  We also could suffer short-term impacts from weather-related events such as hurricanes, blizzards, ice storms, and floods that could harm our results or make our results more volatile.  Weather and other seasonal events could adversely affect our operating results.

ITEM 1B.                       UNRESOLVED STAFF COMMENTS

None.

ITEM 2.                       PROPERTIES

Our corporate headquarters and main terminal are located on approximately 180 acres of property in Chattanooga, Tennessee.  This facility includes an office building of approximately 182,000 square feet, a maintenance facility of approximately 65,000 square feet, a body shop of approximately 60,000 square feet, and a truck wash.  Our Solutions segment is also operated and managed out of the Chattanooga facility.  We maintain eleven terminals, which are utilized by our Truckload segment located on our major traffic lanes in or near the cities listed below.  These terminals provide a base for drivers in proximity to their homes, a transfer location for trailer relays on transcontinental routes, parking space for equipment dispatch, and the other uses indicated below.

Terminal Locations
Maintenance
Recruiting/
Orientation
Sales
Ownership
Chattanooga, Tennessee
x
x
x
Leased
Indianapolis, Indiana
     
Leased
Texarkana, Arkansas
x
x
x
Owned
Hutchins, Texas
x
x
 
Owned
French Camp, California
     
Leased
Long Beach, California
     
Owned
Pomona, California
 
x
 
Owned
Allentown, Pennsylvania
     
Owned
Nashville, Tennessee
x
x
x
Owned
Olive Branch, Mississippi
x
   
Owned
Orlando, Florida
     
Leased


ITEM 3.                       LEGAL PROCEEDINGS

From time to time we are a party to routine litigation arising in the ordinary course of business, most of which involves claims for personal injury and property damage incurred in connection with the transportation of freight.  We maintain insurance to cover liabilities arising from the transportation of freight for amounts in excess of certain self-insured retentions.

ITEM 4.                       (RESERVED AND REMOVED)


PART II

ITEM 5.                       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock

Our Class A common stock is traded on the NASDAQ Global Select Market, under the symbol "CVTI." The following table sets forth, for the calendar periods indicated, the range of high and low sales price for our Class A common stock as reported by NASDAQ from January 1, 2008, to December 31, 2009.

Period
 
High
   
Low
 
             
Calendar Year 2008:
           
             
1 st Quarter
  $ 8.48     $ 5.10  
2 nd Quarter
  $ 6.45     $ 2.90  
3 rd Quarter
  $ 5.64     $ 2.70  
4 th Quarter
  $ 3.22     $ 1.36  
                 
Calendar Year 2009:
               
                 
1 st Quarter
  $ 2.38     $ 1.60  
2 nd Quarter
  $ 5.88     $ 1.92  
3 rd Quarter
  $ 5.47     $ 3.40  
4 th Quarter
  $ 5.09     $ 3.68  

As of March 23, 2010, we had approximately 113 stockholders of record of our Class A common stock; however, we estimate our actual number of stockholders is much higher because a substantial number of our shares are held of record by brokers or dealers for their customers in street names.  As of March 23, 2010, Mr. Parker, together with certain of his family members, owned all of the outstanding Class B common stock.

Dividend Policy

We have never declared and paid a cash dividend on our Class A or Class B common stock.  It is the current intention of our Board of Directors to continue to retain earnings to finance our business and reduce our indebtedness rather than to pay dividends.  The payment of cash dividends is currently limited by our financing arrangements.  Future payments of cash dividends will depend upon our financial condition, results of operations, capital commitments, restrictions under then-existing agreements, and other factors deemed relevant by our Board of Directors.

See "Equity Compensation Plan Information" under Item 12 in Part III of this Annual Report for certain information concerning shares of our Class A common stock authorized for issuance under our equity compensation plans.



ITEM 6.                       SELECTED FINANCIAL DATA
 

(In thousands, except per share and operating data amounts)
 
       
   
Years Ended December 31 ,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
Statement of Operations Data:
                             
Freight revenue
  $ 520,495     $ 615,810     $ 602,629     $ 572,239     $ 555,428  
Fuel surcharge revenue
    68,192       158,104       109,897       111,589       87,626  
Total revenue
  $ 588,687     $ 773,914     $ 712,526     $ 683,828     $ 643,054  
                                         
Operating expenses:
                                       
Salaries, wages, and related expenses
    216,158       263,793       270,435       262,303       242,157  
Fuel expense
    143,835       260,704       211,022       194,355       170,582  
Operations and maintenance
    35,409       42,459       40,437       36,112       33,625  
Revenue equipment rentals and purchased transportation
    76,484       90,974       66,515       63,532       61,701  
Operating taxes and licenses
    12,113       13,078       14,112       14,516       13,431  
Insurance and claims
    31,955       37,578       36,391       34,104       41,034  
Communications and utilities
    5,740       6,702       7,377       6,727       6,579  
General supplies and expenses
    23,593       26,399       23,377       21,387       17,778  
Depreciation and amortization, including
     net gains on disposition of equipment
     and impairment of assets (1)
    48,122       63,235       53,541       41,150       39,101  
Goodwill impairment charge (2)
    -       24,671       -       -       -  
Total operating expenses
    593,409       829,593       723,207       674,186       625,988  
Operating income (loss)
    (4,722 )     (55,679 )     (10,681 )     9,642       17,066  
Other (income) expense:
                                       
   Interest expense
    14,184       10,373       12,285       7,166       4,203  
   Interest income
    (144 )     (435 )     (477 )     (568 )     (273 )
   Loss on sale of Transplace investment and note receivable (3)
    11,485       -       -       -       -  
Loss on early extinguishment of debt
    -       726       -       -       -  
Other
    (199 )     (160 )     (183 )     (157 )     (538 )
Other expenses, net
    25,326       10,504       11,625       6,441       3,392  
Income (loss) before cumulative effect of
       change in accounting principle
    (30,048 )     (66,183 )     (22,306 )     3,201       13,674  
Income tax expense (benefit)
    (5,018 )     (12,792 )     (5,580 )     4,582       8,003  
Income (loss) before cumulative effect of
       change in accounting principle
    (25,030 )     (53,391 )     (16,726 )     (1,381 )     5,671  
Cumulative effect of change in accounting
        principle, net of tax (4)
    -       -       -       -       (485 )
Net income (loss)
  $ (25,030 )   $ (53,391 )   $ (16,726 )   $ (1,381 )   $ 5,186  
 
(1)
Includes a $1,665 pre-tax impairment charge related to an airplane in 2007 and a $15,791 pretax impairment charge related to revenue equipment in 2008.  See the discussion below under "Additional Information Concerning Non-Cash Charges" for a more extensive description of these impairments.
(2)
Represents a non-cash impairment charge to write off the goodwill associated with the acquisition of our Star Transportation subsidiary.  See the discussion below under "Additional Information Concerning Non-Cash Charges" for a more extensive description of this impairment.
(3)
Represents a non-cash loss on sale of investment in Transplace and a related receivable.
(4)
Represents a $485 adjustment, net of tax, related to the adoption of a new accounting standard related to asset retirement obligations.

 
Basic earnings (loss) per share before
       cumulative effect of change in accounting principle
  $ (1.77 )   $ (3.80 )   $ (1.19 )   $ (0.10 )   $ 0.40  
                                         
Cumulative effect of change in accounting principle
    -       -       -       -       (0.03 )
                                         
Basic earnings (loss) per share
  $ (1.77 )   $ (3.80 )   $ (1.19 )   $ (0.10 )   $ 0.37  
                                         
Diluted earnings (loss) per share before cumulative
       effect of change in accounting principle:
  $ (1.77 )   $ (3.80 )   $ (1.19 )   $ (0.10 )   $ 0.40  
 
Cumulative effect of change in accounting principle
    -       -       -       -       (0.03 )
                                         
Diluted earnings (loss) per share
  $ (1.77 )   $ (3.80 )   $ (1.19 )   $ (0.10 )   $ 0.37  
                                         
Basic weighted average common shares outstanding
    14,124       14,038       14,018       13,996       14,175  
                                         
Diluted weighted average common shares outstanding
    14,124       14,038       14,018       13,996       14,270  
 

                               
   
Years Ended December 31 ,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
Selected Balance Sheet Data:
                             
Net property and equipment
  $ 278,335     $ 236,018     $ 247,530     $ 274,974     $ 211,158  
Total assets
  $ 398,312     $ 393,676     $ 439,794     $ 475,094     $ 371,261  
Long-term debt and capital lease obligations, less current maturities
  $ 146,556     $ 107,956     $ 86,467     $ 104,900     $ 33,000  
Total stockholders' equity
  $ 94,675     $ 118,820     $ 172,266     $ 188,844     $ 189,724  
                                         
Selected Operating Data:
                                       
Average freight revenue per loaded mile (1)
  $ 1.42     $ 1.53     $ 1.52     $ 1.51     $ 1.51  
Average freight revenue per total mile (1)
  $ 1.27     $ 1.36     $ 1.36     $ 1.36     $ 1.36  
Average freight revenue per tractor per week (1)
  $ 2,920     $ 3,105     $ 3,088     $ 3,077     $ 3,013  
Average miles per tractor per year
    119,836       118,992       118,159       117,621       115,765  
Weighted average tractors for year (2)
    3,111       3,456       3,623       3,546       3,535  
Total tractors at end of period (2)
    3,113       3,292       3,555       3,719       3,471  
Total trailers at end of period (3)
    8,005       8,277       8,667       9,820       8,565  
 
 
 (1) Excludes fuel surcharge revenue.
 (2) Includes monthly rental tractors and tractors provided by owner-operators.
 (3) Excludes monthly rental trailers.
 
 


ITEM 7.                       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

We focus on targeted markets where we believe our service standards can provide a competitive advantage.  We are a major carrier for transportation companies such as freight forwarders, less-than-truckload carriers, and third-party logistics providers that require a high level of service to support their businesses, as well as for traditional truckload customers such as manufacturers, retailers, and food and beverage shippers.  We also generate revenue through a subsidiary that provides freight brokerage services.

Our consolidated operating freight revenue, which excludes fuel surcharges, decreased to $520.5 million for 2009, a 15.5% decrease from $615.8 million in 2008.  Lower fuel prices resulted in fuel surcharge revenues of $68.2 million during 2009, compared with $158.1 million for 2008.  The decreased level of freight revenue was primarily attributable to reduced fleet size, a reduction in loads, and continued severe pressure on freight rates as a result of the economic recession.  We measure freight revenue because management believes that fuel surcharges tend to be a volatile source of revenue, and the removal of such surcharges affords a more consistent basis for comparing results of operations from period to period.

The weak economic environment negatively impacted freight volumes and freight rates across each of the subsidiaries when comparing 2009 to 2008, as evidenced by the 6.0% decrease in average freight revenue per truck per week, our primary measure of asset productivity, and a 6.9% or $0.10 decrease in average freight revenue per total mile in our Truckload segment.  Similarly, revenue in our Brokerage segment declined year-over-year because of a 17% reduction in the rate per loaded mile, a 5% reduction in revenue per load, and the closure of a large company store in October 2008.  In anticipation of lower freight volumes, we proactively reduced our fleet size in the first half of 2009 and maintained the decreased level throughout the second half of the year, providing for a decrease in weighted average tractors of 10% to 3,111 in the 2009 period, from 3,456 in the 2008 period.  With the assistance of the fleet reduction, we experienced a 0.7% increase in average miles per tractor in 2009 versus 2008.

Additional items of note included the following:

Operating loss of $4.7 million and an operating ratio of 100.9%, compared with an operating loss of $55.7 million and an operating ratio of 109.0% in 2008;
Operating expenses, excluding impairments of goodwill and property and equipment, in our asset-based operations declined $0.13 per mile compared with 2008;
A decrease in overall compensation while achieving our highest ratio of tractors per non-driving employee since becoming a public company in 1994;
We finished the year with the lowest number of DOT reportable accidents per million miles since we began tracking the data in 2001;
Non-cash impairment charge of $11.5 million (with no tax benefit) in 2009 relating to the loss on our investment in and note receivable from Transplace, Inc. and non-cash impairments totaling $40.5 million in 2008 related to property and equipment and goodwill; and
Net loss of $25.0 million, or ($1.77) per basic and diluted share, compared with a net loss of $53.4 million, or ($3.80) per basic and diluted share in 2008 (including the impairment charges in both periods).
 
For information about our current trends and future outlook, readers are encouraged to review our statements contained in the "Results of Consolidated Operations" and "Results of Segment Operations" sections below.

 
RESULTS OF CONSOLIDATED OPERATIONS

For comparison purposes in the table below, we use freight revenue, or total revenue less fuel surcharges, in addition to total revenue when discussing changes as a percentage of revenue.  We believe excluding this sometimes volatile source of revenue affords a more consistent basis for comparing our results of operations from period to period.  Freight revenue excludes $68.2 million, $158.1 million, and $109.9 million of fuel surcharges in 2009, 2008, and 2007, respectively.
 
The following table sets forth the percentage relationship of certain items to total revenue and freight revenue:
 
   
2009
 
2008
 
2007
     
2009
 
2008
 
2007
                             
Total revenue
 
100.0%
 
100.0%
 
100.0%
 
Freight revenue (1)
 
100.0%
 
100.0%
 
100.0%
Operating expenses:
             
Operating expenses:
           
Salaries, wages, and related expenses
 
36.7
 
34.1
 
38.0
 
Salaries, wages, and related expenses
 
41.5
 
42.8
 
44.9
Fuel expense
 
24.4
 
33.7
 
29.6
 
Fuel expense (1)
 
14.6
 
16.7
 
16.8
Operations and maintenance
 
6.0
 
5.5
 
5.7
 
Operations and maintenance
 
6.8
 
6.9
 
6.7
Revenue equipment rentals
       and purchased transportation
 
13.0
 
11.8
 
9.3
 
Revenue equipment rentals
       and purchased transportation
 
14.7
 
14.8
 
11.0
Operating taxes and licenses
 
2.1
 
1.7
 
2.0
 
Operating taxes and licenses
 
2.3
 
2.1
 
2.3
Insurance and claims
 
5.4
 
4.9
 
5.1
 
Insurance and claims
 
6.1
 
6.1
 
6.0
Communications and utilities
 
1.0
 
0.9
 
1.0
 
Communications and utilities
 
1.1
 
1.1
 
1.2
General supplies and expenses
 
4.0
 
3.2
 
3.3
 
General supplies and expenses
 
4.5
 
4.3
 
3.9
Depreciation and amortization,
including net gains on
disposition of equipment (2)
 
8.2
 
8.2
 
7.5
 
Depreciation and amortization,
including net gains on
disposition of equipment (2)
 
9.3
 
10.3
 
8.9
Goodwill impairment (3)
 
0.0
 
3.2
 
0.0
 
Goodwill impairment (3)
 
0.0
 
4.0
 
0.0
Total operating expenses
 
100.8
 
107.2
 
101.5
 
Total operating expenses
 
100.9
 
109.1
 
101.8
Operating loss
 
(0.8)
 
(7.2)
 
(1.5)
 
Operating loss
 
(0.9)
 
(9.1)
 
(1.8)
Other expense, net (4)
 
4.3
 
1.4
 
1.6
 
Other expense, net (4)
 
4.9
 
1.7
 
1.9
Loss before income taxes
 
(5.1)
 
(8.6)
 
(3.1)
 
Loss before income taxes
 
(5.8)
 
(10.8)
 
(3.7)
Income tax benefit
 
(0.9)
 
(1.7)
 
(0.8)
 
Income tax benefit
 
(1.0)
 
(2.1)
 
(0.9)
Net loss
 
(4.2)%
 
(6.9)%
 
(2.3)%
 
Net loss
 
(4.8)%
 
(8.7)%
 
(2.8)%
                             
 
(1)
Freight revenue is total revenue less fuel surcharges.  In this table, fuel surcharges are eliminated from revenue and subtracted from fuel expense.  The amounts were $68.2 million, $158.1 million, and $109.9 million in 2009, 2008, and 2007, respectively.
(2)
Includes a $9.4 million pre-tax impairment charge for held and used equipment and $6.4 million of pre-tax impairment charges for equipment held for sale in the year ended December 31, 2008, which together represent 2.0% of total revenue and 2.6% of freight revenue.  Includes a $1.7 million pre-tax impairment charge for equipment held for sale in the year ended December 31, 2007.  See the discussion below under "Additional Information Concerning Non-Cash Charges" for a more extensive description of these impairments.
(3)
Represents a $24.7 million non-cash impairment charge to write off the goodwill associated with the acquisition of our Star Transportation subsidiary.  See the discussion below under "Additional Information Concerning Non-Cash Charges" for a more extensive description of this impairment.
(4)
Includes an $11.5 million non-cash loss on the sale of the investment in and note receivable from Transplace in 2009.  See the discussion below under "Additional Information Concerning Non-Cash Charges" for a more extensive description of the loss.

Comparison of Year Ended December 31, 2009 to Year Ended December 31, 2008

Total revenue decreased $185.2 million, or 23.9%, to $588.7 million in 2009, from $773.9 million in 2008.  Freight revenue excludes $68.2 million of fuel surcharge revenue in 2009 and $158.1 million in 2008.  Freight revenue (total revenue less fuel surcharges) decreased $95.3 million, or 15.5%, to $520.5 million in 2009, from $615.8 million in 2008.  For comparison purposes, we use freight revenue (total revenue less fuel surcharge revenue) when discussing changes as a percentage of revenue.  We believe removing this sometimes volatile source of revenue affords a more consistent basis for comparing the results of operations from period to period.  As previously discussed, the rate environment was difficult in 2009, and freight volumes were significantly lower than 2008 as a result of the overall weak economic environment.  The decreased level of freight revenue was primarily attributable to weak freight demand, excess tractor and trailer capacity in the truckload industry, and significant rate pressure from customers and freight brokers.  Through mid-year 2009, we continued to reduce the size of our tractor fleet to achieve greater utilization of the remaining tractors in our fleet and attempt to improve profitability.  With the assistance of this fleet reduction, we experienced a 0.7% increase in average miles per tractor versus the 2008 period.  Average freight revenue per tractor per week, our primary measure of asset productivity, decreased 6.0% to $2,920 in 2009, from $3,105 in 2008, while total miles were down 9.3% from 2008.  As the economy has begun to show signs of improvement in 2010, we expect customer demand to increase at a modest rate in the second half of the year.

Salaries, wages, and related expenses decreased $47.6 million, or 18.1%, to $216.2 million in 2009, from $263.8 million in 2008.  As a percentage of freight revenue, salaries, wages, and related expenses decreased to 41.5% in 2009, from 42.8% in 2008.  Driver pay decreased $33.7 million to $147.1 million in 2009, from $180.8 million in the 2008 period.  The decrease was attributable to a 38.4 million reduction in truck miles, a decrease in driver pay per mile, and an increase in participation in our driver per diem pay program.  Our payroll expense for employees, other than over-the-road drivers, decreased $6.1 million to $39.4 million from $45.4 million, due to a reduction in our non-driver work force.  Additionally, workers' compensation and group health costs were $3.1 million and $0.9 million lower, respectively, in the 2009 period than the 2008 period, primarily as a result of reduced miles and head count along with favorable development in workers' compensation claims.  If the economy continues to show signs of recovery, our ability to hold in place prior reductions in salaries and wages could be limited.  Accordingly, these expenses could increase in absolute terms (and as a percentage of revenue absent an increase in revenue to offset increased costs).

 
Fuel expense, net of fuel surcharge revenue of $68.2 million in 2009 and $158.1 million in 2008, decreased $26.9 million to $75.6 million in 2009, from $102.6 million in 2008.  As a percentage of freight revenue, net fuel expense declined to 14.6% in 2009 from 16.7% in 2008.  Lower average fuel prices in 2009 versus 2008, multiple operating improvements, and the continued addition of auxiliary power units and more fuel efficient engines improved fuel efficiency and contributed to these decreases.

During 2009, fuel prices were less volatile than in 2008, contributing to the decrease in net fuel expense and the related percentage of revenue.  After reaching unprecedented record fuel high fuel prices during most of 2008, diesel fuel prices started to fall in the fourth quarter of 2008 and continued through the first quarter of 2009.  Significant fluctuations in fuel prices impact recovery of surcharges because we purchase fuel daily, while the U.S. Department of Energy ("DOE") index on which the surcharges are based resets weekly.

The Company receives a fuel surcharge on its loaded miles from most shippers; however, this may not cover the entire cost of high fuel prices for several reasons, including the following: surcharges cover only loaded miles, surcharges do not cover miles driven out-of-route by our drivers, and surcharges typically do not cover refrigeration unit fuel usage or fuel burned by tractors while idling.  Additionally, fuel surcharges vary in the percentage of reimbursement offered, and not all surcharges fully compensate for fuel price increases even on loaded miles.  The rate of fuel price increases and decreases also can have an impact.  Most fuel surcharges are based on the average fuel price as published by the DOE for the week prior to the shipment.  In times of decreasing fuel prices, the lag time causes under-recovery.  Accordingly, volatility in fuel prices could cause volatility in our results of operations.

Operations and maintenance, consisting primarily of vehicle maintenance, repairs, and driver recruitment expenses, decreased $7.1 million to $35.4 million in 2009, from $42.5 million in 2008.  As a percentage of freight revenue, operations and maintenance decreased to 6.8% in 2009, from 6.9% in 2008.  The decrease resulted from decreased tractor and trailer maintenance costs, as a result of fewer tractors and less miles.  Additionally, tire expense decreased due to a somewhat newer average fleet age.  Finally, expenses related to tolls and unloading were less in the 2009 period than the 2008 period, due to the reduction in miles, and driver recruitment expenses were less as a result of the decreased demand for drivers.  As a percentage of freight revenue, operations and maintenance remained relatively constant, as this mostly variable cost tracked our decrease in revenue, and the modest benefit from a somewhat younger tractor fleet was offset by an older trailer fleet and fixed costs.  With the adverse economic environment in 2009, we had less difficulty recruiting and retaining drivers.  If the economy improves, we could face more difficulty recruiting and retaining drivers, which could impact this expense category going forward.  Further, the new Comprehensive Safety Analysis initiative could limit the pool of available drivers and increase these costs.

Revenue equipment rentals and purchased transportation decreased $14.5 million, or 15.9%, to $76.5 million in 2009, from $91.0 million in 2008.  The decrease was a result of payments to third-party transportation providers associated with our Solutions subsidiary, which decreased to $40.0 million in 2009, from $45.3 million in 2008, primarily due to decreased loads and lower fuel costs passed on to those providers.  In addition, we had a $3.8 million reduction in payments to independent contractors, which decreased to $10.3 million in 2009, from $14.1 million in 2008, mainly due to a decrease in the size of the independent contractor fleet and the reduction in fuel surcharges passed through that are a component of the related expense.  Additionally, tractor and trailer equipment rental and other related expenses decreased to $25.9 million in 2009, compared with $31.2 million in 2008.  We had financed approximately 236 tractors and 5,987 trailers under operating leases at December 31, 2009, compared with 646 tractors and 5,706 trailers under operating leases at December 31, 2008.  As a percentage of freight revenue, revenue equipment rentals and purchased transportation expense remained relatively constant at 14.7% in 2009, and 14.8% in 2008.  This expense category will fluctuate with the number of loads hauled by independent contractors and handled by Solutions and the percentage of our fleet financed with operating leases, as well as the amount of fuel surcharge revenue passed through to the independent contractors and third-party carriers.  Because we anticipate adding new equipment over the next twelve months through on-balance sheet financing, the percentage of our tractor fleet financed with operating leases is expected to decrease in the near term.  If the economy continues to improve, we may need to increase the amounts we pay to independent contractors and third-party transportation providers, which could increase this expense category absent an offsetting increase in revenue.

Operating taxes and licenses decreased $1.0 million, or 7.4%, to $12.1 million in 2009, from $13.1 million in 2008.  As a percentage of freight revenue, operating taxes and licenses increased slightly to 2.3% in the 2009 period, from 2.1% in the 2008 period.  This increase as a percentage of freight revenue resulted from increased costs per tractor as various taxing authorities increased their rates, as well as lower revenue per tractor, which less effectively covered this fixed cost.

 
Insurance and claims, consisting primarily of premiums and deductible amounts for liability, physical damage, and cargo damage insurance and claims, decreased $5.6 million, or 15.0%, to approximately $32.0 million in 2009, from approximately $37.6 million in 2008.  The costs on a per mile basis were approximately half a cent per mile lower when comparing 2009 to 2008 because of a lower accident rate and slightly higher miles per tractor.  The Company's overall safety performance has improved as our DOT reportable accidents dropped to the lowest level per million miles since 2001, giving us the best overall safety performance in at least nine years (based on DOT reportable accidents per million miles).  As a percentage of freight revenue, insurance and claims remained constant at 6.1% in 2009 and 2008 because the decline in average freight revenue per mile offset the improvements in cost per mile.  With our significant self-insured retention, insurance and claims expense may fluctuate significantly from period to period, and any increase in frequency or severity of claims could adversely affect our financial condition and results of operations.

Communications and utilities decreased to $5.7 million in 2009, from $6.7 million in 2008.  As a percentage of freight revenue, communications and utilities remained constant at 1.1% in 2009 and 2008.

General supplies and expenses, consisting primarily of headquarters and other terminal facilities expenses, decreased $2.8 million to $23.6 million in 2009, from $26.4 million in 2008.  As a percentage of freight revenue, general supplies and expenses increased slightly to 4.5% in 2009, from 4.3% in 2008.  The increase as a percentage of revenue was primarily due to certain of these costs being fixed in nature, which were less efficiently spread over a reduced revenue base when comparing the 2009 period to the 2008 period.

Depreciation and amortization, consisting primarily of depreciation of revenue equipment, decreased $15.1 million or 23.9%, to $48.1 million in 2009, from $63.2 million in 2008.  As a percentage of freight revenue, depreciation and amortization decreased to 9.3% in 2009, from 10.3% in 2008.  The decreases were related to a $15.8 million revenue equipment impairment charge that was recorded in 2008 with no similar charge in 2009.  See "Additional Information Concerning Non-Cash Charges" below for a further description of impairment charges affecting our operating results.  Additionally, included in depreciation and amortization was $1.9 million of losses on the sale of property and equipment in 2008, with only $0.1 million of losses in 2009.  Excluding the impairment charge and the losses on sale of equipment, depreciation and amortization increased $2.5 million in 2009 compared to 2008 as a result of having more owned tractors on our balance sheet as opposed to leased, as we owned 2,784 and 2,555 tractors at December 31, 2009 and 2008, respectively.  Excluding the impairment charge and the losses on sale of equipment, as a percentage of revenue, depreciation and amortization increased to 9.2% in 2009, from 7.5% in 2008, as a result of lower revenue per tractor, which less effectively covered this fixed cost.  We anticipate purchasing additional equipment through on-balance sheet financing over the next twelve months, which will likely cause an increase in depreciation and amortization in the near term.

Goodwill impairment in 2008 related to the $24.7 million write-off of all goodwill associated with our 2006 acquisition of Star Transportation, while there was no similar charge in 2009.  This amount was non-cash and non-deductible for tax purposes.  See "Additional Information Concerning Non-Cash Charges" below for a further description of impairment charges affecting our operating results.

The other expense category includes interest expense, interest income, and other miscellaneous non-operating items.  Other expense, net, increased $14.8 million, to $25.3 million in the 2009 period, from $10.5 million in the 2008 period.  The increase is primarily attributable to the loss on the sale of the investment in and note receivable from Transplace, which provided for $11.5 million of the increase.  The remainder of the increase is a result of higher interest costs in the 2009 period, compared to the 2008 period, resulting from a period-over-period increase in debt and the increase in our average interest rate on our Credit Facility, as amended, compared to the average interest rates in the 2008 period.

Our income tax benefit was $5.0 million in 2009 compared to $12.8 million in 2008.  The effective tax rate is different from the expected combined tax rate as a result of permanent differences primarily related to a per diem pay structure implemented in 2001.  Due to the partial nondeductible effect of the per diem payments, our tax rate will fluctuate in future periods as income fluctuates.  Additionally, the loss on the sale of the investment in Transplace and goodwill impairment in 2009 and 2008, respectively, were not deductible.

Primarily as a result of the factors described above, net loss was approximately $25.0 million in 2009, compared with a net loss of $53.4 million in 2008.  As a result of the foregoing, our net loss as a percentage of freight revenue improved to (4.8%) in 2009, from (8.7%) in 2008.

 
Comparison of Year Ended December 31, 2008 to Year Ended December 31, 2007

Total revenue increased $61.4 million, or 8.6%, to $773.9 million in 2008, from $712.5 million in 2007.  Freight revenue excludes $158.1 million of fuel surcharge revenue in 2008 and $109.9 million in 2007.  Freight revenue (total revenue less fuel surcharges) increased $13.2 million, or 2.2%, to $615.8 million in 2008, from $602.6 million in 2007.

Average freight revenue per tractor per week increased 0.6% to $3,105 in 2008, from $3,088 in 2007.  The increase was primarily generated by a 0.7% increase in average miles per tractor.  The average miles per tractor increase was attributable to a 7 percentage point increase in the percentage of our fleet operated by driver teams (which usually generate higher miles than a solo-driver truck).  The increase in teams offsets deterioration in miles per truck in our solo fleets.  Weighted average tractors decreased 4.6% to 3,456 in 2008, from 3,623 in 2007.

Salaries, wages, and related expenses decreased $6.6 million, or 2.5%, to $263.8 million in 2008, from $270.4 million in 2007.  As a percentage of freight revenue, salaries, wages, and related expenses decreased to 42.8% in 2008 from 44.9% in 2007.  Driver pay decreased $7.7 million to $180.8 million in 2008, from $188.5 million in the 2007 period.  The decrease was attributable to lower driver wages as more drivers opted onto our driver per diem pay program.  Our payroll expense for employees, other than over-the-road drivers, decreased $1.8 million to $45.4 million from $47.2 million, due to a reduction in non-driver work force comparable to the percentage reduction in tractor fleet.  These reductions were partially offset by an increase in workers' compensation expense related to unfavorable development of some outstanding claims during 2008, as well as increases in our group health expenses and additional office salary expense related to severance payments.

Fuel expense, net of fuel surcharge revenue of $158.1 million in 2008 and $109.9 million in 2007, increased $1.5 million to $102.6 million in 2008, from $101.1 million in 2007.  As a percentage of freight revenue, net fuel expense was essentially constant at 16.7% in 2008 and 16.8% in 2007.  Net fuel expense was highly volatile during 2008, however, amounting to 19.0% of freight revenue during the second quarter and dropping to 11.5% of freight revenue in the fourth quarter.  Fuel surcharges amounted to $0.384 per total mile in 2008, compared to $0.257 per total mile in 2007.

Operations and maintenance, consisting primarily of vehicle maintenance, repairs, and driver recruitment expenses, increased $2.0 million to $42.5 million in 2008, from $40.4 million in 2007.  The increase resulted from increased tractor and trailer maintenance costs, as well as increased tire expense associated with a somewhat older average fleet age and the associated tire replacement cycle.  As a percentage of freight revenue, operations and maintenance increased to 6.9% in 2008, from 6.7% in 2007.

Revenue equipment rentals and purchased transportation increased $24.5 million, or 36.8%, to $91.0 million in 2008, from $66.5 million in 2007.  As a percentage of freight revenue, revenue equipment rentals and purchased transportation expense increased to 14.8% in 2008, from 11.0% in 2007.  These increases were primarily driven by increased payments to third-party transportation providers associated with Solutions, which increased to $45.7 million in 2008 from $16.3 million in 2007.  This was offset by a $3.7 million reduction in payments to independent contractors, which decreased to $14.1 million in 2008, from $17.8 million in 2007, mainly due to a decrease in the independent contractor fleet and a decrease in tractor and trailer equipment rental and other related expenses to $31.2 million in 2008 compared with $32.5 million in 2007.  We had financed approximately 646 tractors and 5,706 trailers under operating leases at December 31, 2008, compared with 693 tractors and 6,322 trailers under operating leases at December 31, 2007.

Operating taxes and licenses decreased $1.0 million, or 7.3%, to $13.1 million in 2008 from $14.1 million in 2007.  As a percentage of freight revenue, operating taxes and licenses remained essentially constant at 2.1% in 2008 and 2.3% in 2007.

Insurance and claims increased $1.2 million, or 3.3%, to approximately $37.6 million in 2008, from approximately $36.4 million in 2007.  As a percentage of freight revenue, insurance and claims remained essentially constant at 6.1% in 2008 and 6.0% in 2007.  During 2008, there was a small number of severe accidents late in the year that resulted in a negative impact of approximately $5.4 million.  During 2007, there were unfavorable developments on two prior-period claims that increased our accrual for casualty claims in 2007 by $5.2 million.  The 2007 increase was partially offset by the receipt of a $1.0 million refund from our insurance carrier related to achieving certain monetary claim targets for our casualty policy in the 2007 policy year.  The insurance refund in 2008 was approximately $0.4 million.

 
Communications and utilities decreased to $6.7 million in 2008, from $7.4 million in 2007.  As a percentage of freight revenue, communications and utilities remained essentially constant at 1.1% in 2008 and 1.2% in 2007.

General supplies and expenses increased $3.0 million to $26.4 million in 2008, from $23.3 million in 2007.  As a percentage of freight revenue, general supplies and expenses increased to 4.3% in 2008, from 3.9% in 2007.  The increase was primarily due to increased sales agent commissions from our growing brokerage subsidiary, which increased $2.5 million to $3.8 million in 2008, compared to $1.3 million in 2007.

Depreciation and amortization, consisting primarily of depreciation of revenue equipment increased $9.7 million or 18.1%, to $63.2 million in 2008, from $53.5 million in 2007.  As a percentage of freight revenue, depreciation and amortization increased to 10.3% in 2008, from 8.9% in 2007.  The increase was related to a $15.8 million revenue equipment impairment charge that was recorded in 2008, as compared to a $1.7 million impairment charge recorded in 2007.  Excluding the impairment charges, depreciation and amortization decreased $4.4 million in 2008 and, as a percentage of freight revenue, decreased to 7.7% in 2008, from 8.6% in 2007.  These decreases were primarily the result of our efforts to eliminate excess equipment and terminals during 2008, and we reduced our fleet by approximately 263 tractors and 390 trailers.  Depreciation and amortization expense includes any gain or loss on the disposal of equipment, which was an approximately $1.9 million loss in 2008 and a $1.7 million loss in 2007.  See "Additional Information Concerning Non-Cash Charges" below for a further description of impairment charges affecting our operating results.

Goodwill impairment in 2008 related to the $24.7 million write-off of all goodwill associated with our 2006 acquisition of Star Transportation.  This amount is non-cash and non-deductible.  See "Additional Information Concerning Non-Cash Charges" below for a further description of impairment charges affecting our operating results.

Our income tax benefit was $12.8 million in 2008 compared to $5.6 million in 2007.  We reversed a contingent tax accrual during 2007, based on the recommendation by an IRS appeals officer that the IRS concede a case in our favor.  This concession resulted in recognition of approximately $0.4 million of income tax benefit for 2007.

Primarily as a result of the factors described above, net income decreased approximately $36.7 million to a net loss of $53.4 million in 2008, from a net loss of $16.7 million in 2007.  As a result of the foregoing, our net loss as a percentage of freight revenue declined to (8.7%) in 2008, from (2.8%) in 2007.

RESULTS OF SEGMENT OPERATIONS

We operate two reportable business segments.  Our Asset-Based Truckload Services ("Truckload") segment consists of Covenant Transport, Inc., SRT, and Star Transportation.  Our Brokerage Services segment consists of Covenant Transport Solutions, Inc. ("Solutions").  The operation of each of these businesses is described in our notes to the "Business Section."  Unallocated corporate overhead includes costs that are incidental to our activities and are not specifically allocated to one of the segments.  The following tables summarize financial and operating data by segment:

   
Twelve months ended
December 31,
 
(in thousands)
 
2009
   
2008
   
2007
 
Revenues:
                 
                   
Asset-Based Truckload Services
  $ 541,325     $ 719,220     $ 692,722  
Brokerage Services
    47,362       54,694       19,804  
                         
Total
  $ 588,687     $ 773,914     $ 712,526  
Operating Income (Loss):
                       
                         
Asset-Based Truckload Services
  $ 10,552     $ (37,091 )   $ (7,011 )
Brokerage Services
    155       466       1,031  
Unallocated Corporate Overhead
    (15,429 )     (19,054 )     (4,701 )
                         
Total
  $ (4,722 )   $ (55,679 )   $ (10,681 )

 
Comparison of Year Ended December 31, 2009 to Year Ended December 31, 2008

Our asset-based truckload services segment revenue decreased 24.7%, to $541.3 million for the twelve-month period ended December 31, 2009, compared to $719.2 million for the comparable period in 2008.  Lower fuel prices resulted in fuel surcharge revenue of $68.2 million in the twelve months ended December 31, 2009, versus $158.1 million in the 2008 period.  The decrease in freight revenue is related to a decrease in rates and miles as a result of the weakened economy in 2009.  In 2009, management decreased the fleet size approximately 10% in response to weak demand.  Excluding unallocated corporate overhead, the segment generated an operating income of $10.6 million for the twelve months ended December 31, 2009, compared to an operating loss of $37.1 million for the same 2008 period, primarily due to certain non-cash charges in 2008 totaling $40.5 million related to the impairment of certain property and equipment and Star's goodwill, both of which are discussed in more detail below.  Excluding these charges in 2008, the Truckload segment generated operating income of $3.4 million, representing an increase in operating income in 2009 from 2008, with the exclusion of the impairments, as a result of lower net fuel expenses and cost savings initiatives.

Our brokerage segment revenue decreased 13.4% to $47.3 million for the twelve months ended December 31, 2009, compared to $54.7 million for the same period in the prior year.  The decreases were primarily attributable to a reduction in the portion of revenue attributable to fuel surcharges given fuel was at historic highs throughout much of 2008 and less volume due to the closure of a large company store in October 2008.  Excluding unallocated corporate overhead, operating income for our brokerage segment was $0.2 million for the twelve-month period ended December 31, 2009, compared to an operating income of $0.5 million for the comparable 2008 period.  The decreases are a result of an increase in bad debt expense of $0.3 million from the comparable 2008 period due to several large bankruptcies, an increase in purchased transportation expense per revenue dollar, and an increase in depreciation expense of approximately $0.3 million related to accelerating the depreciation of certain software that will be abandoned in 2010.  These increases were partially off-set by various reductions in selling, general, and administrative expenses as a result of cost savings initiatives.

Comparison of Year Ended December 31, 2008 to Year Ended December 31, 2007

Our asset-based truckload services segment revenue increased 3.9%, to $719.2 million for the twelve-month period ended December 31, 2008, compared to $692.3 million for the comparable period in 2007.  Higher fuel prices resulted in fuel surcharge revenue of $158.1 million in the twelve months ended December 31, 2008, versus $109.9 million in the 2007 period.  The decrease in freight revenue is related to a decrease in rates, total miles, and fleet size, specifically in the third and fourth quarters, related to the onset of the recession in 2008.  Excluding unallocated corporate overhead, an operating loss of $37.1 million for the twelve months ended December 31, 2008 compared to operating loss of $7.0 million for the same 2007 period.  The fluctuations are primarily due to certain non-cash charges in 2008 totaling $40.5 million related to the impairment of certain property and equipment and Star's goodwill and a $1.7 million impairment charge related to a corporate aircraft in 2007, each of which is discussed in more detail below.  Excluding these charges, the Truckload segment generated operating income of $3.4 million in 2008 and an operating loss of $5.3 million in 2007.  The increase in operating income from 2007 to 2008, with the exclusion of the impairments, is primarily a result of a $6.6 million reduction in salaries and wages due to more drivers participating in the per diem plan and a reduction in our non-driving workforce.

Our brokerage segment revenue increased 176.3% to $54.7 million for the twelve months ended December 31, 2008, compared to $19.8 million for the same period in the prior year, primarily due to an increase in fuel surcharge collection, much of which is passed on to the third-party carriers, and an increase in brokerage loads to 27,117 in 2008, from 10,743 loads in 2007.  As a result, average revenue per load increased approximately 9.4% to $2,017 in 2008, from $1,843 per load in 2007.  Excluding unallocated corporate overhead, operating income for our brokerage segment was $0.5 million for the twelve-month period ended December 31, 2008, compared to an operating income of $1.0 million for the comparable 2007 period.  The decrease is a result of an increase in legal expense of $0.8 million related to litigation surrounding the closure of a large Company store in 2008, partially offset by a more efficient spreading of fixed costs due to the increase in loads year-over-year.

Additional Information Concerning Non-Cash Charges

Transplace

From July 2001 to December 2009, we owned approximately 12.4% of Transplace, Inc. ("Transplace"), a global logistics provider.  During the first quarter of 2005, we loaned Transplace approximately $2.6 million through a 6% interest-bearing note receivable.  After receiving an offer to purchase our 12.4% equity ownership and related note receivable that was accepted by a majority of Transplace's shareholders, we determined, pursuant to the guidance provided by the Financial Accounting Standards Board ("FASB") Accounting Standards Codification 325, that the value of our equity investment had become completely impaired in the third quarter of 2009, and the value of the note receivable had become impaired by approximately $0.9 million.  As a result, we recorded a non-cash impairment charge of $11.6 million during the third quarter of 2009.

 
The transaction closed in December 2009, whereby the proceeds of $1.9 million provided for a recovery of $0.1 million of the previously impaired amount in the fourth quarter of 2009 and thus an $11.5 million non-cash loss on the sale of our investment and related note receivable.  There was no tax benefit recorded in connection with the loss on the sale of the investment, given a full valuation allowance was established for the related capital loss.

Goodwill

In light of changes in market conditions and the related declining market outlook for the Star Transportation operating subsidiary, which is included in our Truckload segment, noted in the fourth quarter of 2008, we engaged an independent third party to assist us in the completion of valuations used in the impairment testing process.  The completion of this work concluded that the goodwill previously recorded for the Star acquisition was fully impaired and resulted in a $24.7 million, or $1.75 per basic and diluted share, non-cash goodwill impairment charge, recorded in the fourth quarter of 2008.  There was no tax benefit associated with this nondeductible charge.  Pursuant to applicable accounting standards, we conducted our 2009 annual impairment test for goodwill in the second quarter and did not identify any impairment.

Revenue Equipment, including Assets Held For Sale

As a result of sharply lower economic indicators, a worsening credit market, and significantly lower prices received for disposals of our owned used revenue equipment, all of which deteriorated substantially during the fourth quarter of 2008, we recorded a $9.4 million asset impairment charge to write-down the carrying values of tractors and trailers in-use in our Truckload segment which were expected to be traded or sold in 2009 or 2010.  The carrying values for revenue equipment scheduled for trade in 2011 and beyond were not adjusted because those tractors and trailers were not required to be impaired based on recoverability testing using the expected future cash flows and disposition values of such equipment.

Similarly, we recorded a $6.4 million asset impairment charge ($1.2 million was recorded in the third quarter and $5.2 million was recorded in the fourth quarter) to write down the carrying values of tractors and trailers held for sale in our Truckload segment, which were expected to be traded or sold in future periods.

Although we do not expect to be required to make any current or future cash expenditures as a result of these impairment charges, cash proceeds of future disposals of revenue equipment are anticipated to be lower than expected prior to the impairment charges.

Our evaluation of the future cash flows compared to the carrying value of the tractors and trailers in-use in 2009 has not resulted in any additional impairment charges.  Additionally, there were no indicators triggering an evaluation for impairment of assets held for sale during the 2009 period, as evidenced by our minimal gains and losses on the disposal of revenue equipment, including assets held for sale.

Aircraft

In addition, our 2007 asset impairment charge was related to our decision to sell our corporate aircraft to reduce ongoing operating costs.  We recorded an impairment charge of $1.7 million, reflecting the unfavorable fair market value of the airplane as compared to the combination of the estimated payoff of the long-term operating lease and current book value of related airplane leasehold improvements.

LIQUIDITY AND CAPITAL RESOURCES

Our business requires significant capital investments over the short-term and the long-term.  Recently, we have financed our capital requirements with borrowings under our Credit Facility, cash flows from operations, long-term operating leases, capital leases, and secured installment notes with finance companies.  Our primary sources of liquidity at December 31, 2009, were funds provided by operations, proceeds from the sale of used revenue equipment, borrowings under our Credit Facility, borrowings from secured installment notes, capital leases, operating leases of revenue equipment, and cash and cash equivalents.  We had a working capital (total current assets less total current liabilities) deficit of $17.8 million at December 31, 2009, and a working capital surplus of $16.3 million at December 31, 2008.  Working capital deficits are common to many trucking companies that expand by financing revenue equipment purchases through borrowing or capitalized leases.  When we finance revenue equipment through borrowing or capitalized leases, the principal amortization scheduled for the next twelve months is categorized as a current liability, although the revenue equipment is classified as a long-term asset.  Consequently, each purchase of revenue equipment financed with borrowing or capitalized leases decreases working capital.  We believe our working capital deficit had little impact on our liquidity.  Based on our expected financial condition, results of operations, net capital expenditures, a material refund of previously paid federal income taxes as a result of net operating loss carry backs pursuant to the Worker, Homeownership, and Business Assistance Act of 2009, and net cash flows during the next twelve months, which contemplate an improvement compared with the past twelve months, we believe our working capital and sources of liquidity will be adequate to meet our current and projected needs for at least the next twelve months.  On a longer-term basis, based on our anticipated financial condition, results of operations, and cash flows, and continued availability of our Credit Facility, secured installment notes, and other sources of financing that we expect will be available to us, we do not expect to experience material liquidity constraints in the foreseeable future.

 
The Company has had significant losses from 2007 through 2009, attributable to operations, impairments, and other charges.  The Company has managed its liquidity during this time through a series of cost reduction initiatives, refinancing, amendments to credit facilities, and sales of assets.  We have had difficulty meeting budgeted results in the past.  If we are unable to meet budgeted results or otherwise comply with our Credit Facility, we may be unable to obtain a further amendment or waiver under our Credit Facility, or we may incur additional fees.

Cash Flows

Net cash provided by operating activities was $30.9 million in 2009 and $40.3 million in 2008.  Excluding the effects of $40.4 million in non-cash charges in 2008 and $11.5 million in 2009, our cash from operating activities was lower in 2009 primarily due to an $11.5 million net change from 2009 to 2008 related to cash payments for insurance and claims accruals resulting from the payment of a large volume of claims in 2009, including several large claims.  Additionally, as a result of an increase in our acquisition of revenue equipment using balance sheet debt as opposed to operating leases, accelerated depreciation for tax purposes provided for an increase in the deferred tax provision, which resulted in an $8.7 million adjustment to net loss for the related non-cash activity in 2009 versus $2.5 million in the corresponding 2008 period.  The decrease in our cash from operating activities was partially offset by an increase in our collections of receivables, primarily resulting from the impact of fuel prices on revenue and accounts receivable, which resulted in a $2.9 million increase in cash from operating activities in 2009.

Net cash used in investing activities was $63.0 million in 2009 and $62.6 million in 2008.  In 2009, gross capital expenditures increased approximately $24 million, consistent with proceeds from dispositions.  The increase in gross capital expenditures was primarily due to increasing our percentage of owned tractors and reducing tractors under operating leases.

Net cash provided by financing activities was $38.0 million in 2009, compared to $24.1 million provided by financing activities in 2008.  The primary contributors to the differences in our net cash provided by financing activities and net borrowings in the 2009 period, as compared to the 2008 period, were the purchase of additional tractors in 2009 using balance sheet debt as opposed to operating leases and fluctuations in checks outstanding in excess of bank balances resulting from the timing of certain payments, partially off-set by lower debt refinancing costs given the Company's new credit facilities in 2008.

We had a stock repurchase plan for up to 1.3 million Company shares to be purchased in the open market or through negotiated transactions subject to criteria established by the Board.  No shares were purchased under this plan during 2009, which expired on June 30, 2009.  However, we remitted approximately $0.1 million to the proper taxing authorities in satisfaction of the employees' minimum statutory withholding requirements related to employees' vesting in restricted share grants.  The tax withholding amounts paid by the Company have been accounted for as a repurchase of shares.  Our Credit Facility now prohibits the repurchase of any shares, except those purchased to off-set an employee's minimum statutory withholding requirements upon the vesting of equity awards, without obtaining approval from the lenders.

Material Debt Agreements

In September 2008, the Company and substantially all its subsidiaries entered into a Third Amended and Restated Credit Facility with Bank of America, N.A., as agent (the "Agent"), JPMorgan Chase Bank, N.A. ("JPM"), and Textron Financial Corporation (collectively with the Agent and JPM, the "Lenders") that matures September 2011 (the "Credit Facility").

 
The Credit Facility is structured as an $85.0 million revolving credit facility, with an accordion feature that, so long as no event of default exists, allows the Company to request an increase in the revolving credit facility of up to $50.0 million.  The Credit Facility includes, within its $85.0 million revolving credit facility, a letter of credit sub facility in an aggregate amount of $85.0 million and a swing line sub facility in an aggregate amount equal to the greater of $10.0 million or 10% of the Lenders' aggregate commitments under the Credit Facility from time to time.

Borrowings under the Credit Facility are classified as either "base rate loans" or "LIBOR loans."  Base rate loans accrue interest at a base rate equal to the greater of the prime rate, the federal funds rate plus 0.5%, or LIBOR plus 1.0%, plus an applicable margin that is adjusted quarterly between 2.5% and 3.25% based on average pricing availability.  LIBOR loans accrue interest at the greater of 1.5% or LIBOR, plus an applicable margin that is adjusted quarterly between 3.5% and 4.25% based on average pricing availability.  The unused line fee is adjusted quarterly between 0.5% and 0.75% of the average daily amount by which the Lenders' aggregate revolving commitments under the Credit Facility exceed the outstanding principal amount of revolver loans and the aggregate undrawn amount of all outstanding letters of credit issued under the Credit Facility.  The obligations under the Credit Facility are guaranteed by the Company and secured by a pledge of substantially all of the Company's assets, with the notable exclusion of any real estate or revenue equipment pledged under other financing agreements, including revenue equipment installment notes and capital leases.

Borrowings under the Credit Facility are subject to a borrowing base limited to the lesser of (A) $85.0 million, minus the sum of the stated amount of all outstanding letters of credit; or (B) the sum of (i) 85% of eligible accounts receivable, plus (ii) the lesser of (a) 85% of the appraised net orderly liquidation value of eligible revenue equipment, (b) 95% of the net book value of eligible revenue equipment, or (c) 35% of the Lenders' aggregate revolving commitments under the Credit Facility, plus (iii) the lesser of (a) $25.0 million or (b) 65% of the appraised fair market value of eligible real estate.  The borrowing base is limited by a $15.0 million availability block, plus any other reserves the Agent may establish in its judgment.  The Company had approximately $12.7 million in borrowings outstanding under the Credit Facility as of December 31, 2009, undrawn letters of credit outstanding of approximately $42.0 million, and available borrowing capacity of $27.7 million.  The weighted average interest rate on outstanding borrowings was 6.25%.

On March 27, 2009, the Company obtained an amendment to its Credit Facility, which among other things, (i) retroactively to January 1, 2009 amended the fixed charge coverage ratio covenant for January and February 2009 to the actual levels achieved, which cured our default of that covenant for January 2009, (ii) restarted the look back requirements of the fixed charge coverage ratio covenant beginning on March 1, 2009, (iii) increased the EBITDAR portion of the fixed charge coverage ratio definition by $3.0 million for all periods between March 1 to December 31, 2009, (iv) increased the base rate applicable to base rate loans to the greater of the prime rate, the federal funds rate plus 0.5%, or LIBOR plus 1.0%, (v) sets a LIBOR floor of 1.5%, (vi) increased the applicable margin for base rate loans to a range between 2.5% and 3.25 % and for LIBOR loans to a range between 3.5% and 4.25%, with 3.0% (for base rate loans) and 4.0% (for LIBOR loans) to be used as the applicable margin through September 2009, (vii) increased the Company's letter of credit facility fee by an amount corresponding to the increase in the applicable margin, (vii) increased the unused line fee to a range between 0.5% and 0.75% , and (ix) increased the maximum number of field examinations per year from three to four.  In exchange for these amendments, the Company agreed to the increases in interest rates and fees described above and paid fees of approximately $0.5 million.

The Credit Facility includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the Credit Facility may be accelerated, and the Lenders' commitments may be terminated.  The Credit Facility contains certain restrictions and covenants relating to, among other things, dividends, liens, acquisitions and dispositions outside of the ordinary course of business, and affiliate transactions.  The Credit Facility contains a single financial covenant, which required the Company to maintain a consolidated fixed charge coverage ratio of at least 1.0 to 1.0.  The fixed charge coverage covenant became effective October 31, 2008, and the Company was in compliance with the covenant as of December 31, 2009.

 
On February 25, 2010, the Company obtained an additional amendment to its Credit Facility, which, among other things (i) amended certain defined terms in the Credit Facility, (ii) retroactively to January 1, 2010, amended the fixed charge coverage ratio covenant through June 30, 2010, to the levels set forth in the table below, which prevented a default of that covenant for January 2010, (iii) restarted the look back requirements of the fixed coverage ratio covenant beginning on January 1, 2010, and (iv) required the Company to order updated appraisals for certain real estate described in the Credit Facility.  In exchange for these amendments, we agreed to pay the Agent, for the pro rata benefit of the Lenders, a fee equal to 0.125% of the Lenders' total commitments under the Credit Facility, or approximately $0.1 million.  Following the effectiveness of the amendment, our fixed charge coverage ratio covenant requirement will be as follows:

One month ending January 31, 2010
.80 to 1.00
Two months ending February 28, 2010
.65 to 1.00
Three months ending March 31, 2010
.72 to 1.00
Four months ending April 30, 2010
.80 to 1.00
Five months ending May 31, 2010
.85 to 1.00
Six months ending June 30, 2010
.90 to 1.00
Seven months ending July 31, 2010
1.00 to 1.00
Eight months ending August 31, 2010
1.00 to 1.00
Nine months ending September 30, 2010
1.00 to 1.00
Ten months ending October 31, 2010
1.00 to 1.00
Eleven months ending November 30, 2010
1.00 to 1.00
Twelve months ending December 31, 2010
1.00 to 1.00
Each rolling twelve-month period thereafter
1.00 to 1.00

Capital lease obligations are utilized to finance a portion of our revenue equipment and are entered into with certain finance companies who are not parties to our Credit Facility.  The leases terminate in January 2015 and contain guarantees of the residual value of the related equipment by the Company, and the residual guarantees are included in the related debt balance as a balloon payment at the end of the related term as well as included in the future minimum lease payments.  These lease agreements require us to pay personal property taxes, maintenance, and operating expenses.

Pricing for the revenue equipment installment notes are quoted by the respective financial captives of our primary revenue equipment suppliers at the funding of each group of equipment acquired and include fixed annual rates for new equipment under retail installment contracts.  Approximately $185.6 million and $159.8 million were reflected on our balance sheet for these installment notes at December 31, 2009 and 2008, respectively.  The notes included in the funding are due in monthly installments with final maturities at various dates ranging from January 2010 to June 2013.  The notes contain certain requirements regarding payment, insurance of collateral, and other matters, but do not have any financial or other material covenants or events of default.  Additional borrowings from the financial captives of our primary revenue equipment suppliers are available to fund new tractors expected to be delivered in 2010.

 
Contractual Obligations and Commercial Commitments (1)

The following table sets forth our contractual cash obligations and commitments as of December 31, 2009:
 
Payments due by period:
(in thousands)
 
Total
   
2010
   
2011
   
2012
   
2013
   
2014
   
There-after
 
Credit Facility, including interest (2)
  $ 12,686       -     $ 12,686       -       -       -       -  
                                                         
Revenue equipment and property installment notes, including interest (3)
  $ 207,837     $ 77,176     $ 59,409     $ 67,450     $ 3,802       -       -  
                                                         
Operating leases (4)
  $ 81,989     $ 22,898     $ 9,650     $ 7,668     $ 5,358     $ 3,216     $ 33,199  
                                                         
Capital leases (5)
  $ 18,052     $ 2,177     $ 2,177     $ 2,177     $ 2,177     $ 8,064     $ 1,280  
                                                         
Lease residual value guarantees
  $ 23,594     $ 12,714     $ 10,880       -       -       -       -  
                                                         
Purchase obligations (6)
  $ 98,014     $ 97,607     $ 407       -       -       -       -  
Total contractual cash obligations
  $ 442,172     $ 212,572     $ 95,209     $ 77,295     $ 11,337     $ 11,280     $ 34,479  

(1)
Excludes any amounts accrued for unrecognized tax benefits as we are unable to reasonably predict the ultimate amount or timing of settlement of such unrecognized tax benefits.
(2)
Represents principal and interest payments owed at December 31, 2009.  The borrowings consist of draws under the Company's Credit Facility, with fluctuating borrowing amounts and variable interest rates.  In determining future contractual interest and principal obligations, for variable interest rate debt, the interest rate and principal amount in place at December 31, 2009, was utilized.  The table assumes long-term debt is held to maturity.  Refer to Note 8, "Debt" of the accompanying consolidated financial statements for further information.
(3)
Represents principal and interest payments owed at December 31, 2009.  The borrowings consist of installment notes with finance companies, with fixed borrowing amounts and fixed interest rates.  The table assumes these installment notes are held to maturity.  Refer to Note 8, "Debt" of the accompanying consolidated financial statements for further information.
(4)
Represents future monthly rental payment obligations under operating leases for tractors, trailers, office and terminal properties, and computer and office equipment.  Substantially all lease agreements for revenue equipment have fixed payment terms based on the passage of time.  The tractor lease agreements generally stipulate maximum miles and provide for mileage penalties for excess miles.  These leases generally run for a period of three to five years for tractors and five to seven years for trailers.  Refer to Note 9, "Leases" of the accompanying consolidated financial statements for further information.
(5)
Represents principal and interest payments owed at December 31, 2009.  The borrowings consist of capital leases with a finance company, with fixed borrowing amounts and fixed interest rates.  Borrowings in 2014 and thereafter include the residual value guarantees on the related equipment as balloon payments.  Refer to Note 8, "Debt" of the accompanying consolidated financial statements for further information.
(6)
Represents purchase obligations for revenue equipment and communications equipment totaling approximately $97.2 million in 2010.  These commitments are cancelable, subject to certain adjustments in the underlying obligations and benefits.  The Company also had commitments outstanding at December 31, 2009, to acquire computer software totaling $0.4 million in 2010 and 2011.  These purchase commitments are expected to be financed by operating leases, capital leases, long-term debt, proceeds from sales of existing equipment, and/or cash flows from operations.  Refer to Notes 8 and 9, “Debt” and "Leases", respectively, of the accompanying consolidated financial statements for further information

 
Off Balance Sheet Arrangements

Operating leases have been an important source of financing for our revenue equipment, computer equipment, and certain real estate.  At December 31, 2009, we had financed approximately 236 tractors and 5,987 trailers under operating leases.  Vehicles held under operating leases are not carried on our consolidated balance sheets, and lease payments in respect of such vehicles are reflected in our consolidated statements of operations in the line item "Revenue equipment rentals and purchased transportation."  Our revenue equipment rental expense was $25.9 million in 2009, compared to $31.2 million in 2008.  The total amount of remaining payments under operating leases as of December 31, 2009, was approximately $81.9 million.  In connection with various operating leases, we issued residual value guarantees, which provide that if we do not purchase the leased equipment from the lessor at the end of the lease term, we are liable to the lessor for an amount equal to the shortage (if any) between the proceeds from the sale of the equipment and an agreed value.  As of December 31, 2009, the maximum amount of the residual value guarantees was approximately $23.6 million.  To the extent the expected value at the lease termination date is lower than the residual value guarantee; we would accrue for the difference over the remaining lease term.  We believe that proceeds from the sale of equipment under operating leases would exceed the payment obligation on substantially all operating leases.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make decisions based upon estimates, assumptions, and factors we consider as relevant to the circumstances.  Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures.  Changes in future economic conditions or other business circumstances may affect the outcomes of our estimates and assumptions.  Accordingly, actual results could differ from those anticipated.  A summary of the significant accounting policies followed in preparation of the financial statements is contained in Note 1, "Summary of Significant Accounting Policies," of the consolidated financial statements attached hereto.  The following discussion addresses our most critical accounting policies, which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates.

Revenue Recognition

Revenue, drivers' wages, and other direct operating expenses generated by our Truckload reportable segment are recognized on the date shipments are delivered to the customer.  Revenue includes transportation revenue, fuel surcharges, loading and unloading activities, equipment detention, and other accessorial services.

 
Revenue generated by our Solutions reportable segment is recognized upon completion of the services provided.  Revenue is recorded on a gross basis, without deducting third party purchased transportation costs, as we act as a principal with substantial risks as primary obligor, except for transactions whereby equipment from our Truckload segment perform the related services, which we record on a net basis in accordance with the related authoritative guidance.

Depreciation of Revenue Equipment

Depreciation is determined using the straight-line method over the estimated useful lives of the assets.  Depreciation of revenue equipment is our largest item of depreciation.  We generally depreciate new tractors (excluding day cabs) over five years to salvage values of 5% to 31% and new trailers over seven to ten years to salvage values of 26% to 43%.  We annually review the reasonableness of our estimates regarding useful lives and salvage values of our revenue equipment and other long-lived assets based upon, among other things, our experience with similar assets, conditions in the used revenue equipment market, and prevailing industry practice.  Changes in our useful life or salvage value estimates or fluctuations in market values that are not reflected in our estimates could have a material effect on our results of operations.  Gains and losses on the disposal of revenue equipment are included in depreciation expense in our consolidated statements of operations.

The Company leases certain revenue equipment under capital leases with terms of 60 months.  Amortization of leased assets is included in depreciation and amortization expense.

Pursuant to applicable accounting standards, revenue equipment and other long-lived assets are tested for impairment whenever an event occurs that indicates an impairment may exist.  Expected future cash flows are used to analyze whether an impairment has occurred.  If the sum of expected undiscounted cash flows is less than the carrying value of the long-lived asset, then an impairment loss is recognized.  We measure the impairment loss by comparing the fair value of the asset to its carrying value.  Fair value is determined based on a discounted cash flow analysis or the appraised value of the assets, as appropriate.

Although a portion of our tractors are protected by non-binding indicative trade-in values or binding trade-back agreements with the manufacturers, we continue to have some tractors and substantially all of our trailers subject to fluctuations in market prices for used revenue equipment.  Moreover, our trade-back agreements are contingent upon reaching acceptable terms for the purchase of new equipment.  Further declines in the price of used revenue equipment or failure to reach agreement for the purchase of new tractors with the manufacturers issuing trade-back agreements could result in impairment of, or losses on the sale of, revenue equipment.

Assets Held For Sale

Assets held for sale include property and revenue equipment no longer utilized in continuing operations which are available and held for sale.  Assets held for sale are no longer subject to depreciation, and are recorded at the lower of depreciated book value plus the related costs to sell or fair market value less selling costs.  We periodically review the carrying value of these assets for possible impairment.  We expect to sell the majority of these assets within twelve months.

Goodwill and Other Intangible Assets

Pursuant to applicable accounting standards, we classify intangible assets into two categories: (i) intangible assets with definite lives subject to amortization and (ii) goodwill.  We test intangible assets with definite lives for impairment if conditions exist that indicate the carrying value may not be recoverable.  Such conditions may include an economic downturn in a geographic market or a change in the assessment of future operations.  We record an impairment charge when the carrying value of the definite lived intangible asset is not recoverable by the cash flows generated from the use of the asset.

We test goodwill for impairment at least annually or more frequently if events or circumstances indicate that such intangible assets or goodwill might be impaired.  We perform our impairment tests of goodwill at the reporting unit level.  The Company's reporting units are defined as its subsidiaries because each is a legal entity that is managed separately.  Such impairment tests for goodwill include comparing the fair value of the respective reporting unit with its carrying value, including goodwill.  We use a variety of methodologies in conducting these impairment tests, including discounted cash flow analyses and market analyses.

We determine the useful lives of our identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset.  Factors we consider when determining useful lives include the contractual term of any agreement, the history of the asset, the Company's long-term strategy for the use of the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions.  Intangible assets that are deemed to have definite lives are amortized, generally on a straight-line basis, over their useful lives, ranging from 4 to 20 years.

 
Accounting for Transplace

From July 2001 through December 2009, we owned approximately 12.4% of Transplace.  In the formation transaction for Transplace, we contributed our logistics customer list, logistics business software and software licenses, certain intellectual property, intangible assets, and $5.0 million in cash, in exchange for our ownership.  We accounted for this investment, which totaled approximately $10.7 million, using the cost method of accounting, and it was historically included in other assets in the consolidated balance sheet.  Also, during the first quarter of 2005, we loaned Transplace approximately $2.6 million, which along with the related accrued interest was historically included in other receivables in the consolidated balance sheet.

Based on an offer to purchase our 12.4% equity ownership and related note receivable in Transplace that was accepted by a majority of Transplace's shareholders, we determined that pursuant to the guidance provided by FASB Accounting Standards Codification 325, the value of our equity investment had become completely impaired in the third quarter of 2009, and the value of the note receivable had become impaired by approximately $0.9 million.  As a result, we recorded a non-cash impairment charge of $11.6 million during the third quarter of 2009.

The transaction closed in December 2009, whereby the proceeds of $1.9 million provided for a recovery of $0.1 million of the previously impaired amount in the fourth quarter of 2009 and thus an $11.5 million non-cash loss on the sale of our investment and related note receivable.  There was no tax benefit recorded in connection with the loss on the sale of the investment, given a full valuation allowance was established for the related capital loss.

Insurance and Other Claims

The primary claims arising against the Company consist of cargo, liability, personal injury, property damage, workers' compensation, and employee medical expenses.  The Company's insurance program involves self-insurance with high risk retention levels.  Because of the Company's significant self-insured retention amounts, it has exposure to fluctuations in the number and severity of claims and to variations between its estimated and actual ultimate payouts.  The Company accrues the estimated cost of the uninsured portion of pending claims.  Estimates require judgments concerning the nature and severity of the claim, historical trends, advice from third-party administrators and insurers, the size of any potential damage award based on factors such as the specific facts of individual cases, the jurisdictions involved, the prospect of punitive damages, future medical costs, and inflation estimates of future claims development, and the legal and other costs to settle or defend the claims.  The Company has significant exposure to fluctuations in the number and severity of claims.  If there is an increase in the frequency and severity of claims, or the Company is required to accrue or pay additional amounts if the claims prove to be more severe than originally assessed, or any of the claims would exceed the limits of its insurance coverage, its profitability would be adversely affected.

In addition to estimates within the Company's self-insured retention layers, it also must make judgments concerning its aggregate coverage limits.  If any claim occurrence was to exceed the Company's aggregate coverage limits, it would have to accrue for the excess amount.  The Company's critical estimates include evaluating whether a claim may exceed such limits and, if so, by how much.  If one or more claims were to exceed the Company's then effective coverage limits, its financial condition and results of operations could be materially and adversely affected.

In general for casualty claims, we currently have insurance coverage up to $50.0 million per claim.  We are self-insured on an occurrence/per claim basis for personal injury and property damage claims for amounts up to the first $4.0 million, except for Star where we currently have insurance coverage up to $2.0 million per claim after the first $0.3 million for which we are self-insured. We are self-insured on an occurrence/per claim basis for workers' compensation up to the first $1.25 million.  The Company is completely self-insured for physical damage to its own tractors and trailers and is generally completely self-insured for damages to the cargo we haul.  The Company also maintains a self-insured group medical plan for its employees with annual per individual claimant stop-loss deductible of $0.4 million with a maximum lifetime benefit of $0.7 million.

Insurance and claims expense varies based on the frequency and severity of claims, the premium expense, the level of self-insured retention, the development of claims over time, and other factors.  With our significant self-insured retention, insurance and claims expense may fluctuate significantly from period to period, and any increase in frequency or severity of claims could adversely affect our financial condition and results of operations.

 
Lease Accounting and Off-Balance Sheet Transactions

The Company issues residual value guarantees in connection with the operating leases it enters into for certain of its revenue equipment.  These leases provide that if the Company does not purchase the leased equipment from the lessor at the end of the lease term, then it is liable to the lessor for an amount equal to the shortage (if any) between the proceeds from the sale of the equipment and an agreed value.  To the extent the expected value at the lease termination date is lower than the residual value guarantee; the Company would accrue for the difference over the remaining lease term.  The Company believes that proceeds from the sale of equipment under operating leases would exceed the payment obligation on substantially all operating leases.  The estimated values at lease termination involve management judgments.  As leases are entered into, determination as to the classification as an operating or capital lease involves management judgments on residual values and useful lives.

Accounting for Income Taxes

We make important judgments concerning a variety of factors, including the appropriateness of tax strategies expected future tax consequences based on future Company performance, and to the extent tax strategies are challenged by taxing authorities, our likelihood of success.  We utilize certain income tax planning strategies to reduce our overall cost of income taxes.  It is possible that certain strategies might be disallowed, resulting in an increased liability for income taxes.  Significant management judgments are involved in assessing the likelihood of sustaining the strategies and in determining the likely range of defense and settlement costs, and an ultimate result worse than our expectations could adversely affect our results of operations.

Deferred income taxes represent a substantial liability on our consolidated balance sheets and are determined in accordance with applicable accounting standards.  Deferred tax assets and liabilities (tax benefits and liabilities expected to be realized in the future) are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards.

The carrying value of the Company's deferred tax assets assumes that it will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits.  If these estimates and related assumptions change in the future, it may be required to establish a valuation allowance against the carrying value of the deferred tax assets, which would result in additional income tax expense.  On a periodic basis, the Company assesses the need for adjustment of the valuation allowance.  Based on forecasted taxable income and tax planning strategies available to the Company, no valuation allowance has been established at December 31, 2009, except for $0.3 million related to certain state net operating loss carryforwards and $1.6 million related to the deferred tax asset associated with the Company's capital loss generated by the loss on the sale of its investment in Transplace.  These valuation allowances were established because the Company believes that it is more likely than not that certain state net operating loss carryforwards and the capital loss carryforward related to Transplace will not be realized.  If these estimates and related assumptions change in the future, it may be required to modify its valuation allowance against the carrying value of the deferred tax assets.

While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes that its reserves reflect the probable outcome of known tax contingencies.  The Company adjusts these reserves, as well as the related interest, in light of changing facts and circumstances.  Settlement of any particular issue would usually require the use of cash.  Favorable resolution would be recognized as a reduction to the Company's annual tax rate in the year of resolution.

Stock-Based Employee Compensation

The Company issues several types of share-based compensation, including awards that vest based on service, market, and performance conditions or a combination of the conditions.  Performance-based awards vest contingent upon meeting certain performance criteria established by the Compensation Committee.  Market-based awards vest contingent upon meeting certain stock price targets selected by the Compensation Committee.  All awards require future service and thus forfeitures are estimated based on historical forfeitures and the remaining term until the related award vests.  Determining the appropriate amount to expense in each period is based on likelihood and timing of achieving of the stated targets for performance and market based awards, respectively, and requires judgment, including forecasting future financial results and market performance.  The estimates are revised periodically based on the probability and timing of achieving the required performance and market targets, respectively, and adjustments are made as appropriate.  Awards that are only subject to time vesting provisions are amortized using the straight-line method.

 
Recent Accounting Pronouncements

Improving Disclosures About Fair Value Measurements – In January 2010, the FASB issued authoritative guidance to clarify certain existing disclosure requirements and require additional disclosures for recurring and nonrecurring fair value measurements.  These additional disclosures include amounts and reasons for significant transfers between Level 1 and Level 2 of the fair value hierarchy; significant transfers in and out of Level 3 of the fair value hierarchy; and information about purchases, sales, issuances, and settlements on a gross basis in the reconciliation of recurring Level 3 measurements.  Further, the guidance amends employer's disclosures about post-retirement benefit plans to require that disclosures be provided by classes of assets instead of by major categories of assets.  The requirements of this guidance are effective for periods beginning after December 15, 2009, with the exception of the requirement of information about purchases, sales, issuances, and settlements of Level 3 measurements, which becomes effective for periods ending after December 15, 2010.  The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

Accounting Standards Codification - In June 2009, the FASB issued authoritative guidance which establishes the FASB Accounting Standards Codification as the single source of authoritative U.S. generally accepted accounting principles recognized by the FASB to be applied by nongovernmental entities.  The FASB Accounting Standards Codification is effective for interim and annual periods ending after September 15, 2009.  The adoption of the FASB Accounting Standards Codification did not have a material effect on the Company's consolidated financial statements.

Fair Value Measurement of Liabilities - In August 2009, the FASB issued authoritative guidance which provides clarification regarding the required techniques for the fair value measurement of liabilities.  This update applies to all entities that measure liabilities at fair value, and is effective for the first interim or annual reporting period beginning after its issuance in August 2009.  The Company does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.

Transfers of Financial Assets - In June 2009, the FASB issued authoritative guidance which requires entities to provide more information regarding sales of securitized financial assets and similar transactions, particularly if the seller retains some risk with respect to the assets.  This authoritative guidance is effective for fiscal years beginning after November 15, 2009.  The Company does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.

Variable Interest Entities - In June 2009, the FASB issued authoritative guidance designed to improve financial reporting by companies involved with variable interest entities and to provide more relevant and reliable information to users of financial statements.  This authoritative guidance is effective for fiscal years beginning after November 15, 2009.  The Company does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.

Subsequent Events - In May 2009, the FASB issued authoritative guidance that established general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  This authoritative guidance was effective for interim or annual financial periods ending after June 15, 2009.  The adoption of this guidance did not affect the Company's consolidated financial statements.

Interim Disclosures about Fair Value of Financial Instruments - In April 2009, the FASB issued authoritative guidance to require disclosures about fair values of financial instruments for interim reporting periods as well as in annual financial statements.  The guidance also amends previous guidance to require those disclosures in summarized financial information at interim reporting periods.  This guidance was effective for interim reporting periods ending after June 15, 2009.  The adoption of this guidance did not affect the Company's consolidated financial statements.

Disclosures about Derivative Instruments and Hedging Activities - In March 2008, the FASB issued authoritative guidance which amends and expands the previous disclosure requirements, to provide an enhanced understanding of an entity's use of derivative instruments, how they are accounted for, and their effect on the entity's financial position, financial performance, and cash flows.  The Company adopted the guidance as of the beginning of the 2009 fiscal year and its adoption did not have a material impact to the Company's consolidated financial statements.

Business Combinations - In December 2007, the FASB issued authoritative guidance that establishes requirements for (i) recognizing and measuring in an acquiring company's financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (ii) recognizing and measuring the goodwill acquired in the business combination or a gain from a bargain purchase; and (iii) determining what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  The provisions of the guidance are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  The Company adopted the guidance as of the beginning of the 2009 fiscal year and its adoption did not have a material impact to the Company's consolidated financial statements.

 
Noncontrolling Interests in Consolidated Financial Statements - In December 2007, the FASB issued authoritative guidance that modified accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  The provisions of the guidance are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  The Company adopted the guidance as of the beginning of the 2009 fiscal year and its adoption did not have a material impact to the Company's consolidated financial statements.

Fair Value Measurements - In September 2006, the FASB issued authoritative guidance which provides guidance on how to measure assets and liabilities at fair value.  The guidance applies whenever another U.S. GAAP standard requires (or permits) assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances.  This standard also requires additional disclosures in both annual and quarterly reports.  Portions of the guidance were effective for financial statements issued for fiscal years beginning after November 15, 2007, and the Company began applying those provisions effective January 1, 2008.  The adoption of the guidance did not have a significant impact on the Company's consolidated financial statements.

In February 2008, the FASB amended the scope of the original guidance to exclude accounting for leases, and other accounting standards that address fair value measurements for purposes of lease classification or measurement.  The scope of this exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value.  Also, in February 2008, the FASB delayed the effective date of the aforementioned fair value guidance one year for all nonfinancial assets and nonfinancial liabilities, except those recognized at fair value in the financial statements on a recurring basis.  The Company adopted the remaining provisions as of January 1, 2009.  The adoption of the guidance did not have a significant impact on the Company's consolidated financial statements.

Uncertain Tax Positions - In June 2006, the FASB issued guidance for accounting for uncertainty in income taxes, which established a single model to address accounting for uncertain tax positions.  The Company was required to adopt the provisions of the new guidance, effective January 1, 2007.  As a result of this adoption, the Company recognized additional tax liabilities of $0.3 million with a corresponding reduction to beginning retained earnings as of January 1, 2007.

INFLATION, NEW EMISSIONS CONTROL REGULATIONS, AND FUEL COSTS

Most of our operating expenses are inflation-sensitive, with inflation generally producing increased costs of operations.  During the past three years, the most significant effects of inflation have been on revenue equipment prices and fuel prices.  New emissions control regulations and increases in commodity prices, wages of manufacturing workers, and other items have resulted in higher tractor prices.  The cost of fuel also has risen substantially over the past three years, though prices have eased over the last six months.  Although we believe at least some of this increase primarily reflects world events rather than underlying inflationary pressure, we have attempted to limit the effects of inflation through certain cost control efforts and limiting the effects of fuel prices through fuel surcharges.

The engines used in our tractors are subject to emissions control regulations, which have substantially increased our operating expenses since additional and more stringent regulation began in 2002.  As of December 31, 2009, 82% of our tractor fleet has engines compliant with stricter regulations regarding emissions that became effective in 2007.  Compliance with such regulations is expected to increase the cost of new tractors and could impair equipment productivity, lower fuel mileage, and increase our operating expenses.  These adverse effects combined with the uncertainty as to the reliability of the vehicles equipped with the newly designed diesel engines and the residual values that will be realized from the disposition of these vehicles could increase our costs or otherwise adversely affect our business or operations as the regulations impact our business through new tractor purchases.

Fluctuations in the price or availability of fuel, as well as hedging activities, surcharge collection, the percentage of freight we obtain through brokers, and the volume and terms of diesel fuel purchase commitments may increase our costs of operation, which could materially and adversely affect our profitability.  We impose fuel surcharges on substantially all accounts.  These arrangements may not fully protect us from fuel price increases and also may result in us not receiving the full benefit of any fuel price decreases.  We may be forced to make cash payments under the hedging arrangements.  The Company did not enter into any derivatives until the third quarter of 2009.  As of December 31, 2009, we entered into forward futures swap contracts, which pertain to 2.5 million gallons or approximately 4% percent of our projected January through December 2010 fuel requirements.  Under these contracts, we pay a fixed rate per gallon of heating oil and receive the monthly average price of New York heating oil.  The absence of meaningful fuel price protection through these measures could adversely affect our profitability.

 
SEASONALITY

In the trucking industry, revenue generally decreases as customers reduce shipments during the winter holiday season and as inclement weather impedes operations.  At the same time, operating expenses generally increase, with fuel efficiency declining because of engine idling and weather, creating more equipment repairs.  For the reasons stated, first quarter net income historically has been lower than net income in each of the other three quarters of the year excluding charges.  Our equipment utilization typically improves substantially between May and October of each year because of the trucking industry's seasonal shortage of equipment on traffic originating in California and because of general increases in shipping demand during those months.  The seasonal shortage typically occurs between May and August because California produce carriers' equipment is fully utilized for produce during those months and does not compete for shipments hauled by our dry van operation.  During September and October, business generally increases as a result of increased retail merchandise shipped in anticipation of the holidays.

ITEM 7A.                       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We experience various market risks, including changes in interest rates and fuel prices.  We do not enter into derivatives or other financial instruments for trading or speculative purposes, or when there are no underlying related exposures.

COMMODITY PRICE RISK

The Company is subject to risks associated with the availability and price of fuel, which are subject to political, economic, and market factors that are outside of the Company's control.  We also may be adversely affected by the timing and degree of fluctuations in fuel prices.  The Company's fuel-surcharge program mitigates the effect of rising fuel prices but does not always result in fully recovering the increase in its cost of fuel.  In part, this is due to fuel costs that cannot be billed to customers, including costs such as those incurred in connection with empty and out-of-route miles or when engines are being idled during cold or warm weather and due to fluctuations in the price of fuel between the fuel surcharge's benchmark index reset.

The Company did not enter into any derivatives until the third quarter of 2009; however, in September 2009 we entered into forward futures swap contracts, which pertain to 2.5 million gallons or approximately 4% percent of our projected January through December 2010 fuel requirements.  Under these contracts, we pay a fixed rate per gallon of heating oil and receive the monthly average price of New York heating oil.  Given that the forward futures swap contracts are not significant, a one dollar change in the related price of heating oil or diesel would not have a material impact on the Company's results of operations.

INTEREST RATE RISK

Our market risk is also affected by changes in interest rates.  Historically, we have used a combination of fixed-rate and variable-rate obligations to manage our interest rate exposure.  Fixed-rate obligations expose us to the risk that interest rates might fall.  Variable-rate obligations expose us to the risk that interest rates might raise.  Of our total $215.0 million of debt, we had $15.9 million of variable rate debt outstanding at December 31, 2009, including both our Credit Facility and a real-estate note.  The interest rates applicable to these agreements are based on either the prime rate or LIBOR.  Our earnings would be affected by changes in these short-term interest rates.  Risk can be quantified by measuring the financial impact of a near-term adverse increase in short-term interest rates.  At our current level of borrowing, a 1% increase in our applicable rate would reduce annual pretax earnings by approximately $0.2 million.  Our remaining debt is effectively fixed rate debt, and therefore changes in market interest rates do not directly impact our interest expense.

 
ITEM 8.                       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of Covenant Transportation Group, Inc. and subsidiaries, as of December 31, 2009 and 2008, and the related consolidated balance sheets, statements of operations, statements of stockholders' equity and comprehensive loss, and statements of cash flows for each of the years in the three-year period ended December 31, 2009, together with the related notes, and the report of KPMG LLP, our independent registered public accounting firm for the years ended December 31, 2009, 2008, and 2007 are set forth at pages 47 through 73 elsewhere in this report.

ITEM 9.                       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There has been no change in accountants during our three most recent fiscal years.

ITEM 9A(T).                                 CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to us and our consolidated subsidiaries is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors.

Based on their evaluation as of December 31, 2009, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15 and 15d-15 under the Exchange Act) are effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.

Management's Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rule 13a-15 promulgated under the Exchange Act as a process designed by, or under the supervision of, the principal executive and principal financial officers and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or, disposition of our assets that could have a material effect on our financial statements.

We have confidence in our internal controls and procedures.  Nevertheless, our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure procedures and controls or our internal controls will prevent all errors or intentional fraud.  An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met.  Further, the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all our control issues and instances of fraud, if any, have been detected.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), an Internal Control-Integrated Framework.  Based on its assessment, management believes that, as of December 31, 2009, our internal control over financial reporting is effective based on those criteria.

 
Attestation Report of Independent Registered Public Accounting Firm

This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.

Design and Changes in Internal Control over Financial Reporting

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.  In accordance with these controls and procedures, information is accumulated and communicated to management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding disclosures.  There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.                       OTHER INFORMATION

Item 5.02
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
 
On March 24, 2010, the Compensation Committee of the Board of Directors (the "Committee") of the Company approved revised performance-based bonus opportunities for the Company's senior management group (the "Program") under the Company's 2006 Omnibus Incentive Plan, as amended (the "Plan").

On September 14, 2009, the Committee previously approved consolidated operating income and operating ratio targets for the Program based upon a preliminary consolidated budget for 2010.  The Company's 2010 consolidated budget was finalized and the Committee reset the operating income and operating ratio targets to more difficult levels to achieve based upon the final budget.  Under the Program and consistent with the objectives of the Plan, certain employees, including the Company's named executive officers, may receive bonuses upon satisfaction of the revised consolidated operating income and operating ratio targets and the satisfaction of operating income and operating ratio targets established for the Company's subsidiaries (together, the "Performance Targets"), as applicable.  Each applicable Performance Target corresponds to a percentage bonus opportunity for the employee that is multiplied by the employee's base salary to determine the employee's bonus.  Pursuant to the Program, the performance-based bonus opportunities for David Parker, Joey Hogan, and Richard Cribbs, as named executive officers, will remain the same as previously reported, except that their bonus opportunities depend on the achievement of the revised consolidated Performance Targets.  The Company also finalized subsidiary budgets and the Committee approved the performance-based bonus opportunities for Tony Smith and James Brower, two of the Company's named executive officers.  Messrs. Smith and Brower may receive between 10% and 15% of their respective base salary based on the revised Performance Targets achieved for the consolidated group, if any, and between 40% and 60% of their base salary based on Performance Targets achieved for the Company's subsidiaries, SRT and Star, respectively, if any.

On March 24, 2010, the Committee also clarified that the number of restricted shares of the Company's Class A common stock granted as part of the January 12, 2010, incentive opportunity previously described in the Company's report on Form 8-K filed with the Commission on January 15, 2010, was based on the closing price of the Company's Class A common stock on the date the blackout period lifted following the release of the Company's 2009 year-end earnings, rather than the date the blackout period lifted following the release of the Company's 2010 first quarter earnings.


PART III

ITEM 10.                       DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

We incorporate by reference the information respecting executive officers and directors set forth under the captions "Proposal 1 - Election of Directors", "Corporate Governance – Section 16(a) Beneficial Ownership Reporting Compliance", "Corporate Governance – Our Executive Officers", "Corporate Governance – Code of Conduct and Ethics", and "Corporate Governance – Committees of the Board of Directors – The Audit Committee" in our Proxy Statement for the 2010 annual meeting of stockholders, which will be filed with the Securities and Exchange Commission in accordance with Rule 14a-6 promulgated under the Securities Exchange Act of 1934, as amended (the "Proxy Statement"); provided, that the section entitled "Corporate Governance – Committees of the Board of Directors – The Audit Committee – Report of the Audit Committee" contained in the Proxy Statement are not incorporated by reference.

ITEM 11.                       EXECUTIVE COMPENSATION

We incorporate by reference the information set forth under the sections entitled "Executive Compensation", "Corporate Governance – Committees of the Board of Directors – The Compensation Committee – Compensation Committee Interlocks and Insider Participation", and "Corporate Governance – Committees of the Board of Directors – The Compensation Committee –Compensation Committee Report" in our Proxy Statement for the 2010 annual meeting of stockholders; provided, that the section entitled "Corporate Governance – Committees of the Board of Directors – The Compensation Committee – Compensation Committee Report" contained in the Proxy Statement is not incorporated by reference.

ITEM 12.                       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

We incorporate by reference the information set forth under the section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement.

Summary Description of Equity Compensation Plans Not Approved by Security Holders (1998 Non-Officer Incentive Stock Plan)

In October 1998, our Board of Directors adopted the Non-Officer Plan to attract and retain executive personnel and other key employees and motivate them through incentives that were aligned with our goals of increased profitability and stockholder value.  The Board of Directors authorized 200,000 shares of our Class A common stock for grants or awards pursuant to the Non-Officer Plan.  Awards under the Plan could be in the form of incentive stock options, non-qualified stock options, restricted stock awards, or any other awards of stock consistent with the Non-Officer Plan's purpose.  The Non-Officer Plan was to be administered by the Board of Directors or a committee that could be appointed by the Board of Directors.  All non-officer employees were eligible for participation, and actual participants in the Non-Officer Plan were selected from time-to-time by the administrator.  The administrator could substitute new stock options for previously granted options.  In conjunction with adopting the 2003 Plan, the Board of Directors voted to terminate the Non-Officer Plan effective as of May 31, 2003.  Option grants previously issued continue in effect and may be exercised on the terms and conditions under which the grants were made.

ITEM 13.                       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

We incorporate by reference the information set forth under the sections entitled "Corporate Governance – Board of Directors and Its Committees" and "Certain Relationships and Related Transactions" in the Proxy Statement.

ITEM 14.                       PRINCIPAL ACCOUNTANT FEES AND SERVICES

We incorporate by reference the information set forth under the section entitled "Relationships with Independent Registered Public Accounting Firm – Principal Accountant Fees and Services" in the Proxy Statement.

 
PART IV

ITEM 15.                       EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)
1.
Financial Statements.
 
       
   
Our audited consolidated financial statements are set forth at the following pages of this report:
 
   
Report of Independent Registered Public Accounting Firm – KPMG LLP
47
   
Consolidated Balance Sheets
48
   
Consolidated Statements of Operations
49
   
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
50
   
Consolidated Statements of Cash Flows
51
   
Notes to Consolidated Financial Statements
52
       
 
2.
Financial Statement Schedules.
 
       
   
Financial statement schedules are not required because all required information is included in the financial statements.
 
       
 
3.
Exhibits.
 
       
   
The exhibits required to be filed by Item 601 of Regulation S-K are listed under paragraph (b) below and on the Exhibit Index appearing at the end of this report.  Management contracts and compensatory plans or arrangements are indicated by an asterisk.
 
       
(b)
 
Exhibits.
 
       
   
The following exhibits are filed with this Form 10-K or incorporated by reference to the document set forth next to the exhibit listed below.
 

Exhibit Number
 
Description
3.1
 
Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 99.2 to the Company's Report on Form 8-K, filed May 29, 2007 (SEC Commission File No. 0-24960))
3.2
 
Amended and Restated Bylaws, dated December 6, 2007 (Incorporated by reference to Exhibit 3.2 to the Company's Form 10-K, filed March 17, 2008 (SEC Commission File No. 0-24960))
4.1
 
Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 99.2 to the Company's Report on Form 8-K, filed May 29, 2007 (SEC Commission File No. 0-24960))
4.2
 
Amended and Restated Bylaws, dated December 6, 2007 (Incorporated by reference to Exhibit 3.2 to the Company's Form 10-K, filed March 17, 2008 (SEC Commission File No. 0-24960))
10.1
 
401(k) Plan (Incorporated by reference to Exhibit 10.10 to the Company's Form S-1, Registration No. 33-82978, effective October 28, 1994)
10.2
 
Master Lease Agreement, dated April 15, 2003, between Transport International Pool, Inc. and Covenant Transport, Inc. (Incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q/A, filed October 31, 2003 (SEC Commission File No. 0-24960))
10.3
 
Form of Indemnification Agreement between Covenant Transport, Inc. and each officer and director, effective May 1, 2004 (Incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q, filed August 5, 2004 (SEC Commission file No. 0-24960))*
#
Purchase and Sale Agreement, dated April 3, 2006, between Covenant Transport, Inc., a Tennessee corporation, and CT Chattanooga TN, LLC
#
Lease Agreement, dated April 3, 2006, between Covenant Transport, Inc., a Tennessee corporation, and CT Chattanooga TN, LLC
10.6
 
Lease Guaranty, dated April 3, 2006, by Covenant Transport, Inc., a Nevada corporation, for the benefit of CT Chattanooga TN, LLC (Incorporated by reference to Exhibit 10.20 to the Company's Report on Form 8-K, filed April 7, 2006 (SEC Commission File. No. 0-24960))
10.7
 
Form of Restricted Stock Award Notice under the Covenant Transport, Inc. 2006 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.22 to the Company's Form 10-Q, filed August 9, 2006 (SEC Commission File No. 0-24960))*
10.8
 
Form of Restricted Stock Special Award Notice under the Covenant Transport, Inc. 2006 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.23 to the Company's Form 10-Q, filed August 9, 2006 (SEC Commission File No. 0-24960))*
10.9
 
Form of Incentive Stock Option Award Notice under the Covenant Transport, Inc. 2006 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.24 to the Company's Form 10-Q, filed August 9, 2006 (SEC Commission File No. 0-24960))*
 
10.10
 
Form of Lease Agreement used in connection with Daimler Facility (Incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q, filed August 11, 2008 (SEC Commission File No. 0-24960))
10.11
 
Amendment to Lease Agreement (Open End) (Incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q, filed August 11, 2008 (SEC Commission File No. 0-24960))
10.12
 
Form of Direct Purchase Money Loan and Security Agreement used in connection with Daimler Facility (Incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q, filed August 11, 2008 (SEC Commission File No. 0-24960))
10.13
 
Amendment to Direct Purchase Money Loan and Security Agreement (Incorporated by reference to Exhibit 10.6 to the Company's Form 10-Q, filed August 11, 2008 (SEC Commission File No. 0-24960))
#
Third Amended and Restated Credit Agreement, dated September 23, 2008, among Covenant Transportation Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, Inc., Southern Refrigerated Transport, Inc., Covenant Transport Solutions, Inc., Star Transportation, Inc., Bank of America, N.A., JPMorgan Chase Bank, N.A., and Textron Financial Corporation
10.15
 
Covenant Transportation Group, Inc. Amended and Restated 2006 Omnibus Incentive Plan (Incorporated by reference to Appendix A to the Company's Schedule 14A, filed April 10, 2009 (SEC Commission File No. 0-24960))*
10.16
 
Amendment No. 1 to Third Amended and Restated Credit Agreement, dated March 27, 2009, among Covenant Transportation Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, Inc., Southern Refrigerated Transport, Inc., Covenant Transport Solutions, Inc., Star Transportation, Inc., Bank of America, N.A., JPMorgan Chase Bank, N.A., and Textron Financial Corporation (Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q, filed May 15, 2009 (SEC Commission File No. 0-24960))
10.17
 
Description of Covenant Transportation Group, Inc. 2009 Voluntary Incentive Opportunity, dated March 31, 2009 (Incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q, filed May 15, 2009 (SEC Commission File No. 0-24960))*
10.18
 
Description of Covenant Transportation Group, Inc. 2009 Named Executive Officer Bonus Program, dated March 31, 2009 (Incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q, filed May 15, 2009 (SEC Commission File No. 0-24960))*
#
List of Subsidiaries
#
Consent of Independent Registered Public Accounting Firm – KPMG LLP
#
Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by David R. Parker, the Company's Chief Executive Officer
#
Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Richard B. Cribbs, the Company's Chief Financial Officer
#
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by David R. Parker, the Company's Chief Executive Officer
#
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Richard B. Cribbs, the Company's Chief Financial Officer

References:

#
Filed herewith
*
Management contract or compensatory plan or arrangement



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

 
COVENANT TRANSPORTATION GROUP, INC.
   
   
Date:  March 30, 2010
By:
  /s/Richard B. Cribbs
   
Richard B. Cribbs
   
Senior Vice President and Chief Financial Officer in his capacity as such and on behalf of the issuer.

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.

Signature and Title
 
Date
     
  /s/David R. Parker  
March 30, 2010
David R. Parker
   
Chairman of the Board, President, and Chief Executive Officer
(principal executive officer)
   
     
  /s/Richard B. Cribbs  
March 30, 2010
Richard B. Cribbs
   
Senior Vice President and Chief Financial Officer
(principal financial and accounting officer)
   
     
  /s/Bradley A. Moline  
March 30, 2010
Bradley A. Moline
   
Director
   
     
  /s/William T. Alt  
March 30, 2010
William T. Alt
   
Director
   
     
  /s/Robert E. Bosworth  
March 30, 2010
Robert E. Bosworth
   
Director
   
     
  /s/Niel B. Nielson  
March 30, 2010
Niel B. Nielson
   
Director
   




Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders
Covenant Transportation Group, Inc.

We have audited the accompanying consolidated balance sheets of Covenant Transportation Group, Inc. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2009.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  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 financial position of Covenant Transportation Group, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounted for tax uncertainties as of January 1, 2007.


KPMG LLP

/s/ KPMG LLP

Atlanta, Georgia
March 30, 2010



COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
DECEMBER 31, 2009 AND 2008
(In thousands, except share data)
 
   
2009
   
2008
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 12,221     $ 6,300  
Accounts receivable, net of allowance of $1,845 in 2009 and $1,484
     in 2008
    64,857       72,635  
Drivers' advances and other receivables, net of allowance of $2,608
       in 2009 and $2,794 in 2008
    3,311       4,818  
Inventory and supplies
    4,004       3,894  
Prepaid expenses
    7,172       8,921  
Assets held for sale
    9,547       21,292  
Deferred income taxes
    458       7,129  
Income taxes receivable
    257       717  
Total current assets
    101,827       125,706  
                 
Property and equipment, at cost
    399,712       352,857  
Less: accumulated depreciation and amortization
    (121,377 )     (116,839 )
Net property and equipment
    278,335       236,018  
                 
Goodwill
    11,539       11,539  
Other assets, net
    6,611       20,413  
                 
Total assets
  $ 398,312     $ 393,676  
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities:
               
Checks outstanding in excess of bank balances
  $ 4,838     $ 85  
Current maturities of acquisition obligation
    -       250  
Accounts payable
    7,528       8,235  
Accrued expenses
    26,789       24,979  
Current maturities of long-term debt
    67,365       59,083  
Current portion of capital lease obligations
    1,098       -  
Current portion of insurance and claims accrual
    12,055       16,811  
Total current liabilities
    119,673       109,443  
                 
Long-term debt
    134,084       107,956  
Long-term portion of capital lease obligations
    12,472       -  
Insurance and claims accrual
    11,082       15,869  
Deferred income taxes
    24,525       39,669  
Other long-term liabilities
    1,801       1,919  
Total liabilities
    303,637       274,856  
                 
Commitments and contingent liabilities
    -       -  
                 
Stockholders' equity:
               
Class A common stock, $.01 par value; 20,000,000 shares authorized;
13,469,090 shares issued; 11,840,568 and 11,699,182 outstanding as of
December 31, 2009 and 2008, respectively
    136       135  
Class B common stock, $.01 par value; 5,000,000 shares authorized;
2,350,000 shares issued and outstanding
    24       24  
Additional paid-in-capital
    90,679       91,912  
Treasury stock at cost; 1,628,522 and 1,769,908 shares as of
December 31, 2009 and 2008, respectively
    (19,195 )     (21,007 )
Accumulated other comprehensive income
    305       -  
Retained earnings
    22,726       47,756  
Total stockholders' equity
    94,675       118,820  
Total liabilities and stockholders' equity
  $ 398,312     $ 393,676  
 
The accompanying notes are an integral part of these consolidated financial statements .

48

 
COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
(In thousands, except per share data)
 
   
2009
   
2008
   
2007
 
Revenues
                 
Freight revenue
  $ 520,495     $ 615,810     $ 602,629  
Fuel surcharge revenue
    68,192       158,104       109,897  
Total revenue
  $ 588,687     $ 773,914     $ 712,526  
                         
Operating expenses:
                       
Salaries, wages, and related expenses
    216,158       263,793       270,435  
Fuel expense
    143,835       260,704       211,022  
Operations and maintenance
    35,409       42,459       40,437  
Revenue equipment rentals and purchased transportation
    76,484       90,974       66,515  
Operating taxes and licenses
    12,113       13,078       14,112  
Insurance and claims
    31,955       37,578       36,391  
Communications and utilities
    5,740       6,702       7,377  
General supplies and expenses
    23,593       26,399       23,377  
Depreciation and amortization, including gains and losses on
disposition of equipment and impairment of assets (1)
    48,122       63,235       53,541  
Goodwill impairment charge
    -       24,671       -  
Total operating expenses
    593,409       829,593       723,207  
Operating loss
    (4,722 )     (55,679 )     (10,681 )
Other (income) expenses:
                       
Interest expense
    14,184       10,373       12,285  
Interest income
    (144 )     (435 )     (477 )
Loss on early extinguishment of debt
    -       726       -  
Loss on sale of Transplace investment and note receivable
    11,485       -       -  
Other
    (199 )     (160 )     (183 )
Other expenses, net
    25,326       10,504       11,625  
Loss before income taxes
    (30,048 )     (66,183 )     (22,306 )
Income tax benefit
    (5,018 )     (12,792 )     (5,580 )
Net loss
  $ (25,030 )   $ (53,391 )   $ (16,726 )

(1)
Includes a $15,791 pre-tax impairment charge related to revenue equipment in 2008 and a $1,665 pre-tax impairment charge related to an airplane in 2007.

Loss per share:
                 
Basic and diluted loss per share:
  $ (1.77 )   $ (3.80 )   $ (1.19 )
                         
Basic and diluted weighted average shares outstanding
    14,124       14,038       14,018  

The accompanying notes are an integral part of these consolidated financial statements.

COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
(In thousands)
 
   
Common Stock
   
Additional Paid-
   
 
Treasury
   
 
Accumulated
Other
Comprehensive
   
 
Retained
   
 
Total
Stockholders'
 
   
Class A
   
Class B
     In Capital      Stock      Income      Earnings      Equity  
                                           
Balances at December 31, 2006
  $ 135     $ 24     $ 92,053     $ (21,582 )   $ -     $ 118,214     $ 188,844  
                                                         
Stock-based employee compensation cost
    -       -       189       -       -       -       189  
                                                         
Cumulative impact of change in accounting for uncertainties income taxes (See Note 1)
    -       -       -       -       -       (341 )     (341 )
                                                         
Issuance of restricted stock to non-employee directors from treasury stock
    -       -       (4 )     304       -       -       300  
                                                         
Net loss and comprehensive loss
    -       -       -       -       -       (16,726 )     (16,726 )
                                                         
Balances at December 31, 2007
  $ 135     $ 24     $ 92,238     $ (21,278 )   $ -     $ 101,147     $ 172,266  
                                                         
Reversal of previously recognized stock- based compensation cost
    -       -       (414 )     -       -       -       (414 )
                                                         
Stock-based employee compensation cost
    -       -       260       -       -       -       260  
                                                         
Issuance of restricted stock to non- employee directors from treasury stock
    -       -       (172 )     271       -       -       99  
                                                         
Net loss and comprehensive loss
    -       -       -       -       -       (53,391 )     (53,391 )
                                                         
Balances at December 31, 2008
  $ 135     $ 24     $ 91,912     $ (21,007 )   $ -     $ 47,756     $ 118,820  
                                                         
Net loss
    -       -       -       -       -       (25,030 )     (25,030 )
                                                         
Other comprehensive loss:
                                                       
                                                         
    Unrealized gain on effective portion of fuel hedge, net of tax of $191
    -       -       -       -       305       -       305  
                                                         
Comprehensive loss
    -       -       -       -       305       (25,030 )     (24,725 )
                                                         
Issuance of restricted stock to non-employee directors from treasury stock
    -       -       (375 )     475       -       -       100  
                                                         
Stock-based employee compensation cost
    -       -       595       -       -       -       595  
                                                         
Issuance of restricted stock to employees from treasury stock, net of shares repurchased to satisfy minimum withholding requirements
    1       -       (1,453 )     1,337       -       -       (115 )
                                                         
Balances at December 31, 2009
  $ 136     $ 24     $ 90,679     $ (19,195 )   $ 305     $ 22,726     $ 94,675  
 
The accompanying notes are an integral part of these consolidated financial statements.


COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
(In thousands)
   
2009
   
2008
   
2007
 
Cash flows from operating activities:
                 
Net loss
  $ (25,030 )   $ (53,391 )   $ (16,726 )
Adjustments to reconcile net loss to net cash provided by
operating activities:
                       
Provision for losses on accounts receivable
    1,727       987       1,163  
Loss on early extinguishment of debt
    -       726       -  
Depreciation and amortization, including impairment of
property and equipment
    47,987       61,289       51,801  
Impairment of goodwill
    -       24,671       -  
Amortization of deferred financing fees
    851       405       281  
Loss on sale of Transplace investment and note receivable
    11,485       -       -  
Gain on ineffective portion of fuel hedge
    (31 )     -       -  
Deferred income taxes (benefit)
    (8,664 )     (2,456 )     4,414  
Loss on disposition of property and equipment
    135       1,946       1,741  
Stock-based compensation expense (reversal), net
    695       (55 )     489  
Changes in operating assets and liabilities:
                       
Receivables and advances
    9,948       7,023       (7,631 )
Prepaid expenses and other assets
    1,545       (1,709 )     4,386  
Inventory and supplies
    (110 )     286       865  
Insurance and claims accrual
    (9,543 )     2,044       (7,462 )
Accounts payable and accrued expenses
    (97 )     (1,458 )     400  
Net cash flows provided by operating activities
    30,898       40,308       33,721  
                         
Cash flows from investing activities:
                       
Acquisition of property and equipment
    (113,063 )     (89,024 )     (64,261 )
Proceeds from disposition of property and equipment
    50,305       26,711       53,486  
Payment of acquisition obligation
    (250 )     (333 )     (333 )
Net cash flows used in investing activities
    (63,008 )     (62,646 )     (11,108 )
                         
Cash flows from financing activities:
                       
Repurchase of company stock
    (115 )     -       -  
Proceeds from borrowings under revolving credit facility, net
    8,879       (71,193 )     (29,900 )
Repayments of capital lease obligation
    (298 )     -       -  
Change in checks outstanding in excess of bank balances
    4,753       (4,487 )     292  
Proceeds from issuance of notes payable
    95,592       188,455       14,339  
Repayments of notes payable
    (70,219 )     (38,796 )     (537 )
Repayments of securitization facility, net
    -       (47,964 )     (7,017 )
Debt refinancing costs
    (561 )     (1,877 )     (697 )
Net cash flows provided by/(used in) financing activities
    38,031       24,138       (23,520 )
                         
Net change in cash and cash equivalents
    5,921       1,800       (907 )
                         
Cash and cash equivalents at beginning of year
    6,300       4,500       5,407  
Cash and cash equivalents at end of year
  $ 12,221     $ 6,300     $ 4,500  
                         
Supplemental disclosure of cash flow information:
                       
Cash paid (received) during the year for:
                       
Interest, net of capitalized interest
  $ 13,016     $ 9,296     $ 11,969  
Income taxes
  $ 239     $ (12,480 )   $ (11,287 )
Equipment purchased under capital leases
  $ 14,000       -       -  
Non-cash change in variable rate real-estate note
  $ 157       -       -  
Accrued property additions
  $ 811       -       -  

The accompanying notes are an integral part of these consolidated financial statements .


COVENANT TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009, 2008 AND 2007


1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business and Segments

Covenant Transportation Group, Inc., a Nevada holding company, together with its wholly-owned subsidiaries offers truckload transportation and brokerage services to customers throughout the continental United States.

We have two reportable segments: Asset-Based Truckload Services ("Truckload") and our Brokerage Services, also known as Covenant Transport Solutions, Inc. ("Solutions").

The Truckload segment consists of three asset-based operating fleets that are aggregated because they have similar economic characteristics and meet the aggregation criteria.  The three operating fleets that comprise our Truckload segment are as follows: (i) Covenant Transport, Inc., our historical flagship operation, which provides expedited long haul, dedicated, and regional solo-driver service; (ii) Southern Refrigerated Transportation, Inc., or SRT, which provides primarily long-haul and regional temperature-controlled service; and (iii) Star Transportation, Inc., which provides regional solo-driver service.

The Solutions segment provides freight brokerage service directly and through freight brokerage agents who are paid a commission for the freight they provide.  The brokerage operation has helped us continue to serve customers when we lacked capacity in a given area or when the load has not met the operating profile of our Truckload segment.

Principles of Consolidation

The consolidated financial statements include the accounts of Covenant Transportation Group, Inc., a holding company incorporated in the state of Nevada in 1994, and its wholly-owned subsidiaries: Covenant Transport, Inc., a Tennessee corporation; Southern Refrigerated Transport, Inc., an Arkansas corporation; Star Transportation, Inc., a Tennessee corporation; Covenant Transport Solutions, Inc., a Nevada corporation; Covenant Logistics, Inc., a Nevada corporation; Covenant Asset Management, Inc., a Nevada corporation; CTG Leasing Company, a Nevada corporation, and Volunteer Insurance Limited, a Cayman Islands company.  Covenant.com, Inc. and CIP, Inc., both of which were Nevada corporations, were dissolved effective December 31, 2007, and Harold Ives Trucking Co., an Arkansas corporation, was dissolved effective July 7, 2008.  In September 2008, CVTI Receivables Corp. ceased to exist by virtue of its merger with and into Covenant Transportation Group, Inc., with the Company as the surviving entity.

References in this report to "it," "we," "us," "our," the "Company," and similar expressions refer to Covenant Transportation Group, Inc. and its wholly owned subsidiaries.  All significant intercompany balances and transactions have been eliminated in consolidation.

Revenue Recognition

In our Truckload segment, revenue, drivers' wages, and other direct operating expenses are recognized on the date shipments are delivered to the customer.  Revenue includes transportation revenue, fuel surcharges, loading and unloading activities, equipment detention, and other accessorial services.

Revenue generated by our Solutions reportable segment is recognized upon completion of the services provided.  Revenue is recorded on a gross basis, without deducting third party purchased transportation costs, as we act as a principal with substantial risks as primary obligor, except for transactions whereby equipment from our Truckload segment perform the related services, which we record on a net basis in accordance with the related authoritative guidance.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

 
Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at acquisition to be cash equivalents.  Additionally, the Company is also subject to concentrations of credit risk related to deposits in banks in excess of the Federal Deposit Insurance Corporation limits.

Accounts Receivable and Concentration of Credit Risk

The Company extends credit to its customers in the normal course of business.  The Company performs ongoing credit evaluations and generally does not require collateral.  Trade accounts receivable are recorded at their invoiced amounts, net of allowance for doubtful accounts.  The Company evaluates the adequacy of its allowance for doubtful accounts quarterly.  Accounts outstanding longer than contractual payment terms are considered past due and are reviewed individually for collectability.  The Company maintains reserves for potential credit losses based upon its loss history and specific receivables aging analysis.  Receivable balances are written off when collection is deemed unlikely.

Accounts receivable are comprised of a diversified customer base that results in a lack of concentration of credit risk.  During 2009, 2008, and 2007, the Company's top ten customers generated 26%, 20%, and 22% of total revenue, respectively.  During the three year period ended December 31, 2009, no single customer represented more than 10% of total revenue.  The carrying amount reported in the balance sheet for accounts receivable approximates fair value based on the fact that the receivables collection averaged approximately 40 days from the billing date.

The following table provides a summary of the activity in the allowance for doubtful accounts for 2009, 2008, and 2007:

 
Years ended December 31:
 
Beginning
balance
January 1,
   
Additional
provisions
to allowance
   
Write-offs
and other
deductions
   
Ending
balance
December 31,
 
                         
2009
  $ 1,484     $ 1,727     $ 1,366     $ 1,845  
                                 
2008
  $ 1,537     $ 987     $ 1,040     $ 1,484  
                                 
2007
  $ 1,491     $ 1,163     $ 1,117     $ 1,537  

Inventories and supplies

Inventories and supplies consist of parts, tires, fuel, and supplies.  Tires on new revenue equipment are capitalized as a component of the related equipment cost when the tractor or trailer is placed in service and recovered through depreciation over the life of the vehicle.  Replacement tires and parts on hand at year end are recorded at the lower of cost or market with cost determined using the first-in, first-out (FIFO) method.  Replacement tires are expensed when placed in service.

Assets Held for Sale

Assets held for sale include property and revenue equipment no longer utilized in continuing operations which is available and held for sale.  Assets held for sale are no longer subject to depreciation, and are recorded at the lower of depreciated book value plus the related costs to sell or fair market value less selling costs.  The Company expects to sell the majority of these assets within twelve months.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation.  Depreciation for book purposes is determined using the straight-line method over the estimated useful lives of the assets, while depreciation for tax purposes is generally recorded using an accelerated method.  Depreciation of revenue equipment is the Company's largest item of depreciation.  The Company generally depreciates new tractors (excluding day cabs) over five years to salvage values of 5% to 31% and new trailers over seven to ten years to salvage values of 26% to 43%.  The Company annually reviews the reasonableness of its estimates regarding useful lives and salvage values of its revenue equipment and other long-lived assets based upon, among other things, its experience with similar assets, conditions in the used revenue equipment market, and prevailing industry practice.  Changes in the useful life or salvage value estimates, or fluctuations in market values that are not reflected in the Company's estimates, could have a material effect on its results of operations.  Gains and losses on the disposal of revenue equipment are included in depreciation expense in the consolidated statements of operations.

 
Impairment of Long-Lived Assets

Revenue equipment, including assets held for sale, and definite-lived intangible assets and other long-lived assets are tested for impairment whenever events or circumstances indicate an impairment may exist.  Expected future cash flows are used to analyze whether an impairment has occurred.  If the sum of expected undiscounted cash flows is less than the carrying value of the long-lived asset, then an impairment loss is recognized.  The Company measures the impairment loss by comparing the fair value of the asset to its carrying value.  Fair value is determined based on a discounted cash flow analysis or the appraised value of the assets, as appropriate.

Goodwill and Other Intangible Assets

We evaluate goodwill for impairment on an annual basis.  Pursuant to applicable accounting standards, we classify intangible assets into two categories: (i) intangible assets with definite lives subject to amortization and (ii) goodwill, noting we have no indefinite lived intangible assets.  As discussed above, we test intangible assets with definite lives for impairment if conditions exist that indicate the carrying value may not be recoverable.  Such conditions may include an economic downturn in a geographic market or a change in the assessment of future operations.

We test goodwill for impairment at least annually or more frequently if events or circumstances indicate that such intangible assets or goodwill might be impaired.  We perform our impairment tests of goodwill at the reporting unit level.  The Company's reporting units are its subsidiaries.  Such impairment tests for goodwill include comparing the fair value of the respective reporting unit with its carrying value, including goodwill.  We use a variety of methodologies in conducting these impairment tests, including discounted cash flow analyses and market analyses.

We determine the useful lives of our identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset.  Factors we consider when determining useful lives include the contractual term of any agreement, the history of the asset, the Company's long-term strategy for the use of the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions.  Intangible assets that are deemed to have definite lives are amortized, generally on a straight-line basis, over their useful lives, ranging from 4 to 20 years.

Insurance and Other Claims

The primary claims arising against the Company consist of cargo, liability, personal injury, property damage, workers' compensation, and employee medical expenses.  The Company's insurance program involves self-insurance with high risk retention levels.  Because of the Company's significant self-insured retention amounts, it has exposure to fluctuations in the number and severity of claims and to variations between its estimated and actual ultimate payouts.  The Company accrues the estimated cost of the uninsured portion of pending claims.  Estimates require judgments concerning the nature and severity of the claim, historical trends, advice from third-party administrators and insurers, the size of any potential damage award based on factors such as the specific facts of individual cases, the jurisdictions involved, the prospect of punitive damages, future medical costs, and inflation estimates of future claims development, and the legal and other costs to settle or defend the claims.  The Company has significant exposure to fluctuations in the number and severity of claims.  If there is an increase in the frequency and severity of claims, or the Company is required to accrue or pay additional amounts if the claims prove to be more severe than originally assessed, or any of the claims would exceed the limits of its insurance coverage, its profitability would be adversely affected.

In addition to estimates within the Company's self-insured retention layers, it also must make judgments concerning its aggregate coverage limits.  If any claim occurrence was to exceed the Company's aggregate coverage limits, it would have to accrue for the excess amount.  The Company's critical estimates include evaluating whether a claim may exceed such limits and, if so, by how much.  If one or more claims were to exceed the Company's then effective coverage limits, its financial condition and results of operations could be materially and adversely affected.

In general for casualty claims, we currently have insurance coverage up to $50.0 million per claim.  We are self-insured on an occurrence/per claim basis for personal injury and property damage claims for amounts up to the first $4.0 million, except for Star where we currently have insurance coverage up to $2.0 million per claim after the first $0.3 million for which we are self-insured. We are self-insured on an occurrence/per claim basis for workers' compensation up to the first $1.25 million.  The Company is completely self-insured for physical damage to its own tractors and trailers and is generally completely self-insured for damages to the cargo we haul.  The Company also maintains a self-insured group medical plan for its employees with annual per individual claimant stop-loss deductible of $0.4 million with a maximum lifetime benefit of $0.7 million.

 
Insurance and claims expense varies based on the frequency and severity of claims, the premium expense, the level of self-insured retention, the development of claims over time, and other factors.  With our significant self-insured retention, insurance and claims expense may fluctuate significantly from period to period, and any increase in frequency or severity of claims could adversely affect our financial condition and results of operations.

Interest

The Company capitalizes interest on major projects during construction.  Interest is capitalized based on the average interest rate on related debt.  Capitalized interest was less than $0.1 million in 2009, 2008, and 2007.

Fair Value of Financial Instruments

The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, commodity contracts, accounts payable, and debt.  The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, and current debt approximates their fair value because of the short-term maturity of these instruments.  Interest rates that are currently available to the Company for issuance of long-term debt with similar terms and remaining maturities are used to estimate the fair value of the Company's long-term debt, which primarily consists of revenue equipment installment notes.  Borrowings under the Company's revolving credit facility approximate fair value due to the variable interest rate on the facility.  Additionally, commodity contracts, which are accounted for as hedge derivatives, as discussed in Note 14, are valued based on the forward rate of the specific indices upon which the contract is being settled and adjusted for counterparty credit risk using available market information and valuation methodologies.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  We have reflected the necessary deferred tax assets and liabilities in the accompanying consolidated balance sheets.  We believe the future tax deductions will be realized principally through future reversals of existing taxable temporary differences and future taxable income, except for when a valuation allowance has been provided as discussed in Note 10.

In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions.  We assess our income tax positions and record tax benefits for all years subject to examination based upon management's evaluation of the facts, circumstances, and information available at the reporting dates.  For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.  For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.  Potential accrued interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense.

Lease Accounting and Off-Balance Sheet Transactions

The Company issues residual value guarantees in connection with the operating leases it enters into for certain of its revenue equipment.  These leases provide that if the Company does not purchase the leased equipment from the lessor at the end of the lease term, then it is liable to the lessor for an amount equal to the shortage (if any) between the proceeds from the sale of the equipment and an agreed value.  To the extent the expected value at the lease termination date is lower than the residual value guarantee; the Company would accrue for the difference over the remaining lease term.  The Company believes that proceeds from the sale of equipment under operating leases would exceed the payment obligation on substantially all operating leases.  The estimated values at lease termination involve management judgments.  As leases are entered into, determination as to the classification as an operating or capital lease involves management judgments on residual values and useful lives.

 
Capital Structure

The shares of Class A and B common stock are substantially identical except that the Class B shares are entitled to two votes per share while beneficially owned by David Parker or certain members of his immediate family and Class A shares are entitled to one vote per share.  The terms of any future issuances of preferred shares will be set by the Company's Board of Directors.

Comprehensive Loss

Comprehensive loss generally includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.  Comprehensive loss for 2009 was comprised of the net loss, partially offset by the unrealized gain on the effective portion of hedged fuel costs, while in 2008 and 2007 comprehensive loss equaled net loss.

Basic and Diluted Earnings (Loss) Per Share

Basic EPS excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period.  Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.  The calculation of diluted loss per share for the years ended December 31, 2009, 2008, and 2007 excludes all unexercised options and unvested shares, since the effect of any assumed exercise of the related options would be anti-dilutive.

Stock-Based Employee Compensation

The Company issues several types of share-based compensation, including awards that vest based on service, market and performance conditions, or a combination of the conditions.  Performance-based awards vest contingent upon meeting certain performance criteria established by the Compensation Committee.  Market-based awards vest contingent upon meeting certain stock price targets selected by the Compensation Committee.  All awards require future service and thus forfeitures are estimated based on historical forfeitures and the remaining term until the related award vests.  Determining the appropriate amount to expense in each period is based on likelihood and timing of achieving of the stated targets for performance and market based awards, respectively, and requires judgment, including forecasting future financial results and market performance.  The estimates are revised periodically based on the probability and timing of achieving the required performance and market targets, respectively, and adjustments are made as appropriate.  Awards that are only subject to time vesting provisions are amortized using the straight-line method.

The following table sets forth the calculation of net loss per share included in the consolidated statements of operations for each of the three years ended December 31:

(in thousands except per share data)
                 
   
2009
   
2008
   
2007
 
Numerator:
                 
                   
Net loss
  $ (25,030 )   $ (53,391 )   $ (16,726 )
                         
Denominator:
                       
                         
Denominator for basic loss per share – weighted-average shares
    14,124       14,038       14,018  
Effect of dilutive securities:
                       
Equivalent shares issuable upon conversion of unvested restricted stock
    -       -       -  
Equivalent shares issuable upon conversion of unvested employee stock options
    -       -       -  
Denominator for diluted loss per share adjusted weighted-average shares and assumed conversions
    14,124       14,038       14,018  
                         
Net loss per share:
                       
Basic and diluted loss per share
  $ (1.77 )   $ (3.80 )   $ (1.19 )
 
 
Derivative Instruments and Hedging Activities

We periodically utilize derivative instruments to manage exposure to changes in fuel prices.  At inception of a derivative contract, we document relationships between derivative instruments and hedged items, as well as our risk-management objective and strategy for undertaking various derivative transactions, and assess hedge effectiveness.  We record derivative financial instruments in the balance sheet as either an asset or liability at fair value.  If it is determined that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting prospectively.  The effective portion of changes in the fair value of derivatives are recorded in other comprehensive income, and reclassified into earnings in the same period during which the hedged transaction affects earnings.  The ineffective portion is recorded in other income or expense.

Subsequent Events

The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.  The Company evaluated subsequent events through the date the consolidated financial statements were issued.

Reclassifications

Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the 2009 presentation.  The reclassifications did not affect shareholders' equity or net loss reported.

Recent Accounting Pronouncements

Improving Disclosures About Fair Value Measurements – In January 2010, the FASB issued authoritative guidance to clarify certain existing disclosure requirements and require additional disclosures for recurring and nonrecurring fair value measurements.  These additional disclosures include amounts and reasons for significant transfers between Level 1 and Level 2 of the fair value hierarchy; significant transfers in and out of Level 3 of the fair value hierarchy; and information about purchases, sales, issuances, and settlements on a gross basis in the reconciliation of recurring Level 3 measurements.  Further, the guidance amends employer's disclosures about post-retirement benefit plans to require that disclosures be provided by classes of assets instead of by major categories of assets.  The requirements of this guidance are effective for periods beginning after December 15, 2009, with the exception of the requirement of information about purchases, sales, issuances, and settlements of Level 3 measurements, which becomes effective for periods ending after December 15, 2010.  The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
 
Accounting Standards Codification - In June 2009, the Financial Accounting Standards Board ("FASB") issued authoritative guidance which establishes the FASB Accounting Standards Codification as the single source of authoritative U.S. generally accepted accounting principles recognized by the FASB to be applied by nongovernmental entities.  The FASB Accounting Standards Codification is effective for interim and annual periods ending after September 15, 2009.  The adoption of the FASB Accounting Standards Codification during the three months ended September 30, 2009, did not have a material effect on the Company's consolidated financial statements.
 
Fair Value Measurement of Liabilities - In August 2009, the FASB issued authoritative guidance which provides clarification regarding the required techniques for the fair value measurement of liabilities.  This update applies to all entities that measure liabilities at fair value, and is effective for the first interim or annual reporting period beginning after its issuance in August 2009.  The Company does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.
 
Transfers of Financial Assets - In June 2009, the FASB issued authoritative guidance which requires entities to provide more information regarding sales of securitized financial assets and similar transactions, particularly if the seller retains some risk with respect to the assets.  This authoritative guidance is effective for fiscal years beginning after November 15, 2009.  The Company does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.
 
 
Variable Interest Entities - In June 2009, the FASB issued authoritative guidance designed to improve financial reporting by companies involved with variable interest entities and to provide more relevant and reliable information to users of financial statements.  This authoritative guidance is effective for fiscal years beginning after November 15, 2009.  The Company does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.
 
Subsequent Events - In May 2009, the FASB issued authoritative guidance that established general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  This authoritative guidance was effective for interim or annual financial periods ending after June 15, 2009.  The adoption of this guidance did not affect the Company's consolidated financial statements.
 
Interim Disclosures about Fair Value of Financial Instruments - In April 2009, the FASB issued authoritative guidance to require disclosures about fair values of financial instruments for interim reporting periods as well as in annual financial statements.  The guidance also amends previous guidance to require those disclosures in summarized financial information at interim reporting periods.  This guidance was effective for interim reporting periods ending after June 15, 2009.  The adoption of this guidance did not affect the Company's consolidated financial statements.

Disclosures about Derivative Instruments and Hedging Activities - In March 2008, the FASB issued authoritative guidance which amends and expands the previous disclosure requirements, to provide an enhanced understanding of an entity's use of derivative instruments, how they are accounted for, and their effect on the entity's financial position, financial performance and cash flows.  The Company adopted the guidance as of the beginning of the 2009 fiscal year and its adoption did not have a material impact to the Company's consolidated financial statements.

Business Combinations - In December 2007, the FASB issued authoritative guidance that establishes requirements for (i) recognizing and measuring in an acquiring company's financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (ii) recognizing and measuring the goodwill acquired in the business combination or a gain from a bargain purchase; and (iii) determining what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  The provisions of the guidance are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  The Company adopted the guidance as of the beginning of the 2009 fiscal year and its adoption did not have a material impact to the Company's consolidated financial statements.

Noncontrolling Interests in Consolidated Financial Statements - In December 2007, the FASB issued authoritative guidance that modified accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  The provisions of the guidance are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  The Company adopted the guidance as of the beginning of the 2009 fiscal year and its adoption did not have a material impact to the Company's consolidated financial statements.

Fair Value Measurements - In September 2006, the FASB issued authoritative guidance which provides guidance on how to measure assets and liabilities at fair value.  The guidance applies whenever another U.S. GAAP standard requires (or permits) assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances.  This standard also requires additional disclosures in both annual and quarterly reports.  Portions of the guidance were effective for financial statements issued for fiscal years beginning after November 15, 2007, and the Company began applying those provisions effective January 1, 2008.  The adoption of the guidance did not have a significant impact on the Company's consolidated financial statements.

In February 2008, the FASB amended the scope of the original guidance to exclude accounting for leases, and other accounting standards that address fair value measurements for purposes of lease classification or measurement.  The scope of this exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value.  Also, in February 2008, the FASB delayed the effective date of the aforementioned fair value guidance one year for all nonfinancial assets and nonfinancial liabilities, except those recognized at fair value in the financial statements on a recurring basis.  The Company adopted the remaining provisions as of January 1, 2009.  The adoption of the guidance did not have a significant impact on the Company's consolidated financial statements.

Uncertain Tax Positions - In June 2006, the FASB issued guidance for accounting for uncertainty in income taxes, which established a single model to address accounting for uncertain tax positions.  The Company was required to adopt the provisions of the new guidance effective January 1, 2007.  As a result of this adoption, the Company recognized additional tax liabilities of $0.3 million with a corresponding reduction to beginning retained earnings as of January 1, 2007.

 
2.           LIQUIDITY

Our business requires significant capital investments over the short-term and the long-term.  Recently, we have financed our capital requirements with borrowings under our Credit Facility, cash flows from operations, long-term operating leases, capital leases, and secured installment notes with finance companies.  Our primary sources of liquidity at December 31, 2009, were funds provided by operations, proceeds from the sale of used revenue equipment, borrowings under our Credit Facility, borrowings from secured installment notes, capital leases, operating leases of revenue equipment and cash and cash equivalents.  We had a working capital (total current assets less total current liabilities) deficit of $17.8 million at December 31, 2009 and a working capital surplus of $16.3 million at December 31, 2008.  Working capital deficits are common to many trucking companies that expand by financing revenue equipment purchases through borrowing or capitalized leases.  When we finance revenue equipment through borrowing or capitalized leases, the principal amortization scheduled for the next twelve months is categorized as a current liability, although the revenue equipment is classified as a long-term asset.  Consequently, each purchase of revenue equipment financed with borrowing or capitalized leases decreases working capital.  We believe our working capital deficit had little impact on our liquidity.  Based on our expected financial condition, results of operations, a material refund of previously paid federal income taxes as a result of net operating loss carry backs pursuant to the Worker, Homeownership, and Business Assistance Act of 2009, and net cash flows during the next twelve months, which contemplate an improvement compared with the past twelve months, we believe our working capital and sources of liquidity will be adequate to meet our current and projected needs for at least the next twelve months.  On a longer-term basis, based on our anticipated financial condition, results of operations, and cash flows, and continued availability of our Credit Facility, secured installment notes, and other sources of financing that we expect will be available to us, we do not expect to experience material liquidity constraints in the foreseeable future.

The Company has had significant losses from 2007 through 2009, attributable to operations, impairments, and other charges.  The Company has managed its liquidity during this time through a series of cost reduction initiatives, refinancing, amendments to credit facilities, and sales of assets.  If we are unable to comply with our Credit Facility, we may be unable to obtain a further amendment or waiver under our Credit Facility or we may incur additional fees.

 3.           FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  Accordingly, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.  The fair value of the hedge derivative asset was determined based on quotes from the counterparty which were verified by comparing them to the exchange on which the related futures are traded, adjusted for counterparty credit risk.  A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

Level 1.  Observable inputs such as quoted prices in active markets;
Level 2.  Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3.  Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 
 
  Assets and Liabilities Measured at Fair Value on a Recurring Basis
(in thousands)
 
December 31,
2009
   
 
Quoted Prices
in Active
Markets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Hedge derivative asset
  $ 496           $ 496        

 
4.           SHARE-BASED COMPENSATION

On May 5, 2009, at the annual meeting, the Company's stockholders approved an amendment to the Covenant Transportation Group, Inc. 2006 Omnibus Incentive Plan ("2006 Plan"), which among other things, (i) provides that the maximum aggregate number of shares of Class A common stock available for the grant of awards under the 2006 Plan from and after such annual meeting date shall not exceed 700,000, and (ii) limits the shares of Class A common stock that shall be available for issuance or reissuance under the 2006 Plan from and after such annual meeting date to the additional 700,000 shares reserved, plus any expirations, forfeitures, cancellations, or certain other terminations of such shares.

The 2006 Plan permits annual awards of shares of the Company's Class A common stock to executives, other key employees, non-employee directors and eligible participants under various types of options, restricted stock awards, or other equity instruments.  The number of shares available for issuance under the 2006 Plan is 700,000 shares unless adjustment is determined necessary by the Committee as the result of a dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Class A common stock, or other corporate transaction in order to prevent dilution or enlargement of benefits or potential benefits intended to be made available.  At December 31, 2009, 533,900 of these 700,000 shares were available for award under the 2006 Plan.  No participant in the 2006 Plan may receive awards of any type of equity instruments in any calendar-year that relates to more than 250,000 shares of the Company's Class A common stock.  No awards may be made under the 2006 Plan after May 23, 2016.  To the extent available, the Company has issued treasury stock to satisfy all share-based incentive plans.

Included in salaries, wages, and related expenses within the consolidated statements of operations is stock-based compensation expense (benefit) of $0.7 million, ($0.1) million, and $0.5 million in 2009, 2008, and 2007, respectively.  The benefit recorded in the 2008 period is the result of reversing $0.4 million of expense when it was determined that certain awards that contained performance conditions were not probable to vest.  Income tax benefits associated with stock compensation expense were $0.3 million and $0.2 million in 2009 and 2007, respectively.  There were no significant tax benefits in 2008 as a result of the aforementioned reversal and related minimal expense.

The 2006 Plan allows participants to pay the Company for the federal and state minimum statutory tax withholding requirements related to awards that vest or allows the participant to deliver to the Company, shares of common stock having a fair market value equal to the minimum amount of such required withholding taxes.  To satisfy withholding requirements for shares that vested in the third quarter, certain participants elected to deliver to the Company 20,982 shares which were withheld at a per share price of $5.50, totaling approximately $0.1 million, based on the closing price of our common stock on the date of exercise, in lieu of the federal and state minimum statutory tax withholding requirements.  We remitted approximately $0.1 million to the proper taxing authorities in satisfaction of the employees' minimum statutory withholding requirements.  The tax withholding amounts paid by the Company have been accounted for as a repurchase of shares in the accompanying consolidated statement of stockholders' equity.  However, these deemed share repurchases are not included as part of the Company's stock repurchase program, noting such program expired on June 30, 2009.

 
 
The following table summarizes the Company's stock option activity for the fiscal years ended December 31, 2009, 2008 and 2007:

   
Number of
options (in
thousands)
   
Weighted
average
exercise price
 
Weighted average
remaining
contractual term
 
Aggregate intrinsic
value
(in thousands)
 
                     
Outstanding at December 31, 2006
    1,287     $ 13.98  
68 months
  $ 685  
                           
Options granted
    112     $ 6.76            
Options exercised
    -       -            
Options canceled
    (194 )   $ 13.93            
Outstanding at December 31, 2007
    1,205     $ 13.33  
64 months
  $ -  
                           
Options granted
    -       -            
Options exercised
    -       -            
Options canceled
    (109 )   $ 12.30            
Outstanding at December 31, 2008
    1,096     $ 13.43  
52 months
  $ -  
                           
Options granted
    -       -            
Options exercised
    -       -            
Options canceled
    (116 )   $ 14.05            
Outstanding at December 31, 2009
    980     $ 13.36  
43 months
  $ -  
                           
Exercisable at December 31, 2009
    821     $ 14.10  
34 months
  $ -  

 
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, which uses a number of assumptions to determine the fair value of the options on the date of grant.  The following weighted-average assumptions were used to determine the fair value of the stock options granted in 2007:

   
2007
Expected volatility
 
57.3%
Risk-free interest rate
 
4.4%
Expected lives (in years)
 
5.0

The expected lives of the options are based on the historical and expected future employee exercise behavior.  Expected volatility is based upon the historical volatility of the Company's common stock.  The risk-free interest rate is based upon the U.S. Treasury yield curve at the date of grant with maturity dates approximately equal to the expected life at the grant date.

The following tables summarize the Company's restricted stock award activity for the fiscal years ended December 31, 2009, 2008, and 2007:

   
Number of
stock
awards
   
Weighted
average grant
date fair value
 
   
(in thousands)
       
Unvested at December 31, 2006
    457     $ 12.65  
                 
Granted
    113     $ 10.72  
Vested
    -       -  
Forfeited
    (70 )   $ 12.68  
Unvested at December 31, 2007
    500     $ 12.21  
                 
Granted
    269     $ 3.44  
Vested
    -       -  
Forfeited
    (3 )   $ 5.83  
Unvested at December 31, 2008
    766     $ 9.14  
                 
Granted
    335     $ 3.07  
Vested
    (162 )   $ 3.15  
Forfeited
    (165 )   $ 9.30  
Unvested at December 31, 2009
    774     $ 7.76  

The unvested shares at December 31, 2009 will vest based on when and if the related vesting criteria are met for each award.  All awards require continued service to vest, noting that 123,000 of these awards vest solely based on continued service, of which 103,000 are expected to vest in 2010.  Additionally, 162,000 awards vest based on market conditions such that one third of the each employee's awards vests if the Company's Class A Stock trades above $4, $6, and $8, respectively, for thirty trading days beginning January 1, 2010 through December 31, 2011.  Performance based awards account for 489,000 of the unvested shares at December 31, 2009, noting that 384,000 of these shares are not expected to vest based on the expectation that the related performance criteria will not be met.  As such, all previously recognized compensation expense was reversed in 2008, and no related expense was recognized in 2009 given there was no change in the expectation regarding the performance targets being met that would trigger the shares to vest.  The remaining 105,000 shares that include a performance target will vest if the Company's fiscal 2010 earnings per share is equal to or greater than $0.05 per share, excluding certain non-cash charges.

The fair value of restricted stock awards that vested in 2009 was approximately $0.5 million, noting no awards vested in 2007 or 2008.  As of December 31, 2009, the Company had approximately $1.2 million of unrecognized compensation expense related to restricted stock awards, which is probable to be recognized over a weighted average period of approximately sixteen months.  All restricted shares awarded to executives and other key employees pursuant to the 2006 Plan have voting and other stockholder-type rights, but will not be issued until the relevant restrictions are satisfied.

 
5.           INVESTMENT IN TRANSPLACE

From July 2001 through December 2009, we owned approximately 12.4% of Transplace, Inc. ("Transplace"), a global transportation logistics service.  In the formation transaction for Transplace, we contributed our logistics customer list, logistics business software and software licenses, certain intellectual property, intangible assets, and $5.0 million in cash, in exchange for our ownership.  We accounted for this investment, which totaled approximately $10.7 million, using the cost method of accounting, and it was historically included in other assets in the consolidated balance sheet.  Also, during the first quarter of 2005, we loaned Transplace approximately $2.6 million, which along with the related accrued interest was historically included in other assets in the consolidated balance sheet.

Based on an offer to purchase our 12.4% equity ownership and related note receivable in Transplace that was accepted by a majority of the shareholders, we determined that pursuant to the guidance provided by FASB Accounting Standards Codification 325, the value of our equity investment had become completely impaired in the third quarter of 2009, and the value of the note receivable had become impaired by approximately $0.9 million.  As a result, we recorded a non-cash impairment charge of $11.6 million during the third quarter of 2009.

The transaction closed in December 2009, whereby the proceeds of $1.9 million provided for a recovery of $0.1 million of the previously impaired amount in the fourth quarter of 2009 and thus an $11.5 million non-cash loss on the sale of our investment and related note receivable.  There was no tax benefit recorded in connection with the loss on the sale of the investment, given a full valuation allowance was established for the related capital loss.  Under our credit facility, the non-cash loss is added back in the computation of the Company's fixed charge coverage ratio; and therefore does not unfavorably impact our single financial covenant.

6.           PROPERTY AND EQUIPMENT

A summary of property and equipment, at cost, as of December 31, 2009 and 2008 is as follows:

(in thousands)
 
Estimated Useful Lives
   
2009
   
2008
 
Revenue equipment
 
3-10 years
    $ 309,668     $ 266,148  
Communications equipment
 
5 years
      15,606       15,602  
Land and improvements
 
10-24 years
      17,541       16,690  
Buildings and leasehold improvements
 
7-40 years
      38,543       37,030  
Construction in-progress
    ---------       2,715       2,054  
Other
 
1-7 years
      15,639       15,333  
            $ 399,712     $ 352,857  

Depreciation expense was $47.2 million, $60.2 million, and $50.3 million in 2009, 2008, and 2007, respectively.  The 2008 and 2007 amounts include a $15.8 million and a $1.7 million impairment charge, respectively.

The Company leases certain revenue equipment under capital leases with terms of 60 months.  At December 31, 2009, property and equipment included capitalized leases, which had capitalized costs of $14.0 million and accumulated amortization of $0.2 million.  Amortization of these leased assets is included in depreciation and amortization expense in the consolidated statement of operations and totaled $0.2 million during 2009.  There was no equipment held under capital leases during 2008 or 2007.

As a result of sharply lower economic indicators, a worsening credit market, and significantly lower prices received for disposals of our own used revenue equipment, all of which deteriorated substantially during the fourth quarter of 2008, we recorded a $9.4 million asset impairment charge to write-down the carrying values of tractors and trailers in-use in our Truckload segment which were expected to be traded or sold in 2009 or 2010.  The carrying values for revenue equipment scheduled for trade in 2011 and beyond were not adjusted because those tractors and trailers were not required to be impaired based on recoverability testing using the expected future cash flows and disposition values of such equipment.
 
 
Similarly, in 2008 we recorded a $6.4 million asset impairment charge ($1.2 million was recorded in the third quarter and $5.2 million was recorded in the fourth quarter) to write down the carrying values of tractors and trailers held for sale in our Truckload segment which were expected to be traded or sold in future periods.
 
Although we do not expect to be required to make any current or future cash expenditures as a result of these impairment charges, cash proceeds of future disposals of revenue equipment are anticipated to be lower than expected prior to the impairment charges.
 
Our evaluation of the future cash flows compared to the carrying value of the tractors and trailers in-use in 2009 has not resulted in any additional impairment charges.  Additionally, there were no indicators triggering an evaluation for impairment of assets held for sale during the 2009 period, as evidenced by our minimal gains and losses on the disposal of revenue equipment, including assets held for sale.
 
In addition, our 2007 asset impairment charge was related to our decision to sell our corporate aircraft to reduce ongoing operating costs.  We recorded an impairment charge of $1.7 million, reflecting the unfavorable fair market value of the airplane as compared to the combination of the estimated payoff of the long-term operating lease and current book value of related airplane leasehold improvements.

In 2009, we began a multi-year project to upgrade the hardware and software of our information systems.  The goal upon completion of the project is to have uniform operational and financial systems across the entire company as we believe this will improve customer service, utilization, and enhance our visibility into and across the organization.  The Company incurred approximately $2.6 million in 2009 related to this system upgrade, and all related amounts are included in construction in progress in the consolidated balance sheet as the related systems were not implemented at December 31, 2009.

7 .           GOODWILL AND OTHER ASSETS

Goodwill of $11.5 million at December 31, 2009 and 2008 relates to two reporting units within our Truckload segment.  Pursuant to the applicable accounting standards, we conducted our 2009 annual impairment test for goodwill in the second quarter and did not identify any impairment and noted no subsequent indicators of impairment within these reporting units.

While our 2008 annual impairment analysis performed in the second quarter did not provide for impairment, in light of changes in market conditions and the related declining market outlook for the Star Transportation reporting unit, which is included in our Truckload segment, noted in the fourth quarter of 2008, we engaged an independent third party to assist us in the completion of valuations used in the impairment testing process.  The completion of this work concluded that the goodwill previously recorded for the Star acquisition was fully impaired and resulted in a $24.7 million, or $1.75 per basic and diluted share non-cash goodwill impairment charge, recorded in the fourth quarter of 2008.  There was no tax benefit associated with this nondeductible charge.

A summary of other assets as of December 31, 2009 and 2008 is as follows:

(in thousands)
 
2009
   
2008
 
Covenants not to compete
  $ 2,690     $ 2,690  
Trade name
    1,250       1,250  
Customer relationships
    3,490       3,490  
Less: accumulated amortization of intangibles
    (5,541 )     (4,712 )
Net intangible assets
    1,889       2,718  
Investment in Transplace
    -       10,666  
Note receivable from Transplace
    -       2,748  
Other, net
    4,722       4,281  
    $ 6,611     $ 20,413  



Amortization expenses of intangible assets was $0.8 million, $1.0 million, and $0.4 million for 2009, 2008, and 2007, respectively.  Approximate intangible amortization expense for the next five years is as follows:

   
 
( In thousands )
2010
636
2011
382
2012
317
2013
227
2014
91
Thereafter
236

8.           DEBT

Current and long-term debt consisted of the following at December 31, 2009 and 2008:

(in thousands)
 
December 31, 2009
   
December 31, 2008
 
   
Current
   
Long-Term
   
Current
   
Long-Term
 
Borrowings under Credit Facility
  $ -     $ 12,686     $ -     $ 3,807  
Revenue equipment installment notes; weighted average interest rate of 6.5% and 6.0% at December 31, 2009, and December 31, 2008, respectively, due in monthly installments with final maturities at various dates ranging from January 2010 to June 2013, secured by related revenue equipment
    67,000       118,574       58,718       101,118  
Real estate note; interest rate of 2.75% and 4.0% at December 31, 2009 and 2008, respectively, due in monthly installments with fixed maturity at October 2013, secured  by related real-estate
    365       2,824       365       3,031  
Total debt
    67,365       134,084       59,083       107,956  
Capital lease obligations, secured by related revenue  equipment
    1,098       12,472       -       -  
                                 
Total debt and capital lease obligations
  $ 68,463     $ 146,556     $ 59,083     $ 107,956  

In September 2008, the Company and substantially all its subsidiaries entered into a Third Amended and Restated Credit Facility with Bank of America, N.A., as agent (the "Agent"), JPMorgan Chase Bank, N.A. ("JPM"), and Textron Financial Corporation ("Textron"); collectively with the Agent, and JPM, the ("Lenders") that matures September 2011 (the "Credit Facility").

The Credit Facility is structured as an $85.0 million revolving credit facility, with an accordion feature that, so long as no event of default exists, allows the Company to request an increase in the revolving credit facility of up to $50.0 million.  The Credit Facility includes, within its $85.0 million revolving credit facility, with an accordion feature that, so long as no event of default exists, allows the Company to request an increase in the revolving credit facility of up to $50.0 million.  The Credit Facility includes, within its $85.0 million revolving credit facility, a letter of credit sub facility in an aggregate amount of $85.0 million and a swing line sub facility in an aggregate amount equal to the greater of $10.0 million or 10% of the Lenders' aggregate commitments under the Credit Facility from time to time.

Borrowings under the Credit Facility are classified as either "base rate loans" or "LIBOR loans".  Base rate loans accrue interest at a base rate equal to the greater of the prime rate, the federal funds rate plus 0.5%, or LIBOR plus 1.0%, plus an applicable margin that is adjusted quarterly between 2.5% and 3.25% based on average pricing availability.  LIBOR loans accrue interest at the greater of 1.5% or LIBOR, plus an applicable margin that is adjusted quarterly between 3.5% and 4.25% based on average pricing availability.  The unused line fee is adjusted quarterly based between 0.5% and 0.75% of the average daily amount by which the Lenders' aggregate revolving commitments under the Credit Facility exceed the outstanding principal amount of revolver loans and the aggregate undrawn amount of all outstanding letters of credit issued under the Credit Facility.  The obligations under the Credit Facility are guaranteed by the Company and secured by a pledge of substantially all of the Company's assets, with the notable exclusion of any real estate or revenue equipment pledged under other financing agreements, including revenue equipment installment notes and capital leases.

 
Borrowings under the Credit Facility are subject to a borrowing base limited to the lesser of (A) $85.0 million, minus the sum of the stated amount of all outstanding letters of credit; or (B) the sum of (i) 85% of eligible accounts receivable, plus (ii) the lesser of (a) 85% of the appraised net orderly liquidation value of eligible revenue equipment, (b) 95% of the net book value of eligible revenue equipment, or (c) 35% of the Lenders' aggregate revolving commitments under the Credit Facility, plus (iii) the lesser of (a) $25.0 million or (b) 65% of the appraised fair market value of eligible real estate.  The borrowing base is limited by a $15.0 million availability block, plus any other reserves the Agent may establish in its judgment.  The Company had approximately $12.7 million in borrowings outstanding under the Credit Facility as of December 31, 2009, undrawn letters of credit outstanding of approximately $42.0 million, and available borrowing capacity of $27.7 million.  The weighted average interest rate on outstanding borrowings was 6.3%.

On March 27, 2009, the Company obtained an amendment to its Credit Facility, which, among other things, (i) retroactively to January 1, 2009 amended the fixed charge coverage ratio covenant for January and February 2009 to the actual levels achieved, which cured our default of that covenant for January 2009, (ii) restarted the look back requirements of the fixed charge coverage ratio covenant beginning on March 1, 2009, (iii) increased the EBITDAR portion of the fixed charge coverage ratio definition by $3.0 million for all periods between March 1 to December 31, 2009, (iv) increased the base rate applicable to base rate loans to the greater of the prime rate, the federal funds rate plus 0.5%, or LIBOR plus 1.0%, (v) sets a LIBOR floor of 1.5%, (vi) increased the applicable margin for base rate loans to a range between 2.5% and 3.25% and for LIBOR loans to a range between 3.5% and 4.25%, with 3.0% (for base rate loans) and 4.0% (for LIBOR loans) to be used as the applicable margin through September 2009, (vii) increased the Company's letter of credit facility fee by an amount corresponding to the increase in the applicable margin, (viii) increased the unused line fee to a range between 0.5% and 0.75%, and (ix) increased the maximum number of field examinations per year from three to four.  In exchange for these amendments, the Company agreed to the increases in interest rates and fees described above and paid fees of approximately $0.5 million.

The Credit Facility includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the Credit Facility may be accelerated, and the Lenders' commitments may be terminated.  The Credit Facility contains certain restrictions and covenants relating to, among other things, dividends, liens, acquisitions and dispositions outside of the ordinary course of business, and affiliate transactions.  The Credit Facility contains a single financial covenant, which required the Company to maintain a consolidated fixed charge coverage ratio of at least 1.0 to 1.0.  The fixed charge coverage covenant became effective October 31, 2008, and the Company was in compliance with the covenant as of December 31, 2009.

On February 25, 2010, the Company obtained an additional amendment to its Credit Facility, which, among other things (i) amended certain defined terms in the Credit Facility, (ii) retroactively to January 1, 2010, amended the fixed charge coverage ratio covenant through June 30, 2010, to the levels set forth in the table below, which prevented a default of that covenant for January 2010, (iii) restarted the look back requirements of the fixed coverage ratio covenant beginning on January 1, 2010, and (iv) required the Company to order updated appraisals for certain real estate described in the Credit Facility.  In exchange for these amendments, we agreed to pay the Agent, for the pro rata benefit of the Lenders, a fee equal to 0.125% of the Lenders' total commitments under the Credit Facility, or approximately $0.1 million.  Following the effectiveness of the amendment, our fixed charge coverage ratio covenant requirement will be as follows:

One month ending January 31, 2010
.80 to 1.00
Two months ending February 28, 2010
.65 to 1.00
Three months ending March 31, 2010
.72 to 1.00
Four months ending April 30, 2010
.80 to 1.00
Five months ending May 31, 2010
.85 to 1.00
Six months ending June 30, 2010
.90 to 1.00
Seven months ending July 31, 2010
1.00 to 1.00
Eight months ending August 31, 2010
1.00 to 1.00
Nine months ending September 30, 2010
1.00 to 1.00
Ten months ending October 31, 2010
1.00 to 1.00
Eleven months ending November 30, 2010
1.00 to 1.00
Twelve months ending December 31, 2010
1.00 to 1.00
Each rolling twelve-month period thereafter
1.00 to 1.00

 
Capital lease obligations are utilized to finance a portion of our revenue equipment and are entered into with certain finance companies who are not parties to our Credit Facility.  The leases terminate in January 2015 and contain guarantees of the residual value of the related equipment by the Company, and the residual guarantee's are included in the related debt balance as balloon payment at the end of the related term as well as included in the future minimum lease payments.  These lease agreements require us to pay personal property taxes, maintenance and operating expenses.

Pricing for the revenue equipment installment notes are quoted by the respective financial captives of our primary revenue equipment suppliers at the funding of each group of equipment acquired and include fixed annual rates for new equipment under retail installment contracts.  Approximately $185.6 million and $159.8 million were reflected on our balance sheet for these installment notes at December 31, 2009 and 2008, respectively.  The notes included in the funding are due in monthly installments with final maturities at various dates ranging from January 2010 to June 2013.  The notes contain certain requirements regarding payment, insurance of collateral, and other matters, but do not have any financial or other material covenants or events of default.  Additional borrowings from the financial captives of our primary revenue equipment suppliers are available to fund new tractors expected to be delivered in 2010.

As of December 31, 2009, the scheduled principal payments of debt, excluding capital leases for which future payments are discussed in Note 9 are as follows:

   
(in thousands)
 
2010
  $ 67,365  
2011
  $ 65,572  
2012
  $ 64,851  
2013
  $ 3,661  
2014
  $ 0  
Thereafter
  $ 0  

9.           LEASES

The Company has operating lease commitments for office and terminal properties, revenue equipment, and computer and office equipment and capital lease commitments for revenue equipment, exclusive of owner/operator rentals and month-to-month equipment rentals, summarized for the following fiscal years (in thousands):

     Operating  
  Capital
 
2010
  $ 22,898       $ 2,177  
2011
    9,650         2,177  
2012
    7,668         2,177  
2013
    5,358         2,177  
2014
    3,216         8,064  
Thereafter
    33,199         1,280  

A portion of the Company's operating leases of tractors and trailers contain residual value guarantees under which the Company guarantees a certain minimum cash value payment to the leasing company at the expiration of the lease.  The Company estimates that the residual guarantees are approximately $23.6 million and $21.4 million at December 31, 2009 and 2008, respectively.  Approximately $12.7 million and $10.9 million of the residual guarantees at December 31, 2009 expire in 2010 and 2011, respectively.  The Company expects its residual guarantees to approximate the expected market value at the end of the lease term.  Additionally, certain leases contain cross-default provisions with other financing agreements and additional charges if the unit's mileage exceeds certain thresholds defined in the lease agreement.

Rental expense is summarized as follows for each of the three years ended December 31:

(in thousands)
 
2009
   
2008
   
2007
 
                   
Revenue equipment rentals
  $ 25,863     $ 31,219     $ 33,546  
Building and lot rentals
    3,976       3,884       4,067  
Other equipment rentals
    1,829       2,097       2,759  
    $ 31,668     $ 37,200     $ 40,372  

 
In April 2006, the Company entered into a sale leaseback transaction involving our corporate headquarters, a maintenance facility, a body shop, and approximately forty-six acres of surrounding property in Chattanooga, Tennessee.  In the transaction, the Company entered into a twenty-year lease agreement, whereby it will lease back the property at an annual rental rate of approximately $2.5 million subject to annual rent increases of 1.0%, resulting in annual straight-line rental expense of approximately $2.7 million, which comprises a significant portion of building rentals above.  The transaction resulted in a gain of approximately $2.1 million, which is being amortized ratably over the life of the lease, noting $1.8 million of the deferred gain is included in other long-term liabilities in the consolidated balance sheet.

10.           INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 2009, 2008, and 2007 is comprised of:

(in thousands)
 
2009
   
2008
   
2007
 
                   
Federal, current
  $ 189     $ (208 )   $ (6,202 )
Federal, deferred
    (4,547 )     (10,901 )     (498 )
State, current
    (34 )     72       (78 )
State, deferred
    (626 )     (1,755 )     1,198  
    $ (5,018 )   $ (12,792 )   $ (5,580 )

Income tax expense varies from the amount computed by applying the federal corporate income tax rate of 35% to income before income taxes for the years ended December 31, 2009, 2008, and 2007 as follows:

(in thousands)
 
2009
   
2008
   
2007
 
                   
Computed "expected" income tax expense
  $ (10,517 )   $ (23,164 )   $ (7,809 )
State income taxes, net of federal income tax effect
    (1,050 )     (2,316 )     (781 )
Per diem allowances
    3,320       2,769       2,371  
Tax contingency accruals
    (216 )     (131 )     (105 )
Nondeductible foreign operating (income) loss
    (504 )     298       290  
Nondeductible goodwill impairment
    -       9,498       -  
Realization of outside basis difference related to Transplace
    2,599       -       -  
Valuation allowance
    1,896       -       -  
 Disallowed interest
    (189 )     -       -  
Other, net
    (357 )     254       454  
Actual income tax expense
  $ (5,018 )   $ (12,792 )   $ (5,580 )

The temporary differences and the approximate tax effects that give rise to the Company's net deferred tax liability at December 31, 2009 and 2008 are as follows:

(in thousands)
 
2009
   
2008
 
             
Net deferred tax assets:
           
Allowance for doubtful accounts
  $ 702     $ 412  
Insurance and claims
    7,594       11,087  
Net operating loss carryovers
    38,398       13,625  
   Capital loss carryover related to Transplace
    1,671       -  
Investments
    -       163  
Other accrued liabilities
    476       988  
Other, net
    4,933       2,221  
   Valuation allowance
    (1,896 )     -  
Total net deferred tax assets
    51,878       28,496  
                 
Net deferred tax liabilities:
               
Property and equipment
    (71,127 )     (56,865 )
   Intangible and other assets
    (1,899 )     (1,797 )
    Prepaid expenses
    (2,919 )     (2,374 )
Total net deferred tax liabilities
    (75,945 )     (61,036 )
                 
Net deferred tax liability
  $ (24,067 )   $ (32,540 )

 
The carrying value of the Company's deferred tax assets assumes that it will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits.  If these estimates and related assumptions change in the future, it may be required to establish a valuation allowance against the carrying value of the deferred tax assets, which would result in additional income tax expense.  On a periodic basis, the Company assesses the need for adjustment of the valuation allowance.  There was no valuation allowance in 2008 or 2007.  Based on forecasted taxable income and tax planning strategies available to the Company, no valuation allowance has been established at December 31, 2009, except for $0.3 million related to certain state net operating loss carryforwards and $1.6 million related to the deferred tax asset associated with the Company's capital loss generated by the loss on the sale of its investment in Transplace.  These valuation allowances were established because the Company believes that it is more likely than not that certain state net operating loss carryforwards and the capital loss carryforward related to Transplace will not be realized.  If these estimates and related assumptions change in the future, it may be required to modify its valuation allowance against the carrying value of the deferred tax assets.

The activity in the valuation allowance on deferred tax assets (in thousands) is as follows:

 
 
Year ended December 31:
 
Beginning
balance
January 1,
   
Additional
provisions
to allowance
   
Write-offs
and other
deductions
   
Ending
balance
December 31,
 
                         
2009
  $ -     $ 1,896     $ -     $ 1,896  

The Company was required to adopt the FASB's new guidance on accounting for uncertain tax positions, effective January 1, 2007.  This guidance clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold of more-likely-than-not to be sustained upon examination.  As a result of this adoption, the Company recognized additional tax liabilities of $0.3 million with a corresponding reduction to beginning retained earnings as of January 1, 2007.  As of December 31, 2009, the Company had a $3.1 million liability recorded for unrecognized tax benefits, which includes interest and penalties of $1.0 million.  The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense.  As of December 31, 2008, the Company had a $2.8 million liability recorded for unrecognized tax benefits, which included interest and penalty of $0.8 million.  Interest and penalties recognized for uncertain tax positions were approximately $0.2 million, $0.1 million, and $0.1 million in 2009, 2008, and 2007, respectively.

The following tables summarize the annual activity related to the Company's gross unrecognized tax benefits (in thousands) for the years ended December 31, 2009, 2008, and 2007:

   
2009
   
2008
   
2007
 
Balance as of January 1,
  $ 1,971     $ 1,923     $ 2,295  
Increases related to prior year tax positions
    67       206       53  
Decreases related to prior year positions
    (3 )     (3 )     (439 )
Increases related to current year tax positions
    279       17       159  
Decreases related to settlements with taxing authorities
    (122 )     (28 )     (69 )
Decreases related to lapsing of statute of limitations
    (55 )     (144 )     (76 )
Balance as of December 31,
  $ 2,137     $ 1,971     $ 1,923  

If recognized, $2.1 million and $1.8 million of unrecognized tax benefits would impact the Company's effective tax rate as of December 31, 2009 and 2008 respectively.  Any prospective adjustments to the Company's reserves for income taxes will be recorded as an increase or decrease to its provision for income taxes and would impact our effective tax rate.

The Company's 2006 through 2009 tax years remain subject to examination by the IRS for U.S. federal tax purposes, the Company's major taxing jurisdiction.  In the normal course of business, the Company is also subject to audits by state and local tax authorities.  While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes that its reserves reflect the more likely than not outcome of known tax contingencies.  The Company adjusts these reserves, as well as the related interest, in light of changing facts and circumstances.  Settlement of any particular issue would usually require the use of cash.  Favorable resolution would be recognized as a reduction to the Company's annual tax rate in the year of resolution.  The Company does not expect any significant increases or decreases for uncertain income tax positions during the next twelve months.

 
The Company's federal net operating loss carryforwards are available to offset future federal taxable income, if any, through 2029, while its state net operating loss carryforwards and state tax credits expire over various periods through 2029 based on jurisdiction.  The capital loss carryforward related to the loss on the investment in Transplace is available to offset future capital gains through 2014.

11.           STOCK REPURCHASE PLAN

In May 2007, the Board of Directors approved an extension of the Company's previously approved stock repurchase plan for up to 1.3 million Company shares to be purchased in the open market or through negotiated transactions subject to criteria established by the Board.  No shares were purchased under this plan during 2009, 2008, or 2007.  The stock repurchase plan expired on June 30, 2009.  However, as discussed in Note 4, we remitted approximately $0.1 million to the proper taxing authorities in satisfaction of the employees' minimum statutory withholding requirements related to employees' vesting in restricted share grants.  The tax withholding amounts paid by the Company have been accounted for as a repurchase of shares.  Our Credit Facility prohibits the repurchase of any shares, except those purchased to off-set an employee's minimum statutory withholding requirements upon the vesting of equity awards, without obtaining approval from the lenders.

12.           DEFERRED PROFIT SHARING EMPLOYEE BENEFIT PLAN

The Company has a deferred profit sharing and savings plan under which all of its employees with at least six months of service are eligible to participate.  Employees may contribute a percentage of their annual compensation up to the maximum amount allowed by the Internal Revenue Code.  The Company may make discretionary contributions as determined by a committee of its Board of Directors.  The Company made minimal contributions in 2009 and contributed approximately $1.3 and $1.2 million in 2008 and 2007, respectively, to the profit sharing and savings plan.  The Board approved the suspension of employee matching "discretionary" contributions to be made beginning early in 2009 for an indefinite time period.

13.           RELATED PARTY TRANSACTIONS

As discussed in Note 5, from July 2001 through December 2009, we owned approximately 12.4% of Transplace and had receivables from Transplace related to a bridge loan made in 2005 and related accrued interest.  In addition, the Company provides transportation services to Transplace which provided for gross revenues of approximately $18.8 million, $26.2 million, and $16.0 million during 2009, 2008, and 2007, respectively.  The trade accounts receivable balance as of December 31, 2008 was approximately $4.7 million.

Additionally, a company wholly owned by a relative of a significant shareholder and executive officer operated a "company store" on a rent-free basis in the Company's headquarters building, and used Covenant service marks on its products at no cost.  The "company store" ceased operations in 2008.  The Company paid fair market value for all supplies that were purchased which totaled approximately less than $0.1 million and $0.1 million in 2008 and 2007, respectively.

14.           DERIVATIVE INSTRUMENTS

The Company engages in activities that expose it to market risks, including the effects of changes in fuel prices.  Financial exposures are evaluated as an integral part of the Company's risk management program, which seeks, from time to time, to reduce potentially adverse effects that the volatility of fuel markets may have on operating results.  In an effort to seek to reduce the variability of the ultimate cash flows associated with fluctuations in diesel fuel prices, we periodically enter into various derivative instruments, including forward futures swap contracts.  The Company does not engage in speculative transactions, nor does it hold or issue financial instruments for trading purposes.  Additionally, from time to time, the Company enters into fuel purchase commitments for a notional amount of diesel fuel at prices which are determined when fuel purchases occur.

The Company did not enter into any derivatives until the third quarter of 2009; however, in September 2009, we entered into forward futures swap contracts, which pertain to 2.5 million gallons or approximately 4% percent of our projected January through December 2010 fuel requirements.  Under these contracts, we pay a fixed rate per gallon of heating oil and receive the monthly average price of New York heating oil, noting the retrospective and prospective regression analyses provided that changes in the prices of diesel fuel and heating oil were deemed to be highly effective based on the relevant authoritative guidance.

 
We perform, at least quarterly, both a prospective and retrospective assessment of the effectiveness of our hedge contracts, including assessing the possibility of counterparty default.  If we determine that a derivative is no longer expected to be highly effective, we discontinue hedge accounting prospectively and recognize subsequent changes in the fair value of the hedge in earnings.  As a result of our effectiveness assessment at December 31, 2009, we believe our hedge contracts will continue to be highly effective in offsetting changes in cash flow attributable to the hedged risk.

We recognize all derivative instruments at fair value on our consolidated balance sheet.  The Company's derivative instruments are designated as cash flow hedges, thus the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income and will be reclassified into earnings in the same period during which the hedged transaction affects earnings.  The effective portion of the derivative represents the change in fair value of the hedge that offsets the change in fair value of the hedged item.  To the extent the change in the fair value of the hedge does not perfectly offset the change in the fair value of the hedged item, the ineffective portion of the hedge is immediately recognized in other  income on our consolidated statements of operations. 

As of December 31, 2009, the derivatives had a fair value of approximately $0.5 million, which is included in other assets in the consolidated balance sheet.  Approximately 93% of the related change in fair value or $0.3 million, net of tax of $0.2 million, was deemed effective and thus is included in accumulated other comprehensive income, while the remainder of the change which represents the ineffective portion of the change in the hedge is included in other expense, net in the Company's consolidated financial statements.  No amounts were reclassified from accumulated other comprehensive income to earnings given the futures swap contracts are forward starting in 2010 and as such there have been no transactions involving purchases of the related diesel fuel being hedged.
 
Based on fair values as of December 31, 2009 and the expected timing of the purchases of the diesel hedged, we expect to reclassify $0.5 million of gains on derivative instruments from accumulated other comprehensive income to earnings during the next twelve months due to the actual diesel fuel purchases.  However, the amounts actually realized will be dependent on the fair values as of the date of settlement.

Outstanding financial derivative instruments expose us to credit loss in the event of nonperformance by the counterparties to the agreements.  However, we do not expect any of the counterparties to fail to meet their obligations.  Our credit exposure related to these financial instruments is represented by the fair value of contracts reported as assets.  To manage credit risk, we review each counterparty's audited financial statements, credit ratings, and obtain references.

15.           COMMITMENTS AND CONTINGENT LIABILITIES

From time to time, the Company is a party to ordinary, routine litigation arising in the ordinary course of business, most of which involves claims for personal injury and property damage incurred in connection with the transportation of freight.  The Company maintains insurance to cover liabilities arising from the transportation of freight for amounts in excess of certain self-insured retentions.  In management's opinion, the Company's potential exposure under pending legal proceedings is adequately provided for in the accompanying consolidated financial statements.

The Company had $42.0 million and $40.6 million of outstanding and undrawn letters of credit as of December 31, 2009 and 2008, respectively.  The letters of credit are maintained primarily to support the Company's insurance programs.
 
The Company had commitments outstanding at December 31, 2009, to acquire revenue equipment and communications equipment for totaling approximately $97.2 million in 2010.  These commitments are cancelable, subject to certain adjustments in the underlying obligations and benefits.  These purchase commitments are expected to be financed by operating leases, capital leases, long-term debt, proceeds from sales of existing equipment, and/or cash flows from operations.  The Company also had commitments outstanding at December 31, 2009, to acquire computer software totaling $0.4 million in 2010 and 2011.

 
16.           SEGMENT INFORMATION

As previously discussed, we have two reportable segments: Asset-Based Truckload Services and our Brokerage Services.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies.  Substantially all intersegment sales prices are market based.  The Company evaluates performance based on operating income of the respective business units.

"Unallocated Corporate Overhead" includes expenses that are incidental to our activities and are not specifically allocated to one of the segments.

 
 
Year Ended December 31, 2009
 
 
Truckload
   
 
Brokerage
   
Unallocated Corporate Overhead
   
 
Consolidated
 
Revenue – external customers
  $ 541,325     $ 58,771     $ -     $ 600,096  
Intersegment revenue
    -       (11,409 )     -       (11,409 )
Operating income (loss) (1)
    10,552       155       (15,429 )     (4,722 )
Depreciation and amortization
    46,482       374       1,266       48,122  
Goodwill at carrying value
    11,539       -       -       11,539  
Total assets
    369,979       7,856       20,477       398,312  
Capital expenditures, net
    60,946       104       1,958       63,008  
                                 
Year Ended December 31, 2008
                               
Revenue – external customers
  $ 719,220     $ 74,474     $ -     $ 793,694  
Intersegment revenue
    -       (19,780 )     -       (19,780 )
Operating income (loss) (2)
    (37,091 )     466       (19,054 )     (55,679 )
Depreciation and amortization (3)
    61,888       81       1,266       63,235  
Goodwill at carrying value
    11,539       -       -       11,539  
Total assets
    351,831       11,770       30,075       393,676  
Capital expenditures, net
    58,587       222       3,837       62,646  
                                 
Year Ended December 31, 2007
                               
Revenue – external customers
  $ 692,722     $ 26,716     $ -     $ 719,438  
Intersegment revenue
    -       (6,912 )     -       (6,912 )
Operating income (loss) (4)
    (7,011 )     1,031       (4,701 )     (10,681 )
Depreciation and amortization (4)
    53,169       18       354       53,541  
Goodwill at carrying value
    36,210       -       -       36,210  
Total assets
    419,225       726       19,843       439,794  
Capital expenditures, net
    10,161       217       730       11,108  

(1)
Unallocated corporate overhead includes $11.5 million loss on Transplace discussed in Note 5.
(2)
Truckload segment includes $24.7 million goodwill impairment discussed in Note 7 and $15.8 million related to property and equipment impairments discussed in Note 6.
(3)
Truckload segment includes $15.8 million related to property and equipment impairments discussed in Note 6.
(4)
Truckload segment includes $1.7 million property and impairment discussed in Note 6.

 
17.           QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

   
(in thousands except per share amounts)
 
Quarters ended
 
Mar. 31, 2009
   
June 30, 2009
   
Sep. 30, 2009
   
Dec. 31, 2009
 
                         
Freight revenue
  $ 122,129     $ 129,247     $ 133,332     $ 135,787  
Operating income (loss)
    (5,145 )     (637 )     1,829       (769 )
Net loss
    (5,543 )     (3,146 )     (13,600 )     (2,741 )
Basic and diluted loss per share (1)
    (0.39 )     (0.22 )     (0.96 )     (0.19 )

   
(in thousands except per share amounts)
 
                         
Quarters ended
 
Mar. 31, 2008
   
June 30, 2008
   
Sep. 30, 2008
   
Dec. 31, 2008
 
                         
Freight revenue
  $ 148,596     $ 160,451     $ 162,901     $ 143,862  
Operating loss
    (9,594 )     (256 )     (720 )     (45,109 )
Net loss
    (7,821 )     (2,349 )     (3,416 )     (39,805 )
Basic and diluted loss per share
    (0.56 )     (0.17 )     (0.24 )     (2.83 )

(1)
Quarter totals do not aggregate to annual loss per share due to rounding.
 
73

 

Exhibit 10.4
 
*AGREEMENT PREVIOUSLY FILED*
*RE-FILED TO INCLUDE ALL EXHIBITS, SCHEDULES, AND ATTACHMENTS*
 
PURCHASE AND SALE AGREEMENT
 
THIS PURCHASE AND SALE AGREEMENT (as amended from time to time, this “ Agreement ”) is entered into as of the 3rd day of April, 2006, by and between COVENANT TRANSPORT, INC. , a Tennessee corporation (“ Seller ”); and CT CHATTANOOGA TN, LLC , a Delaware limited liability company (the “ Buyer ”).

RECITALS

A.           Seller holds title to the Property (as hereinafter defined).

B.           Buyer desires to purchase the Property (as hereinafter defined) for the price defined herein, and lease the Property (as hereinafter defined) back to Seller, as tenant, and upon the terms hereinafter set forth.

Now, therefore, in consideration of the mutual covenants herein contained and other good and valuable consideration, the parties, intending to be legally bound, agree as follows:

1.            Sale of Property .  Seller agrees to sell the property located in Tennessee identified on Exhibit A (the “ Property ”) to Buyer, and Buyer agrees to purchase from Seller the Property, all on the terms and conditions set forth herein, including the following rights:
 
      (a)           Fee simple title in and to the parcel of real property (the land constituting such parcel being the “ Land ”), as more particularly described on Exhibit A attached hereto, together with all easements, rights-of-way, and privileges appurtenant thereto and all buildings and improvements situated thereon (collectively, the “ Improvements ” and such parcel, including the Land and Improvements shall be called the “ Parcel ”);
 
      (b)           All right, title and interest of Seller in and to the lighting, electrical, mechanical, plumbing and heating, ventilation and air conditioning systems permanently affixed to and used in connection with the Land and the Improvements, including all elevators, pipings, conduits, ducts, partitions, boilers, compressors and furnaces, and all other fixtures (the “ Fixtures ”) attached or appurtenant to the Land in such a manner as to constitute real estate under applicable state law; and
 
      (c)           Seller’s copies of all original and supplemental surveys, structural and engineering reports, geo-technical reports, plans, specifications, operating manuals, warranties and guarantees covering the Improvements and the Fixtures that are currently in the possession of Seller, or its subsidiaries; and Seller’s right, title and interest in all such assignable agreements, and any assignable licenses or permits relating to the ownership or operation of the Property (except those required to be maintained by Seller or its subsidiary for the continued operations of its business at the Property).

2.            Price .  The purchase price to be paid by Buyer to Seller for the Property (the “ Purchase Price ”) shall be $30,000,000.  Subject to the terms and conditions set forth in this Agreement, the Purchase Price, less any prorations to be credited to Buyer, plus any prorations to be credited to Seller, shall be paid in immediately available funds at Closing.


3.            Seller’s Deliveries; Third Party Reports .  Seller has provided to Buyer the materials listed on Schedule 1 attached to this Agreement (which, together with all other information and materials relating to the Parcel that is supplied to Buyer by Seller or any of its subsidiaries or at Seller’s expense, are hereinafter referred to as the “ Seller Information ”).  Seller has ordered a new owner’s title insurance commitment (the “ Commitment ”) in the name of Buyer from First American Title Insurance Company with respect to the Property and an updated ALTA as-built survey for the Parcel (the “ New Survey ”).  If the transaction described in this Agreement is not consummated for any reason, Buyer shall deliver to Seller all Seller Information in Buyer’s possession.

4.            Inspection Period .  Buyer shall have until, but no later than, the Date of Closing, as defined below (the “ Inspection Period ”) to conduct in regard to the Parcel such tests, feasibility studies, surveys, inspections and reviews of the due diligence materials provided by Seller as Buyer chooses to conduct, and to review title, survey and environmental matters.  Buyer shall notify Seller in writing as to the date on which Closing will take place (the “ Date of Closing ”), which date shall be no later than April 3, 2006.  In the event that Buyer disapproves of any matters affecting the Parcel in accordance with the terms hereof, and Seller does not commit to resolve the same to Buyer’s satisfaction, Buyer may terminate this Agreement by submitting written notice of termination to Seller on or before the Date of Closing.

5.            Closing .  The closing of the sale of the Property (the “ Closing ”) shall be held, subject to the fulfillment of all conditions to Buyer’ obligations to close or waiver thereof by Buyer, on the Date of Closing.  At Closing, Seller shall execute and deliver to First American Title Insurance Company, 6142 Shallowford Road, Suite 104, Chattanooga, Tennessee 37421, Attn:  Kelly Komorowski (“ Escrow Agent ”) or to Buyer’ counsel, the following with respect to each Parcel:
 
  (a)           A warranty deed in customary form for the jurisdiction in which such Parcel is located conveying good and marketable fee simple title to the Land and the Improvements to Buyer, and, if the related Property includes any personal property, a bill of sale and assignment conveying good and marketable title to all such personal property, in each case free and clear of all liens, charges, encumbrances, easements, covenants and restrictions except for (i) unpaid taxes not yet due and payable, (ii) matters shown on the surveys provided to Buyer, unless Buyer has objected thereto as set forth in this Agreement, and (iii) matters of record, unless Buyer has objected thereto as set forth in this Agreement;
 
  (b)           copies of all surveys, plans, specifications, structural and engineering reports, manuals, warranties and guarantees described in paragraph 1(c) to the extent in Seller’s, or Seller’s subsidiary’s, possession;
 
  (c)           A fully executed original counterpart of a lease substantially in the form attached hereto as Exhibit B (the “ Lease ”) and a memorandum of lease in recordable form, and a lease guaranty in the form attached hereto as Exhibit C (the “ Lease Guaranty ”), duly executed by Seller’s parent, Covenant Transport, Inc., a Nevada corporation (the “ Lease Guarantor ”);

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(d)           An affidavit stating that Seller is not a “foreign person” within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986;

(e)           Any customary affidavits reasonably required by the title insurance company to issue its title policy(ies) to Buyer;

(f)           All other documents affecting title to and possession of the Property and necessary to transfer or assign the same to Buyer, free and clear of all liens, security interests, charges and encumbrances, except the Permitted Exceptions (as defined in Paragraph 9 );

(g)           A copy of a resolution for Seller authorizing the sale and leaseback of the Property in accordance with the terms of this Agreement, and further authorizing the execution of all closing documents and the performance of all other acts necessary to close the sale and leaseback of the Property in accordance with the terms of this Agreement, and a copy of a resolution of Lease Guarantor authorizing the execution, delivery and performance of the Lease Guaranty;

(h)           A secretary’s certificate relating to incumbency and organizational documents for Seller and Lease Guarantor;

(i)           A copy of the certificate of occupancy or legal equivalent thereof for the Parcel;

(j)           Insurance certificates as required under the Lease for the Parcel;

(k)           An opinion of counsel for Seller and Lease Guarantor covering such matters as Buyer may reasonably request; and

(l)           Other documents and certificates reasonably requested by Buyer.

In addition, Buyer’s obligation hereunder to purchase the Property shall be conditioned on the receipt by Buyer of the following, each of which shall be in form and substance satisfactory to Buyer:

(a)           An appraisal for the Parcel that meets the requirements of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and which shows that the fair market value of the Parcel is not less than the Purchase Price therefor, plus any transaction costs funded by Buyer;

(b)           A Phase I Environmental Assessment for the Parcel and, if recommended in such Phase I Environmental Assessment, a Phase II Environmental Assessment by an environmental services firm satisfactory to Buyer; and

(c)           A property condition report for the Parcel conducted by an engineering firm satisfactory to Buyer.

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At Closing, Buyer shall execute and/or deliver to Seller (i) an original of the Lease and the memorandum of Lease, (ii) a transfer tax declaration (or similar instruments as may be required by law), (iii) the Purchase Price for such Parcel, and (iv) any other document or instrument reasonably required by Seller.

Seller shall pay 100% of the cost of all recordation, transfer and intangible taxes imposed on the warranty deed for the Property and the Lease and the cost of recording any title curative documents, including, without limitation, satisfactions of deeds to secure debt, mortgages and deeds of trust, and financing statement terminations.  At Closing, Seller shall pay for (i) Buyer’s owner’s title insurance premium (including all endorsements requested by Buyer that are legally available in the related jurisdiction) for the policy issued pursuant to the Commitment, and title search costs, (ii) the cost of the New Survey, (iii) the cost of the environmental audits, the appraisal and the property condition report conducted on behalf of Buyer for the Parcel, (iv) all costs and fees of the Escrow Agent, and (v) Seller’s legal expenses.  Buyer shall be responsible for its own legal expenses incurred in connection with the Closing.  The Closing and delivery of all such documents shall take place as shall be mutually agreeable to the parties.  Seller agrees to deliver possession of the Parcel to Buyer on the Date of Closing, subject only to rights of Seller, as tenant, under the Lease.

6.            Lease .  The Parcel shall be leased to Seller under a net lease in form substantially identical to that attached hereto as Exhibit B .

7.            Termination .  If Closing does not occur on or before the Date of Closing, time being of the essence, and (i) all of the conditions precedent to Buyer’ obligation to close set forth in this Agreement have been satisfied and (ii) Seller is not in breach of any of its obligations to Buyer contained in this Agreement, Seller may terminate this Agreement upon written notice to Buyer.

8.            Income and Expenses of the Property .  Through the Date of Closing, Seller shall pay when due any payments of principal and interest secured by any liens or encumbrances on the Property.  Seller shall be responsible for all expenses of the Property, and shall be entitled to all income from the Property, attributable to the period prior to Closing.  Seller agrees that all expenses related to the Property or otherwise accrued for the period prior to the Date of Closing shall be paid in full by Seller when due.

Seller shall indemnify, defend and hold Buyer harmless from and against any costs, expenses, penalties or damages, including reasonable attorneys’ fees, resulting from any failure by Seller to timely pay or cause to be paid any of the items described in this paragraph 8 that are attributable to the period on or before the Date of Closing.

9.            Title Examination; Title Defects .  The matters listed on Schedule 2 attached hereto are “ Permitted Exceptions .”  From the date of this Agreement (the “ Effective Date ”) Seller shall not consent to, or permit to exist, any encumbrances, easements or other restrictions to be placed on or granted with respect to the Parcel, other than any matters consented to by Buyer in writing and the Permitted Exceptions, without the prior written consent of Buyer (such encumbrances prohibited hereby being “ Seller Encumbrances ”).

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The title exceptions set forth in the Commitment for the Parcel shall reflect only the Permitted Exceptions and any title matters consented to in writing by Buyer.  The Commitment shall include such endorsements as may be reasonably requested by Buyer and that are available in the applicable jurisdiction.  Seller shall have obtained the commitment of the title company to insure the so-called “gap period” at Closing. Seller shall be responsible for satisfying all the requirements of the Commitment on or before the Date of Closing.

At any time before Closing, Buyer may notify Seller of any Seller Encumbrance or other additional title matter affecting the Parcel that Buyer is purchasing that is not a Permitted Exception or any matter shown on the survey of the Parcel, in each case that is not acceptable to Buyer (such being a " Title Defect ").  Seller shall have up to ten (10) business days after receipt of such notice to cure such Title Defect or to provide evidence reasonably satisfactory to Buyer that such Title Defect will be cured or "insured over" at Closing, or to provide notice to Buyer that Seller will not cure such Title Defect.  If requested by Seller, the Closing shall be extended for up to ten (10) business days in order to permit Seller sufficient time to remove such Title Defect.  If Seller fails or refuses to cure such Title Defect or to provide such evidence within the cure period described above, then Buyer may terminate this Agreement upon written notice to Seller of its election to so terminate.

10.            Environmental Defects; Property Condition Defects .  In the event that Buyer discovers any contamination or pollution on the Parcel or any violation of any environmental law, or any noncompliance by Seller or its affiliates with any recommendations set out in the environmental audits conducted on behalf of Buyer by an environmental firm selected by Buyer (the “ Environmental Reports ”), or any other condition or circumstance not acceptable to Buyer with respect to the environmental condition of the Parcel (each such defect or item of noncompliance being an " Environmental Defect "), then Buyer may terminate this Agreement upon written notice to Seller of its election to so terminate.  In the event that Buyer discovers any deferred maintenance or other unsatisfactory condition with respect to the Parcel (each such item, a “ Condition Defect ”), Buyer may notify Seller thereof and Seller shall have up to ten (10) business days after receipt of such notice to cure such Condition Defect or to provide evidence reasonably satisfactory to Buyer that such Condition Defect will be cured in a time frame and in a manner reasonably satisfactory to Buyer, or to provide notice to Buyer that Seller will not cure such Condition Defect.  If requested by Seller, the Closing shall be extended for up to ten (10) business days in order to permit Seller sufficient time to cure such Condition Defect.  If Seller fails or refuses to cure such Condition Defect or to provide such evidence within the cure period described above, then Buyer may terminate this Agreement upon written notice to Seller of its election to so terminate.

11.            Inspections .  Buyer and its representatives shall have the right from and after the Effective Date to enter upon the Property during Seller’s normal business hours for the purpose of conducting such inspections, tests and investigations of the Property as it may desire.  Notwithstanding the foregoing, Buyer (a) shall not unreasonably interfere with, interrupt or disrupt the operation of Seller’s business on the Property, (b) shall not cause any construction, mechanic’s or materialman’s liens or other liens to attach to the Property or any portion thereof by reason of the performance of any work or the purchase of any materials by Buyer or any other party in connection with the studies or tests conducted on the Property, (c) shall give Seller not less than 24 hours notice prior to entry onto the Property by Buyer (unless such notice is waived by Seller) or any other party directed by Buyer and shall permit Seller to have a representative present during all investigations and inspections conducted with respect to the Property, and (d) shall take all reasonable actions to ensure that all actions taken in connection with the investigations and inspections of the Property, and all equipment, materials and substances generated, used or brought onto the Property pose no threat to the safety of persons or the environment and cause no material damage to the Property, Seller or other persons.  Buyer agrees to indemnify and hold Seller harmless from and against any liens, claims, actions, charges, damages, expenses (including, without limitation, reasonable attorneys’ fees and court costs) and liabilities incurred through, and agrees to make any repairs to the Property arising out of damage resulting from (and Seller agrees to provide Buyer and its agent, contractors and representative access to the Property to make such repairs), the exercise by Buyer and its agents, contractors, or representatives, of the privilege granted in this paragraph, except to the extent attributable to Seller’s, or Seller’s affiliate’s, gross negligence or willful misconduct.  Seller agrees to promptly notify Buyer of any such claim or potential claim, and agrees that Buyer shall have the right to control the defense of any such claim.  The obligations under this paragraph 11 shall survive termination of this Agreement.

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12.            Broker’s/Advisor’s Fees .  Seller represents and warrants to Buyer, and Buyer represents and warrants to Seller, that no brokers' or real estate commissions or similar fees will be due as a result of Seller’s or Buyer’s, as the case may be, retention of, or obligation to, any broker or agent in connection with Closing the sale of the Property.  Each party agrees to indemnify the other against any cost and expense (including reasonable attorneys' fees) incurred by the other as a result of the untruthfulness or inaccuracy of the foregoing representation.

13.            Representations, Warranties by Seller .  Seller represents to Buyer that:

(a)           Seller has all requisite power and authority to execute this Agreement, the Lease, the Closing Documents listed in paragraph 5 and all other documents required to be delivered by Seller, and to assume and perform all of its obligations under this Agreement, the Lease and such Closing Documents.  The execution of this Agreement and the Lease by Seller, and the performance by Seller of its obligations hereunder and thereunder, do not require the consent of any third party, including any governmental authority.

(b)           The execution and delivery of this Agreement and the Lease, and the performance by Seller of its obligations hereunder and thereunder, have been duly authorized by such corporate action as may be required, and the execution and delivery of this Agreement and the Lease, and the sale and leaseback of the Property do not and will not violate, or create a lien pursuant to, the organizational documents of Seller, any judgment, order, agreement, indenture or contract to which Seller is a party, or any law, ordinance, rule or regulation applicable to Seller, or by which Seller is bound.  Upon execution by Seller, this Agreement, the Lease and the other documents and agreements to be executed by Seller in connection with the transactions contemplated by this Agreement, shall constitute the legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms, subject to general equitable principles and to applicable bankruptcy, insolvency, reorganization and similar laws affecting the enforcement of creditors’ rights generally.
 
(c)           Seller is a corporation duly organized, validly existing and in good standing under the laws of Tennessee.  Seller has full power and authority to own, sell and lease the Property and enter into this Agreement and the Lease.

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(d)           There will be no leasing commissions payable with respect to the Lease.

(e)           There shall be no service, maintenance, property management, leasing or other contracts affecting the Property in existence as of the Date of Closing to which either Buyer or the Property shall be bound or be subject after the Closing, except for those that have been disclosed in writing by Seller to Buyer and (i) which will be the obligations of Seller, as tenant under the Lease (and not obligations of Buyer), and (ii) which are terminable by Buyer without penalty or cost on no more than thirty (30) days’ notice.  Neither Seller nor the Property is subject to any obligation or agreement, including any right of first refusal, which could prevent Seller from completing the sale of the Property to Buyer under this Agreement.

(f)           There is no action, suit, proceeding, litigation, administrative agency action, condemnation proceeding or proceeding of any kind pending or, to Seller’s knowledge, threatened against Seller affecting or questioning Seller’s title to, right to sell or use, maintenance or operation of the Property, including any requests for public dedication, nor does Seller know of any basis for any such action.  Seller has received no written notice from any governmental agency of any violation by Seller of any law, rule or regulation with respect to Seller’s ownership, use, occupancy maintenance or operation of the Property.

(g)           To Seller’s knowledge, (1) the Property does not contain any “Hazardous Materials” (as defined below) in violation of any applicable “Environmental Laws” (as defined below), (2) the Property is not subject to federal, state or local regulations or liability because of the presence of stored, leaked, spilled or disposed petroleum products, waste materials or debris, underground storage tanks, “PCBs” or PCB items (as defined in 40 C.F.R. §761.3), “asbestos” (as defined in 40 C.F.R. §763.63), or the past or present accumulation, treatment, storage, disposal, spillage or leakage of any Hazardous Materials; (3) no portion of the Land has been used for the disposal of Hazardous Materials nor have any wetlands or tidal waters, as those terms are defined in 33 C.F.R. §328.3 been filled in violation of any Environmental Laws; and (4) no Hazardous Materials have been generated, treated, stored, recycled, transported, released, discharged, emitted, disposed of or otherwise handled at, on or under the Property except in de minimis quantities stored, used and disposed of in accordance with applicable Environmental Laws.  Seller further represents to Buyer that the Property shall be maintained in the condition represented above through the Date of Closing.  As used in this paragraph 14(g) , the term “ Hazardous Materials ” shall mean any contaminant, oil, petroleum or petroleum by-product, asbestos or asbestos-related products, hazardous wastes, hazardous substances, hazardous materials, toxic substances, hazardous air pollutants or toxic pollutants, as those terms are defined in Environmental Laws;  the term “ Environmental Laws ” shall mean the Resource Conservation and Recovery Act (42 U.S.C.A. §§6901 et seq. ), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C.A. §§9601 et seq. ), the Hazardous Materials Transportation Act (42 U.S.C.A. §§1801 et seq. ), the Toxic Substances Control Act (15 U.S.C.A. §§2601 et seq. ), the Clean Air Act (42 U.S.C.A. §§7401 et seq. ), and the Clean Water Act (33 U.S.C.A. §§1251 et seq. ), any amendments thereto, and any regulations promulgated pursuant thereto, and any other federal, state or local laws dealing with the environment, health or safety related to the environment or any other state or local law, regulation or ordinance relating to the foregoing matters.

7

(h)           All buildings and improvements on the Land constituting a portion of the Property fully conform with all applicable zoning ordinances and regulations (as modified by any “special exceptions” or “special use permits” or the like), building, health, fire and safety codes and restrictions and other laws, ordinances, rules and regulations except to a de minimis extent not materially and adversely affecting the use, occupancy, maintenance, ownership, marketability, operation, value or mortgageability of the Property, and are located entirely within the boundaries of the Land.

(i)           No assessments or charges for any public improvements have been made against the Property which remain unpaid, except as may be shown in the title commitment for the Property, and Seller has no knowledge of any plans for improvements which might give rise to a special assessment.

Seller hereby agrees that the truthfulness of each of the foregoing representations is a condition precedent to the performance by Buyer of its obligations under this Agreement.  Upon the material breach by Seller of any representation made in this Agreement or the failure to occur of any condition to Buyer’s obligation to Close, and if Seller has failed to cure such breach or condition within ten (10) business days of receipt of written notice of such breach or condition from Buyer, Buyer may, at its option prior to the Date of Closing, terminate this Agreement.

15.            Representations, Warranties by Buyer .  Buyer represents to Seller that Buyer has all requisite power and authority to execute this Agreement and the Lease, that the execution and delivery of this Agreement and the Lease, and the performance by Buyer of its obligations hereunder and thereunder have been duly authorized by such action as may be required, that no further action or approval is required in order to constitute this Agreement as a binding and enforceable obligation of Buyer, and that Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware.

16.            Defaults .  Upon the breach by Seller of any of the representations contained in this Agreement, or the default by Seller in the performance of any other obligation of Seller set forth in this Agreement, and, in each case, Seller has failed to cure such breach or default within ten (10) business days after written notice from Buyer, Buyer may exercise all remedies available to it, including any or all of the following: (a) Buyer may terminate this Agreement by delivery of written notice to Seller; and (b) Buyer may institute proceedings in any court of competent jurisdiction to specifically enforce the performance by Seller of the terms of this Agreement.  In addition, Seller shall be responsible for the payment of, or reimbursement of Buyer for, all reasonable costs and expenses incurred by Buyer in connection with the transaction contemplated by this Agreement, including all reasonable legal fees and expenses, and all costs for the New Survey, the environmental audits of the Parcel, the appraisal and the property condition report for the Parcel.

If Buyer defaults in the performance of any of its obligations under this Agreement, Seller shall be entitled to receive and retain from Buyer copies of all surveys, inspections, evaluations and other reports on the Property prepared by or for Buyer and neither party shall have any other claim against the other.

8

17.            Damage, Destruction and Eminent Domain .

 (a)           If, prior to the Date of Closing, the Parcel or any part thereof is damaged or destroyed by fire, the elements or any other destructive force or cause to the extent that repairing such damage or destruction is reasonably estimated to cost Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) or more, then, within a reasonable time of any such damage or destruction, Seller shall give a written notice to Buyer specifying the insurance carrier's estimate of the amount of insurance payable as the result of such damage or destruction.  Within ten (10) business days after Buyer has received the written notice described in the preceding sentence, Buyer may elect to terminate this Agreement by delivery of written notice to Seller.  If Buyer elects to consummate the purchase despite the damage or destruction, or if any lesser damage or destruction has occurred, there shall be no reduction in or abatement of the Purchase Price, and the parties shall treat such casualty damage as having occurred during the term of the Lease.

 (b)           If, prior to the Date of Closing any judicial, administrative, or other condemnation proceedings are instituted or threatened in which a taking of the Parcel is proposed that exceeds Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00)   in value, including any consequential damages to the Parcel, then within a reasonable time of receipt by it or notice of the institution of any judicial, administrative, or other condemnation proceedings involving the Parcel, Seller shall give a written notice to Buyer.  Within ten (10) business days after Buyer has received the written notice described in the preceding sentence, Buyer may elect to terminate this Agreement, by delivery of written notice to Seller.  If Buyer elects to consummate the purchase despite the institution of condemnation proceedings, or if it appears that the value of the proposed taking, including any consequential damages to the Property, shall total less than Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00),   there shall be no reduction in or abatement of the Purchase Price, and the parties shall treat such condemnation as having occurred during the term of the Lease.

18.            Assignment .  Buyer may not assign this Agreement without prior written consent of Seller, except that Buyer may assign this Agreement to SunTrust Equity Funding, LLC, or a wholly owned subsidiary of, or other entity controlled by, SunTrust Equity Funding, LLC.

19.            Notices .  Any notice, demand, communication or election required or permitted to be given or served upon either party shall be deemed given or served in accordance with the provisions of this Agreement, if the notice or election is delivered by (i) facsimile which shall be deemed received if a confirmation is received by the sender during normal business hours, (otherwise deemed to be received during the next business day), (ii) overnight air courier, or (iii) personal delivery to or by mailing the notice or election in a sealed wrapper by United States registered or certified mail, return receipt requested, postage prepaid, properly addressed as follows:


 
If to Buyer:
c/o SunTrust Equity Funding, LLC
 
   
303 Peachtree Street, 24 th Floor
 
   
Mail Code 3951
 
   
Atlanta, GA 30308
 
   
Attention:  Allison McLeod
 
   
Facsimile:  404-230-1344
 

9

 
With a copy to:
Greenberg Traurig, LLP
 
   
77 West Wacker Drive, Suite 2500
 
   
Chicago, IL  60601
 
   
Attention:  Julia Sarron
 
   
Facsimile: 312-899-0396
 
       
 
If to Seller:
Covenant Transport, Inc.
 
   
400 Birmingham Highway
 
   
Chattanooga, TN  37419
 
   
Attention:  Joey B. Hogan
 
   
Facsimile:  423-821-5442
 
       
 
With a copy to:
Scudder Law Firm, P.C., L.L.O.
 
   
411 S. 13 th Street
 
   
Lincoln, NE  68508
 
   
Attention:  Mark Scudder
 
   
Facsimile:  402-435-4239
 

Each such mailed notice or communication shall be deemed to have been given to or served upon the party to which addressed within three business days after the date the notice is deposited in the United States registered or certified mail, return receipt requested, postage prepaid, properly addressed in the manner provided above.  Each such delivered notice or communication shall be deemed to have been given to or served upon the party to whom delivered, upon the delivery thereof in the manner provided above.  Either party may change its address for the service of notice by delivering written notice of the change to the other party, in the manner provided above at least five (5) business days prior to the effective date of the change.

20.            Time of the Essence .  Time shall be of the essence in the performance of all obligations under this Agreement.  If the time period by which any right, option or election provided under this Agreement must be exercised, or by which any act required under this Agreement must be performed, or by which Closing must be held, expires on a Saturday, Sunday or a holiday, then such time period shall be automatically extended to the next business day, except as otherwise provided herein.

21.            Captions .  The paragraph headings or captions appearing in this Agreement are for convenience only, are not a part of this Agreement and are not to be considered in interpreting this Agreement.

22.            Entire Agreement, Modification .  This Agreement and its Exhibits constitute the entire and complete agreement between the parties and supersedes any prior oral or written agreements between the parties with respect to the Property.  It is expressly agreed that there are no verbal understandings or agreements which in any way change the terms, covenants and conditions set forth in this Agreement, and that no modification of this Agreement and no waiver of any of its terms and conditions shall be effective unless it is made in writing and duly executed by both parties hereto.

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23.            Binding Effect .  All covenants, agreements and provisions of this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns.

24.            Controlling Law .  This Agreement has been made and entered into under the laws of the State of Tennessee, and those laws shall control the interpretation of this Agreement.

25.            Counterpart and Facsimile .  This Agreement may be executed and delivered with the exchange by facsimile or overnight air courier of separate signature pages.

26.            Waiver of Jury Trial .   SELLER AND BUYER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL UNDER THE LAWS OF THE STATE OF TENNESSEE OR OTHERWISE OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS AMONG BUYER OR SELLER RELATING TO THE SUBJECT MATTER OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED AMONG BUYER AND SELLER.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS).  THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY RELATED TRANSACTIONS.  IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 
 
11

 
       IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed as of the day and year first above written.

 
SELLER:
   
 
COVENANT TRANSPORT, INC., a Tennessee corporation
   
 
By:
/s/ Joey B. Hogan
 
Name:
Joey B. Hogan
 
Title:
EVP/CFO

 

 
S-1

 
 
 
BUYER:
   
 
CT CHATTANOOGA TN, LLC , a Delaware limited liability company
   
 
By:
SunTrust Equity Funding, LLC, its manager
     
 
By:
/s/R. Todd Shutley
 
Name:
R. Todd Shutley
 
Title:
Senior Vice President and Manager

 

 
S-2

 

EXHIBIT A
 
PROPERTY DESCRIPTION
 
BEING A PART of the Covenant Transport, Inc. property described in Deed Book 4443, Page 260, of the Register’s Office of Hamilton County, Tennessee, located in the City of Chattanooga, Hamilton County, Tennessee, and being more particularly described as follows:

BEGINNING AT AN OLD PIPE, said point being in the line dividing Sections Thirteen (13) and Fourteen (14), Township Two (2) South, Range Five (5), West of the Basis Line, Ocoee District, the said iron pipe also marking the Northwestern corner of Lot 24, Interchange City, as shown on plat recorded in Plat Book 34, Page 22, in the Register’s Office of Hamilton County, Tennessee, said point also being in the Southern right-of-way of New Cummings Road; thence South 24 degrees 38 minutes 31 seconds West, along the dividing line of said Sections 13 and 14, a distance of 2,285.13 feet to a 5/8 inch rebar with cap set; thence leaving said Section, North 46 degrees 32 minutes 46 seconds West, a distance of 1,582.91 feet to an old rebar found, said point being in the Eastern right-of-way of U.S. Highway No. 11 (Birmingham Highway); thence, as follows; with a curve to the right, said curve having a delta angle of 04 degrees 41 minutes 18 seconds, a radius of 5,690.00 feet, a length of 465.58 feet, and a chord of North 43 degrees 11 minutes 06 seconds East, 465.45 feet to a mag nail set; thence South 44 degrees 28 minutes 15 seconds East, a distance of 50.00 feet to a 5/8 inch rebar with cap set; thence, with a curve to the right, said curve having a delta angle of 05 degrees 41 minutes 23 seconds, a radius of 5,643.85 feet, a length of 560.46 feet to a 5/8 inch rebar with cap set, said point being the end point of said curve; thence North 51 degrees 13 minutes 15 seconds East, a distance of 60.81 feet to a 5/8 inch rebar with cap set; thence, leaving said right-of-way crossing the Covenant Transport, Inc. property, South 78 degrees 34 minutes 19 seconds East, a distance of 92.12 feet, to a 5/8 inch rebar with cap set; thence South 68 degrees 35 minutes 08 seconds East, a distance of 147.50 feet, to a 5/8 inch rebar with cap set; thence South 74 degrees 19 minutes 42 seconds East, a distance of 225.85 feet, to a 5/8 inch rebar with cap set; thence North 34 degrees 00 minutes 05 seconds East, a distance of 431.88 feet, to a 5/8 inch rebar with cap set; thence North 72 degrees 56 minutes 18 seconds East, a distance of 53.57 feet to a 5/8 inch rebar with cap set; thence South 66 degrees 11 minutes 11 seconds East, a distance of 271.94 feet, to a 5/8 inch rebar with cap set; thence South 85 degrees 56 minutes 14 seconds East, a distance of 56.12 feet, to a 5/8 inch rebar with cap set; thence North 50 degrees 53 minutes 23 seconds East, a distance of 51.03 feet, to a 5/8 inch rebar with cap set; thence North 29 degrees 48 minutes 32 seconds East, a distance of 193.24 feet, to a 5/8 inch rebar with cap set, said point being in the Southern right-of-way of New Cummings Road; thence South 63 degrees 18 minutes 12 seconds East, along said right-of-way, a distance of 116.36 feet, to the POINT OF BEGINNING.  All as shown on that Survey prepared by Wesley M. James, R.L.S. Tennessee No. 811, dated January 26, 2006.

Being a portion of the property conveyed to Covenant Transport, Inc., a Tennessee Corporation, by Warranty Deed from John C. Grant, Jr., unmarried, only child and sole heir at law of John C. Grant, recorded December 14, 1994 in Book 4443, Page 260, in the Register’s Office of Hamilton County, Tennessee.



 

 

EXHIBIT B

FORM OF LEASE
 
(Incorporated by reference to Exhibit 10.5 to this Form 10-K)

 

 

EXHIBIT C

FORM OF LEASE GUARANTY

(Incorporated by reference to Exhibit 10.20 to Covenant Transportation Group, Inc.'s
Report on Form 8-K, filed April 7, 2006 (SEC Commission File No. 0-24960))

 

 
SCHEDULE 1
 
SELLER INFORMATION DELIVERED BEFORE CONTRACT EXECUTION
 
None

 

 

 

SCHEDULE 2
 
PERMITTED EXCEPTIONS AT CONTRACT EXECUTION
 
 
1.  
Any discrepancies or conflicts in boundary lines, any shortages in area, or any encroachment or overlapping of improvements.

2.  
Any facts, rights, interest or claims which are not shown by the public record but which could be ascertained by an accurate survey of the land or by making inquiry of persons in possession thereof.

 
3.  
Easements, liens or encumbrances or claims thereof, which are not shown by the public record.

 
4.  
Any lien, or right to a lien, for services, labor or material imposed by law and not shown by the public record.

 
5.  
Taxes for the year 2006 and thereafter for tax parcel number 165-010 , not yet due and payable.

 
 
Back to Form 10-K
 

 

 


Exhibit 10.5






*AGREEMENT PREVIOUSLY FILED*
*RE-FILED TO INCLUDE ALL EXHIBITS, SCHEDULES, AND ATTACHMENTS*
 


LEASE AGREEMENT
 


dated as of April 3, 2006
 


between
 


CT CHATTANOOGA TN, LLC,
as Landlord
 


and
 


COVENANT TRANSPORT, INC. ,
a Tennessee corporation,
 
as Tenant
 


 

 

Table of Contents
 

1.
Certain Definitions
1
     
2.
Demise of Premises
1
     
3.
Title and Condition
1
     
4.
Use of Leased Premises; Quiet Enjoyment
3
     
5.
Term.
4
     
6.
Rent
4
     
7.
Net Lease; Non-Terminability
5
     
8.
Payment of Impositions; Compliance with Legal Requirements and Insurance Requirements.
6
     
9.
Liens; Recording and Title
8
     
10.
Indemnification
9
     
11.
Maintenance and Repair
11
     
12.
Alterations
12
     
13.
Condemnation
13
     
14.
Insurance
14
     
15.
Restoration
18
     
16.
Subordination to Financing
19
     
17.
Assignment, Subleasing
20
     
18.
Permitted Contests
21
     
19.
Conditional Limitations; Default Provisions
21
     
20.
Additional Rights of Landlord and Tenant
24
     
21.
Notices
25
     
22.
Estoppel Certificates
26
     
23.
Surrender and Holding Over
26
     
24.
No Merger of Title
27
     
25.
Definition of Landlord
27
     
26.
Hazardous Substances
27
     
27.
Entry by Landlord
28
     
28.
No Usury
28
     
29.
Financial Statements
28
     
30.
Special Tax Indemnity
28
     
 
i

31.
Withholdings
30
     
32.
Representations
31
     
33.
Duty of First Offer
33
     
34.
Separability
34
     
35.
Miscellaneous
34

 

 
   

 
ii

 


EXHIBITS


EXHIBIT A
Legal Description
EXHIBIT B
Basic Rent
EXHIBIT C
Form of Tenant Estoppel
EXHIBIT D
Form of Landlord Waiver
EXHIBIT E
Form of Subordination, Non-Disturbance and Attornment Agreement
   
APPENDIX A
Definitions


 
   

 
iii

 

 
LEASE AGREEMENT
 
THIS LEASE AGREEMENT (as amended, supplemented and otherwise modified from time to time, this “ Lease ”) made as of April 3, 2006 by and between CT CHATTANOOGA TN, LLC, a Delaware limited liability company, as landlord, having an office at c/o SunTrust Equity Funding, LLC, 303 Peachtree Street, 24 th Floor, MC 3951, Atlanta, Georgia  30308, and COVENANT TRANSPORT, INC., a Tennessee corporation, as tenant, having an office at 400 Birmingham Highway, Chattanooga, TN  37419.

In consideration of the rents and provisions herein stipulated to be paid and performed, Landlord and Tenant, intending to be legally bound, hereby covenant and agree as follows:

1.     Certain Definitions .   All capitalized terms, unless otherwise defined herein, shall have the respective meanings ascribed to such terms in Appendix A annexed hereto and by this reference incorporated herein.

2.     Demise of Premises .   Landlord hereby demises and lets to Tenant and Tenant hereby takes and leases from Landlord, for the Term and upon the provisions hereinafter specified, the Leased Premises.

3.     Title and Condition .

(a)          The Leased Premises are demised and let subject to (i) Permitted Encumbrances, (ii) all Legal Requirements and Insurance Requirements, including any existing violation of any thereof, and (iii) the condition of the Leased Premises as of the commencement of the Term; without representation or warranty by Landlord; it being understood and agreed, however, that the recital of the Permitted Encumbrances herein shall not be construed as a revival of any thereof which for any reason may have expired.

(b)           LANDLORD HAS NOT MADE AND WILL NOT MAKE ANY INSPECTION OF ANY OF THE LEASED PREMISES, AND LANDLORD LEASES AND WILL LEASE AND TENANT TAKES AND WILL TAKE THE LEASED PREMISES “AS IS”, AND TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO ITS FITNESS FOR USE OR PURPOSE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, AS TO LANDLORD’S TITLE THERETO, OR AS TO VALUE, COMPLIANCE WITH SPECIFICATIONS, LOCATION, USE, CONDITION, MERCHANTABILITY, QUALITY, DESCRIPTION, DURABILITY OR OPERATION, IT BEING AGREED THAT ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY TENANT. Tenant acknowledges that the Leased Premises are of its selection and to its specifications, and that the Leased Premises have been inspected by Tenant and are satisfactory to it.  In the event of any defect or deficiency in any of the Leased Premises of any nature, whether patent or latent, Landlord shall not have any responsibility or liability with respect thereto or for any incidental or consequential damages (including strict liability in tort).  The provisions of this Paragraph 3(b) have been negotiated, and the foregoing provisions are intended to be a complete exclusion and negation of any warranties by Landlord, express or implied, with respect to any of the Leased Premises, arising pursuant to the Uniform Commercial Code or any other law now or hereafter in effect or otherwise.


(c)           Tenant acknowledges and agrees that Tenant has examined the title to the Leased Premises prior to the execution and delivery of this Lease and has found such title to be satisfactory for the purposes contemplated by this Lease.

(d)           Landlord hereby assigns, without recourse or warranty whatsoever, to Tenant, all Guaranties.  Such assignment shall remain in effect until the termination of this Lease. Landlord shall also retain the right to enforce any Guaranties assigned to Tenant hereunder in the name of Tenant during the continuance of any Event of Default.  Landlord hereby agrees to execute and deliver, at Tenant’s expense, such further documents, including powers of attorney, as Tenant may reasonably request in order that Tenant may have the full benefit of the assignment effected or intended to be effected by this Paragraph 3(d) .  Upon the termination of this Lease, the Guaranties shall automatically revert to Landlord, provided that, to the extent that Tenant has incurred out-of-pocket costs and expenses to replace or repair any part of the Leased Premises for which there is a claim under a Guaranty, Tenant shall be subrogated to Landlord’s rights under such Guaranty to the extent of such costs and expenses, and, at Tenant’s reasonable request, Landlord shall cooperate with Tenant, at Tenant’s expense, to recover such claim.  The foregoing provision of reversion shall be self-operative and no further instrument of reassignment shall be required.  In confirmation of such reassignment Tenant shall execute and deliver promptly any certificate or other instrument which Landlord may reasonably request.  Any monies collected by Tenant under any of the Guaranties after the occurrence of and during the continuation of an Event of Default shall be held in trust by Tenant and promptly paid over to Landlord.

(e)           Landlord agrees to enter into, at Tenant’s expense, such Easements as are reasonably requested by Tenant, subject to Lender’s and Landlord’s approval of the form thereof, not to be unreasonably withheld or delayed; provided, however, that no such Easement shall result in any diminution in the value or utility of the Leased Premises for use as an office building, truck terminal and truck maintenance facility and related purposes and further provided that no such Easement shall render the use of the Leased Premises dependent upon any other property, or condition the use of the Leased Premises upon the use of any other property, each of which Tenant shall certify to Landlord and Lender in writing delivered with Tenant’s request with respect to such Easement.  Tenant’s request shall also include Tenant’s written undertaking acknowledging that Tenant shall remain liable hereunder as principal and not merely as a surety or guarantor notwithstanding the establishment of any Easement. Except as expressly permitted by this Lease, Landlord shall not enter into any Easements, REA’s, restrictive covenants or other matters affecting title to the Leased Premises without the prior consent of Tenant, which shall not be unreasonably withheld or delayed.

 
2

 

(f)           Tenant agrees that Tenant is obligated to and shall perform all obligations of the owner of the Leased Premises under, and pay all expenses which the owner of the Leased Premises may be required to pay in accordance with, any REA, and that Tenant shall comply with all of the terms and conditions of each REA during the term of this Lease.  Tenant further covenants and agrees to indemnify, defend and hold harmless Landlord and Lender against any claim, loss or damage suffered by Landlord or Lender by reason of Tenant’s failure to perform any obligations or pay any expenses as required under any REA or comply with the terms and conditions of any REA as hereinabove provided during the term of this Lease.

4.     Use of Leased Premises; Quiet Enjoyment .

(a)           Tenant may use the Leased Premises as an office building, truck terminal and truck maintenance facility or any other lawful purpose, so long as such other purpose would not (i) have a material adverse effect on the value or utility of the Leased Premises, (ii) materially increase the likelihood that Tenant, Landlord or Lender would incur liability under any provisions of any Environmental Laws, (iii) result in or give rise to any material environmental deterioration or degradation of the Leased Premises or (iv) result in the Leased Premises constituting “limited use property” within the meaning of Revenue Procedure 2001-28, 2001-19 I.R.B. 1156.  In no event shall the Leased Premises be used for any purpose which shall violate any of the provisions of any Permitted Encumbrance or any covenants, restrictions or agreements hereafter created by or consented to by Tenant applicable to the Leased Premises.  Tenant agrees that with respect to the Permitted Encumbrances and any covenants, restrictions or agreements hereafter created by or consented to by Tenant, Tenant, at its expense, shall observe, perform and comply with and carry out the provisions thereof required therein to be observed and performed by Landlord or Tenant.   Landlord acknowledges and agrees that for so long as this Lease is in full force and effect, Tenant shall have the right to enforce all of Landlord’s rights and to enjoy all benefits and privileges under the Permitted Encumbrances.  Landlord shall reasonably cooperate with Tenant, at Tenant’s expense, in promptly providing any consents or approvals that may be required by any third party in connection with Tenant’s enforcement of Tenant’s or Landlord’s rights under the Permitted Encumbrances.  Landlord further agrees to execute and deliver, at Tenant’s expense, such further documents, including powers of attorney, as Tenant may reasonably request in order that Tenant may enjoy all rights, benefits and privileges under the Permitted Encumbrances.

(b)           Subject to Tenant’s rights under Paragraph 18 hereof, Tenant shall not knowingly permit any unlawful occupation, business or trade to be conducted on the Leased Premises or any use to be made thereof contrary to applicable Legal Requirements or Insurance Requirements.  Subject to Tenant’s rights under Paragraph 18 , Tenant shall not use, occupy or knowingly permit any of the Leased Premises to be used or occupied, nor do or knowingly permit anything to be done in or on any of the Leased Premises, in a manner which would (i) make void or voidable any insurance which Tenant is then maintaining in force with respect to any of the Leased Premises as required hereunder, (ii) affect the ability of Tenant to obtain any insurance which Tenant is required to furnish hereunder, (iii) cause any injury or damage to any of the Improvements unless as a result of Alterations permitted under Paragraph 12 hereof or (iv) result in Landlord being subject to any burdensome regulation.  Tenant shall operate the Leased Premises in accordance, in all material respects, with all applicable laws, rules and regulations, including, without limitation, taking all such actions as may be necessary to permit the Leased Premises to be operated as an office building, truck terminal and truck maintenance facility.

 
3

 

(c)           Subject to all of the provisions of this Lease, so long as no Event of Default exists hereunder, Landlord covenants to do no act to disturb the peaceful and quiet occupation and enjoyment of the Leased Premises by Tenant.

(d)           Tenant covenants and agrees to remain in actual physical possession of the Leased Premises and to continuously operate its business in the Leased Premises, subject to Tenant’s rights under Paragraph 17 hereof.

5.     Term .

(a)           Subject to the provisions hereof, Tenant shall have and hold the Leased Premises for an initial term commencing on the Commencement Date and ending on the Expiration Date.

(b)           Provided (i) this Lease shall not have been terminated pursuant to the provisions of Paragraph 13(b) or 19 , and (ii) an Event of Default has not occurred and remains uncured, in each case on the applicable date of its Renewal Option Notice and on the Expiration Date (or the expiration date of the then expiring Renewal Term, as applicable), Tenant shall have eight (8) consecutive options to extend the term of this Lease for a Renewal Term, commencing upon the day after the Expiration Date (or the expiration date of the then expiring Renewal Term, as applicable).  If Tenant elects to exercise any one or more of said renewal options, it shall do so by giving a Renewal Option Notice to Landlord at any time during the Term (or the then Renewal Term, as applicable) but, in any event, on or before that date which is twelve (12) months prior to the commencement of the Renewal Term for which such election is exercised.  Tenant shall forever waive its right to exercise a renewal option if it shall, for any reason whatsoever, fail to give such Renewal Option Notice to Landlord within the time and in the manner provided for the giving of such notice, whether such failure is inadvertent or intentional, TIME BEING OF THE ESSENCE as to the exercise of such renewal option and the giving of such notice.  If Tenant shall elect to exercise any such renewal option, the term of this Lease shall be automatically extended for five (5) years without the execution of an extension or renewal lease.  Any Renewal Term shall be subject to all of the provisions of this Lease, and all such provisions shall continue in full force and effect.  Within ten (10) days after request by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an instrument confirming that such option has been effectively exercised, confirming the extended expiration date of this Lease and confirming the Basic Rent for the Renewal Term.

6.     Rent .

(a)           Tenant shall pay to Landlord (or to such Person as is directed by Landlord), as rent for the Leased Premises, beginning on the Commencement Date and continuing for the Term, the Basic Rent in advance, on the Basic Rent Payment Dates, and shall pay the same by wire transfer in immediately available federal funds to such account in such bank as Landlord shall designate from time to time.  If the Commencement Date shall occur on a date other than the first day of a calendar month, Basic Rent for the period from and including the Commencement Date through and excluding the first day of the following month shall be paid on the Commencement Date in the amount equal to one thirtieth (1/30) of the monthly Basic Rent for the first year set forth on Exhibit B attached hereto for each day from and including the Commencement Date through and excluding the first day of the following month.

 
4

 

(b)           Subject to Tenant’s right to contest in accordance with Paragraph 18 , Tenant shall pay and discharge before the imposition of any fine, Lien, interest or penalty which may be added thereto for late payment thereof, as Additional Rent, all other amounts and obligations which Tenant assumes or agrees to pay or discharge pursuant to this Lease, together with every fine, penalty, interest and cost which may be added by the party to whom such payment is due for nonpayment or late payment thereof. In the event of any failure by Tenant to pay or discharge any of the foregoing, Landlord shall have all rights, powers and remedies provided herein, by law or otherwise, in the event of nonpayment of Basic Rent.  All payments of Additional Rent that are payable to Landlord shall be paid by Tenant by wire transfer in immediately available federal funds to such account in such bank as Landlord shall designate, from time to time.

(c)           If any installment of Basic Rent is not paid after the same is due, Tenant shall pay to Landlord or Lender, as the case may be, on demand, as Additional Rent, an amount equal to the late charge or late fee, if any, charged by, and due and owing to, Lender under the Mortgage pursuant to the terms of the Mortgage.

(d)           Landlord and Tenant agree that this Lease is a true lease and does not represent a financing arrangement.  Each party shall reflect the transactions represented by this Lease in all applicable books, records and reports (including, without limitation, income tax filings) in a manner consistent with “true lease” treatment rather than “financing” treatment.

7.     Net Lease; Non-Terminability .

(a)           This is a net lease and Basic Rent, Additional Rent and all other sums payable hereunder by Tenant shall be paid, except as otherwise expressly set forth in this Lease, without notice, demand, setoff, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction, reduction or defense.

(b)           Except as otherwise expressly provided in this Lease, this Lease shall not terminate, and Tenant shall not have any right to terminate this Lease, during the Term.  Except as otherwise expressly provided in this Lease, Tenant shall not be entitled to any setoff, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction, reduction or defense of or to Basic Rent, Additional Rent or any other sums payable under this Lease; and except as otherwise expressly provided in this Lease, the obligations of Tenant under this Lease shall not be affected by any interference with Tenant’s use of any of the Leased Premises for any reason, including but not limited to the following:  (i) any damage to or destruction of any of the Leased Premises by any cause whatsoever, (ii) any Condemnation, (iii) the prohibition, limitation or restriction of Tenant’s use of any of the Leased Premises, (iv) any eviction by paramount title or otherwise, (v) Tenant’s acquisition of ownership of any of the Leased Premises other than pursuant to an express provision of this Lease, (vi) any default on the part of Landlord under this Lease or under any other agreement, (vii) any latent or other defect in, or any theft or loss of any of, the Leased Premises, (viii) the breach of any warranty of any seller or manufacturer of any of the Fixtures, (ix) any violation of Paragraph 4(c) by Landlord, or (x) any other cause, whether similar or dissimilar to the foregoing, any present or future Law to the contrary notwithstanding.  It is the intention of the parties hereto that the obligations of Tenant under this Lease shall be separate and independent covenants and agreements, and that Basic Rent, Additional Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events (or, in lieu thereof, Tenant shall pay amounts equal thereto), and that the obligations of Tenant under this Lease shall continue unaffected, unless this Lease shall have been terminated pursuant to an express provision of this Lease, including, without limitation, the provisions of Paragraph 13(b) and Paragraph 14(g) hereof.  Nothing set forth herein shall abrogate Tenant’s rights to pursue a claim for damages against Landlord if Landlord breaches its obligations under this Lease, provided that in no event shall Tenant have any right to offset any such damages against Basic Rent or Additional Rent or to terminate this Lease.

5

(c)           Tenant agrees that it shall remain obligated under this Lease in accordance with its provisions and that, except as otherwise expressly provided herein, it shall not take any action to terminate, rescind or avoid this Lease, notwithstanding (i) the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding-up or other proceeding affecting Landlord, (ii) the exercise of any remedy, including foreclosure, under the Mortgage, or (iii) any action with respect to this Lease (including the disaffirmance hereof) which may be taken by Landlord under the Federal Bankruptcy Code or by any trustee, receiver or liquidator of Landlord or by any court under the Federal Bankruptcy Code or otherwise.

(d)           This Lease is the absolute and unconditional obligation of Tenant.  Tenant waives all rights which are not expressly stated in this Lease but which may now or hereafter otherwise be conferred by law (i) to quit, terminate or surrender this Lease or any of the Leased Premises, (ii) to any setoff, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction, reduction or defense of or to Basic Rent, Additional Rent or any other sums payable under this Lease, except as otherwise expressly provided in this Lease, and (iii) for any statutory Lien or offset right against Landlord or its property.

8.     Payment of Impositions; Compliance with Legal Requirements and Insurance Requirements .

(a)           (i)           Subject to the provisions of Paragraph 18 hereof, Tenant shall, before interest or penalties are due thereon, pay and discharge all Impositions, which payment shall be on an After Tax Basis as to Landlord.  If received by Landlord, Landlord shall promptly deliver to Tenant any bill or invoice with respect to any Imposition.

(ii)           Nothing herein shall obligate Tenant to pay, and the term “ Impositions ” shall exclude, federal, state or local (A) transfer taxes as the result of a conveyance by (or suffered by) Landlord (unless attributable to an Event of Default or such conveyance is to Tenant or a person designated by Tenant), (B) franchise, capital stock or similar taxes if any, of Landlord, except to the extent that such franchise, capital stock or similar taxes would not be payable by Landlord but for Landlord’s interest in the Leased Premises or this Lease, (C) income, excess profits or other taxes, if any, of Landlord, determined on the basis of or measured by its net income, (D) any estate, inheritance, succession, gift, capital levy or similar taxes, unless the taxes referred to in clauses (B) and (C) above are in lieu of, or a substitute for, any other tax or assessment upon or with respect to any of the Leased Premises which, if such other tax or assessment were in effect at the commencement of the Term, would be payable by Tenant, or (E) any Tax that would not have been imposed but for the failure of Indemnitee to comply with certification, information, documentation or other reporting requirements applicable to Indemnitee, if compliance with such requirements is required by statute or regulation of the relevant taxing authority as a precondition to relief or exemption from such Tax, provided that Tenant has complied with its obligations set forth in paragraph (e) below.  In the event that any assessment against any of the Leased Premises may be paid in installments, Tenant shall have the option to pay such assessment in installments; and in such event, Tenant shall be liable only for those installments which become due and payable during the Term.  Tenant shall prepare and file all tax reports required by governmental authorities which relate to the Impositions.  Within twenty (20) days after Landlord’s written request therefor, Tenant shall deliver to Landlord copies of all settlements and notices pertaining to the Impositions which may be issued by any Governmental Authority and receipts for payments of all Impositions made during each calendar year of the Term ( provided that, (i) with respect to receipts for payments, Tenant shall provide them to Landlord promptly upon request, but in any event Tenant shall have no less than thirty (30) days after payment to make such delivery and (ii) Tenant shall provide Landlord with evidence of payment of the property taxes due on May 1, 2006 on or before May 1, 2006).

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(b)           Subject to the provisions of Paragraph 18 hereof, Tenant shall promptly comply with and conform to all of the Legal Requirements and Insurance Requirements.

(c)           Any amount payable to Landlord pursuant to this Paragraph 8 shall be paid within ten (10) days after receipt of a written demand therefor from Landlord accompanied by a written statement describing in reasonable detail the amount so payable.  Any payments required to be made by Tenant pursuant to this Paragraph 8 that are not allowed to be paid directly to the appropriate Governmental Authority or such other Person to whom such payment is due shall be made directly to Landlord at the location and in the manner specified by Landlord pursuant to Paragraph 6 for the payment of Rent. Any amount payable by Tenant under this Paragraph 8 that is not paid to Landlord when due shall bear interest at the Default Rate.  In addition, Tenant shall be solely responsible for the payment of any late fees, penalties or default interest with respect to any amount payable by Tenant under this Paragraph 8 to anyone other than Landlord that is not paid when due.

(d)           If any report, return or statement (a “ Filing ”) is required to be filed with respect to any Imposition that is subject to this Paragraph 8 , Tenant shall, if permitted by Applicable Laws to do so, timely file or cause to be filed such Filing with respect to such Tax and shall promptly provide notice of such filing to Landlord (except for any such Filing that Landlord has notified Tenant in writing that Landlord intends to file) and will (if ownership of the Leased Premises or any part thereof or interest therein is required to be shown on such Filing) show the ownership of the Leased Premises in the name of Landlord and send a copy of such Filing to Landlord.  If Tenant is not permitted by Applicable Laws to file any such Filing, Tenant will promptly notify Landlord of such requirement in writing and prepare and deliver to Landlord a proposed form of such Filing and such information as is within Tenant’s reasonable control or access with respect to such Filing within a reasonable time under the circumstances, and in all events at least five (5) Business Days, prior to the time such Filing is required to be filed.  Tenant shall hold Landlord harmless from and against any liabilities, including, but not limited to penalties, additions to tax, fines and interest, arising out of any insufficiency or inaccuracy in any such Filing, if such insufficiency or inaccuracy is attributable to Tenant.

(e)           Notwithstanding anything herein to the contrary, any obligations of Tenant under the provisions of this Paragraph 8 that accrue prior to the expiration or earlier termination of this Lease shall survive such expiration or earlier termination of this Lease.

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(f)            Until the earlier of (i) the receipt by Landlord of a separate tax parcel number for the Leased Premises and (ii) May 1, 2007, Tenant (A) shall pay when due all Taxes with respect to the approximate 181.2 acre tax parcel of which the Leased Premises is a part (the “ Existing Tax Parcel ”) and shall provide evidence of such payment to Landlord within three (3) Business Days of such payment, (B) shall not construct any improvements on that portion of the Existing Tax Parcel not included in the Leased Premises except for a body shop and such other improvements as shall be instrumental to the construction and/or operation of such body shop, the aggregate construction cost of which shall not exceed $10,000,000, and (C) shall not encumber that portion of the Existing Tax Parcel that is not included in the Leased Premises with any Lien for borrowed money.  Tenant shall (i) promptly after Landlord’s request, execute and deliver an agreement, in recordable form, evidencing the agreements set forth in this Paragraph 8(f) , which agreement may be recorded against the Existing Tax Parcel in the appropriate real estate records, and (ii) cooperate with Landlord in seeking to obtain a separate tax parcel number for the Leased Premises as promptly as practicable after the Commencement Date.  In the event that Landlord has not received a separate tax parcel number for the Leased Premises on or prior to May 1, 2007, then, until the date on which Landlord so receives such separate tax parcel number, Tenant shall provide Landlord with not less than ninety (90) days’ prior written notice of Tenant’s intent to undertake the construction of any improvements on the Existing Tax Parcel or to encumber all or any portion of the Existing Tax Parcel with any Lien for borrowed money.

9.     Liens; Recording and Title .

(a)           Subject to the provisions of Paragraph 18 hereof, Tenant shall not, directly or indirectly, create or permit to be created or to remain, and shall promptly discharge, any Lien on the Leased Premises, or on the Basic Rent, Additional Rent or any other sums payable by Tenant under this Lease, other than the Mortgage, the Permitted Encumbrances and any mortgage, Lien, encumbrance or other charge created by, or resulting from any act or omission by, Landlord or those claiming by, through or under Landlord (except Tenant, or any assignee of, or sublessee from, Tenant).  Notice is hereby given that Landlord shall not be liable for any labor, services or materials furnished or to be furnished to Tenant, or to anyone holding any of the Leased Premises through or under Tenant, and that no mechanic’s or other Liens for any such labor, services or materials shall attach to or affect the interest of Landlord in and to any of the Leased Premises.

(b)           Each of Landlord and Tenant shall execute, acknowledge and deliver to the other a written memorandum of this Lease to be recorded in the appropriate land records of the jurisdiction in which the Leased Premises is located, in order to give public notice and protect the validity of this Lease.  In the event of any discrepancy between the provisions of such recorded memorandum of this Lease and the provisions of this Lease, the provisions of this Lease shall prevail.

 
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(c)           Nothing in this Lease and no action or inaction by Landlord shall be deemed or construed to mean that Landlord has granted to Tenant any right, power or permission to do any act or to make any agreement which may create, give rise to, or be the foundation for, any right, title, interest or Lien in or upon the estate of Landlord in any of the Leased Premises.  Landlord shall not have any Lien upon Tenant’s Trade Fixtures or any other personal property of Tenant that is located at or on the Leased Premises, so long as such Trade Fixtures or other personal property is not part of the Leased Premises and has not been funded by Landlord.

10.     Indemnification .

(a)           Tenant agrees to assume liability for, and to indemnify, protect, defend, save and keep harmless each Indemnitee, on an After-Tax Basis, from and against any and all Claims that may be suffered, imposed on or asserted against any Indemnitee, arising out of (i) the ownership or leasing of the Leased Premises by Landlord, the subleasing of the Leased Premises by Tenant, assignment by Tenant of its interest in this Lease, or sale of the Leased Premises by Landlord to Tenant, transfer of title of Tenant’s interest in this Lease, renewal of this Lease, or operation, possession, use, non-use, maintenance, modification, alteration, construction, reconstruction, restoration, or replacement of the Leased Premises (or any portion thereof), or from the granting by Landlord at Tenant’s request of easements, licenses or any rights with respect to all or any part of the Leased Premises, or from the design, construction or condition of the Leased Premises (including any Claims arising, directly or indirectly, out of the actual or alleged presence, use, storage, generation or Release of any Hazardous Materials, and any Claims for patent infringement and latent or other defects, whether or not discoverable), including any liability under Applicable Laws (including, without limitation, any Claims arising directly or indirectly out of any actual or alleged violation, now or hereafter existing, of any Environmental Laws), (ii) this Lease or any modification, amendment or supplement thereto, (iii) the non-compliance of the Leased Premises with Applicable Laws (including because of the existence of the Permitted Encumbrances), (iv) any matter relating to all or any part of the Leased Premises or any operations thereon, including matters relating to Environmental Laws or Hazardous Materials, (v) the breach by Tenant of its representations, warranties, covenants and obligations in this Lease whether or not such Claim arises or accrues prior to the date of this Lease, (vi) the business and activities of Tenant, (vii) the business and activities of any other Person on or about the Leased Premises (whether as an invitee, subtenant, licensee or otherwise), (viii) the cost of assessment, containment and/or removal of any and all Hazardous Materials from all or any portion of the Leased Premises or any surrounding areas for which Tenant or Landlord has any legal obligation, the cost of any actions taken in response to a Release of any Hazardous Materials on, in, under or affecting any portion of the Leased Premises or any surrounding areas for which Tenant or Landlord has any legal obligation to prevent or minimize such Release so that it does not migrate or otherwise cause or threaten danger to present or future public health, safety, welfare or the environment, and costs incurred to comply with Environmental Laws in connection with all or any portion of the Leased Premises or any surrounding areas for which Tenant or Landlord has any legal obligation, and (ix) an Event of Default.

 
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(b)           In case any Claim shall be made or brought against any Indemnitee, such Indemnitee shall give prompt notice thereof to Tenant; provided that failure to so notify Tenant shall not reduce Tenant’s obligations to indemnify any Indemnitee hereunder unless and only to the extent such failure results in additional liability on Tenant’s part.  Tenant shall be entitled, at its expense, acting through counsel selected by Tenant (and reasonably satisfactory to such Indemnitee), to participate in, or, except as otherwise provided herein, to assume and control (if it promptly so elects upon notice of the Claim), and, to the extent that Tenant desires to assume and control, in consultation with Indemnitee, the negotiation, litigation and/or settlement of any such Claim (subject to the provisions of the last sentence of subparagraph (c) of this Paragraph 10 ).   Such Indemnitee may (but shall not be obligated to) participate at its own expense (unless Tenant is not defending such Claim in accordance herewith and then at the expense of Tenant) and with its own counsel in any proceeding conducted by Tenant in accordance with the foregoing, in which case Tenant shall keep such Indemnitee and its counsel fully informed of all proceedings and filings and afford such Indemnitee and counsel reasonable opportunity for comment.  Notwithstanding the foregoing, Tenant shall not be entitled to assume and control the defense of any Claim if (i) an Event of Default has occurred and is continuing, (ii) the proceeding involves possible imposition of any criminal liability or penalty or a civil penalty on such Indemnitee in excess of $1,000,000, (iii) the proceeding involves the granting of injunctive relief against the Indemnitee not related to this Lease, (iv) a significant counterclaim is available to the Indemnitee that would not be available to and cannot be asserted by Tenant, (v) a conflict of interest exists between the Indemnitee and Tenant with respect to the Claim, or (vi) the defense of such Claim would require the delivery of material confidential and proprietary information of such Indemnitee that would otherwise not be available to Tenant or its counsel.

(c)           Upon payment in full of any Claim by Tenant pursuant to this Paragraph 10 to or on behalf of an Indemnitee, Tenant, without any further action, shall be subrogated to any and all Claims that such Indemnitee may have relating thereto (other than claims in respect of insurance policies maintained by such Indemnitee at its own expense or claims against another Indemnitee for which Tenant would have indemnity obligations hereunder), and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of Claims and payment and such other documents, instruments and agreements as may be reasonably necessary to preserve any such Claims and otherwise reasonably cooperate with Tenant to enable Tenant to pursue such Claims, all at Tenant’s expense.

(d)           Notwithstanding anything to the contrary contained herein, Tenant shall not be required to indemnify any Indemnitee under this Paragraph 10 for any Claim to the extent resulting from the gross negligence or willful misconduct of such Indemnitee (except to the extent imputed to such Indemnitee as a result of Tenant’s acts or failure to act).

(e)           Each Indemnitee shall be an express third party beneficiary of Tenant’s obligations under this Paragraph 10 and may directly enforce its rights against Tenant hereunder.

(f)           The obligations of Tenant under this Paragraph 10 shall survive any termination of this Lease.

 
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11.     Maintenance and Repair .

(a)          Tenant shall at all times put, keep and maintain the Leased Premises (including, without limitation, the roof, walls, footings, foundations, structural components, paving, parking lots and landscaping (including the mowing of grass and care of shrubs)) in good, clean, safe, first-class condition and repair, but in any event, except for any Alterations that Tenant is permitted to make pursuant to this Lease, in at least the same condition and order of repair as exists as of the Commencement Date, except for ordinary wear and tear, and at least the same or better condition and order as other similar properties owned or leased by Tenant and its Affiliates.  Tenant shall promptly make all repairs and replacements of every kind and nature, whether foreseen or unforeseen, which may be required to be made upon or in connection with the Leased Premises in order to keep and maintain the Leased Premises in the order and condition required by this Paragraph 11(a) .  Tenant shall do or cause others to do all shoring of the Leased Premises or of foundations and walls of the Improvements and every other act necessary or appropriate for preservation and safety thereof, by reason of or in connection with any excavation or other building operation upon any of the Leased Premises, whether or not Landlord shall, by reason of any Legal Requirements or Insurance Requirements, be required to take such action or be liable for failure to do so.  LANDLORD SHALL NOT BE REQUIRED TO MAKE ANY REPAIR, WHETHER FORESEEN OR UNFORESEEN, OR TO MAINTAIN ANY OF THE LEASED PREMISES OR ADJOINING PROPERTY IN ANY WAY, AND TENANT HEREBY EXPRESSLY WAIVES THE RIGHT TO MAKE REPAIRS OR MAINTENANCE AT THE EXPENSE OF THE LANDLORD, WHICH RIGHT MAY BE PROVIDED FOR IN ANY LAW NOW OR HEREAFTER IN EFFECT.  Nothing in the preceding sentence shall be deemed to preclude Tenant from being entitled to insurance proceeds or condemnation awards for Restoration pursuant to, and to the extent set forth in, Paragraphs 13(c) and 14(g) of this Lease.  Tenant shall, in all events, make all repairs for which it is responsible hereunder promptly, and all repairs shall be made in a good, proper and workmanlike manner.

(b)           Subject to Paragraph 18 hereof, in the event that any Improvement shall violate any Legal Requirements or Insurance Requirements and as a result of such violation enforcement action is threatened or commenced against Tenant or Landlord or with respect to the Leased Premises, then Tenant, at the request of Landlord, shall either (i) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such violation, whether the same shall affect Landlord, Tenant or both, or (ii) take such action as shall be necessary to remove such violation, including, if necessary, making any Alteration.  Any such Alteration shall be made in conformity with the provisions of Paragraph 12 .

(c)           If Tenant shall be in default under any of the provisions of this Paragraph 11 , Landlord may, after thirty (30) days’ written notice given to Tenant and failure of Tenant to cure during said period, but without notice in the event of an emergency, do whatever is necessary to cure such default as may be appropriate under the circumstances, for the account of and at the expense of Tenant.  In the event of an emergency, Landlord shall notify Tenant of the situation by phone or other available communication.  All reasonable sums so paid by Landlord and all reasonable costs and expenses (including, without limitation, attorneys’ fees and expenses) so incurred, together with interest thereon at the Default Rate from the date of payment or incurring the expense, shall constitute Additional Rent payable by Tenant under this Lease and shall be paid by Tenant to Landlord on demand.

 
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(d)          Tenant shall from time to time replace with Replacement Fixtures any of the Fixtures which shall have become worn out or unusable for the purpose for which it is intended, been taken by a Condemnation as provided in Paragraph 13 , or been lost, stolen, damaged or destroyed as provided in Paragraph 14 .  Tenant shall repair at its sole cost and expense all damage to the Leased Premises caused by the removal of Fixtures or Replaced Fixtures or other personal property of Tenant or the installation of Replacement Fixtures.  All Replacement Fixtures shall become the property of Landlord, shall be free and clear of all Liens and rights of others, and shall become a part of the Fixtures as if originally demised herein.

12.     Alterations .

(a)           Tenant shall have the right to make any Alteration(s) to the Leased Premises without the prior consent of Landlord the cost of which does not exceed $300,000,   in the aggregate, in any calendar year and which are not Structural Changes; provided , that, in each case, Tenant complies with clauses (c) and (d) of this Paragraph 12 .

(b)           Upon thirty (30) days’ prior written notice to Landlord requesting Landlord’s consent, Tenant shall have the right to make any Alteration(s) to the Leased Premises, the cost of which exceeds $300,000, in the aggregate, in any calendar year or which are Structural Changes; provided , that, (i) no Event of Default under this Lease has occurred and is then continuing, (ii) Tenant complies with clauses (c) and (d) of this Paragraph 12 , (iii) prior to making any such Alteration(s), Tenant shall provide Landlord with the plans and specifications, estimated budgets and proposed schedule of construction with respect thereto, and (iv) Landlord consents in writing to any such Alteration(s), which consent (1) shall not be unreasonably withheld, and (2) shall be deemed to have been given by Landlord if Landlord fails to respond to Tenant’s notice within said thirty (30) day period, provided that Tenant’s notice shall state on the envelope thereto in bold, capitalized print substantially the following:  “ FAILURE OF THE RECIPIENT TO RESPOND WITHIN THIRTY (30) DAYS TO THE ENCLOSED REQUEST FOR APPROVAL SHALL BE DEEMED APPROVAL ”.

(c)           In the event that Landlord gives its prior written consent to any Alterations, or if such consent is not required, Tenant agrees that in connection with any Alteration:  (i) the fair market value of the Leased Premises shall not be lessened after the completion of any such Alteration, or its structural integrity impaired; (ii) the Alteration and any Alteration theretofore made or thereafter to be made shall not in the aggregate reduce the gross floor area of the Improvements by more than ten percent (10%); (iii) all such Alterations shall be performed in a good and workmanlike manner, and shall be expeditiously completed in compliance with all Legal Requirements; (iv) no such Alteration shall change the permitted use of the Leased Premises (as described in Paragraph 4 hereof), (v) all work done in connection with any such Alteration shall comply with all Insurance Requirements; (vi) Tenant shall promptly pay all costs and expenses of any such Alteration, and shall (subject to and in compliance with the provisions of Paragraph 18 hereof) discharge all Liens filed against any of the Leased Premises arising out of the same; (vii) Tenant shall procure and pay for all permits and licenses required in connection with any such Alteration; (viii) all such Alterations shall be the property of Landlord and shall be subject to this Lease; (ix) no such Alteration shall create any debt or other encumbrance(s) on the Leased Premises (provided that if Tenant requests additional funding for such Alteration from Landlord in writing, Landlord shall, at Tenant’s sole expense, use commercially reasonable efforts to obtain such additional funding, subject to the receipt of any required consent thereto from the Lender and an adjustment to the Basic Rent to reflect such additional funding), and (x) all Alterations shall be made in the case of any Alteration the estimated cost of which in any one instance exceeds Five Hundred Thousand and 00/100 Dollars ($500,000.00) under the supervision of an architect or engineer and in accordance with plans and specifications which shall be submitted to Landlord (for informational purposes only) prior to the commencement of the Alterations.  If requested, Tenant shall update Landlord’s and/or Lender’s policy of title insurance to reflect any increase to the value of the improvements and insure against any Liens which may have been placed against the Leased Premises in connection with such Alterations.

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(d)           Notwithstanding anything to the contrary contained herein, Tenant shall not, without Landlord’s prior written consent, which consent may be withheld or denied in Landlord’s sole discretion (i) demolish all or substantially all of the Improvements, or (ii) make any Alterations, at any time, which would (after the completion thereof) impair the structural integrity of the Leased Premises.

13.     Condemnation .

(a)           Tenant, promptly upon obtaining knowledge of the institution of any proceeding for Condemnation, shall notify Landlord thereof and Landlord shall be entitled to participate in any Condemnation proceeding.  Landlord, promptly after obtaining knowledge of the institution of any proceeding for Condemnation, shall notify Tenant thereof and Tenant shall have the right to participate in such proceedings.  Subject to the provisions of this Paragraph 13 and Paragraph 15 , Tenant hereby irrevocably assigns to Landlord any award or payment in respect of any Condemnation of Landlord’s interest in the Leased Premises, except that (except as hereinafter provided) nothing in this Lease shall be deemed to assign to Landlord any award relating to the value of the leasehold interest created by this Lease or any award or payment on account of the Trade Fixtures, moving expenses, loss of business income and out-of-pocket expenses incidental to the move, if available, to the extent Tenant shall have a right to make a separate claim therefor against the condemnor, it being agreed, however, that Tenant shall in no event be entitled to any payment that reduces the award to which Landlord is or would be entitled for the condemnation of Landlord’s interest in the Leased Premises.

(b)           (i)           If (I) the entire Leased Premises, (II) a material portion of the Land or the building constructed on the Land or any means of ingress, egress or access to the Leased Premises, the loss of which even after restoration, would, in Tenant’s reasonable business judgment, be substantially and materially adverse to the business operations of Tenant at the Leased Premises, or (III) any means of ingress, egress or access to the Leased Premises which does not result in at least one method of ingress and egress to and from the Leased Premises remaining, provided the same is permitted under then existing Legal Requirements, shall be the subject of a Taking by a duly constituted authority or agency having jurisdiction, then Tenant may, not later than ninety (90) days after Tenant has received notification of such Taking from the applicable Governmental Authority, serve a Tenant’s Termination Notice upon Landlord.

 
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(ii)           In the event that Tenant shall serve a Tenant’s Termination Notice upon Landlord, this Lease and the Term hereof shall terminate on the Termination Date specified in the Tenant’s Termination Notice; and in such event the Net Award to be made in the Condemnation proceeding shall be paid to Landlord.  From and after the Termination Date specified in the Tenant’s Termination Notice, Tenant shall have no further obligation to pay Basic Rent, Additional Rent or any other sums otherwise payable by Tenant hereunder except with respect to those provisions of this Lease that expressly survive termination.

(c)           (i)           In the event of a Condemnation of any part of the Leased Premises which does not result in a termination of this Lease, subject to the requirements of Paragraph 15 , the Net Award of such Condemnation shall be retained by Landlord, and promptly after such Condemnation, Tenant shall commence and diligently continue to completion the Restoration of the Leased Premises.

(ii)           Upon the payment to Landlord of the Net Award of a Taking which falls within the provisions of this Paragraph 13(c) , Landlord and Lender shall, to the extent received, make the Restoration Award available to Tenant for Restoration, in accordance with the provisions of Paragraph 15 , and promptly after completion of the Restoration, the balance of the Net Award shall be paid to Landlord.  Notwithstanding the occurrence of any Condemnation that does not result in a termination of this Lease, all Basic Rent, Additional Rent and other sums payable hereunder shall continue unabated and unreduced.

(iii)           In the event of a Requisition of the Leased Premises, Landlord shall apply the Net Award of such Requisition, to the extent available, to the installments of Basic Rent, Additional Rent or other sums payable by Tenant hereunder thereafter payable and Tenant shall pay any balance remaining thereafter.  Upon the expiration of the Term, any portion of such Net Award which shall not have been previously credited to Tenant on account of the Basic Rent and Additional Rent shall be retained by Landlord.

(d)           Except with respect to an award or payment to which Tenant is entitled pursuant to the provisions of Paragraph 13(a) or 13(c) , no agreement with any condemnor in settlement of or under threat of any Condemnation shall be made by either Landlord or Tenant without the written consent of the other ( provided that if an Event of Default has occurred and is continuing, no consent of Tenant shall be required to any settlement made by Landlord), and of Lender, if the Leased Premises are then subject to a Mortgage, which consent shall not be unreasonably withheld or delayed.

14.     Insurance .

(a)           Tenant shall maintain at its sole cost and expense the following insurance on the Leased Premises:

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(i)           Insurance against loss or damage to the Improvements and Fixtures under an “all risk” extended coverage insurance policy, which shall include coverage against all risks of direct physical loss, including loss by fire, lightning, [riot, civil commotion,] terrorism and other risks which at the time are included under “extended endorsements (which shall include windstorm if the Leased Premises is located in an area where windstorm insurance is customarily maintained for similar commercial properties, flood insurance if the Leased Premises is located within a flood hazard area and earthquake insurance if  the Leased Premises is located in an area where earthquake insurance is customarily maintained for similar commercial properties) and against other risks insured against by persons operating like properties in the locality of the Leased Premises.  Such insurance shall be in amounts sufficient to prevent Landlord or Tenant from becoming a co-insurer under the applicable policies, and in any event, after application of the related deductible, in amounts not less than the actual replacement cost of the Improvements and Fixtures (excluding footings and foundations and other parts of the Improvements which are not insurable) as reasonably determined from time to time at Landlord’s request but not more frequently than once in any 12-month period, by agreement of Landlord and Tenant, or if not so agreed, at Tenant’s expense, by the insurer or insurers or by an appraiser approved by Landlord.  Such insurance policies may contain reasonable exclusions and deductible amounts, all in accordance with industry standards.

(ii)           Contractual and comprehensive general liability insurance against claims for bodily injury, death or property damage occurring on, in or about the Leased Premises, which insurance shall be written on an “Occurrence Basis”, and shall provide minimum protection with a combined single limit in an amount not less than Five Million ($5,000,000) Dollars (or in such increased limits from time to time to reflect declines in the purchasing power of the dollar as Landlord may reasonably request) for bodily injury, death and property damage in any one occurrence.

(iii)           Statutory worker’s compensation insurance covering all persons employed by Tenant on the Leased Premises in connection with any work done on or about any of the Leased Premises for which claims for death or bodily injury could be asserted against Landlord, Tenant or the Leased Premises.

(iv)           Insurance against loss or damage from explosion of any steam or pressure boilers or similar apparatus, if any, located in or about the Improvements in an amount not less than the actual replacement cost of the Improvements and Fixtures (excluding footings and foundations and other parts of the Improvements which are not insurable).

(v)           Business interruption insurance in an amount at least equal to six months of operations of the Leased Premises.

(vi)           Such additional and/or other insurance with respect to the Improvements located on the Leased Premises and in such amounts as at the time is customarily carried by prudent owners or tenants with respect to improvements similar in character, location and use and occupancy to the Improvements located on the Leased Premises, provided that Landlord shall notify Tenant of such additional insurance.

 
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(b)           The insurance required by Paragraph 14(a) shall be written by companies having an A.M. Best Insurance Reports rating of not less than “A”, and a financial size category of “VIII”, and all such companies shall be authorized to do an insurance business in the State, or otherwise agreed to by Landlord and Lender. The insurance policies (i) shall be in amounts sufficient at all times to satisfy any coinsurance requirements thereof, and (ii) shall (except for the worker’s compensation insurance referred to in Paragraph 14 (a)(iii) hereof) name Landlord, Tenant and each Lender (whose name and address Landlord shall provide to Tenant) as additional insured parties, as their respective interests may appear.  If said insurance or any part thereof shall expire, be withdrawn, become void by breach of any condition thereof by Tenant or become void or unsafe by reason of the failure or impairment of the capital of any insurer, Tenant shall immediately obtain new or additional insurance reasonably satisfactory to Landlord and Lender.

(c)           Each insurance policy referred to in clauses (i) and (iv) (and (vi) if requested by Lender) of Paragraph 14(a) , shall contain standard non-contributory mortgagee clauses in favor of each Lender which holds an interest in a Mortgage on the Leased Premises.  Each policy shall provide that it may not be canceled or amended in any material respect except after thirty (30) days’ prior notice to Landlord and any Lender.  Each policy of insurance shall contain a waiver of subrogation or consent to a waiver of right of recovery against the Landlord.  Each policy shall also provide that any losses otherwise payable thereunder shall be payable notwithstanding (i) any act or omission of Landlord, Tenant or any other Person which might, absent such provision, result in a forfeiture of all or a part of such insurance payment, or (ii) the occupation or use of any of the Leased Premises for purposes more hazardous than permitted by the provisions of such policy.

(d)           Tenant shall pay as they become due all premiums for the insurance required by this Paragraph 14 , shall renew or replace each policy, and shall deliver to Landlord and each Lender (whose name and address Landlord shall provide to Tenant) a certificate or other evidence (reasonably satisfactory to Lender and Landlord) of the existing policy and such renewal or replacement policy at least thirty days prior to the Insurance Expiration Date of each policy.  Each such policy shall be renewable not more frequently than every six months and shall provide that it shall not expire until the Landlord and Lender shall receive a notice from the insurer to the effect that such policy will expire on the Insurance Expiration Date, as set forth in such notice, which shall be thirty (30) days following the date of the receipt by Landlord and Lender of such notice.  In the event of Tenant’s failure to comply with any of the foregoing requirements of this Paragraph 14 within five (5) business days of the giving of written notice by Landlord to Tenant, Landlord shall be entitled to procure such insurance.  Any sums expended by Landlord in procuring such insurance shall be Additional Rent and shall be repaid by Tenant, together with interest thereon at the Default Rate, from the time of payment by Landlord until fully paid by Tenant immediately upon written demand therefor by Landlord.

(e)           Anything in this Paragraph 14 to the contrary notwithstanding, any insurance which Tenant is required to obtain pursuant to Paragraph 14(a) may be carried under a “blanket” policy or policies covering other properties or liabilities of Tenant, provided that such “blanket” policy or policies otherwise comply with the provisions of this Paragraph 14 .  In the event any such insurance is carried under a blanket policy, Tenant shall deliver to Landlord and Lender evidence of the issuance and effectiveness of the policy, the amount and character of the coverage with respect to the Leased Premises and the presence in the policy of provisions of the character required in the above sections of this Paragraph 14 .  No deductible under any insurance required pursuant to this Paragraph 14 shall exceed $25,000.

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(f)           In the event of any casualty loss exceeding $100,000, Tenant shall give Landlord immediate notice thereof.  Tenant shall adjust, collect and compromise any and all claims, with the consent of Lender and Landlord, not to be unreasonably withheld or delayed, and Landlord and Lender shall have the right to join with Tenant therein.  If the estimated cost of Restoration or repair shall be One Hundred Thousand ($100,000.00) Dollars or less, all proceeds of any insurance required under clauses (i) and (iv) (and (v) if requested by Lender) of Paragraph 14(a) shall be payable to Tenant, provided that no Event of Default then exists hereunder, and in all other events to a Trustee.  If the Leased Premises shall be covered by a Mortgage, Lender, if it so desires, shall be the Trustee.  Each insurer is hereby authorized and directed to make payment under said policies directly to such Trustee instead of to Landlord and Tenant jointly; and Tenant and Landlord each hereby appoints such Trustee as its attorney-in-fact to endorse any draft therefor for the purposes set forth in this Lease.  In the event of any casualty (whether or not insured against) resulting in damage to the Leased Premises or any part thereof, the Term shall nevertheless continue and there shall be no abatement or reduction of Basic Rent, Additional Rent or any other sums payable by Tenant hereunder.  The Net Proceeds of such insurance payment shall be retained by the Trustee and, promptly after such casualty, Tenant, as required in Paragraphs 11(a) and 12 , shall commence and diligently continue to perform the Restoration to the Leased Premises.  Upon payment to the Trustee of such Net Proceeds, the Trustee shall, to the extent available, make the Net Proceeds available to Tenant for restoration, in accordance with the provisions of Paragraph 15 .  Subject to Paragraph 14(g) , Tenant shall, whether or not the Net Proceeds are sufficient for the purpose, promptly repair or replace the Improvements and Fixtures in accordance with the provisions of Paragraph 11(a) and the Net Proceeds of such loss shall thereupon be payable to Tenant, subject to the provisions of Paragraph 15 .  In the event that any damage or destruction shall occur at such time as Tenant shall not have maintained third-party insurance in accordance with Paragraph 14(a) , Tenant shall pay to the Trustee Tenant’s Insurance Payment, unless the estimated cost of Restoration is $100,000 or less, in which event Tenant may retain and use Tenant’s Insurance Payment to pay for restoration of the Leased Premises .

(g)           (i)           If a casualty occurs during the last twelve (12) months of the Initial Term or any Renewal Term which casualty results in the total loss of the Improvements, then Tenant may, not later than ninety (90) days after such casualty has occurred, serve a Tenant’s Termination Notice upon Landlord.

(ii)           In the event that Tenant shall serve a Tenant’s Termination Notice upon Landlord pursuant to paragraph (i) , this Lease and the Term hereof shall terminate on the Termination Date specified in the Tenant’s Termination Notice; and in such event Tenant shall have no obligation to commence or complete the Restoration and all of the insurance proceeds (or Tenant’s Insurance Payment, as applicable) payable in connection with the casualty shall be paid to Landlord.  From and after the Termination Date specified in the Tenant’s Termination Notice, Tenant shall have no further obligation to pay Basic Rent, Additional Rent or any other sums otherwise payable by Tenant hereunder except with respect to those provisions of this Lease that expressly survive termination.

 
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15.     Restoration.   The Restoration Fund shall be disbursed by the Trustee in accordance with the following conditions:

(a)           If the cost of Restoration will exceed $100,000, prior to commencement of the Restoration the architects, general contractor(s),  and plans and specifications for the Restoration shall be approved by Landlord, which approval shall not be unreasonably withheld or delayed; and which approval shall be granted to the extent that the plans and specifications depict a Restoration which is substantially similar to the Improvements and Fixtures which existed prior to the occurrence of the casualty or Taking, whichever is applicable.

(b)           At the time of any disbursement, no Event of Default shall exist and no mechanics’ or materialmen’s Liens shall have been filed and remain undischarged or unbonded.

(c)           Disbursements shall be made from time to time in an amount not exceeding the hard and soft cost of the work and costs incurred since the last disbursement upon receipt of (1) satisfactory evidence, including architects’ certificates of the stage of completion, of the estimated cost of completion and of performance of the work to date in a good and workmanlike manner in accordance with the contracts, plans and specifications, (2) partial releases of Liens, and (3) other reasonable evidence of cost and payment so that Landlord can verify that the amounts disbursed from time to time are represented by work that is completed in place or delivered to the site and free and clear of mechanics’ Lien claims.

(d)           Each request for disbursement shall be accompanied by a certificate of Tenant describing the work, materials or other costs or expenses, for which payment is requested, stating the cost incurred in connection therewith and stating that Tenant has not previously received payment for such work or expense and the certificate to be delivered by Tenant upon completion of the work shall, in addition, state that the work has been substantially completed and complies with the applicable requirements of this Lease.

(e)           The Trustee may retain up to ten percent (10%) of the Restoration Fund until the Restoration is at least fifty percent (50%) complete, and thereafter up to five percent (5%) until the Restoration is substantially complete.

(f)           The Restoration Fund shall be kept in a separate interest-bearing federally insured account by the Trustee or by Lender.  All interest accrued on the Restoration Fund shall become a part of the Restoration Fund.

(g)           At all times the undisbursed balance of the Restoration Fund held by Trustee plus any funds contributed thereto by Tenant, at its option, shall be not less than the cost of completing the Restoration, free and clear of all Liens.

 
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(h)           In addition, prior to commencement of Restoration and at any time during Restoration, if the estimated cost of Restoration, as reasonably determined by Landlord, exceeds the amount of the Net Proceeds, the Restoration Award and Tenant Insurance Payment available for such Restoration, Tenant shall fund, at its own expense, the costs of such Restoration until the remaining Restoration Fund is sufficient for the completion of the Restoration.  Any sum in the Restoration Fund which remains in the Restoration Fund upon the completion of Restoration shall be paid to Tenant.  For purposes of determining the source of funds with respect to the disposition of funds remaining after the completion of Restoration, the Net Proceeds or the Restoration Award shall be deemed to be disbursed prior to any amount added by Tenant.

16.     Subordination to Financing .

(a)           (i)           Subject to the provisions of Paragraph 16(a)(ii) , Tenant agrees that this Lease shall at all times be subject and subordinate to the Lien of any Mortgage, and Tenant agrees, upon demand, without cost, to execute instruments as may be reasonably required to further effectuate or confirm such subordination.

(ii)           Except as expressly provided in this Lease by reason of the occurrence of an Event of Default, and as a condition to the subordination described in Paragraph 16(a)(i) above, Tenant’s tenancy and Tenant’s rights under this Lease shall not be disturbed, terminated or otherwise adversely affected, nor shall this Lease be affected, by the existence of, or any default under, any Mortgage, and in the event of a foreclosure or other enforcement of any Mortgage, or sale in lieu thereof, the purchaser at such foreclosure sale shall be bound to Tenant for the Term of this Lease and any Renewal Term, the rights of Tenant under this Lease shall expressly survive, and this Lease shall in all respects continue in full force and effect so long as no Event of Default has occurred and is continuing.  Tenant shall not be named as a party defendant in any such foreclosure suit, except as may be required by law.  Any Mortgage to which this Lease is now or hereafter subordinate shall provide, in effect, that during the time this Lease is in force insurance proceeds and any Restoration Award shall be permitted to be used for restoration in accordance with the provisions of this Lease.

(b)           Notwithstanding the provisions of Paragraph 16(a) , the holder of any Mortgage to which this Lease is subject and subordinate shall have the right, at its sole option, at any time, to subordinate and subject the Mortgage, in whole or in part, to this Lease by recording a unilateral declaration to such effect, provided that such holder shall have agreed that during the time this Lease is in force any insurance proceeds and any Restoration Award shall be permitted to be used for Restoration in accordance with the provisions of this Lease.

(c)           At any time prior to the expiration of the Term, Tenant agrees, at the election and upon demand of any owner of the Leased Premises, or of a Lender who has granted non-disturbance to Tenant pursuant to Paragraph 16(a) above, to attorn, from time to time, to any such owner or Lender, upon the terms and conditions of this Lease, for the remainder of the Term.  The provisions of this Paragraph 16(c) shall inure to the benefit of any such owner or Lender, shall apply notwithstanding that, as a matter of law, this Lease may terminate upon the foreclosure of the Mortgage, shall be self-operative upon any such demand, and no further instrument shall be required to give effect to said provisions.

 
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(d)           Each of Tenant, Landlord and Lender agrees that, if requested by any of the others, each shall, without charge, enter into a Subordination, Non-Disturbance and Attornment Agreement in substantially the form attached hereto as Exhibit E and Tenant hereby agrees for the benefit of any Lender whose name and address have been provided to Tenant that Tenant will not, (i) without in each case securing the prior written consent of such  Lender, amend or modify this Lease or enter into any agreement with Landlord so to do, (ii) without the prior written consent of such Lender which may be withheld in its sole discretion, cancel or surrender or seek to cancel or surrender the Term hereof, or enter into any agreement with Landlord to do so (the parties agreeing that the foregoing shall not be construed to affect the rights or obligations of Tenant, Landlord or Lender with respect to any termination permitted under the express terms hereof in connection with certain events of condemnation or casualty as provided in Paragraph 13 or Paragraph 14 ), or (c) pay any installment of Basic Rent more than one (1) month in advance of the due date thereof or otherwise than in the manner provided for in this Lease.

(e)           If any Person providing financing of Tenant’s personal property requires that Tenant obtain a landlord’s waiver from Landlord, Landlord shall execute and deliver a waiver substantially in the form attached hereto as Exhibit D , promptly after Tenant’s request therefor, provided that Tenant pay, or reimburse Landlord for, all reasonable costs and expenses, including reasonable attorneys’ fees, incurred by Landlord in connection with such waiver.

17.     Assignment, Subleasing .

(a)           Tenant may assign its interest in this Lease to any Subsidiary of Lease Guarantor and may sublet the Leased Premises in whole or in part, from time to time, without the consent of Landlord.  Except for any right to place a Lien on its personal property, Tenant shall have no rights to mortgage or otherwise hypothecate its leasehold interest under this Lease.

(b)           Each sublease of the Leased Premises or any part thereof shall (i) be subject and subordinate to the provisions of this Lease, (ii) terminate on or prior to the Expiration Date, (iii) provide for rent payable monthly in advance and (iv) not permit payment of rent more than one month in advance.  No assignment or sublease shall (i) affect or reduce any of the obligations of Tenant hereunder, and all such obligations shall continue in full force and effect as obligations of a principal and not as obligations of a guarantor, as if no assignment or sublease had been made or (ii) be to a tenant that would render the Leased Premises or any portion thereof a “tax-exempt use property” within the meaning of Section 168(h) of the Code or otherwise result in any adverse tax effect on Landlord.  Notwithstanding any assignment or subletting, Tenant shall continue to remain primarily liable and responsible for the payment of the Basic Rent and Additional Rent and the performance of all its other obligations under this Lease.  No assignment or sublease shall impose any obligations on Landlord under this Lease except as otherwise provided in this Lease.  Tenant agrees that in the case of an assignment of this Lease, Tenant shall, within fifteen (15) days after the execution and delivery of any such assignment, deliver to Landlord (i) a duplicate original of such assignment in recordable form and (ii) an agreement executed and acknowledged by the assignee in recordable form wherein the assignee shall agree to assume and agree to observe and perform all of the terms and provisions of this Lease on the part of the Tenant to be observed and performed from and after the date of such  assignment.  In the case of a sublease, Tenant shall, within fifteen (15) days after the execution and delivery of such sublease, deliver to Landlord a duplicate original of such sublease.

 
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(c)           In the event this Lease is terminated following the occurrence of an Event of Default, Landlord shall have the right to collect and enjoy all rents and other sums of money payable under any sublease of any of the Leased Premises, and, upon such event, Tenant shall be deemed to have irrevocably and unconditionally assigned such rents and money to Landlord.

18.     Permitted Contests .

(a)           So long as no Event of Default has occurred and is continuing, after prior written notice to Landlord, Tenant shall not be required to (i) pay any Imposition, (ii) comply with any Legal Requirement, (iii) discharge or remove any Lien referred to in Paragraph 9 or 12 , or (iv) take any action with respect to any violation referred to in Paragraph 11(b) so long as Tenant shall contest, in good faith and at its expense, the existence, the amount or the validity thereof, the amount of the damages caused thereby, or the extent of its or Landlord’s liability therefor, by appropriate proceedings which shall operate during the pendency thereof to prevent (A) the collection of, or other realization upon, the Imposition or Lien so contested, (B) the sale, forfeiture or loss of any of the Leased Premises, any Basic Rent or any Additional Rent to satisfy the same or to pay any damages caused by the violation of any such Legal Requirement or by any such violation, (C) any interference with the use or occupancy of any of the Leased Premises, (D) any interference with the payment of any Basic Rent or any Additional Rent, and (E) the cancellation of any fire or other insurance policy.

(b)           In no event shall Tenant pursue any contest with respect to any Imposition, Legal Requirement, Lien, or violation, referred to above in such manner that exposes Landlord or Lender to (i) criminal liability, penalty or sanction, (ii) any civil liability, penalty or sanction  for which Tenant has not made provisions reasonably acceptable to Landlord and Lender or (iii) defeasance of its interest (including the subordination of the Lien of any Mortgage to a Lien to which such Mortgage is not otherwise subordinate prior to such contest) in the Leased Premises.

(c)           Tenant agrees that each such contest shall be promptly and diligently prosecuted to a final conclusion, except that Tenant shall have the right to attempt to settle or compromise such contest through negotiations.  Tenant shall pay and save Landlord harmless against any and all losses, judgments, decrees and costs (including all attorneys’ fees and expenses) in connection with any such contest and shall, promptly after the final determination of such contest, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, together with all penalties, fines, interest, costs and expenses thereof or in connection therewith, and perform all acts the performance of which shall be ordered or decreed as a result thereof.

19.     Conditional Limitations; Default Provisions .

(a)           If any Event of Default shall have occurred, Landlord shall have the right at its option, then or at any time thereafter, to do any one or more of the following without demand upon or notice to Tenant:

 
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(i)           Landlord may give Tenant notice of Landlord’s intention to terminate this Lease on a date specified in such notice (which date shall be no sooner than ten (10) days after the date of the notice).  Upon the date therein specified the Term and the estate hereby granted and all rights of Tenant hereunder shall expire and terminate as if such date were the date hereinabove fixed for the expiration of the Term, but Tenant shall remain liable for all its obligations hereunder through the date hereinabove fixed for the expiration of the Term, including its liability for Basic Rent and Additional Rent as hereinafter provided.
 
(ii)           Landlord may, whether or not the Term of this Lease shall have been terminated pursuant to clause (i) above give Tenant notice to surrender the Leased Premises to Landlord on a date specified in such notice (which date shall be no sooner than ten (10) days after the date of the notice), at which time Tenant shall surrender and deliver possession of the Leased Premises to Landlord. Upon or at any time after taking possession of the Leased Premises, Landlord may remove any persons or property therefrom.  Landlord shall be under no liability for or by reason of any such entry, repossession or removal.  No such entry or repossession shall be construed as an election by Landlord to terminate this Lease unless Landlord gives a written notice of such intention to Tenant pursuant to clause (i) above.
 
(iii)           After repossession of any of the Leased Premises pursuant to clause (ii) above, whether or not this Lease shall have been terminated pursuant to clause (i) above, Landlord may relet the Leased Premises or any part thereof to such tenant or tenants for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Term) for such rent, on such conditions (which may include concessions or free rent) and for such uses as Landlord, in its sole discretion, may determine; and Landlord shall collect and receive any rents payable by reason of such reletting.  The rents received on such reletting shall be applied (A) first to the reasonable and actual expenses of such reletting and collection, including without limitation necessary renovation and alterations of  the Leased Premises, reasonable and actual attorneys’ fees and any reasonable and actual advertising costs and real estate commissions paid, and (B) thereafter toward payment of all sums due or to become due to Landlord hereunder.  If a sufficient amount to pay such expenses and sums shall not be realized or secured, then Tenant shall pay Landlord any such deficiency monthly, and Landlord may bring an action therefor as such monthly deficiency shall arise.  Landlord shall not, in any event, be required to pay Tenant any sums received by Landlord on a reletting of the Leased Premises in excess of the rent provided in this Lease, but such excess shall reduce any accrued present or future obligations of Tenant hereunder.  Landlord’s re-entry and reletting of the Leased Premises without termination of this Lease shall not preclude Landlord from subsequently terminating this Lease as set forth above.  Landlord may make such Alterations as Landlord in its reasonable discretion may deem advisable.  Tenant agrees to pay Landlord, as Additional Rent, immediately upon demand, all reasonable expenses incurred by Landlord in obtaining possession, in performing Alterations and in reletting any of the Leased Premises, including fees and commissions of attorneys, architects, agents and brokers, to the extent such expenses are not paid by the new tenant.

 
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(iv)          If Tenant shall fail to make payment of any installment of Basic Rent or any Additional Rent within five (5) days after the date when each such payment is due, Tenant shall pay to Landlord, as Additional Rent, interest on the unpaid amount of Basic Rent or Additional Rent, at the Default Rate, such interest to accrue from the date such item of unpaid Basic Rent or Additional Rent was due until the date paid.

(v)           Landlord may exercise any other right or remedy now or hereafter existing by law or in equity.

(b)          In the event of any expiration or termination of this Lease or repossession of any of the Leased Premises by reason of the occurrence of an Event of Default, Tenant shall pay to Landlord all then accrued and unpaid Basic Rent and Additional Rent and, as liquidated damages, on the same schedule as if no such expiration, termination or repossession had occurred, Basic Rent, Additional Rent and all other sums required to be paid by Tenant through what would have been the Term in the absence of such expiration, termination or repossession, less , in respect of each such payment, the net proceeds of any corresponding payments, if any, received by Landlord, as a result of its reletting the Leased Premises pursuant to Paragraph 19(a)(iii) , after deducting from such proceeds all of Landlord’s reasonable expenses in connection with such reletting (including all reasonable repossession costs, brokerage commissions, legal expenses, attorneys’ fees, employees’ expenses, costs of Alteration and expenses of preparation for reletting).  Tenant hereby agrees to be and remain liable for all sums aforesaid and Landlord may recover such damages from Tenant and institute and maintain successive actions or legal proceedings against Tenant for the recovery of such damages.  Nothing herein contained shall be deemed to require Landlord to wait to begin such action or other legal proceedings until the date when the Term would have expired by limitation had there been no such Event of Default.

(c)          At any time after such expiration or sooner termination of this Lease pursuant to Paragraph 19 or pursuant to law or if Landlord shall have reentered the Leased Premises, as the case may be, as an alternative to the remedy set forth in Section 19(b) , Landlord shall be entitled to recover from Tenant and Tenant shall pay to Landlord, on demand, as and for liquidated and agreed final damages for Tenant’s default, the amount by which the Basic Rent, and all Additional Rent reserved hereunder for the unexpired portion of the Term, discounted to present worth at the annual rate of 8.22% exceeds the then fair and reasonable rental value of the Leased Premises for the same period, discounted to present worth at the annual rate of 8.22%, minus any such monthly deficiencies previously recovered from Tenant under Paragraph 19(a)(iii) .  If any statute or rule of law governing a proceeding in which such liquidated final damages provided for in this Paragraph 19(c) are to be proved shall validly limit the amount thereof to an amount less than the amount above agreed upon, Landlord shall be entitled to the maximum amount allowable under such statute or rule of law.

 
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20.     Additional Rights of Landlord and Tenant.

(a)           No right or remedy conferred upon or reserved to Landlord in this Lease is intended to be exclusive of any other right or remedy; and each and every right and remedy shall be cumulative and in addition to any other right or remedy contained in this Lease.  No delay or failure by Landlord or Tenant to enforce its rights under this Lease shall be construed as a waiver, modification or relinquishment thereof.  In addition to the other remedies provided in this Lease, Landlord and Tenant shall be entitled, to the extent permitted by applicable law, to injunctive relief in case of the violation or attempted or threatened violation of any of the provisions of this Lease, or to specific performance of any of the provisions of this Lease.

(b)           Tenant hereby waives and surrenders for itself and all those claiming under it, including creditors of all kinds, any right and privilege which it or any of them may have under any present or future law to redeem any of the Leased Premises or to have a continuance of this Lease after termination of this Lease or of Tenant’s right of occupancy or possession pursuant to any court order or any provision hereof.

(c)           Landlord hereby waives any right to distrain or levy upon Trade Fixtures or any property of Tenant and any Landlord’s Lien or similar Lien upon Trade Fixtures and any other property of Tenant regardless of whether such Lien is created or otherwise.

(d)           Landlord acknowledges and agrees in the future to acknowledge (in a written form reasonably satisfactory to Tenant and Landlord) to such persons and entities at such times and for such purposes as Tenant may reasonably request that the Trade Fixtures are Tenant’s property and not part of the Improvements (regardless of whether or to what extent such Trade Fixtures are affixed to the Improvements) or otherwise subject to the terms of this Lease.

(e)           Tenant agrees to pay to Landlord any and all reasonable costs and expenses incurred by Landlord in connection with any litigation or other action instituted by Landlord to enforce the obligations of Tenant under this Lease, to the extent that Landlord has prevailed in any such litigation or other action.  Any amount payable by Tenant to Landlord pursuant to this Paragraph 20(e) shall be due and payable by Tenant to Landlord as Additional Rent within thirty (30) days after a final, non-appealable judgment or decision is rendered in favor of Landlord, or a settlement is entered into, in connection with such litigation or other action.

(f)           Landlord agrees to pay to Tenant any and all reasonable costs and expenses incurred by Tenant in connection with any litigation or other action instituted by Tenant to enforce the obligations of Landlord under this Lease, to the extent that Tenant has prevailed in any such litigation or other action.  Any amount payable by Landlord to Tenant pursuant to this Paragraph 20(f) shall be due and payable within thirty (30) days after a final, non-appealable judgment or decision is rendered in favor of Tenant in such litigation or other action.

 
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21.     Notices.    All Notices shall be in writing and shall be deemed to have been given for all purposes (i) three (3) days after having been sent by United States mail, by registered or certified mail, return receipt requested, postage prepaid, addressed to the other party at its address as stated below, or (ii) one (1) day after having been sent for overnight delivery by Federal Express, United Parcel Service or other nationally recognized air courier service.

To the Addresses stated below:

 
If to Landlord:
     
   
c/o SunTrust Equity Funding, LLC
   
303 Peachtree Street, 24 th Floor
   
MC 3951
   
Atlanta, Georgia  30308
   
Attention:  Allison McLeod
   
Facsimile:  (404) 230-1344
     
 
With a copy to:
     
   
Greenberg Traurig, LLP
   
77 West Wacker Drive, Suite 2500
   
Chicago, Illinois  60601
   
Attention:  Julia R. Sarron
   
Facsimile:  (312) 899-0396
     
 
If to Tenant:
     
   
Covenant Transport, Inc
   
400 Birmingham Highway
   
Chattanooga, Tennessee  37419
   
Attention:  Joey B. Hogan
   
Facsimile:  (423) 821-5442
     
 
With a copy to:
     
   
Scudder Law Firm, P.C., L.L.O.
   
411 S. 13 th Street
   
Lincoln, Nebraska  68508
   
Attention:  Mark Scudder
   
Facsimile:  (402) 435-4239

If any Lender shall have advised Tenant by Notice in the manner aforesaid that it is the holder of a Mortgage and states in said Notice its address for the receipt of Notices, then simultaneously with the giving of any Notice by Tenant to Landlord, Tenant shall send a copy of such Notice to Lender in the manner aforesaid.  For the purposes of this Paragraph 21 , any party may substitute its address by giving fifteen (15) days’ notice to the other party in the manner provided above.  Any Notice may be given on behalf of any party by its counsel.

 
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           22.     Estoppel Certificates .   Landlord and Tenant shall at any time and from time to time, upon not less than five (5) days’ prior written request by the other, execute, acknowledge and deliver to the other a statement in writing, in substantially the form of Exhibit C hereto certifying (i) that this Lease is unmodified and in full effect (or, if there have been modifications, that this Lease is in full effect as modified, setting forth such modifications), (ii) the dates to which Basic Rent payable hereunder has been paid, (iii) that to the knowledge of the signer of such certificate no default by either Landlord or Tenant exists hereunder or specifying each such default of which the signer may have knowledge, (iv) the remaining Term hereof, (v) with respect to a certificate signed on behalf of Tenant, that to the knowledge of the signer of such certificate, there are no proceedings pending or threatened against Tenant before or by any court or administrative agency which if adversely decided would materially and adversely affect the financial condition and operations of Tenant or if any such proceedings are pending or threatened to said signer’s knowledge, specifying and describing the same , and (vi) such other matters as may reasonably be requested by the party requesting the certificate.  It is intended that any such statements may be relied upon by Lender, the recipient of such statements or their assignees or by any prospective purchaser, assignee or subtenant of the Leased Premises or of the membership interest in Landlord.  Landlord and Tenant agree that the requesting party shall be responsible to reimburse the other party for all reasonable out-of-pocket expenses incurred by such party in connection with preparing and delivering the requested estoppel certificate.

23.     Surrender and Holding Over .

(a)           Upon the expiration or earlier termination of this Lease, Tenant shall peaceably leave and surrender the Leased Premises to Landlord.  Tenant shall remove from the Leased Premises on or prior to such expiration or earlier termination the Trade Fixtures and personal property which is owned by Tenant or third parties other than Landlord, and Tenant at its expense shall, on or prior to such expiration or earlier Termination, repair any damage caused by such removal.  Trade Fixtures and personal property not so removed at the end of the Term or within thirty (30) days after the earlier termination of the Term for any reason whatsoever shall become the property of Landlord, and Landlord may thereafter cause such property to be removed from the Leased Premises. The cost of removing and disposing of such property and repairing any damage to any of the Leased Premises caused by such removal shall be borne by Tenant.  Landlord shall not in any manner or to any extent be obligated to reimburse Tenant for any property which becomes the property of Landlord as a result of such expiration or earlier termination.

(b)           Any holding over by Tenant of the Leased Premises after the expiration or earlier termination of the Term of this Lease or any extensions thereof, with the consent of Landlord, shall operate and be construed as tenancy from month to month only, at one hundred twenty-five percent (125%) of the Basic Rent reserved herein and upon the same terms and conditions as contained in this Lease.  Notwithstanding the foregoing, any holding over without Landlord’s consent shall entitle Landlord, in addition to collecting Basic Rent at a rate of one hundred twenty-five percent (125%) thereof, to exercise all rights and remedies provided by law or in equity, including the remedies of Paragraph 19(b) .

 
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24.     No Merger of Title .   There shall be no merger of this Lease nor of the leasehold estate created by this Lease with the fee estate in or ownership of any of the Leased Premises by reason of the fact that the same person, corporation, firm or other entity may acquire or hold or own, directly or indirectly, (a) this Lease or the leasehold estate created by this Lease or any interest in this Lease or in such leasehold estate and (b) the fee estate or ownership of any of the Leased Premises or any interest in such fee estate or ownership.  No such merger shall occur unless and until all Persons, corporations, firms and other entities having any interest in (i) this Lease or the leasehold estate created by this Lease and (ii) the fee estate in or ownership of the Leased Premises or any part thereof sought to be merged shall join in a written instrument effecting such merger and shall duly record the same.

25.     Definition of Landlord .

(a)           Anything contained herein to the contrary notwithstanding, any claim based on or in respect of any liability of Landlord under this Lease shall be enforced only against the Landlord’s interest in the Leased Premises and shall not be enforced against the Landlord, or any member, beneficiary or shareholder of Landlord, individually or personally.

(b)           The term “ Landlord ” as used in this Lease so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners of the Leased Premises or holder of the Mortgage in possession at the time in question of the Leased Premises and in the event of any transfer or transfers of the title of the Leased Premises, the Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be automatically freed and relieved from and after the date of such transfer and conveyance of all personal liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed.

26.     Hazardous Substances .

(a)           Tenant agrees that it will not on, about, or under the Leased Premises, make, store, release, treat or dispose of any Hazardous Materials; but the foregoing shall not prevent the use, storage or existence of any hazardous substances in the ordinary course of Tenant’s business in accordance with applicable laws and regulations and at levels that do not impose any clean up liability or obligation.  Tenant agrees that it will at all times comply with all Environmental Laws.

(b)           To the extent required by any Environmental Laws, Tenant shall remove any Hazardous Materials whether now or hereafter existing on the Leased Premises and whether or not arising out of or in any manner connected with Tenant’s occupancy of the Leased Premises during the Term.

(c)           The Tenant agrees that it will not install any underground storage tank at the Leased Premises without specific, prior written approval from the Landlord.

 
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27.     Entry by Landlord.   Landlord, Lender and their respective authorized representatives shall have the right upon reasonable notice (which shall be not less than two (2) Business Days except in the case of emergency) to enter the Leased Premises at all reasonable business hours (and at all other times in the event of an emergency):  (a) for the purpose of inspecting the same, for the purpose of conducting an environmental audit of the Leased Premises or for the purpose of doing any work under Paragraph 11(c), and may take all such action thereon as may be necessary or appropriate for any such purpose (but nothing contained in this Lease or otherwise shall create or imply any duty upon the part of Landlord to make any such inspection or do any such work), and (b) for the purpose of showing the Leased Premises to prospective purchasers of the Leased Premises or the membership interests in Landlord and mortgagees and, at any time within twelve (12) months prior to the expiration of the Term of this Lease, for the purpose of showing the same to prospective tenants.  No such entry shall constitute an eviction of Tenant but any such entry shall be done by Landlord in such reasonable manner as to minimize any disruption of Tenant’s business operation. The costs and expenses of any such inspection pursuant to clause (b) of this Paragraph 27 shall be borne by Landlord or Lender, as the case may be.

28.     No Usury .  The intention of the parties being to conform strictly to the applicable usury laws, whenever any provision herein provides for payment by Tenant to Landlord of interest at a rate in excess of the legal rate permitted to be charged, such rate herein provided to be paid shall be deemed reduced to such legal rate.

29.     Financial Statements .   Tenant shall submit, or cause Lease Guarantor to submit, to Landlord and Lender, either in print or in electronic form, the following financial statements, all of which must be prepared in accordance with generally accepted accounting principles consistently applied: (i) quarterly financial statements for Lease Guarantor, within sixty (60) days after the end of each fiscal quarter during the Term, certified by the chief financial officer or chief accounting officer of Lease Guarantor, and (ii) annual financial statements for Lease Guarantor, audited by an independent certified public accountant reasonably acceptable to Landlord, within one hundred twenty (120) days after the end of each fiscal year during the Term.  In the event that Lease Guarantor is, or shall become, a publicly listed company and is required to file quarterly and annual statements with the SEC, then Tenant shall submit, or cause Lease Guarantor to submit, to Landlord and Lender, when filed with the SEC, copies of Lease Guarantor’s forms 10Q and 10K.  Notwithstanding the foregoing, Tenant shall not be required to submit any such forms or financial statements if on or before the applicable delivery date, such financial statements are available on EDGAR or on the Lease Guarantor’s website.

30.     Special Tax Indemnity .
 
(a)      Tenant hereby represents, warrants and covenants to Landlord as follows:  (i) neither the Leased Premises as a whole nor the Fixtures constitutes “limited use property” within the meaning of Revenue Procedure 2001-28, 2001-19 I.R.B. 1156; (ii) at no time during the Term will the Leased Premises or any portion thereof constitute “tax-exempt use property” within the meaning of Section 168(h) of the Code in effect as of the date of this Lease; (iii) neither Tenant nor any Affiliate will claim any depreciation or cost recovery deductions after the date hereof with respect to the Leased Premises or any portion thereof, or has taken or will take any other action in connection with filing its or their federal income tax returns that would be a primary factor resulting in a Loss or Inclusion (in each case, as defined in Paragraph 30(b) below); (iv) as of the Commencement Date hereof with respect to the Improvements and Fixtures, such Leased Premises will not require any improvement, modification or addition in order to be rendered complete for its intended use by Tenant; and (v) all written information supplied, caused to be supplied or to be supplied to any appraiser by or on behalf of Tenant or any Affiliate of Tenant with respect to the Leased Premises or any portion thereof was or will be, as the case may be, true and accurate when supplied.

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(b)           If, by reason of any act or omission of Tenant or by any other Person in possession of the Leased Premises or any portion thereof or by reason of the inaccuracy or breach by Tenant of any of the representations, warranties and covenants contained in this Paragraph 30 , any anticipated depreciation deductions are lost, disallowed, eliminated, reduced, recaptured, compromised, delayed or otherwise made unavailable to Landlord (a “ Loss ”) or Landlord incurs a tax detriment because Landlord is required to include amounts in income other than Anticipated Lease Income (an “ Inclusion ”), Tenant shall, upon notice from Landlord promptly pay such Person designated by Landlord on demand in immediately available funds, as an indemnity an amount which, on an After-Tax Basis, shall be equal to the sum of (x) the increase in federal, state, local and foreign income tax liability for the respective taxable year attributable to such Loss or Inclusion plus (y) the amounts of interest, penalties and additions to tax (including, without limitation, any additions to tax because of underpayment of estimated tax), which are assessed against Landlord for such taxable year by the Internal Revenue Service or any relevant state, local or foreign taxing authority and which are attributable to such Loss or Inclusion.

(c)           Landlord shall notify Tenant in writing of any actual or proposed claim, adjustment or other action of any tax authority received by Landlord in writing with respect to which Tenant may be required to provide indemnification under this Paragraph 30 (“ Proposed Adjustment ”) (but failure of Landlord to so notify Tenant shall not relieve Tenant of its obligations hereunder except to the extent that Tenant is precluded from any contest and actually and materially harmed thereby).  If Tenant shall request in writing within thirty (30) days after Landlord’s notice described above that the Proposed Adjustment be contested (or such shorter period in which the Landlord may be required to take action), Landlord shall contest the Proposed Adjustment; provided , however , that: (i) prior to taking such action, Tenant shall have furnished Landlord with an opinion of independent tax advisor chosen by Tenant and reasonably acceptable to Landlord, to the effect that Landlord has a reasonable possibility of success in contesting the claim; (ii) prior to taking such action, Tenant shall have (A) acknowledged its obligation to indemnify Landlord hereunder in the event Landlord does not prevail in such contest and (B) agreed to reimburse Landlord promptly on demand for (or, if so requested by Landlord, advance) all costs and expenses that Landlord may incur in connection with contesting such claim, including without limitation reasonable attorneys’ and accountants’ fees and expenses; (iii) no Event of Default shall exist and be continuing; (iv) Landlord shall not be obligated to contest any proposed amount that is less than $25,000.00; and (v) Landlord shall in all events control the contest, and Tenant shall not have any right to inspect the books and records of Landlord, but shall have reasonable opportunity to review and comment on portions of documentation, protests, memoranda or briefs relating exclusively to a Proposed Adjustment.  In the event Landlord pays the tax claimed and then seeks a refund, Landlord may require Tenant to advance funds sufficient to pay the tax that would be indemnified by Tenant hereunder if the refund claim were resolved adversely to Landlord.  To the extent the refund claim is successful, the refund received from the taxing authority and attributable to funds advanced by Tenant shall be refunded to Tenant, unless the refund is needed to pay an indemnity.  Notwithstanding anything to the contrary in this Paragraph 30(c) , Landlord may at any time decline to take any further action with respect to a Proposed Adjustment or may settle any contest without the consent of Tenant; provided , however , that if Tenant has complied with all the terms of this Paragraph 30(c) , and Tenant has reasonably withheld in writing its consent to all or part of such assessment or settlement based upon its evaluation of the merits, Tenant will not be obligated to indemnify Landlord for the portion of such assessment or settlement to which Tenant has reasonably withheld its consent.  In the case of any flow-through entity, “Landlord” shall include the member or other equity owners of Landlord required to report the gross or net income of Landlord and/or other items of income, expense, deduction and credit with respect thereto, and “Landlord” and the owners thereof shall include the consolidated group of which any such Person is a part for income tax purposes.

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(d)           Tenant (or its designated beneficiary) is authorized and will control the ad valorem real property tax valuation process.  This includes the right to examine records, obtain all tax statements and discuss or appeal any tax assessments to the proper authorities.  All trim notices and notices of valuation will be either sent directly to Tenant from the tax assessor or will be promptly forwarded to Tenant by Landlord.

(e)           Notwithstanding anything herein to the contrary, the provisions of this Paragraph 30 shall survive the earlier termination of this Lease.

31.     W ithholdings .

(a)           Notwithstanding anything herein to the contrary, Tenant agrees that each payment of Basic Rent and Additional Rent shall be free and clear of, and without deduction for any withholdings of any nature whatsoever unless required by Applicable Law.  If any deduction or withholding is required with respect to a payment of Basic Rent and/or Additional Rent by Tenant, Tenant shall pay an additional amount such that the net amount actually received by the Tax Indemnitee, after deduction or withholding, will be equal, on an After-Tax Basis, to all such amounts that would be received by the Tax Indemnitee if no such deduction or withholding had been required; provided, that the Tenant shall not be obligated to pay any additional amount pursuant to this Paragraph 31 if the requirement to make such payment is solely due to the failure of a Tax Indemnitee to comply with Paragraph 30(c) to obtain relief or exemption from such withholding.

(b)           Notwithstanding anything herein to the contrary, the provisions of this Paragraph 31 shall survive the earlier termination of this Lease.

 
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32.     Representations.   Tenant represents and warrants to Landlord and the Lenders as follows:
 
(a)     Existence and Standing .  Tenant is a corporation duly and properly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and in the jurisdiction where the Leased Premises is located and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted.
 
(b)     Authorization and Validity .  Tenant has the power and authority and legal right to execute and deliver this Lease and to perform its obligations hereunder.  The execution and delivery by Tenant of this Lease and the performance of its obligations hereunder have been duly authorized by proper corporate or other proceedings, and this Lease constitutes legal, valid and binding obligations of Tenant enforceable against Tenant in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.

(c)     No Conflict .  The execution, delivery and performance by Tenant of this Lease and the transactions contemplated hereby do not and will not (i) violate any Law or the organizational documents of Tenant or any agreement, indenture or other contract to which Tenant is a party or is subject, (ii) result in or require the creation or imposition of any Lien whatsoever on the Leased Premises or upon any of the properties or assets of Tenant, or (iii) require any approval of stockholders which has not been obtained and is in full force and effect.

(d)     Governmental Consents .  Except as have been made, obtained or given, and are in full force and effect, no filing or registration with, consent or approval of, or notice to, with or by any Governmental Authority, is required to authorize, or is required in connection with, the execution, delivery and performance by Tenant of this Lease or the legality, validity, binding effect or enforceability of this Lease.

(e)     Governmental Regulation .  Neither Tenant nor any Subsidiary of Tenant is an “investment company” or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

(f)     Requirements of Law .  Tenant and each Subsidiary of Tenant and each Person acting on behalf of any of them is in compliance with all Legal Requirements applicable to them and their respective businesses to the extent the failure to be in such compliance has had, or could have, a material adverse effect on Tenant’s financial condition, operations, assets or prospects, or Tenant’s ability to perform its obligations under this Lease.

(g)     Hazardous Materials .  (i)      To the best knowledge of Tenant, there are no Hazardous Materials present at, upon, under or within the Leased Premises or released or transported to or from the Leased Premises (except for Hazardous Materials that are present in the ordinary course of Tenant’s business on the Leased Premises in full compliance with all Legal Requirements), except as set forth in that certain Phase I Environmental Assessment of the Leased Premises obtained by Landlord on or prior to the Commencement Date.

 
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(ii)           No governmental actions have been taken or are in process or, to the Tenant’s actual knowledge, have been threatened, which could reasonably be expected to subject the Leased Premises or any Indemnitee to any Claims or Liens under any Environmental Law which would have a materially adverse effect on such Indemnitee or the Leased Premises.

(iii)           Tenant has, or will obtain on or before the date required by Law, all environmental permits necessary to operate the Leased Premises in accordance with Environmental Laws and, to the best knowledge of Tenant, is complying with and has at all times complied with all such environmental permits.

(iv)           To the best of Tenant’s knowledge, no material notice, notification, demand, request for information, citations, summons, complaint or order has been issued or filed to or with respect to Tenant, no penalty has been assessed on Tenant and no investigation or review is pending or threatened by any Governmental Authority or other Person in each case relating to the Leased Premises with respect to any alleged material violation or liability of Tenant under any Environmental Law.  To the best of Tenant’s knowledge, no material notice, notification, demand, request for information, citations, summons, complaint or order has been issued or filed to or with respect to any other Person, no material penalty has been assessed on any other Person and no investigation or review is pending or threatened by any Governmental Authority or other Person relating to the Leased Premises with respect to any alleged material violation or liability under any Environmental Law by any other Person.

(v)           To the best of Tenant’s knowledge, the Leased Premises and each portion thereof are presently in compliance in all material respects with all Environmental Laws, and there are no present or past facts, circumstances, activities, events, conditions or occurrences regarding the Leased Premises (including without limitation the release or presence of Hazardous Materials) that could reasonably be anticipated to (A) form the basis of a material Claim against the Leased Premises, any Indemnitee or Tenant, (B) cause the Leased Premises to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law, (C) require the filing or recording of any notice or restriction relating to the presence of Hazardous Materials in the real estate records in the county or other appropriate municipality in which the Leased Premises is located, or (D) prevent or interfere with the continued operation and maintenance of the Leased Premises as contemplated by this Lease.
 
(h)     Leased Premises .  To the best of Tenant’s knowledge, the present condition and use of the Leased Premises conforms in all material respects with all conditions or requirements of all existing permits and approvals issued with respect to the Leased Premises, and, to the best of Tenant’s knowledge,  the present use of each Leased Premises does not, in any material respect, violate any Law.  To the best of Tenant’s knowledge, no material notices, complaints of orders or violation or non-compliance have been issued or threatened or contemplated by any Governmental Authority with respect to the Leased Premises or any present or intended future use thereof.  To the best of Tenant’s knowledge, all agreements, easements and other rights, public or private, which are necessary to permit the lawful use and operation of the Leased Premises as Tenant intends to use the Leased Premises under this Lease and which are necessary to permit the lawful intended use and operation of all presently intended utilities, driveways, roads and other means of egress and ingress to and from the same have been, or will be, obtained and are in full force and effect, and Tenant has no knowledge of any pending modification or cancellation of any of the same.

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33.     Duty of First Offer .

(a)           Except in transactions consummated prior to the second (2 nd ) anniversary of the Commencement Date, Landlord shall not at any time during the Term sell or convey or agree to sell or convey the Leased Premises (except to SunTrust Banks, Inc. or any Affiliate thereof) without first having complied with the requirements of this Paragraph 33 .  Provided that no Event of Default exists or has occurred and is continuing, if Landlord shall desire to sell or convey the Leased Premises, then Landlord shall submit a written offer to sell the Leased Premises to Tenant setting forth the price and terms of such proposed sale (the “ Offer ”) to Tenant and shall give Tenant thirty (30) days within which to elect to purchase the Leased Premises on the precise terms and conditions of the Offer (except that if the Offer shall be in whole or in part for consideration other than cash, Tenant shall have the right to pay in cash the fair market value of such non-cash consideration).  If Tenant elects to so purchase the Leased Premises Tenant shall give to Landlord written notice thereof (“ Acceptance Notice ”) and the closing shall be held within sixty (60) days after the date of the Acceptance Notice, whereupon Landlord shall convey the Leased Premises to Tenant.  At the closing Landlord shall deliver to Tenant a special warranty deed (or local equivalent), sufficient to convey to Tenant fee simple title to the Leased Premises free and clear of all Liens, restrictions and encumbrances, except for the Permitted Encumbrances, Liens or encumbrances created, suffered or consented to in writing by Tenant or arising by reason of the failure of Tenant to have observed or performed any term, covenant or agreement herein to be observed or performed by Tenant, the Lien of any Impositions then affecting the Leased Premises, this Lease and, if the Leased Premises are to be conveyed subject to the outstanding balance of the Loan, the Mortgage and all other Loan documents.  In the event Tenant shall elect not to so purchase the Leased Premises, Landlord may thereafter sell the Leased Premises to any party without offering it to Tenant, provided that (i) the purchase price shall not be less than 95% of that set forth in the Offer, (ii) the material terms of such purchase shall not be substantially more favorable to the buyer than those set forth in the Offer and (iii) the purchase is consummated within eighteen (18) months after Landlord’s submission of the Offer to Tenant.

(b)           Notwithstanding anything to the contrary herein, the provisions of this Paragraph 33 shall not apply to (i) any sale or conveyance of the Leased Premises in foreclosure sale (or similar proceeding) of a bona-fide mortgage or deed of trust or to any conveyance in lieu of foreclosure of such a mortgage or deed of trust, or to any transfer subsequent to a foreclosure sale or deed in lieu thereof in connection with the requirements of Standard & Poor’s, Moody’s or any other Rating Agencies if the Loan is securitized, (ii) any sale or conveyance of the Leased Premises which occurs during the existence of an Event of Default hereunder, or (iii) any sale, transfer, assignment or pledge of the beneficial ownership interest, membership interest, partnership interest or other equity interest in Landlord, or the change of the manager or other controlling person of the Landlord, or any transfer, sale or other disposition of the Leased Premises to SunTrust Banks, Inc. or any Affiliate thereof.

 
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(c)           If Landlord sells the Leased Premises (to Tenant or anyone else) Tenant hereby acknowledges and consents as follows:  (i) any such sale or conveyance during any period in which the Loan may not be prepaid or defeased, as the case may be, shall be subject to the outstanding balance of the Loan (and the purchase price payable to Landlord shall take into account such outstanding balance), and, if Tenant shall be entitled to, and shall, exercise its rights under this Paragraph 33 , the Loan, Note, Mortgage and other Loan documents will be assumed by Tenant, and the Lien of the Mortgage may not be released during such period; (ii) such sale shall be in accordance with and subject to the terms and provisions of the Note, the Mortgage and the other Loan Documents, whether such purchase contemplates the purchase of the Leased Premises subject to the Lien of the Mortgage or for a release of the Lien of the Mortgage; and (iii) if the Lien of the Mortgage is not released in connection with such sale of the Leased Premises, Tenant shall acquire the Leased Premises through another entity, no merger of title shall occur and this Lease and any guaranty of this Lease will remain in full force and effect in accordance with their terms.

(d)           If Tenant shall have agreed to purchase the Leased Premises at a time when the Loan may be prepaid or defeased, as the case may be, Tenant may purchase the Leased Premises for cash free and clear of the Mortgage but only if (i) the cash portion of the Offer is increased by an amount equal to the principal and interest secured by the Mortgage, and (ii) Tenant pays (in addition to the purchase price) all prepayment premiums or defeasance deposits, yield maintenance amounts, satisfaction fees and any and all other sums which become owing as a result of such prepayment or defeasance, as the case may be; all to the end and effect that Landlord will net the same amount as Landlord would have netted had the Leased Premises been sold under and subject to the Lien of the Mortgage.

34.       Separability .   Each and every covenant and agreement contained in this Lease is, and shall be construed to be, a separate and independent covenant and agreement, and the breach of any such covenant or agreement by Landlord shall not discharge or relieve Tenant from its obligation to perform the same.  If any term or provision of this Lease or the application thereof to any provision of this Lease or the application thereof to any Person or circumstances shall to any extent be invalid and unenforceable, the remainder of this Lease, or the application of such term or provision to such Person or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and shall be enforced to the extent permitted by law.

35.     Miscellaneous .

(a)           The paragraph headings in this Lease are used only for convenience in finding the subject matters and are not part of this Lease or to be used in determining the intent of the parties or otherwise interpreting this Lease.

(b)           As used in this Lease the singular shall include the plural as the context requires and the following words and phrases shall have the following meanings: (i) “including” shall mean “including but not limited to”; (ii) “provisions” shall mean “provisions, terms, agreements, covenants and/or conditions”; and (iii) “obligation” shall mean “obligation, duty, agreement, liability, covenant or condition”.

 
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(c)           Any act which Landlord is permitted to perform under this Lease may be performed at any time and from time to time by Landlord or any person or entity designated by Landlord.  Any act which Tenant is required to perform under this Lease shall be performed at Tenant’s sole cost and expense.

(d)           This Lease may be modified, amended, discharged or waived only by an agreement in writing signed by both parties hereto.

(e)           The covenants of this Lease shall run with the Land and bind Tenant, the successors and assigns of Tenant and all present and subsequent encumbrances and subtenants of any of the Leased Premises, and shall inure to the benefit of and bind Landlord, its successors and assigns.

(f)           This Lease will be simultaneously executed in several counterparts, each of which when so executed and delivered shall constitute an original, fully enforceable counterpart for all purposes.

(g)           This Lease shall be governed by and construed according to the laws of the State in which the Leased Premises is located.
 

 
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IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to be executed as of the day and year first above written.
 
 
CT CHATTANOOGA TN, LLC,  as Landlord
     
 
By:
SunTrust Equity Funding, LLC, its Manager
     
 
By:
  /s/R. Todd Shutley
 
Name:
R. Todd Shutley
 
Title:
Senior Vice President and Manager
 
 
 
LEASE AGREEMENT
 
S-1

 


 
COVENANT TRANSPORT, INC., a Tennessee corporation, as Tenant
     
 
By:
  /s/Joey B. Hogan    
 
Name:
  Joey B. Hogan
 
Title:
  EVP/CFO





LEASE AGREEMENT
 
S-2

 

EXHIBIT A
LEGAL DESCRIPTION

 
BEING A PART of the Covenant Transport, Inc. property described in Deed Book 4443, Page 260, of the Register’s Office of Hamilton County, Tennessee, located in the City of Chattanooga, Hamilton County, Tennessee, and being more particularly described as follows:

BEGINNING AT AN OLD PIPE, said point being in the line dividing Sections Thirteen (13) and Fourteen (14), Township Two (2) South, Range Five (5), West of the Basis Line, Ocoee District, the said iron pipe also marking the Northwestern corner of Lot 24, Interchange City, as shown on plat recorded in Plat Book 34, Page 22, in the Register’s Office of Hamilton County, Tennessee, said point also being in the Southern right-of-way of New Cummings Road; thence South 24 degrees 38 minutes 31 seconds West, along the dividing line of said Sections 13 and 14, a distance of 2,285.13 feet to a 5/8 inch rebar with cap set; thence leaving said Section, North 46 degrees 32 minutes 46 seconds West, a distance of 1,582.91 feet to an old rebar found, said point being in the Eastern right-of-way of U.S. Highway No. 11 (Birmingham Highway); thence, as follows; with a curve to the right, said curve having a delta angle of 04 degrees 41 minutes 18 seconds, a radius of 5,690.00 feet, a length of 465.58 feet, and a chord of North 43 degrees 11 minutes 06 seconds East, 465.45 feet to a mag nail set; thence South 44 degrees 28 minutes 15 seconds East, a distance of 50.00 feet to a 5/8 inch rebar with cap set; thence, with a curve to the right, said curve having a delta angle of 05 degrees 41 minutes 23 seconds, a radius of 5,643.85 feet, a length of 560.46 feet to a 5/8 inch rebar with cap set, said point being the end point of said curve; thence North 51 degrees 13 minutes 15 seconds East, a distance of 60.81 feet to a 5/8 inch rebar with cap set; thence, leaving said right-of-way crossing the Covenant Transport, Inc. property, South 78 degrees 34 minutes 19 seconds East, a distance of 92.12 feet, to a 5/8 inch rebar with cap set; thence South 68 degrees 35 minutes 08 seconds East, a distance of 147.50 feet, to a 5/8 inch rebar with cap set; thence South 74 degrees 19 minutes 42 seconds East, a distance of 225.85 feet, to a 5/8 inch rebar with cap set; thence North 34 degrees 00 minutes 05 seconds East, a distance of 431.88 feet, to a 5/8 inch rebar with cap set; thence North 72 degrees 56 minutes 18 seconds East, a distance of 53.57 feet to a 5/8 inch rebar with cap set; thence South 66 degrees 11 minutes 11 seconds East, a distance of 271.94 feet, to a 5/8 inch rebar with cap set; thence South 85 degrees 56 minutes 14 seconds East, a distance of 56.12 feet, to a 5/8 inch rebar with cap set; thence North 50 degrees 53 minutes 23 seconds East, a distance of 51.03 feet, to a 5/8 inch rebar with cap set; thence North 29 degrees 48 minutes 32 seconds East, a distance of 193.24 feet, to a 5/8 inch rebar with cap set, said point being in the Southern right-of-way of New Cummings Road; thence South 63 degrees 18 minutes 12 seconds East, along said right-of-way, a distance of 116.36 feet, to the POINT OF BEGINNING.  All as shown on that Survey prepared by Wesley M. James, R.L.S. Tennessee No. 811, dated January 26, 2006.

Being a portion of the property conveyed to Covenant Transport, Inc., a Tennessee Corporation, by Warranty Deed from John C. Grant, Jr., unmarried, only child and sole heir at law of John C. Grant, recorded December 14, 1994 in Book 4443, Page 260, in the Register’s Office of Hamilton County, Tennessee.

 

 

EXHIBIT B
BASIC RENT
 
Basic Rent for (i) the period from the Commencement Date to March 31, 2007 shall be at the annual amount equal to $2,466,000 and (ii) for each subsequent year (including during any Renewal Term) shall be at an annual amount equal to the sum of (A) the annual Basic Rent for the immediately preceding year plus (B) the Adjustment Amount for such year.  The amount of Basic Rent shall be adjusted pursuant to the foregoing sentence as of each April 1st.  The “ Adjustment Amount ” any year shall be an amount equal to the annual Basic Rent for the immediately preceding year, times 1%.

The Basic Rent payable on any Basic Rent Payment Date shall be one-twelfth of the then annual rent calculated pursuant to the foregoing paragraph.



 

 

EXHIBIT C
FORM OF TENANT ESTOPPEL
 
 
(Chattanooga, Tennessee)
 
The undersigned, Covenant Transport, Inc., a Tennessee corporation (“ Tenant ”), hereby certifies to Morgan Stanley Mortgage Capital Inc. (“ Lender ”), as follows:
 
1.           The undersigned is the Tenant under that certain Lease Agreement dated as of April 3, 2006 (the “ Lease ”) executed by CT Chattanooga TN, LLC as landlord (the “ Landlord ”), and the undersigned, as tenant, demising certain premises in Chattanooga, Tennessee more fully described therein (the “ Premises ”).  Capitalized terms used in this Certificate and not otherwise defined herein shall have the meanings assigned thereto in the Lease.
 
2.           Tenant has paid all Basic Rent through May 1, 2006.  The current Basic Rent for the Premises is $205,500 per month.  No Basic Rent has been paid more than one (1) month in advance.
 
3.           The current term of the Lease will expire pursuant to its terms on March 31, 2026.  Tenant has an option to renew the Term of the Lease for eight (8) additional terms of five (5) years.
 
4.           There are no offsets, deductions or credits against rentals payable under the Lease and no unexpired free rent periods or rental concessions or abatements have been granted to Tenant.
 
5.           Tenant is not in default in the payment or performance of any of its obligations under the Lease and there is no condition existing which with the passing of time or the giving of notice, or both, would constitute a default or Event of Default under the Lease.
 
6.           To the best knowledge of the undersigned, the Landlord is not in default in the payment or performance of its obligations under the Lease and there is no condition existing which with the passing of time or the giving of notice, or both, would constitute a default by Landlord under the Lease.
 
6.           This Certificate may be relied upon and inure to the benefit of Landlord, Lender and their affiliates, designees and agents and their successors and assigns.
 
7.           The Lease is in full force and effect, and the Lease has not been modified, amended or altered in writing or otherwise.
 
8.           To the knowledge of the undersigned, there are no proceedings pending or threatened against Tenant before or by any court or administrative agency which if adversely decided would materially and adversely affect the financial condition and operations of Tenant.
 
Nothing in this Estoppel Certificate modifies the Lease or any of its terms.
 
Dated:  May __, 2006
 

 
TENANT
   
 
Covenant Transport, Inc.
 
a Tennessee corporation
   
   
 
By:
 
 
Print Name:
 
 
Title:
 

 

 
41

 

EXHIBIT D
FORM OF LANDLORD WAIVER
 
THIS LANDLORD’S WAIVER (this “ Agreement ”) made as of this ___ day of ______________, 200_ by CT CHATTANOOGA TN, LLC, a Delaware limited liability company (the “ Landlord ”), to _______________________________ (the “ Bank ”), in its capacity as lender under that certain [Credit Agreement] dated as of _______________________, 200_ with Covenant Transport, Inc., a Tennessee corporation (“ Covenant Transport ”).
 
BACKGROUND
 
Covenant Transport is or may become indebted to the Bank for certain credit facilities (the “ Loans ”).  Under the provisions of a certain lease agreement (as amended from time to time, the “ Lease ”) dated as of March 15, 2006, between the Landlord and Covenant Transport, the Landlord has leased certain property located in Chattanooga, Tennessee and more fully described on Exhibit A hereto (the “ Premises ”) to Covenant Transport.  Because part of Covenant Transport’s inventory, equipment and other tangible personal property may be located on or affixed to the Premises, the Bank has required, as a condition to making the Loans, the execution and delivery of this Agreement by the Landlord.
 
NOW, THEREFORE, to induce the Bank to make the Loans available to Covenant Transport, the Landlord, intending to be legally bound hereby covenants and agrees with the Bank as follows:
 
1.   This waiver shall apply to any of Covenant Transport’s inventory, equipment and other tangible personal property located on, at or about or affixed to the Premises, so long as the same may be readily removed without material damage to the Premises, and if affixed to the Premises, have not been financed by the Landlord and are considered to be Covenant Transport’s trade fixtures (the “ Assets ”).
 
2.   The Landlord hereby waives and releases in favor of and assigns to the Bank  (a) any and all rights of distraint, levy and execution which the Landlord may now or hereafter have against the Assets, (b) any and all liens and security interests which the Landlord may now or hereafter have on the Assets, and (c) any and all other claims of every nature whatsoever which the Landlord may now or hereafter have on or against the Assets for any rent or other sums due or to become due to the Landlord by Covenant Transport under the provisions of the Lease or otherwise.
 
3.   The Landlord shall notify the Bank in writing of any default by Covenant Transport under the provisions of the Lease of which the Landlord has actual knowledge and with respect to which the Landlord contemplates terminating the Lease.  Any such notice shall be sent by certified mail, postage prepaid, or overnight courier service to the Bank at _______________________________________________.
 
4.   If Covenant Transport defaults on any of its obligations to the Bank during the term of the Lease, and the Bank undertakes to enforce its security interest in the Assets, the Landlord will permit the Bank to remain on the Premises for thirty (30) days after the Bank declares the default, provided the Bank pays the rental payments due under the Lease for the period of time the Bank uses the Premises, and/or, at the Bank’s option, will permit the Bank to remove the Assets from the Premises within a reasonable time, not to exceed thirty (30) days after the Bank declares the default, provided the Bank pays the rental payments due under the Lease for the period of time the Bank uses the Premises and the Bank repairs any damages to the Premises made during the period of time the Bank uses the Premises, and Landlord will not intentionally hinder the Bank’s actions in enforcing its liens on the Assets.
 

5.   The Landlord shall notify any purchaser of the Premises and any subsequent mortgagee or any other holder of any lien, security interest or encumbrance on the Premises of the existence of this Agreement.
 
6.   The Landlord hereby certifies that the Landlord has full power and authority to execute this Agreement and that it has legal title to the Premises.
 
7.   The Landlord further certifies that as of the date hereof it has granted no mortgages, deeds of trust or other encumbrances on the Premises that create a lien on, or security interest in, the Assets [other than _________________________________].
 
8.   This Agreement shall continue in effect during the term of the Credit Agreement and any extensions, renewals, refinancings or modifications thereof and any substitutes therefor of which the Bank has notified the Landlord in writing, shall be binding upon the successors, assigns and transferees of the Landlord, and shall inure to the benefit of the Bank and its successors and assigns.  The Landlord hereby waives notice of the Bank’s acceptance of and reliance on this Agreement.
 

 

 
IN WITNESS WHEREOF, the Landlord has caused this Agreement to be executed, sealed and delivered on the day and year first written above.
 
   
LANDLORD:
 
       
   
CT CHATTANOOGA TN, LLC
 
       
WITNESS/ATTEST:
 
By:
SunTrust Equity Funding, LLC, its manager
 
         
         
   
By:
 
 (Seal)
   
Name:
R. Todd Shutley
 
   
Title:
Senior Vice President and Manager
 
         
   
Address:
303 Peachtree Street, 24 th Floor
 
     
MC 3951
 
     
Atlanta, Georgia 30308
 
 
 

 

ACKNOWLEDGMENT TO BE MADE BY LANDLORD
 
 
STATE OF ___________________
)
   
 
)  ss.
 
 
COUNTY OF _________________
)
   
         
I HEREBY CERTIFY that on this _____ day of ____________, 200__, before me a Notary Public fo the state and county aforesaid, personally appeared ______________, who is personally known to me or has produced _____________ as identification.
 
 
 
 
         
IN WITNESS WHEREOF, I have hereunto set my hand and Notarial Seal, the day and year first above written.
 
 
       
   
Notary Public
   
   
Print Name:
   
   
Serial No.:
   
       
       
 
My commission expires on:
     
         

 

 
CONSENT
 
The undersigned hereby consents to the terms and conditions of this Landlord’s Waiver as set forth above.
 
     
LESSEE:
 
         
ATTEST"
   
COVENANT TRANSPORT, INC.
 
         
   
By:
 
 (Seal)
   
Title:
   

 

 

EXHIBIT A
LEGAL DESCRIPTION
 
[Attach Legal Description]


 

 

EXHIBIT E
FORM OF SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT
 
 

 
 
 
 
____________________________________________
(Lender)
 
- and -
 
COVENANT TRANSPORT, INC.
(Tenant)
 
– and –
 
CT CHATTANOOGA TN, LLC
(Landlord)
 
____________________________________________
 
SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
____________________________________________
 

 
Dated:
 
Location:
 
Section:
Block:
Lot:
County:
 
PREPARED BY AND UPON
RECORDATION RETURN TO:

 


 

 

SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
 
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (as amended from time to time, this “ Agreement ”) is made as of the _____ day of _______________, 20__ by and among _____________________________________________, a __________________________, having an address at _______________________________________________, (“ Lender ”), COVENANT TRANSPORT, INC., a Tennessee corporation, having an address at 400 Birmingham Highway, Chattanooga TN  37419 (“ Tenant ”) and CT CHATTANOOGA TN, LLC, a Delaware limited liability company, having an address at 303 Peachtree Street, 24 th Floor, MC 3951, Atlanta, Georgia  30308 (“ Landlord ”).
 
RECITALS:
 
A.           Lender is the present owner and holder of a certain [mortgage/deed of trust/deed to secure debt] and security agreement (the “ Security Instrument ”) dated as of ____________, ____, given by Landlord to Lender which encumbers the fee estate of Landlord in certain premises described in Exhibit A attached hereto (the “ Property ”) and which secures the payment of certain indebtedness owed by Landlord to Lender evidenced by a certain promissory note dated as of ____________, _____, given by Landlord to Lender (the “ Note ”);
 
B.           Tenant is the holder of a leasehold estate in the Property under and pursuant to the provisions of a certain lease dated as of March 15, 2006 between Landlord (or Landlord’s predecessor-in-interest), as landlord, and Tenant (or Tenant’s predecessor-in-interest), as tenant (as heretofore or hereafter amended, the “ Lease ”); and
 
C.           Tenant has agreed to subordinate the Lease to the Security Instrument and to the lien thereof and Lender has agreed to grant non-disturbance to Tenant under the Lease on the terms and conditions hereinafter set forth.
 
 
AGREEMENT:
 
For good and valuable consideration, Tenant, Lender and Landlord agree as follows:
 
1.     Subordination .  The Lease and all of the terms, covenants and provisions thereof and all rights, remedies and options of Tenant thereunder are and shall at all times continue to be subject and subordinate in all respects to the terms, covenants and provisions of the Security Instrument and to the lien thereof, including without limitation, all renewals, increases, modifications, spreaders, consolidations, replacements and extensions thereof and to all sums secured thereby and advances made thereunder with the same force and effect as if the Security Instrument had been executed, delivered and recorded prior to the execution and delivery of the Lease.
 
2.      Non-Disturbance .  If any action or proceeding is commenced by Lender for the foreclosure of the Security Instrument or the sale of the Property, Tenant shall not be named as a party therein unless such joinder shall be required by law, provided , however , such joinder shall not result in the termination of the Lease or disturb the Tenant’s possession or use of the premises demised thereunder, and the sale of the Property in any such action or proceeding and the exercise by Lender of any of its other rights under the Note or the Security Instrument shall be made subject to all rights of Tenant under the Lease, provided that at the time of the commencement of any such action or proceeding or at the time of any such sale or exercise of any such other rights (a) the term of the Lease shall have commenced pursuant to the provisions thereof, (b) Tenant shall be in possession of the premises demised under the Lease, (c) the Lease shall be in full force and effect and (d) Tenant shall not be in default under any of the terms, covenants or conditions of the Lease or of this Agreement on Tenant’s part to be observed or performed.
 

3.     Attornment .  If Lender or any other subsequent purchaser of the Property shall become the owner of the Property by reason of the foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or by reason of any other enforcement of the Security Instrument (Lender or such other purchaser being hereinafter referred as “ Purchaser ”), and the conditions set forth in Section 2 above have been met at the time Purchaser becomes owner of the Property, the Lease shall not be terminated or affected thereby but shall continue in full force and effect as a direct lease between Purchaser and Tenant upon all of the terms, covenants and conditions set forth in the Lease and in that event, Tenant agrees to attorn to Purchaser and Purchaser, by virtue of such acquisition of the Property, shall be deemed to have agreed to accept such attornment, provided , however , that Purchaser shall not be (a) liable for the failure of any prior landlord (any such prior landlord, including Landlord and any successor landlord, being hereinafter referred to as a “ Prior Landlord ”) to perform any of its obligations under the Lease which have accrued prior to the date on which Purchaser shall become the owner of the Property, provided that the foregoing shall not limit Purchaser’s obligations under the Lease to correct any conditions of a continuing nature that (i) existed as of the date Purchaser shall become the owner of the Property and (ii) violate Purchaser’s obligations as landlord under the Lease; provided further , however , that Purchaser shall have received written notice of such omissions, conditions or violations and has had a reasonable opportunity to cure the same, all pursuant to the terms and conditions of the Lease, (b) subject to any offsets, defenses, abatements or counterclaims which shall have accrued in favor of Tenant against any Prior Landlord prior to the date upon which Purchaser shall become the owner of the Property, (c) liable for the return of rental security deposits, if any, paid by Tenant to any Prior Landlord in accordance with the Lease unless such sums are actually received by Purchaser, (d) bound by any payment of rents, additional rents or other sums which Tenant may have paid more than one (1) month in advance to any Prior Landlord unless (i) such sums are actually received by Purchaser or (ii) such prepayment shall have been expressly approved of by Purchaser, (e) bound by any agreement terminating or amending or modifying the rent, term, commencement date or other material term of the Lease, or any voluntary surrender of the premises demised under the Lease, made without Lender’s or Purchaser’s prior written consent prior to the time Purchaser succeeded to Landlord’s interest or (f) bound by any assignment of the Lease or sublease of the Property, or any portion thereof, made prior to the time Purchaser succeeded to Landlord’s interest other than if pursuant to the provisions of the Lease.  In the event that any liability of Purchaser does arise pursuant to this Agreement, such liability shall be limited and restricted to Purchaser’s interest in the Property and shall in no event exceed such interest. Alternatively, upon the written request of Lender or its successors or assigns, Tenant shall enter into a new lease of the Premises with Lender or such successor or assign for the then remaining term of the Lease, upon the same terms and conditions as contained in the Lease, except as otherwise specifically provided in this Agreement.
 

4.     Notice to Tenant .  After notice is given to Tenant by Lender that the Landlord is in default under the Note and the Security Instrument and that the rentals under the Lease should be paid to Lender pursuant to the terms of the assignment of leases and rents executed and delivered by Landlord to Lender in connection therewith, Tenant shall thereafter pay to Lender or as directed by the Lender, all rentals and all other monies due or to become due to Landlord under the Lease and Landlord hereby expressly authorizes Tenant to make such payments to Lender and hereby releases and discharges Tenant from any liability to Landlord on account of any such payments.
 
5.     Lender’s Consent .  Tenant shall not, without obtaining the prior written consent of Lender, (a) enter into any agreement amending, modifying or terminating the Lease, (b) prepay any of the rents, additional rents or other sums due under the Lease for more than one (1) month in advance of the due dates thereof, (c) voluntarily surrender the premises demised under the Lease or terminate the Lease (other than pursuant to the provisions of the Lease) without cause or shorten the term thereof, or (d) assign the Lease or sublet the premises demised under the Lease or any part thereof other than pursuant to the provisions of the Lease; and any such amendment, modification, termination, prepayment, voluntarily surrender, assignment or subletting, without Lender’s prior consent, shall not be binding upon Lender.
 
6.     Notice to Lender and Right to Cure .  Tenant shall notify Lender of any default by Landlord under the Lease and, if such default gives rise to a right by Tenant to cancel the Lease or abate the rent therunder, agrees that, notwithstanding any provisions of the Lease to the contrary, no notice of cancellation thereof or of an abatement shall be effective unless Lender shall have received notice of default giving rise to such cancellation or abatement and (i) in the case of any such default that can be cured by the payment of money, until sixty (60) days shall have elapsed following the giving of such notice or (ii) in the case of any other such default, until a reasonable period for remedying such default shall have elapsed following the giving of such notice and following the time when Lender shall have become entitled under the Security Instrument to remedy the same, including such time as may be necessary to acquire possession of the Property if possession is necessary to effect such cure, provided Lender, with reasonable diligence, shall (a) pursue such remedies as are available to it under the Security Instrument so as to be able to remedy the default, and (b) thereafter shall have commenced and continued to remedy such default or cause the same to be remedied.  Notwithstanding the foregoing, Lender shall have no obligation to cure any such default.
 
7.     Notices .  All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof and confirmed by telephone by sender, (ii) one (1) Business Day (hereinafter defined) after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:
 

 
If to Tenant:
   
   
   
 
Attention:
 
 
Facsimile No.
 
 
If to Landlord:
   
   
   
 
Attention:
 
 
Facsimile No.
 
   
If to Lender:
   
   
   
 
Attention:
 
 
Facsimile No.
 
 
 
or addressed as such party may from time to time designate by written notice to the other parties.  For purposes of this Section 7 , the term “ Business Day ” shall mean a day on which commercial banks are not authorized or required by law to close in the state where the Property is located.  Either party by notice to the other may designate additional or different addresses for subsequent notices or communications.
 
8.     Successors and Assigns This Agreement shall be binding upon and inure to the benefit of Lender, Tenant and Purchaser and their respective successors and assigns.
 
9.     Governing Law .  This Agreement shall be deemed to be a contract entered into pursuant to the laws of the State where the Property is located and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State where the Property is located.
 
10.    Miscellaneous .  This Agreement may not be modified in any manner or terminated except by an instrument in writing executed by the parties hereto.  If any term, covenant or condition of this Agreement is held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision.  This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original.  This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Agreement.  The failure of any party hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder.  Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa.
 

11.     Joint and Several Liability .  If Tenant consists of more than one person, the obligations and liabilities of each such person hereunder shall be joint and several.
 
12.     Definitions .  The term “ Lender ” as used herein shall include the successors and assigns of Lender and any person, party or entity which shall become the owner of the Property by reason of a foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or otherwise.  The term “ Landlord ” as used herein shall mean and include the present landlord under the Lease and such landlord’s predecessors and successors in interest under the Lease, but shall not mean or include Lender.  The term “ Property ” as used herein shall mean the Property, the improvements now or hereafter located thereon and the estates therein encumbered by the Security Instrument.
 
13.     Further Acts .  Tenant will do, execute, acknowledge and deliver all and every such further acts and assurances as Lender shall, from time to time, require, for the better assuring and confirming unto Lender the property and rights hereby intended now or hereafter so to be, or for carrying out the intention or facilitating the performance of the terms of this Agreement or for filing, registering or recording this Agreement, or for complying with all applicable laws.
 
14.     Limitations on Purchaser’s Liability .  In no event shall the Purchaser, nor any heir, legal representative, successor, or assignee of the Purchaser have any personal liability for the obligations of Landlord under the Lease and should the Purchaser succeed to the interests of the Landlord under the Lease, Tenant shall look only to the estate and property of any such Purchaser in the Property for the satisfaction of Tenant’s remedies for the collection of a judgment (or other judicial process) requiring the payment of money in the event of any default by any Purchaser as landlord under the Lease, and no other property or assets of any Purchaser shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant’s remedies under or with respect to the Lease; provided , however , that the Tenant may exercise any other right or remedy provided thereby or by law in the event of any failure by Landlord to perform any such material obligation.
 
15.     Estoppel Certificate .  Tenant, shall, from time to time, within ten (10) days after request by Lender, execute, acknowledge and deliver to Lender a statement by Tenant certifying (a) that the Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), (b) the amounts of fixed rent, additional rent, percentage rent, or other sums, if any, which are payable in respect of the Lease and the commencement date and expiration date of the Lease, (c) the dates to which the fixed rent, additional rent, percentage rent, if any, and other sums which are payable in respect to the Lease have been paid, (d) whether or not Tenant is entitled to credits or offsets against such rent, and, if so, the reasons therefore and the amount thereof, (e) that Tenant is not in default in the performance of any of its obligations under the Lease and no event has occurred which, with the giving of notice or the passage of time, or both, would constitute such a default, (f) whether or not, to the best knowledge of the person certifying on behalf of Tenant, Landlord is in default in the performance of any of its obligations under the Lease, and, if so, specifying the same, (g) whether or not, to the best knowledge of such person, any event has occurred which with the giving of such notice or passage of time, or both would constitute such a default, and, if so, specifying each such event, and (h) whether or not, to the best knowledge of such person, Tenant has any claims, defenses or counterclaims against Landlord under the Lease, and, if so, specifying the same, it being intended that any such statement delivered pursuant hereto shall be deemed a representation and warranty to be relied upon by Lender and by others with whom Lender may be dealing, regardless of independent investigation.  Tenant also shall include in any such statement such other information concerning the Lease as Lender may reasonably request.
 
 
[NO FURTHER TEXT ON THIS PAGE]

 

 

IN WITNESS WHEREOF, Lender, Tenant and Landlord have duly executed this Agreement as of the date first above written.
 
   
COVENANT TRANSPORT, INC., a Tennessee corporation
 
       
       
       
   
By:
   
   
Name:
   
   
Title:
   
         
         
         
   
CT CHATTANOOGA TN, LLC, a Delaware limited liability company
 
       
   
By:
SunTrust Equity Funding, LLC, its manager
 
         
         
         
   
By:
   
   
Name:
   
   
Title:
   
         
         
         
   
LENDER:
 
         
         
         
   
By:
   
   
Name:
   
   
Title:
   

 

 



 
[Attach State-Specific Forms of Acknowledgments]

 

 


EXHIBIT A

[Attach Legal Description of Property]

 

 

APPENDIX A

Additional Rent ” shall mean all amounts, costs, expenses, liabilities and obligations (including Tenant’s obligation to pay any Net Award, Default Rate interest or late charges or penalties hereunder) which Tenant is required to pay pursuant to the terms of this Lease other than Basic Rent.

Adjoining Property ” shall mean all sidewalks, curbs, gores and vault spaces adjoining the Leased Premises.

Affiliate ” of any Person shall mean any other Person directly or indirectly controlling, controlled by or under common control with, such Person and shall include, if such Person is an individual, members of the immediate family of such Person, and trusts for the benefit of such individual.  For the purposes of this definition, the term “ control ” (including the correlative meanings of the terms “controlling”, “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

After -Tax Basis ” shall mean, with respect to any payment received or accrued by any Person, the amount of such payment (the “ base payment ”) supplemented by a further payment (the “ additional payment ”) to that Person so that the sum of the base payment plus the additional payment shall, after taking into account the amount of all Taxes required to be paid by such Person in respect of the receipt or accrual of the base payment and the additional payment (after any current credits or deductions arising therefrom and the timing thereof), be equal to the amount required to be received.  Such calculations shall be made (a) in the case of entities subject to United States Federal income tax, at the highest marginal United States federal, state and local income tax rates applicable to individuals or corporations (as the case may be) resident or domiciled in the jurisdiction where the recipient of such payment is located (or where the recipient indicates such payment will be required to be reported, if different); (b) in the case of an organization exempt from United States Federal income tax, at the highest marginal United States federal, state and local tax rates applicable to unrelated business taxable income (or any tax that is a supplement or addition to or substitute for or in lieu thereof, whether or not expressly so designated), but only if the payments with respect to the Leased Premises are subject to such tax or (c) if Landlord is not a US taxpayer, at Landlord’s actual effective overall tax rate, if lower.  In the case of any flow-through entity, “Landlord” shall include the direct or indirect members or other equity owners of Landlord that are required to report the gross or net income of Landlord and/or other items of income, expense, deduction and credit with respect thereto, and in the case of any entity, “Landlord” and the owners thereof shall include any consolidated, combined or unitary group of which Landlord is a part for income tax purposes.

Alteration ” or “ Alterations ” shall mean any or all changes, additions (whether or not adjacent to or abutting any then existing buildings), expansions (whether or not adjacent to or abutting any then existing buildings), improvements, reconstructions, removals or replacements of any of the Improvements or Fixtures, both interior or exterior, and ordinary and extraordinary.

 
A-1

 

Anticipated Lease Income ” shall mean the amounts expected to be included in gross income with respect to this Lease including only (i) Basic Rent and Additional Rent, (ii) payments as a consequence of a sale or other disposition (other than in the case of the exercise of remedies after an Event of Default) of the Leased Premises, and (iii) an amount received pursuant to the indemnity set forth in Paragraph 30 .

Applicable Laws ” shall mean all existing and future applicable laws (including common laws), rules, regulations, statutes, treaties, codes, ordinances, permits, certificates, orders and licenses of any Governmental Authorities, and applicable judgments, decrees, injunctions, writs, orders or like action of any court, arbitrator or other administrative, judicial or quasi-judicial tribunal or agency of competent jurisdiction (including those pertaining to the environment and those pertaining to the construction, use or occupancy of the Leased Premises).  Applicable Laws shall include Environmental Laws.

Basic Rent ” shall mean the amounts set forth on Exhibit B annexed to this Lease.

Basic Rent Payment Dates” shall mean the first day of each calendar month during the Term, or, if such day is not a Business Day, the next succeeding Business Day.

Business Day ” means any day other than a Saturday or a Sunday, or any other day on which banks are required or authorized to be closed for business in Atlanta, Georgia or Chattanooga, Tennessee.

CERCLA ” shall mean the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601-9657.

Claims ” shall mean Liens (including, without limitation, Lien removal and bonding costs) liabilities, obligations, damages, losses, demands, penalties, assessments, payments, fines, claims, actions, suits, judgments, settlements, costs, expenses and disbursements (including, without limitation, reasonable legal fees and expenses and costs of investigation) of any kind and nature whatsoever.

Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time.

Commencement Date ” shall mean April 3, 2006.

Condemnation” shall mean a Taking and/or a Requisition.

Default Rate ” shall mean a rate of interest equal to four (4%) percent per annum above the then current Prime Rate.

Easements ” shall mean easements, covenants, waivers, approvals or restrictions for utilities, parking or other matters as desirable for operation of the Leased Premises or properties adjacent thereto.

 
A-2

 

Environmental Laws ” shall mean and include the Resource Conservation and Recovery Act of 1976 (RCRA), 42 U.S.C. §§ 6901-6987, as amended by the Hazardous and Solid Waste Amendments of 1984, CERCLA, the Hazardous Materials Transportation Act of 1975, 49 U.S.C. §§ 1801-1812, the Toxic Substances Control Act, 15 U.S.C. §§ 2601-2671, the Clean Air Act, 42 U.S.C. §§ 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §§ 136 et seq and all other federal, state and local laws, ordinances, rules, orders, statutes, codes and regulations applicable to the Leased Premises and (i) relating to the environment, human health or natural resources, (ii) regulating, controlling or imposing liability or standards of conduct concerning Hazardous Materials, or (iii) regulating the clean-up or other remediation of the Leased Premises or any portion thereof, as any of the foregoing may have been amended, supplemented or supplanted from time to time.

Event of Default ” shall mean the occurrence of any one or more of the following events under this Lease: (i) a failure by Tenant to make:  (x) any payment of Basic Rent when due and such failure continues for five (5) or more Business Days, or (y) any payment of any other sum herein required to be paid by Tenant which continues unremedied for a period of fifteen (15) Business Days after written notice thereof is given to Tenant by Landlord or Lender or Lender’s designee; (ii) failure by Tenant to perform and observe, or a violation or breach of, any other provision in this Lease and such default shall continue for a period of thirty (30) days after written notice thereof is given by Landlord or Lender or Lender’s designee to Tenant, or if such default is of such a nature that it cannot reasonably be cured within such period of thirty (30) days, such period shall be extended for such longer time as is reasonably necessary (not to exceed 360 days in total) provided that Tenant has commenced to cure such default within said period of thirty (30) days and is actively, diligently and in good faith proceeding with continuity to remedy such default; (iii) any representation or warranty made in this Lease, or in connection with this Lease, by Tenant is determined by Landlord to have been false or misleading in any material respect at the time made; (iv) Tenant or Lease Guarantor shall (A) voluntarily be adjudicated a bankrupt or insolvent, (B) voluntarily consent to the appointment of a receiver or trustee for itself or for any of the Leased Premises, (C) voluntarily file a petition seeking relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, or (D) voluntarily file a general assignment for the benefit of creditors; (v) a court shall enter an order, judgment or decree appointing, with the voluntary consent of Tenant or Lease Guarantor, a receiver or trustee for Tenant or Lease Guarantor or for the Leased Premises or approving a petition filed against Tenant or Lease Guarantor which seeks relief under the bankruptcy or other similar laws of the United States or any State, and such order, judgment or decree shall remain in force, undischarged or unstayed, ninety (90) days after it is entered; (vi) Tenant or Lease Guarantor shall in any insolvency proceedings be liquidated or dissolved or shall voluntarily commence proceedings towards its liquidation or dissolution; (vii) the estate or interest of Tenant in the Leased Premises shall be levied upon or attached in any proceeding and such estate or interest is about to be sold or transferred or such process shall not be vacated or discharged within sixty (60) days after such levy or attachment; (viii) Tenant shall be in default under any other lease of real property with Landlord or with any Affiliate of Landlord or (ix) Lease Guarantor defaults in, or repudiates, its obligations under the Lease Guaranty, or the Lease Guaranty ceases to be in full force and effect for any reason.

Expiration Date ” shall mean March 31, 2026.

 
A-3

 

Fixtures ” shall mean all fixtures (except Trade Fixtures), including any components thereof, on and in respect to the Improvements, including, without limitation, all built-in equipment intended to be permanently attached to the Improvements and used in the operation of the Leased Premises, together with all replacements, modifications, alterations and additions thereto.

Governmental Authority ” shall mean any federal, state, county, municipal, foreign or other governmental or regulatory authority, agency, board, body, instrumentality, court or quasi governmental authority (or private entity in lieu thereof).

Guaranties ” shall mean all warranties, guaranties and indemnities, express or implied, and similar rights which Landlord may have against any manufacturer, seller, engineer, contractor or builder in respect of any of the Leased Premises, including, but not limited to, any rights and remedies existing under contract or pursuant to the Uniform Commercial Code.

Hazardous Materials ” shall mean all chemicals, petroleum, crude oil or any fraction thereof, hydrocarbons, polychlorinated biphenyls (PCBs), asbestos, asbestos-containing materials and/or products, urea formaldehyde, or any substances which are classified as “hazardous” or “toxic” under CERCLA; hazardous waste as defined under the Solid Waste Disposal Act, as amended 42 U.S.C. § 6901; air pollutants regulated under the Clean Air Act, as amended, 42 U.S.C. § 7401, et seq.; pollutants as defined under the Clean Water Act, as amended, 33 U.S.C. § 1251, et seq., any pesticide as defined by Federal Insecticide, Fungicide, and Rodenticide Act, as amended, 7 U.S.C. § 136, et seq., any hazardous chemical substance or mixture or imminently hazardous substance or mixture regulated by the Toxic Substances Control Act, as amended, 15 U.S.C. § 2601, et Seq., any substance listed in the United States Department of Transportation Table at 45 CFR 172.101; any chemicals included in regulations promulgated under the above listed statutes; any explosives, radioactive material, and any chemical regulated by state statutes similar to the federal statutes listed above and regulations promulgated under such state statutes.

Holder ” shall mean, as of any particular date, any holder of a Note.

Impositions ” shall mean, collectively, all taxes of every kind and nature (including real, ad valorem, single business, personal property, gross income, transaction privilege, franchise, withholding, profits and gross receipts taxes) on or with respect to the Leased Premises, or the use, lease, ownership or operation thereof; all charges and/or taxes for any easement or agreement maintained for the benefit of the Leased Premises; all general and special assessments, levies, permits, inspection and license fees on or with respect to the Leased Premises; all water and sewer rents and other utility charges on or with respect to the Leased Premises; all ground rents on or with respect to the Leased Premises; and all other public charges and/or taxes whether of a like or different nature, even if unforeseen or extraordinary, imposed or assessed upon or with respect to the Leased Premises, prior to or during the Term, against Landlord, Tenant or any of the Leased Premises as a result of or arising in respect of the occupancy, leasing, use, maintenance, operation, management, repair or possession thereof, or any activity conducted on the Leased Premises, or the Basic Rent or Additional Rent, including without limitation, any gross income tax, sales tax, occupancy tax or excise tax levied by any governmental body on or with respect to such Basic Rent or Additional Rent; all payments required to be made to a governmental or quasi-governmental authority (or private entity in lieu thereof) that are in lieu of any of the foregoing, whether or not expressly so designated; and any penalties, fines, additions or interest thereon or additions thereto.

A-4

Improvements ” shall mean, collectively, the buildings, structures and other improvements on the Land.

Indemnitee ” shall mean Landlord, its assignees or other transferees, each Lender, each Holder and their respective Affiliates and their respective officers, directors, employees, agents, representatives, shareholders, members or other equity owners.

Initial Term ” shall mean the period of time commencing on the Commencement Date and terminating on the Expiration Date.

Insurance Expiration Date ” shall mean, with respect to an insurance policy, the date that such insurance policy will expire.

Insurance Requirement ” or “ Insurance Requirements ” shall mean, as the case may be, any one or more of the terms of each insurance policy required to be carried by Tenant under this Lease and the requirements of the issuer of such policy, and whenever Tenant shall be engaged in making any Alteration or Alterations, repairs or construction work of any kind (collectively, “ Work ”), the term “Insurance Requirement” or “Insurance Requirements” shall be deemed to include a requirement that Tenant obtain or cause its contractor to obtain completed value builder’s risk insurance when the estimated cost of the Work in any one instance exceeds the sum of One Hundred Thousand ($100,000.00) Dollars and that Tenant or its contractor shall obtain worker’s compensation insurance or other adequate insurance coverage covering all persons employed in connection with the Work, whether by Tenant, its contractors or subcontractors and with respect to whom death or bodily injury claims could be asserted against Landlord.

Land ” shall mean the lot(s) or parcel(s) of land described in Exhibit A attached to this Lease and made a part hereof, together with the easements, rights and appurtenances thereunto belonging or appertaining.

Landlord ” shall mean CT Chattanooga TN, LLC, a Delaware limited liability company.

Law ” shall mean any constitution, statute or rule of law.

Lease ” has the meaning set forth in the preamble.

Lease Guarantor ” means Covenant Transport, Inc., a Nevada corporation.

Lease Guaranty ” means the Lease Guaranty, dated as of the date of this Lease, issued by the Lease Guarantor.

 
A-5

 

Leased Premises ” shall mean, collectively, the Land, the Improvements and the Fixtures.

Legal Requirement ” or “ Legal Requirements ” shall mean, as the case may be, any one or more of all present and future laws, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations and requirements, even if unforeseen or extraordinary, of every duly constituted governmental authority or agency (but excluding those which by their terms are not applicable to and do not impose any obligation on Tenant, Landlord or the Leased Premises) and all covenants, restrictions and conditions now of record which may be applicable to Tenant, Landlord (with respect to the Leased Premises) or to all or any part of or interest in Leased Premises, or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or reconstruction of the Leased Premises, even if compliance therewith (i) necessitates structural changes or improvements (including changes required to comply with the “Americans with Disabilities Act”) or results in interference with the use or enjoyment of the Leased Premises or (ii) requires Tenant to carry insurance other than as required by the provisions of this Lease.

Lender ” shall mean an entity identified as such in writing to Tenant which makes a Loan to Landlord, secured by a Mortgage and evidenced by a Note or which is the holder of the Mortgage and Note as a result of an assignment thereof.

Lien ” shall mean any Lien, mortgage, pledge, charge, security interest or encumbrance of any kind, or any type of preferential arrangement that has the practical effect of creating a security interest, including, without limitation, any thereof arising under any conditional sale agreement, capital lease or other title retention agreement.

Loan ” shall mean a loan made by a Lender to Landlord secured by a Mortgage and evidenced by a Note.

Moody’s ” shall mean Moody’s Investors Service, Inc.

Mortgage ” shall mean a first priority mortgage, deed of trust or similar security instrument hereafter executed covering the Leased Premises from Landlord to Lender or Trustee.

Net Award ” shall mean the entire award payable to Landlord by reason of a Condemnation, less any reasonable expenses incurred by Landlord in collecting such award.

Net Proceeds ” shall mean the entire proceeds of any insurance required under clauses (i) , (iv) or (v) of Paragraph 14 (a) of this Lease, less any actual and reasonable expenses incurred by Landlord in collecting such proceeds.

Note ” or “ Notes ” shall mean a Promissory Note or Notes hereafter executed from Landlord to Lender, which Note or Notes may be secured by a Mortgage and an assignment of leases and rents.

 
A-6

 

Notice ” or “ Notices ” shall mean all notices, demands, requests, consents, approvals, offers, statements and other instruments or communications required or permitted to be given pursuant to the provisions of this Lease.

Permitted Encumbrances ” shall mean those covenants, restrictions, reservations, Liens, conditions, encroachments, easements and other matters of title that affect the Leased Premises as of the date of Landlord’s acquisition thereof, excepting, however, any such matters arising from the acts of Landlord (such as Liens arising as a result of judgments against Landlord).

Person ” shall mean an individual, corporation, partnership, joint venture, association, joint-stock company, trust, limited liability company, non-incorporated organization or government or any agency or political subdivision thereof.

Prime Rate ” shall mean the prime rate of interest published in The Wall Street Journal or its successor, from time to time.

Rating Agency ” or “ Rating Agencies ” shall mean, if any, one or more of Standard & Poor’s, Moody’s, Fitch or any other rating agency that has rated the Loan, the Mortgage or the REMIC Trust or any other trust or entity in which the Loan and the Mortgage have been placed.

REA ” shall mean a reciprocal easement agreement or any other agreement or document of record now affecting the Leased Premises.

Release ” shall mean the release under applicable Environmental Laws or the threatened release of any Hazardous Materials into or upon any land or water or air, or otherwise into the environment, including, without limitation, by means of burial, disposal, discharge, emission, injection, spillage, leakage, seepage, leaching, dumping, pumping, pouting, escaping, emptying, placement and the like.

REMIC ” shall mean a “real estate mortgage investment conduit” within the meaning of the Code.

Renewal Option Notice ” shall mean a written notice from Tenant to Landlord of its election to extend the Term (or any then Renewal Term) of this Lease pursuant to Paragraph 5 of this Lease.

Renewal Term ” shall mean an additional Lease term of five (5) years.

Replaced Fixtures ” shall mean Fixtures that have been replaced by Tenant with Replacement Fixtures.

Replacement Fixtures ” shall mean operational equipment or other parts used by Tenant to replace any of the Fixtures.

Requisition ” shall mean any temporary condemnation or confiscation of the use or occupancy of the Leased Premises by any governmental authority, civil or military, whether pursuant to an agreement with such governmental authority in settlement of or under threat of any such requisition or confiscation, or otherwise.

 
A-7

 

Restoration ” shall mean, following a casualty or Condemnation, the restoration of the Leased Premises to as nearly as possible its value, condition and character immediately prior to such casualty or Condemnation, in accordance with the provisions of this Lease, including but not limited to the provisions of Paragraphs 11(a) , 12 and 15 .  Notwithstanding the foregoing, such Restoration may depart from the exact condition of the Leased Premises immediately prior to the casualty or Condemnation, provided that (i) the fair market value of the Leased Premises shall not be lessened after the completion of the Restoration, (ii) the use of the Leased Premises shall not be changed as a result of any such Restoration, (iii) all such Restoration shall be performed in a good and workmanlike manner, and shall be expeditiously completed in compliance with all Legal Requirements, (iv) Tenant shall (subject to the provisions of Paragraph 18 hereof) discharge all Liens filed against any of the Leased Premises arising out of the same, and (v) no such Alteration shall create any debt or other encumbrance(s) on the Leased Premises.

Restoration Award ” shall mean that portion of the Net Award equal to the cost of Restoration.

Restoration Fund ” shall mean, collectively, the Net Proceeds, Restoration Award and Tenant Insurance Payment.
SEC ” shall mean the Securities and Exchange Commission.

Standard & Poor’s ” shall mean Standard & Poor’s Ratings Services.

State ” shall mean the State or Commonwealth in which the Leased Premises is situated.

Structural Change ” means any Alteration that (i) includes the movement of any load-bearing wall, (ii) alters the foot-print of any Improvement, or (iii) includes the addition of a floor to any building.

Subsidiary ” means any corporation, association, trust or other business entity of which the designated parent shall at any time own directly, or indirectly through a Subsidiary or Subsidiaries, at least a majority (by number of votes) of the outstanding Voting Stock.

Taking ” shall mean any taking of the Leased Premises in or by condemnation or other eminent domain proceedings pursuant to any law, general or special, or by reason of any agreement with any condemnor in settlement of or under threat of any such condemnation or other eminent domain proceedings or by any other means, or any de facto condemnation.

Tax ” or “ Taxes ” shall mean any and all present and future taxes, including income (gross or net), gross or net receipts, sales, use, value added, franchise, doing business, transfer, capital, property (tangible or intangible), municipal assessments, excise and stamp taxes, levies, imposts, duties, charges, assessments or withholding, together with any penalties, fines, additions or interest thereon or additions thereto (any of the forgoing being referred to herein individually as a “ Tax ”), imposed by any Governmental Authority.  Taxes shall include the costs of any contest or appeal pursued which reduces the Taxes (or attempts to do so) including reasonable attorneys’ fees and costs incident thereto.  Without limiting the foregoing, if at any time during the term of this Lease the methods of taxation prevailing at the execution hereof shall be changed or altered so that in lieu of or as a supplement or addition to or a substitute for the whole or any part of the real estate taxes or assessments now or from time to time thereafter levied, assessed or imposed by applicable taxing authorities for the funding of governmental services, there shall be imposed (i) a tax, assessment, levy, imposition or charge, wholly or partially as a capital levy or otherwise, on the gross rents received or otherwise attributable to the Leased Premises, or (ii) a tax, assessment, levy (including but not limited to any municipal, state or federal levy), imposition or charge measured by or based in whole or in part upon the Leased Premises or this Lease, and imposed on the Landlord under this Lease or any portion thereof, or (iii) a license fee or other fee or tax measured by the gross rent payable under this Lease, or (iv) any other tax, assessment, levy, charge, fee or the like payable with respect to the Leased Premises, the rents, issues and profits thereof, then all such taxes, assessments, levies, impositions and/or charges, or the part thereof so measured or based, shall be deemed to be Taxes.

A-8

Tax Indemnitee ” shall mean Landlord, each Lender, any Holder, any servicer of a Loan, Trustee, any trustee under a Mortgage which is a deed of trust, each of their assignees or other transferees and each of their Affiliates and their respective officers, directors, employees, shareholders, members or other equity owners.

Tenant ” shall mean Covenant Transport, Inc., a Tennessee corporation.

Tenant’s Insurance Payment ” shall mean, in the event of a damage or destruction, the amount of the proceeds that would have been payable under the third-party insurance required to be maintained pursuant to Paragraph 14(a)(i) , (iv) or (vi) had such insurance program been in effect, together with the amount of any deductible under such insurance.

Tenant’s Termination Notice ” shall mean a written notice from Tenant to Landlord after a Condemnation or casualty of Tenant’s intention to terminate this Lease on the Termination Date.

Term ” shall mean the Initial Term, together with any Renewal Term.

Termination Date ” shall mean the date for the termination of this Lease pursuant to Tenant’s Termination Notice, which date shall be on a Basic Rent Payment Date occurring no sooner than thirty (30) days after the date of Tenant’s Termination Notice pursuant to Paragraph 13 or 14 of this Lease.

Trade Fixtures ” shall mean all fixtures, equipment and other items of personal property (whether or not attached to the Improvements) which are owned by Tenant and used in the operation of the business conducted on the Leased Premises.

Trustee ” shall mean an institution serving as a trustee, collateral agent or administrative agent for Lender.

Voting Stock ” shall mean stock or similar interests, of any class or classes (however designated), the holders of which are at the time entitled, as such holders, to vote for the election of a majority of the directors (or persons performing similar functions) of the corporation, association, trust or other business entity involved, whether or not the right so to vote exists by reason of the happening of a contingency.

 
Back to Form 10-K

 
A-9

 


 


 
 

 
Exhibit 10.14
 
EXECUTED VERSION



 
   
*AGREEMENT PREVIOUSLY FILED*
*RE-FILED TO INCLUDE ALL EXHIBITS, SCHEDULES, AND ATTACHMENTS*
 
 
 
$85,000,000
 
 
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
 
 
Dated as of September 23, 2008
 
 
COVENANT TRANSPORT, INC.,
 
 
CTG LEASING COMPANY,
 
 
COVENANT ASSET MANAGEMENT, INC.,
 
 
SOUTHERN REFRIGERATED TRANSPORT, INC.,
 
 
COVENANT TRANSPORT SOLUTIONS, INC., and
 
 
STAR TRANSPORTATION, INC.
 
 
as Borrowers,
 
 
COVENANT TRANSPORTATION GROUP, INC.,
 
 
as Parent,
 
 
CERTAIN FINANCIAL INSTITUTIONS,
 
 
as Lenders,
 
 
BANK OF AMERICA, N.A .,
 
 
as Agent for Lenders,
 
 
and
 
 
BANC OF AMERICA SECURITIES LLC, and
 
 
J.P. MORGAN SECURITIES INC.
 
as Joint Lead Arrangers and Joint Book Runners
 
 
 

 
 
 

 

TABLE OF CONTENTS

     
Page
SECTION 1.
 
     DEFINITIONS; RULES OF CONSTRUCTION; ASSIGNMENT AND
     ALLOCATIONS
1
1.1.
 
Definitions
30
1.2.
 
Accounting Terms
30
1.3.
 
Uniform Commercial Code
30
1.4.
 
Certain Matters of Construction
30
1.5.
 
Amendment and Restatement; Assignment and Allocations
30
SECTION 2.
 
     CREDIT FACILITIES
31
2.1.
 
Revolver Commitment
31
2.2.
 
Letter of Credit Facility
32
2.3.
 
Increase in Revolving Credit Facility
34
SECTION 3.
 
     INTEREST, FEES AND CHARGES
36
3.1.
 
Interest
36
3.2.
 
Fees
37
3.3.
 
Computation of Interest, Fees, yield Protection
37
3.4.
 
Reimbursement Obligations
38
3.5.
 
Illegality
38
3.6.
 
Inability to Determine Rates
38
3.7.
 
Increased Costs; Capital Adequacy
38
3.8.
 
Mitigation
39
3.9.
 
Funding Losses
40
3.10.
 
Maximum Interest
40
SECTION 4.
 
     LOAN ADMINISTRATION
40
4.1.
 
Manner of Borrowing and Funding Revolver Loans
40
4.2.
 
Defaulting Lender
42
4.3.
 
Number and Amount of LIBOR Loans; Determination of Rate
42
4.4.
 
Borrower Agent
42
4.5.
 
One Obligation
42
4.6.
 
Effect of Termination
42
SECTION 5.
 
     PAYMENTS
43
5.1.
 
General Payment Provisions
43
5.2.
 
Repayment of Revolver Loans
43
 
(i)

5.3.
 
Payment of Other Obligations
43
5.4.
 
Marshaling; Payments Set Aside
43
5.5.
 
Post-Default; Allocation of Payments
43
5.6.
 
Application of Payments
44
5.7.
 
Loan Account; Account Stated
45
5.8.
 
Taxes
45
5.9.
 
Foreign Lenders
45
5.10.
 
Nature and Extent of Each Borrower's Liability
46
SECTION 6.
 
     CONDITIONS PRECEDENT
48
6.1.
 
Conditions Precedent to Initial Loans
48
6.2.
 
Conditions Precedent to All Credit Extensions
50
6.3.
 
Limited Waiver of Conditions Precedent
51
SECTION 7.
 
     COLLATERAL
51
7.1.
 
Grant of Security Interest
51
7.2.
 
Lien on Deposit Accounts; Cash Collateral
52
7.3.
 
Real Estate Collateral
52
7.4.
 
Other Collateral
53
7.5.
 
No assumption of Liability
53
7.6.
 
Filing Authorization
53
7.7.
 
Foreign Subsidiary Stock
53
7.8.
 
Further Assurances
53
7.9.
 
No Further Actions
54
7.10.
 
Cooperation
54
SECTION 8.
 
     COLLATERAL ADMINISTRATION
54
8.1.
 
Borrowing Base Certificates
54
8.2.
 
Administration of Accounts
54
8.3.
 
Administration of Inventory
55
8.4.
 
Administration of Equipment
55
8.5.
 
Administration of Deposit Accounts
57
8.6.
 
General Provisions
57
8.7.
 
Power of Attorney
58
SECTION 9.
 
     REPRESENTATIONS AND WARRANTIES
59
9.1.
 
General Representations and Warranties
59
9.2.
 
Complete Disclosure
64
 
(ii)

SECTION 10.
 
     COVENANTS AND CONTINUING AGREEMENTS
64
10.1.
 
Affirmative Covenants
64
10.2.
 
Negative Covenants
68
10.3.
 
Fixed Charge Coverage Ratio
73
SECTION 11.
 
     EVENTS OF DEFAULT; REMEDIES ON DEFAULT
73
11.1.
 
Events of Default
73
11.2.
 
Remedies upon Default
75
11.3.
 
License
75
11.4.
 
Setoff
76
11.5.
 
Remedies Cumulative; No Waiver
76
SECTION 12.
 
     AGENT
76
12.1.
 
Appointment; Authority and Duties of Agent
76
12.2.
 
Agreements Regarding Collateral and Field Examination Reports
77
12.3.
 
Reliance By Agent
78
12.4.
 
Action Upon Default
78
12.5.
 
Ratable Sharing
79
12.6.
 
Indemnification of Agent Indemnitees
79
12.7.
 
Limitation of Responsibilities of Agent
79
12.8.
 
Successor Agent and Co-Agents
80
12.9.
 
Due Diligence and Non-Release
80
12.10.
 
Replacement of Certain Lenders
81
12.11.
 
Remittance of Payments and Collections
81
12.12.
 
Agent in its Individual Capacity
81
12.13.
 
Agent Titles
82
12.14.
 
No Third Party Beneficiaries
82
SECTION 13.
 
     BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS
82
13.1.
 
Successors and Assigns
82
13.2.
 
Participations
82
13.3.
 
Assignments
83
SECTION 14.
 
     MISCELLANEOUS
83
14.1.
 
Consents, Amendments and Waivers
83
14.2.
 
Indemnity
84
14.3.
 
Notices and Communications
85
14.4.
 
Performance of Obligors' Obligations
85
 
(iii)

14.5.
 
Credit Inquiries
85
14.6.
 
Severability
85
14.7.
 
Cumulative Effect; Conflict of Terms
86
14.8.
 
Counterparts; Facsimile Signatures
86
14.9.
 
Entire Agreement
86
14.10.
 
Relationship with Lenders
86
14.11.
 
No Control; No advisory or Fiduciary Responsibility
86
14.12.
 
Confidentiality
87
14.13.
 
GOVERNING LAW
87
14.14.
 
Consent to Forum
87
14.15.
 
Waivers by Obligors
88
14.16.
 
Patriot Act Notice
88
14.17.
 
Amendment and Restatement
88

(iv)

LIST OF EXHIBITS AND SCHEDULES

EXHIBIT A
Revolver Note
EXHIBIT B
Assignment and Acceptance
EXHIBIT C
Assignment Notice
EXHIBIT D
Compliance Certificate
   
Schedule 1.1
Commitments of Lenders
Schedule 1.3
Material Contracts
Schedule 1.4
Existing Letters of Credit
Schedule 7.3
Eligible Real Estate
Schedule 8.5
Deposit Accounts
Schedule 8.6.1
Collateral Locations
Schedule 9.1.4
Names and Capital Structure
Schedule 9.1.5
Former Names and Companies
Schedule 9.1.6
Real Estate Liens
Schedule 9.1.9
Surety Obligations
Schedule 9.1.12
Patents, Trademarks, Copyrights and Licenses
Schedule 9.1.15
Environmental Matters
Schedule 9.1.16
Restrictive Agreements
Schedule 9.1.17
Litigation
Schedule 9.1.19
Pension Plans
Schedule 9.1.21
Labor Contracts
Schedule 10.1.12
Post-Closing Obligations
Schedule 10.2.1
Existing Debt
Schedule 10.2.2
Existing Liens
Schedule 10.2.6
Existing Loans
Schedule 10.2.16
Existing Affiliate Transactions



 
 
(v)

 


THIRD AMENDED AND RESTATED CREDIT AGREEMENT
 
THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this “ Agreement ”) is dated as of September 23, 2008, among, COVENANT TRANSPORT, INC. , a Tennessee corporation (“ CTI ”), CTG LEASING COMPANY , a Nevada corporation (“ CTGL ”), SOUTHERN REFRIGERATED TRANSPORT, INC. , an Arkansas corporation (“ SRT ”), COVENANT ASSET MANAGEMENT, INC. ,   a Nevada corporation (“ CAM ”) , COVENANT TRANSPORT SOLUTIONS, INC. , a Nevada corporation (“ CTS ”), and STAR TRANSPORTATION, INC. , a Tennessee corporation (“ ST ”, and together with CTI, CTGL, SRT, CAM, and CTS, individually a “ Borrower ” and collectively, “ Borrowers ”), COVENANT TRANSPORTATION GROUP, INC. , a Nevada corporation and the owner (directly or indirectly) of all of the issued and outstanding capital stock of Borrowers (“ Parent ”), the financial institutions party to this Agreement from time to time as lenders (collectively, “ Lenders ”), and BANK OF AMERICA, N.A. , a national banking association, as agent for Lenders (in such capacity, “ Agent ”).
 
R E C I T A L S:
 
WHEREAS, certain Borrowers, certain Lenders and Bank of America, N.A., as administrative agent for such Lenders, are parties to the Existing Credit Agreement (defined below) pursuant to which certain revolving credit and letter of credit facilities have been made available to such Borrowers.

WHEREAS, Borrowers have requested that Lenders amend and restate the Existing Credit Agreement to continue to provide a revolving credit facility, and Lenders have indicated their willingness to continue to lend revolving loans and Issuing Bank (as hereinafter defined) has indicated its willingness to continue to issue Letters of Credit, in each case, on the terms and subject to the conditions set forth herein.

NOW, THEREFORE , in consideration of the mutual covenants and agreements herein contained, the Existing Credit Agreement is hereby amended and restated in its entirety and the parties hereto covenant and agree as follows:

SECTION 1.  
DEFINITIONS; RULES OF CONSTRUCTION; ASSIGNMENT AND ALLOCATIONS
 
     1.1.     Definitions .   As used herein, the following terms have the meanings set forth below:
 
Account : as defined in the UCC, including all rights to payment for goods sold or leased, or for services rendered.
 
Account Debtor : a Person who is obligated under an Account, Chattel Paper or General Intangible.
 
Accounts Formula Amount : the sum of (a) 85% of the Value of Eligible Accounts plus (b) 85% of the Value of Eligible Unbilled Accounts; provided , however , that such percentage shall be reduced by 1.0% for each whole percentage point (or portion thereof) that the Dilution Percent exceeds 5%.
 
Acquisition : the acquisition of (i) a controlling equity interest in another Person (including the purchase of an option, warrant or convertible or similar type security to acquire such a controlling interest at the time it becomes exercisable by the holder thereof), whether by purchase of such equity interest or upon exercise of an option or warrant for, or conversion of securities into, such equity interest, or (ii) assets of another Person which constitute all or substantially all of the assets of such Person or of a line or lines of business conducted by such Person.
 

Adjusted Net Income : determined on a consolidated basis in accordance with GAAP for any fiscal period of Parent and the other Obligors, net income (or loss), excluding (a) any gain or loss arising from the sale of any Revenue Equipment; (b) any gain arising from write-up of assets; (c) income of any entity (other than a Subsidiary) in which any Borrower has an ownership interest unless such income has actually been received by Borrowers in the form of cash Distributions; (d) income of any Subsidiary accrued prior to the date it became a Subsidiary; (e) income of any Person, substantially all the assets of which have been acquired by Borrowers, realized by such Person prior to the date of acquisition; (f) income of any Person with which a Borrower has merged, consolidated or otherwise combined, prior to the date of such transaction; (g) other non-cash gains or expenses; and (h) extraordinary gains or losses .
 
Adjusted Net Proceeds : Net Proceeds without deduction of amounts applied to repayment of Debt secured by a Permitted Lien.
 
Affiliate : with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.  “ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.  “ Controlling ” and “ Controlled ” have correlative meanings.
 
Agent : as defined in the preamble of this Agreement.
 
Agent Indemnitees : Agent and its officers, directors, employees, Affiliates, agents and attorneys.
 
Agent Professionals : attorneys, accountants, appraisers, auditors, business valuation experts, environmental engineers or consultants, turnaround consultants, and other professionals and experts retained by Agent.
 
Allocable Amount : as defined in Section 5.10.3 .
 
Anti-Terrorism Laws : any laws relating to terrorism or money laundering, including the Patriot Act.
 
Applicable Law : all laws, rules, regulations, orders and governmental guidelines applicable to the Person, conduct, transaction, agreement or matter in question, including all applicable statutory law, common law and equitable principles, and all provisions of constitutions, treaties, statutes, rules, regulations, orders and decrees of Governmental Authorities having jurisdiction over such Person.
 
Applicable Margin : with respect to any Type of Loan, the margins set forth below, as determined by the Average Pricing Availability for the most recently ended Fiscal Quarter:
 
Level
Average Pricing Availability
Base Rate Loans
LIBOR Loans
I
> $70,000,000
0.625%
2.125%
II
≤ $70,000,000   but > $40,000,000
0.875%
2.375%
III
≤ $40,000,000   but > $20,000,000
1.125%
2.625%
IV
≤ $20,000,000
1.375%
2.875%

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Through and including March 31, 2009, margins shall be determined as if Level III were applicable.  Commencing on April 1, 2009, and continuing on the first day of each Fiscal Quarter thereafter, the margins shall be subject to increase or decrease based upon the Agent’s determination of Average Pricing Availability for the most recently ended Fiscal Quarter, with any such change to be effective on the first day of the Fiscal Quarter.  Notwithstanding the foregoing, if, by the first day of a month, any financial statements and Compliance Certificate due in the preceding month have not been received, then the margins shall be determined as if Level IV were applicable, from such day until the first day of the calendar month following actual receipt.
 
Approved Deposit Account : each Deposit Account (a) that is maintained within the United States with a commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia having combined capital and surplus in excess of $500,000,000 and otherwise acceptable to Agent, (b) as to which a Deposit Account Control Agreement has been executed by the depository bank and account owner and delivered to Agent, and (c) as to which the deposits therein are not subject to any Lien, security interest or restriction upon withdrawal, other than Agent’s Liens and rights of setoff, Liens or adjustment of the applicable depository bank.
 
Approved Fund : any Person (other than a natural person) that is engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in its ordinary course of activities, and is administered or managed by a Lender, an entity that administers or manages a Lender, or an Affiliate of either.
 
Asset Disposition : a sale, lease, license, consignment, transfer or other disposition of Property of an Obligor, including a disposition of Property in connection with a sale-leaseback transaction or synthetic lease.
 
Assignment and Acceptance : an assignment agreement between a Lender and Eligible Assignee, in the form of Exhibit C .
 
Available Cash : unrestricted cash held by the Borrower and proceeds of Revolver Loans available under this Agreement.
 
Availability : the Borrowing Base minus the principal balance of all Revolver Loans.
 
Availability Block : $15,000,000, at all times during the term hereof.
 
Availability Reserve : the sum (without duplication) of (a) the Rent and Charges Reserve; (b) the LC Reserve; (c) the Bank Product Reserve; (d) the aggregate amount of liabilities secured by Liens upon Collateral that are senior to Agent’s Liens (but imposition of any such reserve shall not waive an Event of Default, if any, arising therefrom); (e) the Availability Block, and (f) such additional reserves, in such amounts and with respect to such matters, as Agent in its Credit Judgment may elect to impose from time to time.
 
Average Availability : with respect to any period of time, the average daily Availability during such period of time.
 
Average Eligible Cash Amount : with respect to any period of time, the average daily balance of all cash and Cash Equivalents of the Borrowers held in investment account No. 1235840848 with Bank of America, N.A.
 
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Average Pricing Availability : with respect to any period of time, the sum of Average Availability and Average Eligible Cash Amount for such period of time.
 
Bank of America : Bank of America, N.A., a national banking association, and its successors and assigns.
 
Bank of America Indemnitees : Bank of America and its officers, directors, employees, Affiliates, branches, agents and attorneys.
 
Bank Product : any of the following products, services or facilities extended to any Borrower or Subsidiary by any Lender or any of its Affiliates: (a) Cash Management Services; (b) products under Hedging Obligations; (c) commercial credit card and merchant card services; and (d) other banking products or services as may be requested by any Borrower or Subsidiary, other than Letters of Credit.
 
Bank Product Amount : as defined in Section 5.5.1 .
 
Bank Product Debt : Debt and other obligations of an Obligor relating to Bank Products.
 
Bank Product Reserve : the aggregate amount of reserves established by Agent from time to time in its discretion in respect of Bank Product Debt.
 
Bank Revenue Equipment : any Revenue Equipment that is not an Excluded Asset.
 
Bankruptcy Code : Title 11 of the United States Code.
 
Base Rate : the rate of interest announced by Bank of America from time to time as its prime rate.  Such rate is a rate set by Bank of America based upon various factors including its costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate.  Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.
 
Base Rate Loan : any Loan that bears interest based on the Base Rate.
 
Base Rate Revolver Loan : a Revolver Loan that bears interest based on the Base Rate.
 
Board of Governors : the Board of Governors of the Federal Reserve System.
 
Borrowed Money : with respect to any Obligor, without duplication, its (a) Debt that (i) arises from the lending of money by any Person to such Obligor, (ii) is evidenced by notes, drafts, bonds, debentures, credit documents or similar instruments, (iii) accrues interest or is a type upon which interest charges are customarily paid (excluding trade payables owing in the Ordinary Course of Business), or (iv) was issued or assumed as full or partial payment for Property; (b) Capital Leases; (c) reimbursement obligations with respect to letters of credit; and (d) guaranties of any Debt of the foregoing types owing by another Person.
 
Borrower Agent : as defined in Section 4.4 .
 
Borrower or Borrowers : as defined in the preamble of this Agreement.
 
Borrowing : a group of Loans of one Type that are made on the same day or are converted into Loans of one Type on the same day.
 
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Borrowing Base : on any date of determination, an amount equal to the lesser of (a) the aggregate amount of Revolver Commitments, minus the LC Reserve; or (b) the sum of (i) the Accounts Formula Amount, plus (ii) the Equipment Formula Amount, plus (iii) the Real Estate Formula Amount, minus (iv) the Availability Reserve; provided however , that no Accounts or Equipment acquired in an Acquisition consummated by any Obligor after the Closing Date shall be included in any calculation of the Borrowing Base until completion of all field exams, appraisals, audits and other evaluation of Collateral in a manner and with results acceptable to Agent.
 
Borrowing Base Certificate : a certificate, in form and substance satisfactory to Agent, by which Borrowers certify calculation of the Borrowing Base.
 
Business Day : any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the laws of, or are in fact closed in North Carolina and New York, and if such day relates to a LIBOR Loan, any such day on which dealings in Dollar deposits are conducted between banks in the London interbank Eurodollar market.
 
CAM : as defined in the preamble of this Agreement.
 
Capital Expenditures : all liabilities incurred, expenditures made or payments due (whether or not made) by a Borrower or Subsidiary for the acquisition of any fixed assets, or any improvements, replacements, substitutions or additions thereto with a useful life of more than one year, including the principal portion of Capital Leases, in each case calculated in accordance with GAAP.
 
Capital Lease : any lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.
 
Cash Collateral : cash, and any interest or other income earned thereon, that is delivered to Agent to Cash Collateralize any Obligations.
 
Cash Collateral Account : a demand deposit, money market or other account established by Agent at such financial institution as Agent may select in its discretion, which account shall be subject to Agent’s Liens for the benefit of Secured Parties.
 
Cash Collateralize : the delivery of cash to Agent, as security for the payment of Obligations, in an amount equal to (a) with respect to LC Obligations, 105% of the aggregate LC Obligations, and (b) with respect to any inchoate, contingent or other Obligations (including Obligations arising under Bank Products), Agent’s good faith estimate of the amount due or to become due, including all fees and other amounts relating to such Obligations.  “ Cash Collateralization ” has a correlative meaning.
 
Cash Equivalents : (a) marketable obligations issued or unconditionally guaranteed by, and backed by the full faith and credit of, the United States government, maturing within 12 months of the date of acquisition; (b) certificates of deposit, time deposits and bankers’ acceptances maturing within 12 months of the date of acquisition, and overnight bank deposits, in each case which are issued by a commercial bank organized under the laws of the United States or any state or district thereof, rated A-1 (or better) by S&P or P-1 (or better) by Moody’s at the time of acquisition, and (unless issued by a Lender) not subject to offset rights; (c) repurchase obligations with a term of not more than 30 days for underlying investments of the types described in clauses (a) and (b) entered into with any bank meeting the qualifications specified in clause (b); (d) commercial paper rated A-1 (or better) by S&P or P-1 (or better) by Moody’s, and maturing within nine months of the date of acquisition; and (e) shares of any money market fund that has substantially all of its assets invested continuously in the types of investments referred to above, has net assets of at least $500,000,000 and has the highest rating obtainable from either Moody’s or S&P; provided, that Cash Equivalents shall not at any time include any "auction rate" securities.
 
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Cash Management Services : any services provided from time to time by any Lender   or any of its Affiliates to any Borrower or Subsidiary in connection with operating, collections, payroll, trust, or other depository or disbursement accounts, including automated clearinghouse, e-payable, electronic funds transfer, wire transfer, controlled disbursement, overdraft, depository, information reporting, lockbox and stop payment services.
 
CERCLA : the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. § 9601 et seq .).
 
Change in Law : the occurrence, after the date hereof, of (a) the adoption or taking effect of any law, rule, regulation or treaty; (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority; or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.
 
Change of Control : an event or series of events by which:
 
(a)             Parent shall cease to own and control, legally and beneficially and of record, directly or indirectly, all of the Equity Interests of any Borrower, except as permitted by Section 10.2.8;
 
(b)           any Person or two or more Persons (other than the Principal Holders) acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of Parent, or control, directly or indirectly, the Equity Interests of Parent entitled to vote for members of the board of directors or equivalent governing body of Parent on a fully-diluted basis (and taking into account all such Equity Interests that such Person or Persons have the right to acquire pursuant to any option right) representing 30% or more of the combined voting power of such Equity Interests; or
 
(c)           a change in the majority of directors of Parent unless approved by the then majority of directors; or
 
(d)           all or substantially all of a Borrower’s assets are sold or transferred, other than sale or transfer to another Borrower.
 
Chattel Paper : as defined in Section 1.3 .
 
Claims : all liabilities, obligations, losses, damages, penalties, judgments, proceedings, interest, costs and expenses of any kind (including remedial response costs, reasonable attorneys’ fees and Extraordinary Expenses) at any time (including after Full Payment of the Obligations, resignation or replacement of Agent, or replacement of any Lender) incurred by or asserted against any Indemnitee in any way relating to (a) any Loans, Letters of Credit, Loan Documents, or the use thereof or transactions relating thereto, (b) any action taken or omitted to be taken by any Indemnitee in connection with any Loan Documents, (c) the existence or perfection of any Liens, or realization upon any Collateral, (d) exercise of any rights or remedies under any Loan Documents or Applicable Law, or (e) failure by any Obligor to perform or observe any terms of any Loan Document, in each case including all costs and expenses relating to any investigation, litigation, arbitration or other proceeding (including an Insolvency Proceeding or appellate proceedings), whether or not the applicable Indemnitee is a party thereto.
 
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Closing Date : as defined in Section 6.1 .
 
Code : the Internal Revenue Code of 1986, as amended.
 
Collateral : all Property described in Section 7.1 , all Property described in any Security Documents as security for any Obligations, and all other Property that now or hereafter secures (or is intended to secure) any Obligations.
 
Collateral Refinancing Debt : means any Debt of the Borrowers secured by Refinanced Assets and incurred after the Closing Date for which the following conditions have been met or satisfied: (i) the aggregate outstanding amount of Collateral Refinancing Debt secured by fixed or capital assets (other than Real Estate or Revenue Equipment) at any time is less than $5,000,000, after giving effect to any contemplated financing, (ii) the net proceeds from any Collateral Refinancing Debt are first used to repay outstanding Revolver Loans, if any, (iii) if the Refinanced Assets secure Permitted Debt immediately prior to the closing of the contemplated Collateral Refinancing Debt, all Refinancing Conditions have been met, (iv) a senior officer  of Parent has determined in good faith that the terms of such Collateral Refinancing Debt, taken as a whole, are commercially reasonable and comparable to terms otherwise generally available to borrowers in arms length transactions at the time such financing is committed, (v) Obligors are in compliance with the Fixed Charge Coverage Ratio on a pro-forma basis, after giving effect to any such Collateral Refinancing Debt and the application of the net proceeds of such Collateral Refinancing Debt in accordance with clause (ii) of this definition, (vi) the release of the Collateral which will secure the Collateral Refinancing Debt will not result in an Overadvance arising under the Borrowing Base after the application of the net proceeds of such Collateral Refinancing Debt in accordance with clause (ii) of this definition, and (vii) Obligors have delivered to the Agent no less than ten (10) days prior to the incurrence of such Debt a certificate of a senior officer of Parent certifying that each of the conditions set forth herein has been met, or will be met on the date of the incurrence of such Debt, together with a pro-forma Borrowing Base Certificate and pro-forma Compliance Certificate showing the effect of the proposed Collateral Refinancing Debt, the related release of Collateral and the related application of net proceeds.
 
Collateral Trigger Period : the period commencing on any day that an Event of Default occurs, or Availability is less than the greater of (a) $20,000,000, (b) the Real Estate Formula Amount, or (c) the Equipment Formula Amount, and continuing until Availability exceeds $20,000,000 for more than 60 consecutive days.
 
Commercial Tort Claim : as defined in Section 1.3 .
 
Commitment : for any Lender, the aggregate amount of such Lender’s Revolver Commitment.  “ Commitments ” means the aggregate amount of all Revolver Commitments.
 
Commitment Termination Date : the earliest to occur of (a) the Revolver Termination Date; (b) the date on which Borrowers terminate the Revolver Commitments pursuant to Section 2.1.4 ; or (c) the date on which the Revolver Commitments are terminated pursuant to Section 11.2 .
 
Compliance Certificate : a certificate, in form and substance satisfactory to Agent, by which Borrowers certify compliance with Section 10.3 and calculate the applicable level for the Applicable Margin, in the form of Exhibit E .
 
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Contingent Obligation : any obligation of a Person arising from a guaranty, indemnity or other assurance of payment or performance of any Debt, lease, dividend or other obligation (“ primary obligations ”) of another obligor (“ primary obligor ”) in any manner, whether directly or indirectly, including any obligation of such Person under any (a) guaranty, endorsement, co-making or sale with recourse of an obligation of a primary obligor; (b) obligation to make take-or-pay or similar payments regardless of nonperformance by any other party to an agreement; and (c) arrangement (i) to purchase any primary obligation or security therefor, (ii) to supply funds for the purchase or payment of any primary obligation, (iii) to maintain or assure working capital, equity capital, net worth or solvency of the primary obligor, (iv) to purchase Property or services for the purpose of assuring the ability of the primary obligor to perform a primary obligation, or (v) otherwise to assure or hold harmless the holder of any primary obligation against loss in respect thereof.  The amount of any Contingent Obligation shall be deemed to be the stated or determinable amount of the primary obligation (or, if less, the maximum amount for which such Person may be liable under the instrument evidencing the Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability with respect thereto.
 
Copyrights : (a) all copyrights arising under the laws of the United States, any other country, or union of countries, or any political subdivision of any of the foregoing, whether registered or unregistered and whether published or unpublished (including those listed on Schedule 9.1.12 hereto), all registrations and recordings thereof, and all applications in connection therewith and rights corresponding thereto throughout the world, including all registrations, recordings and applications in the United States Copyright Office or any similar office in a foreign jurisdiction, and (b) all other rights of any kind whatsoever accruing thereunder or pertaining thereto including rights to receivables and royalties from the exploitation thereof.
 
Copyright Security Agreement : each copyright security agreement pursuant to which an Obligor grants to Agent, for the benefit of Secured Parties, a Lien on such Obligor's interests in its Copyrights, as security for the Obligations.
 
Credit Judgment : Agent’s judgment exercised in good faith, based upon its consideration of any factor that it believes (a) could adversely affect the quantity, quality, mix or value of the Collateral (including any Applicable Law that may inhibit collection of an Account), the enforceability or priority of Agent’s Liens, or the amount that Agent and Lenders could receive in liquidation of any Collateral; (b) suggests that any collateral report or financial information delivered by any Obligor is incomplete, inaccurate or misleading in any material respect; (c) materially increases the likelihood of any Insolvency Proceeding involving an Obligor; or (d) creates or could result in a Default or Event of Default.  In exercising such judgment, Agent may consider any factors that could materially increase the credit risk of lending to Borrowers on the security of the Collateral.
 
CTI : as defined in the preamble of this Agreement.
 
CVTI Receivables : CVTI Receivables Corp., a Nevada corporation.
 
CWA : the Clean Water Act (33 U.S.C. §§ 1251 et seq .).
 
Daimler Credit Facility : the $200,000,000 Daimler Truck Financial credit facility, as in effect on the date hereof or as amended.
 
Daimler Revenue Equipment : any Revenue Equipment financed under the Daimler Credit Facility and pledged by Borrowers to secure the Daimler Credit Facility.
 
Debt : with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances by other Persons of any kind, (b) all monetary obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all monetary obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all monetary obligations of such Person in respect of the deferred purchase price of property or services (excluding trade accounts payable incurred in the Ordinary Course of Business, and deferred compensation), (e) all obligations due under Capital Leases or "synthetic" or similar leases of such Person, (f) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (g) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances, (h) all Debt of others secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Debt secured thereby has been assumed, and (i) all Contingent Obligations of such Person relating to Debt of others.  The Debt of any Person shall include the Debt of any other Person (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such other Person, except to the extent the terms of such Debt provide that such Person is not liable therefor.
 
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Default : an event or condition that, with the lapse of time or giving of notice, would constitute an Event of Default.
 
Default Rate : for any Obligation (including, to the extent permitted by law, interest not paid when due), 2% plus the interest rate otherwise applicable thereto.
 
Deposit Account : as defined in Section 1.3 .
 
Deposit Account Control Agreements : the deposit account control agreements, in form and substance acceptable to Agent, to be executed by each institution maintaining a Deposit Account for an Obligor, in favor of Agent, for the benefit of Secured Parties, as security for the Obligations.
 
Dilution Percent : on any date, the percentage equal to (a) non-cash reductions in Accounts (net of credit re-bills, where the re-bill occurs in the same 30-day period as the credit) for the 12-month period (or such shorter period as determined by Agent, but in no event shorter than three months) prior to such date, divided by (b) the sum of (i) cash collections of Accounts, plus (ii) non-cash reductions in Accounts (net of credit re-bills, where the re-bill occurs in the same 30-day period as the credit), in each case for the 12-month period (or such shorter period as determined by Agent, but in no event shorter than three months) prior to such date.
 
Distribution : any declaration or payment of a distribution, interest or dividend on any Equity Interest (other than payment-in-kind); any distribution, advance or repayment of Debt to a holder of Equity Interests; or any purchase, redemption, or other acquisition or retirement for value of any Equity Interest.
 
Document : as defined in Section 1.3 .
 
Dollars : lawful money of the United States.
 
Dominion Account : a special account established by the Borrowers at Bank of America or another bank acceptable to Agent, over which Agent has exclusive control for withdrawal purposes.
 
EBITDAR : determined on a consolidated basis for Parent and its Subsidiaries in accordance with GAAP for any fiscal period of Parent and its Subsidiaries, the sum of (a) Adjusted Net Income, plus (b) to the extent excluded in the calculation of Adjusted Net Income for such period and without duplication (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) cash rental expense, (v) notwithstanding the fact that such proceeds are not deducted in determining Adjusted Net Income for such period, the Adjusted Net Proceeds received from the sale of Revenue Equipment during such period; and (vi) transaction costs and expenses incurred in connection with the closing of the Revolving Credit Facility and the Daimler Credit Facility.
 
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Eligible Account : an Account owing to an Obligor that arises in the Ordinary Course of Business from the sale of goods or rendition of services, is payable in Dollars, has been properly invoiced and billed to the applicable Account Debtor, and is deemed by Agent, in its discretion, to be an Eligible Account.  Without limiting the foregoing, no Account shall be an Eligible Account if (a) it is unpaid for more than 60   days after the original due date, or more than 90   days after the original invoice date; (b) 20% or more of the Accounts owing by the Account Debtor are not Eligible Accounts hereunder; (c) when aggregated with all other Accounts owing by the Account Debtor or its Affiliates, it exceeds 20%   (or such higher percentage as Agent may establish for the Account Debtor from time to time) of the aggregate Eligible Accounts (but only such Accounts in excess of 20% (or such higher percentages as Agent may establish for the Account Debtor from time to time) of the aggregate Eligible Accounts shall not be Eligible Accounts hereunder); (d) it does not conform with a covenant or representation herein; (e) it is owing by a creditor or supplier, or is otherwise subject to a potential offset, counterclaim, dispute, deduction, discount, recoupment, reserve, defense, chargeback, credit or allowance (but ineligibility shall be limited to the amount thereof); (f) an Insolvency Proceeding has been commenced by or against the Account Debtor; or the Account Debtor has failed, has suspended or ceased doing business, is liquidating, dissolving or winding up its affairs, or is not Solvent; (g) the Account Debtor is organized or has its principal offices or assets outside the United States or Canada; (h) it is owing by a Governmental Authority, unless the Account Debtor is the United States or a department, agency or instrumentality thereof and the Account has been assigned to Agent in compliance with the Assignment of Claims Act; (i) it is not subject to a duly perfected, first priority Lien in favor of Agent, or is subject to any other Lien; (j) the goods giving rise to it have not been delivered to and accepted by the Account Debtor, the services giving rise to it have not been accepted by the Account Debtor, or it otherwise does not represent a final sale; (k) it is evidenced by Chattel Paper or an Instrument of any kind, or has been reduced to judgment; (l) its payment has been extended, the Account Debtor has made a partial payment (to the extent of such payment), or it arises from a sale on a cash-on-delivery basis; (m) it arises from a sale to an Affiliate, or from a sale on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval, consignment, or other repurchase or return basis; (n) it represents a progress billing or retainage; (o) it includes a billing for interest, fees or late charges, but ineligibility shall be limited to the extent thereof; or (p) it arises from a retail sale to a Person who is purchasing for personal, family or household purposes.  In calculating the ineligible delinquent portions of Accounts under clauses (a) and (b), credit balances more than 90 days old will be excluded.
 
Eligible Assignee : a Person that is (a) a Lender, U.S.-based Affiliate of a Lender or Approved Fund; (b) any other financial institution approved by Agent and Borrower Agent (which approval by Borrower Agent shall not be unreasonably withheld or delayed, and shall be deemed given if no objection is made within two Business Days after notice of the proposed assignment), that is organized under the laws of the United States or any state or district thereof, has total assets in excess of $5 billion, extends asset-based lending facilities in its ordinary course of business and whose becoming an assignee would not constitute a prohibited transaction under Section 4975 of the Code or any other Applicable Law; and (c) during any Event of Default, any Person acceptable to Agent in its discretion.
 
Eligible Real Estate : all Real Estate identified on Schedule 7.3 hereto and all other Real Estate approved by all of the Lenders from time to time.  Without limiting the ability of Agent to establish other criteria of eligibility, Eligible Real Estate shall (a) be owned by a Borrower; (b) be encumbered by a recorded Mortgage and other Agent’s Liens; (c) not be subject to any Liens other than the Mortgage, other Agent’s liens, and Permitted Liens; and (d) constitute Real Estate as to which all of the representations, warranties and covenants contained in the applicable Mortgage for such Real Estate are (or, if made as of a particular date, were on such date) true, correct or satisfied in all material respects.  Any Real Estate that becomes a Refinanced Asset shall cease being Eligible Real Estate on the date Agent releases its Lien on such Real Estate.
 
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Eligible Revenue Equipment : all Revenue Equipment that Agent, in its discretion, deems to be Eligible Revenue Equipment.  Without limiting the foregoing, no Revenue Equipment shall constitute Eligible Revenue Equipment if it (a) is not subject to a valid certificate of title (except to the extent such untitled Revenue Equipment has been fully assembled and delivered to a Borrower and is subject to a manufacturer’s statement of origin that can be delivered to the applicable titling authority to promptly cause such Revenue Equipment to become titled); (b) does not conform with the covenants and representations herein; (c) is not subject to Agent’s duly perfected first priority Lien, and no other Lien; (d) is not in good repair and normal operating condition or which has not been maintained in accordance with a Borrower’s historic maintenance program, including annual and preventative maintenance and rebuilds, provided , however , that such Revenue Equipment shall not be deemed ineligible solely due to the fact such Revenue Equipment is being repaired for ordinary wear and tear; (e) is obsolete; or (f) is not stored, garaged or otherwise assigned to a business location of a Borrower or another Obligor.  Furthermore, no Revenue Equipment shall constitute Eligible Revenue Equipment unless (x) with respect to Revenue Equipment that is Collateral on the Closing Date, Agent or its designee has received a detailed list of all certificates of title for such Revenue Equipment that note Agent’s Lien thereon and the original certificate of title with Agent’s Lien noted thereon is delivered to Agent or its designee within 30 days after the Closing Date, and (y) with respect to Revenue Equipment that becomes Collateral after the Closing Date, Agent or its designee has received a copy of the application for title filed with the applicable Governmental Authority, requesting that Agent’s Lien be noted thereon and the original certificate of title with Agent’s Lien noted thereon is delivered to Agent or its designee within 60 days after such Revenue Equipment becomes Collateral.  With respect to clause (c) above, the Agent acknowledges that perfection may have occurred prior to issuance of a certificate of title with the Agent’s Lien noted thereon, and agrees that no Revenue Equipment shall be determined to be ineligible in Agent’s discretion solely because of the usual and customary administrative delay between the submission of the certificate of title application for such Revenue Equipment to the applicable state Governmental Authority and the issuance of a new certificate of title for such Revenue Equipment with the Agent’s Lien noted thereon, unless such certificate of title is not received within the timeframes set forth herein.
 
Eligible Unbilled Account : on any date of determination, each Account that is unbilled and (a) has been unbilled for a period not greater than 18 days from the date the services giving rise to such Account were performed or, if later, the billing date called for in the transportation services contract under which such Account arose, and (b) otherwise constitutes an “Eligible Account” hereunder except for the fact that such Account is unbilled.
 
Enforcement Action : any action to enforce any Obligations or Loan Documents or to realize upon any Collateral (whether by judicial action, self-help, notification of Account Debtors, exercise of setoff or recoupment, or otherwise).
 
Environmental Agreement : each agreement of Borrowers with respect to any Real Estate subject to a Mortgage, pursuant to which Borrowers agree to indemnify and hold harmless Agent and Lenders from liability under any Environmental Laws.
 
Environmental Laws : all Applicable Laws (including all programs, permits and guidance promulgated by regulatory agencies), relating to public health (but excluding occupational safety and health, to the extent regulated by OSHA) or the protection or pollution of the environment, including CERCLA, RCRA and CWA.
 
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Environmental Notice : a notice (whether written or oral) from any Governmental Authority or other Person of any possible noncompliance with, investigation of a possible violation of, litigation relating to, or potential fine or liability under any Environmental Law, or with respect to any Environmental Release, environmental pollution or hazardous materials, including any complaint, summons, citation, order, claim, demand or request for correction, remediation or otherwise.
 
Environmental Release : a release as defined in CERCLA or under any other Environmental Law.
 
Equipment : as defined in Section 1.3 .
 
Equipment Formula Amount : the lesser of (a) 85% of the product of (i) the fraction obtained by dividing (x) the aggregate NOLV of Eligible Revenue Equipment (based upon the most recent appraisal) by (y) the aggregate net book value (calculated in accordance with GAAP) of such Eligible Revenue Equipment (as determined on the same date as the most recent appraisal used to calculate the NOLV in clause (x)), multiplied by (ii) the net book value (calculated in accordance with GAAP) of Eligible Revenue Equipment as of the date of determination, (b) 95% of the net book value (calculated in accordance with GAAP) of Eligible Revenue Equipment, or (c) 35% of the aggregate Commitments.
 
Equity Interest : the interest of any (a) shareholder in a corporation; (b) partner in a partnership (whether general, limited, limited liability or joint venture); (c) member in a limited liability company; or (d) other Person having any other form of equity security or ownership interest.
 
ERISA : the Employee Retirement Income Security Act of 1974.
 
ERISA Affiliate : any trade or business (whether or not incorporated) under common control with an Obligor within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
 
ERISA Event : (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Obligor or ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any Obligor or ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) the failure by any Obligor or ERISA Affiliate to meet any funding obligations with respect to any Pension Plan or Multiemployer Plan; (f) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (g) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Obligor or ERISA Affiliate.
 
Event of Default : as defined in Section 11 .
 
Excluded Assets : (a) any lease, license, contract, property right or agreement to which any Obligor is a party or any of such Obligor's rights or interests thereunder if and only for so long as the grant of a security interest therein under any Loan Document shall constitute or result in a breach, termination or default or invalidity under such lease, license, contract, property right, or agreement or would violate any law, rule, or regulation applicable to or governing such lease, license, contract, property right, or agreement (other than to the extent that any such term, law, or regulation would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC of any relevant jurisdiction or any other applicable law); provided that such lease, license, contract, property right or agreement shall be an Excluded Asset only to the extent and for so long as the consequences specified above shall exist and shall cease to be an Excluded Asset and shall become subject to the security interest granted under the Security Documents, immediately and automatically, at such time as such consequences shall no longer exist; (b) any interests in Real Estate that does not constitute Eligible Real Estate or that constitutes a leasehold of any Obligor; (c) any intellectual property if and to the extent a grant of a security interest therein will result in the loss, voiding, abandonment, cancellation or termination of any right, title or interest in or to such intellectual property; provided , however , that such intellectual property shall be an Excluded Asset only to the extent and for so long as the circumstances specified above shall exist and shall cease to be an Excluded Asset and shall become subject to the security interest granted under the Security Documents, immediately and automatically, at such time as such circumstances shall no longer exist; (d) any Daimler Revenue Equipment for so long as it secures the Daimler Credit Facility; (e) any personal Property financed by Purchase Money Debt and which is subject to a Purchase Money Lien; (f) Equity Interests of VIL or Transplace issued to Obligors; (g) any instrument evidencing loans or advances by an Obligor to VIL; (h) any instrument evidencing the loans by an Obligor to Transplace described in Schedule 10.2.6 ; and (i) any Refinanced Asset for so long as it secures Collateral Refinancing Debt permitted hereunder.  Notwithstanding the foregoing, Excluded Assets shall not affect and shall not exclude Agent’s security interest in any products or proceeds of any Excluded Assets unless such products and proceeds are themselves Excluded Assets.
 
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Excluded Tax : with respect to Agent, any Lender, Issuing Bank or any other recipient of a payment to be made by or on account of any Obligation, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located; and (b) in the case of a Foreign Lender, any withholding tax attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 5.9 , except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from a Borrower with respect to such withholding tax.
 
Existing Credit Agreement : the Second Amended and Restated Credit Agreement dated as of December 21, 2006 by and among CAM, CTI, the lenders party thereto and Bank of America, N.A. as administrative agent, as amended, restated, supplemented or modified prior to the date hereof.
 
Existing Letters of Credit: those letters of credit specified on Schedule 1.4 .
 
Extraordinary Expenses : all costs, expenses or advances that Agent (and with respect to clause (e) below, Lenders) may incur during a Default or Event of Default, or during the pendency of an Insolvency Proceeding of an Obligor, including those relating to (a) any audit, inspection, repossession, storage, repair, appraisal, insurance, manufacture, preparation or advertising for sale, sale, collection, or other preservation of or realization upon any Collateral; (b) any action, arbitration or other proceeding (whether instituted by or against Agent, any Lender, any Obligor, any representative of creditors of an Obligor or any other Person) in any way relating to any Collateral (including the validity, perfection, priority or avoidability of Agent’s Liens with respect to any Collateral), Loan Documents, Letters of Credit or Obligations, including any lender liability or other Claims; (c) the exercise, protection or enforcement of any rights or remedies of Agent or Lenders in, or the monitoring of, any Insolvency Proceeding; (d) settlement or satisfaction of any taxes, charges or Liens with respect to any Collateral; (e) any Enforcement Action; (f) negotiation and documentation of any modification, waiver, workout, restructuring or forbearance with respect to any Loan Documents or Obligations; and (g) Protective Advances.  Such costs, expenses and advances include transfer fees, Other Taxes, storage fees, insurance costs, permit fees, utility reservation and standby fees, legal fees, appraisal fees, brokers’ fees and commissions, auctioneers’ fees and commissions, accountants’ fees, environmental study fees, wages and salaries paid to employees of any Obligor or independent contractors in liquidating any Collateral, and travel expenses.
 
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Extraordinary Receipts : amounts received by the Obligors not in the Ordinary Course of Business in respect of (a)  pension plan reversions; (b) judgments, proceeds of settlements or other consideration of any kind in connection with any cause of action; (c) indemnity payments; (d) any purchase price adjustment received in connection with any purchase agreement; and (e) any casualty or condemnation; provided , that Extraordinary Receipts shall not include cash receipts from indemnity payments to the extent that such payments are received by any Obligor in respect of any third party claim against such Obligor and applied to pay (or to reimburse such Obligor for its prior payment of) such claim and the costs and expenses of such Obligor with respect thereto.
 
Fee Letter : the fee letter agreement, dated September 16, 2008, among Agent, Borrowers, and Banc of America Securities LLC.
 
Financed Capital Expenditures : for any period of calculation, the principal amount of Debt (including Revolver Loans) incurred to finance Capital Expenditures; provided , that, for the purposes of this definition and the calculation of the Fixed Charge Coverage Ratio, the amount of such Debt arising under Revolver Loans shall be limited to the Equipment Formula Amount or Real Estate Formula Amount, as applicable, attributable to the Collateral financed by such Revolver Loans.
 
Fiscal Quarter : each period of three months, commencing on the first day of a Fiscal Year.
 
Fiscal Year : the fiscal year of Parent and Subsidiaries for accounting and tax purposes, ending on December 31 of each year.
 
Fixed Charge Coverage Ratio : the ratio, determined on a consolidated basis for Parent and its Subsidiaries for the Twelve-Month Period immediately preceding the date of determination, of (a) EBITDAR minus Capital Expenditures other than Financed Capital Expenditures, to (b) Fixed Charges for such period.
 
Fixed Charges : the sum, without duplication, of (a) interest expense (other than payment-in-kind), plus (b) cash rental expense, plus (c) any scheduled principal payments on any Debt, plus (d) any Included Revolver Payments, plus (e) any other voluntary or discretionary principal payments or other prepayments on any Debt other than Permitted Voluntary Prepayments and repayments on the Revolving Credit Facility other than Included Revolver Payments, plus (f) taxes paid in cash, less (g) any cash tax refunds received, plus (h) Distributions paid in cash, plus (i) payments made in respect of obligations under Capital Leases , plus (j) scheduled reductions of the Real Estate Formula Amount based on the Real Estate Amortization Amount, plus (k) an amount equal to 15% of the net book value (calculated in accordance with GAAP) of Eligible Revenue Equipment as reported on the Borrowing Base certificate dated as of the date of determination; provided that prior to October 1, 2009, the percentage set forth in this clause (k) shall mean a cumulative increasing percentage equal to 1.25% per month from October 1, 2008 through September 30, 2009.
 
FLSA : the Fair Labor Standards Act of 1938.
 
Foreign Lender : any Lender that is organized under the laws of a jurisdiction other than the laws of the United States, or any state or district thereof.
 
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Foreign Plan : any employee benefit plan or arrangement (a) maintained or contributed to by any Obligor or Subsidiary that is not subject to the laws of the United States; or (b) mandated by a government other than the United States for employees of any Obligor or Subsidiary.
 
Foreign Subsidiary : a Subsidiary that is a “controlled foreign corporation” under Section 957 of the Code, such that a guaranty by such Subsidiary of the Obligations or a Lien on the assets of such Subsidiary to secure the Obligations would result in material tax liability to Borrowers.
 
Full Payment : with respect to any Obligations, (a) the full and indefeasible cash payment thereof, including any interest, fees and other charges accruing during an Insolvency Proceeding or that would have accrued but for the commencement of such Insolvency Proceeding (whether or not allowed in the proceeding); (b) if such Obligations are LC Obligations or inchoate or contingent in nature, Cash Collateralization thereof (or delivery of a standby letter of credit acceptable to Agent in its discretion, in the amount of required Cash Collateral); and (c) a release of any Claims of Obligors against Agent, Lenders and Issuing Bank arising on or before the payment date.  No Loans shall be deemed to have been paid in full until all Commitments related to such Loans have expired or been terminated.
 
GAAP : generally accepted accounting principles in effect in the United States from time to time.
 
General Intangibles : as defined in Section 1.3 .
 
Goods : as defined in Section 1.3 .
 
Governmental Approvals : all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and required reports to, all Governmental Authorities.
 
Governmental Authority : any federal, state, province, territory, municipal, foreign or other governmental department, agency, commission, board, bureau, court, tribunal, instrumentality, political subdivision, or other entity or officer exercising executive, legislative, judicial, regulatory or administrative functions for or pertaining to any government or court, in each case whether associated with the United States, a state, district or territory thereof, or a foreign entity or government.
 
Guarantor Payment : as defined in Section 5.10.3 .
 
Guarantor : Parent and each other Person who guarantees payment or performance of any Obligations.
 
Guaranty : collectively, the Parent Guaranty and any other guaranty agreement or supplement delivered after the date hereof which guarantees payment or performance of any Obligations on terms acceptable to the Agent.
 
Hedging Agreement : an agreement relating to any swap, cap, floor, collar, option, forward, cross right or obligation, or combination thereof or similar transaction, with respect to interest rate, foreign exchange, currency, commodity, credit or equity risk.
 
Hedge Value : with respect to each Hedging Obligation, the net obligations of Borrowers, Parent, or any Subsidiary of Parent thereunder equal to the termination value thereof as determined in accordance with its provisions (if such Hedging Obligation has been terminated) or the mark to market value thereof as determined on the basis of available quotations from any recognized dealer in, or from Bloomberg or other similar service providing market quotations for, the applicable Hedging Obligation (if such Hedging Obligation has not been terminated).
 
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Hedging Obligations : without duplication, any and all obligations of Borrowers, Parent or any Subsidiary, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under any Hedging Agreement.  For purposes of any computation hereunder, each Hedging Obligation shall be valued at the Hedge Value thereof.
 
Included Revolver Payments : the lesser of (i) the Adjusted Net Proceeds from any sale of Revenue Equipment, or (ii) the Equipment Formula Amount attributable to the Revenue Equipment sold.
 
Indemnified Taxes : Taxes other than Excluded Taxes.
 
Indemnitees : Agent Indemnitees, Lender Indemnitees, Issuing Bank Indemnitees and Bank of America Indemnitees.
 
Insolvency Proceeding : any case, filing, or proceeding commenced by or against a Person under any state, federal or foreign law for, or any agreement of such Person to, (a) the entry of an order for relief under the Bankruptcy Code, or any other insolvency, debtor relief or debt adjustment law; (b) the appointment of a receiver, interim receiver, trustee, liquidator, administrator, monitor, conservator or other custodian for such Person or any part of its Property; or (c) an assignment or trust mortgage for the benefit of creditors.
 
Instrument : as defined in Section 1.3 .
 
Intellectual Property : all right, title and interest in, to and under its current and future Copyrights, Patents, Trade Secrets, and Trademarks including, without limitation all, intellectual rights and similar Property of a Person, including inventions, designs, internet domain names, Patents, registered Copyrights, registered Trademarks, material unregistered Trademarks, service marks, trade names, Trade Secrets, confidential or any other proprietary information of any kind or nature, customer lists, know-how, software and databases; all embodiments or fixations thereof and all related documentation, applications, registrations and franchises; all licenses or other rights to use any of the foregoing;  all books and records relating to the foregoing, in any format or media, and including without limitation all proceeds thereof, the right to sue for past, present and future infringements or dilution of any of the foregoing or for any injury to goodwill, all rights corresponding thereto throughout the world and all re-issues, divisions, continuations, renewals, extensions and continuations-in-part thereof.
 
Intellectual Property Claim : any claim or assertion (whether in writing, by suit or otherwise) that a Borrower’s or Subsidiary’s ownership, use, marketing, sale or distribution of any Inventory, Equipment, Intellectual Property or other Property violates another Person’s Intellectual Property.
 
Interest Period : as defined in Section 3.1.3 .
 
Inventory : as defined in Section 1.3 .
 
Investment : any acquisition of all or substantially all assets of a Person; any acquisition of record or beneficial ownership of any Equity Interests of a Person; or any advance or capital contribution to or other investment in a Person.
 
Investment Property : as defined in Section 1.3 .
 
IRS : the United States Internal Revenue Service.
 
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Issuing Bank : Bank of America or an Affiliate of Bank of America.
 
Issuing Bank Indemnitees : Issuing Bank and its officers, directors, employees, Affiliates, agents and attorneys.
 
LC Application : an application by Borrower Agent to Issuing Bank for issuance of a Letter of Credit, in form and substance satisfactory to Issuing Bank.
 
LC Conditions : the following conditions necessary for issuance of a Letter of Credit: (a) each of the conditions set forth in Section 6 ; (b) after giving effect to such issuance, (i) total LC Obligations do not exceed the Letter of Credit Subline, (ii) total LC Obligations with respect to standby Letters of Credit do not exceed the standby Letter of Credit sublimit of the Letter of Credit Subline, (iii) total LC Obligations with respect to commercial Letters of Credit do not exceed the commercial Letter of Credit sublimit of the Letter of Credit Subline, (iv) no Overadvance exists and (v) if no Revolver Loans are outstanding, the LC Obligations do not exceed the Borrowing Base (without giving effect to the LC Reserve for purposes of this calculation); (c) the expiration date of such Letter of Credit is (i) no more than 365 days from issuance, in the case of standby Letters of Credit, (ii) no more than 120 days from issuance, in the case of documentary Letters of Credit, and (iii) at least 20 Business Days prior to the Revolver Termination Date; (d) the Letter of Credit and payments thereunder are denominated in Dollars; and (e) the purpose and form of the proposed Letter of Credit is satisfactory to Agent and Issuing Bank in their discretion.
 
LC Documents : all documents, instruments and agreements (including LC Requests and LC Applications) delivered by Borrowers or any other Person to Issuing Bank or Agent in connection with issuance, amendment or renewal of, or payment under, any Letter of Credit.
 
LC Obligations : the sum (without duplication) of (a) all amounts owing by Borrowers for any drawings under Letters of Credit; (b) the stated amount of all outstanding Letters of Credit; and (c) all fees and other amounts owing with respect to Letters of Credit.
 
LC Request : a request for issuance of a Letter of Credit, to be provided by Borrower Agent to Issuing Bank, in form satisfactory to Agent and Issuing Bank.
 
LC Reserve : the aggregate of all LC Obligations, other than (a) those that have been Cash Collateralized; and (b) if no Default or Event of Default exists, those constituting charges owing to Issuing Bank.
 
Lender Indemnitees : Lenders and their officers, directors, employees, Affiliates, agents and attorneys.
 
Lenders : as defined in the preamble to this Agreement, including Agent in its capacity as a provider of Swingline Loans, and any other Person who hereafter becomes a “Lender” pursuant to an Assignment and Acceptance or pursuant to Section 2.3 .
 
Lending Office : the office designated as such by the applicable Lender at the time it becomes party to this Agreement or thereafter by notice to Agent and Borrower Agent.
 
Letter of Credit : any Existing Letters of Credit and  any standby or documentary letter of credit issued by Issuing Bank for the account of a Borrower, or any indemnity, guarantee, exposure transmittal memorandum or similar form of credit support issued by Agent or Issuing Bank for the benefit of a Borrower.
 
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Letter-of-Credit Right : as defined in Section 1.3 .
 
Letter of Credit Subline : an aggregate amount of $85,000,000, with the following sublimits: (a) with respect to standby letters of credit, $65,000,000 and (b) with respect to commercial letters of credit, $20,000,000, as such sublimits may be adjusted from time to time in accordance with Section 2.2.1(f) .  The Letter of Credit Subline is part of, and not in addition to, the Revolving Credit Facility.
 
LIBOR : for any Interest Period with respect to a LIBOR Loan, the per annum rate of interest (rounded upward, if necessary, to the nearest 1/8th of 1%), determined by Agent at approximately 11:00 a.m. (London time) two Business Days prior to commencement of such Interest Period, for a term comparable to such Interest Period, equal to (a) the British Bankers Association LIBOR Rate (“ BBA LIBOR ”), as published by Reuters (or other commercially available source designated by Agent); or (b) if BBA LIBOR is not available for any reason, the interest rate at which Dollar deposits in the approximate amount of the LIBOR Loan would be offered by Bank of America’s London branch to major banks in the London interbank Eurodollar market.  If the Board of Governors imposes a Reserve Percentage with respect to LIBOR deposits, then LIBOR shall be the foregoing rate, divided by 1 minus the Reserve Percentage.
 
LIBOR Loan : each set of LIBOR Revolver Loans having a common length and commencement of Interest Period.
 
LIBOR Revolver Loan : a Revolver Loan that bears interest based on LIBOR.
 
License : any license or agreement under which an Obligor is authorized to use Intellectual Property in connection with any manufacture, marketing, distribution or disposition of Collateral, any use of Property or any other conduct of its business.
 
Licensor : any Person from whom an Obligor obtains the right to use any Intellectual Property pursuant to a License.
 
Lien : any Person’s interest in Property securing an obligation owed to, or a claim by, such Person, whether such interest is based on common law, statute or contract, including liens, security interests, pledges, hypothecations, statutory trusts, reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Property.
 
Lien Waiver : an agreement, in form and substance satisfactory to Agent, by which (a) for any material Collateral located on leased premises, the lessor waives or subordinates any Lien it may have on the Collateral, and agrees to permit Agent to enter upon the premises and remove the Collateral or to use the premises to store or dispose of the Collateral; (b) for any Collateral held by a warehouseman, processor, shipper, customs broker or freight forwarder, such Person waives or subordinates any Lien it may have on the Collateral, agrees to hold any Documents in its possession relating to the Collateral as agent for Agent, and agrees to deliver the Collateral to Agent upon request; (c) for any Collateral held by a repairman, mechanic or bailee, such Person acknowledges Agent’s Lien, waives or subordinates any Lien it may have on the Collateral, and agrees to deliver the Collateral to Agent upon request; and (d) for any Collateral subject to a Licensor’s Intellectual Property rights, the Licensor grants to Agent the right, vis-à-vis such Licensor, to use such Intellectual Property in connection with the enforcement of Agent Liens with respect to the Collateral, including the right to dispose of it with the benefit of such Intellectual Property, whether or not a default exists under any applicable License.
 
Loan : a Revolver Loan.
 
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Loan Account : the loan account established by each Lender on its books pursuant to Section 5.7 .
 
Loan Documents : this Agreement, Other Agreements and Security Documents.
 
Loan Year : each 12 month period commencing on the Closing Date and on each anniversary of the Closing Date.
 
Margin Stock : as defined in Regulation U of the Board of Governors.
 
Material Adverse Effect : the effect of any event or circumstance that, taken alone or in conjunction with other events or circumstances, (a) has or could reasonably be expected to have a material adverse effect on the business, operations, Properties, prospects or condition (financial or otherwise) of the Obligors taken as a whole, on the value of any material portion of the Collateral, on the enforceability of any Loan Documents, or on the validity or priority of Agent’s Liens on any material portion of the Collateral; (b) materially impairs the ability of the Obligors taken as a whole to perform any obligations under the Loan Documents, including repayment of any Obligations; or (c) otherwise materially impairs the ability of Agent or any Lender to enforce or collect any Obligations or to realize upon any material portion of the Collateral.
 
Material Contract : any agreement or arrangement to which a Borrower or Subsidiary is party (other than the Loan Documents) (a) that is deemed to be a material contract under any securities law applicable to such Obligor, including the Securities Act of 1933; (b) for which breach, termination, nonperformance or failure to renew could reasonably be expected to have a Material Adverse Effect; or (c) that relates to Debt in an aggregate amount of $500,000 or more, all of which as of the Closing Date are listed on Schedule 1.3 .
 
Material License : any License that is a Material Contract and that is necessary with respect to the use of any material portion of the Collateral or any other material portion of the Property of Obligors and Subsidiaries.
 
Moody’s : Moody’s Investors Service, Inc., and its successors.
 
Mortgage : each mortgage, deed of trust or deed to secure debt, in form and substance acceptable to Agent, pursuant to which a Borrower grants to Agent, for the benefit of Secured Parties, Liens upon the Real Estate owned by such Borrower, as security for the Obligations.
 
Multiemployer Plan : any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Obligor or ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.
 
Net Cash Amount : with respect to Extraordinary Receipts or Refinancing Debt, the cash amount of such receipts, net of bona fide direct costs incurred to non-Affiliates of any Obligor in connection with obtaining such cash receipts or Refinancing Debt, including, without limitation, (a) reasonable and customary costs and expenses actually incurred in connection therewith, including legal fees and fees of accountants and consultants, and (b) transfer or similar taxes.
 
Net Proceeds : with respect to an Asset Disposition, proceeds (including, when received, any deferred or escrowed payments) received by a Borrower or Subsidiary in cash from such disposition, net of (a) reasonable and customary costs and expenses actually incurred in connection therewith, including legal fees and sales commissions; (b) amounts applied to repayment of Debt secured by a Permitted Lien (other than the Agent’s Lien); (c) transfer or similar taxes; and (d) reserves for indemnities, until such reserves are no longer needed.
 
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NOLV : the net orderly liquidation value of a Borrower’s Bank Revenue Equipment, expected to be realized at an orderly, negotiated sale held within a reasonable period of time, net of all liquidation expenses, as determined from the most recent appraisal of such Borrower’s Bank Revenue Equipment performed by an appraiser acceptable to and on terms satisfactory to Agent and which value may be adjusted upward and downward in Agent’s Credit Judgment to reflect factors as expressed in such appraisals from time to time.
 
Notes : each Revolver Note or other promissory note executed by a Borrower to evidence any Obligations.
 
Notice of Borrowing : a Notice of Borrowing to be provided by Borrower Agent to request a Borrowing of Revolver Loans, in form satisfactory to Agent.
 
Notice of Conversion/Continuation : a Notice of Conversion/Continuation to be provided by Borrower Agent to request a conversion or continuation of any Loans as LIBOR Loans, in form satisfactory to Agent.
 
Obligations : all (a) principal of and premium, if any, on the Loans, (b) LC Obligations and other obligations of Obligors with respect to Letters of Credit, (c) interest, expenses, fees and other sums payable by Obligors under Loan Documents, (d) obligations of Obligors under any indemnity for Claims, (e) Extraordinary Expenses, (f) Bank Product Debt, and (g) other Debts, obligations and liabilities of any kind owing by Obligors to Agent or Lenders pursuant to the Loan Documents, whether now existing or hereafter arising, whether evidenced by a note or other writing, whether allowed in any Insolvency Proceeding, whether arising from an extension of credit, issuance of a letter of credit, acceptance, loan, guaranty, indemnification or otherwise, and whether direct or indirect, absolute or contingent, due or to become due, primary or secondary, or joint or several.
 
Obligor : each Borrower and each Guarantor, or other Person that is liable for payment of any Obligations or that has granted a Lien in favor of Agent on its assets to secure any Obligations.
 
Ordinary Course of Business : the ordinary course of business of any Borrower or Subsidiary, consistent with past practices and undertaken in good faith.
 
Organic Documents : with respect to any Person, its charter, certificate or articles of incorporation, bylaws, articles of organization, limited liability agreement, operating agreement, members agreement, shareholders agreement, partnership agreement, certificate of partnership, certificate of formation, voting trust agreement, or similar agreement or instrument governing the formation or operation of such Person.
 
OSHA : the Occupational Safety and Hazard Act of 1970.
 
Other Agreements : the Notes; the Release and Termination Agreement, the LC Documents; the Fee Letter; the Lien Waivers;   the Real Estate Related Documents; each Borrowing Base Certificate, each Compliance Certificate, each financial statement or report delivered hereunder; and each other document, instrument or agreement (other than this Agreement or a Security Document) now or hereafter delivered by an Obligor or other Person to Agent or a Lender in connection with any transactions relating hereto (excluding any contracts of any Borrowers or Subsidiaries with parties other than Agent or Lenders).
 
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Other Taxes : all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document.
 
Overadvance : as defined in Section 2.1.5 .
 
Overadvance Loan : a Base Rate Revolver Loan made when an Overadvance exists or is caused by the funding thereof.
 
Parent : as defined in the preamble of this Agreement.
 
Parent Guaranty : that certain Guaranty entered into by Parent in favor of Lenders dated as of the date hereof.
 
Participant : as defined in Section 13.2 .
 
Patents : (a) all letters of patent of the United States, any other country, union of countries or any political subdivision of any of the foregoing, and all reissues and extensions thereof, including any of the foregoing listed in Schedule 9.1.12 , (b) all applications for letters of patent of the United States or any other country or union of countries or any political subdivision of any of the foregoing and all divisions, continuations and continuations-in-part thereof, all improvements thereof, including any of the foregoing listed in Schedule 9.1.12 , and (c) any reissues or extensions of the foregoing.
 
Patent Security Agreement : each patent security agreement or collateral assignment pursuant to which an Obligor grants a Lien on or assigns to Agent, for the benefit of Secured Parties, a Lien on such Obligor's interests in its Patents, as security for the Obligations.
 
Patriot Act : the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, 115 Stat. 272 (2001).
 
Payment Item : each check, draft or other item of payment payable to a Borrower, including those constituting proceeds of any Collateral.
 
PBGC : the Pension Benefit Guaranty Corporation.
 
Pension Plan : any employee pension benefit plan (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by any Obligor or ERISA Affiliate or to which the Obligor or ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section  4064(a) of ERISA, has made contributions at any time during the preceding five plan years.
 
Permitted Asset Disposition : (A) as long as no Default or Event of Default exists or would be created as a result thereof and all Net Proceeds are remitted to Agent for application to outstanding Loans, if any, an Asset Disposition that is (a) a sale of Inventory in the Ordinary Course of Business; (b) a disposition of Pledged Equipment in the Ordinary Course of Business in accordance with the Obligors’ disposition cycle or that is otherwise worn, damaged or obsolete; (c) in addition to, and without intending to limit the provisions of, the immediately preceding clause (b), a disposition of Pledged Equipment that, in the aggregate during any 12 month period, has a fair market or book value (whichever is more) of $20,000,000   or less; (d) a disposition of Inventory that is obsolete, unmerchantable or otherwise unsalable in the Ordinary Course of Business; (e) termination of a lease of real or personal Property that is not necessary for the Ordinary Course of Business, could not reasonably be expected to have a Material Adverse Effect and does not result from an Obligor’s default; or (f) not otherwise a Permitted Asset Disposition but is approved in writing by Agent and Required Lenders, (B) a disposition of Excluded Assets (including, without limitation, Real Estate that does not constitute Eligible Real Estate, Daimler Revenue Equipment and other personal Property financed with Purchase Money Debt and subject to a Purchase Money Lien) where the proceeds are applied first to reduce or satisfy, as applicable, Debt secured by such Excluded Assets with any remaining Net Proceeds used to repay outstanding Revolver Loans, if any, or (C) a disposition of Refinanced Assets where the proceeds are applied first to reduce or satisfy, as applicable, the Collateral Refinancing Debt related thereto, with any remaining Net Proceeds used to repay outstanding Revolver Loans, if any.
 
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Permitted Contingent Obligations : Contingent Obligations (a) arising from endorsements of Payment Items for collection or deposit in the Ordinary Course of Business; (b) arising from Hedging Obligations permitted hereunder; (c) described on Schedule 10.2.1 existing on the Closing Date, and any extension or renewal thereof that does not increase the amount of such Contingent Obligation when extended or renewed; (d) incurred in the Ordinary Course of Business with respect to surety, appeal or performance bonds, or other similar obligations; (e) arising from customary indemnification obligations in favor of purchasers in connection with dispositions of Equipment permitted hereunder; (f) arising under the Loan Documents; (g) related to vehicle leases not otherwise described in this definition; or (h) related to any Permitted Debt.
 
Permitted Debt : Debt permitted under Section 10.2.1.
 
Permitted Distributions : (a) Upstream Payments, and (b) the Distribution by CTI and SRT of their Equity Interests in CVTI Receivables to Parent to facilitate the merger of CVTI Receivables with and into Parent; provided , that no Default or Event of Default exists immediately prior to or would result directly or indirectly from any of the foregoing Distributions.
 
Permitted Lien : as defined in Section 10.2.2 .
 
Permitted Purchase Money Debt : Purchase Money Debt of Borrowers and Subsidiaries that is unsecured or secured only by a Purchase Money Lien, as long as the aggregate amount of such Debt which is secured by any Collateral other than Revenue Equipment does not exceed $30,000,000 at any time.
 
Permitted Sale Leaseback : Any Sale Leaseback of Revenue Equipment or Real Estate entered into after the Closing Date for which the following conditions have been met or satisfied: (i) the net proceeds from any Sale Leaseback are first used to repay outstanding Revolver Loans, if any; (ii) a senior officer  of Parent has determined in good faith that the terms of such Sale Leaseback, taken as a whole, are commercially reasonable and comparable to terms otherwise generally available in arms length transactions at the time such Sale Leaseback is committed; (iii) Obligors are in compliance with the Fixed Charge Coverage Ratio on a pro-forma basis, after giving effect to any such Sale Leaseback and the application of the net proceeds of such Sale Leaseback in accordance with clause (i) of this definition; (iv) the release of the Collateral which will be sold in the Sale Leaseback will not result in an Overadvance arising under the Borrowing Base after the application of the net proceeds of such Sale Leaseback in accordance with clause (i) of this definition; (v) upon giving effect to the contemplated Sale Leaseback, no Default or Event of Default exists; (vi) if the Collateral which will be sold in the Sale Leaseback secures Permitted Debt immediately prior to the closing of the contemplated Sale Leaseback (a) the sales price of the Collateral is no less than the fair market value thereof, (b) the lease has a final maturity no earlier than the maturity date of the Debt previously secured, (c) a senior officer of Parent has determined in good faith that the terms of such Sale Leaseback, taken as a whole, are more advantageous to the Obligors than the terms of the Permitted Debt previously secured by such Collateral, and (d) no additional Person (other than any other Obligor) is a tenant under such lease; and (vii) Obligors have delivered to the Agent no less than ten (10) days prior to the closing of such Sale Leaseback a certificate of a senior officer of Parent certifying that each of the conditions set forth herein has been met, or will be met on the date of the closing of the Sale Leaseback, together with a pro-forma Borrowing Base Certificate and pro-forma Compliance Certificate showing the effect of the proposed Sale Leaseback, the related release of Collateral and the related application of net proceeds.
 
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Permitted Voluntary Prepayment : (a) Any voluntary prepayment, redemption, defeasance or acquisition of Debt (other than Revolver Loans) of any Obligor made with proceeds of Refinancing Debt or Extraordinary Receipts, as long as (i) no Default or Event of Default exists immediately prior to or arises as a result of such prepayment, redemption, defeasance or acquisition of Debt, and (ii) the Net Cash Amount thereof is applied to the prepayment, redemption, defeasance or acquisition of Debt substantially contemporaneously with the incurrence of such Refinancing Debt or receipt of such Extraordinary Receipts; or (b) any voluntary prepayment, redemption, defeasance or acquisition of Debt (other than Revolver Loans) of any Obligor secured by Revenue Equipment made with Available Cash, as long as (i)  no Default or Event of Default exists immediately prior to or arises as a result of such prepayment, redemption, defeasance or acquisition of such Debt and (ii) the Liens of the holder of such Debt upon the Revenue Equipment securing such Debt shall be released and such Revenue Equipment shall become Collateral hereunder; provided, however, that for the purpose of calculating Fixed Charges only, the amount of the "Permitted Voluntary Prepayment" attributable to the prepayment of such Debt under this clause (b) shall be deemed to equal the lesser of (i) the amount of the Debt prepaid and (ii) the Equipment Formula Amount attributable to the Revenue Equipment previously securing such Debt.
 
Person : any individual, corporation, limited liability company, partnership, joint venture, joint stock company, land trust, business trust, unincorporated organization, Governmental Authority or other entity.
 
Plan : any employee benefit plan (as such term is defined in Section 3(3) of ERISA) established by an Obligor or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, an ERISA Affiliate.
 
Pledge Agreement : the pledge agreement pursuant to which the Obligors pledge and assign to Agent, for the benefit of Secured Parties, each such Obligor's current and future owned Equity Interests (other than Equity Interests in VIL, Transplace, and CVTI Receivables) as security for the Obligations.
 
Pledged Equipment : any Equipment which is not an Excluded Asset, including, without limitation, any Bank Revenue Equipment.
 
Pledged Collateral : as defined in the Pledge Agreement.
 
Principal Holders : (i) David Parker, Jacqueline Parker, or Elizabeth Fuller, their spouses, their lineal descendants and spouses of their lineal descendants; (ii) estates of Persons described in clause (i); (iii) trusts established for the benefit of any Person or Persons described in clause (i); and (iv) corporations, limited liability companies, partnerships or similar entities 90% or more owned by any Person or Persons described in clauses (i) through (iii).
 
Pro Rata : with respect to any Lender, a percentage (carried out to the ninth decimal place) determined (a) while Revolver Commitments are outstanding, by dividing the amount of such Lender’s Revolver Commitment by the aggregate amount of all Revolver Commitments; and (b) at any other time, by dividing the amount of such Lender’s Loans and LC Obligations by the aggregate amount of all outstanding Loans and LC Obligations.
 
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Properly Contested : with respect to any obligation of an Obligor, (a) the obligation is subject to a bona fide dispute regarding amount or the Obligor’s liability to pay; (b) the obligation is being properly contested in good faith by appropriate proceedings promptly instituted and diligently pursued; (c) appropriate reserves have been established in accordance with GAAP; (d) non-payment could not have a Material Adverse Effect, nor result in forfeiture or sale of any assets of the Obligor; (e) no Lien is imposed on assets of the Obligor, unless bonded and stayed to the satisfaction of Agent; and (f) if the obligation results from entry of a judgment or other order, such judgment or order is stayed pending appeal or other judicial review.
 
Property : any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.
 
Protective Advances : as defined in Section 2.1.6 .
 
Purchase Money Debt : Debt (other than the Obligations or Debt arising under the Daimler Credit Facility or arising in connection with an Acquisition) (a) for payment of any of the purchase price of fixed or capital assets; (b) incurred within forty-five (45) days (or, solely with respect to the acquisition of Real Estate, sixty (60) days) before or after the acquisition (which for purposes of  this definition shall be construed to mean the purchase or capital lease) of any fixed or capital assets for the purpose of financing any of the purchase price thereof; and (c) any renewals, extensions or refinancings otherwise permitted hereunder.
 
Purchase Money Lien : a Lien that secures Purchase Money Debt, encumbering only the assets acquired with such Debt and constituting a Capital Lease or a purchase money security interest under the UCC.
 
RCRA : the Resource Conservation and Recovery Act (42 U.S.C. §§ 6991-6991i).
 
Real Estate : all right, title and interest (whether as owner, lessor or lessee) in any real Property or any buildings, structures, parking areas or other improvements thereon.
 
Real Estate Amortization Amount : the product of (a) $25,000,000 times (b) 1/84.
 
Real Estate Formula Amount : an amount equal to the lesser of (a) $25,000,000, as such sum shall be reduced on the first day of each month in an amount equal to the Real Estate Amortization Amount, with such reductions commencing April 1, 2009; or (b) 65% of the Value of Eligible Real Estate.
 
Real Estate Related Documents : with respect to each parcel of Eligible Real Estate, the following, in form and substance satisfactory to Agent:  (a) a mortgagee title policy (or commitment therefor) covering Agent's interest under the Mortgage, in a form and amount and by an insurer acceptable to Agent, which must be fully paid on such effective date; (b) such assignments of leases, owner’s or lessee’s affidavits, estoppel letters, attornment agreements, consents, waivers and releases as Agent may require with respect to other Persons having an interest in the Real Estate; (c) a current, as-built survey of the Real Estate, containing a metes-and-bounds property description and flood plain certification, and certified by a licensed surveyor acceptable to Agent; (d) flood insurance in an amount, with endorsements and by an insurer acceptable to Agent, if the Real Estate is within a flood plain; (e) a current appraisal of the Real Estate, prepared by an appraiser acceptable to Agent, and in form and substance satisfactory to Required Lenders; (f) an environmental assessment, prepared by environmental engineers acceptable to Agent, and accompanied by such reports, certificates, studies or data as Agent may reasonably require, which shall all be in form and substance satisfactory to Required Lenders; (g) such opinions of local counsel with respect to the Mortgages as Agent may require, and (h) an Environmental Agreement and such other documents, instruments or agreements as Agent may reasonably require with respect to any environmental risks regarding such Real Estate.
 
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Receivables Securitization: the securitization program implemented pursuant to the terms of (a) that certain Receivables Purchase Agreement dated as of December 12, 2000 by and among CTI, as an Originator, Southern Refrigerated Transport, Inc., as an Originator, and CVTI Receivables, as Purchaser, and (b) that certain Loan Agreement dated as of December 12, 2000 by and among CVTI Receivables, as Borrower, Parent, as Master Servicer, Three Pillars Funding Corporation, as Lender, and SunTrust Equitable Securities Corporation, as Administrator, each as amended to date.

Refinanced Assets : (a) Real Estate, (b) Revenue Equipment and (c) other fixed or capital assets with an aggregate value (determined as the higher of net book value or fair market value) of up to $10,000,000, in each case to the extent pledged to secure Collateral Refinancing Debt.

Refinancing Conditions : the following conditions for Refinancing Debt:  (a) it is in an aggregate principal amount that does not exceed the principal amount of the Debt being extended, renewed or refinanced, except that Revenue Equipment and Real Estate may be financed up to the fair market value thereof; (b) it has a final maturity no sooner than, and a weighted average life no less than, the Debt being extended, renewed or refinanced; (c) it is subordinated to the Obligations at least to the same extent as the Debt being extended, renewed or refinanced; (d) , a senior officer  of Parent has determined in good faith that the terms of such Refinancing Debt, taken as a whole, are more advantageous to the Obligors than the terms of the Permitted Debt secured by such assets; (e) no additional Lien is granted to secure it; (f) no additional Person (other than any other Obligor) is obligated on such Debt; and (g) upon giving effect to it, no Default or Event of Default exists.
 
Refinancing Debt : Borrowed Money that is the result of an extension, renewal or refinancing of Debt permitted under Section 10.2.1(b) , (c), (e), (f), (i), (j), (l), (m) or (n) .
 
Registered Intellectual Property : all registered trademarks and registered copyrights, all applications for registration of trademarks and copyrights (other than the Excluded Copyrights), and all patents and applications for patents that are, in each case, owned by an Obligor and that have been issued by (with respect to patents), registered with, or filed with, the United States Patent and Trademark Office or the United States Copyright Office.
 
Reimbursement Date : as defined in Section 2.2.2 .
 
Release and Termination Agreement : the Release and Termination Agreement dated as of the Closing Date by and among each of the parties to the Receivables Securitization and Agent.
 
Rent and Charges Reserve : the aggregate of (a) all past due rent and other amounts owing by an Obligor to any landlord, warehouseman, processor, repairman, mechanic, shipper, freight forwarder, broker or other Person who possesses any Collateral or could assert a Lien on any Collateral; and (b) a reserve at least equal to three months rent and other charges that could be payable to any such Person, unless it has executed a Lien Waiver.
 
Report : as defined in Section 12.2.3 .
 
Reportable Event : any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.
 
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Required Lenders : Lenders (subject to Section 4.2 ) having Revolver Commitments in excess of 50% of the aggregate Revolver Commitments; provided , however , that if there are only two Lenders on the date of determination, “Required Lenders” shall mean both of such Lenders, and; provided further that, if there are only three Lenders on the date of determination, “Required Lenders” shall mean at least two Lenders.
 
Reserve Percentage : the reserve percentage (expressed as a decimal, rounded upward to the nearest 1/8th of 1%) applicable to member banks under regulations issued from time to time by the Board of Governors for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as “Eurocurrency liabilities”).
 
Restricted Investment : any Investment by an Obligor or a Subsidiary of an Obligor, other than (a) Investments in Subsidiaries to the extent existing on the Closing Date or as approved by the Required Lenders after the Closing Date; (b) Cash Equivalents that are subject to Agent's Lien and control, pursuant to documentation in form and substance satisfactory to Agent; (c) Investments in any new Subsidiary created in accordance with the provisions of Section 10.2.9 ; (d) loans and advances permitted under Section 10.2.6 ; provided , however , that with respect any Investment under clause (c) above, no Default or Event of Default exists immediately prior to or would result directly or indirectly from such Investment.
 
Restrictive Agreement : an agreement (other than a Loan Document) that conditions or restricts the right of any Borrower, Subsidiary or other Obligor to incur or repay Borrowed Money, to grant Liens on any assets, to declare or make Distributions, to modify, extend or renew any agreement evidencing Borrowed Money, or to repay any intercompany Debt.
 
Revaluation Date : with respect to any item of Eligible Revenue Equipment or any parcel of Eligible Real Estate, the date requested by Borrower Agent or Agent for revaluation of such item of Eligible Revenue Equipment or parcel of Eligible Real Estate, provided that (a) not less than 60 days prior to such date (or such shorter period to which Agent shall consent), Borrower Agent shall have requested in writing that Agent conduct such revaluation at Borrowers’ expense, and (b) no less than 5 Business Days prior to such Date, Agent shall have received a reasonably satisfactory appraisal of such Eligible Revenue Equipment or Eligible Real Estate prepared by an appraisal firm engaged by Agent.
 
Revenue Equipment : all Equipment that would typically be subject to a certificate of title and that is (a) owned by a Borrower, and (b) is used in the conduct of a Borrower’s business as a means of producing revenue.
 
Revolver Commitment : for any Lender, its obligation to make Revolver Loans and to participate in LC Obligations up to the maximum principal amount shown on Schedule 1.1 , or as hereafter determined pursuant to each Assignment and Acceptance to which it is a party.  “ Revolver Commitments ” means the aggregate amount of such commitments of all Lenders.
 
Revolver Increase Effective Date : as defined in Section 2.3.4 .
 
Revolver Loan : a loan made pursuant to Section 2.1 , and any Swingline Loan,  and any Overadvance Loan or Protective Advance.
 
Revolver Note : a promissory note to be executed by Borrowers in favor of a Lender, upon such Lender’s request, in the form of Exhibit A , which shall be in the amount of such Lender’s Revolver Commitment and shall evidence the Revolver Loans made by such Lender.
 
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Revolver Termination Date : September 23, 2011.
 
Revolving Credit Facility : as of the Closing Date, $85,000,000, and at any time thereafter, the aggregate amount of Lenders’ Revolver Commitments at such time, after giving effect to any decrease in Revolver Commitments in accordance with Section 2.1.4 , any increase in the aggregate Revolver Commitments pursuant to Section 2.3 or any termination of Revolver Commitments in accordance herewith on the Commitment Termination Date.
 
Royalties : all royalties, fees, expense reimbursement and other amounts payable by a Borrower under a License.
 
Sale Leaseback : any arrangement or arrangements with any Person providing for the leasing by any Borrower, Parent or Subsidiary of either real or personal Property, whether now owned or hereafter acquired in a single transaction or series of related transactions, which has been or is to be sold or transferred by any Borrower, Parent or any of their Subsidiaries to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such Property or rental obligations of any Borrower, Parent or any of their Subsidiaries.
 
S&P : Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors.
 
Secured Parties : Agent, Issuing Bank, Lenders and providers of Bank Products.
 
Securities Account : as defined in Section 1.3 .
 
Securities Account Control Agreements : the securities account control agreements, in form and substance reasonably acceptable to Agent, to be executed by each institution maintaining a Securities Account for an Obligor, in favor of Agent, for the benefit of Secured Parties, as security for the Obligations.
 
Security Documents : the Guaranty, Mortgages, Pledge Agreements, Copyright Security Agreements, Patent Security Agreements, Trademark Security Agreements, Deposit Account Control Agreements,   Securities Account Control Agreements, and all other documents, instruments and agreements now or hereafter securing (or given with the intent to secure) any Obligations.
 
Senior Officer : the chairman of the board, president, chief executive officer or chief financial officer, treasurer or controller of a Borrower or, if the context requires, an Obligor.
 
Settlement Report : a report delivered by Agent to Lenders summarizing the Revolver Loans and participations in LC Obligations outstanding as of a given settlement date, allocated to Lenders on a Pro Rata basis in accordance with their Revolver Commitments.
 
Solvent : as to any Person, such Person (a) owns Property whose fair salable value is greater than the amount required to pay all of its debts (including contingent, subordinated, unmatured and unliquidated liabilities); (b) owns Property whose present fair salable value (as defined below) is greater than the probable total liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of such Person as they become absolute and matured; (c) is able to pay all of its debts as they mature; (d) has capital that is not unreasonably small for its business and is sufficient to carry on its business and transactions and all business and transactions in which it is about to engage; (e) is not “insolvent” within the meaning of Section 101(32) of the Bankruptcy Code; and (f) has not incurred (by way of assumption or otherwise) any obligations or liabilities (contingent or otherwise) under any Loan Documents, or made any conveyance in connection therewith, with actual intent to hinder, delay or defraud either present or future creditors of such Person or any of its Affiliates.  “ Fair salable value ” means the amount that could be obtained for assets within a reasonable time, either through collection or through sale under ordinary selling conditions by a capable and diligent seller to an interested buyer who is willing (but under no compulsion) to purchase.
 
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Subsidiary : any entity at least 50% of whose voting securities or Equity Interests is owned by a Borrower, any combination of Borrowers or Parent (as the context requires) (including indirect ownership by a Borrower or Parent through other entities in which Borrowers or Parent directly or indirectly owns 50% of the voting securities or Equity Interests) and any other entity whose financial results are included in the consolidated financial statements of Borrowers or Parent.
 
Supporting Obligation : as defined in Section 1.3 .
 
Swingline Loan : any Borrowing of Base Rate Revolver Loans funded with Agent's funds, until such Borrowing is settled among Lenders pursuant to Section 4.1.3 .
 
Synthetic Lease Obligations : generally all monetary obligations of a lessee under any tax retention or other synthetic leases which is treated as an operating lease under GAAP but the liabilities of which are or would be characterized as indebtedness of such Person for tax purposes or upon the insolvency of such Person.  The amount of Synthetic Lease Obligations in respect of any synthetic lease at any date of determination thereof shall be equal to the aggregate purchase price of any property subject to such lease minus the aggregate amount of payments of rent theretofore made which reduce the lessee’s obligations under such synthetic lease and which are not the financial equivalent of interest.
 
Taxes : all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges that are in the nature of a tax imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
 
Trademarks : all United States, state and foreign trademarks, trade names, corporate names, company names, business names, fictitious business names, internet domain names, trade dress, service marks, certification marks, collective marks, logos, all indicators of the source of goods or services, designs and general intangibles of a like nature, all registrations and applications for any of the foregoing including, but not limited to the registrations and applications referred to in Schedule 9.1.12 (as such schedule may be amended or supplemented from time to time), but excluding in all cases all intent-to-use United States trademark applications for which an amendment to allege use or statement of use has not been filed under 15 U.S.C. § 1051(c) or 15 U.S.C. § 1051(d), respectively, or if filed, has not been deemed in conformance with 15 U.S.C. § 1051(a) or examined and accepted, respectively, by the United States Patent and Trademark Office, all extensions or renewals of any of the foregoing, all of the goodwill of the business connected with the use of and symbolized by the foregoing, the right to sue for past, present and future infringement or dilution of any of the foregoing or for any injury to goodwill, and all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages, and proceeds of suit.
 
Trademark Security Agreement : each trademark security agreement pursuant to which an Obligor grants to Agent, for the benefit of Secured Parties, a Lien on such Obligor's interests in Trademarks, as security for the Obligations.
 
Trade Secrets : all trade secrets and all other confidential or proprietary information and know-how including drawings, formulae, schematics, designs, plans, processes, supplier lists, business plans, business methods and prototypes now or hereafter owned or used in the business of an entity throughout the world (all of the foregoing being collectively called a “Trade Secret”), whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating, or referring in any way to such Trade Secret, the right to sue for past, present and future infringement of any Trade Secret, and all proceeds of the foregoing, including license royalties, income, payments, claims, damages, and proceeds of suit.
 
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Transferee : any actual or potential Eligible Assignee, Participant or other Person acquiring an interest in any Obligations.
 
Transplace : Transplace, Inc., an Affiliate of Parent.
 
Trigger Period : the period (a) commencing on the day that an Event of Default occurs or Availability is less than $75,000,000 at any time, and (b) continuing until no Event of Default has existed and Availability has been greater than $75,000,000 for at least 60 consecutive days.
 
Twelve-Month Period : a period of twelve full consecutive months of Parent and its Subsidiaries, taken together as one accounting period; provided, however, prior to October 1, 2009, “Twelve-Month Period” shall mean an increasing period from October 1, 2008 through the month most recently ended prior to the date of the applicable calculation referring to such period.

Type : any type of a Loan (i.e., Base Rate Loan or LIBOR Loan) that has the same interest option and, in the case of LIBOR Loans, the same Interest Period.
 
UCC : the Uniform Commercial Code as in effect in the State of New York or, when the laws of any other jurisdiction govern the validity, enforceability, perfection, priority or enforcement of any Lien, the Uniform Commercial Code of such jurisdiction.
 
Unfunded Pension Liability : the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.
 
Upstream Payment : a Distribution by a Subsidiary of a Borrower to such Borrower or by a Subsidiary of Parent to Parent.
 
Unused Line Fee : a fee equal to (a)(i) 0.25% per annum at any time Availability is less than $50,000,000 or (ii) 0.375% per annum at any time Availability is greater than or equal to $50,000,000  times (b) the average daily amount by which the Revolver Commitments exceed the outstanding principal amount of all Revolver Loans and aggregate undrawn amount of all outstanding Letters of Credit during any month (or such shorter period if calculated for the first month following the Closing Date or on the Commitment Termination Date).
 
Value : (a) for Equipment or Real Estate, its fair market value based upon the most recent appraisals performed by an appraiser acceptable to Agent and on terms satisfactory to Agent, and (b) for an Account, its face amount, net of any returns, rebates, discounts (calculated on the shortest terms), credits, allowances or Taxes (including sales, excise or other taxes) that have been or could be claimed by the Account Debtor or any other Person.
 
VIL : Volunteer Insurance Limited, a Cayman Islands corporation.
 
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1.2.     Accounting Terms .  Under the Loan Documents (except as otherwise specified herein), all accounting terms shall be interpreted, all accounting determinations shall be made, and all financial statements shall be prepared, in accordance with GAAP applied on a basis consistent with the most recent audited financial statements of Borrowers delivered to Agent before the Closing Date and using the same inventory valuation method as used in such financial statements, except for any changes required or permitted by GAAP if Borrowers’ certified public accountants concur in such change, the change is disclosed to Agent, and Section 10.3 is amended in a manner satisfactory to Required Lenders to take into account the effects of the change.
 
1.3.     Uniform Commercial Code .  As used herein, the following terms are defined in accordance with the UCC in effect in the State of New York from time to time:  “Chattel Paper,” “Commercial Tort Claim,” “Deposit Account,” “Document,” “Equipment,” “General Intangibles,” “Goods,” “Instrument,” “Inventory”, “Investment Property,” “Letter-of-Credit Right”, “Securities Account,” and “Supporting Obligation.”
 
1.4.     Certain Matters of Construction .  The terms “herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision.  Any pronoun used shall be deemed to cover all genders.  In the computation of periods of time from a specified date to a later specified date, “from” means “from and including,” and “to” and “until” each mean “to but excluding.”  The terms “including” and “include” shall mean “including, without limitation” and, for purposes of each Loan Document, the parties agree that the rule of ejusdem generis shall not be applicable to limit any provision.  Section titles appear as a matter of convenience only and shall not affect the interpretation of any Loan Document.  All references to (a) laws or statutes include all related rules, regulations, interpretations, amendments and successor provisions; (b) any document, instrument or agreement include any amendments, waivers and other modifications, extensions or renewals (to the extent permitted by the Loan Documents); (c) any section mean, unless the context otherwise requires, a section of this Agreement; (d) any exhibits or schedules mean, unless the context otherwise requires, exhibits and schedules attached hereto, which are hereby incorporated by reference; (e) any Person include successors and assigns; (f) time of day means New York time of day; or (g) discretion of Agent, Issuing Bank or any Lender mean the sole and absolute discretion of such Person.  All calculations of Value, fundings of Loans, issuances of Letters of Credit and payments of Obligations shall be in Dollars and, unless the context otherwise requires, all determinations (including calculations of Borrowing Base and financial covenants) made from time to time under the Loan Documents shall be made in light of the circumstances existing at such time.  Borrowing Base calculations shall be consistent with historical methods of valuation and calculation, and otherwise satisfactory to Agent (and not necessarily calculated in accordance with GAAP).  Borrowers shall have the burden of establishing any alleged negligence, misconduct or lack of good faith by Agent, Issuing Bank or any Lender under any Loan Documents.  No provision of any Loan Documents shall be construed against any party by reason of such party having, or being deemed to have, drafted the provision.  Whenever the phrase “to the best of Borrowers’ knowledge” or words of similar import are used in any Loan Documents, it means actual knowledge of a Senior Officer, or knowledge that a Senior Officer would have obtained if he or she had engaged in good faith and diligent performance of his or her duties, including reasonably specific inquiries of employees or agents and a good faith attempt to ascertain the matter to which such phrase relates.
 
1.5.     Amendment and Restatement; Assignment and Allocations .  This Agreement constitutes an amendment and restatement of the Existing Credit Agreement as described in Section 14.17 hereof.  In order to facilitate such amendment and restatement of the Existing Credit Agreement and otherwise to effectuate the desires of the Borrowers, the Agent, the Lenders, and the other parties hereto agree that (a) pursuant to an assignment and assumption agreement among the Existing Lenders and the Lenders, each of the “Commitments” (as defined in the Existing Credit Agreement) to make “Revolving Loans” and “Swing Line Loans” (as such terms are defined in the Existing Credit Agreement) have been assigned to the Lenders hereunder, and (b) simultaneously with the Closing Date (i) the aggregate Commitments shall be increased to the amount shown and allocated as set forth in Schedule 2.01, and (ii) each of the Existing Letters of Credit shall constitute a Letter of Credit hereunder.
 
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SECTION 2.    CREDIT FACILITIES
 
2.1.     Revolver Commitment .
 
           2.1.1.       Revolver Loans .  Each Lender agrees, severally on a Pro Rata basis up to its Revolver Commitment, on the terms set forth herein, to make Revolver Loans to Borrowers from time to time through the Commitment Termination Date.  The Revolver Loans may be repaid and reborrowed as provided herein.  In no event shall Lenders have any obligation to honor a request for a Revolver Loan if the unpaid balance of Revolver Loans outstanding at such time (including the requested Loan) would exceed the Borrowing Base.
 
           2.1.2.      Revolver Notes .  The Revolver Loans made by each Lender and interest accruing thereon shall be evidenced by the records of Agent and such Lender.  At the request of any Lender, Borrowers shall deliver a Revolver Note to such Lender.
 
           2.1.3.      Use of Proceeds .  The proceeds of Revolver Loans shall be used by Borrowers solely (a) to satisfy existing Debt; (b) to pay fees and transaction expenses associated with the closing of this credit facility; (c) to pay Obligations in accordance with this Agreement; and (d) for working capital and general corporate and any other lawful corporate purposes of Borrowers.
 
           2.1.4.      Voluntary Reduction or Termination of Revolver Commitments .
 
           (a)     The Revolver Commitments shall terminate on the Revolver Termination Date, unless sooner terminated in accordance with this Agreement.  On the termination date, Borrowers shall make Full Payment of all Obligations.
 
           (b)     Borrowers may permanently reduce the Revolver Commitments, on a Pro Rata basis for each Lender, upon at least 90 days prior written notice to Agent, which notice shall specify the amount of the reduction and shall be irrevocable once given.  Each reduction shall be in a minimum amount of $5,000,000, or an increment of $1,000,000 in excess thereof.
 
2.1.5.     Overadvances .  In the event and on such occasion that the aggregate outstanding Revolver Loans exceed the Borrowing Base (“ Overadvance ”) or the aggregate Revolver Commitments at any time, the Borrowers shall prepay the Revolver Loans and/or Swingline Loans in an aggregate amount equal to such excess, but all such Revolver Loans shall nevertheless constitute Obligations secured by the Collateral and entitled to all benefits of the Loan Documents.  Unless its authority has been revoked in writing by Required Lenders, Agent may require Lenders to honor requests for Overadvance Loans and to forbear from requiring Borrowers to cure an Overadvance, (a) when no other Event of Default is known to Agent, as long as (i) the Overadvance does not continue for more than 30 consecutive days (and no Overadvance may exist for at least five consecutive days thereafter before further Overadvance Loans are required), and (ii) the Overadvance is not known by Agent to exceed the greater of (A) $10,000,000, or (B) 10% of the Borrowing Base; and (b) regardless of whether an Event of Default exists, if Agent discovers an Overadvance not previously known by it to exist, as long as from the date of such discovery the Overadvance (i) is not increased by more than $3,000,000, and (ii) does not continue for more than 30 consecutive days.  In no event shall Overadvance Loans be required that would cause the outstanding Revolver Loans and LC Obligations to exceed the aggregate Revolver Commitments, or would cause the aggregate of all Overadvances and Protective Advances to exceed $10,000,000.  Any funding of an Overadvance Loan or sufferance of an Overadvance shall not constitute a waiver by Agent or Lenders of the Event of Default caused thereby.  In no event shall any Borrower or other Obligor be deemed a beneficiary of this Section nor authorized to enforce any of its terms.
 
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  2.1.6.      Protective Advances .  Agent shall be authorized, in its discretion at any time that any conditions in Section 6 are not satisfied, to make Base Rate Revolver Loans (“ Protective Advances ”) (a) up to an aggregate amount of $10,000,000 outstanding at any time, if Agent deems such Loans necessary or desirable to preserve or protect Collateral, or to enhance the collectibility or repayment of Obligations; or (b) to pay any other amounts chargeable to Obligors under any Loan Documents, including costs, fees and expenses; provided , however , that in no event shall any Protective Advance be made that would cause the outstanding Revolver Loans and LC Obligations to exceed the aggregate Revolver Commitments, after giving effect to such Protective Advance; and, provided further , that in no event shall any Protective Advance be made that shall cause the aggregate of all Protective Advances and Overadvances to exceed $10,000,000, after giving effect to such Protective Advance.  Each Lender shall participate in each Protective Advance on a Pro Rata basis.  Required Lenders may at any time revoke Agent’s authority to make further Protective Advances by written notice to Agent.  Absent such revocation, Agent’s determination that funding of a Protective Advance is appropriate shall be conclusive.
 
     2.2.     Letter of Credit Facility .
 
2.2.1.    Issuance of Letters of Credit .  Issuing Bank agrees to issue Letters of Credit from time to time until 30 days prior to the Revolver Termination Date (or until the Commitment Termination Date, if earlier), on the terms set forth herein, including the following:
 
(a)      Each Borrower acknowledges that Issuing Bank’s willingness to issue any Letter of Credit is conditioned upon Issuing Bank’s receipt of a LC Application with respect to the requested Letter of Credit, as well as such other instruments and agreements as Issuing Bank may customarily require for issuance of a letter of credit of similar type and amount.  Issuing Bank shall have no obligation to issue any Letter of Credit unless (i) Issuing Bank receives a LC Request and LC Application at least three Business Days prior to the requested date of issuance; and (ii) each LC Condition is satisfied.  If Issuing Bank receives written notice from a Lender at least five Business Days before issuance of a Letter of Credit that any LC Condition has not been satisfied, Issuing Bank shall have no obligation to issue the requested Letter of Credit (or any other) until such notice is withdrawn in writing by that Lender or until Required Lenders have waived such condition in accordance with this Agreement.  Prior to receipt of any such notice, Issuing Bank shall not be deemed to have knowledge of any failure of LC Conditions.
 
(b)      Letters of Credit may be requested by a Borrower only (i) to support obligations of such Borrower incurred in the Ordinary Course of Business; or (ii) for other purposes as Agent and Lenders may approve from time to time in writing.  The renewal or extension of any Letter of Credit shall be treated as the issuance of a new Letter of Credit, except that delivery of a new LC Application shall be required at the discretion of Issuing Bank.
 
(c)      Borrowers assume all risks of the acts, omissions or misuses of any Letter of Credit by the beneficiary.  In connection with issuance of any Letter of Credit, none of Agent, Issuing Bank or any Lender shall be responsible for the existence, character, quality, quantity, condition, packing, value or delivery of any goods purported to be represented by any Documents; any differences or variation in the character, quality, quantity, condition, packing, value or delivery of any goods from that expressed in any Documents; the form, validity, sufficiency, accuracy, genuineness or legal effect of any Documents or of any endorsements thereon; the time, place, manner or order in which shipment of goods is made; partial or incomplete shipment of, or failure to ship, any goods referred to in a Letter of Credit or Documents; any deviation from instructions, delay, default or fraud by any shipper or other Person in connection with any goods, shipment or delivery; any breach of contract between a shipper or vendor and a Borrower; errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, telecopy, e-mail, telephone or otherwise; errors in interpretation of technical terms; the misapplication by a beneficiary of any Letter of Credit or the proceeds thereof; or any consequences arising from causes beyond the control of Issuing Bank, Agent or any Lender, including any act or omission of a Governmental Authority.  The rights and remedies of Issuing Bank under the Loan Documents shall be cumulative.  Issuing Bank shall be fully subrogated to the rights and remedies of each beneficiary whose claims against Borrowers are discharged with proceeds of any Letter of Credit.
 
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(d)      In connection with its administration of and enforcement of rights or remedies under any Letters of Credit or LC Documents, Issuing Bank shall be entitled to act, and shall be fully protected in acting, upon any certification, documentation or communication in whatever form believed by Issuing Bank, in good faith, to be genuine and correct and to have been signed, sent or made by a proper Person.  Issuing Bank may consult with and employ legal counsel, accountants and other experts to advise it concerning its obligations, rights and remedies, and shall be entitled to act upon, and shall be fully protected in any action taken in good faith reliance upon, any advice given by such experts.  Issuing Bank may employ agents and attorneys-in-fact in connection with any matter relating to Letters of Credit or LC Documents, and shall not be liable for the negligence or misconduct of agents and attorneys-in-fact selected with reasonable care.
 
(e)      All Existing Letters of Credit shall be deemed to have been issued pursuant hereto, and from and after the Closing Date shall be subject to and governed by the terms and conditions hereof.
 
(f)      Borrowers may, upon one Business Day prior written notice to Agent and the Issuing Bank, reallocate the standby Letter of Credit sublimit and commercial Letter of Credit sublimit of the Letter of Credit Subline, provided that (i) no Default or Event of Default shall have occurred and be continuing, (ii) immediately after giving effect to any such reallocation, (A) total LC Obligations do not exceed the Letter of Credit Subline, (B) total LC Obligations with respect to standby Letters of Credit do not exceed the adjusted standby Letter of Credit sublimit of the Letter of Credit Subline, (C) total LC Obligations with respect to commercial Letters of Credit do not exceed the adjusted commercial Letter of Credit sublimit of the Letter of Credit Subline and (iii) in no event shall the aggregate sublimits under the Letter of Credit Subline exceed $85,000,000.
 
2.2.2.     Reimbursement; Participations .
 
(a)      If Issuing Bank honors any request for payment under a Letter of Credit, Borrowers shall pay to Issuing Bank, on the same day (“ Reimbursement Date ”), the amount paid by Issuing Bank under such Letter of Credit, together with interest at the interest rate for Base Rate Revolver Loans from the Reimbursement Date until payment by Borrowers.  The obligation of Borrowers to reimburse Issuing Bank for any payment made under a Letter of Credit shall be absolute, unconditional, irrevocable, and joint and several, and shall be paid without regard to any lack of validity or enforceability of any Letter of Credit or the existence of any claim, setoff, defense or other right that Borrowers may have at any time against the beneficiary.  Whether or not Borrower Agent submits a Notice of Borrowing, Borrowers shall be deemed to have requested a Borrowing of Base Rate Revolver Loans in an amount necessary to pay all amounts due Issuing Bank on any Reimbursement Date and each Lender agrees to fund its Pro Rata share of such Borrowing whether or not the Commitments have terminated, an Overadvance exists or is created thereby, or the conditions in Section 6 are satisfied.
 
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(b)      Upon issuance of a Letter of Credit, each Lender shall be deemed to have irrevocably and unconditionally purchased from Issuing Bank, without recourse or warranty, an undivided Pro Rata interest and participation in all LC Obligations relating to the Letter of Credit.  If Issuing Bank makes any payment under a Letter of Credit and Borrowers do not reimburse such payment on the Reimbursement Date, Agent shall promptly notify Lenders and each Lender shall promptly (within one Business Day) and unconditionally pay to Agent, for the benefit of Issuing Bank, such Lender’s Pro Rata share of such payment.  Upon request by a Lender, Issuing Bank shall furnish copies of any Letters of Credit and LC Documents in its possession at such time.
 
(c)      The obligation of each Lender to make payments to Agent for the account of Issuing Bank in connection with Issuing Bank’s payment under a Letter of Credit shall be absolute, unconditional and irrevocable, not subject to any counterclaim, setoff, qualification or exception whatsoever, and shall be made in accordance with this Agreement under all circumstances, irrespective of any lack of validity or unenforceability of any Loan Documents; any draft, certificate or other document presented under a Letter of Credit having been determined to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or the existence of any setoff or defense that any Obligor may have with respect to any Obligations.  Issuing Bank does not assume any responsibility for any failure or delay in performance or any breach by any Borrower or other Person of any obligations under any LC Documents.  Issuing Bank does not make to Lenders any express or implied warranty, representation or guaranty with respect to the Collateral, LC Documents or any Obligor.  Issuing Bank shall not be responsible to any Lender for any recitals, statements, information, representations or warranties contained in, or for the execution, validity, genuineness, effectiveness or enforceability of any LC Documents; the validity, genuineness, enforceability, collectibility, value or sufficiency of any Collateral or the perfection of any Lien therein; or the assets, liabilities, financial condition, results of operations, business, creditworthiness or legal status of any Obligor.
 
(d)      No Issuing Bank Indemnitee shall be liable to any Lender or other Person for any action taken or omitted to be taken in connection with any LC Documents except as a result of its actual gross negligence or willful misconduct.  Issuing Bank shall not have any liability to any Lender if Issuing Bank refrains from any action under any Letter of Credit or LC Documents until it receives written instructions from Required Lenders.
 
2.2.3.     Cash Collateral .  If any LC Obligations, whether or not then due or payable, shall for any reason be outstanding at any time (a) that an Event of Default exists, (b) that Availability is less than zero, (c) on or after the Commitment Termination Date, or (d) within 20 Business Days prior to the Revolver Termination Date, then Borrowers shall, at Issuing Bank’s or Agent’s request, Cash Collateralize the stated amount of all outstanding Letters of Credit and pay to Issuing Bank the amount of all other LC Obligations.  If Borrowers fail to provide Cash Collateral as required herein, Lenders may (and shall upon direction of Agent) advance, as Revolver Loans, the amount of the Cash Collateral required (whether or not the Commitments have terminated, an Overadvance exists or the conditions in Section 6 are satisfied).
 
2.3.       Increase in Revolving Credit Facility .
 
            2.3.1.     Request for Increase .  Provided Borrowers have not voluntarily reduced the Revolver Commitments under the Revolving Credit Facility pursuant to Section 2.1.4(b) prior to the date of such request, then so long as there exists no Default and upon notice to Agent (which shall promptly notify Lenders), Borrower Agent may from time to time, request an increase in the Revolving Credit Facility by an amount (for all such requests) not exceeding $50,000,000; provided that any such request for an increase shall be in a minimum amount of $10,000,000.  At the time of sending such notice, Borrower Agent (in consultation with Agent) shall specify the time period within which each Lender is requested to respond (which shall in no event be less than ten (10) Business Days from the date of delivery of such notice to Lenders).
 
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             2.3.2.     Lender Elections to Increase .  Each Lender shall have the right, but shall be under no obligation, to participate in any requested increase in the Revolving Credit Facility under this Section 2.3 .  Each Lender shall notify Agent within the time period specified in accordance with Section 2.3.1 whether or not it agrees to increase its Revolver Commitment and, if so, whether by an amount equal to, greater than, or less than its Pro Rata share of such requested increase.  Any Lender not responding within such time period shall be deemed to have declined to increase its Revolver Commitment.
 
             2.3.3.     Notification by Agent; Additional Lenders .  Agent shall notify Borrower Agent  and each Lender of Lenders’ responses to each request made hereunder.  To achieve the full amount of a requested increase, and subject to the approval of Agent and Issuing Bank (which approvals shall not be unreasonably withheld), Borrowers may also invite additional Eligible Assignees to become Lenders pursuant to a joinder agreement in form and substance satisfactory to Agent and its counsel.
 
             2.3.4.     Effective Date and Allocations .  If the Revolving Credit Facility is increased in accordance with this Section, Agent and Borrower Agent shall determine the effective date (the " Revolver Increase Effective Date ") and the final allocation of such increase.  Agent shall promptly notify Borrowers and Lenders of the final allocation of such increase and the Revolver Increase Effective Date.  Upon the satisfaction of the conditions precedent set forth in Section 2.3.5 on the proposed Revolver Increase Effective Date and, with respect to any new Lenders participating in the proposed increase, delivery to Agent of a joinder agreement in form and substance satisfactory to Agent and its counsel and a processing fee of $3,500 (unless otherwise agreed by Agent in its discretion), the Revolving Credit Facility shall be so increased and the applicable Lenders, Agent and Borrowers shall make appropriate arrangements for issuance of replacement and/or new Notes, as applicable.
 
             2.3.5.     Conditions to Effectiveness of Increase .  As a condition precedent to such increase, Borrower Agent shall deliver to Agent a certificate of each Obligor dated as of the Revolver Increase Effective Date signed by a Senior Officer of such Obligor (a) certifying and attaching the resolutions adopted by such Obligor approving or consenting to such increase, and (b) in the case of a Borrower, certifying that, before and after giving effect to such increase, (i) the representations and warranties contained in Section 9 and the other Loan Documents are true and correct in all material respects on and as of the Revolver Increase Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and except that for purposes of this Section 2.3.5 , the representations and warranties contained in Section 9.1.8 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a), (b) and (c), respectively, of Section 10.1.2 , and (ii) no Default exists.  Borrowers shall prepay any Revolver Loans outstanding on the Revolver Increase Effective Date (and pay any additional amounts required pursuant to Section 3.9 ) to the extent necessary to keep the outstanding Revolver Loans ratable with any revised change in the Pro Rata interests of Lenders arising from any nonratable increase in the Revolver Commitments under this Section.
 
             2.3.6.     Conflicting Provisions .  This Section shall supersede any provisions in Section 12.5 or 14.1 to the contrary.
 
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SECTION 3.    INTEREST, FEES AND CHARGES
 
3.1.    Interest .
 
          3.1.1.     Rates and Payment of Interest .
 
          (a)       The Obligations shall bear interest (i) if a Base Rate Loan, at the Base Rate in effect from time to time, plus the Applicable Margin; (ii) if a LIBOR Loan, at LIBOR for the applicable Interest Period, plus the Applicable Margin; and (iii) if any other Obligation (including, to the extent permitted by law, interest not paid when due), at the Base Rate in effect from time to time, plus the Applicable Margin for Base Rate Revolver Loans.  Interest shall accrue from the date the Loan is advanced or the Obligation is incurred or payable, until paid by Borrowers.  If a Loan is repaid on the same day made, one day’s interest shall accrue.
 
          (b)     During an Insolvency Proceeding with respect to any Borrower, or during any other Event of Default if Agent or Required Lenders in their discretion so elect, Obligations shall bear interest at the Default Rate (whether before or after any judgment).  Each Borrower acknowledges that the cost and expense to Agent and Lenders due to an Event of Default are difficult to ascertain and that the Default Rate is a fair and reasonable estimate to compensate Agent and Lenders for this.
 
          (c)     Interest accrued on the Loans shall be due and payable in arrears, (i) on the first day of each month and, for any LIBOR Loan, the last day of its Interest Period; (ii) on any date of prepayment, with respect to the principal amount of Loans being prepaid; and (iii) on the Commitment Termination Date.  Interest accrued on any other Obligations shall be due and payable as provided in the Loan Documents and, if no payment date is specified, shall be due and payable on demand .  Notwithstanding the foregoing, interest accrued at the Default Rate shall be due and payable on demand .
 
3.1.2.       Application of LIBOR to Outstanding Loans .
 
(a)        Borrowers may on any Business Day, subject to delivery of a Notice of Conversion/Continuation, elect to convert any portion of the Base Rate Loans to, or to continue any LIBOR Loan at the end of its Interest Period as, a LIBOR Loan.  During any Default or Event of Default, Agent may (and shall at the direction of Required Lenders) declare that no Loan may be made, converted or continued as a LIBOR Loan.  In addition, until Agent notifies Borrowers that syndication of the credit facility hereunder is complete, no Loan may be made as or converted into a LIBOR Loan.
 
(b)       Whenever Borrowers desire to convert or continue Loans as LIBOR Loans, Borrower Agent shall give Agent a Notice of Conversion/Continuation, no later than 11:00 a.m. at least three Business Days before the requested conversion or continuation date.  Promptly after receiving any such notice, Agent shall notify each Lender thereof.  Each Notice of Conversion/Continuation shall be irrevocable, and shall specify the amount of Loans to be converted or continued, the conversion or continuation date (which shall be a Business Day), and the duration of the Interest Period (which shall be deemed to be 30 days if not specified).  If, upon the expiration of any Interest Period in respect of any LIBOR Loans, Borrowers shall have failed to deliver a Notice of Conversion/Continuation, they shall be deemed to have elected to convert such Loans into Base Rate Loans.
 
3.1.3      Interest Periods .  In connection with the making, conversion or continuation of any LIBOR Loans, Borrowers shall select an interest period (“ Interest Period ”) to apply, which interest period shall be 30, 60, 90 or 180 days; provided , however , that:
 
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(a)      the Interest Period shall commence on the date the Loan is made or continued as, or converted into, a LIBOR Loan, and shall expire on the numerically corresponding day in the calendar month at its end;
 
(b)       if any Interest Period commences on a day for which there is no corresponding day in the calendar month at its end or if such corresponding day falls after the last Business Day of such month, then the Interest Period shall expire on the last Business Day of such month; and if any Interest Period would expire on a day that is not a Business Day, the period shall expire on the next Business Day; and
 
(c)       no Interest Period shall extend beyond the Revolver Termination Date.
 
3.1.4.     Interest Rate Not Ascertainable .  If Agent shall determine that on any date for determining LIBOR, due to any circumstance affecting the London interbank market, adequate and fair means do not exist for ascertaining such rate on the basis provided herein, then Agent shall immediately notify Borrowers of such determination.  Until Agent notifies Borrowers that such circumstance no longer exists, the obligation of Lenders to make LIBOR Loans shall be suspended, and no further Loans may be converted into or continued as LIBOR Loans.
 
3.2.         Fees .
 
3.2.1.   Unused Line Fee .  Borrowers shall pay to Agent, for the Pro Rata benefit of Lenders the Unused Line Fee, monthly in arrears, on the first day of each month and on the Commitment Termination Date.
 
3.2.2.     LC Facility Fees .  Borrowers shall pay (a) to Agent, for the Pro Rata benefit of Lenders, a fee equal to the Applicable Margin in effect for LIBOR Revolver Loans times the average daily stated amount of Letters of Credit, which fee shall be payable monthly in arrears, on the first day of each month; (b) to Agent, for its own account, a fronting fee equal to 0.125% per annum on the stated amount of each Letter of Credit, which fee shall be payable monthly in arrears, on the first day of each month; and (c) to Issuing Bank, for its own account, all customary charges associated with the issuance, amending, negotiating, payment, processing, transfer and administration of Letters of Credit, which charges shall be paid as and when incurred.  During any period when the Default Rate is applicable pursuant to Section 3.1.1(b) , the fee payable under clause (a) shall be increased by 2% per annum.
 
3.2.3.     Agent Fees .  In consideration of Agent’s syndication of the Commitments and service as Agent hereunder, Borrowers shall pay to Agent, for its own account, the fees described in the Fee Letter.
 
3.2.4 .    Other Fees .  Borrowers shall pay to Agent the fees described in the Fee Letter.
 
3.3.     Computation of Interest, Fees, Yield Protection .   All interest, as well as fees and other charges calculated on a per annum basis, shall be computed for the actual days elapsed, based on a year of 360 days.  Each determination by Agent of any interest, fees or interest rate hereunder shall be final, conclusive and binding for all purposes, absent manifest error.  All fees shall be fully earned when due and shall not be subject to rebate, refund or proration.  All fees payable under Section 3.2 are compensation for services and are not, and shall not be deemed to be, interest or any other charge for the use, forbearance or detention of money.  A certificate as to amounts payable by Borrowers under Section 3.4, 3.6, 3.7, 3.9 or 5.8 , submitted to Borrower Agent by Agent or the affected Lender, as applicable, shall be final, conclusive and binding for all purposes, absent manifest error, and Borrowers shall pay such amounts to the appropriate party within ten (10) days following receipt of the certificate.
 
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3.4.          Reimbursement Obligations .   Borrowers shall reimburse Agent for all Extraordinary Expenses.  Borrowers shall also reimburse Agent for all reasonable legal, accounting, appraisal, consulting, and other fees, costs and expenses incurred by it in connection with (a) negotiation and preparation of any Loan Documents, including any amendment or other modification thereof; (b) administration of and actions relating to any Collateral, Loan Documents and transactions contemplated thereby, including any actions taken to perfect or maintain priority of Agent’s Liens on any Collateral, to maintain any insurance required hereunder or to verify Collateral; and (c) subject to the limits of Section 10.1.1(b) , each inspection, audit or appraisal with respect to any Obligor or Collateral, whether prepared by Agent’s personnel or a third party.  All legal, accounting and consulting fees shall be charged to Borrowers by Agent’s professionals at their full hourly rates, regardless of any reduced or alternative fee billing arrangements that Agent, any Lender or any of their Affiliates may have with such professionals with respect to this or any other transaction.  If, for any reason (including inaccurate reporting on financial statements or a Compliance Certificate), it is determined that a higher Applicable Margin should have applied to a period than was actually applied, then the proper margin shall be applied retroactively and Borrowers shall immediately pay to Agent, for the Pro Rata benefit of Lenders, an amount equal to the difference between the amount of interest and fees that would have accrued using the proper margin and the amount actually paid.  All amounts payable by Borrowers under this Section shall be due on demand .
 
3.5.     Illegality .   If any Lender determines that any Applicable Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund LIBOR Loans, or to determine or charge interest rates based upon LIBOR, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to Agent, any obligation of such Lender to make or continue LIBOR Loans or to convert Base Rate Loans to LIBOR Loans shall be suspended for such Lender until such Lender notifies Agent that the circumstances giving rise to such determination no longer exist.  Upon delivery of such notice, Borrowers shall prepay or, if applicable, convert all LIBOR Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such LIBOR Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such LIBOR Loans.  Upon any such prepayment or conversion, Borrowers shall also pay accrued interest on the amount so prepaid or converted.
 
3.6.     Inability to Determine Rates .   If Required Lenders notify Agent for any reason in connection with a request for a Borrowing of, or conversion to or continuation of, a LIBOR Loan that (a) Dollar deposits are not being offered to banks in the London interbank Eurodollar market for the applicable amount and Interest Period of such Loan, (b) adequate and reasonable means do not exist for determining LIBOR for the requested Interest Period, or (c) LIBOR for the requested Interest Period does not adequately and fairly reflect the cost to such Lenders of funding such Loan, then Agent will promptly so notify Borrower Agent and each Lender.  Thereafter, the obligation of Lenders to make or maintain LIBOR Loans shall be suspended until Agent (upon instruction by Required Lenders) revokes such notice.  Upon receipt of such notice, Borrower Agent may revoke any pending request for a Borrowing of, conversion to or continuation of a LIBOR Loan or, failing that, will be deemed to have submitted a request for a Base Rate Loan.
 
3.7.     Increased Costs; Capital Adequacy .
 
3.7.1.     Change in Law .  If any Change in Law shall:
 
(a)      impose modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement reflected in LIBOR) or Issuing Bank;
 
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(b)     subject any Lender or Issuing Bank to any Tax with respect to any Loan, Loan Document, Letter of Credit or participation in LC Obligations, or change the basis of taxation of payments to such Lender or Issuing Bank in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 5.8 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or Issuing Bank); or
 
(c)     impose on any Lender or Issuing Bank or the London interbank market any other condition, cost or expense affecting any Loan, Loan Document, Letter of Credit or participation in LC Obligations;
 
and the result thereof shall be to increase the cost to such Lender of making or maintaining any LIBOR Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or Issuing Bank of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or Issuing Bank hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or Issuing Bank, Borrowers will pay to such Lender or Issuing Bank, as applicable, such additional amount or amounts as will compensate such Lender or Issuing Bank, as applicable, for such additional costs incurred or reduction suffered.
 
3.7.2.      Capital Adequacy .  If any Lender or Issuing Bank determines that any Change in Law affecting such Lender or Issuing Bank or any Lending Office of such Lender or such Lender’s or Issuing Bank’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s, Issuing Bank’s or holding company’s capital as a consequence of this Agreement, or such Lender’s or Issuing Bank’s Commitments, Loans, Letters of Credit or participations in LC Obligations, to a level below that which such Lender, Issuing Bank or holding company could have achieved but for such Change in Law (taking into consideration such Lender’s, Issuing Bank’s and holding company’s policies with respect to capital adequacy), then from time to time Borrowers will pay to such Lender or Issuing Bank, as the case may be, such additional amount or amounts as will compensate it or its holding company for any such reduction suffered.
 
3.7.3.     Compensation .  Failure or delay on the part of any Lender or Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of its right to demand such compensation, but Borrowers shall not be required to compensate a Lender or Issuing Bank for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender or Issuing Bank notifies Borrower Agent of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or Issuing Bank’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).
 
3.8.     Mitigation .  If any Lender gives a notice under Section 3.5 or requests compensation under Section 3.7 , or if Borrowers are required to pay additional amounts with respect to a Lender under Section 5.8 , then such Lender shall use reasonable efforts to designate a different Lending Office or to assign its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the judgment of such Lender, such designation or assignment (a) would eliminate the need for such notice or reduce amounts payable in the future, as applicable; and (b) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender.  Borrowers agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
 
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3.9.     Funding Losses .   If for any reason (a) any Borrowing of, or conversion to or continuation of, a LIBOR Loan does not occur on the date specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation (whether or not withdrawn), (b) any repayment or conversion of a LIBOR Loan occurs on a day other than the end of its Interest Period, or (c) Borrowers fail to repay a LIBOR Loan when required hereunder, then Borrowers shall pay to Agent its customary administrative charge and to each Lender all losses and expenses that it sustains as a consequence thereof, including loss of anticipated profits and any loss or expense arising from liquidation or redeployment of funds or from fees payable to terminate deposits of matching funds.  Lenders shall not be required to purchase Dollar deposits in the London interbank market or any other offshore Dollar market to fund any LIBOR Loan, but the provisions hereof shall be deemed to apply as if each Lender had purchased such deposits to fund its LIBOR Loans.
 
3.10.     Maximum Interest .   Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by Applicable Law (“ maximum rate ”).  If Agent or any Lender shall receive interest in an amount that exceeds the maximum rate, the excess interest shall be applied to the principal of the Obligations or, if it exceeds such unpaid principal, refunded to Borrowers.  In determining whether the interest contracted for, charged or received by Agent or a Lender exceeds the maximum rate, such Person may, to the extent permitted by Applicable Law, (a) characterize any payment that is not principal as an expense, fee or premium rather than interest; (b) exclude voluntary prepayments and the effects thereof; and (c) amortize, prorate, allocate and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.
 
SECTION 4.     LOAN ADMINISTRATION
 
4.1.       Manner of Borrowing and Funding Revolver Loans .
 
       4.1.1.     Notice of Borrowing .
 
(a)      Whenever Borrowers desire funding of a Borrowing of Revolver Loans, Borrower Agent shall give Agent a Notice of Borrowing.  Such notice must be received by Agent no later than 11:00 a.m. (i) on the Business Day of the requested funding date, in the case of Base Rate Loans, and (ii) at least three Business Days prior to the requested funding date, in the case of LIBOR Loans.  Notices received after 11:00 a.m. shall be deemed received on the next Business Day.  Each Notice of Borrowing shall be irrevocable and shall specify (A) the amount of the Borrowing, (B) the requested funding date (which must be a Business Day), (C) whether the Borrowing is to be made as Base Rate Loans or LIBOR Loans, and (D) in the case of LIBOR Loans, the duration of the applicable Interest Period (which shall be deemed to be one month if not specified).
 
(b)     Unless payment is otherwise timely made by Borrowers, the becoming due of any Obligations (whether principal, interest, fees or other charges, including Extraordinary Expenses, LC Obligations, Cash Collateral and Bank Product Debt) shall be deemed to be a request for Base Rate Revolver Loans on the due date, in the amount of such Obligations.  The proceeds of such Revolver Loans shall be disbursed as direct payment of the relevant Obligation.  In addition, Agent may, at its option, charge such Obligations against any operating, investment or other account of a Borrower maintained with Agent or any of its Affiliates.
 
(c)      If a Borrower establishes a controlled disbursement account with Agent or any Affiliate of Agent, then the presentation for payment of any check or other item of payment drawn on such account at a time when there are insufficient funds to cover it shall be deemed to be a request for Base Rate Revolver Loans on the date of such presentation, in the amount of the check and items presented for payment.  The proceeds of such Revolver Loans may be disbursed directly to the controlled disbursement account or other appropriate account.
 
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4.1.2.      Fundings by Lenders .  Each Lender shall timely honor its Revolver Commitment by funding its Pro Rata share of each Borrowing of Revolver Loans that is properly requested hereunder.  Except for Borrowings to be made as Swingline Loans, Agent shall endeavor to notify Lenders of each Notice of Borrowing (or deemed request for a Borrowing) by 12:00 noon on the proposed funding date for Base Rate Loans or by 3:00 p.m. at least three Business Days before any proposed funding of LIBOR Loans.  Each Lender shall fund to Agent such Lender’s Pro Rata share of the Borrowing to the account specified by Agent in immediately available funds not later than 2:00 p.m. on the requested funding date, unless Agent’s notice is received after the times provided above, in which event Lender shall fund its Pro Rata share by 11:00 a.m. on the next Business Day.  Subject to its receipt of such amounts from Lenders, Agent shall disburse the proceeds of the Revolver Loans as directed by Borrower Agent.  Unless Agent shall have received (in sufficient time to act) written notice from a Lender that it does not intend to fund its Pro Rata share of a Borrowing, Agent may assume that such Lender has deposited or promptly will deposit its share with Agent, and Agent may disburse a corresponding amount to Borrowers.  If a Lender’s share of any Borrowing is not in fact received by Agent, then Borrowers agree to repay to Agent on demand the amount of such share, together with interest thereon from the date disbursed until repaid, at the rate applicable to such Borrowing.
 
4.1.3.      Swingline Loans; Settlement .
 
(a)      Agent may, but shall not be obligated to, advance Swingline Loans to Borrowers, up to an aggregate outstanding amount as of any date of determination equal to the greater of (i) $10,000,000 and (ii) 10% of the aggregate Commitments as of such date, unless the funding is specifically required to be made by all Lenders hereunder.  Each Swingline Loan shall constitute a Revolver Loan for all purposes, except that payments thereon shall be made to Agent for its own account.  The obligation of Borrowers to repay Swingline Loans shall be evidenced by the records of Agent and need not be evidenced by any promissory note.
 
(b)           To facilitate administration of the Revolver Loans, Lenders and Agent agree (which agreement is solely among them, and not for the benefit of or enforceable by any Borrower) that settlement among them with respect to Swingline Loans and other Revolver Loans may take place periodically on a date determined from time to time by Agent, which shall occur at least once each week.  On each settlement date, settlement shall be made with each Lender in accordance with the Settlement Report delivered by Agent to Lenders.  Between settlement dates, Agent may in its discretion apply payments on Revolver Loans to Swingline Loans, regardless of any designation by a Borrower or any provision herein to the contrary.  Each Lender's obligation to make settlements with Agent is absolute and unconditional, without offset, counterclaim or other defense, and whether or not the Commitments have terminated, an Overadvance exists or the conditions in Section 6 are satisfied.  If, due to an Insolvency Proceeding with respect to a Borrower or otherwise, any Swingline Loan may not be settled among Lenders hereunder, then each Lender shall be deemed to have purchased from Agent a Pro Rata participation in each unpaid Swingline Loan and shall transfer the amount of such participation to Agent, in immediately available funds, within one Business Day after Agent's request therefor..
 
4.1.4.     Notices .  Each Borrower authorizes Agent and Lenders to extend, convert or continue Loans, effect selections of interest rates, and transfer funds to or on behalf of Borrowers based on telephonic or e-mailed instructions.  Borrowers shall confirm each such request by prompt delivery to Agent of a Notice of Borrowing or Notice of Conversion/Continuation, if applicable, but if it differs in any material respect from the action taken by Agent or Lenders, the records of Agent and Lenders shall govern.  Neither Agent nor any Lender shall have any liability for any loss suffered by a Borrower as a result of Agent or any Lender acting upon its understanding of telephonic or e-mailed instructions from a person believed in good faith by Agent or any Lender to be a person authorized to give such instructions on a Borrower’s behalf.
 
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4.2.     Defaulting Lender .   If a Lender fails to make any payment to Agent that is required hereunder, Agent may (but shall not be required to), in its discretion, retain payments that would otherwise be made to such defaulting Lender hereunder, apply the payments to such Lender’s defaulted obligations or readvance the funds to Borrowers in accordance with this Agreement.  The failure of any Lender to fund a Loan or to make a payment in respect of a LC Obligation   shall not relieve any other Lender of its obligations hereunder, and no Lender shall be responsible for default by another Lender.  Lenders and Agent agree (which agreement is solely among them, and not for the benefit of or enforceable by any Borrower) that, solely for purposes of determining a defaulting Lender’s right to vote on matters relating to the Loan Documents and to share in payments, fees and Collateral proceeds thereunder, a defaulting Lender shall not be deemed to be a “Lender” until all its defaulted obligations have been cured.
 
4.3.     Number and Amount of LIBOR Loans; Determination of Rate .   For ease of administration, all LIBOR Revolver Loans having the same length and beginning date of their Interest Periods shall be aggregated together, and such Borrowings shall be allocated among Lenders on a Pro Rata basis.  No more than eight (8) Borrowings of LIBOR Loans may be outstanding at any time, and each Borrowing of LIBOR Loans when made shall be in a minimum amount of $1,000,000, or an increment of $100,000 in excess thereof.  Upon determining LIBOR for any Interest Period requested by Borrowers, Agent shall promptly notify Borrowers thereof by telephone or electronically and, if requested by Borrowers, shall confirm any telephonic notice in writing.
 
4.4.     Borrower Agent .   Each Borrower hereby designates CAM (" Borrower Agent ") as its representative and agent for all purposes under the Loan Documents, including requests for Loans and Letters of Credit, designation of interest rates, delivery or receipt of communications, preparation and delivery of Borrowing Base and financial reports, receipt and payment of Obligations, requests for waivers, amendments or other accommodations, actions under the Loan Documents (including in respect of compliance with covenants), and all other dealings with Agent, Issuing Bank or any Lender.  Borrower Agent hereby accepts such appointment.  Agent and Lenders shall be entitled to rely upon, and shall be fully protected in relying upon, any notice or communication (including any notice of borrowing) delivered by Borrower Agent on behalf of any Borrower.  Agent and Lenders may give any notice or communication with a Borrower hereunder to Borrower Agent on behalf of such Borrower.  Each of Agent, Issuing Bank and Lenders shall have the right, in its discretion, to deal exclusively with Borrower Agent for any or all purposes under the Loan Documents.  Each Borrower agrees that any notice, election, communication, representation, agreement or undertaking made on its behalf by Borrower Agent shall be binding upon and enforceable against it.
 
4.5.     One Obligation .   The Loans, LC Obligations and other Obligations shall constitute one general obligation of Borrowers and (unless otherwise expressly provided in any Loan Document) shall be secured by Agent’s Lien upon all Collateral; provided , however , that Agent and each Lender shall be deemed to be a creditor of, and the holder of a separate claim against, each Borrower to the extent of any Obligations, jointly and severally owed by such Borrower.
 
4.6.     Effect of Termination .   On the Commitment Termination Date, all Obligations shall be immediately due and payable, and any Lender may terminate its and its Affiliates’ Bank Products (including, only with the consent of Agent, any Cash Management Services).  All undertakings of Obligors contained in the Loan Documents shall survive any termination, and Agent shall retain its Liens in the Collateral and all of its rights and remedies under the Loan Documents until Full Payment of the Obligations.  Notwithstanding Full Payment of the Obligations, Agent shall not be required to terminate its Liens in any Collateral unless, with respect to any damages Agent may incur as a result of the dishonor or return of Payment Items applied to Obligations, Agent receives (a) a written agreement, executed by Borrowers and any Person whose advances are used in whole or in part to satisfy the Obligations, indemnifying Agent and Lenders from any such damages; or (b) such Cash Collateral as Agent, in its discretion, deems necessary to protect against any such damages.  The provisions of Sections 2.2, 3.4, 3.6, 3.7, 3.8, 3.9, 5.4, 5.8, 12, 14.2 and this   Section, and the obligation of each Obligor and Lender with respect to each indemnity given by it in any Loan Document, shall survive Full Payment of the Obligations and any release relating to this credit facility.
 
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SECTION 5.     PAYMENTS
 
5.1.     General Payment Provisions .   All payments of Obligations shall be made in Dollars, without offset, counterclaim or defense of any kind, free of (and without deduction for) any Taxes, and in immediately available funds, not later than 12:00 noon on the due date.  Any payment after such time shall be deemed made on the next Business Day.  If any payment under the Loan Documents shall be stated to be due on a day other than a Business Day, the due date shall be extended to the next Business Day and such extension of time shall be included in any computation of interest and fees.  Any payment of a LIBOR Loan prior to the end of its Interest Period shall be accompanied by all amounts due under Section 3.9 .  Any prepayment of Loans shall be applied first to Base Rate Loans and then to LIBOR Loans; provided , however , that as long as no Event of Default exists, prepayments of LIBOR Loans may, at the option of Borrowers and Agent, be held by Agent as Cash Collateral and applied to such Loans at the end of their Interest Periods.
 
5.2.     Repayment of Revolver Loans .   Revolver Loans shall be due and payable in full on the Revolver Termination Date, unless payment is sooner required hereunder.  Revolver Loans may be prepaid from time to time, without penalty or premium.  Notwithstanding anything herein to the contrary, if an Overadvance exists, Borrowers shall, on the sooner of Agent’s demand or the first Business Day after any Borrower has knowledge thereof, repay the outstanding Revolver Loans in an amount sufficient to reduce the principal balance of Revolver Loans to the Borrowing Base.
 
5.3.     Payment of Other Obligations .   Obligations other than Loans, including LC Obligations and Extraordinary Expenses, shall be paid by Borrowers as provided in the Loan Documents or, if no payment date is specified, on demand .
 
5.4.     Marshaling; Payments Set Aside .   None of Agent or Lenders shall be under any obligation to marshal any assets in favor of any Obligor or against any Obligations.  If any payment by or on behalf of Borrowers is made to Agent, Issuing Bank or any Lender, or Agent, Issuing Bank or any Lender exercises a right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by Agent, Issuing Bank or such Lender in its discretion) to be repaid to a trustee, receiver or any other Person, then to the extent of such recovery, the Obligation originally intended to be satisfied, and all Liens, rights and remedies relating thereto, shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred.
 
5.5.     Post-Default Allocation of Payments .
 
5.5.1.    Allocation .  Notwithstanding anything herein to the contrary, during an Event of Default, monies to be applied to the Obligations, whether arising from payments by Obligors, realization on Collateral, setoff or otherwise, shall be allocated as follows:
 
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(a)     first , to all costs and expenses, including Extraordinary Expenses, owing to Agent (excluding amounts solely and exclusively related to Bank Products);
 
(b)     second , to all amounts owing to Agent on Swingline Loans;
 
(c)     third , to all amounts owing to Issuing Bank on LC Obligations;
 
(d)     fourth , to all Obligations constituting fees (excluding amounts relating to Bank Products);
 
(e)     fifth , to all Obligations constituting interest (excluding amounts relating to Bank Products);
 
(f)     sixth , to provide Cash Collateral for outstanding Letters of Credit;
 
(g)     seventh , to all other Obligations, other than Bank Product Debt;
 
(h)     eighth , to Bank Product Debt; and
 
(i)     last , to all Obligations constituting leases.
 
Amounts shall be applied to each category of Obligations set forth above until Full Payment thereof and then to the next category.  If amounts are insufficient to satisfy a category, they shall be applied on a pro rata basis among the Obligations in the category.  For any Bank Product to be included as an "Obligation" for purposes of a distribution under this Section 5.5.1 , the applicable Secured Party must have previously provided written notice to Agent of (i) the existence of such Bank Product and (ii) the maximum dollar amount of obligations arising thereunder (the “ Bank Product Amount ”).  The Bank Product Amount may be changed from time to time upon written notice to Agent by Secured Party.  No Bank Product Amount may be established or increased at any time that a Default or Event of Default exists, or if a reserve in such amount would cause an Overadvance; provided however that, an increase in the value of the Bank Product Amount of any Hedging Obligation already in existence at such time will still be permitted.  Amounts distributed with respect to any Bank Product Debt shall be the lesser of the applicable Bank Product Amount last reported to Agent or the actual Bank Product Debt.  Agent shall have no obligation to calculate the amount to be distributed with respect to any Bank Product Debt, but may rely upon written notice of the amount (setting forth a reasonably detailed calculation) from Secured Party.  In the absence of such notice, Agent may assume the amount to be distributed is the Bank Product Amount last reported to it.  The allocations set forth in this Section are solely to determine the rights and priorities of Agent and Lenders as among themselves, and may be changed by agreement among them without the consent of any Obligor.  This Section is not for the benefit of or enforceable by any Borrower.
 
5.5.2.     Erroneous Application .  Agent shall not be liable for any application of amounts made by it in good faith and, if any such application is subsequently determined to have been made in error, the sole recourse of any Lender or other Person to which such amount should have been made shall be to recover the amount from the Person that actually received it (and, if such amount was received by any Lender, such Lender hereby agrees to return it).
 
5.6.     Application of Payments .  During the Trigger Period, the ledger balance in the main Dominion Account as of the end of a Business Day shall be applied to the Obligations at the beginning of the next Business Day.  If, as a result of such application, a credit balance exists, the balance shall not accrue interest in favor of Borrowers and shall be made available to Borrowers as long as no Default or Event of Default exists.  Each Borrower irrevocably waives the right to direct the application of any payments or Collateral proceeds, and agrees that Agent shall have the continuing, exclusive right to apply and reapply same against the Obligations, in such manner as Agent deems advisable, notwithstanding any entry by Agent in its records.
 
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5.7.     Loan Account; Account Stated .
 
5.7.1.      Loan Account .  Agent shall maintain in accordance with its usual and customary practices an account or accounts (“ Loan Account ”) evidencing the Debt of Borrowers resulting from each Loan or issuance of a Letter of Credit from time to time.  Any failure of Agent to record anything in the Loan Account, or any error in doing so, shall not limit or otherwise affect the obligation of Borrowers to pay any amount owing hereunder.  Agent may maintain a single Loan Account in the name of Borrower Agent, and each Borrower confirms that such arrangement shall have no effect on the joint and several character of its liability for the Obligations.
 
5.7.2.     Entries Binding .  Entries made in the Loan Account shall constitute presumptive evidence of the information contained therein.  If any information contained in the Loan Account is provided to or inspected by any Person, then such information shall be conclusive and binding on such Person for all purposes absent manifest error, except to the extent such Person notifies Agent in writing within ninety (90) days after receipt or inspection that specific information is subject to dispute.
 
5.8.     Taxes .
 
5.8.1.     Payments Free of Taxes .  Any and all payments by any Obligor on account of any Obligations shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that if an Obligor shall be required by Applicable Law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) Agent, Lender or Issuing Bank, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made; (b) the Obligor shall make such deductions; and (c) Borrowers shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with Applicable Law.  Without limiting the foregoing, Borrowers shall timely pay all Other Taxes to the relevant Governmental Authorities.
 
5.8.2.     Payment .  Borrowers shall indemnify, hold harmless and reimburse Agent, Lenders and Issuing Bank, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 5.8 ) paid by Agent, any Lender or Issuing Bank with respect to any Obligations, Letters of Credit or Loan Documents, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to Borrower Agent by a Lender or Issuing Bank (with a copy to Agent), or by Agent, shall be conclusive absent manifest error.  As soon as practicable after any payment of Indemnified Taxes or Other Taxes by a Borrower, Borrower Agent shall deliver to Agent a receipt issued by the Governmental Authority evidencing such payment or other evidence of payment satisfactory to Agent.
 
5.9.     Foreign Lenders .
 
5.9.1.     Exemption .  Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which an Obligor is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments under any Loan Document shall deliver to Agent and Borrower Agent, at the time or times prescribed by Applicable Law or reasonably requested by Agent or Borrower Agent, such properly completed and executed documentation prescribed by Applicable Law as will permit such payments to be made without withholding or at a reduced rate of withholding.  In addition, any Lender, if requested by Agent or Borrower Agent, shall deliver such other documentation prescribed by Applicable Law or reasonably requested by Agent or Borrower Agent as will enable Agent and Borrower Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.
 
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5.9.2.     Documentation .  Without limiting the generality of the foregoing, if a Borrower is resident for tax purposes in the United States, a Foreign Lender shall deliver to Agent and Borrower Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender hereunder (and from time to time thereafter upon the request of Agent or Borrower Agent, but only if such Foreign Lender is legally entitled to do so), (a) duly completed copies of IRS Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party; (b) duly completed copies of IRS Form W-8ECI; (c) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (i) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of any Obligor within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code, and (ii) duly completed copies of IRS Form W-8BEN; or (d) any other form prescribed by Applicable Law as a basis for claiming exemption from or a reduction in United States federal withholding tax, duly completed together with such supplementary documentation as may be prescribed by Applicable Law to permit Borrowers to determine the withholding or deduction required to be made.
 
5.10.     Nature and Extent of Each Borrower’s Liability .
 
5.10.1.     Joint and Several Liability .  Each Borrower agrees that it is jointly and severally liable for, and absolutely and unconditionally guarantees to Agent and Lenders the prompt payment and performance of, all Obligations and all agreements under the Loan Documents.  Each Borrower agrees that its guaranty obligations hereunder constitute a continuing guaranty of payment and not of collection, that such obligations shall not be discharged until Full Payment of the Obligations, and that such obligations are absolute and unconditional, irrespective of (a) the genuineness, validity, regularity, enforceability, subordination or any future modification of, or change in, any Obligations or Loan Document, or any other document, instrument or agreement to which any Obligor is or may become a party or be bound; (b) the absence of any action to enforce this Agreement (including this Section) or any other Loan Document, or any waiver, consent or indulgence of any kind by Agent or any Lender with respect thereto; (c) the existence, value or condition of, or failure to perfect a Lien or to preserve rights against, any security or guaranty for the Obligations or any action, or the absence of any action, by Agent or any Lender in respect thereof (including the release of any security or guaranty); (d) the insolvency of any Obligor; (e) any election by Agent or any Lender in an Insolvency Proceeding for the application of Section 1111(b)(2) of the Bankruptcy Code; (f) any borrowing or grant of a Lien by any other Borrower, as debtor-in-possession under Section 364 of the Bankruptcy Code or otherwise; (g) the disallowance of any claims of Agent or any Lender against any Obligor for the repayment of any Obligations under Section 502 of the Bankruptcy Code or otherwise; or (h) any other action or circumstances that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, except Full Payment of all Obligations.
 
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5.10.2.     Waivers .
 
(a)     Each Borrower expressly waives all rights that it may have now or in the future under any statute, at common law, in equity or otherwise, to compel Agent or Lenders to marshal assets or to proceed against any Obligor, other Person or security for the payment or performance of any Obligations before, or as a condition to, proceeding against such Borrower.  Each Borrower waives all defenses available to a surety, guarantor or accommodation co-obligor other than Full Payment of all Obligations.  It is agreed among each Borrower, Agent and Lenders that the provisions of this Section 5.10 are of the essence of the transaction contemplated by the Loan Documents and that, but for such provisions, Agent and Lenders would decline to make Loans and issue Letters of Credit.  Each Borrower acknowledges that its guaranty pursuant to this Section is necessary to the conduct and promotion of its business, and can be expected to benefit such business.
 
(b)     Agent and Lenders may, in their discretion, pursue such rights and remedies as they deem appropriate, including realization upon Collateral or any Real Estate by judicial foreclosure or non-judicial sale or enforcement, without affecting any rights and remedies under this Section 5.10 .  If, in taking any action in connection with the exercise of any rights or remedies, Agent or any Lender shall forfeit any other rights or remedies, including the right to enter a deficiency judgment against any Borrower or other Person, whether because of any Applicable Laws pertaining to “election of remedies” or otherwise, each Borrower consents to such action and waives any claim based upon it, even if the action may result in loss of any rights of subrogation that any Borrower might otherwise have had.  Any election of remedies that results in denial or impairment of the right of Agent or any Lender to seek a deficiency judgment against any Borrower shall not impair any other Obligor’s obligation to pay the full amount of the Obligations.  Each Borrower waives all rights and defenses arising out of an election of remedies, such as nonjudicial foreclosure with respect to any security for the Obligations, even though that election of remedies destroys such Borrower’s rights of subrogation against any other Person.  Agent may bid all or a portion of the Obligations at any foreclosure or trustee’s sale or at any private sale, and the amount of such bid need not be paid by Agent but shall be credited against the Obligations.  The amount of the successful bid at any such sale, whether Agent or any other Person is the successful bidder, shall be conclusively deemed to be the fair market value of the Collateral, and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Section 5.10 , notwithstanding that any present or future law or court decision may have the effect of reducing the amount of any deficiency claim to which Agent or any Lender might otherwise be entitled but for such bidding at any such sale.
 
5.10.3.     Extent of Liability; Contribution .  (a)  Notwithstanding anything herein to the contrary, each Borrower’s liability under this Section 5.10 shall be limited to the greater of all amounts for which such Borrower is primarily liable, as described below, and such Borrower's Allocable Amount.
 
(b)     If any Borrower makes a payment under this Section 5.10 of any Obligations (other than amounts for which such Borrower is primarily liable) (a " Guarantor Payment ") that, taking into account all other Guarantor Payments previously or concurrently made by any other Borrower, exceeds the amount that such Borrower would otherwise have paid if each Borrower had paid the aggregate Obligations satisfied by such Guarantor Payments in the same proportion that such Borrower’s Allocable Amount bore to the total Allocable Amounts of all Borrowers, then such Borrower shall be entitled to receive contribution and indemnification payments from, and to be reimbursed by, each other Borrower for the amount of such excess, pro rata based upon their respective Allocable Amounts in effect immediately prior to such Guarantor Payment.  The "Allocable Amount" for any Borrower shall be the maximum amount that could then be recovered from such Borrower under this Section 5.10 without rendering such payment voidable under Section 548 of the Bankruptcy Code or under any applicable state fraudulent transfer or conveyance act, or similar statute or common law.
 
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(c)     Nothing contained in this Section 5.10 shall limit the liability of any Borrower to pay Loans made directly or indirectly to that Borrower (including Loans advanced to any other Borrower and then re-loaned or otherwise transferred to, or for the benefit of, such Borrower), LC Obligations relating to Letters of Credit issued to support such Borrower’s business, and all accrued interest, fees, expenses and other related Obligations with respect thereto, for which such Borrower shall be primarily liable for all purposes hereunder.  Agent and Lenders shall have the right, at any time in their discretion, to condition Loans and Letters of Credit upon a separate calculation of borrowing availability for each Borrower and to restrict the disbursement and use of such Loans and Letters of Credit to such Borrower.
 
5.10.4.     Joint Enterprise .  Each Borrower has requested that Agent and Lenders make the Revolving Credit Facility available to Borrowers on a combined basis, in order to finance Borrowers' business most efficiently and economically.  Borrowers' business is a mutual and collective enterprise, and Borrowers believe that consolidation of their credit facility will enhance the borrowing power of each Borrower and ease the administration of their relationship with Lenders, all to the mutual advantage of Borrowers.  Borrowers acknowledge and agree that Agent's and Lenders' willingness to extend credit to Borrowers and to administer the Collateral on a combined basis, as set forth herein, is done solely as an accommodation to Borrowers and at Borrowers' request.
 
5.10.5.     Subordination .  Each Borrower hereby subordinates any claims, including any rights at law or in equity to payment, subrogation, reimbursement, exoneration, contribution, indemnification or set off, that it may have at any time against any other Obligor, howsoever arising, to the Full Payment of all Obligations.
 
SECTION 6.     CONDITIONS PRECEDENT
 
6.1.     Conditions Precedent to Initial Loans .   In addition to the conditions set forth in Section 6.2 , Lenders shall not be required to fund any requested Revolver Loan, issue any Letter of Credit, or otherwise extend credit to Borrowers under the Revolver Commitment hereunder, until the date (“ Closing Date ”) that each of the following conditions has been satisfied:
 
(a)     Notes shall have been executed by Borrowers and delivered to each Lender that requests issuance of a Note.  Each other Loan Document shall have been duly executed and delivered to Agent by each of the signatories thereto, and each Obligor shall be in compliance with all terms thereof, including (i) a duly executed Pledge Agreement, along with certificates representing the Pledged Collateral referred to therein accompanied by undated stock powers executed in blank, together with any other documents necessary to create and perfect the security in Equity Interests of the Obligors to the extent required under Section 7.1 , (ii) a duly executed Trademark Security Agreement, together with evidence that all actions that Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created thereunder has been taken, including without limitation, filing and recording of such security interests with the appropriate Governmental Authorities, and (iii) a duly executed Release and Termination Agreement.
 
(b)     Agent shall have received the duly executed Parent Guaranty.
 
(c)     Agent shall have received acknowledgments of all filings or recordations necessary to perfect its Liens in the Collateral, as well as UCC and Lien searches and other evidence satisfactory to Agent that such Liens are the only Liens upon the Collateral, except Permitted Liens.
 
(d)     Agent shall have received certificates and instruments evidencing the Pledged Collateral existing on the Closing Date accompanied by an undated instrument of assignment executed in blank by the applicable Obligor.
 
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(e)     Agent shall have received duly executed agreements establishing each Dominion Account and related lockbox, in form and substance, and with financial institutions, satisfactory to Agent.
 
(f)     Agent shall have received a certificate, in form and substance satisfactory to it, from a knowledgeable Senior Officer of each Borrower certifying that, after giving effect to the initial Loans and transactions hereunder, as of the Closing Date (i) the Obligors taken as a whole on a consolidated basis are Solvent; (ii) no Default or Event of Default exists; (iii) the representations and warranties set forth in Section 9 are true and correct; and (iv) each Obligor has complied with all agreements and conditions to be satisfied by it under the Loan Documents as of the Closing Date (unless waived by Agent).
 
(g)     Agent shall have received a certificate of a duly authorized officer of each Obligor, certifying (i) that attached copies of such Obligor’s Organic Documents are true and complete, and in full force and effect, without amendment except as shown; (ii) that an attached copy of resolutions authorizing execution and delivery of the Loan Documents 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 credit facility; and (iii) to the title, name and signature of each Person authorized to sign the Loan Documents.  Agent may conclusively rely on this certificate until it is otherwise notified by the applicable Obligor in writing.
 
(h)     Agent shall have received a written opinion of Scudder Law Firm, P.C., L.L.O., as well as any local counsel to Obligors, in form and substance reasonably satisfactory to Agent.
 
(i)     Agent shall have received copies of the charter documents of each Obligor, certified by the Secretary of State or other appropriate official of such Obligor’s jurisdiction of organization.  Agent shall have received good standing certificates for each Obligor, issued by the Secretary of State or other appropriate official of such Obligor’s jurisdiction of organization and each jurisdiction where such Obligor’s conduct of business or ownership of Property necessitates qualification.
 
(j)     Agent shall have received true and certified copies of insurance policies or certificates of insurance, as Agent shall request, for each of the insurance policies required to be carried by Obligors in accordance with the Loan Documents.
 
(k)     To the extent not previously received, Agent shall have received (i) the audited consolidated balance sheet of Parent and Subsidiaries for the Fiscal Year ended December 31, 2007, and the related consolidated statements of income or operations, shareholder’s equity and cash flows for such Fiscal Year, including the notes thereto, (ii) unaudited consolidated financial statements of Parent and Subsidiaries dated as of the last day of the most recently completed month-end for which financial statements are available   and the related consolidated financial statements of income or operations, shareholders’ equity and cash flows for the month ending on such date, prepared by management of the Obligors consistent with past practices, and (iii) projections of Parent and the other Obligors, evidencing Borrowers’ ability to comply with the financial covenant set forth in Section 10.3 .
 
(l)     No Material Adverse Effect shall have occurred.
 
(m)     Agent shall have completed its business, financial and legal due diligence of Obligors, including a roll-forward of its previous field examination, with results satisfactory to Agent.
 
(n)     Agent shall have received an appraisal of all Eligible Revenue Equipment, in form and substance satisfactory to Agent.
 
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(o)     Borrowers shall have paid all fees and expenses to be paid to Agent and Lenders on the Closing Date.
 
(p)     Agent shall have received a Borrowing Base Certificate prepared as of September 22, 2008.  After giving effect to the initial funding of Loans and issuance of Letters of Credit, and the payment by Borrowers of all fees and expenses incurred in connection herewith as well as any payables stretched beyond their customary payment practices, Availability shall be at least $20,000,000 on the Closing Date (after giving effect to the Availability Block and all other reserves).
 
(q)     Agent shall be satisfied with the capital structure and Debt of Borrowers and the other Obligors as of the Closing Date and Agent shall have received satisfactory evidence that Borrowers are adequately capitalized, that the fair saleable value of Borrowers’ assets will exceed its liabilities on the Closing Date, and that Borrowers will have sufficient working capital to pay its Debts as they become due.
 
(r)     No action, suit, investigation, litigation or proceeding shall be pending or threatened in writing in any court or before any arbitrator or governmental instrumentality that in Agent’s reasonable business judgment could reasonably be expected to have a Material Adverse Effect.
 
(s)     To the extent not already provided to Agent, Borrowers shall have provided all documentation and other information required by bank regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including, without limitation, the U.S.A. Patriot Act, to the extent such information is requested at least ten (10) Business Days prior to the Closing Date.
 
(t)     Agent shall not have become aware of any material information or other matter not previously known to Agent that in its good faith, reasonable determination is inconsistent in a material and adverse manner with any previous due diligence, information or matter known to Agent, which material information or other matter not previously known to Agent is reasonably likely to have a Material Adverse Effect.
 
(u)     Agent shall have received and delivered to the title company for recording in the applicable recording jurisdiction Mortgages for all Eligible Real Estate.
 
(v)      A gent shall have received the Real Estate Related Documents for all Eligible Real Estate.
 
6.2.     Conditions Precedent to All Credit Extensions .  Agent, Issuing Bank and Lenders shall not be required to fund any Loans, arrange for issuance of any Letters of Credit or grant any other accommodation to or for the benefit of Borrowers, unless the following conditions are satisfied:
 
(a)     No Default or Event of Default shall exist at the time of, or result from, such funding, issuance or grant;
 
(b)     The representations and warranties of each Obligor in the Loan Documents shall be true and correct on the date of, and upon giving effect to, such funding, issuance or grant (except for representations and warranties that expressly relate to an earlier date);
 
(c)     All conditions precedent in any other Loan Document shall be satisfied;
 
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(d)     No event shall have occurred or circumstance exist that has or could reasonably be expected to have a Material Adverse Effect; and
 
(e)     With respect to issuance of a Letter of Credit, the LC Conditions shall be satisfied.
 
Each request (or deemed request) by Borrowers for funding of a Loan, issuance of a Letter of Credit or grant of an accommodation shall constitute a representation by Borrowers that the foregoing conditions are satisfied on the date of such request and on the date of such funding, issuance or grant.  As an additional condition to any funding, issuance or grant, Agent shall have received such other information, documents, instruments and agreements as it deems appropriate in connection therewith.
 
6.3.     Limited Waiver of Conditions Precedent .   If Agent, Issuing Bank or Lenders fund any Loans, arrange for issuance of any Letters of Credit or grant any other accommodation when any conditions precedent are not satisfied (regardless of whether the lack of satisfaction was known or unknown at the time), it shall not operate as a waiver of (a) the right of Agent, Issuing Bank and Lenders to insist upon satisfaction of all conditions precedent with respect to any subsequent funding, issuance or grant; nor (b) any Default or Event of Default due to such failure of conditions or otherwise.
 
SECTION 7.     COLLATERAL
 
7.1.    Grant of Security Interest .   To secure the prompt payment and performance of all Obligations, each Obligor hereby grants to Agent, for the benefit of Secured Parties, a continuing security interest in and Lien upon all Property (other than Excluded Assets) of such Obligor, including all of the following Property, whether now owned or hereafter acquired, and wherever located:
 
(a)     all Accounts;
 
(b)     all Chattel Paper, including electronic chattel paper;
 
(c)     all Commercial Tort Claims;
 
(d)     all Deposit Accounts;
 
(e)     all Documents;
 
(f)     all General Intangibles, including Intellectual Property;
 
(g)     all Goods, including Inventory, Equipment and fixtures;
 
(h)     all Instruments;
 
(i)     all Investment Property;
 
(j)     all Letter-of-Credit Rights;
 
(k)     all Supporting Obligations;
 
(l)     all cash and other monies, whether or not in the possession or under the control of Agent, a Lender, or a bailee or Affiliate of Agent or a Lender, including any Cash Collateral;
 
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(m)     all accessions to, substitutions for, and all replacements, products, and cash and non-cash proceeds of the foregoing, including proceeds of and unearned premiums with respect to insurance policies, and claims against any Person for loss, damage or destruction of any Collateral; and
 
(n)     all books and records (including customer lists, files, correspondence, tapes, computer programs, print-outs and computer records) pertaining to the foregoing.
 
7.2.      Lien on Deposit Accounts; Cash Collateral .
 
7.2.1.       Deposit Accounts .
 
(a)      To further secure the prompt payment and performance of all Obligations, each Obligor hereby grants to Agent, for the benefit of Secured Parties, a continuing security interest in and Lien upon all amounts credited to any Deposit Account of such Obligor, including any sums in any blocked or lockbox accounts or in any accounts into which such sums are swept.
 
(b)           Until Agent notifies Borrower Agent to the contrary, the Obligors shall make collection of all Accounts and other Collateral for Agent, shall receive all payments as Agent’s trustee, and shall immediately deliver all payments in their original form duly endorsed in blank into one or more Approved Deposit Accounts established in the name of such Obligor.  None of the Obligors shall make any material change in their cash management practices, including any change that would cause cash or other amounts to be held other than in an Approved Deposit Account.
 
(c)           Each Obligor authorizes and directs each bank or other depository, during any Trigger Period, to deliver to Agent, on a daily basis, all balances in each Deposit Account maintained by Borrowers with such depository to the Dominion Account, or such other account as Agent shall direct in writing, for application to the Obligations then outstanding.  Each Borrower irrevocably appoints Agent as such Borrower’s attorney-in-fact to collect such balances to the extent any such delivery is not so made.
 
7.2.2.     Cash Collateral .  Any Cash Collateral may be invested, at Agent’s discretion, in Cash Equivalents, but Agent shall have no duty to do so, regardless of any agreement or course of dealing with any Obligor, and shall have no responsibility for any investment or loss.  Each Obligor hereby grants to Agent, for the benefit of Secured Parties, a security interest in all Cash Collateral held from time to time and all proceeds thereof, as security for the Obligations, whether such Cash Collateral is held in a Cash Collateral Account or elsewhere.  Agent may apply Cash Collateral to the payment of any Obligations, in such order as Agent may elect, as they become due and payable.  Each Cash Collateral Account and all Cash Collateral shall be under the sole dominion and control of Agent.  No Obligor or any other Person claiming through or on behalf of any Obligor shall have any right to any Cash Collateral, until Full Payment of all Obligations.
 
7.3.     Real Estate Collateral .   The Obligations shall also be secured by Mortgages upon all Eligible Real Estate described on Schedule 7.3 .  The Mortgages shall be duly recorded, at Borrowers’ expense, in each office where such recording is required to constitute a fully perfected Lien on the Real Estate covered thereby.  If any Obligor acquires Real Estate hereafter, such Obligor shall, within 60 days of such acquisition, (i) obtain Collateral Refinancing Debt for such Real Estate as permitted hereunder, or (ii) execute, deliver and record a Mortgage sufficient to create a first priority Lien in favor of Agent on such Real Estate, and deliver all Real Estate Related Documents related to such Real Estate.
 

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7.4.       Other Collateral .
 
7.4.1.     Commercial Tort Claims .  Each Obligor shall promptly notify Agent in writing if it has a Commercial Tort Claim (other than, as long as no Default or Event of Default exists, a Commercial Tort Claim for less than $100,000) and, upon Agent's request, shall promptly take such actions as Agent deems appropriate to confer upon Agent (for the benefit of Secured Parties) a duly perfected, first priority Lien upon such claim.
 
7.4.2.     Intellectual Property .  Concurrently with the delivery of the financial statements pursuant to Section 10.1.2(b) , each Obligor shall notify Agent in writing if it has obtained additional ownership interests in any Registered Intellectual Property during the period then ended that has not become a part of the Collateral as of such date.  Each Obligor authorizes Agent to the make the filings referred to in Section 7.6 with respect to such new Intellectual Property and agrees to take such actions as Agent reasonably deems appropriate or necessary to confer upon Agent (for the benefit of Secured Parties) a duly perfected Lien upon such Registered Intellectual Property subject only to Permitted Liens.
 
7.4.3.     Certain After-Acquired Collateral .  Obligors shall promptly notify Agent in writing if, after the Closing Date, any Obligor obtains any interest in any Collateral consisting of (a) Chattel Paper, Documents, Instruments, Investment Property and Letter-of-Credit Rights with a value in excess of $500,000, or (b) consisting of any Deposit Accounts, Securities Account or other Investment Property and, upon Agent’s request, shall promptly take such actions as Agent deems appropriate to effect Agent’s duly perfected, first priority Lien upon such Collateral, including obtaining any appropriate possession, control agreement or Lien Waiver.  If any Collateral is in the possession of a third party, at Agent’s request, Obligors shall obtain an acknowledgment that such third party holds the Collateral for the benefit of Agent.
 
7.5.     No Assumption of Liability .   The Lien on Collateral granted hereunder is given as security only and shall not subject Agent or any Lender to, or in any way modify, any obligation or liability of Obligors relating to any Collateral.  Notwithstanding anything herein to the contrary, (a) each Obligor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed and (b) the exercise by Agent of any of the rights hereunder shall not release  such Obligor from any of its duties or obligations under the contracts and agreements included in the Collateral.
 
7.6.     Filing Authorization .   Each Obligor authorizes Agent to file any financing statement in any relevant jurisdiction that indicates the Collateral, and ratifies any action taken by Agent before the Closing Date to effect or perfect its Lien on any Collateral.  In addition, each Obligor authorizes Agent to file with the United States Patent and Trademark Office or United States Copyright Office or Canadian Intellectual Property Office (or any successor or similar foreign office) the Copyright Security Agreement, the Patent Security Agreement, the Trademark Security Agreement, and such other documents as may be reasonably necessary for the purpose of perfecting, confirming, continuing, enforcing or protecting the Lien granted by each Obligor, without the signature of any Obligor (to the extent not required by any applicable filing office), and naming any Obligor or the Obligors as debtors and Agent as secured party.
 
7.7.     Foreign Subsidiary Stock .   Notwithstanding Section 7.1 , the Collateral shall include only 65% of the voting stock of any Foreign Subsidiary.
 
7.8.     Further Assurances .   Promptly upon request, Obligors shall deliver such instruments, assignments, title certificates, or other documents or agreements, and shall take such actions, as Agent deems appropriate under Applicable Law to evidence or perfect its Lien on any Collateral, or otherwise to give effect to the intent of this Agreement.
 
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7.9.     No Further Actions .  Except for the filings and agreements referred to in Section 7.6 , no consent, authorization, approval or other action by, and no notice of filing with, any Governmental Authority or other Person that has not been received, taken or made is required (i) for the grant by each Obligor of the security interest and Lien granted hereby or under any other Security Documents to the extent a security interest can be granted in such Collateral under the UCC or other Applicable Law, (ii) for the perfection and maintenance of the security interest and Lien hereunder or under any other Security Documents to the extent such security interest may be perfected by such filings referred to in Section 7.6 , or (iii) for the exercise by Secured Parties of the rights or the remedies in respect of the Collateral pursuant to this Agreement.
 
7.10.     Cooperation .  Each Obligor agrees, after the occurrence and during the continuance of an Event of Default, to take any actions that Agent may reasonably request in order to enable Secured Parties to obtain and enjoy the full rights and benefits granted to them by this Agreement and the other Loan Documents.  Each Obligor further consents to the transfer of control or assignment of all or any portion of the Collateral to a receiver, interim receiver, receiver-manager, trustee, transferee, or similar official or to any purchaser of the Collateral pursuant to any public or private sale, judicial sale, foreclosure or exercise of other remedies available to Secured Parties as permitted by the Loan Documents, Applicable Law or otherwise.
 
SECTION 8.     COLLATERAL ADMINISTRATION
 
8.1.     Borrowing Base Certificates .   On or before the close of business on Tuesday of each week, Borrowers shall deliver to Agent (and Agent shall promptly deliver same to Lenders) a Borrowing Base Certificate prepared as of the close of business for the preceding Friday, and at such other times as Agent may request.  All calculations of Availability in any Borrowing Base Certificate shall originally be made by Borrowers and certified by a Senior Officer, provided that Agent may from time to time review and adjust any such calculation (a) to reflect its reasonable estimate of declines in value of any Collateral, due to collections received in the Dominion Account or otherwise; (b) to adjust advance rates to reflect changes in dilution, quality, mix and other factors affecting Collateral; and (c) to the extent the calculation is not made in accordance with this Agreement or does not accurately reflect the Availability Reserve or to otherwise reflect changes in the Availability Reserve.
 
8.2.     Administration of Accounts .
 
8.2.1.     Records and Schedules of Accounts .  Each Borrower shall submit to Agent, on or before each Tuesday of each week (or more frequently as requested by Agent), accurate and complete records of its Accounts as of the end of the preceding week, including all payments and collections thereon, and shall submit to Agent a summary aged trial balance and sales, collection, reconciliation and other reports in form satisfactory to Agent, on such periodic basis as Agent may request.  To the extent Agent has so requested, each Borrower shall also provide to Agent, on or before the 15th day of each month (or more frequently as Agent may request), a detailed aged trial balance of all Accounts as of the end of the preceding month, specifying each Account’s Account Debtor name and address, amount, invoice date and due date, showing any discount, allowance, credit, authorized return or dispute, and including such proof of delivery, copies of invoices and invoice registers, copies of related documents, repayment histories, status reports and other information as Agent may reasonably request.  If Accounts in an aggregate face amount of $100,000 or more cease to be Eligible Accounts, Borrowers shall notify Agent of such occurrence promptly (and in any event within one Business Day) after any Borrower has knowledge thereof.
 
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8.2.2.     Taxes .  If an Account of any Borrower includes a charge for any Taxes, Agent is authorized, in its discretion, to pay the amount thereof to the proper taxing authority for the account of such Borrower and to charge Borrowers therefor; provided , however , that neither Agent nor Lenders shall be liable for any Taxes that may be due from Borrowers or with respect to any Collateral.
 
8.2.3.     Account Verification .  Whether or not a Default or Event of Default exists, Agent shall have the right at any time, in the name of Agent, any designee of Agent or any Borrower, to verify the validity, amount or any other matter relating to any Accounts of Borrowers by mail, telephone or otherwise; provided , however , if no Default or Event of Default shall exist that Agent shall first notify Borrower Agent of its intent (if any) to contact any of Borrower’s customers and shall afford Borrower Agent the opportunity to participate with Agent in any communications with Borrower’s customers.  Borrowers shall cooperate fully with Agent in an effort to facilitate and promptly conclude any such verification process.
 
8.2.4.     Maintenance of Payment Account .  Borrowers shall at all times maintain the Dominion Account pursuant to arrangements acceptable to Agent.  Neither Agent nor Lenders assume any responsibility to Borrowers for any lockbox arrangement or Dominion Account, including any claim of accord and satisfaction or release with respect to any Payment Items accepted by any bank.
 
8.2.5.     Proceeds of Collateral .  Borrowers shall request in writing and otherwise take all necessary steps to ensure that all payments on Accounts or otherwise relating to Collateral are made directly to an Approved Deposit Account or a Dominion Account (or a lockbox relating to an Approved Deposit Account or a Dominion Account).  If any Obligor or Subsidiary receives cash or Payment Items with respect to any Collateral, it shall hold same in trust for Agent and promptly (not later than the next Business Day) deposit same into an Approved Deposit Account or a Dominion Account.
 
8.3.     Administration of Inventory .
 
8.3.1.     Records and Reports of Inventory .  Each Borrower shall keep accurate and complete records of its Inventory, including costs and daily withdrawals and additions, and shall submit to Agent inventory and reconciliation reports in form satisfactory to Agent, on such periodic basis as Agent may request.
 
8.3.2.     Acquisition, Sale and Maintenance .  No Borrower shall acquire or accept any Inventory on consignment or approval, and shall take all steps to assure that all Inventory is produced in accordance with Applicable Law, including the FLSA.  No Borrower shall sell any Inventory on consignment or approval or any other basis under which the customer may return or require a Borrower to repurchase such Inventory.  Borrowers shall use, store and maintain all Inventory with reasonable care and caution, in accordance with applicable standards of any insurance and in conformity with all Applicable Law, and shall make current rent payments (within applicable grace periods provided for in leases) at all locations where any Collateral is located.
 
8.4.     Administration of Equipment .
 
8.4.1.     Records and Schedules of Equipment .  Each Borrower shall keep accurate and complete records of its Equipment, including kind, quality, quantity, cost, acquisitions and dispositions thereof, and shall submit to Agent, on a monthly basis with the financial reports required under Section 10.1.2(b) or 10.1.2(c) , or on such other periodic basis as Agent may request, a current schedule thereof, in form satisfactory to Agent, including, without limitation, all such information with respect to Equipment included in the Borrowing Base.  Promptly upon request, each Borrower shall deliver to Agent evidence of its ownership or interests in any Equipment.
 
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8.4.2.     Dispositions and Refinancing of Equipment .  No Borrower shall sell, lease or otherwise dispose of, or refinance any Equipment constituting a portion of the Collateral, without the prior written consent of Agent, other than (a) a Permitted Asset Disposition; (b) a refinancing constituting a Refinancing Debt (other than a Collateral Refinancing Debt) provided that each Refinancing Condition is satisfied; and (c) a refinancing constituting Collateral Refinancing Debt.
 
8.4.3.     Condition of Equipment .  The Equipment shall be maintained in good operating condition and repair, and all necessary replacements and repairs shall be made so that the value and operating efficiency of the Equipment is preserved at all times, reasonable wear and tear excepted.  Each Borrower shall ensure that the Equipment is mechanically and structurally sound, and capable of performing the functions for which it was designed, in accordance with manufacturer specifications.  No Borrower shall permit any Equipment to become affixed to Real Estate unless any landlord or mortgagee delivers a Lien Waiver.
 
8.4.4.     Lien Administration for Rolling Stock .
 
(a)      With respect to all Bank Revenue Equipment owned by any Borrower on the Closing Date (collectively, the “ Initial Revenue Equipment ”), each Borrower (i) on or before the Closing Date shall have furnished the Agent with a detailed list of all certificates of title to all Initial Revenue Equipment which contain the notation of the Lien of the Agent thereon, and (ii) shall take such other action from time to time at the request of the Agent as the Agent shall deem necessary to perfect or maintain the perfection or priority of the Lien of the Agent in the Initial Revenue Equipment, which may include delivering possession of the original certificates of title for the Initial Revenue Equipment to the Agent or its designated subagent if the Agent determines in good faith such action to be required under applicable law in order to perfect the Lien of the Agent in such certificates of title.
 
(b)           With respect to any Bank Revenue Equipment acquired by any Borrower after the Closing Date, and with respect to any Bank Revenue Equipment then owned or thereafter acquired by any Borrower becoming a party to this Agreement after the date hereof, such Borrower shall (i) promptly, but in no event more than three (3) Business Days thereafter, provide to Agent copies of the application for title filed with the applicable Governmental Authority, requesting that Agent’s Lien be noted on the certificate of title, (ii) within sixty (60) days of the date of acquisition of such Bank Revenue Equipment or of the owner of such Bank Revenue Equipment becoming a Borrower hereunder, as applicable, furnish the Agent with copies of the certificate of title to such Bank Revenue Equipment evidencing the notation of the Lien of the Agent thereon, and (iii) take such other action from time to time at the request of the Agent as the Agent shall deem necessary to perfect or maintain the perfection or priority of the Lien of the Agent in the Bank Revenue Equipment, which may include delivering possession of the original certificates of title for the Bank Revenue Equipment to the Agent or its designated subagent if the Agent determines in good faith such action to be required under applicable law in order to perfect the Lien of the Agent in such certificates of title.
 
(c)            Notwithstanding the provisions of subsection (b) of this Section 8.4.4 :  (i) the lease of any Revenue Equipment (whether as a true lease or a Capital Lease) shall not be deemed an acquisition of Revenue Equipment, as described in subsection (b) of this Section 8.4.4 , and (ii) no Borrower shall be obligated to comply with subsection (b) of this Section 8.4.4 with respect to any Revenue Equipment that was acquired subject to a Purchase Money Lien permitted under Section 10.2.2(b) .  In the event the Revenue Equipment subject to a Lien or lease described in clauses (i) or (ii) of this subsection (c) are no longer subject to such lease or Lien, as applicable, the provisions of subsection (b) of this Section 8.4.4 shall be applicable thereto.
 

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(d)           Notwithstanding any terms of this Section 8.4.4 to the contrary, (A) with respect to Collateral that constitutes Eligible Revenue Equipment on the Closing Date, Agent or its designee has received a detailed list of all certificates of title for such Eligible Revenue Equipment that note Agent’s Lien thereon and the original certificate of title with Agent’s Lien noted thereon is delivered to Agent or its designee within 30 days after the Closing Date, (B) with respect to Revenue Equipment that becomes Eligible Revenue Equipment after the Closing Date, Agent or its designee has received a copy of the application for title filed with the applicable Governmental Authority, requesting that Agent’s Lien be noted thereon and the original certificate of title with Agent’s Lien noted thereon is delivered to Agent or its designee within 60 days after such Revenue Equipment becomes Collateral, and (C) during any Collateral Trigger Period, if requested by Agent in writing, the Borrowers shall deliver original certificates of title evidencing ownership of all Bank Revenue Equipment.  All applications for title or certificates of title required to be delivered pursuant to this Section 8.4.4(d) shall, in each case, be delivered to Agent or to any third party collateral management agent as may be engaged and designated by Agent in its sole discretion, as specified herein or otherwise as soon as possible, but in any event in the case of (C), no later than three Business Days after receipt of such written notice from Agent.  In the event Agent engages and designates a third party collateral management agent to administer such applications for title or original certificates of title, Borrower shall reimburse Agent for any and all costs or expenses incurred by Agent for such collateral management agent within ten (10) days of demand therefor.
 
8.5.     Administration of Deposit Accounts .   Schedule 8.5 sets forth all Deposit Accounts maintained by Obligors, including all Dominion Accounts.  Each Obligor shall take all actions necessary to establish Agent’s control of each such Deposit Account (other than (a) an account exclusively used for payroll, payroll taxes or employee benefits, and (b) any account containing not more that $10,000 at any time) pursuant to a Deposit Account Control Agreement.  The Obligors shall be the sole account holder of each Deposit Account and shall not allow any other Person (other than Agent) to have control over a Deposit Account or any Property deposited therein.  Each Obligor shall promptly notify Agent of any opening or closing of a Deposit Account and, with the consent of Agent, will amend Schedule 8.5 to reflect same.
 
8.6.     General Provisions .
 
8.6.1     Location of Collateral .  All tangible items of Collateral, other than Inventory and Equipment in transit, and Collateral delivered to Agent shall at all times be kept by Obligors at the business locations set forth in Schedule 8.6.1 , except that Obligors may (a) make sales or other dispositions of Collateral in accordance with Section 10.2.5 ; and (b) move Collateral to another location in the United States not included on Schedule 8.6.1 , upon thirty (30) Business Days prior written notice to Agent.
 
8.6.2.    Insurance of Collateral; Condemnation Proceeds .
 
(a)     Each Obligor shall maintain insurance with respect to the Collateral, covering casualty, hazard, public liability, theft, malicious mischief, flood and other risks, in amounts, with endorsements and with insurers (with a Best Rating of at least A7) satisfactory to Agent.  All proceeds under each policy shall be payable to Agent.  From time to time upon request, Obligors shall deliver to Agent the originals or certified copies of its insurance policies and updated flood hazard certificates.  Unless Agent shall agree otherwise, each policy shall include satisfactory endorsements (i) showing Agent as loss payee or additional insured, as appropriate; (ii) requiring 30 days prior written notice to Agent in the event of cancellation of the policy for any reason whatsoever; and (iii) specifying that the interest of Agent shall not be impaired or invalidated by any act or neglect of any Obligor or the owner of the Property, nor by the occupation of the premises for purposes more hazardous than are permitted by the policy.  If any Obligor fails to provide and pay for any insurance, Agent may, at its option, but shall not be required to, procure such insurance and charge Obligors therefor.  Each Obligor agrees to deliver to Agent, promptly as rendered, copies of all reports made to insurance companies.  While no Event of Default exists, Obligors may settle, adjust or compromise any insurance claim with respect to Collateral, as long as the proceeds are delivered to Agent.  If an Event of Default exists, only Agent shall be authorized to settle, adjust and compromise claims.
 
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(b)     Any proceeds of insurance (other than proceeds from workers’ compensation or D&O insurance) and any awards arising from condemnation of any Collateral shall be paid to Agent.  Any such proceeds or awards that relate to Collateral consisting of Inventory or Pledged Equipment shall be applied to payment of the Revolver Loans, and then to any other Obligations outstanding.  Subject to clause (c) below, any proceeds or awards that relate to Collateral consisting of Real Estate shall be applied first to Revolver Loans and then to other Obligations.
 
(c)     If requested by Borrowers in writing within 45 days after Agent’s receipt of any insurance proceeds or condemnation awards relating to any loss or destruction of Collateral consisting of Pledged Equipment or Real Estate, Borrowers may use such proceeds or awards to repair or replace such Pledged Equipment or Real Estate (and until so used, the proceeds shall be held by Agent as Cash Collateral) as long as (i) no Default or Event of Default exists; (ii) such repair or replacement is promptly undertaken and concluded, in accordance with plans satisfactory to Agent; (iii) replacement buildings are constructed on the sites of the original casualties and are of comparable size, quality and utility to the destroyed buildings; (iv) the repaired or replaced Property is free of Liens, other than Permitted Liens that are not Purchase Money Liens; (v) Borrowers comply with disbursement procedures for such repair or replacement as Agent may reasonably require; and (vi) the aggregate amount of such proceeds or awards from any single casualty or condemnation does not exceed $1,000,000.
 
8.6.3.    Protection of Collateral .  All expenses of protecting, storing, warehousing, insuring, handling, maintaining and shipping any Collateral, all Taxes payable with respect to any Collateral (including any sale thereof), and all other payments required to be made by Agent to any Person to realize upon any Collateral, shall be borne and paid by Obligors.  Agent shall not be liable or responsible in any way for the safekeeping of any Collateral, for any loss or damage thereto (except for reasonable care in its custody while Collateral is in Agent’s actual possession), for any diminution in the value thereof, or for any act or default of any warehouseman, carrier, forwarding agency or other Person whatsoever, but the same shall be at Borrowers’ sole risk.
 
8.6.4.    Defense of Title to Collateral .  Each Obligor shall at all times defend its title to Collateral and Agent’s Liens therein against all Persons, claims and demands whatsoever, except Permitted Liens.
 
8.6.5.    Other Reports .  Each Borrower shall submit to Agent, on or before the 15th day of each month (or more frequently as Agent may request), accurate and complete records of Collateral consisting of Real Estate as of the end of the preceding month, including the Value of all Real Estate and any acquisitions or dispositions thereof.
 
8.7.     Power of Attorney .  Each Obligor hereby irrevocably constitutes and appoints Agent (and all Persons designated by Agent) as such Obligor’s true and lawful attorney (and agent-in-fact) for the purposes provided in this Section.  This power of attorney is coupled with an interest.  Agent, or Agent’s designee, may, without notice and in either its or a Borrower’s name, but at the cost and expense of Obligor:
 
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(a)     Endorse an Obligor’s name on any Payment Item or other proceeds of Collateral (including proceeds of insurance) that come into Agent’s possession or control; and
 
(b)     During an Event of Default, (i) notify any Account Debtors of the assignment of their Accounts, demand and enforce payment of Accounts, by legal proceedings or otherwise, and generally exercise any rights and remedies with respect to Accounts; (ii) settle, adjust, modify, compromise, discharge or release any Accounts or other Collateral, or any legal proceedings brought to collect Accounts or Collateral; (iii) sell or assign any Accounts and other Collateral upon such terms, for such amounts and at such times as Agent deems advisable; (iv) take control, in any manner, of any proceeds of Collateral; (v) prepare, file and sign an Obligor’s name to a proof of claim or other document in a bankruptcy of an Account Debtor, or to any notice, assignment or satisfaction of Lien or similar document; (vi) receive, open and dispose of mail addressed to an Obligor, and notify postal authorities to change the address for delivery thereof to such address as Agent may designate; (vii) endorse any Chattel Paper, Document, Instrument, invoice, freight bill, bill of lading, or similar document or agreement relating to any Accounts, Inventory or other Collateral; (viii) use an Obligor’s stationery and sign its name to verifications of Accounts and notices to Account Debtors; (ix) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to any Collateral; (x) make and adjust claims under policies of insurance with respect to Collateral; (xi) take any action as may be necessary or appropriate to obtain payment under any letter of credit or banker’s acceptance for which an Obligor is a beneficiary; and (xii) take all other actions as Agent deems appropriate to fulfill any Obligor’s obligations under the Loan Documents.
 
SECTION 9.     REPRESENTATIONS AND WARRANTIES
 
9.1.     General Representations and Warranties .   To induce Agent and Lenders to enter into this Agreement and to make available the Commitments, Loans and Letters of Credit, each Borrower and other Obligor, as applicable, represents and warrants that:
 
9.1.1.     Organization and Qualification .  Each Borrower, other Obligor and Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.  Each Borrower, other Obligor and Subsidiary is duly qualified, authorized to do business and in good standing as a foreign corporation, company or other entity in each jurisdiction where failure to be so qualified could reasonably be expected to have a Material Adverse Effect.
 
9.1.2.     Power and Authority .  Each Obligor is duly authorized to execute, deliver and perform its Loan Documents.  The execution, delivery and performance of the Loan Documents have been duly authorized by all necessary action, and do not (a) require any consent or approval of any holders of Equity Interests of any Obligor, other than those already obtained; (b) contravene the Organic Documents of any Obligor; (c) violate or cause a default under any Applicable Law or Material Contract; or (d) result in or require the imposition of any Lien (other than Permitted Liens) on any Property of any Obligor.
 
9.1.3.     Enforceability .  Each Loan Document is a legal, valid and binding obligation of each Obligor party thereto, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.
 
9.1.4.     Capital Structure .   Schedule 9.1.4 shows, for each Obligor and Subsidiary, as of the Closing Date, its name, its jurisdiction of organization, its authorized and issued Equity Interests, the holders of its Equity Interests (with the exception of Parent, which is a publicly owned company), and all agreements binding on such holders with respect to their Equity Interests.  Each Obligor has good title to its Equity Interests in its Subsidiaries, subject only to Agent’s Lien (and Permitted Liens arising by operation of law), and all such Equity Interests are duly issued, and in the case of Equity Interests issued by a corporation, fully paid and non-assessable.  Except as set forth on Schedule 9.1.4 with respect to outstanding options to purchase Equity Interests in Parent, there are no outstanding options to purchase, warrants, subscription rights, agreements to issue or sell, convertible interests, phantom rights or powers of attorney relating to any Equity Interests of any Obligor or any Subsidiary.
 
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9.1.5.     Corporate Names; Locations .  Except as set forth on Schedule 9.1.5 , during the five years preceding the Closing Date, except as shown on Schedule 9.1.5 , no Borrower, Obligor or Subsidiary has been known as or used any corporate, fictitious or trade names, has been the surviving corporation of a merger or combination, or has acquired any substantial part of the assets of any Person.  As of the Closing Date, the chief executive offices and other places of business of Borrowers and Subsidiaries are shown on Schedule 8.6.1 .  During the five years preceding the Closing Date, no Borrower, Obligor or Subsidiary has had any other office or place of business.
 
9.1.6.     Title to Properties; Priority of Liens .  Except as set forth on Schedule 9.1.6 , each Obligor and each Subsidiary has good and marketable title to (or valid leasehold interests in) all of its Real Estate, and good title to all of its personal Property, including all Property reflected in any financial statements delivered to Agent or Lenders, in each case free of Liens except Permitted Liens.  Each Obligor and each Subsidiary has paid and discharged all lawful claims that, if unpaid, could become a Lien on its Properties, other than Permitted Liens.  All Liens of Agent in the Collateral are duly perfected, first priority Liens, subject only to Permitted Liens that are expressly allowed to have priority over Agent’s Liens.
 
9.1.7.     Accounts .  Agent may rely, in determining which Accounts are Eligible Accounts, on all statements and representations made by Borrowers with respect thereto.  Borrowers warrant, with respect to each Account at the time it is shown as an Eligible Account in a Borrowing Base Certificate, that:
 
(a)     it is genuine and in all respects what it purports to be, and is not evidenced by a judgment;
 
(b)     it arises out of a completed, bona fide sale and delivery of goods or rendition of services in the Ordinary Course of Business, and substantially in accordance with any purchase order, contract or other document relating thereto;
 
(c)     once billed, it is for a sum certain, maturing as stated in the invoice covering such sale or rendition of services, a copy of which has been furnished or is available to Agent on request;
 
(d)     it is not subject to any offset, Lien (other than Agent’s Lien), deduction, defense, dispute, counterclaim or other adverse condition except as arising in the Ordinary Course of Business and disclosed to Agent; and it is absolutely owing by the Account Debtor, without contingency in any respect;
 
(e)     no purchase order, agreement, document or Applicable Law restricts assignment of the Account to Agent (regardless of whether, under the UCC, the restriction is ineffective), and the applicable Borrower is the sole payee or remittance party shown on the invoice;
 
(f)     no extension, compromise, settlement, modification, credit, deduction or return has been authorized with respect to the Account, except discounts or allowances granted in the Ordinary Course of Business for prompt payment that are reflected on the face of the invoice related thereto and in the reports submitted to Agent hereunder; and
 
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(g)     to Borrower’s knowledge (i) there are no facts or circumstances that are reasonably likely to impair the enforceability or collectibility of such Account; (ii) the Account Debtor had the capacity to contract when the Account arose, continues to meet the applicable Borrower’s customary credit standards, is Solvent, is not contemplating or subject to an Insolvency Proceeding, and has not failed, or suspended or ceased doing business; and (iii) there are no proceedings or actions threatened or pending against any Account Debtor that could reasonably be expected to have a material adverse effect on the Account Debtor’s financial condition.
 
9.1.8.     Financial Statements .  The consolidated and consolidating balance sheets, and related statements of income, cash flow and shareholder’s equity, of Parent and its Subsidiaries that have been and are hereafter delivered to Agent and Lenders, are prepared in accordance with GAAP, and fairly present the financial positions and results of operations of Parent and Subsidiaries at the dates and for the periods indicated.  All projections delivered from time to time to Agent and Lenders have been prepared in good faith, and based on assumptions believed by Borrowers to be reasonable in light of the circumstances at such time.  No financial statement delivered to Agent or Lenders at any time contains any untrue statement of a material fact, nor fails to disclose any material fact necessary to make such statement not materially misleading.  The Parent and its consolidated group, taken as a whole, are Solvent.
 
9.1.9.     Surety Obligations .  Other than Permitted Contingent Obligations, and except as disclosed on Schedule 9.1.9 , as of the Closing Date, no Obligor nor any Subsidiary is obligated as surety or indemnitor under any bond or other contract that assures payment or performance of any obligation of any Person.
 
9.1.10.     Taxes .  Each Obligor and Subsidiary has filed all federal, state and local tax returns and other reports that it is required by law to file, and has paid, or made provision for the payment of, all Taxes upon it, its income and its Properties that are due and payable, except to the extent being Properly Contested.  The provision for Taxes on the books of each Borrower and Subsidiary is adequate for all years not closed by applicable statutes, and for its current Fiscal Year.
 
9.1.11.     Brokers .  There are no brokerage commissions, finder’s fees or investment banking fees payable in connection with any transactions contemplated by the Loan Documents, except as contemplated by the Fee Letter.
 
9.1.12.     Intellectual Property .  Each Obligor and Subsidiary owns or has the lawful right to use all Intellectual Property necessary for the conduct of its business, and such use does not conflict with, misappropriate, infringe on or violate, in any material respect, the intellectual property rights of others.  All Intellectual Property owned by an Obligor and, to such Obligor’s knowledge, all Intellectual Property licensed to an Obligor, is valid, enforceable, subsisting and unexpired and has not been abandoned, except for such instances of non-compliance that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect.  There is no pending or, to the knowledge of any Senior Officer of Borrowers, threatened Intellectual Property Claim with respect to any Obligor, any Subsidiary or any of their Property (including any Intellectual Property) which could reasonably be expected to have a Material Adverse Effect.  There is no holding, decision or judgment that has been rendered by any Governmental Authority or arbitrator in the United States or outside the United States which would limit or cancel the validity or enforceability of any Intellectual Property owned by an Obligor, or such Obligor’s knowledge, any Intellectual Property licensed to an Obligor which could reasonably be expected to have a Material Adverse Effect.  No Obligor is aware of any unauthorized uses of any item included in the Intellectual Property that could reasonably be expected to (i) lead to such item becoming invalid or unenforceable and (ii) have a Material Adverse Effect.  As of the Closing Date, except as disclosed on Schedule 9.1.12 , no Obligor or Subsidiary pays or owes any material Royalty or other material compensation to any Person with respect to any Intellectual Property.  As of the Closing Date, all Intellectual Property owned, used or licensed by, or otherwise subject to any interests of, any Obligor or Subsidiary is shown on Schedule 9.1.12 .
 
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9.1.13.     Governmental Approvals .  Each Obligor and Subsidiary has, is in compliance with, and is in good standing with respect to, all Governmental Approvals necessary to conduct its business and to own, lease and operate its Properties, including, without limitation, all Material Licenses, permits, leases and agreements necessary to its business, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.  All necessary import, export or other licenses, permits or certificates for the import or handling of any goods or other Collateral have been procured and are in effect, and Obligors and Subsidiaries have complied with all foreign and domestic laws with respect to the shipment and importation of any goods or Collateral, except where noncompliance could not reasonably be expected to have a Material Adverse Effect.
 
9.1.14.     Compliance with Laws .  Each Obligor and each Subsidiary has duly complied, and its Properties and business operations are in compliance, in all material respects with all Applicable Law, except where noncompliance could not reasonably be expected to have a Material Adverse Effect.  There have been no citations, notices or orders of material noncompliance issued to any Obligor or Subsidiary under any Applicable Law.
 
9.1.15.     Compliance with Environmental Laws .  Except as disclosed on Schedule 9.1.15 and except as could not reasonably be expected to result in a Material Adverse Effect, no Obligor’s or Subsidiary’s past or present operations, Real Estate or other Properties are subject to any federal, state or local investigation to determine whether any remedial action is needed to address any environmental pollution, hazardous material or environmental clean-up.  No Obligor or any Subsidiary has received any Environmental Notice with respect to circumstances that could reasonably be expected to result in a Material Adverse Effect.  No Obligor or any Subsidiary has any contingent liability with respect to any Environmental Release, environmental pollution or hazardous material on any Real Estate now or previously owned, leased or operated by it, which, in each case, could reasonably be expected to have a Material Adverse Effect.
 
9.1.16.     Burdensome Contracts .  No Obligor or Subsidiary is a party or subject to any material contract, agreement or charter restriction that could reasonably be expected to have a Material Adverse Effect.  No Obligor or Subsidiary is party or subject to any Restrictive Agreement, except as shown on Schedule 9.1.16 , none of which prohibit the execution or delivery of any Loan Documents by an Obligor nor the performance by an Obligor of any obligations thereunder.
 
9.1.17.     Litigation .  Except as shown on Schedule 9.1.17 , there are no proceedings or investigations pending or, to any Borrower’s knowledge, threatened against any Obligor or Subsidiary, or any of their businesses, operations, Properties, prospects or conditions, that (a) relate to any Loan Documents or transactions contemplated thereby; or (b) could reasonably be expected to have a Material Adverse Effect.  No Obligor or Subsidiary is in default with respect to any order, injunction or judgment of any Governmental Authority.
 
9.1.18.     No Defaults .  No event or circumstance has occurred or exists that constitutes a Default or Event of Default.  No Obligor or Subsidiary is in default, and no event or circumstance has occurred or exists that with the passage of time or giving of notice would constitute a default, under any Material Contract or in the payment of any Borrowed Money, where such default reasonably would be expected to have a Material Adverse Effect.  To Borrower’s knowledge, there is no basis upon which any party (other than an Obligor or a Subsidiary) could terminate a Material Contract prior to its scheduled termination date.
 
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9.1.19.     ERISA .  Except as disclosed on Schedule 9.1.19 :
 
(a)     Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code, and other federal and state laws.  Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the knowledge of Borrowers, nothing has occurred which would prevent, or cause the loss of, such qualification.  Each Obligor and ERISA Affiliate has made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.
 
(b)     There are no pending or, to the knowledge of Borrowers, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect.  There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted in or could reasonably be expected to have a Material Adverse Effect.
 
(c)     (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) no Obligor or ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) no Obligor or ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) no Obligor or ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.
 
(d)     With respect to any Foreign Plan, (i) all employer and employee contributions required by law or by the terms of the Foreign Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices; (ii) the fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance, or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles; and (iii) it has been registered as required and has been maintained in good standing with applicable Governmental Authority.
 
9.1.20.     Trade Relations .  To the knowledge of the Obligors, there exists no actual or threatened termination, limitation or modification of any business relationship between any Obligor or Subsidiary and any customer or supplier, or any group of customers or suppliers, that could reasonably be expected to have a Material Adverse Effect.  To the knowledge of the Obligors, there exists no condition or circumstance that could reasonably be expected to impair in any material respect the ability of any Obligor or Subsidiary to conduct its business at any time hereafter in substantially the same manner as conducted on the Closing Date.
 
9.1.21.     Labor Relations .  Except as described on Schedule 9.1.21 , as of the Closing Date, no Obligor or Subsidiary is party to or bound by any collective bargaining agreement, management agreement or consulting agreement.  There are no grievances, disputes or controversies with any union or other organization of any Obligor’s or Subsidiary’s employees, or, to any Borrower’s knowledge, any asserted or threatened strikes, work stoppages or demands for collective bargaining, in each case, that could reasonably be expected to have a Material Adverse Effect.
 
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9.1.22.     Payable Practices .  No Obligor or Subsidiary has made any material change in its historical accounts payable practices from those in effect on the Closing Date.
 
9.1.23.     Not a Regulated Entity .  No Obligor is (a) an “investment company” or a “person directly or indirectly controlled by or acting on behalf of an investment company” within the meaning of the Investment Company Act of 1940; or (b) subject to regulation under the Federal Power Act, the Interstate Commerce Act, any public utilities code or any other Applicable Law regarding its authority to incur Debt.
 
9.1.24.     Margin Stock .  No Obligor or Subsidiary is engaged, principally or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock.  No Loan proceeds or Letters of Credit will be used by Obligors to purchase or carry, or to reduce or refinance any Debt incurred to purchase or carry, any Margin Stock or for any related purpose governed by Regulations T, U or X of the Board of Governors.
 
9.1.25.     Subsidiaries .  None of the Obligors has a Subsidiary (other than VIL, CVTI Receivables or Transplace) that is not either a Borrower or a Guarantor.
 
9.2.     Complete Disclosure .   No Loan Document contains any untrue statement of a material fact, nor fails to disclose any material fact necessary to make the statements contained therein not materially misleading.  To the knowledge of the Obligors, there is no fact or circumstance that any Obligor has failed to disclose to Agent in writing that could reasonably be expected to have a Material Adverse Effect.
 
SECTION 10.     COVENANTS AND CONTINUING AGREEMENTS
 
10.1.     Affirmative Covenants .   As long as any Commitments or Obligations are outstanding or Full Payment has not been made on all Obligations, each Obligor shall, and shall cause each Subsidiary to:
 
10.1.1.     Inspections; Appraisals .
 
(a)     Permit Agent or any Lender at any time and from time to time, subject to reasonable notice and normal business hours, to visit and inspect the Properties of any Obligor or Subsidiary, inspect, audit and make extracts from any Obligor’s or any Subsidiary’s books and records, and discuss with its officers, employees, agents, advisors and independent accountants of such Obligor’s or Subsidiary’s business, financial condition, assets, prospects and results of operations.  Neither Agent nor any Lender shall have any duty to any Obligor to make any inspection, nor to share any results of any inspection, appraisal or report with any Obligor.  Each Obligor acknowledges that all inspections, appraisals and reports are prepared by Agent and Lenders for its purposes, and such Obligor shall not be entitled to rely upon them.  Agent and each Lender shall be bound by the provisions of Section 14.12 with respect to information obtained pursuant to this Section.
 
(b)     Reimburse Agent for all charges, costs and expenses of Agent in connection with (i) up to three field examinations of any Obligor’s books and records or any other financial or Collateral matters as Agent deems appropriate, (ii) up to three appraisals of Pledged Equipment, and (iii) up to one appraisal of Real Estate, in each case per Loan Year; provided, however, that if an examination or appraisal is initiated during a Default or Event of Default, or at any time Availability is less than $15,000,000, then all charges, costs and expenses therefor shall be reimbursed by Borrowers without regard to such limit.  Subject to and without limiting the foregoing, Borrowers specifically agree to pay Agent’s then standard charges for each day that an employee of Agent or its Affiliates is engaged in any examination activities, and shall pay the standard charges of Agent’s internal appraisal group.  This Section shall not be construed to limit Agent’s right to conduct examinations or to obtain appraisals at any time in its discretion, nor to use third parties for such purposes.
 
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10.1.2.     Financial and Other Information .  Keep adequate records and books of account with respect to its business activities, in which proper entries are made in accordance with GAAP reflecting all financial transactions; and furnish to Agent and Lenders:
 
(a)     as soon as available, and in any event within 90 days after the close of each Fiscal Year, balance sheets as of the end of such Fiscal Year and the related statements of income, cash flow and shareholders’ equity for such Fiscal Year, on a consolidated and consolidating basis for Parent and Subsidiaries, which consolidated statements shall be audited and certified (without qualification as to scope, “going concern” or similar items) by KPMG LLP or another firm of independent certified public accountants of recognized standing selected by Obligors and acceptable to Agent, and shall set forth in comparative form corresponding figures for the preceding Fiscal Year and other information acceptable to Agent;
 
(b)     as soon as available, and in any event within 45 days after the end of each Fiscal Quarter, unaudited balance sheets as of the end of such Fiscal Quarter and the related statements of income and cash flow for such Fiscal Quarter and for the portion of the Fiscal Year then elapsed, on a consolidated and consolidating basis for Parent and Subsidiaries, setting forth in comparative form corresponding figures for the preceding Fiscal Year and certified by the chief financial officer of Borrower Agent as prepared in accordance with GAAP and fairly presenting the financial position and results of operations for such Fiscal Quarter and period, subject to normal year-end adjustments and the absence of footnotes;
 
(c)     within 30 days after the end of each month which is not the end of a Fiscal Quarter, unaudited balance sheets as of the end of such month and the related statements of income and cash flow for such month and for the portion of the Fiscal Year then elapsed, on a consolidated and consolidating basis for Parent and Subsidiaries, setting forth in comparative form corresponding figures for the preceding Fiscal Year and certified by the chief financial officer of Borrower Agent as prepared in accordance with GAAP and fairly presenting the financial position and results of operations for such month and period, subject to normal year-end adjustments and the absence of footnotes;
 
(d)     concurrently with delivery of financial statements under clauses (a), (b) and (c) above, or more frequently if requested by Agent while a Default or Event of Default exists, a Compliance Certificate executed by a Senior Officer of Borrower Agent;
 
(e)     concurrently with delivery of financial statements under clause (a) above, copies of all management letters and other material reports submitted to Borrowers and Subsidiaries by their accountants in connection with such financial statements;
 
(f)     concurrently with, and as part of, the delivery of the Compliance Certificate under clause (d) above, (i) a schedule of all obligations (other than Permitted Contingent Obligations) of the Obligors as surety or indemnitor under any bond or other contract that assures payment or performance of any obligation of any Person (or a certificate that there have been no changes with respect to such obligations since the last delivery of such a schedule), and (ii) a schedule of all collective bargaining agreements, material management agreements, and material consulting agreements by which any Obligor or Subsidiary is party to or bound (or a certificate that there have been no changes with respect to such agreements since the last delivery of such a schedule);
 
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(g)     as soon as available, but not later than 30 days prior to the end of each Fiscal Year, projections of Parent’s consolidated balance sheets, results of operations, cash flow and Availability for the next Fiscal Year, month by month and for the next three Fiscal Years, year by year;
 
(h)     all reports and other disclosures required under Sections 8.2.1 and 8.4.1;
 
 (i)     at Agent’s request, a listing of Borrowers’ trade payables, specifying the trade creditor and balance due, and a detailed trade payable aging, all in form satisfactory to Agent;
 
(j)     promptly after the sending or filing thereof, copies of any proxy statements, financial statements or reports that any Obligor has made generally available to its shareholders; copies of any regular, periodic and special reports or registration statements or prospectuses that an Obligor files with the Securities and Exchange Commission or any other Governmental Authority, or any securities exchange; and copies of any press releases or other statements made available by an Obligor to the public concerning material changes to or developments in the business of such Obligor;
 
(k)     promptly after the sending or filing thereof, copies of any annual report to be filed in connection with each Plan or Foreign Plan; and
 
(l)     such other reports and information (financial or otherwise) as Agent may request from time to time in connection with any Collateral or any Borrower’s, Subsidiary’s or other Obligor’s financial condition or business.
 
The documents required to be delivered pursuant to Section 10.1.2 (a), (b) ,   and (j) (to the extent any such documents are included in materials otherwise filed with the Securities and Exchange Commission) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Obligor posts such documents, or provides a link thereto on the Obligor’s website on the Internet at the website address, www.covenanttransport.com ; or (ii) on which such documents are posted on the Obligor’s behalf on IntraLinks, or another Internet website, if any, to which each Lender and the Agent have access (whether a commercial, third-party website or whether sponsored by the Agent); provided that:  (i) the Obligor shall deliver paper copies of such documents to the Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Agent or such Lender and (ii) the Borrower shall notify the Agent and each Lender (by facsimile or electronic mail) of the posting of any such documents and provide to the Agent by electronic mail electronic versions (i.e., soft copies) of such documents.
 
10.1.3.    Notices .  Notify Agent and Lenders in writing, promptly after a Borrower’s Senior Officer obtaining knowledge thereof, of any of the following that affects an Obligor:  (a) the threat or commencement of any proceeding or investigation, whether or not covered by insurance, if an adverse determination could reasonably be expected to have a Material Adverse Effect; (b) any pending or threatened labor dispute, strike or walkout, or the expiration of any material labor contract; (c) any event of default under or termination of a Material Contract; (d) the existence of any Default or Event of Default; (e) any judgment in an amount exceeding $2,000,000; (f) the assertion of any Intellectual Property Claim, if it could reasonably be expected to have a Material Adverse Effect; (g) any violation or asserted violation of any Applicable Law (including ERISA, OSHA, FLSA, or any Environmental Laws), if an adverse resolution is reasonably likely to have a Material Adverse Effect; (h) any Environmental Release by an Obligor or on any Property owned, leased or occupied by an Obligor; or receipt of any Environmental Notice, if it could reasonably be expected to have a Material Adverse Effect; (i) the occurrence of any ERISA Event; (j) the discharge of or any withdrawal or resignation by Borrowers’ independent accountant; or (k) any opening of a new office or place of business, at least 30 days prior to such opening.
 
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10.1.4.     Landlord and Storage Agreements .  Upon request, provide Agent with copies of all existing material agreements, and promptly after execution thereof provide Agent with copies of all future material agreements, between an Obligor and any landlord, warehouseman, processor, shipper, bailee or other Person that owns any premises at which any Collateral with an aggregate value in excess of $100,000 may be kept or that otherwise may possess or handle any Collateral with an aggregate value in excess of $100,000.
 
10.1.5.     Compliance with Laws .  Comply with all Applicable Laws, including ERISA, Environmental Laws, FLSA, OSHA, Anti-Terrorism Laws, and laws regarding collection and payment of Taxes, and maintain all Governmental Approvals necessary to the ownership of its Properties or conduct of its business, unless failure to comply (other than failure to comply with Anti-Terrorism Laws) or maintain could not reasonably be expected to have a Material Adverse Effect.  Without limiting the generality of the foregoing, if any Environmental Release occurs at or on any Properties of any Obligor or Subsidiary that could reasonably be expected to have a Material Adverse Effect, it shall act promptly and diligently to investigate and report to Agent and all appropriate Governmental Authorities the extent of, and to make appropriate remedial action to eliminate, such Environmental Release, whether or not directed to do so by any Governmental Authority.
 
10.1.6.     Taxes .  Pay and discharge all Taxes prior to the date on which they become delinquent or penalties attach, unless such Taxes are being Properly Contested.
 
10.1.7.     Insurance .  In addition to the insurance required hereunder with respect to Collateral, maintain insurance with insurers (with a Best Rating of at least A7, unless otherwise approved by Agent) satisfactory to Agent, (a) with respect to the Properties and business of Obligors and Subsidiaries of such type (including product liability, workers’ compensation, larceny, embezzlement, or other criminal misappropriation insurance), in such amounts, and with such coverages and deductibles as are customary for companies similarly situated; and (b) business interruption insurance in an amount not less than $10,000,000, with deductibles satisfactory to Agent.
 
10.1.8.     Material Licenses .  Each Obligor shall and shall ensure that its Subsidiaries keep each Material License in full force and effect; promptly notify Agent of any proposed modification to any such Material License, or entry into any new Material License; pay all Royalties when due; and notify Agent of any default or breach asserted by any Person to have occurred under any Material License.
 
10.1.9.     Future Subsidiaries .  Promptly notify Agent upon any Person becoming a Subsidiary and, if such Person is not a Foreign Subsidiary, within 45 days of the acquisition or creation of such Subsidiary cause it to join this Agreement as a Borrower hereunder in a manner satisfactory to Agent, and to execute and deliver such documents, instruments and agreements and to take such other actions as Agent shall require to evidence and perfect a Lien in favor of Agent (for the benefit of Secured Parties) on all assets of such Person, other than those assets that would constitute Excluded Asset hereunder, including delivery of such legal opinions, in form and substance satisfactory to Agent, as it shall deem appropriate.
 
10.1.10.     Depository Bank .  Maintain Agent or a Lender as its principal depository bank, including for the maintenance of all operating, collection, disbursement and other deposit accounts and for all Cash Management Services; provided, that SRT’s account at Diamond State Bank shall be permitted for sixty (60) days following the Closing Date.
 

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10.1.11.     Termination of the Receivables Securitization .  On or before the Closing Date, Parent and CVTI Receivables shall (a) terminate the revolving credit facility under the Receivables Securitization, so that no further advances shall be made under the Receivables Securitization, (b) terminate the Receivables Purchase Agreement dated December 12, 2000, as amended, and all agreements executed in connection therewith, (c) cause to be delivered to Agent a Termination and Release Agreement from Three Pillars Funding LLC (f/k/a Three Pillars Funding Corporation) in form and substance acceptable to Agent providing for the disposition of Accounts and payments on Accounts after the Closing Date, (d) cause any balance outstanding under the Receivables Securitization to be paid in full, and (e) obtain the release of any liens granted to SunTrust Capital Markets, Inc. (f/k/a SunTrust Equitable Services Corporation) in connection with such Receivables Securitization.  As promptly as practicable, but in any event no later than thirty (30) days following the Closing Date, Borrowers shall  complete the merger into Parent of CVTI Receivables.  From and after the Closing Date, Parent shall cause CVTI Receivables to not own any Property other than the Accounts pledged to SunTrust Capital Markets, Inc. (f/k/a SunTrust Equitable Services Corporation) under the Receivables Securitization.
 
10.1.12.     Post-Closing Obligations .  The Obligors agree to diligently pursue and cause to be delivered each of the items set forth on Schedule 10.1.12 within the respective time periods set forth therein.
 
10.2.     Negative Covenants .   As long as any Commitments or Obligations are outstanding, each Obligor shall not, and shall cause each Subsidiary not to:
 
10.2.1.     Permitted Debt .  Create, incur, guarantee or suffer to exist any Debt, except:
 
(a)     the Obligations;
 
(b)     Permitted Purchase Money Debt;
 
(c)     Borrowed Money (other than the Obligations and Permitted Purchase Money Debt) described on Schedule 10.2.1 , but only to the extent outstanding on the Closing Date and not satisfied with proceeds of the initial Loans;
 
(d)     Bank Product Debt, as long as the Hedging Agreements relating thereto are entered into in the Ordinary Course of Business solely for hedging interest rate risk and not for speculative purposes;
 
(e)     Debt that is in existence when a Person becomes a Subsidiary or that is secured by an asset when such asset is acquired by an Obligor or a Subsidiary of an Obligor, as long as such Debt was not incurred in contemplation of such Person becoming a Subsidiary or such acquisition, and does not exceed $500,000 in the aggregate at any time;
 
(f)     Permitted Contingent Obligations;
 
(g)     Refinancing Debt as long as each Refinancing Condition is satisfied;
 
(h)     Debt arising from Hedging Obligations permitted under Section 10.2.14;
 
(i)     other Debt that is not included in any of the other clauses of this Section, not to exceed $1,000,000   in the aggregate at any time;
 
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(j)     Debt arising under the Daimler Credit Facility, under the terms in effect on the Closing Date or as otherwise approved by Agent;
 
(k)     Debt existing on the Closing Date under the Receivables Securitization, until the Receivables Securitization is paid in full pursuant to Section 10.1.11 ;
 
(l)            Debt permitted under Section 10.2.6 ;
 
(m)          Debt secured by the Real Estate known as the “Chattanooga Body Shop”, provided the aggregate amount of such Debt does not exceed $9,000,000; and
 
(n)     Collateral Refinancing Debt.
 
10.2.2.     Permitted Liens .  Create or suffer to exist any Lien upon any of its Property, except the following (collectively, “ Permitted Liens ”):
 
(a)     Liens in favor of Agent;
 
(b)     Purchase Money Liens securing Permitted Purchase Money Debt;
 
(c)     Liens for Taxes not yet due or being Properly Contested;
 
(d)     statutory Liens (other than Liens for Taxes or imposed under ERISA) arising in the Ordinary Course of Business, but only if (i) payment of the obligations secured thereby is not yet due or is being Properly Contested, and (ii) such Liens do not materially impair the value or use of the Property or materially impair operation of the business of any Obligor or Subsidiary;
 
(e)     Liens incurred or deposits made in the Ordinary Course of Business to secure the performance of tenders, bids, leases, contracts (except those relating to Borrowed Money), statutory obligations and other similar obligations, or arising as a result of progress payments under government contracts, as long as such Liens are at all times junior to Agent’s Liens;
 
(f)     Liens arising in the Ordinary Course of Business that are subject to Lien Waivers;
 
(g)     Liens arising by virtue of a judgment or judicial order against any Obligor or Subsidiary, or any Property of an Obligor or Subsidiary, as long as such Liens are in existence for less than 20 consecutive days or being Properly Contested;
 
(h)     easements, rights-of-way, restrictions, covenants or other agreements of record, and other similar charges or encumbrances on Real Estate, that do not secure any monetary obligation and do not interfere with the Ordinary Course of Business;
 
(i)     normal and customary rights of setoff upon deposits in favor of depository institutions, and Liens of a collecting bank on Payment Items in the course of collection; and
 
(j)     existing Liens shown on Schedule 10.2.2 .
 
(k)     any Lien securing Debt permitted under Section 10.2.1(e) on any Property acquired after the Closing Date and existing prior to the acquisition thereof by any Obligor or a Subsidiary of an Obligor or existing on any Property of any Person that becomes a Subsidiary after the Closing Date that exists prior to the time such Person becomes a Subsidiary; provided that (A) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (B) such Lien shall not apply to any other Property an Obligor or a Subsidiary of an Obligor, (C) such Lien does not extend to any Property arising or acquired after the date of acquisition and (D) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be, and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof (other than with respect to (1) the capitalization of interest and (2) the capitalization of any prepayment premiums payable in respect of the obligations so extended, renewed or replaced);
 
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(l)     Liens arising in connection with Capital Leases permitted under this Agreement provided that no such Lien shall extend to any Property other than assets subject to such Capital Leases;
 
(m)     Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;
 
(n)     Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto;
 
(o)     licenses, sublicenses, leases and subleases entered into in the Ordinary Course of Business and any landlords’ Liens arising under any such leases;
 
(p)     Liens on accounts receivable and proceeds thereof arising in connection with the transfer thereof pursuant to the Receivables Securitization, until the liens granted in connection with the Receivables Securitization are released pursuant to Section 10.1.11 ;
 
(q)     Liens arising under the Daimler Credit Facility and securing Debt permitted under Section 10.2.1(j) ;
 
(r)     other Liens on assets not constituting Collateral securing Debt permitted under Section 10.2.1(i) and (m);
 
(s)     Liens relating to the Receivables Securitization which will be releasing pursuant to Section 10.1.11 ; and
 
(t)     Liens on Refinanced Assets securing Debt permitted under Section 10.2.1(n) .
 
10.2.3.     Distributions; Restrictions on Upstream Payments .  Declare or make any Distributions, except Permitted Distributions; or create or suffer to exist any encumbrance or restriction on the ability of a Subsidiary to make any Upstream Payment, except for restrictions under the Loan Documents, under Applicable Law or in effect on the Closing Date as shown on Schedule 9.1.16 .
 
10.2.4.     Restricted Investments .  Make any Restricted Investment.
 
10.2.5.     Disposition of Assets .  Make any Asset Disposition, except (a) a Permitted Asset Disposition, (b) a disposition of Equipment under Section 8.4.2 , or (c) any other Asset Disposition approved in writing by Agent and Required Lenders, provided that the Net Proceeds from any Asset Disposition made during a Trigger Period shall be remitted to Agent for application against outstanding Obligations; and provided , further , that (i) any Asset Disposition shall in any event be for fair market value and (ii) in no event shall the Obligors be permitted to sell, lease, transfer, or otherwise dispose of all or substantially all of the assets of Borrowers, whether in a single transaction or a series of related transactions; and provided , further , that any Asset Disposition made during a Trigger Period shall only be permitted if, after giving effect thereto, such Asset Disposition shall not create an Overadvance, and Borrowers shall deliver an updated Borrowing Base Certificate (x) if such Asset Disposition constituted a sale of Eligible Real Estate, or (y) if after giving effect to such Asset Disposition, the aggregate gross sales proceeds from all dispositions of Eligible Revenue Equipment since the date of the last Borrowing Base Certificate delivered hereunder is greater than $3,000,000.
 
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10.2.6.     Loans .  Make any loans or other advances of money to any Person, except (a) advances to an officer, director or employee for salary, travel expenses, commissions and similar items in the Ordinary Course of Business; (b) prepaid expenses and extensions of trade credit made in the Ordinary Course of Business; (c) deposits with financial institutions permitted hereunder; (d) so long as no Default or Event of Default exists, intercompany loans by an Obligor or a Subsidiary of an Obligor to another Obligor; (e) loans or advances by any Obligor to VIL (i) in an aggregate amount outstanding at any time of up to $10,000,000 and (ii) in such additional amounts as may be required from time to time to maintain sufficient capital balances required under insurance regulatory standards applicable to VIL; (f) loans or other advances of money existing on the Closing Date shown on Schedule 10.2.6 , and (g) loans made to owner-operator drivers as part of an Obligor’s lease purchase program, the outstanding balance of which will not at any time exceed $100,000 for any individual loan, or $20,000,000 in the aggregate.
 
10.2.7.     Restrictions on Payment of Certain Debt .  Other than Permitted Voluntary Prepayments, make any voluntary prepayment, redemption, retirement, defeasance or acquisition with respect to any (a) Debt outstanding under the Daimler Credit Facility; (b) Debt consisting of Borrowed Money (other than the Obligations and Debt under the Daimler Credit Facility) prior to its due date under the agreements evidencing such Debt as in effect on the Closing Date (or as amended thereafter with the consent of Agent) or in violation of any subordination agreement or subordination terms applicable thereto, if any; or (c) Collateral Refinancing Debt prior to its due date under the agreements evidencing such Debt as in effect on the date of incurrence thereof (as amended thereafter with the consent of the Agent).
 
10.2.8.     Fundamental Changes .  (a) Merge, combine or consolidate with any Person, or liquidate, wind up its affairs or dissolve itself, in each case whether in a single transaction or in a series of related transactions, except (i) for mergers or consolidations of a wholly-owned Subsidiary with another wholly-owned Subsidiary (provided that if any party to such merger is an Obligor, such surviving entity is an Obligor) or into an Obligor (where such Obligor is the surviving entity); (ii) an Obligor may permit another Person to merge or consolidate with such Obligor or a Subsidiary in order to effect an Investment permitted under Section 10.2.4 (provided that the surviving entity is such Obligor or a Subsidiary), (iii) a Subsidiary that is not an Obligor may merge into and consolidate with another Person in order to effect a transaction in which all the Equity Interests of such Subsidiary owned directly or indirectly by an Obligor would be disposed of pursuant to a Permitted Asset Disposition, or (iv) for the merger into Parent of CVTI Receivables pursuant to Section 10.1.11 , or (b) change its name or conduct business under any fictitious name, or (c) without giving Agent at least thirty (30) days prior written notice, change its tax, charter or other organizational identification number, or change its form or state of organization.
 
10.2.9.     Subsidiaries .   (a) Form any Subsidiary after the Closing Date, except for Domestic Subsidiaries that are wholly owned (directly or indirectly) by Parent and as to which the provisions of Section 10.1.9 have been complied with; or (b) permit any existing Subsidiary to issue any additional Equity Interests except Permitted Distributions, director’s qualifying interests, and Equity Interests issued to Obligors constituting Collateral hereunder.
 
10.2.10.     Organic Documents .  Amend, modify or otherwise change any of its Organic Documents as in effect on the Closing Date in a manner materially adverse to the Agent or any Lender without first notifying Agent in writing.
 
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10.2.11.     Tax Consolidation .  File or consent to the filing of any consolidated income tax return with any Person other than Obligors and Subsidiaries.
 
10.2.12.     Accounting Changes .  Make any material change in accounting treatment or reporting practices, except as required by GAAP and in accordance with Section 1.2 ; or change its Fiscal Year.  Change public accountants without prior written notice to Agent.
 
10.2.13.     Restrictive Agreements .  Become a party to any Restrictive Agreement, except (a) a Restrictive Agreement as in effect on the Closing Date and shown on Schedule 9.1.16 ; (b) a Restrictive Agreement relating to secured Debt permitted hereunder, if such restrictions apply only to the collateral for such Debt; and (c) customary provisions in leases, licenses, and other contracts restricting assignment thereof.
 
10.2.14.     Hedging Obligation .  Enter into any agreement in respect of Hedging Obligations, except to hedge risks arising in the Ordinary Course of Business and not for speculative purposes.
 
10.2.15.     Conduct of Business .  Engage in any business, other than its business as conducted on the Closing Date, businesses reasonably related thereto, and any activities incidental thereto.
 
10.2.16.     Affiliate Transactions .  Enter into or be party to any transaction with an Affiliate, except (a) transactions contemplated by the Loan Documents; (b) payment of reasonable compensation to officers and employees for services actually rendered, and loans and advances permitted by Section 10.2.6 ; (c) payment of customary directors’ fees and indemnities; (d) transactions solely among Obligors; (e) transactions with Affiliates that were consummated prior to the Closing Date, as shown on Schedule 10.2.16 ; and (f) transactions with Affiliates in the Ordinary Course of Business, upon fair and reasonable terms fully disclosed to Agent and no less favorable than would be obtained in a comparable arm’s-length transaction with a non-Affiliate.
 
10.2.17.     Equity Issuances .  Without the prior written consent of the Required Lenders, no Borrower shall issue any additional Equity Interests of any class (other than pursuant to any management or employee incentive program) or create any new class of Equity Interests.
 
10.2.18.     Plans .  Become party to any Multiemployer Plan or Foreign Plan, other than any in existence on the Closing Date.
 
10.2.19.     Change of Control .  Cause, suffer or permit to exist or occur any Change of Control.
 
10.2.20.     Partnerships .  Become or be a general partner in any general or limited partnership except any partnership holding, solely, all or a portion of the Equity Interest in Transplace.
 
10.2.21.     Amendments to Certain Documentation .  Amend, supplement or otherwise modify the Daimler Credit Facility, any Collateral Refinancing Debt or any other document, instrument or agreement relating to any Material Debt for Borrowed Money, if such modification (a) increases the principal balance of such Debt, or increases any required payment of principal or interest; (b) accelerates the date on which any installment of principal or any interest is due, or adds any additional redemption, put or prepayment provisions; (c) shortens the final maturity date or otherwise accelerates amortization; (d) increases the interest rate; (e) increases or adds any fees or charges; or (f) modifies any covenant in a manner or adds any representation, covenant or default that is more onerous or restrictive in any material respect for any Borrower or Subsidiary, or that is otherwise materially adverse to any Borrower, Subsidiary or Lenders.  For purposes of this Section 10.2.21 , “Material Debt for Borrowed Money” shall mean Debt for Borrowed Money in the principal amount of $5,000,000 or more.
 
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10.2.22.     Sales and Leasebacks .  Enter into any Sale Leaseback, except for Permitted Sale Leasebacks.
 
10.2.23.     Negative Pledge Clauses .  Enter into or cause, suffer or permit to exist any agreement with any Person other than Agent and Lenders pursuant to this Agreement or any other Loan Documents which prohibits or limits the ability of any Borrower, Parent or any of their Subsidiaries (other than Transplace) to create, incur, assume or suffer to exist any Lien upon any of its Properties, assets or revenues, whether now owned or hereafter acquired, except for Liens on shares acquired in connection with a Permitted Share Repurchase, Liens on any other shares of “margin stock” as such term is defined in Regulation U (12 CFR Part 221) of the Board of Governors of the Federal Reserve System of the United States; provided that any Borrower, Parent and any of their Subsidiaries may enter into such an agreement in connection with any Secured Debt permitted hereunder, provided that such prohibitions and limitations contained in such agreement apply only to the collateral for such Debt.
 
10.2.24.     Volunteer Insurance Limited .  Permit VIL to engage in any business or own any Property other than as may be necessary to conduct its business as a self-insurance vehicle for Obligors and their Subsidiaries.  At all times during the term of this Agreement, Parent shall own all of the Equity Interests in VIL.
 
10.3.     Fixed Charge Coverage Ratio .  At all times during the term hereof, maintain a Fixed Charge Coverage Ratio as of the last day of any month for the immediately preceding Twelve-Month Period of at least 1.0 to 1.0.
 
SECTION 11.     EVENTS OF DEFAULT; REMEDIES ON DEFAULT
 
11.1.     Events of Default .   Each 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:
 
(a)     An Obligor fails to pay any Obligations when due (whether at stated maturity, on demand, upon acceleration or otherwise);
 
(b)     Any representation, warranty or other written statement of an Obligor made in connection with any Loan Documents or transactions contemplated thereby is incorrect or misleading in any material respect when given;
 
(c)     A Borrower breaches or fails to perform any covenant contained in Sections 7.2, 7.3, 7.4, 7.6, 8.1, 8.2.4, 8.2.5, 8.6.2, 10.1.1, 10.1.2, 10.1.3(d), 10.1.11, 10.2 or 10.3 ;
 
(d)     An Obligor breaches or fails to perform any other covenant contained in any Loan Documents, and such breach or failure is not cured within 30 days after a Senior Officer of such Obligor has actual knowledge thereof or receives notice thereof from Agent, whichever is sooner; provided , however , that such notice and opportunity to cure shall not apply if the breach or failure to perform is not capable of being cured within such period or is a willful breach by an Obligor;
 
(e)     A Guarantor repudiates, revokes or attempts to revoke its Guaranty; an Obligor denies or contests the validity or enforceability of any Loan Documents or Obligations, or the perfection or priority of any Lien granted to Agent; or any Loan Document ceases to be in full force or effect for any reason (other than a waiver or release by Agent and Lenders);
 
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(f)     Any breach or default of an Obligor occurs under any document, instrument or agreement to which it is a party or by which it or any of its Properties is bound relating to any Debt (other than the Obligations) in excess of $1,000,000, if the maturity of or any payment with respect to such Debt may be accelerated or demanded due to such breach;
 
(g)     Any judgment or order for the payment of money is entered against an Obligor in an amount that exceeds, individually or cumulatively with all unsatisfied judgments or orders against all Obligors, $500,000 (net of any insurance coverage (including Obligors’ self-insured retention) therefor acknowledged in writing by the insurer), and either (i) enforcement proceedings shall have been commenced upon such judgment or order and such enforcement proceeding shall have not been stayed or (ii) such judgment, order or enforcement proceeding remains unpaid, unstayed, undischarged, unbonded or undismissed for a period of 30 days or more;
 
(h)     A loss, casualty, theft, damage or destruction occurs with respect to any Collateral if the amount not covered by insurance exceeds $1,000,000;
 
(i)     An Obligor is enjoined, restrained or in any way prevented by any Governmental Authority from conducting any material part of its business; an Obligor suffers the loss, revocation or termination of any Material License, permit, lease or agreement necessary for the continued operation of its business; there is a cessation of any material part of an Obligor’s business for a material period of time; any material Collateral or Property of an Obligor is taken or impaired through condemnation with the effect that such Obligor is unable to continue operating its business for a material period of time;
 
(j)     An Obligor agrees to or commences any liquidation, dissolution or winding up of its affairs, or the Obligors taken as a whole, cease to be Solvent;
 
(k)     An Insolvency Proceeding is commenced by an Obligor; an Obligor makes an offer of settlement, extension or composition to its unsecured creditors generally; a trustee, receiver, interim receiver, receiver and manager, monitor or similar official is appointed to take possession of any substantial Property of or to operate any of the business of an Obligor; or an Insolvency Proceeding is commenced against an Obligor and the Obligor consents to institution of the proceeding, the petition commencing the proceeding is not timely controverted by the Obligor, the petition is not dismissed within 60 days after filing, or an order for relief is entered in the proceeding;
 
(l)     An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan that has resulted or could reasonably be expected to result in liability of an Obligor to a Pension Plan, Multiemployer Plan or PBGC, or that constitutes grounds for appointment of a trustee for or termination by the PBGC of any Pension Plan or Multiemployer Plan; an Obligor or ERISA Affiliate fails to pay when due any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan; or any event similar to the foregoing occurs or exists with respect to a Foreign Plan;
 
(m)     An Obligor or any of its Senior Officers is criminally indicted or convicted for (i) a felony committed in the conduct of the Obligor’s business, or (ii) violating any state or federal law (including the Controlled Substances Act, Money Laundering Control Act of 1986 and Illegal Exportation of War Materials Act) that could lead to forfeiture of any material Property of an Obligor or any Collateral; or
 
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(n)     A Change of Control occurs; or any event occurs or condition exists that has a Material Adverse Effect.
 
11.2.     Remedies upon Default .   If an Event of Default described in Section 11.1(k) occurs with respect any Obligor, then to the extent permitted by Applicable Law, all Obligations shall become automatically due and payable and all Commitments shall terminate, without any action by Agent or notice of any kind.  In addition, or if any other Event of Default exists, Agent may in its discretion (and shall upon written direction of Required Lenders) do any one or more of the following from time to time:
 
(a)     declare any Obligations immediately due and payable, whereupon they shall be due and payable without diligence, presentment, demand, protest or notice of any kind, all of which are hereby waived by Obligors to the fullest extent permitted by law;
 
(b)     terminate, reduce or condition any Commitment, or make any adjustment to the Borrowing Base;
 
(c)     require Obligors to Cash Collateralize LC Obligations, Bank Product Debt and other Obligations that are contingent or not yet due and payable, and, if Obligors fail promptly to deposit such Cash Collateral, Agent may (and shall upon the direction of Required Lenders) advance the required Cash Collateral as Revolver Loans (whether or not an Overadvance exists or is created thereby, or the conditions in Section 6 are satisfied); and
 
(d)     exercise any other rights or remedies afforded under any agreement, by law, at equity or otherwise, including the rights and remedies of a secured party under the UCC.  Such rights and remedies include the rights to (i) take possession of any Collateral; (ii) require Obligors to assemble Collateral, at Obligors’ expense, and make it available to Agent at a place designated by Agent; (iii) enter any premises where Collateral is located and store Collateral on such premises until sold (and if the premises are owned or leased by an Obligor, Obligors agree not to charge for such storage); and (iv) sell or otherwise dispose of any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale, with such notice as may be required by Applicable Law, in lots or in bulk, at such locations, all as Agent, in its discretion, deems advisable.  Each Obligor agrees that ten (10) days notice of any proposed sale or other disposition of Collateral by Agent shall be reasonable.  Agent shall have the right to conduct such sales on any Obligor’s premises, without charge, and such sales may be adjourned from time to time in accordance with Applicable Law.  Agent shall have the right to sell, lease or otherwise dispose of any Collateral for cash, credit or any combination thereof, and Agent may purchase any Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of the purchase price, may set off the amount of such price against the Obligations.
 
11.3.     License .   For the purpose of enabling Agent, during the continuance of an Event of Default, to exercise the rights and remedies under Section 11.2 at such time as Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, each Obligor hereby grants to Agent, to the extent assignable by such Obligor, an irrevocable, non-exclusive license (subject, (a) in the case of Trademarks, to sufficient rights to quality control and inspection in favor of such Obligor to avoid the risk of invalidation of such Trademarks, and (b) in the case of Trade Secrets, to an obligation of Agent to take steps reasonable under the circumstances to keep the Trade Secrets confidential to avoid the risk of invalidation of such Trade Secrets) or other right to use, license or sub-license (without payment of royalty or other compensation to any Person) any or all Intellectual Property owned by Obligors in advertising for sale, marketing, selling, collecting, completing manufacture of, or otherwise exercising any rights or remedies with respect to, any Collateral.  The license granted in this Section 11.3 shall continue in full force and effect until Full Payment of the Obligations and termination of this Agreement in accordance with its terms, at which time such license shall immediately terminate.
 
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11.4.     Setoff .   At any time during an Event of Default, Agent, Issuing Bank, Lenders, and any of their Affiliates are authorized, to the fullest extent permitted by Applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by Agent, Issuing Bank, such Lender or such Affiliate to or for the credit or the account of an Obligor against any Obligations, irrespective of whether or not Agent, Issuing Bank, such Lender or such Affiliate shall have made any demand under this Agreement or any other Loan Document and although such Obligations may be contingent or unmatured or are owed to a branch or office of Agent, Issuing Bank, such Lender or such Affiliate different from the branch or office holding such deposit or obligated on such indebtedness.  The rights of Agent, Issuing Bank, each Lender and each such Affiliate under this Section are in addition to other rights and remedies (including other rights of setoff) that such Person may have.
 
11.5.     Remedies Cumulative; No Waiver .
 
11.5.1.     Cumulative Rights .  All covenants, conditions, provisions, warranties, guaranties, indemnities and other undertakings of Obligors contained in the Loan Documents are cumulative and not in derogation or substitution of each other.  In particular, the rights and remedies of Agent and Lenders are cumulative, may be exercised at any time and from time to time, concurrently or in any order, and shall not be exclusive of any other rights or remedies that Agent and Lenders may have, whether under any agreement, by law, at equity or otherwise.
 
11.5.2.     Waivers .  The failure or delay of Agent or any Lender to require strict performance by any Obligor with any terms of the Loan Documents, or to exercise any rights or remedies with respect to Collateral or otherwise, shall not operate as a waiver thereof nor as establishment of a course of dealing.  All rights and remedies shall continue in full force and effect until Full Payment of all Obligations.  No modification of any terms of any Loan Documents (including any waiver thereof) shall be effective, unless such modification is specifically provided in a writing directed to Borrowers and executed by Agent or the requisite Lenders, and such modification shall be applicable only to the matter specified.  No waiver of any Default or Event of Default shall constitute a waiver of any other Default or Event of Default that may exist at such time, unless expressly stated.  If Agent or any Lender accepts performance by any Obligor under any Loan Documents in a manner other than that specified therein, or during any Default or Event of Default, or if Agent or any Lender shall delay or exercise any right or remedy under any Loan Documents, such acceptance, delay or exercise shall not operate to waive any Default or Event of Default nor to preclude exercise of any other right or remedy.  It is expressly acknowledged by Obligors that any failure to satisfy a financial covenant on a measurement date shall not be cured or remedied by satisfaction of such covenant on a subsequent date.
 
SECTION 12.     AGENT
 
12.1.     Appointment, Authority and Duties of Agent .
 
12.1.1.     Appointment and Authority .  Each Lender appoints and designates Bank of America as Agent hereunder.  Agent may, and each Lender authorizes Agent to, enter into all Loan Documents to which Agent is intended to be a party and accept all Security Documents, for Agent’s benefit and the Pro Rata benefit of Lenders.  Each Lender agrees that any action taken by Agent or Required Lenders in accordance with the provisions of the Loan Documents, and the exercise by Agent or Required Lenders of any rights or remedies set forth therein, together with all other powers reasonably incidental thereto, shall be authorized by and binding upon all Lenders.  Without limiting the generality of the foregoing, Agent shall have the sole and exclusive authority to (a) act as the disbursing and collecting agent for Lenders with respect to all payments and collections arising in connection with the Loan Documents; (b) execute and deliver as Agent each Loan Document and accept delivery of each Loan Document from any Obligor or other Person; (c) act as collateral agent for Secured Parties for purposes of perfecting and administering Liens under the Loan Documents, and for all other purposes stated therein; (d) manage, supervise or otherwise deal with Collateral; and (e) take any Enforcement Action or otherwise exercise any rights or remedies with respect to any Collateral under the Loan Documents, Applicable Law or otherwise.  The duties of Agent shall be ministerial and administrative in nature, and Agent shall not have a fiduciary relationship with any Lender, Secured Party, Participant or other Person, by reason of any Loan Document or any transaction relating thereto.  Agent alone shall be authorized to determine whether any Accounts or Revenue Equipment constitute Eligible Accounts or Eligible Revenue Equipment, whether to impose or release any reserve, and to exercise its Credit Judgment, if applicable, in connection therewith, which determinations and judgments, if exercised in good faith, shall exonerate Agent from liability to any Lender or other Person for any error in judgment.
 
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12.1.2.     Duties .  Agent shall not have any duties except those expressly set forth in the Loan Documents.  The conferral upon Agent of any right shall not imply a duty on Agent’s part to exercise such right, unless instructed to do so by Required Lenders in accordance with this Agreement.
 
12.1.3.     Agent Professionals .  Agent may perform its duties through agents and employees.  Agent may consult with and employ Agent Professionals, and shall be entitled to act upon, and shall be fully protected in any action taken in good faith reliance upon, any advice given by an Agent Professional.  Agent shall not be responsible for the negligence or misconduct of any agents, employees or Agent Professionals selected by it with reasonable care.
 
12.1.4.     Instructions of Required Lenders .  The rights and remedies conferred upon Agent under the Loan Documents may be exercised without the necessity of joinder of any other party, unless required by Applicable Law.  Agent may request instructions from Required Lenders with respect to any act (including the failure to act) in connection with any Loan Documents, and may seek assurances to its satisfaction from Lenders of their indemnification obligations under Section 12.6 against all Claims that could be incurred by Agent in connection with any act.  Agent shall be entitled to refrain from any act until it has received such instructions or assurances, and Agent shall not incur liability to any Person by reason of so refraining.  Instructions of Required Lenders shall be binding upon all Lenders, and no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting in accordance with the instructions of Required Lenders.  Notwithstanding the foregoing, instructions by and consent of all Lenders shall be required in the circumstances described in Section 14.1.1 , and in no event shall Required Lenders, without the prior written consent of each Lender, direct Agent to accelerate and demand payment of Loans held by one Lender without accelerating and demanding payment of all other Loans, nor to terminate the Commitments of one Lender without terminating the Commitments of all Lenders.  In no event shall Agent be required to take any action that, in its opinion, is contrary to Applicable Law or any Loan Documents or could subject any Agent Indemnitee to personal liability.
 
12.2.     Agreements Regarding Collateral and Field Examination Reports .
 
12.2.1.     Lien Releases; Care of Collateral .  Lenders hereby irrevocably agree that the Liens granted to Agent by the Obligors on any Collateral shall be automatically released (a) in the case of all Obligors, in full, upon Full Payment, (b) upon the sale or other disposition of such Collateral (including as part of or in connection with any other sale or other disposition permitted hereunder) to any Person other than another Obligor to the extent such sale or other disposition is made in compliance with the terms of this Agreement (and Agent may rely conclusively on a certificate to that effect provided to it by any Obligor upon its reasonable request without further inquiry), (c) to the extent such Collateral is comprised of property leased to an Obligor, upon termination or expiration of such lease, (d) if the release of such Lien is approved, authorized or ratified in writing by the Required Lenders (or such other percentage of Lenders whose consent may be required in accordance with Section 14.1.1 ), (e) to the extent the Property constituting such Collateral is owned by any Subsidiary, upon the release of such Subsidiary from its obligations under this Agreement upon a disposition of such Subsidiary permitted under the terms of this Agreement (it being understood that any such disposed of Subsidiary shall be released from all of its obligations under the Loan Documents in connection therewith), (f) as required to effect any sale or other disposition of Collateral in connection with any exercise of remedies of Agent pursuant to the Security Documents, and (g) in connection with any election by an Obligor to have any items of Collateral serve as collateral for Collateral Refinancing Debt or be sold in connection with a Permitted Sale Leaseback, with the result that the value of each such item of Collateral is not included in calculating Availability under the Revolving Credit Facility.  Lenders hereby authorize Agent to execute and deliver any instruments, documents, and agreements necessary or desirable to evidence and confirm the release of any Subsidiary or Collateral pursuant to the foregoing provisions of this paragraph, all without the further consent or joinder of any Lender.  Agent shall have no obligation whatsoever to any Lenders to assure that any Collateral exists or is owned by an Obligor, or is cared for, protected, insured or encumbered, nor to assure that Agent's Liens have been properly created, perfected or enforced, or are entitled to any particular priority, nor to exercise any duty of care with respect to any Collateral.
 
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12.2.2.     Possession of Collateral .  Agent and Lenders appoint each other Lender as agent for the purpose of perfecting Liens (for the benefit of Secured Parties) in any Collateral that, under the UCC or other Applicable Law, can be perfected by possession.  If any Lender obtains possession of any such Collateral, it shall notify Agent thereof and, promptly upon Agent’s request, deliver such Collateral to Agent or otherwise deal with such Collateral in accordance with Agent’s instructions.
 
12.2.3.     Reports .  Agent shall promptly, upon receipt thereof, forward to each Lender copies of the results of any field audit, examination or appraisal prepared by or on behalf of Agent with respect to any Obligor or Collateral, together with any other reports or other collateral information obtained by Agent from Borrower and requested by a Lender (collectively, a “ Report ”).  Each Lender agrees (a) that neither Bank of America nor Agent makes any representation or warranty as to the accuracy or completeness of any Report, and shall not be liable for any information contained in or omitted from any Report; (b) that the Reports are not intended to be comprehensive audits or examinations, and that Agent or any other Person performing any audit or examination will inspect only specific information regarding Obligations or the Collateral and will rely significantly upon Borrowers’ books and records as well as upon representations of Borrowers’ officers and employees; and (c) to keep all Reports confidential and strictly for such Lender’s internal use, and not to distribute any Report (or the contents thereof) to any Person (except to such Lender’s Participants, attorneys, accountants, affiliates, employees, Governmental Authorities having regulatory oversight over Lender, or otherwise if compelled by legal process) or use any Report in any manner other than administration of the Loans and other Obligations.  Each Lender agrees to indemnify and hold harmless Agent and any other Person preparing a Report from any action such Lender may take as a result of or any conclusion it may draw from any Report, as well as any Claims arising in connection with any third parties that obtain any part or contents of a Report through such Lender.
 
12.3.     Reliance By Agent .   Agent shall be entitled to rely, and shall be fully protected in relying, upon any certification, notice or other communication (including those by telephone, telex, telegram, telecopy or e-mail) believed by it to be genuine and correct and to have been signed, sent or made by the proper Person, and upon the advice and statements of Agent Professionals.
 
12.4.     Action Upon Default .   Agent shall not be deemed to have knowledge of any Default or Event of Default unless it has received written notice from a Lender or Borrower Agent specifying the occurrence and nature thereof.  If any Lender acquires knowledge of a Default or Event of Default, it shall promptly notify Agent and the other Lenders thereof in writing.  Each Lender agrees that, except as otherwise provided in any Loan Documents or with the written consent of Agent and Required Lenders, it will not take any Enforcement Action, accelerate Obligations under any Loan Documents, or exercise any right that it might otherwise have under Applicable Law to credit bid at foreclosure sales, UCC sales or other similar dispositions of Collateral.  Notwithstanding the foregoing, however, a Lender may take action to preserve or enforce its rights against an Obligor where a deadline or limitation period is applicable that would, absent such action, bar enforcement of Obligations held by such Lender, including the filing of proofs of claim in an Insolvency Proceeding.
 
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12.5.     Ratable Sharing .   If any Lender shall obtain any payment or reduction of any Obligation, whether through set-off or otherwise, in excess of its share of such Obligation, determined on a Pro Rata basis or in accordance with Section 5.5.1 , as applicable, such Lender shall forthwith purchase from Agent, Issuing Bank and the other Lenders such participations in the affected Obligation as are necessary to cause the purchasing Lender to share the excess payment or reduction on a Pro Rata basis or in accordance with Section 5.5.1 , as applicable.  If any of such payment or reduction is thereafter recovered from the purchasing Lender, the purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.  No Lender shall set off against any Dominion Account without the prior consent of Agent.
 
12.6.     Indemnification of Agent Indemnitees .   EACH LENDER SHALL INDEMNIFY AND HOLD HARMLESS AGENT INDEMNITEES, TO THE EXTENT NOT REIMBURSED BY OBLIGORS (BUT WITHOUT LIMITING THE INDEMNIFICATION OBLIGATIONS OF OBLIGORS UNDER ANY LOAN DOCUMENTS), ON A PRO RATA BASIS, AGAINST ALL CLAIMS THAT MAY BE INCURRED BY OR ASSERTED AGAINST ANY AGENT INDEMNITEE, PROVIDED THE CLAIM RELATES TO OR ARISES FROM AN AGENT INDEMNITEE ACTING AS OR FOR AGENT (IN ITS CAPACITY AS AGENT).   In Agent’s discretion, it may reserve for any such Claims made against an Agent Indemnitee, and may satisfy any judgment, order or settlement relating thereto, from proceeds of Collateral prior to making any distribution of Collateral proceeds to Lenders.  If Agent is sued by any receiver, bankruptcy trustee, debtor-in-possession or other Person for any alleged preference or fraudulent transfer, then any monies paid by Agent in settlement or satisfaction of such proceeding, together with all interest, costs and expenses (including attorneys’ fees) incurred in the defense of same, shall be promptly reimbursed to Agent by each Lender to the extent of its Pro Rata share. In no event shall any Lender have any obligation to indemnify or hold harmless an Indemnitee with respect to a Claim that is determined in a final, non-appealable judgment by a court of competent jurisdiction to result from the gross negligence or willful misconduct of such Indemnitee.
 
12.7.     Limitation on Responsibilities of Agent .   Agent shall not be liable to Lenders for any action taken or omitted to be taken under the Loan Documents, except for losses directly and solely caused by Agent’s gross negligence or willful misconduct.  Agent does not assume any responsibility for any failure or delay in performance or any breach by any Obligor or Lender of any obligations under the Loan Documents.  Agent does not make to Lenders any express or implied warranty, representation or guarantee with respect to any Obligations, Collateral, Loan Documents or Obligor.  No Agent Indemnitee shall be responsible to Lenders for any recitals, statements, information, representations or warranties contained in any Loan Documents; the execution, validity, genuineness, effectiveness or enforceability of any Loan Documents; the genuineness, enforceability, collectibility, value, sufficiency, location or existence of any Collateral, or the validity, extent, perfection or priority of any Lien therein; the validity, enforceability or collectibility of any Obligations; or the assets, liabilities, financial condition, results of operations, business, creditworthiness or legal status of any Obligor or Account Debtor.  No Agent Indemnitee shall have any obligation to any Lender to ascertain or inquire into the existence of any Default or Event of Default, the observance or performance by any Obligor of any terms of the Loan Documents, or the satisfaction of any conditions precedent contained in any Loan Documents.
 
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12.8.     Successor Agent and Co-Agents .
 
12.8.1.     Resignation; Successor Agent .  Subject to the appointment and acceptance of a successor Agent as provided below, Agent may resign at any time by giving at least 30 days written notice thereof to Lenders and Borrowers.  Upon receipt of such notice, Required Lenders shall have the right to appoint a successor Agent which shall be (a) a Lender or an Affiliate of a Lender; or (b) a commercial bank that is organized under the laws of the United States or any state or district thereof, has a combined capital surplus of at least $200,000,000 and (provided no Default or Event of Default exists) is reasonably acceptable to Borrowers.  If no successor agent is appointed prior to the effective date of the resignation of Agent, then Agent may appoint a successor agent from among Lenders.  Upon acceptance by a successor Agent of an appointment to serve as Agent hereunder, such successor Agent shall thereupon succeed to and become vested with all the powers and duties of the retiring Agent without further act, and the retiring Agent shall be discharged from its duties and obligations hereunder but shall continue to have the benefits of the indemnification set forth in Sections 12.6 and 14.2 .  Notwithstanding any Agent’s resignation, the provisions of this Section 12 shall continue in effect for its benefit with respect to any actions taken or omitted to be taken by it while Agent.  Any successor to Bank of America by merger or acquisition of stock or this loan shall continue to be Agent hereunder without further act on the part of the parties hereto, unless such successor resigns as provided above.
 
12.8.2.     Separate Collateral Agent .  It is the intent of the parties that there shall be no violation of any Applicable Law denying or restricting the right of financial institutions to transact business in any jurisdiction.  If Agent believes that it may be limited in the exercise of any rights or remedies under the Loan Documents due to any Applicable Law, Agent may appoint an additional Person who is not so limited, as a separate collateral agent or co-collateral agent.  If Agent so appoints a collateral agent or co-collateral agent, each right and remedy intended to be available to Agent under the Loan Documents shall also be vested in such separate agent.  Every covenant and obligation necessary to the exercise thereof by such agent shall run to and be enforceable by it as well as Agent.  Lenders shall execute and deliver such documents as Agent deems appropriate to vest any rights or remedies in such agent.  If any collateral agent or co-collateral agent shall die or dissolve, become incapable of acting, resign or be removed, then all the rights and remedies of such agent, to the extent permitted by Applicable Law, shall vest in and be exercised by Agent until appointment of a new agent.
 
12.9.     Due Diligence and Non-Reliance .   Each Lender acknowledges and agrees that it has, independently and without reliance upon Agent or any other Lenders, and based upon such documents, information and analyses as it has deemed appropriate, made its own credit analysis of each Obligor and its own decision to enter into this Agreement and to fund Loans and participate in LC Obligations hereunder.  Each Lender has made such inquiries concerning the Loan Documents, the Collateral and each Obligor as such Lender feels necessary.  Each Lender further acknowledges and agrees that the other Lenders and Agent have made no representations or warranties concerning any Obligor, any Collateral or the legality, validity, sufficiency or enforceability of any Loan Documents or Obligations.  Each Lender will, independently and without reliance upon the other Lenders or Agent, and based upon such financial statements, documents and information as it deems appropriate at the time, continue to make and rely upon its own credit decisions in making Loans and participating in LC Obligations, and in taking or refraining from any action under any Loan Documents.  Except for notices, reports and other information expressly requested by a Lender, Agent shall have no duty or responsibility to provide any Lender with any notices, reports or certificates furnished to Agent by any Obligor or any credit or other information concerning the affairs, financial condition, business or Properties of any Obligor (or any of its Affiliates) which may come into possession of Agent or any of Agent’s Affiliates.
 

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12.10.     Replacement of Certain Lenders .   If a Lender (a) fails to fund its Pro Rata share of any Loan or LC Obligation hereunder, and such failure is not cured within two (2) Business Days, (b) defaults in performing any of its obligations under the Loan Documents, or (c) fails to give its consent to any amendment, waiver or action for which consent of all Lenders was required and Required Lenders consented, then, in addition to any other rights and remedies that any Person may have, Agent may, by notice to such Lender within 120 days after such event, require such Lender to assign all of its rights and obligations under the Loan Documents to Eligible Assignee(s) specified by Agent, pursuant to appropriate Assignment and Acceptance(s) and within 20 days after Agent’s notice.  Agent is irrevocably appointed as attorney-in-fact to execute any such Assignment and Acceptance if a Lender fails to execute same.  Such Lender shall be entitled to receive, in cash, concurrently with such assignment, all amounts owed to it under the Loan Documents, including all principal, interest and fees through the date of assignment (but excluding any prepayment charge).  All fees, cost and expenses (including any assignment or processing fee due to Agent) associated with an assignment pursuant to this Section 12.10 shall be paid by Borrowers.
 
12.11.     Remittance of Payments and Collections .
 
12.11.1.     Remittances Generally .  All payments by any Lender to Agent shall be made by the time and on the day set forth in this Agreement, in immediately available funds.  If no time for payment is specified or if payment is due on demand by Agent and request for payment is made by Agent by 11:00 a.m. on a Business Day, payment shall be made by Lender not later than 2:00 p.m. on such day, and if request is made after 11:00 a.m., then payment shall be made by 11:00 a.m. on the next Business Day.  Payment by Agent to any Lender shall be made by wire transfer, in the type of funds received by Agent.  Any such payment shall be subject to Agent’s right of offset for any amounts due from such Lender under the Loan Documents.
 
12.11.2.     Failure to Pay .  If any Lender fails to pay any amount when due by it to Agent pursuant to the terms hereof, such amount shall bear interest from the due date until paid at the rate determined by Agent as customary in the banking industry for interbank compensation.  In no event shall Borrowers be entitled to receive credit for any interest paid by a Lender to Agent.
 
12.11.3.     Recovery of Payments .  If Agent pays any amount to a Lender in the expectation that a related payment will be received by Agent from an Obligor and such related payment is not received, then Agent may recover such amount from each Lender that received it.  If Agent determines at any time that an amount received under any Loan Document must be returned to an Obligor or paid to any other Person pursuant to Applicable Law or otherwise, then, notwithstanding any other term of any Loan Document, Agent shall not be required to distribute such amount to any Lender.  If any amounts received and applied by Agent to any Obligations are later required to be returned by Agent pursuant to Applicable Law, each Lender shall pay to Agent, on demand , such Lender’s Pro Rata share of the amounts required to be returned.
 
12.12.     Agent in its Individual Capacity .   As a Lender, Bank of America shall have the same rights and remedies under the other Loan Documents as any other Lender, and the terms “Lenders,” “Required Lenders” or any similar term shall include Bank of America in its capacity as a Lender.  Each of Bank of America and its Affiliates may accept deposits from, maintain deposits or credit balances for, invest in, lend money to, provide Bank Products to, act as trustee under indentures of, serve as financial or other advisor to, and generally engage in any kind of business with, Obligors and their Affiliates, as if Bank of America were any other bank, without any duty to account therefor (including any fees or other consideration received in connection therewith) to the other Lenders.  In their individual capacity, Bank of America and its Affiliates may receive information regarding Obligors, their Affiliates and their Account Debtors (including information subject to confidentiality obligations), and each Lender agrees that Bank of America and its Affiliates shall be under no obligation to provide such information to Lenders, if acquired in such individual capacity and not as Agent hereunder.
 
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12.13.     Agent Titles .  Each Lender, other than Bank of America, that is designated (on the cover page of this Agreement or otherwise) by Bank of America as an “Agent” or “Arranger” of any type shall not have any right, power, responsibility or duty under any Loan Documents other than those applicable to all Lenders, and shall in no event be deemed to have any fiduciary relationship with any other Lender.
 
12.14.     No Third Party Beneficiaries .   This Section 12 is an agreement solely among Lenders and Agent, and shall survive Full Payment of the Obligations.  This Section 12 does not confer any rights or benefits upon any Obligor or any other Person.  As between Obligors and Agent, any action that Agent may take under any Loan Documents or with respect to any Obligations shall be conclusively presumed to have been authorized and directed by Lenders.
 
SECTION 13.       BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS
 
13.1.     Successors and Assigns .   This Agreement shall be binding upon and inure to the benefit of Borrowers, Agent, Lenders, and their respective successors and permitted assigns, except that (a) no Borrower shall have the right to assign its rights or delegate its obligations under any Loan Documents; and (b) any assignment by a Lender must be made in compliance with Section 13.3 .  Agent may treat the Person which made any Loan as the owner thereof for all purposes until such Person makes an assignment in accordance with Section 13.3 .  Any authorization or consent of a Lender shall be conclusive and binding on any subsequent transferee or assignee of such Lender.
 
13.2.     Participations .
 
13.2.1.     Permitted Participants; Effect .  Any Lender may, in the ordinary course of its business and in accordance with Applicable Law, at any time sell to a financial institution (“Participant”) a participating interest in the rights and obligations of such Lender under any Loan Documents.  Despite any sale by a Lender of participating interests to a Participant, such Lender’s obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for performance of such obligations, such Lender shall remain the holder of its Loans and Commitments for all purposes, all amounts payable by Borrowers shall be determined as if such Lender had not sold such participating interests, and Borrowers and Agent shall continue to deal solely and directly with such Lender in connection with the Loan Documents.  Each Lender shall be solely responsible for notifying its Participants of any matters under the Loan Documents, and Agent and the other Lenders shall not have any obligation or liability to any such Participant.  A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 5.8 unless Borrowers agree otherwise in writing.
 
13.2.2.     Voting Rights . Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, waiver or other modification of any Loan Documents other than that which forgives principal, interest or fees, reduces the stated interest rate or fees payable with respect to any Loan or Commitment in which such Participant has an interest, postpones the Commitment Termination Date or any date fixed for any regularly scheduled payment of principal, interest or fees on such Loan or Commitment, or releases any Borrower, Guarantor or substantial portion of the Collateral.
 
13.2.3.     Benefit of Set-Off .  Borrowers agree that each Participant shall have a right of set-off in respect of its participating interest to the same extent as if such interest were owing directly to a Lender, and each Lender shall also retain the right of set-off with respect to any participating interests sold by it.  By exercising any right of set-off, a Participant agrees to share with Lenders all amounts received through its set-off, in accordance with Section 12.5 as if such Participant were a Lender.
 
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13.3.     Assignments .
 
13.3.1.     Permitted Assignments .  A Lender may assign to an Eligible Assignee any of its rights and obligations under the Loan Documents, as long as (a) each assignment is of a constant, and not a varying, percentage of the transferor Lender’s rights and obligations under the Loan Documents and, in the case of a partial assignment, is in a minimum principal amount of $5,000,000 (unless otherwise agreed by Agent in its discretion) and integral multiples of $1,000,000 in excess of that amount; (b) except in the case of an assignment in whole of a Lender’s rights and obligations, the aggregate amount of the Commitments retained by the transferor Lender is at least $5,000,000 (unless otherwise agreed by Agent in its discretion); and (c) the parties to each such assignment shall execute and deliver to Agent, for its acceptance and recording, an Assignment and Acceptance.  Nothing herein shall limit the right of a Lender to pledge or assign any rights under the Loan Documents to (i) any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors and any Operating Circular issued by such Federal Reserve Bank, or (ii) counterparties to swap agreements relating to any Loans; provided , however , that any payment by Borrowers to the assigning Lender in respect of any Obligations assigned as described in this sentence shall satisfy Borrowers’ obligations hereunder to the extent of such payment, and no such assignment shall release the assigning Lender from its obligations hereunder.
 
13.3.2.     Effect; Effective Date .  Upon delivery to Agent of an assignment notice in the form of Exhibit D and a processing fee of $3,500 (unless otherwise agreed by Agent in its discretion), the assignment shall become effective as specified in the notice, if it complies with this Section 13.3 .  From such effective date, the Eligible Assignee shall for all purposes be a Lender under the Loan Documents, and shall have all rights and obligations of a Lender thereunder.  Upon consummation of an assignment, the transferor Lender, Agent and Borrowers shall make appropriate arrangements for issuance of replacement and/or new Notes, as applicable.  The transferee Lender shall comply with Section 5.9 and deliver, upon request, an administrative questionnaire satisfactory to Agent.
 
13.3.3.     Loan Register .  The Agent shall maintain at one of its offices a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Obligations owing to, each Lender pursuant to the terms hereof from time to time (the “ Register ”).  The entries in the Register shall be conclusive, and the Borrowers, the Agent, the Issuing Bank and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.   The Register shall be available for inspection by the Borrowers, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
 
SECTION 14.     MISCELLANEOUS
 
14.1.     Consents, Amendments and Waivers .
 
14.1.1.     Amendment .  No modification of any Loan Document, including any extension or amendment of a Loan Document or any waiver of a Default or Event of Default, shall be effective without the prior written agreement of Agent (with the consent of Required Lenders) and each Obligor party to such Loan Document; provided, however, that
 
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(a)     without the prior written consent of Agent, no modification shall be effective with respect to any provision in a Loan Document that relates to any rights, duties or discretion of Agent;
 
(b)     without the prior written consent of Issuing Bank, no modification shall be effective with respect to any LC Obligations or Section 2.2 ;
 
(c)     without the prior written consent of each affected Lender, no modification shall be effective that would (i) increase the Commitment of such Lender; or (ii) reduce the amount of, or waive or delay payment of, any principal, interest or fees payable to such Lender; and
 
(d)     without the prior written consent of all Lenders (except a defaulting Lender as provided in Section 4.2 ), no modification shall be effective that would (i) extend the Revolver Termination Date; (ii) alter Section 2.3, 5.5, 7.1 (except to add Collateral) or 14.1.1 ; (iii) amend the definitions of Borrowing Base (and the defined terms used in such definition), Pro Rata, Revolving Credit Facility or Required Lenders; (iv) increase any advance rate, decrease the Availability Block or increase total Commitments; (vi) release Collateral with a book value greater than $1,000,000 during any calendar year, except as currently contemplated by the Loan Documents, including, without limitation, as contemplated by Section 12.2.1 of this Agreement; or (vii) release any Obligor from liability for any Obligations, if such Obligor is Solvent at the time of the release.
 
14.1.2.     Limitations .   The agreement of Borrowers shall not be necessary to the effectiveness of any modification of a Loan Document that deals solely with the rights and duties of Lenders, Agent and/or Issuing Bank as among themselves.  Notwithstanding Section 14.1.1 , only the consent of the parties to the Fee Letter, any Lien Waiver, Deposit Account Control Agreement, or any agreement relating to a Bank Product shall be required for any modification of such agreement, and no Affiliate of a Lender that is party to a Bank Product agreement shall have any other right to consent to or participate in any manner in modification of any other Loan Document.  The making of any Loans during the existence of a Default or Event of Default shall not be deemed to (i) constitute a waiver of such Default or Event of Default or (ii) establish a course of dealing.  Any waiver or consent granted by Lenders hereunder shall be effective only if in writing, and then only in the specific instance and for the specific purpose for which it is given.  Notwithstanding any of the foregoing, Agent, acting in its sole discretion, reasonably exercised, and the Obligors may (without the consent of any Lender) amend or supplement this Agreement and the other Loan Documents to cure any ambiguity, defect or inconsistency or to make a modification of a minor, consistency or technical nature or to correct a manifest error.
 
14.1.3.     Payment for Consents .  No Borrower will, directly or indirectly, pay any remuneration or other thing of value, whether by way of additional interest, fee or otherwise, to any Lender (in its capacity as a Lender hereunder) as consideration for agreement by such Lender with any modification of any Loan Documents, unless such remuneration or value is concurrently paid, on the same terms, on a Pro Rata basis to all Lenders providing their consent.
 
14.2.     Indemnity .   EACH OBLIGOR SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES AGAINST ANY CLAIMS THAT MAY BE INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE, INCLUDING CLAIMS ARISING FROM THE NEGLIGENCE OF AN INDEMNITEE.   In no event shall any party to a Loan Document have any obligation thereunder to indemnify or hold harmless an Indemnitee with respect to a Claim that is determined in a final, non-appealable judgment by a court of competent jurisdiction to result from the gross negligence or willful misconduct of such Indemnitee.
 

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14.3.     Notices and Communications .
 
14.3.1.     Notice Address .  Subject to Section 4.1.4 , all notices and other communications by or to a party hereto shall be in writing and shall be given to any Obligor, at Borrower Agent’s address shown on the signature pages hereof, and to any other Person at its address shown on the signature pages hereof (or, in the case of a Person who becomes a Lender after the Closing Date, at the address shown on its Assignment and Acceptance), or at such other address as a party may hereafter specify by notice in accordance with this Section 14.3 .  Each such notice or other communication shall be effective only (a) if given by facsimile transmission, when transmitted to the applicable facsimile number, if confirmation of receipt is received; (b) if given by mail, three Business Days after deposit in the U.S. mail, with first-class postage pre-paid, addressed to the applicable address; or (c) if given by personal delivery, when duly delivered to the notice address with receipt acknowledged.  Notwithstanding the foregoing, no notice to Agent pursuant to Section 2.1.4, 2.2 , 3.1.2 or 4.1.1 shall be effective until actually received by the individual to whose attention at Agent such notice is required to be sent.  Any written notice or other communication that is not sent in conformity with the foregoing provisions shall nevertheless be effective on the date actually received by the noticed party.  Any notice received by Borrower Agent shall be deemed received by all Obligors.
 
14.3.2.     Electronic Communications; Voice Mail .  Electronic mail and internet websites may be used only for routine communications, such as financial statements, Borrowing Base Certificates and other information required by Section 10.1.2 , administrative matters, distribution of Loan Documents for execution, and matters permitted under Section 4.1.4 .  Agent and Lenders make no assurances as to the privacy and security of electronic communications.  Electronic and voice mail may not be used as effective notice under the Loan Documents.
 
14.3.3.     Non-Conforming Communications .  Agent and Lenders may rely upon any notices purportedly given by or on behalf of any Borrower even if such notices were not made in a manner specified herein, were incomplete or were not confirmed, or if the terms thereof, as understood by the recipient, varied from a later confirmation.  Each Borrower shall indemnify and hold harmless each Indemnitee from any liabilities, losses, costs and expenses arising from any telephonic communication purportedly given by or on behalf of a Borrower.
 
14.4.     Performance of Obligors’ Obligations .   Agent may, in its discretion at any time and from time to time, at Borrowers’ expense, pay any amount or do any act required of any Obligor under any Loan Documents or otherwise lawfully requested by Agent to (a) enforce any Loan Documents or collect any Obligations; (b) protect, insure, maintain or realize upon any Collateral; or (c) defend or maintain the validity or priority of Agent’s Liens in any Collateral, including any payment of a judgment, insurance premium, warehouse charge, finishing or processing charge, or landlord claim, or any discharge of a Lien.  All payments, costs and expenses (including Extraordinary Expenses) of Agent under this Section shall be reimbursed to Agent by Obligors, on demand , with interest from the date incurred to the date of payment thereof at the Default Rate applicable to Base Rate Revolver Loans.  Any payment made or action taken by Agent under this Section shall be without prejudice to any right to assert an Event of Default or to exercise any other rights or remedies under the Loan Documents.
 
14.5.     Credit Inquiries .   Each Obligor hereby authorizes Agent and Lenders (but they shall have no obligation) to respond to usual and customary credit inquiries from third parties concerning any Obligor or Subsidiary.
 
14.6.     Severability .   Wherever possible, each provision of the Loan Documents shall be interpreted in such manner as to be valid under Applicable Law.  If any provision is found to be invalid under Applicable Law, it shall be ineffective only to the extent of such invalidity and the remaining provisions of the Loan Documents shall remain in full force and effect.
 
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14.7.     Cumulative Effect; Conflict of Terms .   The provisions of the Loan Documents are cumulative.  The parties acknowledge that the Loan Documents may use several limitations, tests or measurements to regulate similar matters, and they agree that these are cumulative and that each must be performed as provided.  Except as otherwise provided in another Loan Document (by specific reference to the applicable provision of this Agreement), if any provision contained herein is in direct conflict with any provision in another Loan Document, the provision herein shall govern and control.
 
14.8.     Counterparts; Facsimile Signatures .   Any Loan Document may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement shall become effective when Agent has received counterparts bearing the signatures of all parties hereto.  Delivery of a signature page of any Loan Document by telecopy or electronic mail shall be effective as delivery of a manually executed counterpart of such agreement.  Any of the Loan Documents may be executed and delivered by facsimile or electronic mail, and will have the same force and effect as manually signed originals.  A Lender may require confirmation by a manually signed original, but failure to request or deliver same will not limit the effectiveness of any facsimile or electronically delivered signature.
 
14.9.     Entire Agreement .   Time is of the essence of the Loan Documents.  The Loan Documents constitute the entire contract among the parties relating to the subject matter hereof, and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.
 
14.10.     Relationship with Lenders .   The obligations of each Lender hereunder are several, and no Lender shall be responsible for the obligations or Commitments of any other Lender.  Amounts payable hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled, to the extent not otherwise restricted hereunder, to protect and enforce its rights arising out of the Loan Documents.  It shall not be necessary for Agent or any other Lender to be joined as an additional party in any proceeding for such purposes.  Nothing in this Agreement and no action of Agent or Lenders pursuant to the Loan Documents shall be deemed to constitute Agent and Lenders to be a partnership, association, joint venture or any other kind of entity, nor to constitute control of any Obligor.
 
14.11.     No Control; No Advisory or Fiduciary Responsibility .   Nothing in any Loan Document and no action of a Lender pursuant to any Loan Document shall be deemed to constitute control of any Obligor by a Lender.  In connection with all aspects of each transaction contemplated by any Loan Document, Obligors acknowledge and agree that (a)(i) this credit facility and any related arranging or other services by Agent, any Lender, any of their Affiliates or any arranger are arm’s-length commercial transactions between Obligors and such Person; (ii) Obligors have consulted their own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate; and (iii) Obligors are capable of evaluating and understanding, and do understand and accept, the terms, risks and conditions of the transactions contemplated by the Loan Documents; (b) each of Agent, Lenders, their Affiliates and any arranger is and has been acting solely as a principal in connection with this credit facility, is not the financial advisor, agent or fiduciary for Obligors, any of their Affiliates or any other Person, and has no obligation with respect to the transactions contemplated by the Loan Documents except as expressly set forth therein; and (c) Agent, Lenders, their Affiliates and any arranger may be engaged in a broad range of transactions that involve interests that differ from Obligors and their Affiliates, and have no obligation to disclose any of such interests to Obligors or their Affiliates.  To the fullest extent permitted by Applicable Law, each Obligor hereby waives and releases any claims that it may have against Agent, Lenders, their Affiliates and any arranger with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated by a Loan Document.
 
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14.12.     Confidentiality .  Each of Agent, Lenders and Issuing Bank agrees to maintain the confidentiality of all Information (as defined below) with the same degree of care that it uses to protect its confidential information, but in no event less than a reasonable degree of care, except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential); (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners); (c) to the extent required by Applicable Law or by any subpoena or similar legal process; (d) to any other party hereto; (e) to the extent necessary, in connection with the exercise of any remedies, the enforcement of any rights, or any action or proceeding relating to any Loan Documents; (f) subject to an agreement containing provisions substantially the same as those of this Section, to any Transferee or any actual or prospective party (or its advisors) to any Bank Product; (g) with the consent of Obligors; or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to Agent, any Lender, Issuing Bank or any of their Affiliates on a nonconfidential basis from a source other than Obligors.  Notwithstanding the foregoing, Agent and Lenders may issue and disseminate to the public general information describing this credit facility, including the names and addresses of Obligors and a general description of Obligors’ businesses, and may use Obligors’ names in advertising and other promotional materials.  For purposes of this Section, “ Information ” means all information received from an Obligor or Subsidiary relating to it or its business, or to the Collateral, or other than any information that is available to Agent, any Lender or Issuing Bank on a nonconfidential basis prior to disclosure by the Obligor or Subsidiary, provided that, in the case of information received from an Obligor or Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential.  Any Person required to maintain the confidentiality of Information pursuant to this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own similar confidential information.  Each of Agent, Lenders and Issuing Bank acknowledges that (i) Information may include material non-public information concerning an Obligor or Subsidiary (including personally identifiable information of an Obligor’s or Subsidiary’s partners, directors, officers, employees, agents or customers); (ii) it has developed compliance procedures regarding the use of material non-public information; and (iii) it will handle such material non-public information in accordance with Applicable Law, including federal and state securities laws.
 
14.13.     GOVERNING LAW .  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, UNLESS OTHERWISE SPECIFIED, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES (BUT GIVING EFFECT TO FEDERAL LAWS RELATING TO NATIONAL BANKS).
 
14.14.     Consent to Forum .
 
14.14.1.     Forum .   EACH OBLIGOR HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE COURT SITTING IN OR WITH JURISDICTION OVER THE STATE OF NEW YORK, IN ANY PROCEEDING OR DISPUTE RELATING IN ANY WAY TO ANY LOAN DOCUMENTS, AND AGREES THAT ANY SUCH PROCEEDING SHALL BE BROUGHT BY IT SOLELY IN ANY SUCH COURT.  EACH OBLIGOR IRREVOCABLY WAIVES ALL CLAIMS, OBJECTIONS AND DEFENSES THAT IT MAY HAVE REGARDING SUCH COURT’S PERSONAL OR SUBJECT MATTER JURISDICTION, VENUE OR INCONVENIENT FORUM.  EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 14.3.1.   Nothing herein shall limit the right of Agent or any Lender to bring proceedings against any Obligor in any other court, nor limit the right of any party to serve process in any other manner permitted by Applicable Law.  Nothing in this Agreement shall be deemed to preclude enforcement by Agent of any judgment or order obtained in any forum or jurisdiction.
 
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14.15.     Waivers by Obligors .   To the fullest extent permitted by Applicable Law, each Obligor waives (a) the right to trial by jury (which Agent and each Lender hereby also waives) in any proceeding or dispute of any kind relating in any way to any Loan Documents, Obligations or Collateral; (b) presentment, demand, protest, notice of presentment, default, non-payment, maturity, release, compromise, settlement, extension or renewal of any commercial paper, accounts, documents, instruments, chattel paper and guaranties at any time held by Agent on which an Obligor may in any way be liable, and hereby ratifies anything Agent may do in this regard; (c) notice prior to taking possession or control of any Collateral; (d) any bond or security that might be required by a court prior to allowing Agent to exercise any rights or remedies; (e) the benefit of all valuation, appraisement and exemption laws; (f) any claim against Agent or any Lender, on any theory of liability, for special, indirect, consequential, exemplary or punitive damages (as opposed to direct or actual damages) in any way relating to any Enforcement Action, Obligations, Loan Documents or transactions relating thereto; and (g) notice of acceptance hereof.   Each Obligor acknowledges that the foregoing waivers are a material inducement to Agent and Lenders entering into this Agreement and that Agent and Lenders are relying upon the foregoing in their dealings with Obligors.  Each Obligor has reviewed the foregoing waivers with its legal counsel and has knowingly and voluntarily waived its jury trial and other rights following consultation with legal counsel.  In the event of litigation, this Agreement may be filed as a written consent to a trial by the court.
 
14.16.     Patriot Act Notice .  Agent and Lenders hereby notify Borrowers that pursuant to the requirements of the Patriot Act, Agent and Lenders are required to obtain, verify and record information that identifies each Borrower, including its legal name, address, tax ID number and other information that will allow Agent and Lenders to identify it in accordance with the Patriot Act.  Agent and Lenders will also require information regarding each personal guarantor, if any, and may require information regarding Borrowers’ management and owners, such as legal name, address, social security number and date of birth.
 
14.17.     Amendment and Restatement.
 
(a)     Each Obligor, Agent, Issuing Bank and Lenders hereby agree that upon the effectiveness of this Agreement, the terms and provisions of the Existing Credit Agreement shall be and hereby are amended and restated in their entirety by the terms and conditions of this Agreement and the terms and provisions of the Existing Credit Agreement, except as otherwise provided in the next paragraph, shall be superseded by this Agreement.
 
(b)     Notwithstanding the amendment and restatement of the Existing Credit Agreement by this Agreement, Parent and each applicable Borrower shall continue to be liable to Agent and Lenders with respect to agreements on the part of Parent and Borrowers under the Existing Credit Agreement to indemnify and hold harmless Agent and Lenders from and against all claims, demands, liabilities, damages, losses, costs, charges and expenses to which Agent and Lenders may be subject arising in connection with the Existing Credit Agreement.  This Agreement is given as a substitution of, and not as a payment of, the obligations of Borrowers and Parent under the Existing Credit Agreement and is not intended to constitute a novation of the Existing Credit Agreement.  Upon the effectiveness of this Agreement all amounts outstanding and owing by Borrowers under the Existing Credit Agreement shall constitute Obligations hereunder.
 
-88-

(c)     By execution of this Agreement all parties hereto agree that (i) each of the “Security Instruments” and other “Loan Documents” under the Existing Credit Agreement are hereby amended and restated by the Loan Documents hereunder and (ii) all security interests and liens granted under the “Security Instruments” under the Existing Loan Agreement shall continue and secure the Obligations hereunder and the obligations of the Guarantors under the Loan Documents.
 
[Remainder of page intentionally left blank; signatures begin on following page.]
 

 

 
-89-

 

IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date set forth above.

 
BORROWERS :
   
 
COVENANT TRANSPORT, INC.
   
   
 
By:
/s/ M. David Hughes
 
Name:
M. David Hughes
 
Title:
Senior Vice President of Fleet Management and Procurement and Treasurer
     
 
Address:
400 Birmingham Highway
   
Chattanooga, TN 37419
   
Attn:  M. David Hughes
   
Telecopy: (423) 825-7594

 
CTG LEASING COMPANY
 
SOUTHERN REFRIGERATED TRANSPORT, INC.
 
STAR TRANSPORTATION, INC.
   
 
By:
/s/ M. David Hughes
 
Name:
M. David Hughes
 
Title:
Vice President
     
 
Address:
400 Birmingham Highway
   
Chattanooga, TN 37419
   
Attn:  M. David Hughes
   
Telecopy: (423) 825-7594

 
COVENANT ASSET MANAGEMENT, INC.
 
COVENANT TRANSPORT SOLUTIONS, INC.
   
 
By:
/s/ M. David Hughes
 
Name:
M. David Hughes
 
Title:
Treasurer
     
 
Address:
400 Birmingham Highway
   
Chattanooga, TN 37419
   
Attn:  M. David Hughes
   
Telecopy: (423) 825-7594



THIRD AMENDED AND RESTATED CREDIT AGREEMENT
Signature Page
 
 

 


 
PARENT :
   
 
COVENANT TRANSPORTATION GROUP, INC.
     
 
By:
/s/ M. David Hughes
 
Name:
M. David Hughes
 
Title:
Senior Vice President and Treasurer
     
 
Address:
400 Birmingham Highway
   
Chattanooga, TN 37419
   
Attn:  M. David Hughes
   
Telecopy: (423) 825-7594


THIRD AMENDED AND RESTATED CREDIT AGREEMENT
Signature Page
 
 

 


 
AGENT AND LENDERS :
   
 
BANK OF AMERICA, N.A.,
 
as Agent and Lender
   
 
By:
/s/ Douglas Cowan
 
Name:
Douglas Cowan
 
Title:
Senior Vice President
     
 
Address:
300 Galleria Parkway, Suite 800
   
Atlanta, GA 30339-3153
   
Attn:  Zarah Elliott
   
Telecopy: (423) 825-7594




THIRD AMENDED AND RESTATED CREDIT AGREEMENT
Signature Page
 
 

 


 
JPMORGAN CHASE BANK, N.A.
   
 
By:
/s/ Jeff A. Tompkins
 
Name:
Jeff A. Tompkins
 
Title:
Vice President
     
 
Address:
2200 Ross Avenue, 9 th Floor TX 102921
   
Dallas, TX 75201
   
Attn:  Jeff Tompkins
   
Telecopy: (214) 965-2594




THIRD AMENDED AND RESTATED CREDIT AGREEMENT
Signature Page
 
 

 


 
TEXTRON FINANCIAL CORPORATION
   
 
By:
/s/ Susan M. Hall
 
Name:
Susan M. Hall
 
Title:
Senior Account Executive
     
 
Address:
575 Great Oaks Way, Suite 210
   
Alpharetta, Georgia 30022
   
Attn:  Susan Hall
   
Telecopy: (770) 360-1672




THIRD AMENDED AND RESTATED CREDIT AGREEMENT
Signature Page
 
 

 

EXHIBIT A
to
Third Amended and Restated Credit Agreement
 
FORM OF REVOLVER NOTE
 
September 23, 2008
$___________________
New York, New York
 
COVENANT TRANSPORT, INC. , a Tennessee corporation (“ CTI ”), CTG LEASING COMPANY , a Nevada corporation (“ CTGL ”), SOUTHERN REFRIGERATED TRANSPORT, INC. , an Arkansas corporation (“ SRT ”), COVENANT ASSET MANAGEMENT, INC. ,   a Nevada corporation (“ CAM ”) , COVENANT TRANSPORT SOLUTIONS, INC. , a Nevada corporation (“ CTS ”), and STAR TRANSPORTATION, INC. , a Tennessee corporation (“ ST ”, and together with CTI, CTGL, SRT, CAM, and CTS, collectively, “ Borrowers ”), for value received, hereby unconditionally promise to pay, on a joint and several basis, to the order of ____________________________ (“ Lender ”), the principal sum of ______________________________ DOLLARS ($___________), or such lesser amount as may be advanced by Lender as Revolver Loans and owing as LC Obligations from time to time under the Loan Agreement described below, together with all accrued and unpaid interest thereon.  Terms are used herein as defined in the Loan and Security Agreement dated as of September 23, 2008, among Borrowers, Bank of America, N.A., as Agent, Lender, and certain other financial institutions party thereto as lenders, as such agreement may be amended, modified, renewed or extended from time to time (“ Loan Agreement ”).
 
Principal of and interest on this Note from time to time outstanding shall be due and payable as provided in the Loan Agreement.  This Note is issued pursuant to and evidences Revolver Loans and LC Obligations under the Loan Agreement, to which reference is made for a statement of the rights and obligations of Lender and the duties and obligations of Borrowers.  The Loan Agreement contains provisions for acceleration of the maturity of this Note upon the happening of certain stated events, and for the borrowing, prepayment and reborrowing of amounts upon specified terms and conditions.
 
The holder of this Note is hereby authorized by Borrowers to record on a schedule annexed to this Note (or on a supplemental schedule) the amounts owing with respect to Revolver Loans and LC Obligations, and the payment thereof.  Failure to make any notation, however, shall not affect the rights of the holder of this Note or any obligations of Borrowers hereunder or under any other Loan Documents.
 
Time is of the essence of this Note.  Each Borrower and all endorsers, sureties and guarantors of this Note hereby severally waive demand, presentment for payment, protest, notice of protest, notice of intention to accelerate the maturity of this Note, diligence in collecting, the bringing of any suit against any party, and any notice of or defense on account of any extensions, renewals, partial payments, or changes in any manner of or in this Note or in any of its terms, provisions and covenants, or any releases or substitutions of any security, or any delay, indulgence or other act of any trustee or any holder hereof, whether before or after maturity.  Borrowers jointly and severally agree  to pay, and to save the holder of this Note harmless against, any liability for the payment of all costs and expenses (including, without limitation, reasonable attorneys’ fees) if this Note is collected by or through an attorney-at-law.
 
In no contingency or event whatsoever shall the amount paid or agreed to be paid to the holder of this Note for the use, forbearance or detention of money advanced hereunder exceed the highest lawful rate permitted under Applicable Law.  If any such excess amount is inadvertently paid by Borrowers or inadvertently received by the holder of this Note, such excess shall be returned to Borrowers or credited as a payment of principal, in accordance with the Loan Agreement.  It is the intent hereof that Borrowers not pay or contract to pay, and that holder of this Note not receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be paid by Borrowers under Applicable Law.
 
 
EXHIBIT A TO CREDIT AGREEMENT

This Note shall be governed by the laws of the State of New York, without giving effect to any conflict of law principles (but giving effect to federal laws relating to national banks).
 
IN WITNESS WHEREOF , this Revolver Note is executed as of the date set forth above.
 
 
BORROWERS :
   
 
COVENANT TRANSPORT, INC.
     
 
By:
/s/ M. David Hughes
 
Name:
M. David Hughes
 
Title:
Senior Vice President of Fleet Management and Procurement and Treasurer
     
 
Address:
400 Birmingham Highway
   
Chattanooga, TN 37419
   
Attn:  M. David Hughes
   
Telecopy: (423) 825-7594

 
CTG LEASING COMPANY
 
SOUTHERN REFRIGERATED TRANSPORT, INC.
 
STAR TRANSPORTATION, INC.
   
 
By:
/s/ M. David Hughes
 
Name:
M. David Hughes
 
Title:
Vice President
     
 
Address:
400 Birmingham Highway
   
Chattanooga, TN 37419
   
Attn:  M. David Hughes
   
Telecopy: (423) 825-7594

 
COVENANT ASSET MANAGEMENT, INC.
 
COVENANT TRANSPORT SOLUTIONS, INC.
   
 
By:
/s/ M. David Hughes
 
Name:
M. David Hughes
 
Title:
Treasurer
     
 
Address:
400 Birmingham Highway
   
Chattanooga, TN 37419
   
Attn:  M. David Hughes
   
Telecopy: (423) 825-7594


EXHIBIT A TO CREDIT AGREEMENT

 
 

 

EXHIBIT B
to
Third Amended and Restated Credit Agreement
 
FORM OF ASSIGNMENT AND ACCEPTANCE
 
Reference is made to the Loan and Security Agreement dated as of September 23, 2008, as amended (“ Loan Agreement ”), among COVENANT TRANSPORT, INC. (“ CTI ”), CTG LEASING COMPANY (“ CTGL ”), SOUTHERN REFRIGERATED TRANSPORT, INC. (“ SRT ”), COVENANT ASSET MANAGEMENT, INC. (“ CAM ”) , COVENANT TRANSPORT SOLUTIONS, INC. (“ CTS ”), and STAR TRANSPORTATION, INC. (“ ST ”, and together with CTI, CTGL, SRT, CAM, and CTS, collectively, “ Borrowers ”), COVENANT TRANSPORTATION GROUP, INC. (“ Parent ”), BANK OF AMERICA, N.A. , as agent (“ Agent ”) for the financial institutions from time to time party to the Loan Agreement (“ Lenders ”), and such Lenders.  Terms are used herein as defined in the Loan Agreement.
 
______________________________________ (“ Assignor ”) and _________________________ _____________ (“ Assignee ”) agree as follows:
 
1.           Assignor hereby assigns to Assignee and Assignee hereby purchases and assumes from Assignor (a) a principal amount of $________ of Assignor’s outstanding Revolver Loans and $___________ of Assignor’s participations in LC Obligations, and (b) the amount of $__________ of Assignor’s Revolver Commitment (which represents ____% of the total Revolver Commitments) (the foregoing items being, collectively, the “ Assigned Interest ”), together with an interest in the Loan Documents corresponding to the Assigned Interest.  This Agreement shall be effective as of the date (“ Effective Date ”) indicated in the corresponding Assignment Notice delivered to Agent, provided such Assignment Notice is executed by Assignor, Assignee, Agent and Borrower Agent, if applicable.  From and after the Effective Date, Assignee hereby expressly assumes, and undertakes to perform, all of Assignor’s obligations in respect of the Assigned Interest, and all principal, interest, fees and other amounts which would otherwise be payable to or for Assignor’s account in respect of the Assigned Interest shall be payable to or for Assignee’s account, to the extent such amounts accrue on or after the Effective Date.
 
2.           Assignor (a) represents that as of the date hereof, prior to giving effect to this assignment, its Revolver Commitment is $__________, and the outstanding balance of its Revolver Loans and participations in LC Obligations is $__________; (b) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Agreement or any other instrument or document furnished pursuant thereto, other than that Assignor is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; and (c) makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrowers or the performance by Borrowers of their obligations under the Loan Documents.   [Assignor is attaching the Note[s] held by it and requests that Agent exchange such Note[s] for new Notes payable to Assignee [and Assignor].]
 
3.           Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (b) confirms that it has received copies of the Loan Agreement and such other Loan Documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it shall, independently and without reliance upon Assignor 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 the Loan Documents; (d) confirms that it is an Eligible Assignee; (e) appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under the Loan Agreement as are delegated to Agent by the terms thereof, together with such powers as are incidental thereto; (f) agrees that it will observe and perform all obligations that are required to be performed by it as a “Lender” under the Loan Documents; and (g) represents and warrants that the assignment evidenced hereby will not result in a non-exempt “prohibited transaction” under Section 406 of ERISA.
 
EXHIBIT B TO CREDIT AGREEMENT

4.           This Agreement shall be governed by the laws of the State of New York.  If any provision is found to be invalid under Applicable Law, it shall be ineffective only to the extent of such invalidity and the remaining provisions of this Agreement shall remain in full force and effect.
 
5.           Each notice or other communication hereunder shall be in writing, shall be sent by messenger, by telecopy or facsimile transmission, or by first-class mail, shall be deemed given when sent and shall be sent as follows:
 
 
(a)
If to Assignee, to the following address (or to such other address as Assignee may designate from time to time):
   
   
 
 

 
 (b)
If to Assignor, to the following address (or to such other address as Assignor may designate from time to time):
 
 
 

Payments hereunder shall be made by wire transfer of immediately available Dollars as follows:
 
If to Assignee, to the following account (or to such other account as Assignee may designate from time to time):

   
   
ABA No.
 
   
Account No.
 
Reference:
 

If to Assignor, to the following account (or to such other account as Assignor may designate from time to time):

   
   
ABA No.
 
   
Account No.
 
Reference:
 
 
 
EXHIBIT B TO CREDIT AGREEMENT
 
 

 

IN WITNESS WHEREOF , this Assignment and Acceptance is executed as of _____________.
 

 
("Assignee")
   
By:
 
Title:
 
   
 
("Assignor")
 
By:
 
Title:
 



EXHIBIT B TO CREDIT AGREEMENT
 
 

 

EXHIBIT C
to
Third Amended and Restated Credit Agreement
 
FORM OF ASSIGNMENT NOTICE
 
Reference is made to (1) the Loan and Security Agreement dated as of _______, 20__, as amended (“ Loan Agreement ”), among COVENANT TRANSPORT, INC. (“ CTI ”), CTG LEASING COMPANY (“ CTGL ”), SOUTHERN REFRIGERATED TRANSPORT, INC. (“ SRT ”), COVENANT ASSET MANAGEMENT, INC. (“ CAM ”) , COVENANT TRANSPORT SOLUTIONS, INC. (“ CTS ”), and STAR TRANSPORTATION, INC. (“ ST ”, and together with CTI, CTGL, SRT, CAM, and CTS, collectively, “ Borrowers ”), COVENANT TRANSPORTATION GROUP, INC. (“ Parent ”), BANK OF AMERICA, N.A. , as agent (“ Agent ”) for the financial institutions from time to time party to the Loan Agreement (“ Lenders ”), and such Lenders; and (2) the Assignment and Acceptance dated as of ____________, 20__ (“ Assignment Agreement ”), between __________________ (“ Assignor ”) and ____________________ (“ Assignee ”).  Terms are used herein as defined in the Loan Agreement.
 
Assignor hereby notifies Borrowers and Agent of Assignor’s intent to assign to Assignee pursuant to the Assignment Agreement (a) a principal amount of $________ of Assignor’s outstanding Revolver Loans and $___________ of Assignor’s participations in LC Obligations, and (b) the amount of $__________ of Assignor’s Revolver Commitment (which represents ____% of the total Revolver Commitments) (the foregoing items being, collectively, the “ Assigned Interest ”), together with an interest in the Loan Documents corresponding to the Assigned Interest.  This Agreement shall be effective as of the date (“ Effective Date ”) indicated below, provided this Assignment Notice is executed by Assignor, Assignee, Agent and Borrower Agent, if applicable.  Pursuant to the Assignment Agreement, Assignee has expressly assumed all of Assignor’s obligations under the Loan Agreement to the extent of the Assigned Interest, as of the Effective Date.
 
For purposes of the Loan Agreement, Agent shall deem Assignor’s Revolver Commitment to be reduced by $_________, and Assignee’s Revolver Commitment to be increased by $_________.
 
The address of Assignee to which notices and information are to be sent under the terms of the Loan Agreement is:
 
 
 
 

 
The address of Assignee to which payments are to be sent under the terms of the Loan Agreement is shown in the Assignment and Acceptance.
 
This Notice is being delivered to Borrowers and Agent pursuant to Section 13.3 of the Loan Agreement.  Please acknowledge your acceptance of this Notice by executing and returning to Assignee and Assignor a copy of this Notice.
 

EXHIBIT C TO CREDIT AGREEMENT
 
 

 

IN WITNESS WHEREOF , this Assignment Notice is executed as of _____________.
 
 
("Assignee")
   
By:
 
Title:
 
   
 
("Assignor")
 
By:
 
Title:
 


ACKNOWLEDGED AND AGREED
AS OF THE DATE SET FORTH ABOVE:
   
BORROWER AGENT :
   
 
   
By:
 
Title:
 


* No signature required if Assignee is a Lender, U.S.-based Affiliate of a Lender or Approved Fund, or if an Event of Default exists.


BANK OF AMERICA, N.A.
As Agent
   
By:
 
Title:
 
   



 

EXHIBIT C TO CREDIT AGREEMENT
 
 

 

EXHIBIT D
to
Third Amended and Restated Credit Agreement
 
FORM OF COMPLIANCE CERTIFICATE
 
The undersigned, duly appointed and acting Senior Officer of Covenant Asset Management, Inc. (“ Borrower Agent ”), being duly authorized, hereby delivers this Compliance Certificate to Agent, pursuant to Section 10.1.2(d) of that certain Loan and Security Agreement, dated as of September 23, 2008, among Covenant Transport, Inc. (“ CTI ”), CTG Leasing Company (“ CTGL ”), Southern Refrigerated Transport, Inc. (“ SRT ”), Covenant Asset Management, Inc. (“ CAM ”), Covenant Transport Solutions, Inc. (“ CTS ”), and Star Transportation, Inc. (“ ST ”, and together with CTI, CTGL, SRT, CAM, and CTS, collectively, “ Borrowers ”), Covenant Transportation Group, Inc. (“ Parent ”), Lenders party thereto, Bank of America, N.A., in its capacity as agent for Lenders (“ Agent ”), as such agreement may be amended, restated, or otherwise modified from time to time, reference to which hereby is made (the “ Loan  Agreement ”).  Terms defined in the Loan Agreement, wherever used herein, shall have the same meanings as are prescribed by the Loan Agreement.

1.           The Borrower Agent hereby delivers to Agent [check as applicable]:

[_]
     the consolidated audited Fiscal Year end financial statements and accountant’s report required by Section 10.1.2(a) , dated as of [________, ____]; or

[_]
     the unaudited Fiscal Quarter end financial statements required by Section 10.1.2(b) , dated as of [________, ____]; or

[_]
     the intraquarter monthly unaudited financial statements required by Section 10.1.2(c) , dated as of [________, ____].

Such financial statements are complete and correct in all material respects and have been prepared in accordance with GAAP (to the extent required by the Loan Agreement) and fairly present the financial positions and results of operations of Parent and the other Obligors at the dates and for the periods indicated.

2.           The undersigned represents and warrants to Agent and Lenders that, except as may have been previously or concurrently disclosed to Agent and Lenders in writing by Borrowers, the representations and warranties contained in Article 9 of the Loan Agreement and the other Loan Documents are correct and complete in all material respects on and as of the date of this Compliance Certificate as if made on and as of the date hereof (except to the extent that such representations and warranties are expressly by their terms made only as of the Closing Date or another specified date).

3.           The undersigned represents and warrants to Agent and Lenders that as of the date of this Compliance Certificate, except as previously or concurrently disclosed to Agent and Lenders in writing by Borrowers, the Obligors are in compliance in all material respects with all of their respective covenants and agreements in the Loan Agreement and the other Loan Documents.

4.           The undersigned hereby states that, to the best of his or her knowledge and based upon an examination sufficient to enable an informed statement [check as applicable]:

 
[_]
 
No Default or Event of Default exists as of the date hereof or existed during the period covered by the Financial Statements referenced in paragraph 1 of this Compliance Certificate.

[_]
 
One or more Defaults or Events of Default exist as of the date hereof or existed during the period covered by the financial statements referenced in paragraph 1 of this Compliance Certificate.  Included within Exhibit A attached hereto is a written description specifying each such Default or Event of Default, its nature, when it occurred, whether it is continuing as of the date hereof and the steps being taken by Borrowers with respect thereto.  Except as so specified, no Default or Event of Default exists as of the date hereof.
 
EXHIBIT D TO CREDIT AGREEMENT

5.            Exhibit B attached hereto sets forth the calculations necessary to establish the status of compliance with the covenant contained in Section 10.3 (“Fixed Charge Coverage Ratio”) of the Loan Agreement as of the effective date of the financial statements referenced in paragraph 1 above.

6.            Exhibit C attached hereto sets forth (i) a schedule of all obligations of the Obligors as surety or indemnitor under any bond or other contract that assures payment or performance of any obligation of any Person other than another Obligor (or a certificate that there have been no changes with respect to such obligations since the last delivery of such a schedule), and (ii) a schedule of all collective bargaining agreements, material management agreements, and material consulting agreements by which any Obligor or Subsidiary is party to or bound (or a certificate that there have been no changes with respect to such agreements since the last delivery of such a schedule).

7.           The financial covenant analyses and information set forth on Exhibit B attached hereto are true and accurate on and as of the date of this Compliance Certificate.


Date of execution of this Compliance Certificate: __________, ____.

 
COVENANT ASSET MANAGEMENT, INC.
 
By:
 
Name:
 
Title:
 




EXHIBIT D TO CREDIT AGREEMENT
 
 

 

EXHIBIT A
to
FORM OF COMPLIANCE CERTIFICATE

dated
______________, 20__


The following is attached to and made a part of the above referenced Compliance Certificate.

[specify Defaults or Events of Defaults]









EXHIBIT D TO CREDIT AGREEMENT
 
 

 

EXHIBIT B
to
FORM OF COMPLIANCE CERTIFICATE

dated
______________,  20__


The following is attached to and made a part of the above referenced Compliance Certificate.

[insert calculations]
 
 


EXHIBIT D TO CREDIT AGREEMENT
 
 

 

EXHIBIT C
to
FORM OF COMPLIANCE CERTIFICATE

dated
______________,  20__


The following is attached to and made a part of the above referenced Compliance Certificate.

[list surety and indemnity obligations]



EXHIBIT D TO CREDIT AGREEMENT
 
 

 

SCHEDULE 1.1
to
Loan and Security Agreement
 
COMMITMENTS OF LENDERS
 
Lender
Revolver Commitment
Percentage
Bank of America, N.A.
$40,000,000.00
47.058823529%
JPMorgan Chase Bank, N.A.
$30,000,000.00
35.294117647%
Textron Financial Corporation
$15,000,000.00
17.647058824%
Total
$85,000,000.00
100.000000000%


 
 

 

SCHEDULE 1.3
to
Loan and Security Agreement
 
MATERIAL CONTRACTS
 
·
Loan Agreement dated December 12, 2000, among CVTI Receivables Corp., Covenant Transport, Inc., Three Pillars Funding Corporation, and SunTrust Equitable Securities Corporation, filed as Exhibit 10.10 to Form 10-K, filed March 29, 2001 (SEC Commission File No. 0-24960)
·
Receivables Purchase Agreement dated as of December 12, 2000, among CVTI Receivables Corp., Covenant Transport, Inc., and Southern Refrigerated Transport, Inc., filed as Exhibit 10.11 to Form 10-K, filed March 29, 2001 (SEC Commission File No. 0-24960)
·
Clarification of Intent and Amendment No. 1 to Loan Agreement dated March 7, 2001, among CVTI Receivables Corp., Covenant Transport, Inc., Three Pillars Funding Corporation, and SunTrust Equitable Securities Corporation, filed as Exhibit 10.12 to Form 10-Q, filed May 14, 2001 (SEC Commission File No. 0-24960)
·
Amendment No. 10 to Loan Agreement dated July 2006 among Three Pillars Funding LLC (f/k/a Three Pillars Funding Corporation), SunTrust Capital Markets, Inc. (f/k/a SunTrust Equitable Securities Corporation), CVTI Receivables Corp., and Covenant Transport, Inc., filed as Exhibit 10.28 to Form 10-Q, filed November 9, 2006 (SEC Commission File No. 0-24960)
·
Amendment No. 11 to Loan Agreement dated October 20, 2006, among Three Pillars Funding LLC (f/k/a Three Pillars Funding Corporation), SunTrust Capital Markets Inc. (f/k/a SunTrust Equitable Securities Corporation), CVTI Receivables Corp., and Covenant Transport, Inc., filed as Exhibit 10.26 to Form 10-K, filed March 13, 2007 (SEC Commission File No. 0-24960)
·
Amendment and Joinder Agreement to Receivables Purchase Agreement dated October 20, 2006, among Covenant Transport, Inc., Southern Refrigerated Transport, Inc., CVTI Receivables Corp., Covenant Transport Solutions, Inc., and Star Transportation, Inc., filed as Exhibit 10.27 to Form 10-K, filed March 13, 2007 (SEC Commission File No. 0-24960)
·
Second Amended and Restated Credit Agreement dated December 21, 2006, among Covenant Asset Management, Inc., Covenant Transport, Inc., Bank of America, N. A., and each other financial institution which is a party to the Credit Agreement, filed as Exhibit 10.28 to Form 10-K, filed March 13, 2007 (SEC Commission File No. 0-24960)
·
Amendment No. 12 to Loan Agreement dated December 5, 2006, among Three Pillars Funding LLC (f/k/a Three Pillars Funding Corporation), SunTrust Capital Markets, Inc. (f/k/a SunTrust Equitable Securities Corporation), CVTI Receivables Corp., and Covenant Transport, Inc., filed as Exhibit 10.29 to Form 10-K, filed March 13, 2007 (SEC Commission File No. 0-24960)
·
Amendment No. 1 to the Second Amended and Restated Credit Agreement dated August 28, 2007, among Covenant Asset Management, Inc., Covenant Transport, Inc., Bank of America, N.A., and each other financial institution that is a party to the Credit Agreement, filed as Exhibit 10.1 to Form 10-Q, filed November 6, 2007 (SEC Commission File No. 0-24960)
·
Amendment No. 13 to Loan Agreement dated August 31, 2007, among Three Pillars Funding LLC (f/k/a Three Pillars Funding Corporation), SunTrust Robinson Humphrey, Inc. (f/k/a SunTrust Capital Markets, Inc.), CVTI Receivables Corp., and Covenant Transportation Group, Inc. (f/k/a Covenant Transport, Inc.), filed as Exhibit 10.30 to Form 10-K, filed March 17, 2008 (SEC Commission File No. 0-24960)
·
Amendment No. 14 to Loan Agreement dated December 4, 2007, among Three Pillars Funding LLC (f/k/a Three Pillars Funding Corporation), SunTrust Robinson Humphrey, Inc. (f/k/a SunTrust Capital Markets, Inc.), CVTI Receivables Corp., and Covenant Transportation Group, Inc. (f/k/a Covenant Transport, Inc.) filed as Exhibit 10.31 to Form 10-K, filed March 17, 2008 (SEC Commission File No. 0-24960)
·
Amendment No. 15, Loan Agreement, dated August 29, 2008, among Three Pillars Funding LLC (f/k/a Three Pillars Funding Corporation), SunTrust Robinson Humphrey, Inc. (f/k/a SunTrust Capital Markets, Inc.), CVTI Receivables Corp., and Covenant Transportation Group, Inc. (f/k/a Covenant Transport, Inc.), to be filed as an exhibit to Form 10-Q for the third quarter ended September 30, 2008.
·
Continuing Cross Guaranty between DCFS USA LLC and Daimler Trust, and their respective successors, transferees and assigns and Covenant Transportation Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Southern Refrigerated Transport, Inc., and Star Transportation, Inc., dated June 30, 2008.
·
Amendment No. 2, Consent and Limited Waiver to Second Amended and Restated Credit Agreement, dated June 30, 2008, among Covenant Asset Management, Inc., Covenant Transportation Group, Inc., Bank of America, N.A., and each financial institution which is a party to the Credit Agreement, as amended, filed as Exhibit 10.1 to Form 10-Q, filed August 11, 2008 (SEC Commission File No. 0-24960).
 

·
Limited Waiver to Loan Agreement for the period commencing June 30, 2008, and ending on August 29, 2008, among Three Pillars Funding LLC (f/k/a Three Pillars Funding Corporation), SunTrust Robinson Humphrey, Inc. (f/k/a/ SunTrust Capital Markets, Inc.), CVTI Receivables Corp., and Covenant Transportation Group, Inc., filed as Exhibit 10.2 to Form 10-Q, filed August 11, 2008 (SEC Commission File No. 0-24960).
·
Form of Direct Purchase Money Loan and Security Agreement by and between DCFS USA LLC and Covenant Transport, Inc., CTG Leasing Company, Southern Refrigerated Transport, Inc., and Star Transportation, Inc., filed as Exhibit 10.5 to Form 10-Q, filed August 11, 2008 (SEC Commission File No. 0-24960).
·
Amendment to Direct Purchase Money Loan and Security Agreement by and between DCFS USA LLC and Covenant Transport, Inc., CTG Leasing Company, Southern Refrigerated Transport, Inc., and Star Transportation, Inc., dated June 30, 2008, filed as Exhibit 10.6 to Form 10-Q, filed August 11, 2008 (SEC Commission File No. 0-24960)
·
Extension and Expansion of Limited Waiver to the Loan Agreement, dated August 29, 2008, among Three Pillars Funding LLC (f/k/a Three Pillars Funding Corporation), SunTrust Robinson Humphrey, Inc. (f/k/a SunTrust Capital Markets, Inc.), CVTI Receivables Corp., and Covenant Transportation Group, Inc. (f/k/a Covenant Transport, Inc.), to be filed as an exhibit to Form 10-Q for the third quarter ended September 30, 2008.
·
Amendment No. 3, Limited Waiver to Waiver to Second Amended and Restated Credit Agreement, dated August 28, 2008, among Covenant Asset Management, Inc., Covenant Transportation Group, Inc., Bank of America, N.A., and each financial institution which is a party to the Credit Agreement, as amended, to be filed as an exhibit to Form 10-Q for the third quarter ended September 30, 2008.
·
Form of Lease Agreement used in connection with Daimler Facility, filed as Exhibit 10.3 to Form 10-Q, filed August 11, 2008 (SEC Commission File No. 0-24960).
·
Amendment to Lease Agreement, filed as Exhibit 10.4 to Form 10-Q, filed August 11, 2008 (SEC Commission File No. 0-24960).
 

 
Description
Account #
Company
End of Term
       
CCA Financial - Computer Leases
     
5094 14
N/A
Covenant Transport, Inc.
12/01/2009
       
Sale-Leaseback of Headquarter Facilities
   
AGNL Covenant L.L.C.
 
Covenant Transport, Inc.
03/31/2026
       
Equipment Leases
     
Banc of America (Fleet Capital Leasing)
40327-11500-041
Covenant Transport, Inc.
10/30/2009
Daimler Chrysler
374948
Covenant Transport, Inc.
12/15/2010
Daimler Chrysler
380130
Covenant Transport, Inc.
01/15/2011
Daimler Chrysler
382509
Covenant Transport, Inc.
01/31/2011
Daimler Chrysler
385882
Covenant Transport, Inc.
02/15/2011
Daimler Chrysler
404031
Covenant Transport, Inc.
03/31/2011
Daimler Chrysler
407614
Covenant Transport, Inc.
05/01/2011
Daimler Chrysler
407732
Covenant Transport, Inc.
05/01/2011
Daimler Chrysler
409638
Covenant Transport, Inc.
06/01/2011
TIP
6
Covenant Transport, Inc.
10/01/2010
TIP
7
Covenant Transport, Inc.
10/01/2010
TIP
10
Covenant Transport, Inc.
11/01/2010
TIP
11
Covenant Transport, Inc.
11/01/2010
TIP
23
Covenant Transport, Inc.
01/01/2013
TIP
24
Covenant Transport, Inc.
01/01/2013
TIP
25
Covenant Transport, Inc.
03/01/2013
TIP
26
Covenant Transport, Inc.
03/01/2013
TIP
27
Covenant Transport, Inc.
03/01/2013
TIP
28
Covenant Transport, Inc.
04/28/2013
TIP
29
Covenant Transport, Inc.
04/28/2013
TIP
33
Covenant Transport, Inc.
05/01/2013
TIP
34
Covenant Transport, Inc.
06/01/2013
TIP
38
Covenant Transport, Inc.
08/01/2013
TIP
40
Covenant Transport, Inc.
09/01/2013
TIP (BNY)
16
Covenant Transport, Inc.
12/31/2010
TIP (Citizens)
3
Covenant Transport, Inc.
07/01/2010
 

TIP (Citizens)
4
Covenant Transport, Inc.
09/01/2010
TIP (Citizens)
18
Covenant Transport, Inc.
04/01/2011
TIP (Key Equip. Finance)
14
Covenant Transport, Inc.
12/01/2010
TIP (Key Equip. Finance)
15
Covenant Transport, Inc.
12/01/2010
TIP (Key Equip. Finance)
22
Covenant Transport, Inc.
04/30/2011
TIP (LaSalle)
17
Covenant Transport, Inc.
04/01/2011
TIP (LaSalle)
19
Covenant Transport, Inc.
04/30/2011
TIP (National City)
9
Covenant Transport, Inc.
11/01/2010
TIP (Regions)
12
Covenant Transport, Inc.
12/01/2010
TIP (Regions)
21
Covenant Transport, Inc.
04/30/2011
TIP (UPS Capital)
13
Covenant Transport, Inc.
12/01/2010
TIP (UPS Capital)
20
Covenant Transport, Inc.
04/30/2011
Banc of America (Fleet Capital Leasing)
40327-11500-038
Covenant Transport, Inc./
Southern Refrigerated Transport, Inc.
03/15/2009
Banc of America (Fleet Capital Leasing)
40327-11500-039
Covenant Transport, Inc./
Southern Refrigerated Transport, Inc.
05/01/2009
Banc of America (Fleet Capital Leasing)
40327-11500-040
Covenant Transport, Inc./
Southern Refrigerated Transport, Inc.
04/01/2011
BB&T Leasing
001-0036654-001
Covenant Transport, Inc./
Southern Refrigerated Transport, Inc.
04/01/2010
Daimler Chrysler
377407
Covenant Transport, Inc./
Southern Refrigerated Transport, Inc.
01/01/2011
Fleet Capital
40327-11500-036
Covenant Transport, Inc./
Southern Refrigerated Transport, Inc.
03/30/2010
Fleet Capital
15374-11500-035
Covenant Transport, Inc./
Southern Refrigerated Transport, Inc.
03/01/2010
Navistar Leasing
003
Covenant Transport, Inc./
Southern Refrigerated Transport, Inc.
05/15/2009
Navistar Leasing
004
Covenant Transport, Inc./
Southern Refrigerated Transport, Inc.
05/30/2009
Navistar Leasing
006
Covenant Transport, Inc./
Southern Refrigerated Transport, Inc.
06/15/2009
Navistar Leasing
009
Covenant Transport, Inc./
Southern Refrigerated Transport, Inc.
06/30/2009
Regions
705-018
Covenant Transport, Inc./
Southern Refrigerated Transport, Inc.
01/30/2011
Regions
705-019
Covenant Transport, Inc./
Southern Refrigerated Transport, Inc.
02/15/2011
SunTrust Leasing
00295-019
Covenant Transport, Inc./
Southern Refrigerated Transport, Inc.
04/30/2011
TIP
32
Covenant Transport, Inc./
Star Transportation, Inc.
05/01/2013
TIP
35
Covenant Transport, Inc./
Star Transportation, Inc.
06/01/2013
TIP
37
Covenant Transport, Inc./
Star Transportation, Inc.
08/01/2013
TIP
42
Covenant Transport, Inc./
Star Transportation, Inc.
09/01/2013
TIP
44
Covenant Transport, Inc./
Star Transportation, Inc.
11/01/2013
Daimler Chrysler
374936
Southern Refrigerated Transport, Inc.
12/15/2010
Daimler Chrysler
377400
Southern Refrigerated Transport, Inc.
01/01/2011
Daimler Chrysler
380118
Southern Refrigerated Transport, Inc.
01/15/2011
Daimler Chrysler
382475
Southern Refrigerated Transport, Inc.
01/31/2011
 

Navistar Leasing
005
Southern Refrigerated Transport, Inc.
05/30/2009
Navistar Leasing
007
Southern Refrigerated Transport, Inc.
06/15/2009
Navistar Leasing
008
Southern Refrigerated Transport, Inc.
06/30/2009
SunTrust Leasing
00295-016
Southern Refrigerated Transport, Inc.
03/29/2010
SunTrust Leasing
00295-017
Southern Refrigerated Transport, Inc.
03/30/2010
SunTrust Leasing
00295-018
Southern Refrigerated Transport, Inc.
04/18/2010
SunTrust Leasing
00295-020
Southern Refrigerated Transport, Inc.
04/30/2011
TIP
31
Southern Refrigerated Transport, Inc.
04/28/2013
TIP
39
Southern Refrigerated Transport, Inc.
08/01/2013
TIP
45
Southern Refrigerated Transport, Inc.
11/01/2013
Daimler Chrysler
382489
Star Transportation, Inc.
01/31/2011
       
Equipment Loans
     
Daimler Chrysler
357863
Covenant Transport, Inc.
09/15/2010
Daimler Chrysler
361871
Covenant Transport, Inc.
10/01/2010
Daimler Chrysler
366941
Covenant Transport, Inc.
10/15/2010
Daimler Chrysler
357428
Southern Refrigerated Transport, Inc.
09/15/2010
Daimler Chrysler
361874
Southern Refrigerated Transport, Inc.
10/01/2010
Daimler Chrysler
361879
Southern Refrigerated Transport, Inc.
04/01/2011
Daimler Chrysler
357435
Star Transportation, Inc.
03/15/2011
Daimler Chrysler
366933
Star Transportation, Inc.
04/01/2011


 
 

 

SCHEDULE 1.4
to
Loan and Security Agreement
 
EXISTING LETTERS OF CREDIT
 
Beneficiary
Holder
Policy
LOC Amount
Expiration Date
U.S. Fidelity & Guaranty
Bank Of America
Auto Liability, Worker's Comp.& Cargo
$22,700,000
03/01/2009
Great West Casualty
Bank Of America
Auto Liability
$1,000,000
03/01/2009
Liberty Mutual Insurance
Bank Of America
Workers' Compensation
$2,309,944
04/01/2009
FMCSA
Bank Of America
Self Insurance
$2,024,072
08/01/2009
Midwest Employers
Bank Of America
Workers' Compensation
$11,500,000
03/21/2009
Lincoln General
Bank Of America
Auto Liability
$1,000,000
03/21/2009
Clearendon National
Bank Of America
Workers Comp. 2002
$52,406
11/13/2008
Continental Casualty
Bank Of America
Liability 2002
$218,000
11/13/2008
Great American
Bank Of America
Workers Comp. 2000
$14,043
11/13/2008
Hartford
Bank Of America
Workers Comp. 04-06
$400,000
11/13/2008
Liberty Mutual
Bank Of America
Workers' Comp.& Liability 97-99
$22,500
11/13/2008
Protective Insurance
Bank Of America
Workers' Comp.& Liability 2001
$0
11/13/2008
RLI Transportation
Bank Of America
Liability 00,03-06
$1,875,000
11/13/2008
CSX Railroad
Bank Of America
 
$10,000
02/01/2009
Union Pacific
Bank Of America
 
$10,000
02/03/2009
Burlington Northern
Bank Of America
 
$10,000
02/02/2009
US Fidelity & Guaranty
Bank Of America
Auto Liability & W/C
$1,400,000
11/22/2008
ACE American Insurance
Bank Of America
Auto Liability
$1,500,000
05/10/2009
AIG
Bank Of America
Auto Liability
$2,000,000
12/31/2008
AIG
Bank Of America
Auto Liability
$2,822,597
12/31/2008
   
Total
$50,868,562
 



 
 

 

SCHEDULE 7.3
to
Loan and Security Agreement
 
ELIGIBLE REAL ESTATE
 
Location
Address and Zip Code
Owning Entity
Texarkana, Arkansas
8055 Hwy 67 N, 71854
Southern Refrigerated Transport, Inc.
Hutchins, Texas
1096 I-45 South, 75141
Covenant Transport, Inc.
Long Beach, California
1450 W. Dominquez St., 90810
Covenant Transport, Inc.
Pomona, California
1300 E. Franklin, 91766
Covenant Transport, Inc.
Allentown, Pennsylvania
4815 Crackersport Rd., 18104
Covenant Transport, Inc.
Nashville, Tennessee
1116 Polk Ave., 37224
Star Transportation, Inc.
Olive Branch, Mississippi
6850 Stateline Rd, 38654
Star Transportation, Inc.

 

 

 

 
 

 

SCHEDULE 8.5
to
Loan and Security Agreement
 
DEPOSIT ACCOUNTS
 
Depository Bank
Type of Account
Account Number
Bank of America, New York
100 N Tryon St
Charlotte, NC
Covenant Transport, Inc.
Deposit Account – Nashville, TN
Lockbox – Dallas, TX
xxxxxxxxxxxx
Lockbox - xxxxxx
Diamond Bank
425 E Runnels
Mineral Springs, AR 71851
Southern Refrigerated Transport, Inc.
Deposit Account
 
xxxxxx
Bank of America, New York
100 N Tryon St
Charlotte, NC
Star Transportation, Inc.
Deposit Account – Nashville, TN
xxxxxxxxx
Lockbox - xxxxxx
Bank of America, New York
100 N Tryon St
Charlotte, NC
Covenant Transport Solutions, Inc.
Deposit Account – Nashville, TN
Lockbox –   Dallas, TX
xxxxxxxxxxxx
Lockbox - xxxxxx
Bank of America, New York
100 N Tryon St
Charlotte, NC
Covenant Asset Management, Inc.
Deposit Account – Carson City, NV
xxxxxxxxxxxx
Bank of America, New York
100 N Tryon St
Charlotte, NC
CTG Leasing Company
Deposit Account – Nashville, TN*
 
*New Account-Not Created
xxxxxxxxxxxx
TBD (Dominion Account)
   



 
 

 

SCHEDULE 8.6.1
to
Loan and Security Agreement
 
COLLATERAL LOCATIONS
 
1.
As of the Closing Date, each Borrower has the following business locations, and no others:
 
Borrower :
Covenant Transport, Inc.
Chief Executive Office :
400 Birmingham Highway, Chattanooga, TN  37419
Other Locations :
 
 
740 Johnson Rd. Charlotte, North Carolina  28206
Leased
3049 Chief Lane, Indianapolis, Indiana  46225
Leased
1096 I-45 South, Hutchins, Texas  75141
Owned
400 Inglewood Dr, El Paso, Texas  79927
Leased
4450 Poth Road, Columbus, Ohio  43213
Leased
815 E Roth Rd, French Camp, California  95231
Leased
14714 Valley Blvd, Fontana, California  92335
Leased
1450 W. Dominquez St., Long Beach, California  90810
Owned
1300 E. Franklin, Pomona, California  91766
Owned
4815 Crackersport Rd., Allentown, Pennsylvania  18104
Owned

Borrower :
Southern Refrigerated Transport, Inc.
Chief Executive Office :
8055 Highway 67 North, Texarkana, AR  71854
Other Locations :
None

Borrower :
Star Transportation, Inc.
Chief Executive Office :
1116 Polk Avenue, Nashville, TN  37224
Other Locations :
 

14506 El Camino Lane, Knoxville, Tennessee  37917
Leased
6142 and 6200 Soutel Dr, Jacksonville, Florida  32219
Leased
10690 Cosmonaut Blvd, Orlando, Florida  32824
Leased
4517 Methodist Home Rd, Jackson, Mississippi  39213
Leased
1500 Cedar Grove Rd, Atlanta, Georgia  30288
Leased
6850 Stateline Rd, Olive Branch, Mississippi  38654
Owned

Borrower :
Covenant Transport Solutions, Inc.
Chief Executive Office :
400 Birmingham Highway, Chattanooga, TN  37419
Other Locations :
None


Borrower :
Covenant Asset Management, Inc.
Chief Executive Office :
2215-B Renaissance Drive, Las Vegas, NV  89119
Other Locations :
None


Borrower :
CTG Leasing Company
Chief Executive Office :
400 Birmingham Highway, Chattanooga, TN  37419
Other Locations :
None

2.
In the five years preceding the Closing Date, no Borrower has had any office or place of business located in any county other than as set forth above, except:

 
Covenant Asset Management, Inc. - 639 Isbell Road, Suite 390, Reno, NV  89509
 
3.
As of the Closing Date, Parent and each Subsidiary has the following business locations, and no others:
 
Parent :
Covenant Transportation Group, Inc.
Chief Executive Office :
400 Birmingham Highway, Chattanooga, TN  37419
Other Locations :
None

Subsidiary :
Covenant Transport, Inc.
Chief Executive Office :
400 Birmingham Highway, Chattanooga, TN  37419
Other Locations :
 

740 Johnson Rd. Charlotte, North Carolina  28206
Leased
3049 Chief Lane, Indianapolis, Indiana  46225
Leased
1096 I-45 South, Hutchins, Texas  75141
Owned
400 Inglewood Dr, El Paso, Texas  79927
Leased
4450 Poth Road, Columbus, Ohio  43213
Leased
815 E Roth Rd, French Camp, California  95231
Leased
14714 Valley Blvd, Fontana, California  92335
Leased
1450 W. Dominquez St., Long Beach, California  90810
Owned
1300 E. Franklin, Pomona, California  91766
Owned
4815 Crackersport Rd., Allentown, Pennsylvania  18104
Owned

Subsidiary :
Southern Refrigerated Transport, Inc.
Chief Executive Office :
8055 Highway 67 North, Texarkana, AR  71854
Other Locations :
None

Subsidiary :
Star Transportation, Inc.
Chief Executive Office :
1116 Polk Avenue, Nashville, TN  37224
Other Locations :
 

14506 El Camino Lane, Knoxville, Tennessee  37917
Leased
6142 and 6200 Soutel Dr, Jacksonville, Florida  32219
Leased
10690 Cosmonaut Blvd, Orlando, Florida  32824
Leased
4517 Methodist Home Rd, Jackson, Mississippi  39213
Leased
1500 Cedar Grove Rd, Atlanta, Georgia  30288
Leased
6850 Stateline Rd, Olive Branch, Mississippi  38654
Owned

Subsidiary :
Covenant Transport Solutions, Inc.
Chief Executive Office :
400 Birmingham Highway, Chattanooga, TN  37419
Other Locations :
None


Subsidiary :
Covenant Asset Management, Inc.
Chief Executive Office :
2215-B Renaissance Drive, Las Vegas, NV  89119
Other Locations :
None

Subsidiary :
CTG Leasing Company
Chief Executive Office :
400 Birmingham Highway, Chattanooga, TN  37419
Other Locations :
None

Subsidiary :
CVTI Receivables Corp.
Chief Executive Office :
400 Birmingham Highway, Chattanooga, TN  37419
Other Locations :
None

Subsidiary :
Volunteer Insurance Limited
Chief Executive Office :
Mutual Risk Management (Cayman) Ltd, P. O. Box 1363GT, Grand Cayman, Cayman Islands
Other Locations :
None

4.
In the five years preceding the Closing Date, neither Parent nor Subsidiary has had an office or place of business located in any county other than as set forth above, except:

 
Not applicable

5.
As of the Closing Date, the following bailees, warehouseman, similar parties and consignees hold inventory or equipment of each Obligor or a Subsidiary:

Name and Address of Party
Nature of
Relationship
Amount of Inventory/Equipment
Owner of Inventory/Equipment
None
     
       
       


 
 

 

SCHEDULE 9.1.4
to
Loan and Security Agreement


NAMES AND CAPITAL STRUCTURE
 
1.
The corporate names, jurisdictions of incorporation, and authorized and issued Equity Interests of each Obligor and each Subsidiary, as of the Closing Date, are as follows:
 
Name
Jurisdiction
Number and Class
of Authorized Shares
Number and Class
of Issued Shares
Covenant Transportation Group, Inc.
Nevada
Class A-20,000,000
Class B-5,000,000
Preferred-5,000,000
Class A-11,699,182*
Class B-2,350,000
Covenant Transport, Inc.
Tennessee
Common-2,000
Preferred-1,000
Common-2,000
Southern Refrigerated Transport, Inc.
Arkansas
Common-10,000
Common-300
Star Transportation, Inc.
Tennessee
Common-10,000
Common-3,741
Covenant Asset Management, Inc.
Nevada
Common-10,000
Common-10,000
Covenant Transport Solutions, Inc.
Nevada
Common-65,000,000
Preferred-10,000,000
Common-10,000
CTG Leasing Company
Nevada
Common-65,000,000
Preferred-10,000,000
Common-10,000
CTVI Receivables Corp.
Nevada
Common-1,000
Common-100
Volunteer Insurance Limited
Cayman Islands
Common-50,000
Common-1

*As of September 17, 2008.
 

2.
As of the Closing Date, the record holders of Equity Interests of each Obligor and each Subsidiary are as follows:
 
Name
Class of Stock
Number of Shares
Record Owner
Covenant Transportation Group, Inc.
Class A
11,699,182*
Publicly Traded Stock
Class B
2,350,000
David R. and Jacqueline F. Parker, as JTWROS
Covenant Transport, Inc.
Common
2,000
Covenant Transportation Group, Inc.
Southern Refrigerated Transport, Inc.
Common
300
Covenant Transportation Group, Inc.
Star Transportation, Inc.
Common
3,741
Covenant Transportation Group, Inc.
Covenant Asset Management, Inc.
Common
10,000
Covenant Transportation Group, Inc.
Covenant Transport Solutions, Inc.
Common
10,000
Covenant Transportation Group, Inc.
CTG Leasing Company
Common
10,000
Covenant Transport, Inc.
CVTI Receivables Corp.
Common
100
Covenant Transport, Inc. (90 shares)
Southern Refrigerated Transport, Inc. (10 shares)
Volunteer Insurance Limited
Common
1
Covenant Transportation Group, Inc.

*As of September 17, 2008.

3.
As of the Closing Date, all agreements binding on holders of Equity Interests of each Obligor and Subsidiaries with respect to such interests are as follows:

The holders of Equity Interests for each Obligor and each Subsidiary with respect to such interests are bound by the terms of the Articles of Incorporation or Memorandum of Association and Bylaws or Articles of Association, as applicable with respect to each of the specific Obligors and Subsidiaries.


 
 

 

SCHEDULE 9.1.5
to
Loan and Security Agreement
 
FORMER NAMES AND COMPANIES
 
1.
Each Obligor’s and each Subsidiary’s correct corporate name, as registered with the Secretary of State of its state of incorporation, is shown on Schedule 9.1.4.
 
2.
In the conduct of its businesses during five years preceding the Closing Date, Obligors and Subsidiaries have used the following names:
 
Entity
Fictitious, Trade or Other Name
Covenant Transportation Group, Inc.
1.     Covenant Transportation Group, Inc.
2.     Covenant Transport, Inc.
3.    Abbreviations and modifications of the names listed in 1 and 2
Covenant Transport, Inc.
1.     Covenant Transport, Inc.
2.     Covenant Transport Logistics
3.    Abbreviations and modifications of the names listed in 1 and 2
Southern Refrigerated Transport, Inc.
1.     Southern Refrigerated Transport, Inc.
2.     Abbreviations and modifications of the name listed in 1
Star Transportation, Inc.
1.     Star Transportation, Inc.
2.    Abbreviations and modifications of the name listed in 1
Covenant Asset Management, Inc.
1.     Covenant Asset Management, Inc.
2.     Abbreviations and modifications of the name listed in 1
Covenant Transport Solutions, Inc.
1.     Covenant Transport Solutions, Inc.
2.    Abbreviations and modifications of the name listed in 1
CTG Leasing Company
1.     CTG Leasing Company
2.    Abbreviations and modifications of the name listed in 1
CVTI Receivables Corp.
1.     CVTI Receivables Corp.
2.    Abbreviations and modifications of the name listed in 1
Volunteer Insurance Limited
1.    Volunteer Insurance Limited
2.    Abbreviations and modifications of the name listed in 1

3.
In the five years preceding the Closing Date, no Obligor or any Subsidiary has been the surviving corporation of a merger or combination, except:
 
 
Not applicable
 
4.
In the five years preceding the Closing Date, no Obligor or any Subsidiary has acquired any substantial part of the assets of any Person, except:
 
 
Star Transportation, Inc., which acquired substantially all of the assets of Camp Transportation, Inc. in July of 2005.
 

 
 

 

SCHEDULE 9.1.6
to
Loan and Security Agreement
 
REAL ESTATE LIENS
 

The Real Estate owned by Southern Refrigerated Transport, Inc., located at 8055 Highway 67 North in Texarkana, Arkansas 71854 (Tract No. IV), is subject to the following judgment liens:

1.
Judgment lien resulting from a judgment entered June 27, 1994 by the 102 nd Judicial District Court of Bowie County, Texas in cause number D-102-CV-91-1367, styled Leonard Lear vs. Ricky Ray and Pauline Ray , and registered as a foreign judgment in the Chancery Court of Miller County, Arkansas on April 19, 2000, as cause numbered E-2000-207-2.
2.
Judgment lien resulting from a judgment entered November 20, 2000, by the Circuit Court of Miller County, Arkansas, Civil Division, in cause numbered CIV-00-187-1, styled Cajun Machine & Welding, Inc. vs. Ricky Ray, individually and d/b/a A-1 Septic Tank Service , and recorded in Law Book JJ, Page 702, and in Judgment Book M, Page 96, Records of Miller County, Arkansas.
3.
Judgment lien resulting from a judgment entered July 13, 2000, by the District Court of Tulsa County, State of Oklahoma in cause numbered CS-99-4364, styled RDB Sales Co. Inc. vs. Ricky Ray d/b/a A-1 Septic , and registered as a foreign judgment in the Circuit Court of Miller County, Arkansas on April 4, 2001, as cause numbered CIV-2001-81-1 and recorded in Judgment Book M, Page 99, Records of Miller County, Arkansas.
4.
Judgment lien resulting from a judgment entered March 2, 2004, by the County Court at Law #2 of Gregg County, Texas in cause numbered 2003-2934-CCL2, styled David Lebay, Plaintiff vs. Ricky Ray , Defendant , and registered as a foreign judgment in the Circuit Court of Miller County, Arkansas on March 23, 2004 and recorded in Judgment Book N, Page 243, Records of Miller County, Arkansas.



 

 
 

 

SCHEDULE 9.1.9
to
Loan and Security Agreement
 
SURETY OBLIGATIONS

None


 

 
 

 

SCHEDULE 9.1.12
to
Loan and Security Agreement
 
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
 
 
1.
Each Obligor’s and Subsidiaries’ patents:
 
Patent
Owner
Status in
Patent Office
Federal
Registration No.
Registration
Date
None
       
         

2.
Each Obligor’s and Subsidiaries’ trademarks:
 
Trademark
Owner
Status in
Trademark Office
Federal
Registration No.
Registration
Date
Wordmark "COVENANT TRANSPORT"
Covenant Transport, Inc.
Current
Registration No. 2899898
Nov. 2, 2004
Drawing
Covenant Transport, Inc.
Current
Registration No. 2910898
Dec. 14, 2004
Wordmark "QUALITY AND INTEGRITY IS OUR COVENANT"
Covenant Transport, Inc.
Pending:  Applied
Dec. 7, 2007
Serial No. 77346361
None

3.
Each Obligors’ and Subsidiaries’ copyrights:
 
Copyright
Owner
Status in
Copyright Office
Federal
Registration No.
Registration
Date
None
       
         
         

4.
Each Obligor’s and Subsidiaries’ licenses (other than routine business licenses, authorizing them to transact business in local jurisdictions):
 
Licensor
Description of License
Term of License
Royalties Payable
Covenant Transport, Inc.
Hazardous Materials Transportation License (CA)
05/12/08-05/31/09
 
Covenant Transport, Inc.
Hazardous Materials (CO)
11/26/07-01/01/09
 
Covenant Transport, Inc.
Commercial Vehicle Operator Registration Certificate (Ontario)
02/23/89-unspecified
 
Covenant Transport, Inc.
Licence/Certificate (Manitoba)
04/02/04-unspecified
 
Covenant Transport, Inc.
Operating Licence (Ontario)
11/06/93-unspecified
 
Covenant Transport, Inc.
Hazardous Materials Certificate of Registration (USA)
06/03/08-06/30/09
 
Covenant Transport, Inc.
Permit for Private Mechanical and Towing Service (NJ Turnpike Authority)
03/05/96-unspecified
 
Covenant Transport, Inc.
Permit for Private Tire Service (NJ Turnpike Authority)
03/05/96-unspecified
 
Covenant Transport, Inc.
USDOT #273818;
MC #188102
   
Covenant Transport Solutions, Inc.
Federal Highway Administration License
10/02/98-unspecified
 
Covenant Transport Solutions, Inc.
MC #345803
   
Southern Refrigerated Transport, Inc.
Illinois Interstate Motor Fuel Use Tax License
12/01/07-12/31/08
 
Southern Refrigerated Transport, Inc.
Hazardous Materials Certificate of Registration (USA)
06/27/07-06/30/08
 
Southern Refrigerated Transport, Inc.
Hazardous Materials Transportation License (CA)
09/19/07-09/30/08
 
Southern Refrigerated Transport, Inc.
Hazardous Materials (CO)
03/13/08-03/13/09
 
Southern Refrigerated Transport, Inc.
USDOT #276010;
MC #193849
   
Star Transportation, Inc.
Hazardous Materials Certificate of Registration (USA)
06/15/07-06/30/08
 
Star Transportation, Inc.
Interstate Commerce Commission Permit
02/12/92-unspecified
 
Star Transportation, Inc.
Highway use Tax Certificate of Registration (NY)
09/11/07-12/31/08
 
Star Transportation, Inc.
Special Use Permit From Roanoke into Big Island (VA)
03/20/98-unspecified
 
Star Transportation, Inc.
Special Use Permit From Roanoke into Covington (VA)
03/31/98-unspecified
 
Star Transportation, Inc.
Authority to operating motor vehicles (WY)
02/14/92-unspecified
 
Star Transportation, Inc.
Operating License (Ontario)
09/08/01-unspecified
 
Star Transportation, Inc.
USDOT #222454;
MC #157677
   

 
 

 

SCHEDULE 9.1.15
to
Loan and Security Agreement
 
ENVIRONMENTAL MATTERS
 
None, subject to any responsive information set forth in the Phase 1 environmental site assessment reports provided by the Company.




 
 

 

SCHEDULE 9.1.16
to
Loan and Security Agreement
 
RESTRICTIVE AGREEMENTS
 
Entity
Agreement
Restrictive Provisions
None
   
     
     
     


 
 

 

SCHEDULE 9.1.17
to
Loan and Security Agreement
 
LITIGATION
 
1.   Proceedings and investigations pending against any Obligor or Subsidiaries:
 
COVENANT TRANSPORTATION GROUP, INC. and COVENANT TRANSPORT SOLUTIONS, INC.
 
Name of Plaintiff(s):
BNSF Logistics, LLC ("BNSF"), a subsidiary of BNSF Railway
Court:
Circuit Court of Washington County, Arkansas
Case Number:
CIV-3039-02
Amount Claimed:
Unspecified
Brief Description:
Plaintiffs filed an amended complaint (the "Amended Complaint") on April 16, 2008 to name Covenant Transportation Group, Inc. ("CTG") and Covenant Transport Solutions, Inc. ("Solutions") as defendants in a lawsuit previously filed by BNSF on December 21, 2007 against nine former employees of BNSF (the "Individuals") who, after leaving BNSF, accepted employment with Solutions.  The original complaint alleged that the Individuals misappropriated and otherwise misused BNSF's trade secrets, proprietary information, and confidential information (the "BNSF Information") with the purpose of unlawfully competing with BNSF in the transportation logistics and brokerage business, and that the Individuals interfered unlawfully with BNSF's customer relationships.  In addition to the allegations from the original complaint, the Amended Complaint alleges that CTG and Solutions acted in conspiracy with the Individuals to misappropriate the BNSF Information and to use it unlawfully to compete with BNSF.  The Amended Complaint also alleges that CTG and Solutions interfered with the business relationship that existed between BNSF and the Individuals and between BNSF and its customers.  BNSF seeks injunctive relief, specific performance, and an unspecified amount of damages.  On April 28, 2008, an Answer to the Amended Complaint was filed. A jury trial in this matter has been set for November 3, 2008. An estimate of the possible loss, if any, or the range of the loss cannot be made at this time.

 
COVENANT TRANSPORT, INC.
 
Name of Plaintiff(s):
HENDRY, MARY L., next of kin of
HENDRY, TIMOTHY BRUCE, deceased, Plaintiff
Court:
Chancery Court, Hamilton County, TN
Case Number:
07-0701
Amount Claimed:
Unspecified
Brief Description:
Plaintiff filed suit on August 10, 2007 for workers' compensation benefits under the Tennessee Workers' Compensation Act alleging that on or about June 28, 2006, the decedent sustained a compensable injury that resulted in the decedent's death during the scope of the decedent's employment with Covenant Transport, Inc. Plaintiff requests that the court determine the nature and extent of the decedent's disability and award compensation and such other benefits as are provided by law.


COVENANT TRANSPORT, INC.
 
Name of Plaintiff(s):
WHEATLEY, YONG, widow and dependant of
WHEATLEY, TERRY, deceased
Court:
Chancery Court, Hamilton County, TN
Case Number:
07-0968
Amount Claimed:
Unspecified
Brief Description:
Plaintiff filed suit on November 7, 2007 for workers' compensation benefits under the Tennessee Workers' Compensation Act (the "TWCA") alleging that on or about November 2, 2006, the decedent sustained an injury, which resulted in the decedent's death during the scope of the decedent's employment with Covenant Transport, Inc.  Plaintiff requests the court award the maximum death benefits and the bad faith penalty provided for under the TWCA and other relief available under the law.

COVENANT TRANSPORT, INC.
 
Name of Plaintiff(s):
ROCK LOGISTICS, INC.
Court:
US District Court – Eastern District of Tennessee, Chattanooga Division, TN
Case Number:
1:08-cv-00148
Amount Claimed:
$6,000,000
Brief Description:
Plaintiff filed a complaint on June 3, 2008, in Chancery Court, Hamilton County, TN for damages that allegedly occurred on or about November 14, 2007, in connection with a certain shipment.  Plaintiff alleges that the defendant violated various provisions of the Tennessee Consumer Protection Act.  Plaintiff is suing the defendant for $3,000,000 compensatory damages plus $3,000,000 punitive damages, plus attorney's fees.  Case transferred to US District Court-Eastern District of Tennessee, Chattanooga Division, TN June 25, 2008.


COVENANT TRANSPORT, INC.
 
Name of Plaintiff(s):
DICKERSON, LORENA
Court:
US District Court – Eastern District Court of Tennessee, Chattanooga Division, TN
Case Number:
1:07:07-CV-00265
Amount Claimed:
$750,000.00
Brief Description:
Plaintiff filed a complaint in the Chancery Court of Hamilton County, Tennessee, on September 28, 2007.  Defendant filed a Notice of Removal on October 30, 2007.  Plaintiff states she filed suit to secure protection and redress for an alleged deprivation of rights granted by the Tennessee Human Rights Act ("THRA") and the Family Medical Leave Act ("FMLA"), alleging she was discriminated against in the terms and conditions of her employment on the basis of her sex; and her association with a disabled individual in violation of the Tennessee Handicap Act.  Plaintiff also alleges she was terminated in violation of the FMLA.


STAR TRANSPORTATION, INC.
 
Name of Plaintiff(s):
JENKINS, SALLY J. (P1)
GRANGE INSURANCE (P2)
Court:
Circuit Court, Davidson County, TN
Case Number:
03C2578
Amount Claimed:
$5,000,000
Brief Description:
Plaintiffs filed a complaint on September 11, 2003, alleging negligence of Star Transportation, Inc. resulted in injury of Jenkins on or about October 16, 2002.

2.
Threatened proceedings or investigations of which any Obligor or any Subsidiary is aware:
 
None


 
 

 

SCHEDULE 9.1.19
to
Loan and Security Agreement
 
PENSION PLAN DISCLOSURES
 

None
 


 
 

 

SCHEDULE 9.1.21
to
Loan and Security Agreement
 
LABOR CONTRACTS
 
Obligors and Subsidiaries are party to the following collective bargaining agreements, management agreements and consulting agreements:
 
Parties
Type of Agreement
Term of Agreement
None
   
     
     
     



 
 

 

SCHEDULE 10.1.12
to
Loan and Security Agreement

 
POST-CLOSING OBLIGATIONS
 
 
Items to be Performed
Due Date
1.
Agent shall have received certified evidence from the Secretary of the State of Nevada that CVTI Receivables Corp. shall have been merged with and into Covenant Transportation Group, Inc.
30 days from Closing Date
2.
Agent shall have received original certificates of title for all Revenue Equipment deemed Eligible Revenue Equipment as of the Closing Date.
30 days from Closing Date
3.
Agent shall have received acknowledgments of all filings or recordations necessary to amend the Liens in favor of Regions Bank, in form and substance satisfactory to Agent.
60 days from Closing Date
4.
Agent shall have received revised stock certificates for each Borrower (other than CTG Leasing, Inc.) reflecting the change in the owner’s name from “Covenant Transport, Inc.” to “Covenant Transportation Group, Inc.”, in form and substance satisfactory to Agent.
30 days from Closing Date
5.
Agent shall have received the final loan title insurance policies for each of the Eligible Real Estate properties, in the form of the pro-forma title policy referenced in the closing instruction letter dated September 22, 2008 executed by Nebraska Title Company.
60 days from Closing Date


 
 

 

SCHEDULE 10.2.1
to
Loan and Security Agreement
 
EXISTING DEBT
 
None

 

 

 

 
 

 

SCHEDULE 10.2.2
to
Loan and Security Agreement
 
EXISTING LIENS


The Real Estate owned by Southern Refrigerated Transport, Inc., located at 8055 Highway 67 North in Texarkana, Arkansas 71854 (Tract No. IV), is subject to the following judgment liens:

1.
Judgment lien resulting from a judgment entered June 27, 1994 by the 102 nd Judicial District Court of Bowie County, Texas in cause number D-102-CV-91-1367, styled Leonard Lear vs. Ricky Ray and Pauline Ray , and registered as a foreign judgment in the Chancery Court of Miller County, Arkansas on April 19, 2000, as cause numbered E-2000-207-2.
2.
Judgment lien resulting from a judgment entered November 20, 2000, by the Circuit Court of Miller County, Arkansas, Civil Division, in cause numbered CIV-00-187-1, styled Cajun Machine & Welding, Inc. vs. Ricky Ray, individually and d/b/a A-1 Septic Tank Service , and recorded in Law Book JJ, Page 702, and in Judgment Book M, Page 96, Records of Miller County, Arkansas.
3.
Judgment lien resulting from a judgment entered July 13, 2000, by the District Court of Tulsa County, State of Oklahoma in cause numbered CS-99-4364, styled RDB Sales Co. Inc. vs. Ricky Ray d/b/a A-1 Septic , and registered as a foreign judgment in the Circuit Court of Miller County, Arkansas on April 4, 2001, as cause numbered CIV-2001-81-1 and recorded in Judgment Book M, Page 99, Records of Miller County, Arkansas.
4.
Judgment lien resulting from a judgment entered March 2, 2004, by the County Court at Law #2 of Gregg County, Texas in cause numbered 2003-2934-CCL2, styled David Lebay, Plaintiff vs. Ricky Ray , Defendant , and registered as a foreign judgment in the Circuit Court of Miller County, Arkansas on March 23, 2004 and recorded in Judgment Book N, Page 243, Records of Miller County, Arkansas.




 
 

 

SCHEDULE 10.2.6
to
Loan and Security Agreement
 
EXISTING LOANS
 

1.
Subordinated Promissory Note dated January 7, 2005, made by Transplace Texas, LP to Covenant Transportation Group, Inc. (f/k/a Covenant Transport, Inc.) in the amount of $2,743,646.
2.
Note Extension Agreement dated January 5, 2007, between Transplace Texas, LP and Covenant Transportation Group, Inc. (f/k/a Covenant Transport, Inc.)



 
 

 

SCHEDULE 10.2.16
to
Loan and Security Agreement
 
EXISTING AFFILIATE TRANSACTIONS
 

Southern Refrigerated Transport, Inc. pays an annual rent in the amount of $2,300 to Tony Smith, President of Southern Refrigerated Transport, Inc., for 4 acres of property in Ashdown, Arkansas.

 

 
Back to Form 10-K
 
 

 


Exhibit 21


SUBSIDIARIES OF THE REGISTRANT



Covenant Transport, Inc., a Tennessee corporation

Southern Refrigerated Transport, Inc., an Arkansas corporation

Star Transportation, Inc., a Tennessee corporation

Covenant Transport Solutions, Inc., a Nevada corporation

Covenant Logistics, Inc., a Nevada corporation

Covenant Asset Management, Inc., a Nevada corporation

CTG Leasing Company, a Nevada corporation

Volunteer Insurance Limited, a Cayman Islands company
 
Back to Form 10-K

 
 

 


Exhibit 23


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders
Covenant Transportation Group, Inc.:

We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-134939, 033-88686, 333-2654, 333-67559, 333-37356, 333-50174, 333-88486, and 333-105880) of Covenant Transportation Group, Inc. of our report dated March 30, 2010, relating to the consolidated balance sheets of Covenant Transportation Group, Inc. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity, and comprehensive loss and cash flows for each of the years in the three-year period ended December 31, 2009.


/s/KPMG, LLP

Atlanta, Georgia

March 30, 2010
 
Back to Form 10-K

 
 

 


Exhibit 31.1


CERTIFICATIONS


I, David R. Parker, certify that:

1.           I have reviewed this annual report on Form 10-K of Covenant Transportation Group, Inc.;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.           Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.           Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.           The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

e.           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

f.            Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date:   March 30, 2010
/s/ David R. Parker
 
David R. Parker
Chief Executive Officer
 
 
Back to Form 10-K

 
 

 


Exhibit 31.2


CERTIFICATIONS


I, Richard B. Cribbs, certify that:

1.           I have reviewed this annual report on Form 10-K of Covenant Transportation Group, Inc.;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.           Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.           Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.           The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

e.           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

f.            Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date:  March 30, 2010
/s/ Richard B. Cribbs
 
Richard B. Cribbs
 
Principal Financial Officer
 
Back to Form 10-K

 
 

 



Exhibit 32.1


CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Annual Report of Covenant Transportation Group, Inc. (the "Company") on Form 10-K for the year ending December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David R. Parker, Chief Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify, that to the best of my knowledge:

(1)           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date:  March 30, 2010
/s/ David R. Parker
 
David R. Parker
 
Chief Executive Officer


A signed original of this written statement required by Section 906 has been provided to Covenant Transportation Group, Inc. and will be retained by Covenant Transportation Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
 
 
Back to Form 10-K

 
 

 


Exhibit 32.2



CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Annual Report of Covenant Transportation Group, Inc. (the "Company") on Form 10-K for the year ending December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard B. Cribbs, the principal financial officer of the Company, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify, that to the best of my knowledge:

(1)           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date:   March 30, 2010
/s/ Richard B. Cribbs
 
Richard B. Cribbs
 
Principal Financial Officer


A signed original of this written statement required by Section 906 has been provided to Covenant Transportation Group, Inc. and will be retained by Covenant Transportation Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
 
 
Back to Form 10-K