-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EqTiEehwYrDnZSSrLNVw/olzL+B4uRPu7s+MCYQPtHLO4+2x6WUZ9evSHRS/iBPm NHi5k+C8VILQCarY8nOU5Q== 0001000577-01-500008.txt : 20010821 0001000577-01-500008.hdr.sgml : 20010821 ACCESSION NUMBER: 0001000577-01-500008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010820 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMON TRANSPORTATION SERVICES INC CENTRAL INDEX KEY: 0001000577 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 870545608 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27208 FILM NUMBER: 1719493 BUSINESS ADDRESS: STREET 1: 5175 W 2100 SOUTH STREET 2: P O BOX 26297 CITY: WEST VALLEY CITY STATE: UT ZIP: 84123 BUSINESS PHONE: 8007779100 MAIL ADDRESS: STREET 1: P O BOX 26297 CITY: SALT LAKE CITY STATE: UT ZIP: 84126-0297 10-Q 1 jun01_10q.txt FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549-1004 ------------------------------------ FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-27208 Simon Transportation Services Inc. (Exact name of registrant as specified in its charter) Nevada 87-0545608 (State or other jurisdiction of (I.R.S. employer identification number) incorporation or organization) 5175 West 2100 South West Valley City, Utah 84120 (801) 924-7000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive office) 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 the filing requirements for at least the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (July 31, 2001). Class A Common Stock, $.01 par value: 6,115,109 shares Class B Common Stock, $.01 par value: None Exhibit Index is on Page 13
SIMON TRANSPORTATION SERVICES INC. TABLE OF CONTENTS PART I FINANCIAL INFORMATION PAGE NUMBER Item 1. Financial Statements: Condensed consolidated statements of financial position as of June 30, 2001 and September 30, 2000 3 Condensed consolidated statements of operations for the three months and nine months ended June 30, 2001 and 2000 4 Condensed consolidated statements of cash flows for the nine months ended June 30, 2001 and 2000 5 Notes to condensed consolidated financial statements 6 Item 2. Management's discussion and analysis of financial condition and results of operations 7 Item 3. Quantitative and qualitative disclosures about market risk 14 PART II OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 16
SIMON TRANSPORTATION SERVICES INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ASSETS June 30, 2001 September 30, 2000 ------------- ------------------ (Unaudited) Current Assets: Cash $ 13,432,325 $ 3,331,119 Receivables, net of allowance for doubtful accounts of $661,000 and $586,000, respectively 33,743,441 29,932,630 Operating supplies 1,240,425 1,330,462 Prepaid expenses and other 8,288,642 6,657,644 ----------------------- ------------------------ Total current assets 56,704,833 41,251,855 ----------------------- ------------------------ Property and Equipment, at cost: Land 8,884,752 8,884,752 Revenue equipment 36,477,027 37,114,744 Buildings and improvements 18,583,707 18,525,612 Office furniture and equipment 9,809,172 9,262,994 ----------------------- ------------------------ 73,754,658 73,788,102 Less accumulated depreciation and amortization (25,481,090) (24,384,568) ----------------------- ------------------------ 48,273,568 49,403,534 ----------------------- ------------------------ Other Assets 2,188,572 451,603 ----------------------- ------------------------ $ 107,166,973 $ 91,106,992 ======================= ======================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 4,314,244 $ 1,841,735 Loan from shareholder 7,091,009 -- Current portion of capitalized lease obligations 733,640 1,595,385 Accounts payable 8,252,421 7,721,099 Accrued liabilities 7,620,606 5,242,894 Accrued claims payable 9,116,842 8,880,638 ----------------------- ------------------------ Total current liabilities 37,128,762 25,281,751 ----------------------- ------------------------ Long-Term Debt, net of current portion 35,237,169 16,376,791 ----------------------- ------------------------ Deferred Income Taxes 4,604,318 4,604,318 ----------------------- ------------------------ Stockholders' Equity: Preferred stock, $.01 par value, 5,000,000 shares authorized: Series I convertible preferred stock, 600,000 shares designated, 190,705 and zero shares issued, respectively (liquidation preference of $6,674,682) 3,629,003 -- Class A common stock, $.01 par value, 20,000,000 shares authorized, 6,291,709 and 6,287,709 shares issued, respectively 62,917 62,877 Additional paid-in capital 48,305,088 48,285,578 Warrants outstanding 3,045,679 -- Treasury stock, 176,600 shares held at cost (1,053,147) (1,053,147) Accumulated deficit (23,792,816) (2,451,176) ----------------------- ------------------------ Total stockholders' equity 30,196,724 44,844,132 ----------------------- ------------------------ $ 107,166,973 $ 91,106,992 ======================= ======================== The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
SIMON TRANSPORTATION SERVICES INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended For the Nine Months Ended -------------------------------------------------------------------------- June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000 ------------- ------------- ------------- ------------- Operating Revenue $ 74,736,534 $ 60,947,670 $ 204,309,707 $169,966,928 -------------------------------------------------------------------------- Operating Expenses: Salaries, wages, and benefits 29,259,120 24,720,374 81,104,883 69,483,898 Fuel & fuel taxes 16,195,058 13,824,960 45,506,927 36,394,774 Operating supplies and expenses 10,431,763 7,221,985 28,352,050 20,466,909 Taxes and licenses 2,575,346 1,682,139 7,145,317 5,072,350 Insurance and claims 4,729,324 1,925,803 11,937,846 4,937,940 Communications and utilities 1,512,129 1,003,943 4,116,270 2,811,961 Depreciation and amortization 1,194,262 1,060,415 3,791,196 3,245,230 Rent 17,555,910 9,590,497 42,013,267 26,993,666 -------------------------------------------------------------------------- Total operating expenses 83,452,912 61,030,116 223,967,756 169,406,728 -------------------------------------------------------------------------- Operating earnings (loss) (8,716,378) (82,446) (19,658,049) 560,200 Net interest expense (805,030) (335,444) (1,683,591) (1,076,992) -------------------------------------------------------------------------- Loss before income taxes (9,521,408) (417,890) (21,341,640) (516,792) Benefit for income taxes -- 150,440 -- 186,045 -------------------------------------------------------------------------- Net loss $ (9,521,408) $ (267,450) $ (21,341,640) $ (330,747) ========================================================================== Net loss per common share: Basic $ ( 1.56) $ ( 0.04) $ (3.49) $ (0.05) ========================================================================== Diluted $ ( 1.56) $ ( 0.04) $ (3.49) $ (0.05) ========================================================================== Weighted average common shares outstanding: Basic 6,115,109 6,110,109 6,114,944 6,110,109 ========================================================================== Diluted 6,115,109 6,110,109 6,114,944 6,110,109 ========================================================================== The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
SIMON TRANSPORTATION SERVICES INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended ---------------------------------------------- June 30, 2001 June 30, 2000 ------------- ------------- Cash Flows From Operating Activities: Net loss $ (21,341,640) $ (330,747) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 3,791,196 3,245,230 Changes in operating assets and liabilities: Receivables, net (3,810,811) (3,772,556) Operating supplies 90,037 (199,304) Prepaid expenses and other (1,630,998) (1,423,122) Deferred tax asset -- (14,980) Other assets (1,736,969) (19,902) Accounts payable 531,322 (803,190) Income taxes receivable -- 1,656,338 Accrued liabilities 2,377,712 (66,264) Accrued claims payable 236,204 33,835 ---------------------------------------------- Net cash used in operating activities (21,493,947) (1,694,662) ---------------------------------------------- Cash Flows From Investing Activities: Purchase of property and equipment (8,647,269) (14,037,104) Proceeds from the sale of property and equipment 5,986,039 16,340,661 ---------------------------------------------- Net cash (used in) provided by investing activities (2,661,230) 2,303,557 ---------------------------------------------- Cash Flows From Financing Activities: Proceeds from issuance of debt 34,286,009 -- Principal payments on long-term debt (11,953,563) (5,686,469) Borrowings under line-of-credit agreement 6,091,450 3,000,000 Principal payments under capitalized lease obligations (861,745) (424,557) Proceeds from issuance of preferred stock and warrants 6,674,682 -- Proceeds from issuance of Class A common stock 19,550 2,475 ---------------------------------------------- Net cash provided by (used in) financing activities 34,256,383 (3,108,551) ---------------------------------------------- Net Increase (Decrease) In Cash 10,101,206 (2,499,656) Cash at Beginning of Period 3,331,119 8,658,268 ---------------------------------------------- Cash at End of Period $ 13,432,325 $ 6,158,612 ============================================== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest $ 1,531,276 $ 1,076,992 Cash paid during the period for income taxes 44,932 54,175 The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
SIMON TRANSPORTATION SERVICES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The condensed consolidated financial statements include the accounts of Simon Transportation Services Inc., a Nevada holding company, and its wholly-owned subsidiary, Dick Simon Trucking, Inc. together with its wholly-owned limited liability company, Simon Terminal, LLC (together, the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. The financial statements have been prepared, without audit, in accordance with accounting principles generally accepted in the United States, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments which are necessary for a fair presentation of the results for the interim periods presented, such adjustments being of a normal recurring nature. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. The September 30, 2000 condensed consolidated statement of financial position was derived from the audited balance sheet of the Company for the year then ended. It is suggested that these condensed consolidated financial statements and notes thereto be read in conjunction with the consolidated financial statements and notes thereto included in the Form 10-K of Simon Transportation Services Inc. for the year ended September 30, 2000. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year. Note 2. Convertible Preferred Stock and Related Warrants Effective June 30, 2001, the Company agreed to issue 190,705 shares of Series I preferred stock with detachable warrants to purchase an additional 190,705 shares of Series I preferred stock to a major stockholder in exchange for cancellation of $6.7 million in advances, or $35 per preferred share issued. The warrants are exercisable at a price of $35 per share or any lower price at which the Company issues its preferred or common stock or any options, rights, warrants, or other securities convertible into common or preferred stock during the term of the warrant. Dividends accrue at 10% per annum, based on the $35 per share value, and the Series I preferred shares have a liquidation preference over all other classes or series of capital stock based upon the $35 per share value, plus accrued dividends. The proceeds have been allocated between the Series I preferred stock and the warrants based on their estimated relative fair values. For purposes of the allocation, the estimated fair value of Series I preferred shares was determined to be the $35 per share price and the fair value of the warrants was estimated using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 5.29%, dividend yield of 0%, volatility factor of 48.5% and an expected term of 10 years. Each share of Series I preferred stock is convertible into 10 shares of Class A Common Stock at the earlier of September 30, 2001, a change-in-control of the Company, or a sale of all or substantially all of the assets of the Company. During the quarter ending September 30, 2001, the Company will record a non-cash dividend related to the issuance of Series I preferred stock in the amount of approximately $4.3 million representing the value of the beneficial conversion feature. The beneficial conversion feature was calculated for financial reporting purposes based on the difference between the portion of the total proceeds allocated to the Series I preferred shares of $1.90 per share and $4.18 per share, the closing market price as of June 29, 2001 of the common shares into which the Series I preferred shares are convertible. In connection with the preferred stock subscription agreement, the Company and the stockholder entered into a warrant agreement. The Company is negotiating another investment of approximately $2.0 million in exchange for preferred stock and warrants with a corporation controlled by Jerry Moyes, the Company's Chairman of the Board, which the Company expects to complete during the quarter ending September 30, 2001. Note 3: Loans from Stockholder During the quarter, the Company borrowed funds from a major stockholder to temporarily finance the acquisition of equipment. At June 30, 2001, the Company owed $7,091,009 to the stockholder. The Company received funding for this equipment through a financial institution and repaid the entire amount borrowed from the stockholder following the end of the quarter. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Except for the historical information contained herein, the discussion in this quarterly report on Form 10-Q contains forward-looking statements that involve risk, assumptions, and uncertainties that are difficult to predict. Words such as "anticipate," "believe," "estimate," "project," "may," "could," "expects," "likely," variations of these words, and similar expressions, are intended to identify such forward-looking statements. Such statements are based upon the current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties. The Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements. The Company's actual results could differ materially from those discussed herein. Without limitation, factors that could cause or contribute to such differences include economic recessions or downturns in customers' business cycles, excessive increases in capacity within truckload markets, surplus inventories, decreased demand for transportation services offered by the Company, increases or rapid fluctuations in inflation, interest rates, fuel prices and fuel hedging, the availability and costs of attracting and retaining qualified drivers and owner-operators, increases in insurance premiums and deductible amounts relating to accident, cargo, workers' compensation, health, and other claims, seasonal factors such as harsh weather conditions that increase operating costs, the resale value of used equipment, the Company's ability to access adequate sources of capital, and the ability to negotiate, consummate, and integrate acquisitions. The Company's fiscal year ends on September 30 of each year. Thus, the fiscal periods discussed in this report represent the Company's third fiscal quarters and nine months of its 2001 and 2000 fiscal years, respectively. On January 22, 2001, Dick Simon Trucking, Inc., a wholly-owned subsidiary of the Company, completed the acquisition of a portion of the trucking assets of Westway Express, Inc., a refrigerated carrier based in Commerce City, Colorado, and Albuquerque, New Mexico. Dick Simon Trucking, Inc. completed the acquisition of a portion of the assets of refrigerated carrier Gerald E. Ort Trucking, Inc. of New London, Wisconsin, on March 1, 2001. The Company has sustained substantial operating losses during the past three fiscal quarters and anticipates a loss during the fourth fiscal quarter of 2001. During the most recent quarter, the Company received approximately $7.0 million in advances and an equity contribution of approximately $6.7 million from a major stockholder to maintain the borrowing base on its line of credit and to obtain adequate liquidity. Our Chairman of the Board, Jerry Moyes, also personally guaranteed a significant portion of the Company's borrowings. The Company and a corporation controlled by Mr. Moyes are currently negotiating the terms of an additional equity contribution of approximately $2.0 million. There can be no assurance that the stockholder or Mr. Moyes will continue to provide sources of liquidity. The Company operates a tractor-trailer fleet comprised of both Company-owned vehicles and vehicles obtained under leases from independent contractors ("owner operators") and third-party finance companies. Fluctuations among expense categories may occur as a result of changes in the relative percentage of the fleet obtained through equipment that is owned versus equipment that is leased from owner operators or financing sources. Costs associated with revenue equipment acquired under operating leases or through agreements with owner operators are expensed as "rent." For these categories of equipment the Company does not incur costs such as interest and depreciation as it might with owned equipment. In addition, independent contractor tractors, driver compensation, fuel, communications, and certain other expenses are borne by the owner operators and are not incurred by the Company. Obtaining equipment from owner operators and under operating leases reduces capital expenditures and on-balance sheet leverage and effectively shifts expenses from interest to "above the line" operating expenses. The fleet profile of acquired companies and the Company's relative recruiting and retention success with Company-employed drivers and owner operators will cause fluctuations from time-to-time in the percentage of the Company's fleet that is owned versus obtained from owner operators and under operating leases. Results of Operations Three months ended June 30, 2001 and 2000 Operating revenue increased $13.8 million (22.6%) to $74.7 million for the three months ended June 30, 2001, from $60.9 million for the corresponding period of 2000. The increase in operating revenue was primarily attributable to a 24.9% increase in weighted average tractors resulting from the Westway and Ort acquisitions, to 2,315 in the 2001 period from 1,854 in the corresponding 2000 period. The increase was offset by a decrease in average revenue per tractor per week, including fuel surcharge, to $2,508 in the 2001 period from $2,529 in the 2000 period. The decrease in average revenue per tractor in the 2001 period is primarily attributable to lower utilization due to soft freight demand and an increase in empty miles percentage. Salaries, wages, and benefits increased $4.6 million (18.4%) to $29.3 million during the quarter ended June 30, 2001, from $24.7 million in the 2000 period. As a percentage of revenue, salaries, wages, and benefits decreased to 39.1% of revenue for the three months ended June 30, 2001, from 40.6% for the corresponding period of 2000. The decrease is the result of two offsetting components. Since October of 2000, the Company has replaced its tractors scheduled for trade with equipment owned by owner operators resulting in a decrease in the percentage of the Company's fleet supplied by Company drivers. Payments for the use of the equipment and services provided by owner operators are classified as rent. This was partially offset by the April 1, 2001, increase in wages for the Company's experienced drivers by an average of three cents per mile. In addition, drivers with less than one year of experience now receive a one cent per mile increase after each three month period during the first year of employment. Fuel and fuel taxes increased $2.4 million (17.1%) to $16.2 million during the quarter ended June 30, 2001, from $13.8 million in the 2000 period. As a percentage of revenue, fuel and fuel taxes decreased to 21.7% of revenue for the three months ended June 30, 2001, from 22.7% for the corresponding period of 2000, principally as a result of the increase in the percentage of owner operators in the Company's fleet. This was partially offset by an increase in average fuel prices. The Company has agreements in place with a substantial number of customers who have agreed to pay fuel surcharges to help offset the escalation in fuel prices. However, increased fuel prices are not fully offset by these surcharges. Operating supplies and expenses increased $3.2 million (44.4%) to $10.4 million during the quarter ended June 30, 2001, from $7.2 million in the 2000 period. As a percentage of revenue, operating supplies and expenses increased to 14.0% of revenue for the three months ended June 30, 2001, from 11.8% for the corresponding period of 2000. The increase is primarily attributable to increased recruiting and other costs associated with driver turnover. Taxes and licenses increased $0.9 million (53.1%) to $2.6 million during the quarter ended June 30, 2001, from $1.7 million for the corresponding period of 2000. As a percentage of revenue, taxes and licenses increased to 3.4% of revenue for the three months ended June 30, 2001, from 2.8% for the corresponding period of 2000. The increase is primarily attributable to the payment of federal highway use tax on vehicles that have been removed from service and replaced with new equipment. Insurance and claims increased $2.8 million (145.6%) to $4.7 million during the quarter ended June 30, 2001, from $1.9 million for the corresponding period of 2000. As a percentage of revenue, insurance and claims increased to 6.3% of revenue for the three months ended June 30, 2001, from 3.2% for the corresponding period of 2000. The increases are primarily the result of increased claims associated with driver turnover. Effective October 1, 1999, the Company adopted a fully-developed claims expense estimate based on an actuarial computation of the ultimate liability. Both the method formerly used by the Company and the fully-developed method are acceptable under accounting principles generally accepted in the United States. Communications and utilities increased $0.5 million (50.6%) to $1.5 million during the quarter ended June 30, 2001, from $1.0 million for the corresponding period of 2000. As a percentage of revenue, communications and utilities increased to 2.0% of revenue for the three months ended June 30, 2001, compared with 1.6% for the corresponding period of 2000. The Company pays a fixed base charge per tractor for its satellite communications. The Company increased its fleet size with the Westway and Ort acquisitions, but experienced lower utilization of its equipment. Therefore, revenue did not increase proportionately with the increase in fixed satellite communication charges associated with a larger fleet. In addition, the Company incurred additional communication charges associated with the operation of new terminal facilities acquired in the Westway and Ort acquisitions. Depreciation and amortization increased $0.1 million (12.6%) to $1.2 million during the quarter ended June 30, 2001, from $1.1 million for the corresponding period of 2000. As a percentage of revenue, depreciation and amortization (adjusted for the net gain on the sale of property and equipment) decreased slightly to 1.6% of revenue for the three months ended June 30, 2001, from 1.7% for the corresponding period of 2000. The slight decrease as a percentage of revenue was primarily attributable to the fact that the Company has financed new equipment under operating lease agreements. The Company realized a net gain of $1,334 on the sale of property and revenue equipment during the 2001 period compared with a $378,363 net gain during the 2000 period. Because of a softening of the market for used equipment, management does not expect gains on the sale of revenue equipment to continue as in periods past. Rent increased $8.0 million (83.1%) to $17.6 million during the quarter ended June 30, 2001 from $9.6 million for the corresponding period of 2000. As a percentage of revenue, rent increased to 23.5% of revenue for the three months ended June 30, 2001, from 15.7% for the corresponding period of 2000. The increases resulted from (i) the implementation of an owner-operator program, (ii) increased use of operating leases, and (iii) lower equipment utilization. Substantially all of the Company's revenue equipment is financed through operating leases. In addition, the Company began an owner operator program in October 2000. Owner operators comprised approximately 12% of the total Company fleet at June 30, 2001. As a result of the foregoing, the Company's operating ratio was 111.7% for the three months ended June 30, 2001, compared with 100.1% for the corresponding period of 2000. Net interest expense increased $0.5 million (140.0%) to $0.8 million during the quarter ended June 30, 2001, from $0.3 million for the corresponding period of 2000. As a percentage of revenue, net interest expense increased to 1.1% of revenue for the three months ended June 30, 2001, compared with 0.6% for the corresponding period of 2000 as a result of higher debt balances. The Company's effective combined federal and state income tax rates for the three months ended June 30, 2001 and 2000, were 0% and 36.0%, respectively. Due to the loss reported by the Company in the 2001 period, management has established a valuation allowance to offset the potential benefit for income taxes until such time as the Company returns to profitability. As a result of the factors described above, the Company experienced a net loss of $9.5 million for the three months ended June 30, 2001, compared with a net loss of $0.3 million for the corresponding period of 2000. Nine months ended June 30, 2001 and 2000 Operating revenue increased $34.3 million (20.2%) to $204.3 million for the nine months ended June 30, 2001, from $170.0 million for the corresponding period of 2000. The increase in operating revenue was primarily attributable to a 23.5% increase in weighted average tractors, to 2,160 in the 2001 period from 1,749 in the 2000 period. This increase was partially offset by a decrease in average revenue per tractor per week, including fuel surcharge, to $2,438 in the 2001 period from $2,489 in the 2000 period. The decrease in average revenue per tractor in the 2001 period is primarily attributable to lower utilization due to soft freight demand and an increase in empty miles percentage. Salaries, wages, and benefits increased $11.6 million (16.7%) to $81.1 million during the nine months ended June 30, 2001, from $69.5 million in the 2000 period. As a percentage of revenue, salaries, wages, and benefits decreased to 39.7% of revenue for the nine months ended June 30, 2001, from 40.9% for the corresponding period of 2000. The decrease is the result of two offsetting components. Since October of 2000, the Company has replaced its tractors scheduled for trade with equipment owned by owner operators resulting in a decrease in the percentage of the Company's fleet supplied by Company drivers. Payments for the use of the equipment and services provided by owner operators are classified as rent. This was partially offset by two driver wage increases. Effective November 1, 2000, management raised driver wages by two cents per mile. One cent of the increase applied to all drivers at all levels and another cent can be attained based upon a monthly mileage target. Effective April 1, 2001, the Company increased its wages for its experienced drivers by an average of three cents per mile. In addition, drivers with less than one year of experience now receive a one cent per mile increase after each three month period during the first year of employment. Fuel and fuel taxes increased $9.1 million (25.0%) to $45.5 million during the nine months ended June 30, 2001, from $36.4 million in the 2000 period. As a percentage of revenue, fuel and fuel taxes increased to 22.3% of revenue for the nine months ended June 30, 2001, from 21.4% for the corresponding period of 2000, principally as a result of an increase in average fuel prices. This was partially offset by an increase in the percentage of owner operators in the Company's fleet in the 2001 period. The Company has agreements with a substantial number of customers who have agreed to pay fuel surcharges to help offset the escalation in fuel surcharges. However, increased fuel prices are not fully offset by these surcharges. Operating supplies and expenses increased $7.9 million (38.5%) to $28.4 million during the nine months ended June 30, 2001, from $20.5 million in the 2000 period. As a percentage of revenue, operating supplies and expenses increased to 13.9% of revenue for the nine months ended June 30, 2001, from 12.0% for the corresponding period of 2000. The increase is primarily attributable to the increased recruiting and other costs associated with driver turnover. Taxes and licenses increased $2.0 million (40.9%) to $7.1 million during the nine months ended June 30, 2001, from $5.1 million for the corresponding period of 2000. As a percentage of revenue, taxes and licenses increased to 3.5% of revenue for the nine months ended June 30, 2001, from 3.0% of revenue for the corresponding period of 2000. The increase is primarily attributable to the payment of federal highway use tax on vehicles that have been removed from service and replaced with new equipment. Insurance and claims increased $7.0 million (141.8%) to $11.9 million during the nine months ended June 30, 2001, from $4.9 million for the corresponding period of 2000. As a percentage of revenue, insurance and claims increased to 5.8% of revenue for the nine months ended June 30, 2001, from 2.9% for the corresponding period of 2000, primarily as a result of increased claims associated with driver turnover. Effective October 1, 1999, the Company adopted a fully-developed claims expense estimate based on an actuarial computation of the ultimate liability. Both the method formerly used by the Company and the fully-developed method are acceptable under accounting principles generally accepted in the United States. Communications and utilities increased $1.3 million (46.4%) to $4.1 million during the nine months ended June 30, 2001, from $2.8 million for the corresponding period of 2000. As a percentage of revenue, communications and utilities increased to 2.0% of revenue for the nine months ended June 30, 2001, compared with 1.7% for the corresponding period of 2000. The Company pays a fixed base charge per tractor for its satellite communications. The Company increased its fleet size with the Westway and Ort acquisitions, but experienced lower utilization of its equipment. Therefore, revenue did not increase proportionately with the increase in fixed satellite communication charges associated with a larger fleet. In addition, the Company incurred additional communication charges associated with the operation of new terminal facilities acquired in the Westway and Ort acquisitions. Depreciation and amortization increased $0.6 million (16.8%) to $3.8 million during the nine months ended June 30, 2001, from $3.2 million for the corresponding period of 2000. The increase in depreciation and amortization is principally attributable to a net loss on the sale of property and equipment in the 2001 period, compared with a net gain in the 2000 period. The Company realized a net loss of $0.4 million, including a charge of approximately $0.5 million on the disposition of non-refrigerated trailers, on the sale of property and revenue equipment during the 2001 period compared with a $1.5 million net gain during the 2000 period. As a percentage of revenue, depreciation and amortization (adjusted for the net gain or loss on the sale of property and equipment) remained constant at 1.9% of revenue for the nine months ended June 30, 2001 and 2000. Rent increased $15.0 million (55.6%) to $42.0 million during the nine months ended June 30, 2001, from $27.0 million for the corresponding period of 2000. As a percentage of revenue, rent increased to 20.6% of revenue for the nine months ended June 30, 2001, from 15.9% for the corresponding period of 2000. The increases resulted from (i) the implementation of an owner-operator program, (ii) increased use of operating leases, and (iii) lower equipment utilization. Substantially all of the Company's revenue equipment is financed through operating leases. In addition, the Company began an owner operator program in October 2000. Owner operators comprised approximately 12% of the total Company fleet at June 30, 2001. As a result of the foregoing, the Company's operating ratio was 109.6% for the nine months ended June 30, 2001, compared with 99.7% for the corresponding period of 2000. Net interest expense increased $0.6 million (56.3%) to $1.7 million during the nine months ended June 30, 2001, from $1.1 million for the corresponding period of 2000, principally as a result of higher debt balances. As a percentage of revenue, net interest expense increased to 0.8% of revenue for the nine months ended June 30, 2001, compared with 0.6% of revenue for the corresponding period of 2000. The Company's effective combined federal and state income tax rates for the nine months ended June 30, 2001 and 2000, were 0% and 36.0%, respectively. Due to the loss reported by the Company in the 2001 period, management has established a valuation allowance to offset the potential benefit for income taxes until such time as the Company returns to profitability. As a result of the factors described above, the Company experienced a net loss of $21.3 million for the nine months ended June 30, 2001, compared to a net loss of $0.3 million for the corresponding period of 2000. Liquidity and Capital Resources The growth of the Company's business has required significant investment in new revenue equipment that the Company historically has financed with borrowings under installment notes payable to commercial lending institutions and equipment manufacturers, equipment leases from third-party lessors, borrowings under its line of credit, and cash flow from operations. During the nine-month periods ended June 30, 2001 and 2000, the Company continued to finance most of its new equipment with operating leases. Since institution of an independent contractor program in October 2000, the Company also has obtained a portion of its revenue equipment fleet from owner operators who own and operate the equipment, which reduced capital expenditure requirements. The Company's primary sources of liquidity currently are borrowings and leases with financial institutions and equipment manufacturers, as well as advances and an equity contribution made by a major stockholder. Net cash used in operating activities was $21.5 million for the nine months ended June 30, 2001. Accounts receivable increased $3.8 million, prepaid licensing on revenue equipment increased $1.6 million and miscellaneous assets increased $1.7 million during the period. These uses of cash were substantially offset by a non-cash charge of $3.8 million in depreciation and a $3.1 million collective increase in accounts payable, accrued liabilities and accrued claims. Net cash used in investing activities was $2.7 million for the nine months ended June 30, 2001, as the Company purchased $8.6 million of new revenue equipment and furniture and fixtures. The Company sold property and equipment for $6.0 million. The Company does not expect to add new revenue equipment until economic conditions improve but will replace equipment scheduled for trade. Net cash provided by financing activities was $34.3 million in the 2001 period, consisting primarily of $34.3 million from the issuance of new debt, additional borrowings of $6.1 million on the Company's line of credit offset by payments of $12.8 million of principal under the Company's long-term debt and capitalized lease agreements. In addition, the Company received $6.7 million from the issuance of preferred stock and warrants. Effective June 30, 2001, the Company agreed to issue 190,705 shares of Series I preferred stock with detachable warrants to purchase an additional 190,705 shares of Series I preferred stock to a major stockholder in exchange for cancellation of $6.7 million in advances, or $35 per preferred share issued. The warrants are exercisable at a price of $35 per share or any lower price at which the Company issues its preferred or common stock or any options, rights, warrants, or other securities convertible into common or preferred stock during the term of the warrant. Dividends accrue at 10% per annum, based on the $35 per share value, and the Series I preferred shares have a liquidation preference over all other classes or series of capital stock based upon the $35 per share value, plus accrued dividends. The proceeds have been allocated between the Series I preferred stock and the warrants based on their estimated relative fair values. For purposes of the allocation, the estimated fair value of Series I preferred shares was determined to be the $35 per share price and the fair value of the warrants was estimated using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 5.29%, dividend yield of 0%, volatility factor of 48.5% and an expected term of 10 years. Each share of Series I preferred stock is convertible into 10 shares of Class A Common Stock at the earlier of September 30, 2001, a change-in-control of the Company, or a sale of all or substantially all of the assets of the Company. During the quarter ending September 30, 2001, the Company will record a non-cash dividend related to the issuance of Series I preferred stock in the amount of approximately $4.3 million representing the value of the beneficial conversion feature. The beneficial conversion feature was calculated for financial reporting purposes based on the difference between the portion of the total proceeds allocated to the Series I preferred shares of $1.90 per share and $4.18 per share, the closing market price as of June 29, 2001 of the common shares into which the Series I preferred shares are convertible. In connection with the preferred stock subscription agreement, the Company and the stockholder entered into a warrant agreement. The Company is negotiating another investment of approximately $2.0 million in exchange for preferred stock and warrants with a corporation controlled by Jerry Moyes, the Company's Chairman of the Board, which the Company expects to complete during the quarter ending September 30, 2001. During the quarter, the Company borrowed funds from a major stockholder to temporarily finance the acquisition of equipment. At June 30, 2001, the Company owed $7,091,009 to the stockholder. The Company received funding for this equipment through a financial institution and repaid the entire amount borrowed from the stockholder following the end of the quarter. In April 2001, the Company refinanced its line of credit and term loan. The Company's new $13 million term loan is secured by the Company's Salt Lake City terminal facility and its $30 million line of credit is secured by accounts receivable, inventories of operating supplies, and office furniture and fixtures. The term loan matures July 10, 2006 and the line of credit matures April 25, 2004. In addition, a portion of borrowings under both agreements are guaranteed by a majority stockholder, Jerry Moyes. Borrowings under the term loan agreement bear interest at a fixed rate of 8.25%. Borrowings under the line of credit bear interest based on the prime rate in effect from time-to-time plus .25%. Amounts available under the line of credit are based on the Company's net worth. The maximum amount committed under the Company's line of credit at June 30, 2001, was $30 million. As of June 30, 2001, the Company had drawn $22.1 million against the line. At June 30, 2001, the Company had other outstanding long-term debt and capitalized lease obligations (including current portions) of approximately $25.3 million, comprised of $7.1 borrowed from a major stockholder, $13.0 million borrowed under the term loan against the Company's Salt Lake City terminal facility, and $5.2 million of obligations for the purchase of revenue equipment. The Company's working capital at June 30, 2001, was $19.6 million. Management believes that future borrowings under installment notes payable, or lease arrangements for revenue equipment will allow the Company to continue to meet its working capital requirements, anticipated capital expenditures, and obligations under debt and capitalized and operating leases at least through fiscal year 2001. There can be no assurance, however, that the Company will continue to obtain adequate sources of liquidity. Quantitative and Qualitative Disclosures About Market Risk The principal market risks (i.e., the risk of loss arising from adverse changes in market rates and prices) to which the Company is exposed are fluctuation in fuel prices and interest rates on our debt financing. We are not engaged in any fuel hedging transactions. Thus, we are exposed to fluctuations in fuel prices but are not exposed to any market risk involving hedging costs. We also are exposed to interest rate risks on our debt financing. Our variable rate debt consists of a revolving line of credit carrying interest rates tied to the prime rate. These variable interest rates expose us to the risk that interest rates may rise. At June 30, 2001, assuming borrowing equal to the $22.1 million drawn on the line of credit, a one percentage point increase in the prime rate would increase our annual interest expense by approximately $221,000. The balance of our financing carries fixed interest rates and includes term notes payable and capitalized leases totaling approximately $25.3 million. These fixed interest rates expose us to the risk that interest rates may fall. A one percentage point decline in interest rates would have the effect of increasing the premium we pay over market interest rates by one percentage point or approximately $253,000 annually. PART II OTHER INFORMATION Item 1. Legal Proceedings. The Company and certain of its officers and directors have been named as defendants in a securities class action filed in the United States District Court for the District of Utah, Caprin v. Simon Transportation Services, Inc., et al., No. 2:98CV 863K (filed December 3, 1998). Plaintiffs in this action allege that defendants made material misrepresentations and omissions during the period February 13, 1997 through April 2, 1998 in violation of Sections 11, 12(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On September 27, 2001, the District Court dismissed the case with prejudice. Plaintiffs have filed a notice of appeal of the District Court's orders and an Opening Brief with the United States Court of Appeal for the Tenth Circuit. The Company intends to vigorously defend this action. The Company is a defendant in a lawsuit filed April of 1998 in the Third District Court in and for Salt Lake County Utah, Gallegos v. Dick Simon Trucking, Inc., based upon the death of two people and the severe brain injury to a child in an accident involving a Company truck. In August 2001, the plaintiff's punitive damage claim against the Company was dismissed by the judge in the matter. The Company has admitted liability on the non-punitive damages claims. The probable verdict range of the compensatory damage claim is within the Company's liability insurance limits. On August 17, 2001, the State of California filed suit against the Company in relation to damage to the state capitol of California arising from an accident involving a Company driver. The lawsuit requests both compensatory and punitive damages. Management has had insufficient time to assess the merits or likely impact of this litigation on the Company's results of operations or financial position. The Company from time to time is a party to litigation arising in the ordinary course of its business, substantially all of which involves claims for personal injury and property damage incurred in the transportation of freight. Management is not aware of any claims or threatened claims that reasonably would be expected to exceed insurance limits or have a materially adverse effect upon the Company's operations or financial position. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Number Description ------ ----------- 3.1 + Articles of Incorporation. 3.2 * Amended and Restated Bylaws. 4.1 + Articles of Incorporation. 4.2 * Amended and Restated Bylaws. 4.3 ^ Certificate of Designation 10.1 + Outside Director Stock Option Plan. 10.2 * Amendment to Outside Director Stock Option Plan 10.3 + Incentive Stock Plan. 10.4 # Amendment No. 2 to the Simon Transportation Services Inc. Incentive Stock Plan 10.5 * Revised Amendment No. 3 to the Simon Transportation Services Incentive Stock Plan 10.6 @ Warrant to Purchase Shares of Class A Common Stock dated September 19, 2001, between Jerry Moyes and Simon Transportation Services Inc. 10.7 + 401(k) Plan. 10.8 ^ Subscription Agreement for Series I Preferred Shares between the Company and the Moyes Children's Limited Partnership date June 30, 2001 10.9 ^ Warrant to Purchase Series I Preferred Shares between the Company and the Moyes Children's Limited Partnership dated June 30, 2001 10.10 ^ Transportation Accounts Financing and Security Agreement dated April 25, 2001, between Associates Transcapital Services and Dick Simon Trucking, Inc. 10.11 ^ Loan Agreement dated June 21, 2001, between National Life Insurance Company and Simon Terminal, LLC 21 ^ List of subsidiaries + Filed as an exhibit to the registrant's Registration Statement on Form S-1, Registration No. 33-96876, effective November 17, 1995, and incorporated herein by reference. # Filed as an exhibit to the registrant's Definitive Proxy Statement for the annual meeting held December 19, 1997, Commission File No. 0-27208, and incorporated herein by reference. @ Filed as an exhibit to the registrant's Current Report on Form 8-K, Commission File No. 0-27208, dated October 4, 2001, and incorporated herein by reference. * Filed as an exhibit to the registrant's Annual Report on Form 10-K for the period ended September 30, 2001, Commission file No. 0-27208, dated January 12, 2001, and incorporated herein by reference. ^ Filed herewith. (b) Reports on Form 8-K. None. SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIMON TRANSPORTATION SERVICES INC., a Nevada corporation Date: August 20, 2001 By: /s/ Alban B. Lang --------------------------- ------------------------------- (Signature) Alban B. Lang Treasurer and Chief Financial Officer EX-4 3 cert_designation.txt CERTIFICATE OF DESIGNATION SIMON TRANSPORTATION SERVICES INC. CERTIFICATE OF DESIGNATION, PREFERENCES, RIGHTS AND LIMITATIONS OF 600,000 SERIES I PREFERRED SHARES Simon Transportation Services Inc., a corporation organized under the laws of the State of Nevada (hereinafter called the "Corporation"), in accordance with Section 78.1955 of the Nevada General Corporation Law, does hereby certify as follows: A. That pursuant to Article IV of the Articles of Incorporation of the Corporation, the Corporation is authorized to issue 5,000,000 Preferred Shares, par value one cent ($0.01) per share, and the Board of Directors of the Corporation is expressly authorized to fix, to the extent permitted by Nevada law and said Article IV the designation, description, and certain of the terms with respect to each particular series of Preferred Shares. B. That the Equity Issuance Committee of the Board of Directors of the Corporation, acting pursuant to the Corporation's Bylaws and the Nevada General Corporation Law, by unanimous written consent dated June 30, 2001, duly adopted a resolution authorizing the issuance of up to 600,00 shares of the Corporation's one cent ($0.01) per share, authorized and unissued, Preferred Shares designated as "Series I Preferred Shares", and fixed the preferences, and relative, participating, optional, and special rights and limitations and restrictions thereof as follows: 1. Voting Rights. Except as herein or by law expressly provided, each share of the Series I Preferred Shares shall have the right or power to cast ten votes on any question or in any proceeding or to be represented at or to receive notice of any meeting of the stockholders of the Corporation. 2. Preference on Liquidation. 2.1 General. Subject to the remaining provisions of this Section 2, in the event of any liquidation, dissolution, or winding up of the affairs of the Corporation, whether voluntary or involuntary, or any reduction in its capital resulting in any distribution of assets to its stockholders, after payment or provision for payment of the debts and liabilities of the Corporation, the holders of the Series I Preferred Shares shall be entitled to receive, out of the remaining assets of the Corporation, the amount of $35.00 in cash for each of the Series I Preferred Shares they then hold, plus an amount equal to all dividends accumulated and unpaid on each such share through the date fixed for distribution, before any distribution shall be made to the holders of any Common Shares or any other class or series of capital shares of the Corporation ranking junior to the Series I Preferred Shares. If upon any liquidation, dissolution, or winding up of the affairs of the Corporation, whether voluntary or involuntary, the assets of the Corporation available for distribution to stockholders shall be insufficient to permit the payment to the holders of the Series I Preferred Shares of the aforesaid preferential amounts, then the entire assets of the Corporation shall be distributed ratably among the holders of the Series I Preferred Shares then outstanding according to the number of shares held by each. 2.2 Liquidation Defined. The purchase or redemption by the Corporation of shares of any class, in any manner permitted by law, shall not for the purpose of this Section be regarded as a liquidation, dissolution, or winding up of the Corporation or as a reduction of its capital. Neither the consolidation nor merger of the Corporation with or into any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets, shall be deemed to be liquidation, dissolution, or winding up of the Corporation for the purposes of this section. A dividend or distribution to stockholders from net profits or surplus earned after the date of any reduction of capital shall not be deemed to be a distribution resulting from such reduction in capital. No holder of Series I Preferred Shares shall be entitled to receive any amounts with respect thereto upon any liquidation, dissolution, or winding up of the Corporation other than the amounts provided for in Section 2.1. 2.3 No Restriction on Surplus. No provision of this Section 2 shall in any manner, prior to any liquidation, dissolution, or winding up of the affairs of the Corporation, whether voluntary or otherwise, create or be deemed to create any restrictions upon the surplus of the Corporation or prohibit the payment of dividends on the capital shares of the Corporation out of the funds of the Corporation legally available therefor, nor shall any such restriction or prohibition be in any manner inferred from the provisions of this Section 2. 3. Dividends. Dividends on each share of the Series I Preferred Shares shall accrue quarterly at the rate of ten-percent per annum from the date of issuance, based upon the $35.00 per share value. In the event the Corporation, at any time subsequent to the date the Series I Preferred Shares becomes convertible to Class A Common Shares pursuant to Section 4, shall pay to the holders of Common Shares a dividend, the holders of Series I Preferred Shares shall be entitled to receive the same kind and the same proportionate shares of such property being paid as a dividend which they would have been entitled to receive had their Series I Preferred Shares been converted immediately prior to the record date for payment of such dividend. 4. Conversion. 4.1 Conversion Option. Upon written notice to the Corporation as described in Section 4.2.1., the holders of all issued and outstanding Series I Preferred Shares shall have the right to convert such Series I Preferred Shares into Class A Common Shares on the basis of one Series I Preferred Share for ten (10) fully paid and non-assessable Class A Common Shares of the Corporation exercisable at the earliest to occur of (i) September 30, 2001; (ii) the date immediately preceding any merger, consolidation, recapitalization, reorganization, or other similar transaction or series of transactions, whether or not the Corporation is the surviving corporation, in which the Moyes Children's Limited Partnership, Jerry Moyes, or Vickie Moyes, and their affiliates (the "Moyes Group") together beneficially own shares having the power to cast less than thirty percent of the votes entitled to be cast at meetings of stockholders; (iii) the date immediately preceding any sale of stock, tender offer, or other transaction or series of transactions in which any person, corporation, or other entity or group thereof, other than the Moyes Group (the "Acquiror"), acquires the beneficial ownership of shares of the Corporation's stock which, when added to any other shares, the beneficial ownership of which is held by the Acquiror, shall have more than fifty percent of the votes that are entitled to be cast at meetings of stockholders; or (iv) the date immediately preceding any sale of all or substantially all assets of the Corporation and its subsidiaries. 4.2 Terms and Provisions Applicable to Conversion. Conversion of Series I Preferred Shares shall be subject to the following additional terms and provisions: 4.2.1 Any holder of Series I Preferred Shares converting such Series I Preferred Shares into Class A Common Shares shall surrender the certificate or certificates representing the Series I Preferred Shares so to be converted, duly endorsed to the Corporation or in blank, at the principal office of the Corporation (or such other place as may be designated by the Corporation), and shall give written notice to the Corporation at said office that the certificates are being submitted for conversion, setting forth the name or names (with the address or addresses) in which the Class A Common Shares are to be issued. 4.2.2 As promptly as practicable after the surrender for conversion of any Series I Preferred Shares, the Corporation shall deliver or cause to be delivered at the principal office of the Corporation (or such other place as may be designated by the Corporation), to or upon the written order of the holder of such Series I Preferred Shares, certificates representing the Class A Common Shares issuable upon such conversion, issued in such name or names as such holder may direct. Series I Preferred Shares shall be deemed to have been converted as of the date Certificates representing the Class A Common Shares of the Corporation have been issued, and the rights of the holders of such Series I Preferred Shares shall cease at such time, and the person or persons in whose name or names the certificates for such shares are to be issued shall be treated for all purposes as having become the record holder or holders of such Class A Common Shares at such time. 4.2.3 The Corporation shall at the time of such conversion pay to the holder of record of any Series I Preferred Shares any accrued but unpaid dividends on said Series I Preferred Shares so surrendered for conversion. 4.2.4 In the event that the Corporation shall at any time subdivide or combine in a greater or lesser number of outstanding Common Shares, the number of Common Shares issuable upon conversion of the Series I Preferred Shares shall be proportionately increased in the case of subdivision or decreased in the case of a combination, effective in either case at the close of business on the date when such subdivision or combination shall become effective. 4.2.5 In the event that the Corporation shall be recapitalized, consolidated with or merged into any other corporation, or shall sell or convey to any other corporation all or substantially all of its property as an entirety, provision shall be made as part of the terms of such recapitalization, consolidation, merger, sale, or conveyance so that any holder of Series I Preferred Shares shall receive in such transaction in lieu of the Class A Common Shares otherwise issuable to it upon conversion of its Series I Preferred Shares, but at the conversion ratio stated in Section 4.1, the same kind and amount of securities or assets as may be distributable upon such recapitalization, consolidation, merger, sale, or conveyance, with respect to the Class A Common Shares of the Corporation. 4.2.6 The Corporation shall at all times reserve and keep available solely for the purpose of issue upon conversion of Series I Preferred Shares, as herein provided, such number of Class A Common Shares as shall be issuable upon the conversion of all outstanding Series I Preferred Shares. 4.2.7 The issuance of certificates for Class A Common Shares upon conversion of the Series I Preferred Shares shall be made without charge for any tax in respect of such issuance. However, if any certificate is to be issued in a name other than that of the holder of record of the Series I Preferred Shares so converted, the person or persons requesting the issuance thereof shall pay to the Corporation any amount of any tax which may be payable by the Corporation in respect of any transfer involved in such issuance, or shall establish to the satisfaction of the Corporation that such tax has been paid or is not due and payable. 4.2.8 Upon conversion of the Series I Preferred Shares to Class A Common Shares, the Series I Preferred Shares so converted shall be deemed cancelled and returned to authorized and unissued preferred shares, with no stated designation, rights, or preferences. 5. Restrictions. Certificates evidencing ownership of the Series I Preferred Shares are subject to stop transfer instructions issued by the Corporation to the transfer agent prohibiting transfers thereof without registration under the Securities Act of 1933 or unless an exemption from the registration requirements of said Act is available in the opinion, addressed to the Corporation, of counsel acceptable to the Corporation. Certificates evidencing ownership of Series I Preferred Shares shall bear the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO ANY STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS SUCH ARE FIRST REGISTERED PURSUANT TO THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR UNLESS THE COPORATION RECEIVES A WRITTEN OPINION OF COUNSEL, WHICH OPINION AND COUNSEL ARE SATISFACTORY TO THE CORPORATION, THAT SUCH REGISTRATION IS NOT REQUIRED. IN WITNESS WHEREOF, Simon Transportation Services Inc., has made this Certificate under the hand of its President and its Secretary this 16th day of August, 2001. SIMON TRANSPORTATION SERVICES INC. By: /s/ Kelle A. Simon -------------------------------------- Kelle A. Simon, President By: /s/ Alban B. Lang -------------------------------------- Alban B. Lang, Secretary STATE OF UTAH ) ) ss. COUNTY OF SALT LAKE ) -------------------------- The foregoing Certificate was acknowledged before me this 16th day of August, 2001, by Kelle A. Simon, President, and Alban B. Lang, Secretary, of Simon Transportation Services Inc., a Nevada corporation, on behalf of the corporation. /s/ William J. Baker Jr. Notary Public My Commission Expires: March 11, 2003 -------------- EX-10 4 subscription.txt SUBSCRIPTION AGREEMENT SIMON TRANSPORTATION SERVICES INC. (a Nevada corporation) SUBSCRIPTION AGREEMENT THIS SUBSCRIPTION AGREEMENT (this "Agreement") is made effective as of June 30, 2001, by and between the Moyes Children's Limited Partnership (the "Subscriber"), and Simon Transportation Services Inc., a Nevada corporation (the "Company" and together with the Subscriber the "Parties"). RECITALS WHEREAS, the Company has received certain advances from the Subscriber to (i) allow the Company's operating subsidiary to assure compliance with the tangible net worth covenant and advance rate on its line of credit and (ii) maintain the financial position and viability of the Company and its operating subsidiary; WHEREAS, the Parties desire to convert the outstanding amount of such advances to equity; WHEREAS, the Company has duly authorized the issuance and sale of an aggregate of 600,000 shares of the Company's Series I Preferred Shares, $.01 par value (the "Preferred Shares"), with such rights, preferences, and limitations as are set forth in the Company's Certificate of Designation, attached hereto as Exhibit A (the "Certificate"), and as otherwise afforded holders of preferred shares under the Nevada General Corporation Law; and WHEREAS, the Parties wish to reduce to written form the commitments and undertakings contained herein. NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants, and undertakings set forth in this Agreement, and subject to the terms and conditions set forth in this Agreement, the Parties hereby agree as follows: TERMS 1. Subscriptions. 1.1 Subscriber hereby subscribes for 190,705 shares of Preferred Shares, representing advances by the Subscriber of $6,674,682.25 divided by a price of $35.00 per share (the "Subscription"). 1.2 Subscriber has tendered to the Company the entire purchase price of the shares subscribed for herein through prior advances. The subscription documents shall consist of an executed counterpart of the signature page of this Agreement. 1.3 The Parties acknowledge and agree that the Subscription shall be effective as of June 30, 2001, irrespective of the filing date of the Certificate. 2. Subscriber's Representations and Warranties. Subscriber represents, warrants, acknowledges, and agrees that: 2.1 Subscriber is a limited partnership formed under the laws of the State of Arizona, and has its principal office in such state. 2.2 Subscriber is authorized and qualified to become a stockholder of the Company and the person signing this Agreement on behalf of such entity has been duly authorized by such entity to do so. 2.3 Subscriber qualifies as an "accredited investor" (as defined under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "Act")). 2.4 Subscriber has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Company and has obtained sufficient information from the Company to evaluate the merits and risks of an investment in the Company. 2.5 Subscriber: (i) is acquiring the shares of the Preferred Shares subscribed for herein for Subscriber's own account for investment only and not with a view to the distribution, resale, or transfer thereof, and as the sole record and beneficial holder thereof; (ii) is acquiring such Preferred Shares without any intention of reselling or distributing such Preferred Shares except in accordance with the provisions of the Act and applicable state securities laws and regulations; and (iii) agrees that such Preferred Shares shall not be sold, pledged, hypothecated, donated, or otherwise transferred, whether or not for consideration, by Subscriber except subject to the terms of this Agreement and upon the issuance to the Company of a favorable opinion of its counsel acceptable to the Company and the submission to the Company of such other evidence as may be satisfactory to the Company and its counsel, to the effect that any such transfer shall not be in violation of the Act, applicable state securities laws, or any rules or regulations promulgated thereunder. 3. Company's Representations and Warranties. The Company represents, warrants, acknowledges, and agrees that: 3.1 The Company is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. 3.2 The Company has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Company, enforceable in accordance with its terms and conditions. 3.3 The Company has filed all forms, reports, schedules, statements, and documents required to be filed by it with the Securities and Exchange Commission (collectively, the "Company Public Reports"). Each of the Company Public Reports was filed on a timely basis (considering filed extensions) and complied with the Act and the Securities Exchange Act of 1934, as amended, in all material respects. None of the Company Public Reports, as of their respective dates, (or if amended or superseded, at the time of such subsequent filing), contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. 3.4 All of the outstanding shares of the Preferred Shares have been duly authorized, validly issued, fully paid and nonassessable, are not subject to, and were not issued in violation of, any preemptive (or similar) rights, and are owned, of record and beneficially, by the Company, free and clear of all Liens whatsoever. 3.5 The Company will promptly seek any consent, approval, qualification, or authorization necessary in connection with the Company's valid performance of this Agreement. 4. Miscellaneous. 4.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties (including transferees). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the Parties hereto, or their respective successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 4.2 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which counterparts taken together shall constitute but one and the same instrument. This Agreement shall become binding when one or more counterparts taken together shall have been executed and delivered by the Parties. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any other counterparts. 4.3 Severability. In case any one or more of the provisions or parts of a provision contained in this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other provision or part of a provision of this Agreement or any other jurisdiction, but this Agreement shall be reformed and construed in any such jurisdiction as if such invalid, illegal, or unenforceable provision or part of a provision had never been contained herein and such provision or part shall be reformed so that it would be valid, legal, and enforceable to the maximum extent permitted in such jurisdiction. 4.4 Entire Agreement and Amendment. This Agreement, the Warrant to Purchase Series I Preferred Shares, and the letter agreement, all dated June 30, 2001, by and between the Parties, constitute the entire agreement by and between the Parties with respect to the subject matter hereof. Any provision of this Agreement may be amended and the observance thereof may be modified, waived, or terminated in whole or in part (either generally or in a particular instance and either retroactively or prospectively), only by the written consent of (i) as against the Company, only by the Company, and (ii) as against the Subscriber, only by the Subscriber. Any amendment or waiver effected in accordance with clauses (i) and (ii) of this paragraph shall be binding upon the Company and the Subscriber and its or his successors and assigns. 4.5 Further Action. Each of the Parties hereto agrees to execute all such further instruments and documents and to take all such further action necessary to effectuate the terms and purposes of this Agreement. 4.6 Governing Law. This Agreement and all documents contemplated hereby, and all remedies in connection therewith, and all questions or transactions relating thereto, shall be construed in accordance with and governed by the laws of the State of Nevada. 4.7 Notice. Whenever notice is required to be given by any party hereunder, such notice shall be deemed sufficient when delivered personally against receipt or by prepaid, first-class certified mail to the Company or the Subscriber at their addresses set forth on the signature page hereto or to such other address as the Company or the Subscriber shall have furnished to the party sending notice. 4.8 Survival. All representations, warranties, and covenants herein shall survive the consummation of the transaction contemplated hereby and the delivery of the shares hereunder. 4.9 Legend. Certificates representing the shares subscribed for hereunder are subject to stop transfer instructions issued by the Company to the transfer agent prohibiting transfers thereof without registration under the Act or unless an exemption from the registration requirements of the Act is available in the opinion, addressed to the Company, of counsel acceptable to the Company. Certificates evidencing ownership of shares subscribed for hereunder shall bear the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO ANY STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS SUCH ARE FIRST REGISTERED PURSUANT TO THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR UNLESS THE COPORATION RECEIVES A WRITTEN OPINION OF COUNSEL WHICH OPINION AND COUNSEL ARE SATISFACTORY TO THE CORPORATION, THAT SUCH REGISTRATION IS NOT REQUIRED. IN WITNESS WHEREOF, each of the undersigned has signed this Agreement on the date first above written. THE SUBSCRIBER THE MOYES CHILDREN'S LIMITED PARTNERSHIP By: /s/ Ronald Moyes -------------------------------- Ronald Moyes, General Partner Address: 411 S. 13th Street Lincoln, Nebraska 68508 THE COMPANY SIMON TRANSPORTATION SERVICES INC. By: /s/ Alban B. Lang --------------------------------- Alban B. Lang, Chief Financial Officer, Secretary, and Treasurer Address: 5175 West 2100 South West Valley City, Utah 84120 EXHIBIT A COMPANY'S CERTIFICATE OF DESIGNATION EX-10 5 warrant.txt WARRANT NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE, TRANSFER OR OTHER DISPOSITION OF THIS WARRANT, SAID SHARES OR ANY INTEREST THEREIN MAY BE EFFECTED WITHOUT, AMONG SATISFYING OTHER CONDITIONS, (I) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (II) AN OPINION OF COUNSEL FOR THE HOLDER THAT SUCH REGISTRATION IS NOT REQUIRED OR (III) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED. Void after 5:00 p.m., Utah Time on June 29, 2011 SIMON TRANSPORATION SERVICES INC. WARRANT TO PURCHASE SERIES I PREFERRED SHARES ------------------------- This certifies that as of June 30, 2001 (the "Grant Date"), for value received, the Moyes Children's Limited Partnership (the "Purchaser") or registered assigns (the Purchaser or such assignee, as applicable, being referred to herein as the "Holder"), is entitled to ONE HUNDRED NINETY THOUSAND SEVEN HUNDRED FIVE (190,705) warrants, each such warrant entitling the Holder to purchase one (1) share of Series I Preferred Shares, par value $0.01 per share (the "Series I Preferred Shares"), of Simon Transportation Services Inc., a Nevada corporation (the "Company"), at a price of Thirty-five and no/100 Dollars ($35.00) per share (the "Exercise Price") (such warrants and this certificate evidencing such warrants being referred to herein, collectively, as this "Warrant"). The number of shares of Series I Preferred Shares to be received upon the exercise of this Warrant (the "Warrant Shares") and the Exercise Price may be adjusted from time to time as hereinafter set forth. 1. Exercise of Warrant. Subject to the provisions of Section 2 below, this Warrant may be exercised, in whole or in part, at any time or from time to time on or after the Grant Date, but in any event no later than 5:00 p.m., Utah time, on June 29, 2011, or if such date is a day on which federal or state-chartered banking institutions in Utah are authorized by law to close, then on the next succeeding day which shall not be such a day; provided, however, no portion of this Warrant may be exercised with respect to fewer than fifty thousand (50,000) Warrant Shares at any one time, as such number is adjusted from time to time in accordance with Section 7 below. Such exercise shall be effective upon presentation and surrender to the Company at its principal office or at the office of its stock transfer agent, if any, of a copy of this Warrant with the duly executed Notice of Exercise form set forth on Exhibit A (attached hereto and made a part hereof by this reference) (the "Notice of Exercise"). The Notice of Exercise must be accompanied by payment, in cash or by certified or official bank check, payable to the order of the Company, in the amount of the Exercise Price for the number of the Warrant Shares, together with all transfer and similar taxes applicable upon such exercise for which the Company must withhold. The Company may require the Holder to execute such further documents and make certain representations and warranties as the Company deems necessary to ensure compliance with exemptions from applicable federal and state securities laws as required by Section 2 below. 2. Compliance with Securities Laws. This Warrant may not be exercised by the Holder unless at the time of exercise (i) a registration statement registering the Warrant Shares upon such exercise is effective under the Securities Act of 1933, as amended (and together with the rules and regulations promulgated thereunder, collectively, the "Securities Act"), or the transaction in which such Warrant Shares are to be issued is exempted from the application of the registration requirements of the Securities Act, and (ii) the Warrant Shares have been registered or qualified under any applicable state securities laws or an exemption from registration or qualification is available under such laws. This Warrant may not be exercised so long as the Holder is in default under the representations, warranties or covenants of this Warrant. 3. Stock Fully Paid; Reservation of Shares. All Warrant Shares that may be issued upon the exercise of this Warrant shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. The Company hereby covenants and agrees that at all times during the period this Warrant is exercisable it shall reserve from its authorized and unissued Series I Preferred Shares for issuance and delivery upon exercise of this Warrant such number of shares of its Series I Preferred Shares as shall be required for issuance and delivery upon exercise of this Warrant. The Company agrees that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Series I Preferred Shares upon the exercise of this Warrant. 4. Fractional Shares. No fractional shares or stock representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional shares which would otherwise be issuable, the Company shall, in its sole discretion, either (i) pay cash equal to the product of such fraction multiplied by the fair market value of one share of Series I Preferred Shares on the date of exercise, as determined in good faith by the Company's Board of Directors or (ii) issue the next largest whole number of Warrant Shares. 5. Transfer, Exchange, Assignment or Loss of Warrant or Certificates. (a) This Warrant may not be assigned or transferred except as provided herein and in accordance with and subject to the provisions of the Securities Act and any other applicable federal and state securities laws. Any purported transfer or assignment made other than in accordance with this Section 5 and Section 8 hereof shall be null and void and of no force and effect. (b) This Warrant shall be transferable only upon the receipt by the Company of an opinion of counsel satisfactory to the Company to the effect that (i) the transferee is a person to whom the Warrant may be legally transferred without registration under the Securities Act or any state securities laws; and (ii) such transfer will not violate any applicable law or governmental rule or regulation including, without limitation, any applicable federal or state securities law. (c) Any assignment permitted hereunder shall be made by surrender of this Warrant to the Company at its principal office with the duly executed Assignment Form set forth on Exhibit B attached hereto and made a part hereof by this reference and funds sufficient to pay any transfer tax. In such event, the Company shall execute and deliver a new Warrant in the name of the assignee named in such Assignment Form, and this Warrant shall promptly be cancelled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation thereof at the principal office of the Company together with a written notice signed by the Holder thereof, specifying the names and denominations in which new Warrants are to be issued. The terms "Warrant" and "Warrants" as used herein include any Warrants in substitution for or replacement of this Warrant, or into which this Warrant may be divided or exchanged. (d) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate representing Warrant Shares issued upon the exercise hereof and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, and, in the case of any such mutilation, upon surrender and cancellation of this Warrant or such stock certificate, the Company will execute and deliver a new Warrant or stock certificate of like tenor and date, and any such lost, stolen, destroyed or mutilated Warrant or stock certificate shall thereupon become void. (e) Each of the Holders of this Warrant, the Warrant Shares or any other security issued or issuable upon exercise of this Warrant shall indemnify and hold harmless the Company, its directors and officers, and each person, if any, who controls the Company, against any losses, claims, damages or liabilities, joint or several, to which the Company or any such director, officer or any such person may become subject under the Securities Act or any statute or common law, insofar as such losses, claims, damages or liabilities, or actions in respect thereof, arise out of or are based upon the disposition by such Holder of the Warrant, the Warrant Shares or other such securities in violation of the terms of this Warrant. 6. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder by virtue hereof are limited to those expressed in this Warrant. 7. Adjustment of Exercise Price and Number of Shares. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) Subdivision or Combination of Series I Preferred Shares. If the Company at any time subdivides (by any stock split, stock dividend or otherwise) its outstanding shares of Series I Preferred Shares into a greater number of shares, or combines (by reverse stock split or otherwise) its outstanding shares of Series I Preferred Shares into a smaller number of shares, the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder of this Warrant shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which it would have owned or have been entitled to receive after the happening of any of the events described above had this Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. If the Holder is entitled to receive shares of two or more classes of capital stock of the Company pursuant to the foregoing upon exercise of the Warrant, the Company shall determine the allocation of the adjusted Exercise Price between the classes of capital stock. After such allocation, the exercise privilege and the Exercise Price of each class of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Series I Preferred Shares in this Section 7. An adjustment made pursuant to this subsection 7(a) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. Such adjustment shall be made successively whenever such a payment, subdivision or combination is made. (b) Adjustment in Exercise Price. When the number of Warrant Shares purchasable upon the exercise of each Warrant is adjusted as provided in subsection 7(a), the Exercise Price payable upon exercise of each Warrant shall be adjusted by multiplying such Exercise Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Warrant Shares purchasable upon the exercise of each Warrant immediately prior to such adjustment, and of which the denominator shall be the number of Warrant Shares purchasable immediately thereafter. (c) Merger, Sale of Assets, etc. If at any time while this Warrant, or any portion hereof, is outstanding and unexpired there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a reverse triangular merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash, or otherwise, or (iii) a sale or transfer of the Company's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this Warrant shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 7. The foregoing provisions of this subsection 7(c) shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Warrant. If the per-share consideration payable to the holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the transaction, to the end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant. As a condition to effecting any merger or consolidation of the Company or a sale of substantially all of its assets, the Company or the successor or surviving corporation, as the case may be, shall execute and deliver to the Holder an agreement as to the Holder's rights in accordance with this subsection 7(c), providing, to the extent of any right to purchase equity securities hereunder, for subsequent adjustments as nearly equivalent as may be practicable to the adjustments provided for in this Section 7. (d) Reclassification. If the Company, at any time while this Warrant, or any portion hereof, remains outstanding and unexpired by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 7. (e) Certain Dividends and Distributions. If the Company at any time while this Warrant is outstanding and unexpired shall make a distribution of its assets to it stockholders as a dividend in liquidation or by way of return of capital or other than as a dividend payable out of earnings or surplus legally available for dividends under applicable law, the Holder shall, upon exercise of this Warrant, be entitled to receive, in addition to the number of shares of Series I Preferred Shares receivable thereupon, and without payment of any additional consideration therefor, a sum equal to the amount of such assets as would have been payable to him as owner of that number of shares of Series I Preferred Shares receivable by exercise of this Warrant had he been the Holder of record of such Series I Preferred Shares on the record date for such distribution, or if no such record date is taken, as of the date of such distribution, and an appropriate provision therefor shall be made a part of any such distribution. (f) Issuance of Additional Shares of Capital Stock. If the Company at any time while this Warrant remains outstanding and unexpired shall issue any Additional Shares of Capital Stock (as defined below) (otherwise than as provided in the foregoing subsections (7)(a) through (7)(e) above) at a price per share less, or for other consideration lower, than the Exercise Price (the "Lower Price"), then upon such issuance the Exercise Price in effect immediately prior to such issuance shall be adjusted to equal the Lower Price. In determining the Lower Price in connection with issuances of the Company's Class A Common Stock ("Common Stock") pursuant to this subsection 7(f), and for purposes of subsections 7(g) and 7(h), the issue price per share of the Common Stock should be multiplied by the number of shares of Common Stock each share of Series I Preferred Shares is convertible into. The provisions of this subsection 7(f) shall not apply under any of the circumstances for which an adjustment is provided in subsections 7(a) through 7(e). No adjustment of the Exercise Price shall be made under this subsection 7(f) upon the issuance of any Additional Shares of Capital Stock which are issued pursuant to the exercise of any warrants, options or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities if any such adjustments shall previously have been made upon the issuance of any such warrants, options or other rights or upon the issuance of any convertible securities (or upon the issuance of any warrants, options or any rights therefor) pursuant to subsections 7(g) or 7(h) hereof. As used herein, "Additional Shares of Capital Stock" shall mean any shares of Common Stock or Series I Preferred Shares (collectively, "Capital Stock"), except any shares of Capital Stock issued through the exercise of options pursuant to a stock option, equity, or similar plan of the Company approved by the Company's stockholders and directors. (g) Issuance of Warrants, Options or Other Rights. In case the Company shall issue any warrants, options or other rights to subscribe for or purchase any Additional Shares of Capital Stock and the price per share for which Additional Shares of Capital Stock may at any time thereafter be issuable pursuant to such warrants, options or other rights shall be a Lower Price, then upon such issuance the Exercise Price shall be adjusted as provided in subsection7(f) hereof on the basis that the aggregate consideration for the Additional Shares of Capital Stock issuable pursuant to such warrants, options or other rights, shall be deemed to be the consideration received by the Company for the issuance of such warrants, options, or other rights plus the additional consideration payable to the Company upon the exercise of such warrants, options or other rights. (h) Issuance of Convertible Securities. In case the Company shall issue any securities (debt or equity) convertible into Additional Shares of Capital Stock and the consideration per share for which Additional Shares of Capital Stock may at any time thereafter be issuable pursuant to the terms of such convertible securities shall be a Lower Price, then upon such issuance the Exercise Price shall be adjusted as provided in subsection 7(f) hereof on the basis that (i) the maximum number of Additional Shares of Capital Stock necessary to effect the conversion or exchange of all such convertible securities shall be deemed to have been issued as of the date of issuance of such convertible securities, and (ii) the aggregate consideration for such maximum number of Additional Shares of Capital Stock shall be deemed to be the consideration paid or payable to the Company in respect of the subscription for or purchase of such convertible securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange in such convertible securities. No adjustment of the Exercise Price shall be made under this subsection upon the issuance of any convertible securities which are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to subsection 6(g) hereof. (i) Other Provisions Applicable to Adjustments Under this Section. The following provisions will be applicable to the making of adjustments in the Exercise Price hereinabove provided in this Section 7: (i) Computation of Consideration. To the extent that any Additional Shares of Capital Stock or any warrants, options or other rights to subscribe for or purchase any Additional Shares of Capital Stock, or any securities (debt or equity) convertible into Additional Shares of Capital Stock shall be issued for cash consideration, the consideration received by the Company therefor shall be deemed to be the amount of the cash received by the Company therefor, or, if such Additional Shares of Capital Stock or convertible securities (debt or equity) are offered by the Company for subscription, the subscription price, or, if such Additional Shares of Capital Stock or convertible securities (debt or equity) are sold to underwriters or dealers for public offering without a subscription offering, or through underwriters or dealers for public offering without a subscription offering, the public offering price, in any such case excluding any amounts paid or incurred by the Company for and in the underwriting of, or otherwise in connection with the issue thereof. To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Company's Board of Directors. In case of the issuance at any time of any Additional Shares of Capital Stock or convertible securities (debt or equity) in payment or satisfaction of any dividend upon any class of stock preferred as to dividends in a fixed amount, the Company shall be deemed to have received for such Additional Shares of Capital Stock or convertible securities a consideration equal to the amount of such dividend so paid or satisfied. (ii) Other Action Affecting Capital Stock. In case after the date hereof the Company shall take any action affecting the Capital Stock, other than an action described in any of the foregoing subsections (6)(a) to (6)(h) hereof, inclusive, which in the opinion of the Company's Board of Directors would have a materially adverse effect upon the rights of the Holder to purchase the Warrant Shares, the Exercise Price shall be adjusted in such manner and at such time as the Board of Directors may in good faith determine to be equitable in the circumstances. (j) Notice of Certain Actions. Not less than 10 nor more than 30 days prior to the record date or effective date, as the case may be, of any action which will require an adjustment or readjustment pursuant to this Section 7, the Company shall give notice to the Holder of such event, describing in such detail and specifying the record date or effective date, as the case may be, and, if determinable, the required adjustment and the computation thereof. If the required adjustment is not determinable at the time of such notice, the Company shall give notice to the Holder of such adjustment and computation promptly after such adjustment becomes determinable. 8. Transfer to Comply with the Securities Act. (a) Neither this Warrant, the Warrant Shares, any other security issued or issuable upon exercise of this Warrant, nor any interest therein may be sold, transferred or otherwise disposed of except to a person who, in the opinion of counsel reasonably satisfactory to the Company, is a person to whom this Warrant or such Warrant Shares may legally be transferred pursuant to Section 5 hereof without registration and without the delivery of a current prospectus under the Securities Act with respect thereto, and then only upon compliance by the Holder and such purchaser with the requirements of Section 5 and receipt by the Company of an agreement of such person to comply with the provisions of this Warrant with respect to any resale or other disposition of this Warrant and/or such securities, as applicable. (b) If the Warrant Shares are not subject to an effective registration statement under the Securities Act and applicable state securities laws, the Holder shall represent that the Warrant Shares to be issued upon exercise hereof are being acquired for the account of the Holder for investment purposes and not with a view to, or for resale in connection with, the distribution thereof and that the Holder will not offer, sell or otherwise dispose of such Warrant Shares except under circumstances which will not result in a violation of the Securities Act and all applicable state securities laws. The Holder represents that the Holder has no present intention of distributing or reselling the Warrant Shares. (c) The Company may cause the following legend, or one of similar substance, to be set forth on each certificate representing Warrant Shares or any other security issued or issuable upon exercise of this Warrant, unless the Holder delivers an opinion of counsel satisfactory to the Company that such legend is unnecessary: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO ANY STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS SUCH ARE FIRST REGISTERED PURSUANT TO THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR UNLESS THE COPORATION RECEIVES A WRITTEN OPINION OF COUNSEL WHICH OPINION AND COUNSEL ARE SATISFACTORY TO THE CORPORATION, THAT SUCH REGISTRATION IS NOT REQUIRED. 9. Governing Law. This Warrant shall be governed by, and construed in accordance with, the laws of the State of Nevada. 10. Modification and Waiver. This Warrant and any provision hereof may be modified, amended, waived or discharged only by an instrument in writing signed by the party against which enforcement of the same is sought. 11. Notice. Notices and other communications to be given to the Holder shall be delivered by hand or mailed, postage prepaid, to such address as the Holder shall have designated by written notice to the Company as provided in this Section. Notices or other communications to the Company shall be deemed to have been sufficiently given if delivered by hand or mailed postage prepaid to the Company at 5175 West 2100 South, West Valley City, Utah 84120, Attn: Chief Executive Officer, or such other address as the Company shall have designated by written notice to the Holder as provided in this Section. Notice by mail shall be deemed given when deposited in the United States mail, postage prepaid, as herein provided. 12. Construction. The descriptive headings of the several paragraphs and sections of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. Unless otherwise indicated, references to sections shall be construed as references to the corresponding sections of this Warrant. IN WITNESS WHEREOF, the Company and the Purchaser have executed this Warrant effective as of the 30th day of June, 2001. SIMON TRANSPORTATION SERVICES INC., a Nevada corporation By:/s/ Alban B. Lang --------------------------------------- Alban B. Lang, Chief Financial Officer, Treasurer, and Secretary MOYES CHILDREN'S LIMITED PARTNERSHIP By:/s/ Ronald Moyes --------------------------------------- Ronald Moyes, General Partner EXHIBIT A NOTICE OF EXERCISE TO: SIMON TRANSPORTATION SERVICES INC. (the "Company"): ------- 1. The undersigned holder of the attached warrant (the "Warrant") hereby elects to purchase _____________________ Warrant Shares (as defined in the Warrant). 2. Please issue a certificate or certificates representing such Warrant Shares in the name of the undersigned. - --------------- (DATE) --------------------------------------- (SIGNATURE) --------------------------------------- (PRINT OR TYPE NAME) EXHIBIT B ASSIGNMENT FORM Dated: ____________________ FOR VALUE RECEIVED, _____________________ hereby sells, assigns, and transfers unto ______________________ (please type or print) ______________________________ (address) the right to purchase Series I Preferred Shares represented by the warrant attached hereto to the extent of _____________ shares as to which such right is exercisable and does hereby irrevocably constitute and appoint Simon Transportation Services Inc. (the "Company") and/or its transfer agent as attorney to transfer the same on the books of the Company with full power of substitution in the premises. --------------------------------------- (SIGNATURE) EX-10 6 associates.txt FINANCING AND SECURITY AGREEMENT TRANSPORTATION ACCOUNTS FINANCING AND SECURITY AGREEMENT This Transportation Accounts Financing and Security Agreement dated as of April 25, 2001 is by and between Associates TransCapital Services, a division of Associates Commercial Corporation ("CitiCapital"), a Delaware corporation having a place of business at 300 East Carpenter Freeway, Irving, Texas 75062 and Dick Simon Trucking, Inc. ("Borrower"), a Utah corporation having its chief executive office at 5175 West 2100 South, West Valley City, Utah 84120. ARTICLE I - Definitions 1.01 As used in this Agreement, the words and phrases defined in this Article I shall have the meanings so ascribed to them. 1.02 "Account" shall mean and refer to all of Borrower's accounts, contract rights, instruments, documents, chattel paper, notes, drafts and other forms of obligations owing to Borrower, however created. 1.03 "Advance" shall mean an advance by CitiCapital to or on behalf of Borrower and shall include any amounts payable to CitiCapital and charged to Borrower's Receivable Loan Balance. 1.04 "Affiliate" means, with respect to any Person, any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person and each officer, director, general partner or joint-venturer of such Person. For the purposes of this definition, "control" means the possession of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. 1.05 "Agreement" shall mean and refer to this Accounts Financing and Security Agreement and any supplement or amendment thereto. 1.06 "Applicable Jurisdiction" shall mean and refer to the State of Texas, which is the jurisdiction in which this Agreement is accepted by CitiCapital. 1.07 "Business Day" shall mean calendar days other than Saturdays, Sundays and legal holidays in the State of Texas. 1.08 "Capital Expenditures" means, with respect to any Person for any period, the aggregate of amounts that would be reflected as additions to property, plant or equipment on a consolidated balance sheet of such Person and its parent and subsidiaries prepared in conformity with GAAP, excluding interest capitalized during construction. 1.09 "Capitalized Lease" means, with respect to any Person, any lease of property by such Person as lessee which would be accounted for as a capital lease on a balance sheet of such Person prepared in conformity with GAAP. 1.10 "Capitalized Lease Obligations" means, with respect to any Person, the capitalized amount of all obligations of such Person or its parent or subsidiaries under Capitalized Leases, as determined on a consolidated basis in conformity with GAAP. 1.11 "Cash Flow" means (for purposes of Section 2.04 of this Agreement), net income plus depreciation and any positive change in deferred income taxes measured against current debt (including the current portion of long-term debt and capitalized leases) as reported in Borrower's financial statements as of end of the prior Fiscal Year. 1.12 "Change of Control" means the following: Jerry Moyes shall cease to own and control, directly or indirectly, either personally or through a trust under his control, all of the voting rights associated with a majority of the outstanding voting stock of the Borrower. 1.13 "Consolidated Net Income" means, for any Person for any period, the net income (or loss) of such Person and its Subsidiaries for such period, determined on a consolidated basis in conformity with GAAP. 1.14 "Collateral" shall mean and refer to all of Borrower's now owned or hereafter acquired, now existing or hereafter arising: (a) Accounts; (b) General Intangibles; (c) Deposit Accounts; (d) all guaranties, liens and security granted to or held by Borrower with respect to any of the above and all cash and non-cash proceeds of any of the foregoing, including, without limitation, proceeds of insurance including returned and unearned premiums; (e) all Records; (f) inventory (as that term is defined in the Uniform Commercial Code) wherever located that is to be used or consumed in Borrower's business; (g) office furniture, fixtures and supplies; and (h) shop tools and supplies count and all cash and non-cash proceeds of any of the foregoing. 1.15 "Deposit Accounts" shall mean and refer to any demand, time, savings, passbook or like account maintained by Borrower with a bank, savings and loan association, credit union or like organization other than an account evidenced by a certificate of deposit. 1.16 "Eligible Accounts" shall mean and refer to those Accounts which in the sole discretion of CitiCapital are eligible for loans made by CitiCapital under this Agreement. Without limiting CitiCapital's discretion, the following Accounts are not Eligible Accounts and shall be ineligible for loans made by CitiCapital under this Agreement: (a) Accounts which are more than ninety (90) days old; (b) Accounts owing by a single account debtor if twenty percent (20%) or more of such Accounts are ninety (90) days old; (c) Accounts owing by a single account debtor in excess of an amount equal to thirty percent (30%) of all Accounts owing by all account debtors (d) Accounts with respect to which the account debtor is a subsidiary of, related to, or affiliated with Borrower or has common shareholders, officers or directors with Borrower; (e) Accounts in which Borrower is or may become liable to the account debtor thereof for goods sold or services rendered by such account debtor; (f) Accounts owing by the United States Government; (g) Accounts with respect to which the account debtor, as shown on the invoice relating to such accounts, resided or is located outside the United States or Canada; (h) Accounts in which the account debtor has raised any dispute or defense to payment of any kind; or (i) Accounts owing by any account debtors not deemed by CitiCapital to be credit worthy. 1.17 "Encumbrances" means, with respect to property, any liens, leases, options, preferences, priorities, rights of first refusal, easements, servitudes, rights-of-way, licenses, securities purchase option, call or similar right, restrictions under any shareholder agreement or any other contractual obligation, encumbrance or any other restriction or limitation whatsoever on any right incident to the ownership in fee of such property (including rights to transfer, use or possess such property), whether contingent or non-contingent, matured or unmatured, known or unknown. 1.18 "Fiscal Year" means the period from October 1, 2000 through and including September 30, 2001 and each successive consecutive twelve-month period thereafter. Each Fiscal Year shall be identified when necessary by the calendar year in which the Fiscal Year ends. For example, the Fiscal Year ending on September 30, 2001 will be considered "Fiscal Year 2001". 1.19 "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, which are applicable to the circumstances as of the date of determination. Any reference to the use of GAAP shall mean GAAP consistently applied. All accounting words or terms used in this Agreement shall have the meaning ascribed to them in accordance with GAAP. 1.20 "General Intangibles" shall mean and refer to Borrower's general intangibles, including, without limitation, all tax refunds of every kind and nature to which Borrower is now or hereafter may be come entitled, no matter however arising, all other refunds, goodwill, trade secrets, computer programs, customer lists, trade names, trademarks, licenses and patents. 1.21 "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any individual or entity exercising executive or administrative functions of, or generally pertaining to, governments, nations, states or other political subdivisions thereof. 1.22 "Guarantor" means Simon Transportation Services Inc. 1.23 "Indebtedness" of any Person means without duplication (a) all indebtedness of such Person for borrowed money (including reimbursement and all other obligations with respect to letters of credit, bankers' acceptances, surety bonds and performance bonds, whether or not matured) or for the deferred purchase price of property or services, (b) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, (c) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (d) all Capitalized Lease Obligations of such Person and the present value of future rental payments under all synthetic leases, (e) all guaranty obligations of such Person, (f) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any stock or stock equivalents of such Person, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, and (g) all Indebtedness referred to above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and general intangibles) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness. 1.24 "Leverage Ratio" means, with respect to any Person for any period, the ratio of (a) the Indebtedness of such Person as of the last day of such period to (b) the Tangible Net Worth for such Person for such period. 1.25 "Lien" means any lien (statutory or other), pledge, mortgage, deed of trust, charge, pledge, hypothecation, assignment, deposit arrangement, encumbrance, security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever intended to assure payment of any Indebtedness or other obligation, including any conditional sale or other title retention agreement, the interest of a lessor under a Capitalized Lease, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement under the Uniform Commercial Code or comparable Requirement of Law naming the owner of the asset to which such Lien relates as debtor. 1.26 "Material Adverse Change" means a material adverse change in any of (a) the condition (financial or otherwise), business, performance, prospects, operations or properties of the Borrower or the Borrower and Guarantor taken as one enterprise, (b) the legality, validity or enforceability of this Agreement or any agreement executed by the parties in conjunction with this Agreement, (c) the perfection or priority of the Liens granted pursuant to this Agreement, (d) the ability of the Borrower to repay the Obligations or Borrower or Guarantor to perform their obligations under this Agreement or any agreement executed by the parties in conjunction with this Agreement or (e) the rights and remedies of CitiCapital under this Agreement or any agreement executed by the parties in conjunction with this Agreement. 1.27 "Material Adverse Effect" means an effect that results in or causes, or could reasonably be expected to result in or cause, a Material Adverse Change. 1.28 "Obligations" shall mean and refer to all loans from time to time made by CitiCapital to Borrower and to others at the request of or for the account of or for the benefit of Borrower, all other debts, liabilities and obligations of Borrower to CitiCapital of every kind and description (whether or not evidenced by a note or other instrument and whether or not for the payment of money), direct or indirect, absolute or contingent, joint or several, primary or secondary, due or to become due, now existing or hereafter arising, including, without limiting the generality of the foregoing, any liability of Borrower to CitiCapital as a guarantor of indebtedness or liabilities of others and all interest, fees, charges and expenses payable by Borrower hereunder, or any supplement or amendment hereto or any other agreement between Borrower or CitiCapital or any instrument evidencing any of the foregoing. 1.29 "Person" or "Party" means an individual, partnership, corporation (including a business trust), joint stock company, estate, trust, labor union, limited liability company, unincorporated association, joint venture or other entity or a Governmental Authority. 1.30 "Prime Rate" shall mean the highest of the Prime Rates published in the Money Rates section of The Wall Street Journal as the base rate on corporate loans. In the event the Prime Rate as published in The Wall Street Journal ceases to exist or The Wall Street Journal ceases publishing a Prime Rate, the holder hereof will substitute a comparable index which is outside the control of the holder. In the event of an error by The Wall Street Journal, the "Prime Rate" will be based upon the Prime Rate as corrected. 1.31 "Purchase Money Liens" means purchase money Liens or purchase money security interests upon or in any property (other than the Collateral) acquired or held by a Person in the ordinary course of business to secure the purchase price of such property or to secure Indebtedness incurred solely for the purpose of financing the acquisition of such property; provided, however, that (i) any such Lien is created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of the property subject thereto, (ii) the principal amount of the Indebtedness secured by such Lien does not exceed one hundred percent (100%) of such cost, and (iii) such Lien does not extend to or cover any other property other than such item of property and any improvements on such item. 1.32 "Quarter" means each of the three-month periods ending on March 31, June 30, September 30 and December 31. 1.33 "Records" shall mean and refer to all of Borrower's and Guarantor's books of account of every kind and nature, including, without limitation, all electronically recorded data relating to Borrower or Guarantor or its business and all receptacles and containers for such records and all of Borrower's and Guarantor's files and correspondence. 1.34 "Receivable Loan Balance" shall mean and refer to that portion of the Obligations which, on CitiCapital's book of account, reflects the principal and other charges owing from Borrower to CitiCapital by reason of loans made under this Agreement, or pursuant to any supplement hereto, or under any other agreement which provides that loans thereunder shall constitute a portion or the Receivable Loan Balance. 1.35 "Restricted Payment" means (a) any dividend or other distribution, direct or indirect, on account of any stock or stock equivalents of the Borrower or Guarantor now or hereafter outstanding, except a dividend payable solely in stock or stock equivalents or a dividend or distribution payable solely to the Borrower or Guarantor, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any stock or stock equivalents of the Borrower or Guarantor now or hereafter outstanding other than one payable solely to the Borrower or Guarantor and (c) any loan made by Borrower or Guarantor directly or indirectly to or for the benefit of any shareholder of Guarantor . 1.36 "Solvent" means, with respect to any Person, that the value of the assets of such Person (both at fair value and present fair saleable value) is, on the date of determination, greater than the total amount of liabilities (including contingent and unliquidated liabilities) of such Person as of such date and that, as of such date, such Person is able to pay all liabilities of such Person as such liabilities mature and does not have unreasonably small capital. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. 1.37 "Tangible Net Worth" shall mean, as of any date, the book net worth of Borrower's and Guarantor's assets excluding patents, copy rights, capitalized research and development costs, goodwill, operating rights and other intangible assets, plus the amount of any debt due to stockholders or affiliates to the extent that such debt is subordinated in payment to the payment of Borrower's and Guarantor's Obligations to CitiCapital in a manner satisfactory to CitiCapital, all determined in accordance with generally accepted accounting principles consistently applied. 1.38 "Unbilled Account" means an Account with respect to which (a) the service giving rise to the Account has been fully, completely and satisfactorily performed by Borrower and an employee or agent of Borrower is in physical possession of a signed bill of lading or delivery receipt from the account debtor or the party to whom delivery was made but (b) the signed bill of lading or delivery receipt has not yet been delivered to Borrower's invoicing department and Borrower's normal invoicing procedures have not been initiated. 1.39 "Uniform Commercial Code" means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Texas; provided, however, that in the event that, by reason of any mandatory requirement of law, any or all of the attachment, perfection or priority of any security interest granted under the Security Agreement in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Texas, the term "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purpose of definitions related to such provisions. 1.40 All words and terms used in this Agreement and in any supplement or amendment hereto other than those specifically defined in this Agreement or such supplement or amendment shall be deemed to have the meanings accorded to them in the Uniform Commercial Code as amended from time to time (herein the "Code"), as in force in the State of Texas. ARTICLE lI - Loans, Fees and Interest 2.01 Subject to the terms and conditions of this Agreement, CitiCapital may from time to time lend to Borrower at CitiCapital's sole discretion up to the lesser of (x) Thirty Million and no/00 Dollars ($30,000,000.00), (y) Borrower's and Guarantor's Tangible Net Worth, and (z) the then Applicable Advance Percentage of Eligible Accounts ("Maximum Advance"). The Applicable Advance Percentage of Eligible Accounts shall be determined as follows: (a) if Borrower's and Guarantor's Tangible Net Worth (as reported in financial statements prepared and delivered in accordance with this Agreement) as of the end of the immediately preceding Quarter is equal to or less than $25,000,000, the Applicable Advance Percentage of Eligible Accounts will be 50 % of the face amount of Eligible Accounts; (b) if Borrower's and Guarantor's Tangible Net Worth (as reported in financial statements prepared and delivered in accordance with this Agreement) as of the end of the immediately preceding Quarter is greater than $25,000,000 but equal to or less than $30,000,000, the Applicable Advance Percentage of Eligible Accounts will be 75 % of the face amount of Eligible Accounts; (c) if Borrower's and Guarantor's Tangible Net Worth (as reported in financial statements prepared and delivered in accordance with this Agreement) as of the end of the immediately preceding Quarter is greater than $30,000,000 but equal to or less than $35,000,000, the Applicable Advance Percentage of Eligible Accounts will be 80 % of the face amount of Eligible Accounts; and (d) if Borrower's and Guarantor's Tangible Net Worth (as reported in financial statements prepared and delivered in accordance with this Agreement) as of the end of the immediately preceding Quarter is greater than $35,000,000, the Applicable Advance Percentage of Eligible Accounts will be 85 % of the face amount of Eligible Accounts. The initial Maximum Advance hereunder shall in no event exceed Borrower and Guarantor's then Tangible Net Worth. Advances will not be available during any period in which Borrower is not in full compliance with the provisions of this Agreement. Notwithstanding anything to the contrary contained above, the maximum advance based on Borrower's Unbilled Accounts will never exceed the lesser of (x) $3,000,000 and (y) an amount equal to 50% of the face amount of Unbilled Accounts which qualify as Eligible Accounts 2.02 All loans made by CitiCapital to Borrower pursuant to this Agreement and all other Obligations which do not have a specific time for payment shall be payable on demand at any time and for any reason with or without the occurrence of any Event of Default (as hereinafter defined). 2.03 If the Receivable Loan Balance shall at any time exceed the then effective percentage (as determined under Section 2.01) of the face amount of Eligible Accounts, Borrower shall, on CitiCapital's demand, either (as specified in such demand) pay to CitiCapital such excess or grant and deliver to CitiCapital such additional security as may be satisfactory to CitiCapital. 2.04 Until all Obligations of Borrower to CitiCapital are fully paid and performed, Borrower shall pay to CitiCapital monthly, as of the last day of each calendar month, interest at a rate which shall be equal to the lesser of (i) the then applicable Variable Rate (as determined below) or (ii) the lawful maximum, if any, in effect from time to time in the Applicable Jurisdiction for loans to borrowers of the type, in the amount, for the purposes and otherwise of the kind herein contemplated. Such rate of interest shall be computed on the daily Receivable Loan Balance from the date accrued until the date of payment and calculated on the basis of a 360-day year for the actual number of days elapsed. The rate of interest payable hereunder shall not be less than 7.00% per annum. The "Variable Rate " applicable during any period will be determined as follows: (a) The initial Variable Rate will be the sum of (x) the Prime Rate, plus (y) .25 % per annum (the "Initial Variable Rate"). (b) If Borrower's and Guarantor's financial statements (prepared and delivered in accordance with this Agreement) for Fiscal Year 2001 indicate a net loss (without the benefit of any cumulative effect of any accounting change or the re-classification of non-operational expenses) of greater than $2,500,000, the Variable Rate during Fiscal Year 2002 will remain at the Initial Variable Rate. If Borrower's and Guarantor's financial statements (prepared and delivered in accordance with this Agreement) for Fiscal Year 2001 indicate a net loss (without the benefit of any cumulative effect of any accounting change or the re-classification of non-operational expenses) of $2,500,000 or less, the Variable Rate during Fiscal Year 2002 will be the Prime Rate (the "Reduced Variable Rate"). (c) If Borrower's and Guarantor's financial statements (prepared and delivered in accordance with this Agreement) for any Fiscal Year after Fiscal Year 2001 indicate that all of the conditions set out below have been met as of the end of the Fiscal Year, the Variable Rate applicable to the succeeding Fiscal Year will be the Reduced Variable Rate. The conditions for application of the Reduced Variable Rate are: (1) Borrower and Guarantor shall have made a positive Consolidated Net Income from operations and have a positive Cash Flow; and (2) Less than six percent (6%) of all Accounts (measured by outstanding balances) are 90 or more days past their due date; and (3) The Leverage Ratio does not exceed 2 to 1. If Borrower's and Guarantor's financial statements (prepared and delivered in accordance with this Agreement) for any Fiscal Year after Fiscal Year 2001 indicate that one or more of the above conditions has not been met as of the end of the Fiscal Year, the Variable Rate applicable to the succeeding Fiscal Year will be the Initial Variable Rate. Notwithstanding any other provision to the contrary set forth herein, if at any time implementation of any provision hereof shall raise the interest rate herein above the lawful maximum rate of interest, if any, in effect from time to time in the Applicable Jurisdiction which may be charged by CitiCapital for loans to borrowers of the type, in the amount, for the purposes and otherwise of the kind herein contemplated, then such interest rate shall be limited to such lawful maximum and any excess interest inadvertently collected shall be deemed to be a partial prepayment of principal and so applied. 2.05 Any increase or decrease in the Prime Rate shall be effective as of the next Business Day following such adjustment and such adjusted Prime Rate shall be the applicable Prime Rate in determining the rate of interest payable hereunder. 2.06 All payments to be made by Borrower hereunder shall be paid to CitiCapital at its office designated above or at such other address as CitiCapital may designate in writing and Borrower unconditionally promises to repay all loans and other obligations to CitiCapital in the manner set forth in this Agreement without the necessity on CitiCapital's part of resorting to or having recourse to the Collateral. 2.07 CitiCapital shall furnish to Borrower monthly an extract or a statement of Borrower's account with CitiCapital, prepared from CitiCapital's records showing all applicable credits and debits, including all loans, other charges and payments since the last statement. Each such statement shall be considered true and correct and to have been accepted by Borrower and shall be conclusively binding upon Borrower with respect to all matters contained therein, unless Borrower notifies CitiCapital in writing of any discrepancy or exception within thirty (30)) days from the mailing by CitiCapital to Borrower of any such monthly statement. 2.08 In the event CitiCapital shall so request, Borrower agrees to execute and deliver to CitiCapital such promissory notes, an example of which is attached hereto as Exhibit A, as CitiCapital shall request in order to evidence the loans. Notwithstanding the issuance of any such note, the monthly statements of Borrower's account with CitiCapital shall constitute prima facie evidence of the loans and other amounts owing from Borrower to CitiCapital. 2.09 Borrower shall pay CitiCapital on the date of this Agreement a closing fee of $75,000.00. 2.10 Borrower shall pay CitiCapital a wire transfer fee of $15.00 for each wire transfer CitiCapital initiates under this Agreement and reimburse CitiCapital for exchange on checks, charges for returned items and all other bank charges. ARTICLE III - Grant of Security interest 3.01 As security for the payment and performance of all Obligations, Borrower hereby assigns to CitiCapital and grants to CitiCapital a continuing security interest in all Collateral. 3.02 Until all Obligations have been fully paid and performed, whether or not this Agreement has been terminated as hereinafter provided, CitiCapital shall have and retain its security interest in and assignment of all Collateral, whether or not any of such Collateral is deemed by CitiCapital to be eligible for loan purposes. 3.03 To the extent Borrower has heretofore granted or may hereafter grant to CitiCapital a security interest in or mortgage of any other real or personal property, then such property shall, for the purposes of this Agreement, be deemed to be "Collateral". ARTICLE IV - Representations and Warranties 4.01 To induce CitiCapital to enter into this Agreement and to make loans hereunder, Borrower makes the representations and warranties contained in this Article IV, each of which is acknowledged by Borrower to be a material representation and warranty and each of which shall be deemed to be renewed by Borrower upon each request to CitiCapital to make a loan hereunder. 4.02 Borrower and each of its subsidiaries, if any, is a corporation duly organized and existing under the laws of the state of its incorporation and is in good standing thereunder and is qualified to do business in every other state or jurisdiction in which the nature of the business conducted or the property owned therein requires it so to qualify. 4.03 The execution and delivery by Borrower of this Agreement and the performance by Borrower of its Obligations hereunder are within Borrower's corporate powers. 4.04 The execution and delivery of this Agreement has been duly authorized by Borrower's Board of Directors and, to the extent required by the laws of the state of its incorporation, by its stockholders. 4.05 There is no provision in the Articles of Organization, Agreement of Association, Articles of Incorporation or the by-laws of Borrower or in any indenture, contract or agreement to which Borrower is a party or by which Borrower or Borrower's property is bound, which prohibits the execution and delivery by Borrower of this Agreement or the payment and performance by Borrower of the Obligations or pursuant to which such execution, delivery or performance would, upon the giving of notice or the passage of time, or both, result in a default thereunder. 4.06 Borrower has (or as to Collateral arising or acquired hereafter will have) good, clear record and marketable title to the Collateral, free and clear of all liens, pledges, charges, encumbrances and security interests of every kind and nature. 4.07 All financial statements and information relating to Borrower and Guarantor which have been furnished by Borrower to CitiCapital are true and correct, have been prepared in accordance with generally accepted accounting principles consistently applied, and there has been no Material Adverse Change, Material Adverse Effect or Change of Control since such submission. 4.08 There are no actions, suits, proceedings or investigations pending or, to the knowledge of Borrower, its agents, servants or employees, threatened against Borrower or any of its properties in any court, before any other tribunal or before any federal, state, municipal or other Governmental Authority. Neither Borrower nor any of its subsidiaries, if any, is in default with respect to any order of any court, other tribunal or Governmental Authority. The execution, delivery and performance of this Agreement will not be a default under any order of any court, any other tribunal or any Governmental Authority. 4.09 Borrower and Guarantor have duly filed all federal, state and other governmental tax returns which it is required by law to file and has fully paid all taxes now due to be paid and Borrower and Guarantor now have and shall hereafter maintain reserves adequate in amount to fully pay all such tax liabilities which may hereafter accrue. 4.10 Borrower and Guarantor are now Solvent and able to pay its debts as they mature. 4.11 All Accounts (i) are and will be bona fide existing obligations of the account debtor thereof created by the rendition of services to the named account debtor in the ordinary course of business, free of liens, encumbrances and security interests and unconditionally owed in the face amount thereof unless otherwise indicated in the schedule relating thereto, to Borrower by the account debtor thereof without right of rejection or return or defense, offset or counterclaim, or claim of discount or deduction, (ii) are and will be valid, legal, enforceable obligations of the account debtor thereof; and (iii) do not and will not arise out of transactions with an employee, officer, agent, director, stockholder, affiliate or subsidiary of Borrower. 4.12 Borrower's chief executive office is at the address set forth in the preamble to this Agreement, and Borrower has no other place of business, except as follows: 1645 Cedar Grove Road 5821 West Buckeye 15816 Santa Ana Avenue Conley, Georgia 30027 Phoenix, Arizona 85043. Fontana, California 92337 If Borrower's books and records concerning the Accounts are not at its chief executive office, such books and records are at N/A . Except as set forth herein, Borrower conducts business and will continue to conduct business under no names or tradestyles other than the name set forth above Borrower's execution of this Agreement: ARTICLE V - Affirmative Covenants 5.01 Borrower shall: (a) duly and punctually, pay and perform all of the Obligations; (b) at all times keep proper books of account in which full, true and correct entries will be made of its transactions in accordance with GAAP consistently applied; (c) at all reasonable times, make its books and records available, in its offices, for inspection, examination and copying by CitiCapital and CitiCapital's representatives and will, at all reasonable times, permit inspection of its properties by CitiCapital and CitiCapital's representatives; (d) from time to time, furnish CitiCapital with such information and statements as CitiCapital may reasonably request and with copies of all financial statements and reports that Borrower sends or makes available to its stockholders or to any Governmental Authority; (e) furnish CitiCapital immediately following the end of each monthly period a report detailing the miles each of tractor under Borrower's control has been driven, the number of empty miles any such tractor has been driven, the revenue per mile and the revenue per tractor. (f) furnish CitiCapital, within forty-five (45) days after the close of each monthly period of its Fiscal Year, a consolidated and consolidating balance sheet of Borrower and Guarantor and statement of profit and loss reflecting the financial condition of Borrower at the end of such period and the results of its operations during each such period, with a certificate by Borrower's president or treasurer to the effect that such balance sheet and statement of profit and loss fairly present the financial conditions at the end of such period and the results of its operation during such period in accordance with generally accepted accounting principles consistently applied; (g) furnish CitiCapital, within forty five (45) days after the close of each Quarter of its Fiscal Year, a consolidated and consolidating balance sheet of Borrower and Guarantor and statement of profit and loss reflecting the financial condition of Borrower at the end of such Quarter and the results of its operations during each such Quarter. Each such balance sheet and statement of profit and loss is to be reviewed by an independent certified public accountant satisfactory to CitiCapital and such review shall be in form and substance satisfactory to CitiCapital; (h) furnish CitiCapital annually, within one hundred twenty (120) days after the close of each Fiscal Year, an audited consolidated and consolidating balance sheet of Borrower and its affiliates, if any, and audited statement of profit and loss reflecting the financial condition of Borrower and its affiliates, if any, at the end of such fiscal year and the results of its operations during each such Fiscal Year. Each such balance sheet and statement of profit and loss is to be attested to by an independent certified public accountant satisfactory to CitiCapital and such certification shall be in form and substance satisfactory to CitiCapital; (i) maintain its corporate existence and the corporate existence of any and all subsidiaries in good standing and comply with all laws and regulations of the United States or of any state or states thereof or of any political subdivision thereof, or any governmental authority which may be applicable to its or their business; (j) maintain insurance at all times covering such risks and in such amounts as CitiCapital may require and all such insurance shall be in such form, for such period and written by such companies as shall be acceptable by CitiCapital; (k) annually, at the time of delivery to CitiCapital of the reports referred to in Section 5.01(h) above, deliver to CitiCapital certificates signed by Borrower's president and treasurer certifying that each such officer has reviewed the provisions of this Agreement and stating in his opinion, if such be the fact, that Borrower has not been nor is then in default as to any of the covenants contained in this Agreement or, in the event of any such defaults, setting forth the details thereof; (l) promptly notify CitiCapital in writing of (i) any change of its officers, directors, key employees, location of its chief executive office or any other office or location where any books and records regarding any Accounts are held, name or trade style, and (ii) any sale or purchase out of the regular course of Borrower's business and any other material change in the business or financial affairs of Borrower; (m) pay or reimburse CitiCapital on demand for all expenses (including, without limitation, reasonable attorney fees and legal expenses) incurred or paid by CitiCapital (i) in connection with the preparation, execution, interpretation or amendment of this Agreement and any instrument , agreement, or document executed and delivered pursuant thereto or in connection therewith; (ii) for appraisers, examiners, auditors or similar persons except for salaries of CitiCapital's regularly employed personnel; provided however, Borrower shall pay CitiCapital an auditor's fee of $500.00 per day per auditor for each day CitiCapital auditor(s) or any auditor(s) designated by CitiCapital is on site at Borrower's premises and reimburse CitiCapital for all out-of-pocket expenses incurred by such auditor(s) whom CitiCapital may engage with respect to rendering opinions concerning Borrower's financial condition or the condition and/or value of the Collateral; (iii) in connection with the enforcement by CitiCapital of its rights against Borrower or any other person primarily or secondarily liable to CitiCapital in respect to any Obligation; (iv) in connection with the administration, supervision, protection of or realization on any Collateral held by CitiCapital as security for any Obligation, whether such security interest was granted by Borrower or any other person primarily or secondarily liable respect to any Obligation, the Collateral or this Agreement; (v) in connection with the filing and recording of all documents required by CitiCapital to perfect the security interests granted to CitiCapital in this Agreement or in any other security interests granted to CitiCapital, including, without limitation, any documentary stamp tax or other taxes incurred by CitiCapital because of any related filing or recording; (vi) in connection with the forwarding to Borrower or any other Person on Borrower's behalf by CitiCapital of proceeds of loans made by CitiCapital to Borrower pursuant to this Agreement and the depositing for collection by CitiCapital of any check or item of payment delivered to CitiCapital on account of the Obligations and for any claims asserted by any bank at which a blocked account or lock box is established for the deposit of proceeds of Collateral in connection with such blocked account or lock box or any returned or uncollected checks received by such bank as proceeds of the Collateral; and (vii) in establishing, maintaining and using any blocked account or lock box for the deposit of checks and other items of payment from Borrower's customers and account debtors under the Accounts, and (n) use the proceeds of all loans made by CitiCapital to Borrower under this Agreement for business purposes. 5.02 Borrower will and will cause each of its subsidiaries, if any, to pay all real and personal property taxes, assessments and charges and all franchise, income, unemployment, FICA, withholding, sales and other taxes assessed against it or payable by it at such times and in such manner to prevent any penalty from accruing or any lien or charge from attaching to its properties. The provisions of this section, however, shall not preclude Borrower or its subsidiaries from contesting in good faith any such tax by appropriate proceedings, provided an adequate book reserve, determined in accordance with generally accepted accounting practices, is set aside; nor shall Borrower be in default under this section by reason of the existence of a lien for taxes not then due. 5.03 Borrower will put and maintain, and will cause each of its subsidiaries, if any, to put and maintain, its properties in good repair, working order and condition and from time to time make all needful and proper repairs, renewals and replacements. 5.04 Borrower and each of its subsidiaries, if any, will comply with all laws and all acts, rules, regulations and orders of any legislative, administrative or judicial body or official, applicable to any Collateral or to the operation of the business or Borrower or its subsidiaries. ARTICLE Vl - Negative Covenants 6.01 Borrower will not, without the prior written consent of CitiCapital, (a) guaranty or otherwise become liable in any way with respect to the obligations of any Person, except for endorsement of items of payment for the purpose of collection thereof; (b) make any Restricted Payment; (c) make any loans to any individual, firm or corporation, including, without limitation, its officers and employees; provided, that Borrower may make loans to its employees, including its officers, with respect to expenses incurred by such employees, which expenses are reimbursable by Borrower; (d) invest in or purchase any stock or securities of any person; (e) merge or consolidate or be merged or consolidated with or into any other corporation; (f) sell or dispose of any of its assets except for sales of inventory in the ordinary and usual course of its business; provided, that so long as Borrower has not granted CitiCapital a security interest in Borrower's equipment, Borrower may dispose of equipment which is no longer required for the conduct of Borrower's business so long as Borrower receives therefor a sum substantially equal to such equipment's fair value; (g) grant or suffer to exist in the favor of any party other than CitiCapital any mortgage, pledge, title retention agreement, security interest, lien, charge or encumbrance with respect to the Collateral or subject the Collateral to the payment of any indebtedness, or transfer in any manner any of such assets with the intent or purpose, directly or indirectly, of subjecting the Collateral to the payment of indebtedness; (h) engage in any business other than the business in which it is currently engaged or a business reasonably allied thereto; or (i) grant a Lien on any of its assets (whether or not such assets are Collateral) or allow any Lien to be placed on any of its assets (whether or not such assets are Collateral) other than Liens in favor of CitiCapital, those Liens which are in existence on the date of this Agreement and disclosed in the public records or by Borrower to CitiCapital or Purchase Money Liens. 6.02 Borrower will not, except on thirty (30) days prior written notice to CitiCapital, change either its principal place of business or its chief executive office or establish any additional places of business. ARTICLE Vll - Operating Procedures 7.01 From time to time at intervals designated by CitiCapital, Borrower shall provide CitiCapital with schedules describing all Accounts created or acquired by Borrower and shall execute and deliver written assignments of such Accounts to CitiCapital; provided however, that Borrower's failure to execute and deliver such schedules and/or Borrower assignments shall not affect or limit CitiCapital's security interest or other rights in and to the Accounts. If requested by CitiCapital, Borrower shall furnish copies of customers' invoices or an equivalent writing that is acceptable to CitiCapital, and Borrower warrants the genuineness thereof. On demand of CitiCapital, Borrower shall furnish to CitiCapital the original shipping or delivery receipts of all services rendered. Borrower may elect to transmit any Borrowing Base Certificate or Schedule of Collateral required under this Agreement and/or Requests For Advances under this Agreement from Borrower (from an individual at Borrower designated by Borrower) to CitiCapital (to an individual at CitiCapital designated by CitiCapital) via electronic transmission or e-mail. In the event that Borrower elects to do so and CitiCapital receives the Certificate, Schedule or Request, Borrower hereby authorizes CitiCapital to accept such transmission on the same basis as a hard-copy original of such Certificate, Schedule or Request and further acknowledges that the act of sending such e-mail showing that it is being transmitted from the designated individual's e-mail address will conclusively constitute the signature of that individual and of Borrower on the Certificate, Schedule or Request. All of Borrower's representations and warranties will apply to all Certificates, Schedules or Requests transmitted to CitiCapital under this Section. Upon request from CitiCapital, Borrower will provide hard copies of such Certificates, Schedules or Requests together with any supporting information. 7.02 CitiCapital or its designee may at any time and at its sole discretion (a) notify Borrower's customers or account debtors that Accounts have been assigned to CitiCapital or of CitiCapital's security interest therein; (b) collect the Accounts directly and charge the collection costs and expenses to the Receivable Loan Balance but, unless and until CitiCapital so notifies or gives Borrower other instructions, Borrower shall collect all Accounts for CitiCapital; provided however, Borrower shall direct its customers and account debtors to send all payments thereon to such lock box or blocked account as CitiCapital may establish and designate in writing to Borrower; (c) verify the validity and amount or any other matter relating to any Account by mail, telephone, telecopy, telegraph or otherwise; (d) in the name of CitiCapital, Borrower or otherwise, enforce payment and collect by legal proceedings or otherwise the Accounts and take control in any manner of any cash or non-cash items of payments or proceeds of Accounts; and (e) require Borrower to give notice of CitiCapital's security interest in the Accounts or any other obligation owing to Borrower to the account debtor or other obligor with notice requiring such account debtor or other obligor to pay the Account or other obligation directly to CitiCapital. 7.03 All checks and other instruments received by CitiCapital as proceeds of Accounts will be credited (conditional upon final collection) upon receipt to the Receivable Loan Balance; provided, however, that for purposes of calculation of interest, such conditional credit will be made after allowing three (3) Business Days for collection. 7.04 Borrower appoints any person CitiCapital may from time to time designate as Borrower's attorney with power to (a) endorse Borrower's name on any checks, notes, acceptances, money orders, drafts or other forms of payment or security that may come into CitiCapital's possession; (b) sign Borrower's name on any invoice or bill of lading relating to any Account, on drafts against customers, on schedules and assignments of Accounts, on notices of assignment, financing statements and other public records, on verifications of Accounts and on notices to customers; (c) sign Borrower's name to the proof of claim against any account debtor on behalf of Borrower; (d) notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by CitiCapital; (e) receive, open and dispose of all mail addressed to Borrower; and (f) send requests for verification of Accounts to customers or account debtors and to do all things necessary to carry out this Agreement. Borrower ratifies and approves all acts of the attorney. Neither CitiCapital nor the attorney will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law. This power, being coupled with an interest, is irrevocable so long as any Accounts assigned to CitiCapital or in which CitiCapital has a security interest remain unpaid or until the Obligations have been fully satisfied. CitiCapital may file one or more financing statements disclosing CitiCapital's security interest without Borrower's signature appearing thereon. If permitted by law, Borrower agrees that a carbon, photographic or other reproduction of this Agreement or of a financing statement may be filed as a financing statement. 7.05 Until Borrower's authority to do so is terminated by written notice from CitiCapital, which notice CitiCapital may give at any time when Borrower's selling or collection results are not reasonably satisfactory to CitiCapital, or at any time after the occurrence of any Event of Default specified in Section 8.01 herein, Borrower may grant such allowances or other adjustments to account debtors as Borrower may reasonably deem to accord with sound business practice; provided, however, no extension of time for payment shall be granted without CitiCapital's prior written consent. Borrower shall give CitiCapital immediate written notice of the grant of any such allowance or other adjustment. 7.06 CitiCapital may at all times settle Accounts or other obligations owing to Borrower or adjust disputes and claims directly with customers or account debtors or other obligors for such amounts and upon terms which CitiCapital considers advisable, and in all cases CitiCapital will credit the Receivable Loan Balance with only the net amounts received by CitiCapital in payment of Accounts. 7.07 Any and all sums at any time credited by or due from CitiCapital to Borrower shall at all times constitute additional security of all Obligations of Borrower to CitiCapital and may be setoff against any Obligation at any time whether or not other security held by CitiCapital is deemed to be adequate whether or not such Obligations are then due. Any and all instruments, documents, policies and certificates of insurance, securities, goods, accounts receivable, choses in action, chattel paper, cash, property and the proceeds thereof owned by Borrower or in which Borrower has an interest, which now or hereafter are at anytime in possession or control of CitiCapital or in transit by mail or carrier to or from CitiCapital or in the possession of any third party acting in CitiCapital's behalf, without regard to whether CitiCapital received the same in pledge, for safe keeping, as agent for collection or transmission or otherwise or whether CitiCapital has conditionally released the same, shall constitute additional security for such Obligations, and may be applied at any time to such Obligations whether due or not. CitiCapital shall have the unrestricted right from time to time to apply (or to change any application already made of) the proceeds of any of the Collateral to any of the Obligations, as CitiCapital in its sole discretion may determine. Unless otherwise agreed to in writing by CitiCapital, no credits or cash in which Borrower has an interest which are in the possession or control of CitiCapital, or any sums otherwise due from CitiCapital to Borrower, shall bear interest or otherwise accrue profits. 7.08 In the event that Borrower at any time or times hereafter shall become liable to, or any Lien against Borrower shall arise in favor of, any taxing authority, whether or not the amount of such liability shall have been assessed against Borrower and whether or not notice of such lien shall have been filed or recorded as may be required by law, or if Borrower shall fail to discharge any lien, claim or encumbrance, or fail to obtain or maintain any of the policies of insurance required hereunder, or to pay any premium, in whole or in part relating thereto, then CitiCapital shall have the right, but not the obligation, to pay the amount of such liability (including interest and/or penalties thereon) and also to pay any tax or liability by virtue of which such lien shall have arisen, or obtain and maintain such policies of insurance and pay such premiums and any amount or amounts paid for the discharge of any such liability or lien shall be charged to the Receivable Loan Balance. 7.9 Borrower will furnish CitiCapital sworn statements of the value of the Collateral in such form and as often as CitiCapital requires. 7.10 Borrower will deliver to CitiCapital, duly endorsed or assigned, all instruments, chattel paper, guaranties or security agreements immediately upon receipt by Borrower as evidence of, in payment of or as security for any of the Collateral. 7.11 Borrower shall furnish CitiCapital with an aging of accounts and an aging of Borrower's accounts payable in such form and as often as CitiCapital may require. ARTICLE VIII - Remedies 8.01 Any one or more of the following events shall constitute an event of default ("Event of Default") under this Agreement: (a) If Borrower fails to make payment of any of the Obligations when required of Borrower, or fails to make any remittance required by this Agreement or commits any breach of this Agreement, or any present or future supplement hereto, or any other agreement between Borrower and CitiCapital or any affiliate of CitiCapital; (b) any default by Borrower or Borrower's subsidiaries exists under any agreement between Borrower or any of Borrower's subsidiaries, affiliates or parents and CitiCapital or any affiliate of CitiCapital, whether such agreements are now existing or are hereafter entered into; (c) any representative covenant or warranty made by Borrower or in connection with this Agreement is breached; (d) any statement or data furnished by or for Borrower relating to the Collateral or to the operation or financial condition or business affairs of Borrower proves to be false in any material respect; (e) Borrower ceases to be Solvent or is unable to meet debts as they mature, suspends operations as presently conducted, or discontinues doing business as an ongoing concern; (f) if any of the Collateral or any of Borrower's other assets is attached, seized, subject to a writ or distress warrant or levied upon or if a petition under any section or chapter of the Bankruptcy Code or any similar law or regulation shall be filed by or against Borrower or Borrower makes an assignment for the benefit of its creditors or if any case or proceeding is filed by Borrower for its dissolution or liquidation; (g) if Borrower is enjoined, restrained, or in any way prevented by court order from (or voluntarily ceases) conducting all or any material part of its business affairs or if a petition under any section or chapter of the Bankruptcy Code or any similar law or regulation is filed against Borrower or if any case or proceeding is filed against Borrower for its dissolution or liquidation; (h) if a notice of lien, levy or assessment is filed of record with respect to all or any of Borrower's assets by the United States or any departments agency, or instrumentality thereof or by any state. county, municipal or other governmental agency, including, without limitation, the Pension Benefit Guaranty Corporation, or if any taxes or debts owing at any time or times hereafter to any one of them becomes a lien or encumbrance upon the Collateral or any other of Borrower's assets unless Borrower, in good faith, shall be contesting the same in an appropriate proceeding and Borrower has given CitiCapital such additional collateral and assurances as CitiCapital deems necessary under the circumstances; (i) if a custodian, trustee, receiver or assignee for the benefit of creditors is appointed to take possession of any of the Collateral or any of Borrower's other assets; (j) if there shall be a Change of Control or a material change in the management of Borrower; (k) if for any reason the guaranty of Guarantor or any other Person primarily or secondarily liable with respect to any of the Obligations shall terminate without the consent of CitiCapital; (l) if there shall be a Material Adverse Effect or a Material Adverse Change; or (m) if Borrower or Guarantor defaults in any of its obligations to any other party with respect to indebtedness or obligations which in the aggregate equal or exceed $1,000,000. 8.02 Upon the occurrence of any Event of Default and at any time thereafter so long as the default continues, CitiCapital may, at its option, with or without notice to Borrower, (a) declare this Agreement to be in default; (b) declare all Obligations of Borrower to be immediately due and payable; (c) cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or any other agreement; (d) cancel any insurance and credit any refund to the Obligations; and/or (e) exercise all of the rights and remedies of a secured party under the Code and any other applicable laws, including, without Imitation, the right to require Borrower to assemble the Collateral and deliver it to CitiCapital at a place to be designated by CitiCapital which is reasonably convenient to both parties, and to lawfully enter any premises where the Collateral is located without judicial process and take possession thereof. CitiCapital may sell and deliver any or all Accounts and any or all other Collateral at public or private sale for each, upon credit or otherwise, at such prices and upon such terms as CitiCapital deems advisable. Any requirement of reasonable notice shall be met if such notice is mailed postage prepaid to Borrower at Borrower's address as set forth herein at least five(5) days before the time of sale or other disposition. The proceeds of sale shall be applied first to all costs and expenses of sale, including attorneys' fees, and second to the payment (in whatever order CitiCapital elects) of all Obligations. CitiCapital shall dispose of any excess as required by law and Borrower shall remain liable to CitiCapital for any deficiency. Failure by CitiCapital to exercise any right, remedy or option under this Agreement or any present or future supplement hereto or under any other agreement between CitiCapital and Borrower, or delay by CitiCapital in exercising the same, will not operate as a waiver thereof. 8.03 CitiCapital's rights and remedies under this Agreement shall be cumulative and not alternative and shall not limit any other right or remedy which CitiCapital may have. 8.04 CitiCapital shall not be required to have recourse to any Collateral before enforcing its rights or remedies against Borrower or any other Person primarily or secondarily liable with respect to any of the Obligations. 8.05 CitiCapital shall not, under any circumstances or in any event whatsoever, have any liability for any error or omission or delay of any kind occurring in the liquidation of any Collateral, including the settlement, collection or payment of any Account, or for any damage resulting therefrom. 8.06 Borrower waives and releases all rights of redemption from any sale of the Collateral and the benefit of all evaluation, appraisal and exemption laws. 8.07 BORROWER AND CITICAPITAL EACH WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY JURY IN ANY SUIT OR PROCEEDING ARISING UNDER OR RELATING TO THIS AGREEMENT. ARTICLE IX-Termination 9.01 This Agreement shall have an initial term of three (3) years from the effective date hereof (the "Original Term") and shall be automatically renewed for successive periods of one (1) year ("Renewal Term"), unless sooner terminated as hereinafter provided. Borrower may terminate this Agreement as of the expiration of the Original Term or any Renewal Term by giving CitiCapital ninety (90) days prior written notice of its intention to so terminate. CitiCapital shall have the right to terminate this Agreement at any time by giving Borrower at least ninety (90) days prior written notice of its intention to terminate or at any time without notice because of the occurrence of any Event of Default. 9.02 Upon the termination date, all Obligations shall immediately be due and payable. 9.03 No termination hereunder shall in any way affect or impair any right of CitiCapital arising prior thereto or by reason thereof nor shall any such termination relieve Borrower or any other party primarily or secondarily liable as to the Obligations until all of the Obligations are fully paid. 9.04 Notwithstanding the provisions of Section 9.01, Borrower may terminate this Agreement at any time upon ninety (90) days prior written notice and by payment to CitiCapital on the effective date of such termination of an amount equal to the sum of (a) all Obligations, plus (b) (i) in the event of such termination during the Original Term or any Renewal Term, one percent (1%) of the then Maximum Advance. ARTICLE X - Miscellaneous 10.01 NOTWITHSTANDING THE FACT THAT THE CREDIT OF AN ACCOUNT DEBTOR MUST BE SATISFACTORY TO CITICAPITAL, BORROWER RECOGNIZES AND AGREES THAT BORROWER WILL MAKE ALL CREDIT DECISIONS WITH RESPECT TO BORROWER'S EXTENSION OF CREDIT TO AN ACCOUNT DEBTOR; BORROWER WILL NOT RELY ON CITICAPITAL IN ANY WAY FOR SUCH CREDIT DETERMINATION; NO REPRESENTATION OR AGREEMENT HAS BEEN MADE BY CITICAPITAL THAT CITICAPITAL WILL PROVIDE CREDIT DECISIONS TO BORROWER AND ALL REFERENCES TO CREDIT DECISIONS BY CITICAPITAL WITH RESPECT TO AN ACCOUNT OR AN ACCOUNT DEBTOR REFER SOLELY TO CITICAPITAL'S OWN DETERMINATION AS TO THE ELIGIBILITY OF SUCH ACCOUNT OR SUCH ACCOUNT DEBTOR FOR THE PURPOSE OF TREATING AN ACCOUNT AS AN ELIGIBLE ACCOUNT. 10.02 All loans made by CitiCapital to Borrower under this Agreement and under any other agreement between CitiCapital and Borrower shall constitute one loan secured by all of the Collateral and all other security granted to CitiCapital. 10.03 Borrower irrevocably (a) waives the right to direct the application of any and all payments at any time or times hereafter which may be received by CitiCapital from or for the benefit of Borrower, and (b) agrees that CitiCapital shall have the continuing exclusive right to apply and reapply any and all such payments received at any time or times hereafter in such manner as CitiCapital may deem advisable, notwithstanding any entry by CitiCapital upon any of its books and records. 10.04 To the extent that Borrower makes a payment(s) to CitiCapital or CitiCapital enforces its security interest and lien or exercises its right of setoff and such payment(s) or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the liability or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred and shall be Obligations secured by the Collateral. 10.05 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs and representatives or successors and assigns. Borrower may not, however, without the prior written consent of CitiCapital, assign this Agreement to any other person. 10.06 In the event that any provision hereof shall be deemed to be invalid by reason of the operation of any law or by reason of the interpretation placed thereon by any court, this Agreement shall be construed as not containing such provision and the invalidity of such provision shall not affect the validity of any other provision hereof and any and all other provisions hereof which are otherwise lawful and valid shall remain in full force and effect The captions herein contained are for convenience only, do not form a part of this Agreement and shall not be utilized in the construction thereof. 10.07 Borrower will, from time to time, execute and deliver all instruments, documents or other writings, and take or cause to be taken such other and further action as CitiCapital may request in order to effect and confirm or vest more securely in CitiCapital all rights contemplated in this Agreement. 10.08 This Agreement may be amended and Borrower may take any action herein prohibited or omit to perform any act herein required to be performed by it, if Borrower shall obtain CitiCapital's prior written consent to each such amendment, action or omission to act. No waiver on the part of CitiCapital on any one occasion shall be deemed a waiver on any subsequent occasion. No waiver by CitiCapital will be effective unless it is in writing and then only to the extent specifically stated. 10.09 If any of the Collateral shall at any time consist of instruments or documents, CitiCapital shall have no obligation to preserve rights against prior parties. 10.10 CitiCapital may, at any time(s) pay, acquire, satisfy, or discharge any security interest, lien, encumbrance or claim asserted by any Person against the Collateral. CitiCapital shall have no obligation to determine the validity thereof. All sums paid by CitiCapital under the provisions of this section and any existing or other charges relating thereto shall be repaid by Borrower on demand and shall be a charge to the Receivable Loan Balance. 10.11 Except as otherwise provided for in this Agreement, Borrower expressly waives presentment, demand and protest and notice of presentment, protest, default, non-payment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by CitiCapital on which Borrower may in any way be liable and hereby ratifies and confirms whatever CitiCapital may do in this regard. 10.12 This Agreement shall be governed, construed and enforced in accordance with the laws of the State of Texas and applicable Federal laws. This Agreement shall take effect as an instrument under seal. 10.13 Any notice hereunder to Borrower or to CitiCapital shall be in writing and, if mailed, shall be deemed to be given four (4) Business Days after deposit in the mail, postage prepaid, and addressed to Borrower or CitiCapital at its address set forth in the preamble to this Agreement or at such address as the Borrower or CitiCapital may, by written notice, designate its address for purposes of notice hereunder. 10.14 This Agreement has been signed and delivered to CitiCapital on the day and year first above written. This Agreement shall become effective only upon the written acceptance hereof by CitiCapital under the signature of its duly authorized officer. When so accepted, this Agreement shall supersede all prior verbal or written agreements, commitments or understandings relating to CitiCapital's loans to Borrower measured and secured by this Agreement. 10.15 Borrower authorizes CitiCapital to disclose such financial, credit and other information regarding Borrower and Borrower's business as CitiCapital may deem appropriate to any of CitiCapital's assignees, participants or other persons making credit inquiries about Borrower. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers duly authorized thereto. DICK SIMON TRUCKING, INC. By: /s/ Alban B. Lang Title: Treasurer Date: April 25, 2001 Accepted at Irving, Texas this 25th day of April , 2001 ------------- ------ ----------- ASSOCIATES TRANSCAPITAL SERVICES, a division of ASSOCIATES COMMERCIAL CORPORATION By: /s/ Robert G. Bowling Title: Vice President Date: April 25, 2001 EX-10 7 natllifeofvermont.txt LOAN AGREEEMENT - NATL LIFE OF VERMONT LOAN AGREEMENT BETWEEN SIMON TERMINAL, LLC AND NATIONAL LIFE INSURANCE COMPANY DATED June 21, 2001
Loan Agreement Table of Contents TABLE OF CONTENTS Article 1. DEFINITIONS AND RULES OF CONSTRUCTION..................................................................1 1.1 General Definitions.........................................................................1 1.2 Construction and Interpretation.............................................................4 Article 2. THE LOAN...............................................................................................5 2.1 Loan Advances...............................................................................5 2.2 Conditions to Initial Advance...............................................................5 2.3 Guaranty....................................................................................5 2.4 Restrictions on Transfer and Encumbrance....................................................5 ----------------------------------------- Article 3. REPRESENTATIONS AND WARRANTIES OF BORROWER.............................................................7 3.1 Borrower's Capacity.........................................................................7 3.2 Guarantors' Capacity........................................................................7 3.3 Organizational Documents....................................................................7 3.4 Authorization...............................................................................7 3.5 Authorization of Guarantor(s)...............................................................7 3.6 Validity....................................................................................8 3.7 No Defenses.................................................................................8 3.8 No Default or Violation.....................................................................8 3.9 Consents....................................................................................8 3.10 Title, Possession and Lien Priority........................................................8 3.11 Use........................................................................................9 3.12 Utilities and Access.......................................................................9 3.13 No Judgments or Liens......................................................................9 3.14 Condition of the Property; Condemnation; Flood Hazard......................................9 3.15 Environmental Matters......................................................................9 3.16 Compliance with Environmental Laws........................................................10 3.17 Environmental Site Assessment.............................................................10 3.18 Compliance With Other Laws................................................................10 3.19 Leases....................................................................................11 3.20 Separate Tax Parcel.......................................................................12 3.21 Commitment................................................................................12 3.22 Financial Statements; Tax Returns.........................................................12 3.23 Pending Litigation........................................................................13 3.24 ERISA.....................................................................................13 3.25 Solvency..................................................................................13 3.26 Not Foreign Persons.......................................................................13 3.27 Trade Names...............................................................................14 3.28 Identification............................................................................14 3.29 Offices...................................................................................14 3.30 Personal Property Warranties, Representations and Covenants of Borrower...................14 3.31 Use of Proceeds...........................................................................15 3.32 Investment Company Act; Public Utility Holding Company Act................................15 3.33 Representations...........................................................................15 Article 4. BORROWER'S COVENANTS..................................................................................15 4.1 Performance of Note, Mortgage and Other Loan Documents.....................................15 4.2 Maintenance, Repair and Alterations........................................................15 4.3 Waste......................................................................................16 4.4 Required Insurance.........................................................................16 4.5 Delivery of Policies; Payment of Premiums..................................................17 4.6 Insurance Proceeds.........................................................................19 4.7 Taxes and Impositions......................................................................21 4.8 Condemnation...............................................................................23 4.9 Utilities..................................................................................24 4.10 Liens.....................................................................................24 4.11 Books and Records; Lender May Examine Books and Records...................................24 4.12 Leasing...................................................................................25 4.13 Reporting.................................................................................25 4.14 Environmental Indemnity...................................................................27 4.15 General Indemnity.........................................................................28 4.16 Preservation of Legal Existence...........................................................28 4.17 Compliance with Permitted Encumbrances and Contracts......................................29 4.18 Statements by Borrower and Tenants........................................................29 4.19 Right of Entry............................................................................29 4.20 Waiver of Subrogation, No Offset..........................................................29 4.21 Continuing Accuracy of Representations....................................................30 4.22 Further Assurances........................................................................30 4.23 Expenses..................................................................................30 Article 5. EVENTS OF DEFAULT.....................................................................................30 5.1 Events of Default..........................................................................30 Article 6. BORROWER STATUS.......................................................................................32 6.1 Death or Incapacity........................................................................32 Article 7. REMEDIES..............................................................................................33 7.1 Acceleration...............................................................................33 7.2 Cure of Events of Default..................................................................33 7.3 All Other Remedies.........................................................................33 7.4 Application of Income......................................................................33 7.5 Remedies Cumulative........................................................................34 7.6 No Waiver..................................................................................34 Article 8. GENERAL CONDITIONS AND MISCELLANEOUS..................................................................35 8.1 No Liability of Lender.....................................................................35 8.2 No Third Parties Benefited.................................................................35 8.3 Time is of the Essence.....................................................................35 8.4 Binding Effect; No Borrower Assignment.....................................................35 8.5 Lender Assignment..........................................................................36 8.6 Execution in Counterparts..................................................................36 8.7 Integration; Amendments; Consents..........................................................37 8.8 Notices....................................................................................37 8.9 Governing Law..............................................................................38 8.10 Jurisdiction..............................................................................38 8.11 Severability of Provisions................................................................38 8.12 Preferences...............................................................................38 8.13 Joint and Several Obligations.............................................................39 8.14 No Joint Venture or Partnership...........................................................39 8.15 Waivers...................................................................................39 8.16 Jury Trial Waiver.........................................................................40 SCHEDULE A.......................................................................................................42
LOAN AGREEMENT THIS LOAN AGREEMENT ("Agreement") is made this 21st day of June, 2001 by and between SIMON TERMINAL, LLC,. an Arizona limited liability company ("Borrower"), and NATIONAL LIFE INSURANCE COMPANY, a Vermont corporation ("Lender"). RECITALS A........Borrower has applied to Lender for a mortgage term loan in the amount of $13,000,000 (the "Loan"), and Lender has issued its commitment dated May 25, 2001 (the "Commitment"), in which Lender has agreed to make the Loan to Borrower upon certain terms and conditions. B........In connection with the closing of the Loan, Lender requires that this Agreement, containing many of the principal business terms of the Loan, be executed by Borrower and Lender. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower agree as follows: Article 1......... DEFINITIONS AND RULES OF CONSTRUCTION 1.1 General Definitions. The following general terms when used in this Agreement have the meanings set forth in this Section 1.1. Other terms may be defined elsewhere in this Agreement or may be defined in other Loan Documents as indicated in the Glossary contained in the Mortgage. The Glossary and all definitions to which it refers are incorporated in this Section 1.1. "Borrower" means the Person named as Borrower in, and who executes, this Agreement and each successor owner of the Property, each such Person's heirs, executors, administrators, successors and assigns. "Borrower Party" means, if Borrower or any Guarantor is a partnership, each general partner of Borrower and such Guarantor that is not an individual, and, if Borrower or any Guarantor is a limited liability company, each managing member or managing agent of Borrower and such Guarantor that is not an individual, and, if any such general partner or managing agent is a partnership or limited liability company, each general partner or managing member or managing agent thereof that is not an individual, continuing at lower tiers for all Persons that are not individuals and are general partners, managing members or managing agents. "Business Day" means any day other than a Saturday, Sunday or other day on which national banks in New York City or in the State of Vermont are authorized or required by Law to close. "Default" means an event that, if not cured after the giving of notice or lapse of time would constitute an Event of Default. "Entity Acting for Borrower" means (a) if Borrower or any Guarantor is a partnership, each general partner of Borrower and Guarantor that is not an individual and, (b) if Borrower or any Guarantor is a limited liability company, each managing member or managing agent of Borrower and such Guarantor that is not an individual and, (c) if any such general partner or managing agent is a partnership or limited liability company, each general partner or managing member or managing agent thereof that is not an individual, and (d) continuing at lower tiers, all entities that are not individuals and are general partners, managing members or managing agents. "Environmental Claim" means any claim made or threatened by any Person against Borrower or relating to the Property concerning any loss or injury resulting from any Release or any Managing of Hazardous Substances. "Environmental Complaint" means any notice of violation, notice of potential liability, demand letter, complaint, order, citation or notice of any proceeding or inquiry with respect to any Release, the presence of any Hazardous Substances on the Property or the migration thereof from or to other property, or any request for information under any Environmental Law. "Environmental Laws" means all applicable Laws relating to the environment, health, safety, or to the Managing of Hazardous Substances or to Releases into the indoor or outdoor environment, and any permits, approvals, licenses, registrations, filings and authorizations required under such Laws. "Hazardous Substances" means all (a) hazardous, toxic or polluting substances or contaminants or wastes, that are now or hereafter included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," "contaminants," "pollutants" or words of similar import under any Environmental Law; (b) other chemicals or substances, exposure to which is now or hereafter prohibited, limited or regulated under any Environmental Law; and (c) petroleum or petroleum products or waste, explosives, radioactive materials, asbestos-containing materials, urea formaldehyde, polychlorinated biphenyls ("PCBs"), lead in drinking water, radon, lead-based paint, or other chemical element or substance the Managing or Release of or exposure to which (i) is regulated or could lead to liability under any Environmental Law or (ii) is subject to notice or reporting requirements under any Environmental Law. "Laws" means collectively, all statutes, regulations, ordinances, codes and rules, each as amended from time to time, and all rulings, orders, judgments, writs, decrees, injunctions, determinations, awards, settlement agreements, and other requirements of any Governmental Authority (including those regarding fire, health, handicapped access, sanitation, ecological matters, historic matters, zoning, subdivision, environmental protection, wetlands and building construction), now in effect or hereafter taking effect, in any way directly or indirectly applicable to Borrower, or to the construction, rehabilitation, restoration, use, occupancy, possession, operation, management, maintenance, financing, leasing, or ownership of the Property, including all Environmental Laws. Notwithstanding any other term or condition of this Agreement or any other Loan Document, Borrower and Lender agree that the Laws of the State of Arizona shall apply to all the Loan Documents except in those cases where the Laws of the State of Utah must be used in order for Lender to exercise its rights to foreclose upon the Property or Personal Property under the Mortgage. "Lender" means the Person who is the holder of the Note whether or not named herein as Lender, and each subsequent holder of the Note. "Lender Party" means Lender's directors, shareholders, officers, employees and agents, and each of their heirs, executors, successors and assigns (each a "Lender Party"). "Lien" means any mortgage, deed of trust, pledge, assignment of leases and rents, security interest, encumbrance, lien or charge of any kind (other than the Loan Documents) including any conditional sale or other title retention agreement, any lease in the nature thereof, or the filing of, or any agreement to give, any financing statement under the Uniform Commercial Code of any jurisdiction. "Loan Documents" means collectively, this Agreement, the Note, the Mortgage, the Assignment of Leases, the Guaranty, and all other documents or agreements now or hereafter evidencing, securing or otherwise relating to the Loan. "Losses" means all losses, claims, suits, liabilities (including strict liabilities), actions, proceedings, obligations, debts, damages, costs, fines, penalties, charges, fees, judgments, awards, amounts paid in settlement, punitive damages, consequential damages of whatever kind or nature, attorneys' fees (including expenses), consultants' or other experts' fees (including expenses), costs, and all costs of investigation, abatement, cleanup, removal, remediation or other response action, now existing or arising in the future, whether foreseeable or unforeseeable, asserted against, resulting to, imposed on, or incurred by any Lender Party, directly or indirectly in connection with the Loan. "Mortgage" means that certain mortgage, mortgage deed or deed of trust executed on the date hereof by Borrower in favor of Lender encumbering the Property and securing the Loan. "Note" means that certain promissory note evidencing the Loan, executed on or near the date hereof by Borrower. "Obligations" means the Indebtedness and all other agreements, conditions, covenants, provisions and stipulations to be performed by Borrower under the Loan Documents. "Organizational Documents" means for any Person, including Borrower, any Guarantor and any Borrower Party, if the Person is a corporation, its certificate or articles of incorporation and bylaws; if the Person is a general partnership, the partnership agreement; if the Person is a limited partnership, the certificate or other filing of limited partnership formation and the partnership agreement; if the Person is a limited liability company, the certificate or articles of organization, the operating agreement and any management agreement; if the Person is a trustee, the trust instrument; and for each of the foregoing and for any other entity, all other agreements pursuant to which such Person is formed, governed, managed and operated, together with current evidence of existence and good standing for each corporation, limited partnership, limited liability company or other entity for which a Governmental Authority provides such evidence. "Person" means an individual, corporation, general or limited partnership, limited liability company, joint venture, business trust, trust, joint stock company, unincorporated association, Governmental Authority, or other entity of any kind. "Release" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching, or migration of any Hazardous Substance into the indoor or outdoor environment, including the movement of Hazardous Substances through ambient air, soil, surface water, ground water, or subsurface strata. "State" means the state or commonwealth in which the Property is located. 1.2 Construction and Interpretation. Any reference to this Agreement or any other Loan Document means such document as originally executed and as it may from time to time be supplemented and modified in writing. References herein to Articles, Sections and Schedules are references to this Agreement unless otherwise specified. All Schedules to this Agreement either as originally existing or as the same may from time to time be supplemented and modified, are incorporated herein. The Table of Contents and headings are for convenience only and are not intended to affect the interpretation or construction of this Agreement. Terms defined or used in the plural are intended to include the singular, and the singular to include the plural. The use of any gender is intended to include all genders. All accounting terms not specifically defined herein are intended to be construed in accordance with GAAP as applied in the preparation of Borrower's financial statements delivered to Lender pursuant to the requirements of the Commitment. Each of the terms "agreement" or "document" is intended to be construed broadly to include contracts, certificates, opinions, consents, Reports, approvals, financing statements, instruments, indentures, correspondence and other written material of every kind. The term "or" is not exclusive. The terms "including" and "includes" are intended to be construed to be followed by the phrase "but not limited to." "Lender's discretion" is intended to be construed broadly to mean at the sole and absolute option of Lender, whether or not (in the opinion of others) exercised reasonably or with cause. "Lender's approval" or "to Lender's satisfaction" are intended to mean the Lender's exercise of rights in a commercially reasonable manner. This Agreement will be construed and interpreted without regard to any rule of law requiring construction or interpretation of a contract against the party who drafted it. Article 2......... THE LOAN 2.1 Loan Advances. Lender agrees to make and advance the Principal Balance of the Loan evidenced by the Note, on the terms and conditions of this Agreement and the Note. The advance of the Loan made to Borrower at the time of execution and delivery of this Agreement by Borrower and Lender (the "Closing") and, if the Loan is disbursed to Borrower in more than one installment, each succeeding installment, and any other amount advanced or expended by Lender pursuant to the Loan Documents to cure an Event of Default or to exercise Lender's rights and remedies (each, an "Advance") will be evidenced by the Note and will bear interest and be repayable as provided for in the Note. Each Advance will be recorded in Lender's records, which recordation will be prima facie evidence of such Advance, provided, however, that the failure by Lender to record any Advance will not affect the Obligations of Borrower. 2.2 Conditions to Initial Advance. The obligation of Lender to make the initial Advance of the Loan is subject to and expressly conditioned upon Borrower's execution of the Loan Documents and compliance with all other conditions of the Commitment. 2.3 Guaranty. To secure the repayment of all amounts for which Lender has recourse against Borrower under the Loan Documents, Jerry C. Moyes and Vickie Moyes, husband and wife (collectively, the "Guarantor") will execute and deliver to Lender at the Closing that certain Guaranty (the "Guaranty"). 2.4 Restrictions on Transfer and Encumbrance. ---------------------------------------- 2.4.1 Lender shall require payment of a transfer fee equal to one percent (1%) of the outstanding Principal Balance and/or modification of the terms of the Loan as a condition to giving any consent requested pursuant to this Section 2.4. Any transfer of the Property or interests in the Borrower or Guarantor made without Lender's prior express written consent will be void and shall, at Lender's election, entitle it to declare the entire outstanding balance of the Obligations immediately due and payable, together with the Prepayment Fee or, in the alternative, to increase the Interest Rate to the prevailing market rate at the time, and require payment of a transfer fee of not less than one percent (1%) of the outstanding Principal Balance, together with all reasonable costs and expenses, legal or otherwise, incurred by Lender as a result of such unauthorized transfer. Borrower agrees that if the ownership of the Property becomes vested in a Person other than Borrower, Lender may, without notice to Borrower, deal in any way with such successor or successors in interest with reference to this Agreement, the Note, the Mortgage or any other of the Loan Documents without in any way limiting or discharging Borrower's liability hereunder, or under any other Loan Documents. Lender's course of dealing with, or extension or forbearance benefiting, any Person with respect to this Agreement or the time for payment of the Indebtedness, will not operate to release, discharge, modify, affect or impair the Obligations of Borrower. 2.4.2 After review and approval by Lender, the sale, transfer, assignment or conveyance of the Property shall be permitted to another entity provided that at all times after the sale, Jerry C. Moyes, or a company owned and controlled by Jerry C. Moyes, will own at least fifty-one percent (51%) of such entity. No such transfer will relieve the Borrower, the Guarantors and any other Recourse Party from personal liability as set forth in the Loan Documents unless specifically agreed to by Lender. Such transfer, if approved by Lender, will be permitted without payment of an assumption or transfer fee. 2.4.3 Lender will consent to the sale, transfer, assignment or conveyance of the Property, on one occasion only, to a qualified buyer, subject to payment to Lender of a transfer fee for such in an amount equal to 1% of the principal balance of the Loan at the time of the sale and payment of the expenses (legal or otherwise) incurred by Lender as a result of the transfer. Lender shall have satisfactory assurance that its mortgage will retain a valid first lien on the Property after any such transfer. Such consent shall be subject to Lender's approval of the financial strength, demonstrated management abilities and reputation of the proposed transferee. Borrower shall submit to Lender for its review and approval at least thirty (30) days prior to the closing of such proposed sale, copies of: (a) information from the proposed transferee, detailing its experience and expertise as an owner and manager of commercial real estate, together with information on the structure and ownership interests of all parties comprising the proposed transferee; (b) proposed management agreements; (c) current rent roll for the Property, which shall be certified by the proposed transferee as being true and correct; (d) income and expense statements for the operation of the Property for the past twelve (12) months; (e) information regarding the business reputation of the proposed transferee; and (f) any other information Lender might require in order to make a determination of whether the proposed transferee is qualified to assume the duties and obligations under the Loan Documents. 2.4.4 Any sale, conveyance or transfer meeting the criteria set forth in this Section 2.4 will be referred to as a "Permitted Transfer." Article 3. REPRESENTATIONS AND WARRANTIES OF BORROWER Borrower hereby represents and warrants to Lender as of the date of this Agreement that except as expressly provided in Schedule A to this Agreement: 3.1 Borrower's Capacity. Borrower is a limited liability company duly organized, validly existing, in good standing and in full force and effect under the Laws of the state or commonwealth of its formation and duly qualified to do business as a foreign Person in any jurisdiction in which the nature of its business or assets requires it to be so qualified. Borrower has all requisite power and authority to own and operate all of its properties, to carry on its business as proposed to be conducted, and to execute and deliver and perform its obligations under this Agreement and the other Loan Documents. 3.2 Guarantors' Capacity. Guarantors are over the age of 21 and otherwise competent to execute the Guaranty. 3.3 Organizational Documents. The copies of the Organizational Documents of Borrower and each Borrower Party, delivered to Lender in connection with the Closing are accurate and complete, have not been modified in any respect, and are in full force and effect. 3.4 Authorization. The execution and delivery by Borrower of the Loan Documents, and the performance by Borrower of all its Obligations under the Loan Documents have been duly authorized by all requisite action of Borrower and do not and will not: (a) require any consent or approval of any Person not yet delivered to Lender; (b) violate any provision of Borrower's Organizational Documents; (c) result in or require the creation or imposition of any Lien upon or with respect to the Property; (d) violate any Laws; (e) result in a breach of or constitute a default, or cause or permit the acceleration of any obligation owed under any indenture or credit agreement or any other agreement (including any Lease), to which Borrower is a party or by which Borrower or the Property is bound or affected. 3.5 Authorization of Guarantor(s). The execution and delivery by each Guarantor of the Guaranty, and the performance by each Guarantor of all its obligations under the Guaranty have been duly authorized by all requisite action of each Guarantor and do not and will not: (a) require any consent or approval of any Person not yet delivered to Lender; (b) violate any Laws; (c) result in a breach of or constitute a default, or cause or permit the acceleration of any obligation owed under any indenture, credit agreement or any other agreement to which any Guarantor is a party or by which any Guarantor is bound or affected. 3.6 Validity. The Loan Documents are valid and binding upon Borrower and, as applicable, Guarantor, and enforceable according to their terms, subject to equitable principles, insolvency Laws, and other Laws applying to creditors generally; provided, however, that the application of such Laws and principles will not affect the ultimate realization of the security afforded by the Loan Documents. 3.7 No Defenses. Neither Borrower nor any Guarantor has any defenses or claims arising in connection with the Commitment or the Loan Documents or in connection with any other matter against the Lender. 3.8 No Default or Violation. Neither Borrower nor the Property is in violation of any Laws. Borrower is not in Default under the Loan Documents and neither Borrower nor any Guarantor is in default under any other obligation, agreement or indenture, whether in favor of Lender or any other Person, or any Lease, to which Borrower or such Guarantor is a party or by which Borrower, or any Guarantor, or the Property, or any of Borrower's or any Guarantor's assets is bound, including but not limited to restrictive covenants affecting title to the Property. 3.9 Consents. All consents, approvals, orders or authorizations of, or registrations, declarations or filings with, or other actions in respect of or by, the United States, the state or commonwealth of Borrower's and each Guarantor's and each Borrower Party's formation, the State and any political subdivision, agency, department, commission, board, bureau or instrumentality of any of them, including the county, city, town or other municipality in which the Property is located (each, a "Governmental Authority") or any other Person that are required in connection with the valid execution, delivery and performance by Borrower of the Loan Documents, and by Guarantor of the Guaranty, have been obtained and are in full force and effect. 3.10 Title, Possession and Lien Priority. Borrower is the record owner of marketable and insurable fee simple absolute title to the Property as shown in the American Land Title Association Lender's policy of title insurance, insuring the Mortgage in the amount of the Loan and delivered to Lender on the date hereof (the "Title Policy"), and has all right, power and authority to enter into the Mortgage. Subject to the Leases, Borrower is in undisputed possession of the Property. The Mortgage creates a valid first lien upon the Real Property, and the Real Property is free of all Liens except the Permitted Exceptions and those Liens to be paid in full upon the funding of the Loan. Borrower owns all of the Personal Property described in the Loan Documents free and clear of all Liens, and the Loan Documents will create a valid first priority lien upon all of the Personal Property. 3.11 Use. The anticipated use of the Property complies with all covenants, conditions and restrictions affecting the Property, all Environmental Laws and all other Laws. 3.12 Utilities and Access. All utility services and facilities necessary for the operation, use and occupancy of the Improvements for their intended purposes are legally available at the boundaries of the Land, or through public or insured easements, and are connected to and currently servicing the Improvements, including the means and rights of pedestrian and vehicular access between the Land and public highways. 3.13 No Judgments or Liens. Borrower is not a party to any agreement for sale of all or any portion of the Property. The Property is not subject to any Lien of any kind other than the Mortgage, the Lien for current taxes, which are not delinquent, and any other Permitted Encumbrances. No judgments have been entered or recorded against Borrower. 3.14 Condition of the Property; Condemnation; Flood Hazard The Property is in good and safe condition, working order and repair. No Condemnation of the Property has been commenced or, to Borrower's knowledge, is threatened. The Improvements are not located in a flood hazard area as defined by the Federal Emergency Management Agency. 3.15 Environmental Matters. (a) No portion of the Property is now or has ever been the site of any generation, manufacture, processing, distribution, handling, use, treatment, recycling, storage, disposal or transportation (each of such activities referred to as "Managing" and its correlative forms such as "Manage") of any Hazardous Substances, except small quantities of petroleum and chemical products, and their usual waste products, Managed in compliance with applicable Environmental Laws, as are customarily used in the operation and maintenance of office, retail or residential properties ("Permitted Substances"); (b) there has been no Release of Hazardous Substances at, on, under, or from the Property; (c) there are no aboveground or underground storage tanks, on or at the Property; (d) there is no basis for the imposition of any Lien against the Property based on any action of a Governmental Authority under any Environmental Laws, and no such Lien has been imposed; (e) neither Borrower nor, to the best of its knowledge after diligent inquiry, any other Person is or has been involved in activities or operations on or in connection with the Property that could (i) cause the Property to be subject to any restrictions on the ownership, occupancy, transferability or use of the Property under applicable Environmental Laws (ii) lead to the imposition of liability under Environmental Laws against Borrower, Lender, or any other present or former occupant, operator or owner of the Property or (iii) result in the creation of a Lien under Environmental Laws against the Property. 3.16 Compliance with Environmental Laws. Borrower will not Manage and will not permit any other Person to Manage any Hazardous Substances at, in or on the Property other than Permitted Substances. Borrower will not use or permit any other Person to use the Real Property for dry cleaning operations. Borrower will keep and maintain the Property in compliance with all applicable Environmental Laws, and Borrower will not violate or permit any other Person to violate Environmental Laws applicable to Borrower or the Property. Borrower will not engage in or allow any other Person to engage in activities or operations on the Property that could cause the Property to be subject to any restrictions on ownership, occupancy, transferability or use of the Property under Environment Laws or lead to the imposition of any environmental liability on Borrower, Lender or any former or future occupant, operator or owner of the Property or result in a Lien on the Property under Environmental Laws. In the event of any Release or any violation of Environmental Laws on or at or affecting the Property, Borrower will immediately, diligently and continuously prosecute the investigation, assessment, abatement, cure, clean-up, removal, containment or remediation of such Release or any other response action with respect to such Release or violation of Environmental Laws as may be required by any Governmental Authority. 3.17 Environmental Site Assessment. If at any time Lender reasonably believes that there has been a Release or that Hazardous Substances other than Permitted Substances are located on, at, in, under or within the Property , or if Lender receives notice of an Environmental Complaint or Environmental Claim, or if an Event of Default has occurred and is continuing, Borrower will promptly upon Lender's request and at Borrower's sole expense, provide Lender with an environmental site assessment prepared by an environmental engineering firm acceptable to Lender, assessing with a reasonable degree of certainty the existence of a Release, the presence of such Hazardous Substances, or the nature of an Environmental Complaint or Environmental Claim and the engineer's estimate of the cost of investigation, abatement, cleanup, removal, containment, remediation or other appropriate response action with respect to such Release, presence of Hazardous Substance, Environmental Complaint or Environmental Claim. If the environmental engineer's estimate of costs referred to above, or any other estimate prepared by an environmental engineering firm for the Lender, at Lender's request, exceeds One Percent (1%) of the original Loan amount, Lender may elect, in Lender's discretion, (i) to declare an Event of Default hereunder and under the other Loan Documents and proceed with its available remedies, or (ii) to require Borrower to post a bond to secure payment of those costs and expenses in an amount equal to 125% of such estimate, issued by an institutional surety satisfactory to Lender in Lender's discretion. Failure to post such a bond within thirty (30) days of Lender's request will constitute an Event of Default hereunder. 3.18 Compliance With Other Laws. 3.18.1 Borrower and the Property are in compliance with all applicable Laws, and Borrower holds all authorizations, consents, approvals, licenses, variances, registrations, filings, authorizations, and permits from any Governmental Authority required for the ownership, use, occupancy, operation, leasing and financing of the Property as contemplated by the Loan Documents, or for the performance of Borrower's Obligations (collectively, the "Operating Permits"). Borrower has no knowledge of any violations and has received no notices of violations of any Laws relating to the Property. Borrower will from time to time, upon Lender's request, provide Lender with evidence reasonably satisfactory to Lender that the Property complies with all Laws. 3.18.2 After prior Notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceedings, promptly initiated and conducted in good faith and with due diligence, the Laws affecting the Property, provided that (a) no Event of Default has occurred and is continuing under this Agreement, the Mortgage or any of the other Loan Documents; (b) such proceeding is permitted under and is conducted in accordance with the provisions of any other instrument to which Borrower is subject and does not constitute a default thereunder; (c) neither the Property nor any interest therein nor any of the tenants or occupants thereof is affected in any material adverse way as a result of such proceeding; and (d) Borrower has furnished to Lender all other items reasonably requested by Lender. 3.18.3 The Property will be used only for the purpose identified to Lender at the time of the origination of the Loan. Borrower will not change the use of the Property or allow any use to be discontinued if such discontinuance would violate any Law or cause a loss of any Operating Permit. Borrower will not consent to any change in the zoning classification of the Property or the classification of the Property under any other Law. 3.19 Leases. As used in this Agreement, "Lease" means each lease, sublease, license, franchise or other occupancy agreement, and each amendment thereto and extension thereof, affecting the Property, now existing or hereafter entered into, with Lender's approval as required in the Loan Documents, and all rights and interests of Borrower thereunder, including any guaranty of the tenant's obligations and all rent payments, reimbursements, security deposits, and all other deposits or payments. "Tenant" means the party signing any Lease as such, or any party with rights of occupancy or possession of the space, sublease, license, franchise which is the subject of the Lease. As to each of the Leases, Borrower hereby represents and warrants as follows: 3.19.1 The Tenant has accepted and is now in occupancy of the leased premises; 3.19.2 Borrower has fulfilled all its obligations that are conditions precedent to the commencement of the Lease or to the Tenant's obligation to commence payment of rent under the Lease, and Borrower has completed the improvements, space and other facilities required by the Lease; 3.19.3 Borrower is not in default under the Lease and has no knowledge of any condition or occurrence that, with the passage of time or the giving of notice, if uncured, would become a default by Borrower under the Lease; 3.19.4 The copy of the Lease delivered to Lender includes all riders, attachments and amendments, and is otherwise complete and accurate; the Lease is in full force and effect without modification, alteration or amendment, between Borrower and the Tenant; and Borrower has not given or agreed to give to the Tenant any material inducement for the execution of the Lease or performance of the Tenant's obligations thereunder other than the consideration specified in the copy of the Lease furnished to Lender; 3.19.5 The Tenant is paying rent on a current basis and, to the best of Borrower's knowledge, is not in default and there exists no condition that, with the passage of time or the giving of notice, if uncured, would become a default by the Tenant under the Lease; 3.19.6 There are no rights or claims of offset or credit against the rents under the Lease and no rents have been prepaid in excess of thirty (30) days, other than the security deposit and other payments specified in the Lease; and, 3.19.7 Intentionally Left Blank. 3.19.8 There has been no prior assignment of the Lease or any rents accruing thereunder. 3.20 Separate Tax Parcel. The Real Property is not subject to a joint assessment with any other real property. The Real Property and Personal Property are subject to separate tax assessments. 3.21 Commitment. All conditions to Closing specified in the Commitment have been satisfied. 3.22 Financial Statements; Tax Returns. The financial statement of Borrower and each Guarantor submitted to Lender in connection with the Closing is accurate and complete and fairly presents the financial position of Borrower and each Guarantor as of the date of its preparation, and has been prepared in accordance with generally accepted accounting principles in the United States, as in effect from time to time and consistently applied ("GAAP"). Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower or such Guarantor. Borrower has filed and will file all tax returns required by Law (federal, state, and local) and has paid all taxes due, including interest and penalties, if any. 3.23 Pending Litigation. There are no actions, suits, or proceedings pending, or to the knowledge of Borrower threatened, against or affecting Borrower, any Guarantor, or the Property, or involving the validity or enforceability of any of the Loan Documents or the priority of the lien thereof, at law or in equity, or before or by any Governmental Authority, except actions, suits, and proceedings that are fully covered by insurance or which, if adversely determined, would not materially impair the ability of Borrower to perform each and every one of its Obligations under the Loan Documents, or the ability of any Guarantor to perform its obligations under the Guaranty, and which have been fully disclosed in writing to Lender. 3.24 ERISA. Neither Borrower, Guarantor nor any Borrower Party is (a) an "employee benefit plan" or a "governmental plan" as defined in Section 3(3) of Title IV of the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder, from time to time in effect ("ERISA") that is subject to Title I of ERISA, or (b) a "party in interest", as determined under ERISA, with Lender or any affiliate of Lender. The assets of Borrower, Guarantor and each Borrower Party do not constitute "plan assets" of any such plan for purposes of Title I of ERISA. Transactions by or with Borrower are not subject to Laws regulating investments of fiduciaries with respect to governmental plans. Neither Borrower, any Guarantor nor any Borrower Party has engaged in any transaction that would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under this Agreement, the Note, or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA. Any employee benefit plan maintained for the employees of Borrower, any Guarantor or any Borrower Party is in compliance with ERISA. 3.25 Solvency. Borrower and each Guarantor is able to pay its debts as they mature and the realizable value of Borrower's and each Guarantor's assets is sufficient to satisfy any and all of its obligations. Borrower has not entered into the Loan Documents with the intent to defraud, hinder or delay any creditor, and has received reasonably equivalent value in exchange for the Obligations under the Loan Documents. Neither Borrower, any Guarantor nor any Borrower Party is contemplating either the filing of a petition under any state or federal bankruptcy or insolvency Laws or the liquidation of all or a major portion of its assets, and Borrower has no knowledge of any Person contemplating the filing of any such petition against Borrower, any Guarantor or any Borrower Party. 3.26 Not Foreign Persons. Neither Borrower nor Guarantor nor any Borrower Party is a foreign Person as defined under the United States Foreign Investment and Real Property Transfer Act. 3.27 Trade Names. All trade names and trade marks that Borrower owns or has pending in connection with the Property, or under which it is licensed, are in good standing and uncontested. Borrower has not infringed, is not infringing, and has not received notice of infringement with respect to asserted trade marks, trade names and service marks of others. To Borrower's knowledge, there is no infringement by others of trade names or trade marks of Borrower. Borrower does not conduct its business "also known as", "doing business as" or under any other name. 3.28 Identification. Borrower's federal taxpayer identification number is 87-0293383. The names and federal taxpayer identification numbers of all Guarantors are ###-##-#### for Jerry C. Moyes and ###-##-#### for Vickie Moyes. 3.29 Offices. The location of Borrower's principal office is c/o WS Statutory Agent Services, LLC, 3200 North Central Avenue, Suite 1100, Phoenix, Arizona 85012. 3.30 Personal Property Warranties, Representations and Covenants of Borrower Borrower represents, warrants, and covenants as follows: 3.30.1 Except for the security interest granted to Lender, Borrower is, and as to any of the Personal Property acquired after the date hereof will be, the sole owner of the Personal Property free from any Lien, security interest, or claim of any kind whatsoever. Borrower will notify Lender of, and will defend the Personal Property against, all claims and demands of all Persons at any time claiming any interest in the Personal Property. 3.30.2 Borrower will not assign, pledge, encumber, lease, sell, convey or in any manner transfer the Personal Property without the prior written consent of Lender except in the ordinary course of business or as otherwise permitted under the Loan Documents. All of the Personal Property attached to, incorporated into or to be incorporated into the Real Property will be kept free and clear of all Liens, except the Permitted Exceptions, or as expressly permitted in writing by Lender. 3.30.3 The Personal Property is not and will not be used or acquired for personal, family or household purposes. 3.30.4 All tangible Personal Property will be kept on or at the Real Property, and Borrower will not remove any portion or item of Personal Property affixed or attached to the Real Property without the prior written consent of Lender, except such portions or items of Personal Property which are consumed or worn out in ordinary usage, and are promptly replaced by Borrower with new items of equal or greater quality. 3.31 Use of Proceeds. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose prohibited by applicable Laws. 3.32 Investment Company Act; Public Utility Holding Company Act. Borrower is not (i) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended, (ii) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (ii) subject to any other Law that restricts or regulates its ability to borrow money. 3.33 Representations. No representation or warranty in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits any material fact with the result that such representation is misleading in any respect. All representations and warranties of Borrower contained herein or in any other Loan Document will survive the making of the Loan and the execution and delivery of the Note, and are material and have been relied upon by Lender, notwithstanding any investigation or inquiry made by Lender. All statements made by other Persons in any certificate, agreement, financial statement, Report, or other materials delivered by or on behalf of Borrower in connection with the Loan will be deemed to be representations and warranties of Borrower. Article 4. BORROWER'S COVENANTS Borrower hereby covenants and agrees as follows: 4.1 Performance of Note, Mortgage and Other Loan Documents Borrower will perform, satisfy, and comply with all provisions of the Loan Documents and will promptly pay when due to Lender the entire Principal Balance of the Loan and all other Indebtedness under the Loan Documents. 4.2 Maintenance, Repair and Alterations. Borrower will keep and maintain the Property in good order and condition and in a rentable and tenantable state of repair. Borrower (a) will make or cause to be made, as and when necessary, all repairs, renewals and replacements, structural and non-structural, exterior and interior, ordinary and extraordinary, foreseen and unforeseen in a good and workmanlike manner and in compliance with all Laws; (b) will not remove, demolish or substantially alter any of the Improvements, except for such alterations (i) as may be required by applicable Laws or (ii) which, upon the prior written approval by Lender of plans therefor, will maintain the quality and character of the Property and will not diminish the value or revenues derived from the Property; and (c) will keep and maintain the Property's grounds, parking and landscape areas in good and neat order and repair. 4.3 Waste. Borrower will not permit, commit, or suffer any waste, impairment or deterioration of the Property or make any change in the use of the Property which will in any way materially increase the risk of fire or other hazards arising out of the operation of the Property, or take any action that might invalidate or give cause for cancellation of any insurance policy maintained with respect to the Property, or do or permit to be done thereon anything that may in any way impair the value of or revenues derived from the Property. Borrower will not, without the prior written consent of Lender, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Land. 4.4 Required Insurance. Borrower will provide, maintain and keep in full force the following insurance coverage with respect to the Property: 4.4.1 Comprehensive insurance against loss or damage to the Improvements and FF&E by fire and any of the risks covered by insurance of the type now known as "All Risks of Physical Loss," with extended coverage in an amount sufficient at all times to prevent Borrower from becoming a co-insurer under any policy, and in no event less than the full replacement cost (without depreciation) of the Improvements (as determined by Lender from time to time) including the cost of debris removal, but excluding the cost of excavations, foundations, and footings below the lowest basement floor, and with not more than $5,000 deductible from the loss payable for any casualty. In addition, the policies of insurance carried in accordance with this Section 4.4.1 will contain (a) a "Replacement Cost Endorsement" and (b) an "Ordinance or Law Coverage," "Contingent Operation of Laws," or "Enforcement" endorsement ; 4.4.2 Business interruption insurance and/or loss of "rental value" insurance in an amount equal to the annual scheduled rent for the Property, adjusted annually; 4.4.3 Comprehensive commercial general liability insurance insuring against all claims arising out of possession, use, leasing, operation, construction or condition of the Property, including coverage for employee dishonesty, contractual liability, injury occurring on elevators and escalators and, if any construction of new Improvements occurs after execution of this Agreement, completed operations coverage for two years after completion of such construction, all of such liability insurance to be on an "occurrence basis" against claims for "personal injury" including bodily injury, broad form death and property damage occurring on, in or about the Property and the adjoining streets, sidewalks, passageways and Appurtenances, and all court costs and attorneys fees, such insurance to afford immediate minimum protection to a combined single limit of not less than $1,000,000 per occurrence, to continue at not less than such limits until Lender requires such limits to be changed when Lender determines that changed economic conditions make such protection inadequate. Such insurance will cover at least (a) premises and operations, (b) products and completed operations on an "if any" basis, (c) independent contractors, (d) blanket contractual liability for all written and oral contracts and (e) contractual liability covering Borrower's indemnities set forth in the Loan Documents to the extent the same is available; 4.4.4 Workers' compensation insurance (including employer's liability insurance, if requested by Lender) for all employees of Borrower and others engaged in work on or with respect to the Property in such amount as is satisfactory to Lender, but in no event less than required by Law; 4.4.5 During the course of any construction or repair of Improvements, builder's risk insurance, completed value, non-reporting form, against "all risks of physical loss", including collapse and transit coverage, with deductibles satisfactory to Lender, covering the total value of work performed and equipment, supplies and materials furnished. Said policy of insurance will contain a "permission to occupy upon completion of work or occupancy" endorsement and an agreed amount endorsement; 4.4.6 Comprehensive boiler and machinery insurance covering air tanks, boilers, machinery, pressure vessels and piping, heating, air conditioning, elevator equipment and escalator equipment, if the Improvements contain such equipment, and insurance against loss of occupancy or use arising from any leakage, explosion or other malfunction of any such equipment, in such amounts as may be required by Lender; 4.4.7 If any portion of the Improvements is at any time located in a federally designated special flood hazard area, and if flood insurance is available under the National Flood Insurance Act of 1968 or any similar Law, flood insurance in an amount equal to the lesser of the full insurable value of the Property or the maximum available, as approved by Lender; and 4.4.8 Earthquake insurance if available and if required by Lender, in an amount satisfactory to Lender and on terms consistent with the coverage required under Section 4.5.1; and 4.4.9 Such other insurance against the same or other hazards, and in such amounts, as Lender may from time to time require. 4.5 Delivery of Policies; Payment of Premiums All policies of insurance required by this Agreement will be issued by companies and in amounts satisfactory to Lender. Without limiting Lender's discretion to approve insurers and coverages, such insurance companies must (i) be financially sound and responsible insurance companies authorized to do business in the State, (ii) have an investment grade rating for claims paying ability assigned by one or more credit rating agencies approved by Lender and (iii) have a general policy rating of A- or better and a financial class of VIII or better as rated by A.M. Best Company, Inc. or a similar rating agency. 4.5.1 All policies of insurance required by this Agreement will name Lender as an additional insured, and will include a mortgagee's loss payable endorsement, standard mortgagee clause or other noncontributory clause for the benefit of Lender, and waiver of subrogation endorsement for the benefit of Lender, all in form satisfactory to Lender. Borrower will furnish Lender with signed duplicate original policies or certified copies of all policies with respect to all required insurance coverage. If Lender consents to Borrower providing any of the required insurance through blanket policies carried by Borrower and covering more than one location, Borrower will furnish Lender with a certificate of insurance (using Accord 27 Form as to all property insurance) for each such policy setting forth the coverage for the Property, the limits of liability, the name of the insurer, the policy number and the expiration date together with a conforming copy of Borrower's blanket policy. At least thirty (30) days before the expiration of each such policy, Borrower will furnish Lender with evidence satisfactory to Lender of the reissuance of a policy continuing insurance in force as required by this Agreement. All policies required to be maintained pursuant to this Agreement will (a) be in a form satisfactory to Lender; (b) be maintained in full force and effect, with premiums prepaid, as collateral security for payment of the Indebtedness; (c) provide for all payments only to Lender, and (d) contain a provision that such policies will not be canceled or materially amended (which term includes any reduction in the scope or limits of coverage) without at least thirty (30) days prior written notice to Lender. 4.5.2 If Borrower fails at any time to provide, maintain, keep in force or deliver to Lender the policies of insurance required by this Agreement, Lender may procure such insurance covering Lender's interest and advance the premiums therefor, and Borrower will pay or reimburse the cost of such insurance promptly upon Lender's demand, and until such payment is made by Borrower the amount of all such Advances together with interest thereon at the Default Rate, will be secured by the Mortgage. 4.5.3 Borrower will deposit with Lender, in monthly installments on the day installments of principal and interest are due under the Note, an amount equal to one-twelfth of the estimated aggregate annual insurance premiums on all policies of insurance required by this Agreement (or such greater amount as Lender reasonably estimates will be needed to make the next succeeding scheduled installment ratably deposited over the monthly installments due before the payment date of such installment). Borrower will cause all bills, statements or other documents relating to the foregoing insurance premiums to be sent or mailed directly to Lender. Upon receipt of such bills, statements or other documents, and provided Borrower has deposited sufficient funds with Lender pursuant to this Section 4.5.3, and provided that an Event of Default is not then existing, Lender will pay such amounts as may be due thereunder out of the funds so deposited with Lender. If at any time and for any reason the funds deposited with Lender are or will be insufficient to pay such amounts as may then or subsequently be due, Lender will notify Borrower and Borrower will immediately deposit an amount equal to such deficiency with Lender. Notwithstanding the foregoing, nothing contained herein will cause Lender to be deemed a trustee of said funds or to be obligated to pay any amounts in excess of the amount of funds deposited with Lender pursuant to this Section 4.5.3. Lender may commingle said deposits with its own funds and Borrower will be entitled to no interest on said funds. If Borrower fails to deposit with Lender sums sufficient (excluding any portion of said payments applied by Lender to the payment of the Indebtedness) to fully pay such premiums at least thirty (30) days before they are due, Lender may advance any amounts required to make up the deficiency, which Advance will be secured by the Mortgage, bear interest at the Default Rate and will be repayable to Lender immediately upon Lender's demand. Alternatively, Lender may, without making any Advance, apply any sums deposited by Borrower with Lender to pay such premiums. 4.6 Insurance Proceeds. Borrower will give Notice to Lender of any casualty to the Property within three (3) Business Days after such casualty, and the following provisions will apply: 4.6.1 If all or any portion of the Improvements are damaged or destroyed, all insurance Proceeds will be payable to Lender. Except as set forth below, Lender shall have the sole and exclusive right to settle, adjust or compromise any claims for loss, damage or destruction under any policy or policies of insurance. Notwithstanding the foregoing, unless and until Lender shall notify Borrower that Lender shall have assumed its right to negotiate directly with any insurance carrier, Borrower is hereby authorized to make proof of loss on and, with Lender's approval, to settle, adjust or compromise any claims for loss, damage or destruction under any policy or policies of insurance. Each insurance company is authorized and directed to make payment under such insurance policies, including return of unearned premiums, directly to Lender instead of to Borrower and Lender jointly, and Borrower further hereby appoints Lender, irrevocably, and coupled with an interest, as Borrower's attorney-in-fact to endorse any draft therefor. Except as provided for below, all such Proceeds received by Lender will be applied as a mandatory prepayment to reduction of the Indebtedness, without application of the Prepayment Fee, and in such order as Lender may determine, regardless of whether or not such amount is otherwise then due. 4.6.2 Notwithstanding the foregoing, Lender will make the Proceeds available to Borrower for restoration or repair of the Property provided that: 4.6.2.1 There then exists no Default, and there has been no Event of Default under the Loan Documents during the twelve (12) months immediately before such casualty that has not been cured during any applicable grace period; and 4.6.2.2 The cost to repair the Property is not more than fifty percent (50%) of the original Principal Balance, and 4.6.2.3 All of the following conditions are satisfied: (a) Borrower demonstrates to Lender's satisfaction that Borrower has the ability, during reconstruction, to fulfill all of the obligations contained in the Loan Documents including, but not limited to, the obligation to pay the Indebtedness from the Proceeds of rent insurance or otherwise; (b) if the casualty in question occurs before the last two (2) years immediately preceding the Maturity Date, and Borrower demonstrates to Lender's satisfaction that complete restoration is feasible within twelve (12) months after such casualty; and (c) neither the economic performance of the Property nor the security for the Loan are, during the course of reconstruction (taking into account rent insurance and any other mitigants) and after completion of reconstruction, materially impaired (as determined by Lender, in Lender's discretion) and the loan-to-value ratio of the Loan after restoration would be no greater than the loan-to-value ratio of the Loan immediately prior to the casualty as determined by Lender in its discretion. 4.6.3 All Proceeds that are released will be applied by Borrower towards repair, restoration or reconstruction of the Improvements. Lender may, in its discretion, subject such proceeds to escrow and/or construction funding arrangements, all at Borrower's expense. Such arrangements may include the use of customary retainage and holdback arrangements, requirements for fixed price construction contracts and delivery of budgets, the imposition of a balance mechanism, payments for hard costs only against contractor requisitions accompanied by applicable lien waivers, receipt of a contractor's surety bond, assignments of the construction and design professional contracts, and the use of a consulting engineer to review requisitions. 4.6.4 The balance of any Proceeds held by Lender remaining after the completion of any repair, restoration or reconstruction will, in Lender's discretion, be paid to Borrower or applied by Lender to the Indebtedness, without application of the Prepayment Fee, in such order as Lender may determine. 4.6.5 Nothing contained in this Section 4.6 will excuse Borrower from repairing or maintaining the Property as provided in Section 4.2 hereof or from restoring or repairing all damage or destruction to the Property, regardless of whether or not there are sufficient Proceeds available. The application or release by Lender of any Proceeds will not cure or waive any Default, Event of Default, or Notice thereof under this Agreement or the Loan Documents, or invalidate any act done pursuant to such Notice. 4.7 Taxes and Impositions. 4.7.1 Borrower agrees to pay, not less than thirty (30) days before the accrual of any interest or penalty thereon, all real property taxes and assessments, general and special, and all other taxes and assessments of any kind or nature whatsoever, which are assessed or imposed upon any of the Property, or against Borrower with respect to the occupancy, use or possession of the Property, or upon any of the Personal Property, including, nongovernmental levies or assessments such as maintenance charges, owner association dues or charges or fees, levies or charges resulting from covenants, conditions and restrictions affecting the Property, charges for any easement or agreement maintained for the benefit of the Property (all of which taxes, assessments and any other similar governmental charges are hereinafter referred to as "Impositions"); provided, however, that if any such Imposition lawfully may be paid in installments, Borrower may pay such Imposition together with any accrued interest on the unpaid balance of such Imposition, in installments as they become due and not less than thirty (30) days before any fine, penalty, interest or cost may be added thereto for the nonpayment of any such installment and interest. 4.7.2 Borrower will deposit with Lender, in monthly installments on the day installments of principal and interest are due under the Note, an amount equal to one-twelfth of the estimated current year's aggregate Impositions, or such greater amount as Lender reasonably estimates will be needed to pay the next succeeding scheduled payment of Impositions. If the Land is not treated as a separate parcel for purposes of any Impositions, Lender retains the right to require that Borrower deposit monthly installments equal to one-twelfth of all Impositions imposed on all parcels taxed with the Land. Borrower further agrees, upon Lender's request, to cause all bills, statements or other documents related to the Impositions to be sent or mailed directly to Lender. Upon receipt of such bills, statements or other documents and provided Borrower has deposited sufficient funds with Lender pursuant to this Section 4.7.2, and provided that an Event of Default has not occurred, Lender will pay such amounts as may be due with respect to such Impositions out of funds so deposited with Lender. If at any time and for any reason the funds deposited with Lender are or will be insufficient to pay such amounts as may then or subsequently be due, Lender will notify Borrower and Borrower will immediately deposit an amount equal to such deficiency with Lender. Notwithstanding the foregoing, nothing contained herein will cause Lender to be deemed a trustee of said funds or to be obligated to pay any amounts in excess of the amount of funds deposited with Lender pursuant to this Section 4.7.2. Lender may commingle said deposits with its own funds and Borrower will be entitled to no interest on said funds. Should Borrower fail to deposit with Lender sums sufficient to fully pay any Impositions at least thirty (30) days before they may be due, Lender may, (i) advance any amounts required to make up the deficiency, which Advances will be secured by the Mortgage, bear interest at the Default Rate and will be repayable to Lender immediately upon Lender's demand, or (ii) at its option, and without making any Advance whatsoever, apply any sums held by Lender to the Impositions. 4.7.3 Any license fee, tax or assessment now or hereafter assessed or imposed on Lender under the provisions of any Law measured by or based in whole or in part upon the amount of the Indebtedness, will be deemed included within the term "Impositions" as defined in Section 4.7.1. If such Impositions are not paid by Borrower when due or if payment thereof by Borrower is prohibited by Law, then at the option of Lender, the Indebtedness will immediately become due and payable, provided, Borrower will have no obligation to pay any franchise, estate, inheritance, income, excess profits or similar tax levied on the general revenues of Lender. 4.7.4 Borrower agrees to furnish Lender within thirty (30) days after the date upon which any Imposition is due and payable by Borrower, official receipts of the appropriate Governmental Authority, or other proof satisfactory to Lender, evidencing the payment in full. 4.7.5 Borrower will have the right, before any delinquency occurs, to contest or object to the amount or validity of any Imposition by appropriate legal proceedings, but this will not be deemed or construed in any way as affecting Borrower's obligation to pay any Imposition at the time and in the manner provided in this Section 4.7, unless Borrower has given prior written notice to Lender of its intent to so contest or object to an Imposition, and unless, at Lender's sole option (a) Borrower demonstrates to Lender's satisfaction that the legal proceeding will operate conclusively to prevent the sale of or foreclosure of any Lien against the Property to satisfy such Imposition before final determination of such proceedings; or (b) Borrower furnishes a good and sufficient bond or surety as requested by and satisfactory to Lender; or (c) Borrower provides to Lender a good and sufficient undertaking as may be required or permitted by Law to accomplish a stay of any proceedings to foreclose any Lien or otherwise effect a sale of the Property; and (d) Borrower diligently and continuously prosecutes such contest to final judgment; and provided further that, Borrower will continue to make all deposits required under Section 4.7.2. 4.7.6 Borrower covenants and agrees that to the fullest extent permitted by Law, Borrower will not suffer, permit or initiate the joint assessment of Impositions upon the Real Property and the FF&E, or any other procedure whereby the Lien of any Impositions assessed against the Real Property and the Lien of any Impositions assessed against the FF&E would be assessed, levied or charged as a single lien. 4.7.7 Borrower will file all tax returns required by Governmental Authorities, and will cause to be paid, when due and before interest or penalties are due thereon, all taxes payable to each Governmental Authority, and will deliver to Lender receipts showing payment in full of any and all such taxes, charges or assessments before the last dates upon which such taxes, charges or assessments are payable without interest or penalty charges; provided, however, that Borrower will have the right before any delinquency occurs to contest or object to the amount or validity of any such taxes, charges or assessments in good faith and by appropriate legal proceedings diligently and continuously prosecuted, but this will not be deemed or construed in any way as relieving, modifying or extending Borrower's obligation to pay any such taxes, charges or assessments at the time such contest, objection and legal proceedings have been terminated or discontinued adversely to Borrower. Upon request of Lender, Borrower will post a bond, letter of credit or other security satisfactory to Lender and to the Governmental Authority in amount, form and content, for the duration of such proceedings. Within ten (10) days of receipt thereof, Borrower will produce to Lender all settlements, notices of deficiency or overassessment and any other notices pertaining to Borrower's tax liability, which may be issued by any Governmental Authority. If at any time the United States or any department or bureau thereof will require Internal Revenue stamps on the Note secured hereby, Borrower on demand will pay for them with any interest or penalties payable thereon. 4.8 Condemnation If the Property, or any part thereof or interest therein, is taken or damaged by reason of any public improvement, eminent domain, alteration of the grade of any street or other similar action of a Governmental Authority or through a conveyance in lieu of the foregoing, or in any other manner ("Condemnation"), or if Borrower receives any notice or other information regarding such proceeding, Borrower will give prompt written notice thereof to Lender, and the following provisions will apply: 4.8.1 Lender will be entitled to all Proceeds payable to Borrower and/or on Borrower's account for the Property taken or for damage to the Property not taken, whether arising as a result of proceedings relating to such condemnation or in lieu thereof. Lender will be entitled, to commence, appear in and prosecute in its own name any such Condemnation proceedings. Borrower may participate in any such proceedings, but Borrower's right of participation will not affect or diminish the rights of Lender in its discretion to make all determinations and decisions in respect of such proceedings. Lender also will be entitled to make any compromise or settlement in connection with any Condemnation. All Proceeds of Condemnation are hereby assigned by Borrower to Lender for receipt and collection by Lender, and Borrower agrees to execute such further assignment of the Proceeds and other instruments as Lender may require. Such assignment will not relieve Borrower of any of the Obligations after Lender's application of the Proceeds to the Indebtedness. 4.8.2 If any portion of the Property is taken or damaged by Condemnation, all Proceeds with respect thereto received by Lender will be held by Lender and applied at Lender's sole discretion (a) as a mandatory prepayment to reduction of the Indebtedness, without application of the Prepayment Fee, and in such order as Lender may determine, whether or not such amount is otherwise then due and without regard to whether the Land and Improvements can be repaired or restored, or (b) to restoration of the Property upon such conditions as Lender may determine. Such application or release will not cure or waive any Default, Event of Default or Notice of any Default hereunder or invalidate any act done pursuant to such Notice. If Proceeds are applied by Lender to the repair, restoration or reconstruction of any Improvements, such monies will be re-advanced to Borrower, in Lender's discretion, in accordance with Lender's escrow and construction loan disbursement procedures as described above with respect to the re-advance of insurance Proceeds. 4.9 Utilities. Borrower will pay when due all utility charges incurred by Borrower for the benefit of the Property for gas, electricity, water or sewer services furnished to the Property and all other assessments or charges of a similar nature, whether public or private, affecting the Property or any portion thereof, whether or not such assessments or charges may result in Liens upon the Property. 4.10 Liens. Borrower will pay and promptly discharge, at Borrower's cost and expense, all Liens upon or affecting the Property. Borrower will, however, have the right to contest in good faith the validity of any such Lien as long as (a) such contest operates to stay any proceedings for enforcement of or execution on the Lien, (b) Borrower first deposits with Lender a bond or other security reasonably satisfactory to Lender in such amounts as Lender reasonably will require, and (c) Borrower will thereafter diligently and continuously proceeds to cause such Lien to be removed and discharged. If Borrower fails to discharge any such Lien or provide such security, Lender may discharge the Lien, either by paying the amount claimed to be due, or by procuring the discharge of such Lien by depositing in court a bond or the amount claimed or otherwise giving security for such claim, or in such manner as is or may be prescribed by Law. All Advances by Lender with respect to such Lien will be reimbursed by Borrower upon demand by Lender together with interest thereon until reimbursement at the Default Rate, and all such Advances with interest thereon will be secured by the Mortgage and the other Loan Documents. 4.11 Books and Records; Lender May Examine Books and Records. Borrower will keep and maintain at all times complete, true and accurate books of account and records reflecting the results of operation of the Property. Borrower will comply with all reporting requirements under this Loan Agreement. Lender and Lender's representatives and agents may, from time to time, examine or make extracts from or make copies of the books, records, and accounting data of Borrower. Borrower will promptly make such books, records, and accounting data available to Lender, as stated above, upon written request. 4.12 Leasing. All Leases entered into, and all modifications, extensions or terminations of existing Leases will be subject to Lender's prior written approval. With any request for approval of a proposed Lease or modification or extension, Borrower will deliver to Lender current credit and financial information for the proposed tenant and for each guarantor of the Lease, all of which must be satisfactory to Lender. All Leases will be assigned to Lender in accordance with that certain Absolute Assignment of Leases and Rents executed on the date hereof by Borrower in favor of Lender with respect to the Property (the "Assignment of Leases"). All Leases at Lender's election will be subordinate to the Mortgage and the Assignment of Leases, and those tenants specified by Lender will execute and deliver a subordination and attornment agreement satisfactory to Lender, which may be conditioned upon an agreement by Lender not to disturb the tenant so long as the tenant is not in default under the Lease. Borrower will perform all obligations of the landlord under the Leases and enforce, short of termination, all of the obligations of the tenants under the Leases. Borrower will provide to Lender a copy of any notice received by Borrower from any tenant under any Lease asserting that Borrower is in default of any obligation under such Lease. 4.13 Reporting. During the term of the Loan, Borrower and each Guarantor will deliver to Lender the following (the "Reports"): 4.13.1 Within sixty (60) days after the end of each fiscal year of Borrower (if available, and if not, the sole member of Borrower), a balance sheet as of the end of such fiscal year and a statement of income and expenses for such fiscal year, and a statement of change in financial position, in each case in comparative form with corresponding information for the preceding fiscal year, all in form and detail reasonably satisfactory to Lender, and certified by Borrower and by a responsible officer of Borrower, with personal knowledge of the financial reporting systems of Borrower, as accurate and complete and as having been prepared in accordance with GAAP; 4.13.2 Within fifteen (15) days after filing, a copy of the sole member of Borrower's signed federal income tax return for such fiscal year; 4.13.3 Within thirty (30) days after the end of each fiscal year of Borrower, a rent roll for the Property, in form and detail satisfactory to Lender, certified by the chief financial officer of Borrower as accurate and complete; 4.13.4 A copy of every Lease affecting the Property, and every modification or extension of any Lease, within five (5) Business Days after it has been fully executed; 4.13.5 At Lender's option: (i) within thirty (30) days after the end of each fiscal quarter of Borrower (if available, and if not, the sole member of Borrower), a quarterly statement of earnings, and within sixty (60) days after the end of each fiscal quarter of Borrower, the balance sheet and income statement described in Section 4.13.1 above, all of which at Lender's option will be certified by an independent certified public accountant of recognized standing acceptable to Lender; and (ii) a current rent roll certified by Borrower; 4.13.6 As soon as practicable and in any event within five (5) Business Days after Borrower or Guarantor, as applicable, knows or should reasonably have known of the commencement of any legal action or proceedings against it by any Governmental Authority or any other Person, except actions seeking money judgment that are fully insured or bonded, a report of the commencement of such action containing a statement signed by the chief financial officer of Borrower or Guarantor, as applicable setting forth details of such legal action and any action Borrower or Guarantor, as applicable, proposes to take with respect thereto; 4.13.7 Within five (5) Business Days after the occurrence of any Default or Event of Default, a report regarding such Default or Event of Default setting forth details and describing any action which Borrower proposes to take with respect thereto, signed by an officer of Borrower; 4.13.8 Notice of any change in name of Borrower or Guarantor, as applicable, or use of any trade names or trade styles not presently used by Borrower or Guarantor, within five (5) Business' Days after such name change is effected or such use of new trade name commences; 4.13.9 Promptly upon receipt, one (1) copy of any other report submitted to Borrower by independent accountants in connection with any annual, interim, or special audit of the books of Borrower; 4.13.10 Within five (5) Business Days after (i) any contact to or from any Governmental Authority concerning any Environmental Laws relating to Borrower or the Property, including any Environmental Complaint, (ii) any Environmental Claim, or (iii) Borrower's discovery of any occurrence or condition on any property in the vicinity of the Property that could result in the presence of Hazardous Substances on the Property or cause the Property to be subject to any restrictions on the ownership, occupancy, transferability, or cause loss of the Property under any Environmental Laws, a copy of any notice or other written communication relating to the contact, claim or discovery, and a report by Borrower describing in detail such contact, claim or discovery and describing any response action that Borrower proposes, signed by an officer of Borrower (such information is to be provided solely to allow Lender to protect its security interest in the Property 4.13.11 Within five (5) Business Days after Borrower's receipt, a copy of any correspondence from any Governmental Authority under any Environmental Law or any request for information, notice of potential liability, demand letter, notice of violation, complaint, order, citation or other notice with respect to the investigation, cleanup, removal, remediation or other response action with respect to Hazardous Substances at any other site owned or operated by Borrower or used by Borrower to dispose of Hazardous Substances, and thereafter, copies of all communications regarding such matter until the matter is settled; and a copy of any notification of any Release at any other property owned or leased by Borrower that Borrower is required to file, under any Environmental Law simultaneously with such filing (such information is to be provided solely to allow Lender to protect its security interest in the Property); 4.13.12 Within five (5) Business Days after Borrower's receipt, a copy of any notice of violation, citation, demand, order, complaint or other correspondence from any Governmental Authority relating to the Property or any other notice of violation of any Law, and thereafter, copies of all communications relating to such matter until the matter is settled; and 4.13.13 Within five (5) Business Days after becoming aware of any developments or other information which may materially and adversely affect Borrower's ability to perform its Obligations, telephonic or telegraphic notice specifying the nature of such development or information and the anticipated effect, followed by prompt confirmation in writing; If Borrower fails to deliver any of the Reports when required, and if such failure continues for more than fifteen (15) days after Notice from Lender, the Data Failure Default Rate under the Note will automatically take effect and will continue until such Reports are delivered, as provided in the Note. 4.14 Environmental Indemnity. Borrower will defend (with counsel satisfactory to Lender), indemnify, reimburse and hold Lender and all Lender Parties harmless from all Losses asserted against, resulting to, imposed on, or incurred by any of them, directly or indirectly in connection with any of the following: 4.14.1 Events, circumstances, or conditions which are alleged to, or do, form the basis for an Environmental Complaint or an Environmental Claim against the Borrower or the Property; 4.14.2 The Management of Hazardous Substances by any Person at, in, under, on or from the Property; 4.14.3 Any Environmental Claim against Borrower, the Property, any occupant or tenant of the Property, Lender or any Other Indemnitee; 4.14.4 Any Lien filed against the property under any Environmental Law or as a result of any Environmental Claim; 4.14.5 The loss, suspension or modification of any Environmental Permit; 4.14.6 Any Release on, in, under, from or affecting the Property; 4.14.7 Any claim of violation of any Environmental Law by any Person at or affecting the Property or any action necessary or appropriate to comply with any Environmental Laws; 4.14.8 Any Environmental Claim against any Person whose liability for such Environmental Claim Borrower has assumed, insured, guaranteed, or retained either contractually or by operation of any law; and 4.14.9 The material inaccuracy of any representation in the Loan Documents relating to environmental matters. 4.15 General Indemnity. Borrower will defend (with counsel reasonably satisfactory to Lender, at Lender's election), indemnify, reimburse and hold Lender and all other Lender Parties harmless from all Losses, which may be asserted against, imposed on or incurred or paid by any of them, directly or indirectly (a) by reason of, on account of or in connection with any act or occurrence relating to the Property or any bodily injury, death, other personal injury or property damage occurring in, upon or in the vicinity of the Property from any cause whatsoever, (b) as a result of the failure of Borrower to perform any of its Obligations under any of the Loan Documents, or (c) on account of any transaction otherwise arising out of or in any way connected with the Property, the Loan or the Obligations. 4.16 Preservation of Legal Existence. Borrower and each Borrower Party will preserve and maintain its legal existence, right, franchises and privileges in the jurisdiction of its formation, and qualify and remain qualified as a foreign corporation in any jurisdiction in which such qualification is or may be necessary in view of Borrower's business and operations or the ownership of its properties, including the Property. Borrower and each Borrower Party will not, without prior consent of Lender, (a) take any action to withdraw, limit or restrict the authority of Borrower to deal and contract with Lender; (b) distribute cash or other assets of Borrower to any Person after the occurrence of a Default, unless and until such Default is cured to Lender's satisfaction; (c) dissolve, merge or consolidate with any other Person or otherwise act contrary to the Permitted Transfers provisions of the Mortgage; (d) change the scope or nature of its business objectives, purposes or operations; (e) change the location of its principal office or the place where the books and records for the Property area kept without written notice to Lender; or (f) waive, compromise or forgo any rights that Borrower may have against any Person, including any partner, member, officer, director or shareholder of Borrower, for any obligation owed to Borrower. 4.17 Compliance with Permitted Encumbrances and Contracts. Borrower will comply with and enforce all permitted encumbrances and all other Contracts by which Borrower or the Property is bound including all restrictions, covenants and easements affecting the Property or the Improvements. 4.18 Statements by Borrower and Tenants. Borrower, within ten (10) days after receipt of written request by Lender, will furnish (a) a written statement, duly acknowledged, setting forth the unpaid principal balance of and interest outstanding on the Note, and stating whether any offsets or defenses exist against the Indebtedness or other Obligations, and if so, specifying in detail the nature of such offsets or defenses, (b) a certificate in form satisfactory to Lender listing all trade names under which Borrower intends to operate the Property, and (c) a lease ratification and estoppel agreement for each Lease or for those Leases specified by Lender in form and content satisfactory to Lender, executed by Borrower, containing all of the statements set forth in Section 3.19 above, and, stating the date of commencement and termination of the original lease term and the terms of any renewals or extensions of the lease term, and, if any of such statements cannot be accurately made, specifying the nature of any exception or qualification. Upon request of Lender, Borrower will request in writing and will exercise diligent effort to procure a lease ratification and estoppel agreement for each Lease or for those Leases specified by Lender, in form and content satisfactory to Lender, executed by the tenant under such Lease. 4.19 Right of Entry. Lender and Lender's representatives or agents may at any time enter upon the Property for any reasonable purpose, including inspection of the Property and exercise of Lender's rights and remedies under the Loan Documents. Borrower will reasonably cooperate with any such entry. Lender will use reasonable efforts to provide prior Notice to Borrower of Lender's intended entry, but the failure to provide such Notice will not be a condition to making such entry. 4.20 Waiver of Subrogation, No Offset 4.20.1 Borrower waives any and all right to claim or recover against Lender, and Lender's directors, officers, employees, agents and representatives, for loss of or damage to Borrower, the Property, other property of Borrower or the property of others under the control of Borrower from any cause insured against or required to be insured against by the provisions of this Mortgage. 4.20.2 Borrower will pay the Indebtedness in accordance with the Loan Documents without notice, demand, counterclaim, setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction. 4.21 Continuing Accuracy of Representations. Borrower will take all steps necessary from time to time to cause all of the representations and warranties set forth in this Agreement or in any of the other Loan Documents to continue to be accurate and complete. 4.22 Further Assurances. Borrower will, at its sole expense and without expense to Lender, take such further actions and execute and deliver such further documents as Lender from time to time may reasonably require for the purpose of assuring and confirming unto Lender the rights created under this Agreement or the other Loan Documents, or for carrying out the intention or facilitating the performance of the terms of any Loan Documents, or for assuring the validity of any security interest of Lender. 4.23 Expenses Borrower will pay when due and payable or reimburse Lender on demand for all costs and expenses of every character which have been incurred or which may hereafter be incurred by Lender including but not limited to appraisal fees, recording fees, taxes, brokerage fees and commissions, abstract fees, title policy fees, escrow fees, reasonable attorneys' fees, court costs and fees of inspecting architect(s) and engineer(s) in connection with: (i) the preparation and execution of Loan Documents; (ii) the funding of the Loan; (iii) in the event an Event of Default occurs, preparation for enforcement of the Mortgage or any of the other Loan Documents, whether or not suit or other action is actually commenced or undertaken; (iv) enforcement of the Mortgage or any of the other Loan Documents; (v) court or administrative proceedings of any kind to which Lender may be a party, either as plaintiff or defendant, by reason of the Note, this Agreement, the Mortgage or any other Loan Document; (vi) preparation for and actions taken in connection with Lender's taking possession of the Property; (vii) negotiations with Borrower, or any of its agents in connection with the existence or cure of any Event of Default; (viii) any proposed refinancing by Borrower of the Indebtedness; (ix) the transfer of the Property in lieu of foreclosure; and (x) the approval by Lender of actions taken or proposed to be taken by Borrower, or other Person or entity which approval is required by the terms of the Mortgage or any other Loan Document. Article 5. EVENTS OF DEFAULT The occurrence of any one or more of the following will constitute an "Event of Default" by Borrower under the Note, Mortgage, this Agreement or any of the Loan Documents: 5.1 Events of Default. 5.1.1 Borrower fails to pay any scheduled payment of principal and interest due under the Note on the date when such payment is due and such failure continues for five (5) days; or 5.1.2 Borrower fails to pay within five (5) days after Notice from Lender any other amount payable to Lender under this Agreement, the Note, the Mortgage or any other Loan Document; or 5.1.3 Borrower fails to pay the entire Indebtedness by the Maturity Date; or 5.1.4 Borrower fails to pay (i) any Impositions as provided in this Agreement or deposits for such Impositions as required in Section 4.7 of this Agreement, or (ii) any insurance premium with respect to any insurance required under the Loan Agreement or deposits for such premiums as required in Section 4.5. of this Agreement; or 5.1.5 Any transfer or encumbrance of the Property in violation of the provisions of Section 1.3 of the Mortgage; or 5.1.6 Any default under any other loan by Borrower or any Guarantor; or 5.1.7 The occurrence of a default under any Lien, encumbrance or other mortgage affecting all or any portion of the Property or any other event permitting acceleration of the maturity of any Indebtedness secured thereby; or 5.1.8 Any Improvement or other material part of the Property is demolished, removed or altered in violation of this Agreement or any other Loan Document, or any Improvement is substantially damaged or destroyed by an uninsured casualty and Borrower fails to provide satisfactory evidence to Lender within thirty (30) days of such casualty that the necessary funds for satisfactory restoration of the Improvements will be available at the time of restoration; or 5.1.9 Borrower or any Guarantor fails to perform or observe any term, covenant or agreement contained in any of the other Loan Documents, and such failure continues beyond the applicable grace period specified in such Loan Documents; or 5.1.10 If any of the representations or warranties made in this Agreement or in any of the other Loan Documents proves to be false or misleading in any material respect; or 5.1.11 If Borrower, any Guarantor or any Borrower Party files or consents to the filing of, or commences or consents to the commencement of, any proceeding, action, petition or filing under the Federal Bankruptcy Code or any similar state or federal Law now or hereafter in effect relating to bankruptcy, reorganization or insolvency, arrangement or adjustment of debts or similar relief from debts (each, a "Bankruptcy Proceeding") with respect to Borrower, such Guarantor or such Borrower Party; or 5.1.12 If any Bankruptcy Proceeding is filed against Borrower, any Guarantor or any Borrower Party and the same is not withdrawn, dismissed, canceled or terminated within ninety (90) days of such filing; or 5.1.13 If Borrower, any Guarantor or any Borrower Party is adjudicated bankrupt or insolvent or a petition for reorganization of Borrower, any Guarantor or any Borrower Party is granted; or 5.1.14 If a receiver, liquidator or trustee is appointed for Borrower, any Guarantor, any Borrower Party or any of the properties of Borrower, any Guarantor or any Borrower Party or with respect to the Property or the Rents; or 5.1.15 If Borrower, any Guarantor or any Borrower Party makes an assignment for the benefit of its creditors or admits in writing the inability to pay its debts generally as they become due; or 5.1.16 If any court of competent jurisdiction renders a final, non-appealable decision that any material Obligation of Borrower or material obligation of Guarantor under the Loan Documents is legally inoperative or unenforceable. Article 6. BORROWER STATUS 6.1 Death or Incapacity. The death or permanent incapacity of Jerry C. Moyes shall, at the option of Lender, be an Event of Default, which can be cured by either (a) the creation of an escrow or other surety or collateral pledge acceptable to Lender within 90 days of death or incapacity in favor of Lender to cover the contingent claim liability created under the Loan Documents or (b) the assumption within 90 days of death or incapacity of Jerry C. Moyes by his successor (provided the same have financial and managerial qualifications acceptable to Lender) of all of the personal duties and obligations of Jerry C. Moyes as set forth in the Loan Documents. If neither of the foregoing options is implemented to Lender's satisfaction within the aforesaid time limits, Lender shall have the option thereafter to accelerate the due date of the Loan. In the event Lender elects to accelerate the due date, Borrower shall have a total of 6 months to pay the total indebtedness due under the Loan without the Prepayment Fee but with a transfer fee of one percent (1%) of the outstanding balance. Failure to make such payment by the due date shall be an Event of Default in which case the Prepayment Fee shall be payable in addition to the then outstanding indebtedness. Any event or condition that would constitute an Event of Default under any of the Loan Documents must, during the pendency of any time period set forth in this paragraph, be timely cured. Failure to do so shall entitle Lender to resort to all of the remedies it has under the Loan Documents. Notwithstanding the foregoing, upon such death or incapacity of the Jerry C. Moyes, Lender shall be entitled to immediately require the Borrower to maintain the employment of a property manager under terms and with credentials satisfactory to Lender to manage the Property in a manner satisfactory to Lender. Lender shall not be liable to Borrower or any other person for the negligence or misconduct of any such property manager, nor shall such appointment constitute the Lender as a "mortgagee in possession" of the Property. Time is of the essence as to all of the terms and conditions of this paragraph. Article 7. REMEDIES 7.1 Acceleration. Upon, or at any time after, an Event of Default, Lender may, in its discretion and at its sole option, declare the entire Indebtedness immediately due and payable, and the Indebtedness will immediately become due and payable without Notice and without presentment, demand or protest. Notwithstanding the above, in the event Lender declares the entire Indebtedness immediately due and payable, Lender will use its best efforts to send Borrower Notice to that effect; provided, however, Lender's failure to send Borrower such Notice will not delay, modify or limit the Lender's right of acceleration in any way. 7.2 Cure of Events of Default. Without Notice, with or without accelerating the Indebtedness, and without releasing Borrower from any of its Obligations, Lender may, in Lender's discretion, but Lender will have no obligation to, cure any Event of Default or any Default occurring or continuing after any Event of Default, and to effect such cure, Lender or its agents may enter upon the Property and perform such actions as Lender deems appropriate to protect its security and its rights and interests under the Loan Documents. All reasonable costs and expenses incurred by Lender in the exercise of any such rights, including any sums paid in connection with any judicial or administrative investigation or proceeding, fines and penalties; together with interest thereon at the Default Rate under the Note from the date of payment by Lender, will be due and payable by Borrower to Lender on demand, and until paid will be added to and become part of the Indebtedness. 7.3 All Other Remedies. Upon, or at any time after, an Event of Default, all or any one or more of the rights and remedies available to Lender against Borrower or the Property under this Agreement, the Note, the Mortgage or any of the other Loan Documents, or at Law or in equity, may be exercised by Lender at any time and from time to time, without Notice or demand, whether or not all or any portion of the Indebtedness is declared due and payable, and whether or not Lender has commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents. 7.4 Application of Income. In the exercise of any of the rights and powers conferred upon it under the Loan Documents, and whether or not Lender has elected to accelerate the Indebtedness, Lender will have full power to use and apply any amounts in its possession, including sums received as deposits for insurance premiums or Impositions, together with all Rents and Proceeds, to the payment of or on account of the following, in such order as Lender may determine: 7.4.1 to costs of collection and sale of the Property or portions thereof; 7.4.2 to the payment of the operating expenses of the Property, including costs of management and leasing thereof (which will include reasonable compensation to Lender and its agent or agents, if management be delegated to an agent or agents, and will also include lease commissions and other compensation and expenses of seeking and procuring tenants and entering into leases), established claims for damages, if any, and premiums on insurance hereinabove authorized; 7.4.3 to the payments of Impositions now due or which may hereafter become due on the Property, and of all rents due or which may hereafter become due under any underlying lease; 7.4.4 to the payment of all repairs, renewals, replacements, alterations, additions, betterments, and improvements to the Property, including the cost from time to time of installing or replacing the FF&E therein, and of placing the Property in such condition as will, in the judgment of Lender or such agent or Receiver, make it readily rentable; and 7.4.5 to the payment of any Indebtedness or any deficiency which may result from any foreclosure sale upon the Property, or any part thereof. Lender's receipt, use or application of any such sums will not be construed to result in a cure of any Event of Default or affect any of the rights or powers of Lender under the terms of the Loan Documents or any of the Obligations of Borrower and/or the obligations of any Guarantor. 7.5 Remedies Cumulative. No right, power or remedy conferred upon or reserved to Lender by the Note, the Mortgage, this Agreement or any other Loan Document is exclusive of any other right or remedy, and each and every such right and remedy will be cumulative and concurrent and will be in addition to all other rights, powers and remedies provided to Lender under the Loan Documents, or now or hereafter existing at law or in equity, and may be exercised or enforced by Lender selectively against Borrower, any Guarantor or any other Person, and in any order, and may be pursued independently, singly, successively, together or otherwise at such time and in such order as Lender may determine in Lender's discretion, without impairing or affecting any other rights of Lender under the Loan Documents or at Law or in equity. 7.6 No Waiver. No rights or remedies available to Lender under this Agreement or under the other Loan Documents will be deemed waived unless a written waiver is signed and delivered by Lender. No delay or omission in the exercise of any right or remedy accruing upon an Event of Default will impair or be construed as a waiver of any such right or remedy, but any such right or remedy, may be exercised from time to time and as often as Lender may deem expedient. A waiver of any Default or Event of Default will not be construed to be a waiver of any subsequent Default or Event of Default or to impair any right or remedy, consequent thereon. No such act or omission will release, discharge, modify, change or affect the original liability under this Agreement, the Mortgage or any other Loan Document or otherwise of Borrower or any maker, co-signer, endorser, surety or guarantor except to the extent such release, discharge, modification or change is expressly agreed to and granted in writing. Any and all of Lender's rights with respect to the Property will continue unimpaired, and Borrower will be and remain obligated in accordance with the terms hereof, notwithstanding (a) the release or substitution of any part of the Property at any time, or of any rights or interest therein or (b) any delay, extension of time, renewal, compromise or other indulgence granted by Lender as to any Default or Event of Default. No waiver or consent by Lender, nor any course of dealing between Lender and Borrower, will be construed as a continuing waiver or consent, or modification of any of Lender's rights or remedies or of any Obligations of Borrower. Article 8. GENERAL CONDITIONS AND MISCELLANEOUS 8.1 No Liability of Lender. Borrower acknowledges and agrees that Lender's acceptance or approval of any action of Borrower or any other matter requiring Lender's approval, satisfaction, acceptance or consent pursuant to this Agreement or the other Loan Documents, including any Report certificate, financial statement, appraisal or insurance policy, will not be deemed a warranty or representation by Lender of the sufficiency, legality, effectiveness or other import or effect of such matter. 8.2 No Third Parties Benefited. This Agreement is between and for the sole benefit of Borrower and Lender, and Lender's successors and assigns, and creates no rights whatsoever in favor of any other Person and no other Person will have any rights to rely hereon. 8.3 Time is of the Essence. Time is of the essence of each of Borrower's Obligations under this Agreement or under any other Loan Document. The waiver by Lender of any Default under this Agreement will not be deemed a waiver of any subsequent Default. 8.4 Binding Effect; No Borrower Assignment. This Agreement and any other Loan Document will be binding upon and inure to the benefit of Borrower and Lender and their respective heirs, executors, administrators, successors and assigns, provided however Borrower may not assign its rights or interests in this Agreement without the prior consent of Lender, which may be withheld in Lender's discretion as provided in the Mortgage. 8.5 Lender Assignment. Lender may assign or transfer the Loan and/or the Loan Documents or sell all or a portion of the Loan or securitize all or a portion of the Loan in one or more transactions through the issuance of participation interests or the issuance of mortgage pass-through certificates or other securities evidencing ownership of all or a portion of the Loan or beneficial interests in the Loan, in one or more rated or unrated public or private transactions to a third party or parties (each, a "Covered Transaction") without the consent of or Notice to Borrower. In any Covered Transaction, one or more of such assignees or transferees may be assigned the rights of Lender hereunder, and such assignee or transferee will succeed to the rights and obligations of Lender under the Loan Documents, and the assigning Lender will be automatically released from any obligations under this Agreement and/or the other Loan Documents upon assumption by the assignee of the assigning Lender's obligations under this Agreement. Borrower agrees that, upon request, it will cooperate with Lender and use its reasonable efforts to facilitate the consummation of each Covered Transaction, including, (a) delivering estoppels, opinions, tax certificates and other documents, each in form and substance reasonably acceptable to Lender; and (b) providing additional information, or granting reasonable access, in order to obtain such information, as may reasonably be required. Borrower hereby agrees that Lender may forward to each potential purchaser, transferee, assignee, any entity appointed by Lender to service the Loan, or any trustee, participant, certificate holder, investor or rating agency in each such Covered Transaction, all documents and information which Lender now has or may hereafter acquire relating to the Loan, Borrower, Borrower Parties, Guarantor and/or the Property which will have been furnished by Borrower or any other Person in connection with the Loan now or in the future, as Lender may, in its sole discretion, determine is necessary or advisable. Any assignee of Lender's interest in the Loan or the Loan Documents will take the same free and clear of any claims of offset, counterclaim or defense that are unrelated to the Loan or the Loan Documents that Borrower may otherwise claim against any assignor, and no such unrelated claim of offset, counterclaim or defense will be asserted by Borrower in any action or proceeding brought by any such assignee under any of the Loan Documents. Borrower agrees that Lender may disclose such information as it deems necessary or advisable regarding the Loan, Borrower, any Guarantor, any Borrower Party and/or the Property in connection with any disclosure required by Lender, or as may be required by any applicable federal or state securities or other disclosure Laws or as may be necessary in connection with the preparation of audited or unaudited financial statements of Lender. 8.6 Execution in Counterparts. This Agreement and any other Loan Document may be executed in counterparts, each of which will be deemed to be an original and all of which, taken together, will be deemed to be one agreement or instrument. Execution of this Agreement or any other Loan Document by any party will not become effective until a counterpart has been executed by all parties. 8.7 Integration; Amendments; Consents. This Agreement, together with the other Loan Documents, constitutes the entire agreement of the parties with respect to the Loan, and supersedes any prior negotiations or agreements, and supersedes the Commitment. No modification, extension, discharge, termination or waiver of any provision of this Agreement or the other Loan Documents will be effective unless in writing, signed by the Person against whom enforcement is sought, and will be effective only in the specific instance for which it is given. 8.8 Notices. Each notice, consent, request, Report, or other communication under this Agreement or any other Loan Document (each, a "Notice") must be in writing and must be mailed or sent by facsimile, personal delivery or reputable commercial courier to the appropriate party at its address set forth below or any other address designated by such party by Notice sent to the other party in accordance with this Section 8.8. Notices given by mail will be effective three (3) calendar days after being deposited with the postal service, postage prepaid, certified and return receipt requested. Notices by facsimile will be effective when sent, provided that evidence of receipt is retained. Notices given by personal delivery or overnight courier will be effective when delivered, provided that evidence of receipt is retained. Notices will be given to the following addresses: To Lender: NATIONAL LIFE INSURANCE COMPANY c/o National Life Investment Management Company, Inc. One National Life Drive Montpelier, Vermont 05604 Attn: Director of Mortgage Investments Telecopier No.: 802-223-9329 Copy: Mortgage Investment Counsel Telecopier No.: 802-229-3230 With Courtesy Copies to: Larry J. Dahl, Esq. Cochran & Dahl, P.C. 2999 North 44th Street, Suite 235 Phoenix, Arizona 85018 Telecopier No.: 602-952-7010 To Borrower: Simon Terminal, LLC c/o WS Statutory Agent Services, LLC 3200 North Central Avenue, Suite 1100 Phoenix, Arizona 85012 Attn: Eric M.Casper Telecopier No.: 602-265-6079 The failure to provide copies of notices to parties other than the Borrower shall have no effect on the validity of notices delivered to Borrower under the Loan Documents.. 8.9 Governing Law. The Loan will be deemed to have been made in the State of Arizona, and this Agreement and the other Loan Documents will be governed by and construed and enforced in accordance with the Laws of the State of Arizona, subject to Section 1.1 without regard to the State of Arizona's or the State's conflicts of laws principles. Borrower unconditionally and irrevocably waives any right to assert that the law of any other jurisdiction governs this Agreement and the other Loan Documents. 8.10 Jurisdiction. Borrower irrevocably (a) agrees that any suit, action or other legal proceeding arising out of or relating to this Agreement, the Note, the Mortgage or the other Loan Documents may be brought in a court of record in the State or in the State of Arizona or in the Courts of the United States located in the State or the State of Arizona, (b) irrevocably submits to the jurisdiction of each such court in any such suit, action or proceeding and (c) waives any objection which it may have to the laying of venue of any such suit, action or proceeding in any of such courts and any claim that any such suit, action or proceeding has been brought in an inconvenient forum. Borrower irrevocably consents to the service of any and all process in any such suit, action or proceeding by service of copies of such process to Borrower at its address provided in Section 8.8. Nothing in this Section 8.10 will affect the right of Lender to serve legal process in any other manner permitted by law or affect the right of Lender to bring any suit, action or proceeding against Borrower or Borrower's assets in the courts of any other jurisdiction. 8.11 Severability of Provisions. If a court of competent jurisdiction finds any provision of this Agreement or the other Loan Documents to be invalid or unenforceable as to any Person or circumstance in any state, such finding will not render that provision invalid or unenforceable as to any other Person or circumstance or in any other state. Where permitted by applicable Laws, any provision found invalid or unenforceable will be deemed modified to the extent necessary to be within the limits of enforceability or validity; however, if such provision cannot be deemed so modified, it will be deemed stricken and all other provisions of this Agreement in all other respects will remain valid and enforceable. 8.12 Preferences. Lender will have no obligation to marshal any assets for the benefit of Borrower or any other Person or in satisfaction of any or all of the Obligations of Borrower under this Agreement or any other Loan Document. Lender will have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the Obligations. To the extent Borrower makes a payment to Lender or Lender receives any Proceeds, which payment or Proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other Person under any bankruptcy, insolvency or other Law, or for equitable cause, then, to the extent of such payment or Proceeds released by Lender, the Obligations hereunder will be revived and continue in full force and effect, as if such payment or Proceeds had not been received by Lender. 8.13 Joint and Several Obligations. If this Agreement is executed by more than one Person as Borrower, the Obligations of such Persons hereunder will be joint and several obligations. 8.14 No Joint Venture or Partnership. Borrower and Lender intend that the relationship created under this Agreement and the other Loan Documents be solely that of borrower and lender. Nothing is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lender nor to grant to Lender any interest in the Property other than that of mortgagee or secured party. 8.15 Waivers Borrower hereby waives the right to assert any counterclaim, other than compulsory counterclaim, all benefit of all Laws (i) providing for any appraisal before sale of any portion of the Property, and (ii) extending the time for the enforcement of the collection of the Note or the Indebtedness or creating or extending a period of redemption from any sale made in collecting the Indebtedness. To the fullest extent Borrower may do so, Borrower agrees that Borrower will not at any time insist upon, plead, claim or take the benefit or advantage of any Law now or hereafter in force providing for any appraisal, valuation, stay, marshaling of assets, extension or redemption, and Borrower, for itself and its successors and assigns, and for any and all Persons ever claiming any interest in the Property, to the extent permitted by Law, hereby waives and releases all rights of redemption, valuation, appraisal, stay of execution, notice of election to mature or declare due the whole of the secured Indebtedness and marshaling in the event of foreclosure of the liens hereby created. Borrower hereby waives and releases all errors, defects and imperfections in any proceeding instituted by Lender under the Note, this Agreement, the Mortgage or the other Loan Documents, or any of them, and unless specifically required herein, all notices of Borrower's default or of Lender's election to exercise, or Lender's actual exercise of any option or remedy under the Note, this Agreement, the Mortgage or the other Loan Documents. If any Law of which Borrower or other Person may take advantage despite this Section, will hereafter be repealed or cease to be in force, such Law will not thereafter be deemed to preclude the application of this Section. Borrower expressly waives and relinquishes any and all rights and remedies which Borrower may have or be able to assert by reason of Laws pertaining to the rights and remedies of sureties. Further, to the extent allowed under Law, Borrower waives demand, presentment for payment, protest, notice of protest, notice of dishonor, diligence in collection, notice of nonpayment with respect to the Indebtedness and any and all notices of a like nature. 8.16 Jury Trial Waiver. EACH OF BORROWER AND LENDER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT NOW OR HEREAFTER EXISTS WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY MAY OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 7.16 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER. IN WITNESS WHEREOF, Borrower and Lender have hereunto caused this Agreement to be executed on the date first above written. LENDER: NATIONAL LIFE INSURANCE COMPANY By: Erick R. Grinde Erick R. Grinde, Senior Vice President Director of Mortgages and Real Estate National Life Investment Management Company Its: Duly authorized agent BORROWER: SIMON TERMINAL, LLC, an Arizona limited liability company By: DICK SIMON TRUCKING, INC., a Utah corporation, Its: Sole Member By:/s/ Alban Lang Alban Lang Its: Chief Financial Officer Loan Agreement Page A-1 SCHEDULE A Exceptions and Qualifications as to Representations and Warranties of Borrower None EX-11 8 eps_0601.txt COMPUTATION OF PER SHARE EARNINGS SIMON TRANSPORTATION SERVICES INC. SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE (Unaudited)
For the Three Months Ended For the Nine Months Ended -------------------------------------------------------------------------- Basic and Diluted: June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000 ------------- ------------- ------------- ------------- Common shares outstanding beginning of period: 6,115,109 6,110,109 6,111,109 6,110,109 Common share equivalents: Employee stock options exercised: Basic -- -- 3,835 -- Diluted -- -- 3,835 -- -------------------------------------------------------------------------- Number of common shares and common share equivalents outstanding Basic 6,115,109 6,110,109 6,114,944 6,110,109 ========================================================================== Diluted 6,115,109 6,110,109 6,114,944 6,110,109 ========================================================================== Net loss $ (9,521,408) $ (267,450) $ (21,341,640) $ (330,747) ========================================================================== Net loss per common share and common share equivalent Basic $ (1.56) $ (0.04) $ (3.49) $ (0.05) ========================================================================== Diluted $ (1.56) $ (0.04) $ (3.49) $ (0.05) ==========================================================================
EX-21 9 subsidiaries.txt SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES OF THE REGISTRANT Dick Simon Trucking, Inc., a Utah Corporation, is a wholly-owned subsidiary of the Registrant Simon Terminal, LLC, an Arizona limited liability company, is a wholly-owned subsidiary of Dick Simon Trucking, Inc. -----END PRIVACY-ENHANCED MESSAGE-----