-----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, Ba336EA6Ted/9xZ+1457OpEBAuMbG/Dr+yiA43DtV61o+tGY62KdEUvvsVWB+lmS gsAdjrCbARhxlew2IB9qjQ== 0001000577-99-000007.txt : 19991215 0001000577-99-000007.hdr.sgml : 19991215 ACCESSION NUMBER: 0001000577-99-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991214 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-K SEC ACT: SEC FILE NUMBER: 000-27208 FILM NUMBER: 99773743 BUSINESS ADDRESS: STREET 1: 4646 SOUTH 500 WEST CITY: SALT LAKE CITY STATE: UT ZIP: 84123 BUSINESS PHONE: 8012689100 MAIL ADDRESS: STREET 1: P O BOX 26297 CITY: SALT LAKE CITY STATE: UT ZIP: 84126-0297 10-K 1 ANNUAL REPORT ON FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED). For the transition period from ____________ to ______________ 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 (I.R.S. Employer Identification No.) of Incorporation or Organization) 5175 West 2100 South West Valley City, Utah 84120 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: 801/924-7000 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: $0.01 Par Value Class A Common Stock -------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant was $19,952,788 as of November 30, 1999 (based upon the $5.75 per share closing price on that date as reported by NASDAQ). In making this calculation the registrant has assumed, without admitting for any purpose, that all executive officers, directors, and holders of more than 5% of a class of outstanding common stock, and no other persons, are affiliates. As of November 30, 1999, the registrant had 5,196,358 shares of Class A Common Stock and 913,751 shares of Class B Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III, Items 10, 11, 12, and 13 of this Report is incorporated by reference from the registrant's definitive proxy statement for the 1999 annual meeting of stockholders or an amendment hereto that will be filed no later than January 28, 2000. Cross Reference Index The following cross reference index indicates the document and location of the information contained herein and incorporated by reference into the Form 10-K. Document and Location Part I Item 1 Business Pages 3 - 8 herein Item 2 Properties Page 9 herein Item 3 Legal Proceedings Page 9 herein Item 4 Submission of Matters to a Vote of Security Holders Page 9 herein Part II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters Page 10 herein Item 6 Selected Financial and Operating Data Page 11 herein Item 7 Management's Discussion and Analysis of Financial Pages 12 - 20 herein Condition and Results of Operations Item 8 Financial Statements and Supplementary Data Page 20 herein Item 9 Changes in and Disagreements with Accountants on Page 21 herein Accounting and Financial Disclosure Part III Item 10 Directors and Executive Officers of the Registrant Pages 2, 3 and 7 of Proxy Statement Item 11 Executive Compensation Pages 5 and 6 of Proxy Statement Item 12 Security Ownership of Certain Beneficial Owners and Page 9 of Proxy Statement Management Item 13 Certain Relationships and Related Transactions Page 4 of Proxy Statement Part IV Item 14 Exhibits, Financial Statement Schedules and Reports on Pages 22 - 37 herein Form 8-K
This report contains "forward-looking" statements in paragraphs marked with an asterisk. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Statements" for additional information and factors to be considered concerning forward-looking statements. PART I Item 1: BUSINESS The Company Simon Transportation is a truckload carrier that specializes in temperature-controlled transportation services for major shippers in the food industry. Richard D. Simon founded the Company with one truck in 1955. Today Simon Transportation operates nationwide and in eight Canadian provinces from its strategically located headquarters in Salt Lake City, Utah, and terminals in Phoenix, Arizona; Fontana, California; Atlanta, Georgia; and Katy, Texas. Simon Transportation Services Inc., a Nevada corporation, is a holding company organized in 1995, the sole business of which is to own 100% of the capital stock of Dick Simon Trucking, Inc., a Utah corporation. Dick Simon Trucking, Inc. was incorporated in 1972 and had operated as a sole proprietorship since 1955. Simon Transportation acquired all of the capital stock of Dick Simon Trucking, Inc. contemporaneously with the November 17, 1995 effective date of the Company's initial public offering. Prior to such time, Dick Simon Trucking, Inc. had elected to be taxed as an S corporation. References to the "Company" herein refer to the consolidated operations of Simon Transportation Services and Dick Simon Trucking. See "Selected Financial and Operating Data", "Management's Discussion and Analysis of Financial Condition and Results of Operations", and Consolidated Financial Statements. Strategy The Company has grown in recent years by adding revenue equipment to meet the service demands of new and existing customers and expanding core carrier partnerships. Management plans to continue the Company's growth by capitalizing on the trend among shippers to place increased reliance on a smaller number of financially stable, service-oriented truckload carriers. The key elements of the Company's strategy are: Food Industry Focus. Simon Transportation focuses on providing specialized service to sophisticated, high-volume customers in the food industry such as Albertson's, Campbell's Soup, Coca-Cola Foods, ConAgra, Kraft, Nestle, North American Logistics, Pillsbury, and Procter & Gamble. These customers seek nationwide transportation partners that understand the specialized needs of food industry shippers. Many of the Company's customers seek carriers that offer late-model equipment, experienced personnel, advanced technology, and broad geographic coverage. Management believes the food industry is an attractive niche because consumers require food throughout all economic cycles.(*) Core Carrier Partnerships. Simon Transportation has grown by establishing core carrier partnerships with high-volume, service sensitive shippers. Core carriers provide customers with consistent equipment availability and premium service such as time-definite pick-up and delivery, express time-in-transit, multiple delivery stops, and real-time access to load information through satellite-based tracking and communication systems and EDI capability. The Company also meets specialized customer requests for access to terminal facilities, stationing employees at customer locations, and dedicating equipment to specific traffic lanes. Management believes major shippers favor their core carrier "partners" during periods of reduced demand for truck service, and that the trend among major shippers to reduce the number of carriers used in favor of core carriers will continue.(*) Dedicated Fleets. Simon Transportation emphasizes dedicated fleet operations in which it offers round trip or continuous movement service to a shipper (or a shipper and one or more of its suppliers) by dedicating certain tractors and trailers exclusively to that shipper's needs. Dedicated service is desirable because the customers typically pay a round-trip rate per mile assuming that the truck will return empty and cover all loading, unloading, and pallet costs. The Company frequently is able to further enhance revenue per mile by locating a profitable load to cover unloaded segments. In addition, drivers prefer the predictable runs and priority treatment at shipping and receiving _________________________________ (*) "Forward-looking" statements. locations. Management intends to aggressively grow its dedicated fleet operations and expects this service niche to expand as shippers outsource transportation needs presently served by private carriage.(*) Modern Fleet. Simon Transportation intends to maintain modern tractor and trailer fleets. Reliable, late-model equipment promotes customer service and driver recruitment and retention by minimizing the delays caused by breakdowns and excessive maintenance. In addition, management believes that a practice of replacing tractors while under warranty will reduce expenses and permit the Company to take advantage of improvements in fuel economy and equipment technology.(*) Technology. Simon Transportation uses the Qualcomm satellite-based tracking and communication system in all of its tractors. This system and EDI capability improve customer service and operating efficiency by offering the Company and customers real time access to load locations and advance warning of potential delivery delays. The Company's document imaging system allows prompt and simultaneous processing of payroll and billing in a paperless work environment. The Company's load optimization software has been implemented and is constantly updated to enhance service and profitability. Management believes shippers will continue to demand advanced technology of their core carriers and plans to respond to such requirements. (*) Operations The Company conducts a centralized dispatch and customer service operation at its Salt Lake City headquarters. The operations center features a fully-integrated, computerized network of dispatch, customer service, and driver liaison personnel. Customer service representatives solicit and accept freight, quote rates, and serve as the primary contact with customers. After accepting a load, customer service representatives transfer the pick-up and delivery information to the computer screen of the appropriate load planner, who assigns the load to an available driver based upon the proximity of the trucks, scheduled "home time," and available hours-in-service. Dispatchers then use the Qualcomm satellite-based tracking and communication system to locate the position and availability status of equipment and notify the driver of pick-up and delivery requirements, route and fueling instructions, and other information. Upon the assignment of a load, the Company's proprietary software calculates the projected travel time from origin to destination and uses satellite position updates and driver communications to provide load progress reports at thirty-minute intervals. The system automatically advises the appropriate dispatcher and customer service representative if a load is behind schedule, and customers are able to use EDI to access information about load locations at any time. Management believes that these satellite and computer systems are crucial to satisfying the stringent service standards, such as 30-minute pick-up and delivery windows, demanded by shippers of their core carriers. Management measures the Company's efficiency through miles per tractor, empty miles percentage, revenue per mile, and revenue per tractor. Fleet productivity is tracked daily in the operations center, with actual progress matched against a monthly goal. All operations personnel have access to these statistics on a real time basis, and all participate in a cash bonus program for achieving certain fleetwide levels of miles per tractor per month, driver turnover, and revenue per mile. Customers and Marketing The Company's sales and marketing function is led by senior management and other sales professionals based in its Salt Lake City headquarters and near key customers. These sales personnel aggressively market Simon Transportation to food industry shippers as a customer-oriented provider of dependable, on-time service. The Company targets customers that seek financially stable, long-term transportation partners offering dependable equipment, satellite and EDI technologies, and premium service. This customer service philosophy has contributed to continuing demands for added equipment to expand service for existing shippers and establishing core carrier relationships with Albertson's, Campbell's Soup, Coca-Cola Foods, ConAgra, Kraft, Nestle, North American Logistics, Pillsbury, Procter & Gamble, and other major customers. Management _________________________________ (*) "Forward-looking" statements. intends to continue developing business with existing customers and attempting to add new core carrier relationships. The Company's top 5, 10, and 25 customers accounted for 29.2%, 41.2%, and 58.9% of revenue, respectively, during fiscal 1999, with Nestle (including Nestle's Stouffer's and Friskie's units) accounting for 10.6% of revenue. No other customer accounted for more than 10% of revenue during the fiscal year. Simon Transportation is a North American truck line that provides service to and from customer locations throughout the United States, in several Canadian provinces and Mexico. The Company does not maintain any foreign currency positions and therefore does not engage in any hedging transactions to manage foreign currency exposure. The Company's operations are strongest in the western United States and between points in the West to and from points in the East and Southeast. In addition to traditional for-hire service, management emphasizes the marketing of dedicated fleet and regional distribution services. Dedicated fleets generally receive compensation for all miles, and regional operations provide a stronger presence for driver recruiting. Management believes that these services offer consistent equipment utilization and predictable home-time for drivers. The Company has written contracts with substantially all of its customers. These contracts generally specify service standards and rates, eliminating the need for negotiating the rate for individual shipments. Although a contract typically runs for a specified term of at least one year, it generally may be terminated by either party upon 30 days' notice. Technology The Company uses computer and satellite technology to enhance efficiency and customer service in all aspects of its operations, and management believes the Company is among the industry leaders in applying advanced technology to improve transportation service. The Qualcomm OmniTRACSTM satellite-based tracking and communication system provides hourly updates of the position of each tractor and permits real time communication between operations personnel and every driver. As a result, dispatchers relay pick-up and delivery times, weather and road information, route and fueling directions, and other instructions without waiting for a driver to stop and call the Company. The Company's entire fleet has been equipped with the Qualcomm systems since 1992, making it the thirteenth carrier in the nation to install the units in 100% of its tractors. The Company's proprietary software also monitors load progress against projected delivery time every half-hour and warns the appropriate dispatcher and customer service representative if a load is behind schedule. This software also facilitates early routing toward each driver's home base by signaling dispatchers several days in advance of drivers' requested home-time dates. The Company's EDI capability permits customers to communicate directly via computer link to tender loads, receive load confirmation, check load status, and receive billing information. The Company's largest customers require EDI service from their core carriers, and more than 50% of the Company's revenue is generated by customers that actively use EDI. EDI not only improves customer service and communication, but also benefits the Company's cash flow through accelerated receivable collection. The Company further enhances its operations through its document imaging technology, which provides customer service representatives and other personnel (all of whom have computers) real-time access to freight bills, supplier invoices, and other information. Management believes that advanced technology will be required by an increasing number of large shippers as they reduce the number of carriers they use in favor of core carriers. The Company has designed a load optimization software program that allows customer service representatives to quote rates by automatically computing the range of acceptable rates between any two points, based upon the rates for all Simon Transportation loads in and out of the applicable region during the past year and the need for pallets, multiple stops, and other additional charges. The system then prioritizes the loads and identifies the optimal tractor to accept a load, based upon location, empty miles required, revenue per mile, remaining driver hours-in-service, maintenance scheduling, driver home time, and other factors. The Company's maintenance shops are fully computerized and paperless, and all maintenance, repair, and inspection records for each vehicle are instantly accessible. Drivers are able to monitor maintenance progress on computer screens located in the driver lounge. Year 2000 Compliance The Company has completed a review of each of its core systems to determine year 2000 compliance. The Company's billing, dispatch, EDI, fueling, payroll, telephone, vehicle maintenance, and yard and equipment inventory systems and all other critical hardware and software systems were designed to be year 2000 compliant from inception. The Company has also completed its review and assessment of the year 2000 compliance status of its facilities and equipment. All facilities and systems are year 2000 compliant with the possible exception of some older personal computers. These computers do not perform date critical job functions. The Company will continue to replace these units during the normal course of business.(*) In April 1999, the Company installed a new mainframe to handle its core operating systems. The Company acquired the new computer as part of its normal course of business. The prior machine continues to serve as a backup system. Both computers, peripherals and all operating software have been extensively tested by Company personnel and we believe all are year 2000 compliant.(*) The Company relies on Qualcomm to provide the satellite tracking system necessary to track the location of its equipment, and to provide dispatch and routing information to its drivers. The Company has been informed that the software utilized by Qualcomm and the Company is fully year 2000 compliant. The Company utilizes Comdata to transmit payroll funds to its drivers and to allow drivers to purchase fuel outside of the Company's terminal locations. The Company has been informed that the software and systems utilized by Comdata and the Company is fully year 2000 compliant. The Company also interacts with many of its vendors through electronic data interchange (EDI). The Company has received written assurances from its significant vendors and customers representing approximately 70% of its fiscal 1999 revenue that they will be year 2000 compliant. Although the Company is year 2000 compliant in its EDI applications, we cannot and do not guarantee the year 2000 compliance of our business partners' systems.(*) The Company has incurred internal staff costs necessary to review and further year 2000 compliance of its core operating systems. Because the systems were designed to be year 2000 compliant since inception, the costs have not had a material effect on the Company's financial position or results of operations. The Company also incurred additional internal staff time to complete its compliance review of non-core systems embedded in facilities and equipment. These non-core systems include microcontrollers contained in tractor engines and other components, refrigeration units, and terminal facilities. The costs of such review were not incremental since they represented the redeployment of existing information technology resources.(*) The Company believes that the most likely worse case scenario is the failure of some third party provided services. The Company anticipates that the risks related to its core and non-core systems will be mitigated by ongoing assessment and correction of the systems. The primary risk to operations is service disruption from third-party providers that supply satellite communication, telephone, fueling and financial services. Any disruption of these critical services would hinder the Company's ability to receive, process and track its freight or communicate with its customers and drivers.(*) A failure of the satellite communication system could have a materially adverse effect on the Company's business and results of operations. The Company is relying on the contingency plan established by Qualcomm to prevent the interruption of business. As an additional backup, the Company plans to use its existing telephone systems to dispatch its equipment and provide support to its drivers in the event of a complete satellite system failure. In the event of EDI failures on the part of our customers, the Company plans to use its telephone and facsimile system to receive load tenders from its customers. The Company would switch to paper invoices for its customers unable to use EDI. Management _________________________________ (*) "Forward-looking" statements. believes that the Company's current state of readiness, the nature of the Company's business, and the availability of the contingency plans minimizes year 2000 risks. Management does not foresee significant liability to third parties if the Company's systems are not year 2000 compliant.(*) Revenue Equipment Simon Transportation's equipment strategy is to operate modern tractors and trailers that help reduce parts, maintenance, and fuel costs, promote the reliable service customers demand from core carriers, and attract and retain drivers. The Company operates conventional tractors (engine-forward) equipped with electronic engines and Eaton transmissions. Most of the tractors are covered by three-year, 500,000-mile engine warranties and lifetime transmission warranties. Most of the tractors also are equipped with the "condo" sleeper cabs preferred by drivers. The Company's practice is to trade or replace its tractors on a three-year cycle, and to trade or replace its trailers on a five-year cycle. Drivers and Other Personnel Driver hiring and retention are critical to the success of all trucking companies. Simon Transportation emphasizes driver satisfaction and has made significant investments to improve its drivers' employment experience. Drivers are selected in accordance with specific Company quality guidelines relating primarily to safety history, driving experience, road test evaluations, and other personnel evaluations, including physical examinations and mandatory drug testing. The Company offers competitive compensation, including mileage pay, and full participation in all employee benefit and profit-sharing plans. The Company uses proprietary software to warn dispatchers in advance of a driver's requested home time. Management believes it has promoted driver loyalty by assigning drivers to a single dispatcher, regardless of geographic area, awarding dedicated routes and regional distribution positions to senior, top-performing drivers, and educating customers concerning the need to treat drivers with respect. The truckload industry has experienced a shortage of qualified drivers. Strict DOT enforcement of hours-in-service limitations, mandatory drug and alcohol testing, and other safety measures have shrunk the available pool of drivers and increased the cost of recruiting and retention. The industry-wide driver shortage adversely affected the Company's operations during the 1999 fiscal year resulting in an unusually high number of tractors without drivers. The Company's driver turnover was 110% in fiscal 1999, measuring drivers after they are assigned a tractor. At September 30, 1999, Simon Transportation employed approximately 450 non-driver employees and approximately 1,850 drivers. The Company's employees have never been represented by or attempted to organize a union, and management believes it has a good relationship with the Company's employees. Safety and Insurance Simon Transportation emphasizes safety in all aspects of its operations. Its safety program includes: (i) initial orientation; (ii) a three-week to six-week, on-the-road training program; and (iii) progressive penalties for excessive speed and log violations. The Company has earned the highest DOT safety and fitness rating of "satisfactory," which most recently was extended on November 1, 1999. The Company carries primary and excess liability insurance coverage of $50 million, with a $250,000 basket deductible for personal injury and property damage. The Company's workers' compensation coverage also carries a $100,000 deductible, with no coverage limit. Management believes these coverages are adequate to cover reasonably anticipated claims. _________________________________ (*) "Forward-looking" statements. Competition The truckload segment of the trucking industry is highly competitive and fragmented, and no carrier or group of carriers dominates the temperature-controlled or dry van market. According to the September 1999 issue of Refrigerated Transporter, the five largest temperature-controlled carriers by revenue are C. R. England, Frozen Food Express Industries, Rocor International, Prime, Inc., and KLLM Transport Services. The combined revenue reported for these five carriers comprises approximately 38% of the estimated $4.3 billion for-hire, temperature-controlled market. The proprietary fleet portion of the temperature-controlled market has been estimated at an additional $3 billion. The Company's 1999 fiscal year revenue constituted approximately three percent of the total market for temperature-controlled services and approximately five percent of the for-hire market. The Company competes with a number of other trucking companies, as well as private truck fleets used by shippers to transport their own products. The Company competes to a limited extent with rail and rail-truck intermodal service, but attempts to limit this competition by seeking service-sensitive freight. There are other trucking companies, including diversified carriers with large temperature-controlled fleets, possessing substantially greater financial resources and operating more equipment than the Company. Fuel Availability and Cost The Company actively manages its fuel costs by requiring drivers to fuel at Company terminals or, whenever possible en route, at service centers with which the Company has established volume purchasing arrangements. The Company controls fuel purchases by using its proprietary software and Qualcomm communications ability to schedule fueling stops and amounts purchased based upon fuel prices at locations on drivers' routes. The Company historically has been able to pass through most increases in fuel prices and taxes to customers in the form of higher rates or fuel surcharges. The Company has fuel surcharge agreements with a majority of its customers. However, the recent increases in fuel prices will not be fully offset by these surcharges. Regulation The Company is a common and contract motor carrier of general commodities. Historically, the Interstate Commerce Commission (the "ICC") and various state agencies regulated motor carriers' operating rights, accounting systems, mergers and acquisitions, periodic financial reporting, and other matters. In 1995, federal legislation preempted state regulation of prices, routes, and services of motor carriers and eliminated the ICC. Several ICC functions were transferred to the Department of Transportation (the "DOT"). Management does not believe that regulation by the DOT or by the states in their remaining areas of authority will have a material effect on the Company's operations. The Company's employee and independent contractor drivers also must comply with the safety and fitness regulations promulgated by the DOT, including those relating to drug and alcohol testing and hours of service. The Company's operations are subject to various federal, state, and local environmental laws and regulations, implemented principally by the EPA and similar state regulatory agencies, governing the management of hazardous wastes, other discharge of pollutants into the air and surface and underground waters, and the disposal of certain substances. These regulations extend to the above ground and underground fuel storage tanks located at each of the Company's terminal facilities. All of the Company's tanks are of double hull construction in accordance with EPA requirements and equipped with monitoring devices which constantly monitor for leakage. Management is not aware of any fuel spills or hazardous substance contamination on its properties and believes that its operations are in material compliance with current laws and regulations. Item 2. PROPERTIES Simon Transportation operates terminals and driver recruitment offices at five locations. The Company's headquarters and primary terminal is located on fifty-five acres near the intersection of Interstates 15 and 80 in Salt Lake City, Utah. This facility includes a 60,000 square foot office building housing all operations and administrative personnel and maintenance facilities and a driver center covering approximately 97,000 square feet. The Company's additional terminal and driver recruitment facilities include owned locations in Phoenix, Arizona; Fontana, California; and Atlanta, Georgia; and a leased location in Katy, Texas. The Company leases trailer drop yards at Tulare, California and various customer locations. All terminals have modern fuel facilities with environmental monitoring equipment. The available acreage at the Company's headquarters will accommodate future expansion, and the facility has been designed so that additions can be constructed to serve the Company's foreseeable future needs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity." Item 3. 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. The Company intends to vigorously defend this action. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year ended September 30, 1999, no matters were submitted to a vote of security holders. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Price Range of Common Stock. The Company's Class A Common Stock is traded on the NASDAQ National Market under the NASDAQ symbol SIMN. The following table sets forth for the calendar periods indicated the range of high and low bid quotations for the Company's Class A Common Stock as reported by NASDAQ for the fiscal years ended September 30, 1998 and 1999. Period High Low - ---------------------------- ------------- ------------- Calendar Year 1997 4th Quarter $ 24 3/4 $ 21 3/4 Calendar Year 1998 1st Quarter $ 24 $ 13 3/8 2nd Quarter $ 15 5/8 $ 6 3/8 3rd Quarter $ 6 7/8 $ 4 7/8 4th Quarter $ 6 13/16 $ 4 3/8 Calendar Year 1999 1st Quarter $ 7 1/2 $ 4 11/16 2nd Quarter $ 6 1/2 $ 4 1/2 3rd Quarter $ 5 3/4 $ 4 The prices reported reflect interdealer quotations without retail mark-ups, mark-downs or commissions, and may not represent actual transactions. As of October 31, 1999, the Company had 177 stockholders of record of its common stock. However, the Company believes that it has approximately 1,500 beneficial holders of common stock including shares held of record by brokers or dealers for their customers in street names. Dividend Policy. The Company has never declared and paid a cash dividend on its common stock. It is the current intention of the Company's Board of Directors to continue to retain earnings to finance the growth of the Company's business rather than to pay dividends. Future payments of cash dividends will depend upon the financial condition, results of operations and capital commitments of the Company, restrictions under then-existing agreements, and other factors deemed relevant by the Board of Directors. Item 6. SELECTED FINANCIAL AND OPERATING DATA The selected consolidated financial data presented below reflect the consolidated financial position and results of operations of Simon Transportation Services Inc. and its subsidiary. The selected consolidated financial data are derived from the Company's consolidated financial statements and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements and notes thereto included elsewhere herein.
Fiscal Years Ended September 30, -------------------------------------------------------------- (In thousands, except per share amounts & operating 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- data) Statement of Operations Data: Operating revenue................................. $ 209,143 $ 193,507 $ 155,296 $ 101,090 $ 75,218 -------------------------------------------------------------- Operating expenses: Salaries, wages, and benefits................... 90,876 80,500 60,504 40,015 28,035 Fuel and fuel taxes............................. 37,262 35,281 30,069 20,359 14,115 Operating supplies and expenses................. 27,872 26,156 19,289 13,701 10,839 Taxes and licenses.............................. 7,319 6,557 5,197 3,288 2,756 Insurance and claims............................ 6,591 5,217 3,404 2,172 2,003 Communications and utilities.................... 4,239 3,946 2,550 1,680 1,245 Depreciation and amortization................... 4,466 4,728 5,396 5,920 7,223 Rent............................................ 34,363 28,987 17,143 4,794 2,926 -------------------------------------------------------------- Total operating expenses...................... 212,988 191,372 143,552 91,929 69,142 -------------------------------------------------------------- Operating earnings (loss)..................... (3,845) 2,135 11,744 9,161 6,076 Gain on sale of real property..................... -- -- 1,896 -- -- Interest expense and other, net................... (1,353) (1,500) (1,134) (2,758) (3,527) -------------------------------------------------------------- Earnings (loss) before provision for income taxes. (5,198) 635 12,506 6,403 2,549 Provision (benefit) for income taxes 1............ (1,965) 297 4,727 5,454 -- -------------------------------------------------------------- Net earnings (loss)............................... $ (3,233) $ 338 $ 7,779 $ 949 $ 2,549 ============================================================== Pro Forma Statement of Earnings Data: 1 Earnings (loss) before provision for income taxes. $ (5,198) $ 635 $ 12,506 $ 6,403 $ 2,549 Provision (benefit) for income taxes.............. (1,965) 297 4,727 2,536 1,010 -------------------------------------------------------------- Net earnings (loss)............................... $ (3,233) $ 338 $ 7,779 $ 3,867 $ 1,539 ============================================================== Diluted net earnings (loss) per common share...... $ (0.53) $ 0.05 $ 1.33 $ 0.87 $ 0.67 ============================================================== Diluted weighted average shares outstanding....... 6,116,815 6,270,734 5,864,043 4,464,837 2,300,000 ============================================================== Balance Sheet Data (at end of period): Net property and equipment........................ $ 57,648 $ 64,618 $ 71,154 $ 56,714 $ 52,200 Total assets...................................... 96,730 99,526 107,704 78,223 61,437 Long-term debt and capitalized leases, including current portion............... 21,623 21,206 32,791 37,428 47,903 Stockholders' equity.............................. 55,944 59,699 59,849 29,103 9,033 Operating Data: Operating ratio 2................................. 101.8% 98.9% 92.4% 90.9% 91.9% Average revenue per loaded mile................... $ 1.26 $ 1.25 $ 1.25 $ 1.24 $ 1.26 Average revenue per total mile.................... $ 1.11 $ 1.11 $ 1.10 $ 1.10 $ 1.11 Average revenue per tractor per week.............. $ 2,478 $ 2,510 $ 2,627 $ 2,526 $ 2,417 Empty miles percentage............................ 12.0% 11.8% 11.9% 11.7% 11.3% Average length of haul in miles................... 1,017 1,026 1,001 984 949 Weighted average tractors during period........... 1,635 1,494 1,142 774 598 Tractors at end of period......................... 1,693 1,655 1,344 940 623 Trailers at end of period......................... 2,424 2,455 1,998 1,430 877 1 The Company was treated as an S Corporation for federal and state income tax purposes from October 1, 1990 to November 16, 1995. As a result, the Company's taxable earnings for such period were taxed for federal and state income tax purposes directly to the Company's then-existing stockholders. The pro forma statement of earnings data give effect to an adjustment for a provision for federal and state income taxes as if the Company had been treated as a C Corporation during such period. The pro forma statement of operations data do not give effect to the one-time, non-cash charge of $2,980,115 in recognition of deferred income taxes that resulted from the termination of the Company's S Corporation status. The provision for income taxes for fiscal 1996 includes the one-time, non-cash charge of $2,980,115. 2 Operating expenses as a percentage of revenue.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Simon Transportation provides nationwide, predominantly temperature-controlled truckload transportation for numerous major shippers. In recent years, much of the Company's growth has resulted from earning core carrier status with major shippers and meeting the demands of these shippers for additional equipment. The Company has grown to $209.1 million in revenue for its fiscal year ended September 30, 1999, from $75.2 million in revenue for fiscal 1995, a compounded annual growth rate of 29.1%. From fiscal 1995 through fiscal 1997, the Company's pretax earnings grew to $12.5 million from $2.5 million, a compounded annual growth rate of 123.6%. The increase in pretax earnings was attributable primarily to revenue growth, greater equipment productivity, and the reduction in financing costs attributable to public offerings in 1995 and 1997. During fiscal 1998, the Company continued its strong revenue growth, with revenue increasing approximately 25%. Pretax earnings decreased substantially, however, as the Company experienced financial and operating difficulties. For much of the year the industry-wide driver shortage contributed to a substantial number of unseated tractors. To address this problem, the Company raised driver wages by a total of four cents per mile. Although management believes the higher wages have made the Company more competitive in attracting and retaining drivers, the combination of unproductive equipment and higher wages adversely affected the Company's profitability. The Company's financial results also were affected by unusually high accident claims and repair expense during the second fiscal quarter. During fiscal year 1999, management deferred deliveries of new tractors to better match the anticipated availability of drivers. This reduced revenue growth for the year to 8% compared with historical levels. The Company continued to experience financial and operating difficulties due to driver turnover rates far in excess of historical averages and the fact that driver pay increases effective in fiscal 1998 have not been offset by increases in the freight rates charged by the Company. Management is focusing its efforts on reducing the rate of driver turnover. In July 1999 the Company reduced its shop and administrative personnel by approximately 25%.(*) In comparing the Company's historical financial position and results of operations, readers should be aware of changes in financing methods. During fiscal year 1995, the Company financed most of its tractors and trailers with debt and capitalized leases. During fiscal years 1996, 1997, 1998 and 1999, the Company has financed most of its revenue equipment under operating lease arrangements. Financing equipment with operating leases increases the Company's operating ratio because the implied interest component of the lease payments is reflected as an "above-the-line" operating expense rather than as interest expense. The use of operating leases also affects the presentation of the Statement of Cash Flows. However, the method of financing does not affect net earnings or net cash flows. The Company's operating ratio may fluctuate from time-to-time based upon the method of equipment financing. The Company operated as an S corporation from October 1, 1990 to November 16, 1995. As a result, the Company's net taxable earnings were taxed directly to the Company's existing stockholders rather than to the Company. The pro forma statement of earnings data included in the "Selected Financial and Operating Data" set forth the Company's net earnings for such periods as if the Company had been subject to federal and state income taxes at a combined effective rate of 39.6% for fiscal years 1995 and 1996. In addition to the ongoing income tax effect, the termination of the Company's S corporation status resulted in a one-time, non-cash charge of approximately $3.0 million during fiscal year 1996 in recognition of deferred income taxes. Results of Operations The following table sets forth the percentage relationship of certain items to operating revenue for the periods indicated:
Fiscal Years Ended September 30, ---------------------------------- 1999 1998 1997 ----------- ---------- ---------- Operating revenue.............................................................. 100.0% 100.0% 100.0% Operating expenses: Salaries, wages, and benefits................................................ 43.5 41.6 39.0 Fuel and fuel taxes.......................................................... 17.8 18.2 19.4 Operating supplies and expenses.............................................. 13.3 13.5 12.4 Taxes and licenses........................................................... 3.5 3.4 3.3 Insurance and claims......................................................... 3.2 2.7 2.2 Communications and utilities................................................. 2.0 2.0 1.6 Depreciation and amortization................................................ 2.1 2.4 3.5 Rent......................................................................... 16.4 15.0 11.0 ----------- ---------- ---------- Total operating expenses.................................................... 101.8 98.9 92.4 ----------- ---------- ---------- Operating earnings (loss)...................................................... (1.8) 1.1 7.6 Gain on sale of real property.................................................. -- -- 1.2 Interest expense and other, net................................................ (0.6) (0.8) (0.7) ----------- ---------- ---------- Earnings (loss) before income taxes............................................ (2.4) 0.3 8.1 Benefit (provision) for income taxes........................................... 0.9 (0.1) (3.1) ----------- ---------- ---------- Net earnings (loss)............................................................ (1.5)% 0.2% 5.0% =========== ========== ==========
Comparison of fiscal year ended September 30, 1999, with fiscal year ended September 30, 1998. Operating revenue increased $15.6 million (8.1%), to $209.1 million during the 1999 fiscal year from $193.5 million during the 1998 fiscal year. The increase in revenue was primarily attributable to a 9.4% increase in the weighted average number of tractors, to 1,635 during the 1999 fiscal year from 1,494 during the 1998 fiscal year, and an increase in average revenue per loaded mile to $1.26 during the 1999 fiscal year from $1.25 in the 1998 fiscal year. This increase was partially offset by a decrease in the average revenue per tractor per week to $2,478 during the 1999 fiscal year from $2,510 during the 1998 fiscal year due to slower than expected freight demand in the Company's second fiscal quarter and a significant number of tractors without drivers throughout much of the fiscal year, particularly the first and fourth quarters. Salaries, wages and benefits increased $10.4 million (12.9%), to $90.9 million in the 1999 fiscal year from $80.5 million in the 1998 fiscal year. As a percentage of revenue, salaries, wages, and benefits increased to 43.5% of revenue during the 1999 fiscal year from 41.6% during the 1998 fiscal year. The increase is primarily attributable to the full effect of the two-cent per mile driver wage increases effective April 15, 1998, and excess non-driving personnel during most of the 1999 fiscal year. In July 1999, the Company reduced its shop and administrative personnel by approximately 25%. As a result, management expects a decrease in salaries, wages and benefits as a percentage of revenue in future periods.(*) Fuel and fuel taxes increased $2.0 million (5.6%), to $37.3 million in the 1999 fiscal year from $35.3 million in the 1998 fiscal year. As a percentage of revenue, fuel and fuel taxes decreased to 17.8% of revenue during the 1999 fiscal year from 18.2% during the 1998 fiscal year. The decrease resulted principally from lower fuel prices in the first three quarters of the 1999 fiscal year. A dramatic rise in fuel prices during the quarter ended September 30, 1999, is expected to increase the Company's fuel costs as a percentage of revenue in future periods.(*) _________________________________ (*) "Forward-looking" statements. Operating supplies and expenses increased $1.7 million (6.6%), to $27.9 million in the 1999 fiscal year from $26.2 million in the 1998 fiscal year. As a percentage of revenue, operating supplies and expenses decreased to 13.3% of revenue during the 1999 fiscal year from 13.5% during the 1998 fiscal year. The decrease is primarily attributable to the Company's efforts to reduce the amount spent on operating supplies and expenses. Taxes and licenses increased $0.7 million (11.6%), to $7.3 million in the 1999 fiscal year from $6.6 million in the 1998 fiscal year. As a percentage of revenue, taxes and licenses remained essentially constant at 3.5% of revenue during the 1999 fiscal year compared to 3.4% of revenue during the 1998 fiscal year. Insurance and claims increased $1.4 million (26.3%), to $6.6 million in the 1999 fiscal year from $5.2 million in the 1998 fiscal year. As a percentage of revenue, insurance and claims increased to 3.2% of revenue for the 1999 fiscal year compared to 2.7% during the 1998 fiscal year. The increase was attributable to an increase in the number of accidents experienced by the Company during the 1999 fiscal year. Communications and utilities increased $0.3 million (7.4%), to $4.2 million in the 1999 fiscal year from $3.9 million in the 1997 fiscal year. As a percentage of revenue, communications and utilities remained unchanged at 2.0% of revenue during the 1999 and 1998 fiscal years. Depreciation and amortization decreased $0.2 million (5.5%), to $4.5 million in the 1999 fiscal year from $4.7 million in the 1998 fiscal year. As a percentage of revenue, depreciation and amortization (adjusted for the net gain on sale of equipment) decreased to 2.1% of revenue during the 1999 fiscal year from 2.4% during the 1998 fiscal year primarily because of a decrease in the percentage of the Company's revenue equipment that was owned or acquired under capitalized leases. Depreciation and amortization (unadjusted for the net gain on sale of equipment) decreased to 3.2% of revenue ($6.6 million) during the 1999 fiscal year from 3.6% of revenue ($7.0 million) during the 1998 fiscal year. Depreciation was adjusted for a $2.1 million net gain on the sale of revenue equipment during the 1999 fiscal year compared with a $2.3 million net gain during the 1998 fiscal year. Rent increased $5.4 million (18.5%), to $34.4 million in the 1999 fiscal year from $29.0 million in the 1998 fiscal year. As a percentage of revenue, rent increased to 16.4% of revenue during the 1999 fiscal year from 15.0% during the 1998 fiscal year as the Company added new equipment and replaced equipment that had been financed under capital lease arrangements with equipment financed under operating leases. Substantially all of the Company's revenue equipment is financed through operating leases. In addition, the fixed monthly rental payments were not as efficiently spread over lower revenue per tractor. The Company has utilized operating leases in the most recent year because of more favorable terms. If the Company continues to use operating lease financing, its operating ratio may be affected in future periods because the implied financing costs of such equipment are included as operating expenses instead of as interest expense. As a result of the foregoing, the Company's operating ratio increased to 101.8% during the 1999 fiscal year from 98.9% during the 1998 fiscal year. Interest expense and other, net decreased $0.1 million (9.8%), to $1.4 million in the 1999 fiscal year from $1.5 million in the 1998 fiscal year. As a percentage of revenue, interest expense and other, net decreased slightly to 0.6% of revenue during the 1999 fiscal year compared with 0.8% during the 1998 fiscal year. The Company's effective combined federal and state income tax rate for the 1999 fiscal year was 37.8% compared to 46.8% for the 1998 fiscal year as a result of the relative impact of non-deductible expenses in fiscal 1998. These non-deductible expenses remained essentially constant during both the 1999 and 1998 fiscal years; however, the relative effect on the tax rate varies because of the earnings experienced in the 1998 fiscal year versus the loss in the 1999 fiscal year. As a result of the factors described above, net earnings decreased $3.6 million to a loss of $3.2 million during the 1999 fiscal year from net earnings of $338,000 during the 1998 fiscal year. As a percentage of revenue, net loss was 1.5% of revenue in the 1999 fiscal year compared with net earnings of 0.2% of revenue in the 1998 fiscal year. Comparison of fiscal year ended September 30, 1998, with fiscal year ended September 30, 1997. Operating revenue increased $38.2 million (24.6%), to $193.5 million during the 1998 fiscal year from $155.3 million during the 1997 fiscal year. The increase in revenue was primarily attributable to a 30.8% increase in the weighted average number of tractors, to 1,494 during the 1998 fiscal year from 1,142 during the 1997 fiscal year. This increase was partially offset by a decrease in the average revenue per tractor per week to $2,510 during the 1998 fiscal year from $2,627 during the 1997 fiscal year due to a substantial number of tractors without drivers throughout most of the year. The Company's average revenue per loaded mile remained constant at $1.25 during both the 1998 and 1997 fiscal years. Salaries, wages and benefits increased $20.0 million (33.1%), to $80.5 million in the 1998 fiscal year from $60.5 million in the 1997 fiscal year. As a percentage of revenue, salaries, wages, and benefits increased to 41.6% of revenue during the 1998 fiscal year from 39.0% during the 1997 fiscal year. The increase is primarily attributable to driver wage increases. In order to remain competitive, the Company raised driver base pay two cents per mile effective January 1, 1998 and an additional two cents per mile effective April 15, 1998. Fuel and fuel taxes increased $5.2 million (17.3%), to $35.3 million in the 1998 fiscal year from $30.1 million in the 1997 fiscal year. As a percentage of revenue, fuel and fuel taxes decreased to 18.2% of revenue during the 1998 fiscal year from 19.4% during the 1997 fiscal year. The decrease resulted principally from lower fuel prices in the 1998 fiscal year and an overall increase in the fuel efficiency of the Company's fleet. Operating supplies and expenses increased $6.9 million (35.8%), to $26.2 million in the 1998 fiscal year from $19.3 million in the 1997 fiscal year. As a percentage of revenue, operating supplies and expenses increased to 13.5% of revenue during the 1998 fiscal year, from 12.4% during the 1997 fiscal year. The increase was attributable primarily to costs incurred during the second fiscal quarter for accident repairs, preparing equipment for trade, and completing work on and opening the Atlanta terminal. Taxes and licenses increased $1.4 million (26.9%), to $6.6 million in the 1998 fiscal year from $5.2 million in the 1997 fiscal year. As a percentage of revenue, taxes and licenses remained essentially constant at 3.4% of revenue during the 1998 fiscal year compared to 3.3% of revenue during the 1997 fiscal year. Insurance and claims increased $1.8 million (52.9%), to $5.2 million in the 1998 fiscal year from $3.4 million in the 1997 fiscal year. As a percentage of revenue, insurance and claims increased to 2.7% of revenue for the 1998 fiscal year compared to 2.2% during the 1997 fiscal year. Most of the increase was attributable to an unusually high number of severe accidents suffered during the second fiscal quarter. Insurance and claims returned to 2.2% of revenue during the fourth quarter.(*) Communications and utilities increased $1.3 million (50.0%), to $3.9 million in the 1998 fiscal year from $2.6 million in the 1997 fiscal year. As a percentage of revenue, communications and utilities increased to 2.0% of revenue during the 1998 fiscal year from 1.6% of revenue during the 1997 fiscal year primarily as a result of an access fee charged to the Company by the owners of pay telephones based on calls to toll free numbers. In addition, the fixed costs of utilities for the Company's terminals and costs associated with the usage of the Company's satellite tracking system did not remain proportionate with the decreased revenue per tractor. Depreciation and amortization decreased $700,000 (13.0%), to $4.7 million in the 1998 fiscal year from $5.4 million in the 1997 fiscal year. As a percentage of revenue, depreciation and amortization (adjusted for the net gain on sale of equipment) decreased to 2.4% of revenue during the 1998 fiscal year _________________________________ (*) "Forward-looking" statements. from 3.5% during the 1997 fiscal year primarily because of a decrease in the percentage of the Company's revenue equipment that was owned or acquired under capitalized leases. Depreciation and amortization (unadjusted for the net gain on sale of equipment) decreased to 3.6% of revenue ($7.0 million) during the 1998 fiscal year from 4.5% of revenue ($7.0 million) during the 1997 fiscal year. Depreciation was adjusted for a $2.3 million net gain on the sale of revenue equipment during the 1998 fiscal year compared with a $1.6 million net gain during the 1997 fiscal year. Rent increased $11.9 million (69.6%), to $29.0 million in the 1998 fiscal year from $17.1 million in the 1997 fiscal year. As a percentage of revenue, rent increased to 15.0% of revenue during the 1998 fiscal year from 11.0% during the 1997 fiscal year as the Company added new equipment and replaced equipment that had been financed under capital lease arrangements with equipment financed under operating leases. The Company utilized operating leases during the 1998 fiscal year because of more favorable terms. As a result of the foregoing, the Company's operating ratio increased to 98.9% during the 1998 fiscal year from 92.4% during the 1997 fiscal year. The Company realized a $1.9 million gain on the sale of its former headquarters facilities during the 1997 fiscal year. This non-recurring transaction increased earnings before provision for income taxes by 1.2% of revenue during the 1997 period. Interest expense and other, net increased $400,000 (36.4%), to $1.5 million in the 1998 fiscal year from $1.1 million in the 1997 fiscal year. As a percentage of revenue, interest expense and other, net remained essentially constant at 0.8% of revenue during the 1998 fiscal year compared with 0.7% during the 1997 fiscal year. The Company's effective combined federal and state income tax rate for the 1998 fiscal year was 46.8% compared to 37.8% for the 1997 fiscal year as a result of the relative impact of non-deductible expenses in fiscal 1998. These non-deductible expenses remained essentially constant during both the 1998 and 1997 fiscal years; however, the relative effect on the tax rate is magnified because of the lower earnings experienced in the 1998 fiscal year. As a result of the factors described above, net earnings decreased $7.5 million (96.2%) to $338,000 during the 1998 fiscal year from $7.8 million ($6.6 million excluding the gain on the sale of the Company's former headquarters) during the 1997 fiscal year. As a percentage of revenue, net earnings decreased to 0.2% of revenue in the 1998 fiscal year from 5.0% (4.2% of revenue excluding the gain on the sale of the Company's former headquarters) in the 1997 fiscal year. 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 flows from operations. The Company's primary sources of liquidity are funds provided by operations and borrowings and leases with financial institutions and equipment manufacturers. During the 1999, 1998 and 1997 fiscal years, the Company financed most of its tractors with operating leases. Net cash (used in) provided by operating activities was ($1.6 million), $4.2 million, and $7.9 million, for the fiscal years ended September 30, 1999, 1998, and 1997, respectively. The Company's principal use of cash from operations is to service debt and leases incurred to purchase new revenue equipment and internally finance accounts receivable associated with growth in the business. Accounts receivable increased $2.6 million, $627,000, and $6.4 million for the fiscal years ended September 30, 1999, 1998, and 1997, respectively. The average age of the Company's accounts receivable was 39, 35, and 41 days for the fiscal years ended September 30, 1999, 1998, and 1997, respectively. Net cash provided by (used in) investing activities was $2.5 million, $2.9 million, and ($19.0 million), for the fiscal years ended September 30, 1999, 1998, and 1997, respectively, and consisted of net purchases of property and equipment. The Company expects capital expenditures (primarily for revenue equipment and satellite communications units), net of revenue equipment trade-ins, to be approximately $30.2 million in aggregate for fiscal years 2000 and 2001. The Company expects projected capital expenditures to be funded mostly with operating leases, borrowings and cash flows from operations.(*) .........Net cash (used in) provided by financing activities was ($0.1 million), ($12.1 million), and $18.3 million, for the fiscal years ended September 30, 1999, 1998, and 1997, respectively. Primary sources of cash were approximately $23.0 million in net proceeds from the Company's February 1997 stock offering and a $10 million borrowing on the Company's line-of-credit. Primary uses of cash were net payments on borrowings of $9.5 million, $14.5 million, and $20.5 million of principal under the Company's long-term debt and capitalized lease agreements for the fiscal years ended September 30, 1999, 1998, and 1997, respectively. During fiscal year 1999, the Company purchased 95,500 shares of Class A Common Stock at an average market price of $5.46 per share for a total cash outlay of $522,000. The Company purchased 81,100 shares at an average market price of $6.55 per share for a total cash outlay of $532,000 in fiscal 1998. The maximum amount committed under the Company's line of credit at September 30, 1999 was $20 million. As of September 30, 1999, the Company had drawn $10 million against the line. The interest rate on the line of credit is 1.75 percent above the 30-day London Interbank Offered Rate ("LIBOR") in effect from time-to-time. At September 30, 1999, the Company had other outstanding long-term debt and capitalized lease obligations (including current portions) of approximately $11.6 million, most of which comprised obligations for the purchase of revenue equipment. As of September 30, 1999, the Company's future commitments under noncancelable operating leases amounted to $57.7 million. See Notes 4, 5 and 6 to Consolidated Financial Statements. The Company's working capital at September 30, 1999, 1998, and 1997 was $17.5 million, $14.9 million, and $15.9 million, respectively. Management believes that available borrowings under the line of credit, future borrowings under installment notes payable or lease arrangements for revenue equipment, and cash flows generated from operations, 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 2000.(*) Inflation Inflation has had a minimal effect upon the Company's profitability in recent years. Most of the Company's operating expenses are inflation- sensitive, with inflation generally producing increased costs of operation. The Company expects that inflation will affect its costs no more than it affects those of other truckload carriers. Seasonality The Company experiences some seasonal fluctuations in freight volume, as shipments have historically decreased during the first calendar quarter. In addition, the Company's operating expenses historically have been higher in the winter months due to decreased fuel efficiency and increased maintenance costs in colder weather. _________________________________ (*) "Forward-looking" statements. Fuel Availability and Cost The Company actively manages its fuel costs by requiring drivers to fuel at Company terminals or, whenever possible en route, at service centers with which the Company has established volume purchasing arrangements. The Company controls fuel purchases by using its proprietary software and Qualcomm communications ability to schedule fueling stops and amounts purchased based upon fuel prices at locations on drivers' routes. The Company historically has been able to pass through most increases in fuel prices and taxes to customers in the form of higher rates and fuel surcharges. The Company has fuel surcharge agreements with a majority of its customers. However, the recent increases in fuel prices will not be fully offset by these surcharges. Year 2000 Compliance The Company has completed a review of each of its core systems to determine year 2000 compliance. The Company's billing, dispatch, EDI, fueling, payroll, telephone, vehicle maintenance, and yard and equipment inventory systems and all other critical hardware and software systems were designed to be year 2000 compliant from inception. The Company has also completed its review and assessment of the year 2000 compliance status of its facilities and equipment. All facilities and systems are year 2000 compliant with the possible exception of some older personal computers. These computers do not perform date critical job functions. The Company will continue to replace these units during the normal course of business.(*) In April 1999, the Company installed a new mainframe to handle its core operating systems. The Company acquired the new computer as part of its normal course of business. The prior machine continues to serve as a backup system. Both computers, peripherals and all operating software have been extensively tested by Company personnel and we believe all are year 2000 compliant.(*) The Company relies on Qualcomm to provide the satellite tracking system necessary to track the location of its equipment, and to provide dispatch and routing information to its drivers. The Company has been informed that the software utilized by Qualcomm and the Company is fully year 2000 compliant. The Company utilizes Comdata to transmit payroll funds to its drivers and to allow drivers to purchase fuel outside of the Company's terminal locations. The Company has been informed that the software and systems utilized by Comdata and the Company is fully year 2000 compliant. The Company also interacts with many of its vendors through electronic data interchange (EDI). The Company has received written assurances from its significant vendors and customers representing approximately 70% of its fiscal 1999 revenue that they will be year 2000 compliant. Although the Company is year 2000 compliant in its EDI applications, we cannot and do not guarantee the year 2000 compliance of our business partners' systems.(*) The Company has incurred internal staff costs necessary to review and further year 2000 compliance of its core operating systems. Because the systems were designed to be year 2000 compliant since inception, the costs have not had a material effect on the Company's financial position or results of operations. The Company also incurred additional internal staff time to complete its compliance review of non-core systems embedded in facilities and equipment. These non-core systems include microcontrollers contained in tractor engines and other components, refrigeration units, and terminal facilities. The costs of such review were not incremental since they represented the redeployment of existing information technology resources.(*) The Company believes that the most likely worse case scenario is the failure of some third party provided services. The Company anticipates that the risks related to its core and non-core systems will be mitigated by ongoing assessment and correction of the systems. The primary risk to operations is service disruption from third-party providers that supply satellite communication, telephone, fueling and financial services. Any disruption of these critical services would hinder the Company's ability to receive, process and track its freight or communicate with its customers and drivers.(*) _________________________________ (*) "Forward-looking" statements. A failure of the satellite communication system could have a materially adverse effect on the Company's business and results of operations. The Company is relying on the contingency plan established by Qualcomm to prevent the interruption of business. As an additional backup, the Company plans to use its existing telephone systems to dispatch its equipment and provide support to its drivers in the event of a complete satellite system failure. In the event of EDI failures on the part of our customers, the Company plans to use its telephone and facsimile system to receive load tenders from its customers. The Company would switch to paper invoices for its customers unable to use EDI. Management believes that the Company's current state of readiness, the nature of the Company's business, and the availability of the contingency plans minimizes year 2000 risks. Management does not foresee significant liability to third parties if the Company's systems are not year 2000 compliant.(*) Cautionary Statement Regarding Forward-Looking Statements The Company may from time-to-time make written or oral forward-looking statements. Written forward-looking statements may appear in documents filed with the Securities and Exchange Commission, in press releases, and in reports to stockholders. The Private Securities Litigation Reform Act of 1995 contains a safe harbor for forward-looking statements. The Company relies on this safe harbor in making such disclosures. In connection with this "safe harbor" provision, the Company is hereby identifying important factors that could cause actual results to differ materially from those contained in any forward-looking statement made by or on behalf of the Company. Factors that might cause such a difference include, but are not limited to the following: Economic Factors; Fuel Prices. Negative economic factors such as recessions, downturns in customers' business cycles, surplus inventories, inflation, and higher interest rates could impair the Company's operating results by decreasing equipment utilization or increasing costs of operations. Increases in fuel prices usually are not fully recoverable. Accordingly, high fuel prices can have a negative impact on the Company's profitability. Recruitment, Retention, and Compensation of Qualified Drivers. Competition for drivers is intense in the trucking industry. There is, and historically has been, an industry-wide shortage of qualified drivers. This shortage could force the Company to significantly increase the compensation it pays to drivers or curtail the Company's growth. Resale of Used Revenue Equipment. The Company historically has recognized a gain on the sale of its revenue equipment. The market for used equipment has experienced greater supply than demand in 1998 and 1999. If the resale value of the Company's revenue equipment were to decline, the Company could find it necessary to dispose of its equipment at lower prices or retain some of its equipment longer, with a resulting increase in operating expenses. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The principal market risks 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. The principal market risks (i.e., the risk of loss arising from adverse changes in market rates and prices) to which we are exposed are interest rates on our debt financing. Our variable rate debt consists of a revolving line of credit, an unsecured term loan and an equipment finance term loan carrying interest rates tied to LIBOR or the Eurodollar rate. These variable interest rates expose us to the risk that interest rates may rise. At September 30, 1999, assuming borrowing equal to the $10.0 million drawn on the line of credit and $4.7 million on other outstanding variable rate loans, a one _________________________________ (*) "Forward-looking" statements. percentage point increase in the LIBOR and Eurodollar rate would increase our annual interest expense by approximately $147,000. The balance of our equipment financing carries fixed interest rates and includes term notes payable and capitalized leases totaling approximately $7.0 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 $70,000 annually. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's audited financial statements, including its consolidated balance sheets and consolidated statements of operations, cash flows, and stockholders' equity, and notes related thereto, are included at pages 24 to 36 of this report. The supplementary quarterly financial data for fiscal years 1999 and 1998 follows: Quarterly Financial Data: Fourth Third Second First Quarter Quarter Quarter Quarter 1999 1999 1999 1999 ------------------ ---------------- ------------------- ---------------- Revenue $ 53,281 $ 53,599 $ 49,271 $ 52,992 Operating earnings (loss) (440) (1,058) (2,716) 369 Earnings (loss) before income taxes (782) (1,393) (3,097) 73 Provision (benefit) for income taxes (294) (527) (1,171) 27 Net earnings (loss) (486) (866) (1,926) 45 Diluted net earnings (loss) per share $ (0.08) $ (0.14) $ (0.32) $ 0.01 Fourth Third Second First Quarter Quarter Quarter Quarter 1998 1998 1998 1998 ------------------ ---------------- ------------------- ---------------- Revenue $ 50,296 $ 50,055 $ 46,149 $ 47,006 Operating earnings (loss) 945 (90) (2,105) 3,386 Earnings (loss) before income taxes 608 (435) (2,536) 2,997 Provision (benefit) for income taxes 286 (165) (959) 1,132 Net earnings (loss) 322 (270) (1,577) 1,864 Diluted net earnings (loss) per share $ 0.05 $ (0.04) $ (0.25) $ 0.29
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No reports on Form 8-K have been filed within the twenty-four months prior to September 30, 1999, involving a change of accountants or disagreements on accounting and financial disclosure. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information respecting executive officers and directors set forth under the captions "Election of Directors - Information Concerning Directors and Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" on pages 2, 3, and 7 of Registrant's Proxy Statement for the 1999 annual meeting of stockholders, which will be filed with the Securities and Exchange Commission in accordance with Rule 14a-6 promulgated under the Securities Exchange Act of 1934, as amended (the "Proxy Statement"), is incorporated by reference. Item 11. EXECUTIVE COMPENSATION The information respecting executive compensation set forth under the caption "Executive Compensation" on pages 5 and 6 of the Proxy Statement is incorporated herein by reference; provided, that the "Compensation Committee Report on Executive Compensation" contained in the Proxy Statement is not incorporated by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information respecting security ownership of certain beneficial owners and management set forth under the caption "Security Ownership of Principal Stockholders and Management" on page 9 of the Proxy Statement is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information respecting certain relationships and transactions of management set forth under the captions "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" on page 4 of the Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements. The Company's audited financial statements are set forth at the following pages of this report: Page Consolidated Statement of Financial Position.............................. 24 Consolidated Statement of Operations...................................... 25 Consolidated Statement of Stockholders' Equity............................ 26 Consolidated Statement of Cash Flows...................................... 27 Notes to Consolidated Financial Statements................................ 28 Report of Independent Public Accountants.................................. 37 2. Financial Statement Schedules. Financial statement schedules are not required because all required information is included in the financial statements. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the fourth quarter ended September 30, 1999. (c) Exhibits Number Description 3.1 + Articles of Incorporation. 3.2 + Bylaws. 4.1 + Articles of Incorporation. 4.2 + Bylaws. 10.1 + Outside Director Stock Option Plan. 10.2 + Incentive Stock Plan. 10.3 + 401(k) Plan. 10.4 # Loan Agreement(Headquarters Loan) dated May 23, 1996 between U.S. Bank of Utah and Dick Simon Trucking, Inc. 10.5 * Loan Agreement (Line of Credit) dated September 28, 1999 (replaced loan agreement dated April 29, 1996) between U.S. Bank of Utah and Simon Transportation Services Inc. 21 + List of subsidiaries. 23 * Consent of Arthur Andersen LLP, independent public accountants. 27 * Financial Data Schedule. _______________________________ + 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 Quarterly Report on Form 10-Q for the period ended June 30, 1996, Commission File No. 0-27208, dated August 9, 1996, and incorporated herein by reference. * Filed herewith SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIMON TRANSPORATION SERVICES, INC. Date: December 13, 1999 By: /s/ Alban B. Lang ----------------- ----------------- Alban B. Lang Treasurer, Chief Operating Officer and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Position Date --------- -------- ---- /s/ Richard D. Simon Chairman of the Board, President, and Chief December 13, 1999 - -------------------------------------- Richard D. Simon Executive Officer (principal executive officer) /s/ Alban B. Lang Treasurer, Chief Operating Officer and Chief December 13, 1999 - -------------------------------------- Alban B. Lang Financial Officer (principal financial and accounting officer); Director /s/ Kelle A. Simon Vice President of Maintenance; Director December 13, 1999 - -------------------------------------- Kelle A. Simon /s/ A. Lyn Simon Vice President of Sales and Marketing; Director December 13, 1999 - -------------------------------------- A. Lyn Simon /s/ Richard D. Simon, Jr. Vice President of Operations; Director December 13, 1999 - -------------------------------------- Richard D. Simon, Jr. /s/ Sherry L. Bokovoy Assistant Secretary/Treasurer; Director December 13, 1999 - -------------------------------------- Sherry L. Bokovoy /s/ Irene Warr Director December 13, 1999 - -------------------------------------- Irene Warr
SIMON TRANSPORTATION SERVICES INC. CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS September 30, ---------------------------------- 1999 1998 ---------------------------------- Current Assets: Cash $ 8,658,268 $ 7,826,365 Receivables, net of allowance for doubtful accounts of $285,000 and $189,000, respectively 22,862,685 20,250,931 Operating supplies 1,468,216 1,069,095 Income taxes receivable 1,656,338 2,593,105 Prepaid expenses and other 2,643,993 2,181,980 Current deferred income tax asset 1,066,786 762,463 ---------------------------------- Total current assets 38,356,286 34,683,939 ---------------------------------- Property and Equipment, at cost: Land 8,387,972 8,589,422 Revenue equipment 45,089,385 47,702,977 Buildings and improvements 18,484,326 18,350,370 Office furniture and equipment 8,889,433 8,573,389 ---------------------------------- 80,851,116 83,216,158 Less accumulated depreciation and amortization (23,203,536) (18,598,221) ---------------------------------- 57,647,580 64,617,937 ---------------------------------- Other Assets 726,140 867,121 ---------------------------------- $ 96,730,006 $ 100,168,997 ================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 7,459,577 $ 7,627,142 Current portion of capitalized lease obligations 1,855,675 2,030,988 Accounts payable 6,108,118 5,015,049 Accrued liabilities 3,419,629 3,188,405 Accrued claims payable 1,970,336 1,904,125 ---------------------------------- Total current liabilities 20,813,335 19,765,709 ---------------------------------- Long-Term Debt, net of current portion 11,718,580 9,102,649 ---------------------------------- Capitalized Lease Obligations, net of current portion 589,181 2,444,856 ---------------------------------- Deferred Income Taxes Payable 7,665,063 9,156,843 ---------------------------------- Commitments and Contingencies (Notes 2 and 6) Stockholders' Equity: Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued -- -- Class A common stock, $.01 par value, 20,000,000 shares authorized, 5,372,683 shares issued 53,727 53,727 Class B common stock, $.01 par value, 5,000,000 shares authorized, 913,751 shares issued 9,138 9,138 Additional paid-in capital 48,277,256 48,277,256 Treasury stock, 176,600 and 81,100 shares at cost (1,053,147) (531,547) Retained earnings 8,656,873 11,890,366 ---------------------------------- Total stockholders' equity 55,943,847 59,698,940 ---------------------------------- $ 96,730,006 $ 100,168,997 ================================== The accompanying notes to consolidated financial statements are an integral part of this consolidated financial statement.
SIMON TRANSPORTATION SERVICES INC. CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended September 30, ---------------------------------------------------------- 1999 1998 1997 ---------------------------------------------------------- Operating Revenue $209,143,336 $193,506,902 $155,296,354 ---------------------------------------------------------- Operating Expenses: Salaries, wages, and benefits 90,875,731 80,499,985 60,504,236 Fuel and fuel taxes 37,261,969 35,280,815 30,068,552 Operating supplies and expenses 27,872,046 26,155,797 19,288,560 Taxes and licenses 7,318,915 6,557,109 5,197,086 Insurance and claims 6,591,246 5,216,804 3,404,550 Communications and utilities 4,239,479 3,945,707 2,550,301 Depreciation and amortization 4,466,114 4,728,477 5,396,198 Rent 34,362,746 28,987,072 17,142,835 ---------------------------------------------------------- Total operating expenses 212,988,246 191,371,766 143,552,318 ---------------------------------------------------------- Operating earnings (loss) (3,844,910) 2,135,136 11,744,036 Other (Expense) Earnings: Gain on sale of real property -- -- 1,896,025 Interest expense (1,471,426) (1,818,100) (1,761,939) Other, net 117,794 317,644 627,769 ---------------------------------------------------------- Earnings (loss) before income taxes (5,198,542) 634,680 12,505,891 Provision (benefit) for income taxes (1,965,049) 296,536 4,727,227 ---------------------------------------------------------- Net Earnings (Loss) $ (3,233,493) $ 338,144 $ 7,778,664 ========================================================== Net earnings (loss) per common share Basic $ (0.53) $ 0.05 $ 1.36 Diluted $ (0.53) $ 0.05 $ 1.33 ========================================================== Weighted average common shares outstanding Basic 6,116,815 6,270,734 5,707,642 Diluted 6,116,815 6,270,734 5,864,043 ========================================================== The accompanying notes to consolidated financial statements are an integral part of this consolidated financial statement.
SIMON TRANSPORTATION SERVICES INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Class A Class B Additional Total Common Common Paid-in Treasury Retained Stockholders' Stock Stock Capital Stock Earnings Equity ------------------------------------------------------------------------- Balance, September 30, 1996 $ 28,705 $ 18,722 $ 25,282,496 $ -- $ 3,773,558 $ 29,103,481 Sale of 1,535,000 shares 24,445 (9,095) 22,903,411 22,918,761 of Class A Common Stock in secondary public offering, net of issuance costs Sale of 5,306 shares of 53 47,701 47,754 Class A Common Stock upon exercise of stock options Net earnings 7,778,664 7,778,664 ------------------------------------------------------------------------- Balance, September 30, 1997 53,203 9,627 48,233,608 -- 11,552,222 59,848,660 Sale of 48,910 shares of 489 (489) -- Class B Common Stock by major shareholder Sale of 3,460 shares of 35 43,648 43,683 Class A Common Stock upon exercise of stock options Purchase of 81,100 shares (531,547) (531,547) of Class A Common Stock Net earnings 338,144 338,144 ------------------------------------------------------------------------- Balance, September 30, 1998 53,727 9,138 48,277,256 (531,547) 11,890,366 59,698,940 Purchase of 95,500 shares (521,600) (521,600) of Class A Common Stock Net loss (3,233,493) (3,233,493) ------------------------------------------------------------------------- Balance, September 30, 1999 $ 53,727 $ 9,138 $ 48,277,256 $(1,053,147) $ 8,656,873 $ 55,943,847 ========================================================================= The accompanying notes to consolidated financial statements are an integral part of this consolidated financial statement.
SIMON TRANSPORTATION SERVICES INC. CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended September 30, ------------------------------------------------------- 1999 1998 1997 ------------------------------------------------------- Cash Flows From Operating Activities: Net earnings (loss) $ (3,233,493) $ 338,144 $ 7,778,664 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 4,466,114 4,728,477 5,396,198 Gain on sale of real property -- -- (1,896,025) Changes in operating assets and liabilities: Increase in receivables, net (2,611,754) (627,145) (6,361,812) Increase in operating supplies (399,121) (316,882) (324,090) Decrease (increase) in income taxes receivable 936,767 (3,224,881) (1,560,208) Increase in prepaid expenses and other (462,013) (623,057) (256,431) Increase in current deferred income tax asset (304,323) (127,436) (7,144) Decrease (increase) in other assets 140,981 (98,373) 192,195 Increase in accounts payable 1,093,069 1,421,629 1,901,521 Increase (decrease) in accrued liabilities 231,224 (136,874) 1,000,361 Increase (decrease) in accrued claims payable 66,211 1,153 (342,670) (Decrease) increase in deferred income taxes payable (1,491,780) 2,902,398 2,373,792 ------------------------------------------------------- Net cash provided by (used in) operating activities (1,568,118) 4,237,153 7,894,351 ------------------------------------------------------- Cash Flows From Investing Activities: Purchase of property and equipment (10,385,759) (12,936,744) (31,815,000) Proceeds from the sale of property and equipment 12,890,002 15,833,300 12,785,576 ------------------------------------------------------- Net cash provided by (used in) investing activities 2,504,243 2,896,556 (19,029,424) ------------------------------------------------------- Cash Flows From Financing Activities: Proceeds from issuance of long-term debt -- 2,900,000 15,894,391 Principal payments on long-term debt (7,551,634) (7,191,295) (13,198,750) Borrowings under line-of-credit agreement 10,000,000 -- -- Principal payments under capitalized lease obligations (2,030,988) (7,294,186) (7,332,513) Net proceeds from issuance of common stock -- 43,683 22,966,515 Purchase of treasury stock (521,600) (531,547) -- ------------------------------------------------------- Net cash provided by (used in) financing activities (104,222) (12,073,345) 18,329,643 ------------------------------------------------------- Net Increase (Decrease) In Cash 831,903 (4,939,636) 7,194,570 Cash at Beginning of Year 7,826,365 12,766,001 5,571,431 ------------------------------------------------------- Cash at End of Year $ 8,658,268 $ 7,826,365 $ 12,766,001 ======================================================= Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $ 1,471,426 $ 1,818,100 $ 1,761,939 Cash paid during the year for income taxes 32,486 153,461 4,631,593 The accompanying notes to consolidated financial statements are an integral part of this consolidated financial statement.
SIMON TRANSPORTATION SERVICES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) DESCRIPTION OF THE COMPANY, ACQUISITIONS, AND RECAPITALIZATION Simon Transportation Services Inc. was incorporated in Nevada on August 15, 1995 to acquire all of the outstanding capital stock of Dick Simon Trucking, Inc., a Utah corporation. The accompanying consolidated financial statements present the consolidated financial position and results of operations of Simon Transportation Services Inc. and Dick Simon Trucking, Inc., its wholly owned subsidiary (collectively, the "Company"). All intercompany accounts and transactions have been eliminated in consolidation. The Company is a truckload carrier that specializes in premium service, primarily through temperature-controlled transportation predominantly for major shippers in the U.S. food industry. Recapitalization On February 13, 1997, the Company completed a public offering of 2,530,000 shares of Class A Common Stock. Selling stockholders offered and received net proceeds for 995,000 of these shares (85,500 shares of Class A Common Stock and 909,500 shares of Class B Common Stock reclassified as Class A Common Stock upon completion of the offering). The sale of the 1,535,000 shares of Class A Common Stock offered by the Company generated net proceeds of $22,918,761 after deducting underwriting commissions and other expenses. A majority of the proceeds were used to purchase new revenue equipment. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Revenue Recognition and Significant Customers Freight charges and related direct freight expenses are recognized as revenue and operating expense when freight is delivered at a destination point. One customer accounted for approximately 11, 11, and 12 percent of operating revenue in fiscal years 1999, 1998, and 1997, respectively. At September 30, 1999, the Company had accounts receivable outstanding with this customer totaling $1,706,936. No other customer accounted for more than 10% of revenue during fiscal years 1999, 1998 and 1997. Operating Supplies Operating supplies consist primarily of tires, fuel and maintenance parts for revenue equipment which are stated at the lower of first-in, first-out (FIFO) cost or market value. Property and Equipment Property and equipment are recorded at cost and depreciated based on the straight-line method over their estimated useful lives, taking into consideration salvage values for purchased property and residual values for equipment held under capitalized leases. Leasehold improvements are amortized over the terms of the respective lease or the lives of the assets, whichever is shorter. Expenditures for routine maintenance and repairs are charged to operating expense as incurred. Major renewals and betterments are capitalized and depreciated over their estimated useful lives. Upon retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts, and any gain or loss is recorded as an adjustment to depreciation and amortization. Net gains from the disposition of equipment in the amounts of $2,131,460, $2,290,074, and $1,563,524 for fiscal years 1999, 1998, and 1997, respectively, have been included in depreciation and amortization in the accompanying statements of operations and cash flows. The estimated useful lives of property and equipment are as follows: Revenue equipment 3 - 7 years Buildings and improvements 30 years Office furniture and equipment 5 - 10 years Tires purchased as part of revenue equipment are capitalized as a cost of the equipment. Replacement tires are expensed when placed in service. Fair Value of Financial Instruments The carrying amounts reported in the accompanying consolidated statements of financial position for cash, accounts receivable, and accounts payable approximate fair values because of the immediate or short-term maturities of these financial instruments. The carrying amounts of the Company's long-term debt also approximate fair values based on current rates for similar debt. Quantitative and Qualitative Disclosures About Market Risk The principal market risks to which the Company is exposed are fluctuations 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. The principal market risks (i.e., the risk of loss arising from adverse changes in market rates and prices) to which we are exposed are interest rates on our debt financing. Our variable rate debt consists of a revolving line of credit, an unsecured term loan and an equipment finance term loan carrying interest rates tied to LIBOR or the Eurodollar rate. These variable interest rates expose us to the risk that interest rates may rise. At September 30, 1999, assuming borrowing equal to the $10.0 million drawn on the line of credit and $4.7 million on other outstanding variable rate loans, a one percentage point increase in the LIBOR and Eurodollar rate would increase our annual interest expense by approximately $147,000. The balance of our equipment financing carries fixed interest rates and includes term notes payable and capitalized leases totaling approximately $7.0 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 $70,000 annually. Insurance Coverage and Accrued Claims Payable The Company acts as a self-insurer for auto liability, tractor physical damage, trailer physical damage, and cargo damage claims subject to a "basket deductible" of $250,000 per occurrence. The Company acts as a self-insurer for workers' compensation claims up to $100,000 per single occurrence. Liability in excess of these amounts is assumed by the insurance underwriter up to applicable policy limits of $1,000,000 per occurrence. The Company maintains loss prevention programs in an effort to minimize this risk. The Company estimates and accrues a liability for its share of ultimate settlements using all available information to assist in establishing reserve levels for each occurrence based on the facts and circumstances of the occurrence coupled with the Company's past history of such claims. The Company accrues for workers' compensation and automobile liabilities when reported, typically the same day as the occurrence. Additionally, the Company accrues an estimated liability for incurred but not reported claims. Expense depends upon actual loss experience and changes in estimates of settlement amounts for open claims which have not been fully resolved. The Company provides for adverse loss developments in the period when new information so dictates. The Company had outstanding letters of credit related to insurance coverage totaling $1,700,000 at September 30, 1999. These letters of credit mature at various times through November 1999 and renew annually unless terminated by either party. Income Taxes The Company recognizes a liability or asset for the deferred tax consequences of all temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled. Net Earnings (Loss) Per Common Share Basic net earnings (loss) per common share (Basic EPS) excludes dilution and is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the fiscal year. Diluted net earnings (loss) per common share (Diluted EPS) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an antidilutive effect on net earnings (loss) per common share. Following is a reconciliation of the numerator and denominator of Basic EPS to the numerator and denominator of Diluted EPS for fiscal years 1999, 1998 and 1997: 1999 1998 1997 ================================================ Numerator: Net earnings (loss) $ (3,233,493) $ 338,144 $ 7,778,664 ================================================ Denominator: Weighted average common shares outstanding 6,116,815 6,270,734 5,707,642 Effect of options -- -- 156,401 ================================================ 6,116,815 6,270,734 5,864,043 ================================================ Basic EPS $ (0.53) $ 0.05 $ 1.36 Diluted EPS $ (0.53) $ 0.05 $ 1.33
Options to purchase 1,008,350 and 717,130 shares of common stock at weighted average exercise prices of $14.34 and $18.05 as of September 30, 1999 and 1998, respectively, were not included in the computation of Diluted EPS. The inclusion of the options would have been antidilutive, thereby increasing net earnings per common share or decreasing net loss per common share. Segment Reporting The Company has adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." This statement requires disclosures related to components of a company for which separate financial information is available that is evaluated regularly by the Company's chief operating decision maker in deciding how to allocate resources and assess performance. Management believes that the Company has only one operating segment in accordance with SFAS No. 131. (3) INCOME TAXES The provision (benefit) for income taxes includes the following components for the years ended September 30, 1999, 1998 and 1997: 1999 1998 1997 --------------------------------------------------------- Current income tax provision (benefit): Federal $ (333,900) $ (2,100,924) $ 1,993,941 State 164,957 (377,502) 366,638 --------------------------------------------------------- (168,943) (2,478,426) 2,360,579 --------------------------------------------------------- Deferred income tax provision (benefit): Federal (1,331,839) 2,352,293 2,062,976 State (464,267) 422,669 303,672 --------------------------------------------------------- (1,796,106) 2,774,962 2,366,648 --------------------------------------------------------- Provision (benefit) for income taxes $ (1,965,049) $ 296,536 $ 4,727,227 =========================================================
The following is a reconciliation between the statutory Federal income tax rate of 34 percent and the effective rate which is derived by dividing the provision (benefit) for income taxes by earnings (loss) before income taxes for the years ended September 30, 1999, 1998 and 1997: 1999 1998 1997 --------------------------------------------------------- Computed "expected" provision (benefit) for income taxes at the statutory rate $ (1,767,504) $ 215,791 $ 4,252,003 Increase (decrease) in income taxes Resulting from: State income taxes, net of federal income tax benefit (197,545) 24,118 479,466 Other, net -- 56,627 (4,242) --------------------------------------------------------- Provision (benefit) for income taxes $ (1,965,049) $ 296,536 $ 4,727,227 =========================================================
The significant components of the net deferred income tax assets and liabilities as of September 30, 1999 and 1998 are as follows: 1999 1998 ------------------ ------------------ Deferred income tax assets: Accrued claims payable $ 397,259 $ 279,270 Other reserves and accruals 669,527 483,193 ------------------ ------------------ Total deferred income tax assets 1,066,786 762,463 ------------------ ------------------ Deferred income tax liabilities: Difference between book and tax basis of property and equipment (9,557,866) (9,156,843) AMT credit carryforward 1,017,279 -- Federal net operating loss carryforward 396,533 -- State net operating loss carryforward 478,991 -- ------------------ ------------------ Total deferred income tax liabilities (7,665,063) (9,156,843) ------------------ ------------------ Net deferred income tax liabilities $ (6,598,277) $ (8,394,380) ================== ==================
(4) LONG-TERM DEBT Long-term debt consists of the following as of September 30, 1999 and 1998: 1999 1998 ------------------------------------ Notes payable to a bank, interest ranging from 6.24 percent to 7.20 percent, $ 4,507,051 $ 7,281,476 payable in monthly installments through April 2001, secured by revenue equipment Note payable to a bank, interest based on Eurodollar rate (6.19 percent at 4,022,222 8,410,101 September 30, 1999), payable in monthly installments through August 2000, unsecured Note payable to a bank, interest based on Eurodollar rate (6.39 percent at 648,884 1,038,214 September 30, 1999), payable in monthly installments through May 2001, secured by revenue equipment Line of credit payable to a bank, interest based on Eurodollar rate (7.14 10,000,000 -- percent at September 30, 1999), interest payable monthly, principle due September 2002, secured by accounts receivable (see description below) ------------------------------------ 19,178,157 16,729,791 Less current portion (7,459,577) (7,627,142) ------------------------------------ $ 11,718,580 $ 9,102,649 ====================================
Scheduled principal payments of long-term debt as of September 30, 1999 are as follows: Years Ending September 30, Amount - ------------------------------------------------------ ------------------- 2000 $ 7,459,577 2001 1,718,580 2002 10,000,000 ------------------- $ 19,178,157 =================== The Company has a secured line of credit that provides for maximum borrowings of $20,000,000 with a bank through September 30, 2002. Borrowings under the line of credit are secured with accounts receivable and are limited to a portion of the book value of accounts receivable. As of September 30, 1999, the Company had drawn $10,000,000 on this line of credit, had $1,700,000 of outstanding letters of credit, and had $3,906,181 of additional availability under the agreement. Certain of the Company's long-term debt agreements contain various restrictive covenants including maximum debt to tangible net worth and minimum tangible net worth requirements. As of September 30, 1999, the Company was in compliance with all covenants under the loan agreements. (5) CAPITALIZED LEASE OBLIGATIONS Certain revenue equipment is leased under capitalized lease obligations. The following is a summary of assets held under capital lease agreements: September 30, ---------------------------------------------- 1999 1998 ---------------------------------------------- Revenue equipment $ 5,987,377 $ 9,114,812 Less accumulated amortization (2,514,305) (3,884,564) ---------------------------------------------- $ 3,473,072 $ 5,230,248 ============================================== The following is a schedule by year of future minimum lease payments under capitalized leases together with the present value of the minimum lease payments at September 30, 1999: Years Ending September 30, Amount - --------------------------------------------------- -------------------- 2000 $ 1,999,424 2001 596,850 -------------------- Total minimum lease payments 2,596,274 Less amount representing interest (151,418) -------------------- Present value of minimum lease payments 2,444,856 Less current portion (1,855,675) -------------------- $ 589,181 ==================== (6) COMMITMENTS AND CONTINGENCIES Operating Leases The Company is committed under noncancelable operating leases involving certain revenue equipment. Rent expense for noncancelable operating leases was $31,767,339, $25,343,111, and $15,595,123 for fiscal years 1999, 1998, and 1997, respectively. Aggregate future lease commitments are $26,360,171, $19,488,708, $9,495,805, $2,176,144, and $183,239 for the years ending September 30, 2000, 2001, 2002, 2003, and 2004, respectively. Orders for Revenue Equipment As of September 30, 1999, the Company had placed orders for fiscal years 2000 and 2001 to purchase revenue equipment at an estimated total purchase price of $82.5 million. The revenue equipment is to be delivered during fiscal years 2000 and 2001. Approximately $52.3 million of the new revenue equipment will be used to replace older revenue equipment and the balance represents incremental additions to the Company's fleet. These orders may be canceled by the Company without penalty upon written notification any time prior to 85 days before the revenue equipment's scheduled delivery. 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. The Company intends to vigorously defend this action. While management believes, after discussion with legal counsel and its Directors and Officers Insurance carrier, that the ultimate outcome of this matter will not have a significant effect on the Company's financial position and results of operations, it is possible that a change in the Company's estimate of probable liability could occur. 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 results of operations or financial position. (7) CAPITAL TRANSACTIONS AND STOCK PLANS Preferred Stock The Company is authorized to issue 5,000,000 shares of preferred stock from time to time in one or more series without stockholder approval. No shares of preferred stock are presently outstanding. The Board of Directors is authorized, without any further action by the stockholders of the Company, to (a) divide the preferred stock into series, (b) designate each such series, (c) fix and determine dividend rights, (d) determine the price, terms and conditions on which shares of preferred stock may be redeemed, (e) determine the amount payable to holders of preferred stock in the event of voluntary or involuntary liquidation, (f) determine any sinking fund provisions, and (g) establish any conversion privileges. Treasury Stock The Company's Board of Directors authorized a stock repurchase program under which management may reacquire up to 500,000 shares of the Company's Class A Common Stock. During fiscal years 1999 and 1998, the Company repurchased 95,500 and 81,100 shares of Class A Common Stock, respectively, at an average price of $5.96 per share, for a total cash outlay of $1,053,147. The stock repurchase program expired September 30, 1999. Incentive Stock Plan On May 31, 1995, the Company's Board of Directors and stockholders approved and adopted the Dick Simon Trucking, Inc. Incentive Stock Plan (the "Plan"). The Plan reserves 1,000,000 shares of Class A Common Stock for issuance thereunder. The Board of Directors or its designated committee administers the Plan and has the discretion to determine the employees and officers who will receive awards, the type of awards (incentive stock options, non-statutory stock options, restricted stock awards, reload options, other stock based awards, and other benefits) to be granted and the term, vesting provisions and exercise prices. Non-Officer Incentive Stock Plan On December 18, 1998, the Company's Board of Directors approved and adopted the Simon Transportation Services Inc. 1998 Non-Officer Incentive Stock Plan (the "1998 Plan"). The 1998 Plan reserves 400,000 shares of Class A Common Stock for issuance thereunder. The Board of Directors or its designated committee administers the Plan and has the discretion to determine the employees who will receive awards, the type of awards (incentive stock options, non-statutory stock options, restricted stock awards, reload options, other stock based awards, and other benefits) to be granted and the term, vesting provisions and exercise prices. Outside Director Stock Plan On August 16, 1995, the Company adopted an Outside Director Stock Plan, under which each director who is not an employee of the Company will receive an annual option to purchase 1,000 shares of the Company's Class A Common Stock at 85% of the market price at the grant date. The Company has reserved 25,000 shares of Class A Common Stock for issuance under the Outside Director Stock Plan. The following table summarizes the combined stock option activity for all plans for fiscal years 1997, 1998 and 1999: Weighted Average Number of Exercise Price Per Options Price Range Share --------------- -------------------- -------------------- Outstanding at September 30, 1996 227,700 $ 9.00 $ 9.00 Granted 141,000 13.70 - 16.00 15.97 Exercised (5,306) 9.00 9.00 Forfeited (14,160) 9.00 9.00 --------------- -------------------- -------------------- Outstanding at September 30, 1997 349,234 9.00 - 16.00 11.79 Granted 386,500 14.50 - 23.50 23.26 Exercised (3,460) 9.00 9.00 Forfeited (15,144) 9.00 - 16.00 9.18 --------------- -------------------- -------------------- Outstanding at September 30, 1998 717,130 9.00 - 23.50 18.05 Granted 373,000 4.25 - 5.50 5.50 Exercised -- -- -- Forfeited (81,780) 5.50 - 16.00 6.74 --------------- -------------------- -------------------- Outstanding at September 30, 1999 1,008,350 $ 4.25 - 23.50 $ 14.34 =============== ==================== ====================
The weighted average fair value of options granted during the years ended September 30, 1999, 1998 and 1997 was $3.23, $10.12 and $6.97, respectively. A summary of the options outstanding and options exercisable at September 30, 1999 is as follows:
Options Outstanding Options Exercisable - ------------------------------------------------------------------------------ -------------------------------------- Weighted Average Range of Exercise Options Remaining Weighted Average Options Weighted Average Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price - -------------------- ------------------ ------------------- ------------------ ------------------ ------------------- $ 4.25 - 5.50 310,000 9.23 years $ 5.49 -- $ -- 5.51 - 15.00 177,850 5.65 years 9.10 141,980 9.08 15.01 - 20.00 140,500 7.19 years 16.05 57,100 16.13 20.01 - 23.50 380,000 8.22 years 23.38 77,000 23.38 ==================== ================== =================== ================== ================== =================== $ 4.25 - 23.50 1,008,350 7.93 years $ 14.34 276,080 $ 14.52 ==================== ================== =================== ================== ================== ===================
Stock-Based Compensation The Company has elected to continue to apply Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans as they relate to employees and directors. SFAS No. 123, "Accounting for Stock-Based Compensation," requires pro forma information regarding net earnings (loss) as if the Company had accounted for its stock options granted to employees and directors subsequent to September 30, 1995 under the fair value method of SFAS No. 123. The fair value of these stock options was estimated at the grant date using the Black-Scholes option pricing model with the following assumptions: average risk-free interest rates of 4.79%, 5.77%, and 6.15% in fiscal years 1999, 1998 and 1997, respectively, a dividend yield of 0%, weighted average volatility factors of the expected common stock price of 54.9% for fiscal year 1999, 24.6% for fiscal year 1998 and 25.4% for fiscal year 1997, and weighted average expected lives for the stock options of approximately 8.0 years for fiscal year 1999, 7.4 years for fiscal year 1998 and 9.7 years for fiscal year 1997. For purposes of pro forma disclosures, the estimated fair value of the stock options is amortized over the vesting period of the respective stock options. Under the fair value method of SFAS No. 123, pro forma net (loss) earnings would have been ($4,329,975), ($479,122), and $7,618,831, and pro forma diluted net (loss) earnings per share would have been ($0.71), ($0.08), and $1.30 for the fiscal years ended September 30, 1999, 1998, and 1997, respectively. (8) EMPLOYEE BENEFIT PLAN The Company has adopted a defined contribution plan, the Dick Simon Trucking, Inc. 401(k) Profit Sharing Plan (the "401(k) Plan"). All employees who have completed one year of service and have reached age 21 are eligible to participate in the 401(k) Plan. Under the 401(k) Plan, employees are allowed to make contributions of up to 15 percent of their annual compensation; the Company may make matching contributions equal to a discretionary percentage, to be determined by the Company, of the employee's salary reductions. The Company may also make additional discretionary contributions to the 401(k) Plan. All amounts contributed by a participant are fully vested at all times. The participant becomes 20 percent vested in any matching or discretionary contributions after two years of service. This vesting percentage increases to 100 percent after six years of service. During fiscal years 1999, 1998, and 1997, the Company contributed $320,438, $351,829, and $301,078, respectively, to the 401(k) Plan. (9) QUARTERLY FINANCIAL DATA (UNAUDITED) Fourth Third Second First Quarter Quarter Quarter Quarter 1999 1999 1999 1999 ------------------ ---------------- ------------------- ---------------- Revenue $ 53,281 $ 53,599 $ 49,271 $ 52,992 Operating earnings (loss) (440) (1,058) (2,716) 369 Earnings (loss) before income taxes (782) (1,393) (3,097) 73 Provision (benefit) for income taxes (294) (527) (1,171) 27 Net earnings (loss) (486) (866) (1,926) 45 Diluted net earnings (loss) per share $ (0.08) $ (0.14) $ (0.32) $ 0.01 Fourth Third Second First Quarter Quarter Quarter Quarter 1998 1998 1998 1998 ------------------ ---------------- ------------------- ---------------- Revenue $ 50,296 $ 50,055 $ 46,149 $ 47,006 Operating earnings (loss) 945 (90) (2,105) 3,386 Earnings (loss) before income taxes 608 (435) (2,536) 2,997 Provision (benefit) for income taxes 286 (165) (959) 1,132 Net earnings (loss) 322 (270) (1,577) 1,864 Diluted net earnings (loss) per share $ 0.05 $ (0.04) $ (0.25) $ 0.29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Simon Transportation Services Inc.: We have audited the accompanying consolidated statement of financial position of Simon Transportation Services Inc. (a Nevada corporation) and subsidiary as of September 30, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Simon Transportation Services Inc. and subsidiary as of September 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1999 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Salt Lake City, Utah October 15, 1999 EX-23 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated October 15, 1999 included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8, file numbers 333-43763, 33-80389, 33-80391, and 33-80409. /s/ Arthur Andersen LLP Salt Lake City, Utah December 9, 1999 EX-27 3 FINANCIAL DATA SCHEDULE
5 YEAR SEP-30-1999 SEP-30-1999 8,658,268 0 23,148,037 (285,352) 576,863 38,356,286 80,851,116 (23,203,536) 96,730,006 20,813,335 12,307,761 0 0 62,865 55,880,982 96,730,006 0 209,143,336 0 212,988,246 0 0 1,471,426 (5,198,542) (1,965,049) (3,233,493) 0 0 0 (3,233,493) (0.53) (0.53)
EX-99 4 CREDIT AND SECURITY AGREEMENT CREDIT AND SECURITY AGREEMENT THIS AGREEMENT is made as of September 28, 1999, by and between U.S. BANK NATIONAL ASSOCIATION, a national banking association (the "Lender"), and SIMON TRANSPORTATION SERVICES INC., a Nevada corporation ("Simon") and DICK SIMON TRUCKING, INC., a Utah corporation ("Trucking")(together, the "Borrowers" and each a "Borrower"). In consideration of the mutual agreements herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.1 Definitions. In addition to terms defined elsewhere in this Agreement or any Supplement, Exhibit or Schedule hereto, the following terms shall have the following respective meanings (and such meanings shall be equally applicable to both the singular and plural forms of the terms defined, as the context may require): "Account Debtor": Any Person who is or who may become obligated to any Borrower under, with respect to, or on account of an Account Receivable, General Intangible or other Collateral. "Account Receivable": Any account of a Borrower and any other right of a Borrower to payment for goods sold or leased or for services rendered, whether or not evidenced by an instrument or chattel paper and whether or not yet earned by performance. "Accounts Receivable Availability": The term "Accounts Receivable Availability" shall have the meaning given such term in Supplement A. "Advance": The portion of the outstanding Loans bearing interest at an identical rate for an identical Interest Period, provided that all Reference Rate Advances which constitute Loans shall be deemed a single Advance. An Advance may be a "Eurodollar Advance" or a "Reference Rate Advance" (each, a "type" of Advance). "Adverse Event": The occurrence of any event that could have a material adverse effect on the business, operations, property, assets or condition (financial or otherwise) of any Borrower or any Borrower and its Subsidiaries as a consolidated enterprise or on the ability of any Borrower or any other Obligor to perform its obligations under the Loan Documents. "Affiliate": Any Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Lender. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of stock, by contract or otherwise. "Agreement": This Credit and Security Agreement, as it may be amended, modified, supplemented, restated or replaced from time to time. "Applicable Margin": The percentage set forth in Section 3.1(c) of Supplement A. "Attorneys' Fees": The value of the services (and costs, charges and expenses related thereto) of the attorneys employed by the Lender (including, without limitation, attorneys and paralegals who are employees of the Lender or any Affiliate) from time to time (a) in connection with the negotiation, preparation, execution, delivery, administration and enforcement of the Loan Documents, (b) to prepare documentation related to the Loans and other Obligations, (c) to represent the Lender in any litigation, contest, dispute, suit or proceeding or to commence, defend or intervene in any litigation contest, dispute, suit or proceeding or to file a petition, complaint, answer, motion or other pleading, or to take any other action in or with respect to, any litigation, contest, dispute, suit or proceeding (whether instituted by the Lender, any Borrower or any other Person and whether in bankruptcy or otherwise) in any way or respect relating to the Collateral, any Third Party Collateral, the Loan Documents, or any Borrower's or any other Obligor's or any Subsidiary's affairs, (d) to protect, collect, lease, sell, take possession of, or liquidate any of the Collateral or any Third Party Collateral, (e) to attempt to enforce any security interest in any of the Collateral or any Third Party Collateral or to give any advice with respect to such enforcement, and (f) to enforce any of the Lender's rights to collect any of the Obligations. "Borrowing Base": The term "Borrowing Base" shall have the meaning given such term in Supplement A. "Borrowing Base Certificate": The term "Borrowing Base Certificate" shall have the meaning given such term in Section 2.5(c). "Business Day": Any day (other than a Saturday, Sunday or legal holiday in the State of Minnesota) on which Lender is open and carrying on business transactions of the type contemplated by this Agreement and, with respect to Eurodollar Advances, a day on which dealings in United States Dollars may be carried on by the Lender in the interbank eurodollar market. "Capital Expenditure": Any amount debited to the fixed asset account on the consolidated balance sheet of a Borrower in respect of (a) the acquisition (including, without limitation, acquisition by entry into a Capitalized Lease), construction, improvement, replacement or betterment of land, buildings, machinery, equipment or of any other fixed assets or leaseholds, and (b) to the extent related to and not included in clause (a), materials, contract labor and direct labor (excluding expenditures properly chargeable to repairs or maintenance in accordance with GAAP). "Capitalized Lease": Any lease which is or should be capitalized on the books of the lessee in accordance with GAAP. "Code": The Internal Revenue Code of 1986, as amended, or any successor statute, together with the regulations thereunder. "Collateral": The term "Collateral" shall have the meaning given such term in Section 3.1. "Collateral Account": The term "Collateral Account" shall have the meaning given such term in Section 3.2(b). "Controlled Disbursement Account": The term "Controlled Disbursement Account" shall have the meaning given such term in Section 2.3(c). "Credit": The facility established under this Agreement pursuant to which the Lender will make Loans to the Borrowers or issue, or cause any Affiliate to issue, Letters of Credit for the account of either Borrower. "Credit Amount": The term "Credit Amount" shall have the meaning given such term in Supplement A. "Daily Unused Credit Amount": For any date of determination, the amount obtained by subtracting from the Credit Amount (determined as of (i) the last day of the month in which such date falls, or (ii) the date the Credit is terminated if the Credit terminates on a day other than the last day of a month) the sum of (a) the outstanding principal balance of Loans on such date plus (b) the Letter of Credit Obligations on such date. "Default Rate": The term "Default Rate" shall have the meaning given such term in Supplement A. "Determination Date" The earlier of (a) the date of commencement of a case under Title 11 of the United States Code in which any Borrower is a debtor, or (b) the date enforcement hereunder is sought with respect to any Borrower. "Disbursement Account": The term "Disbursement Account" shall have the meaning given such term in Section 2.3(b). "Eligible Account Receivable": An Account Receivable owing to a Borrower which meets the following requirements: (a) it is genuine and in all respects what it purports to be; (b) it arises from either (i) the performance of services by such Borrower, which services have been fully performed and, if applicable, acknowledged and/or accepted by the Account Debtor with respect thereto; or (ii) the sale or lease of goods by such Borrower and (A) such goods comply with such Account Debtor's specifications (if any) and have been shipped to, or delivered to and accepted by, such Account Debtor, (B) such Borrower has possession of, or has delivered to the Lender, at the Lender's request, shipping and delivery receipts evidencing such shipment, delivery and acceptance, and (C) such goods have not been returned to such Borrower; (c) it (i) is evidenced by an invoice rendered to the Account Debtor with respect thereto which (A) is dated not earlier than the date of shipment or performance and (B) has payment terms not unacceptable to the Lender; and (ii) meets the Eligible Account Receivable requirements set forth in Supplement A; (d) it is not subject to any assignment, claim or Lien other than (i) a first priority Lien in favor of the Lender and (ii) Liens consented to by the Lender in writing; (e) it is a valid, legally enforceable and unconditional obligation of the Account Debtor with respect thereto and is not subject to setoff, counterclaim, credit or allowance (except any credit or allowance which has been deducted in computing the net amount of the applicable invoice as shown in the original schedule or Borrowing Base Certificate furnished to the Lender identifying or including such Account Receivable) or adjustment by the Account Debtor with respect thereto, or to any claim by such Account Debtor denying liability thereunder in whole or in part, and such Account Debtor has not refused to accept any of the goods or services which are the subject of such Account Receivable or offered or attempted to return any of such goods; (f) there are no proceedings or actions which are then threatened or pending against the Account Debtor with respect thereto or to which such Account Debtor is a party which might result in any material adverse change in such Account Debtor's financial condition or in its ability to pay any Account Receivable in full when due; (g) it does not arise out of a contract or order which, by its terms, forbids, restricts or makes void or unenforceable the assignment by such Borrower to the Lender of such Account Receivable; (h) the Account Debtor with respect thereto is not a Subsidiary, Related Party or Obligor, or a director, officer, employee or agent of either Borrower, a Subsidiary, Related Party or Obligor; (i) the Account Debtor with respect thereto is a resident or citizen of and is located within the United States of America unless the sale of goods giving rise to such Account Receivable is on letter of credit, banker's acceptance or other credit support terms satisfactory to the Lender; (j) it does not arise from a "sale on approval," "sale or return" or "consignment," nor is it subject to any other repurchase or return agreement; (k) it is not an Account Receivable with respect to which possession and/or control of the goods sold giving rise thereto is held, maintained or retained by any such Borrower, any Subsidiary, Related Party or Obligor (or by any agent or custodian of anysuch Borrower, any Subsidiary, Related Party or Obligor) for the account of or subject to further and/or future direction from the Account Debtor with respect thereto; (l) it does not, in any way, violate or fail to meet any warranty, representation or covenant contained in the Loan Documents relating directly or indirectly to either Borrower's Accounts Receivable; (m) (Reserved); (n) it arises in the ordinary course of such Borrower's business; (o) if the Account Debtor with respect thereto is the United States of America or any department, agency or instrumentality thereof (a "Federal Governmental Authority"), or any state, county or local governmental authority, or any department, agency or instrumentality thereof, such Borrower has assigned its right to payment of such Account Receivable to the Lender pursuant to the Assignment of Claims Act of 1940 as amended in the case of the a Federal Governmental Authority, or pursuant to applicable state law, if any, in all other instances, and such assignment has been accepted and acknowledged by the appropriate government officers; (p) if the Lender, in its sole and absolute discretion, has established a credit limit for the Account Debtor with respect thereto, the aggregate dollar amount of Accounts Receivable due from such Account Debtor, including such Account Receivable, does not exceed such credit limit; and (q) if it is evidenced by chattel paper or instruments, (i) the Lender shall have specifically agreed to include such Account Receivable as an Eligible Account Receivable, (ii) only payments then due and payable under such chattel paper or instrument shall be included as an Eligible Account Receivable and (iii) the originals of such chattel paper or instruments have been assigned and delivered to the Lender in a manner satisfactory to the Lender. An Account Receivable which is at any time an Eligible Account Receivable but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be an Eligible Account Receivable. Further, with respect to any Account Receivable, if the Lender at any time or times hereafter determines, in its sole and absolute discretion, that the prospect of payment or performance by the Account Debtor with respect thereto is or will be impaired for any reason whatsoever, notwithstanding anything to the contrary contained above, such Account Receivable shall forthwith cease to be an Eligible Account Receivable. "Environmental Laws": The Resource Conservation and Recovery Act of 1987, the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "superfund" or "superlien" law, the Toxic Substances Control Act, and any other federal, state or local statue, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning any Hazardous Materials or other hazardous, toxic or dangerous waste, substance or constituent, or other substance, whether solid, liquid or gas, as now or at any time hereafter in effect. "Environmental Lien": A Lien in favor of any governmental entity for (a) any liability under any Environmental Law, or (b) damages arising from or costs incurred by such governmental entity in response to a spillage, disposal, or release into the environment of any Hazardous Material or other hazardous, toxic or dangerous waste, substance or constituent, or other substance. "Equipment": All equipment of the Borrowers or any of them of every description, including, without limitation, fixtures, furniture, vehicles and trade fixtures, together with any and all accessions, parts and equipment attached thereto or used in connection therewith, and any substitutions therefor and replacements thereof. "ERISA": The Employee Retirement Income Security Act of 1974, as amended, or any successor statute, together with the regulations thereunder. "ERISA Affiliate": Any trade or business (whether or not incorporated) that is a member of a group of which aeither Borrower is a member and which is treated as a single employer under Section 414 of the Code. "Eurodollar Advance": An Advance designated as such in a notice of borrowing under Section 2.5(a) or a notice of continuation or conversion under Section 2.5(e). "Eurodollar Interbank Rate": The average offered rate for deposits in United States Dollars (rounded upwards, if necessary, to the nearest 1/16 of 1%), for delivery of such deposits on the first day of an Interest Period of a Eurodollar Advance, for the number of days comprised therein, which appears on the Reuters Screen LIBO Page as of 11:00 a.m., London time (or such other time as of which such rate appears) on the day that is two Business Days preceding the first day of the Interest Period or the rate for such deposits determined by the Lender at such time based on such other published service of general application as shall be selected by the Lender for such purpose; provided, that in lieu of determining the rate in the foregoing manner, the Lender may determine the rate based on rates offered to Lender for deposits in United States Dollars (rounded upwards if necessary to the nearest 1/16 of 1%) in the interbank eurodollar market at such time for delivery on the first day of the Interest Period for the number of days comprised therein. "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuter Monitor Money Rates Service (or such other page as may replace the LIBO Page on that service for the purpose of displaying London interbank offered rates of major banks for United States Dollar deposits). "Eurodollar Rate (Reserve Adjusted)": A rate per annum (rounded upward, if necessary, to the nearest 1/16th of 1%) calculated for the Interest Period of a Eurodollar Advance in accordance with the following formula: ERRA = Eurodollar Interbank Rate 1.00 - ERR In such formula, "ERR" means "Eurodollar Reserve Rate" and "ERRA" means "Eurodollar Rate (Reserve Adjusted)", in each instance determined by the Lender for the applicable Interest Period. The Lender's determination of all such rates for any Interest Period shall be conclusive in the absence of manifest error. "Eurodollar Reserve Rate": A percentage equal to the daily average during such Interest Period of the aggregate maximum reserve requirements (including all basic, supplemental, marginal and other reserves), (a) specified under Regulation D of the Federal Reserve Board, or any other applicable regulation that prescribes reserve requirements applicable to Eurocurrency liabilities (as presently defined in Regulation D) and/or (b) applicable to extensions of credit by the Lender, the rate of interest on which is determined with regard to rates applicable to eurocurrency liabilities. Without limiting the generality of the foregoing, the Eurocurrency Reserve Rate shall reflect any reserves required to be maintained by the Lender against (i) any category of liabilities that includes deposits by reference to which the Eurodollar Interbank Rate is to be determined, or (ii) any category of extensions of credit or other assets that includes Eurodollar Advances. "Event of Default": The term "Event of Default" shall have the meaning given such term in Section 7.1. "Federal Reserve Board": The Board of Governors of the Federal Reserve System or any successor thereto. "Fraudulent Conveyance": A fraudulent conveyance or fraudulent transfer under Section 548 of Title 11 of the United States Code or a fraudulent conveyance or fraudulent transfer under the provisions of any applicable fraudulent conveyance or fraudulent transfer law or similar law of any state, province, nation, or other governmental unit, as in effect from time to time. "GAAP": Generally accepted accounting principles promulgated by the Financial Accounting Standards Board, as applied in the preparation of the audited financial statement of the Borrower referred to in Section 4.6. "General Intangibles": All intangible personal property of the Borrowers or any of them including things in action, causes of action and all other personal property of the Borrowers or any of them of every kind and nature (other than goods, accounts, chattel paper, documents, instruments and money) including, without limitation, corporate or other business records, inventions, designs, patents, patent applications, trademarks, trademark applications, trade names, trade secrets, goodwill, copyrights, registrations, leases, licenses, franchises, customer lists, tax refund claims, claims against carriers and shippers, guarantee claims, security interests, security deposits or other security held by or granted to the Borrowers or any of them to secure payment by an Account Debtor of any of the Accounts Receivable, any other rights to payment, including, without limitation, rights to reimbursement or indemnification, and any other rights of whatsoever nature, whether earned or unearned. "Guaranteed Obligations": The term "Guaranteed Obligations shall have the meaining given such term in Section 12.16. "Hazardous Materials": Any hazardous substance or pollutant or contaminant defined as such in (or for the purposes of) any Environmental Law including, without limitation, petroleum and petroleum products, including crude oil or any fraction thereof which is liquid at standard conditions of temperature or pressure (60 degrees Fahrenheit and 14.7 pounds per square inch absolute), any radioactive material, including any source, special nuclear or by-product material as defined at 42 U.S.C. section 2011 et. seq., as amended or hereafter amended, and asbestos in any form or condition. "Indebtedness": Without duplication, all obligations, contingent or otherwise, which in accordance with GAAP should be classified upon the Person's balance sheet as liabilities, but in any event including the following (whether or not they should be classified as liabilities upon such balance sheet): (a) any obligation secured by any mortgage, pledge, security interest, lien, charge or other encumbrance existing on property owned or acquired subject thereto, whether or not such obligation shall have been assumed and whether or not such obligation is the obligation of the owner or another party; (b) any obligation on account of deposits or advances; (c) any obligation for the deferred purchase price of any property or services, except accounts payable arising in the ordinary course of business; (d) any obligation as lessee under any Capitalized Lease; (e) any guaranty, endorsement or other contingent obligation in respect to indebtedness of others; and (f) any undertaking or agreement to reimburse or indemnify issuers of letters of credit. For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer. "Indemnified Liabilities": The term "Indemnified Liabilities" shall have the meaning given such term in Section 10.2. "Indemnitees": The term "Indemnitees" shall have the meaning given such term in Section 10.2. "Interest Period": For any Eurodollar Advance, the period commencing on the borrowing date of such Eurodollar Advance or the date a Reference Rate Advance is converted into such Eurodollar Advance, or the last day of the preceding Interest Period for such Eurodollar Advance if a Eurodollar Advance is continued, as the case may be, and ending on the numerically corresponding day one, two, three or six months thereafter, as selected by the Borrower pursuant to Section 2.5; provided, that: (i) any Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day unless such next succeeding Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; (ii) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period shall extend beyond the Termination Date. "Inventory": Any and all goods of the Borrowers or any of them, including, without limitation, goods in transit, wheresoever located which are or may at any time be leased by a Borrower to a lessee, held for sale or lease, furnished under any contract of service or held as raw materials, work in process, or supplies or materials used or consumed in a Borrower's business, or which are held for use in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, and all goods, the sale or other disposition of which has given rise to an Account Receivable, which are returned to and/or repossessed and/or stopped in transit by a Borrower or the Lender, or at any time hereafter in the possession or under the control of a Borrower or the Lender, or any agent or bailee of either thereof, and all documents of title or other documents representing the same. "Investment": The acquisition, purchase, making or holding of any stock or other security, any loan, advance, contribution to capital, extension of credit (except for trade and customer accounts receivable for inventory sold or services rendered in the ordinary course of business and payable in accordance with customary trade terms), any acquisitions of real and personal property (other than real and personal property acquired in the ordinary course of business) and any purchase or commitment or option to purchase stock or other debt or equity securities of, or any interest in, another Person or any integral part of any business or the assets comprising such business or part thereof. "L/C Draft": A draft drawn on the Letter of Credit Issuer, pursuant to a Letter of Credit. "Letter of Credit": A letter of credit issued by the Letter of Credit Issuer pursuant to a Letter of Credit Application as said letter of credit may be amended or extended from time to time. "Letter of Credit Agreements": Collectively, the Letter of Credit Application and any and all documents, instruments and agreements between a Borrower, Lender and/or Letter of Credit Issuer related to the Letter of Credit Application and/or Letter of Credit together with any and all amendments and/or extensions thereto or thereof. "Letter of Credit Application": An application submitted by a Borrower for issuance of a Letter of Credit pursuant to Section 2.2, in a form and containing terms and provisions acceptable to the Lender and the Letter of Credit Issuer. "Letter of Credit Issuer": With respect to any given Letter of Credit, the Lender or Affiliate issuing such Letter of Credit. "Letter of Credit Obligations": The aggregate amount of all possible drawings under all Letters of Credit plus all amounts drawn under any Letter of Credit and not reimbursed by either Borrower. "Letter of Credit Sublimit": The term "Letter of Credit Sublimit" shall have the meaning given such term in Supplement A. "Lien": Any security interest, mortgage, pledge, lien, hypothecation, statutory lien, judgment lien or similar legal process, charge, encumbrance, title retention agreement or analogous instrument or device (including, without limitation, the interest of a lessor under Capitalized Leases and the interest of a vendor under any conditional sale or other title retention agreement). "Loan": A Loan referred to in Section 2.1 and any other loans or advances made to the Borrowers by the Lender under or pursuant to this Agreement. "Loan Account": The term "Loan Account" shall have the meaning given such term in Section 2.3(a). "Loan Availability": The lesser of (a) the Credit Amount minus the Letter of Credit Obligations or (b) the Borrowing Base minus the Letter of Credit Obligations. "Loan Documents": This Agreement, any Note, and each other instrument, document, guaranty, mortgage, deed of trust, chattel mortgage, pledge, power of attorney, consent, assignment, contract, notice, security agreement, lease, financing statement, subordination agreement, trust account agreement, or other agreement executed and delivered by the Borrowers or either of them or any Guarantor or party granting a security interest in connection with this Agreement, the Loans, the Letters of Credit or the Collateral, as the same may be amended, modified, restated or replaced from time to time. "Maximum Obligated Amount": For each Borrower, respectively, as of the Determination Date, the greater of (a) an amount equal to the aggregate amount of the Loans made under this Agreement the proceeds of which are used (whether directly or indirectly) to make a Valuable Transfer to such Borrower, or (b) the maximum amount that would not cause this Agreement to cause a Fraudulent Conveyance with respect to such Borrower. "Multiemployer Plan": A multiemployer plan, as such term is defined in Section 4001(a)(3) of ERISA, which is, or which has been, within five years of the date of this Agreement, or at any time after the date of this Agreement, maintained for the employees of a Borrower or any ERISA Affiliate. "Net Worth": At any determination date, the total of all assets appearing on a consolidated balance sheet of the Borrowers at such date, prepared in accordance with GAAP, after deducting all proper reserves (including without limitation, reserves for depreciation, obsolescence, amortization and taxes related to a LIFO to FIFO conversion) minus all liabilities which in accordance with GAAP would be included on the liability side of a consolidated balance sheet. "Note": Any promissory note of the Borrowers or any of them evidencing any loan or advance (including but not limited to the Loans) made by the Lender to the Borrowers pursuant to this Agreement, as the same may be amended, modified, restated or replaced from time to time. "Obligations": All of the liabilities, obligations and indebtedness of the Borrowers or any of them to the Lender, or any Affiliate, of any kind or nature, however created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing or due or to become due, and including, without limitation, (a) the obligations of the Borrowers or any of them under the Loan Documents, including obligations of performance, (b) the Letter of Credit Obligations and all other obligations of the Borrowers or any of them with respect to any Letter of Credit or any Letter of Credit Agreement, and (c) interest, fees, charges, expenses, Attorneys' Fees and other sums chargeable to the Borrowers or any of them by the Lender or any Affiliate under the Loan Documents. "Obligations" shall also include any and all amendments, extensions, renewals, refundings or refinancings of any of the foregoing. "Obligor": Each Borrower and each other Person who is or shall become primarily or secondarily liable on any Obligations or who grants to the Lender a Lien on any property of such Person as security for any Obligations. "Occupational Safety and Health Law": The Occupational Safety and Health Act of 1970 as amended from time to time, or any successor statute, together with the regulations thereunder and any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability or standards of conduct concerning employee health and/or safety. "Over Advance": The term "Over Advance" shall have the meaning given such term in Section 2.8. "Overdraft Loan": The term "Overdraft Loan" shall have the meaning given such term in Section 2.7. "Participant": Any Person, now or at any time or times hereafter, participating with the Lender in the Loans made to the Borrowers hereunder. "Payment Date": The Termination Date or any other date on which the Credit terminates, plus the last day of each month of each year. "PBGC": The Pension Benefit Guaranty Corporation, established pursuant to Subtitle A of Title IV of ERISA, or any successor thereto or to the functions thereof. "Person": Any natural person, corporation, partnership, joint venture, firm, association, trust, unincorporated organization, government or governmental agency or political subdivision thereof, or any other entity, whether acting in an individual, fiduciary or other capacity. "Plan": Each employee pension or benefit plan (as those terms are defined in Section 3 of ERISA) maintained for the benefit of employees, officers or directors of a Borrower or of any ERISA Affiliate. "Prohibited Transaction": The respective meanings assigned to such term in Section 4975 of the Code and Section 406 of ERISA. "Reference Rate": The rate of interest from time to time publicly announced by Lender as its "reference rate." The Lender may lend to its customers at rates that are at, above or below the Reference Rate. For purposes of determining any interest rate which is based on the Reference Rate, such interest rate shall change on the effective date of any change in the Reference Rate. "Reference Rate Advance": An Advance designated as such in a notice of borrowing under Section 2.5(a) or a notice of continuation or conversion under Section 2.5(e). "Related Party": Any Person (other than a Subsidiary): (a) which directly or indirectly, through one of more intermediaries, controls, is controlled by or is under common control with, a Borrower, (b) which beneficially owns or holds 15% or more of the equity interest of a Borrower, or (c) 15% or more of the equity interest of which is beneficially owned or held by a Borrower or a Subsidiary. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Reportable Event": A reportable event, as defined in Section 4043 of ERISA and the regulations issued under such Section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation has waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event; provided, that for purposes of this Agreement, a failure to meet the minimum funding standard of Section 412 of the Code and Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any waiver in accordance with Section 412(d) of the Code. "Subordinated Debt": That portion of any liabilities, obligations or Indebtedness of a Borrower which contains terms satisfactory to the Lender and is subordinated, in a manner satisfactory to the Lender, as to right and time of payment of principal and interest thereon, to any and all Obligations. "Subsidiary": Any Person of which or in which a Borrower and its other Subsidiaries own, alone or in combination, directly or indirectly, 50% or more of: (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such Person, if it is a corporation, (b) the capital interest or profits interest of such Person, if it is a partnership, joint venture or similar entity, or (c) the beneficial interest of such Person, if it is a trust, association or other unincorporated organization. "Supplemental Documentation": The term "Supplemental Documentation" shall have the meaning given such term in Section 3.5. "Taxes": With respect to any Person means taxes, assessments or other governmental charges or levies imposed upon such Person, its income or any of its properties, franchises or assets. "Termination Date": The term "Termination Date" shall have the meaning given such term in Supplement A. "UCC": The Uniform Commercial Code as in effect in the State of Minnesota and any successor statute, together with any regulations thereunder, in each case as in effect from time to time. References to sections of the UCC shall be construed to also refer to any successor sections. "Unmatured Event of Default": Any event which, with the giving of notice to the Borrowers or lapse of time, or both, would constitute an Event of Default. "Unused Credit Fee": The term "Unused Credit Fee" shall have the meaning given such term in Supplement A. "Valuable Transfer": In respect of each Borrower, (a) all loans, advances or capital contributions made directly or indirectly to such Borrower with proceeds of Loans, (b) all debt securities or other obligations of such Borrower acquired from such Borrower, or retired by such Borrower, with direct or indirect proceeds of Loans, (c) the fair market value of all property acquired with direct or indirect proceeds of Loans (but only to the extent of the economic benefit to such Borrower of the property so transferred), (d) all equity securities of such Borrower acquired from such Borrower with direct or indirect proceeds of Loans, and (e) the value of quantifiable economic benefits not included in clauses (a) through (d) above accruing to such Borrower as a result of the Loans. 1.2 Accounting Terms and Calculations. Except as may be expressly provided to the contrary herein, all accounting terms used herein or in any certificate or other document made or delivered pursuant hereto shall be interpreted and all accounting determinations hereunder (including, without limitation, determination of compliance with financial ratios and restrictions in Articles V and VI and in Supplement A) shall be made in accordance with GAAP consistently applied, using a first in first out method of Inventory valuation. Any reference to "consolidated" financial terms apply to circumstances in which a Borrower has Subsidiaries and shall be deemed to refer to those financial terms as applied to such Borrower and the Subsidiaries in accordance with GAAP. If, in Lender's judgment, a material change occurs in GAAP, then either (a) the Lender and the Borrowers shall amend, in writing, the covenants in this Agreement, Supplement A, and the other Loan Documents which are calculated on the basis of GAAP to reflect such change, or (b) if the Lender and the Borrowers fail to agree on and enter into such an amendment, then the Lender shall have the right to deem such change in GAAP to be an Event of Default. 1.3 Other Definitional Provisions. Unless otherwise defined therein, all terms defined in this Agreement shall have such defined meanings when used in any other Loan Document. Terms used in this Agreement which are defined in any Supplement, Exhibit or Schedule hereto shall, unless the context otherwise indicates, have the meanings given them in such Supplement, Exhibit or Schedule. Other terms used in this Agreement and not otherwise defined herein shall, unless the context otherwise indicates, have the meanings given such terms in the Minnesota Uniform Commercial Code to the extent the same are used or defined therein. Reference to "this Agreement" shall include the provisions of Supplement A. References to Sections, Exhibits, Schedules and like references are to this Agreement unless otherwise expressly provided. 1.4 Rules of Construction. Section captions used in this Agreement are for convenience only, and shall not affect the construction of this Agreement. The words "hereof," "herein," and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Gender references are freely interchangeable and shall refer to the masculine, feminine or neuter. ARTICLE II LOANSCREDIT; LETTERS OF CREDIT; OTHER MATTERS 2.1 Loans. (a) Amount, Authority to Make Certain Advances. Subject to the terms and conditions of the Loan Documents, and in reliance upon the representations and warranties of the Borrowers set forth herein and in the other Loan Documents, the Lender agrees to make loans (individually, a "Loan" and collectively, the "Loans") to the Borrowers during the period from and after the date hereof to the date on which the Credit terminates, in such amounts, in the type of Advance and at such times as the Borrowers may from time to time request, up to but not in excess of the Loan Availability. Loans made by the Lender may be repaid and, subject to the terms and conditions hereof, reborrowed to the date on which the Credit terminates. (b) Types of Advances. The Loans shall be Eurodollar Advances or Reference Rate Advances, as requested by the Borrowers, except as otherwise provided herein. Any combination of types of Advances may be outstanding at the same time, provided that, no more than five (5) Eurodollar Advances may be outstanding at any one time. Each Eurodollar Advance shall be in a minimum amount of $1,000,000 or in an integral multiple of $500,000 above such amount. (c) Indemnification. Each Borrowers hereby indemnifies the Lender against any loss or expense which the Lender may sustain or incur (including, without limitation, any loss or expense sustained or incurred in obtaining, liquidating or employing deposits or other funds acquired to effect, fund, or maintain any Advance) as a consequence of (i) any failure of the Borrowers or any of them to make any payment when due of any amount due hereunder or under any Note, (ii) any failure of the Borrowers or any of them to borrow, continue or convert an Advance on a date specified therefor in a notice thereof, or (iii) any payment (including, without limitation, any payment pursuant to Section 7.2), prepayment or conversion of any Eurodollar Advance on a date other than the last day of the Interest Period for such Eurodollar Advance. Lender's certificate or invoice setting forth the amount or amounts Lender is entitled to receive pursuant to this Section 2.1(c) delivered to the Borrowers shall be conclusive in the absence of error. The amount shown as due on such certificate or invoice is payable on demand. (d) Mandatory Payments. All Loans and other Obligations hereunder shall be paid by the Borrowers on the Termination Date unless payable sooner pursuant to the provisions of this Agreement. In addition, Borrowers shall pay to the Lender all proceeds of Collateral in accordance with the provisions of this Agreement and other Loan Documents for application against the Obligations in such order and manner as Lender may deem appropriate. If the aggregate outstanding principal balance of the Loans exceeds the Loan Availability or there is a negative Loan Availability, then, unless the Lender shall otherwise consent in writing, the Borrowers shall immediately and without notice of any kind make such payments as shall be necessary to eliminate such excess or negative Loan Availability, or take such other action (including, without limitation, delivery of cash collateral) as Lender may require. (e) Recourse to Collateral. The Borrowers' payment obligations under this Agreement and under any Note, Letter of Credit Agreement and any other Loan Document are primary and absolute and Lender shall not be required to seek recourse to Collateral, Third Party Collateral or other security at any time. 2.2 Letters of Credit. (a) Application, Agreement to Issue. From time to time from and after the date hereof to the Termination Date or, if earlier, the date on which the Credit terminates, a Borrower may request Lender, or any Affiliate, to issue one or more Letters of Credit for the account of such Borrower and, upon receipt of duly executed Letter of Credit Applications and such other Letter of Credit Agreements as the Lender, or such Affiliate, may require, Lender or such Affiliate shall, in its discretion, issue Letters of Credit on such terms as are satisfactory to the Letter of Credit Issuer; provided, however, that no Letter of Credit will be issued if, before or after taking such Letter of Credit into account, the Letter of Credit Obligations exceed the least of (i) the Letter of Credit Sublimit, (ii) the Credit Amount minus the outstanding principal balance of the Loans, and (iii) the Borrowing Base minus the outstanding principal balance of the Loans. (b) Fees and Commissions. The Borrowers agree to pay the Letter of Credit Issuer, on demand, the Letter of Credit Issuer's standard administrative operating fees and charges in effect from time to time for issuing, administering or making payments under any Letters of Credit. The Borrowers further agree to pay the Lender a commission on the undrawn amount of each Letter of Credit (which amount shall include, without limitation, the amount of each L/C Draft accepted by the Letter of Credit Issuer but unpaid) in the amounts and at such times as are set forth in Supplement A. (c) Reimbursement Obligations. The Borrowers agree to reimburse the Letter of Credit Issuer on demand for each payment made by the Letter of Credit Issuer under or pursuant to any Letter of Credit or L/C Draft. The Borrowers further agree to pay to the Lender, on demand, interest at the Default Rate, on any amount paid by the Letter of Credit Issuer, under or pursuant to any Letter of Credit or L/C Draft, from the date of payment until the date of reimbursement to the Letter of Credit Issuer. The Borrowers hereby authorize Lender, at Lender's option, to make an Advance under this Agreement in an amount equal to the amount paid by the Letter of Credit Issuer, under any Letter of Credit or L/C Draft, and pay such amount to the Letter of Credit Issuer in reimbursement for such payment. (d) Acceleration, Required Deposits. Notwithstanding anything to the contrary herein or in any Letter of Credit Agreement or Letter of Credit, without notice to any Borrower or Obligor, upon termination of the Credit, (whether pursuant to Section 7.1(a) or (b) or otherwise) and, at Lender's discretion, at any time that an Event of Default has occurred and is continuing (whether or not the Credit is terminated), an amount equal to the aggregate amount of the Letter of Credit Obligations shall be deemed (as between the Lender and the Borrowers) to have been paid or disbursed by the Letter of Credit Issuer under the Letters of Credit and L/C Drafts accepted by the Letter of Credit Issuer, notwithstanding that such amounts may not in fact have been so paid or disbursed. Upon the occurrence of the events described in the preceding paragraph, Lender is hereby authorized, at its option, to make an Advance under this Agreement in an amount equal to such Letter of Credit Obligations, which Advance shall be immediately due and payable, the proceeds of which shall be deposited into a separate cash collateral account as set forth in this Section 2.2(d) below. In lieu of the foregoing, Lender, at its election, may demand, and upon such demand Borrowers shall deliver to Lender, cash or cash equivalents in an amount equal to the Letter of Credit Obligations. (Cash equivalents, if acceptable, shall have the value as determined by the Lender.) The proceeds of such Advance and/or cash or cash equivalents received by Lender pursuant to this Section 2.2(d) shall be deposited by the Lender in a separate account appropriately designated as a cash collateral account in relation to this Agreement and shall be retained by the Lender, or Affiliate, as collateral security for the Obligations including, without limitation, the Letter of Credit Obligations. Such amounts shall not be used by the Letter of Credit Issuer, to pay any amounts drawn under any Letter of Credit or L/C Draft. At Lender's option, such amounts may be applied by Lender to reimburse the Letter of Credit Issuer for payments made under a Letter of Credit or L/C Draft or to payment of such other Obligations as the Lender shall determine. Following payment in full of all Obligations, the termination or expiration of all Letters of Credit and the termination of the Credit, any amounts remaining in any cash collateral account established pursuant to this Section 2.2 shall be returned to the Borrowers or other Person legally entitled thereto (after deduction of the Lender's and any Affiliate's expenses). The deposit of cash or cash equivalents by Borrowers shall not relieve Borrowers or any Obligor of any Obligations under any of the Loan Documents. 2.3 Loan Account; Disbursement Account; Controlled Disbursement Account. (a) Loan Account. The Lender shall establish or cause to be established on its books in the Borrowers' names one or more accounts (each, a "Loan Account") to evidence Loans made to the Borrowers. Any amounts advanced as a Loan pursuant to this Agreement will be debited to the applicable Loan Account and result in an increase in the principal balance outstanding in such Loan Account in the amount thereof, provided, however, any failure by Lender to debit such Loan Account in respect of any such Loans shall not affect Borrowers' obligations to repay such Loans in accordance with the provisions of this Agreement or any Note. Any amount received by the Lender and applied by the Lender as principal payments in accordance with the provisions hereof, will be credited to the applicable Loan Account and result in a reduction in the principal balance outstanding in such Loan Account. (b) Disbursement Account. The Borrowers shall maintain in their names a commercial account (the "Disbursement Account") at Lender's office at 15 West South Temple, Salt Lake City, Utah 84101. Unless otherwise provided in this Agreement, the Lender will credit or cause to be credited to the Disbursement Account the amount of each Advance made by Lender hereunder. (c) Controlled Disbursement Account. At its option, each Borrower may maintain in its name a commercial account (the "Controlled Disbursement Account") with a bank selected by such Borrower and satisfactory to the Lender, into which deposits from the Disbursement Account may be authorized by the Borrowers and/or the Lender and from which the applicable Borrower may draw checks for corporate purposes. If a Borrower so elects, such Borrower, Lender and such depository bank shall enter into an agreement satisfactory to Lender regarding, among other things, the Controlled Disbursement Account and access to amounts on deposit therein or attributable thereto. 2.4 Interest; Fees. (a) Interest. The outstanding principal balance of each Loan to the Borrowers hereunder shall bear interest at the rate(s) applicable to such Loan as set forth in Supplement A; provided, however, that no provision of this Agreement or of any Note shall require the payment or permit the collection of interest in excess of the rate permitted by applicable law. Interest as aforesaid shall be charged for the actual number of days elapsed over a year consisting of 360 days on the actual daily balance of such Loan. Interest on the unpaid principal of any Loan shall accrue from the date such Loan is made to the date such Loan is paid in full. Interest shall be paid on the Payment Dates for the applicable types of Loans. Any accrued or accruing interest after the Termination Date or other date on which the Credit terminates shall be payable on demand. (b) Interest After Default. At any time that an Event of Default has occurred and is continuing, the outstanding principal amount of all Loans, all past due interest and all past due fees and other sums payable to the Lender hereunder or under any Loan Document shall bear interest at the Default Rate. (c) Unused Credit Fee. The Borrowers shall pay to the Lender an Unused Credit Fee for the period from and after the date hereof through and including the date the Credit is terminated in the amount and at the times set forth in Supplement A. 2.5 Requests for Loans; Borrowing Base Certificates; Other Information; Continuation and Conversion of Loans. (a) Loan Requests. Except as otherwise expressly provided elsewhere in this Agreement, Loans shall be requested by telephone and promptly confirmed in writing by a Borrower, and must be given so as to be received by the Lender not later than: (i) 1:00 p.m., Minneapolis time, on the date of the requested Loan, if the Loan is to be comprised of Reference Rate Advances; or (ii) 11:00 a.m., Minneapolis time, two Business Days prior to the date of the requested Loan, if the Loan is to be, or include, a Eurodollar Advance. Each request for a Loan shall specify (i) the borrowing date (which shall be a Business Day), (ii) the amount of such Loan and the type or types of Advances comprising such Loan (subject to the limitation on amount set forth in Section 2.1(bc)), and (iii) if such Loan shall include Eurodollar Advances, the initial Interest Periods for each such Eurodollar Advance. The failure of any Borrower to confirm any telephonic request or otherwise comply with the provisions of this Section 2.5(a) shall not in any manner affect the obligation of the Borrowers to repay such Loan in accordance with the terms of this Agreement. (b) Additional Information. In the event that a Borrower shall at any time, or from time to time, (i) make a request for a Loan, or (ii) be deemed to have requested an Overdraft Loan, the Borrowers agree to forthwith provide the Lender with such information, at such frequency and in such format, as is required by the Lender, such information to be current as of the time of such request. (c) Borrowing Base Certificate. Each Borrower further agrees to provide to the Lender a current borrowing base certificate ("Borrowing Base Certificate") at the end of each month and at such other times as the Lender may request. Such Borrowing Base Certificate shall be in substantially the form of Exhibit A, and include such supporting documentation as Lender may require and shall be executed and certified as accurate by such person or persons as such Borrower designates, from time to time, in writing to the Lender as provided herein. (d) Borrower's Authorized Representatives. Each Borrower shall provide the Lender with documentation satisfactory to the Lender indicating the names of those employees of such Borrower authorized by such Borrower to sign, among other things, Borrowing Base Certificates, and/or to make a telephone request for a Loan, and/or to authorize disbursement of the proceeds of a Loan by wire transfer or otherwise. The Lender shall be entitled to rely upon such documentation until notified in writing by such Borrower of any change(s) in the names of persons so authorized. The Lender shall be entitled to act on the instructions of anyone identifying himself as one of the persons authorized to request Loans or disbursements of Loan proceeds by telephone and the Borrowers shall be bound thereby in the same manner as if the person were actually so authorized. The Borrowers agree to indemnify and hold the Lender harmless from any and all claims, damages, liabilities, losses, costs and expenses (including Attorneys' Fees) which may arise or be created by the acceptance of instructions (telephonic or otherwise) for making Loans or disbursing Loan proceeds by wire transfer or otherwise, or for application of payments. (e) Continuation and Conversion of Loans. A Borrower may elect to continue any outstanding Eurodollar Advance from one Interest Period into a subsequent Interest Period to begin on the last day of the earlier Interest Period, or convert any outstanding Advance into another type of Advance (on the last day of an Interest Period only, in the instance of a Eurodollar Advance), by giving the Lender telephonic notice promptly confirmed in writing, given so as to be received by the Lender not later than: (i) 1:00 p.m., Minneapolis time, on the date of the requested conversion, if requesting conversion of a Eurodollar Advance to a Reference Rate Advance; or (ii) 11:00 a.m., Minneapolis time, two (2) Business Days prior to the date of the requested continuation or conversion, if requesting the continuation of a Eurodollar Advance or the conversion of a Reference Rate Advance to a Eurodollar Advance. Each notice of continuation or conversion of an Advance shall specify (x) the effective date of the continuation or conversion (which shall be a Business Day), (y) the amount and the type or types of Advances following such continuation or conversion (subject to the limitation on amount set forth in Section 2.1(b), and (z) for continuation as, or conversion into, Eurodollar Advances, the Interest Periods for such Advances. Absent timely notice of continuation or conversion, each Eurodollar Advance shall automatically convert into a Reference Rate Advance on the last day of an applicable Interest Period, unless paid in full on such last day. No Advance shall be continued as, or converted into, a Eurodollar Advance if the shortest Interest Period for such Advance may not transpire prior to the Termination Date or if an Event of Default or Unmatured Event of Default has occurred and is continuing. 2.6 Notes. Lender, in its sole and absolute discretion, may require that any and all Loans hereunder be evidenced by a Note. Whether or not evidenced by a Note, all Loans and payments thereof shall be recorded on the Lender's books, which shall be rebuttable presumptive evidence of the amount of such Loans outstanding at any time hereunder. The Lender will account monthly as to all Loans and payments hereunder. Notwithstanding any term or condition of this Agreement to the contrary, the failure of the Lender to record the date and amount of any Loan shall not limit or otherwise affect the obligation of the Borrowers to repay any such Loan. 2.7 Overdraft Loans. The Lender, in its sole and absolute discretion and subject to the terms hereof, may make a Loan to the Borrowers in an amount equal to the amount of any overdraft which may from time to time exist with respect to the Disbursement Account or any other bank account which the Borrowers may now or hereafter have with Lender or any other Affiliate. The existence of such overdraft shall be deemed to be a request by the Borrowers for such Loan. The Borrowers acknowledge that the Lender is under no duty or obligation to make any Loan to the Borrowers to cover any overdraft. The Borrowers further agree that an overdraft shall constitute a separate Loan under this Agreement (an "Overdraft Loan"), which shall bear interest, from the date on which the overdraft occurred until paid, in an amount equal to the greater of 130% of the highest rate of interest then charged for Loans (other than Overdraft Loans or Over Advances) made hereunder, or $50.00 per day. If the Lender, in its sole and absolute discretion, decides not to make a Loan to cover part or all of any overdraft, the Lender may return any check(s) which created such overdraft. 2.8 Over Advances. The Lender, in its sole and absolute discretion, may make Loans to the Borrowers, either at the Borrowers' request or to pay amounts due to the Lender or any Affiliate under this Agreement or any other Loan Document, in excess of the Loan Availability or permit the total Loans to exceed the Loan Availability at any time (such excess Obligations are hereinafter referred to as "Over Advances"). No Over Advance or series of Over Advances shall cause or constitute a waiver by the Lender of its right to refuse to make any further Loan or to issue, or cause to be issued, any Letters of Credit at any time that an Over Advance exists or would result therefrom. During any period in which an Over Advance exists, the amount of the Over Advances shall bear interest at a rate equal to 130% of the highest rate of interest then charged for Loans (other than Overdraft Loans or Over Advances) made hereunder. 2.9 All Loans One Obligation. All Loans under this Agreement shall constitute one Loan, and all Obligations shall constitute one general obligation, secured by the Lien granted by the Borrowers hereunder on all of the Collateral and by all other Liens heretofore, now or at any time or times hereafter granted by the Borrower or any other Obligor to secure the Obligations. The Borrowers agree that all of the rights of the Lender set forth in the Loan Documents shall, unless otherwise agreed to in writing, apply to any modification of or supplement to the Loan Documents. 2.10 Making of Payments; Application of Collections; Charging of Accounts. (a) All payments hereunder (including payments with respect to any Notes) shall be made without set-off or counterclaim and shall be made to the Lender in immediately available funds (or as the Lender may otherwise consent) prior to 11:00 a.m., Minneapolis time, on the date due at its office at U.S. Bank Place, 601 Second Avenue South, Minneapolis, Minnesota 55402-4302, or at such other place as may be designated by the Lender to the Borrowers in writing from time to time. Any payments received after such time shall be deemed received on the next Business Day. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a date other than a Business Day such payment may be made on the next succeeding Business Day and such extension of time shall be included in the computation of payment of interest or any fees. (b) The Borrowers authorize the Lender to, and the Lender will, subject to the provisions of this Section 2.10(b), apply the whole or any part of any amounts received by the Lender, or any Affiliate (whether deposited in the Collateral Account or otherwise received by the Lender, or any Affiliate) from the collection of items of payment and proceeds of any Collateral or Third Party Collateral against the principal and/or interest of any Loans made hereunder and/or any other Obligations, whether or not then due, in such order of application as the Lender may determine, unless such payments or proceeds are, in the Lender's sole and absolute discretion, released to the Borrowers. No checks, drafts or other instruments received by the Lender, or any Affiliate, shall constitute final payment to the Lender unless and until such item of payment has actually been collected. All items or amounts which are delivered to the Lender by or on behalf of the Borrowers or any Obligor or any Account Debtor on account of partial or full payment or otherwise as proceeds of any of the Collateral or Third Party Collateral (including any items or amounts which may have been deposited to the Collateral Account) may from time to time, in the Lender's sole and absolute discretion, be released to the Borrowers or may be applied by the Lender towards such of the Obligations, whether or not then due, in such order of application as the Lender may determine. Notwithstanding anything to the contrary herein, (i) solely for purposes of determining the occurrence of an Event of Default hereunder, all cash, checks, instruments and other items of payment, shall be deemed received upon actual receipt by the Lender unless the same is subsequently dishonored for any reason whatsoever, (ii) solely for purposes of determining whether, under Sections 2.1 and 2.2, there is Loan Availability, all cash, checks, instruments and other items of payment shall be applied against the Obligations no later than the first Business Day following receipt thereof by the Lender in Minneapolis, Minnesota or the first Business Day following the initiation by the Lender of an ACH transaction from the Collateral Account, and (iii) solely for purposes of interest calculation hereunder, all cash, checks, instruments and other items of payment shall be deemed to have been applied against the Obligations no later than the second Business Day following receipt thereof by the Lender in Minneapolis, Minnesota or the second Business Day following the initiation by the Lender of an ACH transaction from the Collateral Account. (c) The Borrowers hereby irrevocably authorize the Lender and the Lender may, in its sole and absolute discretion, at any time and from time to time, pay all or any portion of any Obligations including, without limitation, interest, Attorneys' Fees and other fees, costs and expenses of the Lender for which the Borrowers are liable pursuant to the terms of the Loan Documents, by charging the Disbursement Account(s) or any other bank account of the Borrowers or any of them maintained with Lender or any Affiliate or by advancing the amount thereof to the Borrowers as a Loan and applying the proceeds of such Loan against such Obligations; provided, however, that the provisions of this Section 2.10(c) shall not affect the Borrowers' obligations to pay when due all amounts payable by the Borrowers under any of the Loan Documents whether or not there are sufficient funds therefor in the Disbursement Account(s) or any such other bank account of the Borrowers or any of them with Lender or any other Affiliate, or sufficient Loan Availability. 2.11 Lender's Election Not to Enforce. Notwithstanding any term or condition of this Agreement to the contrary, the Lender, in its sole and absolute discretion, at any time and from time to time may suspend or refrain from enforcing any or all of the restrictions imposed in this Article II but no such suspension or failure to enforce shall impair the Lender's right and power under this Agreement to refrain from making a Loan or issuing, or causing to be issued, a Letter of Credit requested by the Borrowers if all conditions precedent to the Lender's obligation to make such Loan or issue, or cause to be issued, such Letter of Credit have not been satisfied. 2.12 Additional Provisions Relating to Loans (a) Increased Costs. If, as a result of any law, rule, regulation, treaty or directive, or any change therein or in the interpretation or administration thereof, or compliance by the Lender or Affiliate with any request or directive (whether or not having the force of law) from any court, central bank, governmental authority, agency or instrumentality, or comparable agency: (i) any tax, duty or other charge with respect to any Loan, any Note or the Credit is imposed, modified or deemed applicable, or the basis of taxation of payments to the Lender of interest or principal of the Loans or any fees (other than taxes imposed on the overall net income of the Lender by the jurisdiction in which the Lender has its principal office) is changed; (ii) any reserve, special deposit, special assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Lender is imposed, modified or deemed applicable; (iii) any increase in the amount of capital required or expected to be maintained by the Lender or any Person controlling the Lender is imposed, modified or deemed applicable; or (iv) any other condition affecting this Agreement or the Credit is imposed on the Lender or the relevant funding markets; and the Lender determines that, by reason thereof, the cost to the Lender of making or maintaining the Loans or the Credit is increased, or the amount of any sum receivable by the Lender hereunder or under any Note in respect of any Loan is reduced; then, the Borrowers shall pay to the Lender such additional amount or amounts as will compensate the Lender (or the controlling Person in the instance of (iii) above) for such additional costs or reduction in amounts received (provided that the Lender has not been compensated for such additional cost or reduction in the calculation of the Eurodollar Reserve Rate). Lender's or Affiliate's certificate or invoice setting forth the amount or amounts such Person is entitled to receive pursuant to this Section 2.12(a) shall be conclusive in the absence of manifest error. In determining such amounts, the Lender may use any reasonable averaging, attribution and allocation methods. The amount shown as due on any certificate or invoice delivered under this Section 2.12(a) is payable on demand. (b) Deposits Unavailable or Interest Rate Unascertainable or Inadequate; Impracticability. If the Lender determines (which determination shall be conclusive and binding on the parties hereto) that: (i) deposits of the necessary amount for the relevant Interest Period for any Eurodollar Advance are not available to the Lender in the relevant markets or that, by reason of circumstances affecting such market, adequate and reasonable means do not exist for ascertaining the Eurodollar Interbank Rate, as the case may be, for such Interest Period; (ii) the Eurodollar Rate (Reserve Adjusted) will not adequately and fairly reflect the cost to the Lender of making or funding the Eurodollar Advances for a relevant Interest Period; or (iii) the making or funding of Eurodollar Advances has become impracticable as a result of any event occurring after the date of this Agreement which, in the opinion of the Lender, materially and adversely affects such Advances or the Lender's ability to make such Advances or the relevant market; the Lender shall promptly give notice of such determination to the Borrowers, and (i) any request for a new Eurodollar Advance or for conversion of a Reference Rate Advance to a Eurodollar Advance previously given by a Borrower and not yet funded or converted shall be deemed to be a request for a Reference Rate Advance, and (ii) the Borrowers shall be obligated to either (A) prepay in full any outstanding Eurodollar Advances without premium or penalty on the last day of the current Interest Period with respect thereto or (B) convert any such Eurodollar Advance to a Reference Rate Advance on the last day of the current Interest Period. (c) Changes in Law Rendering Eurodollar Advances Unlawful. If at any time due to the adoption of any law, rule, regulation, treaty or directive, or any change therein or in the interpretation or administration thereof by any court, central bank, governmental authority, agency or instrumentality, or comparable agency charged with the interpretation or administration thereof, or for any other reason arising subsequent to the date of this Agreement, it shall become unlawful or impossible for the Lender to make or fund any Eurodollar Advance, the obligation of the Lender to provide such Advance shall, upon the happening of such event, forthwith be suspended for the duration of such illegality or impossibility. If any such event shall make it unlawful or impossible for the Lender to continue any Eurodollar Advance previously made by it hereunder, the Lender shall, upon the happening of such event, notify the Borrowers thereof in writing, and the Borrowers shall, at the time notified by the Lender, either (i) convert each such Eurodollar Advance to a Reference Rate Advance, or (ii) repay such Eurodollar Advance in full, together with accrued interest thereon, subject to the provisions of Section 2.1(cd). (d) Funding. (i) Discretion of the Lender as to Manner of Funding. Notwithstanding any provision of this Agreement to the contrary, the Lender shall be entitled to fund and maintain its funding of all or any part of the Loans in any manner it elects; it being understood, however, that for purposes of this Agreement, all determinations hereunder shall be made as if the Lender had actually funded and maintained each Eurodollar Advance during the Interest Period for such Advance through the purchase of deposits having a term corresponding to such Interest Period and bearing an interest rate equal to the Eurodollar Interbank Rate for such Interest Period (whether or not the Lender shall have granted any participations in such Advances). (ii) Funding Through Affiliate. At the Lender's sole option, it may fulfill its commitment to make Eurodollar Advances by causing an Affiliate to make or continue such Eurodollar Advances; provided, that in such instance such Eurodollar Advances shall be deemed for purposes of this Agreement to have been made by the Lender and the obligation of the Borrowers to repay such Eurodollar Advances shall be to the Lender and shall be deemed held by the Lender for the account of such Affiliate. ARTICLE III COLLATERAL 3.1 Grant of Security Interest. As security for the payment of all Loans now or hereafter made by the Lender to the Borrowers hereunder or under any Note, and as security for the payment or other satisfaction of all other Obligations, the Borrowers hereby pledge, assign and grant to the Lender, and its Affiliates, a security interest in all right, title and interest of the Borrowers or any of them in and to the following property of the Borrowers or any of them, whether now owned or existing, or hereafter acquired or coming into existence, wherever now or hereafter located (all such property is hereinafter referred to collectively as the "Collateral"): (a) Accounts Receivable (whether or not Eligible Accounts Receivable), including all other rights and interests (including all liens and security interests) that the Borrower may at any time have by law or agreement against any Account Debtor or other obligor obligated to make any such payment or against any of the property of such Account Debtor or other obligor; (b) General Intangibles; (c) documents; (d) all chattel paper and instruments evidencing, arising out of or relating to any obligation to a Borrower for goods sold or leased or services rendered or otherwise arising out of or relating to any property described in clauses (a) through (c) above; (e) any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or monies of or in the name of a Borrower now or hereafter with the Lender, or any Affiliate, and any and all property of every kind or description of or in the name of a Borrower now or hereafter, for any reason or purpose whatsoever, in the possession or control of, in transit to or standing to a Borrower's credit on the books of, the Lender, any Affiliate, any agent or bailee for the Lender or any Affiliate, or any Participant and all items in any lockbox; (f) all replacements, substitutions, additions or accessions to or for any of the foregoing; (g) to the extent related to the property described in clauses (a) through (f) above, all books, correspondence, credit files, records, invoices and other papers and documents, including, without limitation, to the extent so related, all tapes, cards, computer runs, computer programs and other papers and documents in the possession or control of a Borrower or any computer bureau from time to time acting for a Borrower, and, to the extent so related, all rights in, to and under all policies of insurance, including claims of rights to payments thereunder and proceeds therefrom and refunds of unearned premiums related thereto, including, without limitation, any credit insurance; and (h) all proceeds of any of the foregoing. 3.2 Accounts Receivable. (a) Adjustments. The Borrowers shall notify the Lender immediately of all disputes and claims by any Account Debtor and settle or adjust them at no expense to the Lender. If the Lender directs, no discount or credit allowance shall be granted thereafter by any Borrower to any Account Debtor. All Account Debtor payments and all net amounts received by the Lender in settlement, adjustment or liquidation of any Account Receivable may be applied by the Lender to the Obligations or credited to the Disbursement Account (subject to collection), as the Lender may deem appropriate, as more fully described in Section 2.10. If requested by the Lender, the Borrowers will make proper entries in their books, disclosing the assignment of Accounts Receivable to the Lender. (b) Collateral Account. Unless otherwise consented to by the Lender in writing, each Borrower will, forthwith upon receipt by such Borrower of any and all checks, drafts, cash and other remittances in payment or as proceeds of, or on account of, any of the Accounts Receivable or other Collateral, deposit the same in a special bank account in Lender's name designated for receipt of such Borrower's funds (the "Collateral Account") maintained by Lender or such other bank or financial institution as the Lender shall consent, over which the Lender alone has power of withdrawal, and will designate with each such deposit the particular Accounts Receivable or other item of Collateral upon which the remittance was made. The Borrowers acknowledge that the maintenance of the Collateral Account is solely for the convenience of the Lender in facilitating its own operations and the Borrowers do not and shall not have any right, title or interest in the Collateral Account or in the amounts at any time appearing to the credit thereof. Said proceeds shall be deposited in precisely the form received except for a Borrower's endorsement where necessary to permit collection of items, which endorsement each Borrower agrees to make. The applicable Borrower(s) shall be liable as endorsee on all items deposited in the Collateral Account whether or not in fact endorsed by such Borrower(s). Pending such deposit, the Borrowers agree not to commingle any such checks, drafts, cash and other remittances with any of its funds or property, but will hold them separate and apart therefrom and upon an express trust for the Lender until deposit thereof if made in the Collateral Account. Upon the full and final liquidation of all Obligations and termination of the Credit, the Lender will pay over to the Borrowers any excess amounts received by the Lender as payment or proceeds of Collateral, whether received by the Lender as a deposit in the Collateral Account or received by the Lender as a direct payment on any of the sums due hereunder. (c) Lockbox. After the occurrence of an Event of Default, the Lender may request and upon such request Borrowers will irrevocably direct all present and future Account Debtors and other Persons obligated to make payments on Accounts Receivable or other Collateral to make such payments to a special lockbox (the "Lockbox") under the control of Lender or an Affiliate. The Borrowers may, at their election, at any time direct all present and future Account Debtors and other Persons obligated to make payments on Accounts Receivable or other Collateral to make such payments to such a Lockbox. After such request or otherwise at the direction of the Borrowers, all invoices, account statements and other written or oral communication directing, instructing, requesting or demanding payment of any Account Receivable or other amount constituting Collateral shall direct that all payments be made to the Lockbox and shall include the Lockbox address. All payments received in the Lockbox shall be processed to the Collateral Account. Borrowers agree to execute and deliver all documentation required by Lender related to the establishment and maintenance of the Lockbox, when required or when so elected by the Borrowers, as applicable. (d) Government Claims. If any Accounts Receivable, chattel paper or General Intangible arises out of contracts or other transactions with the United States of America or any department, agency, or instrumentality thereof (a "Federal Governmental Authority") or with any state, county of local government authority or any department, agency or instrumentality thereof (collectively, the "Other Governmental Authorities"), the Borrowers will, unless the Lender shall otherwise agree in writing, immediately notify the Lender in writing and execute any instruments and take any steps required by the Lender in order that all monies due and to become due under such contracts or other transactions shall be assigned to the Lender and, with respect to Federal Governmental Authorities, notice thereof given to the government under the Federal Assignment of Claims Act of 1940, as amended, and/or with respect to all Other Governmental Authorities, notice thereof given to the appropriate authority. (d) Chattel Paper. If any Account Receivable is evidenced by chattel paper or instruments, the Borrowers will, unless the Lender shall otherwise agree in writing, deliver the originals of same to the Lender, appropriately endorsed to the Lender's order and, regardless of the form of such endorsement, the Borrowers hereby expressly waive presentment, demand, notice of dishonor, protest and notice of protest and all other notices with respect thereto. 3.3 Reserved. 3.4 Reserved. 3.5 Supplemental Documentation. At the Lender's request, the Borrowers shall execute and/or deliver to the Lender, at any time or times hereafter, such agreements, assignments, documents, financing statements, warehouse receipts, bills of lading, notices of assignment of Accounts Receivable, schedules of Accounts Receivable assigned, and other written matter necessary or requested by the Lender to perfect and maintain a perfected the security interest in the Collateral granted hereunder (all the above hereinafter referred to as "Supplemental Documentation"), in form and substance acceptable to the Lender, and pay all taxes, fees and other costs and expenses associated with any recording or filing of the same. Borrowers agree to reimburse the Lender for the costs of all searches and updates of searches in public records deemed necessary by the Lender in connection with the protection of its security interest. Each Borrower hereby irrevocably makes, constitutes and appoints the Lender (and all Persons designated by the Lender for that purpose) as such Borrower's true and lawful attorney (and agent-in-fact) to sign the name of such Borrower on any of the Supplemental Documentation and to deliver any of the Supplemental Documentation to such Persons as the Lender in its sole and absolute discretion, may elect. The Borrowers agrees that a carbon, photographic, photostatic, and other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. 3.6 Power of Attorney. Each Borrower irrevocably designates, makes, constitutes, and appoints the Lender (and all Persons designated by the Lender) as such Borrower's true and lawful attorney (and agent-in-fact) and the Lender, or the Lender's agent, may, without notice to such Borrower: (a) at such time or times hereafter as the Lender or said agent, in its sole and absolute discretion, may determine, in such Borrower's or the Lender's name, (i) after an Event of Default, receive, open and dispose of all mail received at the address of such Borrower; (ii) notify and/or require such Borrower to notify, any Account Debtor or other Person obligated under or in respect of any Collateral, of the fact of the Lender's Lien thereon and of the collateral assignment thereof to the Lender; (iii) direct and/or require such Borrower to direct, any Account Debtor or other Person obligated under or in respect of any Collateral, to make payment directly to the Lender of any amounts due or to become due thereunder or with respect thereto; (iv) endorse such Borrower's name on any checks, notes, drafts or any other items of payment relating to and/or proceeds of the Collateral which come into the possession of the Lender or under the Lender's control and apply such payment or proceeds to the Obligations in such manner as Lender shall determine; and (v) endorse such Borrower's name on any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement in the Lender's possession relating to Accounts Receivable or any other Collateral; and (b) at such time or times after the occurrence of an Event of Default, as the Lender or said agent, in its sole and absolute discretion, may determine, in such Borrower's or the Lender's name: (i) receive, open and dispose of all mail received at the street address or any post office box address of such Borrower; (ii) demand, collect, surrender, release or exchange all or any part of any Collateral or any amounts due thereunder or with respect thereto; (iii) settle, adjust, compromise, extend or renew for any period (whether or not longer than the initial period) any and all sums which are now or may hereafter become due or owing upon or with respect to any of the Collateral; (iv) enforce, by suit or otherwise, payment or performance of any of the Collateral; (v) settle, adjust or compromise any legal proceedings brought to collect any sums due or owing upon or with respect to any of the Collateral; (vi) exercise all of such Borrower's rights and remedies with respect to the collection of any amounts due upon or with respect to any of the Collateral; (vii) if permitted by applicable law, sell or assign the Collateral upon such terms, for such amounts and at such time or times as the Lender may deem advisable; (viii) discharge and release the Collateral; (ix) prepare, file and sign such Borrower's name on any proof of claim in bankruptcy or similar document against any Account Debtor; (x) prepare, file and sign such Borrower's name on any notice of lien, assignment or satisfaction of lien or similar document in connection with the Accounts Receivable and/or other Collateral; and (xi) do all acts and things necessary, in the Lender's sole and absolute discretion, to obtain repayment of the Obligations and to fulfill such Borrower's other obligations under this Agreement. (c) at such time or times after the assertion by the Lender that an Event of Default has occurred and is continuing (whether or not an Event of Default has in fact occurred), as the Lender or said agent, in its reasonable discretion, may determine, in such Borrower's or the Lender's name, notify the post office authorities to change the address for delivery of such Borrower's mail to an address designated by the Lender. This power, being coupled with an interest, is irrevocable until all Obligations are paid in full, all Letters of Credit have expired or been terminated and the Credit is terminated. Under no circumstances shall the Lender be under any duty to act in regard to any of the foregoing matters. The costs relating to any of the foregoing matters, including Attorneys' Fees and out-of-pocket expenses shall be borne solely by the Borrowers whether the same are incurred by the Lender or the Borrowers. The Lender and Affiliates and their respective directors, officers, employees or agents shall not be liable for any acts of commission or omission nor for any error in judgment or mistake of fact or law, unless the same shall have resulted from gross negligence or willful misconduct. 3.7 License. Each Borrower grants to Lender and its Affiliates a non-exclusive, worldwide and royalty-free license to use or otherwise exploit all leases, licenses, trademarks, franchises, tradenames, copyrights and patents of the Borrower (to the extent permissible under the terms of such agreements) for the purposes of selling, leasing, preparing for sale or disposing or enforcing its rights in any or all of the Collateral. ARTICLE IV REPRESENTATIONS AND WARRANTIES To induce the Lender to enter into this Agreement and to make Loans to the Borrowers and issue or cause to be issued Letters of Credit for the account of the Borrowers hereunder, each Borrower makes the following representations and warranties, all of which shall be true and correct as of the date the each Loan is made or Letter of Credit is issued and survive the execution of this Agreement and the making of the initial Loan or issuance of Letter of Credit: 4.1 Organization, Name. Each Borrower and each of such Borrower's corporate Subsidiaries are corporations duly incorporated, validly existing and in good standing under the laws of the jurisdiction of their respective incorporation. All of each Borrower's other Subsidiaries, if any, are entities duly organized, validly existing and in good standing under the laws of the jurisdictions of their respective organization. Each Borrower and all of its Subsidiaries are in good standing and are duly qualified to do business in each state where, because of the nature of their respective activities or properties, such qualification is required. During the last ten years each Borrower and each Subsidiary has conducted business solely in the names set forth on Schedule 4.1, and has no trade names, styles or doing business forms except as disclosed on Schedule 4.1. The taxpayer identification number of Simon is 87-0545608. The taxpayer identification number of Trucking is 87-0293383. 4.2 Authorization. Each Borrower is duly authorized to execute and deliver the Loan Documents and any Supplemental Documentation contemplated by this Agreement, and is and will continue to be duly authorized to borrow monies hereunder and to perform its obligations under the Loan Documents and any Supplemental Documentation contemplated by this Agreement and the borrowings hereunder do not and will not require any consent or approval of any governmental agency or authority. 4.3 No Conflicts. The execution, delivery and performance by each Borrower of the Loan Documents and any Supplemental Documentation contemplated by this Agreement, do not and will not conflict with (a) any provision of law, (b) the charter or by-laws of such Borrower, (c) any agreement binding upon any Borrower, or (d) any court or administrative order or decree applicable to any Borrower, and do not and will not require, or result in, the creation or imposition of any Lien on any asset of any Borrower or any of the Subsidiaries except as provided herein. 4.4 Validity and Binding Effect. The Loan Documents constitute (and any Supplemental Documentation contemplated by this Agreement, when duly executed and delivered will constitute) the legal, valid and binding obligations of each Borrower and each Obligor, enforceable against each Borrower and each Obligor in accordance with their respective terms. The execution, delivery and performance of the Loan Documents by each Borrower and any Obligor, and the borrowing of money, incurring of obligations and granting of Liens thereunder are within their respective corporate powers and have been duly authorized by all necessary corporate action. 4.5 No Default. None of the Borrowers nor any of their respective Subsidiaries is in default under any agreement or instrument to which such Borrower or any Subsidiary is a party or by which any of their respective properties or assets is bound or affected, which default (a) might materially and adversely affect the Lender's Lien on or rights with respect to any Collateral or Third Party Collateral or (b) constitutes an Adverse Event. No Event of Default or Unmatured Event of Default has occurred and is continuing. 4.6 Financial Statements. Each Borrower's audited consolidated and consolidating financial statement as at September 30, 1998 and such Borrower's unaudited consolidated and consolidating financial statement as at June 30, 1999, copies of which have been furnished to the Lender, have been prepared in conformity with GAAP and applied on a basis consistent with that of the preceding fiscal year and period and present fairly the financial condition of such Borrower and its Subsidiaries as at such dates and the results of their operations for the periods then ended, subject (in the case of the interim financial statement) to year-end audit adjustments. Since June 30, 1999, no Adverse Event has occurred. 4.7 Insurance. Schedule 4.7 sets forth a summary of the property and casualty insurance program carried by each Borrower and its Subsidiaries on the date hereof, including the insurer's(s') name(s), policy number(s), expiration date(s), amount(s) of coverage, type(s) of coverage, the annual premium(s), Best's policyholder's and financial size ratings of the insurers, exclusions, deductibles and self-insured retention, and describes in detail any retrospective rating plan, fronting arrangement or any other self-insurance or risk assumption agreed to by any Borrower or any Subsidiary or imposed upon any Borrower or any Subsidiary by any such insurer. This summary also includes any self-insurance program that is in effect. 4.8 Litigation; Contingent Liabilities. (a) Except for those referred to in Schedule 4.8, no claims litigation, arbitration proceedings or governmental proceedings are pending or threatened against or are affecting any Borrower or any Subsidiary. (b) Other than any liability incident to the claims, litigation or proceedings disclosed in Schedule 4.8, no Borrower nor any Subsidiary has any contingent liabilities which are material to such Borrower or Subsidiary. 4.9 Ownership of Property, Liens. Each Borrower and each of the Subsidiaries has good and marketable title to its real properties and good and sufficient title to its other properties, including all properties and assets referred to as owned by such Borrower and/or its Subsidiaries in the audited financial statement of such Borrower referred to in Section 4.6 (other than property disposed of since the date of such financial statement in the ordinary course of business as permitted by this Agreement). None of the Collateral or other property or assets of any Borrower or any Subsidiary is subject to any Lien (including, without limitation, Liens pursuant to Capitalized Leases under which said Borrower or any Subsidiary is a lessee) except: (a) Liens in favor of the Lender; (b) Liens for current Taxes not delinquent or Taxes being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP are being maintained; (c) statutory Liens, such as carriers', loggers', warehousemen's, mechanics', materialmen's and repairmens' Liens, arising in the ordinary course of business securing obligations which are not overdue or which are being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP are being maintained; and (d) Liens permitted on Schedule 4.9 or under Section 6.13. 4.10 Subsidiaries, Ownership. The Borrowers have no Subsidiaries except as listed on Schedule 4.10. The ownership of each Borrower and each of the Subsidiaries is as set forth on Schedule 4.10, which schedule shows the name(s) of each Person having an ownership interest, and the percentage of such ownership interest in the respective entity. Except as set forth on Schedule 4.10, no part of the ownership interest of any Person in any Borrower or any Subsidiary is subject to any shareholder agreement, voting trust or other agreement limiting or otherwise pertaining to the ownership interest of such Person. 4.11 Partnerships; Joint Ventures; LLCs. No Borrower nor any of the Subsidiaries is a partner or joint venturer or member in any partnership, joint venture or limited liability company other than the partnerships, joint ventures and limited liability companies listed on Schedule 4.11. 4.12 Business Locations. On the date hereof, the Borrowers' and each Subsidiary's chief executive office and principal place of business are located at the respective addresses set forth on Schedule 4.12. The books and records of the Borrowers and each Subsidiary relating to its business and the concerning such Borrower's Accounts Receivable and other Collateral are kept at such locations. All of other locations or places of business of the Borrowers and each Subsidiary are as set forth on Schedule 4.12. Each Borrower and each Subsidiary is the lawful owner of fee title or of the lessee's interest under a valid and existing lease with respect to the places of business described on Schedule 4.12. For each location subject to a lease or mortgage, the legal description(s) of the real property and the name(s) of the record owner and any mortgagee of such real property is set forth in Schedule 4.12. 4.13 Reserved. 4.14 Eligibility of Collateral. (a) All of the Accounts Receivable are and will continue to be bona fide existing obligations created by the sale of goods, the rendering of services, or the furnishing of other good and sufficient consideration to Account Debtors in the regular course of business and all shipping or delivery receipts and other documents furnished or to be furnished to the Lender in connection therewith are and will be genuine; (b) each Account Receivable which a Borrower shall, expressly or by implication, request the Lender to classify as an Eligible Account Receivable, will, as of the time when such request is made, conform in all respects to the requirements of such classification set forth in the definition of "Eligible Account Receivable" set forth herein. 4.15 Control of Collateral; Lease of Property. No Collateral is under the control of any Subsidiary or other Person who is not a Borrower under this Agreement. Except as listed on Schedule 4.15, none of the machinery, equipment or real property used by any Borrower or any Subsidiary is subject to a lease (excluding only Capitalized Leases included on Schedule 6.12) under which such Borrower or such Subsidiary is the lessee. 4.16 Patents, Trademarks, Etc. Each Borrower and each of the Subsidiaries possesses or has the right to use all of the patents, trademarks, trade names, service marks and copyrights, and applications therefor, and all technology, know-how, processes, methods and designs used in or necessary for the conduct of its business, without known conflict with the rights of others. All such licenses, patents, trademarks, trade names, service marks and copyrights, and applications therefor existing on the date hereof are listed on Schedule 4.16. 4.17 Solvency. Each Borrower and each of the Subsidiaries now has capital sufficient to carry on its respective business and transactions and all business and transactions in which it is about to engage and is now solvent and able to pay its respective debts as they mature, and each Borrower and each of the Subsidiaries now owns property having a value, greater than the amount required to pay such Borrower's or such Subsidiary's debts. 4.18 Contracts; Labor Matters. Except as disclosed on Schedule 4.18: (a) None of the Borrowers nor any Subsidiary is a party to any contract or agreement, or subject to any charge, corporate restriction, judgment, decree or order, the performance of which constitutes an Adverse Event; (b) no labor contract to which any Borrower or any Subsidiary is subject is scheduled to expire during the original term of this Agreement; and (c) on the date of this Agreement (i) none of the Borrowers nor any Subsidiary is a party to any labor dispute and (ii) there are no strikes or walkouts relating to any labor contracts to which any Borrower or any Subsidiary is subject. 4.19 ERISA. Each Plan is in substantial compliance with all applicable requirements of ERISA and the Code and with all material applicable rulings and regulations issued under the provisions of ERISA and the Code setting forth those requirements. No Reportable Event has occurred and is continuing with respect to any Plan. All of the minimum funding standards applicable to such Plans have been satisfied and there exists no event or condition which would reasonably be expected to result in the institution of proceedings to terminate any Plan under Section 4042 of ERISA. With respect to each Plan subject to Title IV of ERISA, as of the most recent valuation date for such Plan, the present value (determined on the basis of reasonable assumptions employed by the independent actuary for such Plan and previously furnished in writing to the Lender of such Plan's projected benefit obligations did not exceed the fair market value of such Plan's assets. Except as required under Section 4890B of the Code, Section 601 of ERISA or applicable state law, none of the Borrowers nor any Subsidiary is obligated to provide post-retirement medical or insurance benefits with respect to employees or former employees. 4.20 Regulation U. No Borrower is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (as defined in Regulation U of the Federal Reserve Board), and no part of the proceeds of any Loan will be used to purchase or carry margin stock or for any other purpose which would violate any of the margin requirements of the Federal Reserve Board. 4.21 Compliance. Each Borrower and each of the Subsidiaries is in material compliance with all statutes and governmental rules and regulations applicable to it. All Inventory of the Borrowers has been produced in compliance with all requirements of the Fair Labor Standards Act. 4.22 Taxes. Each Borrower and each Subsidiary has filed all federal, state and local tax returns required to be filed and has paid, or made adequate provisions for the payment of, all Taxes due and payable pursuant to such returns and pursuant to any assessments made against it or any of its property (other than Taxes the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in accordance with GAAP have been provided on the books of the Borrower). No tax Liens have been filed and no material claims are being asserted with respect to any such Taxes. The charges, accruals and reserves on the books of the Borrowers in respect of Taxes are adequate. The federal income tax liability of each Borrower and its Subsidiaries has been audited by the Internal Revenue Service and has been finally determined and satisfied (or the time for audit has expired) for all tax years up to and including the period ended November 16, 1995. The Borrowers are not aware of any proposed assessment against any Borrower or any Subsidiary for additional Taxes (or any basis for any such assessment) which might be material to such Borrower and its Subsidiaries taken as a whole. 4.23 Investment Company Act. None of the Borrowers nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 4.24 Public Utility Holding Company Act. None of the Borrowers nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 4.25 Environmental and Safety and Health Matters. Except as disclosed on Schedule 4.25: (a) the operations of each Borrower and each of the Subsidiaries complies in all material respects with (i) all applicable Environmental Laws, and (ii) all applicable Occupational Safety and Health Laws; (b) none of the operations of any Borrower or any Subsidiary are subject to any judicial or administrative proceeding alleging the violation of any Environmental Law or Occupational Safety and Health Law; (c) none of the operations of any Borrower or any Subsidiary is the subject of federal or state investigation evaluating whether any remedial action is needed to respond to (i) a spillage, disposal or release into the environment of any Hazardous Material or other hazardous, toxic or dangerous waste, substance or constituent, or other substance, or (ii) any unsafe or unhealthful condition at any premises of any Borrower or any Subsidiary; (d) no Borrower or any Subsidiary has received or filed any notice under any Environmental Law or Occupation Safety and Health Law indicating or reporting (i) any past or present spillage, disposal or release into the environment of, or treatment, storage or disposal of, any Hazardous Material or other hazardous, toxic or dangerous waste, substance or constituent, or other substance or (ii) any unsafe or unhealthful condition at any premises of any Borrower or any Subsidiary; (e) no Borrower or any Subsidiary has any known contingent liability in connection with (i) any spillage, disposal or release into the environment of, or otherwise with respect to, any Hazardous Material or other hazardous, toxic or dangerous waste, substance or constituent, or other substance, or (ii) any unsafe or unhealthful condition at any premises of any Borrower or any Subsidiary; and (f) each Borrower and each Subsidiary has secured and is maintaining all necessary permits, licenses and approvals necessary under any Environmental Law to such Borrower's or such Subsidiary's business. 4.26 Securities Act. No Borrower has issued any unregistered securities in violation of the registration requirements of Section 5 of the Securities Act of 1933, as amended, or any other law, and is not violating any rule, regulation or requirement under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended, in any material respect. 4.27 Consents. No consent of the shareholders of any Borrower or any Subsidiary or any other Person and no order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority is required on the part of any Borrower or any Subsidiary to authorize or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, the Loan Documents. ARTICLE V AFFIRMATIVE COVENANTS From the date of this Agreement and thereafter until all Obligations are paid in full, all Letters of Credit have expired or been terminated and the Credit has terminated, the Borrowers agree that unless the Lender shall otherwise consent in writing, each Borrower (or the Borrower specified) will: 5.1 Financial Statements and Other Reports. 5.1.1 Financial Reports. Furnish to the Lender in form satisfactory to the Lender: (a) Annual Audit Report. As soon as available and in any event within 90 days after the end of each fiscal year of the Borrowers, the annual audit report of each Borrower and its Subsidiaries prepared on a consolidating and consolidated basis in conformity with GAAP, consisting of at least statements of income, cash flow and stockholders' equity, and a consolidated and consolidating balance sheet as at the end of such year, setting forth in each case in comparative form corresponding figures from the previous annual audit, certified, without qualification, by independent certified public accountants of recognized standing selected by such Borrower and acceptable to the Lender, together with any management letters, management reports or other supplementary comments or reports to such Borrower or its board of directors furnished by such accountants. (b) Reserved. (c) Quarterly Financial Statement. As soon as available and in any event within 25 days after the end of each of the first three fiscal quarters of each fiscal year of each Borrower, a copy of the unaudited financial statement of such Borrower and its Subsidiaries prepared in conformity with GAAP, signed by such Borrower's chief financial officer and consisting of at least consolidated statements of income, cash flow and stockholders' equity for such Borrower and its Subsidiaries for such quarter and for the period from the beginning of such fiscal year to the end of such quarter, and a consolidated and consolidating balance sheet of such Borrower as at the end of such quarter. (d) Reserved. (e) Projections. As soon as available and in any event not later than 45 days after the last day of each fiscal year of each Borrower, projected financial statements of such Borrower and its Subsidiaries consisting of at least consolidated statements of income, cash flow and stockholders' equity and a consolidated balance sheet, signed by such Borrower's chief financial officer and presenting fairly such Borrower's best good faith projections of the financial position and results of operations of such Borrower and its Subsidiaries for each month of the following fiscal year. (f) Officer's Certificate. Together with the financial statements furnished by the Borrowers under Section 5.1.1(a) and (c), a certificate of each Borrower's chief financial officer, in substantially the form of Exhibit B hereto, dated the date of such annual audit report or such quarterly or monthly financial statement, as the case may be, to the effect that no Event of Default or Unmatured Event of Default has occurred and is continuing, or, if there is any such event, describing it and the steps, if any, being taken to cure it, and containing a computation of, and showing compliance with, each of the financial ratios and restrictions contained in Articles V and VI and Supplement A. 5.1.2 Agings; Ineligible Accounts Receivable Certification. Within 15 days after the end of each month, (a) a detailed aging of all Accounts Receivable by invoice, including, without limitation, a reconciliation to the aging report delivered to the Lender for the preceding month, (b) a certification of ineligible Accounts Receivable and (c) an aging of all accounts payable as of the end of the preceding month, each in form and content acceptable to the Lender. 5.1.3 Reserved. 5.1.4 Sales and Collection Reports. If requested by Lender, not later than 1:00 p.m., Minneapolis time, on each Business Day, a report of the Borrowers' sales and collections for such day, and for any other day for which sales and collections have not been reported, in form and content acceptable to the Lender. 5.1.5 Other Reports. (a) SEC and Other Reports. Promptly upon the making or filing thereof, copies of all financial statements, reports and proxy statements mailed to any Borrower's' shareholders, and copies of all registration statements, periodic reports and other documents filed with the Securities and Exchange Commission (or any successor thereto) or any national securities exchange. (b) Report of Change in Subsidiaries or Other Entities. Subject to Section 6.7, promptly upon the occurrence thereof, a written report of any change in the list of each Borrower's Subsidiaries set forth on Schedule 4.10 or in the list of partnerships, joint ventures or limited liability companies set forth on Schedule 4.11. (c) Patents, Etc. Promptly upon the occurrence thereof, a written report of any change to the list of patents, trademarks, copyrights and other information set forth in Schedule 4.16. (d) Insurance Updates. If requested, provide to the Lender within 45 days of such request, a certificate signed by the respective chief financial officer of each Borrower that attests to and summarizes the property and casualty insurance program carried by such Borrower and its Subsidiaries. This summary shall include each insurer's name, policy number(s), expiration date(s), amount(s) of coverage, type(s) of coverage, the annual premium(s), Best's policyholder's and financial size ratings of each insurer, exclusions, deductibles and self-insured retention and shall describe in detail any retrospective rating plan, fronting arrangement or any other self-insurance or risk assumption agreed to by such Borrower or any Subsidiary or imposed upon such Borrower or any Subsidiary by any such insurer, as well as any self-insurance program that is in effect. (e) Other Reports. The information required to be provided pursuant to other provisions of this Agreement, and such other reports from time to time requested by the Lender. 5.2 Notices. Notify the Lender in writing of any of the following immediately upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken by the Person(s) affected with respect thereto: (a) Default. The occurrence of (i) any Event of Default or Unmatured Event of Default, and (ii) to the extent not included in clause (i) above, the default by any Borrower, any other Obligor or any Subsidiary under any note, indenture, loan agreement, mortgage, lease, deed or other material similar agreement to which such Borrower, any other Obligor or any Subsidiary, as appropriate, is a party or by which it is bound. (b) Litigation. The institution of any litigation, arbitration proceeding or governmental proceeding affecting any Borrower, any other Obligor, any Subsidiary, any Collateral or any Third Party Collateral, whether or not considered to be covered by insurance wherein the amount claimed and which, if such claim were successful, would have to be paid by a Borrower, exceeds $250,000. (c) Judgment. The entry of any judgment or decree against any Borrower, any other Obligor or any Subsidiary, if the amount of such judgment exceeds insurance coverage, including any deductible to be paid by a Borrower, by $250,000 for any one judgment or the aggregate amount of unpaid judgments entered against the Borrower exceeds insurance coverage, including any deductible to be paid by the Borrower, by $2,000,000. (d) ERISA. With respect to any Plan, the occurrence of a Reportable Event or Prohibited Transaction, a notice specifying the nature thereof and what action the Borrowers propose to take with respect thereto, and, when received, copies of any notice from PBGC of intention to terminate or have a trustee appointed for any Plan. (e) Reserved. (f) Change in Place(s) of Business. Subject to the provisions of Section 6.5, any proposed opening, closing or other change in the list of offices and other places of business of each Borrower and each Subsidiary set forth in Schedule 4.12 or 4.13, and any opening, closing or other change in the offices and other places of business of each other Obligor, together with a list of such new location(s) the legal description of the location and the name and address of any landlord and/or mortgagee. (g) Change of Name. Subject to the provisions of Section 6.5, any change in the name of any Borrower, any other Obligor or any Subsidiary, and any change in the list of trade names and trade styles set forth in Schedule 4.1. (h) Environmental and Safety and Health Matters. Non-compliance with and/or receipt of any notice that the operations of any Borrower, any other Obligor or any Subsidiary are not in material compliance with the requirements of any applicable Environmental Law or any Occupational Safety and Health Law; the occurrence of and/or receipt of notice that any Borrower, any other Obligor or any Subsidiary is subject to federal, state or local investigation evaluating whether any remedial action is needed to respond to (i) any spillage, disposal or release into the environment of any Hazardous Material or other hazardous, toxic or dangerous waste, substance or constituent, or other substance, or (ii) any unsafe or unhealthful condition at any premises of any Borrower, any other Obligor or any Subsidiary; or receipt of notice that any properties or assets of any Borrower any other Obligor or any Subsidiary are subject to an Environmental Lien. (i) Adverse Event. The occurrence of an Adverse Event. (j) Default by Others. Any material default by any Account Debtor or other Person obligated to any Borrower, any other Obligor, or any Subsidiary, under any contract, chattel paper, note or other evidence of amounts payable or due or to become due to any Borrower, such Obligor or Subsidiary if the amount payable under such contract, chattel paper, note or other evidence of amounts payable or due or to become due is material. (k) Moveable Collateral. If any of the Collateral or Third Party Collateral shall consist of goods of a type normally used in more than one state, whether or not actually so used, any use of any such goods in any state other than a state in which the Borrowers shall have previously advised the Lender such goods will be used. The Borrowers agree that such goods will not, unless the Lender shall otherwise consent in writing, be used outside the continental United States or in Louisiana. (l) Change in Management or Line(s) of Business. Any substantial change in the senior management of any Borrower or any Subsidiary, or any change in anythe Borrower's' or any Subsidiary's line(s) of business. (m) Change in Insurance. The Borrowers shall (a) notify the Lender in writing at least 30 days prior to any cancellation or material change of any insurance by any Borrower or any Subsidiary and (b) within five business days after receipt of any notice (whether formal or informal) of any cancellation or change in any of its insurance by any of its insurers or any material change in the cost thereof or which reduces the policyholder's or financial size ratings of the insurance carriers of any Borrower or Subsidiary, as established by Best's Insurance Reports. (n) Other Events. The occurrence of such other events as the Lender may from time to time specify. 5.3 Existence. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its respective existence as a corporation or other form of business organization, as the case may be, and all rights, privileges, licenses, patents, patent rights, copyrights, trademarks, trade names, franchises and other authority to the extent material and necessary for the conduct of its respective business in the ordinary course as conducted from time to time. 5.4 Nature of Business. Engage, and cause each of its Subsidiaries to engage, in substantially the same fields of business as it is engaged in on the date hereof. 5.5 Books and Records, Access. Maintain, and cause each of its Subsidiaries to maintain, complete and accurate books and records (including, without limitation, records relating to Accounts Receivable and other Collateral), in which full and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its respective business and activities. Cause its books and records as at the end of any calendar month to be posted and closed not more than 15 days after the last business day of such month. Permit, and cause each of its Subsidiaries to permit, access by the Lender and its agents or employees to the books and records of each Borrower and such Subsidiaries at such Borrower's or such Subsidiary's place or places of business at intervals to be determined by the Lender and without hindrance or delay, and permit, and cause each Subsidiary to permit, the Lender or its agents and employees to inspect each Borrower's Inventory and Equipment and such Subsidiary's inventory and equipment, and to inspect, audit, check and make copies and/or extracts from the books, records, journals, orders, receipts, correspondence and other data relating to Inventory, Accounts Receivable, chattel paper, General Intangibles, Equipment and any other Collateral or Third Party Collateral, or to any other transactions between the parties hereto. Any and all such inspections and/or audits shall be at the Borrowers' expense. 5.6 Insurance. Maintain, and cause each Subsidiary to maintain, insurance to such extent and against such hazards and liabilities as is commonly maintained by companies similarly situated or as the Lender may request from time to time. From time to time, prior to the expiration of any such insurance, Borrowers shall deliver to Lender certificates evidencing the renewal of such policies of insurance together with evidence of payment of all premiums therefor. 5.7 Reserved. 5.8 Repair. Maintain, preserve and keep, and cause each Subsidiary to maintain, preserve and keep, its properties in good repair, working order and condition, and from time to time make, and cause each Subsidiary to make, all necessary and proper repairs, renewals, replacements, additions, betterments and improvements thereto so that at all times the efficiency thereof shall be fully preserved and maintained. 5.9 Taxes. File and cause each Subsidiary to file its federal income tax return for each taxable year when due and pay, and cause each Subsidiary to pay, when due, all of its Taxes, unless and only to the extent that such Borrower or such Subsidiary, as the case may be, is contesting such Taxes in good faith and by appropriate proceedings and such Borrower or such Subsidiary has set aside on its books such reserves or other appropriate provisions therefor as may be required by GAAP. 5.10 Compliance. Comply, and cause each Subsidiary to comply, with all federal, state and local statutes and governmental rules and regulations applicable to it, including, without limitation, the Fair Labor Standards Act, all Environmental Laws and all Occupational Safety and Health Laws. 5.11 ERISA. Maintain, and cause each ERISA Affiliate to maintain, each Plan in compliance with all material applicable requirements of ERISA and of the Code and with all applicable rulings and regulations issued under the provisions of ERISA and of the Code and not and not permit any of the ERISA Affiliates to (a) engage in any transaction in connection with which any Borrower or any of the ERISA Affiliates would be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code, in either case in an amount exceeding $50,000, (b) fail to make full payment when due of all amounts which, under the provisions of any Plan, any Borrower or any ERISA Affiliate is required to pay as contributions thereto, or permit to exist any accumulated funding deficiency (as such term is defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, with respect to any Plan in an aggregate amount exceeding $50,000 or (c) fail to make any payments in an aggregate amount exceeding $50,000 to any Multiemployer Plan that any Borrower or any of the ERISA Affiliates may be required to make under any agreement relating to such Multiemployer Plan or any law pertaining thereto. 5.12 Collateral Monitoring. Permit the Lender to (a) use the Borrowers' stationery and sign the name of such Borrower to request verification of Accounts Receivable or other Collateral from Account Debtors, and (b) use the information recorded on or contained in any data processing equipment and computer hardware and software to which any Borrower has access relating to Accounts Receivable, Inventory, Equipment and/or other Collateral. ARTICLE VI NEGATIVE COVENANTS From the date of this Agreement and thereafter until all Obligations are paid in full, all Letters of Credit have expired or been terminated and the Credit has terminated, each Borrower agrees that, unless the Lender shall otherwise consent in writing, it will not, and will not permit any Subsidiary to, do any of the following: 6.1 Merger. Merge or consolidate or enter into any analogous reorganization or transaction with any Person. 6.2 Sale of Assets. Sell, transfer, convey, lease, assign or otherwise dispose (with or without recourse) of any of its assets (including, without limitation, any Accounts Receivable, instruments or chattel paper) except for sales and leases of Inventory, Equipment and terminal locations outside of Utah and Georgia in the ordinary course of business. 6.3 Purchase of Assets. Purchase or lease or otherwise acquire all or substantially all the assets of any Person. 6.4 ERISA. Permit any event to occur or condition to exist which would permit any Plan to terminate under any circumstances which would cause the Lien provided for in Section 4068 of ERISA to attach to any assets of any Borrower; and no Borrower will permit, as of the most recent valuation date for any Plan subject to Title IV of ERISA, the present value (determined on the basis of reasonable assumptions employed by the independent actuary for such Plan and previously furnished in writing to the Lender) of such Plan's projected benefit obligations to exceed the fair market value of such Plan's assets. 6.5 Changes in Collateral or Business Locations. Change (a) the location of its chief executive office or chief place of business; (b) its name; or (c) the locations where it stores or maintains Inventory or Equipment without, in each case, at least 30 days' prior written notice to the Lender. 6.6 Fiscal Year. Change the end of its fiscal year from September 30. 6.7 Subsidiaries, Partnerships and Joint Ventures. Either: (a) form or acquire any corporation which would thereby become a Subsidiary; or (b) form or enter into any partnership as a limited or general partner or into any joint venture or any limited liability company or other similar entity. 6.8 Other Agreements. Enter into any agreement, bond, note or other instrument with or for the benefit of any Person other than the Lender which would (a) prohibit any Borrower or Subsidiary from granting, or otherwise limit the ability of such Borrower or such Subsidiary to grant, to the Lender any Lien on the Collateral, or (b) be violated or breached by such Borrower's performance of its obligations under the Loan Documents. 6.9 Restricted Payments. Purchase or redeem or otherwise acquire for value any shares of any Borrower's or any Subsidiary's stock, declare or pay any cash dividends thereon (other than stock and other dividends payable to such Borrower), make any distribution to stockholders as such (other than such Borrower) directly or indirectly, or set aside any funds for any such purpose; prepay, purchase or redeem any subordinated Indebtedness of such Borrower or any Subsidiary; and not take any action which will result in a decrease in such Borrower's or any Subsidiary's ownership interest in any Subsidiary. 6.10 Reserved. 6.11 Investments. Acquire for value, make, have or hold any Investments, except: (a) advances to employees of a Borrower or any Subsidiary for travel or other ordinary business expenses; (b) advances to subcontractors and suppliers in maximum aggregate amounts reasonably acceptable to the Lender; (c) extensions of credit in the nature of Accounts Receivable or notes receivable arising from the sale of goods and services in the ordinary course of business; (d) shares of stock, obligations or other securities received in settlement of claims arising in the ordinary course of business; (e) Investments (other than Investments in the nature of loans or advances) outstanding on the date hereof in Subsidiaries by such Borrower and its other Subsidiaries; (f) other Investments outstanding on the date hereof and listed on Schedule 6.11; and (g) other Investments consented to by the Lender in writing. 6.12 Indebtedness. Incur, create, issue, assume or suffer to exist any Indebtedness, including, without limitation, Indebtedness as lessee under any Capitalized Lease, except: (a) Indebtedness under the terms of this Agreement; (b) Subordinated Debt listed on Schedule 6.12; (c) Indebtedness hereafter incurred in connection with Liens permitted under Section 6.13(d); (d) other Indebtedness outstanding on the date hereof and listed on Schedule 6.12; and (e) other Indebtedness approved in writing by the Lender. 6.13 Liens. Create, incur, assume or suffer to exist any Lien with respect to any property, revenues or assets now owned or hereafter arising or acquired, except: (a) Liens for current Taxes not delinquent or Taxes being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP are being maintained; (b) statutory Liens, such as carriers', loggers', warehousemen's, mechanics', materialmen's, and repairmen's Liens, arising in the ordinary course of business securing obligations which are not overdue or which are being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP are being maintained; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) Liens in connection with Capital Expenditures attaching only to the property being acquired if the Indebtedness secured thereby does not exceed 100% of the fair market value of such property at the time of acquisition thereof; (e) Liens in favor of the Lender; (f) Liens permitted on Schedule 4.9; and (g) Liens consented to by the Lender in writing. 6.14 Contingent Liabilities. Either: (a) endorse, guarantee, contingently agree to purchase or to provide funds for the payment of, or otherwise become contingently liable upon, any obligation of any other Person, except by the endorsement of negotiable instruments for deposit or collection (or similar transactions) in the ordinary course of business, or (b) agree to maintain the net worth or working capital of, or provide funds to satisfy any other financial test applicable to, any other Person. 6.15 Change in Accounts Receivable. After the occurrence of an Event of Default or receipt of notice from the Lender that the Lender intends to commence direct collection of Accounts Receivable, permit or agree to any extension, compromise or settlement or make any change or modification of any kind or nature with respect to any Account Receivable, including any of the terms relating thereto. 6.16 Unconditional Purchase Obligations. Enter into or be a party to any contract for the purchase of materials, supplies or other property or services, if such contract requires that payment be made by it regardless of whether or not delivery is ever made of such materials, supplies or other property or services. 6.17 Use of Proceeds. Use or permit any proceeds of the Loans to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying any margin stock" within the meaning of Regulation U of the Federal Reserve Board, as amended from time to time, and furnish to the Lender upon request, a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U of the Federal Reserve Board. 6.18 Transactions with Related Parties. Enter into or be a party to any transaction or arrangement, including, without limitation, the purchase, sale, lease or exchange of property or the rendering of any service, with any Related Party, except in the ordinary course of and pursuant to the reasonable requirements of such Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to such Borrower or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not a Related Party. ARTICLE VII EVENTS OF DEFAULT AND REMEDIES 7.1 Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default": (a) Non-Payment. The Borrowers shall fail to pay, when due, whether by acceleration, maturity or otherwise, any Obligations; (b) Non-Payment of Other Indebtedness. Any Borrower, any other Obligor or any Subsidiary shall fail to pay, when due, whether by acceleration or otherwise (subject to any applicable grace period), any Indebtedness of, or guaranteed by, such Borrower, such other Obligor or such Subsidiary; (c) Acceleration of Other Indebtedness. Any event or condition shall occur which results in the acceleration of the maturity of any Indebtedness of, or guaranteed by, any Borrower, any other Obligor or any Subsidiary or enables the holder or holders of such other Indebtedness or any trustee or agent for such holders (any required notice of default having been given and any applicable grace period having expired) to accelerate the maturity of such other Indebtedness; (d) Other Obligations. Any Borrower, any other Obligor or any Subsidiary shall fail to pay, when due, whether by acceleration or otherwise, or perform or observe (subject to any applicable grace period or waiver of such default) (i) any obligation or agreement of such Borrower, such other Obligor or such Subsidiary to or with the Lender (other than any obligation or agreement of the Borrowers hereunder and under any Notes) or (ii) any material obligation or agreement of such Borrower, such other Obligor or such Subsidiary to or with any other Person (other than (A) any such material obligation or agreement constituting or related to Indebtedness, (B) accounts payable arising in the ordinary course of business, and (C) any material obligation or agreement of any Subsidiary to such Borrower or to any other Subsidiary), except only to the extent that the occurrence of any such failure is being contested by such Borrower, such other Obligor or such Subsidiary, as the case may be, in good faith and by appropriate proceedings and such Borrower, such other Obligor or such Subsidiary, as applicable, shall have set aside on its books such reserves or other appropriate provisions therefor as may be required by GAAP; (e) Insolvency. Any Borrower, any other Obligor or any Subsidiary becomes insolvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they mature, or applies for, consents to, or acquiesces in, the appointment of a trustee, receiver or other custodian for such Borrower, such other Obligor or such Subsidiary, or for a substantial part of the property of such Borrower, such other Obligor or such Subsidiary, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for any Borrower, any other Obligor or any Subsidiary or for a substantial part of the property of such Borrower, any other Obligor or any Subsidiary; or any bankruptcy, reorganization, debt arrangement or other proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is instituted by or against any Borrower, any other Obligor or any Subsidiary; or any warrant of attachment or similar legal process is issued against any substantial part of the property of any Borrower, any other Obligor or any Subsidiary; (f) ERISA. The institution by any Borrower or any ERISA Affiliate of steps to terminate any Plan if, in order to effectuate such termination, any Borrower or any ERISA Affiliate would be required to make a contribution to such Plan or would incur a liability or obligation to such Plan, in excess of $50,000; or the institution by the PBGC of steps to terminate any Plan; (g) Non-Compliance With this Agreement. Any Borrower shall fail to comply with any of the Borrowers' agreements set forth herein or in Supplement A; (h) Non-Compliance With Other Loan Documents. Failure by any Borrower, any other Obligor or any Subsidiary to comply with any of its respective agreements set forth in any Loan Documents other than this Agreement (and not constituting an Event of Default under any of the other subsections of this Section 7.1), and such failure to comply shall continue after the grace period (if any) set forth therein; (i) Representations and Warranties. Any representation or warranty made by any Borrower or any other Obligor in any of the Loan Documents is untrue or misleading in any material respect when made or deemed made; or any schedule, statement, report, notice, certificate or other writing furnished by any Borrower or any other Obligor to the Lender is untrue or misleading in any material respect on the date as of which the facts set forth therein are stated or certified; or any certification made or deemed made by any Borrower or any other Obligor to the Lender is untrue or misleading in any material respect on or as of the date made or deemed made; (j) Litigation. There shall be entered against any Borrower, any other Obligor or any Subsidiary one or more judgments or decrees in excess of $250,000 for any one judgment and $2,000,000 in the aggregate at any one time outstanding, excluding those judgments or decrees (i) that shall have been outstanding less than 30 calendar days from the entry thereof or that are the subject of a pending appeal being timely pursued and for which the Borrower in question has posted any required bond, (ii) for and to the extent which such Borrower, such Obligor or such Subsidiary, as applicable, is insured and with respect to which the insurer has assumed responsibility in writing or for and to the extent which such Borrower, such Obligor or such Subsidiary, as applicable, is otherwise indemnified if the terms of such indemnification are satisfactory to the Lender; (k) Death or Incompetence of Obligor. If any natural person who is an Obligor, partner in a partnership which is an Obligor, or owner of a material interest in a corporate Obligor, shall die or be declared legally incompetent; (l) Validity. If the validity or enforceability of any of the Loan Documents shall be challenged by any Borrower, any other Obligor or any other Person, or shall fail to remain in full force and effect; (m) Conduct of Business. If any Borrower, any other Obligor or any Subsidiary is enjoined, restrained or in any way prevented by court order, which has not been dissolved or stayed within five Business Days, from conducting all or any material part of its business affairs; (n) Change in Management or Line(s) of Business. Any substantial change in the senior management of any Borrower, or any change in any Borrower's line(s) of business. 7.2 Effect of Event of Default; Remedies. (a) In the event that one or more Events of Default described in Section 7.1(e) shall occur, then the Credit extended under this Agreement shall terminate and all Obligations shall be immediately due and payable without demand, notice or declaration of any kind whatsoever. (b) Upon the occurrence of an Event of Default, or at any time thereafter during the continuance thereof, (other than one described in Section 7.1(e)) the Lender may declare all Obligations immediately due and payable without demand or notice of any kind whatsoever, whereupon the Credit extended under this Agreement shall terminate and all Obligations shall be immediately due and payable without demand or notice of any kind whatsoever. The Lender shall promptly advise the Borrowers of any such declaration, but failure to do so shall not impair the effect of such declaration. (c) Upon the occurrence of an Event of Default, or at any time thereafter during the continuance thereof, the Lender may exercise any one or more or all of the following remedies, all of which are cumulative and non-exclusive: (i) any other remedy contained in this Agreement, the other Loan Documents or any Supplemental Documentation; (ii) any rights and remedies available to the Lender under the Uniform Commercial Code as enacted in Minnesota as of the date of this Agreement, and any other applicable law; (iii) without notice, demand or legal process of any kind, the Lender may take possession of any or all of the Collateral (in addition to Collateral which it might already have in its possession), wherever it might be found, and for that purpose may pursue the same wherever it may be found, and may enter into any premises where any of the Collateral may be or is supposed to be, and search for, take possession of, remove, keep and store any of the Collateral until the same shall be sold or otherwise disposed of, and the Lender shall have the right to store the same in any of the Borrowers' premises without cost to the Lender; (iv) at the Lender's request, the Borrowers will, at the Borrowers' expense, assemble the Collateral and make it available to the Lender at a place or places to be designated by the Lender and reasonably convenient to the Lender and the Borrowers; and (v) the Lender at its option, and pursuant to notification given to the Borrowers as provided for below, may sell any Collateral actually or constructively in its possession at public or private sale and apply the proceeds thereof as provided in Section 8.2 below. 7.3 Setoff. In addition to and not in limitation of all rights of offset that the Lender, any Affiliate, or any other holder of any interest in this Agreement or any Note may have under applicable law, upon the occurrence and during the continuation of any Event of Default, or any Unmatured Event of Default, Lender and any Affiliate shall have the right, in its sole discretion and without demand and without notice to anyone to appropriate or set off and apply to the payment of the Obligations, whether or not due, any and all balances, credits, deposits, accounts or moneys of the Borrowers and any of them then or thereafter with such Person and any and all other liabilities owed to the Borrower by such Person. 7.4 Use of Premises. Borrower hereby irrevocably grants to Lender the right, subject to the rights of any landlord of the premises, to enter upon and hold the premises of Borrower wherever located at any time following the occurrence of an Event of Default and during the continuation thereof. Lender may use the premises to hold, process, manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of Collateral and for other purposes that the Lender may in good faith deem to be related or incidental purposes. Lender's right to hold the premises shall cease and terminate upon the earlier of (i) payment in full of all Obligations, expiration or termination of all Letters of Credit and termination of the Credit or (ii) final sale or disposition of all goods constituting Collateral and delivery of all such goods to purchasers. The Lender shall not be obligated to pay any rent or other compensation for the occupancy or use of any of the premises unless required by the landlord of such premises, provided, however, if Lender does pay or account for any rent or other compensation for the occupancy or use of any of the premises, such rent or compensation shall be considered an Advance under this Agreement and shall constitute part of the Obligations. ARTICLE VIII COLLATERAL AND THE LENDER'S RIGHTS 8.1 Notice of Disposition of Collateral. Any notification of intended disposition of any of the Collateral required by law shall be deemed reasonably and properly given if given at least ten calendar days before such disposition. 8.2 Application of Proceeds of Collateral. Any proceeds of any disposition by the Lender of any of the Collateral may be applied by the Lender to the payment of expenses in connection with the taking possession of, storing, preparing for sale, and disposition of Collateral, including Attorneys' Fees and legal expenses, and any balance of such proceeds may be applied by the Lender toward the payment of such of the Obligations, and in such order of application, as the Lender may from time to time elect. 8.3 Care of Collateral. The Lender shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if it takes such action for that purpose as the Borrower owning such Collateral requests in writing, but failure of the Lender to comply with such request shall not, of itself, be deemed a failure to exercise reasonable care, and no failure of the Lender to preserve or protect any rights with respect to such Collateral against prior parties, or to do any act with respect to the preservation of such Collateral not so requested by the Borrowers, shall be deemed a failure to exercise reasonable care in the custody or preservation of such Collateral. 8.4 Performance of Borrower's Obligations. The Lender shall have the right, but shall not be obligated, to discharge any claims against or Liens, and any Taxes at any time levied or placed upon any or all Collateral including, without limitation, those arising under statute or in favor of landlords, taxing authorities, government, public and/or private warehousemen, common and/or private carriers, processors, finishers, draymen, coopers, dryers, mechanics, artisans, laborers, attorneys, courts, or others. The Lender may also pay for maintenance and preservation of Collateral. The Lender may, but is not obligated to, perform or fulfill any of the Borrowers' responsibilities under this Agreement which the Borrowers or any of them have failed to perform or fulfill. All amounts expended by Lender under this Section 8.4 shall be deemed to be an Advance under this Agreement. 8.5 Lender's Rights. None of the following shall affect the obligations of the Borrowers to the Lender under this Agreement or the Lender's rights with respect to the Collateral or any Third Party Collateral (any or all of which actions may be taken by the Lender at any time, whether before or after an Event of Default, at its sole and absolute discretion and without notice to the Borrowers): (a) acceptance or retention by the Lender of other property or interests in property as security for the Obligations, or acceptance or retention of any Obligor(s), in addition to the Borrowers, with respect to any Obligations; (b) release of its security interest in, or surrender or release of, or the substitution or exchange of or for, all or any part of the Collateral or any Third Party Collateral or any other property securing any Obligations (including, without limitation, any property of any Obligor other than the Borrowers), or any extension or renewal for one or more periods (whether or not longer than the original period), or release, compromise, alteration or exchange, of any obligations of any Guarantor or other Obligor with respect to any Collateral or any such property; (c) extension or renewal for one or more periods (whether or not longer than the original period), or release, compromise, alteration or exchange of any Obligations, or release or compromise of any obligation of any Obligor with respect to any Obligations; or (d) failure by the Lender to resort to other security or pursue any Person liable for any Obligations before resorting to the Collateral. ARTICLE IX CONDITIONS PRECEDENT 9.1 Conditions Precedent to Initial Loan. The obligation of the Lender to make the initial Loan shall be subject to the satisfaction of the following conditions precedent, in addition to the applicable conditions precedent set forth in Section 9.2: 9.1.1 No Change in Condition. No change in the condition or operations, financial or otherwise, of any Borrowers, any other Obligor or any Subsidiary, shall have occurred which change, in the sole credit judgment of the Lender, may constitute an Adverse Event or have a material adverse effect on any Collateral or Third Party Collateral or the Lender's interest therein. 9.1.2 Accounting Methods. No Borrower shall have made any material, as determined by the Lender, change in its accounting methods or principles. 9.1.3 Survey. The Lender shall have completed its updated survey of the business, operations and assets of the Borrowers, each Subsidiary and each other Obligor, and such survey shall provide the Lender with results and information which, in the Lender's determination, are satisfactory to the Lender. 9.1.4 No Material Transaction. None of the Borrowers, any other Obligor or any Subsidiary shall have entered into any material, as determined by the Lender, commitment or transaction, including, without limitation, transactions for borrowings and Capital Expenditures, which are not in the ordinary course of their respective businesses. 9.1.5 Litigation. No litigation shall be outstanding or have been instituted or threatened which the Lender determines to be material against any Borrower, any other Obligor or any Subsidiary. 9.1.6 Filing of Documents. All financing statements, mortgages and other documents relating to the Collateral and Third Party Collateral shall have been filed or recorded, as appropriate. 9.1.7 Delivery of Documents. The Borrowers shall have delivered or cause to be delivered to the Lender with each of the following, each in form and substance satisfactory to the Lender in all respects and each duly executed and dated the date of the initial Loan or such earlier date as shall be acceptable to the Lender: (a) This Agreement. Duly executed by Borrowers and Lender. (b) Other Agreements. Duly executed copies of each of the Loan Documents not specifically identified herein which the Lender determines to be necessary or desirable, each in form and content satisfactory to the Lender; (c) Resolutions of Borrower. A copy, duly certified by the secretary or an assistant secretary of each Borrower, of (i) the resolutions of the Board of Directors of such Borrower authorizing (A) the borrowings by such Borrower hereunder, (B) the execution, delivery and performance by such Borrower of the Loan Documents to which such Borrower is a party or by which it is bound, (C) the conveyance of a lien on the Collateral owned by such Borrower to Lender, and (D) certain officers or employees of such Borrower to request borrowings by telephone and to execute Borrowing Base Certificates; (ii) all documents evidencing other necessary corporate action; and (iii) all approvals or consents, if any, with respect to the Loan Documents; (d) Incumbency Certificate of Borrower. A certificate of the secretary or an assistant secretary of each Borrower, certifying the names of the officers of such Borrower authorized to sign the Loan Documents to which it is a party and any Supplemental Documentation, together with the true signatures of such officers; (e) Bylaws of Borrower. A copy, duly certified by the secretary or an assistant secretary of each Borrower, of such Borrower's Bylaws; (f) Articles of Incorporation of Borrower. A copy, duly certified by the Secretary of State of each Borrower's state of incorporation, of such Borrower's Articles of Incorporation; (g) Good Standing Certificates of Borrower. Certificates of good standing as to each Borrower issued by the Secretary of State of the state in which such Borrower is organized, and each other state in which the failure of such Borrower to be in good standing would constitute an Adverse Event or have a material adverse effect on the Lender's rights in any Collateral; (h) Opinion. A legal opinion of Scudder Law Firm, P.C., counsel to the Borrowers; (i) Borrower's Certificate. The certificate of the chief executive officer/President of each Borrower certifying, to the best of his/her knowledge after diligent inquiry, to the fulfillment of all conditions precedent to closing and funding the secured financing transaction contemplated by this Agreement and to the truth and accuracy, as of such date, of the representations and warranties of such Borrower contained in the Loan Documents to which such Borrower is a party; (j) Insurance. Evidence satisfactory to the Lender of the existence of insurance on the Collateral in amounts and with insurers acceptable to the Lender, together with evidence establishing that the Lender is named as a loss payee and, if required by the Lender, additional insured, on all related insurance policies and an endorsement or an independent instrument from each issuer of an insurance policy substantially in the form set forth as Exhibit D; and (k) Other. Such other documents, instruments or agreements as the Lender shall determine to be necessary or desirable. 9.1.8 Security Interest. The Lien in the Collateral and Third Party Collateral granted to the Lender to secure the Obligations shall be senior, perfected Liens except as otherwise agreed by the Lender. 9.1.9 Special Accounts. Each Borrower shall have entered into (a) a Collateral Account and Disbursement Account Agreement, substantially in the form of Exhibit E, with the Lender. 9.1.10 Effect of Law. No law or regulation affecting the Lender's entering into the secured financing transaction contemplated by this Agreement shall impose upon the Lender any material obligation, fee, liability, loss, cost, expense or damage. 9.1.11 Exhibits; Schedules. All Exhibits and Schedules to the Loan Documents shall have been completed in form and substance satisfactory to the Lender and shall contain no facts or information which the Lender, in its sole judgment, determines to be unacceptable. 9.2 Conditions Precedent to all Loans. The obligation of the Lender to make any Loan (including the initial Loan) or to issue, or cause to be issued, any Letter of Credit shall be subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. All of the representations and warranties of each Borrower, whether made individually or collectively and each other Obligor set forth in the Loan Documents to which such Borrower or such other Obligor, as applicable, is a party shall be true and correct. (b) Event of Default. Immediately before and after making such Loan or issuing, or causing to be issued such Letter of Credit, no Event of Default or Unmatured Event of Default shall exist or be continuing. ARTICLE X INDEMNITY 10.1 Environmental and Safety and Health Indemnity. Each Borrower hereby indemnifies the Lender and Affiliates and agrees to hold the Lender and Affiliates harmless from and against any and all losses, liabilities, damages, injuries, costs, expenses and claims of any and every kind whatsoever (including, without limitation, court costs and Attorneys' Fees) which at any time or from time to time may be paid, incurred or suffered by, or asserted against, the Lender or any Affiliate (a) for, with respect to, or as a direct or indirect result of the violation by any Borrower or any Subsidiary, of any Environmental Law or Occupational Safety and Health Law; or (b) with respect to, or as a direct or indirect result of (i) the presence on or under, or the escape, seepage, leakage, spillage, disposal, discharge, emission or release from, properties owned or utilized by any Borrower and/or any Subsidiary in the conduct of its business into or upon any land, the atmosphere, or any watercourse, body of water or wetland, of any Hazardous Material or other hazardous, toxic or dangerous waste, substance or constituent, or other substance (including, without limitation, any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under the Environmental Laws) or (ii) the existence of any unsafe or unhealthful condition on or at any premises owned or utilized by any Borrower and/or any Subsidiary in the conduct of its business. The provisions of and undertakings and indemnification set out in this Section 10.1 shall survive satisfaction and payment of the Obligations and termination of this Agreement. 10.2 General Indemnity. In addition to the payment of expenses pursuant to Section 12.3, whether or not the transactions contemplated hereby shall be consummated, each Borrower hereby indemnifies, and agrees to pay and hold the Lender, its Affiliates and any holder of any Notes, and their respective officers, directors, employees, agents, successors and assigns (collectively called the "Indemnitees") harmless from and against, any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for any of such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not any of such Indemnitees shall be designated a party thereto), that may be imposed on, incurred by, or asserted against the Indemnitees (or any of them), in any manner relating to or arising out of the Loan Documents, the statements contained in any commitment letters delivered by the Lender, the Lender's agreement to make the Loans or any Letter of Credit Issuer's agreement to issue Letters of Credit hereunder, or the use or intended use of any Letters of Credit, or the use or intended use of the proceeds of any of the Loans (the "Indemnified Liabilities"); provided, however, that the Borrowers shall have no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of an Indemnitee. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrowers shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. The provisions of the undertakings and indemnification set out in this Section 10.2 shall survive satisfaction and payment of the Obligations and termination of this Agreement. 10.3 Capital Adequacy. If the Lender shall reasonably determine that the application or adoption of any law, rule, regulation, directive, interpretation, treaty or guideline regarding capital adequacy, or any change therein or in the interpretation or administration thereof, whether or not having the force or law (including, without limitation, application of changes to Regulation H and Regulation Y of the Federal Reserve Board issued by the Federal Reserve Board on January 19, 1989 and regulations of the Comptroller of the Currency, Department of the Treasury, 12 CFR Part 3, Appendix A, issued by the Comptroller of the Currency on January 27, 1989) increases the amount of capital required or expected to be maintained by the Lender or any Person controlling the Lender, and such increase is based upon the existence of the Lender's obligations hereunder and other commitments of this type, then from time to time, within 10 days after demand from the Lender, the Borrowers shall pay to the Lender such amount or amounts as will compensate the Lender or such controlling Person, as the case may be, for such increased capital requirement. The determination of any amount to be paid by the Borrowers under this Section 10 shall take into consideration the policies of the Lender or any Person controlling the Lender with respect to capital adequacy and shall be based upon any reasonable averaging, attribution and allocation methods. A certificate of the Lender setting forth the amount or amounts as shall be necessary to compensate the Lender as specified in this Section 10.3 shall be delivered to the Borrowers and shall be conclusive in the absence of manifest error. The amounts set forth in said certificate shall be payable on demand. ARTICLE XI ADDITIONAL PROVISIONS Additional provisions are set forth in Supplement A. ARTICLE XII GENERAL 12.1 Borrower's Waiver. Except as otherwise provided for in this Agreement, the Borrowers waive (a) presentment, demand and protest and notice of presentment, protest, default, non-payment, maturity, release, compromise, settlement, one or more extensions or renewals of any or all commercial paper, accounts, documents, instruments, chattel paper and guaranties at any time held by the Lender on which any Borrower may in any way be liable and hereby ratifies and confirms whatever the Lender may do in this regard; (b) all rights to notice and a hearing prior to the Lender's taking possession or control of, or the Lender's relevy, attachment or levy on or of, the Collateral or any bond or security which might be required by any court prior to allowing the Lender to exercise any of the Lender's remedies; and (c) the benefit of all valuation, appraisement and exemption laws. 12.2 Borrower's Acknowledgement. Each Borrower acknowledges that it has read and understands this Agreement and has been advised by counsel of its choice with respect to this Agreement and the transactions evidenced by this Agreement or has knowingly waived its right to such counsel. 12.3 Expenses; Attorney's Fees. The Borrowers agrees, whether or not any Loan is made or Letter of Credit issued hereunder, to pay the Lender upon demand for all expenses and Attorneys' Fees, including, without limitation, those incurred by the Lender in connection with (a) the preparation, negotiation and execution of the Loan Documents (subject to the limitation on amount agreed to by letter of September 1, 1999, which limitation is incorporated herein), (b) the preparation of any and all amendments to the Loan Documents and all other instruments or documents provided for therein or delivered or to be delivered thereunder or in connection therewith, (c) the collection or enforcement of the Borrowers' or any other Obligor's obligations under any of the Loan Documents, (d) the costs of all searches and updates of searches in public records deemed necessary by the Lender in connection with the protection of its security interest, and (e) the collection or enforcement of any of the Lender's rights in or to any Collateral or Third Party Collateral. The Borrowers also (y) hereby indemnify and holds the Lender harmless from any loss or expense which may arise or be created by the acceptance of telephonic or other instructions for making Loans and (z) agree to pay, and save the Lender harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Agreement or the issuance of any Note or of any other instruments or documents provided for herein or to be delivered hereunder or in connection herewith. The Borrowers' foregoing obligations shall survive any termination of this Agreement. 12.4 Lender Fees and Charges. The Borrowers agree to pay the Lender, or any Affiliate, on demand the customary fees and charges of the Lender, or such Affiliate, for maintenance of accounts with the Lender, or such Affiliate, or for providing other services to the Borrowers. The Lender may, in its sole and absolute discretion, provide for such payment by charging the Disbursement Account or any other account of any one or more of the Borrowers with the Lender or any other Affiliate, or advancing the amount thereof to the Borrowers as a Loan. 12.5 No Waiver by Lender; Amendments. No failure or delay on the part of the Lender in the exercise of any power or right, and no course of dealing between any one or more of the Borrowers and the Lender shall operate as a waiver of such power or right, nor shall any single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right. The remedies provided for herein are cumulative and not exclusive of any remedies which may be available to the Lender at law or in equity or otherwise by agreement. No notice to or demand on the Borrowers not required hereunder shall in any event entitle the Borrowers to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of the Lender to any other or further action in any circumstances without notice or demand. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed and delivered by the Lender. Any waiver of any provision of this Agreement, and any consent to any departure by the Borrowers from the terms of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which given. 12.6 Notice. Except as otherwise expressly provided herein, any notice hereunder to the Borrowers or the Lender shall be in writing (including telecopy communication) and shall be given to the Borrowers or the Lender at the address or fax number set forth on the signature pages hereof or at such other address, or telecopier number as the Borrowers or the Lender may, by written notice, designate as its address or fax number for purposes of notice hereunder. All such notices shall be deemed to be given (i) when transmitted by fax on the date the appropriate answer back is received, (ii) when delivered by a commercially recognized courier service on the date specified for delivery in the instructions to the courier, (iii) on the date personally delivered or, (iv) in the case of notice by mail, three days following deposit in the United States mails, certified mail, return receipt requested properly addressed as herein provided, with proper postage prepaid provided, however, that any notice to the Lender under Article II hereof shall be deemed to have been given only when received by the Lender. 12.7 Participations; Information. The Borrowers hereby consent to the Lender's grant of participations in or sale, assignment, transfer or other disposition, at any time and from time to time hereafter, of the Loan Documents, or of any portion of any thereof, including without limitation lender's rights, titles, interests, remedies, powers and/or duties. The Lender may furnish any information concerning the Borrowers in the possession of the Lender from time to time to assignees of the rights and/or obligations of the Lender hereunder and to participants in any Loan (including prospective assignees and participants) and may furnish information in response to credit inquiries consistent with general banking practice. 12.8 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 12.9 Successors. This Agreement shall be binding upon the Borrowers and the Lender and their respective successors and assigns, and shall inure to the benefit of the Borrowers and the Lender and the successors and assigns of the Lender. The Borrowers shall not assign their respective rights or duties hereunder without the consent of the Lender. 12.10 Entire Agreement. This Agreement and the other Loan Documents embody the entire agreement and understanding between the Borrowers and the Lender with respect to the subject matter hereof and thereof. This Agreement supersedes all prior agreements and understandings relating to the subject matter hereof. 12.11 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and either of the parties hereto may execute this Agreement by signing any such counterpart. 12.12 Construction. Each Borrower acknowledges that this Agreement shall not be binding upon the Lender or become effective until and unless accepted by the Lender, in writing. If so accepted by the Lender, THE LOAN DOCUMENTS AND ANY SUPPLEMENTAL DOCUMENTATION SHALL, UNLESS OTHERWISE EXPRESSLY PROVIDED THEREIN, BE DEEMED TO HAVE BEEN NEGOTIATED AND ENTERED INTO IN, AND SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF, THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO CHOICE OF LAW PROVISIONS AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, CHOICE OF LAW, AND IN ALL OTHER RESPECTS, INCLUDING, BUT NOT LIMITED TO, THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, BUT EXCLUDING PERFECTION OF SECURITY INTERESTS AND LIENS WHICH SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE RELEVANT JURISDICTION. 12.13 Consent to Jurisdiction. To induce the Lender to accept this Agreement, each Borrower, irrevocably, agrees that, subject to the Lender's sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THE LOAN DOCUMENTS OR ANY SUPPLEMENTAL DOCUMENTATION OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF MINNEAPOLIS, STATE OF MINNESOTA. EACH BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON SUCH BORROWER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO SUCH BORROWER AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. 12.14 Subsidiary Reference. Any reference herein to a Subsidiary or Subsidiaries of a Borrower, and any financial definition, ratio, restriction or other provision of this Agreement which is stated to be applicable to "a Borrower and the Subsidiaries" or which is to be determined on a "consolidated" or "consolidating" basis, shall apply only to the extent such Borrower has any Subsidiaries and, where applicable, to the extent any such Subsidiaries are consolidated with such Borrower for financial reporting purposes. 12.15 WAIVER OF JURY TRIAL. THE BORROWERS AND THE LENDER EACH WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a) UNDER THE LOAN DOCUMENTS OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION THEREWITH OR (b) ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 12.16 Joint and Several Obligations. Each Borrower shall be jointly and severally liable for the Obligations arising in connection with Loans made to it and Letters of Credit issued for its account and the Obligations arising in connection with Loans made to the other Borrowers and Letters of Credit issued for the account of the other Borrowers; provided, however, that if it is at any time determined that any Borrower is liable as guarantor (and not as co-obligor or co-borrower) with respect to such Obligations arising in connection with Loans made to the other Borrowers and Letters of Credit issued for the account of other Borrowers (the "Guaranteed Obligations), each Borrower hereby agrees to the terms set forth on Exhibit G hereto with respect to the Guaranteed Obligations; provided further, however, that notwithstanding any other provision hereof, the obligation of each Borrower, whether as a co-obligor with respect to the Obligations or as a guarantor with respect to Guaranteed Obligations, is limited to its respective Maximum Obligated Amount. Any action to enforce payment of the Obligations may be commenced by the Lender against any Borrower as a sole defendant without naming the other Borrowers in such proceeding, and each Borrower hereby acknowledges and agrees that the other Borrowers shall not be claimed by any Borrower to be an indispensable party in any such proceeding. Each Borrower further acknowledges and agrees that the Lender will suffer hardship and irreparable harm if the Lender is delayed in pursuing its remedies against any of the Borrowers. Upon the occurrence and during the continuance of an Unmatured Event of Default or an Event of Default, each Borrower agrees not to exercise any right to claim or seek indemnification, recourse, subrogation, reimbursement or contribution from the other Borrowers arising with respect to this Agreement, the Loans and Letters of Credit and each Borrower hereby waives any right to claim or seek such indemnification, recourse, subrogation, reimbursement or contribution arising with respect to this Agreement, the Loans and Letters of Credit until all obligations of the Lender to make Loans and issue Letters of Credit hereunder have terminated and the Obligations have been irrevocably paid in full. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first written above. SIMON TRANSPORTATION SERVICES INC. By: ________________________ Title: President & CEO Address:5175 West 2100 South West Valley City, Utah 84120-1252 Attention: Alban B. Lang Telephone: 801-924-7000 Fax No.: 801-924-7327 DICK SIMON TRUCKING, INC. By: ________________________ Title: President & CEO Address: 5175 West 2100 South West Valley City, Utah 84120-1252 Attention: Alban B. Lang Telephone: 801-924-7000 Fax No.: 801-924-7327 U.S. BANK NATIONAL ASSOCIATION By: _______________________ Title: ______________________ Address: U.S. Bank Place MPFP0504 601 Second Avenue South Minneapolis, Minnesota 55402-4302 Attention: Asset Based Lending Telephone: (612) 973-1133 Fax No.: (612) 973-0829 EXHIBITS Exhibit A- Form of Borrowing Base Certificate Exhibit B- Form of Compliance Certificate Exhibit C- Excluded Exhibit D- Excluded Exhibit E- Form of Collateral Account; and Disbursement Account Agreement Exhibit F- Excluded Exhibit G - Terms with respect to Guaranteed Obligations SCHEDULES Schedule 4.1 - Trade Names, Etc. Schedule 4.7 - Insurance Schedule 4.8 - Litigation and Contingent Liabilities Schedule 4.9 - Liens Schedule 4.10- Subsidiaries/Ownership Schedule 4.11- Partnerships; Joint Ventures; LLCs Schedule 4.12- Business Locations Principal offices Other locations Schedule 4.13- Excluded Schedule 4.15- Leases Schedule 4.16- Patents, Trademarks, Copyrights Schedule 4.18- Contracts and Labor Disputes Schedule 4.25- Environmental Matters Schedule 6.11- Investments Schedule 6.12- Indebtedness SUPPLEMENT A effective as of September 28, 1999 to CREDIT AND SECURITY AGREEMENT Between U.S. BANK NATIONAL ASSOCIATION (the "Lender") and SIMON TRANSPORTATION SERVICES INC. And DICK SIMON TRUCKING, INC. (the "Borrowers", each a "Borrower") 1. Credit Agreement Reference. This Supplement A, as it may be amended or modified from time to time, is a part of the Credit and Security Agreement, dated as of September __, 1999, between the Borrowers and the Lender (together with all amendments, modifications and supplements thereto, the "Credit Agreement"). Capitalized terms used herein which are defined in the Credit Agreement shall have the meanings given such terms in the Credit Agreement unless the context otherwise requires. 2. Definitions. 2.1 Credit Amount. The term "Credit Amount" shall be Twenty Million Dollars ($20,000,000). 2.2 Borrowing Base. (a) Definition. The term "Borrowing Base" shall mean: (i) an amount (the "Accounts Receivable Availability") of up to 85% of the net amount (as determined by the Lender after deduction of such reserves and allowances as the Lender deems proper and necessary) of the Borrower's Eligible Accounts Receivable. 2.3 Letter of Credit Sublimit. The term "Letter of Credit Sublimit" shall mean $5,000,000. 2.4 Termination Date. The term "Termination Date" shall mean the earliest of (i)September 30, 2002, or (ii) the date on which the Credit is terminated pursuant to Section 7.2 of the Credit Agreement. 3. Interest; Fees. 3.1 Loans. (a) Interest Rate. The unpaid principal balance of the Loans (other than Overdraft Loans and Over Advances) shall bear interest at the following rates: (i) Eurodollar Advances. The unpaid principal amount of each Eurodollar Advance shall bear interest at a rate per annum equal to the Eurodollar Rate (Reserve Adjusted) in effect for each Interest Period for such Eurodollar Advance plus 1.75% per annum. (ii) Reference Rate Advances. The unpaid principal amount of each Reference Rate Advance shall bear interest at a rate per annum equal to the Reference Rate in effect from time to time. (b) Default Rate. The rate per annum equal to 2.0% in excess of the Reference Rate. 3.2 Overdraft Loans; Over Advances. Overdraft Loans and Over Advances shall bear interest at the rate(s) determined pursuant to Section 2.7 or Section 2.8 of the Credit Agreement, as applicable. 3.3 Unused Credit Fee. The Unused Credit Fee shall be an amount equal to 0.25% per annum of the average Daily Unused Credit Amount, calculated on the basis of actual days elapsed over a year of 360 days and twelve 30-day months. The Unused Credit Fee shall be and is payable quarterly in arrears on the last day of each March, June, September and December, commencing on the first such day to occur after the date hereof, and on the date the Credit terminates. 3.4 Letter of Credit Commission. The Borrower shall pay the Letter of Credit Issuer, a commission on the undrawn amount of each Letter of Credit and on each L/C Draft accepted by the Letter of Credit Issuer but not paid, in an amount equal to 1.0% per annum calculated on the basis of actual days elapsed over for year of 360 days. The Letter of Credit Commission shall be and is payable in advance. 3.5 Closing Fee. The Borrowers shall pay to the Lender a nonrefundable closing fee of $50,000 on the Closing Date. 4. Eligible Account Receivable Requirements. The Account Receivable must not be unpaid on the date that is 91 days after the date of the invoice evidencing such Account Receivable. If invoices representing 25% or more of the unpaid net amount of all Accounts Receivable from any one Account Debtor are unpaid more than 90 days after the dates of such invoices, then all Accounts Receivable relating to such Account Debtor shall cease to be Eligible Accounts Receivable. 5. Reserved. 6. Reserved. 7. Additional Covenants. From the date of this Supplement A and thereafter until all of the Borrowers' Obligations under the Credit Agreement are paid in full, the Borrowers agree that, unless the Lender shall otherwise consent in writing, they will not, and will not permit any Subsidiary to, do any of the following: 7.1 Net Worth. Permit the Borrowers' consolidated Net Worth to be less than $50,000,000 as of the the end of the Borrower's fiscal year ending September 30, 1999, plus, thereafter, 50% of the Borrower's net income (without reduction for net loss) measured at the end of each six month period. Borrower's Initials _____________ Borrower's Initials _____________ Lender's Initials ____________ Date _____________________ CERTIFICATE I, Richard D. Simon, do hereby certify that: 1 I am the duly elected, qualified and acting President of Simon Transportation Services Inc. (the "Borrower"), a corporation duly organized, existing and in good standing under the laws of the State of Nevada; and 2. all conditions precedent, except any which may have been specifically waived by U.S. Bank National Association (the "Lender"), set forth in Article IX of that certain Credit and Security Agreement, dated as of even date herewith, between the Borrower and the Lender (the "Credit Agreement") have been met; 3. all representations and warranties contained in Article IV of the Credit Agreement are true and correct as of the date hereof; and 4. no Event of Default or Unmatured Event of Default (as such terms are defined in the Credit Agreement) has occurred and is continuing. IN WITNESS WHEREOF, I have hereunto subscribed my name as President of the Borrower this 28th day of September, 1999. --------------------- President Simon Transportation Services Inc. CERTIFICATE I, Richard D. Simon, do hereby certify that: 1 I am the duly elected, qualified and acting President of Dick Simon Trucking, Inc. (the "Borrower"), a corporation duly organized, existing and in good standing under the laws of the State of Utah; and 2. all conditions precedent, except any which may have been specifically waived by U.S. Bank National Association (the "Lender"), set forth in Article IX of that certain Credit and Security Agreement, dated as of even date herewith, between the Borrower and the Lender (the "Credit Agreement") have been met; 3. all representations and warranties contained in Article IV of the Credit Agreement are true and correct as of the date hereof; and 4. no Event of Default or Unmatured Event of Default (as such terms are defined in the Credit Agreement) has occurred and is continuing. IN WITNESS WHEREOF, I have hereunto subscribed my name as President of the Borrower this 28th day of September, 1999. --------------------- President Dick Simon Trucking, Inc. EXHIBIT A U.S. Bank National Association BORROWING BASE CERTIFICATE Asset Based Lending Division Computed as of 601 Second Avenue South Date: Report No. Minneapolis, MN 55402-4302 The undersigned are the Borrowers under Credit and Security Agreement, dated September ____, 1999, (as the same may be amended, modified or supplemented from time to time, herein called the "Agreement") between Simon Transportation Services Inc., and Dick Simon Trucking, Inc., (the "Borrowers") and U.S. Bank National Association (the "Lender'). The Borrowers hereby reaffirm all representations and warranties to the Agreement and certify and warrant that the Borrowers hold, subject to the security interest of the Lender under the Agreement, the following collateral computed as of ----------------. Total I. ACCOUNTS RECEIVABLE - -------- 1. Accounts Receivable Balance (From last BBC No. , dated ) $ ---------------- -------------------- ------------------------ 2. Add: New Sales and other Debits ------------------------ 3. Less: Collection of Accounts (Net Cash) ------------------------ 4. Less: Misc. Credit Memos ------------------------ 5. Discounts Allowed and Other Adjustments to Receivables ------------------------ 6. Accounts Receivable Balance as of period ending above (sum Lines 1 - 5) $ ------------------------ 7. Total Ineligible Accounts as of Aging dated ------------------------ 8. Total Eligible Accounts Receivable (Line 6 - Line 7) $ ------------------------ 9. Eligible Loan Value @ 85% $ ------------------------ 10. Unadjusted Eligible Loan Value (Line 9) $ ------------------------ 11. Less: Letter of Credit Obligation (not collateralized by cash) ------------------------ 12. Adjusted Collateral Value (Line 10 - Line 11) $ ======================== II. LOAN AVAILABILITY 13. Credit Amount $20,000,000.00 ------------------------ 14. Less: Letter of Credit Obligations ------------------------ 15. Adjusted Credit Amount $ ------------------------ 16. Loan Availability (The lesser of Line 12 and Line 15) $ ------------------------ 17. Loan Balance report (From last BBC No. _____________, dated ______________) $ ------------------------ 18. Add: new Loan Advances requested since last report (Add monthly interest charge, and other fees if applicable) ------------------------ 19. Less: Collections applied to loan since last report ------------------------ 20. Loan Balance this report (Line 17 + Line 18 - Line 19) $ ------------------------ 21. Excess (Deficit) Eligible Loan Value of Collateral (Line 16 - Line 20) $ ========================
The Borrowers further certify and warrant that no Event of Default is existing as of the date hereof and, to the best knowledge and belief of the officer of the Borrowers executing this Borrowing Base Certificate, there has not been (except as may otherwise indicated below) any change to the information set forth above since the computation date specified above which would materially reduce the amounts shown if such amounts were computed as of the date of this Borrowing Base Certificate. SIMON TRANSPORTATION SERVICES INC. By Title: Date: DICK SIMON TRUCKING, INC. By Title: Date: EXHIBIT B COMPLIANCE CERTIFICATE TO: U.S. Bank National Association THE UNDERSIGNED HEREBY CERTIFIES THAT: (1) I am the duly elected officer (or deputy thereof) of Simon Transporation Services Inc., a Nevada corporation and Dick Simon Trucking, Inc., a Utah corporation (the "Companies"); (2) I have reviewed the terms of the Credit and Security Agreement dated as of September 28, 1999, (as the same may be amended or otherwise modified from time to time being the "Credit Agreement") between U.S. Bank National Association (the "Lender") and the Companies, and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Companies during the accounting period covered by the attachment hereto, and the financial information contained in the attachment hereto is accurate as of the date of said attachment for the period specified. (3) The examinations described in paragraph (2) did not disclose, and I have no knowledge of, whether arising out of such examinations or otherwise, the existence of any condition or event which constitutes an Event of Default or an Unmatured Event of Default (as such terms are defined in the Credit Agreement) during or at the end of the accounting period covered by the attachment hereto or as of the date of this Certificate, except as described below (or in a separate attachment to this Certificate). The exceptions listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Companies have taken, is taking, or proposes to take with respect to each such condition or event, are as follows: ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- (4) No policy of insurance required to be maintained pursuant to the Credit Agreement or any other Loan Document (as such term is defined in the Credit Agreement) has lapsed during the reporting period described on Attachment No. 1 hereto and no such policy will lapse within the next 60 days. (5) In the case of any circumstances whereby the Companies are in violation of or alleged to be in violation of any laws, rules, regulations or orders, including without limitation any environmental protection or pollution control law, the Companies have taken any and all corrective or remedial actions in accordance with the requirements of and are satisfactory to any governmental department, commission, board, bureau, agency or instrumentality of the United States of America or any state, county, town or municipality as have jurisdiction with respect thereto. (6) The Companies have paid all fees and expenses due for the storage of Inventory, including any fees due and owing to any warehouseman or other bailee, where such fees and expenses, if not paid when due would give rise to a lien against Inventory. The foregoing certifications, together with the computations set forth in Attachment No. 1 hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this ____ day of _______ 19__, pursuant to Section 5.1.1 of the Credit Agreement. SIMON TRANSPORTATION SERVICES INC. By ------------------------------- Its ------------------------------- DICK SIMON TRUCKING, INC. By ------------------------------- Its ------------------------------- SIMON TRANSPORTATION SERVICES INC. and DICK SIMON TRUCKING, INC. ATTACHMENT NO. 1 TO COMPLIANCE CERTIFICATE AS OF __________, 19__, WHICH PERTAINS TO THE PERIOD FROM __________, 19__ TO __________, 19__ Terms defined in the Credit Agreement are used herein as defined therein and Section references herein refer to the Sections in Supplement A of the Credit Agreement. 1 . Net Worth (prescribed by Section 7.1) (a) Minimum Net Worth required under Section 7.1 to be less than $50,000,000 as the fiscal year ending September 30, 1999, plus thereafter, 50% of the Company's net income (without reduction for net loss) measured at $ the end of each six month period. (b) Actual Net Worth $ as of the date of determination
Exhibit E COLLATERAL ACCOUNT AND DISBURSEMENT ACCOUNT AGREEMENT This Agreement is made this 28th day of September, 1999 by and among SIMON TRANSPORTATION SERVICES INC., DICK SIMON TRUCKING, INC. (collectively and separately the "Borrower"), U.S. BANK NATIONAL ASSOCIATION (the "Lender"). WHEREAS, the Lender and the Borrower have entered into that certain Credit and Security Agreement, dated as of September 28, 1999 (the "Credit Agreement"); WHEREAS, in furtherance of the Credit Agreement, the Borrower and the Lender have established (a) the Collateral Account (hereinafter defined), and (b) the Disbursement Account (hereinafter defined); NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows: Section 1 - Collateral Account 1.1 Pursuant to the Credit Agreement, the Lender has a security interest in certain property of the Borrower, including, without limitation, all present and future accounts, general intangibles, rights to payment and other forms of obligations for the payment of money and in all proceeds thereof (the "Collateral"). The Borrower has agreed with the Lender that all Items received by the Borrower with respect to the Collateral shall be deposited into U.S. Bank National Association (re. funds received from Simon Transportation Services, Inc. and Dick Simon Trucking, Inc.) Account No. ________________ (the "Collateral Account"). 1.2 The Lender agrees to operate and maintain the Collateral Account exclusively for the benefit of the Lender, to hold all Items deposited in the Collateral Account for the Lender and to make any withdrawals or transmittals out of or on account of the Collateral Account only to the Lender, or such person as the Lender may from time to time designate in writing. Neither Borrower shall have any interest in the Collateral Account or in any Items deposited in the Collateral Account. 1.3 In the event that Items deposited in the Collateral Account are returned uncollected, the Lender shall provide notice to the Borrower and the Borrower shall pay to the Lender the amount of such uncollected Items, and all other fees and charges attributable to such uncollected Items, or, at the option of the Lender, the Lender may debit the Disbursement Account by an amount equal to the sum of such uncollected Items and fees and charges. The Lender agrees that its recourse for uncollected Items and fees and charges attributable to such uncollected Items shall be against the Borrower, the Disbursement Account or the Collateral Account. Section 2 - Disbursement Account 2.1 The Borrower hereby agrees to maintain with the Lender Simon Transportation Services, Inc. And Dick Simon Trucking, Inc. Account No. 153100281127 (the "Disbursement Account"). All sums advanced as loans under the Credit Agreement shall be deposited into the Disbursement Account by the Lender and shall be subject to instructions and orders issued by the Borrower. Section 3 - Miscellaneous 3.1 The Borrower shall be liable to the Lender for any ordinary or usual fees and charges of the Lender, including, without limitation, fees and charges attributable to uncollected Items, in connection the Collateral Account and the Disbursement Account and the Lender may charge the Disbursement Account for such fees and charges. The Borrower hereby agrees to maintain collected funds in the Disbursement Account for the payment of uncollected Items and fees and charges, including, without limitation, fees and charges attributable to uncollected Items. 3.2 The Borrower hereby agrees to pay, indemnify and hold the Lender harmless from and against any and all liability, losses, damages, penalties and expenses (including, without limitation, reasonable attorneys' fees) arising out of the Lender's performance of this Agreement or any agreement executed herewith, except as solely caused by the willful misconduct or gross negligence of the Lender, its agents or employees. The Borrower hereby release the Lender from responsibility for any losses occasioned in whole or in part by any circumstances beyond the Lender's reasonable control, including, without limitation, equipment failure, war and emergencies. IN NO EVENT SHALL THE LENDER BE LIABLE FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, OR LOSS OF PROPERTY, NOTWITHSTANDING NOTICE TO THE LENDER OF THE POSSIBILITY OF SUCH DAMAGES OR LOSSES. 3.3 This Agreement may be terminated upon agreement signed by both the Lender and the Borrower. No termination shall affect the obligations of the parties hereto with respect to Items received by the Lender before the termination has become effective. Termination shall not impair the indemnities made by the Borrower herein. 3.4 This Agreement may be executed in any number of counterparts, which together shall constitute one and the same instrument. 3.5 This Agreement shall be governed by and construed in accordance with the internal laws of the State of Minnesota, giving effect to all federal laws and regulations applicable to national banks. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. SIMON TRANSPORTATION SERVICES INC. By: _____________________________ Title: __________________________ DICK SIMON TRUCKING, INC. By: _____________________________ Title: __________________________ U.S. BANK NATIONAL ASSOCIATION By: _____________________________ Title: __________________________ EXHIBIT G TERMS WITH RESPECT TO GUARANTEED OBLIGATIONS 1 Obligations Absolute. No act or thing need occur to establish the liability of each Borrower for its Guaranteed Obligations, and no act or thing, except full payment and discharge of all such Guaranteed Obligations, shall in any way exonerate such Borrower or modify, reduce, limit or release the liability of such Borrower for its Guaranteed Obligations. The obligations of each Borrower for its Guaranteed Obligations shall be absolute, unconditional, and irrevocable, and shall not be subject to any right of setoff or counterclaim by such Borrower. 2 Continuing Guaranty. Each Borrower shall be liable for its Guaranteed Obligations, plus accrued interest thereon and all attorneys' fees, collection costs and enforcement expenses referable thereto. Guaranteed Obligations may be created and continued in any amount without affecting or impairing the liability of such Borrower therefor. No notice of such Guaranteed Obligations already or hereafter contracted or acquired by the Lender, or any renewal or extension of any thereof need be given to such Borrower and none of the foregoing acts shall release such Borrower from liability hereunder. The agreement of each Borrower pursuant to the Agreement with respect to its Guaranteed Obligations is an absolute, unconditional and continuing guaranty of payment of such Guaranteed Obligations and shall continue to be in force and be binding upon such Borrower until such Guaranteed Obligations are paid in full and the Agreement is terminated, and the Lender may continue, at any time and without notice to such Borrower, to extend credit or other financial accommodations and loan monies to or for the benefit of the other Borrowers on the faith thereof. Each Borrower hereby waives, to the fullest extent permitted by law, any right they may have to revoke or terminate its guaranty of the Guaranteed Obligations before the Guaranteed Obligations are paid in full and the Agreement is terminated. In the event any Borrower shall have any right under applicable law to otherwise terminate or revoke its guaranty of the Guaranteed Obligations which cannot be waived, such termination or revocation shall not be effective until written notice of such termination or revocation, signed by such Borrower, is actually received by the officer of the Lender responsible for such matters. Any notice of termination or revocation described above shall not affect such Borrower's guaranty of the Guaranteed Obligations in relation to (i) any of the Guaranteed Obligations that arose prior to receipt thereof or (ii) any of the Guaranteed Obligations created after receipt thereof, if such Guaranteed Obligations were incurred either through loans by the Lender, including, without limitation, advances or readvances in an aggregate outstanding amount not to exceed the aggregate amount of the Revolving Credit Amount as of the time such notice of termination or revocation was received, and/or for the purpose of protecting any collateral, including, but not limited, to all protective advances, costs, expenses, and attorneys' and paralegals' fees, whensoever made, advanced or incurred by the Lender in connection with the Guaranteed Obligations. If, in reliance on any Borrower's guaranty of its Guaranteed Obligations, the Lender makes loans or other advances to or for the benefit of any other Borrower or takes other action under the Agreement after such aforesaid termination or revocation by the undersigned but prior to the receipt by the Lender of said written notice as set forth above, the rights of the Lender shall be the same as if such termination or revocation had not occurred. 3 Other Transactions. The liability of the Borrowers under the Agreement with respect to the Guaranteed Obligations shall not be affected or impaired by any of the following acts or things (which the Lender is expressly authorized to do, omit or suffer from time to time, without notice to or approval by the Borrowers): (i) any acceptance of collateral security, other guarantors, accommodation parties or sureties for any or all Guaranteed Obligations; (ii) any one or more extensions or renewals of Guaranteed Obligations (whether or not for longer than the original period) or any modification of the interest rates, maturities or other contractual terms applicable to any Guaranteed Obligations; (iii) any waiver or indulgence granted to the other Borrowers, any delay or lack of diligence in the enforcement of Guaranteed Obligations, or any failure to institute proceedings, file a claim, give any required notices or otherwise protect any Guaranteed Obligations; (iv) any full or partial release of, settlement with, or agreement not to sue, the other Borrowers or any other guarantor or other person liable in respect of any Guaranteed Obligations; (v) any discharge of any evidence of Guaranteed Obligations or the acceptance of any instrument in renewal thereof or substitution therefor; (vi) any failure to obtain collateral security for Guaranteed Obligations, or to see to the proper or sufficient creation and perfection thereof, or to establish the priority thereof, or to protect, ensure, or enforce any collateral security, or any modification, substitution, discharge, impairment or loss of any collateral security; (vii) any foreclosure or enforcement of any collateral security; (viii) any transfer of any Guaranteed Obligations or any evidence thereof; (ix) any order of application of any payments or credits upon Guaranteed Obligations; (x) any release of any collateral security for Guaranteed Obligations; (xi) any amendment to or modification of, any agreement between the Lender and the other Borrowers, or any waiver of compliance by the other Borrowers with the terms thereof; and (xii) any election by the Lender under Section 1111(b) of the United States Bankruptcy Code. 4. Waivers of Defenses and Rights. Each Borrower waives any and all defenses, claims and discharges of the other Borrowers, or any other obligor, pertaining to the Guaranteed Obligations, except the defense of discharge by payment in full. Without limiting the generality of the foregoing, no Borrower will assert, plead or enforce against the Lender any defense of waiver, release, discharge in Bankruptcy, statute of limitations, res judicata, statute of frauds, anti-deficiency statute, fraud, usury, illegality or unenforceability which may be available to any other Borrower or any other person liable in respect of any Guaranteed Obligations, or any setoff available against the Lender to the other Borrowers or any such other person, whether or not on account of a related transaction. Each Borrower expressly agrees that such Borrower shall be and remain liable for any deficiency remaining after foreclosure of any mortgage or security interest securing Guaranteed Obligations, whether or not the liability of the other Borrowers or any other obligor for such deficiency is discharged pursuant to statute, judicial decision or contract. Each Borrower waives presentment, demand for payment, notice of dishonor or nonpayment, and protest of any instrument evidencing Guaranteed Obligations. Each Borrower agrees that its liability under the Agreement for the Guaranteed Obligations shall be primary and direct, and that the Lender shall not be required first to resort for payment of the guaranteed Obligations to the other Borrowers or other person or their properties, or first to enforce, realize upon or exhaust any collateral security for the Guaranteed Obligations, or to commence any action or obtain any judgment against the other Borrowers or against any such collateral security or to pursue any other right or remedy the Lender may have against any other Borrower before enforcing the liability of such Borrower for the Guaranteed Obligations under the Agreement. 5. Approval of Credit. Each of the Borrowers has, independently and without reliance upon the Lender or its respective directors, officers, agents or employees, and instead in reliance upon information furnished by the other Borrowers and upon such other information as such Borrower deemed appropriate, made its own independent credit analysis and decision to guaranty the obligations of the other Borrowers pursuant to the Agreement. 6. Waiver of Subrogation. Each Borrower expressly waives any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution or any other claim which it may now or hereafter have against the other Borrowers, any endorser or any other guarantor of all or any part of the Guaranteed Obligations, and each Borrower hereby waives any benefit of, and any right to participate in, any security or collateral given to the Lender to secure payment of the Guaranteed Obligations or any other liability of the other Borrowers to the Lender. Each Borrower further agrees that any and all claims it may have against the other Borrowers, any endorser or any other guarantor of all or any part of the Guaranteed Obligations or against any of their respective properties, whether arising by reason of any payment by such Borrower to the Lender pursuant to the provisions hereof or otherwise, is hereby waived. In furtherance, and not in limitation of the preceding waivers, each Borrower hereby agrees that any payment to the Lender by such Borrower on account of the Guaranteed Obligations and any loan made to or obligation incurred from the other Borrowers shall be deemed to be a contribution to the other Borrowers (of capital or otherwise), and after giving effect to such payment, loan or other obligation such Borrower shall not be a creditor of the other Borrowers. SOLVENCY CERTIFICATE The undersigned hereby certifies that he/she is the chief financial officer of Dick Simon Trucking, Inc., a Utah corporation (the "Borrower"), and is authorized to certify as to the financial statements of the Borrower, is familiar with its properties, business and assets and is authorized to execute this Certificate on behalf of the Borrower and to deliver this Certificate. The undersigned further certifies that he/she has carefully reviewed the contents of this Certificate and, in connection herewith, has made such investigations and inquiries as he/she deemed necessary and prudent. The undersigned further certifies that he/she believes that the financial information and assumptions which underlie and form the basis for the representations made in this Certificate were reasonable when made and continue to be reasonable as of the date hereof. Capitalized terms used herein that are defined in the Credit and Security Agreement, dated as of September 28 , 1999 (the "Credit Agreement') between the Borrower, Simon Transportation Services, Inc. and U.S. Bank National Association are used herein as so defined. The undersigned hereby further certifies that it is his/her belief that: 1 . As of the date hereof, after taking into account the transactions contemplated by the Credit Agreement, the Borrower has capital, cash flows and, taking into account availability under the Credit Agreement, sources of working capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage. 2. As of the date hereof, after taking into account the Credit Agreement, the Borrower is able to pay its debts as they mature. 3. As of the date hereof, after taking into account the Credit Agreement, the Borrower has assets (tangible and intangible) whose fair saleable value exceeds its total liabilities (including contingent, subordinated, unmatured and unliquidated). 4. The Borrower does not intend to, nor believe that it will, incur debts or liabilities beyond its ability to pay such debts and liabilities as they mature. 5. The Borrower does not intend, in consummating the transactions contemplated by the Credit Agreement, to disturb, delay, hinder or defraud either present or future creditors or other Persons to which the Borrower is or will become, on or after the date hereof, indebted. 6. In reaching the conclusions set forth in this Certificate, the undersigned has considered, among other things: (a) the cash and other current assets of the Borrower; (b) refinancing or other replacements of existing liabilities, debts, obligations and commitments which the Borrower reasonably expects will be available on the date hereof; (c) the estimated value of all property, real and personal, tangible and intangible, of the Borrower and the financial information attached hereto on Exhibit A; (d) all liabilities of the Borrower known to him/her on all claims, whether or not reduced to judgment, liquidated, unliquidated, matured, unmatured, disputed, undisputed, legal, equitable, secured, unsecured, fixed or contingent, including, among other things, claims arising out of, pending or, to his/her knowledge, threatened litigation against the Borrower; (e) the experience of the Borrower's management in acquiring and disposing of its assets and publicly available information on purchases and sales of properties comparable to those operated by the Borrower; (f) historical and anticipated growth in revenues and cash flows of the Borrower; (g) customary terms of trade payables in the Borrower's industry; (h) the amount of credit extended to customers of the Borrower; and (i) the amount of equity capital of the Borrower. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of this 28th day of September, 1999. DICK SIMON TRUCKING, INC. By: Title: SOLVENCY CERTIFICATE The undersigned hereby certifies that he/she is the chief financial officer of Simon Transportation Services, Inc., a Nevada corporation (the "Borrower"), and is authorized to certify as to the financial statements of the Borrower, is familiar with its properties, business and assets and is authorized to execute this Certificate on behalf of the Borrower and to deliver this Certificate. The undersigned further certifies that he/she has carefully reviewed the contents of this Certificate and, in connection herewith, has made such investigations and inquiries as he/she deemed necessary and prudent. The undersigned further certifies that he/she believes that the financial information and assumptions which underlie and form the basis for the representations made in this Certificate were reasonable when made and continue to be reasonable as of the date hereof. Capitalized terms used herein that are defined in the Credit and Security Agreement, dated as of September 28, 1999 (the "Credit Agreement") between the Borrower, Dick Simon Trucking, Inc. and U.S. Bank National Association are used herein as so defined. The undersigned hereby further certifies that it is his/her belief that: 1 . As of the date hereof, after taking into account the transactions contemplated by the Credit Agreement, the Borrower has capital, cash flows and, taking into account availability under the Credit Agreement, sources of working capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage. 2. As of the date hereof, after taking into account the Credit Agreement, the Borrower is able to pay its debts as they mature. 3. As of the date hereof, after taking into account the Credit Agreement, the Borrower has assets (tangible and intangible) whose fair saleable value exceeds its total liabilities (including contingent, subordinated, unmatured and unliquidated). 4. The Borrower does not intend to, nor believe that it will, incur debts or liabilities beyond its ability to pay such debts and liabilities as they mature. 5. The Borrower does not intend, in consummating the transactions contemplated by the Credit Agreement, to disturb, delay, hinder or defraud either present or future creditors or other Persons to which the Borrower is or will become, on or after the date hereof, indebted. 6. In reaching the conclusions set forth in this Certificate, the undersigned has considered, among other things: (a) the cash and other current assets of the Borrower; (b) refinancing or other replacements of existing liabilities, debts, obligations and commitments which the Borrower reasonably expects will be available on the date hereof; (c) the estimated value of all property, real and personal, tangible and intangible, of the Borrower and the financial information attached hereto on Exhibit A; (d) all liabilities of the Borrower known to him/her on all claims, whether or not reduced to judgment, liquidated, unliquidated, matured, unmatured, disputed, undisputed, legal, equitable, secured, unsecured, fixed or contingent, including, among other things, claims arising out of, pending or, to his/her knowledge, threatened litigation against the Borrower; (e) the experience of the Borrower's management in acquiring and disposing of its assets and publicly available information on purchases and sales of properties comparable to those operated by the Borrower; (f) historical and anticipated growth in revenues and cash flows of the Borrower; (g) customary terms of trade payables in the Borrower's industry; (h) the amount of credit extended to customers of the Borrower; and (i) the amount of equity capital of the Borrower. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of this 28th day of September, 1999. SIMON TRANSPORTATION SERVICES, INC. By: Title: SECRETARY'S CERTIFICATE I, Alban Lang Secretary, hereby certify that I am the duly elected, qualified and acting Secretary and keeper of the records of Dick Simon Trucking, Inc., (the "Borrower"), a corporation duly organized, existing and in good standing under the laws of the State of Utah and further certify as follows: 1 . Attached hereto as Exhibit A is a full, true and correct copy of resolutions duly adopted by the Borrowers Board of Directors at a meeting thereof, convened on August 18, 1999 which meeting was held in accordance with the Borrower's Articles of Incorporation and Bylaws and all applicable laws, and which resolutions have not in any way been modified or rescinded, but are in full force and effect. 2. The Articles of Incorporation attached hereto as Exhibit B and the Bylaws attached hereto as Exhibit C are, respectively, true, complete and correct copies of this Corporation's Articles of Incorporation (duly filed with the Secretary of State of the state of Nevada) and Bylaws, which articles and bylaws have been duly adopted by this Corporation and are presently in full force and effect. 3. On the date hereof, the following named persons are the present officers and/or directors of the Borrower who are authorized by the Corporation to perform the actions set forth in the resolutions attached hereto and the following signatures are genuine signatures of such named persons: NAME TITLE SIGNATURE Richard D. Simon CEO & President _____________________________ Alban B. Lang COO, CFO & Secretary _____________________________ IN WITNESS WHEREOF, I have executed, this Certificate and have caused the corporate seal of the Borrower to be hereto affixed this 28th day of September 1999. ---------------------------- Secretary (Corporate Seal) I hereby certify that Alban Lang has been elected and is now acting as Secretary of Dick Simon Trucking, Inc., and that the signature to the foregoing Certificate is his/her genuine signature. ---------------------------- President EXHIBIT A TO SECRETARY'S CERTIFICATE Resolutions of the Board of Directors of Dick Simon Trucking, Inc. Adopted August 18, 1999 "RESOLVED, that anyone of the following acting singly: Dick Simon and Alban Lang [insert titles of authorized off icers/directors] (each such person being hereinafter referred to as a "Designated Person") is hereby authorized, directed and empowered now and from time to time hereafter to make, execute and deliver for and on behalf of and in the name of this Corporation such agreements, instruments and documents, including, but not limited to, a Credit and Security Agreement between this Corporation and U.S. Bank National Association (the "Lender") substantially in the form of the Credit and Security Agreement (the "Credit Agreement') presented to this meeting, except for such changes, additions and deletions as to any or all of the terms or provisions thereof as the officer executing the Credit and Security Agreement on behalf of this Corporation shall deem proper, and all other agreements, notes, schedules, security documents, assignments, of accounts, designations of inventory, real estate, mortgages, trust deeds, assignments, certificates, reports, bills of sale, leases, contracts, conditional sale contracts, guaranties, subordination and stand-by agreements, pledge agreements, assignments of beneficial interest in any real or personal property, and other such agreements, instruments and documents (all and each of the foregoing agreements, instruments and documents are hereinafter referred to collectively as the "Other Loan Documents") with or for the benefit of the Lender, as he/she may in his/her sole discretion deem advisable, necessary, expedient, convenient or proper, providing for and evidencing various financial arrangements with and obligations to the Lender, including, without limitation, the borrowing of monies by this Corporation and as security therefor, granting a security interest in the Collateral (as defined in the Credit Agreement and all proceeds and products of the foregoing property and interests in property; BE IT FURTHER RESOLVED, that the Credit Agreement and Other Loan Documents may contain such provisions, terms, conditions, covenants, warranties and representations as any Designated Person may in his/her sole discretion deem advisable, necessary or expedient; BE IT FURTHER RESOLVED, that any Designated Person acting singly is hereby authorized, directed and empowered for and on behalf of and in the name of this Corporation now and from time to time hereafter, as he/she in his/her sole discretion deems advisable, necessary, expedient, convenient or proper, to: (a) borrow monies from the Lender or an affiliate of Lender; (b) execute and deliver to the Lender or its affiliate such agreements, instruments and documents as the Lender or such affiliate may request or require to effectuate the purpose and intent of the Credit Agreement and Other Loan Documents or these resolutions; (c) amend, modify, alter, extend, renew or otherwise change any of the provisions, terms, conditions, covenants, guaranties or representations contained in the Credit Agreement or Other Loan Documents; and (d) execute and deliver to the Lender and/or its affiliate any direction or authorization for the application, payment, transfer, receipt or other disposition of any property, real or personal, belonging to this Corporation; BE IT FURTHER RESOLVED, that any Designated Person acting singly is hereby authorized, directed and empowered to do and perform all acts and things he/she deems advisable, necessary, expedient, convenient or proper in order to consummate fully all of the transactions contemplated under the Credit Agreement or Other Loan Documents or these resolutions; BE IT FURTHER RESOLVED, that in order to facilitate borrowings of this Corporation from the Lender or its affiliate under the terms of the Credit Agreement and Other Loan Documents, pursuant to which it is or will be required that a number of reports, certificates and documents including, without limitation, a report of loan balances and confirmation of advances theretofore requested, borrowing base certificates, collection reports, inventory certification reports, and transmittal letters of accounts receivable agings, be periodically supplied to the Lender, it is in the best interest of this Corporation to provide to the Lender a list of employees of this Corporation which are authorized to sign any such reports on behalf of this Corporation, along with examples of such employees' signatures; BE IT FURTHER RESOLVED, that in order to accomplish the resolutions hereinabove stated, the President of this Corporation or the Chief Financial Officer acting singly is hereby authorized to sign any such reports, certificates or other documents required under the Credit Agreement or Other Loan Documents or requested by the Lender in accordance with the Credit Agreement or Other Loan Documents from time to time on behalf of this Corporation, and further, the President is hereby authorized to designate in writing to the Lender from time to time any other persons authorized to sign such reports, certificates and other documents, and to delete any persons theretofore authorized, or add other persons not theretofore authorized, and to cause examples of any such persons' signatures to be delivered to the Lender; BE IT FURTHER RESOLVED, that the President of this Corporation acting singly, and any other person or persons which the President may from time to time designate in writing to the Lender, is authorized to make requests for borrowings, including, without limitation, telephonic requests for borrowings, under the Credit Agreement or Other Loan Documents on behalf of this Corporation and the Lender is hereby authorized to honor such requests of the President, or of any person so designated by the President, until such time as the Lender is notified in writing by this Corporation of the election of a new president or of the revocation of the authorization of any person designated by the President to make such requests for borrowings under the Credit Agreement or Other Loan Documents; BE IT FURTHER RESOLVED, that by adopting the above resolutions at this meeting, the Directors of this Corporation hereby ratify, approve and confirm any and all acts and things that any Designated Person has done or may do in any way relating to or arising from or in connection with the Credit Agreement or Other Loan Documents and these resolutions and such acts and things of any Designated Person shall at all times receive full faith and credit by this Corporation without the necessity of inquiry by the Lender; and BE IT FURTHER RESOLVED, that (a) the authorizations herein set forth shall remain in full force and effect for the term of the Credit Agreement and Other Loan Documents and all renewal terms thereof; and (b) the Secretary or any Assistant Secretary of this Corporation is hereby authorized and directed to certify and affix the corporate seal thereunto and furnish to the Lender a copy of these resolutions." Date: September 28, 1999 U.S. Bank National Association U.S. Bank Place MPFP0504 601 Second Avenue South Minneapolis, Minnesota 55402-4302 Attention: Asset Based Lending Re: Telephonic Requests for Loans/Signature Authorization Ladies/Gentlemen: Reference is made to that certain Credit and Security Agreement, dated as of (the "Credit Agreement"), between Dick Simon Trucking, Inc. (the "Borrower") and U.S. Bank National Association (the "Lender"). Capitalized terms used herein and not otherwise defined herein shall have the meanings given such terms in the Credit Agreement. The undersigned, as President of the Borrower, and pursuant to the authority granted to the undersigned in those certain resolutions of the Board of Directors dated August 18, 1999 does hereby: 1. Designate the following employees of the Borrower as authorized to make requests for Loans, including telephonic requests for Loans, on its behalf under the Credit Agreement: NAME TITLE SIGNATURE Richard D. Simon CEO & President ______________________ Alban B. Lang COO, CFO & Secretary ______________________ William J. Baker Controller ______________________ The Lender is hereby authorized to honor any request made by any one of the persons named above, and to forward any such requested Loan as may be directed at the time of such request. 2. Designate the following employees of the Borrower as authorized to execute certain reports including, among other things, a report of loan balances and confirmation of advances theretofore requested, Borrowing Base Certificates, collection reports, inventory certification reports, and transmittal letters of accounts receivable agings, on its behalf under the Credit Agreement: NAME TITLE SIGNATURE Richard D. Simon CEO & President ______________________ Alban B. Lang COO, CFO & Secretary ______________________ William J. Baker Controller ______________________ Very truly yours, DICK SIMON TRUCKING, INC. By: Title: President SECRETARY'S CERTIFICATE I, Alban Lang, Secretary, hereby certify that I am the duly elected, qualified and acting Secretary and keeper of the records of Simon Transportation Services Inc., (the "Borrower"), a corporation duly organized, existing and in good standing under the laws of the State of Nevada and further certify as follows: 1 . Attached hereto as Exhibit A is a full, true and correct copy of resolutions duly adopted by the Borrower's Board of Directors at a meeting thereof, convened on August 18, 1999, which meeting was held in accordance with the Borrower's Articles of Incorporation and Bylaws and all applicable laws, and which resolutions have not in any way been modified or rescinded, but are in full force and effect. 2. The Articles of Incorporation attached hereto as Exhibit B and the Bylaws attached hereto as Exhibit C are, respectively, true, complete and correct copies of this Corporation's Articles of Incorporation (duly filed with the Secretary of State of the state of Nevada) and Bylaws, which articles and bylaws have been duly adopted by this Corporation and are presently in full force and effect. 3. On the date hereof, the following named persons are the present officers and/or directors of the Borrower who are authorized by the Corporation to perform the actions set forth in the resolutions attached hereto and the following signatures are genuine signatures of such named persons: NAME TITLE SIGNATURE Richard D. Simon CEO & President ____________________ Alban B. Lang COO, CFO & Secretary ____________________ IN WITNESS WHEREOF, I have executed this Certificate and have caused the corporate seal of the Borrower to be hereto affixed 18th day of August 1999. ------------------------ Secretary (Corporate Seal) I hereby certify that Alban Lang has been elected and is now acting as Secretary of Simon Transportation Services Inc., and that the signature to the foregoing Certificate is his genuine signature. ------------------------ President EXHIBIT A TO SECRETARY'S CERTIFICATE Resolutions of the Board of Directors of Simon Transportation Services Inc. Adopted August 18, 1999 "RESOLVED, that anyone of the following acting singly: Dick Simon and Alban Lang [insert titles of authorized officers/directors] (each such person being hereinafter referred to as a "Desiqnated Person") is hereby authorized, directed and empowered now and from time to time hereafter to make, execute and deliver for and on behalf of and in the name of this Corporation such agreements, instruments and documents, including, but not limited to, a Credit and Security Agreement between this Corporation and U.S. Bank National Association (the "Lender") substantially in the form of the Credit and Security Agreement (the "Credit Agreement') presented to this meeting, except for such changes, additions and deletions as to any or all of the terms or provisions thereof as the officer executing the Credit and Security Agreement on behalf of this Corporation shall deem proper, and all other agreements, notes, schedules, security documents, assignments, of accounts, designations of inventory, real estate, mortgages, trust deeds, assignments, certificates, reports, bills of sale, leases, contracts, conditional sale contracts, guaranties, subordination and stand-by agreements, pledge agreements, assignments of beneficial interest in any real or personal property, and other such agreements, instruments and documents (all and each of the foregoing agreements, instruments and documents are hereinafter referred to collectively as the "Other Loan Documents') with or for the benefit of the Lender, as he/she may in his/her sole discretion deem advisable, necessary, expedient, convenient or proper, providing for and evidencing various financial arrangements with and obligations to the Lender, including, without limitation, the borrowing of monies by this Corporation and as security therefor, granting a security interest in the Collateral (as defined in the Credit Agreement) and all proceeds and products of the foregoing property and interests in property; BE IT FURTHER RESOLVED, that the Credit Agreement and Other Loan Documents may contain such provisions, terms, conditions, covenants, warranties and representations as any Designated Person may in his/her sole discretion deem advisable, necessary or expedient; BE IT FURTHER RESOLVED, that any Designated Person acting singly is hereby authorized, directed and empowered for and on behalf of and in the name of this Corporation now and from time to time hereafter, as he/she in his/her sole discretion deems advisable, necessary, expedient, convenient or proper, to: (a) borrow monies from the Lender or an affiliate of Lender; (b) execute and deliver to the Lender or its affiliate such agreements, instruments and documents as the Lender or such affiliate may request or require to effectuate the purpose and intent of the Credit Agreement and Other Loan Documents or these resolutions; (c) amend, modify, alter, extend, renew or otherwise change any of the provisions, terms, conditions, covenants, guaranties or representations contained in the Credit Agreement or Other Loan Documents; and (d) execute and deliver to the Lender and/or its affiliate any direction or authorization for the application, payment, transfer, receipt or other disposition of any property, real or personal, belonging to this Corporation; BE IT FURTHER RESOLVED, that any Designated Person acting singly is hereby authorized, directed and empowered to do and perform all acts and things he/she deems advisable, necessary, expedient, convenient or proper in order to consummate fully all of the transactions contemplated under the Credit Agreement or Other Loan Documents or these resolutions; BE IT FURTHER RESOLVED, that in order to facilitate borrowings of this Corporation from the Lender or its affiliate under the terms of the Credit Agreement and Other Loan Documents, pursuant to which it is or will be required that a number of reports, certificates and documents including, without limitation, a report of loan balances and confirmation of advances theretofore requested, borrowing base certificates, collection reports, inventory certification reports, and transmittal letters of accounts receivable agings, be periodically supplied to the Lender, it is in the best interest of this Corporation to provide to the Lender a list of employees of this Corporation which are authorized to sign any such reports on behalf of this Corporation, along with examples of such employees' signatures; BE IT FURTHER RESOLVED, that in order to accomplish the resolutions hereinabove stated, the President of this Corporation or the Chief Financial Officer acting singly is hereby authorized to sign any such reports, certificates or other documents required under the Credit Agreement or Other Loan Documents or requested by the Lender in accordance with the Credit Agreement or Other Loan Documents from time to time on behalf of this Corporation, and further, the President is hereby authorized to designate in writing to the Lender from time to time any other persons authorized to sign such reports, certificates and other documents, and to delete any persons theretofore authorized, or add other persons not theretofore authorized, and to cause examples of any such persons' signatures to be delivered to the Lender; BE IT FURTHER RESOLVED, that the President of this Corporation acting singly, and any other person or persons which the President may from time to time designate in writing to the Lender, is authorized to make requests for borrowings, including, without limitation, telephonic requests for borrowings, under the Credit Agreement or Other Loan Documents on behalf of this Corporation and the Lender is hereby authorized to honor such requests of the President, or of any person so designated by the President, until such time as the Lender is notified in writing by this Corporation of the election of a new president or of the revocation of the authorization of any person designated by the President to make such requests for borrowings under the Credit Agreement or Other Loan Documents; BE IT FURTHER RESOLVED, that by adopting the above resolutions at this meeting, the Directors of this Corporation hereby ratify, approve and confirm any and all acts and things that any Designated Person has done or may do in any way relating to or arising from or in connection with the Credit Agreement or Other Loan Documents and these resolutions and such acts and things of any Designated Person shall at all times receive full faith and credit by this Corporation without the necessity of inquiry by the Lender; and BE IT FURTHER RESOLVED, that (a) the authorizations herein set forth shall remain in full force and effect for the term of the Credit Agreement and Other Loan Documents and all renewal terms thereof; and (b) the Secretary or any Assistant Secretary of this Corporation is hereby authorized and directed to certify and affix the corporate seal thereunto and furnish to the Lender a copy of these resolutions." Date: September 28, 1999 U.S. Bank National Association U.S. Bank Place MPFP0504 601 Second Avenue South Minneapolis, Minnesota 55402-4302 Attention: Asset Based Lending Re: Telephonic Requests for Loans/Signature Authorization Ladies/Gentlemen: Reference is made to that certain Credit and Security Agreement, dated as of September 28, 1999 (the "Credit Agreement"), between Simon Transportation Services, Inc. (the "Borrower") and U.S. Bank National Association (the "Lender"). Capitalized terms used herein and not otherwise defined herein shall have the meanings given such terms in the Credit Agreement. The undersigned, as President of the Borrower, and pursuant to the authority granted to the undersigned in those certain resolutions of the Board of Directors dated August 18, 1999, does hereby: 1. Designate the following employees of the Borrower as authorized to make requests for Loans, including telephonic requests for Loans, on its behalf under the Credit Agreement: NAME TITLE SIGNATURE Richard D. Simon CEO & President _____________________ Alban B. Lang COO, CFO & Secretary _____________________ William J. Baker Controller _____________________ The Lender is hereby authorized to honor any request made by any one of the persons named above, and to forward any such requested Loan as may be directed at the time of such request. 2. Designate the following employees of the Borrower as authorized to execute certain reports including, among other things, a report of loan balances and confirmation of advances theretofore requested, Borrowing Base Certificates, collection reports, inventory certification reports, and transmittal letters of accounts receivable agings, on its behalf under the Credit Agreement: NAME TITLE SIGNATURE Richard D. Simon CEO & President ______________________ Alban B. Lang COO, CFO & Secretary ______________________ William J. Baker Controller ______________________ Very truly yours, SIMON TRANSPORTATION SERVICES, INC. By: Title: President Dick Simon Trucking, Inc. Trade Names, Etc. Schedule 4.1 Simon Transportation Services Inc. Dick Simon Trucking, Inc. Simon Dry Vans Simon Integrated Logistics Simon Consolidated Services Dick Simon Trucking, Inc. Schedule of Insurance Coverages Schedule 4.7 Policy Type Policy # Carrier Period Limits Premium - --------------------- ------------ --------------------------------------------- --------------- ----------------------------------- Workers Compensation RL 913-7977 Industrial Indemnity Company of the Northwest 11/l/98-11/l/99 $1,000.000 per Accident 250,000 $1,000,000 per Employee $1,000,000 Policy Limit Workers Compensation RL 913-7978 Industrial Indemnity Company 11/l/98-11/1/99 $1,000,000 per Accident Included $1,000,000 per Employee above $1,000,000 Policy Limit Commercial Auto 048064771 Allstate Insurance Company 5/l/99-5/1/00 $1,000,000 Liability 16,605 Commercial Auto 050443384 Allstate Insurance Company 5/1/99-5/l/00 $1,000,000 Liability 1,421 Commercial Auto 048065853 Allstate Insurance Company 5/l/99-5/1/00 $1,000,000 Liability 1,341 Property IM08306481 St. Paul Mercury Insurance Company 11/l/98-11/l/99 $14,667,000 Buildings 45,107 $2,350,000 Contents $85,000 Fences & Signs $2,000,000 Tractors and Trailers $25,000,000 Business interruption General Liability YXB300629 Genesis Insurance Company 11/l/98-11/l/01 $1,500,000 General 25,000 Aggregate $750,000 Products $750,000 Personal Injury $750,000 Per Occurrence Truckers Liability $1,000,000 per Accident 1,313,000 Cargo $1,000,000 per Accident 42,000 Umbrella 4398-9100 The lnsurance Company of the l1/l/98-11/l/99 $10,000,000 Each 526,400 State of Pennsylvania Occurrence $10,000,000 Aggregate Excess Umbrella RXU0202781 RLI Insurance Company 11/1/98-11/1/99 $25,000,000 Each 15,000 Occurrence $25,000,000 Aggregate Excess Liability XLXG1951576A Indemnity Insurance Company of North America $15,000,000 Each 7,500 Occurrence $15,000,000 Aggregate
Schedule 4.8 Litigation and Contingent Liabilities Simon 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 10(b), 11, and 20(a) of the Securities Exchange Act of 1934 and Rule I Ob-5 promulgated thereunder. Simon intends to vigorously defend this action. There is a motion for summary judgment filed on behalf of Borrower that is pending in the State of California regarding an employee's claim for damages under the Americans with Disabilities Act. The employee claims Borrower did not make reasonable accommodations for a cancer-related illness.Borrower's local counsel has stated that the Americans with Disabilities Act does not provide a remedy for the employee's claim. If the employee were successful, Borrower thinks damages will be nominal. Schedule 4.9 Liens 1. Liens securing debt and capitalized leases listed on the attached schedule. 2. Liens securing debt or capitalized leases used to finance the purchase of assets after the date hereof. Schedule 4.10 Subsidiaries, Ownership 1. Simon Transportation Services Inc., a Nevada corporation, has one wholly-owned subsidiary, Dick Simon Trucking, Inc., a Utah corporation. Borrowers have no other Subsidiaries. 2. Simon is a publicly-held company, with its officers and directors holding approximately 22% of the outstanding shares. A copy of the Security Ownership Of Principal Stockholders and Management table from Simon's most recent proxy statement is attached hereto and incorporated herein by this reference. Trucking is wholly-owned by Simon. 3. The Borrowers do not have actual knowledge of any shareholder agreement, voting trust. or other agreement limiting or otherwise pertaining to the ownership interest of any Person in the Borrowers, provided, Simon is publicly-held and such agreements may exist. Attachment to Schedule 4. 10 SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMEENT The following table sets forth, as of October 31, 1998, the number and percentage of outstanding shares of Common Stock beneficially owned by each person known by the Company to beneficially own more than 5 % of such stock, by each director, by each Named Officer of the Company, and by all directors and executive officers of the Company as a group.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT Title of Class Name of Beneficial Owner' Amount & Nature Percent of Class 3 of Beneficial Ownership Class A Common Richard D. Simon 24,501 Class A - Class B Common Richard D. Simon 913,751 Class B - 100.0% Total - 14.8% Class A Common Alban B. Lang 91,207 1.4% Class A Common Kelle A. qimon 94,099 1.5% Class A Common Lyn Simon 94,011 1.5% Class A Common Richard D. Simon, Jr. 101,395 1.6% Class A Common Sherry L. Bokovoy 93,740 1.5% Class A Common Irene Warr 3,700 * Class A Common H. J. Frazier 8,000 * Class A Common Warburg Pincus Counsellors 397,600 6.3% Class A Common Wynnefield Group 330,500 5.2% Class A & Class B All directors, executive officers and other 5 % 2,152,504 33.9% Common stockholders as a group (10 persons) * Less than one percent. 1 The business address of Richard D. Simon, Alban B. Lang, Kelle A. Simon, Lyn Simon, Richard D. Simon, Jr., Sherry L. Bokovoy, and Irene Warr is P.O. Box 26297, Salt Lake City, Utah 84126-0297. The address of H.J. Frazier is 2700 West Sackett Drive, Park City, Utah 84098. The address of Warburg Pincus Counsellors is 466 Lexington Avenue, New York, New York 1OO17. The address of Wynnefield Group is One Penn Plaza, Suite 4720, New York, New York 10119. 2 In accordance with applicable rules under the Securities Exchange Act of 1934, as amended, the number of shares beneficially owned includes 39,600 shares of Class A Common Stock underlying options to purchase granted to each of Alban B. Lang, Kelle A. Simon, Lyn Simon, Richard D. Simon, Jr., and Sherry L. Bokovoy (the "Optionees") that are either currently exercisable or will become exercisable within 60 days. The 85,400 remaining shares underlying options granted to the Optionees that are not exercisable within 60 days are excluded. The shares owned also include an aggregate 37,915 shares of Class A Common Stock held in the Company's ss.401(k) Plan on behalf of Richard D. Simon (14,501 shares), Alban B. Lang (7,348 shares), Kelle A. Simon (5,923 shares), Lyn Simon (7,568 shares), and Sherry L. Bokovoy (2,575 shares). The total shares include 2,000 shares underlying stock options granted to Irene Warr and 3,000 shares underlying stock options granted to H.J. Frazier that are currently exercisable or will be exercisable within 60 days. Unless otherwise indicated all shares are owned directly. 3 Percentage based on both Class A and Class B Common Stock and includes for purposes of this chart only the vested portion of options granted under the Company's Incentive Stock Plan and Outside Director Stock Plan. 4 All shares are held by Richard D. Simon, Trustee of the Richard D. Simon Revocable Trust, UTAD 2/12/93, of which the four children of Richard D. Simon are the beneficiaries. subject to a life estate in favor of Valene Simon, wife of Richard D. Simon. Because the Class B Common Stock is entitled to two votes per share, Mr. Simon, as Trustee, controls 25.5% of the combined voting power of the Common Stock.
Schedule 4.11 Partnerships; Joint Ventures; LLCs NONE Dick Simon Trucking, Inc. Listing of Business Locations Schedule 4.12 Terminals 5175 West 2100 South West Valley City, Utah 84120 1545 Cedargrove Road Conley, Georgia 30027 15816 Santa Ana Avenue Fontana, California 92338 5821 West Buckeye Phoenix, Arizona 23623 Colonial Parkway, Suite B Katy, Texas 77493 264 Farrell Road Syracuse, New York 13209 Trailer Drop Yards Rupert, Idaho Springville, Utah Gaffney, South Carolina Laredo, Texas Dick Simon Trucking, Inc. Long Term Debt Schedule Schedule 4.15 Loan/ Bank Lease Date Cost Term Core States Bank: #531360 to 531408 & #531410 to 531459 Lease #1 Sep-97 3,861,296.00 60 #531460 to 531519 Lease #2 Sep-97 2,315,693.00 60 #531520 to 531594 Lease #3 Oct-97 2,924,679.00 60 #532020 to 532036 #532038 to 532115 #532117 to 532119 #535085 to 535091 Lease #4 Feb-98 3,955,483.98 60 #2380,2436 to 2492 Lease #5 Apr-98 4,332,240.00 36 #2513 to 2532 Lease #6 May-98 1,493,920.00 36 #2493 to 2512 Lease #7 May-98 1,487,335.00 36 Associates: #531720 to 531819 Lease #3 Dec-97 3,900,897.50 60 #531970 to 532019 Lease #4 Feb-98 1,949,786.00 60 Banc Boston Leasing: #530570 to 530619 Lease #1 May-96 1,976,432.50 60 #530620 to 530669 Lease #2 Aug-96 1,946,667.00 60 #530670 to 530719 Lease #3 Aug-96 1,946,667.00 60 #530720 to 530769 Lease #4 Aug-96 1,946,400.00 60 #530770 to 530772 & 530774 to 530819 Lease #5 Sep-96 1,909,396.72 60 #530970 to 531069 Lease #6 Jan-97 3,842,937.50 60 #531245 to 531294 Lease #7 Aug-97 1,931,443.50 60 #531295 to 531359 Lease #8 Aug-97 2,535,851.50 60 Add'I trailer costs Lease #9 Sep-97 18,550.00 60 #531820 to 531919 Lease #10 Jan-98 3,900,633.00 60 #531920 to 531969 Lease #11 Jan-98 1,949,909.50 60 #532238 to 532312 Lease #12 Jul-98 3,039,135.00 60 #2768 to 2770 & #2781 to 2812 Lease #13 Dec-98 2,663,536.75 36 #2813 to 2857 Lease #14 Jan-99 3,353,197.50 36 Banc One Ls: #1791 to 1795 Lease #7 Oct-96 389,300.00 36 Fifth Third Leasing: #531220 to 531244 Lease #1 May-97 965.671.00 60 First Security Leasing: #2533 to 2551 Lease #1 May-98 1,412,968.25 36 #2552 to 2571 Lease #2 Jun-98 1,493,920.00 36 #2572 to 2574 & #2591 to 2601 Lease #3 Jul-98 1,041,131.00 36 #2602 to 2614 Lease #4 Jul-98 966,764.50 36 First Union Leasing: #530820 to 530869 & #535034 to 535083 & #530870 to 530919 Lease #1 Sep-96 4,794,318.00 60 #1731 to 1735 #1737 to 1790 Lease #2 Dec-96 4,520,542.00 36 #2130 to 2157 & #2172 to 2191 Lease #3 Jul-97 3,555,273.60 36 #2158 to 2171 Lease #4 Aug-97 1,036,954.80 36 #2192 to 2244 Lease #5 Sep-97 3,925,614.60 36 #2245 to 2258 Lease #6 Oct-97 1,036,954.80 36 Fleet Capital: #1627 to 1657, 1674 Lease #12 Oct-96 2,401,315.88 36 #1680 to 1704 & #1706 to 1730 Volvos Lease #13 Oct-96 3,460,700.00 39 #1797 to 1820 Volvos #1822 to 1845 Lease #14 Dec-96 3,322,272.00 39 #531170 to 531219 Lease #15 May-97 1,934,496.00 60 #2259 to 2265 & #2283 to 2292 Lease #16 Oct-97 1,259,159.40 36 #531595 to 531719 Lease #17 Oct-97 4,875,397.25 60 #2321 to 2337 #2339 to 2350, 2616 Lease #18 Dec-97 2,239,874.45 36 #2362 to 2379 Lease #19 Feb-98 1,331,744.40 36 #2575 to 2590, 2615 Lease #20 Jul-98 1,264,230.50 36 #2617 to 2658 Lease #21 Aug-98 3,154,099.50 36 #2659 to 2698 (LBJ) Lease #22 Sep-98 2,971,840.00 36 #3036 to 3047 (CIT) Lease #23 May-99 2,016,771.75 36 #3049 to 3055 #3073 to 3074 #3076,77,78,80,81,82 #3048,56 to 72 (CIT) Lease #24 May-99 1,643,027.75 36 #3075, 79,83,84 Key Corp Leasing: #1866 to 1900 Lease #17 Jan-97 2,698,246.45 36 #2266 to 2279 Lease #18 Oct-97 1,036,954.80 36 #2280 to 2282 & #2293 to 2309 & #2311 to 2313 Lease #19 Nov-97 1,703,568.60 36 #2310,2314 to 2320 Lease #20 Dec-97 592,545.60 36 #2351 to 2360 Lease #21 Jan-98 748,433.50 36 #2381 to 2390 Lease #22 Feb-98 748,433.50 36 #2391 to 2435 Lease #23 Apr-98 3,159,095.00 36 #2699 to 2721 & #2723 to 2728 Lease #24 Oct-98 2,204,652.00 36 #600,2722, 29 to 48 #2771 to 2780 Lease #25 Nov-98 2,406,135.00 36 #2749 to 2767 Lease #26 Dec-98 1,414,089.25 36 #2858 to 2872 Lease #27 Feb-99 1,120,425.00 36 #2932,2937,2942 Lease #28 Apr-99 4,317,457.75 36 #2956 to 2989 #3015 to 3035 Mercedes-Benz Credit: #2873 to 2931,33,35,36 Lease #1 Mar-99 5,659,950.25 36 #2838 to 2841 #2946 to 2953,55,56 #2934, 2943 to 2945 Lease #2 Apr-99 2,153,483.25 36 #2990 to 3014 #53231 to 53260 Lease #3 Jul-99 1,240,419.22 60 Nations Bank: #530920 to 530969 Lease #6 Dec-96 1,921,790.50 60 #ABS001 to ABS032 Lease #7 May-98 3,045,644.60 60 &532120 to 532162 Lease #8 Jun-98 3,035,400.75 60 #532163 to 532237 Lease #9 Jun-99 4,569,088.00 36 #3085 to 3145 (MBC) Lease #10 Jun-99 764,065.75 36 #3146 to 3149 (DIME) Lease #11 Sep-99 2,001,663.50 36 #3150 to 3176 Safeco Credit: #1846 to 1864 Lease #2 Dec-96 1,405,991.45 36 #80088 to 80137 Lease #3 Feb-99 1,002,441.00 60 U.S. Bancorp Leasing: #530120 to 530137 #530139 to 530170 & 530172 to 530179 Lease #2 Jan-96 2,160,606.33 60 Volvo Truck Finance: #1941 to 1973 #401 & 402 Apr-97 2,411,306.00 39 #1974 to 1983 #1985 to 2040 (Excluding 1997,03,06) #403 May-97 4,605,552.00 39 #1997,2003,2006 #404 Jun-97 219,312.00 39 Schedule 4.16 Patents, Trademarks, Copyrights 1. Borrower's logo of the skunk holding a flag is registered with the State of Utah. 2. Borrowers also have unregistered rights of various kinds. Schedule 4.18 Contracts and Labor Disputes NONE Schedule 4.25 Environmental Matters NONE Schedule 6.11 Investments NONE Dick Simon Trucking, Inc Capitalized Leases -- Principal and Interest August 3l.1999 Schedule 6.12 Interest Principal Current Residual Original Residual Monthly Principal 8/l/99 8/i/99 Principal Principal Principal Due Within Asset Date Amount Term Residual Value Payment 7/31/99 8/31/99 8/31/99 Payoff 8/31/99 at 8/31/99 12 Months - ----- ------ --------- ---- -------- --------- ------- --------- -------- --------- --------- --------- ---------- ----------- FSU03 Sep-95 2,012,409 60 50% 1,006,204 25,515 1,272,306 7,197 18,318 -- 1,253,988 228,072 -- FCRO7 May-95 184,350 60 50% 92,175 2,390 109,932 662 1,728 -- 108,204 16,029 92,175 FCRO8 Aug-95 643,297 60 50% 321,649 8,011 400,357 2,149 5,862 -- 394,495 72,847 321,649 FCRO9 Oct-95 252,930 60 50% 126,465 3,141 161,951 862 2,279 -- 159,672 28,311 -- FCR11 Dec-95 870,343 60 50% 435,172 10,691 572,368 2,948 7,743 -- 564,625 96,086 -- --------- --------- ------ --------- -------- --------- --------- --------- ---------- ----------- TOTAL 3,963,329 1,981,664 49,747 2,516,914 13,817 35,930 -- 2,480,984 441,344 413,824 --------- --------- ------ --------- -------- --------- --------- --------- ---------- ----------- Total Lease Payments 8/1/99 - 8/31/99 49,747 Current 855,167 New Leases 8/l/99 - 8/31/99 -- Long-term 1,625.817
Dick Simon Trucking. Inc Debt Summary August 31, 1999 Schedule 6.12 Principal Due During Original Stated Current Monthly Monthly Balance the Period Ending Bank & Collateral Loan Date Amount Term Rate Rate Principal Payment 8/31/99 8/31/00 8/31/01 - ----------------------- ---- ------ ------------- ---- -------- ------- --------- ----------- ------------ ------------ ------------ First Union Trailers 530180-530219 1 Feb-96 1,565,640.00 60 Fixed 6.37% -- 30,536.35 522,488.15 342,626.52 179,861.63 Trailers 530023-530279 2 Feb-96 1,869.898.80 60 Fixed 6.37% -- 36,472.97 625,194.62 410,366.43 214,828.19 Trailers 530220-530319 3 Feb-96 1,898,742.16 60 Fixed 6.24% -- 36,916.74 633,036.65 415,271.88 217,764.77 Trailers 535014-535033 4 Mar-96 352,728.40 60 Fixed 6.55% -- 6,909.80 130,554.70 83,225.09 47,329.61 Trailers 530320-530369 5 Mar-96 1.946.554.00 60 Fixed 6.55% -- 38,132.18 657,206.30 396,015.53 261,190.77 Trailers 530370-530419 6 Mar-96 1,946.554.00 60 Fixed 7.09% -- 38,626.81 692,364.93 428,255.76 264,109.17 Trailers 530420-530469 7 Apr-96 1,946,654.00 60 Fixed 7.20% -- 38,728.05 727,860.08 463,155.05 264,705.03 Trailers 530470-530519 8 Apr.96 1,946,806.00 60 Fixed 7.18% -- 38,714.62 756,783.13 492,152.23 264,630.90 Trailers 530520-530569 9 May-96 1,946,651.00 60 LIBOR+1.1 6.04% 32,444.18 0.00 681,327.98 389,330.16 291,997.82 Subtotal 15,420,027.36 32,444.18 265,037.52 5,426,816.54 3,420,308.64 2,006,417.90 Bank of Boston Headquarters-WVC 1 Aug-97 12,900,000.00 33 Eurodollar 5.88% 365,656.56 0.00 4,387,878.90 4,387,878.72 0.18 Subtotal 12,900,000.00 365,656.66 0.00 4,387,878.90 4,387,378.72 0.18 Current Portion of Debt 7,808,277.36 Long-term Portion of Debt 2,006,418.08 Total 9,814,695.44 7,808.277.36 2,006,418.08
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