-----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, AS0PgTHIZ9kRHqnwq50WhJWukbjrxXvayRw+QL9lC1nbCRDHQ/nuZtPO6+5CvW/I 3/Pozm6hzzQqHOzIfq6pZw== 0000950144-01-509137.txt : 20020410 0000950144-01-509137.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950144-01-509137 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOYD BROS TRANSPORTATION INC CENTRAL INDEX KEY: 0000920907 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 636006515 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23948 FILM NUMBER: 1789029 BUSINESS ADDRESS: STREET 1: 3275 HIGHWAY 30 CITY: CLAYTON STATE: AL ZIP: 36016 BUSINESS PHONE: 3347753261 MAIL ADDRESS: STREET 1: 3275 HWY 30 CITY: CLAYTON STATE: AL ZIP: 36016 10-Q 1 g72634e10-q.txt BOYD BROS. TRANSPORTATION INC. FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to ____________________ Commission File Number 0-23948 -------------------------------------------------------- BOYD BROS. TRANSPORTATION INC. (Exact name of Registrant as specified in its charter) Delaware 63-6006515 (State or other jurisdiction of (IRS Employer Identification incorporation or organization) Number) 3275 Highway 30, Clayton, Alabama 36016 --------------------------------------- (Address of principal executive offices) (Zip Code) (334) 775-1400 -------------- (Registrant's telephone number, including area code) Indicate by checkmark 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) Yes [X] No [ ], and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of November 14, 2001. Common Stock, $.001 Par Value 2,783,086 - ----------------------------- --------- (Class) (Number of Shares) INDEX
PAGE NUMBER Part I. Financial Information Item 1. Consolidated Financial Statements Consolidated Balance Sheets September 30, 2001 and December 31, 2000 3 Consolidated Statements of Income Three- and Nine-month Periods Ended September 30, 2001 and 2000 5 Consolidated Statements of Cash Flows Nine-month Periods Ended September 30, 2001 and 2000 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk 15 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16
2 BOYD BROS. TRANSPORTATION INC. CONSOLIDATED BALANCE SHEETS
SEPT. 30, DEC. 31, 2001 2000 ------------ ------------ (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,038,180 $ 1,273,281 Marketable securities 250,000 250,000 Accounts receivable: Trade and interline 13,626,677 10,907,099 Other 132,746 690,212 Current portion of net investment in sales-type leases 1,637,759 1,562,329 Income tax receivable 330,858 1,954,786 Parts and supplies inventory 594,296 431,967 Prepaid tire expense 41,684 282,915 Other prepaid expenses 2,614,978 1,606,814 Deferred income taxes 919,811 919,811 ------------ ------------ Total current assets 21,186,989 19,879,214 ------------ ------------ PROPERTY AND EQUIPMENT: Land and land improvements 2,766,467 2,263,326 Buildings 7,635,280 2,927,611 Revenue equipment 70,459,869 76,637,858 Other equipment 11,589,962 11,781,884 Leasehold improvements 384,884 384,884 Construction in progress -- 5,090,631 ------------ ------------ Total 92,836,462 99,086,194 Less accumulated depreciation and amortization 36,975,194 32,348,826 ------------ ------------ Property and equipment, net 55,861,268 66,737,368 ------------ ------------ OTHER ASSETS: Net investment in sales-type leases 4,152,702 2,908,691 Goodwill 3,508,396 3,676,246 Deposits and other assets 488,128 454,739 Revenue equipment available for lease 1,132,941 1,395,865 ------------ ------------ Total other assets 9,282,167 8,435,541 ------------ ------------ TOTAL $ 86,330,424 $ 95,052,123 ============ ============
See notes to consolidated financial statements. 3 BOYD BROS. TRANSPORTATION INC. CONSOLIDATED BALANCE SHEETS
SEPT. 30, DEC. 31, 2001 2000 ------------ ------------ (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 13,585,084 $ 13,534,198 Line of credit 177,938 1,049,831 Accounts payable - trade and interline 4,437,678 2,575,676 Accrued liabilities: Self-insurance claims 2,836,501 2,510,396 Salaries and wages 654,783 505,181 Other 1,210,760 1,184,493 ------------ ------------ Total current liabilities 22,902,744 21,359,775 LONG-TERM DEBT 23,957,505 33,322,377 DEFERRED INCOME TAXES 13,187,549 13,187,549 ------------ ------------ Total liabilities 60,047,798 67,869,701 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value - 1,000,000 shares authorized; no shares issued and outstanding -- -- Common stock, $.001 par value - 10,000,000 shares authorized; 4,069,040 shares issued and 2,783,086 shares outstanding 4,070 4,070 Treasury Stock at cost, 1,285,954 shares (2001) and 1,118,746 (2000) (9,220,126) (8,137,959) Additional paid-in capital 16,864,622 16,864,622 Retained earnings 18,634,060 18,451,689 ------------ ------------ Total stockholders' equity 26,282,626 27,182,422 ------------ ------------ TOTAL $ 86,330,424 $ 95,052,123 ------------ ------------
See notes to consolidated financial statements. 4 BOYD BROS. TRANSPORTATION INC. CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) OPERATING REVENUES $ 32,457,010 $ 31,202,168 $ 94,386,035 $ 97,628,842 ------------ ------------ ------------ ------------ OPERATING EXPENSES: Salaries, wages and employee benefits 9,743,527 10,102,502 30,207,523 29,387,099 Cost of independent contractors 8,490,937 8,199,349 22,655,407 28,089,723 Fuel 3,632,761 3,824,129 11,586,663 10,602,686 Operating supplies 3,196,604 3,204,674 9,151,838 8,531,645 Taxes and licenses 639,862 640,173 1,617,997 2,218,878 Insurance and claims 1,769,989 1,573,705 5,295,495 5,139,393 Communications and utilities 304,700 378,978 1,069,706 1,156,871 Depreciation and amortization 3,043,832 2,768,578 9,326,184 8,556,193 Gain on disposition of property and equipment, net (10,024) (682,590) (591,792) (1,100,251) Other 664,390 296,539 1,461,463 1,351,709 ------------ ------------ ------------ ------------ Total operating expenses 31,476,578 30,306,037 91,780,484 93,933,946 ------------ ------------ ------------ ------------ OPERATING INCOME 980,432 896,131 2,605,551 3,694,896 ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSES): Interest income 14,946 24,972 47,845 70,030 Interest expense (593,362) (993,485) (2,139,453) (2,959,213) Other income -- -- -- -- ------------ ------------ ------------ ------------ Other expenses, net (578,416) (968,513) (2,091,608) (2,889,183) ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 402,016 (72,382) 513,943 805,713 PROVISION (BENEFIT) FOR INCOME TAXES 171,806 (7,278) 293,925 431,102 ------------ ------------ ------------ ------------ NET INCOME (LOSS) $ 230,210 $ (65,104) $ 220,018 $ 374,611 ------------ ------------ ------------ ------------ NET INCOME (LOSS) PER SHARE (Basic and Diluted) $ 0.08 $ (0.02) $ 0.08 $ 0.12 ------------ ------------ ------------ ------------ WEIGHTED AVERAGE SHARES OUTSTANDING 2,794,140 3,000,223 2,855,465 3,128,890 ------------ ------------ ------------ ------------
See notes to consolidated financial statements. 5 BOYD BROS. TRANSPORTATION INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPT. 30, 2001 2000 ------------ ------------ (UNAUDITED) OPERATING ACTIVITIES: Net income $ 220,018 $ 374,611 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,326,184 8,556,193 Net effect of sales - type leases on cost of independent contractors (742,392) (755,059) Gain on disposal of property and equipment, net (591,792) (1,100,251) Changes in assets and liabilities provided (used) cash: Accounts receivable (2,162,111) (59,124) Refundable income taxes 1,623,928 -- Other current assets (929,260) -- Deposits and other assets (33,389) (359,371) Accounts payable - trade and interline 1,861,999 1,208,530 Accrued liabilities and other current liabilities 501,973 (566,625) ------------ ------------ Net cash provided by operating activities 9,075,158 7,298,904 ------------ ------------ INVESTING ACTIVITIES: Payments received on sales type leases 2,557,166 2,833,677 Capital expenditures: Revenue equipment (1,400,293) (16,178,794) Other equipment (244,478) (1,112,124) Construction in process (107,040) -- Proceeds from disposals of property and equipment 1,152,432 5,304,344 ------------ ------------ Net cash provided by (used in) investing activities 1,957,787 (9,152,897) ------------ ------------ FINANCING ACTIVITIES: Purchase of treasury stock, net (1,082,166) (1,964,340) (Repayments on) proceeds from line of credit, net (871,893) 2,500,000 Proceeds from long-term debt 391,047 10,575,018 Principal payments on long-term debt (9,705,034) (9,854,057) ------------ ------------ Net cash (used in) provided by financing activities (11,268,046) 1,256,621 ------------ ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS (235,101) (597,372) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,273,281 1,006,826 ------------ ------------ BALANCE AT END OF PERIOD $ 1,038,180 $ 409,454 ------------ ------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash (received) paid during the year for: Income taxes, net of refunds $ (43,484) $ 1,088,928 ------------ ------------ Interest $ 2,128,021 $ 2,959,213 ------------ ------------ SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES: Net investment in sales-type leases $ 828,091 $ 585,620 ------------ ------------
See notes to consolidated financial statements. 6 BOYD BROS. TRANSPORTATION INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in compliance with Form 10-Q instructions and thus do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the statements reflect all adjustments, including those of normal recurring nature, necessary to present fairly the results of the reported interim periods. The statements should be read in conjunction with the summary of accounting policies and notes to financial statements included in the Company's latest annual report on Form 10-K. 2. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Boyd Bros. and its wholly owned subsidiary, WTI Transport, Inc. (f/k/a Welborn Transport, Inc.) ("WTI Transport"). Boyd Bros. and WTI Transport are referred to herein collectively as the "Company". All significant intercompany balances, transactions and stockholdings have been eliminated. 3. ENVIRONMENTAL MATTERS The Company's operations are subject to certain federal, state and local laws and regulations concerning the environment. Certain of the Company's facilities are located in historically industrial areas and, therefore, there is the possibility of environmental liability as a result of operations by prior owners as well as the Company's use of fuels and underground storage tanks at its regional service centers. 4. CAPITAL TRANSACTIONS In February 1999, the Company's Board of Directors authorized a program under which the Company may purchase up to 600,000 shares of its common stock in open market or negotiated transactions. During the first nine months of 2001, the Company did not purchase any shares under this program. However, the Company purchased 174,152 shares of its common stock during this period from two related parties for $1,131,988 in accordance with terms of the acquisition agreement pursuant to which the Company acquired WTI Transport in 1997. 5. DERIVATIVE INSTRUMENTS Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. The adoption of SFAS No. 133 did not materially impact the Company's consolidated financial statements. 6. ACCOUNTING STANDARDS NOT YET ADOPTED In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 applies to all business combinations initiated after June 30, 2001, and requires the purchase method of accounting for business combinations, thereby prohibiting the pooling-of-interest (pooling) method. Additionally, it requires the initial recognition of acquired intangible assets apart from goodwill and specifies disclosures regarding a business combination. SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001. Under this pronouncement, goodwill and intangible assets with indefinite lives will no longer be amortized but reviewed at least annually for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives with no set maximum life. In addition, the useful lives of recognized intangible 7 assets acquired in transactions completed before July 1, 2001, will be reassessed and the remaining amortization periods adjusted accordingly. The Company is currently evaluating the impact of adopting the new accounting standards on its consolidated financial statements and has not yet determined the ultimate impact of the new standards. Goodwill amortization expense for the third quarter and first nine months of 2001 was approximately $55,950 and $167,850, respectively. In June 2001, the FASB approved the issuance of Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 establishes accounting standards for the recognition and measurement of legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 will become effective for the Company on January 1, 2003 and requires recognition of a liability for an asset retirement obligation in the period in which it is incurred. Management is in the process of evaluating the impact this standard will have on the Company's financial statements. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. Management is in the process of evaluating the impact this standard will have on the Company's financial statements. 7. DEBT As of September 30, 2001, the Company was not in compliance with certain financial covenant ratio requirements imposed by its credit agreement with AmSouth Bank, which are measured as of June 30 and December 31 of each year. In November 2001, AmSouth Bank executed a waiver in favor of the Company which waives the Company's compliance with these covenant requirements until December 31, 2001. There can be no assurance that the Company will be able to comply with these covenants in the future or that the Company's lenders will provide any additional waivers with respect to any such noncompliance. If the Company cannot obtain such additional waivers, the lenders may exercise their remedies under the applicable loan agreements, which may have a material adverse effect on the Company's financial condition. During the third quarter of 2001, the Company and one of its major lenders consolidated all of its term notes maturing among various years into one master note. The principal payments are due equally over 60 months and the interest is LIBOR based and is adjusted quarterly. 8. MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK During the second quarter of 2001, the Company learned that a significant customer had filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The Company derived approximately 11% of its operating revenues in the first nine months of 2001, and less than 10% of its fiscal 2000 operating revenues, from this customer. During the third quarter of 2001, the Company collected approximately $850,000 of the approximately $900,000 of pre-petition debt from this customer. There can be no assurance that the Company will be able to retain this customer or, if so, that the Company will be able to maintain the level of annual revenues it has received from the customer in the past. If the Company is unable to retain the customer, or if the revenues the Company derives from its business with this customer declines materially, such events could have a material adverse effect on the Company's results of operations and financial condition. 8 9. SEGMENT INFORMATION The Company has two reportable segments: Boyd Bros. and WTI Transport. The Boyd Bros. division is a flatbed carrier that hauls primarily steel and building products, throughout most of the continental United States, and operates 760 trucks. Boyd Bros. had 564 company drivers and 196 owner-operators as of September 30, 2001. The WTI Transport division is a flatbed carrier that hauls steel and roofing products, primarily in the eastern two-thirds of the United States, and operates 210 trucks. WTI Transport had 49 company drivers and 161 owner-operators as of September 30, 2001. The accounting policies of the segments are the same as those described in the summary of accounting policies. Segment reporting information for the three-month periods ended September 30, 2001 and 2000, and also the nine-month periods then ended, is as follows: RESULTS OF OPERATIONS
Three Months Ended September 30, 2001 WTI Intersegment Boyd Transport Eliminations Total Operating revenues $ 27,267,248 $ 5,189,762 $ -- $32,457,010 Operating expenses 26,371,834 5,104,744 -- 31,476,578 Operating income 895,416 85,018 -- 980,434 Operating ratio 96.7% 98.4% -- 97.0%
Three Months Ended September 30, 2000 WTI Intersegment Boyd Transport Eliminations Total Operating revenues $ 25,950,957 $ 5,302,859 $ (51,648) $31,202,168 Operating expenses 25,082,958 5,263,914 (40,835) 30,306,037 Operating income 866,636 38,945 (10,813) 894,768 Operating ratio 96.7% 99.3% 97.1%
Nine Months Ended September 30, 2001 WTI Intersegment Boyd Transport Eliminations Total Operating revenues $ 79,725,127 $ 14,772,544 $(111,636) $94,386,035 Operating expenses 77,039,633 14,852,487 (111,636) 91,780,484 Operating income 2,685,494 (79,943) -- 2,605,551 Operating ratio 96.6% 100.5% 97.2%
Nine Months Ended September 30, 2000 WTI Intersegment Boyd Transport Eliminations Total Operating revenue $ 77,135,211 $ 20,672,263 $(178,632) $97,628,842 Operating expenses 73,190,405 20,894,639 (151,098) 93,933,946 Operating income 3,944,806 (222,376) (27,534) 3,694,896 Operating ratio 94.9% 101.1% -- 96.2%
IDENTIFIABLE ASSETS
As of September 30, 2001 WTI Boyd Transport Total Cash and cash equivalents $ 223,729 $ 814,451 $ 1,038,180 Property and equipment 51,413,429 4,447,839 55,861,268 Goodwill (net of amortization expense) -- 3,508,396 3,508,396 Long-term debt (including current maturities) 35,804,215 1,738,373 37,542,588
As of December 31, 2000 WTI Boyd Transport Total Cash and cash equivalents $ (44,234) $ 1,317,515 $ 1,273,281 Property and equipment 62,137,993 4,599,375 66,737,368 Goodwill (net of amortization expense) -- 3,676,246 3,676,246 Long-term debt (including current maturities) 43,451,096 3,405,479 46,856,575
9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the attached interim consolidated financial statements and with the Company's 2000 Annual Report to Stockholders, which included audited financial statements and notes thereto for the fiscal year ended December 31, 2000, as well as Management's Discussion and Analysis of Financial Condition and Results of Operations. OVERVIEW The Company, headquartered in Clayton, Alabama, is a flatbed truckload carrier that has two reportable segments: Boyd Bros. and WTI Transport. The Boyd Bros. division operates throughout most of the continental United States, hauling steel and building products. The WTI Transport division hauls steel and roofing products, primarily in the eastern two-thirds of the United States. The Company typically serves high-volume, time-sensitive shippers that demand time definite delivery. Historically, the Company has owned its revenue equipment and operated through company drivers. The Company's expansion in the past, therefore, has required significant capital expenditures that have been funded through secured borrowings. During 1997, as a strategy to expand the Company's potential for growth, the Company began adding owner/operators to its fleet. The Company then accelerated the implementation of this strategy in December 1997 with the acquisition of Welborn Transport, Inc., which specializes in short-haul routes using a largely owner/operator fleet. As of September 30, 2001, the Company's fleet totaled 970 power units, of which 357 or about 37% were owner-operated. RESULTS OF OPERATIONS Quarterly Review The Company's results of operations for the third quarter reflected a continuation of generally weak freight conditions, which have affected the Company's fleet efficiency, combined with high operating costs, particularly for depreciation and bad debt expense. Nevertheless, load counts continued to show improvement in the third quarter compared with the market low point experienced in late 2000 and early 2001. This improvement, combined with the Company's efforts to reduce certain operating costs, and lower prevailing interest rates, helped offset the impact of the increase in depreciation and bad debt expense and allowed the Company to continue to be profitable in the third quarter of 2001. The Company's total operating revenues increased $1,254,842 or 4.0% to $32,457,010 for the quarter ended September 30, 2001, compared with $31,202,168 for the same period in 2000. This change in total operating revenues reflected an increase of $1,316,291 or 5.1% in the Boyd division and a decrease of $113,097 or 2.1% at the WTI Transport division. Total operating expenses increased $1,169,176 or 3.9% to $31,476,576 for the third quarter compared with $30,307,400 for the same three months ended September 30, 2000. The increase in the Company's operating expenses, which were attributable primarily to the Boyd division, were due largely to increases in depreciation and amortization, reduced gains on sale of property, plant and equipment, and higher other expense including bad debt expense, which were partially offset by lower fuel cost. Depreciation and amortization increased $275,254 or 9.9% to $3,043,832 from $2,768,578 in the third quarter of 2000. As a percentage of operating revenues, depreciation and amortization increased to 9.4% from 8.9%. The increase in depreciation and amortization for the quarter was primarily associated with the Boyd division, which during the past year has converted some owner-operated tractors that were subject to lease/purchase arrangements to company-owned power units. The increase also reflected the completion of the new Boyd terminal that was put into service during the first quarter of 2001. Gain on disposition of property and equipment, net declined $672,566 or 98.5% to $10,024 from $682,590 in the third quarter of 2000. As a percentage of operating revenues, gain on disposition of property and equipment, 10 net declined to 0.0% from 2.2%. The lower gains again related almost entirely to the Boyd division because it operates primarily with company-owned power units, reflected lower trade-in activity and depressed trade-in values for used tractors. Other expense increased $366,489 or 123.0% to $664,390 from $297,901 in the third quarter of 2000. As a percentage of operating revenues, other expense increased to 2.0% from 1.0%. The increase in other expense related to an increase in bad debt reserves associated with Chapter 11 bankruptcy filings by two of the Company's biggest customers this year. Offsetting these increases to some extent, fuel costs declined $191,369 or 5.0% to $3,632,760 from $3,824,129 in the third quarter of 2000. However, fuel costs continue to represent a large portion of the Company's operating expense, representing 11.2% of operating revenues -- a decline from 12.3% for the same period last year. The majority of the decline in third quarter fuel costs related to the Boyd division, which operates using largely company-owned power units (the Company does not incur direct fuel costs for owner-operated power units). The WTI Transport division, while still relying primarily on owner-operators, also experienced an increase in overall fuel costs for the period due to an increase in the number of company drivers over the same period last year. As a net result of higher operating revenues for the third quarter, offset to some extent by higher operating expenses, the Company's operating income for the period increased $85,664 or 9.6% to $980,432 from $894,768 for the same period in 2000. The Company's operating ratio for the third quarter of 2001 was 97.0% compared with 97.1% for the same period in 2000. For the Boyd division, the operating ratio was 96.7% in the third quarter versus 96.7% in the year-earlier period. For the WTI Transport division, the operating ratio was 98.4% in the third quarter versus 99.3% in the year-earlier period. Combined with higher operating income for the third quarter of 2001 compared with the same period last year, the Company achieved higher net income for the period because of lower interest expense. Interest expense for the third quarter declined $412,044 or 41.5% to $581,441 from $993,485 in the third quarter of 2000. As a percentage of operating revenues, interest expense declined to 1.8% from 3.2%. Most of the Company's revenue equipment financing is associated with the Boyd division because of its larger company-owned fleet, thus most of the decline in interest expense for the third quarter related to the Boyd division and reflected both lower debt levels and a lower LIBOR rate on borrowed funds. The effective tax rate for the three-month period ended September 30, 2001, was 43%. This differs from the statutory tax rate primarily due to non-deductibility of amortization expense for tax purposes on goodwill. Year-to-date Review Operating revenues declined $3,242,807 or 3.3% to $94,386,035 in the nine-month period ended September 30, 2001, compared with $97,628,842 in the same period in 2000. This change in total operating revenues reflected an increase of 3.4% in the Boyd division, which was more than offset by a decline of 28.5% at the WTI Transport division (both before intersegment eliminations). As with the third quarter, the decline in WTI Transport's operating revenues, and to some extent the increase in operating revenues for the Boyd division for the year-to-date period, reflected the closing of Welborn's brokerage company in the last half of 2000 and the subsequent resumption of this business at the Boyd division. Aside from the shift in this brokerage business from one division to the other, the Company's operating revenues for the first nine months of 2001 were adversely affected by ongoing soft freight conditions, although those conditions improved in the third quarter from the second. Total operating expenses declined $2,153,462 or 2.3% to $91,780,484 for the year-to-date period ended September 30, 2001, compared with $93,933,946 for the first nine months of 2000. The change in the Company's operating expenses reflected primarily higher expenses for salaries, wages and employee benefits, fuel, operating supplies, depreciation and amortization, and other expense, together with reduced gains on the disposition of property and equipment, net, which were more than offset primarily by lower cost of independent contractors and lower taxes and licenses. 11 Salaries, wages and employee benefits increased $820,424 or 2.8% to $30,207,523 from $29,387,099 in the first nine months of 2001. As a percentage of operating revenues, salaries, wages and benefits increased to 32.0% from 30.1%. The increase in this expense category was completely associated with the Boyd division, where higher salaries, wages and employee benefits more than offset a small decline experienced in the WTI Transport division. The increase at the Boyd division was due to an increase in the number of company drivers (as many owner-operators converted to this status during the past year) and non-driver associates, and to a lesser extent it also reflected the shift of brokerage operations to the Boyd division. Fuel costs increased $983,977 or 9.3% to $11,586,663 from $10,602,686 in the first nine months of 2000. As a percentage of operating revenues, fuel costs increased to 12.3% from 10.9%. While fuel costs were up significantly in both divisions, the majority of the Company's increased fuel costs for the first nine months of 2001 related to the Boyd division, which operates using largely company-owned power units (the Company does not incur direct fuel costs for owner-operated power units) and reflected primarily the higher level of per-gallon fuel prices during the first nine months of the year and a decline in the fleet fuel consumption efficiency. The WTI Transport division, while still relying primarily on owner-operators, also experienced higher overall fuel costs for the period as it increased the number of company drivers over the same period last year. Operating supplies expense increased $620,193 or 7.3% to $9,151,838 from $8,531,645 in the first nine months of 2000. As a percentage of operating revenues, operating supplies increased to 9.7% from 8.7%. The increase in operating supplies for the 2001 year-to-date period was entirely related to the Boyd division, which more than offset a decline in operating supplies at the WTI Transport division. The higher amount of operating supplies at the Boyd division reflected higher tire costs and overall higher maintenance costs associated with the aging of its company-owned fleet. Depreciation and amortization increased $769,991 or 9.0% to $9,326,184 from $8,556,193 in the first nine months of 2000. As a percentage of operating revenues, depreciation and amortization increased to 9.9% from 8.8%. The increase in depreciation and amortization for the first nine months of 2001 was primarily associated with the Boyd division, which during the past year has converted some owner-operated tractors that were subject to lease/purchase arrangements to company-owned power units. The increase also reflected the completion of the new Boyd terminal that was put into service during the first quarter of 2001. Other expense increased $109,754 or 8.1% to $1,461,463 from $1,351,709 in the first nine months of 2000. As a percentage of operating revenues, other expense increased to 1.5% from 1.4%. The increase in other expense reflected an increase in bad debt reserves for the Boyd division associated with Chapter 11 bankruptcy filings by one of the Company's biggest customers this year, offset to some extent by lower costs in the WTI Transport division, which experienced lower bad debt expense and increased recoveries of bad debts previously written off, together with lower advertising costs. Gain on disposition of property and equipment, net declined $508,459 or 46.2% to $591,792 from $1,100,251 in the first nine months of 2000. As a percentage of operating revenues, gain of disposition of property and equipment, net declined to 0.6% from 1.1%. The increased gains for the current year period reflected the sale of a Company owned aircraft during the first quarter of 2001, offset by lower gains at the Boyd division due to depressed trade-in values for used tractors and lower trade in activity. As mentioned, several expense categories improved during the first nine months of 2001 compared with the same period last year, more than offsetting the increased cost pressures described above. The largest of these was the cost of independent contractors which declined $5,434,316 or 19.3% to $22,655,407 from $28,089,723 in the first nine months of 2000. As a percentage of operating revenues, cost of independent contractors declined to 24.0% from 28.8%. The decline in the cost of independent contractors was primarily associated with the WTI Transport division, which has a higher proportion of owner-operators than company drivers. These lower costs reflected a general decline in the number of owner-operators over the past year as many of independent drivers have exited the business or converted to company drivers, either with the Company or with other trucking companies, due to higher prevailing fuel costs that have severely reduced the profit potential of being an owner-operator. 12 Taxes and licenses also declined $600,881 or 27.1% to $1,617,997 from $2,218,878 in the first nine months of 2000. As a percentage of operating revenues, taxes and licenses declined to 1.7% from 2.3%. The decline in taxes and licenses reflected a reduction in the Company's fleet size over the past year, particularly at the WTI Transport division, and declining values used to license and permit tractors. As a net result of lower operating revenues for the first nine months of 2001, offset to some extent by lower operating expenses, the Company's operating income for the period declined $1,089,345 or 29.5% to $2,605,551 from $3,694,896 for the same period in 2000. The Company's operating ratio for the first nine months of 2001 was 97.2% compared with 96.2% for the same period in 2000. For the Boyd division, the operating ratio was 96.6% in the first nine months versus 96.2% in the year-earlier period. For WTI Transport division, the operating ratio was 100.5% in the first nine months versus 101.1% in the year-earlier period. Interest expense for the first nine months of 2001 declined $819,761 or 27.7% to $2,139,453 from $2,959,214 in the first nine months of 2000. As a percentage of operating revenues, interest expense declined to 2.8% from 3.0%. Most of the Company's revenue equipment financing is associated with the Boyd division because of its larger company-owned fleet, thus most of the decline in interest expense for the first nine months of 2001 related to the Boyd division and reflected both lower debt levels and a lower LIBOR rate on borrowed funds. The effective tax rate for the nine-month period ended September 30, 2001, was 58%. This differs from the statutory tax rate primarily due to non-deductibility of amortization expense for tax purposes on goodwill. LIQUIDITY AND CAPITAL RESOURCES The Company's primary cash requirements are for capital expenditures and operating expenses, including labor costs, fuel costs and operating supplies. Historically, the Company's primary sources of cash have been from operations and bank borrowings. Net cash flow provided by operating activities was $9,075,158 during the first nine months of 2001, compared with $7,298,904 during the same period in 2000. Accounts receivable - trade and interline increased $2,719,577 or 24.9% to $13,626,676 at September 30, 2001, from $10,907,099 at December 31, 2000. Accounts receivable represented 15.8% of total assets compared with 11.5% of total assets at December 31, 2000. The number of days of revenue in accounts receivable at September 30, 2001, was 38.6 compared with 31.4 at December 31, 2000. During the first quarter of 2001 the Company received approximately $1,600,000 for income tax refunds for taxes paid during the year ended December 31, 2000. Accounts payable increased due to the timing of payment of invoices and also the day of the week the month ended. Accrued liabilities increased due to the Company increasing its' retention per occurrence ($500,000 per claim) for liability claims beginning on July 1, 2001. During the second quarter of 2001, the Company learned that a significant customer had filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The Company derived approximately 11% of its operating revenues in the first nine months of 2001, and less than 10% of its fiscal 2000 operating revenues, from this customer. During the third quarter of 2001, the Company collected approximately $850,000 of the approximately $900,000 of pre-petition debt from this customer. There can be no assurance that the Company will be able to retain this customer or, if so, that the Company will be able to maintain the level of annual revenues it has received from the customer in the past. If the Company is unable to retain the customer, or if the revenues the Company derives from its business with this customer declines materially, such events could have a material adverse effect on the Company's results of operations and financial condition. 13 The Company reserves for bad debts that are related to the sale-leaseback transactions with its owner-operators. Bad debt expense on such leases for the quarter ended September 30, 2001 was $973,040 compared with $185,440 for the same period in 2000 and bad debt expense for the nine months ended September 30, 2001 was $1,670,963 compared to $964,965 for the same time period in 2000. The Company's bank debt relates largely to its revenue equipment, although a portion was incurred for the recent construction of a new terminal in Birmingham, Alabama. The construction loan was converted to a term loan in January 2001. The Company's bank debt bears interest ranging from LIBOR plus 1.25% to LIBOR plus 2.75%, all payable in monthly installments and with maturities through November 2004 (January 2021 for the terminal loan). The bank debt is collateralized by revenue equipment and the real property related to the Birmingham terminal. During the third quarter of 2001 the Company and one of its major lenders consolidated all of its term notes maturing among various years into one master note. The principal payments are due equally over 60 months and the interest is LIBOR based and adjusted quarterly. The Company also has one line of credit totaling $2,500,000, bearing interest at the bank's 30-day LIBOR rate plus 2.25%. As of September 30, 2001, the Company had outstanding borrowings on this line of credit totaling $177,938. As of September 30, 2001, the Company was not in compliance with certain financial covenant ratio requirements imposed by its credit agreement with AmSouth Bank, which are measured as of June 30 and December 31 of each year. In November 2001, AmSouth Bank executed a waiver in favor of the Company which waives the Company's compliance with these covenant requirements until December 31, 2001. There can be no assurance that the Company will be able to comply with these covenants in the future or that the Company's lenders will provide any additional waivers with respect to any such noncompliance. If the Company cannot obtain such additional waivers, the lenders may exercise their remedies under the applicable loan agreements, which may have a material adverse effect on the Company's financial condition. During the first nine months of 2001, the Company purchased 87,076 shares of its common stock from each of Miller Welborn, the Vice Chairman of the Company, and Steven Rumsey, the Chief Executive Officer of WTI Transport division, for an aggregate purchase price of $1,131,988 at a price per share of $6.50 in accordance with the terms of the acquisition agreement pursuant to which the Company acquired WTI Transport in 1997. The Company funded these purchases using its working capital. The Company believes that the availability of credit under its line of credit, together with internally generated cash, will be adequate to finance its operations and anticipated capital expenditures through fiscal year 2001. Over the long term, the Company will continue to have significant capital needs that may require it to seek additional borrowings or equity capital. The availability of debt financing or equity capital will depend on prevailing market conditions, the market price of its common stock, and other factors over which the Company has no control, as well as the Company's financial condition and results of operations. FUEL PRICE TREND Diesel fuel prices, while higher during the first nine months of 2001 compared with the same period last year, continued to stabilize in the third quarter. If fuel costs remain at their current high levels for an extended period of time or increase further, they may have a material adverse effect on the financial condition and business operations of the Company. Additionally, higher fuel costs also may have a material adverse effect on the Company's efforts to build a base of owner-operators, expand its pool of available trucks and diversify its operations. Higher fuel costs dilute the financial incentive for owner-operators, who are typically paid a flat rate per mile. The diminishing number of owner-operators further affects the Company's financial condition - and therefore compounds the direct impact of higher fuel costs - because each owner/operator that leaves the Company's Boyd Bros. division also leaves behind a power unit that must then be absorbed into the Company's fleet. As a result, each of these trucks can no longer be recorded as a variable expense that is related to a contractual rate per mile, incurred only if freight is moved, but must instead be recorded as a company-owned truck with indirect costs of ownership, such as depreciation, maintenance and capital expenses. As a result, continuing high fuel costs may lead to additional empty trucks, diminished fleet efficiency, and reduced revenue potential. 14 FORWARD-LOOKING STATEMENTS Certain of the above statements contained herein under the caption "Management's Discussion and Analysis Financial Conditions and Result of Operations" constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, business conditions and growth in the economy, including the transportation and construction sectors in particular, competitive factors, including price pressures and the ability to recruit and retain qualified drivers, the ability to control internal costs, departures and defaults by owner-operators, the cost of complying with governmental regulations that are applicable to the Company, insurance and safety-related costs, potential bad debts on accounts receivable, the Company's ability to obtain additional waivers from its creditors in connection with any further non-compliance with loan agreement covenants or the Company's ability to obtain credit on terms acceptable to it, and other factors referenced elsewhere herein. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate risk due to its long-term debt, which at September 30, 2001 bore interest at rates ranging from 1.00% to 2.75% above the bank's LIBOR rate. Under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 107, Disclosures about Fair Value of Financial Instruments, the Company has estimated the fair value of its long-term debt approximates its carrying value, using a discounted cash flow analysis based on borrowing rates available to the Company. The effect of a hypothetical 10% increase in interest rates would increase the estimated fair value of the Company's long-term debt by approximately $400,000. Management believes that current working capital funds are sufficient to offset any adverse effects caused by changes in the interest rates. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Restated Credit and Security Agreement by and between the Company and Amsouth Bank dated May 1, 2001. 10.2 Security Agreement dated May 1, 2001 by and between WTI Transport, Inc. and Amsouth Bank 10.3 Security Agreement dated May 1, 2001 by and between Boyd Bros. Transportation Inc. and Amsouth Bank 10.4 August 2001 waiver between Compass bank and Boyd Bros. Transportation Inc. 10.5 November 2001 waiver between Amsouth bank and Boyd Bros. Transportation Inc. (b) Reports on Form 8-K 1) Item 4. Changes in Registrants Certified Accountants. Form 8-K filed on September 21, 2001. 2) Item 5. Other Events and Regulation FD Disclosure. Form 8-K filed on July 17, 2001. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Boyd Bros. Transportation Inc. (Registrant) Date: November 14, 2001 /s/ Richard C. Bailey -------------------------------------------- Richard C. Bailey, Chief Financial Officer (Principal Accounting Officer) 16 EX-10.1 3 g72634ex10-1.txt RESTATED CREDIT AND SECURITY AGREEMENT EXHIBIT 10.1 AMENDED AND RESTATED CREDIT AGREEMENT THIS AMENDED AND RESTATED CREDIT AGREEMENT ("this Agreement") dated as of May 1, 2001 but actually executed on June 18, 2001 is between BOYD BROTHERS TRANSPORTATION, INC., a Delaware corporation ("Boyd"), WELBORN TRANSPORT, INC., an Alabama corporation ("Welborn"; Boyd and Welborn are together referred to as the "Borrowers") and AMSOUTH BANK, an Alabama banking corporation (the "Lender"). RECITALS A. Boyd and the Lender have heretofore entered into a Credit Agreement dated as of April 1, 1994 (the "Original Credit Agreement") pursuant to which the Lender agreed to make available to Boyd a term loan and a line of credit. B. Boyd and the Lender wish to amend and restate the Original Credit Agreement in its entirety, as hereinafter set forth, for the purposes, among others, of adding Welborn as a borrower and modifying the terms of the term loan and line of credit. AGREEMENT NOW, THEREFORE, in consideration of the foregoing Recitals, and to induce the Lender to extend credit to the Borrowers under this Agreement and the other Credit Documents, the Borrowers agree with the Lender as follows: ARTICLE 1 RULES OF CONSTRUCTION AND DEFINITIONS SECTION 1.1 GENERAL RULES OF CONSTRUCTION. For the purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) Words of masculine, feminine or neuter gender include the correlative words of other genders. Singular terms include the plural as well as the singular, and vice versa. (b) All references herein to designated "Articles," "Sections" and other subdivisions or to lettered Exhibits are to the designated Articles, Sections and subdivisions hereof and the Exhibits annexed hereto unless expressly otherwise designated in context. All Article, Section, other subdivision and Exhibit captions herein are used for reference only and do not limit or describe the scope or intent of, or in any way affect, this Agreement. (c) The terms "include," "including," and similar terms shall be construed as if followed by the phrase "without being limited to." (d) The terms "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section, other subdivision or Exhibit. (e) All Recitals set forth in, and all Exhibits to, this Agreement are hereby incorporated in this Agreement by reference. (f) No inference in favor of or against any party shall be drawn from the fact that such party or such party's counsel has drafted any portion hereof. (g) All references in this Agreement to a separate instrument are to such separate instrument as the same may be amended or supplemented from time to time pursuant to the applicable provisions thereof. SECTION 1.2 DEFINITION. As used in this Agreement, the following terms are defined as follows: (a) ACTUAL/360 DAY BASIS means a method of computing interest and other charges on the basis of an assumed year of 360 days for the actual number of days elapsed, meaning that the interest accrued for each day will be computed by multiplying the interest rate applicable on that day by the unpaid principal balance on that day and dividing the result by 360. (b) ADVANCE is defined in Section 2.3. (c) AFFILIATE of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For purposes of this definition, "control" when used with respect to any specified person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. (d) APPLICATION is defined in Section 2.10(b). (e) AUTHORIZED REPRESENTATIVE means the officer or officers of the corporation that are duly authorized to act for the corporation in the specified capacity under the Governing Documents of the corporation or applicable law. (f) BORROWERS shall have the meaning attributed to that term in the preamble to this Agreement. 2 (g) BUSINESS DAY means any day, excluding Saturday and Sunday, on which the Lender's main office in Birmingham, Alabama, is open to the public for carrying on substantially all of its banking business. (h) CLOSING DATE means June ____, 2001. (i) CREDIT means, individually and collectively, all loans, forbearances, renewals, extensions, advances, disbursements and other extensions of credit now or hereafter made by the Lender to or for the account of the Borrowers under this Agreement and the other Credit Documents, including the Loans. (j) CREDIT DOCUMENTS means this Agreement and the documents described in Exhibit A and all other documents now or hereafter executed or delivered in connection with the transactions contemplated thereby. (k) DEBT of any person means (1) all indebtedness, whether or not represented by bonds, debentures, notes or other securities, for the repayment of borrowed money, (2) all deferred indebtedness for the payment of the purchase price of property or assets purchased (including deferred taxes and accounts payable arising in the ordinary course of business and not incurred through the borrowing of money), (3) all capitalized lease obligations, (4) all indebtedness secured by any Lien on any property of such person, whether or not indebtedness secured thereby has been assumed, (5) all obligations with respect to any conditional sale contract or title retention agreement, (6) all indebtedness and obligations arising under acceptance facilities or in connection with surety or similar bonds, and the outstanding amount of all letters of credit issued for the account of such person, and (7) all obligations with respect to interest rate swap agreements. (l) DEFAULT RATE means a rate of interest equal to four percentage points (400 basis points) in excess of the Prime Rate, or the maximum rate permitted by law, whichever is less. (m) ERISA means the Employee Retirement Income Security Act of 1974, as amended. (n) EVENTS OF DEFAULT is defined in Section 6.1. An Event of Default "exists" if an Event of Default has occurred and is continuing. (o) GOVERNING DOCUMENTS means, with respect to any person that is not a natural person, all organizational and governing documents applicable thereto. (p) GOVERNMENTAL AUTHORITY means any national, state, county, municipal or other government, domestic or foreign, and any agency, authority, department, commission, bureau, board, court or other instrumentality thereof. (q) GOVERNMENTAL REQUIREMENTS means all laws, rules, regulations, ordinances, judgments, decrees, codes, orders, injunctions, notices and demand letters of any Governmental Authority. 3 (r) HAZARDOUS SUBSTANCES means all pollutants, effluents, contaminants, emissions, toxic or hazardous wastes and other substances, the removal of which is required or the manufacture, use, maintenance, handling, discharge or release of which is regulated, restricted, prohibited or penalized by any Governmental Requirement, or even if not so regulated, restricted, prohibited or penalized, might pose a hazard to the health and safety of the public or the occupants of the property on which it is located or the occupants of the property adjacent thereto, including (1) asbestos or asbestos-containing materials, (2) urea formaldehyde foam insulation, (3) polychlorinated biphenyls (PCBs), (4) flammable explosives, (5) radon gas, (6) laboratory wastes, (7) experimental products, including genetically engineered microbes and other recombinant DNA products, (8) petroleum, crude oil, natural gas, natural gas liquid, liquefied natural gas, other petroleum products and synthetic gas usable as fuel, (9) radioactive materials and (10) any substance or mixture listed, defined or otherwise determined by any Governmental Authority to be hazardous, toxic or dangerous, or otherwise regulated, affected, controlled or giving rise to liability under any Governmental Requirement. (s) INTEREST DETERMINATION DATE means the first day of each month in each year. (t) LETTER OF CREDIT BORROWINGS means as of any date the maximum aggregate amount that the Lender could be required to pay under drafts that could properly be drawn in compliance with the terms of all Letters of Credit outstanding on such date, other than drafts that have been drawn and paid. (u) LETTER OF CREDIT OBLIGATIONS means (a) the Letter of Credit Borrowings and (b) the Reimbursement Obligations and the Borrowers' other obligations under this Agreement and the Applications with respect to drawings made on Letters of Credit, including obligations with respect to all principal, interest, fees and other charges related thereto. (v) LETTERS OF CREDIT means the existing letters of credit described on Exhibit C and all letters of credit hereafter issued by the Lender for the account of the Borrowers. (w) LIBOR-BASED RATE means the per annum rate of interest most recently published in The Wall Street Journal or such other comparable financial information reporting service used by the Lender as of the close of business on the Closing Date and on each Interest Determination Date (being the rate quoted for the immediately preceding Business Day) as the London Interbank Offered Rate for U.S. dollar deposits having a term of three months plus the Margin. The Lender shall determine the LIBOR-Based Rate on the Closing Date and on each Interest Determination Date. (x) LIEN means any mortgage, pledge, assignment, charge, encumbrance, lien, security title, security interest or other preferential arrangement. (y) LOANS means the Revolving Loan, the Term Loan, Letter of Credit Borrowings and Reimbursement Obligations, and all extensions and renewals thereof. 4 (z) MARGIN means that percent per annum set forth below which shall be the Margin set forth opposite the Total Funded Debt Ratio as determined based on the most recent financial statements furnished to the Lender pursuant to Section 5.5 hereof:
Total Funded Debt Ratio (as set forth in Section 5.15(c)) Margin --------------------------------- ------ (1) Less than 1.00 to 1.00 1.25% (2) Greater than or equal to 1.00 to 1.00 but less than 1.50 to 1.00 1.50% (3) Greater than or equal to 1.50 to 1.00 but less than 2.00 to 1.00 1.75% (4) Greater than or equal to 2.00 to 1.00 but less than 2.25 to 1.00 2.00% (5) Greater than or equal to 2.25 to 1.00 but less than 2.50 to 1.00 2.25% (6) Greater than or equal to 2.50 to 1.00 but less than 2.75 to 1.00 2.50% (7) Greater than or equal to 3.00 to 1.00 2.75%
The Total Funded Debt Ratio (as set forth in Section 5.15(c)) shall be established by the Lender on the basis of the consolidated financial statements of and schedules prepared by Boyd delivered to the Lender pursuant to Section 5.5 of this Agreement and shall be calculated as set forth in Section 5.15 hereof. Notwithstanding the foregoing and during any period of time for which the Margin may be set by the Lender pursuant to Section 6.1(f) hereof, the Margin with respect to the Loans shall automatically become the highest values provided for in the applicable pricing grid set forth above. From the Closing Date until September 1, 2001, the Margin shall be 2.25%. Notwithstanding anything to the contrary contained in this Agreement, if the Borrowers have defaulted in the performance of the covenants set forth in Section 5.15 of this Agreement as reported in the Compliance Certificate due on August 15, 2001, the interest rate applicable to the Loans shall be the LIBOR-Based Rate plus 225 basis points (2.25%) for the period commencing September 1, 2001 until February 28, 2002. If the Borrowers have defaulted in the performance of the covenants set forth in Section 5.15 of this Agreement as reported in the Compliance Certificate due on February 15, 2002, the interest rate applicable to the Loans shall be the Prime Rate minus 25 basis points (.25%) for the period commencing March 1, 2002 until August 31, 2002. Any such change in the Margin shall be effective without notice to the Borrowers and without any further action by the Lender. 5 (aa) MARGIN STOCK is defined in Regulation U of the Federal Reserve Board, as amended. (bb) MAXIMUM REVOLVING LOAN AMOUNT means $2,500,000. (cc) NOTES is defined in Section 2.4. (dd) OBLIGATIONS means (1) the Revolving Loan, the Term Loan, the Letter of Credit Obligations and all other obligations and debts owing to the Lender and arising under the terms of this Agreement, the Notes, the Applications and the other Credit Documents, whether now or hereafter incurred, existing or arising, including the Revolving Loan, the Term Loan, all Letter of Credit Borrowings and Reimbursement Obligations with respect thereto; (2) any sums expended by the Lender in exercising the rights and remedies described in Section 6.2; (3) all accrued interest on the Revolving Loan, the Term Loan, and Reimbursement Obligations, and all costs, fees, charges and expenses incurred and payable in connection therewith, including fees payable under the terms of, or in connection with, this Agreement; (4) all other obligations and debts owing to the Lender arising in connection with, ancillary to, or in support of the Revolving Loan, the Term Loan, and Letter of Credit Borrowings; (5) the payment and performance of all other indebtedness, obligations and liabilities of the Borrowers to the Lender (including obligations of performance) of every kind whatsoever, arising directly between the Borrowers and the Lender or acquired outright, as a participation or as collateral security from another person by the Lender, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, contracted or arising, joint or several, liquidated or unliquidated, regardless of how they arise or by what agreement or instrument they may be evidenced or whether they are evidenced by agreement or instrument, and whether incurred as maker, endorser, surety, guarantor, general partner, drawer, tort-feasor, account party with respect to a letter of credit, indemnitor or otherwise; and (6) all renewals, extensions, modifications and amendments of any of the foregoing, whether or not any renewal, extension, modification or amendment agreement is executed in connection therewith. (ee) OBLIGORS means the Borrowers, each other person, if any, executing any Security Document as a grantor, and any other maker, endorser, surety, guarantor or other person now or hereafter liable for the payment or performance, in whole or in part, of any of the Obligations. (ff) PERMITTED CONTEST means any appropriate proceeding conducted in good faith by the Borrowers to contest any tax, assessment, charge, Lien or similar claim, during the pendency of which proceeding the enforcement of such tax, assessment, charge, Lien or claim is stayed; provided that the Borrowers have set aside on their books or, if required by the Lender, deposited as cash collateral with the Lender, adequate cash reserves to assure the payment of any such tax, assessment, charge, Lien or claim. (gg) PERMITTED ENCUMBRANCES means any Liens and other matters affecting title to the Property that are described in Exhibit B. 6 (hh) PERSON (whether or not capitalized) includes natural persons, sole proprietorships, corporations, trusts, unincorporated organizations, associations, companies, institutions, entities, joint ventures, partnerships, limited liability companies and Governmental Authorities. (ii) PRIME RATE means that rate of interest designated by the Lender from time to time as its "prime rate," it being expressly understood and agreed that the "prime rate" is merely an index rate used by the Lender to establish lending rates and is not necessarily the Lender's most favorable lending rate, and that changes in the "prime rate" are discretionary with the Lender. (jj) PROPERTY means all property, real and personal, that is now or hereafter conveyed or assigned to the Lender, or in which the Lender is now or hereafter granted a Lien, as security for any of the Obligations. (kk) REIMBURSEMENT OBLIGATION means at any time the obligation of the Borrowers with respect to any Letter of Credit to reimburse the Lender for amounts theretofore paid by the Lender pursuant to a drawing under such Letter of Credit. (ll) REVOLVING LOAN is defined in Section 2.3. (mm) REVOLVING NOTE is defined in Section 2.4. (nn) SECURITY DOCUMENTS means all Credit Documents that now or hereafter grant or purport to grant to Lender any guaranty, collateral or other security for any of the Obligations. (oo) SOLVENT means, with respect to any person on a particular date, that as of such date (1) the fair value of the property of such person is greater than the total amount of liabilities (including contingent liabilities) of such person, (2) the present fair salable value of the assets of such person is not less than the amount that will be required to pay the probable liability of such person on its debts as they become absolute and matured, (3) such person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such person's property would constitute an unreasonably small capital, and (4) such person does not intend to, or believe or reasonably should have believed that it will, incur debts beyond its ability to repay as they become due. (pp) SUBSIDIARY means (1) any corporation more than 50% of whose shares of stock having general voting power under ordinary circumstances to elect a majority of the board of directors, managers or trustees of such corporation (irrespective of whether or not at the time stock of any other class or classes has or might have voting power by reason of the happening of any contingency), are owned or controlled directly or indirectly by the Borrowers, or (2) any partnership or limited liability company, 50% or more of the partnership or membership interests in which are owned or controlled, directly or indirectly, by the Borrowers, and includes entities currently or hereafter falling within the categories described above. (qq) TERM LOAN is defined in Section 2.1. 7 (rr) TERM NOTE is defined in Section 2.2. (ss) TERMINATION DATE means the maturity date of the Revolving Loan (which is initially July 6, 2001), as such date may be extended from time to time pursuant to Section 2.7 or accelerated pursuant to Section 6.2. SECTION 1.3 JOINT AND SEVERAL LIABILITY. (a) Each Borrower, separately and severally, hereby appoints and designates Boyd as its agent and attorney-in-fact to act on behalf of it for all purposes of the Credit Documents. Boyd shall have authority to exercise on behalf of each Borrower all rights and powers that Boyd deems necessary, incidental or convenient in connection with the Credit Documents, including the authority to execute and deliver certificates, documents, agreements and other instruments referred to or provided for in the Credit Documents, request Advances and Letters of Credit hereunder, receive all proceeds of Advances, give all notices, approvals and consents required or requested from time to time by the Lender and take any other actions and steps that each Borrower could take for its own account in connection with the Credit Documents from time to time, it being the intent of each Borrower to grant to Boyd plenary power to act on behalf of each Borrower in connection with and pursuant to the Credit Documents. The appointment of Boyd as agent and attorney-in-fact for each Borrower hereunder shall be coupled with an interest and be irrevocable so long as any Credit Document shall remain in effect. The Lender need not obtain any Borrower's consent or approval for any act taken by Boyd pursuant to any Credit Document, and all such acts shall bind and obligate Boyd and each Borrower, jointly and severally. Each Borrower forever waives and releases any claim (whether now or hereafter arising) against the Lender based on any claim of Boyd's lack of authority to act on behalf of each Borrower in connection with the Credit Documents. (b) Each of the Borrowers, and by its acceptance of this Agreement, the Lender hereby confirm that it is the intention of all such Persons that this Agreement and the Obligations of each of the Borrowers hereunder not constitute a fraudulent transfer or conveyance for purposes of the United States Federal Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Governmental Requirement covering the protection of creditors' rights or the relief of debtors to the extent applicable to this Agreement and the Obligations of each of the Borrowers hereunder. To effectuate the foregoing intention, each of the Borrowers, the Lender hereby irrevocably agrees that the Obligations and all of the other liabilities of each of the Borrowers under this Agreement shall be limited to the maximum amount as will, after giving effect to such maximum amount and all of the other contingent and fixed liabilities of such Borrower that are relevant under such Governmental Requirement, and after giving effect to any collections from, any rights to receive contributions from, or any payment made by or on behalf of any of the other Borrowers in respect of the Obligations of such other Borrower under this Agreement, result in the Obligations and all of the other liabilities of each of the Borrowers under this Agreement not constituting a fraudulent transfer or conveyance. 8 (c) Each Borrower (i) acknowledges that it has had full and complete access to the underlying papers relating to the Obligations and all other papers executed by any person in connection with the Obligations, has reviewed them and is fully aware of the meaning and effect of their contents; (ii) is fully informed of all circumstances that bear upon the risks of executing this Agreement and the other Credit Documents that a diligent inquiry would reveal; (iii) has adequate means to obtain from Boyd on a continuing basis information concerning Boyd's financial condition and is not depending on the Lender to provide such information, now or in the future; and (iv) agrees that the Lender shall have any obligation to advise or notify it or to provide it with any data or information. (d) Each Borrower hereby agrees that its obligations and liabilities with respect to the Obligations are joint and several with Boyd, continuing, absolute and unconditional (subject to the provisions of subsection (b) of this section). Without limiting the generality of the foregoing, the obligations and liabilities of each Borrower with respect to the Obligations shall not be released, discharged, impaired, modified or in any way affected by (i) the invalidity or unenforceability of any Credit Document, (ii) the failure of the Lender to give each Borrower a copy of any notice given to Boyd, (iii) any modification, amendment or supplement of any obligation, covenant or agreement contained in any Credit Document, (iv) any compromise, settlement, release or termination of any obligation, covenant or agreement in any Credit Document, (v) any waiver of payment, performance or observance by or in favor of Boyd of any obligation, covenant or agreement under any Credit Document, (vi) any consent, extension, indulgence or other action or inaction, or any exercise or non-exercise of any right, remedy or privilege with respect to any Credit Document, (vii) the extension of time for payment or performance of any of the Obligations, or (viii) any other matter that might otherwise be raised in avoidance of, or in defense against an action to enforce, the obligations of each Borrower under this Agreement, the Notes or any other Credit Document. (e) None of the Borrowers will exercise any rights that it may have or acquire by way of subrogation under this Agreement or any of the other Credit Documents or the Subrogation and Contribution Agreement referred to in subsection (f) below, by any payment made hereunder or under any of the other Credit Documents or otherwise, until all the Obligations have been paid in full and this Agreement has been terminated and is no longer subject to reinstatement. If any amount shall be paid to a Borrower on account of any such subrogation rights at any time when all of the Obligations shall not have been paid in full and this Agreement terminated, such amount shall be held in trust for the benefit of the Lender and shall be paid forthwith to the Lender to be credited and applied upon the Obligations, whether matured or unmatured, in accordance with the terms of the Credit Documents. (f) The Borrowers will not amend or waive any provision of the Subrogation and Contribution Agreement dated the Closing Date entered into by the Borrowers nor consent to any departure from such Subrogation and Contribution Agreement, without having obtained the prior written consent of the Lender to such amendment, waiver or consent. 9 ARTICLE 2 CREDIT TO BE EXTENDED UNDER THIS AGREEMENT SECTION 2.1 TERM LOAN. The Lender has previously made available to the Borrowers several term loans in the aggregate principal amount of $21,494,309.62 (collectively, the "Original Term Loans"). The Borrowers and the Lender now agree to consolidate the Original Term Loan into one term loan in the principal amount of $21,494,309.62 (the "Term Loan"), which has an outstanding principal amount of $20,717,603.61 on the Closing Date. SECTION 2.2 TERM NOTE. The Term Loan shall be evidenced by a promissory note (the "Term Note"), payable to the order of the Lender, duly executed on behalf of the Borrowers, dated the date of this Agreement, in the principal amount of the Term Loan, and satisfactory in form and substance to the Lender. The Term Note shall be payable as to principal in 35 consecutive monthly installments, the first 34 of which shall be in the amount of $592,000 each and shall be payable on the first day of each month in each year, beginning July 1, 2001 and continuing to and including April 1, 2004. The final installment shall be in the unpaid principal amount owing thereunder and shall be due and payable on May 1, 2004. SECTION 2.3 REVOLVING LOAN. From the Closing Date to the Termination Date, the Lender agrees, upon the terms and subject to the conditions of this Agreement, to make a revolving loan (the "Revolving Loan") available to the Borrowers, pursuant to which the Borrowers may from time to time borrow from the Lender and repay and reborrow, such sums as may be needed by the Borrowers for the purposes expressed in this Agreement, up to a maximum aggregate principal amount at any one time outstanding not exceeding the Maximum Revolving Loan Amount. Each advance to the Borrowers under the Revolving Loan (an "Advance") will be made in accordance with the provisions of the automated Control Account-Credit Line Service Agreement executed by the Borrowers in favor of the Lender (the "Disbursement Agreement"). Not later than 2:00 p.m. Birmingham, Alabama time on the date specified for the Advances, the Lender shall make available the amount of the Advances to be made by it on such date to the Borrowers by depositing the proceeds thereof into an account with the Lender in the name of the Borrowers. The Advances shall bear interest as provided in Section 2.5. The Lender's obligation to make Advances shall terminate, if not sooner terminated pursuant to the provisions of this Agreement, on the Termination Date. The Lender shall have no obligation to make Advances if an Event of Default exists. The Lender may, at its option, without any request by the Borrowers, make Advances to itself for the purpose of paying overdrafts that the Borrowers may have from time to time with respect to any operating accounts established by the Borrowers with the Lender. SECTION 2.4 REVOLVING NOTE. All Advances shall be evidenced by a certain master note (the "Revolving Note"), payable to the order of the Lender, duly executed on behalf of the Borrowers, dated the date of this Agreement, in the principal amount of $2,500,000 and satisfactory in form and substance to the Lender. The Revolving Note shall be payable in full as to principal on the Termination Date. The Revolving Note shall be valid 10 and enforceable as to the aggregate amount of the Revolving Loan outstanding from time to time, whether or not the full amount of the Revolving Loan is actually advanced by the Lender to the Borrowers. The Term Note and the Revolving Note are hereinafter sometimes together called the "Notes." SECTION 2.5 INTEREST. (a) The Notes shall bear interest from its date until payment in full on the unpaid principal balance at the rate per annum equal to the LIBOR-Based Rate. Such interest shall be payable monthly on the first day of each month in each year, commencing on July 1, 2001, and upon payment in full. Interest will be computed on an Actual/360 Day Basis. (b) If an Event of Default exists, the Notes shall bear interest at the Default Rate, until the earlier of (1) such time as all amounts due hereunder are paid in full or (2) no such Event of Default exists. (c) The Borrowers agree to pay to the Lender, on demand, a late charge equal to five percent (5.0%) of any payment that is not paid within twelve (12) days after it is due. The late charge shall never be less than $10.00 on each payment. This provision shall not be deemed to excuse a late payment or be deemed a waiver of any other right the Lender may have, including the right to declare the entire unpaid principal and interest immediately due and payable and the right to collect interest on any late payment at the Default Rate. SECTION 2.6 PREPAYMENTS. The Borrowers may at any time prepay all or any part of the Loans, without premium or penalty. Accrued interest to the date of prepayment shall be paid on any partial prepayment of the Notes on the next succeeding monthly interest payment date, and shall be paid on any full prepayment of the Notes in connection with the termination of this Agreement on the date of such prepayment. SECTION 2.7 EXTENSION OF TERMINATION DATE. The Borrowers and the Lender may from time to time extend the then-current Termination Date to any subsequent termination date upon which the Borrowers and the Lender may agree by executing a written extension agreement. Upon the execution of such an extension agreement by the Borrowers and the Lender, the maturity date of the Revolving Loan shall be extended to the agreed-upon termination date, and the agreed-upon termination date shall become the new "Termination Date" for purposes of this Agreement. SECTION 2.8 PLACE AND TIME OF PAYMENTS. (a) All payments by the Borrowers to the Lender under this Agreement and the other Credit Documents shall be made in lawful currency of the United States and in immediately available funds to the Lender at its Main Office in Birmingham, Alabama at the hand delivery address set forth in Section 7.1 or at such other address within the continental United States as shall be specified by 11 the Lender by notice to the Borrowers. Any payment received by the Lender after 2:00 p.m. (Birmingham, Alabama time) on a Business Day (or at any time on a day that is not a Business Day) shall be deemed made by the Borrowers and received by the Lender on the following Business Day. (b) All amounts payable by the Borrowers to the Lender under this Agreement or any of the other Credit Documents for which a payment date is expressly set forth herein or therein shall be payable on the specified due date without notice or demand by the Lender. All amounts payable by the Borrowers to the Lender under this Agreement or the other Credit Documents for which no payment date is expressly set forth herein or therein shall be payable ten days after written demand by the Lender to the Borrowers. The Lender may, at its option, send written notice or demand to the Borrowers of amounts payable on a specified due date pursuant to this Agreement or the other Credit Documents, but the failure to send such notice shall not affect or excuse the Borrowers' obligation to make payment of the amounts due on the specified due date. (c) Payments that are due on a day that is not a Business Day shall be payable on the next succeeding Business Day, and any interest payable thereon shall be payable for such extended time at the specified rate. (d) Except as otherwise required by law, payments received by the Lender shall be applied first to expenses, fees and charges, then to interest and finally to principal. SECTION 2.9 SECURITY. The security for the Obligations shall include the guaranties, collateral and other security granted to the Lender under the Security Documents described in Exhibit A. The Security Documents shall be valid and binding as security for, the aggregate amount of the Obligations outstanding from time to time, whether or not the full amount of the Credit is actually advanced by the Lender to the Borrowers. SECTION 2.10 LETTER OF CREDIT BORROWINGS. (a) From and after the Closing Date to (but not including) the Termination Date, the Lender may, at its sole discretion, upon the terms and subject to the conditions of this Agreement, issue Letters of Credit from time to time for the account of the Borrowers in such amounts as may be requested by the Borrowers and as shall be approved by the Lender, up to a maximum aggregate amount of Letter of Credit Borrowings at any one time outstanding that, when added to the then outstanding Reimbursement Obligations does not exceed $4,000,000, or the maximum amount approved by the Lender from time to time. (b) Each request by the Borrowers for the issuance of a Letter of Credit (an "Application") shall, if required by the Lender, be submitted to the Lender, at least three Business Days prior to the date the Letter of Credit is to be issued, shall be on the Lender's then standard application form for letters of credit, shall obligate the Borrowers to reimburse the Lender on demand for any amounts drawn under a Letter of Credit and such other sums as may be provided for therein, and shall be executed by a duly authorized officer of the Borrowers. In the event of any 12 conflict between the provisions of any Application and the provisions of this Agreement, the provisions of this Agreement shall govern. (c) Each Letter of Credit shall (i) be a letter of credit issued in the ordinary course of the business of the Borrowers; (ii) expire by its terms on a date acceptable to the Lender, in its sole discretion; (iii) be in an amount that complies with paragraph (a) of this Section 2.10; and (iv) contain such further provisions and conditions as may be requested by the Borrowers, provided that such further provisions and conditions are standard and reasonable for ordinary irrevocable letters of credit and are reasonably satisfactory to the Lender. (d) For each Letter of Credit the Lender issues and all renewals thereof, the Lender shall receive from the Borrowers, a letter of credit fee equal to the rate of one percent (1%) per annum of the stated amount of the Letter of Credit being issued or renewed. Such fee shall be payable in advance on the date of issuance or renewal, as the case may be, and shall not be refundable under any circumstances. (e) The Borrowers acknowledge that the Lender as issuer of the Letters of Credit will be required by applicable rules and regulations of the Federal Reserve Board to maintain reserves for its liability to honor draws made pursuant to a Letter of Credit. The Borrowers agree to reimburse the Lender promptly for all additional costs that it may hereafter incur solely by reason of its acting as issuer of the Letters of Credit and its being required to reserve for such liability, it being understood by the Borrowers that other interest and fees payable under this Agreement do not include compensation of the Lender for such reserves. The Lender shall furnish to the Borrowers, at the time of its demand for payment of such additional costs, the computation of such additional cost, which shall be conclusive absent manifest error, provided that such computations are made on a reasonable basis. (f) The Borrowers shall pay to the Lender administrative and other fees, if any, in connection with the Letters of Credit in such amounts and at such times as the Lender and the Borrowers shall agree from time to time. (g) If a draft drawn under a Letter of Credit is presented to the Lender and the Lender honors such draft, the Borrowers shall, immediately upon demand of the Lender therefor, reimburse the Lender for the amount of such draft, with interest thereon from the date such draft is honored by the Lender to and including the date of reimbursement by the Borrowers to the Lender therefor, at the LIBOR-Based Rate. If the Borrowers fail so to reimburse the Lender, immediately upon demand therefor, for any amount due to the Lender on account of a draft drawn under the Letter of Credit and honored by the Lender, together with accrued interest thereon, by the close of business on the next Business Day after such amount becomes due, the Lender may, at its sole discretion, without exceeding the Maximum Revolving Loan Amount, and without further notice to or demand upon the Borrowers, make an Advance to itself for the purpose of paying such amount due to the Lender and interest thereon. Any such Advance shall be treated as any other Advance hereunder for all purposes. Interest on any such Advance will be at the LIBOR-Based Rate. 13 (h) This Agreement shall not terminate so long as any Letter of Credit is in effect; provided, however, no Letters of Credit shall be issued under this Agreement after the Termination Date. ARTICLE 3 REPRESENTATIONS AND WARRANTIES Each of the Borrowers represents and warrants to the Lender as follows: SECTION 3.1 ORGANIZATION, POWERS, ETC. (a) It is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. (b) It has the corporate power and authority to own its properties and to carry on its business as now being conducted and is duly qualified or registered to do business in every jurisdiction where the character of its properties or the nature of its activities makes such qualification or registration necessary. (c) It has the corporate power to execute, deliver and perform any Credit Documents to which it is a party. (d) It has not done business under any other name, trade name or otherwise, within the five years immediately preceding the Closing Date. SECTION 3.2 AUTHORIZATION OF BORROWING, ETC. The execution, delivery and performance of any Credit Documents to which it is a party (a) have been duly authorized by all requisite corporate action (including any necessary shareholder action), and (b) will not violate any Governmental Requirement, its Governing Documents or any indenture, agreement or other instrument to which it is a party, or by which it or any of its properties are bound, or be in conflict with, result in a breach of or constitute a default under, any such indenture, agreement or other instrument, or result in the creation or imposition of any Lien, upon any of its properties except as contemplated by the Credit Documents. SECTION 3.3 LITIGATION. There are no actions, suits or proceedings (whether or not purportedly on its behalf) pending or, to the best of its knowledge, threatened against or affecting it, by or before any Governmental Authority, that involve any of the transactions contemplated by the Credit Documents or the possibility of any judgment or liability that might reasonably be expected to result in any material adverse change in its business, operations, 14 properties or condition, financial or otherwise; and it is not, to the best of its knowledge, in default with respect to any Governmental Requirement. SECTION 3.4 AGREEMENTS. It is not a party to any agreement or instrument, or subject to any restriction in its Governing Documents that materially and adversely affects its business, operations, properties or condition, financial or otherwise, and it is not in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party, which default might reasonably be expected to have a material adverse effect upon its business, operations, properties or condition, financial or otherwise. SECTION 3.5 FEDERAL RESERVE BOARD REGULATIONS. It does not intend to use any part of the proceeds of the Credit, and has not incurred any indebtedness to be reduced, retired or purchased by it out of such proceeds, for the purpose of purchasing or carrying any Margin Stock, and it does not own and has no intention of acquiring any such Margin Stock. SECTION 3.6 INVESTMENT COMPANY ACT. It is not an "investment company," or a company "controlled" by an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. SECTION 3.7 ERISA. (a) The execution and delivery of this Agreement and the issuance and delivery of the Notes as contemplated hereby will not involve any prohibited transaction within the meaning of ERISA or Section 4975 of the Internal Revenue Code, as amended. (b) Based on ERISA and the regulations and published interpretations thereunder, it is in compliance in all material respects with the applicable provisions of ERISA. (c) No "Reportable Event," as defined in Section 4043(b) of Title IV of ERISA, has occurred with respect to any plan maintained by it. SECTION 3.8 ENFORCEABILITY. Any Credit Documents to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their terms. SECTION 3.9 CONSENTS, REGISTRATIONS, APPROVALS, ETC. No registration with or consent or approval of, or other action by, any Governmental Authority is required for the execution, delivery and performance of any Credit Documents to which it is a party. SECTION 3.10 FINANCIAL CONDITION. 15 (a) Its financial statements that have been furnished to the Lender were prepared in conformity with generally accepted accounting principles consistently applied throughout the periods involved, are in accordance with its books and records, are correct and complete and present fairly its financial condition as of the date or dates indicated and for the periods involved in accordance with generally accepted accounting principles applied on a consistent basis. (b) Since the date of the financial statements no material adverse change in its financial condition, business or operations has occurred. (c) It has no liability, direct or contingent, that is material in amount and that is not reflected in the financial statements. (d) It has good and marketable title to all its properties and assets reflected on the financial statements except for properties and assets disposed of since the date thereof as no longer used or useful in the conduct of its business or disposed of in the ordinary course of its business. (e) All such properties and assets are free and clear of all Liens, except as otherwise permitted or required by the provisions of this Agreement and the other Credit Documents. SECTION 3.11 NO MISLEADING INFORMATION. To the best knowledge of the Borrowers, neither this Agreement nor any of the other Credit Documents, nor any certificate, written statement or other document furnished to the Lender by or on behalf of the Borrowers in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading; and there is no fact known to the Borrowers that the Borrowers have not disclosed to the Lender that materially adversely affects or, so far as the Borrowers can now reasonably foresee, will materially adversely affect the properties, or financial or other condition of the Borrowers or the ability of the Borrowers to perform their obligations hereunder and under the other Credit Documents. SECTION 3.12 TAXES. (a) It has filed or caused to be filed all tax returns that, to the knowledge of its officers, are required to be filed with any Governmental Authority, and it has paid or has caused to be paid all taxes as shown as due on said returns or on any assessment received by it. (b) It has reserves that are believed by its officers to be adequate for the payment of additional taxes for years that have not been audited by the respective tax authorities. SECTION 3.13 PATENTS, TRADEMARKS. It owns, or possesses the right to use, all the patents, trademarks, service marks, trade names, copyrights, franchises, consents, authorizations and licenses and rights with respect to the foregoing, necessary for the conduct of its business as now conducted and proposed to be conducted, without any known conflict with the rights of others. 16 SECTION 3.14 HAZARDOUS SUBSTANCES. (a) It has never caused or permitted any Hazardous Substance to be placed, held, located, released or disposed of in violation of any Governmental Requirement on, under or at any real property legally or beneficially owned, leased or operated by it, and such property has never been used by it or, to the best of its knowledge, by any other person as a dump site or permanent or temporary storage site for any Hazardous Substance, in violation of any Governmental Requirement. (b) To the best of its knowledge, it has no liabilities with respect to Hazardous Substances, and no facts or circumstances exist that could give rise to liabilities with respect to Hazardous Substances. SECTION 3.15 SOLVENCY. The Borrowers are and will remain Solvent, taking into account the transactions contemplated by the Credit Documents. ARTICLE 4 CONDITIONS OF LENDING The obligation of the Lender to lend hereunder is subject to the following conditions precedent: SECTION 4.1 REPRESENTATIONS AND WARRANTIES. On and as of the Closing Date and any later date on which Credit is to be extended hereunder, the representations and warranties set forth in Article 3 must be true and correct with the same effect as though they had been made on and as of such date, except to the extent that they expressly relate to an earlier date. SECTION 4.2 NO DEFAULT. On and as of the Closing Date and any later date on which Credit is to be extended hereunder, the Borrowers must be in compliance with all the terms and provisions set forth in this Agreement on their part to be observed or performed, and no Event of Default, nor any event that upon notice or lapse of time or both would constitute an Event of Default, may exist. SECTION 4.3 AUTOMATIC REPRESENTATIONS AND WARRANTIES. The making of any request for an Advance (or permitting any Advance to be made under the Disbursement Agreement without a prior written disclosure to the Lender to the contrary) shall constitute an automatic representation and warranty by the Borrowers that the representations and warranties contained in Article 3 are true and correct on and as of the date of such Advance and that no Event of Default, nor any event that upon notice or lapse of time or both would constitute an Event of Default, exists. 17 SECTION 4.4 REQUIRED ITEMS. On and as of the Closing Date and any later date on which Credit is to be extended hereunder, the Lender must have received all financial statements, reports and other items required as of that date under Article 2 and Article 5 of this Agreement. SECTION 4.5 AUTHORIZED REPRESENTATIVE CERTIFICATES. On and as of the Closing Date the Borrowers must have delivered to the Lender the following certificates executed by the appropriate Authorized Representatives of the Borrowers, each of which certificates must be of a current date and must be satisfactory in form and substance to the Lender: (a) a certificate confirming compliance by the Borrowers with the conditions precedent set forth in Sections 4.1 and 4.2; (b) a certificate certifying as in full force and effect resolutions of the directors, shareholders, partners, members or other appropriate persons under the Governing Documents and applicable law authorizing the transactions contemplated by the Credit Documents and authorizing certain Authorized Representatives of the Borrowers to execute the Credit Documents on behalf of the Borrowers and to act on behalf of the Borrowers with respect to the Credit Documents, including the authority to request disbursements of the proceeds of the Credit and to direct the disposition of such proceeds; and (c) a certificate certifying as true and correct, as amended, attached copies of the Governing Documents of the Borrowers and the incumbency and signature of each Authorized Representative of the Borrowers specified in said resolutions. The Lender may conclusively rely on the certified resolutions described in Section 4.5(b) as to all actions on behalf of the Borrowers by the Authorized Representatives specified therein until the Lender receives further duly adopted resolutions cancelling or amending the prior resolutions. SECTION 4.6 OTHER SUPPORTING DOCUMENTS. The Lender must receive on or before the Closing Date the following, each of which must be satisfactory to the Lender in form and content, (a) such legal opinions, certificates, proceedings, instruments and other documents as the Lender or its counsel may reasonably request to evidence (1) compliance by the Borrowers and all other parties to the Credit Documents with legal requirements, (2) the truth and accuracy as of the Closing Date of the respective representations thereof contained in the Credit Documents, and (3) the due performance or satisfaction by such parties at or prior to the Closing Date of all agreements then required to be performed and all conditions then required to be satisfied by them pursuant to the Credit Documents, and (b) such additional supporting documents as the Lender or its counsel may reasonably request. ARTICLE 5 COVENANTS Each of the Borrowers covenants and agrees that such Borrower shall: 18 SECTION 5.1 EXISTENCE. Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all applicable Governmental Requirements. SECTION 5.2 CONTINUATION OF CURRENT BUSINESS, OFFICES, NAME, ETC. Not (a) engage in any business other than the business now being conducted by it and other businesses directly related thereto; (b) remove its principal place of business or business records from Barbour County, Alabama, unless the removal is pursuant to a merger, consolidation or transfer of assets approved by the Lender; (c) change its name or conduct its business in any name other than its current name; (d) enter into (1) any agreement whereby the management, supervision or control of its business is delegated to or placed in any person other than its governing body and officers or (2) any contract or agreement whereby any of its principal functions are delegated to or placed in any agent or independent contractor. SECTION 5.3 SALE OF ASSETS, CONSOLIDATION, MERGER. Not (a) sell, lease, transfer or otherwise dispose of all or a substantial part of its properties or assets to any person; or (b) consolidate with, merge into or participate in a statutory share exchange with any other person, or permit another person to merge into it, acquire all or substantially all the properties or assets of any other person, or acquire all or substantially all the properties or assets relating to a line of business or a division of any other person. SECTION 5.4 ACCOUNTING RECORDS. Keep proper books of record and account in which full, true and correct entries are made in accordance with generally accepted accounting principles applied on a consistent basis. SECTION 5.5 REPORTS TO THE LENDER. Furnish to the Lender: (a) within 90 days after the end of each fiscal year, financial statements (including a balance sheet and the related statements of income, cash flows and retained earnings) of the Borrowers for such fiscal year, together with statements in comparative form for the preceding fiscal year, all in reasonable detail (including all computations necessary to show the Borrowers' compliance with Section 5.15), prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, and audited and certified by independent certified public accountants of recognized standing selected by the Borrowers and satisfactory to the Lender (the form of such certification also to be satisfactory to the Lender); (b) within 45 days after the end of each fiscal quarter, financial statements of the Borrowers similar to those referred to in Section 5.5(a) for such quarter and for the period beginning on the first day of the fiscal year and ending on the last day of such quarter, unaudited but certified by an Authorized Representative of the Borrowers; 19 (c) within 45 days after the fiscal quarters ending June 30 and December 31 of each year, a compliance certificate duly executed by the president or chief financial officer of Boyd in the form of Exhibit D attached hereto ("Compliance Certificate"); (d) with the financial statements submitted under Section 5.5(a) and 5.5(b), a certificate signed by the party certifying said statement to the effect that no Event of Default, nor any event that, upon notice or lapse of time or both, would constitute an Event of Default, exists or, if any such Event of Default or event exists, specifying the nature and extent thereof; (e) contemporaneously with the distributions thereof to the Borrowers' stockholders or the filing thereof with the Securities and Exchange Commission, as the case may be, copies of all statements, reports, notices and filings distributed by the Borrowers to their stockholders or filed with the Securities and Exchange Commission (including reports on SEC Forms 10-K, 10-Q and 8-K); (f) promptly upon receipt thereof, copies of all other reports, management letters and other documents submitted to it by independent accountants in connection with any annual or interim audit of its books made by such accountants; and (g) as soon as practical, from time to time, such other information regarding its operations, business affairs and financial condition as the Lender may reasonably request. SECTION 5.6 MAINTENANCE. Maintain, preserve and protect all franchises and trade names and preserve all the remainder of its property used or useful in the conduct of its business and keep the same in good repair, working order and condition, and from time to time make, or cause to be made, all needful and proper repairs, renewals, replacements, betterments and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. SECTION 5.7 INSURANCE. Maintain (a) adequate insurance on its properties to such extent and against such risks, including fire, as is customary with companies in the same or a similar business, (b) necessary worker's compensation insurance and (c) such other insurance as may be required by law or the Security Documents or as may reasonably be required in writing by the Lender. SECTION 5.8 PAYMENT OF INDEBTEDNESS, TAXES, ETC. (a) Pay its indebtedness and obligations in accordance with normal terms; (b) pay all taxes, assessments and governmental charges or levies imposed upon it or upon its income and profits or upon any of its properties before they become in default, except any such tax, assessment or governmental charge that is subject to a Permitted Contest; and (c) pay all lawful claims for labor, materials and supplies or otherwise, which, if unpaid, might become a Lien upon any of its properties, except any such claim that is subject to a Permitted Contest. 20 SECTION 5.9 LITIGATION NOTICE. Promptly notify the Lender of any action, suit or proceeding at law or in equity or by or before any Governmental Authority that, if adversely determined, might reasonably be expected to impair its ability to perform its obligations under any of the Credit Documents to which it is a party, might reasonably be expected to impair its right to carry on its business substantially as now conducted, or might reasonably be expected to materially and adversely affect its business, operations, properties or condition, financial or otherwise. SECTION 5.10 VISITATION. Permit representatives of the Lender from time to time to visit and inspect any of its offices and properties and to examine its assets and books of account and to discuss its affairs, finances and accounts with and be advised as to the same by its officers, all at such reasonable times and intervals as the Lender may desire. SECTION 5.11 NOTICE OF DEFAULT. Promptly notify the Lender of the existence of any Event of Default, or any event that upon notice or lapse of time or both would constitute an Event of Default. SECTION 5.12 FURTHER ASSURANCES. At its cost and expense, upon request of the Lender, duly execute and deliver, or cause to be duly executed and delivered, to the Lender such further instruments and do and cause to be done such further acts as may be reasonably necessary or proper in the opinion of the Lender or its counsel to carry out more effectively the provisions and purposes of the Credit Documents. SECTION 5.13 TRANSACTIONS WITH RELATED PERSONS. Except as set forth on Schedule 5.13, not enter into any transaction with any Obligor or any officer, director, partner, member or Affiliate unless the terms of that transaction are no less favorable to it than those that would be obtained on an arms-length basis. SECTION 5.14 USE OF CREDIT PROCEEDS. Not, directly or indirectly use any part of the proceeds of the Credit (a) for any purpose other than working capital and purchasing equipment or (b) without limiting the generality of the foregoing, for the purpose of purchasing or carrying any Margin Stock, or of reducing, retiring or purchasing any indebtedness incurred for such purpose; or take any other action that would involve a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulation issued thereunder, including Regulation U or Regulation X of the Federal Reserve Board, in connection with the transactions contemplated hereby; provided, however, that nothing set forth in this Section 5.14 or elsewhere in this Agreement shall be construed as imposing any duty on the Lender to supervise the use or application of the Credit proceeds or any liability on the Lender to any person if the Credit proceeds are not used for the purposes set forth in this Agreement. SECTION 5.15 FINANCIAL COVENANTS. (a) LEVERAGE RATIO. Not permit its ratio of Debt to Tangible Net Worth to be at any time greater than 3.0 to 1.0. 21 (b) DEBT SERVICE COVERAGE RATIO. Not permit its ratio of EBITDA plus the Net Gain from the sale of rolling stock to Interest Expense and Principal Maturities measured as of the end of each June 30 and December 31 of each year for the previous four fiscal quarters to be less than 1.25 to 1.0. (c) TOTAL FUNDED DEBT RATIO. Not permit its ratio of Total Funded Debt to EBITDA plus the Net Gain from the sale of rolling stock measured as of the end of each June 30 and December 31 of each year for the previous four consecutive fiscal quarters to be greater than 3.0 to 1.0 at the end of each June 30 and December 31 in each fiscal year. (d) CAPITAL EXPENDITURES. Not make Capital Expenditures (exclusive of trucks and trailers) during any fiscal year in an amount greater than $500,000. (e) DIVIDENDS. Not declare or pay any dividends or make any distributions upon any of its stock (including dividends and distributions payable only in shares of its stock) or directly or indirectly apply any of its assets to the redemption, retirement, purchase or other acquisition of its stock. (f) INDEBTEDNESS. Not incur, create, assume or permit to exist any indebtedness or liability on account of deposits or advances or any indebtedness or liability for borrowed money, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations, except the indebtedness evidenced by the Notes, other indebtedness to the Lender and to Compass Bank and purchase money obligations allowed under Section 5.15(g)(7) to purchase revenue generating assets including trucks and trailers. (g) LIENS. Not incur, create, assume or permit to exist any Lien on any of its properties, now or hereafter owned, other than: (1) Liens securing the payment of obligations permitted under Section 5.8(b); (2) other Permitted Encumbrances; (3) deposits under workmen's compensation, unemployment insurance and Social Security laws, or to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases or to secure statutory obligations or surety or appeal bonds, or to secure indemnity, performance or other similar bonds in the ordinary course of business; (4) Liens imposed by law, such as carriers', warehousemen's or mechanics' liens, incurred in good faith in the ordinary course of business and that are not delinquent or that are subject to Permitted Contests, and any Lien arising out of a judgment or award not 22 exceeding $100,000 with respect to which an appeal is being prosecuted, a stay of execution pending such appeal having been secured; (5) Liens in favor of the Lender; (6) Liens for taxes, assessments or other governmental charges or levies that are not delinquent or that are subject to Permitted Contests; and (7) purchase money Liens on equipment (arising substantially contemporaneously with the purchase of such equipment) acquired in the ordinary course of business to secure the purchase price of such equipment or to secure indebtedness incurred solely for the purpose of financing the acquisition of such equipment, or any Lien existing on the equipment at the time of its acquisition, provided that (A) the indebtedness secured by such Lien does not exceed the purchase price or fair market value, whichever is less, of the equipment so acquired at the time of its acquisition, (B) the equipment is used or useful in the ordinary course of business of the acquiring person, and (C) the Lien does not cover any property other than the equipment so acquired. (h) GUARANTIES. Not guarantee, endorse, become surety for or otherwise in any way become or be responsible for the indebtedness, liabilities or obligations of any other person, whether by agreement to purchase the indebtedness or obligations of any other person, or agreement for the furnishing of funds to any other person (directly or indirectly, through the purchase of goods, supplies or services or by way of stock purchase, capital contribution, working capital maintenance agreement, advance or loan) or for the purpose of paying or discharging the indebtedness or obligations of any other person, or otherwise, except for the endorsement of negotiable instruments in the ordinary course of business for collection. (i) TAKE OR PAY CONTRACTS. Not enter into or be a party to any contract for the purchase of merchandise, materials, supplies or other property if such contract provides that payment for such merchandise, materials, supplies or other property shall be made regardless of whether delivery of such merchandise, materials, supplies or other property is ever made or tendered. (j) SALE-LEASEBACK. Not enter into any arrangement, directly or indirectly, with any person whereby it sells or transfers any property, real, personal or mixed, and used or useful in its business, whether now owned or hereafter acquired, and thereafter rents or leases such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred. (k) INVESTMENTS, ETC. Not purchase or hold beneficially any stock, other securities or evidences of indebtedness of, make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any other person; provided, however, that it may invest in (1) direct obligations of, or obligations unconditionally guaranteed by, the United States of America or any agency thereof maturing in less than one year from the date of 23 purchase; (2) commercial paper issued by any person organized and doing business under the laws of the United States of America or any state thereof rated in the highest category by Moody's Investors Services, Inc. or by Standard & Poor's Corporation and maturing in less than one year from the date of purchase; and (3) certificates of deposit maturing within one year of the date of acquisition thereof issued by any commercial bank, organized and doing business under the laws of the United States of America or any state thereof whose deposits are insured by the Federal Deposit Insurance Corporation, if the face amount of said certificate of deposit, when added to all other deposits of the Borrowers at such commercial bank, does not exceed the then-applicable limitation on the amount of federally insured deposits. (l) SALE OF RECEIVABLES. Not sell, assign or discount, or grant or permit any Lien on any of its accounts receivable or any promissory note held by it, with or without recourse, other than the discount of such notes in the ordinary course of business for collection. (m) LEASE OBLIGATIONS. Except as set forth on Schedule 5.13, not incur, create, permit to exist or assume any commitment to make any direct or indirect payment, whether as rent or otherwise, under any lease, rental or other arrangement for the use of property of any other person, if immediately thereafter the aggregate of such payments to be made by it would exceed $200,000 in any consecutive twelve-month period. (n) SOLVENCY. Continue to be Solvent. (o) CERTAIN DEFINED TERMS. For purposes of this Section 5.15 the following terms are defined as follows: (1) CAPITAL EXPENDITURES means any expenditure for fixed assets or that is properly chargeable to capital account in accordance with generally accepted accounting principles. (2) EBITDA for any period means net income (or the net deficit, if expenses and charges exceed revenues and other proper income credits) for such period, plus amounts that have been deducted for (A) depreciation, (B) amortization, (C) Interest Expense and (D) income and profit taxes in determining net income for such period. (3) INTEREST EXPENSE means interest payable on Debt during the period in question. (4) NET GAIN means the difference between (A) the gross proceeds generated from the sale of rolling stock minus all reasonable and customary fees and expenses associated with such sale (including any brokerage commissions) and (B) the book value of such asset sold. 24 (5) PRINCIPAL MATURITIES means principal maturing or coming due on Debt during the period in question. (6) TANGIBLE NET WORTH means the sum of the amounts set forth on the balance sheet as shareholders' equity (including the par or stated value of all outstanding capital stock, retained earnings, additional paid-in capital, capital surplus and earned surplus), less the sum of (A) any amount of any write-up of assets, (B) goodwill, (C) patents, trademarks, copyrights, leasehold improvements not recoverable at the expiration of a lease, and deferred charges (including unamortized debt, discount and expense, organization expenses, experimental and developmental expenses, but excluding prepaid expenses), (D) any amounts at which shares of capital stock of such person appear on the asset side of the balance sheet and (E) any amounts due from or owed by any shareholder or Affiliate. (7) TOTAL FUNDED DEBT means all obligations for borrowed money, including the Term Loan, advances under the Revolving Loan, all capitalized lease obligations, whether short-term or long-term, and including all Letter of Credit Obligations. SECTION 5.16 CHANGE IN MANAGEMENT. Promptly notify the Lender of any change with respect to the members of the Board of Directors of the Borrowers or any change in the senior executive officers of the Borrowers. ARTICLE 6 EVENTS OF DEFAULT SECTION 6.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an event of default (an "Event of Default") under this Agreement (whatever the reason for such event and whether or not it shall be voluntary or involuntary or be effected by operation of law or pursuant to any Governmental Requirement): (a) any representation or warranty made in this Agreement or in any of the other Credit Documents shall prove to be false or misleading in any material respect as of the time made; or (b) any report, certificate, financial statement or other instrument furnished in connection with the Credit, this Agreement or any of the other Credit Documents, shall prove to be false or misleading in any material respect as of the time furnished; or (c) default shall be made in the payment when due of any of the Obligations; or (d) default shall be made in the due observance or performance of any covenant, condition or agreement on the part of the Borrowers to be observed or performed pursuant to the terms of Sections 5.2, 5.3, 5.15 and 5.16 hereof; or 25 (e) default shall be made in the due observance or performance of any covenant, condition or agreement on the part of the Borrowers to be observed or performed pursuant to the terms of this Agreement (other than any covenant, condition or agreement, default in the observance or performance of which is elsewhere in this Section 6.1 specifically dealt with) and such default shall continue unremedied until the first to occur of (1) the date that is 30 days after written notice by the Lender to the Borrowers or (2) the date that is 30 days after the Borrowers first obtains knowledge thereof; or (f) failure of Borrowers to timely perform any covenant in the Credit Documents requiring the furnishing of notices, financial reports or other information to the Lender within five (5) Business Days of when due; and provided, however, that during any period of time that a report is delinquent, the Lender may at its option increase the Margin to their highest levels permitted under this Agreement. (g) any default or event of default, as therein defined, shall occur under any of the other Credit Documents (after giving effect to any applicable notice, grace or cure period specified therein); or (h) (1) default shall be made with respect to any Debt (other than the Obligations) of any Obligor, if the effect of such default is to accelerate the maturity of such Debt or to permit the holder thereof to cause such Debt to become due prior to its stated maturity, or (2) any such Debt shall not be paid when due (after giving effect to any applicable notice, grace or cure periods); or (i) any Obligor shall (1) apply for or consent to the appointment of a receiver, trustee, liquidator or other custodian of such Obligor or any of such Obligor's properties or assets, (2) fail or admit in writing such Obligor's inability to pay such Obligor's debts generally as they become due, (3) make a general assignment for the benefit of creditors, (4) suffer or permit an order for relief to be entered against such Obligor in any proceeding under the federal Bankruptcy Code, or (5) file a voluntary petition in bankruptcy, or a petition or an answer seeking an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against such Obligor in any proceeding under any such law or statute, or if corporate action shall be taken by any Obligor for the purpose of effecting any of the foregoing; or (j) a petition shall be filed, without the application, approval or consent of any Obligor in any court of competent jurisdiction, seeking bankruptcy, reorganization, rearrangement, dissolution or liquidation of such Obligor or of all or a substantial part of the properties or assets of such Obligor, or seeking any other relief under any law or statute of the type referred to in Section 6.1(i)(5) against such Obligor, or the appointment of a receiver, trustee, liquidator or other custodian of such Obligor or of all or a substantial part of the properties or assets of such Obligor, and such petition shall not have been stayed or dismissed within 30 days after the filing thereof; or (k) any Obligor shall die, if an individual, be dissolved or liquidated, if an entity, or cease to be Solvent or suspend business; or 26 (l) any writ of execution, attachment or garnishment shall be issued against the assets of any Obligor and such writ of execution, attachment or garnishment shall not be dismissed, discharged or quashed within 30 days of issuance; or (m) any final judgment for the payment of money shall be rendered against any Obligor and the same shall remain undischarged for a period of 30 days during which execution shall not be effectively stayed. SECTION 6.2 LENDER'S REMEDIES ON DEFAULT. (a) If an Event of Default exists, or any event exists that upon notice or lapse of time or both would constitute an Event of Default, the Lender shall have no obligation to extend any further Credit hereunder. If an Event of Default exists under Section 6.1(i) or 6.1(j), all of the Obligations shall automatically become immediately due and payable. If any other Event of Default exists, the Lender may, by written notice to the Borrowers, declare any or all of the Obligations to be immediately due and payable, whereupon they shall become immediately due and payable. Any such acceleration (whether automatic or upon notice) shall be effective without presentment, demand, protest or other action of any kind, all of which are hereby expressly waived, anything contained herein or in any of the other Credit Documents to the contrary notwithstanding. If an Event of Default exists, the Lender may exercise any of its rights and remedies on default under the Credit Documents or applicable law. (b) If an Event of Default exists, the Lender may treat all then outstanding Letters of Credit as if drafts in the full amount available to be drawn thereunder had been properly drawn thereunder and paid by the Lender and the Borrowers had failed or refused to reimburse the Lender for the amount so paid within the time required for the Borrowers to do so. (c) If an Event of Default exists, the Borrowers shall, promptly upon demand of the Lender, deposit in cash with the Lender an amount equal to the amount of all Letter of Credit Obligations then outstanding, as collateral security for the repayment thereof, which deposit shall be held by the Lender under the provisions of Section 7.17. 27 ARTICLE 7 MISCELLANEOUS SECTION 7.1 NOTICE. (a) Any request, demand, authorization, direction, notice, consent, waiver or other document provided or permitted by this Agreement or the other Credit Documents to be made upon, given or furnished to, or filed with, the Borrowers or the Lender must (except as otherwise provided in this Agreement or the other Credit Documents) be in writing and be delivered by one of the following means: (6) by personal delivery at the hand delivery address specified below, (7) by first-class, registered or certified mail, postage prepaid and addressed as specified below, or (8) if facsimile transmission facilities for such party are identified below or pursuant to a separate notice from such party, sent by facsimile transmission to the number specified below or in such notice. (b) The hand delivery address, mailing address and (if applicable) facsimile transmission number for receipt of notice or other documents by such parties are as follows: Borrowers By hand and mail: 3275 Highway 30 Clayton, Alabama 36016 By facsimile: (334) 775-1432 Lender By hand: 201 Monroe Street, 2nd Floor Montgomery, Alabama 36104 Attention: Charles K. Hannon, Jr. By mail: Post Office Drawer 431 Montgomery, Alabama 36101-0431 Attention: Charles K. Hannon, Jr. 28 By facsimile: (334) 240-1397 With a copy to: J. Kris Lowry Maynard, Cooper & Gale, P.C. 1901 6th Avenue North 2400 AmSouth/Harbert Plaza Birmingham, Alabama 35203-2618 By facsimile: (205) 254-1999 Any of such parties may change the address or facsimile transmission notice for receiving any such notice or other document by giving notice of the change to the other parties named in this Section 7.1. (c) Any such notice or other document shall be deemed delivered when actually received by the party to whom directed (or, if such party is not a natural person, to an officer, director, partner, member or other legal representative of the party) at the address or number specified pursuant to this Section 7.1, or, if sent by mail, three Business Days after such notice or document is deposited in the United States mail, addressed as provided above. (d) Five Business Days' written notice to the Borrowers as provided above shall constitute reasonable notification to the Borrowers when notification is required by law; provided, however, that nothing contained in the foregoing shall be construed as requiring five Business Days' notice if, under applicable law and the circumstances then existing, a shorter period of time would constitute reasonable notice. SECTION 7.2 EXPENSES. The Borrowers shall promptly on demand pay all costs and expenses, including the fees and disbursements of counsel to the Lender, incurred by the Lender in connection with (a) the extension of the Credit and the administration or collection of the Obligations, (b) the negotiation, preparation and review of the Credit Documents (whether or not the transactions contemplated by this Agreement shall be consummated), (c) the enforcement of any of the Credit Documents, (d) the custody and preservation of the Property, (e) the protection or perfection of the Lender's rights and interests under the Security Documents in the Property, (f) the filing or recording of the Security Documents or any related financing, continuation or termination statements, or similar documents (including any stamp, documentary, mortgage, recording and similar taxes and fees), (g) the exercise by or on behalf of the Lender of any of its rights, powers or remedies under the Credit Documents, (h) the compliance by the Lender with any Governmental Requirements with respect to any of the Credit Documents, any of the 29 Property or any of the Obligations, and (i) the prosecution or defense of any action or proceeding by or against the Lender, the Borrowers, any Obligor, or any one or more of them, concerning any matter related to this Agreement or any of the other Credit Documents, any of the Property or any of the Obligations. All such amounts shall bear interest from the date demand is made at the Default Rate and shall be included in the Obligations secured by the Security Documents. The Borrowers' obligations under this Section 7.2 shall survive the payment in full of the Obligations and the termination of this Agreement. SECTION 7.3 INDEPENDENT OBLIGATION. The Borrowers agree that each of the obligations of the Borrowers to the Lender under this Agreement may be enforced against the Borrowers without the necessity of joining any other Obligor or any other person, as a party. SECTION 7.4 HEIRS, SUCCESSORS AND ASSIGNS. Whenever in this Agreement any party hereto is referred to, such reference shall be deemed to include the heirs, successors and assigns of such party, except that the Borrowers may not assign or transfer this Agreement without the prior written consent of the Lender; and all covenants and agreements of the Borrowers contained in this Agreement shall bind the Borrowers' heirs, successors and assigns and shall inure to the benefit of the successors and assigns of the Lender. SECTION 7.5 GOVERNING LAW. This Agreement and the other Credit Documents shall be construed in accordance with and governed by Title 9 of the U.S. Code and the internal laws of the State of Alabama (without regard to conflict of law principles) except as required by mandatory provisions of law. SECTION 7.6 DATE OF AGREEMENT. The date of this Agreement is intended as a date for the convenient identification of this Agreement and is not intended to indicate that this Agreement was executed and delivered on that date. SECTION 7.7 SEPARABILITY CLAUSE. If any provision of the Credit Documents shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 7.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed an original, but all such counterparts shall together constitute but one and the same agreement. SECTION 7.9 NO ORAL AGREEMENTS. This Agreement is the final expression of the agreement between the parties hereto, and this Agreement may not be contradicted by evidence of any prior oral agreement between such parties. All previous oral agreements between the parties hereto have been incorporated into this Agreement and the other Credit Documents, and there is no unwritten oral agreement between the parties hereto in existence. SECTION 7.10 WAIVER AND ELECTION. The exercise by the Lender of any option given under this Agreement shall not constitute a waiver of the right to exercise any other option. No failure or delay on the part of the Lender in exercising any right, power or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or 30 partial exercise of any such right, power or remedy preclude any further exercise thereof or the exercise of any other right, power or remedy. No modification, termination or waiver of any provisions of the Credit Documents, nor consent to any departure by the Borrowers therefrom, shall be effective unless in writing and signed by an authorized representative of the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Borrowers in any case shall entitle the Borrowers to any other or further notice or demand in similar or other circumstances. SECTION 7.11 NO OBLIGATIONS OF LENDER; INDEMNIFICATION. The Lender does not by virtue of this Agreement or any of the transactions contemplated by the Credit Documents assume any duties, liabilities or obligations with respect to any property now or hereafter granted to it as collateral for any of the Obligations unless expressly assumed by the Lender under a separate agreement in writing, and the Credit Documents shall not be deemed to confer on the Lender any duties or obligations that would make the Lender directly or derivatively liable for any person's negligent, reckless or wilful conduct. The Borrowers agree to indemnify and hold the Lender harmless against and with respect to any damage, claim, action, loss, cost, expense, liability, penalty or interest (including attorney's fees) and all costs and expenses of all actions, suits, proceedings, demands, assessments, claims and judgments directly or indirectly resulting from, occurring in connection with, or arising out of: (a) any inaccurate representation made by the Borrowers or any Obligor in this Agreement or any other Credit Document; and (b) any breach of any of the warranties or obligations of the Borrowers or any Obligor under this Agreement or any other Credit Document. The provisions of this Section 7.11 shall survive the payment of the Obligations in full and the termination of this Agreement and the other Credit Documents, and the satisfaction, release (in whole or in part) and foreclosure of the Security Documents. SECTION 7.12 SET-OFF. While any Event of Default exists, the Lender is authorized at any time and from time to time, without notice to the Borrowers (any such notice being expressly waived by the Borrowers), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of the Borrowers against any and all of the Obligations, irrespective of whether or not the Lender shall have made any demand under this Agreement and although such Obligations may be unmatured. The rights of the Lender under this Section 7.12 are in addition to all other rights and remedies (including other rights of set-off or pursuant to any banker's lien) that the Lender may have. SECTION 7.13 PARTICIPATION. The Borrowers understand that the Lender may from time to time enter into a participation agreement or agreements with one or more participants pursuant to which each such participant shall be given a participation in the Credit and that any such participant may from time to time similarly grant to one or more subparticipants subparticipations in the Credit. The Borrowers agree that any participant or subparticipant may exercise any and all rights of banker's lien or set-off with respect to the Borrowers, as fully as if such participant or subparticipant had made a loan directly to the Borrowers in the amount of the participation or subparticipation given to such participant or subparticipant in 31 the Credit. For the purposes of this Section 7.13 only, the Borrowers shall be deemed to be directly obligated to each participant or subparticipant in the amount of their participating interest in the amount of the Credit and any other Obligations. Nothing contained in this Section 7.13 shall affect the Lender's right of set-off (under Section 7.12 or applicable law) with respect to the entire amount of the Obligations, notwithstanding any such participation or subparticipation. The Lender may divulge to any participant or subparticipant all information, reports, financial statements, certificates and documents obtained by it from the Borrowers or any other person under any provision of this Agreement or otherwise. SECTION 7.14 SUBMISSION TO JURISDICTION. The Borrowers irrevocably (a) acknowledge that this Agreement will be accepted by the Lender and performed by the Borrowers in the State of Alabama; (b) submit to the jurisdiction of each state or federal court sitting in Montgomery County, Alabama (collectively, the "Courts") over any suit, action or proceeding arising out of or relating to this Agreement (to enforce the arbitration provisions hereof or, if the arbitration provisions are found to be unenforceable, to determine any issues arising out of or relating to this Agreement) or any of the other Credit Documents (individually, an "Agreement Action"); (c) waive, to the fullest extent permitted by law, any objection or defense that the Borrowers may now or hereafter have based on improper venue, lack of personal jurisdiction, inconvenience of forum or any similar matter in any Agreement Action brought in any of the Courts; (d) agree that final judgment in any Agreement Action brought in any of the Courts shall be conclusive and binding upon the Borrowers and may be enforced in any other court to the jurisdiction of which the Borrowers is subject, by a suit upon such judgment; (e) consent to the service of process on the Borrowers in any Agreement Action by the mailing of a copy thereof by registered or certified mail, postage prepaid, to the Borrowers at the Borrowers' address designated in or pursuant to Section 7.1; (f) agrees that service in accordance with Section 7.14(e) shall in every respect be effective and binding on the Borrowers to the same extent as though served on the Borrowers in person by a person duly authorized to serve such process; and (g) AGREES THAT THE PROVISIONS OF THIS SECTION, EVEN IF FOUND NOT TO BE STRICTLY ENFORCEABLE BY ANY COURT, SHALL CONSTITUTE "FAIR WARNING" TO THE BORROWERS THAT THE EXECUTION OF THIS AGREEMENT MAY SUBJECT THE BORROWERS TO THE JURISDICTION OF EACH STATE OR FEDERAL COURT SITTING IN JEFFERSON COUNTY, ALABAMA WITH RESPECT TO ANY AGREEMENT ACTIONS, AND THAT IT IS FORESEEABLE BY THE BORROWERS THAT THE BORROWERS MAY BE SUBJECTED TO THE JURISDICTION OF SUCH COURTS AND MAY BE SUED IN THE STATE OF ALABAMA IN ANY AGREEMENT ACTIONS. Nothing in this Section 7.14 shall limit or restrict the Lender's right to serve process or bring Agreement Actions in manners and in courts otherwise than as herein provided. SECTION 7.15 USURY LAWS. Any provision of this Agreement or any of the other Credit Documents to the contrary notwithstanding, the Borrowers and the Lender agree that they do not intend for the interest or other consideration provided for in this Agreement and the other Credit Documents to be greater than the maximum amount permitted by applicable law. Regardless of any provision in this Agreement or any of the other Credit Documents, the Lender shall not be entitled to receive, collect or apply, as interest on the Obligations, any amount in excess of the maximum rate of 32 interest permitted to be charged under applicable law until such time, if any, as that interest, together with all other interest then payable, falls within the then applicable maximum lawful rate of interest. If the Lender shall receive, collect or apply any amount in excess of the then maximum rate of interest, the amount that would be excessive interest shall be applied first to the reduction of the principal amount of the Obligations then outstanding in the inverse order of maturity, and second, if such principal amount is paid in full, any excess shall forthwith be returned to the Borrowers. In determining whether the interest paid or payable under any specific contingency exceeds the highest lawful rate, the Borrowers and the Lender shall, to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, (c) consider all the Obligations as one general obligation of the Borrowers, and (d) "spread" the total amount of the interest throughout the entire term of the Notes so that the interest rate is uniform throughout the entire term of the Notes. SECTION 7.16 ARBITRATION; DISPUTE RESOLUTION; PRESERVATION OF FORECLOSURE REMEDIES. (a) The Borrowers represent to the Lender that their business and affairs constitute substantial interstate commerce and that they contemplate using the proceeds of the Note in substantial interstate commerce. Except as otherwise specifically set forth below, any action, dispute, claim, counterclaim or controversy ("Dispute" or "Disputes"), between or among the Lender, the Borrowers or any other Obligor, including any claim based on or arising from an alleged tort, shall be resolved by arbitration as set forth below. As used herein, Disputes shall include all actions, disputes, claims, counterclaims or controversies arising in connection with the Note, any extension of or commitment to extend Credit by the Lender, any collection of any indebtedness owed to the Lender, any security or collateral given to the Lender, any action taken (or any omission to take any action) in connection with any of the foregoing, any past, present and future agreement between or among the Lender, the Borrowers or any other Obligor (including the Note and any Credit Document), and any past, present or future transactions between or among the Lender, the Borrowers or any other Obligor. Without limiting the generality of the foregoing, Disputes shall include actions commonly referred to as lender liability actions. (b) All Disputes shall be resolved by binding arbitration in accordance with Title 9 of the U.S. Code and the Commercial Arbitration Rules of the American Arbitration Association (the "AAA"). Defenses based on statutes of limitation, estoppel, waiver, laches and similar doctrines, that would otherwise be applicable to an action brought by a party, shall be applicable in any such arbitration proceeding, and the commencement of an arbitration proceeding with respect to this Agreement shall be deemed the commencement of an action for such purposes. (c) Notwithstanding the foregoing, the Borrowers and each other Obligor agrees that the Lender shall have the option, but not the obligation, to submit to and pursue in a court of law any claim against the Borrowers or any other Obligor for a debt due. The Borrowers and each other Obligor agrees that, if the Lender pursues such a claim in a court of law, (9) failure of the Lender to assert any additional claim in such proceeding shall not be deemed a waiver of, or estoppel to pursue, such claim as a claim or counterclaim in arbitration as set forth above, and (10) the institution or 33 maintenance of a judicial action hereunder shall not constitute a waiver of the right of any party to submit any other action, dispute, claim or controversy as described above, even though arising out of the same transaction or occurrence, to binding arbitration as set forth herein. If the Borrowers assert a claim against the Lender in arbitration or otherwise during the pendency of a claim brought by the Lender in a court of law, the court action shall be stayed and the parties shall submit to arbitration all claims. (d) No provision of, nor the exercise of any rights under this Section, shall limit the right of any party (11) to foreclose against any real or personal property collateral by exercise of a power of sale under any Credit Document, or by exercise of any rights of foreclosure or of sale under applicable law, (12) to exercise self-help remedies such as set-off, or (13) to obtain provisional or ancillary remedies such as injunctive relief, attachment or the appointment of a receiver from a court having jurisdiction before, during or after the pendency of any arbitration or referral. The institution and maintenance of an action for judicial relief or pursuit of provisional or ancillary remedies or exercise of self-help remedies shall not constitute a waiver of the right of any party, including the plaintiff in such an action, to submit the Dispute to arbitration or, in the case of actions on a debt, to judicial resolution. (e) Whenever an arbitration is required hereunder, the arbitrator shall be selected in accordance with the Commercial Arbitration Rules of the AAA. The AAA shall designate a panel of 10 potential arbitrators knowledgeable in the subject matter of the Dispute. Each of the Lender and the Obligor shall designate, within 30 days of the receipt of the list of potential arbitrators, one of the potential arbitrators to serve, and the two arbitrators so designated shall select a third arbitrator from the eight remaining potential arbitrators. The panel of three arbitrators shall determine the resolution of the Dispute. SECTION 7.17 TERMINATION. This Agreement shall continue until the Obligations shall have been paid in full and the Lender shall have no obligation to make any further Advances, issue any Letters of Credit or extend any other credit hereunder. If on any date on which the Borrowers wish to pay the Obligations in full and terminate this Agreement, there are any outstanding Letter of Credit Borrowings, the Borrowers shall, unless otherwise agreed by the Lender in its sole discretion, make a cash prepayment to the Lender on such date in an amount equal to the then-outstanding Letter of Credit Borrowings, and the Lender shall hold such prepayment in an interest-bearing cash collateral account in the name and under the sole control of the Lender (which account shall bear interest at the Lender's then-current rate for such accounts) as security for the Reimbursement Obligations and other Letter of Credit Obligations. Such account shall not constitute an asset of the Borrowers but shall be subject to the Borrowers' rights under this Section 7.17. The Lender shall from time to time debit such account for the payment of the Letter of Credit Obligations as the same become due and payable and shall promptly refund any excess funds (including interest) held in said account to the Borrowers if and when no Letter of Credit Borrowings remain outstanding hereunder and all of the Obligations have been paid in full. The Borrowers shall remain liable for any Obligations in excess of the amounts paid from such account. This Agreement, and the obligations of the Borrowers hereunder, shall continue to be effective, or be automatically reinstated, as the case may be, if at any time payment in whole or in 34 part of any payment made with respect to the Obligations is rescinded or must otherwise be restored or returned to the person making such payment upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of such person, or upon or as a result of the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to such person or with respect to any part of the property thereof, or otherwise, all as though such payment had not been made. SECTION 7.18 AGREEMENT AMENDS AND RESTATES ORIGINAL CREDIT AGREEMENT. The Original Credit Agreement is amended and restated in its entirety by this Agreement. All amounts owing on the Closing Date, including principal and interest, fees and other charges, shall be treated for all purposes as if the same had been incurred under this Agreement and shall be payable in accordance with and otherwise governed by the terms of this Agreement. The promissory notes held by the Lender to evidence the indebtedness owing by the Borrowers to the Lender under the Original Credit Agreement shall be retained by the Lender in its files until this Agreement is terminated. SECTION 7.19 OBLIGATIONS OF BOYD ABSOLUTE. Boyd hereby agrees that its obligations and liabilities with respect to the Obligations are joint and several with the Borrowers, continuing, absolute and unconditional. Without limiting the generality of the foregoing, the obligations and liabilities of Boyd with respect to the Obligations shall not be released, discharged, impaired, modified or in any way affected by (a) the invalidity or unenforceability of any Credit Document executed by any other person with respect to the Obligations, (b) the failure of the Lender to give Boyd a copy of any notice given to any other person, (c) any modification, amendment or supplement of any obligation, covenant or agreement contained in any Credit Document executed by any other person with respect to the Obligations, (d) any compromise, settlement, release or termination of any obligation, covenant or agreement in any Credit Document executed with respect to the Obligations, (e) any waiver of payment, performance or observance by or in favor of any other person of any obligation, covenant or agreement under any Credit Document, (f) any consent, extension, indulgence or other action or inaction, or any exercise or non-exercise of any right, remedy or privilege with respect to any Credit Document executed by any other person with respect to the Obligations, or (g) the extension of time for payment or performance of any Obligation by any other person. [Remainder of page left intentionally blank] 35 IN WITNESS WHEREOF, the Borrowers and the Lender have caused this Agreement to be dated May 1, 2001 and to be duly executed and delivered. BOYD BROTHERS TRANSPORTATION, INC. By /s/ Richard Bailey ----------------------------------------- Its: CFO ------------------------------------ WELBORN TRANSPORT, INC. By /s/ Richard Bailey ----------------------------------------- Its: CFO ------------------------------------ AMSOUTH BANK By /s/ Charles Hannon ----------------------------------------- Its: Senior Vice President ------------------------------------ EX-10.2 4 g72634ex10-2.txt SECURITY AGREEMENT- WTI AND AMSOUTH BANK EXHIBIT 10.2 SECURITY AGREEMENT (General) THIS SECURITY AGREEMENT (GENERAL) ("this Agreement") dated as of May 1, 2001 is between WELBORN TRANSPORT, INC., an Alabama corporation, as debtor (the "Grantor"), and AMSOUTH BANK, an Alabama banking corporation, as secured party (the "Lender"). RECITALS Capitalized terms used in these Recitals have the meanings defined for them above or in Section 1.2. The Grantor and Boyd Brothers Transportation, Inc. (together, the "Borrower") has requested that the Lender extend Credit to the Borrower under the Credit Documents. To secure the Obligations, and to induce the Lender to extend Credit to the Borrower under the Credit Documents, the Grantor has agreed to execute and deliver this Agreement to the Lender. AGREEMENT NOW, THEREFORE, in consideration of the foregoing Recitals, and to induce the Lender to extend Credit to the Borrower under the Credit Documents, the Grantor agrees with the Lender as follows: ARTICLE 1 RULES OF CONSTRUCTION AND DEFINITIONS SECTION 1.1 RULES OF CONSTRUCTION. This Agreement is subject to the rules of construction set forth in the Credit Agreement described in Exhibit A. SECTION 1.2 DEFINITIONS. As used in this Agreement, capitalized terms that are not otherwise defined herein have the meanings defined for them in the Credit Agreement described in Exhibit A and the following terms are defined as follows: (a) Unless otherwise defined herein, terms used in this Agreement that are defined in Article 9 of the Alabama Uniform Commercial Code have the meanings defined for them therein. (b) ACCOUNT DEBTOR includes any buyer or lessee of Inventory from the Grantor, any customer for whom services are rendered or materials furnished by the Grantor and any other person obligated to the Grantor on an Account. (c) ACCOUNTS means any and all rights of the Grantor to the payment of money, whether or not evidenced by an instrument or chattel paper and whether or not earned by performance, including a right to payment for goods sold or leased or for services rendered by the Grantor and a right to any amount payable under a Contract. (d) CONTRACTS means all Leases, requisitions, purchase orders, documents, instruments and chattel paper of the Grantor, including any of the same that relate to any Equipment, Fixtures, Inventory, General Intangibles or other property described in the granting clauses set out in Section 2.1, or secure any Accounts, or in connection with which Accounts exist or may be created. (e) DEPOSIT ACCOUNTS means all bank accounts and other deposit accounts and lock boxes of the Grantor, including any of the same established for the benefit of the Lender. (f) EQUIPMENT means all of the Grantor's equipment, machinery, furniture, furnishings, vehicles, tools, spare parts, materials, supplies, store fixtures, leasehold improvements and all other goods of every kind and nature (other than Inventory and Fixtures). (g) EVENT OF DEFAULT is defined in Section 6.1. An Event of Default "exists" if the same has occurred and is continuing. (h) FIXTURES means all goods of the Grantor that become so related to particular real estate that an interest in them arises under real estate law. (i) GENERAL INTANGIBLES means all choses in action, causes of action and other assignable intangible property of the Grantor of every kind and nature (other than Accounts and Contracts), including corporate, partnership, limited liability company and other business records, good will, inventions, designs, patents, patent applications, trademarks, trade names, trade secrets, service marks, logos, copyrights, copyright applications, registrations, software, licenses, permits, franchises, tax refund claims, insurance policies and rights thereunder (including any refunds and returned premiums) and any collateral, guaranty, letter of credit or other security held by or granted to the Grantor to secure payment of Accounts and Contracts. (j) INVENTORY means all goods, merchandise and other personal property held by the Grantor for sale or lease or furnished or to be furnished by the Grantor under contracts of service or otherwise, raw materials, parts, finished goods, work-in-process, scrap inventory and supplies and materials used or consumed, or to be used or consumed, in the Grantor's present or any future business, and all such property returned to or repossessed or stopped in transit by the Grantor, whether in transit or in the constructive, actual or exclusive possession of the Grantor or of the Lender or held by the Grantor or any other person for the Lender's account and wherever the same may be located, including all such property that may now or hereafter be located on the premises of the Grantor or upon any leased location or upon the premises of any carriers, forwarding agents, warehousemen, vendors, selling agents, processors or third parties. (k) LEASES means (1) all leases and use agreements of personal property entered into by the Grantor as lessor with other persons as lessees, and all rights of the Grantor under such leases and -2- agreements, including the right to receive and collect all rents and other moneys (including security deposits) at any time payable under such leases and agreements, whether paid or accruing before or after the filing of any petition by or against the Grantor under the federal Bankruptcy Code; and (2) all leases and use agreements of personal property entered into by the Grantor as lessee with other persons as lessor, and all rights, titles and interests of the Grantor thereunder, including the leasehold interest of the Grantor in such property and all options to purchase such property or to extend any such lease or agreement. (l) PERMITTED CONTEST means any appropriate proceeding conducted in good faith by the Grantor to contest any tax, assessment, charge, Lien or similar claim, during the pendency of which proceeding the enforcement of such tax, assessment, charge, Lien or claim is stayed; provided that the Grantor has set aside on its books or, if required by the Lender, deposited as cash collateral with the Lender, adequate cash reserves to assure the payment of any such tax, assessment, charge, Lien or claim. (m) PROPERTY is defined in Section 2.1. (n) SECURITY DOCUMENTS means all Credit Documents that now or hereafter grant or purport to grant to the Lender any guaranty, collateral or other security for any of the Obligations. (o) TANGIBLE PROPERTY means all Equipment, Fixtures, Inventory and other tangible personal property of the Grantor. ARTICLE 2 SECURITY AGREEMENT SECTION 2.1 GRANTING CLAUSES. As security for the Obligations, the Grantor hereby grants to the Lender security title to and a continuing security interest in, and assigns, transfers, conveys, pledges and sets over to the Lender all of the Grantor's right, title and interest in, to and under the following property, whether now owned or hereafter acquired by the Grantor, and whether now existing or hereafter incurred, created, arising or entered into (collectively, the "Property"): (a) all Equipment, Fixtures, Inventory and other Tangible Property of the Grantor, and any and all accessions and additions thereto, any substitutions and replacements therefor, and all attachments and improvements placed upon or used in connection therewith, or any part thereof; (b) all Accounts, Contracts and General Intangibles of the Grantor; (c) all of the Grantor's rights as an unpaid vendor or lienor, including stoppage in transit, replevin, detinue and reclamation; -3- (d) all moneys of the Grantor, all Deposit Accounts of the Grantor in which such moneys may at any time be on deposit or held, all investments or securities of the Grantor in which such moneys may at any time be invested and all certificates, instruments and documents of the Grantor from time to time representing or evidencing any such moneys; (e) any other property of the Grantor now or hereafter held by the Lender or by others for the Lender's account; (f) all interest, dividends, proceeds, products, rents, royalties, issues and profits of any of the property described in the foregoing granting clauses, whether paid or accruing before or after the filing of any petition by or against the Grantor under the federal Bankruptcy Code, and all instruments delivered to the Lender in substitution for or in addition to any such property; and (g) all books, documents, files, ledgers and records (whether on computer or otherwise) covering or otherwise related to any of the property described in the foregoing granting clauses. No submission by the Grantor to the Lender of a schedule or other particular identification of Property shall be necessary to vest in the Lender the Liens contemplated by this Agreement in each and every item of Property of the Grantor now existing or hereafter acquired, incurred, created, arising or entered into, but rather such Liens shall vest in the Lender immediately upon the acquisition, creation, incurring or arising of, or entering into, any such item of Property without the necessity for any other or further action by the Grantor or by the Lender. The Grantor shall take such steps and observe such formalities as the Lender may request from time to time to create and maintain in favor of the Lender the Liens contemplated by this Agreement in all of the Property, whether now owned or hereafter acquired by the Grantor, and whether now existing or hereafter incurred, created, arising or entered into. ARTICLE 3 REPRESENTATIONS AND WARRANTIES SECTION 3.1 GENERAL REPRESENTATIONS AND WARRANTIES. The Grantor represents and warrants to the Lender as follows: (a) The Grantor is the owner of the Property and has a good right to grant to the Lender the Liens contemplated by this Agreement; the Property is free and clear of all Liens other than Permitted Encumbrances; and the Grantor hereby warrants and will forever defend the title to the Property unto the Lender, its successors and assigns, against the claims of all persons whomsoever, whether lawful or unlawful, except those claiming under Permitted Encumbrances. (b) The addresses of (1) each of the Grantor's places of business, (2) the Grantor's chief executive office, (3) the office where the Grantor keeps the Grantor's records concerning Accounts, and (4) each location where the Grantor keeps any Tangible Property, are correctly and completely -4- set forth on Exhibit B. No change has occurred in such address(es) in the five years immediately preceding the execution of this Agreement. SECTION 3.2 ACCOUNT REPRESENTATIONS AND WARRANTIES. The Grantor represents and warrants to the Lender as follows as to each and every Account, whether now existing or acquired, created or arising from time to time hereafter, that is listed on any report, certificate or other document furnished to the Lender, unless the Grantor discloses in writing therein that the Grantor does not make any such representation or warranty to the Lender with respect to such Account: (a) The Account is an original, genuine, bona fide and legally binding obligation, enforceable in accordance with its terms. (b) The Account is not subject to any claim of reduction, counterclaim, set-off or recoupment, or any claim for credits, allowances or adjustments by the Account Debtor, and the same has not been disputed or dishonored by the Account Debtor. (c) The aggregate amount shown as the balance due on the Account on the Grantor's books and in any documents delivered to the Lender is validly owing under the Account and is not contingent for any reason; and, to the best of the Grantor's knowledge, there are no facts or occurrences that in any way impair the validity or collectibility thereof or reduce the amount payable thereunder. (d) No agreement under which any deduction or discount may be claimed by the Account Debtor has been made other than any customary discounts for prompt payment previously disclosed in writing to the Lender. (e) All statements made by the Grantor about the Account in any documents furnished to the Lender by the Grantor are true and correct, and all the Lender may rely on such statements and representations in determining the eligibility and collateral value of the Account. (f) The Account is due and payable not more than 30 days from the date of the invoice. (g) The Account does not arise out of a Contract that forbids the assignment of the Account to the Lender or makes such assignment void or unenforceable. (h) The Account arose in the ordinary course of the Grantor's business from a bona fide outright sale of goods, or from the performance of services, by the Grantor under a valid Contract, and the goods have been shipped or delivered, the services have been performed or the Contract has otherwise been consummated in accordance with the related Contract. (i) Any goods or services giving rise to the Account are as represented to the Account Debtor, and no warranties have been made with respect to any goods or services covered by the Account except such as appear on the face of the related Contract. -5- (j) The Account Debtor has not returned or refused any goods giving rise to the Account. (k) No notice of any of the following has been received with respect to any Account Debtor: (1) the death of the Account Debtor, or of any partner thereof (if a partnership); (2) the dissolution, termination or business failure of the Account Debtor; (3) the ceasing or suspension of the Account Debtor's business; (4) the filing of any petition by or against the Account Debtor for any relief under the Bankruptcy Code; (5) the making by the Account Debtor of an assignment for the benefit of creditors; (6) the calling of a meeting by any of the creditors of the Account Debtor to consider the Account Debtor's financial condition; (7) the Account Debtor's becoming insolvent or attempting to secure a general extension from the Account Debtor's creditors; (8) the appointment of a receiver, trustee, liquidator or custodian of all or any part of the Account Debtor's assets; or (9) any other fact that reflects adversely on the general creditworthiness and financial condition of the Account Debtor. (l) The Account is not evidenced by a judgment and is not evidenced or secured by an instrument, document or chattel paper unless the original thereof (or each of them if more than one) has been endorsed or assigned and delivered to the Lender in accordance with Section 5.10. SECTION 3.3 INVENTORY REPRESENTATIONS AND WARRANTIES. The Grantor represents and warrants to the Lender as follows as to each and every item of Inventory, whether now existing or hereafter created or acquired, that is listed on any report, certificate or other document furnished to the Lender, unless the Grantor discloses therein that the Grantor does not make any such representation or warranty with respect to such item of Inventory: (a) All statements made by the Grantor about the Inventory in any documents furnished to the Lender by the Grantor are true and correct, and all the Lender may rely on such statements and representations in determining the eligibility and collateral value of the Inventory. (b) All Inventory is located on premises identified on Exhibit B or is in transit to Account Debtors in the ordinary course of business and is so identified on the relevant Schedule of Inventory. ARTICLE 4 CERTAIN COVENANTS AND AGREEMENTS CONCERNING ACCOUNTS AND INVENTORY SECTION 4.1 GENERAL. (a) If any allowance or credit on any Account should be given by the Grantor or if any goods giving rise to any Account should be returned to the Grantor, the Grantor shall promptly give written notice thereof to the Lender. -6- (b) The Grantor shall promptly inform Lender in writing of any material delay or default in the Grantor's performance of any of the Grantor's obligations to any Account Debtor, any assertion of any material claims, offsets or counterclaims by any Account Debtor, any material adverse information relating to the financial condition of any Account Debtor, or any other material adverse change in any of the Grantor's representations and warranties regarding Accounts and Inventory under this Agreement. (c) If any Account arises out of a Contract with the United States of America, or any department, agency, subdivision or instrumentality thereof, the Grantor shall promptly notify the Lender thereof in writing and execute any instruments and take any other action required or requested by the Lender to perfect the Lender's security interest in such Account under the provisions of the Federal Assignment of Claims Act. (d) The Grantor shall not store any Inventory with a bailee, warehouseman or similar party without the Lender's prior written consent, and if the Lender gives such consent, the Grantor shall concurrently therewith cause any such bailee, warehouseman or similar party to issue and deliver to the Lender, in form and substance acceptable to the Lender, warehouse receipts therefor in the Lender's name. SECTION 4.2 COLLECTION OF ACCOUNTS; SEGREGATION OF PROCEEDS; ETC. (a) Until an Event of Default exists, or until such earlier time as the Lender shall exercise any of its rights under Section 4.3, the Grantor will, at the Grantor's sole expense, collect from the Account Debtors all amounts due on Accounts and Contracts when they shall become due; and upon any default by any Account Debtor, the Grantor shall have the authority, at the Grantor's sole expense, to repossess any goods covered by any Account or Contract in accordance with the terms thereof and applicable law and to take such other action with respect to any such Account, Contract and goods as the Grantor may deem advisable. Upon request by the Lender all remittances received by the Grantor as proceeds of Property shall be (1) held in trust for the Lender separate and apart from, and not commingled with, any property of the Grantor, (2) kept capable of identification as the property of the Lender, and (3) delivered daily (or at such other intervals as may be mutually agreed upon in writing) to the Lender in the identical form received, with appropriate endorsements, and accompanied by a report prepared by the Grantor in such form as the Lender may require. (b) Promptly upon the Lender's request, the Grantor shall: (1) give written notice of the Lender's Liens on the Accounts and Contracts to the Account Debtors in such form and at such times as the Lender may require; (2) open and maintain at the Grantor's expense a lock box with the Lender for the receipt of all remittances with respect to Property and execute a lock box agreement satisfactory to the Lender governing such lock box; and (3) notify the Account Debtors to make payments on the Accounts and Contracts directly to the Lender or to said lock box. All items received by the Lender shall be, at the option of the Lender, credited to the Obligations in accordance with Section 5.9, or held until finally collected in a Collateral Reserve Account established under Section 4.8. -7- SECTION 4.3 ATTORNEY-IN-FACT. The Grantor hereby constitutes and appoints the Lender, or any other person whom the Lender may designate, as the Grantor's attorney-in-fact, at the Grantor's sole cost and expense, to exercise (a) at any time (without notice to the Grantor and irrespective of whether any Event of Default exists) all or any of the following powers, and (b) at any time an Event of Default exists, all of the powers set forth in Section 7.4, all of which powers, being coupled with an interest, shall be irrevocable until this Agreement is terminated in accordance with Section 8.15: (1) to transmit to Account Debtors notice of the Lender's Liens on the Accounts and Contracts and to demand and receive from Account Debtors information concerning the Accounts and Contracts; (2) to notify Account Debtors to make payments on the Accounts and Contracts directly to the Lender or to a lock box designated by Lender; (3) to take or to bring, in the name of the Lender or in the name of the Grantor, all steps, action, suits or proceedings deemed by the Lender necessary or desirable to effect collection of the Accounts and Contracts; (4) to receive, open and dispose of all mail addressed to the Grantor that is received by the Lender; and (5) to receive, take, endorse, assign and deliver in the Lender's or the Grantor's name any instruments relating to Accounts and Contracts. All acts of such attorney-in-fact or designee taken pursuant to this Section 4.3 or Section 7.4 are hereby ratified and approved by the Grantor, and said attorney shall not be liable for any acts or omissions, nor for any error of judgment or mistake of fact or law. SECTION 4.4 COLLECTION METHODS. The Grantor shall not institute any proceedings before any Governmental Authority for garnishment, attachment, repossession of property, detinue or make any attempt to repossess any goods covered by any Account or Contract except under the direction of competent legal counsel. The Grantor agrees to indemnify and hold the Lender harmless from any loss or liability of any kind that may be asserted against the Lender by virtue of any proceeding or repossession done or attempted by or on behalf of the Grantor or any actions that the Grantor may make to collect or enforce any Account or Contract or repossess any goods covered by any Account or Contract. SECTION 4.5 DOCUMENTATION REGARDING ACCOUNTS AND CONTRACTS. The Grantor shall keep accurate and complete records of the Grantor's Accounts and Contracts and shall promptly deliver to the Lender from time to time on request (a) a detailed aged trial balance (Schedule of Accounts), in form and substance acceptable to the Lender, of all then-existing Accounts, (b) the original copy of all Contracts and other documents evidencing or relating to the Accounts so scheduled, (c) such other information relating to the then-existing Accounts and Contracts as the Lender shall reasonably request, and (d) formal written assignments or schedules specifically describing the Accounts and Contracts and confirming the Lender's Liens thereon. SECTION 4.6 VERIFICATION OF ACCOUNTS AND CONTRACTS. Any of the Lender's officers, employees or agents shall have the right at any time in the Lender's name or in the name of the Grantor, to verify with any Account Debtor the validity or amount of, or any other matter relating to, any Accounts and Contracts by mail, telephone, fax or otherwise. SECTION 4.7 DOCUMENTATION REGARDING INVENTORY. The Grantor shall keep accurate and complete records of the Inventory, and shall promptly furnish to the Lender from time to time on request (a) a current Schedule of Inventory in form and substance satisfactory to the Lender, based -8- upon such inventory accounting practices as are satisfactory to the Lender, and (b) the original copy of all documents related to such Inventory. Such schedule of Inventory shall provide the Lender with such information as the Lender shall request. SECTION 4.8 COLLATERAL RESERVE ACCOUNT. Upon request by the Lender, the Grantor shall cause all remittances in payment of the Accounts and Contracts to be deposited with the Lender, or such other bank or banks as the Lender may require, in an account or accounts designated as the Lender may require (collectively, the "Collateral Reserve Account"). Such deposits shall be made by the Grantor daily, and each deposit shall be accompanied by a report prepared by the Grantor in such form as the Lender shall require. The Lender may at its option also deposit to the Collateral Reserve Account any remittances made to the Lender, to the lock box referred to in Section 4.2 or otherwise received by the Lender. Funds in the Collateral Reserve Account shall not be subject to withdrawal by the Grantor, but at all times shall be subject to the exclusive dominion and control of the Lender, and may be applied against the Obligations from time to time at the sole discretion of the Lender. ARTICLE 5 OTHER COVENANTS AND AGREEMENTS SECTION 5.1 GENERAL. The Grantor covenants and agrees with the Lender as follows: (a) The Grantor shall not add to or change any of the locations set forth in Exhibit B or, except for the sale of Inventory in the ordinary course of business, remove any Tangible Property other than motor vehicles (or in the case of any motor vehicle change the place at which it is principally garaged) from the locations specified therefor in Exhibit B, without the Lender's prior written consent. (b) The Grantor shall notify the Lender in writing of any proposed addition to or change in any of the locations described in Section 5.1(a) at least 60 days prior to the date of the proposed change and shall furnish the Lender with any information requested by the Lender in considering the proposed change. In connection with any such addition or change, the Grantor shall execute and file any financing statements required by the Lender to perfect, preserve and protect the Liens of the Lender in the Property. (c) The Grantor is and shall remain the owner of all of the locations described in Section 5.1(a) except any leased locations described in Exhibit B. The Grantor shall promptly deliver to the Lender a written waiver or subordination (in form and substance satisfactory to the Lender) of any Lien with respect to the Property that the owner might have. (d) The Grantor shall not allow any of the Property that is not a Fixture to become affixed to any real estate other than that, if any, being owned by the Grantor without the prior written consent of the Lender. If at any time any of the Tangible Property should, notwithstanding the foregoing, be affixed to any other real estate, the security interest of the Lender under this Agreement shall nevertheless attach to and include such Tangible Property. The Grantor shall promptly furnish to the -9- Lender a description of any such real estate and the names of the record owners thereof, execute such additional financing statements and other documents as the Lender may require, obtain from the owners of such real estate and the holders of any Liens thereon such Lien waivers, subordination agreements and other documents as the Lender may request, and shall take such other actions as the Lender may deem necessary or desirable to preserve and perfect the Lender's security interest in such Tangible Property as a first priority perfected security interest. (e) The Grantor will not, without the prior consent of the Lender, (1) sell, lease, transfer, convey or otherwise dispose of any of the Property, except for the sale of Inventory in the ordinary course of business, (2) pledge or grant any security interest in any of the Property to any person, except for Permitted Encumbrances, (3) permit any Lien to attach to any of the Property or any levy to be made thereon or any financing statement to be on file with respect to any of the Property, except those related to Permitted Encumbrances, or (4) permit any default or violation to occur under any agreement, covenant or restriction included in Permitted Encumbrances. (f) At the request of the Lender, the Grantor will join with the Lender in executing one or more financing statements pursuant to the Uniform Commercial Code in form satisfactory to the Lender covering the Property and will pay the costs of filing the same in all public offices wherever filing is deemed necessary or prudent by the Lender. If the Grantor fails or refuses to execute any such financing statement, the Lender may file an executed copy or photocopy of an executed copy of this Agreement as a financing statement in any such offices to the extent permitted by applicable law. (g) The Lender may correct any patent errors in this Agreement or any financing statements or other documents executed in connection herewith. (h) The Grantor shall inform the Lender in writing of any material adverse change in any of the representations and warranties of the Grantor under this Agreement, promptly after the Grantor shall learn of such change. (i) The Grantor shall furnish to the Lender from time to time statements and schedules further identifying and describing the Property and such other reports in connection with the Property as the Lender may reasonably request, all in reasonable detail. (j) The Grantor shall keep and maintain at the Grantor's own cost and expense complete records of the Property, including a record of all payments received and all credits granted with respect to the Property and all other dealings with the Property. Upon request of the Lender, the Grantor shall make proper entries in such records disclosing the assignment of the Property to the Lender and shall segregate and mark such records with the Lender's name in a manner satisfactory to the Lender. If an Event of Default exists, the Grantor shall deliver such records to the Lender on demand. (k) The Grantor shall promptly deliver to the Lender the certificates of title for any motor vehicles now or hereafter included in the Property that are subject to the title laws of any jurisdiction and shall join with the Lender in executing any documents and taking any actions necessary or -10- desirable in the Lender's opinion to perfect the Lender's Liens in such vehicles. The Lender may retain possession of such certificates of title until this Agreement is terminated in accordance with Section 8.15. SECTION 5.2 TAXES AND ASSESSMENTS. The Grantor shall pay when due all taxes, assessments and other charges levied or assessed against any of the Property, and all other claims that are or may become Liens against any of the Property, except any that are Permitted Encumbrances or that are being contested by Permitted Contests; and should default be made in the payment of same, the Lender, at its option, may pay them. SECTION 5.3 INSURANCE. (a) The Grantor shall keep the Tangible Property insured in such amounts, with such companies and against such risks as may be satisfactory to the Lender. All such policies shall name the Lender as an additional loss payee and shall contain an agreement by the insurer that they shall not be cancelled without at least 30 days' prior written notice to the Lender. The Grantor shall cause duplicate originals of such insurance policies to be deposited with the Lender. If requested by the Lender, the Grantor shall, at least 10 days prior to the due date, furnish to the Lender evidence of the payment of the premiums due on such policies. (b) The Grantor hereby assigns to the Lender each policy of insurance covering any of the Property, including all rights to receive the proceeds and returned premiums of such insurance. With respect to all such insurance policies, the Lender is hereby authorized, but not required, on behalf of the Grantor, to collect for, adjust and compromise any losses and to apply, at its option, the loss proceeds (less expenses of collection) to the Obligations, in any order and whether due or not, or to the repair, replacement or restoration of the Property, or to remit the same to the Grantor; but any such application or remittance shall not cure or waive any default by the Grantor and shall not operate to abate, satisfy or release any of the Obligations. If any insurance proceeds are received by the Grantor, the Grantor shall promptly apply such proceeds to the repair, replacement or restoration of the Property unless the Grantor receives contrary directions from the Lender. (c) In case of a sale pursuant to the default provisions hereof, or any conveyance of all or any part of the Property in extinguishment of the Obligations, title to all such insurance policies and the proceeds thereof and unearned premiums with respect thereto shall pass to and vest in the purchaser of the Property. SECTION 5.4 CARE OF TANGIBLE PROPERTY; NOTICE OF LOSS, ETC. The Grantor shall: (a) at all times maintain the Tangible Property in as good condition as it is now in, reasonable wear and tear alone excepted; (b) not use the Tangible Property, or permit it to be used, in violation of any Governmental Requirement; and (c) notify the Lender immediately in writing of any event causing material loss or depreciation in value of any of the Property and of the amount thereof (other than ordinary wear and tear). -11- SECTION 5.5 FILING FEES AND TAXES. The Grantor agrees, to the extent permitted by law, to pay all recording and filing fees, revenue stamps, taxes and other expenses and charges payable in connection with the execution and delivery of the Credit Documents, and the recording, filing, satisfaction, continuation and release thereof. SECTION 5.6 USE OF TANGIBLE PROPERTY. The Grantor agrees (a) to comply with the terms of any lease covering the premises on which any Tangible Property is located and all Governmental Requirements concerning such premises or the conduct of business thereon; (b) not to conceal or abandon the Tangible Property; and (c) not to lease or hire any of the Tangible Property to any person or permit the same to be leased or used for hire except pursuant to Permitted Encumbrances. SECTION 5.7 DEPOSIT ACCOUNTS. The Grantor agrees to maintain the Deposit Accounts on deposit with the Lender. As security for the Obligations, the Grantor hereby assigns and transfers to the Lender the exclusive dominion and control of the Deposit Accounts, including the right to withdraw funds therefrom. All proceeds in the Deposit Accounts shall continue to be collateral security for all of the Obligations and shall not constitute payment thereof until applied as hereinafter provided. No instruments deposited into any Deposit Account or otherwise received by the Lender pursuant to this provision shall constitute final payment until finally collected. SECTION 5.8 CONTRACTS. (a) The Grantor shall perform all of the Grantor's obligations under each Contract in accordance with its terms and shall not commit or permit any default on the part of the Grantor thereunder. The Grantor shall not (1) cancel or terminate any material Contract or consent to or accept any cancellation or termination thereof; (2) modify any material Contract or give any consent, waiver or approval thereunder; (3) waive any default under any material Contract; or (4) take any other action in connection with any material Contract that would impair the value of the interests of the Grantor thereunder or the interests of the Lender under this Agreement. (b) The Grantor will either deliver to the Lender all executed original copies of the Contracts or mark conspicuously on each original copy the following legend: NOTICE THIS AGREEMENT AND THE RIGHTS OF WELBORN TRANSPORT, INC. TO RECEIVE ALL PAYMENTS HEREUNDER HAVE BEEN ASSIGNED TO AMSOUTH BANK AS COLLATERAL SECURITY UNDER SECURITY AGREEMENT (GENERAL) DATED AS OF MAY 1, 2001. (c) The Grantor shall notify the Lender promptly in writing of any matters affecting the value, enforceability or collectibility of any of the Contracts, including material defaults, delays in performance, disputes, offsets, defenses, counterclaims, returns and rejections and all reclaimed or repossessed property. -12- SECTION 5.9 APPLICATION OF PAYMENTS AND COLLECTIONS. The Grantor irrevocably waives the right to direct the application of any payments and collections at any time or times hereafter received by the Lender from or on behalf of Grantor, and the Grantor irrevocably agrees that Lender shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by the Lender or its agent against the Obligations, in such order and in such proportions as the Lender may deem advisable, whether due or not, and notwithstanding any entry by the Lender upon its books and records. SECTION 5.10 INSTRUMENTS, DOCUMENTS AND CHATTEL PAPER. Immediately upon the Grantor's receipt of any Property that consists of or is evidenced or secured by an agreement, instrument, document or chattel paper, the Grantor shall deliver each original thereof to the Lender, together with appropriate endorsements and assignments in form and substance acceptable to the Lender. SECTION 5.11 VISITATION. The Grantor shall permit representatives of the Lender from time to time (a) to visit and inspect the Property, all records related thereto, the premises upon which any Property is located, and any of the other offices and properties of the Grantor; (b) to inspect and examine the Property and to inspect, audit, check and make abstracts from the books, records, orders, receipts, correspondence and other data relating to the Property or to any transactions between the Grantor and the Lender; (c) to discuss the affairs, finances and accounts of the Grantor with and be advised as to the same by the officers thereof, if a corporation, or if not by other responsible persons; and (d) to verify the amount, quantity, value and condition of, or any other matter relating to, the Property, all at such times and intervals as the Lender may desire. The Grantor hereby irrevocably authorizes and instructs any accountants acting for the Grantor to give the Lender any information the Lender may request regarding the financial affairs of the Grantor and to furnish the Lender with copies of any documents in their possession related thereto. SECTION 5.12 FURTHER ASSURANCES. At the Grantor's cost and expense, upon request of the Lender, the Grantor shall duly execute and deliver, or cause to be duly executed and delivered, to the Lender such further instruments and do and cause to be done such further acts as may be reasonably necessary or proper in the opinion of the Lender or its counsel to perfect, preserve and protect the validity and priority of the Liens of the Lender in the Property and to carry out more effectively the provisions and purposes of this Agreement. ARTICLE 6 EVENTS OF DEFAULT SECTION 6.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an event of default (an "Event of Default") under this Agreement (whatever the reason for such event and whether or not it shall be voluntary or involuntary or be effected by operation of law or pursuant to any Governmental Requirement): -13- (a) any representation or warranty made in this Agreement or in any of the other Credit Documents shall prove to be false or misleading in any material respect as of the time made; or (b) any report, certificate, financial statement or other instrument furnished in connection with the Credit, this Agreement or any of the other Credit Documents, shall prove to be false or misleading in any material respect as of the time made; or (c) default shall be made in the payment when due of any of the Obligations; or (d) default shall be made in the due observance or performance of any covenant, condition or agreement on the part of the Grantor to be observed or performed pursuant to the terms of this Agreement (other than any covenant, condition or agreement, default in the observance or performance of which is elsewhere in this Section 6.1 specifically dealt with) and such default shall continue unremedied until the first to occur of (1) the date that is 30 days after written notice by the Lender to the Grantor; or (2) the date that is 30 days after the Grantor first obtains knowledge thereof; or (e) any default or event of default, as therein defined, shall occur under any of the other Credit Documents (after giving effect to any applicable notice, grace or cure period specified therein). ARTICLE 7 REMEDIES SECTION 7.1 CERTAIN RIGHTS OF LENDER AFTER DEFAULT. If an Event of Default exists that does not already result in the automatic acceleration of the Obligations under another Credit Document, the Lender shall have, in addition to any other rights under this Agreement or under applicable law, the right, without notice to the Grantor (or with notice to the Grantor if notice is required and cannot be waived under applicable law), to take any or all of the following actions at the same or different times: (a) The Lender may charge, set-off and otherwise apply all or any part of the Obligations against the Deposit Accounts, or any part thereof. (b) The Lender may exercise any rights, powers and remedies of the Grantor in connection with any Contract or otherwise in respect of the Property, including any rights of the Grantor to demand or otherwise require payment of any amount under, or performance of any provision of, any Contract, and to modify, amend, terminate, replace, settle or compromise any Contract or any sum payable thereunder. (c) The Lender may (1) notify Account Debtors that Accounts and Contracts have been assigned to the Lender, demand and receive information from Account Debtors with respect to -14- Accounts and Contracts, forward invoices to Account Debtors directing them to make payments to the Lender, collect all Accounts and Contracts in the Lender's or the Grantor's name and take control of any cash or non-cash proceeds of Property; (2) enforce payment of any Accounts and Contracts, prosecute any action or proceeding with respect to Accounts and Contracts, extend the time of payment of Accounts and Contracts, make allowances and adjustments with respect to Accounts and Contracts and issue credits against Accounts and Contracts, all in the name of the Lender or the Grantor; (3) settle, compromise, extend, renew, release, terminate or discharge, in whole or in part, any Account or Contract or deal with the same as the Lender may deem advisable; and (4) require the Grantor to open all mail only in the presence of a representative of the Lender, who may take therefrom any remittance on any of the Property. (d) The Lender may (1) enter upon the premises of the Grantor or any other place where any Property is located, and through self-help and without judicial process, without first obtaining a final judgment or giving the Grantor notice and opportunity for a hearing and without any obligation to pay rent, remove the Property therefrom to the premises of the Lender or its agent for such time as Lender may desire to collect or liquidate the Property; (2) require the Grantor to assemble the Tangible Property and make it available to the Lender at the Grantor's premises or any other place selected by the Lender, and to make available to the Lender all of the Grantor's premises and facilities for the purpose of the Lender's taking possession of, removing or putting the Tangible Property in salable form; and (3) use, and permit the Lender or any purchaser of any of the Property from the Lender to use, without charge, the Grantor's labels, General Intangibles and advertising matter or any property of a similar nature, as it pertains to or is included in the Property, in advertising, preparing for sale and selling any Property, and in finishing the manufacture, processing, fabrication, packaging and delivery of the Inventory; and the Grantor's rights under all licenses, franchise agreements and other General Intangibles shall inure to the Lender's benefit. (e) The Lender, without demand of performance or other demand, advertisement or notice of any kind (except any notice required by law of a proposed disposition of the Property, which may be given in the manner specified in Section 8.1) to or upon the Grantor or any other person (all of which demands, advertisements and notices are hereby expressly waived, to the extent permitted by law), may forthwith collect, receive, appropriate, repossess and realize upon all or any part of the Property, and may forthwith sell, lease, assign, give options to purchase, or sell or otherwise dispose of and deliver all or any part of the Property (or contract to do so), in one or more parcels at public or private sale or sales, at any exchange, broker's board or at any of the Lender's offices or elsewhere at such prices as the Lender may deem best, for cash or on credit or for future delivery without assumption of any credit risk. To the extent permitted by law, the Property shall be sold free of any right of redemption, which right of redemption the Grantor hereby releases. To the extent permitted by applicable law, the Grantor waives all claims, damages, and demands against the Lender arising out of the repossession, retention or sale of the Property. SECTION 7.2 REPOSSESSION OF THE PROPERTY; CARE AND CUSTODY OF THE PROPERTY; ETC. (a) The Grantor shall give the Lender written notice in the manner set forth in Section 8.1 within 24 hours of the date of repossession if the Grantor alleges that any other property of the -15- Grantor was left on or in the repossessed Property at the time of repossession; and such notice shall be an express condition precedent to any action for loss or damages in connection therewith. After receiving any such notice the Lender will have a reasonable time to notify the Grantor as to where the Grantor can collect such property. (b) The Grantor irrevocably invites the Lender and its agents to enter upon any premises on which any of the Property is now or hereafter located for all purposes related to the Property, including repossession thereof, and consents to any such entry and repossession. Any such entry by the Lender or its agents shall not be a trespass upon such premises, and any such repossession shall not constitute conversion of any Property. The Grantor agrees to indemnify and hold the Lender harmless against, and hereby releases the Lender from, any actions, claims, costs, liabilities or expenses arising directly or indirectly from any entry upon such premises and any repossession of any Property. (c) If the Lender shall repossess any Property at a time when no Event of Default exists and the repossessed Property is thereafter returned to the Grantor, the damages therefor, if any, shall not exceed the fair rental value of the repossessed Property for the time it was in the Lender's possession. (d) The Lender shall be deemed to have exercised reasonable care in the custody and preservation of any Property in its possession if it takes such reasonable actions for that purpose as the Grantor shall request in writing, but the Lender shall have sole power to determine whether such actions are reasonable. Any omission to do any act not requested by the Grantor shall not be deemed a failure to exercise reasonable care. SECTION 7.3 APPLICATION OF PROCEEDS. The net cash proceeds resulting from the exercise of any of the rights, powers and remedies of the Lender under this Agreement, after deducting all charges, expenses, costs and attorneys' fees relating thereto, including all costs and expenses incurred in securing the possession of Property, moving, storing, repairing or finishing the manufacture of Property, and preparing the same for sale, shall be applied by the Lender to the payment of the Obligations, whether due or to become due, in such order and in such proportions as the Lender may elect; and the Obligors shall remain liable to the Lender for any deficiency. SECTION 7.4 ATTORNEY-IN-FACT AFTER DEFAULT. At any time when an Event of Default exists, the Lender or any other person serving as the Grantor's attorney-in-fact under Section 4.3 shall have the following powers: (a) to sell or assign any of the Property upon such terms, for such amounts and at such times as the Lender deems advisable and to execute any bills of sale or assignments in the name of the Grantor in relation thereto; (b) to take control, in any manner, of any item of payment on, or proceeds of the Property; (c) to use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Property to which the Grantor has access; (d) to settle, adjust, compromise, extend, renew, discharge, terminate or release the Property in whole or in part; (e) settle, adjust or compromise any legal proceedings brought to collect the Property; (f) to prepare, file and sign the Grantor's name on any proof of claim in bankruptcy or similar document against any Account Debtor; (g) to prepare, file and sign the -16- Grantor's name on any notice of Lien, assignment or satisfaction or termination of Lien or similar document in connection with the Property; (h) to sign or endorse the name of the Grantor upon any chattel paper, document, instrument, invoice or similar document or agreement relating to the Property; (i) to use the Grantor's stationery and to sign the name of the Grantor to verifications of the Accounts and Contracts and notices thereof to Account Debtors; (j) to notify postal authorities to change the Grantor's mailing address to an address designated by the Lender for receipt of payments on Accounts and Contracts; (k) to enter into contracts or agreements for the processing, fabrication, packaging and delivery of Inventory as said attorney-in-fact or designee or the Lender may from time to time deem appropriate and charge the Grantor's account for any reasonable costs thereby incurred; (l) to exercise all of the Grantor's other rights, powers and remedies with respect to the Property; and (m) to do all acts and things necessary, in the Lender's sole judgment, to carry out the purposes of this Agreement or to fulfill the Grantor's obligations hereunder. SECTION 7.5 DEFAULT RATE. If an Event of Default exists, the Obligations shall bear interest at the Default Rate, until the earlier of (a) such time as all of the Obligations are paid in full or (b) no such Event of Default exists. SECTION 7.6 REMEDIES CUMULATIVE. The rights, powers and remedies of the Lender under this Agreement are cumulative and not exclusive of any other rights, powers or remedies now or hereafter existing at law or in equity. ARTICLE 8 MISCELLANEOUS SECTION 8.1 NOTICES. (a) Any request, demand, authorization, direction, notice, consent or other document provided or permitted by this Agreement shall be given in the manner, and shall be effective at the time, provided in Section 7.1 of the Credit Agreement described in Exhibit A. (b) Five Business Days' written notice to the Grantor as provided above shall constitute reasonable notification to the Grantor when notification is required by law; provided, however, that nothing contained in the foregoing shall be construed as requiring five Business Days' notice if, under applicable law and the circumstances then existing, a shorter period of time would constitute reasonable notice. SECTION 8.2 EXPENSES. The Grantor shall promptly on demand pay all costs and expenses, including the fees and disbursements of counsel to the Lender, incurred by the Lender in connection with (a) the negotiation, preparation and review of this Agreement (whether or not the transactions contemplated by this Agreement shall be consummated), (b) the enforcement of this Agreement, (c) the custody and preservation of the Property, (d) the protection or perfection of the Lender's rights and interests under this Agreement in the Property, (e) the exercise by or on behalf of -17- the Lender of any of its rights, powers or remedies under this Agreement and (f) the prosecution or defense of any action or proceeding by or against the Lender, the Grantor, any other Obligor, any Account Debtor, or any one or more of them, concerning any matter related to this Agreement, any of the Property, or any of the Obligations. All such amounts shall bear interest from the date demand is made at the Default Rate and shall be included in the Obligations secured hereby. The Grantor's obligations under this Section 8.2 shall survive the payment in full of the Obligations and the termination of this Agreement. SECTION 8.3 HEIRS, SUCCESSORS AND ASSIGNS. Whenever in this Agreement any party hereto is referred to, such reference shall be deemed to include the heirs, successors and assigns of such party, except that the Grantor may not assign or transfer this Agreement without the prior written consent of the Lender; and all covenants and agreements of the Grantor contained in this Agreement shall bind the Grantor's heirs, successors and assigns and shall inure to the benefit of the successors and assigns of the Lender. SECTION 8.4 INDEPENDENT OBLIGATIONS. The Grantor agrees that each of the obligations of the Grantor to the Lender under this Agreement may be enforced against the Grantor without the necessity of joining any other Obligor, any other holders of Liens in any Property or any other person, as a party. SECTION 8.5 GOVERNING LAW. This Agreement shall be construed in accordance with and governed by Title 9 of the U.S. Code and the internal laws of the State of Alabama except as required by mandatory provisions of law (without regard to conflict of law principles) and except to the extent that the validity and perfection of the Liens on the Property are governed by the laws of any jurisdiction other than the State of Alabama. SECTION 8.6 DATE OF AGREEMENT. The date of this Agreement is intended as a date for the convenient identification of this Agreement and is not intended to indicate that this Agreement was executed and delivered on that date. SECTION 8.7 SEPARABILITY CLAUSE. If any provision of the Credit Documents shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 8.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed an original, but all such counterparts shall together constitute but one and the same agreement. SECTION 8.9 NO ORAL AGREEMENTS. This Agreement is the final expression of the agreement between the parties hereto, and this Agreement may not be contradicted by evidence of any prior oral agreement between such parties. All previous oral agreements between the parties hereto have been incorporated into this Agreement and the other Credit Documents, and there is no unwritten oral agreement between the parties hereto in existence. -18- SECTION 8.10 WAIVER AND ELECTION. The exercise by the Lender of any option given under this Agreement shall not constitute a waiver of the right to exercise any other option. No failure or delay on the part of the Lender in exercising any right, power or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any further exercise thereof or the exercise of any other right, power or remedy. No modification, termination or waiver of any provisions of the Credit Documents, nor consent to any departure by the Grantor therefrom, shall be effective unless in writing and signed by an authorized officer of the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Grantor in any case shall entitle the Grantor to any other or further notice or demand in similar or other circumstances. SECTION 8.11 NO OBLIGATIONS OF LENDER; INDEMNIFICATION. The Lender does not by virtue of this Agreement or any of the transactions contemplated by the Credit Documents assume any duties, liabilities or obligations with respect to any of the Property unless expressly assumed by the Lender under a separate agreement in writing, and this Agreement shall not be deemed to confer on the Lender any duties or obligations that would make the Lender directly or derivatively liable for any person's negligent, reckless or wilful conduct. The Grantor agrees to indemnify and hold the Lender harmless against and with respect to any damage, claim, action, loss, cost, expense, liability, penalty or interest (including attorney's fees) and all costs and expenses of all actions, suits, proceedings, demands, assessments, claims and judgments directly or indirectly resulting from, occurring in connection with, or arising out of: (a) any inaccurate representation made by the Grantor or any Obligor in this Agreement or any other Credit Document; (b) any breach of any of the warranties or obligations of the Grantor or any Obligor under this Agreement or any other Credit Document; and (c) the Property, or the Liens of the Lender thereon. The provisions of this Section 8.11 shall survive the payment of the Obligations in full and the termination, satisfaction, release (in whole or in part) and foreclosure of this Agreement. SECTION 8.12 ADVANCES BY THE LENDER. If the Grantor shall fail to comply with any of the provisions of this Agreement, the Lender may (but shall not be required to) make advances to perform the same, and where necessary enter any premises where any Property is located for the purpose of performing the Grantor's obligations under any such provision. The Grantor agrees to repay all such sums advanced upon demand, with interest from the date such advances are made at the Default Rate, and all sums so advanced with interest shall be a part of the Obligations. The making of any such advances shall not be construed as a waiver by the Lender of any Event of Default resulting from the Grantor's failure to pay such amounts. SECTION 8.13 RIGHTS, LIENS AND OBLIGATIONS ABSOLUTE. All rights of the Lender hereunder, all Liens granted to the Lender hereunder, and all obligations of the Grantor hereunder, shall be absolute and unconditional and shall not be affected by (a) any lack of validity or enforceability as to any other person of any of the Credit Documents, (b) any change in the time, manner or place of payment of, or any other term of the Obligations, (c) any amendment or waiver of any of the provisions of the Credit Documents as to any other person, and (d) any exchange, release -19- or non-perfection of any other collateral or any release, termination or waiver of any guaranty, for any of the Obligations. SECTION 8.14 GRANTOR LIABLE ON CONTRACTS. Notwithstanding anything in this Agreement to the contrary (a) the Grantor shall remain liable under the Contracts to perform all of the Grantor's duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Lender of any rights hereunder shall not release the Grantor from any of the Grantor's obligations under the Contracts, and (c) the Lender shall not have any obligation or liability under the Contracts by reason of this Agreement or the receipt by the Lender of any payment hereunder, nor shall the Lender be obligated to perform any of the obligations of the Grantor under the Contracts, to take any action to collect, file and enforce any claim for payment assigned to the Lender hereunder, or to make any inquiry as to the nature or sufficiency of any payment received by it or the adequacy of any performance by any party. SECTION 8.15 TERMINATION. This Agreement and the Lender's Liens in the Property hereunder will not be terminated until one of the Lender's officers signs a written termination agreement. Except as otherwise expressly provided for in this Agreement, no termination of this Agreement shall in any way affect or impair the representations, warranties, agreements or other obligations of the Grantor or the rights, powers and remedies of the Lender under this Agreement with respect to any transaction or event occurring prior to such termination, all of which shall survive such termination. SECTION 8.16 REINSTATEMENT. This Agreement, the obligations of the Grantor hereunder, and the Liens, rights, powers and remedies of the Lender hereunder, shall continue to be effective, or be automatically reinstated, as the case may be, if at any time any amount applied to the payment of any of the Obligations is rescinded or must otherwise be restored or returned to the Grantor, any Obligor, or any other person (or paid to the creditors of any of them, or to any custodian, receiver, trustee or other officer with similar powers with respect to any of them, or with respect to any part of their property) upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Grantor, any Obligor or any such person, or upon or as a result of the appointment of a custodian, receiver, trustee or other officer with respect to any of them, or with respect to any part of their property, or otherwise, all as though such payment had not been made. SECTION 8.17 SUBMISSION TO JURISDICTION. The Grantor irrevocably (a) acknowledges that this Agreement will be accepted by the Lender and performed by the Grantor in the State of Alabama; (b) submits to the jurisdiction of each state or federal court sitting in Jefferson County, Alabama (collectively, the "Courts") over any suit, action or proceeding arising out of or relating to this Agreement (to enforce the arbitration provisions hereof or, if the arbitration provisions are found to be unenforceable, to determine any issues arising out of or relating to this Agreement) or any of the other Credit Documents (individually, an "Agreement Action"); (c) waives, to the fullest extent permitted by law, any objection or defense that the Grantor may now or hereafter have based on improper venue, lack of personal jurisdiction, inconvenience of forum or any similar matter in any Agreement Action brought in any of the Courts; (d) agrees that final judgment in any Agreement Action brought in any of the Courts shall be conclusive and binding upon the Grantor and may be -20- enforced in any other court to the jurisdiction of which the Grantor is subject, by a suit upon such judgment; (e) consents to the service of process on the Grantor in any Agreement Action by the mailing of a copy thereof by registered or certified mail, postage prepaid, to the Grantor at the Grantor's address designated in or pursuant to Section 8.1; (f) agrees that service in accordance with Section 8.17(e) shall in every respect be effective and binding on the Grantor to the same extent as though served on the Grantor in person by a person duly authorized to serve such process; and (g) AGREES THAT THE PROVISIONS OF THIS SECTION, EVEN IF FOUND NOT TO BE STRICTLY ENFORCEABLE BY ANY COURT, SHALL CONSTITUTE "FAIR WARNING" TO THE GRANTOR THAT THE EXECUTION OF THIS AGREEMENT MAY SUBJECT THE GRANTOR TO THE JURISDICTION OF EACH STATE OR FEDERAL COURT SITTING IN JEFFERSON COUNTY, ALABAMA WITH RESPECT TO ANY AGREEMENT ACTIONS, AND THAT IT IS FORESEEABLE BY THE GRANTOR THAT THE GRANTOR MAY BE SUBJECTED TO THE JURISDICTION OF SUCH COURTS AND MAY BE SUED IN THE STATE OF ALABAMA IN ANY AGREEMENT ACTIONS. Nothing in this Section 8.17 shall limit or restrict the Lender's right to serve process or bring Agreement Actions in manners and in courts otherwise than as herein provided. SECTION 8.18 ARBITRATION. This Agreement incorporates by reference requirements for arbitration of disputes set forth in the Credit Agreement. [Remainder of page left intentionally blank] -21- IN WITNESS WHEREOF, the undersigned Welborn Transport, Inc. has caused this Agreement dated as of May 1, 2001 to be executed by its duly authorized officer. WELBORN TRANSPORT, INC. By /s/ Richard Bailey ----------------------------------------- Its CFO ------------------------------------ EX-10.3 5 g72634ex10-3.txt SECURITY AGREEMENT- BOYD BROS. AND AMSOUTH BANK EXHIBIT 10.3 SECURITY AGREEMENT (General) THIS SECURITY AGREEMENT (GENERAL) ("this Agreement") dated as of May 1, 2001 is between BOYD BROTHERS TRANSPORTATION, INC., a Delaware corporation, as debtor (the "Grantor"), and AMSOUTH BANK, an Alabama banking corporation, as secured party (the "Lender"). RECITALS Capitalized terms used in these Recitals have the meanings defined for them above or in Section 1.2. The Grantor and Welborn Transport, Inc. (together, the "Borrower") has requested that the Lender extend Credit to the Borrower under the Credit Documents. To secure the Obligations, and to induce the Lender to extend Credit to the Borrower under the Credit Documents, the Grantor has agreed to execute and deliver this Agreement to the Lender. AGREEMENT NOW, THEREFORE, in consideration of the foregoing Recitals, and to induce the Lender to extend Credit to the Borrower under the Credit Documents, the Grantor agrees with the Lender as follows: ARTICLE 1 RULES OF CONSTRUCTION AND DEFINITIONS SECTION 1.1 RULES OF CONSTRUCTION. This Agreement is subject to the rules of construction set forth in the Credit Agreement described in Exhibit A. SECTION 1.2 DEFINITIONS. As used in this Agreement, capitalized terms that are not otherwise defined herein have the meanings defined for them in the Credit Agreement described in Exhibit A and the following terms are defined as follows: (a) Unless otherwise defined herein, terms used in this Agreement that are defined in Article 9 of the Alabama Uniform Commercial Code have the meanings defined for them therein. (b) ACCOUNT DEBTOR includes any buyer or lessee of Inventory from the Grantor, any customer for whom services are rendered or materials furnished by the Grantor and any other person obligated to the Grantor on an Account. (c) ACCOUNTS means any and all rights of the Grantor to the payment of money, whether or not evidenced by an instrument or chattel paper and whether or not earned by performance, including a right to payment for goods sold or leased or for services rendered by the Grantor and a right to any amount payable under a Contract. (d) CONTRACTS means all Leases, requisitions, purchase orders, documents, instruments and chattel paper of the Grantor, including any of the same that relate to any Equipment, Fixtures, Inventory, General Intangibles or other property described in the granting clauses set out in Section 2.1, or secure any Accounts, or in connection with which Accounts exist or may be created. (e) DEPOSIT ACCOUNTS means all bank accounts and other deposit accounts and lock boxes of the Grantor, including any of the same established for the benefit of the Lender. (f) EQUIPMENT means all of the Grantor's equipment, machinery, furniture, furnishings, vehicles, tools, spare parts, materials, supplies, store fixtures, leasehold improvements and all other goods of every kind and nature (other than Inventory and Fixtures). (g) EVENT OF DEFAULT is defined in Section 6.1. An Event of Default "exists" if the same has occurred and is continuing. (h) FIXTURES means all goods of the Grantor that become so related to particular real estate that an interest in them arises under real estate law. (i) GENERAL INTANGIBLES means all choses in action, causes of action and other assignable intangible property of the Grantor of every kind and nature (other than Accounts and Contracts), including corporate, partnership, limited liability company and other business records, good will, inventions, designs, patents, patent applications, trademarks, trade names, trade secrets, service marks, logos, copyrights, copyright applications, registrations, software, licenses, permits, franchises, tax refund claims, insurance policies and rights thereunder (including any refunds and returned premiums) and any collateral, guaranty, letter of credit or other security held by or granted to the Grantor to secure payment of Accounts and Contracts. (j) INVENTORY means all goods, merchandise and other personal property held by the Grantor for sale or lease or furnished or to be furnished by the Grantor under contracts of service or otherwise, raw materials, parts, finished goods, work-in-process, scrap inventory and supplies and materials used or consumed, or to be used or consumed, in the Grantor's present or any future business, and all such property returned to or repossessed or stopped in transit by the Grantor, whether in transit or in the constructive, actual or exclusive possession of the Grantor or of the Lender or held by the Grantor or any other person for the Lender's account and wherever the same may be located, including all such property that may now or hereafter be located on the premises of the Grantor or upon any leased location or upon the premises of any carriers, forwarding agents, warehousemen, vendors, selling agents, processors or third parties. (k) LEASES means (1) all leases and use agreements of personal property entered into by the Grantor as lessor with other persons as lessees, and all rights of the Grantor under such leases and -2- agreements, including the right to receive and collect all rents and other moneys (including security deposits) at any time payable under such leases and agreements, whether paid or accruing before or after the filing of any petition by or against the Grantor under the federal Bankruptcy Code; and (2) all leases and use agreements of personal property entered into by the Grantor as lessee with other persons as lessor, and all rights, titles and interests of the Grantor thereunder, including the leasehold interest of the Grantor in such property and all options to purchase such property or to extend any such lease or agreement. (l) PERMITTED CONTEST means any appropriate proceeding conducted in good faith by the Grantor to contest any tax, assessment, charge, Lien or similar claim, during the pendency of which proceeding the enforcement of such tax, assessment, charge, Lien or claim is stayed; provided that the Grantor has set aside on its books or, if required by the Lender, deposited as cash collateral with the Lender, adequate cash reserves to assure the payment of any such tax, assessment, charge, Lien or claim. (m) PROPERTY is defined in Section 2.1. (n) SECURITY DOCUMENTS means all Credit Documents that now or hereafter grant or purport to grant to the Lender any guaranty, collateral or other security for any of the Obligations. (o) TANGIBLE PROPERTY means all Equipment, Fixtures, Inventory and other tangible personal property of the Grantor. ARTICLE 2 SECURITY AGREEMENT SECTION 2.1 GRANTING CLAUSES. As security for the Obligations, the Grantor hereby grants to the Lender security title to and a continuing security interest in, and assigns, transfers, conveys, pledges and sets over to the Lender all of the Grantor's right, title and interest in, to and under the following property, whether now owned or hereafter acquired by the Grantor, and whether now existing or hereafter incurred, created, arising or entered into (collectively, the "Property"): (a) all Equipment, Fixtures, Inventory and other Tangible Property of the Grantor, and any and all accessions and additions thereto, any substitutions and replacements therefor, and all attachments and improvements placed upon or used in connection therewith, or any part thereof; (b) all Accounts, Contracts and General Intangibles of the Grantor; (c) all of the Grantor's rights as an unpaid vendor or lienor, including stoppage in transit, replevin, detinue and reclamation; -3- (d) all moneys of the Grantor, all Deposit Accounts of the Grantor in which such moneys may at any time be on deposit or held, all investments or securities of the Grantor in which such moneys may at any time be invested and all certificates, instruments and documents of the Grantor from time to time representing or evidencing any such moneys; (e) any other property of the Grantor now or hereafter held by the Lender or by others for the Lender's account; (f) all interest, dividends, proceeds, products, rents, royalties, issues and profits of any of the property described in the foregoing granting clauses, whether paid or accruing before or after the filing of any petition by or against the Grantor under the federal Bankruptcy Code, and all instruments delivered to the Lender in substitution for or in addition to any such property; and (g) all books, documents, files, ledgers and records (whether on computer or otherwise) covering or otherwise related to any of the property described in the foregoing granting clauses. No submission by the Grantor to the Lender of a schedule or other particular identification of Property shall be necessary to vest in the Lender the Liens contemplated by this Agreement in each and every item of Property of the Grantor now existing or hereafter acquired, incurred, created, arising or entered into, but rather such Liens shall vest in the Lender immediately upon the acquisition, creation, incurring or arising of, or entering into, any such item of Property without the necessity for any other or further action by the Grantor or by the Lender. The Grantor shall take such steps and observe such formalities as the Lender may request from time to time to create and maintain in favor of the Lender the Liens contemplated by this Agreement in all of the Property, whether now owned or hereafter acquired by the Grantor, and whether now existing or hereafter incurred, created, arising or entered into. ARTICLE 3 REPRESENTATIONS AND WARRANTIES SECTION 3.1 GENERAL REPRESENTATIONS AND WARRANTIES. The Grantor represents and warrants to the Lender as follows: (a) The Grantor is the owner of the Property and has a good right to grant to the Lender the Liens contemplated by this Agreement; the Property is free and clear of all Liens other than Permitted Encumbrances; and the Grantor hereby warrants and will forever defend the title to the Property unto the Lender, its successors and assigns, against the claims of all persons whomsoever, whether lawful or unlawful, except those claiming under Permitted Encumbrances. (b) The addresses of (1) each of the Grantor's places of business, (2) the Grantor's chief executive office, (3) the office where the Grantor keeps the Grantor's records concerning Accounts, and (4) each location where the Grantor keeps any Tangible Property, are correctly and completely -4- set forth on Exhibit B. No change has occurred in such address(es) in the five years immediately preceding the execution of this Agreement. SECTION 3.2 ACCOUNT REPRESENTATIONS AND WARRANTIES. The Grantor represents and warrants to the Lender as follows as to each and every Account, whether now existing or acquired, created or arising from time to time hereafter, that is listed on any report, certificate or other document furnished to the Lender, unless the Grantor discloses in writing therein that the Grantor does not make any such representation or warranty to the Lender with respect to such Account: (a) The Account is an original, genuine, bona fide and legally binding obligation, enforceable in accordance with its terms. (b) The Account is not subject to any claim of reduction, counterclaim, set-off or recoupment, or any claim for credits, allowances or adjustments by the Account Debtor, and the same has not been disputed or dishonored by the Account Debtor. (c) The aggregate amount shown as the balance due on the Account on the Grantor's books and in any documents delivered to the Lender is validly owing under the Account and is not contingent for any reason; and, to the best of the Grantor's knowledge, there are no facts or occurrences that in any way impair the validity or collectibility thereof or reduce the amount payable thereunder. (d) No agreement under which any deduction or discount may be claimed by the Account Debtor has been made other than any customary discounts for prompt payment previously disclosed in writing to the Lender. (e) All statements made by the Grantor about the Account in any documents furnished to the Lender by the Grantor are true and correct, and all the Lender may rely on such statements and representations in determining the eligibility and collateral value of the Account. (f) The Account is due and payable not more than 30 days from the date of the invoice. (g) The Account does not arise out of a Contract that forbids the assignment of the Account to the Lender or makes such assignment void or unenforceable. (h) The Account arose in the ordinary course of the Grantor's business from a bona fide outright sale of goods, or from the performance of services, by the Grantor under a valid Contract, and the goods have been shipped or delivered, the services have been performed or the Contract has otherwise been consummated in accordance with the related Contract. (i) Any goods or services giving rise to the Account are as represented to the Account Debtor, and no warranties have been made with respect to any goods or services covered by the Account except such as appear on the face of the related Contract. -5- (j) The Account Debtor has not returned or refused any goods giving rise to the Account. (k) No notice of any of the following has been received with respect to any Account Debtor: (1) the death of the Account Debtor, or of any partner thereof (if a partnership); (2) the dissolution, termination or business failure of the Account Debtor; (3) the ceasing or suspension of the Account Debtor's business; (4) the filing of any petition by or against the Account Debtor for any relief under the Bankruptcy Code; (5) the making by the Account Debtor of an assignment for the benefit of creditors; (6) the calling of a meeting by any of the creditors of the Account Debtor to consider the Account Debtor's financial condition; (7) the Account Debtor's becoming insolvent or attempting to secure a general extension from the Account Debtor's creditors; (8) the appointment of a receiver, trustee, liquidator or custodian of all or any part of the Account Debtor's assets; or (9) any other fact that reflects adversely on the general creditworthiness and financial condition of the Account Debtor. (l) The Account is not evidenced by a judgment and is not evidenced or secured by an instrument, document or chattel paper unless the original thereof (or each of them if more than one) has been endorsed or assigned and delivered to the Lender in accordance with Section 5.10. SECTION 3.3 INVENTORY REPRESENTATIONS AND WARRANTIES. The Grantor represents and warrants to the Lender as follows as to each and every item of Inventory, whether now existing or hereafter created or acquired, that is listed on any report, certificate or other document furnished to the Lender, unless the Grantor discloses therein that the Grantor does not make any such representation or warranty with respect to such item of Inventory: (a) All statements made by the Grantor about the Inventory in any documents furnished to the Lender by the Grantor are true and correct, and all the Lender may rely on such statements and representations in determining the eligibility and collateral value of the Inventory. (b) All Inventory is located on premises identified on Exhibit B or is in transit to Account Debtors in the ordinary course of business and is so identified on the relevant Schedule of Inventory. ARTICLE 4 CERTAIN COVENANTS AND AGREEMENTS CONCERNING ACCOUNTS AND INVENTORY SECTION 4.1 GENERAL. (a) If any allowance or credit on any Account should be given by the Grantor or if any goods giving rise to any Account should be returned to the Grantor, the Grantor shall promptly give written notice thereof to the Lender. -6- (b) The Grantor shall promptly inform Lender in writing of any material delay or default in the Grantor's performance of any of the Grantor's obligations to any Account Debtor, any assertion of any material claims, offsets or counterclaims by any Account Debtor, any material adverse information relating to the financial condition of any Account Debtor, or any other material adverse change in any of the Grantor's representations and warranties regarding Accounts and Inventory under this Agreement. (c) If any Account arises out of a Contract with the United States of America, or any department, agency, subdivision or instrumentality thereof, the Grantor shall promptly notify the Lender thereof in writing and execute any instruments and take any other action required or requested by the Lender to perfect the Lender's security interest in such Account under the provisions of the Federal Assignment of Claims Act. (d) The Grantor shall not store any Inventory with a bailee, warehouseman or similar party without the Lender's prior written consent, and if the Lender gives such consent, the Grantor shall concurrently therewith cause any such bailee, warehouseman or similar party to issue and deliver to the Lender, in form and substance acceptable to the Lender, warehouse receipts therefor in the Lender's name. SECTION 4.2 COLLECTION OF ACCOUNTS; SEGREGATION OF PROCEEDS; ETC. (a) Until an Event of Default exists, or until such earlier time as the Lender shall exercise any of its rights under Section 4.3, the Grantor will, at the Grantor's sole expense, collect from the Account Debtors all amounts due on Accounts and Contracts when they shall become due; and upon any default by any Account Debtor, the Grantor shall have the authority, at the Grantor's sole expense, to repossess any goods covered by any Account or Contract in accordance with the terms thereof and applicable law and to take such other action with respect to any such Account, Contract and goods as the Grantor may deem advisable. Upon request by the Lender all remittances received by the Grantor as proceeds of Property shall be (1) held in trust for the Lender separate and apart from, and not commingled with, any property of the Grantor, (2) kept capable of identification as the property of the Lender, and (3) delivered daily (or at such other intervals as may be mutually agreed upon in writing) to the Lender in the identical form received, with appropriate endorsements, and accompanied by a report prepared by the Grantor in such form as the Lender may require. (b) Promptly upon the Lender's request, the Grantor shall: (1) give written notice of the Lender's Liens on the Accounts and Contracts to the Account Debtors in such form and at such times as the Lender may require; (2) open and maintain at the Grantor's expense a lock box with the Lender for the receipt of all remittances with respect to Property and execute a lock box agreement satisfactory to the Lender governing such lock box; and (3) notify the Account Debtors to make payments on the Accounts and Contracts directly to the Lender or to said lock box. All items received by the Lender shall be, at the option of the Lender, credited to the Obligations in accordance with Section 5.9, or held until finally collected in a Collateral Reserve Account established under Section 4.8. -7- SECTION 4.3 ATTORNEY-IN-FACT. The Grantor hereby constitutes and appoints the Lender, or any other person whom the Lender may designate, as the Grantor's attorney-in-fact, at the Grantor's sole cost and expense, to exercise (a) at any time (without notice to the Grantor and irrespective of whether any Event of Default exists) all or any of the following powers, and (b) at any time an Event of Default exists, all of the powers set forth in Section 7.4, all of which powers, being coupled with an interest, shall be irrevocable until this Agreement is terminated in accordance with Section 8.15: (1) to transmit to Account Debtors notice of the Lender's Liens on the Accounts and Contracts and to demand and receive from Account Debtors information concerning the Accounts and Contracts; (2) to notify Account Debtors to make payments on the Accounts and Contracts directly to the Lender or to a lock box designated by Lender; (3) to take or to bring, in the name of the Lender or in the name of the Grantor, all steps, action, suits or proceedings deemed by the Lender necessary or desirable to effect collection of the Accounts and Contracts; (4) to receive, open and dispose of all mail addressed to the Grantor that is received by the Lender; and (5) to receive, take, endorse, assign and deliver in the Lender's or the Grantor's name any instruments relating to Accounts and Contracts. All acts of such attorney-in-fact or designee taken pursuant to this Section 4.3 or Section 7.4 are hereby ratified and approved by the Grantor, and said attorney shall not be liable for any acts or omissions, nor for any error of judgment or mistake of fact or law. SECTION 4.4 COLLECTION METHODS. The Grantor shall not institute any proceedings before any Governmental Authority for garnishment, attachment, repossession of property, detinue or make any attempt to repossess any goods covered by any Account or Contract except under the direction of competent legal counsel. The Grantor agrees to indemnify and hold the Lender harmless from any loss or liability of any kind that may be asserted against the Lender by virtue of any proceeding or repossession done or attempted by or on behalf of the Grantor or any actions that the Grantor may make to collect or enforce any Account or Contract or repossess any goods covered by any Account or Contract. SECTION 4.5 DOCUMENTATION REGARDING ACCOUNTS AND CONTRACTS. The Grantor shall keep accurate and complete records of the Grantor's Accounts and Contracts and shall promptly deliver to the Lender from time to time on request (a) a detailed aged trial balance (Schedule of Accounts), in form and substance acceptable to the Lender, of all then-existing Accounts, (b) the original copy of all Contracts and other documents evidencing or relating to the Accounts so scheduled, (c) such other information relating to the then-existing Accounts and Contracts as the Lender shall reasonably request, and (d) formal written assignments or schedules specifically describing the Accounts and Contracts and confirming the Lender's Liens thereon. SECTION 4.6 VERIFICATION OF ACCOUNTS AND CONTRACTS. Any of the Lender's officers, employees or agents shall have the right at any time in the Lender's name or in the name of the Grantor, to verify with any Account Debtor the validity or amount of, or any other matter relating to, any Accounts and Contracts by mail, telephone, fax or otherwise. SECTION 4.7 DOCUMENTATION REGARDING INVENTORY. The Grantor shall keep accurate and complete records of the Inventory, and shall promptly furnish to the Lender from time to time on request (a) a current Schedule of Inventory in form and substance satisfactory to the Lender, based -8- upon such inventory accounting practices as are satisfactory to the Lender, and (b) the original copy of all documents related to such Inventory. Such schedule of Inventory shall provide the Lender with such information as the Lender shall request. SECTION 4.8 COLLATERAL RESERVE ACCOUNT. Upon request by the Lender, the Grantor shall cause all remittances in payment of the Accounts and Contracts to be deposited with the Lender, or such other bank or banks as the Lender may require, in an account or accounts designated as the Lender may require (collectively, the "Collateral Reserve Account"). Such deposits shall be made by the Grantor daily, and each deposit shall be accompanied by a report prepared by the Grantor in such form as the Lender shall require. The Lender may at its option also deposit to the Collateral Reserve Account any remittances made to the Lender, to the lock box referred to in Section 4.2 or otherwise received by the Lender. Funds in the Collateral Reserve Account shall not be subject to withdrawal by the Grantor, but at all times shall be subject to the exclusive dominion and control of the Lender, and may be applied against the Obligations from time to time at the sole discretion of the Lender. ARTICLE 5 OTHER COVENANTS AND AGREEMENTS SECTION 5.1 GENERAL. The Grantor covenants and agrees with the Lender as follows: (a) The Grantor shall not add to or change any of the locations set forth in Exhibit B or, except for the sale of Inventory in the ordinary course of business, remove any Tangible Property other than motor vehicles (or in the case of any motor vehicle change the place at which it is principally garaged) from the locations specified therefor in Exhibit B, without the Lender's prior written consent. (b) The Grantor shall notify the Lender in writing of any proposed addition to or change in any of the locations described in Section 5.1(a) at least 60 days prior to the date of the proposed change and shall furnish the Lender with any information requested by the Lender in considering the proposed change. In connection with any such addition or change, the Grantor shall execute and file any financing statements required by the Lender to perfect, preserve and protect the Liens of the Lender in the Property. (c) The Grantor is and shall remain the owner of all of the locations described in Section 5.1(a) except any leased locations described in Exhibit B. The Grantor shall promptly deliver to the Lender a written waiver or subordination (in form and substance satisfactory to the Lender) of any Lien with respect to the Property that the owner might have. (d) The Grantor shall not allow any of the Property that is not a Fixture to become affixed to any real estate other than that, if any, being owned by the Grantor without the prior written consent of the Lender. If at any time any of the Tangible Property should, notwithstanding the foregoing, be affixed to any other real estate, the security interest of the Lender under this Agreement shall nevertheless attach to and include such Tangible Property. The Grantor shall promptly furnish to the -9- Lender a description of any such real estate and the names of the record owners thereof, execute such additional financing statements and other documents as the Lender may require, obtain from the owners of such real estate and the holders of any Liens thereon such Lien waivers, subordination agreements and other documents as the Lender may request, and shall take such other actions as the Lender may deem necessary or desirable to preserve and perfect the Lender's security interest in such Tangible Property as a first priority perfected security interest. (e) The Grantor will not, without the prior consent of the Lender, (1) sell, lease, transfer, convey or otherwise dispose of any of the Property, except for the sale of Inventory in the ordinary course of business, (2) pledge or grant any security interest in any of the Property to any person, except for Permitted Encumbrances, (3) permit any Lien to attach to any of the Property or any levy to be made thereon or any financing statement to be on file with respect to any of the Property, except those related to Permitted Encumbrances, or (4) permit any default or violation to occur under any agreement, covenant or restriction included in Permitted Encumbrances. (f) At the request of the Lender, the Grantor will join with the Lender in executing one or more financing statements pursuant to the Uniform Commercial Code in form satisfactory to the Lender covering the Property and will pay the costs of filing the same in all public offices wherever filing is deemed necessary or prudent by the Lender. If the Grantor fails or refuses to execute any such financing statement, the Lender may file an executed copy or photocopy of an executed copy of this Agreement as a financing statement in any such offices to the extent permitted by applicable law. (g) The Lender may correct any patent errors in this Agreement or any financing statements or other documents executed in connection herewith. (h) The Grantor shall inform the Lender in writing of any material adverse change in any of the representations and warranties of the Grantor under this Agreement, promptly after the Grantor shall learn of such change. (i) The Grantor shall furnish to the Lender from time to time statements and schedules further identifying and describing the Property and such other reports in connection with the Property as the Lender may reasonably request, all in reasonable detail. (j) The Grantor shall keep and maintain at the Grantor's own cost and expense complete records of the Property, including a record of all payments received and all credits granted with respect to the Property and all other dealings with the Property. Upon request of the Lender, the Grantor shall make proper entries in such records disclosing the assignment of the Property to the Lender and shall segregate and mark such records with the Lender's name in a manner satisfactory to the Lender. If an Event of Default exists, the Grantor shall deliver such records to the Lender on demand. (k) The Grantor shall promptly deliver to the Lender the certificates of title for any motor vehicles now or hereafter included in the Property that are subject to the title laws of any jurisdiction and shall join with the Lender in executing any documents and taking any actions necessary or -10- desirable in the Lender's opinion to perfect the Lender's Liens in such vehicles. The Lender may retain possession of such certificates of title until this Agreement is terminated in accordance with Section 8.15. SECTION 5.2 TAXES AND ASSESSMENTS. The Grantor shall pay when due all taxes, assessments and other charges levied or assessed against any of the Property, and all other claims that are or may become Liens against any of the Property, except any that are Permitted Encumbrances or that are being contested by Permitted Contests; and should default be made in the payment of same, the Lender, at its option, may pay them. SECTION 5.3 INSURANCE. (a) The Grantor shall keep the Tangible Property insured in such amounts, with such companies and against such risks as may be satisfactory to the Lender. All such policies shall name the Lender as an additional loss payee and shall contain an agreement by the insurer that they shall not be cancelled without at least 30 days' prior written notice to the Lender. The Grantor shall cause duplicate originals of such insurance policies to be deposited with the Lender. If requested by the Lender, the Grantor shall, at least 10 days prior to the due date, furnish to the Lender evidence of the payment of the premiums due on such policies. (b) The Grantor hereby assigns to the Lender each policy of insurance covering any of the Property, including all rights to receive the proceeds and returned premiums of such insurance. With respect to all such insurance policies, the Lender is hereby authorized, but not required, on behalf of the Grantor, to collect for, adjust and compromise any losses and to apply, at its option, the loss proceeds (less expenses of collection) to the Obligations, in any order and whether due or not, or to the repair, replacement or restoration of the Property, or to remit the same to the Grantor; but any such application or remittance shall not cure or waive any default by the Grantor and shall not operate to abate, satisfy or release any of the Obligations. If any insurance proceeds are received by the Grantor, the Grantor shall promptly apply such proceeds to the repair, replacement or restoration of the Property unless the Grantor receives contrary directions from the Lender. (c) In case of a sale pursuant to the default provisions hereof, or any conveyance of all or any part of the Property in extinguishment of the Obligations, title to all such insurance policies and the proceeds thereof and unearned premiums with respect thereto shall pass to and vest in the purchaser of the Property. SECTION 5.4 CARE OF TANGIBLE PROPERTY; NOTICE OF LOSS, ETC. The Grantor shall: (a) at all times maintain the Tangible Property in as good condition as it is now in, reasonable wear and tear alone excepted; (b) not use the Tangible Property, or permit it to be used, in violation of any Governmental Requirement; and (c) notify the Lender immediately in writing of any event causing material loss or depreciation in value of any of the Property and of the amount thereof (other than ordinary wear and tear). -11- SECTION 5.5 FILING FEES AND TAXES. The Grantor agrees, to the extent permitted by law, to pay all recording and filing fees, revenue stamps, taxes and other expenses and charges payable in connection with the execution and delivery of the Credit Documents, and the recording, filing, satisfaction, continuation and release thereof. SECTION 5.6 USE OF TANGIBLE PROPERTY. The Grantor agrees (a) to comply with the terms of any lease covering the premises on which any Tangible Property is located and all Governmental Requirements concerning such premises or the conduct of business thereon; (b) not to conceal or abandon the Tangible Property; and (c) not to lease or hire any of the Tangible Property to any person or permit the same to be leased or used for hire except pursuant to Permitted Encumbrances. SECTION 5.7 DEPOSIT ACCOUNTS. The Grantor agrees to maintain the Deposit Accounts on deposit with the Lender. As security for the Obligations, the Grantor hereby assigns and transfers to the Lender the exclusive dominion and control of the Deposit Accounts, including the right to withdraw funds therefrom. All proceeds in the Deposit Accounts shall continue to be collateral security for all of the Obligations and shall not constitute payment thereof until applied as hereinafter provided. No instruments deposited into any Deposit Account or otherwise received by the Lender pursuant to this provision shall constitute final payment until finally collected. SECTION 5.8 CONTRACTS. (a) The Grantor shall perform all of the Grantor's obligations under each Contract in accordance with its terms and shall not commit or permit any default on the part of the Grantor thereunder. The Grantor shall not (1) cancel or terminate any material Contract or consent to or accept any cancellation or termination thereof; (2) modify any material Contract or give any consent, waiver or approval thereunder; (3) waive any default under any material Contract; or (4) take any other action in connection with any material Contract that would impair the value of the interests of the Grantor thereunder or the interests of the Lender under this Agreement. (b) The Grantor will either deliver to the Lender all executed original copies of the Contracts or mark conspicuously on each original copy the following legend: NOTICE THIS AGREEMENT AND THE RIGHTS OF BOYD BROTHERS TRANSPORTATION, INC. TO RECEIVE ALL PAYMENTS HEREUNDER HAVE BEEN ASSIGNED TO AMSOUTH BANK AS COLLATERAL SECURITY UNDER SECURITY AGREEMENT (GENERAL) DATED AS OF MAY 1, 2001. (c) The Grantor shall notify the Lender promptly in writing of any matters affecting the value, enforceability or collectibility of any of the Contracts, including material defaults, delays in performance, disputes, offsets, defenses, counterclaims, returns and rejections and all reclaimed or repossessed property. -12- SECTION 5.9 APPLICATION OF PAYMENTS AND COLLECTIONS. The Grantor irrevocably waives the right to direct the application of any payments and collections at any time or times hereafter received by the Lender from or on behalf of Grantor, and the Grantor irrevocably agrees that Lender shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by the Lender or its agent against the Obligations, in such order and in such proportions as the Lender may deem advisable, whether due or not, and notwithstanding any entry by the Lender upon its books and records. SECTION 5.10 INSTRUMENTS, DOCUMENTS AND CHATTEL PAPER. Immediately upon the Grantor's receipt of any Property that consists of or is evidenced or secured by an agreement, instrument, document or chattel paper, the Grantor shall deliver each original thereof to the Lender, together with appropriate endorsements and assignments in form and substance acceptable to the Lender. SECTION 5.11 VISITATION. The Grantor shall permit representatives of the Lender from time to time (a) to visit and inspect the Property, all records related thereto, the premises upon which any Property is located, and any of the other offices and properties of the Grantor; (b) to inspect and examine the Property and to inspect, audit, check and make abstracts from the books, records, orders, receipts, correspondence and other data relating to the Property or to any transactions between the Grantor and the Lender; (c) to discuss the affairs, finances and accounts of the Grantor with and be advised as to the same by the officers thereof, if a corporation, or if not by other responsible persons; and (d) to verify the amount, quantity, value and condition of, or any other matter relating to, the Property, all at such times and intervals as the Lender may desire. The Grantor hereby irrevocably authorizes and instructs any accountants acting for the Grantor to give the Lender any information the Lender may request regarding the financial affairs of the Grantor and to furnish the Lender with copies of any documents in their possession related thereto. SECTION 5.12 FURTHER ASSURANCES. At the Grantor's cost and expense, upon request of the Lender, the Grantor shall duly execute and deliver, or cause to be duly executed and delivered, to the Lender such further instruments and do and cause to be done such further acts as may be reasonably necessary or proper in the opinion of the Lender or its counsel to perfect, preserve and protect the validity and priority of the Liens of the Lender in the Property and to carry out more effectively the provisions and purposes of this Agreement. ARTICLE 6 EVENTS OF DEFAULT SECTION 6.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an event of default (an "Event of Default") under this Agreement (whatever the reason for such event and whether or not it shall be voluntary or involuntary or be effected by operation of law or pursuant to any Governmental Requirement): -13- (a) any representation or warranty made in this Agreement or in any of the other Credit Documents shall prove to be false or misleading in any material respect as of the time made; or (b) any report, certificate, financial statement or other instrument furnished in connection with the Credit, this Agreement or any of the other Credit Documents, shall prove to be false or misleading in any material respect as of the time made; or (c) default shall be made in the payment when due of any of the Obligations; or (d) default shall be made in the due observance or performance of any covenant, condition or agreement on the part of the Grantor to be observed or performed pursuant to the terms of this Agreement (other than any covenant, condition or agreement, default in the observance or performance of which is elsewhere in this Section 6.1 specifically dealt with) and such default shall continue unremedied until the first to occur of (1) the date that is 30 days after written notice by the Lender to the Grantor; or (2) the date that is 30 days after the Grantor first obtains knowledge thereof; or (e) any default or event of default, as therein defined, shall occur under any of the other Credit Documents (after giving effect to any applicable notice, grace or cure period specified therein). ARTICLE 7 REMEDIES SECTION 7.1 CERTAIN RIGHTS OF LENDER AFTER DEFAULT. If an Event of Default exists that does not already result in the automatic acceleration of the Obligations under another Credit Document, the Lender shall have, in addition to any other rights under this Agreement or under applicable law, the right, without notice to the Grantor (or with notice to the Grantor if notice is required and cannot be waived under applicable law), to take any or all of the following actions at the same or different times: (a) The Lender may charge, set-off and otherwise apply all or any part of the Obligations against the Deposit Accounts, or any part thereof. (b) The Lender may exercise any rights, powers and remedies of the Grantor in connection with any Contract or otherwise in respect of the Property, including any rights of the Grantor to demand or otherwise require payment of any amount under, or performance of any provision of, any Contract, and to modify, amend, terminate, replace, settle or compromise any Contract or any sum payable thereunder. (c) The Lender may (1) notify Account Debtors that Accounts and Contracts have been assigned to the Lender, demand and receive information from Account Debtors with respect to -14- Accounts and Contracts, forward invoices to Account Debtors directing them to make payments to the Lender, collect all Accounts and Contracts in the Lender's or the Grantor's name and take control of any cash or non-cash proceeds of Property; (2) enforce payment of any Accounts and Contracts, prosecute any action or proceeding with respect to Accounts and Contracts, extend the time of payment of Accounts and Contracts, make allowances and adjustments with respect to Accounts and Contracts and issue credits against Accounts and Contracts, all in the name of the Lender or the Grantor; (3) settle, compromise, extend, renew, release, terminate or discharge, in whole or in part, any Account or Contract or deal with the same as the Lender may deem advisable; and (4) require the Grantor to open all mail only in the presence of a representative of the Lender, who may take therefrom any remittance on any of the Property. (d) The Lender may (1) enter upon the premises of the Grantor or any other place where any Property is located, and through self-help and without judicial process, without first obtaining a final judgment or giving the Grantor notice and opportunity for a hearing and without any obligation to pay rent, remove the Property therefrom to the premises of the Lender or its agent for such time as Lender may desire to collect or liquidate the Property; (2) require the Grantor to assemble the Tangible Property and make it available to the Lender at the Grantor's premises or any other place selected by the Lender, and to make available to the Lender all of the Grantor's premises and facilities for the purpose of the Lender's taking possession of, removing or putting the Tangible Property in salable form; and (3) use, and permit the Lender or any purchaser of any of the Property from the Lender to use, without charge, the Grantor's labels, General Intangibles and advertising matter or any property of a similar nature, as it pertains to or is included in the Property, in advertising, preparing for sale and selling any Property, and in finishing the manufacture, processing, fabrication, packaging and delivery of the Inventory; and the Grantor's rights under all licenses, franchise agreements and other General Intangibles shall inure to the Lender's benefit. (e) The Lender, without demand of performance or other demand, advertisement or notice of any kind (except any notice required by law of a proposed disposition of the Property, which may be given in the manner specified in Section 8.1) to or upon the Grantor or any other person (all of which demands, advertisements and notices are hereby expressly waived, to the extent permitted by law), may forthwith collect, receive, appropriate, repossess and realize upon all or any part of the Property, and may forthwith sell, lease, assign, give options to purchase, or sell or otherwise dispose of and deliver all or any part of the Property (or contract to do so), in one or more parcels at public or private sale or sales, at any exchange, broker's board or at any of the Lender's offices or elsewhere at such prices as the Lender may deem best, for cash or on credit or for future delivery without assumption of any credit risk. To the extent permitted by law, the Property shall be sold free of any right of redemption, which right of redemption the Grantor hereby releases. To the extent permitted by applicable law, the Grantor waives all claims, damages, and demands against the Lender arising out of the repossession, retention or sale of the Property. SECTION 7.2 REPOSSESSION OF THE PROPERTY; CARE AND CUSTODY OF THE PROPERTY; ETC. (a) The Grantor shall give the Lender written notice in the manner set forth in Section 8.1 within 24 hours of the date of repossession if the Grantor alleges that any other property of the -15- Grantor was left on or in the repossessed Property at the time of repossession; and such notice shall be an express condition precedent to any action for loss or damages in connection therewith. After receiving any such notice the Lender will have a reasonable time to notify the Grantor as to where the Grantor can collect such property. (b) The Grantor irrevocably invites the Lender and its agents to enter upon any premises on which any of the Property is now or hereafter located for all purposes related to the Property, including repossession thereof, and consents to any such entry and repossession. Any such entry by the Lender or its agents shall not be a trespass upon such premises, and any such repossession shall not constitute conversion of any Property. The Grantor agrees to indemnify and hold the Lender harmless against, and hereby releases the Lender from, any actions, claims, costs, liabilities or expenses arising directly or indirectly from any entry upon such premises and any repossession of any Property. (c) If the Lender shall repossess any Property at a time when no Event of Default exists and the repossessed Property is thereafter returned to the Grantor, the damages therefor, if any, shall not exceed the fair rental value of the repossessed Property for the time it was in the Lender's possession. (d) The Lender shall be deemed to have exercised reasonable care in the custody and preservation of any Property in its possession if it takes such reasonable actions for that purpose as the Grantor shall request in writing, but the Lender shall have sole power to determine whether such actions are reasonable. Any omission to do any act not requested by the Grantor shall not be deemed a failure to exercise reasonable care. SECTION 7.3 APPLICATION OF PROCEEDS. The net cash proceeds resulting from the exercise of any of the rights, powers and remedies of the Lender under this Agreement, after deducting all charges, expenses, costs and attorneys' fees relating thereto, including all costs and expenses incurred in securing the possession of Property, moving, storing, repairing or finishing the manufacture of Property, and preparing the same for sale, shall be applied by the Lender to the payment of the Obligations, whether due or to become due, in such order and in such proportions as the Lender may elect; and the Obligors shall remain liable to the Lender for any deficiency. SECTION 7.4 ATTORNEY-IN-FACT AFTER DEFAULT. At any time when an Event of Default exists, the Lender or any other person serving as the Grantor's attorney-in-fact under Section 4.3 shall have the following powers: (a) to sell or assign any of the Property upon such terms, for such amounts and at such times as the Lender deems advisable and to execute any bills of sale or assignments in the name of the Grantor in relation thereto; (b) to take control, in any manner, of any item of payment on, or proceeds of the Property; (c) to use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Property to which the Grantor has access; (d) to settle, adjust, compromise, extend, renew, discharge, terminate or release the Property in whole or in part; (e) settle, adjust or compromise any legal proceedings brought to collect the Property; (f) to prepare, file and sign the Grantor's name on any proof of claim in bankruptcy or similar document against any Account Debtor; (g) to prepare, file and sign the -16- Grantor's name on any notice of Lien, assignment or satisfaction or termination of Lien or similar document in connection with the Property; (h) to sign or endorse the name of the Grantor upon any chattel paper, document, instrument, invoice or similar document or agreement relating to the Property; (i) to use the Grantor's stationery and to sign the name of the Grantor to verifications of the Accounts and Contracts and notices thereof to Account Debtors; (j) to notify postal authorities to change the Grantor's mailing address to an address designated by the Lender for receipt of payments on Accounts and Contracts; (k) to enter into contracts or agreements for the processing, fabrication, packaging and delivery of Inventory as said attorney-in-fact or designee or the Lender may from time to time deem appropriate and charge the Grantor's account for any reasonable costs thereby incurred; (l) to exercise all of the Grantor's other rights, powers and remedies with respect to the Property; and (m) to do all acts and things necessary, in the Lender's sole judgment, to carry out the purposes of this Agreement or to fulfill the Grantor's obligations hereunder. SECTION 7.5 DEFAULT RATE. If an Event of Default exists, the Obligations shall bear interest at the Default Rate, until the earlier of (a) such time as all of the Obligations are paid in full or (b) no such Event of Default exists. SECTION 7.6 REMEDIES CUMULATIVE. The rights, powers and remedies of the Lender under this Agreement are cumulative and not exclusive of any other rights, powers or remedies now or hereafter existing at law or in equity. ARTICLE 8 MISCELLANEOUS SECTION 8.1 NOTICES. (a) Any request, demand, authorization, direction, notice, consent or other document provided or permitted by this Agreement shall be given in the manner, and shall be effective at the time, provided in Section 7.1 of the Credit Agreement described in Exhibit A. (b) Five Business Days' written notice to the Grantor as provided above shall constitute reasonable notification to the Grantor when notification is required by law; provided, however, that nothing contained in the foregoing shall be construed as requiring five Business Days' notice if, under applicable law and the circumstances then existing, a shorter period of time would constitute reasonable notice. SECTION 8.2 EXPENSES. The Grantor shall promptly on demand pay all costs and expenses, including the fees and disbursements of counsel to the Lender, incurred by the Lender in connection with (a) the negotiation, preparation and review of this Agreement (whether or not the transactions contemplated by this Agreement shall be consummated), (b) the enforcement of this Agreement, (c) the custody and preservation of the Property, (d) the protection or perfection of the Lender's rights and interests under this Agreement in the Property, (e) the exercise by or on behalf of -17- the Lender of any of its rights, powers or remedies under this Agreement and (f) the prosecution or defense of any action or proceeding by or against the Lender, the Grantor, any other Obligor, any Account Debtor, or any one or more of them, concerning any matter related to this Agreement, any of the Property, or any of the Obligations. All such amounts shall bear interest from the date demand is made at the Default Rate and shall be included in the Obligations secured hereby. The Grantor's obligations under this Section 8.2 shall survive the payment in full of the Obligations and the termination of this Agreement. SECTION 8.3 HEIRS, SUCCESSORS AND ASSIGNS. Whenever in this Agreement any party hereto is referred to, such reference shall be deemed to include the heirs, successors and assigns of such party, except that the Grantor may not assign or transfer this Agreement without the prior written consent of the Lender; and all covenants and agreements of the Grantor contained in this Agreement shall bind the Grantor's heirs, successors and assigns and shall inure to the benefit of the successors and assigns of the Lender. SECTION 8.4 INDEPENDENT OBLIGATIONS. The Grantor agrees that each of the obligations of the Grantor to the Lender under this Agreement may be enforced against the Grantor without the necessity of joining any other Obligor, any other holders of Liens in any Property or any other person, as a party. SECTION 8.5 GOVERNING LAW. This Agreement shall be construed in accordance with and governed by Title 9 of the U.S. Code and the internal laws of the State of Alabama except as required by mandatory provisions of law (without regard to conflict of law principles) and except to the extent that the validity and perfection of the Liens on the Property are governed by the laws of any jurisdiction other than the State of Alabama. SECTION 8.6 DATE OF AGREEMENT. The date of this Agreement is intended as a date for the convenient identification of this Agreement and is not intended to indicate that this Agreement was executed and delivered on that date. SECTION 8.7 SEPARABILITY CLAUSE. If any provision of the Credit Documents shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 8.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed an original, but all such counterparts shall together constitute but one and the same agreement. SECTION 8.9 NO ORAL AGREEMENTS. This Agreement is the final expression of the agreement between the parties hereto, and this Agreement may not be contradicted by evidence of any prior oral agreement between such parties. All previous oral agreements between the parties hereto have been incorporated into this Agreement and the other Credit Documents, and there is no unwritten oral agreement between the parties hereto in existence. -18- SECTION 8.10 WAIVER AND ELECTION. The exercise by the Lender of any option given under this Agreement shall not constitute a waiver of the right to exercise any other option. No failure or delay on the part of the Lender in exercising any right, power or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any further exercise thereof or the exercise of any other right, power or remedy. No modification, termination or waiver of any provisions of the Credit Documents, nor consent to any departure by the Grantor therefrom, shall be effective unless in writing and signed by an authorized officer of the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Grantor in any case shall entitle the Grantor to any other or further notice or demand in similar or other circumstances. SECTION 8.11 NO OBLIGATIONS OF LENDER; INDEMNIFICATION. The Lender does not by virtue of this Agreement or any of the transactions contemplated by the Credit Documents assume any duties, liabilities or obligations with respect to any of the Property unless expressly assumed by the Lender under a separate agreement in writing, and this Agreement shall not be deemed to confer on the Lender any duties or obligations that would make the Lender directly or derivatively liable for any person's negligent, reckless or wilful conduct. The Grantor agrees to indemnify and hold the Lender harmless against and with respect to any damage, claim, action, loss, cost, expense, liability, penalty or interest (including attorney's fees) and all costs and expenses of all actions, suits, proceedings, demands, assessments, claims and judgments directly or indirectly resulting from, occurring in connection with, or arising out of: (a) any inaccurate representation made by the Grantor or any Obligor in this Agreement or any other Credit Document; (b) any breach of any of the warranties or obligations of the Grantor or any Obligor under this Agreement or any other Credit Document; and (c) the Property, or the Liens of the Lender thereon. The provisions of this Section 8.11 shall survive the payment of the Obligations in full and the termination, satisfaction, release (in whole or in part) and foreclosure of this Agreement. SECTION 8.12 ADVANCES BY THE LENDER. If the Grantor shall fail to comply with any of the provisions of this Agreement, the Lender may (but shall not be required to) make advances to perform the same, and where necessary enter any premises where any Property is located for the purpose of performing the Grantor's obligations under any such provision. The Grantor agrees to repay all such sums advanced upon demand, with interest from the date such advances are made at the Default Rate, and all sums so advanced with interest shall be a part of the Obligations. The making of any such advances shall not be construed as a waiver by the Lender of any Event of Default resulting from the Grantor's failure to pay such amounts. SECTION 8.13 RIGHTS, LIENS AND OBLIGATIONS ABSOLUTE. All rights of the Lender hereunder, all Liens granted to the Lender hereunder, and all obligations of the Grantor hereunder, shall be absolute and unconditional and shall not be affected by (a) any lack of validity or enforceability as to any other person of any of the Credit Documents, (b) any change in the time, manner or place of payment of, or any other term of the Obligations, (c) any amendment or waiver of any of the provisions of the Credit Documents as to any other person, and (d) any exchange, release -19- or non-perfection of any other collateral or any release, termination or waiver of any guaranty, for any of the Obligations. SECTION 8.14 GRANTOR LIABLE ON CONTRACTS. Notwithstanding anything in this Agreement to the contrary (a) the Grantor shall remain liable under the Contracts to perform all of the Grantor's duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Lender of any rights hereunder shall not release the Grantor from any of the Grantor's obligations under the Contracts, and (c) the Lender shall not have any obligation or liability under the Contracts by reason of this Agreement or the receipt by the Lender of any payment hereunder, nor shall the Lender be obligated to perform any of the obligations of the Grantor under the Contracts, to take any action to collect, file and enforce any claim for payment assigned to the Lender hereunder, or to make any inquiry as to the nature or sufficiency of any payment received by it or the adequacy of any performance by any party. SECTION 8.15 TERMINATION. This Agreement and the Lender's Liens in the Property hereunder will not be terminated until one of the Lender's officers signs a written termination agreement. Except as otherwise expressly provided for in this Agreement, no termination of this Agreement shall in any way affect or impair the representations, warranties, agreements or other obligations of the Grantor or the rights, powers and remedies of the Lender under this Agreement with respect to any transaction or event occurring prior to such termination, all of which shall survive such termination. SECTION 8.16 REINSTATEMENT. This Agreement, the obligations of the Grantor hereunder, and the Liens, rights, powers and remedies of the Lender hereunder, shall continue to be effective, or be automatically reinstated, as the case may be, if at any time any amount applied to the payment of any of the Obligations is rescinded or must otherwise be restored or returned to the Grantor, any Obligor, or any other person (or paid to the creditors of any of them, or to any custodian, receiver, trustee or other officer with similar powers with respect to any of them, or with respect to any part of their property) upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Grantor, any Obligor or any such person, or upon or as a result of the appointment of a custodian, receiver, trustee or other officer with respect to any of them, or with respect to any part of their property, or otherwise, all as though such payment had not been made. SECTION 8.17 SUBMISSION TO JURISDICTION. The Grantor irrevocably (a) acknowledges that this Agreement will be accepted by the Lender and performed by the Grantor in the State of Alabama; (b) submits to the jurisdiction of each state or federal court sitting in Jefferson County, Alabama (collectively, the "Courts") over any suit, action or proceeding arising out of or relating to this Agreement (to enforce the arbitration provisions hereof or, if the arbitration provisions are found to be unenforceable, to determine any issues arising out of or relating to this Agreement) or any of the other Credit Documents (individually, an "Agreement Action"); (c) waives, to the fullest extent permitted by law, any objection or defense that the Grantor may now or hereafter have based on improper venue, lack of personal jurisdiction, inconvenience of forum or any similar matter in any Agreement Action brought in any of the Courts; (d) agrees that final judgment in any Agreement Action brought in any of the Courts shall be conclusive and binding upon the Grantor and may be -20- enforced in any other court to the jurisdiction of which the Grantor is subject, by a suit upon such judgment; (e) consents to the service of process on the Grantor in any Agreement Action by the mailing of a copy thereof by registered or certified mail, postage prepaid, to the Grantor at the Grantor's address designated in or pursuant to Section 8.1; (f) agrees that service in accordance with Section 8.17(e) shall in every respect be effective and binding on the Grantor to the same extent as though served on the Grantor in person by a person duly authorized to serve such process; and (g) AGREES THAT THE PROVISIONS OF THIS SECTION, EVEN IF FOUND NOT TO BE STRICTLY ENFORCEABLE BY ANY COURT, SHALL CONSTITUTE "FAIR WARNING" TO THE GRANTOR THAT THE EXECUTION OF THIS AGREEMENT MAY SUBJECT THE GRANTOR TO THE JURISDICTION OF EACH STATE OR FEDERAL COURT SITTING IN JEFFERSON COUNTY, ALABAMA WITH RESPECT TO ANY AGREEMENT ACTIONS, AND THAT IT IS FORESEEABLE BY THE GRANTOR THAT THE GRANTOR MAY BE SUBJECTED TO THE JURISDICTION OF SUCH COURTS AND MAY BE SUED IN THE STATE OF ALABAMA IN ANY AGREEMENT ACTIONS. Nothing in this Section 8.17 shall limit or restrict the Lender's right to serve process or bring Agreement Actions in manners and in courts otherwise than as herein provided. SECTION 8.18 ARBITRATION. This Agreement incorporates by reference requirements for arbitration of disputes set forth in the Credit Agreement. [Remainder of page left intentionally blank] -21- IN WITNESS WHEREOF, the undersigned Boyd Brothers Transportation, Inc. has caused this Agreement dated as of May 1, 2001 to be executed by its duly authorized officer. BOYD BROTHERS TRANSPORTATION, INC. By /s/ Richard Bailey ----------------------------------------- Its CFO ------------------------------------- EX-10.4 6 g72634ex10-4.txt AUGUST 2001 WAIVER EXHIBIT 10.4 [COMPASS BANK LOGO] Compass Bank P.O. Box 2006 Dothan, Alabama 36302 334-712-7030 August 17, 2001 Mr. Richard Bailey Boyd Bros. Transportation, Inc. 3275 Highway 30 Clayton, AL 36016 RE: CREDIT AND SECURITY AGREEMENT BETWEEN COMPASS BANK ("BANK") AND BOYD BROS. TRANSPORTATION, INC. ("BORROWER") DATED APRIL 11, 2000 Dear Richard: For the period ending June 30, 2001, Boyd Bros. Transportation, Inc. was in violation of Section 6.01 of the above referenced Credit and Security Agreement (as amended, the "Agreement"). You have requested and Bank has agreed to waive the default under the Loan Agreement existing as of June 30, 2001 solely by virtue of the violation of Section 6.01 of the Agreement, as outlined above. This one-time limited waiver is effective only in the specific instance and for the purpose for which given and nothing contained or provided herein shall be construed as granting a waiver of any default except as specifically set forth herein or as allowing Borrower to violate or fail to perform fully (i) Section 6.01 after June 30, 2001 or (ii) any other provisions of the Loan Documents at any time. Further, Compass Bank agrees to modify the covenant of this section as follows: Cash Flows-to-Current Maturities of Long-Term Debt This covenant referenced in Section 6.01 of the above-referenced Agreement will change from 1.2:1.0 to 1.1:1.0. On January 1, 2002, the covenant will return to 1.2:1.0 as defined in the Agreement. If the terms of this letter are acceptable to you, please execute this letter below and return the original hereof to the Bank. Sincerely, /s/ Jim Tate Jim Tate AGREED AND ACCEPTED Vice President /s/ Richard Bailey, its COO/CFO ------------------- ------- Boyd Bros. Transportation, Inc. EX-10.5 7 g72634ex10-5.txt NOVEMBER 2001 WAIVER EXHIBIT 10.5 WAIVER AND CONSENT AGREEMENT THIS WAIVER AND CONSENT AGREEMENT ("this Agreement), effective as of June 30, 2001, but executed on November 13, 2001, is entered into by BOYD BROS. TRANSPORTATION, INC., a Delaware corporation (the "Borrower"), and AMSOUTH BANK, an Alabama banking corporation (the "Lender"). RECITALS A. The Borrower and the Lender have entered into a Credit Agreement dates as of May 1, 2001, as amended (the "Credit Agreement") B. The Borrower has requested that the Lender enter into this Agreement in order to grant certain consents and waivers with respect to the Credit Agreement as hereinafter described. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals and of the mutual agreements of the parties hereto: 1. The parties agree that capitalized terms used in this Agreement and not otherwise defined have the respective meanings attributed thereto in the Credit Agreement. 2. The Lender consents to and waives the failure of the Borrower to: (a) DEBT SERVICE COVERAGE RATIO. Not permit its ratio of EBITDA plus the Net Gain from the sale of rolling stock to Interest Expense and Principal Maturities measured as of the end of each June 30 and December 31 of each year for the previous four fiscal quarters to be less than 1.25 to 1.0. 3. The Borrower hereby represents and warrants that all representations and warranties contained in the Credit Agreement are true and correct as of the date hereof (except representations and warranties that are expressly limited to an earlier date); and the Borrower certifies that except for those matters waived or consented to herein, no Event of Default nor any event that, upon notice or lapse of time or both, would constitute an Event of Default, has occurred and is continuing. 4. Nothing contained herein shall be construed as a waiver, acknowledgement or consent to any breach or Event of Default of the Credit Agreement and the Credit Documents not specifically mentioned herein, and the consents granted herein are effective only in the specific instance and for the purposes which given. 5. This Agreement shall be governed by the laws of the State of Alabama. IN WITNESS WHEREOF, each of the Borrower and the Lender has caused this Agreement to be executed by its duly authorized officer as of the day and year first above written. BOYD BROS. TRANSPORTATION, INC. AMSOUTH BANK By: Aubrey T. Baugh, Jr. By: R. Willis ------------------------------------ ---------------------------------- Its: Vice President Finance/ Its: Vice President Administration -----END PRIVACY-ENHANCED MESSAGE-----