SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
For the transition period from ____________ to ______________
Commission file number 0-27208
SIMON TRANSPORTATION SERVICES INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0545608
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
5175 West 2100 South
West Valley City, Utah 84120
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 801/924-7000
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: $0.01 Par Value
Class A Common Stock
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $19,952,788 as of November 30, 1999 (based upon the $5.75 per
share closing price on that date as reported by NASDAQ). In making this
calculation the registrant has assumed, without admitting for any purpose, that
all executive officers, directors, and holders of more than 5% of a class of
outstanding common stock, and no other persons, are affiliates.
As of November 30, 1999, the registrant had 5,196,358 shares of Class A Common
Stock and 913,751 shares of Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III,
Items 10, 11, 12, and 13 of this Report is incorporated by reference from the
registrant's definitive proxy statement for the 1999 annual meeting of
stockholders or an amendment hereto that will be filed no later than January 28,
2000.
<PAGE>
Cross Reference Index
The following cross reference index indicates the document and location of the
information contained herein and incorporated by reference into the Form 10-K.
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Document and Location
Part I
Item 1 Business Pages 3 - 8 herein
Item 2 Properties Page 9 herein
Item 3 Legal Proceedings Page 9 herein
Item 4 Submission of Matters to a Vote of Security Holders Page 9 herein
Part II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters Page 10 herein
Item 6 Selected Financial and Operating Data Page 11 herein
Item 7 Management's Discussion and Analysis of Financial Pages 12 - 20 herein
Condition and Results of Operations
Item 8 Financial Statements and Supplementary Data Page 20 herein
Item 9 Changes in and Disagreements with Accountants on Page 21 herein
Accounting and Financial Disclosure
Part III
Item 10 Directors and Executive Officers of the Registrant Pages 2, 3 and 7 of Proxy Statement
Item 11 Executive Compensation Pages 5 and 6 of Proxy Statement
Item 12 Security Ownership of Certain Beneficial Owners and Page 9 of Proxy Statement
Management
Item 13 Certain Relationships and Related Transactions Page 4 of Proxy Statement
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Pages 22 - 37 herein
Form 8-K
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This report contains "forward-looking" statements in paragraphs marked with an
asterisk. These statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those anticipated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Cautionary Statement Regarding Forward-Looking Statements" for
additional information and factors to be considered concerning forward-looking
statements.
<PAGE>
PART I
Item 1: BUSINESS
The Company
Simon Transportation is a truckload carrier that specializes in
temperature-controlled transportation services for major shippers in the food
industry. Richard D. Simon founded the Company with one truck in 1955. Today
Simon Transportation operates nationwide and in eight Canadian provinces from
its strategically located headquarters in Salt Lake City, Utah, and terminals in
Phoenix, Arizona; Fontana, California; Atlanta, Georgia; and Katy, Texas.
Simon Transportation Services Inc., a Nevada corporation, is a holding
company organized in 1995, the sole business of which is to own 100% of the
capital stock of Dick Simon Trucking, Inc., a Utah corporation. Dick Simon
Trucking, Inc. was incorporated in 1972 and had operated as a sole
proprietorship since 1955. Simon Transportation acquired all of the capital
stock of Dick Simon Trucking, Inc. contemporaneously with the November 17, 1995
effective date of the Company's initial public offering. Prior to such time,
Dick Simon Trucking, Inc. had elected to be taxed as an S corporation.
References to the "Company" herein refer to the consolidated operations of Simon
Transportation Services and Dick Simon Trucking. See "Selected Financial and
Operating Data", "Management's Discussion and Analysis of Financial Condition
and Results of Operations", and Consolidated Financial Statements.
Strategy
The Company has grown in recent years by adding revenue equipment to
meet the service demands of new and existing customers and expanding core
carrier partnerships. Management plans to continue the Company's growth by
capitalizing on the trend among shippers to place increased reliance on a
smaller number of financially stable, service-oriented truckload carriers. The
key elements of the Company's strategy are:
Food Industry Focus. Simon Transportation focuses on providing
specialized service to sophisticated, high-volume customers in the food industry
such as Albertson's, Campbell's Soup, Coca-Cola Foods, ConAgra, Kraft, Nestle,
North American Logistics, Pillsbury, and Procter & Gamble. These customers seek
nationwide transportation partners that understand the specialized needs of food
industry shippers. Many of the Company's customers seek carriers that offer
late-model equipment, experienced personnel, advanced technology, and broad
geographic coverage. Management believes the food industry is an attractive
niche because consumers require food throughout all economic cycles.(*)
Core Carrier Partnerships. Simon Transportation has grown by
establishing core carrier partnerships with high-volume, service sensitive
shippers. Core carriers provide customers with consistent equipment availability
and premium service such as time-definite pick-up and delivery, express
time-in-transit, multiple delivery stops, and real-time access to load
information through satellite-based tracking and communication systems and EDI
capability. The Company also meets specialized customer requests for access to
terminal facilities, stationing employees at customer locations, and dedicating
equipment to specific traffic lanes. Management believes major shippers favor
their core carrier "partners" during periods of reduced demand for truck
service, and that the trend among major shippers to reduce the number of
carriers used in favor of core carriers will continue.(*)
Dedicated Fleets. Simon Transportation emphasizes dedicated fleet
operations in which it offers round trip or continuous movement service to a
shipper (or a shipper and one or more of its suppliers) by dedicating certain
tractors and trailers exclusively to that shipper's needs. Dedicated service is
desirable because the customers typically pay a round-trip rate per mile
assuming that the truck will return empty and cover all loading, unloading, and
pallet costs. The Company frequently is able to further enhance revenue per mile
by locating a profitable load to cover unloaded segments. In addition, drivers
prefer the predictable runs and priority treatment at shipping and receiving
_________________________________
(*) "Forward-looking" statements.
<PAGE>
locations. Management intends to aggressively grow its dedicated fleet
operations and expects this service niche to expand as shippers outsource
transportation needs presently served by private carriage.(*)
Modern Fleet. Simon Transportation intends to maintain modern tractor
and trailer fleets. Reliable, late-model equipment promotes customer service and
driver recruitment and retention by minimizing the delays caused by breakdowns
and excessive maintenance. In addition, management believes that a practice of
replacing tractors while under warranty will reduce expenses and permit the
Company to take advantage of improvements in fuel economy and equipment
technology.(*)
Technology. Simon Transportation uses the Qualcomm satellite-based
tracking and communication system in all of its tractors. This system and EDI
capability improve customer service and operating efficiency by offering the
Company and customers real time access to load locations and advance warning of
potential delivery delays. The Company's document imaging system allows prompt
and simultaneous processing of payroll and billing in a paperless work
environment. The Company's load optimization software has been implemented and
is constantly updated to enhance service and profitability. Management believes
shippers will continue to demand advanced technology of their core carriers and
plans to respond to such requirements. (*)
Operations
The Company conducts a centralized dispatch and customer service
operation at its Salt Lake City headquarters. The operations center features a
fully-integrated, computerized network of dispatch, customer service, and driver
liaison personnel. Customer service representatives solicit and accept freight,
quote rates, and serve as the primary contact with customers. After accepting a
load, customer service representatives transfer the pick-up and delivery
information to the computer screen of the appropriate load planner, who assigns
the load to an available driver based upon the proximity of the trucks,
scheduled "home time," and available hours-in-service. Dispatchers then use the
Qualcomm satellite-based tracking and communication system to locate the
position and availability status of equipment and notify the driver of pick-up
and delivery requirements, route and fueling instructions, and other
information. Upon the assignment of a load, the Company's proprietary software
calculates the projected travel time from origin to destination and uses
satellite position updates and driver communications to provide load progress
reports at thirty-minute intervals. The system automatically advises the
appropriate dispatcher and customer service representative if a load is behind
schedule, and customers are able to use EDI to access information about load
locations at any time. Management believes that these satellite and computer
systems are crucial to satisfying the stringent service standards, such as
30-minute pick-up and delivery windows, demanded by shippers of their core
carriers.
Management measures the Company's efficiency through miles per tractor,
empty miles percentage, revenue per mile, and revenue per tractor. Fleet
productivity is tracked daily in the operations center, with actual progress
matched against a monthly goal. All operations personnel have access to these
statistics on a real time basis, and all participate in a cash bonus program for
achieving certain fleetwide levels of miles per tractor per month, driver
turnover, and revenue per mile.
Customers and Marketing
The Company's sales and marketing function is led by senior management
and other sales professionals based in its Salt Lake City headquarters and near
key customers. These sales personnel aggressively market Simon Transportation to
food industry shippers as a customer-oriented provider of dependable, on-time
service. The Company targets customers that seek financially stable, long-term
transportation partners offering dependable equipment, satellite and EDI
technologies, and premium service. This customer service philosophy has
contributed to continuing demands for added equipment to expand service for
existing shippers and establishing core carrier relationships with Albertson's,
Campbell's Soup, Coca-Cola Foods, ConAgra, Kraft, Nestle, North American
Logistics, Pillsbury, Procter & Gamble, and other major customers. Management
_________________________________
(*) "Forward-looking" statements.
<PAGE>
intends to continue developing business with existing customers and attempting
to add new core carrier relationships. The Company's top 5, 10, and 25 customers
accounted for 29.2%, 41.2%, and 58.9% of revenue, respectively, during fiscal
1999, with Nestle (including Nestle's Stouffer's and Friskie's units) accounting
for 10.6% of revenue. No other customer accounted for more than 10% of revenue
during the fiscal year.
Simon Transportation is a North American truck line that provides
service to and from customer locations throughout the United States, in several
Canadian provinces and Mexico. The Company does not maintain any foreign
currency positions and therefore does not engage in any hedging transactions to
manage foreign currency exposure. The Company's operations are strongest in the
western United States and between points in the West to and from points in the
East and Southeast. In addition to traditional for-hire service, management
emphasizes the marketing of dedicated fleet and regional distribution services.
Dedicated fleets generally receive compensation for all miles, and regional
operations provide a stronger presence for driver recruiting. Management
believes that these services offer consistent equipment utilization and
predictable home-time for drivers.
The Company has written contracts with substantially all of its
customers. These contracts generally specify service standards and rates,
eliminating the need for negotiating the rate for individual shipments. Although
a contract typically runs for a specified term of at least one year, it
generally may be terminated by either party upon 30 days' notice.
Technology
The Company uses computer and satellite technology to enhance
efficiency and customer service in all aspects of its operations, and management
believes the Company is among the industry leaders in applying advanced
technology to improve transportation service. The Qualcomm OmniTRACSTM
satellite-based tracking and communication system provides hourly updates of the
position of each tractor and permits real time communication between operations
personnel and every driver. As a result, dispatchers relay pick-up and delivery
times, weather and road information, route and fueling directions, and other
instructions without waiting for a driver to stop and call the Company. The
Company's entire fleet has been equipped with the Qualcomm systems since 1992,
making it the thirteenth carrier in the nation to install the units in 100% of
its tractors. The Company's proprietary software also monitors load progress
against projected delivery time every half-hour and warns the appropriate
dispatcher and customer service representative if a load is behind schedule.
This software also facilitates early routing toward each driver's home base by
signaling dispatchers several days in advance of drivers' requested home-time
dates.
The Company's EDI capability permits customers to communicate directly
via computer link to tender loads, receive load confirmation, check load status,
and receive billing information. The Company's largest customers require EDI
service from their core carriers, and more than 50% of the Company's revenue is
generated by customers that actively use EDI. EDI not only improves customer
service and communication, but also benefits the Company's cash flow through
accelerated receivable collection. The Company further enhances its operations
through its document imaging technology, which provides customer service
representatives and other personnel (all of whom have computers) real-time
access to freight bills, supplier invoices, and other information. Management
believes that advanced technology will be required by an increasing number of
large shippers as they reduce the number of carriers they use in favor of core
carriers.
The Company has designed a load optimization software program that
allows customer service representatives to quote rates by automatically
computing the range of acceptable rates between any two points, based upon the
rates for all Simon Transportation loads in and out of the applicable region
during the past year and the need for pallets, multiple stops, and other
additional charges. The system then prioritizes the loads and identifies the
optimal tractor to accept a load, based upon location, empty miles required,
revenue per mile, remaining driver hours-in-service, maintenance scheduling,
driver home time, and other factors.
<PAGE>
The Company's maintenance shops are fully computerized and paperless,
and all maintenance, repair, and inspection records for each vehicle are
instantly accessible. Drivers are able to monitor maintenance progress on
computer screens located in the driver lounge.
Year 2000 Compliance
The Company has completed a review of each of its core systems to
determine year 2000 compliance. The Company's billing, dispatch, EDI, fueling,
payroll, telephone, vehicle maintenance, and yard and equipment inventory
systems and all other critical hardware and software systems were designed to be
year 2000 compliant from inception. The Company has also completed its review
and assessment of the year 2000 compliance status of its facilities and
equipment. All facilities and systems are year 2000 compliant with the possible
exception of some older personal computers. These computers do not perform date
critical job functions. The Company will continue to replace these units during
the normal course of business.(*)
In April 1999, the Company installed a new mainframe to handle its core
operating systems. The Company acquired the new computer as part of its normal
course of business. The prior machine continues to serve as a backup system.
Both computers, peripherals and all operating software have been extensively
tested by Company personnel and we believe all are year 2000 compliant.(*)
The Company relies on Qualcomm to provide the satellite tracking system
necessary to track the location of its equipment, and to provide dispatch and
routing information to its drivers. The Company has been informed that the
software utilized by Qualcomm and the Company is fully year 2000 compliant. The
Company utilizes Comdata to transmit payroll funds to its drivers and to allow
drivers to purchase fuel outside of the Company's terminal locations. The
Company has been informed that the software and systems utilized by Comdata and
the Company is fully year 2000 compliant. The Company also interacts with many
of its vendors through electronic data interchange (EDI). The Company has
received written assurances from its significant vendors and customers
representing approximately 70% of its fiscal 1999 revenue that they will be year
2000 compliant. Although the Company is year 2000 compliant in its EDI
applications, we cannot and do not guarantee the year 2000 compliance of our
business partners' systems.(*)
The Company has incurred internal staff costs necessary to review and
further year 2000 compliance of its core operating systems. Because the systems
were designed to be year 2000 compliant since inception, the costs have not had
a material effect on the Company's financial position or results of operations.
The Company also incurred additional internal staff time to complete its
compliance review of non-core systems embedded in facilities and equipment.
These non-core systems include microcontrollers contained in tractor engines and
other components, refrigeration units, and terminal facilities. The costs of
such review were not incremental since they represented the redeployment of
existing information technology resources.(*)
The Company believes that the most likely worse case scenario is the
failure of some third party provided services. The Company anticipates that the
risks related to its core and non-core systems will be mitigated by ongoing
assessment and correction of the systems. The primary risk to operations is
service disruption from third-party providers that supply satellite
communication, telephone, fueling and financial services. Any disruption of
these critical services would hinder the Company's ability to receive, process
and track its freight or communicate with its customers and drivers.(*)
A failure of the satellite communication system could have a materially
adverse effect on the Company's business and results of operations. The Company
is relying on the contingency plan established by Qualcomm to prevent the
interruption of business. As an additional backup, the Company plans to use its
existing telephone systems to dispatch its equipment and provide support to its
drivers in the event of a complete satellite system failure. In the event of EDI
failures on the part of our customers, the Company plans to use its telephone
and facsimile system to receive load tenders from its customers. The Company
would switch to paper invoices for its customers unable to use EDI. Management
_________________________________
(*) "Forward-looking" statements.
<PAGE>
believes that the Company's current state of readiness, the nature of the
Company's business, and the availability of the contingency plans minimizes year
2000 risks. Management does not foresee significant liability to third parties
if the Company's systems are not year 2000 compliant.(*)
Revenue Equipment
Simon Transportation's equipment strategy is to operate modern tractors
and trailers that help reduce parts, maintenance, and fuel costs, promote the
reliable service customers demand from core carriers, and attract and retain
drivers. The Company operates conventional tractors (engine-forward) equipped
with electronic engines and Eaton transmissions. Most of the tractors are
covered by three-year, 500,000-mile engine warranties and lifetime transmission
warranties. Most of the tractors also are equipped with the "condo" sleeper cabs
preferred by drivers. The Company's practice is to trade or replace its tractors
on a three-year cycle, and to trade or replace its trailers on a five-year
cycle.
Drivers and Other Personnel
Driver hiring and retention are critical to the success of all trucking
companies. Simon Transportation emphasizes driver satisfaction and has made
significant investments to improve its drivers' employment experience. Drivers
are selected in accordance with specific Company quality guidelines relating
primarily to safety history, driving experience, road test evaluations, and
other personnel evaluations, including physical examinations and mandatory drug
testing. The Company offers competitive compensation, including mileage pay, and
full participation in all employee benefit and profit-sharing plans. The Company
uses proprietary software to warn dispatchers in advance of a driver's requested
home time. Management believes it has promoted driver loyalty by assigning
drivers to a single dispatcher, regardless of geographic area, awarding
dedicated routes and regional distribution positions to senior, top-performing
drivers, and educating customers concerning the need to treat drivers with
respect.
The truckload industry has experienced a shortage of qualified drivers.
Strict DOT enforcement of hours-in-service limitations, mandatory drug and
alcohol testing, and other safety measures have shrunk the available pool of
drivers and increased the cost of recruiting and retention. The industry-wide
driver shortage adversely affected the Company's operations during the 1999
fiscal year resulting in an unusually high number of tractors without drivers.
The Company's driver turnover was 110% in fiscal 1999, measuring drivers after
they are assigned a tractor.
At September 30, 1999, Simon Transportation employed approximately 450
non-driver employees and approximately 1,850 drivers. The Company's employees
have never been represented by or attempted to organize a union, and management
believes it has a good relationship with the Company's employees.
Safety and Insurance
Simon Transportation emphasizes safety in all aspects of its
operations. Its safety program includes: (i) initial orientation; (ii) a
three-week to six-week, on-the-road training program; and (iii) progressive
penalties for excessive speed and log violations. The Company has earned the
highest DOT safety and fitness rating of "satisfactory," which most recently was
extended on November 1, 1999.
The Company carries primary and excess liability insurance coverage of
$50 million, with a $250,000 basket deductible for personal injury and property
damage. The Company's workers' compensation coverage also carries a $100,000
deductible, with no coverage limit. Management believes these coverages are
adequate to cover reasonably anticipated claims.
_________________________________
(*) "Forward-looking" statements.
<PAGE>
Competition
The truckload segment of the trucking industry is highly competitive
and fragmented, and no carrier or group of carriers dominates the
temperature-controlled or dry van market. According to the September 1999 issue
of Refrigerated Transporter, the five largest temperature-controlled carriers by
revenue are C. R. England, Frozen Food Express Industries, Rocor International,
Prime, Inc., and KLLM Transport Services. The combined revenue reported for
these five carriers comprises approximately 38% of the estimated $4.3 billion
for-hire, temperature-controlled market. The proprietary fleet portion of the
temperature-controlled market has been estimated at an additional $3 billion.
The Company's 1999 fiscal year revenue constituted approximately three percent
of the total market for temperature-controlled services and approximately five
percent of the for-hire market. The Company competes with a number of other
trucking companies, as well as private truck fleets used by shippers to
transport their own products. The Company competes to a limited extent with rail
and rail-truck intermodal service, but attempts to limit this competition by
seeking service-sensitive freight. There are other trucking companies, including
diversified carriers with large temperature-controlled fleets, possessing
substantially greater financial resources and operating more equipment than the
Company.
Fuel Availability and Cost
The Company actively manages its fuel costs by requiring drivers to
fuel at Company terminals or, whenever possible en route, at service centers
with which the Company has established volume purchasing arrangements. The
Company controls fuel purchases by using its proprietary software and Qualcomm
communications ability to schedule fueling stops and amounts purchased based
upon fuel prices at locations on drivers' routes. The Company historically has
been able to pass through most increases in fuel prices and taxes to customers
in the form of higher rates or fuel surcharges. The Company has fuel surcharge
agreements with a majority of its customers. However, the recent increases in
fuel prices will not be fully offset by these surcharges.
Regulation
The Company is a common and contract motor carrier of general
commodities. Historically, the Interstate Commerce Commission (the "ICC") and
various state agencies regulated motor carriers' operating rights, accounting
systems, mergers and acquisitions, periodic financial reporting, and other
matters. In 1995, federal legislation preempted state regulation of prices,
routes, and services of motor carriers and eliminated the ICC. Several ICC
functions were transferred to the Department of Transportation (the "DOT").
Management does not believe that regulation by the DOT or by the states in their
remaining areas of authority will have a material effect on the Company's
operations. The Company's employee and independent contractor drivers also must
comply with the safety and fitness regulations promulgated by the DOT, including
those relating to drug and alcohol testing and hours of service.
The Company's operations are subject to various federal, state, and
local environmental laws and regulations, implemented principally by the EPA and
similar state regulatory agencies, governing the management of hazardous wastes,
other discharge of pollutants into the air and surface and underground waters,
and the disposal of certain substances. These regulations extend to the above
ground and underground fuel storage tanks located at each of the Company's
terminal facilities. All of the Company's tanks are of double hull construction
in accordance with EPA requirements and equipped with monitoring devices which
constantly monitor for leakage. Management is not aware of any fuel spills or
hazardous substance contamination on its properties and believes that its
operations are in material compliance with current laws and regulations.
<PAGE>
Item 2. PROPERTIES
Simon Transportation operates terminals and driver recruitment offices
at five locations. The Company's headquarters and primary terminal is located on
fifty-five acres near the intersection of Interstates 15 and 80 in Salt Lake
City, Utah. This facility includes a 60,000 square foot office building housing
all operations and administrative personnel and maintenance facilities and a
driver center covering approximately 97,000 square feet. The Company's
additional terminal and driver recruitment facilities include owned locations in
Phoenix, Arizona; Fontana, California; and Atlanta, Georgia; and a leased
location in Katy, Texas. The Company leases trailer drop yards at Tulare,
California and various customer locations. All terminals have modern fuel
facilities with environmental monitoring equipment.
The available acreage at the Company's headquarters will accommodate
future expansion, and the facility has been designed so that additions can be
constructed to serve the Company's foreseeable future needs. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity."
Item 3. LEGAL PROCEEDINGS
The Company and certain of its officers and directors have been named
as defendants in a securities class action filed in the United States District
Court for the District of Utah, Caprin v. Simon Transportation Services, Inc.,
et al., No. 2:98CV 863K (filed December 3, 1998). Plaintiffs in this action
allege that defendants made material misrepresentations and omissions during the
period February 13, 1997 through April 2, 1998 in violation of Sections 11,
12(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The
Company intends to vigorously defend this action.
The Company from time to time is a party to litigation arising in the
ordinary course of its business, substantially all of which involves claims for
personal injury and property damage incurred in the transportation of freight.
Management is not aware of any claims or threatened claims that reasonably would
be expected to exceed insurance limits or have a materially adverse effect upon
the Company's operations or financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended September 30, 1999,
no matters were submitted to a vote of security holders.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock. The Company's Class A Common Stock is
traded on the NASDAQ National Market under the NASDAQ symbol SIMN. The following
table sets forth for the calendar periods indicated the range of high and low
bid quotations for the Company's Class A Common Stock as reported by NASDAQ for
the fiscal years ended September 30, 1998 and 1999.
Period High Low
- ---------------------------- ------------- -------------
Calendar Year 1997
4th Quarter $ 24 3/4 $ 21 3/4
Calendar Year 1998
1st Quarter $ 24 $ 13 3/8
2nd Quarter $ 15 5/8 $ 6 3/8
3rd Quarter $ 6 7/8 $ 4 7/8
4th Quarter $ 6 13/16 $ 4 3/8
Calendar Year 1999
1st Quarter $ 7 1/2 $ 4 11/16
2nd Quarter $ 6 1/2 $ 4 1/2
3rd Quarter $ 5 3/4 $ 4
The prices reported reflect interdealer quotations without retail
mark-ups, mark-downs or commissions, and may not represent actual transactions.
As of October 31, 1999, the Company had 177 stockholders of record of its common
stock. However, the Company believes that it has approximately 1,500 beneficial
holders of common stock including shares held of record by brokers or dealers
for their customers in street names.
Dividend Policy. The Company has never declared and paid a cash
dividend on its common stock. It is the current intention of the Company's Board
of Directors to continue to retain earnings to finance the growth of the
Company's business rather than to pay dividends. Future payments of cash
dividends will depend upon the financial condition, results of operations and
capital commitments of the Company, restrictions under then-existing agreements,
and other factors deemed relevant by the Board of Directors.
<PAGE>
Item 6. SELECTED FINANCIAL AND OPERATING DATA
The selected consolidated financial data presented below reflect the
consolidated financial position and results of operations of Simon
Transportation Services Inc. and its subsidiary. The selected consolidated
financial data are derived from the Company's consolidated financial statements
and should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's consolidated
financial statements and notes thereto included elsewhere herein.
<TABLE>
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Fiscal Years Ended September 30,
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<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts & operating 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
data)
Statement of Operations Data:
Operating revenue................................. $ 209,143 $ 193,507 $ 155,296 $ 101,090 $ 75,218
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Operating expenses:
Salaries, wages, and benefits................... 90,876 80,500 60,504 40,015 28,035
Fuel and fuel taxes............................. 37,262 35,281 30,069 20,359 14,115
Operating supplies and expenses................. 27,872 26,156 19,289 13,701 10,839
Taxes and licenses.............................. 7,319 6,557 5,197 3,288 2,756
Insurance and claims............................ 6,591 5,217 3,404 2,172 2,003
Communications and utilities.................... 4,239 3,946 2,550 1,680 1,245
Depreciation and amortization................... 4,466 4,728 5,396 5,920 7,223
Rent............................................ 34,363 28,987 17,143 4,794 2,926
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Total operating expenses...................... 212,988 191,372 143,552 91,929 69,142
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Operating earnings (loss)..................... (3,845) 2,135 11,744 9,161 6,076
Gain on sale of real property..................... -- -- 1,896 -- --
Interest expense and other, net................... (1,353) (1,500) (1,134) (2,758) (3,527)
--------------------------------------------------------------
Earnings (loss) before provision for income taxes. (5,198) 635 12,506 6,403 2,549
Provision (benefit) for income taxes 1............ (1,965) 297 4,727 5,454 --
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Net earnings (loss)............................... $ (3,233) $ 338 $ 7,779 $ 949 $ 2,549
==============================================================
Pro Forma Statement of Earnings Data: 1
Earnings (loss) before provision for income taxes. $ (5,198) $ 635 $ 12,506 $ 6,403 $ 2,549
Provision (benefit) for income taxes.............. (1,965) 297 4,727 2,536 1,010
--------------------------------------------------------------
Net earnings (loss)............................... $ (3,233) $ 338 $ 7,779 $ 3,867 $ 1,539
==============================================================
Diluted net earnings (loss) per common share...... $ (0.53) $ 0.05 $ 1.33 $ 0.87 $ 0.67
==============================================================
Diluted weighted average shares outstanding....... 6,116,815 6,270,734 5,864,043 4,464,837 2,300,000
==============================================================
Balance Sheet Data (at end of period):
Net property and equipment........................ $ 57,648 $ 64,618 $ 71,154 $ 56,714 $ 52,200
Total assets...................................... 96,730 99,526 107,704 78,223 61,437
Long-term debt and capitalized
leases, including current portion............... 21,623 21,206 32,791 37,428 47,903
Stockholders' equity.............................. 55,944 59,699 59,849 29,103 9,033
Operating Data:
Operating ratio 2................................. 101.8% 98.9% 92.4% 90.9% 91.9%
Average revenue per loaded mile................... $ 1.26 $ 1.25 $ 1.25 $ 1.24 $ 1.26
Average revenue per total mile.................... $ 1.11 $ 1.11 $ 1.10 $ 1.10 $ 1.11
Average revenue per tractor per week.............. $ 2,478 $ 2,510 $ 2,627 $ 2,526 $ 2,417
Empty miles percentage............................ 12.0% 11.8% 11.9% 11.7% 11.3%
Average length of haul in miles................... 1,017 1,026 1,001 984 949
Weighted average tractors during period........... 1,635 1,494 1,142 774 598
Tractors at end of period......................... 1,693 1,655 1,344 940 623
Trailers at end of period......................... 2,424 2,455 1,998 1,430 877
<FN>
1 The Company was treated as an S Corporation for federal and state income
tax purposes from October 1, 1990 to November 16, 1995. As a result, the
Company's taxable earnings for such period were taxed for federal and state
income tax purposes directly to the Company's then-existing stockholders.
The pro forma statement of earnings data give effect to an adjustment for a
provision for federal and state income taxes as if the Company had been
treated as a C Corporation during such period. The pro forma statement of
operations data do not give effect to the one-time, non-cash charge of
$2,980,115 in recognition of deferred income taxes that resulted from the
termination of the Company's S Corporation status. The provision for
income taxes for fiscal 1996 includes the one-time, non-cash charge of
$2,980,115.
2 Operating expenses as a percentage of revenue.
</FN>
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Simon Transportation provides nationwide, predominantly
temperature-controlled truckload transportation for numerous major shippers. In
recent years, much of the Company's growth has resulted from earning core
carrier status with major shippers and meeting the demands of these shippers for
additional equipment. The Company has grown to $209.1 million in revenue for its
fiscal year ended September 30, 1999, from $75.2 million in revenue for fiscal
1995, a compounded annual growth rate of 29.1%. From fiscal 1995 through fiscal
1997, the Company's pretax earnings grew to $12.5 million from $2.5 million, a
compounded annual growth rate of 123.6%. The increase in pretax earnings was
attributable primarily to revenue growth, greater equipment productivity, and
the reduction in financing costs attributable to public offerings in 1995 and
1997.
During fiscal 1998, the Company continued its strong revenue growth,
with revenue increasing approximately 25%. Pretax earnings decreased
substantially, however, as the Company experienced financial and operating
difficulties. For much of the year the industry-wide driver shortage contributed
to a substantial number of unseated tractors. To address this problem, the
Company raised driver wages by a total of four cents per mile. Although
management believes the higher wages have made the Company more competitive in
attracting and retaining drivers, the combination of unproductive equipment and
higher wages adversely affected the Company's profitability. The Company's
financial results also were affected by unusually high accident claims and
repair expense during the second fiscal quarter.
During fiscal year 1999, management deferred deliveries of new tractors
to better match the anticipated availability of drivers. This reduced revenue
growth for the year to 8% compared with historical levels. The Company continued
to experience financial and operating difficulties due to driver turnover rates
far in excess of historical averages and the fact that driver pay increases
effective in fiscal 1998 have not been offset by increases in the freight rates
charged by the Company. Management is focusing its efforts on reducing the rate
of driver turnover. In July 1999 the Company reduced its shop and administrative
personnel by approximately 25%.(*)
In comparing the Company's historical financial position and results of
operations, readers should be aware of changes in financing methods. During
fiscal year 1995, the Company financed most of its tractors and trailers with
debt and capitalized leases. During fiscal years 1996, 1997, 1998 and 1999, the
Company has financed most of its revenue equipment under operating lease
arrangements. Financing equipment with operating leases increases the Company's
operating ratio because the implied interest component of the lease payments is
reflected as an "above-the-line" operating expense rather than as interest
expense. The use of operating leases also affects the presentation of the
Statement of Cash Flows. However, the method of financing does not affect net
earnings or net cash flows. The Company's operating ratio may fluctuate from
time-to-time based upon the method of equipment financing.
The Company operated as an S corporation from October 1, 1990 to
November 16, 1995. As a result, the Company's net taxable earnings were taxed
directly to the Company's existing stockholders rather than to the Company. The
pro forma statement of earnings data included in the "Selected Financial and
Operating Data" set forth the Company's net earnings for such periods as if the
Company had been subject to federal and state income taxes at a combined
effective rate of 39.6% for fiscal years 1995 and 1996. In addition to the
ongoing income tax effect, the termination of the Company's S corporation status
resulted in a one-time, non-cash charge of approximately $3.0 million during
fiscal year 1996 in recognition of deferred income taxes.
<PAGE>
Results of Operations
The following table sets forth the percentage relationship of certain
items to operating revenue for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Years Ended
September 30,
----------------------------------
<S> <C> <C> <C>
1999 1998 1997
----------- ---------- ----------
Operating revenue.............................................................. 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages, and benefits................................................ 43.5 41.6 39.0
Fuel and fuel taxes.......................................................... 17.8 18.2 19.4
Operating supplies and expenses.............................................. 13.3 13.5 12.4
Taxes and licenses........................................................... 3.5 3.4 3.3
Insurance and claims......................................................... 3.2 2.7 2.2
Communications and utilities................................................. 2.0 2.0 1.6
Depreciation and amortization................................................ 2.1 2.4 3.5
Rent......................................................................... 16.4 15.0 11.0
----------- ---------- ----------
Total operating expenses.................................................... 101.8 98.9 92.4
----------- ---------- ----------
Operating earnings (loss)...................................................... (1.8) 1.1 7.6
Gain on sale of real property.................................................. -- -- 1.2
Interest expense and other, net................................................ (0.6) (0.8) (0.7)
----------- ---------- ----------
Earnings (loss) before income taxes............................................ (2.4) 0.3 8.1
Benefit (provision) for income taxes........................................... 0.9 (0.1) (3.1)
----------- ---------- ----------
Net earnings (loss)............................................................ (1.5)% 0.2% 5.0%
=========== ========== ==========
</TABLE>
Comparison of fiscal year ended September 30, 1999, with fiscal year ended
September 30, 1998.
Operating revenue increased $15.6 million (8.1%), to $209.1 million
during the 1999 fiscal year from $193.5 million during the 1998 fiscal year. The
increase in revenue was primarily attributable to a 9.4% increase in the
weighted average number of tractors, to 1,635 during the 1999 fiscal year from
1,494 during the 1998 fiscal year, and an increase in average revenue per loaded
mile to $1.26 during the 1999 fiscal year from $1.25 in the 1998 fiscal year.
This increase was partially offset by a decrease in the average revenue per
tractor per week to $2,478 during the 1999 fiscal year from $2,510 during the
1998 fiscal year due to slower than expected freight demand in the Company's
second fiscal quarter and a significant number of tractors without drivers
throughout much of the fiscal year, particularly the first and fourth quarters.
Salaries, wages and benefits increased $10.4 million (12.9%), to $90.9
million in the 1999 fiscal year from $80.5 million in the 1998 fiscal year. As a
percentage of revenue, salaries, wages, and benefits increased to 43.5% of
revenue during the 1999 fiscal year from 41.6% during the 1998 fiscal year.
The increase is primarily attributable to the full effect of the two-cent
per mile driver wage increases effective April 15, 1998, and excess non-driving
personnel during most of the 1999 fiscal year. In July 1999, the Company reduced
its shop and administrative personnel by approximately 25%. As a result,
management expects a decrease in salaries, wages and benefits as a percentage
of revenue in future periods.(*)
Fuel and fuel taxes increased $2.0 million (5.6%), to $37.3 million
in the 1999 fiscal year from $35.3 million in the 1998 fiscal year. As a
percentage of revenue, fuel and fuel taxes decreased to 17.8% of revenue during
the 1999 fiscal year from 18.2% during the 1998 fiscal year. The decrease
resulted principally from lower fuel prices in the first three quarters of
the 1999 fiscal year. A dramatic rise in fuel prices during the quarter ended
September 30, 1999, is expected to increase the Company's fuel costs as a
percentage of revenue in future periods.(*)
_________________________________
(*) "Forward-looking" statements.
<PAGE>
Operating supplies and expenses increased $1.7 million (6.6%), to $27.9
million in the 1999 fiscal year from $26.2 million in the 1998 fiscal year.
As a percentage of revenue, operating supplies and expenses decreased to
13.3% of revenue during the 1999 fiscal year from 13.5% during the 1998 fiscal
year. The decrease is primarily attributable to the Company's efforts to reduce
the amount spent on operating supplies and expenses.
Taxes and licenses increased $0.7 million (11.6%), to $7.3 million
in the 1999 fiscal year from $6.6 million in the 1998 fiscal year. As a
percentage of revenue, taxes and licenses remained essentially constant at 3.5%
of revenue during the 1999 fiscal year compared to 3.4% of revenue during the
1998 fiscal year.
Insurance and claims increased $1.4 million (26.3%), to $6.6 million
in the 1999 fiscal year from $5.2 million in the 1998 fiscal year. As a
percentage of revenue, insurance and claims increased to 3.2% of revenue
for the 1999 fiscal year compared to 2.7% during the 1998 fiscal year. The
increase was attributable to an increase in the number of accidents experienced
by the Company during the 1999 fiscal year.
Communications and utilities increased $0.3 million (7.4%), to $4.2
million in the 1999 fiscal year from $3.9 million in the 1997 fiscal year. As
a percentage of revenue, communications and utilities remained unchanged
at 2.0% of revenue during the 1999 and 1998 fiscal years.
Depreciation and amortization decreased $0.2 million (5.5%), to $4.5
million in the 1999 fiscal year from $4.7 million in the 1998 fiscal year. As a
percentage of revenue, depreciation and amortization (adjusted for the net gain
on sale of equipment) decreased to 2.1% of revenue during the 1999 fiscal year
from 2.4% during the 1998 fiscal year primarily because of a decrease in the
percentage of the Company's revenue equipment that was owned or acquired under
capitalized leases. Depreciation and amortization (unadjusted for the net gain
on sale of equipment) decreased to 3.2% of revenue ($6.6 million) during the
1999 fiscal year from 3.6% of revenue ($7.0 million) during the 1998 fiscal
year. Depreciation was adjusted for a $2.1 million net gain on the sale of
revenue equipment during the 1999 fiscal year compared with a $2.3 million net
gain during the 1998 fiscal year.
Rent increased $5.4 million (18.5%), to $34.4 million in the 1999
fiscal year from $29.0 million in the 1998 fiscal year. As a percentage of
revenue, rent increased to 16.4% of revenue during the 1999 fiscal year from
15.0% during the 1998 fiscal year as the Company added new equipment and
replaced equipment that had been financed under capital lease arrangements with
equipment financed under operating leases. Substantially all of the Company's
revenue equipment is financed through operating leases. In addition, the fixed
monthly rental payments were not as efficiently spread over lower revenue per
tractor. The Company has utilized operating leases in the most recent year
because of more favorable terms. If the Company continues to use operating
lease financing, its operating ratio may be affected in future periods because
the implied financing costs of such equipment are included as operating expenses
instead of as interest expense.
As a result of the foregoing, the Company's operating ratio increased
to 101.8% during the 1999 fiscal year from 98.9% during the 1998 fiscal year.
Interest expense and other, net decreased $0.1 million (9.8%), to $1.4
million in the 1999 fiscal year from $1.5 million in the 1998 fiscal year. As a
percentage of revenue, interest expense and other, net decreased slightly to
0.6% of revenue during the 1999 fiscal year compared with 0.8% during the 1998
fiscal year.
The Company's effective combined federal and state income tax rate for
the 1999 fiscal year was 37.8% compared to 46.8% for the 1998 fiscal year as a
result of the relative impact of non-deductible expenses in fiscal 1998. These
non-deductible expenses remained essentially constant during both the 1999 and
1998 fiscal years; however, the relative effect on the tax rate varies because
of the earnings experienced in the 1998 fiscal year versus the loss in the 1999
fiscal year.
As a result of the factors described above, net earnings decreased
$3.6 million to a loss of $3.2 million during the 1999 fiscal year from net
earnings of $338,000 during the 1998 fiscal year. As a percentage of revenue,
net loss was 1.5% of revenue in the 1999 fiscal year compared with net earnings
of 0.2% of revenue in the 1998 fiscal year.
<PAGE>
Comparison of fiscal year ended September 30, 1998, with fiscal year ended
September 30, 1997.
Operating revenue increased $38.2 million (24.6%), to $193.5 million
during the 1998 fiscal year from $155.3 million during the 1997 fiscal year. The
increase in revenue was primarily attributable to a 30.8% increase in the
weighted average number of tractors, to 1,494 during the 1998 fiscal year from
1,142 during the 1997 fiscal year. This increase was partially offset by a
decrease in the average revenue per tractor per week to $2,510 during the 1998
fiscal year from $2,627 during the 1997 fiscal year due to a substantial number
of tractors without drivers throughout most of the year. The Company's average
revenue per loaded mile remained constant at $1.25 during both the 1998 and 1997
fiscal years.
Salaries, wages and benefits increased $20.0 million (33.1%), to $80.5
million in the 1998 fiscal year from $60.5 million in the 1997 fiscal year. As a
percentage of revenue, salaries, wages, and benefits increased to 41.6% of
revenue during the 1998 fiscal year from 39.0% during the 1997 fiscal year.
The increase is primarily attributable to driver wage increases. In order to
remain competitive, the Company raised driver base pay two cents per mile
effective January 1, 1998 and an additional two cents per mile effective
April 15, 1998.
Fuel and fuel taxes increased $5.2 million (17.3%), to $35.3 million
in the 1998 fiscal year from $30.1 million in the 1997 fiscal year. As a
percentage of revenue, fuel and fuel taxes decreased to 18.2% of revenue during
the 1998 fiscal year from 19.4% during the 1997 fiscal year. The decrease
resulted principally from lower fuel prices in the 1998 fiscal year and an
overall increase in the fuel efficiency of the Company's fleet.
Operating supplies and expenses increased $6.9 million (35.8%), to
$26.2 million in the 1998 fiscal year from $19.3 million in the 1997 fiscal
year. As a percentage of revenue, operating supplies and expenses increased
to 13.5% of revenue during the 1998 fiscal year, from 12.4% during the 1997
fiscal year. The increase was attributable primarily to costs incurred during
the second fiscal quarter for accident repairs, preparing equipment for trade,
and completing work on and opening the Atlanta terminal.
Taxes and licenses increased $1.4 million (26.9%), to $6.6 million
in the 1998 fiscal year from $5.2 million in the 1997 fiscal year. As a
percentage of revenue, taxes and licenses remained essentially constant at
3.4% of revenue during the 1998 fiscal year compared to 3.3% of revenue during
the 1997 fiscal year.
Insurance and claims increased $1.8 million (52.9%), to $5.2 million
in the 1998 fiscal year from $3.4 million in the 1997 fiscal year. As a
percentage of revenue, insurance and claims increased to 2.7% of revenue for
the 1998 fiscal year compared to 2.2% during the 1997 fiscal year. Most of the
increase was attributable to an unusually high number of severe accidents
suffered during the second fiscal quarter. Insurance and claims returned to
2.2% of revenue during the fourth quarter.(*)
Communications and utilities increased $1.3 million (50.0%), to $3.9
million in the 1998 fiscal year from $2.6 million in the 1997 fiscal year. As a
percentage of revenue, communications and utilities increased to 2.0% of revenue
during the 1998 fiscal year from 1.6% of revenue during the 1997 fiscal year
primarily as a result of an access fee charged to the Company by the owners of
pay telephones based on calls to toll free numbers. In addition, the fixed costs
of utilities for the Company's terminals and costs associated with the usage of
the Company's satellite tracking system did not remain proportionate with the
decreased revenue per tractor.
Depreciation and amortization decreased $700,000 (13.0%), to $4.7
million in the 1998 fiscal year from $5.4 million in the 1997 fiscal year. As a
percentage of revenue, depreciation and amortization (adjusted for the net gain
on sale of equipment) decreased to 2.4% of revenue during the 1998 fiscal year
_________________________________
(*) "Forward-looking" statements.
<PAGE>
from 3.5% during the 1997 fiscal year primarily because of a decrease in the
percentage of the Company's revenue equipment that was owned or acquired under
capitalized leases. Depreciation and amortization (unadjusted for the net gain
on sale of equipment) decreased to 3.6% of revenue ($7.0 million) during the
1998 fiscal year from 4.5% of revenue ($7.0 million) during the 1997 fiscal
year. Depreciation was adjusted for a $2.3 million net gain on the sale of
revenue equipment during the 1998 fiscal year compared with a $1.6 million net
gain during the 1997 fiscal year.
Rent increased $11.9 million (69.6%), to $29.0 million in the 1998
fiscal year from $17.1 million in the 1997 fiscal year. As a percentage of
revenue, rent increased to 15.0% of revenue during the 1998 fiscal year from
11.0% during the 1997 fiscal year as the Company added new equipment and
replaced equipment that had been financed under capital lease arrangements
with equipment financed under operating leases. The Company utilized operating
leases during the 1998 fiscal year because of more favorable terms.
As a result of the foregoing, the Company's operating ratio increased
to 98.9% during the 1998 fiscal year from 92.4% during the 1997 fiscal year.
The Company realized a $1.9 million gain on the sale of its former
headquarters facilities during the 1997 fiscal year. This non-recurring
transaction increased earnings before provision for income taxes by 1.2% of
revenue during the 1997 period.
Interest expense and other, net increased $400,000 (36.4%), to $1.5
million in the 1998 fiscal year from $1.1 million in the 1997 fiscal year. As
a percentage of revenue, interest expense and other, net remained essentially
constant at 0.8% of revenue during the 1998 fiscal year compared with 0.7%
during the 1997 fiscal year.
The Company's effective combined federal and state income tax rate for
the 1998 fiscal year was 46.8% compared to 37.8% for the 1997 fiscal year as a
result of the relative impact of non-deductible expenses in fiscal 1998. These
non-deductible expenses remained essentially constant during both the 1998 and
1997 fiscal years; however, the relative effect on the tax rate is magnified
because of the lower earnings experienced in the 1998 fiscal year.
As a result of the factors described above, net earnings decreased $7.5
million (96.2%) to $338,000 during the 1998 fiscal year from $7.8 million ($6.6
million excluding the gain on the sale of the Company's former headquarters)
during the 1997 fiscal year. As a percentage of revenue, net earnings decreased
to 0.2% of revenue in the 1998 fiscal year from 5.0% (4.2% of revenue excluding
the gain on the sale of the Company's former headquarters) in the 1997 fiscal
year.
Liquidity and Capital Resources
The growth of the Company's business has required significant
investment in new revenue equipment that the Company historically has financed
with borrowings under installment notes payable to commercial lending
institutions and equipment manufacturers, equipment leases from third-party
lessors, borrowings under its line of credit, and cash flows from operations.
The Company's primary sources of liquidity are funds provided by operations and
borrowings and leases with financial institutions and equipment manufacturers.
During the 1999, 1998 and 1997 fiscal years, the Company financed most of its
tractors with operating leases.
Net cash (used in) provided by operating activities was ($1.6 million),
$4.2 million, and $7.9 million, for the fiscal years ended September 30, 1999,
1998, and 1997, respectively. The Company's principal use of cash from
operations is to service debt and leases incurred to purchase new revenue
equipment and internally finance accounts receivable associated with growth
in the business. Accounts receivable increased $2.6 million, $627,000, and
$6.4 million for the fiscal years ended September 30, 1999, 1998, and 1997,
respectively. The average age of the Company's accounts receivable was 39,
35, and 41 days for the fiscal years ended September 30, 1999, 1998, and
1997, respectively.
<PAGE>
Net cash provided by (used in) investing activities was $2.5 million,
$2.9 million, and ($19.0 million), for the fiscal years ended September 30,
1999, 1998, and 1997, respectively, and consisted of net purchases of property
and equipment. The Company expects capital expenditures (primarily for revenue
equipment and satellite communications units), net of revenue equipment
trade-ins, to be approximately $30.2 million in aggregate for fiscal years 2000
and 2001. The Company expects projected capital expenditures to be funded
mostly with operating leases, borrowings and cash flows from operations.(*)
.........Net cash (used in) provided by financing activities was ($0.1 million),
($12.1 million), and $18.3 million, for the fiscal years ended September 30,
1999, 1998, and 1997, respectively. Primary sources of cash were approximately
$23.0 million in net proceeds from the Company's February 1997 stock offering
and a $10 million borrowing on the Company's line-of-credit. Primary uses of
cash were net payments on borrowings of $9.5 million, $14.5 million, and $20.5
million of principal under the Company's long-term debt and capitalized lease
agreements for the fiscal years ended September 30, 1999, 1998, and 1997,
respectively. During fiscal year 1999, the Company purchased 95,500 shares of
Class A Common Stock at an average market price of $5.46 per share for a total
cash outlay of $522,000. The Company purchased 81,100 shares at an average
market price of $6.55 per share for a total cash outlay of $532,000 in fiscal
1998.
The maximum amount committed under the Company's line of credit at
September 30, 1999 was $20 million. As of September 30, 1999, the Company had
drawn $10 million against the line. The interest rate on the line of credit is
1.75 percent above the 30-day London Interbank Offered Rate ("LIBOR") in effect
from time-to-time. At September 30, 1999, the Company had other outstanding
long-term debt and capitalized lease obligations (including current portions) of
approximately $11.6 million, most of which comprised obligations for the
purchase of revenue equipment. As of September 30, 1999, the Company's future
commitments under noncancelable operating leases amounted to $57.7 million.
See Notes 4, 5 and 6 to Consolidated Financial Statements.
The Company's working capital at September 30, 1999, 1998, and 1997 was
$17.5 million, $14.9 million, and $15.9 million, respectively. Management
believes that available borrowings under the line of credit, future borrowings
under installment notes payable or lease arrangements for revenue equipment, and
cash flows generated from operations, will allow the Company to continue to meet
its working capital requirements, anticipated capital expenditures, and
obligations under debt and capitalized and operating leases at least through
fiscal year 2000.(*)
Inflation
Inflation has had a minimal effect upon the Company's profitability
in recent years. Most of the Company's operating expenses are inflation-
sensitive, with inflation generally producing increased costs of operation.
The Company expects that inflation will affect its costs no more than it
affects those of other truckload carriers.
Seasonality
The Company experiences some seasonal fluctuations in freight volume,
as shipments have historically decreased during the first calendar quarter. In
addition, the Company's operating expenses historically have been higher in
the winter months due to decreased fuel efficiency and increased maintenance
costs in colder weather.
_________________________________
(*) "Forward-looking" statements.
<PAGE>
Fuel Availability and Cost
The Company actively manages its fuel costs by requiring drivers
to fuel at Company terminals or, whenever possible en route, at service
centers with which the Company has established volume purchasing arrangements.
The Company controls fuel purchases by using its proprietary software and
Qualcomm communications ability to schedule fueling stops and amounts purchased
based upon fuel prices at locations on drivers' routes. The Company historically
has been able to pass through most increases in fuel prices and taxes to
customers in the form of higher rates and fuel surcharges. The Company has fuel
surcharge agreements with a majority of its customers. However, the recent
increases in fuel prices will not be fully offset by these surcharges.
Year 2000 Compliance
The Company has completed a review of each of its core systems to
determine year 2000 compliance. The Company's billing, dispatch, EDI, fueling,
payroll, telephone, vehicle maintenance, and yard and equipment inventory
systems and all other critical hardware and software systems were designed to
be year 2000 compliant from inception. The Company has also completed its
review and assessment of the year 2000 compliance status of its facilities and
equipment. All facilities and systems are year 2000 compliant with the possible
exception of some older personal computers. These computers do not perform
date critical job functions. The Company will continue to replace these units
during the normal course of business.(*)
In April 1999, the Company installed a new mainframe to handle its core
operating systems. The Company acquired the new computer as part of its normal
course of business. The prior machine continues to serve as a backup system.
Both computers, peripherals and all operating software have been extensively
tested by Company personnel and we believe all are year 2000 compliant.(*)
The Company relies on Qualcomm to provide the satellite tracking system
necessary to track the location of its equipment, and to provide dispatch and
routing information to its drivers. The Company has been informed that the
software utilized by Qualcomm and the Company is fully year 2000 compliant.
The Company utilizes Comdata to transmit payroll funds to its drivers and to
allow drivers to purchase fuel outside of the Company's terminal locations.
The Company has been informed that the software and systems utilized by Comdata
and the Company is fully year 2000 compliant. The Company also interacts with
many of its vendors through electronic data interchange (EDI). The Company has
received written assurances from its significant vendors and customers
representing approximately 70% of its fiscal 1999 revenue that they will be
year 2000 compliant. Although the Company is year 2000 compliant in its EDI
applications, we cannot and do not guarantee the year 2000 compliance of our
business partners' systems.(*)
The Company has incurred internal staff costs necessary to review and
further year 2000 compliance of its core operating systems. Because the systems
were designed to be year 2000 compliant since inception, the costs have not
had a material effect on the Company's financial position or results of
operations. The Company also incurred additional internal staff time to complete
its compliance review of non-core systems embedded in facilities and equipment.
These non-core systems include microcontrollers contained in tractor engines and
other components, refrigeration units, and terminal facilities. The costs of
such review were not incremental since they represented the redeployment of
existing information technology resources.(*)
The Company believes that the most likely worse case scenario is
the failure of some third party provided services. The Company anticipates
that the risks related to its core and non-core systems will be mitigated by
ongoing assessment and correction of the systems. The primary risk to
operations is service disruption from third-party providers that supply
satellite communication, telephone, fueling and financial services. Any
disruption of these critical services would hinder the Company's ability to
receive, process and track its freight or communicate with its customers and
drivers.(*)
_________________________________
(*) "Forward-looking" statements.
<PAGE>
A failure of the satellite communication system could have a materially
adverse effect on the Company's business and results of operations. The Company
is relying on the contingency plan established by Qualcomm to prevent the
interruption of business. As an additional backup, the Company plans to use its
existing telephone systems to dispatch its equipment and provide support to its
drivers in the event of a complete satellite system failure. In the event of
EDI failures on the part of our customers, the Company plans to use its
telephone and facsimile system to receive load tenders from its customers. The
Company would switch to paper invoices for its customers unable to use EDI.
Management believes that the Company's current state of readiness, the nature
of the Company's business, and the availability of the contingency plans
minimizes year 2000 risks. Management does not foresee significant liability to
third parties if the Company's systems are not year 2000 compliant.(*)
Cautionary Statement Regarding Forward-Looking Statements
The Company may from time-to-time make written or oral
forward-looking statements. Written forward-looking statements may appear in
documents filed with the Securities and Exchange Commission, in press releases,
and in reports to stockholders. The Private Securities Litigation Reform Act
of 1995 contains a safe harbor for forward-looking statements. The Company
relies on this safe harbor in making such disclosures. In connection with this
"safe harbor" provision, the Company is hereby identifying important factors
that could cause actual results to differ materially from those contained in
any forward-looking statement made by or on behalf of the Company. Factors that
might cause such a difference include, but are not limited to the following:
Economic Factors; Fuel Prices. Negative economic factors such as
recessions, downturns in customers' business cycles, surplus inventories,
inflation, and higher interest rates could impair the Company's operating
results by decreasing equipment utilization or increasing costs of operations.
Increases in fuel prices usually are not fully recoverable. Accordingly, high
fuel prices can have a negative impact on the Company's profitability.
Recruitment, Retention, and Compensation of Qualified Drivers.
Competition for drivers is intense in the trucking industry. There is, and
historically has been, an industry-wide shortage of qualified drivers. This
shortage could force the Company to significantly increase the compensation
it pays to drivers or curtail the Company's growth.
Resale of Used Revenue Equipment. The Company historically has
recognized a gain on the sale of its revenue equipment. The market for used
equipment has experienced greater supply than demand in 1998 and 1999.
If the resale value of the Company's revenue equipment were to decline,
the Company could find it necessary to dispose of its equipment at lower
prices or retain some of its equipment longer, with a resulting increase in
operating expenses.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks to which the Company is exposed are
fluctuation in fuel prices and interest rates on our debt financing.
We are not engaged in any fuel hedging transactions. Thus, we are
exposed to fluctuations in fuel prices but are not exposed to any market risk
involving hedging costs.
The principal market risks (i.e., the risk of loss arising from
adverse changes in market rates and prices) to which we are exposed are interest
rates on our debt financing. Our variable rate debt consists of a revolving
line of credit, an unsecured term loan and an equipment finance term loan
carrying interest rates tied to LIBOR or the Eurodollar rate. These variable
interest rates expose us to the risk that interest rates may rise. At September
30, 1999, assuming borrowing equal to the $10.0 million drawn on the line of
credit and $4.7 million on other outstanding variable rate loans, a one
_________________________________
(*) "Forward-looking" statements.
<PAGE>
percentage point increase in the LIBOR and Eurodollar rate would increase our
annual interest expense by approximately $147,000. The balance of our
equipment financing carries fixed interest rates and includes term notes
payable and capitalized leases totaling approximately $7.0 million. These
fixed interest rates expose us to the risk that interest rates may fall. A
one percentage point decline in interest rates would have the effect of
increasing the premium we pay over market interest rates by one percentage point
or approximately $70,000 annually.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's audited financial statements, including its consolidated
balance sheets and consolidated statements of operations, cash flows, and
stockholders' equity, and notes related thereto, are included at pages 24 to
36 of this report. The supplementary quarterly financial data for fiscal years
1999 and 1998 follows:
Quarterly Financial Data:
<TABLE>
<S> <C> <C> <C> <C>
Fourth Third Second First
Quarter Quarter Quarter Quarter
1999 1999 1999 1999
------------------ ---------------- ------------------- ----------------
Revenue $ 53,281 $ 53,599 $ 49,271 $ 52,992
Operating earnings (loss) (440) (1,058) (2,716) 369
Earnings (loss) before income taxes (782) (1,393) (3,097) 73
Provision (benefit) for income taxes (294) (527) (1,171) 27
Net earnings (loss) (486) (866) (1,926) 45
Diluted net earnings (loss) per share $ (0.08) $ (0.14) $ (0.32) $ 0.01
Fourth Third Second First
Quarter Quarter Quarter Quarter
1998 1998 1998 1998
------------------ ---------------- ------------------- ----------------
Revenue $ 50,296 $ 50,055 $ 46,149 $ 47,006
Operating earnings (loss) 945 (90) (2,105) 3,386
Earnings (loss) before income taxes 608 (435) (2,536) 2,997
Provision (benefit) for income taxes 286 (165) (959) 1,132
Net earnings (loss) 322 (270) (1,577) 1,864
Diluted net earnings (loss) per share $ 0.05 $ (0.04) $ (0.25) $ 0.29
</TABLE>
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No reports on Form 8-K have been filed within the twenty-four months
prior to September 30, 1999, involving a change of accountants or disagreements
on accounting and financial disclosure.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information respecting executive officers and directors set forth
under the captions "Election of Directors - Information Concerning Directors and
Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" on pages 2, 3, and 7 of Registrant's Proxy Statement for the 1999
annual meeting of stockholders, which will be filed with the Securities and
Exchange Commission in accordance with Rule 14a-6 promulgated under the
Securities Exchange Act of 1934, as amended (the "Proxy Statement"), is
incorporated by reference.
Item 11. EXECUTIVE COMPENSATION
The information respecting executive compensation set forth under the
caption "Executive Compensation" on pages 5 and 6 of the Proxy Statement is
incorporated herein by reference; provided, that the "Compensation Committee
Report on Executive Compensation" contained in the Proxy Statement is not
incorporated by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information respecting security ownership of certain beneficial
owners and management set forth under the caption "Security Ownership of
Principal Stockholders and Management" on page 9 of the Proxy Statement is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information respecting certain relationships and transactions of
management set forth under the captions "Compensation Committee Interlocks and
Insider Participation" and "Certain Transactions" on page 4 of the Proxy
Statement is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
The Company's audited financial statements are set forth at the following pages
of this report:
Page
Consolidated Statement of Financial Position.............................. 24
Consolidated Statement of Operations...................................... 25
Consolidated Statement of Stockholders' Equity............................ 26
Consolidated Statement of Cash Flows...................................... 27
Notes to Consolidated Financial Statements................................ 28
Report of Independent Public Accountants.................................. 37
2. Financial Statement Schedules.
Financial statement schedules are not required because all required information
is included in the financial statements.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter ended
September 30, 1999.
(c) Exhibits
Number Description
3.1 + Articles of Incorporation.
3.2 + Bylaws.
4.1 + Articles of Incorporation.
4.2 + Bylaws.
10.1 + Outside Director Stock Option Plan.
10.2 + Incentive Stock Plan.
10.3 + 401(k) Plan.
10.4 # Loan Agreement(Headquarters Loan) dated May 23, 1996 between U.S. Bank of
Utah and Dick Simon Trucking, Inc.
10.5 * Loan Agreement (Line of Credit) dated September 28, 1999 (replaced loan
agreement dated April 29, 1996) between U.S. Bank of Utah and Simon
Transportation Services Inc.
21 + List of subsidiaries.
23 * Consent of Arthur Andersen LLP, independent public accountants.
27 * Financial Data Schedule.
_______________________________
+ Filed as an exhibit to the registrant's Registration Statement on
Form S-1, Registration No. 33-96876, effective November 17, 1995, and
incorporated herein by reference.
# Filed as an exhibit to the registrant's Quarterly Report on Form 10-Q
for the period ended June 30, 1996, Commission File No. 0-27208, dated
August 9, 1996, and incorporated herein by reference.
* Filed herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SIMON TRANSPORATION SERVICES, INC.
Date: December 13, 1999 By: /s/ Alban B. Lang
----------------- -----------------
Alban B. Lang
Treasurer, Chief Operating Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Position Date
--------- -------- ----
/s/ Richard D. Simon Chairman of the Board, President, and Chief December 13, 1999
- --------------------------------------
Richard D. Simon Executive Officer (principal executive officer)
/s/ Alban B. Lang Treasurer, Chief Operating Officer and Chief December 13, 1999
- --------------------------------------
Alban B. Lang Financial Officer (principal financial and
accounting officer); Director
/s/ Kelle A. Simon Vice President of Maintenance; Director December 13, 1999
- --------------------------------------
Kelle A. Simon
/s/ A. Lyn Simon Vice President of Sales and Marketing; Director December 13, 1999
- --------------------------------------
A. Lyn Simon
/s/ Richard D. Simon, Jr. Vice President of Operations; Director December 13, 1999
- --------------------------------------
Richard D. Simon, Jr.
/s/ Sherry L. Bokovoy Assistant Secretary/Treasurer; Director December 13, 1999
- --------------------------------------
Sherry L. Bokovoy
/s/ Irene Warr Director December 13, 1999
- --------------------------------------
Irene Warr
</TABLE>
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
ASSETS
September 30,
----------------------------------
<S> <C> <C>
1999 1998
----------------------------------
Current Assets:
Cash $ 8,658,268 $ 7,826,365
Receivables, net of allowance for doubtful accounts
of $285,000 and $189,000, respectively 22,862,685 20,250,931
Operating supplies 1,468,216 1,069,095
Income taxes receivable 1,656,338 2,593,105
Prepaid expenses and other 2,643,993 2,181,980
Current deferred income tax asset 1,066,786 762,463
----------------------------------
Total current assets 38,356,286 34,683,939
----------------------------------
Property and Equipment, at cost:
Land 8,387,972 8,589,422
Revenue equipment 45,089,385 47,702,977
Buildings and improvements 18,484,326 18,350,370
Office furniture and equipment 8,889,433 8,573,389
----------------------------------
80,851,116 83,216,158
Less accumulated depreciation and amortization (23,203,536) (18,598,221)
----------------------------------
57,647,580 64,617,937
----------------------------------
Other Assets 726,140 867,121
----------------------------------
$ 96,730,006 $ 100,168,997
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 7,459,577 $ 7,627,142
Current portion of capitalized lease obligations 1,855,675 2,030,988
Accounts payable 6,108,118 5,015,049
Accrued liabilities 3,419,629 3,188,405
Accrued claims payable 1,970,336 1,904,125
----------------------------------
Total current liabilities 20,813,335 19,765,709
----------------------------------
Long-Term Debt, net of current portion 11,718,580 9,102,649
----------------------------------
Capitalized Lease Obligations, net of current portion 589,181 2,444,856
----------------------------------
Deferred Income Taxes Payable 7,665,063 9,156,843
----------------------------------
Commitments and Contingencies (Notes 2 and 6)
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued -- --
Class A common stock, $.01 par value, 20,000,000 shares authorized,
5,372,683 shares issued 53,727 53,727
Class B common stock, $.01 par value, 5,000,000 shares authorized, 913,751
shares issued 9,138 9,138
Additional paid-in capital 48,277,256 48,277,256
Treasury stock, 176,600 and 81,100 shares at cost (1,053,147) (531,547)
Retained earnings 8,656,873 11,890,366
----------------------------------
Total stockholders' equity 55,943,847 59,698,940
----------------------------------
$ 96,730,006 $ 100,168,997
==================================
<FN>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
</FN>
</TABLE>
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended September 30,
----------------------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
----------------------------------------------------------
Operating Revenue $209,143,336 $193,506,902 $155,296,354
----------------------------------------------------------
Operating Expenses:
Salaries, wages, and benefits 90,875,731 80,499,985 60,504,236
Fuel and fuel taxes 37,261,969 35,280,815 30,068,552
Operating supplies and expenses 27,872,046 26,155,797 19,288,560
Taxes and licenses 7,318,915 6,557,109 5,197,086
Insurance and claims 6,591,246 5,216,804 3,404,550
Communications and utilities 4,239,479 3,945,707 2,550,301
Depreciation and amortization 4,466,114 4,728,477 5,396,198
Rent 34,362,746 28,987,072 17,142,835
----------------------------------------------------------
Total operating expenses 212,988,246 191,371,766 143,552,318
----------------------------------------------------------
Operating earnings (loss) (3,844,910) 2,135,136 11,744,036
Other (Expense) Earnings:
Gain on sale of real property -- -- 1,896,025
Interest expense (1,471,426) (1,818,100) (1,761,939)
Other, net 117,794 317,644 627,769
----------------------------------------------------------
Earnings (loss) before income taxes (5,198,542) 634,680 12,505,891
Provision (benefit) for income taxes (1,965,049) 296,536 4,727,227
----------------------------------------------------------
Net Earnings (Loss) $ (3,233,493) $ 338,144 $ 7,778,664
==========================================================
Net earnings (loss) per common share
Basic $ (0.53) $ 0.05 $ 1.36
Diluted $ (0.53) $ 0.05 $ 1.33
==========================================================
Weighted average common shares outstanding
Basic 6,116,815 6,270,734 5,707,642
Diluted 6,116,815 6,270,734 5,864,043
==========================================================
<FN>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
</FN>
</TABLE>
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Class A Class B Additional Total
Common Common Paid-in Treasury Retained Stockholders'
Stock Stock Capital Stock Earnings Equity
-------------------------------------------------------------------------
Balance, September 30, 1996 $ 28,705 $ 18,722 $ 25,282,496 $ -- $ 3,773,558 $ 29,103,481
Sale of 1,535,000 shares 24,445 (9,095) 22,903,411 22,918,761
of Class A Common Stock
in secondary public
offering, net of
issuance costs
Sale of 5,306 shares of 53 47,701 47,754
Class A Common Stock
upon exercise of stock
options
Net earnings 7,778,664 7,778,664
-------------------------------------------------------------------------
Balance, September 30, 1997 53,203 9,627 48,233,608 -- 11,552,222 59,848,660
Sale of 48,910 shares of 489 (489) --
Class B Common Stock by
major shareholder
Sale of 3,460 shares of 35 43,648 43,683
Class A Common Stock
upon exercise of stock
options
Purchase of 81,100 shares (531,547) (531,547)
of Class A Common Stock
Net earnings 338,144 338,144
-------------------------------------------------------------------------
Balance, September 30, 1998 53,727 9,138 48,277,256 (531,547) 11,890,366 59,698,940
Purchase of 95,500 shares (521,600) (521,600)
of Class A Common Stock
Net loss (3,233,493) (3,233,493)
-------------------------------------------------------------------------
Balance, September 30, 1999 $ 53,727 $ 9,138 $ 48,277,256 $(1,053,147) $ 8,656,873 $ 55,943,847
=========================================================================
<FN>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
</FN>
</TABLE>
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended September 30,
-------------------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
-------------------------------------------------------
Cash Flows From Operating Activities:
Net earnings (loss) $ (3,233,493) $ 338,144 $ 7,778,664
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,466,114 4,728,477 5,396,198
Gain on sale of real property -- -- (1,896,025)
Changes in operating assets and liabilities:
Increase in receivables, net (2,611,754) (627,145) (6,361,812)
Increase in operating supplies (399,121) (316,882) (324,090)
Decrease (increase) in income taxes receivable 936,767 (3,224,881) (1,560,208)
Increase in prepaid expenses and other (462,013) (623,057) (256,431)
Increase in current deferred income tax asset (304,323) (127,436) (7,144)
Decrease (increase) in other assets 140,981 (98,373) 192,195
Increase in accounts payable 1,093,069 1,421,629 1,901,521
Increase (decrease) in accrued liabilities 231,224 (136,874) 1,000,361
Increase (decrease) in accrued claims payable 66,211 1,153 (342,670)
(Decrease) increase in deferred income taxes payable (1,491,780) 2,902,398 2,373,792
-------------------------------------------------------
Net cash provided by (used in) operating activities (1,568,118) 4,237,153 7,894,351
-------------------------------------------------------
Cash Flows From Investing Activities:
Purchase of property and equipment (10,385,759) (12,936,744) (31,815,000)
Proceeds from the sale of property and equipment 12,890,002 15,833,300 12,785,576
-------------------------------------------------------
Net cash provided by (used in) investing activities 2,504,243 2,896,556 (19,029,424)
-------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt -- 2,900,000 15,894,391
Principal payments on long-term debt (7,551,634) (7,191,295) (13,198,750)
Borrowings under line-of-credit agreement 10,000,000 -- --
Principal payments under capitalized lease obligations (2,030,988) (7,294,186) (7,332,513)
Net proceeds from issuance of common stock -- 43,683 22,966,515
Purchase of treasury stock (521,600) (531,547) --
-------------------------------------------------------
Net cash provided by (used in) financing activities (104,222) (12,073,345) 18,329,643
-------------------------------------------------------
Net Increase (Decrease) In Cash 831,903 (4,939,636) 7,194,570
Cash at Beginning of Year 7,826,365 12,766,001 5,571,431
-------------------------------------------------------
Cash at End of Year $ 8,658,268 $ 7,826,365 $ 12,766,001
=======================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 1,471,426 $ 1,818,100 $ 1,761,939
Cash paid during the year for income taxes 32,486 153,461 4,631,593
<FN>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
</FN>
</TABLE>
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF THE COMPANY, ACQUISITIONS, AND RECAPITALIZATION
Simon Transportation Services Inc. was incorporated in Nevada on August
15, 1995 to acquire all of the outstanding capital stock of Dick Simon Trucking,
Inc., a Utah corporation. The accompanying consolidated financial statements
present the consolidated financial position and results of operations of Simon
Transportation Services Inc. and Dick Simon Trucking, Inc., its wholly owned
subsidiary (collectively, the "Company"). All intercompany accounts and
transactions have been eliminated in consolidation.
The Company is a truckload carrier that specializes in premium service,
primarily through temperature-controlled transportation predominantly for major
shippers in the U.S. food industry.
Recapitalization
On February 13, 1997, the Company completed a public offering of
2,530,000 shares of Class A Common Stock. Selling stockholders offered and
received net proceeds for 995,000 of these shares (85,500 shares of Class A
Common Stock and 909,500 shares of Class B Common Stock reclassified as Class A
Common Stock upon completion of the offering). The sale of the 1,535,000 shares
of Class A Common Stock offered by the Company generated net proceeds of
$22,918,761 after deducting underwriting commissions and other expenses. A
majority of the proceeds were used to purchase new revenue equipment.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Revenue Recognition and Significant Customers
Freight charges and related direct freight expenses are recognized as
revenue and operating expense when freight is delivered at a destination point.
One customer accounted for approximately 11, 11, and 12 percent of operating
revenue in fiscal years 1999, 1998, and 1997, respectively. At September 30,
1999, the Company had accounts receivable outstanding with this customer
totaling $1,706,936. No other customer accounted for more than 10% of revenue
during fiscal years 1999, 1998 and 1997.
Operating Supplies
Operating supplies consist primarily of tires, fuel and maintenance
parts for revenue equipment which are stated at the lower of first-in, first-out
(FIFO) cost or market value.
Property and Equipment
Property and equipment are recorded at cost and depreciated based on
the straight-line method over their estimated useful lives, taking into
consideration salvage values for purchased property and residual values for
equipment held under capitalized leases. Leasehold improvements are amortized
over the terms of the respective lease or the lives of the assets, whichever is
shorter.
Expenditures for routine maintenance and repairs are charged to
operating expense as incurred. Major renewals and betterments are capitalized
and depreciated over their estimated useful lives. Upon retirement or other
<PAGE>
disposition of property and equipment, the cost and accumulated depreciation are
removed from the accounts, and any gain or loss is recorded as an adjustment to
depreciation and amortization. Net gains from the disposition of equipment in
the amounts of $2,131,460, $2,290,074, and $1,563,524 for fiscal years 1999,
1998, and 1997, respectively, have been included in depreciation and
amortization in the accompanying statements of operations and cash flows.
The estimated useful lives of property and equipment are as follows:
Revenue equipment 3 - 7 years
Buildings and improvements 30 years
Office furniture and equipment 5 - 10 years
Tires purchased as part of revenue equipment are capitalized as a cost
of the equipment. Replacement tires are expensed when placed in service.
Fair Value of Financial Instruments
The carrying amounts reported in the accompanying consolidated
statements of financial position for cash, accounts receivable, and accounts
payable approximate fair values because of the immediate or short-term
maturities of these financial instruments. The carrying amounts of the Company's
long-term debt also approximate fair values based on current rates for similar
debt.
Quantitative and Qualitative Disclosures About Market Risk
The principal market risks to which the Company is exposed are
fluctuations in fuel prices and interest rates on our debt financing.
We are not engaged in any fuel hedging transactions. Thus, we are
exposed to fluctuations in fuel prices but are not exposed to any market risk
involving hedging costs.
The principal market risks (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which we are exposed are interest rates
on our debt financing. Our variable rate debt consists of a revolving line of
credit, an unsecured term loan and an equipment finance term loan carrying
interest rates tied to LIBOR or the Eurodollar rate. These variable interest
rates expose us to the risk that interest rates may rise. At September 30, 1999,
assuming borrowing equal to the $10.0 million drawn on the line of credit and
$4.7 million on other outstanding variable rate loans, a one percentage point
increase in the LIBOR and Eurodollar rate would increase our annual interest
expense by approximately $147,000. The balance of our equipment financing
carries fixed interest rates and includes term notes payable and capitalized
leases totaling approximately $7.0 million. These fixed interest rates expose us
to the risk that interest rates may fall. A one percentage point decline in
interest rates would have the effect of increasing the premium we pay over
market interest rates by one percentage point or approximately $70,000 annually.
Insurance Coverage and Accrued Claims Payable
The Company acts as a self-insurer for auto liability, tractor physical
damage, trailer physical damage, and cargo damage claims subject to a "basket
deductible" of $250,000 per occurrence. The Company acts as a self-insurer for
workers' compensation claims up to $100,000 per single occurrence. Liability in
excess of these amounts is assumed by the insurance underwriter up to applicable
policy limits of $1,000,000 per occurrence. The Company maintains loss
prevention programs in an effort to minimize this risk.
The Company estimates and accrues a liability for its share of ultimate
settlements using all available information to assist in establishing reserve
levels for each occurrence based on the facts and circumstances of the
occurrence coupled with the Company's past history of such claims. The Company
accrues for workers' compensation and automobile liabilities when reported,
typically the same day as the occurrence. Additionally, the Company accrues an
estimated liability for incurred but not reported claims. Expense depends upon
actual loss experience and changes in estimates of settlement amounts for open
<PAGE>
claims which have not been fully resolved. The Company provides for adverse loss
developments in the period when new information so dictates.
The Company had outstanding letters of credit related to insurance
coverage totaling $1,700,000 at September 30, 1999. These letters of credit
mature at various times through November 1999 and renew annually unless
terminated by either party.
Income Taxes
The Company recognizes a liability or asset for the deferred tax
consequences of all temporary differences between the tax bases of assets and
liabilities and their reported amounts in the consolidated financial statements
that will result in taxable or deductible amounts in future years when the
reported amounts of the assets and liabilities are recovered or settled.
Net Earnings (Loss) Per Common Share
Basic net earnings (loss) per common share (Basic EPS) excludes
dilution and is computed by dividing net earnings (loss) by the weighted average
number of common shares outstanding during the fiscal year. Diluted net earnings
(loss) per common share (Diluted EPS) reflects the potential dilution that could
occur if stock options or other contracts to issue common stock were exercised
or converted into common stock. The computation of Diluted EPS does not assume
exercise or conversion of securities that would have an antidilutive effect on
net earnings (loss) per common share.
Following is a reconciliation of the numerator and denominator of Basic
EPS to the numerator and denominator of Diluted EPS for fiscal years 1999, 1998
and 1997:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
================================================
Numerator:
Net earnings (loss) $ (3,233,493) $ 338,144 $ 7,778,664
================================================
Denominator:
Weighted average common shares outstanding 6,116,815 6,270,734 5,707,642
Effect of options -- -- 156,401
================================================
6,116,815 6,270,734 5,864,043
================================================
Basic EPS $ (0.53) $ 0.05 $ 1.36
Diluted EPS $ (0.53) $ 0.05 $ 1.33
</TABLE>
Options to purchase 1,008,350 and 717,130 shares of common stock at
weighted average exercise prices of $14.34 and $18.05 as of September 30, 1999
and 1998, respectively, were not included in the computation of Diluted EPS. The
inclusion of the options would have been antidilutive, thereby increasing net
earnings per common share or decreasing net loss per common share.
Segment Reporting
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement requires disclosures related
to components of a company for which separate financial information is available
that is evaluated regularly by the Company's chief operating decision maker in
deciding how to allocate resources and assess performance. Management believes
that the Company has only one operating segment in accordance with SFAS No. 131.
<PAGE>
(3) INCOME TAXES
The provision (benefit) for income taxes includes the following
components for the years ended September 30, 1999, 1998 and 1997:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---------------------------------------------------------
Current income tax provision (benefit):
Federal $ (333,900) $ (2,100,924) $ 1,993,941
State 164,957 (377,502) 366,638
---------------------------------------------------------
(168,943) (2,478,426) 2,360,579
---------------------------------------------------------
Deferred income tax provision (benefit):
Federal (1,331,839) 2,352,293 2,062,976
State (464,267) 422,669 303,672
---------------------------------------------------------
(1,796,106) 2,774,962 2,366,648
---------------------------------------------------------
Provision (benefit) for income taxes $ (1,965,049) $ 296,536 $ 4,727,227
=========================================================
</TABLE>
The following is a reconciliation between the statutory Federal income
tax rate of 34 percent and the effective rate which is derived by dividing the
provision (benefit) for income taxes by earnings (loss) before income taxes for
the years ended September 30, 1999, 1998 and 1997:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---------------------------------------------------------
Computed "expected" provision (benefit)
for income taxes at the statutory rate $ (1,767,504) $ 215,791 $ 4,252,003
Increase (decrease) in income taxes
Resulting from:
State income taxes, net of federal income
tax benefit (197,545) 24,118 479,466
Other, net -- 56,627 (4,242)
---------------------------------------------------------
Provision (benefit) for income taxes $ (1,965,049) $ 296,536 $ 4,727,227
=========================================================
</TABLE>
The significant components of the net deferred income tax assets and
liabilities as of September 30, 1999 and 1998 are as follows:
<TABLE>
<S> <C> <C>
1999 1998
------------------ ------------------
Deferred income tax assets:
Accrued claims payable $ 397,259 $ 279,270
Other reserves and accruals 669,527 483,193
------------------ ------------------
Total deferred income tax assets 1,066,786 762,463
------------------ ------------------
Deferred income tax liabilities:
Difference between book and tax basis
of property and equipment (9,557,866) (9,156,843)
AMT credit carryforward 1,017,279 --
Federal net operating loss carryforward 396,533 --
State net operating loss carryforward 478,991 --
------------------ ------------------
Total deferred income tax liabilities (7,665,063) (9,156,843)
------------------ ------------------
Net deferred income tax liabilities $ (6,598,277) $ (8,394,380)
================== ==================
</TABLE>
<PAGE>
(4) LONG-TERM DEBT
Long-term debt consists of the following as of September 30, 1999 and 1998:
<TABLE>
<S> <C> <C>
1999 1998
------------------------------------
Notes payable to a bank, interest ranging from 6.24 percent to 7.20 percent, $ 4,507,051 $ 7,281,476
payable in monthly installments through April 2001, secured by revenue
equipment
Note payable to a bank, interest based on Eurodollar rate (6.19 percent at 4,022,222 8,410,101
September 30, 1999), payable in monthly installments through August
2000, unsecured
Note payable to a bank, interest based on Eurodollar rate (6.39 percent at 648,884 1,038,214
September 30, 1999), payable in monthly installments through May 2001,
secured by revenue equipment
Line of credit payable to a bank, interest based on Eurodollar rate (7.14 10,000,000 --
percent at September 30, 1999), interest payable monthly, principle due
September 2002, secured by accounts receivable (see description below)
------------------------------------
19,178,157 16,729,791
Less current portion (7,459,577) (7,627,142)
------------------------------------
$ 11,718,580 $ 9,102,649
====================================
</TABLE>
Scheduled principal payments of long-term debt as of September 30, 1999
are as follows:
Years Ending September 30, Amount
- ------------------------------------------------------ -------------------
2000 $ 7,459,577
2001 1,718,580
2002 10,000,000
-------------------
$ 19,178,157
===================
The Company has a secured line of credit that provides for maximum
borrowings of $20,000,000 with a bank through September 30, 2002. Borrowings
under the line of credit are secured with accounts receivable and are limited to
a portion of the book value of accounts receivable. As of September 30, 1999,
the Company had drawn $10,000,000 on this line of credit, had $1,700,000 of
outstanding letters of credit, and had $3,906,181 of additional availability
under the agreement.
Certain of the Company's long-term debt agreements contain various
restrictive covenants including maximum debt to tangible net worth and minimum
tangible net worth requirements. As of September 30, 1999, the Company was in
compliance with all covenants under the loan agreements.
<PAGE>
(5) CAPITALIZED LEASE OBLIGATIONS
Certain revenue equipment is leased under capitalized lease
obligations. The following is a summary of assets held under capital lease
agreements:
September 30,
----------------------------------------------
1999 1998
----------------------------------------------
Revenue equipment $ 5,987,377 $ 9,114,812
Less accumulated amortization (2,514,305) (3,884,564)
----------------------------------------------
$ 3,473,072 $ 5,230,248
==============================================
The following is a schedule by year of future minimum lease payments
under capitalized leases together with the present value of the minimum lease
payments at September 30, 1999:
Years Ending September 30, Amount
- --------------------------------------------------- --------------------
2000 $ 1,999,424
2001 596,850
--------------------
Total minimum lease payments 2,596,274
Less amount representing interest (151,418)
--------------------
Present value of minimum lease payments 2,444,856
Less current portion (1,855,675)
--------------------
$ 589,181
====================
(6) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is committed under noncancelable operating leases involving
certain revenue equipment. Rent expense for noncancelable operating leases was
$31,767,339, $25,343,111, and $15,595,123 for fiscal years 1999, 1998, and 1997,
respectively. Aggregate future lease commitments are $26,360,171, $19,488,708,
$9,495,805, $2,176,144, and $183,239 for the years ending September 30, 2000,
2001, 2002, 2003, and 2004, respectively.
Orders for Revenue Equipment
As of September 30, 1999, the Company had placed orders for fiscal
years 2000 and 2001 to purchase revenue equipment at an estimated total purchase
price of $82.5 million. The revenue equipment is to be delivered during fiscal
years 2000 and 2001. Approximately $52.3 million of the new revenue equipment
will be used to replace older revenue equipment and the balance represents
incremental additions to the Company's fleet. These orders may be canceled by
the Company without penalty upon written notification any time prior to 85 days
before the revenue equipment's scheduled delivery.
Legal Proceedings
The Company and certain of its officers and directors have been named
as defendants in a securities class action filed in the United States District
Court for the District of Utah, Caprin v. Simon Transportation Services, Inc.,
et al., No. 2:98CV 863K (filed December 3, 1998). Plaintiffs in this action
allege that defendants made material misrepresentations and omissions during the
period February 13, 1997 through April 2, 1998 in violation of Sections 11,
12(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
The Company intends to vigorously defend this action. While management
believes, after discussion with legal counsel and its Directors and Officers
Insurance carrier, that the ultimate outcome of this matter will not have a
<PAGE>
significant effect on the Company's financial position and results of
operations, it is possible that a change in the Company's estimate of probable
liability could occur.
The Company from time to time is a party to litigation arising in the
ordinary course of its business, substantially all of which involves claims for
personal injury and property damage incurred in the transportation of freight.
Management is not aware of any claims or threatened claims that reasonably would
be expected to exceed insurance limits or have a materially adverse effect upon
the Company's results of operations or financial position.
(7) CAPITAL TRANSACTIONS AND STOCK PLANS
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock
from time to time in one or more series without stockholder approval. No shares
of preferred stock are presently outstanding. The Board of Directors is
authorized, without any further action by the stockholders of the Company, to
(a) divide the preferred stock into series, (b) designate each such series, (c)
fix and determine dividend rights, (d) determine the price, terms and conditions
on which shares of preferred stock may be redeemed, (e) determine the amount
payable to holders of preferred stock in the event of voluntary or involuntary
liquidation, (f) determine any sinking fund provisions, and (g) establish any
conversion privileges.
Treasury Stock
The Company's Board of Directors authorized a stock repurchase program
under which management may reacquire up to 500,000 shares of the Company's Class
A Common Stock. During fiscal years 1999 and 1998, the Company repurchased
95,500 and 81,100 shares of Class A Common Stock, respectively, at an average
price of $5.96 per share, for a total cash outlay of $1,053,147. The stock
repurchase program expired September 30, 1999.
Incentive Stock Plan
On May 31, 1995, the Company's Board of Directors and stockholders
approved and adopted the Dick Simon Trucking, Inc. Incentive Stock Plan (the
"Plan"). The Plan reserves 1,000,000 shares of Class A Common Stock for issuance
thereunder. The Board of Directors or its designated committee administers the
Plan and has the discretion to determine the employees and officers who will
receive awards, the type of awards (incentive stock options, non-statutory stock
options, restricted stock awards, reload options, other stock based awards, and
other benefits) to be granted and the term, vesting provisions and exercise
prices.
Non-Officer Incentive Stock Plan
On December 18, 1998, the Company's Board of Directors approved and
adopted the Simon Transportation Services Inc. 1998 Non-Officer Incentive Stock
Plan (the "1998 Plan"). The 1998 Plan reserves 400,000 shares of Class A Common
Stock for issuance thereunder. The Board of Directors or its designated
committee administers the Plan and has the discretion to determine the employees
who will receive awards, the type of awards (incentive stock options,
non-statutory stock options, restricted stock awards, reload options, other
stock based awards, and other benefits) to be granted and the term, vesting
provisions and exercise prices.
Outside Director Stock Plan
On August 16, 1995, the Company adopted an Outside Director Stock Plan,
under which each director who is not an employee of the Company will receive an
annual option to purchase 1,000 shares of the Company's Class A Common Stock at
85% of the market price at the grant date. The Company has reserved 25,000
shares of Class A Common Stock for issuance under the Outside Director Stock
Plan.
<PAGE>
The following table summarizes the combined stock option activity for
all plans for fiscal years 1997, 1998 and 1999:
<TABLE>
<S> <C> <C> <C>
Weighted Average
Number of Exercise Price Per
Options Price Range Share
--------------- -------------------- --------------------
Outstanding at September 30, 1996 227,700 $ 9.00 $ 9.00
Granted 141,000 13.70 - 16.00 15.97
Exercised (5,306) 9.00 9.00
Forfeited (14,160) 9.00 9.00
--------------- -------------------- --------------------
Outstanding at September 30, 1997 349,234 9.00 - 16.00 11.79
Granted 386,500 14.50 - 23.50 23.26
Exercised (3,460) 9.00 9.00
Forfeited (15,144) 9.00 - 16.00 9.18
--------------- -------------------- --------------------
Outstanding at September 30, 1998 717,130 9.00 - 23.50 18.05
Granted 373,000 4.25 - 5.50 5.50
Exercised -- -- --
Forfeited (81,780) 5.50 - 16.00 6.74
--------------- -------------------- --------------------
Outstanding at September 30, 1999 1,008,350 $ 4.25 - 23.50 $ 14.34
=============== ==================== ====================
</TABLE>
The weighted average fair value of options granted during the years
ended September 30, 1999, 1998 and 1997 was $3.23, $10.12 and $6.97,
respectively. A summary of the options outstanding and options exercisable at
September 30, 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C>
Weighted Average
Range of Exercise Options Remaining Weighted Average Options Weighted Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
$ 4.25 - 5.50 310,000 9.23 years $ 5.49 -- $ --
5.51 - 15.00 177,850 5.65 years 9.10 141,980 9.08
15.01 - 20.00 140,500 7.19 years 16.05 57,100 16.13
20.01 - 23.50 380,000 8.22 years 23.38 77,000 23.38
==================== ================== =================== ================== ================== ===================
$ 4.25 - 23.50 1,008,350 7.93 years $ 14.34 276,080 $ 14.52
==================== ================== =================== ================== ================== ===================
</TABLE>
Stock-Based Compensation
The Company has elected to continue to apply Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its
stock-based compensation plans as they relate to employees and directors. SFAS
No. 123, "Accounting for Stock-Based Compensation," requires pro forma
information regarding net earnings (loss) as if the Company had accounted for
its stock options granted to employees and directors subsequent to September 30,
1995 under the fair value method of SFAS No. 123. The fair value of these stock
options was estimated at the grant date using the Black-Scholes option pricing
model with the following assumptions: average risk-free interest rates of 4.79%,
5.77%, and 6.15% in fiscal years 1999, 1998 and 1997, respectively, a dividend
yield of 0%, weighted average volatility factors of the expected common stock
price of 54.9% for fiscal year 1999, 24.6% for fiscal year 1998 and 25.4% for
fiscal year 1997, and weighted average expected lives for the stock options of
approximately 8.0 years for fiscal year 1999, 7.4 years for fiscal year 1998 and
9.7 years for fiscal year 1997. For purposes of pro forma disclosures, the
estimated fair value of the stock options is amortized over the vesting period
<PAGE>
of the respective stock options. Under the fair value method of SFAS No. 123,
pro forma net (loss) earnings would have been ($4,329,975), ($479,122), and
$7,618,831, and pro forma diluted net (loss) earnings per share would have been
($0.71), ($0.08), and $1.30 for the fiscal years ended September 30, 1999, 1998,
and 1997, respectively.
(8) EMPLOYEE BENEFIT PLAN
The Company has adopted a defined contribution plan, the Dick Simon
Trucking, Inc. 401(k) Profit Sharing Plan (the "401(k) Plan"). All employees who
have completed one year of service and have reached age 21 are eligible to
participate in the 401(k) Plan. Under the 401(k) Plan, employees are allowed to
make contributions of up to 15 percent of their annual compensation; the Company
may make matching contributions equal to a discretionary percentage, to be
determined by the Company, of the employee's salary reductions. The Company may
also make additional discretionary contributions to the 401(k) Plan. All amounts
contributed by a participant are fully vested at all times. The participant
becomes 20 percent vested in any matching or discretionary contributions after
two years of service. This vesting percentage increases to 100 percent after six
years of service. During fiscal years 1999, 1998, and 1997, the Company
contributed $320,438, $351,829, and $301,078, respectively, to the 401(k) Plan.
(9) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Fourth Third Second First
Quarter Quarter Quarter Quarter
1999 1999 1999 1999
------------------ ---------------- ------------------- ----------------
Revenue $ 53,281 $ 53,599 $ 49,271 $ 52,992
Operating earnings (loss) (440) (1,058) (2,716) 369
Earnings (loss) before income taxes (782) (1,393) (3,097) 73
Provision (benefit) for income taxes (294) (527) (1,171) 27
Net earnings (loss) (486) (866) (1,926) 45
Diluted net earnings (loss) per share $ (0.08) $ (0.14) $ (0.32) $ 0.01
Fourth Third Second First
Quarter Quarter Quarter Quarter
1998 1998 1998 1998
------------------ ---------------- ------------------- ----------------
Revenue $ 50,296 $ 50,055 $ 46,149 $ 47,006
Operating earnings (loss) 945 (90) (2,105) 3,386
Earnings (loss) before income taxes 608 (435) (2,536) 2,997
Provision (benefit) for income taxes 286 (165) (959) 1,132
Net earnings (loss) 322 (270) (1,577) 1,864
Diluted net earnings (loss) per share $ 0.05 $ (0.04) $ (0.25) $ 0.29
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Simon Transportation Services Inc.:
We have audited the accompanying consolidated statement of financial
position of Simon Transportation Services Inc. (a Nevada corporation) and
subsidiary as of September 30, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Simon Transportation
Services Inc. and subsidiary as of September 30, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1999 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Salt Lake City, Utah
October 15, 1999
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated October 15, 1999 included in this Form 10-K,
into the Company's previously filed Registration Statements on Form S-8, file
numbers 333-43763, 33-80389, 33-80391, and 33-80409.
/s/ Arthur Andersen LLP
Salt Lake City, Utah
December 9, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,658,268
<SECURITIES> 0
<RECEIVABLES> 23,148,037
<ALLOWANCES> (285,352)
<INVENTORY> 576,863
<CURRENT-ASSETS> 38,356,286
<PP&E> 80,851,116
<DEPRECIATION> (23,203,536)
<TOTAL-ASSETS> 96,730,006
<CURRENT-LIABILITIES> 20,813,335
<BONDS> 12,307,761
0
0
<COMMON> 62,865
<OTHER-SE> 55,880,982
<TOTAL-LIABILITY-AND-EQUITY> 96,730,006
<SALES> 0
<TOTAL-REVENUES> 209,143,336
<CGS> 0
<TOTAL-COSTS> 212,988,246
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,471,426
<INCOME-PRETAX> (5,198,542)
<INCOME-TAX> (1,965,049)
<INCOME-CONTINUING> (3,233,493)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,233,493)
<EPS-BASIC> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
CREDIT AND SECURITY AGREEMENT
THIS AGREEMENT is made as of September 28, 1999, by and between U.S.
BANK NATIONAL ASSOCIATION, a national banking association (the "Lender"), and
SIMON TRANSPORTATION SERVICES INC., a Nevada corporation ("Simon") and DICK
SIMON TRUCKING, INC., a Utah corporation ("Trucking")(together, the "Borrowers"
and each a "Borrower").
In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
1.1 Definitions. In addition to terms defined elsewhere in this
Agreement or any Supplement, Exhibit or Schedule hereto, the following terms
shall have the following respective meanings (and such meanings shall be equally
applicable to both the singular and plural forms of the terms defined, as the
context may require):
"Account Debtor": Any Person who is or who may become obligated to any
Borrower under, with respect to, or on account of an Account Receivable, General
Intangible or other Collateral.
"Account Receivable": Any account of a Borrower and any other right
of a Borrower to payment for goods sold or leased or for services rendered,
whether or not evidenced by an instrument or chattel paper and whether or not
yet earned by performance.
"Accounts Receivable Availability": The term "Accounts Receivable
Availability" shall have the meaning given such term in Supplement A.
"Advance": The portion of the outstanding Loans bearing interest at an
identical rate for an identical Interest Period, provided that all Reference
Rate Advances which constitute Loans shall be deemed a single Advance. An
Advance may be a "Eurodollar Advance" or a "Reference Rate Advance" (each, a
"type" of Advance).
"Adverse Event": The occurrence of any event that could have a material
adverse effect on the business, operations, property, assets or condition
(financial or otherwise) of any Borrower or any Borrower and its Subsidiaries as
a consolidated enterprise or on the ability of any Borrower or any other Obligor
to perform its obligations under the Loan Documents.
"Affiliate": Any Person which directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, the Lender. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of stock, by contract or
otherwise.
<PAGE>
"Agreement": This Credit and Security Agreement, as it may be amended,
modified, supplemented, restated or replaced from time to time.
"Applicable Margin": The percentage set forth in Section 3.1(c) of
Supplement A.
"Attorneys' Fees": The value of the services (and costs, charges and
expenses related thereto) of the attorneys employed by the Lender (including,
without limitation, attorneys and paralegals who are employees of the Lender or
any Affiliate) from time to time (a) in connection with the negotiation,
preparation, execution, delivery, administration and enforcement of the Loan
Documents, (b) to prepare documentation related to the Loans and other
Obligations, (c) to represent the Lender in any litigation, contest, dispute,
suit or proceeding or to commence, defend or intervene in any litigation
contest, dispute, suit or proceeding or to file a petition, complaint, answer,
motion or other pleading, or to take any other action in or with respect to, any
litigation, contest, dispute, suit or proceeding (whether instituted by the
Lender, any Borrower or any other Person and whether in bankruptcy or otherwise)
in any way or respect relating to the Collateral, any Third Party Collateral,
the Loan Documents, or any Borrower's or any other Obligor's or any Subsidiary's
affairs, (d) to protect, collect, lease, sell, take possession of, or liquidate
any of the Collateral or any Third Party Collateral, (e) to attempt to enforce
any security interest in any of the Collateral or any Third Party Collateral or
to give any advice with respect to such enforcement, and (f) to enforce any of
the Lender's rights to collect any of the Obligations.
"Borrowing Base": The term "Borrowing Base" shall have the meaning
given such term in Supplement A.
"Borrowing Base Certificate": The term "Borrowing Base Certificate"
shall have the meaning given such
term in Section 2.5(c).
"Business Day": Any day (other than a Saturday, Sunday or legal holiday
in the State of Minnesota) on which Lender is open and carrying on business
transactions of the type contemplated by this Agreement and, with respect to
Eurodollar Advances, a day on which dealings in United States Dollars may be
carried on by the Lender in the interbank eurodollar market.
"Capital Expenditure": Any amount debited to the fixed asset account on
the consolidated balance sheet of a Borrower in respect of (a) the acquisition
(including, without limitation, acquisition by entry into a Capitalized Lease),
construction, improvement, replacement or betterment of land, buildings,
machinery, equipment or of any other fixed assets or leaseholds, and (b) to the
extent related to and not included in clause (a), materials, contract labor and
direct labor (excluding expenditures properly chargeable to repairs or
maintenance in accordance with GAAP).
"Capitalized Lease": Any lease which is or should be capitalized
on the books of the lessee in accordance with GAAP.
"Code": The Internal Revenue Code of 1986, as amended, or any successor
statute, together with the regulations thereunder.
"Collateral": The term "Collateral" shall have the meaning given such
term in Section 3.1.
<PAGE>
"Collateral Account": The term "Collateral Account" shall have the
meaning given such term in Section 3.2(b).
"Controlled Disbursement Account": The term "Controlled Disbursement
Account" shall have the meaning given such term in Section 2.3(c).
"Credit": The facility established under this Agreement pursuant to
which the Lender will make Loans to the Borrowers or issue, or cause any
Affiliate to issue, Letters of Credit for the account of either Borrower.
"Credit Amount": The term "Credit Amount" shall have the meaning given
such term in Supplement A.
"Daily Unused Credit Amount": For any date of determination, the amount
obtained by subtracting from the Credit Amount (determined as of (i) the last
day of the month in which such date falls, or (ii) the date the Credit is
terminated if the Credit terminates on a day other than the last day of a month)
the sum of (a) the outstanding principal balance of Loans on such date plus (b)
the Letter of Credit Obligations on such date.
"Default Rate": The term "Default Rate" shall have the meaning given
such term in Supplement A.
"Determination Date" The earlier of (a) the date of commencement of a
case under Title 11 of the United States Code in which any Borrower is a debtor,
or (b) the date enforcement hereunder is sought with respect to any Borrower.
"Disbursement Account": The term "Disbursement Account" shall have
the meaning given such term in Section 2.3(b).
"Eligible Account Receivable": An Account Receivable owing to a
Borrower which meets the following requirements:
(a) it is genuine and in all respects what it purports to be;
(b) it arises from either (i) the performance of services by
such Borrower, which services have been fully performed and, if
applicable, acknowledged and/or accepted by the Account Debtor with
respect thereto; or (ii) the sale or lease of goods by such Borrower
and (A) such goods comply with such Account Debtor's specifications (if
any) and have been shipped to, or delivered to and accepted by, such
Account Debtor, (B) such Borrower has possession of, or has delivered
to the Lender, at the Lender's request, shipping and delivery receipts
evidencing such shipment, delivery and acceptance, and (C) such goods
have not been returned to such Borrower;
<PAGE>
(c) it (i) is evidenced by an invoice rendered to the Account
Debtor with respect thereto which (A) is dated not earlier than the
date of shipment or performance and (B) has payment terms not
unacceptable to the Lender; and (ii) meets the Eligible Account
Receivable requirements set forth in Supplement A;
(d) it is not subject to any assignment, claim or Lien other
than (i) a first priority Lien in favor of the Lender and (ii) Liens
consented to by the Lender in writing;
(e) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor with respect thereto and is not
subject to setoff, counterclaim, credit or allowance (except any credit
or allowance which has been deducted in computing the net amount of the
applicable invoice as shown in the original schedule or Borrowing Base
Certificate furnished to the Lender identifying or including such
Account Receivable) or adjustment by the Account Debtor with respect
thereto, or to any claim by such Account Debtor denying liability
thereunder in whole or in part, and such Account Debtor has not refused
to accept any of the goods or services which are the subject of such
Account Receivable or offered or attempted to return any of such goods;
(f) there are no proceedings or actions which are then
threatened or pending against the Account Debtor with respect thereto
or to which such Account Debtor is a party which might result in any
material adverse change in such Account Debtor's financial condition or
in its ability to pay any Account Receivable in full when due;
(g) it does not arise out of a contract or order which, by its
terms, forbids, restricts or makes void or unenforceable the assignment
by such Borrower to the Lender of such Account Receivable;
(h) the Account Debtor with respect thereto is not a
Subsidiary, Related Party or Obligor, or a director, officer, employee
or agent of either Borrower, a Subsidiary, Related Party or Obligor;
(i) the Account Debtor with respect thereto is a resident or
citizen of and is located within the United States of America unless
the sale of goods giving rise to such Account Receivable is on letter
of credit, banker's acceptance or other credit support terms
satisfactory to the Lender;
(j) it does not arise from a "sale on approval," "sale or
return" or "consignment," nor is it subject to any other repurchase
or return agreement;
(k) it is not an Account Receivable with respect to which
possession and/or control of the goods sold giving rise thereto is
held, maintained or retained by any such Borrower, any Subsidiary,
Related Party or Obligor (or by any agent or custodian of anysuch
Borrower, any Subsidiary, Related Party or Obligor) for the account of
or subject to further and/or future direction from the Account Debtor
with respect thereto;
(l) it does not, in any way, violate or fail to meet any
warranty, representation or covenant contained in the Loan Documents
relating directly or indirectly to either Borrower's Accounts
Receivable;
(m) (Reserved);
<PAGE>
(n) it arises in the ordinary course of such Borrower's
business;
(o) if the Account Debtor with respect thereto is the United
States of America or any department, agency or instrumentality thereof
(a "Federal Governmental Authority"), or any state, county or local
governmental authority, or any department, agency or instrumentality
thereof, such Borrower has assigned its right to payment of such
Account Receivable to the Lender pursuant to the Assignment of Claims
Act of 1940 as amended in the case of the a Federal Governmental
Authority, or pursuant to applicable state law, if any, in all other
instances, and such assignment has been accepted and acknowledged by
the appropriate government officers;
(p) if the Lender, in its sole and absolute discretion, has
established a credit limit for the Account Debtor with respect thereto,
the aggregate dollar amount of Accounts Receivable due from such
Account Debtor, including such Account Receivable, does not exceed such
credit limit; and
(q) if it is evidenced by chattel paper or instruments, (i)
the Lender shall have specifically agreed to include such Account
Receivable as an Eligible Account Receivable, (ii) only payments then
due and payable under such chattel paper or instrument shall be
included as an Eligible Account Receivable and (iii) the originals of
such chattel paper or instruments have been assigned and delivered to
the Lender in a manner satisfactory to the Lender.
An Account Receivable which is at any time an Eligible Account Receivable but
which subsequently fails to meet any of the foregoing requirements shall
forthwith cease to be an Eligible Account Receivable. Further, with respect to
any Account Receivable, if the Lender at any time or times hereafter determines,
in its sole and absolute discretion, that the prospect of payment or performance
by the Account Debtor with respect thereto is or will be impaired for any reason
whatsoever, notwithstanding anything to the contrary contained above, such
Account Receivable shall forthwith cease to be an Eligible Account Receivable.
"Environmental Laws": The Resource Conservation and Recovery Act of
1987, the Comprehensive Environmental Response, Compensation and Liability Act,
any so-called "superfund" or "superlien" law, the Toxic Substances Control Act,
and any other federal, state or local statue, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning any Hazardous Materials or other hazardous,
toxic or dangerous waste, substance or constituent, or other substance, whether
solid, liquid or gas, as now or at any time hereafter in effect.
"Environmental Lien": A Lien in favor of any governmental entity for
(a) any liability under any Environmental Law, or (b) damages arising from or
costs incurred by such governmental entity in response to a spillage, disposal,
or release into the environment of any Hazardous Material or other hazardous,
toxic or dangerous waste, substance or constituent, or other substance.
<PAGE>
"Equipment": All equipment of the Borrowers or any of them of every
description, including, without limitation, fixtures, furniture, vehicles and
trade fixtures, together with any and all accessions, parts and equipment
attached thereto or used in connection therewith, and any substitutions therefor
and replacements thereof.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended, or any successor statute, together with the regulations thereunder.
"ERISA Affiliate": Any trade or business (whether or not incorporated)
that is a member of a group of which aeither Borrower is a member and which is
treated as a single employer under Section 414 of the Code.
"Eurodollar Advance": An Advance designated as such in a notice of
borrowing under Section 2.5(a) or a notice of continuation or conversion under
Section 2.5(e).
"Eurodollar Interbank Rate": The average offered rate for deposits in
United States Dollars (rounded upwards, if necessary, to the nearest 1/16 of
1%), for delivery of such deposits on the first day of an Interest Period of a
Eurodollar Advance, for the number of days comprised therein, which appears on
the Reuters Screen LIBO Page as of 11:00 a.m., London time (or such other time
as of which such rate appears) on the day that is two Business Days preceding
the first day of the Interest Period or the rate for such deposits determined by
the Lender at such time based on such other published service of general
application as shall be selected by the Lender for such purpose; provided, that
in lieu of determining the rate in the foregoing manner, the Lender may
determine the rate based on rates offered to Lender for deposits in United
States Dollars (rounded upwards if necessary to the nearest 1/16 of 1%) in the
interbank eurodollar market at such time for delivery on the first day of the
Interest Period for the number of days comprised therein. "Reuters Screen LIBO
Page" means the display designated as page "LIBO" on the Reuter Monitor Money
Rates Service (or such other page as may replace the LIBO Page on that service
for the purpose of displaying London interbank offered rates of major banks for
United States Dollar deposits).
"Eurodollar Rate (Reserve Adjusted)": A rate per annum (rounded
upward, if necessary, to the nearest 1/16th of 1%) calculated for the Interest
Period of a Eurodollar Advance in accordance with the following formula:
ERRA = Eurodollar Interbank Rate
1.00 - ERR
In such formula, "ERR" means "Eurodollar Reserve Rate" and "ERRA" means
"Eurodollar Rate (Reserve Adjusted)", in each instance determined by the Lender
for the applicable Interest Period. The Lender's determination of all such rates
for any Interest Period shall be conclusive in the absence of manifest error.
<PAGE>
"Eurodollar Reserve Rate": A percentage equal to the daily average
during such Interest Period of the aggregate maximum reserve requirements
(including all basic, supplemental, marginal and other reserves), (a) specified
under Regulation D of the Federal Reserve Board, or any other applicable
regulation that prescribes reserve requirements applicable to Eurocurrency
liabilities (as presently defined in Regulation D) and/or (b) applicable to
extensions of credit by the Lender, the rate of interest on which is determined
with regard to rates applicable to eurocurrency liabilities. Without limiting
the generality of the foregoing, the Eurocurrency Reserve Rate shall reflect any
reserves required to be maintained by the Lender against (i) any category of
liabilities that includes deposits by reference to which the Eurodollar
Interbank Rate is to be determined, or (ii) any category of extensions of credit
or other assets that includes Eurodollar Advances.
"Event of Default": The term "Event of Default" shall have the meaning
given such term in Section 7.1.
"Federal Reserve Board": The Board of Governors of the Federal Reserve
System or any successor thereto.
"Fraudulent Conveyance": A fraudulent conveyance or fraudulent transfer
under Section 548 of Title 11 of the United States Code or a fraudulent
conveyance or fraudulent transfer under the provisions of any applicable
fraudulent conveyance or fraudulent transfer law or similar law of any state,
province, nation, or other governmental unit, as in effect from time to time.
"GAAP": Generally accepted accounting principles promulgated by the
Financial Accounting Standards Board, as applied in the preparation of the
audited financial statement of the Borrower referred to in Section 4.6.
"General Intangibles": All intangible personal property of the
Borrowers or any of them including things in action, causes of action and all
other personal property of the Borrowers or any of them of every kind and nature
(other than goods, accounts, chattel paper, documents, instruments and money)
including, without limitation, corporate or other business records, inventions,
designs, patents, patent applications, trademarks, trademark applications, trade
names, trade secrets, goodwill, copyrights, registrations, leases, licenses,
franchises, customer lists, tax refund claims, claims against carriers and
shippers, guarantee claims, security interests, security deposits or other
security held by or granted to the Borrowers or any of them to secure payment by
an Account Debtor of any of the Accounts Receivable, any other rights to
payment, including, without limitation, rights to reimbursement or
indemnification, and any other rights of whatsoever nature, whether earned or
unearned.
"Guaranteed Obligations": The term "Guaranteed Obligations shall have
the meaining given such term in Section 12.16.
"Hazardous Materials": Any hazardous substance or pollutant or
contaminant defined as such in (or for the purposes of) any Environmental Law
including, without limitation, petroleum and petroleum products, including
crude oil or any fraction thereof which is liquid at standard conditions of
temperature or pressure (60 degrees Fahrenheit and 14.7 pounds per square inch
absolute), any radioactive material, including any source, special nuclear
or by-product material as defined at 42 U.S.C. section 2011 et. seq., as
amended or hereafter amended, and asbestos in any form or condition.
<PAGE>
"Indebtedness": Without duplication, all obligations, contingent or
otherwise, which in accordance with GAAP should be classified upon the Person's
balance sheet as liabilities, but in any event including the following (whether
or not they should be classified as liabilities upon such balance sheet): (a)
any obligation secured by any mortgage, pledge, security interest, lien, charge
or other encumbrance existing on property owned or acquired subject thereto,
whether or not such obligation shall have been assumed and whether or not such
obligation is the obligation of the owner or another party; (b) any obligation
on account of deposits or advances; (c) any obligation for the deferred purchase
price of any property or services, except accounts payable arising in the
ordinary course of business; (d) any obligation as lessee under any Capitalized
Lease; (e) any guaranty, endorsement or other contingent obligation in respect
to indebtedness of others; and (f) any undertaking or agreement to reimburse or
indemnify issuers of letters of credit. For all purposes of this Agreement, the
Indebtedness of any Person shall include the Indebtedness of any partnership or
joint venture in which such Person is a general partner or a joint venturer.
"Indemnified Liabilities": The term "Indemnified Liabilities" shall
have the meaning given such term in Section 10.2.
"Indemnitees": The term "Indemnitees" shall have the meaning given
such term in Section 10.2.
"Interest Period": For any Eurodollar Advance, the period commencing on
the borrowing date of such Eurodollar Advance or the date a Reference Rate
Advance is converted into such Eurodollar Advance, or the last day of the
preceding Interest Period for such Eurodollar Advance if a Eurodollar Advance is
continued, as the case may be, and ending on the numerically corresponding day
one, two, three or six months thereafter, as selected by the Borrower pursuant
to Section 2.5; provided, that:
(i) any Interest Period which would otherwise end on a day
which is not a Business Day shall end on the next succeeding Business
Day unless such next succeeding Business Day falls in another calendar
month, in which case such Interest Period shall end on the next
preceding Business Day;
(ii) any Interest Period which begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at the
end of such Interest Period; and
(iii) no Interest Period shall extend beyond the Termination
Date.
"Inventory": Any and all goods of the Borrowers or any of them,
including, without limitation, goods in transit, wheresoever located which are
or may at any time be leased by a Borrower to a lessee, held for sale or lease,
furnished under any contract of service or held as raw materials, work in
process, or supplies or materials used or consumed in a Borrower's business, or
which are held for use in connection with the manufacture, packing, shipping,
advertising, selling or finishing of such goods, and all goods, the sale or
other disposition of which has given rise to an Account Receivable, which are
returned to and/or repossessed and/or stopped in transit by a Borrower or the
Lender, or at any time hereafter in the possession or under the control of a
Borrower or the Lender, or any agent or bailee of either thereof, and all
documents of title or other documents representing the same.
<PAGE>
"Investment": The acquisition, purchase, making or holding of any stock
or other security, any loan, advance, contribution to capital, extension of
credit (except for trade and customer accounts receivable for inventory sold or
services rendered in the ordinary course of business and payable in accordance
with customary trade terms), any acquisitions of real and personal property
(other than real and personal property acquired in the ordinary course of
business) and any purchase or commitment or option to purchase stock or other
debt or equity securities of, or any interest in, another Person or any integral
part of any business or the assets comprising such business or part thereof.
"L/C Draft": A draft drawn on the Letter of Credit Issuer, pursuant to
a Letter of Credit.
"Letter of Credit": A letter of credit issued by the Letter of Credit
Issuer pursuant to a Letter of Credit Application as said letter of credit may
be amended or extended from time to time.
"Letter of Credit Agreements": Collectively, the Letter of Credit
Application and any and all documents, instruments and agreements between a
Borrower, Lender and/or Letter of Credit Issuer related to the Letter of Credit
Application and/or Letter of Credit together with any and all amendments and/or
extensions thereto or thereof.
"Letter of Credit Application": An application submitted by a Borrower
for issuance of a Letter of Credit pursuant to Section 2.2, in a form and
containing terms and provisions acceptable to the Lender and the Letter of
Credit Issuer.
"Letter of Credit Issuer": With respect to any given Letter of Credit,
the Lender or Affiliate issuing such Letter of Credit.
"Letter of Credit Obligations": The aggregate amount of all possible
drawings under all Letters of Credit plus all amounts drawn under any Letter of
Credit and not reimbursed by either Borrower.
"Letter of Credit Sublimit": The term "Letter of Credit Sublimit"
shall have the meaning given such term in Supplement A.
"Lien": Any security interest, mortgage, pledge, lien, hypothecation,
statutory lien, judgment lien or similar legal process, charge, encumbrance,
title retention agreement or analogous instrument or device (including, without
limitation, the interest of a lessor under Capitalized Leases and the interest
of a vendor under any conditional sale or other title retention agreement).
"Loan": A Loan referred to in Section 2.1 and any other loans or
advances made to the Borrowers by the Lender under or pursuant to this
Agreement.
<PAGE>
"Loan Account": The term "Loan Account" shall have the meaning given
such term in Section 2.3(a).
"Loan Availability": The lesser of (a) the Credit Amount minus the
Letter of Credit Obligations or (b) the Borrowing Base minus the Letter of
Credit Obligations.
"Loan Documents": This Agreement, any Note, and each other instrument,
document, guaranty, mortgage, deed of trust, chattel mortgage, pledge, power of
attorney, consent, assignment, contract, notice, security agreement, lease,
financing statement, subordination agreement, trust account agreement, or other
agreement executed and delivered by the Borrowers or either of them or any
Guarantor or party granting a security interest in connection with this
Agreement, the Loans, the Letters of Credit or the Collateral, as the same may
be amended, modified, restated or replaced from time to time.
"Maximum Obligated Amount": For each Borrower, respectively, as of the
Determination Date, the greater of (a) an amount equal to the aggregate amount
of the Loans made under this Agreement the proceeds of which are used (whether
directly or indirectly) to make a Valuable Transfer to such Borrower, or (b) the
maximum amount that would not cause this Agreement to cause a Fraudulent
Conveyance with respect to such Borrower.
"Multiemployer Plan": A multiemployer plan, as such term is defined in
Section 4001(a)(3) of ERISA, which is, or which has been, within five years of
the date of this Agreement, or at any time after the date of this Agreement,
maintained for the employees of a Borrower or any ERISA Affiliate.
"Net Worth": At any determination date, the total of all assets
appearing on a consolidated balance sheet of the Borrowers at such date,
prepared in accordance with GAAP, after deducting all proper reserves (including
without limitation, reserves for depreciation, obsolescence, amortization and
taxes related to a LIFO to FIFO conversion) minus all liabilities which in
accordance with GAAP would be included on the liability side of a consolidated
balance sheet.
"Note": Any promissory note of the Borrowers or any of them
evidencing any loan or advance (including but not limited to the Loans) made by
the Lender to the Borrowers pursuant to this Agreement, as the same may be
amended, modified, restated or replaced from time to time.
"Obligations": All of the liabilities, obligations and indebtedness of
the Borrowers or any of them to the Lender, or any Affiliate, of any kind or
nature, however created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing or due or to become due, and
including, without limitation, (a) the obligations of the Borrowers or any of
them under the Loan Documents, including obligations of performance, (b) the
Letter of Credit Obligations and all other obligations of the Borrowers or any
of them with respect to any Letter of Credit or any Letter of Credit Agreement,
and (c) interest, fees, charges, expenses, Attorneys' Fees and other sums
chargeable to the Borrowers or any of them by the Lender or any Affiliate under
the Loan Documents. "Obligations" shall also include any and all amendments,
extensions, renewals, refundings or refinancings of any of the foregoing.
<PAGE>
"Obligor": Each Borrower and each other Person who is or shall become
primarily or secondarily liable on any Obligations or who grants to the Lender
a Lien on any property of such Person as security for any Obligations.
"Occupational Safety and Health Law": The Occupational Safety and
Health Act of 1970 as amended from time to time, or any successor statute,
together with the regulations thereunder and any other federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree regulating,
relating to or imposing liability or standards of conduct concerning employee
health and/or safety.
"Over Advance": The term "Over Advance" shall have the meaning given
such term in Section 2.8.
"Overdraft Loan": The term "Overdraft Loan" shall have the meaning
given such term in Section 2.7.
"Participant": Any Person, now or at any time or times hereafter,
participating with the Lender in the Loans made to the Borrowers hereunder.
"Payment Date": The Termination Date or any other date on which the
Credit terminates, plus the last day of each month of each year.
"PBGC": The Pension Benefit Guaranty Corporation, established pursuant
to Subtitle A of Title IV of ERISA, or any successor thereto or to the functions
thereof.
"Person": Any natural person, corporation, partnership, joint venture,
firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision thereof, or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Plan": Each employee pension or benefit plan (as those terms are
defined in Section 3 of ERISA) maintained for the benefit of employees, officers
or directors of a Borrower or of any ERISA Affiliate.
"Prohibited Transaction": The respective meanings assigned to such
term in Section 4975 of the Code and Section 406 of ERISA.
"Reference Rate": The rate of interest from time to time publicly
announced by Lender as its "reference rate." The Lender may lend to its
customers at rates that are at, above or below the Reference Rate. For purposes
of determining any interest rate which is based on the Reference Rate, such
interest rate shall change on the effective date of any change in the Reference
Rate.
<PAGE>
"Reference Rate Advance": An Advance designated as such in a notice
of borrowing under Section 2.5(a) or a notice of continuation or conversion
under Section 2.5(e).
"Related Party": Any Person (other than a Subsidiary): (a) which
directly or indirectly, through one of more intermediaries, controls, is
controlled by or is under common control with, a Borrower, (b) which
beneficially owns or holds 15% or more of the equity interest of a Borrower, or
(c) 15% or more of the equity interest of which is beneficially owned or held by
a Borrower or a Subsidiary. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Reportable Event": A reportable event, as defined in Section 4043 of
ERISA and the regulations issued under such Section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation has waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event; provided, that for purposes of this Agreement,
a failure to meet the minimum funding standard of Section 412 of the Code and
Section 302 of ERISA shall be a Reportable Event regardless of the issuance of
any waiver in accordance with Section 412(d) of the Code.
"Subordinated Debt": That portion of any liabilities, obligations or
Indebtedness of a Borrower which contains terms satisfactory to the Lender and
is subordinated, in a manner satisfactory to the Lender, as to right and time of
payment of principal and interest thereon, to any and all Obligations.
"Subsidiary": Any Person of which or in which a Borrower and its other
Subsidiaries own, alone or in combination, directly or indirectly, 50% or more
of: (a) the combined voting power of all classes of stock having general voting
power under ordinary circumstances to elect a majority of the board of directors
of such Person, if it is a corporation, (b) the capital interest or profits
interest of such Person, if it is a partnership, joint venture or similar
entity, or (c) the beneficial interest of such Person, if it is a trust,
association or other unincorporated organization.
"Supplemental Documentation": The term "Supplemental Documentation"
shall have the meaning given such term in Section 3.5.
"Taxes": With respect to any Person means taxes, assessments or
other governmental charges or levies imposed upon such Person, its income or any
of its properties, franchises or assets.
"Termination Date": The term "Termination Date" shall have the meaning
given such term in Supplement A.
"UCC": The Uniform Commercial Code as in effect in the State of
Minnesota and any successor statute, together with any regulations thereunder,
in each case as in effect from time to time. References to sections of the UCC
shall be construed to also refer to any successor sections.
<PAGE>
"Unmatured Event of Default": Any event which, with the giving of
notice to the Borrowers or lapse of time, or both, would constitute an Event of
Default.
"Unused Credit Fee": The term "Unused Credit Fee" shall have the
meaning given such term in Supplement A.
"Valuable Transfer": In respect of each Borrower, (a) all loans,
advances or capital contributions made directly or indirectly to such Borrower
with proceeds of Loans, (b) all debt securities or other obligations of such
Borrower acquired from such Borrower, or retired by such Borrower, with direct
or indirect proceeds of Loans, (c) the fair market value of all property
acquired with direct or indirect proceeds of Loans (but only to the extent of
the economic benefit to such Borrower of the property so transferred), (d) all
equity securities of such Borrower acquired from such Borrower with direct or
indirect proceeds of Loans, and (e) the value of quantifiable economic benefits
not included in clauses (a) through (d) above accruing to such Borrower as a
result of the Loans.
1.2 Accounting Terms and Calculations. Except as may be expressly
provided to the contrary herein, all accounting terms used herein or in any
certificate or other document made or delivered pursuant hereto shall be
interpreted and all accounting determinations hereunder (including, without
limitation, determination of compliance with financial ratios and restrictions
in Articles V and VI and in Supplement A) shall be made in accordance with GAAP
consistently applied, using a first in first out method of Inventory valuation.
Any reference to "consolidated" financial terms apply to circumstances in which
a Borrower has Subsidiaries and shall be deemed to refer to those financial
terms as applied to such Borrower and the Subsidiaries in accordance with GAAP.
If, in Lender's judgment, a material change occurs in GAAP, then either (a) the
Lender and the Borrowers shall amend, in writing, the covenants in this
Agreement, Supplement A, and the other Loan Documents which are calculated on
the basis of GAAP to reflect such change, or (b) if the Lender and the Borrowers
fail to agree on and enter into such an amendment, then the Lender shall have
the right to deem such change in GAAP to be an Event of Default.
1.3 Other Definitional Provisions. Unless otherwise defined therein,
all terms defined in this Agreement shall have such defined meanings when used
in any other Loan Document. Terms used in this Agreement which are defined in
any Supplement, Exhibit or Schedule hereto shall, unless the context otherwise
indicates, have the meanings given them in such Supplement, Exhibit or Schedule.
Other terms used in this Agreement and not otherwise defined herein shall,
unless the context otherwise indicates, have the meanings given such terms in
the Minnesota Uniform Commercial Code to the extent the same are used or defined
therein. Reference to "this Agreement" shall include the provisions of
Supplement A. References to Sections, Exhibits, Schedules and like references
are to this Agreement unless otherwise expressly provided.
1.4 Rules of Construction. Section captions used in this Agreement are
for convenience only, and shall not affect the construction of this Agreement.
The words "hereof," "herein," and "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. Gender references are freely
interchangeable and shall refer to the masculine, feminine or neuter.
<PAGE>
ARTICLE II LOANSCREDIT; LETTERS OF CREDIT; OTHER MATTERS
2.1 Loans.
(a) Amount, Authority to Make Certain Advances. Subject to the
terms and conditions of the Loan Documents, and in reliance upon the
representations and warranties of the Borrowers set forth herein and in
the other Loan Documents, the Lender agrees to make loans
(individually, a "Loan" and collectively, the "Loans") to the Borrowers
during the period from and after the date hereof to the date on which
the Credit terminates, in such amounts, in the type of Advance and at
such times as the Borrowers may from time to time request, up to but
not in excess of the Loan Availability. Loans made by the Lender may be
repaid and, subject to the terms and conditions hereof, reborrowed to
the date on which the Credit terminates.
(b) Types of Advances. The Loans shall be Eurodollar Advances
or Reference Rate Advances, as requested by the Borrowers, except as
otherwise provided herein. Any combination of types of Advances may be
outstanding at the same time, provided that, no more than five (5)
Eurodollar Advances may be outstanding at any one time. Each Eurodollar
Advance shall be in a minimum amount of $1,000,000 or in an integral
multiple of $500,000 above such amount.
(c) Indemnification. Each Borrowers hereby indemnifies the
Lender against any loss or expense which the Lender may sustain or
incur (including, without limitation, any loss or expense sustained or
incurred in obtaining, liquidating or employing deposits or other funds
acquired to effect, fund, or maintain any Advance) as a consequence of
(i) any failure of the Borrowers or any of them to make any payment
when due of any amount due hereunder or under any Note, (ii) any
failure of the Borrowers or any of them to borrow, continue or convert
an Advance on a date specified therefor in a notice thereof, or (iii)
any payment (including, without limitation, any payment pursuant to
Section 7.2), prepayment or conversion of any Eurodollar Advance on a
date other than the last day of the Interest Period for such Eurodollar
Advance. Lender's certificate or invoice setting forth the amount or
amounts Lender is entitled to receive pursuant to this Section 2.1(c)
delivered to the Borrowers shall be conclusive in the absence of error.
The amount shown as due on such certificate or invoice is payable on
demand.
<PAGE>
(d) Mandatory Payments. All Loans and other Obligations
hereunder shall be paid by the Borrowers on the Termination Date unless
payable sooner pursuant to the provisions of this Agreement. In
addition, Borrowers shall pay to the Lender all proceeds of Collateral
in accordance with the provisions of this Agreement and other Loan
Documents for application against the Obligations in such order and
manner as Lender may deem appropriate. If the aggregate outstanding
principal balance of the Loans exceeds the Loan Availability or there
is a negative Loan Availability, then, unless the Lender shall
otherwise consent in writing, the Borrowers shall immediately and
without notice of any kind make such payments as shall be necessary to
eliminate such excess or negative Loan Availability, or take such other
action (including, without limitation, delivery of cash collateral) as
Lender may require.
(e) Recourse to Collateral. The Borrowers' payment obligations
under this Agreement and under any Note, Letter of Credit Agreement and
any other Loan Document are primary and absolute and Lender shall not
be required to seek recourse to Collateral, Third Party Collateral or
other security at any time.
2.2 Letters of Credit.
(a) Application, Agreement to Issue. From time to time from
and after the date hereof to the Termination Date or, if earlier, the
date on which the Credit terminates, a Borrower may request Lender, or
any Affiliate, to issue one or more Letters of Credit for the account
of such Borrower and, upon receipt of duly executed Letter of Credit
Applications and such other Letter of Credit Agreements as the Lender,
or such Affiliate, may require, Lender or such Affiliate shall, in its
discretion, issue Letters of Credit on such terms as are satisfactory
to the Letter of Credit Issuer; provided, however, that no Letter of
Credit will be issued if, before or after taking such Letter of Credit
into account, the Letter of Credit Obligations exceed the least of (i)
the Letter of Credit Sublimit, (ii) the Credit Amount minus the
outstanding principal balance of the Loans, and (iii) the Borrowing
Base minus the outstanding principal balance of the Loans.
(b) Fees and Commissions. The Borrowers agree to pay the
Letter of Credit Issuer, on demand, the Letter of Credit Issuer's
standard administrative operating fees and charges in effect from time
to time for issuing, administering or making payments under any Letters
of Credit. The Borrowers further agree to pay the Lender a commission
on the undrawn amount of each Letter of Credit (which amount shall
include, without limitation, the amount of each L/C Draft accepted by
the Letter of Credit Issuer but unpaid) in the amounts and at such
times as are set forth in Supplement A.
(c) Reimbursement Obligations. The Borrowers agree to
reimburse the Letter of Credit Issuer on demand for each payment made
by the Letter of Credit Issuer under or pursuant to any Letter of
Credit or L/C Draft. The Borrowers further agree to pay to the Lender,
on demand, interest at the Default Rate, on any amount paid by the
Letter of Credit Issuer, under or pursuant to any Letter of Credit or
L/C Draft, from the date of payment until the date of reimbursement to
the Letter of Credit Issuer. The Borrowers hereby authorize Lender, at
Lender's option, to make an Advance under this Agreement in an amount
equal to the amount paid by the Letter of Credit Issuer, under any
Letter of Credit or L/C Draft, and pay such amount to the Letter of
Credit Issuer in reimbursement for such payment.
<PAGE>
(d) Acceleration, Required Deposits. Notwithstanding anything
to the contrary herein or in any Letter of Credit Agreement or Letter
of Credit, without notice to any Borrower or Obligor, upon termination
of the Credit, (whether pursuant to Section 7.1(a) or (b) or otherwise)
and, at Lender's discretion, at any time that an Event of Default has
occurred and is continuing (whether or not the Credit is terminated),
an amount equal to the aggregate amount of the Letter of Credit
Obligations shall be deemed (as between the Lender and the Borrowers)
to have been paid or disbursed by the Letter of Credit Issuer under the
Letters of Credit and L/C Drafts accepted by the Letter of Credit
Issuer, notwithstanding that such amounts may not in fact have been so
paid or disbursed.
Upon the occurrence of the events described in the preceding paragraph,
Lender is hereby authorized, at its option, to make an Advance under
this Agreement in an amount equal to such Letter of Credit Obligations,
which Advance shall be immediately due and payable, the proceeds of
which shall be deposited into a separate cash collateral account as set
forth in this Section 2.2(d) below. In lieu of the foregoing, Lender,
at its election, may demand, and upon such demand Borrowers shall
deliver to Lender, cash or cash equivalents in an amount equal to the
Letter of Credit Obligations. (Cash equivalents, if acceptable, shall
have the value as determined by the Lender.)
The proceeds of such Advance and/or cash or cash equivalents received
by Lender pursuant to this Section 2.2(d) shall be deposited by the
Lender in a separate account appropriately designated as a cash
collateral account in relation to this Agreement and shall be retained
by the Lender, or Affiliate, as collateral security for the Obligations
including, without limitation, the Letter of Credit Obligations. Such
amounts shall not be used by the Letter of Credit Issuer, to pay any
amounts drawn under any Letter of Credit or L/C Draft. At Lender's
option, such amounts may be applied by Lender to reimburse the Letter
of Credit Issuer for payments made under a Letter of Credit or L/C
Draft or to payment of such other Obligations as the Lender shall
determine. Following payment in full of all Obligations, the
termination or expiration of all Letters of Credit and the termination
of the Credit, any amounts remaining in any cash collateral account
established pursuant to this Section 2.2 shall be returned to the
Borrowers or other Person legally entitled thereto (after deduction of
the Lender's and any Affiliate's expenses). The deposit of cash or cash
equivalents by Borrowers shall not relieve Borrowers or any Obligor of
any Obligations under any of the Loan Documents.
2.3 Loan Account; Disbursement Account; Controlled Disbursement
Account.
(a) Loan Account. The Lender shall establish or cause to be
established on its books in the Borrowers' names one or more accounts
(each, a "Loan Account") to evidence Loans made to the Borrowers. Any
amounts advanced as a Loan pursuant to this Agreement will be debited
to the applicable Loan Account and result in an increase in the
principal balance outstanding in such Loan Account in the amount
thereof, provided, however, any failure by Lender to debit such Loan
Account in respect of any such Loans shall not affect Borrowers'
obligations to repay such Loans in accordance with the provisions of
this Agreement or any Note. Any amount received by the Lender and
applied by the Lender as principal payments in accordance with the
provisions hereof, will be credited to the applicable Loan Account and
result in a reduction in the principal balance outstanding in such Loan
Account.
<PAGE>
(b) Disbursement Account. The Borrowers shall maintain in
their names a commercial account (the "Disbursement Account") at
Lender's office at 15 West South Temple, Salt Lake City, Utah 84101.
Unless otherwise provided in this Agreement, the Lender will credit or
cause to be credited to the Disbursement Account the amount of each
Advance made by Lender hereunder.
(c) Controlled Disbursement Account. At its option, each
Borrower may maintain in its name a commercial account (the "Controlled
Disbursement Account") with a bank selected by such Borrower and
satisfactory to the Lender, into which deposits from the Disbursement
Account may be authorized by the Borrowers and/or the Lender and from
which the applicable Borrower may draw checks for corporate purposes.
If a Borrower so elects, such Borrower, Lender and such depository bank
shall enter into an agreement satisfactory to Lender regarding, among
other things, the Controlled Disbursement Account and access to amounts
on deposit therein or attributable thereto.
2.4 Interest; Fees.
(a) Interest. The outstanding principal balance of each Loan
to the Borrowers hereunder shall bear interest at the rate(s)
applicable to such Loan as set forth in Supplement A; provided,
however, that no provision of this Agreement or of any Note shall
require the payment or permit the collection of interest in excess of
the rate permitted by applicable law. Interest as aforesaid shall be
charged for the actual number of days elapsed over a year consisting of
360 days on the actual daily balance of such Loan. Interest on the
unpaid principal of any Loan shall accrue from the date such Loan is
made to the date such Loan is paid in full. Interest shall be paid on
the Payment Dates for the applicable types of Loans. Any accrued or
accruing interest after the Termination Date or other date on which the
Credit terminates shall be payable on demand.
(b) Interest After Default. At any time that an Event of
Default has occurred and is continuing, the outstanding principal
amount of all Loans, all past due interest and all past due fees and
other sums payable to the Lender hereunder or under any Loan Document
shall bear interest at the Default Rate.
(c) Unused Credit Fee. The Borrowers shall pay to the Lender
an Unused Credit Fee for the period from and after the date hereof
through and including the date the Credit is terminated in the amount
and at the times set forth in Supplement A.
2.5 Requests for Loans; Borrowing Base Certificates; Other
Information; Continuation and Conversion of Loans.
(a) Loan Requests. Except as otherwise expressly provided
elsewhere in this Agreement, Loans shall be requested by telephone and
promptly confirmed in writing by a Borrower, and must be given so as to
be received by the Lender not later than:
(i) 1:00 p.m., Minneapolis time, on the date of the
requested Loan, if the Loan is to be comprised of Reference
Rate Advances; or
(ii) 11:00 a.m., Minneapolis time, two Business Days
prior to the date of the requested Loan, if the Loan is to be,
or include, a Eurodollar Advance.
<PAGE>
Each request for a Loan shall specify (i) the borrowing date (which
shall be a Business Day), (ii) the amount of such Loan and the type or
types of Advances comprising such Loan (subject to the limitation on
amount set forth in Section 2.1(bc)), and (iii) if such Loan shall
include Eurodollar Advances, the initial Interest Periods for each such
Eurodollar Advance. The failure of any Borrower to confirm any
telephonic request or otherwise comply with the provisions of this
Section 2.5(a) shall not in any manner affect the obligation of the
Borrowers to repay such Loan in accordance with the terms of this
Agreement.
(b) Additional Information. In the event that a Borrower shall
at any time, or from time to time, (i) make a request for a Loan, or
(ii) be deemed to have requested an Overdraft Loan, the Borrowers agree
to forthwith provide the Lender with such information, at such
frequency and in such format, as is required by the Lender, such
information to be current as of the time of such request.
(c) Borrowing Base Certificate. Each Borrower further agrees
to provide to the Lender a current borrowing base certificate
("Borrowing Base Certificate") at the end of each month and at such
other times as the Lender may request. Such Borrowing Base Certificate
shall be in substantially the form of Exhibit A, and include such
supporting documentation as Lender may require and shall be executed
and certified as accurate by such person or persons as such Borrower
designates, from time to time, in writing to the Lender as provided
herein.
(d) Borrower's Authorized Representatives. Each Borrower shall
provide the Lender with documentation satisfactory to the Lender
indicating the names of those employees of such Borrower authorized by
such Borrower to sign, among other things, Borrowing Base Certificates,
and/or to make a telephone request for a Loan, and/or to authorize
disbursement of the proceeds of a Loan by wire transfer or otherwise.
The Lender shall be entitled to rely upon such documentation until
notified in writing by such Borrower of any change(s) in the names of
persons so authorized. The Lender shall be entitled to act on the
instructions of anyone identifying himself as one of the persons
authorized to request Loans or disbursements of Loan proceeds by
telephone and the Borrowers shall be bound thereby in the same manner
as if the person were actually so authorized. The Borrowers agree to
indemnify and hold the Lender harmless from any and all claims,
damages, liabilities, losses, costs and expenses (including Attorneys'
Fees) which may arise or be created by the acceptance of instructions
(telephonic or otherwise) for making Loans or disbursing Loan proceeds
by wire transfer or otherwise, or for application of payments.
(e) Continuation and Conversion of Loans. A Borrower may elect
to continue any outstanding Eurodollar Advance from one Interest Period
into a subsequent Interest Period to begin on the last day of the
earlier Interest Period, or convert any outstanding Advance into
another type of Advance (on the last day of an Interest Period only, in
the instance of a Eurodollar Advance), by giving the Lender telephonic
notice promptly confirmed in writing, given so as to be received by the
Lender not later than:
<PAGE>
(i) 1:00 p.m., Minneapolis time, on the date of the
requested conversion, if requesting conversion of a Eurodollar
Advance to a Reference Rate Advance; or
(ii) 11:00 a.m., Minneapolis time, two (2) Business
Days prior to the date of the requested continuation or
conversion, if requesting the continuation of a Eurodollar
Advance or the conversion of a Reference Rate Advance to a
Eurodollar Advance.
Each notice of continuation or conversion of an Advance shall specify
(x) the effective date of the continuation or conversion (which shall
be a Business Day), (y) the amount and the type or types of Advances
following such continuation or conversion (subject to the limitation on
amount set forth in Section 2.1(b), and (z) for continuation as, or
conversion into, Eurodollar Advances, the Interest Periods for such
Advances. Absent timely notice of continuation or conversion, each
Eurodollar Advance shall automatically convert into a Reference Rate
Advance on the last day of an applicable Interest Period, unless paid
in full on such last day. No Advance shall be continued as, or
converted into, a Eurodollar Advance if the shortest Interest Period
for such Advance may not transpire prior to the Termination Date or if
an Event of Default or Unmatured Event of Default has occurred and is
continuing.
2.6 Notes. Lender, in its sole and absolute discretion, may require
that any and all Loans hereunder be evidenced by a Note. Whether or not
evidenced by a Note, all Loans and payments thereof shall be recorded on the
Lender's books, which shall be rebuttable presumptive evidence of the amount of
such Loans outstanding at any time hereunder. The Lender will account monthly as
to all Loans and payments hereunder. Notwithstanding any term or condition of
this Agreement to the contrary, the failure of the Lender to record the date and
amount of any Loan shall not limit or otherwise affect the obligation of the
Borrowers to repay any such Loan.
2.7 Overdraft Loans. The Lender, in its sole and absolute discretion
and subject to the terms hereof, may make a Loan to the Borrowers in an amount
equal to the amount of any overdraft which may from time to time exist with
respect to the Disbursement Account or any other bank account which the
Borrowers may now or hereafter have with Lender or any other Affiliate. The
existence of such overdraft shall be deemed to be a request by the Borrowers for
such Loan. The Borrowers acknowledge that the Lender is under no duty or
obligation to make any Loan to the Borrowers to cover any overdraft. The
Borrowers further agree that an overdraft shall constitute a separate Loan under
this Agreement (an "Overdraft Loan"), which shall bear interest, from the date
on which the overdraft occurred until paid, in an amount equal to the greater of
130% of the highest rate of interest then charged for Loans (other than
Overdraft Loans or Over Advances) made hereunder, or $50.00 per day. If the
Lender, in its sole and absolute discretion, decides not to make a Loan to cover
part or all of any overdraft, the Lender may return any check(s) which created
such overdraft.
<PAGE>
2.8 Over Advances. The Lender, in its sole and absolute discretion, may
make Loans to the Borrowers, either at the Borrowers' request or to pay amounts
due to the Lender or any Affiliate under this Agreement or any other Loan
Document, in excess of the Loan Availability or permit the total Loans to exceed
the Loan Availability at any time (such excess Obligations are hereinafter
referred to as "Over Advances"). No Over Advance or series of Over Advances
shall cause or constitute a waiver by the Lender of its right to refuse to make
any further Loan or to issue, or cause to be issued, any Letters of Credit at
any time that an Over Advance exists or would result therefrom. During any
period in which an Over Advance exists, the amount of the Over Advances shall
bear interest at a rate equal to 130% of the highest rate of interest then
charged for Loans (other than Overdraft Loans or Over Advances) made hereunder.
2.9 All Loans One Obligation. All Loans under this Agreement shall
constitute one Loan, and all Obligations shall constitute one general
obligation, secured by the Lien granted by the Borrowers hereunder on all of the
Collateral and by all other Liens heretofore, now or at any time or times
hereafter granted by the Borrower or any other Obligor to secure the
Obligations. The Borrowers agree that all of the rights of the Lender set forth
in the Loan Documents shall, unless otherwise agreed to in writing, apply to any
modification of or supplement to the Loan Documents.
2.10 Making of Payments; Application of Collections; Charging of
Accounts.
(a) All payments hereunder (including payments with respect to
any Notes) shall be made without set-off or counterclaim and shall be
made to the Lender in immediately available funds (or as the Lender may
otherwise consent) prior to 11:00 a.m., Minneapolis time, on the date
due at its office at U.S. Bank Place, 601 Second Avenue South,
Minneapolis, Minnesota 55402-4302, or at such other place as may be
designated by the Lender to the Borrowers in writing from time to time.
Any payments received after such time shall be deemed received on the
next Business Day. Whenever any payment to be made hereunder or under
any Note shall be stated to be due on a date other than a Business Day
such payment may be made on the next succeeding Business Day and such
extension of time shall be included in the computation of payment of
interest or any fees.
<PAGE>
(b) The Borrowers authorize the Lender to, and the Lender
will, subject to the provisions of this Section 2.10(b), apply the
whole or any part of any amounts received by the Lender, or any
Affiliate (whether deposited in the Collateral Account or otherwise
received by the Lender, or any Affiliate) from the collection of items
of payment and proceeds of any Collateral or Third Party Collateral
against the principal and/or interest of any Loans made hereunder
and/or any other Obligations, whether or not then due, in such order of
application as the Lender may determine, unless such payments or
proceeds are, in the Lender's sole and absolute discretion, released to
the Borrowers. No checks, drafts or other instruments received by the
Lender, or any Affiliate, shall constitute final payment to the Lender
unless and until such item of payment has actually been collected. All
items or amounts which are delivered to the Lender by or on behalf of
the Borrowers or any Obligor or any Account Debtor on account of
partial or full payment or otherwise as proceeds of any of the
Collateral or Third Party Collateral (including any items or amounts
which may have been deposited to the Collateral Account) may from time
to time, in the Lender's sole and absolute discretion, be released to
the Borrowers or may be applied by the Lender towards such of the
Obligations, whether or not then due, in such order of application as
the Lender may determine. Notwithstanding anything to the contrary
herein, (i) solely for purposes of determining the occurrence of an
Event of Default hereunder, all cash, checks, instruments and other
items of payment, shall be deemed received upon actual receipt by the
Lender unless the same is subsequently dishonored for any reason
whatsoever, (ii) solely for purposes of determining whether, under
Sections 2.1 and 2.2, there is Loan Availability, all cash, checks,
instruments and other items of payment shall be applied against the
Obligations no later than the first Business Day following receipt
thereof by the Lender in Minneapolis, Minnesota or the first Business
Day following the initiation by the Lender of an ACH transaction from
the Collateral Account, and (iii) solely for purposes of interest
calculation hereunder, all cash, checks, instruments and other items of
payment shall be deemed to have been applied against the Obligations no
later than the second Business Day following receipt thereof by the
Lender in Minneapolis, Minnesota or the second Business Day following
the initiation by the Lender of an ACH transaction from the Collateral
Account.
(c) The Borrowers hereby irrevocably authorize the Lender and
the Lender may, in its sole and absolute discretion, at any time and
from time to time, pay all or any portion of any Obligations including,
without limitation, interest, Attorneys' Fees and other fees, costs and
expenses of the Lender for which the Borrowers are liable pursuant to
the terms of the Loan Documents, by charging the Disbursement
Account(s) or any other bank account of the Borrowers or any of them
maintained with Lender or any Affiliate or by advancing the amount
thereof to the Borrowers as a Loan and applying the proceeds of such
Loan against such Obligations; provided, however, that the provisions
of this Section 2.10(c) shall not affect the Borrowers' obligations to
pay when due all amounts payable by the Borrowers under any of the Loan
Documents whether or not there are sufficient funds therefor in the
Disbursement Account(s) or any such other bank account of the Borrowers
or any of them with Lender or any other Affiliate, or sufficient Loan
Availability.
2.11 Lender's Election Not to Enforce. Notwithstanding any term or
condition of this Agreement to the contrary, the Lender, in its sole and
absolute discretion, at any time and from time to time may suspend or refrain
from enforcing any or all of the restrictions imposed in this Article II but no
such suspension or failure to enforce shall impair the Lender's right and power
under this Agreement to refrain from making a Loan or issuing, or causing to be
issued, a Letter of Credit requested by the Borrowers if all conditions
precedent to the Lender's obligation to make such Loan or issue, or cause to be
issued, such Letter of Credit have not been satisfied.
2.12 Additional Provisions Relating to Loans
(a) Increased Costs. If, as a result of any law, rule,
regulation, treaty or directive, or any change therein or in the
interpretation or administration thereof, or compliance by the Lender
or Affiliate with any request or directive (whether or not having the
force of law) from any court, central bank, governmental authority,
agency or instrumentality, or comparable agency:
<PAGE>
(i) any tax, duty or other charge with respect to any
Loan, any Note or the Credit is imposed, modified or deemed
applicable, or the basis of taxation of payments to the Lender
of interest or principal of the Loans or any fees (other than
taxes imposed on the overall net income of the Lender by the
jurisdiction in which the Lender has its principal office) is
changed;
(ii) any reserve, special deposit, special assessment
or similar requirement against assets of, deposits with or for
the account of, or credit extended by, the Lender is imposed,
modified or deemed applicable;
(iii) any increase in the amount of capital required
or expected to be maintained by the Lender or any Person
controlling the Lender is imposed, modified or deemed
applicable; or
(iv) any other condition affecting this Agreement
or the Credit is imposed on the Lender or the relevant funding
markets;
and the Lender determines that, by reason thereof, the cost to the
Lender of making or maintaining the Loans or the Credit is increased,
or the amount of any sum receivable by the Lender hereunder or under
any Note in respect of any Loan is reduced;
then, the Borrowers shall pay to the Lender such additional amount or
amounts as will compensate the Lender (or the controlling Person in the
instance of (iii) above) for such additional costs or reduction in
amounts received (provided that the Lender has not been compensated for
such additional cost or reduction in the calculation of the Eurodollar
Reserve Rate). Lender's or Affiliate's certificate or invoice setting
forth the amount or amounts such Person is entitled to receive pursuant
to this Section 2.12(a) shall be conclusive in the absence of manifest
error. In determining such amounts, the Lender may use any reasonable
averaging, attribution and allocation methods. The amount shown as due
on any certificate or invoice delivered under this Section 2.12(a) is
payable on demand.
(b) Deposits Unavailable or Interest Rate Unascertainable or
Inadequate; Impracticability. If the Lender determines (which
determination shall be conclusive and binding on the parties hereto)
that:
(i) deposits of the necessary amount for the relevant
Interest Period for any Eurodollar Advance are not available
to the Lender in the relevant markets or that, by reason of
circumstances affecting such market, adequate and reasonable
means do not exist for ascertaining the Eurodollar Interbank
Rate, as the case may be, for such Interest Period;
(ii) the Eurodollar Rate (Reserve Adjusted) will not
adequately and fairly reflect the cost to the Lender of making
or funding the Eurodollar Advances for a relevant Interest
Period; or
(iii) the making or funding of Eurodollar Advances
has become impracticable as a result of any event occurring
after the date of this Agreement which, in the opinion of the
Lender, materially and adversely affects such Advances or the
Lender's ability to make such Advances or the relevant market;
<PAGE>
the Lender shall promptly give notice of such determination to the
Borrowers, and (i) any request for a new Eurodollar Advance or for
conversion of a Reference Rate Advance to a Eurodollar Advance
previously given by a Borrower and not yet funded or converted shall be
deemed to be a request for a Reference Rate Advance, and (ii) the
Borrowers shall be obligated to either (A) prepay in full any
outstanding Eurodollar Advances without premium or penalty on the last
day of the current Interest Period with respect thereto or (B) convert
any such Eurodollar Advance to a Reference Rate Advance on the last day
of the current Interest Period.
(c) Changes in Law Rendering Eurodollar Advances Unlawful. If
at any time due to the adoption of any law, rule, regulation, treaty or
directive, or any change therein or in the interpretation or
administration thereof by any court, central bank, governmental
authority, agency or instrumentality, or comparable agency charged with
the interpretation or administration thereof, or for any other reason
arising subsequent to the date of this Agreement, it shall become
unlawful or impossible for the Lender to make or fund any Eurodollar
Advance, the obligation of the Lender to provide such Advance shall,
upon the happening of such event, forthwith be suspended for the
duration of such illegality or impossibility. If any such event shall
make it unlawful or impossible for the Lender to continue any
Eurodollar Advance previously made by it hereunder, the Lender shall,
upon the happening of such event, notify the Borrowers thereof in
writing, and the Borrowers shall, at the time notified by the Lender,
either (i) convert each such Eurodollar Advance to a Reference Rate
Advance, or (ii) repay such Eurodollar Advance in full, together with
accrued interest thereon, subject to the provisions of Section 2.1(cd).
(d) Funding.
(i) Discretion of the Lender as to Manner of Funding.
Notwithstanding any provision of this Agreement to the
contrary, the Lender shall be entitled to fund and maintain
its funding of all or any part of the Loans in any manner it
elects; it being understood, however, that for purposes of
this Agreement, all determinations hereunder shall be made as
if the Lender had actually funded and maintained each
Eurodollar Advance during the Interest Period for such Advance
through the purchase of deposits having a term corresponding
to such Interest Period and bearing an interest rate equal to
the Eurodollar Interbank Rate for such Interest Period
(whether or not the Lender shall have granted any
participations in such Advances).
(ii) Funding Through Affiliate. At the Lender's sole
option, it may fulfill its commitment to make Eurodollar
Advances by causing an Affiliate to make or continue such
Eurodollar Advances; provided, that in such instance such
Eurodollar Advances shall be deemed for purposes of this
Agreement to have been made by the Lender and the obligation
of the Borrowers to repay such Eurodollar Advances shall be to
the Lender and shall be deemed held by the Lender for the
account of such Affiliate.
<PAGE>
ARTICLE III COLLATERAL
3.1 Grant of Security Interest. As security for the payment of all
Loans now or hereafter made by the Lender to the Borrowers hereunder or under
any Note, and as security for the payment or other satisfaction of all other
Obligations, the Borrowers hereby pledge, assign and grant to the Lender, and
its Affiliates, a security interest in all right, title and interest of the
Borrowers or any of them in and to the following property of the Borrowers or
any of them, whether now owned or existing, or hereafter acquired or coming into
existence, wherever now or hereafter located (all such property is hereinafter
referred to collectively as the "Collateral"):
(a) Accounts Receivable (whether or not Eligible Accounts
Receivable), including all other rights and interests (including all
liens and security interests) that the Borrower may at any time have by
law or agreement against any Account Debtor or other obligor obligated
to make any such payment or against any of the property of such Account
Debtor or other obligor;
(b) General Intangibles;
(c) documents;
(d) all chattel paper and instruments evidencing, arising out
of or relating to any obligation to a Borrower for goods sold or leased
or services rendered or otherwise arising out of or relating to any
property described in clauses (a) through (c) above;
(e) any and all balances, credits, deposits (general or
special, time or demand, provisional or final), accounts or monies of
or in the name of a Borrower now or hereafter with the Lender, or any
Affiliate, and any and all property of every kind or description of or
in the name of a Borrower now or hereafter, for any reason or purpose
whatsoever, in the possession or control of, in transit to or standing
to a Borrower's credit on the books of, the Lender, any Affiliate, any
agent or bailee for the Lender or any Affiliate, or any Participant and
all items in any lockbox;
(f) all replacements, substitutions, additions or accessions
to or for any of the foregoing;
(g) to the extent related to the property described in clauses
(a) through (f) above, all books, correspondence, credit files,
records, invoices and other papers and documents, including, without
limitation, to the extent so related, all tapes, cards, computer runs,
computer programs and other papers and documents in the possession or
control of a Borrower or any computer bureau from time to time acting
for a Borrower, and, to the extent so related, all rights in, to and
under all policies of insurance, including claims of rights to payments
thereunder and proceeds therefrom and refunds of unearned premiums
related thereto, including, without limitation, any credit insurance;
and
(h) all proceeds of any of the foregoing.
<PAGE>
3.2 Accounts Receivable.
(a) Adjustments. The Borrowers shall notify the Lender
immediately of all disputes and claims by any Account Debtor and settle
or adjust them at no expense to the Lender. If the Lender directs, no
discount or credit allowance shall be granted thereafter by any
Borrower to any Account Debtor. All Account Debtor payments and all net
amounts received by the Lender in settlement, adjustment or liquidation
of any Account Receivable may be applied by the Lender to the
Obligations or credited to the Disbursement Account (subject to
collection), as the Lender may deem appropriate, as more fully
described in Section 2.10. If requested by the Lender, the Borrowers
will make proper entries in their books, disclosing the assignment of
Accounts Receivable to the Lender.
(b) Collateral Account. Unless otherwise consented to by the
Lender in writing, each Borrower will, forthwith upon receipt by such
Borrower of any and all checks, drafts, cash and other remittances in
payment or as proceeds of, or on account of, any of the Accounts
Receivable or other Collateral, deposit the same in a special bank
account in Lender's name designated for receipt of such Borrower's
funds (the "Collateral Account") maintained by Lender or such other
bank or financial institution as the Lender shall consent, over which
the Lender alone has power of withdrawal, and will designate with each
such deposit the particular Accounts Receivable or other item of
Collateral upon which the remittance was made. The Borrowers
acknowledge that the maintenance of the Collateral Account is solely
for the convenience of the Lender in facilitating its own operations
and the Borrowers do not and shall not have any right, title or
interest in the Collateral Account or in the amounts at any time
appearing to the credit thereof. Said proceeds shall be deposited in
precisely the form received except for a Borrower's endorsement where
necessary to permit collection of items, which endorsement each
Borrower agrees to make. The applicable Borrower(s) shall be liable as
endorsee on all items deposited in the Collateral Account whether or
not in fact endorsed by such Borrower(s). Pending such deposit, the
Borrowers agree not to commingle any such checks, drafts, cash and
other remittances with any of its funds or property, but will hold them
separate and apart therefrom and upon an express trust for the Lender
until deposit thereof if made in the Collateral Account. Upon the full
and final liquidation of all Obligations and termination of the Credit,
the Lender will pay over to the Borrowers any excess amounts received
by the Lender as payment or proceeds of Collateral, whether received by
the Lender as a deposit in the Collateral Account or received by the
Lender as a direct payment on any of the sums due hereunder.
<PAGE>
(c) Lockbox. After the occurrence of an Event of Default, the
Lender may request and upon such request Borrowers will irrevocably
direct all present and future Account Debtors and other Persons
obligated to make payments on Accounts Receivable or other Collateral
to make such payments to a special lockbox (the "Lockbox") under the
control of Lender or an Affiliate. The Borrowers may, at their
election, at any time direct all present and future Account Debtors and
other Persons obligated to make payments on Accounts Receivable or
other Collateral to make such payments to such a Lockbox. After such
request or otherwise at the direction of the Borrowers, all invoices,
account statements and other written or oral communication directing,
instructing, requesting or demanding payment of any Account Receivable
or other amount constituting Collateral shall direct that all payments
be made to the Lockbox and shall include the Lockbox address. All
payments received in the Lockbox shall be processed to the Collateral
Account. Borrowers agree to execute and deliver all documentation
required by Lender related to the establishment and maintenance of the
Lockbox, when required or when so elected by the Borrowers, as
applicable.
(d) Government Claims. If any Accounts Receivable, chattel
paper or General Intangible arises out of contracts or other
transactions with the United States of America or any department,
agency, or instrumentality thereof (a "Federal Governmental Authority")
or with any state, county of local government authority or any
department, agency or instrumentality thereof (collectively, the "Other
Governmental Authorities"), the Borrowers will, unless the Lender shall
otherwise agree in writing, immediately notify the Lender in writing
and execute any instruments and take any steps required by the Lender
in order that all monies due and to become due under such contracts or
other transactions shall be assigned to the Lender and, with respect to
Federal Governmental Authorities, notice thereof given to the
government under the Federal Assignment of Claims Act of 1940, as
amended, and/or with respect to all Other Governmental Authorities,
notice thereof given to the appropriate authority.
(d) Chattel Paper. If any Account Receivable is evidenced by
chattel paper or instruments, the Borrowers will, unless the Lender
shall otherwise agree in writing, deliver the originals of same to the
Lender, appropriately endorsed to the Lender's order and, regardless of
the form of such endorsement, the Borrowers hereby expressly waive
presentment, demand, notice of dishonor, protest and notice of protest
and all other notices with respect thereto.
3.3 Reserved.
3.4 Reserved.
<PAGE>
3.5 Supplemental Documentation. At the Lender's request, the Borrowers
shall execute and/or deliver to the Lender, at any time or times hereafter, such
agreements, assignments, documents, financing statements, warehouse receipts,
bills of lading, notices of assignment of Accounts Receivable, schedules of
Accounts Receivable assigned, and other written matter necessary or requested by
the Lender to perfect and maintain a perfected the security interest in the
Collateral granted hereunder (all the above hereinafter referred to as
"Supplemental Documentation"), in form and substance acceptable to the Lender,
and pay all taxes, fees and other costs and expenses associated with any
recording or filing of the same. Borrowers agree to reimburse the Lender for the
costs of all searches and updates of searches in public records deemed necessary
by the Lender in connection with the protection of its security interest. Each
Borrower hereby irrevocably makes, constitutes and appoints the Lender (and all
Persons designated by the Lender for that purpose) as such Borrower's true and
lawful attorney (and agent-in-fact) to sign the name of such Borrower on any of
the Supplemental Documentation and to deliver any of the Supplemental
Documentation to such Persons as the Lender in its sole and absolute discretion,
may elect. The Borrowers agrees that a carbon, photographic, photostatic, and
other reproduction of this Agreement or of a financing statement is sufficient
as a financing statement.
3.6 Power of Attorney. Each Borrower irrevocably designates, makes,
constitutes, and appoints the Lender (and all Persons designated by the Lender)
as such Borrower's true and lawful attorney (and agent-in-fact) and the Lender,
or the Lender's agent, may, without notice to such Borrower:
(a) at such time or times hereafter as the Lender or said
agent, in its sole and absolute discretion, may determine, in such
Borrower's or the Lender's name, (i) after an Event of Default,
receive, open and dispose of all mail received at the address of such
Borrower; (ii) notify and/or require such Borrower to notify, any
Account Debtor or other Person obligated under or in respect of any
Collateral, of the fact of the Lender's Lien thereon and of the
collateral assignment thereof to the Lender; (iii) direct and/or
require such Borrower to direct, any Account Debtor or other Person
obligated under or in respect of any Collateral, to make payment
directly to the Lender of any amounts due or to become due thereunder
or with respect thereto; (iv) endorse such Borrower's name on any
checks, notes, drafts or any other items of payment relating to and/or
proceeds of the Collateral which come into the possession of the Lender
or under the Lender's control and apply such payment or proceeds to the
Obligations in such manner as Lender shall determine; and (v) endorse
such Borrower's name on any chattel paper, document, instrument,
invoice, freight bill, bill of lading or similar document or agreement
in the Lender's possession relating to Accounts Receivable or any other
Collateral; and
(b) at such time or times after the occurrence of an Event of
Default, as the Lender or said agent, in its sole and absolute
discretion, may determine, in such Borrower's or the Lender's name: (i)
receive, open and dispose of all mail received at the street address or
any post office box address of such Borrower; (ii) demand, collect,
surrender, release or exchange all or any part of any Collateral or any
amounts due thereunder or with respect thereto; (iii) settle, adjust,
compromise, extend or renew for any period (whether or not longer than
the initial period) any and all sums which are now or may hereafter
become due or owing upon or with respect to any of the Collateral; (iv)
enforce, by suit or otherwise, payment or performance of any of the
Collateral; (v) settle, adjust or compromise any legal proceedings
brought to collect any sums due or owing upon or with respect to any of
the Collateral; (vi) exercise all of such Borrower's rights and
remedies with respect to the collection of any amounts due upon or with
respect to any of the Collateral; (vii) if permitted by applicable law,
sell or assign the Collateral upon such terms, for such amounts and at
such time or times as the Lender may deem advisable; (viii) discharge
and release the Collateral; (ix) prepare, file and sign such Borrower's
name on any proof of claim in bankruptcy or similar document against
any Account Debtor; (x) prepare, file and sign such Borrower's name on
any notice of lien, assignment or satisfaction of lien or similar
document in connection with the Accounts Receivable and/or other
Collateral; and (xi) do all acts and things necessary, in the Lender's
sole and absolute discretion, to obtain repayment of the Obligations
and to fulfill such Borrower's other obligations under this Agreement.
<PAGE>
(c) at such time or times after the assertion by the Lender
that an Event of Default has occurred and is continuing (whether or not
an Event of Default has in fact occurred), as the Lender or said agent,
in its reasonable discretion, may determine, in such Borrower's or the
Lender's name, notify the post office authorities to change the address
for delivery of such Borrower's mail to an address designated by the
Lender.
This power, being coupled with an interest, is irrevocable until all Obligations
are paid in full, all Letters of Credit have expired or been terminated and the
Credit is terminated. Under no circumstances shall the Lender be under any duty
to act in regard to any of the foregoing matters. The costs relating to any of
the foregoing matters, including Attorneys' Fees and out-of-pocket expenses
shall be borne solely by the Borrowers whether the same are incurred by the
Lender or the Borrowers.
The Lender and Affiliates and their respective directors, officers, employees or
agents shall not be liable for any acts of commission or omission nor for any
error in judgment or mistake of fact or law, unless the same shall have resulted
from gross negligence or willful misconduct.
3.7 License. Each Borrower grants to Lender and its Affiliates a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all leases, licenses, trademarks, franchises, tradenames, copyrights and patents
of the Borrower (to the extent permissible under the terms of such agreements)
for the purposes of selling, leasing, preparing for sale or disposing or
enforcing its rights in any or all of the Collateral.
ARTICLE IV REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make Loans to
the Borrowers and issue or cause to be issued Letters of Credit for the account
of the Borrowers hereunder, each Borrower makes the following representations
and warranties, all of which shall be true and correct as of the date the each
Loan is made or Letter of Credit is issued and survive the execution of this
Agreement and the making of the initial Loan or issuance of Letter of Credit:
4.1 Organization, Name. Each Borrower and each of such Borrower's
corporate Subsidiaries are corporations duly incorporated, validly existing and
in good standing under the laws of the jurisdiction of their respective
incorporation. All of each Borrower's other Subsidiaries, if any, are entities
duly organized, validly existing and in good standing under the laws of the
jurisdictions of their respective organization. Each Borrower and all of its
Subsidiaries are in good standing and are duly qualified to do business in each
state where, because of the nature of their respective activities or properties,
such qualification is required. During the last ten years each Borrower and each
Subsidiary has conducted business solely in the names set forth on Schedule 4.1,
and has no trade names, styles or doing business forms except as disclosed on
Schedule 4.1. The taxpayer identification number of Simon is 87-0545608. The
taxpayer identification number of Trucking is 87-0293383.
<PAGE>
4.2 Authorization. Each Borrower is duly authorized to execute and
deliver the Loan Documents and any Supplemental Documentation contemplated by
this Agreement, and is and will continue to be duly authorized to borrow monies
hereunder and to perform its obligations under the Loan Documents and any
Supplemental Documentation contemplated by this Agreement and the borrowings
hereunder do not and will not require any consent or approval of any
governmental agency or authority.
4.3 No Conflicts. The execution, delivery and performance by each
Borrower of the Loan Documents and any Supplemental Documentation contemplated
by this Agreement, do not and will not conflict with (a) any provision of law,
(b) the charter or by-laws of such Borrower, (c) any agreement binding upon any
Borrower, or (d) any court or administrative order or decree applicable to any
Borrower, and do not and will not require, or result in, the creation or
imposition of any Lien on any asset of any Borrower or any of the Subsidiaries
except as provided herein.
4.4 Validity and Binding Effect. The Loan Documents constitute (and any
Supplemental Documentation contemplated by this Agreement, when duly executed
and delivered will constitute) the legal, valid and binding obligations of each
Borrower and each Obligor, enforceable against each Borrower and each Obligor in
accordance with their respective terms. The execution, delivery and performance
of the Loan Documents by each Borrower and any Obligor, and the borrowing of
money, incurring of obligations and granting of Liens thereunder are within
their respective corporate powers and have been duly authorized by all necessary
corporate action.
4.5 No Default. None of the Borrowers nor any of their respective
Subsidiaries is in default under any agreement or instrument to which such
Borrower or any Subsidiary is a party or by which any of their respective
properties or assets is bound or affected, which default (a) might materially
and adversely affect the Lender's Lien on or rights with respect to any
Collateral or Third Party Collateral or (b) constitutes an Adverse Event. No
Event of Default or Unmatured Event of Default has occurred and is continuing.
4.6 Financial Statements. Each Borrower's audited consolidated and
consolidating financial statement as at September 30, 1998 and such Borrower's
unaudited consolidated and consolidating financial statement as at June 30,
1999, copies of which have been furnished to the Lender, have been prepared in
conformity with GAAP and applied on a basis consistent with that of the
preceding fiscal year and period and present fairly the financial condition of
such Borrower and its Subsidiaries as at such dates and the results of their
operations for the periods then ended, subject (in the case of the interim
financial statement) to year-end audit adjustments. Since June 30, 1999, no
Adverse Event has occurred.
4.7 Insurance. Schedule 4.7 sets forth a summary of the property and
casualty insurance program carried by each Borrower and its Subsidiaries on the
date hereof, including the insurer's(s') name(s), policy number(s), expiration
date(s), amount(s) of coverage, type(s) of coverage, the annual premium(s),
Best's policyholder's and financial size ratings of the insurers, exclusions,
deductibles and self-insured retention, and describes in detail any
retrospective rating plan, fronting arrangement or any other self-insurance or
risk assumption agreed to by any Borrower or any Subsidiary or imposed upon any
Borrower or any Subsidiary by any such insurer. This summary also includes any
self-insurance program that is in effect.
<PAGE>
4.8 Litigation; Contingent Liabilities.
(a) Except for those referred to in Schedule 4.8, no claims
litigation, arbitration proceedings or governmental proceedings are
pending or threatened against or are affecting any Borrower or any
Subsidiary.
(b) Other than any liability incident to the claims,
litigation or proceedings disclosed in Schedule 4.8, no Borrower nor
any Subsidiary has any contingent liabilities which are material to
such Borrower or Subsidiary.
4.9 Ownership of Property, Liens. Each Borrower and each of the
Subsidiaries has good and marketable title to its real properties and good and
sufficient title to its other properties, including all properties and assets
referred to as owned by such Borrower and/or its Subsidiaries in the audited
financial statement of such Borrower referred to in Section 4.6 (other than
property disposed of since the date of such financial statement in the ordinary
course of business as permitted by this Agreement). None of the Collateral or
other property or assets of any Borrower or any Subsidiary is subject to any
Lien (including, without limitation, Liens pursuant to Capitalized Leases under
which said Borrower or any Subsidiary is a lessee) except: (a) Liens in favor of
the Lender; (b) Liens for current Taxes not delinquent or Taxes being contested
in good faith and by appropriate proceedings and as to which such reserves or
other appropriate provisions as may be required by GAAP are being maintained;
(c) statutory Liens, such as carriers', loggers', warehousemen's, mechanics',
materialmen's and repairmens' Liens, arising in the ordinary course of business
securing obligations which are not overdue or which are being contested in good
faith and by appropriate proceedings and as to which such reserves or other
appropriate provisions as may be required by GAAP are being maintained; and (d)
Liens permitted on Schedule 4.9 or under Section 6.13.
4.10 Subsidiaries, Ownership. The Borrowers have no Subsidiaries except
as listed on Schedule 4.10. The ownership of each Borrower and each of the
Subsidiaries is as set forth on Schedule 4.10, which schedule shows the name(s)
of each Person having an ownership interest, and the percentage of such
ownership interest in the respective entity. Except as set forth on Schedule
4.10, no part of the ownership interest of any Person in any Borrower or any
Subsidiary is subject to any shareholder agreement, voting trust or other
agreement limiting or otherwise pertaining to the ownership interest of such
Person.
4.11 Partnerships; Joint Ventures; LLCs. No Borrower nor any of the
Subsidiaries is a partner or joint venturer or member in any partnership, joint
venture or limited liability company other than the partnerships, joint ventures
and limited liability companies listed on Schedule 4.11.
<PAGE>
4.12 Business Locations. On the date hereof, the Borrowers' and each
Subsidiary's chief executive office and principal place of business are located
at the respective addresses set forth on Schedule 4.12. The books and records of
the Borrowers and each Subsidiary relating to its business and the concerning
such Borrower's Accounts Receivable and other Collateral are kept at such
locations. All of other locations or places of business of the Borrowers and
each Subsidiary are as set forth on Schedule 4.12. Each Borrower and each
Subsidiary is the lawful owner of fee title or of the lessee's interest under a
valid and existing lease with respect to the places of business described on
Schedule 4.12. For each location subject to a lease or mortgage, the legal
description(s) of the real property and the name(s) of the record owner and any
mortgagee of such real property is set forth in Schedule 4.12.
4.13 Reserved.
4.14 Eligibility of Collateral. (a) All of the Accounts Receivable are
and will continue to be bona fide existing obligations created by the sale of
goods, the rendering of services, or the furnishing of other good and sufficient
consideration to Account Debtors in the regular course of business and all
shipping or delivery receipts and other documents furnished or to be furnished
to the Lender in connection therewith are and will be genuine; (b) each Account
Receivable which a Borrower shall, expressly or by implication, request the
Lender to classify as an Eligible Account Receivable, will, as of the time when
such request is made, conform in all respects to the requirements of such
classification set forth in the definition of "Eligible Account Receivable" set
forth herein.
4.15 Control of Collateral; Lease of Property. No Collateral is under
the control of any Subsidiary or other Person who is not a Borrower under this
Agreement. Except as listed on Schedule 4.15, none of the machinery, equipment
or real property used by any Borrower or any Subsidiary is subject to a lease
(excluding only Capitalized Leases included on Schedule 6.12) under which such
Borrower or such Subsidiary is the lessee.
4.16 Patents, Trademarks, Etc. Each Borrower and each of the
Subsidiaries possesses or has the right to use all of the patents, trademarks,
trade names, service marks and copyrights, and applications therefor, and all
technology, know-how, processes, methods and designs used in or necessary for
the conduct of its business, without known conflict with the rights of others.
All such licenses, patents, trademarks, trade names, service marks and
copyrights, and applications therefor existing on the date hereof are listed on
Schedule 4.16.
4.17 Solvency. Each Borrower and each of the Subsidiaries now has
capital sufficient to carry on its respective business and transactions and all
business and transactions in which it is about to engage and is now solvent and
able to pay its respective debts as they mature, and each Borrower and each of
the Subsidiaries now owns property having a value, greater than the amount
required to pay such Borrower's or such Subsidiary's debts.
4.18 Contracts; Labor Matters. Except as disclosed on Schedule 4.18:
(a) None of the Borrowers nor any Subsidiary is a party to any contract or
agreement, or subject to any charge, corporate restriction, judgment, decree or
order, the performance of which constitutes an Adverse Event; (b) no labor
contract to which any Borrower or any Subsidiary is subject is scheduled to
expire during the original term of this Agreement; and (c) on the date of this
Agreement (i) none of the Borrowers nor any Subsidiary is a party to any labor
dispute and (ii) there are no strikes or walkouts relating to any labor
contracts to which any Borrower or any Subsidiary is subject.
<PAGE>
4.19 ERISA. Each Plan is in substantial compliance with all applicable
requirements of ERISA and the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No Reportable Event has occurred and is continuing with
respect to any Plan. All of the minimum funding standards applicable to such
Plans have been satisfied and there exists no event or condition which would
reasonably be expected to result in the institution of proceedings to terminate
any Plan under Section 4042 of ERISA. With respect to each Plan subject to Title
IV of ERISA, as of the most recent valuation date for such Plan, the present
value (determined on the basis of reasonable assumptions employed by the
independent actuary for such Plan and previously furnished in writing to the
Lender of such Plan's projected benefit obligations did not exceed the fair
market value of such Plan's assets. Except as required under Section 4890B of
the Code, Section 601 of ERISA or applicable state law, none of the Borrowers
nor any Subsidiary is obligated to provide post-retirement medical or insurance
benefits with respect to employees or former employees.
4.20 Regulation U. No Borrower is engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (as defined in
Regulation U of the Federal Reserve Board), and no part of the proceeds of any
Loan will be used to purchase or carry margin stock or for any other purpose
which would violate any of the margin requirements of the Federal Reserve Board.
4.21 Compliance. Each Borrower and each of the Subsidiaries is in
material compliance with all statutes and governmental rules and regulations
applicable to it. All Inventory of the Borrowers has been produced in compliance
with all requirements of the Fair Labor Standards Act.
4.22 Taxes. Each Borrower and each Subsidiary has filed all federal,
state and local tax returns required to be filed and has paid, or made adequate
provisions for the payment of, all Taxes due and payable pursuant to such
returns and pursuant to any assessments made against it or any of its property
(other than Taxes the amount or validity of which is currently being contested
in good faith by appropriate proceedings and with respect to which reserves in
accordance with GAAP have been provided on the books of the Borrower). No tax
Liens have been filed and no material claims are being asserted with respect to
any such Taxes. The charges, accruals and reserves on the books of the Borrowers
in respect of Taxes are adequate. The federal income tax liability of each
Borrower and its Subsidiaries has been audited by the Internal Revenue Service
and has been finally determined and satisfied (or the time for audit has
expired) for all tax years up to and including the period ended November 16,
1995. The Borrowers are not aware of any proposed assessment against any
Borrower or any Subsidiary for additional Taxes (or any basis for any such
assessment) which might be material to such Borrower and its Subsidiaries taken
as a whole.
4.23 Investment Company Act. None of the Borrowers nor any Subsidiary
is an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
4.24 Public Utility Holding Company Act. None of the Borrowers
nor any Subsidiary is a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
<PAGE>
4.25 Environmental and Safety and Health Matters. Except as disclosed
on Schedule 4.25: (a) the operations of each Borrower and each of the
Subsidiaries complies in all material respects with (i) all applicable
Environmental Laws, and (ii) all applicable Occupational Safety and Health Laws;
(b) none of the operations of any Borrower or any Subsidiary are subject to any
judicial or administrative proceeding alleging the violation of any
Environmental Law or Occupational Safety and Health Law; (c) none of the
operations of any Borrower or any Subsidiary is the subject of federal or state
investigation evaluating whether any remedial action is needed to respond to (i)
a spillage, disposal or release into the environment of any Hazardous Material
or other hazardous, toxic or dangerous waste, substance or constituent, or other
substance, or (ii) any unsafe or unhealthful condition at any premises of any
Borrower or any Subsidiary; (d) no Borrower or any Subsidiary has received or
filed any notice under any Environmental Law or Occupation Safety and Health Law
indicating or reporting (i) any past or present spillage, disposal or release
into the environment of, or treatment, storage or disposal of, any Hazardous
Material or other hazardous, toxic or dangerous waste, substance or constituent,
or other substance or (ii) any unsafe or unhealthful condition at any premises
of any Borrower or any Subsidiary; (e) no Borrower or any Subsidiary has any
known contingent liability in connection with (i) any spillage, disposal or
release into the environment of, or otherwise with respect to, any Hazardous
Material or other hazardous, toxic or dangerous waste, substance or constituent,
or other substance, or (ii) any unsafe or unhealthful condition at any premises
of any Borrower or any Subsidiary; and (f) each Borrower and each Subsidiary has
secured and is maintaining all necessary permits, licenses and approvals
necessary under any Environmental Law to such Borrower's or such Subsidiary's
business.
4.26 Securities Act. No Borrower has issued any unregistered securities
in violation of the registration requirements of Section 5 of the Securities Act
of 1933, as amended, or any other law, and is not violating any rule, regulation
or requirement under the Securities Act of 1933, as amended, or the Securities
Act of 1934, as amended, in any material respect.
4.27 Consents. No consent of the shareholders of any Borrower or any
Subsidiary or any other Person and no order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority is required on the
part of any Borrower or any Subsidiary to authorize or is required in connection
with the execution, delivery and performance of, or the legality, validity,
binding effect or enforceability of, the Loan Documents.
ARTICLE V AFFIRMATIVE COVENANTS
From the date of this Agreement and thereafter until all Obligations are paid in
full, all Letters of Credit have expired or been terminated and the Credit has
terminated, the Borrowers agree that unless the Lender shall otherwise consent
in writing, each Borrower (or the Borrower specified) will:
5.1 Financial Statements and Other Reports.
5.1.1 Financial Reports. Furnish to the Lender in form
satisfactory to the Lender:
<PAGE>
(a) Annual Audit Report. As soon as available and in
any event within 90 days after the end of each fiscal year of
the Borrowers, the annual audit report of each Borrower and
its Subsidiaries prepared on a consolidating and consolidated
basis in conformity with GAAP, consisting of at least
statements of income, cash flow and stockholders' equity, and
a consolidated and consolidating balance sheet as at the end
of such year, setting forth in each case in comparative form
corresponding figures from the previous annual audit,
certified, without qualification, by independent certified
public accountants of recognized standing selected by such
Borrower and acceptable to the Lender, together with any
management letters, management reports or other supplementary
comments or reports to such Borrower or its board of directors
furnished by such accountants.
(b) Reserved.
(c) Quarterly Financial Statement. As soon as
available and in any event within 25 days after the end of
each of the first three fiscal quarters of each fiscal year of
each Borrower, a copy of the unaudited financial statement of
such Borrower and its Subsidiaries prepared in conformity with
GAAP, signed by such Borrower's chief financial officer and
consisting of at least consolidated statements of income, cash
flow and stockholders' equity for such Borrower and its
Subsidiaries for such quarter and for the period from the
beginning of such fiscal year to the end of such quarter, and
a consolidated and consolidating balance sheet of such
Borrower as at the end of such quarter.
(d) Reserved.
(e) Projections. As soon as available and in any
event not later than 45 days after the last day of each fiscal
year of each Borrower, projected financial statements of such
Borrower and its Subsidiaries consisting of at least
consolidated statements of income, cash flow and stockholders'
equity and a consolidated balance sheet, signed by such
Borrower's chief financial officer and presenting fairly such
Borrower's best good faith projections of the financial
position and results of operations of such Borrower and its
Subsidiaries for each month of the following fiscal year.
(f) Officer's Certificate. Together with the
financial statements furnished by the Borrowers under Section
5.1.1(a) and (c), a certificate of each Borrower's chief
financial officer, in substantially the form of Exhibit B
hereto, dated the date of such annual audit report or such
quarterly or monthly financial statement, as the case may be,
to the effect that no Event of Default or Unmatured Event of
Default has occurred and is continuing, or, if there is any
such event, describing it and the steps, if any, being taken
to cure it, and containing a computation of, and showing
compliance with, each of the financial ratios and restrictions
contained in Articles V and VI and Supplement A.
<PAGE>
5.1.2 Agings; Ineligible Accounts Receivable Certification.
Within 15 days after the end of each month, (a) a detailed aging of all
Accounts Receivable by invoice, including, without limitation, a
reconciliation to the aging report delivered to the Lender for the
preceding month, (b) a certification of ineligible Accounts Receivable
and (c) an aging of all accounts payable as of the end of the preceding
month, each in form and content acceptable to the Lender.
5.1.3 Reserved.
5.1.4 Sales and Collection Reports. If requested by Lender,
not later than 1:00 p.m., Minneapolis time, on each Business Day, a
report of the Borrowers' sales and collections for such day, and for
any other day for which sales and collections have not been reported,
in form and content acceptable to the Lender.
5.1.5 Other Reports.
(a) SEC and Other Reports. Promptly upon the making
or filing thereof, copies of all financial statements, reports
and proxy statements mailed to any Borrower's' shareholders,
and copies of all registration statements, periodic reports
and other documents filed with the Securities and Exchange
Commission (or any successor thereto) or any national
securities exchange.
(b) Report of Change in Subsidiaries or Other
Entities. Subject to Section 6.7, promptly upon the occurrence
thereof, a written report of any change in the list of each
Borrower's Subsidiaries set forth on Schedule 4.10 or in the
list of partnerships, joint ventures or limited liability
companies set forth on Schedule 4.11.
(c) Patents, Etc. Promptly upon the occurrence
thereof, a written report of any change to the list of
patents, trademarks, copyrights and other information set
forth in Schedule 4.16.
(d) Insurance Updates. If requested, provide to the
Lender within 45 days of such request, a certificate signed by
the respective chief financial officer of each Borrower that
attests to and summarizes the property and casualty insurance
program carried by such Borrower and its Subsidiaries. This
summary shall include each insurer's name, policy number(s),
expiration date(s), amount(s) of coverage, type(s) of
coverage, the annual premium(s), Best's policyholder's and
financial size ratings of each insurer, exclusions,
deductibles and self-insured retention and shall describe in
detail any retrospective rating plan, fronting arrangement or
any other self-insurance or risk assumption agreed to by such
Borrower or any Subsidiary or imposed upon such Borrower or
any Subsidiary by any such insurer, as well as any
self-insurance program that is in effect.
(e) Other Reports. The information required to
be provided pursuant to other provisions of this Agreement,
and such other reports from time to time requested by the
Lender.
<PAGE>
5.2 Notices. Notify the Lender in writing of any of the following
immediately upon learning of the occurrence thereof, describing the same and, if
applicable, the steps being taken by the Person(s) affected with respect
thereto:
(a) Default. The occurrence of (i) any Event of Default or
Unmatured Event of Default, and (ii) to the extent not included in
clause (i) above, the default by any Borrower, any other Obligor or any
Subsidiary under any note, indenture, loan agreement, mortgage, lease,
deed or other material similar agreement to which such Borrower, any
other Obligor or any Subsidiary, as appropriate, is a party or by which
it is bound.
(b) Litigation. The institution of any litigation, arbitration
proceeding or governmental proceeding affecting any Borrower, any other
Obligor, any Subsidiary, any Collateral or any Third Party Collateral,
whether or not considered to be covered by insurance wherein the amount
claimed and which, if such claim were successful, would have to be paid
by a Borrower, exceeds $250,000.
(c) Judgment. The entry of any judgment or decree against any
Borrower, any other Obligor or any Subsidiary, if the amount of such
judgment exceeds insurance coverage, including any deductible to be
paid by a Borrower, by $250,000 for any one judgment or the aggregate
amount of unpaid judgments entered against the Borrower exceeds
insurance coverage, including any deductible to be paid by the
Borrower, by $2,000,000.
(d) ERISA. With respect to any Plan, the occurrence of a
Reportable Event or Prohibited Transaction, a notice specifying the
nature thereof and what action the Borrowers propose to take with
respect thereto, and, when received, copies of any notice from PBGC of
intention to terminate or have a trustee appointed for any Plan.
(e) Reserved.
(f) Change in Place(s) of Business. Subject to the provisions
of Section 6.5, any proposed opening, closing or other change in the
list of offices and other places of business of each Borrower and each
Subsidiary set forth in Schedule 4.12 or 4.13, and any opening, closing
or other change in the offices and other places of business of each
other Obligor, together with a list of such new location(s) the legal
description of the location and the name and address of any landlord
and/or mortgagee.
(g) Change of Name. Subject to the provisions of Section 6.5,
any change in the name of any Borrower, any other Obligor or any
Subsidiary, and any change in the list of trade names and trade styles
set forth in Schedule 4.1.
<PAGE>
(h) Environmental and Safety and Health Matters.
Non-compliance with and/or receipt of any notice that the operations of
any Borrower, any other Obligor or any Subsidiary are not in material
compliance with the requirements of any applicable Environmental Law or
any Occupational Safety and Health Law; the occurrence of and/or
receipt of notice that any Borrower, any other Obligor or any
Subsidiary is subject to federal, state or local investigation
evaluating whether any remedial action is needed to respond to (i) any
spillage, disposal or release into the environment of any Hazardous
Material or other hazardous, toxic or dangerous waste, substance or
constituent, or other substance, or (ii) any unsafe or unhealthful
condition at any premises of any Borrower, any other Obligor or any
Subsidiary; or receipt of notice that any properties or assets of any
Borrower any other Obligor or any Subsidiary are subject to an
Environmental Lien.
(i) Adverse Event. The occurrence of an Adverse Event.
(j) Default by Others. Any material default by any Account
Debtor or other Person obligated to any Borrower, any other Obligor, or
any Subsidiary, under any contract, chattel paper, note or other
evidence of amounts payable or due or to become due to any Borrower,
such Obligor or Subsidiary if the amount payable under such contract,
chattel paper, note or other evidence of amounts payable or due or to
become due is material.
(k) Moveable Collateral. If any of the Collateral or Third
Party Collateral shall consist of goods of a type normally used in more
than one state, whether or not actually so used, any use of any such
goods in any state other than a state in which the Borrowers shall have
previously advised the Lender such goods will be used. The Borrowers
agree that such goods will not, unless the Lender shall otherwise
consent in writing, be used outside the continental United States or in
Louisiana.
(l) Change in Management or Line(s) of Business. Any
substantial change in the senior management of any Borrower or any
Subsidiary, or any change in anythe Borrower's' or any Subsidiary's
line(s) of business.
(m) Change in Insurance. The Borrowers shall (a) notify the
Lender in writing at least 30 days prior to any cancellation or
material change of any insurance by any Borrower or any Subsidiary and
(b) within five business days after receipt of any notice (whether
formal or informal) of any cancellation or change in any of its
insurance by any of its insurers or any material change in the cost
thereof or which reduces the policyholder's or financial size ratings
of the insurance carriers of any Borrower or Subsidiary, as established
by Best's Insurance Reports.
(n) Other Events. The occurrence of such other events as
the Lender may from time to time specify.
5.3 Existence. Maintain and preserve, and cause each of its
Subsidiaries to maintain and preserve, its respective existence as a corporation
or other form of business organization, as the case may be, and all rights,
privileges, licenses, patents, patent rights, copyrights, trademarks, trade
names, franchises and other authority to the extent material and necessary for
the conduct of its respective business in the ordinary course as conducted from
time to time.
5.4 Nature of Business. Engage, and cause each of its Subsidiaries
to engage, in substantially the same fields of business as it is engaged in on
the date hereof.
<PAGE>
5.5 Books and Records, Access. Maintain, and cause each of its
Subsidiaries to maintain, complete and accurate books and records (including,
without limitation, records relating to Accounts Receivable and other
Collateral), in which full and correct entries in conformity with GAAP shall be
made of all dealings and transactions in relation to its respective business and
activities. Cause its books and records as at the end of any calendar month to
be posted and closed not more than 15 days after the last business day of such
month. Permit, and cause each of its Subsidiaries to permit, access by the
Lender and its agents or employees to the books and records of each Borrower and
such Subsidiaries at such Borrower's or such Subsidiary's place or places of
business at intervals to be determined by the Lender and without hindrance or
delay, and permit, and cause each Subsidiary to permit, the Lender or its agents
and employees to inspect each Borrower's Inventory and Equipment and such
Subsidiary's inventory and equipment, and to inspect, audit, check and make
copies and/or extracts from the books, records, journals, orders, receipts,
correspondence and other data relating to Inventory, Accounts Receivable,
chattel paper, General Intangibles, Equipment and any other Collateral or Third
Party Collateral, or to any other transactions between the parties hereto. Any
and all such inspections and/or audits shall be at the Borrowers' expense.
5.6 Insurance. Maintain, and cause each Subsidiary to maintain,
insurance to such extent and against such hazards and liabilities as is commonly
maintained by companies similarly situated or as the Lender may request from
time to time. From time to time, prior to the expiration of any such insurance,
Borrowers shall deliver to Lender certificates evidencing the renewal of such
policies of insurance together with evidence of payment of all premiums
therefor.
5.7 Reserved.
5.8 Repair. Maintain, preserve and keep, and cause each Subsidiary to
maintain, preserve and keep, its properties in good repair, working order and
condition, and from time to time make, and cause each Subsidiary to make, all
necessary and proper repairs, renewals, replacements, additions, betterments and
improvements thereto so that at all times the efficiency thereof shall be fully
preserved and maintained.
5.9 Taxes. File and cause each Subsidiary to file its federal income
tax return for each taxable year when due and pay, and cause each Subsidiary to
pay, when due, all of its Taxes, unless and only to the extent that such
Borrower or such Subsidiary, as the case may be, is contesting such Taxes in
good faith and by appropriate proceedings and such Borrower or such Subsidiary
has set aside on its books such reserves or other appropriate provisions
therefor as may be required by GAAP.
5.10 Compliance. Comply, and cause each Subsidiary to comply, with all
federal, state and local statutes and governmental rules and regulations
applicable to it, including, without limitation, the Fair Labor Standards Act,
all Environmental Laws and all Occupational Safety and Health Laws.
<PAGE>
5.11 ERISA. Maintain, and cause each ERISA Affiliate to maintain, each
Plan in compliance with all material applicable requirements of ERISA and of the
Code and with all applicable rulings and regulations issued under the provisions
of ERISA and of the Code and not and not permit any of the ERISA Affiliates to
(a) engage in any transaction in connection with which any Borrower or any of
the ERISA Affiliates would be subject to either a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code, in either case in an amount exceeding $50,000, (b) fail to make full
payment when due of all amounts which, under the provisions of any Plan, any
Borrower or any ERISA Affiliate is required to pay as contributions thereto, or
permit to exist any accumulated funding deficiency (as such term is defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, with
respect to any Plan in an aggregate amount exceeding $50,000 or (c) fail to make
any payments in an aggregate amount exceeding $50,000 to any Multiemployer Plan
that any Borrower or any of the ERISA Affiliates may be required to make under
any agreement relating to such Multiemployer Plan or any law pertaining thereto.
5.12 Collateral Monitoring. Permit the Lender to (a) use the Borrowers'
stationery and sign the name of such Borrower to request verification of
Accounts Receivable or other Collateral from Account Debtors, and (b) use the
information recorded on or contained in any data processing equipment and
computer hardware and software to which any Borrower has access relating to
Accounts Receivable, Inventory, Equipment and/or other Collateral.
ARTICLE VI NEGATIVE COVENANTS
From the date of this Agreement and thereafter until all Obligations
are paid in full, all Letters of Credit have expired or been terminated and the
Credit has terminated, each Borrower agrees that, unless the Lender shall
otherwise consent in writing, it will not, and will not permit any Subsidiary
to, do any of the following:
6.1 Merger. Merge or consolidate or enter into any analogous
reorganization or transaction with any Person.
6.2 Sale of Assets. Sell, transfer, convey, lease, assign or otherwise
dispose (with or without recourse) of any of its assets (including, without
limitation, any Accounts Receivable, instruments or chattel paper) except for
sales and leases of Inventory, Equipment and terminal locations outside of Utah
and Georgia in the ordinary course of business.
6.3 Purchase of Assets. Purchase or lease or otherwise acquire
all or substantially all the assets of any Person.
6.4 ERISA. Permit any event to occur or condition to exist which would
permit any Plan to terminate under any circumstances which would cause the Lien
provided for in Section 4068 of ERISA to attach to any assets of any Borrower;
and no Borrower will permit, as of the most recent valuation date for any Plan
subject to Title IV of ERISA, the present value (determined on the basis of
reasonable assumptions employed by the independent actuary for such Plan and
previously furnished in writing to the Lender) of such Plan's projected benefit
obligations to exceed the fair market value of such Plan's assets.
<PAGE>
6.5 Changes in Collateral or Business Locations. Change (a) the
location of its chief executive office or chief place of business; (b) its name;
or (c) the locations where it stores or maintains Inventory or Equipment
without, in each case, at least 30 days' prior written notice to the Lender.
6.6 Fiscal Year. Change the end of its fiscal year from September
30.
6.7 Subsidiaries, Partnerships and Joint Ventures. Either: (a)
form or acquire any corporation which would thereby become a Subsidiary;
or (b) form or enter into any partnership as a limited or general partner or
into any joint venture or any limited liability company or other similar entity.
6.8 Other Agreements. Enter into any agreement, bond, note or other
instrument with or for the benefit of any Person other than the Lender which
would (a) prohibit any Borrower or Subsidiary from granting, or otherwise limit
the ability of such Borrower or such Subsidiary to grant, to the Lender any Lien
on the Collateral, or (b) be violated or breached by such Borrower's performance
of its obligations under the Loan Documents.
6.9 Restricted Payments. Purchase or redeem or otherwise acquire for
value any shares of any Borrower's or any Subsidiary's stock, declare or pay any
cash dividends thereon (other than stock and other dividends payable to such
Borrower), make any distribution to stockholders as such (other than such
Borrower) directly or indirectly, or set aside any funds for any such purpose;
prepay, purchase or redeem any subordinated Indebtedness of such Borrower or any
Subsidiary; and not take any action which will result in a decrease in such
Borrower's or any Subsidiary's ownership interest in any Subsidiary.
6.10 Reserved.
6.11 Investments. Acquire for value, make, have or hold any
Investments, except: (a) advances to employees of a Borrower or any Subsidiary
for travel or other ordinary business expenses; (b) advances to subcontractors
and suppliers in maximum aggregate amounts reasonably acceptable to the Lender;
(c) extensions of credit in the nature of Accounts Receivable or notes
receivable arising from the sale of goods and services in the ordinary course of
business; (d) shares of stock, obligations or other securities received in
settlement of claims arising in the ordinary course of business; (e) Investments
(other than Investments in the nature of loans or advances) outstanding on the
date hereof in Subsidiaries by such Borrower and its other Subsidiaries; (f)
other Investments outstanding on the date hereof and listed on Schedule 6.11;
and (g) other Investments consented to by the Lender in writing.
6.12 Indebtedness. Incur, create, issue, assume or suffer to exist any
Indebtedness, including, without limitation, Indebtedness as lessee under any
Capitalized Lease, except: (a) Indebtedness under the terms of this Agreement;
(b) Subordinated Debt listed on Schedule 6.12; (c) Indebtedness hereafter
incurred in connection with Liens permitted under Section 6.13(d); (d) other
Indebtedness outstanding on the date hereof and listed on Schedule 6.12; and (e)
other Indebtedness approved in writing by the Lender.
<PAGE>
6.13 Liens. Create, incur, assume or suffer to exist any Lien with
respect to any property, revenues or assets now owned or hereafter arising or
acquired, except: (a) Liens for current Taxes not delinquent or Taxes being
contested in good faith and by appropriate proceedings and as to which such
reserves or other appropriate provisions as may be required by GAAP are being
maintained; (b) statutory Liens, such as carriers', loggers', warehousemen's,
mechanics', materialmen's, and repairmen's Liens, arising in the ordinary course
of business securing obligations which are not overdue or which are being
contested in good faith and by appropriate proceedings and as to which such
reserves or other appropriate provisions as may be required by GAAP are being
maintained; (c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation; (d) Liens in
connection with Capital Expenditures attaching only to the property being
acquired if the Indebtedness secured thereby does not exceed 100% of the fair
market value of such property at the time of acquisition thereof; (e) Liens in
favor of the Lender; (f) Liens permitted on Schedule 4.9; and (g) Liens
consented to by the Lender in writing.
6.14 Contingent Liabilities. Either: (a) endorse, guarantee,
contingently agree to purchase or to provide funds for the payment of, or
otherwise become contingently liable upon, any obligation of any other
Person, except by the endorsement of negotiable instruments for deposit or
collection (or similar transactions) in the ordinary course of business, or
(b) agree to maintain the net worth or working capital of, or provide funds to
satisfy any other financial test applicable to, any other Person.
6.15 Change in Accounts Receivable. After the occurrence of an Event of
Default or receipt of notice from the Lender that the Lender intends to commence
direct collection of Accounts Receivable, permit or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account Receivable, including any of the terms
relating thereto.
6.16 Unconditional Purchase Obligations. Enter into or be a party to
any contract for the purchase of materials, supplies or other property or
services, if such contract requires that payment be made by it regardless of
whether or not delivery is ever made of such materials, supplies or other
property or services.
6.17 Use of Proceeds. Use or permit any proceeds of the Loans to be
used, either directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of "purchasing or carrying any margin stock" within the
meaning of Regulation U of the Federal Reserve Board, as amended from time to
time, and furnish to the Lender upon request, a statement in conformity with the
requirements of Federal Reserve Form U-1 referred to in Regulation U of the
Federal Reserve Board.
6.18 Transactions with Related Parties. Enter into or be a party to any
transaction or arrangement, including, without limitation, the purchase, sale,
lease or exchange of property or the rendering of any service, with any Related
Party, except in the ordinary course of and pursuant to the reasonable
requirements of such Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to such Borrower or such Subsidiary than
would obtain in a comparable arm's-length transaction with a Person not a
Related Party.
<PAGE>
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(a) Non-Payment. The Borrowers shall fail to pay, when due,
whether by acceleration, maturity or otherwise, any Obligations;
(b) Non-Payment of Other Indebtedness. Any Borrower, any other
Obligor or any Subsidiary shall fail to pay, when due, whether by
acceleration or otherwise (subject to any applicable grace period), any
Indebtedness of, or guaranteed by, such Borrower, such other Obligor or
such Subsidiary;
(c) Acceleration of Other Indebtedness. Any event or condition
shall occur which results in the acceleration of the maturity of any
Indebtedness of, or guaranteed by, any Borrower, any other Obligor or
any Subsidiary or enables the holder or holders of such other
Indebtedness or any trustee or agent for such holders (any required
notice of default having been given and any applicable grace period
having expired) to accelerate the maturity of such other Indebtedness;
(d) Other Obligations. Any Borrower, any other Obligor or any
Subsidiary shall fail to pay, when due, whether by acceleration or
otherwise, or perform or observe (subject to any applicable grace
period or waiver of such default) (i) any obligation or agreement of
such Borrower, such other Obligor or such Subsidiary to or with the
Lender (other than any obligation or agreement of the Borrowers
hereunder and under any Notes) or (ii) any material obligation or
agreement of such Borrower, such other Obligor or such Subsidiary to or
with any other Person (other than (A) any such material obligation or
agreement constituting or related to Indebtedness, (B) accounts payable
arising in the ordinary course of business, and (C) any material
obligation or agreement of any Subsidiary to such Borrower or to any
other Subsidiary), except only to the extent that the occurrence of any
such failure is being contested by such Borrower, such other Obligor or
such Subsidiary, as the case may be, in good faith and by appropriate
proceedings and such Borrower, such other Obligor or such Subsidiary,
as applicable, shall have set aside on its books such reserves or other
appropriate provisions therefor as may be required by GAAP;
<PAGE>
(e) Insolvency. Any Borrower, any other Obligor or any
Subsidiary becomes insolvent, or generally fails to pay, or admits in
writing its inability to pay, its debts as they mature, or applies for,
consents to, or acquiesces in, the appointment of a trustee, receiver
or other custodian for such Borrower, such other Obligor or such
Subsidiary, or for a substantial part of the property of such Borrower,
such other Obligor or such Subsidiary, or makes a general assignment
for the benefit of creditors; or, in the absence of such application,
consent or acquiescence, a trustee, receiver or other custodian is
appointed for any Borrower, any other Obligor or any Subsidiary or for
a substantial part of the property of such Borrower, any other Obligor
or any Subsidiary; or any bankruptcy, reorganization, debt arrangement
or other proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding, is instituted by or against any
Borrower, any other Obligor or any Subsidiary; or any warrant of
attachment or similar legal process is issued against any substantial
part of the property of any Borrower, any other Obligor or any
Subsidiary;
(f) ERISA. The institution by any Borrower or any ERISA
Affiliate of steps to terminate any Plan if, in order to effectuate
such termination, any Borrower or any ERISA Affiliate would be required
to make a contribution to such Plan or would incur a liability or
obligation to such Plan, in excess of $50,000; or the institution by
the PBGC of steps to terminate any Plan;
(g) Non-Compliance With this Agreement. Any Borrower shall
fail to comply with any of the Borrowers' agreements set forth herein
or in Supplement A;
(h) Non-Compliance With Other Loan Documents. Failure by any
Borrower, any other Obligor or any Subsidiary to comply with any of its
respective agreements set forth in any Loan Documents other than this
Agreement (and not constituting an Event of Default under any of the
other subsections of this Section 7.1), and such failure to comply
shall continue after the grace period (if any) set forth therein;
(i) Representations and Warranties. Any representation or
warranty made by any Borrower or any other Obligor in any of the Loan
Documents is untrue or misleading in any material respect when made or
deemed made; or any schedule, statement, report, notice, certificate or
other writing furnished by any Borrower or any other Obligor to the
Lender is untrue or misleading in any material respect on the date as
of which the facts set forth therein are stated or certified; or any
certification made or deemed made by any Borrower or any other Obligor
to the Lender is untrue or misleading in any material respect on or as
of the date made or deemed made;
(j) Litigation. There shall be entered against any Borrower,
any other Obligor or any Subsidiary one or more judgments or decrees in
excess of $250,000 for any one judgment and $2,000,000 in the aggregate
at any one time outstanding, excluding those judgments or decrees (i)
that shall have been outstanding less than 30 calendar days from the
entry thereof or that are the subject of a pending appeal being timely
pursued and for which the Borrower in question has posted any required
bond, (ii) for and to the extent which such Borrower, such Obligor or
such Subsidiary, as applicable, is insured and with respect to which
the insurer has assumed responsibility in writing or for and to the
extent which such Borrower, such Obligor or such Subsidiary, as
applicable, is otherwise indemnified if the terms of such
indemnification are satisfactory to the Lender;
(k) Death or Incompetence of Obligor. If any natural person
who is an Obligor, partner in a partnership which is an Obligor, or
owner of a material interest in a corporate Obligor, shall die or be
declared legally incompetent;
<PAGE>
(l) Validity. If the validity or enforceability of any
of the Loan Documents shall be challenged by any Borrower, any other
Obligor or any other Person, or shall fail to remain in full force and
effect;
(m) Conduct of Business. If any Borrower, any other Obligor or
any Subsidiary is enjoined, restrained or in any way prevented by court
order, which has not been dissolved or stayed within five Business
Days, from conducting all or any material part of its business affairs;
(n) Change in Management or Line(s) of Business. Any
substantial change in the senior management of any Borrower, or any
change in any Borrower's line(s) of business.
7.2 Effect of Event of Default; Remedies.
(a) In the event that one or more Events of Default described
in Section 7.1(e) shall occur, then the Credit extended under this
Agreement shall terminate and all Obligations shall be immediately due
and payable without demand, notice or declaration of any kind
whatsoever.
(b) Upon the occurrence of an Event of Default, or at any time
thereafter during the continuance thereof, (other than one described in
Section 7.1(e)) the Lender may declare all Obligations immediately due
and payable without demand or notice of any kind whatsoever, whereupon
the Credit extended under this Agreement shall terminate and all
Obligations shall be immediately due and payable without demand or
notice of any kind whatsoever. The Lender shall promptly advise the
Borrowers of any such declaration, but failure to do so shall not
impair the effect of such declaration.
(c) Upon the occurrence of an Event of Default, or at any time
thereafter during the continuance thereof, the Lender may exercise any
one or more or all of the following remedies, all of which are
cumulative and non-exclusive:
(i) any other remedy contained in this Agreement,
the other Loan Documents or any Supplemental Documentation;
(ii) any rights and remedies available to the Lender
under the Uniform Commercial Code as enacted in Minnesota as
of the date of this Agreement, and any other applicable law;
(iii) without notice, demand or legal process of any
kind, the Lender may take possession of any or all of the
Collateral (in addition to Collateral which it might already
have in its possession), wherever it might be found, and for
that purpose may pursue the same wherever it may be found,
and may enter into any premises where any of the Collateral
may be or is supposed to be, and search for, take possession
of, remove, keep and store any of the Collateral until the
same shall be sold or otherwise disposed of, and the Lender
shall have the right to store the same in any of the
Borrowers' premises without cost to the Lender;
<PAGE>
(iv) at the Lender's request, the Borrowers will, at
the Borrowers' expense, assemble the Collateral and make it
available to the Lender at a place or places to be
designated by the Lender and reasonably convenient to the
Lender and the Borrowers; and
(v) the Lender at its option, and pursuant to
notification given to the Borrowers as provided for below,
may sell any Collateral actually or constructively in its
possession at public or private sale and apply the proceeds
thereof as provided in Section 8.2 below.
7.3 Setoff. In addition to and not in limitation of all rights of
offset that the Lender, any Affiliate, or any other holder of any interest in
this Agreement or any Note may have under applicable law, upon the occurrence
and during the continuation of any Event of Default, or any Unmatured Event of
Default, Lender and any Affiliate shall have the right, in its sole discretion
and without demand and without notice to anyone to appropriate or set off and
apply to the payment of the Obligations, whether or not due, any and all
balances, credits, deposits, accounts or moneys of the Borrowers and any of them
then or thereafter with such Person and any and all other liabilities owed to
the Borrower by such Person.
7.4 Use of Premises. Borrower hereby irrevocably grants to Lender the
right, subject to the rights of any landlord of the premises, to enter upon and
hold the premises of Borrower wherever located at any time following the
occurrence of an Event of Default and during the continuation thereof. Lender
may use the premises to hold, process, manufacture, sell, use, store, liquidate,
realize upon or otherwise dispose of Collateral and for other purposes that the
Lender may in good faith deem to be related or incidental purposes. Lender's
right to hold the premises shall cease and terminate upon the earlier of (i)
payment in full of all Obligations, expiration or termination of all Letters of
Credit and termination of the Credit or (ii) final sale or disposition of all
goods constituting Collateral and delivery of all such goods to purchasers. The
Lender shall not be obligated to pay any rent or other compensation for the
occupancy or use of any of the premises unless required by the landlord of such
premises, provided, however, if Lender does pay or account for any rent or other
compensation for the occupancy or use of any of the premises, such rent or
compensation shall be considered an Advance under this Agreement and shall
constitute part of the Obligations.
ARTICLE VIII COLLATERAL AND THE LENDER'S RIGHTS
8.1 Notice of Disposition of Collateral. Any notification of intended
disposition of any of the Collateral required by law shall be deemed reasonably
and properly given if given at least ten calendar days before such disposition.
<PAGE>
8.2 Application of Proceeds of Collateral. Any proceeds of any
disposition by the Lender of any of the Collateral may be applied by the Lender
to the payment of expenses in connection with the taking possession of, storing,
preparing for sale, and disposition of Collateral, including Attorneys' Fees and
legal expenses, and any balance of such proceeds may be applied by the Lender
toward the payment of such of the Obligations, and in such order of application,
as the Lender may from time to time elect.
8.3 Care of Collateral. The Lender shall be deemed to have exercised
reasonable care in the custody and preservation of any Collateral in its
possession if it takes such action for that purpose as the Borrower owning such
Collateral requests in writing, but failure of the Lender to comply with such
request shall not, of itself, be deemed a failure to exercise reasonable care,
and no failure of the Lender to preserve or protect any rights with respect to
such Collateral against prior parties, or to do any act with respect to the
preservation of such Collateral not so requested by the Borrowers, shall be
deemed a failure to exercise reasonable care in the custody or preservation of
such Collateral.
8.4 Performance of Borrower's Obligations. The Lender shall have the
right, but shall not be obligated, to discharge any claims against or Liens, and
any Taxes at any time levied or placed upon any or all Collateral including,
without limitation, those arising under statute or in favor of landlords, taxing
authorities, government, public and/or private warehousemen, common and/or
private carriers, processors, finishers, draymen, coopers, dryers, mechanics,
artisans, laborers, attorneys, courts, or others. The Lender may also pay for
maintenance and preservation of Collateral. The Lender may, but is not obligated
to, perform or fulfill any of the Borrowers' responsibilities under this
Agreement which the Borrowers or any of them have failed to perform or fulfill.
All amounts expended by Lender under this Section 8.4 shall be deemed to be an
Advance under this Agreement.
8.5 Lender's Rights. None of the following shall affect the obligations
of the Borrowers to the Lender under this Agreement or the Lender's rights with
respect to the Collateral or any Third Party Collateral (any or all of which
actions may be taken by the Lender at any time, whether before or after an Event
of Default, at its sole and absolute discretion and without notice to the
Borrowers):
(a) acceptance or retention by the Lender of other property or
interests in property as security for the Obligations, or acceptance or
retention of any Obligor(s), in addition to the Borrowers, with respect
to any Obligations;
(b) release of its security interest in, or surrender or
release of, or the substitution or exchange of or for, all or any part
of the Collateral or any Third Party Collateral or any other property
securing any Obligations (including, without limitation, any property
of any Obligor other than the Borrowers), or any extension or renewal
for one or more periods (whether or not longer than the original
period), or release, compromise, alteration or exchange, of any
obligations of any Guarantor or other Obligor with respect to any
Collateral or any such property;
(c) extension or renewal for one or more periods (whether or
not longer than the original period), or release, compromise,
alteration or exchange of any Obligations, or release or compromise of
any obligation of any Obligor with respect to any Obligations; or
(d) failure by the Lender to resort to other security or
pursue any Person liable for any Obligations before resorting to the
Collateral.
<PAGE>
ARTICLE IX CONDITIONS PRECEDENT
9.1 Conditions Precedent to Initial Loan. The obligation of
the Lender to make the initial Loan shall be subject to the satisfaction of the
following conditions precedent, in addition to the applicable conditions
precedent set forth in Section 9.2:
9.1.1 No Change in Condition. No change in the condition or
operations, financial or otherwise, of any Borrowers, any other Obligor
or any Subsidiary, shall have occurred which change, in the sole credit
judgment of the Lender, may constitute an Adverse Event or have a
material adverse effect on any Collateral or Third Party Collateral or
the Lender's interest therein.
9.1.2 Accounting Methods. No Borrower shall have made any
material, as determined by the Lender, change in its accounting methods
or principles.
9.1.3 Survey. The Lender shall have completed its updated
survey of the business, operations and assets of the Borrowers, each
Subsidiary and each other Obligor, and such survey shall provide the
Lender with results and information which, in the Lender's
determination, are satisfactory to the Lender.
9.1.4 No Material Transaction. None of the Borrowers, any
other Obligor or any Subsidiary shall have entered into any material,
as determined by the Lender, commitment or transaction, including,
without limitation, transactions for borrowings and Capital
Expenditures, which are not in the ordinary course of their respective
businesses.
9.1.5 Litigation. No litigation shall be outstanding or have
been instituted or threatened which the Lender determines to be
material against any Borrower, any other Obligor or any Subsidiary.
9.1.6 Filing of Documents. All financing statements, mortgages
and other documents relating to the Collateral and Third Party
Collateral shall have been filed or recorded, as appropriate.
9.1.7 Delivery of Documents. The Borrowers shall have
delivered or cause to be delivered to the Lender with each of the
following, each in form and substance satisfactory to the Lender in all
respects and each duly executed and dated the date of the initial Loan
or such earlier date as shall be acceptable to the Lender:
(a) This Agreement. Duly executed by Borrowers and
Lender.
(b) Other Agreements. Duly executed copies of
each of the Loan Documents not specifically identified
herein which the Lender determines to be necessary or
desirable, each in form and content satisfactory to the
Lender;
<PAGE>
(c) Resolutions of Borrower. A copy, duly certified
by the secretary or an assistant secretary of each Borrower,
of (i) the resolutions of the Board of Directors of such
Borrower authorizing (A) the borrowings by such Borrower
hereunder, (B) the execution, delivery and performance by
such Borrower of the Loan Documents to which such Borrower
is a party or by which it is bound, (C) the conveyance of a
lien on the Collateral owned by such Borrower to Lender, and
(D) certain officers or employees of such Borrower to
request borrowings by telephone and to execute Borrowing
Base Certificates; (ii) all documents evidencing other
necessary corporate action; and (iii) all approvals or
consents, if any, with respect to the Loan Documents;
(d) Incumbency Certificate of Borrower. A certificate
of the secretary or an assistant secretary of each Borrower,
certifying the names of the officers of such Borrower
authorized to sign the Loan Documents to which it is a party
and any Supplemental Documentation, together with the true
signatures of such officers;
(e) Bylaws of Borrower. A copy, duly certified by
the secretary or an assistant secretary of each Borrower,
of such Borrower's Bylaws;
(f) Articles of Incorporation of Borrower. A copy,
duly certified by the Secretary of State of each Borrower's
state of incorporation, of such Borrower's Articles of
Incorporation;
(g) Good Standing Certificates of Borrower.
Certificates of good standing as to each Borrower issued by
the Secretary of State of the state in which such Borrower
is organized, and each other state in which the failure of
such Borrower to be in good standing would constitute an
Adverse Event or have a material adverse effect on the
Lender's rights in any Collateral;
(h) Opinion. A legal opinion of Scudder Law Firm,
P.C., counsel to the Borrowers;
(i) Borrower's Certificate. The certificate of the
chief executive officer/President of each Borrower
certifying, to the best of his/her knowledge after diligent
inquiry, to the fulfillment of all conditions precedent to
closing and funding the secured financing transaction
contemplated by this Agreement and to the truth and
accuracy, as of such date, of the representations and
warranties of such Borrower contained in the Loan Documents
to which such Borrower is a party;
(j) Insurance. Evidence satisfactory to the Lender of
the existence of insurance on the Collateral in amounts and
with insurers acceptable to the Lender, together with
evidence establishing that the Lender is named as a loss
payee and, if required by the Lender, additional insured, on
all related insurance policies and an endorsement or an
independent instrument from each issuer of an insurance
policy substantially in the form set forth as Exhibit D; and
<PAGE>
(k) Other. Such other documents, instruments or
agreements as the Lender shall determine to be necessary
or desirable.
9.1.8 Security Interest. The Lien in the Collateral and Third
Party Collateral granted to the Lender to secure the Obligations shall
be senior, perfected Liens except as otherwise agreed by the Lender.
9.1.9 Special Accounts. Each Borrower shall have entered
into (a) a Collateral Account and Disbursement Account Agreement,
substantially in the form of Exhibit E, with the Lender.
9.1.10 Effect of Law. No law or regulation affecting the
Lender's entering into the secured financing transaction contemplated
by this Agreement shall impose upon the Lender any material obligation,
fee, liability, loss, cost, expense or damage.
9.1.11 Exhibits; Schedules. All Exhibits and Schedules to the
Loan Documents shall have been completed in form and substance
satisfactory to the Lender and shall contain no facts or information
which the Lender, in its sole judgment, determines to be unacceptable.
9.2 Conditions Precedent to all Loans. The obligation of the Lender to
make any Loan (including the initial Loan) or to issue, or cause to be issued,
any Letter of Credit shall be subject to the satisfaction of the following
conditions precedent:
(a) Representations and Warranties. All of the representations
and warranties of each Borrower, whether made individually or
collectively and each other Obligor set forth in the Loan Documents to
which such Borrower or such other Obligor, as applicable, is a party
shall be true and correct.
(b) Event of Default. Immediately before and after making such
Loan or issuing, or causing to be issued such Letter of Credit, no
Event of Default or Unmatured Event of Default shall exist or be
continuing.
ARTICLE X INDEMNITY
<PAGE>
10.1 Environmental and Safety and Health Indemnity. Each Borrower
hereby indemnifies the Lender and Affiliates and agrees to hold the Lender and
Affiliates harmless from and against any and all losses, liabilities, damages,
injuries, costs, expenses and claims of any and every kind whatsoever
(including, without limitation, court costs and Attorneys' Fees) which at any
time or from time to time may be paid, incurred or suffered by, or asserted
against, the Lender or any Affiliate (a) for, with respect to, or as a direct or
indirect result of the violation by any Borrower or any Subsidiary, of any
Environmental Law or Occupational Safety and Health Law; or (b) with respect to,
or as a direct or indirect result of (i) the presence on or under, or the
escape, seepage, leakage, spillage, disposal, discharge, emission or release
from, properties owned or utilized by any Borrower and/or any Subsidiary in the
conduct of its business into or upon any land, the atmosphere, or any
watercourse, body of water or wetland, of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance (including, without limitation, any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under the Environmental
Laws) or (ii) the existence of any unsafe or unhealthful condition on or at any
premises owned or utilized by any Borrower and/or any Subsidiary in the conduct
of its business. The provisions of and undertakings and indemnification set out
in this Section 10.1 shall survive satisfaction and payment of the Obligations
and termination of this Agreement.
10.2 General Indemnity. In addition to the payment of expenses pursuant
to Section 12.3, whether or not the transactions contemplated hereby shall be
consummated, each Borrower hereby indemnifies, and agrees to pay and hold the
Lender, its Affiliates and any holder of any Notes, and their respective
officers, directors, employees, agents, successors and assigns (collectively
called the "Indemnitees") harmless from and against, any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of counsel
for any of such Indemnitees in connection with any investigative, administrative
or judicial proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto), that may be imposed on,
incurred by, or asserted against the Indemnitees (or any of them), in any manner
relating to or arising out of the Loan Documents, the statements contained in
any commitment letters delivered by the Lender, the Lender's agreement to make
the Loans or any Letter of Credit Issuer's agreement to issue Letters of Credit
hereunder, or the use or intended use of any Letters of Credit, or the use or
intended use of the proceeds of any of the Loans (the "Indemnified
Liabilities"); provided, however, that the Borrowers shall have no obligation to
an Indemnitee hereunder with respect to Indemnified Liabilities arising from the
gross negligence or willful misconduct of an Indemnitee. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrowers shall contribute the maximum portion that it is permitted
to pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Liabilities incurred by the Indemnitees or any of them. The
provisions of the undertakings and indemnification set out in this Section 10.2
shall survive satisfaction and payment of the Obligations and termination of
this Agreement.
<PAGE>
10.3 Capital Adequacy. If the Lender shall reasonably determine that
the application or adoption of any law, rule, regulation, directive,
interpretation, treaty or guideline regarding capital adequacy, or any change
therein or in the interpretation or administration thereof, whether or not
having the force or law (including, without limitation, application of changes
to Regulation H and Regulation Y of the Federal Reserve Board issued by the
Federal Reserve Board on January 19, 1989 and regulations of the Comptroller of
the Currency, Department of the Treasury, 12 CFR Part 3, Appendix A, issued by
the Comptroller of the Currency on January 27, 1989) increases the amount of
capital required or expected to be maintained by the Lender or any Person
controlling the Lender, and such increase is based upon the existence of the
Lender's obligations hereunder and other commitments of this type, then from
time to time, within 10 days after demand from the Lender, the Borrowers shall
pay to the Lender such amount or amounts as will compensate the Lender or such
controlling Person, as the case may be, for such increased capital requirement.
The determination of any amount to be paid by the Borrowers under this Section
10 shall take into consideration the policies of the Lender or any Person
controlling the Lender with respect to capital adequacy and shall be based upon
any reasonable averaging, attribution and allocation methods. A certificate of
the Lender setting forth the amount or amounts as shall be necessary to
compensate the Lender as specified in this Section 10.3 shall be delivered to
the Borrowers and shall be conclusive in the absence of manifest error. The
amounts set forth in said certificate shall be payable on demand.
ARTICLE XI ADDITIONAL PROVISIONS
Additional provisions are set forth in Supplement A.
ARTICLE XII GENERAL
12.1 Borrower's Waiver. Except as otherwise provided for in this
Agreement, the Borrowers waive (a) presentment, demand and protest and notice of
presentment, protest, default, non-payment, maturity, release, compromise,
settlement, one or more extensions or renewals of any or all commercial paper,
accounts, documents, instruments, chattel paper and guaranties at any time held
by the Lender on which any Borrower may in any way be liable and hereby ratifies
and confirms whatever the Lender may do in this regard; (b) all rights to notice
and a hearing prior to the Lender's taking possession or control of, or the
Lender's relevy, attachment or levy on or of, the Collateral or any bond or
security which might be required by any court prior to allowing the Lender to
exercise any of the Lender's remedies; and (c) the benefit of all valuation,
appraisement and exemption laws.
12.2 Borrower's Acknowledgement. Each Borrower acknowledges that it has
read and understands this Agreement and has been advised by counsel of its
choice with respect to this Agreement and the transactions evidenced by this
Agreement or has knowingly waived its right to such counsel.
<PAGE>
12.3 Expenses; Attorney's Fees. The Borrowers agrees, whether or not
any Loan is made or Letter of Credit issued hereunder, to pay the Lender upon
demand for all expenses and Attorneys' Fees, including, without limitation,
those incurred by the Lender in connection with (a) the preparation, negotiation
and execution of the Loan Documents (subject to the limitation on amount agreed
to by letter of September 1, 1999, which limitation is incorporated herein), (b)
the preparation of any and all amendments to the Loan Documents and all other
instruments or documents provided for therein or delivered or to be delivered
thereunder or in connection therewith, (c) the collection or enforcement of the
Borrowers' or any other Obligor's obligations under any of the Loan Documents,
(d) the costs of all searches and updates of searches in public records deemed
necessary by the Lender in connection with the protection of its security
interest, and (e) the collection or enforcement of any of the Lender's rights in
or to any Collateral or Third Party Collateral. The Borrowers also (y) hereby
indemnify and holds the Lender harmless from any loss or expense which may arise
or be created by the acceptance of telephonic or other instructions for making
Loans and (z) agree to pay, and save the Lender harmless from all liability for,
any stamp or other taxes which may be payable with respect to the execution or
delivery of this Agreement or the issuance of any Note or of any other
instruments or documents provided for herein or to be delivered hereunder or in
connection herewith. The Borrowers' foregoing obligations shall survive any
termination of this Agreement.
12.4 Lender Fees and Charges. The Borrowers agree to pay the Lender, or
any Affiliate, on demand the customary fees and charges of the Lender, or such
Affiliate, for maintenance of accounts with the Lender, or such Affiliate, or
for providing other services to the Borrowers. The Lender may, in its sole and
absolute discretion, provide for such payment by charging the Disbursement
Account or any other account of any one or more of the Borrowers with the Lender
or any other Affiliate, or advancing the amount thereof to the Borrowers as a
Loan.
12.5 No Waiver by Lender; Amendments. No failure or delay on the part
of the Lender in the exercise of any power or right, and no course of dealing
between any one or more of the Borrowers and the Lender shall operate as a
waiver of such power or right, nor shall any single or partial exercise of any
power or right preclude other or further exercise thereof or the exercise of any
other power or right. The remedies provided for herein are cumulative and not
exclusive of any remedies which may be available to the Lender at law or in
equity or otherwise by agreement. No notice to or demand on the Borrowers not
required hereunder shall in any event entitle the Borrowers to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the right of the Lender to any other or further action in any
circumstances without notice or demand. No amendment, modification or waiver of,
or consent with respect to, any provision of this Agreement shall in any event
be effective unless the same shall be in writing and signed and delivered by the
Lender. Any waiver of any provision of this Agreement, and any consent to any
departure by the Borrowers from the terms of any provision of this Agreement,
shall be effective only in the specific instance and for the specific purpose
for which given.
12.6 Notice. Except as otherwise expressly provided herein, any notice
hereunder to the Borrowers or the Lender shall be in writing (including telecopy
communication) and shall be given to the Borrowers or the Lender at the address
or fax number set forth on the signature pages hereof or at such other address,
or telecopier number as the Borrowers or the Lender may, by written notice,
designate as its address or fax number for purposes of notice hereunder. All
such notices shall be deemed to be given (i) when transmitted by fax on the date
the appropriate answer back is received, (ii) when delivered by a commercially
recognized courier service on the date specified for delivery in the
instructions to the courier, (iii) on the date personally delivered or, (iv) in
the case of notice by mail, three days following deposit in the United States
mails, certified mail, return receipt requested properly addressed as herein
provided, with proper postage prepaid provided, however, that any notice to the
Lender under Article II hereof shall be deemed to have been given only when
received by the Lender.
<PAGE>
12.7 Participations; Information. The Borrowers hereby consent to the
Lender's grant of participations in or sale, assignment, transfer or other
disposition, at any time and from time to time hereafter, of the Loan Documents,
or of any portion of any thereof, including without limitation lender's rights,
titles, interests, remedies, powers and/or duties. The Lender may furnish any
information concerning the Borrowers in the possession of the Lender from time
to time to assignees of the rights and/or obligations of the Lender hereunder
and to participants in any Loan (including prospective assignees and
participants) and may furnish information in response to credit inquiries
consistent with general banking practice.
12.8 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
12.9 Successors. This Agreement shall be binding upon the Borrowers and
the Lender and their respective successors and assigns, and shall inure to the
benefit of the Borrowers and the Lender and the successors and assigns of the
Lender. The Borrowers shall not assign their respective rights or duties
hereunder without the consent of the Lender.
12.10 Entire Agreement. This Agreement and the other Loan Documents
embody the entire agreement and understanding between the Borrowers and the
Lender with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof.
12.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
12.12 Construction. Each Borrower acknowledges that this Agreement
shall not be binding upon the Lender or become effective until and unless
accepted by the Lender, in writing. If so accepted by the Lender, THE LOAN
DOCUMENTS AND ANY SUPPLEMENTAL DOCUMENTATION SHALL, UNLESS OTHERWISE EXPRESSLY
PROVIDED THEREIN, BE DEEMED TO HAVE BEEN NEGOTIATED AND ENTERED INTO IN, AND
SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF, THE STATE OF MINNESOTA
WITHOUT GIVING EFFECT TO CHOICE OF LAW PROVISIONS AS TO INTERPRETATION,
ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, CHOICE OF LAW, AND IN ALL OTHER
RESPECTS, INCLUDING, BUT NOT LIMITED TO, THE LEGALITY OF THE INTEREST RATE AND
OTHER CHARGES, BUT EXCLUDING PERFECTION OF SECURITY INTERESTS AND LIENS WHICH
SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE RELEVANT JURISDICTION.
12.13 Consent to Jurisdiction. To induce the Lender to accept this
Agreement, each Borrower, irrevocably, agrees that, subject to the Lender's sole
and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THE LOAN DOCUMENTS OR ANY SUPPLEMENTAL
DOCUMENTATION OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN
THE CITY OF MINNEAPOLIS, STATE OF MINNESOTA. EACH BORROWER HEREBY CONSENTS AND
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN
SAID CITY AND STATE AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON SUCH
BORROWER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED
MAIL DIRECTED TO SUCH BORROWER AT THE ADDRESS STATED ON THE SIGNATURE PAGE
HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT
THEREOF.
<PAGE>
12.14 Subsidiary Reference. Any reference herein to a Subsidiary or
Subsidiaries of a Borrower, and any financial definition, ratio, restriction or
other provision of this Agreement which is stated to be applicable to "a
Borrower and the Subsidiaries" or which is to be determined on a "consolidated"
or "consolidating" basis, shall apply only to the extent such Borrower has any
Subsidiaries and, where applicable, to the extent any such Subsidiaries are
consolidated with such Borrower for financial reporting purposes.
12.15 WAIVER OF JURY TRIAL. THE BORROWERS AND THE LENDER EACH WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS (a) UNDER THE LOAN DOCUMENTS OR UNDER ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION THEREWITH OR (b) ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION
WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
12.16 Joint and Several Obligations. Each Borrower shall be jointly and
severally liable for the Obligations arising in connection with Loans made to it
and Letters of Credit issued for its account and the Obligations arising in
connection with Loans made to the other Borrowers and Letters of Credit issued
for the account of the other Borrowers; provided, however, that if it is at any
time determined that any Borrower is liable as guarantor (and not as co-obligor
or co-borrower) with respect to such Obligations arising in connection with
Loans made to the other Borrowers and Letters of Credit issued for the account
of other Borrowers (the "Guaranteed Obligations), each Borrower hereby agrees to
the terms set forth on Exhibit G hereto with respect to the Guaranteed
Obligations; provided further, however, that notwithstanding any other provision
hereof, the obligation of each Borrower, whether as a co-obligor with respect to
the Obligations or as a guarantor with respect to Guaranteed Obligations, is
limited to its respective Maximum Obligated Amount. Any action to enforce
payment of the Obligations may be commenced by the Lender against any Borrower
as a sole defendant without naming the other Borrowers in such proceeding, and
each Borrower hereby acknowledges and agrees that the other Borrowers shall not
be claimed by any Borrower to be an indispensable party in any such proceeding.
Each Borrower further acknowledges and agrees that the Lender will suffer
hardship and irreparable harm if the Lender is delayed in pursuing its remedies
against any of the Borrowers. Upon the occurrence and during the continuance of
an Unmatured Event of Default or an Event of Default, each Borrower agrees not
to exercise any right to claim or seek indemnification, recourse, subrogation,
reimbursement or contribution from the other Borrowers arising with respect to
this Agreement, the Loans and Letters of Credit and each Borrower hereby waives
any right to claim or seek such indemnification, recourse, subrogation,
reimbursement or contribution arising with respect to this Agreement, the Loans
and Letters of Credit until all obligations of the Lender to make Loans and
issue Letters of Credit hereunder have terminated and the Obligations have been
irrevocably paid in full.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
SIMON TRANSPORTATION SERVICES INC.
By: ________________________
Title: President & CEO
Address:5175 West 2100 South
West Valley City, Utah 84120-1252
Attention: Alban B. Lang
Telephone: 801-924-7000
Fax No.: 801-924-7327
DICK SIMON TRUCKING, INC.
By: ________________________
Title: President & CEO
Address: 5175 West 2100 South
West Valley City, Utah 84120-1252
Attention: Alban B. Lang
Telephone: 801-924-7000
Fax No.: 801-924-7327
U.S. BANK NATIONAL ASSOCIATION
By: _______________________
Title: ______________________
Address: U.S. Bank Place MPFP0504
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Asset Based Lending
Telephone: (612) 973-1133
Fax No.: (612) 973-0829
<PAGE>
EXHIBITS
Exhibit A- Form of Borrowing Base Certificate
Exhibit B- Form of Compliance Certificate
Exhibit C- Excluded
Exhibit D- Excluded
Exhibit E- Form of Collateral Account; and Disbursement Account
Agreement
Exhibit F- Excluded
Exhibit G - Terms with respect to Guaranteed Obligations
SCHEDULES
Schedule 4.1 - Trade Names, Etc.
Schedule 4.7 - Insurance
Schedule 4.8 - Litigation and Contingent Liabilities
Schedule 4.9 - Liens
Schedule 4.10- Subsidiaries/Ownership
Schedule 4.11- Partnerships; Joint Ventures; LLCs
Schedule 4.12- Business Locations
Principal offices
Other locations
Schedule 4.13- Excluded
Schedule 4.15- Leases
Schedule 4.16- Patents, Trademarks, Copyrights
Schedule 4.18- Contracts and Labor Disputes
Schedule 4.25- Environmental Matters
Schedule 6.11- Investments
Schedule 6.12- Indebtedness
<PAGE>
SUPPLEMENT A
effective as of September 28, 1999
to
CREDIT AND SECURITY AGREEMENT
Between
U.S. BANK NATIONAL ASSOCIATION (the "Lender")
and
SIMON TRANSPORTATION SERVICES INC.
And
DICK SIMON TRUCKING, INC. (the "Borrowers", each a "Borrower")
1. Credit Agreement Reference. This Supplement A, as it may be amended
or modified from time to time, is a part of the Credit and Security Agreement,
dated as of September __, 1999, between the Borrowers and the Lender (together
with all amendments, modifications and supplements thereto, the "Credit
Agreement"). Capitalized terms used herein which are defined in the Credit
Agreement shall have the meanings given such terms in the Credit Agreement
unless the context otherwise requires.
2. Definitions.
2.1 Credit Amount. The term "Credit Amount" shall be
Twenty Million Dollars ($20,000,000).
2.2 Borrowing Base.
(a) Definition. The term "Borrowing Base" shall mean:
(i) an amount (the "Accounts Receivable
Availability") of up to 85% of the net amount (as
determined by the Lender after deduction of such
reserves and allowances as the Lender deems proper
and necessary) of the Borrower's Eligible Accounts
Receivable.
2.3 Letter of Credit Sublimit. The term "Letter of Credit
Sublimit" shall mean $5,000,000.
2.4 Termination Date. The term "Termination Date" shall
mean the earliest of (i)September 30, 2002, or (ii) the date on which
the Credit is terminated pursuant to Section 7.2 of the Credit
Agreement.
3. Interest; Fees.
3.1 Loans.
(a) Interest Rate. The unpaid principal balance of
the Loans (other than Overdraft Loans and Over Advances) shall
bear interest at the following rates:
<PAGE>
(i) Eurodollar Advances. The unpaid
principal amount of each Eurodollar Advance shall
bear interest at a rate per annum equal to the
Eurodollar Rate (Reserve Adjusted) in effect for each
Interest Period for such Eurodollar Advance plus
1.75% per annum.
(ii) Reference Rate Advances. The unpaid
principal amount of each Reference Rate Advance shall
bear interest at a rate per annum equal to the
Reference Rate in effect from time to time.
(b) Default Rate. The rate per annum equal to 2.0%
in excess of the Reference Rate.
3.2 Overdraft Loans; Over Advances. Overdraft Loans and
Over Advances shall bear interest at the rate(s) determined pursuant to
Section 2.7 or Section 2.8 of the Credit Agreement, as applicable.
3.3 Unused Credit Fee. The Unused Credit Fee shall be an
amount equal to 0.25% per annum of the average Daily Unused Credit
Amount, calculated on the basis of actual days elapsed over a year of
360 days and twelve 30-day months. The Unused Credit Fee shall be and
is payable quarterly in arrears on the last day of each March, June,
September and December, commencing on the first such day to occur after
the date hereof, and on the date the Credit terminates.
3.4 Letter of Credit Commission. The Borrower shall pay the
Letter of Credit Issuer, a commission on the undrawn amount of each
Letter of Credit and on each L/C Draft accepted by the Letter of Credit
Issuer but not paid, in an amount equal to 1.0% per annum calculated on
the basis of actual days elapsed over for year of 360 days. The Letter
of Credit Commission shall be and is payable in advance.
3.5 Closing Fee. The Borrowers shall pay to the Lender
a nonrefundable closing fee of $50,000 on the Closing Date.
4. Eligible Account Receivable Requirements. The Account
Receivable must not be unpaid on the date that is 91 days after the date of the
invoice evidencing such Account Receivable.
If invoices representing 25% or more of the unpaid net amount of all Accounts
Receivable from any one Account Debtor are unpaid more than 90 days after the
dates of such invoices, then all Accounts Receivable relating to such Account
Debtor shall cease to be Eligible Accounts Receivable.
5. Reserved.
6. Reserved.
<PAGE>
7. Additional Covenants. From the date of this Supplement A and
thereafter until all of the Borrowers' Obligations under the Credit Agreement
are paid in full, the Borrowers agree that, unless the Lender shall otherwise
consent in writing, they will not, and will not permit any Subsidiary to, do any
of the following:
7.1 Net Worth. Permit the Borrowers' consolidated Net Worth to
be less than $50,000,000 as of the the end of the Borrower's fiscal
year ending September 30, 1999, plus, thereafter, 50% of the Borrower's
net income (without reduction for net loss) measured at the end of each
six month period.
Borrower's Initials _____________
Borrower's Initials _____________
Lender's Initials ____________
Date _____________________
<PAGE>
CERTIFICATE
I, Richard D. Simon, do hereby certify that:
1 I am the duly elected, qualified and acting President of Simon
Transportation Services Inc. (the "Borrower"), a corporation duly
organized, existing and in good standing under the laws of the State of
Nevada; and
2. all conditions precedent, except any which may have been specifically
waived by U.S. Bank National Association (the "Lender"), set forth in
Article IX of that certain Credit and Security Agreement, dated as of
even date herewith, between the Borrower and the Lender (the "Credit
Agreement") have been met;
3. all representations and warranties contained in Article IV of the
Credit Agreement are true and correct as of the date hereof; and
4. no Event of Default or Unmatured Event of Default (as such terms are
defined in the Credit Agreement) has occurred and is continuing.
IN WITNESS WHEREOF, I have hereunto subscribed my name as President of the
Borrower this 28th day of September, 1999.
---------------------
President
Simon Transportation Services Inc.
<PAGE>
CERTIFICATE
I, Richard D. Simon, do hereby certify that:
1 I am the duly elected, qualified and acting President of Dick Simon
Trucking, Inc. (the "Borrower"), a corporation duly organized, existing
and in good standing under the laws of the State of Utah; and
2. all conditions precedent, except any which may have been specifically
waived by U.S. Bank National Association (the "Lender"), set forth in
Article IX of that certain Credit and Security Agreement, dated as of
even date herewith, between the Borrower and the Lender (the "Credit
Agreement") have been met;
3. all representations and warranties contained in Article IV of the
Credit Agreement are true and correct as of the date hereof; and
4. no Event of Default or Unmatured Event of Default (as such terms are
defined in the Credit Agreement) has occurred and is continuing.
IN WITNESS WHEREOF, I have hereunto subscribed my name as President of the
Borrower this 28th day of September, 1999.
---------------------
President
Dick Simon Trucking, Inc.
<PAGE>
EXHIBIT A
U.S. Bank National Association BORROWING BASE CERTIFICATE
Asset Based Lending Division Computed as of
601 Second Avenue South Date: Report No.
Minneapolis, MN 55402-4302
The undersigned are the Borrowers under Credit and Security
Agreement, dated September ____, 1999, (as the same may be amended, modified
or supplemented from time to time, herein called the "Agreement") between
Simon Transportation Services Inc., and Dick Simon Trucking, Inc., (the
"Borrowers") and U.S. Bank National Association (the "Lender').
The Borrowers hereby reaffirm all representations and
warranties to the Agreement and certify and warrant that the Borrowers hold,
subject to the security interest of the Lender under the Agreement, the
following collateral computed as of
----------------.
<TABLE>
<S> <C> <C>
Total
I. ACCOUNTS RECEIVABLE
- --------
1. Accounts Receivable Balance (From last BBC No. , dated ) $
---------------- --------------------
------------------------
2. Add: New Sales and other Debits
------------------------
3. Less: Collection of Accounts (Net Cash)
------------------------
4. Less: Misc. Credit Memos
------------------------
5. Discounts Allowed and Other Adjustments to Receivables
------------------------
6. Accounts Receivable Balance as of period ending above (sum Lines 1 - 5) $
------------------------
7. Total Ineligible Accounts as of Aging dated
------------------------
8. Total Eligible Accounts Receivable (Line 6 - Line 7) $
------------------------
9. Eligible Loan Value @ 85% $
------------------------
10. Unadjusted Eligible Loan Value (Line 9) $
------------------------
11. Less: Letter of Credit Obligation (not collateralized by cash)
------------------------
12. Adjusted Collateral Value (Line 10 - Line 11) $
========================
II. LOAN AVAILABILITY
13. Credit Amount $20,000,000.00
------------------------
14. Less: Letter of Credit Obligations
------------------------
15. Adjusted Credit Amount $
------------------------
16. Loan Availability (The lesser of Line 12 and Line 15) $
------------------------
17. Loan Balance report (From last BBC No. _____________, dated ______________) $
------------------------
18. Add: new Loan Advances requested since last report
(Add monthly interest charge, and other fees if applicable)
------------------------
19. Less: Collections applied to loan since last report
------------------------
20. Loan Balance this report (Line 17 + Line 18 - Line 19) $
------------------------
21. Excess (Deficit) Eligible Loan Value of Collateral (Line 16 - Line 20) $
========================
</TABLE>
The Borrowers further certify and warrant that no Event of
Default is existing as of the date hereof and, to the best knowledge and
belief of the officer of the Borrowers executing this Borrowing Base
Certificate, there has not been (except as may otherwise indicated below) any
change to the information set forth above since the computation date
specified above which would materially reduce the amounts shown if such
amounts were computed as of the date of this Borrowing Base Certificate.
SIMON TRANSPORTATION SERVICES INC.
By Title: Date:
DICK SIMON TRUCKING, INC.
By Title: Date:
<PAGE>
EXHIBIT B
COMPLIANCE CERTIFICATE
TO: U.S. Bank National Association
THE UNDERSIGNED HEREBY CERTIFIES THAT:
(1) I am the duly elected officer (or deputy thereof) of Simon
Transporation Services Inc., a Nevada corporation and Dick Simon
Trucking, Inc., a Utah corporation (the "Companies");
(2) I have reviewed the terms of the Credit and Security
Agreement dated as of September 28, 1999, (as the same may be amended
or otherwise modified from time to time being the "Credit Agreement")
between U.S. Bank National Association (the "Lender") and the
Companies, and I have made, or have caused to be made under my
supervision, a detailed review of the transactions and conditions of
the Companies during the accounting period covered by the attachment
hereto, and the financial information contained in the attachment
hereto is accurate as of the date of said attachment for the period
specified.
(3) The examinations described in paragraph (2) did not
disclose, and I have no knowledge of, whether arising out of such
examinations or otherwise, the existence of any condition or event
which constitutes an Event of Default or an Unmatured Event of Default
(as such terms are defined in the Credit Agreement) during or at the
end of the accounting period covered by the attachment hereto or as of
the date of this Certificate, except as described below (or in a
separate attachment to this Certificate). The exceptions listing, in
detail, the nature of the condition or event, the period during which
it has existed and the action which the Companies have taken, is
taking, or proposes to take with respect to each such condition or
event, are as follows:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
(4) No policy of insurance required to be maintained pursuant
to the Credit Agreement or any other Loan Document (as such term is
defined in the Credit Agreement) has lapsed during the reporting period
described on Attachment No. 1 hereto and no such policy will lapse
within the next 60 days.
(5) In the case of any circumstances whereby the Companies are
in violation of or alleged to be in violation of any laws, rules,
regulations or orders, including without limitation any environmental
protection or pollution control law, the Companies have taken any and
all corrective or remedial actions in accordance with the requirements
of and are satisfactory to any governmental department, commission,
board, bureau, agency or instrumentality of the United States of
America or any state, county, town or municipality as have jurisdiction
with respect thereto.
(6) The Companies have paid all fees and expenses due for the
storage of Inventory, including any fees due and owing to any
warehouseman or other bailee, where such fees and expenses, if not paid
when due would give rise to a lien against Inventory.
<PAGE>
The foregoing certifications, together with the computations
set forth in Attachment No. 1 hereto and the financial statements
delivered with this Certificate in support hereof, are made and
delivered this ____ day of _______ 19__, pursuant to Section 5.1.1 of
the Credit Agreement.
SIMON TRANSPORTATION SERVICES INC.
By
-------------------------------
Its
-------------------------------
DICK SIMON TRUCKING, INC.
By
-------------------------------
Its
-------------------------------
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
and
DICK SIMON TRUCKING, INC.
ATTACHMENT NO. 1
TO COMPLIANCE CERTIFICATE
AS OF __________, 19__, WHICH PERTAINS
TO THE PERIOD FROM __________, 19__
TO __________, 19__
Terms defined in the Credit Agreement are used herein as defined therein and
Section references herein refer to the Sections in Supplement A of the Credit
Agreement.
<TABLE>
<S> <C> <C>
1 . Net Worth
(prescribed by Section 7.1)
(a) Minimum Net Worth required under Section 7.1 to be less than
$50,000,000 as the fiscal year ending September 30, 1999, plus
thereafter, 50% of the Company's net income (without
reduction for net loss) measured at $
the end of each six month period.
(b) Actual Net Worth $
as of the date of determination
</TABLE>
<PAGE>
Exhibit E
COLLATERAL ACCOUNT AND DISBURSEMENT ACCOUNT AGREEMENT
This Agreement is made this 28th day of September, 1999 by and among
SIMON TRANSPORTATION SERVICES INC., DICK SIMON TRUCKING, INC. (collectively and
separately the "Borrower"), U.S. BANK NATIONAL ASSOCIATION (the "Lender").
WHEREAS, the Lender and the Borrower have entered into that certain
Credit and Security Agreement, dated as of September 28, 1999 (the "Credit
Agreement");
WHEREAS, in furtherance of the Credit Agreement, the Borrower and the
Lender have established (a) the Collateral Account (hereinafter defined), and
(b) the Disbursement Account (hereinafter defined);
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
Section 1 - Collateral Account
1.1 Pursuant to the Credit Agreement, the Lender has a security
interest in certain property of the Borrower, including, without limitation, all
present and future accounts, general intangibles, rights to payment and other
forms of obligations for the payment of money and in all proceeds thereof
(the "Collateral"). The Borrower has agreed with the Lender that all Items
received by the Borrower with respect to the Collateral shall be deposited into
U.S. Bank National Association (re. funds received from Simon Transportation
Services, Inc. and Dick Simon Trucking, Inc.) Account No. ________________ (the
"Collateral Account").
1.2 The Lender agrees to operate and maintain the Collateral Account
exclusively for the benefit of the Lender, to hold all Items deposited in the
Collateral Account for the Lender and to make any withdrawals or transmittals
out of or on account of the Collateral Account only to the Lender, or such
person as the Lender may from time to time designate in writing. Neither
Borrower shall have any interest in the Collateral Account or in any Items
deposited in the Collateral Account.
1.3 In the event that Items deposited in the Collateral Account are
returned uncollected, the Lender shall provide notice to the Borrower and the
Borrower shall pay to the Lender the amount of such uncollected Items, and all
other fees and charges attributable to such uncollected Items, or, at the option
of the Lender, the Lender may debit the Disbursement Account by an amount equal
to the sum of such uncollected Items and fees and charges. The Lender agrees
that its recourse for uncollected Items and fees and charges attributable to
such uncollected Items shall be against the Borrower, the Disbursement Account
or the Collateral Account.
Section 2 - Disbursement Account
2.1 The Borrower hereby agrees to maintain with the Lender Simon
Transportation Services, Inc. And Dick Simon Trucking, Inc. Account No.
153100281127 (the "Disbursement Account"). All sums advanced as loans under
the Credit Agreement shall be deposited into the Disbursement Account by the
Lender and shall be subject to instructions and orders issued by the Borrower.
<PAGE>
Section 3 - Miscellaneous
3.1 The Borrower shall be liable to the Lender for any ordinary or
usual fees and charges of the Lender, including, without limitation, fees and
charges attributable to uncollected Items, in connection the Collateral Account
and the Disbursement Account and the Lender may charge the Disbursement Account
for such fees and charges. The Borrower hereby agrees to maintain collected
funds in the Disbursement Account for the payment of uncollected Items and fees
and charges, including, without limitation, fees and charges attributable to
uncollected Items.
3.2 The Borrower hereby agrees to pay, indemnify and hold the Lender
harmless from and against any and all liability, losses, damages, penalties and
expenses (including, without limitation, reasonable attorneys' fees) arising out
of the Lender's performance of this Agreement or any agreement executed
herewith, except as solely caused by the willful misconduct or gross negligence
of the Lender, its agents or employees. The Borrower hereby release the Lender
from responsibility for any losses occasioned in whole or in part by any
circumstances beyond the Lender's reasonable control, including, without
limitation, equipment failure, war and emergencies. IN NO EVENT SHALL THE LENDER
BE LIABLE FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, OR LOSS OF
PROPERTY, NOTWITHSTANDING NOTICE TO THE LENDER OF THE POSSIBILITY OF SUCH
DAMAGES OR LOSSES.
3.3 This Agreement may be terminated upon agreement signed by both the
Lender and the Borrower. No termination shall affect the obligations of the
parties hereto with respect to Items received by the Lender before the
termination has become effective. Termination shall not impair the indemnities
made by the Borrower herein.
3.4 This Agreement may be executed in any number of counterparts,
which together shall constitute one and the same instrument.
3.5 This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Minnesota, giving effect to all federal
laws and regulations applicable to national banks.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
SIMON TRANSPORTATION SERVICES INC.
By: _____________________________
Title: __________________________
DICK SIMON TRUCKING, INC.
By: _____________________________
Title: __________________________
U.S. BANK NATIONAL ASSOCIATION
By: _____________________________
Title: __________________________
<PAGE>
EXHIBIT G
TERMS WITH RESPECT TO GUARANTEED OBLIGATIONS
1 Obligations Absolute. No act or thing need occur to establish the
liability of each Borrower for its Guaranteed Obligations, and no act or thing,
except full payment and discharge of all such Guaranteed Obligations, shall in
any way exonerate such Borrower or modify, reduce, limit or release the
liability of such Borrower for its Guaranteed Obligations. The obligations of
each Borrower for its Guaranteed Obligations shall be absolute, unconditional,
and irrevocable, and shall not be subject to any right of setoff or counterclaim
by such Borrower.
2 Continuing Guaranty. Each Borrower shall be liable for its Guaranteed
Obligations, plus accrued interest thereon and all attorneys' fees, collection
costs and enforcement expenses referable thereto. Guaranteed Obligations may be
created and continued in any amount without affecting or impairing the liability
of such Borrower therefor. No notice of such Guaranteed Obligations already or
hereafter contracted or acquired by the Lender, or any renewal or extension of
any thereof need be given to such Borrower and none of the foregoing acts shall
release such Borrower from liability hereunder. The agreement of each Borrower
pursuant to the Agreement with respect to its Guaranteed Obligations is an
absolute, unconditional and continuing guaranty of payment of such Guaranteed
Obligations and shall continue to be in force and be binding upon such Borrower
until such Guaranteed Obligations are paid in full and the Agreement is
terminated, and the Lender may continue, at any time and without notice to such
Borrower, to extend credit or other financial accommodations and loan monies to
or for the benefit of the other Borrowers on the faith thereof. Each Borrower
hereby waives, to the fullest extent permitted by law, any right they may have
to revoke or terminate its guaranty of the Guaranteed Obligations before the
Guaranteed Obligations are paid in full and the Agreement is terminated. In the
event any Borrower shall have any right under applicable law to otherwise
terminate or revoke its guaranty of the Guaranteed Obligations which cannot be
waived, such termination or revocation shall not be effective until written
notice of such termination or revocation, signed by such Borrower, is actually
received by the officer of the Lender responsible for such matters. Any notice
of termination or revocation described above shall not affect such Borrower's
guaranty of the Guaranteed Obligations in relation to (i) any of the Guaranteed
Obligations that arose prior to receipt thereof or (ii) any of the Guaranteed
Obligations created after receipt thereof, if such Guaranteed Obligations were
incurred either through loans by the Lender, including, without limitation,
advances or readvances in an aggregate outstanding amount not to exceed the
aggregate amount of the Revolving Credit Amount as of the time such notice of
termination or revocation was received, and/or for the purpose of protecting any
collateral, including, but not limited, to all protective advances, costs,
expenses, and attorneys' and paralegals' fees, whensoever made, advanced or
incurred by the Lender in connection with the Guaranteed Obligations. If, in
reliance on any Borrower's guaranty of its Guaranteed Obligations, the Lender
makes loans or other advances to or for the benefit of any other Borrower or
takes other action under the Agreement after such aforesaid termination or
revocation by the undersigned but prior to the receipt by the Lender of said
written notice as set forth above, the rights of the Lender shall be the same as
if such termination or revocation had not occurred.
<PAGE>
3 Other Transactions. The liability of the Borrowers under the
Agreement with respect to the Guaranteed Obligations shall not be affected or
impaired by any of the following acts or things (which the Lender is expressly
authorized to do, omit or suffer from time to time, without notice to or
approval by the Borrowers): (i) any acceptance of collateral security, other
guarantors, accommodation parties or sureties for any or all Guaranteed
Obligations; (ii) any one or more extensions or renewals of Guaranteed
Obligations (whether or not for longer than the original period) or any
modification of the interest rates, maturities or other contractual terms
applicable to any Guaranteed Obligations; (iii) any waiver or indulgence granted
to the other Borrowers, any delay or lack of diligence in the enforcement of
Guaranteed Obligations, or any failure to institute proceedings, file a claim,
give any required notices or otherwise protect any Guaranteed Obligations; (iv)
any full or partial release of, settlement with, or agreement not to sue, the
other Borrowers or any other guarantor or other person liable in respect of any
Guaranteed Obligations; (v) any discharge of any evidence of Guaranteed
Obligations or the acceptance of any instrument in renewal thereof or
substitution therefor; (vi) any failure to obtain collateral security for
Guaranteed Obligations, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to protect, ensure,
or enforce any collateral security, or any modification, substitution,
discharge, impairment or loss of any collateral security; (vii) any foreclosure
or enforcement of any collateral security; (viii) any transfer of any Guaranteed
Obligations or any evidence thereof; (ix) any order of application of any
payments or credits upon Guaranteed Obligations; (x) any release of any
collateral security for Guaranteed Obligations; (xi) any amendment to or
modification of, any agreement between the Lender and the other Borrowers, or
any waiver of compliance by the other Borrowers with the terms thereof; and
(xii) any election by the Lender under Section 1111(b) of the United States
Bankruptcy Code.
4. Waivers of Defenses and Rights. Each Borrower waives any and all
defenses, claims and discharges of the other Borrowers, or any other obligor,
pertaining to the Guaranteed Obligations, except the defense of discharge by
payment in full. Without limiting the generality of the foregoing, no Borrower
will assert, plead or enforce against the Lender any defense of waiver, release,
discharge in Bankruptcy, statute of limitations, res judicata, statute of
frauds, anti-deficiency statute, fraud, usury, illegality or unenforceability
which may be available to any other Borrower or any other person liable in
respect of any Guaranteed Obligations, or any setoff available against the
Lender to the other Borrowers or any such other person, whether or not on
account of a related transaction. Each Borrower expressly agrees that such
Borrower shall be and remain liable for any deficiency remaining after
foreclosure of any mortgage or security interest securing Guaranteed
Obligations, whether or not the liability of the other Borrowers or any other
obligor for such deficiency is discharged pursuant to statute, judicial decision
or contract. Each Borrower waives presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing Guaranteed
Obligations. Each Borrower agrees that its liability under the Agreement for the
Guaranteed Obligations shall be primary and direct, and that the Lender shall
not be required first to resort for payment of the guaranteed Obligations to the
other Borrowers or other person or their properties, or first to enforce,
realize upon or exhaust any collateral security for the Guaranteed Obligations,
or to commence any action or obtain any judgment against the other Borrowers or
against any such collateral security or to pursue any other right or remedy the
Lender may have against any other Borrower before enforcing the liability of
such Borrower for the Guaranteed Obligations under the Agreement.
5. Approval of Credit. Each of the Borrowers has, independently and
without reliance upon the Lender or its respective directors, officers, agents
or employees, and instead in reliance upon information furnished by the other
Borrowers and upon such other information as such Borrower deemed appropriate,
made its own independent credit analysis and decision to guaranty the
obligations of the other Borrowers pursuant to the Agreement.
<PAGE>
6. Waiver of Subrogation. Each Borrower expressly waives any and all
rights of subrogation, reimbursement, indemnity, exoneration, contribution or
any other claim which it may now or hereafter have against the other Borrowers,
any endorser or any other guarantor of all or any part of the Guaranteed
Obligations, and each Borrower hereby waives any benefit of, and any right to
participate in, any security or collateral given to the Lender to secure payment
of the Guaranteed Obligations or any other liability of the other Borrowers to
the Lender. Each Borrower further agrees that any and all claims it may have
against the other Borrowers, any endorser or any other guarantor of all or any
part of the Guaranteed Obligations or against any of their respective
properties, whether arising by reason of any payment by such Borrower to the
Lender pursuant to the provisions hereof or otherwise, is hereby waived. In
furtherance, and not in limitation of the preceding waivers, each Borrower
hereby agrees that any payment to the Lender by such Borrower on account of the
Guaranteed Obligations and any loan made to or obligation incurred from the
other Borrowers shall be deemed to be a contribution to the other Borrowers (of
capital or otherwise), and after giving effect to such payment, loan or other
obligation such Borrower shall not be a creditor of the other Borrowers.
<PAGE>
SOLVENCY CERTIFICATE
The undersigned hereby certifies that he/she is the chief financial
officer of Dick Simon Trucking, Inc., a Utah corporation (the "Borrower"), and
is authorized to certify as to the financial statements of the Borrower, is
familiar with its properties, business and assets and is authorized to execute
this Certificate on behalf of the Borrower and to deliver this Certificate. The
undersigned further certifies that he/she has carefully reviewed the contents of
this Certificate and, in connection herewith, has made such investigations and
inquiries as he/she deemed necessary and prudent. The undersigned further
certifies that he/she believes that the financial information and assumptions
which underlie and form the basis for the representations made in this
Certificate were reasonable when made and continue to be reasonable as of the
date hereof. Capitalized terms used herein that are defined in the Credit and
Security Agreement, dated as of September 28 , 1999 (the "Credit Agreement')
between the Borrower, Simon Transportation Services, Inc. and U.S. Bank National
Association are used herein as so defined. The undersigned hereby further
certifies that it is his/her belief that:
1 . As of the date hereof, after taking into account the transactions
contemplated by the Credit Agreement, the Borrower has capital, cash flows and,
taking into account availability under the Credit Agreement, sources of working
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage.
2. As of the date hereof, after taking into account the Credit Agreement,
the Borrower is able to pay its debts as they mature.
3. As of the date hereof, after taking into account the Credit Agreement, the
Borrower has assets (tangible and intangible) whose fair saleable value exceeds
its total liabilities (including contingent, subordinated, unmatured and
unliquidated).
4. The Borrower does not intend to, nor believe that it will, incur debts or
liabilities beyond its ability to pay such debts and liabilities as they mature.
5. The Borrower does not intend, in consummating the transactions
contemplated by the Credit Agreement, to disturb, delay, hinder or defraud
either present or future creditors or other Persons to which the Borrower is or
will become, on or after the date hereof, indebted.
6. In reaching the conclusions set forth in this Certificate, the
undersigned has considered, among other things:
(a) the cash and other current assets of the Borrower;
(b) refinancing or other replacements of existing liabilities,
debts, obligations and commitments which the Borrower reasonably
expects will be available on the date hereof;
(c) the estimated value of all property, real and personal,
tangible and intangible, of the Borrower and the financial information
attached hereto on Exhibit A;
(d) all liabilities of the Borrower known to him/her on all
claims, whether or not reduced to judgment, liquidated, unliquidated,
matured, unmatured, disputed, undisputed, legal, equitable, secured,
unsecured, fixed or contingent, including, among other things, claims
arising out of, pending or, to his/her knowledge, threatened litigation
against the Borrower;
(e) the experience of the Borrower's management in acquiring
and disposing of its assets and publicly available information on
purchases and sales of properties comparable to those operated by the
Borrower;
(f) historical and anticipated growth in revenues and cash
flows of the Borrower;
(g) customary terms of trade payables in the Borrower's
industry;
(h) the amount of credit extended to customers of the
Borrower; and
(i) the amount of equity capital of the Borrower.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
this 28th day of September, 1999.
DICK SIMON TRUCKING, INC.
By:
Title:
<PAGE>
SOLVENCY CERTIFICATE
The undersigned hereby certifies that he/she is the chief financial
officer of Simon Transportation Services, Inc., a Nevada corporation (the
"Borrower"), and is authorized to certify as to the financial statements of the
Borrower, is familiar with its properties, business and assets and is authorized
to execute this Certificate on behalf of the Borrower and to deliver this
Certificate. The undersigned further certifies that he/she has carefully
reviewed the contents of this Certificate and, in connection herewith, has made
such investigations and inquiries as he/she deemed necessary and prudent. The
undersigned further certifies that he/she believes that the financial
information and assumptions which underlie and form the basis for the
representations made in this Certificate were reasonable when made and continue
to be reasonable as of the date hereof. Capitalized terms used herein that are
defined in the Credit and Security Agreement, dated as of September 28, 1999
(the "Credit Agreement") between the Borrower, Dick Simon Trucking, Inc. and
U.S. Bank National Association are used herein as so defined. The undersigned
hereby further certifies that it is his/her belief that:
1 . As of the date hereof, after taking into account the transactions
contemplated by the Credit Agreement, the Borrower has capital, cash flows and,
taking into account availability under the Credit Agreement, sources of working
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage.
2. As of the date hereof, after taking into account the Credit Agreement,
the Borrower is able to pay its debts as they mature.
3. As of the date hereof, after taking into account the Credit Agreement, the
Borrower has assets (tangible and intangible) whose fair saleable value exceeds
its total liabilities (including contingent, subordinated, unmatured and
unliquidated).
4. The Borrower does not intend to, nor believe that it will, incur debts or
liabilities beyond its ability to pay such debts and liabilities as they mature.
5. The Borrower does not intend, in consummating the transactions
contemplated by the Credit Agreement, to disturb, delay, hinder or defraud
either present or future creditors or other Persons to which the Borrower is or
will become, on or after the date hereof, indebted.
6. In reaching the conclusions set forth in this Certificate, the
undersigned has considered, among other things:
(a) the cash and other current assets of the Borrower;
(b) refinancing or other replacements of existing liabilities,
debts, obligations and commitments which the Borrower reasonably
expects will be available on the date hereof;
(c) the estimated value of all property, real and personal,
tangible and intangible, of the Borrower and the financial information
attached hereto on Exhibit A;
(d) all liabilities of the Borrower known to him/her on all
claims, whether or not reduced to judgment, liquidated, unliquidated,
matured, unmatured, disputed, undisputed, legal, equitable, secured,
unsecured, fixed or contingent, including, among other things, claims
arising out of, pending or, to his/her knowledge, threatened litigation
against the Borrower;
(e) the experience of the Borrower's management in acquiring and
disposing of its assets and publicly available information on purchases
and sales of properties comparable to those operated by the Borrower;
(f) historical and anticipated growth in revenues and cash flows
of the Borrower;
(g) customary terms of trade payables in the Borrower's industry;
(h) the amount of credit extended to customers of the Borrower;
and
(i) the amount of equity capital of the Borrower.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
this 28th day of September, 1999.
SIMON TRANSPORTATION SERVICES, INC.
By:
Title:
<PAGE>
SECRETARY'S CERTIFICATE
I, Alban Lang Secretary, hereby certify that I am the duly elected,
qualified and acting Secretary and keeper of the records of Dick Simon Trucking,
Inc., (the "Borrower"), a corporation duly organized, existing and in good
standing under the laws of the State of Utah and further certify as follows:
1 . Attached hereto as Exhibit A is a full, true and correct copy of
resolutions duly adopted by the Borrowers Board of Directors at a meeting
thereof, convened on August 18, 1999 which meeting was held in accordance with
the Borrower's Articles of Incorporation and Bylaws and all applicable laws, and
which resolutions have not in any way been modified or rescinded, but are in
full force and effect.
2. The Articles of Incorporation attached hereto as Exhibit B and the Bylaws
attached hereto as Exhibit C are, respectively, true, complete and correct
copies of this Corporation's Articles of Incorporation (duly filed with the
Secretary of State of the state of Nevada) and Bylaws, which articles and bylaws
have been duly adopted by this Corporation and are presently in full force and
effect.
3. On the date hereof, the following named persons are the present officers
and/or directors of the Borrower who are authorized by the Corporation to
perform the actions set forth in the resolutions attached hereto and the
following signatures are genuine signatures of such named persons:
NAME TITLE SIGNATURE
Richard D. Simon CEO & President _____________________________
Alban B. Lang COO, CFO & Secretary _____________________________
IN WITNESS WHEREOF, I have executed, this Certificate and have caused the
corporate seal of the Borrower to be hereto affixed this 28th day of September
1999.
----------------------------
Secretary
(Corporate Seal)
I hereby certify that Alban Lang has been elected and is now acting as
Secretary of Dick Simon Trucking, Inc., and that the signature to the foregoing
Certificate is his/her genuine signature.
----------------------------
President
<PAGE>
EXHIBIT A
TO SECRETARY'S CERTIFICATE
Resolutions of the Board of Directors of
Dick Simon Trucking, Inc.
Adopted August 18, 1999
"RESOLVED, that anyone of the following acting singly: Dick Simon and Alban Lang
[insert titles of authorized off icers/directors] (each such person being
hereinafter referred to as a "Designated Person") is hereby authorized, directed
and empowered now and from time to time hereafter to make, execute and deliver
for and on behalf of and in the name of this Corporation such agreements,
instruments and documents, including, but not limited to, a Credit and Security
Agreement between this Corporation and U.S. Bank National Association (the
"Lender") substantially in the form of the Credit and Security Agreement (the
"Credit Agreement') presented to this meeting, except for such changes,
additions and deletions as to any or all of the terms or provisions thereof as
the officer executing the Credit and Security Agreement on behalf of this
Corporation shall deem proper, and all other agreements, notes, schedules,
security documents, assignments, of accounts, designations of inventory, real
estate, mortgages, trust deeds, assignments, certificates, reports, bills of
sale, leases, contracts, conditional sale contracts, guaranties, subordination
and stand-by agreements, pledge agreements, assignments of beneficial interest
in any real or personal property, and other such agreements, instruments and
documents (all and each of the foregoing agreements, instruments and documents
are hereinafter referred to collectively as the "Other Loan Documents") with or
for the benefit of the Lender, as he/she may in his/her sole discretion deem
advisable, necessary, expedient, convenient or proper, providing for and
evidencing various financial arrangements with and obligations to the Lender,
including, without limitation, the borrowing of monies by this Corporation and
as security therefor, granting a security interest in the Collateral (as defined
in the Credit Agreement and all proceeds and products of the foregoing property
and interests in property;
BE IT FURTHER RESOLVED, that the Credit Agreement and Other Loan
Documents may contain such provisions, terms, conditions, covenants, warranties
and representations as any Designated Person may in his/her sole discretion deem
advisable, necessary or expedient;
BE IT FURTHER RESOLVED, that any Designated Person acting singly is
hereby authorized, directed and empowered for and on behalf of and in the name
of this Corporation now and from time to time hereafter, as he/she in his/her
sole discretion deems advisable, necessary, expedient, convenient or proper, to:
(a) borrow monies from the Lender or an affiliate of Lender; (b) execute and
deliver to the Lender or its affiliate such agreements, instruments and
documents as the Lender or such affiliate may request or require to effectuate
the purpose and intent of the Credit Agreement and Other Loan Documents or these
resolutions; (c) amend, modify, alter, extend, renew or otherwise change any of
the provisions, terms, conditions, covenants, guaranties or representations
contained in the Credit Agreement or Other Loan Documents; and (d) execute and
deliver to the Lender and/or its affiliate any direction or authorization for
the application, payment, transfer, receipt or other disposition of any
property, real or personal, belonging to this Corporation;
BE IT FURTHER RESOLVED, that any Designated Person acting singly is
hereby authorized, directed and empowered to do and perform all acts and things
he/she deems advisable, necessary, expedient, convenient or proper in order to
consummate fully all of the transactions contemplated under the Credit Agreement
or Other Loan Documents or these resolutions;
BE IT FURTHER RESOLVED, that in order to facilitate borrowings of this
Corporation from the Lender or its affiliate under the terms of the Credit
Agreement and Other Loan Documents, pursuant to which it is or will be required
that a number of reports, certificates and documents including, without
limitation, a report of loan balances and confirmation of advances theretofore
requested, borrowing base certificates, collection reports, inventory
certification reports, and transmittal letters of accounts receivable agings, be
periodically supplied to the Lender, it is in the best interest of this
Corporation to provide to the Lender a list of employees of this Corporation
which are authorized to sign any such reports on behalf of this Corporation,
along with examples of such employees' signatures;
BE IT FURTHER RESOLVED, that in order to accomplish the resolutions
hereinabove stated, the President of this Corporation or the Chief Financial
Officer acting singly is hereby authorized to sign any such reports,
certificates or other documents required under the Credit Agreement or Other
Loan Documents or requested by the Lender in accordance with the Credit
Agreement or Other Loan Documents from time to time on behalf of this
Corporation, and further, the President is hereby authorized to designate in
writing to the Lender from time to time any other persons authorized to sign
such reports, certificates and other documents, and to delete any persons
theretofore authorized, or add other persons not theretofore authorized, and to
cause examples of any such persons' signatures to be delivered to the Lender;
BE IT FURTHER RESOLVED, that the President of this Corporation acting
singly, and any other person or persons which the President may from time to
time designate in writing to the Lender, is authorized to make requests for
borrowings, including, without limitation, telephonic requests for borrowings,
under the Credit Agreement or Other Loan Documents on behalf of this Corporation
and the Lender is hereby authorized to honor such requests of the President, or
of any person so designated by the President, until such time as the Lender is
notified in writing by this Corporation of the election of a new president or of
the revocation of the authorization of any person designated by the President to
make such requests for borrowings under the Credit Agreement or Other Loan
Documents;
BE IT FURTHER RESOLVED, that by adopting the above resolutions at this
meeting, the Directors of this Corporation hereby ratify, approve and confirm
any and all acts and things that any Designated Person has done or may do in any
way relating to or arising from or in connection with the Credit Agreement or
Other Loan Documents and these resolutions and such acts and things of any
Designated Person shall at all times receive full faith and credit by this
Corporation without the necessity of inquiry by the Lender; and
BE IT FURTHER RESOLVED, that (a) the authorizations herein set forth
shall remain in full force and effect for the term of the Credit Agreement and
Other Loan Documents and all renewal terms thereof; and (b) the Secretary or any
Assistant Secretary of this Corporation is hereby authorized and directed to
certify and affix the corporate seal thereunto and furnish to the Lender a copy
of these resolutions."
<PAGE>
Date: September 28, 1999
U.S. Bank National Association
U.S. Bank Place MPFP0504
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Asset Based Lending
Re: Telephonic Requests for Loans/Signature Authorization
Ladies/Gentlemen:
Reference is made to that certain Credit and Security Agreement, dated as of
(the "Credit Agreement"), between Dick Simon Trucking, Inc. (the "Borrower") and
U.S. Bank National Association (the "Lender"). Capitalized terms used herein and
not otherwise defined herein shall have the meanings given such terms in the
Credit Agreement.
The undersigned, as President of the Borrower, and pursuant to the authority
granted to the undersigned in those certain resolutions of the Board of
Directors dated August 18, 1999 does hereby:
1. Designate the following employees of the Borrower as authorized to make
requests for Loans, including telephonic requests for Loans, on its behalf under
the Credit Agreement:
NAME TITLE SIGNATURE
Richard D. Simon CEO & President ______________________
Alban B. Lang COO, CFO & Secretary ______________________
William J. Baker Controller ______________________
The Lender is hereby authorized to honor any request made by any one of the
persons named above, and to forward any such requested Loan as may be directed
at the time of such request.
2. Designate the following employees of the Borrower as authorized to execute
certain reports including, among other things, a report of loan balances and
confirmation of advances theretofore requested, Borrowing Base Certificates,
collection reports, inventory certification reports, and transmittal letters of
accounts receivable agings, on its behalf under the Credit Agreement:
NAME TITLE SIGNATURE
Richard D. Simon CEO & President ______________________
Alban B. Lang COO, CFO & Secretary ______________________
William J. Baker Controller ______________________
Very truly yours,
DICK SIMON TRUCKING, INC.
By:
Title: President
<PAGE>
SECRETARY'S CERTIFICATE
I, Alban Lang, Secretary, hereby certify that I am the duly elected,
qualified and acting Secretary and keeper of the records of Simon Transportation
Services Inc., (the "Borrower"), a corporation duly organized, existing and in
good standing under the laws of the State of Nevada and further certify as
follows:
1 . Attached hereto as Exhibit A is a full, true and correct copy of
resolutions duly adopted by the Borrower's Board of Directors at a meeting
thereof, convened on August 18, 1999, which meeting was held in accordance with
the Borrower's Articles of Incorporation and Bylaws and all applicable laws, and
which resolutions have not in any way been modified or rescinded, but are in
full force and effect.
2. The Articles of Incorporation attached hereto as Exhibit B and the
Bylaws attached hereto as Exhibit C are, respectively, true, complete and
correct copies of this Corporation's Articles of Incorporation (duly filed with
the Secretary of State of the state of Nevada) and Bylaws, which articles and
bylaws have been duly adopted by this Corporation and are presently in full
force and effect.
3. On the date hereof, the following named persons are the present
officers and/or directors of the Borrower who are authorized by the Corporation
to perform the actions set forth in the resolutions attached hereto and the
following signatures are genuine signatures of such named persons:
NAME TITLE SIGNATURE
Richard D. Simon CEO & President ____________________
Alban B. Lang COO, CFO & Secretary ____________________
IN WITNESS WHEREOF, I have executed this Certificate and have caused the
corporate seal of the Borrower to be hereto affixed 18th day of August 1999.
------------------------
Secretary
(Corporate Seal)
I hereby certify that Alban Lang has been elected and is now acting as
Secretary of Simon Transportation Services Inc., and that the signature to the
foregoing Certificate is his genuine signature.
------------------------
President
<PAGE>
EXHIBIT A
TO SECRETARY'S CERTIFICATE
Resolutions of the Board of Directors of
Simon Transportation Services Inc.
Adopted August 18, 1999
"RESOLVED, that anyone of the following acting singly:
Dick Simon and Alban Lang
[insert titles of authorized officers/directors] (each such person being
hereinafter referred to as a "Desiqnated Person") is hereby authorized, directed
and empowered now and from time to time hereafter to make, execute and deliver
for and on behalf of and in the name of this Corporation such agreements,
instruments and documents, including, but not limited to, a Credit and Security
Agreement between this Corporation and U.S. Bank National Association (the
"Lender") substantially in the form of the Credit and Security Agreement (the
"Credit Agreement') presented to this meeting, except for such changes,
additions and deletions as to any or all of the terms or provisions thereof as
the officer executing the Credit and Security Agreement on behalf of this
Corporation shall deem proper, and all other agreements, notes, schedules,
security documents, assignments, of accounts, designations of inventory, real
estate, mortgages, trust deeds, assignments, certificates, reports, bills of
sale, leases, contracts, conditional sale contracts, guaranties, subordination
and stand-by agreements, pledge agreements, assignments of beneficial interest
in any real or personal property, and other such agreements, instruments and
documents (all and each of the foregoing agreements, instruments and documents
are hereinafter referred to collectively as the "Other Loan Documents') with or
for the benefit of the Lender, as he/she may in his/her sole discretion deem
advisable, necessary, expedient, convenient or proper, providing for and
evidencing various financial arrangements with and obligations to the Lender,
including, without limitation, the borrowing of monies by this Corporation and
as security therefor, granting a security interest in the Collateral (as defined
in the Credit Agreement) and all proceeds and products of the foregoing property
and interests in property;
BE IT FURTHER RESOLVED, that the Credit Agreement and Other Loan
Documents may contain such provisions, terms, conditions, covenants, warranties
and representations as any Designated Person may in his/her sole discretion deem
advisable, necessary or expedient;
BE IT FURTHER RESOLVED, that any Designated Person acting singly is
hereby authorized, directed and empowered for and on behalf of and in the name
of this Corporation now and from time to time hereafter, as he/she in his/her
sole discretion deems advisable, necessary, expedient, convenient or proper, to:
(a) borrow monies from the Lender or an affiliate of Lender; (b) execute and
deliver to the Lender or its affiliate such agreements, instruments and
documents as the Lender or such affiliate may request or require to effectuate
the purpose and intent of the Credit Agreement and Other Loan Documents or these
resolutions; (c) amend, modify, alter, extend, renew or otherwise change any of
the provisions, terms, conditions, covenants, guaranties or representations
contained in the Credit Agreement or Other Loan Documents; and (d) execute and
deliver to the Lender and/or its affiliate any direction or authorization for
the application, payment, transfer, receipt or other disposition of any
property, real or personal, belonging to this Corporation;
BE IT FURTHER RESOLVED, that any Designated Person acting singly is
hereby authorized, directed and empowered to do and perform all acts and things
he/she deems advisable, necessary, expedient, convenient or proper in order to
consummate fully all of the transactions contemplated under the Credit Agreement
or Other Loan Documents or these resolutions;
BE IT FURTHER RESOLVED, that in order to facilitate borrowings of this
Corporation from the Lender or its affiliate under the terms of the Credit
Agreement and Other Loan Documents, pursuant to which it is or will be required
that a number of reports, certificates and documents including, without
limitation, a report of loan balances and confirmation of advances theretofore
requested, borrowing base certificates, collection reports, inventory
certification reports, and transmittal letters of accounts receivable agings, be
periodically supplied to the Lender, it is in the best interest of this
Corporation to provide to the Lender a list of employees of this Corporation
which are authorized to sign any such reports on behalf of this Corporation,
along with examples of such employees' signatures;
BE IT FURTHER RESOLVED, that in order to accomplish the resolutions
hereinabove stated, the President of this Corporation or the Chief Financial
Officer acting singly is hereby authorized to sign any such reports,
certificates or other documents required under the Credit Agreement or Other
Loan Documents or requested by the Lender in accordance with the Credit
Agreement or Other Loan Documents from time to time on behalf of this
Corporation, and further, the President is hereby authorized to designate in
writing to the Lender from time to time any other persons authorized to sign
such reports, certificates and other documents, and to delete any persons
theretofore authorized, or add other persons not theretofore authorized, and to
cause examples of any such persons' signatures to be delivered to the Lender;
BE IT FURTHER RESOLVED, that the President of this Corporation acting singly,
and any other person or persons which the President may from time to time
designate in writing to the Lender, is authorized to make requests for
borrowings, including, without limitation, telephonic requests for borrowings,
under the Credit Agreement or Other Loan Documents on behalf of this Corporation
and the Lender is hereby authorized to honor such requests of the President, or
of any person so designated by the President, until such time as the Lender is
notified in writing by this Corporation of the election of a new president or of
the revocation of the authorization of any person designated by the President to
make such requests for borrowings under the Credit Agreement or Other Loan
Documents;
BE IT FURTHER RESOLVED, that by adopting the above resolutions at
this meeting, the Directors of this Corporation hereby ratify, approve and
confirm any and all acts and things that any Designated Person has done or may
do in any way relating to or arising from or in connection with the Credit
Agreement or Other Loan Documents and these resolutions and such acts and
things of any Designated Person shall at all times receive full faith and
credit by this Corporation without the necessity of inquiry by the Lender; and
BE IT FURTHER RESOLVED, that (a) the authorizations herein set forth
shall remain in full force and effect for the term of the Credit Agreement and
Other Loan Documents and all renewal terms thereof; and (b) the Secretary or
any Assistant Secretary of this Corporation is hereby authorized and directed
to certify and affix the corporate seal thereunto and furnish to the Lender a
copy of these resolutions."
<PAGE>
Date: September 28, 1999
U.S. Bank National Association
U.S. Bank Place MPFP0504
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Asset Based Lending
Re: Telephonic Requests for Loans/Signature Authorization
Ladies/Gentlemen:
Reference is made to that certain Credit and Security Agreement, dated as of
September 28, 1999 (the "Credit Agreement"), between Simon Transportation
Services, Inc. (the "Borrower") and U.S. Bank National Association (the
"Lender"). Capitalized terms used herein and not otherwise defined herein
shall have the meanings given such terms in the Credit Agreement.
The undersigned, as President of the Borrower, and pursuant to the authority
granted to the undersigned in those certain resolutions of the Board of
Directors dated August 18, 1999, does hereby:
1. Designate the following employees of the Borrower as authorized to make
requests for Loans, including telephonic requests for Loans, on its behalf
under the Credit Agreement:
NAME TITLE SIGNATURE
Richard D. Simon CEO & President _____________________
Alban B. Lang COO, CFO & Secretary _____________________
William J. Baker Controller _____________________
The Lender is hereby authorized to honor any request made by any one of the
persons named above, and to forward any such requested Loan as may be directed
at the time of such request.
2. Designate the following employees of the Borrower as authorized to
execute certain reports including, among other things, a report of loan
balances and confirmation of advances theretofore requested, Borrowing
Base Certificates, collection reports, inventory certification reports,
and transmittal letters of accounts receivable agings, on its behalf
under the Credit Agreement:
NAME TITLE SIGNATURE
Richard D. Simon CEO & President ______________________
Alban B. Lang COO, CFO & Secretary ______________________
William J. Baker Controller ______________________
Very truly yours,
SIMON TRANSPORTATION SERVICES, INC.
By:
Title: President
Dick Simon Trucking, Inc.
Trade Names, Etc.
Schedule 4.1
Simon Transportation Services Inc.
Dick Simon Trucking, Inc.
Simon Dry Vans
Simon Integrated Logistics
Simon Consolidated Services
<PAGE>
Dick Simon Trucking, Inc.
Schedule of Insurance Coverages
Schedule 4.7
<TABLE>
<S> <C> <C> <C> <C> <C>
Policy Type Policy # Carrier Period Limits Premium
- --------------------- ------------ --------------------------------------------- --------------- -----------------------------------
Workers Compensation RL 913-7977 Industrial Indemnity Company of the Northwest 11/l/98-11/l/99 $1,000.000 per Accident 250,000
$1,000,000 per Employee
$1,000,000 Policy Limit
Workers Compensation RL 913-7978 Industrial Indemnity Company 11/l/98-11/1/99 $1,000,000 per Accident Included
$1,000,000 per Employee above
$1,000,000 Policy Limit
Commercial Auto 048064771 Allstate Insurance Company 5/l/99-5/1/00 $1,000,000 Liability 16,605
Commercial Auto 050443384 Allstate Insurance Company 5/1/99-5/l/00 $1,000,000 Liability 1,421
Commercial Auto 048065853 Allstate Insurance Company 5/l/99-5/1/00 $1,000,000 Liability 1,341
Property IM08306481 St. Paul Mercury Insurance Company 11/l/98-11/l/99 $14,667,000 Buildings 45,107
$2,350,000 Contents
$85,000 Fences & Signs
$2,000,000 Tractors and
Trailers
$25,000,000 Business
interruption
General Liability YXB300629 Genesis Insurance Company 11/l/98-11/l/01 $1,500,000 General 25,000
Aggregate
$750,000 Products
$750,000 Personal
Injury
$750,000 Per Occurrence
Truckers Liability $1,000,000 per Accident 1,313,000
Cargo $1,000,000 per Accident 42,000
Umbrella 4398-9100 The lnsurance Company of the l1/l/98-11/l/99 $10,000,000 Each 526,400
State of Pennsylvania Occurrence
$10,000,000 Aggregate
Excess Umbrella RXU0202781 RLI Insurance Company 11/1/98-11/1/99 $25,000,000 Each 15,000
Occurrence
$25,000,000 Aggregate
Excess Liability XLXG1951576A Indemnity Insurance Company of North America $15,000,000 Each 7,500
Occurrence
$15,000,000 Aggregate
</TABLE>
<PAGE>
Schedule 4.8
Litigation and Contingent Liabilities
Simon and certain of its officers and directors have been named as
defendants in a securities class action filed in the United States District
Court for the District of Utah, Caprin v. Simon Transportation Services, Inc..
et al., No. 2:98CV 863K (filed December 3, 1998). Plaintiffs in this action
allege that defendants made material misrepresentations and omissions during the
period February 13, 1997 through April 2, 1998 in violation of Sections 10(b),
11, and 20(a) of the Securities Exchange Act of 1934 and Rule I Ob-5 promulgated
thereunder. Simon intends to vigorously defend this action.
There is a motion for summary judgment filed on behalf of Borrower that
is pending in the State of California regarding an employee's claim for damages
under the Americans with Disabilities Act. The employee claims Borrower did not
make reasonable accommodations for a cancer-related illness.Borrower's local
counsel has stated that the Americans with Disabilities Act does not provide a
remedy for the employee's claim. If the employee were successful, Borrower
thinks damages will be nominal.
<PAGE>
Schedule 4.9
Liens
1. Liens securing debt and capitalized leases listed on the attached schedule.
2. Liens securing debt or capitalized leases used to finance the purchase of
assets after the date hereof.
<PAGE>
Schedule 4.10
Subsidiaries, Ownership
1. Simon Transportation Services Inc., a Nevada corporation, has one
wholly-owned subsidiary, Dick Simon Trucking, Inc., a Utah corporation.
Borrowers have no other Subsidiaries.
2. Simon is a publicly-held company, with its officers and directors
holding approximately 22% of the outstanding shares. A copy of the
Security Ownership Of Principal Stockholders and Management table from
Simon's most recent proxy statement is attached hereto and incorporated
herein by this reference. Trucking is wholly-owned by Simon.
3. The Borrowers do not have actual knowledge of any shareholder agreement,
voting trust. or other agreement limiting or otherwise pertaining to the
ownership interest of any Person in the Borrowers, provided, Simon is
publicly-held and such agreements may exist.
<PAGE>
Attachment to Schedule 4. 10
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
AND MANAGEMEENT
The following table sets forth, as of October 31, 1998, the number and
percentage of outstanding shares of Common Stock beneficially owned by each
person known by the Company to beneficially own more than 5 % of such stock, by
each director, by each Named Officer of the Company, and by all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
<S> <C> <C> <C>
Title of Class Name of Beneficial Owner' Amount & Nature Percent of Class 3
of Beneficial
Ownership
Class A Common Richard D. Simon 24,501 Class A -
Class B Common Richard D. Simon 913,751 Class B - 100.0%
Total - 14.8%
Class A Common Alban B. Lang 91,207 1.4%
Class A Common Kelle A. qimon 94,099 1.5%
Class A Common Lyn Simon 94,011 1.5%
Class A Common Richard D. Simon, Jr. 101,395 1.6%
Class A Common Sherry L. Bokovoy 93,740 1.5%
Class A Common Irene Warr 3,700 *
Class A Common H. J. Frazier 8,000 *
Class A Common Warburg Pincus Counsellors 397,600 6.3%
Class A Common Wynnefield Group 330,500 5.2%
Class A & Class B All directors, executive officers and other 5 % 2,152,504 33.9%
Common stockholders as a group (10 persons)
<FN>
* Less than one percent.
1 The business address of Richard D. Simon, Alban B. Lang, Kelle A. Simon,
Lyn Simon, Richard D. Simon, Jr., Sherry L. Bokovoy, and Irene Warr is P.O.
Box 26297, Salt Lake City, Utah 84126-0297. The address of H.J. Frazier is
2700 West Sackett Drive, Park City, Utah 84098. The address of Warburg Pincus
Counsellors is 466 Lexington Avenue, New York, New York 1OO17. The address
of Wynnefield Group is One Penn Plaza, Suite 4720, New York, New York 10119.
2 In accordance with applicable rules under the Securities Exchange Act of
1934, as amended, the number of shares beneficially owned includes 39,600
shares of Class A Common Stock underlying options to purchase granted to each
of Alban B. Lang, Kelle A. Simon, Lyn Simon, Richard D. Simon, Jr., and
Sherry L. Bokovoy (the "Optionees") that are either currently exercisable or
will become exercisable within 60 days. The 85,400 remaining shares underlying
options granted to the Optionees that are not exercisable within 60 days are
excluded. The shares owned also include an aggregate 37,915 shares of Class
A Common Stock held in the Company's ss.401(k) Plan on behalf of Richard D.
Simon (14,501 shares), Alban B. Lang (7,348 shares), Kelle A. Simon (5,923
shares), Lyn Simon (7,568 shares), and Sherry L. Bokovoy (2,575 shares). The
total shares include 2,000 shares underlying stock options granted to Irene
Warr and 3,000 shares underlying stock options granted to H.J. Frazier
that are currently exercisable or will be exercisable within 60 days. Unless
otherwise indicated all shares are owned directly.
3 Percentage based on both Class A and Class B Common Stock and includes for
purposes of this chart only the vested portion of options granted under the
Company's Incentive Stock Plan and Outside Director Stock Plan.
4 All shares are held by Richard D. Simon, Trustee of the Richard D. Simon
Revocable Trust, UTAD 2/12/93, of which the four children of Richard D. Simon
are the beneficiaries. subject to a life estate in favor of Valene Simon,
wife of Richard D. Simon. Because the Class B Common Stock is entitled to
two votes per share, Mr. Simon, as Trustee, controls 25.5% of the combined
voting power of the Common Stock.
</FN>
</TABLE>
<PAGE>
Schedule 4.11
Partnerships; Joint Ventures; LLCs
NONE
<PAGE>
Dick Simon Trucking, Inc.
Listing of Business Locations
Schedule 4.12
Terminals
5175 West 2100 South
West Valley City, Utah 84120
1545 Cedargrove Road
Conley, Georgia 30027
15816 Santa Ana Avenue
Fontana, California 92338
5821 West Buckeye
Phoenix, Arizona
23623 Colonial Parkway, Suite B
Katy, Texas 77493
264 Farrell Road
Syracuse, New York 13209
Trailer Drop Yards
Rupert, Idaho
Springville, Utah
Gaffney, South Carolina
Laredo, Texas
<PAGE>
Dick Simon Trucking, Inc.
Long Term Debt Schedule
Schedule 4.15
Loan/
Bank Lease Date Cost Term
Core States Bank:
#531360 to 531408 &
#531410 to 531459 Lease #1 Sep-97 3,861,296.00 60
#531460 to 531519 Lease #2 Sep-97 2,315,693.00 60
#531520 to 531594 Lease #3 Oct-97 2,924,679.00 60
#532020 to 532036
#532038 to 532115
#532117 to 532119
#535085 to 535091 Lease #4 Feb-98 3,955,483.98 60
#2380,2436 to 2492 Lease #5 Apr-98 4,332,240.00 36
#2513 to 2532 Lease #6 May-98 1,493,920.00 36
#2493 to 2512 Lease #7 May-98 1,487,335.00 36
Associates:
#531720 to 531819 Lease #3 Dec-97 3,900,897.50 60
#531970 to 532019 Lease #4 Feb-98 1,949,786.00 60
Banc Boston Leasing:
#530570 to 530619 Lease #1 May-96 1,976,432.50 60
#530620 to 530669 Lease #2 Aug-96 1,946,667.00 60
#530670 to 530719 Lease #3 Aug-96 1,946,667.00 60
#530720 to 530769 Lease #4 Aug-96 1,946,400.00 60
#530770 to 530772
& 530774 to 530819 Lease #5 Sep-96 1,909,396.72 60
#530970 to 531069 Lease #6 Jan-97 3,842,937.50 60
#531245 to 531294 Lease #7 Aug-97 1,931,443.50 60
#531295 to 531359 Lease #8 Aug-97 2,535,851.50 60
Add'I trailer costs Lease #9 Sep-97 18,550.00 60
#531820 to 531919 Lease #10 Jan-98 3,900,633.00 60
#531920 to 531969 Lease #11 Jan-98 1,949,909.50 60
#532238 to 532312 Lease #12 Jul-98 3,039,135.00 60
#2768 to 2770 &
#2781 to 2812 Lease #13 Dec-98 2,663,536.75 36
#2813 to 2857 Lease #14 Jan-99 3,353,197.50 36
Banc One Ls:
#1791 to 1795 Lease #7 Oct-96 389,300.00 36
<PAGE>
Fifth Third Leasing:
#531220 to 531244 Lease #1 May-97 965.671.00 60
First Security Leasing:
#2533 to 2551 Lease #1 May-98 1,412,968.25 36
#2552 to 2571 Lease #2 Jun-98 1,493,920.00 36
#2572 to 2574 &
#2591 to 2601 Lease #3 Jul-98 1,041,131.00 36
#2602 to 2614 Lease #4 Jul-98 966,764.50 36
First Union Leasing:
#530820 to 530869 &
#535034 to 535083 &
#530870 to 530919 Lease #1 Sep-96 4,794,318.00 60
#1731 to 1735
#1737 to 1790 Lease #2 Dec-96 4,520,542.00 36
#2130 to 2157 &
#2172 to 2191 Lease #3 Jul-97 3,555,273.60 36
#2158 to 2171 Lease #4 Aug-97 1,036,954.80 36
#2192 to 2244 Lease #5 Sep-97 3,925,614.60 36
#2245 to 2258 Lease #6 Oct-97 1,036,954.80 36
Fleet Capital:
#1627 to 1657, 1674 Lease #12 Oct-96 2,401,315.88 36
#1680 to 1704 &
#1706 to 1730 Volvos Lease #13 Oct-96 3,460,700.00 39
#1797 to 1820 Volvos
#1822 to 1845 Lease #14 Dec-96 3,322,272.00 39
#531170 to 531219 Lease #15 May-97 1,934,496.00 60
#2259 to 2265 &
#2283 to 2292 Lease #16 Oct-97 1,259,159.40 36
#531595 to 531719 Lease #17 Oct-97 4,875,397.25 60
#2321 to 2337
#2339 to 2350, 2616 Lease #18 Dec-97 2,239,874.45 36
#2362 to 2379 Lease #19 Feb-98 1,331,744.40 36
#2575 to 2590, 2615 Lease #20 Jul-98 1,264,230.50 36
#2617 to 2658 Lease #21 Aug-98 3,154,099.50 36
#2659 to 2698 (LBJ) Lease #22 Sep-98 2,971,840.00 36
#3036 to 3047 (CIT) Lease #23 May-99 2,016,771.75 36
#3049 to 3055
#3073 to 3074
#3076,77,78,80,81,82
#3048,56 to 72 (CIT) Lease #24 May-99 1,643,027.75 36
#3075, 79,83,84
<PAGE>
Key Corp Leasing:
#1866 to 1900 Lease #17 Jan-97 2,698,246.45 36
#2266 to 2279 Lease #18 Oct-97 1,036,954.80 36
#2280 to 2282 &
#2293 to 2309 &
#2311 to 2313 Lease #19 Nov-97 1,703,568.60 36
#2310,2314 to 2320 Lease #20 Dec-97 592,545.60 36
#2351 to 2360 Lease #21 Jan-98 748,433.50 36
#2381 to 2390 Lease #22 Feb-98 748,433.50 36
#2391 to 2435 Lease #23 Apr-98 3,159,095.00 36
#2699 to 2721 &
#2723 to 2728 Lease #24 Oct-98 2,204,652.00 36
#600,2722, 29 to 48
#2771 to 2780 Lease #25 Nov-98 2,406,135.00 36
#2749 to 2767 Lease #26 Dec-98 1,414,089.25 36
#2858 to 2872 Lease #27 Feb-99 1,120,425.00 36
#2932,2937,2942 Lease #28 Apr-99 4,317,457.75 36
#2956 to 2989
#3015 to 3035
Mercedes-Benz Credit:
#2873 to 2931,33,35,36 Lease #1 Mar-99 5,659,950.25 36
#2838 to 2841
#2946 to 2953,55,56
#2934, 2943 to 2945 Lease #2 Apr-99 2,153,483.25 36
#2990 to 3014
#53231 to 53260 Lease #3 Jul-99 1,240,419.22 60
Nations Bank:
#530920 to 530969 Lease #6 Dec-96 1,921,790.50 60
#ABS001 to ABS032 Lease #7 May-98 3,045,644.60 60
&532120 to 532162 Lease #8 Jun-98 3,035,400.75 60
#532163 to 532237 Lease #9 Jun-99 4,569,088.00 36
#3085 to 3145 (MBC) Lease #10 Jun-99 764,065.75 36
#3146 to 3149 (DIME) Lease #11 Sep-99 2,001,663.50 36
#3150 to 3176
Safeco Credit:
#1846 to 1864 Lease #2 Dec-96 1,405,991.45 36
#80088 to 80137 Lease #3 Feb-99 1,002,441.00 60
<PAGE>
U.S. Bancorp Leasing:
#530120 to 530137
#530139 to 530170
& 530172 to 530179 Lease #2 Jan-96 2,160,606.33 60
Volvo Truck Finance:
#1941 to 1973 #401 & 402 Apr-97 2,411,306.00 39
#1974 to 1983
#1985 to 2040
(Excluding 1997,03,06) #403 May-97 4,605,552.00 39
#1997,2003,2006 #404 Jun-97 219,312.00 39
<PAGE>
Schedule 4.16
Patents, Trademarks, Copyrights
1. Borrower's logo of the skunk holding a flag is registered with the State
of Utah.
2. Borrowers also have unregistered rights of various kinds.
<PAGE>
Schedule 4.18
Contracts and Labor Disputes
NONE
<PAGE>
Schedule 4.25
Environmental Matters
NONE
<PAGE>
Schedule 6.11
Investments
NONE
<PAGE>
Dick Simon Trucking, Inc
Capitalized Leases -- Principal and Interest
August 3l.1999
Schedule 6.12
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Principal Current Residual
Original Residual Monthly Principal 8/l/99 8/i/99 Principal Principal Principal Due Within
Asset Date Amount Term Residual Value Payment 7/31/99 8/31/99 8/31/99 Payoff 8/31/99 at 8/31/99 12 Months
- ----- ------ --------- ---- -------- --------- ------- --------- -------- --------- --------- --------- ---------- -----------
FSU03 Sep-95 2,012,409 60 50% 1,006,204 25,515 1,272,306 7,197 18,318 -- 1,253,988 228,072 --
FCRO7 May-95 184,350 60 50% 92,175 2,390 109,932 662 1,728 -- 108,204 16,029 92,175
FCRO8 Aug-95 643,297 60 50% 321,649 8,011 400,357 2,149 5,862 -- 394,495 72,847 321,649
FCRO9 Oct-95 252,930 60 50% 126,465 3,141 161,951 862 2,279 -- 159,672 28,311 --
FCR11 Dec-95 870,343 60 50% 435,172 10,691 572,368 2,948 7,743 -- 564,625 96,086 --
--------- --------- ------ --------- -------- --------- --------- --------- ---------- -----------
TOTAL 3,963,329 1,981,664 49,747 2,516,914 13,817 35,930 -- 2,480,984 441,344 413,824
--------- --------- ------ --------- -------- --------- --------- --------- ---------- -----------
Total Lease Payments 8/1/99 - 8/31/99 49,747 Current 855,167
New Leases 8/l/99 - 8/31/99 --
Long-term 1,625.817
</TABLE>
<PAGE>
Dick Simon Trucking. Inc
Debt Summary
August 31, 1999
Schedule 6.12
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Due During
Original Stated Current Monthly Monthly Balance the Period Ending
Bank & Collateral Loan Date Amount Term Rate Rate Principal Payment 8/31/99 8/31/00 8/31/01
- ----------------------- ---- ------ ------------- ---- -------- ------- --------- ----------- ------------ ------------ ------------
First Union
Trailers 530180-530219 1 Feb-96 1,565,640.00 60 Fixed 6.37% -- 30,536.35 522,488.15 342,626.52 179,861.63
Trailers 530023-530279 2 Feb-96 1,869.898.80 60 Fixed 6.37% -- 36,472.97 625,194.62 410,366.43 214,828.19
Trailers 530220-530319 3 Feb-96 1,898,742.16 60 Fixed 6.24% -- 36,916.74 633,036.65 415,271.88 217,764.77
Trailers 535014-535033 4 Mar-96 352,728.40 60 Fixed 6.55% -- 6,909.80 130,554.70 83,225.09 47,329.61
Trailers 530320-530369 5 Mar-96 1.946.554.00 60 Fixed 6.55% -- 38,132.18 657,206.30 396,015.53 261,190.77
Trailers 530370-530419 6 Mar-96 1,946.554.00 60 Fixed 7.09% -- 38,626.81 692,364.93 428,255.76 264,109.17
Trailers 530420-530469 7 Apr-96 1,946,654.00 60 Fixed 7.20% -- 38,728.05 727,860.08 463,155.05 264,705.03
Trailers 530470-530519 8 Apr.96 1,946,806.00 60 Fixed 7.18% -- 38,714.62 756,783.13 492,152.23 264,630.90
Trailers 530520-530569 9 May-96 1,946,651.00 60 LIBOR+1.1 6.04% 32,444.18 0.00 681,327.98 389,330.16 291,997.82
Subtotal 15,420,027.36 32,444.18 265,037.52 5,426,816.54 3,420,308.64 2,006,417.90
Bank of Boston
Headquarters-WVC 1 Aug-97 12,900,000.00 33 Eurodollar 5.88% 365,656.56 0.00 4,387,878.90 4,387,878.72 0.18
Subtotal 12,900,000.00 365,656.66 0.00 4,387,878.90 4,387,378.72 0.18
Current Portion of Debt 7,808,277.36
Long-term Portion of Debt 2,006,418.08
Total 9,814,695.44 7,808.277.36 2,006,418.08
</TABLE>
