SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File No. 0-24946
KNIGHT TRANSPORTATION, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0649974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5601 West Buckeye Road 85043
Phoenix, Arizona (Zip Code)
(Address of principal executive offices)
(602) 269-2000
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Each Class Name of Exchange on Which Registered
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Common Stock, $0.01 par value NASDAQ-NMS
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
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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 amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 10, 1997, was $89,305,900 (based upon $22.63 per share
being the closing sale price on that date as reported by the National
Association of Securities Dealers Automated Quotation System-National Market
System ("NASDAQ-NMS")). In making this calculation, the issuer has assumed,
without admitting for any purpose, that all executive officers and directors of
the company, and no other persons, are affiliates.
The number of shares outstanding of the registrant's common stock as of March
10, 1997, was 9,904,500.
The Information Statement for the Annual Meeting of Shareholders to be held on
May 14, 1997 is incorporated into this Form 10-K Part III by reference.
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TABLE OF CONTENTS
KNIGHT TRANSPORTATION, INC.
FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1996
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PART I
Item 1. Business......................................................................................1
Item 2. Properties................................................................................... 7
Item 3. Legal Proceedings............................................................................ 8
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 8
PART II
Item 5. Market For Company's Common Equity and Related Shareholder Matters........................... 8
Item 6. Selected Financial Data...................................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................................10
Item 8. Financial Statements and Supplementary Data..................................................16
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure..........................16
PART III
Item 10. Directors And Executive Officers of The Company..............................................17
Item 11. Executive Compensation.......................................................................17
Item 12. Security Ownership of Certain Beneficial Owners and Management...............................17
Item 13. Certain Relationships and Related Transactions...............................................17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................17
SIGNATURES.......................................................................................................20
INDEX TO EXHIBITS............................................................................................... 37
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PART I
Item 1. Business
Except for the historical information contained herein, the
discussion in this Annual Report contains forward-looking statements that
involve risks, assumptions and uncertainties which are difficult to predict.
Words such as "believe," "may," "could" and "likely" and variations of these
words, and similar expressions, are intended to identify such forward-looking
statements. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the sections entitled
"Factors That May Affect Future Results" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as those
discussed in this Part and elsewhere in this Annual Report.
General.
Knight Transportation, Inc. ("Knight" or the "Company") is a
short-to-medium haul, dry van truckload carrier headquartered in Phoenix,
Arizona. The Company transports general commodities, including consumer goods,
packaged foodstuffs, paper products, beverage containers and imported and
exported commodities.
The Company commenced operations in July 1990, when Kevin,
Gary and Keith Knight joined Randy Knight to establish a new short-to-medium
haul truckload carrier. The Company's stock has been publicly traded since
October 1994. From 1991 to 1996, Knight's revenue has grown to $77.5 million
from $13.4 million, and net income has increased to $7.5 million from $.9
million. This growth resulted from expansion of the Company's customer base and
increased volume from existing customers, and was facilitated by the continued
expansion of the Company's fleet, including an increase in the Company's
independent contractor fleet. The Company has provided truckload carrier service
to the Western United States out of its Phoenix, Arizona headquarters since
1990. During 1996, the Company established operations near Houston, Texas to
provide dedicated services to one of its larger customers and to commence
service in the Texas and Louisiana region. During the same period, the Company
also established operations in Indianapolis, Indiana, from which it provides
regional and dedicated services in the Midwest and on the East Coast.
Operations
Knight's operating strategy focuses on four key elements:
growth, regional operations, customer service, and operating efficiencies.
o Growth. Knight's objective is to achieve significant growth
through the controlled expansion of high quality service to existing customers
and the development of new customers in its expanded market areas. The Company
has developed an independent contractor program in order to increase its tractor
fleet and provide additional service to customers, while minimizing capital
investment by the Company. The Company believes that there are significant
opportunities to continue to increase its business in the short-to-medium haul
market by pursuing existing strategies and expanding its dedicated services.
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o Regional Operations. The Company has established operations
near Houston, Texas to provide dedicated services to one of its larger customers
and to commence regional services in Texas and Louisiana. The Company has also
initiated operations in Indianapolis, Indiana, from which it provides regional
and dedicated service in the Midwest and on the East Coast. Knight anticipates
that its three regional operating bases will provide a platform for future
growth.
o Customer Service. Knight's operating strategy is to provide
a high level of service to customers, establishing the Company as a preferred or
"core carrier" for customers who have time sensitive, high volume or high weight
requirements. The Company's services include multiple pick-ups and deliveries,
dedicated equipment and personnel, on-time pickups and deliveries within narrow
time frames, specialized driver training, and other services tailored to meet
its customers' needs. The Company has adopted an equipment configuration that
meets a wide variety of customer needs and facilitates customer shipping
flexibility. The Company uses light weight tractors and high cube trailers
capable of handling both high volume and high weight shipments.
o Operating Efficiencies. The Company employs a number of
strategies that it believes are instrumental to its efforts to achieve and
maintain operating efficiencies. Knight seeks to maintain a simplified operation
that focuses on operating dry vans in particular geographical and shipping
markets. This approach allows the Company to concentrate its marketing efforts
to achieve higher penetration of its targeted service areas. The Company seeks
operating economies by purchasing a generally uniform and compatible fleet of
tractors and trailers that facilitates Knight's ability to serve a broad range
of customer needs and thereby maximizes equipment utilization and efficiencies
in maintenance and positioning.
Marketing and Customers
The Company's sales and marketing function is led by its
senior management, who are assisted by other sales professionals. The Company's
marketing team emphasizes the Company's high level of service and ability to
accommodate a variety of customer needs. The Company's marketing efforts are
designed to take advantage of the trend among shippers toward private fleet
conversions, outsourcing transportation requirements, and the use of core
carriers to meet shippers' needs.
Knight has a diversified customer base. For the year ended
December 31, 1996, the Company's twenty-five (25) largest customers represented
56.7% of operating revenue, its ten largest customers represented 36.9% of
operating revenue, and its five largest customers represented 24.0% of the
Company's operating revenue. The Company believes that a substantial majority of
the Company's twenty-five (25) largest customers regard Knight as a preferred or
"core carrier." Most of the Company's truckload carriage contracts are
cancelable on 30-days notice. The loss of one or more large customers could have
a materially adverse effect on the Company's operating results.
Knight seeks to provide consistent, timely, flexible and cost
efficient service to shippers. The Company's objective is to develop and service
specified traffic lanes for customers who ship on a consistent basis, thereby
providing a sustained, predictable traffic flow and ensuring high equipment
utilization. The short-to-medium haul segment of the truckload carrier market
demands timely pickup and delivery and, in some cases, response on short notice.
Although price is a primary concern to all shippers, the Company seeks to obtain
a competitive advantage by providing high quality service to customers.
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To be responsive to customers' and drivers' needs, the Company often assigns
particular drivers and equipment to prescribed routes, providing better service
to customers, while obtaining higher equipment utilization.
Knight's standard dedicated fleet services involve management
of a significant part of a customer's transportation operations. Under a
dedicated carriage service agreement, the Company provides drivers, equipment
and maintenance, and, in some instances, transportation management services that
supplement the in-house transportation department. The Company's primary
arrangements for dedicated services in the Houston area obligate the Company to
provide a portion of its customer's transportation needs from one of the
customer's distribution centers. The Company provides these services through
Company furnished revenue equipment and drivers.
Each of the Company's two regional operations centers is
linked to the Company's Phoenix headquarters by the IBM AS/400 computer system.
The capabilities of this system enhance the Company's operating efficiency by
providing cost effective access to detailed information concerning equipment and
shipment status and specific customer requirements, and also permit the Company
to respond promptly and accurately to customer requests. The system also assists
the Company in matching available equipment and loads. The Company provides
electronic data interchange ("EDI") services to shippers requiring such service.
Drivers, Other Employees, and Independent Contractors
The recruitment, training and retention of qualified drivers
is essential to support the Company's continued growth and to meet the service
requirements of the Company's customers. Drivers are selected in accordance with
specific objective Company quality guidelines relating primarily to safety
history, driving experience, road test evaluations, and other personal
evaluations, including physical examinations and mandatory drug and alcohol
testing.
The Company seeks to maintain a qualified driver force by
providing attractive and comfortable equipment, direct communication with senior
management, competitive wages and benefits, and other incentives designed to
encourage driver retention and long-term employment. Many drivers are assigned
to dedicated or semi-dedicated fleet operations, thereby enhancing job
predictability. Drivers are recognized for providing superior service and
developing good safety records.
Knight's drivers are compensated on the basis of miles driven
and length of haul. Drivers also are compensated for additional flexible
services provided to the Company's customers. Drivers participate in Knight's
401(k) program and in Company-sponsored health, life and dental plans. Knight's
drivers and other employees who meet eligibility criteria also participate in a
stock option plan and an employee incentive program.
As of December 31, 1996, Knight employed 614 persons including
467 drivers and 23 maintenance personnel. None of the Company's employees is
represented by a labor union.
During 1994, the Company initiated an independent contractor
program. Because independent contractors provide their own tractors, the
independent contractor program provides the Company an alternative method of
obtaining additional revenue equipment. The Company intends to
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continue to increase its use of independent contractors. As of December 31,
1996, the Company had 158 tractors owned and operated by independent
contractors. Each independent contractor enters into a contract with the Company
pursuant to which it is required to furnish a tractor and a driver exclusively
to transport, load and unload goods carried by the Company. Independent
contractors are paid a fixed level of compensation based on total of trip-loaded
and empty miles and are obligated to maintain their own tractors and pay for
their own fuel. The Company provides trailers for each independent contractor.
The Company also provides maintenance services for its independent contractors
for a charge.
Revenue Equipment
The Company operates a fleet of 53-foot long, high cube
trailers, including 45 refrigerated trailers in its fleet as of March 10, 1997.
The efficiency and flexibility provided by its fleet configurations permit the
Company to handle both high volume and high weight shipments. Knight's fleet
configuration also allows the Company to move freight on a "drop-and-hook"
basis, increasing asset utilization and providing better service to customers.
Knight maintains a high trailer to tractor ratio, targeting a ratio of 2.7 to 1.
Management believes this ratio promotes efficiency and allows it to serve a
large variety of customers' needs without significantly changing or modifying
equipment.
Levels of growth in the Company's tractor and trailer fleets
are determined based on market conditions, and the Company's experience and
expectations regarding equipment utilization. In acquiring revenue equipment,
the Company considers a number of factors, including economy, price, technology,
warranty terms, manufacturer support, driver comfort and resale value. As of
December 31, 1996, the Company operated 417 company tractors with an average age
of 1.3 years and 1529 trailers with an average age of 2.2 years. The Company
also had under contract, as of December 31, 1996, 158 tractors, operated by
independent contractors.
The Company seeks to minimize the operating costs of its
tractors and trailers by maintaining a relatively new fleet featuring cost
saving technologies. The Company's current policy is to replace most of its
tractors within 36 months after the date of purchase and replace its trailers
over a five-to- seven year period. Actual replacement depends upon the condition
of particular equipment, its resale value and other factors. The Company employs
a continuous preventive maintenance program designed to minimize equipment down
time, facilitate customer service, and enhance trade value when equipment is
replaced. The Company believes that its equipment acquisition program allows it
to meet the needs of a wide range of customers in the dry van truckload market
while, at the same time, controlling costs relating to maintenance, driver
training and operations.
Safety and Risk Management
The Company is committed to ensuring the safety of its
operations. The Company regularly communicates with drivers to promote safety
and instill safe work habits through Company media and safety review sessions.
The Company conducts quarterly safety training meetings for its drivers and
independent contractors. In addition, the Company has an innovative recognition
program for driver safety performance,
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and emphasizes safety through its equipment specifications and maintenance
programs. The Company's Safety Director is involved in the review of all
accidents.
The Company requires prospective drivers to meet higher
qualification standards than those required by the United States Department of
Transportation ("DOT"). The DOT requires the Company's drivers to obtain
national commercial drivers' licenses pursuant to regulations promulgated by the
DOT. The DOT also requires that the Company implement a drug and alcohol testing
program in accordance with DOT regulations. The Company's program includes
pre-employment, random, post-accident and post-injury drug testing.
The Company's Chief Financial Officer and Director of Safety
are responsible for securing appropriate insurance coverages at cost effective
rates. The primary claims arising in the Company's business consist of cargo
loss and damage, and auto liability (personal injury and property damage). The
Company is self-insured for personal injury and property damage up to a maximum
limit of $100,000 per occurrence, for collision, comprehensive, and cargo
liability up to a combined limit of $25,000 per occurrence, and for workers'
compensation up to $250,000 per occurrence. The Company maintains insurance to
cover liabilities in excess of these amounts. The Company's insurance policies
provide for general liability coverage up to $1,000,000 per occurrence and
$2,000,000 in the aggregate, automobile liability coverage up to $1,000,000 per
occurrence, cargo insurance up to $2,500,000 per occurrence, and additional
umbrella liability coverage up to $14,000,000. The Company also maintains
primary and excess coverage for employee medical expenses and hospitalization,
and damage to physical properties. The Company carefully monitors claims and
participates actively in claims estimates and adjustments. The estimated costs
of the Company's self-insured claims, which include estimates for incurred but
unreported claims, are accrued as liabilities on the Company's balance sheet.
Management believes that the Company's insurance coverages are adequate to
protect the Company from significant losses.
Competition
The entire trucking industry is highly competitive and
fragmented. The Company competes primarily with other regional short-to-medium
haul truckload carriers, logistics providers and national carriers. Railroads
and air freight also provide competition, but to a lesser degree. Competition
for the freight transported by the Company is based on freight rates, service,
and efficiency. The Company also competes with other motor carriers for the
services of drivers and independent contractors. A number of the Company's
competitors have greater financial resources, own more equipment, and carry a
larger volume of freight than the Company. The Company believes that the
principal competitive factors in its business are service, pricing (rates), and
the availability and configuration of equipment that meets a variety of
customers' needs. Knight, in addressing its markets, believes that its principal
competitive strength is its ability to provide timely, flexible and
cost-efficient service to shippers. As a result, freight rates were soft or
declined and competition was increased. Historically, increased competition has
created downward pressure on rates and increased competition to provide higher
levels of service.
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Regulation
Historically, the Interstate Commerce Commission ("ICC") and
various state agencies regulated truckload carriers' operating rights,
accounting systems, rates and charges, safety, mergers and acquisitions,
periodic financial reporting and other matters. In 1995, federal legislation was
passed that preempted state regulation of prices, rates, and services of motor
carriers and eliminated the ICC. Several ICC functions were transferred to the
Department of Transportation ("DOT"), but a lack of implementing regulations
currently prevents the Company from assessing the full impact of this action.
Generally, the trucking industry is subject to regulatory and legislative
changes that can have a materially adverse effect on operations.
Interstate motor carrier operations are subject to safety
requirements prescribed by the DOT. Such matters as weight and dimensions of
equipment are also subject to federal and state regulation. In 1988, the DOT
began requiring national commercial drivers' licenses for interstate truck
drivers.
The Company's motor carrier operations are also subject to
environmental laws and regulations, including laws and regulations dealing with
underground fuel storage tanks, the transportation of hazardous materials and
other environmental matters. The Company has initiated programs to comply with
all applicable environmental regulations. As part of its safety and risk
management program, the Company periodically performs an internal environmental
review so that the Company can achieve environmental compliance and avoid
environmental risk. The Company's Phoenix facility was designed, after
consultation with environmental advisors, to contain and properly dispose of
hazardous substances and petroleum products used in connection with the
Company's business. The Company has rarely transported environmentally hazardous
substances and, to date, has experienced no significant claims for hazardous
substance shipments. In the event the Company should fail to comply with
applicable regulations, the Company could be subject to substantial fines or
penalties and to civil or criminal liability.
The State of Arizona has enacted laws that provide for a water
quality assurance revolving fund ("WQARF"). The purpose of these laws is to
identify and remediate areas of groundwater contamination resulting from the
release of hazardous substances. Once an area of contamination is identified,
the Arizona Department of Environmental Quality ("ADEQ") designates the area as
a WQARF Study Area in order to determine the extent of contamination and to
identity potentially responsible parties. Responsible parties are liable for the
cost of remediating contamination. In December 1987, ADEQ designated a 25 square
mile area in West Phoenix, which includes the Company's Phoenix, Arizona
location, as a WQARF Study Area. To date, ADEQ has not identified the Company as
a potentially responsible party or the Company's facility as a facility
warranting further investigation with respect to the WQARF Study Area. The
Company has been located at its present Phoenix facility since 1990. Neither the
Company nor its predecessors maintained underground petroleum storage tanks at
the Company's Phoenix location. Prior to 1974, the property upon which the
Company's Phoenix, Arizona facilities are located was farm land.
There are two underground storage tanks located on the
Company's Indianapolis property. The tanks are subject to regulation under both
federal and state law and are currently being leased to and operated by an
independent, third party fuel distributor. The Company assumed the lease as part
of its purchase of the property. The lessee has agreed to carry environmental
impairment liability insurance, naming the Company, as lessor, as an insured,
covering the spillage, seepage or other loss of petroleum products, hazardous
wastes, or similar materials onto the leased premises and has agreed to
indemnify the Company, as lessor, against damage from such occurrences. The
Indianapolis property is located
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approximately 0.1 mile east of Reilly Tar and Chemical Corporation ("Reilly"), a
federal superfund site listed on the National Priorities List. The Reilly site
has known soil and groundwater contamination. There are also other sites in the
general vicinity of the Company's Indianapolis property that have known
contamination. Environmental reports obtained by the Company have disclosed no
evidence that activities on the Company's Indianapolis property have caused or
contributed to the area contamination.
The Company believes it is currently in material compliance
with applicable laws and regulations and that the cost of compliance has not
materially affected results of operations. See "Legal Proceedings" for
additional information regarding certain regulatory matters.
Item 2. Properties
The Company's headquarters and principal place of business is
located at 5601 West Buckeye Road, Phoenix, Arizona on approximately 43 acres.
The Company owns approximately 35 of the 43 acres and the remaining eight acres
are leased from Mr. L. Randy Knight, an officer and director of the Company and
one of its principal shareholders. See "Certain Relationships and Related
Transactions," below, for additional information.
In early 1997, the Company began construction of a bulk fuel
storage facility and fueling islands based at its Phoenix headquarters to obtain
greater operating efficiencies. The Company also commenced expansion of its
headquarters facilities. The Company estimates the construction of its bulk fuel
and fueling island facility will be completed by September 1997, and that the
expansion of the Company's headquarters facilities will be completed by October
1997.
During 1996, the Company purchased 9.5 acres in Indianapolis
to establish a regional operating facility. The facility includes a truck
terminal, administrative offices, and dispatching and maintenance services, as
well as room for future expansion, and will serve as a base for the Company's
operations in the Midwest. The Company's operations near Houston are currently
located on the premises of one of the Company's significant customers, for whom
it provides dedicated services. These facilities also support the Company's
non-dedicated operations in the Texas and Louisiana regions.
The Company leases office facilities in California, Oklahoma
and Utah, which it uses for fleet maintenance, record keeping and general
operations. The Company also leases space in various locations for temporary
trailer storage. Management believes that replacement space comparable to these
facilities is readily obtainable, if necessary.
As of December 31, 1996, the Company's aggregate monthly rent
for all leased properties was approximately $16,000.
The Company believes that its current facilities and those
under expansion are suitable and adequate for its present needs. The Company
periodically seeks to improve its facilities or identify favorable locations.
The Company has not encountered any significant impediments to the location or
addition of new facilities.
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Item 3. Legal Proceedings
The Company is a party to ordinary, routine litigation and
administrative proceedings incidental to its business. These proceedings
primarily involve personnel matters including EEO claims and claims for personal
injury or property damage incurred in the transportation of freight. The Company
maintains insurance to cover liabilities arising from the transportation of
freight in amounts in excess of self-insured retentions. See "Business -- Safety
and Risk Management. It is the Company's policy to comply with applicable equal
employment opportunity laws and the Company periodically reviews its policies
and practices for equal employment opportunity compliance.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matter to a vote of its
security holders during the fourth quarter of 1996.
PART II
Item 5. Market For Company's Common Equity and Related Shareholder Matters
Since the initial public offering of the Company's common
stock in October 1994, the common stock has been traded on the NASDAQ National
Market tier of The NASDAQ Stock Market under the symbol KNGT. The following
table sets forth, for the period indicated, the high and low bid information per
share of the Company's common stock as quoted through the NASDAQ-NMS. Such
quotations reflect inter-dealer prices, without retail markups, markdowns or
commissions and, therefore, may not necessarily represent actual transactions.
The Company's common stock was not publicly traded prior to October 25, 1994.
High Low
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1995
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First Quarter $16.13 $11.44
Second Quarter $13.75 $11.63
Third Quarter $16.88 $13.50
Fourth Quarter $15.63 $13.00
1996
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First Quarter $16.25 $13.13
Second Quarter $20.50 $15.00
Third Quarter $22.50 $18.25
Fourth Quarter $24.88 $18.63
As of March 10, 1997, the Company had 60 shareholders of
record and approximately 1,000 individual participants in security position
listings of its common stock.
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The Company has never paid cash dividends on its common stock,
and it is the current intention of management to retain earnings to finance the
growth of the Company's business. Future payment of cash dividends will depend
upon financial condition, results of operations, cash requirements, and certain
corporate law requirements, as well as other factors deemed relevant by the
Board of Directors.
Item 6. Selected Financial Data
The selected consolidated financial data presented below for,
and as of the end of, each of the years in the five-year period ended December
31, 1996, are derived from the Company's Consolidated Financial Statements,
which have been audited by Arthur Andersen LLP, independent public accountants,
as indicated in their report. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," below, and the Consolidated Financial Statements and
Notes thereto included in Item 8 of this Form 10-K.
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Years Ended December 31,
1996 1995 1994 1993 1992
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(Dollar amounts in thousands, except per share amounts
and operating data)
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Statements of Income Data:
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Operating revenue $ 77,504 $ 56,170 $ 37,543 $ 26,381 $ 19,579
Operating expenses 64,347 45,569 29,431 21,255 16,213
Income from operations 13,157 10,601 8,112 5,126 3,366
Net interest expense and other (346) (196) (734) (844) (847)
Income before income taxes 12,810 10,406 7,378 4,282 2,519
Net income 7,510 5,806 4,094 2,447 1,399
Net income per share .78 .64 .49 .30 .17
Dividends per share -- -- -- -- --
Balance Sheet Data (at End of Period):
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Working capital (deficit) 4,141 $ (293) $ 1,761 $ (787) $ (1,327)
Total assets 64,118 43,099 32,588 24,651 18,724
Long-term obligations, net of current 53 981 2,117 9,208 7,334
Shareholders' equity 45,963 24,732 18,903 5,179 2,733
Operating Data:
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Operating ratio 1/ 83.0% 81.1% 78.4% 80.6% 82.8%
Average revenue per mile $ 1.24 $ 1.26 $ 1.29 $ 1.22 $ 1.17
Average length of haul (miles) 489 494 482 472 464
Empty mile factor 9.6% 10.3% 10.1% 11.8% 14.3%
Tractors operated at end of period 2/ 575 425 291 199 147
Trailers operated at end of period 1,529 1,044 639 489 323
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1/Operating expenses as a percentage of operating revenue.
2/Includes 158 independent contractor operated vehicles at December 31, 1996,
115 independent contractor operated vehicles at December 31, 1995, and 29
independent contractor operated vehicles at December 31, 1994.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction.
Except for the historical information contained herein, the
discussion in this Annual Report contains forward-looking statements that
involve risks, assumptions and uncertainties which are difficult to predict.
Words such as "believe," may," "could" and "likely" and variations of these
words, and similar expressions, are intended to identify such forward-looking
statements. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below in the section entitled
"Factors That May Affect Future Results," as well as those discussed in this
Item and elsewhere in this Annual Report.
General
The following discussion analyzes the Company's financial
condition and results of operations for the three-year period ended December 31,
1996, and should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto contained elsewhere in this report.
Knight was incorporated in 1989 and commenced operations in July 1990. For the
five-year period ended December 31, 1996, the Company's operating revenue grew
at a 41.8% compounded annual rate, while net income increased at a 54.2%
compounded annual rate.
During 1996, the Company commenced operations in Indianapolis,
Indiana and Katy, Texas. The Company's operations in Indianapolis were intended
to allow the Company to serve customers in the Midwest and on the East Coast and
to provide a platform for the expansion of the Company's operations in the
Midwest and on the East Coast. The Company's operations in Katy, Texas were
undertaken to provide dedicated service to a large customer and to provide a
base for the expansion of operations in the Texas and Louisiana regions.
The Company initiated an independent contractor program in
1994. As of December 31, 1996, the Company had 158 tractors owned and operated
by independent contractors. As a result of the increase in the use of
independent contractors, the Company has experienced a decrease in salaries,
wages and benefits, fuel and maintenance, and other expenses as a percentage of
operating revenue and a corresponding increase in purchased transportation as a
percentage of operating revenue. Purchased transportation represents the amount
an independent contractor is paid to haul freight for the Company on a mutually
agreed to per-mile basis. The Company's decision to focus fleet expansion on
independent contractors was based on such factors as the Company's reduced
capital requirements, since the independent contractors provide their own
tractors, the lower turnover rate that the Company has experienced with
independent contractors, and the Company's success in attracting qualified
independent contractors.
Results of Operations
The following table sets forth the percentage relationships of
the Company's expense items to operating revenue for the three-year period
indicated below:
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Years ended December 31,
1996 1995 1994
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Operating revenue ................................. 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages and benefits ................... 28.7 29.1 33.8
Fuel ........................................... 10.2 10.9 12.7
Operations and maintenance ..................... 5.2 6.6 6.2
Insurance and claims ........................... 3.6 3.7 4.9
Operating taxes and licenses ................... 3.9 3.8 4.9
Communications ................................. .6 .5 .5
Depreciation and amortization .................. 9.7 9.7 10.9
Purchased transportation ....................... 18.6 14.0 1.8
Miscellaneous operating expenses ............... 2.5 2.8 2.7
------ ------ ------
Total operating expenses ................. 83.0 81.1 78.4
------ ------ ------
Income from operations ............................ 17.0 18.9 21.6
------ ------ ------
Net interest expense .............................. .4 .4 2.0
------ ------ ------
Income before income taxes ........................ 16.5 18.5 19.6
Income taxes ...................................... 6.8 8.2 8.7
------ ------ ------
Net Income ........................................ 9.7% 10.3% 10.9%
====== ====== ======
Fiscal 1996 Compared to Fiscal 1995
Operating revenue increased by 38.0% to $77.5 million in 1996 from
$56.2 million in 1995. This increase resulted from expansion of the Company's
customer base and increased volume from existing customers and was facilitated
by a substantial increase in the Company's tractor and trailer fleet, including
an increase in the Company's independent contractor fleet, during 1996 compared
to 1995. The Company's fleet increased by 35.3% to 575 tractors (including 158
owned by independent contractors) as of December 31, 1996 from 425 tractors
(including 115 owned by independent contractors) as of December 31, 1995.
Average revenue per mile declined to $1.24 per mile for the year ended December
31, 1996 from $1.26 per mile for the same period in 1995. Equipment utilization
averaged 121,960 miles per tractor in 1996, compared to an average of 120,714
miles per tractor in 1995. The decrease in revenue per mile was the result of
increased competition in the western United States, coupled with increased
competition in the Company's new operating regions in Texas and Indiana.
Salaries, wages and benefits expense decreased as a percentage of
operating revenue to 28.7% for 1996 from 29.1 % for 1995 primarily as the result
of the increase in the ratio of independent contractors to Company drivers. The
Company records accruals for workers' compensation as a component of its claim
accrual, and the related expense is reflected in salaries, wages and benefits
expenses in its consolidated statements of income.
-11-
<PAGE>
Fuel expense decreased as a percentage of operating revenue to
10.2% for 1996 from 10.9% in 1995. Although the Company's gross fuel costs
increased during 1996, the Company was able to recoup the majority of the
incremental increase with the implementation of a fuel surcharge. Additionally,
an increase in the Company's independent contractor fleet contributed to the
decrease in the Company's cost of fuel as a percentage of revenue. Independent
contractors are required to pay their own fuel costs.
Operations and maintenance expense decreased as a percentage
of operating revenue to 5.2% for 1996 from 6.6% in 1995. This decrease was the
result of eliminating the use of leased trailers through the purchase of new
trailers and from the rapid growth of the Company's independent contractor
program.
Insurance and claims expense remained relatively constant as a
percentage of operating revenue for the years ended December 31, 1996 and 1995
as the result of premium costs and claims remaining steady during the period.
Operating taxes and license expense increased slightly as a
percentage of operating revenue to 3.9% for the year ended December 31, 1996
from 3.8% for the year ended December 31, 1995. The increase resulted primarily
from the increased cost associated with the licensing of new trailers, which was
partially offset by the growth in the Company's independent contractor program.
Independent contractors are required to pay for their own fuel and mileage
taxes.
Communications expenses remained constant, with no significant
change taking place in 1996 compared to 1995.
Depreciation and amortization expense increased slightly for
the year ended December 31, 1996, but remained constant as a percentage of
operating revenue at 9.7% compared to the same period in 1995. Although the
Company added a significant number of trailers to its fleet, the incremental
cost was offset by the growth in the Company's independent contractor program.
Purchased transportation expense increased to 18.6% in 1996
from 14.0% in 1995 due to an increase in the Company's use of independent
contractor tractors to 158 as of December 31, 1996 from 115 as of December 31,
1995.
Miscellaneous operating expenses remained steady, with no
significant change taking place in 1996.
As a result of the above factors, the Company's operating
ratio (operating expenses as a percentage of operating revenue) for 1996 was
83.0% as compared to 81.1% for 1995.
Net interest expense remained constant as a percentage of
operating revenue at 0.4% for the year ended December 31, 1996 and for the same
period in 1995 as a result of the application of the proceeds from the Company's
initial and secondary stock offerings, respectively, to reduce debt and to
purchase revenue equipment.
Income taxes have been provided at the statutory federal and
state rates, adjusted for certain permanent differences in income for tax
purposes. Income tax expense decreased as a percentage of
-12-
<PAGE>
revenue to 6.8% for the year ended December 31, 1996 from 8.2% for the year
ended December 31, 1995 primarily due to the Company discontinuing
reimbursements to drivers for non-deductible meals and other expenses. The
reduction in reimbursed expenses to drivers was offset by an increase in driver
compensation.
As a result of the preceding changes, the Company's net income
as a percentage of operating revenue was 9.7% in 1996 compared to 10.3% for
1995.
Fiscal 1995 Compared to Fiscal 1994
Operating revenue increased by 49.9% to $56.2 million in 1995
from $37.5 million in 1994. This increase resulted from expansion of the
Company's customer base and increased volume from existing customers and was
facilitated by a substantial increase in the Company's tractor and trailer
fleet, including an increase in the Company's independent contractor fleet,
during 1995 compared to 1994. The Company's fleet increased by 46.0% to 425
tractors (including 115 owned by independent contractors) as of December 31,
1995, from 291 tractors (including 29 owned by independent contractors) as of
December 31, 1994. Average revenue per mile declined to $1.26 per mile for the
year ended December 31, 1995 from $1.29 per mile for the same period in 1994 and
equipment utilization declined to an average of 120,714 miles per tractor in
1995 from an average of 128,994 miles per tractor in 1994 due to weakness in the
domestic freight market.
Salaries, wages and benefits expense decreased as a percentage
of operating revenue to 29.1% for 1995 from 33.8% for 1994 as a result of the
increase in the ratio of independent contractors to Company drivers. The Company
records accruals for workers' compensation as a component of its claims accrual,
and the related expense is reflected in salaries, wages and benefits expense in
its consolidated statements of income.
Fuel expense decreased as a percentage of operating revenue to
10.9% for 1995 from 12.7% in 1994. Though fuel costs per mile in 1995 remained
consistent with 1994 fuel costs per mile, the decrease was due to the growth of
the Company's independent contractor program. Independent contractors are
required to pay their own fuel costs.
Operations and maintenance expense increased slightly as a
percentage of operating revenue to 6.6% for 1995 from 6.2% in 1994. This change
resulted from the Company's need to lease trailers on a short term basis to
ensure an adequate trailer pool. The Company's need for additional trailers
resulted from the rapid growth of its independent contractor program.
Insurance and claims expense decreased as a percentage of
operating revenue to 3.7% for the year ended December 31, 1995 from 4.9% for the
same period in 1994. This decrease was due to a reduction in insurance premium
costs and a lower than expected level of actual claims costs during the period.
The claims accrual represents accruals for the estimated uninsured portion of
pending claims, including the potential for adverse development of known claims
and incurred but unreported claims.
Operating taxes and license expense decreased as a percentage
of operating revenue to 3.8% in 1995 from 4.9% in 1994. This decrease resulted
primarily from growth in the independent contractor program. Independent
contractors are required to pay their own mileage taxes.
-13-
<PAGE>
Depreciation and amortization expense declined as a percentage
of operating revenue to 9.7% for 1995 from 10.9% for 1994. This change resulted
from the continued growth of the Company's independent contractor program and
the Company's increased use of leased trailers.
Purchased transportation expense increased to 14.0% in 1995
from 1.8% in 1994 due to an increase in the Company's use of independent
contractor tractors to 115 as of December 31, 1995 from 29 as of December 31,
1994.
Communications and miscellaneous operating expenses remained
steady, with no significant change taking place in 1995.
As a result of the above figures, the Company's operating
ratio (operating expenses as a percentage of operating revenue) for 1995 was
81.1% as compared to 78.4% for 1994.
Net interest expense declined as a percentage of operating
revenue to 0.4% for 1995 from 2.0% for 1994. This change resulted from a
decrease in the Company's debt. The decrease also reflects the full year effect
of the application of the proceeds from the Company's initial public offering to
reduce the Company's debt.
Income taxes have been provided at the statutory federal and
state rates, adjusted for certain permanent differences in income for tax
purposes. Income tax expenses decreased as a percentage of revenue to 8.2% for
the year ended 1995 from 8.7% for the year ended 1994, primarily due to the
Company discontinuing the non-deductible portion of reimbursements to drivers
for meals and other expenses.
As a result of the preceding changes, the Company's net income
as a percentage of operating revenue was 10.3% in 1995 as compared to 10.9% in
1994.
Liquidity and Capital Resources
The growth of the Company's business has required a
significant investment in new revenue equipment. The Company's primary source of
liquidity has been funds provided by operations, term borrowings to finance
equipment purchases and the Company's line of credit, and the Company's initial
and secondary public offerings in 1994 and 1996, respectively. Net cash provided
by operating activities totaled approximately $14.3 million, $10.7 million and
$10.1 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
Capital expenditures for the purchase of revenue equipment,
office equipment and leasehold improvements totaled approximately $24.8 million,
$13.4 million and $8.2 million for the years ended December 31, 1996, 1995 and
1994, respectively. The Company anticipates that capital expenditures, net of
trade-ins, will be approximately $22.0 million for 1997, to be used primarily to
acquire new revenue equipment to expand the Company's fleet, to upgrade existing
facilities, and to acquire additional facilities.
Net cash provided by financing activities and net direct
equipment financing was approximately $8.3 million for the year ended December
31, 1996 and net cash used in financing activities and net direct
-14-
<PAGE>
equipment financing was $0.7 million and $0.8 million for the years ended
December 31, 1995, and 1994, respectively. This change was due to the Company's
ability to offset the cost of purchasing revenue equipment with the proceeds of
the Company's secondary stock offering.
The Company maintains a $15 million revolving line of credit
with its lender and uses that line to finance the acquisition of revenue
equipment and other corporate purposes to the extent the cost of such
acquisitions is not provided by funds from operations. Under the Company's line
of credit, the Company is obligated to comply with certain financial covenants.
The rate of interest on borrowings against the line of credit will vary
depending upon the interest rate election made by the Company, based on either
the London Interbank Offered Rate (LIBOR plus .75%), the prime rate, or the
lender's certificate of deposit rate plus 2.15%. At December 31, 1996 and March
10, 1997, the Company had no borrowings under its revolving line of credit.
Management believes that the cash flow from operating
activities and available borrowing will be sufficient to meet the Company's
capital needs through the next 18 months. The Company will continue to have
significant capital requirements over the long term, which may require the
Company to incur debt or seek additional equity capital in the future. The
availability of this capital will depend upon prevailing market conditions, the
market price of the Common Stock and other factors over which the Company has no
control, as well as the Company's financial condition and results of operations.
Seasonality
To date, the Company's revenue has not shown any significant
seasonal pattern. Because the Company operates primarily in Arizona, California
and the western United States, winter weather generally has not adversely
affected the Company's business. Expansion of the Company's operations in the
Midwest, on the East Coast, and in the Texas and Louisiana regions could expose
the Company to greater operating variances due to seasonal weather in these
regions.
Inflation
Many of the Company's operating expenses, including fuel costs
and fuel taxes, are sensitive to the effects of inflation, which could result in
higher operating costs. The effects of inflation on the Company's business
during 1996, 1995 and 1994 generally were not significant.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement
of Accounting Financial Standard No. 128, (SFAS No. 108) Earnings Per Share,
which established a new accounting principle for accounting for earnings per
share. The standard is effective for fiscal year ended December 31, 1997. When
adopted, SFAS no. 128 will require restatement of prior years earnings per
share. The Company has not yet determined the impact SFAS No. 128 will have on
its financial position or results of operations.
Factors That May Affect Future Results
The Company anticipates an increase in licensing costs of
between one-half expected to one percent due primarily to increased licensing
expenses in California and expected increases in the Company's revenue
equipment. The Company believes that these increased costs will be partially
offset by other items.
A number of factors over which the Company has little or no
control may affect the Company's future results. Fuel prices, insurance costs,
liability claims, interest rates, the availability of qualified drivers,
fluctuations in the resale value of revenue equipment and customers' business
cycles and shipping demands are economic factors over which the Company has
little or no control. Significant increases or rapid fluctuations in fuel
prices, interest rates or increases in insurance costs or liability claims, to
the extent not offset by increases in freight rates, would reduce the Company's
profitability. Although the Company's independent contractors are responsible
for paying for their own equipment, fuel and other operating costs, significant
increases in these costs could cause them to seek higher compensation from the
Company or other contractual opportunities. Difficulty in attracting or
retaining qualified drivers or a downturn in customers' business cycles or
shipping demands also could have a material adverse effect on the growth and
profitability of the Company. If a shortage of drivers should occur in the
future the Company could be required to adjust its driver compensation package,
which could affect the Company's profitability if not offset by an increase in
rates. The Company's growth has been made possible through the
-15-
<PAGE>
addition of new revenue equipment. Difficulty in financing or obtaining new
revenue equipment (for example, delivery delays) could restrict future growth.
If the resale value of the Company's revenue equipment were to decline, the
Company could be forced to retain some of its equipment longer, with a resulting
increase in operating expenses for maintenance and repairs.
The Company has experienced significant and rapid growth in
revenue and profits since the inception of its business in 1990. There can be
no assurance that the Company's business will continue to grow in a similar
fashion in the future or that the Company can effectively adapt its management,
administrative and operational systems to respond to any future growth. Further,
there can be no assurance that the Company's operating margins will not be
adversely affected by future changes in and expansion of the Company's business
or by changes in economic conditions.
At this time a significant portion of the Company's business
is concentrated in the Arizona and California markets and a general economic
decline or a natural disaster in either of these markets could have a material
adverse effect on the growth and profitability of the Company. If the Company is
successful in deriving a significant portion of its revenues from markets in the
Texas and Louisiana regions and the Midwest and on the East Coast in the near
future, its growth and profitability could be materially adversely affected by
general economic declines or natural disasters in those markets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"; and "Business -- Operations and Marketing and Customers."
The Company has recently established operations near Houston,
Texas to provide dedicated services to one of its larger customers and to
commence regional service in the Texas and Louisiana regions and recently
initiated operations in Indianapolis, Indiana, in order to access markets in the
Midwest and on the East Coast. These operations will require the commitment of
additional revenue equipment and personnel, as well as management resources, for
future development. These initiatives represent the first established operations
of the Company in markets outside of its primary regional operations in the
western United States. Should the growth in the Company's operations near
Houston, Texas or in Indianapolis, Indiana slow or stagnate, the results of
Company operations could be adversely affected. The Company may encounter
operating conditions in these new markets that differ substantially from those
previously experienced in its Western United States markets. There can be no
assurance that the Company's regional operating strategy as employed in the
Western United States can be duplicated successfully or that it will not take
longer than expected or require a more substantial financial commitment than
anticipated in order for the Company to generate positive operating results in
these new markets.
Item 8. Financial Statements and Supplementary Data
The Consolidated Balance Sheets of Knight Transportation, Inc.
and Subsidiaries as of December 31, 1996 and 1995 and the related Consolidated
Statements of Income, Shareholders' Equity, and Cash Flows for each of the three
years in the period ended December 31, 1996, together with the related notes and
report of Arthur Andersen LLP, independent public accountants, are set forth at
pages 22 through 35, below.
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
None.
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<PAGE>
PART III
Item 10. Directors And Executive Officers of The Company
The Company hereby incorporates by reference the information
contained under the heading "Election of Directors" from its definitive
Information Statement to be delivered to shareholders of the Company in
connection with the 1997 Annual Meeting of Shareholders to be held May 14, 1997.
Item 11. Executive Compensation
The Company incorporates by reference the information
contained under the heading "Executive Compensation" from its definitive
Information Statement to be delivered to shareholders of the Company in
connection with the 1997 Annual Meeting of Shareholders to be held May 14, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Company incorporates by reference the information
contained under the heading "Security Ownership of Certain Beneficial Owners and
Management" from its definitive Information Statement to be delivered to
shareholders of the Company in connection with the 1997 Annual Meeting of
Shareholders to be held May 14, 1997.
Item 13. Certain Relationships and Related Transactions
The Company incorporates by reference the information
contained under the heading "Certain Relationships and Related Transactions"
from its definitive Information Statement to be delivered to shareholders of the
Company in connection with the 1997 Annual Meeting of Shareholders to be held
May 14, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report on Form 10-K
at pages 22 through 35, below.
1. Consolidated Financial Statements:
Knight Transportation, Inc. and Subsidiaries
Report of Arthur Andersen LLP, Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
-17-
<PAGE>
2. Consolidated Financial Statement Schedules required to be
filed by Item 8 and Paragraph (d) of Item 14:
Schedules not listed have been omitted because of the absence
of conditions under which they are required or because the required material
information is included in the Consolidated Financial Statements or Notes to the
Consolidated Financial Statements included herein.
3. Exhibits:
The Exhibits required by Item 601 of Regulation S-K are listed
at paragraph (c), below, and at the Exhibit Index beginning at
page 36.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the period
covered by this report on Form 10-K.
(c) Exhibits:
The following exhibits are filed with this Form 10-K or incorporated
herein by reference to the document set forth next to the exhibit
listed below:
Exhibit
Number Description
------ -----------
<TABLE>
<S> <C>
3.1 Restated Articles of Incorporation of the Company. (Incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1 No. 33-83534.)
3.2* Amended and Restated Bylaws of the Company.
4.1 Articles 4, 10 and 11 of the Restated Articles of
Incorporation of the Company. (Incorporated by reference
to Exhibit 3.1 to this Report on Form 10-K.)
4.2 Sections 2 and 5 of the Amended and Restated Bylaws of the Company.
(Incorporated by reference to Exhibit 3.2 to this Report on Form 10-K.)
10.1 Purchase and Sale Agreement and Escrow Instructions (All Cash) dated as of March
1, 1994, between Randy Knight, the Company, and Lawyers Title of Arizona.
(Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement
on Form S-1 No. 33-83534.)
10.1.1 Assignment and First Amendment to Purchase and Sale Agreement and Escrow
Instructions. (Incorporated by reference to Exhibit 10.1.1 to Amendment No. 3 to the
Company's Registration Statement on Form S-1 No. 33-83534.)
10.1.2 Second Amendment to Purchase and Sale Agreement and Escrow Instructions.
(Incorporated by reference to Exhibit 10.1.2 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 No. 33-83534.)
-18-
<PAGE>
10.2 Net Lease and Joint Use Agreement between Randy Knight and the Company dated
as of March 1, 1994. (Incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1 No. 33-83534.)
10.3 Form of Purchase and Sale Agreement and Escrow Instructions (All Cash) dated as
of October 1994, between the Company and Knight Deer Valley, L.L.C., an Arizona
limited liability company. (Incorporated by reference to Exhibit 10.4.1 to Amendment
No. 3 to the Company's Registration Statement on Form S-1 No. 33-83534.)
10.4* Loan Agreement and Revolving Promissory Note each dated March, 1996 between
First Interstate Bank of Arizona, N.A. and Knight Transportation, Inc. and Quad
K Leasing, Inc. (superseding prior credit facilities).
10.5 Restated Knight Transportation, Inc. 1994 Stock Option Plan, dated as of February
21, 1996. (Incorporated by reference to Exhibit 10.5 to the Company's report on
Form 10-K for the period ended December 31, 1995.)
10.6* Amended Indemnification Agreements between the Company, Don Bliss, Clark A.
Jenkins, Gary J. Knight, Keith Knight, Kevin P. Knight, Randy Knight, G.D. Madden,
Minor Perkins and Keith Turley, and dated as of February 5, 1997.
10.7 Master Equipment Lease Agreement dated as of January 1, 1996, between the Company
and Quad-K Leasing, Inc. (Incorporated by reference to Exhibit 10.7 to the
Company's report on Form 10-K for the period ended December 31, 1995.)
10.8 Purchase Agreement and Escrow Instructions dated as of July 13, 1995, between the
Company, Swift Transportation Co., Inc. and United Title Agency of Arizona.
(Incorporated by reference to Exhibit 10.8 to the Company's report on Form 10-K
for the period ended December 31, 1995.)
10.8.1 First Amendment to Purchase Agreement and Escrow Instructions. (Incorporated by
reference to Exhibit 10.8.1 to the Company's report on Form 10-K for the period
ended December 31, 1995.)
10.9 Purchase and Sale Agreement dated as of February 13, 1996, between the Company and
RR-1 Limited Partnership. (Incorporated by reference to Exhibit 10.9 to the Company's
report on Form 10-K for the period ended December 31, 1995.)
21.1 Subsidiaries of the Company. (Incorporated by reference to Exhibit 21.1 to the
Company's report on Form 10-K for the period ending December 31, 1995.)
27* Financial Data Schedule
</TABLE>
- -------------------------
* Filed herewith.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Knight Transportation, Inc. has duly caused
this report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
KNIGHT TRANSPORTATION, INC.
By /s/ Kevin P. Knight
--------------------------------------
Kevin P. Knight,
Chief Executive Officer
Date: March 28, 1997.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report on Form 10-K has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates indicated.
Signature and Title Date
------------------- ----
/s/ Randy Knight
- ---------------------------------- March 28, 1997
Randy Knight
Chairman of the Board, Director
/s/ Kevin P. Knight
- ---------------------------------- March 28, 1997
Kevin P. Knight
Chief Executive Officer, Director
/s/ Gary J. Knight
- ---------------------------------- March 28, 1997
Gary J. Knight
President, Director
/s/ Keith T. Knight
- ---------------------------------- March 28, 1997
Keith T. Knight
Executive Vice President, Director
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<PAGE>
/s/ Clark A. Jenkins
- ---------------------------------- March 28, 1997
Clark A. Jenkins
Chief Financial Officer, Secretary, Director
/s/ Keith L. Turley
- ---------------------------------- March 28, 1997
Keith L. Turley
Director
/s/ Donald A. Bliss
- ---------------------------------- March 28, 1997
Donald A. Bliss
Director
- ---------------------------------- March __, 1997
G.D. Madden
Director
- ---------------------------------- March __, 1997
Minor Perkins
Director
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Knight Transportation, Inc.:
We have audited the accompanying consolidated balance sheets of KNIGHT
TRANSPORTATION, INC. (an Arizona corporation) and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. 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 Knight Transportation, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 23, 1997.
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<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,244,745 $ 623,656
Accounts receivable, net of allowance for bad debts of approximately
$318,000 and $295,000 at December 31, 1996 and 1995, respectively (Note 3) 10,414,133 7,375,038
Inventories and supplies 328,825 422,589
Prepaid expenses 509,085 937,304
Deferred tax asset (Note 2) 1,319,400 1,420,000
---------------- ----------------
Total current assets 13,816,188 10,778,587
---------------- ----------------
PROPERTY AND EQUIPMENT:
Land and improvements 4,297,837 2,104,394
Buildings and improvements 970,963 246,384
Furniture and fixtures 1,837,844 1,158,140
Shop and service equipment 859,592 367,900
Revenue equipment 55,172,272 38,557,223
Leasehold improvements 575,015 469,854
---------------- ----------------
63,713,523 42,903,895
Less: accumulated depreciation (14,186,781) (10,926,067)
----------------- ----------------
PROPERTY AND EQUIPMENT, net (Note 3) 49,526,742 31,977,828
OTHER ASSETS (Note 6) 775,526 343,079
---------------- ----------------
$ 64,118,456 $ 43,099,494
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,954,286 $ 3,202,258
Accrued liabilities (Note 8) 2,286,099 1,773,293
Current portion of long-term debt (Note 3) 394,191 1,002,150
Line of credit (Note 3) - 2,000,000
Claims accrual (Note 5) 3,040,672 3,093,513
---------------- ----------------
Total current liabilities 9,675,248 11,071,214
LONG-TERM DEBT, less current portion (Note 3) 53,491 980,787
DEFERRED INCOME TAXES (Note 2) 8,426,558 6,315,200
---------------- ----------------
18,155,297 18,367,201
---------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY (Notes 7 and 8):
Preferred stock - -
Common stock 99,045 91,020
Additional paid-in capital 23,474,531 9,761,747
Retained earnings 22,389,583 14,879,526
---------------- ----------------
Total shareholders' equity 45,963,159 24,732,293
---------------- ----------------
$ 64,118,456 $ 43,099,494
================ ================
</TABLE>
The accompanying notes are an integral
part of these consolidated balance sheets.
-23-
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ---------------- ---------------
<S> <C> <C> <C>
OPERATING REVENUE $ 77,503,786 $ 56,170,279 $ 37,542,888
--------------- ---------------- ---------------
OPERATING EXPENSES:
Salaries, wages and benefits 22,217,900 16,359,957 12,676,306
Fuel 7,890,607 6,101,460 4,767,153
Operations and maintenance 4,017,698 3,727,240 2,315,991
Insurance and claims 2,820,086 2,097,361 1,842,192
Operating taxes and licenses 3,018,999 2,154,739 1,834,348
Communications 509,411 286,469 185,821
Depreciation and amortization 7,520,905 5,416,390 4,105,079
Purchased transportation 14,378,518 7,831,506 690,824
Miscellaneous operating expenses 1,973,131 1,593,711 1,013,008
--------------- ---------------- ---------------
64,347,255 45,568,833 29,430,722
--------------- ---------------- ---------------
Income from operations 13,156,531 10,601,446 8,112,166
--------------- ---------------- ---------------
OTHER INCOME (EXPENSE):
Interest income 51,730 36,620 105,335
Interest expense (398,204) (232,371) (839,948)
---------------- ---------------- ---------------
(346,474) (195,751) (734,613)
---------------- ---------------- ---------------
Income before income taxes 12,810,057 10,405,695 7,377,553
INCOME TAXES (Note 2) (5,300,000) (4,600,000) (3,283,000)
---------------- ---------------- ---------------
Net income $ 7,510,057 $ 5,805,695 $ 4,094,553
=============== ================ ===============
NET INCOME PER COMMON SHARE AND
COMMON SHARE EQUIVALENT (Note 1) $ .78 $ .64 $ .49
====== ====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
SHARE EQUIVALENTS OUTSTANDING 9,585,165 9,141,176 8,375,356
=============== ================ ===============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
-24-
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-in Retained
Shares Amount Capital Earnings Total
----------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 8,200,000 $ 82,000 $ 118,000 $ 4,979,278 $ 5,179,278
Issuance of 900,000 shares of
common stock, net of offering
costs of $1,171,233 (Note 7) 900,000 9,000 9,619,767 - 9,628,767
Net income - - - 4,094,553 4,094,553
----------- ---------- ------------ ------------ -------------
BALANCE, December 31, 1994 9,100,000 91,000 9,737,767 9,073,831 18,902,598
Exercise of stock options 2,000 20 23,980 - 24,000
Net income - - - 5,805,695 5,805,695
----------- ---------- ------------ ------------ -------------
BALANCE, December 31, 1995 9,102,000 91,020 9,761,747 14,879,526 24,732,293
Exercise of stock options 2,500 25 29,975 - 30,000
Issuance of 800,000 shares of
common stock, net of offering
costs of $1,109,191 (Note 7) 800,000 8,000 13,682,809 - 13,690,809
Net income - - - 7,510,057 7,510,057
----------- ---------- ------------ ------------ -------------
BALANCE, December 31, 1996 9,904,500 $ 99,045 $ 23,474,531 $ 22,389,583 $ 45,963,159
=========== ========== ============ ============ =============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
-25-
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,510,057 $ 5,805,695 $ 4,094,553
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 7,520,905 5,416,390 4,105,079
Allowance for doubtful accounts 23,131 162,045 83,179
Deferred income taxes, net 2,211,958 1,403,200 1,316,447
Changes in assets and liabilities-
Increase in receivables (3,062,225) (2,720,821) (1,642,985)
(Decrease) increase in inventories and supplies 93,764 (115,673) (75,410)
Decrease (increase) in prepaid expenses 428,219 (771,741) 172,223
(Increase) decrease in other assets (652,693) (370,499) 25,258
Decrease (increase) in accounts payable (250,046) 479,426 (126,068)
Increase in accrued liabilities and claims accrual 459,965 1,364,536 2,150,661
------------ ------------ ------------
Net cash provided by operating activities 14,283,035 10,652,558 10,102,937
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (21,919,774) (11,360,029) (3,087,876)
Purchase of temporary investment - real estate -- -- (588,296)
Increase in related party receivable -- -- (598,929)
Proceeds from temporary investment - real estate -- -- 588,296
------------ ------------ ------------
Net cash used in investing activities (21,919,774) (11,360,029) (3,686,805)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on line of credit 16,309,210 8,000,000 --
Payments on line of credit (18,309,210) (6,000,000) --
Borrowing of debt 759,200 -- --
Payments of debt (2,294,455) (1,311,348) (13,717,117)
Payment of notes payable - officers -- -- (365,625)
Decrease in accounts payable - equipment (1,927,726) (1,528,322) --
Proceeds from sale of common stock 13,690,809 -- 9,628,767
Proceeds from exercise of stock options 30,000 24,000 --
------------ ------------ ------------
Net cash provided by (used in) financing activities 8,257,828 (815,670) (4,453,975)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 621,089 (1,523,141) 1,962,157
CASH AND CASH EQUIVALENTS, beginning of year 623,656 2,146,797 184,640
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 1,244,745 $ 623,656 $ 2,146,797
============ ============ ============
SUPPLEMENTAL DISCLOSURES:
Noncash investing and financing transactions:
Equipment acquired by direct financing $ -- $ 127,115 $ 3,616,298
Equipment acquired by accounts payable 2,929,800 1,927,726 1,528,322
Land acquired by retirement of shareholder advance -- -- 1,110,504
Cash Flow Information:
Income taxes paid $ 2,459,144 $ 3,368,373 $ 2,139,906
Interest paid 408,138 228,681 873,362
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-26-
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business
Knight Transportation, Inc. and Subsidiaries (the Company) is a short to
medium-haul, truckload carrier of general commodities operating primarily in the
western United States. The operations are centered in Phoenix, Arizona, where
the Company has its corporate offices, truck terminal, and dispatching and
maintenance services. During 1996, the Company expanded its operations by
opening new facilities in Katy, Texas and Indianapolis, Indiana. The Company
operates predominantly in one industry, road transportation, which is subject to
regulation by the Department of Transportation and various state regulatory
authorities.
The Company continues to develop its owner-operator program. Owner-operators are
independent contractors who provide their own tractors. The Company views
owner-operators as an alternative method of obtaining additional revenue
equipment. The Company had 158 and 115 owner-operators at December 31, 1996 and
1995, respectively.
Significant Accounting Policies
Principles of Consolidation - The accompanying consolidated financial statements
include the parent company Knight Transportation, Inc., and its wholly owned
subsidiaries, Quad-K Leasing, Inc., KTTE Holdings, Inc., QKTE Holdings, Inc.,
and Knight Dedicated Services Ltd. Partnership. All material intercompany items
and transactions have been eliminated in consolidation.
Use of Estimates - 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 those estimates.
Cash Equivalents - The Company considers all highly liquid instruments purchased
with original maturities of three months or less to be cash equivalents.
Inventories and Supplies - Inventories and supplies consist of tires and spare
parts which are stated at the lower of cost, using the first-in, first-out
(FIFO) method, or net realizable value.
-27-
<PAGE>
Property and Equipment - Property and equipment are stated at cost. Depreciation
on property and equipment is calculated by the straight-line method over the
following estimated useful lives:
Years
-----
Buildings and improvements 20-30
Furniture and fixtures 5
Shop and service equipment 5-10
Revenue equipment 5-7
Leasehold improvements 10
Land improvements 5
The Company expenses repairs and maintenance. For the years ended December 31,
1996, 1995 and 1994, repairs and maintenance expense totaled approximately
$1,883,000, $1,375,000 and $1,014,000, respectively and is included in operating
and maintenance expense in the accompanying consolidated statements of income.
Revenue equipment is depreciated to a salvage value of 15% for all tractors.
Trailers are depreciated to salvage values of 10% to 40%. The company
periodically reviews its estimates related to useful lives and salvage values
for revenue equipment.
Tires - Tires on revenue equipment purchased are capitalized as a part of the
equipment cost and depreciated over the life of the vehicle. Replacement tires
and recapping costs are expensed when placed in service.
Revenue Recognition - The Company's typical customer delivery is completed one
day after pickup. The Company recognizes operating revenues when the freight is
picked up for delivery and accrues the estimated direct costs to complete the
delivery. This method of revenue recognition is not materially different from
recognizing revenue based on completion of delivery.
Income Taxes - The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method of Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), Accounting for Income Taxes,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the period that includes the enactment date.
Concentration of Credit Risk - Financial instruments that potentially subject
the Company to credit risk consist principally of trade receivables. The
Company's three largest customers for each of the years 1996, 1995 and 1994,
represent 17%, 11% and 19% of operating revenues, respectively. The single
largest customer's revenues represent 9%, 4% and 9% of operating revenues for
the years 1996, 1995 and 1994, respectively.
-28-
<PAGE>
Net Income Per Common Share and Common Share Equivalent - Net income per common
share and common share equivalent is computed by dividing net income by the
weighted average number of common stock and common stock equivalents assumed
outstanding during the year. Fully diluted net income per share is considered
equal to primary net income per share in all periods presented.
Fair Value of Financial Instruments - Cash, accounts receivable and payable,
accruals and line of credit borrowings approximate fair value because of their
short maturities.
The fair value of long-term debt, including current portion, is estimated based
on current rates offered to the Company for debt of the same maturities and
approximates the carrying amounts of long-term debt.
Recently Adopted Accounting Standards - The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, which established a new accounting principle for accounting for
the impairment of long-lived assets that will be held and used including certain
identifiable intangibles and goodwill related to those assets, and long-lived
assets and certain identifiable intangibles to be disposed of. The
implementation of SFAS No. 121 did not have a material impact on the Company's
financial position or results of operations.
(2) INCOME TAXES:
Income tax expense consists of the following:
1996 1995 1994
---------- ---------- ----------
Current income taxes:
Federal $2,429,100 $2,500,500 $1,464,800
State 658,900 696,300 501,753
---------- ---------- ----------
3,088,000 3,196,800 1,966,553
---------- ---------- ----------
Deferred income taxes:
Federal 1,805,300 1,173,300 1,142,700
State 406,700 229,900 173,747
---------- ---------- ----------
2,212,000 1,403,200 1,316,447
---------- ---------- ----------
Total income tax expense $5,300,000 $4,600,000 $3,283,000
========== ========== ==========
-29-
<PAGE>
The effective income tax rate is different than the amount which would be
computed by applying statutory corporate income tax rates to the income before
income taxes. The differences are summarized as follows:
1996 1995 1994
---------- ---------- ----------
Tax at the statutory rate (34%) $4,355,400 $3,537,900 $2,508,400
State income taxes, net of federal
benefit 703,300 611,300 446,000
Other 241,300 450,800 328,600
---------- ---------- ----------
$5,300,000 $4,600,000 $3,283,000
========== ========== ==========
The net effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996 and
1995, are as follows:
1996 1995
---------- ----------
Short-term deferred tax assets:
Claims accrual $1,216,300 $1,237,400
Other 103,100 182,600
---------- ----------
Total short-term deferred tax assets $1,319,400 $1,420,000
========== ==========
Long-term deferred tax liabilities:
Property and equipment depreciation $8,218,200 $6,072,500
Prepaid expenses deducted for tax purposes 208,358 242,700
---------- ----------
Total long-term deferred tax liabilities $8,426,558 $6,315,200
========== ==========
(3) LINE OF CREDIT AND LONG-TERM DEBT:
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Notes payable to a commercial lending institution with varying monthly
payments from approximately $4,000 to $6,000 through 1998; collateralized
by tractors and trailers, fixed interest rates from 6.4% to 7.0%. $ 385,549 $ 1,687,177
Note payable to a financial institution with varying monthly payments from
approximately $8,900 to $9,200 through 1997; collateralized by trailers,
fixed interest rate of 7%. 62,133 168,645
Asset under capital lease. -- 127,115
----------- -----------
447,682 1,982,937
Less- Current portion (394,191) (1,002,150)
----------- -----------
$ 53,491 $ 980,787
=========== ===========
</TABLE>
-30-
<PAGE>
Maturities of long-term debt as of December 31, 1996, are as follows:
Years Ending
December 31, Amount
------------ --------
1997 $394,191
1998 53,491
--------
$447,682
========
The Company has a $15,000,000 revolving line of credit (see Note 5) with
principal due at maturity, July 1997, and interest payable monthly at three
options (Prime, LIBOR plus .75%, or Certificate of Deposit plus 2.15%).
Borrowings under the line of credit are limited to 80% of eligible accounts
receivable, as defined, and 50% of net fixed assets, as defined and amounted to
$2,000,000 at December 31, 1995. There were no outstanding borrowings under the
line of credit at December 31, 1996.
Under the terms of the line of credit, the Company is required to maintain
certain financial ratios. These ratios include: total liabilities to net worth
ratio, current ratio, and certain debt service ratios. The Company is also
required to maintain certain other financial conditions relating to corporate
structure, ownership and management.
The weighted average interest rate on these notes payable is 6.76% and 7.50% at
December 31, 1996 and 1995, respectively.
(4) COMMITMENTS AND CONTINGENCIES:
Purchase Commitments
As of December 31, 1996, the Company had purchase commitments for additional
tractors and trailers with an estimated purchase price of approximately
$14,250,000.
Although the Company expects to take delivery of this revenue equipment, delays
in the availability of equipment could occur due to factors beyond the Company's
control. Any delay or interruption in the availability of equipment in the
future could have a material adverse effect on the Company.
Disability Plan
The Company has a disability plan for certain of its key employees. The plan
provides disability benefits of $75,000 annually for five years if a key
employee terminates by reason of disability. The plan is subject to termination
at any time by the Board of Directors.
Other
The Company is involved in certain legal proceedings arising in the normal
course of business. In the opinion of management, the Company's potential
exposure under the pending proceedings is adequately provided for in the
accompanying consolidated financial statements.
-31-
<PAGE>
(5) CLAIMS ACCRUAL:
Under an agreement with its insurance underwriter, the Company acts as a
self-insurer for bodily injury and property damage claims up to $100,000 per
occurrence. The Company is self-insured for workers' compensation claims up to
$250,000 per occurrence for 1996 and 1995. The Company is also self-insured for
cargo liability up to $25,000 per occurrence. Liability in excess of these
amounts is assumed by the underwriter.
The claims accrual represents accruals for the estimated uninsured portion of
pending claims including adverse development of known claims and incurred but
not reported claims. These estimates are based on historical information along
with certain assumptions about future events. Changes in assumptions as well as
changes in actual experience could cause these estimates to change in the near
term. The agreements with the underwriters are collateralized by letters of
credit totaling $650,000. These letters of credit reduce the available
borrowings under the Company's line of credit (see Note 3).
(6) RELATED PARTY TRANSACTIONS:
The Company leased facilities from Total Warehousing, Inc. (Total) under a
32-month lease that was terminated in 1994. Terms of the lease called for rent
of $7,500 per month until June 1992, and $5,000 per month from July 1992 until
the end of the lease. Total is owned by a shareholder of the Company. In March
1994, the Company leased approximately eight acres and facilities from a
shareholder and officer, "the Shareholder", under a five year lease, with an
option to extend for two additional five-year terms. The lease terms include
base rent of $4,828 per month for the initial three years of the lease, and
increases of 3% on the third anniversary of the commencement date, the first day
of each option term, and the third anniversary of the commencement date of each
option term. In addition to base rent, the lease requires the Company to pay its
share of all expenses, utilities, taxes and other charges. The rent expense paid
to Total under the former lease was $10,000 for the year ended December 31,
1994. Rent expense paid to the Shareholder was approximately $59,000, $54,800
and $50,000 during 1996, 1995 and 1994, respectively.
The Company paid approximately $80,000 each year for certain of its key
employees' life insurance premiums during 1996, 1995 and 1994. The total
premiums paid are included in other assets in the accompanying consolidated
balance sheets. The life insurance premiums provide for distributions to the
beneficiaries of the policyholders. The Company is to receive the total premiums
paid into the policies at distribution prior to any beneficiary distributions.
In September 1994, the Company purchased for $1,285,000 approximately 20 acres
of property from a Shareholder.
The Company provided maintenance and shipping for Total of approximately
$16,000, $62,000 and $154,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Total provided general warehousing services to the Company
in the amount of approximately $14,000, $60,000 and $18,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
-32-
<PAGE>
(7) SHAREHOLDERS' EQUITY:
The Company's authorized capital stock consists of 100,000,000 shares of $.01
par value common stock; 9,904,500 and 9,102,000 shares of common stock were
issued and outstanding at December 31, 1996 and 1995, respectively. In addition,
the Company has authorized 50,000,000 shares of $.01 par value preferred stock,
none of which was outstanding at December 31, 1996 and 1995.
In October 1994, the Company issued 900,000 shares of common stock at $12.00 per
share in its initial public offering. The offering consisted of 1,800,000 shares
comprised of 900,000 newly-issued Company shares and 900,000 shares from
existing shareholders.
In July 1996, the Company issued 800,000 shares of common stock at $18.50 per
share (the Offering). The Offering consisted of 1,600,000 shares of common stock
comprised of 800,000 newly-issued Company shares and 800,000 shares from
existing shareholders.
(8) EMPLOYEE BENEFIT PLANS:
1994 Stock Option Plan
The Company established the 1994 Stock Option Plan (1994 Plan) with 650,000
shares of common stock reserved for issuance thereunder. The Plan will terminate
on August 31, 2004. The Compensation Committee of the Board of Directors
administers the stock incentive plan, and has the discretion to determine the
employees, officers and independent directors who receive awards, the type of
awards to be granted (incentive stock options, nonqualified stock options and
restricted stock grants) and the term, vesting and exercise price. Incentive
stock options are designed to comply with the applicable provisions of the
Internal Revenue Code (the Code) and are subject to restrictions contained in
the Code, including a requirement that exercise prices are equal to at least
100% of the fair market value of the common shares on the grant date and a
ten-year restriction on the option term.
Independent directors are not permitted to receive incentive stock options.
Non-qualified stock options may be granted to directors, including independent
directors, officers, and employees and provide for the right to purchase common
stock at a specified price, which may not be less than 85% of the fair market
value on the date of grant, and usually become exercisable in installments after
the grant date. Non-qualified stock options may be granted for any reasonable
term. The 1994 Plan provides that each independent director may receive, on the
date of appointment to the Board of Directors, non-qualified options to purchase
not less than 2,500 nor more than 5,000 shares of common stock, at an exercise
price equal to the fair market value of the common stock on the date of the
grant.
As permitted under Statement of Financial Accounting Standards No. 123 (SFAS No.
123), Accounting for Stock-Based Compensation, the Company has elected to
account for stock transactions with employees pursuant to the provisions of
Accounting Principles Board No. 25, Accounting for Stock Issued to Employees,
under which no compensation cost is recognized in the
-33-
<PAGE>
accompanying consolidated financial statements. Had compensation cost for the
1994 Plan been recorded consistent with SFAS No. 123, the Company's net income
and earnings per share would have been reduced to the following pro forma
amounts:
1996 1995
------------- -------------
Net Income: As Reported $ 7,510,057 $ 5,805,695
Pro Forma 7,338,132 5,793,757
Earnings per share: As Reported .78 .64
Pro Forma .77 .63
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1995 and 1996; risk free interest rate of 6.73%,
expected life of six years and expected volatility of 36%.
Because SFAS No. 123 has not been applied to options granted prior to January 1,
1995, the pro forma compensation cost disclosed above may not be representative
of that had such options been considered.
<TABLE>
<CAPTION>
1996 1995
---------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
--------- ------- --------- ------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 262,250 $ 12.06 251,250 $12.01
Granted 139,250 $ 13.98 25,000 $12.52
Exercised (2,500) $ 12.00 (2,000) $12.00
Forfeited (39,000) $ 12.48 (12,000) $12.00
Expired - $ - - $ -
--------- ---------
Outstanding at end of year 360,000 262,250
========= =========
Exercisable at end of year 7,500 $ 12.57 5,000 $12.27
========= =========
Weighted Average fair value of
options granted $ 6.65 $ 5.96
========= =========
</TABLE>
Options outstanding at December 31, 1996 have exercise prices between $12.00 and
$18.75, with a weighted average remaining contractual life of 2.3 years.
401(k) Profit Sharing Plan
The Company has a 401(k) profit sharing plan (the Plan) for all employees who
are 19 years of age or older and have completed one year of service. The Plan as
amended in 1995 provides for a mandatory matching contribution equal to 50%, 50%
and 40% in 1996, 1995 and 1994, respectively, of the amount of the employee's
salary deduction not to exceed $625, $625 and $500 annually per employee in
1996, 1995 and 1994, respectively. The Plan also provides for a discretionary
matching contribution not limited to the amount permitted under the Internal
Revenue Code as deductible expenses. In 1996, 1995 and 1994, there were no
discretionary
-34-
<PAGE>
contributions. Employees' rights to employer contributions vest after five years
from their date of employment. The Company's matching contribution, included in
accrued liabilities in the accompanying consolidated balance sheets, was
approximately $69,000, $60,000 and $40,300 for 1996, 1995 and 1994,
respectively.
-35-
<PAGE>
EXHIBITS TO
KNIGHT TRANSPORTATION, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996
-36-
<PAGE>
<TABLE>
<CAPTION>
KNIGHT EXHIBIT INDEX
--------------------
Exhibit Sequentially
Number Description Numbered Page 1/
------ ----------- ----------------
<S> <C>
3.1 Restated Articles of Incorporation of the Company.
(Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 No.
33-83534.)
3.2* Amended and Restated Bylaws of the Company. 40
4.1 Articles 4, 10 and 11 of the Restated Articles of
Incorporation of the Company. (Incorporated by reference
to Exhibit 3.1 to this Report on Form 10-K.)
4.2 Sections 2 and 5 of the Amended and Restated Bylaws of
the Company. (Incorporated by reference to Exhibit 3.2
to this Report on Form 10-K.)
10.1 Purchase and Sale Agreement and Escrow Instructions
(All Cash) dated as of March 1, 1994, between Randy
Knight, the Company, and Lawyers Title of Arizona.
(Incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1 No.
33-83534.)
10.1.1 Assignment and First Amendment to Purchase and Sale
Agreement and Escrow Instructions. (Incorporated by
reference to Exhibit 10.1.1 to Amendment No. 3 to the
Company's Registration Statement on Form S-1 No.
33-83534.)
10.1.2 Second Amendment to Purchase and Sale Agreement and
Escrow Instructions. (Incorporated by reference to
Exhibit 10.1.2 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 No. 33-83534.)
10.2 Net Lease and Joint Use Agreement between Randy
Knight and the Company dated as of March 1, 1994.
(Incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement on Form S-1 No.
33-83534.)
-37-
<PAGE>
Exhibit Sequentially
Number Description Numbered Page 1/
------ ----------- ----------------
10.3 Form of Purchase and Sale Agreement and Escrow
Instructions (All Cash) dated as of October 1994, between
the Company and Knight Deer Valley, L.L.C., an Arizona
limited liability company. (Incorporated by reference to
Exhibit 10.4.1 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 No. 33-83534.)
10.4* Loan Agreement and Revolving Promissory Note 50
each dated March 1996 between First Interstate
Bank of Arizona, N.A. and Knight Transportation, Inc. and
Quad K Leasing, Inc. (superseding prior credit facilities).
10.5 Restated Knight Transportation, Inc. 1994 Stock Option
Plan, dated as of February 21, 1996. (Incorporated by
reference to Exhibit 10.5 to the Company's report on
Form 10-K for the period ended December 31, 1995.)
10.6* Amended Indemnification Agreements between the 99
Company, Don Bliss, Clark A. Jenkins, Gary J. Knight,
Keith Knight, Kevin P. Knight, Randy Knight, G.D.
Madden, Minor Perkins and Keith Turley, and dated as of
February 5, 1997. (Incorporated by reference to Exhibit
10.6 to the Company's report on Form 10-K for the
period ended December 31, 1995.)
10.7 Master Equipment Lease Agreement dated as of January
1, 1996, between the Company and Quad-K Leasing, Inc.
(Incorporated by reference to Exhibit 10.7 to the
Company's report on Form 10-K for the period ended
December 31, 1995.)
10.8 Purchase Agreement and Escrow Instructions dated as of
July 13, 1995, between the Company, Swift
Transportation Co., Inc. and United Title Agency of
Arizona. (Incorporated by reference to Exhibit 10.8 to the
Company's report on Form 10-K for the period ended
December 31, 1995.)
10.8.1 First Amendment to Purchase Agreement and Escrow
Instructions. (Incorporated by reference to Exhibit 10.8.1
to the Company's report on Form 10-K for the period
ended December 31, 1995.)
-38-
<PAGE>
Exhibit Sequentially
Number Description Numbered Page 1/
------ ----------- ----------------
10.9 Purchase and Sale Agreement dated as of February 13,
1996, between the Company and RR-1 Limited
Partnership. (Incorporated by reference to Exhibit 10.9 to
the Company's report on Form 10-K for the period ended
December 31, 1995.)
21.1 Subsidiaries of the Company. (Incorporated by reference
to Exhibit 21.1 to the Company's report on Form 10-K for
the period ended December 31, 1995.)
27* Financial Data Schedule
</TABLE>
1/ The page numbers where exhibits (other than those incorporated by reference)
may be found are indicated only on the manually signed Report.
- -----------------------
* Filed herewith.
-39-
AMENDED AND RESTATED
BYLAWS
OF
KNIGHT TRANSPORTATION, INC.
The Bylaws of Knight Transportation, Inc., set forth below,
amend and supersede in their entirety the Bylaws adopted by the corporation on
April 11, 1995, effective as of the time set forth in Section 9 below.
Section 1. Identification
--------------
1.1 Name. The name of the corporation is Knight
Transportation, Inc.
1.2 Principal Office. The principal office of the corporation
shall be at 5601 West Buckeye Road, Phoenix, Arizona, and additional offices may
be maintained at such other places within or without the State of Arizona as the
Board of Directors may from time to time designate.
1.3 Fiscal Year. The fiscal year of the corporation shall be
the calendar year ending December 31 of each year.
Section 2. Meetings of Shareholders
------------------------
2.1 Annual Meeting. Effective for calendar years beginning
after December 31, 1994, the annual meeting of shareholders shall be held on the
second Wednesday in May, if not a legal holiday, and if a legal holiday, then on
the next business day following, or at such other date and time as shall be
designated from time to time by the Board of Directors and stated in the notice
of meeting. At the annual meeting, shareholders shall elect a Board of Directors
and transact such other business as may properly be brought before the meeting.
2.2 Notice. No notice of the annual meeting need be given.
Unless properly waived, notice of any special meeting shall be mailed to the
last known address of each shareholder as the same appears on the records of the
corporation, at least ten (10) days and not more than fifty (50) days prior to
such meeting, and shall state in general the purposes for which it is called.
Notice to shareholders shall not be necessary for any adjourned annual or
special meeting except the statement at such meeting in making adjournment.
2.3 Presiding Officer. The Chairman, or in his absence, a
chairman appointed by the shareholders present, shall call meetings of the
shareholders to order, and shall act as chairman thereof.
<PAGE>
2.4 Quorum. A majority of the voting stock issued and
outstanding, represented by the holders thereof either in person or by proxy,
appointed by an instrument in writing and subscribed by such shareholder, shall
be a quorum at all meetings of shareholders.
2.5 Adjournment. If at any annual or special meeting of
shareholders, a quorum shall fail to attend in person or by proxy, a majority in
interest of the shareholders attending in person or by proxy at the time of such
meeting may, at the end of an hour, adjourn the meeting from time to time
without further notice until a quorum shall attend, and thereupon any business
may be transacted which might have been transacted at the meeting as originally
called had the same been held.
2.6 Special Meetings. Special meetings of the shareholders for
any purpose shall be held whenever called by a vote of the majority of the Board
of Directors, and shall be called whenever shareholders owning one-tenth of the
capital stock issued and outstanding shall, in writing, make application
therefor to the President, stating the object of such meeting. Notice thereof
shall be given as provided in Section 2.2.
2.7 Voting. At all annual and special meetings of
shareholders, every holder of voting shares of stock may appear and vote either
in person or by proxy in writing, and shall have one vote for each share of
voting stock, so held and represented at such meeting, with the right to
cumulate such votes for the election of directors. All proxies shall be filed
with the Secretary of the corporation prior to any meeting for which they are to
be effective. Upon demand of any shareholder, voting upon any question at any
meeting shall be by ballot.
2.8 Order of Business and Rules of Procedure. The order of
business and the rules of procedure used at any meeting of the shareholders
shall be as determined by the chairman.
2.9 Closing of Transfer Books and Fixing Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders, or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other purpose, the Board of Directors of the corporation may provide that
the stock transfer books shall be closed for a stated period not to exceed, in
any case, sixty (60) days. If the stock transfer books shall be closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of the shareholders, the books shall be closed for at least ten (10)
days immediately preceding the meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date, in any case, to be not more
than sixty (60) days nor less than ten (10) days prior to the date on which the
particular action requiring this determination of shareholders is to be taken.
If the stock transfer books are not closed and no record date is fixed for any
such purpose, then the record date shall be determined in accordance with
Section 10-030 of the Arizona Revised Statutes. When a determination of
shareholders has been made as provided in this section, the determination shall
apply to any adjournment thereof.
-2-
<PAGE>
2.10 Voting List. The Secretary of the corporation shall make
from the stock transfer books a complete record of the shareholders entitled to
vote at the meeting or any adjournment thereof, arranged in alphabetical order,
with the address of and the number of shares held by each. Such record shall be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting for
the purposes thereof. Failure to comply with the requirements of this section
shall not affect the validity of any action taken at the meeting.
2.11 Action Without A Meeting. Any action required to be taken
at a meeting of the shareholders of the corporation, or any action that may be
taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing setting forth the action so taken shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof.
This consent shall have the same effect as a unanimous vote of shareholders and
may be stated as such in any document.
Section 3. Board of Directors
------------------
3.1 Number. The Articles of Incorporation authorize the
business and affairs of the Corporation to be managed and controlled by a Board
of Directors of not less than three (3) nor more than eleven (11) directors, who
need not be shareholders of the Corporation or residents of this State. The
Board shall be comprised of nine (9) members, but by a vote of a majority of the
Board of Directors, additional directors may be added.
3.2 Removal. At a meeting of shareholders called expressly for
that purpose, any director or the entire Board of Directors may be removed, with
or without cause, by a vote of the holders of a majority of the shares then
entitled to vote at an election of directors. Provided, however, that if less
than the entire board is to be removed, no one of the directors may be removed
if the votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire Board of Directors.
3.3 Annual Meeting. Immediately after the annual meeting of
the shareholders, the newly-elected directors shall meet for the purpose of
organization, the election of officers, and the transaction of other business.
3.4 Special Meetings. Special meetings of the Board may be
held after proper notice has been given, unless properly waived. Unless
otherwise specified in the notice thereof, any and all business may be
transacted at a special meeting.
3.5 Notice of Meetings. No notice of the annual meeting of the
Board of Directors need be given. Unless properly waived, notice of any special
meeting of the Board of Directors, stating the time and in general terms the
purpose or purposes thereof, shall be mailed to all of the directors at least
ten (10) days prior to such meeting, to the last known address of each director
as the same appear on the records of the corporation.
-3-
<PAGE>
3.6 Place of Meeting. The directors shall hold their meetings,
have an office and keep the books of the corporation at such place or places
within or without the State of Arizona as the Board of Directors from time to
time may determine. Unless otherwise determined, such place shall be at the
principal office of the corporation, as stated in Section 1.2 hereof. Meetings
of the Board of Directors, whether regular or special, may be held by means of
telephone conference or similar equipment by means of which all persons
participating in the meeting can hear each other, and participation in such a
meeting shall constitute presence in person at such meeting.
3.7 Quorum. A majority of the Board of Directors shall
constitute a quorum for the transaction of business. The act of the majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors unless the act of a greater number is required by
statute, the Articles of Incorporation or the Bylaws.
3.8 Chairman. At all meetings of the Board of Directors the
Chairman, or in his absence a chairman chosen by the directors present, shall
preside.
3.9 Committees. From time to time the Board may appoint
committees for any purpose, who shall have such power as shall be specified in
the resolution of appointment.
3.10 Compensation. Any officer or employee of the corporation
serving as a director and all members of committees shall serve without
compensation; however, they shall be paid the necessary expenses incurred in the
execution of their duties. Independent directors who are not employees of the
corporation may receive such compensation as the Board of Directors, from time
to time, determines appropriate. Nothing herein shall preclude the paying by the
corporation of a salary or other compensation to an officer or employee who is
also a director.
3.11 Vacancies. In case of any vacancy among the directors
through death, resignation, disqualification, or other cause, or in the case of
a vacancy arising from the creation of a new directorship, the other directors,
by affirmative vote of a majority thereof, may fill such vacancy for the
unexpired portion of the term of directorship which is vacant, and until
election of and qualification of his successor.
3.12 Action Without A Meeting. Any action that may be taken at
a meeting of the directors or of a committee may be taken without a meeting if a
consent in writing, setting forth the action taken, shall be signed by all of
the directors or all of the members of the committee, as the case may be.
Section 4. Officers
--------
4.1 Executive. The executive officers of the corporation shall
be a Chairman, Chief Executive Officer, President, Vice President, Chief
Financial Officer and Secretary and any
-4-
<PAGE>
other officers as may from time to time be appointed, each of whom shall hold
his office during the pleasure of the Board of Directors.
4.2 Tenure of Office. All officers shall be subject to removal
at any time, with or without cause, by the affirmative vote of a majority of the
Board of Directors.
4.3 Chairman. The Chairman shall preside at all meetings of
the shareholders and of the directors. He may, from time to time, call special
meetings of the Board of Directors whenever he shall deem it proper to do so and
shall do so when a majority of the Board of Directors shall request him in
writing to do so. The Chairman, in the event of the Chief Executive Officer's
absence or inability to act, shall have all of the powers of the Chief Executive
Officer. The Chairman may sign and execute all authorized contracts, checks, and
other instruments or obligations in the name of the corporation. The Chairman
shall do and perform such other duties and have such other powers as from time
to time may be assigned to him by the Board of Directors.
4.4 Chief Executive Officer. The Chief Executive Officer shall
be the chief executive officer of the corporation, and shall have general charge
of the business and affairs of the corporation. He may sign and execute all
authorized contracts, checks, and other instruments or obligations in the name
of the corporation. The Chief Executive Officer, in the event of the Chairman's
absence or inability to act, shall have all of the powers of the Chairman. The
President shall do and perform such other duties and have such other powers as
from time to time may be assigned to him by the Board of Directors.
4.5 President. The President shall be the chief operating
officer and shall be responsible for all corporate sales and all operations of
the corporation's truck fleet. He may sign and execute all authorized contracts,
checks, and other instruments or obligations in the name of the corporation. The
President, in the event of the absence or inability of the Chairman and Chief
Executive Officer to act, shall have all the powers of both officers. The
President shall do and perform such other duties and have such other powers as
from time to time may be assigned to him by the Board of Directors.
4.6 Vice President. The Vice President may be designated as
Executive Vice President. Any person appointed Executive Vice President may, in
the event of the President's absence or inability to act, have all of the powers
of the President. The Executive Vice President may sign and execute all
authorized contracts, checks, and other instruments or obligations in the name
of the Company in an amount authorized by the Board of Directors. The Executive
Vice President shall have general charge of the sales and marketing aspects of
the Company's Los Angeles operations. He shall perform such other duties as the
Board of Directors shall delegate to him.
4.7 Secretary. The Secretary shall keep the minutes of all
proceedings of the Board and the minutes of all meetings of shareholders. He
shall attend to the giving and serving of all notices for the corporation when
directed by the President. He may sign with the President, in the name of the
corporation, all contracts authorized by the Board, and shall have authority to
affix
-5-
<PAGE>
the seal of the corporation thereto. He shall have charge of all certificate
books and such other books and papers as the Board may direct; he shall sign,
with the President, certificates of stock. He shall, in general, perform all the
duties incident to the office of the Secretary, subject to the control of the
Board.
4.8 Chief Financial Officer; Treasurer. The offices of
Treasurer and Chief Financial Officer shall be occupied by the same person and
shall have the same duties and obligations. The Treasurer shall have the custody
of all the funds and securities of the corporation which may come into his
hands. He may endorse on behalf of the corporation for collection, checks, notes
and other obligations, and shall deposit the same to the credit of the
corporation in such bank or banks or depositories as the Board of Directors may
designate. He may sign receipts and vouchers for payments made to the
corporation. He may sign checks made by the corporation and pay out and dispose
of the same under the direction of the Board. He may sign, with the President,
or such other person or persons as may be designated by the Board, all
authorized promissory notes and bills of exchange of the corporation; whenever
required by the Board he shall render a statement of his cash accounts. He shall
enter regularly in books of the corporation, to be kept by him for that purpose,
full and accurate accounts of all monies received and paid by him on account of
the corporation. He shall perform all duties incident to the position of
Treasurer subject to the control of the Board. The powers and duties of the
Treasurer may be exercised and performed by any of the other officers, as the
Board may direct.
4.9 Miscellaneous. Assistant Secretaries and Assistant
Treasurers may be selected by the Board of Directors at any meeting. They shall
perform any and all duties of the Secretary and of the Treasurer in the absence
or incapacity of either, and such other duties as the Board of Directors may
require.
Section 5. Capital Stock
-------------
5.1 Payment for Shares. The consideration for the issuance of
shares may be paid, in whole or in part, in money, in other property, tangible
or intangible, or in labor or services actually performed for the corporation.
When payment of the consideration for which shares are to be issued shall have
been received by the corporation, or any wholly owned subsidiary, such shares
shall be deemed to be fully paid and nonassessable. Neither promissory notes nor
future services shall constitute consideration for the issuance of shares. In
the absence of fraud in the transaction, the judgment of the Board of Directors
as to the value of the consideration received for shares shall be final and
conclusive. No certificate shall be issued for any share until the share is
fully paid.
5.2 Certificates Representing Shares. Each holder of capital
stock of the corporation shall be entitled to a certificate signed by the
President and the Secretary of the corpora tion, and sealed with the corporate
seal, certifying the number of shares owned by him in the corporation.
-6-
<PAGE>
5.3 Lost, Stolen or Destroyed Certificates. The corporation
shall issue a new stock certificate in place of any certificate theretofore
issued where the holder of record of the certificate:
(a) Makes proof in affidavit form that the
certificate has been lost, destroyed or wrongfully taken;
(b) Requests the issuance of a new certificate before
the corporation has notice that the certificate has been acquired by a purchaser
for value in good faith and without notice of any adverse claim;
(c) Gives a bond in such form and with such surety as
the corporation may direct, to indemnify the corporation against any claim that
may be made on account of the alleged loss, destruction, or theft of the
certificate;
(d) Satisfies any other reasonable requirement
imposed by the corporation.
When a certificate has been lost, apparently destroyed, or
wrongfully taken and the holder of record fails to notify the corporation within
a reasonable time after he has notice of it, and the corporation registers a
transfer of the shares represented by this certificate before receiving such
notification, the holder of record is precluded from making any claim against
the corporation for the transfer or for a new certificate.
5.4 Purchase of Its Own Shares. The corporation may purchase
its own shares of stock from the holders thereof subject to the limitations
imposed by the Articles of Incorporation with respect thereto.
5.5 Dividends. The Board, in its discretion, may from time to
time declare dividends upon the capital stock from the surplus or net profits of
the corporation when and in the manner it deems advisable, so long as no rule of
law is thereby violated.
Section 6. Waiver of Notice
----------------
Any shareholder, director or officer may waive any notice
required to be given by these Bylaws of any meeting otherwise prescribed
hereunder. Any meeting at which all shareholders or directors are present (or
with respect to which notice is waived by any absent shareholder or direc tor)
may be held at any time for any purpose and at any place and shall be deemed to
have been validly called and held, and all acts performed and all business
conducted at such meeting shall be valid in all respects.
-7-
<PAGE>
Section 7. Indemnification
---------------
7.1 Indemnification. The corporation shall indemnify and save
harmless all of its existing and former directors from and against all expenses
incurred by them, including, but not limited to, legal fees, judgments,
penalties, and amounts paid in settlement or compromise, to the fullest extent
not prohibited by law, as it now exists or may hereafter be amended, in
connection with any proceeding, actual or threatened, to which they may be made
a party by reason of their service to or at the request of the corporation,
including service in their capacity as officers, unless it is established that:
(i) the act or omission of the indemnified party was committed in bad faith;
(ii) the indemnified party did not believe such act or omission to be in, or not
opposed to, the best interests of the corporation; (iii) in the case of any
criminal proceeding, the indemnified party had reasonable cause to believe that
the act or omission was unlawful; or (iv) the indemnified party is adjudged to
be liable to the corporation unless a court of competent jurisdiction determines
that such person is entitled to indemnity. The corporation shall advance to any
director seeking indemnification pursuant to Section 7.1 expenses, including
attorneys' fees, actually and reasonably incurred in defending any civil or
criminal action, suit or proceeding in advance of any final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director seeking indemnification to repay such amount if it is ultimately
determined that he is not entitled to be indemnified by the corporation. In the
event the corporation is requested to indemnify an existing or former director
in connection with any threatened, pending or completed action or suit by or in
the right of the corporation to procure judgment in its favor by reason of the
fact that such person was a director, officer, or employee or agent of the
corporation, or is or was serving at the request of the corporation in such
capacity, the corporation shall indemnify such person against expenses,
including attorneys' fees, but excluding judgments and fines, and for amounts
paid in settlement, actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit, if such person acted, or
failed to act, in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the corporation, except that no
indemnification shall be made in respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that a court in which such action or suit was
brought shall determine, upon application, that despite the adjudication of
liability, but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the court shall
deem to be proper.
7.2 Determination by Board. Whenever any existing or former
director shall report to the President that he has incurred or may incur
expenses described in Section 7.1, the Board of Directors (other than any
interested director) shall, at its next regular meeting or at a special meeting
held within a reasonable time thereafter, determine whether, in regard to the
matter involved, the person in question is entitled to indemnification pursuant
to Section 7.1. If the Board determines that the standards of Section 7.1 are
met, indemnification shall be made. In the event the Board of Directors refuses
to indemnify a person who is determined by a court of competent jurisdiction to
be entitled to indemnification under Section 7.1 or applicable law, the
corporation shall, in addition to extending such indemnification, reimburse the
person entitled to indemnification for all attorneys' fees and costs of court
actually incurred. The corporation shall have the right to
-8-
<PAGE>
refuse indemnification in any instance in which the person to whom
indemnification would otherwise have been extended unreasonably refuses to
cooperate in the investigation or defense of such matter or to permit the
corporation, at its own expense, to retain counsel of its own choosing to defend
him.
7.3 Indemnification Agreement. The Board of Directors may
authorize the corporation to indemnify directors, officers, or employees to the
fullest extent permitted by law.
7.4 Non-Exclusivity. The indemnification rights contained in
this Section 7 shall not be exclusive of or preclude any other rights of
indemnification to which a director, officer, employee or agent may be entitled,
whether pursuant to law or agreement.
Section 8. Amendment and Repeal
--------------------
These Bylaws may be amended or repealed or new Bylaws may be
adopted by the Board of Directors in such instance as the Board may determine to
be advisable; provided, however, that the provisions of Section 7 shall not be
amended except with the consent of a sixty-seven percent (67%) majority of the
Board of Directors. No notice need be given of any action concerning these
Bylaws previous to any such meeting, if the proposed amendment, repeal or
adoption of new Bylaws is one of necessity arising at such meeting, and is in
furtherance of the legitimate aims of the corporation. In all other situations,
unless properly waived, notice of any meeting at which any action concerning the
Bylaws is proposed shall be mailed to all directors at least ten (10) days prior
to such meeting, and in the same manner prescribed for giving notice of special
meetings of the Board of Directors. Such notice shall state in general terms the
nature of any proposed action concerning the Bylaws.
Section 9. Effective Date
--------------
These Amended and Restated Bylaws of Knight Transportation,
Inc. shall become effective as of December 20th, 1996.
Dated as of the 20th day of December, 1996.
/s/Gary J. Knight
----------------------------------------
Gary J. Knight, President
/s/Clark A. Jenkins
----------------------------------------
Clark A. Jenkins, Secretary
-9-
<PAGE>
Certificate
-----------
The undersigned, Clark Jenkins, Secretary of Knight
Transportation, Inc. does hereby certify that the foregoing copy of the Bylaws
of this corporation is a true and correct copy of the corporation's Bylaws, duly
adopted by the Board of Directors, and that such Bylaws have not been amended or
repealed.
DATED: December 20, 1996.
/s/Clark A. Jenkins
----------------------------------------
Clark A. Jenkins, Secretary
-10-
- --------------------------------------------------------------------------------
LOAN AGREEMENT
by and between
KNIGHT TRANSPORTATION, INC.
QUAD K LEASING, INC.
and
FIRST INTERSTATE BANK OF ARIZONA, N.A.
Dated as of __________________, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I RECITALS.............................................................................. 1
ARTICLE 2 DEFINITIONS........................................................................... 2
Section 2.1 Definitions............................................................. 2
Section 2.2 Terms Generally......................................................... 7
Section 2.3 Accounting Terms........................................................ 7
ARTICLE 3 RLC ........................................................................ 8
Section 3. 1 RLC Commitment Amount................................................... 8
Section 3.2 RLC Note................................................................ 8
Section 3.3 RLC Advances............................................................ 8
Section 3.4 Conversion of RLC Advances.............................................. 9
Section 3.5 RLC Unused Fee.......................................................... 9
Section 3.6 RLC Payments............................................................ 10
Section 3.7 Issuance of Letter of Credit............................................ 10
Section 3.8 Conditions Precedent to the Issuance of Letters of Credit............... 10
Section 3.9 Drawing of a Letter of Credit........................................... 11
ARTICLE 3A TERM LOAN............................................................................ 12
Section 3A.1 Term Loan Commitment.................................................... 12
Section 3A.2 Term Note............................................................... 12
Section 3A.3 TCM Rate Election....................................................... 12
Section 3A.4 Term Loan Payments...................................................... 12
ARTICLE 4 FIXED RATE PROVISIONS................................................................. 14
Section 4.1 Additional Provisions for Fixed Rate Advances........................... 14
Section 4.2 TCM Rate Prepayment..................................................... 16
ARTICLE 5 CONDITIONS PRECEDENT.................................................................. 17
Section 5.1 Conditions Precedent.................................................... 17
Section 5.2 Conditions Precedent to All Future Advances............................. 18
ARTICLE 6 GENERAL REPRESENTATIONS AND WARRANTIES................................................ 19
Section 6.1 Recitals................................................................ 19
Section 6.2 Organization............................................................ 19
Section 6.3 Power................................................................... 19
Section 6.4 Enforceable............................................................. 19
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 6.5 No Conflict............................................................. 19
Section 6.6 No Actions.............................................................. 19
Section 6.7 Financial Statements.................................................... 19
Section 6.8 Tax Payments............................................................ 20
Section 6.9 Margin Stock............................................................ 20
Section 6.10 Affirmation............................................................. 20
Section 6.11 Solvency................................................................ 20
ARTICLE 7 AFFIRMATIVE COVENANTS................................................................. 21
Section 7.1 Existence............................................................... 21
Section 7.2 Maintain Property....................................................... 21
Section 7.3 Insurance............................................................... 21
Section 7.4 Payments................................................................ 21
Section 7.5 Financial Reports....................................................... 21
Section 7.6 Records................................................................. 23
Section 7.7 Current Obligations..................................................... 23
Section 7.8 Other Documents......................................................... 23
ARTICLE 8 NEGATIVE COVENANTS.................................................................... 24
Section 8.1 Dissolution............................................................. 24
Section 8.2 Fiscal Year............................................................. 24
Section 8.3 Margin Stock............................................................ 24
Section 8.4 Debt/Worth.............................................................. 24
Section 8.5 TFCC.................................................................... 24
Section 8.6 Debt/Cash Flow.......................................................... 24
Section 8.7 Current Ratio........................................................... 24
ARTICLE 9 DEFAULT AND REMEDIES.................................................................. 25
Section 9.1 Event of Default........................................................ 25
Section 9.2 Remedies and Cure Period................................................ 26
ARTICLE 10 ACTION UPON AGREEMENT................................................................ 27
Section 10.1 Third Party............................................................. 27
Section 10.2 Entire Agreement........................................................ 27
Section 10.3 Writing Required........................................................ 27
Section 10.4 No Partnership.......................................................... 27
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 11 GENERAL.............................................................................. 28
Section 11.1 Survival................................................................ 28
Section 11.2 Context................................................................. 28
Section 11.3 Time.................................................................... 28
Section 11.4 Notices................................................................. 28
Section 11.5 Costs................................................................... 28
Section 11.6 Law..................................................................... 28
Section 11.7 Successors.............................................................. 28
Section 11.8 Headings................................................................ 28
Section 11.9 Arbitration............................................................. 28
</TABLE>
EXHIBITS
A Compliance Letter
B Compliance Certificate
C Form of Term Note
-iii-
<PAGE>
LOAN AGREEMENT
BY THIS LOAN AGREEMENT (the "Agreement"), made and entered into as of
this day_______ of _________, 1996, FIRST INTERSTATE BANK OF ARIZONA, N.A.,
whose address is 100 West Washington, Post Office Box 53456, Phoenix, Arizona
85072-3456 (hereinafter, together with successors and assigns, called "Lender"),
and KNIGHT TRANSPORTATION, INC., an Arizona corporation, whose address is 5601
West Buckeye Road, Phoenix, Arizona 85043-4603 (hereinafter called "Company")
and QUAD K LEASING, INC., a corporation (with the Company, the "Borrower"), a
wholly owned subsidiary of the Company, in consideration of the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, hereby confirm and agree as
follows:
ARTICLE I
RECITALS
--------
Section 1.1 Borrower has requested that Lender establish a revolving
line of credit (the "RLC") with Borrower in the amount of $15,000,000.00, under
which revolving line of credit advances ("RLC Advances") shall be made to
Borrower for the purposes of providing (i) Borrower with financing for general
corporate purposes, and (ii) a source of funding to any beneficiaries of any
letters of credit (each a "Letter of Credit") that may be issued, from time to
time by Lender on behalf of Borrower.
Section 1.2 Borrower has also requested that Lender allow Borrower,
upon its election, to term out the RLC.
Section 1.3 Lender has agreed to do so upon the terms, conditions and
provisions set forth herein.
Section 1.4 Effective as of the delivery of this Agreement, the Loan
Agreement dated November 30, 1994 (the "1994 Agreement") between the Company and
Lender will be terminated and replaced by this Agreement.
<PAGE>
ARTICLE II
DEFINITIONS
-----------
Section 2.1 Definitions. Although terms may be defined in other
sections of this Agreement, as used herein the following terms shall have the
meanings defined below:
"Advance" means an RLC Advance.
"Advance Minimum Amount" means $50,000.00.
"Agreement" means this Loan Agreement.
"Authorized Officer" means the chief executive officer or chief
financial officer of Borrower, or such other individual who is from time to time
designated to Lender in writing by said officer as authorized to act for
Borrower with respect to the Loan.
"Borrower": See the Preamble.
"Borrowing Base" means an amount equal to:
(i) Eighty percent (80%) of the outstanding amount of all
"Eligible Accounts" of Borrower, less any retentions, discounts,
delinquency or service charges, commissions, freight charges,
advertising allowances or other allowances granted or charged by
Borrower; plus
(ii) fifty percent (50%) of Net Fixed Assets less the
outstanding principal balance of all debt secured by any security
interest in, or lien on, such Net Fixed Assets.
"Business Day" means a day of the year on which commercial banks are
not required or authorized to close in Phoenix, Arizona and, if the applicable
Business Day relates to any LIBOR Rate RLC Advances or LIBOR Rate Term Loans, a
day on which dealings are carried on in the London interbank market.
"CD Base Rate" means, for the Interest Period for each CD Rate RLC
Advance, an interest rate per annum equal to the rate of interest determined by
Lender, based on quotations published in The Wall Street Journal or such other
comparable source selected by Lender, to be the "CD Base Rate" for a period
equal to such Interest Period, two (2) Business Days before the first day of
such Interest Period.
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"CD Rate" means an interest rate per annum equal to two and 15/100
percent (2.15%) in excess of the CD Base Rate, rounded upward, if necessary, to
the nearest 1/16 of 1%.
"CD Rate RLC Advance" means an RLC Advance that bears interest at the
CD Rate.
"Company": See the Preamble.
"Compliance Certificate": See Section 7.5(f).
"Convert," "Conversion," and "Converted" each refers to a conversion of
RLC Advances of one Type into RLC Advances of another Type pursuant to Section
3.4.
"Eligible Account" means any account of Borrower, so long as, at the
time of any RLC Advance: (i) the account is creditworthy in the reasonable
judgment of Lender; (ii) the original invoices or other statements or agreements
comprising that account require payment in full within sixty (60) days of the
date of delivery of the respective goods or services; and (iii) no invoice or
other statement or agreement comprising that account remained unpaid for more
than ninety (90) days after the due date for payment specified therein (at
Lender's option, if any account becomes ineligible because not paid within the
above specified period, all accounts from the same account debtor shall be
deemed ineligible).
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D by the Board of Governors of the Federal Reserve System, 12 C.F.R.
Part 204 as in effect from time to time.
" Eurodollar Reserve Percentage" for the Interest Period for each LIBOR
Rate RLC Advance or LIBOR Rate Tenn Loan means the reserve percentage applicable
two (2) Business Days before the first day of such Interest Period under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum reserve
requirement (including, but not limited to, any emergency, supplemental, or
other marginal reserve requirement) for a member Bank of the Federal Reserve
System in San Francisco with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or with respect to any other category of
liabilities which includes deposits by reference to which the interest rate on
LIBOR Rate RLC Advances or LIBOR Rate Tenn Loans is determined) having a term
equal to such Interest Period.
"Event of Default": See Section 9. 1.
"Financial Covenants" means those financial covenants specified in
Sections 8.4, 8.5, 8.6 and 8.7.
"Fixed Rate Minimum Amount" means $1,000,000.00, with increments of
$100,000.00.
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"Fixed Rate Advance" means either a LIBOR Rate RLC Advance, a CD Rate
RLC Advance or a LIBOR Rate Term Loan.
"Fixed Rate RLC Advance" means either a LIBOR Rate RLC Advance or a CD
Rate RLC Advance.
"GAAP" means generally accepted accounting principles in the United
States, consistently applied.
" Interest Period" means, for each Fixed Rate RLC Advance, or LIBOR
Rate Tenn Loan, the period commencing on the date of such Fixed Rate RLC Advance
or LIBOR Rate Term Loan or the date of the Conversion of any RLC Advance into a
Fixed Rate RLC Advance and ending on the last day of the period selected by the
Borrower pursuant to the provisions herein and, thereafter, each subsequent
period commencing on the day after the last day of the immediately preceding
Interest Period and ending on the last day of the period selected by the
Borrower pursuant to the provisions herein. The duration of each such Interest
Period shall be 30, 60 or 90 days, as the Borrower may select; provided,
however, that:
(i) Interest Periods commencing on the same date for the same
Type of RLC Advances shall be of the same duration;
(ii) Whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding
Business Day, provided that if such extension would cause the last day
of such Interest Period to occur in the next following calendar month,
the last day of such Interest Period shall occur on the next preceding
Business Day;
(iii) No Interest Period with respect to any RLC Advance shall
extend beyond the RLC Maturity Date; and
(iv) No Interest Period with respect to any LIBOR Rate Term
Loan shall extend beyond the Term Maturity Date.
"Lender": See the Preamble.
"Letter of Credit" mean any letter of credit issued at the request of
Borrower pursuant to Section 3.7.
"LIBOR Base Rate" means, for the Interest Period for each LIBOR Rate
RLC Advance or LIBOR Rate Term Loan, an interest rate per annum equal to the
rate of interest per annum obtained by dividing (i) the rate of interest
determined by Lender, based on Telerate System reports or such
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other source selected by Lender, to be the "London Interbank Offered Rate" at
which deposits in U.S. dollars for a period equal to such Interest Period are
offered by major banks in London, England, two (2) Business Days before the
first day of such Interest Period by (ii) a percentage equal to one hundred
percent (100%) minus the Eurodollar Reserve Percentage.
"LIBOR Rate" means:
(a) As to a LIBOR Rate RLC Advance, an interest rate per annum
equal to three-quarters percent (0.75%) in excess of the LIBOR Base
Rate, rounded upward, if necessary, to the nearest 1/16 of 1%, or
(b) As to a LIBOR Rate Term Loan, an interest rate per annum
equal to 90/100 percent (0.90%) in excess of the LIBOR Base Rate,
rounded upward, if necessary, to the 1/16 of 1%.
"LIBOR Rate Advance" means either a LIBOR Rate RLC Advance or a LIBOR
Rate Term Loan.
"LIBOR Rate RLC Advance" means an RLC Advance that bears interest at
the applicable LIBOR Rate.
"LIBOR Rate Term Loan" means the Term Loan bearing interest at the
applicable LIBOR Rate.
"Loans" means the RLC and the Term Loan.
"Material Amount" means $1,000,000.00 for purposes of Section 7.5.
"Maximum Letter of Credit Balance" means $1,250,000.00.
"Net Fixed Assets" means the consolidated net book value of all fixed
assets of Borrower determined in accordance with GAAP.
"1994 Agreement": See Section 1.4.
"Notes" means the RLC Note and the Tenn Note.
"Notice of RLC Advance": See Section 3.3(b).
"Organizational Documents" means Borrower's Articles of Incorporation
and Bylaws.
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"Prime Rate" means the interest rate per annum equal to the fluctuating
rate of interest announced publicly by Lender from time to time as its "prime
rate".
"Quarterly End Date" means the last day of March, June, September and
December.
"Regulatory Change" means any change effective after the date of this
Agreement in United States federal, state, or foreign law or regulations or the
adoption or making after such date of any interpretation, directive, or request
applying to a class of banks including Lender, of or under any United States
federal, state, or foreign law or regulations (whether or not having the force
of law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"RLC": See Section 1.1.
"RLC Advance" means an advance by Lender to the Borrower under the RLC
pursuant to Section 3 and includes a Variable Rate RLC Advance, a LIBOR Rate RLC
Advance and a CD Rate RLC Advance (each of which shall be a "Type" of RLC
Advance).
"RLC Commitment Amount" means $15,000,000.00.
"RLC Expiration Date" means the earlier of the RLC Maturity Date or the
Term Conversion Date.
"RLC Maturity Date" means , 1997 [12 months] .
-----------------------
"RLC Note" means that Revolving Promissory Note of even date herewith
in the face amount equal to the RLC Commitment Amount from Borrower, evidencing
the RLC.
"RLC Payment Date" means the first day of each month.
"RLC Unused Fee" means one-eighth of one percent (1/8%).
"TCM Rate" means an interest rate per annum equal to one and
one-quarter percent (1.25%) in excess of the yield in percent per annum as shown
for three (3) year Treasury constant maturities, on the most recent Federal
Reserve statistical release H.15(519) available to Lender two (2) Business Days
before the Term Conversion Date.
"TCM Rate Election": See Section 3A.3.
"Term Conversion Date" means that date on which Lender shall have made
the Term Loan to the Borrower.
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"Term Loan" means the single advance term loan made available by Lender
to Borrower pursuant to Article 3A.
"Tenn Maturity Date" means that date that is three (3) years after the
Term Conversion Date.
"Term Note" means that Promissory Note dated the Term Conversion Date
in the face amount of the Term Loan from Borrower, evidencing the Term Loan,
substantially in the form attached hereto as Exhibit "C".
"Type": See the definition of RLC Advance.
"Variable Rate" means an interest rate per annum equal to the Prime
Rate, adjusted periodically on the effective date of, and in conformity with,
changes in that Prime Rate.
"Variable Rate RLC Advance" means an RLC Advance that bears interest at
the Variable Rate.
Section 2.2 Terms Generally. The definitions in Section 2.1 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. All references herein to Articles, Sections, Exhibits
and Schedules shall be deemed references to Articles and Sections of, and
Exhibits and Schedules to, this Agreement unless the context shall otherwise
require.
Section 2.3 Accounting Terms. Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP, as in effect from time to time, consistently applied;
provided, however, that, for purposes of determining compliance with any
covenant set forth herein, such terms shall be construed in accordance with GAAP
as in effect on the date of this Agreement applied on a basis consistent with
the application used in preparing the Borrower's consolidated audited financial
statements referred to herein.
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ARTICLE III
RLC
---
Section 3.1 RLC Commitment Amount. Subject to the conditions set forth
herein, Lender, from time to time, shall make such RLC Advances as Borrower may
request and shall issue such Letters of Credit as Borrower shall request,
provided that (a) the aggregate amount of RLC Advances and the face amount of
Letters of Credit, at any one time outstanding in either case, shall not exceed
the lesser of (i) the Borrowing Base, or (ii) the RLC Commitment Amount, and (b)
the aggregate amount of the face amount of Letters of Credit outstanding at any
one time shall not exceed the Maximum Letter of Credit Balance. The RLC shall be
a revolving credit, against which RLC Advances may be made to Borrower, repaid
by Borrower, and readvances made to Borrower and Letters of Credit issued,
terminated or repaid by Borrower and reissued, provided that (i) Borrower is not
in default under any provision of this Agreement or under the RLC Note, (ii) no
RLC Advance shall be made or Letter of Credit issued that would cause the
outstanding principal balance of the RLC to exceed the lesser of the Borrowing
Base or the RLC Commitment Amount, (iii) no Letter of Credit shall be issued
that would cause the aggregate amount of the face amount of Letters of Credit
outstanding at any one time to exceed the Maximum Letter of Credit Balance, and
(iv) no RLC Advance shall be made on or after the RLC Expiration Date.
Section 3.2 RLC Note. The RLC shall be evidenced by the RLC Note in the
form approved by Lender, payable to the order of Lender upon the terms and
conditions therein contained, and executed and delivered simultaneously with the
execution of this Agreement.
Section 3.3 RLC Advances.
(a) Lender may from time to time make RLC Advances of the RLC
in such sums as Borrower shall request. No such RLC Advance shall be
less than the Advance Minimum Amount.
(b) The Borrower shall give Lender written notice, or
telephonic notice confirmed immediately in writing, of the request for
any RLC Advances under this Agreement, which notice (the "Notice of RLC
Advance") shall be received by Lender not later than 11:00 A.M.
(Phoenix, Arizona local time) on the same Business Day in the case of a
Variable Rate RLC Advance, and in the case of a Fixed Rate RLC Advance
not later than 2:00 P.M. (Phoenix, Arizona local time) on the second
Business Day before the date of the proposed RLC Advance. Each such
Notice of RLC Advance shall specify: (i) the date of the proposed RLC
Advance, (ii) the amount of such RLC Advance, (iii) the Type of RLC
Advance, and (iv) in the case of a Fixed Rate RLC Advance, the Interest
Period. Each Notice of RLC Advance shall be irrevocable and binding on
the Borrower. Anything herein to the contrary
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notwithstanding, no Fixed Rate RLC Advance shall be less than the Fixed
Rate Minimum Amount.
(c) In the case of any RLC Advance which the related Notice of
RLC Advance specifies is to be a Fixed Rate RLC Advance, the Borrower
shall indemnify Lender on demand for, from, and against any loss, or
expense incurred by Lender as a result of any failure by Borrower to
fulfill on or before the date specified in such Notice of RLC Advance
for such RLC Advance the applicable conditions set forth in Section
5.2, including, without limitation, any loss, costs, and expenses
incurred by Lender by reason of liquidation or reemployment of deposits
or other funds acquired by Lender to fund the Fixed Rate RLC Advance to
be made by Lender when such Fixed Rate RLC Advance, as a result of such
failure, is not made on such date.
Section 3.4 Conversion of RLC Advances.
(a) The Borrower may, upon written notice to and received by
the Lender (i) not later than 2:00 P.M. (Phoenix, Arizona local time)
on the second Business Day before the requested Conversion, in the case
of any Conversion of a Variable Rate RLC Advance into a Fixed Rate RLC
Advance, or a Fixed Rate RLC Advance of one Type into a Fixed Rate RLC
Advance of another Type, and (ii) not later than 11:00 A.M. (Phoenix,
Arizona local time) on the same Business Day as the Conversion, in the
case of any Conversion of a Fixed Rate RLC Advance into a Variable Rate
RLC Advance, subject to the provisions of this Section 3.4, Convert any
RLC Advances of one Type into RLC Advances of another Type. Each such
notice of a Conversion shall be irrevocable and binding on the
Borrower. Each such notice of a Conversion shall, within the
restrictions specified above, specify (w) the date of such Conversion,
(x) the RLC Advances to be Converted, (y) the Type of RLC Advances into
which the RLC Advances are to be Converted, and (z) if such Conversion
is into Fixed Rate RLC Advances, the duration of the Interest Period
for each such RLC Advance.
(b) If the Borrower should fail to give the Lender any notice
of Conversion upon the termination of the Interest Period for a Fixed
Rate RLC Advance, such RLC Advance, upon the termination of the
Interest Period, shall automatically become a Variable Rate RLC
Advance.
Section 3.5 RLC Unused Fee. Borrower agrees to pay to Lender an unused
fee equal to the RLC Unused Fee times the average daily undrawn balance of the
RLC, within three (3) days after Lender gives Borrower a notice showing the
amount due with respect to the prior three-month period, the first such payment
to be due on 1996, and thereafter on each Quarterly End Date.
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Section 3.6 RLC Payments.
(a) Interest on the RLC shall accrue on the unpaid principal
of each RLC Advance:
(i) At the Variable Rate if it is a Variable Rate RLC
Advance.
(ii) At the applicable LIBOR Rate if it is a LIBOR
Rate RLC Advance.
(iii) At the applicable CD Rate if it is a CD Rate
RLC Advance.
(b) All accrued interest shall be due and payable on the RLC
Payment Date.
(c) The entire outstanding principal balance of the RLC Note,
all accrued and unpaid interest and all other sums which may have
become payable thereunder shall be due and payable in full on the RLC
Maturity Date.
Section 3.7 Issuance of Letter of Credit. Provided that the Borrower
has satisfied the conditions precedent contained in Section 3.8 hereof, the
Lender agrees, from time to time, to issue and/or renew Letters of Credit on
behalf of the Borrower so long as upon such issuance or renewal (i) a fee is
paid by Borrower to Under in an amount equal to Lender's current stated rate for
the issuance of all other types of Letters of Credit and for other Letter of
Credit services, (ii) in accordance with the terms and conditions of Section 3.1
hereof, the outstanding principal balance of the RLC would not exceed the lesser
of (i) the Borrowing Base, or (ii) the RLC Commitment Amount, and (iii) the
aggregate amount of the face amount of Letters of Credit outstanding at such
time would not exceed the Maximum Letter of Credit Balance.
Section 3.8 Conditions Precedent to the Issuance of Letters of Credit.
The obligation of the Lender to issue and/or renew any Letters of Credit on
behalf of the Borrower shall be subject to the following conditions precedent on
the date of issuance or renewal of each such Letter of Credit:
(a) The Borrower shall execute and deliver to Lender an
application for letter of credit, specifying the amount of the
requested letter of credit, the requested term thereof, which term may
not exceed the RLC Maturity Date, and the beneficiary thereof;
(b) No Event of Default shall exist and no event or condition
shall exist that after notice or lapse of time, or both would
constitute an Event of Default; and
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(c) The RLC Expiration Date shall not have occurred.
Section 3.9 Drawing of a Letter of Credit. Should any Letter of Credit
be drawn upon by the beneficiary thereof, such draw shall be deemed to be a
Variable Rate RLC Advance.
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ARTICLE 3A
TERM LOAN
---------
Section 3A.1 Term Loan Commitment. Subject to the terms and conditions
herein set forth, Lender agrees to make a Term Loan to the Borrower on or before
the RLC Maturity Date, in such amount as the Borrower shall request, up to but
not to exceed the RLC Commitment Amount; provided, however, that the Borrower
shall have satisfied the following conditions precedent:
(a) Borrower shall have given the Lender written notice of its
request at least thirty (30) days prior to the RLC Maturity Date;
(b) Borrower shall have paid to Lender prior to the Term
Conversion Date a fee equal to one quarter percent (0.25 %) of the
amount of the Term Loan; and
(c) Borrower shall not be in default under any provision of
this Agreement.
Section 3A.2 Term Note. The Term Loan shall be evidenced by the Term
Note, executed by Borrower and delivered to Lender on or before the Loan
Conversion Date.
Section 3A.3 TCM Rate Election.
(a) The Borrower may elect that the Term Loan bear interest at
the TCM Rate by giving Lender written notice of such election (the "TCM
Rate Election") at least two Business Days before the Term Conversion
Date. Should Borrower deliver to Lender its TCM Rate Election, interest
shall accrue on the Tenn Loan throughout its term at the TCM Rate.
(b) Should Borrower not deliver to Lender its TCM Rate
Election pursuant to subparagraph (a) of this Section 3A.3, interest
shall accrue on the entire Term Loan at the applicable LIBOR Rate for
the Interest Period selected by the Borrower from time to time. In the
event that the Borrower fails to select a new Interest Period for the
Term Loan prior to the termination of an existing Interest Period, the
Term Loan shall bear interest at the LIBOR Rate with a 30 day Interest
Period.
Section 3A.4 Term Loan Payments.
(a) In the event that interest accrues on the Term Loan at the
TCM Rate, interest and principal shall be due in thirty-six (36) equal
monthly payments, payable
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on the first day of each month, commencing on the first day of the
second month after the Term Conversion Date.
(b) In the event that interest accrues on the Term Loan at the
applicable LIBOR Rate, principal in an amount sufficient to fully
amortize the amount of the Term Loan over thirty-six (36) equal monthly
payments, together with accrued interest, shall be due and payable on
the first day of each month, commencing on the first day of the second
month after the Term Conversion Date.
(c) The entire unpaid principal balance, all accrued interest
and unpaid interest, and all other sums which may have become payable
hereunder shall be due and payable on the Term Maturity Date.
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ARTICLE IV
FIXED RATE PROVISIONS
---------------------
Section 4.1 Additional Provisions for Fixed Rate Advances.
(a) Unavailability of Deposits or Inability to Ascertain the
Rates. Notwithstanding any other provision of this Agreement, if prior
to the commencement of any Interest Period, Lender shall determine (i)
that United States dollar deposits in the amount of any LIBOR Rate
Advance to be outstanding during such Interest Period are not readily
available to Lender in the London interbank market, or (ii) by reason
of circumstances affecting the London interbank market, adequate and
reasonable means do not exist for ascertaining the LIBOR Base Rate,
then Lender shall promptly give notice thereof to the Borrower and the
obligation of Lender to create, or effect by conversion any LIBOR Rate
RLC Advance in such amount and for such Interest Period shall terminate
until United States dollar deposits in such amount and for the Interest
Period selected by the Borrower shall again be readily available in the
market and adequate and reasonable means exist for ascertaining the
LIBOR Base Rate.
(b) Increased Costs. (i) If, due to any Regulatory Change,
there shall be any increase in the cost to Lender of agreeing to make
or making, funding or maintaining Fixed Rate Advances (including,
without limitation, any increase in any applicable reserve
requirement), or of issuing or maintaining Letters of Credit, then the
Borrower shall from time to time, upon demand by Lender, pay to Lender
such amounts as Lender may reasonably determine to be necessary to
compensate Lender for any additional costs which it reasonably
determines are attributable to such Regulatory Change; (ii) if Lender
determines (in its reasonable discretion) that, as a result of any
Regulatory Change, the amount of capital required or expected to be
maintained by Lender is increased by or based upon the existence of
Lender's commitment to lend hereunder, then, upon demand by Lender, the
Borrower shall immediately pay to Lender such amounts as Lender may
reasonably determine to be necessary to compensate Lender for any
additional costs which it reasonably determines are attributable to the
maintenance by Lender of capital in respect of Lender's commitment to
lend hereunder; and (iii) Lender will notify the Borrower of any
Regulatory Change that will entitle Lender to compensation pursuant to
this Section 3.7(b) as promptly as practicable, but in any event within
90 days after Lender obtains knowledge thereof; provided, however, that
if Lender fails to give such notice within 90 days after it obtains
knowledge of such a Regulatory Change, Lender shall, with respect to
compensation payable in respect of any costs resulting from such
Regulatory Change, only be entitled to payment for costs incurred from
and after the date that Lender has given such notice. Lender will
furnish to Borrower
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a certificate setting forth in reasonable detail the basis for the
amount of each request by Lender for compensation. Determinations by
Lender of the amounts required to compensate Lender shall be made on a
reasonable basis. Lender shall be entitled to compensation in
connection with any Regulatory Change only for costs actually incurred
by such Lender. Upon receipt of notice of any such Regulatory Change
from Lender, Borrower shall have the option to prepay or Convert any
Fixed Rate Advances adversely affected by any Regulatory Change within
seven (7) days of receipt of such notice, without the obligation to pay
to Lender with respect to such prepayment or Conversion any amount or
amounts otherwise payable to Lender by Borrower pursuant to Section 4.
1 (e).
(c) Illegality. Notwithstanding any other provision of this
Agreement, if Lender shall notify the Borrower that as a result of a
Regulatory Change it is unlawful for Lender to perform its obligations
hereunder to make LIBOR Rate Advances or to fund or maintain LIBOR Rate
Advances hereunder (i) the obligation of Lender to make, or to Convert
RLC Advances into, LIBOR Rate Advances shall be suspended until Lender
shall notify Borrower that the circumstances causing such suspension no
longer exist and (ii) in the event such Regulatory Change makes the
maintenance of LIBOR Rate Advances hereunder unlawful, the Borrower
shall forthwith prepay in full all LIBOR Rate Advances then
outstanding, together with interest accrued thereon and all amounts in
connection with such prepayments specified in Section 4.1(e), unless
the Borrower, within five (5) Business Days of notice from Lender,
Converts all LIBOR Rate RLC Advances then outstanding into Variable
Rate RLC Advances in accordance with Section 3.4 with no obligation to
pay any amount described in Section 4.1 (e) in connection with such
prepayments.
(d) Discretion of Lender as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, Lender
shall be entitled to fund and maintain its funding of all or any part
of any Fixed Rate Advance in any manner it sees fit; provided, however,
that for the purposes of this Agreement, all determinations hereunder
shall be made as if Lender had actually funded and maintained each
Fixed Rate Advance during the Interest Period therefor through the
purchase of deposits having a maturity corresponding to the last day of
the Interest Period and bearing an interest rate equal to the
applicable Rate for such Interest Period.
(e) Non-availability of LIBOR Rate Advances. In the event that
Borrower shall have elected that the Tenn Loan accrue interest at the
LIBOR Rate and pursuant to this Section 4.1 LIBOR Rate Term Loans are
not available, the Term Loan shall accrue interest at a comparable rate
as shall be agreed to by Borrower in writing and as shall be acceptable
to Lender.
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Section 4.2 TCM Rate Prepayment. Should the Term Loan bear interest at
the TCM Rate, all prepayments of the Term Loan shall be made with a prepayment
premium computed as follows: 1 % of the outstanding principal balance if the
outstanding principal balance is less than $50,000.00, and if the outstanding
principal balance is equal to or more than $50,000.00, an amount equal to the
present value of the remaining cash flows discounted at the Treasury Constant
Yield (TCY) + 100 basis points] - outstanding principal. The TCY is calculated
as the interpolated constant maturity Treasury rate with a maturity matching the
remaining average term of the Term Note to the Term Maturity Date. Rate data is
obtained, at the time of prepayment, from the most recent Federal Reserve
statistical release H.15 (519), using data from the most recent week ending
column.
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ARTICLE V
CONDITIONS PRECEDENT
--------------------
Section 5.1 Conditions Precedent. The obligation of Lender to fund the
Loan is subject to the fulfillment of the following conditions:
(a) Borrower shall have executed (or obtained the execution or
issuing of) and delivered to Lender the following documents or
information, all in form satisfactory to Lender:
(i) The RLC Note;
(ii) A corporate resolution of Borrower authorizing
(i) the Loans, and (ii) the execution and delivery by Borrower
of all documents to be executed by Borrower, and the
performance by Borrower of all acts and things to be performed
by Borrower, pursuant to this Agreement; and
(iii) A copy of the current Organizational Documents,
so certified by the Secretary of the corporation, together
with a copy of a current Certificate of Good Standing in the
State of incorporation for Borrower; and such other documents
as Lender may require relating to the existence and good
standing of Borrower and the authority of any person acting or
executing documents on behalf of Borrower.
(b) All representations and warranties by Borrower contained
in this Agreement shall remain true and correct and the Borrower has
performed or complied with all agreements of Borrower made in this
Agreement that Borrower is to have performed or complied with by the
date of the first Advance.
(c) No Event of Default shall exist and no event or condition
shall exist that after notice or lapse of time, or both would
constitute an Event of Default.
(d) Should Lender so require, Lender shall have received an
opinion of Counsel to Borrower in a form satisfactory to it.
(e) All amounts under the 1994 Agreement due and payable to
Lender shall have been paid.
-17-
<PAGE>
Section 5.2 Conditions Precedent to All Future Advances. The obligation
of the Lender to make any Advances to the Borrower following the initial Advance
under Section 5.1 hereof shall be subject to the condition precedent that on the
date of each such Advance no Event of Default shall exist and no event or
condition shall exist that after notice of lapse of time or both, would
constitute an Event of Default.
-18-
<PAGE>
ARTICLE VI
GENERAL REPRESENTATIONS AND WARRANTIES
--------------------------------------
Each Borrower hereby represents and warrants to Lender as follows:
Section 6.1 Recitals. The recitals and statements of intent appearing
in this Agreement are true and correct.
Section 6.2 Organization. Borrower is duly organized, validly existing
and in good standing under the laws of the state of its organization. Borrower
is qualified to do business and is in good standing in the State of Arizona and
in each state in which it is required by law to do so.
Section 6.3 Power. Borrower has full power and authority to own its
properties and assets and to carry on its business as presently being conducted.
Section 6.4 Enforceable. Borrower is fully authorized and permitted to
enter into this Agreement, to execute any and all documentation required herein,
to borrow the amounts contemplated herein upon the terms set forth herein and to
perform the terms of this Agreement, none of which conflicts with any provision
of law or regulation applicable to Borrower. This Agreement and the RLC Note are
valid and binding legal obligations of Borrower, and each is enforceable in
accordance with its terms.
Section 6.5 No Conflict. The execution, delivery and performance by
Borrower of this Agreement, the Notes and all other documents and instruments
relating to the Loans are not in conflict with any provision by law applicable
to Borrower or with the Organizational Documents of Borrower and will not result
in any breach of the terms or conditions or constitute a default under any
agreement or instrument under which Borrower is a party or is obligated.
Borrower is not in default in the performance or observance of any obligations,
covenants or conditions of any such agreement or instrument.
Section 6.6 No Actions. There are no actions, suits or proceedings
pending or threatened against Borrower which materially affect the repayment of
the Loans, the performance by Borrower under this Agreement or the financial
condition, business or operations of Borrower.
Section 6.7 Financial Statements. All financial statements and profit
and loss statements, all statements as to ownership and all other statements or
reports previously or hereafter given to Lender by Borrower are and shall be
true and correct as of the date thereof. There has been no material adverse
change in the business, properties or condition (financial or otherwise) of
Borrower since the date of the latest financial statements given to Lender.
-19-
<PAGE>
Section 6.8 Tax Payments. Borrower has filed all federal, state and
local tax returns by the due date as extended and has paid all federal, state
and local taxes shown due thereon by such extended due date and all other
payments required under federal, state or local law.
Section 6.9 Margin Stock. No part of the proceeds of any financial
accommodation made by Lender in connection with this Agreement will be used to
purchase or carry "margin stock, " as that term is defined in Regulation U of
the Board of Governors of the Federal Reserve System, or to extend credit to
others for the purpose of purchasing or carrying such margin stock.
Section 6.10 Affirmation. Each request by Borrower for an Advance
hereunder shall constitute an affirmation on the part of the Borrower that the
representations and warranties of Section 6.7 are true and correct with respect
to any financial statements submitted by Borrower to Lender between the date of
this Agreement and the date of such request, that the representations and
warranties of Sections 6.1, 6.5, 6.6, 6.7 and 6.8 hereof are true and correct as
of the time of such request and that the condition precedents set forth in
Article 5 hereof are fully satisfied. All representations and warranties made
herein shall survive the execution of this Agreement, any and all Advances or
proceeds of the Loans and the execution and delivery of all other documents and
instruments in connection with the Loans, so long as Lender has any commitment
to lend to Borrower hereunder and until the Loans and all indebtedness hereunder
have been paid in full and all of Borrower's obligations hereunder have been
fully discharged.
Section 6.11 Solvency. Borrower (both before and after giving effect to
the transactions contemplated hereby) is solvent, has assets having a fair value
in excess of the amount required to pay its probable liabilities on its existing
debts as they become absolute and matured, and has, and will have, access to
adequate capital for the conduct of its business and the ability to pay its
debts from time to time incurred in connection therewith as such debts mature.
-20-
<PAGE>
ARTICLE VII
AFFIRMATIVE COVENANTS
---------------------
Each Borrower hereby covenants and agrees that so long as Lender has
any commitment to lend to Borrower hereunder and until the Loans and all other
indebtedness hereunder have been paid in full and all of Borrower's obligations
hereunder have been fully discharged:
Section 7.1 Existence. Borrower shall maintain its existence with no
material amendments or changes in its Organizational Documents without the prior
written approval of the Lender.
Section 7.2 Maintain Property. Borrower shall maintain in full force
and effect all agreements, rights, trademarks, patents and licenses necessary to
carry out its business, shall keep all of its properties in good condition and
repair, and shall make all needed and proper repairs and improvements to its
properties in order to properly conduct its business.
Section 7.3 Insurance. To the extent Borrower is not self-insured,
Borrower shall maintain in full force and effect at all times insurance
coverages in scope and amount not less than, and not less extensive than, the
scope and amount of insurance coverages customary for companies of comparable
size and financial strength in the trades or businesses in which Borrower is
from time to time engaged. All of the aforesaid insurance coverages shall be
issued by insurers acceptable to Lender. Copies of all policies of, or
certificates of, insurance evidencing such coverages in effect from time to time
shall be delivered to Lender prior to the initial advance of funds under this
Agreement and promptly upon issuance of new policies thereafter. From time to
time, promptly upon Lender's request, Borrower shall provide evidence
satisfactory to Lender that required coverage in required amounts is in effect.
Borrower shall deliver to Lender certificates of, and copies of the originals
of, all such policies of insurance in effect from time to time, to be retained
by Lender so long as Lender shall have any commitment to lend to Borrower and/or
any portion of the Loans shall be outstanding or unsatisfied.
Section 7.4 Payments. Borrower shall make all payments of interest and
principal on the Loans as and when the same become due and payable and shall
keep and comply with all covenants, terms and provisions of the Notes.
Section 7.5 Financial Reports. Borrower shall maintain a standard
system of accounting in accordance with good business practices, that reflects
the application of GAAP and Borrower shall furnish to Lender the following:
(a) Within thirty (30) days after the end of each monthly
period (or comparable fiscal accounting period of Borrower), monthly
and year-to-date financial and operating statements for Borrower as of
the end of the preceding month and profit and loss statements covering
that period, certified by Borrower to be a true
-21-
<PAGE>
and accurate representation of its operations and financial condition
during that period and at its end.
(b) Not later than thirty-one (31) days after the end of each
fiscal year, a copy of Borrower's monthly financial projections
relating to its business operations for the new fiscal year and annual
financial projections relating to the Borrower's business operations
for the new fiscal year, certified by Borrower to be representative of
its projected operation and projected financial condition during the
period covered.
(c) Within ninety (90) days after the end of each fiscal year
of Borrower, financial statements which accurately and completely
reflect Borrower's assets, liabilities and net worth, as of the end of
the fiscal year, together with profit and loss statements for the
fiscal year, all prepared in accordance with GAAP together with an
opinion thereon (which shall not be limited by reason of any limitation
imposed by Borrower) of independent certified public accountants of
national standing selected by Borrower and acceptable to Lender to the
effect that such financial statements have been prepared in accordance
with GAAP and that their examination of such accounts in connection
with such financial statements has been made in accordance with
generally accepted auditing standards and, accordingly, included such
tests of the accounting records and such other auditing procedures as
were considered necessary under the circumstances.
(d) With each statement submitted by Borrower under
subparagraphs (a) and (c) above, a certificate signed by an Authorized
Officer, in the form of Exhibit "A" attached hereto, stating that no
Event of Default exists and no event has occurred and no condition
exists that, after notice or passage of time, or both, would constitute
an Event of Default.
(e) A statement of litigation matters involving Borrower that
could cause any materially adverse effect upon the operations of the
Borrower or in which the amount in controversy or exposure to the
Borrower is in excess of a Material Amount, such statement to be
furnished within fifteen (15) days after date of service of such
litigation or the occurrence of any such change.
(f) Within thirty (30) days of each fiscal quarter of
Borrower, a certificate signed by an Authorized Officer in the form of
Exhibit "B" attached hereto (the "Compliance Certificate").
(g) Such other information as Lender may reasonably request.
Section 7.6 Records. Borrower shall maintain, in a safe place, proper
and accurate books, ledgers, correspondence and other records relating to its
operations and business affairs. Lender
-22-
<PAGE>
shall have the right from time to time to examine and audit and to make
abstracts from and photocopies of Borrower's books, ledgers, correspondence and
other records.
Section 7.7 Current Obligations. Except for tax protests made in good
faith and, the posting, if required, of any and all bonds therewith, Borrower
shall pay all of its current obligations before they become delinquent,
including all federal, state and local taxes, assessments, levies and
governmental charges and all other payments required under any federal, state or
local law.
Section 7.8 Other Documents. Borrower shall execute and deliver to
Lender such other instruments and documents and do such other acts as Lender may
reasonably require in connection with the Loans.
-23-
<PAGE>
ARTICLE VIII
NEGATIVE COVENANTS
------------------
Each Borrower covenants and agrees that so long as Lender has any
commitment to lend to Borrower hereunder and until the Loans and all other
indebtedness hereunder have been paid in full and all of the Borrower's
obligations hereunder have been fully discharged, Borrower shall not without
receiving the prior written consent of Lender:
Section 8.1 Dissolution. Dissolve, liquidate, or merge or consolidate
with or into any corporation or entity, or turn over the management or operation
of its property, assets or businesses to any other person, firm or corporation,
or make any material change in its ownership, management structure or management
personnel.
Section 8.2 Fiscal Year. Change the times of commencement or
termination of its fiscal year or other accounting periods; or change its
methods of accounting other than to conform to GAAP.
Section 8.3 Margin Stock. Use any proceeds of the Loans, or any
proceeds of any other or future financial accommodation from Lender to Borrower,
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any "margin stock" as that term is defined
in Regulation U of the Board of Governors of the Federal Reserve System, and
will not use such proceeds in a manner that would involve Borrower in a
violation of Regulation T, U or X of such Board, nor use such proceeds for any
purpose not permitted by Section 7 of the Securities Exchange Act of 1934, as
amended, or any of the rules or regulations respecting the extensions of credit
promulgated thereunder.
Section 8.4 Debt/Worth. Permit the ratio of Borrower's total
liabilities to its net worth at the end of any fiscal quarter of Borrower to
exceed 1.0 to 1.
Section 8.5 TFCC. Permit (i) the sum of Borrower's net profit,
depreciation expense, amortization expense, deferred income tax expense,
interest expense and rent expense, (ii) divided by the sum of Borrower's prior
period current portion of long-term debt, interest expense and rent expense (the
latter two adjusted for taxes) to be less than 3.0.
Section 8.6 Debt/Cash Flow. Permit (i) the sum of Borrower's long-term
debt, including the current portion thereof, and the outstanding balance of the
RLC, (ii) divided by Borrower's net profit, depreciation expense and
amortization expense for the most recent four quarters to be more than 3.0.
-24-
<PAGE>
Section 8.7 Current Ratio. Permit the ratio of Borrower's current
assets to its current liabilities, excluding the outstanding balance of the RLC
at the end of any fiscal quarter of Borrower to be less than 1.00 to 1.
-25-
<PAGE>
ARTICLE IX
DEFAULT AND REMEDIES
--------------------
Section 9.1 Event of Default. The occurrence of any of the following
events or conditions shall constitute an "Event of Default" under this
Agreement:
(a) Failure to pay any installment of principal or interest
under the Notes as and when the same become due and payable, or the
failure to pay any other sum due under the Notes or this Agreement when
the same shall become due and payable;
(b) Any failure or neglect to perform or observe any of the
terms, provisions, or covenants of this Agreement (other than a failure
or neglect described in one or more of the other provisions of this
Section 9. 1);
(c) Any warranty, representation or statement contained in
this Agreement, or made or furnished to the Lender by or on behalf of
the Borrower, that shall be or shall prove to have been false when made
or furnished;
(d) The filing by Borrower (or against Borrower in which
Borrower acquiesces or which is not dismissed within forty-five (45)
days of the filing thereof) of any proceeding under the federal
bankruptcy laws now or hereafter existing or any other similar statute
now or hereafter in effect; the entry of an order for relief under such
laws with respect to Borrower; or the appointment of a receiver,
trustee, custodian or conservator of all or any part of the assets of
Borrower;
(e) The insolvency of Borrower; or the execution by Borrower
of an assignment for the benefit of creditors; or the convening by
Borrower of a meeting of its creditors, or any class thereof, for
purposes of effecting a moratorium upon or extension or composition of
its debts; or the failure of Borrower to pay its debts as they mature;
or if Borrower is generally not paying its debts as they mature;
(f) The admission in writing by Borrower that it is unable to
pay its debts as they mature or that it is generally not paying its
debts as they mature;
(g) The liquidation, termination or dissolution of Borrower;
(h) The occurrence of any default under the Notes or any
document or instrument given by Borrower in connection with any other
indebtedness of Borrower to Lender and the expiration of any grace
period provided therein;
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<PAGE>
(i) The failure of Borrower to comply with any Financial
Covenant at the end of any fiscal quarter; or
(j) The occurrence of any adverse change in the financial
condition of Borrower that Lender, in its reasonable discretion, deems
material, or if Lender in good faith shall believe that the prospect of
payment or performance of the Loan is impaired.
Section 9.2 Remedies and Cure Period. Upon the occurrence of any Event
of Default and at any time thereafter while such Event of Default is continuing,
subject to the provisions of subparagraphs (b) and (c) hereof, Lender may do one
or more of the following:
(a) Cease making Advances or extensions of financial
accommodations in any form to or for the benefit of Borrower and
declare the entire Loans immediately due and payable, without notice or
demand;
(b) Proceed to protect and enforce its rights and remedies
under this Agreement and the Notes; and
(c) Avail itself of any other relief to which Lender may be
legally or equitably entitled.
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<PAGE>
ARTICLE X
ACTION UPON AGREEMENT
---------------------
Section 10.1 Third Party. This Agreement is made for the sole
protection and benefit of the parties hereto, their successors and assigns, and
no other person or organization shall have any right of action hereon. No
representation of any kind is made to third parties by the execution hereof, by
the existence or form of the indebtedness treated herein, or by any performance,
or failure or waiver thereof, by any party of the terms hereof. Specifically,
without limitation of the foregoing, the Lender makes no representation to any
third party as to the solvency of the Borrower or of the commercial
practicability of any business enterprise to which or for which the Loans are
made.
Section 10.2 Entire Agreement. This Agreement embodies the entire
Agreement of the parties with regard to the subject matter hereof. There are no
representations, promises, warranties, understandings or agreements express or
implied, oral or otherwise, in relation thereto, except those expressly referred
to or set forth herein. Borrower acknowledges that the execution and the
delivery of this Agreement is its free and voluntary act and deed, and that said
execution and delivery have not been induced by, nor done in reliance upon, any
representations, promises, warranties, understandings or agreements made by
Lender, its agents, officers, employees or representatives.
Section 10.3 Writing Required. No promise, representation, warranty or
agreement made subsequent to the execution and delivery hereof by either party
hereto, and no revocation, partial or otherwise, or change, amendment, addition,
alteration or modification of this Agreement shall be valid unless the same
shall be in writing signed by all parties hereto.
Section 10.4 No Partnership. Lender and Borrower each have separate and
independent rights and obligations under this Agreement. Nothing contained
herein shall be construed as creating, forming or, constituting any partnership,
joint venture, merger or consolidation of Borrower and Lender for any purpose or
in any respect.
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<PAGE>
ARTICLE XI
GENERAL
-------
Section 11.1 Survival. This Agreement shall survive the making of the
Loans and shall continue so long as any part of the Loans, or any extension or
renewal thereof, or any Letter of Credit remains outstanding.
Section 11.2 Context. This Agreement shall apply to the parties hereto
according to the context hereof, and without regard to the number or gender of
words or expressions used herein.
Section 11.3 Time. Time is expressly made of the essence of this
Agreement.
Section 11.4 Notices. All notices required or permitted to be given
hereunder shall be in writing, and shall become effective immediately if
personally delivered or effective twenty-four (24) hours after such are
deposited in the United States mail, certified or registered, postage prepaid,
addressed as shown above, or to such other address as such party may from time
to time designate in writing. Any notice sent to Borrower shall be sent to the
attention of its chief financial officer.
Section 11.5 Costs. Borrower shall pay all costs and expenses arising
from the preparation of this Agreement, the Notes, the closing of the Loans, the
making of Advances thereunder, and the enforcement of Lender's rights hereunder,
including but not limited to, accounting fees, appraisal fees, attorneys' fees
and any charges that may be imposed on Lender as a result of this transaction.
At the option of Lender and upon written notice to Borrower, RLC Advances may be
made and disbursed from time to time by Lender directly in payment of such costs
and expenses.
Section 11.6 Law. This Agreement shall be construed according to the
laws of the State of Arizona.
Section 11.7 Successors. This Agreement shall, except as herein
otherwise provided, be binding upon and inure to the benefit of the successors
and assigns of the parties, hereto.
Section 11.8 Headings. The headings or captions of sections in this
Agreement are for convenience and reference only, and in no way define, limit or
describe the scope or intent of this Agreement or the provisions of such
sections.
Section 11.9 Arbitration.
(a) Binding Arbitration. Upon the demand of Borrower or Lender
(collectively, the "parties"), whether made before the institution of
any judicial proceeding or not more than 60 days after service of a
complaint, third party complaint, cross-claim or counterclaim or any
answer thereto or any amendment to
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<PAGE>
any of the above, any Dispute (as defined below) shall be resolved by
binding arbitration in accordance with the terms of this arbitration
clause. A "Dispute" shall include any action, dispute, claim, or
controversy of any kind, whether founded in contract, tort, statutory
or common law, equity, or otherwise, now existing or hereafter
occurring between the parties arising out of, pertaining to or in
connection with this Agreement or any related agreements, documents, or
instruments (the "Documents"). The parties understand that by this
Agreement they have decided that the Disputes may be submitted to
arbitration rather than being decided through litigation in court
before a judge or jury and that once decided by an arbitrator the
claims involved cannot be brought, filed or pursued in court.
(b) Governing Rules. Arbitrations conducted pursuant to this
Agreement, including selection of arbitrators, shall be administered by
the American Arbitration Association ("Administrator") pursuant to the
Commercial Arbitration rules of the Administrator. Arbitrations
conducted pursuant to the terms hereof shall be governed by the
provisions of the Federal Arbitration Act (Title 9 of the United States
Code), and to the extent the foregoing are inapplicable, unenforceable
or invalid, the laws of the State of Arizona. Judgment upon any award
rendered hereunder may be entered in any court having jurisdiction;
provided, however, that nothing contained herein shall be deemed to be
a waiver by any party that is a Lender of the protections afforded to
it under 12 U.S.C. ss. 91 or similar governing state law. Amy party who
fails to submit to binding arbitration following a lawful demand by the
opposing party shall bear all costs and expenses, including reasonable
attorney's fees, incurred by the opposing party in compelling
arbitration of any Dispute.
(c) No Waiver, Preservation of Remedies, Multiple Parties. No
provision of, nor the exercise of any rights under, this arbitration
clause shall limit the right of any party to (1) foreclose against any
real or personal property collateral or other security, (2) exercise
self-help remedies (including repossession and setoff rights) or (3)
obtain provisional or ancillary remedies such as injunctive relief,
sequestration, attachment, replevin, garnishment, or the appointment of
a receiver from a court having jurisdiction. Such rights can be
exercised at any time except to the extent such action is contrary to a
final award or decision in any arbitration proceeding. The institution
and maintenance of an action as described above shall not constitute a
waiver of the right of any party, including the plaintiff, to submit
the Dispute to arbitration, nor render inapplicable the compulsory
arbitration provisions hereof. Any claim or Dispute related to exercise
of any self-help, auxiliary or other exercise of rights under this
section (c) shall be a Dispute hereunder.
(d) Arbitrator Powers and Qualifications, Awards.
Arbitrator(s) shall resolve all Disputes in accordance with the
applicable substantive law. Arbitrator(s) may make an award of
attorneys' fees and expenses if permitted by law or the
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<PAGE>
agreement of the parties. All statutes of limitation applicable to any
Dispute shall apply to any proceeding in accordance with this
arbitration clause. Any arbitrator selected to act as the only
arbitrator in a Dispute shall be required to be a practicing attorney
with not less than 10 years practice in commercial law in the State of
Arizona. With respect to a Dispute in which the claims or amounts in
controversy do not exceed five hundred thousand dollars ($500,000), a
single arbitrator shall be chosen and shall resolve the Dispute. In
such case the arbitrator shall have authority to render an award up to
but not to exceed five hundred thousand dollars ($500,000) including
all damages of any kind whatsoever, costs, fees and expenses.
Submission to a single arbitrator shall be a waiver of all parties'
claims to recover more than five hundred thousand dollars ($500,000). A
Dispute involving claims or amounts in controversy exceeding five
hundred thousand dollars ($500,000) shall be decided by a majority vote
of a panel of three arbitrators ("Arbitration Panel"). An Arbitration
Panel shall be composed of one arbitrator who would be qualified to sit
as a single arbitrator in a Dispute decided by one arbitrator, one who
has at least ten years experience in commercial lending and one who has
at least ten years experience in the trucking industry. Arbitrator(s)
may, in the exercise of their discretion, at the written request of a
party in any Dispute, (1) consolidate in a single proceeding any
multiple party claims that are substantially identical and all claims
arising out of a single loan or series of loans including claims by or
against borrower(s) guarantors, sureties and or owners of collateral if
different from the Borrower, and (2) administer multiple arbitration
claims as class actions in accordance with Rule 23 of the Federal Rules
of Civil Procedure. The arbitrator(s) shall be empowered to resolve any
dispute regarding the terms of this Agreement or the arbitrability of
any Dispute or any claim that all or any part (including this
provision) is void or voidable but shall have no power to change or
alter the terms of this Agreement. The award of the arbitrator(s) shall
be in writing and shall specify the factual and legal basis for the
award.
(e) Miscellaneous. To the maximum extent practicable, the
Administrator, the Arbitrator(s) and the parties shall take any action
necessary to require that an arbitration proceeding hereunder be
concluded within 180 days of the filing of the Dispute with the
Administrator. The Arbitrator(s) shall be empowered to impose sanctions
for any party's failure to proceed within the times established herein.
Arbitration proceedings hereunder shall be conducted in Arizona at a
location determined by the Administrator. In any such proceeding a
party shall state as a counterclaim any claim which arises out of the
transaction or occurrence or is in any way related to the Documents
which does not require the presence of a third party which could not be
joined as a party in the proceeding. The provisions of this arbitration
clause shall survive any termination, amendment, or expiration of the
Documents and repayment in full of sums owed to Lender by Borrower
unless the parties otherwise expressly agree in writing. Each party
agrees to keep all Disputes
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<PAGE>
and arbitration proceedings strictly confidential, except for
disclosures of information required in the ordinary course of business
of the parties or as required by applicable law or regulation.
IN WITNESS WHEREOF, these presents have been executed as of the day and
year first set forth above.
FIRST INTERSTATE BANK OF ARIZONA,
N.A.
By
--------------------------------------
Its
--------------------------------
LENDER
KNIGHT TRANSPORTATION, INC., an
Arizona corporation
By
--------------------------------------
Name
------------------------------------
Its
-------------------------------------
QUAD K LEASING, INC., a______________
corporation
By
--------------------------------------
Name
------------------------------------
Its
-------------------------------------
BORROWER
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<PAGE>
Each party hereby acknowledges that it has read the Arbitration
provisions contained in Section 11.9 of this Agreement.
FIRST INTERSTATE BANK OF ARIZONA,
N.A.
By
--------------------------------------
Its
-----------------------------------
LENDER
KNIGHT TRANSPORTATION, INC., an
Arizona corporation
By
--------------------------------------
Name
------------------------------------
Its
-------------------------------------
QUAD K LEASING, INC., a
corporation
By
--------------------------------------
Name
------------------------------------
Its
-------------------------------------
BORROWER
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<PAGE>
EXHIBIT "A"
___________________
Mr.
Vice President
Commercial Banking Division
First Interstate Bank of Arizona, N.A.
P.O. Box 53456
Phoenix, Arizona 85072-3456
Dear Mr.
Enclosed are the required financial statements for the [month] [fiscal
year] ending _________________for Borrower as required under Section 7.5 of the
Loan Agreement dated ________________, 1996 (the "Agreement").
To the best of my knowledge in all material respects, no "Event of
Default, " as defined in the Agreement, exists and no event has occurred and no
condition exists that, after notice or passage of time, or both, would
constitute an Event of Default.
Very truly yours,
<PAGE>
EXHIBIT "B"
TO: FIRST INTERSTATE BANK OF ARIZONA, N.A.
Certificateof Borrower's Covenant Compliance with Section 7.5(f)
of the Loan Agreement dated _________________, 1996 between
Knight Transportation, Inc., an Arizona corporation and
Quad K Leasing, Inc., a ____________ corporation
and First Interstate Bank of Arizona, N.A.
Date__________________
The undersigned officer of Knight Transportation, Inc., an Arizona corporation,
and Quad K Leasing, Inc., a ______________ corporation, Borrower under said Loan
Agreement, hereby certifies that as of the date written above, the following
computations were true and correct:
<TABLE>
I. Section 8.4 - Debt/Worth
<S> <C> <C> <C>
Numerator: Total Liabilities A
divided by: -----
Denominator: Net Worth B
-----
equals A/B
=====
maximum 1.0x
=====
II. Section 8.5 - TFCC
Numerator: Long-term debt (with CPLTD)
-----
plus: RLC balance
-----
Equals A
-----
divided by:
Denominator: Net profit
-----
plus: depreciation
-----
plus: amortization
-----
= Cash Flow B
-----
A divided by B equals
=====
maximum 3.0x
=====
<PAGE>
III. Section 8.6 - Debt/Cash Flow
Numerator: Net Profit
-----
plus: Depreciation
-----
plus: Amortization
-----
plus: Interest Expense
-----
plus: Operating Lease Rent Expense
-----
plus: Deferred Income Tax Expense
-----
EBITDA A
-----
divided by:
Denominator: CPLTD
-----
plus: Operating Leases Rent Expense
-----
plus: Interest Expense
-----
= Current Portion B
-----
A divided by B equals A/B
=====
minimum 3.0x
=====
IV. Section 8.7 - Current Ratio
Numerator: Cash
-----
plus: Accounts Receivable
-----
Equals A
-----
divided by:
<PAGE>
Denominator: Current liabilities
-----
excluding: any RLC Advances outstanding
-----
Equals B
-----
A divided by B equals A/B
=====
minimum 10x
=====
</TABLE>
KNIGHT TRANSPORTATION, INC., an
Arizona corporation
By
--------------------------------------
Name
------------------------------------
Its
-------------------------------------
QUAD K LEASING, INC., a ________________
corporation
By
--------------------------------------
Name
------------------------------------
Its
-------------------------------------
<PAGE>
EXHIBIT "C"
PROMISSORY NOTE
---------------
$___________________ Phoenix, Arizona
______________, 1996
FOR VALUE RECEIVED, the undersigned KNIGHT TRANSPORTATION, INC., an
Arizona corporation and QUAD K LEASING, INC., a _______________________
corporation (together, "Maker"), promises to pay to the order of FIRST
INTERSTATE BANK OF ARIZONA, N.A. (the "Payee"; Payee and each subsequent
transferee and/or owner of this Note, whether taking by endorsement or
otherwise, are herein successively called "Holder"), at Post Office Box 53456,
Phoenix, Arizona 85072-3456, or at such other place as Holder may from time to
time designate in writing, the principal sum of ____________________ MILLION AND
NO/100 DOLLARS ($_____________________) or so much thereof as Holder may advance
to or for the benefit of Maker plus interest calculated on a daily basis (based
on a 360-day year) from the date hereof on the principal balance from time to
time outstanding as hereinafter provided, principal, interest and all other sums
payable hereunder to be paid in lawful money of the United States of America as
follows:
(a) Interest. Interest shall accrue on the unpaid principal of
this Note at [the applicable LIBOR Rate] [the TCM Rate].
(b) Monthly Payments. [In the event that interest accrues on
the Term Loan at the TCM Rate,] Interest and principal shall be due
hereunder in thirty-six (36) equal monthly payments payable on the
first day of each month, commencing on the first day of the second
month after the Term Conversion Date.
[In the event that interest accrues on the Term Loan at the
applicable LIBOR Rate,] Principal in an amount sufficient to fully
amortize the amount of the Term Loan over thirty-six (36) equal monthly
payments, together with accrued interest, shall be due and payable
hereunder on the first day of each month, commencing on the first day
of the second month after the Term Conversion Date.
(c) Final Payment. The entire outstanding principal balance,
all accrued and unpaid interest and all other sums which may have
become payable thereunder shall be due and payable in full on the Term
Maturity Date.
(d) Definitions. The capitalized terms used and not otherwise
defined herein shall have the same meanings as defined in the Loan
Agreement (defined below).
<PAGE>
Maker agrees to an effective rate of interest that is the rate stated
above plus any additional rate of interest resulting from any other charges in
the nature of interest paid or to be paid by or on behalf of Maker, or any
benefit received or to be received by Holder, in connection with this Note.
If any payment required under this Note is not paid within five (5)
Business Days when due, then, at the option of Holder, Maker shall pay a "late
charge" equal to four percent (4%) of the amount of that payment to compensate
Holder for administrative expenses and other costs of delinquent payments. This
late charge may be assessed without notice, shall be immediately due and payable
and shall be in addition to all other rights and remedies available to Holder.
All payments on this Note shall be applied first to the payment of any
costs, fees or other charges incurred in connection with the indebtedness
evidenced hereby, next to the payment of accrued interest and then to the
reduction of the principal balance.
This Note is issued pursuant to that Loan Agreement dated of even date
herewith between Maker and Payee, the ("Loan Agreement").
Time is of the essence of this Note. At the option of Holder, the
entire unpaid principal balance, all accrued and unpaid interest and all other
amounts payable hereunder shall become immediately due and payable without
notice upon the failure to pay any sum due and owing hereunder as provided
herein or upon the occurrence of any event of default under the Loan Agreement
or any Security Documents.
After maturity, including maturity upon acceleration, the unpaid
principal balance, all accrued and unpaid interest and all other amounts payable
hereunder shall bear interest at that rate that is five percent (5%) above the
rate that would otherwise be payable under the terms hereof. Maker shall pay all
costs and expenses, including reasonable attorneys' fees and court costs,
incurred in the collection or enforcement of all or any part of this Note. Such
court costs and attorneys' fees shall be set by the court and not by jury, shall
be included in any judgment obtained by Holder.
Maker shall have the option to prepay this Note, in full or in part, at
any time. In the event interest accrues hereunder at the TCM Rate, Maker shall
pay to Holder such premium as provided for in Section 4.2 of the Loan Agreement.
Failure of Holder to exercise any option hereunder shall not constitute
a waiver of the right to exercise the same in the event of any subsequent
default or in the event of continuance of any existing default after demand for
strict performance hereof.
Maker (a) waives any and all formalities in connection with this Note
to the maximum extent allowed by law, including (but not limited to) demand,
diligence, presentment for payment, protest and demand, and notice of extension,
dishonor, protest, demand and nonpayment of this Note; and (b) consents that
Holder may extend the time of payment or otherwise modify the terms of payment
-2-
<PAGE>
of any part or the whole of the debt evidenced by this Note, at the request of
any other person liable hereon, and such consent shall not alter nor diminish
the liability of any person hereon.
In addition, Maker waives and agrees not to assert: (a) any right to
require Holder to proceed against Maker to proceed against or exhaust any
security for the Note, to pursue any other remedy available to Holder, or to
pursue any remedy in any particular order or manner; (b) the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
hereof; (c) the benefits of any legal or equitable doctrine or principle of
marshalling; (d) notice of the existence, creation or incurring of new or
additional indebtedness of Maker to Holder; (e) the benefits of any statutory
provision limiting the liability of a surety, including without limitation the
provisions of Sections 12-1641, et seq., of the Arizona Revised Statutes; and
(f) any defense arising by reason of any disability or other defense of Maker or
by reason of the cessation from any cause whatsoever (other than payment in
full) of the liability of Maker for payment of the Note.
Maker agrees that to the extent Maker makes any payment to Holder in
connection with the indebtedness evidenced by this Note, and all or any part of
such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid by Holder or paid over to a
trustee, receiver or any other entity, whether under any bankruptcy act or
otherwise (any such payment is hereinafter referred to as a "Preferential
Payment"), then the indebtedness of Maker under this Note shall continue or
shall be reinstated, as the case may be, and, to the extent of such payment or
repayment by Holder, the indebtedness evidenced by this Note or part thereof
intended to be satisfied by such Preferential Payment shall be revived and
continued in full force and effect as if said Preferential Payment had not been
made.
Without limiting the right of Holder to bring any action or proceeding
against Maker or against any property of Maker (an "Action") arising out of or
relating to this Note or any indebtedness evidenced hereby in the courts of
other jurisdictions, Maker hereby irrevocably submits to the jurisdiction,
process and venue of any Arizona State or Federal court sitting in Phoenix,
Arizona, and hereby irrevocably agrees that any Action may be heard and
determined in such Arizona State court or in such Federal court. Maker hereby
irrevocably waives, to the fullest extent it may effectively do so, the defenses
of lack of jurisdiction over any person, inconvenient forum or improper venue,
to the maintenance of any Action in any jurisdiction.
This Note shall be binding upon Maker and its successors and assigns
and shall inure to the benefit of Payee, and any subsequent holders of this
Note, and their successors and assigns.
All notices required or permitted in connection with this Note shall be
given at the place and in the manner provided in the Loan Agreement for the
giving of notices.
This Note shall be construed according to the laws of the State of
Arizona.
-3-
<PAGE>
IN WITNESS WHEREOF, this Promissory Note has been executed as of the
date first written above.
KNIGHT TRANSPORTATION, INC., an
Arizona corporation
By
--------------------------------------
Its
--------------------------------
QUAD K LEASING, INC., a_________________
corporation
By
--------------------------------------
Its
--------------------------------
MAKER
-4-
<PAGE>
REVOLVING PROMISSORY NOTE
-------------------------
$15,000,000.00 Phoenix, Arizona
_______________, 1996
FOR VALUE RECEIVED, the undersigned KNIGHT TRANSPORTATION, INC., an
Arizona corporation and QUAD K LEASING, INC., a ________________ corporation
(together, "Maker"), promises to pay to the order of FIRST INTERSTATE BANK OF
ARIZONA, N.A. (the "Payee"; Payee and each subsequent transferee and/or owner of
this Note, whether taking by endorsement or otherwise, are herein successively
called "Holder"), at Post Office Box 53456, Phoenix, Arizona 85072-3456, or at
such other place as Holder may from time to time designate in writing, the
principal sum of FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00) or so much
thereof as Holder may advance to or for the benefit of Maker plus interest
calculated on a daily basis (based on a 360-day year) from the date hereof on
the principal balance from time to time outstanding as hereinafter provided,
principal, interest and all other sums payable hereunder to be paid in lawful
money of the United States of America as follows:
(a) Interest. Interest shall accrue on the unpaid principal of
each RLC Advance:
(i) At the Variable Rate if it is a Variable Rate RLC
Advance.
(ii) At the applicable LIBOR Rate if it is a LIBOR
Rate RLC Advance.
(iii) At the applicable CD Rate if it is a CD Rate
RLC Advance.
(b) Interest Payment. All accrued interest shall be due and
payable on the RLC Payment Date.
(c) Principal Payment. The entire outstanding principal
balance, all accrued and unpaid interest and all other sums which may
have become payable thereunder shall be due and payable in full on the
RLC Maturity Date.
(d) Definitions. The capitalized terms used and not otherwise
defined herein shall have the same meanings as defined in the Loan
Agreement (defined below).
<PAGE>
The principal balance of this Note represents a revolving credit all or
any part of which may be advanced to Maker, repaid by Maker, and readvanced to
Maker from time to time, subject to the other terms hereof and the conditions,
if any, contained in the Loan Agreement and provided that the principal balance
outstanding at any one time shall not exceed the face amount hereof.
Maker agrees to an effective rate of interest that is the rate stated
above plus any additional rate of interest resulting from any other charges in
the nature of interest paid or to be paid by or on behalf of Maker, or any
benefit received or to be received by Holder, in connection with this Note.
All payments on this Note shall be applied first to the payment of any
costs, fees or other charges incurred in connection with the indebtedness
evidenced hereby, next to the payment of accrued interest and then to the
reduction of the principal balance.
This Note is issued pursuant to that Loan Agreement dated of even date
herewith between Maker and Payee, the ("Loan Agreement").
Time is of the essence of this Note. At the option of Holder, the
entire unpaid principal balance, all accrued and unpaid interest and all other
amounts payable hereunder shall become immediately due and payable without
notice upon the failure to pay any sum due and owing hereunder as provided
herein or upon the occurrence of any event of default under the Loan Agreement
or any Security Documents.
After maturity, including maturity upon acceleration, the unpaid
principal balance, all accrued and unpaid interest and all other amounts payable
hereunder shall bear interest at the rate that would otherwise be payable under
the terms hereof. Maker shall costs and expenses, including reasonable
attorneys' fees and court costs, incurred in the collection or enforcement of
all or any part of this Note. Such court costs and attorneys' fees shall be set
by the court and not by jury, shall be included in any judgment obtained by
Holder.
Maker shall have the option to prepay this Note, in full or in part, at
any time. Maker shall pay to Holder such amount or amounts as shall be
sufficient to compensate for any losses (including without limitations loss of
anticipated profit), costs or expenses which Holder may reasonably incur as a
result of payment or Conversion of any LIBOR Rate RLC Advance or of any CD Rate
RLC Advance other than on the last Business Day of the Interest Period for such
RLC Advance.
Failure of Holder to exercise any option hereunder shall not constitute
a waiver of the right to exercise the same in the event of any subsequent
default or in the event of continuance of any existing default after demand for
strict performance hereof.
Maker (a) waives any and all formalities in connection with this Note
to the maximum extent allowed by law, including (but not limited to) demand,
diligence, presentment for payment, protest and demand, and notice of extension,
dishonor, protest, demand and nonpayment of this Note; and
-2-
<PAGE>
(b) consents that Holder may extend the time of payment or other-wise modify the
terms of payment of any part or the whole of the debt evidenced by this Note, at
the request of any other person liable hereon, and such consent shall not alter
nor diminish the liability of any person hereon.
In addition, Maker waives and agrees not to assert: (a) any right to
require Holder to proceed against Maker to proceed against or exhaust any
security for the Note, to pursue any other remedy available to Holder, or to
pursue any remedy in any particular order or manner; (b) the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
hereof; (c) the benefits of any legal or equitable doctrine or principle of
marshalling; (d) notice of the existence, creation or incurring of new or
additional indebtedness of Maker to Holder; (e) the benefits of any statutory
provision limiting the liability of a surety, including without limitation the
provisions of Sections 12- 1641, et seq., of the Arizona Revised Statutes; and
(f) any defense arising by reason of any disability or other defense of Maker or
by reason of the cessation from any cause whatsoever (other than payment in
full) of the liability of Maker for payment of the Note.
Maker agrees that to the extent Maker makes any payment to Holder in
connection with the indebtedness evidenced by this Note, and all or any part of
such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid by Holder or paid over to a
trustee, receiver or any other entity, whether under any bankruptcy act or
otherwise (any such payment is hereinafter referred to as a "Preferential
Payment"), then the indebtedness of Maker under this Note shall continue or
shall be reinstated, as the case may be and, to the extent of such payment or
repayment by Holder, the indebtedness evidenced by this Note or part thereof
intended to be satisfied by such Preferential Payment shall be revived and
continued in full force and effect as if said Preferential Payment had not been
made.
Without limiting the right of Holder to bring any action or proceeding
against Maker or against any property of Maker (an "Action") arising out of or
relating to this Note or any indebtedness evidenced hereby in the courts of
other jurisdictions, Maker hereby irrevocably submits to the jurisdiction,
process and venue of any Arizona State or Federal court sitting in Phoenix,
Arizona, and hereby irrevocably agrees that any Action may be heard and
determined in such Arizona State court or in such Federal court. Maker hereby
irrevocably waives, to the fullest extent it may effectively do so, the defenses
of lack of jurisdiction over any person, inconvenient forum or improper venue,
to the maintenance of any Action in any jurisdiction.
This Note shall be binding upon Maker and its successors and assigns
and shall inure to the benefit of Payee, and any subsequent holders of this
Note, and their successors and assigns.
All notices required or permitted in connection with this Note shall be
given at the place and in the manner provided in the Loan Agreement for the
giving of notices.
This Note shall be construed according to the laws of the State of
Arizona.
-3-
<PAGE>
IN WITNESS WHEREOF, this Revolving Promissory Note has been executed as
of the date first written above.
KNIGHT TRANSPORTATION, INC., an
Arizona corporation
By
--------------------------------------
Its
-----------------------------------
QUAD K LEASING, INC., a
corporation
By
--------------------------------------
Its
-----------------------------------
MAKER
-4-
INDEMNITY AGREEMENT
-------------------
This INDEMNITY AGREEMENT dated as of February 5, 1997, is made
by and between Knight Transportation, Inc. (the "Corporation"), and Clark A.
Jenkins (the "Indemnitee").
RECITALS
--------
The Articles of Incorporation and By-Laws of the Corporation
provide for indemnification by the Corporation of its directors to the fullest
extent permitted by law. The Indemnitee has been serving and desires to continue
to serve as a director of the Corporation in part in reliance on such indemnity
provision.
To provide the Indemnitee with additional contractual
assurance of protection against personal liability in connection with certain
proceedings described below, the Corporation desires to enter into this
Agreement.
In order to induce the Indemnitee to serve or continue to
serve as a director of the Corporation, and in consideration of the Indemnitee's
so serving, the Corporation desires to indemnify the Indemnitee and to make
arrangements pursuant to which the Indemnitee may be advanced or reimbursed
expenses incurred by Indemnitee in certain proceedings described below,
according to the terms and conditions set forth below.
AGREEMENT
---------
THEREFORE, in consideration of the foregoing recitals and of
Indemnitee's serving or continuing to serve the Corporation as a director, the
parties agree as follows:
1. Indemnification.
(a) In accordance with the provisions of subsection
(b) of this Section 1, the Corporation shall hold harmless and indemnify the
Indemnitee against any and all expenses, liabilities and losses (including,
without limitation, investigation expenses and expert witnesses' and attorneys'
fees and expenses, costs of court, judgments, penalties, fines, and amounts paid
or to be paid in settlement) actually incurred by the Indemnitee (net of any
related insurance proceeds or other amounts received by Indemnitee or paid by or
on behalf of the Corporation on the Indemnitee's behalf), in connection with any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, to which the Indemnitee is a party or is threatened to be made a
party (a "Proceeding") based upon, arising from, relating to, or by reason of
the fact that Indemnitee is, was, shall be, or shall have been a director and/or
officer of the Corporation or is or was serving, shall serve, or shall have
served at the request of the Corporation as a director, officer, partner,
trustee, member, employee, or agent ("Affiliate Indemnitee") of another foreign
or domestic corporation or
<PAGE>
non-profit corporation, cooperative, partnership, joint venture, limited
liability company, trust or other incorporated or unincorporated enterprise
(each, a "Company Affiliate").
(b) Without limiting the generality of the foregoing,
the Indemnitee shall be entitled to the rights of indemnification provided in
this Section 1 for any expenses actually incurred in any Proceeding initiated by
or in the right of the Corporation, unless indemnification is barred by A.R.S.
Section 10-851.D or 10-856.A, or any other applicable law.
(c) In providing the foregoing indemnification, the
Corporation shall, with respect to any proceeding, hold harmless and indemnify
the Indemnitee to the fullest extent not prohibited by the law of the State of
Arizona, as in effect from time and time, and the Articles of Incorporation. For
purposes of this Agreement, it is intended that the indemnification afforded
hereby be mandatory and the broadest possible under any then existing statutory
provision expressly authorizing the Corporation to indemnify directors or
officers whether in effect on the date of this Agreement or hereafter, provided,
however, that the indemnification provisions of this Agreement shall apply
without regard to whether any provision set forth in the Articles or Bylaws of
the Corporation authorizing or permitting indemnification shall be in force or
effect.
2. Other Indemnification Agreements. The Corporation may
purchase and maintain insurance or furnish similar protection or make other
arrangements, including, but not limited to, providing a trust fund, letter of
credit, or surety bond ("Indemnification Arrangements") on behalf of the
Indemnitee against any liability asserted against him or her or incurred by or
on behalf of him or her in such capacity as a director or officer of the
Corporation or an Affiliated Indemnitee, or arising out of his or her status as
such, whether or not the Corporation would have the power to indemnify him or
her against such liability under the provisions of this Agreement. The purchase,
establishment, and maintenance of any such Indemnification Arrangement shall not
in any way limit or affect the rights and obligations of the Corporation or of
the Indemnitee under this Agreement except as expressly provided herein, and the
execution and delivery of this Agreement by the Corporation and the Indemnitee
shall not in any way limit or affect the rights and obligations of the
Corporation or the other party or parties thereto under any such Indemnification
Arrangement. All amounts payable by the Corporation pursuant to this Section 2
and Section 1 hereof are herein referred to as "Indemnified Amounts." To the
extent the Corporation is able to obtain directors and officers liability
insurance of a reasonable premium (as determined by the Corporation in its sole
discretion), the Corporation shall use reasonable efforts to cause the
Indemnitee to be covered by such insurance.
3. Advance Payment of Indemnified Amounts.
(a) The Indemnitee hereby is granted the right to
receive in advance of a final, nonappealable judgment or other final
adjudication of a Proceeding (a "Final Determination") the amount of any and all
expenses, including, without limitation, investigation expenses, court costs,
expert witnesses' and attorneys' fees and other expenses expended or incurred by
the Indemnitee in connection with any Proceeding or otherwise expensed or
incurred by the
-2-
<PAGE>
Indemnitee (such amounts so expended or incurred being hereinafter referred to
as "Advanced Amounts").
(b) In making any written request for Advanced
Amounts, the Indemnitee shall submit to the Corporation a schedule setting forth
in reasonable detail the dollar amount expended or incurred and expected to be
expended. Each such listing shall be supported by the bill, agreement, or other
documentation relating thereto, each of which shall be appended to the schedule
as an exhibit. In addition, before the Indemnitee may receive Advanced Amounts
from the Corporation, the Indemnitee shall provide to the Corporation (i) a
written affirmation of the Indemnitee's good faith belief that the applicable
standard of conduct required for indemnification by the Corporation has been
satisfied by the Indemnitee, and (ii) a written undertaking by or on behalf of
the Indemnitee to repay the Advanced Amount if it shall ultimately be determined
that the Indemnitee has not satisfied any applicable standard of conduct. The
written undertaking required from the Indemnitee shall be an unlimited general
obligation of the Indemnitee but need not be secured. The Corporation shall pay
to the Indemnitee all Advanced Amounts within twenty (20) days after receipt by
the Corporation of all information and documentation required to be provided by
the Indemnitee pursuant to this paragraph.
4. Procedure for Payment of Indemnified Amounts.
(a) To obtain indemnification under this Agreement,
the Indemnitee shall submit to the Corporation a written request for payment of
the appropriate Indemnified Amounts, including with such requests such
documentation and information as is reasonably available to the Indemnitee and
reasonably necessary to determine whether and to what extent the Indemnitee is
entitled to indemnification. The Secretary of the Corporation shall, promptly
upon receipt of such a request for indemnification, advise the Board of
Directors in writing that the Indemnitee has requested indemnification.
(b) The Corporation shall pay the Indemnitee the
appropriate Indemnified Amounts unless it is established that the Indemnitee
engaged in one of the Prohibited Acts, and such Prohibited Act was the subject
matter of the Proceeding. For purposes of determining whether the Indemnitee is
entitled to Indemnified Amounts, in order to deny indemnification to the
Indemnitee, the Corporation has the burden of proof in establishing (1) that the
Indemnitee engaged in the Prohibited Act, and (2) that the Prohibited Act was
the subject matter of the Proceeding. In this regard, a termination of any
Proceeding by judgment, order or settlement does not create a presumption that
the Indemnitee did not meet the requisite standard of conduct; provided,
however, that the termination of any criminal proceeding by conviction, or a
pleading of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption that the
Indemnitee engaged in a Prohibited Act. For purposes of this Agreement, a
Prohibited Act shall mean any act, omission or condition (i) described in A.R.S.
Section 10-851.D or 10- 856.A for which the Corporation may not indemnify the
Indemnitee or (ii) any act, omission or condition for which indemnity is not
available under any federal or state law or public policy.
-3-
<PAGE>
(c) Any determination that the Indemnitee has engaged
in a Prohibited Act shall be made (i) either by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
Proceeding; or (ii) by independent legal counsel (who may be the outside counsel
regularly employed by the Corporation); provided that the manner in which (and,
if applicable, the counsel by which) the right of indemnification is to be
determined shall be approved in advance in writing by both the highest ranking
executive officer of the Corporation who is not a party to such action
(sometimes hereinafter referred to as "Senior Officer") and by the Indemnitee.
In the event that such parties are unable to agree on the manner in which any
such determination is to be made, such determination shall be made by
independent legal counsel retained by the Corporation especially for such
purpose, provided that such counsel be approved in advance in writing by both
the Senior Officer and the Indemnitee and, provided further, that such counsel
shall not be outside counsel regularly employed by the Corporation. The fees and
expenses of counsel in connection with making the determination contemplated
hereunder shall be paid by the Corporation, and, if requested by such counsel,
the Corporation shall give such counsel an appropriate written agreement with
respect to the payment of their fees and expenses and such other matters as may
be reasonably requested by counsel.
(d) The Corporation will use its best efforts to
conclude as soon as practicable any required determination pursuant to
subparagraph (c) above and promptly will advise the Indemnitee in writing with
respect to any determination that the Indemnitee is or is not entitled to
indemnification, including a description of any reason or basis for which
indemnification has been denied. Payment of any applicable Indemnified Amounts
will be made to the Indemnitee within ten (10) days after any determination of
the Indemnitee's entitlement to indemnification.
(e) Notwithstanding the foregoing, the Indemnitee
may, at any time after sixty (60) days after a claim for Indemnified Amounts has
been filed with the Corporation (or upon receipt of written notice that a claim
for Indemnified Amounts has been rejected, if earlier) and before three (3)
years after a claim for Indemnified Amounts has been filed, petition a court of
competent jurisdiction to determine whether the Indemnitee is entitled to
indemnification under the provisions of this Agreement, and such court shall
thereupon have the exclusive authority to make such determination unless and
until such court dismisses or otherwise terminates such action without having
made such determination. The court shall, as petitioned, make an independent
determination of whether the Indemnitee is entitled to indemnification as
provided under this Agreement, irrespective of any prior determination made by
the Board of Directors or independent counsel. If the court shall determine that
the Indemnitee is entitled to indemnification as to any claim, issue or matter
involved in the Proceeding with respect to which there has been no prior
determination pursuant to this Agreement or with respect to which there has been
a prior determination that the Indemnitee was not entitled to indemnification
hereunder, the Corporation shall pay all expenses (including attorneys' fees and
court costs) actually incurred by the Indemnitee in connection with such
judicial determination.
-4-
<PAGE>
5. Agreement Not Exclusive; Subrogation Rights, etc.
(a) This Agreement shall not be deemed exclusive of
and shall not diminish any other rights the Indemnitee may have to be
indemnified or insured or otherwise protected against any liability, loss, or
expense by the Corporation, any subsidiary of the Corporation, or any other
person or entity under any charter, bylaws, law, agreement, policy of insurance
or similar protection, vote of stockholders or directors, disinterested or not,
or otherwise, whether or not now in effect, both as to actions in the
Indemnitee's official capacity, and as to actions in another capacity while
holding such office. The Corporation's obligations to make payments of
Indemnified Amounts hereunder shall be satisfied to the extent that payments
with respect to the same Proceeding (or part thereof) have been made to or for
the benefit of the Indemnitee by reason of the indemnification of the Indemnitee
pursuant to any other arrangement made by the Corporation for the benefit of the
Indemnitee.
(b) In the event the Indemnitee shall receive payment
from any insurance carrier or from the plaintiff in any Proceeding against such
Indemnitee in respect of Indemnified Amounts after payments on account of all or
part of such Indemnified Amounts have been made by the Corporation pursuant
hereto, such Indemnitee shall promptly reimburse to the Corporation the amount,
if any, by which the sum of such payment by such insurance carrier or such
plaintiff and payments by the Corporation or pursuant to arrangements made by
the Corporation to Indemnitee exceeds such Indemnified Amounts; provided,
however, that such portions, if any, of such insurance proceeds that are
required to be reimbursed to the insurance carrier under the terms of its
insurance policy, such as deductible or co-insurance payments, shall not be
deemed to be payments to the Indemnitee hereunder. In addition, upon payment of
Indemnified Amounts hereunder, the Corporation shall be subrogated to the rights
of Indemnitee receiving such payments (to the extent thereof) against any
insurance carrier (to the extent permitted under such insurance policies) or
plaintiff in respect to such Indemnified Amounts and the Indemnitee shall
execute and deliver any and all instruments and documents and perform any and
all other acts or deeds which the Corporation deems necessary or advisable to
secure such rights. Such right of subrogation shall be terminated upon receipt
by the Corporation of the amount to be reimbursed by the Indemnitee pursuant to
the first sentence of this paragraph.
6. Continuation of Indemnity. All agreements and obligations
of the Corporation contained herein shall continue during the period Indemnitee
is a director of the Corporation (or is serving at the request of the
Corporation as an Affiliate Indemnitee) and shall continue thereafter so long as
Indemnitee shall be subject to any possible Proceeding by reason of the fact
that Indemnitee was a director, officer or employee of the Corporation or was
serving in any other capacity referred to herein.
7. Successors; Binding Agreement. This Agreement shall be
binding on and shall inure to the benefit of and be enforceable by the
Corporation's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. The Corporation shall require any successor or assignee
-5-
<PAGE>
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Corporation, by
written agreement in form and substance reasonably satisfactory to the
Corporation and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform if no such succession or assignment had taken place.
8. Enforcement. The Corporation has entered into this
Agreement and assumed the obligations imposed on the Corporation hereby in order
to induce the Indemnitee to act as a director of the Corporation, and
acknowledges that the Indemnitee is relying upon this Agreement in continuing in
such capacity. In the event the Indemnitee is required to bring any action to
enforce rights or to collect monies due under this Agreement and is successful
in such action, the Corporation shall reimburse Indemnitee for all of the
Indemnitee's fees and expenses in bringing and pursuing such action. The
Indemnitee shall be entitled to the advancement of Indemnified Amounts to the
full extent contemplated by Section 3 hereof in connection with such Proceeding.
9. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof, which other provisions shall
remain in full force and effect.
10. Miscellaneous. No provision of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is agreed to in writing signed by Indemnitee and either the Chairman of the
Board or the President of the Corporation or another officer of the Corporation
specifically designated by the Board of Directors. No waiver by either party at
any time of any breach by the other party of, or of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Arizona, without giving effect to the principles of conflicts of laws thereof.
The Indemnitee may bring an action seeking resolution of disputes or
controversies arising under or in any way related to this Agreement in the state
or federal court jurisdiction in which Indemnitee resides or in which his or her
place of business is located, and in any related appellate courts, and the
Corporation consents to the jurisdiction of such courts and to such venue.
11. Notices. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as follows:
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<PAGE>
If to Indemnitee: Clark A. Jenkins
Knight Transportation, Inc.
5601 W. Buckeye Road
Phoenix, Arizona 85043
If to Corporation: Knight Transportation, Inc.
5601 West Buckeye Road
Phoenix, Arizona 85043
Attention: Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12. Counterpart. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of
January 1, 1997.
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed as of the day and year first above written.
KNIGHT TRANSPORTATION, INC.
By: /s/ Kevin P. Knight
-------------------------------------
Kevin P. Knight
Its Chief Executive Officer
INDEMNITEE:
/s/ Clark A. Jenkins
----------------------------------------
Clark A. Jenkins
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<PAGE>
INDEMNITY AGREEMENT
-------------------
This INDEMNITY AGREEMENT dated as of February 5, 1997, is made
by and between Knight Transportation, Inc. (the "Corporation"), and Keith T.
Knight (the "Indemnitee").
RECITALS
--------
The Articles of Incorporation and By-Laws of the Corporation
provide for indemnification by the Corporation of its directors to the fullest
extent permitted by law. The Indemnitee has been serving and desires to continue
to serve as a director of the Corporation in part in reliance on such indemnity
provision.
To provide the Indemnitee with additional contractual
assurance of protection against personal liability in connection with certain
proceedings described below, the Corporation desires to enter into this
Agreement.
In order to induce the Indemnitee to serve or continue to
serve as a director of the Corporation, and in consideration of the Indemnitee's
so serving, the Corporation desires to indemnify the Indemnitee and to make
arrangements pursuant to which the Indemnitee may be advanced or reimbursed
expenses incurred by Indemnitee in certain proceedings described below,
according to the terms and conditions set forth below.
AGREEMENT
---------
THEREFORE, in consideration of the foregoing recitals and of
Indemnitee's serving or continuing to serve the Corporation as a director, the
parties agree as follows:
1. Indemnification.
(a) In accordance with the provisions of subsection
(b) of this Section 1, the Corporation shall hold harmless and indemnify the
Indemnitee against any and all expenses, liabilities and losses (including,
without limitation, investigation expenses and expert witnesses' and attorneys'
fees and expenses, costs of court, judgments, penalties, fines, and amounts paid
or to be paid in settlement) actually incurred by the Indemnitee (net of any
related insurance proceeds or other amounts received by Indemnitee or paid by or
on behalf of the Corporation on the Indemnitee's behalf), in connection with any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, to which the Indemnitee is a party or is threatened to be made a
party (a "Proceeding") based upon, arising from, relating to, or by reason of
the fact that Indemnitee is, was, shall be, or shall have been a director and/or
officer of the Corporation or is or was serving, shall serve, or shall have
served at the request of the Corporation as a director, officer, partner,
trustee, member, employee, or agent ("Affiliate Indemnitee") of another foreign
or domestic corporation or
<PAGE>
non-profit corporation, cooperative, partnership, joint venture, limited
liability company, trust or other incorporated or unincorporated enterprise
(each, a "Company Affiliate").
(b) Without limiting the generality of the foregoing,
the Indemnitee shall be entitled to the rights of indemnification provided in
this Section 1 for any expenses actually incurred in any Proceeding initiated by
or in the right of the Corporation, unless indemnification is barred by A.R.S.
Section 10-851.D or 10-856.A, or any other applicable law.
(c) In providing the foregoing indemnification, the
Corporation shall, with respect to any proceeding, hold harmless and indemnify
the Indemnitee to the fullest extent not prohibited by the law of the State of
Arizona, as in effect from time and time, and the Articles of Incorporation. For
purposes of this Agreement, it is intended that the indemnification afforded
hereby be mandatory and the broadest possible under any then existing statutory
provision expressly authorizing the Corporation to indemnify directors or
officers whether in effect on the date of this Agreement or hereafter, provided,
however, that the indemnification provisions of this Agreement shall apply
without regard to whether any provision set forth in the Articles or Bylaws of
the Corporation authorizing or permitting indemnification shall be in force or
effect.
2. Other Indemnification Agreements. The Corporation may
purchase and maintain insurance or furnish similar protection or make other
arrangements, including, but not limited to, providing a trust fund, letter of
credit, or surety bond ("Indemnification Arrangements") on behalf of the
Indemnitee against any liability asserted against him or her or incurred by or
on behalf of him or her in such capacity as a director or officer of the
Corporation or an Affiliated Indemnitee, or arising out of his or her status as
such, whether or not the Corporation would have the power to indemnify him or
her against such liability under the provisions of this Agreement. The purchase,
establishment, and maintenance of any such Indemnification Arrangement shall not
in any way limit or affect the rights and obligations of the Corporation or of
the Indemnitee under this Agreement except as expressly provided herein, and the
execution and delivery of this Agreement by the Corporation and the Indemnitee
shall not in any way limit or affect the rights and obligations of the
Corporation or the other party or parties thereto under any such Indemnification
Arrangement. All amounts payable by the Corporation pursuant to this Section 2
and Section 1 hereof are herein referred to as "Indemnified Amounts." To the
extent the Corporation is able to obtain directors and officers liability
insurance of a reasonable premium (as determined by the Corporation in its sole
discretion), the Corporation shall use reasonable efforts to cause the
Indemnitee to be covered by such insurance.
3. Advance Payment of Indemnified Amounts.
(a) The Indemnitee hereby is granted the right to
receive in advance of a final, nonappealable judgment or other final
adjudication of a Proceeding (a "Final Determination") the amount of any and all
expenses, including, without limitation, investigation expenses, court costs,
expert witnesses' and attorneys' fees and other expenses expended or incurred by
the Indemnitee in connection with any Proceeding or otherwise expensed or
incurred by the
-2-
<PAGE>
Indemnitee (such amounts so expended or incurred being hereinafter referred to
as "Advanced Amounts").
(b) In making any written request for Advanced
Amounts, the Indemnitee shall submit to the Corporation a schedule setting forth
in reasonable detail the dollar amount expended or incurred and expected to be
expended. Each such listing shall be supported by the bill, agreement, or other
documentation relating thereto, each of which shall be appended to the schedule
as an exhibit. In addition, before the Indemnitee may receive Advanced Amounts
from the Corporation, the Indemnitee shall provide to the Corporation (i) a
written affirmation of the Indemnitee's good faith belief that the applicable
standard of conduct required for indemnification by the Corporation has been
satisfied by the Indemnitee, and (ii) a written undertaking by or on behalf of
the Indemnitee to repay the Advanced Amount if it shall ultimately be determined
that the Indemnitee has not satisfied any applicable standard of conduct. The
written undertaking required from the Indemnitee shall be an unlimited general
obligation of the Indemnitee but need not be secured. The Corporation shall pay
to the Indemnitee all Advanced Amounts within twenty (20) days after receipt by
the Corporation of all information and documentation required to be provided by
the Indemnitee pursuant to this paragraph.
4. Procedure for Payment of Indemnified Amounts.
(a) To obtain indemnification under this Agreement,
the Indemnitee shall submit to the Corporation a written request for payment of
the appropriate Indemnified Amounts, including with such requests such
documentation and information as is reasonably available to the Indemnitee and
reasonably necessary to determine whether and to what extent the Indemnitee is
entitled to indemnification. The Secretary of the Corporation shall, promptly
upon receipt of such a request for indemnification, advise the Board of
Directors in writing that the Indemnitee has requested indemnification.
(b) The Corporation shall pay the Indemnitee the
appropriate Indemnified Amounts unless it is established that the Indemnitee
engaged in one of the Prohibited Acts, and such Prohibited Act was the subject
matter of the Proceeding. For purposes of determining whether the Indemnitee is
entitled to Indemnified Amounts, in order to deny indemnification to the
Indemnitee, the Corporation has the burden of proof in establishing (1) that the
Indemnitee engaged in the Prohibited Act, and (2) that the Prohibited Act was
the subject matter of the Proceeding. In this regard, a termination of any
Proceeding by judgment, order or settlement does not create a presumption that
the Indemnitee did not meet the requisite standard of conduct; provided,
however, that the termination of any criminal proceeding by conviction, or a
pleading of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption that the
Indemnitee engaged in a Prohibited Act. For purposes of this Agreement, a
Prohibited Act shall mean any act, omission or condition (i) described in A.R.S.
Section 10-851.D or 10- 856.A for which the Corporation may not indemnify the
Indemnitee or (ii) any act, omission or condition for which indemnity is not
available under any federal or state law or public policy.
-3-
<PAGE>
(c) Any determination that the Indemnitee has engaged
in a Prohibited Act shall be made (i) either by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
Proceeding; or (ii) by independent legal counsel (who may be the outside counsel
regularly employed by the Corporation); provided that the manner in which (and,
if applicable, the counsel by which) the right of indemnification is to be
determined shall be approved in advance in writing by both the highest ranking
executive officer of the Corporation who is not a party to such action
(sometimes hereinafter referred to as "Senior Officer") and by the Indemnitee.
In the event that such parties are unable to agree on the manner in which any
such determination is to be made, such determination shall be made by
independent legal counsel retained by the Corporation especially for such
purpose, provided that such counsel be approved in advance in writing by both
the Senior Officer and the Indemnitee and, provided further, that such counsel
shall not be outside counsel regularly employed by the Corporation. The fees and
expenses of counsel in connection with making the determination contemplated
hereunder shall be paid by the Corporation, and, if requested by such counsel,
the Corporation shall give such counsel an appropriate written agreement with
respect to the payment of their fees and expenses and such other matters as may
be reasonably requested by counsel.
(d) The Corporation will use its best efforts to
conclude as soon as practicable any required determination pursuant to
subparagraph (c) above and promptly will advise the Indemnitee in writing with
respect to any determination that the Indemnitee is or is not entitled to
indemnification, including a description of any reason or basis for which
indemnification has been denied. Payment of any applicable Indemnified Amounts
will be made to the Indemnitee within ten (10) days after any determination of
the Indemnitee's entitlement to indemnification.
(e) Notwithstanding the foregoing, the Indemnitee
may, at any time after sixty (60) days after a claim for Indemnified Amounts has
been filed with the Corporation (or upon receipt of written notice that a claim
for Indemnified Amounts has been rejected, if earlier) and before three (3)
years after a claim for Indemnified Amounts has been filed, petition a court of
competent jurisdiction to determine whether the Indemnitee is entitled to
indemnification under the provisions of this Agreement, and such court shall
thereupon have the exclusive authority to make such determination unless and
until such court dismisses or otherwise terminates such action without having
made such determination. The court shall, as petitioned, make an independent
determination of whether the Indemnitee is entitled to indemnification as
provided under this Agreement, irrespective of any prior determination made by
the Board of Directors or independent counsel. If the court shall determine that
the Indemnitee is entitled to indemnification as to any claim, issue or matter
involved in the Proceeding with respect to which there has been no prior
determination pursuant to this Agreement or with respect to which there has been
a prior determination that the Indemnitee was not entitled to indemnification
hereunder, the Corporation shall pay all expenses (including attorneys' fees and
court costs) actually incurred by the Indemnitee in connection with such
judicial determination.
-4-
<PAGE>
5. Agreement Not Exclusive; Subrogation Rights, etc.
(a) This Agreement shall not be deemed exclusive of
and shall not diminish any other rights the Indemnitee may have to be
indemnified or insured or otherwise protected against any liability, loss, or
expense by the Corporation, any subsidiary of the Corporation, or any other
person or entity under any charter, bylaws, law, agreement, policy of insurance
or similar protection, vote of stockholders or directors, disinterested or not,
or otherwise, whether or not now in effect, both as to actions in the
Indemnitee's official capacity, and as to actions in another capacity while
holding such office. The Corporation's obligations to make payments of
Indemnified Amounts hereunder shall be satisfied to the extent that payments
with respect to the same Proceeding (or part thereof) have been made to or for
the benefit of the Indemnitee by reason of the indemnification of the Indemnitee
pursuant to any other arrangement made by the Corporation for the benefit of the
Indemnitee.
(b) In the event the Indemnitee shall receive payment
from any insurance carrier or from the plaintiff in any Proceeding against such
Indemnitee in respect of Indemnified Amounts after payments on account of all or
part of such Indemnified Amounts have been made by the Corporation pursuant
hereto, such Indemnitee shall promptly reimburse to the Corporation the amount,
if any, by which the sum of such payment by such insurance carrier or such
plaintiff and payments by the Corporation or pursuant to arrangements made by
the Corporation to Indemnitee exceeds such Indemnified Amounts; provided,
however, that such portions, if any, of such insurance proceeds that are
required to be reimbursed to the insurance carrier under the terms of its
insurance policy, such as deductible or co-insurance payments, shall not be
deemed to be payments to the Indemnitee hereunder. In addition, upon payment of
Indemnified Amounts hereunder, the Corporation shall be subrogated to the rights
of Indemnitee receiving such payments (to the extent thereof) against any
insurance carrier (to the extent permitted under such insurance policies) or
plaintiff in respect to such Indemnified Amounts and the Indemnitee shall
execute and deliver any and all instruments and documents and perform any and
all other acts or deeds which the Corporation deems necessary or advisable to
secure such rights. Such right of subrogation shall be terminated upon receipt
by the Corporation of the amount to be reimbursed by the Indemnitee pursuant to
the first sentence of this paragraph.
6. Continuation of Indemnity. All agreements and obligations
of the Corporation contained herein shall continue during the period Indemnitee
is a director of the Corporation (or is serving at the request of the
Corporation as an Affiliate Indemnitee) and shall continue thereafter so long as
Indemnitee shall be subject to any possible Proceeding by reason of the fact
that Indemnitee was a director, officer or employee of the Corporation or was
serving in any other capacity referred to herein.
7. Successors; Binding Agreement. This Agreement shall be
binding on and shall inure to the benefit of and be enforceable by the
Corporation's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. The Corporation shall require any successor or assignee
-5-
<PAGE>
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Corporation, by
written agreement in form and substance reasonably satisfactory to the
Corporation and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform if no such succession or assignment had taken place.
8. Enforcement. The Corporation has entered into this
Agreement and assumed the obligations imposed on the Corporation hereby in order
to induce the Indemnitee to act as a director of the Corporation, and
acknowledges that the Indemnitee is relying upon this Agreement in continuing in
such capacity. In the event the Indemnitee is required to bring any action to
enforce rights or to collect monies due under this Agreement and is successful
in such action, the Corporation shall reimburse Indemnitee for all of the
Indemnitee's fees and expenses in bringing and pursuing such action. The
Indemnitee shall be entitled to the advancement of Indemnified Amounts to the
full extent contemplated by Section 3 hereof in connection with such Proceeding.
9. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof, which other provisions shall
remain in full force and effect.
10. Miscellaneous. No provision of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is agreed to in writing signed by Indemnitee and either the Chairman of the
Board or the President of the Corporation or another officer of the Corporation
specifically designated by the Board of Directors. No waiver by either party at
any time of any breach by the other party of, or of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Arizona, without giving effect to the principles of conflicts of laws thereof.
The Indemnitee may bring an action seeking resolution of disputes or
controversies arising under or in any way related to this Agreement in the state
or federal court jurisdiction in which Indemnitee resides or in which his or her
place of business is located, and in any related appellate courts, and the
Corporation consents to the jurisdiction of such courts and to such venue.
11. Notices. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as follows:
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<PAGE>
If to Indemnitee: Keith T. Knight
5460 Sunset Lane
Yorba Linda, CA 92686
If to Corporation: Knight Transportation, Inc.
5601 West Buckeye Road
Phoenix, Arizona 85043
Attention: Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12. Counterpart. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of
January 1, 1997.
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed as of the day and year first above written.
KNIGHT TRANSPORTATION, INC.
By: /s/ Kevin P. Knight
-------------------------------------
Kevin P. Knight
Its Chief Executive Officer
INDEMNITEE:
/s/ Keith T. Knight
----------------------------------------
Keith T. Knight
-7-
<PAGE>
INDEMNITY AGREEMENT
-------------------
This INDEMNITY AGREEMENT dated as of February 5, 1997, is made
by and between Knight Transportation, Inc. (the "Corporation"), and L. Randy
Knight (the "Indemnitee").
RECITALS
--------
The Articles of Incorporation and By-Laws of the Corporation
provide for indemnification by the Corporation of its directors to the fullest
extent permitted by law. The Indemnitee has been serving and desires to continue
to serve as a director of the Corporation in part in reliance on such indemnity
provision.
To provide the Indemnitee with additional contractual
assurance of protection against personal liability in connection with certain
proceedings described below, the Corporation desires to enter into this
Agreement.
In order to induce the Indemnitee to serve or continue to
serve as a director of the Corporation, and in consideration of the Indemnitee's
so serving, the Corporation desires to indemnify the Indemnitee and to make
arrangements pursuant to which the Indemnitee may be advanced or reimbursed
expenses incurred by Indemnitee in certain proceedings described below,
according to the terms and conditions set forth below.
AGREEMENT
---------
THEREFORE, in consideration of the foregoing recitals and of
Indemnitee's serving or continuing to serve the Corporation as a director, the
parties agree as follows:
1. Indemnification.
(a) In accordance with the provisions of subsection
(b) of this Section 1, the Corporation shall hold harmless and indemnify the
Indemnitee against any and all expenses, liabilities and losses (including,
without limitation, investigation expenses and expert witnesses' and attorneys'
fees and expenses, costs of court, judgments, penalties, fines, and amounts paid
or to be paid in settlement) actually incurred by the Indemnitee (net of any
related insurance proceeds or other amounts received by Indemnitee or paid by or
on behalf of the Corporation on the Indemnitee's behalf), in connection with any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, to which the Indemnitee is a party or is threatened to be made a
party (a "Proceeding") based upon, arising from, relating to, or by reason of
the fact that Indemnitee is, was, shall be, or shall have been a director and/or
officer of the Corporation or is or was serving, shall serve, or shall have
served at the request of the Corporation as a director, officer, partner,
trustee, member, employee, or agent ("Affiliate Indemnitee") of another foreign
or domestic corporation or
<PAGE>
non-profit corporation, cooperative, partnership, joint venture, limited
liability company, trust or other incorporated or unincorporated enterprise
(each, a "Company Affiliate").
(b) Without limiting the generality of the foregoing,
the Indemnitee shall be entitled to the rights of indemnification provided in
this Section 1 for any expenses actually incurred in any Proceeding initiated by
or in the right of the Corporation, unless indemnification is barred by A.R.S.
Section 10-851.D or 10-856.A, or any other applicable law.
(c) In providing the foregoing indemnification, the
Corporation shall, with respect to any proceeding, hold harmless and indemnify
the Indemnitee to the fullest extent not prohibited by the law of the State of
Arizona, as in effect from time and time, and the Articles of Incorporation. For
purposes of this Agreement, it is intended that the indemnification afforded
hereby be mandatory and the broadest possible under any then existing statutory
provision expressly authorizing the Corporation to indemnify directors or
officers whether in effect on the date of this Agreement or hereafter, provided,
however, that the indemnification provisions of this Agreement shall apply
without regard to whether any provision set forth in the Articles or Bylaws of
the Corporation authorizing or permitting indemnification shall be in force or
effect.
2. Other Indemnification Agreements. The Corporation may
purchase and maintain insurance or furnish similar protection or make other
arrangements, including, but not limited to, providing a trust fund, letter of
credit, or surety bond ("Indemnification Arrangements") on behalf of the
Indemnitee against any liability asserted against him or her or incurred by or
on behalf of him or her in such capacity as a director or officer of the
Corporation or an Affiliated Indemnitee, or arising out of his or her status as
such, whether or not the Corporation would have the power to indemnify him or
her against such liability under the provisions of this Agreement. The purchase,
establishment, and maintenance of any such Indemnification Arrangement shall not
in any way limit or affect the rights and obligations of the Corporation or of
the Indemnitee under this Agreement except as expressly provided herein, and the
execution and delivery of this Agreement by the Corporation and the Indemnitee
shall not in any way limit or affect the rights and obligations of the
Corporation or the other party or parties thereto under any such Indemnification
Arrangement. All amounts payable by the Corporation pursuant to this Section 2
and Section 1 hereof are herein referred to as "Indemnified Amounts." To the
extent the Corporation is able to obtain directors and officers liability
insurance of a reasonable premium (as determined by the Corporation in its sole
discretion), the Corporation shall use reasonable efforts to cause the
Indemnitee to be covered by such insurance.
3. Advance Payment of Indemnified Amounts.
(a) The Indemnitee hereby is granted the right to
receive in advance of a final, nonappealable judgment or other final
adjudication of a Proceeding (a "Final Determination") the amount of any and all
expenses, including, without limitation, investigation expenses, court costs,
expert witnesses' and attorneys' fees and other expenses expended or incurred by
the Indemnitee in connection with any Proceeding or otherwise expensed or
incurred by the
-2-
<PAGE>
Indemnitee (such amounts so expended or incurred being hereinafter referred to
as "Advanced Amounts").
(b) In making any written request for Advanced
Amounts, the Indemnitee shall submit to the Corporation a schedule setting forth
in reasonable detail the dollar amount expended or incurred and expected to be
expended. Each such listing shall be supported by the bill, agreement, or other
documentation relating thereto, each of which shall be appended to the schedule
as an exhibit. In addition, before the Indemnitee may receive Advanced Amounts
from the Corporation, the Indemnitee shall provide to the Corporation (i) a
written affirmation of the Indemnitee's good faith belief that the applicable
standard of conduct required for indemnification by the Corporation has been
satisfied by the Indemnitee, and (ii) a written undertaking by or on behalf of
the Indemnitee to repay the Advanced Amount if it shall ultimately be determined
that the Indemnitee has not satisfied any applicable standard of conduct. The
written undertaking required from the Indemnitee shall be an unlimited general
obligation of the Indemnitee but need not be secured. The Corporation shall pay
to the Indemnitee all Advanced Amounts within twenty (20) days after receipt by
the Corporation of all information and documentation required to be provided by
the Indemnitee pursuant to this paragraph.
4. Procedure for Payment of Indemnified Amounts.
(a) To obtain indemnification under this Agreement,
the Indemnitee shall submit to the Corporation a written request for payment of
the appropriate Indemnified Amounts, including with such requests such
documentation and information as is reasonably available to the Indemnitee and
reasonably necessary to determine whether and to what extent the Indemnitee is
entitled to indemnification. The Secretary of the Corporation shall, promptly
upon receipt of such a request for indemnification, advise the Board of
Directors in writing that the Indemnitee has requested indemnification.
(b) The Corporation shall pay the Indemnitee the
appropriate Indemnified Amounts unless it is established that the Indemnitee
engaged in one of the Prohibited Acts, and such Prohibited Act was the subject
matter of the Proceeding. For purposes of determining whether the Indemnitee is
entitled to Indemnified Amounts, in order to deny indemnification to the
Indemnitee, the Corporation has the burden of proof in establishing (1) that the
Indemnitee engaged in the Prohibited Act, and (2) that the Prohibited Act was
the subject matter of the Proceeding. In this regard, a termination of any
Proceeding by judgment, order or settlement does not create a presumption that
the Indemnitee did not meet the requisite standard of conduct; provided,
however, that the termination of any criminal proceeding by conviction, or a
pleading of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption that the
Indemnitee engaged in a Prohibited Act. For purposes of this Agreement, a
Prohibited Act shall mean any act, omission or condition (i) described in A.R.S.
Section 10-851.D or 10- 856.A for which the Corporation may not indemnify the
Indemnitee or (ii) any act, omission or condition for which indemnity is not
available under any federal or state law or public policy.
-3-
<PAGE>
(c) Any determination that the Indemnitee has engaged
in a Prohibited Act shall be made (i) either by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
Proceeding; or (ii) by independent legal counsel (who may be the outside counsel
regularly employed by the Corporation); provided that the manner in which (and,
if applicable, the counsel by which) the right of indemnification is to be
determined shall be approved in advance in writing by both the highest ranking
executive officer of the Corporation who is not a party to such action
(sometimes hereinafter referred to as "Senior Officer") and by the Indemnitee.
In the event that such parties are unable to agree on the manner in which any
such determination is to be made, such determination shall be made by
independent legal counsel retained by the Corporation especially for such
purpose, provided that such counsel be approved in advance in writing by both
the Senior Officer and the Indemnitee and, provided further, that such counsel
shall not be outside counsel regularly employed by the Corporation. The fees and
expenses of counsel in connection with making the determination contemplated
hereunder shall be paid by the Corporation, and, if requested by such counsel,
the Corporation shall give such counsel an appropriate written agreement with
respect to the payment of their fees and expenses and such other matters as may
be reasonably requested by counsel.
(d) The Corporation will use its best efforts to
conclude as soon as practicable any required determination pursuant to
subparagraph (c) above and promptly will advise the Indemnitee in writing with
respect to any determination that the Indemnitee is or is not entitled to
indemnification, including a description of any reason or basis for which
indemnification has been denied. Payment of any applicable Indemnified Amounts
will be made to the Indemnitee within ten (10) days after any determination of
the Indemnitee's entitlement to indemnification.
(e) Notwithstanding the foregoing, the Indemnitee
may, at any time after sixty (60) days after a claim for Indemnified Amounts has
been filed with the Corporation (or upon receipt of written notice that a claim
for Indemnified Amounts has been rejected, if earlier) and before three (3)
years after a claim for Indemnified Amounts has been filed, petition a court of
competent jurisdiction to determine whether the Indemnitee is entitled to
indemnification under the provisions of this Agreement, and such court shall
thereupon have the exclusive authority to make such determination unless and
until such court dismisses or otherwise terminates such action without having
made such determination. The court shall, as petitioned, make an independent
determination of whether the Indemnitee is entitled to indemnification as
provided under this Agreement, irrespective of any prior determination made by
the Board of Directors or independent counsel. If the court shall determine that
the Indemnitee is entitled to indemnification as to any claim, issue or matter
involved in the Proceeding with respect to which there has been no prior
determination pursuant to this Agreement or with respect to which there has been
a prior determination that the Indemnitee was not entitled to indemnification
hereunder, the Corporation shall pay all expenses (including attorneys' fees and
court costs) actually incurred by the Indemnitee in connection with such
judicial determination.
-4-
<PAGE>
5. Agreement Not Exclusive; Subrogation Rights, etc.
(a) This Agreement shall not be deemed exclusive of
and shall not diminish any other rights the Indemnitee may have to be
indemnified or insured or otherwise protected against any liability, loss, or
expense by the Corporation, any subsidiary of the Corporation, or any other
person or entity under any charter, bylaws, law, agreement, policy of insurance
or similar protection, vote of stockholders or directors, disinterested or not,
or otherwise, whether or not now in effect, both as to actions in the
Indemnitee's official capacity, and as to actions in another capacity while
holding such office. The Corporation's obligations to make payments of
Indemnified Amounts hereunder shall be satisfied to the extent that payments
with respect to the same Proceeding (or part thereof) have been made to or for
the benefit of the Indemnitee by reason of the indemnification of the Indemnitee
pursuant to any other arrangement made by the Corporation for the benefit of the
Indemnitee.
(b) In the event the Indemnitee shall receive payment
from any insurance carrier or from the plaintiff in any Proceeding against such
Indemnitee in respect of Indemnified Amounts after payments on account of all or
part of such Indemnified Amounts have been made by the Corporation pursuant
hereto, such Indemnitee shall promptly reimburse to the Corporation the amount,
if any, by which the sum of such payment by such insurance carrier or such
plaintiff and payments by the Corporation or pursuant to arrangements made by
the Corporation to Indemnitee exceeds such Indemnified Amounts; provided,
however, that such portions, if any, of such insurance proceeds that are
required to be reimbursed to the insurance carrier under the terms of its
insurance policy, such as deductible or co-insurance payments, shall not be
deemed to be payments to the Indemnitee hereunder. In addition, upon payment of
Indemnified Amounts hereunder, the Corporation shall be subrogated to the rights
of Indemnitee receiving such payments (to the extent thereof) against any
insurance carrier (to the extent permitted under such insurance policies) or
plaintiff in respect to such Indemnified Amounts and the Indemnitee shall
execute and deliver any and all instruments and documents and perform any and
all other acts or deeds which the Corporation deems necessary or advisable to
secure such rights. Such right of subrogation shall be terminated upon receipt
by the Corporation of the amount to be reimbursed by the Indemnitee pursuant to
the first sentence of this paragraph.
6. Continuation of Indemnity. All agreements and obligations
of the Corporation contained herein shall continue during the period Indemnitee
is a director of the Corporation (or is serving at the request of the
Corporation as an Affiliate Indemnitee) and shall continue thereafter so long as
Indemnitee shall be subject to any possible Proceeding by reason of the fact
that Indemnitee was a director, officer or employee of the Corporation or was
serving in any other capacity referred to herein.
7. Successors; Binding Agreement. This Agreement shall be
binding on and shall inure to the benefit of and be enforceable by the
Corporation's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. The Corporation shall require any successor or assignee
-5-
<PAGE>
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Corporation, by
written agreement in form and substance reasonably satisfactory to the
Corporation and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform if no such succession or assignment had taken place.
8. Enforcement. The Corporation has entered into this
Agreement and assumed the obligations imposed on the Corporation hereby in order
to induce the Indemnitee to act as a director of the Corporation, and
acknowledges that the Indemnitee is relying upon this Agreement in continuing in
such capacity. In the event the Indemnitee is required to bring any action to
enforce rights or to collect monies due under this Agreement and is successful
in such action, the Corporation shall reimburse Indemnitee for all of the
Indemnitee's fees and expenses in bringing and pursuing such action. The
Indemnitee shall be entitled to the advancement of Indemnified Amounts to the
full extent contemplated by Section 3 hereof in connection with such Proceeding.
9. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof, which other provisions shall
remain in full force and effect.
10. Miscellaneous. No provision of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is agreed to in writing signed by Indemnitee and either the Chairman of the
Board or the President of the Corporation or another officer of the Corporation
specifically designated by the Board of Directors. No waiver by either party at
any time of any breach by the other party of, or of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Arizona, without giving effect to the principles of conflicts of laws thereof.
The Indemnitee may bring an action seeking resolution of disputes or
controversies arising under or in any way related to this Agreement in the state
or federal court jurisdiction in which Indemnitee resides or in which his or her
place of business is located, and in any related appellate courts, and the
Corporation consents to the jurisdiction of such courts and to such venue.
11. Notices. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as follows:
-6-
<PAGE>
If to Indemnitee: L. Randy Knight
Knight Transportation, Inc.
5601 W. Buckeye Road
Phoenix, Arizona 85043
If to Corporation: Knight Transportation, Inc.
5601 West Buckeye Road
Phoenix, Arizona 85043
Attention: Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12. Counterpart. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of
January 1, 1997.
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed as of the day and year first above written.
KNIGHT TRANSPORTATION, INC.
By: /s/ Kevin P. Knight
-------------------------------------
Kevin P. Knight
Its Chief Executive Officer
INDEMNITEE:
/s/ L. Randy Knight
----------------------------------------
L. Randy Knight
-7-
<PAGE>
INDEMNITY AGREEMENT
-------------------
This INDEMNITY AGREEMENT dated as of February 5, 1997, is made
by and between Knight Transportation, Inc. (the "Corporation"), and Gary J.
Knight (the "Indemnitee").
RECITALS
--------
The Articles of Incorporation and By-Laws of the Corporation
provide for indemnification by the Corporation of its directors to the fullest
extent permitted by law. The Indemnitee has been serving and desires to continue
to serve as a director of the Corporation in part in reliance on such indemnity
provision.
To provide the Indemnitee with additional contractual
assurance of protection against personal liability in connection with certain
proceedings described below, the Corporation desires to enter into this
Agreement.
In order to induce the Indemnitee to serve or continue to
serve as a director of the Corporation, and in consideration of the Indemnitee's
so serving, the Corporation desires to indemnify the Indemnitee and to make
arrangements pursuant to which the Indemnitee may be advanced or reimbursed
expenses incurred by Indemnitee in certain proceedings described below,
according to the terms and conditions set forth below.
AGREEMENT
---------
THEREFORE, in consideration of the foregoing recitals and of
Indemnitee's serving or continuing to serve the Corporation as a director, the
parties agree as follows:
1. Indemnification.
(a) In accordance with the provisions of subsection
(b) of this Section 1, the Corporation shall hold harmless and indemnify the
Indemnitee against any and all expenses, liabilities and losses (including,
without limitation, investigation expenses and expert witnesses' and attorneys'
fees and expenses, costs of court, judgments, penalties, fines, and amounts paid
or to be paid in settlement) actually incurred by the Indemnitee (net of any
related insurance proceeds or other amounts received by Indemnitee or paid by or
on behalf of the Corporation on the Indemnitee's behalf), in connection with any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, to which the Indemnitee is a party or is threatened to be made a
party (a "Proceeding") based upon, arising from, relating to, or by reason of
the fact that Indemnitee is, was, shall be, or shall have been a director and/or
officer of the Corporation or is or was serving, shall serve, or shall have
served at the request of the Corporation as a director, officer, partner,
trustee, member, employee, or agent ("Affiliate Indemnitee") of another foreign
or domestic corporation or
<PAGE>
non-profit corporation, cooperative, partnership, joint venture, limited
liability company, trust or other incorporated or unincorporated enterprise
(each, a "Company Affiliate").
(b) Without limiting the generality of the foregoing,
the Indemnitee shall be entitled to the rights of indemnification provided in
this Section 1 for any expenses actually incurred in any Proceeding initiated by
or in the right of the Corporation, unless indemnification is barred by A.R.S.
Section 10-851.D or 10-856.A, or any other applicable law.
(c) In providing the foregoing indemnification, the
Corporation shall, with respect to any proceeding, hold harmless and indemnify
the Indemnitee to the fullest extent not prohibited by the law of the State of
Arizona, as in effect from time and time, and the Articles of Incorporation. For
purposes of this Agreement, it is intended that the indemnification afforded
hereby be mandatory and the broadest possible under any then existing statutory
provision expressly authorizing the Corporation to indemnify directors or
officers whether in effect on the date of this Agreement or hereafter, provided,
however, that the indemnification provisions of this Agreement shall apply
without regard to whether any provision set forth in the Articles or Bylaws of
the Corporation authorizing or permitting indemnification shall be in force or
effect.
2. Other Indemnification Agreements. The Corporation may
purchase and maintain insurance or furnish similar protection or make other
arrangements, including, but not limited to, providing a trust fund, letter of
credit, or surety bond ("Indemnification Arrangements") on behalf of the
Indemnitee against any liability asserted against him or her or incurred by or
on behalf of him or her in such capacity as a director or officer of the
Corporation or an Affiliated Indemnitee, or arising out of his or her status as
such, whether or not the Corporation would have the power to indemnify him or
her against such liability under the provisions of this Agreement. The purchase,
establishment, and maintenance of any such Indemnification Arrangement shall not
in any way limit or affect the rights and obligations of the Corporation or of
the Indemnitee under this Agreement except as expressly provided herein, and the
execution and delivery of this Agreement by the Corporation and the Indemnitee
shall not in any way limit or affect the rights and obligations of the
Corporation or the other party or parties thereto under any such Indemnification
Arrangement. All amounts payable by the Corporation pursuant to this Section 2
and Section 1 hereof are herein referred to as "Indemnified Amounts." To the
extent the Corporation is able to obtain directors and officers liability
insurance of a reasonable premium (as determined by the Corporation in its sole
discretion), the Corporation shall use reasonable efforts to cause the
Indemnitee to be covered by such insurance.
3. Advance Payment of Indemnified Amounts.
(a) The Indemnitee hereby is granted the right to
receive in advance of a final, nonappealable judgment or other final
adjudication of a Proceeding (a "Final Determination") the amount of any and all
expenses, including, without limitation, investigation expenses, court costs,
expert witnesses' and attorneys' fees and other expenses expended or incurred by
the Indemnitee in connection with any Proceeding or otherwise expensed or
incurred by the
-2-
<PAGE>
Indemnitee (such amounts so expended or incurred being hereinafter referred to
as "Advanced Amounts").
(b) In making any written request for Advanced
Amounts, the Indemnitee shall submit to the Corporation a schedule setting forth
in reasonable detail the dollar amount expended or incurred and expected to be
expended. Each such listing shall be supported by the bill, agreement, or other
documentation relating thereto, each of which shall be appended to the schedule
as an exhibit. In addition, before the Indemnitee may receive Advanced Amounts
from the Corporation, the Indemnitee shall provide to the Corporation (i) a
written affirmation of the Indemnitee's good faith belief that the applicable
standard of conduct required for indemnification by the Corporation has been
satisfied by the Indemnitee, and (ii) a written undertaking by or on behalf of
the Indemnitee to repay the Advanced Amount if it shall ultimately be determined
that the Indemnitee has not satisfied any applicable standard of conduct. The
written undertaking required from the Indemnitee shall be an unlimited general
obligation of the Indemnitee but need not be secured. The Corporation shall pay
to the Indemnitee all Advanced Amounts within twenty (20) days after receipt by
the Corporation of all information and documentation required to be provided by
the Indemnitee pursuant to this paragraph.
4. Procedure for Payment of Indemnified Amounts.
(a) To obtain indemnification under this Agreement,
the Indemnitee shall submit to the Corporation a written request for payment of
the appropriate Indemnified Amounts, including with such requests such
documentation and information as is reasonably available to the Indemnitee and
reasonably necessary to determine whether and to what extent the Indemnitee is
entitled to indemnification. The Secretary of the Corporation shall, promptly
upon receipt of such a request for indemnification, advise the Board of
Directors in writing that the Indemnitee has requested indemnification.
(b) The Corporation shall pay the Indemnitee the
appropriate Indemnified Amounts unless it is established that the Indemnitee
engaged in one of the Prohibited Acts, and such Prohibited Act was the subject
matter of the Proceeding. For purposes of determining whether the Indemnitee is
entitled to Indemnified Amounts, in order to deny indemnification to the
Indemnitee, the Corporation has the burden of proof in establishing (1) that the
Indemnitee engaged in the Prohibited Act, and (2) that the Prohibited Act was
the subject matter of the Proceeding. In this regard, a termination of any
Proceeding by judgment, order or settlement does not create a presumption that
the Indemnitee did not meet the requisite standard of conduct; provided,
however, that the termination of any criminal proceeding by conviction, or a
pleading of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption that the
Indemnitee engaged in a Prohibited Act. For purposes of this Agreement, a
Prohibited Act shall mean any act, omission or condition (i) described in A.R.S.
Section 10-851.D or 10- 856.A for which the Corporation may not indemnify the
Indemnitee or (ii) any act, omission or condition for which indemnity is not
available under any federal or state law or public policy.
-3-
<PAGE>
(c) Any determination that the Indemnitee has engaged
in a Prohibited Act shall be made (i) either by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
Proceeding; or (ii) by independent legal counsel (who may be the outside counsel
regularly employed by the Corporation); provided that the manner in which (and,
if applicable, the counsel by which) the right of indemnification is to be
determined shall be approved in advance in writing by both the highest ranking
executive officer of the Corporation who is not a party to such action
(sometimes hereinafter referred to as "Senior Officer") and by the Indemnitee.
In the event that such parties are unable to agree on the manner in which any
such determination is to be made, such determination shall be made by
independent legal counsel retained by the Corporation especially for such
purpose, provided that such counsel be approved in advance in writing by both
the Senior Officer and the Indemnitee and, provided further, that such counsel
shall not be outside counsel regularly employed by the Corporation. The fees and
expenses of counsel in connection with making the determination contemplated
hereunder shall be paid by the Corporation, and, if requested by such counsel,
the Corporation shall give such counsel an appropriate written agreement with
respect to the payment of their fees and expenses and such other matters as may
be reasonably requested by counsel.
(d) The Corporation will use its best efforts to
conclude as soon as practicable any required determination pursuant to
subparagraph (c) above and promptly will advise the Indemnitee in writing with
respect to any determination that the Indemnitee is or is not entitled to
indemnification, including a description of any reason or basis for which
indemnification has been denied. Payment of any applicable Indemnified Amounts
will be made to the Indemnitee within ten (10) days after any determination of
the Indemnitee's entitlement to indemnification.
(e) Notwithstanding the foregoing, the Indemnitee
may, at any time after sixty (60) days after a claim for Indemnified Amounts has
been filed with the Corporation (or upon receipt of written notice that a claim
for Indemnified Amounts has been rejected, if earlier) and before three (3)
years after a claim for Indemnified Amounts has been filed, petition a court of
competent jurisdiction to determine whether the Indemnitee is entitled to
indemnification under the provisions of this Agreement, and such court shall
thereupon have the exclusive authority to make such determination unless and
until such court dismisses or otherwise terminates such action without having
made such determination. The court shall, as petitioned, make an independent
determination of whether the Indemnitee is entitled to indemnification as
provided under this Agreement, irrespective of any prior determination made by
the Board of Directors or independent counsel. If the court shall determine that
the Indemnitee is entitled to indemnification as to any claim, issue or matter
involved in the Proceeding with respect to which there has been no prior
determination pursuant to this Agreement or with respect to which there has been
a prior determination that the Indemnitee was not entitled to indemnification
hereunder, the Corporation shall pay all expenses (including attorneys' fees and
court costs) actually incurred by the Indemnitee in connection with such
judicial determination.
-4-
<PAGE>
5. Agreement Not Exclusive; Subrogation Rights, etc.
(a) This Agreement shall not be deemed exclusive of
and shall not diminish any other rights the Indemnitee may have to be
indemnified or insured or otherwise protected against any liability, loss, or
expense by the Corporation, any subsidiary of the Corporation, or any other
person or entity under any charter, bylaws, law, agreement, policy of insurance
or similar protection, vote of stockholders or directors, disinterested or not,
or otherwise, whether or not now in effect, both as to actions in the
Indemnitee's official capacity, and as to actions in another capacity while
holding such office. The Corporation's obligations to make payments of
Indemnified Amounts hereunder shall be satisfied to the extent that payments
with respect to the same Proceeding (or part thereof) have been made to or for
the benefit of the Indemnitee by reason of the indemnification of the Indemnitee
pursuant to any other arrangement made by the Corporation for the benefit of the
Indemnitee.
(b) In the event the Indemnitee shall receive payment
from any insurance carrier or from the plaintiff in any Proceeding against such
Indemnitee in respect of Indemnified Amounts after payments on account of all or
part of such Indemnified Amounts have been made by the Corporation pursuant
hereto, such Indemnitee shall promptly reimburse to the Corporation the amount,
if any, by which the sum of such payment by such insurance carrier or such
plaintiff and payments by the Corporation or pursuant to arrangements made by
the Corporation to Indemnitee exceeds such Indemnified Amounts; provided,
however, that such portions, if any, of such insurance proceeds that are
required to be reimbursed to the insurance carrier under the terms of its
insurance policy, such as deductible or co-insurance payments, shall not be
deemed to be payments to the Indemnitee hereunder. In addition, upon payment of
Indemnified Amounts hereunder, the Corporation shall be subrogated to the rights
of Indemnitee receiving such payments (to the extent thereof) against any
insurance carrier (to the extent permitted under such insurance policies) or
plaintiff in respect to such Indemnified Amounts and the Indemnitee shall
execute and deliver any and all instruments and documents and perform any and
all other acts or deeds which the Corporation deems necessary or advisable to
secure such rights. Such right of subrogation shall be terminated upon receipt
by the Corporation of the amount to be reimbursed by the Indemnitee pursuant to
the first sentence of this paragraph.
6. Continuation of Indemnity. All agreements and obligations
of the Corporation contained herein shall continue during the period Indemnitee
is a director of the Corporation (or is serving at the request of the
Corporation as an Affiliate Indemnitee) and shall continue thereafter so long as
Indemnitee shall be subject to any possible Proceeding by reason of the fact
that Indemnitee was a director, officer or employee of the Corporation or was
serving in any other capacity referred to herein.
7. Successors; Binding Agreement. This Agreement shall be
binding on and shall inure to the benefit of and be enforceable by the
Corporation's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. The Corporation shall require any successor or assignee
-5-
<PAGE>
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Corporation, by
written agreement in form and substance reasonably satisfactory to the
Corporation and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform if no such succession or assignment had taken place.
8. Enforcement. The Corporation has entered into this
Agreement and assumed the obligations imposed on the Corporation hereby in order
to induce the Indemnitee to act as a director of the Corporation, and
acknowledges that the Indemnitee is relying upon this Agreement in continuing in
such capacity. In the event the Indemnitee is required to bring any action to
enforce rights or to collect monies due under this Agreement and is successful
in such action, the Corporation shall reimburse Indemnitee for all of the
Indemnitee's fees and expenses in bringing and pursuing such action. The
Indemnitee shall be entitled to the advancement of Indemnified Amounts to the
full extent contemplated by Section 3 hereof in connection with such Proceeding.
9. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof, which other provisions shall
remain in full force and effect.
10. Miscellaneous. No provision of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is agreed to in writing signed by Indemnitee and either the Chairman of the
Board or the President of the Corporation or another officer of the Corporation
specifically designated by the Board of Directors. No waiver by either party at
any time of any breach by the other party of, or of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Arizona, without giving effect to the principles of conflicts of laws thereof.
The Indemnitee may bring an action seeking resolution of disputes or
controversies arising under or in any way related to this Agreement in the state
or federal court jurisdiction in which Indemnitee resides or in which his or her
place of business is located, and in any related appellate courts, and the
Corporation consents to the jurisdiction of such courts and to such venue.
11. Notices. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as follows:
-6-
<PAGE>
If to Indemnitee: Gary J. Knight
Knight Transportation, Inc.
5601 W. Buckeye Road
Phoenix, Arizona 85043
If to Corporation: Knight Transportation, Inc.
5601 West Buckeye Road
Phoenix, Arizona 85043
Attention: Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12. Counterpart. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of
January 1, 1997.
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed as of the day and year first above written.
KNIGHT TRANSPORTATION, INC.
By: /s/ Kevin P. Knight
-------------------------------------
Kevin P. Knight
Its Chief Executive Officer
INDEMNITEE:
/s/ Gary J. Knight
----------------------------------------
Gary J. Knight
-7-
<PAGE>
INDEMNITY AGREEMENT
-------------------
This INDEMNITY AGREEMENT dated as of February 5, 1997, is made
by and between Knight Transportation, Inc. (the "Corporation"), and Kevin P.
Knight (the "Indemnitee").
RECITALS
--------
The Articles of Incorporation and By-Laws of the Corporation
provide for indemnification by the Corporation of its directors to the fullest
extent permitted by law. The Indemnitee has been serving and desires to continue
to serve as a director of the Corporation in part in reliance on such indemnity
provision.
To provide the Indemnitee with additional contractual
assurance of protection against personal liability in connection with certain
proceedings described below, the Corporation desires to enter into this
Agreement.
In order to induce the Indemnitee to serve or continue to
serve as a director of the Corporation, and in consideration of the Indemnitee's
so serving, the Corporation desires to indemnify the Indemnitee and to make
arrangements pursuant to which the Indemnitee may be advanced or reimbursed
expenses incurred by Indemnitee in certain proceedings described below,
according to the terms and conditions set forth below.
AGREEMENT
---------
THEREFORE, in consideration of the foregoing recitals and of
Indemnitee's serving or continuing to serve the Corporation as a director, the
parties agree as follows:
1. Indemnification.
(a) In accordance with the provisions of subsection
(b) of this Section 1, the Corporation shall hold harmless and indemnify the
Indemnitee against any and all expenses, liabilities and losses (including,
without limitation, investigation expenses and expert witnesses' and attorneys'
fees and expenses, costs of court, judgments, penalties, fines, and amounts paid
or to be paid in settlement) actually incurred by the Indemnitee (net of any
related insurance proceeds or other amounts received by Indemnitee or paid by or
on behalf of the Corporation on the Indemnitee's behalf), in connection with any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, to which the Indemnitee is a party or is threatened to be made a
party (a "Proceeding") based upon, arising from, relating to, or by reason of
the fact that Indemnitee is, was, shall be, or shall have been a director and/or
officer of the Corporation or is or was serving, shall serve, or shall have
served at the request of the Corporation as a director, officer, partner,
trustee, member, employee, or agent ("Affiliate Indemnitee") of another foreign
or domestic corporation or
<PAGE>
non-profit corporation, cooperative, partnership, joint venture, limited
liability company, trust or other incorporated or unincorporated enterprise
(each, a "Company Affiliate").
(b) Without limiting the generality of the foregoing,
the Indemnitee shall be entitled to the rights of indemnification provided in
this Section 1 for any expenses actually incurred in any Proceeding initiated by
or in the right of the Corporation, unless indemnification is barred by A.R.S.
Section 10-851.D or 10-856.A, or any other applicable law.
(c) In providing the foregoing indemnification, the
Corporation shall, with respect to any proceeding, hold harmless and indemnify
the Indemnitee to the fullest extent not prohibited by the law of the State of
Arizona, as in effect from time and time, and the Articles of Incorporation. For
purposes of this Agreement, it is intended that the indemnification afforded
hereby be mandatory and the broadest possible under any then existing statutory
provision expressly authorizing the Corporation to indemnify directors or
officers whether in effect on the date of this Agreement or hereafter, provided,
however, that the indemnification provisions of this Agreement shall apply
without regard to whether any provision set forth in the Articles or Bylaws of
the Corporation authorizing or permitting indemnification shall be in force or
effect.
2. Other Indemnification Agreements. The Corporation may
purchase and maintain insurance or furnish similar protection or make other
arrangements, including, but not limited to, providing a trust fund, letter of
credit, or surety bond ("Indemnification Arrangements") on behalf of the
Indemnitee against any liability asserted against him or her or incurred by or
on behalf of him or her in such capacity as a director or officer of the
Corporation or an Affiliated Indemnitee, or arising out of his or her status as
such, whether or not the Corporation would have the power to indemnify him or
her against such liability under the provisions of this Agreement. The purchase,
establishment, and maintenance of any such Indemnification Arrangement shall not
in any way limit or affect the rights and obligations of the Corporation or of
the Indemnitee under this Agreement except as expressly provided herein, and the
execution and delivery of this Agreement by the Corporation and the Indemnitee
shall not in any way limit or affect the rights and obligations of the
Corporation or the other party or parties thereto under any such Indemnification
Arrangement. All amounts payable by the Corporation pursuant to this Section 2
and Section 1 hereof are herein referred to as "Indemnified Amounts." To the
extent the Corporation is able to obtain directors and officers liability
insurance of a reasonable premium (as determined by the Corporation in its sole
discretion), the Corporation shall use reasonable efforts to cause the
Indemnitee to be covered by such insurance.
3. Advance Payment of Indemnified Amounts.
(a) The Indemnitee hereby is granted the right to
receive in advance of a final, nonappealable judgment or other final
adjudication of a Proceeding (a "Final Determination") the amount of any and all
expenses, including, without limitation, investigation expenses, court costs,
expert witnesses' and attorneys' fees and other expenses expended or incurred by
the Indemnitee in connection with any Proceeding or otherwise expensed or
incurred by the
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<PAGE>
Indemnitee (such amounts so expended or incurred being hereinafter referred to
as "Advanced Amounts").
(b) In making any written request for Advanced
Amounts, the Indemnitee shall submit to the Corporation a schedule setting forth
in reasonable detail the dollar amount expended or incurred and expected to be
expended. Each such listing shall be supported by the bill, agreement, or other
documentation relating thereto, each of which shall be appended to the schedule
as an exhibit. In addition, before the Indemnitee may receive Advanced Amounts
from the Corporation, the Indemnitee shall provide to the Corporation (i) a
written affirmation of the Indemnitee's good faith belief that the applicable
standard of conduct required for indemnification by the Corporation has been
satisfied by the Indemnitee, and (ii) a written undertaking by or on behalf of
the Indemnitee to repay the Advanced Amount if it shall ultimately be determined
that the Indemnitee has not satisfied any applicable standard of conduct. The
written undertaking required from the Indemnitee shall be an unlimited general
obligation of the Indemnitee but need not be secured. The Corporation shall pay
to the Indemnitee all Advanced Amounts within twenty (20) days after receipt by
the Corporation of all information and documentation required to be provided by
the Indemnitee pursuant to this paragraph.
4. Procedure for Payment of Indemnified Amounts.
(a) To obtain indemnification under this Agreement,
the Indemnitee shall submit to the Corporation a written request for payment of
the appropriate Indemnified Amounts, including with such requests such
documentation and information as is reasonably available to the Indemnitee and
reasonably necessary to determine whether and to what extent the Indemnitee is
entitled to indemnification. The Secretary of the Corporation shall, promptly
upon receipt of such a request for indemnification, advise the Board of
Directors in writing that the Indemnitee has requested indemnification.
(b) The Corporation shall pay the Indemnitee the
appropriate Indemnified Amounts unless it is established that the Indemnitee
engaged in one of the Prohibited Acts, and such Prohibited Act was the subject
matter of the Proceeding. For purposes of determining whether the Indemnitee is
entitled to Indemnified Amounts, in order to deny indemnification to the
Indemnitee, the Corporation has the burden of proof in establishing (1) that the
Indemnitee engaged in the Prohibited Act, and (2) that the Prohibited Act was
the subject matter of the Proceeding. In this regard, a termination of any
Proceeding by judgment, order or settlement does not create a presumption that
the Indemnitee did not meet the requisite standard of conduct; provided,
however, that the termination of any criminal proceeding by conviction, or a
pleading of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption that the
Indemnitee engaged in a Prohibited Act. For purposes of this Agreement, a
Prohibited Act shall mean any act, omission or condition (i) described in A.R.S.
Section 10-851.D or 10- 856.A for which the Corporation may not indemnify the
Indemnitee or (ii) any act, omission or condition for which indemnity is not
available under any federal or state law or public policy.
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<PAGE>
(c) Any determination that the Indemnitee has engaged
in a Prohibited Act shall be made (i) either by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
Proceeding; or (ii) by independent legal counsel (who may be the outside counsel
regularly employed by the Corporation); provided that the manner in which (and,
if applicable, the counsel by which) the right of indemnification is to be
determined shall be approved in advance in writing by both the highest ranking
executive officer of the Corporation who is not a party to such action
(sometimes hereinafter referred to as "Senior Officer") and by the Indemnitee.
In the event that such parties are unable to agree on the manner in which any
such determination is to be made, such determination shall be made by
independent legal counsel retained by the Corporation especially for such
purpose, provided that such counsel be approved in advance in writing by both
the Senior Officer and the Indemnitee and, provided further, that such counsel
shall not be outside counsel regularly employed by the Corporation. The fees and
expenses of counsel in connection with making the determination contemplated
hereunder shall be paid by the Corporation, and, if requested by such counsel,
the Corporation shall give such counsel an appropriate written agreement with
respect to the payment of their fees and expenses and such other matters as may
be reasonably requested by counsel.
(d) The Corporation will use its best efforts to
conclude as soon as practicable any required determination pursuant to
subparagraph (c) above and promptly will advise the Indemnitee in writing with
respect to any determination that the Indemnitee is or is not entitled to
indemnification, including a description of any reason or basis for which
indemnification has been denied. Payment of any applicable Indemnified Amounts
will be made to the Indemnitee within ten (10) days after any determination of
the Indemnitee's entitlement to indemnification.
(e) Notwithstanding the foregoing, the Indemnitee
may, at any time after sixty (60) days after a claim for Indemnified Amounts has
been filed with the Corporation (or upon receipt of written notice that a claim
for Indemnified Amounts has been rejected, if earlier) and before three (3)
years after a claim for Indemnified Amounts has been filed, petition a court of
competent jurisdiction to determine whether the Indemnitee is entitled to
indemnification under the provisions of this Agreement, and such court shall
thereupon have the exclusive authority to make such determination unless and
until such court dismisses or otherwise terminates such action without having
made such determination. The court shall, as petitioned, make an independent
determination of whether the Indemnitee is entitled to indemnification as
provided under this Agreement, irrespective of any prior determination made by
the Board of Directors or independent counsel. If the court shall determine that
the Indemnitee is entitled to indemnification as to any claim, issue or matter
involved in the Proceeding with respect to which there has been no prior
determination pursuant to this Agreement or with respect to which there has been
a prior determination that the Indemnitee was not entitled to indemnification
hereunder, the Corporation shall pay all expenses (including attorneys' fees and
court costs) actually incurred by the Indemnitee in connection with such
judicial determination.
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<PAGE>
5. Agreement Not Exclusive; Subrogation Rights, etc.
(a) This Agreement shall not be deemed exclusive of
and shall not diminish any other rights the Indemnitee may have to be
indemnified or insured or otherwise protected against any liability, loss, or
expense by the Corporation, any subsidiary of the Corporation, or any other
person or entity under any charter, bylaws, law, agreement, policy of insurance
or similar protection, vote of stockholders or directors, disinterested or not,
or otherwise, whether or not now in effect, both as to actions in the
Indemnitee's official capacity, and as to actions in another capacity while
holding such office. The Corporation's obligations to make payments of
Indemnified Amounts hereunder shall be satisfied to the extent that payments
with respect to the same Proceeding (or part thereof) have been made to or for
the benefit of the Indemnitee by reason of the indemnification of the Indemnitee
pursuant to any other arrangement made by the Corporation for the benefit of the
Indemnitee.
(b) In the event the Indemnitee shall receive payment
from any insurance carrier or from the plaintiff in any Proceeding against such
Indemnitee in respect of Indemnified Amounts after payments on account of all or
part of such Indemnified Amounts have been made by the Corporation pursuant
hereto, such Indemnitee shall promptly reimburse to the Corporation the amount,
if any, by which the sum of such payment by such insurance carrier or such
plaintiff and payments by the Corporation or pursuant to arrangements made by
the Corporation to Indemnitee exceeds such Indemnified Amounts; provided,
however, that such portions, if any, of such insurance proceeds that are
required to be reimbursed to the insurance carrier under the terms of its
insurance policy, such as deductible or co-insurance payments, shall not be
deemed to be payments to the Indemnitee hereunder. In addition, upon payment of
Indemnified Amounts hereunder, the Corporation shall be subrogated to the rights
of Indemnitee receiving such payments (to the extent thereof) against any
insurance carrier (to the extent permitted under such insurance policies) or
plaintiff in respect to such Indemnified Amounts and the Indemnitee shall
execute and deliver any and all instruments and documents and perform any and
all other acts or deeds which the Corporation deems necessary or advisable to
secure such rights. Such right of subrogation shall be terminated upon receipt
by the Corporation of the amount to be reimbursed by the Indemnitee pursuant to
the first sentence of this paragraph.
6. Continuation of Indemnity. All agreements and obligations
of the Corporation contained herein shall continue during the period Indemnitee
is a director of the Corporation (or is serving at the request of the
Corporation as an Affiliate Indemnitee) and shall continue thereafter so long as
Indemnitee shall be subject to any possible Proceeding by reason of the fact
that Indemnitee was a director, officer or employee of the Corporation or was
serving in any other capacity referred to herein.
7. Successors; Binding Agreement. This Agreement shall be
binding on and shall inure to the benefit of and be enforceable by the
Corporation's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. The Corporation shall require any successor or assignee
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<PAGE>
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Corporation, by
written agreement in form and substance reasonably satisfactory to the
Corporation and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform if no such succession or assignment had taken place.
8. Enforcement. The Corporation has entered into this
Agreement and assumed the obligations imposed on the Corporation hereby in order
to induce the Indemnitee to act as a director of the Corporation, and
acknowledges that the Indemnitee is relying upon this Agreement in continuing in
such capacity. In the event the Indemnitee is required to bring any action to
enforce rights or to collect monies due under this Agreement and is successful
in such action, the Corporation shall reimburse Indemnitee for all of the
Indemnitee's fees and expenses in bringing and pursuing such action. The
Indemnitee shall be entitled to the advancement of Indemnified Amounts to the
full extent contemplated by Section 3 hereof in connection with such Proceeding.
9. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof, which other provisions shall
remain in full force and effect.
10. Miscellaneous. No provision of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is agreed to in writing signed by Indemnitee and either the Chairman of the
Board or the President of the Corporation or another officer of the Corporation
specifically designated by the Board of Directors. No waiver by either party at
any time of any breach by the other party of, or of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Arizona, without giving effect to the principles of conflicts of laws thereof.
The Indemnitee may bring an action seeking resolution of disputes or
controversies arising under or in any way related to this Agreement in the state
or federal court jurisdiction in which Indemnitee resides or in which his or her
place of business is located, and in any related appellate courts, and the
Corporation consents to the jurisdiction of such courts and to such venue.
11. Notices. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as follows:
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<PAGE>
If to Indemnitee: Kevin P. Knight
Knight Transportation, Inc.
5601 W. Buckeye Road
Phoenix, Arizona 85043
If to Corporation: Knight Transportation, Inc.
5601 West Buckeye Road
Phoenix, Arizona 85043
Attention: Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12. Counterpart. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of
January 1, 1997.
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed as of the day and year first above written.
KNIGHT TRANSPORTATION, INC.
By: /s/ L. Randy Knight
-------------------------------------
L. Randy Knight
Chairman of the Board
INDEMNITEE:
/s/ Kevin P. Knight
----------------------------------------
Kevin P. Knight
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<PAGE>
INDEMNITY AGREEMENT
-------------------
This INDEMNITY AGREEMENT dated as of February 5, 1997, is made
by and between Knight Transportation, Inc. (the "Corporation"), and D. G. Madden
(the "Indemnitee").
RECITALS
--------
The Articles of Incorporation and By-Laws of the Corporation
provide for indemnification by the Corporation of its directors to the fullest
extent permitted by law. The Indemnitee has been serving and desires to continue
to serve as a director of the Corporation in part in reliance on such indemnity
provision.
To provide the Indemnitee with additional contractual
assurance of protection against personal liability in connection with certain
proceedings described below, the Corporation desires to enter into this
Agreement.
In order to induce the Indemnitee to serve or continue to
serve as a director of the Corporation, and in consideration of the Indemnitee's
so serving, the Corporation desires to indemnify the Indemnitee and to make
arrangements pursuant to which the Indemnitee may be advanced or reimbursed
expenses incurred by Indemnitee in certain proceedings described below,
according to the terms and conditions set forth below.
AGREEMENT
---------
THEREFORE, in consideration of the foregoing recitals and of
Indemnitee's serving or continuing to serve the Corporation as a director, the
parties agree as follows:
1. Indemnification.
(a) In accordance with the provisions of subsection
(b) of this Section 1, the Corporation shall hold harmless and indemnify the
Indemnitee against any and all expenses, liabilities and losses (including,
without limitation, investigation expenses and expert witnesses' and attorneys'
fees and expenses, costs of court, judgments, penalties, fines, and amounts paid
or to be paid in settlement) actually incurred by the Indemnitee (net of any
related insurance proceeds or other amounts received by Indemnitee or paid by or
on behalf of the Corporation on the Indemnitee's behalf), in connection with any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, to which the Indemnitee is a party or is threatened to be made a
party (a "Proceeding") based upon, arising from, relating to, or by reason of
the fact that Indemnitee is, was, shall be, or shall have been a director and/or
officer of the Corporation or is or was serving, shall serve, or shall have
served at the request of the Corporation as a director, officer, partner,
trustee, member, employee, or agent ("Affiliate Indemnitee") of another foreign
or domestic corporation or
<PAGE>
non-profit corporation, cooperative, partnership, joint venture, limited
liability company, trust or other incorporated or unincorporated enterprise
(each, a "Company Affiliate").
(b) Without limiting the generality of the foregoing,
the Indemnitee shall be entitled to the rights of indemnification provided in
this Section 1 for any expenses actually incurred in any Proceeding initiated by
or in the right of the Corporation, unless indemnification is barred by A.R.S.
Section 10-851.D or 10-856.A, or any other applicable law.
(c) In providing the foregoing indemnification, the
Corporation shall, with respect to any proceeding, hold harmless and indemnify
the Indemnitee to the fullest extent not prohibited by the law of the State of
Arizona, as in effect from time and time, and the Articles of Incorporation. For
purposes of this Agreement, it is intended that the indemnification afforded
hereby be mandatory and the broadest possible under any then existing statutory
provision expressly authorizing the Corporation to indemnify directors or
officers whether in effect on the date of this Agreement or hereafter, provided,
however, that the indemnification provisions of this Agreement shall apply
without regard to whether any provision set forth in the Articles or Bylaws of
the Corporation authorizing or permitting indemnification shall be in force or
effect.
2. Other Indemnification Agreements. The Corporation may
purchase and maintain insurance or furnish similar protection or make other
arrangements, including, but not limited to, providing a trust fund, letter of
credit, or surety bond ("Indemnification Arrangements") on behalf of the
Indemnitee against any liability asserted against him or her or incurred by or
on behalf of him or her in such capacity as a director or officer of the
Corporation or an Affiliated Indemnitee, or arising out of his or her status as
such, whether or not the Corporation would have the power to indemnify him or
her against such liability under the provisions of this Agreement. The purchase,
establishment, and maintenance of any such Indemnification Arrangement shall not
in any way limit or affect the rights and obligations of the Corporation or of
the Indemnitee under this Agreement except as expressly provided herein, and the
execution and delivery of this Agreement by the Corporation and the Indemnitee
shall not in any way limit or affect the rights and obligations of the
Corporation or the other party or parties thereto under any such Indemnification
Arrangement. All amounts payable by the Corporation pursuant to this Section 2
and Section 1 hereof are herein referred to as "Indemnified Amounts." To the
extent the Corporation is able to obtain directors and officers liability
insurance of a reasonable premium (as determined by the Corporation in its sole
discretion), the Corporation shall use reasonable efforts to cause the
Indemnitee to be covered by such insurance.
3. Advance Payment of Indemnified Amounts.
(a) The Indemnitee hereby is granted the right to
receive in advance of a final, nonappealable judgment or other final
adjudication of a Proceeding (a "Final Determination") the amount of any and all
expenses, including, without limitation, investigation expenses, court costs,
expert witnesses' and attorneys' fees and other expenses expended or incurred by
the Indemnitee in connection with any Proceeding or otherwise expensed or
incurred by the
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<PAGE>
Indemnitee (such amounts so expended or incurred being hereinafter referred to
as "Advanced Amounts").
(b) In making any written request for Advanced
Amounts, the Indemnitee shall submit to the Corporation a schedule setting forth
in reasonable detail the dollar amount expended or incurred and expected to be
expended. Each such listing shall be supported by the bill, agreement, or other
documentation relating thereto, each of which shall be appended to the schedule
as an exhibit. In addition, before the Indemnitee may receive Advanced Amounts
from the Corporation, the Indemnitee shall provide to the Corporation (i) a
written affirmation of the Indemnitee's good faith belief that the applicable
standard of conduct required for indemnification by the Corporation has been
satisfied by the Indemnitee, and (ii) a written undertaking by or on behalf of
the Indemnitee to repay the Advanced Amount if it shall ultimately be determined
that the Indemnitee has not satisfied any applicable standard of conduct. The
written undertaking required from the Indemnitee shall be an unlimited general
obligation of the Indemnitee but need not be secured. The Corporation shall pay
to the Indemnitee all Advanced Amounts within twenty (20) days after receipt by
the Corporation of all information and documentation required to be provided by
the Indemnitee pursuant to this paragraph.
4. Procedure for Payment of Indemnified Amounts.
(a) To obtain indemnification under this Agreement,
the Indemnitee shall submit to the Corporation a written request for payment of
the appropriate Indemnified Amounts, including with such requests such
documentation and information as is reasonably available to the Indemnitee and
reasonably necessary to determine whether and to what extent the Indemnitee is
entitled to indemnification. The Secretary of the Corporation shall, promptly
upon receipt of such a request for indemnification, advise the Board of
Directors in writing that the Indemnitee has requested indemnification.
(b) The Corporation shall pay the Indemnitee the
appropriate Indemnified Amounts unless it is established that the Indemnitee
engaged in one of the Prohibited Acts, and such Prohibited Act was the subject
matter of the Proceeding. For purposes of determining whether the Indemnitee is
entitled to Indemnified Amounts, in order to deny indemnification to the
Indemnitee, the Corporation has the burden of proof in establishing (1) that the
Indemnitee engaged in the Prohibited Act, and (2) that the Prohibited Act was
the subject matter of the Proceeding. In this regard, a termination of any
Proceeding by judgment, order or settlement does not create a presumption that
the Indemnitee did not meet the requisite standard of conduct; provided,
however, that the termination of any criminal proceeding by conviction, or a
pleading of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption that the
Indemnitee engaged in a Prohibited Act. For purposes of this Agreement, a
Prohibited Act shall mean any act, omission or condition (i) described in A.R.S.
Section 10-851.D or 10- 856.A for which the Corporation may not indemnify the
Indemnitee or (ii) any act, omission or condition for which indemnity is not
available under any federal or state law or public policy.
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<PAGE>
(c) Any determination that the Indemnitee has engaged
in a Prohibited Act shall be made (i) either by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
Proceeding; or (ii) by independent legal counsel (who may be the outside counsel
regularly employed by the Corporation); provided that the manner in which (and,
if applicable, the counsel by which) the right of indemnification is to be
determined shall be approved in advance in writing by both the highest ranking
executive officer of the Corporation who is not a party to such action
(sometimes hereinafter referred to as "Senior Officer") and by the Indemnitee.
In the event that such parties are unable to agree on the manner in which any
such determination is to be made, such determination shall be made by
independent legal counsel retained by the Corporation especially for such
purpose, provided that such counsel be approved in advance in writing by both
the Senior Officer and the Indemnitee and, provided further, that such counsel
shall not be outside counsel regularly employed by the Corporation. The fees and
expenses of counsel in connection with making the determination contemplated
hereunder shall be paid by the Corporation, and, if requested by such counsel,
the Corporation shall give such counsel an appropriate written agreement with
respect to the payment of their fees and expenses and such other matters as may
be reasonably requested by counsel.
(d) The Corporation will use its best efforts to
conclude as soon as practicable any required determination pursuant to
subparagraph (c) above and promptly will advise the Indemnitee in writing with
respect to any determination that the Indemnitee is or is not entitled to
indemnification, including a description of any reason or basis for which
indemnification has been denied. Payment of any applicable Indemnified Amounts
will be made to the Indemnitee within ten (10) days after any determination of
the Indemnitee's entitlement to indemnification.
(e) Notwithstanding the foregoing, the Indemnitee
may, at any time after sixty (60) days after a claim for Indemnified Amounts has
been filed with the Corporation (or upon receipt of written notice that a claim
for Indemnified Amounts has been rejected, if earlier) and before three (3)
years after a claim for Indemnified Amounts has been filed, petition a court of
competent jurisdiction to determine whether the Indemnitee is entitled to
indemnification under the provisions of this Agreement, and such court shall
thereupon have the exclusive authority to make such determination unless and
until such court dismisses or otherwise terminates such action without having
made such determination. The court shall, as petitioned, make an independent
determination of whether the Indemnitee is entitled to indemnification as
provided under this Agreement, irrespective of any prior determination made by
the Board of Directors or independent counsel. If the court shall determine that
the Indemnitee is entitled to indemnification as to any claim, issue or matter
involved in the Proceeding with respect to which there has been no prior
determination pursuant to this Agreement or with respect to which there has been
a prior determination that the Indemnitee was not entitled to indemnification
hereunder, the Corporation shall pay all expenses (including attorneys' fees and
court costs) actually incurred by the Indemnitee in connection with such
judicial determination.
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<PAGE>
5. Agreement Not Exclusive; Subrogation Rights, etc.
(a) This Agreement shall not be deemed exclusive of
and shall not diminish any other rights the Indemnitee may have to be
indemnified or insured or otherwise protected against any liability, loss, or
expense by the Corporation, any subsidiary of the Corporation, or any other
person or entity under any charter, bylaws, law, agreement, policy of insurance
or similar protection, vote of stockholders or directors, disinterested or not,
or otherwise, whether or not now in effect, both as to actions in the
Indemnitee's official capacity, and as to actions in another capacity while
holding such office. The Corporation's obligations to make payments of
Indemnified Amounts hereunder shall be satisfied to the extent that payments
with respect to the same Proceeding (or part thereof) have been made to or for
the benefit of the Indemnitee by reason of the indemnification of the Indemnitee
pursuant to any other arrangement made by the Corporation for the benefit of the
Indemnitee.
(b) In the event the Indemnitee shall receive payment
from any insurance carrier or from the plaintiff in any Proceeding against such
Indemnitee in respect of Indemnified Amounts after payments on account of all or
part of such Indemnified Amounts have been made by the Corporation pursuant
hereto, such Indemnitee shall promptly reimburse to the Corporation the amount,
if any, by which the sum of such payment by such insurance carrier or such
plaintiff and payments by the Corporation or pursuant to arrangements made by
the Corporation to Indemnitee exceeds such Indemnified Amounts; provided,
however, that such portions, if any, of such insurance proceeds that are
required to be reimbursed to the insurance carrier under the terms of its
insurance policy, such as deductible or co-insurance payments, shall not be
deemed to be payments to the Indemnitee hereunder. In addition, upon payment of
Indemnified Amounts hereunder, the Corporation shall be subrogated to the rights
of Indemnitee receiving such payments (to the extent thereof) against any
insurance carrier (to the extent permitted under such insurance policies) or
plaintiff in respect to such Indemnified Amounts and the Indemnitee shall
execute and deliver any and all instruments and documents and perform any and
all other acts or deeds which the Corporation deems necessary or advisable to
secure such rights. Such right of subrogation shall be terminated upon receipt
by the Corporation of the amount to be reimbursed by the Indemnitee pursuant to
the first sentence of this paragraph.
6. Continuation of Indemnity. All agreements and obligations
of the Corporation contained herein shall continue during the period Indemnitee
is a director of the Corporation (or is serving at the request of the
Corporation as an Affiliate Indemnitee) and shall continue thereafter so long as
Indemnitee shall be subject to any possible Proceeding by reason of the fact
that Indemnitee was a director, officer or employee of the Corporation or was
serving in any other capacity referred to herein.
7. Successors; Binding Agreement. This Agreement shall be
binding on and shall inure to the benefit of and be enforceable by the
Corporation's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. The Corporation shall require any successor or assignee
-5-
<PAGE>
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Corporation, by
written agreement in form and substance reasonably satisfactory to the
Corporation and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform if no such succession or assignment had taken place.
8. Enforcement. The Corporation has entered into this
Agreement and assumed the obligations imposed on the Corporation hereby in order
to induce the Indemnitee to act as a director of the Corporation, and
acknowledges that the Indemnitee is relying upon this Agreement in continuing in
such capacity. In the event the Indemnitee is required to bring any action to
enforce rights or to collect monies due under this Agreement and is successful
in such action, the Corporation shall reimburse Indemnitee for all of the
Indemnitee's fees and expenses in bringing and pursuing such action. The
Indemnitee shall be entitled to the advancement of Indemnified Amounts to the
full extent contemplated by Section 3 hereof in connection with such Proceeding.
9. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof, which other provisions shall
remain in full force and effect.
10. Miscellaneous. No provision of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is agreed to in writing signed by Indemnitee and either the Chairman of the
Board or the President of the Corporation or another officer of the Corporation
specifically designated by the Board of Directors. No waiver by either party at
any time of any breach by the other party of, or of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Arizona, without giving effect to the principles of conflicts of laws thereof.
The Indemnitee may bring an action seeking resolution of disputes or
controversies arising under or in any way related to this Agreement in the state
or federal court jurisdiction in which Indemnitee resides or in which his or her
place of business is located, and in any related appellate courts, and the
Corporation consents to the jurisdiction of such courts and to such venue.
11. Notices. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as follows:
-6-
<PAGE>
If to Indemnitee: D. G. Madden
10700 Woodridden
Oklahoma City, OK 73170
If to Corporation: Knight Transportation, Inc.
5601 West Buckeye Road
Phoenix, Arizona 85043
Attention: Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12. Counterpart. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of
January 1, 1997.
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed as of the day and year first above written.
KNIGHT TRANSPORTATION, INC.
By: /s/ Kevin P. Knight
-------------------------------------
Kevin P. Knight
Its Chief Executive Officer
INDEMNITEE:
/s/ D. G. Madden
----------------------------------------
D. G. Madden
-7-
<PAGE>
INDEMNITY AGREEMENT
-------------------
This INDEMNITY AGREEMENT dated as of February 5, 1997, is made
by and between Knight Transportation, Inc. (the "Corporation"), and Minor
Perkins (the "Indemnitee").
RECITALS
--------
The Articles of Incorporation and By-Laws of the Corporation
provide for indemnification by the Corporation of its directors to the fullest
extent permitted by law. The Indemnitee has been serving and desires to continue
to serve as a director of the Corporation in part in reliance on such indemnity
provision.
To provide the Indemnitee with additional contractual
assurance of protection against personal liability in connection with certain
proceedings described below, the Corporation desires to enter into this
Agreement.
In order to induce the Indemnitee to serve or continue to
serve as a director of the Corporation, and in consideration of the Indemnitee's
so serving, the Corporation desires to indemnify the Indemnitee and to make
arrangements pursuant to which the Indemnitee may be advanced or reimbursed
expenses incurred by Indemnitee in certain proceedings described below,
according to the terms and conditions set forth below.
AGREEMENT
---------
THEREFORE, in consideration of the foregoing recitals and of
Indemnitee's serving or continuing to serve the Corporation as a director, the
parties agree as follows:
1. Indemnification.
(a) In accordance with the provisions of subsection
(b) of this Section 1, the Corporation shall hold harmless and indemnify the
Indemnitee against any and all expenses, liabilities and losses (including,
without limitation, investigation expenses and expert witnesses' and attorneys'
fees and expenses, costs of court, judgments, penalties, fines, and amounts paid
or to be paid in settlement) actually incurred by the Indemnitee (net of any
related insurance proceeds or other amounts received by Indemnitee or paid by or
on behalf of the Corporation on the Indemnitee's behalf), in connection with any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, to which the Indemnitee is a party or is threatened to be made a
party (a "Proceeding") based upon, arising from, relating to, or by reason of
the fact that Indemnitee is, was, shall be, or shall have been a director and/or
officer of the Corporation or is or was serving, shall serve, or shall have
served at the request of the Corporation as a director, officer, partner,
trustee, member, employee, or agent ("Affiliate Indemnitee") of another foreign
or domestic corporation or
<PAGE>
non-profit corporation, cooperative, partnership, joint venture, limited
liability company, trust or other incorporated or unincorporated enterprise
(each, a "Company Affiliate").
(b) Without limiting the generality of the foregoing,
the Indemnitee shall be entitled to the rights of indemnification provided in
this Section 1 for any expenses actually incurred in any Proceeding initiated by
or in the right of the Corporation, unless indemnification is barred by A.R.S.
Section 10-851.D or 10-856.A, or any other applicable law.
(c) In providing the foregoing indemnification, the
Corporation shall, with respect to any proceeding, hold harmless and indemnify
the Indemnitee to the fullest extent not prohibited by the law of the State of
Arizona, as in effect from time and time, and the Articles of Incorporation. For
purposes of this Agreement, it is intended that the indemnification afforded
hereby be mandatory and the broadest possible under any then existing statutory
provision expressly authorizing the Corporation to indemnify directors or
officers whether in effect on the date of this Agreement or hereafter, provided,
however, that the indemnification provisions of this Agreement shall apply
without regard to whether any provision set forth in the Articles or Bylaws of
the Corporation authorizing or permitting indemnification shall be in force or
effect.
2. Other Indemnification Agreements. The Corporation may
purchase and maintain insurance or furnish similar protection or make other
arrangements, including, but not limited to, providing a trust fund, letter of
credit, or surety bond ("Indemnification Arrangements") on behalf of the
Indemnitee against any liability asserted against him or her or incurred by or
on behalf of him or her in such capacity as a director or officer of the
Corporation or an Affiliated Indemnitee, or arising out of his or her status as
such, whether or not the Corporation would have the power to indemnify him or
her against such liability under the provisions of this Agreement. The purchase,
establishment, and maintenance of any such Indemnification Arrangement shall not
in any way limit or affect the rights and obligations of the Corporation or of
the Indemnitee under this Agreement except as expressly provided herein, and the
execution and delivery of this Agreement by the Corporation and the Indemnitee
shall not in any way limit or affect the rights and obligations of the
Corporation or the other party or parties thereto under any such Indemnification
Arrangement. All amounts payable by the Corporation pursuant to this Section 2
and Section 1 hereof are herein referred to as "Indemnified Amounts." To the
extent the Corporation is able to obtain directors and officers liability
insurance of a reasonable premium (as determined by the Corporation in its sole
discretion), the Corporation shall use reasonable efforts to cause the
Indemnitee to be covered by such insurance.
3. Advance Payment of Indemnified Amounts.
(a) The Indemnitee hereby is granted the right to
receive in advance of a final, nonappealable judgment or other final
adjudication of a Proceeding (a "Final Determination") the amount of any and all
expenses, including, without limitation, investigation expenses, court costs,
expert witnesses' and attorneys' fees and other expenses expended or incurred by
the Indemnitee in connection with any Proceeding or otherwise expensed or
incurred by the
-2-
<PAGE>
Indemnitee (such amounts so expended or incurred being hereinafter referred to
as "Advanced Amounts").
(b) In making any written request for Advanced
Amounts, the Indemnitee shall submit to the Corporation a schedule setting forth
in reasonable detail the dollar amount expended or incurred and expected to be
expended. Each such listing shall be supported by the bill, agreement, or other
documentation relating thereto, each of which shall be appended to the schedule
as an exhibit. In addition, before the Indemnitee may receive Advanced Amounts
from the Corporation, the Indemnitee shall provide to the Corporation (i) a
written affirmation of the Indemnitee's good faith belief that the applicable
standard of conduct required for indemnification by the Corporation has been
satisfied by the Indemnitee, and (ii) a written undertaking by or on behalf of
the Indemnitee to repay the Advanced Amount if it shall ultimately be determined
that the Indemnitee has not satisfied any applicable standard of conduct. The
written undertaking required from the Indemnitee shall be an unlimited general
obligation of the Indemnitee but need not be secured. The Corporation shall pay
to the Indemnitee all Advanced Amounts within twenty (20) days after receipt by
the Corporation of all information and documentation required to be provided by
the Indemnitee pursuant to this paragraph.
4. Procedure for Payment of Indemnified Amounts.
(a) To obtain indemnification under this Agreement,
the Indemnitee shall submit to the Corporation a written request for payment of
the appropriate Indemnified Amounts, including with such requests such
documentation and information as is reasonably available to the Indemnitee and
reasonably necessary to determine whether and to what extent the Indemnitee is
entitled to indemnification. The Secretary of the Corporation shall, promptly
upon receipt of such a request for indemnification, advise the Board of
Directors in writing that the Indemnitee has requested indemnification.
(b) The Corporation shall pay the Indemnitee the
appropriate Indemnified Amounts unless it is established that the Indemnitee
engaged in one of the Prohibited Acts, and such Prohibited Act was the subject
matter of the Proceeding. For purposes of determining whether the Indemnitee is
entitled to Indemnified Amounts, in order to deny indemnification to the
Indemnitee, the Corporation has the burden of proof in establishing (1) that the
Indemnitee engaged in the Prohibited Act, and (2) that the Prohibited Act was
the subject matter of the Proceeding. In this regard, a termination of any
Proceeding by judgment, order or settlement does not create a presumption that
the Indemnitee did not meet the requisite standard of conduct; provided,
however, that the termination of any criminal proceeding by conviction, or a
pleading of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption that the
Indemnitee engaged in a Prohibited Act. For purposes of this Agreement, a
Prohibited Act shall mean any act, omission or condition (i) described in A.R.S.
Section 10-851.D or 10- 856.A for which the Corporation may not indemnify the
Indemnitee or (ii) any act, omission or condition for which indemnity is not
available under any federal or state law or public policy.
-3-
<PAGE>
(c) Any determination that the Indemnitee has engaged
in a Prohibited Act shall be made (i) either by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
Proceeding; or (ii) by independent legal counsel (who may be the outside counsel
regularly employed by the Corporation); provided that the manner in which (and,
if applicable, the counsel by which) the right of indemnification is to be
determined shall be approved in advance in writing by both the highest ranking
executive officer of the Corporation who is not a party to such action
(sometimes hereinafter referred to as "Senior Officer") and by the Indemnitee.
In the event that such parties are unable to agree on the manner in which any
such determination is to be made, such determination shall be made by
independent legal counsel retained by the Corporation especially for such
purpose, provided that such counsel be approved in advance in writing by both
the Senior Officer and the Indemnitee and, provided further, that such counsel
shall not be outside counsel regularly employed by the Corporation. The fees and
expenses of counsel in connection with making the determination contemplated
hereunder shall be paid by the Corporation, and, if requested by such counsel,
the Corporation shall give such counsel an appropriate written agreement with
respect to the payment of their fees and expenses and such other matters as may
be reasonably requested by counsel.
(d) The Corporation will use its best efforts to
conclude as soon as practicable any required determination pursuant to
subparagraph (c) above and promptly will advise the Indemnitee in writing with
respect to any determination that the Indemnitee is or is not entitled to
indemnification, including a description of any reason or basis for which
indemnification has been denied. Payment of any applicable Indemnified Amounts
will be made to the Indemnitee within ten (10) days after any determination of
the Indemnitee's entitlement to indemnification.
(e) Notwithstanding the foregoing, the Indemnitee
may, at any time after sixty (60) days after a claim for Indemnified Amounts has
been filed with the Corporation (or upon receipt of written notice that a claim
for Indemnified Amounts has been rejected, if earlier) and before three (3)
years after a claim for Indemnified Amounts has been filed, petition a court of
competent jurisdiction to determine whether the Indemnitee is entitled to
indemnification under the provisions of this Agreement, and such court shall
thereupon have the exclusive authority to make such determination unless and
until such court dismisses or otherwise terminates such action without having
made such determination. The court shall, as petitioned, make an independent
determination of whether the Indemnitee is entitled to indemnification as
provided under this Agreement, irrespective of any prior determination made by
the Board of Directors or independent counsel. If the court shall determine that
the Indemnitee is entitled to indemnification as to any claim, issue or matter
involved in the Proceeding with respect to which there has been no prior
determination pursuant to this Agreement or with respect to which there has been
a prior determination that the Indemnitee was not entitled to indemnification
hereunder, the Corporation shall pay all expenses (including attorneys' fees and
court costs) actually incurred by the Indemnitee in connection with such
judicial determination.
-4-
<PAGE>
5. Agreement Not Exclusive; Subrogation Rights, etc.
(a) This Agreement shall not be deemed exclusive of
and shall not diminish any other rights the Indemnitee may have to be
indemnified or insured or otherwise protected against any liability, loss, or
expense by the Corporation, any subsidiary of the Corporation, or any other
person or entity under any charter, bylaws, law, agreement, policy of insurance
or similar protection, vote of stockholders or directors, disinterested or not,
or otherwise, whether or not now in effect, both as to actions in the
Indemnitee's official capacity, and as to actions in another capacity while
holding such office. The Corporation's obligations to make payments of
Indemnified Amounts hereunder shall be satisfied to the extent that payments
with respect to the same Proceeding (or part thereof) have been made to or for
the benefit of the Indemnitee by reason of the indemnification of the Indemnitee
pursuant to any other arrangement made by the Corporation for the benefit of the
Indemnitee.
(b) In the event the Indemnitee shall receive payment
from any insurance carrier or from the plaintiff in any Proceeding against such
Indemnitee in respect of Indemnified Amounts after payments on account of all or
part of such Indemnified Amounts have been made by the Corporation pursuant
hereto, such Indemnitee shall promptly reimburse to the Corporation the amount,
if any, by which the sum of such payment by such insurance carrier or such
plaintiff and payments by the Corporation or pursuant to arrangements made by
the Corporation to Indemnitee exceeds such Indemnified Amounts; provided,
however, that such portions, if any, of such insurance proceeds that are
required to be reimbursed to the insurance carrier under the terms of its
insurance policy, such as deductible or co-insurance payments, shall not be
deemed to be payments to the Indemnitee hereunder. In addition, upon payment of
Indemnified Amounts hereunder, the Corporation shall be subrogated to the rights
of Indemnitee receiving such payments (to the extent thereof) against any
insurance carrier (to the extent permitted under such insurance policies) or
plaintiff in respect to such Indemnified Amounts and the Indemnitee shall
execute and deliver any and all instruments and documents and perform any and
all other acts or deeds which the Corporation deems necessary or advisable to
secure such rights. Such right of subrogation shall be terminated upon receipt
by the Corporation of the amount to be reimbursed by the Indemnitee pursuant to
the first sentence of this paragraph.
6. Continuation of Indemnity. All agreements and obligations
of the Corporation contained herein shall continue during the period Indemnitee
is a director of the Corporation (or is serving at the request of the
Corporation as an Affiliate Indemnitee) and shall continue thereafter so long as
Indemnitee shall be subject to any possible Proceeding by reason of the fact
that Indemnitee was a director, officer or employee of the Corporation or was
serving in any other capacity referred to herein.
7. Successors; Binding Agreement. This Agreement shall be
binding on and shall inure to the benefit of and be enforceable by the
Corporation's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. The Corporation shall require any successor or assignee
-5-
<PAGE>
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Corporation, by
written agreement in form and substance reasonably satisfactory to the
Corporation and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform if no such succession or assignment had taken place.
8. Enforcement. The Corporation has entered into this
Agreement and assumed the obligations imposed on the Corporation hereby in order
to induce the Indemnitee to act as a director of the Corporation, and
acknowledges that the Indemnitee is relying upon this Agreement in continuing in
such capacity. In the event the Indemnitee is required to bring any action to
enforce rights or to collect monies due under this Agreement and is successful
in such action, the Corporation shall reimburse Indemnitee for all of the
Indemnitee's fees and expenses in bringing and pursuing such action. The
Indemnitee shall be entitled to the advancement of Indemnified Amounts to the
full extent contemplated by Section 3 hereof in connection with such Proceeding.
9. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof, which other provisions shall
remain in full force and effect.
10. Miscellaneous. No provision of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is agreed to in writing signed by Indemnitee and either the Chairman of the
Board or the President of the Corporation or another officer of the Corporation
specifically designated by the Board of Directors. No waiver by either party at
any time of any breach by the other party of, or of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Arizona, without giving effect to the principles of conflicts of laws thereof.
The Indemnitee may bring an action seeking resolution of disputes or
controversies arising under or in any way related to this Agreement in the state
or federal court jurisdiction in which Indemnitee resides or in which his or her
place of business is located, and in any related appellate courts, and the
Corporation consents to the jurisdiction of such courts and to such venue.
11. Notices. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as follows:
-6-
<PAGE>
If to Indemnitee: Minor Perkins
889 Ridge Lake Blvd., #100
Memphis, TN 38120
If to Corporation: Knight Transportation, Inc.
5601 West Buckeye Road
Phoenix, Arizona 85043
Attention: Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12. Counterpart. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of
January 1, 1997.
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed as of the day and year first above written.
KNIGHT TRANSPORTATION, INC.
By: /s/ Kevin P. Knight
-------------------------------------
Kevin P. Knight
Its Chief Executive Officer
INDEMNITEE:
Minor Perkins
----------------------------------------
Minor Perkins
-7-
<PAGE>
INDEMNITY AGREEMENT
-------------------
This INDEMNITY AGREEMENT dated as of February 5, 1997, is made
by and between Knight Transportation, Inc. (the "Corporation"), and Keith L.
Turley (the "Indemnitee").
RECITALS
--------
The Articles of Incorporation and By-Laws of the Corporation
provide for indemnification by the Corporation of its directors to the fullest
extent permitted by law. The Indemnitee has been serving and desires to continue
to serve as a director of the Corporation in part in reliance on such indemnity
provision.
To provide the Indemnitee with additional contractual
assurance of protection against personal liability in connection with certain
proceedings described below, the Corporation desires to enter into this
Agreement.
In order to induce the Indemnitee to serve or continue to
serve as a director of the Corporation, and in consideration of the Indemnitee's
so serving, the Corporation desires to indemnify the Indemnitee and to make
arrangements pursuant to which the Indemnitee may be advanced or reimbursed
expenses incurred by Indemnitee in certain proceedings described below,
according to the terms and conditions set forth below.
AGREEMENT
---------
THEREFORE, in consideration of the foregoing recitals and of
Indemnitee's serving or continuing to serve the Corporation as a director, the
parties agree as follows:
1. Indemnification.
(a) In accordance with the provisions of subsection
(b) of this Section 1, the Corporation shall hold harmless and indemnify the
Indemnitee against any and all expenses, liabilities and losses (including,
without limitation, investigation expenses and expert witnesses' and attorneys'
fees and expenses, costs of court, judgments, penalties, fines, and amounts paid
or to be paid in settlement) actually incurred by the Indemnitee (net of any
related insurance proceeds or other amounts received by Indemnitee or paid by or
on behalf of the Corporation on the Indemnitee's behalf), in connection with any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, to which the Indemnitee is a party or is threatened to be made a
party (a "Proceeding") based upon, arising from, relating to, or by reason of
the fact that Indemnitee is, was, shall be, or shall have been a director and/or
officer of the Corporation or is or was serving, shall serve, or shall have
served at the request of the Corporation as a director, officer, partner,
trustee, member, employee, or agent ("Affiliate Indemnitee") of another foreign
or domestic corporation or
<PAGE>
non-profit corporation, cooperative, partnership, joint venture, limited
liability company, trust or other incorporated or unincorporated enterprise
(each, a "Company Affiliate").
(b) Without limiting the generality of the foregoing,
the Indemnitee shall be entitled to the rights of indemnification provided in
this Section 1 for any expenses actually incurred in any Proceeding initiated by
or in the right of the Corporation, unless indemnification is barred by A.R.S.
Section 10-851.D or 10-856.A, or any other applicable law.
(c) In providing the foregoing indemnification, the
Corporation shall, with respect to any proceeding, hold harmless and indemnify
the Indemnitee to the fullest extent not prohibited by the law of the State of
Arizona, as in effect from time and time, and the Articles of Incorporation. For
purposes of this Agreement, it is intended that the indemnification afforded
hereby be mandatory and the broadest possible under any then existing statutory
provision expressly authorizing the Corporation to indemnify directors or
officers whether in effect on the date of this Agreement or hereafter, provided,
however, that the indemnification provisions of this Agreement shall apply
without regard to whether any provision set forth in the Articles or Bylaws of
the Corporation authorizing or permitting indemnification shall be in force or
effect.
2. Other Indemnification Agreements. The Corporation may
purchase and maintain insurance or furnish similar protection or make other
arrangements, including, but not limited to, providing a trust fund, letter of
credit, or surety bond ("Indemnification Arrangements") on behalf of the
Indemnitee against any liability asserted against him or her or incurred by or
on behalf of him or her in such capacity as a director or officer of the
Corporation or an Affiliated Indemnitee, or arising out of his or her status as
such, whether or not the Corporation would have the power to indemnify him or
her against such liability under the provisions of this Agreement. The purchase,
establishment, and maintenance of any such Indemnification Arrangement shall not
in any way limit or affect the rights and obligations of the Corporation or of
the Indemnitee under this Agreement except as expressly provided herein, and the
execution and delivery of this Agreement by the Corporation and the Indemnitee
shall not in any way limit or affect the rights and obligations of the
Corporation or the other party or parties thereto under any such Indemnification
Arrangement. All amounts payable by the Corporation pursuant to this Section 2
and Section 1 hereof are herein referred to as "Indemnified Amounts." To the
extent the Corporation is able to obtain directors and officers liability
insurance of a reasonable premium (as determined by the Corporation in its sole
discretion), the Corporation shall use reasonable efforts to cause the
Indemnitee to be covered by such insurance.
3. Advance Payment of Indemnified Amounts.
(a) The Indemnitee hereby is granted the right to
receive in advance of a final, nonappealable judgment or other final
adjudication of a Proceeding (a "Final Determination") the amount of any and all
expenses, including, without limitation, investigation expenses, court costs,
expert witnesses' and attorneys' fees and other expenses expended or incurred by
the Indemnitee in connection with any Proceeding or otherwise expensed or
incurred by the
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<PAGE>
Indemnitee (such amounts so expended or incurred being hereinafter referred to
as "Advanced Amounts").
(b) In making any written request for Advanced
Amounts, the Indemnitee shall submit to the Corporation a schedule setting forth
in reasonable detail the dollar amount expended or incurred and expected to be
expended. Each such listing shall be supported by the bill, agreement, or other
documentation relating thereto, each of which shall be appended to the schedule
as an exhibit. In addition, before the Indemnitee may receive Advanced Amounts
from the Corporation, the Indemnitee shall provide to the Corporation (i) a
written affirmation of the Indemnitee's good faith belief that the applicable
standard of conduct required for indemnification by the Corporation has been
satisfied by the Indemnitee, and (ii) a written undertaking by or on behalf of
the Indemnitee to repay the Advanced Amount if it shall ultimately be determined
that the Indemnitee has not satisfied any applicable standard of conduct. The
written undertaking required from the Indemnitee shall be an unlimited general
obligation of the Indemnitee but need not be secured. The Corporation shall pay
to the Indemnitee all Advanced Amounts within twenty (20) days after receipt by
the Corporation of all information and documentation required to be provided by
the Indemnitee pursuant to this paragraph.
4. Procedure for Payment of Indemnified Amounts.
(a) To obtain indemnification under this Agreement,
the Indemnitee shall submit to the Corporation a written request for payment of
the appropriate Indemnified Amounts, including with such requests such
documentation and information as is reasonably available to the Indemnitee and
reasonably necessary to determine whether and to what extent the Indemnitee is
entitled to indemnification. The Secretary of the Corporation shall, promptly
upon receipt of such a request for indemnification, advise the Board of
Directors in writing that the Indemnitee has requested indemnification.
(b) The Corporation shall pay the Indemnitee the
appropriate Indemnified Amounts unless it is established that the Indemnitee
engaged in one of the Prohibited Acts, and such Prohibited Act was the subject
matter of the Proceeding. For purposes of determining whether the Indemnitee is
entitled to Indemnified Amounts, in order to deny indemnification to the
Indemnitee, the Corporation has the burden of proof in establishing (1) that the
Indemnitee engaged in the Prohibited Act, and (2) that the Prohibited Act was
the subject matter of the Proceeding. In this regard, a termination of any
Proceeding by judgment, order or settlement does not create a presumption that
the Indemnitee did not meet the requisite standard of conduct; provided,
however, that the termination of any criminal proceeding by conviction, or a
pleading of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption that the
Indemnitee engaged in a Prohibited Act. For purposes of this Agreement, a
Prohibited Act shall mean any act, omission or condition (i) described in A.R.S.
Section 10-851.D or 10- 856.A for which the Corporation may not indemnify the
Indemnitee or (ii) any act, omission or condition for which indemnity is not
available under any federal or state law or public policy.
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<PAGE>
(c) Any determination that the Indemnitee has engaged
in a Prohibited Act shall be made (i) either by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
Proceeding; or (ii) by independent legal counsel (who may be the outside counsel
regularly employed by the Corporation); provided that the manner in which (and,
if applicable, the counsel by which) the right of indemnification is to be
determined shall be approved in advance in writing by both the highest ranking
executive officer of the Corporation who is not a party to such action
(sometimes hereinafter referred to as "Senior Officer") and by the Indemnitee.
In the event that such parties are unable to agree on the manner in which any
such determination is to be made, such determination shall be made by
independent legal counsel retained by the Corporation especially for such
purpose, provided that such counsel be approved in advance in writing by both
the Senior Officer and the Indemnitee and, provided further, that such counsel
shall not be outside counsel regularly employed by the Corporation. The fees and
expenses of counsel in connection with making the determination contemplated
hereunder shall be paid by the Corporation, and, if requested by such counsel,
the Corporation shall give such counsel an appropriate written agreement with
respect to the payment of their fees and expenses and such other matters as may
be reasonably requested by counsel.
(d) The Corporation will use its best efforts to
conclude as soon as practicable any required determination pursuant to
subparagraph (c) above and promptly will advise the Indemnitee in writing with
respect to any determination that the Indemnitee is or is not entitled to
indemnification, including a description of any reason or basis for which
indemnification has been denied. Payment of any applicable Indemnified Amounts
will be made to the Indemnitee within ten (10) days after any determination of
the Indemnitee's entitlement to indemnification.
(e) Notwithstanding the foregoing, the Indemnitee
may, at any time after sixty (60) days after a claim for Indemnified Amounts has
been filed with the Corporation (or upon receipt of written notice that a claim
for Indemnified Amounts has been rejected, if earlier) and before three (3)
years after a claim for Indemnified Amounts has been filed, petition a court of
competent jurisdiction to determine whether the Indemnitee is entitled to
indemnification under the provisions of this Agreement, and such court shall
thereupon have the exclusive authority to make such determination unless and
until such court dismisses or otherwise terminates such action without having
made such determination. The court shall, as petitioned, make an independent
determination of whether the Indemnitee is entitled to indemnification as
provided under this Agreement, irrespective of any prior determination made by
the Board of Directors or independent counsel. If the court shall determine that
the Indemnitee is entitled to indemnification as to any claim, issue or matter
involved in the Proceeding with respect to which there has been no prior
determination pursuant to this Agreement or with respect to which there has been
a prior determination that the Indemnitee was not entitled to indemnification
hereunder, the Corporation shall pay all expenses (including attorneys' fees and
court costs) actually incurred by the Indemnitee in connection with such
judicial determination.
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<PAGE>
5. Agreement Not Exclusive; Subrogation Rights, etc.
(a) This Agreement shall not be deemed exclusive of
and shall not diminish any other rights the Indemnitee may have to be
indemnified or insured or otherwise protected against any liability, loss, or
expense by the Corporation, any subsidiary of the Corporation, or any other
person or entity under any charter, bylaws, law, agreement, policy of insurance
or similar protection, vote of stockholders or directors, disinterested or not,
or otherwise, whether or not now in effect, both as to actions in the
Indemnitee's official capacity, and as to actions in another capacity while
holding such office. The Corporation's obligations to make payments of
Indemnified Amounts hereunder shall be satisfied to the extent that payments
with respect to the same Proceeding (or part thereof) have been made to or for
the benefit of the Indemnitee by reason of the indemnification of the Indemnitee
pursuant to any other arrangement made by the Corporation for the benefit of the
Indemnitee.
(b) In the event the Indemnitee shall receive payment
from any insurance carrier or from the plaintiff in any Proceeding against such
Indemnitee in respect of Indemnified Amounts after payments on account of all or
part of such Indemnified Amounts have been made by the Corporation pursuant
hereto, such Indemnitee shall promptly reimburse to the Corporation the amount,
if any, by which the sum of such payment by such insurance carrier or such
plaintiff and payments by the Corporation or pursuant to arrangements made by
the Corporation to Indemnitee exceeds such Indemnified Amounts; provided,
however, that such portions, if any, of such insurance proceeds that are
required to be reimbursed to the insurance carrier under the terms of its
insurance policy, such as deductible or co-insurance payments, shall not be
deemed to be payments to the Indemnitee hereunder. In addition, upon payment of
Indemnified Amounts hereunder, the Corporation shall be subrogated to the rights
of Indemnitee receiving such payments (to the extent thereof) against any
insurance carrier (to the extent permitted under such insurance policies) or
plaintiff in respect to such Indemnified Amounts and the Indemnitee shall
execute and deliver any and all instruments and documents and perform any and
all other acts or deeds which the Corporation deems necessary or advisable to
secure such rights. Such right of subrogation shall be terminated upon receipt
by the Corporation of the amount to be reimbursed by the Indemnitee pursuant to
the first sentence of this paragraph.
6. Continuation of Indemnity. All agreements and obligations
of the Corporation contained herein shall continue during the period Indemnitee
is a director of the Corporation (or is serving at the request of the
Corporation as an Affiliate Indemnitee) and shall continue thereafter so long as
Indemnitee shall be subject to any possible Proceeding by reason of the fact
that Indemnitee was a director, officer or employee of the Corporation or was
serving in any other capacity referred to herein.
7. Successors; Binding Agreement. This Agreement shall be
binding on and shall inure to the benefit of and be enforceable by the
Corporation's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. The Corporation shall require any successor or assignee
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<PAGE>
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Corporation, by
written agreement in form and substance reasonably satisfactory to the
Corporation and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform if no such succession or assignment had taken place.
8. Enforcement. The Corporation has entered into this
Agreement and assumed the obligations imposed on the Corporation hereby in order
to induce the Indemnitee to act as a director of the Corporation, and
acknowledges that the Indemnitee is relying upon this Agreement in continuing in
such capacity. In the event the Indemnitee is required to bring any action to
enforce rights or to collect monies due under this Agreement and is successful
in such action, the Corporation shall reimburse Indemnitee for all of the
Indemnitee's fees and expenses in bringing and pursuing such action. The
Indemnitee shall be entitled to the advancement of Indemnified Amounts to the
full extent contemplated by Section 3 hereof in connection with such Proceeding.
9. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof, which other provisions shall
remain in full force and effect.
10. Miscellaneous. No provision of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is agreed to in writing signed by Indemnitee and either the Chairman of the
Board or the President of the Corporation or another officer of the Corporation
specifically designated by the Board of Directors. No waiver by either party at
any time of any breach by the other party of, or of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Arizona, without giving effect to the principles of conflicts of laws thereof.
The Indemnitee may bring an action seeking resolution of disputes or
controversies arising under or in any way related to this Agreement in the state
or federal court jurisdiction in which Indemnitee resides or in which his or her
place of business is located, and in any related appellate courts, and the
Corporation consents to the jurisdiction of such courts and to such venue.
11. Notices. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as follows:
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If to Indemnitee: Keith L. Turley
7239 N. Desert Fairways
Paradise Valley, AZ 85253
If to Corporation: Knight Transportation, Inc.
5601 West Buckeye Road
Phoenix, Arizona 85043
Attention: Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12. Counterpart. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of
January 1, 1997.
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed as of the day and year first above written.
KNIGHT TRANSPORTATION, INC.
By: /s/ Kevin P. Knight
-------------------------------------
Kevin P. Knight
Its Chief Executive Officer
INDEMNITEE:
Keith L. Turley
----------------------------------------
Keith L. Turley
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<PAGE>
INDEMNITY AGREEMENT
-------------------
This INDEMNITY AGREEMENT dated as of February 5, 1997, is made
by and between Knight Transportation, Inc. (the "Corporation"), and Donald A.
Bliss (the "Indemnitee").
RECITALS
--------
The Articles of Incorporation and By-Laws of the Corporation
provide for indemnification by the Corporation of its directors to the fullest
extent permitted by law. The Indemnitee has been serving and desires to continue
to serve as a director of the Corporation in part in reliance on such indemnity
provision.
To provide the Indemnitee with additional contractual
assurance of protection against personal liability in connection with certain
proceedings described below, the Corporation desires to enter into this
Agreement.
In order to induce the Indemnitee to serve or continue to
serve as a director of the Corporation, and in consideration of the Indemnitee's
so serving, the Corporation desires to indemnify the Indemnitee and to make
arrangements pursuant to which the Indemnitee may be advanced or reimbursed
expenses incurred by Indemnitee in certain proceedings described below,
according to the terms and conditions set forth below.
AGREEMENT
---------
THEREFORE, in consideration of the foregoing recitals and of
Indemnitee's serving or continuing to serve the Corporation as a director, the
parties agree as follows:
1. Indemnification.
(a) In accordance with the provisions of subsection
(b) of this Section 1, the Corporation shall hold harmless and indemnify the
Indemnitee against any and all expenses, liabilities and losses (including,
without limitation, investigation expenses and expert witnesses' and attorneys'
fees and expenses, costs of court, judgments, penalties, fines, and amounts paid
or to be paid in settlement) actually incurred by the Indemnitee (net of any
related insurance proceeds or other amounts received by Indemnitee or paid by or
on behalf of the Corporation on the Indemnitee's behalf), in connection with any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, to which the Indemnitee is a party or is threatened to be made a
party (a "Proceeding") based upon, arising from, relating to, or by reason of
the fact that Indemnitee is, was, shall be, or shall have been a director and/or
officer of the Corporation or is or was serving, shall serve, or shall have
served at the request of the Corporation as a director, officer, partner,
trustee, member, employee, or agent ("Affiliate Indemnitee") of another foreign
or domestic corporation or
<PAGE>
non-profit corporation, cooperative, partnership, joint venture, limited
liability company, trust or other incorporated or unincorporated enterprise
(each, a "Company Affiliate").
(b) Without limiting the generality of the foregoing,
the Indemnitee shall be entitled to the rights of indemnification provided in
this Section 1 for any expenses actually incurred in any Proceeding initiated by
or in the right of the Corporation, unless indemnification is barred by A.R.S.
Section 10-851.D or 10-856.A, or any other applicable law.
(c) In providing the foregoing indemnification, the
Corporation shall, with respect to any proceeding, hold harmless and indemnify
the Indemnitee to the fullest extent not prohibited by the law of the State of
Arizona, as in effect from time and time, and the Articles of Incorporation. For
purposes of this Agreement, it is intended that the indemnification afforded
hereby be mandatory and the broadest possible under any then existing statutory
provision expressly authorizing the Corporation to indemnify directors or
officers whether in effect on the date of this Agreement or hereafter, provided,
however, that the indemnification provisions of this Agreement shall apply
without regard to whether any provision set forth in the Articles or Bylaws of
the Corporation authorizing or permitting indemnification shall be in force or
effect.
2. Other Indemnification Agreements. The Corporation may
purchase and maintain insurance or furnish similar protection or make other
arrangements, including, but not limited to, providing a trust fund, letter of
credit, or surety bond ("Indemnification Arrangements") on behalf of the
Indemnitee against any liability asserted against him or her or incurred by or
on behalf of him or her in such capacity as a director or officer of the
Corporation or an Affiliated Indemnitee, or arising out of his or her status as
such, whether or not the Corporation would have the power to indemnify him or
her against such liability under the provisions of this Agreement. The purchase,
establishment, and maintenance of any such Indemnification Arrangement shall not
in any way limit or affect the rights and obligations of the Corporation or of
the Indemnitee under this Agreement except as expressly provided herein, and the
execution and delivery of this Agreement by the Corporation and the Indemnitee
shall not in any way limit or affect the rights and obligations of the
Corporation or the other party or parties thereto under any such Indemnification
Arrangement. All amounts payable by the Corporation pursuant to this Section 2
and Section 1 hereof are herein referred to as "Indemnified Amounts." To the
extent the Corporation is able to obtain directors and officers liability
insurance of a reasonable premium (as determined by the Corporation in its sole
discretion), the Corporation shall use reasonable efforts to cause the
Indemnitee to be covered by such insurance.
3. Advance Payment of Indemnified Amounts.
(a) The Indemnitee hereby is granted the right to
receive in advance of a final, nonappealable judgment or other final
adjudication of a Proceeding (a "Final Determination") the amount of any and all
expenses, including, without limitation, investigation expenses, court costs,
expert witnesses' and attorneys' fees and other expenses expended or incurred by
the Indemnitee in connection with any Proceeding or otherwise expensed or
incurred by the
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<PAGE>
Indemnitee (such amounts so expended or incurred being hereinafter referred to
as "Advanced Amounts").
(b) In making any written request for Advanced
Amounts, the Indemnitee shall submit to the Corporation a schedule setting forth
in reasonable detail the dollar amount expended or incurred and expected to be
expended. Each such listing shall be supported by the bill, agreement, or other
documentation relating thereto, each of which shall be appended to the schedule
as an exhibit. In addition, before the Indemnitee may receive Advanced Amounts
from the Corporation, the Indemnitee shall provide to the Corporation (i) a
written affirmation of the Indemnitee's good faith belief that the applicable
standard of conduct required for indemnification by the Corporation has been
satisfied by the Indemnitee, and (ii) a written undertaking by or on behalf of
the Indemnitee to repay the Advanced Amount if it shall ultimately be determined
that the Indemnitee has not satisfied any applicable standard of conduct. The
written undertaking required from the Indemnitee shall be an unlimited general
obligation of the Indemnitee but need not be secured. The Corporation shall pay
to the Indemnitee all Advanced Amounts within twenty (20) days after receipt by
the Corporation of all information and documentation required to be provided by
the Indemnitee pursuant to this paragraph.
4. Procedure for Payment of Indemnified Amounts.
(a) To obtain indemnification under this Agreement,
the Indemnitee shall submit to the Corporation a written request for payment of
the appropriate Indemnified Amounts, including with such requests such
documentation and information as is reasonably available to the Indemnitee and
reasonably necessary to determine whether and to what extent the Indemnitee is
entitled to indemnification. The Secretary of the Corporation shall, promptly
upon receipt of such a request for indemnification, advise the Board of
Directors in writing that the Indemnitee has requested indemnification.
(b) The Corporation shall pay the Indemnitee the
appropriate Indemnified Amounts unless it is established that the Indemnitee
engaged in one of the Prohibited Acts, and such Prohibited Act was the subject
matter of the Proceeding. For purposes of determining whether the Indemnitee is
entitled to Indemnified Amounts, in order to deny indemnification to the
Indemnitee, the Corporation has the burden of proof in establishing (1) that the
Indemnitee engaged in the Prohibited Act, and (2) that the Prohibited Act was
the subject matter of the Proceeding. In this regard, a termination of any
Proceeding by judgment, order or settlement does not create a presumption that
the Indemnitee did not meet the requisite standard of conduct; provided,
however, that the termination of any criminal proceeding by conviction, or a
pleading of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption that the
Indemnitee engaged in a Prohibited Act. For purposes of this Agreement, a
Prohibited Act shall mean any act, omission or condition (i) described in A.R.S.
Section 10-851.D or 10- 856.A for which the Corporation may not indemnify the
Indemnitee or (ii) any act, omission or condition for which indemnity is not
available under any federal or state law or public policy.
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<PAGE>
(c) Any determination that the Indemnitee has engaged
in a Prohibited Act shall be made (i) either by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
Proceeding; or (ii) by independent legal counsel (who may be the outside counsel
regularly employed by the Corporation); provided that the manner in which (and,
if applicable, the counsel by which) the right of indemnification is to be
determined shall be approved in advance in writing by both the highest ranking
executive officer of the Corporation who is not a party to such action
(sometimes hereinafter referred to as "Senior Officer") and by the Indemnitee.
In the event that such parties are unable to agree on the manner in which any
such determination is to be made, such determination shall be made by
independent legal counsel retained by the Corporation especially for such
purpose, provided that such counsel be approved in advance in writing by both
the Senior Officer and the Indemnitee and, provided further, that such counsel
shall not be outside counsel regularly employed by the Corporation. The fees and
expenses of counsel in connection with making the determination contemplated
hereunder shall be paid by the Corporation, and, if requested by such counsel,
the Corporation shall give such counsel an appropriate written agreement with
respect to the payment of their fees and expenses and such other matters as may
be reasonably requested by counsel.
(d) The Corporation will use its best efforts to
conclude as soon as practicable any required determination pursuant to
subparagraph (c) above and promptly will advise the Indemnitee in writing with
respect to any determination that the Indemnitee is or is not entitled to
indemnification, including a description of any reason or basis for which
indemnification has been denied. Payment of any applicable Indemnified Amounts
will be made to the Indemnitee within ten (10) days after any determination of
the Indemnitee's entitlement to indemnification.
(e) Notwithstanding the foregoing, the Indemnitee
may, at any time after sixty (60) days after a claim for Indemnified Amounts has
been filed with the Corporation (or upon receipt of written notice that a claim
for Indemnified Amounts has been rejected, if earlier) and before three (3)
years after a claim for Indemnified Amounts has been filed, petition a court of
competent jurisdiction to determine whether the Indemnitee is entitled to
indemnification under the provisions of this Agreement, and such court shall
thereupon have the exclusive authority to make such determination unless and
until such court dismisses or otherwise terminates such action without having
made such determination. The court shall, as petitioned, make an independent
determination of whether the Indemnitee is entitled to indemnification as
provided under this Agreement, irrespective of any prior determination made by
the Board of Directors or independent counsel. If the court shall determine that
the Indemnitee is entitled to indemnification as to any claim, issue or matter
involved in the Proceeding with respect to which there has been no prior
determination pursuant to this Agreement or with respect to which there has been
a prior determination that the Indemnitee was not entitled to indemnification
hereunder, the Corporation shall pay all expenses (including attorneys' fees and
court costs) actually incurred by the Indemnitee in connection with such
judicial determination.
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<PAGE>
5. Agreement Not Exclusive; Subrogation Rights, etc.
(a) This Agreement shall not be deemed exclusive of
and shall not diminish any other rights the Indemnitee may have to be
indemnified or insured or otherwise protected against any liability, loss, or
expense by the Corporation, any subsidiary of the Corporation, or any other
person or entity under any charter, bylaws, law, agreement, policy of insurance
or similar protection, vote of stockholders or directors, disinterested or not,
or otherwise, whether or not now in effect, both as to actions in the
Indemnitee's official capacity, and as to actions in another capacity while
holding such office. The Corporation's obligations to make payments of
Indemnified Amounts hereunder shall be satisfied to the extent that payments
with respect to the same Proceeding (or part thereof) have been made to or for
the benefit of the Indemnitee by reason of the indemnification of the Indemnitee
pursuant to any other arrangement made by the Corporation for the benefit of the
Indemnitee.
(b) In the event the Indemnitee shall receive payment
from any insurance carrier or from the plaintiff in any Proceeding against such
Indemnitee in respect of Indemnified Amounts after payments on account of all or
part of such Indemnified Amounts have been made by the Corporation pursuant
hereto, such Indemnitee shall promptly reimburse to the Corporation the amount,
if any, by which the sum of such payment by such insurance carrier or such
plaintiff and payments by the Corporation or pursuant to arrangements made by
the Corporation to Indemnitee exceeds such Indemnified Amounts; provided,
however, that such portions, if any, of such insurance proceeds that are
required to be reimbursed to the insurance carrier under the terms of its
insurance policy, such as deductible or co-insurance payments, shall not be
deemed to be payments to the Indemnitee hereunder. In addition, upon payment of
Indemnified Amounts hereunder, the Corporation shall be subrogated to the rights
of Indemnitee receiving such payments (to the extent thereof) against any
insurance carrier (to the extent permitted under such insurance policies) or
plaintiff in respect to such Indemnified Amounts and the Indemnitee shall
execute and deliver any and all instruments and documents and perform any and
all other acts or deeds which the Corporation deems necessary or advisable to
secure such rights. Such right of subrogation shall be terminated upon receipt
by the Corporation of the amount to be reimbursed by the Indemnitee pursuant to
the first sentence of this paragraph.
6. Continuation of Indemnity. All agreements and obligations
of the Corporation contained herein shall continue during the period Indemnitee
is a director of the Corporation (or is serving at the request of the
Corporation as an Affiliate Indemnitee) and shall continue thereafter so long as
Indemnitee shall be subject to any possible Proceeding by reason of the fact
that Indemnitee was a director, officer or employee of the Corporation or was
serving in any other capacity referred to herein.
7. Successors; Binding Agreement. This Agreement shall be
binding on and shall inure to the benefit of and be enforceable by the
Corporation's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. The Corporation shall require any successor or assignee
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<PAGE>
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Corporation, by
written agreement in form and substance reasonably satisfactory to the
Corporation and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform if no such succession or assignment had taken place.
8. Enforcement. The Corporation has entered into this
Agreement and assumed the obligations imposed on the Corporation hereby in order
to induce the Indemnitee to act as a director of the Corporation, and
acknowledges that the Indemnitee is relying upon this Agreement in continuing in
such capacity. In the event the Indemnitee is required to bring any action to
enforce rights or to collect monies due under this Agreement and is successful
in such action, the Corporation shall reimburse Indemnitee for all of the
Indemnitee's fees and expenses in bringing and pursuing such action. The
Indemnitee shall be entitled to the advancement of Indemnified Amounts to the
full extent contemplated by Section 3 hereof in connection with such Proceeding.
9. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof, which other provisions shall
remain in full force and effect.
10. Miscellaneous. No provision of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is agreed to in writing signed by Indemnitee and either the Chairman of the
Board or the President of the Corporation or another officer of the Corporation
specifically designated by the Board of Directors. No waiver by either party at
any time of any breach by the other party of, or of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Arizona, without giving effect to the principles of conflicts of laws thereof.
The Indemnitee may bring an action seeking resolution of disputes or
controversies arising under or in any way related to this Agreement in the state
or federal court jurisdiction in which Indemnitee resides or in which his or her
place of business is located, and in any related appellate courts, and the
Corporation consents to the jurisdiction of such courts and to such venue.
11. Notices. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as follows:
-6-
<PAGE>
If to Indemnitee: Donald A. Bliss
10892 E. Fanfol Lane
Scottsdale, AZ 85259
If to Corporation: Knight Transportation, Inc.
5601 West Buckeye Road
Phoenix, Arizona 85043
Attention: Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12. Counterpart. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of
January 1, 1997.
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed as of the day and year first above written.
KNIGHT TRANSPORTATION, INC.
By: /s/ Kevin P. Knight
-------------------------------------
Kevin P. Knight
Its Chief Executive Officer
INDEMNITEE:
/s/ Donald A. Bliss
----------------------------------------
Donald A. Bliss
-7-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule Contains Summary Financial Information
Extracted From The Company's Consolidated Financial
Statements And Is Qualified In Its Entirety By
Reference To Such Financial Statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,244,745
<SECURITIES> 0
<RECEIVABLES> 10,732,212
<ALLOWANCES> 318,079
<INVENTORY> 328,825
<CURRENT-ASSETS> 13,816,188
<PP&E> 63,713,523
<DEPRECIATION> 14,186,781
<TOTAL-ASSETS> 64,118,456
<CURRENT-LIABILITIES> 9,675,248
<BONDS> 0
0
0
<COMMON> 99,045
<OTHER-SE> 45,864,114
<TOTAL-LIABILITY-AND-EQUITY> 64,118,456
<SALES> 0
<TOTAL-REVENUES> 77,503,786
<CGS> 0
<TOTAL-COSTS> 64,347,255
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 346,474
<INCOME-PRETAX> 12,810,057
<INCOME-TAX> 5,300,000
<INCOME-CONTINUING> 7,510,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,510,057
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
</TABLE>
