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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, 1998
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, Phoenix, Arizona 85043
(Address of principal executive offices) (Zip Code)
(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 [ ]
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 4, 1999, was $141,599,291 (based upon $21.0625 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 4,
1999 was 14,992,061.
The Information Statement for the Annual Meeting of Shareholders to be held on
May 12, 1999 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, 1998
Page
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PART I.
Item 1. Business.......................................................1
Item 2. Properties.....................................................6
Item 3. Legal Proceedings..............................................7
Item 4. Submission of Matters to a Vote of Security Holders............7
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 7A Quantitative and Qualitative Disclosures About
Market Risk..................................................17
Item 8. Financial Statements and Supplementary Data...................18
Item 9. Changes in and Disagreements on Accounting and
Financial Disclosure.........................................18
PART III.
Item 10. Directors and Executive Officers of the Company...............18
Item 11. Executive Compensation........................................18
Item 12. Security Ownership of Certain Beneficial Owners
and Management...............................................18
Item 13. Certain Relationships and Related Transactions................18
PART IV.
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K......................................19
SIGNATURES..................................................................22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ...................................24
CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES....................25
INDEX TO EXHIBITS...........................................................38
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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," "EXPECTS" AND "LIKELY" 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 provides truckload carrier service to the
Western United States out of its Phoenix, Arizona headquarters, in the Texas and
Louisiana region through its facility in Katy, Texas, and in the Midwest and on
the East Coast through its facility in Indianapolis, Indiana.
The Company's stock has been publicly traded since October 1994. From
1992 to 1998, Knight's revenue has grown to $125.0 million from $19.6 million,
and net income has increased to $13.3 million from $1.9 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.
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 growth 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 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.
o REGIONAL OPERATIONS. The Company's headquarters and facilities in
Phoenix, Arizona allow it to serve the Western region of the United States. The
Company has also established operations near Houston, Texas to serve customers
in the Louisiana and Texas region. In March 1999, the Company leased a facility
in Corsicana, Texas, in order to expand its operations in the Texas and
Louisiana region. The Company's operations in Corsicana are supervised through
its regional headquarters near Houston. The Company has also established
operations in Indianapolis, Indiana, from which it provides regional and
dedicated service in the Mid-West and on the East Coast. Knight expects that its
three regional operating bases will provide a platform for future growth, and
intends to expand its regional operations from those bases.
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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 maintaining a generally 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 equipment
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,
1998, the Company's 25 largest customers represented 51.4% of operating revenue;
its ten largest customers represented 34.5% of operating revenue; and its five
largest customers represented 22.0% of the Company's operating revenue. The
Company believes that a substantial majority of the Company's 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. The Company
seeks to obtain a competitive advantage by providing high quality service to
customers at competitive prices. 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 also 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 customer's 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 furnishes these services
through Company provided revenue equipment and drivers.
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Each of the Company's two regional operations centers is linked to the
Company's Phoenix headquarters by an 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.
The Company has made an investment in a communications company that
provides two-way digital wireless communication services which enables customers
such as the Company to communicate with manned and unmanned transportation
assets via the Internet and through ground based wide-area networks. The
Company's investment is intended to assure access to low cost communication
services for the future which are capable of meeting the needs of the Company
and its customers.
DRIVERS, OTHER EMPLOYEES, AND INDEPENDENT CONTRACTORS
As of December 31, 1998, Knight employed 1,145 persons, including 933
drivers and 31 maintenance personnel. None of the Company's employees is
represented by a labor union.
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, 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 a cash employee incentive program.
The Company also maintains an independent contractor program. Because
independent contractors provide their own tractors, the independent contractor
program provides the Company an alternate method of obtaining additional revenue
equipment. The Company intends to continue its use of independent contractors.
As of December 31, 1998, the Company had 231 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. The Company also offers financing at market interest
rates to independent contractors to assist them in acquiring revenue equipment.
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Company loans are secured by a lien on the independent contractor's revenue
equipment. As of December 31, 1998, the Company had outstanding loans of
approximately $3.4 million to independent contractors.
REVENUE EQUIPMENT
The Company operates a fleet of 53-foot long, high cube trailers,
including 50 refrigerated trailers and 24 flatbed trailers in its fleet as of
March 4, 1999. 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 maintaining this ratio
promotes efficiency and allows it to serve a large variety of customers' needs
without significantly changing or modifying equipment.
Growth of the Company's tractor and trailer fleets is determined by
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, 1998,
the Company operated 702 company tractors with an average age of 1.5 years and
2,809 trailers with an average age of 2.2 years. The Company also had under
contract, as of December 31, 1998, 231 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 42 months after the date of purchase and to 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. As of December 31, 1998, the Company had purchase
commitments for additional tractors and trailers with an estimated purchase
price of approximately $41 million for delivery throughout 1999.
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, 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, and post-accident drug testing.
The Company's Chief Financial Officer and Vice President of Human
Resources and Administration are responsible for securing appropriate insurance
coverages at cost effective rates. The primary claims arising in the Company's
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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 $12,500 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 $25,000,000. 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 any 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. In
general, increased competition has created downward pressure on rates and
increased the need to provide higher levels of service to customers.
REGULATION
Generally, the trucking industry is subject to regulatory and
legislative changes that can have a materially adverse effect on operations.
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 regulations implementing such transfers
currently prevents the Company from assessing the full impact of this action.
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Matters such 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
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review so that the Company can achieve environmental compliance and avoid
environmental risk. The Company's Phoenix and Indianapolis 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 transports a minimum amount
of environmentally hazardous substances and, to date, has experienced no
significant claims for hazardous substance shipments. If the Company should fail
to comply with applicable regulations, the Company could be subject to
substantial fines or penalties and to civil and criminal liability.
The Company's operations involve certain inherent environmental risks.
The Company's Phoenix facility is located on land identified as potentially
having groundwater contamination beneath it allegedly resulting from the release
of hazardous substances by persons who have operated in the general vicinity.
The area has been classified as a state superfund site. The Company has been
located at its present Phoenix facility since 1990 and, during such time, has
not been identified as a potentially responsible party with regard to the
groundwater contamination. The Company has installed a fuel island at its
Phoenix, Arizona headquarters and maintains above-ground bulk fuel storage to
provide fuel for this facility. The Company's Phoenix bulk fuel storage facility
has been designed to minimize environmental risk. 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 lessor's interest in the lease, in connection with 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 approximately 0.1 mile east of Reilly Tar and
Chemical Corporation ("Reilly"), a federal superfund site listed on the National
Priorities List for clean-up. 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's
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 acres and the remaining 8 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 October 1997, the Company completed
construction of a bulk fuel storage facility and fueling islands at its Phoenix
headquarters to obtain greater operating efficiencies. In June of 1998, the
Company completed expansion of its headquarters facilities.
The Company owns and operates a 9.5 acre regional facility in
Indianapolis, Indiana. 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 completed its initial expansion of this facility in October, 1998.
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
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operations in the Texas and Louisiana region. The Company has acquired property
in Katy, Texas for its regional headquarters and construction of the Company's
new facility is expected to be completed by January, 2000.
In March 1999, the Company entered into a lease for terminal facilities
in Corsicana, Texas, from which the Company will operate in order to provide
dedicated services to one of its larger customers. The Company's operations in
Corsicana, Texas will be coordinated through the Company's regional headquarters
located in Katy, Texas.
The Company leases office facilities in California, Oklahoma and Utah,
which it uses for fleet maintenance, record keeping and general operations. The
Company purchased property during 1998 in Fontana, California to serve as a
trailer drop and dispatching facility to support the Company's operations in
California. 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, 1998, the Company's aggregate monthly rent for all
leased properties was approximately $35,000.
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 new favorable
locations. The Company has not encountered any significant impediments to the
location or addition of new facilities.
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 equal employment opportunity
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 1998.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock is 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.
HIGH LOW
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1997
First Quarter $ 16.83 $ 12.50
Second Quarter $ 19.00 $ 13.67
Third Quarter $ 19.17 $ 14.33
Fourth Quarter $ 21.33 $ 15.17
1998
First Quarter $ 21.33 $ 16.33
Second Quarter $ 21.92 $ 15.00
Third Quarter $ 19.88 $ 12.88
Fourth Quarter $ 28.50 $ 14.75
As of March 4, 1999, the Company had 70 shareholders of record and
approximately 1,550 beneficial owners in security position listings of its
common stock.
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.
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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, 1998,
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.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Operating revenue $125,030 $99,428 $77,504 $56,170 $37,543
Operating expenses 102,049 81,948 64,347 45,569 29,431
Income from operations 22,981 17,480 13,157 10,601 8,112
Net interest expense and other (259) (18) (346) (196) (734)
Income before income taxes 22,722 17,462 12,810 10,406 7,378
Net income 13,346 10,252 7,510 5,806 4,094
Diluted net income per share (1) .87 .68 .52 .43 .33
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit) $ 3,242 $ 2,044 $ 4,141 $ (293) $ 1,761
Total assets 116,958 82,690 64,118 43,099 32,588
Long-term obligations, net of current 7,920 -- 53 981 2,117
Shareholders' equity 70,646 56,798 45,963 24,732 18,903
OPERATING DATA (UNAUDITED):
Operating ratio(2) 81.6% 82.4% 83.0% 81.1% 78.4%
Average revenue per mile $ 1.24 $ 1.22 $ 1.24 $ 1.26 $ 1.29
Average length of haul (miles) 489 500 489 494 482
Empty mile factor 10.0% 9.6% 9.6% 10.3% 10.1%
Tractors operated at end of period(3) 933 772 575 425 291
Trailers operated at end of period 2,809 2,112 1,529 1,044 639
</TABLE>
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(1) Net income per share for all periods presented has been restated in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share".
(2) Operating expenses as a percentage of operating revenue.
(3) Includes 231 independent contractor operated vehicles at December 31, 1998;
includes 192 independent contractor operated vehicles at December 31, 1997;
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," "EXPECTS," "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 of the Company's financial condition and
results of operations for the three-year period ended December 31, 1998, 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, 1998, the Company's operating
revenue grew at a 36.5% compounded annual rate, while net income increased at a
40.4% compounded annual rate.
The Company has established regional operations in Phoenix, Arizona;
Indianapolis, Indiana; and Katy, Texas. The Company's headquarters facilities in
Phoenix, Arizona, serve the Western United States. The Company's operations in
Indianapolis allow the Company to serve customers in the Midwest and on the East
Coast and provide a platform for the expansion of the Company's operations in
those regions. 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.
To support its growth, the Company initiated an independent contractor
program in 1994. The Company's decision to utilize independent contractors as
part of the Company's fleet expansion was based on several factors, including
reduced Company capital requirements, since independent contractors provide
their own tractors. Use of independent contractors also resulted in a lower
turnover rate. Due to the use of independent contractors, the Company originally
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. As of
December 31, 1998, the Company had 231 tractors owned and operated by
independent contractors. The Company expanded its Company-owed fleet during
1998. As the Company-owed fleet has expanded, purchased transportation has
decreased slightly 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 per-mile basis.
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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:
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
---- ---- ----
Operating revenue 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Salaries, wages and benefits 28.7 28.2 28.7
Fuel 9.7 10.2 10.2
Operations and maintenance 5.9 5.6 5.2
Insurance and claims 2.5 2.5 3.6
Operating taxes and licenses 4.2 4.1 3.9
Communications .8 .6 .6
Depreciation and amortization 10.0 9.6 9.7
Purchased transportation 17.4 19.2 18.6
Miscellaneous operating expenses 2.4 2.4 2.5
----- ----- -----
Total operating expenses 81.6 82.4 83.0
----- ----- -----
Income from operations 18.4 17.6 17.0
Net interest expense .2 -- .5
----- ----- -----
Income before income taxes 18.2 17.6 16.5
Income taxes 7.5 7.3 6.8
----- ----- -----
Net Income 10.7% 10.3% 9.7%
===== ===== =====
FISCAL 1998 COMPARED TO FISCAL 1997
Operating revenue increased by 25.7% to $125.0 million in 1998 from
$99.4 million in 1997. 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 1998 compared
to 1997. The Company's fleet increased by 20.9% to 933 tractors (including 231
owned by independent contractors) as of December 31, 1998, from 772 tractors
(including 192 owned by independent contractors) as of December 31, 1997.
Average revenue per mile increased to $1.24 per mile for the year ended December
31, 1998, from $1.22 per mile for the same period in 1997, reflecting higher
demand for the Company's services resulting in continued upward pressure on
rates in all of the Company's operating regions. Equipment utilization averaged
120,500 miles per tractor in 1998, down slightly when compared to an average of
121,459 miles per tractor in 1997. This change reflects increased competition in
the short-to-medium truckload carrier business.
Salaries, wages and benefits expense increased as a percentage of
operating revenue to 28.7% for 1998 from 28.2% for 1997 primarily as the result
of the expansion of the Company-owned tractor/trailer fleet. For its drivers,
the Company records accruals for workers' compensation benefits 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.
Fuel expense decreased as a percentage of operating revenue to 9.7% for
1998 from 10.2% in 1997 due mainly to lower average fuel prices during 1998
compared to 1997. The Company cannot predict whether higher prices will return
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or the extent to which fuel surcharges could be collected from customers to
offset such increases if they occur.
Operations and maintenance expense increased as a percentage of
operating revenue to 5.9% for 1998 from 5.6% in 1997. This increase was the
result of the decrease in the number of independent contractors as a percentage
of the Company's entire fleet to 24.8 in 1998, compared to 24.9% in 1997, and
a decrease in equipment utilization during 1998.
Insurance and claims expense remained constant as a percentage of
operating revenue at 2.5% for both 1998 and 1997.
Operating taxes and license expense increased slightly as a percentage
of operating revenue to 4.2% for 1998 from 4.1% for 1997. The increase resulted
primarily from the decrease in the number of independent contractors as a
percentage of the Company's entire fleet during 1998 as independent contractors
are responsible for paying their own mileage taxes, the increased cost
associated with the licensing of trailers for use in states with higher
licensing fees, and a decrease in equipment utilization during 1998.
Communications expenses increased as a percentage of operating revenue
to 0.8% in 1998 compared to 0.6% in 1997. The increase resulted primarily from
an increase in the Company's overall business volume, and a decrease in
equipment utilization during 1998.
Depreciation and amortization expense increased to 10.0% for 1998 from
9.6% in 1997. The increase resulted from the decrease in the number of
independent contractors as a percentage at the Company's entire fleet during
1998, and a decrease in equipment utilization during 1998.
Purchased transportation expense decreased to 17.5% in 1998 from 19.2%
in 1997 due to a combination of the increase in the Company's revenue per mile
and the decrease in the number of independent contractors as a percentage of the
Company's entire fleet during 1998.
Miscellaneous operating expenses remained steady, with no significant
change taking place in 1998.
As a result of the above factors, the Company's operating ratio
(operating expenses expressed as a percentage of operating revenue) was 81.6%
for 1998, compared to 82.4% for 1997.
Net interest expense increased as a percentage of operating revenue to
0.2% for 1998 from less than 0.1% in 1997 as a result of the purchase during
1998 of debt financed revenue equipment to expand the Company's fleet.
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 increased as a percentage of revenue to 7.5% for the year
ended December 31, 1998 from 7.3% for the year ended December 31, 1997 primarily
due to the decrease in the Company's operating ratio.
As a result of the preceding changes, the Company's net income as a
percentage of operating revenue increased to 10.7% in 1998, from 10.3% in 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Operating revenue increased by 28.3% to $99.4 million in 1997 from
$77.5 million in 1996. 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
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an increase in the Company's independent contractor fleet, during 1997 compared
to 1996. The Company's fleet increased by 34.3% to 772 tractors (including 192
owned by independent contractors) as of December 31, 1997 from 575 tractors
(including 158 owned by independent contractors) as of December 31, 1996.
Average revenue per mile declined to $1.22 per mile for the year ended December
31, 1997 from $1.24 per mile for the same period in 1996, reflecting continued
pressure on rates and increased competition in all of the Company's operating
regions. Equipment utilization averaged 121,459 miles per tractor in 1997, down
slightly when compared to an average of 121,960 miles per tractor in 1996. This
change reflects increased competition in the short-to-medium truckload carrier
business.
Salaries, wages and benefits expense decreased as a percentage of
operating revenue to 28.2% for 1997 from 28.7% for 1996, primarily the result of
the increase in the ratio of tractors to non-driving employees. This ratio
measures productivity and efficiency of non-driving personnel. 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.
Fuel expense remained constant as a percentage of operating revenue at
10.2% for both 1997 and 1996. Operations and maintenance expense increased as a
percentage of operating revenue to 5.6% for 1997 from 5.2% in 1996. This
increase was the result of lower revenue per mile and the decrease in the number
of independent contractors as a percentage of the Company's entire fleet to
24.8% in 1997, compared to 27.5% in 1996.
Insurance and claims expense decreased as a percentage of operating
revenue to 2.5% for 1997 compared to 3.6% for 1996. This decrease resulted from
lower insurance premiums and a decrease in the Company's accident rate.
Operating taxes and license expense increased as a percentage of
operating revenue to 4.1% for 1997 from 3.9% for 1996. The increase resulted
primarily from the increased cost associated with the licensing of trailers for
use in states with higher licensing fees.
Communications expenses remained constant, with no significant change
taking place in 1997 compared to 1996.
Depreciation and amortization expense decreased to 9.6% for 1997 from
9.7% in 1996. The small decrease resulted from an increase in revenue being
generated at each of the Company's facilities and the absence of large
expenditures for any additional facilities.
Purchased transportation expense increased to 19.2% in 1997 from 18.6%
in 1996 due to the decrease in the Company's revenue per mile. Independent
contractors are compensated at a fixed rate per mile.
Miscellaneous operating expenses remained steady, with no significant
change taking place in 1997.
As a result of the above factors, the Company's operating ratio
(operating expenses as a percentage of operating revenue) was 82.4% for 1997,
compared to 83.0% for 1996.
Net interest expense decreased as a percentage of operating revenue to
less than 0.1% for 1997 from 0.5% in 1996 as a result of the application of the
proceeds from the Company's secondary stock offering in July 1996, which were
used to reduce debt and to purchase revenue equipment.
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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 increased as a percentage of revenue to 7.3% for the year
ended December 31, 1997 from 6.8% for the year ended December 31, 1996 primarily
due to the lower revenue per mile.
As a result of the preceding changes, the Company's net income as a
percentage of operating revenue was 10.3% in 1997, compared to 9.7% in 1996.
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 capital has
been funds provided by operations, term borrowings to finance equipment
purchases, 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 $29.3 million, $23.6 million and $14.3 million
for the years ended December 31, 1998, 1997 and 1996, respectively.
Capital expenditures for the purchase of revenue equipment, office
equipment and leasehold improvements totaled approximately $31.5 million, $26.3
million and $24.8 million for the years ended December 31, 1998, 1997 and 1996,
respectively. The Company anticipates that capital expenditures, net of
trade-ins, will be approximately $41 million for 1999, 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 $8.9 million for the year ended December 31, 1998.
Net cash used in financing activities and net direct equipment financing was
$0.8 million for the year ended December 31, 1997. Net cash provided by
financing activities and net direct equipment financing was approximately $8.3
million for the year ended December 31, 1996. The change between 1998 and 1997
was due to the Company borrowing approximately $11.5 million during 1998. The
change between 1997 and 1996 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 during 1996.
The Company maintains a $10 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 Company's need for capital 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 .625%), or the prime rate. At December 31, 1998, and
March 4, 1999, the Company had $3,500,000 in borrowings under its revolving line
of credit. The line of credit expires in May 1999. Management believes the
Company will be able to renew or renegotiate its line of credit on terms at
least as favorable as the current terms of the line of credit.
The Company borrowed $10 million during 1998 under a long-term
Promissory Note with its lender. The Note is unsecured and bears interest at a
fixed rate of 5.75% per annum. As of December 31, 1998, $9,711,628 was currently
owed under the Note, with monthly payments of $193,558 payable through October
2003.
Management believes that the cash flow from operating activities and
the availability of borrowings 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
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<PAGE>
incur additional 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 Company's 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 and changing prices, which
could result in higher operating costs and lower income from operations. The
effects of inflation on the Company's business during 1998, 1997 and 1996
generally was not significant. During 1998, the Company experienced historically
low fuel prices, as a result of conditions in the petroleum industry. The
conditions that created these historic low price conditions may not persist.
YEAR 2000 CAPABILITIES.
The "Year 2000 Issue" arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of the familiar
"19". If not corrected, many computer applications could fail or create
erroneous results.
The Company has implemented or is in the process of reviewing, testing,
and implementing various modifications to ensure that its computer equipment and
software will function properly in the Year 2000 and beyond. For this purpose,
the term "computer equipment and software" includes systems commonly referred to
as information technology systems ("IT systems"), such as data processing,
dispatch, accounting, telephone, and other miscellaneous systems as well as
systems that are not commonly referred to as IT systems, such as fax machines,
heating and air conditioning systems, and other miscellaneous systems. The
Company has been and will be in contact with its significant vendors, service
providers, and customers, particularly those with whom electronic data
information ("EDI") transactions are exchanged, to determine and resolve any
Year 2000 issues. The Company currently anticipates that all necessary Year 2000
modifications will be completed in the next six months, and that such efforts
will be completed prior to any anticipated impact on its computer equipment and
software.
All internal and external costs associated with the Company's Year 2000
compliance activities are expensed as incurred. The Company believes that the
costs of addressing the Year 2000 issue will not have a material impact on its
financial position.
Since all major computerized systems and applications will have been
reviewed and tested as part of the Year 2000 project, the Company feels that it
has reasonably addressed all material risks that may effect its operations. The
Company presently believes that the Year 2000 issue will not pose significant
operational problems for the Company. However, if all year 2000 issues are not
properly identified and corrected, there can be no assurance that the Year 2000
issue will not materially effect the Company's relationships with vendors,
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<PAGE>
customers, and others. Also, there can be no assurance that the Year 2000 issues
of other entities with whom the Company deals will not have a material adverse
impact on the Company's operations.
The Company is in the process of evaluating and developing a
contingency plan to provide for the most reasonably likely worst case scenarios
regarding Year 2000 compliance. The contingency plan is expected to be completed
in 1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, gains and losses) in a full
set for general-purpose financial statements. SFAS 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 (SFAS No. 131), Disclosures About Segments of an Enterprise
and Related Information, which supersedes Statement of Financial Accounting
Standards No. 14, Financial Reporting for Segments of a Business Enterprise.
SFAS No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997.
FACTORS THAT MAY AFFECT FUTURE RESULTS
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, including independent contractors, 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 or if the Company were unable to continue to attract and contract
with independent contractors, the Company could be required to adjust its driver
compensation package, which could adversely affect the Company's profitability
if not offset by a corresponding increase in rates.
The Company's growth has been made possible through the addition of new
revenue equipment. Difficulty in financing or obtaining new revenue equipment
(for example, delivery delays from manufacturers or the unavailability of
independent contractors) 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.
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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.
Currently, 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 more 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 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 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Under Financial Accounting Reporting Release Number 48 issued by the
Securities and Exchange Commission in January 1997, the Company is required to
disclose information concerning market risk with respect to foreign exchange
rates, interest rates, and commodity prices. The Company has elected to make
such disclosures, to the extent applicable, using a sensitivity analysis
approach, based on hypothetical changes in interest rates and commodity prices.
The Company has not had occasion to use derivative financial
instruments for risk management purposes and does not use them for either
speculation or trading. Because the Company's operations are confined to the
United States, the Company is not subject to foreign currency risk.
The Company is subject to interest rate risk, to the extent it borrows
against its line of credit or incurs additional debt in the acquisition of
revenue equipment. The Company attempts to manage its interest rate risk by
carrying as little debt as possible. The Company has not entered into interest
rate swaps or other strategies designed to protect it against interest rate
risk. In the opinion of management, an increase in short-term interest rates
would not have a material adverse effect on the Company's financial condition,
based on the level of debt carried by the Company as of December 31, 1998.
Management does not foresee or expect any significant changes in exposure to
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interest rate fluctuations or in how that exposure is managed by the Company in
the near future. The Company has not issued corporate debt instruments.
The Company is subject to commodity price risk with respect to
purchases of fuel and tires. The Company has not used derivative financial
instruments to manage these risks. The Company has installed fuel islands at its
Phoenix, Arizona and Indianapolis facilities which enable it to purchase fuel at
"rack" prices, saving pumping charges. Where possible, the Company seeks to
participate in tire testing programs to reduce the cost of tires. It is the
Company's policy to pass on price increases in fuel, tires, or other commodities
through rate increases or surcharges, to the extent the existing market will
permit such costs to be passed through to the customer. If the Company were
unable to pass increased costs on to customers through rate increases, such
increases could adversely affect the Company's results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Balance Sheets of Knight Transportation, Inc. and
Subsidiaries as of December 31, 1998 and 1997 and the related Consolidated
Statements of Income, Shareholders' Equity, and Cash Flows for each of the three
years in the period ended December 31, 1998, together with the related notes and
report of Arthur Andersen LLP, independent public accountants, are set forth at
pages 23 through 36, below.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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
1999 Annual Meeting of Shareholders to be held May 12, 1999.
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 1999
Annual Meeting of Shareholders to be held May 12, 1999.
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 1999 Annual Meeting of Shareholders to be held
May 12, 1999.
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
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connection with the 1999 Annual Meeting of Shareholders to be held May 12, 1999.
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 23 through 36, 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, 1998 and 1997
Consolidated Statements of Income for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
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 38.
(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:
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EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
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 (Incorporated by reference
to Exhibit 3.2 to the Company's report on Form 10-K for the period
ending December 31, 1996).
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.)
10.2.1 Assignment and First Amendment to Net Lease and Joint Use Payment
between L. Randy Knight, Trustee of the R. K. Trust dated April 1,
1993, and Knight Transportation, Inc. and certain other parties dated
March 11, 1994 (assigning the lessor's interest to the R. K. Trust).
10.2.2 Second Amendment to Net Lease and Joint Use Agreement between L. Randy
Knight, as Trustee of the R. K. Trust dated April 1, 1993 and Knight
Transportation, Inc., dated as of September 1, 1997.
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) (Incorporated by reference to Exhibit 10.4 to the Company's
report on Form 10-K for the period ending December 31, 1996).
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EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.4.1 Modification Agreement between Wells Fargo Bank, N.A., as successor by
merger to First Interstate Bank of Arizona, N.A., and the Company and
Quad-K Leasing, Inc. dated as of May 15, 1997. (Incorporated by
reference to Exhibit 4.1 to the Company's report on Form 10-K for the
period ending December 31, 1997.)
10.4.2* Loan Agreement and Revolving Line of Credit Note each dated July 14,
1998, between Wells Fargo Bank, N.A. and Knight Transportation, Inc.
(superseding prior credit facilities)
10.4.3* Term Note dated October 1, 1998, between Wells Fargo Bank, N.A. and
Knight Transportation, Inc.
10.5 Amended and Restated Knight Transportation, Inc. Stock Option Plan,
dated as of February 10, 1998. (Incorporated by reference to Exhibit 1
to the Company's Notice and Information Statement on Schedule 14(c) for
the period ending December 31, 1997.)
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 (Incorporated by reference to Exhibit 10.6 to the
Company's report on Form 10-K for the period ending December 31, 1996).
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.)
10.10 Asset Purchase Agreement dated March 13, 1999, by and among Knight
Transportation, Inc., Knight Acquisition Corporation, Action Delivery
Service, Inc. Action Warehouse Services, Inc. and Bobby R. Ellis,
(Incorporated by reference to Exhibit 2.1 to the Company's report on
Form 8-K filed with the Securities and Exchange Commission on March 25,
1999.)
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.)
23* Consent of Arthur Andersen LLP
27* Financial Data Schedule
- ---------------
* Filed herewith.
-21-
<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,
Date: March 30, 1999. Chief Executive Officer
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 30, 1999
- --------------------------------------------
Randy Knight
Chairman of the Board, Director
/s/ Kevin P. Knight March 30, 1999
- --------------------------------------------
Kevin P. Knight
Chief Executive Officer, Director
/s/ Gary J. Knight March 30, 1999
- --------------------------------------------
Gary J. Knight
President, Director
/s/ Keith T. Knight March 30, 1999
- --------------------------------------------
Keith T. Knight
Executive Vice President, Director
/s/ Clark A. Jenkins March 30, 1999
- --------------------------------------------
Clark A. Jenkins
Chief Financial Officer, Secretary, Director
Executive Vice President, Finance
/s/ Keith L. Turley March 30, 1999
- --------------------------------------------
Keith L. Turley
Director
/s/ Donald A. Bliss March 30, 1999
- --------------------------------------------
Donald A. Bliss
Director
/s/ G.D. Madden March 30, 1999
- --------------------------------------------
G.D. Madden
Director
-22-
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
-23-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Knight Transportation, Inc.:
We have audited the accompanying consolidated balance sheets of KNIGHT
TRANSPORTATION, INC. (an Arizona corporation) and subsidiaries (collectively,
the Company) as of December 31, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. 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 the Company as of December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 19, 1999.
-24-
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 124,188 $ 512,339
Trade receivables, net of allowance for
doubtful accounts of approximately
$662,700 and $457,600, respectively 18,248,984 11,934,364
Notes receivable 561,608 --
Inventories and supplies 1,329,329 402,076
Prepaid expenses 1,617,900 694,434
Deferred tax assets (Note 2) 2,740,200 1,907,800
------------ -----------
Total current assets 24,622,209 15,451,013
------------ -----------
PROPERTY AND EQUIPMENT:
Land and improvements 6,037,741 4,322,837
Buildings and improvements 5,970,919 1,855,092
Furniture and fixtures 3,169,514 2,146,637
Shop and service equipment 1,217,370 1,018,636
Revenue equipment 93,672,070 75,695,123
Leasehold improvements 469,037 432,467
------------ -----------
110,536,651 85,470,792
Less: accumulated depreciation (25,964,744) 20,025,293)
------------ -----------
PROPERTY AND EQUIPMENT, net 84,571,907 65,445,499
------------ -----------
NOTES RECEIVABLE 2,846,008 --
OTHER ASSETS (Note 6) 4,918,096 1,793,284
------------ -----------
$116,958,220 $82,689,796
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,143,476 $ 4,847,070
Accrued liabilities 5,220,372 3,082,413
Current portion of long-term debt (Note 3) 1,791,981 14,171
Line of credit (Note 3) 3,500,000 2,000,000
Claims accrual (Note 5) 3,724,385 3,463,322
------------ -----------
Total current liabilities 21,380,214 13,406,976
LONG-TERM DEBT, less current portion (Note 3) 7,919,647 --
DEFERRED INCOME TAXES (Note 2) 17,012,285 12,485,085
------------ -----------
46,312,146 25,892,061
------------ -----------
COMMITMENTS AND CONTINGENCIES (Notes 4, 5, 6 and 8)
SHAREHOLDERS' EQUITY (Notes 7 and 8):
Preferred stock -- --
Common stock 149,814 149,243
Additional paid-in capital 24,509,012 24,007,386
Retained earnings 45,987,248 32,641,106
------------ -----------
Total shareholders' equity 70,646,074 56,797,735
------------ -----------
$116,958,220 $82,689,796
============ ===========
The accompanying notes are an integral part of
these consolidated balance sheets.
-25-
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
------------ ------------ ------------
OPERATING REVENUE $125,030,245 $ 99,428,693 $ 77,503,786
------------ ------------ ------------
OPERATING EXPENSES:
Salaries, wages and benefits 35,890,806 27,990,073 22,217,900
Fuel 12,156,740 10,182,487 7,890,607
Operations and maintenance 7,438,511 5,584,178 4,017,698
Insurance and claims 3,092,169 2,524,823 2,820,086
Operating taxes and licenses 5,236,401 4,114,145 3,018,999
Communications 965,019 597,728 509,411
Depreciation and amortization 12,446,438 9,560,569 7,520,905
Purchased transportation 21,771,073 19,038,834 14,378,518
Miscellaneous operating expenses 3,051,911 2,355,504 1,973,131
------------ ------------ ------------
102,049,068 81,948,341 64,347,255
------------ ------------ ------------
Income from operations 22,981,177 17,480,352 13,156,531
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 160,228 49,747 51,730
Interest expense (419,263) (67,576) (398,204)
------------ ------------ ------------
(259,035) (17,829) (346,474)
------------ ------------ ------------
Income before income taxes 22,722,142 17,462,523 12,810,057
INCOME TAXES (9,376,000) (7,211,000) (5,300,000)
------------ ------------ ------------
Net income $ 13,346,142 $ 10,251,523 $ 7,510,057
============ ============ ============
BASIC EARNINGS PER SHARE $ .89 $ .69 $ .53
============ ============ ============
DILUTED EARNINGS PER SHARE $ .87 $ .68 $ .52
============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 14,968,967 14,875,746 14,197,968
============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 15,262,865 15,150,510 14,377,747
============ ============ ============
The accompanying notes are an integral part of
these consolidated balance sheets.
-26-
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-in Retained
Shares Amount Capital Earnings Total
----------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 13,653,000 $136,530 $ 9,716,237 $14,879,526 $24,732,293
Exercise of stock options 3,750 37 29,963 -- 30,000
Issuance of 1,200,000 shares of
common stock, net of offering
costs of $1,109,191 (Note 7) 1,200,000 12,000 13,678,809 -- 13,690,809
Net income -- -- -- 7,510,057 7,510,057
----------- -------- ----------- ----------- -----------
BALANCE, December 31, 1996 14,856,750 148,567 23,425,009 22,389,583 45,963,159
Exercise of stock options 67,078 670 572,333 -- 573,003
Issuance of 594 shares of
common stock (Note 7) 594 6 10,044 -- 10,050
Net income -- -- -- 10,251,523 10,251,523
----------- -------- ----------- ----------- -----------
BALANCE, December 31, 1997 14,924,422 149,243 24,007,386 32,641,106 56,797,735
Exercise of stock options 56,100 561 484,137 -- 484,698
Issuance of 960 shares of
common stock (Note 7) 960 10 17,489 -- 17,499
Net income -- -- -- 13,346,142 13,346,142
----------- -------- ----------- ----------- -----------
BALANCE, December 31, 1998 14,981,482 $149,814 $24,509,012 $45,987,248 $70,646,074
=========== ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
-27-
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,346,142 $ 10,251,523 $ 7,510,057
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 12,446,438 9,560,569 7,520,905
Non-cash compensation expense for issuance of
common stock to certain members of board of
directors 17,499 10,050 --
Provision for doubtful accounts 205,100 139,600 23,000
Deferred income taxes, net 3,694,800 3,470,127 2,211,958
Changes in assets and liabilities-
Increase in trade receivables (6,519,721) (1,659,831) (3,062,094)
Increase in notes receivable (3,407,616) -- --
(Increase) decrease in inventories and supplies (927,253) (73,251) 93,764
(Increase) decrease in prepaid expenses (923,466) (185,349) 428,219
Increase in other assets (3,150,654) (195,811) (652,693)
Increase (decrease) in accounts payable 2,828,741 1,069,469 (250,046)
Increase in accrued liabilities and claims accrual 2,399,022 1,218,964 459,965
------------ ------------ ------------
Net cash provided by operating activities 20,009,032 23,606,060 14,283,035
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (29,326,223) (23,548,158) (21,919,774)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing (payments) on line of credit, net 1,500,000 2,000,000 (2,000,000)
Borrowing of debt 10,000,000 -- 759,200
Payments of debt (302,543) (433,511) (2,294,455)
Payments of accounts payable - equipment (2,753,115) (2,929,800) (1,927,726)
Proceeds from sale of common stock -- -- 13,690,809
Proceeds from exercise of stock options 484,698 573,003 30,000
------------ ------------ ------------
Net cash provided by (used in)
financing activities 8,929,040 (790,308) 8,257,828
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (388,151) (732,406) 621,089
CASH AND CASH EQUIVALENTS, beginning of year 512,339 1,244,745 623,656
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 124,188 $ 512,339 $ 1,244,745
============ ============ ============
SUPPLEMENTAL DISCLOSURES:
Noncash investing and financing transactions:
Equipment acquired by accounts payable $ 2,220,780 $ 2,753,115 $ 2,929,800
Issuance of common stock to certain
members of board of directors 17,499 10,050 --
Cash Flow Information:
Income taxes paid $ 4,898,131 $ 3,945,579 $ 2,459,144
Interest paid 372,009 69,161 408,138
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
-28-
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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. The operations are based
in Phoenix, Arizona, where the Company has its corporate offices, fuel island,
truck terminal, dispatching and maintenance services. During 1996, the Company
expanded its operations by opening new facilities in Katy, Texas and
Indianapolis, Indiana. The Company operates 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 231 and 192 owner-operators at December 31, 1998 and
1997, respectively. This represents approximately 25% of the Company's tractor
fleet at December 31, 1998 and 1997.
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include the parent company Knight Transportation, Inc., and its wholly owned
subsidiaries, Knight Administrative Services, Inc., Quad-K Leasing, Inc., KTTE
Holdings, Inc., QKTE Holdings, Inc., Knight Management Services, Inc., Knight
Transportation Midwest, Inc., KTeCom, L.L.C., and Knight Transportation South
Central 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.
-29-
<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
-----
Land improvements 5
Buildings and improvements 20-30
Furniture and fixtures 5
Shop and service equipment 5-10
Revenue equipment 5-7
Leasehold improvements 10
The Company expenses repairs and maintenance as incurred. For the years ended
December 31, 1998, 1997 and 1996, repairs and maintenance expense totaled
approximately $3,446,000, $2,442,000 and $1,883,000, respectively and is
included in operations 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.
OTHER ASSETS - Included in other assets for 1998 is an investment in a company
with advanced communications technology which the Company anticipates utilizing
in 1999. This investment has been recorded at a cost of $4,000,000 and
represents approximately a 4.6% ownership interest at December 31, 1998. There
were no material intercompany transactions between this communications company
and Knight during 1998.
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 as the hauls are primarily
short-term.
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 1998, 1997 and 1996,
represent 15%, 17% and 17% of operating revenues, respectively. The single
largest customer's revenues represent 6%, 8% and 9% of operating revenues for
the years 1998, 1997 and 1996, respectively.
Notes receivable represent amounts due from independent contractors under a
program whereby the Company finances tractor purchases for its independent
contractors. These notes receivable are collateralized by revenue
-30-
<PAGE>
equipment and are due in monthly installments, including principal and interest,
over periods generally ranging from three to five years.
RECAPITALIZATION AND STOCK SPLIT
On April 22, 1998, the Company's Board of Directors approved a three for two
stock split, effected in the form of a 50 percent stock dividend. The stock
dividend was paid on May 18, 1998, to stockholders of record as of the close of
business on May 1, 1998.
This stock split has been given retroactive recognition for all periods
presented in the accompanying consolidated financial statements. All share
amounts and earnings per share have been retroactively adjusted to reflect the
stock split.
EARNINGS PER SHARE - In February 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 128 (SFAS No.
128), EARNINGS PER SHARE, which supersedes Accounting Principles Board (APB)
Opinion No. 15, the previous authoritative guidance. SFAS No. 128 modifies the
calculation of primary and fully diluted earnings per share (EPS) and replaces
them with basic and diluted EPS. SFAS No. 128 is effective for financial
statements for both interim and annual periods presented after December 15,
1997, and as a result, all prior period EPS data presented has been restated.
A reconciliation of the numerators (net income) and denominators (weighted
average number of shares outstanding) of the basic and diluted EPS computations
for 1998, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------- ----------------------------------- -----------------------------------
Net Income Shares Per Share Net Income Shares Per Share Net Income Shares Per Share
(numerator) (denominator) Amount (numerator) (denominator) Amount (numerator) (denominator) Amount
----------- ------------- --------- ----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS $13,346,142 14,968,967 $ .89 $10,251,523 14,875,746 $ .69 $ 7,510,057 14,197,968 $ .53
====== ====== ======
Effect of stock
options -- 293,898 -- 274,764 -- 179,779
----------- ---------- ----------- ---------- ----------- ----------
Diluted EPS $13,346,142 15,262,865 $ .87 $10,251,523 15,150,510 $ .68 $ 7,510,057 14,377,747 $ .52
=========== ========== ====== =========== ========== ====== =========== ========== ======
</TABLE>
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENT - Effective January 1998, the Company
adopted Statement of Financial Accounting Standards No. 131 (SFAS No. 131),
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which
established revised standards for the reporting of financial and descriptive
information about operating segments in financial statements.
The Company has determined that it has one reportable operating segment.
Although the Company has three operating segments which are managed based on the
regions of the United States in which each operates; each segment has similar
economic characteristics. Each regional operating segment provides short to
medium haul truckload carrier services of general commodities to a similar class
of customers. In addition, each segment exhibits similar financial performance,
including average revenue per mile and operating ratio. As a result of the
foregoing, the Company has determined that it is appropriate to aggregate its
operating segments into one reportable segment consistent with the guidance in
SFAS No. 131. Accordingly, the Company has not presented separate financial
information for each of its operating segments as the Company's consolidated
financial statements present its one reportable segment.
-31-
<PAGE>
(2) INCOME TAXES:
Income tax expense consists of the following:
1998 1997 1996
---------- ---------- ----------
Current income taxes:
Federal $4,464,200 $2,904,400 $2,429,100
State 1,217,000 836,473 658,900
---------- ---------- ----------
5,681,200 3,740,873 3,088,000
---------- ---------- ----------
Deferred income taxes:
Federal 3,040,700 2,840,200 1,805,300
State 654,100 629,927 406,700
---------- ---------- ----------
3,694,800 3,470,127 2,212,000
---------- ---------- ----------
Total income tax expense $9,376,000 $7,211,000 $5,300,000
========== ========== ==========
The effective income tax rate is different than the amount which would be
computed by applying statutory corporate income tax rates to income before
income taxes. The differences are summarized as follows:
1998 1997 1996
---------- ---------- ----------
Tax at the statutory rate (34%) $7,725,500 $5,937,300 $4,355,400
State income taxes, net of
federal benefit 1,234,900 967,800 703,300
Other 415,600 305,900 241,300
---------- ---------- ----------
$9,376,000 $7,211,000 $5,300,000
========== ========== ==========
The net effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1997, are as follows:
1998 1997
----------- -----------
Short-term deferred tax assets:
Claims accrual $ 1,549,800 $ 1,383,400
Other 1,190,400 524,400
----------- -----------
Total short-term deferred tax assets $ 2,740,200 $ 1,907,800
=========== ===========
Long-term deferred tax liabilities:
Property and equipment depreciation $16,314,885 $11,904,300
Prepaid expenses deducted for tax
purposes 697,400 580,785
----------- -----------
Total long-term deferred tax
liabilities $17,012,285 $12,485,085
=========== ===========
-32-
<PAGE>
(3) LINE OF CREDIT AND LONG-TERM DEBT:
Long-term debt consists of the following at December 31:
1998 1997
----------- -----------
Note payable to financial institution
with monthly principal and interest
payments of $192,558 through October
2003, the note is unsecured with
interest at a fixed rate of 5.75% $ 9,711,628 $ --
Notes payable, paid in full in 1998 -- 14,171
----------- -----------
9,711,628 14,171
Less - current portion (1,791,981) (14,171)
----------- -----------
$ 7,919,647 $ --
=========== ===========
Long-term debt maturities are as follows:
1999 $ 1,791,981
2000 1,898,018
2001 2,012,945
2002 2,133,484
2003 1,875,200
-----------
$ 9,711,628
===========
The Company has a $10,000,000 revolving line of credit (see Note 5) with
principal due at maturity, July 2000, and interest payable monthly at two
options (prime or LIBOR plus .625%). In management's opinion, the Company will
have sufficient liquidity to pay off, or will be able to renew, its line of
credit at maturity. 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 $3,500,000 at December 31, 1998.
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 covenants relating to corporate structure,
ownership and management.
(4) COMMITMENTS AND CONTINGENCIES:
PURCHASE COMMITMENTS
As of December 31, 1998, the Company had purchase commitments for additional
tractors and trailers with an estimated purchase price, net of estimated
trade-in values, of approximately $41 million for delivery throughout 1999.
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 future delay or interruption in the availability of equipment 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 employment by reason of disability. The plan is subject to
termination at any time by the Board of Directors.
-33-
<PAGE>
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 pending legal proceedings is adequately provided for in the
accompanying consolidated financial statements.
(5) CLAIMS ACCRUAL:
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. The Company is also
self-insured for loss of revenue equipment up to $12,500 per occurrence and
cargo liability up to $12,500 per occurrence. Liability in excess of these
amounts is covered by a third party underwriter up to $25 million.
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. Liabilities in excess of the self insured amounts are collateralized by
letters of credit totaling $992,000. These letters of credit reduce the
available borrowings under the Company's line of credit (see Note 3).
(6) RELATED PARTY TRANSACTIONS:
The Company leases 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
September 1997, the lease was amended to include additional acreage and the
monthly payment was increased to approximately $5,923. In March 1999, the first
renewal option will be exercised and the monthly payment will increase to
$6,100. In addition to base rent, the lease requires the Company to pay its
share of all expenses, utilities, taxes and other charges. Rent expense paid to
the Shareholder was approximately $75,000, $60,200 and $59,000 during 1998, 1997
and 1996, respectively.
The Company paid approximately $90,000, $80,000 and $80,000 for certain of its
key employees' life insurance premiums during 1998, 1997 and 1996, respectively.
A portion of the premiums paid are included in other assets in the accompanying
consolidated balance sheets. The life insurance policies provide for cash
distributions to the beneficiaries of the policyholders upon death of the key
employee. The Company is entitled to receive the total premiums paid on the
policies at distribution prior to any beneficiary distributions.
The Company provided maintenance and shipping for Total Warehousing, Inc.
(Total), a company owned by a shareholder of the Company, of approximately
$16,000 for the year ended December 31, 1996. No services were provided during
1998 or 1997. Total provided general warehousing services to the Company in the
amount of approximately $9,000, $11,000 and $14,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
(7) SHAREHOLDERS' EQUITY:
The Company's authorized capital stock consists of 100,000,000 shares of $.01
par value common stock; 14,981,482 and 14,924,422 shares of common stock were
issued and outstanding at December 31, 1998 and 1997, 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, 1998 or 1997.
-34-
<PAGE>
In July 1996, the Company issued 1,200,000 shares of common stock at $12.33 per
share (the Offering). The Offering consisted of 2,400,000 shares of common stock
comprised of 1,200,000 newly-issued Company shares and 1,200,000 shares from
existing shareholders.
During 1997, all Board of Director members received their director fees of
$2,500 through the issuance of common stock in equivalent shares to each board
member. The Company issued a total of 594 shares of common stock during 1997 to
certain directors.
During 1998, all Board of Director members received their director fees of
$5,000 through the issuance of common stock in equivalent shares to each board
member. The Company issued a total of 960 shares of common stock during 1998 to
certain directors.
(8) EMPLOYEE BENEFIT PLANS:
1994 STOCK OPTION PLAN
The Company established the 1994 Stock Option Plan (1994 Plan) with 975,000
shares of common stock reserved for issuance thereunder. In February 1998, the
1994 Plan was amended and restated to increase the number of shares reserved for
issuance to 1,500,000. The 1994 Plan will terminate on August 31, 2004. The
Compensation Committee of the Board of Directors administers the 1994 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 stock 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 and directors pursuant to the
provisions of APB No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Had
compensation cost for the 1994 Plan been recorded consistent with SFAS No. 123,
the Company's net income and EPS amounts would have been reduced to the
following pro forma amounts for the years ended December 31:
1998 1997 1996
----------- ----------- ----------
Net income:
As reported $13,346,142 $10,251,523 $7,510,057
Pro forma 13,060,131 10,052,945 7,338,132
Earnings per share:
As reported - Diluted EPS $ .87 $ .68 $ .52
Pro forma - Diluted EPS .86 .66 .51
-35-
<PAGE>
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 1996; risk free interest rate of 6.73%, expected
life of six years, expected volatility of 36%, expected dividend rate of zero,
and expected forfeitures of 0%. The following weighted average assumptions were
used for grants in 1997; risk free interest rate of 5.77%, expected life of six
years, expected volatility of 42%, expected dividend rate of zero, and expected
forfeitures of 15.68%. The following weighted average assumptions were used for
grants in 1998; risk free interest rate of 5.75%, expected life of six years,
expected volatility of 45%, expected dividend rate of zero, and expected
forfeitures of 23.36%.
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>
1998 1997 1996
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 791,396 $11.25 540,000 $ 8.51 393,375 $ 8.04
Granted 39,750 18.58 380,325 14.38 208,875 9.32
Exercised (56,100) 8.47 (67,078) 8.53 (3,750) 8.00
Forfeited (70,896) 13.49 (61,851) 9.43 (58,500) 8.32
------- ------ ------- ------ ------- ------
Outstanding at end of year 704,150 $11.69 791,396 $11.25 540,000 $ 8.51
======= ====== ======= ====== ======= ======
Exercisable at end of year 129,129 $ 8.20 71,834 $ 8.06 11,250 $ 8.38
======= ====== ======= ====== ======= ======
Weighted average fair value of
options granted during the period $ 9.65 $ 7.08 $ 4.43
======= ======= =======
</TABLE>
Options outstanding at December 31, 1998, have exercise prices between $8.00 and
$21.33. There are 345,050 options outstanding with exercise prices ranging from
$8.00 to $9.25 with weighted average exercise prices of $8.43 and weighted
average remaining contractual lives of 6.39 years. There are 359,100 options
outstanding with exercise prices ranging from $9.26 to $21.33 with weighted
average exercise prices of $14.80 and weighted average contractual lives of 8.92
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 with the
Company. The Plan, as amended in 1995, provides for a mandatory matching
contribution equal to 50% of the amount of the employee's salary deduction not
to exceed $625 annually per employee. The Plan also provides for a discretionary
matching contribution. In 1998, 1997 and 1996, there were no discretionary
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 $125,000, $93,000 and $69,000 for 1998, 1997 and 1996,
respectively.
-36-
<PAGE>
EXHIBITS TO
KNIGHT TRANSPORTATION, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
-37-
<PAGE>
KNIGHT EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
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 (Incorporated by reference
to Exhibit 3.2 to the Company's report on Form 10-K for the period
ending December 31, 1996).
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.)
10.2.1 Assignment and First Amendment to Net Lease and Joint Use Payment
between L. Randy Knight, Trustee of the R. K. Trust dated April 1,
1993, and Knight Transportation, Inc. and certain other parties dated
March 11, 1994 (assigning the lessor's interest to the R. K. Trust).
10.2.2 Second Amendment to Net Lease and Joint Use Agreement between L. Randy
Knight, as Trustee of the R. K. Trust dated April 1, 1993 and Knight
Transportation, Inc., dated as of September 1, 1997.
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) (Incorporated by reference to Exhibit 10.4 to the Company's
report on Form 10-K for the period ending December 31, 1996).
-38-
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.4.1 Modification Agreement between Wells Fargo Bank, N.A., as successor by
merger to First Interstate Bank of Arizona, N.A., and the Company and
Quad-K Leasing, Inc. dated as of May 15, 1997. (Incorporated by
reference to Exhibit 4.1 to the Company's report on Form 10-K for the
period ending December 31, 1997.)
10.4.2* Loan Agreement and Revolving Line of Credit Note each dated July 14,
1998, between Wells Fargo Bank, N.A. and Knight Transportation, Inc.
(superseding prior credit facilities)
10.4.3* Term Note dated October 1, 1998, between Wells Fargo Bank, N.A. and
Knight Transportation, Inc.
10.5 Amended and Restated Knight Transportation, Inc. Stock Option Plan,
dated as of February 10, 1998. (Incorporated by reference to Exhibit 1
to the Company's Notice and Information Statement on Schedule 14(c) for
the period ending December 31, 1997.)
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 (Incorporated by reference to Exhibit 10.6 to the
Company's report on Form 10-K for the period ending December 31, 1996).
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.)
10.10 Asset Purchase Agreement dated March 13, 1999, by and among Knight
Transportation, Inc., Knight Acquisition Corporation, Action Delivery
Service, Inc. Action Warehouse Services, Inc. and Bobby R. Ellis,
(Incorporated by reference to Exhibit 2.1 to the Company's report on
Form 8-K filed with the Securities and Exchange Commission on March 25,
1999.)
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.)
23* Consent of Arthur Andersen LLP
27* Financial Data Schedule
- ------------
* Filed herewith.
-39-
WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE
$10,000,000.00 PHOENIX, ARIZONA
JULY 14,1998
FOR VALUE RECEIVED, the undersigned KNIGHT TRANSPORTATION, INC.
("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at Arizona RCBO #03839, 100 WEST WASHINGTON,
PHOENIX, AZ 86003, or at such other place as the holder hereof may designate, in
lawful money of the United States of America and in immediately available funds,
the principal sum of $10,000,000.00, or so much thereof as may be advanced and
be outstanding, with interest thereon, to be computed on each advance from the
date of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth after
each, and any other term defined in this Note shall have the meaning set forth
at the place defined:
(a) "Business Day" means any day except a Saturday, Sunday or any other day
on which commercial banks in Arizona are authorized or required by law to close.
(b) "Fixed Rate Term" means a period commencing on a Business Day and
continuing for 1, 2, 3 or 6 months, as designated by Borrower, during which all
or a portion of the outstanding principal balance of this Note bears interest
determined in relation to LIBOR; provided however, that no Fixed Rate Term may
be selected for a principal amount less than $100,000.00; and provided further,
that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof.
If any Fixed Rate Term would end on a day which is not a Business Day, then such
Fixed Rate Term shall be extended to the next succeeding Business Day.
(c) "LIBOR" means the rate per annum (rounded upward, if necessary, to the
nearest whole 1/8 of 1 %) determined by dividing Base LIBOR by a percentage
equal to 100% less any LIBOR Reserve Percentage.
(i) "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London
Inter-Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed
by the Board of Governors of the Federal Reserve System (or any successor) for
"Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable Fixed Rate Term.
(d) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
INTEREST:
(a) INTEREST. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum EQUAL TO the Prime Rate in effect from time
to time, or (ii) at a fixed rate per annum determined by Bank to be .62500%
above LIBOR in effect on the first day of the applicable Fixed Rate Term. When
interest is determined in relation to the Prime Rate, each change in the rate of
interest hereunder shall become effective on the date each Prime Rate change is
announced within Bank. With respect to each LIBOR selection hereunder, Bank is
hereby authorized to note the date, principal amount, interest rate and Fixed
Rate Term applicable thereto and any payments made thereon on Bank's books and
records (either manually or by electronic entry) and/or on any schedule attached
to this Note, which notations shall be prima facie evidence of the accuracy of
the information noted.
1
<PAGE>
(b) SELECTION OF INTEREST RATE OPTIONS. At any time any portion of this
Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion
of this Note bears interest determined in relation to the Prime Rate, Borrower
may convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as
Borrower requests an advance hereunder or wishes to select a LIBOR option for
all or a portion of the outstanding principal balance hereof, and at the end of
each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the
interest rate option selected by Borrower; (ii) the principal amount subject
thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed
Rate Term. Any such notice may be given by telephone so long as, with respect to
each LIBOR selection, (A) Bank receives written confirmation from Borrower not
later than 3 Business Days after such telephone notice is given, and (B) such
notice is given to Bank prior to 10:00 a.m., California time, of) the first day
of the Fixed Rate Term. For each LIBOR option requested hereunder, Batik will
quote the applicable fixed rate to Borrower at approximately 10:00 a.m.,
California time, on the first day of the Fixed Rate Term. if Borrower does not
immediately accept the rate quoted by Bank, any subsequent acceptance by
Borrower shall be subject to a redetermination by Bank of the applicable fixed
rate; provided however, that if Borrower fails to accept any such rate by 11 :00
a.m., California time, on the Business Day such quotation is given, then the
quoted rate shall expire and Bank shall have no obligation to permit a LIBOR
option to be selected on such day. If no specific designation of interest is
made at the time any advance is requested hereunder or at the end of any Fixed
Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection
for such advance or the principal amount to which such Fixed Rate Term applied.
(c) ADDITIONAL LIBOR PROVISIONS.
(i) If Bank at any time shall determine that for any reason adequate and
reasonable means do not exist for ascertaining LIBOR, then Bank shall promptly
give notice thereof to Borrower. If such notice is given and until such notice
has been withdrawn by Bank, then (A) no new LIBOR option may be selected by
Borrower, and (B) any portion of the outstanding principal balance hereof which
bears interest determined in relation to LIBOR, subsequent to the end of the
Fixed Rate Term applicable thereto, shall bear interest determined in relation
to the Prime Rate.
(ii) If any law, treaty, rule, regulation or determination of a court or
governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank
(A) to make LIBOR options available hereunder, or (8) to maintain interest rates
based on LIBOR, then in the former event, any obligation of Bank to make
available such unlawful LIBOR options shall immediately be cancelled, and in the
latter event, any such unlawful LIBOR-based interest rates then outstanding
shall be converted, at Bank's option, so that interest on the portion of the
outstanding principal balance subject thereto is determined in relation to the
Prime Rate; provided however, that if any such Change in Law shall permit any
LIBOR-based interest rates to remain in effect until the expiration of the Fixed
Rate Term applicable thereto, then such permitted LIBOR-based interest rates
shall continue in effect until the expiration of such Fixed Rate Term. Upon the
occurrence of any of the foregoing events, Borrower shall pay to Bank
immediately upon demand such amounts as may be necessary to compensate Bank for
any fines, fees, charges, penalties or other costs incurred or payable by Bank
as a result thereof and which are attributable to any LIBOR options made
available to Borrower hereunder, and any reasonable allocation made by Bank
among its operations shall be conclusive and binding upon Borrower.
(iii) If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(A) subject Bank to any tax, duty or other charge with respect to any
LIBOR options, or change the basis of taxation of payments to Bank of
principal, interest, fees or any other amount payable hereunder
(except for changes in the rate of tax on the overall net income of
Bank); or
(B) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or
loans by, or any other acquisition of funds by any office of Bank; or
(C) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable to such LIBOR
options. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank are attributable to any LIBOR options made available to
Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.
(d) PAYMENT OF INTEREST. Interest accrued on this Note shall be payable on
the 15th day of each month, commencing JULY 15, 1998.
(e) DEFAULT INTEREST. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
2
<PAGE>
(f) UNUSED COMMITMENT FEE. Borrower shall pay to Bank a fee equal to
.06200% per annum (computed on the basis of a 360-day year, actual days elapsed)
on the average unused amount of this Note, which fee shall be calculated on a
monthly basis by Bank and shall be due and payable by borrower in arrears on the
15th day of each month.
(g) COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all
interest and fees due hereunder by charging Borrower's demand deposit account
number 4159-518950 with Bank, or any other demand deposit account maintained by
any Borrower with Bank, for the full amount thereof. Should there be
insufficient funds in any such demand deposit account to pay all such sums when
due, the full amount of such deficiency shall be immediately due and payable by
Borrower.
STANDBY LETTER OF CREDIT SUBFEATURE:
(a) LETTER OF CREDIT SUBFEATURE. As a subfeature under this Note, Bank
agrees from time to time during the term hereof to issue standby letters of
credit for the account of Borrower to finance WORKING CAPITAL REQUIREMENTS
(each, a "Letter of Credit" and collectively, "Letters of Credit"); provided
however, that the form and substance of each Letter of Credit shall be subject
to approval by Bank, in its sole discretion; and provided further, that the
aggregate undrawn amount of all outstanding Letters of Credit shall not at any
time exceed $1,250,000.00. Each Letter of Credit shall be issued for a term not
to exceed 360 days, as designated by Borrower; provided however, that no Letter
of Credit shall have an expiration date subsequent to the maturity date of this
Note. The undrawn amount of all Letters of Credit shall be reserved tinder this
Note and shall not be available for borrowings hereunder. Each Letter of Credit
shall be subject to the additional terms and conditions of the Letter of Credit
Agreement and related documents, if any, required by Bank in connection with the
issuance thereof. Each draft paid by Bank under a Letter of Credit shall be
deemed an advance under this Note and shall be repaid by Borrower in accordance
with the terms and conditions of this Note; provided however, that if advances
hereunder are not available, for any reason, at the time any draft is paid by
Bank, then Borrower shall immediately pay to Bank the full amount of such draft,
together with interest thereon from the date such amount is paid by Bank to the
date such amount is fully repaid by Borrower, at the rate of interest applicable
to advances hereunder. In such event, Borrower agrees that Bank, in its sole
discretion, may debit any demand deposit account maintained by Borrower with
Bank for the amount of any such draft.
(b) LETTER OF CREDIT FEES. Borrower shall pay to Bank (i) fees upon the
issuance of each Letter of Credit equal to 0.900% per annum (computed on the
basis of a 360-day year, actual days elapsed) of the face amount thereof, and
(ii) fees upon the payment by Bank of each draft under any Letter of Credit and
upon the occurrence of any other activity with respect to any Letter of Credit
(including without limitation, the transfer, amendment or cancellation of any
Letter of Credit) determined in accordance with Bank's standard fees and charges
then in effect for such activity.
BORROWING AND REPAYMENT:
(a) USE OF PROCEEDS. Advances under this Note shall be available solely to
finance WORKING CAPITAL REQUIREMENTS.
(b) BORROWING AND REPAYMENT. Borrower may from time to time during the term
of this Note borrow, partially or wholly repay its outstanding borrowings, and
reborrow, subject to all of the limitations, terms and conditions of this Note
and of any document executed in connection with, or at any time as a supplement
to, this Note; provided however, that the total outstanding borrowings under
this Note shall not at any time exceed the principal amount stated above. All
payments credited to principal shall be applied first, to the outstanding
principal balance of this Note which bears interest determined in relation to
the Prime Rate, if any, and second, to the outstanding principal balance of this
Note which bears interest determined in relation to LIBOR, with such payments
applied to the oldest Fixed Rate Term first. The unpaid principal balance of
this obligation at any time shall be the total amounts advanced hereunder by the
holder hereof less the amount of any principal payments made hereon by or for
any Borrower, which balance may be endorsed hereon from time to time by the
holder. The outstanding principal balance of this Note shall be due and payable
in full on JULY 15, 2000.
(c) ADVANCES. Advances hereunder, to the total amount of the principal sum
available hereunder, may be made by the holder at the oral or written request of
(i) L. RANDY KNIGHT or KEVIN P. KNIGHT or CLARK JENKINS or GARY KNIGHT, any one
acting alone, who are authorized to request advances and direct the disposition
of any advances until written notice of the revocation of such authority is
received by the holder at the office designated above, or (ii) any person, with
respect to advances deposited to the credit of any account of any Borrower with
the holder, which advances, when so deposited, shall be conclusively presumed to
have been made to or for the benefit of each Borrower regardless of the fact
that persons other than those authorized to request advances may have authority
to draw against such account. The holder shall have no obligation to determine
whether any person requesting an advance is or has been authorized by any
Borrower.
3
<PAGE>
PREPAYMENT:
(a) PRIME RATE. Borrower may prepay principal on any portion of this Note
which bears interest determined in relation to the Prime Rate at any time, in
any amount and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of this Note which
bears interest determined in relation to LIBOR at any time and in the minimum
amount of $100,000.00; provided however, that if the outstanding principal
balance of such portion of this Note is less than said amount, the minimum
prepayment amount shall be the entire outstanding principal balance thereof. In
consideration of Bank providing this prepayment option to Borrower, or if any
such portion of this Note shall become due and payable at any time prior to the
last day of the Fixed Rate Term applicable thereto by acceleration or otherwise,
Borrower shall pay to Bank immediately upon demand a fee which is the sum of the
discounted monthly differences for each month from the month of prepayment
through the month in which such Fixed Rate Tern) matures, calculated as follows
for each such month:
(i) DETERMINE the amount of interest which would have accrued each
month on the amount prepaid at the interest rate applicable to such amount had
it remained outstanding until the last day of the Fixed Rate Term applicable
thereto.
(ii) SUBTRACT from the amount determined in (i) above the amount of
interest which would have accrued for the same month on the amount prepaid for
the remaining term of such Fixed Rate Term at LIBOR in effect on the date of
prepayment for new loans made for such term and in a principal amount equal to
the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater than
zero, discount that difference by LIBOR used in (ii) above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum 2.000% above the Prime
Rate in effect from time to time (computed on the basis of a 360-day year,
actual days elapsed). Each change in the rate of interest on any such past due
prepayment fee shall become effective on the date each Prime Rate change is
announced within Bank.
EVENTS OF DEFAULT:
Any default in the payment or performance of any obligation under this
Note, or any defined event of default under any loan agreement now or at any
time hereafter in effect between Borrower and Bank (whether executed prior to,
concurrently with or at any time after this Note), shall constitute an "Event of
Default" under this Note.
MISCELLANEOUS:
(a) REMEDIES. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal, interest,
fees and charges outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, it any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments. advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(b) OBLIGATIONS JOINT AND SEVERAL. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the state of Arizona.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
KNIGHT TRANSPORTATION INC.
By: /s/ Clark Jenkins
- ---------------------------------
CLARK JENKINS
CHIEF FINANCIAL OFFICER/SECRETARY
4
<PAGE>
WELLS FARGO BANK LOAN AGREEMENT
This Loan Agreement (this "Agreement") is entered into by and between
KNIGHT TRANSPORTATION, INC. ("Borrower") and WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") and sets forth the terms and conditions which govern all
Borrower's commercial credit accommodations from Bank, whether now existing or
hereafter granted (each, a "Credit" and collectively, "Credits"), which terms
and conditions are in addition to those set forth in any other contract,
instrument or document (collectively with this Agreement, the "Loan Documents")
required by this Agreement or heretofore or at any time hereafter delivered to
Bank in connection with any Credit.
I. REPRESENTATIONS AND WARRANTIES. Borrower makes the following
representations and warranties to Bank, which representations and warranties
shall be true as of the date hereof and on the date of each extension of credit
under each Credit with the same effect as though made on each such date:
(a) LEGAL STATUS. Borrower is a CORPORATION, duly organized and existing
and in good standing under the laws of the State of ARIZONA, and is qualified or
licensed to do business in all jurisdictions in which such qualification or
licensing is required or in which the failure to be qualified or licensed could
have a material adverse effect on Borrower.
(b) AUTHORIZATION AND VALIDITY. Each of the Loan Documents has been duly
authorized, and upon its execution and delivery to Bank will constitute a legal,
valid and binding obligation of Borrower or the party which executes the same,
enforceable in accordance with its respective terms.
(c) NO VIOLATION. The execution, delivery and performance by Borrower of
each of the Loan Documents do not violate any provision of law or regulation, or
contravene any provision of Borrower's Articles of Incorporation or By-Laws, or
result in any breach of or default under any agreement, indenture or other
instrument to which Borrower is a party or by which Borrower may be bound.
(d) NO LITIGATION. There are no pending, or to the best of Borrower's
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower except as disclosed by Borrower to Bank in writing prior
to the date hereof.
(e) FINANCIAL STATEMENTS. The most recent annual financial statement of
Borrower, and all interim financial statements delivered to Bank since the date
of said annual financial statement, true copies of which have been delivered by
Borrower to Bank prior to the date hereof, are complete and correct, present
fairly the financial condition of Borrower and disclose all liabilities of
Borrower, and have been prepared in accordance with generally accepted
accounting principles. Since the dates of such financial statements there has
been no material adverse change in the financial condition of Borrower, nor has
Borrower mortgaged, pledged, granted a security interest in or otherwise
encumbered any of its assets or properties except in favor of Bank or as
otherwise permitted by Bank in writing.
(f) TAX RETURNS. Borrower has no knowledge of any pending assessments or
adjustments of its income tax payable with respect to any year except as
disclosed by Borrower to Bank in writing prior to the date hereof.
II. ADDITIONAL TERMS.
(a) CONDITIONS PRECEDENT. The obligation of Bank to grant any Credit is
subject to the condition that Bank shall have received all contracts,
instruments and documents, duly executed where applicable, deemed necessary by
Bank to evidence such Credit and all terms and conditions applicable thereto,
all of which shall be in form and substance satisfactory to Bank.
(b) APPLICATION OF PAYMENTS. Each payment made on each Credit shall be
applied first, to any interest then due, second, to any fees and charges then
due, and third, to the outstanding principal balance thereof.
III. COVENANTS. So long as any Credit remains available or any amounts
under any Credit remain outstanding, Borrower shall, unless Bank otherwise
consents in writing:
(a) INSURANCE. Maintain and keep in force, for each business in which
Borrower is engaged, insurance of the types and in amounts customarily carried
in similar lines of business, including but not limited to fire, extended
coverage, public liability, property damage and workers' compensation, carried
with companies and in amounts satisfactory to Bank, and deliver to Bank from
time to time at Bank's request schedules setting forth all insurance then in
effect.
5
<PAGE>
(b) COMPLIANCE: LAWS AND REGULATIONS; YEAR 2000.
(i) Preserve and maintain all licenses, permits, governmental
approvals, rights, privileges and franchises necessary for the conduct of
Borrower's business; and comply with the provisions of all documents pursuant to
which Borrower is organized arid/or which govern Borrower's continued existence
and with the requirements of all laws, rules, regulations arid orders of any
governmental authority applicable to Borrower and/or its business, and all state
or federal environmental, hazardous waste, health arid safety statutes, arid any
rules or regulations adopted pursuant thereto, which govern or affect any
operations and/or properties of Borrower.
(ii) Perform all acts reasonably necessary to ensure that (A) Borrower
and any business in which Borrower holds a substantial interest, and (B) all
customers, suppliers and vendors that are material to Borrower's business,
become Year 2000 Compliant in a timely manner. Such acts shall include, without
limitation, performing a comprehensive review and assessment of all of
Borrower's systems and adopting a detailed plan, with itemized budget, for the
remediation, monitoring and testing of such systems. As used herein, "Year 2000
Compliant" shall mean, in regard to any entity, that all software, hardware,
firmware, equipment, goods or systems utilized by or material to the business
operations or financial condition of such entity, will properly perform date
sensitive functions before, during and after the year 2000. Borrower shall,
immediately upon request, provide to Bank such certifications or other evidence
of Borrower's compliance with the terms hereof as Bank may from time to time
require.
(c) OTHER INDEBTEDNESS. Not create, incur, assume or permit to exist any
indebtedness or other liabilities, whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several, direct or contingent
(including any contingent liability under any guaranty of the obligations of any
person or entity), except (i) the liabilities of Borrower to Bank, Iii) trade
debt incurred by Borrower in the normal course of its business, and (iii) any
other liabilities of Borrower existing as of, and disclosed to Bank in writing
prior to, the date hereof.
(d) MERGER; CONSOLIDATION; TRANSFER OF ASSETS. Not merge into or
consolidate with any other entity; nor make any substantial change in the nature
of Borrower's business as conducted as of the date hereof; nor acquire all or
substantially all of the assets of any other person or entity; nor sell, lease,
transfer or otherwise dispose of all or a substantial or material portion of
Borrower's assets except in the ordinary course of its business.
(e) PLEDGE OF ASSETS. Not mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower's assets now
owned or hereafter acquired, except in favor of Bank and except any of the
foregoing existing as of, and disclosed to Bank in writing prior to, the date
hereof.
(f) FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and
detail satisfactory to Bank, together with such current financial and other
information as Bank from time to time may reasonably request:
(i) As soon as available, but in no event later than 120 days after and
as of the end of each FISCAL year, AN AUDITED financial statement of Borrower,
prepared by an independent certified public accountant acceptable to Bank, to
include a balance sheet, income statement and statement of cash flow, together
with all supporting schedules and footnotes.
(ii) As soon as available, but in no event later than 60 days after and
as of the end of EACH FISCAL QUARTER, a financial statement of Borrower,
prepared by Borrower and certified as correct by an officer of Borrower
authorized to borrow under the Most current Corporate Borrowing Resolution
delivered by Borrower to Bank, to include a balance sheet and income statement,
together with all supporting schedules and footnotes.
(g) Financial Condition. Maintain Borrower's financial condition as follows
using generally accepted accounting principles consistently applied and used
consistently with prior practices, except to the extent modified by the
following definitions:
(i) Current Ratio not at any time less than 1.00 to 1 .0, with "Current
Ratio" defined as total current assets divided by total current liabilities.
(ii) Tangible Net Worth not at any time less than $50,000,000.00, with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity plus
subordinated debt less any intangible assets.
(iii) Total Liabilities divided by Tangible Net Worth not at any time
greater than 1.00 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and with
"Tangible Net Worth" as defined above.
6
<PAGE>
IV. DEFAULT; REMEDIES.
(a) EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(i) The failure to pay any principal, interest, fees or other charges
when due under any of the Loan Documents.
(ii) Any representation or warranty hereunder or under any other Loan
Document shall prove to be incorrect, false or misleading in any material
respect when made.
(iii) Any violation or breach of any term or condition of this
Agreement or any other of the Loan ocuments.
(iv) Any default in the payment or performance of any obligation, or
any defined event of default, under any provisions of any contract, instrument
or document pursuant to which Borrower or any guarantor hereunder has incurred
debt or any other liability of any kind to any person or entity, including Bank.
(v) The filing of a petition by or against Borrower or any guarantor
hereunder under any provisions of the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time, or under any
similar or other law relating to bankruptcy, insolvency, reorganization or other
relief for debtors; the appointment of a receiver, trustee, custodian or
liquidator of or for any part of the assets or property of Borrower or any such
guarantor; Borrower or any such guarantor becomes insolvent, makes a general
assignment for the benefit of creditors or is generally not paying its debts as
they become due; or any attachment or like levy on any property of Borrower or
any such guarantor.
(vi) Any material adverse change, as determined solely by Bank, in the
financial condition of Borrower.
(vii) The death or incapacity of any individual guarantor hereunder; or
the dissolution or liquidation of Borrower or of any guarantor hereunder which
is a corporation, partnership or other type of entity.
(viii) Any change in ownership during the term hereof of an aggregate
of 25% or more of the common stock of Borrower.
(b) REMEDIES. Upon the occurrence of any Event of Default: (i) the entire
balance of principal, interest, fees and charges on each Credit shall, at Bank's
option, become immediately due and payable in full without presentment; "demand,
protest or notice of dishonor, all of which are expressly waived by Borrower;
(ii) the obligation, if any, of Bank to extend any further credit to Borrower
under any Credit shall immediately cease and terminate; and (iii) Bank shall
have all rights, powers and remedies available under each of the Loan Documents,
or accorded by law, including without limitation the right to resort to any
security for any Credit, All rights, powers and remedies of Bank shall be
cumulative.
V. MISCELLANEOUS.
(a) NO WAIVER. No delay, failure or discontinuance of Bank in exercising
any right, power or remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or otherwise
affect any other or further exercise thereof or the exercise of any other right,
power or remedy. Any waiver, permit, consent or approval of any kind by Bank of
any breach of or default under this Agreement, or any such waiver of any
provisions or conditions hereof, must be in writing and shall be effective only
to the extent set forth in writing.
(b) NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to the applicable party at its address
specified below or to such other address as any party may designate by written
notice to each other party, and shall be deemed to have been given or made as
follows: (i) if personally delivered, upon delivery; (ii) if sent by mail, upon
the earlier of the date of receipt or 3 days after deposit in the U.S. mail,
first class and postage prepaid; and (iii) if sent by telecopy, upon receipt.
(c) COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (i) the negotiation and preparation of this
Agreement and the other Loan Documents, and Bank's continued administration of
each Credit, Iii) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (iii) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
of otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(d) SUCCESSORS; ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not
assign or transfer its interests or rights. hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any Credit, Borrower or its business, any guarantor of any
Credit or the business of any such guarantor, or any collateral for any Credit.
(e) CONTROLLING AGREEMENT; Amendment. In the event of any direct conflict
between any provision of this Agreement and any provision of any other Loan
Document, the terms of this Agreement shall control. This Agreement may be
amended or modified only in writing signed by Bank and Borrower.
7
<PAGE>
(f) NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into
for the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a third
party beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any other Loan Document to which it is riot a
party.
(g) SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be
held to be prohibited by or invalid under applicable law, such provision shall
be ineffective only to the extent of such prohibition of invalidity, without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.
(h) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of Arizona.
(i) CANCELLATION OF PRIOR LOAN AGREEMENTS. This Agreement cancels and
supersedes all prior loan agreements between Borrower and Bank relating to any
Credit.
VI. ARBITRATION.
(a) ARBITRATION. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (a) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in Arizona selected
by the AAA or other administrator. If there is any inconsistency between the
terms hereof and any such rules, the terms and procedures set forth herein shall
control. All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment upon any
award rendered in an arbitration 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 bank of the protections afforded to it under
12 U.S.C. ss.91 or any similar applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be
active members of the Arizona State Bar or retired judges of the state or
federal judiciary of Arizona, with expertise in the substantive law applicable
to the subject matter of the Dispute. Arbitrators are empowered to resolve
Disputes by summary rulings in response to motions filed prior to the final
arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance
with the substantive law of the state of Arizona, (ii) may grant any remedy or
relief that a court of the state of Arizona could order or grant within the
scope hereof and such ancillary relief as is necessary to make effective any
award, and (iii) shall have the power to award recovery of all costs and fees,
to impose sanctions and to take such other actions as they deem necessary to the
same extent a judge could pursuant to the Federal Rules of Civil Procedure, the
Arizona Rules of Civil Procedure or other applicable law. Any Dispute in which
the amount in controversy is $5,000,000 or less shall be decided by a single
arbitrator who shall not render an award of greater than $5,000,000 (including
damages, costs, fees and expenses). By submission to a single arbitrator, each
party expressly waives any right or claim to recover more than $5,000,000. Any
Dispute in which the amount in controversy exceeds $5,000,000 shall be decided
by majority vote of a panel of three arbitrators; provided however, that all
three arbitrators must actively participate in all hearings and deliberations.
8
<PAGE>
(e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
Arizona, and (iii) the parties shall have in addition to the grounds referred to
in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
Arizona. Judgment confirming an award in such a proceeding may be entered only
if a court determines the award is supported by substantial evidence and not
based on legal error under the substantive law of the state of Arizona.
(f) MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the Subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement as of
JULY 14, 1998.
KNIGHT TRANSPORTATION, INC. WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Clark Jenkins
------------------------------------ By: /s/
CLARK JENKINS ------------------------------
CHIEF FINANCIAL OFFICER/SECRETARY Title:
--------------------------
Address: 5601 W. BUCKEYE ROAD Address: 100 West Washington
PHOENIX AZ 85043 Phoenix, AZ 85003
9
<PAGE>
WELLS FARGO BANK CERTIFICATE OF INCUMBENCY
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION
The undersigned, CLARK JENKINS, Secretary of KNIGHT TRANSPORTATION, INC., a
corporation created and existing under the laws of the state of ARIZONA, hereby
certifies to Wells Fargo Bank, National Association ("Bank") that (a) the
following named persons are duly elected officers of this corporation and
presently hold the titles specified below, (b) said officers are authorized to
act on behalf of this Corporation in transactions with Bank, and (c) the
signature opposite each officer's name is his or her true signature:
Title Name Signature
- ----- ---- ---------
Chairman Randy Knight /s/ Randy Knight
Chief Executive Officer Kevin P. Knight /s/ Kevin P. Knight
President Gary Knight /s/ Gary Knight
Chief Financial Officer Clark Jenkins /s/ Clark Jenkins
The undersigned further certifies that if any of the above-named officers
change, or this corporation shall immediately provide to Bank a new Certificate
of Incumbency. Bank is hereby authorized to rely on this Certificate of
Incumbency until a new Certificate of Incumbency certified by the Secretary of
this corporation is received by Bank.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed the corporate seal
of said corporation as of Knight Transportation, Inc.
/s/ Clark Jenkins
-----------------------------------
CLARK JENKINS, Secretary
(SEAL)
10
<PAGE>
To: Wells Fargo Bank,
National Association
100 West Washington
Phoenix, AZ 85003
Re: KNIGHT TRANSPORTATION, INC. ("Borrower")
Attn:____________________________________________
The undersigned is the Chief Financial Officer* of Borrower. In said
capacity, the undersigned hereby certifies to Wells Fargo Bank, National
Association ("Bank") that (a) the financial statement of Borrower dated as of
3/31/98, heretofore or concurrently herewith delivered by Borrower to Bank, and
all schedules and footnotes thereto, are true and correct, and have been
prepared in accordance with generally accepted accounting principles, and (b) as
of the date hereof, there exists no default or defined Event of Default under
any loan agreement, promissory note or any other document in effect with respect
to any credit accommodation granted by Bank to Borrower.
Dated: 7/14/98 KNIGHT TRANSPORTATION, INC.
By: /s/ Clark Jenkins
-------------------------------------
Title: Chief Financial Officer
* Insert the title of the signer who must be an officer of Borrower authorized
to borrow under the most current Corporate Borrowing Resolution delivered by
Borrower to Bank.
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<PAGE>
WELLS FARGO BANK CORPORATE RESOLUTION: BORROWING
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION
RESOLVED: That this corporation, KNIGHT TRANSPORTATION, INC., proposes to
obtain credit from time to time, or has obtained credit, from Wells Fargo Bank,
National Association ("Bank").
BE IT FURTHER RESOLVED, that any ONE of the following officers:
CHAIRMAN OR CHIEF EXECUTIVE OFFICER OR CHIEF FINANCIAL OFFICER/SECRETARY OR
PRESIDENT
together with any ONE of the following officers:
NONE
of this corporation be and they are hereby authorized and empowered for and on
behalf of and in the name of this corporation and as its corporate act and deed:
(a) To borrow money from Bank and to assume any liabilities of any other
person or entity to Bank, in such form and on such terms and conditions as shall
be agreed upon by those authorized above and Bank, and to sign and deliver to
Bank such promissory notes and other evidences of indebtedness for money
borrowed or advanced and/or for indebtedness assumed as Bank shall require; such
promissory notes or other evidences of indebtedness may provide that advances be
requested by telephone communication and by any officer, employee or agent of
this corporation so long as the advances are deposited into any deposit account
of this corporation with Bank; this corporation shall be bound to Bank by, and
Bank may rely upon, any communication or act, including telephone
communications, purporting to be done by any officer, employee of agent of this
corporation provided that Bank believes, in good faith, that the same is done by
such person.
(b) To contract for the issuance by Bank of letters of credit, to discount
with Bank notes, acceptances and evidences of indebtedness payable to or due
this corporation, to endorse the same and execute such contracts and instruments
for repayment thereof to Bank as Bank shall require, and to enter into foreign
exchange transactions with or through Bank.
(c) To mortgage, encumber, pledge, convey, grant, assign or otherwise
transfer all or any part of this corporation's real or personal property for the
purpose of securing the payment of any of the promissory notes, contracts,
instruments and other evidences of indebtedness authorized hereby, and to
execute and deliver to Bank such deeds of trust, mortgages, pledge agreements,
security agreements and/or other related documents as Bank shall require.
(d) To perform all acts and to execute and deliver all documents described
above and all other contracts and instruments which Bank deems necessary or
convenient to accomplish the purposes of this resolution and/or to perfect or
continue the rights, remedies and security interests to be given to Bank
pursuant hereto, including without limitation, any modifications, renewals
and/or extensions of any of this corporation's obligations to Bank, however
evidenced; provided that the aggregate principal amount of all sums borrowed and
credits established pursuant to this resolution shall not at any time exceed the
sum of $10,100,000.00 outstanding and unpaid.
Loans made pursuant to a special resolution and loans made by offices of
Bank other than the office to which this resolution is delivered shall be in
addition to foregoing limitation.
BE IT FURTHER RESOLVED, that the authority hereby conferred is in addition
to that conferred by any other resolution heretofore or hereafter delivered by
this corporation to Bank and shall continue in full force and effect until Bank
shall have received notice in writing, certified by the Secretary of this
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corporation, of the revocation hereof by a resolution duly adopted by the Board
of Directors of this corporation. Any such revocation shall be effective only as
to credit which is extended or committed by Bank, or actions which are taken by
this corporation pursuant to the resolutions contained herein, subsequent to
Bank's receipt of such notice. The authority hereby conferred shall be deemed
retroactive, and any and all acts authorized herein which were performed prior
to the passage of this resolution are hereby approved and ratified.
CERTIFICATION
I, CLARK JENKINS, Secretary of KNIGHT TRANSPORTATION, INC., a corporation
created and existing under the laws of the state of ARIZONA, do hereby certify
and declare that the foregoing is a full, true and correct copy of the
resolutions duly passed and adopted by the Board of Directors of said
corporation, by written consent of all Directors of said corporation or at a
meeting of said Board duly and regularly called, noticed and held on May 13,
1998, at which meeting a quorum of the Board of Directors was present and voted
in favor of said resolutions; that said resolutions are now in full force and
effect; that there is no provision in the Articles of Incorporation or Bylaws of
said corporation, or any shareholder agreement, limiting the power of the Board
of Directors of said corporation to pass the foregoing resolutions and that such
resolutions are in conformity with the provisions of such Articles of
Incorporation and Bylaws; and that no approval by the shareholders of, or of the
Outstanding shares of, said corporation is required with respect to the matters
which are the subject of the foregoing resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand and, if required by Bank
affixed the corporate seal of said corporation, as of 7/14/98.
By: /s/ Clark Jenkins
-------------------------------------
CLARK JENKINS, Secretary
(SEAL)
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WELLS FARGO BANK LOAN AGREEMENT
This Loan Agreement (this "Agreement" is entered into by and between KNIGHT
TRANSPORTATION, INC. ("Borrower") and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank") and sets forth the terms and conditions which govern all Borrower's
commercial credit accommodations from Bank, whether now existing or hereafter
granted (each, a "Credit" and collectively, 'Credits"), which terms and
conditions are in addition to those set forth in any other contract, instrument
or document (collectively with this Agreement, the "Loan Documents") required by
this Agreement or heretofore or at any time hereafter delivered to Bank in
connection with any Credit.
I. REPRESENTATIONS AND WARRANTIES. Borrower makes the following
representations and warranties to Bank, which representations and warranties
shall be true as of the date hereof and on the date of each extension of credit
under each Credit with the same effect as though made on each such date:
(a) LEGAL STATUS. Borrower is a CORPORATION, duly organized and existing
and in good standing under the laws of the State of ARIZONA, and is qualified or
licensed to do business in all jurisdictions in which such qualification or
licensing is required or in which the failure to be qualified or licensed could
have a material adverse effect on Borrower.
(b) AUTHORIZATION AND VALIDITY. Each of the Loan Documents has been duly
authorized, and upon its execution and delivery to Bank will constitute a legal,
valid and binding obligation of Borrower or the party which executes the same,
enforceable in accordance with its respective terms.
(c) NO VIOLATION. The execution, delivery and performance by Borrower of
each of the Loan Documents do not violate any provision of law or regulation, or
contravene any provision of Borrower's Articles of Incorporation or By-Laws, or
result in any breach of or default under any agreement, indenture or other
instrument to which Borrower is a party or by which Borrower may be bound.
(d) NO LITIGATION. There are no pending, or to the best of Borrower's
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower except as disclosed by Borrower to Bank in writing prior
to the date hereof.
(e) FINANCIAL STATEMENTS. The most recent annual financial statement of
Borrower, and all interim financial statements delivered to Bank since the date
of said annual financial statement, true copies of which have been delivered by
Borrower to Bank prior to the date hereof, are complete and correct, present
fairly the financial condition of Borrower and disclose all liabilities of
Borrower, and have been prepared in accordance with generally accepted
accounting principles. Since the dates of such financial statements there has
been no material adverse change in the financial condition of Borrower, nor has
Borrower mortgaged, pledged, granted a security interest in or otherwise
encumbered any of its assets or properties except in favor of Bank or as
otherwise permitted by Bank in writing.
(f) TAX RETURNS. Borrower has no knowledge of any pending assessments or
adjustments of its income tax payable with respect to any year except as
disclosed by Borrower to Bank in writing prior to the date hereof.
II. ADDITIONAL TERMS.
(a) CONDITIONS PRECEDENT. The obligation of Bank to grant any Credit is
subject to the condition that Bank shall have received all contracts,
instruments and documents, duly executed where applicable, deemed necessary by
Bank to evidence such Credit and all terms and conditions applicable thereto,
all of which shall be in form and substance satisfactory to Bank.
(b) APPLICATION OF PAYMENTS. Each payment made on each Credit shall be
applied first, to any interest then due, second, to any fees and charges then.
due, and third, to the outstanding principal balance thereof.
III. COVENANTS. So long as any Credit remains available or any amounts
under any Credit remain outstanding, Borrower shall, unless Bank otherwise
consents in writing:
(a) INSURANCE. Maintain and keep in force, for each business in which
Borrower is engaged, insurance of the types and in amounts customarily carried
in similar lines of business, including but not limited to fire, extended
coverage, public liability, property damage and workers' compensation, carried
with companies and in amounts satisfactory to Bank, and deliver to Bank from
time to time at Bank's request schedules setting forth all insurance then in
effect.
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(b) COMPLIANCE: LAWS AND REGULATIONS; YEAR 2000.
(i) Preserve and maintain all licenses, permits, governmental
approvals, rights, privileges and franchises necessary for the conduct of
Borrower's business; and comply with the provisions of all documents pursuant to
which Borrower is organized and/or which govern Borrower's continued existence
and with the requirements of all laws, rules, regulations and orders of any
governmental authority applicable to Borrower and/or its business, and all state
or federal environmental, hazardous waste, health and safety statutes, and any
rules or regulations adopted pursuant thereto, which govern or affect any
operations and/or properties of Borrower.
(ii) Perform all acts reasonably necessary to ensure that (A) Borrower
and any business in which Borrower holds a substantial interest, and (B) all
customers, suppliers and vendors that are material to Borrower's business,
become Year 2000 Compliant in a timely manner. Such acts shall include, without
limitation, performing a comprehensive review and assessment of all of
Borrower's systems and adopting a detailed plan, with itemized budget, for the
remediation, monitoring and testing of such systems. As used herein, "Year 2000
Compliant" shall mean, in regard to any entity, that all software, hardware,
firmware, equipment, goods or systems utilized by or material to the business
operations or financial condition of such entity, will properly perform date
sensitive functions before, during and after the year 2000. Borrower shall,
immediately upon request, provide to Bank such certifications or other evidence
of Borrower's compliance with the terms hereof as Bank may from time to time
require.
(c) OTHER INDEBTEDNESS. Not create, incur, assume or permit to exist any
indebtedness or other liabilities, whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several, direct or contingent
(including any contingent liability under any guaranty of the obligations of any
person or entity), except (i) the liabilities of Borrower to Bank, (ii) trade
debt incurred by Borrower in the normal course of its business, and (iii) any
other liabilities of Borrower existing as of, and disclosed to Bank in writing
prior to, the date hereof.
(d) MERGER; CONSOLIDATION; TRANSFER OF ASSETS. Not merge into or
consolidate with any other entity; nor make any substantial change in the nature
of Borrower's business as conducted as of the date hereof; nor acquire all or
substantially all of the assets of any other person or entity; nor sell, lease,
transfer or otherwise dispose of all or a substantial or material portion of
Borrower's assets except in the ordinary course of its business.
(e) PLEDGE OF ASSETS. Not mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower's assets now
owned or hereafter acquired, except in favor of Bank and except any of the
foregoing existing as of, and disclosed to Bank in writing prior to, the date
hereof.
(f) FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and
detail satisfactory to Bank, together with such current financial and other
information as Bank from time to time may reasonably request:
(i) As soon as available, but in no event later than 120 days after and
as of the end of each FISCAL year, AN AUDITED financial statement of Borrower,
prepared by an independent certified public accountant acceptable to Bank, to
include a balance sheet, income statement and statement of cash flow, together
with all supporting schedules and footnotes.
(ii) As soon as available, but in no event later than 60 days after and
as of the end of EACH FISCAL QUARTER, a financial statement of Borrower,
prepared by Borrower and certified as correct by an officer of Borrower
authorized to borrow under the most current Corporate Borrowing Resolution
delivered by Borrower to Bank, to include a balance sheet and income statement,
together with all supporting schedules and footnotes.
*(g) FINANCIAL CONDITION. Maintain Borrower's financial condition as
follows using generally accepted accounting principles consistently applied and
used consistently with prior practices, except to the extent modified by the
following definitions:
(i) Current Ratio not at any time less than 1.00 to 1 .0, with "Current
Ratio" defined as total current assets divided by total current liabilities.
(ii) Tangible Net Worth not at any time less than $50,000,000.00, with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity plus
subordinated debt less any intangible assets.
(iii) Total Liabilities divided by Tangible Net Worth not at any time
greater than 1.00 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and with
"Tangible Net Worth" as defined above.
(iv) EBITDA Coverage Ratio not less than 3.00 to 1.0 as of each FISCAL
quarter end, with "EBITDA" defined as net profit before tax plus interest
expense (net of capitalized interest expense), depreciation expense and
amortization expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided
by the aggregate of interest expense plus the prior period current maturity of
long-term debt and the prior period current maturity of subordinated debt.*
*To be measured on a rolling four quarter basis.
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IV. DEFAULT; REMEDIES.
(a) EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(i) The failure to pay any principal, interest, fees or other charges
when due under any of the Loan Documents.
(ii) Any representation or warranty hereunder or under any other Loan
Document shall prove to be incorrect, false or misleading in any material
respect when made.
(iii) Any violation or breach of any term or condition of this
Agreement or any other of the Loan Documents.
(iv) Any default in the payment or performance of any obligation, or
any defined event of default, under any provisions of any contract, instrument
or document pursuant to which Borrower or any guarantor hereunder has incurred
debt or any other liability of any kind to any person or entity, including Bank.
(v) The filing of a petition by or against Borrower or any guarantor
hereunder under any provisions of the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time, or under any
similar or other law relating to bankruptcy, insolvency, reorganization or other
relief for debtors; the appointment of a receiver, trustee, custodian or
liquidator of or for any part of the assets or property of Borrower or any such
guarantor; Borrower or any such guarantor becomes insolvent, makes a general
assignment for the benefit of creditors or is generally not paying its debts as
they become due; or any attachment or like levy on any property of Borrower or
any such guarantor.
(vi) Any material adverse change, as determined solely by Bank, in the
financial condition of Borrower.
(vii) The death or incapacity of any individual guarantor hereunder; or
the dissolution or liquidation of Borrower or of any guarantor hereunder which
is a corporation, partnership or other type of entity.
(viii) Any change in ownership during the term hereof of an aggregate
of 25% or more of the common stock of Borrower.
(b) REMEDIES. Upon the occurrence of any Event of Default: (i) the entire
balance of principal, interest, fees and charges on each Credit shall, at Bank's
option, become immediately due and payable in full without presentment, demand,
protest or notice of dishonor, all of which are expressly waived by Borrower;
(ii) the obligation, if any, of Bank to extend any further credit to Borrower
under any Credit shall immediately cease and terminate; and (iii) Bank shall
have all rights, powers and remedies available under each of the Loan Documents,
or accorded by law, including without limitation the right to resort to any
security for any Credit. All rights, powers and remedies of Bank shall be
cumulative.
V. MISCELLANEOUS.
(a) NO WAIVER. No delay, failure or discontinuance of Bank in exercising
any right, power or remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or otherwise
affect any other or further exercise thereof or the exercise of any other right,
power or remedy. Any waiver, permit, consent or approval of any kind by Bank of
any breach of or default under this Agreement, or any such waiver of any
provisions or conditions hereof, must be in writing and shall be effective only
to the extent set forth in writing.
(b) NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to the applicable party at its address
specified below or to such other address as any party may designate by written
notice to each other party, and shall be deemed to have been given or made as
follows: (i) if personally delivered, upon delivery; (ii) if sent by mail, upon
the earlier of the date of receipt or 3 days after deposit in the U.S. mail,
first class and postage prepaid; and (iii) if sent by telecopy, upon receipt.
(c) COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank
immediately upon demand the full amount all payments, advances, charges, costs
and expenses, including reasonable attorneys' fees (to include outside counsel
fees and all allocated costs of Bank's in-house counsel), expended or incurred
by Bank in connection with (i) the negotiation and preparation of this Agreement
and the other Loan Documents, and Bank's continued administration of each
Credit, (ii) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (iii) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(d) SUCCESSORS; ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not
assign or transfer its interests or rights hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any Credit, Borrower or its business, any guarantor of any
Credit or the business of any such guarantor, or any collateral for any Credit.
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(e) CONTROLLING AGREEMENT; AMENDMENT. In the event of any direct conflict
between any provision of this Agreement and any provision of any other Loan
Document the terms of this Agreement shall control. This Agreement may be
amended or modified only in writing signed by Bank and Borrower.
(f) NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into
for the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a third
party beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any other Loan Document to which it is not a
party.
(g) SEVERABILITY OF PROVISIONS. If any provision of this Agreement snail be
held to be prohibited by or invalid under applicable law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.
(h) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of Arizona.
(i) CANCELLATION OF PRIOR LOAN AGREEMENTS. This Agreement cancels and
supersedes all prior loan agreements between Borrower and Bank relating to any
Credit.
VI. ARBITRATION.
(a) ARBITRATION. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (a) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in Arizona selected
by the AAA or other administrator. If there is any inconsistency between the
terms hereof and any such rules, the terms and procedures set forth herein shall
control. All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment upon any
award rendered in an arbitration 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 bank of the protections afforded to it under
12 U.S.C. ss.91 or any similar applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be
active members of the Arizona State Bar or retired judges of the state or
federal judiciary of Arizona, with expertise in the substantive law applicable
to the subject matter of the Dispute. Arbitrators are empowered to resolve
Disputes by summary rulings in response to motions filed prior to the final
arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance
with the substantive law of the state of Arizona, (ii) may grant any remedy or
relief that a court of the state of Arizona could order or grant within the
scope hereof and such ancillary relief as is necessary to make effective any
award, and (iii) shall have the power to award recovery of all costs and fees,
to impose sanctions and to take such other actions as they deem necessary to the
same extent a judge could pursuant to the Federal Rules of Civil Procedure, the
Arizona Rules of Civil Procedure or other applicable law. Any Dispute in which
the amount in controversy is $5,000,000 or less shall be decided by a single
arbitrator who shall not render an award of greater than $5,000,000 (including
damages, costs, fees and expenses). By submission to a single arbitrator, each
party expressly waives any right or claim to recover more than $5,000,000. Any
Dispute in which the amount in controversy exceeds $5,000,000 shall be decided
by majority vote of a panel of three arbitrators; provided however, that all
three arbitrators must actively participate in all hearings and deliberations.
(e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
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Arizona, and (iii) the parties shall have in addition to the grounds referred to
in the Federal Arbitration Act for vacating, reducing or correcting an award the
right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
Arizona. Judgment confirming an award in such a proceeding may be entered only
if a court determines the award is supported by substantial evidence and not
based on legal error under the substantive law of the state of Arizona.
(f) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more then one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement as of
OCTOBER 1, 1998.
KNIGHT TRANSPORTATION, INC. WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Clark Jenkins By: /s/
--------------------------------- -------------------------------
CLARK JENKINS Title: Vice President
CHIEF FINANCIAL OFFICER/SECRETARY
Address: 5601 W. BUCKEYE ROAD Address: 100 West Washington
PHOENIX, AZ 85043 Phoenix, AZ 85003
18
WELLS FARGO BANK TERM NOTE
$10,000,000.00 Phoenix, Arizona
October 1, 1993
FOR VALUE RECEIVED, the undersigned KNIGHT TRANSPORTATION, INC.
("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at Arizona RCBO #03839, 100 West Washington,
Phoenix, AZ 85003, or at such other place as the holder hereof may designate in
lawful money of the United States of America and n immediately available funds,
the principal sum of $10,000,000,00, with interest thereon as set forth herein.
INTEREST/FEES:
(a) INTEREST. The outstanding principal balance of this Note shall bear
interest at the rate of 5.75000% per annum (computed on the basis of a 360-day
year, actual days elapsed).
(b) DEFAULT INTEREST. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
(c) COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all
principal and interest due hereunder by charging Borrower's demand deposit
account number 4159-518950 with Bank, or any other demand deposit account
maintained by any Borrower with Bank, for the full amount thereof. Should there
be insufficient funds in any such demand deposit account to pay all such sums
when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
REPAYMENT AND PREPAYMENT:
(a) REPAYMENT. Principal and interest shall be payable on the 1ST day of
each MONTH in installments or $192,558.23 each, commencing NOVEMBER 1, 1998, and
continuing up to and including SEPTEMBER 1, 2003, with a final installment
consisting of all remaining unpaid principal and accrued interest due and
payable in full on OCTOBER 1, 2003.
(b) PREPAYMENT. Borrower may prepay principal on this Note at any time in
the minimum amount of $100,000.00; provided however, that if the outstanding
principal balance of this Note is less than said amount, the minimum prepayment
amount shall be the entire outstanding principal balance hereof. In
consideration of Bank providing this prepayment option to Borrower, or if this
Note shall become due and payable at any time prior to the maturity date hereof
by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand
a fee which is the sum or the discounted monthly differences for each month from
the month of prepayment through the month in which this Note matures, calculated
as follows for each such month:
(i) DETERMINE the amount of interest which would have accrued each month on
the amount prepaid at the interest rate applicable to such amount had it
remained outstanding until the scheduled maturity date hereof.
(ii) SUBTRACT from the amount determined in (i) above the amount of
interest which would have accrued for the same month on the amount prepaid for
the remaining term of this Note at the Money Market Funds Rate in effect on the
date of prepayment for new loans made for such term and in a principal amount
equal to the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater than zero,
discount that difference by the Money Market Funds Rate used in (ii) above.
Each Borrower acknowledges that prepayment of such amount may result in
Bank incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum 2.000% above the Prime
Rate in effect from time to time (computed on the basis of a 360-day year,
actual days elapsed). The "Prime Rate" is a base rate that Bank from time to
time establishes and which serves as the basis upon which effective rates of
interest are calculated for those loans making reference thereto. Each change in
the rate of interest on any such past due prepayment fee shall become effective
on the date each Prime Rate change is announced within Bank.
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The "Money Market Funds Rate" means the rate per annum which Bank estimates
and quotes to its borrowers as the rate, adjusted for reserve requirements,
federal deposit insurance and any other amount which Bank deems appropriate, at
which funds in the amount of a loan and for a period of time comparable to the
term of such loan are available for purchase in the money market on the date
such loan is made with the understanding that the Money Market Funds Rate is
Bank's estimate only and that Bank is under no obligation to actually purchase
and/or match funds for any transaction. This rate is not fixed by or related in
any way to any rate that Bank quotes or pays for deposits accepted through its
branch system.
All prepayments of principal shall be applied on the most remote principal
installment or installments then unpaid.
EVENTS OF DEFAULT:
Any default in the payment or performance of any obligation under this
Note, or any defined event of default under any loan agreement now or at any
time hereafter in effect between Borrower and Bank (whether executed prior to,
concurrently with or at any time after this Note), shall constitute an "Event of
Default" under this Note.
MISCELLANEOUS:
(a) REMEDIES. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal, interest,
fees and charges outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(b) OBLIGATIONS JOINT AND SEVERAL. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the state of Arizona.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
KNIGHT TRANSPORTATION, INC.
By: /s/ Clark Jenkins
---------------------------------
CLARK JENKINS
CHIEF FINANCIAL OFFICER/SECRETARY
2
<PAGE>
WELLS FARGO BANK DISBURSEMENT ORDER
DATE: OCTOBER 1, 1998
OFFICE: ARIZONA RCBO #03839, 100 WEST WASHINGTON, PHOENIX, AZ 85003
Wells Fargo Bank, National Association, is hereby authorized to pay the proceeds
of the credit accommodation to the undersigned granted in the principal amount
of $10,000,000.00 to the order of:
NAME AMOUNT
---- ------
$
- ------------------------------------------------------- -------------------
$
- ------------------------------------------------------- -------------------
$
- ------------------------------------------------------- -------------------
$
- ------------------------------------------------------- -------------------
$
- ------------------------------------------------------- -------------------
$
- ------------------------------------------------------- -------------------
KNIGHT TRANSPORTATION, INC.
By: /s/ Clark Jenkins
---------------------------------
CLARK JENKINS
CHIEF FINANCIAL OFFICER/SECRETARY
3
<PAGE>
WELLS FARGO BANK CORPORATE RESOLUTION: BORROWING
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION
RESOLVED: That this corporation, KNIGHT TRANSPORTATION, INC., proposes to
obtain credit from time to time, or has obtained credit, from Wells Fargo Bank,
National Association ("Bank").
BE IT FURTHER RESOLVED, that any one of the following officers:
CHAIRMAN, CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER, SECRETARY,
PRESIDENT
together with any ONE of the following officers:
NONE
of this corporation be and they are hereby authorized and empowered for and on
behalf of and in the name of this corporation and as its corporate act and deed:
(a) To borrow money from Bank and to assume any liabilities of any other
person or entity to Bank, in such form and on such terms and conditions as shall
be agreed upon by those authorized above and Bank, and to sign and deliver to
Bank such promissory notes and other evidences of indebtedness for money
borrowed or advanced and/or for indebtedness assumed as Bank shall require; such
promissory notes or other evidences of indebtedness may provide that advances be
requested by telephone communication and by any officer, employee or agent of
this corporation so long as the advances are deposited into any deposit account
of this corporation with Bank; this corporation shall be bound to Bank by, and
Bank may rely upon, any communication or act, including telephone
communications, purporting to be done by any officer, employee or agent of this
corporation provided that Bank believes, in good faith, that the same is done by
such person.
(b) To contract for the issuance by Bank of letters of credit, to discount
with Bank notes, acceptances and evidences of indebtedness payable to or due
this corporation, to endorse the same and execute such contracts and instruments
for repayment thereof to Bank as Bank shall require, and to enter into foreign
exchange transactions with or through Bank.
(c) To mortgage, encumber, pledge, convey, grant, assign or otherwise
transfer all or any part of this corporation's real or personal property for the
purpose of securing the payment of any of the promissory notes, contracts,
instruments and other evidences of indebtedness authorized hereby, and to
execute and deliver to Bank such deeds of trust, mortgages, pledge agreements,
security agreements and/or other related documents as Bank shall require.
(d) To perform all acts and to execute and deliver all documents described
above and all other contracts and instruments which Bank deems necessary or
convenient to accomplish the- purposes of this resolution and/or to perfect or
continue the rights, remedies and security interests to be given to Bank
pursuant hereto, including without limitation, any modifications, renewals
and/or extensions of any of this corporation's obligations to Bank, however
evidenced; provided that the aggregate principal amount of all sums borrowed and
credits established pursuant to this resolution shall not at any time exceed the
sum of $20,100,000.00 outstanding and unpaid.
Loans made pursuant to a special resolution and loans made by offices of
Bank other than the office to which this resolution is delivered shall be in
addition to foregoing limitation.
4
<PAGE>
BE IT FURTHER RESOLVED, that the authority hereby conferred is in addition
to that conferred by any other resolution heretofore or hereafter delivered by
this corporation to Bank and shall continue in full force and effect until Bank
shall have received notice in writing, certified by the Secretary of this
corporation, of the revocation hereof by a resolution duly adopted by the Board
of Directors of this corporation. Any such revocation shall be effective only as
to credit which is extended or committed by Bank, or actions which are taken by
this corporation pursuant to the resolutions contained herein, subsequent to
Bank's receipt of such notice. The authority hereby conferred shall be deemed
retroactive, and any and all acts authorized herein which were performed prior
to the passage of this resolution are hereby approved and ratified.
CERTIFICATION
I, CLARK JENKINS, Secretary of KNIGHT TRANSPORTATION, INC., a corporation
created and existing under the laws of the state of ARIZONA, do hereby certify
and declare that the foregoing is a full, true and correct copy of the
resolutions duly passed and adopted by the Board of Directors of said
corporation, by written consent of all Directors of said corporation or at a
meeting of said Board duly and regularly called, noticed and held on , at which
meeting a quorum of the Board of Directors was present and voted in favor of
said resolutions; that said resolutions are now in full force and effect; that
there is no provision in the Articles of Incorporation or Bylaws of said
corporation, or any shareholder agreement, limiting the power of the Board of
Directors of said corporation to pass the foregoing resolutions and that such
resolutions are in conformity with the provisions of such Articles of
Incorporation and Bylaws; and that no approval by the shareholders of, or of the
outstanding shares of, said corporation is required with respect to the matters
which are the subject of the foregoing resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand and, if required by Bank
affixed the corporate seal of said corporation, as of
/s/ Clark Jenkins
----------------------------------
CLARK JENKINS, Secretary
(SEAL)
5
<PAGE>
To: Wells Fargo Bank,
National Association
100 West Washington
Phoenix, AZ 85003
Re: KNIGHT TRANSPORTATION, INC. ("Borrower")
Attn:
-------------------------------------
The undersigned is the Chief Financial Officer* of Borrower. In said
capacity, the undersigned hereby certifies to Wells Fargo Bank, National
Association ("Bank") that (a) the financial statement of Borrower dated as of
June 30, 1998, heretofore or concurrently herewith delivered by Borrower to
Bank, and all schedules and footnotes thereto, are true and correct, and have
been prepared in accordance with generally accepted accounting principles, and
(b) as of the date hereof, there exists no default or defined Event of Default
under any loan agreement, promissory note or any other document in effect with
respect to any credit accommodation granted by Bank to Borrower.
Dated: Oct. 1, 1998 KNIGHT TRANSPORTATION, INC.
By: /s/ Clark Jenkins
--------------------------------
Title: Chief Financial Officer
* Insert the title of the signer who must be an officer of Borrower authorized
to borrow under the most current Corporate Borrowing Resolution delivered by
Borrower to Bank.
6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 333-72377.
ARTHUR ANDERSEN LLP
Phoenix, Arizona
March 15, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS 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>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 124,188
<SECURITIES> 0
<RECEIVABLES> 18,810,592
<ALLOWANCES> 662,700
<INVENTORY> 1,329,329
<CURRENT-ASSETS> 24,622,209
<PP&E> 110,536,651
<DEPRECIATION> (25,964,744)
<TOTAL-ASSETS> 116,958,220
<CURRENT-LIABILITIES> 21,380,214
<BONDS> 0
0
0
<COMMON> 149,814
<OTHER-SE> 70,496,260
<TOTAL-LIABILITY-AND-EQUITY> 116,958,220
<SALES> 0
<TOTAL-REVENUES> 125,030,245
<CGS> 0
<TOTAL-COSTS> 102,049,068
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (259,035)
<INCOME-PRETAX> 22,722,142
<INCOME-TAX> 9,376,000
<INCOME-CONTINUING> 13,346,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,346,142
<EPS-PRIMARY> .89
<EPS-DILUTED> .87
<FN>
RECAPITALIZATION AND STOCK SPLIT
On April 22, 1998 the Company's Board of Directors approved a three for two
stock split, effected in the form of a 50 percent stock dividend. The stock
dividend was paid on May 18, 1998 to stockholders of record as of the close of
business on May 1, 1998. Prior Financial Data Schedules have not been restated
for this recapitalization and stock split.
</FN>
</TABLE>
