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                              AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT


                                 by and between


        LASALLE BANK NATIONAL ASSOCIATION, EAST WEST MOTOR EXPRESS,
                                      INC.



                                       and


                           SMITHWAY MOTOR XPRESS, INC.


                           Dated As Of Dec 28th, 2001


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<PAGE>

                                TABLE OF CONTENTS

                                                                           Page

1. DEFINITIONS.... ..........................................................2

2. LOANS.....................................................................9
   (a) Revolving Loans.......................................................9
   (b) Term Loan A..........................................................10
   (c) Capital Expenditure Loans............................................11
   (d) Repayments...........................................................11
   (e) Notes................................................................12

3. LETTERS OF CREDIT........................................................13
   (a) General Terms........................................................13
   (b) Requests for Letters of Credit.......................................13
   (c) Obligations Absolute.................................................13
   (d) Expiration Dates of Letters of Credit................................14

4. INTEREST, FEES AND CHARGES...............................................14
   (a) Interest Rate........................................................14
   (b) Fees And Charges.....................................................14
   (c) Maximum Interest.....................................................15

5. COLLATERAL...............................................................16
   (a) Grant of Security Interest to Lender.................................16
   (b) Other Security.......................................................16
   (c) Possessory Collateral................................................17
   (d) Electronic Chattel Paper.............................................17

6. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS THEREIN..17

7. POSSESSION OF COLLATERAL AND RELATED MATTERS.............................18

8. COLLECTIONS..............................................................18

9. COLLATERAL, AVAILABILITY AND FINANCIAL REPORTS AND SCHEDULES.............20
   (a) Weekly Reports.......................................................20
   (b) Monthly Reports......................................................21
   (c) Financial Statements.................................................21
   (d) Annual Projections...................................................21
   (e) Explanation of Budgets and Projections...............................21
   (f) Public Reporting.....................................................22
   (g) Other Information....................................................22

10.TERMINATION; AUTOMATIC RENEWAL...........................................22

11.REPRESENTATIONS AND WARRANTIES...........................................23
   (a) Financial Statements and Other Information...........................23
   (b) Locations............................................................23
   (c) Loans by Borrower....................................................24


                                      -i-
<PAGE>
   (d) Accounts.............................................................24
   (e) Liens................................................................24
   (f) Organization, Authority and No Conflict..............................24
   (g) Litigation...........................................................25
   (h) Compliance with Laws and Maintenance of Permits......................25
   (i) Affiliate Transactions...............................................25
   (j) Names and Trade Names................................................25
   (k) Equipment............................................................26
   (l) Enforceability.......................................................26
   (m) Solvency.............................................................26
   (n) Indebtedness.........................................................26
   (o) Margin Security and Use of Proceeds..................................26
   (p) Parent, Subsidiaries and Affiliates..................................27
   (q) No Defaults..........................................................27
   (r) Employee Matters.....................................................27
   (s) Intellectual Property................................................27
   (t) Environmental Matters................................................27
   (u) ERISA Matters........................................................28

12.AFFIRMATIVE COVENANTS....................................................28
   (a) Maintenance of Records...............................................28
   (b) Notices..............................................................28
   (c) Compliance with Laws and Maintenance of Permits......................30

13.NEGATIVE COVENANTS.......................................................33

14.FINANCIAL COVENANTS......................................................36

15.DEFAULT..................................................................36

16.REMEDIES UPON AN EVENT OF DEFAULT........................................39

17.CONDITIONS PRECEDENT.....................................................40

19.INDEMNIFICATION..........................................................42

20.NOTICE...................................................................43

21.CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION...................43

22.MODIFICATION AND BENEFIT OF AGREEMENT....................................44

23.HEADINGS OF SUBDIVISIONS.................................................45

24.POWER OF ATTORNEY........................................................45

25.CONFIDENTIALITY..........................................................45

26.COUNTERPARTS.............................................................45

27.ELECTRONIC SUBMISSIONS...................................................45

28.WAIVER OF JURY TRIAL; OTHER WAIVERS......................................46

                                      -ii-

<PAGE>
EXHIBIT A -- BUSINESS AND COLLATERAL LOCATIONS

EXHIBIT B -- COMPLIANCE CERTIFICATE

EXHIBIT C -- COMMERCIAL TORT CLAIMS

SCHEDULE 1 - PERMITTED LIENS

SCHEDULE 11(g) - LITIGATION

SCHEDULE 11(i) -- AFFILIATE TRANSACTIONS

SCHEDULE 11(j) -- NAMES & TRADE NAMES

SCHEDULE 11 (n) -- INDEBTEDNESS

SCHEDULE 11 (p) -- PARENT, SUBSIDIARIES AND AFFILIATES

SCHEDULE 17(a) - CLOSING DOCUMENT CHECKLIST











                                     -iii-


<PAGE>



                              AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT


     THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (as amended, modified
or  supplemented  from  time to time,  this  "Agreement")  made this 28th day of
December,  2001 by and between  LASALLE BANK  NATIONAL  ASSOCIATION,  a national
banking  association  ("Lender"),  135 South LaSalle Street,  Chicago,  Illinois
60603-4105,  SMITHWAY  MOTOR  XPRESS,  INC.,  an Iowa  corporation,  having  its
principal  place of  business  at 2031  Quail  Avenue,  Fort  Dodge,  Iowa 50501
("Smithway  Inc."),  East West Motor Express,  Inc. a South Dakota  corporation,
having its  principal  place of  business at 1170 JB Drive,  Black  Hawk,  South
Dakota 57718 ("East West")  (Smithway  Inc. and East West each a "Borrower"  and
collectively the "Borrowers").

                              W I T N E S S E T H:
                               - - - - - - - - - -

     WHEREAS,  Smithway Inc., Smithway Motor Xpress Corp. ("Smithway Corp.") and
Lender are parties to a certain Credit Agreement,  dated September 3, 1997 as it
may be amended (the "Original Credit Agreement") and various other agreements;

     WHEREAS,  Smithway  Inc.  and Lender are parties to that  certain  Security
Agreement dated as of October 30, 1998 (the "Original Security Agreement", which
together with the Original Credit  Agreement is collectively  referred to as the
"Original Agreement");

     WHEREAS,  Smithway  Corp.  is a guarantor of the  Obligations  under and as
defined in the Original Credit Agreement pursuant to that certain Guaranty dated
September 3, 1997 (the "Smithway Corp. Original Guaranty");

     WHEREAS, East West East West is a guarantor of the Obligations under and as
defined in the Original Credit Agreement pursuant to that certain Guaranty dated
March 15, 1998 (the "East West Original Guaranty");

     WHEREAS, the obligations of East West under the East West Original Guaranty
are secured by a lien on substantially  all of its assets pursuant to a Security
Agreement  dated as of  October  30,  1998 (the  "East  West  Original  Security
Agreement");

     WHEREAS,  SMSD Acquisition Corp., a South Dakota corporation  ("SMSD") is a
guarantor  of the  Obligations  under  and as  defined  in the  Original  Credit
Agreement  pursuant to that certain  Guaranty dated December 17, 1999 (the "SMSD
Original Guaranty");


<PAGE>
     WHEREAS,  the  obligations  of SMSD under the SMSD  Original  Guaranty  are
secured  by a lien on  substantially  all of its assets  pursuant  to a Security
Agreement   dated  as  of  December  17,  1999  (the  "SMSD  Original   Security
Agreement");

     WHEREAS, Lender is making Loans under and as defined in the Original Credit
Agreement to Smithway Inc. in part, against certain assets of East West;

     WHEREAS,  Smithway Inc, East West and Smithway  Corp.  have  requested that
Lender  extend the terms of the Original  Agreement  and amend certain terms and
conditions set forth therein and Lender is willing to do so subject to the terms
and conditions set forth in this Agreement;

     WHEREAS,  Borrowers may, from time to time,  request Loans from Lender, and
the parties wish to provide for the terms and  conditions  upon which such Loans
or other financial accommodations, if made by Lender, shall be made;

     NOW, THEREFORE, in consideration of any Loan (including any Loan by renewal
or  extension)  hereafter  made to Borrowers  by Lender,  and for other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged by Borrowers, the parties agree as follows:

     1.  DEFINITIONS.

     "Account",  "Account  Debtor",  "Chattel Paper",  "Commercial Tort Claims",
"Deposit  Accounts",  "Documents",   "Electronic  Chattel  Paper",  "Equipment",
"Fixtures",   "General  Intangibles",   "Goods",   "Instruments",   "Inventory",
"Investment  Property",   "Letter-of-Credit  Right",  "Proceeds"  and  "Tangible
Chattel Paper" shall have the respective  meanings assigned to such terms in the
Illinois  Uniform  Commercial  Code,  as the same may be in effect  from time to
time.

     "Affiliate" shall mean any Person (i) which directly or indirectly  through
one or more  intermediaries  controls,  is  controlled  by,  or is under  common
control  with, a Borrower,  (ii) which  beneficially  owns or holds five percent
(5%) or more of the voting control or equity  interests of a Borrower,  or (iii)
five percent (5%) or more of the voting control or equity  interests of which is
beneficially owned or held by a Borrower.

     "Business  Day" shall mean any day other than a  Saturday,  a Sunday or any
day that banks in Chicago, Illinois are required or permitted to close.

     "Capital   Expenditure  Loans"  shall  mean  the  Loans  made  pursuant  to
subsection 2c hereof.

     "Capital Expenditures" shall mean with respect to any period, the aggregate
of all  expenditures  (whether  paid in  cash  or  accrued  as  liabilities  and

                                      -2-

<PAGE>
including  expenditures for capitalized  lease  obligations) by the Consolidated
Group  during such period that are  required by  generally  accepted  accounting
principles,  consistently  applied,  to be  included  in  or  reflected  by  the
property,  plant and  Equipment or similar fixed asset  accounts (or  intangible
accounts  subject to  amortization)  on the  balance  sheet of the  Consolidated
Group.

     "Collateral"  shall mean all of the property of each Borrower  described in
Section 5 hereof,  together  with all other  real or  personal  property  of any
Obligor or any other Person now or hereafter pledged to Lender to secure, either
directly or indirectly, repayment of any of the Liabilities.

     "Consolidated Group" shall mean Smithway Corp. and its subsidiaries.

     "EBITDA" shall mean, with respect to any period,  the Consolidated  Group's
net income after taxes for such period  (excluding any after-tax gains or losses
on the sale of assets  and  excluding  other  after-tax  extraordinary  gains or
losses)  plus  interest  expense   (including   implicit   interest  expense  on
capitalized leases), income tax expense,  depreciation and amortization for such
period,  plus or minus any  other  non-cash  charges  or gains  which  have been
subtracted or added in calculating net income after taxes for such period.

     "Eligible  Account"  shall  mean an Account  owing to a  Borrower  which is
acceptable to Lender in its sole discretion determined in good faith for lending
purposes  (provided  that Lender shall give such Borrower  written notice of any
eligibility  criteria  established by Lender and not set forth herein).  Without
limiting Lender's discretion,  Lender shall, in general,  consider an Account to
be an Eligible  Account if it meets,  and so long as it continues  to meet,  the
following requirements:

               (i) it is genuine and in all respects what it purports to be;

               (ii) it is owned by such Borrower, such Borrower has the right to
          subject it to a security  interest  in favor of Lender or assign it to
          Lender  and it is  subject  to a  first  priority  perfected  security
          interest  in favor of Lender  and to no other  claim,  lien,  security
          interest or encumbrance whatsoever, other than Permitted Liens;

               (iii) it arises  from (A) the  performance  of  services  by such
          Borrower in the ordinary course of such Borrower's business,  and such
          services have been fully  performed and  acknowledged  and accepted by
          the Account  Debtor  thereunder;  or (B) the sale or lease of Goods by
          such Borrower in the ordinary course of such Borrower's business,  and
          (x) such Goods have been  completed  in  accordance  with the  Account
          Debtor's  specifications (if any) and delivered to the Account Debtor,
          (y) such Account Debtor has not refused to accept, returned or offered
          to return, any of the Goods which are the subject of such Account, and
          (z) such Borrower has possession of, or such Borrower has delivered to
          Lender (at Lender's request) shipping and delivery receipts evidencing
          delivery of such Goods;

                                       -3-

<PAGE>
               (iv) it is evidenced by an invoice rendered to the Account Debtor
          thereunder or with respect to advances at subsection  2(a)(ii) hereof,
          is no more than three (3) days prior to the invoicing thereof,  is due
          and payable  within ninety (90) days after the date of the invoice and
          does not remain unpaid ninety (90) days past the invoice date thereof;
          provided,  however, that if more than twenty-five percent (25%) of the
          aggregate  dollar  amount of invoices  owing by a  particular  Account
          Debtor  remain unpaid  ninety (90) days after the  respective  invoice
          dates thereof, then all Accounts owing by that Account Debtor shall be
          deemed ineligible;

               (v)  it  is  a  valid,   legally  enforceable  and  unconditional
          obligation of the Account  Debtor  thereunder,  and it shall not be an
          Eligible  Account to the extent of any setoff,  counterclaim,  credit,
          allowance or adjustment by such Account Debtor, or if it is subject to
          any claim by such Account Debtor denying liability thereunder in whole
          or in part;

               (vi) it does not arise out of a contract  or order which fails in
          any material  respect to comply with the  requirements  of  applicable
          law;

               (vii) the Account Debtor  thereunder is not a director,  officer,
          employee or agent of a Borrower, or a Subsidiary, Parent or Affiliate;

               (viii) it is not an Account  with  respect  to which the  Account
          Debtor  is the  United  States  of  America  or  any  state  or  local
          government,  or any  department,  agency or  instrumentality  thereof,
          unless such  Borrower  assigns its right to payment of such Account to
          Lender  pursuant to, and in full  compliance  with,  the Assignment of
          Claims Act of 1940, as amended,  or any comparable state or local law,
          as applicable;

               (ix) it is not an  Account  with  respect  to which  the  Account
          Debtor is  located  in a state  which  requires  such  Borrower,  as a
          precondition  to commencing or  maintaining an action in the courts of
          that state,  either to (A) receive a  certificate  of  authority to do
          business and be in good  standing in such state;  or (B) file a notice
          of business  activities  report or similar  report  with such  state's
          taxing  authority,  unless  (x) such  Borrower  has  taken  one of the
          actions  described  in clauses (A) or (B); (y) the failure to take one
          of the  actions  described  in either  clause  (A) or (B) may be cured
          retroactively  by such Borrower at its election;  or (z) such Borrower
          has proven, to Lender's satisfaction,  that it is exempt from any such
          requirements under any such state's laws;

               (x) the  Account  Debtor is located  within the United  States of
          America or Canada;

               (xi) it is not an  Account  with  respect  to which  the  Account
          Debtor's obligation to pay is subject to any repurchase  obligation or
          return

                                      -4-

<PAGE>
          right, as with sales made on a bill-and-hold, guaranteed sale, sale on
          approval, sale or return or consignment basis;

               (xii)  it is not  an  Account  (A)  with  respect  to  which  any
          representation  or warranty  contained in this Agreement is untrue; or
          (B) which violates any of the covenants of such Borrower  contained in
          this Agreement;

               (xiii) it is not an Account  which,  when  added to a  particular
          Account Debtor's other indebtedness to such Borrower, exceeds a credit
          limit  determined by Lender in its sole discretion  determined in good
          faith for that Account  Debtor  (except that  Accounts  excluded  from
          Eligible  Accounts  solely by reason of this  clause  (xiii)  shall be
          Eligible  Accounts to the extent of such credit limit),  provided that
          Lender  shall give such  Borrower  written  notice of any such  credit
          limit; and

               (xiv) it is not an Account  with respect to which the prospect of
          payment or  performance  by the Account Debtor is or will be impaired,
          as  determined  by Lender in its sole  discretion  determined  in good
          faith.

     "Environmental  Laws" shall mean all federal,  state,  district,  local and
foreign laws, rules,  regulations,  ordinances,  and consent decrees relating to
health,  safety,  hazardous substances,  pollution and environmental matters, as
now or at any time hereafter in effect,  applicable to a Borrower's  business or
facilities  owned or  operated  by such  Borrower,  including  laws  relating to
emissions,   discharges,   releases  or  threatened   releases  of   pollutants,
contamination, chemicals, or hazardous, toxic or dangerous substances, materials
or wastes into the  environment  (including,  without  limitation,  ambient air,
surface  water,  ground water,  land surface or subsurface  strata) or otherwise
relating  to  the  generation,  manufacture,   processing,   distribution,  use,
treatment, storage, disposal, transport or handling of Hazardous Materials.

     "ERISA" shall mean the Employee  Retirement Income Security Act of 1974, as
amended, modified or restated from time to time.

     "Event of Default" shall have the meaning specified in Section 15 hereof.

     "Fiscal  Year"  shall  mean each  twelve  (12) month  accounting  period of
Borrowers, which ends on December 31st of each year.

     "Fixed Charges" shall mean for any period,  without duplication,  scheduled
payments  of  principal  during  the  applicable  period  with  respect  to  all
indebtedness  of the  Consolidated  Group for  borrowed  money,  plus  scheduled
payments  of  principal  during  the  applicable  period  with  respect  to  all
capitalized lease obligations of the Consolidated Group, plus scheduled payments
of interest during the applicable period with respect to all indebtedness of the
Consolidated Group for borrowed money including capital lease obligations,  plus
unfinanced


                                      -5-

<PAGE>
Capital  Expenditures of the  Consolidated  Group during the applicable  period,
plus  cash  payments  during  the  applicable  period  in  respect  of income or
franchise taxes of the Consolidated Group.

     "Hazardous  Materials"  shall  mean  any  hazardous,   toxic  or  dangerous
substance,  materials and wastes,  including,  without limitation,  hydrocarbons
(including   naturally   occurring  or  man-made  petroleum  and  hydrocarbons),
flammable  explosives,  asbestos,  urea  formaldehyde  insulation,   radioactive
materials,   biological  substances,   polychlorinated  biphenyls,   pesticides,
herbicides  and any  other  kind  and/or  type  of  pollutants  or  contaminants
(including, without limitation, materials which include hazardous constituents),
sewage,  sludge,  industrial slag, solvents and/or any other similar substances,
materials,  or wastes and  including any other  substances,  materials or wastes
that are or become  regulated under any  Environmental  Law (including,  without
limitation  any that are or become  classified  as  hazardous or toxic under any
Environmental Law).

     "Indemnified Party" shall have the meaning specified in Section 18 hereof.

     "Letter  of Credit"  shall mean any Letter of Credit  issued on behalf of a
Borrower in accordance with this Agreement.

     "Letter of Credit Obligations" shall mean, as of any date of determination,
the sum of (i) the aggregate  undrawn face amount of all Letters of Credit,  and
(ii) the  aggregate  unreimbursed  amount of all  drawn  Letters  of Credit  not
already converted to Loans hereunder.

     "Liabilities"   shall  mean  any  and  all  obligations,   liabilities  and
indebtedness of Borrowers to Lender or to any parent, affiliate or subsidiary of
Lender of any and every kind and nature, howsoever created, arising or evidenced
and  howsoever  owned,  held or  acquired,  whether now or  hereafter  existing,
whether now due or to become due, whether primary, secondary,  direct, indirect,
absolute, contingent or otherwise (including, without limitation, obligations of
performance),  whether several,  joint or joint and several, and whether arising
or existing under written or oral agreement or by operation of law.

     "Loans" shall mean all loans and advances made by Lender to or on behalf of
Borrowers hereunder.

     "Lock Box" and "Lock Box  Account"  shall have the  meanings  specified  in
subsection 8(a) hereof.

     "Material  Adverse  Effect"  shall  mean a material  adverse  effect on the
business,  property,  assets, prospects,  operations or condition,  financial or
otherwise, of a Person.


                                      -6-

<PAGE>
     "Maximum Loan Limit" shall mean  Thirty-Two  Million Five Hundred  Thousand
and No/100 Dollars ($32,500,000.00).

     "Maximum  Revolving  Loan  Limit"  shall  have  the  meaning  specified  in
subsection 2(a) hereof.

     "Obligor" shall mean Borrowers and each other Person who is or shall become
primarily or secondarily liable for any of the Liabilities.

     "Original Term" shall have the meaning specified in Section 10 hereof.

     "Other  Agreements"  shall mean all agreements,  instruments and documents,
other than this Agreement, including, without limitation, guaranties, mortgages,
trust deeds,  pledges,  powers of attorney,  consents,  assignments,  contracts,
notices,  security  agreements,  leases,  financing  statements  and  all  other
writings heretofore, now or from time to time hereafter executed by or on behalf
of a Borrower  or any other  Person and  delivered  to Lender or to any  parent,
affiliate or  subsidiary  of Lender in connection  with the  Liabilities  or the
transactions  contemplated hereby, as each of the same may be amended,  modified
or supplemented from time to time.

     "Parent" shall mean any Person now or at any time or times hereafter owning
or  controlling  (alone or with any other  Person)  at least a  majority  of the
issued and outstanding equity of a Borrower and, if a Borrower is a partnership,
the general partner of such Borrower.

     "PBGC" shall have the meaning specified in subsection 12(b)(v) hereof.

     "Permitted  Liens" shall mean (i) statutory  liens of landlords,  carriers,
warehousemen,  processors,  mechanics,  materialmen or suppliers incurred in the
ordinary  course of business and securing  amounts not yet due or declared to be
due by the  claimant  thereunder  or amounts  which are being  contested in good
faith and by  appropriate  proceedings  and for which a Borrower has  maintained
adequate reserves;  (ii) liens or security  interests in favor of Lender;  (iii)
zoning  restrictions and easements,  licenses,  covenants and other restrictions
affecting the use of real property that do not  individually or in the aggregate
have a material adverse effect on a Borrower's ability to use such real property
for its intended purpose in connection with such Borrower's business; (iv) liens
in connection with purchase money  indebtedness and capitalized leases otherwise
permitted pursuant to this Agreement,  provided,  that such liens attach only to
the  assets  the  purchase  of  which  was  financed  by  such  purchase   money
indebtedness or which is the subject of such capitalized  leases;  (v) liens set
forth on Schedule 1; (vi) liens specifically permitted by Lender in writing; and
(vii)  involuntary  liens securing  amounts less than  $100,000.00 and which are
released  or for  which a bond  acceptable  to  Lender  in its sole  discretion,
determined in good faith, has been posted within ten (10) days of its creation.


                                      -7-

<PAGE>
     "Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization,  association,  corporation, limited
liability  company,  institution,  entity,  party or  foreign  or United  States
government  (whether  federal,  state,  county,  city,  municipal or otherwise),
including,  without limitation,  any instrumentality,  division, agency, body or
department thereof.

     "Plan" shall have the meaning specified in subsection 12(b)(v) hereof.

     "Prime Rate" shall mean Lender's  publicly  announced  prime rate (which is
not intended to be Lender's lowest or most favorable rate in effect at any time)
in effect from time to time.

     "Prime Rate Loans" shall mean the Loans bearing  interest with reference to
the Prime Rate.

     "Renewal Term" shall have the meaning specified in Section 10 hereof.

     "Revolving Loan Limit" shall have the meaning  specified in subsection 2(a)
hereof.

     "Revolving  Loans"  shall have the meaning  specified  in  subsection  2(a)
hereof.

     "SMSD  Transactions"  means the dividend to Smithway Corp. by Smithway Inc.
of one or more  promissory  notes executed by Smithway Inc. in favor of Smithway
Corp., up to the amount  permitted under this Agreement the  contribution of the
notes to SMSD by Smithway Corp., the payment of interest on the notes to SMSD by
Smithway Inc., the dividend of such interest payments to Smithway Corp. by SMSD,
the  lending  of money in the  amount of such  dividends  to  Smithway  Inc.  by
Smithway  Corp.,  and the issuance of  additional  promissory  notes to Smithway
Corp. by Smithway Inc.

     "Subsidiary"  shall mean any  corporation  of which more than fifty percent
(50%) of the  outstanding  capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation  (irrespective of whether
at the time  stock of any other  class of such  corporation  shall have or might
have voting power by reason of the happening of any contingency) is at the time,
directly or indirectly,  owned by a Borrower, or any partnership,  joint venture
or limited  liability  company of which  more than  fifty  percent  (50%) of the
outstanding equity interests are at the time, directly or indirectly, owned by a
Borrower or any partnership of which a Borrower is a general partner.

     "Tangible Net Worth" shall have the meaning  specified in subsection  14(a)
hereof.


                                      -8-

<PAGE>
     "Term Loan A" shall have the meaning specified in subsection 2(b) hereof.

     "Term  Loans"  shall  mean,  collectively,  Term  Loan  A and  the  Capital
Expenditure Loans.

     2.  LOANS.

     (a) Revolving Loans.

     Subject  to the  terms  and  conditions  of this  Agreement  and the  Other
Agreements,  during the Original Term and any Renewal Term, Lender shall, absent
the  occurrence  of an Event of Default,  make  revolving  loans and advances to
Borrowers' (the  "Revolving  Loans") in an amount up to the sum of the following
sublimits (the "Revolving Loan Limit"):

     (i)  Up  to  eighty-five  percent  (85%),  or  such  lesser  percentage  as
determined by Lender in its sole  discretion  determined  in good faith,  of the
face amount (less maximum  discounts,  credits and allowances which may be taken
by or granted to Account Debtors in connection  therewith in the ordinary course
of Borrowers'  business) of Borrowers'  Eligible Accounts  (consisting solely of
Eligible  Accounts  other than those set forth at  subsection  (ii)  immediately
below); plus

     (ii)  Up to  eighty-five  percent  (85%),  or  such  lesser  percentage  as
determined by Lender in its sole  discretion  determined  in good faith,  of the
face amount (less maximum  discounts,  credits and allowances which may be taken
by or granted to Account Debtors in connection  therewith in the ordinary course
of Borrowers'  business) of Borrowers'  Eligible Accounts  (consisting solely of
Accounts  which are  unbilled  for three (3) days or less) or Two  Million  Five
Hundred Thousand and No/100 Dollars ($2,500,000.00), whichever is less; minus

     (iii) such reserves as Lender elects, in its sole discretion  determined in
good faith to establish from time to time;

provided,  that the  Revolving  Loan Limit shall in no event  exceed  Thirty-Two
Million  Five  Hundred  Thousand and No/100  Dollars  ($32,500,000.00)  less the
then-outstanding  principal  balance of the Term Loans (the  "Maximum  Revolving
Loan Limit") except as such amount may be increased or, following the occurrence
of an Event of Default, decreased by Lender, in its sole discretion.

     The aggregate unpaid principal  balance of the Revolving Loans shall not at
any time exceed the lesser of the (i)  Revolving  Loan Limit minus the Letter of
Credit Obligations and (ii) the Maximum Revolving Loan Limit minus the Letter of
Credit  Obligations.  If at any time the  outstanding  Revolving  Loans  exceeds
either the Revolving  Loan Limit or the Maximum  Revolving  Loan Limit,  in each
case minus


                                      -9-

<PAGE>
the Letter of Credit  Obligations,  or any  portion of the  Revolving  Loans and
Letter  of  Credit  Obligations  exceeds  any  applicable  sublimit  within  the
Revolving Loan Limit, Borrowers shall immediately,  and without the necessity of
demand by Lender,  pay to Lender such amount as may be  necessary  to  eliminate
such  excess  and Lender  shall  apply such  payment to the  Revolving  Loans to
eliminate such excess.

     Each Borrower hereby authorizes  Lender, in its sole discretion,  to charge
any of such Borrower's  accounts or advance Revolving Loans to make any payments
of principal,  interest,  fees, costs or expenses required to be made under this
Agreement or the Other Agreements.

     A request for a Revolving Loan shall be made or shall be deemed to be made,
each in the following manner: the Borrower  requesting such Revolving Loan shall
give Lender same day notice,  no later than 10:30 A.M.  (Chicago  time) for such
day, of its request for a Revolving Loan as a Prime Rate Loan. In the event that
a Borrower  maintains a controlled  disbursement  account at Lender,  each check
presented for payment against such controlled disbursement account and any other
charge or request for payment against such controlled disbursement account shall
constitute  a  request  for  a  Revolving  Loan  as a  Prime  Rate  Loan.  As an
accommodation to Borrowers,  Lender may permit telephone  requests for Revolving
Loans and electronic transmittal of instructions,  authorizations, agreements or
reports to Lender by Borrowers. Unless a Borrower specifically directs Lender in
writing not to accept or act upon telephonic or electronic  communications  from
such  Borrower,  Lender shall have no  liability  to  Borrowers  for any loss or
damage suffered by a Borrower as a result of Lender's  honoring of any requests,
execution of any  instructions,  authorizations or agreements or reliance on any
reports  communicated to it telephonically  or electronically  and purporting to
have been sent to Lender by a Borrower  and Lender  shall have no duty to verify
the origin of any such communication or the authority of the Person sending it.

     Each Borrower hereby irrevocably authorizes Lender to disburse the proceeds
of each Revolving Loan requested by such Borrower,  or deemed to be requested by
such Borrower,  as follows:  the proceeds of each Revolving Loan requested under
Section 2(a) shall be  disbursed by Lender in lawful money of the United  States
of America  in  immediately  available  funds,  by wire  transfer  or  Automated
Clearing House (ACH) transfer to such bank account as may be agreed upon by such
Borrower  and Lender from time to time,  or  elsewhere  if pursuant to a written
direction from such Borrower.

     (b) Term Loan A.

     Lender has made a term loan to  Borrowers  against  certain  of  Borrowers'
Equipment,  of which Eighteen  Million Five Hundred  Thousand and No/100 Dollars
($18,500,000.00) remains outstanding (the "Term Loan A").


                                      -10-

<PAGE>
     (c) Capital Expenditure Loans.

     Subject  to the  terms  and  conditions  of this  Agreement  and the  Other
Agreements,  from time to time after the initial  Loans are advanced  hereunder,
Lender  shall make  advances  to  Borrowers  up to eighty  percent  (80%) of the
purchase  price  (exclusive  of sales taxes,  delivery  charges and other "soft"
costs related to such  purchase) of Equipment to be purchased  with the proceeds
of  such  advances,  which  Equipment  is  acceptable  to  Lender  in  its  sole
discretion, and upon which Lender shall have a first priority perfected security
interest;  provided,  that (i) the aggregate  amount advanced for such purchases
shall not  exceed Two  Million  and No/100  Dollars  ($2,000,000.00)  during any
Fiscal  Year or Four  Million  and  No/100  Dollars  ($4,000,000.00)  during the
Original Term and Renewal Term, (ii) at least two (2) Business Days prior to any
such advance hereunder,  such Borrower shall have furnished to Lender an invoice
and acceptance  letter for the Equipment being purchased and shall have executed
such  documents and taken such other actions as Lender shall  required to assure
that Lender has a first priority  perfected  security interest in such Equipment
within  twenty  (20) days of each  advance  hereunder,  and (iii)  each  advance
hereunder  shall be in an amount not less than Five Hundred  Thousand and No/100
Dollars ($500,000.00) (the "Capital Expenditure Loans").

     (d) Repayments.

     The Liabilities shall be repaid as follows:

     (i)  Repayment  of  Revolving  Loans.  The  Revolving  Loans  and all other
Liabilities (other than the Term Loans) shall be repaid by Borrowers on the last
day of the  Original  Term or any  Renewal  Term if this  Agreement  is  renewed
pursuant to Section 10 hereof.

     (ii)  Repayment  of Term  Loan  A.  The  Term  Loan A shall  be  repaid  in
seventy-two (72) equal monthly  installments of Two Hundred  Fifty-Six  Thousand
Nine Hundred Forty-Four and 44/100 Dollars  ($256,944.44)  (subject to reduction
upon  application  of any proceeds  pursuant to subsection  2(d)(iv)(A)  hereof)
payable  on  February  1,  2002  and on the  corresponding  day  of  each  month
thereafter (or if there is no corresponding  day, on the last day of the month);
provided that any  remaining  outstanding  principal  balance of the Term Loan A
shall be  repaid at the end of the  Original  Term or any  Renewal  Term if this
Agreement is renewed pursuant to Section 10 hereof. If any such payment due date
is not a Business  Day,  then such  payment  may be made on the next  succeeding
Business Day and such extension of time shall be included in the  computation of
the amount of interest and fees due hereunder.

     (iii) Repayment of Capital Expenditure Loans. Each Capital Expenditure Loan
shall be repaid in  seventy-two  (72) equal  monthly  installments  in an amount
sufficient to repay such Capital  Expenditure Loan in full by the final


                                      -11-

<PAGE>
payment.  Such payments shall be made on the thirtieth  (30th) day following the
date of each such advance, and on the corresponding day of each month thereafter
(or if there is no  corresponding  day,  on the  last day of each  such  month);
provided  that  any  remaining  outstanding  principal  balance  of the  Capital
Expenditures Loan shall be repaid at the end of the Original Term or any Renewal
Term if this  Agreement  is renewed  pursuant to Section 10 hereof.  If any such
payment  due date is not a Business  Day,  then such  payment may be made on the
next succeeding Business Day and such extension of time shall be included in the
computation of the amount of interest and fees due hereunder.

     (iv) Mandatory Prepayments of the Term Loans.

     (A) Sales of  Assets.  Upon  receipt of the  proceeds  of the sale or other
disposition of any Equipment constituting  Collateral hereunder or real property
of a Borrower  which is subject to a mortgage  in favor of Lender,  or if any of
such Equipment or real property  subject to such mortgage is damaged,  destroyed
or taken by condemnation in whole or in part, the proceeds thereof shall be paid
by such  Borrower to Lender as a mandatory  prepayment  (i) with  respect to the
proceeds of any  existing  Equipment  constituting  Collateral  hereunder,  such
proceeds  shall be applied as a  prepayment  of Term Loan A, such  payment to be
applied pro rata against the remaining installments of principal until such Term
Loan A is repaid in full, and then against the Capital  Expenditure  Loans, such
prepayment  to be  applied  pro  rata  against  the  remaining  installments  of
principal  until such  Capital  Expenditure  Loans are repaid in full,  and then
against the other Liabilities,  as determined by Lender, in its sole discretion;
and (ii) with  respect to the  proceeds  of any  Equipment  purchased  under the
Capital Expenditure Loans, such proceeds shall be applied as a prepayment of the
Capital  Expenditure  Loans,  such  payment to be applied  pro rata  against the
remaining  installments of principal until repaid in full, and then against Term
Loan A, such payment to be applied pro rata against the  remaining  installments
of principal  until repaid in full, and then against the other  Liabilities,  as
determined  by  Lender,  in  its  sole  discretion;   provided,   however,  that
notwithstanding  the  foregoing,  with  respect  to any  Equipment  constituting
Collateral  hereunder  that is traded in (the  "Traded  Equipment")  towards the
purchase of Equipment purchased under the Capital Expenditure Loans and having a
value equal to or greater than the value of the Traded Equipment,  as determined
by Lender in its sole discretion  exercised in good faith,  such proceeds may be
applied  towards  the  purchase  of  such  Equipment  and  not  as  a  mandatory
prepayment.

     (e) Notes.

     The Loans shall, in Lender's sole  discretion,  be evidenced by one or more
promissory notes in form and substance satisfactory to Lender.  However, if such
Loans are not so evidenced,  such Loans may be evidenced  solely by entries upon
the books and records maintained by Lender.


                                      -12-

<PAGE>
     3.  LETTERS OF CREDIT.

     (a) General Terms.

     Subject  to the  terms  and  conditions  of the  Agreement  and  the  Other
Agreements,  during the Original Term or any Renewal Term, Lender shall,  absent
the existence of an Event of Default, from time to time issue, upon a Borrower's
request,  commercial  and/or  standby  Letters  of  Credit;  provided,  that the
aggregate  undrawn  face amount of all such  Letters of Credit  shall at no time
exceed Ten Million and No/100 Dollars ($10,000,000.00).  Payments made by Lender
to any  Person  on  account  of any  Letter  of Credit  shall  constitute  Loans
hereunder and each  Borrower  agrees that each payment made by Lender in respect
of a Letter of Credit shall  constitute a Loan hereunder.  Borrowers shall remit
to Lender a Letter of Credit fee equal to one and one-fourth  percent (1-1/4th%)
per  annum on the  aggregate  undrawn  face  amount  of all  Letters  of  Credit
outstanding,  which fee shall be payable monthly in arrears on the last Business
Day of each month.  Borrowers  shall also pay on demand the normal and customary
administrative  charges  of the  Lender for  issuance,  amendment,  negotiation,
renewal or extension of any Letter of Credit.

     (b) Requests for Letters of Credit.

     Each Borrower shall make requests for Letters of Credit in writing at least
two (2)  Business  Days prior to the date such Letter of Credit is to be issued.
Each such request  shall specify the date such Letter of Credit is to be issued,
the amount  thereof,  the name and  address  of the  beneficiary  thereof  and a
description of the transaction to be supported thereby. Any such notice shall be
accompanied  by the form of Letter of Credit  requested and any  application  or
reimbursement  agreement required by the issuer of such Letter of Credit. If any
term of such  application or reimbursement  agreement is inconsistent  with this
Agreement,  then the provisions of this Agreement shall control to the extent of
such inconsistency.

     (c) Obligations Absolute.

     Each Borrower shall be obligated to reimburse Lender, for any payments made
in respect of any Letter of Credit,  which obligation shall be unconditional and
irrevocable  and  shall  be paid  regardless  of:  (i) any lack of  validity  or
enforceability  of any  Letter of  Credit,  (ii) any  amendment  or waiver of or
consent or departure  from all or any  provisions of any Letter of Credit,  this
Agreement or any Other  Agreement,  (iii) the  existence of any claim,  set off,
defense or other right which a Borrower or any other Person may have against any
beneficiary of any Letter of Credit or Lender,  (iv) any draft or other document
presented under any Letter of Credit proving to be forged, fraudulent,  invalid,
or  insufficient  in any  respect  or any  statement  therein  being  untrue  or
inaccurate in any respect,  (v) any payment  under any Letter of Credit  against
presentation of a draft or other document that does not comply with the terms of
such Letter of Credit, and (vi) any other act or omission to act or delay of any
kind by Lender or any other Person or any other event or


                                      -13-

<PAGE>
circumstance that might otherwise constitute a legal or equitable discharge of a
Borrower's obligations  hereunder.  It is understood and agreed by each Borrower
that  Lender  may  accept  documents  that  appear on their  face to be in order
without  further   investigation  or  inquiry,   regardless  of  any  notice  or
information to the contrary.

     (d) Expiration Dates of Letters of Credit.

     The  expiration  date of each  Letter of Credit  shall be no later than the
earlier  of (i) one (1) year from the date of  issuance  and (ii) the  thirtieth
(30th)  day  prior  to the  end of  the  Original  Term  or  any  Renewal  Term.
Notwithstanding  the  foregoing,  a Letter of Credit may provide  for  automatic
extensions of its expiration date for one or more one (1) year periods,  so long
as the issuer thereof has the right to terminate the Letter of Credit at the end
of each one (1) year period and no extension  period  extends past the thirtieth
(30th) day prior to the end of the Original Term or any Renewal Term.

     4.  INTEREST, FEES AND CHARGES.

     (a) Interest Rate.

     Each Loan shall  bear  interest  at the Prime  Rate in effect  from time to
time,  payable on the last  Business Day of each month in arrears.  Said rate of
interest  shall  increase  or decrease  by an amount  equal to each  increase or
decrease in the Prime Rate  effective on the effective  date of each such change
in the Prime  Rate.  Upon the  occurrence  of an Event of Default and during the
continuance  thereof,  each Loan shall bear  interest at the rate of two percent
(2%) per annum in excess of the interest rate otherwise  payable thereon,  which
interest  shall be payable on demand.  All interest  shall be  calculated on the
basis of a 365-day year.

     (b) Fees And Charges.

     (i) Facilities Fee:  Borrowers shall pay to Lender an annual facilities fee
equal to  one-fourth  of one percent  (1/4th of 1%) of the  Maximum  Loan Limit,
which  fee  shall be fully  earned  by  Lender  on the date  hereof  and on each
anniversary of the date hereof during the Original Term and any Renewal Term and
which shall be payable on the last day of each month  during the  Original  Term
and any Renewal Term.

     (ii) Costs and Expenses: Borrowers shall reimburse Lender for all costs and
expenses,   including,   without  limitation,   legal  expenses  and  reasonable
attorneys'  fees (other  than  attorney's  fees of  Lender's in house  counsel),
incurred by Lender in connection with the (i)  documentation and consummation of
this  transaction  and any other  transactions  between  Borrowers  and  Lender,
including,  without limitation,  Uniform Commercial Code and other public record
searches and filings,  overnight courier or other express or messenger delivery,
appraisal  costs,  surveys,  title insurance and


                                      -14-

<PAGE>
environmental audit or review costs; (ii) collection,  protection or enforcement
of any rights in or to the Collateral;  (iii) collection of any Liabilities; and
(iv)  administration  and  enforcement  of any of  Lender's  rights  under  this
Agreement or any Other  Agreement.  Borrowers  shall also pay all normal service
charges with respect to all accounts maintained by each Borrower with Lender and
any  additional  services  requested by a Borrower from Lender.  All such costs,
expenses and charges shall constitute Liabilities hereunder, shall be payable by
Borrowers  to Lender on demand,  and,  until  paid,  shall bear  interest at the
highest rate then applicable to Loans hereunder.

     (iii) Capital  Adequacy  Charge.  If Lender shall have  determined that the
adoption of any law,  rule or  regulation  regarding  capital  adequacy,  or any
change therein or in the interpretation or application thereof, or compliance by
Lender with any request or directive  regarding capital adequacy (whether or not
having the force of law) from any central bank or governmental authority enacted
after the date  hereof,  does or shall have the effect of  reducing  the rate of
return on such party's capital as a consequence of its obligations  hereunder to
a level  below that which  Lender  could have  achieved  but for such  adoption,
change or compliance (taking into  consideration  Lender's policies with respect
to  capital  adequacy)  by a  material  amount,  then from  time to time,  after
submission  by  Lender  to  Borrowers  of a written  demand  therefor  ("Capital
Adequacy Demand") together with the certificate described below, Borrowers shall
pay to Lender such additional amount or amounts  ("Capital  Adequacy Charge") as
will compensate  Lender for such reduction,  such Capital  Adequacy Demand to be
made with reasonable  promptness following such determination.  A certificate of
Lender claiming entitlement to payment as set forth above shall be conclusive in
the absence of manifest error.  Such  certificate  shall set forth the nature of
the occurrence giving rise to such reduction, the amount of the Capital Adequacy
Charge to be paid to Lender, and the method by which such amount was determined.
In  determining  such  amount,  Lender  may use  any  reasonable  averaging  and
attribution method, applied on a non-discriminatory basis.

     (c)  Maximum  Interest.  It is the intent of the  parties  that the rate of
interest and other charges to each Borrower  under this  Agreement and the Other
Agreements shall be lawful;  therefore,  if for any reason the interest or other
charges  payable  under  this  Agreement  are  found  by a  court  of  competent
jurisdiction,  in a final  determination,  to exceed the limit which  Lender may
lawfully  charge such  Borrower,  then the  obligation to pay interest and other
charges  shall  automatically  be reduced  to such  limit and,  if any amount in
excess of such limit shall have been paid, then such amount shall be refunded to
such Borrower.



                                      -15-


<PAGE>
     5.  COLLATERAL.

     (a) Grant of Security Interest to Lender.

     As  security  for the  payment  of all Loans now or in the  future  made by
Lender to Borrowers  hereunder and for the payment or other  satisfaction of all
other Liabilities, each Borrower hereby assigns to Lender and grants to Lender a
continuing security interest in the following property of such Borrower, whether
now or  hereafter  owned,  existing,  acquired  or arising and  wherever  now or
hereafter  located:  (a) all Accounts (whether or not Eligible Accounts) and all
Goods whose sale, lease or other  disposition by such Borrower has given rise to
Accounts  and have been  returned to, or  repossessed  or stopped in transit by,
such  Borrower;  (b) all  Chattel  Paper,  Instruments,  Documents  and  General
Intangibles  (including,  without limitation,  all patents, patent applications,
trademarks,  trademark  applications,  trade  names,  trade  secrets,  goodwill,
copyrights,   copyright   applications,   registrations,   licenses,   software,
franchises,  customer  lists,  tax refund claims,  claims  against  carriers and
shippers,  guarantee  claims,  contract rights,  payment  intangibles,  security
interests, security deposits and rights to indemnification);  (c) all Inventory;
(d) all Goods (other than Inventory),  including, without limitation, Equipment,
vehicles  (other  than  Equipment  and  vehicles  subject  to a  Permitted  Lien
hereunder to the extent that the terms of the agreements with the holder of such
Permitted Lien prohibit the granting of a security  interest to another  Person)
and  Fixtures;  (e) all  Investment  Property;  (f) all Deposit  Accounts,  bank
accounts,  deposits and cash; (g) all  Letter-of-Credit  Rights;  (h) Commercial
Tort Claims listed on Exhibit C hereto;  (i) any other property of such Borrower
now or hereafter in the possession, custody or control of Lender or any agent or
any parent,  affiliate or subsidiary of Lender or any participant with Lender in
the Loans,  for any  purpose  (whether  for  safekeeping,  deposit,  collection,
custody,  pledge,   transmission  or  otherwise);  and  (j)  all  additions  and
accessions to, substitutions for, and replacements, products and Proceeds of the
foregoing property,  including,  without  limitation,  proceeds of all insurance
policies insuring the foregoing  property,  and all of such Borrower's books and
records relating to any of the foregoing and to such Borrower's business.

     (b) Other Security.

     Lender,   in  its  sole  discretion,   without  waiving  or  releasing  any
obligation,  liability or duty of any Borrower under this Agreement or the Other
Agreements  or any Event of  Default,  may at any time or times  hereafter,  but
shall not be obligated to, pay,  acquire or accept an assignment of any security
interest,  lien, encumbrance or claim asserted by any Person in, upon or against
the  Collateral,  provided,  that Lender may take such  actions  with respect to
Permitted Liens only after the occurrence and during the continuance of an Event
of Default.  All sums paid by Lender in respect thereof and all costs,  fees and
expenses  including,  without  limitation,  reasonable  attorney fees, all court
costs and all other charges relating thereto incurred by Lender shall constitute
Liabilities,  payable by  Borrowers to

                                      -16-

<PAGE>
Lender on demand and,  until paid,  shall bear interest at the highest rate then
applicable to Loans hereunder.

     (c) Possessory Collateral.

     Immediately  upon any  Borrower's  receipt of any portion of the Collateral
evidenced  by  an  agreement,   Instrument  or  Document,   including,   without
limitation, any Tangible Chattel Paper and any Investment Property consisting of
certificated  securities,  such Borrower  shall deliver the original  thereof to
Lender  together with an appropriate  endorsement or other specific  evidence of
assignment thereof to Lender (in form and substance acceptable to Lender). If an
endorsement  or  assignment  of any such items shall not be made for any reason,
Lender  is  hereby  irrevocably  authorized,  as such  Borrower's  attorney  and
agent-in-fact, to endorse or assign the same on such Borrower's behalf.

     (d) Electronic Chattel Paper.

     To the extent that a Borrower  obtains or maintains any Electronic  Chattel
Paper,  such  Borrower  shall  create,  store and  assign  the record or records
comprising  the  Electronic  Chattel  Paper in such a  manner  that (i) a single
authoritative copy of the record or records exists which is unique, identifiable
and  except  as  otherwise  provided  in  clauses  (iv),  (v)  and  (vi)  below,
unalterable,  (ii) the  authoritative  copy identifies Lender as the assignee of
the record or  records,  (iii) the  authoritative  copy is  communicated  to and
maintained by the Lender or its designated  custodian,  (iv) copies or revisions
that add or change an identified  assignee of the authoritative copy can only be
made with the participation of Lender,  (v) each copy of the authoritative  copy
and  any  copy  of a copy  is  readily  identifiable  as a copy  that is not the
authoritative  copy and (vi) any revision of the  authoritative  copy is readily
identifiable as an authorized or unauthorized revision.

     6.  PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS
THEREIN.

     Each  Borrower  shall,  at Lender's  request,  at any time and from time to
time,  authenticate,  execute and deliver to Lender such  financing  statements,
documents and other  agreements and  instruments  (and pay the cost of filing or
recording  the same in all public  offices  deemed  necessary  or  desirable  by
Lender)  and do such  other acts and  things or cause  third  parties to do such
other acts and  things as Lender may deem  necessary  or  desirable  in its sole
discretion  in order to establish  and maintain a valid,  attached and perfected
security  interest in the  Collateral  in favor of Lender (free and clear of all
other  liens,  claims,  encumbrances  and  rights of third  parties  whatsoever,
whether voluntarily or involuntarily created,  except Permitted Liens) to secure
payment of the  Liabilities,  and in order to facilitate  the  collection of the
Collateral.  Each Borrower  irrevocably  hereby makes,  constitutes and appoints
Lender  (and  all  Persons  designated  by  Lender  for  that  purpose)  as such
Borrower's true and lawful attorney and  agent-in-fact  to execute


                                      -17-

<PAGE>
and  file  such  financing  statements,   documents  and  other  agreements  and
instruments  and do such other acts and things as may be  necessary  to preserve
and perfect Lender's security interest in the Collateral.  Each Borrower further
agrees that a carbon,  photographic,  photostatic or other  reproduction of this
Agreement  or of a  financing  statement  shall  be  sufficient  as a  financing
statement.  Each  Borrower  further  ratifies  and  confirms the prior filing by
Lender of any and all  financing  statements  which  identify  such  Borrower as
debtor, Lender as secured party and any or all Collateral as collateral.

     7.  POSSESSION OF COLLATERAL AND RELATED MATTERS.

     Until otherwise  notified by Lender following the occurrence of an Event of
Default,  each Borrower  shall have the right,  except as otherwise  provided in
this Agreement, in the ordinary course of such Borrower's business, to (a) sell,
lease or furnish  under  contracts of service any of such  Borrower's  Inventory
normally held by such Borrower for any such purpose; (b) use and consume any raw
materials, work in process or other materials normally held by such Borrower for
such purpose;  and (c) dispose of obsolete or unuseful Equipment in the ordinary
course of business so long as all of the proceeds of such Equipment constituting
Collateral  hereunder  are paid to Lender  for  application  to the  Liabilities
(except for such proceeds  which are required to be delivered to the holder of a
Permitted Lien which is prior in right of payment);  provided,  however,  that a
sale in the ordinary  course of business  shall not include any transfer or sale
in satisfaction,  partial or complete, of a debt owed by such Borrower, provided
that a sale of  Inventory  to a creditor of such  Borrower  resulting in a valid
Account owing to such Borrower by such creditor  shall not constitute a transfer
or sale in satisfaction, partial, or complete, of a debt owed by such Borrower.

     8.  COLLECTIONS.

     (a) Each  Borrower  shall  direct  all of its  Account  Debtors to make all
payments  on the  Accounts  directly  to a post  office  box  (the  "Lock  Box")
designated  by, and under the  exclusive  control  of,  Lender,  at a  financial
institution  acceptable to Lender. Each Borrower shall establish an account (the
"Lock Box Account") in Lender's name with a financial institution  acceptable to
Lender, into which all payments received in the Lock Box shall be deposited, and
into which such Borrower will immediately  deposit all payments received by such
Borrower on Accounts in the identical form in which such payments were received,
whether by cash or check.  If a  Borrower,  any  Affiliate  or  Subsidiary,  any
shareholder, officer, director, employee or agent of a Borrower or any Affiliate
or  Subsidiary,  or any other  Person  acting for or in concert  with a Borrower
shall receive any monies, checks, notes, drafts or other payments relating to or
as Proceeds of Accounts or other Collateral,  such Borrower and each such Person
shall  receive  all  such  items  in trust  for,  and as the sole and  exclusive
property of, Lender and, immediately upon receipt thereof,  shall remit the same
(or  cause  the  same to be  remitted)  in kind to the  Lock  Box  Account.  The
financial  institution  with  which the Lock Box  Account is  established  shall
acknowledge and agree, in a manner  satisfactory to Lender,  that


                                      -18-

<PAGE>
the  amounts  on  deposit in such Lock Box  Account  are the sole and  exclusive
property of Lender, that such financial institution will follow the instructions
of Lender  with  respect  to  disposition  of funds in the Lock Box and Lock Box
Account  without  further  consent  from  such  Borrower,  that  such  financial
institution  has no right to setoff  against the Lock Box Account or against any
other account  maintained by such financial  institution into which the contents
of the Lock Box Account are  transferred,  and that such  financial  institution
shall wire, or otherwise transfer in immediately  available funds to Lender in a
manner  satisfactory  to Lender,  funds  deposited  in the Lock Box Account on a
daily basis as such funds are collected.  Each Borrower agrees that all payments
made to such Lock Box  Account  or  otherwise  received  by  Lender,  whether in
respect of the Accounts or as Proceeds of other Collateral or otherwise  (except
for proceeds of Collateral which are required to be delivered to the holder of a
Permitted  Lien which is prior in right of payment),  will be applied on account
of the Liabilities in accordance with the terms of this Agreement. Each Borrower
agrees to pay all customary fees,  costs and expenses in connection with opening
and maintaining the Lock Box and Lock Box Account.  All of such fees,  costs and
expenses if not paid by a Borrower,  may be paid by Lender and in such event all
amounts paid by Lender shall constitute Liabilities hereunder,  shall be payable
to Lender by Borrowers upon demand,  and, until paid, shall bear interest at the
highest rate then applicable to Loans hereunder. All checks, drafts, instruments
and other items of payment or Proceeds  of  Collateral  shall be endorsed by the
applicable  Borrower to Lender,  and, if that endorsement of any such item shall
not be made for any reason,  Lender is hereby irrevocably  authorized to endorse
the same on such  Borrower's  behalf.  For the  purpose  of this  section,  each
Borrower  irrevocably  hereby makes,  constitutes  and appoints  Lender (and all
Persons  designated  by Lender for that  purpose)  as such  Borrower's  true and
lawful attorney and  agent-in-fact (i) to endorse such Borrower's name upon said
items of payment  and/or  Proceeds of  Collateral  and upon any  Chattel  Paper,
Document,  Instrument,  invoice or similar document or agreement relating to any
Account of such Borrower or Goods  pertaining  thereto;  (ii) to take control in
any manner of any item of payment or  Proceeds  thereof and (iii) to have access
to any  lock  box or  postal  box  into  which  any of such  Borrower's  mail is
deposited,  and open  and  process  all  mail  addressed  to such  Borrower  and
deposited therein.

     (b) Lender may, at any time and from time to time after the  occurrence and
during  the  continuance  of an  Event  of  Default,  whether  before  or  after
notification  to any Account  Debtor and whether before or after the maturity of
any of the  Liabilities,  (i)  enforce  collection  of  any of  each  Borrower's
Accounts or other amounts owed to a Borrower by suit or otherwise; (ii) exercise
all of such Borrower's  rights and remedies with respect to proceedings  brought
to collect any Accounts or other amounts owed to such Borrower; (iii) surrender,
release or exchange  all or any part of any  Accounts or other  amounts  owed to
such Borrower,  or compromise or extend or renew for any period  (whether or not
longer than the  original  period)  any  indebtedness  thereunder;  (iv) sell or
assign any Account of such  Borrower or other amount owed to such  Borrower upon
such terms, for such amount and at such time or times as Lender deems advisable;
(v)  prepare,  file  and  sign  such


                                      -19-

<PAGE>
Borrower's  name on any proof of claim in bankruptcy  or other similar  document
against any Account Debtor or other Person obligated to such Borrower;  and (vi)
do all other acts and things which are necessary,  in Lender's sole  discretion,
to  fulfill  such  Borrower's  obligations  under this  Agreement  and the Other
Agreements  and to allow Lender to collect the Accounts or other amounts owed to
such Borrower. In addition to any other provision hereof, Lender may at any time
after the  occurrence  and during the  continuance  of an Event of  Default,  at
Borrowers' expense,  notify any parties obligated on any of the Accounts to make
payment directly to Lender of any amounts due or to become due thereunder.

     (c) For purposes of calculating interest and fees, Lender shall, within two
(2) Business Days after receipt by Lender at its office in Chicago,  Illinois of
(i) checks and (ii) cash or other  immediately  available funds from collections
of items of payment and Proceeds of any Collateral,  apply the whole or any part
of such  collections or Proceeds against the Liabilities in such order as Lender
shall determine in its sole  discretion.  For purposes of determining the amount
of Loans available for borrowing purposes,  checks and cash or other immediately
available  funds  from  collections  of items of  payment  and  Proceeds  of any
Collateral shall be applied in whole or in part against the Liabilities, in such
order as Lender shall determine in its sole  discretion,  on the day of receipt,
subject to actual collection.

     (d) On a monthly  basis,  Lender  shall  deliver  to  Borrowers  an account
statement showing all Loans, charges and payments,  which shall be deemed final,
binding and  conclusive  upon  Borrowers  unless a Borrower  notifies  Lender in
writing,  specifying any error therein, within thirty (30) days of the date such
account  statement  is sent to such  Borrower  and any such  notice  shall  only
constitute an objection to the items specifically identified.

     9.  COLLATERAL, AVAILABILITY AND FINANCIAL REPORTS AND SCHEDULES.

     (a) Weekly Reports.

     Each  Borrower  shall  deliver  to  Lender  an  executed  loan  report  and
certificate  in  Lender's  then  current  form at least  once each week (or more
frequently  as requested by Lender during the existence of an Event of Default),
which shall be accompanied  by copies of such  Borrower's  sales  journal,  cash
receipts  journal and credit memo journal for the relevant  period.  Such report
shall  reflect the  activity of such  Borrower  with respect to Accounts for the
immediately  preceding week, and shall be in a form and with such specificity as
is  satisfactory  to  Lender  and  shall  contain  such  additional  information
concerning Accounts as may be reasonably requested by Lender including,  without
limitation, but only if specifically requested by Lender, copies of all invoices
prepared in connection with such Accounts.


                                      -20-


<PAGE>
     (b) Monthly Reports.

     Borrowers  shall deliver to Lender,  in addition to any other  reports,  as
soon as  practicable  and in any event within  twenty (20) days after the end of
each month,  (A) a detailed trial balance of each  Borrower's  Accounts aged per
invoice date, in form and substance reasonably satisfactory to Lender including,
without  limitation,  the names and  addresses  of all  Account  Debtors of each
Borrower,  and (B) a summary and detail of accounts  payable (such  Accounts and
accounts  payable  divided into such time intervals as Lender may require in its
sole discretion), including a listing of any held checks.

     (c) Financial Statements.

     Borrowers  shall  deliver  or  cause  to  be  delivered  to  Lender,  on  a
consolidated and consolidating basis, the following financial  information,  all
of which shall be prepared in  accordance  with  generally  accepted  accounting
principles  consistently  applied,  and  shall be  accompanied  by a  compliance
certificate in the form of Exhibit B hereto, which compliance  certificate shall
include a calculation of all financial  covenants  contained in this  Agreement:
(i) no later  than  twenty  (20)  days  after  each  calendar  month,  copies of
internally prepared financial statements, including, without limitation, balance
sheets and statements of income and retained earnings of the Consolidated  Group
but excluding cash flow,  certified by the Chief  Financial  Officer of Smithway
Corp.;  and (ii) no later than the filing date of Smithway Corp.'s Annual Report
on form 10-K, audited annual financial statements with an unqualified opinion by
independent  certified public  accountants  selected by Borrowers and reasonably
satisfactory to Lender, which financial statements shall be accompanied by (A) a
letter from such  accountants  acknowledging  that they are aware that Lender is
relying upon such  financial  statements in connection  with the exercise of its
rights  hereunder,  provided,  that Borrowers  shall only be required to use its
reasonable efforts exercised in good faith to obtain such letter; and (B) copies
of any management letters sent to a Borrower by such accountants;

     (d) Annual Projections.

     As soon as  practicable  and in any event  prior to the  beginning  of each
Fiscal  Year,   Borrowers  shall  deliver  to  Lender,  on  a  consolidated  and
consolidating  basis,  projected  balance sheets,  statements of income and cash
flow for the Consolidated  Group, for each of the twelve (12) months during such
Fiscal  Year,  and  projected  balance  sheet at the end of each quarter in each
Fiscal Year, all of which shall include the assumptions  used therein,  together
with appropriate supporting details as reasonably requested by Lender.

     (e) Explanation of Budgets and Projections.

     In conjunction with the delivery of the annual  presentation of projections
or budgets  referred to in  subsection  9(d) above,  Borrowers  shall  deliver a
letter signed by the President or a Vice  President of Smithway Corp. and by the


                                      -21-

<PAGE>
Treasurer or Chief Financial  Officer of Smithway Corp.,  describing,  comparing
and analyzing,  in detail, all changes and developments  between the anticipated
financial  results  included in such  projections  or budgets and the historical
financial statements of Borrowers.

     (f) Public Reporting.

     Promptly upon the filing  thereof,  each  Borrower  shall deliver to Lender
copies of all registration  statements and annual,  quarterly,  monthly or other
regular reports which Smithway Corp. or any of its  Subsidiaries  files with the
Securities  and  Exchange  Commission,  as well as promptly  providing to Lender
copies of any reports and proxy statements delivered to its shareholders.

     (g) Other Information.

     Promptly  following  request  therefor  by Lender,  such other  business or
financial  data,  reports,  appraisals and  projections as Lender may reasonably
request.

     10. TERMINATION; AUTOMATIC RENEWAL.

     THIS AGREEMENT  SHALL BE IN EFFECT FROM THE DATE HEREOF UNTIL Dec 31,  2004
(THE  "ORIGINAL  TERM") AND SHALL  AUTOMATICALLY  RENEW ITSELF FROM YEAR TO YEAR
THEREAFTER  (EACH SUCH ONE-YEAR  RENEWAL BEING  REFERRED TO HEREIN AS A "RENEWAL
TERM") UNLESS (A) THE DUE DATE OF THE  LIABILITIES  IS  ACCELERATED  PURSUANT TO
SECTION  16  HEREOF;  OR (B) A  BORROWER  OR  LENDER  ELECTS TO  TERMINATE  THIS
AGREEMENT AT THE END OF THE  ORIGINAL  TERM OR AT THE END OF ANY RENEWAL TERM BY
GIVING THE OTHER PARTY WRITTEN NOTICE OF SUCH ELECTION AT LEAST NINETY (90) DAYS
PRIOR TO THE END OF THE ORIGINAL TERM OR THE THEN CURRENT  RENEWAL TERM IN WHICH
CASE BORROWERS  SHALL PAY ALL OF THE LIABILITIES IN FULL ON THE LAST DAY OF SUCH
TERM. If one or more of the events specified in clauses (a) and (b) occurs, then
(i) Lender shall not make any additional  Loans on or after the date  identified
as the date on which the Liabilities  are to be repaid;  and (ii) this Agreement
shall terminate on the date thereafter that the Liabilities are paid in full. At
such time as Borrowers have repaid all of the Liabilities and this Agreement has
terminated,  Borrowers shall deliver to Lender a release,  in form and substance
satisfactory  to Lender,  of all  obligations  and liabilities of Lender and its
officers, directors,  employees, agents, parents, subsidiaries and affiliates to
such  Borrowers,  and if Borrowers  are  obtaining  new  financing  from another
lender, Borrowers shall deliver such lender's indemnification of Lender, in form
and substance  satisfactory  to Lender,  for checks which Lender has credited to
such Borrower's account, but which subsequently are dishonored for any reason or
for automatic  clearinghouse or wire transfers not yet posted to such Borrower's
account.  If,  during the term of this  Agreement,  Borrowers  prepay all of the
Liabilities


                                      -22-

<PAGE>
from any  source  other than  income  from the  ordinary  course  operations  of
Borrowers' business and this Agreement is terminated,  Borrowers agree to pay to
Lender as a prepayment fee, in addition to the payment of all other Liabilities,
an  amount  equal to (i) one  percent  (1%) of the  Maximum  Loan  Limit if such
prepayment occurs prior to the end of the first anniversary of the date hereof.

     11. REPRESENTATIONS AND WARRANTIES.

     Each   Borrower   hereby   represents   and   warrants  to  Lender,   which
representations  and  warranties  (whether  appearing  in  this  Section  11  or
elsewhere)  shall be true at the time of  Borrowers'  execution  hereof  and the
closing of the  transactions  described  herein or related hereto,  shall remain
true until the repayment in full and  satisfaction  of all the  Liabilities  and
termination of this Agreement,  and shall be remade by each Borrower at the time
each Loan is made pursuant to this Agreement, provided, that representations and
warranties  made as of a  particular  date shall be true and  correct as of such
date.

     (a) Financial Statements and Other Information.

     The financial statements and other information delivered or to
be delivered by Borrowers to Lender at or prior to the date of this Agreement
fairly present in all material respects the financial condition of the
Consolidated Group, and there has been no material adverse change in the
financial condition, the operations or any other status of a Borrower since the
date of the financial statements delivered to Lender most recently prior to the
date of this Agreement. All written information now or heretofore furnished by
each Borrower to Lender is true and correct as of the date with respect to which
such information was furnished.

     (b) Locations.

     The office where each  Borrower  keeps its books,  records and accounts (or
copies thereof)  concerning the Collateral,  each Borrower's  principal place of
business  and all of each  Borrower's  other  places of  business,  locations of
Collateral and post office boxes and locations of bank accounts are as set forth
in Exhibit A and at other  locations  within the  continental  United  States of
which  Lender has been  advised  by a Borrower  in  accordance  with  subsection
12(b)(i). The Collateral,  including,  without limitation, the Equipment (except
any part thereof which a Borrower shall have advised Lender in writing  consists
of Collateral  normally used in more than one state) is kept, or, in the case of
vehicles,  based,  only at the  addresses  set forth on  Exhibit A, and at other
locations within the continental  United States of which Lender has been advised
by a Borrower in writing in accordance with subsection 12(b)(i) hereof.


                                      -23-


<PAGE>
     (c) Loans by Borrower.

     No Borrower has made any loans or advances to any Affiliate or other Person
except for advances authorized hereunder to employees,  independent contractors,
officers and directors of such Borrower for travel and other expenses arising in
the ordinary course of such Borrower's  business and loans permitted pursuant to
subsection 13(f) hereof.

     (d) Accounts.

     Each Account which a Borrower shall,  expressly or by implication,  request
Lender  to  classify  as an  Eligible  Account  shall,  as of the time when such
request  is  made,   conform  in  all  respects  to  the  requirements  of  such
classification as set forth in the respective  definition of "Eligible  Account"
as set forth herein and as otherwise established by Lender from time to time.

     (e) Liens.

     Each Borrower is the lawful owner of all Collateral now  purportedly  owned
or hereafter purportedly acquired by such Borrower, free from all liens, claims,
security  interests  and  encumbrances   whatsoever,   whether   voluntarily  or
involuntarily  created and whether or not  perfected,  other than the  Permitted
Liens.

     (f) Organization, Authority and No Conflict.

     If  Smithway  Inc.  is  a  corporation,   limited   liability   company  or
partnership,  Smithway  Inc. is duly  organized,  validly  existing  and in good
standing in the State of Iowa, its state organizational identification number is
37891 and such  Borrower is duly  qualified  and in good  standing in all states
where the nature and extent of the business transacted by it or the ownership of
its assets makes such  qualification  necessary  or, if Smithway  Inc. is not so
qualified,  Smithway  Inc. may cure any such failure  without  losing any of its
rights,  incurring  any liens or  material  penalties,  or  otherwise  affecting
Lender's rights.  If East West is a corporation,  limited  liability  company or
partnership,  East West is duly organized, validly existing and in good standing
in the State of South Dakota, its state organizational  identification number is
DB039720 and such Borrower is duly  qualified and in good standing in all states
where the nature and extent of the business transacted by it or the ownership of
its  assets  makes  such  qualification  necessary  or,  if East  West is not so
qualified, East West may cure any such failure without losing any of its rights,
incurring  any liens or material  penalties,  or  otherwise  affecting  Lender's
rights.  Each  Borrower  has the  right and  power  and is duly  authorized  and
empowered  to enter  into,  execute  and deliver  this  Agreement  and the Other
Agreements and perform its obligations hereunder and thereunder. Each Borrower's
execution,  delivery and performance of this Agreement and the Other  Agreements
does not conflict with the  provisions of the  organizational  documents of such
Borrower, any statute,  regulation,  ordinance or rule of law, or any agreement,
contract  or other  document  which  may now or  hereafter  be  binding  on such
Borrower,  except for conflicts with

                                      -24-

<PAGE>
agreements, contracts or other documents which would not have a Material Adverse
Effect on such Borrower, and each Borrower's execution, delivery and performance
of this Agreement and the Other Agreements shall not result in the imposition of
any lien or other  encumbrance upon any of such Borrower's  property (other than
Permitted Liens) under any existing indenture,  mortgage, deed of trust, loan or
credit  agreement or other agreement or instrument by which such Borrower or any
of its property may be bound or affected.

     (g) Litigation.

     Except as  disclosed  to  Lender on  Schedule  11(g)  hereto,  there are no
actions  or  proceedings  which  are  pending  or,  to the best of a  Borrower's
knowledge,  threatened  against such Borrower which is, in the  determination of
each  Borrower,  reasonably  likely to have a  Material  Adverse  Effect on such
Borrower,  and each Borrower  shall,  promptly  upon becoming  aware of any such
pending or  threatened  action or  proceeding,  give written  notice  thereof to
Lender.  No Borrower has any Commercial Tort Claims pending other than those set
forth on Exhibit C hereto as Exhibit C may be amended from time to time.

     (h) Compliance with Laws and Maintenance of Permits.

     Each  Borrower  has  obtained  all   governmental   consents,   franchises,
certificates, licenses, authorizations, approvals and permits, the lack of which
would have a Material  Adverse  Effect on such  Borrower.  Each  Borrower  is in
compliance in all material respects with all applicable  federal,  state,  local
and foreign  statutes,  orders,  regulations,  rules and ordinances  (including,
without limitation,  Environmental Laws and statutes, orders, regulations, rules
and  ordinances  relating to taxes,  employer  and  employee  contributions  and
similar items,  securities,  ERISA or employee health and safety) the failure to
comply with which would have a Material Adverse Effect on such Borrower.

     (i) Affiliate Transactions.

     Except as set forth on Schedule  11(i) hereto or as  permitted  pursuant to
subsection 11(c) hereof,  no Borrower is conducting,  permitting or suffering to
be conducted,  transactions  with any  Affiliate  other than  transactions  with
Affiliates  for the  purchase or sale of  Inventory  or services in the ordinary
course of business pursuant to terms that are no less favorable to such Borrower
than the terms upon which such  transactions  would have been made had they been
made to or with a Person that is not an Affiliate.

     (j) Names and Trade Names.

     Each Borrower's name has always been as set forth on the first page of this
Agreement and no Borrower uses any trade names, assumed names,  fictitious names
or  division  names in the  operation  of its  business,  except as set forth on
Schedule 11(j) hereto.

                                      -25-

<PAGE>
     (k) Equipment.

     Except for Permitted  Liens,  each Borrower has good and  indefeasible  and
merchantable  title to and  ownership of all Equipment  constituting  Collateral
hereunder. No such Equipment is a Fixture to real estate unless such real estate
is owned by such Borrower and is subject to a mortgage in favor of Lender, or if
such real estate is leased,  is subject to a  landlord's  agreement  in favor of
Lender on terms acceptable to Lender, or an accession to other personal property
unless such  personal  property is subject to a first  priority lien in favor of
Lender.

     (l) Enforceability.

     This Agreement and the Other  Agreements to which a Borrower is a party are
the legal,  valid and binding  obligations of such Borrower and are  enforceable
against such Borrower in accordance with their respective terms.

     (m) Solvency.

     Each  Borrower  is, after giving  effect to the  transactions  contemplated
hereby,  solvent,  able to pay  its  debts  as  they  become  due,  has  capital
sufficient  to carry on its business,  now owns property  having a value both at
fair  valuation  and at present  fair  saleable  value  greater  than the amount
required to pay its debts,  and will not be rendered  insolvent by the execution
and delivery of this  Agreement or any of the Other  Agreements or by completion
of the transactions contemplated hereunder or thereunder.

     (n) Indebtedness.

     Except as set forth on Schedule  11(n)  hereto,  no  Borrower is  obligated
(directly or indirectly), for any loans or other indebtedness for borrowed money
other than the Loans.

     (o) Margin Security and Use of Proceeds.

     No Borrower  owns any margin  securities,  and none of the  proceeds of the
Loans  hereunder  shall be used for the purpose of  purchasing  or carrying  any
margin  securities  or for the purpose of reducing or retiring any  indebtedness
which was originally incurred to purchase any margin securities or for any other
purpose not  permitted by  Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.

                                      -26-


<PAGE>
     (p) Parent, Subsidiaries and Affiliates.

     Except as set forth on Schedule 11(p) hereto,  no Borrower has any Parents,
Subsidiaries or other  Affiliates or divisions,  nor is any Borrower  engaged in
any joint venture or partnership with any other Person.

     (q) No Defaults.

     No Borrower is in default under any material contract,  lease or commitment
to which it is a party or by which it is bound,  nor does any  Borrower  know of
any dispute  regarding  any  contract,  lease or  commitment  which would have a
Material Adverse Effect on such Borrower.

     (r) Employee Matters.

     There are no controversies pending or threatened between a Borrower and any
of  its  employees,  agents  or  independent  contractors  other  than  employee
grievances  arising in the ordinary  course of business  which would not, in the
aggregate, have a Material Adverse Effect on such Borrower, and each Borrower is
in  compliance  with all  federal  and  state  laws  respecting  employment  and
employment terms,  conditions and practices except for such non-compliance which
would not have a Material Adverse Effect on such Borrower.

     (s) Intellectual Property.

     Each Borrower possesses adequate licenses,  patents,  patent  applications,
copyrights, service marks, trademarks,  trademark applications,  tradestyles and
trade names to continue to conduct its business as  heretofore  conducted by it,
except to the extent  that the  failure to possess  such items  would not have a
Material Adverse Effect on such Borrower.

     (t) Environmental Matters.

     No  Borrower  has  not  generated,  used,  stored,  treated,   transported,
manufactured,  handled,  produced or disposed of any Hazardous Materials,  on or
off its  premises  (whether or not owned by it) in any manner  which at any time
violates in any material respect any Environmental  Law or any license,  permit,
certificate,  approval or similar authorization thereunder and the operations of
each Borrower comply in all material  respects with all  Environmental  Laws and
all  licenses,  permits,  certificates,  approvals  and  similar  authorizations
thereunder.  There  has been no  investigation,  proceeding,  complaint,  order,
directive,  claim, citation or notice by any governmental authority or any other
Person,  nor  is any  pending  or to  the  best  of  each  Borrower's  knowledge
threatened  with  respect  to  any  non-compliance  with  or  violation  of  the
requirements  of any  Environmental  Law by a Borrower or the release,  spill or
discharge,  threatened or actual, of any Hazardous  Materials or the generation,
use, storage, treatment,  transportation,  manufacture,  handling, production or
disposal of any Hazardous Materials or any other environmental,


                                      -27-

<PAGE>
health or safety matter, which affects a Borrower or its business, operations or
assets or any properties at which a Borrower has transported, stored or disposed
of any Hazardous Materials.  No Borrower has any material liability  (contingent
or otherwise) in connection  with a release,  spill or discharge,  threatened or
actual, of any Hazardous Materials or the generation,  use, storage,  treatment,
transportation,  manufacture,  handling, production or disposal of any Hazardous
Materials.

     (u) ERISA Matters.

     Each  Borrower has paid and  discharged  all  obligations  and  liabilities
arising under ERISA of a character which, if unpaid or unperformed, might result
in the imposition of a lien against any of its properties or assets.

     12. AFFIRMATIVE COVENANTS.

     Until payment and  satisfaction  in full of all Liabilities and termination
of this  Agreement,  unless  Borrowers  obtain  Lender's  prior written  consent
waiving or  modifying  any of  Borrowers'  covenants  hereunder  in any specific
instance, each Borrower covenants and agrees as follows:

     (a) Maintenance of Records.

     Each Borrower shall at all times keep accurate and complete books,  records
and accounts  with respect to all of such  Borrower's  business  activities,  in
accordance with sound  accounting  practices and generally  accepted  accounting
principles  consistently  applied,  and  shall  keep  such  books,  records  and
accounts,  and any copies  thereof,  only at the  addresses  indicated  for such
purpose on Exhibit A;

     (b) Notices.

     Each Borrower shall:

     (i)  Locations.  Promptly (but in no event less than ten (10) days prior to
the occurrence  thereof) notify Lender of the proposed  opening of any new place
of business or new location of Collateral,  the closing of any existing place of
business  or  location  of  Collateral,  any change of in the  location  of such
Borrower's  books,  records and  accounts  (or copies  thereof),  the opening or
closing of any post office box,  the opening or closing of any bank  account or,
if any of the Collateral  consists of Goods of a type normally used in more than
one state,  the use of any such  Goods in any state  other than a state in which
such  Borrower  has  previously  advised  Lender  that such  Goods will be used;
provided,  each  Borrower has advised  Lender that the Equipment is used in many
states in the United States and in many provinces in Canada.


                                      -28-

<PAGE>
     (ii) Eligible Accounts. Promptly upon becoming aware thereof, notify Lender
if any Account  identified  by such  Borrower  to Lender as an Eligible  Account
becomes ineligible for any reason.

     (iii)  Litigation  and  Proceedings.  Promptly upon becoming aware thereof,
notify  Lender of any actions or  proceedings  which are  pending or  threatened
against  such  Borrower  which  might  have a  Material  Adverse  Effect on such
Borrower and of any  Commercial  Tort Claims of such  Borrower  which may arise,
which notice shall  constitute such Borrower's  authorization to amend Exhibit C
to add such Commercial Tort Claim.

     (iv)  Names and Trade  names.  Notify  Lender  within  ten (10) days of the
change of its name or the use of any trade name,  assumed name,  fictitious name
or division name not previously disclosed to Lender in writing.

     (v) ERISA  Matters.  Promptly  notify  Lender of (x) the  occurrence of any
"reportable  event" (as defined in ERISA) which might result in the  termination
by the Pension Benefit Guaranty Corporation (the "PBGC") of any employee benefit
plan ("Plan") covering any officers or employees of such Borrower,  any benefits
of which are, or are required to be,  guaranteed by the PBGC, (y) receipt of any
notice  from  the  PBGC of its  intention  to seek  termination  of any  Plan or
appointment of a trustee  therefor or (z) its intention to terminate or withdraw
from any Plan.

     (vi) Environmental  Matters.  Immediately notify Lender upon becoming aware
of any investigation,  proceeding,  complaint, order, directive, claim, citation
or  notice  with  respect  to  any  non-compliance  with  or  violation  of  the
requirements of any Environmental  Law by such Borrower or the generation,  use,
storage, treatment, transportation, manufacture handling, production or disposal
of any Hazardous Materials or any other  environmental,  health or safety matter
which  affects  such  Borrower  or its  business  operations  or  assets  or any
properties  at which such  Borrower has  transported,  stored or disposed of any
Hazardous  Materials  unless,  the foregoing could not reasonably be expected to
have a Material Adverse Effect on such Borrower.

     (vii)  Default;  Material  Adverse  Change.  Promptly  advise Lender of any
material adverse change in the business, property, assets, prospects, operations
or condition,  financial or otherwise,  of such Borrower,  the occurrence of any
Event of Default  hereunder or the  occurrence  of any event which,  if uncured,
will become an Event of Default after notice or lapse of time (or both).

All of the  foregoing  notices  shall be  provided  by  Borrowers  to  Lender in
writing.


                                      -29-


<PAGE>
     (c) Compliance with Laws and Maintenance of Permits.

     Each  Borrower  shall  maintain  all  governmental  consents,   franchises,
certificates, licenses, authorizations, approvals and permits, the lack of which
would have a Material  Adverse  Effect on such Borrower and each Borrower  shall
remain in  compliance  with all  applicable  federal,  state,  local and foreign
statutes,  orders,  regulations,   rules  and  ordinances  (including,   without
limitation,  Environmental  Laws and statutes,  orders,  regulations,  rules and
ordinances  relating to taxes,  employer and employee  contributions and similar
items,  securities,  ERISA or employee health and safety) the failure with which
to comply would have a Material  Adverse Effect on such Borrower.  Following any
determination  by Lender that there is  non-compliance,  or any condition  which
requires  any  action  by  or  on  behalf  of  a  Borrower  in  order  to  avoid
non-compliance,  with any Environmental Law, at such Borrower's expense cause an
independent environmental engineer acceptable to Lender to conduct such tests of
the relevant site(s) as are appropriate and prepare and deliver a report setting
forth the results of such tests, a proposed plan for remediation and an estimate
of the costs thereof.

     (d) Inspection and Audits.

     Each Borrower shall permit Lender, or any Persons designated by it, to call
at such  Borrower's  places of business at any reasonable  times,  and,  without
hindrance or delay, to inspect the Collateral and to inspect,  audit,  check and
make extracts from such Borrower's books, records,  journals,  orders,  receipts
and any correspondence and other data relating to such Borrower's business,  the
Collateral or any  transactions  between the parties hereto,  and shall have the
right to make such  verification  concerning such Borrower's  business as Lender
may consider reasonable under the circumstances.  Each Borrower shall furnish to
Lender such information relevant to Lender's rights under this Agreement and the
Other  Agreements  as Lender  shall at any time and from  time to time  request.
Lender,  through its officers,  employees or agents shall have the right, at any
time and from time to time, in Lender's name, to verify the validity,  amount or
any  other  matter  relating  to any  of  such  Borrower's  Accounts,  by  mail,
telephone,  telecopy, electronic mail, or otherwise, provided, that prior to the
occurrence of an Event of Default, Lender shall conduct such verification in the
name of a nominee of Lender or in such Borrower's name. Each Borrower authorizes
Lender to discuss the affairs,  finances and business of such  Borrower with any
officers,  employees  or  directors  of such  Borrower or with its Parent or any
Affiliate  or  the  officers,  employees  or  directors  of  its  Parent  or any
Affiliate,  and to discuss the  financial  condition of such  Borrower with such
Borrower's independent public accountants. Any such discussions shall be without
liability to Lender or to Borrowers'  independent public accountants.  Borrowers
shall pay to Lender all customary fees and all costs and out-of-pocket  expenses
incurred  by Lender in the  exercise  of its rights  hereunder,  and all of such
fees,  costs and  expenses  shall  constitute  Liabilities  hereunder,  shall be
payable on demand and, until paid,  shall bear interest at the highest rate then
applicable to Loans hereunder;


                                      -30-

<PAGE>
     (e) Insurance.

     Each Borrower shall:

     (i) Keep the Collateral  properly housed and insured for the full insurable
value  thereof  against loss or damage by fire,  theft,  explosion,  sprinklers,
collision  (in  the  case  of  motor  vehicles)  and  such  other  risks  as are
customarily  insured against by Persons engaged in businesses similar to that of
such Borrower, with such companies, in such amounts, with such deductibles,  and
under policies in such form, as shall be  satisfactory  to Lender.  Original (or
certified)  copies of such  policies of insurance  have been or shall be, within
ninety (90) days of the date hereof, delivered to Lender, together with evidence
of payment of all premiums therefor,  and shall contain an endorsement,  in form
and substance  acceptable to Lender,  showing loss under such insurance policies
payable to Lender. Such endorsement,  or an independent  instrument furnished to
Lender,  shall  provide that the  insurance  company  shall give Lender at least
thirty (30) days written  notice  before any such policy of insurance is altered
or canceled and that no act,  whether  willful or negligent,  or default of such
Borrower or any other Person  shall affect the right of Lender to recover  under
such policy of insurance in case of loss or damage. Each Borrower hereby directs
all  insurers  under all  policies  of  insurance  to pay all  proceeds  payable
thereunder directly to Lender. Each Borrower irrevocably makes,  constitutes and
appoints Lender (and all officers,  employees or agents designated by Lender) as
such Borrower's true and lawful attorney (and  agent-in-fact) for the purpose of
making,  settling  and  adjusting  claims  under  such  policies  of  insurance,
endorsing  the name of such  Borrower on any check,  draft,  instrument or other
item of payment for the proceeds of such  policies of  insurance  and making all
determinations  and  decisions  with  respect  to such  policies  of  insurance,
provided,  however,  that if no Event of  Default  shall  have  occurred  and is
continuing,  Borrowers may make,  settle and adjust claims  involving  less than
$100,000.00 in the aggregate per Fiscal Year without Lender's consent. Maintain,
at its expense,  such public liability and third party property damage insurance
as is  customary  for  Persons  engaged  in  businesses  similar to that of such
Borrower  with such  companies and in such amounts,  with such  deductibles  and
under policies in such form as shall be  satisfactory to Lender and original (or
certified)  copies of such  policies  have been or shall be,  within ninety (90)
days after the date  hereof,  delivered  to Lender,  together  with  evidence of
payment of all premiums therefor;  each such policy shall contain an endorsement
showing Lender as additional insured thereunder and providing that the insurance
company  shall give Lender at least thirty (30) days written  notice  before any
such policy shall be altered or  canceled.  If any Borrower at any time or times
hereafter  shall fail to obtain or maintain  any of the  policies  of  insurance
required  above or to pay any premium  relating  thereto,  then Lender,  without
waiving or releasing any obligation or default by Borrowers hereunder,  may (but
shall be under no obligation  to) obtain and maintain such policies of insurance
and pay such premiums and take such other actions with respect thereto as Lender
deems  advisable upon notice to such Borrower.  Such  insurance,  if obtained by
Lender,  may, but need not,  protect such Borrower's  interests or pay any claim
made by or against such Borrower with respect to the Collateral.  Such insurance
may be more  expensive  than the cost of insurance  such Borrower may be able to
obtain  on its  own and may be  cancelled  only  upon  such  Borrower  providing
evidence  that it has  obtained  the  insurance  as  required  above.  All  sums
disbursed by Lender in

                                      -31-

<PAGE>
connection with any such actions,  including,  without limitation,  court costs,
expenses,  other charges relating thereto and reasonable  attorneys' fees, shall
constitute  Loans  hereunder,  shall be payable on demand by Borrowers to Lender
and,  until paid,  shall bear  interest at the highest rate then  applicable  to
Loans hereunder.

     (f) Collateral.

     Each  Borrower  shall keep the  Collateral  in good  condition,  repair and
order, reasonable wear and tear excepted and shall make all necessary repairs to
the Equipment and replacements  thereof so that the operating efficiency and the
value  thereof  shall at all times be preserved  and  maintained in all material
respects.  Each Borrower shall permit Lender to examine any of the Collateral at
any time and wherever the  Collateral  may be located and, each Borrower  shall,
immediately  upon  request  therefor  by  Lender,  deliver to Lender any and all
evidence of ownership of any of the Equipment constituting  Collateral hereunder
including, without limitation,  certificates of title and applications of title.
Each  Borrower  shall,  at the  request  of  Lender,  indicate  on  its  records
concerning the Collateral a notation,  in form  satisfactory  to Lender,  of the
security interest of Lender hereunder.

     (g) Use of Proceeds.

     All monies and other property  obtained by a Borrower from Lender  pursuant
to this Agreement shall be used solely for business purposes of such Borrower.

     (h) Taxes.

Each Borrower  shall file all required tax returns and pay all of its taxes when
due,  subject to any  extensions  granted by the  applicable  taxing  authority,
including,  without  limitation,  taxes  imposed by federal,  state or municipal
agencies, and shall cause any liens for taxes to be promptly released; provided,
that such Borrower  shall have the right to contest the payment of such taxes in
good faith by appropriate  proceedings so long as (i) the amount so contested is
shown on such Borrower's financial  statements;  (ii) the contesting of any such
payment  does not give rise to a lien for taxes;  (iii) such  Borrower  keeps on
deposit with Lender (such  deposit to be held without  interest) or a reserve is
maintained against such Borrower's availability to borrow money under subsection
2(a),  in either  case,  in an amount of money  which,  in the sole  judgment of
Lender,  is sufficient to pay such taxes and any interest or penalties  that may
accrue  thereon;  and (iv) if such Borrower fails to prosecute such contest with
reasonable diligence, Lender may apply the money so deposited in payment of such
taxes.  If a Borrower fails to pay any such taxes and in the absence of any such
contest  by such  Borrower,  Lender may (but  shall be under no  obligation  to)
advance  and pay any sums  required  to pay any such taxes  and/or to secure the
release  of any  lien  therefor,  and  any  sums so  advanced  by  Lender  shall
constitute  Loans  hereunder,  shall be  payable by such  Borrower  to Lender on
demand, and, until paid, shall bear interest at the highest rate then applicable
to Loans hereunder.

                                      -32-

<PAGE>
     (i) Intellectual Property.

     Each  Borrower   shall  maintain   adequate   licenses,   patents,   patent
applications,  copyrights,  service marks,  trademarks,  trademark applications,
tradestyles and trade names to continue its business as heretofore  conducted by
it or as hereafter conducted by it unless, the foregoing could not reasonably be
expected to have a Material Adverse Effect on such Borrower.

     (j) Checking Account.

     Each  Borrower  shall  maintain its  controlled  disbursement  account with
Lender;  provided, East West shall have ninety (90) days from the date hereof to
transfer its controlled  disbursement account to Lender. Normal charges shall be
assessed thereon.

     (k) Federal Highway Administration.

     Each Borrower  shall  provide  Lender with its safety rating within two (2)
business  days of receipt of any safety  rating  notification  from the  Federal
Highway Administration pursuant to 49 C.F.R. ss. 385.

     13. NEGATIVE COVENANTS.

     Until payment and  satisfaction  in full of all Liabilities and termination
of this  Agreement,  unless  Borrowers  obtain  Lender's  prior written  consent
waiving or  modifying  any of  Borrowers'  covenants  hereunder  in any specific
instance, each Borrower agrees as follows:

     (a) Guaranties.

     No Borrower shall assume,  guarantee or endorse, or otherwise become liable
in connection  with,  the  obligations  of any Person,  except by endorsement of
instruments  for deposit or collection or similar  transactions  in the ordinary
course of business.

     (b) Indebtedness.

     No Borrower shall create,  incur,  assume or become obligated  (directly or
indirectly),  for any loans or other  indebtedness  of borrowed money other than
the Loans,  except that a Borrower may (i) borrow money from a person other than
Lender on an unsecured and  subordinated  basis if a subordination  agreement in
favor of Lender and in form and substance satisfactory to Lender is executed and
delivered to Lender  relative  thereto;  (ii) maintain its present  indebtedness
listed on Schedule 11(n) hereto;  (iii) incur  unsecured  indebtedness  to trade
creditors  in the  ordinary  course  of  business;  (iv)  incur  purchase  money
indebtedness  or  capitalized  lease  obligations  in  connection  with  Capital
Expenditures  permitted  pursuant  to  subsection  14(b)  hereof;  and (v) incur
indebtedness  pursuant to the SMSD

                                      -33-

<PAGE>
Transactions in an aggregate amount not to exceed Thirty-Nine Million and No/100
Dollars ($39,000,000.00) in any Fiscal Year of Borrowers so long as Lender has a
prior  perfected  security  interest in and lien upon  substantially  all of the
assets of SMSD.

     (c) Liens.

     No Borrower shall grant or permit to exist  (voluntarily or  involuntarily)
any lien, claim, security interest or other encumbrance whatsoever on any of its
assets, other than Permitted Liens.

     (d)  Mergers,  Sales,  Acquisitions,  Subsidiaries  and Other  Transactions
Outside the Ordinary Course of Business.

     No Borrower shall (i) enter into any merger or  consolidation;  (ii) change
the state of Borrower's organization or enter into any transaction which has the
effect of changing such Borrower's  state of organization  (iii) sell,  lease or
otherwise  dispose of any of its assets  other  than in the  ordinary  course of
business;  (iv) purchase the stock,  other equity interests or all or a material
portion of the assets of any Person or  division  of such  Person;  or (v) enter
into any other  transaction  outside  the  ordinary  course  of such  Borrower's
business,  including, without limitation, any purchase, redemption or retirement
of any shares of any class of its stock or any other  equity  interest,  and any
issuance of any shares of, or  warrants  or other  rights to receive or purchase
any  shares of, any class of its stock or any other  equity  interest,  provided
that, each Borrower may continue to enter into transactions  under the following
plans and  arrangements on a basis  consistent  with each  Borrower's  practices
prior to the date hereof:  Incentive  Stock Plan, New Employee  Incentive  Stock
Plan,  Independent  Contractor  Driver Bonus Plan,  1997 Profit  Incentive Plan,
Outside Director Stock Option Plan,  annual rent ($5,000.00 in prior years) on a
building leased by Smithway Inc. from Marlys Smith (wife of William G. Smith) is
paid in stock, and annual bonuses issued in the form of stock, rather than cash.
No  Borrower  shall form any  Subsidiaries  or enter into any joint  ventures or
partnerships with any other Person.

     (e) Dividends and Distributions.

     Except in connection with the SMSD Transactions,  no Borrower shall declare
or pay any  dividend or other  distribution  (whether in cash or in kind) on any
class of its stock (if such  Borrower  is a  corporation)  or on  account of any
equity  interest in such  Borrower (if such Borrower is a  partnership,  limited
liability company or other type of entity).

     (f) Investments; Loans.

     No Borrower shall purchase or otherwise acquire, or contract to purchase or
otherwise  acquire,  the  obligations or stock of any Person,  other than direct
obligations of the United  States,  obligations  insured by the Federal  Deposit
Insurance Corporation and obligations  unconditionally  guaranteed by the United
States;

                                      -34-

<PAGE>
nor shall any Borrower lend or otherwise  advance funds to any Person except for
advances made to employees,  owner operators,  officers and directors for travel
and other  expenses  arising in the  ordinary  course of  business  and loans to
employees and owner  operators not  exceeding,  with respect to Borrowers,  Five
Hundred Thousand and No/100 Dollars  ($500,000.00) in the aggregate  outstanding
for all Persons at any one time.

     (g) Fundamental Changes, Line of Business.

     No Borrower shall amend its  organizational  documents or change its Fiscal
Year or  enter  into a new  line of  business  materially  different  from  such
Borrower's  current business,  unless (i) such actions would not have a Material
Adverse  Effect  on such  Borrower,  (ii) such  actions  would  not  affect  the
obligations of such Borrower to Lender,  (iii) such actions would not affect the
interpretation of any of the terms of this Agreement or the Other Agreements and
(iv) Lender has received ten (10) days prior written notice of such amendment or
change.

     (h) Equipment.

     No  Borrower  shall (i)  permit any  Equipment  to become a Fixture to real
property unless such real property is owned by such Borrower and is subject to a
mortgage in favor of Lender,  or if such real estate is leased,  is subject to a
landlord's  agreement in favor of Lender on terms acceptable to Lender,  or (ii)
permit any  Equipment  to become an  accession  to any other  personal  property
unless such  personal  property is subject to a first  priority lien in favor of
Lender.

     (i) Affiliate Transactions.

     Except as set forth on Schedule  11(i) hereto or as  permitted  pursuant to
subsection  11(c)  hereof,  no Borrower  shall  conduct,  permit or suffer to be
conducted, transactions with Affiliates other than transactions for the purchase
or sale of Inventory or services in the ordinary course of business  pursuant to
terms that are no less favorable to such Borrower than the terms upon which such
transactions would have been made had they been made to or with a Person that is
not an Affiliate.

     (j) Settling of Accounts.

     No Borrower shall settle or adjust any Account  identified by a Borrower as
an Eligible  Account or with respect to which the Account Debtor is an Affiliate
without the consent of Lender,  provided,  that  following  the  occurrence  and
during the  continuance  of an Event of  Default,  no Borrower  shall  settle or
adjust any Account without the consent of Lender.

                                      -35-

<PAGE>
     (k) Operating Lease Obligations.

     Borrowers shall not incur operating lease  obligations  requiring  payments
which would exceed One Million and No/100 Dollars $1,000,000.00 in the aggregate
during any Fiscal Year of Borrowers.

     14. FINANCIAL COVENANTS.

     Each Borrower  shall maintain and keep in full force and effect each of the
financial covenants set forth below:

     (a) Tangible Net Worth.

     The  Consolidated  Group's Tangible Net Worth shall not at any time be less
than the Minimum Tangible Net Worth;  "Minimum Tangible Net Worth" being defined
for purposes of this  subsection  as  $18,500,000.00  at all times from the date
hereof;  and "Tangible Net Worth" being defined for purposes of this  subsection
as the Consolidated  Group's  shareholders' equity (including retained earnings)
less the book value of all intangible assets as determined solely by Lender on a
consistent basis plus the amount of any LIFO reserve plus the amount of any debt
subordinated to Lender,  all as determined under generally  accepted  accounting
principles  applied on a basis  consistent  with the financial  statement  dated
December 31, 2000 except as set forth herein;

     (b) Capital Expenditure Limitations.

     Borrowers shall not make any Capital  Expenditures  if, after giving effect
to such  Capital  Expenditure,  the  aggregate  cost of all  such  fixed  assets
purchased or otherwise acquired would exceed (i) $15,000,000.00  during the 2002
Fiscal Year; and (ii) $20,000,000.00 during each of Fiscal Year 2003 and 2004.

     (c) Fixed Charge Coverage.

     As of the last day of each month from March 31, 2002  through  December 31,
2002 for the  period  beginning  January  1, 2002 and  ending on each such date,
Borrowers shall not permit the ratio of the Consolidated Group's EBITDA to Fixed
Charges  to be less  than  1.0 to 1.0.  Thereafter,  as of the  last day of each
fiscal quarter,  for the twelve (12) month period ending on such date, Borrowers
shall not permit the ratio of the  Consolidated  Group's EBITDA to Fixed Charges
to be less than 1.0 to 1.0.

     15. DEFAULT.

     The occurrence of any one or more of the following  events shall constitute
an "Event of Default" by Borrowers hereunder:

     (a) Payment.

     The  failure of any Obligor to pay when due,  declared  due, or demanded by
Lender, any of the Liabilities.

                                      -36-

<PAGE>
     (b) Breach of this Agreement and the Other Agreements.

     The  failure  of  any  Obligor  to  perform,  keep  or  observe  any of the
covenants, conditions, promises, agreements or obligations of such Obligor under
this Agreement or any of the Other Agreements; provided that any such failure by
a Borrower under subsections 12(b)(i),  (iv), (v), (vi), 12(c) and 12(i) of this
Agreement shall not constitute an Event of Default hereunder until the fifteenth
(15th) day following the occurrence thereof.

     (c) Breaches of Other Obligations.

     The  failure  of any  Obligor  to  perform,  keep  or  observe  (after  any
applicable notice and cure period) any of the covenants,  conditions,  promises,
agreements or  obligations  of such Obligor under any other  agreement  with any
Person if such failure might have a Material Adverse Effect on such Obligor.

     (d) Breach of Representations and Warranties.

     The making or  furnishing  by any Obligor to Lender of any  representation,
warranty,  certificate,  schedule,  report or other  communication  within or in
connection with this Agreement or the Other Agreements or in connection with any
other agreement  between such Obligor and Lender,  which is untrue or misleading
in any material respect as of the date made.

     (e) Loss of Collateral.

     The loss,  theft,  damage or  destruction  of any of the  Collateral  in an
amount in excess of  $500,000.00 in the aggregate for all such events during any
year of the  Original  Term or any Renewal Term as  determined  by Lender in its
sole discretion  determined in good faith, or (except as permitted hereby) sale,
lease or furnishing under a contract of service of, any of the Collateral.

     (f) Levy, Seizure or Attachment.

     The  making or any  attempt  by any  Person to make any  levy,  seizure  or
attachment upon any of the Collateral.

     (g) Bankruptcy or Similar Proceedings.

     The commencement of any proceedings in bankruptcy by or against any Obligor
or for the liquidation or reorganization  of any Obligor,  or alleging that such
Obligor  is  insolvent  or unable to pay its  debts as they  mature,  or for the
readjustment  or  arrangement of any Obligor's  debts,  whether under the United
States Bankruptcy Code or under any other law, whether state or federal,  now or
hereafter  existing,  for the  relief of  debtors,  or the  commencement  of any
analogous  statutory  or  non-statutory   proceedings   involving  any  Obligor;
provided, however, that if such commencement of proceedings against such Obligor
is involuntary, such

                                      -37-

<PAGE>
action shall not constitute an Event of Default unless such  proceedings are not
dismissed   within   forty-five  (45)  days  after  the   commencement  of  such
proceedings.

     (h) Appointment of Receiver.

     The  appointment  of a receiver or trustee for any Obligor,  for any of the
Collateral  or  for  any  substantial  part  of  any  Obligor's  assets  or  the
institution  of any  proceedings  for the  dissolution,  or the full or  partial
liquidation,  or  the  merger  or  consolidation,  of  any  Obligor  which  is a
corporation, limited liability company or a partnership; provided, however, that
if such  appointment  or  commencement  of  proceedings  against such Obligor is
involuntary,  such action shall not  constitute an Event of Default  unless such
appointment  is not  revoked  or  such  proceedings  are  not  dismissed  within
forty-five (45) days after the commencement of such proceedings.

     (i) Judgment.

     The entry of any judgments or orders aggregating in excess of $1,000,000.00
in any Fiscal Year against any Obligor which remains unsatisfied or undischarged
and in  effect  for  thirty  (30)  days  after  such  entry  without  a stay  of
enforcement or execution.

     (j) Death or Dissolution of Obligor.

     The death of any Obligor who is a natural Person, or of any general partner
who is a natural Person of any Obligor which is a partnership, or any member who
is a natural Person of any Obligor which is a limited  liability  company or the
dissolution of any Obligor which is a partnership,  limited  liability  company,
corporation or other entity.

     (k) Default or Revocation of Guaranty.

     The  occurrence  of an  event  of  default  under,  or  the  revocation  or
termination of, any agreement,  instrument or document executed and delivered by
any Person to Lender  pursuant to which such Person has guaranteed to Lender the
payment  of all or any of the  Liabilities  or has  granted  Lender  a  security
interest  in or lien  upon some or all of such  Person's  real  and/or  personal
property to secure the payment of all or any of the Liabilities.

     (l) Criminal Proceedings.

     The institution in any court of a criminal  proceeding  against any Obligor
which would have a Material Adverse Effect on such Obligor, or the indictment of
any  Obligor  for  any  crime  other  than  traffic  and  boating   tickets  and
misdemeanors not punishable by jail terms.

                                      -38-

<PAGE>
     (m) Change of Control.

     The failure of Smithway  Corp.  to own and have voting  control of at least
one hundred percent (100%) of the issued and  outstanding  capital stock of each
Borrower  and the failure of William G. Smith to own and have voting  control of
at least  twenty (20) percent of the issued and  outstanding  voting Class A and
Class B common shares of Smithway Corp.

     (n) Change of Management.

     If William G. Smith shall cease to be the  Chairman of Smithway  Corp.  and
President of each Borrower at any time.

     (o) Material Adverse Change.

     Any material adverse change in the Collateral,  business, property, assets,
prospects,  operations or condition,  financial or otherwise of any Obligor,  as
determined by Lender in its sole judgment or the  occurrence of any event which,
in Lender's sole judgment, could have a Material Adverse Effect.

     (p) Federal Highway Administration Matters.

     If  a  Borrower  has   received   notification   by  the  Federal   Highway
Administration  that such  Borrower's  motor carrier  operations have been rated
"Unsatisfactory"  as  provided  under 49 C.F.R.  ss.385,  and such rating is not
changed to "Satisfactory " within thirty (30) days.

     16. REMEDIES UPON AN EVENT OF DEFAULT.

     Upon the  occurrence  and  during  the  continuance  of an Event of Default
described in subsection 15(g) hereof,  all of the Liabilities  shall immediately
and automatically  become due and payable,  without notice of any kind. Upon the
occurrence of any other Event of Default,  all Liabilities may, at the option of
Lender,  and without  demand,  notice or legal process of any kind, be declared,
and immediately  shall become,  due and payable.  Upon the occurrence and during
the  continuance  of an Event of Default,  Lender may exercise from time to time
any rights and remedies  available to it under the Uniform  Commercial  Code and
any other  applicable  law in  addition  to,  and not in lieu of, any rights and
remedies  expressly  granted in this Agreement or in any of the Other Agreements
and all of Lender's rights and remedies shall be cumulative and non-exclusive to
the extent permitted by law. In particular,  but not by way of limitation of the
foregoing, Lender may, without notice, demand or legal process of any kind, take
possession of any or all of the  Collateral  (in addition to Collateral of which
it already has  possession),  wherever it may be found, and for that purpose may
pursue the same  wherever it may be found,  and may enter onto any of Borrowers'
premises where any of the Collateral may be, and search for, take possession of,
remove,  keep and store any of the  Collateral  until the same  shall be sold or
otherwise  disposed of, and Lender shall

                                      -39-

<PAGE>
have the right to store the same at any of Borrowers'  premises  without cost to
Lender.  At Lender's request,  each Borrower shall, at such Borrower's  expense,
assemble the Collateral and make it available to Lender at one or more places to
be designated by Lender and  reasonably  convenient to Lender and such Borrower.
Each  Borrower  recognizes  that if a  Borrower  fails to  perform,  observe  or
discharge any of its Liabilities  under this Agreement or the Other  Agreements,
no remedy at law will provide adequate relief to Lender,  and agrees that Lender
shall be entitled to temporary and permanent  injunctive relief in any such case
without the necessity of proving actual  damages.  Any  notification of intended
disposition  of any of the  Collateral  required  by law will be  deemed to be a
reasonable authenticated  notification of disposition if given at least ten (10)
days prior to such  disposition  and such notice shall (i)  describe  Lender and
Borrowers,  (ii)  describe  the  Collateral  that is the subject of the intended
disposition, (iii) state the method of the intended disposition, (iv) state that
Borrowers are entitled to an accounting of the Liabilities and state the charge,
if any,  for an  accounting  and (v)  state  the  time and  place of any  public
disposition  or the time after which any private sale is to be made.  Lender may
disclaim any warranties that might arise in connection  with the sale,  lease or
other  disposition  of the  Collateral  and has no  obligation  to  provide  any
warranties at such time. Any Proceeds of any disposition by Lender of any of the
Collateral  may be applied by Lender to the payment of  expenses  in  connection
with  the  Collateral,   including,   without  limitation,  legal  expenses  and
reasonable  attorneys'  fees, and any balance of such Proceeds may be applied by
Lender  toward  the  payment  of such of the  Liabilities,  and in such order of
application, as Lender may from time to time elect.

     17. CONDITIONS PRECEDENT.

     The  obligation  of Lender to fund the Term  Loans  hereunder,  to fund the
initial Revolving Loan hereunder, and to issue or cause to be issued the initial
Letter of Credit, is subject to the satisfaction or waiver on or before the date
hereof of the following conditions precedent:

     (a) Lender shall have received each of the agreements,  opinions,  reports,
approvals,  consents,  certificates and other documents set forth on the closing
document list attached hereto as Schedule 17(a) (the "Closing Document List");

     (b) Since October 22, 2001,  no event shall have occurred  which has had or
could  reasonably be expected to have a Material  Adverse Effect on any Obligor,
as determined by Lender in its sole discretion;

     (c) Lender  shall have  received  payment in full of all fees and  expenses
payable to it by  Borrowers or any other Person in  connection  herewith,  on or
before disbursement of the initial Loans hereunder; and

     (d) The Obligors shall have executed and delivered to Lender all such other
documents,  instruments  and agreements  which Lender  determines are reasonably
necessary to consummate the transactions contemplated hereby.

                                      -40-

<PAGE>
     18. JOINT AND SEVERAL LIABILITY.

     (a)  Notwithstanding   anything  to  the  contrary  contained  herein,  all
Liabilities of each Borrower hereunder shall be joint and several obligations of
Borrowers.

     (b) Notwithstanding any provisions of this Agreement to the contrary, it is
intended that the joint and several  nature of the  Liabilities of Borrowers and
the liens and security interests granted by Borrowers to secure the Liabilities,
not  constitute a  "Fraudulent  Conveyance"  (as defined  below).  Consequently,
Lender and Borrowers agree that if the  Liabilities of a Borrower,  or any liens
or security  interests granted by such Borrower securing the Liabilities  would,
but for the  application of this sentence,  constitute a Fraudulent  Conveyance,
the Liabilities of such Borrower and the liens and security  interests  securing
such Liabilities  shall be valid and enforceable only to the maximum extent that
would not cause such Liabilities or such lien or security interest to constitute
a Fraudulent Conveyance, and the Liabilities of such Borrower and this Agreement
shall  automatically  be deemed to have been amended  accordingly.  For purposes
hereof,  "Fraudulent Conveyance" means a fraudulent conveyance under Section 548
of Chapter 11 of Title II of the United  States  Code (11  U.S.C.  ss.  101,  et
seq.),  as  amended  (the  "Bankruptcy  Code")  or a  fraudulent  conveyance  or
fraudulent transfer under the applicable provisions of any fraudulent conveyance
or  fraudulent  transfer  law or  similar  law of any  state,  nation  or  other
governmental unit, as in effect from time to time.

     (c) Each Borrower assumes responsibility for keeping itself informed of the
financial  condition of each other  Borrower,  and any and all endorsers  and/or
guarantors  of any  instrument  or document  evidencing  all or any part of such
other  Borrower's  Liabilities and of all other  circumstances  bearing upon the
risk of  nonpayment  by such  other  Borrowers  of  their  Liabilities  and each
Borrower  agrees that Lender shall not have any duty to advise such  Borrower of
information  known to Lender regarding such condition or any such  circumstances
or to undertake any investigation not a part of its regular business routine. If
Lender,  in its sole discretion,  undertakes at any time or from time to time to
provide  any such  information  to a  Borrower,  Lender  shall  not be under any
obligation to update any such  information or to provide any such information to
such Borrower on any subsequent occasion.

     (d)  Lender is hereby  authorized,  without  notice or demand  and  without
affecting the liability of a Borrower  hereunder,  to, at any time and from time
to time, (i) renew, extend,  accelerate or otherwise change the time for payment
of, or other terms  relating to a Borrower's  Liabilities  or otherwise  modify,
amend or change the terms of any promissory note or other agreement, document or
instrument now or hereafter executed by a Borrower and delivered to Lender; (ii)
accept  partial  payments  on a  Borrower's  Liabilities;  (iii)  take  and hold
security or collateral for the payment of a Borrower's  Liabilities hereunder or
for  the  payment  of  any  guaranties  of a  Borrower's  Liabilities  or  other
liabilities  of a Borrower  and  exchange,  enforce,  waive and release any such
security or  collateral;  (iv) apply such security or collateral  and direct the
order  or  manner  of sale  thereof  as  Lender,  in its  sole  discretion,  may
determine; and (v) settle, release, compromise, collect or otherwise liquidate a
Borrower's  Liabilities  and any

                                      -41-

<PAGE>
security or collateral  therefor in any manner,  without  affecting or impairing
the obligations of the other Borrowers. Lender shall have the exclusive right to
determine the time and manner of application of any payments or credits, whether
received from a Borrower or any other source,  and such  determination  shall be
binding on such Borrower. All such payments and credits may be applied, reversed
and reapplied, in whole or in part, to any of a Borrower's Liabilities as Lender
shall  determine  in its sole  discretion  without  affecting  the  validity  or
enforceability of the Liabilities of the other Borrowers.

     (e) Each Borrower hereby agrees that, except as hereinafter  provided,  its
obligations hereunder shall be unconditional, irrespective of (i) the absence of
any  attempt  to  collect a  Borrower's  Liabilities  from any  Borrower  or any
guarantor  or other  action to enforce  the same;  (ii) the waiver or consent by
Lender with respect to any  provision of any  instrument  evidencing  Borrowers'
Liabilities,  or any part thereof,  or any other  agreement  heretofore,  now or
hereafter  executed by a Borrower  and  delivered  to Lender;  (iii)  failure by
Lender to take any steps to perfect and maintain its security interest in, or to
preserve its rights to, any security or collateral for  Borrowers'  Liabilities;
(iv) the institution of any proceeding under the Bankruptcy Code, or any similar
proceeding,  by or  against  a  Borrower  or  Lender  's  election  in any  such
proceeding of the application of Section  1111(b)(2) of the Bankruptcy Code; (v)
any   borrowing   or  grant  of  a  security   interest   by  any   Borrower  as
debtor-in-possession,  under  Section  364  of the  Bankruptcy  Code;  (vi)  the
disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of
Lender 's claim(s) for repayment of any of Borrowers' Liabilities;  or (vii) any
other  circumstance  which  might  otherwise  constitute  a legal  or  equitable
discharge or defense of a guarantor.

     (f) No payment made by or for the account of a Borrower including,  without
limitations, (i) a payment made by such Borrower on behalf of another Borrower's
Liabilities or (ii) a payment made by any other person under any guaranty, shall
entitle such Borrower,  by  subrogation  or otherwise,  to any payment from such
other  Borrower  or from or out of  such  other  Borrower's  property  and  such
Borrower  shall not exercise any right or remedy  against such other Borrower or
any  property  of such  other  Borrower  by  reason of any  performance  of such
Borrower of its joint and several obligations hereunder.

     19. INDEMNIFICATION.

     Each  Borrower  agrees to defend  (with  counsel  satisfactory  to Lender),
protect,  indemnify and hold harmless  Lender,  each  affiliate or subsidiary of
Lender, and each of their respective officers, directors,  employees,  attorneys
and  agents  (each  an  "Indemnified  Party")  from  and  against  any  and  all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims,  costs,  expenses and  disbursements  of any kind or nature  (including,
without  limitation,  the  disbursements  and the reasonable fees of counsel for
each Indemnified Party in connection with any  investigative,  administrative or
judicial proceeding,  whether or not the Indemnified Party shall be designated a
party thereto),  which may be imposed on, incurred by, or asserted against,  any
Indemnified  Party (whether direct,  indirect or

                                      -42-

<PAGE>
consequential  and  whether  based  on any  federal,  state  or  local  laws  or
regulations,  including,  without  limitation,  securities laws and regulations,
Environmental  Laws and commercial laws and regulations,  under common law or in
equity,  or based on contract or otherwise) in any manner relating to or arising
out of this Agreement or any Other  Agreement,  or any act, event or transaction
related or attendant  thereto,  the making or issuance and the management of the
Loans or any Letters of Credit or the use or intended use of the proceeds of the
Loans or any Letters of Credit;  provided,  however, that no Borrower shall have
any obligation hereunder to any Indemnified Party with respect to matters caused
by or  resulting  from  the  willful  misconduct  or  gross  negligence  of such
Indemnified  Party. To the extent that the undertaking to indemnify set forth in
the preceding  sentence may be unenforceable  because it is violative of any law
or public policy,  each Borrower  shall satisfy such  undertaking to the maximum
extent  permitted by applicable law. Any liability,  obligation,  loss,  damage,
penalty,  cost or  expense  covered  by  this  indemnity  shall  be paid to each
Indemnified Party on demand, and, failing prompt payment,  shall,  together with
interest thereon at the highest rate then applicable to Loans hereunder from the
date incurred by each Indemnified Party until paid by Borrowers, be added to the
Liabilities  of Borrowers and be secured by the  Collateral.  The  provisions of
this  Section  18 shall  survive  the  satisfaction  and  payment  of the  other
Liabilities and the termination of this Agreement.

     20. NOTICE.

     All written notices and other written  communications  with respect to this
Agreement shall be sent by ordinary, certified or overnight mail, by telecopy or
delivered in person,  and in the case of Lender shall be sent to it at 135 South
LaSalle Street, Chicago, Illinois 60603-4105, attention: John Mostofi, facsimile
number:  (312)  904-6450,  and in the case of Borrowers shall be sent to them at
their  respective  principal places of business set forth on Exhibit A hereto or
as  otherwise  directed by  Borrowers  in writing.  All notices  shall be deemed
received upon actual receipt thereof or refusal of delivery.

     21. CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION.

     This  Agreement  and the Other  Agreements  are  submitted  by Borrowers to
Lender for  Lender's  acceptance  or rejection  at Lender's  principal  place of
business as an offer by Borrowers to borrow monies from Lender now and from time
to time  hereafter,  and shall not be binding  upon  Lender or become  effective
until accepted by Lender, in writing, at said place of business.  If so accepted
by Lender,  this Agreement and the Other Agreements shall be deemed to have been
made at said place of business. THIS AGREEMENT AND THE OTHER AGREEMENTS SHALL BE
GOVERNED  AND  CONTROLLED  BY THE  INTERNAL  LAWS OF THE STATE OF ILLINOIS AS TO
INTERPRETATION,  ENFORCEMENT,  VALIDITY, CONSTRUCTION,  EFFECT, AND IN ALL OTHER
RESPECTS,  INCLUDING,  WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND
OTHER

                                      -43-

<PAGE>
CHARGES,  BUT  EXCLUDING  PERFECTION  OF THE SECURITY  INTERESTS  IN  COLLATERAL
LOCATED OUTSIDE OF THE STATE OF ILLINOIS, WHICH SHALL BE GOVERNED AND CONTROLLED
BY THE LAWS OF THE RELEVANT JURISDICTION IN WHICH SUCH COLLATERAL IS LOCATED. 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  or  invalidity,  without  invalidating  the remainder of such
provision or remaining provisions of this Agreement.

     To induce Lender to accept this Agreement, each Borrower irrevocably agrees
that, subject to Lender's sole and absolute election, ALL ACTIONS OR PROCEEDINGS
IN ANY  WAY,  MANNER  OR  RESPECT,  ARISING  OUT OF OR FROM OR  RELATED  TO THIS
AGREEMENT,  THE OTHER  AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS
HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. Each BORROWER HEREBY
CONSENTS AND SUBMITS TO THE  JURISDICTION OF ANY LOCAL,  STATE OR FEDERAL COURTS
LOCATED WITHIN SAID CITY AND STATE.  Each Borrower hereby  irrevocably  appoints
and designates the CT  Corporation,  with an address of 208 South LaSalle Street
Chicago,  Illinois 60604 (or any other person having and  maintaining a place of
business  in such  state  whom such  Borrower  may from  time to time  hereafter
designate upon ten (10) days written notice to Lender and whom Lender has agreed
in its sole  discretion  in  writing is  satisfactory  and who has  executed  an
agreement in form and substance  satisfactory  to Lender agreeing to act as such
attorney  and  agent),  as such  Borrower's  true and lawful  attorney  and duly
authorized  agent for  acceptance  of service of legal  process.  Each  Borrower
agrees that service of such process upon such person shall  constitute  personal
service of such process upon such Borrower  Lender agrees to endeavor to provide
a copy of such process to the law firm of Scudder Law Firm,  P.C. by mail at the
address of 411 South 13th Street,  Second Floor,  Lincoln,  Nebraska 68508 or by
facsimile transmission at facsimile number (402) 435-4239.  Failure of Lender to
provide a copy of such process shall not impair Lender's rights hereunder.  Each
BORROWER  HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF
ANY LITIGATION  BROUGHT  AGAINST SUCH BORROWER BY LENDER IN ACCORDANCE WITH THIS
SECTION.

     22. MODIFICATION AND BENEFIT OF AGREEMENT.

     This  Agreement and the Other  Agreements  may not be modified,  altered or
amended  except by an agreement in writing signed by each Borrower or such other
Person who is a party to such Other Agreement and Lender.  No Borrower may sell,
assign or  transfer  this  Agreement,  or the Other  Agreements  or any  portion
thereof,   including,   without  limitation,  such  Borrower's  rights,  titles,
interest,  remedies,  powers or duties  hereunder and thereunder.  Each Borrower
hereby consents to Lender's sale, assignment,  transfer or other disposition, at
any  time and from  time to time  hereafter,  of this  Agreement,  or the  Other
Agreements,  or of any portion thereof,  or participations  therein,  including,
without limitation,  Lender's

                                      -44-

<PAGE>
rights,  titles,  interest,  remedies,  powers  and/or duties and agrees that it
shall  execute and deliver such  documents  as Lender may request in  connection
with any such sale, assignment, transfer or other disposition.

     23. HEADINGS OF SUBDIVISIONS.

     The headings of  subdivisions  in this  Agreement  are for  convenience  of
reference only, and shall not govern the interpretation of any of the provisions
of this Agreement.

     24. POWER OF ATTORNEY.

     Each Borrower acknowledges and agrees that its appointment of Lender as its
attorney and  agent-in-fact  for the purposes  specified in this Agreement is an
appointment  coupled with an interest and shall be irrevocable  until all of the
Liabilities are satisfied and paid in full and this Agreement is terminated.

     25. CONFIDENTIALITY.

     Each  Borrower  and Lender  hereby agree and  acknowledge  that any and all
information relating to such Borrower which is (i) furnished by such Borrower to
Lender (or to any affiliate of Lender);  and (ii)  non-public,  confidential  or
proprietary in nature, shall be kept confidential by Lender or such affiliate in
accordance with applicable law;  provided,  however,  that such  information and
other credit information  relating to such Borrower may be distributed by Lender
or  such  affiliate  to  Lender's  or  such  affiliate's  directors,   officers,
employees, attorneys, affiliates, assignees, participants,  auditors, agents and
regulators,  and upon the order of a court or other  governmental  agency having
jurisdiction  over Lender or such affiliate,  to any other party.  Each Borrower
and Lender  further agree that this provision  shall survive the  termination of
this Agreement.  Notwithstanding the foregoing, each Borrower hereby consents to
Lender  publishing a tombstone or similar  advertising  material relating to the
financing transaction contemplated by this Agreement.

     26. COUNTERPARTS.

     This Agreement, any of the Other Agreements,  and any amendments,  waivers,
consents or  supplements  may be executed in any number of  counterparts  and by
different  parties  hereto in  separate  counterparts,  each of  which,  when so
executed  and  delivered,  shall  be  deemed  an  original,  but  all  of  which
counterparts together shall constitute but one agreement.

     27. ELECTRONIC SUBMISSIONS.

     Upon not less than thirty (30) days' prior  written  notice (the  "Approved
Electronic  Form  Notice"),  Lender  may  permit  or  require  that  any  of the
documents, certificates, forms, deliveries or other communications,  authorized,
required or contemplated by this Agreement or the Other Agreements, be submitted
to Lender

                                      -45-

<PAGE>
in "Approved Electronic Form" (as hereafter defined),  subject to any reasonable
terms,  conditions and requirements in the applicable  Approved Electronic Forms
Notice. For purposes hereof "Electronic Form" means e-mail,  e-mail attachments,
data  submitted  on  web-based  forms or any  other  communication  method  that
delivers  machine  readable  data  or  information  to  Lender,   and  "Approved
Electronic  Form" means an Electronic  Form that has been approved in writing by
Lender  (which  approval has not been revoked or modified by Lender) and sent to
Borrowers  in  an  Approved   Electronic   Form  Notice.   Except  as  otherwise
specifically  provided in the applicable  Approved  Electronic Form Notice,  any
submissions made in an applicable  Approved  Electronic Form shall have the same
force  and  effect  that the same  submissions  would  have had if they had been
submitted in any other applicable form  authorized,  required or contemplated by
this Agreement or the Other Agreements.

     28. WAIVER OF JURY TRIAL; OTHER WAIVERS.

     (a) EACH BORROWER AND LENDER EACH HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION OR  PROCEEDING  WHICH  PERTAINS  DIRECTLY  OR  INDIRECTLY  TO THIS
AGREEMENT,  ANY OF THE OTHER AGREEMENTS,  THE LIABILITIES,  THE COLLATERAL,  ANY
ALLEGED TORTIOUS CONDUCT BY A BORROWER OR LENDER OR WHICH, IN ANY WAY,  DIRECTLY
OR INDIRECTLY,  ARISES OUT OF OR RELATES TO THE RELATIONSHIP  BETWEEN A BORROWER
AND LENDER. IN NO EVENT SHALL LENDER BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL
OR CONSEQUENTIAL  DAMAGES.

     (b) Each Borrower hereby waives demand, presentment,  protest and notice of
nonpayment,  and further  waives the  benefit of all  valuation,  appraisal  and
exemption  laws.

     (c) Each Borrower hereby waives the benefit of any law that would otherwise
restrict  or limit  Lender or any  affiliate  of Lender in the  exercise  of its
right,  which is hereby  acknowledged  and  agreed to, to  set-off  against  the
Liabilities, without notice at any time hereafter, any indebtedness,  matured or
unmatured,  owing by  Lender  or such  affiliate  of  Lender  to such  Borrower,
including,  without  limitation any deposit account at Lender or such affiliate.

     (d) EACH  BORROWER  HEREBY  WAIVES ALL RIGHTS TO NOTICE AND  HEARING OF ANY
KIND PRIOR TO THE EXERCISE BY LENDER OF ITS RIGHTS TO REPOSSESS  THE  COLLATERAL
OF SUCH BORROWER  WITHOUT  JUDICIAL  PROCESS OR TO REPLEVY,  ATTACH OR LEVY UPON
SUCH  COLLATERAL,  PROVIDED  THAT IN THE EVENT THAT LENDER  SEEKS TO ENFORCE ITS
RIGHTS  HEREUNDER BY JUDICIAL  PROCESS OR SELF HELP,  LENDER SHALL  PROVIDE SUCH
BORROWER WITH SUCH NOTICES AS ARE REQUIRED BY LAW.

                                      -46-

<PAGE>
     (e) Lender's  failure,  at any time or times  hereafter,  to require strict
performance by a Borrower of any provision of this Agreement or any of the Other
Agreements shall not waive, affect or diminish any right of Lender thereafter to
demand strict compliance and performance therewith.  Any suspension or waiver by
Lender of an Event of Default  under this  Agreement or any default under any of
the Other  Agreements  shall not  suspend,  waive or affect  any other  Event of
Default  under  this  Agreement  or any  other  default  under  any of the Other
Agreements,  whether the same is prior or subsequent  thereto and whether of the
same or of a different kind or character.  No delay on the part of Lender in the
exercise  of any right or remedy  under this  Agreement  or any Other  Agreement
shall preclude other or further exercise thereof or the exercise of any right or
remedy.  None  of  the  undertakings,   agreements,  warranties,  covenants  and
representations  of Borrowers  contained  in this  Agreement or any of the Other
Agreements  and no Event of Default under this Agreement or default under any of
the Other  Agreements shall be deemed to have been suspended or waived by Lender
unless  such  suspension  or waiver is in writing,  signed by a duly  authorized
officer of Lender and  directed  to  Borrowers  specifying  such  suspension  or
waiver.


     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first written above.

SMITHWAY MOTOR XPRESS, INC.                LASALLE BANK NATIONAL
                                           ASSOCIATION
By      /s/ G. Larry Owens
       ---------------------
Title    Exec. V.P.
       ---------------------               By     /s/ John Mostofi
                                                 -----------------------
And                                        Title    Sr V.P.
                                                 -----------------------
EAST WEST MOTOR EXPRESS, INC.

By      /s/ G. Larry Owens
       ----------------------------
Title    Vice-Pres
       ----------------------------


Consented and agreed to this 28th day of December by:

SMITHWAY MOTOR XPRESS CORP.                SMSD ACQUISITION CORP.


By      /s/ G. Larry Owens                 By     /s/ G. Larry Owens
       ----------------------                    ------------------------
Title    Exec. V.P.                        Title    Vice-Pres
       ----------------------------              ------------------------


                                      -47-


<PAGE>


Exhibits and Schedules available upon request.