FORM 10-KSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File No. 1-8129.
US 1 INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Indiana 95-3585609
(State of Incorporation)
(I.R.S. Employer Identification No.)
1000 Colfax, Gary, Indiana 46406
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (219) 944-6116
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, no par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
On March 21, 1998, there were 10,618,224 shares of registrant's common stock
were outstanding, and the aggregate market value of the voting stock held by
non affiliates of the registrant was approximately $2,235,041. For purposes
of the forgoing statement, directors and officers of the registrant have been
assumed to be affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's proxy statement for the annual meeting of
shareholders to be held on May 29, 1998, are incorporated by reference into
Part III.
PART 1
Item 1. Business.
The registrant, US 1 Industries, Inc. (hereinafter referred to, together
with its subsidiaries, as "US 1" or the "Company"), through its subsidiaries
is an interstate trucking company operating in 48 states and in Ontario and
Quebec, Canada. The Company's business consists of a truckload operation for
which the Company obtains substantially all of its business through
independent sales agents who then contract with independent truckers to haul
the freight to the desired destination.
US 1 was incorporated in California under the name Transcon Incorporated
on March 3, 1981. In March 1994, the Company changed its name to US 1
Industries, Inc. In February 1995, the Company was merged with an Indiana
corporation for purposes of re-incorporation under the laws of Indiana. The
Company's principal subsidiaries consist of Blue and Grey Transport, Inc., an
Indiana corporation ("BGT"), Blue and Grey Brokers, Inc., an Indiana
corporation ("BGB"), Carolina National Logistics, Inc., an Indiana corporation
("CNL"), Carolina National Transportation, Inc., an Indiana corporation
("CNT"), Gulf Line Brokerage, Inc., an Indiana Corporation ("GLB"), Gulf Line
Transportation, Inc., an Indiana Corporation ("GLT"), Keystone Lines, a
California corporation ("Keystone"), and TC Services, Inc., a California
corporation ("TCS"). BGT, BGB, CNL, CNT, GLB, GLT, and Keystone operate under
authority granted by the Interstate Commerce Commission (the "ICC") and are
subject to regulation of the ICC, the United States Department of
Transportation (the "DOT"), and various state agencies.
During 1994 Trailblazer Transportation, a Texas corporation and wholly
owned subsidiary of Keystone, ceased operations. Trailblazer filed for
protection under the U.S. bankruptcy code on December 30, 1996. The
bankruptcy was finalized during the fourth quarter of 1997. LRS
Transportation, an Indiana corporation and wholly owned subsidiary of Keystone
Lines began operations in 1995, when it purchased the less-than-truckload
("LTL") refrigerated division of Landair Services Inc. LRS ceased operations
during the third quarter of 1995 after sustaining substantial losses.
Operations
The Company carries virtually all forms of freight transported by truck,
except bulk goods and hazardous materials, including specialized trucking
services such as containerized, refrigerated, and flatbed transportation.
The Company pays its independent contractors and sales agents a
percentage of the revenue received from customers for the delivery of goods.
The expenses related to transporting the freight from shipper to consignee are
the responsibility of the independent contractors. Consequently, short-term
fluctuations in operating activity have less of an impact on this component of
the Company's net income than they have on the net income of truck
transportation companies that bear substantially all of the cost of
maintaining drivers and equipment. Like other truck transportation companies,
however, US 1's revenues are affected by seasonal weather conditions that may
make driving difficult and by seasonal shutdowns of shippers.
The Company's principal focus during 1997 was growing the Company through
expansion of Gulf Line Transportation, which started in December 1996, and
Carolina National Transportation, which began in January of 1997. Gulf Line
Transportation began profitable operations beginning in July 1997. Carolina
National Transportation began profitable operations in October 1997. These
new operations accounted for sixty percent of the Company's 1997 revenue.
Marketing and Customers
The Company obtains substantially all of its business through independent
sales agents. The sales agents have facilities and personnel to monitor and
coordinate shipments and to dispatch independent contractors who own and
operate their own trucks for freight transportation. The Company pays sales
agents and contractors commissions immediately upon delivery of shipments.
Approximately 83% of the Company's revenues from its trucking operations
are allocated to the payment of independent contractors and sales agents. The
Company requires sales agents to pay a minimum of 75% of revenues to
independent contractors.
During 1997, the Company utilized the services of approximately 100 sales
agents, one of which each accounted for 14% of the Company's total revenues in
1997; no other agent accounted for more than 10% of revenue. In 1996, two
agents accounted for 15% of the total company's revenue. The Company shipped
freight for approximately 3,000 customers in 1997, none of which accounted for
more than of 10% of the Company's total revenues.
The independent contractors used by the Company must enter into standard
equipment operating agreements. The agreements provide that independent
contractors must bear all costs of operations, including drivers'
compensation, maintenance costs, fuel costs, collision insurance, taxes
related to the ownership or operation of the vehicle, licenses, and permits.
The Company requires independent contractors to maintain their equipment to
standards established by the DOT, and the drivers are subject to qualification
and training procedures established by the DOT and the ICC. The Company also
monitors independent contractors' "self-policing activities," which include,
among other things, random drug testing, reporting hours of service of
drivers, maintenance of vehicles, and reporting violations of state, federal
and local laws.
Employees
At December 31, 1997, the Company had thirty-six full-time employees. Of
these employees, twenty-four were salaried and the rest were paid hourly. The
Company's employees are not covered by a collective bargaining agreement. The
Company provides services to other related party companies owned by the
partners of August Investment Partnership.
Competition
The trucking industry is highly competitive. The Company competes for
customers primarily with other nationwide carriers, some of which have
company-owned equipment and company drivers, and many, if not most, of which
have greater volume and financial resources. The Company also competes with
private carriage conducted by existing and potential customers. In addition,
the Company competes with providers of rail transport.
The Company also faces competition for the services of independent
trucking contractors and sales agents. Sales agents routinely do business
with a number of carriers on an ongoing basis. The Company has attempted to
develop a strong sales agent network by maintaining a policy of prompt payment
upon delivery of goods.
Competition is based on several factors; principally cost, timely
availability of equipment and quality of service. In that regard, the
Company's business in 1997 and 1996 was impacted negatively by its financial
condition and difficulties in retaining independent contractors and agents.
Insurance
The Company insures the trucks with automobile liability insurance
coverage of up to $1 million per occurrence with a $5,000 deductible. The
Company has cargo insurance coverage of $200,000 per occurrence ($400,000 for
catastrophes) with a $10,000 deductible. The Company also maintains a
commercial general liability policy with a limit of $1,000,000 per occurrence
and no deductible.
Regulation
The Company is a common and contract motor carrier regulated by the ICC,
the DOT and various state agencies. Prior to 1980, the ICC strictly regulated
the trucking industry as to entry of new operators, rates charged, routes
driven and types of freight hauled. The Motor Carrier Act of 1980 (the "Act")
commenced a period of deregulation that has continued to the present. The Act
increased competition by easing barriers to entry into the trucking industry,
such as proof of public convenience and necessity. The Act also made rates
more competitive and greatly reduced ICC regulation of the industry.
Like all interstate motor carriers, the Company is subject to the safety
requirements prescribed by the DOT, including regulations effective in 1992
that instituted drug-testing procedures and a uniform commercial driver
license. The Company is in substantial compliance with these regulations.
However, because of a conditional safety rating in 1996, the Company was being
monitored by the DOT during 1997. During 1997, the Company would have
received a satisfactory rating had the DOT been allowed to change it's rating
during the year. Recent lawsuits brought by other motor carriers against the
DOT have frozen the ratings of all motor carriers.
In 1990, the Company was granted authority from Canadian authorities to
haul truckload freight between all points in the provinces of Ontario and
Quebec and the United States. The Company is therefore also subject to
Canadian regulation, which is not dissimilar to regulation in the states.
Environmental Regulation
Federal regulations require tractor manufacturers to certify that new
tractors meet certain federal emissions standards. The Company verifies that
the trucks that it leases and those that its independent contractors use have
received such certificates.
The Company owns a property in Phoenix, Arizona that was formerly leased
to Transcon Lines ("Lines") as a terminal facility, where soil contamination
problems existed or are known to exist currently. State environmental
authorities notified the Company of potential soil contamination from
underground storage tanks, and management has been working with the regulatory
authorities to implement required remediation. The underground storage tanks
were removed from the Phoenix facility in February 1994. Otherwise, the
Company believes it is in substantial compliance with state and federal
environmental regulations relative to the trucking business.
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
The statements contained in Item 1 (Description of Business) and Item 6
(Management Discussion and Analysis of Financial Condition and Results of
Operation), particularly the statements under "Future Prospects" contain
forward-looking statements that are subject to a variety of risks and
uncertainties. The Company cautions readers that these risks and
uncertainties could cause the Company's actual results in 1998 and beyond to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company. These risks and uncertainties include,
without limitation, a lack of historic information for new operations on which
expectations regarding their future performance can be based, general economic
and business conditions affecting the trucking industry, competition from,
among others, national and regional trucking companies that have greater
financial and marketing resources than the Company, the availability of
sufficient capital, and the Company's ability to successfully attract and
retain qualified owner operators and agents.
Item 2. Properties
The Company's administrative offices are at 1000 Colfax, Gary, Indiana.
The Company leases its headquarters for $2,200 per month from Mr. Michael E.
Kibler, President, Chief Executive Officer and a director of the Company, and
Mr. Harold Antonson, a partner in August Investment Partnership ("AIP") and a
shareholder and director of August Investment Corporation ("AIC") also a
general partner of AIP.
Item 3. Legal Proceedings
Reference is made to Note 11 of the notes to the consolidated financial
statements for discussion regarding pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of 1997.
Item 4A. Executive Officers of the Registrant.
Name and Age Office and Experience
Michael E. Kibler, 57 Mr. Kibler is President and Chief Executive
Officer of the Company and has held these
positions since September 13, 1993. He also has
been President of Enterprise Truck Lines, Inc.,
an interstate trucking company engaging in
operations similar to the Company's, since 1972.
Mr. Kibler is also a director of American
Inter-Fidelity Exchange, an insurance recipical
located in Indiana that is the subject of an
Order of Rehabilitation by the Indiana
department of Insurance. Mr. Kibler has served
as a Director of the Company since 1993.
James C. Day, 49 Mr. Day is Vice President, Treasurer and
Assistant Secretary of the Company, positions he
has held since September 13, Mr. Day also has
been Controller of K & A, Inc., a firm providing
support services to the Company and certain
other trucking companies since November 1992.
Mr. Day is a certified public accountant. Prior
to Joining K & A, Inc., he was President of
Custom Business Systems, Inc., a software
company, from June 1990 to October 1992, and
from August 1988 to May 1990 he was Chief
Financial Officer of Floor Covering Associates,
Inc. Mr. Day has served as a director of the
Company since 1993
Richard Courtney, 56 Mr. Courtney has served as Vice-President,
Secretary, and Controller of the Company since
September, 1993. Since 1982, Mr. Courtney has
been the Controller of Eastern Refrigerated
Express, Inc. Mr. Courtney has served as a
director of the Company since 1994.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Shares of Common Stock of the Company are listed and traded on the New
York Stock Exchange under the symbol USO. The Company does not currently meet
the requirements for continued listing on the NYSE and has been recently
advised by the NYSE that it may be delisted and unless it promptly develops
a business plan which fulfills the exchange's original listing requirements
it expects to be delisted.
The following table sets forth for the period indicated the high and low
sales prices per share of the Common Stock as reported on the New York Stock
Exchange Composite Tape:
Calendar Year High Low
1997
First Quarter 9/16 9/32
Second Quarter 3/8 7/32
Third Quarter 1/2 9/32
Fourth Quarter 13/32 3/16
1996
First Quarter 13/16 9/16
Second Quarter 9/16 5/16
Third Quarter 7/8 5/16
Fourth Quarter 11/16 5/16
As of March 17, 1998, there were 3,390 holders of record of Common Stock.
The Company has not paid any cash dividends on its Common Stock.
Management does not anticipate paying any dividends on the Common Stock in the
foreseeable future, and the Company's current credit agreement prohibits the
payment of dividends.
The following equity sales during the fourth quarter of 1996 were not
registered under the Securities Act. The Company's president, Michael Kibler,
purchased 166,666 shares of common stock for $75,000. Harold Antonson, a
partner in August Investment Partnership, purchased 211,111 shares of common
stock for $95,000. Eastern Refrigerated Express, a company owned by the
partners of AIP, purchased 366,667 shares of common stock for $165,000.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Results of Operations
The financial statements and related notes contained elsewhere in this
Form 10-KSB are essential to an understanding of the comparisons and are
incorporated by reference into the discussion that follows.
1997 Compared to 1996
The Company's operating revenues from continuing operations increased
from $15.4 million in 1996 to $25.4 million in 1997. The Company's operating
revenues were generated principally by independent sales agents who originate
truckload shipments. These shipments are then transported by independent
trucking contractors, using their own equipment. The increase in operating
revenues resulted primarily from the startup of Carolina National
Transportation.
Total operating expenses increased from $15.6 million in 1996 to $25.8
million in 1997. The largest component of operating expenses is purchased
transportation. Purchased transportation generally varies in proportion to
operating revenues at approximately 77% of revenues. Purchased transportation
increased from $11.7 million in 1996 to $19.7 million in 1997. Commissions
increased from $1.5 million in 1996 to $2.4 million in 1997, and similarly
vary in proportion to operating revenues. Insurance and claims, which
increased from $0.6 million in 1996 to $0.9 million in 1997, vary in
proportion to operating revenues, although they also depend on claims
experience. The remaining operating expenses increased from $1.8 million in
1996 to $2.8 million in 1997 primarily as a result of the increase in wages
and communication expenses resulting from the addition of Carolina National
Transportation and Gulf Line.
The Company had other expense of approximately $0.4 million in 1997 as
compared to $0.2 million in 1996. Interest, the largest ongoing component of
non-operating income and expense, varies in proportion to the Company's
outstanding interest-bearing indebtedness. Interest expense increased from
$0.3 million in 1996 to $0.4 million in 1997, primarily due to the increased
debt used to finance the LRS losses and additional borrowing against the
Carolina National accounts receivable.
In 1996, the Company recorded income of $0.2 on the settlement of a suit
with Landair Transportation. An extraordinary gain on the discontinuation of
the Paltrans Partnership of $0.5 million was also recognized in 1996. During
1997, the resolution of the bankruptcy petition filed by Trailblazer
Transportation resulted in a gain of $0.6 million due to forgiveness of
Trailblazer's remaining liabilities.
Overall, the Company's had a net loss of $0.2 million in 1997 as compared
to a net income of $0.3 million in 1996. The difference is principally a
result of the increase in operating costs due to the startup of Carolina
National and Gulf Line and interest expense between the two years.
Future Prospects
The Company's management remains optimistic about its future prospects
although several remaining hurdles must be successfully cleared. These
hurdles include adding revenue, controlling cash flow, controlling
collections, and raising capital to reduce interest bearing debt.
The Company believes the continued expansion of the inter-modal agent
based business by Carolina National is the key to being profitable in 1998.
The Company's future depends heavily on raising the capital to fund
operations until revenue grows and generates sufficient cash flows to satisfy
its indebtedness. Revenue growth and the resulting improved cash flows will
enable the Company to reduce its third party debt and improve its working
relationships with potential agents and independent contractors. In recent
years, substantially all of the equity capital that the Company has needed was
provided by AIP and it's affiliates. AIP and it's affiliates have advised the
Company that their interest in providing, and ability to provide, additional
capital is limited. As a consequence, the Company is exploring other options
to raise capital, and various other potential transactions. There can be no
assurances, however, that the Company can raise the necessary capital to
assure its long-term viability.
Since May 1995 FINOVA has provided the Company an accounts receivable
based credit facility. This facility expires in May 1998. This facility,
however, contains a four-year extension based on the Company's ability to meet
certain performance criteria. Through January 1998, the Company had not yet
met these performance criteria. The inability to obtain the extension with
FINOVA will directly impact the Company's ability to remain in operation.
Liquidity and Capital Resources
As of December 31, 1997, the Company's financial position remained poor.
The Company had a net deficit in shareholders' equity of $4.4 million and its
current liabilities of $7.3 million exceeded its current assets by $1.4
million. The Company's negative cash flow has required the Company to rely on
stockholder capital contributions of $335,000 in the fourth quarter of 1996
and debt issuance to stockholders of $1.5 million during 1997 to maintain cash
flows sufficient to pay its current obligations.
Cash flows during 1997 and 1996 came primarily from additional capital
contributions. Negative cash flows from operations increased from a negative
cash flow of $0.3 million in 1996 to a negative cash flow of $3.6 million in
1997. The negative cash flow in 1997 was primarily the result of the addition
of Carolina National. Cash flows used in investing activities increased by
$0.3 million in 1997 due to the purchase of property in 1997. Cash flows from
financing increased from 1996 to 1997 by $3.5 million due to increased
borrowing from FINOVA and AIP.
The Company's principal source of liquidity is its $3.3 million line of
credit with FINOVA. The availability of the line of credit is based on 80% of
Keystone's, Gulf Line's and Carolina National's eligible accounts receivable.
At December 31, 1997, the outstanding borrowings were $3.2 million,
essentially the entire amount the Company was eligible to borrow. The line of
credit expires on May 31, 1998, however, it provides for a four year extension
and an increase to $5 million based on the Company's ability to meet certain
performance criteria, which, as of January 1998, have not yet been met.
Related party loans from AIP and Messrs. Kibler and Antonson have
provided the Company additional long-term financing of $2,099,304 in 1997.
Shareholders and potential investors in the Company are cautioned that
the Company's financial condition remains precarious and that an increase in
operating performance and an infusion of new capital are essential to its
long-term survival. There is no assurance that these goals will be achieved.
The Company is not a party to any Superfund litigation and otherwise does
not have any known environmental claims against it. However, the Company does
have one property where soil contamination problems existed or are known to
exist currently. The Company has preliminarily evaluated its potential
liability at this site and believes that it has reserved appropriately for
it's remediation or that the fair market value of the property exceeds its net
book value by an amount in excess of any remediation cost. There can be no
assurance, however, that the cost of remediation would not exceed the expected
amounts. The Company has no current plans to remediate the property.
Inflation
Changes in freight rates charged by the Company to its customers are
generally reflected in the cost of purchased transportation and commissions
paid by the Company to independent contractors and agents, respectively.
Therefore, management believes that future operating results of the Company
will be affected primarily by changes in volume of business. However, due to
the highly competitive nature of the truckload motor carrier industry, it is
possible that future freight rates and cost of purchased transportation may
fluctuate, affecting the Company's profitability.
Year 2000 Issue
Many existing computer systems and related software applications, and
other control devices, use only two digits to identify a year in a date field,
without considering the impact of the upcoming change in the century. Such
systems, applications and/or devices could fail or create erroneous results
unless corrected so that they can process data related to the Year 2000. The
company relies on such computer systems, applications and devices in operating
and monitoring all major aspects of its business, including, but not limited
to, its financial systems (such as general ledger, accounts payable, and
payroll modules), customer services, internal networks and telecommunications
equipment, and end products. The Company also relies, directly, and
indirectly, on the external systems of various independent business
enterprises, such as its customers, suppliers, creditors, financial
organizations, and of governments, both domestically and internationally, for
the accurate exchange of data and related information.
The Company is currently in the process of evaluating the potential
impact of the Year 2000 issue on its business and the related expenses that
would foreseeably be incurred in attempting to remedy such impact (including
testing and implementation of remedial action). Management's current estimate
is that the costs associated with the Year 2000 issue should not have a
material adverse affect on the results of operations or financial position of
the Company in any given year. However, despite the Company's effort to
address the Year 2000 impact on its internal systems, the Company is not sure
that it has fully identified such impact or that it can resolve it without
disruption of its business and without incurring significant expenses. In
addition, even if the internal systems of the Company are not materially
affected by the Year 2000 issue, the Company could be affected as a result of
any disruption in the operation of the various third-party enterprises with
which the Company interacts.
Impact From Not Yet Effective Accounting Rules
Reference is made to Note 2 of the consolidated financial statements.
Item 7. Financial Statements and Supplementary Data.
To the Shareholders and
Board of Directors of US 1 Industries, Inc.
We have audited the accompanying consolidated balance sheets of US 1
Industries, Inc. and subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as the overall financial statement
presentation. We believe our audits provide as reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of US 1
Industries, Inc. and subsidiaries at December 31, 1997 and 1996 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has experienced operating losses and
negative cash flows in recent years and has a net capital deficiency. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 27, 1998
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
CURRENT ASSETS:
Cash $ 298,079 $ 225,541
Accounts receivable-trade, less allowance for
doubtful accounts of $195,298 and $ 50,000 5,066,256 1,501,947
Other receivable 336,919 136,648
Deposits 154,068 153,892
Prepaid expenses 83,731 116,476
----------- -----------
Total current assets 5,939,053 2,134,504
----------- -----------
FIXED ASSETS:
Equipment 52,996 17,193
Less accumulated depreciation and amortization (12,682) (7,682)
----------- -----------
Net fixed assets 40,314 9,511
----------- -----------
ASSETS HELD FOR SALE:
Land 423,226 195,347
Valuation allowance (141,347) (141,347)
----------- -----------
Net assets held for sale 281,879 54,000
----------- -----------
TOTAL ASSETS $ 6,261,246 $ 2,198,015
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
1997 1996
CURRENT LIABILITIES:
Accounts payable $ 2,651,580 $ 2,541.755
Bank overdraft 530,133 181,142
Accrued expenses 137,454 152,098
Short-term debt 3,292,945 1,769,146
Insurance and claims 241,607 252,153
Accrued compensation 38,302 46,880
Accrued interest 140,824 32,428
Estimated fuel and other taxes 273,901 174,377
------------ ------------
Total current liabilities 7,306,746 5,149,979
------------ ------------
LONG-TERM DEBT 2,599,815 521,160
REDEEMABLE PREFERRED STOCK,
authorized 5,000,000 shares; no par value,
Series A shares outstanding:
1997 - 1,094,224; 1996 - 1,094,224.
Liquidation preference $0.3125 per share 753,254 691,541
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock, authorized 20,000,000 shares;
no par value; shares outstanding:
1997 - 10,618,224 1996 -10,573,780 40,844,296 40,824,296
Accumulated deficit (45,242,865) (44,988,961)
------------ ------------
Total shareholders' equity (deficiency) (4,398,569) (4,164,665)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 6,261,246 $ 2,198,015
============ ============
The accompanying notes are an integral part of the consolidated financial
statements
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, AND 1996
1997 1996
OPERATING REVENUES $25,421,806 $15,412,322
---------- ----------
OPERATING EXPENSES:
Purchased transportation 19,676,213 11,694,203
Insurance and claims 941,700 623,445
Salaries, wages, and other 1,285,778 727,231
Commissions 2,360,989 1,498,404
Operating supplies and expenses 1,220,978 822,251
Operating taxes and licenses 130,853 86,781
Communications and utilities 137,606 81,725
Rents 79,516 50,677
Depreciation and amortization 9,533 1,951
--------- --------
Total operating expenses 25,843,166 15,586,668
---------- ----------
OPERATING INCOME (LOSS) (421,360) (174,346)
NON-OPERATING INCOME (EXPENSES):
Interest income 2,430 18,733
Interest expense (435,042) (282,121)
Other income (expense), net 51,462 98,449
-------- --------
Total other income (expense) (381,150) (164,939)
-------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY GAIN (802,510) (339,285)
DISCONTINUED OPERATIONS:
Gain on disposal of LRS 221,743
--------- ---------
LOSS BEFORE EXTRAORDINARY ITEM (802,510) (117,542)
EXTRAORDINARY GAIN:
Forgiveness of debt 610,318 458,968
--------- --------
NET INCOME (LOSS) (192,192) 341,426
DIVIDENDS ON PREFERRED SHARES 61,712 144,429
--------- --------
NET INCOME(LOSS)AVAILABLE TO COMMON SHARES ($253,904) $196,997
INCOME (LOSS) PER COMMON SHARE:
Loss from continuing operations:
Basic ($0.08) ($0.05)
Diluted ($0.08) ($0.05)
Net Income:
Basic ($0.02) $0.02
Diluted ($0.02) $0.02
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC AND DILUTED 10,616,397 9,879,077
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1997, and 1996
Common Stock Accumulated
Shares Amount Deficit Total
Balance at
January 1, 1996 9,829,336 $40,489,296 ($45,185,958) ($4,696,662)
Issuance of Common Stock 744,444 335,000 335,000
Accrued Dividends on redeemable
Preferred Stock (144,429) (144,429)
Net income 341,426 341,426
---------- ---------- ------------ -----------
Balance at
December 31, 1996 10,573,780 40,824,296 (44,988,961) (4,164,665)
Issuance of Common Stock 44,444 20,000 20,000
Accrued Dividends on redeemable
Preferred Stock (61,712) (61,712)
Net income (loss) (192,192) (192,192)
---------- ---------- ----------- ----------
Balance at
December 31, 1997 10,618,224 $40,844,296 ($45,242,865) ($4,398,569)
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, AND 1996
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($192,192) $341,426
Adjustments to reconcile net income to net cash
provided (used) for operating activities:
Depreciation and amortization 9,533 1,951
Provision (recovery) on accounts receivable 145,298 (100,139)
Transfer of Dallas Property 150,000
Loss on disposal of equipment 1,160
Extraordinary gain - forgiveness of debt (610,318) (458,968)
Changes in operating assets and liabilities:
Accounts receivable-trade (3,709,607) 123,818
Other receivables (200,271) 7,913
Prepaid expenses 32,745 16,961
Deposits (176) 18,288
Accounts payable 720,143 (387,565)
Accrued expenses (14,644) (100,171)
Insurance and claims (10,546) 42,475
Accrued interest 108,396 (11,101)
Accrued compensation (8,578) 5,589
Estimated fuel and other taxes 99,524 11,350
Other 43,315
----------- --------
Net cash used in operating activities (3,629,533) (294,858)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (41,496) (1,365)
Purchase of Land (227,879)
---------- --------
Net cash used by investing activities (269,375) (1,365)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit 2,135,847 (40,482)
Proceeds from issuance of common stock 20,000 335,000
Proceeds from short term loan on property 50,000
Repayment of long-term loans (10,000)
Proceeds from (repayment of) other related
party loans 926,608 (7,498)
Increase in bank overdraft 348,991 181,142
Proceeds from issuance of mortgages to
related parties 500,000
--------- -------
Net cash provided from financing activities 3,971,446 468,162
--------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 72,538 171,939
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 225,541 53,602
CASH AND CASH EQUIVALENTS, END OF YEAR $298,079 $225,541
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--
Cash paid during year for interest $326,646 $293,222
The accompanying notes are an integral part of the consolidated financial
statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, AND 1996
1. OPERATIONS
The accompanying consolidated financial statements include the operations
of US 1 Industries, Inc. and its wholly owned subsidiaries, TC Services, Inc.
("TCS"), Keystone Lines ("Keystone"), Blue and Grey Transport, Inc. ("BGT"),
Blue and Grey Brokers, Inc. ("BGB"), Carolina National Logistics, Inc.
("CNL"), Carolina National Transportation, Inc. ("CNT"), Gulf Line Brokerage,
Inc. ("GLB"), and Gulf Line Transportation, Inc. ("GLT") together referred to
herein as the "Company." Trailblazer Transportation and LRS Transportation,
Inc. were wholly owned subsidiaries of Keystone Lines.
The Company is primarily an interstate truckload carrier of general
commodities, which uses independent agents and contractor equipment to
contract for and haul freight for its customers. One agent accounted for 14%
of the Company's revenue for the year ended December 31, 1997.
Going Concern--The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going concern. As
shown in the accompanying consolidated financial statements, the Company
experienced operating losses and negative cash flows in recent years. At
December 31, 1997 and 1996, the Company's current liabilities exceeded its
current assets by $1.4 million and $3.0 million, respectively. At December
31, 1997 the shareholder deficit was $4.4 million. The Company's future
depends heavily on raising the capital to fund operations until revenue grows
and generates sufficient cash flows to satisfy its indebtedness. Revenue
growth and the resulting improved cash flows will enable the Company to reduce
its third party debt and improve its working relationships with potential
agents and independent contractors. The Company is exploring options to raise
capital, including a rights offering and various other potential transactions.
The extension of the Company's line of credit beyond May 1998 is dependent
upon attaining improved operating results in early 1998 and it's ability to
achieve consistent compliance with financial covenants with its lenders. The
uncertainty related to financing, negative cash flows from operations, and the
shareholders' deficit continue to raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation--The consolidated financial statements include the accounts
of US 1 Industries, Inc. and its subsidiaries. All significant inter-company
accounts and transactions have been eliminated.
Revenue Recognition--Revenue for freight in transit is recognized upon
delivery. Amounts payable for purchased transportation, commissions and
insurance expense are accrued when the related revenue is recognized.
Cash and Cash Equivalents--The Company considers as cash equivalents all
highly liquid investments with an original maturity of three months or less.
Fixed Assets--Fixed assets are stated at cost. Equipment is depreciated
using the straight-line method over the estimated useful lives of the related
assets, which range from three to eight years.
Assets Held for Sale--Such assets comprise real estate, not required for
the Company's operations, which is carried at the lower of historical cost or
estimated net realizable value.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accounting Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
dates of financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Accounting Pronouncements--In June 1997, the Financial Accounting
Standards Board issued Statement No. 130-"Reporting Comprehensive Income"
("SFAS 130") and SFAS NO. 131, "Disclosures About Segments of an Enterprise
and Related Information." Both SFAS No. 130 and SFAS No. 131 are effective
for financial statements for years beginning after December 15, 1997. SFAS
No. 130 requires the reporting of comprehensive income beginning 1998 and SFAS
No. 131 establishes standards for publicly-held business enterprises to report
information about operating segments in annual financial statements and
requires that these enterprises report information about operating segments in
interim financial reports issued to shareholders. The Company has not yet
determined what, if any, impact SFAS No. 130 and 131 will have on the
Company's disclosures.
Income Taxes--Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. In addition, the amount of any future tax benefits are reduced
by a valuation allowance to the extent such benefits are not expected to be
fully utilized.
Reclassifications-Certain 1996 Balance Sheet amounts have been
reclassified to conform to their 1997 presentation.
Fair Value of Financial Instruments--The carrying value of cash and cash
equivalents approximates fair value. For debt instruments, it is not
practicable to determine the fair value at December 31, 1997 due to several
factors which include; related party considerations, the current financial
status of US 1, and the lack of valuation information regarding certain
collateral.
Earnings Per Common Share-In February 1997, the Financial Accounting
Standards board issued Statement No. 128, "Earnings per Share," which became
effective for both interim and annual financial statement periods ending after
December 15, 1997. As required by this statement, the Company adopted the new
standards for computing and presenting earnings per share (:EPS") for 1997,
and for all prior period earnings per share data presented. Following are the
reconciliations of the numerators and denominators of the basic and diluted
EPS. The average market price of the common stock was greater than the
exercise price of the outstanding options, however, as the Company had a net
loss in 1997, the potentially dilutive securities (options) were antidilutive.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Numerator 1997 1996
Loss from continuing operations ($802,510) ($339,285)
Dividends on preferred shares (61,712) ( 144,429)
---------- ----------
Loss available to common shareholders
for basic and diluted EPS ($864,222) ($483,714)
Discontinued Operations 221,743
Extraordinary gain 610,318 458,968
---------- ----------
Net income (loss) available to common
shareholders for basic and diluted EPS ($253,904) $196,997
Denominator
Weighted average common shares
outstanding for basic and diluted EPS 10,616,397 9,879,077
3. EXTRAORDINARY GAIN
During the fourth quarter of 1997, the bankruptcy of Trailblazer
Transportation was finalized and, accordingly, the Company recorded a gain of
$610,318 ($0.06 per share - basic and diluted) on the forgiveness of debt.
The Company's fifty percent investment in a joint venture, Paltrans
Associates, in which the Company is a General Partner, was recorded on the
equity method. Paltrans owned and leased a terminal facility located on the
west coast. As of December 31, 1996, the Company had received $458,968, in
cash in excess of the profits of the partnership. The mortgage holder
foreclosed on the property during the third quarter of 1996. This action
relieved the Company of any recourse with regards to the mortgage. The amount
$458,968, ($0.05 per share - basic and diluted) which represented the
Company's share of the negative equity of the partnership was recorded as
income and classified as extraordinary since it represented, in effect, the
forgiveness of non-recourse mortgage debt.
4. REDEEMABLE PREFERRED STOCK AND COMMON STOCK
August Investment Partnership ("AIP"), a related party to the Company, of
which the Company's President is a General Partner, has advanced $547,112 to
the Company, which has been converted to Series C no par value, cumulative
redeemable preferred stock. The Series C preferred shares are not convertible
into common stock, are non-voting, and earn dividends at the rate of $0.0375
per share per annum (increasing by $0.0063 on each of January 1, 1995, 1996
and 1997, and by $0.0094 on January 1, 1998 and on each January 1 thereafter
until redeemed) payable quarterly on the first day of February, May, August,
and November. The Series C preferred stock is redeemable at the option of the
Company at any time, and is redeemable at the option of the holders at the end
of two years.
With the completion of the merger of the California corporation into the
Indiana corporation in the first quarter of 1995, the authorized common shares
increased from ten million to twenty million and the previous series C
preferred stock became series A preferred stock with the same redeemable
options described above. As of December 31, 1997, series A cumulative
preferred stock dividends are in arrears by $206,141. The Company's current
line of credit prohibits the payment of dividends.
5. RELATED PARTY TRANSACTIONS
TC Services, Inc. provides transportation, management, and accounting
services to companies owned by members of AIP. These services are priced to
cover the cost of the employees providing the services. Revenues related to
those services totalled $318,970 and $353,729 in 1997 and 1996, respectively.
The Company's primary insurance provider ("AIFE") is managed by a General
Partner of AIP. For the years ended December 31, 1997 and 1996, cash paid for
related party insurance premiums and deductibles amounted to $770,704 and
$582,543, respectively.
AIFE converted outstanding accounts payable at December 31, 1994 and
premium and deductibles from LRS into a note payable during 1995. The balance
of these notes was $221,475 and $239,372 at December 31, 1997 and 1996,
respectively, as disclosed in Note 8.
6. LEASES
The Company leases office space on a month-to-month basis for its
headquarters in Gary, Indiana for $ 2,200 per month from the Company's
President and another General Partner of AIP. No formal lease agreement with
the Company existed at December 31, 1997.
7. SHORT-TERM DEBT
Short-term debt at December 31, 1997 and 1996 comprises:
December 31, December 31,
1997 1996
---------- ----------
Line of credit $3,188,581 $1,052,734
Current portion of long-term debt 54,364 61,612
Due to August Investment Partnership 100,000
Due to Antonson/Kibler 554,800
Note on Kansas City Property 50,000
---------- ----------
Total $3,292,945 $1,769,146
========== ==========
Under its revolving line of credit agreement the Company may borrow up to
a maximum of $3,300,000. Borrowings are limited to 80% of eligible accounts
receivable and bear interest at the prime rate (8.50% and 8.25% at December
31, 1997 and 1996, respectively) plus 2.75% and 3.25% at December 31, 1997 and
1996, respectively. Advances under the line of credit agreement are
collateralized by the Company's accounts receivable, property and other
assets. At December 31, 1997, the outstanding borrowings were $3.2 million,
essentially the entire amount the Company was eligible to borrow. The line of
credit expires on May 31, 1998, however, it provides for a four year extension
and an increase to $5 million based on the Company's ability to meet certain
performance criteria, which, as of January 1998, have not yet been met.
The line of credit is subject to termination upon various events of
default, including failure to remit timely payments of interest, fees and
principal, any adverse change in the business of the Company or the insecurity
of the lender concerning the ability of the Company to repay its obligations
as and when due or failure to meet certain financial covenants. Financial
covenants include: minimum net worth requirements, total debt service coverage
ratio, capital expenditure limitations, restrictions on compensation levels of
key officers, and prohibition of additional indebtedness without prior
authorization. As of December 31, 1997, the Company was not in violation of
any debt covenants.
Other-Outstanding short term loans from the President of the Company and
another General Partner of August Investment Partnership ("AIP") (the
Company's largest shareholders, Kibler and Antonson) and AIP were $654,800 at
December 31, 1996. The interest rate on these loans approximated the prime
rate (8.25%) at December 31, 1996. This amount was refinanced as long-term
debt in 1997. (See Note 8)
8. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 comprises:
1997 1996
--------- ------------
Mortgage note payable to August Investment
Partnership collateralized by land,
interest at prime + .75%, interest only
payments required, principal balance due
July 31, 1999 $ 250,000 $250,000
Mortgage note payable to Antonson/Kilber
collateralized by land, interest at
prime + .75%, interest only payments
required, principal balance due
July 3, 2003 500,000
Mortgage note payable to AIFE,
collateralized by land, interest at 9%,
monthly repayments of $5,000, including
interest, remaining principal balance
due March 31, 2002 221,475 239,372
TIP trailer settlement payments of principal
only of $1,000 per month, principal due
February, 2003 83,400 93,400
Mortgate note payable to August Investment
Partnership, interest at prime + .75%, interest
only payments required, principal balance due
January, 1999 100,000
Due to Antonson/Kibler interest at prime + .75%,
interest only payments required, principal
balance due January, 1999 1,499,304
---------- --------
Total debt 2,654,179 582,772
Less current portion 54,364 61,612
---------- --------
Total long-term debt $2,599,815 $521,160
========== ========
Scheduled maturities of the long-term debt at December 31, 1997 are due as
follows:
1998 $ 54,364
1999 1,907,646
2000 62,663
2001 67,452
2002 38,654
Beyond 523,400
$2,654,179
==========
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. STOCK OPTIONS
The Company's stock option plans provide for options to purchase common
stock to officers and other key employees at the fair market value on the
dates of grant. At December 31, 1997 and 1996, 96,500 shares remained
available for future option grants under the Company's stock option plans.
There were no options outstanding related to the stock option plans at
December 31, 1997 and 1996.
During 1997, options which were immediately exercisable to purchase
80,000 shares of common stock at $0.25 per share were granted to an
unaffiliated investor. These options expire at December 31, 1999. These
options were outstanding, and exercisable at December 31, 1997.
In 1996, options were granted to an agent recruiter to apply his earned
commissions for the first recruiting year to purchase up to 500,000 shares of
stock at the 20 day average stock price immediately prior to the signing of an
agent or acquisition. As of December 31, 1997, the recruiter had not elected
to apply his commissions to purchase stock.
The management team of Carolina National can, based on various
performance criteria, earn options to purchase up to 40,000 shares of common
stock at $.525 per share. As December 31, 1997 and 1996, these performance
criteria had not been met.
10. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and income tax purposes. A valuation allowance
for the net deferred tax asset has been recognized due to the uncertainty of
realizing the benefit of the loss carry forwards and future deductible
temporary differences. The components of deferred tax assets as of December
31, 1997 and 1996 are as follows:
1997 1996
------------- -------------
Deferred tax assets:
Accounts receivable and other $ 66,401 $ 17,000
Estimated fuel and other taxes 47,155 38,770
Insurance and claims 68,390 61,429
Litigation reserves 17,170 17,170
Land valuation allowance 48,058 48,058
Other
Net operating loss carry forwards 19,962,684 19,963,283
------------ -------------
Total deferred tax assets 20,209,858 20,145,710
Less valuation allowance (20,209,858) (20,145,710)
------------ -------------
Total net deferred tax asset $ --- $ ---
============= =============
During 1997, the valuation allowance was decreased by approximately
$64,000 to reflect the reversal of deductible temporary differences incurred
by the Company. The Company has net operating loss carry forwards of
approximately $59 million and $59 million at December 31, 1997 and 1996,
respectively. These carry-forwards are available to offset taxable income in
future years and will expire in the years 2000 through 2008.
11. COMMITMENTS AND CONTINGENCIES
Over the past few years, the Company has had a significant number of
lawsuits instituted or threatened against it as a result of its poor financial
condition and its inability to meet certain financial obligations. For the
most part, these resulting suits have been settled through cash payments of a
reduced amount or through the institution of payment plans. The undisputed
claims that have not been settled are reflected as liabilities in the
Company's financial statements and are included in accrued expenses in the
accompanying consolidated balance sheets. The Company's significant
litigation activity that is currently pending includes the following:
McCormick v. Trailblazer. Mr. McCormick, the owner of C.A. White
Trucking Company ("White"), filed an action on October 1, 1993, alleging that
Trailblazer failed to make required payments under an employment contract.
Trailblazer did not make the payments as a result of a dispute related to
undisclosed liens on assets purchased from White. The Company has lost this
suit, however, Trailblazer was closed in 1994 and has no funds to pay the
judgment. The judgment was for approximately $59,000. The suit has since
been brought against US 1. The suit has been dismissed from Federal Court
during the second quarter of 1997. However, McCormick has refiled the case in
Texas State Court during the third quarter of 1997.
Simpson V. Keystone Lines--Mr. Simpson, an independent owner-operator
leased to Keystone Lines, is claiming an amount in excess of $25,000 for
injuries he sustained to his back while working for the Company. The Company
is vigorously defending against this claim on the basis that Mr. Simpson was
not an employee and is not entitled to a workers compensation claim.
Cam Regional Transport, Inc., Miller, Pry v. Trailblazer, Transcon
Incorporated. The owners of Cam Regional Transport, Inc., filed an action in
1994, alleging that Trailblazer failed to make required payments under an
employment contract and purchase agreement alleging damages of $293,000.
Trailblazer ceased to make the payments as a result of a dispute related to
their employment and inability to obtain title to the assets purchased. The
Company is vigorously defending the action.
The Company believes it has adequately provided for the above claims,
however, additional liability is possible and the ultimate disposition of
these claims may have a material adverse effect to the Company's results of
operations, cash flows and financial position.
The Company carries insurance for public liability and property damage,
and cargo loss and damage through various programs. The Company's insurance
liabilities are based upon the best information currently available and are
subject to revision in future periods as additional information becomes
available. Management believes it has adequately provided for insurance
claims.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Settled litigation during 1997 include-
Trailblazer Bankruptcy. The bankruptcy of Trailblazer Transportation
was finalized during the fourth quarter of 1997. The company recognized a
gain on the forgiveness of debt of $610,318.
Settled litigation during 1996 include-
Farrell v. Transcon Incorporated. This matter is a wrongful terminati
and misrepresentation claim brought by Mr. Farrell in Los Angeles Superior
Court on July 8, 1993 alleging damages of $1.0 million. In addition to the
wrongful termination action, Mr. Farrell has filed a workers' compensation
claim, which is pending before the California Workers' Compensation Appeals
Board. The Company's workers' compensation insurance carrier has settled with
Mr. Farrell on the workers' compensation portion of the suit. The action in
the Superior Court has been settled as of September 30, 1996.
Landair Transport, Inc. v. US 1 Industries, Inc. and LRS Transportatio
On March 15, 1996, Landair Transportation filed suit in U.S. District Court
for $623,414 against the Company for breach of contract arising out of an
asset purchase agreement, related promissory note, and leases. This suit was
settled as of December 31, 1996. The Company gave Landair the title to the
Company's property in Dallas, Texas and a cash payment of $175,000 to settle
this case.
12. ENVIRONMENTAL MATTERS
The Company owns a property in Phoenix where soil contamination problems
exist. The Company has been working with regulatory officials to eliminate
new contamination sources and determine the extent of existing problems.
Estimates of the cost to complete the required remediation of $141,347 are
considered in the land valuation allowance at December 31, 1997 and 1996.
13. DISCONTINUED OPERATIONS
On January 11, 1995, the Company, through its subsidiary, L.R.S., Inc.
("LRS") purchased certain assets of the less-than-truckload (LTL) refrigerated
operations of Landair Services, Inc. After sustaining substantial losses
through July 1995, the Board of Directors approved shutting down the
operations of LRS effective August 15, 1995. For the time LRS was operating,
the Company considered it a separate segment.
During 1996, the lawsuit with Landair Services, Inc. was settled. As a
result the Company, recorded $221,743 ($0.02 per share - basic and diluted)
into income from discontinued operations and removed the note payable and
other accounts payable from the books.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. SUBSEQUENT EVENTS
As a result of a lawsuit concerning the ownership of property, US 1
Industries, Inc. was awarded title to a property in Kansas City. At December
31, 1997, the carrying value of the property is $228,000 and is encumbered by
a mortgage of $50,000 and unpaid real estate taxes of approximately $161,000.
The Company entered into an agreement to sell the property for $290,000 which
it expects to close in early 1998.
Item 8. Changes in and Disagreements with Independent Auditors' on Accounting
and Financial Disclosure.
NONE
PART III
Item 9. Directors and Executive Officers of the Registrant.
In response to the information called for by Item 401 of Regulation S-K
with respect to directors of the Company, the material set forth under
"ELECTION OF DIRECTORS -- Nominees for Board of Directors" in the Company's
proxy statement for the annual meeting of shareholders, which will be filed
with the Securities and Exchange Commission pursuant to Regulation 14A, is
incorporated herein by reference.
In response to the information called for by Item 401 of Regulation Item
401 of Regulation S-K with respect to executive officers of the Company, the
material set forth under "Executive Officers of the Registrant" in Part I of
this Form 10-K Annual Report for the year ended December 31, 1997, is
incorporated herein by reference.
Item 10. Executive Compensation
In response to the information called for by Item 402 of Regulation S-K
with respect to directors of the Company, the information under "COMPENSATION
OF DIRECTORS" in the Company's proxy statement for the annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, is incorporated herein by reference.
In response to the information called for by Item 402 of Regulation S-K
with respect to executive officers of the Company, the information under
"EXECUTIVE COMPENSATION" (exclusive of the "Report of Compensation Committee"
and the "Performance Graph") in the Company's proxy statement for the annual
meeting of shareholders, which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
In response to the information called for by Item 403 of Regulation S-K,
the information under "SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS" in the Company's proxy statement for the annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions.
In response to the information called for by Item 404 of Regulation S-K,
the information under "CERTAIN BUSINESS RELATIONSHIPS" in the Company's proxy
statement for the annual meeting of shareholders, which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, is incorporated
herein by reference.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) List of Financial Statements
The following is a list of financial statements filed herewith:
Report of Independent Accountants 11
Consolidated Balance Sheets as of December 31, 1997 and 1996 12
Consolidated Statements of Operations for the years ended 14
December 31, 1997 and 1996
Consolidated Statements of Shareholders' Equity (Deficiency) 15
for the years ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows 16
for the years ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements 17
(a)(2) List of Financial Statement Schedules
Schedules are not included because of the absence of the conditions under
which they are required or because the required information is included in the
consolidated financial statements or notes thereto.
(a)(3) List of Exhibits
The following exhibits, numbered in accordance with Item 601 of
Regulation S-K, are filed as part of this report:
Exhibit 3.1 Articles of Incorporation of the Company.
(incorporated herein by reference to the Company's Proxy Statement
of November 9, 1993).
Exhibit 3.2 By-Laws of the Company.
(incorporated herein by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
Exhibit 10.1 Loan and Security Agreement with FINOVA and Keystone Lines and
L.R.S. Transportation, Inc.
Exhibit 10.2 Loan agreements with August Investment Partnership and US 1
Industries.
Exhibit 10.3 Loan agreements with Michael Kibler/Harold Antonson and US 1
Industries.
Exhibit 10.4 Loan agreements with AIFE/ITE and US 1 Industries.
Exhibit 10.5 First Amendment of Loan and Security Agreement with FINOVA and
Keystone Lines and L.R.S. Transportation, Inc.
Exhibit 10.6 Second Amendment of Loan and Security Agreement with FINOVA and
Keystone Lines and L.R.S. Transportation, Inc.
Exhibit 10.7 Mortgage and Loan agreements with Michael Kibler/Harold Antonson
and US 1 Industries, Inc.
Exhibit 21.1 Subsidiaries of Registrant
Exhibit 23.1 Consent of Coopers & Lybrand LLP
(b) Reports on Form 8-K
NONE
SIGNATURES
Pursuant to the requirements of Sections 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned there unto duly authorized.
US 1 INDUSTRIES, INC.
Date:_________________ By: _________________________
Michael E. Kibler
President & Chief Executive Of
(Principal Executive Officer)
Date:_________________ By: _________________________
Richard Courtney
Vice President & Secretary
Date:_________________ By: _________________________
James C. Day
Vice President, Treasurer,& Assistant
(Principal Financial Officer & Prin
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date:_________________ _________________________
Mike Ashker, Director
Date:_________________ _________________________
Richard Courtney, Director
Date:_________________ _________________________
James C. Day, Director
Date:_________________ _________________________
Michael E. Kibler, Director
Date:_________________ _________________________
Robert I. Scissors, Director
Date:_________________ _________________________
Lex L. Vendetti, Director
Date:_________________ _________________________
Steve Green, Director
8
26
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<PERIOD-END> DEC-31-1997
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<RECEIVABLES> 5261554
<ALLOWANCES> 195298
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<PP&E> 52996
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0
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<OTHER-EXPENSES> 0
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<EXTRAORDINARY> 610318
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</TABLE>
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement (this "Amendment"),
is made and entered into effective as of the 1st day of November, 1997, by and
among FINOVA CAPITAL CORPORATION, a Delaware corporation, ("FINOVA") and
KEYSTONE LINES, a California corporation ("Keystone"), CAROLINA NATIONAL
LOGISTICS INC., an Indiana corporation ("CNL"), CAROLINA NATIONAL
TRANSPORTATION INC., an Indiana corporation ("CNT"), GULF LINE TRANSPORT INC.,
an Indiana corporation ("GLT") and GULF LINE BROKERAGE INC., an Indiana
corporation ("GLB"), jointly and severally (each of Keystone, CNL, CNT, GLT,
and GLB being individually referred to as a "Borrower" and collectively as the
"Borrowers"). This Amendment modifies and amends that certain Loan and
Security Agreement dated May 15, 1995, among FINOVA, Keystone, and L.R.S.
Transportation, Inc., an Indiana corporation ("LRS"; Keystone and LRS being
identified as the original "Borrowers" thereunder), as the same was
subsequently amended by that certain First Amendment to Loan and Security
Agreement dated as of December 3, 1996 (the "First Amendment"; the Loan and
Security Agreement, as amended by the First Amendment and by this Second
Amendment, and as the same may subsequently be modified, amended, renewed,
restated or replaced, shall hereinafter be referred to collectively as the
"Agreement"). All terms used herein with initial capital letters, unless
otherwise specifically defined herein, shall have the same meanings as set
forth in the Agreement. All references to the Agreement shall include the
Schedule.
R E C I T A L S:
WHEREAS, pursuant to the First Amendment, LRS was deleted as a Borrower
under the Agreement and each of CNL, CNT, GLT, and GLB were added as Borrowers
under the Agreement; and
WHEREAS, Borrowers have requested that FINOVA increase the maximum
permitted amount of the Receivable Loans, reduce the interest rate applicable
to the Total Facility, waive certain covenant defaults, adjust certain
covenants, and reset certain fees, in consideration for Borrowers' agreement
to pay a "Success Fee" to FINOVA, as hereinafter described, and to make other
adjustments to the Agreement as requested by FINOVA; and
WHEREAS, FINOVA has agreed to make the modifications to the Agreement as
described herein, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants hereinafter stated, the parties hereto do hereby agree as follows:
1. Definitions.
1.1 Section 18.1 of the Agreement is hereby amended to add
the following as new definitions therein, in the correct alphabetical order
thereof:
"EBITDA" for any fiscal period of Borrowers means the
consolidated net income of US 1 and Borrowers for such fiscal period, plus
interest expense, depreciation and amortization and provision for income taxes
for such fiscal period, and minus non-recurring miscellaneous income and
expenses, all calculated in accordance with GAAP.
"Eligible Unbilled Freight Sales" shall mean those rights to
the payment of money for shipping services performed in favor of any Borrower
which satisfy the conditions set forth in the last sentence of this paragraph,
but as to which no invoice has yet been generated by the applicable Borrower.
For purposes of this Agreement, an unbilled freight sale shall not be deemed a
Receivable until an invoice has been generated. Unbilled freight sales shall
be Eligible Unbilled Freight Sales hereunder if: (i) all goods or products to
have been delivered by the applicable Borrower have been so delivered, and no
other performance by such Borrower is required for such Borrower to be
entitled to payment for the services performed; (ii) the applicable Borrower's
driver or other service representative has advised such Borrower verbally that
such person is in possession of a final signed bill of lading accepting
delivery of the goods or products to the final destination thereof; (iii) not
more than fifteen (15) days have elapsed since the date of such delivery (it
being FINOVA's intention that, prior to the expiration of said fifteen day
period, the applicable Borrower shall issue an invoice and the Eligible
Unbilled Freight Sale shall become a Receivable); and (iv) the Eligible
Unbilled Freight Sale, if treated as a Receivable hereunder, would otherwise
satisfy the standards for being an Eligible Receivable in accordance with the
criteria set forth herein.
"First Amendment" shall mean that certain First Amendment
to Loan and Security Agreement dated as of December 3, 1996, by and between
Borrowers and FINOVA.
"Reporting Reserve" shall mean a reserve against borrowing
availability under the Receivable Loans, which FINOVA shall establish and
adjust weekly in an amount equal to five percent (5%) of the sum of Borrowers'
Eligible Receivables and Eligible Unbilled Freight Sales, as shown by
reference to Borrowers' most recent Collateral and Loan Report.
"Second Amendment" shall mean that certain Second
Amendment to Loan and Security Agreement dated effective as of November 1,
1997, by and between Borrowers and FINOVA.
"Second Amendment Primary Effective Date" shall mean
November 1, 1997, or such later date as all conditions precedent described in
Section 8 of the Second Amendment have been satisfied.
"Second Amendment Secondary Effective Date" shall mean
the date upon which all conditions precedent described in Section 9 of the
Second Amendment have been satisfied.
"Success Fee" shall have the meaning given such term in
Section 4.5 of the Second Amendment.
1.2 The definition of "Eligible Receivables"
appearing in Section 18.1 of the Agreement is hereby amended to delete the
phrase "twenty-five percent (25%)" appearing in clause (ii) thereof, and to
substitute therefor the phrase "fifty percent (50%)".
1.3 All references in the Agreement to the Agreeme
(including the Schedule) shall mean and refer to the Agreement and Schedule
as amended through and including this Second Amendment, and as the same may
hereafter be modified, amended, renewed, restated or replaced. In addition,
all references to the Loan Documents appearing in the Agreement shall mean
and refer to such Loan Documents as the same may previously have been, or may
hereafter be, modified, amended, renewed, restated or replaced.
2. Total Facility. Section 1.1 of the Agreement, as set
forth in the Schedule, is hereby amended to delete the amount of "$3,000,000"
set forth therein and to substitute the amount "$3,300,000" therefor.
3. Loans. Section 1.2 of the Agreement, as set forth in
the Schedule and amended by the First Amendment, is hereby amended and
restated in its entirety to read to as follows:
"Revolving Loans: A revolving line of credit consisting
of loans against Borrowers' Eligible Receivables ("Receivable Loans"),
accounted for on a consolidated basis of all Borrowers (but exclusive of US
1), in an aggregate outstanding principal amount at any time which shall not
exceed the lesser of:
Three Million Three Hundred Thousand Dollars ($3,300,000) less the Reporting
Reserve and any other reserves which FINOVA has then established; o
(B) the sum of:
(i) an amount equal to eighty-five percent (85%) of the net amount of the
Eligible Receivables, plus
(ii) a revolving line of credit consisting of loans against Borrowers'
Eligible Unbilled Freight Sales in an aggregate outstanding principal amount
not to exceed the lesser of:
(a) an amount equal to eighty-five percent (85%) of the net amount of all
then outstanding Eligible Unbilled Freight Sales, or
(b) Two Hundred Fifty Thousand Dollars ($250,000), less
(iii) the Reporting Reserve and any other reserves which FINOVA has then
established."
4. Interest and Fees. The section entitled "Interest and Fees (Section
3.1)" as set forth in the Schedule is hereby amended as follows:
4.1 The paragraph entitled "Interest" is hereby amended to provide that, a
of the Second Amendment Primary Effective Date, interest shall accrue on the
daily outstanding balance of the Borrowers' loan account at a per annum rate
equal to the Base Rate plus two and three-quarters percent (2.75%). The
interest rate thereafter applicable to the daily outstanding balance of
Borrowers' loan account shall be subject to further adjustment as follows:
(A) upon the occurrence of the Second Amendment Secondary Effective Date,
interest shall accrue at a rate per annum equal to the Base Rate plus two and
one-half percent (2.50%); (B) such interest rate may thereafter decrease to
the Base Rate plus two percent (2.0%) following delivery to FINOVA of US 1's
annual audited financial statements (which audited financial statements are in
full compliance with the requirements of Section 5.2(iv) hereof) for its
fiscal year ending December 31, 1997 if no Event of Default then exists and
such audited financial statements demonstrate both (i) EBITDA of not less than
$300,000 and (ii) a Total Debt Service Coverage Ratio for the twelve month
period then ended of not less than 1.15:1.00, and in the event Borrowers fail
to qualify for the foregoing reduction in interest rate by reference to such
1997 audited financial statements, Borrowers shall be entitled to qualify for
the reduction in interest rate described in this clause (B) if US 1's annual
audited financial statements (which financial statements are in full
compliance with Section 5.2(iv) hereof) for its fiscal year ending December
31, 1998 satisfy the preceding two standards; (C) such interest rate may
thereafter be reduced to the Base Rate plus one and one-half percent (1.50%)
(whether or not Borrowers qualified for the reduction in interest rate
described in the preceding clause (B) by reference to US 1's 1997 audited
financial statements) following delivery to FINOVA of US 1's annual audited
financial statements (which audited financial statements are in full
compliance with the requirements of Section 5.2(iv) hereof) for its fiscal
year ending December 31, 1998 if no Event of Default then exists and such
audited financial statements demonstrate both (i) EBITDA of not less than
$450,000 and (ii) a Total Debt Service Coverage Ratio for the twelve months
then ended of not less than 1.25:1.0; and (D) such interest rate may
thereafter be reduced to the Base Rate plus one percent (1.0%) at any time
after January 1, 1999 when all of the following conditions are satisfied
concurrently: (i) no Event of Default then exists; (ii) for the immediately
preceding trailing six month period, based upon US 1's consolidated financial
statements, Borrowers have attained a Total Debt Service Coverage Ratio of not
less than 1.5:1.0; and (iii) Borrowers' average daily Excess Availability,
considered on a consolidated basis for the three months then ended, is not
less than $500,000, provided, that in calculating Excess Availability for
purposes of this clause (D)(iii), but only for purposes of this clause
(D)(iii), clause (b)(ii) of the definition of Excess Availability shall be
amended to read as follows: "(ii) the aggregate amount of all trade payables
of Borrowers which are past due as of such time, determined by reference to
the specific due dates applicable to each such trade payable".
4.2 The paragraph entitled "Minimum Interest Charge" is hereby amended
to increase the Minimum Interest Charge required thereunder from $10,000 to
$18,000. The foregoing notwithstanding, in the event Borrowers qualify for
reductions in the applicable interest rate after giving effect to the
reduction agreed upon as of the Second Amendment Primary Effective Date,
FINOVA shall propose corresponding reductions in the Minimum Interest Charge,
to take into account such reductions in the rate at which interest accrues on
the Borrowers' obligations.
4..3 The paragraph entitled "Collateral Monitoring Fee" shall be of no
further force and effect after the Second Amendment Primary Effective Date.
4.4 The paragraph entitled "Facility Fee" is hereby amended and restated
in its entirety to read as follows:
"Administrative Fee. Borrowers shall pay to FINOVA an administrative fee
equal to one percent (1.0%) per annum of the amount of the Total Facility.
The administrative fee shall be deemed fully earned at the time when due, and
is otherwise due and payable annually, commencing upon the first anniversary
of the Second Amendment Primary Effective Date and continuing on each
subsequent anniversary thereof, including without limitation the last day of
the Initial Term."
4.5 Success Fee. The following new paragraph is hereby added at the end
of such section:
"Success Fee. Borrowers shall pay to FINOVA a fee (the "Success Fee") to be
determined as follows, but which shall in no event be less than $87,000 nor
more than $350,000. The amount of the Success Fee within the preceding range
shall be determined by reference to the market prices for US 1's freely
trading common stock, including increases in the value of such stock which
occur after the Second Amendment Primary Effective Date. On the Second
Amendment Primary Effective Date, US 1 shall issue to FINOVA 250,000 shares of
unregistered US 1 common stock. The shares so issued to FINOVA shall be
referred to herein as the "Success Fee Shares," and shall in all respects be
the property of FINOVA. Following issuance of the Success Fee Shares to
FINOVA, FINOVA shall be entitled to receive the benefit of any stock splits,
stock dividends, reverse stock splits, or other forms of combination or
division of the outstanding number of shares of US 1 stock into a greater or
lesser number of shares (all such events being referred to herein as
"Recapitalizing Events"). Prior to the occurrence of any Recapitalizing
Event, Borrowers and US 1 shall notify FINOVA as to the number of shares which
the Success Fee Shares shall be converted into upon completion of the
Recapitalization Event, and shall provide FINOVA sufficient information in
order to permit FINOVA to confirm such amount. The foregoing notwithstanding,
in the event that any Recapitalizing Event would result in FINOVA holding in
excess of five percent (5%) of all issued and outstanding shares of US 1
common stock, FINOVA shall deliver to US 1 for cancellation that number of
shares from the Success Fee Shares as shall be sufficient to reduce the then
remaining Success Fee Shares held by FINOVA to not more than five percent (5%)
of all US 1 issued and outstanding common stock.
In addition to the foregoing rights, FINOVA shall be entitled to receive and
retain any cash dividends which are declared and paid with respect to the
Success Fee Shares, which dividends shall be taken into account in determining
the total amount of the Success Fee received by FINOVA hereunder.
At any time following the twenty-four (24) month anniversary of the Second
Amendment Primary Effective Date (the "Start Date"), and continuing until the
forty-eight (48) month anniversary of the Second Amendment Primary Effective
Date (the "Final Sale Date"), FINOVA shall be entitled to sell all or any part
of the Success Fee Shares at their then current market value, and to retain
the proceeds received from such sales, subject to the following conditions:
(i) at any time when sales of the Success Fee Shares have generated cash
proceeds to FINOVA (net of sales commissions) in an amount equal to $350,000,
FINOVA shall deliver any remaining Success Fee Shares to US 1 for
cancellation, without requirement for any further consideration being paid to
FINOVA in respect thereof; and (ii) on the Final Sale Date, FINOVA shall
likewise deliver any remaining unsold Success Fee Shares to US 1 for
cancellation, without further consideration. In the event that (1) either (a)
FINOVA has sold all of the Success Fee Shares or (b) the Final Sale Date has
occurred, whether or not FINOVA then continues to hold any Success Fee Shares,
and (2) at such time FINOVA has realized less than $87,000 in cash proceeds
(net of sales commissions) from the sale of Success Fee Shares, Borrowers
shall pay to FINOVA the amount necessary, after taking into account the net
cash proceeds actually received by FINOVA from the sale of Success Fee Shares,
to cause FINOVA to realize the minimum Success Fee of $87,000. The obligation
of Borrowers to pay the foregoing minimum Success Fee shall be for all
purposes an "Obligation" under the Agreement, and shall be guaranteed by each
of the Guarantors.
The following events shall be referred to as "Termination Events": (i) the
Second Amendment Secondary Effective Date has occurred, resulting in an
extension of the Initial Term in accordance with Section 12 of the Second
Amendment, and thereafter Borrowers elect to terminate the Loan; (ii) the
Second Amendment Secondary Effective Date has not occurred and the term of the
Loan expires without a renewal, in accordance with Section 16.4 as set forth
in the original Schedule to the Agreement (provided, however, that with
respect to an extension of the Loan beyond the Renewal Term in effect as of
the date of this Amendment, which is currently scheduled to expire May 31,
1998, but solely as to the existing Renewal Term, if no Event of Default then
exists and the term of the Loan expires without a renewal as a result of
FINOVA's decision not to renew, then FINOVA shall forfeit its rights to the
Success Fee and shall return all the Success Fee Shares to Borrowers); and
(iii) the Loan is terminated and all Obligations declared due and payable by
FINOVA following the occurrence of an Event of Default. If a Termination
Event occurs at a time when (a) FINOVA has not yet realized cash proceeds (net
of sales commissions) equal to the minimum Success Fee provided for herein and
(b) FINOVA continues to hold unsold Success Fee Shares, then the following
events shall occur: (I) upon the occurrence of the Termination Event,
Borrowers shall pay to FINOVA in cash (which payment shall be a guaranteed
Obligation of Borrowers hereunder), an amount necessary to cause the total
cash proceeds received by FINOVA (after taking into account the net cash
proceeds previously received from the sale of Success Fee Shares) to equal the
minimum Success Fee of $87,000 hereunder; (II) upon receipt of the
supplemental cash payment described in the preceding clause (I), Borrowers'
obligation for payment of the minimum Success Fee shall be deemed satisfied;
(III) regardless of when the Start Date would otherwise have occurred,
immediately upon the occurrence of the Termination Event FINOVA shall be
entitled, for a period of not to exceed eighteen months following date upon
which the termination of the Loan occurred, to sell the remaining Success Fee
Shares, applying the proceeds of such sales as follows: (A) the first cash
proceeds (net of sales commissions) received by FINOVA will be paid to
Borrowers in reimbursement of any supplemental Success Fee payment made by
Borrowers as required by clause (I) hereof; and (B) thereafter, cash proceeds
received by FINOVA, up to the maximum Success Fee provided for hereunder,
shall be retained by FINOVA as additional Success Fee hereunder; and (IV) at
such time as FINOVA has either received cash proceeds (net of sales
commissions) equal to the maximum Success Fee hereunder, or on the eighteen
month anniversary of the termination date of the Loan, FINOVA shall return any
unsold Success Fee Shares to US 1 for cancellation, without further
consideration to FINOVA. If a Termination Event occurs at a time when FINOVA
has realized cash proceeds (net of sales commissions) at least equal to the
minimum Success Fee hereunder, then the provisions of clause III(B) and (IV)
of the preceding sentence shall apply to any remaining unsold Success Fee
Shares then held by FINOVA.
FINOVA acknowledges and agrees that the Success Fee Shares originally issued
to FINOVA will not be registered in accordance with the rules and regulations
of the Securities and Exchange Commission, and accordingly that as of the date
of the issuance of the Success Fee Shares to FINOVA such shares are not freely
tradeable. Borrowers hereby agree and covenant to cause US 1, and by joining
in this Amendment for purposes of this provision US 1 hereby agrees and
covenants, that upon request of FINOVA, US 1 shall take such steps as are
necessary to register the resale by FINOVA of the Success Fee Shares, shall
file a registration statement for that purpose within thirty (30) days
following the request of FINOVA, and US 1 shall do everything reasonably
necessary to cause such registration statement to be declared effective as
early as is practicable, but in no event later than the earliest to occur of
the Start Date or sixty (60) days following a Termination Event. Borrowers
acknowledge and agree that the failure of US 1 to have registered the resale
of the Success Fee Shares by FINOVA on or before the Start Date shall
constitute an Event of Default under the Agreement. Borrowers and US 1
further agree that, following the occurrence of a Termination Event, then (i)
if registration of FINOVA's resale of the Success Fee Shares has not occurred
by the date sixty (60) days following such Termination Event, FINOVA's right
to resell the Success Fee Shares, as stated in clause (b)(III) of the
preceding paragraph shall automatically be extended such that FINOVA shall at
all times have not less than sixteen (16) months to dispose of the Success Fee
Shares following such registration; and (ii) in the event that no registration
of FINOVA's right to resell the Success Fee Shares has been declared effective
within the period of six (6) months following the Termination Event, then
FINOVA shall have no obligation, notwithstanding the provisions of clause
(b)(III)(A) of the preceding paragraph, to reimburse Borrowers for any
supplemental Success Fee payment made by Borrowers as required by clause
(b)(I) of the preceding paragraph. In lieu of the foregoing obligation to
register FINOVA's resale of the Success Fee Shares, Borrowers shall be deemed
to have satisfied the foregoing requirement if Borrowers cause there to be
provided to FINOVA an opinion of counsel, the identity of which counsel and
the form and substance of which opinion are acceptable to FINOVA, concluding
that FINOVA's resale of the Success Fee Shares is exempt from the registration
requirements of all applicable federal and state securities law and may be
completed subject to no restrictions other than a ceiling on the maximum
number of Success Fee Shares which FINOVA would be permitted to sell in any
month, but which maximum number of shares shall in no event be less than one
percent (1%) of US 1's total number of issued and outstanding shares.
The Success Fee shall be fully earned by FINOVA on and as of the Second
Amendment Primary Effective Date, in consideration for FINOVA's willingness to
enter into the Second Amendment and to continue to provide financing to
Borrowers upon the terms and conditions of the Agreement as modified thereby.
Payment of the Success Fee shall for all purposes be considered an Obligation
of Borrowers under the Agreement and shall be secured by FINOVA's security
interest in all the Collateral. Until the Success Fee, together with all the
other Obligations have been paid in full, FINOVA shall have no obligation to
release its lien on and security interest in any of the Collateral."
5. Reporting Requirements. Notwithstanding the provisions of clause
(i) of Section 5.2 in the Agreement, requiring Borrower to provide FINOVA's
standard form Collateral and Loan Report daily, and the provisions of the
first subparagraph of the Section in the Schedule entitled "Reporting
Requirements (Section 5.2)," which was amended by the First Amendment, the
following shall set forth Borrowers' obligations with respect to borrowing
base reporting. Borrowers shall provide FINOVA with borrowing base
calculations on a weekly basis, on Monday of each week (unless such Monday is
not a Business Day, in which case such calculations shall be provided on the
first Business Day of the week), on FINOVA's standard form Collateral and Loan
Report (referred to herein as the "C&L Report"), and shall further provide
FINOVA with a C&L Report on the last Business Day of each month. Each C&L
Report provided shall update calculations from the last C&L Report provided to
FINOVA, adding amounts for Eligible Receivables and Eligible Unbilled Freight
Sales generated subsequent to the date of the last C&L Report and reflecting
reductions in borrowing base availability as the result of collections
received subsequent to such date. Each C&L Report shall also indicate whether
Borrowers have any Excess Availability after adjusting the amount of the
Reporting Reserve to the full amount required hereunder, in light of the total
Eligible Receivables and Eligible Unbilled Freight Sales reflected on such C&L
Report. In the event that no Excess Availability remains after fully funding
the Reporting Reserve, such event shall be referred to as a "Shortfall." At
any time when Borrowers' most recent C&L Report has indicated the existence of
a Shortfall, Borrowers' borrowing availability under the Receivable Loans
shall be limited to an amount equal to the full amount necessary to fund the
Reporting Reserve minus the amount of the Shortfall. Anything else contained
in this Agreement to the contrary notwithstanding, the occurrence of one or
more Shortfalls shall not constitute an Overline unless one of the follow
three conditions exists: (i) Borrowers have experienced a Shortfall on two
consecutive weekly C&L Reports (without regard to interim C&L Reports provided
on the last Business Day of the month); (ii) Borrowers have experienced
Shortfalls on more than three C&L Reports submitted during any fiscal quarter
(but for purposes of this clause, not counting any Shortfall which exists by
reference to a C&L Report submitted on the last Business Day of a month unless
that day is also the first Business Day of the applicable week); or (iii) the
amount of such Shortfall equals or exceeds the amount necessary to fully fund
the Reporting Reserve. If any of the preceding conditions exist, then an
Overline shall be deemed to have occurred, and Borrowers shall be required to
repay such Overline immediately upon demand. During any month in which any
C&L Report submitted by Borrower (including the C&L Report submitted on the
last Business Day of such month) demonstrates the existence of a Shortfall,
FINOVA shall be entitled to charge Borrowers a collateral monitoring fee of
$500 for such month, in consideration for the additional administrative
monitoring which FINOVA will be required to undertake following the occurrence
of a Shortfall.
In addition for the foregoing, but without limiting FINOVA's right to require
more frequent reporting, in accordance with the Agreement (which discretion on
FINOVA's part is not limited by this Section 5), FINOVA shall be permitted, if
it deems the same to be appropriate, to modify the preceding reporting
requirements to allow Borrowers to submit C&L Reports on a bi-weekly basis
(i.e., such reports to be submitted on the first Business Day of every other
week).
Financial Covenants. The section entitled "Financial Covenants (Section
13.14)" as set forth in the Schedule is hereby amended and restated in its
entirety as follows:
"The Borrowers shall comply with the following financial covenants.
Compliance shall be determined on a consolidated basis at the US 1 level, as
of the end of each month, as specifically provided below:
Net Worth: Borrowers shall maintain a consolidated Net Worth of not less
($4,500,000) (i.e., a negative net worth which is not a negative amount in
excess of $4,500,000).
The minimum Net Worth requirement hereunder, tested on a consolidated basis,
shall hereafter be adjusted to equal the amounts set forth on the following
table:
Fiscal Period Required Minimum Net Worth
January 1, 1998 through December 31, 1998 $(4,400,000)
January 1, 1999 through December 31, 1999 $(4,300,000)
January 1, 2000 through December 31, 2000 $(4,200,000)
January 1, 2001 and thereafter $(4,100,000)
In the event Borrowers' consolidated financial statements demonstrate that, at
the end of any month, Borrowers shall have failed to have satisfied the
minimum Net Worth covenant set forth herein, notwithstanding the fact that an
Event of Default shall immediately occur as the result of such failure, the
Guarantors shall be permitted to terminate the continuance of such Event of
Default by contributing additional equity capital to one or more of Borrowers
in an amount sufficient to cause Borrowers to satisfy the minimum Net Worth
requirement set forth herein, provided that such additional capital is
contributed within thirty (30) days after the date such Event of Default
arose.
For purposes of applying the foregoing Net Worth covenant, in the event that
US 1's present "net benefit from net deferred tax asset," resulting from prior
net operating losses experienced by US 1 and presently described in footnotes
to US 1's audited financial statements as a result of the uncertainty of such
asset being utilized, becomes includable directly as an asset on US 1's
balance sheet in accordance with generally accepted accounting principles,
then the foregoing required minimum Net Worth amounts shall each be increased
by an amount equal to ninety-five percent (95%) of the increase in
consolidated Net Worth realized by US 1 as a result of such accounting change.
Total Debt Service The Borrowers shall maintain a Total Debt Service
Coverage Ratio: Coverage Ratio of not less than the ratios set forth in the
table below for the periods stated. Compliance with this covenant shall be
measured monthly on a cumulative monthly fiscal year to date basis (i.e.,
commencing January 1 of each year through the month most recently ended, or
for such lesser period as a Borrower has been in operation). All calculations
shall be based on the profit and loss statements on a consolidated basis for
all Borrowers at the US 1 level, prepared in accordance with generally
accepted accounting principles consistently applied:
Fiscal Table Total Debt Service Coverage Ration
Second Amendment Primary 1.00:100
Effective Date through December 31, 1997
January 1, 1998 through December 31, 1998 1.10:1.00
January 1, 1999 through December 31, 1999 1.15:1.00
January 1, 2000 and thereafter 1.25:1.00
In the event Borrowers' consolidated financial statements demonstrate that, at
the end of any month, Borrowers shall have failed to attain the Total Debt
Service Coverage Ratio required hereby, notwithstanding the fact that an Event
of Default shall immediately occur as the result of such failure, the
Guarantors shall be permitted to terminate the continuance of such Event of
Default by contributing additional equity capital to one or more of Borrowers
or by causing one or more of Borrowers to incur subordinated debt on terms and
conditions which are acceptable to FINOVA, and with respect to which the
holders have entered into a Subordination Agreement in form and substance
satisfactory to FINOVA, in each case in an amount which, when added to the
other amounts described in clause (i) of the definition "Total Debt Service
Coverage Ratio", would result in the required Total Debt Service Coverage
Ratio having been attained, provided that any such additional capital is
contributed within thirty (30) days after the date such Event of Default
arose.
7. Termination Fee. Section 16.4 of the Agreement, as set forth on the
Schedule, is hereby amended and restated in its entirety to read as follows:
"The Termination Fee provided in Section 16.4 shall be an amount equal to the
following percentage of the average daily outstanding balance of the
Obligations for the 180-day period (or lesser period if applicable) preceding
the date of termination:
(i) three percent (3%), if such early termination occurs on or prior to
the first anniversary of the Second Amendment Primary Effective Date;
(ii) two percent (2%), if such early termination occurs after the first
anniversary of the Second Amendment Primary Effective Date and on or prior to
the second anniversary of the Second Amendment Primary Effective Date;
(iii) one percent (1%), if such early termination occurs after the second
anniversary of the Second Amendment Primary Effective Date and on or prior to
the third anniversary of the Second Amendment Primary Effective Date; and
(iv) one-half of one percent (0.5%), if such early termination occurs after
the third anniversary of the Second Amendment Primary Effective Date and prior
to the expiration of the Initial Term.
The foregoing notwithstanding, nothing contained in this Section 16.4 shall
imply or create an extension of the term of the Agreement beyond the Renewal
Term in effect on the Second Amendment Primary Effective Date, as set forth in
the original Schedule to the Agreement, in the event that the conditions
precedent set forth in Section 9 of the Second Amendment are not satisfied and
the Second Amendment Secondary Effective Date never occurs. In that event,
the adjustment to the Termination Fee described in this Section 16.4 shall go
into effect as of the Second Amendment Primary Effective Date, and the
Termination Fee provided therein shall be payable upon the expiration of the
then current Renewal Term or any subsequent Renewal Term, or upon the earlier
termination of this Agreement pursuant to the terms of the Agreement."
8. Primary Conditions Precedent. The modifications described in this
Amendment (other than those set forth in Sections 10, 11, and 12 hereof, which
are governed by Section 9 hereof), and the agreements and obligations of
FINOVA set forth in this Amendment, will not become effective unless and until
each of the following conditions precedent have been satisfied, in form,
manner and substance satisfactory to FINOVA:
8.1 Borrowers shall have delivered or caused to be delivered to FINOVA
the following documents, all of which shall be properly completed, executed
and otherwise satisfactory to FINOVA:
(a) This Second Amendment;
(b) Amendments and Reaffirmations of each Guaranty;
(c) Any consents deemed necessary by FINOVA;
(d) A corporate resolution of each Borrower approving the transactions
contemplated hereby to which it is a party;
(e) An opinion from Borrowers' counsel, which counsel must be acceptable
to FINOVA, with respect to such matters as FINOVA shall require;
(f) Such other items as FINOVA may require.
8.2 FINOVA shall have received a certificate of good standing with respect
to each Borrower, dated within ten (10) days of the date hereof by the
applicable authority of the state of formation of such Borrower, which
certificate shall indicate that such Borrower is in good standing in such
state.
8.3 There shall not then exist an Event of Default or any act or event
which with notice, passage of time, or both would constitute an Event of
Default.
8.4 All the representations and warranties of Borrowers and Guarantors in
the Loan Documents shall be true and correct, in all material respects, before
and after giving effect to the making of this Amendment.
8.5 FINOVA shall be satisfied that it has a first priority lien on and
security interest in all assets of each Borrower.
8.6 There shall have occurred no material adverse change in the business
or financial condition of Borrowers since Borrowers' financial statements for
the period ending August 31, 1997.
8.7 FINOVA has received and found satisfactory the results of the
customer, vendor, and trade credit references, as well as UCC, tax lien,
litigation and judgment searches on each Borrower and each Guarantor.
8.8 Each Guarantor shall have delivered updated personal financial
statements, not earlier than sixty (60) days prior to the date of this Second
Amendment, together with copies of each such Guarantor's 1996 federal income
tax returns, including all schedules and attachments thereto.
8.9 FINOVA shall have received evidence that all approvals and/or
consents of or other actions by, any entity or person whose approval or
consent is necessary or required to enable Borrowers to perform their
obligations under this Amendment, have been obtained, including without
limitation the consent of any Affiliates of any Guarantors, which Affiliates
have loaned money to, or are otherwise owed money by, any Borrower.
8.10 Borrowers shall have provided FINOVA with a personal introduction to
Mr. Martin Chitty, Sr., together with his key management.
8.11 Each of the Guarantors shall have entered into Subordination
Agreements, in form and substance satisfactory to FINOVA, subordinating any
amounts owed by any Borrower to such Guarantor to the payment of the
Obligations to FINOVA.
9. Secondary Conditions Precedent. The modifications described in
Sections 10, 11, and 12 of this Amendment, and the agreements and obligations
of FINOVA with respect to such provisions, will not become effective unless
and until each of the following additional conditions precedent have been
satisfied, in form, manner and substance satisfactory to FINOVA:
9.1 CNT has demonstrated one fiscal quarter of operation in which CNT
must, during such fiscal quarter, have satisfied both of the following
conditions: (i) generated EBITDA of not less than $100,000, and (ii) generated
net income before taxes of not less than $50,000.
9.2 The two most recent field audits or other examinations conducted by
FINOVA on all of Borrowers' operations shall have been found satisfactory to
FINOVA in its sole discretion.
9.3 There shall not then exist an Event of Default or any act or event
which with notice, passage of time, or both would constitute an Event of
Default.
9.4 All the representations and warranties of Borrowers and Guarantors in
the Loan Documents shall be true and correct, in all material respects, before
and after giving effect to the making of this Amendment.
9.5 There shall have occurred no material adverse change in the business or
financial condition of Borrowers since Borrowers' most recent annual financial
statements delivered to FINOVA pursuant to Section 5.2 of the Agreement.
10. Total Facility. Section 1.1 of the Agreement, as set forth on the
Schedule and as previously amended by Section 2 of this Amendment, is hereby
further amended to delete the amount of "$3,300,000" set forth therein and to
substitute the amount "$5,000,000" therefor.
11. Loans. Section 1.2 of the Agreement, as set forth in the Schedule
and as amended by the First Amendment and by Section 3 of this Amendment, is
hereby amended and restated in its entirety to read to as follows:
"Revolving Loans: A revolving line of credit consisting of loans against
Borrowers' Eligible Receivables ("Receivable Loans"), accounted for on a
consolidated basis of all Borrowers (but exclusive of US 1), in an aggregate
outstanding principal amount at any time which shall not exceed the lesser of:
(A) Five Million Dollars ($5,000,000) less the Reporting Reserve and any
other reserves which FINOVA has then established; or
(B) the sum of:
(i) an amount equal to eighty-five percent (85%) of the net amount of the
Eligible Receivables, plus
(ii) a revolving line of credit consisting of loans against Borrowers'
Eligible Unbilled Freight Sales in an aggregate outstanding principal amount
not to exceed the lesser of:
(a) an amount equal to eighty-five percent (85%) of the net amount of all
then outstanding Eligible Unbilled Freight Sales, or
(b) Two Hundred Fifty Thousand Dollars ($250,000), less
(iii) the Reporting Reserve and any other reserves which FINOVA has then
established."
12. Term. Section 16.1 of the Agreement, as set forth in the Schedule,
is hereby amended and restated in its entirety to read as follows:
"The initial term of this Agreement shall be from May 31, 1995 through the
fourth anniversary of the Second Amendment Primary Effective Date (the
"Initial Term") and shall be automatically renewed at the discretion of GFC
for successive periods of one (1) year each (each, a "Renewal Term"), unless
earlier terminated as provided in Section 16 or 17 above or elsewhere in this
Agreement."
13. Restructure and Line Increase Fees.
13.1 On or before December 31, 1997, Borrowers agree to pay FINOVA a "Loan
Restructure Fee" in the amount of $30,000, which amount is inclusive of the
facility fee, in the amount of $15,000, that was payable by Borrowers on May
31, 1997 and which, as of the date of this Amendment, has not been paid.
Borrowers acknowledge that the foregoing Loan Restructure Fee has been fully
earned by FINOVA (and a portion of such fee had previously been fully earned
by FINOVA) upon the execution of this Amendment in consideration for the
agreements made by FINOVA herein. FINOVA is hereby authorized to pay the Loan
Restructure Fee by making an advance against the Receivable Loans on December
31, 1997 (or, if such date is not a Business Day, on the last Business Day of
1997).
13.2 In addition to the foregoing, at such time as all the secondary
conditions precedent set forth in Section 9 of this Amendment have been
satisfied and the increase in the Total Facility described in Section 10
hereof has gone into effect, Borrowers shall pay to FINOVA a "Line Increase
Fee" in the amount of $20,000, which amount shall be due and payable (i) in
the event the Second Amendment Secondary Effective Date occurs on or before
December 31, 1997, concurrently with and in the same manner as the Loan
Restructure Fee, and (ii) in the event the Second Amendment Secondary
Effective Date occurs after December 31, 1997, on the Second Amendment
Secondary Effective Date.
13.3 The Loan Restructure Fee and the Line Increase Fee each represent
additional consideration to FINOVA for increasing the amount of the Total
Facility, extending the expiration date of the term of the loan then in
effect, adjusting certain covenants, and waiving certain covenant defaults,
and such fees shall not be applied toward or against principal, interest, or
any other amount owing by Borrowers to FINOVA. In addition to the foregoing
fees, Borrowers shall reimburse FINOVA for all costs and expenses incurred by
FINOVA in connection with this Amendment, including without limitation
attorneys' fees and costs incurred, and any filing or recording fees.
14. Waiver of Events of Default. FINOVA hereby waives the following
specific acts, occurrences and failures of Borrowers:
(i) the failure to maintain the minimum Net Worth set forth in Section
13.14 of the Agreement for all test periods during which such a failure
occurred ending through September 30, 1997;
(ii) the failure to meet the minimum Total Debt Service Coverage Ratio
set forth in Section 13.14 of the Agreement for all test periods during which
such a failure occurred ending through September 30, 1997; and
(iii) the failure to have provided financial statements, in accordance
with Section 5.2 of the Agreement, within the periods required thereunder, for
all reporting periods during which such a failure occurred ending through
September 30, 1997.
No other or future acts, events or occurrences which either constitute an
Event of Default or which, with the giving of notice or the passage of time,
or both, would constitute an Event of Default, are waived by FINOVA,
including, without limitation, any circumstances which are of a continuing
nature, the existence of which would independently give rise to an Event of
Default under any Agreement after giving effect to this Amendment; provided,
that with respect to any financial covenants or reporting obligations which
are only tested or to be complied with as of specified dates pursuant to the
Agreements, no Event of Default shall exist unless a breach occurs or exists
as of the time such covenants are to be tested or complied with next following
the date of this Amendment.
15. Confirmation of Liens. This Amendment in no way acts as a release
or relinquishment of any of the liens, security interests, rights or remedies
securing payment of the Loans or of the enforcement thereof. Such liens,
security interests, rights and remedies are hereby ratified, confirmed,
preserved, renewed and extended by Borrowers in all respects.
16 Events of Default. The events of default specified in the Agreement
and the other Loan Documents shall continue to be the events of default under
the Loan except as otherwise specifically agreed herein to the contrary.
FINOVA's remedies with respect to the occurrence of an Event of Default shall
continue to be as set forth in the Loan Documents.
17. Reaffirmation of Loan Documents. All terms, conditions and provisions
of the Agreement and the other Loan Documents are hereby reaffirmed and
continued in full force and effect and shall remain unaffected and unchanged
except as specifically amended hereby or by the documents executed and
delivered in connection herewith. Borrowers furthermore agree that they have
no defense, counterclaim, offset, cross-complaint, claim or demand of any
nature whatsoever which can be asserted as a basis to seek affirmative relief
or damages from FINOVA.
18. Further Assurances. FINOVA and Borrowers will execute such other
writings as may be necessary to confirm or carry out the intendments of FINOVA
and Borrowers evidenced by this Amendment.
19. Representations and Warranties. Borrowers represent and warrant to
FINOVA that the execution and delivery by Borrowers of this Amendment and all
other documents or instruments executed or delivered in connection herewith
(all such documents being collectively referred to herein as the "Amendment
Documents"), have been duly and properly made and authorized. The Loan
Documents, this Amendment, and the other Amendment Documents each constitute
valid and binding obligations of Borrowers, enforceable against each Borrower
party thereto in accordance with their respective terms.
20. Benefit of the Amendment. The terms and provisions of this
Amendment, the other Amendment Documents and the other Loan Documents shall be
binding upon and inure to the benefit of FINOVA and Borrowers and their
respective successors and assigns, except that Borrowers shall not have any
right to assign their rights under this Amendment, the other Amendment
Documents, or any of the Loan Documents or any interest therein without the
prior written consent of FINOVA.
21. Choice of Law. The Loan Documents, this Amendment, and the Amendment
Documents shall be performed and construed in accordance with the laws of the
State of Arizona.
22. Entire Agreement. Except as modified by the Amendment Documents, the
Loan Documents remain in full force and effect. The Loan Documents, as
modified by the Amendment Documents, embody the entire agreement and
understanding between Borrowers and FINOVA, and supersede all prior agreements
and understandings between said parties relating to the subject matter
thereof.
23. Counterparts; Telecopy Execution. This Amendment may be executed in
any number of separate counterparts, each of which, when taken together, shall
constitute one and the same agreement, admissible into evidence,
notwithstanding the fact that all parties have not signed the same
counterpart. Delivery of an executed counterpart of this Amendment by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Amendment. Any party delivering an executed counterpart
of this Amendment by telefacsimile shall also deliver a manually executed
counterpart of this Amendment, but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect
of this Amendment.
24. Effectiveness of Amendment. This Amendment shall not be effective
until the same is executed and delivered by the parties hereto and all
conditions set forth in Section 8 hereof have been satisfied (such date being
hereinafter referred to as the "Second Amendment Primary Effective Date").
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
as of the day, month, and year first above written.
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By:
Name:
Title:
KEYSTONE LINES, a California corporation
By:
Name:
Title:
CAROLINA NATIONAL LOGISTICS INC., an Indiana corporation
By:
Name:
Title:
CAROLINA NATIONAL TRANSPORTATION INC., an Indiana corporation
By:
Name:
Title:
GULF LINE TRANSPORT INC., an Indiana corporation
By:
Name:
Title:
GULF LINE BROKERAGE INC., an Indiana corporation
By:
Name:
Title:
This Amendment is joined in by US 1 Industries, Inc., an Indiana corporation,
for purposes of evidencing its consent to and agreement to be bound by those
provisions of Section 4.5 of this Amendment relating to the issuance to
FINOVA, and the registration of FINOVA's right to resell, the Success Fee
Shares.
US 1 INDUSTRIES, INC., an Indiana corporation
By:
Name:
Title:
REAL ESTATE MORTGAGE
KNOW ALL MEN BY THESE PRESENTS: THAT TC Services, Inc., a
California corporation, whose address is 1000 Colfax Street,
Gary, Indiana 46410 (hereafter referred to as "Mortgagor") in
consideration of One Hundred Thousand Dollars ($100,000.00) re-
ceived from August Investment Partnership, an Indiana partner-
ship, whose address is 8400 Louisiana Street, Merrillville,
Indiana 46410 (hereafter referred to as "Mortgagee"), now exist-
ing or hereafter incurred, and other valuable consideration in
hand paid, does hereby mortgage, grant and convey unto Mortgagee
the following described premises situated in the City of Phoenix,
Maricopa County and State of Arizona, at 3839 West Buckeye Road,
Phoenix, Arizona 85009, to wit:
SEC (15) TWN (1N) RNG (2E) BEG at NW COR NE4 TH E
486.75' S ID 23' E 992.71' W 506.96' N OD 13' W
992.42' TO POB EX S 100' & EX N 50 & EX W 40 RDS &
EX 5 X 5 TRI IN NW COR THE/O.
together with all the right, title and interest of the Mortgagor
in said property now owned or hereafter acquired and all build-
ings, improvements and fixtures of any type now or hereafter
placed on said property and all easements, rights-of-way, appur-
tenances, rents, income, profits, royalties, and all oil and gas
rights and profits, water, water rights, and water stock; all
leases or subleases covering said property or any portion there-
of, now existing or hereafter entered into, and all rights, title
and interest of Mortgagor thereunder at any time existing; all
interest, estates or other claims, both in law and in equity,
which Mortgagor now has or may hereafter acquire; and all fix-
tures, building, improvements and appurtenances now or hereafter
attached to the foregoing described property, all of which in-
cluding replacements and additions thereto, shall be deemed to be
and remain part of the property covered by this Mortgage. All of
the foregoing property and interests shall be collectively herei-
nafter referred to as the "Premises."
This Mortgage is given to secure the payment of Mortgagor's
obligations under a certain promissory note dated July 29, 1997
in the principal sum of One Hundred Thousand Dollars
($100,000.00) with a final maturity date of July 3, 2000 (the
"Note") and interest thereon according to the terms of the Note
and any and all extensions, renewals, modifications, or substitu-
tions thereof; the payment of all sums advanced to protect the
Premises, including but not limited to those described in Para-
graph 5 below; and each and every other promissory note(s), debt,
liabilities and obligations of every type and description, in-
cluding but not limited to guarantees or accommodations, which
the Mortgagor may now, or at any time hereafter, owe or be obli-
gated on to the Mortgagee, whether such promissory note(s),
debts, liabilities, or obligations now exists, is direct or
indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, or joint, several, or
joint and several. The Note and all such debts, liabilities,
obligations, and other promissory notes) are collectively herei-
nafter referred to as "Obligations".
The total principal amount, exclusive of interest, of the
Obligations, including any future debts, advances, liabilities or
obligations, including any sums advanced for the protection of
the Premises or the Mortgagee's interest therein shall not be
limited in amount, PROVIDED, HOWEVER, THAT NOTHING CONTAINED
HEREIN SHALL CONSTITUTE A COMMITMENT TO MAKE ADDITIONAL OR FUTURE
LOANS OR ADVANCES IN ANY AMOUNT.
The Mortgagor hereby warrants that it (a) is the fee owner
of the Premises hereby mortgaged; (b) has the right to mortgage,
grant and convey the Premises; and (c) will warrant and defend
the title to the Premises against all claimants whomsoever.
Mortgagor covenants and agrees with the Mortgagee as follows:
1. Payment of Obligations. Mortgagor agrees to pay when
due all of the Obligations and all taxes, liens, judgments, or
assessments which may be lawfully assessed against the Premises
and the rental charges upon any leases assigned as additional
security for this Mortgage.
2. Insurance. Mortgagor, at its expense, will maintain
with insurers approved by Mortgagee, insurance with respect to
the improvements and personal property constituting the Premises
against loss by fire, lightning, tornado, and other perils cov-
ered by a standard extended coverage endorsement, in an amount
equal to at least one hundred percent (100%) of the full replace-
ment value thereof; and insurance against such other hazards and
in such amount as is customarily carried by owners and operators
of similar properties and as Mortgagee may require for its pro-
tection. Mortgagor will comply with such other requirements as
Mortgagee may from time to time request for the protection by
insurance of the interest on the respective parties. All in-
surance policies maintained pursuant to this Mortgage shall name
Mortgagor and Mortgagee as insured, as their respective interests
may appear, and provide that there shall be no cancellation or
modification without written notice the Mortgagee fifteen (15)
days prior to its expiration date. In the event of cancellation
of such insurance, Mortgagee may procure such insurance and the
cost thereof shall be added to the loan secured by this Mortgage
and shall bear interest from the date of disbursement at the rate
payable from time to time on outstanding principal on the Note
unless payment of interest at such rate would be contrary to
applicable law, in which event such amounts shall bear interest
at the highest interest rate authorized by applicable law. Mort-
gagor shall deliver to Mortgagee the original policies of in-
surance and renewals thereof. Failure to furnish such insurance
by Mortgagor, or renewals as required hereunder shall, at the
option of Mortgagee, constitute a default.
3. Maintenance and Compliance With Laws. Mortgagor shall
keep the Premises in good repair and condition and shall not
commit waste or permit impairment or deterioration of the
Premises and shall comply with the provisions of any lease if
this Mortgage is on leasehold. No improvement now or hereafter
erected upon the Premises shall be altered, removed or demolished
without the prior written consent of Mortgagee. Mortgagor shall
comply with all laws, ordinances, regulations, covenants, condi-
tions and restrictions affecting the Premises and not commit,
suffer or permit any act to be done in or upon the Premises in
violation of any law, ordinance, regulation, covenant, condition
or restriction. Mortgagor shall complete or restore promptly and
in good workmanlike manner any building, improvement or personal
property constituting part of the Premises which may be damaged
or destroyed and pay, when due, all claims for labor performed
and materials furnished therefore and for any alterations there-
of.
4. Condemnation. Mortgagor agrees that all money and
awards payable as damages or compensation for the taking of title
to or possession of, or for damage to any portion of the Premises
by reason of any condemnation, eminent domain, change of grade,
or other proceeding shall, at the option of the Mortgagee, be
paid to the Mortgagee, and such monies and awards are hereby
assigned to Mortgagee, and judgment thereafter shall be entered
in favor of Mortgagee. When paid, such monies and awards shall be
used, at Mortgagee's option, toward the payment of the obliga-
tions secured hereby in such order or manner as Mortgagee may
desire or determine, or shall be used at its option, for payment
of taxes, assessments, repairs or other items for the payment of
which this Mortgage is given as security, whether the same be
then due or not, and in such order or manner as Mortgagee may
determine. Any amount not so used shall be released by the Mort-
gagee to the Mortgagor. Such application or release shall not
cure or waive any default herein or affect any foreclosure pro-
ceedings. In the event Mortgagee deems it necessary to appear or
answer in the condemnation action, hearing or proceedings, Mort-
gagor shall pay all expenses in connection therewith, where
allowed by applicable law.
5. Taxes, Assessment and Charges. Mortgagor shall pay all
taxes, assessments and other charges, including, without limita-
tion, fines and impositions attributable to the Premises, and
leasehold payments or ground rents, if any, before the same
become delinquent. Mortgagor shall promptly furnish to Mortgagee
all notices of amounts due under this paragraph, Mortgagor shall
make payment directly, and Mortgagor shall promptly furnish to
Mortgagee receipts evidencing such payments. Mortgagor shall pay
all taxes and assessments levied upon this Mortgage or the in-
debtedness secured hereby, together with any other taxes or
assessments which may be levied against the Mortgagee or the
legal holder of the Note or the Obligations.
6. Additional Liens and Protection of Mortgagee's Securi-
ty. Mortgagor shall make all payments of interest and principal
and payments of any other charges, fees and expenses contracted
to be paid to any existing or subsequent lien holder or prior or
subsequent deed of trust or mortgage before the date they are
delinquent or in default and promptly pay and discharge any and
all other liens, claims or charges which may jeopardize the
security granted herein. If (1) Mortgagor fails to make any such
payment or fails to perform any of the covenants and agreements
contained in this Mortgage, or the Note or in any prior or subse-
quent mortgage or any prior or subsequent deed of trust; or (b)
if any action or proceeding is commenced which materially affects
Mortgagee's interest in the Premises, including, but not limited
to, proceedings involving a decedent, notice of sale by Trustee,
notice of default by Trustee, or mortgage foreclosure action; or
(c) any action or proceeding be commenced to which action or
proceeding the Mortgagee is made a party by reason of the execu-
tion of this Mortgage or the obligations it secures, then Mort-
gagee, at Mortgagee's option and without notice to or demand upon
Mortgagor and without releasing Mortgagor from any obligation
hereunder, may make such appearances, disburse such sums and take
such action as is necessary to protect Mortgagee's interests.
Such action may include, but is not limited to, disbursement of
reasonable attorney fees, payment, purchase, context or compro-
mise of any encumbrance, charge or lien, entry upon the Premises
to make repairs, or declaration of default under this Mortgage
and Note, and sale or foreclosure thereunder. In the event that
Mortgagor shall fail to pay taxes, assessments, or other charges
or to make any payments to any existing, prior or subsequent lien
holders or prior or subsequent beneficiaries, Mortgagee may make
such payment, but shall not be obligated to do so. Any amounts
disbursed to Mortgage pursuant to this Paragraph 6 shall become
additional indebtedness of Mortgagor secured by this Mortgage.
Such amounts shall be payable upon notice from Mortgagee to
Mortgagor requesting payment thereof, and shall bear interest
from the date of disbursement at the rate payable from time to
time on outstanding principal under the Note unless payment of
interest at such rate would be contrary to applicable law, in
which event such amounts shall bear interest at the highest rate
permissible under applicable law. Nothing contained in this
Paragraph 6 shall require Mortgagee to incur any expense or take
any action hereunder.
7. Leased Premises; Assignment of Rents. Within ten (10)
days after demand, Mortgagor shall furnish to Mortgagee a
schedule certified to be true, setting forth all leases of space
in or of the premises then in effect, including, in each case,
the name of the tenants and occupants, a description of the space
occupied by such tenant and occupancy, the rental payable for
such space and such other information and documents with respect
to such leases and tenancies as the Mortgagee may request.
Without the prior written consent of Mortgagee, Mortgagor
shall not, directly or indirectly with respect to any lease of
space in the described Premises, whether such lease is now or
hereafter in existence: (a) accept or permit any prepayment,
discount or advance rent payable thereunder; (b) cancel or termi-
nate the same, or accept any cancellation, termination or sur-
render thereof, or permit any event to occur which would entitle
the lessee thereunder to terminate or cancel the same; (c) amend
or modify the same so as to reduce the term thereof, the rental
payable thereunder, or to change any renewal provisions therein
contained; (d) waive any default thereunder or breach thereof;
(e) give any consent, waiver or approval thereunder or take any
other action in connection therewith, or with a lessee thereun-
der, which would have the effect of impairing the value of Less-
or's interest thereunder on the Premises, or of impairing the
position or interest of the Mortgagee; or (f) sell, assign,
pledge, mortgage or otherwise dispose of, or encumber, in any
such lease or rents, issues or profits issuing or arising there-
under.
Mortgagee shall have the right, power and authority during
the continuance of this Mortgage to collect the rents, issues,
and profits of the Premises and of any personal property located
thereon with or without taking possession of the property
affected hereby, and Mortgagor hereby absolutely and
unconditionally assigns all such rents, issues and profits to
Mortgagee. Mortgagee, however, hereby consents to the Mortgagor's
collection and retention of such, rents, issues, and profits as
they accrue and become payable so long as Mortgagor is not, at
such time, in default as defined herein. Upon any such default,
Mortgagee may at any time, either in person, by agent, or by a
receiver to be appointed by a court, without notice and without
regard to the adequacy of any security for the indebtedness
hereby secured: (a) enter upon and take possession of the Premis-
es or any part thereof, and in its own name sue for or otherwise
collect such rents, issues, and profits, including those past due
and unpaid and apply the same, less costs and expenses of opera-
tion and collection, including reasonable attorney fees, upon any
indebtedness secured hereby, and in such order as Mortgagee may
determine; (b) perform such acts of repair or protection as may
be necessary or protect or conserve the value of the Premises;
and (c) lease the same or any part thereof for such rental, term,
and upon such conditions as its judgment may dictate, or termi-
nate or adjust the terms and conditions of existing leases.
Unless Mortgagor and Mortgagee agree otherwise in writing, any
application of rents, issues, or profits to any indebtedness
secured hereby shall not extend or postpone the due date of the
installment payments as provided in said Note or change the
amount of such installments. The entering upon and taking posses-
sion of the Premises, the collection of such rents, issues and
profits, and the application thereof as described herein, shall
not waive or cure any default or notice of default hereunder or
invalidate any act done pursuant to such Notice. Mortgagor also
assigns to Mortgagee, as further security for the performance of
the obligations secured hereby, all prepaid rents and all monies
which may have been or may hereafter be deposited with said
Mortgagor by a lease of the Premises. To secure the payment of
any rent, and upon default in the performance of any of the
provisions, hereof, Mortgagor agrees to deliver such rents and
deposits to the Mortgagee. Delivery of written notice of Mort-
gagee's exercise of the rights granted herein, to any tenant
occupying the Premises or any portion thereof shall be sufficient
to require said tenant to pay said rent to the Mortgagee until
further notice and without any liability to Mortgagor for such
rent paid to Mortgagee.
8. Events of Default. Any of the following events shall be
deemed an event of default hereunder:
(a) Mortgagor shall fail to pay the principal or interest
of all or any part of the Obligations when due;
(b) Mortgagor shall file a voluntary petition in bank-
ruptcy or shall be adjudicated a bankrupt or insolvent,
or shall file any petition or answer seeking or acqui-
escing in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar
relief for itself under any present or future bankrupt-
cy, insolvency or other relief for debtors; or shall
seek or consent to or acquiesce in the appointment of
any trustee, receiver or liquidator of Mortgagor or of
all or any part of the Premises, or of any or all of
the royalties, revenue, rents, issues, or profits
thereof, or shall make any general assignment for the
benefit of creditors, or shall admit in writing its
inability to pay its debts generally as they become
due; or
(c) A court of competent jurisdiction shall enter an
order, judgment or decree approving a petition filed
against Mortgagor seeking any reorganization, dissolu-
tion or similar relief under any present or future
federal, state or other statute, law or regulation
relating to bankruptcy, insolvency or other relief for
debtors, and such order, judgment or decree shall
remain unvacated and unstayed for an aggregate of sixty
(60) days (whether or not consecutive) from the first
date of entry thereof, or any trustee, receiver or
liquidator of Mortgagor or of all or any part of the
Premises, or of any or all of the royalties, revenues,
rents, issues, or profits thereof, shall be appointed
without the consent or acquiescence of Mortgagor and
such appointment shall remain unvacated or unstayed for
an aggregate of sixty (60) days (whether or not conse-
cutive); or
(d) A writ of execution or attachment or any similar
process shall be entered against Mortgagor which shall
become a lien on the Premises; or any portion thereof
or interest therein and such execution, attachment or
similar process or judgment is not released, bonded,
satisfied, vacated or stayed within ninety (90) days
after it entry or levy; or
(e) There has occurred a breach of or default under
any term, covenant, agreement, condition, provision,
representation or warranty contained herein or in any
of the documents evidencing Obligations secured by this
Mortgage; or
(f) Mortgagor fails to perform any terms, conditions,
covenants, or agreements which are part of any document
or agreement other than this Mortgage which secures all
or any part of the Obligations.
9. Remedies. Upon the occurrence of an event of default as
defined herein, Mortgagee may require immediate payment in full
of all sums secured by this Mortgage without further demand,
and/or immediately foreclose this Mortgage or pursue any other
available legal remedy. In the event of any action by Mortgagee
to enforce collection of any of the Obligations secured hereby,
the Mortgagor agrees that any expense incurred in connection
therewith or incurred to procure a title insurance report of
commitment and title insurance policy, when incurred or paid by
Mortgagee, become a part of the Obligations secured hereby and
shall be paid by Mortgagor together with all of the taxable costs
of such action. In the event any action is brought to foreclose
this Mortgage, Mortgagee shall be entitled to immediate posses-
sion of the Premises, and the court, or a judge thereof in vaca-
tion, may appoint and the Mortgagor hereby consents to the ap-
pointment of a creditor to take possession of said Premises to
collect and receive rents and profits arising therefrom; and from
any monies so collected, to pay taxes, provide insurance, make
needed repairs to improvements upon the Premises, and make any
other expenditure authorized by the court, and apply any sums
remaining after the payment of such authorized expenditures to
the Obligations.
10. Failure to Delay to Act. Failure or delay of Mortgagee
to exercise any of its rights or privileges, or to insist upon
strict performance of any covenants or agreements of Mortgagor
contained in this Mortgage shall never be construed as a waiver
of (a) any requirement or obligation of Mortgagor; or (b) any
right or remedy of Mortgagee contained in or based upon any of
the terms, provisions, agreements or covenants of this Mortgage
or any future defaults.
11. Additional Security Instruments. Mortgagor, at its
expense, will execute and deliver to the Mortgagee, promptly upon
demand, such security instruments as may be required by
Mortgagee, in form and substance satisfactory to Mortgagee,
covering any of the Premises conveyed by this Mortgage, which
security instruments shall be additional security for Mortgagor's
performance of all of the terms, covenants, and conditions of
this Mortgage, the note and any and all other documents
evidencing the Obligations secured hereby, and any other security
instruments executed in connection with this transaction. Such
instruments shall be recorded or filed, and re-recorded and re-
filed, at Mortgagor's expense.
12. Liens and Encumbrances. The Premises are free and clear
of all liens and encumbrances whatsoever, but Mortgagee under-
stands that this Mortgage may not be senior to other recorded
Mortages on the Premises.
13. Inspections. Mortgagee or its agents, representatives
or workmen, are authorized to enter at any reasonable time upon
all or in any part of the Premises for the purpose of inspecting
the same and for the purpose of performing any of the acts it is
authorized to perform under the terms of the Mortgage.
14. Acceptance of Payments. Mortgagor agrees that accept-
ance by Mortgagee of any sum in payment, or part payment, of the
Obligations secured hereby, after the same is due or after
foreclosure proceedings are filed, shall not constitute a waiver
of the right to require prompt payment when due or all other
Obligations so secured, nor shall such acceptance cure or waive
any remaining default or invalidate any foreclosure proceedings
for any such remaining default, or prejudice any of the rights of
Mortgagee under this Mortgage.
15. Miscellaneous. The terms "Mortgagor" and "Mortgagee"
wherever used in this instrument shall be construed to include
heirs, legatees, devises, personal representatives, principals,
successors or assigns where the context may require, or permit,
and the covenants and agreements herein contained shall bind and
inure to the benefit of the Mortgagor and Mortgagee and their
respective heirs, personal representatives, principals, succes-
sors and assigns, and the terms "Mortgagor" and "Mortgagee" shall
include singular and plural regardless of gender. This Mortgage
and the Obligations which it secures are assignable by Mortgagee,
but not by Mortgagor. If applicable and if permitted by law,
Mortgagor hereby wives and releases any and all rights and reme-
dies related to marshaling of liens and assets, redemptions and
statutes of limitation. Redemption after foreclosure sale is
expressly waived, if such waiver is permitted by law. Mortgagor's
covenants and agreements shall be joint and several. Any Mort-
gagor who co-signs this Mortgage but does not execute any note or
other instrument evidencing the Obligations or any part thereof:
(a) is co-signing this Mortgage only to mortgage, grant and
convey that Mortgagor's interest in the Premises under the terms
of this Mortgage; (b) is not personally obligated to pay the
Obligations secured by this Mortgage; (c) agrees the Mortgagee
and any other Mortgagor may agree to extend, modify, forbear or
make any accommodations with regard to the terms of this Mortgage
without the Mortgagor's consent.
16. Remedies Not Exclusive. Mortgagee shall be entitled to
enforce payment and performance of any indebtedness or the Obli-
gations secured hereby and to exercise all rights and powers
under this Mortgage or under any other agreement executed in
connection herewith or any laws now or hereafter in force, not-
withstanding some or all of the such indebtedness and the Obliga-
tions secured hereby may now or hereafter be otherwise secured,
whether by mortgage, deed of trust, pledge, lien, assignment or
otherwise. Neither the acceptance of this Mortgage nor its en-
forcement, whether by court action or other powers herein con-
tained, shall prejudice or in any manner affect Mortgagee's right
to realize upon or enforce any other security now or hereafter
held by Mortgagee, it being agreed that Mortgagee shall be enti-
tled to enforce this Mortgage and any other security now or
hereafter held by Mortgagee in such order and manner as they or
either of them may in their absolute discretion determine. No
remedy herein conferred upon or reserved to Mortgagee is intended
to be exclusive of any other remedy herein or by law provided or
permitted, but shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute. Every power or remedy provided
under this Mortgage to Mortgagee or to which they may be other-
wise entitled, may be exercised, concurrently or independently,
from time to time and as often as may be deemed expedient by
Mortgagee and they may pursue inconsistent remedies. Nothing
herein shall be construed as prohibiting Mortgagee from seeking a
deficiency judgment against the Mortgagor to the extent such
action is permitted by law.
17. Transfer of the Property. If all or any part of the
Premises or interest therein is sold, transferred or otherwise
conveyed or assigned by Mortgagor without Mortgagee's prior
written consent (excluding the granting of any leasehold interest
of three (3) years or less which does not contain an option to
purchase), such action is a breach of this Mortgage, and
Mortgagee may at Mortgagee's option declare all the sums secured
by this Mortgage to be immediately due and payable.
18. Notices. Except for any notices, demand, request or
other communications required under applicable law to be given in
another manner, whenever Mortgagor or Mortgagee give or serve any
notice, demand, requests or other communication with respect to
this Mortgage, each such notice, demand, request or other commu-
nication shall be in writing and shall be effective only if the
same is delivered by personal service or is mailed by certified
mail (return receipt requested), postage prepaid, addressed to
the address as set forth at the beginning of this Mortgage. Any
party may at any time change its address for such notices by
delivering or mailing to the other party hereto, as aforesaid, a
notice of such change. Any notice hereunder shall be deemed to
have been given to Mortgagor or Mortgagee, when given in the
manner designed herein.
19. Severability. In the event any one or more of the
provisions contained in this Mortgage, or the Note or any other
security instrument given in connection with this transaction
shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or
unenforceability shall, at the option of Mortgagee, not affect
any other provision of this Mortgage, but this Mortgage shall be
construed as if such invalid, illegal, or unenforceable provision
had never been contained herein or therein. If the lien of this
Mortgage is invalid or unenforceable as to any part of the Obli-
gations, or if the lien is invalid or unenforceable as to any
part of the Premises, the unsecured or partially secured portion
of the debt shall be completely paid prior to the payment of the
remaining and secured or partially secured portion of the debt,
and all payments made on the debt, whether voluntary or under
foreclosure or other enforcement action or procedure, shall be
considered to have been first paid on and applied to the full
payment of that portion of the debt which is not secured or not
fully secured by the lien of this Mortgage.
20. Governing Law. This Mortgage shall be governed by the
laws of the State of Arizona.
21. Copies. Mortgagor hereby acknowledges that it has been
given one executed copy of this Mortgage.
22. Assignment. This Mortgage may be assigned by the Mort-
gagees upon written notification to Mortgagor.
23. Addenda. If one or more Addenda are executed by Mort-
gagor and recorded together with this Mortgage, the covenants and
agreements of each Addendum shall be incorporated into and shall
supplement the covenants and agreements of this Mortgage as if
the Addenda were part of this Mortgage.
IN WITNESS WHEREOF, this instrument is executed and deliv-
ered to Mortgagee by Mortgagor this 4th day of August, 1997.
MORTGAGOR:
TC SERVICES, INC.
A California Corporation
By:___________________________
Michael E. Kibler
President
STATE OF INDIANA)
COUNTY OF LAKE )
The foregoing instrument was acknowledged3 before me on this
4th day of August, 1997, by Michael Kibler, President of TC Serv-
ices, Inc., a California corporation, on behalf of the corpora-
tion.
________________________________
Notary Public
REAL ESTATE MORTGAGE
KNOW ALL MEN BY THESE PRESENTS: THAT TC Services, Inc., a
California corporation, whose address is 1000 Colfax Street,
Gary, Indiana 46410 (hereafter referred to as "Mortgagor") in
consideration of Five Hundred Thousand Dollars ($500,000.00)
received from Micheal Kibler, of 233 North County Road 500 West,
Valparaiso, Indiana and from Harold Antonston, 1820 Beachview
Court, Crown Point, Indiana, as individuals, (hereafter referred
to as "Mortgagee"), now existing or hereafter incurred, and other
valuable consideration in hand paid, does hereby mortgage, grant
and convey unto Mortgagee the following described premises situ-
ated in the City of Phoenix, Maricopa County and State of Arizo-
na, at 3839 West Buckeye Road, Phoenix, Arizona 85009, to wit:
SEC (15) TWN (1N) RNG (2E) BEG at NW COR NE4 TH E
486.75' S ID 23' E 992.71' W 506.96' N OD 13' W
992.42' TO POB EX S 100' & EX N 50 & EX W 40 RDS &
EX 5 X 5 TRI IN NW COR THE/O.
together with all the right, title and interest of the Mortgagor
in said property now owned or hereafter acquired and all build-
ings, improvements and fixtures of any type now or hereafter
placed on said property and all easements, rights-of-way, appur-
tenances, rents, income, profits, royalties, and all oil and gas
rights and profits, water, water rights, and water stock; all
leases or subleases covering said property or any portion there-
of, now existing or hereafter entered into, and all rights, title
and interest of Mortgagor thereunder at any time existing; all
interest, estates or other claims, both in law and in equity,
which Mortgagor now has or may hereafter acquire; and all fix-
tures, building, improvements and appurtenances now or hereafter
attached to the foregoing described property, all of which in-
cluding replacements and additions thereto, shall be deemed to be
and remain part of the property covered by this Mortgage. All of
the foregoing property and interests shall be collectively herei-
nafter referred to as the "Premises."
This Mortgage is given to secure the payment of Mortgagor's
obligations under a certain promissory note dated July 29, 1997
in the principal sum of Five Hundred Thousand Dollars
($500,000.00) with a final maturity date of July 3, 2000 (the
"Note") and interest thereon according to the terms of the Note
and any and all extensions, renewals, modifications, or substitu-
tions thereof; the payment of all sums advanced to protect the
Premises, including but not limited to those described in Para-
graph 5 below; and each and every other promissory note(s), debt,
liabilities and obligations of every type and description, in-
cluding but not limited to guarantees or accommodations, which
the Mortgagor may now, or at any time hereafter, owe or be obli-
gated on to the Mortgagee, whether such promissory note(s),
debts, liabilities, or obligations now exists, is direct or
indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, or joint, several, or
joint and several. The Note and all such debts, liabilities,
obligations, and other promissory notes) are collectively herei-
nafter referred to as "Obligations".
The total principal amount, exclusive of interest, of the
Obligations, including any future debts, advances, liabilities or
obligations, including any sums advanced for the protection of
the Premises or the Mortgagee's interest therein shall not be
limited in amount, PROVIDED, HOWEVER, THAT NOTHING CONTAINED
HEREIN SHALL CONSTITUTE A COMMITMENT TO MAKE ADDITIONAL OR FUTURE
LOANS OR ADVANCES IN ANY AMOUNT.
The Mortgagor hereby warrants that it (a) is the fee owner
of the Premises hereby mortgaged; (b) has the right to mortgage,
grant and convey the Premises; and (c) will warrant and defend
the title to the Premises against all claimants whomsoever.
Mortgagor covenants and agrees with the Mortgagee as follows:
1. Payment of Obligations. Mortgagor agrees to pay when
due all of the Obligations and all taxes, liens, judgments, or
assessments which may be lawfully assessed against the Premises
and the rental charges upon any leases assigned as additional
security for this Mortgage.
2. Insurance. Mortgagor, at its expense, will maintain
with insurers approved by Mortgagee, insurance with respect to
the improvements and personal property constituting the Premises
against loss by fire, lightning, tornado, and other perils cov-
ered by a standard extended coverage endorsement, in an amount
equal to at least one hundred percent (100%) of the full replace-
ment value thereof; and insurance against such other hazards and
in such amount as is customarily carried by owners and operators
of similar properties and as Mortgagee may require for its pro-
tection. Mortgagor will comply with such other requirements as
Mortgagee may from time to time request for the protection by
insurance of the interest on the respective parties. All in-
surance policies maintained pursuant to this Mortgage shall name
Mortgagor and Mortgagee as insured, as their respective interests
may appear, and provide that there shall be no cancellation or
modification without written notice the Mortgagee fifteen (15)
days prior to its expiration date. In the event of cancellation
of such insurance, Mortgagee may procure such insurance and the
cost thereof shall be added to the loan secured by this Mortgage
and shall bear interest from the date of disbursement at the rate
payable from time to time on outstanding principal on the Note
unless payment of interest at such rate would be contrary to
applicable law, in which event such amounts shall bear interest
at the highest interest rate authorized by applicable law. Mort-
gagor shall deliver to Mortgagee the original policies of in-
surance and renewals thereof. Failure to furnish such insurance
by Mortgagor, or renewals as required hereunder shall, at the
option of Mortgagee, constitute a default.
3. Maintenance and Compliance With Laws. Mortgagor shall
keep the Premises in good repair and condition and shall not
commit waste or permit impairment or deterioration of the
Premises and shall comply with the provisions of any lease if
this Mortgage is on leasehold. No improvement now or hereafter
erected upon the Premises shall be altered, removed or demolished
without the prior written consent of Mortgagee. Mortgagor shall
comply with all laws, ordinances, regulations, covenants, condi-
tions and restrictions affecting the Premises and not commit,
suffer or permit any act to be done in or upon the Premises in
violation of any law, ordinance, regulation, covenant, condition
or restriction. Mortgagor shall complete or restore promptly and
in good workmanlike manner any building, improvement or personal
property constituting part of the Premises which may be damaged
or destroyed and pay, when due, all claims for labor performed
and materials furnished therefore and for any alterations there-
of.
4. Condemnation. Mortgagor agrees that all money and
awards payable as damages or compensation for the taking of title
to or possession of, or for damage to any portion of the Premises
by reason of any condemnation, eminent domain, change of grade,
or other proceeding shall, at the option of the Mortgagee, be
paid to the Mortgagee, and such monies and awards are hereby
assigned to Mortgagee, and judgment thereafter shall be entered
in favor of Mortgagee. When paid, such monies and awards shall be
used, at Mortgagee's option, toward the payment of the obliga-
tions secured hereby in such order or manner as Mortgagee may
desire or determine, or shall be used at its option, for payment
of taxes, assessments, repairs or other items for the payment of
which this Mortgage is given as security, whether the same be
then due or not, and in such order or manner as Mortgagee may
determine. Any amount not so used shall be released by the Mort-
gagee to the Mortgagor. Such application or release shall not
cure or waive any default herein or affect any foreclosure pro-
ceedings. In the event Mortgagee deems it necessary to appear or
answer in the condemnation action, hearing or proceedings, Mort-
gagor shall pay all expenses in connection therewith, where
allowed by applicable law.
5. Taxes, Assessment and Charges. Mortgagor shall pay all
taxes, assessments and other charges, including, without limita-
tion, fines and impositions attributable to the Premises, and
leasehold payments or ground rents, if any, before the same
become delinquent. Mortgagor shall promptly furnish to Mortgagee
all notices of amounts due under this paragraph, Mortgagor shall
make payment directly, and Mortgagor shall promptly furnish to
Mortgagee receipts evidencing such payments. Mortgagor shall pay
all taxes and assessments levied upon this Mortgage or the in-
debtedness secured hereby, together with any other taxes or
assessments which may be levied against the Mortgagee or the
legal holder of the Note or the Obligations.
6. Additional Liens and Protection of Mortgagee's Securi-
ty. Mortgagor shall make all payments of interest and principal
and payments of any other charges, fees and expenses contracted
to be paid to any existing or subsequent lien holder or prior or
subsequent deed of trust or mortgage before the date they are
delinquent or in default and promptly pay and discharge any and
all other liens, claims or charges which may jeopardize the
security granted herein. If (1) Mortgagor fails to make any such
payment or fails to perform any of the covenants and agreements
contained in this Mortgage, or the Note or in any prior or subse-
quent mortgage or any prior or subsequent deed of trust; or (b)
if any action or proceeding is commenced which materially affects
Mortgagee's interest in the Premises, including, but not limited
to, proceedings involving a decedent, notice of sale by Trustee,
notice of default by Trustee, or mortgage foreclosure action; or
(c) any action or proceeding be commenced to which action or
proceeding the Mortgagee is made a party by reason of the execu-
tion of this Mortgage or the obligations it secures, then Mort-
gagee, at Mortgagee's option and without notice to or demand upon
Mortgagor and without releasing Mortgagor from any obligation
hereunder, may make such appearances, disburse such sums and take
such action as is necessary to protect Mortgagee's interests.
Such action may include, but is not limited to, disbursement of
reasonable attorney fees, payment, purchase, context or compro-
mise of any encumbrance, charge or lien, entry upon the Premises
to make repairs, or declaration of default under this Mortgage
and Note, and sale or foreclosure thereunder. In the event that
Mortgagor shall fail to pay taxes, assessments, or other charges
or to make any payments to any existing, prior or subsequent lien
holders or prior or subsequent beneficiaries, Mortgagee may make
such payment, but shall not be obligated to do so. Any amounts
disbursed to Mortgage pursuant to this Paragraph 6 shall become
additional indebtedness of Mortgagor secured by this Mortgage.
Such amounts shall be payable upon notice from Mortgagee to
Mortgagor requesting payment thereof, and shall bear interest
from the date of disbursement at the rate payable from time to
time on outstanding principal under the Note unless payment of
interest at such rate would be contrary to applicable law, in
which event such amounts shall bear interest at the highest rate
permissible under applicable law. Nothing contained in this
Paragraph 6 shall require Mortgagee to incur any expense or take
any action hereunder.
7. Leased Premises; Assignment of Rents. Within ten (10)
days after demand, Mortgagor shall furnish to Mortgagee a
schedule certified to be true, setting forth all leases of space
in or of the premises then in effect, including, in each case,
the name of the tenants and occupants, a description of the space
occupied by such tenant and occupancy, the rental payable for
such space and such other information and documents with respect
to such leases and tenancies as the Mortgagee may request.
Without the prior written consent of Mortgagee, Mortgagor
shall not, directly or indirectly with respect to any lease of
space in the described Premises, whether such lease is now or
hereafter in existence: (a) accept or permit any prepayment,
discount or advance rent payable thereunder; (b) cancel or termi-
nate the same, or accept any cancellation, termination or sur-
render thereof, or permit any event to occur which would entitle
the lessee thereunder to terminate or cancel the same; (c) amend
or modify the same so as to reduce the term thereof, the rental
payable thereunder, or to change any renewal provisions therein
contained; (d) waive any default thereunder or breach thereof;
(e) give any consent, waiver or approval thereunder or take any
other action in connection therewith, or with a lessee thereun-
der, which would have the effect of impairing the value of Less-
or's interest thereunder on the Premises, or of impairing the
position or interest of the Mortgagee; or (f) sell, assign,
pledge, mortgage or otherwise dispose of, or encumber, in any
such lease or rents, issues or profits issuing or arising there-
under.
Mortgagee shall have the right, power and authority during
the continuance of this Mortgage to collect the rents, issues,
and profits of the Premises and of any personal property located
thereon with or without taking possession of the property
affected hereby, and Mortgagor hereby absolutely and
unconditionally assigns all such rents, issues and profits to
Mortgagee. Mortgagee, however, hereby consents to the Mortgagor's
collection and retention of such, rents, issues, and profits as
they accrue and become payable so long as Mortgagor is not, at
such time, in default as defined herein. Upon any such default,
Mortgagee may at any time, either in person, by agent, or by a
receiver to be appointed by a court, without notice and without
regard to the adequacy of any security for the indebtedness
hereby secured: (a) enter upon and take possession of the Premis-
es or any part thereof, and in its own name sue for or otherwise
collect such rents, issues, and profits, including those past due
and unpaid and apply the same, less costs and expenses of opera-
tion and collection, including reasonable attorney fees, upon any
indebtedness secured hereby, and in such order as Mortgagee may
determine; (b) perform such acts of repair or protection as may
be necessary or protect or conserve the value of the Premises;
and (c) lease the same or any part thereof for such rental, term,
and upon such conditions as its judgment may dictate, or termi-
nate or adjust the terms and conditions of existing leases.
Unless Mortgagor and Mortgagee agree otherwise in writing, any
application of rents, issues, or profits to any indebtedness
secured hereby shall not extend or postpone the due date of the
installment payments as provided in said Note or change the
amount of such installments. The entering upon and taking posses-
sion of the Premises, the collection of such rents, issues and
profits, and the application thereof as described herein, shall
not waive or cure any default or notice of default hereunder or
invalidate any act done pursuant to such Notice. Mortgagor also
assigns to Mortgagee, as further security for the performance of
the obligations secured hereby, all prepaid rents and all monies
which may have been or may hereafter be deposited with said
Mortgagor by a lease of the Premises. To secure the payment of
any rent, and upon default in the performance of any of the
provisions, hereof, Mortgagor agrees to deliver such rents and
deposits to the Mortgagee. Delivery of written notice of Mort-
gagee's exercise of the rights granted herein, to any tenant
occupying the Premises or any portion thereof shall be sufficient
to require said tenant to pay said rent to the Mortgagee until
further notice and without any liability to Mortgagor for such
rent paid to Mortgagee.
8. Events of Default. Any of the following events shall be
deemed an event of default hereunder:
(a) Mortgagor shall fail to pay the principal or interest
of all or any part of the Obligations when due;
(b) Mortgagor shall file a voluntary petition in bank-
ruptcy or shall be adjudicated a bankrupt or insolvent,
or shall file any petition or answer seeking or acqui-
escing in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar
relief for itself under any present or future bankrupt-
cy, insolvency or other relief for debtors; or shall
seek or consent to or acquiesce in the appointment of
any trustee, receiver or liquidator of Mortgagor or of
all or any part of the Premises, or of any or all of
the royalties, revenue, rents, issues, or profits
thereof, or shall make any general assignment for the
benefit of creditors, or shall admit in writing its
inability to pay its debts generally as they become
due; or
(c) A court of competent jurisdiction shall enter an
order, judgment or decree approving a petition filed
against Mortgagor seeking any reorganization, dissolu-
tion or similar relief under any present or future
federal, state or other statute, law or regulation
relating to bankruptcy, insolvency or other relief for
debtors, and such order, judgment or decree shall
remain unvacated and unstayed for an aggregate of sixty
(60) days (whether or not consecutive) from the first
date of entry thereof, or any trustee, receiver or
liquidator of Mortgagor or of all or any part of the
Premises, or of any or all of the royalties, revenues,
rents, issues, or profits thereof, shall be appointed
without the consent or acquiescence of Mortgagor and
such appointment shall remain unvacated or unstayed for
an aggregate of sixty (60) days (whether or not conse-
cutive); or
(d) A writ of execution or attachment or any similar
process shall be entered against Mortgagor which shall
become a lien on the Premises; or any portion thereof
or interest therein and such execution, attachment or
similar process or judgment is not released, bonded,
satisfied, vacated or stayed within ninety (90) days
after it entry or levy; or
(e) There has occurred a breach of or default under
any term, covenant, agreement, condition, provision,
representation or warranty contained herein or in any
of the documents evidencing Obligations secured by this
Mortgage; or
(f) Mortgagor fails to perform any terms, conditions,
covenants, or agreements which are part of any document
or agreement other than this Mortgage which secures all
or any part of the Obligations.
9. Remedies. Upon the occurrence of an event of default as
defined herein, Mortgagee may require immediate payment in full
of all sums secured by this Mortgage without further demand,
and/or immediately foreclose this Mortgage or pursue any other
available legal remedy. In the event of any action by Mortgagee
to enforce collection of any of the Obligations secured hereby,
the Mortgagor agrees that any expense incurred in connection
therewith or incurred to procure a title insurance report of
commitment and title insurance policy, when incurred or paid by
Mortgagee, become a part of the Obligations secured hereby and
shall be paid by Mortgagor together with all of the taxable costs
of such action. In the event any action is brought to foreclose
this Mortgage, Mortgagee shall be entitled to immediate posses-
sion of the Premises, and the court, or a judge thereof in vaca-
tion, may appoint and the Mortgagor hereby consents to the ap-
pointment of a creditor to take possession of said Premises to
collect and receive rents and profits arising therefrom; and from
any monies so collected, to pay taxes, provide insurance, make
needed repairs to improvements upon the Premises, and make any
other expenditure authorized by the court, and apply any sums
remaining after the payment of such authorized expenditures to
the Obligations.
10. Failure to Delay to Act. Failure or delay of Mortgagee
to exercise any of its rights or privileges, or to insist upon
strict performance of any covenants or agreements of Mortgagor
contained in this Mortgage shall never be construed as a waiver
of (a) any requirement or obligation of Mortgagor; or (b) any
right or remedy of Mortgagee contained in or based upon any of
the terms, provisions, agreements or covenants of this Mortgage
or any future defaults.
11. Additional Security Instruments. Mortgagor, at its
expense, will execute and deliver to the Mortgagee, promptly upon
demand, such security instruments as may be required by
Mortgagee, in form and substance satisfactory to Mortgagee,
covering any of the Premises conveyed by this Mortgage, which
security instruments shall be additional security for Mortgagor's
performance of all of the terms, covenants, and conditions of
this Mortgage, the note and any and all other documents
evidencing the Obligations secured hereby, and any other security
instruments executed in connection with this transaction. Such
instruments shall be recorded or filed, and re-recorded and re-
filed, at Mortgagor's expense.
12. Liens and Encumbrances. The Premises are free and clear
of all liens and encumbrances whatsoever, but Mortgagee under-
stands that this Mortgage may not be senior to other recorded
Mortages on the Premises.
13. Inspections. Mortgagee or its agents, representatives
or workmen, are authorized to enter at any reasonable time upon
all or in any part of the Premises for the purpose of inspecting
the same and for the purpose of performing any of the acts it is
authorized to perform under the terms of the Mortgage.
14. Acceptance of Payments. Mortgagor agrees that accept-
ance by Mortgagee of any sum in payment, or part payment, of the
Obligations secured hereby, after the same is due or after
foreclosure proceedings are filed, shall not constitute a waiver
of the right to require prompt payment when due or all other
Obligations so secured, nor shall such acceptance cure or waive
any remaining default or invalidate any foreclosure proceedings
for any such remaining default, or prejudice any of the rights of
Mortgagee under this Mortgage.
15. Miscellaneous. The terms "Mortgagor" and "Mortgagee"
wherever used in this instrument shall be construed to include
heirs, legatees, devises, personal representatives, principals,
successors or assigns where the context may require, or permit,
and the covenants and agreements herein contained shall bind and
inure to the benefit of the Mortgagor and Mortgagee and their
respective heirs, personal representatives, principals, succes-
sors and assigns, and the terms "Mortgagor" and "Mortgagee" shall
include singular and plural regardless of gender. This Mortgage
and the Obligations which it secures are assignable by Mortgagee,
but not by Mortgagor. If applicable and if permitted by law,
Mortgagor hereby wives and releases any and all rights and reme-
dies related to marshaling of liens and assets, redemptions and
statutes of limitation. Redemption after foreclosure sale is
expressly waived, if such waiver is permitted by law. Mortgagor's
covenants and agreements shall be joint and several. Any Mort-
gagor who co-signs this Mortgage but does not execute any note or
other instrument evidencing the Obligations or any part thereof:
(a) is co-signing this Mortgage only to mortgage, grant and
convey that Mortgagor's interest in the Premises under the terms
of this Mortgage; (b) is not personally obligated to pay the
Obligations secured by this Mortgage; (c) agrees the Mortgagee
and any other Mortgagor may agree to extend, modify, forbear or
make any accommodations with regard to the terms of this Mortgage
without the Mortgagor's consent.
16. Remedies Not Exclusive. Mortgagee shall be entitled to
enforce payment and performance of any indebtedness or the Obli-
gations secured hereby and to exercise all rights and powers
under this Mortgage or under any other agreement executed in
connection herewith or any laws now or hereafter in force, not-
withstanding some or all of the such indebtedness and the Obliga-
tions secured hereby may now or hereafter be otherwise secured,
whether by mortgage, deed of trust, pledge, lien, assignment or
otherwise. Neither the acceptance of this Mortgage nor its en-
forcement, whether by court action or other powers herein con-
tained, shall prejudice or in any manner affect Mortgagee's right
to realize upon or enforce any other security now or hereafter
held by Mortgagee, it being agreed that Mortgagee shall be enti-
tled to enforce this Mortgage and any other security now or
hereafter held by Mortgagee in such order and manner as they or
either of them may in their absolute discretion determine. No
remedy herein conferred upon or reserved to Mortgagee is intended
to be exclusive of any other remedy herein or by law provided or
permitted, but shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute. Every power or remedy provided
under this Mortgage to Mortgagee or to which they may be other-
wise entitled, may be exercised, concurrently or independently,
from time to time and as often as may be deemed expedient by
Mortgagee and they may pursue inconsistent remedies. Nothing
herein shall be construed as prohibiting Mortgagee from seeking a
deficiency judgment against the Mortgagor to the extent such
action is permitted by law.
17. Transfer of the Property. If all or any part of the
Premises or interest therein is sold, transferred or otherwise
conveyed or assigned by Mortgagor without Mortgagee's prior
written consent (excluding the granting of any leasehold interest
of three (3) years or less which does not contain an option to
purchase), such action is a breach of this Mortgage, and
Mortgagee may at Mortgagee's option declare all the sums secured
by this Mortgage to be immediately due and payable.
18. Notices. Except for any notices, demand, request or
other communications required under applicable law to be given in
another manner, whenever Mortgagor or Mortgagee give or serve any
notice, demand, requests or other communication with respect to
this Mortgage, each such notice, demand, request or other commu-
nication shall be in writing and shall be effective only if the
same is delivered by personal service or is mailed by certified
mail (return receipt requested), postage prepaid, addressed to
the address as set forth at the beginning of this Mortgage. Any
party may at any time change its address for such notices by
delivering or mailing to the other party hereto, as aforesaid, a
notice of such change. Any notice hereunder shall be deemed to
have been given to Mortgagor or Mortgagee, when given in the
manner designed herein.
19. Severability. In the event any one or more of the
provisions contained in this Mortgage, or the Note or any other
security instrument given in connection with this transaction
shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or
unenforceability shall, at the option of Mortgagee, not affect
any other provision of this Mortgage, but this Mortgage shall be
construed as if such invalid, illegal, or unenforceable provision
had never been contained herein or therein. If the lien of this
Mortgage is invalid or unenforceable as to any part of the Obli-
gations, or if the lien is invalid or unenforceable as to any
part of the Premises, the unsecured or partially secured portion
of the debt shall be completely paid prior to the payment of the
remaining and secured or partially secured portion of the debt,
and all payments made on the debt, whether voluntary or under
foreclosure or other enforcement action or procedure, shall be
considered to have been first paid on and applied to the full
payment of that portion of the debt which is not secured or not
fully secured by the lien of this Mortgage.
20. Governing Law. This Mortgage shall be governed by the
laws of the State of Arizona.
21. Copies. Mortgagor hereby acknowledges that it has been
given one executed copy of this Mortgage.
22. Assignment. This Mortgage may be assigned by the Mort-
gagees upon written notification to Mortgagor.
23. Addenda. If one or more Addenda are executed by Mort-
gagor and recorded together with this Mortgage, the covenants and
agreements of each Addendum shall be incorporated into and shall
supplement the covenants and agreements of this Mortgage as if
the Addenda were part of this Mortgage.
IN WITNESS WHEREOF, this instrument is executed and deliv-
ered to Mortgagee by Mortgagor this 4th day of August, 1997.
MORTGAGOR:
TC SERVICES, INC.
A California Corporation
By:___________________________
Michael E. Kibler
President
STATE OF INDIANA)
COUNTY OF LAKE )
The foregoing instrument was acknowledged3 before me on this
4th day of August, 1997, by Michael Kibler, President of TC
Services, Inc., a California corporation, on behalf of the corpo-
ration.
________________________________
Notary Public
Antonson & Kibler
1000 Colfax
Gary, Indiana 46406
PROMISSORY NOTE
$1,499,304.00 Date: December 31, 1997
For value received, the undersigned US 1, Industries, Inc. (the
"Promisor") promises to pay to the order of Harold Antonson and
Michael Kibler (the "Payee"), at 1000 Colfax, Gary, Indiana 46406, (or
at such other place as the Payee may designate in writing) the sum of
$1,499,304.00 with interest from date of receipt as detailed below, on
the unpaid principal at the rate of .75 percent over the National
Price as published in the Wall Street Journal.
The unpaid principal shall be payable on January 31, 1999 with accrued
interest payable monthly. All payments on this Note shall be applied
first in payment of accrued interest and any remainder in payment of
principal.
If any payment obligation under this Note is not paid when due, the
Promisor promises to pay all costs of collection, including reasonable
attorney fees, whether or not a lawsuit is commenced as part of the
collection process.
No renewal or extension of this Note, delay in enforcing any right of
the Payee under this Note, or assignment by Payee of this Note shall
affect the liability of the Promisor. All rights of the Payee under
this Note are cumulative and may be exercised concurrently or
consecutively at the Payee's option.
This Note shall be construed in accordance with the laws of the State
of Indiana.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining
provisions shall remain fully operative.
All payments of principal and interest on this Note shall be paid in
the legal currency of the United States.
Promisor waives presentment for payment, protest, and notice of protest
and nonpayment of this Note.
Signed this 31th day of December, 1997, at Gary, Indiana.
US 1 Industries, Inc.
By: ____________________________________________________
Michael Kibler
President
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorportation by reference in the registration
statement of US 1 Industries, Inc. on Form S-8 (Commission File No. 1-8129)
of our report, which includes an explanatory paragraph regarding the
ability of US 1 Industries to continue as a going concern, dated
March 27, 1998 on our audit of the financial statements of US 1 Industries,
Inc. and Subsidiaries as of December 31, 1997 and 1996 and for the years
then ended.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 27, 1998
