U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ____ to____
Commission file number 0-2882
ESCO TRANSPORTATION CO.
(Name of small business issuer in its charter)
Delaware 55-0257510
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4301 East Park Drive
Houston, Texas 77028
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(Address of principal executive offices)
Registrant's telephone number (713) 635-1008
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.001 par value per share
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X . No.
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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]
State issuer's revenues for its most recent fiscal year. $34,967,200
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The aggregate market value of the Registrant's voting stock held by
non-affiliates on May 18, 2000 was $2,816,803 based upon the average bid and
asked prices of the common stock of $.20 per share on that date.
The number of shares outstanding of the common Stock, .001 par value, as of
December 31, 1999 was 13,818,997.
Transitional Small Business Disclosure Format (Check one): Yes . No X .
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business
ESCO Transportation Co., a Delaware corporation ("ESCO" or the "Company"), is a
short haul contractor of freight for major shipping companies as well as a
national freight hauling and freight brokering company. The Company also owns
certain oil and gas properties, which constitute an immaterial portion of the
Company's assets and generate an immaterial portion of the Company's revenues.
The Company was incorporated in 1916 under the laws of the West Virginia.
Effective May 20, 1992, the Company was reincorporated as a Delaware
corporation. Until December 1993, the Company was engaged primarily in the
business of exploration for, production of and sale of crude oil and natural
gas. On October 11, 1994, the Company changed its name from "Power Oil Company"
to "ESCO Transportation Co." Unless otherwise indicated, the information in
this Annual Report is adjusted to reflect the one-for-four and one-for-ten
reverse stock split of the outstanding shares of the Company's common stock
effected in November 1996.
(b) Business of Issuer
The principal business of the Company is providing contract transporting
services to major shipping companies, primarily inter-connecting short hauls of
container shipments. Most of this business consists of rail to rail or rail to
port shipments. In performing its services, the Company leases trucks and
trailers, with the individual truck owners providing the drivers. The owner of
the truck generally receives 70% to 75% of the revenue generated from the
shipment as compensation for providing the truck and the driver. The Company
operates out of facilities located in Houston, Texas; Dallas, Texas; Ontario,
California; Memphis, Tennessee; Fort Smith, Arkansas; Minneapolis, Minnesota;
Ripon, California; Gulf Port, Mississippi; and Springdale, Arkansas. The
Company's corporate offices are located in Houston, Texas. The Company's
freight brokerage operations pursue a cost plus strategy in dispatching loads
for various shippers in the southeastern United States.
The Company is operating in an industry that is highly competitive. The Company
currently competes directly and indirectly with a large number of smaller
contract carriers. Many of the Company's long-haul competitors are larger and
have significantly greater resources than the Company. The Company competes on
the basis of price and service.
Freight activity is typically somewhat stronger in the second half of the year,
with peak months in August, September and October. In addition, bad weather and
holidays generally affect business activity because the Company's business is
concentrated in temperate regions of the country. However, the Company's
operations have not been historically seasonal to any material degree.
The Company believes that its current business operations are in compliance with
all applicable federal, state and local regulations governing its business.
The Company employs approximately 200 employees, all of whom are full time. In
addition, the Company has approximately 365 owner/operators as independent
contractors of the trucks used in the Company's operations.
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ITEM 2. DESCRIPTION OF PROPERTIES
The Company leases the following land and buildings now being used to in its
operations.
1. A facility consisting of 6,000 square feet of office space and ten acres of
paved truck parking space in Houston, Texas. The facility is used to house
the Houston drayage operations, a Houston transloading and warehouse
operation, and the corporate offices.
2. Land and building located in Memphis, Tennessee consisting of approximately
3,000 square feet of office space and fifteen acres of truck parking and
container storage space. These facilities are used to operate the Memphis
drayage facilities and the Memphis container yard facilities.
3. A facility consisting of approximately 2,000 square feet of office space
located in Ontario, California. These facilities are used to house the
Company's Ontario, California drayage operations.
4. A facility totaling approximately 5,000 square feet of office space and
eight acres of truck parking in Springdale, Arkansas. These facilities are
used to house the over-the-road division located in Springdale, Arkansas.
5. A facility consisting of approximately 800 square feet of office space
located in Ripon, California. These facilities are used to house the
Company's Ripon, California drayage operations.
6. A facility consisting of approximately 1,000 square feet of office space
located in Fort Smith, Arkansas. These facilities are used to house the
Company's Fort Smith, Arkansas drayage operations.
7. A facility consisting of approximately 2,000 square feet of office space
located in Dallas, Texas. These facilities are used to house the Company's
Dallas, Texas drayage operations
The Company also has a note payable on approximately five acres of undeveloped
land in Springdale, Arkansas, which it currently has for sale.
The Company owns producing and non-producing oil and gas leases in the United
States, which are located in Louisiana, New Mexico, Texas, and Wyoming.
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ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business,
primarily involving claims for personal injuries and property damage incurred in
the transportation of freight. The Company maintains insurance coverage that
covers the liability resulting from such claims. Adverse results in one or more
of these cases would not have a material adverse effect on the financial
position of the Company.
As of the date of filing hereof, May 5, 2000, ESCO Transportation is involved in
the following litigation:
Case No. EDVC 98-22ORT (VAPx); Intercargo Insurance Co. v. Burlington Northern
Santa Fe Railroad, it al.; In the U.S. District Court, Central District of
California.
Intercargo Insurance Company is suing multiple defendants because a load it
insured was misdelivered at the railyard to persons who stole the
merchandise. Defendant Burlington Northern & Santa Fe Railway has
cross-claimed against multiple other defendants, including ESCO
Transportation, for indemnity. ESCO Transportation never had custody or
control of the stolen merchandise. ESCO Transportation has answered both
Intercargo's claim and Burlington's cross-claim. ESCO Transportation seeks
its reasonable and necessary defense costs by asserting that the actions
were not brought with reasonable cause and in the good faith belief that
there is a justifiable controversy under the facts and law. ESCO
Transportation is seeking a dismissal of the claims against it.
The Company's management does not believe that this litigation will have
any material impact on the Company's business.
Case No. 98-0840-1; Pacific Business Capital Corp v. ESCO Transportation Co.
and Michael Till, Individually; in the Chancery Court of Shelby, Tennessee.
Pacific Business sued ESCO Transportation and Mike Till in an attempt to
enforce a security interest it holds in some property of Intermodal
Logistics Co. ESCO Transportation took over the operations of Intermodal,
which is more fully described in the 1997 10-KSB previously filed with the
SEC. The security interest granted Pacific Business by Intermodal concerns
chattel paper, mainly receivables and right to receivables. The agreement
between ESCO Transportation and Intermodal specifically excludes
receivables due and owing prior to the date of the agreement, and
Intermodal retained all rights to those funds. It is ESCO Transportation's
and Mike Till's position that they have not violated any security interest
Pacific Business may have; ESCO Transportation and Mike Till seek dismissal
as expeditiously as possible.
The Company's management does not believe that this litigation will have
any material impact on the Company's business.
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ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
Case No. RCV27092; Sepulveda v. ESCO Transportation Co, et al.; in the Superior
Court of the State of California for the County of San Bernardino.
Regina Sepulveda is a former cleaning person for ESCO's leased premises in
California; she was allegedly injured when she was leaving the property
when a gate fell on her as she was closing the gate. Sepulveda has brought
premises liability claims against ESCO, the owner of the property, and the
manufacturer/repairer of the gate in question.
ESCO is also currently in dispute with its insurance carrier regarding the
coverage and defense costs.
ESCO is evaluating the case for possible settlement.
ESCO's management does not believe that this litigation will have any
material impact on ESCO's business.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders of the Company
through the solicitation of proxies or otherwise during the fourth quarter of
the fiscal year ending December 31, 1999.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ Bulletin Board under the
symbol "ETCO." The following table sets forth the high and low bid prices for
the common stock for the periods indicated, as quoted by NASDAQ:
FISCAL YEAR ENDED DECEMBER 31, 1998: HIGH LOW
First Quarter $ .53 $ .27
Second Quarter .62 .34
Third Quarter .90 .37
Fourth Quarter .52 .32
FISCAL YEAR ENDED DECEMBER 31, 1999: HIGH LOW
First Quarter $ .53 $ .35
Second Quarter .63 .27
Third Quarter .48 .26
Fourth Quarter .35 .25
The listed quotations reflect interdealer prices, without retail mark-up,
mark-down or commissions, and may not necessarily represent actual transactions.
As of December 31, 1999, there were 1,027 holders of record of the Company's
common stock.
The Company has not paid dividends on its common stock during the last six
years. The Company presently intends to retain earnings as working capital and
to finance the expansion of its business and, therefore, does not expect to pay
any cash dividends in the foreseeable future. Any determination as to the
payment of cash dividends will depend upon the Company's earnings, general
financial condition, capital needs and other factors deemed pertinent by the
Board of Directors, as well as any limitations imposed by lenders under credit
facilities.
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ITEM 6. MANAGEMENT'S DISCUSSION, ANALYSIS, AND PLAN OF OPERATION
OVERVIEW
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ESCO Transportation continued to show growth from 1998 to 1999 of over 28% in
its overall revenues due primarily to increased volume and a decline in its net
loss from $(396,569) to $(77,541). Administrative costs as a percentage of
revenue stayed relatively constant at 25% but increased substantially from the
prior year, primarily due to an increase in infrastructure at the corporate
level and the growth of personnel and operations at all locations necessary to
handle the increased volume of business. The Company's management anticipates
the present infrastructure will handle additional business increases without a
proportionate additional increase in personnel and related costs.
Costs are related to the Company's working capital financing under a factoring
arrangement with Commercial Billing Services/Compass Bank which increased as the
outstanding balance to Compass Bank increased. During the year, the Company
found the need to increase its outstanding balance in factored receivables
partially due to a need to generate the cash required to remain current on the
Company's long-term debt. Net income before depreciation increased from
$1,019,000 in 1998 to $1,392,000 in 1999 but did not increase in sufficient
amounts to handle the annual debt service on its long-term debt, which is
approximately $1,800,000. The cost of financing through the factoring
arrangement is higher than the cost of its long-term debt, resulting in the
increase in the total interest costs for the year. Interest costs on long-term
debt declined primarily because reduction in the total long-term debt
outstanding.
Since 1993, the Company's revenues have grown from approximately $3,000,000 to
$34,967,000 in 1999. This level of growth and the low capitalization of the
Company has required financing which is typically considered riskier, and
accordingly, resulted in higher financing costs for the Company in spite of an
improved factoring arrangement with Commercial Billing Services.
The net operations for the year showed an improvement in losses from 1998 of
$(396,569) to a loss in 1999 of $(77,541). In 1999, the Company determined that
its billing systems were resulting in excess write-offs due to billing errors
and adjustments which exceeded $700,000 and $600,000 in write-offs for the years
1999 and 1998, respectively. These amounts were reflected in the net losses for
both years. The Company has acquired and is the process of implementing an
updated financial reporting and dispatch system which management anticipates
alleviating a substantial part of the write-offs which have occurred in the
past. In addition, 1999 was a transition year for the Company and included
additional infrastructure costs exceeding $500,000 with the addition of the new
management team and consultants to establish and begin implementing its business
plan and the Company's growth patterns. Although the Company showed a small
loss for 1999, the revenue growth and anticipated expansion of the Company
operations is seen as a positive trend.
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ITEM 6. MANAGEMENT'S DISCUSSION, ANALYSIS, AND PLAN OF OPERATION
(CONTINUED)
OVERVIEW (CONTINUED)
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During the year ended December 31, 1999, the Company's new management team has
been focusing their direction on implementing revised control procedures,
upgrading their financial reporting systems, and implementing a plan to operate
the Company into 2000. Originally, a shareholders meeting had been scheduled
for December 1999 but was postponed until the third quarter of 2000 pending
completion and a full and comprehensive report of many of the key issues being
addressed by the management team. Upon completion of the scheduling of the
shareholders meeting, the management team will address its future business plans
and operations for the Company during 1998, 1999, and 2000. As such, a
shareholders meeting was not held in 1998 or 1999. Management is committed to
ensuring the shareholders are kept apprised of the Company's situation, both
operational and financial, by filing timely and complete reports with the SEC
for the shareholders to review and analyze. Management's efforts were utilized
towards getting the Company into fully reporting status and has determined that
this accomplishes a great deal towards facilitating shareholder information
concerning the Company's status. This effort to complete the fully reporting
status of the Company which involved completing several audits and revising and
upgrading the financial reporting systems and the effort to implement a global
Company software involved an inordinate amount of work and were extraordinary
events that, once done, will not involve the same usurpation of Company manpower
and resources. However, the Company's management determines that this supreme
effort would enhance the Company's profitability and makes its procedures
streamlined for the future which will result in greater long term benefits to
the shareholders.
GOING CONCERN
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The Company's auditors have included a paragraph in their audit report which
describes concerns about the Company's ability to continue to operate due to
recurring net losses, working capital deficits, a deficit in stockholders'
equity, and the fact that the Company had not been operating in compliance with
the terms of its factoring agreement. This noncompliance has been occurring
since 1998, but Compass Bank did not inform the Company that it deemed this as a
noncompliance until 2000.
In March 2000, the Company reached a forbearance agreement with Compass Bank to
continue funding daily cash needs of the Company. This agreement included
conditions which management feels are attainable and expect the factoring
relationship to continue as needed by the Company. However, because of the
nature of several of the conditions, the Company's auditors deemed it necessary
to include a "going concern" paragraph in its audit report to highlight to
shareholders and readers of the financial statements this fact in the event such
conditions are not met by the Company.
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ITEM 6. MANAGEMENT'S DISCUSSION, ANALYSIS, AND PLAN OF OPERATION
(CONTINUED)
GOING CONCERN (CONCERNED)
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As stated in Note P to the financial statements, management had already begun
taking steps in 1999 and continues to take steps to alleviate its working
capital deficits and losses. It has budgeted profitable operations for 2000 and
has completed a five-year business plan which is for planned Company growth.
This business plan is being used by brokerage firms hired by the Company to
actively pursue additional sources of working capital and equity for the
Company.
Management has deemed the forbearance agreement as a opportunity to solidify its
relationship with Compass Bank and/or future financing sources and anticipate
this will improve the operation of the Company for the long-term benefit of its
shareholders and address the issues that cause the company to have a growing
concern opinion
PROGRESS IN 1999 AND STRATEGY FOR 2000
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In early 1999, the Company formulated a new management team to assist the
Company in moving toward a more profitable financial position and move the
Company forward to place it in a position to show substantial growth in 1999,
2000, and beyond. The Company has taken the following steps to accomplish these
objectives:
- - Effective March 1, 1999, the Company implemented a new management team with
Robert Weaver as President and Robert Darilek, CPA, as Chief Financial
Officer, and has expanded the management team to incorporate a new
Corporate Controller and a new Vice President of Operations. The new team's
goals were to return the Company to a fully reporting status with the SEC
and to use the business relationships of Mr. Weaver to expand Company
business in all of its existing locations. The Company is also actively
pursuing candidates for acquisition or merger with the Company to
facilitate future growth. In addition, the Company is actively pursuing
capital funds to improve its working capital in 2000 and future years for
such acquisition or merger plans.
- - The Company has also taken an active approach to bring trade receivables
within terms for all of its customers and has hired a manager in charge of
accounts receivable collections to oversee this operation and to pursue
collections on a day-to-day basis.
- - The Company also implemented processes during 1999 to identify processing
and billing problems and has implemented procedures to eliminate the high
write-offs that existed in 1999. This should add additional profits to the
net income of the Company and improve cash flow.
10
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ITEM 6. MANAGEMENT'S DISCUSSION, ANALYSIS, AND PLAN OF OPERATION (CONTINUED)
PROGRESS IN 1999 AND STRATEGY FOR 2000 (CONTINUED)
- ---------------------------------------------------------
- - The Company established a budget for 1999 and 2000 and outlined an
organizational chart that more clearly defines roles of authority and
responsibility to the terminal managers at all locations of the Company.
This processing has placed a higher level of accountability for all
terminal managers and is used to facilitate the Company's efforts to reduce
its losses in 1999 and generate a profitable year in 2000. In addition to
the above, the Company has worked during 1999 to accomplish the following
objectives:
- Improved its internal control and financial reporting processes to
provide for better cutoff and improved and more reliable internal
financial information.
- Improved its external shareholder, public, and market reporting. The
Company is fully reporting with the SEC in 1999 which is an
accomplishment that has not been previously completed within the last
five years. This fully reporting effort is expensive and time
consuming, but management is committed to its shareholders and
bringing them timely and pertinent Company information.
- Established a firm budgeting process by division which was implemented
initially during 1999 and formalized with the 2000 budget.
- Expanded operations as part of its business plan to grow to $100
million in revenue in four years. Recently, the Company expanded into
Fort Smith, Arkansas; Minneapolis, Minnesota; Ripon, California; and
Gulf Port, Mississippi.
- Implemented a business plan to improve profitability through
technology and improved processes.
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ITEM 6. MANAGEMENT'S DISCUSSION, ANALYSIS, AND PLAN OF OPERATION (CONTINUED)
YEAR 2000 ISSUE
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The Year 2000 issue is the result of date coding within computer programs that
were written using just two digits rather than four digits to define the
applicable year. If not corrected, these date codes could cause computers to
fail to calculate dates beyond 1999 and as a result, computer applications could
fail or create erroneous results by or at the Year 2000.
The Company, together with outside vendors engaged by the Company, has made
assessments of the Company's potential Year 2000 exposure related to its
computerized information systems. Because of the nature of the Company's
operations, many of its computerized information systems will be required to
process information which includes post-year 2000 date coding well in advance of
January 1, 2000. The Company has completed its overall assessment of Year 2000
issues associated with its current systems and engaged efforts to remediate
potential year 2000 exposure with respect to those systems, including the
identification, selection, and implementation of a major new Year 2000 compliant
software system. Following the remediation phase, the Company engaged in
testing of the applicable systems in order to verify Year 2000 compliance. The
Company utilizes a variety of remediation and testing methods in connection with
its Year 2000 compliance efforts. Management believes that the Company's
compliance plan is such that Year 2000 exposures will be mitigated. To date, no
material information technology projects of the Company have been delayed as a
result of the Company's Year 2000 compliance efforts.
The Company has also made assessments of the potential future Year 2000 exposure
associated with its embedded technology systems, such as telephone systems,
freight hauling tracking systems, and accounting and payment systems. Based on
such assessments, the Company does not believe that it has significant Year 2000
exposure with respect to such embedded technology systems.
The Company is currently involved in discussion with important suppliers,
business partners, customers, and other third parties to determine the extend to
which the Company may be vulnerable to the failure of these parties to identify
and correct their own Year 2000 issues. In the ongoing acquisition of software
and hardware installations, the Company generally requires that its vendors
certify the Year 2000 compliance of acquired products. The Company believes
that its own software vendors are Year 2000 compliant.
The Company is utilizing and will continue to utilize both internal and external
resources to reprogram or replace its computer systems such that the systems can
be expected to be Year 2000 compliant in advance of respective critical dates.
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ITEM 6. MANAGEMENT'S DISCUSSION, ANALYSIS, AND PLAN OF OPERATION (CONTINUED)
YEAR 2000 ISSUE (CONTINUED)
- ------------------------------
The Company continues to implement its Year 2000 plan. The progress made was in
accordance with the plan, including progress on the new system which is expected
to go online on during the Year 2000. There was no new information which came
to management's attention that would indicate that the plan should be altered
significantly or that the plan would not be successful in the time frame
prescribed by the plan.
The dates of expected completion and the costs of the Company's Year 2000
remediation efforts are based on management's estimates, which are derived
utilizing assumptions of future events, including the availability of certain
resources, third party remediation plans, and other factors. There can be no
guarantee that these estimates will be achieved, and if the actual timing and
costs for the Company's Year 2000 remediation program differ materially from
those anticipated, the Company's financial results and financial condition could
be significantly affected. Additionally, despite testing by the Company, the
Company's systems may contain undetected errors or defects associated with Year
2000 issues for remediation or to complete its Year 2000 remediation and testing
efforts prior to respective critical dates, as well as the failure of third
parties with whom the Company has an important relationship to identify,
remediate, and test their own Year 2000 issues and the resulting disruption
which could occur in the Company's systems and could have material adverse
effects on the Company's business, results of operations, cash flow, and
financial condition.
OTHER MAJOR DEVELOPMENTS
- --------------------------
In January 2000, the Company completed the acquisition of Quantum
Transportation, Inc. based in Shakopee, Minnesota and with an office in Ripon,
California. This acquisition was completed for a purchase price of $530,000 of
a combination of cash and stock. Management believes that this strategic
acquisition will add $225,000 to its yearly income.
The Company has continued to evaluate additional prospects for acquisition and
anticipates two acquisitions before December 31, 2000.
In September 1999, the Company sold its land in Houston, Texas for a profit.
The Company filed a Certificate of Amendment to the Company's Articles of
Incorporation in January 1999 to clarify the authorized capital in Article V.
The Articles of Incorporation authorized Twenty Million (20,000,000) shares of
Common Stock and Fifteen Million (15,000,000) shares of Preferred Stock; both
with a par value of $.001.
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ITEM 6. MANAGEMENT'S DISCUSSION, ANALYSIS, AND PLAN OF OPERATION (CONTINUED)
FUTURE PLANS
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The Company anticipates a profitable year for the fiscal year ended December 31,
2000 based on its operations for the first quarter and its detailed budget for
the year. Its new management team is actively pursuing opportunities to improve
working capital and has developed a five year plan to improve processes, expand
existing markets, and develop future acquisitions of the Company. During 1999,
the Company implemented a budgeting process and continues to implement budgeting
accountability and financial reporting procedures for all divisions of the
Company. The Company's management anticipates this accountability and
decentralization of accountability will provide more direct incentives for the
managers to increase revenues and profits at each location and also provide a
tool to monitor progress according to the budget on a monthly and quarterly
basis.
Management is presently conducting discussions with financing and equity capital
companies to improve its credit line and provide additional working capital for
the Company. Management anticipates during the 2000 fiscal year that several of
its major fleet will be replaced with new equipment and will pursue establishing
a credit line to handle growth and the addition of new equipment as necessary.
Management anticipates the financing arrangements will improve current financing
interest rates and payments of its existing fleet.
SAFE HARBOR
- ------------
This report on Form 10-KSB (the Report) contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which are intended to be covered by the safe harbors created thereby. Investors
are cautioned that all forward-looking statements necessarily involve risks and
uncertainty, including, without limitation, the risk of a significant natural
disaster, the expansion or contraction in its various lines of business, the
impact of inflation, the impact of Year 2000 issues, the ability of the Company
to meet its debt obligation, changing licensing requirements and regulations in
the United States pertinent to its business, the ability of the Company to
expand its businesses, the effect of pending or future acquisitions as well as
acquisitions which have recently been consummated, general market conditions,
competition, licensing and pricing. All statements, other than statements of
historical facts, included or incorporated by reference in the Report that
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including, without limitation, such
things as future capital expenditures (including the amount and nature thereof),
business strategy and measures to implement such strategy, competitive
strengths, goals, expansion, and growth of the Company's businesses and
operations, plans, references to future success, as well as other statements
which includes words such as "anticipate," "believe," "plan," "estimate,"
"expect," and "intend" and other similar expressions, constitute forward-looking
statements. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could over time prove to be inaccurate and, therefore, there can be
no assurance that the forward-looking statements included in this Report will
themselves prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
14
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ITEM 6. MANAGEMENT'S DISCUSSION, ANALYSIS, AND PLAN OF OPERATION (CONTINUED)
INFLATION AND CHANGES IN PRICES
- -----------------------------------
The Company does not anticipate future changes in prices or inflation levels to
have a significant impact on the operations of the Company.
SUMMATION
- ---------
The Company's management believes that is has taken a positive turn in 1999 with
the new efforts and the new direction to improve the Company's financial
position and develop financial growth over the upcoming years. The new
management team sees opportunities for substantial profits in 2000 and
subsequent years. The Company intends to become a major force within the
intermodal transportation industry, as well as the trucking industry as a whole.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements and supplementary disclosures are included
herein on pages 23 through 44.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In 1995, the Company filed Form 15 with the SEC to become non-reporting. In
1999, the Company returned to reporting status when it hired Null & Lairson
P.C., (formerly Lairson, Stephens and Reimer, P.C.) to perform audits of the
1996 and 1997 financial statements. During 1999, the Company hired Fitts,
Roberts and Co., P.C. to complete the audit of its 1998 financial statements to
again become fully reporting. Effective through the reporting period of
September 30, 1999, the Company has completed all filings and has implemented
procedures to ensure future filings are maintained timely.
During the period that Null & Lairson, P.C. was the Company's auditor, there
were no disagreements on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure or any reportable
events. Null & Lairson, P.C.'s report on the financial statements for the
Company contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope, or accounting principles.
The Company has requested Null & Lairson, P.C. to furnish it with a letter
addressed to the Securities and Exchange Commission stating whether or not it
agrees with the statements made by the Company herein and, if not, stating the
respects in which it does not agree. Any copy of this letter will be attached
as an exhibit to a later report of Form 8-K/A.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
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Name Position with Registrant
- ------------------- -----------------------------------------------------------------------
<S> <C>
Edwis L. Selph, Sr. Chief Executive Officer and Chairman of the Board
Robert Weaver President and Chief Operating Officer and Director (Effective 03/01/99)
Robert F. Darilek Chief Financial Officer and Director (Effective 03/01/99)
Edwis L. Selph, Jr. Vice President and Director/Secretary/Treasurer
Bernard Vlahakis Director
</TABLE>
Each director shall hold office until his/her successor shall have been elected
and qualified or until resignation or removal by the Board of Directors in
accordance with the By-laws of the Company.
The officers of the Registrant are elected by the Board of Directors. The term
of each officer is until voluntary resignation or replacement. There is no
arrangement or understanding between any directors pursuant to selection.
Edwis L. Selph, Sr. has served as a Director of the Company since April 29,
- ----------------------
1986. He served as Chairman of the Board, President and Chief Executive Officer
from February 27, 1987 until February 1, 1990 when he resigned these positions
and was elected Vice-Chairman. He was reinstated as Chairman of the Board,
President and Chief Executive Officer on December 31, 1990. Mr. Selph has other
business interests including real estate holdings and small business interests.
However, Mr. Selph brings 25 years of experience in freight hauling to the
Company and is familiar with all aspects of this business.
Robert J. Weaver left his position as President of HUB City Texas based in
- ------------------
Houston, Texas to assume the position of President of the Company. Mr. Weaver
began his career in Houston in 1993 and brought the operations of HUB City Texas
(originally HUB City Houston) from a heavy debt position to a profitable
operation with revenues in excess of $100,000,000. Mr. Weaver has been in the
transportation industry for over twenty-two years and brings a tremendous level
of stability and opportunity to the Company through his relationships with the
Hub Group and other companies in the transportation industry.
Robert F. Darilek, C.P.A was hired by the Company as Chief Financial Officer
- ---------------------------
because of his experience in working with Mr. Robert Weaver at HUB City Texas
and his ability in resolving operational problems. Mr. Darilek has been in the
transportation industry since 1984 through various relationships with the HUB
Group, and brings a high level of financial reporting and internal control
expertise to the Company. Mr. Darilek is responsible for overseeing all
financial operations, financial reporting, and is assisting in evaluating
refinancing and merger opportunities for the Company.
16
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT (CONTINUED)
Edwis L. Selph, Jr. has served as Secretary/Treasurer and Director of the
- ----------------------
Company since September 21, 1994. Mr. Selph has continually worked for the
Company in various capacities. Edwis L. Selph, Jr. is the son of Edwis L.
Selph, Sr., Chairman of the Board, President and Chief Executive Officer of the
Company. Mr. Selph was appointed Vice-President in 1995 with unanimous consent
of the board after the resignations of Mr. Cox and Mr. Bible, former directors,
during that same year.
Bernard Vlahakis serves as a director of the Company and is a businessman and
- -----------------
founder of a manufacturing company.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to its Chief
Executive Officers for the fiscal years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Other
Principal Annual All Other
Position Year Salary Bonus Compensation Options Compensation
- --------------------------- ------ ----------- ------ -------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edwis L. Selph, Sr., CEO 1999 $ 205,000 $ 0 $ 10,000 (1) $ 0 $ 0
1998 $ 150,000 $ 0 $ 9,375 (2) $ 0 $ 0
Edwis L. Selph, Jr., VP 1999 $ 97,000 $ 0 $ 10,000 (1) $ 0 $ 0
1998 $ 66,350 $ 0 $ 9,375 (2) $ 0 $ 0
Robert J. Weaver, President 1999 $ 226,323 $ 0 $ 0 $ 0 $ 0
Robert F. Darilek, CFO 1999 (3) $ 0 $ 0 $ 0 $ 0
<FN>
(1) This compensation consists of 25,000 shares of stock issued as a bonus on 01/01/99 each
to Edwis Selph, Sr. and Edwis Selph, Jr. valued at $0.40 per share.
(2) This compensation consists of 25,000 shares of stock issued as a bonus on 01/01/98 each
to Edwis Selph, Sr. and Edwis Selph, Jr. valued at $0.375 per share.
(3) Compensation is paid to Darilek, Butler & Co., P.C., of which Robert F. Darilek is a
major shareholder and receives benefits from fees paid, totaling $215,882.
</TABLE>
The Company has no defined benefit or actuarial plan.
Directors of the Company currently serve without any compensation for their
service as directors.
17
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION (CONTINUED)
During 1999, 1,200,000 shares of common stock were issued to a new executive
pursuant to an employment agreement subject to a three year vesting arrangement.
The vesting causes the executive to forfeit a portion of the stock previously
issued in the event of termination of employment for reasons stated in the
contract. However, an amendment to this employment agreement was executed in
March 1999 which restricted the executive's ownership of the shares upon the
occurrence of the following events: (i) purchase of the 1,200,000 shares at
$.40 per share; or (ii) bonus by the Board of Directors of shares at its sole
discretion. The executive executed a promissory note to the Company for the
purchase price for the shares. If there is a default in the payment to the
Company, the executive has to return the stock to the Company. This amendment
amends the section in the employment agreement allowing a vesting over time for
the 1,200,000 Company shares and restricts the executive's ownership of these
shares to the events set forth above.
During 1999, the Company issued a key officer 225,000 shares of stock which is
earned at management's discretion through a series of five milestones relating
to restructuring debt operations and profitability.
18
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of
Common Stock as of December 31, 1999 by (i) each director and executive officer
of the Company, (ii) all directors and officers of the Company as a group, and
(iii) each other person known by the Company to be the beneficial owner of more
than 5% of the outstanding Common Stock as of December 31, 1999.
<TABLE>
<CAPTION>
# of Shares and Nature of
Name and address of Beneficial Owner Beneficial Owner Percent of Outstanding Shares
- ------------------------------------ ------------------------- ------------------------------
<S> <C> <C>
Edwis L. Selph, Sr. 9,077,310 65.69%
4301 East Park Drive
Houston, Texas 77028
- ------------------------------------ ------------------------- ------------------------------
Robert J. Weaver 1,200,000 8.68%
4301 East Park Drive
Houston, Texas 77028
- ------------------------------------ ------------------------- ------------------------------
Edwis L. Selph, Jr. 55,000 0.40%
4301 East Park Drive
Houston, Texas 77028
- ------------------------------------ ------------------------- ------------------------------
Robert F. Darilek 225,000 1.63%
4301 East Park Drive
Houston, Texas 77028
- ------------------------------------ ------------------------- ------------------------------
Bernard Vlahakis 0 0%
4301 East Park Drive
Houston, Texas 77028
- ------------------------------------ ------------------------- ------------------------------
Total 10,557,310 76.40%
- ------------------------------------ ------------------------- ------------------------------
</TABLE>
19
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Edwis L. Selph, Sr., Chairman of the Board, President and Chief Executive
Officer of the Company, owned 100% of the stock of ESCO Transportation Inc. and
received 875,000 shares of the Company's common stock in exchange for 100% of
the common stock of ESCO Transportation Inc. Prior to ESCO Transportation Inc.
becoming a wholly-owned subsidiary of the Company, Mr. Selph owned approximately
15.67% of the Company's outstanding common stock. Immediately after the
transaction, Mr. Selph owned approximately 86.18% of the Company's outstanding
common stock.
The Company advanced funds and issued stock to a shareholder and his family
members as discussed below. At December 31, 1999, $814,431 remained owing to
the Company evidenced by two notes. The notes receivable signed December 31,
1999, including 7% interest, are payable in full on or before December 31, 1999
and are secured by ESCO common stock. $35,527 of interest was accrued but not
paid on these notes in 1999.
As reported in Note D to the financial statements, the Company issued shares to
two officers and directors totaling 1,425,000 shares valued at $.40 per share.
These amounts are reported as notes receivable from the officers and directors
including interest at 7%. The total outstanding balance on these loans are
$570,000 in principal plus accrued interest totaling $33,251, all of which is
reported as additional paid-in capital in the accompanying financial statements.
During the year ended December 31, 1999, a professional corporation in which an
officer and director of the Company is a major stockholder provided accounting
and other consulting services including, but not limited to, services as Chief
Financial Officer. The total amount paid to the professional corporation for
these services during the year ended December 31, 1999 was $215,882.
A manager of the Company provided computer consulting services to the Company in
1998 and was paid approximately $102,000 for these services, which included
sales of hardware to the Company.
In May 1998, the Company purchased 4,000,000 shares of the Company's common
stock for $1,198,000 or 29.95 cents per share, from a related party, in exchange
for a note, including interest, to be paid over eight years. On December 31,
1998, the chief executive officer and majority stockholder of the Company
assumed the promissory note, which then had a balance due of $960,000, in
exchange for 3,200,000 shares of the Company's common stock. An additional
800,000 shares was also issued to the same individual at the same time in
exchange for a note receivable back to the Company for $265,991. Additional
loans from the Company to this stockholder and his immediate family members
totaled $398,419 in 1999, of which $25,000 was repaid, and $469,156, less
$70,319 owed to the stockholder of which $200,150 was repaid in 1998. These
transactions resulted in ending receivable balances due to the Company of
$814,431 and $464,678 at December 31, 1999 and 1998. Of these ending receivable
balances, $588,384 and $413,385, which is related to the stock purchase, is
shown as a reduction of shareholders' equity in 1999 and 1998 respectively.
Total interest income recognized on these notes was $32,527 of which $28,936 is
reported as an increase in additional paid-in capital. No interest was accrued
for the note during the year ended December 31, 1998.
20
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
1. Material contracts
i.) Firstar Equipment Financing
ii.) Orix Credit Alliance Equipment Financing
iii.) Wells Fargo Equipment Financing
iv.) Quantum Transportation Purchase Document
2. Letter on change in certifying accountant
b. Reports on Forms 8-K - NONE
21
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ESCO TRANSPORTATION, CO.
_________________________________________
Edwis L. Selph, Sr.,
Chief Executive Officer and Chairman of the Board
Date: ________________
_________________________________________
Robert J. Weaver
President
Date: ________________
_________________________________________
Robert F. Darilek, CPA
Chief Financial Officer
Date: ________________
_________________________________________
Becky Clamp, CPA
Controller
Date: ________________
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date:
- ----------------------------- -----------------
Edwis L. Selph, Sr.
(Chief Executive Officer and
Chairman of the Board)
Date:
- ----------------------------- -----------------
Edwis L. Selph, Jr.
(Secretary/Treasurer)
22
<PAGE>
AUDITED FINANCIAL STATEMENTS
ESCO TRANSPORTATION CO.
DECEMBER 31, 1999 AND 1998
<PAGE>
CONTENTS
Page
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . 3
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 5
Statement of Changes in Stockholders' Equity (Deficit) . . . . . . . . 6
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
ESCO Transportation Co.
Houston, Texas
We have audited the accompanying balance sheets of ESCO Transportation Co. (a
Delaware corporation) as of December 31, 1999 and 1998, and the related
statements of operations, changes in stockholders' equity (deficit) 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ESCO Transportation Co. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that ESCO
Transportation Co. will continue as a going concern. The Company incurred net
losses in 1999 and 1998, had a working capital deficit of approximately $4.7
million and had a deficit in stockholders' equity at December 31, 1999. On
April 20, 2000, Compass Bank acknowledged that the Company was in default on
its factoring agreement. Compass Bank agreed to forbear this default subject to
the conditions described in Note P to the financial statements. There is no
certainty that the Company will be able to meet these conditions. These
circumstances raise substantial doubt about the ability of ESCO Transportation
Co. to continue as a going concern at December 31, 1999. Management's plans in
regard to these matters are described in Note M. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/S/ FITTS, ROBERTS & CO., P.C.
FITTS, ROBERTS & CO., P.C.
Houston, Texas
March 21, 2000, except for Note P,
as to which the date is April 20, 2000
3
<PAGE>
<TABLE>
<CAPTION>
ESCO TRANSPORTATION CO. Page 4
Balance Sheets
December 31, 1999 and 1998
ASSETS
Current Assets 1999 1998
------------ ------------
<S> <C> <C>
Cash and Cash Equivalents (Pledged - Note C and N) $ 109,929 $ 25,833
Accounts Receivable - Trade - Net (Note C) 6,172,164 4,212,197
Truck Maintenance Supplies 152,557 106,058
Employee Advances and Driver Loans 117,092 40,932
Notes Receivable - Employees, Current 241,830 39,803
Notes Receivable - Stockholders (Note D) 217,109 51,293
Other Prepaid Expenses 91,319 121,740
Prepaid Insurance 42,727 36,597
Covenant Not To Complete - Current (Note E) 26,085 78,288
------------ ------------
Total Current Assets 7,170,812 4,712,741
------------ ------------
Property and Equipment
Land 175,975 706,370
Buildings 13,554 13,554
Office Equipment 571,061 275,007
Communications Equipment 183,584 80,832
Furniture and Fixtures 32,699 30,133
Trucks, Tractors, and Trailers 9,827,467 8,685,492
Property Held Under Capital Leases 1,476,881 715,347
Yard Equipment 235,345 397,539
------------ ------------
12,516,566 10,904,274
Less: Accumulated Depreciation (3,980,000) (2,785,694)
------------ ------------
Total Property and Equipment 8,536,566 8,118,580
------------ ------------
Other Assets
Oil and Gas Properties - Net (Note B) 22,742 28,717
Prepaid Insurance - Net of Current Portion 0 64,500
Deposits and Other Assets 12,650 6,000
Intangibles (Note E) 82,871 0
Covenant Not To Complete - Net, Non Current (Note E) 0 26,085
------------ ------------
118,263 125,302
------------ ------------
Total Assets $15,825,641 $12,956,623
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts Payable - Trade $ 1,247,094 $ 756,895
Bank Overdrafts 436,838 0
Accrued Payroll and Other 887,884 279,682
Driver Escrow and Savings 92,816 49,933
Amounts Due Factor, Net of Reserve (Note C) 6,944,085 4,890,821
Current Portion of Long-Term Debt (Note F) 2,038,470 1,845,093
Current Portion of Obligations Under Capital Leases (Note G) 235,603 131,615
------------ ------------
Total Current Liabilities 11,882,790 7,954,039
------------ ------------
Long-Term Debt
Long-Term Debt, Net of Current Portion (Note F) 3,138,735 4,423,273
Obligations Under Capital Leases, Net of Current Portion (Note G) 852,633 382,065
Stockholders' Equity (Deficit)
Preferred Stock, $.001 Par Value; 15,000,000 Share Authorized; None Issued
Common Stock, $.001 Par Value; 20,000,000 Shares Authorized; 14,084,017 and 12,567,012
Issued; 13,818,997 and 12,527,592 Oustanding in 1999 and 1998 1,560 1,569
Additional Paid-In Capital 1,625,765 931,906
Retained Earnings (Deficit) (396,385) (318,844)
------------ ------------
1,230,940 614,631
Less Treasury Stock, At Cost (87,822) (4,000)
------------ ------------
1,143,118 610,631
Less Notes Receivable From Stockholders (Note D) (1,191,635) (413,385)
------------ ------------
(48,517) 197,246
------------ ------------
Total Liabilities and Stockholders' Equity (Deficit) $15,825,641 $12,956,623
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements
<PAGE>
<TABLE>
<CAPTION>
ESCO TRANSPORTATION CO. Page 5
Statements of Operations
For the Years Ended December 31, 1999 and 1998
Revenue 1999 1998
------------ ------------
<S> <C> <C>
Freight Revenue - Intermodal $21,106,591 $15,573,047
Freight Revenue - Long Haul 13,310,119 11,325,768
Storage Revenue 545,565 332,498
Oil and Gas Revenue 4,925 5,143
------------ ------------
Total Revenue 34,967,200 27,236,456
Expenses
Cost of Freight - Intermodal 15,056,759 11,409,781
Cost of Freight - Long Haul 8,740,136 6,995,954
General Administrative Expenses 8,686,921 6,719,839
Depreciation and Depletion 1,469,291 1,415,866
------------ ------------
Total Expenses 33,953,107 26,541,440
------------ ------------
Operating Income 1,014,093 695,016
Other Income (Expense)
Interest Income 40,645 8,350
Other Income 39,541 11,700
Interest Expense (1,252,386) (1,265,704)
Gain on Sale of Assets 80,566 154,069
------------ ------------
(1,091,634) (1,091,585)
------------ ------------
Net (Loss) Before Income Taxes (77,541) (396,569)
Provision for Federal Income Tax Expense ( Benefit) 0 0
------------ ------------
Net (Loss) $ (77,541) $ (396,569)
============ ============
Net (Loss) Per Common Share - Basic and Fully Diluted $ (0.01) $ (0.03)
============ ============
Weighted Average Number of Shares Outstanding 13,831,510 12,495,694
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements
<PAGE>
<TABLE>
<CAPTION>
ESCO TRANSPORTATION CO. Page 6
Statement of Changes in Stockholders' Equity (Deficit)
Years Ended December 31, 1999 and 1998
Common Stock Retained Treasury Stock
--------------------- Additional Earnings ---------------------
Shares Amount Paid-In Capital (Deficit) Shares Amount
----------- -------- ----------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31,1997 12,176,760 $ 1,218 $ 863,818 $ 77,725 (20) $ (4,000)
Correction of Issuance of Common Stock 174,352 174 (174) 0 0 0
Issuance of Common Stock 176,500 177 68,262 0 0 0
Issuance of Note Receivable from Stockholder 0 0 0 0 0 0
Net (Loss) 0 0 0 (396,569) 0 0
----------- -------- ----------------- ---------- ---------- ---------
Balance - December 31,1998 12,527,612 $ 1,569 $ 931,906 $(318,844) (20) $ (4,000)
Correction 0 (175) 175 0 0 0
Adjustment of Outstanding Shares (95,095) 0 0 0 0 0
Acquisition of California Operations 100,000 10 39,990 0 0 0
Stock Issued Under Management Incentive 1,425,000 143 569,857 0 0 0
Interest on Stockholder notes for Stock 0 0 33,250 0 0 0
Advances to Stockholders - Stock Purchase 0 0 0 0 0 0
Employee Stock Bonuses 126,500 13 50,587 0 0 0
Purchase Treasury Stock 0 0 0 0 (265,000) (83,822)
Net (Loss) 0 0 0 (77,541) 0 0
----------- -------- ----------------- ---------- ---------- ---------
Balance - December 31, 1999 14,084,017 $ 1,560 $ 1,625,765 $(396,385) $(265,020) $(87,822)
=========== ======== ================= ========== ========== =========
Notes Receivable
from Stockholders Total
------------------- ----------
<S> <C> <C>
Balance - December 31,1997 $ 0 $ 938,761
Correction of Issuance of Common Stock 0 0
Issuance of Common Stock 0 68,439
Issuance of Note Receivable from Stockholder (413,385) (413,385)
Net (Loss) 0 (396,569)
------------------- ----------
Balance - December 31,1998 $ (413,385) $ 197,246
Correction 0 0
Adjustment of Outstanding Shares 0 0
Acquisition of California Operations 0 40,000
Stock Issued Under Management Incentive 0 570,000
Interest on Stockholder notes for Stock 0 33,250
Advances to Stockholders - Stock Purchase (778,250) (778,250)
Employee Stock Bonuses 0 50,600
Purchase Treasury Stock 0 (83,822)
Net (Loss) 0 (77,541)
------------------- ----------
Balance - December 31, 1999 $ (1,191,635) $ (48,517)
=================== ==========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements
<PAGE>
<TABLE>
<CAPTION>
ESCO TRANSPORTATION CO. Page 7
Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998
Cash Flows from Operating Activities: 1999 1998
------------ ------------
<S> <C> <C>
Net (Loss) $ (77,541) $ (396,569)
Adjustments to Reconcile Net (Loss)
to Net Cash Provided By Operating Activities:
Depreciation, Depletion and Amortization 1,469,291 1,415,866
Allowance for Bad Debt Expense (134,253) (8,855)
Stock Issued to Employees 50,600
(Gain) on Sale of Equipment (80,565) (154,069)
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (1,825,715) 251,338
(Increase) in Supplies Inventory (46,500) (106,057)
Decrease (Increase) in Prepaid Expenses 128,791 (84,314)
Decrease (Increase) in Other Assets (46,650) 144,780
Decrease (Increase) in Driver/Employee Advances (278,186)
(Decrease) Increase in Accounts Payable and Accrued Expenses 1,099,206 271,868
------------ ------------
Net Cash Provided By Operating Activities 258,478 1,333,988
Cash Flows from Investing Activities
Advances made to Owner Operators 0 (69,017)
Loans Made to Shareholders (371,341) (735,147)
Payments Received from Shareholders 30,525 220,150
Purchase of Intangible Assets (47,209) (156,560)
Purchases of Property and Equipment (1,056,849) (920,817)
Sale of Property and Equipment 815,617 699,090
------------ ------------
Net Cash (Used In) Investing Activities (629,257) (962,301)
Cash Flows from Financing Activities
Financing of Operations from Bank Overdraft (Repayment) 436,838 (280,715)
Advances from Factor, Net of Collections 2,053,264 1,456,940
Proceeds from Long-Term Debt 668,945 490,000
Payments on Long-Term Debt (2,620,350) (2,103,196)
Purchase of Treasury Stock (83,822)
Issuance of Common Stock 0 68,439
------------ ------------
Net Cash Provided By (Used In) Financing Activities 454,875 (368,532)
Net Increase in Cash and Cash Equivalents 84,096 3,155
Cash and Cash Equivalents Balance at Beginning of Year 25,833 22,678
------------ ------------
Cash and Cash Equivalents Balance at End of Period $ 109,929 $ 25,833
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements
<PAGE>
ESCO TRANSPORTATION CO. Page 8
Notes to the Financial Statements
December 31, 1999 and 1998
Note A - Organization
- ------------------------
ESCO Transportation Co., (the "Company") was incorporated under the name of
Power Oil Company in 1916 in West Virginia. In 1992, the Company was
reincorporated as a Delaware corporation and in 1994 changed its name from
"Power Oil Company" to "ESCO Transportation Co." In 1993, the Company acquired
certain assets, liabilities, and transportation contracts from ESCO
Transportation (a sole proprietorship) and in May 1993, the Company began
operating as a transportation company.
ESCO Transportation, Inc., a wholly-owned subsidiary of ESCO Transportation
Co., was incorporated on May 26, 1993 and acquired certain assets, liabilities
and transportation contracts from ESCO Transportation (a sole proprietorship) as
of May 31, 1993.
On October 20, 1993, the Company's Board of Directors authorized a one-for-ten
reverse stock split for all outstanding shares of its common stock. On December
14, 1993, Power Oil Company acquired all of the outstanding shares of ESCO
Transportation, Inc. (ESCO) in exchange for the issuance of 875,000 shares of
common stock. The stock of ESCO Transportation, Inc. was acquired as described
in the plan and agreement of reorganization dated October 20, 1993 and was held
as a wholly-owned subsidiary. For accounting purposes, ESCO was the acquiror.
Accordingly, the merger was accounted for as a reverse acquisition on the "as
if" pooling of interest basis. On November 14, 1994 the Company's Board of
Directors voted to (1) change the name of the Company from Power Oil Company to
ESCO Transportation Co. and (2) institute a one-for-four reverse stock split on
the Company's common stock.
The Company maintains three divisions with distinct transportation services
offered by each. The Company's Intermodal division primarily hauls container
and piggyback shipments between shipping locations and railroads or ports. This
division operates out of facilities in Houston, Texas; Ontario, California;
Memphis, Tennessee; Dallas, Texas; Fort Smith, Arkansas; and Gulf Port,
Mississippi. Subsequent to year-end, ESCO expanded to Ripon, California and
Minneapolis, Minnesota. The Company also maintains an Over-The-Road division
that performs long haul services for numerous customers within the United
States. The main office for this division is located in Springdale, Arkansas.
The Company's third division is its Container Yard division with a single
operation located in Memphis, Tennessee. The Company's corporate office is
located in Houston, Texas.
<PAGE>
ESCO TRANSPORTATION CO. Page 9
Notes to the Financial Statements
December 31, 1999 and 1998
Note B - Summary of Significant Accounting Policies
- ----------------------------------------------------------
BASIS OF ACCOUNTING
Income and expenses are recorded on the accrual method of accounting for
financial and federal income tax reporting purposes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts and related disclosures. Actual results could differ
from these estimates. Management believes that the estimates are reasonable.
REVENUE RECOGNITION
Revenue and direct costs are recognized when the shipment is completed.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all cash on
hand, cash in bank (demand deposits), savings accounts, cash held in brokerage
accounts and highly liquid debt instruments purchased with a maturity of three
months or less to be cash and cash equivalents.
PROPERTY AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation for financial
reporting purposes has been computed on the straight-line method over the
estimated useful lives of the assets which range from three to twenty years.
During the year ended December 31, 1999, the Company changed the estimated
service lives of certain trucks and trailers owned by the Company to more
clearly reflect the actual useful lives of this equipment. The effect of the
change was to decrease depreciation expense and increase earnings by $99,595 or
$.01 per share in 1999.
Accelerated methods of depreciation are used for computation of depreciation
expense for income tax reporting purposes.
Depreciation expense for the years ended December 31, 1999 and 1998 was
$1,380,691 and $1,357,704, respectively.
<PAGE>
ESCO TRANSPORTATION CO. Page 10
Notes to the Financial Statements
December 31, 1999 and 1998
Note B - Summary of Significant Accounting Policies (Continued)
- -----------------------------------------------------------------------
OIL AND GAS PROPERTIES
The Company has historically accounted for its oil and gas exploration and
development activities using the successful efforts method. Under this method
of accounting, exploratory drilling costs which result in the discovery of
proved reserves are capitalized. All other exploratory costs, including
geological and geophysical costs, are expensed when incurred. Developmental
costs, including development of dry holes, are capitalized when incurred. The
Company had no exploration and development activity during the years ended
December 31, 1999 or 1998.
The Company's total capitalized costs as of December 31, 1999 and 1998 was as
follows:
1999 1998
------------- --------------
Capitalized costs $ 238,023 $ 238,023
Accumulated Amortization (215,281) (209,306)
------------- --------------
$ 22,742 $ 28,717
============= ==============
Depletion of capitalized costs on producing properties is computed on a
property-by-property basis utilizing the unit-of-production method. Depletion
expense was $5,975 for 1999 and $5,975 for 1998.
Lease acquisition costs are capitalized when incurred. Leasehold impairment is
recognized through a charge to operations if the lease expires or management
decides to abandon the Company's interest.
When assets are retired, abandoned or otherwise disposed of, the related costs
and accumulated depreciation are removed from the accounts, and gain or loss is
included in income.
INCOME TAXES
The Company uses the liability method of accounting for income taxes under which
deferred tax assets and liabilities are recognized for deductible temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
<PAGE>
ESCO TRANSPORTATION CO. Page 11
Notes to the Financial Statements
December 31, 1999 and 1998
Note B - Summary of Significant Accounting Policies (Continued)
- -----------------------------------------------------------------------
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable. In the normal
course of business the Company grants credit without collateral to customers.
Consequently, the Company's ability to collect the amounts due from customers is
affected by economic conditions.
During the year, the Company has also advanced funds to stockholders and
employees during the normal course of business. (Also see Note N). The ability
to collect these funds is inherently related to the shareholders' ability to
repay. Management has the option to offset bonuses against stockholder
receivables as compensation in subsequent periods. The collectability of
advances made to employees is inherent upon the Company's controls to ensure
such advances are deducted from employee's pay prior to termination with the
Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held for
trading purposes. These primarily consist of receivables from trade creditors
and receivables from employees and long-term debt. The Company estimates that
the fair value of all financial instruments at December 31, 1999 and 1998 does
not differ materially from the aggregate carrying values of its financial
instruments recorded in the accompanying balance sheet except for notes
receivable form stockholders as follows (also see Note D):
Note Receivable - Stockholders Carrying Value Fair Value
------------------------------ -------------- ----------
December 31, 1999 $ 1,408,744 $ *
December 31, 1998 $ 464,878 $ *
* Management believes the fair value of the notes receivable from stockholders
is less than the carrying value; however, the fair value is not estimable.
<PAGE>
ESCO TRANSPORTATION CO. Page 12
Notes to the Financial Statements
December 31, 1999 and 1998
Note B - Summary of Significant Accounting Policies (Continued)
- -----------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
Considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value and, accordingly, the estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
RESTATEMENTS
Certain reclassifications of amounts reported in the prior year have been made
to conform to the current year presentation.
NEW ACCOUNTING STANDARD
Effective January 1, 1998, the Company adopted FASB Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information. Statement
No. 131 superseded FASB Statement No. 14, Financial Reporting for Segments of a
Business Enterprise. Statement No. 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. Statement
No. 131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The adoption of Statement No.
131 did not affect results of operations or financial position.
NET LOSS PER SHARE
Net loss per common share is based on the weighted average number of shares
outstanding during the year.
As stated in Note P, subsequent to year end, the Company issued shares in
conjunction with the acquisition of Quantum Transportation. The effect of this
transaction is to increase the total shares outstanding as of the date the new
shares are issued.
<PAGE>
ESCO TRANSPORTATION CO. Page 13
Notes to the Financial Statements
December 31, 1999 and 1998
Note C - Accounts Receivable and Amounts Due to Factor
- ---------------------------------------------------------------
Accounts receivable are comprised of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
----------- -----------
<S> <C> <C>
Receivables assigned to factor $5,629,741 $3,879,613
Unfactored accounts receivable 664,183 670,165
Accrued unbilled revenue 101,960 132,167
Other 114,280 2,505
Allowances for doubtful accounts (338,000) (472,253)
----------- -----------
$6,172,164 $4,212,197
=========== ===========
Total Outstanding Balance 7,538,961 5,336,553
Reserve Funds Held by Factor (594,876) (445,732)
----------- -----------
Net Amounts Due Factor $6,944,085 $4,890,821
=========== ===========
</TABLE>
Pursuant to a factoring agreement, the Company factors all of its accounts
receivables under an agreement with a Compass Bank doing business as Commercial
Billing Service Interest is paid on the total outstanding balance at a rate of
12.5% per annum. Total interest paid under the agreement was $552,910 and
$422,654 in 1999 and 1998 respectively. The Company repurchases all factored
accounts receivable over 90 days old. The factor withholds a reserve of 10% of
the uncollected and unrepurchased accounts. Some payments are made directly to
the Company rather than the factor which become an obligation due the factor.
The factor has a security interest in accounts receivable financed by the
factor. The Company's obligation to the factor is guaranteed by the majority
stockholder, who is also an officer, and another officer of the Company.
Approximately $17,434 and $294,729 in cash deposits with the factor at December
31, 1999 and 1998 respectively, were also subject to the security interest of
the factor. Due primarily to the repurchase feature of the factoring agreement,
the Company accounts for the factored accounts receivable as a secured borrowing
rather than a sale. Many receivables are not collected within 90 days and have
to be repurchased by the Company.
As of April 20, 2000, the Company renegotiated its agreement with a factoring
company. (See Note P for the description of the revised agreement with the
factoring company). The revised factoring agreement will also be accounted for
as a secured borrowing rather than sale of the receivables.
<PAGE>
ESCO TRANSPORTATION CO. Page 14
Notes to the Financial Statements
December 31, 1999 and 1998
Note D - Notes Receivable - Stockholders
- ----------------------------------------------
At December 31, 1999, $1,408,744 was owed to the Company from three stockholders
evidenced by three notes and, at December 31, 1998, $464,678 was owed to the
Company evidenced by two notes. The notes were signed on December 31, 1999 and
December 31, 1998 respectively and include interest at 7%. The 1999 notes are
due and payable in full on or before December 31, 2000 and are secured by ESCO
common stock. No interest was paid or accrued on these notes during 1998;
however, interest was accrued but not paid during 1999.
The balance owed by stockholders noted above includes a note from a major
stockholder. Certain advances made were in conjunction with the acquisition of
stock from an immediate family member. As of December 31, 1999 and 1998, that
portion of the note receivable which relate to the stock acquisition total
$588,384 and $413,385 in 1999 and 1998 respectively. (See Note M). Interest
accrued on this note totaled $28,973 and was recorded as an addition to paid-in
capital.
During 1999, the Company agreed to grant to a key officer and director a series
of five stock options ranging from 25,000 to 50,000 shares at $.25 per share
contingent upon the accomplishment of certain milestones related to
restructuring of debt and profitability. Each option will be granted within
thirty days of the accomplishment of the event and is exercisable within one
year of the issuance date. During the year ended December 31, 1999, the Company
issued stock in lieu of options to the officer and director for 225,000 shares
at $.40 per share and received a note receivable totaling $90,000 which is due
March 1, 2000. The note bears interest at 7% per annum. Such shares are
subject to refund to the Company by the officer and director if such milestones
are not accomplished during the officer's tenure with the Company. Interest
accrued on this note totaled $5,261 and was recorded as an addition to paid-in
capital. Management has the option to offset bonuses against all or part of the
stockholder note receivable and accrued interest as compensation to the
officer/director in subsequent periods.
In February 1999, 1,200,000 shares of common stock were purchased for a note
from an officer and director pursuant to an employment agreement. The agreement
obligates the Company to pay the executive a base salary for three years of
$250,000 as long as the agreement is in effect. During the year ended December
31, 1999, the Company received a note receivable from the officer and director
totaling $480,000 for these shares at a per share rate of $.40 per share which
is due March 1, 2000. The note bears interest at 7% per annum. Interest
accrued on this note totaled $28,000 and was recorded as an addition to paid-in
capital. Management has the option to offset bonuses against all or part of the
stockholder note receivable and accrued interest as compensation to the
officer/director in subsequent periods.
<PAGE>
ESCO TRANSPORTATION CO. Page 15
Notes to the Financial Statements
December 31, 1999 and 1998
Note E - Intangibles
- -----------------------
COVENANT NOT TO COMPETE - INTERMODAL LOGISITICS COMPANY
On April 22, 1998, the Company acquired certain assets of Intermodal Logistics
Company, Inc. ("ILC") for approximately $337,900, of which $156,560 was payment
for a two year agreement not to compete with ILC's majority stockholder.
Amortization expense for 1999 and 1998 was $78,288 and $52,187 respectively
computed on the straight-line basis for 24 months. Amortization for 1998 was
prorated from the date of acquisition. The remainder of the purchase cost was
for equipment and supplies.
GOODWILL - CALIFORNIA
On January 15, 1999, the Company acquired the rights to conduct business with
certain select customers in California from a California corporation. The
purchase price of this business consisted of $25,000 in cash and 100,000 shares
of ESCO stock, valued at $.40 per share or $40,000. Amortization expense for
the goodwill for 1999 totaled $4,337 on a straight-line basis over sixty (60)
months prorated accordingly for 1999.
QUANTUM ACQUISITION
During the year ended December 31, 1999, the Company incurred costs of $22,209
associated with the merger and acquisition of Quantum Transportation Company, a
Minnesota corporation. Amortization of these costs will begin in January 2000
after closing of the acquisition. (See Note P).
Note F - Long-Term Debt
- ---------------------------
Loans are from banks and finance companies for the purchase of transportation
equipment including trucks and trailers, communication equipment, leasehold
improvements, and portable buildings. The Company's long-term debt was issued
to purchase property and equipment. Following is a summary of the total
balances outstanding at of December 31, 1999 and 1998 and the maturities of
long-term debt for each year:
<PAGE>
ESCO TRANSPORTATION CO. Page 16
Notes to the Financial Statements
December 31, 1999 and 1998
Note F - Long-Term Debt (Continued)
- ----------------------------------------
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
Notes payable to various banks and finance companies; $ 5,060,872 $ 5,691,142
payable in monthly installments totaling $202,312 including
principal and interest; bearing interest at rates ranging from
9.5% to 11.5%; secured by transportation equipment
purchased in conjunction with the financing; guaranteed by
a major stockholder. The notes mature at varying dates
from 2001 through 2004.
- -------------------------------------------------------------- ------------ ------------
A mortgage note payable to a partnership; bearing interest at 116,333 127,224
8%; payable in monthly installments of $1,722 including
principal and interest; secured by real estate; guaranteed by
a major stockholder. The note matures in 2002.
- -------------------------------------------------------------- ------------ ------------
A mortgage note payable to a corporation; bearing interest 0 450,000
at 10.5%; payable in monthly installments of both principal
and interest; secured by real estate; guaranteed by a major
stockholder.
- -------------------------------------------------------------- ------------ ------------
5,177,205 6,268,366
- -------------------------------------------------------------- ------------ ------------
Less: Current Maturities (2,038,470) (1,845,093)
- -------------------------------------------------------------- ------------ ------------
$ 3,138,735 $ 4,423,273
- -------------------------------------------------------------- ============ ============
</TABLE>
The following are maturities of long-term debt for mortgages payable for each of
the next five years:
December 31, Amount
---------------- ---------------
2000 $ 2,038,470
2001 1,891,088
2002 789,922
2003 297,877
2004 159,848
Interest expense for 1999 and 1998 was $614,095 and $829,031, respectively.
<PAGE>
ESCO TRANSPORTATION CO. Page 17
Notes to the Financial Statements
December 31, 1999 and 1998
Note G - Obligations Under Capital Leases
- -----------------------------------------------
The Company is lessee of trailers and communication equipment which are held
under capital leases expiring in various years. The assets and liabilities
under capital leases are recorded at the lower of the present value of the
minimum lease payments or the fair value of the asset. Assets are amortized (or
depreciated) over the longer of the lease terms or their estimated productive
lives. Amortization (or depreciation) of assets under capital leases is
included in depreciation expense for 1999 and 1998. Following is a summary of
property held under capital leases:
December 31,
----------------------------------
1999 1998
---------------- --------------
Transportation Equipment/Trailers $ 1,347,697 $ 715,347
Communications Equipment 75,250 0
Office Equipment 53,934 0
---------------- --------------
$ 1,476,881 $ 715,347
================ ==============
Accumulated Depreciation $ (385,646) $ (255,286)
================ ==============
Minimum future lease payments under capital leases as of December 31, 1999 for
each of the next five years and in the aggregate are as follows:
December 31, Amount
- ------------------------------------------------------ --------------
2000 $ 332,686
2001 332,686
2002 199,491
2003 132,947
2004 114,720
Subsequent to 2004 186,930
--------------
Total Minimum Lease Payments 1,299,460
Less: Amount Representing Interest (211,224)
Present Value of Net Minimum Lease Payments 1,088,236
Less Current Portion (235,603)
--------------
$ 852,633
==============
Interest rates on capitalized leases vary from 8.7% to 12.2% and are imputed
based upon the lower of the Company's incremental borrowing rate at the
inception of the lease or the lessor's implicit rate of return. Interest
expense for 1999 and 1998 was $76,030 and $11,272, respectively.
<PAGE>
ESCO TRANSPORTATION CO. Page 18
Notes to the Financial Statements
December 31, 1999 and 1998
Note H - Contracts and Commitments - Operating Leases
- -------------------------------------------------------------
The Company leases office equipment and facilities under noncancelable operating
leases. Lease expense incurred for 1999 and 1998 was $663,455 and $380,234
respectively. The Company's minimum rental commitments under these
noncancelable operating lease as of December 31, 1999 were as follows:
December 31, Amount
------------ -----------
2000 $ 647,213
2001 446,445
2002 408,520
2003 309,544
2004 275,328
2005 66,000
-----------
$ 2,153,050
===========
Note I - Federal Income Taxes
- ----------------------------------
At December 31, 1999, the Company had net operating loss (NOL) carryforwards for
federal income tax purposes of $3,558,438, which expires if unused as follows:
Expires year ending Amount
------------------- -----------
2001 $ 110,657
2005 69,883
2007 14,469
2010 3,355
2011 188,103
2012 1,697,297
2018 902,909
2019 571,765
-----------
$ 3,558,438
===========
Management believes that previous changes in stock ownership resulted in an
ownership change as defined in Section 382 of the Internal Revenue Code (IRC),
as amended. The net operating loss carryforwards generated in the years prior
to the ownership change which are subject to Section 382 limitations total
$195,000. Management believes these operating loss carryforwards are available
to offset future taxable income of the Company in each year following the
change, but the offsets will be limited under the provisions of Section 382 of
the IRC. The amount of such limitation is expected to be approximately $35,000
<PAGE>
each year. The Company's NOL carryforwards generated after the ownership change
in the amount of $3,363,429 are available to offset future taxable income
through the dates of expiration without the limitations of Section 382.
<PAGE>
ESCO TRANSPORTATION CO. Page 19
Notes to the Financial Statements
December 31, 1999 and 1998
Note I - Federal Income Taxes (Continued)
- -----------------------------------------------
Following represents the amounts of deferred tax assets and liabilities as of
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
Deferred Tax Asset - Net Operating Losses $ 1,209,868 $1,015,580
- --------------------------------------------------- ============ ===========
Deferred Tax Liabilities - Accelerated Depreciation (1,192,710) (933,204)
- --------------------------------------------------- ============ ===========
Valuation Allowance $ 17,158 $ 82,376
- --------------------------------------------------- ============ ===========
</TABLE>
All deferred assets and liabilities are considered long-term for financial
reporting purposes. Amounts of franchise tax assets and liabilities are not
material to the financial statements.
The Company has not reported benefits from NOL carryforwards because of
uncertainties concerning realization of the loss carryforwards. A valuation
allowance has been provided for the full amount of the deferred tax asset
arising from such net operating loss carryforwards. The effective income tax
rate varies from the statutory federal income tax rate due to certain expenses
which primarily are not deductible for tax purposes, which are immaterial
and changes in the valuation allowance or $65,218.
Note J - Major Customers
- ----------------------------
Sales to major customers were as follows:
Customer 1999 1998
-------- ---- ----
A 18% 17%
B 10% 11%
C 5% 10%
D 5% 6%
E 5% 5%
F 3% 5%
---- ----
TOTAL 46% 54%
==== ====
<PAGE>
ESCO TRANSPORTATION CO. Page 20
Notes to the Financial Statements
December 31, 1999 and 1998
Note K - Supplemental Disclosures of Cash Flow Information
- ------------------------------------------------------------------
Supplemental cash flow information:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Interest paid $1,280,549 $1,294,323
- --------------------------------------------------------- ========== ==========
Noncash investing and financing activities:
Capital lease obligations incurred for new equipment $ 707,600 $ 3,027
- --------------------------------------------------------- ========== ==========
Common stock issued for notes receivable $ 570,000 $1,225,991
- --------------------------------------------------------- ========== ==========
</TABLE>
Note L - Contingent Liabilities
- -----------------------------------
Due to the nature of the Company's business, it is a defendant in various
lawsuits. Some of the matters discussed below are covered by insurance.
Pacific Business Capital Corporation, a secured creditor of Intermodal Logistics
Co. ("ILC") (Note E), has sued the Company and an employee of the Company in the
Chancery Court of Shelby County, Tennessee, asserting a violation of the
security interest in certain accounts receivable of ILC. Management estimates
its maximum exposure related to this litigation will not exceed $50,000.
Intercargo Insurance Company is suing numerous defendants, including the
Company, over misdelivering a load it insured. The Company is also subject to
cross-claims by some of the other defendants. The suit and counter-claims were
filed in United States District Court, Central District of California.
Management estimates its maximum exposure related to this litigation will not
exceed $30,000.
A former cleaning person for the Company's leased premises in California has
sued the Company and others in the Superior Court of the State of California for
the County of San Bernardino for alleged injuries on the Company's premises.
The litigation does not specifically name requested damages; however,
management's estimate is any losses related to this litigation will be
immaterial to the financial statements.
While it is not possible to predict with certainty the outcome of these cases,
it is the opinion of management that these lawsuits, claims and proceedings
which are pending against the Company are without merit or will not have a
material adverse effect on the Company's operating results, liquidity or
financial position.
<PAGE>
ESCO TRANSPORTATION CO. Page 21
Notes to the Financial Statements
December 31, 1999 and 1998
Note M - Financial Results and Liquidity
- ----------------------------------------------
Management has implemented plans to address the following issues over the
upcoming year. Management plans to address its historical losses with the
preparation and implementation of a detailed operational plan and budget which
includes profitability for each division during 2000. The plan includes the
continued implementation of budgetary controls and cost control measures in all
areas of operation. Management has also implemented procedures to update its
accounting and dispatch system which should further reduce billing errors,
increase cost control in the over-the-road division, and provide better
profitability in the intermodal division. Management is also pursuing outside
capital sources to provide additional working capital for the Company.
Management is also working with Compass Bank to ensure they continue to provide
needed working capital for Company operations through December 31, 2000.
Continued funding is subject to the conditions explained in Note P.
Note N - Related Party Transactions
- ----------------------------------------
In May 1998, the Company purchased 4,000,000 shares of the Company's common
stock for $1,198,000 or 29.95 cents per share, from a related party, in exchange
for a note, including interest, to be paid over eight years. On December 31,
1998, the chief executive officer and majority stockholder of the Company
assumed the promissory note, which then had a balance due of $960,000, in
exchange for 3,200,000 shares of the Company's common stock. An additional
800,000 shares was also issued to the same individual at the same time in
exchange for a note receivable back to the Company for $265,991. Additional
loans from the Company to this stockholder and his immediate family members
totaled $398,419 in 1999, of which $25,000 was repaid, and $469,156, less
$70,319 owed to the stockholder of which $200,150 was repaid in 1998. These
transactions resulted in ending receivable balances due to the Company of
$814,431 and $464,678 at December 31, 1999 and 1998. Of these ending receivable
balances, $588,384 and $413,385, which is related to the stock purchase, is
shown as a reduction of shareholders' equity in 1999 and 1998 respectively.
Total interest income recognized on these notes was $32,527 of which $28,936 is
reported as an increase in additional paid-in capital. No interest was accrued
for the note during the year ended December 31, 1998.
<PAGE>
ESCO TRANSPORTATION CO. Page 22
Notes to the Financial Statements
December 31, 1999 and 1998
Note N - Related Party Transactions (Continued)
- -----------------------------------------------------
As reported in Note D, the Company issued shares to two officers and directors
totaling 1,425,000 shares valued at $.40 per share. These amounts are reported
as notes receivable from the officers and directors including interest at 7%.
The total outstanding balance on these loans are $570,000 in principal plus
accrued interest totaling $33,251, all of which is reported as additional
paid-in capital in the accompanying financial statements.
During the year ended December 31, 1999, a professional corporation in which an
officer and director of the Company is a major stockholder provided accounting
and other consulting services including, but not limited to, services as Chief
Financial Officer. The total amount paid to the professional corporation for
these services during the year ended December 31, 1999 was $215,882.
As of December 31, 1999, the Company had pledged $100,000 of cash account
balances as security for a personal note payable of a major stockholder.
A manager of the Company provided computer consulting services to the Company in
1998 and was paid approximately $102,000 for these services, which included
sales of hardware to the Company.
Note O - Employee Benefit Plans
- ------------------------------------
The Company established a defined contribution profit sharing plan for the
benefit of its employees. There were no Company contributions, which are
voluntary, in 1999 or 1998. The Company also has a stock bonus plan which
distributes shares to employees based upon tenure with the Company and
management responsibilities. Shares issued under this plan are based on
management's discretion. During the years ended December 31, 1999 and 1998, the
Company issued 126,500 shares and 176,500 shares respectively. The shares were
valued at per share rates of $.40 per share in 1999 and $.38 per share in 1998.
The shares issued in each year include 50,000 shares issued to officers and
directors.
<PAGE>
ESCO TRANSPORTATION CO. Page 23
Notes to the Financial Statements
December 31, 1999 and 1998
Note P - Subsequent Events
- ------------------------------
On January 19, 2000, the Company acquired 100% of the outstanding stock of
Quantum Transportation, Inc., a Minnesota corporation, in a purchase transaction
valued at $530,000. The acquisition was completed through a combination of
159,000 shares of stock and $53,000 in cash in a merger transaction. This
merger was completed through a newly formed subsidiary corporation named ESCO
Acquisition Corp.
Effective March 27, 2000, the Company entered into a management agreement with
Kizer, Inc. (Kizer) and other related companies located in Gulf Port,
Mississippi. The management agreement provides for the Company to manage the
operations of Kizer for a period of 120 days, during which an ongoing due
diligence will be completed by the Company. On or before the conclusion of the
management agreement, the Company and Kizer have the option to negotiate terms
which are acceptable to both parties for a potential acquisition of Kizer and
the related business by the Company.
On April 20, 2000, after being declared in default, the Company renegotiated the
terms of its factoring agreement with Compass Bank (Compass) dba Commercial
Billing Service. Under the terms of the revised agreement, the reserve account
balance as of March 29, 2000 was applied against the amounts owed by the Company
to Compass. Compass will continue to advance the Company 90% of eligible
accounts receivable. The remaining 10% will be placed in a new non-interest
bearing reserve account to be used to further reduce the balance owed to Compass
by the Company or provide additional working capital to the Company with
Compass' approval. Uncollected accounts receivable my be recoursed at will
instead of after ninety (90) days. The revised agreement also includes the
following conditions which must be met and/or maintained by the Company while
the agreement is in effect:
- - the Company must show progress toward and cure the default by December 31,
2000;
- - the Company's financial position cannot deteriorate nor can there be any
additional violations of the original factoring agreement;
- - the Company does not incur a net operating loss for two consecutive
months;
- - the Company does not incur a cumulative net operating loss of $100,000 for
any consecutive two month period
- - the ownership structure, management and control of the Company may not
change;
- - the Company must sign confidentiality agreements with at least five
serious, potential investors or sign a letter of intent for a
proposed investment of an additional $5 million in equity or
subordinated debt by July 1, 2000;
<PAGE>
ESCO TRANSPORTATION CO. Page 24
Notes to the Financial Statements
December 31, 1999 and 1998
Note P - Subsequent Events (Continued)
- -------------------------------------------
- - the unsecured amount the Company owes Compass cannot exceed $1,100,000;
- - the Company must remit accounts receivable collections received by the
Company to Compass.
The revised agreement also reestablishes certain provisions in the original
agreement which must be adhered to by the Company. The majority stockholder and
another stockholder have guaranteed the agreement.
On April 4, 2000, the Company entered into an agreement with a broker/dealer to
assist the Company in locating additional working capital to improve cash flow
and execute the Company's business plan. The agreement provides for the
broker/dealer to receive a fee equal to 7% of capital raised in an amount less
than $3,000,000 and 5% of capital raised in an amount raised in excess of
$3,000,000. In addition, the broker/dealer is entitled to receive a percentage
of stock issued to any investor supplying funds to the Company.
Subsequent to year-end, the Company entered into a trac-lease agreement to lease
twelve (12) trucks for forty-eight (48) months. The total value of this
commitment is approximately $1,020,000.
Note Q - Segment Information
- --------------------------------
The Company's operations are divided into three segments by type of operations
which are intermodal operations, over-the-road operations, and storage
operations. Intermodal operations consist of short-haul, drayage shipments
primarily from railroad ramps to customer docks and is operated out of various
company locations. Over-the-road operations represent long-haul, door-to-door
deliveries for customers. Storage operations represent the Company's container
yard operated in Memphis, Tennessee. The following table presents 1999 and 1998
segment information:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------
Depreciation and
Cost of Sales Amortization Interest
Sales Expense
----------------- ------------- ----------------- ----------
<S> <C> <C> <C> <C>
Intermodal Revenue $ 21,106,590 $ 15,056,759 $ 148,776 $ 628,916
Over-the-Road Revenue 13,310,119 8,740,136 1,216,844 623,470
Storage 545,565 0 103,671 0
Other 4,926 0 0 0
----------------- ------------- ----------------- ----------
$ 34,967,200 $ 23,796,875 $1,469,291 $1,252,386
================= ============= ================= ==========
</TABLE>
<PAGE>
ESCO TRANSPORTATION CO. Page 25
Notes to the Financial Statements
December 31, 1999 and 1998
Note Q - Segment Information (Continued)
- ---------------------------------------------
<TABLE>
<CAPTION>
1999
--------------------------------------------------------
Additions to
Earnings (Loss) Long-Term Long-Lived Total Assets
Assets Assets
---------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Intermodal Revenue $ 489,461 $ 826,116 $ 451,137 $ 5,704,991
Over-the-Road Revenue (662,131) 7,546,079 2,064,566 9,681,405
Storage 90,204 164,371 18,027 439,245
Other 4,925 0 0 0
---------------- ---------- ----------- -------------
$ (77,541) $8,536,566 $ 2,533,730 $ 15,825,641
================ ========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------
Depreciation and
Amortization Interest
Sales Cost of Sales Expense
----------------- -------------- ---------------- ----------
<S> <C> <C> <C> <C>
Intermodal Revenue $ 15,780,967 $ 11,409,781 $ 99,712 $ 482,430
Over-the-Road Revenue 11,117,849 6,995,954 1,238,592 783,274
Storage 332,497 0 77,562 0
Other 5,143 0 0 0
----------------- -------------- ---------------- ----------
$ 27,236,456 $ 18,405,735 $ 1,415,866 $1,265,704
================= ============== ================ ==========
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------------------------------------
Additions to
Earnings (Loss) Long-Term Long-Lived Total Assets
Assets Assets
---------------- --------- ------------ -------------
<S> <C> <C> <C> <C>
Intermodal Revenue $ (238,607) 1,193,978 $ 0 $ 5,875,963
Over-the-Road Revenue (219,629) 6,752,621 744,901 6,908,679
Storage 56,525 171,981 175,916 171,981
Other 5,142 0 0 0
---------------- --------- ------------ -------------
$ (396,569) 8,118,580 $ 920,817 $ 12,956,623
================ ========= ============ =============
</TABLE>
The segmented information is prepared under generally accepted accounting
principles. The amounts also incorporate the allocation of overhead costs based
on the number of loads on the various segments operated within the Company.
<PAGE>
ESCO TRANSPORTATION CO. Page 26
Notes to the Financial Statements
December 31, 1999 and 1998
Note Q - Segment Information (Continued)
- ---------------------------------------------
The customers providing revenue of 10% or more are included in the following
table. All customers included in this category are as serviced through the
intermodal segment of the Company.
1999 1998
---------- ----------
Customer A $6,136,114 $5,087,384
Customer B $3,510,005 $3,099,813
Customer C - $2,817,415
Note R - Fourth Quarter Adjustments
- ----------------------------------------
In conjunction with the preparation of the year end financial statements, the
Company recorded an adjustment to depreciation expense totaling $99,595
representing a decrease in depreciation expense and an increase in earnings, a
reduction of interest income to reclassify interest on shareholder notes to
additional paid-in capital totaling $62,186, and an increase in the bad debt
reserve representing an increase in expense and a decrease in earnings totaling
$180,000. All amounts represent changes in the fourth quarter of 1999.
<PAGE>
EXHIBIT
FIRSTAR EQUIPMENT FINANCING
FIRSTAR
- -------
FIRSTAR EQUIPMENT FINANCE CORPORATION
SUPPLEMENT NO. 003
---
TO MASTER EQUIPMENT LEASE NO. 0005782
-------
(TRAC LEASE)
LESSOR: FIRSTAR EQUIPMENT FINANCE CORPORATION LESSEE: ESCO TRANSPORTATION CO.
(herein called the "Lessor") (herein called the "Lessee")
------ ------
400 Highway 169 South, Suite 300 6505 HOMESTEAD
St. Louis Park, MN 55426 HOUSTON, TX 77028
1. Term and Commencement Date. The Lease Term for the Equipment covered by
----------------------------
this Supplement shall commence on the date Lessee executes the herein below
Delivery and Acceptance Certificate or the date on which Lessor funds the
acquisition of the Equipment, whichever is earlier, ('Commencement Date") and
shall continue for a period of 84 months. Upon delivery of the Equipment to
Lease, Lessee shall determine if the same is satisfactory to Lessee and, if
appropriate, execute and deliver to Lessor a Delivery and Acceptance Certificate
in form satisfactory to Lessor.
2. Rent. As rent during the term of the Lease, Lessee hereby agrees to pay
----
Lessor the sum of $2,135.00 monthly in advance during the Term hereof on the day
of each month, corresponding to the Commencement Date, beginning with the
Commencement Date month, except that the first and last rental payment(s) shall
be paid upon execution hereof. All rent is subject to sales and/or use tax
whenever applicable. If the Commencement Date does not occur within sixty (60)
days after this Supplement is executed by Lessee, Lessor may, upon written
notice to Lessee, increase the amount of the Rent as deemed necessary by Lessor
to reflect any increases in market financing rates.
3. Security Deposit. No. If "yes", Lessee hereby egrets to deposit with
-----------------
Lessor the sum of $ as a security deposit ("Security Deposit") and not as an
------------------
advance payment of Rent.
4. Depreciable Life. The Equipment covered by this Supplement has a
-----------------
depreciable life of 5 years.
5. Rolling Stock. If Rolling Stock, Lessor deems the Equipment to be rolling
-------------
stock for purposes of Section 10 of the Master Equipment Lease.
6. Projected Value. The Projected Value of the Equipment is 10.00% of the
----------------
estimated total cost of the Equipment as set forth below. The parties
acknowledge that the Projected Value is the current estimate of the fair market
value of the Equipment as of the Expiration Date.
7. Termination. Upon expiration of the Lease Term with respect to such
-----------
Equipment and so long as no Event of Default, as defined in Section 11 of the
Master Equipment Lease, has occurred and is continuing, Lessee shall sell such
Equipment as agent of Lessor to the highest bidder and shall render an
accounting of such sale to Lessor and, as a final payment of Rent, transmit the
Projected Value (as defined above) to Lessor. If the sale proceeds received by
Lessee are less than the Projected Value, Lessee shall immediately remit to
Lessor an amount equal the shortfall. If the sale proceeds received by Lessee
exceed the Projected Va1ue, any excess shall be retained by the Lessee.
It is anticipated that Lessee will sell the Equipment as required under this
paragraph 7 promptly upon expiration of this Lease with respect to such
Equipment on behalf of Lessor. If Lessee does not sell the Equipment on behalf
of Lessor, Lessor will sell such Equipment at wholesale as soon as possible
after the expiration or cancellation of this Lease or any extension thereof with
respect to such Equipment and determine the rent adjustment in accordance with
the provisions of this paragraph. Such rental adjustment shall be paid by the
Lessee within 30 days after the date Lessor sells such Equipment. If Lessee does
not sell the Equipment on behalf of Lessor, Lessee agrees to pay Lessor a
disposal fee of $300 for each item of Equipment disposed of by Lessor. In the
event Lessee should fail to pay Lessor the Projected Value upon the expiration
of the Lease Term. Lessee shall pay to Lessor a delinquent payment charge at a
rate pursuant to Section 25 of the Master Equipment Lease, until the Projected
Value is paid to Lessor.
8. Tax Indemnity. This supplement is entered in to on the basis that under
--------------
the Internal Revenue Code of 1986, as amended (the "Code"). Lessor shall be
----
entitled to (1) Modified Accelerated Cost Recovery System ("MACRS") deductions
-----
pursuant to section 168 of the Code on the basis that the Lessor has an
unadjusted basis in the Equipment equal to the Estimated Total Cost, that the
applicable depreciation method is the 200 percent declining balance method
switching tostraightline when optimal, that the applicable recovery period is 5
years and that the applicable convention is the half year convention, (2)
current deductions for interest expense accrued with respect to indebtedness
incurred to finance purchase of the Equipment and (3) to realize as gross income
with respect to the transactions contemplated by the Lease (including the
purchase of the Equipment) only Rent and Termination Amount in the amounts and
accrued at the times set forth in this Supplement and any interest payable on
late payments thereof (any failure of this clause (3) to be true herein referred
to as an "Inclusion"), and (4) neat the Lease as a "Qualified Motor Vehicle
---------
Agreement" as defined in Section 210 of the Tax Equity and Fiscal Responsibility
Act of 1982 and section 7701(h) of the Code.
If Lessor shall (1) lose the right to claim or shall suffer any disallowance or
recapture of or, in good faith, shall determine that it is not entitled to claim
all or any portion of any MACRS deductions or interest deductions (or if Lessor
would have lost, recaptured or had disallowed such deductions if Lessor had
sufficient gross income in the applicable taxable year against which to apply
such deductions), (2) be deemed liable for income tax on gross profit, revenue
or income as a result of an Inclusion (3) be unable to so treat the Lease as a
Qualified Motor Vehicle Agreement or (4) lose any other intended tax benefit as
a result of any subsequent change in the Code, including, but not limited to a
tax rate change (each of' clauses (1) through (4) referred to as a "Tax Loss")
--------
with respect to any item of Equipment, then, promptly upon written notice to
Lessee that a Tax Loss has occurred, Lessee shall reimburse Lessor in a lump sum
payment, the amount determined below.
The reimbursement shall be that lump sum amount that, in the reasonable opinion
of Lessor, after deduction of all taxes required to be paid by Lessor with
respect of the receipt of such sum under the laws of any federal, state, foreign
or local government or taxing authority, shall preserve Lessor's alter-tax
discounted cash flow rate of return on equity, cash flows and book income based
on FASB 13, assumed by Lessor in entering into this Lease. The reimbursement
shall take into account the effects of any interest, penalties and additions to
tax required to be paid by Lessor as a result of such Tax Loss and all taxes
required to be paid by Lessor as a result of any payments pursuant to this
paragraph.
For purposes of determining tax effects under this paragraph 8, the term
"Lessor" shall include, to the extent of interests, any affiliated group of
corporations, and each member thereof, of which Lessor is or shall become a
<PAGE>
member and with which Lessor joins in the filing of consolidated or combined
returns. All payments pursuant to this paragraph 8 shall be paid within ten (10)
days after receipt by Lessee of notice from Lessor describing in reasonable
detail the Tax Loss and the amount of the payment due hereunder.
All rights and privileges of Lessor from this paragraph 8 shall survive the
expiration or termination of the Lease.
Lessee shall provide such information as Lessor may reasonably require from
Lessee and its affiliates and anyone in current or prior possession of the
Equipment to enable Lessor to fulfill its tax filing obligations.
9. Vehicles. If Vehicle Lessee hereby agrees to furnish Lessor with the paid
--------
receipt copy of all Federal Form 2290s filed for any such vehicle(s) leased from
Lessor as proof of payment of federal highway use tax.
10. Location; Inspection; Notices. Lessee shall promptly notify Lessor of
-------------------------------
all details arising out of any change in the general geographic location on
which any item of Equipment is used or in the specific location at which it is
kept when not used, any alleged encumbrances thereon or any accident allegedly
resulting from the use or operation thereof. Lessee agrees to comply with
Department of Transportation Regulation 396.17 "Periodic Inspection," at its own
cost and expense.
11. Condition On Return. Without affecting the obligations of Lessee as
---------------------
provided in paragraph 7 above, if the Equipment is required to be returned to
Lessor pursuant to Section 16 of the Master Equipment Lease, or for any other
reason, Lessee, at its own risk and expense, shall immediately return the
Equipment at such location(s) as Lessor shall designate, freight and insurance
prepaid and in the following condition:
I. 50% tread on tires - no recaps; 50% brakes.
II. Sheet Metal work - not more than $200.00 needed; no broken glass.
III. Drive train (engine, transmission and rear axle) capable of performing
to original requirements. No major overhaul of any components, for tractors or
trailers, is seen in the foreseeable future.
IV. Provide evidence of maintenance per manufacturers specification with no
indication of abuse.
Lessee hereby acknowledges that any such designated return location is
reasonably convenient to Lessee.
12. Additional Representations Lessee represents. warrants, covenants and
---------------------------
certifies, under penalty of perjury, that (a) it intends for each item of
Equipment to be used more than 50% in a trade or business of Lessee, (b) it has
been advised that Lessor and not Lessee will be treated as owner of the
Equipment for Federal income tax purposes and agrees to not take any action
inconsistent with such treatment and (c) this Lease constitutes a "Qualified
Motor Vehicle Agreement" as defined in Section 210 of the Tax Equity and Fiscal
Responsibility Act of 1932 and Section 7701(h) of the code.
Lessee initial EJ Lessor initial
------------------ ---------------
13. Equipment. The following Equipment is hereby leased on the terms
---------
specified in this Supplement and this Supplement becomes a part of and subject
to the terms and conditions of that certain Master Equipment Lease No.0005782,
dated 3-28-97, 19 __ which, except as modified herein, remains in full force and
-------
effect. This Lease shall be of no force and effect until all requirements set
forth herein are satisfied and this Lease is accepted in writing by an
authorized agent of Lessor in Minnetonka, Minnesota.
14. Other Terms or Conditions. Following are other terms and conditions
----------------------------
agreed to by the parties. None
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Qty Vehicle ID NO. or Serial No. Description Equipment Cost
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 1UYVS2530XP653302 NEW 1999 UTILITY 53 FOOT DRY VAN TRAILER 20,050.00
1 1UYVS2532XP653303 NEW 1999 UTILITY 53 FOOT DRY VAN TRAILER 20,050.00
1 1UYVS2534XP653304 NEW 1999 UTILITY 53 FOOT DRY VAN TRAJLEP. 20,050.00
1 IUYVS2536XP653305 NEW 1999 UTILITY 53 FOOT DRY VAN TRAILER 20,050.00
1 IUYVS2533XP653309 NEW 1999 UTILYIY 53 FOOT DRY VAN TRAILER 20,050.00
1 1UYVS2531XP653325 NEW 1999 UTILITY 53 FOOT DRY VAN TRAILER 20,050.00
NEW 1999 UTILITY 53 FOOT DRY VAN TRAILER 20,050.00
- -----------------------------------------------------------------------------------------------------------------------------
Estimated Total Cost $140,350.00
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Equipment Installation and Domicile Address: ROUTE 5 BOX 1467
MULDROW, Oklahoma 74948
/SEQUOYAH County
IN WITNESS WHEREOF, the parties hereto through a duly authorized representative
have executed this Lease as of this 8 day of June, 19 99.
----- ----- ---
FIRSTAR EQUIPMENT FINANCE CORPORATION ESCO TRANSPORTATION CO.
By: By: /s/ E.L. Selph
--------------------------- -------------------
Print Name: Print Name: Edwis L. Selph
--------------------------- -------------------
Title: Title/SSN: CEO ###-##-####
--------------------------- -------------------
By:
-------------------
Print Name:
-------------------
Title/SSN:
-------------------
<PAGE>
FIRSTAR
- -------
DELIVERY AND ACCEPTANCE CERTIFICATE
Lessee: ESCO TRANSPORTATION CO.
6505 HOMESTEAD
HOUSTON, TX 77028
The undersigned (herein called "Lessee") hereby certifies i). that all Equipment
described on Supplement No. 003 Master Equipment Lease No. 0005782 or Exhibits
attached thereto (the "Lease") between Firstar Equipment Finance Corporation
(herein called "Lessor") and Lessee, has been furnished, ii) that delivery
and/or installation has been fully completed as required, iii) that Lessee has
had a reasonable opportunity to inspect the Equipment, iv) that the Equipment is
in conformity in all respects with the Lease, v) that there are non-conformities
upon which Lessee is assuming will be cured, and vi) that Lessee's acceptance of
the Equipement has not been induced by any assurances by Lessor. Lessee will
therefore not reject or revoke its acceptance of the Equipment.
Lessee represents, warrants, and agrees as follows that: i) the representations
and warranties of Lessee in Section 18 of the Lease are true and correct on and
as of the acceptance date below as though made as of that date; ii) Lessor did
not select, manufacture, or supply the Equipment; iii) Lessor has acquired the
Equipment in connection with the; iv) Lessee has either received a copy of the
Purchase Agreement by and between Lessor and the vendor of the Equipment on or
before signing the lease contract or has approved such Purchase Agreement; v)
the Equipement will not be used primarily for family, personal, or household
uses; and iv) there has been no adverse change in the business or financial
condition of Lessee or any Guarantor (as defined in the Lease) since the day
that the most recent financial statement was submitted to Lessor.
Lessee acknowledges that Lessor is not liable for the performance of the
Equipment and agrees that all Lease payments will be made regardless of
Equipment operability. Any decals or metal plates supplied by Lessor will be
affixed to the Equipment in accordance with instructions from Lessor.
In view of the above, the undersigned hereby authorizes Lessor to pay for the
Equipment in accordance with the terms of Firstar Equipment Finance
Corporation's purchase orders for the same.
Date: 6-8-99 Dated:
--------------------------- -------------------------
By: /s/ Edwis L. Selph By:
----------------------------- ------------------------------
Print Name: Edwis L. Selph Print Name:
--------------------- ---------------------
Title/SSN: CEO ###-##-#### Title/SSN:
---------------------- ---------------------
<PAGE>
EXHIBIT
ORIX CREDIT ALLIANCE EQUIPMENT FINANCING
ORIX CREDIT ALLIANCE,INC. 9300 SHELBYVILLE ROAD, SUITE 910 LOUISVILLE KY 40222
Telephone 502-426-7411
CONDITIONAL SALE CONTRACT
TO: RUSH ENTERPRISESES, INC. DBA HOUSTON FROM: ESCO TRANSPORTATION CO.
("Seller") PETERBILT, INC. (Buyer)
5219 NORTH FREEWAY 6505 HOMESTEAD
HOUSTON TEXAS 77022 HOUSTON TEXAS 77287
713-691-4511
Telephone Number Telephone Number
Social Security or Federal Tax ID Number Social Security or
Federal Tax ID Number
The undersigned Buyer acknowledges that, before the execution of this
Conditional Sale Contract ("Contract"), the Seller quoted to Buyer both a Cash
Sale Price as Indicated below and a Time Sales Price for the Property described
below (the "Property") and offered to sell the Property to the Buyer for ltber
of said prices and that the B uyer chose the Time Sales Price and does hereby
purchase from Seller the Property AS-IS, on the following terms and conditions:
Description of Property purchased (including make, year, model
dentiflcation, model and serial numbers or marks):
Refer to Schedule (A) attached hereto
and made a part hereof for the
Description of the property purchased.
* Description of any Trade-in:
(1) CASH SALE PRICE (INDUDES SALES TAXES) $ 434,277.80
(2) DOWN PAYMENT In Cash $ 0.00
(3) DOWN PAYMENT In Goods* (Trade-in Allowance) $ 0.00
(4) UNPAID CASH BALANCE [Items (1)-(2)-(3)] $ 434,277.80
(5) ITEMIZED CHARGES
(A) REGISTRATION, Certificate OF Title and
LICENSE FEES $ 0.00
(B) TAXES Not INCLUDED IN CASH SALE Price $ 0.00
(C) OTHER (DESCRIBE) $ 0.00
TOTAL ITEMIZED CHARGES $ 0.00
(6) PRINCIPAL UNPAID BALANCE [ITEMS (4)+(5)] $ 434,327.80
(7) FINANCE CHARGE (LIME Price DIFFERENTIAL) $ 104,436.20
(8) CONTRACT PRICE (UNPAID TIME PRICE)
[ITEMS(6) + (7)] $ 538,764.00
(9) TIME SALES PRICE [ITEMS (2)+(3)+(8)] $ 538,764.00
APPLICABLE LAW MAY REQUIRE THE FOLLOWING STATEMENT: "A DOCUMENTARY FEE IS NOT AN
OFFICIAL FEE. A DOCUMENTARY FEE IS NOT REQUIRED BY LAW, BUT MAY BE CHARGED TO
BUYERS FOR HANDLING DOCUMENTS AND PERFORMING SERVICES RELATING TO THE CLOSING OF
A SALE. BUYERS MAY AVOID PAYMENT OF THE FEE TO THE SELLER BY HANDLING THE
DOCUMENTS AND PERFORMING THE SERVICES RELATING TO THE CLOSING OF THE SALE. A
DOCUMENTARY FEE MAY NOT EXCEED $50. THIS NOTICE IS REQUIRED BY LAW." NO
DOCUMENTARY FEE HAS BEEN CHARGED HEREUNDER.
Buyer, Jointly and severally if more than one, hereby agrees and promises to pay
to the Seller or any assignee hereof (hereinafter collectively called "Holder")
at the office of ORIX Credit Alliance, Inc. (a New York corporation) in
Orangeburg, N.Y., or at such other place as the Holder hereof may from time to
time appoint, the Unpaid Time Price or Contract Price (Item 8 above) in
consecutive monthly installments as follows:
1 installment(s), each in the amount of $ 17, 958 - 80 ; then 58
- ------------ --
installment(s), each in the amount of $ 8, 979 .40
------------
then ___ installment(s), each in the amount of $__________; then __
Installment(s), each in the amount of $__________;
then ___ installment(s), each in the amount of $__________; then __
Installment(s), each in the amount of $__________;
then ___ installment(s), each in the amount of $__________; then __
Installment(s), each in the amount of $__________;
then ___ installment(s), each in the amount of $__________; then __
Installment(s), each in the amount of $__________;
then ___ installment(s), each in the amount of $__________; then __
Installment(s), each in the amount of $__________;
then ___ installment(s), each in the amount of $__________; then __
Installment(s), each in the amount of $__________;
then ___ installment(s), each in the amount of $__________; then __
Installment(s), each in the amount of $__________;
said consecutive monthly installments shall commence on the 05 day of AUGUST,
-- -------
1999, and continue on the same date of each month thereafter until paid;
- -----
with interest after maturity or acceleration of the unpaid Contract Price (less
any refund) at the Highest Lawful Rate plus all collection charges and if placed
in the hands of an attorney for collection, (who is not a salaried employee of
Seller or Holder), a reasonable sum as attorneys' fees plus any court costs and
disbursements to the extent permitted by law. It is agreed that 20% of the
amount then being sought would be a reasonable attorneys' fee. The maker(s) and
all parties to this Contract hereby waive presentment for payment, demand,
protest, notice of protest, notice of dishonor hereof, and notice of Intent to
accelerate. Holder may extend the time of payment hereof, postpone the
enforcement hereof, grant any other indulgence and add or release any party
primarily or secondarily liable hereon without affecting or diminishing the
Holder's right of recourse against the maker(s) and all parties hereto, which
right is hereby expressly reserved.
In the event the Buyer shall prepay the balance of the unpaid Contract Price at
anytime prior to its scheduled maturity date or the Holder, in the event of the
Buyer's default as herein provided, shall demand payment of the balance of the
unpaid Contract Price prior to Its scheduled maturity date, the Buyer will be
entitled to receive a refund credit which shall represent at least as great a
proportion of the Time Price Differential, after first deducting there from an
acquisition cost of Twenty Five Dollars ($25.00) as (i) the sum of the monthly
balances under the schedule of payments In this Contract beginning as of the
date after such prepayment or demand for payment In full which is the next
succeeding monthly anniversary date of the due date of the first installment
pursuant to the terms and conditions of this contract, or If prepayment or
demand for payment In full Is made prior to the due date of the first
installment hereunder, then as of the date after such prepayment or demand for
payment In full which is one (1) month after the next succeeding monthly
anniversary date of this Contract bears to (ii) the sum of all the monthly
balances under the schedule of payments In this Contract. Should the amount of
refund credit be less than one dollar ($1.00) no refund credit will be made. if
the Property is a heavy commercial vehicle, (as defined in Article 7.01(n) of
the Texas Motor Vehicle Installment Sales Law) the amount of such refund credit
shall be at least an amount that is as great a proportion of the finance charge
as (I) the sum of the monthly balances required under the schedule of payment in
this Contract beginning as of the date after such prepayment or demand for
payment in full which is the next succeeding monthly anniversary date of the due
date of the first installment payable pursuant to the provisions of this
Contract, or, if the prepayment or the demand for payment in full is prior to
the due date of the first installment payable pursuant to the provisions of this
Contract, then as of the date after such prepayment or demand for payment in
full, which is one (1) month after the next succeeding monthly anniversary date
of the date of this Contract, bears to (ii) the sum of all the monthly balances
under the schedule of payments in this Contract; and from which resulting amount
is deducted an acquisition cost of One Hundred Fifty Dollars.
TERMS AND CONDITIONS HEREOF CONTINUED ON REVERSE SIDE
LIABILITY INSURANCE COVERAGE FOR BODILY INJURY AND PROPERTY DAMAGE
CAUSED TO OTHERS IS NOT INCLUDED IN THIS CONDITIONAL SALE CONTRACT
NOTICE TO THE BUYER: DO NOT SIGN THIS CONTRACT BEFORE YOU READ IT OR IF IT
CONTAINS ANY BLANK SPACES. YOU ARE ENTITLED TO A COPY OF THE CONTRACT YOU SIGN.
UNDER THE LAW YOU HAVE THE RIGHT TO PAY OFF IN ADVANCE THE FULL AMOUNT DUE AND
UNDER CERTAIN CONDITIONS MAY OBTAIN A PARTIAL REFUND OF THE FINANCE CHARGE. KEEP
THIS CONTRACT TO PROTECT YOUR LEGAL RIGHTS. NO OTHER AGREEMENT, ORAL OR WRI1TEN,
EXPRESS OR IMPLIED HAS BEEN MADE BY EITHER PARTY.
BUYER ACKNOWLEDGES, REPRESENTS, AND WARRANTS THAT THE PROPERTY PURCHASED
HEREUNDER IS PURCHASED FOR COMMERCIAL PURPOSES AND NOT FOR THE PERSONAL, FAMILY,
OR HOUSEHOLD USE AND ALL INFORMATION CONTAINED HEREIN IS TRUE AND CORRECT. BUYER
ACKNOWLEDGES RECEIPT OF A SIGNED,
TRUE AND EXACT EXECUTED COPY OF THIS CONDITIONAL SALE CONTRACT.
Date: 8-5, 99 BUYER(S):
---------------------------------------
Accepted: RUSH ENTERPRISES, INC. DBA HOUSTON ESCO TRANSPORTATION CO.
PETERBILT, INC. (SEAL) (SEAL)
------------------------------------ ---------------------------------
(Print Name of Seller Here) (Print Name of Buyer-Maker Here)
By: /S/ Scott W. By: /S/ EDWIS L. SELPH, JR.
---------------------------------------- --------------------------------
Co-Buyer-Maker:
By: /S/ Scott W. (SEAL)
---------------------------------------- --------------------------------
(Witness as to Buyer's (Print Name of
and Co-Maker' Signature) Co-Buyer-Maker Here)
By: /S/ Scott W.
---------------------------------------- --------------------------------
(Witness as to Buyer's
and Co-Maker' Signature)
================================================================================
ORIGINAL FOR FILING-NON-NEGOTIABLE
<PAGE>
TERMS AND CONDITIONS OF CONDITIONAL SALE CONTRACT (Continued)
($150.00). In the event the amount of refund credit is less than one dollar
($1.00) no refund credit will be made. Should the unpaid Contract Price not be
payable in substantially equal successive monthly Installments commencing one
(1) month after the date of this Contract, the refund will be computed in a
manner proportionate to the method set out hereinabove as appropriate, having
due regard to the amount of each installment and to the irregularity of each
installment period. The charge levied for the deferral of any payments under
this agreement or any extension, renewal, restatement, refinancing, or
rescheduling of the unpaid balance of the Contract Price shall not be more than
may be allowed by any applicable law.
Injury to or loss or destruction of the Property, from whatever cause,
shall not release Buyer from payment as provided herein. Buyer agrees: at
Buyer's own expense to keep the Property and any accessions in good order and
repair; not to misuse, abuse or illegally use the Property; to be responsible
for all loss or damage to the Property from any cause whatsoever; to immediately
notify Holder of any change in Buyer's residence or where the Property is
principally garaged; not to create or suffer any liens or adverse claims of any
kind against the Property, nor permit any circumstance to exist under which
Seller and/or Holder may lose its lien on the Property, nor permit nor suffer it
to come into the possession of any other person, nor sell nor remove it nor
suffer its removal from the place of its location shown above without prior
written consent from Holder; and in no event permit the Property, or any of the
other Collateral (as hereinafter defined), to leave the 48 contiguous States of
the United States; not to remove nor permit to be removed any equipment,
accessions, parts or attachments thereof, now or hereafter placed upon the
Property; to keep the Property insured, at Buyer's expense, against loss or
damage by fire, theft, collision (if appropriate) and other damage and
destruction, and such risks as are appropriate in amount, form, coverage and
insurer satisfactory to Holder for not less than the unpaid Contract Price,
naming Holder as lots payee, such policies to be delivered to Holder, and upon
failure to so deliver, Holder shall have the right, but not the obligation, to
provide insurance for its interest and charge Buyer Holder's cost for such
insurance, together with its or its designee's customary charges or fees
associated with its insurance. HOLDER DOES REQUIRE THAT BUYER INSURE THE
PROPERTY. WITH RESPECT TO ANY REQUIRED INSURANCE, BUYER HAS THE OPTION OF
FURNISHING SAME EITHER THROUGH EXISTING POLICIES OF INSURANCE OWNED OR
CONTROLLED BY THE BUYER OR OF PROCURING AND FURNISHING EQUIVALENT INSURANCE
COVERAGE THROUGH ANY INSURANCE COMPANY AUTHORIZED TO TRANSACT BUSINESS IN TEXAS.
Buyer hereby irrevocably appoints Holder as Buyer's attorney-in-fact to make
claim for, receive payment of and execute and endorse all documents, checks or
drafts received in payment of any loss or damage under any insurance. Buyer
acknowledges that no warranties, representations nor agreements not expressed
herein have been made by Holder. Buyer further acknowledges notice of Seller's
Intended assignment/endorsement of this contract to ORIX Credit Alliance, Inc.
Buyer warrants and represents that all of the information contained in any
application for title, Insurance or licensing with respect to the Property is
and shall be true and correct in all respects. The Buyer grants to Holder a
security interest in the Property and any and all documents, instruments,
chattel paper, goods, general intangibles, inventory, machinery, contract
rights, equipment, fixtures, accounts and insurance in which Buyer now or
hereafter has any right or interest (all of the foregoing, together with all
accessories, attachments, replacements, substitutions and accessions thereto,
wherever located, and all proceeds, products and rents there from collectively
called "Collateral") and agrees that said security interest secures the payment,
performance and fulfillment of all obligations of Buyer to Holder or any
affiliate of Holder whether such obligations are now existing or hereafter
incurred or arising, are contingent or non-contingent, are direct or indirect,
arise by assignment or otherwise or are contemplated or not contemplated as of
the date of this contract. Buyer shall not assign this Contract without the
prior written consent of Holder.
Time is of the essence of this Contract. If Buyer fails to pay any amount
when due, or defaults in the prompt and faithful performance of any of the terms
and conditions hereof or any other agreement with Holder, or becomes insolvent,
or changes its management, operations, ownership of its stock or control, or if
bankruptcy, receivership or other insolvency proceeding is instituted by or
against Buyer, or if Holder shall at any time deem the Property in danger of
misuse, concealment, or misappropriation, or if Holder in good faith believes
that the prospect of payment or performance is impaired, then Holder shall have
all of the rights and remedies of a secured party pursuant to the provisions of
the Uniform Commercial Code and may, without notice or demand, declare the
Unpaid Principal Balance hereunder together with accrued but unpaid Finance
Charge (after any refund as herein provided), and any collection and reasonable
attorneys' fees and any and all other sums then due and owing to Holder (all
collectively called the "Balance") immediately due and payable, whereupon the
Balance shall immediately be due and payable, and Buyer will immediately deliver
possession of the Collateral to Holder who may, without notice or demand or
legal process, to the extent permitted by law: (1) recover the Balance; (2)
repossess the Collateral, which Buyer shall assemble at and deliver to a place
designated by Holder (Buyer hereby authorizes and empowers Holder, or its
designee, to enter upon any premises where the Collateral may be found and take
possession and carry away same without process of law) provided and upon the
express condition that such repossession of the Collateral can be accomplished
without breach of the peace and (A) retain Collateral and all payments made
hereunder, or (B) retain all payments and sell Collateral at a public or private
sale with the right In Holder to purchase any Collateral at such sale), applying
the net proceeds to all charges and expenses incurred by Holder in connection
with the repossession, storage, repair, refurbishing and sale, including
attorneys' fees, then to the Balance plus past due interest thereon, then to any
other amounts owing by Buyer to Holder, and then pay any overplus to Buyer, who
shall remain liable for any deficiency with interest at the Highest Lawful Rate
plus reasonable attorneys' fees or (C) retain the Collateral and all payments
made hereunder, credit Buyer with the then reasonable value of the Collateral
and recover from Buyer any deficiency together with any late charges, expenses
and Interest at Highest Lawful Rate plus said reasonable attorneys' fees, or (D)
pursue any other remedy permitted by law or equity. It is agreed that any amount
to be retained by Holder and the balance to be paid by Buyer under this
paragraph shall not be as a penalty but as liquidated damages for the breach
hereof. The remedies provided for herein may be exercised, to the extent
permitted by law, successively or concurrently and the exercise of one shall not
bar the other. Buyer and any Guarantor hereof agree that any public sale will be
deemed commercially reasonable If notice thereof is mailed to them at least ten
(10) days before such sale and advertised in at least one newspaper of general
circulation in the area of the sale at least twice prior to the date of sale
upon terms of 25% cash down and the balance within 24 hours and further agree
that any private sale shall be deemed commercially reasonable if notice thereof
Is mailed to them at least 14 days before the sale date stated therein and
credit given for the price stated. Holder, not being in the equipment business
and in light of Buyer's obligation to maintain equipment, shall not be required
to refurbish, repair or otherwise incur expenses in connection with preparing
the Collateral for sale but may sell its interest therein on an "as-is",
"where-is" basis. Notwithstanding any termination of this Contract by expiration
or otherwise, Buyer shall remain liable for the due performance and payment of
all obligations incurred or arising hereunder, whenever accruing, and Holder
shall be entitled to enforce all rights and remedies it has hereunder. BUYER,
SELLER AND ANY HOLDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY OF ANY AND ALL CLAIMS, DEFENSES,
COUNTERCLAIMS, CROSSCLAIMS AND SETOFF OR RECOUPMENT CLAIMS ARISING EITHER
DIRECTLY OR INDIRECTLY BETWEEN OR AMONG THEM AND/OR INVOLVING ANY PERSON OR
ENTITY CLAIMING ANY RIGHTS ACQUIRED BY, THROUGH OR UNDER ANY PARTY. Buyer hereby
waives and releases relief from any and all appraisement, stay or exemption laws
then in force and further waives, with full knowledge of Buyer's rights and the
effect of this waiver, any right to a hearing prior to any retaking of
Collateral by Holder. Buyer represents and warrants to Seller and any Holder
that Buyer has paid all applicable sales, use or other taxes due in connection
with the sale, purchase, ownership, possession or use of the Property and shall
Indemnify Seller and any Holder from and against any loss, cost or expense,
including penalties, interest and other charges of any kind in connection with
or arising from the sale, purchase, ownership, possession or use of the
Property. Buyer's obligations under this contract note survive termination
hereof. Holder is hereby authorized to file one or more financing statements or
a reproduction hereof as a financing statement. All security interests shall
attach to any proceeds. In its sole discretion Holder may apply and/or change
applications of any sums paid and/or to be paid by or for Buyer under any
agreements, to any obligations of Buyer to Holder, presently existing or
otherwise. Holder may at any time, with or without exercising any of the rights
or remedies available to it and without prior notice or demand to Buyer,
appropriate and apply toward payment of any of Buyer's obligations to Holder any
and all balances, sums, Property, credits, deposits, accounts, reserves,
collections, monies, drafts, notes or checks coming into Holder's possession and
belonging or owing to Buyer and for such purposes, endorse Buyer's name on any
such instrument made payable to Buyer, for deposit, negotiation, discount or
collection. Buyer hereby irrevocably appoints Seller and/or Holder as the true
and lawful attorney-in-fact of Buyer, coupled with an interest, with full power
in Buyer's name, place of stead to execute financing statements on Buyer's
behalf and to do any and all other acts on Buyer's behalf necessary or helpful
to perfect Seller's and/or Holder's security interest in the Collateral pursuant
to the Uniform Commercial Code or other applicable law. Each person signing this
Contract warrants full authority to sign this Contract. interest shall be
charged at the rate 2/41st of 1% per day on each monthly installment more than
15 days past due.
This contract contains the entire agreement of the parties and may not be
modified except in writing. Seller shall not by acceptance of overdue payments
or by any act or omission to act be deemed to have waived any right hereunder. A
waiver on one occasion shall not operate as a waiver on a future occasion. AS
PART OF THE CONSIDERATION FOR SELLER'S ENTERING INTO THIS CONTRACT, BUYER,
SELLER, HOLDER AND ANY GUARANTOR HEREBY DESIGNATE AND APPOINT EDWIN M. BAUM,
ESQ. AND C-A CREDIT CORP., BOTH OF NEW YORK, OR EITHER OF THEM, AS THEIR TRUE
AND LAWFUL ATTORNEY-IN-FACT AND AGENT FOR THEM AND IN THEIR NAME, PLACE AND
STEAD TO ACCEPT SERVICE OF ANY PROCESS WITHIN THE STATE OF NEW YORK, THE PARTY
SERVING SUCH PROCESS AGREEING TO NOTIFY THE OTHER PARTY(IES) AT THEIR ADDRESS
SHOWN, OR THEIR LAST KNOWN ADDRESS, BY CERTIFIED MAIL, WITHIN THREE DAYS OF SUCH
SERVICE HAVING BEEN EFFECTED. BUYER, SELLER, HOLDER AND ANY GUARANTOR HEREOF
AGREE TO THE EXCLUSIVE VENUE AND JURISDICTION OF ANY COURT IN THE STATE AND
COUNTY OF NEW YORK FOR ALL ACTIONS, PROCEEDINGS, CLAIMS, COUNTERCLAIMS OR
CROSSCLAIMS ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, OR IN ANY
WAY RELATED TO THIS CONTRACT, WITH THE SOLE EXCEPTIONS THAT AN ACTION TO RECOVER
POSSESSION OF ALL OR PART OF THE COLLATERAL, OR ANY OTHER ASSETS OF THE BUYER OR
THE GUARANTOR HOWEVER DENOMINATED, MAY, IN THE SOLE DISCRETION OF HOLDER, BE
BROUGHT IN A STATE OR FEDERAL COURT HAVING JURISDICTION OVER THE COLLATERAL,
AND/OR SUCH OTHER ASSETS. BUYER, SELLER, HOLDER, AND ANY GUARANTOR HEREOF EACH
WAIVE ANY RIGHT THEY OR ANY OF THEM MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF
ANY LITIGATION BROUGHT IN ACCORDANCE HEREWITH. Any provision hereof violating
the law of any jurisdiction shall, when governed by the law of such
jurisdiction, be deemed void to the extent of such prohibition, but without
invalidating the remaining provisions hereof. The parties each warrant and agree
that Buyer has not received possession of the Property prior to the date hereof.
Intending that each and every provision of this Contract be fully effective
according to its terms, the parties agree that the validity, enforceability and
effectiveness of each provision hereof and the obligations, rights and remedies
of the Buyer, Seller, Guarantor and any Holder in any way related to or arising
under this Contract shall be governed by and construed in accordance with the
laws of the State of New York (excluding its choice of law rules). if any one or
more provisions hereof are in conflict with any applicable statute or law, and
thus not valid or enforceable, then each such provision shall be deemed null and
void, but only to the extent of such conflict and without invalidating or
affecting the remaining provisions hereof. This Contract shall be binding upon
the heirs, administrators, legal representatives and successors of the Buyer.
IN THE EVENT TEXAS LAW GOVERNS THIS CONTRACT: TO CONTACT SELLER ABOUT THIS
ACCOUNT CALL THE SELLER AT THE SELLER'S TELEPHONE NUMBER APPEARING BELOW THE
SELLER'S ADDRESS ON THE REVERSE SIDE OF THIS CONTRACT. TO CONTACT THE HOLDER
ABOUT THIS ACCOUNT CALL ORIX CREDIT ALLIANCE, INC. AT ITS TELEPHONE NUMBER
APPEARING ALONGSIDE OF ITS ADDRESS AT THE VERY TOP OF THE REVERSE SIDE OF THIS
CONTRACT. THIS CONTRACT IS SUBJECT IN WHOLE OR IN PART TO TEXAS LAW WHICH IS
ENFORCED BY THE CONSUMER CREDIT COMMISSIONER, 2601 NORTH LARMAR BOULEVARD,
AUSTIN, TEXAS 78705-4207. PHONE (512) 936-7610, (800) 538-1579.
CONTACT THE COMMISSIONER RELATIVE TO ANY INQUIRIES OR COMPLAINTS.
In the event that any court of competent Jurisdiction determines that this
Contract represents a loan transaction, then the parties agree that the interest
rate for such transaction shall be 18% per annum except that if by applying the
Rule of 78 it is determined that the transaction and this Contract actually
provide for a lesser rate, then such lesser rate shall be the agreed upon rate
of interest. Nothing contained herein shall be construed to require the Buyer to
pay any amount in excess of that provided for its this Contract.
It is the Intent of the Seller and Buyer to make the transaction evidenced
by this Conditional Sale Contract conform to all applicable laws ("Laws"),
including the provisions of the Texas Credit Code, if such Laws shall be
applicable. Such Laws contain various restrictions and limitations concerning
interest, fees, expenses, late charges, deferral charges, refund of unearned
interest, insurance, collection costs and various other matters which may or may
not apply to this transaction. it is the intent of the Seller, Buyer and Holder
to fully comply with all such applicable limitations and restriction. If, for
any reason, any provision of this Conditional Sale Contract or any related
document shall be deemed to be in violation of such Laws, such provision will
not be applicable, will be void ab initio and instead, the appropriate
applicable provisions of such Laws shall apply. In the event of any conflict
between this Conditional Sale Contract and any other document between the Seller
and the Buyer related to this transaction with respect to any provisions
prohibited or required by such Laws, the provisions complying with such Laws
shall be the operative provisions, it is agreed that If the aggregate of all
interest, charges and other sums deemed to constitute interest and contracted
for, chargeable or receivable in connection with this transaction, shall produce
a rate higher than the highest lawful rate which is the maximum non-usurious
rate of interest, as it fluctuates without notice allowable by applicable state
or federal law, whichever may be higher and IT applicable law shall not provide
a maximum non-usurious rate, then 24% per annum), then this Conditional Sale
Contract and any related documents shall be reformed so as only to permit the
collection of the highest lawful rate.
If for any reason whatsoever interest shall be paid or received during the
full term of the transaction contemplated by this Contract, which produces a
rate exceeding the Highest Lawful Rate, the Seller or Holder, at its option,
shall refund such excess to Buyer for credit against any outstanding obligations
of Buyer. To the extent permitted by applicable law, all non-principal payments
shall be deemed expenses, fees or premiums rather than interest and all such
payments shall be allocated and spread throughout the entire term of this
Contract so that the interest rate shall be uniform throughout.
If Chapter One of Title 79, Texas Revised Civil Statutes, 1925, as amended
("Texas Credit Code") establishes the Highest Lawful Rate, that rate shall be
the "Indicated Rate Ceiling" (as Identified in the Texas Credit Code). Without
notice to Maker or any other person or entity, the Highest Lawful Rate shall
automatically fluctuate as such maximum non-usurious out rate fluctuates.
interest shall be computed for the actual number of days elapsed in a year
consisting of 365 or 366 days, as the case may be. The "Highest Lawful Rate"
means use maximum non-usurious rate of interest allowed by Texas law, stated as
a rate per annum.
<PAGE>
Schedule A
This schedule IS ATTACHED TO AND BECOMES PART OF SECURITY AGREEMENT, CONDITIONAL
SALE CONTRACT, LEASE, OR _____________________________________ DATED 8-5, 99
-------
between the undersigned.
DESCRIPTION OF PROPERTY
--------------------------------
QUANTITY (INDICATE WHETHER "NEW"OR"USED") YEAR & MODEL SERIAL NO.
- -------- -------------------------------- ------------ ------------------
1 PETERBILT 2000 377A 1XPCDR9X6YD515O75
ROAD TRACTOR
1 PETERBILT 2000 377A 1XPCDR9X4YD515O74
ROAD TRACTOR
1 PETERBILT 2000 377A 1XPCDR9X2YD515073
ROAD TRACTOR
1 PETERBILT 2000 377A 1XPCDR9X0YD515072
ROAD TRACTOR
1 PETERBILT 2000 377A 1XPCDR9X8YD515O76
ROAD TRACTOR
This schedule is hereby verified correct and undersigned Mortgagor(s), Buyer(s),
or Lessee(s) acknowkdges receipt of a copy this 5 day of August, 99.
- -----------
Mortgagee/Seller/Lessor: MORTGAGOR/BUYER/LESSEE
RUSH ENTERPRISES, INC. DBA HOUSTON ESCO TRANSPORTATION CO.
PETERBILT, INC.
-------------------------------------- -------------------------
BY:. /S/ SCOTT W. S By: /S/ EDWIS L. SELPH, JR.
-------------------------------------- --------------------------------
SCHED.A( 1-98) NET 7.03
<PAGE>
GUARANTY
TO: ORIX CREDIT ALLIANCE, INC.
RE: ESCO TRANSPORTATION CO
Gentlemen
To induce you to enter into one or more equipment lease agreements and/or
one or more security agreements, including but not limited to conditional sale
agreements, leases, chattel and/or real estate mortgages, notes or other
deferred or time payment paper, and/or any and all agreements relating to the
purchase of such paper or documents or both (all of the foregoing hereinafter
called "Security Obligations") with the above-captioned (hereinafter, together
with its successors and assigns, called the" Subject"), and/or to induce you to
purchase and/or accept an assignment of Security Obligations from Subject and/or
to induce you to purchase and/or accept one or more assignments from any party
or parties of one or more Security Obligation us having Subject as obligor
thereon, and/or in consideration of your having heretofore done any or all of
the foregoing, we, the undersigned (and each of us if more than one) agree to
be, without deduction by reason of set-off, defense or counterclaim of Subject
and/or us, jointly, severally, directly and unconditionally liable to you for
the due performance of all such Security Obligations past, present and future,
and any and all subsequent renewals, continuations, modifications, supplements
and amendments thereof, and for the payment of any and all debts and other
obligations of Subject of whatever nature, whether matured or unmatured, whether
absolute or contingent and whether now or hereafter existing or arising or
contracted or incurred or owing to or acquired by you by assignment, transfer or
otherwise (such debts and other obligations referred to herein as "General
Obligations"). Any and all present and future debts and obligations of Subject
to us are hereby waived and postponed in favor of and subordinated to the full
payment and performance of all past, present and future debts and obligations of
Subject to you. We affirmatively represent and warrant to you that we will not
transfer any personal assets to any party without full and valuable
consideration in money's worth for said transfer and we understand that in
reliance upon and in consideration of this representation, specific credit
accommodations as described above ' are being extended to the Subject by you. We
hereby waive notice of acceptance hereof and of all notices of any kind to which
we may be entitled, including without limitation any and all demands of payment,
notices of non-payment, protest and dishonor to us or Subject or makers, or
endorsers of any notes or other instruments for which we are or may be liable
hereunder. You shall be entitled to hold any and all sums to our credit and any
of our property at any time in your possession as security for any and all of
our obligations to you, no matter how or when arising and whether under this
instrument or otherwise. We further waive notice of and hereby consent to any
agreement or arrangements whatever with Subject or anyone else, including
without limitation, agreements and arrangements for payment extension,
subordination, composition, arrangement, discharge or release of the whole or
any part of Security Obligations. or for releases of collateral and/or other
guarantors, or for the change or surrender of any and all security, or for
compromise, whether by way of acceptance of part payment or of returns of
merchandise or of dividends or in any other way whatsoever, and the same shall
in no way impair our liability hereunder. The liability hereunder of each of the
undersigned is direct and unconditional and may be enforced without requiring
your first to resort to any other right, remedy or security and shall survive
any repossession of property whether or not such constitutes an election of
remedies against Subject; nothing shall discharge or satisfy our liability
hereunder except the full performance and payment of all Security Obligations
and General Obligations with interest. We shall have the right of subrogation,
reimbursement or indemnity whatsoever and no right of recourse to or with
respect to any assets or property of Subject or to any collateral for Security
Obligations, unless and until all Security Obligations and General Obligations
shall have been paid and performed in full and if the undersigned shall be
deemed to be an 'insider', (as the term is used in Bankruptcy Code) then all
rights of subrogation are waived. It you become involved in any lawsuit against
any of us or concerning a breach of any covenant or agreement herein contained,
we shall be obligated to pay to you, and you may obtain judgment for, (a) all
unpaid balances and any other monies due to you from Subject; (b) all costs and
expenses of any such suit; (c) 20% of the sum of (a) plus (b) representing
attorneys' fees (which sum is deemed to be reasonable), plus (d) interest on
(a), (b) and (c) at the highest lawful rate provided for in any of the Security
Obligations until such sum is paid in full (the sum of (a), (b), (c) and (d)
called 'the Judgment Account"). AS PART OF THE CONSIDERATION FOR YOUR ENTERING
INTO AND/OR PURCHASING AND/OR ACCEPTING AN ASSIGNMENT OF ONE OR MORE Security
OBLIGATIONS WITH SUBJECT AS obligor thereon, we HEREBY DESIGNATE AND APPOINT
EDWIN H. BAUM, ESQ. AND C-A CREDIT CORP., BOTH OF NEW YORK, OR EITHER OF THEM,
AS OUR true AND LAWFUL ATTORNEY-IN-FACT AND AGENT FOR EACH OF US AND IN OUR
NAME, PLACE AND STEAD TO ACCEPT SERVICE OF ANY PROCESS WITHIN THE STATE OF NEW
YORK, YOU AGREEING TO NOTIFY US BY DEPOSITING IN THE UNITED STATES MAILS
CERTIFIED MAIL, POSTAGE PREPAID WRITTEN NOTICE OF SUCH SERVICE ADDRESSED TO US
AT OUR ADDRESS SHOWN HEREINBELOW, WITHIN THREE (3) DAYS OF SUCH SERVICE HAVING
BEEN EFFECTED AND THE UNDERSIGNED DO HEREBY AGREE TO THE EXCLUSIVE VENUE AND
JURISDICTION OF ANY STATE OR FEDERAL COURT IN THE STATE AND COUNTY OF NEW YORK
REGARDING IN ANY MATTER ARISING HEREUNDER. We hereby irrevocably authorize any
attorney of any court of record to appear for and confess judgment against any
one or more of us (except in any jurisdiction where such action is not permitted
by law) for the Judgment Amount, without stay of execution, and we hereby waive
and release relief from any and all appraisement, stay or exemption laws then in
force. We agree that if we or Subject shall at any time become insolvent, or
make a general assignment, or if a petition in bankruptcy or any insolvency or
reorganization proceeding shall be commenced by, against or in respect of us or
Subject, any and all of our obligations shall, at your sole option, forthwith
become due and payable without notice. You may appropriate and apply to any of
our obligations any and all balances, sums, property, credits, deposits,
accounts, reserves, collections, monies, drafts, notes or checks coming into
your possession and belonging to us and endorse our name thereon for deposit,
negotiation, discount or collection. We have not relied upon any representations
or warranties in connection with the execution and delivery of this instrument
and our obligations hereunder are absolute and unconditional notwithstanding the
invalidity or unenforceability of any the Security Obligations or General
Obligations or of this instrument. This instrument is a continuing guaranty and
shall continue in full force and not -notwithstanding the death of any of us,
until the full performance, payment and discharge of all Security Obligations
and General Obligations, and thereafter until actual receipt by you from us of
written notice of termination; such termination shall be applicable only to
transactions having their inception thereafter. Termination by one or more of us
shall not affect the liability of such of us as do not give such notice of
termination.
No representations and/or agreements not set forth herein have been made to
us. We hereby assert and confirm that we executed and entered into this
instrument voluntarily and without any coercion, duress or undue influence of
any kind, whether directly or indirectly, having been exerted upon us by you or
any of your employees, agents or representatives. In FURTHER CONSIDERATION FOR
YOUR ENTERING INTO any OF THE SECURITY OBLIGATIONS AND FOR OTHER GOOD AND
VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY
ACKNOWLEDGED, EACH OF THE UNDERSIGNED, INDIVIDUALLY AND FOR HIS OR HER HEIRS,
EXECUTORS, ADMINISTRATORS, PERSONAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS,
DOES HEREBY WAIVE, FOREGO AND AGREE NOT TO ASSERT ANY AND ALL RIGHTS, CLAIMS AND
DEFENSES, IF ANY, UNDER THE FEDERAL EQUAL CREDIT OPPORTUNITY ACT ('ECOA"), 15
U.S.C. 1691 ET SEQ. AND REGULATIONS PROMULGATED THEREUNDER, THAT MAY INURE TO
-- ---
THE BENEFIT OF THE UNDERSIGNED AS A RESULT OF your OBTAINING OR OUR EXECUTING
THIS INSTRUMENT. WE HEREBY RATIFY AND APPROVE THE OBTAINING BY YOU OF CREDIT
REPORTS RELATING TO US AND HEREBY AGREE THAT YOU MAY HEREAFTER OBTAIN SUCH
CREDIT REPORTS AS YOU MAY, IN YOUR SOLE DISCRETION, DETERMINE.
The words "you" and "your" as used herein shall mean and include and this
instrument shall apply in favor of and be severally enforceable by any addressee
hereinabove named and/or any concern which is or may at any time be the parent,
subsidiary of such parent, subsidiary or assignee thereof. WE KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY AND ALL RIGHT TO A TRIAL BY jury OF ANY
AND ALL CLAIMS, DEFENSES, COUNTERCLAIMS, CROSSCLAIMS AND SETOFF OR RECOUPMENT
CLAIMS ARISING EITHER DIRECTLY OR INDIRECTLY BETWEEN YOU AND US AND/OR INVOLVING
ANY PERSON OR ENTITY CLAIMING ANY RIGHTS ACQUIRED BY, THROUGH OR UNDER ANY OF
THE SECURITY OBLIGATIONS OR GENERAL OBLIGATIONS AND WE FURTHER WAIVE ANY AND ALL
RIGHT TO CLAIM OR RECOVER ANY PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY OTHER
DAMAGES OTHER THAN OR IN ADDITION TO, ACTUAL DAMAGES. This investment cannot be
changed orally, shall be interpreted according to the laws of the State of New
York, (excluding its choice of law rules), shall be binding upon the heirs,
executors, administrators, successors and assigns of each of the undersigned and
shall inure to the benefit of your successors and assigns.
Dated: 7-30-99 EDWIS L. SELPH
-------------------------- /s/ Edwis L. Selph (L.S.)
----------------------------------
WITNESS: (Personal Guarantor's Signature)
------------------------ Address: 6505 HOMESTEAD
------------------------
Driver Lic.# St. HOUSTON TEXAS 77028
------------- ---- ------------------------
Individual Acknowledgment Driver Lic.# St.
State of -------------- ----
County of
I, Connie Trujillo a Notary Public duly qualified in and for said County
----------------
and State, do hereby certify that on this 30th day of July, 1999 in (place)
---- ----
Harris in said County, before me personally appeared:
- -----
EDWIS L. SELPH, JR.
- --------------------------------------------------------------------------------
to me personally well known as and to be the identical person(s) named and
described in and party to and who executed in his/her/their own proper
handwriting and whose name(s) is / are subscribed to the instrument of writing
appearing on the above, bearing date as herein indicated, and produced and
delivered the same before me and who, upon being first duly sworn by me, stated
that he/she/they know the contents of said instrument to be his/her/their own
free, lawful and voluntary act and deed for the uses, purposes and consideration
therein mentioned and contained.
Given under and witness my hand and official seal the day and year in this
certificate first above written.
[CONNIE TRUJILLO /S/ Connie Trujillo
NOTARY PUBLIC, STATE OF TEXAS ---------------------
MY COMMISSION EXPIRES My Commission Expires 04-08-2002
APRIL 08, 2002] ----------
<PAGE>
ORIX CREDIT ALLIANCE,INC. 9300 SHELBYVILLE ROAD, SUITE 910 LOUISVILLE KY 40222
Telephone 502-426-7411
CONDITIONAL SALE CONTRACT
TO: RUSH ENTERPRISESES, INC. DBA HOUSTON FROM: ESCO TRANSPORTATION CO.
("Seller") PETERBILT, INC. (Buyer)
5219 NORTH FREEWAY 6505 HOMESTEAD
HOUSTON TEXAS 77022 HOUSTON TEXAS 77287
713-691-4511
Telephone Number Telephone Number
Social Security or Federal Tax ID Number Social Security or
Federal Tax ID Number
The undersigned Buyer acknowledges that, before the execution of this
Conditional Sale Contract ("Contract"), the Seller quoted to Buyer both a Cash
Sale Price as Indicated below and a Time Sales Price for the Property described
below (the "Property") and offered to sell the Property to the Buyer for ltber
of said prices and that the B uyer chose the Time Sales Price and does hereby
purchase from Seller the Property AS-IS, on the following terms and conditions:
Description of Property purchased (including make, year, model
dentiflcation, model and serial numbers or marks):
Refer to Schedule (A) attached hereto
and made a part hereof for the
Description of the property purchased.
* Description of any Trade-in:
(1) CASH SALE PRICE (INDUDES SALES TAXES) $868, 555. 60
(2) DOWN PAYMENT In Cash $ 0.00
(3) DOWN PAYMENT In Goods* (Trade-in Allowance) $ 0.00
(4) UNPAID CASH BALANCE [Items (1)-(2)-(3)] $ 868,555.60
(5) ITEMIZED CHARGES
(A) REGISTRATION, Certificate OF Title and
LICENSE FEES $ 0.00
(B) TAXES Not INCLUDED IN CASH SALE Price $ 0.00
(C) OTHER (DESCRIBE) $ 0.00
TOTAL ITEMIZED CHARGES $ 0.00
(6) PRINCIPAL UNPAID BALANCE [ITEMS (4)+(5)] $ 868,555.60
(7) FINANCE CHARGE (LIME Price DIFFERENTIAL) $ 208,972.39
(8) CONTRACT PRICE (UNPAID TIME PRICE)
[ITEMS(6) + (7)] $1,077,527.99
(9) TIME SALES PRICE [ITEMS (2)+(3)+(8)] $1,077,527.99
APPLICABLE LAW MAY REQUIRE THE FOLLOWING STATEMENT: "A DOCUMENTARY FEE IS NOT AN
OFFICIAL FEE. A DOCUMENTARY FEE IS NOT REQUIRED BY LAW, BUT MAY BE CHARGED TO
BUYERS FOR HANDLING DOCUMENTS AND PERFORMING SERVICES RELATING TO THE CLOSING OF
A SALE. BUYERS MAY AVOID PAYMENT OF THE FEE TO THE SELLER BY HANDLING THE
DOCUMENTS AND PERFORMING TIlE SERVICES RELATING TO THE CLOSING OF THE SALE. A
DOCUMENTARY FEE MAY NOT EXCEED $50. THIS NOTICE IS REQUIRED BY LAW." NO
DOCUMENTARY FEE HAS BEEN CHARGED HEREUNDER.
Buyer, Jointly and severally If more than one, hereby agrees and promises to pay
to the Seller or any assignee hereof (hereinafter collectively called "Holder")
at the office of ORIX Credit Alliance, Inc. (a New York corporation) in
Orangeburg, NY., or at such other place as the Holder hereof may from time to
time appoint, the Unpaid Time Price or Contract Price (Item 8 above) in
consecutive monthly installments as follows:
1 installment(s), each in the amount of $35,917.59; then 58 Installment(s),
- ---------- --
each in the amount of $17,958.80;
----------
then ___ installment(s), each in the amount of $__________; then __
Installment(s), each in the amount of $__________;
then ___ installment(s), each in the amount of $__________; then __
Installment(s), each in the amount of $__________;
then ___ installment(s), each in the amount of $__________; then __
Installment(s), each in the amount of $__________;
then ___ installment(s), each in the amount of $__________; then __
Installment(s), each in the amount of $__________;
then ___ installment(s), each in the amount of $__________; then __
Installment(s), each in the amount of $__________;
then ___ installment(s), each in the amount of $__________; then __
Installment(s), each in the amount of $__________;
then ___ installment(s), each in the amount of $__________; then __
Installment(s), each in the amount of $__________;
said consecutive monthly installments shall commence on the 05 day of AUGUST
-- ------
1999 , and continue on the same date of earls -thereafter until paid; with
- ----
interest after maturity or acceleration of the unpaid Contract PHce (less any
refund) at the 111 est Lawful Rare plus all collection charges and if -the hands
of an attorr'ey for collection, (who is not a salaried employee of Seller or
Holder), a reasonable sum as attorneys fees plus any court costs and
disbursements to the extent permitted by law. It is agreed that 20/o of the
amount then being sought would be a reasonable attorneys fee. The maker(s) and
all parties to this Contract hereby waive presentment for payment, demand,
protest, notice of protest, notice of dishonor hereof, and notice of Intent to
accelerate. Holder may extend the time of paymrnt hereof, postpone the
enforcement hereof, grant any other indulgence and add or release any party
primarily or secondarily liable hereon without affecting or diminishing the
Holder's right of recourse against the maker(s) and all parties hereto, which
right is hereby expressly reserved.
In the event the Buyer shall prepay the balance of the unpaid Contract
Price at anytime prior to its scheduled maturity date or the Holder, in the
event of the Buyer's default as herein provided, shall demand payment of the
balance of the unpaid Contract Price prior to its scheduled maturity date, the
Buyer will be entitled to receive a refund credit which shall represent at least
as great a proportion of the Time Price Differential, after first deducting
therefrom an acquisition cost of Twenty Five Dollars ($25.00) as (i) the sum f
the monthly balances under the schedule of payments in this Contract beginning
as of the date after such prepayment or demand for payment in full which is the
next succeeding monthly anniversary date of the due date of the first
installment pursuant to the terms and conditions of this contract, or, if
prepayment or demand for payment in full is made prior to the due date of the
first installment hereunder, then as of the date after such prepayment or demand
for payment in full which is one (1) month after the next succeeding monthly
anniversary date of this Contract bears to (ii) the sum of all the monthly
balances under the schedule of payments in this Contract. Should the amount of
refund credit be less than one dollar ($1 .00) no refund credit will be made. If
the Property Is a heavy commercial vehicle, (as defined in Article 7.01(n) of
the Texas Motor Vehicle Installment Sales Law) the amount of such refund credit
shall be at least an amount that is as great a proportion of the finance charge
as (i) the sum of the monthly balances required strider the schedule of payment
In this contract beginning as of the date after such prepayment or demand for
payment in full which is the next succeeding monthly anniversary date of tire
due date of the first installment payable pursuant to the provisions of this
Contract, or, if the prepayment or the demand for payment in full is prior to
the due date of the fIrst installment payable pursuant to the provisions of this
Contract, then as of the date after such prepayment or demand for payment in
full, which is one (1) month after the next succeeding monthly anniversary date
of the date of this Contract, bears to (ii) the sum of all the monthly balances
under the schedule of payments in this Contract; and from which resulting amount
is deducted an acquisition cost of One Hundred Fifty Dollars.
TERMS AND CONDITIONS HEREOF CONTINUED ON REVERSE SIDE
LIABILITY INSURANCE COVERAGE FOR BODILY INJURY AND PROPERTY DAMAGE CAUSED TO
OTHERS IS NOT INCLUDED IN THIS CONDITIONAL SALE CONTRACT NOTICE TO THE BUYER: DO
NOT SIGN THIS CONTRACT BEFORE YOU READ IT OR IF IT CONTAINS ANY BLANK SPACES.
YOU ARE ENTITLED TO A COPY OF THE CONTRACT YOU SIGN. UNDER THE LAW YOU HAVE THE
RIGHT TO PAY OFF IN ADVANCE THE FULL AMOUNT DUE AND UNDER CERTAIN CONDITIONS MAY
OBTAIN A PARTIAL REFUND OF THE FINANCE CHARGE. KEEP THIS CONTRACT TO PROTECT
YOUR LEGAL RIGHTS. NO OTHER AGREEMENT, ORAL OR WRITTEN, EXPRESS OR IMPLIED HAS
BEEN MADE BY EITHER PARTY.
BUYER ACKNOWLEDGES, REPRESENTS, AND WARRANTS THAT THE PROPERTY PURCHASED
HEREUNDER IS PURCHASED FOR COMMERCIAL PURPOSES AND NOT FOR THE PERSONAL, FAMILY,
OR HOUSEFIOLD USF AND ANY INFORMATION CONTAINED HEREIN IS TRUE AND CORRECT.
BUYER ACKNOWLEDGES RECEIPT OF A SIGNED TRUE AND EXACT EXECUTED COPY OF THIS
CONDITIONAL SALE CONTRACT.
Date: 8-5, 99 BUYER(S):
---------------------------------------
Accepted: RUSH ENTERPRISES, INC. DBA HOUSTON ESCO TRANSPORTATION CO.
PETERBILT, INC. (SEAL) (SEAL)
------------------------------------ ---------------------------------
(Print Name of Seller Here) (Print Name of Buyer-Maker Here)
By: /S/ Scott W. By: /S/ EDWIS L. SELPH, JR.
---------------------------------------- --------------------------------
Co-Buyer-Maker:
By: /S/ Scott W. (SEAL)
---------------------------------------- --------------------------------
(Witness as to Buyer's (Print Name of
and Co-Maker' Signature) Co-Buyer-Maker Here)
By: /S/ Scott W.
---------------------------------------- --------------------------------
(Witness as to Buyer's
and Co-Maker' Signature)
================================================================================
CSC(95).MVTX ORIGINAL FOR FILING-NON-NEGOTIABLE NET 7.0
<PAGE>
================================================================================
TERMS AND CONDITIONS OF CONDITIONAL SALE CONTRACT (CONTINUED)
($150.00). In the event the amount of refund credit is less than one dollar
($1.00) no refund credit will be made. Should the unpaid Contract Price not be
payable in substantially equal successive monthly installments commencing one
(1) month after the date of this Contract, the refund will be computed itt a
manner proportionate to the method set out hereinabove as appropriate, having
due regard to the amount of each installment and to the irregularity of each
installment period. The charge levied for the deferral of any payments under
this agreement or any extension, renewal, restatement, refinancing, or
rescheduling of the unpaid balance of the Contract Price shall not be more than
may be allowed by any applicable law.
Injury to or loss or destruction of the Property, from whatever cause,
shall not release Buyer from payment as provided herein. Buyer agrees: at
Buyer's own expense to keep the Property and any accessions in good order and
repair; not to misuse, abuse or illegally use the Property; to be responsible
for all loss or damage to the Property from any cause whatsoeves, to immediately
notify Holder of any change in Buyer's residence or where the Property is
principally garaged; not to create or suffer any liens or adverse claims of any
kind against the Property, nor permit any circumstance to exist under which
Seller and/or Holder may lose its lien on the Property, nor permit nor suffer it
to come into the possession of any other person, nor sell nor remove it nor
suffer its removal from the place of its location shown above without prior
written consent from Holder; and in no event permit the Property, or any of the
other Collareral (as hereinafter defined), to leave the 48 contiguous States of
the United States; not to remove nor permit to be removed any equipment,
accessions, parts or attachments therereof, now or hereafter placed upon the
Property; to keep the Property insured, at Buyer's expense, against loss or
damage by fire, theft, collision (if appropriate) and other damage nd
destruction, and such risks as are appropriate in amount, form, coverage and
insurer satisfactory to Holder for not less than the unpaid Contract Price,
naming Holder as loss payee, such policies to be delivered to Holder, and upon
failure to so deliver, Holder shall have the right, but not the obligation, to
provide insurance for its interest and charge Buyer Holder's cost for such
Insurance, together with its or its designee's customary charges or fees
associated with its insurance. HOLDER DOES REQUIRE THAT BUYER INSURE THE
PROPERTY. WITH RESPECT TO ANY REQUIRED INSURANCE, BUYER HAS THE OPTION OF
FURNISHING SAME EITHER THROUGH EXISTING POLICIES OF INSURANCE OWNED OR
CONTROLLED BY THE BUYER OR OF PROCURING AND FURNISHING EQUIVALENT INSURANCE
COVERAGE THROUGH ANY INSURANCE COMPANY AUTHORIZED TO TRANSACT BUSINESS IN TEXAS.
Buyer hereby irrevocably appoints Holder as Buyer's attorney-in-fact to make
claim for, receive payment of and execute and endorse all documents, checks or
drafts received in payment of any loss or damage under any insurance. Buyer
acknowledges that no warranties I , enre'sentations nor agreements not expressed
herein have been made by Holder. Buyer further acknowledges notice of Seller's
intended assignment/endorsement of this contract to ORIX Credit Alliance,Inc.
Buyer warrants and represents that all of the Information contained in any
application for title, insurance or licensing with respect to the Property is
and shall be true and correct in all respects. The Buyer grants to Holder a
security interest in the Property and any and all documents, instruments,
chattel paper, goods, general intangibles, inventory, machinery, contract
rights, equipment, fixtures, accounts and insurance In which Buyer now or
hereafter has any right or interest (all of the foregoing, together with alt
accessories, attachments, replacements, substitutions and accessions thereto,
wherever located, and all proceeds, products and rents therefrom collectively
called "Collateral") and agrees that said security Interest secures the payment,
performance and fulfillment of all obligations of Buyer to Holder or any
affiliate of Holder whether such obligations are now existtng or hereafter
incurred or arising, are contingent or non-contingent, are direct or indirect,
arise by assignment or otherwise or are contemplated or not contemplated as of
the date of this contract. Buyer shall not assign this Contract without the
prior written consent of Holder.
Time is of the essence of this Contract. If Buyer fails to pay any amount
when due, or defaults in the prompt and faithful performance of any of the terms
and conditions hereof or any other agreement with Holder, or becomes insolvent,
or changes its management, operations, ownership of its stock or control, or If
bankruptcy, receivership or other insolvency proceeding is instituted by or
against Buyer, or If Holder shall at any time deem the Property in danger of
misuse, concealment, or misappropriation, or if Holder in good aith believes
that the prospect of payment or performance is impaired, then Holder shall have
all of the rights and remedies of a secured party pursuant to the provisions of
the Uniform Commercial Code and may, without notice or demand, declare the
Unpaid Principal Balance hereunder together with accrued but unpaid Finance
Charge (after ,rny refund as herein provided), and any collection and reasonable
attorneys' fees and any and all other sums then due and owing to Holder (all
collectively called the "Balance") immediately due and payable, whereupon the
Balance shall Immediately be due and payable, and Buyer will immediately deliver
possession of the Collateral to Holder who may, without notice or demand or
legal process, to the extent permitted by law: (1) recover the Balance; (2)
repossess the Collateral, which Buyer shall assemble at and deliver to a place
designated by Holder (Buyer hereby authorizes and empowers Holder, or its
designee, to enter upon any premises where the Collateral may be found and take
possession and carry away same without process of law) provided and upon the
express condition that such repossession of the Collateral can be accomplished
without breach ofthe peace and (A) retain Collateral and all payments made
hereunder, or (B) retain all payments and sell Collateral at a public or private
sale wIth the right in Holder to purchase any Collateral at such sale), applying
the net proceeds to all charges and expenses incurred by Holder In connection
with the repossession, storage, repair, refurbishing and sale, including
attorneys to the Balance plus past due interest thereon, then to any other
amounts owing by Buyer to Holder, and then pay any overplus to Buyer, who shall
remain liable for any deficiency with interest at the Highest Lawful Rate plus
reasonable attorneys' fees or (C) retain the Collateral and all payments made
hereunder, credit Buyer with the then reasonable value of the Collateral and
recover from Buyer any deficiency together with any late charges, expenses and
Interest at Highest Lawful Rate plus said reasonable attorneys' fees, or (D)
pursue any other remedy permitted by law or equity. It is agreed that any amount
to be retained by Holder and the balance to be paid by Buyer under this
paragraph shall not be as a penalty but as liquidated damages for the breach
hereof. The remedies provided for herein may be exercised, to the extent
permitted by law, successively or concurrently and the exercise of one shall not
bar the other. Buyer and any Guarantor hereof agree that any public sale will be
deemed commercially reasonable if notice thereof is mailed to them at least ten
(10) days before such sale and advertised in at least one newspaper of general
circulation In the area of the sale at least twice prior to the date of sale
upon terms of 25% cash down and the balance within 24 hours and further agree
that any prIvate sale shall be deemed commercially reasonable if notice thereof
is mailed to them, at least 14 days before the sale date stated therein and
credit given for the price stated. Holder, not being in the equipment business
and in light of Buyer's obligation to maintain equipment, shall not be required
to refurbish, repair or otherwise incur expenses In connection with preparing
the Collateral for sale but may sell its interest therein on an "as-is",
"where-is" basic. Notwithstanding any termination of this Contract by expiration
or otherwise, Buyer shall remain liable for the due performance and payment of
all obligations incurred or arising hereunder, whenever accruing, and Holder
shall be entitled to enforce all rights and remedies it has hereunder. BUYER,
SELLER AND ANY HOLDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY OF ANY AND ALL CLAIMS, DEFENSES,
COUNTERCLAIMS, CROSSCLAIMS AND SETOFF OR RECOUPMENT CLAIMS ARISING EITHER
DIRECTLY OR INDIRECTLY BETWEEN OR AMONG THEM AND/OR INVOLVING ANY PERSON OR
ENTITY CLAIMING ANY RIGHTS ACQUIRED BY, THROUGH OR UNDER ANY PARTY. Buyer hereby
waives and releases relief from any and all appraisement, stay or exemption laws
then in force and further waives, with full knowledge of Buyer's rights and the
effect of this waiver, any right to a hearing nor to any retaking of Collateral
by Holder. Buyer represents and warrants to Seller and any Holder that Buyer has
paid all applicable sales, use or other taxes due in connection with the sale,
purchase, ownership, possession or use ofthe Property and shall indemnify Seller
and any Holder from and against any loss, cost or expense, including penalties,
interest and other charges of any kind in connection with or arising from the
sale, purchase, ownership, possession or use of the Property. Buyer's
obligations under this contract note survive termination hereof. Holder is
hereby authorized to file one or more financing statements or a reproduction
hereof as a financing statement. All security interests shall attach to any
proceeds. In its sole discretion Holder may apply and/or change applications of
any sums paid and/or to be paid by or for Buyer under any agreements, to any
obligations of Buyer to Holder, presently existing or otherwise. Holder may at
any time, with or without excercising any of the rights or remedies available to
it and without prior notice or demand to Buyer, appropriate and apply toward
payment of any of Buyer's obligations to Holder any and all balances, sums,
Property, credits, deposits, accounts, reserves, collections, monies, drafts,
notes or checks coming into Holder's possession and belonging or owing to Buyer
and for such purposes, endorse Buyer's name on any such instrument made payable
to Buyer, for deposit, negotiation, discount or collection. Buyer hereby
irrevocably appoints Seller and/or Holder as the true and lawful
attorney-in-fact of a Buyer, coupled with an Interest, with full power in
Buyer's name, place of stead to execute financing statements on Buyer's behalf
and to do any and all other acts on Buyer's behalf necessary or helpful to
perfect Seller's and/or Holder's security Interest in the Collateral pursuant to
the Uniform Commercial Code or other applicable law. Each person signing this
contract warrants full authority to sign this Contract. interest shall be
charged at the rate 2/41st of 1% per day on each monthly installment more titan
15 days past due.
This contract contains the entire agreensent of the parties and may not be
modified except in writing. Seller shall not by acceptance of overdue payments
or by any act or omission toact be deemed to have wsived any right hereunder. A
waiver on one occasion shall not operate as a waiver on a future occasion. AS
PART OF THE CONSIDERATION FOR SELLER'S ENTERING INTO THIS CONTRACT, BUYER,
SELLER, HOLDER AND ANY GUARANTOR HEREBY DESIGNATE AND APPOINT EDWIN M. BAUM,
ESQ. AND C-A CREDIT CORP., BOTH OF NEW YORK, OR EITHER OF THEM, AS THEIR TRUE
AND LAWFUL ATTORNEY-IN-FACT AND AGENT FOR THEM AND IN THEIR NAME, PLACE AND
STEAD TO ACCEPT SERVICE OF ANY PROCESS WITHIN THE STATE OF NEW YORK, THE PARTY
SERVING SUCH PROCESS AGREEING TO NOTIFY THE OTHER PARTY(IES) AT THEIR ADDRESS
SHOWN, OR THEIR LAST KNOWN ADDRESS, BY CERTIFIED MAIL, WITHIN THREE DAYS OF SUCH
SERVICE HAVING BEEN EFFECTED. BUYER, SELLER, HOLDER AND ANY GUARANTOR HEREOF
AGREE TO THE EXCLUSIVE VENUE AND JURISDICTION OF ANY COURT IN THE STATE AND
COUNTY OF NEW YORK FOR ALL ACTIONS, PROCEEDINGS, CLAIMS, COUNTERCLAIMS OR
CROSSCLAIMS ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, OR IN ANY
WAY RELATED TO THIS CONTRACT, WITH TILE SOLE EXCEPTIONS THAT AN ACTION TO
RECOVER POSSESSION OF ALL OR PART OF THE COLLATERAL, OR ANY OTHER ASSETS OF THE
BUYER OR THE GUARANTOR HOWEVER DENOMINATED, MAY, IN THE SOLE DISCRETION OF
HOLDER, BE BROUGHT IN A STATE OR FEDERAL COURT HAVING JURISDICTION OVER THE
COLLATERAL, AND/OR SUCH OTHER ASSETS. BUYER, SELLER, HOLDER, AND ANY GUARANTOR
HEREOF EACH WAIVE ANY RIGHT THEY OR ANY OF THEM MAY HAVE TO TRANSFER OR CHANGE
THE VENUE OF ANY LITIGATION BROUGHT IN ACCORDANCE HEREWITH. Any provision hereof
violating the law of any Jurisdiction shall, when governed by the law of lr
jurisdiction, be deemed void to the extent of such prohibition, but without
invalidating the remaining provisions hereof. The parties each warrant and agree
that Buyer has not received possession of the Property prior to the date hereof.
Intending that each and every provision of this Contract be fully effective
according to its terms, the parties agree that the ~alidrty, enforceability and
effectiveness of each provision hereof and the obligations, rights and remedies
of the Buyer, Seller, Guarantor and any Holder in any way related to or arising
under this Contract shall be governed by and construed in accordance with the
laws of the State of New York (excluding its choice of law rules). If any one or
more provisions hereof are in conflict with any applicable statute or law, and
thus not valid or enforceable, then each such provision shall be deemed null and
void, but only to the extent of such conflict and without Invalidating or
affecting the remaining provisions hereof. This Contract shall be binding upon
the heirs, administrators, legal representatives and successors of the Buyer.
IN THE EVENT TEXAS LAW GOVERNS THIS CONTRACT: TO CONTACT SELLER ABOUT THIS
ACCOUNT CALL THE SELLER AT THE SELLER'S TELEPHONE NUMBER APPEARING BELOW THE
SELLER'S ADDRESS ON THE REVERSE SIDE OF THIS CONTRACT. TO CONTACT THE HOLDER
ABOUT THIS ACCOUNT CALL ORIX CREDIT ALLIANCE, INC. AT ITS TELEPHONE NUMBER
APPEARING ALONGSIDE OF ITS ADDRESS AT THE VERY TOP OF THE REVERSE SIDE OF THIS
CONTRACT. THIS CONTRACT IS SUBJECT IN WHOLE OR IN PART TO TEXAS LAW WHICH IS
ENFORCED BY THE CONSUMER CREDIT COMMISSIONER, 2601 NORTH LAMAR BOULEVARD,
AUSTIN, TEXAS 78705-4207. PHONE (512) 9336-761O, (800) 538-1579. CONTACT THE
COMMISSIONER RELATIVE TO ANY INQUIRIES OR COMPLAINTS.
In the event that any court of competent Jurisdiction determines that this
Contract represents a loan transaction, then the parties agree that the interest
rate for such transaction shall be 18% per annum except that it by applying the
Rule or 78 it is determined that the tanscation and this Contract actually
provided for a lesser rate, then such lesser rate shall be the agreed upon rate
of interest. Nothing contained herein shall be construed to require the Buyer to
pay any amount In excess of that provided for in this Contract.
It is the Intent of the Seller and Buyer to make the transaction evidenced
by this Conditional Sale Contract conform to all applicable laws ("Laws"),
Including the provisions of the Texas Credit Code, ifsuch Laws shall be
applicable. Such Laws contain various restrictions and limitations concerning
interest, fees, expenses, late charges, deferral charges, refund of unearned
Interest, insurance, collection costs and various other matters which may or may
not apply to this transaction. It is the intent of the Seller, Buyer and Holder
to fully comply with all such applicable limitations and restriction. If, for
any reason, any provision of this Conditional Sale Contract or any related
document shall be deemed to be in violation of such Laws, such provision will
not be applicable, will be void AB INITIO and instead, the appropriate
applicable provisions of such Laws shall apply. In the event of any conflict
between this Conditional Sale Contract and any other document between the Seller
and the Buyer related to this transaction with respect to any provisions
prohibited or required by such Laws, the provisions complying with such Laws
shall be the operative provisions. It is agreed that if the aggregate of all
interest, charges and other sums deemed to constitute interest and contracted
for, chargeable or receivable in connection with this transaction, shall produce
a rate higher than the highest lawful rate which is the maximum non-usurious
rate of interest, as it fluctuates without notice, allowable by applicable state
or federal law, whichever may be higher and if applicable law shall not provide
a maximum non-usurious rate, then 24% per annum), then this Conditional Sale
Contract and any related documents shall be reformed so as only to permit the
collection of the highest lawful rate.
If for any reason whatsoever interest shall be paid or received during the
full term of the transaction contemplated by this Contract, which produces a
rate exceeding the Highest Lawful Rate, the Seller or Holder, at its option,
shall refund such excess to Buyer for credit against any outstanding obligations
of Buyer. To the extent permitted applicable law, all non-principal payments
shall be deemed expenses, fees or premiums rather than interest and all such
payments shall be allocated and spread throughout the entire term of this
Contract so that the Interest rate shall be uniform throughout.
If Chapter One of Title 79, Texas Revised Civil Statutes, 1925, as amended
("Texas Credit Code") establishes the Highest Lawful Rate, that rate shall be
the "Indicated Rate Ceiling" (as Identified in the Texas CredIt Code). Without
notice to Maker or any other person or entity, the Highest Lawful Rate shall
automatically fluctuate as such maximum non-usurious rate fluctuates. Interest
shall be computed for the actual number of days elapsed In a year consisting of
365 or 366 days, as the case may be. The "Highest Lawful Rate means the maximum
non-usurious rate of interest allowed b Texas law stated as a rate er annum.
<PAGE>
Schedule A
This schedule IS ATTACHED TO AND BECOMES PART OF SECURITY AGREEMENT, CONDITIONAL
SALE CONTRACT, LEASE, OR _____________________________________ DATED 8-5, 99
-------
between the undersigned.
DESCRIPTION OF PROPERTY
--------------------------------
QUANTITY (INDICATE WHETHER "NEW"OR"USED") YEAR & MODEL SERIAL NO.
- -------- -------------------------------- ------------ ------------------
1 PETERBILT 2000 377 1XPCDR9X1YD515O78
ROAD TRACTOR
1 PETERBILT 2000 377 1XPCDR9X3YD515O79
ROAD TRACTOR
1 PETERBILT 2000 377 1XPCDR9XXYD515080
ROAD TRACTOR
1 PETERBILT 2000 377 1XPCDR9X1YD515081
ROAD TRACTOR
1 PETERBILT 2000 377 1XPCDR9X3YD515O82
ROAD TRACTOR
1 PETERBILT 2000 377 1XPCDR9X5YD515083
ROAD TRACTOR
1 PETERBILT 2000 377 1XPCDR9X7YD515084
ROAD TRACTOR
1 PETERBILT 2000 377 1XPCDR9XXYD515077
ROAD TRACTOR
1 PETERBILT 2000 377 1XPCDR9X9YD515O85
ROAD TRACTOR
1 PETERBILT 2000 377 1XPCDR9XOYD515O86
ROAD TRACTOR
This schedule is hereby verified correct and undersigned Mortgagor(s), Buyer(s),
or Lessee(s) acknowkdges receipt of a copy this 5 day of August, 99.
- -----------
Mortgagee/Seller/Lessor: MORTGAGOR/BUYER/LESSEE
RUSH ENTERPRISES, INC. DBA HOUSTON ESCO TRANSPORTATION CO.
PETERBILT, INC.
-------------------------------------- --------------------------------
BY:. /S/ SCOTT W. S By: /S/ EDWIS L. SELPH, JR.
-------------------------------------- --------------------------------
SCHED.A( 1-98) NET 7.03
<PAGE>
GUARANTY
TO: ORIX CREDIT ALLIANCE, INC.
RE: ESCO TRANSPORTATION CO
Gentlemen
To induce you to enter into one or more equipment lease agreements and/or
one or more security agreements, including but not limited to conditional sale
agreements, leases, chattel and/or real estate mortgages, notes or other
deferred or time payment paper, and/or any and all agreements relating to the
purchase of such paper or documents or both (all of the foregoing hereinafter
called "Security Obligations") with the above-captioned (hereinafter, together
with its successors and assigns, called the" Subject"), and/or to induce you to
purchase and/or accept an assignment of Security Obligations from Subject and/or
to induce you to purchase and/or accept one or more assignments from any party
or parties of one or more Security Obligation us having Subject as obligor
thereon, and/or in consideration of your having heretofore done any or all of
the foregoing, we, the undersigned (and each of us if more than one) agree to
be, without deduction by reason of set-off, defense or counterclaim of Subject
and/or us, jointly, severally, directly and unconditionally liable to you for
the due performance of all such Security Obligations past, present and future,
and any and all subsequent renewals, continuations, modifications, supplements
and amendments thereof, and for the payment of any and all debts and other
obligations of Subject of whatever nature, whether matured or unmatured, whether
absolute or contingent and whether now or hereafter existing or arising or
contracted or incurred or owing to or acquired by you by assignment, transfer or
otherwise (such debts and other obligations referred to herein as "General
Obligations"). Any and all present and future debts and obligations of Subject
to us are hereby waived and postponed in favor of and subordinated to the full
payment and performance of all past, present and future debts and obligations of
Subject to you. We affirmatively represent and warrant to you that we will not
transfer any personal assets to any party without full and valuable
consideration in money's worth for said transfer and we understand that in
reliance upon and in consideration of this representation, specific credit
accommodations as described above ' are being extended to the Subject by you. We
hereby waive notice of acceptance hereof and of all notices of any kind to which
we may be entitled, including without limitation any and all demands of payment,
notices of non-payment, protest and dishonor to us or Subject or makers, or
endorsers of any notes or other instruments for which we are or may be liable
hereunder. You shall be entitled to hold any and all sums to our credit and any
of our property at any time in your possession as security for any and all of
our obligations to you, no matter how or when arising and whether under this
instrument or otherwise. We further waive notice of and hereby consent to any
agreement or arrangements whatever with Subject or anyone else, including
without limitation, agreements and arrangements for payment extension,
subordination, composition, arrangement, discharge or release of the whole or
any part of Security Obligations. or for releases of collateral and/or other
guarantors, or for the change or surrender of any and all security, or for
compromise, whether by way of acceptance of part payment or of returns of
merchandise or of dividends or in any other way whatsoever, and the same shall
in no way impair our liability hereunder. The liability hereunder of each of the
undersigned is direct and unconditional and may be enforced without requiring
your first to resort to any other right, remedy or security and shall survive
any repossession of property whether or not such constitutes an election of
remedies against Subject; nothing shall discharge or satisfy our liability
hereunder except the full performance and payment of all Security Obligations
and General Obligations with interest. We shall have the right of subrogation,
reimbursement or indemnity whatsoever and no right of recourse to or with
respect to any assets or property of Subject or to any collateral for Security
Obligations, unless and until all Security Obligations and General Obligations
shall have been paid and performed in full and if the undersigned shall be
deemed to be an 'insider', (as the term is used in Bankruptcy Code) then all
rights of subrogation are waived. It you become involved in any lawsuit against
any of us or concerning a breach of any covenant or agreement herein contained,
we shall be obligated to pay to you, and you may obtain judgment for, (a) all
unpaid balances and any other monies due to you from Subject; (b) all costs and
expenses of any such suit; (c) 20% of the sum of (a) plus (b) representing
attorneys' fees (which sum is deemed to be reasonable), plus (d) interest on
(a), (b) and (c) at the highest lawful rate provided for in any of the Security
Obligations until such sum is paid in full (the sum of (a), (b), (c) and (d)
called 'the Judgment Account"). AS PART OF THE CONSIDERATION FOR YOUR ENTERING
INTO AND/OR PURCHASING AND/OR ACCEPTING AN ASSIGNMENT OF ONE OR MORE Security
OBLIGATIONS WITH SUBJECT AS obligor thereon, we HEREBY DESIGNATE AND APPOINT
EDWIN H. BAUM, ESQ. AND C-A CREDIT CORP., BOTH OF NEW YORK, OR EITHER OF THEM,
AS OUR true AND LAWFUL ATTORNEY-IN-FACT AND AGENT FOR EACH OF US AND IN OUR
NAME, PLACE AND STEAD TO ACCEPT SERVICE OF ANY PROCESS WITHIN THE STATE OF NEW
YORK, YOU AGREEING TO NOTIFY US BY DEPOSITING IN THE UNITED STATES MAILS
CERTIFIED MAIL, POSTAGE PREPAID WRITTEN NOTICE OF SUCH SERVICE ADDRESSED TO US
AT OUR ADDRESS SHOWN HEREINBELOW, WITHIN THREE (3) DAYS OF SUCH SERVICE HAVING
BEEN EFFECTED AND THE UNDERSIGNED DO HEREBY AGREE TO THE EXCLUSIVE VENUE AND
JURISDICTION OF ANY STATE OR FEDERAL COURT IN THE STATE AND COUNTY OF NEW YORK
REGARDING IN ANY MATTER ARISING HEREUNDER. We hereby irrevocably authorize any
attorney of any court of record to appear for and confess judgment against any
one or more of us (except in any jurisdiction where such action is not permitted
by law) for the Judgment Amount, without stay of execution, and we hereby waive
and release relief from any and all appraisement, stay or exemption laws then in
force. We agree that if we or Subject shall at any time become insolvent, or
make a general assignment, or if a petition in bankruptcy or any insolvency or
reorganization proceeding shall be commenced by, against or in respect of us or
Subject, any and all of our obligations shall, at your sole option, forthwith
become due and payable without notice. You may appropriate and apply to any of
our obligations any and all balances, sums, property, credits, deposits,
accounts, reserves, collections, monies, drafts, notes or checks coming into
your possession and belonging to us and endorse our name thereon for deposit,
negotiation, discount or collection. We have not relied upon any representations
or warranties in connection with the execution and delivery of this instrument
and our obligations hereunder are absolute and unconditional notwithstanding the
invalidity or unenforceability of any the Security Obligations or General
Obligations or of this instrument. This instrument is a continuing guaranty and
shall continue in full force and not -notwithstanding the death of any of us,
until the full performance, payment and discharge of all Security Obligations
and General Obligations, and thereafter until actual receipt by you from us of
written notice of termination; such termination shall be applicable only to
transactions having their inception thereafter. Termination by one or more of us
shall not affect the liability of such of us as do not give such notice of
termination.
No representations and/or agreements not set forth herein have been made to
us. We hereby assert and confirm that we executed and entered into this
instrument voluntarily and without any coercion, duress or undue influence of
any kind, whether directly or indirectly, having been exerted upon us by you or
any of your employees, agents or representatives. In FURTHER CONSIDERATION FOR
YOUR ENTERING INTO any OF THE SECURITY OBLIGATIONS AND FOR OTHER GOOD AND
VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY
ACKNOWLEDGED, EACH OF THE UNDERSIGNED, INDIVIDUALLY AND FOR HIS OR HER HEIRS,
EXECUTORS, ADMINISTRATORS, PERSONAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS,
DOES HEREBY WAIVE, FOREGO AND AGREE NOT TO ASSERT ANY AND ALL RIGHTS, CLAIMS AND
DEFENSES, IF ANY, UNDER THE FEDERAL EQUAL CREDIT OPPORTUNITY ACT ('ECOA"), 15
U.S.C. 1691 ET SEQ. AND REGULATIONS PROMULGATED THEREUNDER, THAT MAY INURE TO
-- ---
THE BENEFIT OF THE UNDERSIGNED AS A RESULT OF your OBTAINING OR OUR EXECUTING
THIS INSTRUMENT. WE HEREBY RATIFY AND APPROVE THE OBTAINING BY YOU OF CREDIT
REPORTS RELATING TO US AND HEREBY AGREE THAT YOU MAY HEREAFTER OBTAIN SUCH
CREDIT REPORTS AS YOU MAY, IN YOUR SOLE DISCRETION, DETERMINE.
The words "you" and "your" as used herein shall mean and include and this
instrument shall apply in favor of and be severally enforceable by any addressee
hereinabove named and/or any concern which is or may at any time be the parent,
subsidiary of such parent, subsidiary or assignee thereof. WE KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY AND ALL RIGHT TO A TRIAL BY jury OF ANY
AND ALL CLAIMS, DEFENSES, COUNTERCLAIMS, CROSSCLAIMS AND SETOFF OR RECOUPMENT
CLAIMS ARISING EITHER DIRECTLY OR INDIRECTLY BETWEEN YOU AND US AND/OR INVOLVING
ANY PERSON OR ENTITY CLAIMING ANY RIGHTS ACQUIRED BY, THROUGH OR UNDER ANY OF
THE SECURITY OBLIGATIONS OR GENERAL OBLIGATIONS AND WE FURTHER WAIVE ANY AND ALL
RIGHT TO CLAIM OR RECOVER ANY PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY OTHER
DAMAGES OTHER THAN OR IN ADDITION TO, ACTUAL DAMAGES. This investment cannot be
changed orally, shall be interpreted according to the laws of the State of New
York, (excluding its choice of law rules), shall be binding upon the heirs,
executors, administrators, successors and assigns of each of the undersigned and
shall inure to the benefit of your successors and assigns.
Dated: 7-30-99 EDWIS L. SELPH
-------------------------- /s/ Edwis L. Selph (L.S.)
----------------------------------
WITNESS: (Personal Guarantor's Signature)
------------------------ Address: 6505 HOMESTEAD
------------------------
Driver Lic.# St. HOUSTON TEXAS 77028
------------- ---- ------------------------
Individual Acknowledgment Driver Lic.# St.
State of -------------- ----
County of
I, Connie Trujillo a Notary Public duly qualified in and for said County
----------------
and State, do hereby certify that on this 30th day of July, 1999 in (place)
---- ----
Harris in said County, before me personally appeared:
- -----
EDWIS L. SELPH, JR.
- --------------------------------------------------------------------------------
to me personally well known as and to be the identical person(s) named and
described in and party to and who executed in his/her/their own proper
handwriting and whose name(s) is / are subscribed to the instrument of writing
appearing on the above, bearing date as herein indicated, and produced and
delivered the same before me and who, upon being first duly sworn by me, stated
that he/she/they know the contents of said instrument to be his/her/their own
free, lawful and voluntary act and deed for the uses, purposes and consideration
therein mentioned and contained.
Given under and witness my hand and official seal the day and year in this
certificate first above written.
[CONNIE TRUJILLO /S/ Connie Trujillo
NOTARY PUBLIC, STATE OF TEXAS ---------------------
MY COMMISSION EXPIRES My Commission Expires 04-08-2002
APRIL 08, 2002] ----------
<PAGE>
EXHIBIT
WELLS FARGO EQUIPMENT FINANCING
Wells Fargo Equipment Finance, Inc. SUPPLEMENT TO MASTER LEASE
Investors Building, Suite 300 TRAC
WELLS FARGO 733 Marquette Avenue
Minneapolis, MN 554 79-2048
Supplement Number 48257-100 dated as of July 27, 1999 to
Master Lease Number 48257 dated as of July 27, 1999
Name and Address of Lessee:
ESCO TRANSPORTATION CO.
6505 HOMESTEAD ROAD
HOUSTON, IX 77028
- --------------------------------------------------------------------------------
This is a Supplement to the Master Lease identified above between Lessor and
Lessee (the "Master Lease"). Upon the execution and delivery by Lessor and
Lessee of this Supplement, Lessor hereby agrees to lease to Lessee, and Lessee
hereby agrees to lease from Lessor, the equipment described below upon the terms
and conditions of this Supplement and the Master Lease. All terms and
conditions of the Master Lease shall remain in full force and effect except to
the extent modified by this Supplement. This Supplement and the Master Lease as
it relates to this Supplement are hereinafter referred to as the "Lease".
EQUIPMENT DESCRIPTION:
25-2000 STOUGHTON 53-FT. AIR RIDE VANS, EACH EQUIPPED WITH A VANTAGE TRAILER
TRACKING SYSTEM
EQUIPMENT LOCATION: 250 INDUSTRIAL CIRCLE, SPRINGDALE, AR 72766
SUMMARY OF PAYMENT TERMS
Initial Term in Months 84 Total Cost: $492,000.00
Payment Frequency MONTHLY Total Basic Rent: $623,700.00
Basic Rental Payment $7,425.00 Interim Rent Daily Rate: N/A
plus applicable sales and use tax
Number of Installments 84 Interim Rent Cutoff Date: N/A
Advance Payments: FIRST due on Security Deposit: N/A
signing this Lease
TERMINAL RENTAL ADJUSTMENT CLAUSE (TRA C): In accordance with Section 7701(h) of
the Internal Revenue Code of 1986, under penalty of perjury, Lessee hereby
certifies that it intends that more than 50% of the use of the Equipment is to
be in A trade or business of Lessee. LESSOR AND LESSEE hereby agree that at the
expiration of the initial term of the Lease according to its original terms (and
not early on account of default or otherwise) the Equipment will be sold by the
Lessor (or by an agent of Lessor). The proceeds of sale (the "Proceeds") shall
be distributed as follows:
1. First, to reimburse Lessor or its agent for the cost of putting the
Equipment in a condition to be sold, sales commissions, legal fees, expenses or
repossession and all other expenses of sale.
2. Second, the balance to Lessor up to an amount equal to 10.00% of the
original cost of the Equipment.
3. Third, the balance, if any, to Lessee as an adjustment to rent previously
paid by Lessee to Lessor pursuant to the Lease.
In the event the Proceeds are less than the sum of item 1 plus item 2 above, the
Lessee shall pay to the Lessor the deficiency as additional rent pursuant to the
Lease but in any event not more than 10.00% of the original cost of the
Equipment.
Any amount paid to or by the Lessee pursuant to this Addendum shall be the
"Terminal Rental Adjustment". The second paraqraph of paragraph 2 of the Lease
relating to automatic extension is hereby deleted.
Lessee acknowledges that it has been advised that it will not be treated as the
owner of the Equipment for federal income tax purposes.
Lessor: Wells Fargo Equipment Finance, Inc. Esco Transportation Co Lessee
/s/ Edwis L. Selph
- ------------------------------------------ ------------------------------------
By
CEO
- ------------------------------------------ ------------------------------------
Title
SUPTRAC LMO 07271999 0952.2027.48257-100 55547
- -------------------------------------
Rent Commencement Date
ORIGINAL
<PAGE>
================================================================================
WELLS FARGO EQUIPMENT FINANCE, Inc. MASTER LEASE
Investors Building, Suite 300
WELLS FARGO 733 Marquette Avenue
Minneapolis, MN 55479-2048
- --------------------------------------------------------------------------------
Master Lease Number 48257 dated as of July 27, 1999
Name and Address of Lessee:
ESCO TRANSPORTATION CO.
6505 HOMESTEAD ROAD
HOUSTON, TX 77028
- --------------------------------------------------------------------------------
MASTER LEASE PROVISIONS
- --------------------------------------------------------------------------------
1. LEASE. Lessor hereby agrees to lease to Lessee, and Lessee hereby agrees
to lease from Lessor, the personal property described in a Supplement or
Supplements to this Master Lease from time to time signed by Lessor and Lessee
upon the terms and conditions set forth herein and in the related Supplement
(such property together with all replacements, repairs, and additions
incorporated therein or affixed thereto being referred to herein as the
"Equipment'9. The lease of the items described in a particular Supplement shall
be considered a separate lease pursuant to the terms of the Master Lease and the
Supplement the same as if a single lease agreement containing such terms had
been executed covering such items.
2. TERM. The term of this lease with respect to each item of Equipment shall
begin on the date it is accepted by Lessee and shall continue for the number of
consecutive months from the rent commencement date shown in the related
Supplement (the "initial term") unless earlier terminated as provided herein or
unless extended automatically as provided below in this paragraph. The rent
commencement dale is the 15th day of the month in which all of the items of
Equipment described in the related Supplement have been delivered and accepted
by Lessee if such delivery and acceptance is completed on or before the 15th of
such month, and the rent commencement date is the last day of such month if such
delivery and acceptance is completed during the balance of such month. In the
event Lessee executes the related Supplement prior to delivery and acceptance of
all items of Equipment described therein, Lessee agrees that the rent
commencement date may be left blank when Lessee executes the related Supplement
and hereby authorizes Lessor to insert the rent commencement date based upon the
date appearing on the delivery and acceptance certificate signed by Lessee with
respect to the last item of Equipment to be delivered.
AUTOMATIC EXTENSION. Lessee or Lessor may terminate this lease at the
expiration of the initial term by giving the other at least 90 days prior
written notice of termination. If neither Lessee nor Lessor gives such notice,
then the term of tills lease shall be extended automatically on the same rental
and other terms set forth herein (except that in any event rent during any
extended term shall be payable in the amounts and at the times provided in
paragraph 3) for successive periods of one month until terminated by either
Lessee or Lessor giving the other at least 90 days prior written notice of
termination.
3 RENT. Lessee shall pay as basic rent for the initial tem of this lease
tile amount shown in the related Supplement as Total Basic Rent. The Total Basic
Rent shall be payable in installments each in the amount of the basic rental
payment set fort! in the related Supplement plus sales and use tax thereon.
Lessee shall pay advance installments and any security deposit, each as shown in
the related Supplement, on the date it is executed by Lessee. Subsequent
installments shall be payable on the first day of each rental payment period
shown in tile related Supplement beginning after the first rental payment
period; provided, however; If tat Lessor and Lessee may agree to any other
payment schedule, including irregular payments or balloon payments, in which
event they shall be set forth in the space provided in the Supplement for
additional provisions. If the actual cost of the Equipment is more or less than
the Total Cost as shown in the Supplement, the amount of each installment of
rent will be adjusted Elf) or down to provide the same yield to Lessor as would
have been obtained if the actual cost had been the same as the Total Cost.
Adjustments of 10% or less may be made by written notice from Lessor to Lessee.
Adjustments of more than 10% shall be made by execution of an amendment to the
Supplement reflecting the change in Total Cost and rent.
During any extended term of this lease, basic rent shall be payable monthly
in advance on the first day of each month during such extended term in the
amount equal to the basic rental payment set forth in the related Supplement if
rent is payable monthly during the initial term or in an amount equal to the
monthly equivalent of the basic rental payment set forth in the related
Supplement if rent is payable other titan monthly during the initial term. In
addition, Lessee shall pay any applicable sales and use tax on rent payable
during any extended term.
In addition to basic rent, which is payable only from the rent commencement
date as provided above, Lessee agrees to pay interim rent with respect to each
separate item of Equipment covered by a particular Supplement from the date it
is delivered and accepted to the rent commencement date at a daily rate equal to
tile percentage of Lessor's cost of such item specified in such Supplement.
Interim rent accruing each calendar month shall be payable by the 10th day of
the following month and in any event on the rent commencement date Lessee agrees
that if all of the items of Equipment covered by such Supplement have not been
delivered and accepted the rounder before the date specified as the Cutoff Date
in such Supplement, Lessee shall purchase from Lessor the items of Equipment
then subject to the lease within five days after Lessor's request to do so for a
price equal to Lessor's cost of such items plus all accrued but unpaid interim
rent thereon. Lessee shall also pay any applicable sales and use tax on such
sale.
4. SECURITY DEPOSIT. Lessor may apply any security deposit toward any
obligation of Lessee under this lease, and shall ret urn any unapplied balance
to Lessee without interest upon satisfaction of Lessee's obligations hereunder.
5. WARRANTIES. Lessee agrees that it has selected each item of Equipment
based upon its own judgment and disclaims any reliance upon any statements or
representations made by Lessor. LESSOR MAKES NO WARRANTY WITH RESPECT TO THE
EQUIPMENT EXPRESS OR IMPLIED, AND LESSOR SPECIFICALLY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE AND ANY LIABILITY FOR
CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OF OR THE INABILITY TO USE THE
EQUIPMENT. Lessee agrees to make the rental and oilier payments required
hereunder without regard to the condition of tile Equipment and to look only to
persons of her than Lessor such as the manufacturer; vendor or carrier thereof
should any item of Equipment for any reason be defective. So long as no Event of
Default has occurred and is continuing. Lessor agrees, to the extent they are
assignable, to assign to Lessee, without any recourse to Lessor; any warranty
received by Lessor.
6. TITLE. Title to the Equipment shall at all times remain in Lessor; and
Lessee at its expense shall protect and defend the title of Lessor and keep it
free of all claims and liens other than the rights of Lessee hereunder and
claims and liens created by or arising through Lessor. The Equipment shall
remain personal property regardless of its attachment to realty, and Lessee
agrees to take such action at its expense as may be necessary to prevent any
third party from acquiring any interest in the
7. LAWS AND TAXES. Lessee shall comply with all laws and regulations
relating to the Equipment and its use and shall promptly pay when due all sales;
use, property, excise and other taxes and other taxes and all license and
registration fees now or hereafter imposed by any governmental body or agency
upon the Equipment or its use or the rentals hereunder. Upon request by Lessor,
Lessee shall prepare and file all tax returns relating to taxes for which Lessee
is responsible hereunder which Lessee is
permitted to file under the laws of the applicable taxing jurisdiction.
8. INDEMNITY Lessee hereby indemnifies Lessor against and agrees to save
Lessor harmless from any and all liability and expense arising out of the
ordering, ownership, use, condition, or operation of each item of Equipment
during the term of this lease, Including liability for death or injury to
persons; damage to property, strict liability under the laws or judicial
decisions of any state or the United States; and legal expenses in defending any
claim brought to enforce any such liability or expense.
9. ASSIGNMENT, WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, LESSEE WILL NOT SELL,
ASSIGN, SUBLET, PLEDGE OR OTHERWISE ENCUMBER OR PERMITA LIEN ARISING THROUGH
LESSEE TO EXIST 0N OR AGAINST ANY INTEREST IN THIS LEASE OR THE EQUIPMENT, or
remove the Equipment from its location referred to above. Lessor may assign its
interest in this lease and sell or grant a security interest in all or any part
of the Equipment without notice to or the consent of Lessee. Lessee agrees not
to assert against any assignee of Lessor any claim or defense Lessee may have
against Lessor.
10. INSPECTION. Lessor may inspect the Equipment at any time end from time
to time during regular business hours.
11. REPAIRS. Lessee will use the Equipment with due care and for the purpose
for which it is intended. Lessee will maintain the Equipment in good repair,
condition and working order and will furnish all parts and services required
therefore, all at its expense, ordinary wear and tear excepted. Lessee shall, at
its expense, make all modifications and improvements to the Equipment required
by law, and shall not make other modifications or improvements to the Equipment
without the prior written
consent of Lessor. All parts, modifications and improvements to the Equipment
shall, when installed or made immediately become it, property of Lessor and part
of the Equipment for all purposes.
12. LOSS OR DAMAGE In the event any item of Equipment shall become lost,
stolen, destroyed, damaged, beyond repair or rendered permanently unfit for use
for any reason, or in the event of condemnation or seizure of any item of
Equipment, Lessee shall promptly pay Lessor the sum of(a) the amount of all rent
and other amounts payable by Lessee hereunder with respect to such item due but
unpaid at the date of such payment plus (b) the amount of all unpaid rent with
respect to such item for the balance of the term of this Lease not yet due at
the time of such payment discounted from the respective dates installment
payments would be due at the rate implicit in the schedule of rental payments
when applied to the cost of such item plus (c)10% of the cost of such item as
shown in the related Supplement. Upon payment of such amount to Lessor such item
shall become the property of Lessee. Lessor will transfer to Lessee; without
recourse or warranty, all of Lessor's right, title and interest therein, the
rent with respect to such item shall terminate, and the basic rental payments on
the remaining items shall be reduced accordingly Lessee shall pay any sales and
use taxes due on such transfer. Any insurance or condemnation proceeds received
shall be credited to Lessee's obligation under this paragraph and
Lessor shall be entitled to any surplus.
THIS AGREEMENT INCLUDES THE TERMS ON THE BACK OF THIS PAGE
Lessor: Walls Fargo Equipment Finance, Inc. Esco Transportation Co., Lessee
- -------------------------------------- -------------------------------
By By
- -------------------------------------- -------------------------------
Title Title
<PAGE>
13. INSURANCE. Lessee shall obtain and maintain or with respect to the
Equipment at its own expense (a), ---y insurance insuring against liability for
bodily injury and property damage with a minimum limit of $500,000 combined
single limit and (b) physical damage insurance insuring against loss or damage
to the Equipment in an amount not less than the full replacement value of the
Equipment. Lessee shall furnish Lessor with a certificate of insurance
evidencing the issuance of a policy or policies as to Lessee in at least the
minimum amounts required herein naming Lessor as an additional insured there
under for the liability coverage and as loss payee for the property damage
coverage. Each such policy shall be in such form and with such insures as may be
satisfactory to Lessor, and shall contain a clause requiring the insurer to give
to Lessor at least 10 days prior written notice of any alteration in the terms
of such policy or the cancellation thereof, and a clause specifying that no
action or misrepresentation by Lessee shall invalidate such policy. Lessor shall
be under no duty to ascertain the existence of or to examine any such policy or
to advise Lessee in the event any such policy shall not comply with the
requirements hereof.
14. RETURN OF THE EOUIPMENT. Upon the expiration or earlier termination of
this lease, Lessee will immediately deliver the Equipment to Lessor in the same
condition as when delivered to Lessee, ordinary wear and tear excepted, at such
location within the continental United States as Lessor shall designate. Lessee
shall pay all transportation and other expenses relating to such delivery.
15. ADDITIONAL ACTION. Lessee will promptly execute and deliver to Lessor
such further documents and take such further action as Lessor may request in
order to carry out more effectively the intent and purpose of the this Lease,
including the execution and delivery of appropriate financing statements to
protect fully Lessor's interest hereunder in accordance with the Uniform
Commercial Code or other applicable law. Lessee will furnish, from time to time
on request, a copy of Lessee's latest annual balance sheet and income statement.
16. LATE CHARGES. If any installment of interim rent or basic rent is not
paid when due, Lessor may impose a late charge of up to 5% of the amount but in
any event not more than permitted by applicable law. Payments thereafter
received shall be applied first to delinquent installments and the installments.
17. DEFAULT. Each of the following events shall constitute an "Event of
Default" hereunder: (a) Lessee shall fail to pay when due any installme basic
rent; (b) Lessee shall fall to observe or perform any other agreement to be
observed or performed by Lessee hereunder and the continuan' calendar days
following written notice thereof by Lessor to Lessee; (c) Lessee or any
guarantor of this lease or any partner of Lessee if Lessee h cease doing
business as a going concern or make an assignment for the benefit of creditors;
(d) Lessee or any guarantor of this lease or any pat is a partnership shall
voluntarily file, or have filed against it involuntarily, a petition for
liquidation, reorganization, adjustment of debt, or similar rel, Bankruptcy Code
or any other present or future federal or state bankruptcy or insolvency law, or
a trustee, receiver, or liquidator shall be appointE substantial part of its
assets; (e) any individual Lessee, guarantor of this lease, or partner of Lessee
if Lessee is a partnership shall die; (1) any fin in formation submitted by or
on behalf of Lessee shall prove to have been false or materially misleading when
made; (g) an event of default shall obligation Lessee owes to Lessor; (h) any
indebtedness Lessee may now or hereafter owe to Any affiliate of Lessor shall be
accelerated followin or, if any such indebtedness is payable on demand, payment
thereof shall be demanded; (I) if Lessee is a corporation, more than 50% of the
sh~ Lessee shall become owned by a shareholder or shareholders who were not
owners of voting stock of Lessee on the date this lease begins or, in
partnership, more than 5O% of the partnership interests in the Lessee shall
become owned by a partner or partners who were not partners of Le lease begins;
and (j) Lessee shall consolidate with or merge into, or sell or lease all or
substantially all of its assets to, any individual, corporation
18. REMEDIES. Lessor and Lessee agree that Lessor's damages suffered by
reason of an Event of Default are uncertain and not capable of e time this lease
is executed because the value of the Equipment at the expiration of this lease
is uncertain, and therefore they agree that for purp 18 "Lessor's Loss" as of
any date shall be the sum of the following: (1) the amount of all rent and other
amounts payable by Lessee hereunder d date plus (2) the amount of all unpaid
rent for the balance of the term of this lease not yet due as of such date
discounted from the respective do would be due at the rate of 5% per annum plus
(3) 10% of the cost of the Equipment subject to this lease as of such date.
Upon the occurrence of an Event of Default and at any time thereafter,
Lessor may exercise any one or more of the remedies listed below a discretion
may lawfully elect; provided, however, that upon the occurrence of an Event of
Default specified in paragraph 17(d), an amount equal the date of such
occurrence shall automatically become and be immediately due and payable without
notice or demand of any kind.
a) Lessor may, by written notice to Lessee, terminate this lease and declare
an amount equal to Lessor's Loss as of the date of such notice to payable, and
the same shall thereupon be arid become immediately due and payable without
further notice or demand, ard all rights of Lessee shall terminate but Lessee
shall be and remain liable as provided in this paragraph 18. Lessee shall at its
expense promptly deliver the Equipm location or locations within the continental
United States designated by Lessor. Lessor may also enter upon the premises
where the Equipment immediate possession of and remove the same with or without
instituting legal proceedings.
b) Lessor may proceed by appropriate court action to enforce performance by
Lessee of the applicable covenants of this lease or to recover, I Lessor's Loss
as of 1/to date Lessor's Loss is declared due and payable hereunder; provided,
however, that upon recovery of Lessor's Loss fror action without having to
repossess and dispose of the Equipment, Lessor shall transfer the Equipment to
Lessee at its then location upon paym amount due under clauses (d) and (e)
below.
c) In the event Lessor repossesses the Equipment, Lessor shall either retain
the Equipment in full satisfaction of Lessee's obligation hereundE item of
Equipment in such manner and upon such terms as Lessor may in its sole
discretion determine. The proceeds of such sale or lease sh~ reimburse Lessor
for Lessor's Loss and any additional amount due under clauses (d) and (e) below.
Lessor shall be entitled to any surplus ano liable for any deficiency. For
purposes of this subparagraph, the proceeds of any lease of all or any part of
the Equipment by Lessor shall be th assigned by Lessor as the cost of such
Equipment in determining the rent under such lease.
d) Lessor may recover interest on the unpaid balance of Lessor's Loss from
the date it becomes payable until fully paid at the rate of the IessE highest
rate permitted by law.
e) Lessor may exercise any other right or remedy available to it by law or
by agreement, and may in any event recover legal fees and other e.i reason of an
Event of Default or the exercise of any remedy hereunder, including expenses of
repossession, repair, storage, transportation, ant Equipment.
If any Supplement is deemed at any time to be a lease intended as security,
Lessee grants Lessor a security interest in the Equipment to ~ under this lease
and all other indebtedness at any time owing by Lessee to Lessor and agrees that
upon the occurrence of an Event of Default, other rights and r'-'medies
available to Lessor hereunder, Lessor shall have all of the rights and remedies
of a secured party under the Uniform
No remedy given in this paragraph is intended to be exclusive, and each shall be
cumulative but only to the extent necessary to permit Le~ for which Lessee is
liable hereunder. No express or implied waiver by Lessor of any breach of
Lessee's obligations hereunder shall constitute breach of Lessee's obligations
hereunder.
19. NOTICES. Any written notice hereunder to Lessee or Lessor shall be
deemed to have been given when delivered personally or depositeo malls, postage
prepaid, addressed to recipient at its address set forth above or at such other
address as may be last known to the sender.
20. NET LEASE AND UNCONDITIONAL OBLIGATION. This lease is a completely net
lease and Lessee's obligation to pay rent and amount~ under paragraphs 12 and 18
is unconditional and not subject to any abatement, reduction, setoff or defense
of any kind.
21. NON-CANCELABLE LEASE. This lease cannot be canceled or terminated except
as expressly provided herein.
22. SURVIVAL OF INDEMNITIES. Lessee's obligations under paragraphs 7, 8, and
18 shall survive termination or expiration of this lease.
23. COUNTERPARTS. There shall be but one counterpart of the Master Lease and
of each Supplement and such counterpart will be marked that any Supplement
constitutes chattel paper (as that term is defined by the Uniform Commercial
Code), a security interest may only be creat marked "Original."
24. MISCELLANEOUS. This Master Lease and related Supplement(s) constitute
the entire agreement between Lessor and Lessee and may written instrument signed
by Lessor and Lessee. Any provision of this lease which is unenforceable in any
jurisdiction shall, as to such jurisdic extent of such unenforceability without
invalidating the remaining provisions of this lease, and any such
unenforce5ibility in any jurisdiction shall such provision in any other
jurisdiction. If this lease shall in all respects be governed by, and construed
in accordance with, the substantive lai Minnesota. In the event there is more
than one Lessee named herein or in any Supplement, the obligations of each shall
be joint and several.
<PAGE>
EXHIBIT
QUANTUM TRANSPORTATION PURCHASE DOCUMENT
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER is dated effective as of 1/19/2000,
2000, by and among ESCO Transportation Co., a Delaware corporation with a
business address of 6505 Homestead, Houston, Texas 77028 ("Purchaser" or
"ESCO"); ESCO Transportation Acquisition Corp., a Texas corporation with a
business address of 6505 Homestead, Houston, Texas 77028, a wholly owned
subsidiary of ESCO ("ESCO Acq."); Quantum Transportation, Inc., a Minnesota
company with a business address of 1157 Valley Park Drive, Suite 115, Shakopee,
Minnesota 55379 (the "Company"); and the shareholders of the Company, Kevin
Dahlke, a Minnesota resident with a home address of 1100 Lonsdale Boulevard,
Northfield, Minnesota 55057 and David Dahlke, a Minnesota resident with a home
address of 3480 Lythrum Way, Minnetrista, Minnesota 55364 (jointly referred to
as the "Shareholders"). The Shareholders own 100% of the issued and outstanding
stock of the Company (the "Acquired Shares"). The Shareholders and the Company
are sometimes collectively referred to hereinafter as the "Sellers."
WHEREAS, the Boards of Directors of ESCO, Company and ESCO Acq. deem it
advisable and in the best interests of their respective stockholders that ESCO
acquire Company pursuant to the terms and conditions of this Agreement, and, in
furtherance of such acquisition, such Boards of Directors (and ESCO as the sole
stockholder of ESCO Acq.) have approved this Agreement and the merger of the
Company with and into ESCO in accordance with the terms of this Agreement and,
in the case of ESCO and ESCO Acq., the Texas Business Corporation Act (the
"TBCA") and, in the case of Company, the Minnesota Business Corporation Act (the
"MBCA"); and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a)(1)(C) of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Shareholders have agreed to specific indemnity obligations in
favor of ESCO as hereinafter set forth;
NOW, THEREFORE, in consideration of amounts paid to the Shareholders, the
receipt and sufficiency of which is hereby acknowledged, and in further
consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:
1.1 THE MERGER. In accordance with the provisions of this Agreement
and the MBCA and TBCA, at the Effective Time (as defined in Section 1.2), the
Company shall be merged with and into the Company (the "Merger"), the separate
existence of the Company shall thereupon cease, and ESCO Acq. shall be the
surviving corporation in the Merger (sometimes hereinafter called the "Surviving
Corporation") and shall continue its corporate existence under the laws of the
State of Texas. The Merger shall have the effects set forth in Article 5.01 of
the TBCA.
1.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
at the time of filing of properly executed Articles of Merger in the form
required by and executed in accordance with the provisions of Section 302A.615
of the MBCA and Article 5.04 of the TBCA. The parties hereto shall cause such
<PAGE>
filings to be made as soon as practicable after the Closing (as defined in
Section 1.3). When used in this Agreement, the term "Effective Time" shall mean
the date and time at which the Merger shall become effective.
1.3 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Company January
19, 2000, at 10:00 a.m., local time, or on such later day on which all of the
conditions set forth in Articles 11 and 12 are satisfied or waived or on such
other date and at such other time and place as ESCO and Company shall agree
(such date, the "Closing Date"). At the Closing, the Shareholders shall make
delivery of (a) the Acquired Shares owned by each of them by delivering
certificates for their Acquired Shares, duly endorsed or accompanied by stock
powers duly executed in such form as may be necessary to fully vest title in
ESCO to all of the Acquired Shares evidenced by such certificates and (b) such
other documents as may be required by this Agreement or as ESCO may reasonably
request. Against such delivery, and in full payment for the Acquired Shares,
ESCO shall deliver to such Shareholders the Merger Consideration (as hereinafter
defined) in exchange for the Acquired Shares described in Section 3.1 of this
Agreement. At the Closing, Sellers shall put ESCO Acq. in full possession and
enjoyment of all properties and assets of the Company. Each party will cause to
be prepared, executed, and delivered all other appropriate and customary
documents as another party or that party's counsel may reasonably request for
the purpose of consummating the transactions contemplated by this Agreement.
2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of ESCO
Acq. in effect at the Effective Time shall be the Articles of Incorporation of
the Surviving Corporation until amended in accordance with applicable law.
2.2 BY-LAWS. The By-Laws of ESCO Acq. as in effect at the Effective
Time shall be the By-Laws of the Surviving Corporation until amended in
accordance with applicable law.
2.3 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.
(a) The directors of the Surviving Corporation at the Effective Time
shall be Robert Weaver, Robert Darilek and Edwin L. Selph, Sr., each of whom
shall hold office from the Effective Time until their respective successors are
duly elected or appointed and qualified in the manner provided in the Articles
of Incorporation or By-Laws of the Surviving Corporation or as otherwise
provided by law.
(b) The officers of the Surviving Corporation at the Effective
Time shall be Edwin L. Selph, Sr., Chairman of the Board of Directors, Robert J.
Weaver, President, and Robert F. Darilek, Vice President, Secretary/Treasurer,
each of whom shall hold office from the Effective Time until their respective
successors are duly elected or appointed and qualified in the manner provided in
the Articles of Incorporation or By-Laws of the Surviving Corporation or as
otherwise provided by law.
3.1 MERGER CONSIDERATION. At the Effective Time, by virtue of the
Merger and without any action on the part and party or shareholder:
<PAGE>
(a) Each share of Acquired Shares issued and outstanding immediately
prior to the Effective Time (other than (i) shares to be canceled in accordance
with Section 3.1(b), and (ii) shares as to which dissenters rights shall been
duly demanded and such demand has been properly perfected pursuant to Sections
302A.471 and 302A.473 of the MBCA ("Dissenting Shares")) shall be converted into
the Merger Consideration. The "Merger Consideration" shall consist of the one
hundred fifty-nine thousand (159,000) shares of restricted ESCO common stock
valued at $3.00 per share (the "ESCO Shares"), hereinafter referred to as the
"benchmark price" to be transferred to the Shareholders at Closing. ESCO
guarantees the ESCO Shares will equal or exceed the benchmark price during the
period from the Closing Date through the end of three years (the "Guarantee").
The "Guarantee Date" shall be three years from the Closing Date. The amount
which the market price is below the benchmark price at the end of the three year
period will be paid in cash or stock (as provided below) only if the market
price has not exceeded the benchmark price for a period of five (5) consecutive
trading days and the ESCO Shares sold at sufficient volumes during such period
to accommodate the sale of the ESCO Shares during the three year period;
provided that at the time the ESCO Shares exceeded the benchmark price, the
Shareholders were not unable to sell their ESCO Shares due to limitations placed
on the sale by federal or state securities laws or ESCO itself. Such payment
shall be made within sixty (60) days of the Guarantee Date.
If the Guarantee is not paid in accordance with its terms hereof, the
Shareholders may, at their sole option, receive a number of shares of ESCO,
based upon the greater of the average trading price of the shares for the 10
days preceding exercise of the option or the average trading price for the 10
days preceding the Guarantee Date to realize the amount owed under the Guaranty.
In such event, such shares shall be issued to the Shareholders within ten (10)
days after ESCO receives notice of their exercise of their option.
(b) All shares of the Company's Common Stock that are held by the
Company as authorized but unissued shares shall be canceled and retired and
cease to exist and no securities of ESCO or other consideration shall be
delivered in exchange therefor.
(c) The holders of Dissenting Shares, if any, shall be entitled to
payment by the Surviving Corporation (or at the election of ESCO, by ESCO or an
affiliate of ESCO) of the fair value of such shares in cash to the extent
permitted by and in accordance with the provisions of Sections 302A.471 and
302A.473 of the MBCA: provided, however, that (i) if any holder of Dissenting
Shares shall deliver a written withdrawal of such holder's demand for fair value
of such shares, or (ii) if any holder fails to establish such holder's
entitlement to rights to payment as provided in such Section 302A.473. Such
holder or holders (as the case may be) shall forfeit such right to payment for
such shares and such shares shall thereupon be deemed to have been converted
into the Merger Consideration as of the Effective Time. Unless ESCO shall have
made the election referred to in the first sentence of this Section 1.3(c), the
Surviving Corporation shall be solely responsible for, and shall pay out of its
own funds, any amounts which become due and payable to holders of Dissenting
Shares, and such amounts shall not be paid directly or indirectly by ESCO. The
Company shall notify ESCO of each demand for dissenters' rights under the MBCA
promptly after such demand is received by the Company. If there are too many
Dissenting Shares in order for ESCO to gain the control it desires, in its sole
and absolute discretion, ESCO retains the right to void this Agreement and all
transactions contemplated hereunder.
<PAGE>
3.2 EXCHANGE OF ESCO COMMON STOCK; PROCEDURES.
(a) As soon as practicable after the Effective Time, ESCO shall deposit
with or for the account of Harris Bank & Trust (the "Exchange Agent") stock
certificates representing the number of ESCO Shares of common stock issuable
pursuant to Section 3.1 in exchange for all outstanding shares of the Company
Common Stock, which shares of ESCO Common Stock shall be deemed to have been
issued at the Effective Time.
(b) As soon as practicable after the Effective Time, ESCO shall cause
the Exchange Agent to mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of the Company Common Stock (the "Certificates") that were
converted pursuant to Section 3.1 into the right to receive shares of ESCO
Common Stock as may be reasonably required by Exchange Agent to effectuate the
exchange contemplated herein. Upon surrender of a Certificate for cancellation
to the Exchange Agent, together with such letter of transmittal, duly executed,
the holder of such Certificate shall be entitled to receive in exchange therefor
a certificate representing that number of whole shares of ESCO Common Stock
which such holder has the right to receive pursuant to the provisions of this
Article III, after giving effect to any required tax withholdings, and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of the Company Common Stock which is not registered in the
transfer records of the Company, a certificate representing the proper number of
shares of ESCO Common Stock may be issued to a transferee if the Certificate
representing such Company Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer, and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 3.2(b), each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender a certificate representing shares of ESCO Common
Stock.
3.3 FURTHER ASSURANCES. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Company acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Agreement, the officers of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of the Company or
otherwise, all such deeds, bills of sale, assignments and assurances and to take
and do, in such names and on such behalves or otherwise, all such other actions
and things as may be necessary or desirable to vest, perfect or confirm any and
all right, title and interest in, to and under such rights, properties or assets
in the Surviving Corporation or otherwise to carry out the purposes of this
Agreement.
4. RISK OF LOSS. In accordance with the consummation of the sale and
purchase described in this Agreement, and subject to any existing Management
Agreement between ESCO and the Company, the Shareholders shall bear all risk of
loss, damage or destruction to the Company's assets prior to the Closing Date
hereof and the Purchaser shall bear all risk of loss, damage or destruction to
the Company's assets on or subsequent to the Closing Date hereof.
<PAGE>
5. TAXES. All personal property taxes, corporate income taxes and any
other tax except those otherwise specifically listed herein, levied or assessed
or determined to be owed by the Company to the Federal, State, county, city or
local taxing authority, prorated for the current tax year through the Closing
Date shall be the sole responsi-bility of the Shareholders. Sellers have
disclosed, after a diligent review of the books, financial statements and
records, and other relevant documents that there is no other tax liability other
than those noted in this Agreement or any Exhibits thereto and the Shareholders
have determined that they have adequate provisions for the payment of all taxes
imposed.
6. EMPLOYMENT AGREEMENT. The Purchaser shall enter into an employment
agreement with Kevin Dahlke for a term of thirty-six (36) months following the
Closing Date. Kevin Dahlke's total compensation package including annual salary
and auto expenses shall equal $105,000, to be adjusted annually, based upon
merit, in a manner consistent with other terminal managers of ESCO and shall
include a non-compete agreement, in a form consistent with that attached hereto
as EXHIBIT "C". Kevin Dahlke shall also be entitled to an annual bonus of 7% of
the GAAP basis net income of the Company's operations based upon ESCO's
internally prepared financial reports, after deducting ESCO's standard corporate
allocation. This bonus shall be paid each year for three years and shall be
paid within 90 days after the calendar year end.
7. NON-COMPETE AGREEMENT. Each Shareholder will enter into a three
year non-compete agreement with ESCO, with the portion of the Merger
Consideration and Non-Compete Consideration not yet paid to be used to partially
compensate ESCO if either Shareholder defaults on his non-compete agreement.
The non-compete agreements are attached hereto as EXHIBIT "D." The total
consideration for these non-compete agreements shall be $53,000 ("Non-Compete
Consideration"), payable one-half to each of the Shareholder as follows:
(i) CASH EARNEST MONEY. Five Thousand Dollars ($5,000.00) which was paid
to Shareholders on November 12, 1999, which receipt Shareholders
hereby acknowledge.
(ii) CLOSING DOWN PAYMENT. Twelve Thousand Six Hundred Sixty Seven Dollars
($12,667.00) payable by cashier's or certified check or wired funds to
Shareholders on the Closing Date, hereinafter defined.
(iii)CASH INSTALLMENTS. A sum of Thirty-Five Thousand Three Hundred
Thirty-Three and No/100ths Dollars ($35,333.00), payable in two (2)
equal installments of Seventeen Thousand Six Hundred Sixty Six and
50/100ths Dollars ($17,666.50) each, with each installment due on the
30th and 60th day after the Closing Date hereof. No interest shall
accrue on the cash installments due unless payments are not made in a
timely manner. If cash installments are not made in a timely manner
and without reason for withholding consistent with Purchaser's rights
of offset contained herein, interest shall accrue on the outstanding
amounts at a rate of eight percent (8%) per annum from the due date of
such payment. The cash portion of the purchase price not paid at
closing shall be placed in escrow and held in trust by Spencer &
Associates, P.C., Attorneys at Law, Pan Jackson Building, 5th Floor,
4041 Richmond Ave., Houston,
<PAGE>
Texas 77027-6837. Both parties hereto shall hold Spencer & Associates,
P.C. harmless from liability as a result of this serving as escrow
agent in accordance with the terms of an escrow agreement, attached
hereto as EXHIBIT "B," which the parties shall execute at closing.
The non-compete agreements shall be void in the event ESCO is not due any offset
hereunder or is not reasonably withholding amounts or other consideration due to
Shareholders and fails to pay any portion of the Merger Consideration or
Non-Compete Consideration payable hereunder to the Shareholders.
8. TRADE NAMES. The Purchaser shall have the exclusive rights to the
name "Quantum Transportation, Inc." and any other related trade names used in
the Company's business.
9. REPRESENTATIONS AND WARRANTIES BY THE SHAREHOLDERS. The
Shareholders represent and warrant to Purchaser as follows:
(a) OWNERSHIP. The Shareholders are the lawful owners (record and
beneficial) of the number of Shares, and only that number of Shares, set forth
beside his name on EXHIBIT "A", free and clear of all liens, encumbrances, and
claims of every kind, except for those liens, encumbrances, and claims described
in EXHIBIT "A". The delivery of the certificate or certificates representing his
Shares pursuant to the provisions of this Agree-ment at the Time of Closing will
transfer good and valid title thereto, free and clear of all liens,
encumbrances, and claims of every kind. Each Shareholder will produce evidence
satisfactory to ESCO and represents and warrants that his wife has no residual
claim to the Shares as a claim on behalf of the community estate or any other
marital claim by his wife to the Shares.
(b) AUTHORITY. The Sellers have all necessary capacity, power, and
authority to enter into, and perform their obligations under this Agreement and
the other instruments contemplated hereby to be executed by the Sellers. Upon
execution and delivery of this Agreement and the other instru-ments contemplated
hereby to be executed by the Sellers, the Agreement and such instruments will
represent the valid, legal, and binding obligations of the Sellers, enforceable
in accordance with their terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, or similar laws affecting creditors' rights generally.
(c) GOOD STANDING. Except as disclosed on EXHIBIT "G", the Company has
no subsidiaries and does not own any interest in any corporation, partnership,
or other business or entity. The Company is a corporation duly organ-ized,
validly existing, and in good standing under the laws of the State of Minnesota
and possesses all requisite corporate power and authority to carry on its
business as now conducted and to own or lease and operate its properties.
(d) CAPITALIZATION. The authorized capital stock of the Company
consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
QUANTUM TRANSPORTATION, INC. 25,000 Shares of Common 1.00 par value each, of which 1,000
Stock Shares are issued and outstanding and no
Shares are held in Treasury.
</TABLE>
<PAGE>
The Shares to be exchanged and delivered to Purchaser pursuant to this Agreement
are duly authorized, validly issued and outstanding, fully paid, and
non-assessable, and con-stitute all of the issued and outstanding shares of
capital stock of the Company. There are no outstanding options, contracts,
calls, commitments, rights, or demands of any character, absolute or contingent,
(i) to acquire the capital stock of the Company or (ii) to acquire any
securities convertible into or exchangeable for the capital stock of the
Company. No shares of capital stock of the Company are reserved for issuance or
committed to be issued for any purpose. All voting rights are vested
exclusively in the Shares. There are no voting trusts, Shareholders'
agreements, or other voting arrangements with respect to the Shares.
(e) FINANCIAL STATEMENTS. The Sellers have delivered to Purchaser the
following financial statements for the Company: unaudited balance sheets as of
September 30, 1999, and years ended December 31, 1996, 1997 and 1998 and the
related statements of income and retained earnings and changes in financial
position for the years and interim periods then ended (the "Financial
Statements"). The Financial Statements have been prepared on an income tax
accounting basis of accounting and in all material respects fairly present the
results of operations and financial condition for the Company at the dates and
for the periods covered thereby. To the best of the Sellers' knowledge there
have been no changes in accounting principles applied or adopted since the ends
of the periods covered by the Financial Statements. The Financial Statements in
all material respects accurately represent the financial position, results of
operations and changes in financial positions of the Company for the period
covered. There are no liabilities or obligations of the Company accrued,
absolute, contingent or otherwise that arose out of or relate to any matter, act
or omission to the date of this Agreement, other than liabilities or obligations
incurred in the normal course of business.
(f) NO MATERIAL ADVERSE CHANGE. Except as set forth in EXHIBIT "H",
since September 30, 1999, except as contemplated by this Agreement (and the
Exhibits here-to, which are a part hereof) or heretofore disclosed to Purchaser
in writing, the Company has not:
(1) issued or sold any shares of its capital stock of any class or any
options, warrants, conversion, or other rights to purchase any such
shares or any securities convertible into or exchangeable for such
Shares;
(2) incurred any indebtedness for borrowed money, issued or sold any debt
securities, paid any indebtedness prior to maturity, or discharged any
other liabilities or obligations except in the ordinary course of
business;
(3) mortgaged, pledged, or subjected to any lien, lease, security
interest, or other charge or encumbrance any of its properties or
assets, tangible or intangible, except (i) liens for current taxes not
yet due and payable or being contested in good faith by appropriate
proceed-ings; (ii) liens imposed by law and incurred in the ordi-nary
course of business for obligations not yet due to carriers,
warehousemen, laborers, materialmen, and the like; and (iii) such
imperfections of title, encumbrances, easements, and security
interests that do not materially detract from the value or
marketability of such property or interfere with the present use
thereof by the Company;
<PAGE>
(4) acquired or disposed of, or granted licenses or other rights in or to,
any assets or properties of material value except in the ordinary
course of business;
(5) forgiven or canceled any debts or claims, or released or waived any
rights or claims, except in the ordinary course of business;
(6) entered into any material transaction other than in the ordinary
course of business;
(7) suffered any damage or destruction to or loss of property (whether or
not covered by insurance) that materially and adversely affects the
condition (financial or other), properties, assets, business,
operations, or prospects of the Company in the aggregate;
(8) declared, paid, or set aside any dividends or distributions with
respect to its capital stock;
(9) incurred any material liability or obligation (whether absolute,
accrued, contingent, or otherwise) except liabil-ities and obligations
in the ordinary course of business (any "material" liability or
obligation being defined herein as a liability or obligation $5,000
alone or collectively $ 5,000);
(10) suffered any material adverse change in its assets, business, or
financial condition other than those changes previously disclosed
hereto;
(11) terminated any key employees, increased the compensation of employees
except in accordance with estab-lished practices, or contributed to
any employee benefit plan;
(12) redeemed, purchased, or otherwise acquired directly or indirectly, any
capital stock of the Company;
(13) entered into, adopted, or amended in any respect any collective
bargaining agreement or adopted or amended any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred
compensation, insur-ance, or other similar plan, agreement, trust,
fund, or arrangement for the benefit of employees (whether or not
legally binding);
(14) suffered any strike or other labor trouble materially and adversely
affecting the business operations or prospects of the Company other
than those disclosed herein; or
(15) suffered any loss of employees or customers that materially and
adversely affects or could materially and adversely affect the Company
other than those disclosed herein.
(g) LIABILITIES. There are no claims against, or liabilities or
obligations of, the Company of any nature, whether absolute, accrued,
contingent, or otherwise and whether due or to become due except (i) as
<PAGE>
reflected in the unaudited balance sheet as of September 30, 1999; (ii) as
described in EXHIBIT "E" attached hereto; and (iii) those arising in the
ordinary course of business since September 30, 1999.
The acknowledged debts disclosed by the Sellers and set forth as EXHIBIT "F" are
in the form of Shareholder loans and the Shareholders acknowledge that these
loans have been or will be paid in full or will be forgiven on or before
Closing.
(h) TAX RETURNS. All final and estimated returns and reports for all
Federal, state, and local income, sales, payroll, withholding, excise, personal
property, franchise, and other taxes owed by the Company heretofore required to
be filed have been duly and timely filed, and all taxes and assessments shown
thereon as due or payable have been paid (or reserves established therefor). All
such tax returns or reports materially reflect the taxes of the Company for the
periods covered thereby. The Company has not waived any law or regulation
fixing, or consenting to the extension of any period of time for assessment of
any tax. The financial statements for the Company as of September 30, 1999
will reflect adequate reserves have been established in respect to all taxes for
the interim period from September 30, 1999 to the Closing Date. The Company is
not delinquent in the payment of any tax assessment or governmental charge,
except those in (g) above, and there is no tax deficiency or delinquency
asserted against the Company, and the Sellers do not know of any unpaid
assessment, proposal for additional taxes, deficiency, or delinquency in the
payment of any of the Company's taxes which could be asserted by any taxing
authority. After diligent and thorough inquiry, the Sellers do not know of any
violation of any Federal, state, local or foreign tax laws.
(i) TITLE AND CONDITION. The Company has good and mar-ketable title to
all of its personal properties (in-cluding those reflected on its unaudited
balance sheet as at September 30, 1999, except to the extent disposed of since
such date in the ordinary course of business), in each case free and clear of
all pledges, liens, security interests, title imperfec-tions, encumbrances, and
claims of any nature except (i) -pledges, liens, security interests, title
imperfections, encumbrances, and claims described in EXHIBIT "E" attached
hereto; (ii) liens for current taxes not yet due and payable or being contested
in good faith by appropriate proceedings; (iii) liens imposed by law and
incurred in the ordinary course of business for obligations not yet due to
carriers, warehousemen, laborers, materialmen, and the like; and (iv) such
imperfections of title, encumbrances, easements, and security interests that do
not materially detract from the value or marketability of such properties or
interfere with the use thereof by the Company. All machinery, equipment, and
other assets material to the Company's business owned or leased by the Company
are in good work-ing order and repair (subject to normal wear and tear), not
obsolete, and conform in all material respects with all applica-ble statutes,
ordinances, and other laws and all regulations promulgated thereunder.
(j) NO DEFAULTS. To the best of the Sellers' knowledge, after diligent
and thorough inquiry, there are no existing defaults, events of default, or
events, occurrences, or acts that, with the giving of notice or lapse of time or
both, would constitute defaults, and no penalties incurred or material
amendments pending, with respect to any of the Company's obligations and the
Company is in material compliance with and has performed all of its obligations
thereunder.
<PAGE>
(k) LITIGATION, CLAIMS, ETC. To the best of the Sellers' knowledge,
after diligent and thorough inquiry, there is no suit, claim, action, or
litigation, or administra-tive, arbitration, or other proceeding or governmental
investiga-tion or inquiry, or any change in environmental, zoning, or building
laws, regulations, or ordinances, pending, threatened, or contemplated against
the Company, its assets, business, or the Company's directors, employees and
officers and no unasserted claims (wheth-er or not the potential claimant may be
aware of the claim) or any basis for any such claims, to which the Company, its
business, or its assets, employees, officers or directors are or might become
subject, except as listed in EXHIBIT "E" attached hereto.
(l) COMPLIANCE WITH OTHER INSTRUMENTS. Neither the execution or
delivery of this Agreement and the other documents contemplated hereby nor the
consummation of the transactions contemplated hereby will result in any breach
or violation of any of the terms, conditions, or provisions or constitute a
default under, any indenture, mortgage, deed of trust, note agreement, plan,
contract, or other agreement or instrument to which the Company or the
Shareholders are bound or to which any of the Company's proper-ty or assets are
subject or result in the creation or imposi-tion of any lien, charge, or
encumbrance upon any of the Company's property or assets or any of the Shares;
nor will such actions result in any violation of any provision of the Company's
Articles of Incorporation or Bylaws.
(m) CONSENTS. To the Sellers' knowledge, after diligent and thorough
inquiry, no authorization, consent, approval, permit, or license or filing with,
any lender or lessor or any other person or entity is required to authorize, or
is re-quired in connection with, the execution, delivery, and perform-ance of
this Agreement on the part of the Sellers and the consummation of the
transactions contemplated hereby.
(n) COMPLIANCE WITH LAWS. To the best of the Sellers' knowledge, the
Company has materially complied with and is in material compliance with, and has
not received notice of any claimed violation of or default under, any applicable
laws, orders, rules, requirements, and regulations promulgated by any
governmental authority relating to assets or the conduct of its business.
(o) ACCOUNTS RECEIVABLE. All accounts receivable reflected on the
Company's September 30, 1999 balance sheet or arising since the date thereof
either have been collected or, to the best of the Sellers' knowledge, are valid
and enforceable, and to the best knowledge of Sellers are not subject to offsets
or credits by account debtors.
(p) LABOR RELATIONS. The Company is not experiencing, nor do the
Shareholders know of any reason to expect, any labor troubles or strife, work
stoppages, slow downs, or other material interference with or impairment of its
business by labor. To the Sellers' knowledge and belief, after diligent and
thorough inquiry, the Company has not committed any unfair labor practices. The
Company is not experiencing, and the Sellers know of no current or contemplated,
union organization efforts or negotiations, or requests for negotiations, for
any representa-tion or any labor contract relating to the Company employees.
(q) INSURANCE POLICIES. The Sellers have provided to the Purchaser a
list and description of all insurance policies concerning the assets and
properties and health, accident, disability and life insurance affecting all
officers, directors and employees of the Company. All of these policies are in
<PAGE>
the respective principal amounts as disclosed therein. The Company has
maintained and does now maintain insurance on all its assets of the type
customarily insured. The insurance also covers property damage by fire and
other casualty, as well as adequately protects against all normal liabilities,
claims and risks against which it is customary to insure.
(r) CONTRACTS. The Sellers have disclosed to the Purchaser all
material written contracts and oral arrangements and understandings obligating
the Company. For purposes of this paragraph, the term "material written
contract" means: (i) one that, if in the ordinary course of business obligates
anyone of the Company in an amount in the excess of $10,000.00, or if the
aggregate total of all such contracts from like transactions exceed such
amounts; and (ii) one that, if not in the ordinary course of business, obligates
the Company in an amount in excess $1,000.00 or if the aggregate total of all
such contracts from like transactions exceed such amounts. Additionally, the
Sellers have given to the Purchaser a list of all persons and entities whose
consents are required to be obtained under any contract with respect to the
consummation of this transaction, or that should be notified to insure an easy
transition. The Sellers have not received any notice that any party to any of
the contracts intends to cancel or terminate any of the contracts or to exercise
or not exercise any options under any of the contracts.
(s) BANK ACCOUNTS. The Sellers have furnished to the Purchaser a true
and correct list of the names and address of all banks or other financial
institutions in which the Company has an account, deposit or safety deposit box.
Also included are the names of all persons authorized to draw on these accounts
or deposits or who has access to them and the account number of each account.
(t) FULL DISCLOSURE. No representation, warranty or covenant made to
the Purchaser in this Agreement nor any document, certificate, exhibit, or other
information given or delivered to Purchaser pursuant to this Agreement contains
or will contain any untrue statement of a material fact, or omits or will omit a
material fact necessary to make the statements contained in this Agreement or
the matter disclosed in the related documents, certificates, information or
exhibits not misleading.
(u) BROKERS. Neither the Shareholders nor the Company nor any of the
Company's officers, directors, employees, have retained, consented to or
authorized broker, investment banker or third party to act on the Company's
behalf, directly or indirectly as a broker or a finder in connection with the
transactions contemplated by this Agreement.
(v) FORGIVENESS OF COMPANY DEBT. It is acknowledged hereto by the
Shareholders that any debt owed by the Company to either Shareholder is hereby
declared forgiven. It is hereby acknowledged by the Shareholders that they have
forgiven a debt of $20,983.52 previously owed by the Company to the
Shareholders. The Shareholders and the Company will execute any document that
ESCO reasonably requests which will verify the forgiveness of the $20,983.52
debt formerly owed by the Company to the Shareholders. The Shareholders also
acknowledge that the forgiveness of this debt was a bargained for part of the
consideration hereunder and that ESCO relied upon this forgiveness of debt as a
material fact in entering into this Agreement as additional consideration for
receipt of the Merger Consideration by the Shareholders. If the Company makes
any loans to the Shareholders from September 30, 1999 through the Closing Date
hereof, this amount will be deducted from the purchase price and the installment
payments as appropriate to offset these loans.
<PAGE>
10. REPRESENTATIONS AND WARRANTIES BY PURCHASER. Purchaser represents
and warrants that:
(a) ORGANIZATION. ESCO is a Delaware corporation duly organized,
validly existing, and in good standing under the laws of Delaware and possesses
all requisite corporate and other power and authority to enter into and
consum-mate the acquisition of the Shares pursuant to this Agreement. ESCO Acq.
is a Texas corporation duly organized, validly existing and in good standing
under the laws of Texas and possesses all required corporate and other power and
authority to enter into and consummate the merger contemplated by this
Agreement.
(b) AUTHORITY. Each of ESCO and ESCO Acq. has all necessary corporate
power and authority to enter into and perform their obligations under this
Agreement. The execution and delivery of this Agree-ment, the Purchaser's
Guarantee and the consummation of the transac-tions contemplated by this
Agreement will be, prior to the Time of Closing, duly authorized by all
necessary corporate action of ESCO and ESCO Acq. and, upon execution and
delivery of this Agreement and Purchaser's Guarantee and subject to approval by
the Board of Directors of Purchaser, the Agreement and the Purchaser's Guarantee
will represent the valid, legal and bind-ing obligations of ESCO and ESCO Acq.,
enforceable in accordance with their terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, or similar laws affecting creditors' rights
generally.
(c) INVESTMENT. Purchaser is acquiring the Shares for its own account
for investment and not with a view to or, for sale in connection with any
distribution thereof.
(d) GUARANTEE. Purchaser shall guarantee the value of the ESCO shares,
which Purchaser's Guarantee is set forth in Section 3.1(a)(iv) above.
(e) COMPLIANCE. The execution of this Agreement and the Purchaser's
Guarantee and the consummation of the transactions contemplated by this
Agreement will not result in any breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed,
trust, note agreement, or other agreement or instrument or of any applicable
laws, orders, rules, requirements, or regulations pro-mulgated by any
governmental or public body or authority to which ESCO or ESCO Acq. is a party
or by which it is bound or to which its properties is subject, and will not
violate or be in conflict with its Certificate of Incorporation or Bylaws.
(f) REPORTS AND FINANCIAL STATEMENTS. Except for its third quarter
10-Q, ESCO has filed all reports required to be filed with the SEC pursuant to
the Exchange Act or the Securities Act (collectively, the "ESCO SEC Reports").
Such ESCO SEC Reports, as of their respective dates, complied in all material
respects with the applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and management is not aware to the best of its
knowledge of any untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of ESCO included in the ESCO SEC Reports
have been prepared in accordance with the filing requests of the SEC (except as
otherwise noted therein or, in the case of unaudited statements, as permitted by
Form 10-QSB of the SEC).
<PAGE>
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS; MATERIAL AGREEMENTS. Except
as set forth in the ESCO SEC Reports filed as of the date of this Agreement,
since June 30, 1999, (i) ESCO has not conducted its business and operations
other than in the ordinary course of business and consistent with past practices
or taken any actions that, if such actions had then occurred and had been in
effect, would have violated or been inconsistent with such past practices,
except as disclosed on EXHIBIT "I" and to the best of its knowledge (ii) there
has not been any fact, event, circumstance or change affecting or relating to
ESCO which has had or is reasonably likely to have a material adverse effect on
ESCO's operations.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities or
obligations which are accrued or reserved against in ESCO's financial statements
(or reflected in the notes thereto) included in the ESCO SEC Reports filed as of
the date of this Agreement or which were incurred after June 30, 1999 in the
ordinary course of business and consistent with past practices, to the best of
its knowledge ESCO has no liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of a nature that should be reflected in a consolidated
balance sheet (or reflected in the notes thereto) or which could reasonably be
expected to have a material adverse effect on ESCO's financial statements.
(i) NO DEFAULT. ESCO is not in breach or violation, or in default under
(and no event has occurred which with notice or the lapse of time or both would
constitute such a breach, default or violation) of any term, condition or
provision of (a) the ESCO's Articles of Incorporation or By-Laws, or to the best
of its knowledge, (b) (i) any order, writ, decree, statute, rule or regulation
of any governmental entity applicable to ESCO or any of its properties or assets
or (ii) any contract to which the ESCO is a party or by which ESCO or any of its
properties or assets may be bound except in the case of this clause (b), which
breaches, violations or defaults, individually or in the aggregate, would not
have a material adverse effect. ESCO, to the best of its knowledge, is in
compliance with, all licenses, permits, variances, exemptions, orders, approvals
and other authorizations of all governmental entities as are necessary in order
to enable it to own its business and conduct its business as currently conducted
and as currently proposed to be conducted by ESCO and to enter into the
transactions contemplated hereby, the lack of which, under applicable law, rule
or regulation, (a) would render legally impermissible the transactions
contemplated hereby or (b) could reasonably be expected to result in the
material impairment of the continued use or exercise by ESCO after the date
hereof of any material right used or exercised (or reasonably expected to be
used or exercised) by ESCO, in the conduct of ESCO's business as currently
conducted and as currently proposed to be conducted by ESCO or (c) could
reasonably be expected to have a material adverse effect.
(j) EMPLOYEE BENEFIT PLANS; ERISA. ESCO has, as of January 1, 1999,
begun a 401(k) Profit Sharing Plan & Trust administered by Merrill Lynch (the
"Plan"). This Plan is a defined contribution plan and is not subject to or
insured by the Pension Benefit Guaranty Corporation. A copy of the Summary Plan
Description ("SPD") has been furnished to the Shareholders and all questions
have been directed to and explained to their satisfaction by the Plan
Administrator. ESCO has no current plan or commitment to create any additional
plan or modify the existing Plan.
(k) VOTE REQUIRED. The affirmative vote of the holders of a majority,
in the aggregate, of the shares of ESCO Acq. common stock present in person or
represented by proxy at the stockholders meeting of ESCO Acq. (provided that the
shares so present or represented constitute a majority, in the aggregate, of the
<PAGE>
outstanding shares of ESCO Acq. common stock) is the only vote of the holders of
any class or series of ESCO Acq. capital stock and the Board of Directors of
ESCO necessary to approve the issuance of shares of ESCO Common Stock pursuant
to the Merger. The affirmative vote of ESCO, as the sole stockholder of all
outstanding shares of ESCO Acq. Common Stock, is the only vote of the holders of
any class or series of ESCO Acq. capital stock necessary to approve the Merger.
The Board of Directors of ESCO (at a meeting duly called and held) has
unanimously (i) approved this Agreement, (ii) determined that the transactions
contemplated hereby are fair to and in the best interests of ESCO and the
holders of ESCO Common Stock, and (iii) determined to cause ESCO, as the sole
stockholder of ESCO Acq., to approve and adopt this Agreement. The Board of
Directors of ESCO Acq. (by unanimous written consent) has approved this
Agreement.
11. COVENANTS OF THE SHAREHOLDERS. The Shareholders hereby covenant
and agree with Purchaser as follows:
(a) ASSISTANCE. From and after the date hereof, the Shareholders will
give Purchaser after the Closing, reasonable assistance as needed to ensure an
orderly transition with customers, vendors and suppliers. Following the Closing
Date, the Shareholders will tailor their activities so that Purchaser's
reasonable expectations with respect to the good will, business reputation,
employee relations and prospects connected with the Company purchased under this
Agreement will not be materially impaired.
(b) NON-COMPETE. The Shareholders will sign a non-competition
agreement with ESCO, which agreements are attached hereto as EXHIBIT "D".
(c) NON-SOLICITATION OF EMPLOYEES. The Shareholders shall not solicit
after Closing any employee of the Purchaser or any employee of the Company to
leave employment with the Company or the Purchaser.
(d) COOPERATE IN PUBLICITY. The Shareholders shall cooperate in any
written publicity regarding this transaction with the Purchaser.
(e) PROVIDE TAX CERTIFICATES. The Shareholders shall furnish to the
Purchaser CLEARANCE certificates from the appropriate agencies in all states
where the Company is qualified to do business and any related certificates that
the Purchaser may reasonably request as evidence that all sales, use (if any),
and other tax liabilities of the Company (other than income tax) accruing before
the Closing Date have been fully satisfied and provided for by the Company.
(f) PROVIDE UCC Clearances. The Shareholders shall deliver to the
Purchaser a Business and Commerce Code search report issued by the Secretary of
State in each state where the Company owns personal property and dated as of the
date not more than seven (7) days before the Closing Date. The report must
indicate that there are no filings under the UCC on file with the Secretary of
State that names the Company as debtor or otherwise indicates any lien on the
assets and properties of the Company, except for the liens otherwise disclosed
in this Agreement.
<PAGE>
(g) RESIST CLAIM TO BROKER'S FEE. Shareholders shall assist and
cooperate with the Purchaser in resisting any claim of any broker, investment
banker, or third party for any brokerage fee, finders fee, or commission against
the Purchaser or the Company in connection with the transactions contemplated by
this Agreement.
(h) GOOD STANDING. The Shareholders shall deliver to the Purchaser
prior to the Closing Date a good standing certificate for the Company.
(i) WAIVER BY SHAREHOLDERS' SPOUSES. The Shareholders shall deliver to
the Purchaser a waiver executed by the Shareholders' spouses regarding the
waiver of their interest, whether by contract, marital interest or community
interest in the sale of the Shareholders' ownership in the Company and the funds
to be received by the Shareholders for the sale of the Acquired Shares
contemplated herein.
12. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. All obligations
of Purchaser hereunder to purchase the Shares are subject to the fulfillment,
prior to or at the Time of Closing of each of the following conditions (any one
or more of which may, in the absolute discretion of Purchaser, be waived by
Purchaser):
(a) REPRESENTATIONS. The representations and warran-ties of the
Shareholders and the Company contained herein shall be true and correct in all
material respects at and as of the Time of Closing with the same effect as
though made at and as of the Time of Closing, except for changes contemplated by
this Agreement.
(b) COVENANTS. The Sellers shall have duly performed and complied in
all material respects with all agree-ments and covenants required by this
Agreement to be performed or complied with by them prior to or at the Time of
Closing.
(c) NO INJUNCTIONS. No suit, action, appraisal, or other proceeding
shall be pending, asserted, or threatened before any court or other governmental
agency in which it is sought to, and no order shall have been entered by any
court having juris-diction of the subject matter of this Agreement to, restrain
or prohibit or to obtain criminal or civil penalties or damages or other relief
in connection with this Agreement or the consumma-tion of the transactions
contemplated hereby.
(d) SHAREHOLDERS' AGREEMENT TO NOT COMPETE. The Shareholders shall
have executed and delivered to Purchas-er a reasonable covenant not to compete
attached as EXHIBIT "D".
(e) EMPLOYMENT AGREEMENT. Purchaser shall have executed an Employment
Agreement with Kevin Dahlke on the terms and conditions set forth in the form of
EXHIBIT "C".
(f) SHAREHOLDER APPROVAL. The Company shall have received an
affirmative vote of a sufficient number of Acquired Shares for approval of the
merger transaction contemplated hereunder as determined in the sole discretion
of ESCO.
(g) RECEIPT OF WAIVER. The Company shall have received the spousal
waiver of the Shareholders' spouses concerning the sale of the Acquired Shares
in a form satisfactory to ESCO and as set forth on EXHIBIT "J".
<PAGE>
13. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SELLERS. All
obligations of the Sellers hereunder to sell the Shares and the assets of the
Company to Purchaser are subject to the fulfillment, prior to or at the Time of
Closing, of each of the following conditions (any one or more of which may in
the discretion of the Sellers, be waived by it, them or him):
(a) REPRESENTATIONS. The representations and warran-ties of Purchaser
contained herein shall be true and correct in all material respects at and as of
the Time of Closing with the same effect as though made at and as of the time of
Closing, except for changes contemplated by this Agreement.
(b) COVENANTS. Purchaser shall have performed and complied with all
agreements and covenants required by this Agreement to be performed or complied
with by it prior to or at the Time of Closing.
(c) GOOD STANDING. ESCO is a Delaware corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
organization. ESCO Acq. is a Delaware corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
organization.
(d) BINDING OBLIGATION. This Agreement, the Exhibits, and the other
instruments contemplated by this Agreement to be exe-cuted by Purchaser have
been duly authorized, executed and delivered by Purchaser and constitute valid
and legally binding obligations of Purchaser enforceable in accordance with
their terms, except as the enforcement thereof may be limited by bank-ruptcy,
insolvency, or similar laws affecting creditors' rights generally.
(e) AUTHORIZATION. All consents and authorizations by, and all filings
with, governmental authorities relating to the transactions contemplated hereby
shall have been obtained or made without the imposition of conditions or
limitations reasonably- unsatisfactory to Purchaser. Those conditions or
limitations which are reasonable in the industry the Company transacts business
shall be considered satisfactory to Purchaser.
(f) NO INJUNCTIONS. No suit, action, appraisal, or other proceeding
shall be pending, asserted, or threatened before any court or other governmental
agency in which it is sought to, and no order shall have been entered by any
court having juris-diction of the subject matter of this Agreement to, restrain
or prohibit or to obtain criminal or civil penalties or damages or other relief
in connection with this Agreement or the consummation of the transactions
contemplated hereby.
(g) CONSENTS. The terms of any governmental or lender consents to or
approvals for the transactions contemplated by this Agreement shall not contain
limitations or conditions mate-rial and adverse which effect the Shareholders
subject to his sale of the Shares.
14. INDEMNIFICATION.
(a) SHAREHOLDERS. The Shareholders jointly and severally agree to
indemnify and hold harmless Purchaser from and in respect of all claims,
demands, or causes of action including claims for contribution or indemnity and
all losses, liabilities, damages, costs, or expenses incurred by ESCO, including
<PAGE>
attorney fees, court costs and expenses, that result from any misrepresentation,
breach of warranty, or nonfulfillment of any covenant on the part of the
Shareholders under this Agreement or contained in any certificate or other
instrument, if any, furnished by or on behalf of the Shareholders or the Company
at the Closing. Without limiting the language contained herein, the
Shareholders will also indemnify, defend and hold harmless the Purchaser and the
Company from and against any losses to which the Company or the Purchaser may
become subject insofar as such losses arise out of, or are based on, any tax on
or measured by the net income of the Company in any period on or before the
Closing Date to the extent not reserved for in the financial statements of the
Company.
(b) PURCHASER. ESCO agrees to indemnify and hold harmless the
Shareholders from and in respect to all claims, demands, or causes of action
including claims for contribution or indemnity and all losses, liabilities,
damages, costs or expenses incurred by the Shareholders, including attorney
fees, court costs and expenses, that result from any misrepresentation, breach
of warranty or nonfulfillment of any covenant on the part of ESCO or ESCO Acq.
under this Agreement or contained in any certificate or other instrument, if
any, furnished by or on behalf of ESCO or ESCO Acq.
(c) DEFENSE OF A CLAIM. Upon the receipt by an indem-nified party
under this Section of notice of the commencement of any action, including the
lodging of a complaint, whether formal or informal, judicial or administrative,
such indemnifying party will, if a claim with respect thereto is to be made
against any indemnified party under this Section, notify in writing the
indemnifying party within ten (10) days after such receipt of the com-mencement
thereof. If any such action is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, to assume the defense thereof, with counsel, selected by the indemnified
party, and after giving notice to such indemnified party within thirty (30) days
after receipt of notice of claim of its election to assume or deny the defense
thereof and the assumption by the indemnifying party of the defense of the
indemnified party, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof, other than
reasona-ble costs of investigation but should remain obligated for any losses or
damages. The indemnified party shall give to the indemnifying party and its
representatives full access to all records, books, contracts, and other
information pertaining to or made the subject of the claim, loss, damage, injury
and/or liability and shall permit such party and its representatives to make
copies thereof, which the indemnifying party deems reasonably related to and
necessary to adequately defend such claims. Additionally, the indemnified party
shall cooperate to the fullest possible extent in the preparation and giving of
such truthful testimony that the indem-nifying party deems necessary to
adequately defend such claims.
(d) SETOFF. If it is determined by the Purchaser subsequent to Closing
that there are liabilities, contracts, liens, encumbrances, accounts payable, or
claims of any nature that were not properly reflected on the financial
statements, reports, schedules or exhibits furnished to the Purchaser prior to
Closing, the Purchaser, after giving notice to Shareholders of its intentions to
do so and the failure of the Shareholders to indemnify ESCO as provided in
Section 13(a), may withhold such portions of the cash installments and the
remaining portions of the purchase price of stock set forth hereinabove in
Section 3.1 and Section 7 when due to the Shareholders and use it as an offset
to pay the amounts claimed due and owing to third parties.
<PAGE>
(e) LIMITS. ESCO shall not be entitled to recover or exercise any
offset for any amount for indemnification claims under this Section 14 unless
and until the aggregate amount which ESCO is entitled to recover in respect of
such claims exceeds $5,000 (the "Deductible"), in which event the entire amount
which Purchaser is entitled to recover in respect of all such claims, less the
Deductible, shall be payable; provided, however, the maximum amount recoverable
from Shareholders under Section 14(d) shall be the Merger Consideration and
Non-Compete Consideration. Notwithstanding anything contained herein to the
contrary and to expressly clarify the parties' position herein, the
indemnification rights set forth in this Section 14(a) and (b) shall not be
limited to the payment of the Merger Consideration and Non-Compete Consideration
under the setoff rights under Section 14(d) and (e), but shall be for the full
amount of any liability, claim, demand, cause of action, damages, costs or
expenses, all as set forth in Section 14(a) and (b), but only to the extent the
Shareholders would or could have been otherwise personally liable for such
liability, claim, demands, cause of action, damages, costs or expenses under any
applicable federal, state or local statute, law, regulation or otherwise, and
then only to the extent the Company's, ESCO Acquisition's or ESCO's insurance
policies (including all applicable deductibles) do not cover such items.
15. EXPENSES. Purchaser and the Shareholders shall each pay their own
fees and expenses incident to the preparation of this Agreement and the
consummation of the transactions provided for herein.
16. NOTIFICATION. Purchaser shall notify the Shareholders promptly
after each condition set forth hereinabove has not been substantially fulfilled
to its reasonable satisfaction and shall advise the Shareholders of the status
of any condition for which no prior notice has been given as to fulfillment and
which such nonfulfillment constitutes a breach hereto. The Purchaser shall
promptly advise the Shareholders when, in its discretion, it has determined that
a condition has not been substantially fulfilled and that it will not waive the
condition and upon such notice the Shareholders shall have an additional thirty
(30) day period in which such time he will utilize his best efforts to cure such
problem, defect or infirmity to the Purchaser's reason-able satisfaction.
17. MISCELLANEOUS.
(a) TERMINATION FOR DELAY. If the Shareholders is in default in the
observance or in the due and timely performance of any of his obligations
hereunder, and if Purchaser is not then in default in the performance of any of
its obligations hereun-der, Purchaser may at any time hereafter terminate this
Agreement by giving written notice of such termination to the other party.
If the Purchaser is default in the observance or in the timely performance
of any of its obligations hereunder, and if the Shareholders are not then in
default in the performance of any of their obligations hereunder, the
Shareholders may at any time hereafter terminate this Agreement-.
Notwithstanding anything contained herein to the contrary, either party who is
in default may have a sixty (60) day period during which such time it, they or
he will utilize its, their or his best efforts to cure such problem, defect or
infirmity to the non-defaulting party's reasonable satisfaction.
<PAGE>
(b) AMENDMENT. This Agreement may be amended only by an instrument in
writing executed by the party against whom enforcement of the amendment is
sought.
(c) NON-ASSIGNABILITY. Neither this Agreement nor any right created
hereby shall be assignable by any party except with the written consent of the
other party hereto.
(d) NOTICES. Any notice given hereunder must be in writing and given
by depositing the notice in the United States mail, addressed to the party to be
notified, postage prepaid and registered or certified with return receipt
requested, or by delivering the notice in person. Notice by mail shall be
effec-tive on the earlier of the third business day after mailing or the date of
receipt either by the party to be notified or its counsel designated below. For
purposes of notice, the addresses of the parties shall be:
If to the Purchaser: ESCO Transportation Co.
- ----------------------
6505 Homestead
Houston, Texas 77028
Attention: Mr. Robert Weaver, President
With a copy to: Bonnie E. Spencer, Esq.
- -----------------
Spencer & Associates, P.C.
Pan Jackson Building
4041 Richmond Ave., 5th Floor
Houston, Texas 77027-6837
If to the Shareholders: Mr. Kevin Dahlke Mr. David Dahlke
- ----------------------
1100 Lonsdale Boulevard 3480 Lythrum Way
Northfield, Minnesota 55057 Minnetrista, MN 55364
With a copy to: William J. O'Brien, Esq. Clark D. Opdahl, Esq.
- --------------
Mackall, Crounse & Moore, PLC Henson & Efron, P.A.
1400 AT&T Tower 400 Second Avenue South
901 Marquette Avenue Suite 1200
Minneapolis, MN 55402 Minneapolis, MN 55401
If to Company: Quantum Transportation, Inc.
- ---------------
1157 Valley Park Drive, Suite 115
Shakopee, Minnesota 55379
Any party may change its address for notice by written notice given to the
other party in accordance with this Subsection.
(e) ENTIRE AGREEMENT. This Agreement, its attachments and Exhibits
constitutes the entire agreement among the parties hereto and supersedes any
prior oral or written agreement among the parties with respect to the subject
matter hereof.
<PAGE>
(f) SPECIFIC PERFORMANCE. The Company, Purchaser and the Shareholders
acknowledge that a breach of this Agreement by it or him will cause irreparable
harm to the other for which there may be no adequate remedy at law, and each
agrees that the other shall be entitled, in addition to its other remedies at
law (including actual and consequential damages) to specific perform-ance of
this Agreement or any provision hereof.
(g) GOVERNING LAW. This Agreement and the rights of the parties
hereunder shall be governed, construed, and enforced in accordance with the laws
of the State of Texas, in a court of competent jurisdiction in the state of the
defending party's address.
(h) CAPTIONS. The captions in the Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
(i) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an origi-nal, but all of which
together shall constitute one and the same instrument.
(j) SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. The
representations, warranties, and covenants con-tained herein shall survive the
Closing Date, and all statements contained in any certificate, Exhibit, or other
instrument deliv-ered by or on behalf of the Company, the Shareholders or
Purchaser pursuant to this Agreement, or otherwise made in writing in connection
with the transactions contemplated hereby, shall be deemed to have been
representations and warranties by the Shareholders, the Company, ESCO or ESCO
Acq., as the case may be, and shall survive the Closing Date and any
investigation made by any party hereto or on its behalf for a period of four (4)
years.
(k) SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid, or unenforceable
provi-sion never comprised a part hereof; and the remaining provisions hereof
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or its severance here from. Furthermore, in
lieu of such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement a provision mutually agreeable to both
parties hereto, and as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid and enforceable.
(1) LEASE. The Purchaser shall lease the buildings, spaces and
premises currently occupied by Company, and Shareholders shall assist in
maintaining good faith relationships with the lessors.
(m) RESIGNATION. Subsequent to the execution of this Agreement the
Shareholders will immediately tender their resigna-tion as officers and
directors of the Company to Purchaser.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
<PAGE>
ESCO:
ESCO TRANSPORTATION CO.
ATTEST:
- ---------------------------- By:
Secretary -----------------------------
Mr. Robert Weaver
Title: President
<PAGE>
ESCO TRANSPORTATION ACQUISITION
CORP.:
ATTEST:
- ---------------------------- By:
Secretary -----------------------------
Its:
-------------------------
SHAREHOLDERS:
---------------------------------
Kevin Dahlke
---------------------------------
David Dahlke
QUANTUM TRANSPORTATION, INC.
ATTEST:
- ---------------------------- By:______________________________
Secretary Mr. Kevin Dahlke
Title: President
<PAGE>
ACKNOWLEDGMENT
--------------
STATE OF MINNESOTA
COUNTY OF _______
BEFORE ME, the undersigned Notary Public, on this day personally appeared
KEVIN DAHLKE, as president of QUANTUM TRANSPORTATION, INC., known to me to be
the person whose name is subscribed to the foregoing instrument and acknowledged
to me that he executed the same for the purposes and consideration therein
expressed.
WITNESS my hand and official seal this ________ day of _____________, 2000.
(Seal) --------------------------------
Notary Public in and for
The State of Minnesota
ACKNOWLEDGMENT
--------------
STATE OF TEXAS
COUNTY OF HARRIS
BEFORE ME, the undersigned Notary Public, on this day personally appeared
ROBERT WEAVER, as president of ESCO TRANSPORTATION CO. known to me to be the
person whose name is subscribed to the foregoing instrument and acknowledged to
me that he executed the same for the purposes and consideration therein
expressed.
WITNESS my hand and official seal this ________ day of _____________, 2000.
(Seal) --------------------------------
Notary Public in and for
The State of Texas
<PAGE>
ACKNOWLEDGMENT
--------------
STATE OF TEXAS
COUNTY OF HARRIS
BEFORE ME, the undersigned Notary Public, on this day personally appeared
ROBERT WEAVER, as President of ESCO TRANSPORTATION ACQUISITION CORP. known to me
to be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that he executed the same for the purposes and consideration
therein expressed.
WITNESS my hand and official seal this ________ day of _____________, 2000.
(Seal) --------------------------------
Notary Public in and for
The State of Texas
ACKNOWLEDGMENT
--------------
STATE OF MINNESOTA
COUNTY OF _________
BEFORE ME, the undersigned Notary Public, on this day personally appeared
KEVIN DAHLKE, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
WITNESS my hand and official seal this ________ day of _____________, 2000.
(Seal) --------------------------------
Notary Public in and for
The State of Minnesota
<PAGE>
ACKNOWLEDGMENT
--------------
STATE OF MINNESOTA
COUNTY OF _________
BEFORE ME, the undersigned Notary Public, on this day personally appeared
DAVID DAHLKE, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
WITNESS my hand and official seal this ________ day of _____________, 2000.
(Seal) --------------------------------
Notary Public in and for
The State of Minnesota
<PAGE>
EXHIBIT A
List of Shareholders
--------------------
Name of Shareholder Number of Shares Certificate No.
- ------------------- ---------------- ---------------
David Dahlke 500 1
Kevin Dahlke 500 2
<PAGE>
EXHIBIT B
Form of Escrow Agreement
------------------------
<PAGE>
EXHIBIT C
Form of Employment Agreement
----------------------------
<PAGE>
EXHIBIT D
Form of Non-Compete Agreement
-----------------------------
<PAGE>
EXHIBIT E
Liabilities
-----------
Potential claim of a former salaried employee, Sally Green, (employed by the
California office of the Company) for allegations of overtime pay due and owing.
This individual was recently terminated, and the nature and extent of her claims
are unknown at this time.
<PAGE>
EXHIBIT F
Shareholder Loans
-----------------
None
<PAGE>
EXHIBIT G
Subsidiaries and Other Business Interests
-----------------------------------------
51% membership interest in Pacific Coast Transportation, LLC, a Minnesota
limited liability company which is inactive at this time.
<PAGE>
EXHIBIT H
Quantum Material Changes
------------------------
None
<PAGE>
EXHIBIT I
ESCO Material Changes
---------------------
None
<PAGE>
EXHIBIT J
Form of Spousal Waiver
----------------------
<PAGE>
NL
Null Lairson
CERTIFIED PUBLIC ACCOUNTANTS
PROFESSIONAL CORPORATION
Securities and Exchanges Commission
Washington, D.C. 20549
Gentlemen:
We were previously principal accountants for ESCO Transportation, Co., and we
have reviewed the disclosure contained in Form 10-KSB for year ended December
31, 1998 inc1uding Item 8, regarding changes in and disagreements with
accountants on accounting and financial disc1osure regarding the Registrant's
certifying accountant and we agree with the statements made therein.
Very truly yours,
/S/ Null Lairson, P.C.
Null Lairson, P.C.
Certified Public Accountants
11 Greenway Plaza, Suite 1515, Houston, TX 77046 (713) 621-1515
(713) 621-1570
Sugar Creek Center Blvd, Suite 1150, Sugar Land, TX 77478 (281) 242-8600
(281) 242-7333
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Year-end Audited Financial Information
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 109929
<SECURITIES> 0
<RECEIVABLES> 6748195
<ALLOWANCES> (338000)
<INVENTORY> 152557
<CURRENT-ASSETS> 7170812
<PP&E> 12516566
<DEPRECIATION> (3980000)
<TOTAL-ASSETS> 15825641
<CURRENT-LIABILITIES> 11882790
<BONDS> 3991368
0
0
<COMMON> 1560
<OTHER-SE> (50077)
<TOTAL-LIABILITY-AND-EQUITY> 15825641
<SALES> 34962275
<TOTAL-REVENUES> 34967200
<CGS> 0
<TOTAL-COSTS> 33953107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1252386
<INCOME-PRETAX> (77541)
<INCOME-TAX> 0
<INCOME-CONTINUING> (77541)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77541)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
