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As filed with the Securities and Exchange Commission September 9, 1999.
SEC Registration No. 333-71875
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
AMENDMENT NO. 1 TO
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
U.S. TRUCKING, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 4213 68-0133692
- ------------------------- ---------------------------- -------------------
(State or Other Jurisdic- (Primary Standard Industrial (IRS Employer Iden-
tion of Incorporation) Classification Code Number) tification Number)
3125 Ashley Phosphate Road, Suite 128, North Charleston, South Carolina 29418
(843) 767-9197
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(Address and Telephone Number of Principal
Executive Offices and Principal Place of Business)
Danny L. Pixler, President
3125 Ashley Phosphate Road, Suite 128, North Charleston, South Carolina 29418
(843) 767-9197
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(Name, Address and Telephone Number of Agent for Service)
Copies to:
Jon D. Sawyer, Esq.
Krys Boyle Freedman & Sawyer, P.C.
600 Seventeenth Street, Suite 2700 South Tower, Denver, Colorado 80202
(303) 893-2300
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH AMOUNT MAXIMUM MAXIMUM
CLASS OF SECUR- TO BE OFFERING AGGREGATE AMOUNT OF
ITIES TO BE REGIS- PRICE OFFERING REGISTRATION
REGISTERED TERED PER UNIT(1) PRICE FEE
- ----------------------------------------------------------------------------
Common Stock 5,772,230 (3) $4.65625 $26,876,946 $7,471.79 (4)
No Par Value Shares
(2)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 by reference to the average of the closing bid and ask
prices of the Registrant's Common Stock on September 8, 1999, as reported on
the OTC Bulletin Board.
(2) To be offered by selling shareholders.
(3) In accordance with Rule 416 under the Securities Act of 1933, this
registration statement also covers an indeterminable number of shares of
common stock, no par value, as may become issuable upon conversion of the
Series B Convertible Preferred Stock and the exercise of common stock purchase
warrants to prevent dilution resulting from stock splits, stock dividends, and
similar transactions in accordance with the terms of the Series B Convertible
Preferred Stock and the common stock purchase warrants.
(4) Because $1,824.38 was paid with the initial filing of this registration
statement, an additional $5,647.41 is being paid in connection with this
filing.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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PROSPECTUS SUBJECT TO COMPLETION DATED SEPTEMBER 9, 1999
----------------------------------------------------------------
The information in this prospectus is not complete and may be
changed. The securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securi-
ties and the selling shareholders are not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.
U.S. TRUCKING, INC.
5,772,230 Shares of Common Stock
2,505,531 Shares of Common Stock are being offered by certain
selling shareholders. We will not receive any of the proceeds
from the sale of the Shares by the selling shareholders.
400,000 Shares may be issued upon the conversion of a $600,000
convertible debenture which we sold to a private investor earlier
this year and 422,297 Shares may be issued upon the exercise of
warrants which were issued in connection with the sale of the
debenture. Up to 1,544,402 Shares may be issued upon the conversion
of 2,000 shares of Series B Convertible Preferred Stock which we
sold for $2,000,000 in a private placement earlier this year and
up to 800,000 shares may be issued upon the exercise of warrants
which were issued in connection with the sale of the Preferred
Stock. Up to 100,000 Shares may be issued upon the exercise of
warrants issued to a financial public relations firm.
The Common Stock is traded in the over-the-counter market
and is quoted on the OTC Bulletin Board (Symbol: USTK). On
September 8, 1999, the closing bid and ask prices of the Common
Stock were $4-5/8 and $4-11/16.
This investment involves a high degree of risk. You should
purchase shares only if you can afford a complete loss. See
"Risk Factors" starting on page 5 for a discussion of these risks.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
_________, 1999
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TABLE OF CONTENTS
PAGE
Prospectus Summary .......................................... 3
Risk Factors ................................................ 5
Market Prices and Dividends ................................. 7
Management's Discussion and Analysis ........................ 8
Business .................................................... 15
Management .................................................. 24
Security Ownership of Management, Principal Shareholders
and Selling Shareholders .................................. 28
Transactions With Management and Others ..................... 31
Description of Securities ................................... 33
Plan of Distribution ........................................ 36
Legal Matters ............................................... 37
Experts ..................................................... 37
Additional Information ...................................... 37
Index to Financial Statements ............................... F-1
2
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PROSPECTUS SUMMARY
U.S. TRUCKING, INC.
U.S. Trucking, Inc. provides transportation and freight brokerage
services. We transport full truckloads of both refrigerated and non-
refrigerated commodities over various distances, primarily east of the Rocky
Mountains. We are a preferred carrier for a number of Fortune 500 companies.
Our offices are located at 3125 Ashley Phosphate Road, Suite 128, North
Charleston, South Carolina 29418. Our telephone number is (843) 767-9197.
OFFERING SUMMARY
Securities Offered: 2,505,531 Shares of Common Stock offered by
selling shareholders
Common Stock Presently
Outstanding: 7,008,883 Shares
FINANCIAL SUMMARY
This financial summary does not include all of the information in the
financial statements. You should read the financial summary along with the
financial statements and the notes to the financial statements which are
included in this prospectus.
Balance Sheet Data:
As of As of
December 31, June 30,
1998 1999
(Audited) (Unaudited)
------------ -----------
Current Assets $ 4,031,285 $ 7,676,177
Fixed Assets 9,718,805 7,544,458
Other Assets 2,562,271 4,630,989
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Total Assets $16,312,361 $19,851,624
Current Liabilities $ 5,944,016 $ 8,364,438
Other Liabilities 5,279,966 4,210,296
Stockholders' Equity 5,088,379 7,276,890
----------- -----------
$16,312,361 $19,851,624
3
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Income Statement Data:
Eleven Month Six Months
Period Ended Year Ended Ended
December 31, December 31, June 30,
1997 1998 1999
(Audited) (Audited) (Unaudited)
------------ ------------ -----------
Net Revenues $17,469,281 $21,815,844 $17,824,169
Income from Operations $ 1,034,767 $ 3,328,870 $ 539,878
Net Income (Loss) $(1,531,200) $ 121,767 $ 313,844
4
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RISK FACTORS
Some of the statements contained in this prospectus discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. Factors that could cause the results to differ include the risk
factors discussed below.
Investing in the Shares is very risky. You should be able to bear a
complete loss of your investment. You should carefully consider the following
factors, among others:
Lack of Profit- We have never earned sufficient profits to pay
ability. dividends to our shareholders. Although U.S. Trucking
was organized in 1987, it never engaged in any
business, other than seeking an acquisition or merger,
until September 1998 when it acquired U.S. Trucking -
Nevada. U.S. Trucking - Nevada incurred a net loss of
($294,602) on revenues of $14,847,335 during the year
ended December 31, 1996, and a net loss of ($1,531,200)
on revenues of $17,469,281 during the eleven month
period ended December 31, 1997. While we earned
$121,767 on revenues of $21,815,844 during 1998, there
are no assurances that we will continue to operate
profitably in the future. Our ability to operate
profitably will depend on our ability to upgrade the
age of our tractors and trailers, to make good
acquisitions and to increase our level of revenues.
Additional We do not generate sufficient funds internally to
financing needed finance acquisitions. While we anticipate paying
for expansion. for acquisitions primarily with our stock, the purchase
price for some or all of such acquisitions may include
cash. If we cannot raise such funds through debt,
equity or seller financing, our plans for growth would
be curtailed.
Dependence on A significant portion of our revenue is generated from
key customers. key customers. The loss of business from any of our
key customers would probably have a material adverse
effect on our business and operating results. During
1998, our top 10 customers accounted for approximately
43% of revenues. Our largest customer, Consolidated
Papers, Inc. accounted for 13.2% of revenues. We do
not have long-term contractual relationships with any
of our customers.
Risks of Penny Because our Shares are not currently listed on Nasdaq
Stocks. or an exchange, they are subject to Rule 15g-9 under
the Exchange Act, which may limit their marketability.
That rule imposes additional sales practice
requirements on broker-dealers that sell low-priced
securities to persons other than established customers
and institutional accredited investors. For
transactions covered by this rule, a broker-dealer must
make a special suitability determination for the
purchaser and have received the purchaser's written
5
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consent to the transaction prior to sale.
Consequently, the rule affects the ability of broker-
dealers to sell our shares and may affect the ability
of shareholders to sell our shares in the secondary
market.
No dividends We intend to retain any future earnings to fund the
anticipated. operation and expansion of our business. We do not
anticipate paying cash dividends on our shares in
the foreseeable future.
Depressive ef- It is likely that market sales of large amounts of the
fect of resale shares described below or other U.S. Trucking shares
of restricted (or the potential for those sales even if they do not
shares. actually occur), will have the effect of depressing
the market price of our shares. We currently have
7,730,955 shares of Common Stock outstanding and the
following is a breakdown of these shares:
We cannot pre- * Free Trading 1,632,701
dict the de- * Restricted: 5,376,182
pressive effect Currently eligible for
of resales. sale under Rule 144 3,334,316 Shares
Being offered in this
Prospectus 2,505,531 Shares
We are unable to predict the effect that sales made
in this offering or under Rule 144 may have on the
then prevailing market price of our shares.
6
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MARKET PRICES AND DIVIDENDS
U.S. Trucking's Common Stock trades in the over-the-counter market, under
the symbol "USTK". There were no quotations for U.S. Trucking's Common Stock
during the last three years until after the closing of the reverse acquisition
of U.S. Trucking-Nevada. Quotations resumed during September 1998. The
following table shows the high and low bid prices for U.S. Trucking's Common
Stock for the periods indicated as reported by the OTC Bulletin Board. These
prices are believed to be inter-dealer quotations and do not include retail
mark-ups, mark-downs, or other fees or commissions, and may not represent
actual transactions.
Quarter Ended High Bid Low Bid
-------------- -------- -------
September 30, 1998 $1.875 $0.002
December 31, 1998 $4.50 $0.75
March 31, 1999 $5.68 $3.00
June 30, 1999 $3.75 $2.31
As of July 14, 1999, we had approximately 154 shareholders of record.
This does not include shareholders who hold stock in their accounts at
broker/dealers.
Holders of Common Stock are entitled to receive dividends declared by
U.S. Trucking's Board of Directors. No dividends have been paid on the Common
Stock and no dividends are anticipated to be paid in the foreseeable future.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements of U.S. Trucking and related footnotes
appearing in this prospectus.
GENERAL
Our revenue producing businesses were established in January of 1997 by
combining under U.S. Trucking, Inc., a Nevada corporation and our predecessor,
the operations of Gulf Northern, a mid- to long-haul truckload carrier,
Mencor, a third party logistics (brokerage) company, selected assets of
another truckload company, and the customer base of a small specialized
truckload air freight company. The latter two divisions were contributed to
U.S. Trucking-Nevada by U.S. Transportation Services, Inc. During 1997, we
consolidated operations, implemented manpower reductions, and blended all
trucking operations under Gulf Northern and all brokerage operations under
Mencor. We had a net loss in 1997 of $1.5 million primarily as a result of
operating the businesses consolidated by U.S. Transportation Services, which
businesses were eventually discontinued or reorganized as part of Gulf
Northern.
Our operating results are primarily driven by the results of the
truckload business. However, future results will be impacted by the recent
acquisition of Prostar, Inc., a freight brokerage business, and the
implementation of a container transportation division. The combined annual
revenues from these additional two businesses is expected to exceed $14
million.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues increased by 17.8% to $21.8 million in 1998 from $18.5 million
in 1997. The increase in revenues were primarily due to the fact that the
addition of the small package delivery division caused company driver and
independent contractor generated revenues to increase. Another factor which
caused revenues to increase was the addition of a captive insurance program
for auto-liability insurance provided to third-party trucking companies. A
division of U.S. Trucking, Inc. in which revenues decreased was the third
party brokerage, which declined because of increased competition in the
brokering of medium to long haul loads in the truck carrier business. Company
driver generated revenue increased by 13.6% to $12.5 million in 1998 from
$11.0 million in 1997. Independent contractor generated revenues increased by
24.3% to $6.6 million in 1998 from 5.3 million in 1997. Third-party brokerage
decreased 13.1% to $1.86 million in 1998 from $2.14 million in 1997 and
insurance captive revenue increased to $810 thousand from zero in 1997.
Operating expenses for 1998 were $18.5 million, or 85% of revenue, as
compared to $17.0 million, or 92% of revenue, for 1997. This decrease as a
percentage of revenues was due primarily from lower fuel costs, company
driver payroll and repair and maintenance costs . Fuel expenses decreased
$323 thousand to $2.11 million (16.8% of revenues generated by company
drivers) in 1998 from $2.43 million ( 21.8% of revenues generated by company
drivers) for 1997.This decrease was the result from lower fuel prices in
general as well as additional use of bulk storage for diesel fuel at two of
our terminals in Wisconsin and New York. Company driver payroll decreased
$122 thousand to $3.07 million (25% of revenues generated by company drivers)
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in 1998 from $3.2 million (28.5% of revenues generated by company drivers) in
1997. The reason for this decrease was better management of deadhead mileage
and the lower rate of pay required for drivers in the small package delivery
sector of our business. Repairs and Maintenance costs decreased $66 thousand
to 1.17 million (6.1% of revenues generated by the trucking segment) in 1998
from 1.24 million (7.6% of revenues generated by the trucking segment) in
1997. Lower repair and maintenance costs were the product of better management
in decreasing the outsourcing of major repairs and increased dedication to
preventive maintenance.
Salaries, wages, employee benefits and other administrative expenses for
the year ended 1998 were $2.92 million or 13.4% of revenue, compared to $2.15
million or 11.6% of revenue, for the year ended 1997. The increase was due to
the costs associated with the addition of the captive insurance program, a
slight increase in administrative payroll and additional increases in trucking
insurance expense in general. Expenses related to insurance captive such as
paid losses, reserved losses, reinsurance and administrative fees increased to
$556 thousand in 1998 from zero in 1997. Administrative payroll increased $80
thousand to $1.18 million (5.4 % of all revenues) in 1998 from $1.1 million
(5.9% of all revenues) in 1997. This decrease as a percentage of revenue is a
result of being able to add additional productivity over and above the hiring
of extra employees. All expenses related to insurance in the truckload
division increased $217 thousand to $1.07 million (4.9% of all revenues) in
1998 from $855 thousand (4.6% of all revenues) in 1997. This increase as a
percentage of revenues is a direct result of paying higher premiums as a
result of incurring larger claims in the worker's compensation and auto
liability lines of coverage.
Depreciation and amortization expenses for 1998 were $1.58 million, or
7.2% of revenue, as compared to $1.54 million or 8.3% of revenue, for 1997.
This increase reflects by a $60 thousand increase to depreciation taken on
capitalized repairs. Normal recurring depreciation and amortization remained
unchanged.
Interest expense for 1998 was $727 thousand or 3.3% of revenue, as
compared to $703 thousand or 3.8% of revenue, for the year ended 1997. The
decrease in interest as a percent of revenue is the result of (1) lower cost
of borrowing due to its restructuring of some equipment debt, (2) lower
interest expense on more recent portions of equipment loans, and (3) lower
factoring financing on faster paying customers.
Freight settlements paid to outside carriers decreased $182 thousand to
1.62 million (87.1% of brokerage generated revenues) for the year ended 1998
as compared to $1.8 million or 91.3% of revenues for the prior year. This
decrease resulted from fewer loads being brokered in 1997 because of increased
competition in the industry.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The amounts for the year ended December 31, 1997, differ from those of
1996 based on the following factors:
On January 30, 1997, U.S. Trucking completed the following acquisitions:
1. Purchased 100% of the common stock of Gulf Northern Transport,
Inc. from its stockholders for cash and 25% of U.S. Trucking's
common stock;
2. Purchased 100% of the common stock of Mencor, Inc. from its stock
9
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holders for cash and 37,500 shares of common stock of U.S.
Trucking's parent company, U.S. Transportation Systems, Inc.;
3. Purchased certain assets and liabilities of Jay & Jay
Transportation, Inc.;
4. Purchased certain assets and liabilities of Translynx Express,
Inc.
Simultaneous to the above transaction, U.S. Trucking was sold by its
parent corporation, U.S. Transportation Systems, Inc. Accordingly, the
operations of the consolidated group began on January 30, 1997. This
registration statement, therefore, includes both the amounts included in the
consolidated financial statements for the period from inception to December
31, 1997 and the pre-acquisition amounts for Gulf Northern Transport, Inc. and
Mencor, Inc. for the period ended January 30, 1997. Further, the amounts for
the period ended December 31, 1997 are on a different accounting basis than
the prior periods due to the purchase transactions recorded on January 30,
1997 and accordingly, the amortization of the resulting goodwill recognized in
the purchase transaction is not comparable to that of the prior period.
Revenues for the year ended 1997 were $18.5 million compared to net
revenues of $14.8 million for the year ended 1996. The increase in revenues
was primarily due to the fact that the 1996 results included only Gulf
Northern and Mencor while 1997 also included the business of the two divisions
of USTS which were combined with Gulf Northern and Mencor when the U.S.
Trucking, Inc. was formed.
Operating expenses for 1997 were $17.0 million, or 92% of revenue, as
compared to $13.0 million, or 88% of revenue, for 1996 (an increase of 31%).
This increase in operating expenses as a percentage of revenue was due
primarily to the increase in business associated with the operations added in
early 1997, yielding higher driver payroll ($1.2 million) and higher fuel
costs and higher repair and maintenance costs ($400,000) as a percentage of
revenue. Fuel expenses increased $766 thousand or 46% to $2.48 million from
$1.72 million for fiscal 1996.
Salaries, wages, employee benefits and other administrative expenses for
the year ended 1997 were $2.15 million or 11.6% of revenue, compared to $2.03
million or 13.7% of revenue, for the year ended 1996. The increase was due to
the addition of the new businesses. The decrease of such costs as a
percentage of revenue was due to decreases in fixed costs, such as
administrative payroll, rents, communications expenses and health insurance
costs.
Depreciation and amortization expenses for 1997 were $1.54 million, or
7.8% of revenue, as compared to $977 thousand or 6.6% of revenue, for 1996.
This increase was due primarily to additional equipment being added to our
fleet yielding $280,000 in additional depreciation charges, and to a lesser
extent increased amortization costs ($120,000 increase) due to the
restructuring of certain loans and increased depreciation ($70,000 increase)
due to certain capitalized repairs.
Interest expense for 1997 was $703 thousand or 3.8% of revenue, as
compared to $649 thousand or 4.4% of revenue, for the year ended 1996. The
decrease in interest as a percent of revenue is the result of lower cost of
borrowing from its restructuring of some equipment debt, and interest expense
being lower on more recent portions of equipment loans, and to a lesser extent
lower factoring financing on faster paying customers.
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Freight settlements paid to outside carriers decreased $207 thousand to
$1.8 million or 10.3% (to 91.3% of revenues) for the year ended 1997 as
compared to $2.0 million or 90.2% of revenues in 1997. This decrease resulted
from slightly fewer loads being brokered in 1997.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Our operating revenue for the six months ended June 30, 1999, increased
by 66.9% to $17.8 million as compared to $10.7 million over the same period in
1998.For the three months ended June 30, 1999, operating revenue increased by
78.1% to $10.1 million from $5.7 million over the same period in 1998. The
increase in operating revenue resulted from increased brokerage revenues,
expansion of our customer base, increased volume from existing customers, and
was facilitated by the continued expansion of our fleet, including
approximately 40 leased owner operators which was part of the expansion into
the container business during the period ended June 30, 1999. Our fleet
increased 18.5% to 294 tractors (including 118 owned by independent
contractors) as of June 30, 1999, from 248 tractors (including 78 owned by
independent contractors) as of June 30, 1998.
Purchased transportation increased as a percentage of operating revenue
to 39.8% for the six months ended June 30, 1999, from 34.2% for the same
period in 1998. For the three months ended June 30, 1999, purchased
transportation as a percentage of operating revenue increased to 43.5% from
37.3% during the same period in 1998. These increases were primarily due to
the increase in the ratio of independent contractors to company drivers, and
the increase in brokerage operating revenue which in turn creates a payable
due to outside carriers that we used to haul our freight at a gross profit
margin of 11% to 16%.
Salaries, wages and benefits decreased as a percentage of operating
revenue to 23.2% for the six months ended June 30, 1999, from 24.9% for the
same period in 1998. For the three months ended June 30, 1999, salaries, wages
and benefits decreased as a percentage of operating revenue to 20.5% from
24.5% for the same period in 1998. These decreases were primarily the result
of our efforts to reduce management overhead when practical, increasing our
percentage of brokerage operating revenues, increasing our independent
contractor base and the continuation of consolidating facilities. For compay
drivers, we record accruals for worker's compensation as a component of claims
accrual and the related expense is reflected in salaries, wages and benefits
expense in our consolidated statements of income.
Fuel expense decreased as a percentage of operating revenue to 8.2% for
the six months ended June 30, 1999, from 10.4% for the same period in 1998.
This decrease was primarily the result of an increase in the purchase of bulk
fuel, along with the increase in the percentage of independent contractors to
company drivers for the 1999 period. For the three months ended June 30, 1999,
fuel expense as a percentage of operating revenue decreased to 7.3% from 9.7%
for the same period in 1998. This decrease was primarily the result of an
increase in the purchase of bulk fuel, along with the increase in the
percentage of independent contractors to company drivers.
Operations and maintenance expense decreased to 3.5% of operating revenue
for the six months ended June 30, 1999, from 5.8% for the same period in 1998.
This decrease was primarily the result of increasing our brokerage operating
revenue and to a lesser extent limiting the use of older, high cost equipment,
trading out of older equipment for newer, increasing the independent
contractor base, and capitalizing engine rebuilds that were necessary during
the period. For the three months ended June 30, 1999, operations and
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maintenance expense as a percentage of operating revenue decreased to 3.0%
from 5.6% for the same period in 1998. This decrease was primarily the result
of the increase of brokerage operating revenue, and to a lesser extent the
increase of the independent contractor base and the Company's ongoing control
of not using its older equipment just for revenue sake, while it negotiates
new equipment transactions that it expects to complete in the very near
future.
Our insurance programs for medical, physical damage and cargo are covered
by premium insurance providers with deductibles we have chosen and feel are
manageable while being in our best interest. In addition we provide
auto-liability coverage through our own Auto-Liability Insurance Program which
has become a strong revenue and profit producer. Management considers all of
its coverages adequate. Insurance and claims expense decreased to 2.6% for the
six months ended June 30, 1999, from 3.2% for the same period in 1998. For the
three months ended June 30, 1999, insurance and claims decreased to 2.4% from
3.0% for the same period in 1998. These decreases in percentages were due to
the following factors which are listed in order of impact with the factor
having the most impact first: an increase in brokerage revenue, the increase
of independent contractors, and the decreased values of our owned fleet on an
insurance cost basis.
Operating taxes and licenses decreased as a percentage of operating
revenue to 1.3% for the six months ended June 30, 1999, from 1.9% for the same
period in 1998. For the three months ended June 30, 1999, operating taxes and
licenses as a percentage of operating revenue decreased to 1.2% compared to
1.8% for the same period in 1998. This decrease was primarily due to the
increase in the Company's brokerage operating revenue, the increase in our
Auto-Liability Insurance Program operating revenue and the increase in
independent contractors who are required to pay their own mileage taxes.
Depreciation and amortization expense as a percentage of operating
revenue decreased to 6.4% for the six months ended June 30, 1999, from 7.6%
for the same period in 1998. This decrease was primarily the result of
increasing our operating revenue through our brokerage operations and
increasing the number of independent contractors leased. For the three months
ended June 30, 1999, depreciation and amortization expense decreased to 5.9%
from 6.7% for the same period in 1998 for the reasons listed above.
For both the six months and three months ended June 30, 1999, net
interest expense decreased as a percentage of revenue compared to the same
periods in 1998. These decreases were primarily the result of reducing long
term debt and the converting of some debt to track leases.
Income taxes have been provided at the statutory federal and state rates
adjusted for certain permanent differences between financial statement and
income tax reporting. We have net operating losses available to offset future
income for financial reporting expiring in the year 2012.
Our net income as a percentage of operating revenue was 1.8% for the six
month period ending June 30, 1999, as compared to 1.7% for the same period in
1998. Net income as a percentage of operating revenue was 1.9% for the three
month period ending June 30, 1999, as compared to 0.9% for the same period in
1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, we had a working capital deficit of $688,261 as
compared to a deficit of $1,912,731 at December 31, 1998. Our working capital
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deficit improved primarily as a result of operations, $1,104,114 received
from the sale of transportation equipment in February 1999, $900,000 received
from the issuance of Series B Preferred Stock and $540,000 of proceeds from a
sale of an convertible debenture to a foreign investor. Net cash provided by
operating activities was approximately $202,429 for the first six months of
1999 compared to $701,249 for the corresponding period in 1998. We have
historically funded our working capital requirements through a combination of
funds provided from operations, our working capital facility with GE Capital
and invested capital. In order to continue with our growth plans, we intend
to raise additional funds through private placement of equity and/or debt
securities which will depend upon prevailing market conditions, the market
price of common stock and other factors over which the company has no control.
Since June 30, 1999, we have raised approximately $1,100,000 in gross
proceeds from the sale of Series B Convertible Preferred Stock.
INFLATION
Many of our operating expenses, including fuel costs and fuel taxes, are
sensitive to the effects of inflation, which could result in higher operating
costs. The effects of inflation on our business during the six months ended
June 30, 1999, were negligible.
SEASONALITY
In the transportation industry, results of operations frequently show a
seasonal pattern. Seasonal variations may result from weather or from
customer's reduced shipments after the busy winter holiday season. To date,
our revenues have not shown any significant seasonal pattern. The current
expansion of our operations into the West Coast could expose us to greater
operating variances due to seasonal weather.
YEAR 2000 ISSUE
The "Year 2000 Issue" arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer
programs do not properly recognize a year that begins with "20" instead of the
familiar "19". If not corrected, many computer applications could fail or
create erroneous results.
We are in the process of reviewing, testing, and implementing various
modifications to ensure that its computer equipment and software will function
properly in the Year 2000 and beyond. We have completed the purchase of a new
hardware system consisting of a Compaq Proliant P2 300 MHz processor; 320 MB
RAM, 2/9.1 GB mirror hard drive, a Server Tower and new Software that enables
us to generate all functions of our operating systems, including, but not
limited to, the initiation of loads, dispatch, billing, accounts payable and
receivable, general ledger functions and preparation of financial statements.
All maintenance records for all of the trucks, inventory records for all parts
and supplies, claim records and accident records as well as fuel and mileage
for taxing bodies will be supplied. Information from our fuel provider,
Comdata, will be downloaded into the system as well. We are also working on
on-line banking services.
All internal and external costs associated with the our Year 2000
compliance activities are expensed as incurred. We believe that the costs of
addressing the Year 2000 issue will be approximately $120,000.
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We have reviewed the Year 2000 issue with our major suppliers, vendors
and customers and believe that the Year 2000 issue will not pose significant
problems for us. We have discussed the issue with Comdata, the primary fuel
provider, GE Capital and the other major financial institutions which provide
financing to the Company, and the major customers, and each of these companies
has advised us that they expect to be Year 2000 compliant.
Since all major computerized systems and applications will have been
reviewed and tested as part of the Year 2000 project, we feel that we have
reasonably addressed all material risks that may effect our operations. We
presently believes that the Year 2000 issue will not pose significant
operational problems for us. However, if all Year 2000 issues are not
properly identified and corrected, there can be no assurance that the Year
2000 issues will not materially effect our relationships with vendors,
customers, and others. Also, there can be no assurance that the Year 2000
issues of other entities with whom we deal will not have a material adverse
impact on our operations.
We are in the process of evaluating and developing a contingency plan to
provide for the most reasonably likely worst cast scenarios regarding Year
2000 compliance. This contingency plan will be completed in the second half
of 1999.
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BUSINESS
GENERAL
U.S. Trucking provides transportation and freight brokerage services. We
transport full truckloads of both refrigerated and non-refrigerated
commodities over various distances on a nationwide basis.
We are a preferred carrier for a number of Fortune 500 companies,
including (percentage of 1998 revenues in parentheses):
1. Consolidated Papers, Inc. (13.2%
2. The Trane Company (a division of American Standard, Inc.) (5.2%);
3. Excel Corporation (a division of Cargill Incorporated) (5.0%)
4. Emery Worldwide (a division of CNF Transportation, Inc.) (2.2%)
5. The Monfort division of ConAgra, Inc. (1.6%)
6. Eaton Corporation (1.5%)
We are actively seeking other companies which are interested in outsourcing
their transportation service needs.
Our truckload division operates approximately 272 tractors (including
approximately 111 tractors which are owned by contractors) and over 366
trailers.
We intend to expand our business through internal growth and
acquisitions. The transportation industry is highly fragmented, which
provides a large number of acquisition opportunities. We are primarily
interested in medium to long haul truckload carriers, container and freight
brokerage operations, with annual revenues of not less than $5.0 million.
U.S. Trucking, a Colorado corporation, was incorporated in Colorado under
the name Northern Dancer, Inc. in January 1987 for the purpose of acquiring an
operating company. It completed a small public offering in 1988. In
September 1998 it acquired U.S. Trucking, Inc., a Nevada corporation, which is
now a wholly-owned subsidiary. U.S. Trucking-Nevada has two operating
subsidiaries which it acquired in early 1997 just after it was incorporated.
These are Gulf Northern and Mencor.
Our primary operating subsidiary, Gulf Northern, has operated as a
truckload carrier since it was formed in 1991. Current management purchased
Gulf Northern in 1994. Except as discussed below, in the past three years
there have been no material developments in the Gulf Northern business in
terms of reorganizations, management changes or operations. In an effort to
increase the size and scope of its business and to obtain access to expansion
capital, its management sold it to U.S. Trucking-Nevada in early 1997 in
exchange for a 25% ownership interest in U.S. Trucking-Nevada. The remainder
of U.S. Trucking-Nevada was owned by U.S. Transportation Systems, Inc., at the
time, a publicly-traded transportation company. In exchange for its ownership
interest in U.S. Trucking-Nevada, U.S. Transportation Systems had contributed
to U.S. Trucking-Nevada certain assets and liabilities of Jay and Jay
Transportation, Inc. and Translynx Express, Inc. Jay and Jay was a New York
based short-haul truckload carrier operating primarily in the Northeast.
Translynx offered roller-bed truckload services, primarily to UPS between
Florida and Kentucky. The Translynx business was discontinued in early 1998.
As it became clear that the expected benefits from affiliating with U.S.
Transportation Services would not be forthcoming, Messrs. Huff and Pixler
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arranged for Logistics Management, LLC to repurchase the majority position
held by U.S. Transportation Systems.
THE TRUCKLOAD SEGMENT OF THE TRANSPORTATION INDUSTRY
We estimate that the for-hire truckload market segment of the
transportation industry accounted for more than $350 billion of revenue in
1997. The truckload transportation industry currently is undergoing changes
that affect both shippers and carriers. Shippers (the customers of trucking
companies) have been focusing their capital resources on their primary
businesses and are outsourcing their transportation and logistics
requirements. Shippers increasingly have been seeking to reduce the number of
authorized carriers they utilize and to establish service-based, long-term
relationships with smaller groups of preferred or "core carriers" who are
often able to provide a wide range of services. In order to compete with
shippers for preferred or core carrier status, a carrier must have sufficient
available equipment and drivers and other logistical capabilities to meet the
shippers' requirements. While the truckload transportation market remains
highly fragmented, there is an emerging trend among carriers toward
consolidation in order to become better positioned with customers as core
carriers. Carriers are also consolidating to take advantage of economies of
scale in purchasing equipment, in purchasing insurance, and in recruiting and
retaining drivers.
The truckload transportation market generally consists of a service-
sensitive segment and a price-sensitive segment. Shippers of high value or
time-sensitive goods tend to be more concerned with the service capability of
the carrier than simply obtaining the lowest priced transportation. In many
cases, carriers choose either to provide premium service and charge rates
consistent with that service or to compete primarily on the basis of price.
The truckload market is further segmented on the basis of length of haul. In
the long haul market, the average length of haul is greater than 1,500 miles.
In this segment, truckload carriers compete with air freight on the basis of
lower prices and with railroads on the basis of time of delivery. In the
medium-to-long haul segment, the average length of haul ranges from 750 miles
to 1,500 miles. U.S. Trucking's average length of haul is approximately 1,000
miles.
TRANSPORTATION BROKERAGE SERVICES
We offer transportation brokerage services through our wholly-owned
subsidiaries Mencor and Prostar, Inc., a recent acquisition. Mencor and
Prostar arrange return hauls for common carriers and corporations transporting
their own goods which have completed their initial delivery. This enables the
carrier to cover the cost of returning to their home location. For this
service we receive the difference between the amount we pay the returning
shipper or carrier to effect the move, and the amount we receive from the
shipper. Mencor was incorporated as an Arkansas corporation in 1994 by
Roxanne Pixler and Michael Menor. They sold Mencor to U.S. Trucking-Nevada in
the transaction discussed above in which Gulf Northern was sold. In the past
three years there have been no other material developments in the Mencor
business in terms of reorganizations, management changes, or operations.
AGENT PROGRAM
We have also recently instituted an agent program, pursuant to which we
allow small carriers to operate under our authority as an agent. In this
program the agent provides its customers and business. We collect all of the
revenue from the shippers and pay the agent 85% of the revenue less certain
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expenses we pay such as fuel costs and pallet costs. We provide the agent
with liability insurance coverage and certain administrative services such as
billing and collecting receivables. We also provide the agent with access to
our other insurance coverages such as medical and hospitalization insurance.
The agent is required to deposit one percent (1%) of its revenue in an escrow
to cover any bad debts, and it must pay all cash expenses including tolls,
tractor washes, and any of its own other operating expenses.
INSURANCE
In 1998, we developed a new line of business to take advantage of the
underwriting profit potential of our captive insurance program. U.S. Trucking
has offered its insurance program to selected independent third party trucking
companies, which purchase insurance coverage and pay a premium to us through
Transportation Underwriters Agency, Inc.
OPERATING STRATEGY
Our operating strategy is to provide high quality transportation and
freight brokerage services that position us as a preferred supplier or "core
carrier" to major shippers. We do not compete primarily on a price basis. We
seek to effect this strategy by providing reliable, time-definite pick up and
delivery services. An important factor in our ability to effect this strategy
is the ready availability of drivers. We seek to address the chronic driver
shortage in the trucking industry through a variety of practices. We believe
our driver retention history is significantly better than the industry
average.
We believe that our operating strategy has positioned us to capitalize on
evolving trends in the transportation industry. Shippers are reducing their
number of approved carriers to a small group of core carriers, and often
outsourcing their transportation needs entirely to logistics providers. The
small carriers, without the capacity to adequately service these shippers or
offer logistics service will not benefit from this trend. As a medium size
carrier with the capability to also offer freight brokerage and warehousing
services (which helps in obtaining business from companies utilizing "just-in-
time" distribution methods), we are well-suited to capitalize on this trend.
ACQUISITION STRATEGY
We are actively seeking acquisition candidates in the truckload, freight
brokerage and container segments of the transportation industry. We are
primarily seeking targets with not less than $5.0 million in annual revenues.
We intend to use a combination of cash, stock, debt and equity securities
to facilitate our acquisition and expansion plans. No assurance can be given
that we will be able to effect this strategy.
We are currently holding discussions relating to numerous potential
acquisitions, but do not anticipate making any further acquisitions until
adequate financing is in place.
MARKETING
We market high quality, "just-in-time", temperature-sensitive and dry
freight truckload services in the truckload carrier market.
Our operations are nationwide, with an emphasis on the Midwest, Southeast
and Northeast United States. We believe that we have established a presence
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in these regions and have developed a competitive ability for the return
shipment of goods, which reduces the amount of empty truck miles and increases
overall productivity and profitability.
Marketing personnel emphasize our commitment to high levels of service,
flexibility, responsiveness, analytical planning and information management in
order to position us to serve customers' demands for time definite pickup and
delivery. Our marketing personnel seek to strengthen our position with
existing customers and establish ourselves with prospective customers.
Dan L. Pixler, the President & CEO, is directly involved in marketing our
services at the national account level and he also supports local sales
activity. We also have an eastern sales manager.
Our largest 15 customers are: Consolidated Papers, Inc.; The Trane
Company; Excel Corporation; Cadbury Schweppes; United Parcel Service of
America, Inc.; CVS Pharmacy; Tamco Distributors; Emery Air Freight;
Weyerhauser Company; The Monfort Division of ConAgra, Inc.; Eaton Corporation;
Seneca Foods Corporation; OK Grocery; O at KA Milk Product; and Phelps Dodge.
Consolidated Papers, Inc. accounted for 13% of our revenues during the year
ended December 31, 1998.
We maintain a strong commitment to expanding our relationships with
existing customers. Customer shipping patterns are monitored daily, allowing
us flexibility in responding rapidly to the varying service demands of our
customers. We have written motor carrier contracts with approximately 90% of
our customers. The contracts generally specify lanes to be serviced (regions)
and negotiated price agreements; they do not have any provision regarding the
volume to be carried.
OPERATIONS
All of our offices and terminals are leased. Our executive office is
located in North Charleston, South Carolina, where billing, collections,
brokerage, banking and overall management of U.S. Trucking take place. The
lease, which expires November 1, 1999, covers 5,000 square feet of rental
space and provides for monthly rent of $2,800. We believe that this facility
is adequate for its present needs.
We also maintain the following other office, terminal and warehouse
locations:
Location Description
-------- -----------
Los Angeles A 6,200 square foot terminal and office
leased for $4,500 per month
Wisconsin Rapids, Wisconsin A 3,000 square foot office, a
9,800 square foot warehouse, and a
four bay repair shop leased for
$6,500 per month (this facility is
owned by Messrs. Huff and Pixler)
Kansas City, Missouri A 400 square foot office leased for
$400 per month
Charleston, South Carolina Container division office (1,800 square
feet) and drop yard leased for $2,500
per month
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Savannah, New York A 2,000 square foot office and two
bay repair shop leased for $2,024
per month (this facility is owned by
Mr. Pixler)
Jacksonville, Florida A 375 square foot office and a
1,125 square foot warehouse leased
for $1,003 per month
Each of our terminals is headed by a terminal manager. Some locations
include maintenance facilities and driver lounges, and all are active in the
recruiting of drivers and all provide local or regional customer service and
dispatch functions.
We utilize various computer systems, which enable order taking, drive
tracking, billing and cash application procedures. We are in the process of
enhancing these systems by adding new servers, new personal computers and new
software, all of which will contribute to Year 2000 readiness. When
completed, this will enable us to track our tractors and trailers more
effectively, and to handle billing and maintenance. We do not anticipate
introducing satellite driver communications in the near future, although our
new computer systems will be compatible with, and able to accommodate, such a
system.
TRACTORS AND TRAILERS
We operates a fleet of approximately 252 tractors, including 78 tractors
that are owned by independent contractors, and 401 trailers, including 15
trailers that are owned by independent contractors. Since the closing in
December 1998 of the financing with General Electric Capital Corporation, we
have traded 18 older tractors for 20 newer tractors. We have also traded 91
aged trailers for 63 new trailers which includes 43 refrigerated trailers and
20 dry vans. We have also recently added 65 tractors which are all 1996 or
newer and 149 refrigerated trailers. The ages of our equipment is as follows:
Age Tractors Trailers
------- -------- --------
0-3 years 28 106
4-6 years 130 187
7-9 years 13 51
9 years + 3 23
Our policy is to purchase quality late-model tractors and refrigerated
and dry trailers that meet our specifications. We have financed our tractor
and trailer purchases through several asset-based finance agreements. We also
contract with owner-operators to provide additional tractors and trailers. We
have established standard specifications for the purchase of equipment
replacements. Each of our tractors is equipped with a sleeper cab to permit
the drivers to comply conveniently and cost effectively with the DOT hours of
service guidelines and to facilitate team operations when necessary.
We are developing a plan to replace our tractors every four years and our
trailers every seven years. We maintain warranties that extend beyond the
four year life of the tractors on all engines, transmissions, drive axles and
running gear.
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We have established a maintenance program that tracks service intervals,
repairs, and component history and management believes that this program will
increase the number of miles achieved between engine overhauls. Most of our
maintenance is performed at our Wisconsin Rapids, Wisconsin and Savannah, New
York terminals.
DRIVERS
All of our drivers must meet specific guidelines relating primarily to
safety record, driving experience and personal evaluation, including DOT
mandated drug testing and personal background checks. We recruit and retain
drivers by offering competitive compensation packages, purchasing quality
tractors and equipping them with optimal comfort and safety features (such as
air-conditioning, power steering, engine brakes and sleeper cabs), generating
driver friendly freight, maintaining an open door policy, paying bonuses,
providing a stock ownership program, and emphasizing training and retention
programs. We maintain experienced driver recruiters.
We require that prospective drivers have a minimum of one year of truck
driving experience in order to be considered for a position. In addition, new
drivers are required to meet all DOT requirements. Upon hiring a driver, we
conduct an orientation program covering such topics as our business, policies,
procedures, safety, benefits, maintenance and operation of equipment.
Our drivers and independent contractors are paid a percentage of loaded
revenue, and/or cents per mile. Drivers can earn bonuses on a per mile basis
for safety, paperwork, compliance and number of miles driven each year. All
employees, including drivers, will be eligible to participate in our 401(k)
plan and health and life insurance plans.
Although we currently have an adequate number of drivers, there can be no
assurance that we will not be affected by a shortage of qualified drivers in
the future. Significant driver turnover is a problem within the industry as a
whole. In addition, the trucking industry is experiencing a diminished
workforce of qualified drivers. As a result, we must compete with other
transportation service companies for the available drivers. We anticipate
that the intense competition for qualified drivers in the trucking industry
will continue.
In addition to our driver employees, we contract with a select group of
independent contractors who own and operate their own tractors and trailers.
Our selection process for independent owner-operators is substantially the
same as the process for employees. Each owner-operator is required to enter
into an owner-operator lease agreement which is cancelable by either party
upon thirty days notice. The owner-operators provide us with an additional
source of drivers, particularly during periods of peak demand for
transportation services.
INSURANCE AND SAFETY
Our safety department is responsible for training and supervising
personnel to keep safety awareness at its highest level. We have implemented
an active safety and loss prevention program at our corporate headquarters and
all of our terminals. The emphasis on safety begins in the hiring and
continues in orientation, safety training, and drug testing. Newly hired
drivers, regardless of experience level, must participate in a training
program.
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Our safety and loss prevention program is comprised of the ongoing
education, training and retraining of drivers regarding safe vehicle
operation, loading and unloading procedures, and accident reporting. It also
includes random drug testing. The program is overseen by our Director of
Safety. It is our policy to reward drivers who have satisfied safety
performance goals. Safe-driver awards are presented based upon the number of
miles a driver or owner-operator accumulates in service without a "chargeable
accident" as defined by DOT regulations. Awards are presented on an annual
basis and consist of cash payments.
We have implemented a written disciplinary system for our employee
drivers and owner-operators. Pursuant to this system, disciplinary action
ranges from written warnings to immediate termination depending on the
frequency and severity of the offense. The most serious offenses include
violations of local, state or federal regulations while on duty, unauthorized
use of equipment, willful or negligent damage of equipment or property or
injury to another person, carrying, possessing or being under the influence of
intoxicants or narcotics while on duty or on our premises, possession of
firearms or other lethal weapons while on duty or while on our premises and
other similar offenses. Our Director of Safety continuously monitors driver
performance and makes recommendations to our executive officers regarding
employment and retention of drivers.
We are committed to securing appropriate insurance coverage at cost-
effective rates. The primary risks that arise in the trucking industry
consist of cargo loss and damage, personal injury, property damage and
workers' compensation claims. We maintain insurance that we believe is
adequate to cover our potential liabilities and risks.
We have set up captive insurance arrangements with an insurance company
pursuant to which we make monthly payments into a loss reserve fund in
addition to the payments we make to the insurance company. The fund is then
used to pay off claims for liability to third parties for personal injuries
and property damage up to $100,000 per occurrence and up to an aggregate of
$615,000. Any claims in excess of these limits are covered by insurance up to
$1 million per occurrence. To the extent that the annual claims are less than
the amount projected by the insurance company, we receive back a portion of
the reserve fund.
We also have an insurance policy which covers cargo loss and damage up to
$250,000 per occurrence, and an insurance policy which covers workmen's
compensation claims in amounts from $100,000 to $500,000, depending on the
state where the worker lives.
FUEL MANAGEMENT
Motor carrier service is dependent upon the availability of diesel fuel.
We manage fuel purchases by directing our drivers to certain truck stops along
designated routes that give us certain discounts in return for volume
purchases on a recurring basis. Through the use of computerized monitoring
devices imbedded in the engines of our tractors, we monitor fuel usage, miles
per gallon, cost per mile, and cost per gallon. We have not experienced any
difficulty in maintaining fuel supplies sufficient to support our operations.
Historically, we have been able to pass on a portion of fuel price increases
to our customers. Nevertheless, shortages of fuel, increases in fuel prices
or fuel tax rates or rationing of petroleum products could have a material
adverse effect on our operations and profitability.
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COMPETITION
The trucking industry is highly competitive and fragmented. We compete
primarily with other medium to long-haul, temperature-controlled and dry
truckload carriers; internal shipping conducted by existing and potential
customers and, to a lesser extent, railroads and air transportation. Although
the general effect of deregulation of the trucking industry during the 1980's
created substantial downward pressure on the industry's rate structure, we
believe that competition for the freight transported by us is based primarily
on quality of service (i.e., just-in-time performance) and, to a lesser
degree, on freight rates. There are a number of other trucking companies
which have substantially greater financial resources, operate more equipment
or carry a larger volume of freight than we do. We also compete with other
motor carriers in hiring qualified drivers. Our primary emphasis is service,
especially to its core carrier customers, rather than price alone. However,
the industry in which we operate is extremely price sensitive and we are
responsive to competitive price pressures.
REGULATION
The trucking industry is subject to regulatory oversight and legislative
changes which can affect the economics of the industry by requiring certain
operating practices or influencing the demand for, and the costs of providing,
services to shippers. The Department of Transportation of the United States
("DOT"), as well as various state agencies that have jurisdiction over us,
have broad powers, generally governing such matters as authority to engage in
motor carrier operations, rates and charges, certain mergers, consolidations
and acquisitions, and periodic financial reporting. Rates and charges are not
directly regulated by these authorities. As primarily a contract carrier, we
negotiate competitive rates directly with customers as opposed to relying on
schedule tariffs. State agencies impose tax, license and bonding
requirements.
The Motor Carrier Act of 1980 commenced a program to increase competition
among motor carriers and to diminish regulation in the industry. Following
this deregulation, applicants have more easily been able to obtain DOT
operating authority, and interstate motor carriers have been able to impose
certain rate changes without DOT approval. The Motor Carrier Act also removed
many route and commodity restrictions on transportation of freight. Gulf
Northern has held specific commodity and territory authority from the Illinois
Commerce Commission since 1939. Gulf Northern holds authority to carry
general commodities throughout the 48 contiguous states, as both a common and
contract carrier, and it holds various intrastate authorities.
Under the Negotiated Rates Act of 1993, certain procedures must be
followed for resolving claims involving unfiled, negotiated transportation
rates. Generally, when a claim is made by a motor carrier of property (other
than a household goods carrier) for the collection of rates and charges in
addition to those originally billed and collected by the carrier, the person
against whom the claim is made may elect to satisfy the claim pursuant to
certain provisions specified in the Negotiated Rates Act. The Negotiated
Rates Act specifies the types of disputes to be resolved by the ICC and allows
for the nonpayment of the disputed additional compensation until the dispute
is resolved. We believe that we are in compliance in all material respects
with the provisions of the Negotiated Rates Act.
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Such matters as weight and dimensions of equipment are
also subject to federal and state regulation. All of our drivers are required
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to obtain national commercial driver's licenses pursuant to regulations
promulgated by the DOT. DOT regulations impose mandatory drug testing of
drivers. We have implemented a random drug-testing program in accordance with
these regulations. In addition, we are required to implement alcohol and drug
rules imposed by the DOT which prohibit any alcohol or drug use prior to and
during driving and while performing safety-sensitive functions such as
loading, unloading, inspecting, waiting for dispatch, resting in a sleeper
birth, and other specified times. We comply with all applicable regulations
imposed on our employees and owner-operators. The DOT's national commercial
driver's license, drug testing requirements and new alcohol and drug-use
regulations have not to date and are not expected to adversely affect the
availability to us of qualified drivers.
Our operations are subject to federal, state and local laws and
regulations concerning the environment. We have not received any notices from
any regulatory authority relating to any violation of any environmental law
and incur no material costs specifically related to compliance with such laws.
EMPLOYEES
As of the date of this prospectus, we employ approximately 245 persons,
of whom approximately 180 were drivers and 65 were maintenance and
administrative personnel. None of our employees are represented by a
collective bargaining unit and we have never experienced a work stoppage. We
believe that our relations with our employees is good.
LEGAL PROCEEDINGS
We have been from time to time a party to litigation incidental to our
business, primarily involving claims for personal injury and property damage
incurred in the transportation of freight, and litigation relating to
transactions as to which its affiliates have been involved. As of the date of
this prospectus, we are not party to any litigation which, individually or in
the aggregate, management believes will have a material adverse effect on our
financial condition or operations. We maintain insurance that we believe is
adequate to cover our liability risks.
REPORTS TO SECURITY HOLDERS
We are subject to the reporting requirements of Section 13(a) of the
Securities Exchange Act of 1934, as amended, and in accordance therewith file
periodic reports with the Commission. Such reports concerning us may be
inspected or copied at the public reference facilities at the Commission
located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the Commission's Regional Offices in New York, 7 World Trade Center, New York,
New York 10048, and in Chicago, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such documents can be
obtained at the public reference section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically.
We do not currently plan on sending to stockholders quarterly or annual
reports.
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MANAGEMENT
DIRECTORS AND OFFICERS
Our Directors and Executive Officers are as follows:
NAME AGE POSITIONS HELD
---- --- --------------
Danny L. Pixler 51 President, CEO and Director
W. Anthony Huff 37 Executive Vice President and Chairman
of the Board
John Ragland 34 Chief Financial Officer
There is no family relationship between any Director or Executive Officer
of U.S. Trucking, Inc.
We have audit and compensation committees which both consist of Danny L.
Pixler and W. Anthony Huff.
Set forth below are the names of our directors and executive officers,
all positions and offices with us held by each such person, the period during
which he has served as such, and the principal occupations and employment of
such persons during at least the last five years:
DANNY L. PIXLER has served as the President, CEO and a director of U.S.
Trucking, Inc. since September 8, 1998, when we completed our acquisition of
U.S. Trucking-Nevada. He has served as President, Secretary and Treasurer of
U.S. Trucking-Nevada since February 1997, and as a Director since May 1998.
He served as Vice President and a director of Mencor from March 1994 until
July 1998 when he became President. He has served as President, CEO and
director of Gulf Northern since March 1995. From January 1993 until March
1994, he served as President of Joseph Land Group (a transportation company
with annual sales of approximately $130 million). From 1989 until 1993, he
served as President of Apple Lines, Inc., a truckload refrigerated carrier
with $16 million in revenues. From 1983 until 1989, he was employed by D.F.C.
Transportation, the transportation division of Dean Foods, Inc., where his
final position was Executive Vice President and General Manager responsible
for the company's truckload division with annual sales of $80 million.
W. ANTHONY HUFF has served as our Executive Vice President and Chairman
of the Board since September 8, 1998. He has provided various administrative
services to U.S. Trucking-Nevada since February 1997 and has served as
Executive Vice President and a Director since May 1998. He has also provided
various services to Gulf Northern since March 1995 and he has served as a
Director since February 1996 and as Vice President since June 1998. Mr. Huff
has also served as Vice President and Assistant Secretary of Mencor since June
1998. Mr. Huff manages our offshore captive insurance programs and
investments. From approximately November 1995 until January 1997, he served
as President and a director of United Acquisition Corp. II, a company formed
to acquire companies in the trucking business. From February 1992 until
December 1996, Mr. Huff served as President of the North American Trucking
Association, an association of independent truckers engaged in the business of
providing administrative and financial services to its members. Mr. Huff
spends approximately 60% of his time on our business and the remainder of his
time consulting with various other companies.
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Due to a large judgment awarded against Mr. Huff in 1994 resulting from
Mr. Huff's guaranty of a defaulted bank loan for a company of which he was a
shareholder, Mr. Huff filed for personal bankruptcy under Chapter 7 of the
U.S. Bankruptcy Code in 1994 (discharge granted in 1995). Mr. Huff was a
minority shareholder and provided services to the company (KHW Foods, Inc.)
relating to store location and development, but was not otherwise involved in
management of the company. In the bankruptcy proceeding Mr. Huff reaffirmed
all of his other personal debts.
JOHN RAGLAND has served as our Chief Financial Officer since September 8,
1998. He has served as the Controller of Gulf Northern since June 1996, and
as Secretary-Treasurer since June 1998. He has also served as the Chief
Financial Officer and Treasurer of U.S. Trucking-Nevada since May 1998. From
May 1996 until October 1996, he served as Chief Financial Officer of United
Acquisition Corp. II, a company formed to acquire companies in the trucking
business. From August 1994 until June 1996 he was the Chief Financial Officer
of the North American Trucking Association, a trade group, and he was also the
Chief Financial Officer of All-Risk Services, an insurance agency, during the
same period. From 1991 to July 1994, he was a staff accountant with Watkins,
Buckles & Travis, Certified Public Accountants.
Our executive officers hold office until the next annual meeting of the
Directors. We have agreements with Messrs. Pixler and Huff whereby we are
required to use our best efforts to elect and retain them as members of the
Board of Directors as long as they are guarantors as to any U.S. Trucking or
affiliated debt. There are no other arrangements or understandings between
any director or executive officer and any other person pursuant to which any
of the above-named executive officers or directors or nominees was selected as
an officer or director or nominee for director.
EXECUTIVE COMPENSATION
The following tables set forth information regarding executive
compensation for U.S. Trucking, Inc.'s President and Chief Executive Officer
and each other executive officer who received total annual salary and bonus in
excess of $100,000 for any of the years ended December 31, 1998, 1997 or 1996.
Summary Compensation Table
Long-term Compensation
Awards Payouts
------------------------
Securi-
Annual Compensation ties
--------------------- Re- Underly- All
Other strict- ing Other
Name and Annual ed Options/ LTIP Com-
Principal Compen- Stock SARs Pay- pensa-
Position Year Salary Bonus sation Award(s) (Number) outs tion
- ---------- ---- -------- ----- ------- -------- -------- ----- ------
Danny L. 1998 $105,000 -- $6,000(1) -- 100,000 -- --
Pixler, 1997 $105,000 -- $6,000(1) -- -- -- --
President 1996 $ 47,500 -- $ -- -- -- -- --
______________
(1) Represents $500 per month car allowance.
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Aggregated Option Exercises in Year Ended
December 31, 1998 and December 31, 1998 Option Values
Securities Under- Value of Unexer-
Shares lying Unexercised cised in-the
Acquired Options Money Options/
On at 12/31/98 at 12/31/98
Exercise Value Exercisable/ Exercisable/
Name (Number) Realized Unexercisable Unexercisable
---- -------- -------- ---------------- ----------------
Danny L. Pixler -0- $ -0- 100,000 / 0 $495,000 / 0
Options / Grants in Last Fiscal Year
Individual Grants
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/sh) Date
---- ------------ ------------ ----------- ----------
Danny L. Pixler 100,000 50% $.30 5/22/08
EMPLOYMENT AGREEMENTS
We have entered into a five year employment agreement with Danny L.
Pixler commencing September 9, 1998, which provides for an annual salary of
$105,000 (with annual increases of not less than 3%). The agreement also
provides that Mr. Pixler will receive a new car every three years and all
vehicle expenses incurred on our business or an auto allowance not to exceed
$550 per month.
We have entered into a five year employment agreement with W. Anthony
Huff commencing September 9, 1998, which provides for an annual salary of
$52,000 (with annual increases of not less than 3%).
We have entered into a three year employment agreement with John Ragland
commencing September 9, 1998, which provides for an annual salary of $75,000
(with annual increases of not less than 3%). The agreement also provides that
Mr. Ragland will be provided a company car and reimbursement of his vehicle
expenses incurred on our business.
These employment agreements are terminable by us for certain specified
reasons, including disability, fraud, conviction of a felony and substance
abuse. They also contain covenants not to compete during the term of the
agreements.
STOCK OPTION PLAN
During September 1998, the Board of Directors adopted the Stock Option
Plan of U.S. Trucking-Nevada as our Stock Option Plan (the "Plan"), and we
assumed the obligations represented by 1,500,000 options which were already
outstanding. These options have an exercise price of $0.30. The Plan
authorized the issuance of options to purchase up to 2,500,000 shares of our
Common Stock. An additional 500,000 options have been granted under the plan
at an exercise price of $3.00.
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The Plan allows the Board to grant stock options from time to time to
employees, officers, directors and consultants of U.S. Trucking. The Board
has the power to determine at the time that the option is granted whether the
option will be an Incentive Stock Option (an option which qualifies under
Section 422 of the Internal Revenue Code of 1986) or an option which is not an
Incentive Stock Option. Vesting provisions are determined by the Board at the
time options are granted. The option price for any incentive stock option
will be no less than the fair market value of the Common Stock on the date the
option is granted, while other options may be granted at any exercise price.
Options granted under the Plan with an exercise price less than the fair
market value on the date of grant, will require us to record an expense upon
the grant of options equal to the difference between the market value of the
option shares and the exercise price of the options. Generally, there will be
no federal income tax consequences to us in connection with Incentive Stock
Options granted under the Plan. With regard to options that are not Incentive
Stock Options, we will ordinarily be entitled to deductions for income tax
purposes of the amount that option holders report as ordinary income upon the
exercise of such options, in the year such income is reported.
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<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT,
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDERS
The following table sets forth, as of August 30, 1999, and as
adjusted for the sale of the shares offered by the selling shareholders, the
stock ownership of each person known by us to be the beneficial owner of five
percent or more of the our Common Stock, all Directors individually and all
Directors and Executive Officers as a group, and the selling shareholders.
Except as noted, each person has sole voting and investment power with respect
to the shares shown.
Per- Per-
centage Number centage
Amount of of Class of of Class
Name and Address of Beneficial Prior Shares After
Beneficial owner Ownership to Sales Offered Sales
- ------------------- ---------- -------- --------- --------
Principal Shareholders
and Management:
- ----------------------
Logistics Management,
L.L.C. (1) 2,084,400 (2) 29.7% 0 29.7%
10602 Timberwood Circle #9
Louisville, KY 40223
Danny L. Pixler 1,392,200 (3) 18.9% 0 18.9%
Suite 216
3125 Ashley Phosphate Road
North Charleston, SC 29418
W. Anthony Huff 1,392,200 (4) 18.9% 0 18.9%
10602 Timberwood Circle #9
Louisville, KY 40223
All Directors and Executive 2,854,275 (3) 36.7% 0 36.7%
Officers as a Group (4)
(3 Persons)
Selling Shareholders:
- --------------------
Mark Weber 40,000 * 40,000 0
3206 162nd Place, SE
Bellevue, WA 98008
Ronald Setzkorn 233,333 3.0% 233,333 0
1211 Willow Bend
Clarksville, TN 37043
Market Edge Inc. 46,668 * 46,668 0
No. 2B
1304 E. Algonavin Road
Schaumburge, IL 60173
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<PAGE>
Jay W. Bosselman 93,333 1.2% 93,333 0
No. 2B
1304 E. Algonavin Road
Schaumburge, IL 60173
Ralph Brown 33,333 * 33,333 0
P.O. Box 97
Gainesville, MD 65655
B. A. Bates 65,000 * 65,000 0
19 2nd Street East
Kalispell, MT 59901
Sebrite Financial 33,333 * 33,333 0
Suite 1215
600 South Highway 169
St. Louis Park, MN 55426
Stanley Chasen 33,333 * 33,333 0
6711 North Ocean Boulevard
Ocean Ridge, FL 33435
Jud Wagenseller 26,668 * 26,668 0
2107 Bainbridge Row Drive
Louisville, KY 40207
Transportation Services Co. 261,666 3.7% 261,666 0
10602 Timberwood Circle #9
Louisville, KY 40223
Michelle A. Vetrano 26,667 * 26,667 0
10415 North Pecan Place
Tucson, AZ 85737
Paolo Dorigo 33,333 * 33,333 0
3865 Jasmine Avenue
Culver City, CA 90232
George R. Vetrano, Jr. 13,333 * 13,333 0
9255 Doheny Road, No. 2804
Los Angeles, CA 90069
George R. Vetrano, Sr. and
Carol A. Vetrano 26,667 * 26,667 0
10818 North Sand Canyon Road
Oro Valley, AZ 85737
Kevin P. Judge 33,333 * 33,333 0
3417 Clinton Street
West Seneca, NY 14224
Sidney Anderson 33,334 * 33,334 0
1503 Evergreen Road
Louisville, KY 40223
Mid-Cal Express, Inc. 400,000 5.7% 400,000 0
155 Montgomery St., Suite 406
San Francisco, CA 94104-4109
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Glenn Bagwell, Jr. 250,000 3.6% 250,000 0
Suite 204
3005 Anderson Drive
Raleigh, NC 27609
________________
* Less than 1%.
(1) Logistics Management, L.L.C. is 50% owned by Roxann Pixler, the wife of
Danny L. Pixler, and 50% owned by Association Services, Inc., which is
100% owned by the Huff Grandchildren's Trust.
(2) Does not include 900,000 shares of our Series A Preferred Stock held by
Logistics Management, L.L.C., which represents 9,000,000 votes and which
is exchangeable for up to 9,000,000 shares of U.S. Trucking Common Stock
when certain revenue targets are achieved. (See "DESCRIPTION OF
SECURITIES.")
(3) Represents a 50% beneficial interest in the shares held by Logistics
Management, L.L.C. and options to purchase 350,000 shares of Common
Stock. Does not include 25,000 shares of Series C Preferred Stock held
by Danny Pixler which carry 2,500,000 votes.
(4) Represents a 50% beneficial interest in the shares held by Logistics
Management, L.L.C. and options to purchase 350,000 shares of Common
Stock. Does not include 25,000 shares of Series C Preferred Stock
held by Huff Grandchildren's Trust which carry 2,500,000 votes, of which
Mr. Huff is co-trustee.
There are no known agreements, the operation of which may at a subsequent
date result in a change in control of U.S. Trucking.
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<PAGE>
TRANSACTIONS WITH MANAGEMENT AND OTHERS
ACQUISITION OF U.S. TRUCKING-NEVADA
On September 8, 1998, we completed the acquisition of 100% of the
outstanding common stock of U.S. Trucking, Inc., a Nevada corporation ("U.S.
Trucking-Nevada") in exchange for 15,877,300 shares of our common Stock. The
shares were exchanged on the basis of one share of our common stock for one
share of U.S. Trucking-Nevada common stock.
The stock issuances were made pursuant to an Agreement ("Agreement")
between U.S. Trucking, Inc. and U.S. Trucking-Nevada. The terms of the
Agreement were the result of negotiations between the managements of U.S.
Trucking, Inc. and U.S. Trucking-Nevada. However, the Board of Directors did
not obtain any independent "fairness" opinion or other evaluation regarding
the terms of the Agreement, due to the cost of obtaining such opinions or
evaluations.
TRANSACTIONS INVOLVING U.S. TRUCKING-NEVADA AND ITS SUBSIDIARIES
On the formation of U.S. Trucking-Nevada in March 1997, U.S. Trucking-
Nevada issued 1875 shares of its common stock to U.S. Transportation Systems,
Inc. in exchange for the assets and liabilities described below:
1. Certain assets (primarily tractors and trailers) and liabilities
(related to Jay and Jay Transportation, Inc.) were contributed to U.S.
Trucking-Nevada by USTS. The net value of this contribution for accounting
purposes was $2,394,860.
2. Certain assets and liabilities(related to Translynx Express, Inc.)
were contributed to U.S. Trucking-Nevada by U.S. Transportation Systems, Inc.
The net value of these assets and liabilities for accounting purposes was
$100,546.
U.S. Trucking-Nevada also purchased 100% of the common stock of Gulf
Northern from Logistic Management LLC for $225,000 in cash and 625 shares of
the common stock of U.S. Trucking-Nevada and assumed all of the outstanding
debt.
U.S. Trucking-Nevada also purchased 100% of the common stock of Mencor
from its stockholders (Roxanne Pixler, Mike Menor and Dan Pixler) for $70,000
in cash and 37,500 shares of U.S. Transportation Systems common stock.
On December 23, 1996, Gulf-Northern sold its Wisconsin Rapids facility,
which included land, a building and improvements, to its majority stockholders
for $346,141. The stockholders leased the property back to Gulf Northern for
five years commencing January 1, 1997 for $7,350 per month. The majority
stockholders were Danny L. Pixler and The W. Anthony Huff Irrevocable Trust.
In March 1998, Gulf Northern leased three 1995 Volvo tractors from Danny
L. Pixler under a one year lease agreement that specifies monthly payments of
$4,047 and provides for annual renewals. Under the lease agreement, Gulf
Northern is required to pay for all expenses associated with the tractors
including maintenance, insurance, permits, licenses and other operating
expenses.
In September 1998, Gulf Northern leased six 1994 Kenworth tractors from a
company owned by Danny Pixler and Anthony Huff pursuant to a one year lease
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agreement which provides for monthly payments of $7,380 and annual renewals.
Under the lease agreement, Gulf Northern is required to pay for all expenses
associated with the tractors including maintenance, insurance, permits,
licenses and other operating expenses.
In December 1998, Danny Pixler purchased the office and repair shop in
Savannah, New York, which Gulf Northern had previously been leasing. He
purchased the property for approximately $158,000, and he is leasing it to
Gulf Northern for approximately $2,024 per month which is equivalent to the
amount of his mortgage payment, taxes and insurance on the property.
During January 1999, three of our shareholders entered into a Stock
Exchange Agreement with us whereby they agreed to exchange a total of
9,990,000 shares of our common stock for 999,000 shares of our Series A
Preferred Stock. Each share of Series A Preferred Stock will have ten votes
and the shares will be voted together with the common stock as a single class.
(See "Description of Securities") Pursuant to the Stock Exchange Agreement,
each share of Series A Preferred Stock will be exchangeable back into ten
shares of common stock as follows: one-fifth of the shares upon reporting
revenues of $31 million or more for any fiscal year or shorter period in a
report on Form 10-KSB, 10-K, 10-QSB, or 10-Q as filed with the Securities and
Exchange Commission; an additional one-fifth if revenues are at or above $41
million; an additional one-fifth if revenues are at or above $51 million; an
additional one-fifth if revenues are at or above $61 million; and the balance
if revenues are at or above $71 million. The shareholders who exchanged
shares are Logistics Management, LLC - 9,000,000 shares; Joff Pollon - 250,000
shares; and Waterways Group - 740,000 shares.
The Board of Directors believes that the above transactions involving
U.S. Trucking-Nevada and its subsidiaries have been on terms no less favorable
to us than those that could have been obtained from unaffiliated parties.
When reviewing transactions with affiliates, the members of the Board attempt
to consider all of their fiduciary duties to shareholders and they consult
with the Company's legal counsel for their opinions on the transactions.
In June 1999, we issued 25,000 shares of Series C Preferred Stock to each
of Danny Pixler and the Huff Grandchildren's Trust in consideration of those
parties' guaranties with respect to in excess of $13,000,000 of our debt
obligations. Each Series C Share carries 100 votes per share on all matters
submitted to a vote of stockholders, but otherwise carries no rights to
dividends or other distributions.
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<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
Our authorized capital stock includes 75,000,000 shares of Common Stock,
no par value. All shares have equal voting rights, i.e. one vote per share,
and are not assessable. Voting rights are not cumulative, and so the holders
of more than 50% of the Common Stock could, if they chose to do so, elect all
the Directors.
Upon liquidation, dissolution or winding up of U.S. Trucking, Inc., our
assets, after the payment of liabilities and any liquidation preferences on
outstanding preferred stock, will be distributed pro rata to the holders of
the Common Stock. The holders of the Common Stock do not have preemptive
rights to subscribe for any of our securities and have no right to require us
to redeem or purchase their shares. The shares of Common Stock presently
outstanding are fully paid and nonassessable.
Holders of Common Stock are entitled to share equally in dividends when,
as and if declared by the Board of Directors, out of funds legally available
therefor. We have not paid any cash dividends on our Common Stock, and it is
unlikely that any such dividends will be declared in the foreseeable future.
TRANSFER AGENT
Corporate Stock Transfer, Inc., 370 - 17th Street, Suite 2350, Denver,
Colorado 80202, serves as the transfer agent for the U.S. Trucking, Inc.
PREFERRED STOCK
We are authorized to issue 10,000,000 shares of Preferred Stock, no par
value. The Preferred Stock may be issued in series from time to time with
such designation, rights, preferences and limitations as the Board of
Directors may determine by resolution. The rights, preferences and
limitations of separate series of Preferred Stock may differ with respect to
such matters as may be determined by the Board of Directors, including,
without limitation, the rate of dividends, method and nature of payment of
dividends, terms of redemption, amounts payable on liquidation, sinking fund
provisions (if any), conversion rights (if any), and voting rights. The
potential exists, therefore, that preferred stock might be issued which would
grant dividend preferences and liquidation preferences to preferred
shareholders over common shareholders. Unless the nature of a particular
transaction and applicable statutes require such approval, the Board of
Directors has the authority to issue these shares without shareholder
approval. The issuance of Preferred Stock may have the affect of delaying or
preventing a change in control of U.S. Trucking, Inc. without any further
action by shareholders.
We have designated 999,000 shares of our Preferred Stock as Series A
Preferred Stock, all of which are currently outstanding; 2,000 shares of
Series B Convertible Preferred Stock, all of which are outstanding; and 50,000
shares of Series C Preferred Stock, all of which are outstanding. Following
is a summary of the rights and preferences of the outstanding Preferred Stock.
SERIES A PREFERRED STOCK. Each share of Series A Preferred Stock is
entitled to ten votes and will vote together with the holders of the Common
Stock. In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of U.S. Trucking, Inc., the holders of the shares
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<PAGE>
of Series A Preferred Stock will be entitled to be paid an amount equal to ten
times the amount payable on each share of Common Stock.
The shares of Series A Preferred Stock were issued to the holders of
9,990,000 shares of our Common Stock pursuant to a Stock Exchange Agreement.
Pursuant to this agreement, each share of Series A Preferred Stock will be
exchanged for ten shares of common stock as follows: one-fifth of the shares
upon U.S. Trucking, Inc. reporting revenues of $31 million or more for any
fiscal year or shorter period in a report filed on Form 10-KSB, 10-K, 10-QSB,
or 10-Q as filed with the Securities and Exchange Commission; an additional
one-fifth if revenues are at or above $41 million; an additional one-fifth if
revenues are at or above $51 million; an additional one-fifth if revenues are
at or above $61 million; and the balance if revenues are at or above $71
million.
SERIES B CONVERTIBLE PREFERRED STOCK. Shares of Series B Convertible
Preferred Stock are convertible into shares of Common Stock based on the
stated value of $1,000 per share of preferred stock divided by the conversion
price on the conversion date. Holders of Series B Convertible Preferred Stock
may elect to convert their shares commencing on the earlier of October 28,
1999, or the occurrence of any merger, tender offer, or redemption event
described below. The conversion price is equal to 90% of the average closing
bid price for the ten consecutive trading days immediately preceding the
conversion date, not to exceed $2.59 per share.
Holders of Series B Convertible Preferred Stock are entitled to receive a
premium in cash equal to 12% of the stated value of the preferred stock on the
15th day of each month. However, no dividends are payable on the Series B
Convertible Preferred Stock.
In the event of a voluntary or involuntary dissolution, liquidation or
winding up of the Company, holders of the Series B Convertible Preferred Stock
are entitled to receive out of the assets of the Company legally available for
distribution, before any payment to holders of Common Stock, an amount per
share equal to $1,000 plus any accrued premium on such shares.
Holders of the Series B Convertible Preferred Stock are entitled to
redeem their shares upon the occurrence of certain events, referred to as
redemption events, which include the following:
* In the event that we are unable to issue free trading Common
Stock into which shares of Series B Convertible Preferred Stock
have been converted because the shares have not been registered
under the Securities Act;
* In the event that we notify holders of Series B Convertible
Preferred Stock of our intention not to issue shares of Common
Stock on conversion;
* If we transfer substantially all of our assets, merge or con-
solidate with another entity, or have 50% or more of our voting
power held by a person or group other than Logistics Management
LLC and its affiliates;
* If we breach any material term of the Securities Purchase Agreement
or Registration Rights Agreement with the purchasers of the Series B
Convertible Preferred Stock; or
* If the trading volume for any 20 consecutive trading days does not
34
<PAGE>
equal or exceed $150,000 beginning October 27, 1999.
Upon the occurrence of a redemption event, we may preclude any redemption by
paying, as liquidated damages, an amount equal to 10% of the stated value of
the Series B Convertible Preferred Stock to each holder in cash or in stock at
80% of the conversion rate.
In the event of a redemption, the redemption amount to be paid will be
equal to the number of shares which would have been issued if the shares of
Series B Convertible Preferred Stock were converted multiplied by the current
market value. Alternatively, we may pay an amount equal to 120% of the stated
value of the shares being converted in cash or in stock at 80% of the
conversion rate.
The holders of Series B Convertible Preferred Stock have no voting rights
except as required by Colorado law. In the event that voting is required
under Colorado law, the holders shall have one vote for each share held on
matters to be voted on as a class, and on an as-converted basis on matters
which the Class B Convertible Preferred Stock and Common Stock vote together
as one class.
SERIES C PREFERRED STOCK. Each share of Series C Convertible Preferred
Stock entitles the holder to one hundred votes and votes together with the
holders of Common Stock as a single class. The holders of Series C Preferred
Stock have no liquidation rights and no rights to dividends. The Series C
Preferred Stock is not redeemable.
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<PAGE>
PLAN OF DISTRIBUTION
The 2,505,531 Shares offered hereby may be offered and sold from time to
time by the selling shareholders, or by pledgees, donees, transferees or other
successors in interest. Such offers and sales may be made from time to time
in the over-the-counter market, or otherwise, at prices and on terms then
prevailing or at prices related to the then-current market price, or in
negotiated transactions. The Shares may be sold by one or more of the
following: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the Shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account; (c) an exchange distribution in accordance with the rules of such
exchanges; (d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; (e) privately negotiated transactions; and (f) a
combination of any such methods of sale. In effecting sales, brokers or
dealers engaged by the selling shareholders may arrange for other brokers or
dealers to participate. Brokers or dealers may receive commissions or
discounts from selling shareholders or from the purchasers in amounts to be
negotiated immediately prior to the sale. The selling shareholders may also
sell such shares in accordance with Rule 144 under the 1933 Act.
The selling shareholders and any brokers participating in such sales may
be deemed to be underwriters within the meaning of the 1933 Act. There can be
no assurance that the selling shareholders will sell any or all of the shares
of Common Stock offered hereunder.
All proceeds from such sales will be the property of the selling
shareholders who will bear the expense of underwriting discounts and selling
commissions, if any, and their own legal fees. The selling shareholders are
not sharing the costs of the registration of the Shares.
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<PAGE>
LEGAL MATTERS
The legality of the securities of U.S. Trucking, Inc. offered will be
passed on for us by Krys Boyle Freedman & Sawyer, P.C., 600 17th Street, Suite
2700 South Tower, Denver, Colorado 80202. Jon D. Sawyer, a director of Krys
Boyle Freedman & Sawyer, P.C., owns 95,000 shares of our Common Stock.
EXPERTS
The financial statements included in this prospectus, to the extent and
for the periods indicated in their report, have been audited by Bianculli,
Pascale & Co. P.C., Certified Public Accountants, and are included herein in
reliance on the authority of such firm as experts in accounting and auditing
in giving such reports.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the securities offered hereby has been filed by us with the
Securities and Exchange Commission, Washington, D.C. This prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to U.S.
Trucking, Inc. and the securities offered hereby, reference is made to such
Registration Statement, exhibits and schedules. Statements contained in this
prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement may be inspected without
charge at the Commission's principal offices in Washington, D.C., and copies
of all or any part thereof may be obtained from the Commission upon the
payment of certain fees prescribed by the Commission. The Registration
Statement has been filed electronically through the Commission's Electronic
Data Gathering, Analysis and Retrieval System and may be obtained through the
Commission's Web site (http://www.sec.gov).
No person is authorized to give any information or to make any
representation other than those contained in this prospectus, and if given or
made such information or representation must not be relied upon as having
been authorized. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities
offered by this Prospectus or an offer to sell or a solicitation of an offer
to buy the securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
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INDEX TO FINANCIAL STATEMENTS
PAGE
1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
U.S. TRUCKING, INC. AND SUBSIDIARIES AS OF
JUNE 30, 1999 ................................................... F-3
Consolidated Balance Sheet as of June 30, 1999
(Unaudited) and December 31, 1998 ............................. F-4
Consolidated Statements of Income for the
Six Months Ended June 30, 1999 and 1998
(Unaudited) ................................................... F-6
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998
(Unaudited) ................................................... F-7
Notes to Consolidated Financial Statements .................... F-9
2) AUDITED FINANCIAL STATEMENTS OF U.S. TRUCKING, INC.
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
PERIOD FROM INCEPTION (JANUARY 30, 1997)
TO DECEMBER 31, 1997 ............................................ F-11
Report of Independent Certified Public Accountants ............ F-12
Consolidated Balance Sheets as of December 31, 1998
and 1997 ...................................................... F-13
Consolidated Statement of Operations and Accumulated
Deficit for the year ended December 31, 1998 and
for the period from inception (January 30, 1997)
to December 31, 1997 ......................................... F-15
Consolidated Statement of Stockholders' Equity for the
year ended December 31, 1998 and for the period from
inception (January 30, 1997) to December 31, 1997 ............ F-16
Consolidated Statement of Cash Flows for the year ended
December 31, 1998 and for the period from inception
(January 30, 1997) to December 31, 1997 ...................... F-18
Notes to the Consolidated Financial Statements ................ F-21
3) AUDITED FINANCIAL STATEMENTS OF GULF NORTHERN TRANSPORT, INC.
FOR THE THIRTY DAYS ENDED JANUARY 30, 1997 ...................... F-45
Report of Independent Certified Public Accountants ............ F-46
Balance Sheet as of January 30, 1997 .......................... F-47
Statement of Operations and Accumulated Deficit
for the period from January 1, 1997 to January 30, 1997 ...... F-49
Statement of Cash Flows for the period from January 1, 1997
to January 30, 1997 .......................................... F-50
Notes to Financial Statements ................................. F-52
F-1
<PAGE>
4) AUDITED FINANCIAL STATEMENTS OF MENCOR, INC. FOR THE THIRTY
DAYS ENDED JANUARY 30, 1997 ..................................... F-61
Report of Independent Certified Public Accountants ............ F-62
Balance Sheet as of January 30, 1997 .......................... F-63
Statement of Earnings and Retained Earnings for the
period ending January 30, 1997 ............................... F-65
Statement of Cash Flows for the period ending January 30,
1997 ......................................................... F-66
Notes to Financial Statements ................................. F-67
5) AUDITED FINANCIAL STATEMENTS OF MID AMERICA TRANSPORTERS GROUP,
INC. AND SUBSIDIARY FOR THE YEARS ENDED DECEMBER 31,
1996 AND 1995 ................................................... F-73
Report on Independent Certified Public Accountants ............ F-74
Consolidated Balance Sheets as of December 31, 1996 and 1995... F-75
Consolidated Statements of Operations and Retained Earnings
for the years ending December 31, 1996 and 1995 .............. F-77
Consolidated Statements of Cash Flows for the years ending
December 31, 1996 and 1995 ................................... F-78
Notes to the Consolidated Financial Statements ................ F-80
6) AUDITED FINANCIAL STATEMENTS OF MENCOR, INC. FOR THE
YEARS ENDED DECEMBER 31, 1996 AND 1995 .......................... F-90
Report on Independent Certified Public Accountants ............ F-91
Balance Sheet as of December 31, 1996 and 1995 ................ F-92
Statements of Earnings and Retained Earnings for the
periods ending December 31, 1996 and 1995 .................... F-94
Statements of Cash Flows for the periods ending December 31,
1996 and 1995 ................................................ F-95
Notes to Financial Statements ................................. F-96
F-2
<PAGE>
1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF U.S. TRUCKING, INC.
AND SUBSIDIARIES AS OF JUNE 30, 1999.
F-3
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1999 December 31, 1998
(Unaudited)
Assets
Current Assets
Cash In Bank $ 789,052 $ 22,976
Trade Accounts Receivable - net 5,854,779 3,447,570
Accounts Receivable - Other 204,794 141,673
Parts and Supply Inventory 287,141 257,030
Prepaid Expenses and Other 540,411 162,036
----------- -----------
Total Current Assets 7,676,177 4,031,285
----------- -----------
Transportation & Other Equipment
at cost - Less accumulated
depreciation and amortization 7,544,458 9,718,805
Other Assets
Restricted Cash - Factor 135,706 -
Restricted Cash - Owner Operators 2,320 2,320
Restricted Cash - Letters of Credit 86,354 10,000
Restricted Cash - Captive Insurance 233,376 -
Due from Related Party 100,000 100,000
Due from Captive Insurer 456,732 355,321
Security Deposits 14,007 12,575
Intangible Assets - net of accumulated
amortization 3,602,494 2,082,055
----------- -----------
Total Other Assets 4,630,989 2,562,271
----------- -----------
Total Assets $19,851,624 $16,312,361
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable - Trade 1,797,246 1,443,415
Revolving Credit Line 3,193,669 1,795,888
Accruals & Other Current Liabilities 1,144,276 669,957
Current Portion - Long Term Debt 2,229,247 2,034,756
----------- -----------
Total Current Liabilities 8,364,438 5,944,016
Other Liabilities
Owner Operator Escrow 121,588 55,874
Convertible Debentures 540,000 0
Long-Term Notes Payable - net of
current portion 3,548,708 5,224,092
----------- -----------
Total Other Liabilities 4,210,296 5,279,966
----------- -----------
Total Liabilities 12,574,734 11,223,982
F-4
<PAGE>
Stockholders' Equity
Preferred Stock (no par value -
20,000,000 shares authorized,
990,000 Series A issued and out-
standing; 900 Series B issued
and outstanding; and 50,000 Series C
issued and outstanding 900,762
Common Stock (no par value - 75,000,000
shares authorized, 6,901,258 issued
and outstanding on June 30, 1999, and
16,074,591 on December 31, 1998) 3,368,238 2,796,000
Additional paid-in Capital 4,223,480 3,821,812
Accumulated Deficit (1,095,590) (1,409,433)
Subscription Receivable (120,000) (120,000)
----------- -----------
Total Stockholders' Equity 7,276,890 5,088,379
----------- -----------
Total Liabilities & Stockholders'
Equity $19,851,624 $16,312,361
=========== ===========
F-5
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Six For the Six
Months Ended Months Ended
June 30, 1999 June 30, 1998
(Unaudited) (Unaudited)
Net Revenues $17,824,169 $10,718,964
Operating Expenses
Purchased Transportation & Rentals 7,087,882 39.8% 3,667,666 34.2%
Salaries, Wages & Benefits 4,137,873 23.2% 2,666,923 24.9%
Fuel 1,457,324 8.2% 1,112,614 10.4%
Operating Supplies & Maintenance 625,508 3.5% 621,429 5.8%
Insurance & Claims 469,137 2.6% 340,933 3.2%
Misc. Operating Expenses 300,831 1.7% 293,687 2.7%
Taxes & Licenses 235,013 1.3% 203,562 1.9%
Insurance Captive Expense 582,803 3.3% 0 0.0%
Occupancy Costs 172,032 1.0% 125,308 1.2%
Depreciation and Amortization 1,146,717 6.4% 813,820 7.6%
----------- ----- ----------- -----
Total Operating Expenses 16,215,120 91.0% 9,845,942 91.9%
General Administrative Expenses 1,069,171 6.0% 411,565 3.8%
Operating Income 539,878 3.0% 461,457 4.3%
Interest Expense (378,472) -2.1% (315,076) -2.9%
Gain on Sale of Equipment 124,114 0.7% 0 0.0%
Interest Income 2,425 0.0% 1,200 0.0%
Other Income 25,899 0.1% 45,241 0.4%
----------- ----- ----------- -----
Net Income Before Taxes 313,844 1.8% 192,822 1.8%
Provision for Income Taxes 104,459 0.6% 83,500 0.8%
Tax Benefit of Net Operating
Loss Carryforward (104,459) -0.6% (83,500) -0.8%
----------- ----- ----------- -----
Net Income 313,844 1.8% 192,822 1.8%
=========== ===== =========== =====
Accumulated Deficit - beginning (1,409,434) (1,531,200)
Accumulated Deficit - ending $(1,095,590) $(1,338,378)
----------- -----------
Earnings per Common Share 0.04 0.01
Fully Diluted Earnings per Share 0.02 0.01
Average Number of Shares
Outstanding 8,925,676 13,000,000
F-6
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six For the Six
Months Ended Months Ended
June 30, 1999 June 30, 1998
(Unaudited) (Unaudited)
----------- -----------
Cash Flows from Operating Activities
Net Income $ 313,844 $ 192,822
Adjustments to Reconcile Net Income
to Net Cash Used in Operating
Activities:
Depreciation & Amortization 1,146,717 805,293
Expense related to stock-based
compensation plan - 15,000
Gain on Sale of Equipment (124,114) -
(Increase) Decrease - Assets - -
Restricted Cash (445,436) (220,600)
Accounts Receivable (2,571,741) 78,070
Parts & Supply Inventory (30,111) (9,740)
Prepaid Expenses & Other Current
Assets (378,376) (132,189)
Increase (Decrease) - Liabilities
Accounts Payable & Revolving Credit
Line 1,751,612 (78,983)
Accrued Expenses and Other
Liabilities 540,034 51,576
----------- -----------
Total Adjustments (111,415) 508,427
Net Cash Provided by Operating
Activities 202,429 701,249
----------- -----------
Cash Flows from Investing Activities
Reduction (Increase) in security
deposit (1,433) 50
Purchase of Equipment (244,673) (108,287)
Sale of Transportation and Other
Equipment 1,104,114 -
Payment for Refinancing of
Acquisition Debt - (55,274)
Proceeds from Sale of Common Stock
and Additional Paid In Capital 1,883,732 -
----------- -----------
Net Cash Provided (Used) by Investing
Activities 2,741,740 (163,511)
Subtotal
F-7
<PAGE>
Cash Flows from Financing Activities
Discount on note payable - 9,144
Cash paid for acquisitions (340,000) -
Principal Payments on Long-Term Debt (1,838,093) (427,734)
Principal Payments on Capital Lease
Obligations - (160,906)
----------- -----------
Net Cash Used by Financing Activities (2,178,093) (579,496)
Net Increase (Decrease) in Cash 766,076 (41,758)
Cash at Beginning of Year 22,976 60,099
----------- -----------
Cash at End of Period $ 789,052 $ 18,341
=========== ===========
Supplementary Disclosure of Cash
Flow Information
Cash Paid during the period
Interest Expense $ 378,472 $ 305,123
=========== ===========
Income Taxes $ - $ -
=========== ===========
F-8
<PAGE>
U.S. TRUCKING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 - Basis of Presentation
The accompanying consolidated financial statements include the parent company,
US Trucking, Inc. and its wholly owned subsidiaries, Gulf Northern Transport,
Inc., ProStar, Inc., Mencor, Inc. and the US Trucking Captive Insurance
Program(hereinafter collectively called the "Company"). All material
inter-company items and transactions have been eliminated in consolidation.
The consolidated financial statements included herein have been prepared in
accordance with generally accepted accounting principles ("GAAP"), pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures have been omitted or condensed pursuant
to such rules and regulations. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Results of operations in interim periods are
not necessarily indicative of results for a full year. These consolidated
financial statements and notes thereto should be read in conjunction with the
Company's consolidated financial statements and notes. The preparation of
financial statements in accordance with GAAP requires management to make
estimates and assumptions. Such estimates and assumptions affect the reported
amounts of assets and liabilities as well as disclosure of contingent assets
and liabilities, at the date of the accompanying consolidated financial
statements, and the reported amounts of the revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
NOTE 2 - Earnings per Share
Earnings per common share amounts are based on the weighted average number of
common shares outstanding and diluted earnings per share amounts are based on
the weighted average number of common shares outstanding plus the incremental
shares that would have been outstanding upon the assumed exercise of all
diluted preferred shares.
NOTE 3 - Segment Information
Description of the types of services from which each reportable segment
derives its revenues. The Company has three major business segments:
long-haul trucking of refrigerated and nonrefrigerated products, interstate
freight brokerage and a captive insurance program for liability insurance for
the trucking industry. During the fourth quarter of 1998, the company adopted
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information (SFAS 131).
The adoption of SFAS 131 requires the presentation of descriptive information
about reportable segments which is consistent with that made available to the
management of U S Trucking to assess performance. As a result of this change,
the company now reports information on its truck brokerage operation. In
addition, during 1998, the company added the captive liability insurance
program (business) and reports that segment's performance similarly. In
determining that net income of each segment of the company, 100% of the
interest expense is allocated to long-haul trucking and effective tax rates
are determined for each business segment.
F-9
<PAGE>
The Company evaluates performance and allocated resources based on net profit
and loss from operations.
The Company's reportable segments are business units that offer different
transportation services. The reportable segments are each managed separately
because of their distinct differences in the operations.
SIX MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Long Haul Truck Liability Intersegment Total
Trucking Brokerage Insurance
<S> <C> <C> <C> <C> <C>
Sales 14,712,520 2,513,413 937,214 (338,978) 17,824,169
Net Income 121,933 90,490 101,421 0 313,844
Assets 17,412,698 949,767 1,489,159 0 19,851,624
Depreciation &
Amortization 1,133,808 12,909 0 0 1,146,717
</TABLE>
THREE MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Long Haul Truck Liability Intersegment Total
Trucking Brokerage Insurance
<S> <C> <C> <C> <C> <C>
Sales 7,691,441 2,168,294 458,215 (155,153) 10,162,797
Net Income 26,650 99,807 67,441 0 193,898
Assets 17,412,698 949,767 1,489,159 0 19,851,624
Depreciation &
Amortization 583,473 12,609 0 0 596,082
</TABLE>
NOTE 4 - Acquisitions
(A) The Company acquired the stock of a S.Carolina brokerage company during
the quarter ended June 30, 1999. The Company expects to add approximately $7.5
million of annual operating revenue with the acquisition while expecting
significant bottom line enhancement. The Company has relocated the acquired
company to the Company's General Offices in Charleston, S.C. to ensure quick
synergies with the brokerage company (Mencor) already owned by the Company.
The purchase was recorded at the estimated fair value, at the acquisition
date, in accordance with AFB Opinion No. 16. In conjunction with the
acquisition, the Company issued 200,000 shares of common stock and paid
$340,000 in cash. Adjustments, if any, to the purchase price allocations are
not expected to have a material impact on the accompanying consolidated
financial statements.
(B) The Company completed the acquisition of the assets of a container company
located in S. Carolina during the quarter ended June 30, 1999. The Company
expects to add approximately $6.0 million of annual operating revenue with the
acquisition, while meeting on going demands from its customer base. With the
Company's General Offices' located in a city ranked in the Top Ten ports in
the Nation, entering the transportation of containerized freight was a natural
transition and much needed. The purchase was recorded at the estimated fair
value, at the acquisition date, in accordance with AFB Opinion 16. In
conjunction with the acquisition, the Company agreed to issue a total of
188,000 shares of common stock over the next three years based on a vesting
schedule and to pay a total of $300,000 in cash during the third quarter of
the current fiscal year. Adjustments, if any, to the purchase price
allocations are not expected to have a material impact on the accompanying
consolidated financial statements.
F-10
<PAGE>
2) AUDITED FINANCIAL STATEMENTS OF U.S. TRUCKING, INC. FOR THE YEAR
ENDED DECEMBER 31, 1998 AND THE PERIOD FROM INCEPTION (JANUARY 30,
1997) TO DECEMBER 31, 1997
F-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
U.S. Trucking, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheets of U.S. Trucking,
Inc. and Subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations and accumulated deficit and cash flows
for year ended December 31, 1998 and the period from inception (January 30,
1997) to December 31, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated balance sheets referred to above, present
fairly, in all material respects, the consolidated financial position of U.S.
Trucking, Inc. and Subsidiaries as of December 31, 1998 and 1997 and the
results of its operations and its cash flows for the year ended December 31,
1998 and the period from inception (January 30, 1997) to December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Bianculli Pascale & Co. P.C.
Garden City, New York
February 25, 1999
F-12
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
ASSETS
CURRENT ASSETS
Cash in banks $ 22,976 $ 60,099
Restricted cash-reserves on deposit
with factor - 184,210
Accounts receivable-net of allowance
for doubtful accounts of $200,000
in 1998 and $88,000 in 1997 3,447,570 2,321,180
Accounts receivable - other 141,673 60,000
Parts and supply inventory 257,030 152,262
Prepaid expenses and other 162,036 57,097
----------- -----------
Total Current Assets 4,031,285 2,834,848
----------- -----------
TRANSPORTATION AND OTHER EQUIPMENT -
at cost, less accumulated depreciation
and amortization of $736,221 in 1998
and $1,334,899 in 1997 9,718,805 6,818,517
----------- -----------
OTHER ASSETS
Restricted cash-owner operators 2,320 2,894
Restricted cash-cash held as
collateral against letters of credit 10,000 10,000
Due from related party 100,000 -
Due from captive insurer 355,321 -
Security deposits 12,575 12,653
Intangible assets - net of accumulated
amortization of $273,243 in 1998
and $120,552 in 1997 2,082,055 681,853
Total other assets 2,562,271 707,400
----------- -----------
TOTAL ASSETS $16,312,361 $10,360,765
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-13
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
----------- -----------
CURRENT LIABILITIES
Accounts payable-trade $ 1,443,415 $ 756,675
Revolving loan payable 1,795,888 1,355,291
Accrued expenses and other 669,957 665,592
Current portion - long term debt 2,034,756 1,187,753
Current portion of obligations
under capital leases - 479,093
----------- -----------
Total Current Liabilities 5,944,016 4,444,404
----------- -----------
OTHER LIABILITIES
Owner operator escrow 55,874 17,100
Long term notes payable - net
of current portion 5,224,092 2,887,809
Obligations under capital leases
net of current portion - 228,284
----------- -----------
Total Other Liabilities 5,279,966 3,133,193
----------- -----------
TOTAL LIABILITIES 11,223,982 7,577,597
----------- -----------
COMMITMENTS AND
CONTINGENCIES (Notes 2, 6, 9 10 and 17)
STOCKHOLDERS' EQUITY
Preferred Stock (no par value-
10,000,000 shares authorized,
none issued or outstanding) - -
Common Stock (no par value-
75,000,000 shares authorized,
16,074,591 and 13,000,000 shares
issued and outstanding in 1998
and 1997, respectively) 2,796,000 1,000
Additional paid in capital 3,821,812 4,313,368
Accumulated deficit (1,409,433) (1,531,200)
Subscriptions Receivable ( 120,000) -
----------- -----------
Total Stockholders' Equity 5,088,379 2,783,168
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $16,312,361 $10,360,765
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-14
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD FROM
INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997
1998 1997
----------- -----------
Operating revenues $21,815,844 $17,469,281
Operating expenses 18,486,974 16,434,514
----------- -----------
Income from operations 3,328,870 1,034,767
Administrative expenses 2,924,746 1,999,692
----------- -----------
Income (loss) from operations 404,124 ( 964,925)
----------- -----------
Other income and expenses
Interest income 1,648 1,332
Interest expense ( 731,628) ( 656,826)
Other income 447,623 101,762
Net (loss) on disposition of assets - ( 12,543)
----------- -----------
Total other income
and (expenses) ( 282,357) ( 566,275)
----------- -----------
Net income (loss) before taxes 121,767 (1,531,200)
Provision for income taxes 47,600 -
Benefit of net operating
loss carryforward ( 47,600) -
----------- -----------
Net income (loss) 121,767 (1,531,200)
Accumulated deficit - beginning (1,531,200) -
----------- -----------
Accumulated deficit - ending $(1,409,433) $(1,531,200)
=========== ===========
Net income (loss) per common share $ .01 $( .12)
=========== ===========
Weighted average
number of common shares 13,818,272 13,000,000
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-15
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Common Stock Additional
No Par Value Paid in Accumulated
Shares Amount Capital Deficit Total
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sale of 2,500 Shares of
Common Stock - No Par
Value 2,500 $1,000 $ 1,000
Acquisition of 100%
Common Stock of Gulf
Northern Transport, Inc. $ 225,000 225,000
Acquisition of 100% Common
Stock of Mencor, Inc. 145,000 145,000
Capitalization of assets
of Jay and Jay Transportation,
Inc. by U.S. Transportation
Systems, Inc. 2,394,860 2,394,860
Capitalization of assets of
Translynx, Inc. by U.S.
Transportation Systems, Inc. 100,546 100,546
Payment of expenses by
shareholder 46,895 46,895
Capitalization of advances
from U.S. Transportation
Systems, Inc. 1,401,067 1,401,067
Net Loss for the Period (1,531,200) (1,531,200)
----- ------ ---------- ----------- ----------
Total 2,500 $1,000 $4,313,368 $(1,531,200) $2,783,168
===== ====== ========== =========== ==========
</TABLE>
F-16
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional
No Par Value Paid in Accumulated Subscriptions
Shares Amount Capital Deficit Receivable Total
---------- ---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Opening balance - January 1,
1998 2,500 $ 1,000 $4,313,368 (1,531,200) $2,783,168
Stock dividend declared -
5,199 common shares issued
for each share outstanding 12,997,500 -
Issuance of Common Stock to
Transportation Services,
Inc. 133,333 20,000 (20,000) -
Issuance of Common Stock
to Joff Pollon under the
consulting agreement -
Note 19 1,000,000 180,000 (180,000) -
Subscription of Common
Stock to Joff Pollon -
Note 19 160,000 120,000 (120,000)
Issuance of Common Stock
and costs incurred
to acquire Northern
Dancer Corp. in accor-
dance with the share
exchange agreement -
Note 1 614,590 - (291,556) (291,556)
Proceeds from sale of
Common Stock 766,668 575,000 575,000
Issuance of Common Stock
- Mid-Cal Acquisition -
Note 3 400,000 1,900,000 1,900,000
Net Income for the year
ended December 31, 1998 121,767 121,767
---------- ---------- ---------- ----------- ---------- ----------
Closing balance - December
31, 1998 16,074,591 $2,796,000 $3,821,812 $(1,409,433) (120,000) $5,088,379
========== ========== ========== =========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-17
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR END DECEMBER 31, 1998 AND FOR THE PERIOD FROM
INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997
1998 1997
----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (Loss) $ 121,767 $(1,531,200)
ADJUSTMENTS TO RECONCILE NET
INCOME (LOSS) TO NET CASH
USED IN OPERATING ACTIVITIES
Depreciation & amortization 1,616,852 1,455,451
Provision for doubtful accounts 112,000 36,166
Loss on disposal of property
and equipment 12,543
(Increase) Decrease-Assets
Restricted cash 184,784 (197,104)
Accounts receivable (1,320,063) (2,361,180)
Parts and supply inventory ( 22,768) ( 152,262)
Prepaid expenses and
other assets ( 652,097) ( 57,097)
Due from captive insurer ( 355,321) -
Increase (Decrease)-Liabilities
Accounts payable - trade 686,740 756,675
Accrued expenses and
other current liabilities 43,138 2,020,883
----------- -----------
Total Adjustments 293,265 1,514,075
----------- -----------
Net cash provided (used) by
operating activities 415,032 ( 17,125)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of transportation and
other equipment (290,177) ( 59,804)
Security deposits 78 -
Net costs incurred in reverse
merger (291,556) -
Proceeds from sale of common stock
and additional paid in capital 575,000 1,304,755
----------- -----------
Net cash provided by (used in)
investing activities $( 6,655) $ 1,244,951
----------- -----------
Sub Total $ 408,377 $ 1,227,826
----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-18
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD FROM
INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997
1998 1997
----------- -----------
Balance Forward $ 408,377 $ 1,227,826
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from long-term
debt financing 4,296,705 -
Book value of debt restructured (3,838,415) -
Principal payments on long-term debt ( 660,744) ( 877,926)
Principal payment of short-term note - ( 12,500)
Principal payments on
capital lease obligations ( 243,046) ( 277,301)
----------- -----------
Net cash (used) in
financing activities ( 445,500) (1,167,727)
----------- -----------
NET INCREASE (DECREASE)
IN CASH ( 37,123) 60,099
CASH AT BEGINNING OF YEAR 60,099 -
----------- -----------
CASH AT END OF YEAR $ 22,976 $ 60,099
=========== ===========
Supplemental Disclosure of
Cash flow information:
Cash Paid during the year
Interest expense $ 861,076 $ 571,924
=========== ===========
Income taxes $ -0- $ -0-
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-19
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD
FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997
Non Cash Investing and Financing Activities
In December, 1998, the company acquired assets and liabilities of Mid-Cal
Express:
Fair value of assets acquired $ 4,918,741
Goodwill recognized 1,078,600
Liabilities assumed 4,097,341
Value of common stock issued 1,900,000
In December, 1998, the company traded in some of its older transportation
vehicles for new ones as part of an overall restructuring of its rolling stock
and corresponding debt. The book value of the equipment traded in was
$914,651 and its trade-in value was $637,000, which amount was offset against
the cost of the new equipment.
Book value of equipment traded-in $ 914,651
Trade-in value ( 637,000)
Deferred loss on sale/leaseback 277,651
In September 1998 Joff Pollon subscribed to 160,000 shares of common stock.
The company recorded the transaction as a credit to common stock with a
corresponding subscription receivable, which is being reflected as a reduction
of stockholders' equity.
As of September 8, 1998 U.S. Trucking issued 614,590 shares of common stock in
connection with a reverse acquisition of Northern Dancer Corp.
During 1998, legal counsel determined that certain non-interest bearing
promissory notes arising from the acquisition of Gulf Northern totaling
$104,000 was not the responsibility of the company. Accordingly the current
balances of the notes were reclassified as a reduction of the goodwill
originally recorded.
On January 30, 1997, U.S. Trucking acquired transportation and other equipment
totaling $8,153,416 as part of the acquisition of Gulf Northern Transport,
Inc. and Mencor, Inc. and the assets of Jay & Jay Transportation, Inc. In the
acquisition of this equipment incurred long term debt totaling $3,561,025.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-20
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Business
On September 8, 1998, U.S. Trucking, Inc., a Nevada corporation ("U.S.
Trucking-Nevada"), was acquired by Northern Dancer Corporation ("Northern
Dancer"), a nonoperating public shell corporation, through exchange of
approximately 96% of the issued and outstanding shares of Northern Dancer's
common stock for 100% of the outstanding shares of U.S. Trucking-Nevada's
common stock. Northern Dancer's legal name was changed to U.S. Trucking, Inc.
("U.S. Trucking" or the "Company"). The acquisition is considered to be a
capital transaction, in substance equivalent to the issuance of stock by U.S.
Trucking-Nevada for the net monetary assets of Northern Dancer, accompanied by
a recapitalization of U.S. Trucking-Nevada. Common stock and additional
paid-in capital at January 30, 1997, have been restated to reflect the
recapitalization for all periods presented.
The Company operates through two wholly-owned operating subsidiaries that were
acquired by U.S. Trucking-Nevada on January 30, 1997:
Gulf Northern Transport, Inc., (Gulf Northern) a
Wisconsin corporation, operates as an interstate
and intrastate motor carrier.
Mencor, Inc. operates as a licensed broker for
interstate motor carriers. A broker serves
the trucking industry by providing return
hauls for truckers who have completed their
initial delivery.
U.S. Trucking-Nevada was formed by U.S. Transportation Systems, Inc. (USTS) as
a wholly owned subsidiary. As part of the transaction to acquire Gulf
Northern, 25% of U.S. Trucking-Nevada's common stock was transferred to Gulf
Northern's parent (Logistics Management, LLC). The remaining 75% was conveyed
to Logistics Management, LLC during 1998.
The Company's corporate headquarters are located in Charleston, South Carolina
with terminals and drop stations located in various states.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
F-21
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
(B) - Basis of Presentation
The accompanying consolidated balance sheets and related statements of
operations and accumulated deficit and cash flows includes the accounts of
U.S. Trucking, Inc. and its wholly owned subsidiaries, Gulf Northern
Transport, Inc. and Mencor, Inc. as of December 31, 1998 and 1997.
Significant intercompany transactions or balances as of and for the periods
ended December 31, 1998 and 1997 have been eliminated.
(C) - Net Income per Common Share
Basic net income per share is computed on the basis of the weighted average
number of common shares outstanding during each period. Subscription shares
are only included in diluted earnings per share.
(D) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(E) - Parts and Supply Inventory
Inventory consists principally of parts and supplies used in maintaining its
motor carrier fleet, skids used in transporting goods, and small tools and are
stated at the lower-of-cost or market, determined on a first-in, first-out
basis.
(F) - Transportation and Other Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Accelerated methods of depreciation are followed for tax purposes and the
straight-line method is used for financial reporting purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years.
F-22
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
(G) - Goodwill
Goodwill is amortized on a straight line basis over periods ranging from six
to fifteen years.
(H) - Income Taxes
Taxes are provided on all revenue and expense items included in the
Consolidated Statements of Operations, regardless of the period in which such
items are recognized for income tax purposes, except for items representing a
permanent difference between pretax accounting income and taxable income.
(I) - Revenue Recognition
U.S. Trucking recognizes revenue at the time freight is delivered to
recipients. Liability insurance revenue is recognized on a written premium
basis.
(J) - Organization Costs
Subsidiary companies, Gulf Northern and Mencor incurred organization costs
that are being amortized on a straight-line basis over five years.
(K) - Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-23
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 2 - Earnings (loss) Per Common Share
Basic earnings (loss) per common share was calculated using the weighted
average number of shares outstanding for the periods presented, after giving
effect to the 5,199 to 1 stock dividend declared in June, 1998. The number of
shares outstanding for 1997 was restated to give effect to the stock dividend.
The shares of stock subscribed by Joff Pollon were excluded from the basic
earnings per share calculation, however were treated similar to warrants in
the diluted earnings per share. The resulting weighted average number of
common shares outstanding was 13,818,272 in 1998 and 13,000,000 in 1997.
Subscribed stock, after application of the treasury stock method, resulted in
114,198 incremental shares. The overall effect on basic earnings per share
assuming the issuance of the incremental shares was insignificant.
NOTE 3 - Acquisition of Subsidiaries and other Assets and Liabilities
Gulf Northern Transport, Inc. - U.S. Trucking-Nevada purchased 100% of the
common stock of Gulf Northern Transport, Inc. from its stockholder (Logistics
Management, LLC) for cash of $225,000 and 25% of the Company's common stock
(625 shares). The acquisition was funded by an advance by US
Trucking-Nevada's parent, U.S. Transportation Systems, Inc. which was
subsequently capitalized and included in additional paid in capital. The
transaction was valued at $790,999 and goodwill in the amount of $565,999 was
recognized in the transaction. The goodwill is being amortized over six
years.
Mencor, Inc. - U.S. Trucking-Nevada purchased 100% of the common stock of
Mencor, Inc. from its stockholders for cash of $70,000 and 37,500 shares of
the common stock of U.S. Transportation Systems, Inc. which was valued at
$2.00 per share. The acquisition was funded by a cash and stock contribution
to the Company by USTS. The transaction was valued at $145,000. Goodwill in
the amount of $96,953 was recognized in the transaction and is being amortized
over six years.
The amortization expense is included in administrative expenses.
F-24
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 3 - Acquisition of Subsidiaries and other Assets and Liabilities
(continued)
Jay and Jay Transportation, Inc. - On January 30, 1997 U.S. Trucking-Nevada
acquired certain assets (primarily tractors and trailers) and liabilities from
USTS which were valued at $2,394,860. The transaction was accomplished by way
of a permanent capital contribution by USTS and the net value contributed was
included in additional paid in capital. Jay and Jay's dispatch office and
yard is located in Savannah, New York. Office operations including accounting
and management were moved to Charleston, South Carolina. The transaction was
recorded as an asset purchase and no goodwill was recognized.
Translynx Express, Inc. - On January 30, 1997 U.S. Trucking-Nevada acquired
certain assets and liabilities from USTS that were valued at $100,546. The
transaction was accomplished by way of a permanent capital contribution by
USTS and the net value contributed is included in Additional paid in capital.
Translynx's operating office is located in Orlando, Florida. Office
operations including accounting and management were moved to Charleston, South
Carolina. The transaction was recorded as an asset purchase and no goodwill
was recognized.
Mid-Cal Express, Inc. - Effective December 30, 1998, U.S. Trucking acquired
certain assets and liabilities of Mid-Cal Express, Inc., a California based
transportation company. The purchase price was $1,957,500, which was paid by
the issuance of 400,000 shares of common stock of the company valued at $4.75
per share and the payment of certain expenses to affect the acquisition. The
purchase price was allocated to the assets and liabilities acquired at their
fair market values and $1,078,600 of goodwill was recognized. The goodwill is
being amortized over fifteen years on a straight line basis. No goodwill was
expensed in 1998.
As part of the acquisition agreement, U.S. Trucking assumed the debt on
various notes totaling $4,039,740 encumbering the above described equipment.
The interest rates on these notes varied from 8.36% to 11.9% with maturities
through June, 2003.
F-25
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 3 - Acquisition of Subsidiaries and other Assets and Liabilities
(continued)
An allocation of the purchase price for each of the transactions follow:
Gulf
Northern Jay and Jay Translynx Total
Transport Mencor Transportation Express all
Inc. Inc. Inc. Inc. Companies
---------- -------- -------------- -------- -----------
Assets
Cash and
restricted
cash $ 138,449 $ 40,497 $ - $ - $ 178,946
Accounts
Receivable 1,047,761 189,605 351,301 194,920 1,783,587
Inventory 139,472 - 24,500 - 163,972
Transportation
Equipment 4,099,535 7,300 3,994,588 - 8,101,423
Goodwill 565,999 96,953 - - 662,952
Other assets 174,573 30,898 2,000 - 207,471
---------- -------- ---------- -------- -----------
Total $6,165,789 $365,253 $4,372,389 $194,920 $11,098,351
========== ======== ========== ======== ===========
Liabilities
Assumed and Equity
Liabilities
assumed $5,940,789 $220,253 $1,977,529 $ 94,374 $ 8,232,945
Additional
paid in
capital 225,000 145,000 2,394,860 100,546 2,865,406
---------- -------- ---------- -------- -----------
Total $6,165,789 $365,253 $4,372,389 $194,920 $11,098,351
========== ======== ========== ======== ===========
Fair value was the basis of valuing the net assets acquired. Fair value was
determined by independent appraisals by third parties for transportation
equipment.
F-26
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 3 - Aquisition of Subsidiaries and other Assets and Liabilities
(continued)
Combined Company
Pro Forma Combined Condensed Statement of Income
For the year ended December 31, 1998
(Unaudited)
Historical Historical Pro forma Pro forma
U.S. Trucking Mid-Cal Express Adjustments Combined
------------- --------------- ----------- -----------
Operating revenues $21,815,844 $17,883,034 $(8,883,034) $30,815,844
Operating expenses 18,486,974 16,273,560 10,175,985 24,584,549
----------- ----------- ----------- -----------
Income from
operations 3,328,870 1,609,474 1,292,951 6,231,295
Administrative
expenses 2,924,746 3,926,842 1,006,417 5,845,171
----------- ----------- ----------- -----------
Income (loss) from
operations 404,124 (2,317,368) 2,299,368 386,124
----------- ----------- ----------- -----------
Other income
and expenses
Interest income 1,648 2,071 929 4,648
Interest expense (731,628) (703,785) 203,785 (1,231,628)
Other income 447,623 118,100 24,300 590,023
Net (loss) on
disposition of
assets - (19,528) (19,528)
----------- ----------- ----------- -----------
Total other income
and (expenses) (282,357) (603,142) 229,014 (656,485)
----------- ----------- ----------- -----------
Net income
(loss) before taxes 121,767 (2,920,510) 2,528,382 (270,361)
Provision for
income taxes 47,600 (6,795) - 40,805
Benefit of net
operating loss
carryforward (47,600) - 6,795 (40,805)
----------- ----------- ----------- -----------
Net income (loss) $ 121,767 $(2,927,305) $ 2,535,177 $ 270,361
=========== =========== =========== ===========
Net income (loss)
per common share $ .01 $ (.02)
=========== ===========
Weighted average
number of common
shares 13,818,272 14,254,778
=========== ===========
F-27
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 4 - Income Taxes
U.S. Trucking accounts for income taxes on the liability method, as provided
by Statement of Financial Accounting Standards 109, Accounting for Income
Taxes. No current or deferred income taxes were provided for the period ended
December 31, 1997. At December 31, 1998, the income tax provision was
composed of the following components:
Current - Federal $( 87,400)
State ( 14,000)
---------
Total Current (101,400)
Deferred - Federal 127,300
State 21,700
---------
Total Deferred 149,000
Total $ 47,600
=========
The income tax provision reconciled to the tax computed at the statutory
Federal rate is as follows:
Tax at Statutory Rate $ 41,400 34.0%
Benefit of graduated Rates (10,500) ( 8.7)
State income tax net of
federal tax benefit 5,100 4.2
Non deductible expenses
and other 11,600 9.6
-------- ----
Total $ 47,600 39.1%
======== ====
Differing methods of reporting income for tax purposes as compared to
financial reporting purposes resulted in a net deferred income tax provision
of approximately $149,000 for the year ended December 31, 1998.
F-28
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 4 - Income Taxes (continued)
Deferred tax assets and liabilities consist of the following as of December
31:
1998 1997
---------- ----------
Deferred tax assets-
Allowance for doubtful accounts $ 200,000 $ 88,000
Amortization of Goodwill 139,300 63,000
Net operating loss carryovers 1,997,200 2,327,000
---------- ----------
2,336,500 2,478,000
Valuation allowance 1,562,000 1,723,000
---------- ----------
$ 774,500 $ 755,000
========== ==========
Deferred tax liabilities-
Depreciation of transportation
and other and equipment $ 774,500 $ 755,000
---------- ----------
$ 774,500 $ 755,000
========== ==========
The valuation allowance provided in each of the years is based on management's
valuation of the likelihood of realization.
As required by SFAS 109, deferred taxes are provided based upon the tax rate
at which the items of income and expense are expected to be settled in the
Company's tax return.
U.S. Trucking has net operating losses through December 31, 1998 of
$1,997,200. These losses will be available to offset future income for
financial reporting purposes expiring in 2012.
F-29
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 5 - Long-term Notes Payable
1998 1997
---------- -----------
Consolidation loan described in Note 6 $3,219,108 $ -
Equipment loans secured by tractors and
trailers payable at $59,848 per month
including interest at rates ranging from
9-1/2% to 10-1/2% per annum with the final
installment due April, 2001 - 2,000,396
Equipment loans related to the Mid-Cal
Express acquisition described in Note 2 4,039,740 -
Term loan in settlement with United
Acquisition II Corp. described in Note 13 - 54,656
Acquisition loan described in Note 5 - 1,884,904
Seller notes described in Note 5 - 135,606
---------- ----------
Total 7,258,848 4,075,562
Less: current maturities 2,034,756 1,187,753
---------- ----------
Long-term portion $5,224,092 $2,887,809
========== ==========
The carrying value of the Company's borrowings approximate their fair values.
Aggregate annual scheduled maturities of long-term debt at December 31, 1998
are as follows:
1999 $2,034,756
2000 2,579,894
2001 2,100,707
2002 362,968
2003 180,523
----------
Total $7,258,848
==========
F-30
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 6 - Acquisition Loan and Sellers' Notes
On December 22, 1998, U.S. Trucking entered into an agreement with GECC
whereby the acquisition debt, obligations under capital leases, and the
equipment loans were consolidated into a $5,000,000 three year revolving
credit line. The line bears interest at the rate of 4.5% over GECC's
commercial paper rate which was 5.1% at December 31, 1998. The average rate
through December 31, 1998 was 9.6%. Amounts borrowed under the agreement are
collateralized by a security interest in all of the company's present and
future tangible and intangible assets. There is also a letter of credit
sub-facility of $250,000 which was unused at December 31, 1998.
On March 28, 1995, Gulf Northern was acquired by Mid America Transporters
Group, Inc. The purchase was financed by a loan in the amount of $3,000,000
from ITT Credit Corp. The proceeds of this loan (described as "the
acquisition loan") were used to refinance stockholder loans and certain other
bank and lease obligations. The loan which was subsequently sold to General
Electric Credit Corp., (GECC) and originally was payable in 60 monthly
installments of $66,360 at the rate of 11.75% interest per annum with its
final maturity on March 31, 2000. On May 25, 1997, the Company renegotiated
the loan whereby the monthly payments were reduced to $45,000 with a balloon
payment of $396,836 due on September 1, 2001. The interest rate remained at
11.75%. Additional fees of $138,016 were incurred to restructure the loan
which were capitalized and are being amortized over the remaining life of the
loan.
In addition to the acquisition loan, the agreement called for payments to the
three former stockholders (described as sellers' notes) which included
promissory notes totaling $260,000 due in 36 monthly installments totaling
$8,017 at 7% due on March 1, 1998 secured by letters of credit and non
interest bearing obligations (discounted at 7% per annum) totaling $104,000
payable over a one year period commencing April 1, 1998. Legal counsel
subsequently determined that U.S. Trucking is not responsible for this debt as
the liability remains with Mid America. Accordingly, it has been reclassified
as a credit against the goodwill recognized in the acquisition from Mid
America.
F-31
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 7 - Lease Commitments
U.S. Trucking leased tractors and trailers under various capital lease
agreements as of December 31, 1997. The net book value of the assets included
in these leases amounted to $919,288. Total minimum lease payments were
$772,211 with a present value of $707,377 as of December 31, 1997. During
1998, these underlying assets were refinanced as part of the consolidation
loan described in Note 6. Accordingly, there were no capital lease
obligations as of December 31, 1998.
NOTE 8 - Transportation and Other Equipment
Transportation and other equipment consists of the following as of December
31, 1998:
1998 1997
---------- ----------
Office equipment $ 201,833 $ 79,300
Tractors, trailers and
garage equipment 10,251,924 8,072,847
Transportation equipment 1,269 1,269
----------- ----------
10,455,026 8,153,416
Less: Accumulated depreciation 736,221 1,334,899
----------- ----------
Total $ 9,718,805 $6,818,517
=========== ==========
Depreciation expense amounted to $1,464,161 and $1,334,899 for the period
ended December 31, 1998 and 1997, respectively. $1,351,900 of depreciation
was included in operating expenses and $98,630 of depreciation was included in
administrative expenses. The fair market value of fixed assets approximates
book value.
F-32
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 9 - Related Party Transactions
U.S. Trucking leases ten tractors from three of its officers under net lease
agreements that specify monthly payments of $11,976 per month. See Note 11.
Transportation Services Company, Inc., a related entity, provides insurance
broker services to U.S. Trucking and earns a commission based upon the amount
of business it places for U.S. Trucking. U.S. Trucking also provides
consulting services to Transportation Services Company, Inc. pursuant to a
consulting agreement entered into on December 29, 1998. During 1998, U.S.
Trucking earned $228,000 of consulting income from Transportation Services
Company, Inc., which is included in "Other Income" in the accompanying
financial statements.
NOTE 10 - Retirement Plan
U.S. Trucking maintains a pension plan for eligible employees, which was
established under section 401(k) of the Internal Revenue Code. Under the terms
of the plan, the Company at the discretion of its Board of Directors may match
employee contributions up to 3% of employee compensation. Employee
contributions to the plan amounted to $42,986 and $50,153 for the period ended
December 31, 1998 and 1997, respectively. The Company did not match employee
contributions during the periods ended December 31, 1998 and 1997.
F-33
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 11 - Commitments and Contingencies
Commencing on January 1, 1997, U.S. Trucking agreed to rent its Wisconsin
Rapids facility from certain stockholders for $7,350 per month for a period of
five years under an operating lease.
Commencing October 15, 1997, U.S. Trucking leased its South Carolina corporate
offices for $1,728 per month. The lease was subsequently re-negotiated
whereby the Company took additional office space in the same building at a
total cost of $2,800 per month until June 30, 2002.
Commencing March, 1998 U.S. Trucking leased ten tractors from three of its
officers under net lease agreements that specify monthly payments of $11,976
and extend with renewal options until March, 2003.
During 1998, U.S. Trucking leased tractors and trailers from various lenders
under net lease agreements with total monthly payments of $67,709 with various
expiration dates through July 31, 2002.
Minimum rental payments under such leases follows for the years ending
December 31:
1999 $ 996,660
2000 996,660
2001 695,010
2002 209,905
2003 15,588
----------
Total minimum payments required $2,913,823
==========
Rent expense for the period ended December 31, 1998 and 1997 amounted to
$194,655 and $142,013 respectively and is included in administrative expenses.
F-34
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 12 - Captive Insurance Program
Effective December 31, 1997 U.S. Trucking-Nevada entered into an offshore
insurance program agreement with a Bermudan insurance company (insurance
company) for the company's auto liability insurance, including rolling stock,
on a retrospective rating basis. The company purchased 1 share of non-voting
preferred stock of the insurance company for a purchase price of $1,000. The
insurance company is allowed to redeem the preferred stock for $1,000 on March
1, 2004. U.S. Trucking-Nevada was issued a "Deductible Reimbursement Insurance
Policy" which was reinsured with other insurance carriers "the treaty". The
agreement, the policy and the treaty together constitute the company's single
insurance "program". Under the terms of this program, the company pays
insurance premiums on a written premium underwriting basis.
Commencing on May 31, 2001, and annually thereafter on each succeeding year
through May 31, 2004, U.S. Trucking-Nevada will be eligible to receive a
dividend from the insurance company based upon a predetermined formula. The
formula is intended to dividend to the company the excess of investment income
and premiums paid over losses and expenses and fees incurred, less loss and
premium reserves. Pursuant to this section of the insurance program agreement,
the company recorded in the accompanying financial statements $355,321 of
amounts due from captive insurer which is reflected in other income. This
amount represents the "program-to date profit" at December 31, 1998, less a
valuation reserve.
U.S. Trucking-Nevada has agreed to indemnify and hold harmless the insurance
company against the cumulative sum of investment income, underwriting losses,
expenses and fees (the program-to-date profit) minus the cumulative amount of
dividends paid, being less than zero at any point in time.
A deposit of $100,000 was required at the initiation of the program and was
made through a related company who in turn purchased a Certificate of Deposit.
The deposit is reflected on the balance sheet under non-current assets-Due
from Related Party.
F-35
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 12 - Captive Insurance Program (continued)
U.S. Trucking decided in 1998 to develop a new line of business in order to
expand upon its current transportation business and take advantage of the
underwriting profit potential of the captive insurance program. U.S. Trucking
offered their program to selected independent third party trucking companies
who purchase insurance coverage and pay a premium to the company through
Transportation Underwriters Agency, Inc. U.S. Trucking records the net
premiums billed to third parties as liability insurance revenue, which is
included in net revenue and its premium costs and expenses to operate the
third party program as insurance expense-captive, which is included in
operating expenses in the accompanying financial statements. Liability
insurance revenues amounted to $810,856 and premiums, cost and expenses
incurred, amounted to $555,535.
NOTE 13 - Restricted Cash Accounts Owner Operators and Collateral
Against Letters of Credit
U.S. Trucking maintains cash accounts for owner-operators who perform services
for the Company. These funds are accumulated, with the owner-operators
consent, by withholding part of the payments due to them for services
performed. The funds are used to pay for repairs of equipment, which they own
directly.
Further, U.S. Trucking deposited funds with a financing company to cover over
the road fuel and other operating expenses for drivers in support of a letter
of credit. As of December 31, 1998, the company had letters of credit
outstanding totaling $10,000, which guarantee various operating and insurance
activities.
F-36
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 14 - Stock Acquisition Agreement-United Acquisition II Corp.
During 1996, the shareholders of Gulf Northern's parent company, Mid America
Transporters Group, Inc. entered into an agreement with United Acquisition II
Corp. (the acquirer) whereby they would transfer 100% of their common stock in
Mid America in exchange for common and preferred stock of the acquirer. In
addition, the acquirer agreed to contribute cash and notes at the closing. In
January 1997 however, the acquirer conceded that it was not able to complete
the transaction as agreed and withdrew from the contract. During the period
from the consummation of the contract, the acquirer deposited funds to Gulf
Northern in the amount of $145,000. Mid America and Gulf Northern agreed to
return a total of $100,000 payable in 36 installments beginning April 1, 1998
on a non-interest bearing basis. Legal counsel subsequently determined that
U.S. Trucking is not responsible for this debt as the liability remained with
Mid America. Accordingly, it has been reclassified as a credit against the
goodwill recognized in the acquisition from Mid America.
NOTE 15 - Concentration of Credit Risk - Cash
U.S. Trucking maintains its cash balances in two financial institutions, one
located in Wisconsin Rapids, Wisconsin and the other in Charleston, South
Carolina. At times, the balances may exceed federally insured limits of
$100,000. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash on deposit.
The fair market value of these financial instruments approximates cost.
F-37
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 16 - Accounts Receivable Financing/Revolving Loan Agreement
On December 22, 1998, U.S. Trucking entered into a revolving loan agreement
with GE Capital Corp. The revolving loan agreement allows borrowings of up to
$5,000,000 and has a term of 3 years. Amounts advanced under the loan
agreement are based upon 85% of the borrowing base of eligible accounts
receivable and 65% of unbilled freight that has been delivered. Interest on
amounts borrowed bear interest at the lender's index rate (commercial paper
rate) plus 4.5%.
The loan agreement contains several financial covenants including restrictions
on incurring or assuming debt other than what was in existence, sales of
assets, payments of certain fees, and restrictions on entering into any
lending or borrowing arrangements. At December 31, 1998 there was $1,795,888
of revolving debt outstanding. Interest expense recorded on the revolving
loan agreement amounted to $4,300. In 1998, the weighted average interest
rate was 9.6%.
From April 1995, to December 1998, U.S. Trucking had an agreement with a
factor whereby the factor would accept the company's receivables with full
recourse. Under the agreement, the factor advanced up to 90% of those
receivables submitted by the company. Interest on funds advanced was charged
at an average annual effective rate of 14.9% payable monthly.
In addition, U.S. Trucking was required to maintain funds on deposit with its
factor as a reserve against uncollectible receivables. The amount of such
funds on deposit as of December 31, 1997 amounted to $184,210. The
uncollected balance of such receivables held by the factor amounted to
$1,737,168 as of December 31, 1997. The fair market value of these balances
approximated book value.
F-38
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 17 - Economic Dependency
U.S. Trucking's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The company
provided services to a customer, which accounted for net revenues in excess of
10% of the company's total revenues for the periods ended December 31, 1998
and 1997. One customer accounted for 12.9% and 16.0% of the company's net
revenues for these respective periods. Accounts receivable from this customer
amounted to $242,925 and $176,449 as of December 31, 1998 and 1997
respectively.
Revenues from the U.S. Trucking's five and ten largest customers accounted for
approximately 30.0% and 38.4% respectively of total net revenues for the
period ended December 31, 1998. Accounts receivable as of December 31, 1998
from those customers amounted to $693,018 and $912,803 respectively.
Revenues from U.S. Trucking's five and ten largest customers accounted for
approximately 38.9% and 46.8% respectively of total net revenues for the
period ended December 31, 1997. Accounts Receivable as of December 31, 1997
from those customers amounted to $530,957 and $732,348 respectively.
U.S. Trucking provides services to a number of customers in the meat packing
and distribution industry. Revenues from those customers accounted for
approximately 6.5% of total revenues for the year ended December 31, 1998 and
10.7% of total revenues for the period ended December 31, 1997. Accounts
receivable from those customers amounted to $142,832 and $211,361 as December
31, 1998 and 1997 respectively.
F-39
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 18 - Intangible Assets
Intangible assets consist of the following items as of December 31, 1998:
Original Accumulated Net Book
Cost Amortization Value
---------- ------------ ----------
Goodwill $1,585,853 $216,365 $1,369,488
Debt refinancing
costs 490,357 55,662 434,695
Deferred trade-in 277,651 277,651
Other intangibles 1,437 1,216 221
---------- -------- ----------
Total $2,355,298 $273,243 $2,082,055
========== ======== ==========
Intangible assets consist of the following items as of December 31, 1997:
Original Accumulated Net Book
Cost Amortization Value
---------- ------------ ----------
Goodwill $ 662,952 $103,766 $ 559,186
Debt refinancing
costs 138,016 16,237 121,779
Other intangibles 1,437 549 888
---------- -------- ----------
Total $ 802,405 $120,552 $ 681,853
========== ======== ==========
Amortization expense amounted to $152,691 and $120,552 for the year ended
December 31, 1998 and 1997, respectively, and is included in administrative
expenses.
F-40
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 19 - Stock Transactions and Changes in Capital Structure
Effective June 26, 1998, U.S. Trucking-Nevada underwent a change in its
capital structure whereby it is authorized to issue 50,000,000 shares of
common stock and 1,000 shares of preferred stock. In connection with this
change in the capital structure of the company, a stock dividend was declared
by the Board of Directors, whereby 5,199 shares of the company's common stock
was distributed to the stockholders for each share of common stock held.
On May 26, 1998, U.S. Trucking-Nevada entered into an investment consulting
agreement with Joff Pollon & Associates for a period, with extensions, of up
to two years. The compensation payable to the consultants under this
agreement includes fees, reimbursable expenses and options to purchase up to
1,000,000 post dividend shares of the company's common stock. The common
stock was valued at $.01 per share and the consultants are eligible to receive
further fees and bonuses as determined by the Board of Directors. Pursuant to
this agreement and prior to the reverse merger, 1,000,000 shares of stock were
issued and valued at $180,000. Further, Pollon subscribed to purchase an
additional 160,000 shares of common stock for $120,000 which was unpaid as of
December 31, 1998.
NOTE 20 - Stock Option Plan
During 1998, U.S. Trucking-Nevada implemented a stock option plan that is
accounted for under Statement of Financial Accounting Standards, SFAS 123,
Accounting for Stock-Based Compensation. Under SFAS 123, the compensation
cost of the issuance of stock options is measured at the grant date based on
the fair value of the award. Compensation is then is recognized over the
service period that is generally the vesting period.
The plan allows U.S. Trucking-Nevada to grant options to employees for up to a
total of 2,000,000 shares of common stock. Options outstanding become
exercisable at the discretion of the Stock Option Committee which administers
the plan and expire 10 years after the grant date. All options granted during
1998 were exercisable at not less than the fair market value of the stock on
the date of the grant. Accordingly, no compensation cost has been recognized
for the plan.
F-41
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 20 - Stock Option Plan (continued)
The Committee approved the issuance of options to purchase 1,500,000 shares of
the common stock of the Company to various employees for and an exercise price
of .30 per share for a total exercise price of $450,000.
NOTE 21 - Industry Segment Information
U.S. Trucking has three major business segments: long-haul trucking,
interstate truck brokerage and liability insurance for the long haul trucking
industry. During the fourth quarter of 1998, the company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131).
The adoption of SFAS 131 requires the presentation of descriptive information
about reportable segments which is consistent with that made available to the
management of U.S. Trucking to assess performance. As a result of this
change, the company now reports segment performance on an after-tax basis and
separately reports information on its truck brokerage operation. In addition,
during 1998, the company added the liability insurance business and reports
that segment's performance similarly. In determining the net income of each
segment of the company, 100% of the interest expense is allocated to long-haul
trucking and effective tax rates are determined for each business segment.
F-42
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 21 - Industry Segment Information (continued)
<TABLE>
<CAPTION>
Long-haul Truck Liability
Trucking Brokerage Insurance Intersegment Total
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1998
Sales $19,210,994 $1,857,168 $1,749,263 $(1,001,581) $21,815,844
Operating income 2,834,462 239,087 355,321 (100,000) 3,328,870
Net interest (729,980) (729,980)
Pretax income
(loss) (3,712) (38,696) 355,321 (191,146) 121,767
Net income (loss) (3,712) (38,696) 355,321 (191,146) 121,767
Assets 15,064,076 224,823 1,023,462 16,312,361
Depreciation &
Amortization 1,614,108 2,744 - - 1,616,852
Additions to long-
lived assets 5,220,001 - - - 5,220,001
1997
Sales $15,817,598 $1,853,540 $ - $ (201,857) $17,469,281
Operating
Income (loss) (969,118) 4,193 - - (964,925)
Net interest (655,494) - - - (655,494)
Pretax income
(loss) (1,535,393) 4,193 - - (1,531,200)
Net income (loss) (1,535,393) 4,193 - - (1,531,200)
Assets 9,994,560 366,205 - - 10,360,765
Depreciation &
Amortization 1,452,703 2,748 - - 1,455,451
Additions to long-
lived assets 8,153,416 - - - 8,153,416
</TABLE>
F-43
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1998 and for the Period from
Inception (January 30, 1997) to December 31, 1997
NOTE 22 - Equipment Financing and Sale/Leaseback Transaction
On December 21, 1998 U.S. Trucking entered in to a "sale/leaseback"
transaction with a major equipment financing company as part of an overall
program to upgrade its fleet of transportation equipment. As part of the
transaction, the company traded in equipment with a book value of $914,651 for
$637,000 of credit against the new equipment. The transaction resulted in a
book loss of $277,651. For accounting purposes, this loss has been
reclassified as an intangible asset and is being amortized over the life of
the new equipment leased. The average lease term is 33 months.
NOTE 23 - Fair Value of Financial Instruments
Estimated fair values of U.S. Trucking's financial instruments are as follows:
1998 1997
---------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ---------- ---------- ----------
Cash and short-term $ 22,976 $ 22,976 $ 244,309 $ 244,309
investments
Long-term debt 7,258,848 7,258,848 4,075,562 4,075,562
The carrying amount approximates fair value of cash and short-term
instruments. The fair value of long-term debt is based on current rates at
which U.S. Trucking could borrow funds with similar remaining maturities.
NOTE 24 - Year 2000 Compliance
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
Year 2000 as 1900 or some other date, resulting in possible errors when
information using year 2000 dates is processed. In addition, similar problems
may arise in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 issue may be
experienced before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failure which could affect an entities ability to conduct
normal business operations. It is not possible to be certain that all aspects
of the Year 2000 issue affecting U.S. Trucking including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
Generally, costs associated with the Year 2000 issue are being expensed as
incurred.
F-44
<PAGE>
3) AUDITED FINANCIAL STATEMENTS OF GULF NORTHERN TRANSPORT, INC.
FOR THE THIRTY DAYS ENDED JANUARY 30, 1997
F-45
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholder
Gulf Northern Transport, Inc.
We have audited the accompanying balance sheet of Gulf Northern Transport,
Inc. as of January 30, 1997 and the related statement of operations and
accumulated deficit and cash flows for the period from January 1, 1997 to
January 30, 1997. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the balance sheet referred to above, presents fairly, in all
material respects, the financial position of Gulf Northern Transport, Inc. as
of January 30, 1997 and the results of its operations and its cash flows for
the period then ended in conformity with generally accepted accounting
principles.
/s/ BIANCULLI, PASCALE & CO. P.C.
BIANCULLI, PASCALE & CO. P.C.
Garden City, New York
June 10, 1998
F-46
<PAGE>
GULF NORTHERN TRANSPORT, INC.
BALANCE SHEET
JANUARY 30, 1997
ASSETS
CURRENT ASSETS
Cash in banks (Note 14) $ 41,270
Restricted cash-reserves on deposit
with factor (Note 15) 97,179
Accounts receivable-net of allowance for
for doubtful accounts of $40,000
(Notes 1H, 15 and 16) 1,047,761
Accounts receivable - affiliate (Note 18) 19,930
Accounts receivable - other 3,009
Parts and supply inventory (Note 1D) 139,472
Prepaid insurance 54,745
Prepaid expenses and other 40,929
----------
Total Current Assets 1,444,295
----------
PROPERTY, PLANT AND EQUIPMENT-at cost, less
accumulated depreciation and amortization of
$4,206,596 (Notes 1E, 2, 4, 5 and 7) 4,099,535
----------
OTHER ASSETS
Restricted cash-owner operators (Note 12) 1,760
Restricted cash-cash held as collateral
against letters of credit 10,000
Covenants not to compete-net of accumulated
amortization of $76,922 (Notes 1F and 11) 36,666
Security deposits and other 7,534
----------
Total other assets 55,960
----------
TOTAL ASSETS $5,599,790
==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-47
<PAGE>
GULF NORTHERN TRANSPORT, INC.
BALANCE SHEET
JANUARY 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable-trade $ 266,118
Due to factor (Note 15) 804,601
Accrued expenses and other 698,825
Advances from affiliate (Note 19) 23,994
Note Payable - (Note 4) 70,000
Current portion - seller's notes 112,823
Current portion - acquisition loan payable 517,476
Current portion of equipment notes payable 152,439
Current portion of obligations under
capital leases 275,526
----------
Total Current Liabilities 2,921,802
----------
OTHER LIABILITIES
Owner operator escrow (Note 12) 29,672
Seller's notes (Notes 2 and 4) 127,772
Note payable - (Notes 4 and 17) 49,904
Acquisition loan payable (Notes 2 and 4) 1,617,561
Equipment Notes Payable-net of
current portion (Note 4) 483,978
Obligations under capital leases
net of current portion (Note 6) 710,093
----------
Total Other Liabilities 3,018,987
----------
TOTAL LIABILITIES 5,940,789
----------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 6, 9 10 and 17)
STOCKHOLDERS' EQUITY
Common Stock (no par value-10,000 shares auth-
orized, 1,000 issued and outstanding) (Note 2) 100,000
Additional paid in capital 25,000
Accumulated deficit ( 465,999)
----------
Total Stockholders' Equity ( 340,999)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,599,790
==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-48
<PAGE>
GULF NORTHERN TRANSPORT, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
PERIOD FROM JANUARY 1, 1997 TO JANUARY 30, 1997
Net Revenues $ 854,016
Operating expenses 695,904
Income from operations 158,112
Administrative expenses 198,564
-----------
( 40,452)
Other expenses
Interest expense ( 49,540)
-----------
Total other expenses ( 49,540)
-----------
Net loss before taxes ( 89,992)
Income tax provision (Notes 1H and 3) -0-
-----------
Net loss ( 89,992)
Accumulated Deficit - January 1 ( 376,007)
-----------
Accumulated deficit - January 30 $( 465,999)
===========
Net loss per share $( 89.99)
============
Weighted Average Number of Shares (Note 1B) 1,000
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-49
<PAGE>
GULF NORTHERN TRANSPORT, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1997 TO JANUARY 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ ( 89,992)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES
Depreciation & Amortization 79,719
(Increase) Decrease-Assets
Restricted Cash 912
Accounts Receivable 261,769
Prepaid expenses and other current assets 6,170
Increase (Decrease)-Liabilities
Accounts payable 82,170
Accrued expenses and other liabilities ( 330,196)
----------
Total Adjustments 100,544
Net Cash Provided by Operations 10,552
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Security deposit ( 200)
----------
Net Cash Used in investing activities ( 200)
----------
Sub Total 10,352
----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-50
<PAGE>
GULF NORTHERN TRANSPORT, INC.
STATEMENT OF CASH FLOWS
(continued)
PERIOD FROM JANUARY 1, 1997 TO JANUARY 30, 1997
Balance Forward $ 10,352
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt ( 62,682)
Proceeds from short-term note 57,500
Principal payments on capital lease obligations ( 24,059)
-----------
Net Cash (used in) financing activities ( 29,241)
-----------
NET (DECREASE) IN CASH ( 18,889)
CASH AT BEGINNING OF YEAR 60,159
-----------
CASH AT END OF YEAR $ 41,270
===========
Supplemental Disclosure of
Cash flow information:
Cash Paid during the year
Interest expense $ 49,840
===========
Income taxes $ -0-
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-51
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Business
Gulf Northern Transport, Inc. (Gulf Northern) a Wisconsin corporation,
operates as an interstate and intrastate motor carrier. (See Note 2). The
Company's corporate headquarters are located in Charleston, South Carolina
with terminals and drop stations located in various states.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net Loss per Share
Net loss per share is computed on the basis of the weighted average number of
common shares outstanding during each period. Only the weighted average
number of shares of common stock outstanding is used to compute earnings or
loss per share for the period ended January 30, 1997 as there were no stock
options, warrants, or other common stock equivalents during this period.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(D) - Inventory
Inventory consists principally of parts and supplies used in maintaining its
motor carrier fleet, skids used in transporting goods, and small tools. The
items are stated at the lower of cost or market, determined on a first-in,
first-out basis.
(E) - Property, Plant and Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Accelerated methods of depreciation are followed for tax purposes and the
straight line method is used for financial reporting purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years.
(F) - Covenants Not to Compete
Covenants not to compete are amortized on a straight line basis over the terms
of the agreements. The covenants cover the period from January, 1994 to
December, 1997.
F-52
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
(G) - Income Taxes
Taxes are provided on all revenue and expense items included in the
Consolidated Statements of Operations, regardless of the period in which such
items are recognized for income tax purposes, except for items representing a
permanent difference between pretax accounting income and taxable income.
(H) - Revenue Recognition
The Company recognizes revenues at the time freight is delivered to
recipients.
(I) - Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(J) - Basis of Presentation
The accompanying balance sheet and related statements of operations and
retained earnings and cash flows includes only the accounts of Gulf Northern
as of January 30, 1997. Prior to January 1, 1997, the company was a wholly
owned subsidiary of Mid America Transporters Group, Inc. and was included in
that consolidated group. Gulf Northern was sold to Logistics Management, LLC
effective January 1, 1997. On January 30, 1997, Gulf Northern was sold to
U.S. Trucking Company, Inc. and was included in that consolidated group. See
Note 2.
NOTE 2 - Acquisition by Mid America Transporter's Group
Effective January 1, 1995, Gulf Northern was acquired by Mid America
Transporters Group for a total purchase price of $2,683,500. This exceeded
the net asset value of Gulf Northern by approximately $1,182,000.
Accordingly, the basis of certain assets included in property, plant and
equipment were increased by that amount as required by purchase accounting and
is being amortized over five years.
The agreement includes payments to the former stockholders in the form of cash
of $2,232,000 which includes the payoff of shareholder loans described in Note
5A; promissory notes totaling $260,000 due in 36 monthly installments totaling
$8,017 at 7% due on March 1, 1998 secured by letters of credit in the amount
of $150,000; and non interest bearing obligations (discounted at 7% per annum)
totaling $104,000 payable over a one year period commencing April 1, 1998.
The purchase was financed by a loan in the amount of $3,000,000 from ITT
Credit Corp. which is payable in 60 monthly installments of $66,360 and is due
on March 31, 2000. The loan was subsequently sold to General Electric Credit
Corp and is secured by certain items of equipment. See Note 13 for
description of the loan modification agreement.
F-53
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 3 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109).
Differing methods of reporting income for tax purposes as compared to
financial reporting purposes resulted in deferred income taxes of
approximately -0- as of January 30, 1997. Deferred tax assets and liabilities
consist of the following:
Deferred tax assets-
Allowance for doubtful accounts $ 13,600
Net operating loss carryover 158,000
---------
171,600
Valuation allowance 62,600
---------
$ 109,000
=========
Deferred tax liabilities-
Depreciation of property, plant
and equipment $(109,000)
---------
$(109,000)
=========
The valuation allowance provided in each of the years is based on management's
valuation of the likelihood of realization.
As required by SFAS 109, deferred taxes are provided based upon the tax rate
at which the items of income and expense are expected to be settled in the
Company's tax return.
The Company incurred a net operating loss of $910,000 available to offset
future income for financial reporting purposes expiring in 2012.
NOTE 4 - Long-term Notes Payable
Long-term notes payable consist of the following:
Equipment loans secured by ten tractors payable
at $15,824 per month including interest at 10% per
annum with the final installment due November, 2000 $ 636,417
Non interest bearing demand notes 70,000
Term loan in settlement with United Acquisition
II Corp.- $100,000 non interest bearing, discounted
at 8% payable over 36 months beginning April 1, 1998 49,904
Acquisition loan described in Note 5 2,135,037
F-54
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
Seller notes described in Note 2 240,595
----------
Total 3,131,953
Less: current maturities 852,738
----------
Long-term portion $2,279,215
==========
Aggregate annual scheduled maturities of long-term debt at January 30, 1997
are as follows:
January 30,
-----------
1998 $ 852,738
1999 920,804
2000 917,159
2001 441,252
----------
Total $3,131,953
==========
NOTE 5 - Debt Restructure
In addition to being used to finance the acquisition described in Note 2,
proceeds from the $3,000,000 acquisition loan were also used to refinance
stockholder loans and certain other bank and lease obligations. As the
classification of the acquisition loan is long term, those obligations
restructured were also classified as long term. The loan is payable in 60
monthly installments of $66,360 at the rate of 11.75% interest per annum with
its final maturity on March 31, 2000.
NOTE 6 - Lease Commitments
The Company leases tractors and trailers under various capital leases with
interest rates ranging from 8.1% to 9.1%. Property, plant and equipment
includes the following amounts for the tractor and trailer leases which are
capitalized:
Tractors and trailers $1,760,669
Less: accumulated amortization 611,433
----------
Total $1,149,236
==========
Lease amortization is included in depreciation expense.
F-55
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 6 - Lease Commitments (continued)
Future minimum payments, by year and in the aggregate, under the capital
leases are as follows:
Years ended January 30, Amount
----------------------- ----------
1998 $ 405,446
1999 489,233
2000 221,437
----------
Total minimum lease payments 1,116,116
Less: Amount representing interest 130,497
----------
Present value of minimum lease payments 985,619
Less-Current maturities 275,526
----------
Long-term obligations under capital leases $ 710,093
==========
NOTE 7 - Property, Plant and Equipment
Property, plant and equipment consists of the following as of January 30,
1997:
Office equipment $ 63,273
Tractors, trailers and garage equipment 8,238,378
Transportation equipment 4,480
----------
8,306,131
Less: Accumulated Depreciation 4,206,596
----------
Total property, plant and equipment $4,099,535
==========
Depreciation expense amounted to $76,386 for the period ended January 30,
1997. $75,582 of depreciation was included in operating expenses and $804 of
depreciation was included in administrative expenses. The fair market value
of fixed assets approximates book value.
NOTE 8 - Related Party Transaction
On December 23, 1996, the Company sold its Wisconsin Rapids facility which
included land, a building and improvements with a book value of $394,517 to
its majority stockholders for $346,141 resulting in a net loss of $48,376.
The transaction resulted in a gain of $231,000 for income tax purposes.
The stockholders leased the property back to the Company for five years
commencing January 1, 1997. See Note 10.
Management believes the sale was an arms length transaction based on estimated
values of the property on the date of sale.
F-56
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 9 - Retirement Plan
The Company matches employee contributions up to 3% of employee compensation.
Contributions to the plan amounted to $5,918 for the period ended January 30,
1997. 401K matching contributions of $1,283 are included in operating expense
and $365 and of the aforementioned contributions are included in
administrative expenses.
NOTE 10 - Commitments and Contingencies
Commencing on January 1, 1997, the Company agreed to rent its Wisconsin Rapids
facility from certain stockholders for $7,350 per month for a period of five
years under an operating lease.
Commencing October 15, 1997, the Company leased its South Carolina corporate
offices for $1,728 per month. The lease extends for a period of two years.
Minimum rental payments under such operating leases follows:
Year ending January 30,
1998 $ 94,248
1999 108,936
2000 102,888
2001 88,200
2002 80,850
--------
Total minimum payments required $475,122
========
NOTE 11 - Noncompetition Agreements
As of January 3, 1994, the Company entered into a covenant not to compete
agreement with its chief executive officer which extends over four years. The
agreement called for a prepayment of $115,000 in December, 1993, with an
additional $46,000, including interest, payable in (18) monthly installments
of $2,556 commencing with the date of the agreement. Expenses under this
agreement amounted to $3,333. See also Note 2 for a description of the
covenant not to compete related to the stock purchase agreement.
NOTE 12 - Restricted Cash
The Company maintains cash accounts for owner-operators who perform services
for the Company. These funds are accumulated, with the owner-operators
consent, by withholding part of the payments due to them for services
performed. The funds are used to pay for repairs of equipment that they own
directly.
Further, the Company has deposited funds with a financing company to cover
over the road fuel and other operating expenses for drivers in support of a
letter of credit.
As of January 30, 1997, the Company had letters of credit outstanding totaling
$10,000 which guarantee various operating and insurance activities.
F-57
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 13 - Loan Modification Agreement
In connection with the stock purchase agreement described in Note 2, the
purchase was financed by a loan in the amount of $3,000,000 payable in monthly
installments over five years. The original loan agreement required that the
Company hold the common stock of a "small capitalization" company with a
market value of at least $1,000,000. As of January 30, 1997, such stock was
not held by the Company.
On May 25, 1997, the Company agreed to a modification of the original loan
whereby current monthly payments were reduced from $66,360 per month to
$45,000 per month with a balloon payment of $396,836 due at August 31, 2001.
NOTE 14 - Concentration of Credit Risk - Cash
The Company maintains its cash balances in two financial institutions, one
located in Wisconsin Rapids, Wisconsin and the other in Charleston, South
Carolina. At times, the balances may exceed federally insured limits of
$100,000. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash on deposit.
The fair market value of these financial instruments approximates cost.
NOTE 15 - Use of Factor
In April, 1995, the Company entered into an agreement with a factor whereby
the factor would accept the Company's receivables with full recourse. Under
the agreement, the factor will advance up to 80% of those receivables
submitted by the Company. Interest on funds advanced is charged at an average
annual effective rate of 14.5% payable monthly.
In addition, the Company must maintain funds on deposit with its factor as a
reserve against uncollectible receivables. The amount of such funds on
deposit as of January 30, 1997 amounted to $97,179.
The uncollected balance of such receivables held by the factor amounted to
$804,601 as of January 30, 1997.
The fair market value of these balances approximate book value.
NOTE 16 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to two customers which accounted for net revenues in excess
of 10% of the Company's total revenues for the period ended January 30, 1997.
Consolidated Paper, Inc. and Excel Corporation accounted for 26.4% and 10.7%
of the Company's net revenues for the period ended January 30, 1997. Accounts
receivable from those customers amounted to $335,513 as of January 30, 1997.
Revenues from the Company's five and ten largest customers accounted for
approximately 57% and 69% respectively of total net revenues for the period
ended January 30, 1997.
F-58
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 16 - Economic Dependency (continued)
The Company considers its relationship with those major customers to be
satisfactory and is committed to expanding its relationship with its other
customers.
The Company provides services to a significant number of customers in the meat
packing and distribution industry. Revenues from those customers accounted
for approximately 14.6% of total revenues for the period ended January 30,
1997. Accounts receivable from those customers amounted to $178,700 as of
January 30, 1997.
NOTE 17 - Stock Acquisition Agreement - United Acquisition II
Corp.
On June 3, 1996, the shareholders of Mid America entered into an agreement
with United Acquisition II Corp. (the acquirer) whereby they would transfer
100% of their common stock in Mid America in exchange for 31,366 shares of
convertible preferred stock and 316,666 shares of common stock of the
acquirer. In addition, the acquirer agreed to contribute cash and notes
totaling $500,000 into Mid America at closing.
In January, 1997, the acquirer conceded that it was not able to complete the
transaction as agreed and withdrew from the contract. During the period from
the consummation of the contract, the acquirer deposited funds to the Company
in the amount of $145,000. The Company agreed to return a total of $100,000
payable in 36 installments beginning April 1, 1998 on a non interest bearing
basis.
NOTE 18 - Accounts Receivable - Affiliate
The Company provided freight services on behalf of its affiliate, Mencor, Inc.
amounting to $10,785 for the period ended January 30, 1997. The balance
receivable from this affiliate as of January 30, 1997 amounted to $19,930.
The fair market value of this receivable approximate book value.
NOTE 19 - Advances from Affiliate
The Company received advances from its affiliate, Mencor, Inc. during the
period ended January 30, 1997. Those advances amounted to $23,994 and
remained unpaid as of that date, are non interest bearing and are due on
demand. The fair market value of these advances approximates book value.
NOTE 20 - Subsequent Event - Acquisition Agreement with U.S.
Trucking, Inc.
On January 30, 1997, the Company entered into an agreement with U.S. Trucking,
Inc. (the acquirer) whereby U.S. Trucking would acquire 100% of the common
stock of the Company in exchange for 25% of it's common stock.
F-59
<PAGE>
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 20 - Subsequent Event - Acquisition Agreement with U.S.
Trucking, Inc. (continued)
As part of this agreement, the Company contracted with Dan Pixler (a former
stockholder of the Company) for him to provide services as president and
general manager for the five years commencing from January 30, 1997 to January
30, 2002 at an annual salary of $105,000 per year. Mr. Pixler will receive
annual options to purchase 12,500 shares of the common stock of the acquirer's
parent company, U.S. Transportation Systems, Inc. which will be exercisable
until December 31, 2002. Further, during the period of employment and for a
period of two years after his termination, Mr. Pixler agreed that he will not
participate in an entity which is directly competitive with the Company's
present operations.
F-60
<PAGE>
4) AUDITED FINANCIAL STATEMENTS OF
MENCOR, INC.
FOR THE THIRTY DAYS ENDED JANUARY 30, 1997
F-61
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
Mencor, Inc.
We have audited the accompanying balance sheet of Mencor, Inc. as of January
30, 1997 and the related statements of earnings and retained earnings and cash
flows for the period 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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 Mencor, Inc. as of January
30, 1997 and the results of its operations and its cash flows for the period
then ended in conformity with generally accepted accounting principles.
/s/ BIANCULLI, PASCALE & CO. P.C.
BIANCULLI, PASCALE & CO. P.C.
Garden City, New York
June 8, 1998
F-62
<PAGE>
MENCOR, INC.
BALANCE SHEET
January 30, 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 1C and 2) $ 40,497
Accounts receivable-net of allowance
for doubtful accounts of $11,834 (Notes 1F & 12) 189,605
Advances to affiliate (Note 7) 23,994
Refundable income taxes (Note 6) 860
Prepaid expenses 1,002
--------
Total Current Assets 255,958
--------
PROPERTY, PLANT AND EQUIPMENT - at cost, less
accumulated depreciation of $3,950 as of
January 30, 1997 (Notes 1D and 3) 7,300
--------
OTHER ASSETS
Intangible asset - Net of accumulated
amortization of $1,067 as of January
30, 1997 (Note 1H) 933
Security deposits 1,125
Deferred tax asset (Notes 1E and 6) 1,920
Organization costs - net of
accumulated amortization of $445 at January
30, 1997 (Note 1G) 444
--------
Total other assets 4,422
--------
TOTAL ASSETS $267,680
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-63
<PAGE>
MENCOR, INC.
BALANCE SHEET
January 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable-trade $160,618
Accounts payable-affiliate (Note 8) 19,930
Advances from related party (Note 9) 33,970
Payroll taxes withheld and payable 518
Accrued expenses 2,039
Other taxes payable 1,462
Income taxes payable (Notes 1E and 6) 25
Current Portion of Equipment Notes Payable
(Notes 3 and 4) 1,164
--------
Total Current Liabilities 219,726
--------
COMMITMENTS AND CONTINGENCIES (Note 5)
OTHER LIABILITIES
Equipment Notes Payable-net of current maturities
(Notes 3 and 4) 527
--------
TOTAL LIABILITIES 220,253
--------
STOCKHOLDERS' EQUITY
Common Stock (no par value-1,000 shares authorized,
300 issued and outstanding (Note 1B) 6,604
Retained Earnings 40,823
--------
Total Stockholders' Equity 47,427
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $267,680
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-64
<PAGE>
MENCOR, INC.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
Period Ending January 30, 1997
Net Revenues $115,564
Freight settlements 102,649
--------
Income from operations 12,915
General and administrative expenses 13,983
--------
Net (loss) from operations (1,068)
Other income and expense -0-
--------
Loss before income taxes (1,068)
Income taxes (Notes 1E and 6) -0-
--------
Net (loss) (1,068)
Retained Earnings-Beginning of Period 41,891
--------
Retained Earnings-End of Period $ 40,823
========
Net (loss) per Share $ (3.56)
========
Weighted Average Number of Shares (Note 1B) 300
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-65
<PAGE>
MENCOR, INC.
STATEMENT OF CASH FLOWS
Period Ending January 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) for the period $ (1,068)
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH USED IN OPERATING ACTIVITIES
(Increase) Decrease-Assets
Accounts Receivable-trade 38,502
Advances to affiliate 3,359
Increase (Decrease)-Liabilities
Accounts payable-trade (20,391)
Accounts payable-affiliate (5,951)
Payroll taxes withheld and payable (3,400)
Other taxes payable 1,462
--------
Total Adjustments 13,581
Net Cash provided by Operations 12,513
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments to related party (50,000)
--------
Net Cash (used in) financing activities (50,000)
--------
NET (DECREASE) IN CASH (37,487)
--------
CASH AT BEGINNING OF PERIOD 77,984
--------
CASH AT END OF PERIOD $ 40,497
========
Supplemental Disclosure of Cash flow information:
Cash paid during the year
Interest expense $ -0-
Income taxes $ -0-
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-66
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Operations
Mencor, Inc. was incorporated in the State of Arkansas on July 6, 1994. The
Company operates as a broker for interstate motor carriers. An interstate
motor carrier broker serves the trucking industry by providing return hauls
for truckers who have completed their initial delivery. By providing this
service, trucking companies and independent operators are able to cover the
cost of returning to their home location. The Company's corporate
headquarters are located in Charleston, South Carolina. As a broker, the
Company is required to acquire a license which provides the authority to
engage in interstate commerce. This license was acquired in April, 1994.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net Loss per Share
Net loss per share is computed on the basis of the weighted average number of
common and common equivalent shares outstanding during each period. Only the
weighted average number of shares of common stock outstanding is used to
compute income per share for the period ended January 30, 1997 as there are no
stock options, warrants, or other common stock equivalents in this period.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(D) - Property, Plant and Equipment
Depreciation and amortization are provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated service
lives principally on an accelerated basis. Accelerated methods of
depreciation are followed for substantially all assets for both financial
reporting and tax purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years.
(E) - Income Taxes
Income taxes are provided on all revenue and expense items included in the
statement of earnings, regardless of the period in which such items are
recognized for income tax purposes, except for items representing a permanent
difference between pretax accounting income and taxable income.
Non current deferred income taxes result from the use of accelerated methods
of depreciation for income tax purposes and from the establishment of an
allowance for doubtful accounts for financial reporting purposes.
F-67
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 1 - General and Summary of Significant Accounting Policies (continued)
(F) - Revenue Recognition
The Company recognizes revenues at the time the shipment is delivered to
recipients.
(G) - Organization expense
As part of its initial incorporation, the company incurred organization costs
amounting to $889 which is being amortized on a straight-line basis over five
years.
(H) - Intangible Asset
As discussed in Note 1A, the Company acquired a license from the Interstate
Commerce Commission which is required to allow the Company to do business as
an interstate carrier broker. This license, which cost $2,000 is being
amortized on a straight-line basis over five years.
(I) - Concentration of Credit Risk
Virtually all of the Company's customers are in the long haul trucking
industry. Further, accounts receivable are uncollateralized and consist of
amounts due from that industry.
(J) - Offering Costs
During 1996, the Company incurred certain expenses related to an equity
offering in connection with its affiliate, Mid America Transporters Group,
Inc. and Subsidiary. The offering was unsuccessful and, accordingly, the
expense was amortized in full during 1996.
(K) - Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
NOTE 2 - Cash and Cash Equivalents
The Company maintains its cash balances in one financial institution located
in Charleston, South Carolina that at times, may exceed federally insured
limits. The Company has not experienced any losses in such account and
believed it is not exposed to any significant credit risk on cash and cash
equivalents.
F-68
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 3 - Property, Plant and Equipment
Property, plant and equipment consists of the following as of January 30,
1997:
Office equipment $ 12,656
Furniture and fixtures 1,406
--------
11,250
Less: Accumulated Depreciation 3,950
--------
Total property, plant and equipment $ 7,300
========
No depreciation expense was recorded for the period ended January 30, 1997.
NOTE 4 - Notes Payable
During 1995, the Company acquired office equipment in the amount of $2,946
which was financed payable in 36 installments of $110 per month including
interest at 14% per annum due June, 1998.
Total principal $ 1,691
Less: current maturities 1,164
--------
Long-term portion $ 527
========
Aggregate annual maturities of long-term debt for the five years following
January 30, 1997 are as follows:
January 30, 1998 $ 1,164
January 30, 1999 527
--------
Total $ 1,691
========
NOTE 5 - Commitments and Contingencies
The Company leases office space for its operating facility in Charleston,
South Carolina. The current lease term commenced on May 1, 1995 and concludes
on April 30, 1997. Commitments under this lease agreement amounted to $2,757
for the period ended January 30, 1998.
Rent expense amounted to $919 for the period ended January 30, 1997 and is
included in general and administrative expenses.
F-69
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 6 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109). Differing methods of reporting income for tax purposes as
compared to financial reporting purposes resulted in net deferred income taxes
of $1,920 as of January 31, 1997.
Deferred tax assets and liabilities at January 30, 1997 consists of the
following:
Deferred tax assets
Allowance for doubtful accounts $11,834
Valuation Allowance (4,759)
-------
$ 7,075
=======
Deferred tax liabilities
Depreciation of property &
equipment $(5,155)
=======
The valuation allowance provided is based on management's valuation of the
likelihood of realization.
Net operating loss carryovers amounting to $1,068 for federal income tax
purposes are available through December 31, 2012.
NOTE 7 - Advances to Affiliate
The Company advanced funds and provided services to its affiliate, Gulf
Northern Transport, Inc. during the years prior to the period ended January
30, 1997. Gulf Northern is related to the Company through common ownership
and management. No revenues were generated by services provided during the
period ended January 30, 1997. The amount of such advances which remained
unpaid as of January 30, 1997 amounted to $23,994. These advances represent
allocations of rent and other administrative costs and freight settlements,
are non interest bearing and are due on demand. The fair market value of
these advances approximate book value.
F-70
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 8 - Accounts Payable-Affiliate
The Company incurred expenses for freight settlements from its affiliate, Gulf
Northern Transport, Inc. which amounted to $10,785 for the period ended
January 30, 1997. The remaining balance payable to the affiliate for such
expenses as of January 30, 1997 amounted to $19,930.
NOTE 9 - Advances from Related Party
During 1996, a shareholder advanced funds totaling $123,397 to the Company.
Repayments through January 30, 1997 amounted to $89,427 with the remaining
balance remitted during February, 1997. The advances were payable on demand
with no stated interest.
NOTE 10 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to three customers which accounted for net revenues in
excess of 10% of the Company's total revenues for the period ended January 30,
1997. Tamco Distributors, Vista Corrugated and Continental Sprayers accounted
for 33.5%, 24.1% and 10.6% of the Company's net revenues for the period ended
January 30, 1997.
Accounts receivable from those customers amounted to $104,311 as of January
30, 1997.
Revenues from the Company's five and ten largest customers accounted for
approximately 83% and 91% respectively of total net revenues for the period
ended January 30, 1997.
NOTE 11 - Definitive stock sale to U.S. Trucking, Inc.
On January 30, 1997, the stockholders sold their interests in Mencor, Inc. to
U.S. Trucking, Inc. (the buyer) for $75,000. The transaction was in
conjunction with the sale of Gulf Northern Transport, Inc. Also in connection
with the sale, the Company agreed to continue the employment of Michael Menor
(a former shareholder of Mencor, Inc.) as the president of the Company for the
period from the date of enactment to January 30, 2000 at an annual salary of
$60,000 per year. Further, during the period of employment and a period of
two (2) years after his termination, Mr. Menor agreed that he will not
participate in an entity which directly performs truck brokerage services for
those customers currently serviced by the Company.
F-71
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 11 - Definitive stock sale to U.S. Trucking, Inc. (Continued)
Also on the date of enactment, the buyer contracted with Roxanne Pixler, (a
former shareholder of Mencor, Inc.) for her to provide consulting services to
the Company. Pixler will receive 18,750 shares of U.S. Transportation
Systems, Inc. as compensation for her services. The contracted obligation
will commence from the date of enactment to December 31, 1998.
F-72
<PAGE>
5) AUDITED FINANCIAL STATEMENTS OF
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
F-73
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
Mid America Transporters Group, Inc.
and Subsidiary
We have audited the accompanying consolidated balance sheets of Mid America
Transporters Group, Inc. and Subsidiary as of December 31, 1996 and 1995 and
the related consolidated statements of operations and retained earnings 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
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated balance sheets referred to above, present
fairly, in all material respects, the consolidated financial position of Mid
America Transporters Group, Inc. and Subsidiary as of December 31, 1996 and
1995 and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ BIANCULLI, PASCALE & CO. P.C.
BIANCULLI, PASCALE & CO. P.C.
Garden City, New York
November 7, 1997
F-74
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS
Cash in banks (Note 14) $ 60,159 $ 311,842
Restricted cash-reserves on deposit
with factor (Note 15) 97,179 179,615
Accounts receivable-net of allowance
for doubtful accounts of $40,000
and $12,000 as of December 31, 1996
and 1995 respectively (Notes 1H, 15
and 16) 1,309,529 1,295,451
Accounts receivable - affiliate
(Note 18) 25,881 14,150
Accounts receivable - other 3,068 34,613
Parts and supply inventory (Note 1D) 139,472 112,464
Prepaid insurance 54,745 53,412
Prepaid expenses and other 41,089 49,106
---------- ----------
Total Current Assets 1,731,122 2,050,653
---------- ----------
PROPERTY, PLANT AND EQUIPMENT - at
cost, less accumulated depreciation
and amortization of $4,130,210 and
$3,313,632 as of December 31, 1996
and 1995, respectively
(Notes 1E, 2, 4, 5 and 7) 4,175,921 4,697,569
---------- ----------
OTHER ASSETS
Restricted cash-owner operators
(Note 12) 2,672 46,332
Restricted cash-cash held as
collateral against letters of credit 10,000 88,000
Covenants not to compete-net of accum-
ulated amortization of $73,589 and
$33,590 as of December 31, 1996 and
1995, respectively (Notes 1F and 11) 39,999 79,998
Security deposits and other 7,334 6,260
Organization costs - net of accumu-
lated amortization of $5,000 and
$4,000 as of December 31, 1996
and 1995, respectively (Note 1I) - 1,000
---------- ----------
Total other assets 60,005 221,590
---------- ----------
TOTAL ASSETS $5,967,048 $6,969,812
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-75
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
---------- ----------
CURRENT LIABILITIES
Accounts payable-trade $ 207,941 $ 424,283
Due to factor (Note 15) 1,133,731 950,390
Accrued expenses and other 672,545 445,216
Advances from affiliate (Note 19) 27,353 17,910
Note Payable - (Note 4) 12,500 -
Current portion - seller's notes 112,823 84,393
Acquisition loan payable (Note 2) 569,329 551,445
Current portion of equipment notes
payable (Notes 2 and 4) 163,268 37,973
Current portion of obligations under
capital leases (Note 6) 299,585 263,907
---------- ----------
Total Current Liabilities 3,199,075 2,775,517
---------- ----------
OTHER LIABILITIES
Deferred taxes (Notes 2 and 3) - 388,000
Owner operator escrow (Note 12) 29,672 82,936
Seller's notes (Notes 2 and 4) 127,772 226,117
Note payable - (Notes 4 and 17) 49,904 -
Acquisition loan payable
(Notes 2 and 4) 1,617,561 2,141,947
Equipment Notes Payable-net of
current portion (Note 4) 483,978 319,564
Obligations under capital leases
net of current portion (Note 6) 710,093 998,816
---------- ----------
Total Other Liabilities 3,018,980 4,157,380
---------- ----------
TOTAL LIABILITIES 6,218,055 6,932,897
---------- ----------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 6, 9 10 and 17)
STOCKHOLDERS' EQUITY
Common Stock (no par value-10,000
shares authorized, 1,000 issued
and outstanding) (Note 2) 100,000 100,000
Additional paid in capital 25,000 -
Accumulated deficit ( 376,007) ( 63,085)
---------- ----------
Total Stockholders' Equity ( 251,007) 36,915
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,967,048 $6,969,812
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-76
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
YEARS ENDING DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
Net Revenues $12,620,435 $12,374,563
Operating expenses 10,966,125 10,505,303
----------- -----------
Income from operations 1,654,310 1,869,260
Administrative expenses 1,807,186 1,290,716
----------- -----------
Other income and expenses
Interest income 7,046 10,507
Interest expense ( 648,993) ( 665,515)
Other income 141,498 4,673
Net gain (loss) on disposition of
assets ( 47,597) 9,104
----------- -----------
Total other income
and (expenses) ( 548,046) ( 641,231)
----------- -----------
Net loss before taxes ( 700,922) ( 62,687)
Income tax (benefit)
provision (Notes 1H and 3) ( 388,000) 398
----------- -----------
Net loss ( 312,922) ( 63,085)
Accumulated Deficit - January 1 ( 63,085) -
----------- -----------
Accumulated deficit - December 31 $( 376,007) $( 63,085)
=========== ===========
Net loss per share $( 312.92) $( 63.09)
=========== ===========
Weighted Average Number of Shares
(Note 1B) 1,000 1,000
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-77
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDING DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Earnings (Loss) $ (312,922) $ ( 63,085)
ADJUSTMENTS TO RECONCILE NET
EARNINGS (LOSS) TO NET CASH
USED IN OPERATING ACTIVITIES
Depreciation & Amortization 956,717 794,756
Deferred income taxes (388,000) -
Loss(Gain) on disposal of property
and equipment 47,597 ( 9,104)
(Increase) Decrease-Assets
Restricted Cash 204,096 -
Accounts Receivable ( 22,264) (295,267)
Parts and supply inventory ( 27,008) ( 43,955)
Prepaid expenses and
other current assets 6,610 (255,111)
Increase (Decrease)-Liabilities
Accounts payable ( 33,001) 27,984
Accrued expenses and
other current liabilities 183,508 129,375
----------- -----------
Total Adjustments 928,255 348,678
Net Cash Provided by Operations 615,333 285,593
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (787,407) (567,372)
Proceeds from disposal of equipment 372,740 81,500
Proceeds from additional paid in
capital 25,000 -
----------- -----------
Net Cash Used in investing activities (389,667) (485,872)
----------- -----------
Sub Total 225,666 (200,279)
----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-78
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS (continued)
YEARS ENDING DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
Balance Forward $ 225,666 $( 200,279)
CASH FLOWS FROM
FINANCING ACTIVITIES
Principal payments on long-term debt (1,007,286) (4,707,108)
Proceeds from short-term note 12,500 -
Proceeds from long-term debt financing 770,482 5,527,017
Principal payments on capital lease
obligations (253,045) ( 307,788)
----------- -----------
Net Cash provided by (used in)
financing activities (477,349) 512,121
----------- -----------
NET INCREASE (DECREASE) IN CASH (251,683) 311,842
CASH AT BEGINNING OF YEAR 311,842 -
----------- -----------
CASH AT END OF YEAR $ 60,159 $ 311,842
=========== ===========
Supplemental Disclosure of
Cash flow information:
Cash Paid during the year
Interest expense $ 650,158 $ 690,813
=========== ===========
Income taxes $ -0- $ 1,845
=========== ===========
Capital lease obligations totaling $508,800 for the year ended December 31,
1995 were incurred when the Company entered into leases for new tractors and
trailers.
Long-term debt totaling $720,578 was incurred by the Company during 1996 when
the Company acquired 10 tractors with a total cost of $745,578.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-79
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Business
Mid America Transporters Group, Inc. (Mid America or, "the Company") was
incorporated in the State of Arkansas on February 14, 1994. The Company,
through its wholly-owned subsidiary, Gulf Northern Transport, Inc., (Gulf
Northern) a Wisconsin corporation, operates as an interstate and intrastate
motor carrier. (See Note 2). The Company's corporate headquarters are
located in Charleston, South Carolina with terminals and drop stations located
in various states.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net Earnings (Loss) per Share
Net earnings (loss) per share is computed on the basis of the weighted average
number of common shares outstanding during each period. Only the weighted
average number of shares of common stock outstanding is used to compute
earnings or loss per share in 1996 and 1995, as there were no stock options,
warrants, or other common stock equivalents in those years.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(D) - Inventory
Inventory consists principally of parts and supplies used in maintaining its
motor carrier fleet, skids used in transporting goods, and small tools and are
stated at the lower-of-cost or market, determined on a first-in, first-out
basis.
(E) - Property, Plant and Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Accelerated methods of depreciation are followed for tax purposes and the
straight line method is used for financial reporting purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years. The
building is depreciated over a thirty year period. A provision has been made
for deferred income taxes relating to depreciation temporary differences. See
Note 2.
(F) - Covenants Not to Compete
Covenants not to compete are amortized on a straight line basis over the terms
of the agreements. The covenants cover the period from January, 1994 to
December, 1997.
F-80
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(G) - Income Taxes
Taxes are provided on all revenue and expense items included in the
Consolidated Statements of Operations, regardless of the period in which such
items are recognized for income tax purposes, except for items representing a
permanent difference between pretax accounting income and taxable income.
(H) - Revenue Recognition
The Company recognizes revenues at the time freight is delivered to
recipients.
(I) - Organization Costs
Gulf Northern incurred organization costs of $5,000 in 1992 which is being
amortized on a straight line basis over five years.
(J) - Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(K) - Basis of Presentation
The accompanying consolidated balance sheets and related statements of
operations and retained earnings and cash flows includes the accounts of Mid
America Transporters Group, Inc. and its wholly owned subsidiary, Gulf
Northern Transport, Inc. as of December 31, 1996 and 1995 and gives effect to
the acquisition of Gulf Northern by Mid America effective January 1, 1995
pursuant to an agreement dated March 28, 1995, and reflects the acquisition as
a purchase as more fully described in Note 2. There were no intercompany
transactions or balances as of and for the years ended December 31, 1996 and
1995.
NOTE 2 - Definitive Stock Purchase Agreement
Effective January 1, 1995 to an agreement dated March 28, 1995, Mid America
signed a definitive stock purchase agreement with Gulf Northern and its
individual shareholders. Under the terms of the agreement, Mid America
purchased all shares of Gulf Northern's common stock for a total purchase
price, as finally determined, of $2,683,500 which exceeded the net asset value
of Gulf Northern by approximately $1,182,000. The transaction has been
accounted for as a purchase effective on December 31, 1994. Note (1K).
As discussed in Note 1G and 3, prior to the implementation of this agreement,
the Company elected to be an S Corporation for tax purposes. Due to
differences in the computation of depreciation for book purposes as compared
to tax purposes, taxes were deferred in the amount of $388,000. On the date
of this agreement, the Company no longer qualified to file its tax returns as
an S Corporation, therefore, deferred taxes were established as an increase to
the acquisition cost.
F-81
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 2 - Definitive Stock Purchase Agreement (continued)
As noted above, the acquisition has been accounted for as a purchase.
Purchase accounting requires that the cost of the acquisition be allocated to
the net assets acquired up to their fair market value. Accordingly, property,
plant and equipment was increased by $1,162,184 to $5,390,503 which is less
than its appraised value. No goodwill was recorded by this transaction. In
addition, the stockholder's equity section as reported prior to the purchase
is eliminated.
The agreement includes payments to the former stockholders in the form of cash
of $2,232,000 which includes the payoff of shareholder loans described in Note
5A; promissory notes totaling $260,000 due in 36 monthly installments totaling
$8,017 at 7% due on March 1, 1998 secured by letters of credit in the amount
of $150,000; and non interest bearing obligations (discounted at 7% per annum)
totaling $104,000 payable over a one year period commencing April 1, 1998.
The purchase was financed by a loan in the amount of $3,000,000 from ITT
Credit Corp. which is payable in 60 monthly installments of $66,360 and is due
on March 31, 2000. The loan was subsequently sold to General Electric Credit
Corp and is secured by certain items of equipment. See Note 13 for
description of the loan modification agreement.
NOTE 3 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109). At December 31, 1996 a recovery of prior years deferred taxes of
$388,000 was provided. No federal income taxes were provided for the year
ended December 31, 1995.
Differing methods of reporting income for tax purposes as compared to
financial reporting purposes resulted in deferred income taxes of
approximately -0- and $388,000 as of December 31, 1996 and 1995, respectively.
Deferred tax assets and liabilities consist of the following:
1996 1995
--------- ---------
Deferred tax assets-
Allowance for doubtful accounts $ 15,600 $ 4,680
Net operating loss carryover 196,000 -
--------- ---------
211,600 4,680
Valuation allowance 16,600 -
--------- ---------
$ 195,000 $ 4,680
========= =========
Deferred tax liabilities-
Depreciation of property, plant
and equipment $(195,000) $(392,680)
--------- ---------
$(195,000) $(392,680)
========= =========
F-82
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 3 - Income Taxes (continued)
The valuation allowance provided in each of the years is based on management's
valuation of the likelihood of realization.
As required by SFAS 109, deferred taxes are provided based upon the tax rate
at which the items of income and expense are expected to be settled in the
Company's tax return.
The Company incurred a net operating loss of $503,000 available to offset
future income for financial reporting purposes expiring in 2011.
NOTE 4 - Long-term Notes Payable 1996 1995
---------- ----------
Long-term notes payable as of December 31,
1996 and 1995 consists of the following:
Equipment loans secured by ten tractors
payable at $15,824 per month including
interest at 10% per annum with the final
installment due November, 2000 $ 647,246 -
Mortgage note, Prime + .5%; (9.0% at
December 31, 1995 secured by real estate,
payable at $5,000 per month including
interest, due March 7, 1995. The bank
has committed to renew this note beyond
December 31, 1995. - 357,537
Demand note - Sebrite Agency, Inc. -
non interest bearing 12,500 -
Term loan in settlement with United
Acquisition II Corp.- $100,000 non
interest bearing, discounted at 8%
payable over 36 months beginning
April 1, 1998 49,904 -
Acquisition loan described in Note 5 2,186,890 2,693,392
Seller notes described in Note 2 240,595 310,510
---------- ----------
Total 3,137,135 3,361,439
Less: current maturities 857,920 673,811
---------- ----------
Long-term portion $2,279,215 $2,687,628
========== ==========
F-83
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 4 - Long-term Notes Payable (continued)
Aggregate annual scheduled maturities of long-term debt at December 31, 1996
are as follows:
1997 $ 857,920
1998 910,804
1999 917,159
2000 441,791
2001 9,461
----------
Total $3,137,135
==========
NOTE 5 - Debt Restructure
In addition to being used to finance the acquisition described in Note 2,
proceeds from the $3,000,000 acquisition loan were also used to refinance
stockholder loans and certain other bank and lease obligations. As the
classification of the acquisition loan is long term, those obligations
restructured were also classified as long term. The loan is payable in 60
monthly installments of $66,360 at the rate of 11.75% interest per annum with
its final maturity on March 31, 2000.
NOTE 6 - Lease Commitments
The Company leases tractors and trailers under various capital leases with
interest rates ranging from 8.1% to 9.1%. Property, plant and equipment
includes the following amounts for the tractor and trailer leases which are
capitalized as of December 31, 1996 and 1995:
Tractors and trailers $1,760,669 $1,760,669
Less: accumulated amortization 589,913 331,673
---------- ----------
Total $1,170,756 $1,428,996
========== ==========
F-84
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 6 - Lease Commitments (continued)
Lease amortization is included in depreciation expense. Future minimum
payments, by year and in the aggregate, under the capital leases are as
follows:
Years ended December 31, Amount
------------------------ ------
1997 $ 394,791
1998 522,657
1999 241,568
2000 -
----------
Total minimum lease payments 1,159,016
Less: Amount representing interest 149,338
----------
Present value of minimum
lease payments 1,009,678
Less-Current maturities 299,585
----------
Long-term obligations under
capital leases $ 710,093
==========
NOTE 7 - Property, Plant and Equipment
Property, plant and equipment consists of the following as of December 31:
1996 1995
---------- ----------
Land $ - $ 127,719
Building - 303,350
Office equipment 63,273 58,576
Tractors, trailers and
garage equipment 8,238,378 7,517,076
Transportation equipment 4,480 4,480
---------- ----------
8,306,131 8,011,201
Less: Accumulated
Depreciation 4,130,210 3,313,632
---------- ----------
Total property, plant
and equipment $4,175,921 $4,697,569
========== ==========
Depreciation expense amounted to $882,797 and $754,130 for the years ended
December 31, 1996 and 1995, respectively. $873,148 and $732,921 of
depreciation was included in operating expenses for 1996 and 1995,
respectively and $9,649 and $21,209 of depreciation was included in
administrative expenses for 1996 and 1995, respectively. The fair market
value of fixed assets approximates book value.
F-85
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 8 - Related Party Transaction
On December 23, 1996, the Company sold its Wisconsin Rapids facility which
included land, a building and improvements with a book value of $394,517 to
its majority stockholders for $346,141 resulting in a net loss of $48,376.
The loss is included in other income and expenses. The transaction resulted
in a gain of $231,000 for income tax purposes.
The stockholders leased the property back to the Company for five years
commencing January 1, 1997. See Note 10.
Management believes the sale was an arms length transaction based on estimated
values of the property on the date of sale.
Interest expense at December 31, 1995 includes $6,857 attributable to
stockholder loans. The loans were repaid during 1995.
NOTE 9 - Retirement Plan
The Company matches employee contributions up to 3% of employee compensation.
Contributions to the plan amounted to $65,123 and $41,264 for the years ended
December 31, 1996 and 1995, respectively. 401K matching contributions of
$23,100 and $29,710 are included in operating expenses for 1996 and 1995,
respectively and $8,589 and $21,209 of the aforementioned contributions are
included in administrative expenses for 1996 and 1995, respectively.
NOTE 10 - Commitments and Contingencies
Commencing on January 1, 1997, the Company agreed to rent its Wisconsin Rapids
facility from certain stockholders for $7,350 per month for a period of five
years under an operating lease.
Commencing October 15, 1997, the Company leased its South Carolina corporate
offices for $1,728 per month. The lease extends for a period of two years.
Minimum rental payments under such operating leases follows:
Year ending December 31,
1997 $ 92,520
1998 108,936
1999 104,616
2000 88,200
2001 88,200
--------
Total minimum payments required $482,472
========
F-86
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 11 - Noncompetition Agreements
As of January 3, 1994, the Company entered into a covenant not to compete
agreement with its chief executive officer which extends over four years. The
agreement called for a prepayment of $115,000 in December, 1993, with an
additional $46,000, including interest, payable in (18) monthly installments
of $2,556 commencing with the date of the agreement. Expenses under this
agreement amounted to $39,999 and $39,698 for 1996 and 1995, respectively.
See also Note 2 for a description of the covenant not to compete related to
the stock purchase agreement.
NOTE 12 - Restricted Cash
The Company maintains cash accounts for owner-operators who perform services
for the Company. These funds are accumulated, with the owner-operators
consent, by withholding part of the payments due to them for services
performed. The funds are used to pay for repairs of equipment that they own
directly.
Further, the Company has deposited funds with a financing company to cover
over the road fuel and other operating expenses for drivers in support of a
letter of credit.
As of December 31, 1996 and 1995, the Company had letters of credit
outstanding totaling $10,000 and $88,000 respectively which guarantee various
operating and insurance activities.
NOTE 13 - Loan Modification Agreement
In connection with the stock purchase agreement described in Note 2, the
purchase was financed by a loan in the amount of $3,000,000 payable in monthly
installments over five years. The original loan agreement required that the
Company hold the common stock of a "small capitalization" company with a
market value of at least $1,000,000. As of December 31, 1996 and 1995, such
stock was not held by the Company.
On May 25, 1997, the Company agreed to a modification of the original loan
whereby current monthly payments were reduced from $66,360 per month to
$45,000 per month with a balloon payment of $396,836 due at August 31, 2001.
NOTE 14 - Concentration of Credit Risk - Cash
The Company maintains its cash balances in two financial institutions, one
located in Wisconsin Rapids, Wisconsin and the other in Charleston, South
Carolina. At times, the balances may exceed federally insured limits of
$100,000. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash on deposit.
The fair market value of these financial instruments approximates cost.
F-87
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 15 - Use of Factor
In April, 1995, the Company entered into an agreement with a factor whereby
the factor would accept the Company's receivables with full recourse. Under
the agreement, the factor will advance up to 80% of those receivables
submitted by the Company. Interest on funds advanced is charged at an average
annual effective rate of 14.5% payable monthly.
In addition, the Company must maintain funds on deposit with its factor as a
reserve against uncollectible receivables. The amount of such funds on
deposit as of December 31, 1996 and 1995 amounted to $97,179 and $179,615
respectively.
The uncollected balance of such receivables held by the factor amounted to
$1,133,731 and $950,390 as of December 31, 1996 and 1995 respectively. The
fair market value of these balances approximate book value.
NOTE 16 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to three and four customers, respectively which accounted
for net revenues in excess of 10% of the Company's total revenues for the
years ended December 31, 1996 and 1995. Consolidated Paper, Inc.,
Land-0-Lakes, Inc., Excel Corporation and Trane Company accounted for 24.6%,
13.8%, and 10.7% of the Company's net revenues for the year ended December 31,
1996. Consolidated Paper, Inc., Land-O-Lakes, Inc., Excel Corporation and
Trane Company accounted for 17.8%, 13.5%, 10.7% and 10.2% of the Company's net
revenues for the year ended December 31, 1995. Accounts receivable from those
customers amounted to $486,873 and $358,319 as of December 31, 1996 and 1995
respectively.
Revenues from the Company's five and ten largest customers accounted for
approximately 57% and 69% respectively of total net revenues for the year
ended December 31, 1996. Revenues from the Company's five and ten largest
customers accounted for approximately 57% and 73% respectively of total net
revenues for the year ended December 31, 1995.
The Company considers its relationship with those major customers to be
satisfactory and is committed to expanding its relationship with its other
customers.
The Company provides services to a significant number of customers in the meat
packing and distribution industry. Revenues from those customers accounted
for approximately 16.3% of total revenues for the year ended December 31, 1996
and 30% of total revenues for the year ended December 31, 1995. Accounts
receivable from those customers amounted to $117,600 and $375,000 as of
December 31, 1996 and 1995 respectively.
F-88
<PAGE>
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 17 - Stock Acquisition Agreement - United Acquisition II Corp.
On June 3, 1996, the shareholders of Mid America entered into an agreement
with United Acquisition II Corp. (the acquirer) whereby they would transfer
100% of their common stock in Mid America in exchange for 31,366 shares of
convertible preferred stock and 316,666 shares of common stock of the
acquirer. In addition, the acquirer agreed to contribute cash and notes
totaling $500,000 into Mid America at closing.
In January, 1997, the acquirer conceded that it was not able to complete the
transaction as agreed and withdrew from the contract. During the period from
the consummation of the contract, the acquirer deposited funds to the Company
in the amount of $145,000. The Company agreed to return a total of $100,000
payable in 36 installments beginning April 1, 1998 on a non interest bearing
basis.
The settlement resulted in a gain to the company of $105,096 which is included
in other income.
NOTE 18 - Accounts Receivable - Affiliate
The Company provided freight services on behalf of its affiliate, Mencor, Inc.
amounting to $340,822 and $119,045 for the years ended December 31, 1996 and
1995 respectively. The balance receivable from this affiliate as of December
31, 1996 and 1995 amounted to $25,881 and $14,150. The fair market value of
this receivable approximate book value.
NOTE 19 - Advances from Affiliate
The Company received advances from its affiliate, Mencor, Inc. during 1996 and
1995. Those advances which amounted to $27,353 and $17,910 remained unpaid as
of December 31, 1996 and 1995, are non interest bearing and are due on demand.
The fair market value of these advances approximates book value.
NOTE 20 - Subsequent Event - Acquisition Agreement with U.S. Trucking, Inc.
On January 30, 1997, the Company entered into an agreement with U.S. Trucking,
Inc. (the acquirer) whereby U.S. Trucking would acquire 100% of the common
stock of the Company in exchange for 25% of it's common stock.
As part of this agreement, the Company contracted with Dan Pixler (a former
stockholder of the Company) for him to provide services as president and
general manager for the five years commencing from January 30, 1997 to January
30, 2002 at an annual salary of $105,000 per year. Mr. Pixler will receive
annual options to purchase 12,500 shares of the common stock of the acquirer's
parent company, U.S. Transportation Systems, Inc. which will be exercisable
until December 31, 2002. Further, during the period of employment and for a
period of two years after his termination, Mr. Pixler agreed that he will not
participate in an entity which is directly competitive with the Company's
present operations.
F-89
<PAGE>
6) AUDITED FINANCIAL STATEMENTS OF
MENCOR, INC.
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
F-90
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
Mencor, Inc.
We have audited the accompanying balance sheets of Mencor, Inc. as of December
31, 1996 and 1995 and the related statements of earnings and retained earnings
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
statement presentation. We believe that our audits provides 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 Mencor, Inc. as of December
31, 1996 and 1995 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ BIANCULLI, PASCALE & CO. P.C.
BIANCULLI, PASCALE & CO. P.C.
Farmingdale, New York
November 3, 1997
F-91
<PAGE>
MENCOR, INC.
BALANCE SHEETS
December 31,
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents
(Notes 1C and 2) $ 77,984 $ 34,726
Accounts receivable-net of allowance
for doubtful accounts of $11,834 as
of December 31, 1996 and 1995
(Notes 1F & 12) 228,107 218,219
Advances to affiliate (Note 7) 27,353 17,910
Refundable income taxes (Note 6) 860
Prepaid expenses 1,002 1,078
---------- ----------
Total Current Assets 335,306 271,933
---------- ----------
PROPERTY, PLANT AND EQUIPMENT - at
cost, less accumulated depreciation
of $3,950 and $2,025 as of December
31, 1996 and 1995, respectively
(Notes 1D and 3) 7,300 6,552
---------- ----------
OTHER ASSETS
Intangible asset - Net of accumulated
amortization of $1,067 and $667 as of
December 31, 1996 and 1995,
respectively. (Note 1H) 933 1,333
Security deposits 1,125 1,125
Deferred tax asset (Notes 1E and 6) 1,920 1,000
Organization costs - net of
accumulated amortization of $445 and
$267 at December 31, 1996 and 1995,
respectively (Note 1G) 444 622
---------- ----------
Total other assets 4,422 4,080
---------- ----------
TOTAL ASSETS $ 347,028 $ 282,565
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-92
<PAGE>
MENCOR, INC.
BALANCE SHEETS
December 31,
1996 1995
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable-trade $ 181,009 $ 197,015
Accounts payable-affiliate (Note 8) 25,881 14,150
Advances from related party (Note 9) 83,970
Payroll taxes withheld and payable 3,918
Accrued expenses 2,039
Income taxes payable (Notes 1E and 6) 25 14,840
Current Portion of Equipment
Notes Payable (Notes 3 and 4) 1,071 878
---------- ----------
Total Current Liabilities 297,913 226,883
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 5)
OTHER LIABILITIES
Equipment Notes Payable-net of
current maturities (Notes 3 and 4) 620 1,691
---------- ----------
TOTAL LIABILITIES 298,533 228,574
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock (no par value-1,000
shares authorized, 300 issued and
outstanding (Note 1B) 6,604 6,604
Retained Earnings 41,891 47,387
---------- ----------
Total Stockholders' Equity 48,495 53,991
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 347,028 $ 282,565
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-93
<PAGE>
MENCOR, INC.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
Periods Ending December 31,
1996 1995
----------- ----------
Net Revenues $ 2,226,900 $1,486,293
Freight settlements 2,007,651 1,294,550
----------- ----------
Income from operations 219,249 191,743
General and administrative expenses 225,685 167,598
----------- ----------
Net income (loss) from operations ( 6,436) 24,145
Other expense
Interest expense ( 1,815) ( 279)
----------- ----------
Earnings (loss) before income taxes ( 8,251) 23,866
Income taxes (Notes 1E and 6) 2,755 ( 6,035)
----------- ----------
Net earnings (loss) ( 5,496) 17,831
Retained Earnings-Beginning of Year 47,387 29,556
----------- ----------
Retained Earnings-End of Year $ 41,891 $ 47,387
=========== ==========
Net income (loss) per Share $( 18.32) $ 57.94
=========== ==========
Weighted Average
Number of Shares 300 300
(Note 1B)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-94
<PAGE>
MENCOR, INC.
STATEMENTS OF CASH FLOWS
Periods Ending December 31,
1996 1995
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $( 5,496) $ 17,831
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH USED IN OPERATING ACTIVITIES
Depreciation & amortization 5,850 1,911
Allowance for doubtful accounts 7,610
Deferred tax benefit ( 920) ( 1,000)
(Increase) Decrease-Assets
Accounts Receivable-trade ( 9,888) (109,343)
Advances to affiliate ( 9,443) ( 17,910)
Refundable income taxes ( 860)
Prepaid expenses 76 22
Increase (Decrease)-Liabilities
Accounts payable-trade ( 16,006) 11,569
Accounts payable-affiliate 11,731 14,150
Payroll taxes withheld and payable 3,918
Accrued expenses 2,039
Income taxes payable ( 14,815) 7,035
----------- ----------
Total Adjustments ( 28,318) ( 85,956)
Net Cash Provided (used) by Operations ( 33,814) ( 68,125)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Offering costs ( 3,346)
Purchases of equipment ( 2,674) ( 620)
Security deposits ( 1,125)
----------- ----------
Net Cash Used in Investing Activities ( 6,020) ( 1,745)
----------- ----------
Subtotal $ ( 39,834) $ ( 69,870)
----------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-95
<PAGE>
MENCOR, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
Periods Ending December 31,
1996 1995
----------- ----------
Balance brought forward $ ( 39,834) $ ( 69,870)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related party 123,397
Repayments to related party ( 39,427)
Principal payments on equipment loan ( 878) ( 377)
----------- ----------
Net Cash provides by (used in)
financing activities 83,092 ( 377)
----------- ----------
NET INCREASE (DECREASE) IN CASH 43,258 ( 70,247)
----------- ----------
CASH AT BEGINNING OF PERIOD 34,726 104,973
----------- ----------
CASH AT END OF PERIOD $ 77,984 $ 34,726
=========== ==========
Supplemental Disclosure of
Cash flow information:
Cash Paid during the year
Interest expense $ 1,815 $ 279
Income taxes $ 14,840 $ -0-
The Company purchased office equipment during the year ended December 31,
1995. The purchase price of the equipment amounted to $2,946 and was financed
through the vendor. See Note 4.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-96
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Operations
Mencor, Inc. was incorporated in the State of Arkansas on July 6, 1994. The
Company operates as a broker for interstate motor carriers. An interstate
motor carrier broker serves the trucking industry by providing return hauls
for truckers who have completed their initial delivery. By providing this
service, trucking companies and independent operators are able to cover the
cost of returning to their home location. The Company's corporate
headquarters are located in Charleston, South Carolina. As a broker, the
Company is required to acquire a license which provides the authority to
engage in interstate commerce. This license was acquired in April, 1994.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net Earnings (Loss) per Share
Net earnings per share is computed on the basis of the weighted average number
of common and common equivalent shares outstanding during each period. Only
the weighted average number of shares of common stock outstanding is used to
compute income per share in 1996 and 1995 as there are no stock options,
warrants, or other common stock equivalents in these years.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(D) - Property, Plant and Equipment
Depreciation and amortization are provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated service
lives principally on an accelerated basis. Accelerated methods of
depreciation are followed for substantially all assets for both financial
reporting and tax purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years.
(E) - Income Taxes
Income taxes are provided on all revenue and expense items included in the
statement of earnings, regardless of the period in which such items are
recognized for income tax purposes, except for items representing a permanent
difference between pretax accounting income and taxable income.
Non current deferred income taxes result from the use of accelerated methods
of depreciation for income tax purposes and from the establishment of an
allowance for doubtful accounts for financial reporting purposes.
F-97
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 1 - General and Summary of Significant Accounting Policies (continued)
(F) - Revenue Recognition
The Company recognizes revenues at the time the shipment is delivered to
recipients.
(G) - Organization expense
As part of its initial incorporation, the company incurred organization costs
amounting to $889 which is being amortized on a straight-line basis over five
years.
(H) - Intangible Asset
As discussed in Note 1A, the Company acquired a license from the Interstate
Commerce Commission which is required to allow the Company to do business as
an interstate carrier broker. This license, which cost $2,000 is being
amortized on a straight-line basis over five years.
(I) - Concentration of Credit Risk
Virtually all of the Company's customers are in the long haul trucking
industry. Further, accounts receivable are uncollateralized and consist of
amounts due from that industry.
(J) - Offering Costs
During 1996, the Company incurred certain expenses related to an equity
offering in connection with its affiliate, Mid America Transporters Group,
Inc. and Subsidiary. The offering was unsuccessful and, accordingly, the
expense was amortized in full during 1996.
(K) - Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
NOTE 2 - Cash and Cash Equivalents
The Company maintains its cash balances in one financial institution located
in Charleston, South Carolina which at times, may exceed federally insured
limits. The Company has not experienced any losses in such account and
believed it is not exposed to any significant credit risk on cash and cash
equivalents.
F-98
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 3 - Property, Plant and Equipment
Property, plant and equipment consists of the following as of December 31,:
1996 1995
-------- --------
Office equipment $ 12,656 $ 7,171
Furniture and fixtures 1,406 1,406
-------- --------
11,250 8,577
Less: Accumulated Depreciation 3,950 2,025
-------- --------
Total property, plant and equipment $ 7,300 $ 6,552
======== ========
Depreciation expense amounted to $1,925 and $1,333 for the years ended
December 31, 1996 and 1995, respectively and is included in general and
administrative expenses.
NOTE 4 - Notes Payable
During 1995, the Company acquired office equipment in the amount of $2,946
which was financed payable in 36 installments of $110 per month including
interest at 14% per annum due June, 1998.
Total principal $ 1,691
Less: current maturities 1,071
--------
Long-term portion $ 620
========
Aggregate annual maturities of long-term debt for the five years following
December 31, 1996 are as follows:
1997 $ 1,071
1998 620
--------
Total $ 1,691
========
NOTE 5 - Commitments and Contingencies
The Company leases office space for its operating facility in Charleston,
South Carolina. The current lease term commenced on May 1, 1995 and concludes
on April 30, 1997. Commitments under this lease agreement amounted to $3,675
in 1997.
Rent expense amounted to $6,000 and $9,440 for the periods ended December 31,
1996 and 1995, respectively and is included in general and administrative
expenses.
F-99
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 6 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109). The provision for income taxes was comprised of the following
components as of December 31. 1996 and 1995:
1996 1995
-------- --------
Federal-current $( 860) $ 5,276
Federal-deferred ( 1,586) (1,000)
State-current 25 1,759
State-deferred ( 334) -0-
-------- --------
Total $( 2,755) $ 6,035
======== ========
The income tax provision reconciled to the tax computed at the statutory
Federal rate was:
1996 1995
---------------- ----------------
Tax at Statutory Rate $( 3,218) (39)% $ 9,308 39 %
State income taxes 1,759 7
Benefit of graduated brackets 463 6 ( 5,728) (24)
Other 696 3
-------- -- -------- --
$( 2,755) (33)% $ 6,035 25 %
======== == ======== ==
Deferred tax assets and liabilities at December 31, 1996 and 1995 consist of
the following:
1996 1995
-------- --------
Deferred tax assets
Allowance for doubtful accounts $ 11,834 $ 11,834
Valuation allowance ( 4,759) ( 4,289)
Deferred tax liabilities
Depreciation of property & equipment ( 5,155) ( 6,545)
-------- --------
Net Total $ 1,920 $ 1,000
======== ========
Net operating loss carryovers amounting to $5,733 for state income tax
purposes are available through December 31, 2011.
F-100
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 7 - Advances to Affiliate
The Company advanced funds and provided services to its affiliate, Gulf
Northern Transport, Inc. during 1996 and 1995. Gulf Northern is related to
the Company through common ownership and management. Total revenues generated
by services provided during 1996 and 1995, respectively amounted to $6,465 and
$2,601. The amount of such advances which remained unpaid as of December 31,
1996 and 1995 amounted to $27,353 and $17,910, respectively. These advances
represent allocations of rent and other administrative costs and freight
settlements, are non interest bearing and are due on demand. The fair market
value of these advances approximate book value.
NOTE 8 - Accounts Payable-Affiliate
The Company incurred expenses for freight settlements from its affiliate, Gulf
Northern Transport, Inc. which amounted to $340,822 and $119,045 for the years
ended December 31, 1996 and 1995. The remaining balance payable to the
affiliate for such expenses as of December 31, 1996 and 1995 amounted to
$25,881 and $14,150, respectively.
NOTE 9 - Advances from Related Party
During August and September 1996, a shareholder advanced funds totaling
$123,397 to the Company. Repayments during the year amounted to $39,427 with
the remaining balance remitted by February, 1997. The advances were payable
on demand with no stated interest.
NOTE 10 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to three and two customers respectively which accounted for
net revenues in excess of 10% of the Company's total revenues for the years
ended December 31, 1996 and 1995 respectively. Tamco Distributors, OK Grocery
and McCrory Stores accounted for 24.8%, 17.1% and 13.8% of the Company's net
revenues for the year ended December 31, 1996. Tamco Distributors and OK
Grocery accounted for 30.1% and 22.8% of the Company's net revenues for the
year ended December 31, 1995.
Accounts receivable from those customers amounted to $82,926 and $94,594 as of
December 31, 1996 and 1995 respectively.
Revenues from the Company's five and ten largest customers accounted for
approximately 66% and 81% respectively of total net revenues for the year
ended December 31, 1996. Revenues from the Company's five and ten largest
customers accounted for approximately 71% and 87% respectively of total net
revenues for the year ended December 31, 1995.
F-101
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 11 - Subsequent Event
On January 30, 1997, the stockholders sold their interests in Mencor, Inc. to
U.S. Trucking, Inc. (the buyer) for $75,000. The transaction was in
conjunction with the sale of Gulf Northern Transport, Inc. Also in connection
with the sale, the Company agreed to continue the employment of Michael Menor
(a former shareholder of Mencor, Inc.) as the president of the Company for the
period from the date of enactment to January 30, 2000 at an annual salary of
$60,000 per year. Further, during the period of employment and a period of
two (2) years after his termination, Mr. Menor agreed that he will not
participate in an entity which directly performs truck brokerage services for
those customers currently serviced by the Company.
Also on the date of enactment, the buyer contracted with Roxanne Pixler, (a
former shareholder of Mencor, Inc.) for her to provide consulting services to
the Company. Pixler will receive 18,750 shares of U.S. Transportation
Systems, Inc. as compensation for her services. The contracted obligation
will commence from the date of enactment to December 31, 1998.
F-102
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other
arrangement under which any controlling person, Director or Officer of the
Company is insured or indemnified in any manner against any liability which he
may incur in his capacity as such, is as follows:
(a) The Company has the power under the Colorado Business Corporation
Act to indemnify any person who was or is a party or is threatened to be made
a party to any action, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a Director,
Officer, employee, fiduciary, or agent of the Company or was serving at its
request in a similar capacity for another entity, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection therewith if he acted in good faith
and in a manner he reasonably believed to be in the best interest of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In case of an action
brought by or in the right of the Company such persons are similarly entitled
to indemnification if they acted in good faith and in a manner reasonably
believed to be in the best interests of the Company but no indemnification
shall be made if such person was adjudged to be liable to the Company for
negligence or misconduct in the performance of his duty to the Company unless
and to the extent the court in which such action or suit was brought
determines upon application that despite the adjudication of liability, in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnification. In such event, indemnification is limited to
reasonable expenses. Such indemnification is not deemed exclusive of any
other rights to which those indemnified may be entitled under the Articles of
Incorporation, Bylaws, agreement, vote of shareholders or disinterested
directors, or otherwise.
(b) The Articles of Incorporation and Bylaws of the Company generally
require indemnification of Officers and Directors to the fullest extent
allowed by law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by
the Selling Shareholders, are as follows:
SEC Filing Fee ................................ $ 7,471.79
Printing Expenses ............................. 1,000.00
Accounting Fees and Expenses .................. 2,500.00
Legal Fees and Expenses ....................... 25,000.00
Blue Sky Fees and Expenses .................... 500.00
Miscellaneous ................................. 3,528.21
----------
Total .................................... $40,000.00
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During its past three years, the Registrant issued securities which were
not registered under the Securities Act of 1933, as amended (the "Act"), as
follows.
II-1
<PAGE>
Effective September 8, 1998, the Company effected a 1 for 160 reverse
split of the outstanding Common Stock. All numbers of shares stated below
give retroactive effect to this stock split.
On September 8, 1998, the Company completed the acquisition of 100% of
the outstanding common stock of U.S. Trucking-Nevada in exchange for
15,877,300 shares of the Company's Common Stock. The shares were exchanged on
the basis of one share of the Company's Common Stock for one share of U.S.
Trucking-Nevada common stock. The stock issuances were made to the 29
shareholders of U.S. Trucking-Nevada pursuant to an Agreement ("Agreement")
between the Company and U.S. Trucking-Nevada.
During October 1998, the Company issued an additional 133,333 shares of
common stock to five accredited investors who had invested $100,000 in U.S.
Trucking-Nevada and who exchanged their shares in U.S. Trucking-Nevada for
shares of the Company's common stock on a one-for-one basis.
During November 1998, the Company issued 33,334 shares to an accredited
investor who invested $25,000 in a private placement.
Effective December 31, 1998, the Company issued 400,000 shares of common
stock to Mid-Cal Express, Inc. as partial payment for the assets which were
acquired from Mid-Cal Express, Inc.
During January 1999, the Company issued 999,000 shares of its Series A
Preferred Stock to three existing shareholders in exchange for a total of
9,990,000 shares of the Company's common stock.
During April 1999, the Company issued 2,000 shares of its Series B
Convertible Preferred Stock and 400,000 warrants to five investors in a
private placement which raised $2 million in gross proceeds.
During May 1999, the Company issued 50,000 shares of Series C Preferred
Stock to two shareholders in consideration of their guarantees with respect to
in excess of $13 million of the Company's debt.
During June 1999, the Company issued 200,000 shares of common stock to
two persons in connection with the acquisition of ProStar, Inc.
During July 1999, the Company issued 50,000 shares of its common stock to
one investor who paid $50,000.
The sales described above were made in reliance on the exemption from
registration offered by Section 4(2) of the Securities Act of 1933. The
Company had reasonable grounds to believe that these persons (1) were
acquiring the shares for investment and not with a view to distribution, and
(2) had such knowledge and experience in financial and business matters that
they were capable of evaluating the merits and risks of their investment and
were able to bear those risks. Such persons had access to pertinent
information enabling them to ask informed questions. An appropriate
restrictive legend is noted on the certificates representing such shares, and
stop-transfer instructions have been noted in the Company's transfer records.
II-2
<PAGE>
ITEM 27. EXHIBITS.
The following Exhibits are filed as part of this Registration Statement
pursuant to Item 601 of Regulation S-B:
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------
3.1 Articles of Incorporation, Filed herewith electronically
as amended
3.2 Bylaws, as amended Filed herewith electronically
3.3 Articles of Amendment to Previously filed
Articles of Incorporation
effective September 8, 1998
3.4 Articles of Amendment to Previously filed
Articles of Incorporation
dated January 20, 1999
regarding Series A Pre-
ferred Stock
3.5 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
dated April 29, 1999
regarding Series B Pre-
ferred Stock
3.6 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
dated June 10, 1999
regarding Series C Pre-
ferred Stock
5 Opinion of Krys Boyle Previously filed
Freedman & Sawyer, P.C.
regarding the legality
of the securities being
registered
10.1 1998 Stock Option Plan Incorporated herein by reference to
Exhibit No. 4.3 to the Company's
Registration Statement on Form S-8
(SEC File No. 333-70353)
10.2 Share Exchange Agreement Incorporated herein by reference to
with U.S. Trucking, Inc. Exhibit No. 10 to the Company's
Form 8-K dated September 8, 1998
II-3
<PAGE>
10.3 Employment Agreement with Previously filed
Danny L. Pixler
10.4 Employment Agreement with Previously filed
Anthony Huff
10.5 Employment Agreement with Previously filed
John Ragland
10.6 Lease Agreement dated Previously filed
January 1, 1997, between
Gulf Northern Transport,
Inc., Dan L. Pixler, and
Sebrite Insurance Services,
Inc.
10.7 Lease Agreement dated Previously filed
March 5, 1998, between
Gulf Northern Transport,
Inc. and Dan Pixler for
three tractors
10.8 Lease Agreement dated Previously filed
September 23, 1998,
between Gulf Northern
Transport, Inc. and
Thomas Financial Services
10.9 Stock Exchange Agreements Previously filed
between U.S. Trucking and
three shareholders dated
January 29, 1999.
10.10 Loan and Security Agreement Previously filed
dated as of December 22,
1998 between General Electric
Capital Corporation and
U.S. Trucking, Inc., et al.
10.11 Management Services Agree- Previously filed
ment dated December 30,
1998, between Mid-Cal
Express, Inc. and Gulf
Northern Transport, Inc.
10.12 10% Convertible Debenture Incorporated by reference to
due May 31, 2002 for Exhibit 10.12 to the Company's
$600,000 Form 10-QSB for the quarter
ended June 30, 1999
10.13 1998 Stock Option Plan, Filed herewith electronically
as amended
21 Subsidiaries of the Previously filed
Registrant
23.1 Consent of Krys Boyle Contained in Exhibit 5
Freedman & Sawyer, P.C.
II-4
<PAGE>
23.2 Consent of Bianculli, Filed herewith electronically
Pascale & Co. P.C.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned small business issuer will:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2, and authorized this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of North Charleston, State
of South Carolina, on the 9th day of September 1999.
U.S. TRUCKING, INC.
By:/s/ Danny L. Pixler
Danny L. Pixler, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Danny L. Pixler President (Chief Executive September 9, 1999
Danny L. Pixler Officer) and Director
/s/ W. Anthony Huff Executive Vice President September 9, 1999
W. Anthony Huff and Director
/s/ John Ragland Chief Financial and September 9, 1999
John Ragland Accounting Officer
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U.S. TRUCKING, INC.
AMENDMENT NO. 1 TO
FORM SB-2 REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Articles of Incorporation, as amended
3.2 Bylaws, as amended
3.5 Articles of Amendment to Articles of Incorporation
dated April 29, 1999 regarding Series B Preferred Stock
3.6 Articles of Amendment to Articles of Incorporation
dated June 10, 1999 regarding Series C Preferred Stock
10.13 1998 Stock Option Plan
23.2 Consent of Bianculli, Pascale & Co. P.C.
ARTICLES OF INCORPORATION
OF
U.S. TRUCKING, INC.
KNOW ALL MEN BY THESE PRESENTS: That the undersigned incorporator being a
natural person of the age of eighteen years or more and desiring to form a
body corporate under the laws of the State of Colorado does hereby sign,
verify and deliver in duplicate to the Secretary of State of the State of
Colorado, these Articles of Incorporation:
ARTICLE I
NAME
The name of the Corporation shall be: U.S. Trucking, Inc.
ARTICLE II
PERIOD OF DURATION
The Corporation shall exist in perpetuity, from and after the date of
filing these Articles of Incorporation with the Secretary of State of the
State of Colorado unless dissolved according to law.
ARTICLE III
PURPOSES AND POWERS
1. Purposes. Except as restricted by these Articles of Incorporation, the
Corporation is organized for the purpose of transacting all lawful business
for which corporations may be incorporated pursuant to the Colorado
Corporation Code.
2. General Powers. Except as restricted by these Articles of
Incorporation, the Corporation shall have and may exercise all powers and
rights which a corporation may exercise legally pursuant to the Colorado
Corporation Code.
3. Issuance of Shares. The board of directors of the Corporation may
divide and issue any class of stock of the Corporation in series pursuant to a
resolution properly filed with the Secretary of State of the State of
Colorado.
ARTICLE IV
CAPITAL STOCK
The aggregate number of shares which this Corporation shall have
authority to issue One Billion Five Hundred Million (1,500,000,000) shares of
no par value each, which shares shall be designated "Common Stock"; and Ten
Million (10,000,000) shares of no par value each, which shares shall be
designated "Preferred Stock" and which may be issued in one or more series at
the discretion of the Board of Directors. In establishing a series the Board
of Directors shall give to it a distinctive designation so as to distinguish
it from the shares of all other series and classes, shall fix the number of
shares in such series, and the preferences, rights and restrictions thereof.
All shares of any one series shall be alike in every particular except as
otherwise provided by these Articles of Incorporation or the Colorado
Corporation Code.
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1. Dividends. Dividends in cash, property or shares shall be paid upon
the Preferred Stock for any year on a cumulative or noncumulative basis as
determined by a resolution of the Board of Directors prior to the issuance of
such Preferred Stock, to the extent earned surplus for each such year is
available, in an amount as determined by a resolution of the Board of
Directors. Such Preferred Stock dividends shall be paid pro rata to holders of
Preferred Stock in any amount not less than nor more than the rate as
determined by a resolution of the Board of Directors prior to the issuance of
such Preferred Stock. No other dividend shall be paid on the Preferred Stock.
Dividends in cash, property or shares of the Corporation may be paid upon
the Common Stock, as and when declared by the Board of Directors, out of funds
of the Corporation to the extent and in the manner permitted by law, except
that no Common Stock dividend shall be paid for any year unless the holders of
Preferred Stock, if any, shall receive the maximum allowable Preferred Stock
dividend for such year.
2. Distribution in Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, and after paying or adequately providing for
the payment of all its obligations, the remainder of the assets of the
Corporation shall be distributed, either in cash or in kind, first pro rata to
the holders of the Preferred Stock until an amount to be determined by a
resolution of the Board of Directors prior to issuance of such Preferred
Stock, has been distributed per share, and, then, the remainder pro rata to
the holders of the Common Stock.
3. Redemption. The Preferred Stock may be redeemed in whole or in part as
determined by a resolution of the Board of Directors prior to the issuance of
such Preferred Stock, upon prior notice to the holders of record of the
Preferred Stock, published, mailed and given in such manner and form and on
such other terms and conditions as nay be prescribed by the Bylaw or by
resolution of the Board of Directors, by payment in cash or Common Stock for
each share of the Preferred Stock to be redeemed, as determined by a
resolution of the Board of Directors prior to the issuance of such Preferred
Stock. Common Stock used to redeem Preferred Stock shall be valued as
determined by a resolution of the Board of Directors prior to the issuance of
such Preferred Stock. Any rights to or arising from fractional shares shall be
treated as rights to or arising from one share. No such purchase or retirement
shall be made if the capital of the Corporation would be impaired thereby.
If less than all the outstanding shares are to be redeemed, such
redemption may be made by lot or pro rata as may be prescribed by resolution
of the Board of Directors; provided, however, that the Board of Directors may
alternatively invite from shareholders offers to the Corporation of Preferred
Stock at less than an amount to be determined by a resolution of the Board of
Directors prior to issuance of such Preferred Stock, and when such offers are
invited, the Board of Directors shall then be required to buy at the lowest
price or prices offered, up to the amount to be purchased.
From and after the date fixed in any such notice as the date of
redemption (unless default shall be made by the Corporation in the payment of
the redemption price), all dividends on the Preferred Stock thereby called for
redemption shall cease to accrue and all rights of the holders thereof as
stockholders of the Corporation, except the right to receive the redemption
price, shall cease and terminate. Any purchase by the Corporation of the
shares of its Preferred Stock shall not be made at prices in excess of said
redemption price.
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4. Voting Rights; Cumulative Voting. Each outstanding share of Common
Stock shall be entitled to one vote and each fractional share of Common Stock
shall be entitled to a corresponding fractional vote on each matter submitted
to a vote of shareholders. A majority of the shares of Common Stock entitled
to vote, represented in per eon or by proxy, shall constitute a quorum at a
meeting of shareholders. Except as otherwise provided by these Articles of
Incorporation or the Colorado Corporation Code, if a quorum is present, the
affirmative vote of a majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders.
When, with respect to any action to be taken by shareholders of this
Corporation, the laws of Colorado require the vote or concurrence of the
holders of two-thirds of the outstanding shares, of the shares entitled to
vote thereon, or of any class or aeries, such action may be taken by the vote
or concurrence of a majority of such shares or class or aeries thereof.
Cumulative voting shall not be allowed in the election of directors of this
Corporation.
Shares of Preferred Stock shall only be entitled to such vote as is
determined by the Board of Directors prior to the issuance of such stock,
except as required by law, in which case each share of Preferred Stock shall
be entitled to one vote.
5. Denial of Preemptive Rights. No holder of any shares of the
Corporation, whether now or hereafter authorized, shall have any preemptive or
preferential right to acquire any shares or securities of the Corporation,
including shares or securities held in the treasury of the Corporation.
6. Conversion Rights. Holders of shares of Preferred Stock may be granted
the right to convert such Preferred Stock to Common Stock of the Corporation
on such terms as may be determined by the Board of Directors prior to issuance
of such Preferred Stock.
ARTICLE V
TRANSACTIONS WITH INTERESTED DIRECTORS
No contract or other transaction between the Corporation and one or more
of its directors or any other corporation, firm, association, or entity in
which one or more of its directors are directors or officers or are
financially interested shall be either void or voidable solely because of such
relationship or interest or solely because such directors are present at the
meeting of the board of directors or a committee thereof which authorizes,
approves, or ratified such contract or transaction or solely because their
votes are counted for such purpose if:
(a) The fact of such relationship or interest is disclosed or known to
the board of directors or committee which authorizes, approves, or ratifies
the contract or transaction by a vote or consent sufficient for the purpose
without counting the vote, or consents of such interested directors; or
(b) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve, or ratify such
contract or transaction by vote or written consent; or
(c) The contract or transaction is fair and reasonable to the
corporation.
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Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the board of directors or a committee thereof
which authorizes, approves, or ratifies such contract or transaction.
ARTICLE VI
CORPORATE OPPORTUNITY
The officers, directors and other members of management of this
Corporation shall be subject to the doctrine of "corporate opportunities" only
insofar as it applies to business opportunities in which this Corporation has
expressed an interest as determined from tine to time by this Corporation's
beard of directors as evidenced by resolutions appearing in the Corporation's
minutes. Once such areas of interest are delineated, all such business
opportunities within such areas of interest which come to the attention of the
officers, directors, and other members of management of this Corporation shall
be disclosed promptly to this Corporation and made available to it. The board
of directors may reject any business opportunity presented to it and
thereafter any officer, director or other member of management may avail
himself of such opportunity. Until such time as this Corporation, through its
board of directors, has designated an area of interest, the officers,
directors and other members of management of this Corporation shall be free to
engage in such areas of interest on their own and this doctrine shall not
limit the rights of any officer, director or other members of management of
this Corporation to continue a business existing prior to the time that such
area of interest is designated by the Corporation. This provision shall not be
construed to release any employee of this Corporation (other than an officer,
director or member of management) from any duties which he may have to this
Corporation.
ARTICLE VII
INDEMNIFICATION
The Corporation may indemnify any director, officer, employee, fiduciary,
or agent of the Corporation to the full extent permitted by the Colorado
Corporation Code as in effect at the tine of the conduct by such person.
ARTICLE VIII
AMENDMENTS
The Corporation reserves the right to amend its Articles of Incorporation
from time to time in accordance with the Colorado Corporation Code.
ARTICLE IX
ADOPTION AND AMENDMENT OF BYLAWS
The initial Bylaws of the Corporation shall be adopted by its board of
directors. Subject to repeal or change by action of the shareholders, the
power to alter, amend or repeal the Bylaw or adopt new Bylaw shall be voted in
the board of directors. The Bylaw may contain any provisions for the
regulation and management of the affaire of the Corporation not inconsistent
with law or these Articles of Incorporation.
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ARTICLE X
REGISTERED OFFICE AND REGISTERED AGENT
The address of the initial registered office of the Corporation is 718
17th Street, Suite 1000, Denver, Colorado 80202, and the name of the initial
registered agent at such address is Carylyn R. Bell. Either the registered
office or the registered agent may be changed in the manner permitted by law.
ARTICLE XI
INITIAL BOARD OF DIRECTORS
The number of directors of the Corporation shall be fixed by the Bylaws
of the Corporation, with the provision that there need be only as many
directors as there are shareholders in the event that the outstanding shares
are held of record by fewer than three shareholders. The initial board of
directors of the Corporation shall consist of one (1) director. The name and
addresses of the person who shall serve as director until the first annual
meeting of shareholders and until his successor is elected and shall qualify
is as follows:
Name Address
Joseph E. O'Connor #2 Corporate Plaza
Suite 200
Newport Beach, CA 92660
ARTICLE XII
INCORPORATOR
The name and address of the incorporator is as follows:
Name Address
Jon D. Sawyer 511 16th St., #400
Denver, CO 80202
IN WITNESS WHEREOF, the above-named incorporator has signed these
Articles of Incorporation this 16th day of January, 1987.
/s/ Jon D. Sawyer
Jon D. Sawyer
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BYLAWS
OF
U.S. TRUCKING, INC.
(a Colorado corporation)
AS AMENDED AUGUST 31, 1999
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ARTICLE I
OFFICES
1.1 Business Office. The principal office and place of business of the
corporation shall be 3125 Ashley Phosphate Road, Suite 128, North Charleston,
South Carolina 29418. Other offices and places of business may be established
from time to time by resolution of the Board of Directors or as the business
of the corporation may require.
1.2 Registered Office. The registered office of the corporation,
required by the Colorado Business Corporation Act to be maintained in the
State of Colorado, may be, but need not be, identical with the principal
office, and the address of the registered office may be changed from time to
time by the Board of Directors.
ARTICLE II
SHARES AND TRANSFER THEREOF
2.1 Regulation. The Board of Directors may make such rules and
regulations as it may deem appropriate concerning the issuance, transfer and
registration of certificates for shares of the corporation, including the
appointment of transfer agents and registrars.
2.2 Certificates for Shares. Certificates representing shares of the
corporation shall be respectively numbered serially for each class of shares,
or series thereof, as they are issued, shall be impressed with the corporate
seal or a facsimile thereof, and shall be signed by the Chairman or Vice
Chairman of the Board of Directors or by the President or a Vice-President and
by the Treasurer or an Assistant Treasurer or by the Secretary or an Assistant
Secretary; provided that any or all of the signatures may be facsimiles if the
certificate is countersigned by a transfer agent, or registered by a
registrar, other than the corporation itself or its employee. Each
certificate shall state the name of the corporation, the fact that the
corporation is organized or incorporated under the laws of the State of
Colorado, the name of the person to whom issued, the date of issue, the class
(or series of any class), the number of shares represented thereby and the par
value of the shares represented thereby or a statement that such shares are
without par value. A statement of the designations, preferences,
qualifications, limitations, restrictions and special or relative rights of
the shares of each class shall be set forth in full or summarized on the face
or back of the certificates which the corporation shall issue, or in lieu
thereof, the certificate may set forth that such a statement or summary will
be furnished to any shareholder upon request without charge. Each certificate
shall be otherwise in such form as may be prescribed by the Board of Directors
and as shall conform to the rules of any stock exchange on which the shares
may be listed. The corporation shall not issue certificates representing
fractional shares and shall not be obligated to make any transfers creating a
fractional interest in a share of stock. The corporation may issue scrip in
lieu of any fractional shares, such scrip to have terms and conditions
specified by the Board of Directors.
2.3 Cancellation of Certificates. All certificates surrendered to the
corporation for transfer shall be cancelled and no new certificates shall be
issued in lieu thereof until the former certificate for a like number of
shares shall have been surrendered and cancelled, except as herein provided
with respect to lost, stolen or destroyed certificates.
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2.4 Lost, Stolen or Destroyed Certificates. Any shareholder claiming
that his certificate for shares is lost, stolen or destroyed may make an
affidavit or affirmation of the fact and lodge the same with the Secretary of
the corporation, accompanied by a signed application for a new certificate.
Thereupon, and upon the giving of a satisfactory bond of indemnity to the
corporation not exceeding an amount double the value of the shares as
represented by such certificate (the necessity for such bond and the amount
required to be determined by the President and Treasurer of the corporation),
a new certificate may be issued of the same tenor and representing the same
number, class and series of shares as were represented by the certificate
alleged to be lost, stolen or destroyed.
2.5 Transfer of Shares. Subject to the terms of any shareholder
agreement relating to the transfer of shares or other transfer restrictions
contained in the Articles of Incorporation or authorized therein, shares of
the corporation shall be transferable on the books of the corporation by the
holder thereof in person or by his duly authorized attorney, upon the
surrender and cancellation of a certificate or certificates for a like number
of shares. Upon presentation and surrender of a certificate for shares
properly endorsed and payment of all taxes therefor, the transferee shall be
entitled to a new certificate or certificates in lieu thereof. As against the
corporation, a transfer of shares can be made only on the books of the
corporation and in the manner hereinabove provided, and the corporation shall
be entitled to treat the holder of record of any share as the owner thereof
and shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, save as expressly provided by the
statutes of the State of Colorado.
2.6 Transfer Agent. Unless otherwise specified by the Board of
Directors by resolution, the Secretary of the corporation shall act as
transfer agent of the certificates representing the shares of stock of the
corporation. He shall maintain a stock transfer book, the stubs in which
shall set forth among other things, the names and addresses of the holders of
all issued shares of the corporation, the number of shares held by each, the
certificate numbers representing such shares, the date of issue of the
certificates representing such shares, and whether or not such shares
originate from original issue or from transfer. Subject to Section 3.7, the
names and addresses of the shareholders as they appear on the stubs of the
stock transfer book shall be conclusive evidence as to who are the
shareholders of record and as such entitled to receive notice of the meetings
of shareholders; to vote at such meetings; to examine the list of the
shareholders entitled to vote at meetings; to receive dividends; and to own,
enjoy and exercise any other property or rights deriving from such shares
against the corporation. Each shareholder shall be responsible for notifying
the Secretary in writing of any change in his name or address and failure so
to do will relieve the corporation, its directors, officers and agents, from
liability for failure to direct notices or other documents, or pay over or
transfer dividends or other property or rights, to a name or address other
than the name and address appearing on the stub of the stock transfer book.
2.7 Close of Transfer Book and Record Date. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders, or any adjournment thereof, or entitled to receive payment of
any dividend, or in order to make a determination of shareholders for any
other proper purpose, the Board of Directors may provide that the stock
transfer books shall be closed for a stated period, but not to exceed, in any
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case, fifty days. If the stock transfer books shall be closed for the purpose
of determining shareholders entitled to notice of, or to vote at a meeting of
shareholders, such books shall be closed for at least ten days immediately
preceding such meeting. In lieu of closing the stock transfer books, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than fifty
days and, in case of a meeting of shareholders, not less than ten days prior
to the date on which the particular action requiring such determination of
shareholders is to be taken. If the stock transfer books are not closed and
no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders, or shareholders entitled to
receive payment of a dividend, the date on which notice of the meeting is
mailed or the date on which the resolution of the Board of Directors declaring
such dividend is adopted, as the case may be, shall be the record date for
such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
ARTICLE III
SHAREHOLDERS AND MEETINGS THEREOF
3.1 Shareholders of Record. Only shareholders of record on the books of
the corporation shall be entitled to be treated by the corporation as holders
in fact of the shares standing in their respective names, and the corporation
shall not be bound to recognize any equitable or other claim to, or interest
in, any shares on the part of any other person, firm or corporation, whether
or not it shall have express or other notice thereof, except as expressly
provided by the laws of Colorado.
3.2 Meetings. Meetings of shareholders shall be held at the principal
office of the corporation, or at such other place as specified from time to
time by the Board of Directors. If the Board of Directors shall specify
another location such change in location shall be recorded on the notice
calling such meeting.
3.3 Annual Meeting. In the absence of a resolution of the Board of
Directors providing otherwise, the annual meeting of shareholders of the
corporation for the election of directors, and for the transaction of such
other business as may properly come before the meeting, shall be held at such
time as may be determined by Board of Directors by resolution in conformance
with Colorado law. If the election of Directors shall not be held on the day
so designated for any annual meeting of the shareholders, the Board of
Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as may be convenient.
3.4 Special Meetings. Special meetings of shareholders, for any purpose
or purposes, unless otherwise prescribed by statute, may be called by the
President, the Board of Directors, the holders of not less than one-tenth of
all the shares entitled to vote at the meeting, or legal counsel of the
corporation as last designated by resolution of the Board of Directors.
3.5 Notice. Written notice stating the place, day and hour of the
meeting and, in case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered unless otherwise prescribed by
statute not less than ten days nor more than sixty days before the date of the
meeting, either personally or by mail, by or at the direction of the
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President, the Secretary, or the officer or person calling the meeting to each
shareholder of record entitled to vote at such meeting; except that, if the
authorized shares are to be increased, at least thirty days' notice shall be
given. Notice to shareholders of record, if mailed, shall be deemed given as
to any shareholder of record, when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock
transfer books of the corporation, with postage thereon prepaid, but if three
successive letters mailed to the last-known address of any shareholder of
record are returned as undeliverable, no further notices to such shareholder
shall be necessary, until another address for such shareholder is made known
to the corporation.
3.6 Meeting of All Shareholders. If all of the shareholders shall meet
at any time and place, either within or without the State of Colorado, and
consent to the holding of a meeting at such time and place, such meeting shall
be valid without call or notice, and at such meeting any corporate action may
be taken.
3.7 Voting Record. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make, at least ten days
before such meeting of shareholders, a complete record of the shareholders
entitled to vote at each meeting of shareholders or any adjournment thereof,
arranged in alphabetical order, with the address and the number of shares held
by each. The record, for a period of ten days prior to such meeting, shall be
kept on file either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held, whether within or
without the State of Colorado, and shall be subject to inspection by any
shareholder for any purpose germane to the meeting at any time during usual
business hours. Such record shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
for any purpose germane to the meeting during the whole time of the meeting
for the purposes thereof. The original stock transfer books shall be the
prima facie evidence as to who are the shareholders entitled to examine the
record or transfer books or to vote at any meeting of shareholders.
3.8 Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any meeting of shareholders, except as otherwise provided by the Colorado
Business Corporation Act and the Articles of Incorporation. In the absence of
a quorum at any such meeting, a majority of the shares so represented may
adjourn the meeting from time to time for a period not to exceed sixty days
without further notice. At such adjourned meeting at which a quorum shall be
presentor represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. The shareholders present at
a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
3.9 Manner of Acting. If a quorum is present, the affirmative vote of
the majority of the shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the shareholders, unless the vote of a
greater proportion or number or voting by classes is otherwise required by
statute or by the Articles of Incorporation or these Bylaws.
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3.10 Proxies. At all meetings of shareholders a shareholder may vote in
person or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the Secretary of
the corporation before or at the time of the meeting. No proxy shall be valid
after three years from the date of its execution, unless otherwise provided in
the proxy.
3.11 Voting of Shares. Unless otherwise provided by these Bylaws or the
Articles of Incorporation, each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders, and each fractional share shall be entitled to a corresponding
fractional vote on each such matter.
3.12 Voting of Shares by Certain Holders. Shares standing in the name
of another corporation may be voted by such officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such other corporation may determine.
Shares standing in the name of a deceased person, a minor ward or an
incompetent person, may be voted by his administrator, executor, court
appointed guardian or conservator, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor, court
appointed guardian or conservator. Shares standing in the name of a trustee
may be voted by him, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him without a transfer of such shares into his
name. Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted
by such receiver without the transfer thereof into his name if authority so to
do be contained in an appropriate order of the court by which such receiver
was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so
transferred. Neither shares of its own stock belonging to this corporation,
nor shares of its own stock held by it in a fiduciary capacity, nor shares of
its own stock held by another corporation if the majority of shares entitled
to vote for the election of directors of such corporation is held by this
corporation may be voted, directly or indirectly, at any meeting and shall not
be counted in determining the total number of outstanding shares at any given
time. Redeemable shares which have been called for redemption shall not be
entitled to vote on any matter and shall not be deemed outstanding shares on
and after the date on which written notice of redemption has been mailed to
shareholders and a sum sufficient to redeem such shares has been irrevocably
deposited or set aside to pay the redemption price to the holders of the
shares upon surrender of certificates therefor.
3.13 Informal Action by Shareholders. Any action required or permitted
to be taken at a meeting of the shareholders may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by
all of the shareholders entitled to vote with respect to the subject matter
thereof.
3.14 Voting by Ballot. Voting on any question or in any election may be
by voice vote unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.
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3.15 Cumulative Voting. No shareholder shall be permitted to cumulate
his votes by giving one candidate as many votes as the number of such
directors multiplied by the number of his shares shall equal, or by
distributing such votes on the same principal among any number of candidates.
ARTICLE IV
DIRECTORS, POWERS AND MEETINGS
4.1 Board of Directors. The business and affairs of the corporation
shall be managed by a board of not less than one (1) nor more than seven (7)
directors. Directors need not be shareholders of the corporation or residents
of the State of Colorado and who shall be elected at the annual meeting of
shareholders or some adjournment thereof. Directors shall hold office until
the next succeeding annual meeting of shareholders and until their successors
shall have been elected and shall qualify. The Board of Directors may
increase or decrease, to not less than one (1) nor more than seven (7), the
number of directors by resolution.
4.2 Regular Meetings. A regular, annual meeting of the Board of
Directors shall be held at the same place as, and immediately after, the
annual meeting of shareholders, and no notice shall be required in connection
therewith. The annual meeting of the Board of Directors shall be for the
purpose of electing officers and the transaction of such other business as may
come before the meeting. The Board of Directors may provide, by resolution,
the time and place, either within or without the State of Colorado, for the
holding of additional regular meetings without other notice than such
resolution.
4.3 Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the President or any two directors if there are
two or more directors of the Corporation. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either
within or without the State of Colorado, as the place for holding any special
meeting of the Board of Directors called by them.
4.4 Notice. Written notice of any special meeting of directors shall be
given as follows:
(a) By mail to each director at his business address at least three
days prior to the meeting; or
(b) By personal delivery or telegram at least twenty-four hours
prior to the meeting to the business address of each director, or in the event
such notice is given on a Saturday, Sunday or holiday, to the residence
address of each director. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed
to be delivered when the telegram is delivered to the telegraph company. Any
director may waive notice of any meeting. The attendance of a director at any
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
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4.5 Participation by Electronic Means. Except as may be otherwise
provided by the Articles of Incorporation or Bylaws, members of the Board of
Directors or any committee designated by such Board may participate in a
meeting of the Board or committee by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear each other at the same time. Such participation shall constitute
presence in person at the meeting.
4.6 Quorum and Manner of Acting. A quorum at all meetings of the Board
of Directors shall consist of a majority of the number of directors then
holding office, but a smaller number may adjourn from time to time without
further notice, until a quorum is secured. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors, unless the act of a greater number is required by
the laws of the State of Colorado or by the Articles of Incorporation or these
Bylaws.
4.7 Organization. The Board of Directors shall elect a chairman to
preside at each meeting of the Board of Directors. The Board of Directors
shall elect a Secretary to record the discussions and resolutions of each
meeting.
4.8 Presumption of Assent. A director of the corporation who is present
at a meeting of the Board of Directors at which action on any corporate matter
is taken shall be presumed to have assented to the action taken unless his
dissent shall be entered in the minutes of the meeting or unless he shall file
his written dissent to such action with the person acting as the Secretary of
the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
4.9 Informal Action By Directors. Any action required or permitted to
be taken by the Board of Directors, or a committee thereof, at a meeting may
be taken without a meeting if a consent in writing, setting forth the action
so taken, shall be signed by all the directors or all the committee members
entitled to vote with respect to the subject matter thereof.
4.10 Vacancies. Any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum of the Board of Directors. A director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office,
and shall hold such office until his successor is duly elected and shall
qualify. Any directorship to be filled by reason of an increase in the number
of directors shall be filled by the affirmative vote of a majority of the
directors then in office or by an election at an annual meeting, or at a
special meeting of shareholders called for that purpose. A director chosen to
fill a position resulting from an increase in the number of directors shall
hold office only until the next election of directors by the shareholders.
4.11 Compensation. By resolution of the Board of Directors and
irrespective of any personal interest of any of the members, each director may
be paid his expenses, if any, of attendance at each meeting of the Board of
Directors, and may be paid a stated salary as director or a fixed sum for
attendance at each meeting of the Board of Directors or both. No such payment
shall preclude any director from serving the corporation in any other capacity
and receiving compensation therefor.
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4.12 Removal of Directors. Any director or directors of the corporation
may be removed at any time, with or without cause, in the manner provided in
the Colorado Business Corporation Act.
4.13 Resignations. A director of the corporation may resign at any time
by giving written notice to the Board of Directors, President or Secretary of
the corporation. The resignation shall take effect upon the date of receipt
of such notice, or at any later period of time specified therein. The
acceptance of such resignation shall not be necessary to make it effective,
unless the resignation requires it to be effective as such.
4.14 General Powers. The business and affairs of the corporation shall
be managed by the Board of Directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders. The directors shall pass upon any and
all bills or claims of officers for salaries or other compensation and, if
deemed advisable, shall contract with officers, employees, directors,
attorneys, accountants, and other persons to render services to the
corporation.
ARTICLE V
OFFICERS
5.1 Term and Compensation. The elective officers of the corporation
shall consist of at least a President, a Secretary and a Treasurer, each of
whom shall be eighteen years or older and who shall be elected by the Board of
Directors at its annual meeting. Unless removed in accordance with procedures
established by law and these Bylaws, the said officers shall serve until the
next succeeding annual meeting of the Board of Directors and until their
respective successors are elected and shall qualify. Any number of offices
may be held by the same person at the same time. The Board may elect or
appoint such other officers and agents as it may deem advisable, who shall
hold office during the pleasure of the Board.
5.2 Powers. The officers of the corporation shall exercise and perform
the respective powers, duties and functions as are stated below, and as may be
assigned to them by the Board of Directors.
(a) The President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside, when present, at all meetings of the
shareholders and of the Board of Directors unless a different chairman of such
meetings is elected by the Board of Directors.
(b) In the absence or disability of the President, the
Vice-President or Vice-Presidents, if any, in order of their rank as fixed by
the Board of Directors, and if not ranked, the Vice-Presidents in the order
designated by the Board of Directors, shall perform all the duties of the
President, and when so acting shall have all the powers of, and be subject to
all the restrictions on the President. Each Vice-President shall have such
other powers and perform such other duties as may from time to time be
assigned to him by the President or the Board of Directors.
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(c) The Secretary shall prepare and maintain accurate minutes of
all meetings of the shareholders and the Board of Directors unless a different
Secretary of such meetings is elected by the Board of Directors. He shall
keep, or cause to be kept a record of the shareholders of the corporation and
shall be responsible for the giving of notice of meetings of the shareholders
or the Board of Directors. The Secretary shall prepare and maintain any and
all other records and information required to be kept by the corporation under
Section 7-116-101 of the Colorado Business Corporation Act. The Secretary
shall have the responsibility for authenticating records of the corporation.
The Secretary shall be custodian of the records and of the seal of the
corporation and shall attest the affixing of the seal of the corporation when
so authorized. The Secretary or Assistant Secretary shall sign all stock
certificates, as described in Section 2.2 hereof. The Secretary shall perform
all duties commonly incident to his office and such other duties as may from
time to time be assigned to him by the President or the Board of Directors.
(d) An Assistant Secretary may, at the request of the Secretary, or
in the absence or disability of the Secretary, perform all of the duties of
the Secretary. He shall perform such other duties as may be assigned to him
by the President or by the Secretary.
(e) The Treasurer, subject to the order of the Board of Directors,
shall have the care and custody of the money, funds, valuable papers and
documents of the corporation. He shall keep accurate books of accounts of the
corporation's transactions, which shall be the property of the corporation,
and shall render financial reports and statements of condition of the
corporation when so requested by the Board of Directors or President. The
Treasurer shall perform all duties commonly incident to his office and such
other duties as may from time to time be assigned to him by the President or
the Board of Directors. In the absence or disability of the President and
Vice-President or Vice-Presidents, the Treasurer shall perform the duties of
the President.
(f) An Assistant Treasurer may, at the request of the Treasurer, or
in the absence or disability of the Treasurer, perform all of the duties of
the Treasurer. He shall perform such other duties as may be assigned to him
by the President or by the Treasurer.
5.3 Compensation. All officers of the corporation may receive salaries
or other compensation if so ordered and fixed by the Board of Directors. The
Board of Directors shall have authority to fix salaries in advance for stated
periods or render the same retroactive as the Board may deem advisable.
5.4 Delegation of Duties. In the event of absence or inability of any
officer to act, the Board of Directors may delegate the powers or duties of
such officer to any other officer, director or person whom it may select.
5.5 Bonds. If the Board of Directors by resolution shall so require,
any officer or agent of the corporation shall give bond to the corporation in
such amount and with such surety as the Board of Directors may deem
sufficient, conditioned upon the faithful performance of their respective
duties and offices.
5.6 Removal. Any officer or agent may be removed by the Board of
Directors or by the executive committee, if any, whenever in its judgment the
best interest of the corporation will be served thereby, but such removal
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shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent shall not, of itself,
create contract rights.
ARTICLE VI
FINANCE
6.1 Reserve Funds. The Board of Directors, in its uncontrolled
discretion, may set aside from time to time, out of the net profits or earned
surplus of the corporation, such sum or sums as it deems expedient as a
reserve fund to meet contingencies, for equalizing dividends, for maintaining
any property of the corporation, and for any other purpose.
6.2 Banking. The moneys of the corporation shall be deposited in the
name of the corporation in such bank or banks or trust company or trust
companies, as the Board of Directors shall designate, and may be drawn out
only on checks signed in the name of the corporation by such person or persons
as the Board of Directors, by appropriate resolution, may direct. Notes and
commercial paper, when authorized by the Board, shall be signed in the name of
the corporation by such officer or officers or agent or agents as shall
thereunto be authorized from time to time.
ARTICLE VII
DIVIDENDS
Subject to the provisions of the Articles of Incorporation and the laws of
the State of Colorado, the Board of Directors may declare dividends whenever,
and in such amounts, as in the Board's opinion the condition of the affairs of
the corporation shall render such advisable.
ARTICLE VIII
CONTRACTS, LOANS AND CHECKS
8.1 Execution of Contracts. Except as otherwise provided by statute or
by these Bylaws, the Board of Directors may authorize any officer or agent of
the corporation to enter into any contract, or execute and deliver any
instrument in the name of, and on behalf of the corporation. Such authority
may he general or confined to specific instances and, unless so authorized, no
officer, agent or employee shall have any power to bind the corporation for
any purpose, except as may be necessary to enable the corporation to carry on
its normal and ordinary course of business.
8.2 Loans. No loans shall be contracted on behalf of the corporation
and no negotiable paper shall be issued in its name unless authorized by the
Board of Directors. When so authorized, any officer or agent of the
corporation may effect loans and advances at any time for the corporation from
any bank, trust company or institution, firm, corporation or individual. An
agent so authorized may make and deliver promissory notes or other evidence of
indebtedness of the corporation and may mortgage, pledge, hypothecate or
transfer any real or personal property held by the corporation as security for
the payment of such loans. Such authority, in the Board of Directors'
discretion, may be general or confined to specific instances.
8.3 Checks. Checks, notes, drafts and demands for money or other
evidence of indebtedness issued in the name of the corporation shall be signed
by such person or persons as designated by the Board of Directors and in the
manner the Board of Directors prescribes.
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8.4 Deposits. All funds of the corporation not otherwise employed shall
be deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the Board of Directors may select.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall be the year adopted by
resolution of the Board of Directors.
ARTICLE X
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words "CORPORATE SEAL".
ARTICLE XI
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by a majority of the Directors present at any meeting of the Board of
Directors of the corporation at which a quorum is present.
ARTICLE XII
EXECUTIVE COMMITTEE
12.1 Appointment. The Board of Directors by resolution adopted by a
majority of the full Board, may designate two or more of its members to
constitute an executive committee. The designation of such committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed by law.
12.2 Authority. The executive committee, when the Board of Directors is
not in session shall have and may exercise all of the authority of the Board
of Directors except to the extent, if any, that such authority shall be
limited by the resolution appointing the executive committee and except also
that the executive committee shall not have the authority of the Board of
Directors in reference to amending the Articles of Incorporation, adopting a
plan of merger or consolidation, recommending to the shareholders the sale,
lease or other disposition of all or substantially all of the property and
assets of the corporation otherwise than in the usual and regular course of
its business, recommending to the shareholders a voluntary dissolution of the
corporation or a revocation thereof, or amending the Bylaws of the
corporation.
12.3 Tenure and Qualifications. Each member of the executive committee
shall hold office until the next regular annual meeting of the Board of
Directors following his designation.
12.4 Meetings. Regular meetings of the executive committee may be held
without notice at such time and places as the executive committee may fix from
time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating
the place, date and hour of the meeting, which notice may be written or oral,
and if mailed, shall be deemed to be delivered when deposited in the United
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States mail addressed to the member of the executive committee at his business
address. Any member of the executive committee may waive notice of any
meeting and no notice of any meeting need be given to any member thereof who
attends in person. The notice of a meeting of the executive committee need
not state the business proposed to be transacted at the meeting.
12.5 Quorum. A majority of the members of the executive committee shall
constitute a quorum for the transaction of business at any meeting thereof,
and action of the executive committee must be authorized by the affirmative
vote of a majority of the members present at a meeting at which a quorum is
present.
12.6 Informal Action by Executive Committee. Any action required or
permitted to be taken by the executive committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the members of the committee entitled to vote with
respect to the subject matter thereof.
12.7 Vacancies. Any vacancy in the executive committee may be filled by
a resolution adopted by a majority of the full Board of Directors.
12.8 Resignations and Removal. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full Board of Directors. Any member of the executive
committee may resign from the executive committee at any time by giving
written notice to the President or Secretary of the corporation, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
12.9 Procedure. The executive committee shall elect a presiding officer
from its members and may fix its own rules of procedure which shall not be
inconsistent with these Bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information
at the meeting thereof held next after the proceedings shall have been taken.
ARTICLE XIII
EMERGENCY BYLAWS
The Emergency Bylaws provided for in this Article shall be operative
during any emergency in the conduct of the business of the corporation
resulting from an attack on the United States or any nuclear or atomic
disaster, notwithstanding any different provision in the preceding articles of
the Bylaws or in the Articles of Incorporation of the corporation or in the
Colorado Business Corporation Act. To the extent not inconsistent with the
provisions of this Article, the Bylaws provided in the preceding articles
shall remain in effect during such emergency and upon its termination the
Emergency Bylaws shall cease to be operative.
During any such emergency:
(a) A meeting of the Board of Directors may be called by any
officer or director of the corporation. Notice of the time and place of the
meeting shall be given by the person calling the meeting to such of the
directors as it may be feasible to reach by any available means of
communication. Such notice shall be given at such time in advance of the
meeting as circumstances permit in the judgment of the person calling the
meeting.
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(b) At any such meeting of the Board of Directors, a quorum shall
consist of the number of directors in attendance at such meeting.
(c) The Board of Directors, either before or during any such
emergency, may, effective in the emergency, change the principal office or
designate several alternative principal offices or regional offices, or
authorize the officers so to do.
(d) The Board of Directors, either before or during any such
emergency, may provide, and from time to time modify, lines of succession in
the event that during such an emergency any or all officers or agents of the
corporation shall for any reason be rendered incapable of discharging their
duties.
(e) No officer, director or employee acting in accordance with
these Emergency Bylaws shall be liable except for willful misconduct.
(f) These Emergency Bylaws shall be subject to repeal or change by
further action of the Board of Directors or by action of the shareholders, but
no such repeal or change shall modify the provisions of the next preceding
paragraph with regard to action taken prior to the time of such repeal or
change. Any amendment of these Emergency Bylaws may make any further or
different provision that may be practical and necessary for the circumstances
of the emergency.
CERTIFICATE
I hereby certify that the foregoing Bylaws constitute the Bylaws of U.S.
Trucking, Inc. adopted by the Board of Directors of the corporation as of
August 31, 1999.
/s/ Marion Huff
Marion Huff, Secretary
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ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
U.S. TRUCKING, INC.
(SERIES B CONVERTIBLE PREFERRED STOCK)
FIRST:
That pursuant to authority expressly granted and vested in the Board of
Directors (the "Board of Directors" or the "Board") of this Corporation under
the Colorado Business Corporation Act and the provisions of the Articles of
Incorporation, the Board of Directors, on April 29, 1999, adopted the
following resolution setting forth the designations, powers, preferences and
rights of its Series B Convertible Preferred Stock (the "Statement of
Designation").
RESOLVED: That the designations, powers, preferences and rights of the Series
B Convertible Preferred Stock be, and they hereby are, as set forth below:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 2,000 shares of
Preferred Stock, is the Series B Convertible Preferred Stock (the "Series B
Preferred Stock") and the stated value shall be One Thousand U.S. Dollars
($1,000.00) per share (the "Stated Value").
II. NO DIVIDENDS
The Series B Preferred Stock will bear no dividends, and the holders of
the Series B Preferred Stock shall not be entitled to receive dividends on the
Series B Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Statement of Designation, the following terms shall
have the following meanings:
A. "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the over-the-counter market on the
electronic bulletin board (the "Bulletin Board") or principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg Financial Markets or if Bloomberg Financial Markets is not then
reporting closing bid prices of such security a comparable reporting service
of national reputation selected by the Corporation and reasonably acceptable
to holders of a majority of the then outstanding shares of Series B Preferred
Stock (collectively, "Bloomberg"). If the foregoing does not apply, if no bid
price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as reasonably determined by an investment banking firm selected by the
Corporation and reasonably acceptable to holders of a majority of the then
outstanding shares of Series B Preferred Stock, with the costs of such
appraisal to be borne by the Corporation.
<PAGE>
B. "Conversion Date" means, for any Conversion, the date on which the
notice of conversion in the form attached hereto (the "Notice of Conversion")
is delivered by fax, as evidenced by a mechanically or electronically
generated confirmation thereof, (or delivered by other means resulting in
notice) to the Corporation before 6:00 p.m., New York City time on the
Conversion Date indicated in the Notice of Conversion. The holder shall
confirm, by overnight courier, in person (by courier or otherwise) or by
telephone (to an authorized officer of the Corporation or his or her
administrative assistant), the delivery of the Notice of Conversion to the
Corporation on the date on which the Notice of Conversion is delivered or
before 9:00 a.m., New York City time on the trading day immediately succeeding
such date; provided that an overnight courier delivery which is signed for or
refused by the Corporation prior to 12:00 noon, New York City time on a given
day shall be deemed to have been delivered before 9:00 a.m. New York City time
on such day. If the Notice of Conversion is not so faxed or otherwise
delivered or the overnight courier, in-person or telephone confirmation is not
so made or deemed to be made before such applicable times, then the Conversion
Date shall be the date as of which both such conditions are satisfied (i.e.,
the Notice of Conversion is delivered on or before 6:00 p.m. New York City
time on a given day and the overnight courier, in-person or telephone
confirmation is made or deemed to be made either on such day of delivery or
before 9:00 a.m. New York City time on the immediately succeeding trading
day).
C. "Conversion Price" means the lower of the Fixed Conversion Price and
the Variable Conversion Price, each in effect as of such date and subject to
adjustment as provided herein.
D. "First Conversion Date" means, with respect to Series B Preferred
Stock issued on any Issue Date the earliest of (i) the 181st day following the
Initial Issuance Date, (ii) the date the Corporation makes a public
announcement that it intends to merge or consolidate with any other entity
(other than a merger in which the Corporation is the surviving or continuing
entity and the voting capital stock of the Corporation immediately prior to
such merger represents at least 50% of the voting power of the capital stock
of the Corporation after the merger) or to sell or transfer all or
substantially all of the assets of the Corporation, (iii) the date any person,
group or entity (including the Corporation) publicly announces a tender offer,
exchange offer or another transaction to purchase 50% or more of the
Corporation's outstanding Common Stock or otherwise publicly announces an
intention to replace a majority of the Corporation's Board of Directors by
waging proxy battle or otherwise, or (iv) the date on which a Redemption Event
described in Article VIII.A(iv) occurs.
E. "Fixed Conversion Price" means $2.59 (the average of the Closing Bid
Prices for the Corporation's common stock, no par value per share ("Common
Stock") during the five (5) consecutive trading days ending on the day
immediately prior to the Initial Issuance Date), and shall be subject to
adjustment as provided herein.
F. "Initial Issuance Date" means the date of the First Closing under
that certain Securities Purchase Agreement dated as of April 29, 1999 by and
among the Corporation and the other signatories thereto (the "Securities
Purchase Agreement").
G. "Issuance Date" means for each share of Series B Preferred Stock, the
date on which such share is first issued by the Corporation.
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H. "Market Price," as of any date, (i) means the average of the closing
bid prices for the shares of Common Stock as reported on the Bulletin Board by
Bloomberg for the ten consecutive trading days immediately preceding such
date, or (ii) if the Bulletin Board is not the principal trading market for
the shares of Common Stock, the average of the closing bid prices as reported
by Bloomberg on the principal trading market or exchange for the Common Stock
during the same period, or, if there is no sale price for such period, the
last reported bid price as reported by Bloomberg for such period, or (iii) if
market value cannot be calculated as of such date on any of the foregoing
bases, the Market Price shall be the average fair market value as reasonably
determined by an investment banking firm selected by the Corporation and
reasonably acceptable to the holder, with the costs of the appraisal to be
borne by the Corporation. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply with respect to
any other security in respect of which a determination as to market value must
be made hereunder.
I. "N" means, with respect to each share of Series B Preferred Stock,
the number of days from, but excluding, the Issuance Date until the date
Premium is first redeemed in accordance with Article IV.D hereof on such share
and thereafter the number of days from and including the date on which Premium
was last redeemed in accordance with Article IV.D hereof until the date
Premium is next redeemed on such share..
J. "Variable Conversion Price" means, as of any date of determination,
the amount obtained by multiplying 0.90 by the average of the Closing Bid
Prices for the Common Stock for any three (3) consecutive trading days chosen
by the holder of Series B Preferred Stock during the period beginning on the
twentieth trading day prior to the Conversion Date for such Conversion and
ending on such Conversion Date (subject to equitable adjustment for any stock
splits, stock dividends, reclassifications or similar events during such
trading day period), and shall be subject to adjustment as provided herein;
provided, however, beginning on that date which is one hundred eighty days
after the Initial Issuance Date, such twenty day period shall be increased by
one additional trading day for each thirty day period thereafter.
K. "Premium" means an amount equal to (X)x(N/365) x (1,000), where "X"
means twelve hundredths (.12).
IV. CONVERSION; REDEMPTION OF PREMIUM
A. Conversion at the Option of the Holder. Subject to the limitations
on conversions contained in Paragraph C of this Article IV and to the
Corporation's right of redemption contained in Article VIII.D, each holder of
shares of Series B Preferred Stock may, at any time and from time to time on
or after the First Conversion Date, convert (a "Conversion") each of its
shares of Series B Preferred Stock into a number of fully paid and
nonassessable shares of Common Stock determined in accordance with the
following formula:
$1,000
Conversion Price
B. Mechanics of Conversion. In order to effect a Conversion, a holder
shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of
Conversion to the Corporation or the transfer agent for the Common Stock and
(y) surrender or cause to be surrendered the original certificates
representing the Series B Preferred Stock being converted (the "Preferred
Stock Certificates"), duly endorsed, along with a copy of the Notice of
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Conversion as soon as practicable thereafter to the Corporation or the
transfer agent. The holder shall confirm by overnight courier, in person (by
courier or otherwise) or by telephone (to an authorized officer of the
Corporation or his or her administrative assistant), the delivery of the
Notice of Conversion to the Corporation on the date on which the Notice of
Conversion is delivered or before 9:00 a.m. New York City time on the trading
day immediately succeeding such date; provided that an overnight courier
delivery which is signed for or refused by the Corporation prior to 12:00
noon, New York City time on a given day shall be deemed to have been delivered
before 9:00 a.m. New York City time on such day. Upon receipt by the
Corporation of the Notice of Conversion by fax from a holder, the Corporation
shall, within one business day, following the later of the Corporation's
receipt of such Notice of Conversion and the holder's overnight courier,
in-person or telephone confirmation of the delivery of such Notice of
Conversion, send, via fax, a confirmation (the "Notice of Conversion
Confirmation") to such holder stating that the Notice of Conversion has been
received, the date upon which the Corporation expects to deliver the Common
Stock issuable upon such conversion, the name and telephone number of a
contact person at the Corporation regarding the conversion. The Corporation
shall not be obligated to issue shares of Common Stock upon a conversion
unless either the Preferred Stock Certificates are delivered to the
Corporation or the transfer agent as provided above, or the holder notifies
the Corporation or the transfer agent that such certificates have been lost,
stolen or destroyed and delivers the documentation to the Corporation required
by Article XIV.B hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the surrender
of Preferred Stock Certificates from a holder of Series B Preferred Stock
accompanied by a Notice of Conversion, the Corporation shall, subject to the
Corporation's redemption rights set forth in Article VIII.D, no later than the
later of (a) the third business day following the Conversion Date and (b) the
business day following the date of such surrender (or, in the case of lost,
stolen or destroyed certificates, after provision of documentation pursuant
to Article XIV.B) (the "Delivery Period"), issue and deliver to the holder or
its nominee, after registration of the resale of such shares under the
Securities Act of 1933, as amended (the "Securities Act"), or delivery of
documentation reasonably satisfactory to the Corporation that the registration
of such shares is not required, to such holder's nominee, (x) that number of
shares of Common Stock issuable upon conversion of such shares of Series B
Preferred Stock being converted and (y) a certificate representing the number
of shares of Series B Preferred Stock not being converted, if any. If the
Corporation's transfer agent is participating in the Depository Trust
Corporation ("DTC") Fast Automated Securities Transfer program, and so long as
the certificates therefor do not bear a legend and the holder thereof is not
then required to return such certificate for the placement of a legend
thereon, the Corporation may cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the holder by crediting
the account of the holder or its nominee with DTC through its Deposit
Withdrawal Agent Commission system ("DTC Transfer"). If the aforementioned
conditions to a DTC Transfer are not satisfied or a DTC Transfer is otherwise
not effected, the Corporation shall deliver to the holder physical
certificates representing the Common Stock issuable upon conversion. Further,
a holder may instruct the Corporation to deliver to the holder physical
certificates representing the Common Stock issuable upon conversion in lieu of
delivering such shares by way of DTC Transfer.
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(ii) Taxes. The Corporation shall pay any and all taxes which may
be imposed upon the Corporation with respect to the issuance and delivery of
the shares of Common Stock upon the conversion of the Series B Preferred Stock
other than transfer taxes due upon conversion, if such holder has transferred
to another party the Series B Preferred Stock or the right to receive Common
Stock upon the holder's conversion thereof.
(iii) No Fractional Shares. If any conversion of Series B
Preferred Stock would result in the issuance of a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock shall be
rounded up or down to the nearest whole share, it being understood that .5 of
one share shall be rounded up to the next highest share.
(iv) Conversion Disputes. In the case of any dispute with respect
to a conversion, the Corporation shall promptly issue such number of shares of
Common Stock as are not disputed in accordance with subparagraph (i) above.
If such dispute involves the calculation of the Conversion Price, the
Corporation shall submit the disputed calculations to the Corporation's
outside auditors reasonably acceptable to the holder of Series B Preferred
Stock being converted via facsimile at any time prior to the expiration of the
Delivery Period. The accountant, at the Corporation's expense, shall audit the
calculations and notify the Corporation and the holder of the results as soon
as practicable following the date it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive, absent manifest error.
The Corporation shall then issue the appropriate number of shares of Common
Stock in accordance with subparagraph (i) above.
C. Limitations on Conversions. The conversion of shares of Series B
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Cap Amount. If, notwithstanding the representations and
warranties of the Corporation contained in the Securities Purchase Agreement,
the Corporation is prohibited by the rules or regulations of any securities
exchange or quotation system on which the Common Stock is then listed or
traded, from listing or issuing a number of shares of Common Stock in excess
of a prescribed amount (the "Cap Amount") without the approval of the
Corporation's shareholders, then the Corporation shall not be required to list
or issue, as applicable, shares in excess of the Cap Amount unless the
Corporation has obtained the required approvals. The Cap Amount shall be
allocated pro rata to the holders of Series B Preferred Stock as provided in
Article XIV.C. In the event a holder of Series B Preferred Stock submits a
Notice of Conversion and the Corporation is prohibited from listing or issuing
shares of Common Stock to satisfy such Notice of Conversion as a result of the
operation of this subparagraph (i), such holder shall be entitled to the
rights set forth in Article VII hereof.
(ii) No Five Percent Holders. Unless a holder of shares of Series B
Preferred Stock delivers a waiver in accordance with the last sentence of this
subparagraph (ii), in no event shall a holder of shares of Series B Preferred
Stock be entitled to receive shares of Common Stock upon a conversion to the
extent that the sum of (x) the number of shares of Common Stock beneficially
owned by the holder and its affiliates (exclusive of shares issuable upon
conversion of the unconverted portion of the shares of Series B Preferred
Stock or the unexercised or unconverted portion of any other securities of the
Corporation (including, without limitation, the warrants (the "Warrants")
issued by the Corporation pursuant to the Securities Purchase Agreements)
subject to a limitation on conversion or exercise analogous to the limitations
contained herein) and (y) the number of shares of Common Stock issuable upon
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the conversion of the shares of Series B Preferred Stock with respect to which
the determination of this subparagraph is being made, would result in
beneficial ownership by the holder and its affiliates of more than 4.99% of
the outstanding shares of Common Stock. For purposes of this subparagraph,
beneficial ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and Regulation 13 D-G
thereunder, except as otherwise provided in clause (x) above. Except as
provided in the immediately succeeding sentence, the restriction contained in
this subparagraph (ii) shall not be altered, amended, deleted or changed in
any manner whatsoever unless the holders of a majority of the outstanding
shares of Common Stock and each holder of outstanding shares of Series B
Preferred Stock shall approve such alteration, amendment, deletion or change.
Notwithstanding the foregoing, a holder of shares of Series B Preferred Stock
may, by providing written notice to the Corporation, adjust the restriction
set forth in this subparagraph (ii) so that the limitation on beneficial
ownership of 4.99% of the outstanding shares of Common Stock referred to above
shall be increased to 9.99%, which adjustment shall not take effect until the
61st day after the date of such notice.
(iii) Percentage Limits on Conversion. Notwithstanding anything to
the contrary contained herein, no holder of shares of Series B Preferred Stock
may, without the prior written consent of the Corporation, on any one trading
day convert into shares of Common Stock a number of shares of Series B
Preferred Stock in excess of ten percent (10%) of the aggregate number of
shares of Series B Preferred Stock purchased by such holder from the
Corporation.
D. Redemption of Premium. The Corporation shall, on the fifteenth
(15th) day of each calendar month, redeem in cash any and all accrued and
unpaid Premium as of such date. All such redemption payments hereunder shall
be paid in lawful money of the United States of America at such address for
the holder as appears on the record books of the Corporation (or at such other
address as such holder shall hereafter give to the Corporation by written
notice).
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. On the Issuance Date of shares of Series B
Preferred Stock, the Corporation shall reserve 200% of the number of shares
which would be issuable if the outstanding shares of Series B Preferred Stock
were converted in their entirety on the such Issuance Date based on the
Conversion Price in effect on such Issuance Date of the authorized but
unissued shares of Common Stock for issuance upon conversion of the Series B
Preferred Stock and thereafter the number of authorized but unissued shares of
Common Stock so reserved (the "Reserved Amount") shall not be decreased and
shall at all times be sufficient to provide for the conversion of the Series B
Preferred Stock outstanding at the then current Conversion Price thereof. The
Reserved Amount shall be allocated to the holders of Series B Preferred Stock
as provided in Article XIV.C.
B. Increases to Reserved Amount. If the Reserved Amount for any three
consecutive trading days (the last of such three trading days being the
"Authorization Trigger Date") shall be less than 135% of the number of shares
of Common Stock issuable upon conversion of the then outstanding shares of
Series B Preferred Stock, the Corporation shall immediately notify the holders
of Series B Preferred Stock of such occurrence and shall take immediate action
(including, if necessary, seeking shareholder approval to authorize the
issuance of additional shares of Common Stock) to increase the Reserved Amount
to 200% of the number of shares of Common Stock then issuable upon conversion
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of the outstanding Series B Preferred Stock. In the event the Corporation
fails to so increase the Reserved Amount within 90 days after an Authorization
Trigger Date (such event being the "Reserved Amount Trigger Event"), each
holder of Series B Preferred Stock shall thereafter have the option,
exercisable in whole or in part at any time and from time to time by delivery
of a Redemption Notice (as defined in Article VIII.C) to the Corporation, to
require the Corporation to purchase for cash, at an amount per share equal to
the Redemption Amount (as defined in Article VIII.B), a portion of the
holder's Series B Preferred Stock such that, after giving effect to such
purchase, the holder's allocated portion of the Reserved Amount exceeds 135%
of the total number of shares of Common Stock issuable to such holder upon
conversion of its Series B Preferred Stock. If the Corporation fails to
redeem any of such shares within five (5) business days after its receipt of
such Redemption Notice, then such holder shall be entitled to the remedies
provided in Article VIII.C.
C. Adjustment to Conversion Price. If the Corporation is prohibited, at
any time, from issuing shares of Common Stock upon conversion of Series B
Preferred Stock to any holder because the Corporation does not then have
available a sufficient number of authorized and reserved shares of Common
Stock, then the Fixed Conversion Price in respect of any shares of Series B
Preferred Stock held by any holder (including shares of Series B Preferred
Stock submitted to the Corporation for conversion, but for which shares of
Common Stock have not been issued to any such holder) shall be adjusted as
provided in Article VI.A.
D. Limitations on Redemption Right. Notwithstanding the provisions of
Paragraph B of this Article V, the holders of Series B Preferred Stock shall
have no right to require the Corporation to effect a redemption of their
outstanding shares of Series B Preferred Stock as provided in Paragraph B of
this Article V so long as (i) the Corporation has not, at any time, decreased
the Reserved Amount below that number of shares of Common Stock computed as
set forth in Article V.A.; (ii) the Corporation shall have taken immediate
action following the applicable Authorization Trigger Date (including, if
necessary, seeking stockholder approval to authorize the issuance of
additional shares of Common Stock) to increase the Reserved Amount to 200% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series B Preferred Stock; and (iii) the Corporation continues to
use all commercially reasonable good faith best efforts (including the
resolicitation of stockholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to 200% of the number
of shares of Common Stock then issuable upon conversion of the outstanding
Series B Preferred Stock. The Corporation will be deemed to be using "all
commercially reasonable good faith best efforts" to increase the Reserved
Amount so long as it solicits stockholder approval to authorize the issuance
of additional shares of Common Stock not less than three (3) times during each
twelve month period following the applicable Authorization Trigger Date during
which any shares of Series B Preferred Stock remain outstanding.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Defaults. The following shall constitute a "Conversion
Default": (i) following the submission by a holder of shares of Series B
Preferred Stock of a Notice of Conversion, the Corporation fails for any
reason (other than because of an event described in clause (iii) below) to
deliver, on or prior to the tenth business day following the expiration of the
Delivery Period for such conversion, such number of shares of Common Stock
without a restrictive legend covered by an effective registration statement to
which such holder is entitled upon such conversion, (ii) the Corporation
provides notice to any holder of Series B Preferred Stock at any time of its
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intention not to issue freely tradeable shares of Common Stock upon exercise
by any holder of its conversion rights in accordance with the terms of this
Statement of Designation (other than because of an event described in clause
(iii) below), or (iii) the Corporation is prohibited, at any time, from
listing shares of Common Stock or from issuing shares of Common Stock upon
conversion of Series B Preferred Stock to any holder because the Corporation
(A) does not at the date of such conversion have available a sufficient number
of authorized and reserved shares of Common Stock or (B) such listing or
issuance would exceed the then unissued portion of such holder's Cap Amount.
In the case of a Conversion Default described in clause (i) or (iii) above,
the Fixed Conversion Price in respect of any shares of Series B Preferred
Stock held by such holder (including shares of Series B Preferred Stock
submitted to the Corporation for conversion, but for which shares of Common
Stock have not been issued to such holder) shall thereafter be the lesser of
(x) the Fixed Conversion Price on the date of the Conversion Default and (y)
the lowest Conversion Price in effect during the period beginning on, and
including, such date through and including (A) in the case of a Conversion
Default referred to in clause (i) above, the earlier of (1) the day such
shares of Common Stock are delivered to the holder and (2) the day on which
the holder regains its rights as a holder of Series B Preferred Stock with
respect to such unconverted shares of Series B Preferred Stock pursuant to the
provisions of Article XIV.F hereof, and (B) in the case of a Conversion
Default referred to in clause (iii) above, the date on which the prohibition
on listing or issuance of Common Stock terminates. In the case of a
Conversion Default described in clause (ii) above, the Fixed Conversion Price
with respect to any conversion thereafter shall be the lowest Conversion Price
in effect at any time during the period beginning on, and including, the date
of the occurrence of such Conversion Default through and including the Default
Cure Date (as defined below). Following any adjustment to the Fixed
Conversion Price pursuant to this Article VI.A, the Fixed Conversion Price
shall thereafter be subject to further adjustment for any events described in
Article XI. Upon the occurrence of each reset of the Fixed Conversion Price
pursuant to this Paragraph A, the Corporation, at its expense, shall promptly
compute the new Fixed Conversion Price and prepare and furnish to each holder
of Series B Preferred Stock a certificate setting forth such new Fixed
Conversion Price and showing in detail each Conversion Price in effect during
such reset period.
"Default Cure Date" means (i) with respect to a Conversion Default
described in clause (i) of its definition, the date the Corporation effects
the conversion of the full number of shares of Series B Preferred Stock, (ii)
with respect to a Conversion Default described in clause (ii) of its
definition, the date the Corporation issues shares of Common Stock without a
restrictive legend covered by an effective registration statement in
satisfaction of all conversions of Series B Preferred Stock in accordance with
Article IV.A, and (iii) with respect to a Conversion Default described in
clause (i) or clause (ii) of its definition, the date on which the Corporation
redeems shares of Series B Preferred Stock held by such holder pursuant to
paragraph C of this Article VI.
B. Intentionally Omitted.
C. Redemption Right. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the holder, for any reason (other than because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures the holders shall have the remedies
set forth in Articles V and VII, respectively) to issue shares of Common Stock
within 10 business days after the expiration of the Delivery Period with
respect to any conversion of Series B Preferred Stock, then the holder may
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elect at any time and from time to time prior to the Default Cure Date for
such Conversion Default, by delivery of a Redemption Notice to the
Corporation, to have all of such holder's shares of Series B Preferred Stock
which were submitted for conversion purchased by the Corporation for cash, at
an amount per share equal to the Redemption Amount (as defined in Article
VIII.B). If the Corporation fails to redeem any of such shares within five
business days after its receipt of such Redemption Notice, then such holder
shall be entitled to the remedies provided in Article VIII.C.
D. Void Notice of Conversion. If for any reason a holder has not
received all of the shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion
of Series B Preferred Stock and such shares are not subject to a redemption
notice from the holder thereof, then the holder, upon written notice to the
Corporation's transfer agent, with a copy to the Corporation, may void its
Notice of Conversion with respect to, and retain or have returned, as the case
may be, any shares of Series B Preferred Stock that have not been converted
pursuant to such holder's Notice of Conversion; provided that the voiding of a
holder's Notice of Conversion shall not affect such holders rights and
remedies which have accrued prior to the date of such notice pursuant to
Article VI hereof or otherwise.
VII. INABILITY TO LIST OR CONVERT DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time after April 30, 1999 the then
unissued portion of any holder's Cap Amount is less than 135% of the number of
shares of Common Stock then issuable upon conversion of such holder's shares
of Series B Preferred Stock (a "Trading Market Trigger Event"), the
Corporation shall immediately notify the holders of Series B Preferred Stock
of such occurrence and shall take immediate action (including, if necessary,
seeking the approval of its shareholders to authorize the listing or issuance
of the full number of shares of Common Stock which would be issuable upon the
conversion of the then outstanding shares of Series B Preferred Stock but for
the Cap Amount) to eliminate any prohibitions under applicable law or the
rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Corporation or
any of its securities on the Corporation's ability to list or issue shares of
Common Stock in excess of the Cap Amount ("Trading Market Prohibitions"). In
the event the Corporation fails to eliminate all such Trading Market
Prohibitions within 120 days after the Trading Market Trigger Event, then each
holder of Series B Preferred Stock shall thereafter have the option,
exercisable in whole or in part at any time and from time to time until such
date that all such Trading Market Prohibitions are eliminated, by delivery of
a Redemption Notice (as defined in Article VIII.C) to the Corporation, to
require the Corporation to purchase for cash, at an amount per share equal to
the Redemption Amount, a number of the holder's shares of Series B Preferred
Stock such that, after giving effect to such redemption, the then unissued
portion of such holder's Cap Amount exceeds 135% of the total number of shares
of Common Stock issuable upon conversion of such holder's shares of Series B
Preferred Stock. If the Corporation fails to redeem any of such shares within
five (5) business days after its receipt of such Redemption Notice, then such
holder shall be entitled to the remedies provided in Articles VII.B and
VIII.C.
B. Remedies. If the Corporation fails to redeem any shares of Series B
Preferred Stock pursuant to Article VII.A within five business days after its
receipt of such Redemption Notice, and thereafter the Corporation is
prohibited, at any time, from listing shares of Common Stock or from issuing
shares of Common Stock upon conversion of Series B Preferred Stock to any
holder because such listing or issuance would exceed the then unissued portion
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of such holder's Cap Amount because of applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Corporation or its
securities, any holder who is so prohibited from converting its Series B
Preferred Stock because the shares of Common Stock underlying such Series B
Preferred Stock may not be listed or issued, may elect either or both of the
following additional remedies:
(i) to require, with the consent of holders of at least fifty
percent (50%) of the outstanding shares of Series B Preferred Stock (including
any shares of Series B Preferred Stock held by the requesting holder), the
Corporation to terminate the trading of its Common Stock on the Bulletin Board
(or any other stock exchange, interdealer quotation system or trading market)
and to cause its Common Stock to be eligible for trading on the "pink sheets";
or
(ii) to require the Corporation to issue shares of Common Stock in
accordance with such holder's Notice of Conversion at a conversion price equal
to the average of the Closing Bid Prices for the Common Stock during the five
consecutive trading days ending on the trading day immediately preceding the
date of the holder's written notice to the Corporation of its election to
receive shares of Common Stock pursuant to this subparagraph (ii) (subject to
equitable adjustment for any stock splits, stock dividends, reclassifications
or similar events during such five trading day period).
C. Adjustment to Conversion Price. If the Corporation is prohibited, at
any time, from listing shares of Common Stock or from issuing shares of Common
Stock upon conversion of Series B Preferred Stock to any holder because such
listing or issuance would exceed the then unissued portion of such holder's
Cap Amount because of applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or its securities, then the Fixed
Conversion Price in respect of any shares of Series B Preferred Stock held by
any holder (including shares of Series B Preferred Stock submitted to the
Corporation for conversion, but for which shares of Common Stock have not been
issued) shall be adjusted as provided in Article VI.A.
VIII. REDEMPTION
A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(vii) below after expiration of the applicable cure period (if
any) being a "Redemption Event"):
(i) the Common Stock (including, from and after the First Conversion
Date, any of the shares of Common Stock issuable upon conversion of the Series
B Preferred Stock) is suspended from trading on any of, or is not listed (and
authorized) for trading on at least one of, the Bulletin Board, NASDAQ Small
Cap Market, the NASDAQ National Market, the New York Stock Exchange or the
American Stock Exchange for an aggregate of 10 full trading days in any nine
month period;
(ii) the Corporation fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Series B
Preferred Stock (a "Legend Removal Failure") upon conversion of the Series B
Preferred Stock as and when required by this Statement of Designation, the
Securities Purchase Agreement or that certain Registration Rights Agreement
(the "Registration Rights Agreement") by and among the Corporation and the
other signatories thereto entered into in connection with the Securities
Purchase Agreement and any such failure continues uncured for ten business
days after the Corporation has been notified thereof in writing by the holder;
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(iii) the Corporation provides notice to any holder of Series B
Preferred Stock, including by way of public announcement, at any time, of its
intention not to issue, or otherwise refuses to issue, shares of Common Stock
to any holder of Series B Preferred Stock upon conversion in accordance with
the terms of this Statement of Designation (other than due to the
circumstances contemplated by Articles V or VII for which the holders shall
have the remedies set forth in such Articles);
(iv) the Corporation shall:
(a) sell, convey or dispose of all or substantially all of its
assets (the presentation of any such transaction for stockholder approval
being conclusive evidence that such transaction involves the sale of all or
substantially all of the assets of the Corporation); or
(b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation
of the Corporation and other than pursuant to a merger in which the
Corporation is the surviving or continuing entity and the voting capital stock
of the Corporation immediately prior to such merger represents at least 50% of
the voting power of the capital stock of the Corporation after the merger) and
its capital stock is unchanged; or
(c) have fifty percent (50%) or more of the voting power of
its capital stock owned beneficially by one person, entity or "group" (as such
term is used under Section 13(d) of the Securities Exchange Act of 1934, as
amended), other than Logistics Management LLC and its current affiliates;
(v) the Corporation otherwise shall breach any material term
hereunder or under the Securities Purchase Agreement or the Registration
Rights Agreement and such breach continues for 5 business days after the
Corporation has been notified thereof in writing by the holder; or
(vi) as of the last day of any Trading Volume Valuation Period
(defined below) and the Trading Volume Value (defined below) for such Trading
Volume Valuation Period shall not equal or exceed $150,000. The term "Trading
Volume Valuation Period" shall mean any twenty (20) consecutive trading day
period during the period beginning on the one hundred eightieth (180th) day
after the Initial Issuance Date and continuing thereafter. The term "Trading
Volume Value" shall mean, for any Trading Volume Valuation Period, the
average of the products obtained by multiplying (i) the Closing Bid Price for
the Common Stock on a trading day by (ii) the total actual number of shares of
Common Stock purchased on the Bulletin Board or the principal exchange or
market on which the Common Stock is traded on such trading day for each
trading day in such Trading Volume Valuation Period.
then, upon the occurrence of any such Redemption Event, each holder of shares
of Series B Preferred Stock shall thereafter have the option, exercisable in
whole or in part at any time and from time to time by delivery of a Redemption
Notice (as defined in Paragraph C below) to the Corporation while such
Redemption Event continues, to require the Corporation to purchase for cash
any or all of the then outstanding shares of Series B Preferred Stock held by
such holder for an amount per share equal to the Redemption Amount (as defined
in Paragraph B below) in effect at the time of the redemption hereunder. For
the avoidance of doubt, the occurrence of any event described in clauses (i),
(iii) or (iv) above shall immediately constitute a Redemption Event and there
shall be no cure period. Upon the Corporation's receipt of any Redemption
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Notice hereunder (other than during the three trading day period following the
Corporation's delivery of a Redemption Announcement (as defined below) to all
of the holders in response to the Corporation's initial receipt of a
Redemption Notice from a holder of Series B Preferred Stock), the Corporation
shall immediately (and in any event within one business day following such
receipt) deliver a written notice (a "Redemption Announcement") to all holders
of Series B Preferred Stock stating the date upon which the Corporation
received such Redemption Notice and the amount of Series B Preferred Stock
covered thereby. Subject to Article VIII.D, the Corporation shall not redeem
any shares of Series B Preferred Stock during the three trading day period
following the delivery of a required Redemption Announcement hereunder. At
any time and from time to time during such three trading day period, each
holder of Series B Preferred Stock may request (either orally or in writing)
information from the Corporation with respect to the instant redemption
(including, but not limited to, the aggregate number of shares of Series B
Preferred Stock covered by Redemption Notices received by the Corporation) and
the Corporation shall furnish (either orally or in writing) as soon as
practicable such requested information to such requesting holder.
Notwithstanding anything in this Article VIII.A to the contrary, the
holders of Series B Preferred Stock shall have no right to deliver a
Redemption Notice following the occurrence of a Redemption Event specified in
clause (i) above if the Corporation pays to each holder within five (5)
business days after the occurrence of such Redemption Event and on each three
month anniversary thereafter, as liquidated damages for the decrease in the
value of the Series B Preferred Stock (and the shares of the Corporation's
Common Stock issuable upon conversion thereof) which will result from the
occurrence of such Redemption Event, an amount (the "Damages Amount") equal to
ten percent (10%) of the aggregate Stated Value of the shares of Series B
Preferred Stock then held by each such holder. The Damages Amount shall be
payable, at the Corporation's option, in cash or shares of Common Stock (based
upon a price per share of Common Stock equal to eighty percent (80%) of the
Variable Conversion Price in effect as of the date of such Redemption Event).
Notwithstanding anything in this Article VIII.A to the contrary, if the
holders of Series B Preferred Stock deliver a Redemption Notice following the
occurrence of a Redemption Event specified in clause (vi) above, the
Corporation may at its election in lieu of paying the Redemption Amount pay to
the holders of Series B Preferred Stock the Trading Value Redemption Amount
(as defined below). The "Trading Value Redemption Amount" with respect to a
share of Series B Preferred Stock means an amount equal to the Stated Value
hereof multiplied by 1.2 plus the accrued and unpaid Premium thereon through
the date of payment of the Trading Value Redemption Amount. Notwithstanding
anything in this Article VIII.A to the contrary, the Trading Value Redemption
Amount shall be payable, at the Corporation's option, in cash or shares of
Common Stock (based upon a price per share of Common Stock equal to eighty
percent (80%) of the Variable Conversion Price in effect as of the date of
such Redemption Event). If the Corporation elects to pay such amount in
shares of Common Stock such shares shall be issued not later than five (5)
business days after the date the Trading Value Redemption Amount becomes due
and such shares for all purposes shall constitute Registrable Securities (as
defined in the Registration Rights Agreement). If the Corporation elects to
pay such amount in cash, the Corporation shall pay such amount in twelve (12)
equal monthly installments plus interest on such amount at a per annum,
compounded rate of twelve percent (12%). Such interest will begin to accrue
and the first of such payments shall be made on the date the Trading Value
Redemption Amount becomes due. The Corporation shall have the right to prepay
any such cash amount.
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B. Definition of Redemption Amount. The "Redemption Amount" with
respect to a share of Series B Preferred Stock means an amount equal to:
V x M
C P
where:
"V" means the Stated Value thereof, plus the accrued Premium thereon
through the date of payment of the Redemption Amount;
"CP" means the Conversion Price in effect on the date on which the
Corporation receives the Redemption Notice; and
"M" means the higher of (i) the highest Closing Bid Price of the
Corporation's Common Stock during the period beginning on the date on which
the Corporation receives the Redemption Notice and ending on the date
immediately preceding the date of payment of the Redemption Amount and (ii)
the fair market value, as of the date on which the Corporation receives the
Redemption Notice, of the consideration payable to the holder of a share of
Common Stock pursuant to the transaction which triggers the redemption. For
purposes of this definition, "fair market value" shall be determined by the
mutual agreement of the Corporation and holders of a majority-in-interest of
the shares of Series B Preferred Stock then outstanding, or if such agreement
cannot be reached within five business days prior to the date of redemption,
by an investment banking firm selected by the Corporation and reasonably
acceptable to holders of a majority-in-interest of the then outstanding shares
of Series B Preferred Stock, with the costs of such appraisal to be borne by
the Corporation.
C. Redemption Defaults. If the Corporation fails to pay any holder the
Redemption Amount or Trading Value Redemption Amount with respect to any share
of Series B Preferred Stock within five business days after its receipt of a
notice requiring such redemption (a "Redemption Notice"), then the holder of
Series B Preferred Stock delivering such Redemption Notice (i) shall be
entitled to interest on the Redemption Amount at a per annum rate equal to the
lower of twenty-four percent (24%) and the highest interest rate permitted by
applicable law from the date on which the Corporation receives the Redemption
Notice until the date of payment of the Redemption Amount hereunder, and (ii)
shall have the right, at any time and from time to time, to require the
Corporation, upon written notice, to immediately convert (in accordance with
the terms of Paragraph A of Article IV) all or any portion of the Redemption
Amount, plus interest as aforesaid, into shares of Common Stock at the lowest
Conversion Price in effect during the period beginning on the date on which
the Corporation receives the Redemption Notice and ending on the Conversion
Date with respect to the conversion of such Redemption Amount. In the event
the Corporation is not able to redeem all of the shares of Series B Preferred
Stock subject to Redemption Notices delivered prior to the date upon which
such redemption is to be effected, the Corporation shall redeem shares of
Series B Preferred Stock from each holder pro rata, based on the total number
of shares of Series B Preferred Stock outstanding at the time of redemption
included by such holder in all Redemption Notices delivered prior to the date
upon which such redemption is to be effected relative to the total number of
shares of Series B Preferred Stock outstanding at the time of redemption
included in all of the Redemption Notices delivered prior to the date upon
which such redemption is to be effected.
D. Void Redemption. In the event that the Corporation does not pay the
Redemption Amount within the time period set forth in Article IV.D, Article
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VIII.A or Article VIII.D, at any time thereafter and until the Corporation
pays such unpaid applicable Redemption Amount in full, a holder of Series B
Preferred Stock shall have the option (the "Void Optional Redemption Option")
to, in lieu of redemption, require the Corporation to promptly return to such
holder any or all of the shares of Series B Preferred Stock that were
submitted for redemption by such holder under this Article VIII and for which
the applicable Redemption Amount (together with any interest thereon) has not
been paid, by sending written notice thereof to the Corporation via facsimile
and confirmed by overnight courier, in person (by courier or otherwise) or by
telephone (to an authorized officer of the Corporation or his or her
administrative assistant) (the "Void Optional Redemption Notice"). Upon the
Corporation's receipt of such Void Optional Redemption Notice and overnight
courier, in-person or telephone confirmation, (i) the Notice of Redemption
shall be null and void with respect to those shares of Series B Preferred
Stock subject to the Void Optional Redemption Notice, and (ii) the Corporation
shall immediately return any shares of Series B Preferred Stock subject to the
Void Optional Redemption Notice
IX. RANK
The Series B Preferred Stock shall rank (i) prior to the Corporation's
Common Stock; (ii) prior to any class or series of capital stock of the
Corporation hereafter created that, by its terms, ranks junior to the Series B
Preferred Stock ("Junior Securities"); (iii) junior to any class or series of
capital stock of the Corporation hereafter created (with the consent of the
holders of Series B Preferred Stock, obtained in accordance with Article XIII
hereof) specifically ranking, by its terms, senior to the Series B Preferred
Stock ("Senior Securities"); and (iv) pari passu with the Series A Preferred
Stock, the Series B Preferred Stock and any other class or series of capital
stock of the Corporation hereafter created (with the consent of the holders of
the Series B Preferred Stock obtained in accordance with Article XIII hereof)
specifically ranking by its terms on parity with the Series B Preferred Stock
("Pari Passu Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the U.S. Federal bankruptcy laws or
any other applicable bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for
a period of 60 consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up, including, but not limited to, the
sale or transfer of all or substantially all of the Corporation's assets in
one transaction or in a series of related transactions (a "Liquidation
Event"), no distribution shall be made to the holders of any shares of capital
stock of the Corporation (other than Senior Securities and Pari Passu
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Securities) upon liquidation, dissolution or winding up unless prior thereto
the holders of shares of Series B Preferred Stock shall have received the
Liquidation Preference with respect to each share. If, upon the occurrence of
a Liquidation Event, the assets and funds available for distribution among the
holders of the Series B Preferred Stock and holders of Pari Passu Securities
shall be insufficient to permit the payment to such holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series B Preferred Stock
and the Pari Passu Securities shall be distributed ratably among such shares
in proportion to the ratio that the Liquidation Preference payable on each
such share bears to the aggregate Liquidation Preference payable on all such
shares.
B. The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Corporation.
Neither the consolidation or merger of the Corporation with or into any other
entity nor the sale or transfer by the Corporation of less than substantially
all of its assets shall, for the purposes hereof, be deemed to be a
liquidation, dissolution or winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series B
Preferred Stock means an amount equal to the Stated Value thereof, plus the
accrued Premium thereon through the date of final distribution. The
Liquidation Preference with respect to any Pari Passu Securities shall be as
set forth in the Statement of Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the
Initial Issuance Date, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, combination, reclassification or
other similar event, the Fixed Conversion Price shall be proportionately
reduced, or if the number of outstanding shares of Common Stock is decreased
by a reverse stock split, combination or reclassification of shares, or other
similar event, the Fixed Conversion Price shall be proportionately increased.
In such event, the Corporation shall notify the Corporation's transfer agent
of such change on or before the effective date thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after
the Initial Issuance Date, there shall be (i) any reclassification or change
of the outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation or merger of
the Corporation with any other entity (other than a merger in which the
Corporation is the surviving or continuing entity and its capital stock is
unchanged), (iii) any sale or transfer of all or substantially all of the
assets of the Corporation or (iv) any share exchange pursuant to which all of
the outstanding shares of Common Stock are converted into other securities or
property (each of (i) - (iv) above being a "Corporate Change"), then the
holders of Series B Preferred Stock shall thereafter have the right to receive
upon conversion, in lieu of the shares of Common Stock otherwise issuable,
such shares of stock, securities and/or other property as would have been
issued or payable in such Corporate Change with respect to or in exchange for
the number of shares of Common Stock which would have been issuable upon
conversion (without giving effect to the limitations contained in Article
IV.C) had such Corporate Change not taken place, and in any such case,
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appropriate provisions (in form and substance reasonably satisfactory to the
holders of a majority of the Series B Preferred Shares then outstanding) shall
be made with respect to the rights and interests of the holders of the Series
B Preferred Stock to the end that the economic value of the shares of Series B
Preferred Stock are in no way diminished by such Corporate Change and that the
provisions hereof (including, without limitation, in the case of any such
consolidation, merger or sale in which the successor entity or purchasing
entity is not the Corporation, an immediate adjustment of the Fixed Conversion
Price so that the Fixed Conversion Price immediately after the Corporate
Change reflects the same relative value as compared to the value of the
surviving entity's common stock that existed between the Fixed Conversion
Price and the value of the Corporation's Common Stock immediately prior to
such Corporate Change and an immediate revision to the Variable Conversion
Price so that it is determined as provided in Article III.H but based on the
price of the common stock of the surviving entity and the market in which such
common stock is traded) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or securities thereafter
deliverable upon the conversion thereof. The Corporation shall not effect any
Corporate Change unless (i) each holder of Series B Preferred Stock has
received written notice of such transaction along with the notice sent to the
holders of the Common Stock of the Corporation, but in no event later than 20
days prior to the record date for the determination of shareholders entitled
to vote with respect thereto, and (ii) the resulting, successor or acquiring
entity (if not the Corporation) assumes by written instrument (in form and
substance reasonably satisfactory to the holders of a majority of the Series B
Preferred Shares then outstanding) the obligations of this Statement of
Designation. The above provisions shall apply regardless of whether or not
there would have been a sufficient number of shares of Common Stock authorized
and available for issuance upon conversion of the shares of Series B Preferred
Stock outstanding as of the date of such transaction, and shall similarly
apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
C. Adjustment Due to Major Announcement. In the event the Corporation
at any time after the Initial Issuance Date (i) makes a public announcement
that it intends to consolidate or merge with any other entity (other than a
merger in which the Corporation is the surviving or continuing entity and its
capital stock is unchanged) or to sell or transfer all or substantially all of
the assets of the Corporation or (ii) any person, group or entity (including
the Corporation) publicly announces a tender offer, exchange offer or another
transaction to purchase 50% or more of the Corporation's Common Stock or
otherwise publicly announces an intention to replace a majority of the
Corporation's Board of Directors by waging or proxy battle or otherwise (the
date of the announcement or commencement referred to in clause (i) or (ii) of
this Paragraph C is hereinafter referred to as the "Announcement Date"), then
the Conversion Price shall, effective upon the Announcement Date and
continuing through the tenth trading day following the earlier of the
consummation of the proposed transaction or tender offer, exchange offer or
another transaction or the Abandonment Date (as defined below) (the earlier of
such dates being the "Adjusted Conversion Price Termination Date"), be equal
to the lower of (x) the Conversion Price which would have been applicable for
a Conversion occurring on the Announcement Date and (y) the Conversion Price
determined in accordance with Article III.C on the Conversion Date set forth
in the Notice of Conversion for the Conversion. After the Adjusted Conversion
Price Termination Date, the Conversion Price shall be determined as set forth
in Article III.C. "Abandonment Date" means with respect to any proposed
transaction or tender offer, exchange offer or another transaction for which a
public announcement or an action contemplated by this Paragraph C has been
made or commenced, the date upon which the Corporation (in the case of clause
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(i) above) or the person, group or entity (in the case of clause (ii) above)
publicly announces the termination or abandonment of the proposed transaction
or tender offer, exchange offer or another transaction which caused this
Paragraph C to become operative.
D. Adjustment Due to Distribution. If, at any time after the Initial
Issuance Date, the Corporation shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock as a
partial liquidating dividend, by way of return of capital or otherwise
(including any dividend or distribution to the Corporation's common
shareholders in shares (or rights to acquire shares) of capital stock of a
subsidiary (i.e. a spin-off)) (a "Distribution"), then the holders of Series B
Preferred Stock shall be entitled, upon any conversion of shares of Series B
Preferred Stock after the date of record for determining shareholders entitled
to such Distribution, to receive the amount of such assets which would have
been payable to the holder with respect to the shares of Common Stock issuable
upon such conversion (without giving effect to the limitations contained in
Article IV.C) had such holder been the holder of such shares of Common Stock
on the record date for the determination of shareholders entitled to such
Distribution.
E. Issuance of Other Securities. (i) If at any time after the Initial
Issuance Date the Corporation issues or sells or in accordance with Article
XI.E(ii) is deemed to have issued and sold any shares of Common Stock for no
consideration or for a consideration per share less than the Dilutive Price
(as defined in this subparagraph) on the date of issuance (a "Dilutive
Issuance"), then effective immediately upon the Dilutive Issuance, the
Conversion Price will be adjusted in accordance with the formula below. For
purposes of this subparagraph, "Dilutive Price" means the Market Price. The
Conversion Price will be adjusted in accordance with the following formula:
C' = C x O + P/M;
CSDO
where:
C' = the adjusted Conversion Price;
C = the then current Conversion Price;
M = the then current Market Price;
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth
herein, received by the Corporation upon such Dilutive
Issuance; and
CSDO = the total number of shares of Common Stock deemed
outstanding immediately after the Dilutive Issuance.
(ii) Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under Article XI.E(i) hereof, the
following will be applicable:
(a) Issuance of Rights or Options. If the Corporation in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("Convertible Securities") (such warrants, rights and options to purchase
Common Stock or Convertible Securities are hereinafter referred to as
"Options") and the price per share for which Common Stock is issuable upon the
exercise of such Options is less than the Dilutive Price in effect on the date
of issuance of such Options ("Below Market Options"), then the maximum total
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number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of the issuance or grant of
such Below Market Options, be deemed to be outstanding and to have been issued
and sold by the Corporation for such price per share. For purposes of the
preceding sentence, the "price per share for which Common Stock is issuable
upon the exercise of such Below Market Options" is determined by dividing (i)
the total amount, if any, received or receivable by the Corporation as
consideration for the issuance or granting of all such Below Market Options,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Corporation upon the exercise of all such Below Market Options, plus,
in the case of Convertible Securities issuable upon the exercise of such Below
Market Options, the minimum aggregate amount of additional consideration
payable upon the exercise, conversion or exchange thereof at the time such
Convertible Securities first become exercisable, convertible or exchangeable,
by (ii) the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Market Options (assuming full conversion of
Convertible Securities, if applicable). No further adjustment to the
Conversion Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Below Market Options or upon the exercise,
conversion or exchange of Convertible Securities issuable upon exercise of
such Below Market Options.
(b) Issuance of Convertible Securities.
(A) If the Corporation in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than
where the same are issuable upon the exercise of Options) and the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange (as determined pursuant to Article XI.E(ii)(b)(A) if applicable) is
less than the Dilutive Price in effect on the date of issuance of such
Convertible Securities, then the maximum total number of shares of Common
Stock issuable upon the exercise, conversion or exchange of all such
Convertible Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have been issued
and sold by the Corporation for such price per share. For the purposes of the
preceding sentence, the "price per share for which Common Stock is issuable
upon such exercise, conversion or exchange" is determined by dividing (i) the
total amount, if any, received or receivable by the Corporation as
consideration for the issuance or sale of all such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Corporation upon the exercise, conversion or exchange thereof at the
time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Conversion Price will be made upon
the actual issuance of such Common Stock upon exercise, conversion or exchange
of such Convertible Securities.
(B) If the Corporation in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "Variable Rate Convertible Security"), then the "price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange" for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained
in such Convertible Security have been satisfied) if the Dilutive Price on the
date of issuance of such Convertible Security was 75% of the Dilutive Price on
such date (the "Assumed Variable Market Price"). Further, if the Dilutive
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Price at any time or times thereafter is less than or equal to the Assumed
Variable Market Price last used for making any adjustment under this Section 4
with respect to any Variable Rate Convertible Security, the Conversion Price
in effect at such time shall be readjusted to equal the Conversion Price which
would have resulted if the Assumed Variable Market Price at the time of
issuance of the Variable Rate Convertible Security had been 75% of the
Dilutive Price existing at the time of the adjustment required by this
sentence.
(c) Change in Option Price or Conversion Rate. If there is a
change at any time in (i) the amount of additional consideration payable to
the Corporation upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Corporation upon the
exercise, conversion or exchange of any Convertible Securities; or (iii) the
rate at which any Convertible Securities are convertible into or exchangeable
for Common Stock (in each such case, other than under or by reason of
provisions designed to protect against dilution), the Conversion Price in
effect at the time of such change will be readjusted to the Conversion Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
(d) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock
issuable upon exercise of any Option or upon exercise, conversion or exchange
of any Convertible Securities is not, in fact, issued and the rights to
exercise such Option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Conversion Price then in
effect will be readjusted to the Conversion Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual number of
shares of Common Stock issued upon exercise or conversion thereof), never been
issued.
(e) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes hereof will be the amount
received by the Corporation therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Corporation in connection with such issuance, grant or
sale. In case any Common Stock, Options or Convertible Securities are issued
or sold for a consideration part or all of which shall be other than cash, the
amount of the consideration other than cash received by the Corporation will
be the fair market value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Corporation will be the Market Price thereof as
of the date of receipt. In case any Common Stock, Options or Convertible
Securities are issued in connection with any merger or consolidation in which
the Corporation is the surviving corporation, the amount of consideration
therefor will be deemed to be the fair market value of such portion of the net
assets and business of the non-surviving corporation as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be. The
fair market value of any consideration other than cash or securities will be
determined in good faith by an investment banker or other appropriate expert
of national reputation selected by the Corporation and reasonably acceptable
to the holder hereof, with the costs of such appraisal to be borne by the
Corporation. In case any Common Stock, Options or Convertible Securities are
issued in connection with the issuance of debt securities the amount of
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consideration therefor shall be the cash received by the Corporation and the
value of the securities issued by the Corporation shall be the fair market
value of all securities and instruments issued in such transaction, with fair
market value being determined by agreement between the holder thereof and the
Corporation or if no such agreement is reached pursuant to the immediately
preceding sentence. For all Options and Warrants the fair market value
thereof shall be determined in accordance with the Black Scholes methodology.
(f) Exceptions to Adjustment of Conversion Price. No
adjustment to the Conversion Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the
Issue Date and set forth on Schedule 3(d) of the Securities Purchase Agreement
in accordance with the terms of such securities as of such date or (ii) upon
the grant or exercise of any stock or options which may hereafter be granted
or exercised under any employee benefit plan of the Corporation now existing
or to be implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the non-employee members of the Board of
Directors of the Corporation, if any, or a majority of the members of a
committee of non-employee directors established for such purpose; (iii) upon
the issuance of securities pursuant to an underwriters public offering; or
(iv) upon issuance of shares in connection with the acquisition of Prostar,
Inc.
F. Purchase Rights. If, at any time after the Initial Issuance Date,
the Corporation issues any securities which are convertible into or
exchangeable for Common Stock, or rights to purchase stock, warrants,
securities or other property (the "Purchase Rights") pro rata to the record
holders of any class of Common Stock, then the holders of Series B Preferred
Stock will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Series B Preferred Stock (without giving effect to
the limitations contained in Article IV.C) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record
holders of Common Stock are to be determined for the grant, issue or sale of
such Purchase Rights.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article XI, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series B Preferred
Stock a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of
Series B Preferred Stock, furnish to such holder a like certificate setting
forth (i) such adjustment or readjustment, (ii) the Conversion Price at the
time in effect and (iii) the number of shares of Common Stock and the amount,
if any, of other securities or property which at the time would be received
upon conversion of a share of Series B Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series B Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Colorado Business Corporation
Act (the "Business Corporation Act") and in Article XIII below.
Notwithstanding the above, the Corporation shall provide each holder of
Series B Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
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shareholders) at the same time such notice and materials are provided to the
holders of Common Stock. If the Corporation takes a record of its
shareholders for the purpose of determining shareholders entitled to (a)
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger consolidation
or recapitalization) any share of any class or any other securities or
property, or to receive any other right, or (b) to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets
of the Corporation, or any proposed merger, consolidation, liquidation,
dissolution or winding up of the Corporation, the Corporation shall mail a
notice to each holder, at least 20 days prior to the record date specified
therein (but in no event earlier than public announcement of such proposed
transaction), of the date on which any such record is to be taken for the
purpose of such dividend, distribution, right or other event, and a brief
statement regarding the amount and character of such dividend, distribution,
right or other event to the extent known at such time.
To the extent that under the Business Corporation Act the vote of the
holders of the Series B Preferred Stock, voting separately as a class or
series, as applicable, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the holders of at least a
majority of the then outstanding shares of the Series B Preferred Stock
represented at a duly held meeting at which a quorum is present or by written
consent of the holders of at least a majority of the then outstanding shares
of Series B Preferred Stock (except as otherwise may be required under the
Business Corporation Act) shall constitute the approval of such action by the
class. To the extent that under the Business Corporation Act holders of the
Series B Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series B Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible (subject to the limitations
contained in Article IV.C(ii)) using the record date for the taking of such
vote of shareholders as the date as of which the Conversion Price is
calculated.
XIII. PROTECTION PROVISIONS
So long as any shares of Series B Preferred Stock are outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by the Business Corporation Act) of a majority in
interest of the holders of the then outstanding shares of Series B Preferred
Stock:
(a) alter or change the rights, preferences or privileges of
the Series B Preferred Stock;
(b) alter or change the rights, preferences or privileges of
any previously issued shares of capital stock of the Corporation so as to
affect adversely the Series B Preferred Stock;
(c) create any new class or series of capital stock having a
preference over the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously
defined in Article IX hereof, "Senior Securities");
(d) create any new class or series of capital stock ranking
pari passu with the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously
defined in Article IX hereof, "Pari Passu Securities");
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(e) increase the authorized number of shares of Series B
Preferred Stock;
(f) issue any shares of Senior Securities;
(g) issue any shares of Series B Preferred Stock other than
pursuant to the Securities Purchase Agreement;
(h) redeem, or declare or pay any cash dividend or
distribution on, any Junior Securities; or
(i) increase the par value of the Common Stock.
Notwithstanding the foregoing, no change pursuant to this Article XIII shall
be effective to the extent that, by its terms, it applies to less than all of
the holders of shares of Series B Preferred Stock then outstanding.
XIV. MISCELLANEOUS
A. Cancellation of Series B Preferred Stock. If any shares of Series B
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Corporation as Series B Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity (without any bond or other security) reasonably satisfactory to the
Corporation, or (z) in the case of mutilation, upon surrender and cancellation
of the Preferred Stock Certificate(s), the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date. However,
the Corporation shall not be obligated to reissue such lost or stolen
Preferred Stock Certificate(s) if the holder contemporaneously requests the
Corporation to convert such Series B Preferred Stock.
C. Allocation of Cap Amount and Reserved Amount. The initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series B
Preferred Stock based on the number of shares of Series B Preferred Stock
issued to each holder. Each increase to the Cap Amount and the Reserved
Amount shall be allocated pro rata among the holders of Series B Preferred
Stock based on the number of shares of Series B Preferred Stock held by each
holder at the time of the increase in the Cap Amount or Reserved Amount. In
the event a holder shall sell or otherwise transfer any of such holder's
shares of Series B Preferred Stock, each transferee shall be allocated a pro
rata portion of such transferor's Cap Amount and Reserved Amount. Any portion
of the Cap Amount or Reserved Amount which remains allocated to any person or
entity which does not hold any Series B Preferred Stock shall be allocated to
the remaining holders of shares of Series B Preferred Stock, pro rata based on
the number of shares of Series B Preferred Stock then held by such holders.
D. Quarterly Statements of Available Shares. For each calendar quarter
beginning in the quarter in which the initial registration statement required
to be filed pursuant to the Registration Rights Agreement is declared
effective and thereafter so long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall deliver (or cause its transfer agent to
deliver) to each holder a written report notifying the holders of any
occurrence which prohibits the Corporation from issuing Common Stock upon any
such conversion. The report shall also specify (i) the total number of shares
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of Series B Preferred Stock outstanding as of the end of such quarter, (ii)
the total number of shares of Common Stock issued upon all conversions of
Series B Preferred Stock prior to the end of such quarter, (iii) the total
number of shares of Common Stock which are reserved for issuance upon
conversion of the Series B Preferred Stock as of the end of such quarter and
(iv) the total number of shares of Common Stock which may thereafter be listed
or issued by the Corporation upon conversion of the Series B Preferred Stock
before the Corporation would exceed the Cap Amount and the Reserved Amount.
The Corporation (or its transfer agent) shall deliver the report for each
quarter to each holder prior to the tenth day of the calendar month following
the quarter to which such report relates. In addition, the Corporation (or
its transfer agent) shall provide, within 15 days after delivery to the
Corporation of a written request by any holder, any of the information
enumerated in clauses (i) - (iv) of this Paragraph D as of the date of such
request.
E. Payment of Cash; Defaults. Whenever the Corporation is required to
make any cash payment to a holder under this Statement of Designation (upon
redemption or otherwise), such cash payment shall be made to the holder within
five business days after delivery by such holder of a notice specifying that
the holder elects to receive such payment in cash and the method (e.g., by
check, wire transfer) in which such payment should be made. If such payment
is not delivered within such five business day period, such holder shall
thereafter be entitled to interest on the unpaid amount at a per annum rate
equal to the lower of twenty-four percent (24%) and the highest interest rate
permitted by applicable law until such amount is paid in full to the holder.
F. Status as Stockholder. Upon submission of a Notice of Conversion by
a holder of Series B Preferred Stock, (i) the shares covered thereby (other
than the shares, if any, which cannot be issued because their listing or
issuance would exceed such holder's allocated portion of the Reserved Amount
or Cap Amount) shall be deemed converted into shares of Common Stock and (ii)
the holder's rights as a holder of such converted shares of Series B Preferred
Stock shall cease and terminate, excepting only the right to receive
certificates for such shares of Common Stock and to any remedies provided
herein or otherwise available at law or in equity to such holder because of a
failure by the Corporation to comply with the terms of this Statement of
Designation. Notwithstanding the foregoing, if a holder has not received
certificates for all shares of Common Stock prior to the tenth business day
after the expiration of the Delivery Period with respect to a conversion of
Series B Preferred Stock for any reason, then (unless the holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Corporation within five business days after the expiration of such 10 business
day period) the holder shall regain the rights of a holder of Series B
Preferred Stock with respect to such unconverted shares of Series B Preferred
Stock and the Corporation shall, as soon as practicable, return such
unconverted shares to the holder. In all cases, the holder shall retain all
of its rights and remedies (including, without limitation, the right to have
the Conversion Price with respect to subsequent conversions determined in
accordance with Article VI.A) for the Corporation's failure to convert Series
B Preferred Stock.
G. Remedies Cumulative. The remedies provided in this Statement of
Designation shall be cumulative and in addition to all other remedies
available under this Statement of Designation, at law or in equity (including
a decree of specific performance and/or other injunctive relief), and nothing
herein shall limit a holder's right to pursue actual damages for any failure
by the Corporation to comply with the terms of this Statement of Designation.
The Corporation acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to the holders of Series B Preferred Stock and
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that the remedy at law for any such breach may be inadequate. The Corporation
therefore agrees, in the event of any such breach or threatened breach, that
the holders of Series B Preferred Stock shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security
being required.
IN WITNESS WHEREOF, the undersigned Corporation has caused these Articles
of Amendment to the Articles of Incorporation to be signed by a duly
authorized officer and duly attested by another such officer, to be hereunto
affixed on this 29th day of April 1999.
U.S. TRUCKING, INC..
By:/s/ Dan Pixler
Dan Pixler, President
ATTEST:
/s/ Marion W. Huff
Marion W. Huff, Secretary
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NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series B Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series B Preferred Stock (the "Conversion"), represented by stock certificate
Nos(s). ___________ (the "Preferred Stock Certificates"), into shares of
common stock ("Common Stock") of U.S. TRUCKING, INC. (the "Corporation")
according to the conditions of the Statement of Designation, Rights and
Preferences of the Series B Convertible Preferred Stock of U.S. Trucking, Inc.
(the "Statement of Designation"), as of the date written below. If securities
are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto. No fee
will be charged to the holder for any conversion, except for transfer taxes,
if any. A copy of each Preferred Stock Certificate is attached hereto (or
evidence of loss, theft or destruction thereof).
The undersigned requests that the Corporation electronically transmit the
Common Stock issuable pursuant to this Notice of Conversion to the account of
the undersigned or its nominee (which is _________________) with DTC through
its Deposit Withdrawal Agent Commission System ("DTC Transfer").
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of
the Series B Preferred Stock shall be made pursuant to registration of the
Common Stock under the Securities Act of 1933, as amended (the "Act"), or
pursuant to an exemption from registration under the Act.
In lieu of receiving the shares of Common Stock issuable pursuant to
this Notice of Conversion by way of DTC Transfer, the undersigned hereby
requests that the Corporation issue and deliver to the undersigned physical
certificates representing such shares of Common Stock.
Date of Conversion:
Applicable Conversion Price:
Number of Shares of Common
Stock to be Issued:
Signature:
Name:
Address:______________________________________
______________________________________
______________________________________
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
U. S. TRUCKING, INC.
(SERIES C PREFERRED STOCK)
Pursuant to the requirements of Section 7-106-102 of the Colorado
Business Corporation Act, the undersigned Corporation submits the following
Articles of Amendment to Articles of Incorporation.
FIRST: The name of the Corporation is U. S. Trucking, Inc.
SECOND: The Articles of Incorporation of the Corporation are hereby
amended as follows:
"There is hereby established a series of Preferred Stock of the
Corporation designated "Series C Preferred Stock." The number of shares of
this series of Preferred Stock shall be 50,000 shares. The powers,
designations, preferences and relative, participating, optional or other
special rights of the shares of this series of Preferred Stock and the
qualifications, limitations and restrictions of such preferences and rights
shall be as follows:
Section 1. Voting Rights. Except as otherwise expressly provided herein
or by law, the holders of shares of Series C Preferred Stock shall be entitled
to vote on all matters and shall be entitled to one hundred votes for each
share of Series C Preferred Stock held by such holder, such number of votes to
be appropriately adjusted in the event of any split, reverse split or dividend
of the common stock. Except as otherwise expressly provided herein or as
expressly required by law, the holders of shares of Series C Preferred Stock
and common stock shall vote together as a single class on all matters.
Section 2. Liquidation. The holders of shares of the Series C
Preferred Stock are not entitled to any liquidation rights.
Section 3. Dividend Provisions. The holders of shares of the Series C
Preferred Stock are not entitled to receive any dividends.
Section 4. Notices. Any notice required to be given to holders of
shares of Series C Preferred Stock shall be deemed given upon deposit in the
United States mail, postage prepaid, addressed to such holder of record at his
address appearing on the books of the Corporation, or upon personal delivery
at the aforementioned address."
Section 5. Amendment. The terms of the Series C Preferred Stock shall
not be amended without the consent of the holders of not less than a majority
of the outstanding Series C Preferred Stock.
THIRD: Such Amendment was duly adopted by the Board of Directors of the
Corporation on the 5th day of May 1999.
IN TESTIMONY WHEREOF, the undersigned Corporation has caused these
Articles of Amendment to the Articles of Incorporation to be signed by a duly
authorized officer and duly attested by another such officer, to be hereunto
affixed this 5th day of May 1999.
U. S. TRUCKING, INC.
By:/s/ Danny Pixler
Danny Pixler, President
ATTEST:
/s/ Marion W. Huff
Secretary
U.S. TRUCKING, INC.
1998 STOCK OPTION PLAN
ARTICLE I
Purpose, Definitions and Effective Date
1.1 Purpose. The purpose of the 1998 Stock Option Plan ("Plan") of U.S.
Trucking, Inc. ("Company") is to promote the success and enhance the value of
the Company by linking the personal interests of Employees of the Company and
any Subsidiary to the interests of the Company's shareholders and by providing
Employees with an additional incentive for outstanding performance. To
achieve this purpose, Options to purchase shares of the Common Stock of the
Company ("Shares") may be granted to Employees of the Company and any
Subsidiary pursuant to the Plan.
1.2 Additional Definitions. In addition to definitions set forth
elsewhere in the Plan, for purposes of the Plan:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Cause" shall mean willful or gross malfeasance or misconduct
on the part of a Participant that is detrimental to the Company or any
Subsidiary as determined by the Committee in its sole discretion, except that
termination of a Participant's employment for "cause" pursuant to any
agreement of employment between the Participant and the Company shall be
conclusive in and of itself and therefore require no determination by the
Committee.
(c) "Committee" shall mean the Stock Option Committee of the Board,
which shall administer the Plan.
(d) "Employee" shall mean any employee or advisor of the Company or
any Subsidiary. Directors and advisors who are not otherwise employed by the
Company or any Subsidiary shall be considered, but solely for purposes of the
Plan, Employees under the Plan and, thus, eligible for Options other than
Incentive Stock Options.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor Act thereto and the rules and regulations of the
United States Securities and Exchange Commission thereunder.
(f) "Exercise Price" shall mean the price to be paid for each Share
pursuant to an Option.
(g) "Fair Market Value" shall mean the value of a Share on a
particular date, determined as follows: (i) if the Shares are not listed on
such date on any national securities exchange or on the National Association
of Securities Dealers Automated Quotation System or by the National Quotation
Bureau, Incorporated, the last sales price (or, if none on that date, on the
most recent date on which there was a last sales price) as reported by any
maker, if any, of a market in the Shares or other similar source or service
selected by the Committee; (ii) if the Shares are listed on such date on one
or more national securities exchanges or quotation system or bureau, the last
reported sale price of a Share on such date as recorded on the composite tape
system or, if such system does not cover the Shares, the last reported sale
<PAGE>
price of a Share on such date on the principal national securities exchange on
which the Shares are listed or, if no sale of Shares took place on such date,
the last reported sale price of a Share on the most recent day on which a sale
of a Share took place as recorded by such system or on such exchange, as the
case may be; or (iii) if the last sales price of the Shares cannot be
determined in accordance with (i) or (ii), the fair market value of a Share on
such date as determined in good faith by the Committee.
(h) "Incentive Stock Option" shall mean an Option that, in addition
to being subject to applicable terms, conditions and limitations established
by the Committee, complies with Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Section 422 provides, among other limitations,
that: (i) to the extent that the aggregate Fair Market Value (determined as of
the time the Option is granted) of Shares subject to the option exercisable
for the first time by a Participant during any calendar year exceeds $100,000
(or such other limit as may be imposed by law) such Option shall not be
treated as an Incentive Stock Option; and (ii) the Option shall be exercisable
for a period of not more than ten (10) years from date of grant. If the
Committee determines to issue Incentive Stock Options but the Plan does not
then conform to the applicable legal requirements, the Plan shall be deemed
amended to so conform as of the date of grant of any Incentive Stock Option.
(i) "Option" shall mean the right to purchase one or more Shares on
the terms and conditions contained in this Plan, the rules of the Committee,
and the terms of an Option Agreement.
(j) "Option Agreement" shall mean the written agreement entered
into between the Company and the Employee upon grant of an Option and which
evidences the terms on which the Option may be exercised consistent with the
Plan.
(k) "Participant" shall mean an Employee who is granted an Option
pursuant to the Plan.
(l) "Restricted Shares" shall mean Shares granted pursuant to
Article IV Stock Options and Voting, designated as being "restricted" by the
Committee and subject to the restrictions and other terms and conditions set
forth in Article IV Stock Options and Voting or imposed by the Committee in
connection with the grant of Options.
(m) "Retirement" shall mean the termination of a Participant's
employment with the Company or any Subsidiary, for reasons other than death,
disability (as that term is used in Section 22(e)(3) of the Code
("Disability")) or for Cause, on or after the date the Participant reaches age
60.
(n) "Subsidiary" shall mean any corporation in which the Company
owns directly, or indirectly through subsidiaries, more than fifty percent
(50%) of the total combined voting power of all classes of stock, or any other
entity (including, but not limited to, partnerships and joint ventures) in
which the Company owns more than fifty percent (50%) of the combined equity
thereof.
1.3 Effective Date. The Plan was approved by the Board and became
effective as of September 9, 1998.
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ARTICLE II
Administration
The Plan shall be administered by the Committee. The Committee shall
have full power, except as limited by law or by the Articles of Incorporation
or Bylaws of the Company, and subject to the provisions of the Plan, to:
select the recipients of Options; determine the number of Shares subject to
each Option under the Plan; determine the sizes of grants of Options under the
Plan; determine the exercise price, duration, vesting requirements, and period
of exercisability of each Option; determine the terms and conditions of such
Option grants in a manner consistent with the Plan; determine whether the
Options are or are not Incentive Stock Options; determine whether or not the
Shares subject to an Option are Restricted Shares; construe and interpret the
Plan and any agreement or instrument entered into under the Plan; establish,
amend, or waive rules and regulations for the Plan's administration; and,
subject to the provisions of Article V Amendment, Modification, and
Termination, herein, amend the terms and conditions of any outstanding Options
to the extent such terms and conditions are within the discretion of the
Committee as provided in the Plan. Further, the Committee shall make all
other determinations which may be necessary or advisable for the
administration of the Plan.
ARTICLE III
Shares Subject to the Plan
3.1 Number of Shares. Subject to adjustment as provided in Section 3.3
Adjustments in Authorized Shares, the total number of Shares for which
Options may be granted under the Plan may not exceed Two Million Five Hundred
Thousand (2,500,000) Shares. These Shares may be either authorized but
unissued or reacquired Shares.
3.2 Lapsed Options. If any Option granted under the Plan is canceled,
terminates, expires, or lapses for any reason, any Shares subject to such
Option shall again be available for the grant of an Option under the Plan.
3.3 Adjustments, Merger. In the event of a business combination,
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, stock split, share combination, or other change
in the corporate structure of the Company affecting the Shares, such
adjustment shall be made in the number and class of Shares that may be
delivered under the Plan, and in the number and class of and/or price of
Shares subject to outstanding Options granted under the Plan, as may be
determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights; and provided that
the number of Shares subject to any Option shall always be rounded down to the
nearest whole number. If the Company shall at any time merge, consolidate
with or into another corporation or association, or enter into a statutory
share exchange or any other similar business combination transaction in which
Shares are converted into securities and/or other property, each Participant
will thereafter receive, upon the exercise of an Option, the securities or
property to which a holder of the number of Shares then deliverable upon the
exercise of such Option would have been entitled upon the occurrence of such
transaction and the Company shall take such steps in connection with such
transaction as may be necessary to assure that the provisions of this Plan
shall thereafter be applicable, as nearly as is reasonably possible, in
relation to any securities or property thereafter deliverable upon the
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<PAGE>
exercise of such Option. A sale of all or substantially all the assets of the
Company for a consideration (apart from the assumption of obligations)
consisting primarily of securities shall be deemed a transaction subject to
the foregoing provisions. Notwithstanding the foregoing, if the Company is to
be consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise, the Company shall have
the option to (i) upon written notice to the optionees, provide that all
Options must be exercised, to the extent then exercisable, within a specified
number of days of the date of such notice, at the end of which period the
Options shall terminate, or (ii) terminate all Options in exchange for a cash
payment equal to the excess of the fair market value of the shares subject to
such Options (to the extent then exercisable) over the exercise price thereof.
ARTICLE IV
Stock Options and Voting
4.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to such Employees, at such times and on such terms and
conditions, as shall be determined by the Committee; provided, however, no
Options may be granted after the 10th anniversary of the effective date of the
Plan, and provided further, that no Incentive Stock Option shall be granted to
any Employee of any Subsidiary if the Subsidiary is not a "subsidiary" as
defined in Section 424(f) of the Code. The Committee shall have discretion in
determining the number of Options and the number of Shares subject to each
Option granted to each Participant. Without limiting the generality of the
foregoing, the Committee shall have the authority to establish guidelines
setting forth anticipated grant levels which correspond to various salary
grades or the equivalent thereof.
4.2 Form of Issuance. Options may be issued in the form of a
certificate or may be recorded on the books and records of the Company for the
account of the Participant. If an Option is not issued in the form of a
certificate, then the Option shall be deemed granted upon issuance of a notice
of the grant addressed to the recipient. The terms and conditions of an
Option shall be set forth in the certificate, in the notice of the issuance of
the grant, or in such other documents as the Committee shall determine. The
Committee shall require a Participant to enter into an Option Agreement (the
written agreement containing the terms and conditions relating to the Option
and its exercise) and to acknowledge receipt of a copy of the Option Agreement
and the Plan.
4.3 Option Price. The Option Price for each grant of an Option shall be
determined by the Committee; provided, however, that the minimum with respect
to Incentive Stock Options shall be one hundred percent (100%) of the Fair
Market Value of a Share on the date as of which the Option is granted.
However, if a Participant owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company (including stock
deemed owned under Section 425(d) of the Code), the purchase price per Share
deliverable upon exercise of each Incentive Stock Option shall not be less
than 110% of the Fair Market Value of the Shares on the date of grant.
4.4 Duration of Options. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the tenth (10th) anniversary date of
its grant. However, if a Participant owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company
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<PAGE>
(including stock deemed owned under Section 425(d) of the Code), the Incentive
Stock Option granted to such Participant shall not be exercisable after the
expiration of five years from the date of Grant.
4.5 Vesting of Options. Options shall become exercisable ("vest") at
such times and under such terms and conditions as determined by the Committee.
The Committee shall have the authority to accelerate the vesting of an Option.
The Committee, in its sole discretion, may from time to time authorize the
grant of Options with respect to Restricted Shares. Such Options with respect
to Restricted Shares shall be exercisable immediately but the Restricted
Shares issued upon exercise of the Options shall be subject to such
restrictions, including such vesting schedule and other terms and conditions,
as may be established by the Committee. Until the expiration of the
restriction period or the lapse of the restrictions in accordance with the
terms and conditions established by the Committee, the Restricted Shares shall
be subject to the following restrictions and any additional restrictions that
the Committee, in its sole discretion, may from time to time deem desirable in
furtherance of the objectives of the Plan:
(a) The Participant shall not be entitled to receive the
certificate or certificates representing the Restricted Shares.
(b) The Restricted Shares may not be sold, transferred, assigned,
pledged, conveyed, hypothecated or otherwise disposed of.
(c) If the employment of the Participant is terminated for any
reason other than the Retirement, Disability or death of the Participant
before the expiration of the restriction period, the Restricted Shares shall
be forfeited immediately and all rights of the Participant to such Shares
shall terminate immediately without further obligation on the part of the
Company. If the Participant's employment is terminated by reason of the
Retirement, Disability or death of the Participant before the expiration of
the restriction period, the number of Restricted Shares held by the Company
for the Participant's account shall be reduced by the proportion of the
restriction period remaining after the Participant's termination of
employment; the restrictions on the balance of such Restricted Shares shall
lapse on the date the Participant's employment terminated and the certificate
or certificates representing the Shares upon which the restrictions have
lapsed shall be delivered to the Participant or his beneficiary or other
successor in the event of the Participant's death. The Committee, in its sole
discretion, may waive any or all restrictions with respect to Restricted
Shares.
4.6 Exercise of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions
as the Committee shall in each instance approve, which need not be the same
for each grant or for each Participant.
4.7 Payment. Payment for Shares purchased upon any exercise of an
Option shall be made in full in cash concurrently with such exercise, except
that, if and to the extent the instrument evidencing the Option so provides
and if the Company is not then prohibited from purchasing or acquiring Shares,
such payment may be made in whole or in part with shares of the same class of
stock as that then subject to the Option, delivered in lieu of cash
concurrently with such exercise, the shares so delivered to be valued on the
basis of the Fair Market Value of the Shares on the day preceding the date of
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<PAGE>
exercise. If and while payment with Shares is permitted for the exercise of an
Option in accordance with the foregoing provision, the person then entitled to
exercise that Option may, in lieu of using previously outstanding Shares
therefor, use some of the Shares as to which the Option is then being
exercised. Payment of the Option Price by the "delivery" of previously owned
Shares may be made constructively so that the payment Shares are only
hypothetically transferred and only the net number of additional post-payment,
post-exercise Shares is actually issued by the Company.
4.8 Termination of Employment. Except as may be determined otherwise by
the Committee with respect to individual awards, the following shall apply
with respect to options of employees whose employment is terminated:
(a) Termination by Reason of Death or Disability. If the
employment of a Participant is terminated by reason of death or Disability,
any outstanding Options granted to the Participant shall vest as of the date
of termination of employment and may be exercised, if at all, no more than one
(1) year following termination of employment, unless the Options, by their
terms, expire earlier.
(b) Termination by Retirement. If the employment is terminated by
reason of Retirement, any outstanding Options granted to the Participant that
are vested as of the date of termination of employment may be exercised, if at
all, no more than three (3) years following termination of employment, unless
the Options, by their terms, expire earlier. In the case of Incentive Stock
Options, any Option exercised more than three months after termination of
employment shall lose its status as an Incentive Stock Option.
(c) Termination of Employment for Other Reasons. If the
employment of a Participant shall terminate for any reason other than the
reasons set forth in (a) or (b), above, and other than for Cause, all
outstanding Options granted to the Participant which are vested as of the date
of termination of employment may be exercised by the Participant within the
period beginning on the effective date of termination of employment and ending
three (3) months after such date, unless the Options, by their terms, expire
earlier.
(d) Termination for Cause. If the employment of a Participant
shall terminate for Cause, all outstanding Options held by the Participant
shall immediately terminate and be forfeited to the Company at the date notice
of termination is given.
(e) Options Not Vested at Termination. Any outstanding Options
not vested as of the effective date of termination of employment shall expire
immediately and shall be forfeited to the Company.
4.9 Transfers. For purposes of the Plan, transfer of employment of a
Participant between the Company and any Subsidiary (or between two
Subsidiaries) shall not be deemed a termination of employment.
4.10 Nontransferability of Options. No Option granted pursuant to the
Plan shall be transferable otherwise than by the laws of descent and
distribution and as may be permitted by the Committee with respect to Options
which are not Incentive Stock Options. During the lifetime of a Participant,
the Option shall be exercisable only by the Participant personally (or
permitted transferee) or by the Participant's guardian or legal
6
<PAGE>
representative. If a Participant shall die, the executor or administrator of
the Participant's estate or a transferee of the Option pursuant to a will or
the laws of descent and distribution shall have the right to exercise the
Option in lieu of the Participant.
ARTICLE V
Amendment, Modification, and Termination
5.1 Amendment, Modification, and Termination. The Board may at any time
and from time to time terminate, amend, or modify the Plan. However, no
amendment or modification of the Plan shall be made without the approval of
the shareholders of the Company if such shareholder approval is required by
the Code, by applicable insider trading rules under Section 16 of the Exchange
Act, by any national securities exchange or system on which the Shares are
then listed or reported, or by a regulatory body having jurisdiction with
respect hereto.
5.2 Awards Previously Granted. No termination, amendment, or
modification of the Plan shall in any material manner adversely affect any
Option previously granted under the Plan without the written consent of the
Participant holding such Option.
ARTICLE VI
Withholding
6.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold an amount sufficient to satisfy Federal, state and local
taxes required by law to be withheld with respect to any grant, exercise, or
payment made under or as a result of the Plan. At the discretion of the
Committee, a Participant may be permitted to pay to the Company the
withholding amount in the form of cash or previously owned Shares in
accordance with Section 4.7 Payment. If payment of the withholding amount is
made by the delivery of Shares, the value of the Shares delivered shall equal
the Fair Market Value of the Shares on the day preceding the date of exercise
of the Option.
6.2 Share Withholding. With respect to tax withholding required upon
the exercise of Options, a Participant may elect, subject to the approval of
the Committee, to satisfy the withholding requirement, in whole or in part, by
having the Company withhold Shares having a Fair Market Value on the date the
tax is to be determined equal to an amount sufficient to satisfy Federal,
state and local taxes.
ARTICLE VII
Miscellaneous
7.1 Employment. Nothing in the Plan shall interfere with or limit in
any way the right of the Company or any Subsidiary to terminate any
Participant's employment at any time nor confer upon any Participant any right
to continue in the employment of the Company or any Subsidiary.
7.2 Participation. No Employee shall have the right to be selected to
receive an Option under the Plan, or, having been so selected, to receive a
future Option.
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7.3 Successors. All obligations of the Company under the Plan shall be
binding on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger,
consolidation, business combination or otherwise, of all or substantially all
of the business and/or assets of the Company.
7.4 Holding Period. If a Participant shall have the right to require
the Company to repurchase any Shares acquired pursuant to the exercise of an
Option, that right shall be exercised only as to Shares which have been held
for not less than six months.
7.5 Distribution of Stock--Securities Restrictions. The Committee may
require Participants receiving Shares pursuant to any Option under the Plan to
represent to and agree with the Company in writing that the Participant is
acquiring the Shares for investment without a view to distribution thereof.
No Shares shall be issued or transferred pursuant to an Option unless such
issuance or transfer complies with all relevant provisions of law, including
but not limited to, the (i) limitations, if any, imposed in the state of
issuance or transfer, (ii) restrictions, if any, imposed by the Securities Act
of 1993, as amended, the Exchange Act, and the rules and regulations
promulgated thereunder, and (iii) requirements of any stock exchange upon
which the Shares may then be listed. The certificates for such Shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
7.6 Governing Law. The Plan, and any and all agreements hereunder,
shall be construed in accordance with and governed by the internal laws of the
State of Colorado.
8
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of U.S. Trucking, Inc. on
Form SB-2 of our reports dated February 25, 1999, June 10, 1998, June 10,
1998, June 8, 1998, November 7, 1997 and November 3, 1997, appearing in the
Prospectus, which is a part of this Registration Statement and to the
reference to our firm under the heading "Experts" in the Prospectus.
/s/ Bianculli, Pascale & Co. P.C.
BIANCULLI, PASCALE & CO. P.C.
Garden City, New York
September 9, 1999
