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As filed with the Securities and Exchange Commission February 5, 1999.
SEC Registration No. 333-_____
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
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
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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 1,166,667 $5.625 $6,562,501.88 $1,824.38
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 February 4, 1999, as reported on
the OTC Bulletin Board.
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(2) To be offered by Selling Shareholders.
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 FEBRUARY 5, 1999
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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.
1,166,667 Shares of Common Stock
The 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.
The Common Stock is traded in the over-the-counter market
and is quoted on the OTC Bulletin Board (Symbol: USTK). On
February 4, 1999, the closing bid and ask prices of the Common
Stock were $5.25 and $6.00.
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.
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 ................................. 9
Management's Discussion and Analysis ........................ 10
Business .................................................... 15
Management .................................................. 26
Security Ownership of Management, Principal Shareholders
and Selling Shareholders .................................. 30
Transactions With Management and Others ..................... 33
Description of Securities ................................... 35
Plan of Distribution ........................................ 37
Legal Matters ............................................... 38
Experts ..................................................... 38
Additional Information ...................................... 38
Index to Financial Statements ............................... F-1
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PROSPECTUS SUMMARY
THE COMPANY
U.S. Trucking, Inc. provides transportation and logistics services. We
transport full truckloads of both refrigerated and non-refrigerated
commodities over various distances, primarily east of the Rocky Mountains. We
also provide the following specialized transportation and logistics services:
1. Roller-bed trailer service for UPS and Emery Air
2. Transportation brokerage services
We are a preferred carrier for a number of Fortune 500 companies,
including the following:
1. United Parcel Service of America, Inc.
2. The Trane Company (a division of American Standard, Inc.)
3. Excel Corporation (a division of Cargill Incorporated)
4. Emery Worldwide (a division of CNF Transportation, Inc.)
5. Eaton Corporation
6. The Monfort division of ConAgra, Inc.
7. Consolidated Papers, Inc.
We are actively seeking other companies which are interested in outsourcing
their transportation service needs.
Our truckload division operates approximately 286 tractors (including
approximately 112 tractors which are owned by contractors) and approximately
401 trailers (including approximately 13 which are owned by contractors).
We intend to expand our business through internal growth and
acquisitions. The truckload industry is highly fragmented, which provides a
large number of acquisition opportunities. We are primarily interested in
medium to long haul truckload carriers, with annual revenues of between $5-10
million, which are located close to our current facilities. This should allow
us to consolidate our staffs to reduce common expenses. This is referred to
in our industry as the "Stack Up" concept.
U.S. Trucking, Inc., 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 of the Company. We refer to this company as
U.S. Trucking-Nevada. U.S. Trucking-Nevada has two operating subsidiaries
which it acquired in early 1997, just after it was incorporated. These are
Gulf Northern Transport, Inc. and Mencor, Inc. We refer to these two
companies throughout this Prospectus as Gulf Northern and Mencor.
Unless the context otherwise requires, the term "Company" in this
Prospectus refers to U.S. Trucking, Inc. and all of its subsidiaries.
Our offices are located at 3125 Ashley Phosphate Road, Suite 128, North
Charleston, South Carolina 29418. Our telephone number is (843) 767-9197.
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OFFERING SUMMARY
Securities Offered: 1,166,667 Shares of Common Stock offered by
Selling Shareholders
Common Stock Presently
Outstanding: 7,343,557 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, Sept. 30,
1997 1998
(Audited) (Unaudited)
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Current Assets $ 2,834,848 $ 3,538,714
Fixed Assets 6,818,517 6,013,068
Other Assets 707,400 901,693
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Total Assets $10,360,765 $10,453,475
Current Liabilities $ 4,444,404 $ 4,516,200
Other Liabilities 3,133,193 2,363,609
Stockholders' Equity 2,783,168 3,573,666
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Income Statement Data:
Eleven Month Nine Months
Period Ended Year Ended Ended
December 31, December 31, Sept. 30,
1997 1996 1998
(Audited)* (Audited) (Unaudited)
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Net Revenues
(Freight Operations) $17,469,281 $14,847,335 $15,827,179
Income from Operations $ 1,034,767 $ 1,873,559 $ 669,160
Net Income (Loss) $(1,531,200) $ (294,602) $ 209,960
* Represents the combined results of the Company's two operating subsidiaries,
Gulf Northern and Mencor.
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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:
1. Prior Losses. Although the Company 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 $209,960 on
revenues of $15,827,179 during the first nine months of
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
refinance our existing debt and factoring arrangements,
to make good acquisitions and to increase our level of
revenues.
2. Need for Addi- At September 30, 1998, we had a working capital deficit
tional Financing. of $977,486. U.S. Trucking-Nevada has been running
negative cashflows since it began operations in 1997,
and we need additional funds for operations and for
expansion.
Our industry is extremely capital intensive. We depend
on cash from operations, asset-based debt financing,
and equity investments for funds to maintain our
equipment and to expand the size of our fleet. We
cannot assure you that funds will be available, or if
they are available, that the terms will be acceptable.
If we are unable to obtain financing when needed, we
would need to operate our current fleet of tractors and
trailers for longer periods, which could have a
material adverse effect on our operating results due to
higher maintenance costs. If funds are unavailable for
acquisitions, our plans for growth would be curtailed.
3. Dependence on A significant portion of our revenue is generated from
Key Customers. key customers. During 1997, our top 10 customers
accounted for 59.4% of revenues. Our largest customer,
Consolidated Papers, Inc. accounted for 19.2% of
revenues. We do not have long-term contractual
relationships with any of our customers. The loss of
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business from any of our key customers would probably
have a material adverse effect on our business and
operating results.
4. Control by As of the date of this Prospectus, our Officers and
Management. Directors beneficially own approximately 55.7% of our
outstanding shares. Upon completion of the sale of
all of the shares by the Selling Shareholders, our
Officers and Directors will continue to beneficially
own approximately 55.7% of the outstanding shares.
This will enable management to be able to elect the
Company's entire Board of Directors and to have
virtually complete control over our affairs.
5. General Economic Our business is dependent upon a number of factors
and Business beyond our control that may have a material adverse
Factors. effect on our business. These factors include excess
capacity in the trucking industry and significant
increases or rapid fluctuations in fuel prices,
interest rates, fuel taxes, tolls, license and
registration fees and insurance premiums. It is
difficult at times for us to attract and retain
qualified drivers and owner-operators. Our operations
also are affected by recessionary economic cycles and
downturns in our customers' business cycles,
particularly in market segments and industries (such as
retail and paper products) in which we have a
significant concentration of customers. Seasonal
factors could also adversely affect us. Customers
tend to reduce shipments after the winter holiday
season and our operating expenses tend to be higher
in the winter months primarily due to increased
operating costs in colder weather and higher fuel
consumption due to increased idle time. Regional or
nationwide fuel shortages could also adversely affect
us.
6. Competition. The trucking industry is very competitive and
fragmented. Our primary competition is other truckload
carriers, but we also compete with railroads, water and
air transportation. The competition has caused a
downward pressure on the prices we can charge. There
are a number of other trucking companies that have
greater financial resources, own more equipment and
carry a larger volume of freight than we do.
7. Risks Associated We plan to expand our business by making acquisitions
with Acquisi- of trucking companies. However, we expect to compete
tions with other transportation companies for the acquisition
opportunities which come available. There are a number
of risks associated with financing these acquisitions
and integrating them in our business including the
following:
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1. Our profitability could be affected by servicing
the additional debt and amortizing the expenses
related to goodwill and intangible assets.
2. The issuance of additional equity would dilute
the interests of current shareholders.
3. It could be difficult to assimilate the acquired
company's employees, equipment, and operations.
4. The acquisition could divert management's
attention from other business concerns.
5. The acquired company could operate in markets
with which we have little or no familiarity.
6. There could be undisclosed or unforeseen
liabilities associated with the acquired
company.
7. We could lose key employees, drivers or
customers of the acquired company.
8. Dependence on Our business is highly dependent upon the services of
Management. Mr. Danny L. Pixler, President, and W. Anthony Huff,
Executive Vice President. The loss of the services of
Mr. Pixler or Mr. Huff could have a material adverse
effect on our operations and future profitability.
We have employment agreements with Mr. Pixler and Mr.
Huff which run through September 2003. We do not
maintain key man life insurance on either Mr. Pixler
or Mr. Huff.
9. Regulation. We are regulated by the United States Department of
Transportation and by various state agencies. These
regulatory authorities exercise broad powers governing
activities such as authorization to engage in motor
carrier operations, determination of rates and charges,
and compliance with safety requirements. In addition,
our operations are subject to various environmental
laws and regulations dealing with the transportation,
storage, presence, use, disposal and handling of
hazardous materials, and underground fuel storage
tanks. If we should be involved in a spill or other
accident involving hazardous substances or if we were
found to be in violation of applicable laws or
regulations, it could have a material adverse effect on
our business and operating results.
10. Claims Exposure; We currently carry insurance in the amount of $250,000
Insurance. per occurrence for liability resulting from cargo loss,
$100,000 for each claim for personal injury and
property damage, $100,000-$500,000 per claim for
worker's compensation (depending on the state), and
$100,000 per claim for employee medical and
hospitalization. We believe these amounts are adequate
and comparable to the insurance maintained by other
companies operating in our business. However, to the
extent we were to experience an increase in the
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number of claims, or claims greater than the amounts of
these policies, our operating results would be
materially adversely affected. In addition, signifi-
cant increases in insurance costs, to the extent not
offset by freight rate increases, would negatively
impact our operating results.
11. Potential Our Shares are not listed on Nasdaq or any exchange.
Liquidity Trading is conducted in the over-the-counter market
Problems. on the OTC Bulletin Board, which was established for
securities that do not meet the Nasdaq or exchange
listing requirements. Consequently, selling U.S.
Trucking shares is more difficult because smaller
quantities of shares are bought and sold and security
analysts' and news media's coverage of U.S. Trucking
is limited. These factors could result in lower prices
and larger spreads in the bid and ask prices for our
shares.
12. Risks of low- Because our Shares are not currently listed on Nasdaq
priced Shares. or an exchange, they are subject to Rule 15g-9 under
the Exchange Act. That rule imposes additional sales
practice requirements on broker-dealers that sell
low-priced securities to persons other than estab-
lished customers and institutional accredited in-
vestors. 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 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.
13. 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.
14. Shares Eligible We currently have 7,343,557 shares of Common Stock
for Future Sale. outstanding and the following is a breakdown of these
shares:
We cannot pre- * Free Trading 1,241,152
dict the de- * Restricted: 6,102,405
pressive effect Currently eligible for
of resales. sale under Rule 144 48,438 Shares
Being offered in this
Prospectus 1,166,667 Shares
Will be eligible for
sale in September
1999 4,887,300 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. It is
likely that market sales of large amounts of these
or other U.S. Trucking shares (or the potential for
those sales even if they do not actually occur), will
have the effect of depressing the market price of our
shares.
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MARKET PRICES AND DIVIDENDS
The Company's Common Stock trades in the over-the-counter market, under
the symbol "USTK". There were no quotations for the Company'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 the Company'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
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September 30, 1998 $1.875 $0.002
December 31, 1998 $4.50 $0.75
As of January 26, 1999, the Company had approximately 156 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 the
Company's Board of Directors. No dividends have been paid on the Company's
Common Stock and no dividends are anticipated to be paid in the foreseeable
future.
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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 the Company and related footnotes
appearing in this Prospectus.
GENERAL
The Company was established in March of 1997 by combining under U.S.
Trucking-Nevada 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. ("USTS"). During
1997, the Company consolidated operations, implemented manpower reductions,
and blended all trucking operations under Gulf Northern and all brokerage
operations under Mencor.
The Company's operating results are primarily driven by the results of
the truckload business of its primary operating subsidiary, Gulf Northern.
The Company suffered an extraordinary loss in the year ended December 31,
1997, due to expenses associated with combining highly unprofitable operations
of the two divisions from USTS with Gulf Northern and Mencor, and from
extraordinary amortization and depreciation charges. The problems associated
with combining these operations were eliminated by the end of the first
quarter of 1998.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues increased $1.7 million or 12.6% to $15.8 million in the first
nine months of 1998 as compared to $14.1 million in the first nine months of
1997. This increase was primarily the result of internal growth of the
Company's long-haul division.
The Company's operating ratio (operating expenses divided by operating
revenues) decreased from 105.3% in the first nine months of 1997 to 95.8% in
the first nine months of 1998. This reduction in the Company's operating
ratio was primarily due to (1) the lower fuel cost resulting from lower fuel
prices and greater usage of owner-operators which provide their own fuel, (2)
lower insurance and claims, and (3) lower salaries, wages and benefits
resulting from a reduction of driver payroll caused by greater use of owner-
operators and a reduction in the wages paid to the drivers in one of the
divisions acquired from USTS.
Total operating expenses for the first nine months of 1998 increased
$240,312 to $15.1 million, as compared to $14.9 million, for the first nine
months of 1997 primarily due to the $907,336 increase in purchased
transportation costs as the Company increased its use of owner/operators.
General and administrative expenses increased $150,856 due primarily to an
increase in accounting fees related to preparing the Company for a transaction
with a public shell, and a general increase in a number of other components
due to the increased level of activity. These increases were offset by a
$372,960 decline in fuel costs due to lower fuel prices and fewer miles driven
by the Company's vehicles, a $270,027 decline in insurance and claims
attributable to the Company changing over to a captive insurance program in
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early 1998, and a $51,279 decline in salaries, wages and benefits. The rates
of pay of the drivers absorbed from other USTS operations were reduced to
bring them into line with those of the Gulf Northern drivers.
Salaries, wages and employee benefits expenses decreased $51,279 to $4.0
million for the first nine months of 1998 as compared to $4.05 million for the
first nine months of 1997, and decreased as a percentage of total operating
revenues from 28.6% in the first nine months of 1997 to 25.3% for the first
nine months of 1998. This decrease as a percentage of revenue was primarily
due to increased use of owner-operators and the decrease in the actual dollar
amount was due to reduced driver payrolls.
Payments to owner-operators increased $1 million or 32% to $4 million
for the first nine months of 1998 as compared to $3 million for the first nine
months of 1997. This was mainly the result of a growth in sales generated by
owner-operators of more than 27% in the first nine months of 1998 as compared
to the first nine months of 1997.
Depreciation and amortization expense for the first nine months of 1998
increased $17,672 to $1.2 million or 7.5% of revenue, as compared to $1.18
million or 8.3% of revenue, for the first nine months of 1997. The increase
in the actual amount of deprecation and amortization was due primarily to
increased amortization costs due to the restructuring of certain loan costs.
Deprecation and amortization decreased as a percentage of total revenues due
to the increase in revenues from owner-operators which provide their own
tractors.
Interest expense for the first nine months of 1998 decreased $44,000 or
7.8% to $513,000 as compared to $557,000 for the first nine months of 1997.
This decrease was the result of lower cost of borrowing as the result of
restructuring loans on the Company's equipment debt, lower interest rates on
the more recent portions of other equipment loans and lower factoring fees due
to improved collections of the Company's receivables.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
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 Company 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 was due primarily to the increase in business associated with
the operations added in early 1997, which yielded higher driver payroll,
increase in percentage paid to owner-operators, higher fuel costs and higher
maintenance costs as a percentage of revenue. Fuel expenses increased $766,00
or 46% to $2,480,000 from $1,720,000 for fiscal 1996.
Salaries, wages, employee benefits and other administrative expenses for
the year ended 1997 were $2,150,000, or 11.6% of revenue, compared to
$2,030,000, or 13.7% of revenue, for the year ended 1996. The increase in the
dollar amount 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.
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Depreciation and amortization expenses for 1997 were $1.44 million, or
7.8% of revenue, as compared to $977,000, or 6.6% of revenue, for 1996. This
increase was due to additional equipment being added to the Company's fleet,
increased amortization costs due to the restructuring of certain loans and
increased depreciation due to certain capitalized repairs.
Interest expense for 1997 was $703,000, or 3.8% of revenue, as compared
to $649,000, or 4.4% of revenue, for the year ended 1996. The increased
interest expense was due to the increase in the amount of debt outstanding due
to the debt assumed in connection with the additional tractors and trailers
contributed to the Company by USTS.
Freight settlements paid to outside carriers decreased $209,000 or 10.4%
(to 90.9% of revenues) for the year ended 1997 as compared to $2.0 million or
90.1% of revenues for the prior year. This decrease resulted from slightly
fewer loads being brokered in 1997.
CAPITAL RESOURCES AND LIQUIDITY
As of September 30, 1998, the Company had a working capital deficit of
$(977,486) compared to a deficit of $(1,609,556) at December 31, 1997.
Effective February 1, 1997, the Company acquired all of the outstanding
capital stock of Gulf Northern and of Mencor, as well as selected assets
(tractors and trailers) of Jay & Jay Transport for the assumption of debt.
The Company has assumed various notes as the schedule below indicates.
Following is a schedule of the Company's existing long-term debt as of
September 30, 1998:
Monthly
Creditor Balance Payments
-------- ---------- --------
Associates Leasing Corp. $ 464,000 $ 31,497
(Milwaukee)
Associates Leasing Corp. 520,000 26,597
(Buffalo & Philadelphia)
ITC (Indianapolis) 373,000 16,000
GECC 1,630,000 45,000
Navistar Financial 318,000 12,933
GECC (Columbus) 421,000 14,528
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Total $3,726,000 $146,555
At times, the Company enters into leasing agreements for short- or long-
term equipment needs. The Company currently has three leasing agreements in
place for tractors and trailers. The expenses are booked as straight
operating expenses on a month-to-month basis.
The Company has from time to time been in arrears with its equipment
lenders, but the Company has maintained excellent working relations with all
of its lenders and management believes that it continues to be in good status
with all of its lenders. The Company is seeking a bundled refinancing at this
time to consolidate its debt, lower interest expense and expand its operating
line. (See below.)
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During August and September 1998, the Company raised $575,000 in a
private offering of Common Stock. The proceeds from the private offering were
used for the retirement of debt related to receivables financing, payment of
fees incurred in connection with the acquisition of U.S. Trucking-Nevada by
the Company and working capital.
The Company anticipates that the proceeds of the recent offering,
together with projected cash flow from operations, will be sufficient to fund
the Company's operations for at least 12 months. In order to expand, the
Company intends to raise additional funds through private placements of equity
and/or debt securities. During January 1999, the Company commenced a private
offering of 2,000,000 shares of Series B 8% Convertible Preferred Stock at a
price of $3.00 per share on a 150,000 share minimum, 2,000,000 share maximum
basis. Each share of Series B 8% Convertible Preferred Stock will be
convertible into one share of Common Stock. The proceeds, if any, from this
offering would be used for working capital, debt reduction and acquisitions.
During December 1998, the Company closed two financing transactions with
General Electric Capital Corporation ("GE Capital"). One transaction involves
a revolving credit facility in an amount up to $5,000,000 which replaced the
existing accounts receivable factoring facility. The other transaction
includes an equipment refinance loan in an amount of approximately $3,332,000,
an equipment lease for approximately $1,120,000, and an equipment lease for
approximately $2,944,150.
The revolving credit facility provides that the lender will loan up to
85% on the Company's eligible accounts receivable at an interest rate equal to
a defined rate which is the 30-day dealer commercial paper rate plus 4.5
percent. The loan has a three year term and it is secured by all existing and
after-acquired assets of the Company other than encumbered rolling stock.
Approximately $100,000 in fees were paid and this facility was personally
guaranteed by Dan Pixler and Anthony Huff.
The other transaction includes one loan and two lease transactions. The
loan for approximately $3,332,000 was used to refinance two existing GE
Capital loans, and several other existing loans. This loan has a three year
term and it is secured by the tractors and trailers which collateralize the
existing loans less the collateral which GE Capital agrees may be sold. The
first lease transaction in the amount of approximately $1,120,000 was used to
acquire twenty-five (25) 1996 or 1997 tractors. This lease has a four year
term. The second lease in the amount of approximately $2,944,150 was used to
acquire forty-three (43) new Wabash 53' air ride refrigerated trailers and
forty-five (45) new Wabash 53' air ride dry vans with logistics systems. This
lease has a seven year term. The loan and the two leases were personally
guaranteed by Dan Pixler and Anthony Huff.
Under these transactions, the Company's monthly debt service remained
virtually the same, but the Company's fleet was expanded and upgraded.
YEAR 2000 COMPLIANCE
The Company is in the midst of implementing its plan to ensure year 2000
compliance of its computer hardware and software. The plan is centered around
the purchase of a new hardware system consisting of a Compaq proliant P2 300
300 MHz processor, 320 MB RAM, 2/9.1 GB mirror hard drive, and a Server Tower
which is installed in the Charleston, South Carolina, location. From the
system will be generated all functions of the Company's operating systems
including, but not limited to, the initiation of loads, dispatch, billing,
accounts payable and receivable, general ledger functions and preparation of
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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 the Company's fuel provider, Comdata, will be downloaded into
the system over the Internet on a daily basis. The Company has received data
from Comdata with respect to their program for year 2000 compliance and is
satisfied that they will be in total compliance.
The new software system has been fully operational for the agent program
and brokerage business since November 1998. The Company anticipates the
complete system to be installed and begin operating Company-wide by March 1,
1999. At present, the Company is working with its hardware provider to have
installed PC workstations for use with a Windows NT User Network, MS Exchange
50 User Internal E-mail. Each workstation is a Compaq Deskpro EP Pentium 333
Mhz. Protrip software from Computerized Management Services of Sioux Falls,
South Dakota, will be used. The Company is currently also preparing and
reviewing its database information on its current system for transfer to the
new system in an effort to streamline the flow of information from one system
to the other.
The Company may also be vulnerable to the failure of other companies to
be year 2000 compliant. The Company has commenced its assessment of whether
third parties with whom the Company has material relationships are year 2000
compliant. The Company is evaluating its vendors and suppliers to determine
if there would be a material effect on the Company's business if they do not
timely become year 2000 compliant. The same analysis is being made for
significant customers. The Company has not yet initiated formal contingency
planning processes to mitigate the risk to the Company if any vendors or
customers are not prepared for the year 2000, but the Company intends to
complete this process by June 30, 1999.
Although the Company expects its internal systems to be year 2000
compliant, the failure of any of its significant vendors or customers to
correct a material year 2000 problem could result in an interruption in
certain normal business activities and operations. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the
uncertainty of the year 2000 readiness of third parties which the Company
relies on, the Company is unable to determine at this time whether the
consequences of year 2000 failures will have a material adverse impact on the
Company's results of operations, but the Company believes that with the
implementation of its new computer system and completion of its assessment of
its vendors and customers, the possibility of significant interruptions of
normal operations should be reduced.
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BUSINESS
GENERAL
U.S. Trucking, Inc. provides transportation and logistics services. We
transport full truckloads of both refrigerated and non-refrigerated
commodities over various distances primarily east of the Rocky Mountains. We
also provide the following specialized transportation and logistics services:
1. Roller-bed trailer service for UPS and Emery Air
2. Transportation brokerage services
We are a preferred carrier for a number of Fortune 500 companies,
including:
1. United Parcel Service of America, Inc.
2. The Trane Company (a division of American Standard, Inc.)
3. Excel Corporation (a division of Cargill Incorporated)
4. Emery Worldwide (a division of CNF Transportation, Inc.),
5. Eaton Corporation
6. The Monfort division of ConAgra, Inc.
7. Consolidated Papers, Inc.
We are actively seeking other companies which are interested in outsourcing
their transportation service needs.
Our truckload division operates approximately 170 tractors (including
approximately 65 tractors which are owned by contractors) and over 230
trailers (including approximately 25 which are owned by contractors).
We intend to expand our business through internal growth and
acquisitions. The truckload industry is highly fragmented, which provides a
large number of acquisition opportunities. We are primarily interested in
medium to long haul truckload carriers, with annual revenues between $5-10
million, located close to the Company's current facilities. This should allow
us to consolidate our staffs to reduce common expenses. This is referred to
in our industry as the "Stack Up" concept.
U.S. Trucking, Inc., 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-Nevada which is now a wholly-
owned subsidiary of the Company. 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.
The Company's primary operating subsidiary, Gulf Northern, has operated
as a truckload carrier since it was formed in 1991. 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. Transportation Systems, Inc. ("USTS") 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. ("USTS"), at the time, a publicly-traded transportation company. As it
became clear that the expected benefits from affiliating with USTS would not
be forthcoming, Messrs. Huff and Pixler arranged for Logistics Management, LLC
to repurchase the majority position held by USTS in May 1998.
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THE TRUCKLOAD SEGMENT OF THE TRANSPORTATION INDUSTRY
The Company estimates that the for-hire truckload market segment of the
transportation industry accounted for more than $165 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. The Company's average length of haul is approximately 880
miles.
TRANSPORTATION BROKERAGE SERVICES
The Company offers transportation brokerage services through its wholly-
owned subsidiary Mencor. The Department of Transportation granted Mencor a
license in April 1994 which provides it with authority to engage as a freight
broker in interstate commerce. Mencor arranges return hauls for common
carriers and corporations transporting their own goods who 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 with the returning shipper or carrier to effect the
move, and the amount we receive from the shipper.
OPERATING STRATEGY
The Company's operating strategy is to provide high quality
transportation and logistics services that position the Company as a preferred
supplier or "core carrier" to major shippers. The Company does not compete
primarily on a price basis. The Company seeks to effect this strategy by
providing reliable time-definite pick up and delivery services. An important
factor in the Company's ability to effect this strategy is the ready
availability of drivers. The Company seeks to address the chronic driver
shortage in the trucking industry through a variety of practices. See
"Drivers" below. Management believes its driver retention history is
significantly better than the industry average.
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Management believes that the Company's operating strategy has positioned
it 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 services will not benefit from this
trend. As a medium size carrier with the capability to also offer logistics
and warehousing services (which helps in obtaining business from companies
utilizing "just-in-time" distribution methods), the Company is well-suited to
capitalize on this trend.
The Company has also recently instituted an agent program, pursuant to
which the Company allows small carriers to operate under the Company's
authority as an agent of the Company. In this program the agent provides its
customers and business. The Company collects all of the revenues from the
shippers and pays the agent 85% of the revenue less certain expenses paid by
the Company such as fuel costs and pallet costs. The Company provides the
agent with liability insurance coverage and certain administrative services
such as billing and collecting receivables. The Company also provides the
agent with access to the Company's 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.
ACQUISITION STRATEGY
The Company intends to actively seek acquisition candidates to expand its
business and to increase its market share. The Company plans to use what has
been described as the "Stack Up" concept. Stack Up refers to seeking
acquisitions of companies with facilities located in the same geographical
locations as the Company, whenever possible, allowing for faster consolidation
of staffs and faster reduction of duplicated costs. Management believes that
a Stack Up strategy is appropriate for the Company because the medium to long-
haul trucking industry is characterized by several large companies and many
small companies ("Mom and Pops") which are not able to achieve competitive
advantages related to size, yet are too small ($5 to $10 million revenues) to
attract the interest of the larger operators. The Mom and Pops constitute a
large and fragmented segment of the industry. These companies do not have
sufficient resources to serve as "core" carriers or to afford the technology
required to operate as efficiently and cost-effectively as their larger
competitors.
The Company believes that through careful selection of acquisition
candidates, certain small operators can be acquired on terms favorable to the
Company and that the operating results of these firms will improve as they are
integrated into the Company's logistical framework. The Company intends to
use a combination of cash, stock, debt and equity securities to facilitate its
acquisition and expansion plans. No assurance can be given that the Company
will be able to effect this strategy. The Company is currently holding
discussions relating to several potential acquisitions, but does not
anticipate making any acquisitions until adequate financing is in place.
LETTER OF INTENT AND MANAGEMENT SERVICES AGREEMENT WITH MID-CAL EXPRESS, INC.
AND MID-CAL LOGISTICS, INC.
The Company has entered into a letter of intent with Mid-Cal Express,
Inc. and Mid-Cal Logistics, Inc. (collectively referred to as "Mid-Cal") which
relates to the purchase by the Company of substantially all of the assets of
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Mid-Cal. According to the letter of intent, the Company would pay 400,000
shares of its Common Stock for these assets. The closing of this transaction
will be subject to the completion of due diligence by the Company, the
execution of a definitive agreement by the parties, approval by the Board of
Directors of the Company, and approval by any other parties such as banks,
lessors or creditors whose consent is required.
Mid-Cal is a truckload carrier which transports a range of commodities,
including refrigerated food products, manufactured goods, retail store
merchandise, paper products, beverages, parts and chemicals between the
Western and Northeastern United States and the provinces of Ontario and
Quebec, Canada. Mid-Cal also operates a logistics business. Mid-Cal's gross
revenue for the fiscal year ended December 31, 1997, was approximately $15.9
million and it had a net loss of approximately $695,000. Mid-Cal Express,
Inc. and Mid-Cal Logistics, Inc. are subsidiaries of Prime Companies, Inc., an
SEC reporting company.
In furtherance of the Letter of Intent, the Company has entered into a
Management Services Agreement with Mid-Cal effective December 30, 1998,
whereby the Company agreed to manage Mid-Cal's freight transportation and
terminal operations until February 28, 1999, subject to an extension at the
Company's discretion until June 30, 1999. The agreement provides that the
Company will render management services in connection with the day-to-day
operations of Mid-Cal including rendering advisory services with respect to
(a)dealings with lenders, (b) insurance issues, (c) negotiating owner-operator
settlements, and (d) matters related to the continued employment or severance
of employees. The Company is also responsible for all billings and
collections for all shipping contracts, terminal charges, and all other
revenue producing activities of Mid-Cal. The Company will be paid management
fees equal to 2% of all revenues collected pursuant to the agreement up to a
maximum of $40,000.
The agreement also provided that the Company would use its best efforts to
renegotiate various equipment financing and lease agreements on Mid-Cal's
rolling stock, many of which are past due.
The purpose of this agreement was to allow the Company and Mid-Cal to
negotiate an agreement whereby the Company would acquire substantially all of
the operating assets of Mid-Cal in exchange for 400,000 shares of the
Company's common stock. Such a transaction will not be consummated until
satisfactory arrangements are in place for the payment of amounts owing to
Mid-Cal's creditors, or other arrangements satisfactory to Mid-Cal's
creditors have been agreed upon.
Since December 30, 1998, the Company has been actively involved re-
negotiating the principal equipment financing and lease agreements, and it
has been doing so in the name of the Company, with the Company becoming the
owner or lessee of the equipment. Therefore, as of February 5, 1999, the
Company has effectively taken ownership or control of nearly all of Mid-
Cal's tractors and trailers.
MARKETING
The Company markets high quality, "just-in-time", temperature-sensitive
and dry freight truckload services in the truckload carrier market. These
services include roller-bed trailer services to select air freight companies
such as UPS and Emery. The Company also provides small package pickup and
delivery services for air freight forwarders in three Florida cities.
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The Company's operations are primarily east of the Rocky Mountains with
an emphasis on the Midwest, Southeast and Northeast United States. The
Company believes that it has established a presence in these regions and has
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 the Company's commitment to high levels of
service, flexibility, responsiveness, analytical planning and information
management in order to position the Company to serve customers' demands for
time definite pickup and delivery. The Company's marketing personnel seek to
strengthen the company's position with existing customers and establish it
with prospective customers.
Dan L. Pixler, the Company's President & CEO, is directly involved in
marketing the Company's services at the national account level and he also
supports local sales activity. The Company also has an eastern sales manager.
The Company's largest 15 customers are: Consolidated Papers, Inc., The
Trane Company, Revco D.S., Inc., Excel Corporation, Pharmor, Cadbury
Schweppes, Emery Worldwide, United Parcel Service of America, Inc., Seneca
Foods Corporation, Eaton Corporation, Weyerhauser Company, Copps Distributing,
Blue Berry Confections, Bi-Lo Sales and services, and OK Grocery.
Consolidated Papers, Inc. accounted for 16% of the Company's revenues during
the year ended December 31, 1997.
The Company maintains a strong commitment to expanding its relationships
with existing customers. Customer shipping patterns are monitored daily,
allowing the Company flexibility in responding rapidly to the varying service
demands of its customers. The Company has written motor carrier contracts
with approximately 90% of its 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. The loss of the
Company's largest customers could materially adversely affect the Company's
operating results.
OPERATIONS
All of the Company's offices and terminals are leased. The Company's
executive office is located in North Charleston, South Carolina, where
billing, collections, brokerage, banking and overall management of the Company
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. The Company
believes that this facility is adequate for its present needs.
The Company also maintains the following other office, terminal and
warehouse locations:
Location Description
-------- -----------
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 900 square foot office and a two
bay repair shop leased for $3,150
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)
Orlando, Florida A 500 square foot office
leased for $550 per month
Jacksonville, Florida A 375 square foot office and a
1,125 square foot warehouse leased
for $1,003 per month
W. Palm Beach, Florida A 568 square foot office and a
1,500 square foot warehouse leased
for $1,100 per month
Each of the Company's 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.
The Company utilizes various computer systems, which enable order taking,
driver tracking, billing and cash application procedures. The Company is in
the process of enhancing these systems by adding new servers, new personal
computers and new software, all of which will contribute to the Company's Year
2000 readiness. When completed this will enable the Company to track its
tractors and trailers more effectively, and to handle billing and maintenance.
The Company currently does not anticipate introducing satellite driver
communications in the near future, although the Company's new computer systems
will be compatible with, and able to accommodate, such a system.
TRACTORS AND TRAILERS
The Company operates a fleet of approximately 286 tractors, including 112
tractors that are owned by independent contractors, and 401 trailers,
including 13 trailers that are owned by independent contractors. Since the
closing in December 1998 of the financing with General Electric Capital
Corporation, the Company has traded 18 older tractors for 20 newer tractors.
The Company has also traded 91 aged trailers for 63 new trailers which
includes 43 refrigerated trailers and 20 dry vans. The Company has also
recently added 65 tractors which are all 1996 or newer and 149 refrigerated
trailers. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- CAPITAL RESOURCES AND LIQUIDITY.")
The Company's policy is to purchase quality late-model tractors and
refrigerated and dry trailers that meet the Company's specifications. The
Company had financed its tractor and trailer purchases through several asset-
based finance agreements. The Company also contracts with owner-operators to
provide additional tractors and trailers. The Company has established
standard specifications for the purchase of equipment replacements. Each of
the Company's 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.
The Company is developing a plan to replace it tractors every four years
and its trailers every seven years. The Company maintains warranties that
extend beyond the four year life of the tractors on all engines,
transmissions, drive axles and running gear.
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The Company has 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 the Company's maintenance is performed at its Wisconsin Rapids,
Wisconsin and Savannah, New York terminals.
DRIVERS
All of the Company's drivers must meet specific guidelines relating
primarily to safety record, driving experience and personal evaluation,
including DOT mandated drug testing and personal background checks. The
Company recruits and retains 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. The Company maintains
experienced driver recruiters.
The Company requires that prospective drivers have a minimum of one year
of truck driving experience in order to be considered for a position with the
Company. In addition, new drivers are required to meet all DOT requirements.
Upon hiring a driver, the Company conducts an orientation program covering
such topics as the Company's business, policies, procedures, safety, benefits,
maintenance and operation of equipment.
Company 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 the
Company's 401(k) plan and health and life insurance plans.
Although the Company currently has an adequate number of drivers, there
can be no assurance that the Company will not be affected by a shortage of
qualified drivers in the future. Significant driver turnover is a problem
with the Company and the industry as a whole. In addition, the trucking
industry is experiencing a diminished workforce of qualified drivers. As a
result, the Company must compete with other transportation service companies
for the available drivers. The Company anticipates that the intense
competition for qualified drivers in the trucking industry will continue.
In addition to its driver employees, the Company contracts with a select
group of independent contractors who own and operate their own tractors and
trailers. The Company's 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 with the Company
which is cancelable by either party upon thirty days notice. The owner-
operators provide the Company with an additional source of drivers,
particularly during periods of peak demand for transportation services.
INSURANCE AND SAFETY
The Company's safety department is responsible for training and
supervising personnel to keep safety awareness at its highest level. The
Company has implemented an active safety and loss prevention program at its
corporate headquarters and all of its terminals. In July 1994, Gulf Northern
successfully completed a safety audit and compliance review by the Department
of Transportation, Federal Highway Administration and is operating with a
satisfactory rating. 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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The Company's 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 the Company's
Director of Safety. It is Company policy to reward drivers who have satisfied
safety performance goals established by the Company. Safe-driver awards are
presented based upon the number of miles a Company 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.
The Company has implemented a written disciplinary system for its
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 Company equipment, willful or negligent damage of Company equipment or
property or injury to another person, carrying, possessing or being under the
influence of intoxicants or narcotics while on duty or on Company premises,
possession of firearms or other lethal weapons while on duty or while on
Company premises and other similar offenses. The Company's Director of Safety
continuously monitors driver performance and makes recommendations to the
Company's executive officers regarding employment and retention of drivers.
The Company is 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. The Company maintains insurance that it
believes is adequate to cover its liabilities and risks.
The Company has set up captive insurance arrangements with an insurance
company pursuant to which the Company makes monthly payments into a loss
reserve fund in addition to the payments it makes 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, the
Company receives back a portion of the reserve fund.
The Company also has 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.
The Company manages fuel purchases by directing its drivers to certain truck
stops along designated routes that give the Company certain discounts in
return for volume purchases on a recurring basis. Through the use of
computerized monitoring devices imbedded in the engines of its tractors, the
Company monitors fuel usage, miles per gallon, cost per mile, and cost per
gallon. The Company has not experienced any difficulty in maintaining fuel
supplies sufficient to support its operations. Historically, the Company has
been able to pass on a portion of fuel price increases to its 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 the
operations and profitability of the Company.
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COMPETITION
The trucking industry is highly competitive and fragmented. The Company
competes 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, the
Company believes that competition for the freight transported by the Company
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 the Company. The Company
also competes with other motor carriers in hiring qualified drivers. The
Company's primary emphasis is service, especially to its core carrier
customers, rather than price alone. However, the industry in which the
Company operates is extremely price sensitive and the Company is 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 the
Company, 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. The rates
and charges of the Company are not directly regulated by these authorities.
As primarily a contract carrier, the Company negotiates 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 such as the Company 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. The Company believes that it is in compliance in all material
respects with the provisions of the Negotiated Rates Act.
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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 the Company's drivers
were required to obtain national commercial driver's licenses by April 1,
1992, pursuant to the regulations promulgated by the DOT. Also effective in
1989, DOT regulations imposed mandatory drug testing of drivers. The Company
has implemented a random drug-testing program in accordance with such
regulations. In addition, beginning January 1, 1995, the Company was required
to implement new alcohol and revised 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.
Beginning August 15, 1994, the Company was required to implement a certain
split sample urine collection procedure. The Company complies with all
applicable regulations imposed on its 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 the Company of qualified drivers. See
"Business-Safety and Insurance."
The Company's operations are subject to federal, state and local laws and
regulations concerning the environment. The Company has not received any
notices from any regulatory authority relating to any violation of any
environmental law.
EMPLOYEES
As of the date of this Prospectus, the Company employed approximately 227
persons, of whom 150 were drivers and 77 were maintenance and administrative
personnel. None of the Company's employees is represented by a collective
bargaining unit and the Company has never experienced a work stoppage. The
Company believes that its relations with its employees is good.
LEGAL PROCEEDINGS
The Company has been from time to time a party to litigation incidental
to its 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, the Company is not party to any litigation which,
individually or in the aggregate, management believes will have a material
adverse effect on the financial condition or operations of the Company. The
Company maintains insurance that it believes is adequate to cover its
liability risks. See "Business-Safety and Insurance."
REPORTS TO SECURITY HOLDERS
The Company is subject to the reporting requirements of Section 13(a) and
to the proxy requirements of Section 14 of the Securities Exchange Act of
1934, as amended, and in accordance therewith files periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information concerning the Company 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
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site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically.
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MANAGEMENT
DIRECTORS AND OFFICERS
The Directors and Executive Officers of the Company are as follows:
NAME AGE POSITIONS HELD
---- --- --------------
Danny L. Pixler 50 President, CEO and Director
W. Anthony Huff 37 Executive Vice President and Chairman
of the Board
John Ragland 33 Chief Financial Officer
There is no family relationship between any Director or Executive Officer
of the Company.
The Company has audit and compensation committees which both consist of
Danny L. Pixler and W. Anthony Huff.
Set forth below are the names of all directors and executive officers of
the Company, all positions and offices with the Company 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 the
Company since September 8, 1998, when the Company completed its 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 Executive Vice President and Chairman of
the Board of the Company 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 the Company's 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.
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Mr. Huff spends approximately 60% of his time on the Company's business and
the remainder of his time consulting with various other companies.
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 Chief Financial Officer of the Company 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.
The Company's executive officers hold office until the next annual
meeting of the Directors of the Company. The Company has agreements with
Messrs. Pixler and Huff whereby the Company is required to use its best
efforts to elect and retain them as members of the Board of Directors as long
as they are guarantors as to any Company 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 of the Company.
EXECUTIVE COMPENSATION
The following tables set forth information regarding executive
compensation for the Company'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 -- $ -- -- -- -- --
______________
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(1) Represents $500 per month car allowance.
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
The Company has 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 Company business or an auto allowance not to
exceed $550 per month.
The Company has 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%).
The Company has 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 Company business.
These employment agreements are terminable by the Company 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 the Company's Stock Option Plan (the "Plan"),
and the Company assumed the obligations represented by 200,000 options which
were already outstanding. These options had an exercise price of $.30. The
Plan authorizes the issuance of options to purchase up to 2,000,000 shares of
the Company's Common Stock.
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The Plan allows the Board to grant stock options from time to time to
employees, officers, directors and consultants of the Company. 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 the Company 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 the Company in connection
with Incentive Stock Options granted under the Plan. With regard to options
that are not Incentive Stock Options, the Company 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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SECURITY OWNERSHIP OF MANAGEMENT,
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, and as
adjusted for the sale of the shares offered by the Selling Shareholders, the
stock ownership of each person known by the Company to be the beneficial owner
of five percent or more of the Company's Common Stock, all Directors
individually and all Directors and Executive Officers of the Company 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
- ------------------- ---------- -------- --------- --------
Logistics Management,
L.L.C. (1) 4,000,000 (2) 54.5% 0 54.5%
10602 Timberwood Circle #9
Louisville, KY 40223
Danny L. Pixler 2,100,000 (3) 28.2% 0 28.2%
Suite 216
3125 Ashley Phosphate Road
North Charleston, SC 29418
W. Anthony Huff 2,100,000 (4) 28.2% 0 28.2%
10602 Timberwood Circle #9
Louisville, KY 40223
Mark Weber 40,000 * 40,000 0
3206 162nd Place, SE
Bellevue, WA 98008
Ronald Setzkorn 233,333 3.2% 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
Jay W. Bosselman 93,333 1.3% 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
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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 Wagonseller 26,668 * 26,668 0
500 Meidinger Tower
Louisville, KY 40202
Transportation Services Co. 394,999 5.4% 394,999 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
All Directors and Executive 4,200,000 (3) 55.7% 0 55.7%
Officers as a Group (4)
(3 Persons)
________________
* 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 W. Anthony Huff Irrevocable Trust.
(2) Does not include 900,000 shares of the Company's 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 shares of the Company's
Common Stock when certain revenue targets are achieved. (See
"DESCRIPTION OF SECURITIES.")
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(3) Represents a 50% beneficial interest in the shares held by Logistics
Management, L.L.C. and options to purchase 100,000 shares of Common
Stock.
(4) Represents a 50% beneficial interest in the shares held by Logistics
Management, L.L.C. and options to purchase 100,000 shares of Common
Stock. Mr. Huff is the primary beneficiary of the W. Anthony Huff
Irrevocable Trust.
There are no known agreements, the operation of which may at a subsequent
date result in a change in control of the Company.
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TRANSACTIONS WITH MANAGEMENT AND OTHERS
ACQUISITION OF U.S. TRUCKING-NEVADA
On September 8, 1998, the Company 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 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 pursuant to an Agreement ("Agreement")
between the Company and U.S. Trucking-Nevada. The terms of the Agreement were
the result of negotiations between the managements of the Company 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 THE COMPANY BEFORE ACQUISITION OF U.S. TRUCKING-NEVADA
During the fiscal year ended March 31, 1996 the Company loaned a total of
$85,000 to Dunn International, Inc. ("Dunn") in anticipation of a possible
merger with or acquisition of Dunn. Dunn was engaged in two lines of
business: (1) the sale of software packages for petrochemical plants and
refineries, and (2) providing maintenance and turnaround services for
petrochemical plants and refineries.
During August 1996 the Company agreed to convert the $85,000 of loans and
$5,883 of accrued interest into 57,941 shares of Dunn's common stock which
represented approximately 18% of Dunn's outstanding common stock as of March
31, 1997. During the year ended March 31, 1997, the Company loaned an
additional $40,725 to Dunn and during the year ended March 31, 1998, the
Company loaned an additional $37,500 to Dunn.
These additional loans were made in an attempt to protect the Company's
investment in Dunn. The Company never completed a merger or acquisition with
Dunn because after completing its due diligence, management was of the opinion
that a merger or acquisition would not be in the best interests of the Company
at the time.
Dunn was approximately 50% owned by a principal stockholder of the
Company and her husband who is the Chairman of the Board and CEO of Dunn.
TRANSACTIONS INVOLVING U.S. TRUCKING-NEVADA AND ITS SUBSIDIARIES
On the formation of U.S. Trucking-Nevada in March 1997, the corporation
issued 1875 shares of its common stock to U.S. Transportation Systems, Inc.
("USTS") 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 the
corporation 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 the corporation by USTS. The net value of these assets
and liabilities for accounting purposes was $100,546.
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The corporation 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.
The corporation 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 USTS 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 the Company 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, the Company 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, the
Company is required to pay for all expenses associated with the tractors
including maintenance, insurance, permits, licenses and other operating
expenses.
In September 1998, the Company leased six 1994 Kenworth tractors from a
company owned by Danny Pixler and Anthony Huff pursuant to a one year lease
agreement which provides for monthly payments of $7,380 and annual renewals.
Under the lease agreement, the Company 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 the Company had previously been leasing. He
purchased the property for approximately $158,000, and he is leasing it to the
Company 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 the Company's shareholders entered into
a Stock Exchange Agreement with the Company whereby they agreed to exchange a
total of 9,990,000 shares of the Company's common stock for 999,000 shares of
the Company's 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 the Company 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 of the Company believes that the above
transactions involving U.S. Trucking-Nevada and its subsidiaries have been on
terms no less favorable to the Company than those that could have been
obtained from unaffiliated parties.
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DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital stock of the Company includes 75,000,000 shares of
Common Stock, no par value. All shares have equal voting rights and are not
assessable. Voting rights are not cumulative, and so the holders of more than
50% of the Common Stock of the Company could, if they chose to do so, elect
all the Directors.
Upon liquidation, dissolution or winding up of the Company, the assets of
the Company, 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 securities of the Company and have no right to
require the Company 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 of the Company, out of funds
legally available therefor. The Company has not paid any cash dividends on
its 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 Company.
REPORTS TO STOCKHOLDERS
The Company plans to furnish its stockholders for each fiscal year with
an annual report containing financial statements audited by its independent
certified public accountants. Additionally, the Company may, in its sole
discretion, issue unaudited quarterly or other interim reports to its
stockholders when it deems appropriate.
PREFERRED STOCK
The Company is 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 of the Company 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 the Company without any further action by
shareholders. The Company has designated 999,000 shares of its Preferred
Stock as Series A Preferred Stock, of which 999,000 shares are currently
outstanding. Following is a summary of the rights and preferences of the
outstanding Series A Preferred Stock.
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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 the Company, the holders of the shares 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 the Company's 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 the Company 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.
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PLAN OF DISTRIBUTION
The 1,166,667 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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LEGAL MATTERS
The legality of the securities of the Company offered will be passed on
for the Company 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 25,000 shares of the Company's Common
Stock.
EXPERTS
The financial statements of the Company 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 the Company 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
the Company 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.
38
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
U.S. TRUCKING, INC. AND SUBSIDIARIES AS OF
SEPTEMBER 30, 1998 .............................................. F-3
Consolidated Balance Sheet as of September 30,
1998 (Unaudited) .............................................. F-4
Consolidated Statements of Operations for the
Nine Months Ended September 30, 1998 and
1997 (Unaudited) .............................................. F-5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997
(Unaudited) ................................................... F-6
Notes to Consolidated Financial Statements .................... F-9
2) AUDITED FINANCIAL STATEMENTS OF U.S. TRUCKING, INC.
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997)
TO DECEMBER 31, 1997 ............................................ F-10
Report of Independent Certified Public Accountants ............ F-11
Consolidated Balance Sheet as of December 31, 1997 ............ F-12
Consolidated Statement of Operations and Accumulated
Deficit for the period from inception (January 30, 1997)
to December 31, 1997 ......................................... F-14
Consolidated Statement of Stockholders' Equity for the
period from inception (January 30, 1997) to December 31,
1997 ......................................................... F-15
Consolidated Statement of Cash Flows for the period from
inception (January 30, 1997) to December 31, 1997 ............ F-16
Notes to the Consolidated Financial Statements ................ F-18
3) AUDITED FINANCIAL STATEMENTS OF GULF NORTHERN TRANSPORT, INC.
FOR THE THIRTY DAYS ENDED JANUARY 30, 1997 ...................... F-29
Report of Independent Certified Public Accountants ............ F-30
Balance Sheet as of January 30, 1997 .......................... F-31
Statement of Operations and Accumulated Deficit
for the period from January 1, 1997 to January 30, 1997 ...... F-33
Statement of Cash Flows for the period from January 1, 1997
to January 30, 1997 .......................................... F-34
Notes to Financial Statements ................................. F-36
F-1
<PAGE>
<PAGE>
4) AUDITED FINANCIAL STATEMENTS OF MENCOR, 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 Earnings and Retained Earnings for the
period ending January 30, 1997 ............................... F-49
Statement of Cash Flows for the period ending January 30,
1997 ......................................................... F-50
Notes to Financial Statements ................................. F-51
5) AUDITED FINANCIAL STATEMENTS OF MID AMERICA TRANSPORTERS GROUP,
INC. AND SUBSIDIARY FOR THE YEARS ENDED DECEMBER 31,
1996 AND 1995 ................................................... F-57
Report on Independent Certified Public Accountants ............ F-58
Consolidated Balance Sheets as of December 31, 1996 and 1995... F-59
Consolidated Statements of Operations and Retained Earnings
for the years ending December 31, 1996 and 1995 .............. F-61
Consolidated Statements of Cash Flows for the years ending
December 31, 1996 and 1995 ................................... F-62
Notes to the Consolidated Financial Statements ................ F-64
6) AUDITED FINANCIAL STATEMENTS OF MENCOR, INC. FOR THE
YEARS ENDED DECEMBER 31, 1996 AND 1995 .......................... F-74
Report on Independent Certified Public Accountants ............ F-75
Balance Sheet as of December 31, 1996 and 1995 ................ F-76
Statements of Earnings and Retained Earnings for the
periods ending December 31, 1996 and 1995 .................... F-78
Statements of Cash Flows for the periods ending December 31,
1996 and 1995 ................................................ F-79
Notes to Financial Statements ................................. F-81
F-2
<PAGE>
<PAGE>
1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
U.S. TRUCKING, INC. AND SUBSIDIARIES AS OF
SEPTEMBER 30, 1998
F-3
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30,
1998
------------
ASSETS
Current Assets:
Cash in Banks $ 130,154
Restricted Cash - Reserves on Deposit
with Factor 240,824
Restricted Cash - Insurance Premiums 150,000
Accounts Receivable - Trade - net of
allowance for doubtful accounts of
$88,000 2,610,900
Accounts Receivable - Other 97,267
Parts and supply inventory 167,951
Prepaid Expenses 141,620
-----------
Total Current Assets 3,538,714
Transportation & Other Equipment
At cost less accumulated depreciation
and amortization of $2,389,205 6,013,068
Other Assets:
Restricted Cash - Owner Operators 6,494
Restricted Cash - held as collateral
against Letters of Credit 10,000
Security Deposits and other 14,962
Loss Reserve on Captive Insurance 104,118
Intangible Assets - Net of accumulated
amortization of $252,788 766,119
-----------
Total Other Assets 901,693
Total Assets $10,453,475
===========
F-4
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30,
1998
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable - Trade $ 514,088
Due to Factor 1,737,167
Accruals & Other Current Liabilities 697,062
Current Portion - Sellers' Notes 104,000
Current Portion - Note Payable 42,600
Current Portion - Acquisition Loan Payable 391,046
Current Portion - Equipment Notes Payable 706,415
Current Portion - Obligations under
Capital Leases 323,822
-----------
Total Current Liabilities 4,516,200
Other Liabilities:
Owner Operator Escrow 35,050
Seller's Notes -
Note Payable - net of current portion 25,400
Acquisition Loan - net of current portion 1,236,797
Equipment Notes - net of current portion 925,893
Obligations under Capital Leases - net
current portion 140,469
-----------
Total Other Liabilities 2,363,609
Total Liabilities 6,879,809
Stockholders' Equity:
Common Stock - No Par Value - 75,000,000
shares authorized 15,381,256 shares
issued and outstanding 756,000
Preferred Stock - No Par Value - 10,000,000
shares authorized but unissued -
Additional Paid in Capital 4,138,907
Accumulated Deficit (1,321,241)
-----------
Total Stockholders' Equity 3,573,666
Total Liabilities & Stockholders' Equity $10,453,475
===========
F-5
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
-------------------- --------------------
Revenue:
Company Vehicles $ 9,492,325 60.0% $10,355,384 73.1%
Owner-Operator Vehicles 6,334,854 40.0% 3,807,359 26.9%
----------- ----- ----------- -----
Total Revenue 15,827,179 100.0% 14,162,743 100.0%
Operating Expenses:
Purchased Transportation
& Rentals 5,551,324 35.1% 4,643,988 32.8%
Salaries, Wages & Benefits 4,004,267 25.3% 4,055,546 28.6%
Fuel 1,562,002 9.9% 1,934,962 13.7%
Depreciation & Amortization 1,194,541 7.5% 1,176,869 8.3%
Operating Supplies &
Maintenance 859,398 5.4% 996,968 7.0%
Insurance & Claims 417,072 2.6% 687,099 4.9%
Miscellaneous Operating
Expenses 417,651 2.6% 420,334 3.0%
Taxes & Licenses 328,037 2.1% 344,740 2.4%
General & Administrative
Expenses 622,071 3.9% 471,212 3.3%
Occupancy Costs 201,657 1.3% 185,988 1.3%
----------- ----- ----------- -----
Total Operating Expenses 15,158,019 95.8% 14,917,706 105.3%
Income from Operations 669,160 4.2% (754,963) -5.3%
Other Income (Expense):
Other Income 52,511 0.3% 202,834 1.4%
Interest Income 1,748 0.0% 1,029 0.0%
Interest Expense (513,459) -3.2% (557,079) -3.9%
----------- ----- ----------- -----
Total Other Income & Expense (459,200) -2.9% (353,216) -2.5%
Net Income (Loss) before
Taxes 209,960 1.3% (1,108,179) -7.8%
Taxes - -
----------- ----- ----------- -----
Net Income (Loss) 209,960 1.3% (1,108,179) -7.8%
Earnings per common and
common equivalent share $0.01
Weighted average number of
shares 15,381,256 2,500
Earnings per common share
assuming full dilution $0.01
Weighted average number of
shares - full dilution 16,881,256 2,500
F-6
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
September 30, September 30,
1998 1997
------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) 209,960 (1,108,179)
Adjustments to Reconcile Net Loss to Net
Cash Provided by (Used in) Operating
Activities:
Depreciation & Amortization 1,186,542 1,176,869
Expenses related to stock-based
compensation plan 15,000 -
Provision for doubtful amounts receivable - 36,166
Loss on disposal of property and equipment - 12,543
(Increase) Decrease in Assets:
Restricted Cash (314,332) (95,666)
Accounts Receivable (326,986) (698,523)
Parts and supply inventory (15,689) (12,790)
Prepaid expenses and other current assets (84,523) (47,484)
Increase (decrease) in Liabilities:
Accounts payable 129,257 256,628
Accrued expenses and other current
liabilities 49,420 (96,091)
----------- -----------
Net Cash Provided by (Used in) Operating
Activities 848,649 (576,527)
----------- -----------
Cash Flows from Investing Activities:
Issuance of Common Stock 575,000 -
Purchase of transportation and other
equipment (248,287) (4,128,353)
Security deposits (2,309) (4,194)
Payment for purchase of subsidiaries in
excess of fair market value - -
Acquisition costs (161,228) -
Payment for refinancing of acquisition debt (55,274) (138,016)
Proceeds from additional paid in capital - 3,943,368
----------- -----------
Net Cash Provided by (Used in) Investing
Activities 107,902 (327,195)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from long-term debt financing - 1,545,244
Acquisition indebtedness - -
Note payable - 54,656
Discount on note payable 13,344 -
Principal payments on long-term debt (656,755) (555,393)
Principal payments on short-term note - (12,500)
Principal payments on capital lease
obligations (243,086) (224,265)
----------- -----------
Net Cash Provided by (Used in) Financing
Activities (886,497) 807,742
----------- -----------
F-7
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
(CONTINUED)
September 30, September 30,
1998 1997
------------ ------------
Net (Decrease) Increase in Cash 70,054 (95,980)
Cash at Beginning of Year 60,099 138,143
Cash at End of Year 130,153 42,163
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year:
Interest expense 503,507 557,080
Income taxes - -
F-8
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31,1998.
2. SHARE EXCHANGE AGREEMENT
On September 4, 1998, the stockholders of Northern Dancer Corporation, a
publicly traded shell (EBB : NODC) entered into an agreement with U S
Trucking, Inc. whereby U S Trucking, Inc. acquired Northern Dancer in a
reverse acquisition. In terms of the transaction, all of the shareholders of
U S Trucking agreed to exchange all of their stock on the basis of one share
of stock in U S Trucking for one share in Northern Dancer. Northern Dancer
subsequently changed its name to U S Trucking, Inc. As a result, the
shareholders of the former U S Trucking received 96.1% of the outstanding
shares of Northern Dancer. In addition, Northern Dancer assumed the
obligations represented by 1,500,000 options granted under U S Trucking's
stock option plan and the optionees agreed to accept options of a similar
tenor.
F-9
<PAGE>
<PAGE>
2) AUDITED FINANCIAL STATEMENTS OF
U.S. TRUCKING, INC. FOR THE PERIOD FROM INCEPTION
(JANUARY 30, 1997) TO DECEMBER 31, 1997
F-10
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
U.S. Trucking, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheet of U.S. Trucking,
Inc. and Subsidiaries as of December 31, 1997 and the related consolidated
statement of operations and accumulated deficit and cash flows for 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 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 consolidated balance sheet referred to above, presents
fairly, in all material respects, the consolidated financial position of U.S.
Trucking, Inc. and Subsidiaries as of December 31, 1997 and the results of its
operations and its cash flows for the period from inception (January 30, 1997)
to December 31, 1997 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-11
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
CURRENT ASSETS
Cash in banks (Note 14) $ 60,099
Restricted cash-reserves on deposit
with factor (Note 15) 184,210
Accounts receivable-net of allowance
for doubtful accounts of $88,000
as of December 31, 1997
(Notes 1H, 15 and 16) 2,321,180
Accounts receivable - other 60,000
Parts and supply inventory (Note 1D) 152,262
Prepaid expenses and other current assets 57,097
-----------
Total Current Assets 2,834,848
-----------
TRANSPORTATION AND OTHER EQUIPMENT - at
cost, less accumulated depreciation and
amortization of $1,334,899 as of December
31, 1997 (Notes 1E, 2, 4, 5 and 7) 6,818,517
-----------
OTHER ASSETS
Restricted cash-owner operators (Note 12) 2,894
Restricted cash-cash held as collateral
against letters of credit 10,000
Security deposits and other 12,653
Intangible assets - Net of accumulated
amortization of $120,552 as of December
31, 1997 (Notes 1I, 2 and 17) 681,853
-----------
Total other assets 707,400
-----------
TOTAL ASSETS $10,360,765
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-12
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable-trade $ 756,675
Due to factor (Note 15) 1,355,291
Accrued expenses and other 665,592
Current portion - seller's notes 118,273
Current portion - note payable 13,962
Current portion - acquisition loan payable 366,086
Current portion of equipment notes payable 689,432
Current portion of obligations under capital
leases 479,093
-----------
Total Current Liabilities 4,444,404
-----------
OTHER LIABILITIES
Owner-operator escrow (Note 12) 17,100
Seller's notes (Notes 4 and 5) 17,333
Note payable - (Notes 4 and 13) 40,694
Acquisition loan payable Notes 4 and 5) 1,518,818
Equipment Notes Payable-net of
current portion (Note 4) 1,310,964
Obligations under capital leases
net of current portion (Note 6) 228,284
-----------
Total Other Liabilities 3,133,193
-----------
TOTAL LIABILITIES 7,577,597
-----------
COMMITMENTS AND CONTINGENCIES (Notes 6,
9 10 and 18)
STOCKHOLDERS' EQUITY
Common Stock (no par value- 2,500 shares auth-
orized, issued and outstanding (Note 2) 1,000
Additional paid in capital 4,313,368
Accumulated deficit (1,531,200)
-----------
Total Stockholders' Equity 2,783,168
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,360,765
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-13
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
Net Revenues $17,469,281
Operating expenses 16,434,514
-----------
Income from operations 1,034,767
Administrative expenses 1,999,692
-----------
Other income and (expenses)
Interest income 1,332
Interest expense (656,826)
Other income 101,762
Net (loss) on disposition of assets (12,543)
-----------
Total other income and (expenses) (566,275)
-----------
Net (loss) before taxes (1,531,200)
Income tax (benefit)provision (Notes 1H and 3) -0-
-----------
Net (loss) (1,531,200)
Retained Earnings - January 30, 1997 -0-
-----------
Accumulated deficit - December 31, 1997 $(1,531,200)
===========
Net loss per share $ (612.48)
===========
Weighted Average Number of Shares (Note 1B) 2,500
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-14
<PAGE>
<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 Paid in Accumulated
No Par Value Capital Deficit Total
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sale of 2,500 Shares of Common
Stock - No Par Value $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
Acquisition of assets of Jay and
Jay Transportation, Inc. 2,394,860 2,394,860
Acquisition of assets of Translynx,
Inc. 100,546 100,546
Payment of expenses by shareholder 46,895 46,895
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 $1,000 $4,313,368 $(1,531,200) $2,783,168
====== ========== =========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-15
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(1,531,200)
ADJUSTMENTS TO RECONCILE NET (LOSS)
TO NET CASH USED IN OPERATING ACTIVITIES
Depreciation & Amortization 1,455,451
Provision for doubtful accounts receivable 36,166
Loss on disposal of property and equipment 12,543
(Increase) Decrease-Assets
Restricted Cash (197,104)
Accounts Receivable (2,361,180)
Parts and supply inventory (152,262)
Prepaid expenses and other current assets (57,097)
Increase (Decrease)-Liabilities
Accounts payable 756,675
Accrued expenses and other current liabilities 2,020,883
-----------
Total Adjustments 1,514,075
Net cash used by operating activities (17,125)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of transportation and other equipment (8,153,416)
Security deposits (12,653)
Payment for purchase of subsidiaries in
excess of fair market value (664,389)
Payment for refinancing of acquisition debt (138,016)
Proceeds from additional paid in capital 4,313,368
-----------
Net cash used in investing activities (4,655,106)
-----------
Sub Total (4,672,231)
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-16
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
Balance Forward $(4,672,231)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt financing 3,561,025
Acquisition indebtedness 2,284,376
Note payable 54,656
Principal payments on long-term debt (877,926)
Principal payment of short-term note (12,500)
Principal payments on capital lease obligations (277,301)
-----------
Net Cash provided by financing activities 4,732,330
-----------
NET INCREASE IN CASH 60,099
CASH AT BEGINNING OF YEAR -0-
CASH AT END OF YEAR $ 60,099
===========
Supplemental Disclosure of Cash flow information:
Cash Paid during the year Interest expense $ 571,924
===========
Income taxes $ -0-
===========
On January 30, 1997, the Company 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 and Jay Transportation, Inc. The
Company 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-17
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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
U.S. Trucking, Inc. (USTI or "the Company") was incorporated in the State of
Nevada on March 3, 1997 although USTI's consolidated group was effectively
formed on January 30, 1997. From that date through December 31, 1997 the
Company operated through two wholly owned subsidiaries:
Gulf Northern Transport, Inc., (Gulf Northern) a
Wisconsin corporation, operates as an interstate
and intrastate motor carrier.
Mencor, Inc. operates as a broker for interstate
motor carriers. A 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 contractors are able to cover the cost
of returning to their home location. As a broker,
Mencor is required to acquire a license which
provides the authority to engage in interstate
commerce. This license was acquired in April, 1994.
USTI 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
USTI's common stock was transferred to Gulf Northern's parent (Logistics
Management, LLC). The remaining 75% was conveyed to Logistics Management
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.
(B) - Net (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 loss
per share in 1997, as there were no stock options, warrants, or other common
stock equivalents in this year.
(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.
F-18
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
(D) - 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.
(E) - 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) - 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 and were fully amortized by December 31, 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) - Organization Costs
Subsidiary companies, Gulf Northern and Mencor incurred organization costs
that are 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.
F-19
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
(K) - 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, 1997 and for the period
from inception (January 30, 1997) to December 31, 1997 gives effect to the
acquisition of Gulf Northern and Mencor effective January 30, 1997.
Intercompany transactions or balances as of and for the period ended December
31, 1997 have been eliminated.
NOTE 2 - Acquisition of Subsidiaries and other Assets
On January 30, 1997, the Company completed the following acquisitions:
Gulf Northern Transport, Inc. USTI 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 USTI's parent, U.S. Transportation
Systems, Inc. and was subsequently capitalized and is included in 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. USTI 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.
Jay and Jay Transportation, Inc. USTI 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 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. The Company 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 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.
F-20
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 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). No federal income taxes were provided for the period ended
December 31, 1997.
Differing methods of reporting income for tax purposes as compared to
financial reporting purposes resulted in net deferred income taxes of
approximately -0- as of December 31, 1997. Deferred tax assets and liabilities
consist of the following:
Deferred tax assets-
Allowance for doubtful accounts $ 88,000
Amortization of Goodwill 63,000
----------
Net operating loss carryovers 2,327,000
2,478,000
Valuation allowance 1,723,000
----------
$ 755,000
==========
Deferred tax liabilities-
Depreciation of transportation
and other and equipment $ (755,000)
----------
$ (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.
The Company has acquired the net operating losses through January 30, 1997 of
$940,000 related to the operations of Gulf Northern Transport, Inc. These
losses will be available to offset future income for financial reporting
purposes expiring in 2012.
F-21
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 4 - Long-term Notes Payable
Long-term notes payable as of December 31,
1997 consists of the following:
Equipment loans secured by tractors and trailers
payable at $59,848 per month including interest
at rates ranging from 9-1/2% to 101/2% per annum
with the final installment due April, 2001 $1,998,438
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 54,613
Acquisition loan described in Note 5 1,884,904
Seller notes described in Note 5 135,606
----------
Total 4,073,561
Less: current maturities 1,185,795
----------
Long-term portion $2,279,215
==========
Aggregate annual scheduled maturities of long-term debt at December 31, 1997
are as follows:
1998 $1,185,795
1999 1,157,730
2000 964,918
2001 765,118
2002 -
----------
Total $4,073,561
==========
NOTE 5 - Acquisition Loan and Seller's Notes
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., originally was payable in 60 monthly installments of
$66,360 at the rate of 11.75% interest per annum with its final maturity on
F-22
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
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.
NOTE 6 - Lease Commitments
The Company leases tractors and trailers under various capital leases with
interest rates ranging from 8.1% to 9.1%. Transportation and other equipment
includes the following amounts for the tractor and trailer leases which are
capitalized as of December 31, 1997:
Tractors and trailers $1,760,669
Less: accumulated depreciation
and amortization 841,381
----------
Total $ 919,288
==========
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
------------------------ ------
1998 $ 529,647
1999 241,568
2000 -
----------
Total minimum lease payments 772,211
Less: Amount representing interest 64,834
----------
Present value of minimum
lease payments 707,377
Less-Current maturities 479,093
----------
Long-term obligations under
capital leases $ 228,284
==========
F-23
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 7 - Transportation and Other Equipment
Transportation and other equipment consists of the following as of December
31, 1997:
Office equipment $ 79,300
Tractors, trailers and
garage equipment 8,072,847
Transportation equipment 1,269
-----------
8,153,416
Less: Accumulated
Depreciation 1,334,899
-----------
Total $ 6,818,517
===========
Depreciation expense amounted to $1,334,899 for the period ended December 31,
1997. $1,315,796 of depreciation was included in operating expenses and
$19,103 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 to its majority stockholders. 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.
NOTE 9 - Retirement Plan
The Company 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 $50,153 for the period ended December
31, 1997. The Company's matching contributions amounted to $8,414 of which
$5,745 is included in operating expenses and $2,669 is 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.
F-24
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
Commencing October 15, 1997, the Company 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
cost of $2,800 per month until June 30, 2002.
Minimum rental payments under such leases follows for the years ending
December 31:
1998 $140,600
1999 121,800
2000 121,800
2001 121,800
2002 33,600
--------
Total minimum payments required $539,600
========
Rent expense for the period ended December 31, 1997 amounted to $142,013 and
is included in general administrative expenses.
NOTE 11 - Noncompetition Agreements
As of January 3, 1994, one of the Company's subsidiaries entered into a
covenant not to compete agreement with its chief executive officer that
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 for the period ended
December 31, 1997.
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, which 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, 1997, the company had letters of credit outstanding
totaling $10,000, which guarantee various operating and insurance activities.
F-25
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 13 - 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 totaling $500,000
into Mid America at 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
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 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 90% of those receivables submitted by
the Company. Interest on funds advanced is charged at an average annual
effective rate of 14.9% 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, 1997 amounted to $184,210.
The uncollected balance of such receivables held by the factor amounted to
$1,689,400 as of December 31, 1997.
The fair market value of these balances approximate book value.
F-26
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
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 a customer, which accounted for net revenues in excess of
10% of the Company's total revenues for the period ended December 31, 1997.
Consolidated Paper, Inc. accounted for 16.0% of the Company's net revenues for
this period. Accounts receivable from this customer amounted to $176,449 as
of December 31, 1997.
Revenues from the Company'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.
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 number of customers in the meat packing and
distribution industry. Revenues from those customers accounted for
approximately 10.7% of total revenues for the period ended December 31, 1997.
Accounts receivable from those customers amounted to $211,361 as of December
31, 1997.
NOTE 17 - Intangible Assets
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
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
$ 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 $120,552 for the period ended December 31,
1997.
F-27
<PAGE>
<PAGE>
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 18 - Subsequent Event
Effective June 24, 1998, the company underwent a change in its capital
structure whereby it is authorized to issue 50,000,000 shares of common stock
and 1,000,000 shares of preferred stock.
On May 26, 1998, the Company 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
shares of the Company's common stock at $.01 per share and further fees and
bonuses as determined by the Board of Directors, and is contingent upon a
successful merger with a public company. The Company is presently involved
with a private placement offering which, if successful, would result in the
issuance of 1,000,000 shares of common stock and would raise approximately
$720,000 of net-equity capital for the Company.
F-28
<PAGE>
<PAGE>
3) AUDITED FINANCIAL STATEMENTS OF
GULF NORTHERN TRANSPORT, INC.
FOR THE THIRTY DAYS ENDED JANUARY 30, 1997
F-29
<PAGE>
<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-30
<PAGE>
<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-31
<PAGE>
<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-32
<PAGE>
<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-33
<PAGE>
<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-34
<PAGE>
<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-35
<PAGE>
<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-36
<PAGE>
<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-37
<PAGE>
<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-38
<PAGE>
<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-39
<PAGE>
<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-40
<PAGE>
<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-41
<PAGE>
<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-42
<PAGE>
<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-43
<PAGE>
<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-44
<PAGE>
<PAGE>
4) AUDITED FINANCIAL STATEMENTS OF
MENCOR, INC.
FOR THE THIRTY DAYS ENDED JANUARY 30, 1997
F-45
<PAGE>
<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-46
<PAGE>
<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-47
<PAGE>
<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-48
<PAGE>
<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-49
<PAGE>
<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-50
<PAGE>
<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-51
<PAGE>
<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-52
<PAGE>
<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-53
<PAGE>
<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). The provision for income taxes was comprised of the following
components as of January 30, 1997:
Federal-current $( 160)
Federal-deferred ( -0-)
State-current ( 50)
State-deferred ( -0-)
-------
Total $( 210)
=======
The income tax provision reconciled to the tax computed at the statutory
Federal rate was:
Tax at Statutory Rate $( 417) ( 39)%
State income taxes 74 7
Effect of graduated brackets 133 12
Other ------- ---
$( 210) ( 20)%
Deferred tax assets and liabilities at January 30, 1997 consists of the
following:
Deferred tax assets
Allowance for doubtful accounts $11,834
Valuation Allowance (6,679)
-------
$ 5,155
=======
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
F-54
<PAGE>
<PAGE>
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 7 - Advances to Affiliate (Continued)
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.
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-55
<PAGE>
<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-56
<PAGE>
<PAGE>
5) AUDITED FINANCIAL STATEMENTS OF
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
F-57
<PAGE>
<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-58
<PAGE>
<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 accumul-
ated 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-59
<PAGE>
<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-60
<PAGE>
<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-61
<PAGE>
<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-62
<PAGE>
<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-63
<PAGE>
<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-64
<PAGE>
<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-65
<PAGE>
<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-66
<PAGE>
<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-67
<PAGE>
<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-68
<PAGE>
<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-69
<PAGE>
<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-70
<PAGE>
<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-71
<PAGE>
<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-72
<PAGE>
<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-73
<PAGE>
<PAGE>
6) AUDITED FINANCIAL STATEMENTS OF
MENCOR, INC.
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
F-74
<PAGE>
<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-75
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<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-76
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<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-77
<PAGE>
<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-78
<PAGE>
<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-79
<PAGE>
<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-80
<PAGE>
<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-81
<PAGE>
<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-82
<PAGE>
<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-83
<PAGE>
<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
Deferred tax liabilities
Depreciation of property & equipment ( 5,155) ( 6,545)
-------- --------
Net Total $ 6,679 $ 5,289
======== ========
Net operating loss carryovers amounting to $5,733 for state income tax
purposes are available through December 31, 2011.
F-84
<PAGE>
<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-85
<PAGE>
<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-86
<PAGE>
<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 ................................ $ 1,824.38
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 ................................. 4,175.62
----------
Total .................................... $35,000.00
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>
<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.
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.
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 Incorporated by reference to Exhibit
No. 3 to the Company's Registration
Statement on Form S-18 (SEC File
No. 33-9640-LA)
3.2 Bylaws Incorporated by reference to Exhibit
No. 3 to the Company's Registration
Statement on Form S-18 (SEC File
No. 33-9640-LA)
3.3 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
effective September 8, 1998
II-2
<PAGE>
<PAGE>
3.4 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
dated January 20, 1999
5 Opinion of Krys Boyle Filed herewith electronically
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
10.3 Employment Agreement with Filed herewith electronically
Danny L. Pixler
10.4 Employment Agreement with Filed herewith electronically
Anthony Huff
10.5 Employment Agreement with Filed herewith electronically
John Ragland
10.6 Lease Agreement dated Filed herewith electronically
January 1, 1997, between
Gulf Northern Transport,
Inc., Dan L. Pixler, and
Sebrite Insurance Services,
Inc.
10.7 Lease Agreement dated Filed herewith electronically
March 5, 1998, between
Gulf Northern Transport,
Inc. and Dan Pixler for
three tractors
10.8 Lease Agreement dated Filed herewith electronically
September 23, 1998,
between Gulf Northern
Transport, Inc. and
Thomas Financial Services
10.9 Stock Exchange Agreements Filed herewith electronically
between U.S. Trucking and
three shareholders dated
January 29, 1999.
10.10 Loan and Security Agreement Filed herewith electronically
dated as of December 22,
1998 between General Electric
Capital Corporation and
U.S. Trucking, Inc., et al.
II-3
<PAGE>
<PAGE>
10.11 Management Services Agree- Filed herewith electronically
ment dated December 30,
1998, between Mid-Cal
Express, Inc. and Gulf
Northern Transport, Inc.
21 Subsidiaries of the Filed herewith electronically
Registrant
23.1 Consent of Krys Boyle Contained in Exhibit 5
Freedman & Sawyer, P.C.
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-4
<PAGE>
<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
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Louisville, State of Kentucky, on the 5th day
of February 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
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 February 5, 1999
Danny L. Pixler Officer) and Director
/s/ W. Anthony Huff Executive Vice President February 5, 1999
W. Anthony Huff and Director
/s/ John Ragland Chief Financial and February 5, 1999
John Ragland Accounting Officer
<PAGE>
<PAGE>
U.S. TRUCKING, INC.
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION LOCATION
3.3 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
effective September 8, 1998
3.4 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
dated January 20, 1999
5 Opinion of Krys Boyle Filed herewith electronically
Freedman & Sawyer, P.C.
regarding the legality
of the securities being
registered
10.3 Employment Agreement with Filed herewith electronically
Danny L. Pixler
10.4 Employment Agreement with Filed herewith electronically
Anthony Huff
10.5 Employment Agreement with Filed herewith electronically
John Ragland
10.6 Lease Agreement dated Filed herewith electronically
January 1, 1997, between
Gulf Northern Transport,
Inc., Dan L. Pixler, and
Sebrite Insurance Services,
Inc.
10.7 Lease Agreement dated Filed herewith electronically
March 5, 1998, between
Gulf Northern Transport,
Inc. and Dan Pixler for
three tractors
10.8 Lease Agreement dated Filed herewith electronically
September 23, 1998,
between Gulf Northern
Transport, Inc. and
Thomas Financial Services
10.9 Stock Exchange Agreements Filed herewith electronically
between U.S. Trucking and
three shareholders dated
January 29, 1999.
<PAGE>
<PAGE>
10.10 Loan and Security Agreement Filed herewith electronically
dated as of December 22,
1998 between General Electric
Capital Corporation and
U.S. Trucking, Inc., et al.
10.11 Management Services Agree- Filed herewith electronically
ment dated December 30,
1998, between Mid-Cal
Express, Inc. and Gulf
Northern Transport, Inc.
21 Subsidiaries of the Filed herewith electronically
Registrant
23.1 Consent of Krys Boyle Contained in Exhibit 5
Freedman & Sawyer, P.C.
23.2 Consent of Bianculli, Filed herewith electronically
Pascale & Co. P.C.
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
NORTHERN DANCER CORPORATION
CHANGING ITS NAME TO
U.S. TRUCKING, INC.
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is NORTHERN DANCER CORPORATION.
SECOND: The following amendment was adopted on August 20, 1998, by the
Board of Directors, and on September 4, 1998, by a vote of the Shareholders of
the Corporation, in the manner prescribed by the Colorado Business Corporation
Act. The number of shares voted for the amendment was sufficient for
approval.
The FIRST Article shall be amended to read as follows:
The name of the Corporation shall be U.S. TRUCKING, INC.
The first paragraph of the FOURTH Article shall be amended to read as
follows:
The aggregate number of shares which this Corporation shall have the
authority to issue is Seventy-five Million (75,000,000) 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 Business
Corporation Act.
THIRD: The manner, if not set forth in such amendments, in which any
exchange, reclassification, or cancellation of issued shares provided for in
the amendments shall be effected, is as follows: Not applicable.
DATED: September 4, 1998
NORTHERN DANCER CORPORATION
(Changing its name to U.S. TRUCKING, INC.)
By: /s/ Joseph E. O'Connor
Joseph E. O'Connor, President
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
U. S. TRUCKING, INC.
(SERIES A 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 A Preferred Stock." The number of shares of
this series of Preferred Stock shall be 999,000 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 A Preferred Stock shall be entitled
to vote on all matters and shall be entitled to ten votes for each share of
Series A 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 A Preferred Stock
and common stock shall vote together as a single class on all matters.
Section 2. Liquidation. Upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders of shares of
Series A Preferred Stock shall be entitled to be paid an amount equal to ten
times the amount payable on each share of common stock. As used in this
paragraph 2, the term "common stock" shall mean and include the Corporation's
authorized common stock, without par value, as constituted on the date of
filing of these terms of the Series A Preferred Stock. The consolidation or
merger of the Corporation into or with any other entity or entities which
results in the exchange of outstanding shares of the Corporation for
securities or other consideration issued or paid or caused to be issued or
paid by any such entity or affiliate thereof, and the sale or transfer by the
Corporation of all or substantially all of its assets, shall be deemed to be a
liquidation dissolution or winding up of the Corporation within the meaning of
the provisions of this paragraph 2.
Section 3. Dividend Provisions. The holders of shares of the Series A
Preferred Stock are not entitled to receive any dividends.
<PAGE>
<PAGE>
Section 4. Notices. Any notice required to be given to holders of shares
of Series A 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 A Preferred Stock shall
not be amended without the consent of the holders of not less than a majority
of the outstanding Series A Preferred Stock.
THIRD: Such Amendment was duly adopted by the Board of Directors of the
Corporation on the 15th day of January 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 20th day of January 1999.
U. S. TRUCKING, INC.
By:/s/ Anthony Huff
Anthony Huff, Chairman
ATTEST:
/s/ Marion Huff
Secretary
2
OPINION OF KRYS BOYLE FREEDMAN & SAWYER, P.C.
KRYS BOYLE FREEDMAN & SAWYER, P.C.
ATTORNEYS AT LAW
Dominion Plaza, Suite 2700 South Tower
600 Seventeenth Street
Denver, Colorado 80202
Telephone Facsimile
(303) 893-2300 (303) 893-2882
February 5, 1999
U.S. Trucking, Inc.
10602 Timberwood Circle #9
Louisville, Kentucky 40223
Gentlemen:
We have acted as counsel to U.S. Trucking, Inc., a Colorado corporation
(the "Company"), in connection with the preparation and filing with the
Securities and Exchange Commission of a Registration Statement on Form SB-2
(the "Registration Statement"), pursuant to which the Company is registering
under the Securities Act of 1933, as amended, a total of 1,166,667 shares (the
"Shares") of its Common Stock, no par value (the "Common Stock") being offered
for resale by selling shareholders. This opinion is being rendered in
connection with the filing of the Registration Statement. All capitalized
terms used herein and not otherwise defined shall have the respective meanings
given to them in the Registration Statement.
In connection with this opinion, we have examined the Company's Articles
of Incorporation and Bylaws, both as currently in effect; such other records
of the corporate proceedings of the Company and certificates of the Company's
officers as we have deemed relevant; and the Registration Statement and the
exhibits thereto.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies.
Based upon the foregoing, and subject to the limitations set forth below,
we are of the opinion that the 3,100,000 Shares being offered for resale have
been duly and validly authorized by the Company and have been duly and validly
issued and are fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We hereby further consent to the reference to us
under the caption "Legal Matters" in the prospectus included in the
Registration Statement.
Very truly yours,
KRYS BOYLE FREEDMAN & SAWYER, P.C.
By: /s/ Jon D. Sawyer
Jon D. Sawyer
EMPLOYMENT CONTRACT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made SEPT 9, 1998, by and
between U. S. Trucking, Inc., a Colorado corporation, with its general office
located at 3125 Ashley Phosphate Road, Suite 128, N. Charleston, SC 29418. and
Danny L. Pixler, residing at 1004 Crooked Oak Road, Summerville, SC 29485
(the "Employee"), who hereby agree as follows:
1. Employment Agreement
Upon the terms and subject to the conditions contained in this Agreement,
the Company hereby employs the Employee, and the Employee hereby accepts
employment by the Company.
2. Term of Employment
The term of the Employee's employment by the Company under this Agreement
shall be for five (5) years commencing on Sept.9, 1998, and ending Sept. 9,
2003.
3. Services
The Employee shall be employed as the President and Chief Executive
Officer of the Company which is engaged in the operation of a nationwide
trucking and property common carrier. The Employee shall also be employed as
the President of all the Company's subsidiaries. The Employee shall have full
authority, responsibility and control of all day-to-day matters of the Company
and its operating subsidiaries and the policies and practices adopted, in good
faith and reasonableness, from time to time by the Board of Directors.
Employee shall devote his best efforts and his full business and professional
time to the faithful fulfillment of his duties hereunder. Employee shall have
his principal office located in Charleston, SC.
4. Compensation
The Employee shall receive an annual salary of not less than One Hundred
and Five Thousand dollars ($105,000) during the term of this Agreement payable
in accordance with the Company's general policies for payment of compensation
to its salaried personnel. In addition, the Employee shall receive annual
increases of not less than 3%.
5. Fringe Benefits and Perquisites
The Employee shall be entitled to all fringe benefits and perquisites
that may be provided generally for the most senior executive officers of the
Company pursuant to policies established from time to time by the Company's
Board of Directors, including, but not limited to, a mutually agreeable new
car every three (3) years and all vehicle expenses incurred on company
business or an auto allowance not to exceed $550.00 per month (at the election
of Employee); a cellular phone; annual vacations of not less than two (2)
weeks per year; and participation in the the Company family medical plan,
pension plan, and profit sharing plan.
<PAGE>
<PAGE>
6. Reimbursements
The Employee shall be reimbursed for all direct and substantiated
out-of-pocket expenditures duly made by him on the Company's behalf in the
performance of his services under this Agreement, subject to timely reporting
requirements imposed from time to time by the Company's Board of Directors.
7. Covenant Not to Compete
During the term of this Agreement, Employee shall not directly or
indirectly (on his behalf or as an agent, employee, officer, director,
partner, shareholder, or other owner), loan money or credit to, own any
interest in, engage in, or otherwise participate in a business directly
competitive with the Company's operations and business as conducted by the
Company prior to the termination of Employee's employment, nor shall Employee
interfere with, disrupt or attempt to disrupt the relationship, contractual or
otherwise, between the Company and any customer, client, supplier, consultant
or employee of the Company.
8. Termination of Employment by Employer
Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated by the Company at any time on or after the
occurrence of any of the following events:
8.1 Disability - Employee is unable to perform his duties hereunder
for more than sixty (60) consecutive days or ninety (90) days within a
consecutive twelve (12) month period as a result of his becoming disabled.
"Disabled" shall mean the inability of the Employee, due to mental of physical
disability certified by a physician selected by the Company and reasonably
satisfactory to the Employee, to substantially perform his duties hereunder.
The Employee shall make himself available for examination by such physician
upon reasonable request.
8.2 Fraud - Employee is found guilty by a court of competent
jurisdiction of fraud or dishonest in the performance of his duties under this
Agreement.
8.3 Crime - Employee is convicted of a felony.
8.4 Death - Employee dies
8.5 Substance Abuse - Employee is found intoxicated or under the
influence of illegal drugs or other similar substance while performing his
duties under this Agreement during regular working hours.
9. Complete Agreement
This document contains the entire agreement between the parties and
supersedes any prior decision, negotiations, representations or agreements
between them respecting employment of the Employee. No alterations, additions
or other changes to this Agreement shall be binding unless made in writing and
signed by both parties to this Agreement.
2
<PAGE>
<PAGE>
10. Governing Law
This Agreement shall be governed by and interpreted in accordance with
the internal laws of the State of South Carolina.
Dated: As of September 8, 1998
U.S. TRUCKING, INC.
By: /s/ W. Anthony Huff /s/ Danny Pixler
Title: Executive Vice President Danny Pixler
3
EMPLOYMENT CONTRACT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made SEPT 9, 1998, by and
between U. S. Trucking, Inc., a Colorado corporation, with its general office
located at 3125 Ashley Phosphate Road, Suite 128, N. Charleston, SC 29418 and
Anthony Huff (the "Employee"), who hereby agree as follows:
1. Employment Agreement
Upon the terms and subject to the conditions contained in this Agreement,
the Company hereby employs the Employee, and the Employee hereby accepts
employment by the Company.
2. Term of Employment
The term of the Employee's employment by the Company under this Agreement
shall be for five (5) years commencing on Sept.9, 1998, and ending Sept. 9,
2003.
3. Services
The Employee shall be employed as Executive Vice President of the
Company, responsible for risk management, investor relations, and such other
duties as the Board of Directors may determine from time to time. Employee
shall devote his best efforts to the faithful fulfillment of his duties
hereunder. Employee shall have his principal office located in Louisville,
KY.
4. Compensation
The Employee shall receive an annual salary of not less than Fifty-two
Thousand dollars ($52,000) during the term of this Agreement payable in
accordance with the Company's general policies for payment of compensation to
its salaried personnel. In addition, the Employee shall receive annual
increases of not less than 3%.
5. Reimbursements
The Employee shall be reimbursed for all direct and substantiated
out-of-pocket expenditures duly made by him on the Company's behalf in the
performance of his services under this Agreement, subject to timely reporting
requirements imposed from time to time by the Company's Board of Directors.
6. Covenant Not to Compete
During the term of this Agreement, Employee shall not directly or
indirectly (on his behalf or as an agent, employee, officer, director,
partner, shareholder, or other owner), loan money or credit to, own any
interest in, engage in, or otherwise participate in a business directly
competitive with the Company's operations and business as conducted by the
Company prior to the termination of Employee's employment, nor shall Employee
interfere with, disrupt or attempt to disrupt the relationship, contractual or
otherwise, between the Company and any customer, client, supplier, consultant
or employee of the Company.
<PAGE>
<PAGE>
7. Termination of Employment by Employer
Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated by the Company at any time on or after the
occurrence of any of the following events:
7.1 Disability - Employee is unable to perform his duties
hereunder for more than sixty (60) consecutive days or ninety (90) days within
a consecutive twelve (12) month period as a result of his becoming disabled.
"Disabled" shall mean the inability of the Employee, due to mental of physical
disability certified by a physician selected by the Company and reasonably
satisfactory to the Employee, to substantially perform his duties hereunder.
The Employee shall make himself available for examination by such physician
upon reasonable request.
7.2 Fraud - Employee is found guilty by a court of competent
jurisdiction of fraud or dishonest in the performance of his duties under this
Agreement.
7.3 Crime - Employee is convicted of a felony.
7.4 Death - Employee dies
7.5 Substance Abuse - Employee is found intoxicated or under the
influence of illegal drugs or other similar substance while performing his
duties under this Agreement during regular working hours.
8. Complete Agreement
This document contains the entire agreement between the parties and
supersedes any prior decision, negotiations, representations or agreements
between them respecting employment of the Employee. No alterations, additions
or other changes to this Agreement shall be binding unless made in writing and
signed by both parties to this Agreement.
9. Governing Law
This Agreement shall be governed by and interpreted in accordance with
the internal laws of the State of South Carolina.
Dated: As of September 8, 1998
U.S. TRUCKING, INC.
By: /s/ Danny Pixler /s/ Anthony Huff
Title: President Anthony Huff
2
EMPLOYMENT CONTRACT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made SEPT 9, 1998, by and
between U. S. Trucking, Inc., a Colorado corporation, with its general office
located at 3125 Ashley Phosphate Road, Suite 128, N. Charleston, SC 29418 and
John Ragland, residing at 1741 Middle St., Sullivan's Island, SC 29482 (the
"Employee"), who hereby agree as follows:
1. Employment Agreement
Upon the terms and subject to the conditions contained in this Agreement,
the Company hereby employs the Employee, and the Employee hereby accepts
employment by the Company.
2. Term of Employment
The term of the Employee's employment by the Company under this Agreement
shall be for three (3) years commencing on Sept.9, 1998, and ending Sept. 9,
2001.
3. Services
The Employee shall be employed as the Chief Financial Officer and Vice
President of Finance of the Company. The Employee shall have full authority,
responsibility and control of all accounting and financial matters of the
Company and its subsidiaries and the policies and practices adopted, in good
faith and reasonableness, from time to time by the Board of Directors.
Employee shall devote his best efforts and his full business and professional
time to the faithful fulfillment of his duties hereunder. Employee shall have
his principal office located in Charleston, SC.
4. Compensation
The Employee shall receive an annual salary of not less than Seventy-five
Thousand dollars ($75,000) during the term of this Agreement payable in
accordance with the Company's general policies for payment of compensation to
its salaried personnel. In addition, the Employee shall receive annual
increases of not less than 3%.
5. Fringe Benefits and Perquisites
The Employee shall be entitled to all fringe benefits and perquisites
that may be provided generally for the most senior executive officers of the
Company pursuant to policies established from time to time by the Company's
Board of Directors, including, but not limited to, a company car and all
vehicle expenses incurred on company business; annual vacations of not less
than two (2) weeks per year; and participation in the Company family medical
plan, pension plan, and profit sharing plan.
6. Reimbursements
The Employee shall be reimbursed for all direct and substantiated
out-of-pocket expenditures duly made by him on the Company's behalf in the
performance of his services under this Agreement, subject to timely reporting
requirements imposed from time to time by the Company's Board of Directors.
<PAGE>
<PAGE>
The Employee shall be reimbursed for the cost of relocating to the
Company's general offices in Charleston, SC. The method of reimbursement shall
be monthly at a rate of $134.00 per month starting on Oct. 19, 1998 and for
the next consecutive 11 months on the 19th of each month.
7. Covenant Not to Compete
During the term of this Agreement, Employee shall not directly or
indirectly (on his behalf or as an agent, employee, officer, director,
partner, shareholder, or other owner), loan money or credit to, own any
interest in, engage in, or otherwise participate in a business directly
competitive with the Company's operations and business as conducted by the
Company prior to the termination of Employee's employment, nor shall Employee
interfere with, disrupt or attempt to disrupt the relationship, contractual or
otherwise, between the Company and any customer, client, supplier, consultant
or employee of the Company.
8. Termination of Employment by Employer
Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated by the Company at any time on or after the
occurrence of any of the following events:
8.1 Disability - Employee is unable to perform his duties hereunder
for more than sixty (60) consecutive days or ninety (90) days within a
consecutive twelve (12) month period as a result of his becoming disabled.
"Disabled" shall mean the inability of the Employee, due to mental of physical
disability certified by a physician selected by the Company and reasonably
satisfactory to the Employee, to substantially perform his duties hereunder.
The Employee shall make himself available for examination by such physician
upon reasonable request.
8.2 Fraud - Employee is found guilty by a court of competent
jurisdiction of fraud or dishonest in the performance of his duties under this
Agreement.
8.3 Crime - Employee is convicted of a felony.
8.4 Death - Employee dies
8.5 Substance Abuse - Employee is found intoxicated or under the
influence of illegal drugs or other similar substance while performing his
duties under this Agreement during regular working hours.
9. Complete Agreement
This document contains the entire agreement between the parties and
supersedes any prior decision, negotiations, representations or agreements
between them respecting employment of the Employee. No alterations, additions
or other changes to this Agreement shall be binding unless made in writing and
signed by both parties to this Agreement.
10. Governing Law
This Agreement shall be governed by and interpreted in accordance with
the internal laws of the State of South Carolina.
2
<PAGE>
<PAGE>
Dated: As of September 8, 1998
U.S. TRUCKING, INC.
By: /s/ Danny Pixler /s/ John Ragland
Title: President John Ragland
3
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is made and entered into this 1st day of
January, 1997, by and between DAN L. PIXLER, and individual ("Pixler") and
SEBRITE INSURANCE SERVICES, INC., a Kentucky Corporation ("Sebrite," who
together with Pixler may hereinafter sometimes collectively be referred to as
the "Landlord"); and GULF NORTHERN TRANSPORT, INC., a Wisconsin corporation,
("Tenant").
WITNESSETH:
Landlord has agreed to lease on a triple net or net-net-net basis,
certain property located in Wisconsin Rapids, Wood County, Wisconsin as more
particularly described in Exhibit A attached hereto (the "Premises"), and the
parties are entering into this Lease in order to document their respective
understandings and obligations.
NOT, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, Landlord hereby leases to Tenant, and Tenant hereby
takes and hires from Landlord, the Premises including without limitation any
and all improvements located thereon.
TO HAVE AND TO HOLD the Premises and all privileges and appurtenances
thereunto belonging unto Tenant on the following terms and conditions:
1. Term. The term of this Lease shall be five (5) years, commencing on
January 1, 1998 and ending on January 1, 2002, both dates inclusive unless
sooner terminated as hereinafter provided.
2. Delivery of Possession; Possession "AS-IS". If the Landlord for any
reason
can not deliver possession of the Premises to Tenant at the commencement of
the Lease term, this Lease shall not be void or voidable, nor shall the
Landlord be liable to Tenant for any loss or damage resulting therefrom, but
there shall be an abatement of Rent for the period between the commencement of
the lease term and the time when Landlord does deliver possession. If Tenant
accepts possession of the Premises before the commencement of this Lease,
rental shall commence on such earlier date, and the term of this Lease shall
end on the original termination date as provided above. Tenant agrees that
the Premises are fit and habitable and consent to take the Premises "AS-IS".
3. Rent. During the term of this Lease, Tenant shall pay rent (the
"Rent") equal to the sum of (i) the amount of principal and interest due
pursuant to a Note and a Mortgage, each in the original principal amount of
$5,000, both from Pixler and W. Anthony Huff (collectively, the "Borrowers")
to and in favor of Bell, Brown & Romanski (collectively, the "Lenders"); (ii)
$1,500 per month, which shall be escrowed to pay real property taxes on the
mortgaged property, pursuant to agreement between the Borrowers and the
Lenders; and (iii) $850 per month, which shall be escrowed to pay insurance
costs on the mortgaged property, pursuant to an agreement between the
Borrowers and the Lenders. All Rent payments shall be made to Landlord at its
principal office in Charleston South Carolina, or at such other place as
Landlord may designate in writing to Tenant. Any payment of Rent which is
made more than ten (10) days after the date when due shall, at the option of
the Landlord, be increased by a late charge to compensate Landlord for
<PAGE>
<PAGE>
inconvenience and additional administrative expense in an amount equal to the
sum of ten percent (10%) of said Rent payment for each ten-day period for
which said Rent payment is past due, and Landlord's entitlement to said late
charge shall be in addition to, and not in lieu of or a waiver of, any
remedies to which Landlord is entitled hereunder, at law, or in equity, as a
result of said late payment of Rent.
4. Use. Tenant shall sue and occupy the Premises solely for commercial
purposes. Tenant agrees to keep the Premises and grounds safe, neat, clean
and esthetically pleasing; Tenant also agrees to perform at its expense,
maintenance functions, such as lawn mowing, snow removal, servicing of
appliances and systems, window washing, leaf removal, shrub and plant
maintenance, and such other functions normally associated with the care of a
house. Tenant agrees to keep the gutters free from leaves, branches or other
debris.
5. Quiet Enjoyment. Tenant, upon paying the Rent and other charges
herein provided for, and performing all the other terms of this Lease, shall
quietly have and enjoy the Premises during the term of this Lease without
hindrance or molestation by Landlord or by anyone claiming through Landlord,
subject, however, to the reservations and conditions of this Lease, and any
easements or encumbrances of record as of the date of this Lease.
6. Repairs and Maintenance. Tenant shall, at its own expense, make any
repairs to the structure, roof and concealed systems (plumbing, electrical,
heating and air conditioning) within or serving the Premises as may be
necessary for safety and tenantability and any such repairs made necessary by
the act or neglect of Tenant, its agents or visitors. Tenant shall keep and
maintain the Premises in good order and repair during the term of this Lease
and shall surrender the same to Landlord at the expiration or earlier
termination of this Lease in as good condition as they were when received (or
subsequently improved or altered), normal wear and tear excepted.
7. Improvements. All improvements, alterations and additions to the
Premises desired by Tenant, shall be made only at Tenant's expense, in good
and workmanlike manner and in accordance with plans and specifications which
have been previously approved in writing by Landlord, such approval not to be
unreasonably withheld. Landlord reserves the right to approve the contractor
to perform such improvements, alterations and additions, which approval shall
not be unreasonably withheld. All improvements and additions made by Tenant
and attached to the Premises, including without limitation all partitions,
carpets, lighting fixtures, doors, hardware, shelves, cabinets and ceilings,
shall remain in the Premises and shall be surrendered to Landlord at the
expiration or earlier termination of this lease, and shall become the property
of Landlord. Tenant shall have the right at the termination of the Lease to
remove all of its personal property from the Premises.
8. Utilities and Other Services. Tenant shall pay all charges of any
utility whatsoever for heat, water, gas, electricity, sewer use,
telecommunications, cable television, and any other utility use or consumed on
the Premises.
9. Insurance. During the term of this Lease, Tenant shall keep in full
force and effect, at its expense, a policy or policies of comprehensive public
liability insurance with respect to the Premises, naming Landlord as an
additional insured, in which both Landlord and Tenant shall be adequately
covered under reasonable Limits of Liability not less than $1,000,000 for
injury or death to more than one person, $1,000,000 for any one person injured
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or killed, and $100,000 with respect to damage to property at the request of
Landlord. Tenant shall furnish Landlord with certificates or other evidence
acceptable to Landlord that such insurance is in effect which evidence shall
state that Landlord shall be notified in writing thirty (30) days prior to
cancellation, material change, or non-renewal of such insurance.
10. Taxes and Tax Adjustment. Tenant shall pay, prior to delinquency,
all taxes and assessments of every kind and nature which are now or may
hereafter be imposed or assessed upon or with respect to the Premises and the
remainder of the Building and all taxes and assessments of every kind or
nature imposed or assessed upon or with respect to the furnishings, fixtures,
equipment and other property of Tenant placed in the Premises.
11. Property of Tenant. So long as Tenant is not in default under this
Lease, tenant may, and at the expiration or earlier termination hereof shall,
remove all furniture, equipment and other personal property which Tenant shall
have placed in the Premises; provided that Tenant shall repair any damage to
the Premises caused by such removal. All such property shall, during the term
hereof, be at the risk of Tenant only and Landlord shall not be liable for any
loss thereof or damage thereto resulting from any cause whatsoever, and each
policy of insurance covering such property shall contain a standard waiver of
subrogation endorsement. Any such property not removed at the expiration or
earlier termination of this Lease shall be deemed abandoned and may be
disposed of by Landlord in any manner whatsoever. In the event Tenant is in
default under this Lease, Landlord shall have a lien on said furniture,
equipment, and other personal property of Tenant as security against loss or
damage resulting from such default, and said property may not be removed by
Tenant until such default is cured.
12. Assignment and Subletting. Tenant shall not, without the prior
written consent of Landlord, assign this Lease. Consent to one assignment
shall not constitute a waiver of this provision with respect to subsequent
transactions. Each assignee shall be liable to Landlord for all obligations
of Tenant, but Tenant shall not be thereby relieved from such obligations.
13. Default and Remedies. In the event of default for a period of ten
(10) days after notice of default in the payment of Rent to Landlord,
Landlord, without prejudice to any other rights or remedies that it may have,
shall have the right, immediately or at any time thereafter, to reenter the
Premises and remove all persons and property from the Premises. In the event
(I) Tenant shall neglect to keep or perform any other covenant, agreement or
condition of this Lease or (ii) Tenant shall file a voluntary petition, or an
involuntary petition in shall be filed against Tenant, bankruptcy or any
relevant insolvency law, Landlord shall give written notice of such default to
Tenant, and in the event such default is not rectified within thirty (30) days
from the date of such notice (or is not diligently pursuing a cure if the
default cannot be rectified within said thirty (30) days), then Landlord shall
have the right to enter the Premises immediately or at any time thereafter and
remove Tenant therefrom, without prejudice to any other remedies of Landlord.
14. Notices. All notices provided for in this Lease shall be in writing
and shall be deemed to be given when sent by registered or certified mail
addressed to Landlord or Tenant at the addresses set forth on the first page
of this Lease, and to the holder or holders of any mortgage covering the
Premises at such address as such holder or holders may have given by notice as
herein provided. Either party hereto, or any such holder, may from time to
time, by notice as herein provided, designate a different address to which
notices to it shall be sent.
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15. Surrender of Premises. Tenant will deliver up the Premises at the
end of the term or any holdover period in good order and conditions reasonable
wear and tear excepted.
16. Holding Over. This tenancy expires at the end of said lease term,
but it is expressly understood that if Tenant holds over for another month at
the end of said term for any purpose other than the removal of its property,
and Landlord accepts Rent for said month, such acceptance shall operate as a
renewal of the tenancy for another month and for each additional month for
which Landlord accepts Rent. Should Landlord require possession of the
Premises, it shall give Tenant thirty (30) days to vacate the said Premises
during such holdover period. The monthly rental during the holdover period
shall be at a ten percent (10%) increase above the monthly rental paid for the
last month of the term as set forth herein.
17. Indemnity. Landlord shall not be liable for loss, expense, or
damage to any property or any personal injury. Tenant shall defend, indemnify
and hold harmless Landlord from and against any claims, damages or expenses
whether due to damage to the Premises, claims for injuries to persons or
property or administrative or criminal action by a governmental authority,
where such claims, damages or expenses result from the negligence, misconduct
or breach of any provision of this Lease by Tenant, its agents, employees or
invitees.
18. Waiver. The waiver by Landlord of any breach of any covenant or
agreement herein contained shall not be deemed to be a waiver of such covenant
or agreement herein contained. The subsequent acceptance of Rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant
of any covenant or agreement of this Lease, other than the failure of Tenant
to pay that particular rental so accepted, regardless of Landlord's knowledge
of such preceding breach at the time of acceptance of such Rent.
19. Eminent Domain. If the whole of the Premises shall be taken for any
public or quasi-public use under any statute or by right of eminent domain, or
by purchase in lieu thereof, then this Lease shall automatically terminate as
of the date that title shall be taken. If any part of the Premises shall be
so taken as to render the remainder thereof unusable for the purposes for
which the Premises were leased, then Tenant shall have the right to terminate
this Lease by notice to Landlord given within ninety (90) days after the date
of such taking. In the event that this Lease shall terminate or be
terminated, then rental shall be equitably adjusted as of the date title shall
be taken.
If any part of the Premises shall be so taken and this Lease shall not
terminate or be terminated under the prior paragraph of this Section 19 then
the Rent shall be equitably apportioned according to the space so taken.
All compensation awarded or paid upon such a total or partial taking of
the Premises shall belong to and be the property of Landlord.
20. Subordination. This Lease and Tenant's rights hereunder are subject
and subordinate to the following items:
a. All present and future agreements securing money paid or to be
paid to a lender under mortgages;
b. All present and future terms, conditions, renewals, changes of
any kind in, and extensions of any mortgages or lender agreements; and
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c. Any and all matters, present and future, that a search of title
to or survey of the Premises would disclose.
Tenant agrees that any mortgages or lender agreements shall be automatically
superior to this Lease, without the necessity of Tenant to execute any further
documents or certificates. However, notwithstanding the foregoing, if
Landlord requests any documents or certificates to show that this Lease is
subject and subordinate, Tenant agrees to promptly and properly sign any such
document or certificates. Tenant appoints Landlord as is attorney-in-fact to
execute such documents or certificates in the event Tenant refuses or its
unavailable.
21. Memorandum of Lease. This Lease shall not be recorded; however,
upon request of either party, the other party agrees to execute a memorandum
of this Lease setting forth the essential terms hereof, suitable for
recording.
22. Partial invalidity. In the event any provision of this Lease shall
be determined to be invalid or unenforceable, the remaining provisions of this
Lease shall continue in full force and effect.
23. Counterparts. This Lease may be executed in counterparts, each of
which shall be deemed to be an original.
24. Section Headings. Section headings relating to the contents of the
particular section have been inserted for the convenience of reference only
and shall not be construed as part of the particular sections to which they
refer.
25. Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State of Wisconsin.
26. Entire Agreement. This Lease constitutes the entire agreement
between Landlord and Tenant, and it supersedes any and all prior
understandings or commitments concerning the subject matter of this Lease.
27. Time of the Essence. Time is of the essence with respect to the
performance of each of the covenants and agreements under this Lease.
28. Amendments. This Lease shall not be modified or amended except by a
written instrument executed by Landlord and tenant.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals,
this day and year first written above.
"Tenant"
GULF NORTHERN TRANSPORT, INC.,
a Wisconsin corporation
By: /s/ Danny Pixler
Title: President
"Landlord:
/s/ Danny Pixler
Dan L. Pixler
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Sebrite Insurance Services, Inc.,
a Kentucky corporation
By: /s/ Anthony Huff
Title: Vice President
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EXHIBIT A
Legal Description
Lots 1 and 2 of Wood County Certified Survey Map No. 1502,
recorded in Volume 6 of Surveys, page 1, Wood County Records,
located in the Southwest Quarter of the Northeast Quarter (SW1/2 of
NE1/2) of Section 12, Township 22 North, Range 5 East, in the City
of Wisconsin Rapids, wood County, Wisconsin.
Lots 2 and 3 of Wood County Certified Survey Map No. 2668,
recorded in volume 9 of Surveys, page 268, Wood County Records,
being a part of the Southwest Quarter of the Northeast Quarter (SW1/2
of NE 1-1/4 of Section 12, Township 22 North, Range 5 east, in the City
of Wisconsin Rapids, wood County, Wisconsin.
Lot 1 of Wood County Certified Survey Map No. 3136, recorded in
Volume 11 of Surveys, page 136, Wood County Records, being a part
of the Southwest Quarter of the Northeast Quarter (SW1/4 of NE1/4)
of Section 12, Township 22 North, Range 5 East, being Lot 1 of
Wood Count Certified Survey Map No. 673 and Lots 1 and 2 of
Wood County Certified Survey Map No. 2542, in the City of
Wisconsin Rapids, Wood County, Wisconsin.
GULF NORTHERN TRANSPORT, INC.
LEASE AGREEMENT
This lease agreement made and entered into on this 5th day of March 1998, by
and between Gulf Northern Transport, Inc., hereinafter referred to as
"Carrier/Lessee", and Danny Pixler, hereinafter referred to as "Owner/Lessor",
be in full force and effect on the day and date written above.
1. That this lease shall be for a term of one (1) year and extended annually
by mutual consent. This lease may be terminated by written notice of either
party to the other with no less than 90 day notice being given. If the
Company elects to terminate before an annual renewal, the Company will pay to
the Owner/Lessor any amounts due on said lease through that years end.
2. That the Carrier/Lessee shall have exclusive possession, control and use
of the following equipment to wit:
Unit# Year/Make Serial Number
----- --------- -------------
1. 9526 1995 Volvo 4V1WDBRH1SN686401
2. 9527 1995 Volvo 4V1WDBRH3SN686402
3. 9525 1995 Volvo 4V1WDBRH3SN686407
For the duration of the lease, to be used in transportation of property, for
hire, in interstate commerce.
3. That the "Carrier/Lessee" shall have responsible certified drivers for the
above equipment for the duration of the lease.
4. That "Carrier/Lessee" shall pay to the "Owner/Lessor" for the use of the
above equipment the sum of $4,047 on the 3rd of each month, beginning on
April 3, 1998.
5. That the "Carrier/Lessee" shall pay for all maintenance on said equipment;
operating expenses; base plates, permits, and license for said equipment and
the preparation, filing and any payments due of monthly and quarterly fuel and
mileage taxes. That "Carrier/Lessee" will provide the cargo, property, and
liability insurance. That "Carrier/Lessee" will provide "Owner/Lessor" with a
certificate of insurance on each policy; said certificate to include the name
of the insurer, policy number, effective dates of policy, amounts and type of
coverage, cost to lessor for each type of coverage, and deductible amount for
each type of coverage for which lessor may be liable. That "Carrier/Lessee"
shall be liable for all monthly and quarterly fuel taxes.
6. That the "Carrier/Lessee" will provide Bobtail insurance on all of the
above-referenced leased equipment.
In witness whereof, the parties have signed this agreement on this, the 5th
day of March 1998.
/s/ Danny Pixler /s/ Danny Pixler
Carrier/Lessee Owner/Lessor
GULF NORTHERN TRANSPORT, INC.
LEASE AGREEMENT
This lease agreement made and entered into on this 23rd day of September 1998,
by and between Gulf Northern Transport, Inc., hereinafter referred to as
"Carrier/Lessee", and Thomas Financial Services (Pixler and Huff), hereinafter
referred to as "Owner/Lessor", be in full force and effect on the day and date
written above.
1. That this lease shall be for a term of one (1) year and extended annually
by mutual consent. This lease may be terminated by written notice of either
party to the other with no less than 90 day notice being given. If the
Company elects to terminate before an annual renewal, the Company will pay to
the Owner/Lessor any amounts due on said lease through that years end.
2. That the Carrier/Lessee shall have exclusive possession, control and use
of the following equipment to wit:
Unit# Year/Make Serial Number
----- --------- -------------
1. TH006 1994 Kenworth 1XKAD69X2RS621080
2. TH005 1994 Kenworth IXKAD69X4RS621081
3. TH004 1994 Kenworth IXKAD60X4RS621078
4. TH001 1994 Kenworth IXKAD69X5RS621073
5. TH002 1994 Kenworth IXKAD69X2RS621077
6. TH003 1994 Kenworth IXKAD69X6RS621079
For the duration of the lease, to be used in transportation of property, for
hire, in interstate commerce.
3. That the "Carrier/Lessee" shall have responsible certified drivers for the
above equipment for the duration of the lease.
4. That "Carrier/Lessee" shall pay to the "Owner/Lessor" for the use of the
above equipment the sum of $7,380 (seven thousand three hudred eighty dollars)
on the 1st of each month, beginning on November 1, 1998.
5. That the "Carrier/Lessee" shall pay for all maintenance on said equipment;
operating expenses; base plates, permits, and license for said equipment and
the preparation, filing and any payments due of monthly and quarterly fuel and
mileage taxes. That "Carrier/Lessee" will provide the cargo, property, and
liability insurance. That "Carrier/Lessee" will provide "Owner/Lessor" with a
certificate of insurance on each policy; said certificate to include the name
of the insurer, policy number, effective dates of policy, amounts and type of
coverage, cost to lessor for each type of coverage, and deductible amount for
each type of coverage for which lessor may be liable. That "Carrier/Lessee"
shall be liable for all monthly and quarterly fuel taxes.
6. That the "Carrier/Lessee" will provide Bobtail insurance on all of the
above-referenced leased equipment.
In witness whereof, the parties have signed this agreement on this, the 23rd
day of September 1998.
/s/ Danny Pixler /s/ Danny Pixler
Carrier/Lessee Owner/Lessor
STOCK EXCHANGE AGREEMENT
AGREEMENT dated as of January 29, 1999, by and between U.S. Trucking,
Inc., a Colorado corporation (the "Company") and Logistics Management, LLC
(the "Purchaser").
In consideration of the mutual covenants herein contained, and other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Exchange of Stock. Company and Seller hereby agree to exchange 9,000,000
shares of Company common stock, without par value (the "Common Shares") owned
beneficially and of record by Seller for 900,000 shares of the Series A
Preferred Stock (the "Series A Shares") of the Company. The terms of the
Series A Shares are set forth in Exhibit A hereto.
2. Representations. Seller represents and warrants to the Company as
follows:
(a) The Seller is a registered owner of the Common Shares and, assuming
the Company purchases the Common Shares for value in good faith and without
notice of any adverse claim, will acquire all the rights of the Seller in the
Shares free of any adverse claim.
(b) Neither the execution and delivery of this Agreement nor the sale of
the Series A Shares contemplated hereby will constitute a default under or
violate any term or provision of any agreement to which Seller is a party.
3. Exchange. Each Series A Share shall be exchanged for ten Common Shares
(subject to an appropriate adjustment in the event of any split, reverse split
or dividend of Common Shares) as follows: one-fifth upon the company
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 at or above $41
million revenues, an additional one-fifth at or above $51 million, an
additional one-fifth at or above $61 million and the balance at or above $71
million. In addition, the ten-for-one exchange described above shall be
effected immediately as to all Series A Shares in the event the holders of the
Series A Shares no longer have the voting power to elect a majority of the
members of the Board of Directors of the Company.
The foregoing exchanges shall be effective immediately without any action
on the part of Seller or the Company upon the happening of the event causing
the exchange hereunder, whereupon Seller shall surrender the certificate or
certificates for Series A Shares so exchanged and the Company shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in
such name or names as such holder may direct, a certificate or certificates
for the Common Shares issuable upon such exchange. The exchange shall be
deemed to have been effected as of the close of business on the date of the
exchange event, and at such time the rights of the holder of such exchanged
Series A Shares shall cease, and the person or persons in whose name or names
any certificate or certificates for Common Shares exchanged therefor shall be
issuable upon such exchange shall be deemed to have become the holder or
holders of record of the shares represented thereby.
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4. Miscellaneous.
(a) Governing Law. This Agreement shall in all respects be subject to,
and governed by, the internal laws of the state of Colorado.
(b) Assignment. This Agreement, together with any amendments to it,
shall be binding upon and shall inure to the benefit of the parties and their
respective successors, assigns, heirs, and personal representatives, provided
that Seller agrees not to transfer any Series A Shares without the prior
written consent of the Company, which consent shall not be unreasonably
withheld.
(c) Amendments. This Agreement may be amended at any time by mutual
consent of the parties, with any such amendment to be invalid unless in
writing, signed by the parties hereto.
(d) Entire Agreement. This Agreement contains the entire agreement and
understanding by and between the Company and Seller with respect to the
matters covered herein, and no representations, promises, agreements, or
understandings, written or oral, relating to the exchange effected hereby not
contained in this Agreement shall be of any force or effect.
IN WITNESS WHEREOF, Seller and Company have duly executed this Agreement
as of the day and year first above written.
SELLER: U.S. TRUCKING, INC.
LOGISTICS MANAGEMENT, LLC
BY: /s/ Anthony Huff BY: /s/ Anthony Huff
TITLE: Manager TITLE: Chairman
<PAGE>
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STOCK EXCHANGE AGREEMENT
AGREEMENT dated as of January 29, 1999, by and between U.S. Trucking,
Inc., a Colorado corporation (the "Company") and Waterways Group, Inc. (the
"Purchaser").
In consideration of the mutual covenants herein contained, and other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Exchange of Stock. Company and Seller hereby agree to exchange 740,000
shares of Company common stock, without par value (the "Common Shares") owned
beneficially and of record by Seller for 74,000 shares of the Series A
Preferred Stock (the "Series A Shares") of the Company. The terms of the
Series A Shares are set forth in Exhibit A hereto.
2. Representations. Seller represents and warrants to the Company as
follows:
(a) The Seller is a registered owner of the Common Shares and, assuming
the Company purchases the Common Shares for value in good faith and without
notice of any adverse claim, will acquire all the rights of the Seller in the
Shares free of any adverse claim.
(b) Neither the execution and delivery of this Agreement nor the sale of
the Series A Shares contemplated hereby will constitute a default under or
violate any term or provision of any agreement to which Seller is a party.
3. Exchange. Each Series A Share shall be exchanged for ten Common Shares
(subject to an appropriate adjustment in the event of any split, reverse split
or dividend of Common Shares) as follows: one-fifth upon the company
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 at or above $41
million revenues, an additional one-fifth at or above $51 million, an
additional one-fifth at or above $61 million and the balance at or above $71
million. In addition, the ten-for-one exchange described above shall be
effected immediately as to all Series A Shares in the event the holders of the
Series A Shares no longer have the voting power to elect a majority of the
members of the Board of Directors of the Company.
The foregoing exchanges shall be effective immediately without any action
on the part of Seller or the Company upon the happening of the event causing
the exchange hereunder, whereupon Seller shall surrender the certificate or
certificates for Series A Shares so exchanged and the Company shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in
such name or names as such holder may direct, a certificate or certificates
for the Common Shares issuable upon such exchange. The exchange shall be
deemed to have been effected as of the close of business on the date of the
exchange event, and at such time the rights of the holder of such exchanged
Series A Shares shall cease, and the person or persons in whose name or names
any certificate or certificates for Common Shares exchanged therefor shall be
issuable upon such exchange shall be deemed to have become the holder or
holders of record of the shares represented thereby.
4. Miscellaneous.
(a) Governing Law. This Agreement shall in all respects be subject to,
and governed by, the internal laws of the state of Colorado.
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(b) Assignment. This Agreement, together with any amendments to it,
shall be binding upon and shall inure to the benefit of the parties and their
respective successors, assigns, heirs, and personal representatives, provided
that Seller agrees not to transfer any Series A Shares without the prior
written consent of the Company, which consent shall not be unreasonably
withheld.
(c) Amendments. This Agreement may be amended at any time by mutual
consent of the parties, with any such amendment to be invalid unless in
writing, signed by the parties hereto.
(d) Entire Agreement. This Agreement contains the entire agreement and
understanding by and between the Company and Seller with respect to the
matters covered herein, and no representations, promises, agreements, or
understandings, written or oral, relating to the exchange effected hereby not
contained in this Agreement shall be of any force or effect.
IN WITNESS WHEREOF, Seller and Company have duly executed this Agreement
as of the day and year first above written.
SELLER: U.S. TRUCKING, INC.
WATERWAYS GROUP, INC.
BY: /s/ John A. Jacobson BY: /s/ Anthony Huff
TITLE: Managing Agent TITLE: Chairman
<PAGE>
<PAGE>
STOCK EXCHANGE AGREEMENT
AGREEMENT dated as of January 29, 1999, by and between U.S. Trucking,
Inc., a Colorado corporation (the "Company") and Joff Pollon & Associates (the
"Purchaser").
In consideration of the mutual covenants herein contained, and other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Exchange of Stock. Company and Seller hereby agree to exchange 250,000
shares of Company common stock, without par value (the "Common Shares") owned
beneficially and of record by Seller for 25,000 shares of the Series A
Preferred Stock (the "Series A Shares") of the Company. The terms of the
Series A Shares are set forth in Exhibit A hereto.
2. Representations. Seller represents and warrants to the Company as
follows:
(a) The Seller is a registered owner of the Common Shares and, assuming
the Company purchases the Common Shares for value in good faith and without
notice of any adverse claim, will acquire all the rights of the Seller in the
Shares free of any adverse claim.
(b) Neither the execution and delivery of this Agreement nor the sale of
the Series A Shares contemplated hereby will constitute a default under or
violate any term or provision of any agreement to which Seller is a party.
3. Exchange. Each Series A Share shall be exchanged for ten Common Shares
(subject to an appropriate adjustment in the event of any split, reverse split
or dividend of Common Shares) as follows: one-fifth upon the company
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 at or above $41
million revenues, an additional one-fifth at or above $51 million, an
additional one-fifth at or above $61 million and the balance at or above $71
million. In addition, the ten-for-one exchange described above shall be
effected immediately as to all Series A Shares in the event the holders of the
Series A Shares no longer have the voting power to elect a majority of the
members of the Board of Directors of the Company.
The foregoing exchanges shall be effective immediately without any action
on the part of Seller or the Company upon the happening of the event causing
the exchange hereunder, whereupon Seller shall surrender the certificate or
certificates for Series A Shares so exchanged and the Company shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in
such name or names as such holder may direct, a certificate or certificates
for the Common Shares issuable upon such exchange. The exchange shall be
deemed to have been effected as of the close of business on the date of the
exchange event, and at such time the rights of the holder of such exchanged
Series A Shares shall cease, and the person or persons in whose name or names
any certificate or certificates for Common Shares exchanged therefor shall be
issuable upon such exchange shall be deemed to have become the holder or
holders of record of the shares represented thereby.
4. Miscellaneous.
(a) Governing Law. This Agreement shall in all respects be subject to,
and governed by, the internal laws of the state of Colorado.
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(b) Assignment. This Agreement, together with any amendments to it,
shall be binding upon and shall inure to the benefit of the parties and their
respective successors, assigns, heirs, and personal representatives, provided
that Seller agrees not to transfer any Series A Shares without the prior
written consent of the Company, which consent shall not be unreasonably
withheld.
(c) Amendments. This Agreement may be amended at any time by mutual
consent of the parties, with any such amendment to be invalid unless in
writing, signed by the parties hereto.
(d) Entire Agreement. This Agreement contains the entire agreement and
understanding by and between the Company and Seller with respect to the
matters covered herein, and no representations, promises, agreements, or
understandings, written or oral, relating to the exchange effected hereby not
contained in this Agreement shall be of any force or effect.
IN WITNESS WHEREOF, Seller and Company have duly executed this Agreement
as of the day and year first above written.
SELLER: U.S. TRUCKING, INC.
JOFF POLLON & ASSOCIATES
BY: /s/ Joff Pollon BY: /s/ Anthony Huff
TITLE: Managing Director TITLE: Chairman
LOAN AND SECURITY AGREEMENT
DATED AS OF DECEMBER 22, 1998
BETWEEN
GENERAL ELECTRIC CAPITAL CORPORATION
AS LENDER
AND
GULF NORTHERN TRANSPORT, INC.
AS BORROWER
U.S. TRUCKING, INC. (NEVADA)
AS CREDIT PARTY
U.S. TRUCKING, INC. (COLORADO)
AS CREDIT PARTY
MENCOR, INC.
AS CREDIT PARTY
<PAGE>
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INDEX OF EXHIBITS AND SCHEDULES
Schedule A - Definitions
Schedule B - Lender's and Borrower's Addresses for Notices
Schedule C - Letters of Credit
Schedule D - Cash Management System
Schedule E - Fees and Expenses
Schedule F - Schedule of Documents
Schedule F-1 - Schedule of Real Estate Documents
Schedule G - Financial Covenants
Disclosure Schedule (3.2) - Chief Executive Office; Corporate Names
Disclosure Schedule (3.6) - Real Estate
Disclosure Schedule (3.7) - Stock; Affiliates
Disclosure Schedule (3.10) - Taxes
Disclosure Schedule (3.12) - ERISA
Disclosure Schedule (3.13) - Litigation
Disclosure Schedule (3.14) - Intellectual Property
Disclosure Schedule (3.16) - Environmental Matters
Disclosure Schedule (3.17) - Insurance
Disclosure Schedule (5(c)) - Indebtedness
Disclosure Schedule (5(h)) - Liens
Disclosure Schedule (6.1) - Actions to Perfect Liens
Exhibit A - Form of Notice of Revolving Credit Advance
Exhibit B - Required Reports and Other Information
Exhibit C - Form of Borrowing Base Certificate
Exhibit D - Form of Accounts Payable Analysis
Exhibit E - Form of Daily Accounts Receivable Rollforward Analysis
Exhibit E-1 - Form of Unbilled Daily Accounts Receivable Rollforward
Analysis
Exhibit F - Form of Revolving Credit Note
Exhibit G - Form of Mortgage
Exhibit H - Form of Secretarial Certificate (Gulf Northern
Transport, Inc.)
Exhibit H-1 - Form of Secretarial Certificate (Credit Party)
Exhibit I - Form of Power of Attorney (Gulf Northern Transport, Inc.)
Exhibit I-1 - Form of Power of Attorney (Credit Party)
Exhibit J - Form of Certificate of Compliance
Exhibit K - Form of Lockbox Account Agreement
Exhibit L - Intentionally Omitted
Exhibit M - Intentionally Omitted
Exhibit N-1-A- Form of Guarantee (U.S. Trucking, Inc.(Nevada))
Exhibit N-1-B- Form of Guarantee (U.S. Trucking, Inc. (Colorado))
Exhibit N-1-C- Form of Guarantee (Mencor, Inc.)
Exhibit N-2 - Form of Joint and Several Guarantee
Exhibit N-3 - Form of Guarantee (Trust)
Exhibit O - Form of Opinion of Counsel to Borrower
Exhibit P - Intentionally Omitted
Exhibit Q - Form of Standard Payoff Confirmation Letter
Exhibit R-1 - Form of U.C.C. Schedule
Exhibit R-2 - Form of U.C.C. Schedule
Exhibit R-3 - Form of U.C.C. Schedule
Exhibit R-4 - Form of U.C.C. Schedule
Exhibit S - Form of Payment of Proceeds Letter
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GE CAPITAL COMMERCIAL FINANCE
This LOAN AND SECURITY AGREEMENT is dated as of December 22, 1998, and agreed
to by and between Gulf Northern Transport, Inc., a Wisconsin corporation
("Borrower"), any other Credit Party executing this Agreement, and GENERAL
ELECTRIC CAPITAL CORPORATION, a New York corporation ("Lender").
RECITALS
A. The purpose of this Agreement is to provide to Borrower revolving credit
loans (including a subfacility for letters of credit) (collectively, the
"Loans") having the following general description:
TRANSACTION SUMMARY AS OF THE DATE OF THIS AGREEMENT
REVOLVING CREDIT LOAN
Maximum Amount: $5,000,000
Term: 3 years
Revolving Credit Rate: Index Rate plus 4.5%
Letter of Credit Subfacility: $250,000
Borrowing Base: (i) 85% (less reserves established by
Lender pursuant to Section 1.13) of the
value (as determined by Lender) of
Borrower's Eligible Accounts (other
than Eligible Unbilled Accounts) and (ii)
65% (less reserves established by Lender
pursuant to Section 1.13) of the value
(as determined by Lender) of Borrower's
Eligible Unbilled Accounts subject to a
cap in an aggregate amount of $250,000;
provided that (1) Lender (without limit-
ing its rights to otherwise reduce the
foregoing percentage) shall reduce the
foregoing percentage by one percentage
point for each percentage point that the
dilution of Borrower's Accounts
(calculated as the average dilution from
the Accounts Receivable Roll Forward
Analysis over the most recent three
months) exceeds 3%, less the unreimbursed
face amount of any Letter of Credit
Obligations, and (2) Lender reserves the
right to adjust the percentage identified
in (ii) above in the event it is not
satisfied with the environmental condition
of the Wisconsin Rapids, Wisconsin real
property.
FEES
Closing Fee: $26,250
Letter of Credit Fee: 1.5%
Prepayment Fee: 3% in year one; 2% in year two; and 1% in
year three.
The Loans described generally here are established and governed by the terms
and conditions set forth below in this Agreement and the other Loan Documents,
and if there is any conflict between this general description and the express
terms and conditions below or elsewhere in the Loan Documents, such other
express terms and conditions shall control.
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B. Borrower desires to obtain the Loans and other financial accommodations
from Lender and Lender is willing to provide the Loans and accommodations all
in accordance with the terms of this Agreement.
C. Capitalized terms used herein shall have the meanings assigned to them in
Schedule A and, for purposes of this Agreement and the other Loan Documents,
the rules of construction set forth in Schedule A shall govern. All
Schedules, Disclosure Schedules, Attachments, Addenda and Exhibits
(collectively, "Appendices") hereto, or expressly identified to this
Agreement, are incorporated herein by reference, and taken together with this
Agreement, constitute but a single agreement. These Recitals shall be
construed as part of this Agreement.
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AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 Loans. (a) Subject to the terms and conditions of this Agreement, from
the Closing Date and until the Commitment Termination Date (i) Lender agrees
(A) to make available advances (each, a "Revolving Credit Advance") and (B) to
incur Letter of Credit Obligations, in an aggregate outstanding amount not to
exceed the Borrowing Availability, and (ii) Borrower may at its request from
time to time borrow, repay and reborrow, and may cause Lender to incur Letter
of Credit Obligations, under this Section 1.1.
(b) Borrower shall request each Revolving Credit Advance by written
notice to Lender substantially in the form of Exhibit A (each a "Notice of
Revolving Credit Advance") given no later than 11:00 A.M. (New York City time)
on the Business Day of the proposed Revolving Credit Advance. Lender shall be
fully protected under this Agreement in relying upon, and shall be entitled to
rely upon, (i) any Notice of Revolving Credit Advance believed by Lender to be
genuine, and (ii) the assumption that the Persons making electronic requests
or executing and delivering a Notice of Revolving Credit Advance were duly
authorized, unless the responsible individual acting thereon for Lender shall
have actual knowledge to the contrary.
(c) The Revolving Credit Loan shall be evidenced by, and be repayable in
accordance with the terms of, the Revolving Credit Note and this Agreement.
(d) Borrower agrees that Lender, in making any Revolving Credit Advance
or incurring any other Obligation hereunder, shall be entitled to rely upon
the most recent Borrowing Base Certificate delivered to Lender by Borrower and
other information available to Lender. Borrower further agrees that Lender
shall be under no obligation to make any further Revolving Credit Advance or
incur any other Obligation if Borrower shall have failed to deliver a
Borrowing Base Certificate to Lender by the time specified in Section 4.1(b).
(e) Subject to the terms and conditions of this Agreement, including
Schedule C, Borrower shall have the right to request, and Lender agrees to
incur, the Letter of Credit Obligations for the account of Borrower in
accordance with Schedule C.
1.2 Term and Prepayment. (a) The obligation of Lender to make Revolving
Credit Advances and extend other financial accommodations shall be in effect
from the Closing Date until the Commitment Termination Date. Upon the
Commitment Termination Date Borrower shall pay to Lender in full, in cash: (i)
all outstanding Revolving Credit Advances and all accrued but unpaid interest
thereon; (ii) an amount sufficient to enable Lender to hold cash collateral as
specified in Schedule C; and (iii) all other non-contingent Obligations due to
or incurred by Lender. Upon payment of the amounts specified in the
immediately preceding sentence, Borrower's obligation to pay the Unused Line
Fee shall simultaneously terminate.
(b) If the Revolving Credit Loan shall at any time exceed the Borrowing
Availability, then Borrower shall immediately repay the Revolving Credit Loan
in the amount of such excess; any such excess balance outstanding shall
nevertheless constitute Obligations that are evidenced by the Revolving Credit
Note, secured by the Collateral and entitled to all of the benefits of the
Loan Documents.
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(c) Each Borrower shall have the right, at any time upon 30 days prior
written notice to Lender to (i) terminate voluntarily each Borrower's right to
receive or benefit from, and Lender's obligation to make and to incur,
Revolving Credit Advances and Letter of Credit Obligations and (ii) prepay all
of the Obligations. The effective date of termination of the Revolving Credit
Loan specified in such notice shall be the Commitment Termination Date.
(d) If Borrower exercises its right of termination and prepayment, or if
Borrower's right to receive or benefit from, and Lender's obligation to make
Loans, are terminated for any reason prior to the Stated Expiry Date
(including as a result of the occurrence of a Default), Borrower shall pay to
Lender the applicable Prepayment Fee.
1.3 Use of Proceeds. Borrower shall use the proceeds of the Loans to
refinance on the Closing Date certain outstanding Indebtedness as provided in
Section 2.1(b) and for working capital and other general corporate purposes.
1.4 Single Loan. The Loans and all of the other Obligations of Borrower to
Lender shall constitute one general obligation of Borrower secured by all of
the Collateral.
1.5 Interest. (a) Borrower shall pay interest to Lender on the aggregate
outstanding Revolving Credit Advances at a floating rate equal to the Index
Rate plus four and five tenths percent (4.5%) per annum (the "Revolving Credit
Rate").
(b) Interest shall be payable on the outstanding Revolving Credit
Advances (i) in arrears for the preceding calendar month on the first day of
each calendar month, (ii) on the Commitment Termination Date, and (iii) if any
interest accrues or remains payable after the Commitment Termination Date,
upon demand by Lender.
(c) All computations of interest, and all calculations of the Letter of
Credit Fee, shall be made by Lender on the basis of a three hundred and sixty
(360) day year, in each case for the actual number of days occurring in the
period for which such interest or fee is payable. Each determination by Lender
of an interest rate hereunder shall be conclusive and binding for all
purposes, absent manifest error.
(d) Effective upon the occurrence of any Event of Default and for so
long as any Event of Default shall be continuing, upon notice to the Borrower
(except that no notice shall be required upon the occurrence of any Event of
Default specified in Sections 7.1(e), (f), (g) or (j)(ii)) the Revolving
Credit Rate and the Letter of Credit Fee shall automatically be increased by
two percentage points (2%) per annum (such increased rate, the "Default
Rate"), and all outstanding Obligations, including unpaid interest and Letter
of Credit Fees, shall continue to accrue interest from the date of such Event
of Default at the Default Rate applicable to such Obligations. The Default
Rate with respect to the Revolving Credit Rate shall be payable upon demand by
Lender.
(e) If any interest or other payment (including Unused Line Fees, Letter
of Credit Fees and Collateral Monitoring Fees) to Lender under this Agreement
becomes due and payable on a day other than a Business Day, such payment date
shall be extended to the next succeeding Business Day and interest thereon
shall be payable at the then applicable rate during such extension.
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(f) In no event will Lender charge interest at a rate that exceeds the
highest rate of interest permissible under any law that a court of competent
jurisdiction shall, in a final determination, deem applicable.
1.6 Cash Management System. On or prior to the Closing Date and until the
Termination Date, Borrower will establish and maintain the cash management
system described in Schedule D. All payments in respect of the Collateral
shall be made to or deposited in the blocked or lockbox accounts described in
Schedule D in accordance with the terms thereof.
1.7 Fees. As compensation for Lender's costs and efforts incurred and
expended in entering into this Agreement and in consideration of Lender's
making the Loans available to Borrower, Borrower agrees to pay to Lender the
Fees set forth in Schedule E.
1.8 Receipt of Payments. Borrower shall make each payment under this
Agreement (not otherwise made pursuant to Section 1.9) without set-off or
counterclaim not later than 11:00 A.M. (New York City time) on the day when
due in lawful money of the United States of America in immediately available
funds to the Collection Account. For purposes of computing interest and Fees,
all payments shall be deemed received by Lender 2 Business Days following
receipt of good funds in the Collection Account. For purposes of determining
the Borrowing Availability, payments shall be deemed received by Lender upon
receipt of good funds in the Collection Account.
1.9 Application and Allocation of Payments. Borrower irrevocably agrees that
Lender shall have the continuing and exclusive right to apply any and all
payments against the then due and payable Obligations in such order as Lender
may deem advisable; provided, however, that Lender may charge the Revolving
Credit Loan for (i) monthly payments due and owing under the Term Loan, and
(ii) capital lease payments due and owing to CAF. Lender is authorized to,
and at its option may (without prior notice or precondition and at any time or
times), but shall not be obligated to, make or cause to be made Revolving
Credit Advances on behalf of Borrower for: (a) payment of all Fees, expenses,
indemnities, charges, costs, principal, interest, or other Obligations owing
by Borrower under this Agreement or any of the other Loan Documents, (b) the
payment, performance or satisfaction of any of Borrower's obligations with
respect to preservation of the Collateral or otherwise under this Agreement,
or (c) any premium in whole or in part required in respect of any of the
policies of insurance required by this Agreement, even if the making of any
such Revolving Credit Advance causes the outstanding balance of the Revolving
Credit Loan to exceed the Borrowing Availability, and Borrower agrees to repay
immediately, in cash, any amount by which the Revolving Credit Loan exceeds
the Borrowing Availability.
1.10 Accounting. Lender is authorized to record on its books and records the
date and amount of each Loan and each payment of principal thereof and such
recordation shall constitute prima facie evidence of the accuracy of the
information so recorded. Lender shall provide Borrower on a monthly basis a
statement and accounting of such recordations but any failure on the part of
the Lender to keep any such recordation (or any errors therein) or to send a
statement thereof to Borrower shall not in any manner affect the obligation of
Borrower to repay (with applicable interest) the Loans made to Borrower under
this Agreement. Except to the extent that Borrower shall, within 30 days
after such statement and accounting is sent, notify Lender in writing of any
objection Borrower may have thereto (stating with particularity the basis for
such objection), such statement and accounting shall be deemed final, binding
and conclusive upon Borrower, absent manifest error.
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1.11 Indemnity. Borrower and each other Credit Party executing this
Agreement jointly and severally agree to indemnify and hold Lender and its
Affiliates, and their respective employees, attorneys and agents (each, an
"Indemnified Person"), harmless from and against any and all suits, actions,
proceedings, claims, damages, losses, liabilities and expenses of any kind or
nature whatsoever (including attorneys' fees and disbursements and other costs
of investigation or defense, including those incurred upon any appeal) which
may be instituted or asserted against or incurred by any such Indemnified
Person as the result of credit having been extended, suspended or terminated
under this Agreement and the other Loan Documents or with respect to the
execution, delivery, enforcement, performance and administration of, or in any
other way arising out of or relating to, this Agreement and the other Loan
Documents or any other documents or transactions contemplated by or referred
to herein or therein and any actions or failures to act with respect to any of
the foregoing, including any and all product liabilities, Environmental
Liabilities and legal costs and expenses arising out of or incurred in
connection with disputes between or among any parties to any of the Loan
Documents (collectively, "Indemnified Liabilities"), except to the extent that
any such Indemnified Liability is finally determined by a court of competent
jurisdiction to have resulted solely from such Indemnified Person's gross
negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE
OR LIABLE TO THE BORROWER OR TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY
SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING
CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
1.12 Taxes. All payments to Lender under any Loan Document shall be made
free and clear of, and without deduction for, any Taxes. If Borrower shall be
required by law to deduct any Taxes from any payment to Lender under any Loan
Document, then the amount payable to Lender shall be increased so that, after
making all required deductions (including deductions applicable to additional
sums payable under this Section 1.12), Lender receives an amount equal to that
which it would have received had no such deductions been made and Borrower
shall pay the full amount deducted to the relevant taxing authority, and
promptly furnish to Lender tax receipts evidencing such payment. Borrower
shall pay and indemnify Lender for the full amount of Taxes (including any
Taxes imposed by any jurisdiction on amounts payable under this Section 1.12)
paid by Lender and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes were
correctly or legally asserted.
1.13 Borrowing Base; Reserves. The Borrowing Base shall be determined by
Lender (including the eligibility of Accounts) based on the most recent
Borrowing Base Certificate delivered to Lender in accordance with Section
4.1(b) and such other information available to Lender. Without limiting any
other rights and remedies of Lender hereunder or under the other Loan
Documents, the Revolving Credit Loan shall be subject to Lender's continuing
right to withhold from Borrowing Availability reserves, and to increase and
decrease such reserves from time to time, if and to the extent that in
Lender's good faith credit judgment such reserves are necessary, including to
protect Lender's interest in the Collateral or to protect Lender against
possible non-payment of Accounts for any reason by Account Debtors or possible
non-payment of any of the Obligations or for any taxes or customs duties or in
respect of any state of facts which could constitute a Default. Lender may,
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at its option, implement reserves by designating as ineligible a sufficient
amount of Accounts which would otherwise be Eligible Accounts, so as to reduce
the Borrowing Base by the amount of the intended reserves, including (1) a
$150,000 payment reserve payable as follows: $37,500 shall be payable on each
Monday of each month up to an aggregate of $150,000 for each month, whereupon
such reserve shall be reduced to $0, (2) a $50,000 Wisconsin tax reserve, and
(3) a $125,000 reserve for registration and licensing fees and related costs,
which reserve shall be increased by an additional amount of $20,000 per week
beginning on December 25, 1998 through and including February 20, 1999, at
which time such reserve shall be applied to the payment of such registration
and licensing fees and costs.
2. CONDITIONS PRECEDENT
2.1 Conditions to the Initial Loans. Lender shall not be obligated to make
any of the Loans, or to take, fulfill, or perform any other action hereunder,
until the following conditions have been satisfied in a manner satisfactory to
Lender in its sole discretion, or waived in writing by Lender:
(a) the Loan Documents to be delivered on or before the Closing Date
shall have been duly executed and delivered by the appropriate parties, all as
set forth in the Schedule of Documents (Schedule F);
(b) Lender shall have received evidence satisfactory to it that: (i) all
of the obligations of Borrower to Transport Clearings under its financing
documentation as in effect immediately prior to the Closing Date will be
performed and paid in full from the proceeds of the initial Loans; and (ii)
all Liens upon any of the property of Borrower or any other Credit Party in
favor of Transport Clearings shall have been terminated immediately upon such
payment;
(c) Lender shall have received evidence satisfactory to it that each
Credit Party has obtained all consents and acknowledgments of all Persons and
Governmental Authorities whose consents or acknowledgments may be required
prior to the execution and delivery of this Agreement and the other Loan
Documents (or pursuant to the terms hereof or thereof) and the consummation of
the transactions contemplated hereby and thereby and that such consents or
acknowledgments remain in full force and effect;
(d) Lender shall have received evidence satisfactory to it that the
insurance policies provided for in Section 3.17 are in full force and effect,
together with appropriate evidence showing loss payable or additional insured
clauses or endorsements in favor of Lender as required under such Section;
(e) as of the Closing Date Net Borrowing Availability shall be not less
than $200,000 after giving effect to the initial Revolving Credit Advance and
Letter of Credit Obligations (on a pro forma basis, with trade payables being
paid currently, and expenses and liabilities being paid in the ordinary course
of business and without acceleration of sales);
(f) Lender shall have received an opinion of counsel to the Borrower
with respect to the Loan Documents in form and substance satisfactory to
Lender; and
(g) payment by Borrower of the Closing Fee and all other fees, costs,
and expenses payable by Borrower hereunder that have accrued as of the Closing
Date.
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2.2 Further Conditions to the Loans. Lender shall not be obligated to fund
any Loan (including the initial Loans), if, as of the date thereof:
(a) any representation or warranty by any Credit Party contained herein
or in any of the other Loan Documents shall be untrue or incorrect as of such
date, except to the extent that any such representation or warranty is
expressly stated to relate to a specific earlier date, in which case, such
representation and warranty shall be true and correct as of such earlier date;
or
(b) any event or circumstance which has had or reasonably could be
expected to have a Material Adverse Effect shall have occurred since the
Closing Date; or
(c) any Default shall have occurred and be continuing or would result
after giving effect to such Loan; or
(d) after giving effect to such Loan the Revolving Credit Loan would
exceed the Borrowing Availability; or
(e) any action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any Governmental
Authority to enjoin, restrain or prohibit, or to obtain damages in respect of,
or which is related to or arises out of, this Agreement or any other Loan
Document or the consummation of any transaction contemplated hereby or thereby
and which, in Lender's sole judgment, would make it inadvisable to consummate
any transaction contemplated by this Agreement or any other Loan Document.
The request and acceptance by Borrower of the proceeds of any Loan shall be
deemed to constitute, as of the date of such request and the date of such
acceptance, (i) a representation and warranty by Borrower that the conditions
in this Section 2.2 have been satisfied and (ii) a reaffirmation by Borrower
of the granting and continuance of Lender's Liens pursuant to the Loan
Documents.
3. REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS
To induce Lender to enter into this Agreement and to make the Loans, Borrower
and each other Credit Party executing this Agreement represent and warrant to
Lender (each of which representations and warranties shall survive the
execution and delivery of this Agreement), and promise to and agree with
Lender until the Termination Date as follows:
3.1 Corporate Existence; Compliance with Law. Each Corporate Credit Party:
(a) is, as of the Closing Date, and will continue to be (i) a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) duly qualified to do business and in
good standing in each other jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification, except
where the failure to be so qualified could not reasonably be expected to have
a Material Adverse Effect, and (iii) in compliance with all Requirements of
Law and Contractual Obligations, except to the extent failure to comply
therewith could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect; and (b) has and will continue to have (i)
the requisite corporate power and authority and the legal right to execute,
deliver and perform its obligations under the Loan Documents, and to own,
pledge, mortgage or otherwise encumber and operate its properties, to lease
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the property it operates under lease, and to conduct its business as now,
heretofore or proposed to be conducted, and (ii) all licenses, permits,
franchises, rights, powers, consents or approvals from or by all Persons or
Governmental Authorities having jurisdiction over such Corporate Credit Party
which are necessary or appropriate for the conduct of its business.
3.2 Executive Offices; Corporate or Other Names; Conduct of Business. The
location of each Corporate Credit Party's chief executive office, corporate
offices, warehouses, other locations of Collateral and locations where records
with respect to Collateral are kept (including in each case the county of such
locations) are as set forth in Disclosure Schedule (3.2) and, except as set
forth in such Disclosure Schedule, such locations have not changed during the
preceding twelve months. As of the Closing Date, during the prior five years,
except as set forth in Disclosure Schedule (3.2), no Corporate Credit Party
has been known as or conducted business in any other name (including trade
names). No Corporate Credit Party shall change its (a) name, (b) chief
executive office, (c) corporate offices, (d) warehouses or other Collateral
locations, or (e) location of its records concerning the Collateral, or
acquire, lease or use any real estate after the Closing Date without such
Person, in each instance, giving thirty (30) days prior written notice thereof
to Lender and taking all actions deemed necessary or appropriate by Lender to
continuously protect and perfect Lender's Liens upon the Collateral.
3.3 Corporate Power; Authorization; Enforceable Obligations. The execution,
delivery and performance by each Credit Party of the Loan Documents to which
it is a party, and the creation of all Liens provided for herein and therein:
(a) are and will continue to be within such Credit Party's power and
authority; (b) have been and will continue to be duly authorized by all
necessary or proper action; (c) are not and will not be in violation of any
Requirement of Law or Contractual Obligation of such Credit Party (d) do not
and will not result in the creation or imposition of any Lien (other than
Permitted Encumbrances) upon any of the Collateral; and (e) do not and will
not require the consent or approval of any Governmental Authority or any other
Person, except those referred to in Section 2.1(b) (all of which will have
been duly obtained, made or complied with on or before the Closing Date and
shall be in full force and effect on such date). As of the Closing Date, each
Loan Document shall have been duly executed and delivered on behalf of each
Credit Party party thereto, and each such Loan Document upon such execution
and delivery shall be and will continue to be a legal, valid and binding
obligation of such Credit Party, enforceable against it in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency and
other similar laws affecting creditors' rights generally, and by general
principles of equity.
3.4 Financial Statements and Projections; Books and Records. (a) The
Financial Statements delivered by Borrower to Lender for its most recently
ended Fiscal Year and Fiscal Month, are true, correct and complete and reflect
fairly and accurately the financial condition of Borrower as of the date of
each such Financial Statement in accordance with GAAP. The Projections most
recently delivered by Borrower to Lender have been prepared in good faith,
with care and diligence and use assumptions that are reasonable under the
circumstances at the time such Projections were prepared and as of the date
delivered to Lender and all such assumptions are disclosed in the Projections.
(b) Borrower and each other Corporate Credit Party shall keep adequate
Books and Records with respect to the Collateral and its business activities
in which proper entries, reflecting all consolidated and consolidating
financial transactions, and payments received on any and all credits granted
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to, and all other dealings with, the Collateral, will be made in accordance
with GAAP and all Requirements of Law and on a basis consistent with the
Financial Statements.
3.5 Material Adverse Change. Between the date of Borrower's most recently
audited Financial Statements delivered to Lender and the Closing Date: (a) no
Corporate Credit Party has incurred any obligations, contingent or
non-contingent liabilities, or liabilities for Charges, long-term leases or
unusual forward or long-term commitments which are not reflected in the
Projections delivered on the Closing Date and which could, alone or in the
aggregate, reasonably be expected to have a Material Adverse Effect; (b) there
has been no material deviation from such Projections; and (c) no events have
occurred which alone or in the aggregate has had or could reasonably be
expected to have a Material Adverse Effect. No Requirement of Law or
Contractual Obligation of any Credit Party has or have had or could reasonably
be expected to have a Material Adverse Effect and no Credit Party is in
default, and to such Credit Party's knowledge no third party is in default
under or with respect to any of its Contractual Obligations, which alone or in
the aggregate has had or could reasonably be expected to have a Material
Adverse Effect.
3.6 Real Estate; Property. The real estate listed in Disclosure Schedule
(3.6) constitutes all of the real property owned, leased, or used by each
Corporate Credit Party in its business, and such Credit Party will not execute
any material agreement or contract in respect of such real estate after the
date of this Agreement without giving Lender prompt written notice thereof.
Each Corporate Credit Party holds and will continue to hold good and
marketable fee simple title to all of its owned real estate, and good and
marketable title to all of its other properties and assets, and valid and
insurable leasehold interests in all of its leases (both as lessor and lessee,
sublessee or assignee), and none of the properties and assets of any Corporate
Credit Party are or will be subject to any Liens, except Permitted
Encumbrances. With respect to each of the premises identified in Disclosure
Schedule (3.2) on or prior the Closing Date a bailee, landlord or mortgagee
agreement acceptable to Lender has been obtained.
3.7 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness. Except as set forth in Disclosure Schedule (3.7), as of the
Closing Date no Credit Party has any Subsidiaries, is engaged in any joint
venture or partnership with any other Person, or is an Affiliate of any other
Person. All of the issued and outstanding Stock of each Corporate Credit
Party (including all rights to purchase, options, warrants or similar rights
or agreements pursuant to which any Corporate Credit Party may be required to
issue, sell, repurchase or redeem any of its Stock) as of the Closing Date is
owned by each of the Stockholders (and in the amounts) set forth on Disclosure
Schedule (3.7). All outstanding Indebtedness of each Corporate Credit Party
as of the Closing Date is described in Disclosure Schedule (5(c)).
3.8 Government Regulation. No Credit Party is subject to or regulated under
the Investment Company Act of 1940, the Public Utility Holding Company Act of
1935, the Federal Power Act or any other Federal or state statute, rule or
regulation that restricts or limits such Person's ability to incur
Indebtedness, pledge its assets, or to perform its obligations under the Loan
Documents. The making of the Loans, the application of the proceeds and
repayment thereof, and the consummation of the transactions contemplated by
the Loan Documents do not and will not violate any provision of any such
statute or any rule, regulation or order issued by the Securities and Exchange
Commission.
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3.9 Margin Regulations. No Credit Party is engaged, nor will it engage,
principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
security" as such terms are defined in Regulations U or G of the Federal
Reserve Board as now and from time to time hereafter in effect (such
securities being referred to herein as "Margin Stock"). No Credit Party owns
any Margin Stock, and none of the proceeds of the Loans or other extensions of
credit under this Agreement will be used, directly or indirectly, for the
purpose of purchasing or carrying any Margin Stock, for the purpose of
reducing or retiring any Indebtedness which was originally incurred to
purchase or carry any Margin Stock or for any other purpose which might cause
any of the Loans or other extensions of credit under this Agreement to be
considered a "purpose credit" within the meaning of Regulation G, T, U or X of
the Federal Reserve Board. No Credit Party will take or permit to be taken
any action which might cause any Loan Document to violate any regulation of
the Federal Reserve Board.
3.10 Taxes; Charges. Except as disclosed on Disclosure Schedule (3.10) all
tax returns, reports and statements required by any Governmental Authority to
be filed by Borrower or any other Credit Party have, as of the Closing Date,
been filed and will, until the Termination Date, be filed with the appropriate
Governmental Authority and no tax Lien has been filed against any Credit Party
or any Credit Party's property. Proper and accurate amounts have been and
will be withheld by Borrower and each other Credit Party from their respective
employees for all periods in complete compliance with all Requirements of Law
and such withholdings have and will be timely paid to the appropriate
Governmental Authorities. Disclosure Schedule (3.10) sets forth as of the
Closing Date those taxable years for which any Credit Party's tax returns are
currently being audited by the IRS or any other applicable Governmental
Authority and any assessments or threatened assessments in connection with
such audit, or otherwise currently outstanding. Except as described on
Disclosure Schedule (3.10), no Credit Party has executed or filed with the IRS
or any other Governmental Authority any agreement or other document extending,
or having the effect of extending, the period for assessment or collection of
any Charges. None of the Credit Parties and their respective predecessors are
liable for any Charges: (a) under any agreement (including any tax sharing
agreements) or (b) to each Credit Party's knowledge, as a transferee. As of
the Closing Date, no Credit Party has agreed or been requested to make any
adjustment under IRC Section 481(a), by reason of a change in accounting
method or otherwise, which could reasonably be expected to have a Material
Adverse Effect.
3.11 Payment of Obligations. Each Credit Party will pay, discharge or
otherwise satisfy at or before maturity or before they become delinquent, as
the case may be, all of its Charges and other obligations of whatever nature,
except where the amount or validity thereof is currently being contested in
good faith by appropriate proceedings and reserves in conformity with GAAP
with respect thereto have been provided on the books of such Credit Party and
none of the Collateral is or could reasonably be expected to become subject to
any Lien or forfeiture or loss as a result of such contest.
3.12 ERISA. (a) Disclosure Schedule (3.12) lists and separately identifies
all Title IV Plans, Multiemployer Plans, ESOPs and Retiree Welfare Plans.
Copies of all such listed Plans, together with a copy of the latest form 5500
for each such Plan, have been delivered to Lender. Each Qualified Plan has
been determined by the IRS to qualify under Section 401 of the IRC, and the
trusts created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the IRC, and nothing has occurred which would
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cause the loss of such qualification or tax-exempt status. Each Plan is in
compliance with the applicable provisions of ERISA and the IRC , including the
filing of reports required under the IRC or ERISA. No Credit Party or ERISA
Affiliate has failed to make any contribution or pay any amount due as
required by either Section 412 of the IRC or Section 302 of ERISA or the terms
of any such Plan. No Credit Party or ERISA Affiliate has engaged in a
prohibited transaction, as defined in Section 4975 of the IRC, in connection
with any Plan, which would subject any Credit Party to a material tax on
prohibited transactions imposed by Section 4975 of the IRC.
(b) Except as set forth in Disclosure Schedule (3.12): (i) no Title IV
Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event
described in Section 4062(e) of ERISA with respect to any Title IV Plan has
occurred or is reasonably expected to occur; (iii) there are no pending, or to
the knowledge of any Credit Party, threatened claims (other than claims for
benefits in the normal course), sanctions, actions or lawsuits, asserted or
instituted against any Plan or any Person as fiduciary or sponsor of any Plan;
(iv) no Credit Party or ERISA Affiliate has incurred or reasonably expects to
incur any liability as a result of a complete or partial withdrawal from a
Multiemployer Plan; (v) within the last five years no Title IV Plan with
Unfunded Pension Liabilities has been transferred outside of the "controlled
group" (within the meaning of Section 4001(a)(14) of ERISA) of any Credit
Party or ERISA Affiliate; and (vi) no liability under any Title IV Plan has
been satisfied with the purchase of a contract from an insurance company that
is not rated AAA by the Standard & Poor's Corporation or the equivalent by
another nationally recognized rating agency.
3.13 Litigation. No Litigation is pending or, to the knowledge of any Credit
Party, threatened by or against any Credit Party or against any Credit Party's
properties or revenues (a) with respect to any of the Loan Documents or any of
the transactions contemplated hereby or thereby, or (b) which could reasonably
be expected to have a Material Adverse Effect. Except as set forth on
Disclosure Schedule (3.13), as of the Closing Date there is no Litigation
pending or threatened against any Credit Party which seeks damages in excess
of $50,000 or injunctive relief or alleges criminal misconduct of any Credit
Party. Each Credit Party shall notify Lender promptly upon learning of the
existence or commencement of any Litigation commenced or to the knowledge of
any Credit Party threatened against any Credit Party that: (x) may involve an
amount in excess of $50,000; (y) could reasonably be expected to have a
Material Adverse Effect whether or not determined adversely; or (z) regardless
of amount (i) is asserted or instituted, against any Plan, its fiduciaries or
its assets, or against any Credit Party or any ERISA Affiliate in connection
with any Plan, (ii) includes any demand for injunctive relief, (iii) alleges
criminal misconduct by any Credit Party, or (iv) alleges the violation of any
law regarding, or seeks remedies in connection with, any Environmental
Liabilities.
3.14 Intellectual Property. As of the Closing Date, all material
Intellectual Property owned or used by any Credit Party is listed, together
with application or registration numbers, where applicable, in Disclosure
Schedule (3.14). Each Credit Party owns, or is licensed to use, all
Intellectual Property necessary to conduct its business as currently conducted
except for such Intellectual Property the failure of which to own or license
could not reasonably be expected to have a Material Adverse Effect.
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3.15 Full Disclosure. No information contained in any Loan Document, the
Financial Statements or any written statement furnished by or on behalf of any
Credit Party under any Loan Document, or to induce Lender to execute the Loan
Documents, contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements contained herein or therein
not misleading in light of the circumstances under which they were made.
3.16 Hazardous Materials. Except as set forth on Disclosure Schedule (3.16),
as of the Closing Date, (a) each real property location owned, leased or
occupied by each Corporate Credit Party (the "Real Property") is maintained
free of contamination from any Hazardous Material, (b) no Corporate Credit
Party is subject to any Environmental Liabilities or, to any Credit Party's
knowledge, potential Environmental Liabilities, in excess of $50,000 in the
aggregate, (c) no notice has been received by any Corporate Credit Party
identifying it as a "potentially responsible party" or requesting information
under CERCLA or analogous state statutes, and to the knowledge of any Credit
Party, there are no facts, circumstances or conditions that may result in any
Corporate Credit Party being identified as a "potentially responsible party"
under CERCLA or analogous state statutes; and (d) each Corporate Credit Party
has provided to Lender copies of all existing environmental reports, reviews
and audits and all written information pertaining to actual or potential
Environmental Liabilities, in each case relating to any Corporate Credit
Party. Each Corporate Credit Party: (i) shall comply in all material respects
with all applicable Environmental Laws and Environmental Permits; (ii) shall
notify Lender in writing within seven days if and when it becomes aware of any
Release, on, at, in, under, above, to, from or about any of its Real Property;
and (iii) shall promptly forward to Lender a copy of any order, notice,
permit, application, or any communication or report received by it or any
other Credit Party in connection with any such Release.
3.17 Insurance. As of the Closing Date, Disclosure Schedule (3.17) lists all
insurance of any nature maintained for current occurrences by Borrower and
each other Corporate Credit Party, as well as a summary of the terms of such
insurance. Each Corporate Credit Party shall deliver to Lender endorsements
to all of its and those of its Subsidiaries (a) "All Risk" and business
interruption insurance policies naming Lender loss payee, and (b) general
liability and other liability policies naming Lender as an additional insured.
All policies of insurance on real and personal property will contain an
endorsement, in form and substance acceptable to Lender, showing loss payable
to Lender (Form 438 BFU or equivalent) and extra expense and business
interruption endorsements. Such endorsement, or an independent instrument
furnished to Lender, will provide that the insurance companies will give
Lender at least 30 days prior written notice before any such policy or
policies of insurance shall be altered or canceled and that no act or default
of Borrower or any other Person shall affect the right of Lender to recover
under such policy or policies of insurance in case of loss or damage. Each
Corporate Credit Party shall direct all present and future insurers under its
"All Risk" policies of insurance to pay all proceeds payable thereunder
directly to Lender. If any insurance proceeds are paid by check, draft or
other instrument payable to any Credit Party and Lender jointly, Lender may
endorse such Credit Party's name thereon and do such other things as Lender
may deem advisable to reduce the same to cash. Lender reserves the right at
any time, upon review of each Credit Party's risk profile, to require
additional forms and limits of insurance to adequately protect Lender's
interests in accordance with Lender's normal practice for similarly situated
borrowers. Each Corporate Credit Party shall, on each anniversary of the
Closing Date and from time to time at Lender's request, deliver to Lender a
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report by a reputable insurance broker, satisfactory to Lender, with respect
to such Person's insurance policies.
3.18 Deposit and Disbursement Accounts. Attachment I to Schedule D lists all
banks and other financial institutions at which Borrower or any other
Corporate Credit Party, maintains deposits and/or other accounts, including
the Disbursement Account, and such Attachment correctly identifies the name,
address and telephone number of each such depository, the name in which the
account is held, a description of the purpose of the account, and the complete
account number. No Corporate Credit Party will establish any depository or
other bank account of any kind with any financial institution (other than the
accounts set forth on Attachment 1 to Schedule D) without Lender's prior
written consent.
3.19 Accounts. As of the date of each Borrowing Base Certificate delivered to
Lender, each Account listed thereon as an Eligible Account shall be an
Eligible Account. Borrower has not made, and will not make, any agreement
with any Account Debtor for any extension of time for the payment of any
Account, any compromise or settlement for less than the full amount thereof,
any release of any Account Debtor from liability therefor, or any deduction
therefrom except a discount or allowance for prompt or early payment allowed
by Borrower in the ordinary course of its business consistent with historical
practice and as previously disclosed to Lender in writing. With respect to the
Accounts pledged as collateral pursuant to any Loan Document (a) the amounts
shown on all invoices, statements and reports which may be delivered to the
Lender with respect thereto are actually and absolutely owing to the relevant
Credit Party as indicated thereon and are not in any way contingent; (b) no
payments have been or shall be made thereon except payments immediately
delivered to the applicable Bank Accounts or the Lender as required hereunder;
and (c) to Borrower's knowledge all Account Debtors have the capacity to
contract. Borrower shall notify Lender promptly of any event or circumstance
which to Borrower's knowledge would cause Lender to consider any then existing
Account as no longer constituting an Eligible Account. If a Default or an
Event of Default shall have occurred and be continuing, Borrower and each
other Credit Party shall within 5 days of Lender's request deliver all
original Chattel Paper to Lender.
3.20 Intentionally omitted]
3.21 Conduct of Business; Maintenance of Existence. Each Corporate Credit
Party (a) shall conduct its business substantially as now conducted or as
otherwise permitted hereunder and preserve all of its rights, privileges and
franchises necessary and desirable in connection therewith, and (b) shall at
all times maintain, preserve and protect all of the Collateral and such Credit
Party's other property, used or useful in the conduct of its business and keep
the same in good repair, working order and condition (taking into
consideration ordinary wear and tear) and from time to time make, or cause to
be made, all necessary or appropriate repairs, replacements and improvements
thereto consistent with industry practices.
3.22 Further Assurances. At any time and from time to time, upon the written
request of Lender and at the sole expense of Borrower, Borrower and each other
Credit Party shall promptly and duly execute and deliver any and all such
further instruments and documents and take such further action as Lender may
reasonably deem desirable (a) to obtain the full benefits of this Agreement
and the other Loan Documents, (b) to protect, preserve and maintain Lender's
rights in the Collateral, or any of it, and under this Agreement, or (c) to
enable Lender to exercise all or any of the rights and powers herein granted.
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3.23 Year 2000 Covenants. If not previously delivered to Lender, on or prior
to January 31, 1999, each Corporate Credit Party shall complete and deliver to
Lender a Year 2000 Assessment, and, if not previously delivered to Lender, on
or prior to February 28, 1999, each Corporate Credit Party shall complete and
deliver to Lender a Year 2000 Corrective Plan. If not previously implemented
as delivered to Lender, on or prior to March 31, 1999, each Corporate Credit
Party shall implement Year 2000 Corrective Actions. On or before April 30,
1999, each Corporate Credit Party shall complete Year 2000 Corrective Actions
and Year 2000 Implementation Testing. On or before May 31, 1999 each Corporate
Credit Party shall eliminate all Year 2000 Problems, except where the failure
to correct the same could not reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate.
3.24 New Accounting Software System. Borrower shall implement a new
accounting software system in form satisfactory to Lender on or prior to
January 31, 1999 and all computer applications (including those of its
suppliers, vendors and customers) that are material to its or any of its
Subsidiaries' business and operations shall on a timely basis be able to
perform properly date-sensitive functions for all dates before and after
January 1, 2000 except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect or result in a
Default or Event of Default.
3.25 Real Estate Documents. Borrower shall deliver executed copies of the
documents set forth on Schedule F-1 on or before January 15, 1999, each in
form and substance satisfactory to Lender.
3.26 Projections. Within 30 days after the Closing Date, Borrower shall
deliver Projections for the next twelve months, starting January 1, 1999, in
form and substance satisfactory to the Lender.
3.27 UCC Termination Statements. Within 10 days after the Closing Date, each
of the Borrower and any other Credit Party executing this Agreement shall
deliver executed copies of UCC termination statements in respect of existing
UCC financing statements filed against the Collateral in favor of any Person
other than Lender.
3.28 Mortgage. In the event Lender is unable for any reason to obtain a
valid and perfected Lien and mortgage on the real property described in the
Mortgage, Borrower shall use its best efforts to cause such Lien and mortgage
to be granted to Lender.
4. FINANCIAL MATTERS; REPORTS
4.1 Reports and Notices. Borrower represents, agrees and promises that from
and after the Closing Date until the Termination Date, Borrower shall deliver
to Lender:
(a) (i) within 15 days following the end of each Fiscal Month, an
Inventory report, in form and substance satisfactory to Lender, and (ii) on
July 31 and January 31 of each year, a detailed Inventory report, in form
and substance satisfactory to Lender accompanied by supporting documentation
as Lender may request in respect of the immediately preceding six months;
(b) as frequently as Lender may request and in any event no later than
15 days following the end of each Fiscal Month, a Borrowing Base Certificate
in the form of Exhibit C as of the last day of the previous Fiscal Month
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detailing ineligible Accounts and Inventory for adjustment to the Borrowing
Base, certified as true and correct by the Chief Financial Officer of Borrower
or such other officer as is acceptable to Lender;
(c) within 15 days following the end of each Fiscal Month, an Accounts
Payable Analysis in the Form of Exhibit D (together with an accounts payable
aging), an Accounts Receivable Roll Forward Analysis in the Form of Exhibit E
and an Unbilled Accounts Receivable Roll Forward Analysis in the Form of
Exhibit E-1, each certified as true and correct by the Chief Financial Officer
of Borrower or such other officer as is acceptable to Lender;
(d) within 30 days following the end of each Fiscal Month, the Financial
Statements for such Fiscal Month, which shall provide comparisons to budget
and actual results for the corresponding period during the prior Fiscal Year,
both on a monthly and year-to-date basis, and accompanied by a certification
in the form of Exhibit J by the Chief Executive Officer or Chief Financial
Officer of Borrower that such Financial Statements are complete and correct,
that there was no Default (or specifying those Defaults of which he or she was
aware), and showing in reasonable detail the calculations used in determining
compliance with the financial covenants hereunder;
(e) within 90 days following the close of each Fiscal Year, the
Financial Statements for such Fiscal Year certified without qualification by
an independent certified accounting firm acceptable to Lender, which shall
provide comparisons to actual results to the prior Fiscal Year, on an annual
basis, and shall be accompanied by (i) a statement in reasonable detail
showing the calculations used in determining compliance with the financial
covenants hereunder, (ii) a report from Borrower's accountants to the effect
that in connection with their audit examination nothing has come to their
attention to cause them to believe that a Default has occurred or specifying
those Defaults of which they are aware, and (iii) any management letter that
may be issued;
(f) not less than 30 days prior to the close of each Fiscal Year, the
Projections, which will be prepared by Borrower in good faith, with care and
diligence, and using assumptions which are reasonable under the circumstances
at the time such Projections are delivered to Lender and disclosed therein
when delivered;
(g) Within 30 days after the Closing Date, a Phase I environmental
report acceptable for commercial real estate purposes with respect to the
Wisconsin Rapids, Wisconsin real property subject to the Mortgage, and in the
event such Phase I environmental report indicates a need for an additional
environmental report, a Phase II environmental report within 10 days of such
occurrence, in each case, in form and substance satisfactory to Lender and
prepared by a firm acceptable to Lender; and
(h) all the reports and other information set forth on Exhibit B in the
time frames set forth therein.
4.2 Financial Covenants. Borrower shall not breach any of the financial
covenants set forth in Schedule G.
4.3 Other Reports and Information. Borrower shall advise Lender promptly, in
reasonable detail, of: (a) any Lien, other than Permitted Encumbrances,
attaching to or asserted against any of the Collateral or any occurrence
causing a material loss or decline in value of any Collateral and the
estimated (or actual, if available) amount of such loss or decline; (b) any
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material change in the composition of the Collateral; and (c) the occurrence
of any Default or other event which has had or could reasonably be expected to
have a Material Adverse Effect. Borrower shall, upon request of Lender,
furnish to Lender such other reports and information in connection with the
affairs, business, financial condition, operations, prospects or management of
Borrower or any other Credit Party or the Collateral as Lender may request,
all in reasonable detail.
5. NEGATIVE COVENANTS
Borrower and each Credit Party executing this Agreement covenants and agrees
(for itself and each other Credit Party) that, without Lender's prior written
consent, from the Closing Date until the Termination Date, neither Borrower
nor any other Corporate Credit Party shall, directly or indirectly, by
operation of law or otherwise:
(a) merge with, consolidate with, acquire all or substantially all of
the assets or capital stock of, or otherwise combine with, any Person or form
any Subsidiary;
(b) except as otherwise permitted in this Section 5 below, make any
investment in, or make or accrue loans or advances of money to, any Person,
except that Borrower may hold investments comprised of notes payable, or stock
or other securities issued by Account Debtors to Borrower pursuant to
negotiated agreements with respect to settlement of such Account Debtors'
Accounts in the ordinary course of business, so long as the aggregate amount
of such Accounts so settled by Borrower in any Fiscal Quarter does not exceed
$50,000 and such notes and securities are delivered to Lender as Collateral;
(c) create, incur, assume or permit to exist any Indebtedness, except:
(i) the Obligations; (ii) Indebtedness other than the Obligations in an
aggregate outstanding amount for all such Credit Parties combined not
exceeding $100,000; (iii) deferred taxes; (iv) the Term Loan; and (v) other
Indebtedness set forth in Disclosure Schedule 5(c));
(d) enter into any lending, borrowing or other commercial transaction
with any of its employees, directors, Affiliates or any other Credit Party
(including upstreaming and downstreaming of cash and intercompany advances and
payments by a Credit Party on behalf of another Credit Party which are not
otherwise permitted hereunder) other than (1) loans or advances to employees
in the ordinary course of business in an aggregate outstanding amount not
exceeding $50,000 or (2) tractor lease agreements with Dan Pixler, Anthony
Huff or their Affiliates providing for aggregate annual payments of not more
than $140,000 per annum provided, in either (1) or (2) of this Section 5(d),
no Default or Event of Default shall have occurred and be continuing;
(e) make any changes in any of its business objectives, purposes, or
operations which could reasonably be expected to adversely affect repayment of
the Obligations or could reasonably be expected to have a Material Adverse
Effect or engage in any business other than that presently engaged in or
proposed to be engaged in the Projections delivered to Lender on the Closing
Date;
(f) amend its charter or by-laws or other organizational documents,
other than amendments to designate the terms of (1) the Series A Preferred
Stock of Borrower currently subject to a $6.0 million private offering and (2)
the Series B Preferred Stock of Borrower proposed to be issued in exchange for
10 million shares of common stock of Borrower;
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(g) incur any Guaranteed Indebtedness except (i) by endorsement of
instruments or items of payment for deposit to the general account of such
Credit Party, and (ii) for Guaranteed Indebtedness incurred for the benefit of
Borrower if the primary obligation is permitted by this Agreement;
(h) create or permit any Lien on any of its properties or assets, except
for Permitted Encumbrances;
(i) sell, transfer, issue, convey, assign or otherwise dispose of any of
its assets or properties, including its Accounts or any shares of its Stock or
engage in any sale-leaseback, synthetic lease or similar transaction,
provided, however, that the foregoing shall not prohibit the (1) sale of
Inventory or obsolete or unnecessary Equipment in the ordinary course of its
business or (2) the sale and issuance of (a) the Series A Preferred Stock of
US Trucking, Inc. identified in Section 5.1(d) hereof, (b) the Series B
Preferred Stock of US Trucking, Inc. identified in Section 5.1(d) hereof, (c)
shares of common stock of US Trucking, Inc. to be issued to holders of such
Series A and Series B Preferred Stock of US Trucking, Inc. in connection with
their respective conversion and exchange rights, and (d) shares of common
stock of U.S. Trucking, Inc. issued pursuant to options granted under the U.S.
Trucking, Inc. 1998 Stock Option Plan and any successor plan;
(j) take any action or omit to take any action, which act or omission
would constitute a material default or an event of default pursuant to, or
noncompliance with, any of its Contractual Obligations;
(k) cancel any debt owing to it, except for cancellation of debt not
constituting Accounts for reasonable consideration and in the ordinary course
of its business consistent with historical practice; or
(l) make or permit any Restricted Payment; or
(m) make or permit payment of a brokerage or placement fee on any date
after the Closing Date if the average daily excess Borrowing Availability for
the immediately preceding 30 days or on such date after giving effect to such
payment is less than $200,000.
6. SECURITY INTEREST
6.1 Grant of Security Interest. (a) As collateral security for the prompt
and complete payment and performance of the Obligations, each of the Borrower
and any other Credit Party executing this Agreement hereby grants to the
Lender a security interest in and Lien upon all of its property and assets,
whether real or personal, tangible or intangible, and whether now owned or
hereafter acquired, or in which it now has or at any time in the future may
acquire any right, title, or interest, including all of the following property
in which it now has or at any time in the future may acquire any right, title
or interest: all Accounts; all bank and deposit accounts and all funds on
deposit therein; all cash and cash equivalents; all commodity contracts; all
investments; all Inventory and Equipment; all Goods; all Chattel Paper,
Documents and Instruments; all Books and Records; all General Intangibles
(including all Intellectual Property, Stock, contract rights, and choses in
action); and to the extent not otherwise included, all Proceeds and products
of all and any of the foregoing and all collateral security and guarantees
given by any Person with respect to any of the foregoing, but excluding in all
events Hazardous Waste (all of the foregoing, together with any other
collateral pledged to the Lender pursuant to any other Loan Document,
collectively, the "Collateral").
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(b) Borrower, Lender and each other Credit Party executing this
Agreement agree that this Agreement creates, and is intended to create, valid
and continuing Liens upon the Collateral in favor of Lender. Borrower and
each other Credit Party executing this Agreement represents, warrants and
promises to Lender that: (i) Borrower and each other Credit Party granting a
Lien in Collateral is the sole owner of each item of the Collateral upon which
it purports to grant a Lien pursuant to the Loan Documents, and has good and
marketable title thereto free and clear of any and all Liens or claims of
others, other than Permitted Encumbrances; (ii) the security interests granted
pursuant to this Agreement, upon completion of the filings and other actions
listed on Disclosure Schedule (6.1) (which, in the case of all filings and
other documents referred to in said Schedule, have been delivered to the
Lender in duly executed form) will constitute valid perfected security
interests in all of the Collateral in favor of the Lender as security for the
prompt and complete payment and performance of the Obligations, enforceable in
accordance with the terms hereof against any and all creditors of and
purchasers from any Credit Party (other than purchasers of Inventory in the
ordinary course of business) and such security interests are prior to all
other Liens on the Collateral in existence on the date hereof except for
Permitted Encumbrances which have priority by operation of law; and (iii) no
effective security agreement, financing statement, equivalent security or Lien
instrument or continuation statement covering all or any part of the
Collateral is or will be on file or of record in any public office, except
those relating to Permitted Encumbrances. Borrower and each other Credit Party
executing this Agreement promise to defend the right, title and interest of
Lender in and to the Collateral against the claims and demands of all Persons
whomsoever, and each shall take such actions, including (x) the prompt
delivery of all original Instruments, Chattel Paper and certificated Stock
owned by Borrower and each other Credit Party granting a Lien on Collateral to
Lender, (y) notification of Lender's interest in Collateral at Lender's
request, and (z) the institution of litigation against third parties as shall
be prudent in order to protect and preserve each Credit Party's and Lender's
respective and several interests in the Collateral. Borrower (and any other
Credit Party granting a Lien in Collateral) shall mark its Books and Records
pertaining to the Collateral to evidence the Loan Documents and the Liens
granted under the Loan Documents. All Chattel Paper shall be marked with the
following legend: "This writing and the obligations evidenced or secured
hereby are subject to the security interest of General Electric Capital
Corporation."
(c) Lender shall release the lien and mortgage on the real property
described in the Mortgage on the date when (1) the average daily excess
Borrowing Availability for the immediately preceding six months is at least
$250,000 and (2) as at the end of each of the immediately preceding four
Fiscal Quarters, Borrower has maintained a Fixed Charge Coverage Ratio of not
less than 1.25:1.0.
6.2 Lender's Rights. (a) Lender may, (i) at any time in Lender's own name or
in the name of Borrower, communicate with Account Debtors, parties to
Contracts, and obligors in respect of Instruments, Chattel Paper or other
Collateral to verify to Lender's satisfaction, the existence, amount and terms
of any such Accounts, Contracts, Instruments or Chattel Paper or other
Collateral, and (ii) at any time and without prior notice to Borrower or any
other Credit Party, notify Account Debtors, parties to Contracts, and obligors
in respect of Chattel Paper, Instruments, or other Collateral that the
Collateral has been assigned to Lender and that payments shall be made
directly to Lender. Upon the request of Lender, Borrower shall so notify such
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Account Debtors, parties to Contracts, and obligors in respect of Instruments,
Chattel Paper or other Collateral. Borrower hereby constitutes Lender or
Lender's designee as Borrower's attorney with power to endorse Borrower's name
upon any notes, acceptance drafts, money orders or other evidences of payment
or Collateral.
(b) It is expressly agreed by Borrower that, notwithstanding anything
herein to the contrary, Borrower shall remain liable under each Contract,
Instrument and License to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, and Lender shall
have no obligation or liability whatsoever to any Person under any Contract,
Instrument or License (between Borrower or any other Credit Party and any
Person other than Lender) by reason of or arising out of the execution,
delivery or performance of this Agreement, and Lender shall not be required or
obligated in any manner (i) to perform or fulfill any of the obligations of
Borrower, (ii) to make any payment or inquiry, or (iii) to take any action of
any kind to collect or enforce any performance or the payment of any amounts
which may have been assigned to it or to which it may be entitled at any time
or times under or pursuant to any Contract, Instrument or License.
(c) Borrower and each other Credit Party shall, with respect to each
owned, leased, or controlled property or facility, during normal business
hours and upon reasonable advance notice (unless a Default shall have occurred
and be continuing, in which event no notice shall be required and Lender shall
have access at any and all times): (i) provide access to such facility or
property to Lender and any of its officers, employees and agents, as
frequently as Lender determines to be appropriate; (ii) permit Lender and any
of its officers, employees and agents to inspect, audit and make extracts from
all of Borrower's and such Credit Party's Books and Records; and (iii) permit
Lender to inspect, review, evaluate and make physical verifications and
appraisals of the Inventory and other Collateral in any manner and through any
medium that Lender considers advisable, and Borrower and such Credit Party
agree to render to Lender, at Borrower's and such Credit Party's cost and
expense, such clerical and other assistance as may be reasonably requested
with regard thereto. Borrower and each other Credit Party shall make
available to Lender and its counsel, as quickly as practicable under the
circumstances, originals or copies of all Borrower's and such Credit Party's
Books and Records and any other instruments and documents which Lender may
request. Borrower shall deliver any document or instrument reasonably
necessary for Lender, as it may from time to time request, to obtain records
from any service bureau or other Person which maintains records for Borrower
or any other Credit Party.
(d) After the occurrence and during the continuance of a Default,
Borrower, at its own expense, shall cause the certified public accountant then
engaged by Borrower to prepare and deliver to Lender at any time and from time
to time, promptly upon Lender's request, the following reports: (i) a
reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial
balances; and (iv) test verifications of such Accounts as Lender may request.
Borrower, at its own expense, shall cause its certified independent public
accountants to deliver to Lender the results of any physical verifications of
all or any portion of the Inventory made or observed by such accountants when
and if such verification is conducted. Lender shall be permitted to observe
and consult with Borrower's accountants in the performance of these tasks.
6.3 Lender's Appointment as Attorney-in-fact. On the Closing Date, Borrower
and each other Credit Party executing this Agreement shall execute and deliver
a Power of Attorney in the form attached as Exhibit I. The power of attorney
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granted pursuant to the Power of Attorney and all powers granted under any
Loan Document are powers coupled with an interest and shall be irrevocable
until the Termination Date. The powers conferred on Lender under the Power of
Attorney are solely to protect Lender's interests in the Collateral and shall
not impose any duty upon it to exercise any such powers. Lender agrees and
promises that (a) it shall not exercise any power or authority granted under
the Power of Attorney unless an Event of Default has occurred and is
continuing, (b) Lender shall only exercise the powers granted under the Power
of Attorney in respect of Collateral, provided, except as otherwise required
by applicable law, Lender shall not have any duty as to any Collateral, and
Lender shall be accountable only for amounts that it actually receives as a
result of the exercise of such powers. NONE OF LENDER OR ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO
BORROWER OR ANY OTHER CREDIT PARTY FOR ANY ACT OR FAILURE TO ACT PURSUANT TO
THE POWERS GRANTED UNDER THE POWER OF ATTORNEY OR OTHERWISE, EXCEPT FOR ITS OR
THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, NOR FOR ANY PUNITIVE,
EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES. Borrower and each other Credit
Party executing this Agreement also hereby authorizes Lender to file any
financing or continuation statement without the signature of Borrower or such
Credit Party to the extent permitted by applicable law.
6.4 Grant of License to Use Intellectual Property Collateral. For the
purpose of enabling Lender to exercise its rights and remedies under the Loan
Documents, Borrower and each other Credit Party executing this Agreement
hereby grants to Lender an irrevocable, non-exclusive license (exercisable
upon the occurrence and during the continuance of an Event of Default without
payment of royalty or other compensation to Borrower or such Credit Party) to
use, transfer, license or sublicense any Intellectual Property now owned,
licensed to, or hereafter acquired by Borrower or such Credit Party, and
wherever the same may be located, and including in such license access to all
media in which any of the licensed items may be recorded or stored and to all
computer and automatic machinery software and programs used for the
compilation or printout thereof, and represents, promises and agrees that any
such license or sublicense is not and will not be in conflict with the
contractual or commercial rights of any third Person; provided, that such
license will terminate on the Termination Date.
7. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
7.1 Events of Default. The occurrence of any one or more of the following
events (regardless of the reason therefor) shall constitute an "Event of
Default" hereunder which shall be deemed to be continuing until waived in
writing by Lender in accordance with Section 9.3:
(a) Borrower shall fail to make any payment in respect of any
Obligations when due and payable or declared due and payable; or
(b) Borrower or any other Credit Party shall fail or neglect to perform,
keep or observe any of the covenants, promises, agreements, requirements,
conditions or other terms or provisions contained in this Agreement or any of
the other Loan Documents, regardless of whether such breach involves a
covenant, promise, agreement, condition, requirement, term or provision with
respect to a Credit Party that has not signed this Agreement; or
(c) an event of default shall occur under any Contractual Obligation of
the Borrower or any other Credit Party (other than this Agreement and the
other Loan Documents), and such event of default (i) involves the failure to
make any payment (whether or not such payment is blocked), whether of
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principal, interest or otherwise, and whether due by scheduled maturity,
required prepayment, acceleration, demand or otherwise, in respect of any
Indebtedness (other than the Obligations) of such Person in an aggregate
amount exceeding the Minimum Actionable Amount, or (ii) causes (or permits any
holder of such Indebtedness or a trustee to cause) such Indebtedness, or a
portion thereof, in an aggregate amount exceeding the Minimum Actionable
Amount to become due prior to its stated maturity or prior to its regularly
scheduled dates of payment; or
(d) any representation or warranty in this Agreement or any other Loan
Document, or in any written statement pursuant hereto or thereto, or in any
report, financial statement or certificate made or delivered to Lender by
Borrower or any other Credit Party shall be untrue or incorrect as of the date
when made, regardless of whether such breach involves a representation or
warranty with respect to a Credit Party that has not signed this Agreement; or
(e) there shall be commenced against the Borrower or any other Credit
Party any Litigation seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its assets
which results in the entry of an order for any such relief which remains
unstayed or undismissed for thirty (30) consecutive days; or Borrower or any
other Credit Party shall have concealed, removed or permitted to be concealed
or removed, any part of its property with intent to hinder, delay or defraud
its creditors or any of them or made or suffered a transfer of any of its
property or the incurring of an obligation which may be fraudulent under any
bankruptcy, fraudulent transfer or other similar law; or
(f) a case or proceeding shall have been commenced involuntarily against
Borrower or any other Credit Party in a court having competent jurisdiction
seeking a decree or order: (i) under the United States Bankruptcy Code or any
other applicable Federal, state or foreign bankruptcy or other similar law,
and seeking either (x) the appointment of a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) for such Person or of
any substantial part of its properties, or (y) the reorganization or winding
up or liquidation of the affairs of any such Person, and such case or
proceeding shall remain undismissed or unstayed for sixty (60) consecutive
days or such court shall enter a decree or order granting the relief sought in
such case or proceeding; or (ii) invalidating or denying any Person's right,
power, or competence to enter into or perform any of its obligations under any
Loan Document or invalidating or denying the validity or enforceability of
this Agreement or any other Loan Document or any action taken hereunder or
thereunder; or
(g) Borrower or any other Credit Party shall (i) commence any case,
proceeding or other action under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, conservatorship or relief of debtors, seeking to have an order
for relief entered with respect to it or seeking appointment of a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official)
for it or any substantial part of its properties, (ii) make a general
assignment for the benefit of creditors, (iii) consent to or take any action
in furtherance of, or, indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in paragraphs (e) or (f) of this Section 7.1 or
clauses (i) and (ii) of this paragraph (g), or (iv) shall admit in writing its
inability to, or shall be generally unable to, pay its debts as such debts
become due; or
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(h) a final judgment or judgments for the payment of money in excess of
the Minimum Actionable Amount in the aggregate shall be rendered against
Borrower or any other Credit Party, unless the same shall be (i) fully covered
by insurance and the issuer(s) of the applicable policies shall have
acknowledged full coverage in writing within fifteen (15) days of judgment, or
(ii) vacated, stayed, bonded, paid or discharged within a period of fifteen
(15) days from the date of such judgment; or
(i) any other event shall have occurred which has had or could
reasonably be expected to have a Material Adverse Effect and Lender shall have
given Borrower notice thereof; or
(j) (i) any material provision of any Loan Document as determined by
Lender in its sole discretion shall for any reason cease to be valid, binding
and enforceable in accordance with its terms, or (ii) any Lien granted, or
intended by the Loan Documents to be granted, to Lender shall cease to be a
valid and perfected Lien having the first priority (or a lesser priority if
expressly permitted in the Loan Documents) in any of the Collateral; or
(k) a Change of Control shall have occurred with respect to any
Corporate Credit Party.
7.2 Remedies. (a) If any Default shall have occurred and be continuing, then
Lender may terminate or suspend its obligation to make further Revolving
Credit Advances and to incur additional Letter of Credit Obligations. In
addition, if any Event of Default shall have occurred and be continuing,
Lender may, without notice, take any one or more of the following actions: (i)
declare all or any portion of the Obligations to be forthwith due and payable,
including contingent liabilities with respect to Letter of Credit Obligations,
whereupon such Obligations shall become and be due and payable; (ii) require
that all Letter of Credit Obligations be fully cash collateralized pursuant to
Schedule C; or (iii) exercise any rights and remedies provided to Lender under
the Loan Documents or at law or equity, including all remedies provided under
the Code; provided, that upon the occurrence of any Event of Default specified
in Sections 7.1 (e), (f), (g) or (j) (ii), the Obligations shall become
immediately due and payable (and any obligation of Lender to make further
Loans, if not previously terminated, shall immediately be terminated) and the
Obligations shall automatically begin to accrue interest at the Default Rate,
in each case, without declaration, notice or demand by Lender.
(b) Without limiting the generality of the foregoing, Borrower and each
other Credit Party executing this Agreement expressly agrees that upon the
occurrence of any Event of Default, Lender may collect, receive, assemble,
process, appropriate and realize upon the Collateral, or any part thereof, and
may forthwith sell, lease, assign, give an option or options to purchase or
otherwise dispose of and deliver said Collateral (or contract to do so), or
any part thereof, in one or more parcels at public or private sale or sales,
at any exchange at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk. Lender shall have
the right upon any such public sale or sales and, to the extent permitted by
law, upon any such private sale or sales, to purchase for the benefit of
Lender the whole or any part of said Collateral so sold, free of any right or
equity of redemption, which equity of redemption Borrower and each other
Credit Party executing this Agreement hereby releases. Such sales may be
adjourned, or continued from time to time with or without notice. Lender
shall have the right to conduct such sales on any Credit Party's premises or
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elsewhere and shall have the right to use any Credit Party's premises without
rent or other charge for such sales or other action with respect to the
Collateral for such time or times as Lender deems necessary or advisable.
(c) Borrower and each other Credit Party executing this Agreement
further agrees, upon the occurrence and during the continuance of an Event of
Default and at Lender's request, to assemble the Collateral and make it
available to Lender at places which Lender shall reasonably select, whether at
its premises or elsewhere. Until Lender is able to effect a sale, lease, or
other disposition of the Collateral, Lender shall have the right to complete,
assemble, use or operate the Collateral or any part thereof, to the extent
that Lender deems appropriate, for the purpose of preserving such Collateral
or its value or for any other purpose. Lender shall have no obligation to any
Credit Party to maintain or preserve the rights of any Credit Party as against
third parties with respect to any Collateral while such Collateral is in the
possession of Lender. Lender may, if it so elects, seek the appointment of a
receiver or keeper to take possession of any Collateral and to enforce any of
Lender's remedies with respect to such appointment without prior notice or
hearing. To the maximum extent permitted by applicable law, Borrower and each
other Credit Party executing this Agreement waives all claims, damages, and
demands against Lender, its Affiliates, agents, and the officers and employees
of any of them arising out of the repossession, retention or sale of any
Collateral except such as are determined in a final judgment by a court of
competent jurisdiction to have arisen solely out of the gross negligence or
willful misconduct of such Person. Borrower and each other Credit Party
executing this Agreement agrees that ten (10) days prior notice by Lender to
such Credit Party of the time and place of any public sale or of the time
after which a private sale may take place is reasonable notification of such
matters. Borrower and each other Credit Party shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Lender is entitled.
(d) Lender's rights and remedies under this Agreement shall be
cumulative and nonexclusive of any other rights and remedies which Lender may
have under any Loan Document or at law or in equity. Recourse to the
Collateral shall not be required. All provisions of this Agreement are
intended to be subject to all applicable mandatory provisions of law that may
be controlling and to be limited, to the extent necessary, so that they do not
render this Agreement invalid or unenforceable, in whole or in part.
7.3 Waivers by Credit Parties. Except as otherwise provided for in this
Agreement and to the fullest extent permitted by applicable law, Borrower and
each other Credit Party executing this Agreement waives: (a) presentment,
demand and protest, and notice of presentment, dishonor, intent to accelerate,
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all Loan Documents, the Notes or
any other notes, commercial paper, Accounts, Contracts, Documents,
Instruments, Chattel Paper and guaranties at any time held by Lender on which
such Credit Party may in any way be liable, and hereby ratifies and confirms
whatever Lender may do in this regard; (b) all rights to notice and a hearing
prior to Lender's taking possession or control of, or to Lender's replevy,
attachment or levy upon, any Collateral or any bond or security which might be
required by any court prior to allowing Lender to exercise any of its
remedies; and (c) the benefit of all valuation, appraisal and exemption laws.
Borrower and each other Credit Party executing this Agreement acknowledges
that it has been advised by counsel of its choices and decisions with respect
to this Agreement, the other Loan Documents and the transactions evidenced
hereby and thereby.
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7.4 Proceeds. The Proceeds of any sale, disposition or other realization upon
any Collateral shall be applied by Lender upon receipt, in the following order
of priorities: first, to reimburse or pay in full the actual expenses of
Lender incurred in connection with such sale, disposition or other
realization, including all other expenses, liabilities and advances incurred
or made by Lender in connection therewith; second, to the other Obligations in
such order as the Lender may deem advisable; third, to cash collateralize any
outstanding Letter of Credit Obligations pursuant to Schedule C; and finally,
after the indefeasible payment and satisfaction in full in cash of all of the
Obligations, and after the payment by Lender of any other amount required by
any provision of law, including Section 9-504(1)(c) of the Code (but only
after Lender has received what Lender considers reasonable proof of a
subordinate party's security interest), the surplus, if any, to Borrower or
its representatives or to whomsoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.
8. SUCCESSORS AND ASSIGNS
Each Loan Document shall be binding on and shall inure to the benefit of
Borrower and each other Credit Party executing such Loan Document, Lender, and
their respective successors and assigns, except as otherwise provided herein
or therein. Neither Borrower nor any other Credit Party may assign, transfer,
hypothecate, delegate or otherwise convey its rights, benefits, obligations or
duties under any Loan Document without the prior express written consent of
Lender. Any such purported assignment, transfer, hypothecation, delegation or
other conveyance by Borrower or such Credit Party without the prior express
written consent of Lender shall be void. The terms and provisions of this
Agreement and the other Loan Documents are for the purpose of defining the
relative rights and obligations of Borrower, the other Credit Parties and
Lender with respect to the transactions contemplated hereby and thereby, and
there shall be no third party beneficiaries of any of the terms and provisions
of any of the Loan Documents. Lender reserves the right at any time to create
and sell participations in the Loans and the Loan Documents and to sell,
transfer or assign any or all of its rights in the Loans and under the Loan
Documents.
9. MISCELLANEOUS
9.1 Complete Agreement; Modification of Agreement. This Agreement and the
other Loan Documents constitute the complete agreement between the parties
with respect to the subject matter hereof and thereof, supersede all prior
agreements, commitments, understandings or inducements (oral or written,
expressed or implied), and no Loan Document may be modified, altered or
amended except by a written agreement signed by Lender, and each other Credit
Party a party to such Loan Document. Borrower and each other Credit Party
executing this Agreement or any other Loan Document shall have all duties and
obligations under this Agreement and such other Loan Documents from the date
of its execution and delivery, regardless of whether the initial Loan has been
funded at that time.
9.2 Expenses. Borrower agrees to pay or reimburse Lender for all costs and
expenses incurred in connection with: (a) the preparation, negotiation,
execution, delivery, performance and enforcement of the Loan Documents and the
preservation of any rights thereunder; (b) collection (including the fees and
expenses of all special counsel, advisors, consultants (including
environmental and management consultants) and auditors retained in connection
therewith), including deficiency collections; (c) the forwarding to Borrower
or any other Person on behalf of Borrower by Lender of the proceeds of any
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Loan (including a wire transfer fee of $15 per wire transfer); (d) any
amendment, extension, modification or waiver of, or consent with respect to
any Loan Document or advice in connection with the administration of the Loans
or the rights thereunder; (e) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by or between any combination of
Lender, Borrower or any other Person or Persons), and an appeal or review
thereof, in any way relating to the Collateral, any Loan Document, or any
action taken or any other agreements to be executed or delivered in connection
therewith, whether as a party, witness or otherwise; and (f) any effort (i) to
monitor the Loans, (ii) to evaluate, observe or assess Borrower or any other
Credit Party or the affairs of such Person, and (iii) to verify, protect,
evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of
the Collateral including the following with respect to all of the foregoing
provisions of this Section 9.2: the fees, costs and expenses of attorneys,
accountants, environmental advisors, appraisers, investment bankers,
management and other consultants, and paralegals; court costs and expenses;
photocopying and duplicating expenses; court reporter fees, costs and
expenses; long distance telephone charges; air express charges; telegram
charges; secretarial overtime charges; and expenses for travel, lodging and
food paid or incurred in connection therewith.
9.3 No Waiver. Neither Lender's failure, at any time or times, to require
strict performance by Borrower or any other Credit Party of any provision of
any Loan Document, nor Lender's failure to exercise, nor any delay in
exercising, any right, power or privilege hereunder, (a) shall waive, affect
or diminish any right of Lender thereafter to demand strict compliance and
performance therewith, or (b) shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or future exercise thereof or the exercise of any other right, power or
privilege. Any suspension or waiver of a Default or other provision under the
Loan Documents shall not suspend, waive or affect any other Default under any
Loan Document, whether the same is prior or subsequent thereto and whether of
the same or of a different type, and shall not be construed as a bar to any
right or remedy which Lender would otherwise have had on any future occasion.
None of the undertakings, indemnities, agreements, warranties, covenants and
representations of Borrower or any other Credit Party to Lender contained in
any Loan Document and no Default by Borrower or any other Credit Party under
any Loan Document shall be deemed to have been suspended or waived by Lender,
unless such waiver or suspension is by an instrument in writing signed by an
officer or other authorized employee of Lender and directed to Borrower
specifying such suspension or waiver (and then such waiver shall be effective
only to the extent therein expressly set forth), and Lender shall not, by any
act (other than execution of a formal written waiver), delay, omission or
otherwise, be deemed to have waived any of its rights or remedies hereunder.
9.4 Severability. Wherever possible, each provision of the Loan Documents
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of any Loan Document shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of such Loan Document. Except
as otherwise expressly provided for in the Loan Documents, no termination or
cancellation (regardless of cause or procedure) of any financing arrangement
under the Loan Documents shall in any way affect or impair the Obligations,
duties, covenants, representations and warranties, indemnities, and
liabilities of Borrower or any other Credit Party or the rights of Lender
relating to any unpaid Obligation, (due or not due, liquidated, contingent or
unliquidated), or any transaction or event occurring prior to such
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termination, or any transaction or event, the performance of which is not
required until after the Commitment Termination Date, all of which shall not
terminate or expire, but rather shall survive such termination or cancellation
and shall continue in full force and effect until the Termination Date;
provided, that all indemnity obligations of the Credit Parties under the Loan
Documents shall survive the Termination Date.
9.5 Conflict of Terms. Except as otherwise provided in any Loan Document by
specific reference to the applicable provisions of this Agreement, if any
provision contained in this Agreement is in conflict with, or inconsistent
with, any provision in any other Loan Document, the provision contained in
this Agreement shall govern and control.
9.6 Authorized Signature. Until Lender shall be notified in writing by
Borrower or any other Credit Party to the contrary, the signature upon any
document or instrument delivered pursuant hereto and believed by Lender or any
of Lender's officers, agents, or employees to be that of an officer of
Borrower or such other Credit Party listed in the Secretarial Certificate in
the form of Exhibit H shall bind Borrower and such other Credit Party and be
deemed to be the act of Borrower or such other Credit Party affixed pursuant
to and in accordance with resolutions duly adopted by Borrower's or such other
Credit Party's Board of Directors, and Lender shall be entitled to assume the
authority of each signature and authority of the person whose signature it is
or appears to be unless the person acting in reliance of such signature shall
have actual knowledge of the fact that such signature is false or the person
whose signature or purported signature is presented is without authority.
9.7 Notices. Except as otherwise provided herein, whenever any notice,
demand, request, consent, approval, declaration or other communication shall
or may be given to or served upon any party by any other party, or whenever
any party desires to give or serve upon any other party any communication with
respect to this Agreement, each such notice, demand, request, consent,
approval, declaration or other communication shall be in writing and shall be
deemed to have been validly served, given or delivered (a) upon the earlier of
actual receipt and three (3) days after deposit in the United States Mail,
registered or certified mail, return receipt requested, with proper postage
prepaid, (b) upon transmission, when sent by telecopy or other similar
facsimile transmission (with such telecopy or facsimile promptly confirmed by
delivery of a copy by personal delivery or United States Mail as otherwise
provided in this Section 9.7), (c) one (1) Business Day after deposit with a
reputable overnight courier with all charges prepaid or (d) when
hand-delivered, all of which shall be addressed to the party to be notified
and sent to the address or facsimile number indicated in Schedule B or to such
other address (or facsimile number) as may be substituted by notice given as
herein provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Failure or delay in
delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to any Person (other than Borrower or
Lender) designated in Schedule B to receive copies shall in no way adversely
affect the effectiveness of such notice, demand, request, consent, approval,
declaration or other communication.
9.8 Section Titles. The Section titles and Table of Contents contained in
any Loan Document are and shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreement between the parties
hereto.
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9.9 Counterparts. Any Loan Document may be executed in any number of separate
counterparts by any one or more of the parties thereto, and all of said
counterparts taken together shall constitute one and the same instrument.
9.10 Time of the Essence. Time is of the essence for performance of the
Obligations under the Loan Documents.
9.11 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE
LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS ARISING UNDER
THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF New York APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF
REGARDING CONFLICTS OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.
9.12 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. (A) BORROWER AND EACH
OTHER CREDIT PARTY EXECUTING THIS AGREEMENT HEREBY CONSENT AND AGREE THAT THE
STATE OR FEDERAL COURTS LOCATED IN New York SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND SUCH CREDIT
PARTY AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY
OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT LENDER, BORROWER AND SUCH CREDIT
PARTY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A
COURT LOCATED OUTSIDE OF New York; AND FURTHER PROVIDED, THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER.
BORROWER AND EACH OTHER CREDIT PARTY EXECUTING THIS AGREEMENT EXPRESSLY SUBMIT
AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN
ANY SUCH COURT, AND BORROWER AND SUCH CREDIT PARTY HEREBY WAIVE ANY OBJECTION
WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS. BORROWER AND EACH OTHER CREDIT PARTY EXECUTING THIS
AGREEMENT HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO BORROWER OR SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN
SCHEDULE B OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF BORROWER'S OR SUCH CREDIT PARTY'S ACTUAL RECEIPT
THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID.
(B) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION,
THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT,
OR OTHERWISE BETWEEN LENDER, BORROWER AND ANY CREDIT PARTY ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED
THERETO.
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9.13 Press Releases. Each Credit Party executing this Agreement agrees that
neither it nor its Affiliates will in the future issue any press release or
other public disclosure using the name of GE Capital or its affiliates or
referring to this Agreement or the other Loan Documents without at least two
(2) Business Days' prior notice to GE Capital and without the prior written
consent of GE Capital unless (and only to the extent that) such Credit Party
or Affiliate is required to do so under law and then, in any event, such
Credit Party or Affiliate will consult with GE Capital before issuing such
press release or other public disclosure, provided that no such prior
consultation shall be required with respect to any such press release or
public disclosure made pursuant to the rules promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934 or the
Securities Act of 1933.
Each Credit Party consents to the publication by Lender of a tombstone or
similar advertising material relating to the financing transactions
contemplated by this Agreement.
9.14 Reinstatement. This Agreement shall continue to be effective, or be
reinstated, as the case may be, if at any time payment of all or any part of
the Obligations is rescinded or must otherwise be returned or restored by the
Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower or any other Credit Party, or otherwise, all as
though such payments had not been made.
IN WITNESS WHEREOF, this Loan and Security Agreement has been duly executed as
of the date first written above.
GULF NORTHERN TRANSPORT, INC.
By:/s/ Danny Pixler
Name: Danny Pixler
Title: Chief Executive Officer
U.S. TRUCKING, INC. (NEVADA)
By:/s/ Danny Pixler
Name: Danny Pixler
Title: President
U.S. TRUCKING, INC. (COLORADO)
By:/s/ Danny Pixler
Name: Danny Pixler
Title: President and CEO
MENCOR, INC.
By:/s/ Danny Pixler
Name: Danny Pixler
Title: President
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GENERAL ELECTRIC CAPITAL CORPORATION
By:/s/ James DeSantis
Name: James DeSantis
Title: Duly Authorized Signatory
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SCHEDULE A - DEFINITIONS
Capitalized terms used in this Agreement and the other Loan Documents shall
have (unless otherwise provided elsewhere in this Agreement or in the other
Loan Documents) the following respective meanings:
"Account Debtor" shall mean any Person who is or may become obligated with
respect to, or on account of, an Account.
"Accounts" shall mean all "accounts," as such term is defined in the Code, now
owned or hereafter acquired by any Person, including: (i) all accounts
receivable, other receivables, book debts and other forms of obligations
(other than forms of obligations evidenced by Chattel Paper, Documents or
Instruments), whether arising out of goods sold or services rendered or from
any other transaction (including any such obligations which may be
characterized as an account or contract right under the Code); (ii) all of
such Person's rights in, to and under all purchase orders or receipts for
goods or services; (iii) all of such Person's rights to any goods represented
by any of the foregoing (including unpaid sellers' rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned,
reclaimed or repossessed goods); (iv) all moneys due or to become due to such
Person under all purchase orders and contracts for the sale of goods or the
performance of services or both by such Person or in connection with any other
transaction (whether or not yet earned by performance on the part of such
Person), including the right to receive the proceeds of said purchase orders
and contracts; and (v) all collateral security and guarantees of any kind
given by any other Person with respect to any of the foregoing.
"Accounts Payable Analysis" shall mean a certificate in the form of Exhibit D
"Accounts Receivable Roll Forward Analysis" shall mean a certificate in the
form of Exhibit E.
"Affiliate" shall mean, with respect to any Person: (i) each other Person
that, directly or indirectly, owns or controls, whether beneficially, or as a
trustee, guardian or other fiduciary, five percent (5%) or more of the Stock
having ordinary voting power for the election of directors of such Person;
(ii) each other Person that controls, is controlled by or is under common
control with such Person or any Affiliate of such Person; or (iii) each of
such Person's officers, directors, joint venturers and partners. For the
purpose of this definition, "control" of a Person shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of its
management or policies, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" shall mean this Agreement including all Appendices attached or
otherwise identified thereto, restatements and modifications and supplements
thereto, and any appendices, exhibits or schedules to any of the foregoing,
and shall refer to this Agreement as the same may be in effect at the time
such reference becomes operative; provided, that except as specifically set
forth in this Agreement, any reference to the Disclosure Schedules to this
Agreement shall be deemed a reference to the Disclosure Schedules as in effect
on the Closing Date or in a written amendment thereto executed by Borrower and
Lender.
"Appendices" shall have the meaning assigned to it in the Recitals of this
Agreement.
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"Bank Account Agreements" shall mean the Lockbox Account Agreements.
"Books and Records" shall mean all books, records, board minutes, contracts,
licenses, insurance policies, environmental audits, business plans, files,
computer files, computer discs and other data and software storage and media
devices, accounting books and records, financial statements (actual and pro
forma), filings with Governmental Authorities and any and all records and
instruments relating to the Collateral.
"Borrower" shall mean the Person identified as such in the preamble of this
Agreement.
"Borrowing Availability" shall mean, at any time, the lesser of (i) the
Maximum Amount or (ii) the Borrowing Base, in each case less reserves
established by Lender from time to time.
"Borrowing Base" shall mean at any time an amount equal to the sum at such
time of: (i) eighty five percent (85%) (less reserves established by Lender
pursuant to Section 1.13) of the value (as determined by Lender) of Borrower's
Eligible Accounts (other than Eligible Unbilled Accounts) and (ii) 65% (less
reserves established by Lender pursuant to Section 1.13) of the value (as
determined by Lender) of Borrower's Eligible Unbilled Accounts subject to an
aggregate amount equal to $250,000; provided that (1) Lender (without limiting
its rights to otherwise reduce the foregoing percentage) shall reduce the
foregoing percentage by one percentage point for each percentage point that
the dilution of Borrower's Accounts (calculated as the average dilution from
the Accounts Receivable Roll Forward Analysis over the most recent three
months exceeds 3%, less the unreimbursed face amount of any Letter of Credit
Obligations, and (2) Lender reserves the right to adjust the percentage
identified in (ii) above in the event it determines that it is not satisfied
with the environmental condition of the Wisconsin Rapids, Wisconsin, real
property.
"Borrowing Base Certificate" shall mean a certificate in the form of Exhibit
C.
"Business Day" shall mean any day that is not a Saturday, a Sunday or a day on
which banks are required or permitted to be closed in the State of New York.
"CAF" shall mean Commercial Asset Funding, a division of General Electric
Capital Corporation.
"Capital Expenditures" shall mean all payments or accruals (including Capital
Lease Obligations) for any fixed assets or improvements or for replacements,
substitutions or additions thereto, that have a useful life of more than one
year and that are required to be capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person or otherwise would be
disclosed as such in a note to such balance sheet, other than, in the case of
Borrower, any such lease under which Borrower is the lessor.
"Capital Lease Obligation" shall mean, with respect to any Capital Lease, the
amount of the obligation of the lessee thereunder that, in accordance with
GAAP, would appear on a balance sheet of such lessee in respect of such
Capital Lease or otherwise be disclosed in a note to such balance sheet.
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"Cash Collateral Account" shall have the meaning assigned to it in Schedule
C.
"Change of Control" shall mean, with respect to any Person on or after the
Closing Date (i) that any Person or "group" shall increase its "beneficial
ownership" (as such terms are defined under Section 13d-3 of and Regulation
13D under the Securities Exchange Act of 1934) either directly or indirectly,
by more than ten percent (10%) of the outstanding shares of Stock of such
Person having the right to vote for the election of directors of such Person
under ordinary circumstances, (ii) that any change in the composition of its
stockholders as of the Closing Date shall occur which would result in any
stockholder or group acquiring 49.9% or more of any class of Stock of such
Person, or (iii) that any Person (or group of Persons acting in concert)
shall otherwise acquire the power to direct the management or affairs of such
Person by obtaining proxies, entering into voting agreements or trusts,
acquiring securities or otherwise.
"Charges" shall mean all Federal, state, county, city, municipal, local,
foreign or other governmental taxes (including taxes owed to PBGC at the time
due and payable), levies, assessments, charges, liens, and all additional
charges, interest, penalties, expenses, claims or encumbrances upon or
relating to (i) the Collateral, (ii) the Obligations, (iii) the employees,
payroll, income or gross receipts of any Credit Party, (iv) the ownership or
use of any assets by any Credit Party, or (v) any other aspect of any Credit
Party's business.
"Chattel Paper" shall mean all "chattel paper," as such term is defined in the
Code, now owned or hereafter acquired by any Person, wherever located.
"Closing Date" shall mean the Business Day on which the conditions precedent
set forth in Section 2 have been satisfied or specifically waived in writing
by Lender, and the initial Loan has been made.
"Closing Fee" shall have the meaning assigned to it in Schedule E.
"Code" shall mean the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York; provided, that in the event that,
by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Lender's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "Code" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection or priority and for
purposes of definitions related to such provisions.
"Collateral" shall have the meaning assigned to it in Section 6.1.
"Collection Account" shall mean that certain account of Lender, account number
50-232-854 in the name of GECC CAF Depository at Bankers Trust Company, 1
Bankers Trust Plaza, New York, New York, ABA number 021-001-033.
"Commitment Termination Date" shall mean the earliest of (i) the Stated Expiry
Date, (ii) the date Lender's obligation to advance funds is terminated
pursuant to Section 7.2, and (iii) the date of indefeasible prepayment in full
by Borrower of the Obligations in accordance with the provisions of Section
1.2(c).
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"Contracts" shall mean all the contracts, undertakings, or agreements (other
than rights evidenced by Chattel Paper, Documents or Instruments) in or under
which any Person may now or hereafter have any right, title or interest,
including any agreement relating to the terms of payment or the terms of
performance of any Account.
"Contractual Obligation" shall mean as to any Person, any provision of any
security issued by such Person or of any agreement, instrument, or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Copyright License" shall mean rights under any written agreement now owned or
hereafter acquired by any Person granting the right to use any Copyright or
Copyright registration.
"Copyrights" shall mean all of the following now owned or hereafter acquired
by any Person: (i) all copyrights in any original work of authorship fixed
in any tangible medium of expression, now known or later developed, all
registrations and applications for registration of any such copyrights in the
United States or any other country, including registrations, recordings and
applications, and supplemental registrations, recordings, and applications in
the United States Copyright Office; and (ii) all Proceeds of the foregoing,
including license royalties and proceeds of infringement suits, the right to
sue for past, present and future infringements, all rights corresponding
thereto throughout the world and all renewals and extensions thereof.
"Corporate Credit Party" shall mean any Credit Party that is a corporation.
"Credit Party" shall mean Borrower, and each other Person (other than Lender)
that is or may become a party to this Agreement or any other Loan Document.
"Default" shall mean any Event of Default or any event which, with the passage
of time or notice or both, would, unless cured or waived, become an Event of
Default.
"Default Rate" shall have the meaning assigned to it in Section 1.5(d).
"Documents" shall mean all "documents," as such term is defined in the Code,
now owned or hereafter acquired by any Person, wherever located, including all
bills of lading, dock warrants, dock receipts, warehouse receipts, and other
documents of title, whether negotiable or non-negotiable.
"Eligible Accounts" shall mean as at the date of determination, all Accounts
of the Borrower except any Account:
(a) that does not arise from the sale of goods or the performance of
services by Borrower in the ordinary course of Borrower's business;
(b) upon which (i) Borrower's right to receive payment is not absolute
or is contingent upon the fulfillment of any condition whatsoever or (ii)
Borrower is not able to bring suit or otherwise enforce its remedies against
the Account Debtor through judicial process;
(c) against which any defense, counterclaim or setoff, whether
well-founded or otherwise, is asserted or which is a "contra" Account;
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(d) that is not a true and correct statement of a bona fide indebtedness
incurred in the amount of the Account for merchandise sold or services
performed and accepted by the Account Debtor obligated upon such Account;
(e) with respect to which an invoice, acceptable to Lender in form and
substance, has not been sent;
(f) that is not owned by Borrower or is subject to any right, claim, or
interest of another Person, other than the Lien in favor of Lender;
(g) that arises from a sale to or performance of services for an
employee, Affiliate, Subsidiary or Stockholder of Borrower or any other Credit
Party, or an entity which has common officers or directors with Borrower or
any other Credit Party;
(h) that is the obligation of an Account Debtor that is the Federal
government or a political subdivision thereof, unless Lender has agreed to the
contrary in writing and Borrower has complied with the Federal Assignment of
Claims Act of 1940 with respect to such obligation;
(i) that is the obligation of an Account Debtor located in a foreign
country unless such Account is supported by a letter of credit or credit
insurance acceptable to Lender;
(j) that is the obligation of an Account Debtor to whom Borrower is or
may become liable for goods sold or services rendered by the Account Debtor to
Borrower, to the extent of Borrower's liability to such Account Debtor;
(k) that arises with respect to goods which are delivered on a
cash-on-delivery basis or placed on consignment, guaranteed sale or other
terms by reason of which the payment by the Account Debtor may be conditional;
(l) that is an obligation for which the total unpaid Accounts of the
Account Debtor exceed 20% of the aggregate of all Accounts, to the extent of
such excess;
(m) that is not paid within 90 days from its invoice date or that are
Accounts of an Account Debtor if 50% or more of the Accounts owing from such
Account Debtor remain unpaid within such time periods;
(n) is an obligation of an Account Debtor that has suspended business,
made a general assignment for the benefit of creditors, is unable to pay its
debts as they become due or as to which a petition has been filed (voluntary
or involuntary) under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors;
(o) that arises from any bill-and-hold or other sale of goods which
remain in Borrower's possession or under Borrower's control;
(p) as to which Lender's interest therein is not a first priority
perfected security interest;
(q) to the extent that such Account exceeds any credit limit established
by Lender in Lender's sole discretion;
(r) as to which any of Borrower's representations or warranties
pertaining to Accounts are untrue;
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(s) that represents interest payments or service charges owing to
Borrower; or
(t) that is not otherwise acceptable in the sole discretion of Lender,
provided, that Lender shall have the right to create and adjust eligibility
standards and related reserves from time to time in its good faith credit
judgment.
"Eligible Unbilled Accounts" shall mean Eligible Accounts which have not been
billed by Borrower and appear on the Unbilled Daily Accounts Receivable
Rollforward Analysis (identified by individual shipping trucking number);
provided, however, no such Eligible Unbilled Accounts shall appear on such
report in excess of 30 days.
"Environmental Laws" shall mean all Federal, state and local laws, statutes,
ordinances and regulations, now or hereafter in effect, and in each case as
amended or supplemented from time to time, and any applicable judicial or
administrative interpretation thereof relating to the regulation and
protection of human health, safety, the environment and natural resources
(including ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and vegetation). Environmental
Laws include the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (42 U.S.C. Section 9601 et seq.) ("CERCLA"); the
Hazardous Material Transportation Act (49 U.S.C. Section 1801 et seq.); the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et
seq.); the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et
seq.) ("RCRA"); the Toxic Substance Control Act (15 U.S.C. Section 2601 et
seq.); the Clean Air Act (42 U.S.C. Section 740 et seq.); the Federal Water
Pollution Control Act (33 U.S.C. Section _1251 et seq.); the Occupational
Safety and Health Act (29 U.S.C. Section 651 et seq.) ("OSHA"); and the Safe
Drinking Water Act (42 U.S.C. Section 300(f) et seq.), and any and all
regulations promulgated thereunder, and all analogous state and local
counterparts or equivalents and any transfer of ownership notification or
approval statutes.
"Environmental Liabilities" shall mean all liabilities, obligations,
responsibilities, remedial actions, removal costs, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including
all reasonable fees, disbursements and expenses of counsel, experts and
consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim, suit,
action or demand by any Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute or common law
(including any thereof arising under any Environmental Law, permit, order or
agreement with any Governmental Authority) and which relate to any health or
safety condition regulated under any Environmental Law, Environmental Permits
or in connection with any Release, threatened Release, or the presence of a
Hazardous Material.
"Environmental Permits" shall mean all permits, licenses, authorizations,
certificates, approvals, registrations or other written documents required by
any Governmental Authority under any Environmental Law.
"Equipment" shall mean all "equipment" as such term is defined in the Code,
now owned or hereafter acquired by any Person, wherever located, including any
and all machinery, apparatus, equipment, fittings, furniture, fixtures, motor
vehicles and other tangible personal property (other than Inventory) of every
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kind and description which may be now or hereafter used in such Person's
operations or which are owned by such Person or in which such Person may have
an interest, and all parts, accessories and accessions thereto and
substitutions and replacements therefor.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or any
successor legislation thereto), as amended from time to time, and any
regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to any Credit Party, any trade or
business (whether or not incorporated) which together with such Credit Party,
are treated as a single employer within the meaning of Sections 414(b), (c),
(m) or (o) of the IRC.
"ERISA Event" shall mean with respect to any Credit Party or any ERISA
Affiliate, (a) any event described in Section 4043(c) of ERISA with respect to
a Title IV Plan; (b) the withdrawal of any Credit Party or ERISA Affiliate
from a Title IV Plan subject to Section 4063 of ERISA during a plan year in
which it was a substantial employer, as defined in Section 4001(a)(2) of
ERISA; (c) the complete or partial withdrawal of any Credit Party or any ERISA
Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to
terminate a Title IV Plan or the treatment of a plan amendment as a
termination under Section 4041 of ERISA; (e) the institution of proceedings to
terminate a Title IV Plan or Multiemployer Plan by the PBGC; (f) the failure
by any Credit Party or ERISA Affiliate to make when due required contributions
to a Multiemployer Plan or Title IV Plan unless such failure is cured within
30 days; (g) any other event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Title IV Plan or Multiemployer
Plan or for the imposition of liability under Section 4069 or 4212(c) of
ERISA; (h) the termination of a Multiemployer Plan under Section 4041A of
ERISA or the reorganization or insolvency of a Multiemployer Plan under
Section 4241 of ERISA; or (i) the loss of a Qualified Plan's qualification or
tax exempt status.
"ESOP" shall mean a Plan which is intended to satisfy the requirements of
Section 4975(e)(7) of the IRC.
"Event of Default" shall have the meaning assigned to it in Section 7.1.
"Fees" shall mean the fees due to Lender as set forth in Schedule E.
"Financial Statements" shall mean the consolidated and consolidating income
statement, balance sheet and statement of cash flows of Borrower and its
Subsidiaries, internally prepared for each Fiscal Month, and audited for each
Fiscal Year, prepared in accordance with GAAP.
"Fiscal Month" shall mean any of the monthly accounting periods of Borrower.
"Fiscal Quarter" shall mean any of the quarterly accounting periods of
Borrower.
"Fiscal Year" shall mean the 12 month period of Borrower ending December 31 of
each year. Subsequent changes of the fiscal year of Borrower shall not change
the term "Fiscal Year" unless Lender shall consent in writing to such change.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time, consistently applied.
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"GE Capital" shall mean General Electric Capital Corporation, a New York
corporation, and its successors and assigns.
"General Intangibles" shall mean all "general intangibles," as such term is
defined in the Code, now owned or hereafter acquired by any Person, including
all right, title and interest which such Person may now or hereafter have in
or under any Contract, Intellectual Property, interests in partnerships, joint
ventures and other business associations, permits, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials,
Books and Records, Goodwill (including the Goodwill associated with any
Intellectual Property), all rights and claims in or under insurance policies
(including insurance for fire, damage, loss, and casualty, whether covering
personal property, real property, tangible rights or intangible rights, all
liability, life, key-person, and business interruption insurance, and all
unearned premiums), uncertificated securities, choses in action, deposit
accounts, rights to receive tax refunds and other payments and rights of
indemnification.
"Goods" shall mean all "goods," as such term is defined in the Code, now owned
or hereafter acquired by any Person, wherever located, including movables,
fixtures, equipment, inventory, or other tangible personal property.
"Goodwill" shall mean all goodwill, trade secrets, proprietary or confidential
information, technical information, procedures, formulae, quality control
standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof, and any agency, department or other
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation of such
Person guaranteeing any indebtedness, lease, dividend, or other obligation
("primary obligations") of any other Person (the "primary obligor") in any
manner, including any obligation or arrangement of such guaranteeing Person
(whether or not contingent): (i) to purchase or repurchase any such primary
obligation; (ii) to advance or supply funds (a) for the purchase or payment
of any such primary obligation or (b) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet condition of the primary obligor; (iii) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation; or (iv) to
indemnify the owner of such primary obligation against loss in respect
thereof.
"Guarantor" shall mean each Person which executes a guaranty or a support, put
or other similar agreement in favor of Lender in connection with the
transactions contemplated by this Agreement.
"Guaranty" shall mean any agreement to perform all or any portion of the
Obligations on behalf of Borrower or any other Credit Party, in favor of, and
in form and substance satisfactory to, Lender, together with all amendments,
modifications and supplements thereto, and shall refer to such Guaranty as the
same may be in effect at the time such reference becomes operative.
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"Hazardous Material" shall mean any substance, material or waste which is
regulated by or forms the basis of liability now or hereafter under, any
Environmental Laws, including any material or substance which is (a) defined
as a "solid waste," "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste ," "restricted hazardous waste,"
"pollutant," "contaminant," "hazardous constituent," "special waste," "toxic
substance" or other similar term or phrase under any Environmental Laws, (b)
petroleum or any fraction or by-product thereof, asbestos, polychlorinated
biphenyls (PCB's), or any radioactive substance.
"Hazardous Waste" shall have the meaning ascribed to such term in the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et. seq.).
"Indebtedness" of any Person shall mean: (i) all indebtedness of such Person
for borrowed money or for the deferred purchase price of property or services
(including reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured, but
not including obligations to trade creditors incurred in the ordinary course
of business and not more than 45 days past due); (ii) all obligations
evidenced by notes, bonds, debentures or similar instruments; (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreements with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property);
(iv) all Capital Lease Obligations; (v) all Guaranteed Indebtedness; (vi)
all Indebtedness referred to in clauses (i), (ii), (iii), (iv) or (v) above
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien upon or in property
(including accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness; (vii) the Obligations; and (viii) all liabilities under Title
IV of ERISA.
"Indemnified Liabilities" shall have the meaning assigned to it in Section
1.11.
"Indemnified Person" shall have the meaning assigned to it in Section 1.11.
"Index Rate" shall mean the latest rate for 30-day dealer placed commercial
paper (which for purposes hereof shall mean high grade unsecured notes sold
through dealers by major corporations in multiples of $1,000) which normally
is published in the "Money Rates" section of The Wall Street Journal (or if
such rate ceases to be so published, as quoted from such other generally
available and recognizable source as Lender may select). The Index Rate shall
be determined (i) on the first Business Day immediately prior to the Closing
Date and (ii) thereafter, on the last Business Day of each calendar month for
calculation of interest for the following month.
"Instruments" shall mean all "instruments," as such term is defined in the
Code, now owned or hereafter acquired by any Person, wherever located,
including all certificated securities and all notes and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper.
"Intellectual Property" shall mean any and all Licenses, Patents, Copyrights,
Trademarks, trade secrets and customer lists.
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"Inventory" shall mean all "inventory," as such term is defined in the Code,
now or hereafter owned or acquired by any Person, wherever located, including
all inventory, merchandise, goods and other personal property which are held
by or on behalf of such Person for sale or lease or are furnished or are to be
furnished under a contract of service or which constitute raw materials, work
in process or materials used or consumed or to be used or consumed in such
Person's business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including other supplies.
"IRC" shall mean the Internal Revenue Code of 1986, and any successor thereto.
"IRS" shall mean the Internal Revenue Service, or any successor thereto.
"Lender" shall mean GE Capital and, if at any time GE Capital shall decide
to assign or syndicate all or any of the Obligations, such term shall include
such assignee or such other members of the syndicate.
"Letters of Credit" shall mean any and all commercial or standby letters of
credit issued at the request and for the account of Borrower for which Lender
has incurred Letter of Credit Obligations.
"Letter of Credit Fee" shall have the meaning assigned to it in Schedule E.
"Letter of Credit Obligations" shall mean all outstanding obligations incurred
by Lender, whether direct or indirect, contingent or otherwise, due or not
due, in connection with the issuance or guarantee, by Lender or another, of
Letters of Credit, all as further set forth in Schedule C. The amount of
such Letter of Credit Obligations at any time shall equal the maximum amount
which may be payable by Lender thereupon or pursuant thereto at such time and
shall include all duty, freight, taxes, costs, insurance and any other charges
and expenses in connection therewith.
"License" shall mean any Copyright License, Patent License, Trademark License
or other license of rights or interests now held or hereafter acquired by any
Person.
"Lien" shall mean any mortgage, security deed or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, security title, easement or encumbrance, or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing,
and the filing of, or agreement to give, any financing statement perfecting a
security interest under the Code or comparable law of any jurisdiction).
"Litigation" shall mean any claim, lawsuit, litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority.
"Loan Documents" shall mean this Agreement, the Notes, the Financial
Statements, each Guaranty, the Power of Attorney, the Bank Account Agreements,
and the other documents and instruments listed in Schedule F, and all
security agreements, mortgages and all other documents, instruments,
certificates, and notices at any time delivered by any Person (other than
Lender) in connection with any of the foregoing.
"Loans" shall mean the Revolving Credit Loan including the Letter of Credit
Obligations.
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"Lock Box Account" shall have the meaning assigned to it in Schedule D.
"Lock Box Account Agreement" shall have the meaning assigned to it in Schedule
D.
"Material Adverse Effect" shall mean: (i) a material adverse effect on (a)
the business, assets, operations, prospects or financial or other condition of
Borrower or any other Credit Party or the industry within which Borrower or
any other Credit Party operates, (b) Borrower's or any other Credit Party's
ability to pay or perform the Obligations under the Loan Documents to which
such Credit Party is a party in accordance with the terms thereof, (c) the
Collateral or Lender's Liens on the Collateral or the priority of any such
Lien, or (d) Lender's rights and remedies under this Agreement and the other
Loan Documents; or (ii) the incurrence by Borrower or any other Credit Party
of any liability (other than Indebtedness permitted by Section 5(c)),
contingent or liquidated, which has an actual or estimated incurrence of
liability, or dollar exposure or loss, greater than Minimum Actionable Amount
to Borrower or any other Credit Party.
"Maximum Amount" shall mean the maximum amount of credit to be provided by
Lender to or for the benefit of Borrower for aggregate Revolving Credit
Advances and Letter of Credit Obligations outstanding at any time, without
regard to the Borrowing Base or reserves, which amount, for purposes of this
Agreement, is $5,000,000.
"Minimum Actionable Amount" shall mean $50,000.
"Mortgage" shall mean a second lien mortgage in favor of Lender substantially
in the form of Exhibit G.
"Multiemployer Plan" shall mean a "multiemployer plan," as defined in Section
4001(a) (3) of ERISA, to which Borrower, any other Credit Party or any ERISA
Affiliate is making, is obligated to make, has made or been obligated to make,
contributions on behalf of participants who are or were employed by any of
them.
"Net Borrowing Availability" shall mean at any time the Borrowing Availability
less the Revolving Credit Loan.
"Notes" shall mean the Revolving Credit Note.
"Notice of Revolving Credit Advance" shall have the meaning assigned to it in
Section 1.1(b).
"Obligations" shall mean all loans, advances, debts, expense reimbursement,
fees, liabilities, and obligations for the performance of covenants, tasks or
duties or for payment of monetary amounts (whether or not such performance is
then required or contingent, or amounts are liquidated or determinable) owing
by Borrower and any other Credit Party to Lender, of any kind or nature,
present or future, whether or not evidenced by any note, agreement or other
instrument, whether arising under any of the Loan Documents or under any other
agreement between Borrower, such Credit Party and Lender, and all covenants
and duties regarding such amounts. This term includes all principal, interest
(including interest accruing at the then applicable rate provided in this
Agreement after the maturity of the Loans and interest accruing at the then
applicable rate provided in this Agreement after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
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proceeding, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding), Fees, Charges, expenses, attorneys' fees and
any other sum chargeable to Borrower under any of the Loan Documents, and all
principal and interest due in respect of the Loans and all obligations and
liabilities of any Guarantor under any Guaranty.
"Patent License" shall mean rights under any written agreement now owned or
hereafter acquired by any Person granting any right with respect to any
invention on which a Patent is in existence.
"Patents" shall mean all of the following in which any Person now holds or
hereafter acquires any interest: (i) all letters patent of the United States
or any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or any other country,
including registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State or Territory thereof, or any other country; and (ii) all
reissues, continuations, continuations-in-part or extensions thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
thereto.
"Permitted Encumbrances" shall mean the following encumbrances: (i) Liens for
taxes or assessments or other governmental Charges or levies, either not yet
due and payable or to the extent that nonpayment thereof is permitted by the
terms of Section 3.11; (ii) pledges or deposits securing obligations under
worker's compensation, unemployment insurance, social security or public
liability laws or similar legislation; (iii) pledges or deposits securing
bids, tenders, contracts (other than contracts for the payment of money) or
leases to which any Credit Party is a party as lessee made in the ordinary
course of business; (iv) deposits securing public or statutory obligations of
any Credit Party; (v) inchoate and unperfected workers', mechanics', or
similar liens arising in the ordinary course of business so long as such Liens
attach only to Equipment, fixtures or real estate; (vi) carriers',
warehousemans', suppliers' or other similar possessory liens arising in the
ordinary course of business and securing indebtedness not yet due and payable
in an outstanding aggregate amount not in excess of $25,000 at any time so
long as such Liens attach only to Inventory; (vii) deposits of money
securing, or in lieu of, surety, appeal or customs bonds in proceedings to
which any Credit Party is a party; (viii) zoning restrictions, easements,
licenses, or other restrictions on the use of real property or other minor
irregularities in title (including leasehold title) thereto, so long as the
same do not materially impair the use, value, or marketability of such real
estate; (ix) Purchase Money Liens securing Purchase Money Indebtedness (or
rent) to the extent permitted under Section 5(c)(ii); (x) Liens in existence
on the Closing Date as disclosed on Disclosure Schedule 5(h) provided that no
such Lien is spread to cover additional property after the Closing Date and
the amount of Indebtedness secured thereby is not increased.; and (xi) Liens
in favor of Lender securing the Obligations.
"Person" shall mean any individual, sole proprietorship, partnership, limited
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, public
benefit corporation, entity or government (whether Federal, state, county,
city, municipal or otherwise, including any instrumentality, division, agency,
body or department thereof), and shall include such Person's successors and
assigns.
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"Plan" shall mean, with respect to Borrower or any other Credit Party, at any
time, an employee benefit plan, as defined in Section 3(3) of ERISA, which
Borrower or any other Credit Party maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were employed
by any of them.
"Prepayment Fee" shall mean the prepayment fee specified in Schedule E.
"Proceeds" shall mean "proceeds," as such term is defined in the Code and, in
any event, shall include: (i) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Borrower or any other Credit Party
from time to time with respect to any Collateral; (ii) any and all payments
(in any form whatsoever) made or due and payable to Borrower or any other
Credit Party from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of any Collateral by any
governmental body, authority, bureau or agency (or any person acting under
color of governmental authority); (iii) any claim of Borrower or any other
Credit Party against third parties (a) for past, present or future
infringement of any Intellectual Property or (b) for past, present or future
infringement or dilution of any Trademark or Trademark License or for injury
to the goodwill associated with any Trademark, Trademark registration or
Trademark licensed under any Trademark License; (iv) any recoveries by
Borrower or any other Credit Party against third parties with respect to any
litigation or dispute concerning any Collateral; and (v) any and all other
amounts from time to time paid or payable under or in connection with any
Collateral, upon disposition or otherwise.
"Projections" shall mean as of any date the consolidated and consolidating
balance sheet, statements of income and cash flow for Borrower and its
Subsidiaries (including forecasted Capital Expenditures and Net Borrowing
Availability) (i) by month for the next Fiscal Year, and (ii) by year for the
following three Fiscal Years, in each case prepared in a manner consistent
with GAAP and accompanied by senior management's discussion and analysis of
such plan.
"Purchase Money Indebtedness" shall mean (i) any Indebtedness incurred for
the payment of all or any part of the purchase price of any fixed asset, (ii)
any Indebtedness incurred for the sole purpose of financing or refinancing all
or any part of the purchase price of any fixed asset, and (iii) any renewals,
extensions or refinancings thereof (but not any increases in the principal
amounts thereof outstanding at that time).
"Purchase Money Lien" shall mean any Lien upon any fixed assets which secures
the Purchase Money Indebtedness related thereto but only if such Lien shall at
all times be confined solely to the asset the purchase price of which was
financed or refinanced through the incurrence of the Purchase Money
Indebtedness secured by such Lien and only if such Lien secures only such
Purchase Money Indebtedness.
"Qualified Plan" shall mean a Plan which is intended to be tax-qualified under
Section 401(a) of the IRC.
"Real Property" shall have the meaning assigned to it in Section 3.16.
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"Release" shall mean, as to any Person, any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, dumping, leaching
or migration of Hazardous Materials in the indoor or outdoor environment by
such Person, including the movement of Hazardous Materials through or in the
air, soil, surface water, ground water or property.
"Requirement of Law" shall mean as to any Person, the Certificate or Articles
of Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case binding
upon such Person or any of its property or to which such Person or any of its
property is subject.
"Restricted Payment" shall mean: (i) the declaration or payment of any
dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets on or in respect of
Borrower's or any other Credit Party's Stock; (ii) any payment on account of
the purchase, redemption, defeasance or other retirement of Borrower's or any
other Credit Party's Stock or Indebtedness or any other payment or
distribution made in respect of any thereof, either directly or indirectly;
other than (a) that arising under this Agreement or (b) interest and
principal, when due without acceleration or modification of the amortization
as in effect on the Closing Date, under Indebtedness described in Disclosure
Schedule (5(c)) or otherwise permitted under Section 5(c)(ii); or (iii) any
payment, loan, contribution, or other transfer of funds or other property to
any Stockholder of such Person which is not expressly and specifically
permitted in this Agreement; provided, that no payment to Lender shall
constitute a Restricted Payment.
"Retiree Welfare Plan" shall mean, at any time, a Plan that is a "welfare
plan" as defined in Section 3(2) of ERISA, that provides for continuing
coverage or benefits for any participant or any beneficiary of a participant
after such participant's termination of employment, other than continuation
coverage provided pursuant to Section 4980B of the IRC and at the sole expense
of the participant or the beneficiary of the participant.
"Revolving Credit Advance" shall have the meaning assigned to it in Section
1.1(a).
"Revolving Credit Loan" shall mean at any time the sum of (i) the aggregate
amount of Revolving Credit Advances then outstanding, plus (ii) the total
Letter of Credit Obligations incurred by Lender and outstanding at such time,
plus (iii) the amount of accrued but unpaid interest thereon and Letter of
Credit Fees with respect thereto.
"Revolving Credit Note" shall mean the promissory note of Borrower dated the
Closing Date, substantially in the form of Exhibit F.
"Revolving Credit Rate" shall have the meaning assigned to it in Section
1.5(a).
"Schedule of Documents" shall mean the schedule, including all appendices,
exhibits or schedules thereto, listing certain documents and information to be
delivered in connection with the Loan Documents and the transactions
contemplated thereunder, substantially in the form of Schedule F or Schedule
F-1, respectively.
"Stated Expiry Date" shall mean December 22, 2001.
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"Stock" shall mean all certificated and uncertificated shares, options,
warrants, general or limited partnership interests, participation or other
equivalents (regardless of how designated) of or in a corporation,
partnership, limited liability company or equivalent entity whether voting or
nonvoting, including common stock, preferred stock, or any other "equity
security" (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934).
"Stockholder" shall mean each holder of Stock of Borrower or any other Credit
Party.
"Subsidiary" shall mean, with respect to any Person, (i) any corporation of
which an aggregate of more than 50% of the outstanding Stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, Stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of 50% or more of such Stock whether by proxy, agreement,
operation of law or otherwise, and (ii) any partnership or limited liability
company in which such Person or one or more Subsidiaries of such Person has an
equity interest (whether in the form of voting or participation in profits or
capital contribution) of more than 50% or of which any such Person is a
general partner or may exercise the powers of a general partner.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto, excluding taxes
imposed on or measured by the net income of Lender.
"Termination Date" shall mean the date on which the Revolving Credit Loan and
any other Obligations under this Agreement are indefeasibly paid in full, in
cash (other than amounts in respect of Letter of Credit Obligations if any,
then outstanding, provided that Borrower shall have funded such amounts in
cash in full into the Cash Collateral Account), and Borrower shall have no
further right to borrow any moneys or obtain other credit extensions or
financial accommodations under this Agreement.
"Term Loan" shall mean the term loan made by CAF to Borrower on the Closing
Date.
"Third Party Interactives" shall mean all Persons with whom any Corporate
Credit Party exchanges data electronically in the ordinary course of business,
including, without limitation, customers, suppliers, third-party vendors,
subcontractors, processors-converters, shippers and warehousemen.
"Title IV Plan" shall mean an "employee pension benefit plan," as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan), which is covered by
Title IV of ERISA, and which Borrower, any other Credit Party or any ERISA
Affiliate maintains, contributes to or has an obligation to contribute to on
behalf of participants who are or were employed by any of them.
"Trademark License" shall mean rights under any written agreement now owned or
hereafter acquired by any Person granting any right to use any Trademark or
Trademark registration.
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"Trademarks" shall mean all of the following now owned or hereafter acquired
by any Person: (i) all trademarks, trade names, corporate names, business
names, trade styles, service marks, logos, other source or business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature, now existing or
hereafter adopted or acquired, all registrations and recordings thereof, and
all applications in connection therewith, including all registrations,
recordings and applications in the United States Patent and Trademark Office
or in any similar office or agency of the United States, any State or
Territory thereof, or any other country or any political subdivision thereof,
and (ii) all reissues, extensions or renewals thereof.
"Transaction Summary" shall mean the Transaction Summary set forth in the
Recitals to this Agreement.
"Transport Clearings" shall mean Transport Clearings, LLC.
"Unbilled Accounts Receivable Roll Forward Analysis" shall mean a certificate
in the form of Exhibit E-1.
"Unfunded Pension Liability" shall mean, at any time, the aggregate amount, if
any, of the sum of (i) the amount by which the present value of all accrued
benefits under each Title IV Plan exceeds the fair market value of all assets
of such Title IV Plan allocable to such benefits in accordance with Title IV
of ERISA, all determined as of the most recent valuation date for such Title
IV Plan determined on the basis of a shutdown of the employees thereunder and
using the actuarial assumptions in effect for funding purposes under such
Title IV Plan, and (ii) for a period of five (5) years following a
transaction which could be covered by Section 4069 of ERISA, the liabilities
(whether or not accrued) that could be avoided by Borrower, any other Credit
Party or any ERISA Affiliate as a result of such transaction.
"Year 2000 Assessment" shall mean a comprehensive written assessment of the
nature and extent of each Corporate Credit Party's Year 2000 Problems and Year
2000 Date-Sensitive Systems/Components, including, without limitation, Year
2000 Problems regarding data exchanges with Third Party Interactives.
"Year 2000 Corrective Actions" shall mean, as to each Corporate Credit Party,
all actions necessary to eliminate such Person's Year 2000 Problems,
including, without limitation, computer code enhancements and revisions,
upgrades and replacements of Year 2000 Date-Sensitive Systems/Components, and
coordination of such enhancements, revisions, upgrades and replacements with
Third Party Interactives.
"Year 2000 Corrective Plan" shall mean, with respect to each Corporate Credit
Party, a comprehensive plan to eliminate all of its Year 2000 Problems on or
before May 31, 1999, including without limitation (i) computer code
enhancements or revisions, (ii) upgrades or replacements of Year 2000
Date-Sensitive Systems/Components, (iii) test and validation procedures, (iv)
an implementation time line and budget and (v) designation of specific
employees who will be responsible for planning, coordinating and implementing
each phase or subpart of the Year 2000 Corrective Plan.
"Year 2000 Date-Sensitive System/Component" shall mean, as to any Person, any
system software, network software, applications software, data base, computer
file, embedded microchip, firmware or hardware that accepts, creates,
manipulates, sorts, sequences, calculates, compares or outputs
calendar-related data accurately; such systems and components shall include,
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without limitation, mainframe computers, file server/client systems, computer
workstations, routers, hubs, other network-related hardware, and other
computer-related software, firmware or hardware and information processing and
delivery systems of any kind and telecommunications systems and other
communications processors, security systems, alarms, elevators and HVAC
systems.
"Year 2000 Implementation Testing" shall mean, as to each Corporate Credit
Party, (i) the performance of test and validation procedures regarding Year
2000 Corrective Actions on a unit basis and on a system-wide basis; (ii) the
performance of test and validation procedures regarding data exchanges among
the Corporate Credit Parties' Year 2000 Date-Sensitive Systems/Components and
data exchanges with Third Party Interactives, and (iii) the design and
implementation of additional Corrective Actions, the need for which has been
demonstrated by test and validation procedures.
"Year 2000 Problems" shall mean, with respect to each Corporate Credit Party,
limitations on the capacity or readiness of any such Corporate Credit Party's
Year 2000 Date-Sensitive Systems/Components to accurately accept, create,
manipulate, sort, sequence, calculate, compare or output calendar date
information with respect to calendar year 1999 or any subsequent calendar year
beginning on or after January 1, 2000 (including leap year computations),
including, without limitation, exchanges of information among Year 2000
Date-Sensitive Systems/Components of the Corporate Credit Parties and
exchanges of information among the Corporate Credit Parties and Year 2000
Date-Sensitive Systems/Components of Third Party Interactives and
functionality of peripheral interfaces, firmware and embedded microchips.
Any accounting term used in this Agreement or the other Loan Documents shall
have, unless otherwise specifically provided therein, the meaning customarily
given such term in accordance with GAAP, and all financial computations
thereunder shall be computed, unless otherwise specifically provided therein,
in accordance with GAAP consistently applied; provided, that all financial
covenants and calculations in the Loan Documents shall be made in accordance
with GAAP as in effect on the Closing Date unless Borrower and Lender shall
otherwise specifically agree in writing. That certain items or computations
are explicitly modified by the phrase "in accordance with GAAP" shall in no
way be construed to limit the foregoing. All other undefined terms contained
in this Agreement or the other Loan Documents shall, unless the context
indicates otherwise, have the meanings provided for by the Code. The words
"herein," "hereof" and "hereunder" or other words of similar import refer to
this Agreement as a whole, including the exhibits and schedules thereto, as
the same may from time to time be amended, modified or supplemented, and not
to any particular section, subsection or clause contained in this Agreement.
For purposes of this Agreement and the other Loan Documents, the following
additional rules of construction shall apply, unless specifically indicated to
the contrary: (a) wherever from the context it appears appropriate, each
term stated in either the singular or plural shall include the singular and
the plural, and pronouns stated in the masculine, feminine or neuter gender
shall include the masculine, the feminine and the neuter; (b) the term "or" is
not exclusive; (c) the term "including" (or any form thereof) shall not be
limiting or exclusive; (d) all references to statutes and related regulations
shall include any amendments of same and any successor statutes and
regulations; (e) all references in this Agreement or in the Schedules to this
Agreement to sections, schedules, disclosure schedules, exhibits, and
attachments shall refer to the corresponding sections, schedules, disclosure
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schedules, exhibits, and attachments of or to this Agreement; and (f) all
references to any instruments or agreements, including references to any of
the Loan Documents, shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof.
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SCHEDULE B
LENDER'S AND BORROWER'S ADDRESS FOR NOTICES
Lender's Address:
Name: General Electric Capital Corporation
Address: 40 Old Ridgebury Road
Danbury, CT 06810
Attn: Gulf Northern Transport, Inc. Account Manager
Telephone: 203-796-5500
Facsimile: 203-796-5536
Borrower's Address:
Name: Gulf Northern Transport, Inc.
Address: 3125 Ashley Phosphate Road
N. Charleston, SC 29418
Attn: Dan Pixler, Chief Executive Officer
Telephone: 843-767-9197
Facsimile: 843-767-9198
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SCHEDULE C
LETTERS OF CREDIT
1. Lender agrees, subject to the terms and conditions hereinafter set forth,
to incur Letter of Credit Obligations in respect of the issuance of Letters of
Credit issued on terms acceptable to Lender and supporting obligations of
Borrower incurred in the ordinary course of Borrower's business, in order to
support the payment of Borrower's inventory purchase obligations, insurance
premiums, or utility or other operating expenses and obligations, as Borrower
shall request by written notice to Lender that is received by Lender not less
than five Business Days prior to the requested date of issuance of any such
Letter of Credit; provided, that: (a) that the aggregate amount of all Letter
of Credit Obligations at any one time outstanding (whether or not then due and
payable) shall not exceed $250,000; (b) no Letter of Credit shall have an
expiry date which is later than the Stated Expiry Date or one year following
the date of issuance thereof; and (c) Lender shall be under no obligation to
incur any Letter of Credit Obligation if after giving effect to the incurrence
of such Letter of Credit Obligation, the Net Borrowing Availability would be
less than zero. The maximum amount payable in respect of each Letter of
Credit requested by Borrower will be guaranteed by Lender in favor of the
issuing bank under terms of a separate agreement between Lender and the
issuing bank. Borrower will enter into an application and agreement for such
Letter of Credit with the issuing bank selected by Lender. The bank that
issues any Letter of Credit pursuant to this Agreement shall be determined by
Lender in its sole discretion.
2. The notice to be provided to Lender requesting that Lender incur Letter of
Credit Obligations shall be in the form of a Letter of Credit application in
the form customarily employed by the issuing bank, together with a written
request by Borrower and the bank that Lender approve Borrower's application.
Upon receipt of such notice Lender shall establish a reserve against the
Borrowing Availability in the amount of 100% of the face amount of the Letter
of Credit Obligation to be incurred. Approval by Lender in the written form
agreed upon between Lender and the issuing bank (a) will authorize the bank
to issue the requested Letter of Credit, and (b) will conclusively establish
the existence of the Letter of Credit Obligation as of the date of such
approval.
3. In the event that Lender shall make any payment on or pursuant to any
Letter of Credit Obligation, Borrower shall be unconditionally obligated to
reimburse Lender therefor, and such payment shall then be deemed to constitute
a Revolving Credit Advance. For purposes of computing interest under Section
1.5, a Revolving Credit Advance made in satisfaction of a Letter of Credit
Obligation shall be deemed to have been made as of the date on which the
issuer or endorser makes the related payment under the underlying Letter of
Credit.
4. In the event that any Letter of Credit Obligations, whether or not then
due or payable, shall for any reason be outstanding on the Commitment
Termination Date, Borrower will either (a) cause the underlying Letter of
Credit to be returned and canceled and each corresponding Letter of Credit
Obligation to be terminated, or (b) pay to Lender, in immediately available
funds, an amount equal to 105% of the maximum amount then available to be
drawn under all Letters of Credit not so returned and canceled to be held by
Lender as cash collateral in an account under the exclusive dominion and
control of Lender (the "Cash Collateral Account").
C-1
<PAGE>
<PAGE>
5. In the event that Lender shall incur any Letter of Credit Obligations,
Borrower agrees to pay the Letter of Credit Fee to Lender as compensation to
Lender for incurring such Letter of Credit Obligations. In addition, Borrower
shall reimburse Lender for all fees and charges paid by Lender on account of
any such Letters of Credit or Letter of Credit Obligations to the issuing
bank.
6. Borrower's Obligations to Lender with respect to any Letter of Credit or
Letter of Credit Obligation shall be evidenced by Lender's records and shall
be absolute, unconditional and irrevocable and shall not be affected, modified
or impaired by (a) any lack of validity or enforceability of the transactions
contemplated by or related to such Letter of Credit or Letter of Credit
Obligation; (b) any amendment or waiver of or consent to depart from all or
any of the terms of the transactions contemplated by or related to such Letter
of Credit or Letter of Credit Obligation; (c) the existence of any claim,
set-off, defense or other right which Borrower or any other Credit Party may
have against Lender, the issuer or beneficiary of such Letter of Credit, or
any other Person, whether in connection with this Agreement, any other Loan
Document or such Letter of Credit or the transactions contemplated thereby or
any unrelated transactions; or (d) the fact that any draft, affidavit, letter,
certificate, invoice, bill of lading or other document presented under or
delivered in connection with such Letter of Credit or any other Letter of
Credit proves to have been forged, fraudulent, invalid or insufficient in any
respect or any statement therein proves to have been untrue or incorrect in
any respect.
7. In addition to any other indemnity obligations which Borrower may have to
Lender under this Agreement and without limiting such other indemnification
provisions, Borrower hereby agrees to indemnify Lender from and to hold Lender
harmless against any and all claims, liabilities, losses, costs and expenses
(including, attorneys' fees and expenses) which Lender may (other than as a
result of its own gross negligence or willful misconduct) incur or be subject
to as a consequence, directly or indirectly, of (a) the issuance of or payment
of or failure to pay under any Letter of Credit or Letter of Credit Obligation
or (b) any suit, investigation or proceeding as to which Lender is or may
become a party as a consequence, directly or indirectly, of the issuance of
any Letter of Credit, the incurring of any Letter of Credit Obligation or any
payment of or failure to pay under any Letter of Credit or Letter of Credit
Obligation. The obligations of Borrower under this paragraph shall survive
any termination of this Agreement and the payment in full of the Obligations.
8. Borrower hereby assumes all risks of the acts, omissions or misuse of each
Letter of Credit by the beneficiary or issuer thereof and, in connection
therewith, Lender shall not be responsible (a) for the validity, sufficiency,
genuineness or legal effect of any document submitted in connection with any
drawing under any Letter of Credit even if it should in fact prove in any
respect to be invalid, insufficient, inaccurate, untrue, fraudulent or forged;
(b) for the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of Credit or any
rights or benefits thereunder or any proceeds thereof, in whole or in part,
even if it should prove to be invalid or ineffective for any reason; (c) for
the failure of any issuer or beneficiary of any Letter of Credit to comply
fully with the terms thereof, including the conditions required in order to
effect or pay a drawing thereunder; (d) for any errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
telecopy, telex or otherwise; (e) for any loss or delay in the transmission or
otherwise of any document or draft required in order to make a drawing under
any Letter of Credit; or (f) for any consequences arising from causes beyond
the direct control of Lender.
C-2
<PAGE>
<PAGE>
SCHEDULE D - CASH MANAGEMENT
Borrower agrees to establish, and to maintain, until the Termination Date, the
cash management system described below:
1. No Corporate Credit Party: (i) shall (nor shall it permit any of its
Subsidiaries to) open or maintain any deposit, checking, operating or other
bank account, or similar money handling account, with any bank or other
financial institution except for those accounts identified in Attachment I
hereto (to include a petty cash account not to exceed $5,000 during any Fiscal
Month, and a payroll account not to exceed an amount equal to one regular
payroll at any time); and (ii) shall close or permit to be closed any of the
accounts listed in Attachment I hereto, in each case without Lender's prior
written consent, and then only after such Credit Party has implemented
agreements with such bank or financial institution and Lender acceptable to
Lender.
2. Commencing on the Closing Date and until the Termination Date, each
Corporate Credit Party shall cause to be deposited directly all cash, checks,
notes, drafts or other similar items relating to or constituting proceeds of
or payments made in respect of any and all Collateral into lock boxes or lock
box accounts in such Credit Party's or Lender's name (collectively, the "Lock
Box Accounts") set forth in paragraph 1 of Attachment I hereto.
3. On or before the Closing Date, each bank at which the Lock Box Accounts
are held shall have entered into tri-party lock box agreements (the "Lock Box
Account Agreements") with Lender and the applicable Credit Party, in form and
substance acceptable to Lender. Each such Lock Box Account Agreement shall
provide, among other things, that (a) such bank executing such agreement has
no rights of setoff or recoupment or any other claim against such Lock Box
Account, other than for payment of its service fees and other charges directly
related to the administration of such account, and (b) such bank agrees to
sweep on a daily basis all amounts in the Lock Box Account to the Collection
Account.
4. On the Closing Date, (a) the lock box and blocked account arrangements
shall immediately become operative at the banks at which the Lock Box Accounts
are maintained, and (b) amounts outstanding under the Revolving Credit Loan
(for purposes of the Borrowing Availability) shall be reduced through daily
sweeps, by wire transfer, of the Lock Box Accounts into the Collection
Account. Borrower acknowledges that it shall have no right to gain access to
any of the moneys in the Lock Box Accounts until after the Termination Date.
5. Borrower may maintain, in its name, accounts (the "Disbursement Accounts")
at a bank or banks acceptable to Lender into which Lender shall, from time to
time, deposit proceeds of Revolving Credit Advances made pursuant to Section
1.1 for use solely in accordance with the provisions of Section 1.3. All of
the Disbursement Accounts as of the Closing Date are listed in paragraph 2 of
Attachment I hereto.
6. Upon the request of Lender, each Corporate Credit Party shall forward to
Lender, on a daily basis, evidence of the deposit of all items of payment
received by such Credit Party into the Lock Box Accounts and copies of all
such checks and other items, together with a statement showing the application
of those items relating to payments on Accounts to outstanding Accounts and a
collection report with regard thereto in form and substance satisfactory to
Lender.
D-1
<PAGE>
<PAGE>
ATTACHMENT 1 TO SCHEDULE D
1. LOCK BOX ACCOUNTS
Bankers Trust Company
New York, New York
Gulf Northern Transport, Inc.
Acct. No. 00381851
2. MAIN OPERATING ACCOUNT
Wood County National Bank
Wisconsin Rapids, WI
Gulf Northern Transport, Inc. - Operating Account
Acct. No. 01129-615
OPERATING ACCOUNT FOR AGENTS PROGRAM
Wachovia Bank
Charleston, S.C.
Gulf Northern Transport, Inc. - Agents Program
Acct. No. 100669845
OPERATING ACCOUNT FOR BROKERAGE
Nations Bank
Charleston, S.C.
Mencor, Inc.
Acct. No. 0729776911
PAYROLL ACCOUNT
Nations Bank
Charleston, S.C.
Gulf Northern Transport, Inc. - Logistics Management Account
Acct. No. 759166093
SPECIAL USE ACCOUNT
Nations Bank
Charleston, S.C.
Gulf Northern Transport, Inc. - Permit and Tags Account
Acct. No. 0729483337
<PAGE>
<PAGE>
SCHEDULE E - FEES
1. LETTER OF CREDIT FEE: For each day for which Lender maintains Letter of
Credit Obligations outstanding, an amount equal to the amount of the Letter of
Credit Obligations outstanding on such day, multiplied by 1.5%, the product of
which is then divided by 360. The Letter of Credit Fee incurred for each month
is payable at the same time each payment of the Unused Line Fee is due.
Notwithstanding the foregoing, any unpaid Letter of Credit Fee is immediately
due and payable on the Commitment Termination Date.
2. CLOSING FEE: A non-refundable closing fee of $26,250, payable at closing
(the "Closing Fee").
3. PREPAYMENT FEE:
For the Revolving Credit Loan, an amount equal to the Maximum Amount
multiplied by:
3% if Lender's obligation to make further Revolving Credit Advances or
incur additional Letter of Credit Obligations is terminated (voluntarily by
Borrower, upon Default or otherwise) on or after the Closing Date and on or
before the first anniversary of the Closing Date, payable on the Commitment
Termination Date;
2% if Lender's obligation to make further Revolving Credit Advances or
incur additional Letter of Credit Obligations is terminated (voluntarily by
Borrower, upon Default or otherwise) after the first anniversary of the
Closing Date and on or before the second anniversary of the Closing Date,
payable on the Commitment Termination Date; or
1% if Lender's obligation to make further Revolving Credit Advances or
incur additional Letter of Credit Obligations is terminated (voluntarily by
Borrower, upon Default or otherwise) after the second anniversary of the
Closing Date and on or before the third anniversary of the Closing Date,
payable on the Commitment Termination Date.
Borrower acknowledges and agrees that (i) it would be difficult or
impractical to calculate Lender's actual damages from early termination of
Lender's obligation to make further Revolving Credit Advances and incur
additional Letter of Credit Obligations for any reason pursuant to Section
1.2(c) or Section 7.2, (ii) the Prepayment Fees provided above are intended
to be fair and reasonable approximations of such damages, and (iii) the
Prepayment Fees are not intended to be penalties.
4. AUDIT FEES: Borrower will reimburse Lender at the rate of $600 per person
per day, not to exceed $1,200 in the aggregate per day, plus out-of-pocket
expenses, for the audit reviews, field examinations and collateral
examinations conducted by Lender.
5. UNUSED LINE FEE: None
<PAGE>
<PAGE>
SCHEDULE F
SCHEDULE OF DOCUMENTS
1. Loan and Security Agreement
2. Revolving Credit Note
3. Mortgage
4. Title Insurance Policy
5. Lockbox Agreement
6. Survey of Wisconsin Rapids, Wisconsin Property
7. Financial Statements
8. Powers of Attorney
9. The Guarantees
<PAGE>
<PAGE>
SCHEDULE F-1
SCHEDULE OF REAL ESTATE DOCUMENTS
Each of the following will be required in form satisfactory to Lender with
respect to the property located at 810 25th Avenue North, Wisconsin Rapids,
Wisconsin 54495 (the "Premises")
(1) Title Insurance Policy with requested Lender's endorsements in the
amount of $5,000,000 based on Pro Forma
Policy to be approved
(2) ALTA/ACSM Urban Survey
(3) All leases for Premises
(4) Subordination Nondisturbance and Attornment Agreement for each lease
(5) Estoppel Agreement for each lease
(6) Complete Phase I and if necessary Phase II Environmental Reports
(7) Certificate of Occupancy
(8) Zoning Letter
(9) Engineering Report
<PAGE>
<PAGE>
SCHEDULE G
FINANCIAL COVENANTS
1. Fixed Charge Coverage Ratio. Borrower shall maintain a Fixed Charge
Coverage Ratio of not less than 1:1 for each Fiscal Quarter commencing with
the Fiscal Quarter ending March 31, 1999.
As used in this Agreement (including this Schedule G covenant), the following
terms shall have the following meanings:
"EBITDA" shall mean, for any period, the Net Income (Loss) of Borrower and its
Subsidiaries on a consolidated basis for such period, plus interest expense,
tax expense, amortization expense, depreciation expense and extraordinary
losses and minus extraordinary gains, in each case, of Borrower and its
Subsidiaries on a consolidated basis for such period determined in accordance
with GAAP to the extent included in the determination of such Net Income
(Loss).
"Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of the
following for Borrower and its Subsidiaries on a consolidated basis determined
in accordance with GAAP: (a) EBITDA for such period less Capital Expenditures
for such period which are not financed through the incurrence of any
Indebtedness (excluding the Revolving Credit Loan) to (b) the sum of (i)
interest expense paid or accrued in respect of any Indebtedness during such
period, plus (ii) taxes to the extent accrued or otherwise payable with
respect to such period plus (iii) regularly scheduled payments of principal
paid or that were required to be paid on Funded Debt (excluding the Revolving
Credit Loan) during such period.
"Funded Debt" shall mean, for any Person, all of such Person's Indebtedness
which by the terms of the agreement governing or instrument evidencing such
Indebtedness matures more than one year from, or is directly or indirectly
renewable or extendible at the option of such Person under a revolving credit
or similar agreement obligating the lender or lenders to extend credit over a
period of more than one year from, the date of creation thereof, including
current maturities of long-term debt, revolving credit, and short-term debt
extendible beyond one year at the option of such Person.
"Net Income (Loss)" shall mean with respect to any Person and for any period,
the aggregate net income (or loss) after taxes of such Person for such period,
determined in accordance with GAAP.
2. Capital Expenditures. Borrower and its Subsidiaries on a consolidated
basis shall not make aggregate Capital Expenditures (other than Capital
Expenditures financed through the incurrence of Indebtedness (excluding the
Revolving Credit Loan))in any Fiscal Year in excess of $100,000.
3. Minimum Net Worth. Borrower shall maintain, as at the end of each Fiscal
Quarter set forth below, Net Worth of Borrower and its Subsidiaries on a
consolidated basis for each such Fiscal Quarter of not less than the amount of
such Fiscal Quarter set forth below:
Fiscal Quarter Ending: Minimum Net Worth:
March 31, 1999 $3,400,000
and thereafter
For purposes of this covenant in Schedule G the following term shall have the
meaning set forth below:
"Net Worth" shall mean, with respect to any Person, at any date, the total
assets minus the total liabilities, in each case, of such Person at such date
determined in accordance with GAAP, less any adjustments resulting from any
sale-leaseback transaction approved in advance by Lender.
<PAGE>
<PAGE>
DISCLOSURE SCHEDULE (3.2)
CHIEF EXECUTIVE OFFICE & CORPORATE NAMES
Chief Executive Office County/State
Name: Gulf Northern Transport, Inc.
Address: 3125 Ashley Phosphate Road Charleston/SC
Suite 128
N. Charleston, SC 29418
Name: U.S. Trucking, Inc.
(Colorado and Nevada)
Address: 3125 Ashley Phosphate Road Charleston/SC
Suite 128
N. Charleston, SC 29418
Name: Mencor, Inc.
Address: 3125 Ashley Phosphate Road Charleston/SC
Suite 128
N. Charleston, SC 29418
<PAGE>
<PAGE>
DISCLOSURE SCHEDULE (3.6)
REAL ESTATE
Company owns no real estate.
All terminal locations are leased.
<PAGE>
<PAGE>
DISCLOSURE SCHEDULE (3.7)
STOCK & AFFILIATES
U.S. Trucking, Inc. (Colorado) FEIN 68-0133692 owns 100% of U.S. Trucking,
Inc. (Nevada) FEIN 91-1786609 which owns 100% of Mencor, Inc., FEIN 71-0755210
and Gulf Northern Transport, Inc., FEIN 39-1721438.
<PAGE>
<PAGE>
DISCLOSURE SCHEDULE (3.10)
TAXES
Wisconsin Department of Revenue Withholding Tax = $50,000
<PAGE>
<PAGE>
DISCLOSURE SCHEDULE (3.12)
ERISA
401K Plan - Employee Contribution only
Nationwide - Plan Holder
Wm. Michels Ltd. - Administrator
<PAGE>
<PAGE>
DISCLOSURE SCHEDULE (3.13)
LITIGATION
Pending lawsuit against Gulf Northern Transport, Inc. ("Gulf Northern")
filed by Fidelity Business Alliance in the Chancery Court for the Thirteenth
Judicial District, Shelby County Tennessee and against a host of other
entities. Complaint alleged United Acquisition II Corp. ("UACQ") guaranteed
certain obligations of Box "G" Ranch Inc. to Fidelity. UACQ had an agreement,
never consummated, to buy Box G, and in connection therewith was to guarantee
Box G's accounts with Fidelity (after it became a wholly-owned subsidiary).
Box G defaulted and Fidelity sued UACQ, among others, for payment. After the
Box G transaction failed to close, UACQ reached an agreement to buy Gulf
Northern. Gulf Northern was sued under the theory that a corporate subsidiary
is liable for its parent's obligations. The sale of Gulf Northern to UACQ was
eventually rescinded (to the extent it may have ever been consummated).
UACQ went through a Chapter 11 bankruptcy proceeding last year and the
case against t hem was settled for a nominal amount. There has been no
activity in this action in over a year. We believe the claims for relief are
meritless, due to the fact that the guarantee is unenforceable and due to the
corporate wall between UACQ and Gulf Northern.
<PAGE>
<PAGE>
DISCLOSURE SCHEDULE (3.14)
INTELLECTUAL PROPERTY
None.
<PAGE>
<PAGE>
DISCLOSURE SCHEDULE (3.16)
ENVIRONMENTAL MATTERS
None.
<PAGE>
<PAGE>
DISCLOSURE SCHEDULE (3.17)
INSURANCE
U.S. Trucking, Inc. has auto liability coverage with Legion Insurance Company
at 1,000,000 per occurrence limit. There is a rent-a-captive in place with
Mutual Indemnity and the program is 100% reinsured and capitalized.
The cargo insurance is with Intercargo with limits of $250,000 per occurrence
with a $1,000 deductible.
The physical damage insurance is with Adriatic Insurance Company with a $1,000
deductible.
U.S. Trucking, Inc. has a package policy with St. Paul Insurance Company for
contents, general liability, crime coverage and building coverage.
U.S. Trucking, Inc.'s insurance agents are:
Transportation Underwriters American Financial
10602 Timberwood Circle 100 Wall Street
Suite #9 New York, New York 10005
Louisville, KY 40203 Rep: Dennis O'Conner
Rep: David Huff
<PAGE>
<PAGE>
DISCLOSURE SCHEDULE (5(c))
INDEBTEDNESS
1. Wicks-FMW $2,510,200.00
2. Kenworth-Trac 1,165,743.00
3. GECC-Tilden 1,684,758.41
4. GECC-Jay & Jay 428,042.83
5. Associates 500,475.95
6. Associates 515,004.04
7. Navistar 329,898.10
8. ITC-Acceptance 397,928.23
<PAGE>
<PAGE>
DISCLOSURE SCHEDULE (5(h))
LIENS
Wisconsin Department of Revenue - Withholding Tax of $50,000
Gulf Northern Transport, Inc.:
<TABLE>
<CAPTION>
SECURED PARTY: JURISDICTION TYPE: COLLATERAL/OTHER
<S> <C> <C> <C>
Associates Leasing Inc Sec. of State of Wisconsin Finance Specified Vehicles
Associates Leasing Inc Sec. of State of Wisconsin Finance Specified Vehicles
Transport Clearings LLC Sec. of State of Wisconsin Amend All present and future
accounts
ITT Commercial Finance
Corp. Sec. of State of Wisconsin Finance Specified Equipment
including Proceeds and
Product
GFC Leasing Div. of Sec. of State of Wisconsin Finance Leased Business
Gordon Flesch Co. Inc. Machinery/Equip.
Including Proc.
Monarch Capital Sec. of State of Wisconsin Finance All equipment pledged
Corporation to Debtor pursuant to
Financing Agreement
Transport Clearings, Woods County, Wisconsin Finance All present and future
LLC accounts
Bridgestone/Firestone Woods County, Wisconsin Judgement $13,992.82
Inc.
William Orr Woods County, Wisconsin Judgement $2231.96
William Orr Woods County, Wisconsin Judgement $1702.59
Bill Willey Woods County, Wisconsin Judgement $17,286.77
Anthem Health&Life Ins. Woods County, Wisconsin Judgement $21,731.90
Co.
Harold La Chapelle Woods County, Wisconsin Judgement $3625.00
Newport Communications Woods County, Wisconsin Judgement $1405.50
Div. of HIC Corporation
Comdata Network Inc. Woods County, Wisconsin Judgement $1070.82
State of WI Woods County, Wisconsin Judgement $1791.53
Martinovich Trucking Woods County, Wisconsin Judgement $1923.54
Koch Refining Company Woods County, Wisconsin Judgement $7702.75
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $11,635.56
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4325.80
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4299.57
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4275.08
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4248.86
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4220.89
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4194.63
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4056.00
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $3882.35
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $3841.02
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4427.34
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $3483.29
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4797.33
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $5358.23
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $2693.34
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $2276.68
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $3718.75
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $2522.20
<PAGE>
<PAGE>
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $3160.38
WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $2683.03
Transport Clearings, Charleston County, South Finance All present and future
LLC Carolina accounts
Transport Clearings, Sec. of State of South Finance All present and future
LLC Carolina accounts
Transport Clearings, Sec. of State of South Finance All present and future
LLC Carolina accounts
AT&T Corp. Charleston County, South Judgement $7000.00
Carolina
Inland Detroit Charleston County, South Judgement $4282.47
Carolina
Diesel-Allison, Inc
Unity Mutual Insurance Charleston County, South a Judgement $7000.00
Co. Carolina
Transport Clearings, Sec. of State of Florida Finance All present and future
LLC accounts
</TABLE>
Mencor, Inc.:
<TABLE>
<CAPTION>
SECURED PARTY: JURISDICTION TYPE: COLLATERAL/OTHER
<S> <C> <C> <C>
Transport Clearings, Sec. of State of S. Finance All present and future
LLC Carolina accounts
Transport Clearings, Charleston County, South Finance All present and future
LLC Carolina accounts
CountyClerk Sec. of State of South Tax $1242.97
Carolina
</TABLE>
<PAGE>
<PAGE>
DISCLOSURE SCHEDULE (6.1)
ACTIONS TO PERFECT LIENS
UCC Filings:
Gulf Northern Transport, Inc. - Secretary of State of South
Carolina and Charleston County
Mencor, Inc. - Secretary of State of South Carolina and Charleston
County
U.S. Trucking (Nevada and Colorado)- Secretary of State of South
Carolina and Charleston County, Secretary of State of Kentucky and
Jefferson County
Mortgage Recordings:
Wisconsin real property located at 810 25th Avenue North, Wisconsin
Rapids, Wisconsin 54495
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement ("Agreement") is made as of this
30th day of December, 1998, by and among Mid-Cal Express, Inc., a
California corporation ("Company"); Gulf Northern Transport, Inc., a
Wisconsin corporation ("Manager"); and solely as respects matters relating to
it in this Agreement, Prime Companies, Inc., a Delaware corporation
("PCI").
RECITALS
WHEREAS, Company, a subsidiary of PCI, is engaged in the freight
transportation industry primarily through the use of tractor trailer trucks
throughout the United States and a terminal facility located at 21496 Main
Street, Grand Terrace, CA (the "Terminal");
WHEREAS, Manager, a subsidiary of U.S. Trucking, Inc., a Colorado
corporation, is engaged in the business of managing and operating fleets of
tractor trailers for the purpose of freight transportation and terminal
facilities throughout the United States;
WHEREAS, Company wishes to engage Manager for the purpose of managing its
freight transportation and terminal operations and Manager wishes to provide
such services to Company;
NOW, THEREFORE, in consideration of the mutual terms and conditions
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto hereby
agree as follows:
1. ARTICLE - DEFINITIONS
As used herein:
1.1 "Beginning Time" means 12:01 p.m. (Pacific time) on December 30,
1998.
1.2 "Delivery Point" means the end point of a shipment.
1.3 "Existing Trip-In-Transit" means a Trip-In-Transit commencing prior
to the Beginning Time and in progress as of the Beginning Time.
1.4 "Pick Up Point" means the beginning point of a shipment.
1.5 "Rolling Stock" means all tractors and trailers owned, operated
and/or managed by Company.
1.6 "Shipping Contracts" means all contracts, orders and arrangements
of Company with shippers for Company to transport goods and products of
shippers from Pick Up Points to Delivery Points. These contracts may be
evidenced by invoices, bills of lading, shipping receipts and any and all
other forms of understanding by and between a shipper and a transporter.
<PAGE>
<PAGE>
1.7 "Trip- In-Transit" means a shipment at any point between the Pick
Up Point and the Delivery Point.
2. ARTICLE - TERM OF ENGAGEMENT
2.1 Term of Engagement. Manager shall perform the management services
provided herein for a term commencing as of the Beginning Time and continuing
through 12:01 a.m. (Pacific time) on February 28, 1999 (the "Termination
Date"). Manager, at its sole discretion may extend the Termination Date from
time to time, provided, however, that in order for the Termination Date to
extend beyond June 30, 1999, such extension shall be by a written agreement
signed by the Company and the Manager. Manager shall not have the obligation
to perform any of the management services provided herein after the
Termination Date, as it may be extended as provided in this paragraph 2.1.
3. ARTICLE - SERVICES TO BE RENDERED
3.1 Existing Trips-In-Transit. The Manager's obligation to perform any
management services with respect to any Existing Trip-In-Transit shall be
determined by the parties on a trip-by-trip basis.
3.1.1 Existing Trips-In-Transit Managed by Manager. In the event
that the parties determine that the Manager is to perform management services
with respect to a particular Existing Trip-In-Transit, then the following
shall apply: (i) the Manager will assume billing and collection responsibility
for such Existing Trip-In-Transit, (ii) the Manager will create a new billing
code separate and distinct from any initial billing code created for such
Existing Trip-In-Transit to reflect the assumption of the responsibilities for
such Existing Trip-In-Transit by the Manager, and (iii) the Company will fully
cooperate with the Manager in notifying the shipper of the transfer of
responsibility for such Trip-in Transit and will assist the Manager in its
billing and collection efforts respecting such Existing Trip-In-Transit to the
extent requested by the Manager.
3.1.2 Existing Trips-In-Transit Not Managed by Manager. In the
event that the parties determine that the Manager is not to perform services
with respect to a particular Existing Trip-In-Transit, then the Manager shall
have no obligations with respect to or any responsibility for such Existing
Trip-In-Transit and all of the Company's responsibilities and obligations with
respect to such Existing Trip-In-Transit shall remain with the Company.
3.2 Basic Management Services. With respect to all: (i) Existing
Trips-In-Transit for which the parties have agreed that the Manager will
perform management services pursuant to paragraph 3.1 above; (ii) Shipping
Contracts entered into after the Beginning Time; (iii) all Rolling Stock from
and after the Beginning Time; and (iv) the other activities of the Company
from and after the Beginning Time, the Manager shall render management
services in connection with the day-to-day operations of the Company which
shall include, without limitation, rendering advisory services with respect to
any: (a) dealings between the Company and any lender, (b) insurance issues,
(c) negotiating owner-operator settlements, (d) matters related to the
continued employment or severance of Company employees; and (e) other matters
as to which to the Company may request advice from the Manager from time to
time.
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3.3 Billing, Collections and Accounting. The Manager shall be
responsible for all billings and collections with respect to: (i) all Existing
Trips-In-Transit for which the parties have agreed pursuant to paragraph 3.1
above that the Manager will perform management services, Terminal charges;
and (iv) all other revenue producing activities related to the Company. The
Manager shall receive all such proceeds and, during the term of this
Agreement, shall regularly report on such accounts to the Company and/or the
Company's creditors, as appropriate. The Manager shall have no responsibility
for and will not conduct any billing or collection activities with respect to
any account created before the Beginning Time and for which the parties have
not agreed pursuant to paragraph 3.1 above that the Manager would have
responsibilities with respect thereto unless and until the parties otherwise
agree in writing that the Manager shall have such billing and collection
responsibilities.
4. ARTICLE - MANAGEMENT FEES AND PAYMENT OF COSTS
4.1 Management Fees. Manager shall be entitled to receive management
fees of an amount equal to 2% of all revenues collected pursuant the terms of
this Agreement, but in any event not in excess of $40,000.
4.2 Costs Incurred by the Manager. All obligations and costs,
including without limitation, to employees, vendors, lenders and lessors, and
a proportionate share of professional fees incurred by Manager under the terms
of this Agreement, shall be paid as provided in paragraph 4.4 below.
4.3 Costs Incurred by the Company. All obligations and costs,
including without limitation, to employees, venders, lenders and lessors
(subject to the express provisions of paragraph 4.6.2 below) incurred by the
Company prior to the Beginning Time and all costs with respect to the
completion of an Existing Trip-In-Transit for which the parties have not
agreed pursuant to paragraph 3.1 above that the Manager will have
responsibilities with respect thereto shall continue to be the obligations of
the Company, and shall be paid by the Company, and the Manager shall have no
obligation therefor.
4.4 Use of Proceeds Collected by the Manager. The Manager shall apply
the proceeds collected by Manager pursuant to paragraph 3.3 in the following
order and priority: (i) first, to the payment of any obligations and costs
required to be paid by the Manager pursuant to paragraph 4.2 above, (ii)
second, to the payment of any management fees owed to the Manager pursuant to
Section 4.1 above, and (iii) thereafter, the balance of such proceeds shall be
placed on deposit in a federally insured banking institution for payment to
Company or any assignee, receiver or trustee duly appointed with respect to
Company's assets or business.
4.5 Manager's Receipt of $100,000 Deposit. The parties acknowledge
that prior to the date of this Agreement, PCI delivered to the Manager a
$100,000 deposit. The parties further agree that subject to consent of the
Steering Committee, the Manager may use all or a portion of this $100,000
deposit to reimburse the Manager for any costs incurred by the Manager
pursuant to paragraph 4.2 above and not otherwise reimbursed pursuant to
paragraph 4.4 above.
4.6 Funding by Company and PCI. Company or PCI shall advance from
time to time as required the amounts as set forth in this paragraph 4.6.
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4.6.1 Operating Advances. Company or PCI shall advance amounts which
will be in the total sum of not in excess of $150,000 to fund any costs of
Company incurred during the term of this Agreement in the event that, from
time to time, collections of revenues due the Company, including from the
collection of accounts receivable, are insufficient to meet Company's
operating obligations. Each such advance shall be made by Company or PCI
one business day's notice from Manager. Notice may be given by Manager to
Company by verbal or written communication to either of the Company's members
of the Steering Committee, or such other representative of Company as shall be
designated by either such member. Company and PCI shall be reimbursed for any
such advance from the collections of Company's accounts receivable collections
after other monetary obligations under this Agreement shall have been
satisfied.
4.6.2 Lease and Finance Payment Obligations. Company acknowledges that
certain installments due under agreements with lenders financing the purchase
of Rolling Stock of Company and lessors under leases by the Company of Rolling
Stock ("Equipment Financing and Lease Agreements") are past due, causing such
agreements to be in default. Manager will use its best efforts to renegotiate
such Equipment Financing and Lease Agreements so that to the fullest extent
possible such past due installments can be included in the renegotiated terms
of such Equipment Financing and Lease Agreements, and the defaults thereunder
deemed satisfied by such renegotiated terms. However, Company acknowledges
that the renegotiated terms may include the requirement that at least some
portion of the installments in default be paid ("Cure Payments") prior to or
concurrently with the modification of such agreements. Company and PCI agree
that they shall be responsible for the payment of 50% of any required Cure
Payment. Manager agrees that it shall assume the responsibility for payment of
the remaining 50% of any such Cure Payment. Company or PCI shall pay Company's
share of any required Cure Payment upon one business day's notice from
Manager. Notice may be given by Manager to Company by verbal or written
communication to either of the Company's members of the Steering Committee, or
such other representative of Company as shall be designated by either such
member. Any portion of a Cure Payment made by Manager shall be subject to
reimbursement as a cost incurred by the Manager as provided in paragraphs 4.2
and 4.4 hereinabove. Company or PCI shall be reimbursed for any such Cure
Payment from the collections of Company's accounts receivable after other
monetary obligations under this Agreement shall have been satisfied, but prior
to the satisfaction of any reimbursement to which Company or PCI is entitled
under sub-paragraph 4.6.1 above.
5. ARTICLE - MISCELLANEOUS
5.1 Steering Committee. During the term of this Agreement, Irving
Pfeffer and David Leflowitz, as representatives of Company, and Anthony Huff
and Danny Pixler, as representatives of Manager, shall constitute a Steering
Committee. Anthony Huff shall serve as chair of the Steering Committee and
may call meetings, which may be telephonic, on 24 hours verbal or written
notice, to the members of the Committee. The responsibilities of the Steering
Committee shall to be oversee and insure the performance of the
responsibilities of the Manager and the Company under this Agreement, and to
make such decisions as are assigned to the Steering Committee under this
Agreement.
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5.2 Personnel. Any and all employees and owner/operators independently
engaged by the Company prior to the Beginning Time may be employed or engaged
by the Manager for the purposes of this Agreement. Commencing as of the
Beginning Time through the Termination Date, as it may be extended pursuant to
paragraph 2.1, the Manager, and not the Company, shall have the right to fire
or otherwise disengage the employment or independent contractor services of
any Company personnel which in the Manager's sole judgment are not required or
desirable for the continued operations of the Company. The Company shall have
no right, under any circumstances, to countermand any personnel decisions by
the Manager as provided in this paragraph 5.2.
5.3 Terminal. The Company acknowledges that it has a lease on the
Terminal. During the term of this Agreement, the Manager shall have the right
to occupy and operate from the Terminal without interference from the Company,
and any continued use of the Terminal during this period by the Company shall
be subordinate to the occupancy and operational rights of the Manager.
5.4 Facilitation. The parties will fully cooperate with each other in
facilitating the intent and purposes of this Agreement, including, without
limitation: (i) the delivery by the Company to all of its customers of a
letter in form substantially as attached hereto as Exhibit "A" notifying them
of this Agreement; and (ii) the execution of appropriate authorizations for
the Manager to utilize its operating authority to manage and operate the
Company's Rolling Stock as contemplated in this Agreement.
5.5 Further Agreements. Company and Manager intend this Agreement to
remain applicable for a limited period of time to enable Company and PCI, on
the one hand, and Manager and Manager's parent, U.S. Trucking, Inc., on the
other hand, to negotiate in good faith an Agreement whereunder Manager and/or
U.S. Trucking, Inc. will acquire substantially all of the operating assets of
Company in exchange for which Company shall receive 400,000 shares of U.S.
Trucking, Inc., having a market value as of the date on which such Agreement
is made not in excess of $5 million. The parties also agree, however, that
such a transaction will not be consummated until satisfactory arrangements are
in place for the payment of amounts owing to Company's creditors, or other
arrangements satisfactory to Company's creditors have been agreed upon. In
that regard, during the term of this Agreement, Company hereby agrees not to
take any action, including any action which would cause the filing of a case
under the United States Bankruptcy Code by Company, or which would cause any
creditor of Company to file an involuntary case under the United States
Bankruptcy Code, or which could or would result in the appointment of an
assignee for the benefit of creditors or a receiver, unless any such action is
first agreed to and approved by Manager.
5.6 Pledge of Company Stock. PCI hereby agrees to fully cooperate with
Manager and Manager's parent, U.S. Trucking, Inc. in insuring the full and
faithful performance by Company of its obligations under this Agreement, and
to facilitate the consummation of an agreement as contemplated in paragraph
5.5 hereinabove. In that regard, during the term of this Agreement, PCI
hereby agrees not to take any action, including any action which would cause
the filing of a case under the United States Bankruptcy Code by Company, or
which would cause any creditor of Company to file an involuntary case under
the United States Bankruptcy Code, or which could or would result in the
appointment of an assignee for the benefit of creditors or a receiver, unless
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any such action is first agreed to and approved by Manager. As security for
the full and faithful performance of the obligations of PCI and Company under
this paragraph 5.6, PCI is concurrently executing a pledge and security
agreement in the form of Exhibit "B" attached hereto (the "Pledge and Security
Agreement), which pledges to Manager all the outstanding capital stock of
Company. The Pledge and Security Agreement shall be in full force and effect
so long as this Agreement remains in effect; and, if, prior to the termination
of this Agreement, Manager shall have commenced enforcement efforts or been
required to defend its rights under this Agreement or the Pledge and Security
Agreement, as long as necessary thereafter to enable Manager to enforce or
protect its rights under the Pledge and Security Agreement.
5.7 Attorneys' Fees. The prevailing party in any litigation commenced
to enforce or defend the provisions of this Agreement shall be entitled to an
award of reasonable attorneys' fees and costs incurred in such litigation and
otherwise incurred in the protection of such party's interests hereunder.
5.8 Governing Law. This Agreement and the application or
interpretation hereof shall be governed and construed exclusively by its terms
and by the laws of the State of California, without regard to principles of
conflict of laws.
5.9 Forum Selection. Each party hereto irrevocably submits to the
exclusive jurisdiction of any California State or United States Federal Court
sitting in Los Angeles County, California over any suit, action or proceeding
arising out of or relating to this Agreement or the transactions contemplated
herein. Each party waives, to the fullest extent permitted by law, any
objection that it may have to the laying of venue of any such suit, action or
proceeding brought in such a court and any claim that any such suit, action or
proceeding brought in such a court has been brought in an inconvenient forum.
5.10 Severability. Each provision of this Agreement is intended to be
severable. If any provision hereof is illegal or invalid, such illegality or
invalidity shall not affect the validity of the remainder hereof.
THIS AGREEMENT is entered into as of the day and year first written
above.
MANAGER:
GULF NORTHERN TRANSPORT, INC., a
Wisconsin corporation
By: /s/ Danny Pixler
Its: President
COMPANY:
MID-CAL EXPRESS, INC., a California
corporation
By: /s/ Irving Phieffer
Its: Chairman
PCI: [with respect only to those matters
relating to PCI under this Agreement]
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PRIME COMPANIES, INC., a Delaware
corporation
By: /s/ Irving Phieffer
Its: /s/ Chairman
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SUBSIDIARIES OF THE REGISTRANT
State of
Name Incorporation
---- -------------
U.S. Trucking, Inc. Nevada
Gulf Northern Transport, Inc. Wisconsin
Mencor, Inc. Arkansas
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 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
February 4, 1999
