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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to __________
Commission File No. 33-9640-LA
U.S. TRUCKING, INC.
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Name of Small Business Issuer in its Charter
Colorado 68-0133692
- ------------------------------- -----------------------------
State or Other Jurisdiction I.R.S. Employer Identification
of Incorporation or Organization Number
550 Long Point Road, Suite C
Mt. Pleasant, South Carolina 29464
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Address of Principal Executive Offices, Including Zip Code
Registrant's telephone number, including area code: (843) 972-2055
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
The Issuer's revenues for the most recent fiscal year were $44,628,631.
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
As of April 27, 2000, 9,282,761 shares of the Registrant's Common Stock were
outstanding, and the aggregate market value of the shares held by non-affiliates
was approximately $14,300,000.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (Check One:) Yes [ ] No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
U.S. Trucking is a non-asset based freight transportation and brokerage
services provider. We transport and arrange for the transportation of full
truckloads of both refrigerated and non-refrigerated commodities over various
distances on a nationwide basis.
Our truckload division operates approximately 445 tractors and 337
trailers through independent contractors and agent operators.
We intend to expand our business through internal growth and acquisitions.
The transportation industry is highly fragmented, which provides a large number
of acquisition opportunities. We are primarily interested in medium to long haul
truckload carriers, container and freight brokerage operations, with annual
revenues of not less than $5.0 million.
HISTORY AND DEVELOPMENT OF U.S. TRUCKING
U.S. Trucking, a Colorado corporation, was incorporated in Colorado under
the name Northern Dancer, Inc. in January 1987 for the purpose of acquiring an
operating company. It completed a small public offering in 1988. In September
1998 it completed a reverse acquisition of U.S. Trucking, Inc., a Nevada
corporation, which is now a wholly-owned subsidiary. U.S. Trucking-Nevada has
two operating subsidiaries which it acquired in early 1997 just after it was
incorporated. These are Gulf Northern and Mencor. We have since added two other
operating subsidiaries. These are Prostar, Inc. and UST Logistics, Inc. UST was
formerly Checkmate Truck Brokerage, Inc. and Maverick Truck Brokerage, Inc.
Our primary operating subsidiary, Gulf Northern, has operated as a
truckload carrier since it was formed in 1991. Current management purchased Gulf
Northern in 1995. Except as discussed below, in the past three years there have
been no material developments in the Gulf Northern business in terms of
reorganizations, management changes or operations. In an effort to increase the
size and scope of its business and to obtain access to expansion capital, its
management sold it to U.S. Trucking-Nevada in early 1997 in exchange for a 25%
ownership interest in U.S. Trucking-Nevada. The remainder of U.S.
Trucking-Nevada was owned by U.S. Transportation Systems, Inc., at the time, a
publicly-traded transportation company. In exchange for its ownership interest
in U.S. Trucking-Nevada, U.S. Transportation Systems had contributed to U.S.
Trucking-Nevada certain assets and liabilities of Jay and Jay Transportation,
Inc. and Translynx Express, Inc. Jay and Jay was a New York based short-haul
truckload carrier operating primarily in the Northeast. Translynx offered
roller-bed truckload services, primarily to UPS between Florida and Kentucky.
The Translynx business was discontinued in early 1998.
As it became clear that the expected benefits from affiliating with U.S.
Transportation Services would not be forthcoming, Messrs. Huff and Pixler
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arranged for Logistics Management, LLC to repurchase the majority position
held by U.S. Transportation Systems.
Since September 1998 we have significantly expanded the size and scope of
our business through five acquisitions. In December 1998 we acquired the assets
of Mid-Cal Express, Inc., a California based long-haul truckload carrier, for
400,000 shares of our common stock and the assumption of approximately $5.7
million of obligations. This acquisition expanded the scope of our services from
coast-to-coast and into Canada, and increased our average length haul.
In April 1999 we acquired Prostar, Inc., a South Carolina based freight
brokerage business with approximately $6 million in annual revenues, for
$300,000 cash and 200,000 shares of common stock.
In June 1999 we acquired the intermodal business of Excalibur Express,
Inc., a Charleston, SC based company with approximately $6 million annual
revenues, for 200,000 shares of common stock and $300,000 cash.
In August 1999 we acquired the freight agent business of Fulmer Trucking,
Inc., a Florida based $24 million revenue company. In connection with this
acquisition we opened nine new agency facilities at various locations throughout
the U.S. We paid cash and assumed or paid liabilities in an aggregate amount of
$1,806,789 for this acquisition.
As of December 1999 we transferred our tractor and trailer fleet to
One-Way Logistics, Inc., which acts as our agent for our truckload delivery
business.
In February 2000, we acquired the freight brokerage business of Checkmate
Truck Brokerage, Inc. and Maverick Truck Brokerage, Inc., Florida-based freight
brokerage companies with combined revenues of $23 million. We paid $1.0 million
cash (subject to reduction for closing date balance sheet requirements) and
385,000 shares of our common stock for these companies. This acquisition added
offices in Florida, Arizona, Texas and Washington.
THE TRUCKLOAD SEGMENT OF THE TRANSPORTATION INDUSTRY
The for-hire truckload market segment of the transportation industry
accounted for approximately $65 billion of revenue in 1998. The truckload
transportation industry currently is undergoing changes that affect both
shippers and carriers. Shippers, which are the customers of trucking companies,
have been focusing their capital resources on their primary businesses and are
outsourcing their transportation 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 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
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lower prices and with railroads on the basis of time of delivery. In the
medium-to-long haul segment, the average length of haul ranges from 750 miles
to 1,500 miles. U.S. Trucking's average length of haul is approximately 1,000
miles.
We also operate a container division from our Charleston, SC location, the
third largest port in the U.S. Also known as "intermodal" transportation, this
business primarily involves transporting container loads between port
destinations for export and import locations, either in Charleston or a final
destination elsewhere in the U.S. We have container terminals in Baltimore,
Maryland, Savannah, Georgia, Wilmington, N.C., Chicago, IL., and Newark, N.J.
TRANSPORTATION BROKERAGE SERVICES
We offer transportation brokerage services through our wholly-owned
subsidiaries Mencor, Inc., Prostar, Inc., and UST Logistics, Inc., the
acquisition vehicle for our recent purchases of Checkmate and Maverick. These
companies provide return hauls for common carriers and corporations transporting
their own goods which have completed their initial delivery. This enables the
carrier to cover the cost of returning to their home location. For this service
we receive the difference between the amount we pay the returning shipper or
carrier to effect the move, and the amount we receive from the shipper. Mencor
was incorporated as an Arkansas corporation in 1994 by Roxanne Pixler and
Michael Menor. They sold Mencor to U.S. Trucking-Nevada in the transaction
discussed above in which Gulf Northern was sold. The Mencor business has been
integrated with Prostar to improve customer service.
Prostar was incorporated as a South Carolina corporation in October 1996.
Checkmate and Maverick were incorporated as Florida corporations in February
1983 and April 1996, respectively.
AGENT PROGRAM
In 1999 we instituted an agent program, pursuant to which we allow small
carriers to operate under our authority as an agent. In this program the agent
provides its customers and business. We collect all of the revenue from the
shippers and pay the agent 85-89% of the revenue less certain expenses we pay
such as fuel costs and pallet costs. We provide the agent with liability
insurance coverage and certain administrative services such as billing and
collecting receivables. We also provide the agent with access to our other
insurance coverages such as medical and hospitalization insurance. The agent is
required to deposit one percent (1%) of its revenue in an escrow to cover any
bad debts, and it must pay all cash expenses including tolls, tractor washes,
and any of its own other operating expenses.
With the recent transfer of our transportation equipment to One-Way
Logistics, all of our truckload business is effected through agents.
INSURANCE
In 1998 we commenced offering auto/truck liability insurance to other
transportation companies in order to take advantage of the underwriting profit
potential of our captive insurance program. Policies are for $1 million,
combined, single limit. Insured companies must abide by our safety and
maintenance manual procedures in order to obtain insurance under the program.
American Financial Services, Inc. acts as program manager and Transportation
Underwriters Agency serves as broker. American negotiates pricing with the front
end carrier and monitors claims, regulatory filings and policy issuance.
American has also developed other insurance products which we are now offering,
e.g. excess and umbrella liability insurance. Legion Insurance Company is the
front-end carrier and receives a fee for issuing policies and
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monitoring claims administration and aggregate reinsurance. Transportation
Underwriters Agency pays us fees for various services relating to the program,
and we also profit under the program to the extent payouts and other expenses
are less than premiums.
OPERATING STRATEGY
Our operating segments focus on providing a high level of transportation
services to a diverse customer base ensuring consistent growth opportunities in
our over the road operation, our intermodal segment, our brokerage logistics
segment and our auto liability captive insurance segment. Throughout 1999 we
made a concerted effort to move into the non-asset based business segments (i.e.
increase in intermodal utilizing owner operators and in the increase of our
agent program and brokerage segment) both of which are margin based and are
providing avenues for improved profits. At the beginning of 1999 less than 15%
of our revenues came from the non-asset based segments (intermodal and brokerage
logistics). The planned move in the non-asset based businesses help US Trucking
lower its operating expenses as a percent of revenue and reduce our dependency
on driver recruiting.
We seek to provide premium service with commensurate rates, rather than
compete primarily on the basis of price. The principle elements of US Trucking's
service include: regional terminals to facilitate the intermodal operations,
brokerage operations and a single terminal to facilitate the over the road
operations. Our company operates late model equipment in the over the road
operation utilizing fully integrated computer systems with onboard
communications systems and utilizes regional terminals to facilitate the
intermodal operations and the brokerage logistics operations providing the
ability to respond promptly to customers' requirements and to meet increases in
business opportunity quickly.
Our auto liability captive insurance segment compliments the transportation
segments of our company by offering auto liability coverage to selected
individual third party companies which the company earns fees from by allowing a
related party company to use its captive insurance facility.
We believe that our operating strategy positions us to capitalize on
evolving trends in the transportation industry. In particular the increase in
world trade provides unlimited opportunities in the intermodal segment and the
need to provide full logistical services to multi level customers seeking to
reduce cost through outsourcing which affords us unlimited opportunities in the
brokerage logistics segment. Our auto liability captive insurance program allows
us to control our insurance cost and also provides a profitable business
segment. As a medium sized transportation provider with the capability to offer
a wide range of premium services, we are well positioned to capitalize on
current trends.
ACQUISITION STRATEGY
We are actively seeking acquisition candidates in the container, freight
brokerage and truckload segments of the transportation industry. We are
primarily seeking targets with not less than $5.0 million in annual revenues.
We intend to use a combination of cash, stock, debt and equity securities
to facilitate our acquisition and expansion plans. No assurance can be given
that we will be able to effect this strategy.
MARKETING
We market high quality, "just-in-time", temperature-sensitive and dry
freight truckload services in the truckload carrier market.
Our operations are nationwide, with an emphasis on the Midwest, Southeast
and Northeast United States. We believe that we have established a presence in
these regions and have developed a competitive ability for the return shipment
of goods, which reduces the amount of empty truck miles and increases overall
productivity and profitability.
Marketing personnel emphasize our commitment to high levels of service,
flexibility, responsiveness, analytical planning and information management in
order to position us to serve customers' demands for time definite pickup and
delivery. Our marketing personnel seek to strengthen our position with existing
customers and establish ourselves with prospective customers.
We maintain a strong commitment to expanding our relationships with
existing customers. Customer shipping patterns are monitored daily, allowing us
flexibility in responding rapidly to the varying service demands of our
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customers. We have written motor carrier contracts with many of our customers.
The contracts generally specify lanes (i.e. regions) to be serviced and
negotiated price agreements; they do not have any provision regarding the volume
to be carried.
OPERATIONS
Each of our terminals is headed by a terminal manager. Some locations
include maintenance facilities and driver lounges, and all are active in the
recruiting of drivers and all provide local or regional customer service and
dispatch functions.
We are in the process of outsourcing many of our "backroom" functions to
Professional Transportation Group Ltd., Inc., an Atlanta-based transportation
company majority owned by Logistics Management, LLC, our majority shareholder.
We are effecting this change to take advantage of the superior computer and
communications systems of PTG over the systems we have inherited through our
acquisitions. The functions which will be migrated to PTG include accounting,
payroll, dispatch and safety. We will pay PTG a fee of 3% of the amounts PTG
bills for us in consideration of such services. In connection with this
relationship we will also be given use of up to 150 Qualcomm tracking satellite
units for use with company tractors.
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DRIVERS
All of the drivers used by our agents must meet specific guidelines
relating primarily to safety record, driving experience and personal evaluation,
including DOT mandated drug testing and personal background checks. We recruit
and retain drivers by offering competitive compensation packages, purchasing
quality tractors and equipping them with optimal comfort and safety features
such as air-conditioning, power steering, engine brakes and sleeper cabs,
generating driver friendly freight, maintaining an open door policy, paying
bonuses, providing a stock ownership program, and emphasizing training and
retention programs. We maintain experienced driver recruiters.
We require that prospective drivers have a minimum of one year of truck
driving experience in order to be considered for a position. In addition, new
drivers are required to meet all DOT requirements. Upon hiring a driver, we
conduct an orientation program covering such topics as our business, policies,
procedures, safety, benefits, maintenance and operation of equipment.
Our drivers and independent contractors are paid a percentage of loaded
revenue, and/or cents per mile. Drivers can earn bonuses on a per mile basis for
safety, paperwork, compliance and number of miles driven each year. All
employees, including drivers, will be eligible to participate in our 401(k) plan
and health and life insurance plans.
Although we currently have an adequate number of drivers, there can be no
assurance that we will not be affected by a shortage of qualified drivers in the
future. Significant driver turnover is a problem within the industry as a whole.
In addition, the trucking industry is experiencing a diminished workforce of
qualified drivers. As a result, we must compete with other transportation
service companies for the available drivers. We anticipate that the intense
competition for qualified drivers in the trucking industry will continue.
In addition to our driver employees, we contract with a select group of
independent contractors who own and operate their own tractors and trailers. Our
selection process for independent owner-operators is substantially the same as
the process for employees. Each owner-operator is required to enter into an
owner-operator lease agreement which is cancelable by either party upon thirty
days notice. The owner-operators provide us with an additional source of
drivers, particularly during periods of peak demand for transportation services.
INSURANCE AND SAFETY
Our safety department is responsible for training and supervising personnel
to keep safety awareness at its highest level. We have implemented an active
safety and loss prevention program at our corporate headquarters and all of our
terminals. The emphasis on safety begins in the hiring and continues in
orientation, safety training, and drug testing. Newly hired drivers, regardless
of experience level, must participate in a training program.
Our safety and loss prevention program is comprised of the ongoing
education, training and retraining of drivers regarding safe vehicle operation,
loading and unloading procedures, and accident reporting. It also includes
random drug testing. The program is overseen by our Director of
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Safety. It is our policy to reward drivers who have satisfied safety performance
goals. Safe-driver awards are presented based upon the number of miles a driver
or owner-operator accumulates in service without a "chargeable accident" as
defined by DOT regulations. Awards are presented on an annual basis and consist
of cash payments.
We have implemented a written disciplinary system for our employee drivers
and owner-operators. Pursuant to this system, disciplinary action ranges from
written warnings to immediate termination depending on the frequency and
severity of the offense. The most serious offenses include violations of local,
state or federal regulations while on duty, unauthorized use of equipment,
willful or negligent damage of equipment or property or injury to another
person, carrying, possessing or being under the influence of intoxicants or
narcotics while on duty or on our premises, possession of firearms or other
lethal weapons while on duty or while on our premises and other similar
offenses. Our Director of Safety continuously monitors driver performance and
makes recommendations to our executive officers regarding employment and
retention of drivers.
We are committed to securing appropriate insurance coverage at
cost-effective rates. The primary risks that arise in the trucking industry
consist of cargo loss and damage, personal injury, property damage and workers'
compensation claims. We maintain insurance that we believe is adequate to cover
our potential liabilities and risks.
We have set up captive insurance arrangements with an insurance company
pursuant to which we make monthly payments into a loss reserve fund in addition
to the payments we make to the insurance company. The fund is then used to pay
off claims for liability to third parties for personal injuries and property
damage up to $100,000 per occurrence and up to an aggregate of $615,000. Any
claims in excess of these limits are covered by insurance up to $1 million per
occurrence. To the extent that the annual claims are less than the amount
projected by the insurance company, we receive back a portion of the reserve
fund.
We also have an insurance policy which covers cargo loss and damage up to
$250,000 per occurrence, and an insurance policy which covers workmen's
compensation claims in amounts from $100,000 to $500,000, depending on the state
where the worker lives.
FUEL MANAGEMENT
Motor carrier service is dependent upon the availability of diesel fuel. We
manage fuel purchases by directing our drivers to certain truck stops along
designated routes that give us certain discounts in return for volume purchases
on a recurring basis. Through the use of computerized monitoring devices
imbedded in the engines of our tractors, we monitor fuel usage, miles per
gallon, cost per mile, and cost per gallon. We have not experienced any
difficulty in maintaining fuel supplies sufficient to support our operations.
Historically, we have been able to pass on a portion of fuel price increases to
our customers. Nevertheless, shortages of fuel, increases in fuel prices or fuel
tax rates or rationing of petroleum products could have a material adverse
effect on our operations and profitability.
COMPETITION
The trucking industry is highly competitive and fragmented. We compete
primarily with other medium to long-haul, temperature-controlled and dry
truckload carriers; internal shipping conducted by existing and potential
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customers and, to a lesser extent, railroads and air transportation. Although
the general effect of deregulation of the trucking industry during the 1980's
created substantial downward pressure on the industry's rate structure, we
believe that competition for the freight transported by us is based primarily on
quality of service, such as just-in-time performance, and, to a lesser degree,
on freight rates. There are a number of other trucking companies which have
substantially greater financial resources, operate more equipment or carry a
larger volume of freight than we do. We also compete with other motor carriers
in hiring qualified drivers. Our primary emphasis is service, especially to its
core carrier customers, rather than price alone. However, the industry in which
we operate is extremely price sensitive and we are responsive to competitive
price pressures.
REGULATION
The trucking industry is subject to regulatory oversight and legislative
changes which can affect the economics of the industry by requiring certain
operating practices or influencing the demand for, and the costs of providing,
services to shippers. The Department of Transportation of the United States, as
well as various state agencies that have jurisdiction over us, have broad
powers, generally governing such matters as authority to engage in motor carrier
operations, rates and charges, certain mergers, consolidations and acquisitions,
and periodic financial reporting. Rates and charges are not directly regulated
by these authorities. As primarily a contract carrier, we negotiate competitive
rates directly with customers as opposed to relying on schedule tariffs. State
agencies impose tax, license and bonding requirements.
The Motor Carrier Act of 1980 commenced a program to increase competition
among motor carriers and to diminish regulation in the industry. Following this
deregulation, applicants have more easily been able to obtain DOT operating
authority, and interstate motor carriers have been able to impose certain rate
changes without DOT approval. The Motor Carrier Act also removed many route and
commodity restrictions on transportation of freight. Gulf Northern has held
specific commodity and territory authority from the Illinois Commerce Commission
since 1939. Gulf Northern holds authority to carry general commodities
throughout the 48 contiguous states, as both a common and contract carrier, and
it holds various intrastate authorities.
Under the Negotiated Rates Act of 1993, certain procedures must be followed
for resolving claims involving unfiled, negotiated transportation rates.
Generally, when a claim is made by a motor carrier of property for the
collection of rates and charges in addition to those originally billed and
collected by the carrier, the person against whom the claim is made may elect to
satisfy the claim pursuant to certain provisions specified in the Negotiated
Rates Act. The Negotiated Rates Act specifies the types of disputes to be
resolved by the ICC and allows for the nonpayment of the disputed additional
compensation until the dispute is resolved. We believe that we are in compliance
in all material respects with the provisions of the Negotiated Rates Act.
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Such matters as weight and dimensions of equipment are
also subject to federal and state regulation. All of our drivers are required to
obtain national commercial driver's licenses pursuant to regulations promulgated
by the DOT. DOT regulations impose mandatory drug testing of drivers. We have
implemented a random drug-testing program in accordance with these regulations.
In addition, we are required to implement alcohol and drug rules imposed by the
DOT which prohibit any alcohol or drug use prior to and
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during driving and while performing safety-sensitive functions such as loading,
unloading, inspecting, waiting for dispatch, resting in a sleeper birth, and
other specified times. We comply with all applicable regulations imposed on our
employees and owner-operators. The DOT's national commercial driver's license,
drug testing requirements and new alcohol and drug-use regulations have not to
date and are not expected to adversely affect the availability to us of
qualified drivers.
Our operations are subject to federal, state and local laws and regulations
concerning the environment. We have not received any notices from any regulatory
authority relating to any violation of any environmental law and incur no
material costs specifically related to compliance with such laws.
EMPLOYEES
We employ 225 persons, of whom 121 are Company drivers, seven are shop
personnel, 66 are in operations dispatch or brokerage and 3 administrative
responsible for safety, billing, accounting and collections. None of our
employees are represented by a collective bargaining unit and we have never
experienced a work stoppage. We believe that our relations with our employees is
good.
ITEM 2. DESCRIPTION OF PROPERTY.
All of our offices and terminals are leased. Our executive office is
located in Mt. Pleasant, South Carolina, where billing, collections, brokerage,
banking and overall management of U.S. Trucking take place. The lease, which
expires February 1, 2001, covers 4,000 square feet of rental space and provides
for monthly rent of $6,380. We believe that this facility is adequate for our
present needs. We recently consolidated payroll, dispatch and certain
administrative functions in our Wisconsin Rapids office and closed our Los
Angeles and Savannah offices.
We also maintain 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.
Mt. Pleasant, South Carolina Container division office (1,800 square
feet) and drop yard leased for $2,500
per month
Jacksonville, Florida A 375 square foot office and a
1,125 square foot warehouse leased
for $1,003 per month
We also have agent, container and brokerage offices in Alabama, Arizona,
Arkansas, Florida, Georgia, Illinois, Missouri, New Jersey, North Carolina,
South Carolina, Tennessee, Texas, and Washington.
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ITEM 3. LEGAL PROCEEDINGS.
We have 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. We are not party to
any litigation which, individually or in the aggregate, management believes will
have a material adverse effect on our financial condition or operations. We
maintain insurance that we believe is adequate to cover our liability risks. See
"BUSINESS-SAFETY AND INSURANCE."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1999.
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PART II
ITEM 5. MARKET PRICES AND DIVIDENDS.
Our common stock trades in the over-the-counter market, under the symbol
"USTK". There were no quotations for the 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 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.
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
-------------- -------- -------
<S> <C> <C>
September 30, 1998 $1.875 $0.002
December 31, 1998 $4.50 $0.75
March 31, 1999 $5.68 $3.00
June 30, 1999 $3.75 $2.31
September 30, 1999 $4.72 $2.625
December 31, 1999 $4.56 $2.50
</TABLE>
As of March 28, 2000, we had 310 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 our
board of directors. No dividends have been paid on our common stock and no
dividends are anticipated to be paid in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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You should read the following discussion in conjunction with the
Consolidated Financial Statements, including the footnotes, and understand that
this discussion is qualified in its entirety by the foregoing and other more
detailed financial information appearing elsewhere herein. Historical results of
operations and the percentage relationships among any amounts included in the
Consolidated Statement of Operations, and any trends which may appear to be
inferable therefrom, should not be taken as being necessarily indicative of
trends of operations or results of operations for any future periods.
These and other statements, which are not historical facts, are based
largely on current expectations and assumptions of management and are subject to
a number of risks and uncertainties that could cause actual results to differ
materially from those contemplated by such forward-looking statements.
Assumptions and risks related to forward-looking statements, include that we are
pursuing a growth strategy that relies in part on the completion of acquisitions
of companies in the trucking, logistics and intermodal segments of the
transportation industry.
Assumptions relating to forward-looking statements involve judgements with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many which are beyond our control. When
used in this Annual Report, the words "estimates", "projects", and "expect" and
similar expressions are intended to identify forward-looking statements.
Although we believe that assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the results contemplated in the forward-looking
information will be realized.
Management decisions are subjective in many respects and susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impacts of which may cause us to alter our business strategy,
which may in turn, affect our results of operations. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as our representation that
statements contained in this Annual Report speak only as of the date of this
Annual Report, and we do not have any obligation to publicly update or revise
any of these forward-looking statements.
Such statements may include, but are not limited to, projections of
revenues, income, or loss, capital expenditures, plans for future operations,
financing needs or plans, the impact of inflation and plans relating to the
foregoing. Statements in the Company's Form 10-KSB, including Notes to the
Consolidated Financial Results of Operations, describe factors, among others,
that could contribute to or cause such differences.
Tax Benefit. During 1999, because of acquisitions made by the company, it
became more likely than not that the net operating loss carryovers generated
from 1995 to 1999
13
<PAGE> 14
would be fully used by the time the loss utilization periods expired.
Accordingly, the income tax benefit was included in income during 1999.
Prior to 1999, US Trucking incurred net operating losses for tax purposes.
Because it did not appear likely that the benefit of such losses would be used
before their expiration dates, we had limited the income tax benefit recognized
in the financial statements for those net operating losses by establishing a
valuation allowance for deferred tax assets.
The Emerging Issues Task Force addressed the accounting for decreases in
deferred tax asset valuation allowances established in a purchase business
combination as a result of a change in tax regulations and reached a consensus
that the change in the valuation amount should be recognized through the
statement of operations.
GENERAL
U.S. Trucking, Inc. was established in January of 1997 by combining under U
S Trucking-Nevada the operations of Gulf Northern Transport, a mid-to-long-haul
truckload carrier and Mencor, Inc. a third party logististics (brokerage)
company. During 1999, we acquired Prostar, Inc. (a brokerage company) and merged
Mencor, Inc. into Prostar, Inc.
U.S. Trucking, Inc.s' operating results are driven by the results of the
truckload business of its operating subsidiary, Gulf Northern Transport, Inc.,
our Captive auto liability insurance program, it's brokerage operations (ProStar
Inc.), implementation of an agent program, and the purchase of a intermodal line
of business. The Company reported a profit in each of the years ended 1999 and
1998.
RESULTS OF OPERATIONS
The following table sets forth items in the Consolidated Statement of
Operations for the years ended December 31, 1999 and 1998 as a percentage of
operating revenues.
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
OPERATING REVENUES 100.0% 100.0%
PURCHASED TRANSPORTATION & RENTALS 46.8% 34.5%
OPERATING SUPPLIES AND MAINTENANCE 3.9% 5.2%
FUEL 7.4% 9.6%
INSURANCE AND CLAIMS 6.2% 6.2%
DEPRECIATION AND AMORTIZATION 6.5% 6.8%
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C>
TAXES AND LICENSES 1.7% 2.2%
OCCUPANY COSTS 0.9% 1.3%
SALARIES, WAGES AND BENEFITS 20.7% 24.8%
MISCELLANEOUS OPERATING EXPENSES 2.0% 2.6%
ADMINISTRATIVE EXPENSES 6.4% 4.1%
TOTAL EXPENSES 102.5% 97.3%
OPERATING INCOME -2.5% 2.7%
INTEREST EXPENSE -2.5% -3.3%
OTHER INCOME 2.7% 1.0%
INCOME ( LOSS ) BEFORE INCOME TAXES -2.3% 0.4%
INCOME TAXES ( BENEFIT ) 2.6% 0.0%
NET INCOME 0.3% 0.0%
</TABLE>
Year ended December 31, 1999 vs. 1998
Operating revenues. Total operating revenue increased from $22.04 million
in 1998 to $44.74 million, or 102.9% in 1999. The reasons for this increase are
the acquisitions of Prostar, Inc., a line of business of Excalibur Express,
Inc. and Fulmer Transport, Inc. in 1999 and the inclusion of a full year of
revenue from the Mid-Cal acquisition which occurred in December 1998. In
addition, revenues from the Captive Insurance Program increased from $1.75
million in 1998 to $4.08 million in 1999.
Purchased transportation and rentals. Purchased transportation and rentals
increased from $7.59 million in 1998 to $20.95 million or 175% in 1999. As a
percentage of operating revenue, purchased transportation and rentals increased
from 34.5% in 1998 to 46.8% in 1999. Changes in the fleet mix from company owned
trucks to brokerage and owner operators as a result of the acquisitions in 1999
and the increase in operating lease expense from the Mid-Cal acquisition in
December 1998 resulted in the increase in purchase transportation as a
percentage of sales. Freight settlements from brokerage operations increased
from $1.64 million in 1998 to $4.92 million in 1999. Settlements paid to
independent contractors increased from $5.54 million in 1998 to $8.23 million in
1999. Agent settlements as a result of the Fulmer Transport, Inc. acquisition
increased from zero in 1998 to $5.80 million in 1999. Tractor and trailer
operating leases as a result from the Mid-Cal acquisition and additional
equipment leased in December 1998 increased from $.34 million in 1998 to $1.71
million in 1999.
Salaries, wages and benefits. Salaries, wages and benefits increased from
$5.47 million in 1998 to $9.26 million or 69.0% in 1999. Salaries, wages and
benefits as a percentage of
15
<PAGE> 16
total operating revenue decreased from 24.8% in 1998 to 20.7%
in 1999. The decrease as a percentage of operating revenue is attributed to the
change in revenue mix discussed in the preceding paragraph.
Fuel. Fuel expense increased from $2.10 million in 1998 to $3.29 million
or 56.4% in 1999. Fuel as a percentage of total operating revenue decreased from
9.6% in 1998 to 7.4% in 1999. The decrease as a percentage of revenue is
attributed to the change in revenue mix in the preceding paragraph. However,
fuel as a percentage of revenue generated from company owned tractors increased
from 16.8% in 1998 to 20.6% in 1999. This can be attributed to the increase of
fuel costs, which have increased approximately 40% over the prior year. Should
fuel costs remain at levels realized in the fourth quarter of 1999, we may not
be able to transfer all these additional costs to our customers. As a result,
future operations could be negatively impacted.
Operating supplies and maintenance. Operating supplies and maintenance
increased from $1.14 million in 1998 to $1.73 million or 52.3% in 1999.
Operating supplies and maintenance as a percentage of total operating revenue
decreased from 5.2% in 1998 to 3.9% in 1999. The decrease as a percentage of
total operating revenue is attributed to the change in mix of revenues generated
between company equipment, owner operators and brokerage services.
Insurance and claims. Insurance and claims increased from $1.36 million in
1998 to $2.76 million or 102% in 1999. Insurance and claims as a percentage of
total operating revenue remained constant in 1999 when compared to 1998.
Miscellaneous operating expenses. Miscellaneous operating expenses
increased from $566 thousand in 1998 to $877 thousand or 55% in 1999.
Miscellaneous operating expenses as a percentage of revenue decreased from 2.6%
in 1998 to 2.0% in 1999. The decrease as a percentage of revenue is attributed
to the change in revenue mix discussed in preceding paragraphs.
Taxes and licenses. Taxes and licenses increased from $475 thousand in
1998 to $779 thousand or 64% in 1999. Taxes and licenses as a percentage of
total operating revenue decreased from 2.2% in 1998 to 1.7% in 1999. The
decrease as a percentage of total operating revenue is attributed to the change
in revenue mix discussed previously.
Depreciation and amortization. Depreciation and amortization increased
from $1.62 million in 1998 to $2.92 million or 80.6% in 1999. Depreciation and
amortization as a percentage of total operating revenue decreased from 7.3% in
1998 to 6.5% in 1999. The decrease as a percentage of total operating revenue is
attributed to the change in revenue mix explained earlier. Depreciation expense
increased from $1.46 million in 1998 to $2.3 million in 1999. The reason for
this increase can be directly attributed to the Mid-Cal acquisition in December
1998. Amortization expense increased from $153 thousand in 1998 to $606 thousand
in 1999. The reason for this increase is from the goodwill created from the
Mid-Cal, Prostar, Excalibur Express, and Fulmer acquisitions.
16
<PAGE> 17
General and administrative. General and administrative expenses increased
from $899 thousand in 1998 to $2.89 million or 221% in 1999. General and
administrative as a percentage of total operating revenue increased from 4.1% in
1998 to 6.5% in 1999. The increase as a percentage of operating revenue can be
attributed to increased costs of being a public company. Travel expense
increased from $120 thousand in 1998 to $440 thousand in 1999. A substantial
portion of the increase in travel expenses relates to new company acquisitions
and raising capital. Investment banking and public market fees increased from
zero in 1998 to $563 thousand in 1999. Legal and accounting increased from $165
thousand in 1998 to $456 thousand in 1999. Another factor not related to being a
public entity was bad debt expense which increased from $40 thousand in 1998 to
$250 thousand in 1999.
Operating income (loss). Operating income(loss) decreased from $632
thousand or 2.9% of total operating revenues in 1998 to $(1.12) million or
(2.5%) of total operating revenue in 1999. This decrease as a percentage of
total operating revenue can be attributed to the various factors discussed
above.
Interest. Interest expense increased from $732 thousand in 1998 to $1.12
million or 52.8% in 1999. Interest expense as a percentage of total operating
revenue decreased from 3.3% in 1998 to 2.5 % in 1999. The decrease as a
percentage of total operating revenue is due to increased revenues generated
from brokerage, agents and owner operators which have minimal interest expense
associated with revenue equipment debt.
Interest and other income. Interest income increased from $1.6 thousand in
1998 to 28 thousand in 1999. Other income increased from $221 thousand in 1998
to $1.2 million in 1999. Other income as a percentage of total operating revenue
increased from 1.0% in 1998 to 2.7% in 1999. The increase as a percentage of
total operating revenue is attributed to gains on sale of equipment and
marketable securities which have increased from zero in 1998 to $1.01 million in
1999.
Net income decreased from $122 thousand in 1998 to $107 thousand in 1999. There
are two primary factors that produced our profit in 1999. One is the gain on
sale of equipment and securities mentioned in the preceding paragraph and the
other is the reduction in the valuation allowance that relates to our net
operating loss carryforwards of which we recognized a benefit of $1.14 million.
Liquidity and Capital Resources
In accordance with our strategic goals, we have experienced significant growth
during the year 1999. The growth has been achieved mainly through acquisitions
of transportation companies that meet our growth and earnings criteria. The
acquisitions have required a substantial cash investment. Aside from the cash
acquisition costs, we
17
<PAGE> 18
have invested in computer hardware and software development and office equipment
in order to support the business growth.
The funding for this expansion came from the sale of common and preferred
stock, the issuance of convertible debentures, borrowings on our revolving line
of credit and sales of revenue equipment.
Net cash (used) in operating activities amounted to ($8,888,602) for the
year-end December 31, 1999 compared to net cash of $415,032 provided by
operating activities for the year-end December 31, 1998. The decrease in cash
provided by operations is primarily attributable to an increase in notes
receivable-related parties related to the sale of revenue equipment, a gain on
disposal of equipment, an increase in deferred taxes, an increase in restricted
cash, offset by deprecation and amortization, an increase in accounts payable
and accrued expenses and a decrease in prepaid expenses and other assets.
Net cash flows from investing activities amounted to (1,142,000). The
primary reason for this was the sale of transportation equipment offset by the
cash expended on acquiring businesses and the purchase of marketable securities,
the purchase of new equipment and the investments in software development.
Net cash flows from financing activities produced $10,015,500 for the year
ended December 31, 1999 compared to a net cash outflow of $129,500 for the year
ended December 31, 1998. During 1999, the Company sold $4,632,000 of Preferred
Stock net of issuance costs, $2,149,000 Common Stock and received a capital
contribution of $401,700. The Company also issued $2,250,000 of convertible
debentures offset by a redemption of $800,000 of the debentures, a net reduction
in existing long term debt of $2,561,000 and the incurrence of a note receivable
for $997,000 net of collections.
We expect to continue to acquire transportation companies that meet our
revenue and profitability criteria. During the first quarter of 2000, we
purchased Checkmate/Maverick Truck Brokerage Inc., a $22 million national
brokerage company with regional offices in Florida, Texas, Arizona and
Washington. We expect to be able to fund this acquisition and other potential
acquisitions by the sale of common stock, preferred stock or the issuance of
convertible debentures. There is no assurance that the we will find additional
suitable acquisition candidates or raise the necessary funds with which to
accomplish future acquisitions.
We believes that we will be able to finance our needs for working capital,
facilities improvements, and software development with cash flows from
operations, borrowings under the line of credit, and the sale of debt or equity
securities. Over the long term, we expect we will be required to make capital
improvements that may require us to seek additional debt financing or equity
capital.
The availability of debt financing or equity capital will depend upon our
financial condition and results of operations as well as the prevailing market
conditions, the market price of our common stock and other factors over which we
have little or no control.
18
<PAGE> 19
ITEM 7. FINANCIAL STATEMENTS.
The Report of Independent Public Accountants appears at page F-1 and the
Financial Statements and Notes to Financial Statements appear at pages F-2
through F-40 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no changes in or disagreements with accountants on accounting
and financial disclosure required to be reported.
19
<PAGE> 20
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND OFFICERS
Our Directors and Executive Officers are as follows:
NAME AGE POSITIONS HELD
- ---- --- --------------
Danny L. Pixler 51 President, CEO and Director
W. Anthony Huff 38 Executive Vice President and Chairman
of the Board
John Ragland 34 Chief Financial Officer
Rick Kelly 46 Vice President of Operations
There is no family relationship between any Director or Executive Officer
of U.S. Trucking, Inc.
We have audit and compensation committees which both consist of Danny L.
Pixler and W. Anthony Huff.
Set forth below are the names of our directors and executive officers, all
positions and offices with us held by each such person, the period during which
he has served as such, and the principal occupations and employment of such
persons during at least the last five years:
DANNY L. PIXLER has served as the President, CEO and a director of U.S.
Trucking, Inc. since September 8, 1998, when we completed our acquisition of
U.S. Trucking-Nevada. He has served as President, Secretary and Treasurer of
U.S. Trucking-Nevada since February 1997, and as a Director since May 1998. He
served as Vice President and a director of Mencor from March 1994 until July
1998 when he became President. He has served as President, CEO and director of
Gulf Northern since March 1995. From January 1993 until March 1994, he served as
President of Joseph Land Group, a transportation company with annual sales of
approximately $130 million. From 1989 until 1993, he served as President of
Apple Lines, Inc., a truckload refrigerated carrier with $16 million in
revenues. From 1983 until 1989, he was employed by D.F.C. Transportation, the
transportation division of Dean Foods, Inc., where his final position was
Executive Vice President and General Manager responsible for the company's
truckload division with annual sales of $80 million.
W. ANTHONY HUFF has served as our Executive Vice President and Chairman of
the Board since September 8, 1998. He has provided various administrative
services to U.S. Trucking-Nevada since February 1997 and has served as Executive
Vice President and a Director since May 1998. He has also provided various
services to Gulf Northern since March 1995 and he has served as a Director since
February 1996 and as Vice President since June 1998. Mr. Huff has also served as
Vice President and Assistant Secretary of Mencor since June 1998. Mr. Huff
manages our offshore captive insurance programs and investments. From
approximately November 1995 until January 1997, he served as President and a
director of United Acquisition Corp. II, a company formed
20
<PAGE> 21
to acquire companies in the trucking business. From February 1992 until December
1996, Mr. Huff served as President of the North American Trucking Association,
an association of independent truckers engaged in the business of providing
administrative and financial services to its members. Mr. Huff spends
approximately 60% of his time on our business and the remainder of his time
consulting with various other companies.
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 was granted in 1995. Corporate Insurance
Services, a company of which Mr. Huff was President and owner, was also a
guarantor of this debt and also filed for bankruptcy at this time in a Chapter
11 proceeding later converted to a Chapter 7 proceeding. Mr. Huff was a minority
shareholder and provided services to the company relating to store location and
development, but was not otherwise involved in management of the company.
JOHN RAGLAND has served as our Chief Financial Officer since September 8,
1998. He has served as the Controller of Gulf Northern since June 1996, and as
Secretary-Treasurer since June 1998. He has also served as the Chief Financial
Officer and Treasurer of U.S. Trucking-Nevada since May 1998. From May 1996
until October 1996, he served as Chief Financial Officer of United Acquisition
Corp. II, a company formed to acquire companies in the trucking business. From
August 1994 until June 1996 he was the Chief Financial Officer of the North
American Trucking Association, a trade group, and he was also the Chief
Financial Officer of All-Risk Services, an insurance agency, during the same
period. From 1991 to July 1994, he was a staff accountant with Watkins, Buckles
& Travis, Certified Public Accountants.
RICK KELLY has served as Vice President, Operations for Gulf Northern since
November, 1999. Prior to that he served as President of our intermodal division,
which commenced operations in June 1999. From September 1996 through June 1999
he owned and operated Excalibur Express, Inc., a $7 million revenue intermodal
transportation company based in Charleston, SC. From November 1995 to September
1996 he was Vice President, Southeast Region for Rocor, Inc., a $450 million
truckload/intermodal carrier, wherein he was responsible for operations at 17
terminals contributing $30 million in revenues. From 1992 through November 1995
he served as terminal manager in Charleston, and then Vice President,
Operations, for Ty Pruitt, Inc., a $50 million intermodal/truckload carrier.
From 1983-1992 he was President and Chief Executive Officer for GFC Trucklines,
a $7 million regional short-haul truckload and intermodal carrier based in
Charleston, SC.
Our executive officers hold office until the next annual meeting of the
Directors. We have agreements with Messrs. Pixler and Huff whereby we are
required to use our best efforts to elect and retain them as members of the
Board of Directors as long as they are guarantors as to any U.S. Trucking or
affiliated debt. There are no other arrangements or understandings between any
director or executive officer and any other person pursuant to which any of the
above-named executive officers or directors or nominees was selected as an
officer or director or nominee for director.
ITEM 10. EXECUTIVE COMPENSATION.
The following tables set forth information regarding executive compensation
for U.S. Trucking, Inc.'s President and Chief Executive Officer and each other
executive officer who received total annual salary and bonus in excess of
$100,000 for any of the years ended December 31, 1999, 1998 or 1997.
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<PAGE> 22
Summary Compensation Table
<TABLE>
<CAPTION>
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
- ---------- ---- -------- ----- ------- -------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Danny L. 1999 $105,000 -- $6,000(1) -- 250,000 -- --
Pixler, 1998 $105,000 -- $6,000(1) -- 100,000 -- --
President 1997 $105,000 -- $6,000(1) -- -- -- --
</TABLE>
- --------------
(1) Represents $500 per month car allowance.
Aggregated Option Exercises in Year Ended
December 31, 1998 and December 31, 1998 Option Values
<TABLE>
<CAPTION>
Securities Under- Value of Unexer-
Shares lying Unexercised cised in-the
Acquired Options Money Options/
On at 12/31/99 at 12/31/99
Exercise Value Exercisable/ Exercisable/
Name (Number) Realized Unexercisable Unexercisable
---- -------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
Danny L. Pixler -0- $ -0- 100,000 / 250,000 $245,000 / 0
</TABLE>
Options / Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/sh) Date
---- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Danny L. Pixler 250,000 50% $3.00 4/27/04
</TABLE>
EMPLOYMENT AGREEMENTS
We have entered into a five year employment agreement with Danny L. Pixler
commencing September 9, 1998, which provides for an annual salary of $105,000
with annual increases of not less than 3%. The agreement also provides that Mr.
Pixler will receive a new car every three years and all vehicle expenses
incurred on our business or an auto allowance not to exceed $550 per month.
We have entered into a five year employment agreement with W. Anthony Huff
commencing September 9, 1998, which provides for an annual salary of $52,000
with annual increases of not less than 3%.
22
<PAGE> 23
We have entered into a three year employment agreement with John Ragland
commencing September 9, 1998, which provides for an annual salary of $75,000
with annual increases of not less than 3%. The agreement also provides that Mr.
Ragland will be provided a company car and reimbursement of his vehicle expenses
incurred on our business.
These employment agreements are terminable by us for certain specified
reasons, including disability, fraud, conviction of a felony and substance
abuse. They also contain covenants not to compete during the term of the
agreements.
STOCK OPTION PLAN
During September 1998, the board of directors adopted the stock option plan
of U.S. Trucking-Nevada as our stock option plan, and we assumed the obligations
represented by 1,500,000 options which were already outstanding. These options
have an exercise price of $0.30. The plan authorizes the issuance of options to
purchase up to 2,500,000 shares of our common stock. An additional 500,000
options have been granted under the plan at an exercise price of $3.00.
The plan allows the Board to grant stock options from time to time to
employees, officers, directors and consultants of U.S. Trucking. The board has
the power to determine at the time that the option is granted whether the option
will be an incentive stock option, an option which qualifies under Section 422
of the Internal Revenue Code of 1986, or an option which is not an incentive
stock option. Vesting provisions are determined by the board at the time options
are granted. The option price for any incentive stock option will be no less
than the fair market value of the common stock on the date the option is
granted, while other options may be granted at any exercise price.
Options granted under the plan with an exercise price less than the fair
market value on the date of grant, will require us to record an expense upon the
grant of options equal to the difference between the market value of the option
shares and the exercise price of the options. Generally, there will be no
federal income tax consequences to us in connection with incentive stock options
granted under the plan. With regard to options that are not incentive stock
options, we will ordinarily be entitled to deductions for income tax purposes of
the amount that option holders report as ordinary income upon the exercise of
such options, in the year such income is reported.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 30, 2000, the stock ownership
of each person known by us to be the beneficial owner of five percent or more of
the our common stock, all directors individually and all directors and executive
officers as a group. Except as noted, each person has sole voting and investment
power with respect to the shares shown.
23
<PAGE> 24
<TABLE>
<CAPTION>
Per-
centage
Amount of of Class
Name and Address of Beneficial Prior
Beneficial owner Ownership to Sales
- ------------------- ---------- --------
Principal Shareholders
and Management:
- ----------------------
<S> <C> <C>
Logistics Management,
L.L.C. (1) 5,750,000 (2) 57.6%
10602 Timberwood Circle #9
Louisville, KY 40223
Danny L. Pixler 3,225,000 (3) 32.3%
Suite 216
3125 Ashley Phosphate Road
North Charleston, SC 29418
W. Anthony Huff 3,225,000 (4) 32.3%
10602 Timberwood Circle #9
Louisville, KY 40223
All Directors and Executive 6,450,000 (3) 60.3%
Officers as a Group (4)
(3 Persons)
</TABLE>
- ----------------
* Less than 1%.
(1) Logistics Management, L.L.C. is 50% owned jointly by Danny and Roxanne
Pixler, the wife of Danny L. Pixler, and 50% owned by Association Services,
Inc., which is 100% owned by the Huff Grandchildren's Trust.
(2) Includes 3,600,000 shares which may be acquired within 60 days by
exchanging 360,000 shares of Series A Preferred Stock for 3,600,000 shares
of common stock. Does not include 900,000 shares of our Series A Preferred
Stock held by Logistics Management, LLC, which represents 9,000,000 votes
and which is exchangeable for up to 9,000,000 shares of U.S. Trucking
common stock when certain revenue targets are achieved. See "DESCRIPTION
OF SECURITIES."
(3) Represents a 50% beneficial interest in the shares held by Logistics
Management, LLC and options to purchase 350,000 shares of Common Stock.
Does not include 25,000 shares of Series C Preferred Stock held by Danny
Pixler which carry 2,500,000 votes.
(4) Represents a 50% beneficial interest in the shares held by Logistics
Management, L.L.C. and options to purchase 350,000 shares of Common Stock.
Does not include 25,000 shares of Series C Preferred Stock held by Huff
Grandchildren's Trust which carry 2,500,000 votes, of which Mr. Huff is
co-trustee.
There are no known agreements, the operation of which may at a subsequent
date result in a change in control of U.S. Trucking.
24
<PAGE> 25
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In March 1998, Gulf Northern leased three 1995 Volvo tractors from Danny L.
Pixler under a one year lease agreement that specifies monthly payments of
$4,047 and provides for annual renewals. Under the lease agreement, Gulf
Northern is required to pay for all expenses associated with the tractors
including maintenance, insurance, permits, licenses and other operating
expenses.
In September 1998, Gulf Northern leased six 1994 Kenworth tractors from a
company owned by Danny Pixler and Anthony Huff pursuant to a one year lease
agreement which provides for monthly payments of $7,380 and annual renewals.
Under the lease agreement, Gulf Northern is required to pay for all expenses
associated with the tractors including maintenance, insurance, permits, licenses
and other operating expenses.
During January 1999, three of our shareholders entered into a stock
exchange agreement with us whereby they agreed to exchange a total of 9,990,000
shares of our common stock for 999,000 shares of our Series A Preferred Stock.
Each share of Series A Preferred Stock will have ten votes and the shares will
be voted together with the common stock as a single class. See "DESCRIPTION OF
SECURITIES." Pursuant to the stock exchange agreement, each share of Series A
Preferred Stock will be exchangeable back into ten shares of common stock as
follows: one-fifth of the shares upon reporting revenues of $31 million or more
for any fiscal year or shorter period in a report on Form 10-KSB, 10-K, 10-QSB,
or 10-Q as filed with the Securities and Exchange Commission; an additional
one-fifth if revenues are at or above $41 million; an additional one-fifth if
revenues are at or above $51 million; an additional one-fifth if revenues are at
or above $61 million; and the balance if revenues are at or above $71 million.
The shareholders who exchanged shares are Logistics Management, LLC - 9,000,000
shares; Joff Pollon - 250,000 shares; and Waterways Group - 740,000 shares.
In June 1999, we issued 25,000 shares of Series C Preferred Stock to each
of Danny Pixler and the Huff Grandchildren's Trust in consideration of those
parties' guaranties with respect to in excess of $13,000,000 of our debt
obligations. Each Series C share carries 100 votes per share on all matters
submitted to a vote of stockholders, but otherwise carries no rights to
dividends or other distributions.
In 1999 and 1998 we provided loss control and risk management consulting
services to Transportation Consulting Services, Inc., for which services we
received fees and insurance benefits of $540,000 and $228,000, respectively.
Marion Huff, father of Anthony Huff, is president and sole stockholder of
Transportation Consulting Services.
In September 1999 we sold certain transportation equipment to Transit
Financial Services, Inc. and its subsidiary, Interstate University, Inc., for an
aggregate of $556,000 payable over 36-48 months at 10% interest. Transit is
owned by Logistics Management, LLC. Logistics beneficially owns a majority of
our outstanding common stock. Logistics is owned and controlled by Dan Pixler,
our President, and, indirectly, by Anthony Huff, our Chairman.
In December 1999 we sold the transportation equipment owned by our Gulf
Northern subsidiary to One-Way Logistics, Inc., a company owned 90% by Logistics
Management, LLC and 10% by an employee, Rick Kelly, in exchange for a $6.0
million note secured by the equipment. The sale price was determined by
appraisal.
In December 1999 we advanced approximately $730,000 to Professional
Transportation Group Ltd., Inc. These advances have been repaid. Logistics
beneficially owns a majority of the common stock of Professional.
In 1999 we allowed Sebrite Investment Corporation to operate its
transportation insurance business using our captive insurance facility in
consideration of a usage fee of $1.0 million, payable over two years at 9%
interest. Sebrite was owned by David Huff, brother of Anthony Huff.
In January 2000 we guaranteed certain monetary obligations of Professional
Transportation Group Ltd., Inc. to Southtrust Bank, N.A. under a $9.0 million
accounts receivable credit facility. At April 30, 2000 approximately $7.0
million was owed on the loan. The loan is also guaranteed by Logistics
Management, LLC. It is also anticipated that we (along with Logistics) will
guaranty a term loan with a remaining balance of $195,000 from Southtrust to
Professional in May, 2000.
The board of directors believes that the above transactions involving U.S.
Trucking-Nevada and its subsidiaries have been on terms no less favorable to us
than those that could have been obtained from unaffiliated parties. When
reviewing transactions with affiliates, the members of the board attempt to
consider all of their fiduciary duties to shareholders and they consult with the
our legal counsel for their opinions on the transactions.
25
<PAGE> 26
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------
3.1 Articles of Incorporation, Incorporated by reference to Exhibit
as amended 3.1 to the Registrant's Registration
Statement on Form SB-2 (SEC File No.
333-71875)
3.2 Bylaws, as amended Incorporated by reference to Exhibit
3.2 to the Registrant's Registration
Statement on Form SB-2 (SEC File No.
333-71875)
3.3 Articles of Amendment to Incorporated by reference to Exhibit
Articles of Incorporation 3.3 to the Registrant's Registration
effective September 8, 1998 Statement on Form SB-2 (SEC File No.
333-71875)
3.4 Articles of Amendment to Incorporated by reference to Exhibit
Articles of Incorporation 3.4 to the Registrant's Registration
dated January 20, 1999 Statement on Form SB-2 (SEC File No.
regarding Series A Pre- 333-71875)
ferred Stock
3.5 Articles of Amendment to Incorporated by reference to Exhibit
Articles of Incorporation 3.5 to the Registrant's Registration
dated April 29, 1999, Statement on Form SB-2 (SEC File No.
regarding Series B Pre- 333-71875)
ferred Stock
3.6 Articles of Amendment to Incorporated by reference to Exhibit
Articles of Incorporation 3.6 to the Registrant's Registration
dated June 10, 1999, Statement on Form SB-2 (SEC File No.
regarding Series C Pre- 333-71875)
ferred Stock
3.7 Articles of Amendment to Incorporated herein by reference
Articles of Incorporation to Exhibit 3.7 to the Company's
dated September 10, 1999 Form 10-Q for the quarter ended
regarding Series D September 30, 1999 (SEC File
Preferred Stock 333-70353)
3.8 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
dated November 8, 1999
regarding Series E
Preferred Stock
26
<PAGE> 27
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 Incorporated by reference to Exhibit
Danny L. Pixler 10.3 to the Registrant's Registration
Statement on Form SB-2 (SEC File No.
333-71875)
10.4 Employment Agreement with Incorporated by reference to Exhibit
Anthony Huff 10.4 to the Registrant's Registration
Statement on Form SB-2 (SEC File No.
333-71875)
10.5 Employment Agreement with Incorporated by reference to Exhibit
John Ragland 10.5 to the Registrant's Registration
Statement on Form SB-2 (SEC File No.
333-71875)
10.6 Lease Agreement dated Incorporated by reference to Exhibit
January 1, 1997, between 10.6 to the Registrant's Registration
Gulf Northern Transport, Statement on Form SB-2 (SEC File No.
Inc., Dan L. Pixler, and 333-71875)
Sebrite Insurance Services,
Inc.
10.7 Lease Agreement dated Incorporated by reference to Exhibit
March 5, 1998, between 10.7 to the Registrant's Registration
Gulf Northern Transport, Statement on Form SB-2 (SEC File No.
Inc. and Dan Pixler for 333-71875)
three tractors
10.8 Lease Agreement dated Incorporated by reference to Exhibit
September 23, 1998, 10.8 to the Registrant's Registration
between Gulf Northern Statement on Form SB-2 (SEC File No.
Transport, Inc. and 333-71875)
Thomas Financial Services
10.9 Stock Exchange Agreement Incorporated by reference to Exhibit
between U.S. Trucking and 10.9 to the Registrant's Registration
three shareholders dated Statement on Form SB-2 (SEC File No.
January 29, 1999 333-71875)
10.10 Loan and Security Agreement Incorporated by reference to Exhibit
dated as of December 22, 10.10 to the Registrant's Registration
1998 between General Statement on Form SB-2 (SEC File No.
Electric Capital Corporation 333-71875)
and U.S. Trucking, Inc.,
et al.
10.12 10% Convertible Debenture Incorporated by reference to
due May 31, 2002 for Exhibit 10.12 to the Company's
$600,000 Form 10-QSB for the quarter
ended June 30, 1999
27
<PAGE> 28
10.13 1998 Stock Option Plan, Incorporated by reference to Exhibit
as amended 10.13 to the Registrant's Registration
Statement on Form SB-2 (SEC File No.
333-71875)
10.14 Purchase and Sale Agreement Incorporated by reference to
by and among Mid-Cal the Company's Form 8-K dated
Express, Inc., Prime April 14, 1999
Companies, Inc. and U.S.
Trucking, Inc.
10.15 Merger Agreement and Plan of Incorporated by reference to
Reorganization dated Exhibit 10.1 to the Company's
February 2, 2000, by and Form 8-K dated February 7, 2000
between U.S. Trucking, Inc.,
Checkmate Acquisition Corp.,
Tommy Chambers, Marylou
Chambers and Timothy O'Bannon
and Checkmate Truck Brokerage,
Inc.
10.16 Merger Agreement and Plan of Incorporated by reference to
Reorganization dated Exhibit 10.2 to the Company's
February 2, 2000, by and Form 8-K dated February 7,
between U.S. Trucking, Inc., 2000
Checkmate Acquisition Corp.,
Tommy Chambers, Timothy
O'Bannon, Marylou Chambers
and Sharion O'Bannon and
Maverick Truck Brokerage,
Inc.
10.17 Price Adjustment Agreement Incorporated by reference to
Exhibit 10.3 to the Company's
Form 8-K dated February 7,
2000
10.18 Guaranty Agreement Filed herewith electronically
with Southtrust Bank, N.A.
10.19 Bill of Sale, Promissory Filed herewith electronically
Note & Security Agreement
with One-Way Logistics
10.20 Promissory Notes from Filed herewith electronically
Transit Financial Services,
Inc.
21 Subsidiaries of the Filed herewith electronically
Registrant
23.2 Consent of Bianculli, Filed herewith electronically
Pascale & Co. P.C.
27 Financial Data Schedule Filed herewith electronically
(b) REPORTS ON FORM 8-K. None
28
<PAGE> 29
U.S. TRUCKING, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants
- U.S. Trucking, Inc. and Subsidiaries F-1
Consolidated Balance Sheets of U.S. Trucking, Inc. and
Subsidiaries as of December 31, 1999 and 1998
- Assets F-2
- Liabilities and Stockholders' Equity F-3
Consolidated Statements of Income and Comprehensive
Income of U.S. Trucking, Inc. and Subsidiaries for the years
ended December 31, 1999 and 1998 F-4
Consolidated Statement of Stockholders' Equity of U.S.
Trucking, Inc. and Subsidiaries
- For the year ended December 31, 1999 F-5
- For the year ended December 31, 1998 F-6
Consolidated Statements of Cash Flows of U.S. Trucking,
Inc. and Subsidiaries for the years ended
December 31, 1999 and 1998 F7-11
Notes to the Consolidated Financial Statements F11-40
</TABLE>
<PAGE> 30
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
U.S. Trucking, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of U.S.
Trucking, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the related
consolidated statements of income, stockholders' equity and cash flows for years
ended December 31, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated balance sheets referred to above, present
fairly, in all material respects, the consolidated financial position of U.S.
Trucking, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the results
of its operations and its cash flows for the years ended December 31, 1999 and
1998 in conformity with generally accepted accounting principles.
Garden City, New York
April 14, 2000
F-1
<PAGE> 31
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash in banks $ 1,057,719 $ 22,976
Accounts receivable-net of allowance
for doubtful accounts of $303,451
in 1999 and $200,000 in 1998 8,140,132 3,447,570
Current portion of notes receivable-related parties 4,541,634 -
Parts and supply inventory 258,405 257,030
Current portion of deferred tax asset 400,000 -
Investment in marketable securities
at fair market value 188,136 -
Prepaid expenses and other assets 575,565 303,709
----------- -----------
Total Current Assets 15,161,591 4,031,285
----------- -----------
TRANSPORTATION AND OTHER EQUIPMENT
at cost, less accumulated depreciation and
amortization of $420,541 in 1999 and
$736,221 in 1998 887,690 9,718,805
----------- -----------
OTHER ASSETS
Restricted cash 981,704 12,320
Notes receivable-related parties 5,407,346 -
Deferred tax asset - net of current portion 741,963 -
Due from related party 186,023 100,000
Due from captive insurer 705,321 355,321
Other assets 375,700 12,575
Intangible assets - net of accumulated
amortization of $879,565 in 1999 and
$273,243 in 1998 5,501,756 2,082,055
----------- -----------
Total Other Assets 13,899,813 2,562,271
----------- -----------
TOTAL ASSETS $29,949,094 $16,312,361
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-2
<PAGE> 32
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable-trade $ 2,027,819 $ 1,443,415
Revolving loan payable 6,736,536 1,795,888
Accrued expenses and other 1,818,902 669,957
Current portion - long term debt 3,210,916 2,034,756
----------- -----------
Total Current Liabilities 13,794,173 5,944,016
----------- -----------
OTHER LIABILITIES
Owner operator escrow accounts 122,865 55,874
Long term debt - net of current portion 1,486,954 5,224,092
Convertible debentures 1,450,000 -
----------- -----------
Total Other Liabilities 3,059,819 5,279,966
----------- -----------
TOTAL LIABILITIES 16,853,992 11,223,982
----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 13,18 and 23)
STOCKHOLDERS' EQUITY
Preferred Stock (no par value
- 10,000,000 shares authorized)
Series A (999,000 shares outstanding) 762 -
Series B (2,000 shares outstanding 2,000,000 -
Series C (50,000 shares outstanding) 15,000 -
Series D (950 shares outstanding) 950,000 -
Series E (2,300 shares outstanding) 2,300,000 -
Common Stock (no par value-75,000,000 shares
authorized, 8,844,461 and 16,074,591 shares issued
and outstanding in 1999 and 1998, respectively) 6,445,199 2,796,000
Additional paid in capital 3,605,580 3,821,812
Accumulated (deficit) (1,302,675) (1,409,433)
Accumulated other comprehensive (loss) (11,976) -
Subscriptions Receivable (906,788) (120,000)
----------- -----------
Total Stockholders' Equity 13,095,102 5,088,379
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $29,949,094 $16,312,361
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-3
<PAGE> 33
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net Revenues $ 44,736,677 $ 22,043,844
Operating expenses
Transportation and rentals 20,946,650 7,595,906
Operating supplies and maintenance 1,733,477 1,138,122
Other operating costs 877,032 566,264
Fuel 3,294,741 2,106,767
Insurance and claims 2,759,856 1,368,892
Depreciation and amortization 2,919,715 1,616,852
Taxes and licenses 779,195 475,355
Salaries, wages and benefits 9,257,228 5,476,000
Occupancy costs 401,538 275,904
Administrative expenses 2,886,579 791,658
------------ ------------
Total operating expenses 45,856,011 21,411,720
------------ ------------
Operating income (loss) (1,119,334) 632,124
------------ ------------
Other income and expenses
Interest income 27,996 1,648
Interest expense (1,117,920) (731,628)
Gain on sale of marketable securities 240,750 -
Other income 166,095 219,623
Net gain on disposition of assets 767,208 -
------------ ------------
Total other income and (expenses) 84,129 (510,357)
------------ ------------
Net income (loss) before income taxes (1,035,205) 121,767
Benefit for income taxes 1,141,963 -
------------ ------------
Net income 106,758 121,767
------------ ------------
Basic earnings per common share $ .01 $ .01
============ ============
Weighted average number of common shares 8,130,780 13,818,272
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-4
<PAGE> 34
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock Preferred Stock
No Par Value
Shares Amount Shares Amount
------------ --------- -------- ---------
<S> <C> <C> <C> <C>
Opening balance - January 1, 1999 16,074,591 $2,796,000 - -
Issuance of Common Stock upon Exercise of options 1,759,870 449,961 - -
Capital contributed - - - -
Issuance of Common Stock - Excalibur Acquisition
- - Note 3 200,000 650,000 - -
Issuance of Common Stock-Prostar Acquisition
- - Note 3 200,000 500,000 - -
Common Stock exchanged for Series A Preferred Stock
- - Note 8 (9,990,000) (762) 999,000 762
Issuance of Series B Preferred Stock - Note 8 - - 2,000 2,000,000
Issuance of Series C Preferred Stock - Note 8 - - 50,000 15,000
Issuance of Series D Preferred Stock - Note 8 - - 950 950,000
Issuance of Series E Preferred Stock - Note 8 - - 2,300 2,300,000
Proceeds from sale of Common Stock 600,000 2,050,000 - -
Other Comprehensive Income:
Change in unrealized loss on
available-for-sale investments - - - -
December 31, 1999 - - - -
---------- ---------- --------- ----------
Closing balance - December 31, 1999 8,844,461 $6,445,199 1,054,250 $5,265,762
========== ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Additional Other
Paid in Accumulated Comprehensive Subscriptions
Capital Deficit (Loss) Receivable Total
---------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Opening balance - January 1, 1999 $3,821,812 $(1,409,433) - $(120,000) $ 5,088,379
Issuance of Common Stock upon Exercise of options - - - (436,788) 13,173
Capital contributed 401,668 - - - 401,668
Issuance of Common Stock - Excalibur Acquisition
- - Note 3 - - - - 650,000
Issuance of Common Stock-Prostar Acquisition
- - Note 3 - - - - 500,000
Common Stock exchanged for Series A Preferred Stock
- - Note 8 - - - - -
Issuance of Series B Preferred Stock - Note 8 (185,000) - - - 1,815,000
Issuance of Series C Preferred Stock - Note 8 - - - - 15,000
Issuance of Series D Preferred Stock - Note 8 (150,000) - - - 800,000
Issuance of Series E Preferred Stock - Note 8 (282,900) - - - 2,017,100
Proceeds from sale of Common Stock - - - (350,000) 1,700,000
Other Comprehensive Income:
Net Income for the year ended December 31, 1999 106,758 - - 106,758
Change in unrealized loss on available-for-sale
investments - - (11,976) - (11,976)
December 31, 1999 - - - - 106,758
---------- ----------- ---------- --------- ----------
Closing balance - December 31, 1999 $3,605,580 $(1,302,675) $ (11,976) $(906,788) $13,095,102
========== =========== ========== ========= ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-5
<PAGE> 35
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Additional
No Par Value Stock Paid in Accumulated Subscriptions
Shares Amount Capital Deficit Receivable Total
------------ ---------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Opening balance - January 1, 1998 13,000,000 $ 1,000 $4,313,368 $(1,531,200) $ - $2,783,168
Issuance of Common Stock to
Transportation Services, Inc. 133,333 20,000 (20,000) - - -
Issuance of Common Stock through
exercize of options to Joff
Pollon under the consulting
agreement - Note 20 1,000,000 180,000 (180,000) - - -
Subscription of Common Stock to
Joff Pollon - Note 20 160,000 120,000 - - (120,000) -
Issuance of Common Stock and costs
incurred to acquire Northern Dancer
Corp. in accordance with the share
exchange agreement - Note 1 614,590 - (291,556) - - (291,556)
Proceeds from sale of Common Stock 766,668 575,000 - - - 575,000
Issuance of Common Stock - Mid-Cal
Acquisition - Note 3 400,000 1,900,000 - - - 1,900,000
Net Income for the year ended
December 31, 1998 - - - $ 121,767 - 121,767
---------- ---------- ---------- ----------- --------- ----------
Closing balance - December 31, 1998 16,074,591 $2,796,000 $3,821,812 $(1,409,433) $(120,000) $5,088,379
========== ========== ========== =========== ========= ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-6
<PAGE> 36
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 106,758 $ 121,767
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH PROVIDED
(USED) IN OPERATING ACTIVITIES
Depreciation & amortization 2,919,715 1,616,852
Provision for doubtful accounts 103,451 112,000
Deferred taxes (1,141,963) -
Notes receivable arising from sale of equipment (6,556,000) -
Gain on disposal of equipment (767,208) -
Value ascribed to issuance of Series C Preferred stock 15,000 -
Unrealized holding loss 11,976 -
(Increase) Decrease-Assets
Restricted cash (969,383) 184,784
Accounts receivable (2,960,882) (1,320,063)
Parts and supply inventory (1,375) (22,768)
Prepaid expenses and other assets (49,031) (652,097)
Due from captive insurer (350,000) (355,321)
Increase (Decrease)-Liabilities
Accounts payable - trade 584,404 686,740
Accrued expenses and
other current liabilities 1,215,936 43,138
----------- -----------
Total Adjustments (7,945,360) 293,265
----------- -----------
Net cash provided (used) by operating activities (7,838,602) 415,032
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses (1,352,501) -
Investment in marketable securities (200,112) -
Purchase of equipment and software development (684,689) (290,177)
Security deposits (14,300) 78
Proceeds from sale of transportation equipment 1,109,411 -
Net costs incurred in reverse merger - (291,556)
----------- -----------
Net cash (used) by investing activities (1,142,191) (581,655)
------------- -----------
Subtotal $(8,980,793) $ (166,623)
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-7
<PAGE> 37
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Balance Forward $(8,980,793) $ (166,623)
CASH FLOWS FROM
FINANCING ACTIVITIES
Notes receivable (1,006,136) -
Repayments of notes receivable 9,035 -
Proceeds from sale of common stock
and additional paid in capital 2,149,199 575,000
Proceeds from sale of preferred stock 5,250,000 -
Contribution of capital 401,668 -
Costs incurred in sale of preferred stock (617,900) -
Issuance of convertible debentures 2,250,000 -
Repayments of convertible debentures (800,000) -
Proceeds from long-term debt financing 4,940,648 4,296,705
Book value of debt restructured - (3,838,415)
Principal payments on long-term debt (2,560,978) (660,744)
Principal payments on capital lease obligations - (243,046)
----------- -----------
Net cash provided by financing activities 10,015,536 129,500
----------- -----------
NET INCREASE (DECREASE) IN CASH 1,034,743 (37,123)
CASH AT BEGINNING OF YEAR 22,976 60,099
----------- -----------
CASH AT END OF YEAR $ 1,057,719 $ 22,976
=========== ===========
Supplemental Disclosure of Cash flow information:
Cash Paid during the year
Interest expense $ 1,069,435 $ 861,076
=========== ===========
Income taxes $ -0- $ -0-
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-8
<PAGE> 38
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Non Cash Investing and Financing Activities
In June 1999, U.S. Trucking acquired the intermodal business operations of
Excalibur Express, Inc.:
<TABLE>
<S> <C>
Fair value of assets acquired $ -
Goodwill recognized 1,026,410
Liabilities assumed 76,410
Cash paid 300,000
Value of common stock issued 650,000
</TABLE>
In April 1999, the Company acquired the business operations of
Prostar, Inc.:
<TABLE>
<S> <C>
Fair value of assets acquired $ -
Goodwill recognized 1,444,312
Liabilities assumed 229,312
Cash paid 715,000
Value of common stock issued 500,000
</TABLE>
During 1999, various parties including related parties subscribed to
1,522,625 shares of common stock valued at $786,788. The Company recorded the
subscription receivables as a reduction of stockholders' equity.
During 1999, the Company sold transportation equipment with a net book
value of $5,185,602 to One-Way Logistics, Transit Financial Co. and Interstate
University, Inc. (related parties) in exchange for Notes Receivable totaling
$6,556,000.
In December 1998, the company acquired assets and liabilities of Mid-Cal
Express:
<TABLE>
<S> <C>
Fair value of assets acquired $4,918,741
Goodwill recognized 1,078,600
Liabilities assumed 4,097,341
Value of common stock issued 1,900,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-9
<PAGE> 39
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Non Cash Investing and Financing Activities (Continued)
In December 1998, the company traded in some of its older transportation
vehicles for new ones as part of an overall restructuring of its rolling stock
and corresponding debt. The book value of the equipment traded in was $914,651
and its trade-in value was $637,000, which amount was offset against the cost of
the new equipment.
Book value of equipment traded-in $ 914,651
Trade-in value (637,000)
Deferred loss on equipment financing 277,651
In September 1998 Joff Pollon subscribed to 160,000 shares of common stock.
The company recorded the transaction as a subscription receivable, which is
reflected as a reduction of stockholders' equity.
As of September 8, 1998 U.S. Trucking issued 614,590 shares of common
stock in connection with a reverse acquisition of Northern Dancer Corp.
During 1998, legal counsel determined that certain non-interest bearing
promissory notes arising from the acquisition of Gulf Northern totaling $104,000
was not the responsibility of the company. Accordingly the current balances of
the notes were reclassified as a reduction of the goodwill originally recorded.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-10
<PAGE> 40
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Business
On September 8, 1998, U.S. Trucking, Inc., a Nevada corporation (U.S.
Trucking-Nevada), was acquired by Northern Dancer Corporation (Northern Dancer),
a nonoperating public shell corporation, through the exchange of 100% of the
issued and outstanding shares of Northern Dancer's common stock for
approximately 96% of the outstanding shares of U.S. Trucking-Nevada's common
stock. Northern Dancer's legal name was changed to U.S. Trucking, Inc. (U.S.
Trucking). The acquisition is considered to be a capital transaction, in
substance equivalent to the issuance of stock by U.S. Trucking-Nevada for the
net monetary assets of Northern Dancer, accompanied by a recapitalization of
U.S. Trucking-Nevada.
U.S. Trucking-Nevada was formed by U.S. Transportation Systems, Inc. (USTS)
as a wholly owned subsidiary. As part of the transaction to acquire Gulf
Northern, 25% of U.S. Trucking-Nevada's common stock was transferred to Gulf
Northern's parent (Logistics Management, LLC). The remaining 75% was conveyed to
Logistics Management, LLC during 1998.
U.S. Trucking is in the mid to long-haul trucking, brokerage-logistics
services, agent and auto liability insurance businesses as follows.
o The Company operates its over the road, intermodal and
brokerage-logistics through two wholly owned operating subsidiaries
as follows:
o Gulf Northern Transport, Inc., (Gulf Northern) a Wisconsin
corporation, operates as an interstate and intrastate motor carrier,
providing mid to long-haul trucking and intermodal services.
o Prostar, Inc. operates as a brokerage-logistics provider for
interstate motor carriers. Coincident with the acquisition of this
company, U.S. Trucking merged the business of Mencor, Inc. which
operated as a licensed broker for interstate motor carriers. A broker
serves the trucking industry by providing return hauls for truckers
who have completed their initial delivery.
o The Company operates its auto liability insurance business through
U.S. Trucking, Inc.
Corporate headquarters are located in Mt. Pleasant, South Carolina with
regional terminals
F-11
<PAGE> 41
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
located in various states. Services are provided to customers throughout the 48
contiguous states.
(B) - Basis of Presentation
The accompanying consolidated balance sheets and related statements of
operations, stockholders' equity and cash flows includes the accounts of U.S.
Trucking, Inc. and its wholly owned subsidiaries, Gulf Northern Transport, Inc.,
Mencor, Inc. and Prostar, Inc. as of December 31, 1999 and Gulf Northern
Transport, Inc. and Mencor, Inc. in 1998. Significant intercompany transactions
or balances as of and for the periods ended December 31, 1999 and 1998 have been
eliminated.
(C) - Net Income per Common Share
Basic net income per share is computed on the basis of the weighted average
number of common shares outstanding during each period. Diluted net income per
share is calculated by combining weighted average number of common shares
outstanding and potentially dilutive common share equivalents.
(D) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
maturities of six months or less to be cash equivalents for financial statement
purposes.
(E) - Parts and Supply Inventory
Inventory consists principally of parts and supplies used in maintaining
its motor carrier fleet, skids used in transporting goods, and small tools and
are stated at the lower-of-cost or market, determined on a first-in, first-out
basis.
(F) - Transportation and Other Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. Accelerated
methods of depreciation are followed for tax purposes and the straight-line
method is used for financial reporting purposes.
F-12
<PAGE> 42
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years.
(G) - Intangible Assets
Intangible assets include goodwill which is amortized on a straight-line
basis over periods ranging from six to twenty years and deferred financing, debt
issuance costs and trade-in costs which are amortized on a straight-line basis
over periods ranging from three to five years.
(H) - Income Taxes
U.S. Trucking accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting or Income Taxes"
which requires the use of the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are based on the
respective periods' taxable income for federal, state and local income tax
reporting purposes.
(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) - Revenue Recognition
During 1999, U.S. Trucking changed its revenue recognition policy to record
revenue at the time freight is picked up at the customer's site. Prior to 1999,
the Company recognized revenues at the time freight was delivered to recipients.
This change in accounting policy resulted in an insignificant difference in net
income for the periods reported. Accordingly, these financial statements were
not restated to reflect this change. Liability insurance revenue is recognized
on a written premium basis. All other revenue is recognized at the time services
are provided.
F-13
<PAGE> 43
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(K) - 1998 Reclassifications
Certain reclassifications have been made to the 1998 figures to conform
them to the current year's presentation.
(L) - Advertising costs
Advertising costs are expensed as incurred. The amounts expended amounted
to $40,967 and $3,724 during 1999 and 1998 respectively.
(M) - Software Development Costs
Software development costs are amortized on a straight line basis over five
years.
(N) - Investment in Marketable Securities
U.S. Trucking from time to time invests in marketable securities when
management believes such an investment is prudent and in the interest of the
Company. The investments are generally available-for-sale and are valued
periodically based on published reports.
NOTE 2 - Earnings (Loss) Per Common Share
Basic earnings (loss) per common share was calculated using the weighted
average number of shares outstanding for the periods presented, after giving
effect to the 5,199 to 1 stock dividend declared in June, 1998 and the
conversion of 9,990,000 shares of common stock into series A preferred stock in
February, 1999. The resulting weighted average number of common shares
outstanding was 8,130,780 in 1999 and 13,818,272 in 1998. Diluted earnings per
common share were calculated assuming the issuance of potentially dilutive
securities such as the convertible preferred stock and convertible debentures
and options and warrants. The overall effect on basic earnings per share
assuming the issuance of potentially dilutive securities was insignificant.
F-14
<PAGE> 44
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1999
NOTE 3 - Acquisition of Subsidiaries and Other Assets and Liabilities
1999 Transactions
Excalibur Express, Inc. - Effective June 1999, U.S. Trucking acquired the
intermodal business of Excalibur Express, Inc., a Charleston based company. The
total purchase price paid was $1,026,410, which consisted of $300,000 of cash,
200,000 shares of Common Stock valued at $3.25 per share and the assumption of
liabilities in the amount of $76,410. Goodwill of $1,026,410 was recorded and is
being amortized over twenty years.
Fulmer Transport, Inc. - In August 1999, U.S. Trucking acquired the freight
agent and freight brokerage businesses and selected assets and liabilities of
Fulmer Transport, Inc. The total purchase price paid was $1,806,789 of which
$485,000 was paid to the sellers, $824,800 of assets acquired and the assumption
and/or payment of liabilities of $1,321,789. The assets and liabilities were
recorded at their fair market values and goodwill in the amount of $981,989 was
recorded and is being amortized over twenty years.
Prostar, Inc. - In April 1999, U.S. Trucking acquired the freight brokerage
business of Prostar, Inc. The total purchase price was $1,444,312 consisting of
200,000 shares of Common Stock valued at $500,000, $715,000 in cash, and the
assumption of $229,312 of net liabilities. Goodwill in the amount of $1,429,312
was recorded and is being amortized over twenty years.
An allocation of the purchase price for each of the 1999 transactions
follows:
<TABLE>
<CAPTION>
Excalibur Fulmer
Prostar Express Transport, Inc. Total
---------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Assets
Transportation and
other equipment $ - $ - $ 463,000 $ 463,000
Goodwill 1,444,312 1,026,410 981,989 3,452,711
Other assets - - 361,800 361,800
---------- ---------- ---------- ----------
Total $1,444,312 $1,026,410 $1,806,789 $4,277,511
========== ========== ========== ==========
Liabilities
Assumed and Equity
Liabilities including debt to sellers $ 944,312 $ 376,410 $1,806,789 $3,127,511
Common stock 500,000 650,000 - 1,150,000
---------- ---------- ---------- ----------
Total $1,444,312 $1,026,410 $1,806,789 $4,277,511
========== ========== ========== ==========
</TABLE>
F-15
<PAGE> 45
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1999
NOTE 3 - Acquisition of Subsidiaries and Other Assets and Liabilities
(continued)
Combined Company
Pro Forma Combined Condensed Statement of Operations
For the Year Ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro forma
-------------------------------------------------- ---------------------------
U.S. Excalibur Fulmer
Trucking Prostar Express Transport, Inc. Adjustments Combined
----------- ---------- ---------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $44,736,677 $2,158,664 $2,304,133 $12,854,302 $ (883,034) $61,220,677
Operating expenses 45,856,011 2,318,635 2,085,240 12,859,584 (1,110,569) 62,008,901
----------- ---------- ---------- ----------- ----------- -----------
Operating income
(loss) (1,119,334) (159,971) 218,893 (5,282) 277,470 (788,224)
----------- ---------- ---------- ----------- ----------- -----------
Other income and
(expenses)
Interest income 27,996 1,390 - - - 29,386
Interest expense (1,117,920) (41,512) (41,652) (224,754) 69,850 (1,355,988)
Other income 406,845 3,094 - 31,213 - 441,152
Net gain on
disposition of
assets 767,208 - - - - 767,208
----------- ---------- ---------- ----------- ----------- -----------
Total other income
and (expenses) 84,129 (37,028) (41,652) (193,541) 69,850 (118,242)
----------- ---------- ---------- ----------- ----------- -----------
Net income (loss)
before taxes (1,035,205) (196,999) 177,241 (198,823) 347,320 (906,466)
----------- ---------- ---------- ----------- ----------- -----------
Benefit (provision)
for income taxes 306,700 - (48,512) - - 258,188
Benefit of net
operating loss
carryforward 835,263 - - - - 835,263
----------- ---------- ---------- ----------- ----------- -----------
Net income (loss) $ 106,758 $ (196,999) $ 128,729 $ (198,823) $ 347,320 $ 186.985
=========== ========== ========== =========== =========== ===========
Basic earnings
per common share $ .01 $ .02
=========== ===========
Weighted average
number of common
shares 8,130,780 8,304,813
=========== ===========
</TABLE>
F-16
<PAGE> 46
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1999
NOTE 3 - Acquisition of Subsidiaries and Other Assets and Liabilities
(continued)
The proforma adjustments to revenue represent revenue generated by the
truckload sector of Fulmer Transport, Inc. that the Company did not acquire. The
adjustments relating to operating expenses result from subtracting Fulmer
Transport, Inc.'s truckload cost of revenues and the reduction of overheads
expected. The reduction of interest expense relates to the estimated savings
from converting Fulmer Transport, Inc. and Prostar from a factoring arrangement
to a revolving credit facility.
1998 Transactions
Mid-Cal Express, Inc. - Effective December 30, 1998, U.S. Trucking acquired
certain assets and liabilities of Mid-Cal Express, Inc., a California based
transportation company. The purchase price was $1,957,500, which was paid by the
issuance of 400,000 shares of common stock of the Company valued at $4.75 per
share and the payment of certain expenses to affect the acquisition. The
purchase price was allocated to the assets and liabilities acquired at their
fair market values and $1,078,600 of goodwill was recognized. The goodwill is
being amortized over fifteen years. No goodwill was expensed in 1998.
As part of the acquisition agreement, U.S. Trucking assumed debt of various
notes totaling $4,039,740 encumbering the above described equipment. See note 5.
The interest rates on these notes varied from 8.36% to 11.9% with maturities
through June 2003.
An allocation of the purchase price for each of the 1998 transactions
follows:
<TABLE>
Gulf
Northern Jay and Jay Translynx Mid-Cal
Transport Mencor Transportation Express Express
Inc. Inc. Inc. Inc. Inc. Total
---------- -------- -------------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and
restricted cash $ 138,449 $ 40,497 $ - $ - $ - $ 178,946
Accounts receivable 1,047,761 189,605 351,301 194,920 - 1,783,587
Inventory 139,472 - 24,500 - 82,000 245,972
Transportation Equipment 4,099,535 7,300 3,994,588 - 4,836,618 12,938,041
Goodwill 410,278 96,953 - - 1,078,622 1,585,853
Other assets 174,573 30,898 2,000 - - 207,471
---------- -------- ---------- -------- ---------- -----------
Total $6,010,068 $365,253 $4,372,389 $194,920 $5,997,240 $16,939,870
========== ======== ========== ======== ========== ===========
</TABLE>
F-17
<PAGE> 47
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 3 - Acquisition of Subsidiaries and other Assets and Liabilities
(continued)
Liabilities
Assumed and Equity
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Liabilities assumed $5,785,068 $220,253 $1,977,529 $ 94,374 $4,097,240 $12,174,464
Common stock - - - - 1,900,000 1,900,000
Additional paid-in capital 225,000 145,000 2,394,860 100,546 - 2,865,406
---------- -------- ---------- -------- ---------- -----------
Total $6,010,068 $365,253 $4,372,389 $194,920 $5,997,240 $16,939,870
========== ======== ========== ======== ========== ===========
</TABLE>
Combined Company
Pro Forma Combined Condensed Statement of Operations
For the Year Ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
U.S. Trucking MID-CAL Express Adjustments Combined
------------- --------------- ------------ ---------
<S> <C> <C> <C> <C>
Net revenues $21,815,844 $17,883,034 $ (8,883,034) $30,815,844
Operating expenses 21,411,720 20,200,402 (11,182,402) 30,429,720
----------- ----------- ------------ -----------
Operating income (loss) 404,124 (2,317,368) 2,299,368 386,124
----------- ----------- ------------ -----------
Other income and expenses
Interest income 1,648 2,071 929 4,648
Interest expense (731,628) (703,785) 203,785 (1,231,628)
Other income 447,623 118,100 24,300 590,023
Net (loss) on disposition of assets - (19,528) - (19,528)
----------- ----------- ------------ -----------
Total other income and (expenses) (282,357) (603,142) (229,014) (656,485)
----------- ----------- ------------ -----------
Net income (loss) before taxes 121,767 (2,920,510) 2,528,382 (270,361)
Provision for income taxes 47,600 (6,795) 40,805
Benefit of net operating
loss carry forward (47,600) - 6,795 (40,805)
----------- ----------- ------------ -----------
Net income (loss) $ 121,767 $(2,927,305) $ 2,535,177 $ (270,361)
=========== =========== ============ ===========
Net income (loss) per common share $ .01 $ (.02)
=========== ===========
Weighted average
number of common shares 13,818,272 14,254,778
=========== ===========
</TABLE>
F-18
<PAGE> 48
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 3 - Acquisition of Subsidiaries and Other Assets and Liabilities
(continued)
The pro forma adjustments to revenue represent revenue generated by the
brokerage service business that was eliminated, revenues generated by equipment
that was not purchased as part of the acquisition and revenues that were
generated by fleet owner operators who were not included in the purchase. The
adjustments relating to operating expenses result from the costs associated with
equipment not acquired, fleet owner operators not included in the purchase and
the reduction of overheads expected. The reduction of interest expense relates
to the estimated savings from converting from a factoring arrangement to a
revolving credit facility.
For each of the years presented, fair value as the basis of valuing the net
assets acquired. Fair value was determined by independent appraisals by third
parties for transportation equipment.
The tables presented assume that the acquisitions occurred at the beginning
of each of the years. This data is presented for informative purposes and is not
indicative of future results of operations.
NOTE 4 - Income Taxes
Income taxes are comprised of the following components:
<TABLE>
<CAPTION>
1999 1998
---------- -------
<S> <C> <C>
Current - Federal $ - $ -
State - -
----------- -------
Total Current - -
Deferred - Federal (1,010,392) $39,900
State ( 131,571) 7,700
----------- -------
Total Deferred (1,141,963) 47,600
Total $(1,141,963) $47,600
=========== =======
</TABLE>
The deferred tax asset as of December 31, 1999 includes a current portion
of $400,000 and a long-term portion of $741,963.
F-19
<PAGE> 49
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 4 - Income Taxes (continued)
The 1999 tax benefit includes net operating loss carryovers from prior
years amounting to $835,263. The 1998 tax provision is offset by net operating
loss carryovers from prior years amounting to $47,600. The income tax provision
reconciled to the tax computed at the statutory Federal rate is as follows:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C> <C> <C>
Tax at statutory rate $(352,000) (34.0)% $ 41,400 34.0%
Benefit of graduated rates (10,500) (8.7)
State income tax, net of
federal tax benefit (27,100) (2.6) 5,100 4.2
Non-deductible portion of
amortization of goodwill 50,600 4.9 7,700 6.3
Other non-deductible expenses 21,800 2.1 3,900 3.3
--------- ------ ------- ------
Total $(306,700) (29.6)% $ 47,600 39.1%
========= ====== ======== ======
</TABLE>
Differing methods of reporting income for tax purposes as compared to
financial reporting purposes resulted in net deferred income tax provisions of
approximately $136,400 and $149,000 for the years ended December 31, 1999 and
1998, respectively.
Deferred tax assets and liabilities consist of the following as of
December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets-
Allowance for doubtful accounts $ 113,187 $ 74,600
Amortization of Goodwill 57,082 51,959
Tax benefit of net operating loss carryovers 1,151,694 275,630
---------- --------
1,321,963 402,189
Valuation allowance 180,000 113,300
---------- --------
$1,141,963 $288,889
========== ========
Deferred tax liabilities-
Depreciation of transportation
and other and equipment $ - $288,889
---------- --------
$ - $288,889
========== ========
</TABLE>
F-20
<PAGE> 50
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 4 - Income Taxes (continued)
The valuation allowance provided in each of the years is based on
management's valuation of the likelihood of realization. Management believes it
is more likely than not that U.S. Trucking will realize the benefit of the
deferred tax assets after the indicated valuation allowance.
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 expected tax rate used is 37.3% for each of the years.
U.S. Trucking has net operating losses through December 31, 1999 of
$3,087,900. These losses will be available to offset future taxable income and
begin to expire in 2010.
There is no tax effect related to the component of the other comprehensive
loss since no capital gain can be anticipated.
NOTE 5 - Long-term Debt
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Consolidation loan described in Note 6 $1,558,675 $3,219,108
Equipment loans related to the Mid-Cal
Express acquisition described in Note 3 2,120,755 4,039,740
Acquisition loan payable-Prostar, Inc; non-interest
bearing; payable in the amounts of $230,000 in
2000, $100,000 in 2001, and $25,000 in 2002 355,000 -
Acquisition loan payable-Rick Kelly relating to the
acquisition of the intermodal container business of
Excalibur Express, Inc., non-interest bearing and
payable is 2000. 73,031 -
Acquisition loan payable-Stac/Fulmer relating to
the acquisition of Fulmer Transport, Inc.; non-interest
bearing and is payable in 2000. 144,449 -
</TABLE>
F-21
<PAGE> 51
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 5 - Long Term Debt (Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
Equipment notes payable-Beacon relating to the
acquisition of Fulmer Brothers, Inc.; collateralized
by equipment with a book value of $296,773. The loan
bears interest at 15% and is payable in monthly
installments of principal and interest. 148,960 -
----------- ----------
Total 4,697,870 7,258,848
Less: current maturities 3,210,916 2,034,756
---------- ----------
Long-term portion $1,486,954 $5,224,092
---------- ----------
</TABLE>
The carrying value of the Company's borrowings approximate their fair
values.
Aggregate annual scheduled maturities of long-term debt at December 31,
1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
$ 2000 3,210,916
2001 1,008,394
2002 257,219
2003 221,341
----------
Total $4,697,870
==========
</TABLE>
NOTE 6 - Acquisition Loan and Sellers' Notes
In March, 1995 Mid America Transport Group agreed to acquire Gulf Northern.
The agreement called for payments to the three former stockholders (described as
sellers' notes) which included promissory notes totaling $260,000 due in
36 monthly installments totaling $8,017 at 7% due on March 1, 1998 secured by
letters of credit and non interest bearing obligations (discounted at 7%
per annum) totaling $104,000 payable over a one year period commencing April 1,
1998. Legal counsel subsequently determined that U.S. Trucking is not
responsible for this debt as the liability remains with Mid America.
Accordingly, during 1998 it was reclassified as a credit against the goodwill
recognized in the acquisition from Mid America.
F-22
<PAGE> 52
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 7 - Convertible Debentures
During 1999, U.S. Trucking issued $2,250,000 of 10% convertible debentures
due May 31, 2002. The Company received proceeds of $2,042,000, net of $208,000
of debt issuance costs. The debt issuance costs are being amortized over the
life of the debentures and $8,057 was amortized during 1999.
The holders of the debentures are entitled, at their option, to convert at
any time, all or any part of the principal amount of the debentures plus accrued
interest.
The price per share of Common Stock into which the debentures are
convertible is the higher of $1.50 or the lower of 80% of the average closing
bid price of the Common Stock quoted on the OTC Bulletin Board for three trading
days preceding the conversion date or $2.37 per share. In no event will the
conversion price be less than $1.50 per share. No debentures were converted as
of December 31, 1999.
The Company retired $800,000 of debentures in September 1999 including
approximately $31,000 of accrued interest. Related debt issuance costs of
$78,180 was expensed and is included in administrative expenses in the
accompanying financial statements.
NOTE 8 - Preferred Stock
Series A Preferred Stock/Stock Exchange Agreement
On February 1, 1999, the Company entered into three stock exchange
agreements whereby a total of 9,990,000 shares of Common Stock were exchanged
for 999,000 of Series A Preferred Stock. The value of the shares was determined
to be $762 and such amount was deducted from additional paid-in capital. Each
share of Series A Preferred Stock is entitled to ten votes and will vote
together with the holders of the Common Stock. Pursuant to this agreement, each
share of Series A Preferred Stock may be exchanged for ten shares of Common
Stock as follows: one fifth of the shares upon U.S. Trucking, Inc. reporting
revenues of $31 million or more for any fiscal year or shorter period in a
report filed on Form 10-KSB or any appropriate Securities and Exchange
Commission filing; an additional one-fifth if revenues are at or above $41
million; an additional one-fifth
F-23
<PAGE> 53
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 8 - Preferred Stock (Continued)
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.
Based upon the revenues reported in the accompanying consolidated financial
statements, 40% of the Series A Preferred Stock are eligible to be exchanged for
Common Stock.
Series B Convertible Preferred Stock- During 1999, U. S. Trucking sold
$2,000,000 of Series B Convertible Preferred Stock and issued 2,000 shares. The
Company incurred $185,000 of issuance costs that were deducted from additional
paid-in capital. Shares of Series B Convertible Preferred Stock are convertible
into shares of Common Stock based upon the stated value of $1,000 per share of
Preferred Stock divided by the conversion price on the date of conversion.
Holders of Series B Convertible Preferred Stock may elect to convert their
shares commencing on the earlier of October 28, 1999 or the occurrence of any
merger, tender offer, or redemption event.
The conversion price is equal to 90% of the average closing bid price for
the ten consecutive trading days immediately preceding the conversion date, not
to exceed $2.59 per share. Holders of Series B Preferred Stock are entitled to
receive a dividend of 12% annually. No dividends were declared as of December
31, 1999.
There are also provisions in the security, which allow the holders to
redeem their shares upon the occurrence of certain events including the
inability of U.S. Trucking, Inc. to issue free trading common stock to the
holders because the shares have not been registered under the Securities Act.
The Series B shareholders have no voting rights.
Series C Convertible Preferred Stock- During 1999, U.S. Trucking, Inc.
issued 50,000 shares of Series C Convertible Preferred Stock to existing related
party shareholders in exchange for their guaranteeing U.S. Trucking's debt
incurred under the revolving credit agreement. The shares were valued for
financial statement purposes at $.30 per share.
F-24
<PAGE> 54
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 8 - Preferred Stock (continued)
Each share of Series C Convertible Preferred Stock entitles the holder to
one hundred votes and votes together with the holders of Common Stock. The
holders of Series C Preferred Stock have no liquidation rights and no rights to
dividends. The Series C Preferred Stock is not redeemable.
Series D Convertible Preferred Stock- During 1999, U.S. Trucking sold
$950,000 of Series D Convertible Preferred shares and issued 950 shares. The
Company incurred $150,000 of issuance costs that were deducted from additional
paid-in capital. Shares of Series D Convertible Preferred Stock are convertible
into shares of common stock based on the stated value of $1,000 per share of
preferred stock divided by the conversion price on the conversion date. Holders
of the Series D Convertible Preferred Stock may elect to convert their shares
commencing the earlier of January 8, 2000 or the occurrence of a merger, tender
offer, or redemption event.
Holders of Series D Convertible Preferred Stock are entitled to receive a
dividend of 12% annually. No dividends have been declared. In addition, the
holders of Series D Convertible Preferred Stock have no voting rights.
Series E Convertible Preferred Stock- During 1999, U.S. Trucking sold
$2,300,000 of Series E Convertible Preferred Stock and issued 2,300 shares. The
Company incurred $282,900 of issuance costs that were deducted from additional
paid-in capital. Shares of Series E Convertible Preferred Stock are convertible
into shares of Common Stock based upon the stated value of $1,000 per share of
preferred stock divided by the conversion price on the conversion date. Holders
of the Series E Convertible Preferred Stock may elect to convert their shares
commencing on the earlier of March 9, 2000, or the occurrence of a merger,
tender offer, or redemption event. The conversion price is $3.18 per share.
Series E Convertible Preferred Stock has no voting rights and are entitled to
receive a dividend of 12% annually. No dividends have been declared.
F-25
<PAGE> 55
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 9 - Transportation, Software Development Costs and Other Equipment
Transportation, software development costs and other equipment consists of
the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Office equipment $ 316,230 $ 201,833
Tractors, trailers and
garage equipment 676,104 10,253,193
Software development costs 315,897 -
---------- -----------
1,308,231 10,455,026
Less accumulated depreciation 420,541 736,221
---------- -----------
Total $ 887,690 $ 9,718,805
========== ===========
</TABLE>
Depreciation and amortization expense amounted to $2,313,393 and $1,464,161
for the periods ended December 31, 1999 and 1998, respectively. The fair market
value of fixed assets approximates book value.
NOTE 10 - Related Party Transactions
During January 1999, three of the Company's shareholders entered into stock
exchange agreements whereby they agreed to exchange a total of 9,990,000 shares
of common stock for 999,000 shares of our Series A Preferred Stock. Each share
of Series A Preferred Stock has ten votes and the shares will be voted together
with the common stock as a single class. Pursuant to the stock exchange
agreement, each share of Series A Preferred Stock will be exchangeable back into
ten shares of common stock as follows: one-fifth of the shares upon reporting
revenues of $31 million or more for any fiscal year of 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 $61 million; and
the balance if revenues are at or above $71 million. The shareholders who
exchanged shares were Logistics Management, LLC - 9,000,000 shares; Joff Pollon
- - 250,000 shares; and Waterways Group - 740,000 shares.
F-26
<PAGE> 56
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 10 - Related Party Transactions (continued)
In June 1999, the Company issued 25,000 shares of Series C Preferred Stock
to each of Dan Pixler and the Huff Grandchildren's Trust in consideration of
those parties guarantees with respect to in excess of $13,000,000 of the
Company's debt obligations. Each Series C Share carries 100 votes per share on
all matters submitted to a vote of stockholders, but otherwise carries no rights
to dividends or other distributions. The shares were valued at $15,000 for
financial statement purposes.
U.S. Trucking leases nine tractors from three of its officers or from
companies they own under net lease agreements that specify monthly payments of
$12,018 per month. See Note 23.
Transportation Services Company, Inc., provides insurance risk management
services to U.S. Trucking and earns a fee based upon the amount of business it
places for U.S. Trucking. Mr. Marion Huff, father of the Company's Chairman,
Anthony Huff, is President and sole stockholder of Transportation Services
Company, Inc.
U.S. Trucking also provides consulting services to Transportation Services
Company, Inc. pursuant to a consulting agreement entered into on December 29,
1998. During 1999 and 1998, U.S. Trucking earned $540,000 and $228,000,
respectively of consulting income from Transportation Services Company, Inc.,
which is included in revenues in the accompanying financial statements.
During 1999, the Company agreed to allow Sebrite Investment Co. to operate
its transportation insurance business using U.S. Trucking's captive insurance
facility. As a result, the Company earned a usage fee of $1,000,000 that is
included in revenues in the accompanying consolidated financial statements. In
addition, the Company recorded a related reinsurance placement fee of $800,000
that is also included in revenues in the accompanying consolidated financial
statements.
During 1999, U.S. Trucking sold transportation equipment to related parties
and recorded Notes Receivable as follows:
In September 1999, U.S. Trucking sold transportation equipment to Transit
Financial Co. and Interstate University. These companies are substantially owned
or controlled
F-27
<PAGE> 57
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 10 - Related Party Transactions (continued)
by officers/shareholders of the Company. The selling price was $556,000 and
resulted in a gain of $366,752 that is included in other income in the
accompanying financial statements.
On December 29, 1999, U.S. Trucking sold transportation equipment to
One-Way Logistics, Inc. a company wholly owned 10% by an officer/employee and
90% by Logistics Management, LLC, the majority stockholder of US Trucking. The
sales price was $6,000,000, which was evidenced by a promissory note and a
security agreement. The transaction resulted in a gain of $814,398 that is
included in other income in the accompanying financial statements.
During 1999, U.S. Trucking advanced a total of $733,133 to Professional
Transportation Group, Inc., a company under common control. Such amounts are
included in notes receivable - related parties and are expected to be repaid in
the year 2000.
The board of directors of the Company believes that the above transactions
involving U.S. Trucking have been on terms no less favorable to the Company than
those that could have been obtained from unaffiliated parties.
NOTE 11- Retirement Plan
U.S. Trucking maintains a pension plan for eligible employees, which was
established under section 401(k) of the Internal Revenue Code. Under the terms
of the plan, the Company at the discretion of its Board of Directors may match
employee contributions up to 3% of employee compensation. Employee contributions
to the plan amounted to $47,419 and $42,986 for the period ended December 31,
1999 and 1998, respectively. The Company did not match employee contributions
during the periods ended December 31, 1999 and 1998.
F-28
<PAGE> 58
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 12 - Captive Insurance Program
Effective December 31, 1997 U.S. Trucking entered into an offshore
insurance program agreement with a Bermudan insurance company (insurance
company) for the company's auto liability insurance, including rolling stock, on
a retrospective rating basis. The company purchased 1 share of non-voting
preferred stock of the insurance company for a purchase price of $1,000. The
insurance company is allowed to redeem the preferred stock for $1,000 on March
1, 2004. U.S. Trucking-Nevada was issued a "Deductible Reimbursement Insurance
Policy" which was reinsured with other insurance carriers and called "the
treaty". The agreement, the policy and the treaty together constitute the
company's single insurance "program".
Under the terms of this program, the Company pays insurance premiums on a
written premium underwriting basis.
Commencing on May 31, 2001, and annually thereafter on each succeeding year
through May 31, 2004, U.S. Trucking-Nevada will be eligible to receive a
dividend from the insurance company based upon a predetermined formula. The
formula is intended to provide a dividend to the company the excess of
investment income and premiums paid over losses and expenses and fees incurred,
less loss and premium reserves. Pursuant to this section of the insurance
program agreement, the company recorded in the accompanying financial statements
$705,321 of amounts due from captive insurer of which $350,000 and $355,321 is
reflected in other income in 1999 and 1998, respectively. This amount represents
the estimated "program-to date profit" at December 31, 1999.
U.S. Trucking-Nevada has agreed to indemnify and hold harmless the
insurance company against the cumulative sum of investment income, underwriting
losses, expenses and fees (the program-to-date profit) minus the cumulative
amount of dividends paid, being less than zero at any point in time.
A deposit of $100,000 was required at the initiation of the program and was
made through a related company who in turn purchased a certificate of deposit.
The deposit is included in the balance sheet under non-current assets-Due from
related party. Further, the Company has deposited $84,199 in a certificate of
deposit which is included in Restricted cash in the accompanying balance sheet.
F-29
<PAGE> 59
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 12- Captive Insurance Program (continued)
U.S. Trucking decided in 1998 to develop a new line of business in order to
expand upon its current transportation business and take advantage of the
underwriting profit potential of the captive insurance program. U.S. Trucking
offered their program to selected independent third party trucking companies who
purchase insurance coverage and pay a premium to the company through
Transportation Underwriters Agency, Inc. U.S. Trucking records the net premiums
billed to third parties as liability insurance revenue, which is included in net
revenue and its premium costs and expenses to operate the third party program as
insurance expense-captive, which is included in operating expenses in the
accompanying financial statements. Liability insurance revenues amounted to
$2,521,133, captive insurance usage fees amounted to $1,000,000 and reinsurance
placement fees amounted to $800,000. Premiums, cost and expenses incurred,
amounted to $2,171,133. Also see note 10 regarding related fees earned by the
company in connection with its captive insurance program.
NOTE 13 - Restricted Cash
U.S. Trucking maintains cash accounts for owner-operators who perform
services for the Company. These funds are accumulated, with the owner-operators
consent, by withholding part of the payments due to them for services performed.
The funds are used to pay for repairs of equipment, which they own directly. At
December 31, 1999, $1,014 was held in escrow.
During 1999, U.S. Trucking deposited $36,491 with a financing company to
cover over the road fuel and other operating expenses for drivers as well as
depositing $110,000 in a restricted account to further support the arrangement.
In addition, the Company deposited a total $750,000 into restricted certificates
of deposit as collateral for the fair value lease for sixty-five year 2000
tractors. Further, a deposit of $84,199 was made in connection with the
Company's captive insurance program. A total of $981,704 and $12,320
respectively, was held in restricted accounts at December 31, 1999 and 1998.
F-30
<PAGE> 60
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 14 - Concentration of Credit Risk - Cash
U.S. Trucking maintains its cash balances in three financial institutions,
one located in Mt. Pleasant, SC, one located in Wisconsin Rapids, WI and the
other in Louisville, KY. 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 - Accounts Receivable Financing/Revolving Loan Agreement
On December 22, 1998, U.S. Trucking entered into a three-year revolving
credit loan agreement with GE Capital Corp. The revolving loan agreement allows
for borrowing up to $8,000,000. Amounts advanced under the loan agreement are
based upon 85% of the borrowing base of eligible accounts receivable. The line
bears interest at the rate of 4.5% over GECC's commercial paper rate. Amounts
borrowed under the agreement are collateralized by a security interest in all of
the company's present and future tangible and intangible assets and the personal
guarantees of the Huff Family Trust and Dan Pixler. This restructure of debt
resulted in a cost of $252,728, which is being amortized over the life of the
loan. There is also a letter of credit sub-facility of $250,000 that was unused
at December 31, 1999.
The loan agreement contains several financial covenants including
restrictions on incurring or assuming debt other than what was in existence,
sales of assets, payments of certain fees, and restrictions on entering into any
lending or borrowing arrangements. At December 31, 1999 and 1998 there was
$6,736,536 and $1,795,888 respectively, of revolving debt outstanding. Interest
expense recorded on the revolving loan agreement amounted to $410,136 in 1999
and $4,300 in 1998. The weighted average interest rate in each of the years was
9.8% and 9.6%.
From April 1995, to December 1998, U.S. Trucking had an agreement with a
factor whereby the factor would accept the company's receivables with full
recourse. Under the agreement, the factor advanced up to 90% of those
receivables submitted by the company. Interest on funds advanced was charged at
an average annual effective rate of 14.9% payable monthly.
F-31
<PAGE> 61
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 16 - Economic Dependency
U.S. Trucking's customers consist primarily of high volume shippers that
have significant time sensitive and high service level traffic needs. The
Company provided services to a customer, which accounted for net revenues in
excess of 10% of the Company's total revenues for the period ended December 31,
1998. That customer accounted for 12.9% of the Company's net revenues for 1998.
Accounts receivable from that customer amounted to $242,925 as of December 31,
1998.
Revenues from U.S. Trucking's five and ten largest customers accounted for
approximately 23.1% and 30.4% respectively of total net revenues for the period
ended December 31, 1999. Accounts receivable as of December 31, 1999 from those
customers amounted to $658,611 and $1,255,644, respectively.
Revenues from U.S. Trucking's five and ten largest customers accounted for
approximately 30.0% and 38.4% respectively of total net revenues for the period
ended December 31, 1998. Accounts receivable as of December 31, 1998 from those
customers amounted to $693,018 and $912,803, respectively.
F-32
<PAGE> 62
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 17 - Intangible Assets
Intangible assets consist of the following items as of December 31, 1999:
<TABLE>
<CAPTION>
Original Accumulated Net Book
Cost Amortization Value
---------- ------------- ----------
<S> <C> <C> <C>
Goodwill $5,448,249 $482,987 $4,984,678
Debt refinancing costs & other 506,185 287,556 218,749
Deferred trade-in costs 277,651 100,965 176,686
Costs related to the issuance
of convertible debentures 129,820 8,057 121,763
---------- -------- ----------
Total $6,381,321 $879,565 $5,501,756
========== ======== ==========
</TABLE>
Intangible assets consist of the following items as of December 31, 1998:
<TABLE>
<CAPTION>
Original Accumulated Net Book
Cost Amortization Value
---------- ------------- ----------
<S> <C> <C> <C>
Goodwill $1,585,853 $216,365 $1,369,488
Debt refinancing costs & other 491,794 56,878 434,916
Deferred trade-in costs 277,651 - 277,651
---------- -------- ----------
Total $2,355,298 $273,243 $2,082,055
========== ======== ==========
</TABLE>
Amortization expense amounted to $606,322 and $152,691 for the years ended
December 31, 1999 and 1998, respectively, and is included in depreciation and
amortization expense.
F-33
<PAGE> 63
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 18 - Stock Transactions and Changes in Capital Structure
Effective September 1998, U.S. Trucking-Colorado underwent a change in its
capital structure whereby it is authorized to issue 75,000,000 shares of no-par
common stock and 10,000,000 shares of preferred stock.
Effective June, 1998, a stock dividend was declared by the Board of
Directors, whereby 5,199 shares of the company's common stock was distributed to
the stockholders for each share of common stock held.
On May 26, 1998, U.S. Trucking-Nevada entered into an investment consulting
agreement with Joff Pollon & Associates for a period, with extensions, of up to
two years. The compensation payable to the consultants under this agreement
includes fees, reimbursable expenses and options to purchase up to 1,000,000
post dividend shares of the company's common stock. The common stock was valued
at $.18 per share and the consultants are eligible to receive further fees and
bonuses as determined by the Board of Directors. Pursuant to this agreement and
prior to the reverse merger, 1,000,000 shares of stock were issued and valued at
$180,000. Further, Pollon subscribed to purchase an additional 160,000 shares of
common stock for $120,000, which was unpaid as of December 31, 1999.
F-34
<PAGE> 64
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 19 - Stock Option Plan
During 1998, U.S. Trucking-Nevada implemented a stock option plan that is
accounted for under Statement of Financial Accounting Standards, SFAS 123,
Accounting for Stock-Based Compensation. Under SFAS 123, the compensation cost
of the issuance of stock options is measured at the grant date based on the fair
value of the award. Compensation is then is recognized over the service period
that is generally the vesting period.
The plan allows U.S. Trucking-Nevada to grant options to employees for up
to a total of 2,500,000 shares of common stock. Options outstanding become
exercisable at the discretion of the Stock Option Committee, which administers
the plan, and expire 10 years after the grant date. All options granted during
1999 and 1998 were exercisable at not less than the fair market value of the
stock on the date of the grant. Accordingly, no compensation cost has been
recognized for the plan.
The Committee approved the issuance of options to purchase 2,000,000 shares
of the common stock of the Company to various employees and advisors for and an
exercise price of .30 per share for a total exercise price of $600,000. Included
below are options granted to Messrs. W. Anthony Huff and Dan L. Pixler to
purchase a total of 500,000 shares of common stock at $3.00 per share.
<TABLE>
<CAPTION>
Weighted Weighted
Options Average Warrants Average
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Securities Outstanding 1/1/99 2,000,000 $0.30 - $ -
Securities Granted 500,000 $3.00 1,622,298 $2.72
Securities Exercised (1,759,870) $0.26 - -
Securities Cancelled - $ - - $ -
---------- ----- --------- -----
Securities Outstanding 12/31/99 740,130 $2.12 1,622,298 $2.72
========== ===== ========= =====
</TABLE>
<TABLE>
<CAPTION>
Weighted Weighted
Options Average Warrants Average
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Securities Outstanding 1/1/98 - $0.00 - $ -
Securities Granted 2,000,000 $0.30 - $ -
Securities Exercised - $ - - $ -
Securities Cancelled - $ - - $ -
--------- ----- --------- -----
Securities Outstanding 12/31/98 2,000,000 $0.30 - $ -
========= ===== ========= =====
</TABLE>
F-35
<PAGE> 65
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 20 - Industry Segment Information
U.S. Trucking has three major business segments: mid to long-haul trucking,
interstate freight brokerage and auto liability insurance for the trucking
industry. During the fourth quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). The adoption of SFAS 131
requires the presentation of descriptive information about reportable segments
which is consistent with that made available to the management of U.S. Trucking
to assess performance. As a result of this change, the Company now reports
segment performance on an after-tax basis and separately reports information on
its truck brokerage operation. In addition, during 1998, the company added the
liability insurance business and reports that segment's performance similarly.
In determining the net income of each segment of the company, 100% of the
interest expense is allocated to long-haul trucking and effective tax rates are
determined for each business segment.
<TABLE>
<CAPTION>
Mid to Auto
Long-haul Freight Liability
Trucking Brokerage Insurance Intersegment Total
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1999
Sales $35,079,981 $5,879,823 $4,082,562 $ (305,689) $44,736,677
Operating income (loss) (3,527,607) 159,418 2,248,855 (1,119,334)
Net interest (1,094,745) 4,821 (1,089,924)
Pretax income (loss) (3,448,299) 164,239 2,248,855 (1,035,205)
Net income (loss) (1,396,600) 102,321 1,401,037 106,758
Assets 25,547,758 1,800,915 2,600,421 29,949,094
Depreciation & amortization 2,900,759 18,956 2,919,715
Additions to long-lived assets 1,147,689 1,147,689
</TABLE>
<TABLE>
<CAPTION>
Mid to Auto
Long-haul Freight Liability
Trucking Brokerage Insurance Intersegment Total
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1998
Sales $19,210,994 $1,857,168 $1,749,263 $(1,001,581) $22,043,844
Operating income (loss) (90,284) 239,087 355,321 (100,000) 632,124
Net interest (729,980) (729,980)
Pretax income (loss) (3,712) (38,696) 355,321 (191,146) 21,767
Net income (loss) (3,712) (38,696) 355,321 (191,146) 121,767
Assets 15,064,076 224,823 1,023,462 16,312,361
Depreciation & amortization 1,614,108 2,744 1,616,852
Additions to long-lived assets 5,220,001 5,220,001
</TABLE>
F-36
<PAGE> 66
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 21 - Equipment Financing Transaction
On December 21, 1998 U.S. Trucking entered into an equipment financing
transaction with a major equipment financing company as part of an overall
program to upgrade its fleet of transportation equipment. As part of the
transaction, the company traded in equipment with a book value of $914,651 for
$637,000 of credit against the new equipment. The transaction resulted in a book
loss of $277,651 of which $100,965 was amortized during 1999. For accounting
purposes, this loss has been reclassified as an intangible asset and is being
amortized over the life of the new equipment leased. The average lease term is
33 months.
NOTE 22 - Fair Value of Financial Instruments
Estimated fair values of U.S. Trucking's financial instruments are as
follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash $1,057,719 $1,057,719 $ 22,976 $ 22,976
Notes Receivable $9,948,980 $9,948,980 - -
Long-term debt $4,697,870 $4,697,870 $7,258,848 $7,258,848
</TABLE>
The fair value of notes receivable is based upon current estimated
recoverable value.
The fair value of long-term debt is based on current rates at which U.S.
Trucking could borrow funds with similar remaining maturities.
F-37
<PAGE> 67
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 23 - Commitments and Contingencies
Commencing on January 1, 1997, U.S. Trucking entered in to an agreement to
lease its Wisconsin Rapids facility from certain stockholders for $6,500 per
month for a period of five years under an operating lease.
Commencing January 1, 1999, U.S. Trucking entered in to an agreement to
lease its Savannah, NY property from certain shareholders for $2,204 per month
for a period of ten years under an operating lease.
Commencing February 2000, U.S. Trucking leased 4,000 square feet of space
in Mt. Pleasant, South Carolina that houses its corporate office and brokerage
operations. The lease calls for monthly payments of $6,393 and is for a term of
twenty-four months.
Commencing March 1998, U.S. Trucking leased four tractors from two of its
officers under net lease agreements that specify monthly payments of $5,196 and
extend with renewal options until May 2002.
During 1999, U.S. Trucking leased tractors and trailers from various
lenders under net lease agreements with total monthly payments of $254,220 with
various expiration dates through December 31, 2004.
In July 1999 U.S. Trucking entered in to operating leases for six tractors
with Transit Financial Co., a related party. Lease payments amount to $6,822 per
month for a period of three years.
Minimum rental payments under such leases follow for the years ending
December 31:
<TABLE>
<S> <C>
2000 $ 3,408,300
2001 3,324,900
2002 2,869,000
2003 483,700
2004 459,200
-----------
Total minimum payments required $10,545,100
===========
</TABLE>
Rent expense for the period ended December 31, 1999 and 1998 amounted to
$286,947 and $194,655 respectively and is included in administrative expenses.
F-38
<PAGE> 68
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998
NOTE 23 - Commitments and Contingencies (Continued)
During 1999, U.S. Trucking issued a total of 6,497,297 shares of common
stock to several companies and individuals as collateral in connection with
contingent transactions. Of these shares, 5,100,000 were issued with the
understanding that they could be recalled at any time, at the discretion of the
Company, prior to any transaction taking place. The remaining 1,397,297 shares
are used as collateral for the other contingent transactions. Accordingly, these
shares were not included in the total shares issued and outstanding as of
December 31, 1999, and therefore, were not considered in the calculation of
earnings per share.
NOTE 24 - Subsequent Events
In January 2000, U.S. Trucking issued $550,000 of 10% Convertible
Debentures.
In January 2000, U.S. Trucking subsidiary Gulf Northern Transport, Inc.
signed a master agent agreement with Carolina Global, Inc. to manage Gulf
Northern's container operations. Carolina Global is owned 90% by Logistics
Management, LLC and 10% by an officer of U.S. Trucking. Under the terms of the
agreement, Gulf Northern will pay 90% of revenues generated by its container
operations to Carolina Global in exchange for the operational services provided.
In January 2000, Gulf Northern signed a master agent agreement with One-Way
Logistics, Inc. to manage Gulf Northern's over the road operations. One-Way is
owned 90% by Logistics Management, LLC and 10% by an officer of U.S. Trucking.
Under the terms of the agreement, Gulf Northern will pay 95% of revenues
generated by its over the road operations to One-Way in exchange for the
operational services provided.
On February 7, 2000, U.S. Trucking entered into a merger agreement to
acquire Checkmate Truck Brokerage, Inc. and Maverick Truck Brokerage, Inc., for
an estimated purchase price of $1,800,000. Under the terms of the agreement, the
purchase price consists of $800,000 in common stock and $500,000 payable to the
principals. In addition, $500,000 has been placed in escrow pending the outcome
of an acquisition review of the assets and liabilities. Further, the contract
includes a stock adjustment agreement whereby the issuance of the common stock
included in the agreement will be adjusted pending the outcome of certain
performance parameters.
F-39
<PAGE> 69
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 24 - Subsequent Events (Continued)
In March 2000 the U.S. Trucking issued convertible debentures in the amount
of $535,000 with principal in the amount of $50,000 payable beginning April 15,
2000. The debentures include a stated interest rate of 12% per annum
In January 2000 U.S. Trucking, Inc., Logistics Management, LLC and Sebrite
Investment Corporation signed as guarantors on a revolving credit facility at
Southtrust Bank for Professional Transportation Group, Inc. a company under
Logistics Management's common control.
F-40
<PAGE> 70
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
U.S. TRUCKING, INC.
Dated: May 15, 2000 By: /s/ Danny Pixler
------------ ----------------------------------------
Danny Pixler, President and Chief
Executive Officer
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 May 15, 2000
Danny L. Pixler Officer) and Director
/s/ W. Anthony Huff
- ----------------------- Executive Vice President May 15, 2000
W. Anthony Huff and Director
/s/ John Ragland
- ----------------------- Chief Financial and May 15, 2000
John Ragland Accounting Officer
<PAGE> 71
U.S. TRUCKING, INC.
FORM 10-K UNDER THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------
3.1 Articles of Incorporation, Incorporated by reference to Exhibit
as amended 3.1 to the Registrant's Registration
Statement on Form SB-2 (SEC File No.
333-71875)
3.2 Bylaws, as amended Incorporated by reference to Exhibit
3.2 to the Registrant's Registration
Statement on Form SB-2 (SEC File No.
333-71875)
3.3 Articles of Amendment to Incorporated by reference to Exhibit
Articles of Incorporation 3.3 to the Registrant's Registration
effective September 8, 1998 Statement on Form SB-2 (SEC File No.
333-71875)
3.4 Articles of Amendment to Incorporated by reference to Exhibit
Articles of Incorporation 3.4 to the Registrant's Registration
dated January 20, 1999 Statement on Form SB-2 (SEC File No.
regarding Series A Pre- 333-71875)
ferred Stock
3.5 Articles of Amendment to Incorporated by reference to Exhibit
Articles of Incorporation 3.5 to the Registrant's Registration
dated April 29, 1999, Statement on Form SB-2 (SEC File No.
regarding Series B Pre- 333-71875)
ferred Stock
3.6 Articles of Amendment to Incorporated by reference to Exhibit
Articles of Incorporation 3.6 to the Registrant's Registration
dated June 10, 1999, Statement on Form SB-2 (SEC File No.
regarding Series C Pre- 333-71875)
ferred Stock
3.7 Articles of Amendment to Incorporated herein by reference
Articles of Incorporation to Exhibit 3.7 to the Company's
dated September 10, 1999 Form 10-Q for the quarter ended
regarding Series D September 30, 1999 (SEC File
Preferred Stock 333-70353)
3.8 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
dated November 8, 1999
regarding Series E
Preferred Stock
<PAGE> 72
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 Incorporated by reference to Exhibit
Danny L. Pixler 10.3 to the Registrant's Registration
Statement on Form SB-2 (SEC File No.
333-71875)
10.4 Employment Agreement with Incorporated by reference to Exhibit
Anthony Huff 10.4 to the Registrant's Registration
Statement on Form SB-2 (SEC File No.
333-71875)
10.5 Employment Agreement with Incorporated by reference to Exhibit
John Ragland 10.5 to the Registrant's Registration
Statement on Form SB-2 (SEC File No.
333-71875)
10.6 Lease Agreement dated Incorporated by reference to Exhibit
January 1, 1997, between 10.6 to the Registrant's Registration
Gulf Northern Transport, Statement on Form SB-2 (SEC File No.
Inc., Dan L. Pixler, and 333-71875)
Sebrite Insurance Services,
Inc.
10.7 Lease Agreement dated Incorporated by reference to Exhibit
March 5, 1998, between 10.7 to the Registrant's Registration
Gulf Northern Transport, Statement on Form SB-2 (SEC File No.
Inc. and Dan Pixler for 333-71875)
three tractors
10.8 Lease Agreement dated Incorporated by reference to Exhibit
September 23, 1998, 10.8 to the Registrant's Registration
between Gulf Northern Statement on Form SB-2 (SEC File No.
Transport, Inc. and 333-71875)
Thomas Financial Services
10.9 Stock Exchange Agreement Incorporated by reference to Exhibit
between U.S. Trucking and 10.9 to the Registrant's Registration
three shareholders dated Statement on Form SB-2 (SEC File No.
January 29, 1999 333-71875)
10.10 Loan and Security Agreement Incorporated by reference to Exhibit
dated as of December 22, 10.10 to the Registrant's Registration
1998 between General Statement on Form SB-2 (SEC File No.
Electric Capital Corporation 333-71875)
and U.S. Trucking, Inc.,
et al.
10.12 10% Convertible Debenture Incorporated by reference to
due May 31, 2002 for Exhibit 10.12 to the Company's
$600,000 Form 10-QSB for the quarter
ended June 30, 1999
<PAGE> 73
10.13 1998 Stock Option Plan, Incorporated by reference to Exhibit
as amended 10.13 to the Registrant's Registration
Statement on Form SB-2 (SEC File No.
333-71875)
10.14 Purchase and Sale Agreement Incorporated by reference to
by and among Mid-Cal the Company's Form 8-K dated
Express, Inc., Prime April 14, 1999
Companies, Inc. and U.S.
Trucking, Inc.
10.15 Merger Agreement and Plan of Incorporated by reference to
Reorganization dated Exhibit 10.1 to the Company's
February 2, 2000, by and Form 8-K dated February 7, 2000
between U.S. Trucking, Inc.,
Checkmate Acquisition Corp.,
Tommy Chambers, Marylou
Chambers and Timothy O'Bannon
and Checkmate Truck Brokerage,
Inc.
10.16 Merger Agreement and Plan of Incorporated by reference to
Reorganization dated Exhibit 10.2 to the Company's
February 2, 2000, by and Form 8-K dated February 7,
between U.S. Trucking, Inc., 2000
Checkmate Acquisition Corp.,
Tommy Chambers, Timothy
O'Bannon, Marylou Chambers
and Sharion O'Bannon and
Maverick Truck Brokerage,
Inc.
10.17 Price Adjustment Agreement Incorporated by reference to
Exhibit 10.3 to the Company's
Form 8-K dated February 7,
2000
10.18 Guaranty Agreement Filed herewith electronically
with Southtrust Bank, N.A.
10.19 Bill of Sale, Promissory Filed herewith electronically
Note & Security Agreement
with One-Way Logistics
10.20 Promissory Notes from Filed herewith electronically
Transit Financial Services,
Inc.
21 Subsidiaries of the Filed herewith electronically
Registrant
23.2 Consent of Bianculli, Filed herewith electronically
Pascale & Co. P.C.
27 Financial Data Schedule Filed herewith electronically
<PAGE> 1
EXHIBIT 3.8
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
U.S. TRUCKING, INC.
(SERIES E PREFERRED CONVERTIBLE STOCK)
FIRST:
That pursuant to authority expressly granted and vested in the Board of
Directors (the "Board of Directors" or the "Board") of this Corporation under
the Colorado Business Corporation Act and the provisions of the Articles of
Incorporation, the Board of Directors, on November 8, 19999, adopted the
following resolution setting forth the designations, powers, preferences and
rights of its Series E Convertible Preferred Stock (the "STATEMENT OF
DESIGNATION").
RESOLVED: That the designations, powers, preferences and rights of the Series E
Convertible Preferred Stock be, and they hereby are, as set forth below:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 2,300 shares of
Preferred Stock, is the Series E Convertible Preferred Stock (the "SERIES E
PREFERRED STOCK") and the stated value shall be One Thousand U.S. Dollars
($1,000.00) per share (the "STATED VALUE").
II. NO DIVIDENDS
The Series E Preferred Stock will bear no dividends, and the holders of
the Series E Preferred Stock shall not be entitled to receive dividends on the
Series E Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Statement of Designation, the following terms
shall have the following meanings:
A. "CLOSING BID PRICE" means, for any security as of any date, the
closing bid price of such security on the over-the-counter market on the
electronic bulletin board (the "BULLETIN BOARD")
<PAGE> 2
or principal securities exchange or trading market where such security is listed
or traded as reported by Bloomberg Financial Markets or if Bloomberg Financial
Markets is not then reporting closing bid prices of such security a comparable
reporting service of national reputation selected by the Corporation and
reasonably acceptable to holders of a majority of the then outstanding shares of
Series E Preferred Stock (collectively, "BLOOMBERG"). If the foregoing does not
apply, if no bid price is reported for such security by Bloomberg, the average
of the bid prices of any market makers for such security as reported in the
"pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price
cannot be calculated for such security on such date on any of the foregoing
bases, the Closing Bid Price of such security on such date shall be the fair
market value as reasonably determined by an investment banking firm selected by
the Corporation and reasonably acceptable to holders of a majority of the then
outstanding shares of Series E Preferred Stock, with the costs of such appraisal
to be borne by the Corporation.
B. "CONVERSION DATE" means, for any Conversion, the date on which the
notice of conversion in the form attached hereto (the "NOTICE OF CONVERSION") is
delivered by fax, as evidenced by a mechanically or electronically generated
confirmation thereof, (or delivered by other means resulting in notice) to the
Corporation before 6:00 p.m., New York City time on the Conversion Date
indicated in the Notice of Conversion. The holder shall confirm, by overnight
courier, in person (by courier or otherwise) or by telephone (to an authorized
officer of the Corporation or his or her administrative assistant), the delivery
of the Notice of Conversion to the Corporation on the date on which the Notice
of Conversion is delivered or before 9:00 a.m., New York City time on the
trading day immediately succeeding such date; provided that an overnight courier
delivery which is signed for or refused by the Corporation prior to 12:00 noon,
New York City time on a given day shall be deemed to have been delivered before
9:00 a.m. New York City time on such day. If the Notice of Conversion is not so
faxed or otherwise delivered or the overnight courier, in-person or telephone
confirmation is not so made or deemed to be made before such applicable times,
then the Conversion Date shall be the date as of which both such conditions are
satisfied (i.e., the Notice of Conversion is delivered on or before 6:00 p.m.
New York City time on a given day and the overnight courier, in-person or
telephone confirmation is made or deemed to be made either on such day of
delivery or before 9:00 a.m. New York City time on the immediately succeeding
trading day).
C. "CONVERSION PRICE" means the lower of the Fixed Conversion Price and
the Variable Conversion Price, each in effect as of such date and subject to
adjustment as provided herein.
D. "FIRST CONVERSION DATE" means, with respect to Series E Preferred
Stock issued on any Issue Date the earliest of (i) the 121st day following the
Initial Issuance Date, (ii) the date the Corporation makes a public announcement
that it intends to merge or consolidate with any other entity (other than a
merger in which the Corporation is the surviving or continuing entity and the
voting capital stock of the Corporation immediately prior to such merger
represents at least 50% of the voting power of the capital stock of the
Corporation after the merger) or to sell or transfer all or substantially all of
the assets of the Corporation, (iii) the date any person, group or entity
(including the Corporation) publicly announces a tender offer, exchange offer or
another transaction to purchase 50% or more of the Corporation's outstanding
Common Stock or otherwise publicly announces an
-2-
<PAGE> 3
intention to replace a majority of the Corporation's Board of Directors by
waging proxy battle or otherwise, or (iv) the date on which a Redemption Event
described in Article VIII.A(iv) occurs.
E. "FIXED CONVERSION PRICE" means $3.18 and shall be subject to
adjustment as provided herein.
F. "INITIAL ISSUANCE DATE" means the date of the First Closing under
that certain Securities Purchase Agreement dated as of November 9, 1999 by and
among the Corporation and the other signatories thereto (the "SECURITIES
PURCHASE AGREEMENT").
G. "ISSUANCE DATE" means for each share of Series E Preferred Stock,
the date on which such share is first issued by the Corporation.
H. "MARKET PRICE," as of any date, (i) means the average of the closing
bid prices for the shares of the corporation's Common Stock, no par value per
share ("COMMON STOCK") as reported on the Bulletin Board by Bloomberg for the
ten consecutive trading days immediately preceding such date, or (ii) if the
Bulletin Board is not the principal trading market for the shares of Common
Stock, the average of the closing bid prices as reported by Bloomberg on the
principal trading market or exchange for the Common Stock during the same
period, or, if there is no sale price for such period, the last reported bid
price as reported by Bloomberg for such period, or (iii) if market value cannot
be calculated as of such date on any of the foregoing bases, the Market Price
shall be the average fair market value as reasonably determined by an investment
banking firm selected by the Corporation and reasonably acceptable to the
holder, with the costs of the appraisal to be borne by the Corporation. The
manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.
I. "N" means, with respect to each share of Series E Preferred Stock,
the number of days from, but excluding, the Issuance Date until the date Premium
is first redeemed in accordance with Article IV.D hereof on such share and
thereafter the number of days from and including the date on which Premium was
last redeemed in accordance with Article IV.D hereof until the date Premium is
next redeemed on such share.
J. "PREMIUM" means an amount equal to (X)x(N/365) x (1,000), where "X"
means twelve hundredths (.12).
IV. CONVERSION; REDEMPTION OF PREMIUM
A. Conversion at the Option of the Holder. Subject to the limitations
on conversions contained in Paragraph C of this Article IV and to the
Corporation's right of redemption contained in Article VIII.D, each holder of
shares of Series E Preferred Stock may, at any time and from time
-3-
<PAGE> 4
to time on or after the First Conversion Date, convert (a "CONVERSION") each of
its shares of Series E Preferred Stock into a number of fully paid and
nonassessable shares of Common Stock determined in accordance with the following
formula:
$1,000
----------------------
FIXED CONVERSION PRICE
B. Mechanics of Conversion. In order to effect a Conversion, a holder
shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of
Conversion to the Corporation or the transfer agent for the Common Stock and (y)
surrender or cause to be surrendered the original certificates representing the
Series E Preferred Stock being converted (the "PREFERRED STOCK CERTIFICATES"),
duly endorsed, along with a copy of the Notice of Conversion as soon as
practicable thereafter to the Corporation or the transfer agent. The holder
shall confirm by overnight courier, in person (by courier or otherwise) or by
telephone (to an authorized officer of the Corporation or his or her
administrative assistant), the delivery of the Notice of Conversion to the
Corporation on the date on which the Notice of Conversion is delivered or before
9:00 a.m. New York City time on the trading day immediately succeeding such
date; provided that an overnight courier delivery which is signed for or refused
by the Corporation prior to 12:00 noon, New York City time on a given day shall
be deemed to have been delivered before 9:00 a.m. New York City time on such
day. Upon receipt by the Corporation of the Notice of Conversion by fax from a
holder, the Corporation shall, within one business day, following the later of
the Corporation's receipt of such Notice of Conversion and the holder's
overnight courier, in-person or telephone confirmation of the delivery of such
Notice of Conversion, send, via fax, a confirmation (the "NOTICE OF CONVERSION
CONFIRMATION") to such holder stating that the Notice of Conversion has been
received, the date upon which the Corporation expects to deliver the Common
Stock issuable upon such conversion, the name and telephone number of a contact
person at the Corporation regarding the conversion. The Corporation shall not be
obligated to issue shares of Common Stock upon a conversion unless either the
Preferred Stock Certificates are delivered to the Corporation or the transfer
agent as provided above, or the holder notifies the Corporation or the transfer
agent that such certificates have been lost, stolen or destroyed and delivers
the documentation to the Corporation required by Article XIV.B hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the
surrender of Preferred Stock Certificates from a holder of Series E Preferred
Stock accompanied by a Notice of Conversion, the Corporation shall, subject to
the Corporation's redemption rights set forth in Article VIII.D, no later than
the later of (a) the third business day following the Conversion Date and (b)
the business day following the date of such surrender (or, in the case of lost,
stolen or destroyed certificates, after provision of documentation pursuant to
Article XIV.B) (the "DELIVERY PERIOD"), issue and deliver to the holder or its
nominee, after registration of the resale of such shares under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), or delivery of documentation
reasonably satisfactory to the Corporation that the registration of such shares
is not required, to such holder's nominee, (x) that number of shares of Common
Stock issuable upon conversion of such shares of
-4-
<PAGE> 5
Series E Preferred Stock being converted and (y) a certificate representing the
number of shares of Series E Preferred Stock not being converted, if any. If the
Corporation's transfer agent is participating in the Depository Trust
Corporation ("DTC") Fast Automated Securities Transfer program, and so long as
the certificates therefor do not bear a legend and the holder thereof is not
then required to return such certificate for the placement of a legend thereon,
the Corporation may cause its transfer agent to electronically transmit the
Common Stock issuable upon conversion to the holder by crediting the account of
the holder or its nominee with DTC through its Deposit Withdrawal Agent
Commission system ("DTC TRANSFER"). If the aforementioned conditions to a DTC
Transfer are not satisfied or a DTC Transfer is otherwise not effected, the
Corporation shall deliver to the holder physical certificates representing the
Common Stock issuable upon conversion. Further, a holder may instruct the
Corporation to deliver to the holder physical certificates representing the
Common Stock issuable upon conversion in lieu of delivering such shares by way
of DTC Transfer.
(ii) Taxes. The Corporation shall pay any and all taxes which
may be imposed upon the Corporation with respect to the issuance and delivery of
the shares of Common Stock upon the conversion of the Series E Preferred Stock
other than transfer taxes due upon conversion, if such holder has transferred to
another party the Series E Preferred Stock or the right to receive Common Stock
upon the holder's conversion thereof.
(iii) No Fractional Shares. If any conversion of Series E
Preferred Stock would result in the issuance of a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion of the Series E Preferred Stock shall be
rounded up or down to the nearest whole share, it being understood that .5 of
one share shall be rounded up to the next highest share.
(iv) Conversion Disputes. In the case of any dispute with
respect to a conversion, the Corporation shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with subparagraph (i)
above. If such dispute involves the calculation of the Conversion Price, the
Corporation shall submit the disputed calculations to the Corporation's outside
auditors reasonably acceptable to the holder of Series E Preferred Stock being
converted via facsimile at any time prior to the expiration of the Delivery
Period. The accountant, at the Corporation's expense, shall audit the
calculations and notify the Corporation and the holder of the results as soon as
practicable following the date it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive, absent manifest error. The
Corporation shall then issue the appropriate number of shares of Common Stock in
accordance with subparagraph (i) above.
C. Limitations on Conversions. The conversion of shares of Series E
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Cap Amount. If, notwithstanding the representations and
warranties of the Corporation contained in the Securities Purchase Agreement,
the Corporation is prohibited by the rules or regulations of any securities
exchange or quotation system on which the Common Stock is
-5-
<PAGE> 6
then listed or traded, from listing or issuing a number of shares of Common
Stock in excess of a prescribed amount (the "CAP AMOUNT") without the approval
of the Corporation's shareholders, then the Corporation shall not be required to
list or issue, as applicable, shares in excess of the Cap Amount unless the
Corporation has obtained the required approvals. The Cap Amount shall be
allocated pro rata to the holders of Series E Preferred Stock as provided in
Article XIV.C. In the event a holder of Series E Preferred Stock submits a
Notice of Conversion and the Corporation is prohibited from listing or issuing
shares of Common Stock to satisfy such Notice of Conversion as a result of the
operation of this subparagraph (i), such holder shall be entitled to the rights
set forth in Article VII hereof.
(ii) No Five Percent Holders. Unless a holder of shares of Series E
Preferred Stock delivers a waiver in accordance with the last sentence of this
subparagraph (ii), in no event shall a holder of shares of Series E Preferred
Stock be entitled to receive shares of Common Stock upon a conversion to the
extent that the sum of (x) the number of shares of Common Stock beneficially
owned by the holder and its affiliates (exclusive of shares issuable upon
conversion of the unconverted portion of the shares of Series E Preferred Stock
or the unexercised or unconverted portion of any other securities of the
Corporation (including, without limitation, the warrants (the "WARRANTS") issued
by the Corporation pursuant to the Securities Purchase Agreements) subject to a
limitation on conversion or exercise analogous to the limitations contained
herein) and (y) the number of shares of Common Stock issuable upon the
conversion of the shares of Series E Preferred Stock with respect to which the
determination of this subparagraph is being made, would result in beneficial
ownership by the holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock. For purposes of this subparagraph, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13 D-G thereunder, except as otherwise
provided in clause (x) above. Except as provided in the immediately succeeding
sentence, the restriction contained in this subparagraph (ii) shall not be
altered, amended, deleted or changed in any manner whatsoever unless the holders
of a majority of the outstanding shares of Common Stock and each holder of
outstanding shares of Series E Preferred Stock shall approve such alteration,
amendment, deletion or change. Notwithstanding the foregoing, a holder of shares
of Series E Preferred Stock may, by providing written notice to the Corporation,
(x) adjust the restriction set forth in this subparagraph (ii) so that the
limitations on beneficial ownership of 4.99% of the outstanding shares of Common
Stock referred to above shall not be applicable to such holder, which adjustment
shall not take effect until the 61st day after the date of such notice and (y)
irrevocably waive the right to deliver a waiver in accordance with clause (x) of
this sentence.
(iii) Percentage Limits on Conversion. Notwithstanding anything to
the contrary contained herein, no holder of shares of Series E Preferred Stock
may, without the prior written consent of the Corporation, on any one trading
day convert into shares of Common Stock a number of shares of Series E Preferred
Stock in excess of ten percent (10%) of the aggregate number of shares of Series
E Preferred Stock purchased by such holder from the Corporation.
-6-
<PAGE> 7
D. Redemption of Premium. The Corporation shall, on the fifteenth
(15th) day of each calendar month, redeem in cash any and all accrued and unpaid
Premium as of such date. All such redemption payments hereunder shall be paid in
lawful money of the United States of America at such address for the holder as
appears on the record books of the Corporation (or at such other address as such
holder shall hereafter give to the Corporation by written notice).
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. On the Issuance Date of shares of Series E
Preferred Stock, the Corporation shall reserve the number of shares which would
be issuable if the outstanding shares of Series E Preferred Stock were converted
in their entirety on the such Issuance Date based on the Conversion Price in
effect on such Issuance Date of the authorized but unissued shares of Common
Stock for issuance upon conversion of the Series E Preferred Stock and
thereafter the number of authorized but unissued shares of Common Stock so
reserved (the "RESERVED AMOUNT") shall not be decreased and shall at all times
be sufficient to provide for the conversion of the Series E Preferred Stock
outstanding at the then current Conversion Price thereof. The Reserved Amount
shall be allocated to the holders of Series E Preferred Stock as provided in
Article XIV.C.
B. Increases to Reserved Amount. If the Reserved Amount for any three
consecutive trading days (the last of such three trading days being the
"AUTHORIZATION TRIGGER DATE") shall be less than 100% of the number of shares of
Common Stock issuable upon conversion of the then outstanding shares of Series E
Preferred Stock, the Corporation shall immediately notify the holders of Series
E Preferred Stock of such occurrence and shall take immediate action (including,
if necessary, seeking shareholder approval to authorize the issuance of
additional shares of Common Stock) to increase the Reserved Amount to 100% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series E Preferred Stock. In the event the Corporation fails to so
increase the Reserved Amount within 90 days after an Authorization Trigger Date
(such event being the "RESERVED AMOUNT TRIGGER EVENT"), each holder of Series E
Preferred Stock shall thereafter have the option, exercisable in whole or in
part at any time and from time to time by delivery of a Redemption Notice (as
defined in Article VIII.C) to the Corporation, to require the Corporation to
purchase for cash, at an amount per share equal to the Redemption Amount (as
defined in Article VIII.B), a portion of the holder's Series E Preferred Stock
such that, after giving effect to such purchase, the holder's allocated portion
of the Reserved Amount exceeds 100% of the total number of shares of Common
Stock issuable to such holder upon conversion of its Series E Preferred Stock.
If the Corporation fails to redeem any of such shares within five (5) business
days after its receipt of such Redemption Notice, then such holder shall be
entitled to the remedies provided in Article VIII.C.
C. Adjustment to Conversion Price. If the Corporation is prohibited, at
any time, from issuing shares of Common Stock upon conversion of Series E
Preferred Stock to any holder because the Corporation does not then have
available a sufficient number of authorized and reserved shares of Common Stock,
then the Fixed Conversion Price in respect of any shares of Series E Preferred
Stock held by any holder (including shares of Series E Preferred Stock submitted
to the Corporation
-7-
<PAGE> 8
for conversion, but for which shares of Common Stock have not been issued to any
such holder) shall be adjusted as provided in Article VI.A.
D. Limitations on Redemption Right. Notwithstanding the provisions of
Paragraph B of this Article V, the holders of Series E Preferred Stock shall
have no right to require the Corporation to effect a redemption of their
outstanding shares of Series E Preferred Stock as provided in Paragraph B of
this Article V so long as (i) the Corporation has not, at any time, decreased
the Reserved Amount below that number of shares of Common Stock computed as set
forth in Article V.A.; (ii) the Corporation shall have taken immediate action
following the applicable Authorization Trigger Date (including, if necessary,
seeking stockholder approval to authorize the issuance of additional shares of
Common Stock) to increase the Reserved Amount to 200% of the number of shares of
Common Stock then issuable upon conversion of the outstanding Series E Preferred
Stock; and (iii) the Corporation continues to use all commercially reasonable
good faith best efforts (including the resolicitation of stockholder approval to
authorize the issuance of additional shares of Common Stock) to increase the
Reserved Amount to 200% of the number of shares of Common Stock then issuable
upon conversion of the outstanding Series E Preferred Stock. The Corporation
will be deemed to be using "all commercially reasonable good faith best efforts"
to increase the Reserved Amount so long as it solicits stockholder approval to
authorize the issuance of additional shares of Common Stock not less than three
(3) times during each twelve month period following the applicable Authorization
Trigger Date during which any shares of Series B Preferred Stock remain
outstanding.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Defaults. The following shall constitute a "CONVERSION
DEFAULT": (i) following the submission by a holder of shares of Series E
Preferred Stock of a Notice of Conversion, the Corporation fails for any reason
(other than because of an event described in clause (iii) below) to deliver, on
or prior to the tenth business day following the expiration of the Delivery
Period for such conversion, such number of shares of Common Stock without a
restrictive legend covered by an effective registration statement to which such
holder is entitled upon such conversion, (ii) the Corporation provides notice to
any holder of Series E Preferred Stock at any time of its intention not to issue
freely tradeable shares of Common Stock upon exercise by any holder of its
conversion rights in accordance with the terms of this Statement of Designation
(other than because of an event described in clause (iii) below), or (iii) the
Corporation is prohibited, at any time, from listing shares of Common Stock or
from issuing shares of Common Stock upon conversion of Series E Preferred Stock
to any holder because the Corporation (A) does not at the date of such
conversion have available a sufficient number of authorized and reserved shares
of Common Stock or (B) such listing or issuance would exceed the then unissued
portion of such holder's Cap Amount. In the case of a Conversion Default
described in clause (i) or (iii) above, the Fixed Conversion Price in respect of
any shares of Series E Preferred Stock held by such holder (including shares of
Series E Preferred Stock submitted to the Corporation for conversion, but for
which shares of Common Stock have not been issued to such holder) shall
thereafter be the lesser of (x) the Fixed Conversion Price on the date of the
Conversion Default and (y) the lowest Conversion Price in effect during the
period beginning on,
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and including, such date through and including (A) in the case of a Conversion
Default referred to in clause (i) above, the earlier of (1) the day such shares
of Common Stock are delivered to the holder and (2) the day on which the holder
regains its rights as a holder of Series E Preferred Stock with respect to such
unconverted shares of Series E Preferred Stock pursuant to the provisions of
Article XIV.F hereof, and (B) in the case of a Conversion Default referred to in
clause (iii) above, the date on which the prohibition on listing or issuance of
Common Stock terminates. In the case of a Conversion Default described in clause
(ii) above, the Fixed Conversion Price with respect to any conversion thereafter
shall be the lowest Conversion Price in effect at any time during the period
beginning on, and including, the date of the occurrence of such Conversion
Default through and including the Default Cure Date (as defined below).
Following any adjustment to the Fixed Conversion Price pursuant to this Article
VI.A, the Fixed Conversion Price shall thereafter be subject to further
adjustment for any events described in Article XI. Upon the occurrence of each
reset of the Fixed Conversion Price pursuant to this Paragraph A, the
Corporation, at its expense, shall promptly compute the new Fixed Conversion
Price and prepare and furnish to each holder of Series E Preferred Stock a
certificate setting forth such new Fixed Conversion Price and showing in detail
each Conversion Price in effect during such reset period.
"DEFAULT CURE DATE" means (i) with respect to a Conversion Default
described in clause (i) of its definition, the date the Corporation effects the
conversion of the full number of shares of Series E Preferred Stock, (ii) with
respect to a Conversion Default described in clause (ii) of its definition, the
date the Corporation issues shares of Common Stock without a restrictive legend
covered by an effective registration statement in satisfaction of all
conversions of Series E Preferred Stock in accordance with Article IV.A, and
(iii) with respect to a Conversion Default described in clause (i) or clause
(ii) of its definition, the date on which the Corporation redeems shares of
Series E Preferred Stock held by such holder pursuant to paragraph C of this
Article VI.
B. Intentionally Omitted.
C. Redemption Right. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the holder, for any reason (other than because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures the holders shall have the remedies set
forth in Articles V and VII, respectively) to issue shares of Common Stock
within 10 business days after the expiration of the Delivery Period with respect
to any conversion of Series E Preferred Stock, then the holder may elect at any
time and from time to time prior to the Default Cure Date for such Conversion
Default, by delivery of a Redemption Notice to the Corporation, to have all of
such holder's shares of Series E Preferred Stock which were submitted for
conversion purchased by the Corporation for cash, at an amount per share equal
to the Redemption Amount (as defined in Article VIII.B). If the Corporation
fails to redeem any of such shares within five business days after its receipt
of such Redemption Notice, then such holder shall be entitled to the remedies
provided in Article VIII.C.
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D. Void Notice of Conversion. If for any reason a holder has not
received all of the shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion of
Series E Preferred Stock and such shares are not subject to a redemption notice
from the holder thereof, then the holder, upon written notice to the
Corporation's transfer agent, with a copy to the Corporation, may void its
Notice of Conversion with respect to, and retain or have returned, as the case
may be, any shares of Series E Preferred Stock that have not been converted
pursuant to such holder's Notice of Conversion; provided that the voiding of a
holder's Notice of Conversion shall not affect such holders rights and remedies
which have accrued prior to the date of such notice pursuant to Article VI
hereof or otherwise.
VII. INABILITY TO LIST OR CONVERT DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time after November 9, 1999 the then
unissued portion of any holder's Cap Amount is less than 100% of the number of
shares of Common Stock then issuable upon conversion of such holder's shares of
Series E Preferred Stock (a "TRADING MARKET TRIGGER EVENT"), the Corporation
shall immediately notify the holders of Series E Preferred Stock of such
occurrence and shall take immediate action (including, if necessary, seeking the
approval of its shareholders to authorize the listing or issuance of the full
number of shares of Common Stock which would be issuable upon the conversion of
the then outstanding shares of Series E Preferred Stock but for the Cap Amount)
to eliminate any prohibitions under applicable law or the rules or regulations
of any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Corporation or any of its securities on
the Corporation's ability to list or issue shares of Common Stock in excess of
the Cap Amount ("TRADING MARKET PROHIBITIONS"). In the event the Corporation
fails to eliminate all such Trading Market Prohibitions within 120 days after
the Trading Market Trigger Event, then each holder of Series E Preferred Stock
shall thereafter have the option, exercisable in whole or in part at any time
and from time to time until such date that all such Trading Market Prohibitions
are eliminated, by delivery of a Redemption Notice (as defined in Article
VIII.C) to the Corporation, to require the Corporation to purchase for cash, at
an amount per share equal to the Redemption Amount, a number of the holder's
shares of Series E Preferred Stock such that, after giving effect to such
redemption, the then unissued portion of such holder's Cap Amount exceeds 100%
of the total number of shares of Common Stock issuable upon conversion of such
holder's shares of Series E Preferred Stock. If the Corporation fails to redeem
any of such shares within five (5) business days after its receipt of such
Redemption Notice, then such holder shall be entitled to the remedies provided
in Articles VII.B and VIII.C.
B. Remedies. If the Corporation fails to redeem any shares of Series E
Preferred Stock pursuant to Article VII.A within five business days after its
receipt of such Redemption Notice, and thereafter the Corporation is prohibited,
at any time, from listing shares of Common Stock or from issuing shares of
Common Stock upon conversion of Series E Preferred Stock to any holder because
such listing or issuance would exceed the then unissued portion of such holder's
Cap Amount because of applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or its securities, any holder
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who is so prohibited from converting its Series E Preferred Stock because the
shares of Common Stock underlying such Series E Preferred Stock may not be
listed or issued, may elect either or both of the following additional remedies:
(i) to require, with the consent of holders of at least fifty
percent (50%) of the outstanding shares of Series E Preferred Stock (including
any shares of Series E Preferred Stock held by the requesting holder), the
Corporation to terminate the trading of its Common Stock on the Bulletin Board
(or any other stock exchange, interdealer quotation system or trading market)
and to cause its Common Stock to be eligible for trading on the "pink sheets";
or
(ii) to require the Corporation to issue shares of Common Stock in
accordance with such holder's Notice of Conversion at a conversion price equal
to the average of the Closing Bid Prices for the Common Stock during the five
consecutive trading days ending on the trading day immediately preceding the
date of the holder's written notice to the Corporation of its election to
receive shares of Common Stock pursuant to this subparagraph (ii) (subject to
equitable adjustment for any stock splits, stock dividends, reclassifications or
similar events during such five trading day period).
C. Adjustment to Conversion Price. If the Corporation is prohibited, at
any time, from listing shares of Common Stock or from issuing shares of Common
Stock upon conversion of Series E Preferred Stock to any holder because such
listing or issuance would exceed the then unissued portion of such holder's Cap
Amount because of applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or its securities, then the Fixed
Conversion Price in respect of any shares of Series E Preferred Stock held by
any holder (including shares of Series E Preferred Stock submitted to the
Corporation for conversion, but for which shares of Common Stock have not been
issued) shall be adjusted as provided in Article VI.A.
VIII. REDEMPTION
A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(vii) below after expiration of the applicable cure period (if any)
being a "REDEMPTION EVENT"):
(i) the Common Stock (including, from and after the First
Conversion Date, any of the shares of Common Stock issuable upon conversion of
the Series E Preferred Stock) is suspended from trading on any of, or is not
listed (and authorized) for trading on at least one of, the Bulletin Board,
NASDAQ Small Cap Market, the NASDAQ National Market, the New York Stock Exchange
or the American Stock Exchange for an aggregate of 10 full trading days in any
nine month period;
(ii) the Corporation fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Series E
Preferred Stock (a "LEGEND REMOVAL
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<PAGE> 12
FAILURE") upon conversion of the Series E Preferred Stock as and when required
by this Statement of Designation, the Securities Purchase Agreement or that
certain Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT") by
and among the Corporation and the other signatories thereto entered into in
connection with the Securities Purchase Agreement and any such failure continues
uncured for ten business days after the Corporation has been notified thereof in
writing by the holder;
(iii) the Corporation provides notice to any holder of Series E
Preferred Stock, including by way of public announcement, at any time, of its
intention not to issue, or otherwise refuses to issue, shares of Common Stock to
any holder of Series E Preferred Stock upon conversion in accordance with the
terms of this Statement of Designation (other than due to the circumstances
contemplated by Articles V or VII for which the holders shall have the remedies
set forth in such Articles);
(iv) the Corporation shall:
(a) sell, convey or dispose of all or substantially all of its
assets (the presentation of any such transaction for stockholder approval being
conclusive evidence that such transaction involves the sale of all or
substantially all of the assets of the Corporation); or
(b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Corporation and other than pursuant to a merger in which the Corporation is
the surviving or continuing entity and the voting capital stock of the
Corporation immediately prior to such merger represents at least 50% of the
voting power of the capital stock of the Corporation after the merger) and its
capital stock is unchanged; or
(c) have fifty percent (50%) or more of the voting power of
its capital stock owned beneficially by one person, entity or "group" (as such
term is used under Section 13(d) of the Securities Exchange Act of 1934, as
amended), other than Logistics Management, LLC and its current affiliates;
(v) the Corporation otherwise shall breach any material term
hereunder or under the Securities Purchase Agreement or the Registration Rights
Agreement and such breach continues for 5 business days after the Corporation
has been notified thereof in writing by the holder; or
(vi) as of the last day of any Trading Volume Valuation Period
(defined below) and the Trading Volume Value (defined below) for such Trading
Volume Valuation Period shall not equal or exceed $150,000. The term "TRADING
VOLUME VALUATION PERIOD" shall mean any twenty (20) consecutive trading day
period during the period beginning on the one hundred eightieth (180th) day
after the Initial Issuance Date and continuing thereafter. The term "TRADING
VOLUME VALUE" shall mean, for any Trading Volume Valuation Period, the average
of the products obtained by multiplying (i) the Closing Bid Price for the Common
Stock on a trading day by (ii) the total actual number of shares of Common Stock
purchased on the Bulletin Board or the principal exchange or market on which the
Common Stock is traded on such trading day for each trading day in such Trading
Volume Valuation Period. Then, upon
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the occurrence of any such Redemption Event, each holder of shares of Series E
Preferred Stock shall thereafter have the option, exercisable in whole or in
part at any time and from time to time by delivery of a Redemption Notice (as
defined in Paragraph C below) to the Corporation while such Redemption Event
continues, to require the Corporation to purchase for cash any or all of the
then outstanding shares of Series E Preferred Stock held by such holder for an
amount per share equal to the Redemption Amount (as defined in Paragraph B
below) in effect at the time of the redemption hereunder. For the avoidance of
doubt, the occurrence of any event described in clauses (i), (iii) or (iv) above
shall immediately constitute a Redemption Event and there shall be no cure
period. Upon the Corporation's receipt of any Redemption Notice hereunder (other
than during the three trading day period following the Corporation's delivery of
a Redemption Announcement (as defined below) to all of the holders in response
to the Corporation's initial receipt of a Redemption Notice from a holder of
Series E Preferred Stock), the Corporation shall immediately (and in any event
within one business day following such receipt) deliver a written notice (a
"REDEMPTION ANNOUNCEMENT") to all holders of Series E Preferred Stock stating
the date upon which the Corporation received such Redemption Notice and the
amount of Series E Preferred Stock covered thereby. Subject to Article VIII.D,
the Corporation shall not redeem any shares of Series E Preferred Stock during
the three trading day period following the delivery of a required Redemption
Announcement hereunder. At any time and from time to time during such three
trading day period, each holder of Series E Preferred Stock may request (either
orally or in writing) information from the Corporation with respect to the
instant redemption (including, but not limited to, the aggregate number of
shares of Series E Preferred Stock covered by Redemption Notices received by the
Corporation) and the Corporation shall furnish (either orally or in writing) as
soon as practicable such requested information to such requesting holder.
Notwithstanding anything in this Article VIII.A to the contrary, the
holders of Series E Preferred Stock shall have no right to deliver a Redemption
Notice following the occurrence of a Redemption Event specified in clause (i)
above if the Corporation pays to each holder within five (5) business days after
the occurrence of such Redemption Event and on each three month anniversary
thereafter, as liquidated damages for the decrease in the value of the Series E
Preferred Stock (and the shares of the Corporation's Common Stock issuable upon
conversion thereof) which will result from the occurrence of such Redemption
Event, an amount (the "DAMAGES AMOUNT") equal to ten percent (10%) of the
aggregate Stated Value of the shares of Series E Preferred Stock then held by
each such holder. The Damages Amount shall be payable, at the Corporation's
option, in cash or shares of Common Stock (based upon a price per share of
Common Stock equal to eighty percent (80%) of the Variable Conversion Price in
effect as of the date of such Redemption Event).
Notwithstanding anything in this Article VIII.A to the contrary, if the
holders of Series E Preferred Stock deliver a Redemption Notice following the
occurrence of a Redemption Event specified in clause (vi) above, the Corporation
may at its election in lieu of paying the Redemption Amount pay to the holders
of Series E Preferred Stock the Trading Value Redemption Amount (as defined
below). The "TRADING VALUE REDEMPTION AMOUNT" with respect to a share of Series
E Preferred Stock means an amount equal to the Stated Value hereof multiplied by
1.2 plus the accrued
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and unpaid Premium thereon through the date of payment of the Trading Value
Redemption Amount. Notwithstanding anything in this Article VIII.A to the
contrary, the Trading Value Redemption Amount shall be payable, at the
Corporation's option, in cash or shares of Common Stock (based upon a price per
share of Common Stock equal to eighty percent (80%) of the Variable Conversion
Price in effect as of the date of such Redemption Event). If the Corporation
elects to pay such amount in shares of Common Stock such shares shall be issued
not later than five (5) business days after the date the Trading Value
Redemption Amount becomes due and such shares for all purposes shall constitute
Registrable Securities (as defined in the Registration Rights Agreement). If the
Corporation elects to pay such amount in cash, the Corporation shall pay such
amount in twelve (12) equal monthly installments plus interest on such amount at
a per annum, compounded rate of twelve percent (12%). Such interest will begin
to accrue and the first of such payments shall be made on the date the Trading
Value Redemption Amount becomes due. The Corporation shall have the right to
prepay any such cash amount.
B. Definition of Redemption Amount. The "REDEMPTION AMOUNT" with
respect to a share of Series E Preferred Stock means an amount equal to:
V
----------- X M
C P
where:
"V" means the Stated Value thereof, plus the accrued Premium thereon
through the date of payment of the Redemption Amount;
"CP" means the Conversion Price in effect on the date on which the
Corporation receives the Redemption Notice; and
"M" means the higher of (i) the highest Closing Bid Price of the
Corporation's Common Stock during the period beginning on the date on which the
Corporation receives the Redemption Notice and ending on the date immediately
preceding the date of payment of the Redemption Amount and (ii) the fair market
value, as of the date on which the Corporation receives the Redemption Notice,
of the consideration payable to the holder of a share of Common Stock pursuant
to the transaction which triggers the redemption. For purposes of this
definition, "fair market value" shall be determined by the mutual agreement of
the Corporation and holders of a majority-in-interest of the shares of Series E
Preferred Stock then outstanding, or if such agreement cannot be reached within
five business days prior to the date of redemption, by an investment banking
firm selected by the Corporation and reasonably acceptable to holders of a
majority-in-interest of the then outstanding shares of Series E Preferred Stock,
with the costs of such appraisal to be borne by the Corporation.
C. Redemption Defaults. If the Corporation fails to pay any holder the
Redemption Amount or Trading Value Redemption Amount with respect to any share
of Series E Preferred Stock within five business days after its receipt of a
notice requiring such redemption (a "REDEMPTION
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NOTICE"), then the holder of Series E Preferred Stock delivering such Redemption
Notice (i) shall be entitled to interest on the Redemption Amount at a per annum
rate equal to the lower of twenty-four percent (24%) and the highest interest
rate permitted by applicable law from the date on which the Corporation receives
the Redemption Notice until the date of payment of the Redemption Amount
hereunder, and (ii) shall have the right, at any time and from time to time, to
require the Corporation, upon written notice, to immediately convert (in
accordance with the terms of Paragraph A of Article IV) all or any portion of
the Redemption Amount, plus interest as aforesaid, into shares of Common Stock
at the lowest Conversion Price in effect during the period beginning on the date
on which the Corporation receives the Redemption Notice and ending on the
Conversion Date with respect to the conversion of such Redemption Amount. In the
event the Corporation is not able to redeem all of the shares of Series E
Preferred Stock subject to Redemption Notices delivered prior to the date upon
which such redemption is to be effected, the Corporation shall redeem shares of
Series E Preferred Stock from each holder pro rata, based on the total number of
shares of Series E Preferred Stock outstanding at the time of redemption
included by such holder in all Redemption Notices delivered prior to the date
upon which such redemption is to be effected relative to the total number of
shares of Series E Preferred Stock outstanding at the time of redemption
included in all of the Redemption Notices delivered prior to the date upon which
such redemption is to be effected.
D. Void Redemption. In the event that the Corporation does not pay the
Redemption Amount within the time period set forth in Article IV.D, Article
VIII.A or Article VIII.D, at any time thereafter and until the Corporation pays
such unpaid applicable Redemption Amount in full, a holder of Series E Preferred
Stock shall have the option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu
of redemption, require the Corporation to promptly return to such holder any or
all of the shares of Series E Preferred Stock that were submitted for redemption
by such holder under this Article VIII and for which the applicable Redemption
Amount (together with any interest thereon) has not been paid, by sending
written notice thereof to the Corporation via facsimile and confirmed by
overnight courier, in person (by courier or otherwise) or by telephone (to an
authorized officer of the Corporation or his or her administrative assistant)
(the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the Corporation's receipt of such
Void Optional Redemption Notice and overnight courier, in-person or telephone
confirmation, (i) the Notice of Redemption shall be null and void with respect
to those shares of Series E Preferred Stock subject to the Void Optional
Redemption Notice, and (ii) the Corporation shall immediately return any shares
of Series E Preferred Stock subject to the Void Optional Redemption Notice
IX. RANK
The Series E Preferred Stock shall rank (i) prior to the Corporation's
Common Stock; (ii) prior to any class or series of capital stock of the
Corporation hereafter created that, by its terms, ranks junior to the Series E
Preferred Stock ("JUNIOR SECURITIES"); (iii) junior to the Series B Preferred
Stock and any class or series of capital stock of the Corporation hereafter
created (with the
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consent of the holders of Series E Preferred Stock, obtained in accordance with
Article XIII hereof) specifically ranking, by its terms, senior to the Series E
Preferred Stock ("SENIOR SECURITIES"); and (iv) pari passu with the Series A
Preferred Stock and Series D Preferred Stock of the Corporation and any other
class or series of capital stock of the Corporation hereafter created (with the
consent of the holders of the Series E Preferred Stock obtained in accordance
with Article XIII hereof) specifically ranking by its terms on parity with the
Series E Preferred Stock ("PARI PASSU SECURITIES"), in each case as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of 60 consecutive days and,
on account of any such event, the Corporation shall liquidate, dissolve or wind
up, or if the Corporation shall otherwise liquidate, dissolve or wind up,
including, but not limited to, the sale or transfer of all or substantially all
of the Corporation's assets in one transaction or in a series of related
transactions (a "LIQUIDATION EVENT"), no distribution shall be made to the
holders of any shares of capital stock of the Corporation (other than Senior
Securities and Pari Passu Securities) upon liquidation, dissolution or winding
up unless prior thereto the holders of shares of Series E Preferred Stock shall
have received the Liquidation Preference with respect to each share. If, upon
the occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series E Preferred Stock and holders of
Pari Passu Securities shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire assets and
funds of the Corporation legally available for distribution to the Series E
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares.
B. The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
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shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
C. The "LIQUIDATION PREFERENCE" with respect to a share of Series E
Preferred Stock means an amount equal to the Stated Value thereof, plus the
accrued Premium thereon through the date of final distribution. The Liquidation
Preference with respect to any Pari Passu Securities shall be as set forth in
the Statement of Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time
as follows:
A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the
Initial Issuance Date, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, combination, reclassification or
other similar event, the Fixed Conversion Price shall be proportionately
reduced, or if the number of outstanding shares of Common Stock is decreased by
a reverse stock split, combination or reclassification of shares, or other
similar event, the Fixed Conversion Price shall be proportionately increased. In
such event, the Corporation shall notify the Corporation's transfer agent of
such change on or before the effective date thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after
the Initial Issuance Date, there shall be (i) any reclassification or change of
the outstanding shares of Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "CORPORATE CHANGE"), then the holders of Series E
Preferred Stock shall thereafter have the right to receive upon conversion, in
lieu of the shares of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or payable in such
Corporate Change with respect to or in exchange for the number of shares of
Common Stock which would have been issuable upon conversion (without giving
effect to the limitations contained in Article IV.C) had such Corporate Change
not taken place, and in any such case, appropriate provisions (in form and
substance reasonably satisfactory to the holders of a majority of the Series E
Preferred Shares then outstanding) shall be made with respect to the rights and
interests of the holders of the Series E Preferred Stock to the end that the
economic value of the shares of Series E Preferred Stock are in no way
diminished by such Corporate Change and that the provisions hereof (including,
without limitation, in the case of any such consolidation, merger or sale in
which the successor entity or purchasing entity is not the Corporation, an
immediate adjustment of the Fixed Conversion Price so that the Fixed Conversion
Price immediately after the Corporate Change reflects the same relative value as
compared to the value of the surviving entity's common stock that existed
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between the Fixed Conversion Price and the value of the Corporation's Common
Stock immediately prior to such Corporate Change and an immediate revision to
the Variable Conversion Price so that it is determined as provided in Article
III.H but based on the price of the common stock of the surviving entity and the
market in which such common stock is traded) shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock or securities
thereafter deliverable upon the conversion thereof. The Corporation shall not
effect any Corporate Change unless (i) each holder of Series E Preferred Stock
has received written notice of such transaction along with the notice sent to
the holders of the Common Stock of the Corporation, but in no event later than
20 days prior to the record date for the determination of shareholders entitled
to vote with respect thereto, and (ii) the resulting, successor or acquiring
entity (if not the Corporation) assumes by written instrument (in form and
substance reasonably satisfactory to the holders of a majority of the Series E
Preferred Shares then outstanding) the obligations of this Statement of
Designation. The above provisions shall apply regardless of whether or not there
would have been a sufficient number of shares of Common Stock authorized and
available for issuance upon conversion of the shares of Series E Preferred Stock
outstanding as of the date of such transaction, and shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
C. Adjustment Due to Major Announcement. In the event the Corporation
at any time after the Initial Issuance Date (i) makes a public announcement that
it intends to consolidate or merge with any other entity (other than a merger in
which the Corporation is the surviving or continuing entity and its capital
stock is unchanged) or to sell or transfer all or substantially all of the
assets of the Corporation or (ii) any person, group or entity (including the
Corporation) publicly announces a tender offer, exchange offer or another
transaction to purchase 50% or more of the Corporation's Common Stock or
otherwise publicly announces an intention to replace a majority of the
Corporation's Board of Directors by waging or proxy battle or otherwise (the
date of the announcement or commencement referred to in clause (i) or (ii) of
this Paragraph C is hereinafter referred to as the "ANNOUNCEMENT DATE"), then
the Conversion Price shall, effective upon the Announcement Date and continuing
through the tenth trading day following the earlier of the consummation of the
proposed transaction or tender offer, exchange offer or another transaction or
the Abandonment Date (as defined below) (the earlier of such dates being the
"ADJUSTED CONVERSION PRICE TERMINATION DATE"), be equal to the lower of (x) the
Conversion Price which would have been applicable for a Conversion occurring on
the Announcement Date and (y) the Conversion Price determined in accordance with
Article III.C on the Conversion Date set forth in the Notice of Conversion for
the Conversion. After the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in Article III.C. "ABANDONMENT
DATE" means with respect to any proposed transaction or tender offer, exchange
offer or another transaction for which a public announcement or an action
contemplated by this Paragraph C has been made or commenced, the date upon which
the Corporation (in the case of clause (i) above) or the person, group or entity
(in the case of clause (ii) above) publicly announces the termination or
abandonment of the proposed transaction or tender offer, exchange offer or
another transaction which caused this Paragraph C to become operative.
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D. Adjustment Due to Distribution. If, at any time after the Initial
Issuance Date, the Corporation shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's common shareholders in shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"DISTRIBUTION"), then the holders of Series E Preferred Stock shall be entitled,
upon any conversion of shares of Series E Preferred Stock after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets which would have been payable to the holder with
respect to the shares of Common Stock issuable upon such conversion (without
giving effect to the limitations contained in Article IV.C) had such holder been
the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
E. Issuance of Other Securities. (i) If at any time after the Initial
Issuance Date the Corporation issues or sells or in accordance with Article
XI.E(ii) is deemed to have issued and sold any shares of Common Stock for no
consideration or for a consideration per share less than the Dilutive Price (as
defined in this subparagraph) on the date of issuance (a "DILUTIVE ISSUANCE"),
then effective immediately upon the Dilutive Issuance, the Conversion Price will
be adjusted in accordance with the formula below. For purposes of this
subparagraph, "DILUTIVE PRICE" means the Market Price. The Conversion Price will
be adjusted in accordance with the following formula:
C' = C x O + P/M ;
---------------
CSDO
where:
C' = the adjusted Conversion Price;
C = the then current Conversion Price;
M = the then current Market Price;
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as
set forth herein, received by the
Corporation upon such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock
deemed outstanding immediately after the
Dilutive Issuance.
(ii) Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under Article XI.E(i) hereof, the
following will be applicable:
(a) Issuance of Rights or Options. If the Corporation in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("CONVERTIBLE SECURITIES") (such warrants, rights and options to purchase Common
Stock or Convertible Securities are hereinafter referred to as "OPTIONS") and
the price per share for which Common Stock is issuable upon the exercise of such
Options is less than the Dilutive Price in
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effect on the date of issuance of such Options ("BELOW MARKET OPTIONS"), then
the maximum total number of shares of Common Stock issuable upon the exercise of
all such Below Market Options (assuming full exercise, conversion or exchange of
Convertible Securities, if applicable) will, as of the date of the issuance or
grant of such Below Market Options, be deemed to be outstanding and to have been
issued and sold by the Corporation for such price per share. For purposes of the
preceding sentence, the "price per share for which Common Stock is issuable upon
the exercise of such Below Market Options" is determined by dividing (i) the
total amount, if any, received or receivable by the Corporation as consideration
for the issuance or granting of all such Below Market Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Corporation
upon the exercise of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Market Options,
the minimum aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Conversion Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(b) Issuance of Convertible Securities.
(A) If the Corporation in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Article XI.E(ii)(b)(A) if applicable) is less than the
Dilutive Price in effect on the date of issuance of such Convertible Securities,
then the maximum total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible Securities will, as of
the date of the issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Corporation for such price
per share. For the purposes of the preceding sentence, the "price per share for
which Common Stock is issuable upon such exercise, conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Corporation as consideration for the issuance or sale of all such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the exercise, conversion
or exchange thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the exercise, conversion or exchange of all
such Convertible Securities. No further adjustment to the Conversion Price will
be made upon the actual issuance of such Common Stock upon exercise, conversion
or exchange of such Convertible Securities.
(B) If the Corporation in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "VARIABLE RATE CONVERTIBLE SECURITY"), then the "price per
share for which Common Stock is issuable upon such
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exercise, conversion or exchange" for purposes of the calculation contemplated
by Section 4(b)(ii)(A) shall be deemed to be the lowest price per share which
would be applicable (assuming all holding period and other conditions to any
discounts contained in such Convertible Security have been satisfied) if the
Dilutive Price on the date of issuance of such Convertible Security was 75% of
the Dilutive Price on such date (the "ASSUMED VARIABLE MARKET PRICE"). Further,
if the Dilutive Price at any time or times thereafter is less than or equal to
the Assumed Variable Market Price last used for making any adjustment under this
Section 4 with respect to any Variable Rate Convertible Security, the Conversion
Price in effect at such time shall be readjusted to equal the Conversion Price
which would have resulted if the Assumed Variable Market Price at the time of
issuance of the Variable Rate Convertible Security had been 75% of the Dilutive
Price existing at the time of the adjustment required by this sentence.
(c) Change in Option Price or Conversion Rate. If there is a
change at any time in (i) the amount of additional consideration payable to the
Corporation upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Corporation upon the exercise, conversion
or exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock (in
each such case, other than under or by reason of provisions designed to protect
against dilution), the Conversion Price in effect at the time of such change
will be readjusted to the Conversion Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding provided
for such changed additional consideration or changed conversion rate, as the
case may be, at the time initially granted, issued or sold.
(d) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Conversion Price then in effect will be
readjusted to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or termination
(other than in respect of the actual number of shares of Common Stock issued
upon exercise or conversion thereof), never been issued.
(e) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes hereof will be the amount
received by the Corporation therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Corporation in connection with such issuance, grant or
sale. In case any Common Stock, Options or Convertible Securities are issued or
sold for a consideration part or all of which shall be other than cash, the
amount of the consideration other than cash received by the Corporation will be
the fair market value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Corporation will be the Market Price thereof as of the date of receipt. In
case any Common Stock, Options or Convertible Securities
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<PAGE> 22
are issued in connection with any merger or consolidation in which the
Corporation is the surviving corporation, the amount of consideration therefor
will be deemed to be the fair market value of such portion of the net assets and
business of the non-surviving corporation as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair market
value of any consideration other than cash or securities will be determined in
good faith by an investment banker or other appropriate expert of national
reputation selected by the Corporation and reasonably acceptable to the holder
hereof, with the costs of such appraisal to be borne by the Corporation. In case
any Common Stock, Options or Convertible Securities are issued in connection
with the issuance of debt securities the amount of consideration therefor shall
be the cash received by the Corporation and the value of the securities issued
by the Corporation shall be the fair market value of all securities and
instruments issued in such transaction, with fair market value being determined
by agreement between the holder hereof and the Corporation or if no such
agreement is reached pursuant to the immediately preceding sentence. For all
Options and Warrants the fair market value thereof shall be determined in
accordance with the black shoals methodology.
(f) Exceptions to Adjustment of Conversion Price. No
adjustment to the Conversion Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the Issue
Date and set forth on Schedule 3(d) of the Securities Purchase Agreement in
accordance with the terms of such securities as of such date or (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee benefit plan of the Corporation now existing or to
be implemented in the future, so long as the issuance of such stock or options
is approved by a majority of the non-employee members of the Board of Directors
of the Corporation, if any, or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
securities pursuant to an underwriters public offering; or (iv) upon issuance of
shares in connection with the acquisition of Prostar, Inc.
F. Purchase Rights. If, at any time after the Initial Issuance Date,
the Corporation issues any securities which are convertible into or exchangeable
for Common Stock, or rights to purchase stock, warrants, securities or other
property (the "PURCHASE RIGHTS") pro rata to the record holders of any class of
Common Stock, then the holders of Series E Preferred Stock will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete conversion of the
Series E Preferred Stock (without giving effect to the limitations contained in
Article IV.C) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article XI, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series E Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the
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<PAGE> 23
facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series E Preferred
Stock, furnish to such holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price at the time in effect and
(iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of a
share of Series E Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series E Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Colorado Business Corporation
Act (the "BUSINESS CORPORATION ACT") and in Article XIII below.
Notwithstanding the above, the Corporation shall provide each holder of
Series E Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders) at the same time such notice and materials are provided to the
holders of Common Stock. If the Corporation takes a record of its shareholders
for the purpose of determining shareholders entitled to (a) receive payment of
any dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger consolidation or recapitalization)
any share of any class or any other securities or property, or to receive any
other right, or (b) to vote in connection with any proposed sale, lease or
conveyance of all or substantially all of the assets of the Corporation, or any
proposed merger, consolidation, liquidation, dissolution or winding up of the
Corporation, the Corporation shall mail a notice to each holder, at least 20
days prior to the record date specified therein (but in no event earlier than
public announcement of such proposed transaction), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the Business Corporation Act the vote of the
holders of the Series E Preferred Stock, voting separately as a class or series,
as applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the then
outstanding shares of the Series E Preferred Stock represented at a duly held
meeting at which a quorum is present or by written consent of the holders of at
least a majority of the then outstanding shares of Series E Preferred Stock
(except as otherwise may be required under the Business Corporation Act) shall
constitute the approval of such action by the class. To the extent that under
the Business Corporation Act holders of the Series E Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series E Preferred Stock shall be entitled to a number
of votes equal to the number of shares of Common Stock into which it is then
convertible (subject to the limitations contained in Article IV.C(ii)) using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated.
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<PAGE> 24
XIII. PROTECTION PROVISIONS
So long as any shares of Series E Preferred Stock are outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by the Business Corporation Act) of a majority in interest
of the holders of the then outstanding shares of Series E Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series E Preferred Stock;
(b) alter or change the rights, preferences or privileges of any
previously issued shares of capital stock of the Corporation so as to affect
adversely the Series E Preferred Stock;
(c) create any new class or series of capital stock having a
preference over the Series E Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article IX hereof, "SENIOR SECURITIES");
(d) create any new class or series of capital stock ranking pari
passu with the Series E Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article IX hereof, "PARI PASSU SECURITIES");
(e) increase the authorized number of shares of Series E Preferred
Stock;
(f) issue any shares of Senior Securities;
(g) issue any shares of Series E Preferred Stock other than
pursuant to the Securities Purchase Agreement;
(h) redeem, or declare or pay any cash dividend or distribution on,
any Junior Securities; or
(i) increase the par value of the Common Stock. Notwithstanding the
foregoing, no change pursuant to this Article XIII shall be effective to the
extent that, by its terms, it applies to less than all of the holders of shares
of Series B Preferred Stock then outstanding.
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<PAGE> 25
XIV. MISCELLANEOUS
A. Cancellation of Series E Preferred Stock. If any shares of Series E
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Corporation as Series E Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity (without any bond or other security) reasonably satisfactory to the
Corporation, or (z) in the case of mutilation, upon surrender and cancellation
of the Preferred Stock Certificate(s), the Corporation shall execute and deliver
new Preferred Stock Certificate(s) of like tenor and date. However, the
Corporation shall not be obligated to reissue such lost or stolen Preferred
Stock Certificate(s) if the holder contemporaneously requests the Corporation to
convert such Series E Preferred Stock.
C. Allocation of Cap Amount and Reserved Amount. The initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series E
Preferred Stock based on the number of shares of Series E Preferred Stock issued
to each holder. Each increase to the Cap Amount and the Reserved Amount shall be
allocated pro rata among the holders of Series E Preferred Stock based on the
number of shares of Series E Preferred Stock held by each holder at the time of
the increase in the Cap Amount or Reserved Amount. In the event a holder shall
sell or otherwise transfer any of such holder's shares of Series E Preferred
Stock, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Series E Preferred Stock shall be allocated to the remaining holders of
shares of Series E Preferred Stock, pro rata based on the number of shares of
Series E Preferred Stock then held by such holders.
D. Quarterly Statements of Available Shares. For each calendar quarter
beginning in the quarter in which the initial registration statement required to
be filed pursuant to the Registration Rights Agreement is declared effective and
thereafter so long as any shares of Series E Preferred Stock are outstanding,
the Corporation shall deliver (or cause its transfer agent to deliver) to each
holder a written report notifying the holders of any occurrence which prohibits
the Corporation from issuing Common Stock upon any such conversion. The report
shall also specify (i) the total number of shares of Series E Preferred Stock
outstanding as of the end of such quarter, (ii) the total number of shares of
Common Stock issued upon all conversions of Series E Preferred Stock prior to
the end of such quarter, (iii) the total number of shares of Common Stock which
are reserved for issuance upon conversion of the Series E Preferred Stock as of
the end of such quarter and (iv) the total number of shares of Common Stock
which may thereafter be listed or issued by the Corporation upon conversion of
the Series E Preferred Stock before the Corporation would exceed the Cap Amount
and the Reserved Amount. The Corporation (or its transfer agent) shall deliver
the report for each quarter to each holder prior to the tenth day of the
calendar month following the quarter to which
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<PAGE> 26
such report relates. In addition, the Corporation (or its transfer agent) shall
provide, within 15 days after delivery to the Corporation of a written request
by any holder, any of the information enumerated in clauses (i) - (iv) of this
Paragraph D as of the date of such request.
E. Payment of Cash; Defaults. Whenever the Corporation is required to
make any cash payment to a holder under this Statement of Designation (upon
redemption or otherwise), such cash payment shall be made to the holder within
five business days after delivery by such holder of a notice specifying that the
holder elects to receive such payment in cash and the method (e.g., by check,
wire transfer) in which such payment should be made. If such payment is not
delivered within such five business day period, such holder shall thereafter be
entitled to interest on the unpaid amount at a per annum rate equal to the lower
of twenty-four percent (24%) and the highest interest rate permitted by
applicable law until such amount is paid in full to the holder.
F. Status as Stockholder. Upon submission of a Notice of Conversion by
a holder of Series E Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their listing or issuance
would exceed such holder's allocated portion of the Reserved Amount or Cap
Amount) shall be deemed converted into shares of Common Stock and (ii) the
holder's rights as a holder of such converted shares of Series E Preferred Stock
shall cease and terminate, excepting only the right to receive certificates for
such shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of this Statement of Designation.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth business day after the expiration of
the Delivery Period with respect to a conversion of Series E Preferred Stock for
any reason, then (unless the holder otherwise elects to retain its status as a
holder of Common Stock by so notifying the Corporation within five business days
after the expiration of such 10 business day period) the holder shall regain the
rights of a holder of Series E Preferred Stock with respect to such unconverted
shares of Series E Preferred Stock and the Corporation shall, as soon as
practicable, return such unconverted shares to the holder. In all cases, the
holder shall retain all of its rights and remedies (including, without
limitation, the right to have the Conversion Price with respect to subsequent
conversions determined in accordance with Article VI.A) for the Corporation's
failure to convert Series E Preferred Stock.
G. Remedies Cumulative. The remedies provided in this Statement of
Designation shall be cumulative and in addition to all other remedies available
under this Statement of Designation, at law or in equity (including a decree of
specific performance and/or other injunctive relief), and
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nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Corporation to comply with the terms of this Statement of
Designation. The Corporation acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holders of Series E Preferred Stock
and that the remedy at law for any such breach may be inadequate. The
Corporation therefore agrees, in the event of any such breach or threatened
breach, that the holders of Series E Preferred Stock shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
IN WITNESS WHEREOF, the undersigned Corporation has caused these
Articles of Amendment to the Articles of Incorporation to be signed by a duly
authorized officer and duly attested by another such officer, to be hereunto
affixed on this 8th day of November, 1999.
U.S. TRUCKING, INC..
By: /s/ Danny L Pixler
----------------------------------------
Name:
Title:
ATTEST:
/s/ Marvin W Hugh
- -----------------------------
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<PAGE> 1
EXHIBIT 10.18
GUARANTY OF PAYMENT AND PERFORMANCE
THIS GUARANTY OF PAYMENT AND PERFORMANCE ("Guaranty"), dated as of
January 15, 2000, is made by the undersigned, U.S. TRUCKING, INC., a _________
corporation, and LOGISTICS MANAGEMENT, LLC, a ___________ limited liability
company (hereinafter jointly, severally and collectively referred to as
"Guarantor"), with SOUTHTRUST BANK, N.A., a national banking association
("Bank").
W I T N E S S E T H:
FOR VALUE RECEIVED, and to induce Bank to make a loan, extend credit
or make other financial accommodations available to PROFESSIONAL TRANSPORTATION
GROUP LTD., INC., a Georgia corporation, and TIMELY NORTH, INC., a Georgia
corporation (as hereinafter further defined, collectively "Borrower"), and for
the consideration set forth below, Guarantor hereby agrees with Bank as follows:
1. PURPOSE. This Guaranty is made for the purpose of securing
for Borrower one or more loans or other extensions of credit from, or a line of
credit with, or the issuance of one or more letters of credit by, or the
acceptance of one or more bankers' acceptances by, or the lease of personal
property from or the furnishing of other financial accommodations by Bank, in
amounts and upon terms and conditions as Bank, in its sole discretion, may deem
appropriate. All such loans or other financial accommodations now or hereafter
provided by Bank to Borrower, and all extensions or renewals of debts or other
obligations now or at any time hereafter owing by Borrower to Bank, are made by
Bank in reliance on this Guaranty, are to the interest and benefit of Guarantor,
and are sufficient consideration for the execution and delivery of this Guaranty
by Guarantor. Each term and provision of every promissory note or other evidence
of debt, and every loan agreement, security agreement, mortgage, deed to secure
debt, deed of trust, letter of credit reimbursement agreement, bankers'
acceptance agreement, lease agreement and every other contract now or hereafter
executed by Borrower and delivered to Bank, shall bind Guarantor as if executed
by Guarantor as the primary and individual obligation of Guarantor.
2. GUARANTY. Guarantor, jointly and severally if more than one,
hereby unconditionally guarantees to Bank the prompt payment and performance by
Borrower when due of all the Guaranteed Obligations (as hereinafter defined).
This Guaranty is a guaranty of payment and performance and not of collection. In
the event Borrower at any time fails to pay or perform any of the Guaranteed
Obligations as and when the same become due, whether by acceleration of maturity
or otherwise, and in accordance with all applicable terms and conditions,
Guarantor agrees to pay such debt or perform such obligation immediately. Upon
failure of Guarantor to do so, Bank may, in its discretion, enforce the
collection of such debt or the performance of such obligation against Guarantor
by action in any court of competent jurisdiction, or in any other manner
provided by law, the same as if such debt or obligation were the primary and
individual debt or obligation of Guarantor, and without first seeking to enforce
such debt or obligation by action or otherwise against Borrower; or, Bank may,
in its discretion, proceed in any manner provided by law or by contract for
collection of debts against either or both Guarantor and Borrower the same as if
such debts and obligations were primarily and individually the debt of both
Guarantor and Borrower, jointly and severally.
3. CONTINUING GUARANTY. THIS GUARANTY IS AN ABSOLUTE,
UNCONDITIONAL AND CONTINUING GUARANTEE. This Guaranty extends to all Guaranteed
Obligations contracted or owing by Borrower to Bank now and at any time prior to
Bank's return of this Guaranty to Guarantor or the termination of this Guaranty
pursuant to the provisions of this paragraph, even though from time to time and
for extended periods of time there may be no debt or obligation owed to Bank by
Borrower. Subject to the following provisions, Guarantor shall have the right to
terminate this Guaranty at any
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<PAGE> 2
time effective ten (10) days after receipt by Bank of written notice of
Guarantor's intention to terminate this Guaranty. Such termination will not
affect Guarantor's obligations with respect to, and this Guaranty will remain in
full force and effect with respect to, all of the Guaranteed Obligations then
due and owing or then contracted for or existing, whether or not yet due, at the
time such notice becomes effective, and all obligations described in paragraph
4.e. of this Guaranty, whether then existing or arising in the future, and also
with respect to any subsequent loans, extensions of credit, and other financial
accommodations which, prior to the effectiveness of such notice, Bank may have
committed to make to Borrower (regardless of whether Bank waives any default or
condition precedent to the making of such loans, extensions of credit, or other
financial accommodations), together with all interest thereon and all expenses,
including costs of collection and attorneys' fees, with respect to such
Guaranteed Obligations and this Guaranty.
4. WAIVERS AND AGREEMENTS OF GUARANTOR. Guarantor hereby
irrevocably:
a. Consents to all terms, covenants, conditions and
agreements heretofore or hereafter made by Borrower with Bank, including,
without limitation, agreements regarding the manner of disposing any collateral
held as security for the Guaranteed Obligations in a commercially reasonable
manner and agreements regarding the manner and time of giving notice of any sale
or other intended disposition of any of such collateral;
b. Consents that Bank may, without discharging Guarantor or
in any way affecting the obligations of Guarantor under this Guaranty, without
notice to or further consent from Guarantor: (i) exchange, release or surrender
to Borrower or to any Guarantor or any other person, or waive, release,
subordinate, fail to perfect any lien or security interest in, or otherwise
impair, any collateral now or hereafter held as security for any of the
Guaranteed Obligations or any right of set off against any deposit account of
Borrower; (ii) waive or delay the exercise of any of its rights or remedies
against Borrower or any other person or entity, including, without limitation,
Guarantor; (iii) with or without consideration, release Borrower or any other
person or entity, including, without limitation, any other guarantor of the
Guaranteed Obligations; (iv) renew, extend, or modify the terms of any of the
Guaranteed Obligations or of any promissory note or other instrument or
agreement evidencing the same; (v) apply payments made by Borrower, Guarantor or
any other person or entity to any of the Guaranteed Obligations in such manner
and in such order as Bank may elect; (vi) apply payments received for Borrower's
account first to pay any indebtedness of Borrower that is not guaranteed by
Guarantor, if any, before reducing the Guaranteed Obligations; and (vii) in the
event of the filing of a petition (whether voluntary or involuntary) under any
chapter of the federal bankruptcy code with respect to Borrower, participate in
the bankruptcy proceedings and exercise any and all rights set forth in clauses
(i) through (vi) above or otherwise available to Bank under applicable law,
including, without limitation, voting for or against any plan of reorganization,
consenting to the use of any cash collateral, consenting to the sale, use or
lease of any collateral securing any of the Guaranteed Obligations, and entering
into any compromise or settlement regarding the Guaranteed Obligations or any
collateral therefor;
c. Waives all notices whatsoever with respect to this
Guaranty or with respect to the Guaranteed Obligations or any collateral
therefor, including, without limitation, notice of (i) Bank's acceptance of this
Guaranty or its intention to act, or its actions, in reliance hereon; (ii) the
existence, creation or incurring of any of the Guaranteed Obligations or the
terms or amounts thereof or any change therein; (iii) presentment and nonpayment
or dishonor with respect to any promissory note or other instrument or agreement
now or hereafter evidencing any of the Guaranteed Obligations, and any other
demands and notices, except any notice that may be required by law which cannot
be waived; (iv) any default by Borrower or any surety, pledgor, grantor of any
lien or security interest, or guarantor, including, without limitation,
Guarantor; (v) the obtaining or release of any guaranty or
-2-
<PAGE> 3
surety agreement (in addition to this Guaranty), or any pledge, assignment,
security agreement, mortgage, deed to secure debt, deed of trust or other
security for any of the Guaranteed Obligations;
d. Waives any right to require Bank to take action against
Borrower as provided for in Section 10-7-24 of the Official Code of Georgia
Annotated or any other statute or applicable law, and waives any requirement
that suit under this Guaranty be brought within any period of time shorter than
the general statute of limitations applicable to contracts under seal;
e. Agrees that, if at any time all or any part of any
payment previously applied by Bank to any of the Guaranteed Obligations must be
returned by Bank for any reason, whether upon the claim of a preference,
fraudulent transfer, prior lien or other claim of a creditor, debtor in
possession, trustee in bankruptcy or other representative of creditors of
Borrower, or otherwise, and whether by court order, administrative order or
non-judicial settlement, this Guaranty shall continue in effect or shall be
reinstated, as the case may be, and Guarantor shall remain liable for the full
amount returned as if such amount had never been received by Bank,
notwithstanding any termination, cancellation or revocation of this Guaranty
(whether under paragraph 3 above or otherwise) or cancellation of any promissory
note or other instrument or agreement evidencing any of the Guaranteed
Obligations;
f. Agrees that this Guaranty will be valid and binding upon
Guarantor when delivered to Bank by anyone having possession hereof after
execution of this Guaranty by Guarantor.
g. Agrees that Guarantor's liability under this Guaranty is
absolute and is not conditioned on the execution of this or any similar guaranty
by any other person or upon the occurrence or nonoccurrence of any other event;
h. Waives any right to require Bank to marshall the assets
of Borrower or any other person and agrees that Bank may proceed against any
collateral securing the Guaranteed Obligations (whether or not Guarantor or any
other person holds a lien on only a part of such collateral) and against parties
liable on any of the Guaranteed Obligations in such order as Bank may elect, the
benefit of any rule of law or equity to the contrary being hereby expressly
waived by Guarantor;
i. Agrees that the liability of Guarantor under this
Guaranty shall not be affected or impaired by, and this Guaranty shall remain
fully enforceable against Guarantor for the full amount of the Guaranteed
Obligations less only payments thereon actually received and retained by Bank
irrespective of and without reduction on account of (i) any defense, offset or
counterclaim which Borrower may have or assert with respect to any of the
Guaranteed Obligations, including, without limitation, filing of a petition in
bankruptcy, discharge in bankruptcy, confirmation of a plan or reorganization
(whether Bank voted for or against such plan), composition with creditors
(whether or not including Bank), failure of consideration, breach of warranty,
statute of frauds, statute of limitations, accord and satisfaction, wavier,
estoppel, release, usury, or fraud or misrepresentation, (ii) termination of any
present or future relationship between Guarantor and Borrower or between
Guarantor and any other guarantor of any obligations of Borrower, or (iii)
death, incompetency, or dissolution of Guarantor or Borrower;
j. Agrees that Bank may, at its election, release or satisfy
of record any collateral for this Guaranty only after any applicable preference
periods have elapsed; and
k. Waives, renounces and agrees not to assert any right,
claim or cause of action against Borrower, including, without limitation, a
claim for reimbursement, subrogation, indemnification or otherwise. The waiver,
renunciation and agreement set forth in the preceding sentence is for the
benefit of Bank and also for the benefit of Borrower, who may assert the
benefits thereof as a
-3-
<PAGE> 4
third-party beneficiary and Guarantor may be released from such waiver,
renunciation and agreement only by the execution and delivery, by Bank and
Borrower, of an instrument expressly releasing Guarantor therefrom.
5. FINANCIAL STATEMENTS. Guarantor agrees, for so long as there is
any amount outstanding of the Guaranteed Obligations, to provide Bank copies of
each income tax return filed by Guarantor after the date of this Guaranty and
financial statements and other information of or concerning Guarantor, in such
detail, of such quality (i.e., audited, reviewed, unaudited or otherwise), and
with such frequency as Bank may reasonably request from time to time. All
financial statements required by Bank as set forth above shall be prepared in
accordance with generally accepted accounting principles (except for the absence
of footnotes with respect to monthly and quarterly financial statements) and
shall fairly present the financial position and results of operations of
Guarantor as of and for the periods specified.
6. STATUTE OF LIMITATIONS. Guarantor acknowledges that the statute
of limitations applicable to this Guaranty shall begin to run only upon
Guarantor's failure to refusal to pay any of the Guaranteed Obligations
following default in the payment or performance thereof by Borrower; provided,
that if subsequent to such default, Bank reaches an agreement with Borrower on
any terms causing Bank to forbear in the enforcement of its claims against
Guarantor, the statute of limitations shall be reinstated for its full duration
until Borrower again defaults.
7. COLLECTION COSTS. Guarantor hereby agrees to pay all costs of
collecting under this Guaranty, including, without limitation, court costs,
litigation expenses and attorneys' fees in an amount equal to fifteen percent
(15%) of the unpaid balance of the Guaranteed Obligations if referred to an
attorney for collection. If attorneys' fees in such amount would be prohibited
by applicable law, then Guarantor agrees to pay reasonable attorneys' fees not
to exceed the maximum amount allowed by law.
8. NOTICES. Any and all notices, elections, demands, requests and
responses thereto permitted or required to be given under this Guaranty shall be
in writing, signed by or on behalf of the party giving the same, and shall be
deemed to have been properly given and shall be effective upon being personally
delivered, or three (3) days after being deposited in the United States mail,
postage prepaid, certified with return receipt requested, to Guarantor if mailed
to the address set forth above Guarantor's name at the end of this Guaranty and
to Bank at the address set forth in the beginning of this Guaranty or at such
other address within the continental United States for either party as such
party may designate by notice to the other given in accordance with the
provisions of this paragraph; provided, however, that the time period in which a
response to any such notice, election, demand or request must be given shall
commence on the date of receipt thereof; and provided further that no notice of
change of address shall be effective until the date of receipt thereof. Personal
delivery to a party or to any officer, partner, agent or employee of such party
at said address shall constitute receipt. Rejection or other refusal to accept
or inability to deliver because of a changed address of which no notice has been
received shall also constitute receipt.
9. CONSENT TO JURISDICTION. GUARANTOR HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF GEORGIA AND,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVES ANY OBJECTION BASED ON VENUE
OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION INSTITUTED IN ANY SUCH COURT
AND AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION WILL BE SUFFICIENT IF
SERVED ON GUARANTOR IN CANADA OR THE UNITED STATES OF AMERICA BY CERTIFIED MAIL,
RETURN RECEIPT REQUESTED OR IN ANY MANNER PROVIDED BY LAW. NOTWITHSTANDING THE
FOREGOING, BANK SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
GUARANTOR OR GUARANTOR'S PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION BANK
DEEMS NECESSARY OR APPROPRIATE IN ORDER TO ENFORCE THE OBLIGATIONS OF GUARANTOR
UNDER THIS GUARANTY.
-4-
<PAGE> 5
10. DEFINITIONS. As used in this Guaranty, the following terms have
the following meanings:
"Borrower" means the entity identified above in this Guaranty,
together with his, her, its or their heirs, administrators, executors,
successors and assigns, including any resulting or surviving corporation
following any merger or any other reorganization, and also includes any debtor
in possession or similar entity following the filing of a petition for relief by
or against Borrower under any chapter of the federal bankruptcy code or in any
similar proceeding under state or federal law, and also includes any
proprietorship, partnership, corporation, trust, or other entity resulting from
or arising out of the dissolution, liquidation or change in form of business
organization by Borrower or following any change of name or domicile by
Borrower.
"Guaranteed Obligations" means all debts and other obligations now
owed by Borrower to Bank, all debts and other obligations owed by Borrower to
Bank in the future, all extensions and renewals of any such debts or
obligations, and all interest and other lawful fees and charges on any or all
such debts and obligations, including, without limitation, late charges, penalty
interest, premiums and costs of collection (including reasonable attorneys'
fees) for which Borrower has agreed to pay or reimburse Bank, or for which
Borrower is obligated to pay Bank under applicable law, together with each and
every promissory note or other instrument or writing now or hereafter evidencing
the obligation of Borrower to pay any such debt, the interest thereon or such
other charges; whether such debts or other obligations are now foreseen or
unforeseen; whether now due or to become due in the future; whether incurred
with or without notice to Guarantor; whether arising from contract, tort or
otherwise; whether arising from an original obligation of Borrower to Bank or
from an obligation of Borrower which was purchased by Bank, whether from time to
time increased, reduced or entirely extinguished and then reincurred; whether
direct or indirect, absolute or contingent, liquidated or unliquidated, secured
or unsecured; whether otherwise guaranteed or not; and whether arising out of
one or more loans or other extensions of credit from, or line of credit with, or
the issuance of one or more letters of credit by, or the acceptance of one or
more bankers' acceptances by, or the lease of personal property from, or the
furnishing of other financial accommodation by Bank, or otherwise. The
Guaranteed Obligations include, without limitation, interest, fees and other
charges on any debt or obligation of Borrower to Bank accruing after the filing
of a petition under any chapter of the federal bankruptcy code by or against
Borrower and any loans or other credit or financial accommodations extended to
Borrower after the filing of any such petition. THE GUARANTEED OBLIGATIONS
SPECIFICALLY ARE NOT LIMITED TO DEBTS AND OTHER OBLIGATIONS CONTRACTED FOR OR
ARISING CONCURRENTLY WITH OR PRIOR TO THE EXECUTION OF THIS GUARANTY AND ARE NOT
LIMITED IN AMOUNT UNLESS OTHERWISE SPECIFICALLY SET FORTH IN WRITING IN THIS
GUARANTY.
11. MISCELLANEOUS. No delay by Bank in enforcing its rights
hereunder shall prejudice its rights to enforce this Guaranty. All rights and
remedies under this Guaranty, under any other agreement and under applicable law
shall be cumulative, and any failure of Bank to exercise any such right or
remedy shall not be construed as a waiver of the right to exercise the same or
any other right or remedy at any time and from time to time, thereafter. No
waiver by Bank shall be effective unless made in writing by a duly authorized
officer or agent of Bank, and no waiver by Bank of any right or remedy shall
constitute a waiver of any other or future right or remedy. This Guaranty shall
inure to the benefit of Bank, its successors and assigns, and to any person to
whom Bank may grant an interest in any of the Guaranteed Obligations, and shall
be binding upon Guarantor, and his, her, its or their respective heirs,
executors, administrators, successors and assigns. This Guaranty sets forth the
entire agreement and understanding of Guarantor with respect to the subject
matter hereof. GUARANTOR ACKNOWLEDGES THAT NO AGENT OF BANK HAS MADE ANY
REPRESENTATION WHICH IS INCONSISTENT WITH ANY OF THE TERMS OF THIS GUARANTY AND
THAT NO OFFICER OR AGENT OF BANK HAS THE AUTHORITY TO VARY THE TERMS OF THIS
GUARANTY EXCEPT IN A WRITING SIGNED BY A DULY AUTHORIZED
-5-
<PAGE> 6
OFFICER OF BANK. The making of the loans and providing of the other financial
accommodations referred to in this Guaranty shall be solely in the discretion of
Bank, and reference thereto in this Guaranty, whether in paragraph 1 hereof or
elsewhere, shall not be deemed to be a commitment by Bank to make any loan or
provide any financial accommodation. In the event any one or more of the
provisions of this Guaranty shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Guaranty shall not in any way be affected or impaired thereby. If more
than one person or entity signs this Guaranty below, the liability of such
persons or entities on this Guaranty is joint and several, and all references to
the singular in this Guaranty also include the plural. In the event of
termination, cancellation, revocation or release of this Guaranty as to any one
or more Guarantors, this Guaranty shall continue in full force and effect with
respect to the remaining Guarantors. THIS GUARANTY SHALL BE GOVERNED, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF GEORGIA,
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal as of
the date first above written.
ADDRESSES OF
EACH GUARANTOR: U.S. Trucking, Inc.
3125 Ashley Phosphate Road
Suite 128
North Charleston, South Carolina 29418
Logistics Management, LLC
1062 Timberwood Circle
Louisville, Kentucky 40223
GUARANTOR:
U.S. TRUCKING, INC., a _________ corporation
By:
-----------------------------------------
Anthony Huff, Chairman
By:
-----------------------------------------
Dan Pixler, President
[CORPORATE SEAL]
LOGISTICS MANAGEMENT, LLC, a _______ limited
liability company
By: (SEAL)
------------------------------------
, Manager
-----------------------
-6-
<PAGE> 1
EXHIBIT 10.19
BILL OF SALE
For $6.0 million, Gulf Northern Transport, Inc. ("Seller") hereby sells,
assigns and transfers to One Way Logistics, Inc. ("Buyer") all of the right,
title and interest in and to the equipment described on the attached listing
(the "Assets").
This instrument is a transfer and conveyance by Seller to Buyer of good
and transferable title to said Assets free and clear of all liens, security
interests, charges and encumbrances, other than as previously disclosed to
Buyer. The Seller hereby covenants and agrees to warrant and defend title to
said Assets against any and all persons whatsoever.
Dated: As of December 31, 1999
GULF NORTHERN TRANSPORT, INC.
BY:
----------------------------------
<PAGE> 2
PROMISSORY NOTE
$6,000,000 DECEMBER 31, 1999
FOR VALUE RECEIVED, One-Way Logistics, Inc. (the "Debtor"), hereby
promises to pay to Gulf Northern Transport, Inc. (hereinafter referred to as the
"Payee"), Six Million Dollars ($6,000,000), together with interest on the unpaid
principal balance at a rate of nine percent (9%) per annum, payable in 48
consecutive equal monthly payments of principal and interest in the amount of
$149,310.25 on the first day of each month beginning February 1, 2000, and
continuing until the entire indebtedness is fully paid. Debtor shall have the
right to prepay this Note without penalty or charge of any kind.
If any deficiency in the payment of any installment under this Note is
not made good prior to ten (10) days after same becomes due and payable, the
entire balance and accrued interest shall at once become due and payable at the
option of the holder of this Note upon written notice to Debtor. Failure to
exercise this option shall not constitute a waiver of the right to exercise the
same in the event of any subsequent default.
Presentment, demand and protest, and notices of protest, dishonor, and
non-payment of this Note and all notices of every kind are hereby waived.
No single or partial exercise of any power hereunder shall preclude the
other or further exercise thereof or the exercise of any other power. No delay
or omission on the part of the holder hereof in exercising any right hereunder
shall operate as a waiver of such right or of any other right under this Note.
This Note shall be deemed to be a contract made under the laws of the
State of South Carolina.
DEBTOR:
ONE-WAY LOGISTICS, INC.
BY:
----------------------------------------
TITLE:
-------------------------------------
<PAGE> 3
SECURITY AGREEMENT
THIS SECURITY AGREEMENT dated December 31, 1999 by and between ONE WAY
LOGISTICS, INC., (herein called the "Debtor") and GULF NORTHERN TRANSPORT, INC.
(herein called the "Lender");
In consideration of the mutual covenants herein contained, and other good and
valuable consideration, the parties hereto agree as follows:
SECTION ONE
THE SECURITY INTEREST
The Debtor hereby grants to the Lender, as the Secured Party hereunder, a
security interest in the collateral described in Exhibit A attached hereto and
made a part hereof (the "Collateral") to secure the indebtedness of Debtor to
Lender under a certain Promissory Note dated the date hereof (the "Note") in the
principal amount of $6,000,000 (the "Liabilities").
SECTION TWO
COVENANTS AND REPRESENTATIONS
The Debtor covenants and represents as follows:
SECTION 2.1. OWNERSHIP. The Debtor is and shall continue to be
the owner of the Collateral free of any lien or encumbrances
(except of the Lender) and will defend same against all adverse
claims and demands.
SECTION 2.2. POSSESSION. Unless the Lender demands possession or agrees
otherwise, the Debtor shall have possession of the Collat eral in trust for the
Lender and shall not sell, lease, encumber or dispose of the Collateral.
SECTION THREE
EVENTS OF DEFAULT AND REMEDIES
SECTION 3.1. EVENTS OF DEFAULT. The failure by Debtor to pay any of the
Liabilities within when due, or actual or constructive termination of the agency
relationship between Debtor and Lender, shall constitute a default hereunder and
under the Note.
SECTION 3.2. RIGHTS AFTER DEFAULT. Upon occurrence of any event of default and
failure of Debtor to cure such default within ten (10) days after notice of such
default by Lender, all the Liabilities, at the option of the Lender, and
without any notice or demand, shall become due and payable immediately and
Lender shall enjoy all rights and remedies for default provided by law and in
<PAGE> 4
this or any other instrument of the Debtor to the Lender or to which the Debtor
and the Lender are parties. The Lender may require the Debtor to assemble the
Collateral and to make it available to the Lender at any convenient place
designated by the Lender, which the Debtor hereby agrees to do. At any time or
times after the Liabilities become due, the Lender is empowered to collect,
sell, assign, transfer, set over and deliver the whole or any part of the
Collateral, as may be appropriate, at public or private sale, either for cash or
on credit or for future delivery, without assumption or credit risk, without
demand, advertisement, or notice, which are hereby expressly waived, unless
prohibited by law, and at any such sale the Lender may become the purchaser of
the whole or any part of the collateral, discharged from any right of
redemption. Upon any such sale, after deducting all costs and expenses of every
kind, the residue of proceeds thereof may be applied as the Lender may determine
toward the payment of any or all of the Liabilities, whether due or not due,
returning the surplus, if any, to the Debtor, and the Debtor shall be and remain
liable to the Lender for any and every deficiency after application of such
proceeds as aforesaid. The Lender is authorized to trans fer into its own name
or that of its nominee, at any time and from time to time, any or all of the
collateral. The Lender shall not be bound to take any steps to preserve any
rights in the Collateral against prior parties which the Debtor hereby assumes
to do and the Lender shall have exercised reasonable care in the custody and
preservation of the Collateral if it takes such action for that purpose as the
Debtor may reasonably request, but no omission to comply with any such request
shall be deemed a failure to exercise reasonable care.
SECTION FOUR
MISCELLANEOUS
SECTION 4.1. WAIVER. The Lender shall not be deemed to have waived any of its
rights hereunder or in the Collateral (or any part thereof) unless such waiver
is in writing, and no delay or omission by the Lender in exercising any right
shall operate as a waiver thereof or of any other rights. The Lender may permit
the Debtor to remedy any default without waiving the default so remedied and
the Lender may waive any default without waiving any other subsequent or prior
default by the Debtor.
SECTION 4.2. NOTICES. Written notice, when required by law, sent to the address
of the Debtor at least 10 calendar days (counting the day of sending) before the
date of a proposed disposition of the Collateral is reasonable notice.
SECTION 4.3. TERM. This Agreement and the security interest in the Collateral
created hereby shall terminate when the Liabilities have been paid in full
Lender relating to the Liabilities have
<PAGE> 5
terminated, and prior to such payment and termination, this shall
be a continuing agreement.
SECTION 4.4. EXECUTION OF DOCUMENTS. The Debtor will execute all necessary
documents to accomplish the purpose hereof, including financing statements
required to perfect and continue the validity of the security interest of the
Lender hereunder.
SECTION 4.5. GOVERNING LAW. This Agreement shall be deemed to be
a contract made under and shall be construed in accordance with the
internal laws of the state of South Carolina.
SECTION 4.6. REPORTS. Debtor shall promptly provide to the Lender
any financial information of the Debtor reasonably requested by
Lender.
IN WITNESS WHEREOF, the parties have cause this Security Agreement to be
executed on December 31, 1999.
ONE WAY LOGISTICS, INC. GULF NORTHERN TRANSPORT, INC.
BY: BY:
--------------------------------- -----------------------------
Rick Kelly, President Danny Pixler, President
<PAGE> 6
EXHIBIT A
The following property of the Debtor and any and all additions, substitutions,
accessions, proceeds and products thereto or thereof: all of the Debtor's
property, tangible or intangible, now or hereafter existing and wherever
located, including, without limitation, all of its inventory, goods, materials,
machinery, motor vehicles, trailers, equipment, accounts, accounts receivable,
contracts rights, chattel paper, instruments, software programs, specifications,
source code, engineering designs, trade secrets and other proprietary
technology, notes, memoranda, drawings and other data, general intangibles,
computer hardware and peripheral equipment, and all other assets of any kind now
existing or hereafter arising.
<PAGE> 1
EXHIBIT 10.20
PROMISSORY NOTE
$80,000 September 15, 1999
Interstate University (herein called the "Maker"), for value received, promises
to pay to the order of Gulf Northern Transport, Inc. (herein called the
"Holder"), Eighty Thousandx Thousands Dollars ($80,000), together with interest
on the unpaid principal balance at a rate of ten percent (10%) per annum,
payable in 36 consecutive equal monthly payments of principal and interest in
the amount of $2,581.37 on the first day of each month beginning November 1,
1999, and continuing until the entire indebtedness is fully paid.
The Maker waives presentment, demand for payment, protest, notice of protest,
and notice of nonpayment. Maker agrees to pay all costs, charges and expenses
incurred by Holder and its assigns (including, without limitation, costs of
collection, court costs, and reasonable attorney's fees). This Note shall in
all respects be subject to, and governed by, the internal laws of the State of
South Carolina. Maker hereby irrevocably submits to the jurisdiction of any
State or Federal Court sitting in either Charleston, South Carolina, in any
action or proceeding arising out of or relating to this Note, and hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such State or Federal Court. Maker hereby
irrevocably waives to the fullest extent he may do so, the defense of an
inconvenient forum to the maintenance of such action or proceeding. Maker
hereby consents and agrees that the summons and complaint and any other process
which may be serviced in any such action or proceeding may be served by mailing
(by registered or certified mail) or delivering a copy of such process at the
address below. The parties agree that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or any other manner provided by law.
The Maker shall have the right to prepay the amount of this Note, in whole or
in part, without penalty. Maker agrees that any delay on the part of the Holder
hereof in exercising any rights hereunder will not operate as a waiver of such
rights. The Note applies to, inures to the benefit of, and binds the successors
and assigns of the parties hereto.
MAKER:
BY: Interstate University.
/s/ Dan Pixler
- -----------------------------
Dan Pixler - Manager
ADDRESS: 5699 Hwy 41 N.
Evansville, IN 47725
<PAGE> 2
PROMISSORY NOTE
$476,000 September 30, 1999
Transit Financial Services, Inc. (herein called the "Maker"), for value
received, promises to pay to the order of Gulf Northern Transport, Inc. (herein
called the "Holder"), Four Hundred Seventy Six Thousand Dollars ($476,000),
together with interest on the unpaid principal balance at a rate of ten percent
(10%) per annum, payable in 48 consecutive equal monthly payments of principal
and interest in the amount of $12,072.59 on the first day of each month
beginning November 1, 1999, and continuing until the entire indebtedness is
fully paid.
The Maker waives presentment, demand for payment, protest, notice of protest,
and notice of nonpayment. Maker agrees to pay all costs, charges and expenses
incurred by Holder and its assigns (including, without limitation, costs of
collection, court costs, and reasonable attorney's fees). This Note shall in
all respects be subject to, and governed by, the internal laws of the State of
South Carolina. Maker hereby irrevocably submits to the jurisdiction of any
State or Federal Court sitting in either Charleston, South Carolina, in any
action or proceeding arising out of or relating to this Note, and hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such State or Federal Court. Maker hereby
irrevocably waives to the fullest extent he may do so, the defense of an
inconvenient forum to the maintenance of such action or proceeding. Maker
hereby consents and agrees that the summons and complaint and any other process
which may be serviced in any such action or proceeding may be served by mailing
(by registered or certified mail) or delivering a copy of such process at the
address below. The parties agree that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or any other manner provided by law.
The Maker shall have the right to prepay the amount of this Note, in whole or
in part, without penalty. Maker agrees that any delay on the part of the Holder
hereof in exercising any rights hereunder will not operate as a waiver of such
rights. The Note applies to, inures to the benefit of, and binds the successors
and assigns of the parties hereto.
MAKER:
BY: Transit Financial Services, Inc.
/s/ Dan Pixler
- -----------------------------
Dan Pixler - Manager
ADDRESS: 1004 Crooked Oak Road
Summerville, SC 29482
<PAGE> 1
Exhibit 21 -- Subsidiaries of the Registrant
Name State of Incorporation
- ---- ----------------------
U.S. Trucking, Inc. Nevada
Gulf Northern Transport, Inc. Wisconsin
Mencor, Inc. Arkansas
UST Logistics, Inc. Florida
Prostar, Inc. South Carolina
<PAGE> 1
EXHIBIT 23.2
To whom it may concern:
Pascale, Razzino, Alexanderson & Co., PLLC, Certified Public Accountants,
hereby consents to the inclusion of the financial statements and our Report of
Independent Certified Public Accountants of U.S. Trucking Co. Inc. and
Subsidiaries as of and for the years ended December 31, 1999 and 1998.
Pascale, Razzino, Alexanderson & Co., PLLC, CPA's
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM U.S.
TRUCKING, INC & SUBSIDIARIES AUDITED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
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