-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T69l1p7HLydZ+slMBkuxNW85feL7mQrV/Og+2h9VUk2n7B1h50tKxM1rAxpFEdgk KFEs37d4uHyu/NihMD1s4A== 0000948830-99-000070.txt : 19990208 0000948830-99-000070.hdr.sgml : 19990208 ACCESSION NUMBER: 0000948830-99-000070 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19990205 FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S TRUCKING INC CENTRAL INDEX KEY: 0000820408 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 680133692 STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-71875 FILM NUMBER: 99522644 BUSINESS ADDRESS: STREET 1: 10602 TIMBERWOOD CIRCLE STREET 2: SUITE 9 CITY: LOUISVILLE STATE: KY ZIP: 40223 BUSINESS PHONE: 5023394000 MAIL ADDRESS: STREET 1: 10602 TIMBERWOOD CIRCLE STREET 2: SUITE 9 CITY: LOUISVILLE STATE: KY ZIP: 40223 FORMER COMPANY: FORMER CONFORMED NAME: NORTHERN DANCER CORP DATE OF NAME CHANGE: 19930723 SB-2 1 REGISTRATION STATEMENT As filed with the Securities and Exchange Commission February 5, 1999. SEC Registration No. 333-_____ - --------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 U.S. TRUCKING, INC. (Exact Name of Small Business Issuer as Specified in its Charter) Colorado 4213 68-0133692 - ------------------------- ---------------------------- ------------------- (State or Other Jurisdic- (Primary Standard Industrial (IRS Employer Iden- tion of Incorporation) Classification Code Number) tification Number) 3125 Ashley Phosphate Road, Suite 128, North Charleston, South Carolina 29418 (843) 767-9197 - ----------------------------------------------------------------------------- (Address and Telephone Number of Principal Executive Offices and Principal Place of Business) Danny L. Pixler, President 3125 Ashley Phosphate Road, Suite 128, North Charleston, South Carolina 29418 (843) 767-9197 - ----------------------------------------------------------------------------- (Name, Address and Telephone Number of Agent for Service) Copies to: Jon D. Sawyer, Esq. Krys Boyle Freedman & Sawyer, P.C. 600 Seventeenth Street, Suite 2700 South Tower, Denver, Colorado 80202 (303) 893-2300 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] - ---------------------------------------------------------------------------- CALCULATION OF REGISTRATION FEE - ---------------------------------------------------------------------------- PROPOSED PROPOSED TITLE OF EACH AMOUNT MAXIMUM MAXIMUM CLASS OF SECUR- TO BE OFFERING AGGREGATE AMOUNT OF ITIES TO BE REGIS- PRICE OFFERING REGISTRATION REGISTERED TERED PER UNIT(1) PRICE FEE - ---------------------------------------------------------------------------- Common Stock 1,166,667 $5.625 $6,562,501.88 $1,824.38 No Par Value Shares (2) - ---------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 by reference to the average of the closing bid and ask prices of the Registrant's Common Stock on February 4, 1999, as reported on the OTC Bulletin Board. (2) To be offered by Selling Shareholders. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. PROSPECTUS SUBJECT TO COMPLETION DATED FEBRUARY 5, 1999 ---------------------------------------------------------------- The information in this Prospectus is not complete and may be changed. The securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securi- ties and the Selling Shareholders are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. U.S. TRUCKING, INC. 1,166,667 Shares of Common Stock The Shares of Common Stock are being offered by certain Selling Shareholders. We will not receive any of the proceeds from the sale of the Shares by the Selling Shareholders. The Common Stock is traded in the over-the-counter market and is quoted on the OTC Bulletin Board (Symbol: USTK). On February 4, 1999, the closing bid and ask prices of the Common Stock were $5.25 and $6.00. This investment involves a high degree of risk. You should purchase shares only if you can afford a complete loss. See "Risk Factors" starting on page 5. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. _________, 1999 TABLE OF CONTENTS PAGE Prospectus Summary .......................................... 3 Risk Factors ................................................ 5 Market Prices and Dividends ................................. 9 Management's Discussion and Analysis ........................ 10 Business .................................................... 15 Management .................................................. 26 Security Ownership of Management, Principal Shareholders and Selling Shareholders .................................. 30 Transactions With Management and Others ..................... 33 Description of Securities ................................... 35 Plan of Distribution ........................................ 37 Legal Matters ............................................... 38 Experts ..................................................... 38 Additional Information ...................................... 38 Index to Financial Statements ............................... F-1 2 PROSPECTUS SUMMARY THE COMPANY U.S. Trucking, Inc. provides transportation and logistics services. We transport full truckloads of both refrigerated and non-refrigerated commodities over various distances, primarily east of the Rocky Mountains. We also provide the following specialized transportation and logistics services: 1. Roller-bed trailer service for UPS and Emery Air 2. Transportation brokerage services We are a preferred carrier for a number of Fortune 500 companies, including the following: 1. United Parcel Service of America, Inc. 2. The Trane Company (a division of American Standard, Inc.) 3. Excel Corporation (a division of Cargill Incorporated) 4. Emery Worldwide (a division of CNF Transportation, Inc.) 5. Eaton Corporation 6. The Monfort division of ConAgra, Inc. 7. Consolidated Papers, Inc. We are actively seeking other companies which are interested in outsourcing their transportation service needs. Our truckload division operates approximately 286 tractors (including approximately 112 tractors which are owned by contractors) and approximately 401 trailers (including approximately 13 which are owned by contractors). We intend to expand our business through internal growth and acquisitions. The truckload industry is highly fragmented, which provides a large number of acquisition opportunities. We are primarily interested in medium to long haul truckload carriers, with annual revenues of between $5-10 million, which are located close to our current facilities. This should allow us to consolidate our staffs to reduce common expenses. This is referred to in our industry as the "Stack Up" concept. U.S. Trucking, Inc., a Colorado corporation, was incorporated in Colorado under the name Northern Dancer, Inc. in January 1987, for the purpose of acquiring an operating company. It completed a small public offering in 1988. In September 1998 it acquired U.S. Trucking, Inc., a Nevada corporation, which is now a wholly-owned subsidiary of the Company. We refer to this company as U.S. Trucking-Nevada. U.S. Trucking-Nevada has two operating subsidiaries which it acquired in early 1997, just after it was incorporated. These are Gulf Northern Transport, Inc. and Mencor, Inc. We refer to these two companies throughout this Prospectus as Gulf Northern and Mencor. Unless the context otherwise requires, the term "Company" in this Prospectus refers to U.S. Trucking, Inc. and all of its subsidiaries. Our offices are located at 3125 Ashley Phosphate Road, Suite 128, North Charleston, South Carolina 29418. Our telephone number is (843) 767-9197. 3 OFFERING SUMMARY Securities Offered: 1,166,667 Shares of Common Stock offered by Selling Shareholders Common Stock Presently Outstanding: 7,343,557 Shares FINANCIAL SUMMARY This financial summary does not include all of the information in the financial statements. You should read the financial summary along with the financial statements and the notes to the financial statements which are included in this Prospectus. Balance Sheet Data: As of As of December 31, Sept. 30, 1997 1998 (Audited) (Unaudited) ------------ ----------- Current Assets $ 2,834,848 $ 3,538,714 Fixed Assets 6,818,517 6,013,068 Other Assets 707,400 901,693 ----------- ----------- Total Assets $10,360,765 $10,453,475 Current Liabilities $ 4,444,404 $ 4,516,200 Other Liabilities 3,133,193 2,363,609 Stockholders' Equity 2,783,168 3,573,666 ----------- ----------- Income Statement Data: Eleven Month Nine Months Period Ended Year Ended Ended December 31, December 31, Sept. 30, 1997 1996 1998 (Audited)* (Audited) (Unaudited) ------------ ------------ ----------- Net Revenues (Freight Operations) $17,469,281 $14,847,335 $15,827,179 Income from Operations $ 1,034,767 $ 1,873,559 $ 669,160 Net Income (Loss) $(1,531,200) $ (294,602) $ 209,960 * Represents the combined results of the Company's two operating subsidiaries, Gulf Northern and Mencor. 4 RISK FACTORS Some of the statements contained in this Prospectus discuss future expectations, contain projections of results of operations or financial condition or state other "forward-looking" information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. Factors that could cause the results to differ include the risk factors discussed below. Investing in the Shares is very risky. You should be able to bear a complete loss of your investment. You should carefully consider the following factors, among others: 1. Prior Losses. Although the Company was organized in 1987, it never engaged in any business, other than seeking an acquisition or merger, until September 1998 when it acquired U.S. Trucking - Nevada. U.S. Trucking - Nevada incurred a net loss of ($294,602) on revenues of $14,847,335 during the year ended December 31, 1996, and a net loss of ($1,531,200) on revenues of $17,469,281 during the eleven month period ended December 31, 1997. While we earned $209,960 on revenues of $15,827,179 during the first nine months of 1998, there are no assurances that we will continue to operate profitably in the future. Our ability to operate profitably will depend on our ability to upgrade the age of our tractors and trailers, to refinance our existing debt and factoring arrangements, to make good acquisitions and to increase our level of revenues. 2. Need for Addi- At September 30, 1998, we had a working capital deficit tional Financing. of $977,486. U.S. Trucking-Nevada has been running negative cashflows since it began operations in 1997, and we need additional funds for operations and for expansion. Our industry is extremely capital intensive. We depend on cash from operations, asset-based debt financing, and equity investments for funds to maintain our equipment and to expand the size of our fleet. We cannot assure you that funds will be available, or if they are available, that the terms will be acceptable. If we are unable to obtain financing when needed, we would need to operate our current fleet of tractors and trailers for longer periods, which could have a material adverse effect on our operating results due to higher maintenance costs. If funds are unavailable for acquisitions, our plans for growth would be curtailed. 3. Dependence on A significant portion of our revenue is generated from Key Customers. key customers. During 1997, our top 10 customers accounted for 59.4% of revenues. Our largest customer, Consolidated Papers, Inc. accounted for 19.2% of revenues. We do not have long-term contractual relationships with any of our customers. The loss of 5 business from any of our key customers would probably have a material adverse effect on our business and operating results. 4. Control by As of the date of this Prospectus, our Officers and Management. Directors beneficially own approximately 55.7% of our outstanding shares. Upon completion of the sale of all of the shares by the Selling Shareholders, our Officers and Directors will continue to beneficially own approximately 55.7% of the outstanding shares. This will enable management to be able to elect the Company's entire Board of Directors and to have virtually complete control over our affairs. 5. General Economic Our business is dependent upon a number of factors and Business beyond our control that may have a material adverse Factors. effect on our business. These factors include excess capacity in the trucking industry and significant increases or rapid fluctuations in fuel prices, interest rates, fuel taxes, tolls, license and registration fees and insurance premiums. It is difficult at times for us to attract and retain qualified drivers and owner-operators. Our operations also are affected by recessionary economic cycles and downturns in our customers' business cycles, particularly in market segments and industries (such as retail and paper products) in which we have a significant concentration of customers. Seasonal factors could also adversely affect us. Customers tend to reduce shipments after the winter holiday season and our operating expenses tend to be higher in the winter months primarily due to increased operating costs in colder weather and higher fuel consumption due to increased idle time. Regional or nationwide fuel shortages could also adversely affect us. 6. Competition. The trucking industry is very competitive and fragmented. Our primary competition is other truckload carriers, but we also compete with railroads, water and air transportation. The competition has caused a downward pressure on the prices we can charge. There are a number of other trucking companies that have greater financial resources, own more equipment and carry a larger volume of freight than we do. 7. Risks Associated We plan to expand our business by making acquisitions with Acquisi- of trucking companies. However, we expect to compete tions with other transportation companies for the acquisition opportunities which come available. There are a number of risks associated with financing these acquisitions and integrating them in our business including the following: 6 1. Our profitability could be affected by servicing the additional debt and amortizing the expenses related to goodwill and intangible assets. 2. The issuance of additional equity would dilute the interests of current shareholders. 3. It could be difficult to assimilate the acquired company's employees, equipment, and operations. 4. The acquisition could divert management's attention from other business concerns. 5. The acquired company could operate in markets with which we have little or no familiarity. 6. There could be undisclosed or unforeseen liabilities associated with the acquired company. 7. We could lose key employees, drivers or customers of the acquired company. 8. Dependence on Our business is highly dependent upon the services of Management. Mr. Danny L. Pixler, President, and W. Anthony Huff, Executive Vice President. The loss of the services of Mr. Pixler or Mr. Huff could have a material adverse effect on our operations and future profitability. We have employment agreements with Mr. Pixler and Mr. Huff which run through September 2003. We do not maintain key man life insurance on either Mr. Pixler or Mr. Huff. 9. Regulation. We are regulated by the United States Department of Transportation and by various state agencies. These regulatory authorities exercise broad powers governing activities such as authorization to engage in motor carrier operations, determination of rates and charges, and compliance with safety requirements. In addition, our operations are subject to various environmental laws and regulations dealing with the transportation, storage, presence, use, disposal and handling of hazardous materials, and underground fuel storage tanks. If we should be involved in a spill or other accident involving hazardous substances or if we were found to be in violation of applicable laws or regulations, it could have a material adverse effect on our business and operating results. 10. Claims Exposure; We currently carry insurance in the amount of $250,000 Insurance. per occurrence for liability resulting from cargo loss, $100,000 for each claim for personal injury and property damage, $100,000-$500,000 per claim for worker's compensation (depending on the state), and $100,000 per claim for employee medical and hospitalization. We believe these amounts are adequate and comparable to the insurance maintained by other companies operating in our business. However, to the extent we were to experience an increase in the 7 number of claims, or claims greater than the amounts of these policies, our operating results would be materially adversely affected. In addition, signifi- cant increases in insurance costs, to the extent not offset by freight rate increases, would negatively impact our operating results. 11. Potential Our Shares are not listed on Nasdaq or any exchange. Liquidity Trading is conducted in the over-the-counter market Problems. on the OTC Bulletin Board, which was established for securities that do not meet the Nasdaq or exchange listing requirements. Consequently, selling U.S. Trucking shares is more difficult because smaller quantities of shares are bought and sold and security analysts' and news media's coverage of U.S. Trucking is limited. These factors could result in lower prices and larger spreads in the bid and ask prices for our shares. 12. Risks of low- Because our Shares are not currently listed on Nasdaq priced Shares. or an exchange, they are subject to Rule 15g-9 under the Exchange Act. That rule imposes additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than estab- lished customers and institutional accredited in- vestors. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. Consequently, the rule affects the ability of broker-dealers to sell our shares and may affect the ability of shareholders to sell our shares in the secondary market. 13. No Dividends We intend to retain any future earnings to fund the Anticipated. operation and expansion of our business. We do not anticipate paying cash dividends on our shares in the foreseeable future. 14. Shares Eligible We currently have 7,343,557 shares of Common Stock for Future Sale. outstanding and the following is a breakdown of these shares: We cannot pre- * Free Trading 1,241,152 dict the de- * Restricted: 6,102,405 pressive effect Currently eligible for of resales. sale under Rule 144 48,438 Shares Being offered in this Prospectus 1,166,667 Shares Will be eligible for sale in September 1999 4,887,300 Shares We are unable to predict the effect that sales made in this offering or under Rule 144 may have on the then prevailing market price of our Shares. It is likely that market sales of large amounts of these or other U.S. Trucking shares (or the potential for those sales even if they do not actually occur), will have the effect of depressing the market price of our shares. 8 MARKET PRICES AND DIVIDENDS The Company's Common Stock trades in the over-the-counter market, under the symbol "USTK". There were no quotations for the Company's Common Stock during the last three years until after the closing of the reverse acquisition of U.S. Trucking-Nevada. Quotations resumed during September 1998. The following table shows the high and low bid prices for the Company's Common Stock for the periods indicated as reported by the OTC Bulletin Board. These prices are believed to be inter-dealer quotations and do not include retail mark-ups, mark-downs, or other fees or commissions, and may not represent actual transactions. Quarter Ended High Bid Low Bid -------------- -------- ------- September 30, 1998 $1.875 $0.002 December 31, 1998 $4.50 $0.75 As of January 26, 1999, the Company had approximately 156 shareholders of record. This does not include shareholders who hold stock in their accounts at broker/dealers. Holders of Common Stock are entitled to receive dividends declared by the Company's Board of Directors. No dividends have been paid on the Company's Common Stock and no dividends are anticipated to be paid in the foreseeable future. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements of the Company and related footnotes appearing in this Prospectus. GENERAL The Company was established in March of 1997 by combining under U.S. Trucking-Nevada the operations of Gulf Northern, a mid- to long-haul truckload carrier, Mencor, a third party logistics (brokerage) company, selected assets of another truckload company, and the customer base of a small specialized truckload air freight company. The latter two divisions were contributed to U.S. Trucking-Nevada by U.S. Transportation Services, Inc. ("USTS"). During 1997, the Company consolidated operations, implemented manpower reductions, and blended all trucking operations under Gulf Northern and all brokerage operations under Mencor. The Company's operating results are primarily driven by the results of the truckload business of its primary operating subsidiary, Gulf Northern. The Company suffered an extraordinary loss in the year ended December 31, 1997, due to expenses associated with combining highly unprofitable operations of the two divisions from USTS with Gulf Northern and Mencor, and from extraordinary amortization and depreciation charges. The problems associated with combining these operations were eliminated by the end of the first quarter of 1998. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1997 Revenues increased $1.7 million or 12.6% to $15.8 million in the first nine months of 1998 as compared to $14.1 million in the first nine months of 1997. This increase was primarily the result of internal growth of the Company's long-haul division. The Company's operating ratio (operating expenses divided by operating revenues) decreased from 105.3% in the first nine months of 1997 to 95.8% in the first nine months of 1998. This reduction in the Company's operating ratio was primarily due to (1) the lower fuel cost resulting from lower fuel prices and greater usage of owner-operators which provide their own fuel, (2) lower insurance and claims, and (3) lower salaries, wages and benefits resulting from a reduction of driver payroll caused by greater use of owner- operators and a reduction in the wages paid to the drivers in one of the divisions acquired from USTS. Total operating expenses for the first nine months of 1998 increased $240,312 to $15.1 million, as compared to $14.9 million, for the first nine months of 1997 primarily due to the $907,336 increase in purchased transportation costs as the Company increased its use of owner/operators. General and administrative expenses increased $150,856 due primarily to an increase in accounting fees related to preparing the Company for a transaction with a public shell, and a general increase in a number of other components due to the increased level of activity. These increases were offset by a $372,960 decline in fuel costs due to lower fuel prices and fewer miles driven by the Company's vehicles, a $270,027 decline in insurance and claims attributable to the Company changing over to a captive insurance program in 10 early 1998, and a $51,279 decline in salaries, wages and benefits. The rates of pay of the drivers absorbed from other USTS operations were reduced to bring them into line with those of the Gulf Northern drivers. Salaries, wages and employee benefits expenses decreased $51,279 to $4.0 million for the first nine months of 1998 as compared to $4.05 million for the first nine months of 1997, and decreased as a percentage of total operating revenues from 28.6% in the first nine months of 1997 to 25.3% for the first nine months of 1998. This decrease as a percentage of revenue was primarily due to increased use of owner-operators and the decrease in the actual dollar amount was due to reduced driver payrolls. Payments to owner-operators increased $1 million or 32% to $4 million for the first nine months of 1998 as compared to $3 million for the first nine months of 1997. This was mainly the result of a growth in sales generated by owner-operators of more than 27% in the first nine months of 1998 as compared to the first nine months of 1997. Depreciation and amortization expense for the first nine months of 1998 increased $17,672 to $1.2 million or 7.5% of revenue, as compared to $1.18 million or 8.3% of revenue, for the first nine months of 1997. The increase in the actual amount of deprecation and amortization was due primarily to increased amortization costs due to the restructuring of certain loan costs. Deprecation and amortization decreased as a percentage of total revenues due to the increase in revenues from owner-operators which provide their own tractors. Interest expense for the first nine months of 1998 decreased $44,000 or 7.8% to $513,000 as compared to $557,000 for the first nine months of 1997. This decrease was the result of lower cost of borrowing as the result of restructuring loans on the Company's equipment debt, lower interest rates on the more recent portions of other equipment loans and lower factoring fees due to improved collections of the Company's receivables. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Revenues for the year ended 1997 were $18.5 million compared to net revenues of $14.8 million for the year ended 1996. The increase in revenues was primarily due to the fact that the 1996 results included only Gulf Northern and Mencor while 1997 also included the business of the two divisions of USTS which were combined with Gulf Northern and Mencor when the Company was formed. Operating expenses for 1997 were $17.0 million, or 92% of revenue, as compared to $13.0 million, or 88% of revenue, for 1996 (an increase of 31%). This increase was due primarily to the increase in business associated with the operations added in early 1997, which yielded higher driver payroll, increase in percentage paid to owner-operators, higher fuel costs and higher maintenance costs as a percentage of revenue. Fuel expenses increased $766,00 or 46% to $2,480,000 from $1,720,000 for fiscal 1996. Salaries, wages, employee benefits and other administrative expenses for the year ended 1997 were $2,150,000, or 11.6% of revenue, compared to $2,030,000, or 13.7% of revenue, for the year ended 1996. The increase in the dollar amount was due to the addition of the new businesses. The decrease of such costs as a percentage of revenue was due to decreases in fixed costs, such as administrative payroll, rents, communications expenses and health insurance costs. 11 Depreciation and amortization expenses for 1997 were $1.44 million, or 7.8% of revenue, as compared to $977,000, or 6.6% of revenue, for 1996. This increase was due to additional equipment being added to the Company's fleet, increased amortization costs due to the restructuring of certain loans and increased depreciation due to certain capitalized repairs. Interest expense for 1997 was $703,000, or 3.8% of revenue, as compared to $649,000, or 4.4% of revenue, for the year ended 1996. The increased interest expense was due to the increase in the amount of debt outstanding due to the debt assumed in connection with the additional tractors and trailers contributed to the Company by USTS. Freight settlements paid to outside carriers decreased $209,000 or 10.4% (to 90.9% of revenues) for the year ended 1997 as compared to $2.0 million or 90.1% of revenues for the prior year. This decrease resulted from slightly fewer loads being brokered in 1997. CAPITAL RESOURCES AND LIQUIDITY As of September 30, 1998, the Company had a working capital deficit of $(977,486) compared to a deficit of $(1,609,556) at December 31, 1997. Effective February 1, 1997, the Company acquired all of the outstanding capital stock of Gulf Northern and of Mencor, as well as selected assets (tractors and trailers) of Jay & Jay Transport for the assumption of debt. The Company has assumed various notes as the schedule below indicates. Following is a schedule of the Company's existing long-term debt as of September 30, 1998: Monthly Creditor Balance Payments -------- ---------- -------- Associates Leasing Corp. $ 464,000 $ 31,497 (Milwaukee) Associates Leasing Corp. 520,000 26,597 (Buffalo & Philadelphia) ITC (Indianapolis) 373,000 16,000 GECC 1,630,000 45,000 Navistar Financial 318,000 12,933 GECC (Columbus) 421,000 14,528 ---------- -------- Total $3,726,000 $146,555 At times, the Company enters into leasing agreements for short- or long- term equipment needs. The Company currently has three leasing agreements in place for tractors and trailers. The expenses are booked as straight operating expenses on a month-to-month basis. The Company has from time to time been in arrears with its equipment lenders, but the Company has maintained excellent working relations with all of its lenders and management believes that it continues to be in good status with all of its lenders. The Company is seeking a bundled refinancing at this time to consolidate its debt, lower interest expense and expand its operating line. (See below.) 12 During August and September 1998, the Company raised $575,000 in a private offering of Common Stock. The proceeds from the private offering were used for the retirement of debt related to receivables financing, payment of fees incurred in connection with the acquisition of U.S. Trucking-Nevada by the Company and working capital. The Company anticipates that the proceeds of the recent offering, together with projected cash flow from operations, will be sufficient to fund the Company's operations for at least 12 months. In order to expand, the Company intends to raise additional funds through private placements of equity and/or debt securities. During January 1999, the Company commenced a private offering of 2,000,000 shares of Series B 8% Convertible Preferred Stock at a price of $3.00 per share on a 150,000 share minimum, 2,000,000 share maximum basis. Each share of Series B 8% Convertible Preferred Stock will be convertible into one share of Common Stock. The proceeds, if any, from this offering would be used for working capital, debt reduction and acquisitions. During December 1998, the Company closed two financing transactions with General Electric Capital Corporation ("GE Capital"). One transaction involves a revolving credit facility in an amount up to $5,000,000 which replaced the existing accounts receivable factoring facility. The other transaction includes an equipment refinance loan in an amount of approximately $3,332,000, an equipment lease for approximately $1,120,000, and an equipment lease for approximately $2,944,150. The revolving credit facility provides that the lender will loan up to 85% on the Company's eligible accounts receivable at an interest rate equal to a defined rate which is the 30-day dealer commercial paper rate plus 4.5 percent. The loan has a three year term and it is secured by all existing and after-acquired assets of the Company other than encumbered rolling stock. Approximately $100,000 in fees were paid and this facility was personally guaranteed by Dan Pixler and Anthony Huff. The other transaction includes one loan and two lease transactions. The loan for approximately $3,332,000 was used to refinance two existing GE Capital loans, and several other existing loans. This loan has a three year term and it is secured by the tractors and trailers which collateralize the existing loans less the collateral which GE Capital agrees may be sold. The first lease transaction in the amount of approximately $1,120,000 was used to acquire twenty-five (25) 1996 or 1997 tractors. This lease has a four year term. The second lease in the amount of approximately $2,944,150 was used to acquire forty-three (43) new Wabash 53' air ride refrigerated trailers and forty-five (45) new Wabash 53' air ride dry vans with logistics systems. This lease has a seven year term. The loan and the two leases were personally guaranteed by Dan Pixler and Anthony Huff. Under these transactions, the Company's monthly debt service remained virtually the same, but the Company's fleet was expanded and upgraded. YEAR 2000 COMPLIANCE The Company is in the midst of implementing its plan to ensure year 2000 compliance of its computer hardware and software. The plan is centered around the purchase of a new hardware system consisting of a Compaq proliant P2 300 300 MHz processor, 320 MB RAM, 2/9.1 GB mirror hard drive, and a Server Tower which is installed in the Charleston, South Carolina, location. From the system will be generated all functions of the Company's operating systems including, but not limited to, the initiation of loads, dispatch, billing, accounts payable and receivable, general ledger functions and preparation of 13 financial statements. All maintenance records for all of the trucks, inventory records for all parts and supplies, claim records and accident records as well as fuel and mileage for taxing bodies will be supplied. Information from the Company's fuel provider, Comdata, will be downloaded into the system over the Internet on a daily basis. The Company has received data from Comdata with respect to their program for year 2000 compliance and is satisfied that they will be in total compliance. The new software system has been fully operational for the agent program and brokerage business since November 1998. The Company anticipates the complete system to be installed and begin operating Company-wide by March 1, 1999. At present, the Company is working with its hardware provider to have installed PC workstations for use with a Windows NT User Network, MS Exchange 50 User Internal E-mail. Each workstation is a Compaq Deskpro EP Pentium 333 Mhz. Protrip software from Computerized Management Services of Sioux Falls, South Dakota, will be used. The Company is currently also preparing and reviewing its database information on its current system for transfer to the new system in an effort to streamline the flow of information from one system to the other. The Company may also be vulnerable to the failure of other companies to be year 2000 compliant. The Company has commenced its assessment of whether third parties with whom the Company has material relationships are year 2000 compliant. The Company is evaluating its vendors and suppliers to determine if there would be a material effect on the Company's business if they do not timely become year 2000 compliant. The same analysis is being made for significant customers. The Company has not yet initiated formal contingency planning processes to mitigate the risk to the Company if any vendors or customers are not prepared for the year 2000, but the Company intends to complete this process by June 30, 1999. Although the Company expects its internal systems to be year 2000 compliant, the failure of any of its significant vendors or customers to correct a material year 2000 problem could result in an interruption in certain normal business activities and operations. Due to the general uncertainty inherent in the year 2000 problem, resulting in part from the uncertainty of the year 2000 readiness of third parties which the Company relies on, the Company is unable to determine at this time whether the consequences of year 2000 failures will have a material adverse impact on the Company's results of operations, but the Company believes that with the implementation of its new computer system and completion of its assessment of its vendors and customers, the possibility of significant interruptions of normal operations should be reduced. 14 BUSINESS GENERAL U.S. Trucking, Inc. provides transportation and logistics services. We transport full truckloads of both refrigerated and non-refrigerated commodities over various distances primarily east of the Rocky Mountains. We also provide the following specialized transportation and logistics services: 1. Roller-bed trailer service for UPS and Emery Air 2. Transportation brokerage services We are a preferred carrier for a number of Fortune 500 companies, including: 1. United Parcel Service of America, Inc. 2. The Trane Company (a division of American Standard, Inc.) 3. Excel Corporation (a division of Cargill Incorporated) 4. Emery Worldwide (a division of CNF Transportation, Inc.), 5. Eaton Corporation 6. The Monfort division of ConAgra, Inc. 7. Consolidated Papers, Inc. We are actively seeking other companies which are interested in outsourcing their transportation service needs. Our truckload division operates approximately 170 tractors (including approximately 65 tractors which are owned by contractors) and over 230 trailers (including approximately 25 which are owned by contractors). We intend to expand our business through internal growth and acquisitions. The truckload industry is highly fragmented, which provides a large number of acquisition opportunities. We are primarily interested in medium to long haul truckload carriers, with annual revenues between $5-10 million, located close to the Company's current facilities. This should allow us to consolidate our staffs to reduce common expenses. This is referred to in our industry as the "Stack Up" concept. U.S. Trucking, Inc., a Colorado corporation, was incorporated in Colorado under the name Northern Dancer, Inc. in January 1987, for the purpose of acquiring an operating company. It completed a small public offering in 1988. In September 1998, it acquired U.S. Trucking-Nevada which is now a wholly- owned subsidiary of the Company. U.S. Trucking-Nevada has two operating subsidiaries which it acquired in early 1997 just after it was incorporated. These are Gulf Northern and Mencor. The Company's primary operating subsidiary, Gulf Northern, has operated as a truckload carrier since it was formed in 1991. In an effort to increase the size and scope of its business and to obtain access to expansion capital, its management sold it to U.S. Transportation Systems, Inc. ("USTS") in early 1997 in exchange for a 25% ownership interest in U.S. Trucking-Nevada. The remainder of U.S. Trucking-Nevada was owned by U.S. Transportation Systems, Inc. ("USTS"), at the time, a publicly-traded transportation company. As it became clear that the expected benefits from affiliating with USTS would not be forthcoming, Messrs. Huff and Pixler arranged for Logistics Management, LLC to repurchase the majority position held by USTS in May 1998. 15 THE TRUCKLOAD SEGMENT OF THE TRANSPORTATION INDUSTRY The Company estimates that the for-hire truckload market segment of the transportation industry accounted for more than $165 billion of revenue in 1997. The truckload transportation industry currently is undergoing changes that affect both shippers and carriers. Shippers (the customers of trucking companies) have been focusing their capital resources on their primary businesses and are outsourcing their transportation and logistics requirements. Shippers increasingly have been seeking to reduce the number of authorized carriers they utilize and to establish service-based, long-term relationships with smaller groups of preferred or "core carriers" who are often able to provide a wide range of services. In order to compete with shippers for preferred or core carrier status , a carrier must have sufficient available equipment and drivers and other logistical capabilities to meet the shippers' requirements. While the truckload transportation market remains highly fragmented, there is an emerging trend among carriers toward consolidation in order to become better positioned with customers as core carriers. Carriers are also consolidating to take advantage of economies of scale in purchasing equipment, in purchasing insurance, and in recruiting and retaining drivers. The truckload transportation market generally consists of a service- sensitive segment and a price-sensitive segment. Shippers of high value or time-sensitive goods tend to be more concerned with the service capability of the carrier than simply obtaining the lowest priced transportation. In many cases, carriers choose either to provide premium service and charge rates consistent with that service or to compete primarily on the basis of price. The truckload market is further segmented on the basis of length of haul. In the long haul market, the average length of haul is greater than 1,500 miles. In this segment, truckload carriers compete with air freight on the basis of lower prices and with railroads on the basis of time of delivery. In the medium-to-long haul segment, the average length of haul ranges from 750 miles to 1,500 miles. The Company's average length of haul is approximately 880 miles. TRANSPORTATION BROKERAGE SERVICES The Company offers transportation brokerage services through its wholly- owned subsidiary Mencor. The Department of Transportation granted Mencor a license in April 1994 which provides it with authority to engage as a freight broker in interstate commerce. Mencor arranges return hauls for common carriers and corporations transporting their own goods who have completed their initial delivery. This enables the carrier to cover the cost of returning to their home location. For this service we receive the difference between the amount we pay with the returning shipper or carrier to effect the move, and the amount we receive from the shipper. OPERATING STRATEGY The Company's operating strategy is to provide high quality transportation and logistics services that position the Company as a preferred supplier or "core carrier" to major shippers. The Company does not compete primarily on a price basis. The Company seeks to effect this strategy by providing reliable time-definite pick up and delivery services. An important factor in the Company's ability to effect this strategy is the ready availability of drivers. The Company seeks to address the chronic driver shortage in the trucking industry through a variety of practices. See "Drivers" below. Management believes its driver retention history is significantly better than the industry average. 16 Management believes that the Company's operating strategy has positioned it to capitalize on evolving trends in the transportation industry. Shippers are reducing their number of approved carriers to a small group of core carriers, and often outsourcing their transportation needs entirely to logistics providers. The small carriers, without the capacity to adequately service these shippers or offer logistics services will not benefit from this trend. As a medium size carrier with the capability to also offer logistics and warehousing services (which helps in obtaining business from companies utilizing "just-in-time" distribution methods), the Company is well-suited to capitalize on this trend. The Company has also recently instituted an agent program, pursuant to which the Company allows small carriers to operate under the Company's authority as an agent of the Company. In this program the agent provides its customers and business. The Company collects all of the revenues from the shippers and pays the agent 85% of the revenue less certain expenses paid by the Company such as fuel costs and pallet costs. The Company provides the agent with liability insurance coverage and certain administrative services such as billing and collecting receivables. The Company also provides the agent with access to the Company's other insurance coverages such as medical and hospitalization insurance. The agent is required to deposit one percent (1%) of its revenue in an escrow to cover any bad debts, and it must pay all cash expenses including tolls, tractor washes, and any of its own other operating expenses. ACQUISITION STRATEGY The Company intends to actively seek acquisition candidates to expand its business and to increase its market share. The Company plans to use what has been described as the "Stack Up" concept. Stack Up refers to seeking acquisitions of companies with facilities located in the same geographical locations as the Company, whenever possible, allowing for faster consolidation of staffs and faster reduction of duplicated costs. Management believes that a Stack Up strategy is appropriate for the Company because the medium to long- haul trucking industry is characterized by several large companies and many small companies ("Mom and Pops") which are not able to achieve competitive advantages related to size, yet are too small ($5 to $10 million revenues) to attract the interest of the larger operators. The Mom and Pops constitute a large and fragmented segment of the industry. These companies do not have sufficient resources to serve as "core" carriers or to afford the technology required to operate as efficiently and cost-effectively as their larger competitors. The Company believes that through careful selection of acquisition candidates, certain small operators can be acquired on terms favorable to the Company and that the operating results of these firms will improve as they are integrated into the Company's logistical framework. The Company intends to use a combination of cash, stock, debt and equity securities to facilitate its acquisition and expansion plans. No assurance can be given that the Company will be able to effect this strategy. The Company is currently holding discussions relating to several potential acquisitions, but does not anticipate making any acquisitions until adequate financing is in place. LETTER OF INTENT AND MANAGEMENT SERVICES AGREEMENT WITH MID-CAL EXPRESS, INC. AND MID-CAL LOGISTICS, INC. The Company has entered into a letter of intent with Mid-Cal Express, Inc. and Mid-Cal Logistics, Inc. (collectively referred to as "Mid-Cal") which relates to the purchase by the Company of substantially all of the assets of 17 Mid-Cal. According to the letter of intent, the Company would pay 400,000 shares of its Common Stock for these assets. The closing of this transaction will be subject to the completion of due diligence by the Company, the execution of a definitive agreement by the parties, approval by the Board of Directors of the Company, and approval by any other parties such as banks, lessors or creditors whose consent is required. Mid-Cal is a truckload carrier which transports a range of commodities, including refrigerated food products, manufactured goods, retail store merchandise, paper products, beverages, parts and chemicals between the Western and Northeastern United States and the provinces of Ontario and Quebec, Canada. Mid-Cal also operates a logistics business. Mid-Cal's gross revenue for the fiscal year ended December 31, 1997, was approximately $15.9 million and it had a net loss of approximately $695,000. Mid-Cal Express, Inc. and Mid-Cal Logistics, Inc. are subsidiaries of Prime Companies, Inc., an SEC reporting company. In furtherance of the Letter of Intent, the Company has entered into a Management Services Agreement with Mid-Cal effective December 30, 1998, whereby the Company agreed to manage Mid-Cal's freight transportation and terminal operations until February 28, 1999, subject to an extension at the Company's discretion until June 30, 1999. The agreement provides that the Company will render management services in connection with the day-to-day operations of Mid-Cal including rendering advisory services with respect to (a)dealings with lenders, (b) insurance issues, (c) negotiating owner-operator settlements, and (d) matters related to the continued employment or severance of employees. The Company is also responsible for all billings and collections for all shipping contracts, terminal charges, and all other revenue producing activities of Mid-Cal. The Company will be paid management fees equal to 2% of all revenues collected pursuant to the agreement up to a maximum of $40,000. The agreement also provided that the Company would use its best efforts to renegotiate various equipment financing and lease agreements on Mid-Cal's rolling stock, many of which are past due. The purpose of this agreement was to allow the Company and Mid-Cal to negotiate an agreement whereby the Company would acquire substantially all of the operating assets of Mid-Cal in exchange for 400,000 shares of the Company's common stock. Such a transaction will not be consummated until satisfactory arrangements are in place for the payment of amounts owing to Mid-Cal's creditors, or other arrangements satisfactory to Mid-Cal's creditors have been agreed upon. Since December 30, 1998, the Company has been actively involved re- negotiating the principal equipment financing and lease agreements, and it has been doing so in the name of the Company, with the Company becoming the owner or lessee of the equipment. Therefore, as of February 5, 1999, the Company has effectively taken ownership or control of nearly all of Mid- Cal's tractors and trailers. MARKETING The Company markets high quality, "just-in-time", temperature-sensitive and dry freight truckload services in the truckload carrier market. These services include roller-bed trailer services to select air freight companies such as UPS and Emery. The Company also provides small package pickup and delivery services for air freight forwarders in three Florida cities. 18 The Company's operations are primarily east of the Rocky Mountains with an emphasis on the Midwest, Southeast and Northeast United States. The Company believes that it has established a presence in these regions and has developed a competitive ability for the return shipment of goods, which reduces the amount of empty truck miles and increases overall productivity and profitability. Marketing personnel emphasize the Company's commitment to high levels of service, flexibility, responsiveness, analytical planning and information management in order to position the Company to serve customers' demands for time definite pickup and delivery. The Company's marketing personnel seek to strengthen the company's position with existing customers and establish it with prospective customers. Dan L. Pixler, the Company's President & CEO, is directly involved in marketing the Company's services at the national account level and he also supports local sales activity. The Company also has an eastern sales manager. The Company's largest 15 customers are: Consolidated Papers, Inc., The Trane Company, Revco D.S., Inc., Excel Corporation, Pharmor, Cadbury Schweppes, Emery Worldwide, United Parcel Service of America, Inc., Seneca Foods Corporation, Eaton Corporation, Weyerhauser Company, Copps Distributing, Blue Berry Confections, Bi-Lo Sales and services, and OK Grocery. Consolidated Papers, Inc. accounted for 16% of the Company's revenues during the year ended December 31, 1997. The Company maintains a strong commitment to expanding its relationships with existing customers. Customer shipping patterns are monitored daily, allowing the Company flexibility in responding rapidly to the varying service demands of its customers. The Company has written motor carrier contracts with approximately 90% of its customers. The contracts generally specify lanes to be serviced (regions) and negotiated price agreements; they do not have any provision regarding the volume to be carried. The loss of the Company's largest customers could materially adversely affect the Company's operating results. OPERATIONS All of the Company's offices and terminals are leased. The Company's executive office is located in North Charleston, South Carolina, where billing, collections, brokerage, banking and overall management of the Company take place. The lease, which expires November 1, 1999, covers 5,000 square feet of rental space and provides for monthly rent of $2,800. The Company believes that this facility is adequate for its present needs. The Company also maintains the following other office, terminal and warehouse locations: Location Description -------- ----------- Wisconsin Rapids, Wisconsin A 3,000 square foot office, a 9,800 square foot warehouse, and a four bay repair shop leased for $6,500 per month (this facility is owned by Messrs. Huff and Pixler) Kansas City, Missouri A 900 square foot office and a two bay repair shop leased for $3,150 per month 19 Savannah, New York A 2,000 square foot office and two bay repair shop leased for $2,024 per month (this facility is owned by Mr. Pixler) Orlando, Florida A 500 square foot office leased for $550 per month Jacksonville, Florida A 375 square foot office and a 1,125 square foot warehouse leased for $1,003 per month W. Palm Beach, Florida A 568 square foot office and a 1,500 square foot warehouse leased for $1,100 per month Each of the Company's terminals is headed by a terminal manager. Some locations include maintenance facilities and driver lounges, and all are active in the recruiting of drivers and all provide local or regional customer service and dispatch functions. The Company utilizes various computer systems, which enable order taking, driver tracking, billing and cash application procedures. The Company is in the process of enhancing these systems by adding new servers, new personal computers and new software, all of which will contribute to the Company's Year 2000 readiness. When completed this will enable the Company to track its tractors and trailers more effectively, and to handle billing and maintenance. The Company currently does not anticipate introducing satellite driver communications in the near future, although the Company's new computer systems will be compatible with, and able to accommodate, such a system. TRACTORS AND TRAILERS The Company operates a fleet of approximately 286 tractors, including 112 tractors that are owned by independent contractors, and 401 trailers, including 13 trailers that are owned by independent contractors. Since the closing in December 1998 of the financing with General Electric Capital Corporation, the Company has traded 18 older tractors for 20 newer tractors. The Company has also traded 91 aged trailers for 63 new trailers which includes 43 refrigerated trailers and 20 dry vans. The Company has also recently added 65 tractors which are all 1996 or newer and 149 refrigerated trailers. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CAPITAL RESOURCES AND LIQUIDITY.") The Company's policy is to purchase quality late-model tractors and refrigerated and dry trailers that meet the Company's specifications. The Company had financed its tractor and trailer purchases through several asset- based finance agreements. The Company also contracts with owner-operators to provide additional tractors and trailers. The Company has established standard specifications for the purchase of equipment replacements. Each of the Company's tractors is equipped with a sleeper cab to permit the drivers to comply conveniently and cost effectively with the DOT hours of service guidelines and to facilitate team operations when necessary. The Company is developing a plan to replace it tractors every four years and its trailers every seven years. The Company maintains warranties that extend beyond the four year life of the tractors on all engines, transmissions, drive axles and running gear. 20 The Company has established a maintenance program that tracks service intervals, repairs, and component history and management believes that this program will increase the number of miles achieved between engine overhauls. Most of the Company's maintenance is performed at its Wisconsin Rapids, Wisconsin and Savannah, New York terminals. DRIVERS All of the Company's drivers must meet specific guidelines relating primarily to safety record, driving experience and personal evaluation, including DOT mandated drug testing and personal background checks. The Company recruits and retains drivers by offering competitive compensation packages, purchasing quality tractors and equipping them with optimal comfort and safety features (such as air-conditioning, power steering, engine brakes and sleeper cabs), generating driver friendly freight, maintaining an open door policy, paying bonuses, providing a stock ownership program, and emphasizing training and retention programs. The Company maintains experienced driver recruiters. The Company requires that prospective drivers have a minimum of one year of truck driving experience in order to be considered for a position with the Company. In addition, new drivers are required to meet all DOT requirements. Upon hiring a driver, the Company conducts an orientation program covering such topics as the Company's business, policies, procedures, safety, benefits, maintenance and operation of equipment. Company drivers and independent contractors are paid a percentage of loaded revenue, and/or cents per mile. Drivers can earn bonuses on a per mile basis for safety, paperwork, compliance and number of miles driven each year. All employees, including drivers, will be eligible to participate in the Company's 401(k) plan and health and life insurance plans. Although the Company currently has an adequate number of drivers, there can be no assurance that the Company will not be affected by a shortage of qualified drivers in the future. Significant driver turnover is a problem with the Company and the industry as a whole. In addition, the trucking industry is experiencing a diminished workforce of qualified drivers. As a result, the Company must compete with other transportation service companies for the available drivers. The Company anticipates that the intense competition for qualified drivers in the trucking industry will continue. In addition to its driver employees, the Company contracts with a select group of independent contractors who own and operate their own tractors and trailers. The Company's selection process for independent owner-operators is substantially the same as the process for employees. Each owner-operator is required to enter into an owner-operator lease agreement with the Company which is cancelable by either party upon thirty days notice. The owner- operators provide the Company with an additional source of drivers, particularly during periods of peak demand for transportation services. INSURANCE AND SAFETY The Company's safety department is responsible for training and supervising personnel to keep safety awareness at its highest level. The Company has implemented an active safety and loss prevention program at its corporate headquarters and all of its terminals. In July 1994, Gulf Northern successfully completed a safety audit and compliance review by the Department of Transportation, Federal Highway Administration and is operating with a satisfactory rating. The emphasis on safety begins in the hiring and continues in orientation, safety training, and drug testing. Newly hired drivers, regardless of experience level, must participate in a training program. 21 The Company's safety and loss prevention program is comprised of the ongoing education, training and retraining of drivers regarding safe vehicle operation, loading and unloading procedures, and accident reporting. It also includes random drug testing. The program is overseen by the Company's Director of Safety. It is Company policy to reward drivers who have satisfied safety performance goals established by the Company. Safe-driver awards are presented based upon the number of miles a Company driver or owner-operator accumulates in service without a "chargeable accident" as defined by DOT regulations. Awards are presented on an annual basis and consist of cash payments. The Company has implemented a written disciplinary system for its employee drivers and owner-operators. Pursuant to this system, disciplinary action ranges from written warnings to immediate termination depending on the frequency and severity of the offense. The most serious offenses include violations of local, state or federal regulations while on duty, unauthorized use of Company equipment, willful or negligent damage of Company equipment or property or injury to another person, carrying, possessing or being under the influence of intoxicants or narcotics while on duty or on Company premises, possession of firearms or other lethal weapons while on duty or while on Company premises and other similar offenses. The Company's Director of Safety continuously monitors driver performance and makes recommendations to the Company's executive officers regarding employment and retention of drivers. The Company is committed to securing appropriate insurance coverage at cost-effective rates. The primary risks that arise in the trucking industry consist of cargo loss and damage, personal injury, property damage and workers' compensation claims. The Company maintains insurance that it believes is adequate to cover its liabilities and risks. The Company has set up captive insurance arrangements with an insurance company pursuant to which the Company makes monthly payments into a loss reserve fund in addition to the payments it makes to the insurance company. The fund is then used to pay off claims for liability to third parties for personal injuries and property damage up to $100,000 per occurrence and up to an aggregate of $615,000. Any claims in excess of these limits are covered by insurance up to $1 million per occurrence. To the extent that the annual claims are less than the amount projected by the insurance company, the Company receives back a portion of the reserve fund. The Company also has an insurance policy which covers cargo loss and damage up to $250,000 per occurrence, and an insurance policy which covers workmen's compensation claims in amounts from $100,000 to $500,000, depending on the state where the worker lives. FUEL MANAGEMENT Motor carrier service is dependent upon the availability of diesel fuel. The Company manages fuel purchases by directing its drivers to certain truck stops along designated routes that give the Company certain discounts in return for volume purchases on a recurring basis. Through the use of computerized monitoring devices imbedded in the engines of its tractors, the Company monitors fuel usage, miles per gallon, cost per mile, and cost per gallon. The Company has not experienced any difficulty in maintaining fuel supplies sufficient to support its operations. Historically, the Company has been able to pass on a portion of fuel price increases to its customers. Nevertheless, shortages of fuel, increases in fuel prices or fuel tax rates or rationing of petroleum products could have a material adverse effect on the operations and profitability of the Company. 22 COMPETITION The trucking industry is highly competitive and fragmented. The Company competes primarily with other medium to long-haul, temperature-controlled and dry truckload carriers; internal shipping conducted by existing and potential customers and, to a lesser extent, railroads and air transportation. Although the general effect of deregulation of the trucking industry during the 1980's created substantial downward pressure on the industry's rate structure, the Company believes that competition for the freight transported by the Company is based primarily on quality of service (i.e., just-in-time performance) and, to a lesser degree, on freight rates. There are a number of other trucking companies which have substantially greater financial resources, operate more equipment or carry a larger volume of freight than the Company. The Company also competes with other motor carriers in hiring qualified drivers. The Company's primary emphasis is service, especially to its core carrier customers, rather than price alone. However, the industry in which the Company operates is extremely price sensitive and the Company is responsive to competitive price pressures. REGULATION The trucking industry is subject to regulatory oversight and legislative changes which can affect the economics of the industry by requiring certain operating practices or influencing the demand for, and the costs of providing, services to shippers. The Department of Transportation of the United States ("DOT"), as well as various state agencies that have jurisdiction over the Company, have broad powers, generally governing such matters as authority to engage in motor carrier operations, rates and charges, certain mergers, consolidations and acquisitions, and periodic financial reporting. The rates and charges of the Company are not directly regulated by these authorities. As primarily a contract carrier, the Company negotiates competitive rates directly with customers as opposed to relying on schedule tariffs. State agencies impose tax, license and bonding requirements. The Motor Carrier Act of 1980 commenced a program to increase competition among motor carriers and to diminish regulation in the industry. Following this deregulation, applicants have more easily been able to obtain DOT operating authority, and interstate motor carriers such as the Company have been able to impose certain rate changes without DOT approval. The Motor Carrier Act also removed many route and commodity restrictions on transportation of freight. Gulf Northern has held specific commodity and territory authority from the Illinois Commerce Commission since 1939. Gulf Northern holds authority to carry general commodities throughout the 48 contiguous states, as both a common and contract carrier, and it holds various intrastate authorities. Under the Negotiated Rates Act of 1993, certain procedures must be followed for resolving claims involving unfiled, negotiated transportation rates. Generally, when a claim is made by a motor carrier of property (other than a household goods carrier) for the collection of rates and charges in addition to those originally billed and collected by the carrier, the person against whom the claim is made may elect to satisfy the claim pursuant to certain provisions specified in the Negotiated Rates Act. The Negotiated Rates Act specifies the types of disputes to be resolved by the ICC and allows for the nonpayment of the disputed additional compensation until the dispute is resolved. The Company believes that it is in compliance in all material respects with the provisions of the Negotiated Rates Act. 23 Interstate motor carrier operations are subject to safety requirements prescribed by the DOT. Such matters as weight and dimensions of equipment are also subject to federal and state regulation. All of the Company's drivers were required to obtain national commercial driver's licenses by April 1, 1992, pursuant to the regulations promulgated by the DOT. Also effective in 1989, DOT regulations imposed mandatory drug testing of drivers. The Company has implemented a random drug-testing program in accordance with such regulations. In addition, beginning January 1, 1995, the Company was required to implement new alcohol and revised drug rules imposed by the DOT which prohibit any alcohol or drug use prior to and during driving and while performing safety-sensitive functions such as loading, unloading, inspecting, waiting for dispatch, resting in a sleeper birth, and other specified times. Beginning August 15, 1994, the Company was required to implement a certain split sample urine collection procedure. The Company complies with all applicable regulations imposed on its employees and owner-operators. The DOT's national commercial driver's license, drug testing requirements and new alcohol and drug-use regulations have not to date and are not expected to adversely affect the availability to the Company of qualified drivers. See "Business-Safety and Insurance." The Company's operations are subject to federal, state and local laws and regulations concerning the environment. The Company has not received any notices from any regulatory authority relating to any violation of any environmental law. EMPLOYEES As of the date of this Prospectus, the Company employed approximately 227 persons, of whom 150 were drivers and 77 were maintenance and administrative personnel. None of the Company's employees is represented by a collective bargaining unit and the Company has never experienced a work stoppage. The Company believes that its relations with its employees is good. LEGAL PROCEEDINGS The Company has been from time to time a party to litigation incidental to its business, primarily involving claims for personal injury and property damage incurred in the transportation of freight, and litigation relating to transactions as to which its affiliates have been involved. As of the date of this Prospectus, the Company is not party to any litigation which, individually or in the aggregate, management believes will have a material adverse effect on the financial condition or operations of the Company. The Company maintains insurance that it believes is adequate to cover its liability risks. See "Business-Safety and Insurance." REPORTS TO SECURITY HOLDERS The Company is subject to the reporting requirements of Section 13(a) and to the proxy requirements of Section 14 of the Securities Exchange Act of 1934, as amended, and in accordance therewith files periodic reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information concerning the Company may be inspected or copied at the public reference facilities at the Commission located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's Regional Offices in New York, 7 World Trade Center, New York, New York 10048, and in Chicago, Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such documents can be obtained at the public reference section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web 24 site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically. 25 MANAGEMENT DIRECTORS AND OFFICERS The Directors and Executive Officers of the Company are as follows: NAME AGE POSITIONS HELD ---- --- -------------- Danny L. Pixler 50 President, CEO and Director W. Anthony Huff 37 Executive Vice President and Chairman of the Board John Ragland 33 Chief Financial Officer There is no family relationship between any Director or Executive Officer of the Company. The Company has audit and compensation committees which both consist of Danny L. Pixler and W. Anthony Huff. Set forth below are the names of all directors and executive officers of the Company, all positions and offices with the Company held by each such person, the period during which he has served as such, and the principal occupations and employment of such persons during at least the last five years: DANNY L. PIXLER has served as the President, CEO and a director of the Company since September 8, 1998, when the Company completed its acquisition of U.S. Trucking-Nevada. He has served as President, Secretary and Treasurer of U.S. Trucking-Nevada since February 1997, and as a Director since May 1998. He served as Vice President and a director of Mencor from March 1994 until July 1998 when he became President. He has served as President, CEO and director of Gulf Northern since March 1995. From January 1993 until March 1994, he served as President of Joseph Land Group (a transportation company with annual sales of approximately $130 million). From 1989 until 1993, he served as President of Apple Lines, Inc., a truckload refrigerated carrier with $16 million in revenues. From 1983 until 1989, he was employed by D.F.C. Transportation, the transportation division of Dean Foods, Inc., where his final position was Executive Vice President and General Manager responsible for the company's truckload division with annual sales of $80 million. W. ANTHONY HUFF has served as Executive Vice President and Chairman of the Board of the Company since September 8, 1998. He has provided various administrative services to U.S. Trucking-Nevada since February 1997 and has served as Executive Vice President and a Director since May 1998. He has also provided various services to Gulf Northern since March 1995 and he has served as a Director since February 1996 and as Vice President since June 1998. Mr. Huff has also served as Vice President and Assistant Secretary of Mencor since June 1998. Mr. Huff manages the Company's offshore captive insurance programs and investments. From approximately November 1995 until January 1997, he served as President and a director of United Acquisition Corp. II, a company formed to acquire companies in the trucking business. From February 1992 until December 1996, Mr. Huff served as President of the North American Trucking Association, an association of independent truckers engaged in the business of providing administrative and financial services to its members. 26 Mr. Huff spends approximately 60% of his time on the Company's business and the remainder of his time consulting with various other companies. Due to a large judgment awarded against Mr. Huff in 1994 resulting from Mr. Huff's guaranty of a defaulted bank loan for a company of which he was a shareholder, Mr. Huff filed for personal bankruptcy under Chapter 7 of the U.S. Bankruptcy Code in 1994 (discharge granted in 1995). Mr. Huff was a minority shareholder and provided services to the company (KHW Foods, Inc.) relating to store location and development, but was not otherwise involved in management of the company. In the bankruptcy proceeding Mr. Huff reaffirmed all of his other personal debts. JOHN RAGLAND has served as Chief Financial Officer of the Company since September 8, 1998. He has served as the Controller of Gulf Northern since June 1996, and as Secretary-Treasurer since June 1998. He has also served as the Chief Financial Officer and Treasurer of U.S. Trucking-Nevada since May 1998. From May 1996 until October 1996, he served as Chief Financial Officer of United Acquisition Corp. II, a company formed to acquire companies in the trucking business. From August 1994 until June 1996 he was the Chief Financial Officer of the North American Trucking Association, a trade group, and he was also the Chief Financial Officer of All-Risk Services, an insurance agency, during the same period. From 1991 to July 1994, he was a staff accountant with Watkins, Buckles & Travis, Certified Public Accountants. The Company's executive officers hold office until the next annual meeting of the Directors of the Company. The Company has agreements with Messrs. Pixler and Huff whereby the Company is required to use its best efforts to elect and retain them as members of the Board of Directors as long as they are guarantors as to any Company or affiliated debt. There are no other arrangements or understandings between any director or executive officer and any other person pursuant to which any of the above-named executive officers or directors or nominees was selected as an officer or director or nominee for director of the Company. EXECUTIVE COMPENSATION The following tables set forth information regarding executive compensation for the Company's President and Chief Executive Officer and each other executive officer who received total annual salary and bonus in excess of $100,000 for any of the years ended December 31, 1998, 1997 or 1996. Summary Compensation Table Long-term Compensation Awards Payouts ------------------------ Securi- Annual Compensation ties --------------------- Re- Underly- All Other strict- ing Other Name and Annual ed Options/ LTIP Com- Principal Compen- Stock SARs Pay- pensa- Position Year Salary Bonus sation Award(s) (Number) outs tion - ---------- ---- -------- ----- ------- -------- -------- ----- ------ Danny L. 1998 $105,000 -- $6,000(1) -- 100,000 -- -- Pixler, 1997 $105,000 -- $6,000(1) -- -- -- -- President 1996 $ 47,500 -- $ -- -- -- -- -- ______________ 27 (1) Represents $500 per month car allowance. Aggregated Option Exercises in Year Ended December 31, 1998 and December 31, 1998 Option Values Securities Under- Value of Unexer- Shares lying Unexercised cised in-the Acquired Options Money Options/ On at 12/31/98 at 12/31/98 Exercise Value Exercisable/ Exercisable/ Name (Number) Realized Unexercisable Unexercisable ---- -------- -------- ---------------- ---------------- Danny L. Pixler -0- $ -0- 100,000 / 0 $495,000 / 0 Options / Grants in Last Fiscal Year Individual Grants Number of % of Total Securities Options Underlying Granted to Exercise or Options Employees in Base Price Expiration Name Granted(#) Fiscal Year ($/sh) Date ---- ------------ ------------ ----------- ---------- Danny L. Pixler 100,000 50% $.30 5/22/08 EMPLOYMENT AGREEMENTS The Company has entered into a five year employment agreement with Danny L. Pixler commencing September 9, 1998, which provides for an annual salary of $105,000 (with annual increases of not less than 3%). The agreement also provides that Mr. Pixler will receive a new car every three years and all vehicle expenses incurred on Company business or an auto allowance not to exceed $550 per month. The Company has entered into a five year employment agreement with W. Anthony Huff commencing September 9, 1998, which provides for an annual salary of $52,000 (with annual increases of not less than 3%). The Company has entered into a three year employment agreement with John Ragland commencing September 9, 1998, which provides for an annual salary of $75,000 (with annual increases of not less than 3%). The agreement also provides that Mr. Ragland will be provided a company car and reimbursement of his vehicle expenses incurred on Company business. These employment agreements are terminable by the Company for certain specified reasons, including disability, fraud, conviction of a felony and substance abuse. They also contain covenants not to compete during the term of the agreements. STOCK OPTION PLAN During September 1998, the Board of Directors adopted the Stock Option Plan of U.S. Trucking-Nevada as the Company's Stock Option Plan (the "Plan"), and the Company assumed the obligations represented by 200,000 options which were already outstanding. These options had an exercise price of $.30. The Plan authorizes the issuance of options to purchase up to 2,000,000 shares of the Company's Common Stock. 28 The Plan allows the Board to grant stock options from time to time to employees, officers, directors and consultants of the Company. The Board has the power to determine at the time that the option is granted whether the option will be an Incentive Stock Option (an option which qualifies under Section 422 of the Internal Revenue Code of 1986) or an option which is not an Incentive Stock Option. Vesting provisions are determined by the Board at the time options are granted. The option price for any incentive stock option will be no less than the fair market value of the Common Stock on the date the option is granted, while other options may be granted at any exercise price. Options granted under the Plan with an exercise price less than the fair market value on the date of grant, will require the Company to record an expense upon the grant of options equal to the difference between the market value of the option shares and the exercise price of the options. Generally, there will be no federal income tax consequences to the Company in connection with Incentive Stock Options granted under the Plan. With regard to options that are not Incentive Stock Options, the Company will ordinarily be entitled to deductions for income tax purposes of the amount that option holders report as ordinary income upon the exercise of such options, in the year such income is reported. 29 SECURITY OWNERSHIP OF MANAGEMENT, PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDERS The following table sets forth, as of the date of this Prospectus, and as adjusted for the sale of the shares offered by the Selling Shareholders, the stock ownership of each person known by the Company to be the beneficial owner of five percent or more of the Company's Common Stock, all Directors individually and all Directors and Executive Officers of the Company as a group, and the Selling Shareholders. Except as noted, each person has sole voting and investment power with respect to the shares shown. Per- Per- centage Number centage Amount of of Class of of Class Name and Address of Beneficial Prior Shares After Beneficial owner Ownership to Sales Offered Sales - ------------------- ---------- -------- --------- -------- Logistics Management, L.L.C. (1) 4,000,000 (2) 54.5% 0 54.5% 10602 Timberwood Circle #9 Louisville, KY 40223 Danny L. Pixler 2,100,000 (3) 28.2% 0 28.2% Suite 216 3125 Ashley Phosphate Road North Charleston, SC 29418 W. Anthony Huff 2,100,000 (4) 28.2% 0 28.2% 10602 Timberwood Circle #9 Louisville, KY 40223 Mark Weber 40,000 * 40,000 0 3206 162nd Place, SE Bellevue, WA 98008 Ronald Setzkorn 233,333 3.2% 233,333 0 1211 Willow Bend Clarksville, TN 37043 Market Edge Inc. 46,668 * 46,668 0 No. 2B 1304 E. Algonavin Road Schaumburge, IL 60173 Jay W. Bosselman 93,333 1.3% 93,333 0 No. 2B 1304 E. Algonavin Road Schaumburge, IL 60173 Ralph Brown 33,333 * 33,333 0 P.O. Box 97 Gainesville, MD 65655 B. A. Bates 65,000 * 65,000 0 19 2nd Street East Kalispell, MT 59901 30 Sebrite Financial 33,333 * 33,333 0 Suite 1215 600 South Highway 169 St. Louis Park, MN 55426 Stanley Chasen 33,333 * 33,333 0 6711 North Ocean Boulevard Ocean Ridge, FL 33435 Jud Wagonseller 26,668 * 26,668 0 500 Meidinger Tower Louisville, KY 40202 Transportation Services Co. 394,999 5.4% 394,999 0 10602 Timberwood Circle #9 Louisville, KY 40223 Michelle A. Vetrano 26,667 * 26,667 0 10415 North Pecan Place Tucson, AZ 85737 Paolo Dorigo 33,333 * 33,333 0 3865 Jasmine Avenue Culver City, CA 90232 George R. Vetrano, Jr. 13,333 * 13,333 0 9255 Doheny Road, No. 2804 Los Angeles, CA 90069 George R. Vetrano, Sr. and Carol A. Vetrano 26,667 * 26,667 0 10818 North Sand Canyon Road Oro Valley, AZ 85737 Kevin P. Judge 33,333 * 33,333 0 3417 Clinton Street West Seneca, NY 14224 Sidney Anderson 33,334 * 33,334 0 1503 Evergreen Road Louisville, KY 40223 All Directors and Executive 4,200,000 (3) 55.7% 0 55.7% Officers as a Group (4) (3 Persons) ________________ * Less than 1%. (1) Logistics Management, L.L.C. is 50% owned by Roxann Pixler, the wife of Danny L. Pixler, and 50% owned by Association Services, Inc., which is 100% owned by The W. Anthony Huff Irrevocable Trust. (2) Does not include 900,000 shares of the Company's Series A Preferred Stock held by Logistics Management, L.L.C., which represents 9,000,000 votes and which is exchangeable for up to 9,000 shares of the Company's Common Stock when certain revenue targets are achieved. (See "DESCRIPTION OF SECURITIES.") 31 (3) Represents a 50% beneficial interest in the shares held by Logistics Management, L.L.C. and options to purchase 100,000 shares of Common Stock. (4) Represents a 50% beneficial interest in the shares held by Logistics Management, L.L.C. and options to purchase 100,000 shares of Common Stock. Mr. Huff is the primary beneficiary of the W. Anthony Huff Irrevocable Trust. There are no known agreements, the operation of which may at a subsequent date result in a change in control of the Company. 32 TRANSACTIONS WITH MANAGEMENT AND OTHERS ACQUISITION OF U.S. TRUCKING-NEVADA On September 8, 1998, the Company completed the acquisition of 100% of the outstanding common stock of U.S. Trucking, Inc., a Nevada corporation ("U.S. Trucking-Nevada") in exchange for 15,877,300 shares of the Company's Common Stock. The shares were exchanged on the basis of one share of the Company's common stock for one share of U.S. Trucking-Nevada common stock. The stock issuances were made pursuant to an Agreement ("Agreement") between the Company and U.S. Trucking-Nevada. The terms of the Agreement were the result of negotiations between the managements of the Company and U.S. Trucking-Nevada. However, the Board of Directors did not obtain any independent "fairness" opinion or other evaluation regarding the terms of the Agreement, due to the cost of obtaining such opinions or evaluations. TRANSACTIONS INVOLVING THE COMPANY BEFORE ACQUISITION OF U.S. TRUCKING-NEVADA During the fiscal year ended March 31, 1996 the Company loaned a total of $85,000 to Dunn International, Inc. ("Dunn") in anticipation of a possible merger with or acquisition of Dunn. Dunn was engaged in two lines of business: (1) the sale of software packages for petrochemical plants and refineries, and (2) providing maintenance and turnaround services for petrochemical plants and refineries. During August 1996 the Company agreed to convert the $85,000 of loans and $5,883 of accrued interest into 57,941 shares of Dunn's common stock which represented approximately 18% of Dunn's outstanding common stock as of March 31, 1997. During the year ended March 31, 1997, the Company loaned an additional $40,725 to Dunn and during the year ended March 31, 1998, the Company loaned an additional $37,500 to Dunn. These additional loans were made in an attempt to protect the Company's investment in Dunn. The Company never completed a merger or acquisition with Dunn because after completing its due diligence, management was of the opinion that a merger or acquisition would not be in the best interests of the Company at the time. Dunn was approximately 50% owned by a principal stockholder of the Company and her husband who is the Chairman of the Board and CEO of Dunn. TRANSACTIONS INVOLVING U.S. TRUCKING-NEVADA AND ITS SUBSIDIARIES On the formation of U.S. Trucking-Nevada in March 1997, the corporation issued 1875 shares of its common stock to U.S. Transportation Systems, Inc. ("USTS") in exchange for the assets and liabilities described below: 1. Certain assets (primarily tractors and trailers) and liabilities (related to Jay and Jay Transportation, Inc.) were contributed to the corporation by USTS. The net value of this contribution for accounting purposes was $2,394,860. 2. Certain assets and liabilities(related to Translynx Express, Inc.) were contributed to the corporation by USTS. The net value of these assets and liabilities for accounting purposes was $100,546. 33 The corporation also purchased 100% of the common stock of Gulf Northern from Logistic Management LLC for $225,000 in cash and 625 shares of the common stock of U.S. Trucking-Nevada and assumed all of the outstanding debt. The corporation also purchased 100% of the common stock of Mencor from its stockholders (Roxanne Pixler, Mike Menor and Dan Pixler) for $70,000 in cash and 37,500 shares of USTS common stock. On December 23, 1996, Gulf-Northern sold its Wisconsin Rapids facility, which included land, a building and improvements, to its majority stockholders for $346,141. The stockholders leased the property back to the Company for five years commencing January 1, 1997 for $7,350 per month. The majority stockholders were Danny L. Pixler and The W. Anthony Huff Irrevocable Trust. In March 1998, the Company leased three 1995 Volvo tractors from Danny L. Pixler under a one year lease agreement that specifies monthly payments of $4,047 and provides for annual renewals. Under the lease agreement, the Company is required to pay for all expenses associated with the tractors including maintenance, insurance, permits, licenses and other operating expenses. In September 1998, the Company leased six 1994 Kenworth tractors from a company owned by Danny Pixler and Anthony Huff pursuant to a one year lease agreement which provides for monthly payments of $7,380 and annual renewals. Under the lease agreement, the Company is required to pay for all expenses associated with the tractors including maintenance, insurance, permits, licenses and other operating expenses. In December 1998, Danny Pixler purchased the office and repair shop in Savannah, New York, which the Company had previously been leasing. He purchased the property for approximately $158,000, and he is leasing it to the Company for approximately $2,024 per month which is equivalent to the amount of his mortgage payment, taxes and insurance on the property. During January 1999, three of the Company's shareholders entered into a Stock Exchange Agreement with the Company whereby they agreed to exchange a total of 9,990,000 shares of the Company's common stock for 999,000 shares of the Company's Series A Preferred Stock. Each share of Series A Preferred Stock will have ten votes and the shares will be voted together with the common stock as a single class. (See "Description of Securities") Pursuant to the Stock Exchange Agreement, each share of Series A Preferred Stock will be exchangeable back into ten shares of common stock as follows: one-fifth of the shares upon the Company reporting revenues of $31 million or more for any fiscal year or shorter period in a report on Form 10-KSB, 10-K, 10-QSB, or 10- Q as filed with the Securities and Exchange Commission; an additional one- fifth if revenues are at or above $41 million; an additional one-fifth if revenues are at or above $51 million; an additional one-fifth if revenues are at or above $61 million; and the balance if revenues are at or above $71 million. The shareholders who exchanged shares are Logistics Management, LLC - - 9,000,000 shares; Joff Pollon - 250,000 shares; and Waterways Group - 740,000 shares. The Board of Directors of the Company believes that the above transactions involving U.S. Trucking-Nevada and its subsidiaries have been on terms no less favorable to the Company than those that could have been obtained from unaffiliated parties. 34 DESCRIPTION OF SECURITIES COMMON STOCK The authorized capital stock of the Company includes 75,000,000 shares of Common Stock, no par value. All shares have equal voting rights and are not assessable. Voting rights are not cumulative, and so the holders of more than 50% of the Common Stock of the Company could, if they chose to do so, elect all the Directors. Upon liquidation, dissolution or winding up of the Company, the assets of the Company, after the payment of liabilities and any liquidation preferences on outstanding preferred stock, will be distributed pro rata to the holders of the Common Stock. The holders of the Common Stock do not have preemptive rights to subscribe for any securities of the Company and have no right to require the Company to redeem or purchase their shares. The shares of Common Stock presently outstanding are fully paid and nonassessable. Holders of Common Stock are entitled to share equally in dividends when, as and if declared by the Board of Directors of the Company, out of funds legally available therefor. The Company has not paid any cash dividends on its Common Stock, and it is unlikely that any such dividends will be declared in the foreseeable future. TRANSFER AGENT Corporate Stock Transfer, Inc., 370 - 17th Street, Suite 2350, Denver, Colorado 80202, serves as the transfer agent for the Company. REPORTS TO STOCKHOLDERS The Company plans to furnish its stockholders for each fiscal year with an annual report containing financial statements audited by its independent certified public accountants. Additionally, the Company may, in its sole discretion, issue unaudited quarterly or other interim reports to its stockholders when it deems appropriate. PREFERRED STOCK The Company is authorized to issue 10,000,000 shares of Preferred Stock, no par value. The Preferred Stock may be issued in series from time to time with such designation, rights, preferences and limitations as the Board of Directors of the Company may determine by resolution. The rights, preferences and limitations of separate series of Preferred Stock may differ with respect to such matters as may be determined by the Board of Directors, including, without limitation, the rate of dividends, method and nature of payment of dividends, terms of redemption, amounts payable on liquidation, sinking fund provisions (if any), conversion rights (if any), and voting rights. The potential exists, therefore, that preferred stock might be issued which would grant dividend preferences and liquidation preferences to preferred shareholders over common shareholders. Unless the nature of a particular transaction and applicable statutes require such approval, the Board of Directors has the authority to issue these shares without shareholder approval. The issuance of Preferred Stock may have the affect of delaying or preventing a change in control of the Company without any further action by shareholders. The Company has designated 999,000 shares of its Preferred Stock as Series A Preferred Stock, of which 999,000 shares are currently outstanding. Following is a summary of the rights and preferences of the outstanding Series A Preferred Stock. 35 SERIES A PREFERRED STOCK. Each share of Series A Preferred Stock is entitled to ten votes and will vote together with the holders of the Common Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of the shares of Series A Preferred Stock will be entitled to be paid an amount equal to ten times the amount payable on each share of Common Stock. The shares of Series A Preferred Stock were issued to the holders of 9,990,000 shares of the Company's Common Stock pursuant to a Stock Exchange Agreement. Pursuant to this agreement, each share of Series A Preferred Stock will be exchanged for ten shares of common stock as follows: one-fifth of the shares upon the Company reporting revenues of $31 million or more for any fiscal year or shorter period in a report filed on Form 10-KSB, 10-K, 10-QSB, or 10-Q as filed with the Securities and Exchange Commission; an additional one-fifth if revenues are at or above $41 million; an additional one-fifth if revenues are at or above $51 million; an additional one-fifth if revenues are at or above $61 million; and the balance if revenues are at or above $71 million. 36 PLAN OF DISTRIBUTION The 1,166,667 Shares offered hereby may be offered and sold from time to time by the Selling Shareholders, or by pledgees, donees, transferees or other successors in interest. Such offers and sales may be made from time to time in the over-the-counter market, or otherwise, at prices and on terms then prevailing or at prices related to the then-current market price, or in negotiated transactions. The Shares may be sold by one or more of the following: (a) a block trade in which the broker or dealer so engaged will attempt to sell the Shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker or dealer as principal and resale by such broker or dealer for its account; (c) an exchange distribution in accordance with the rules of such exchanges; (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers; (e) privately negotiated transactions; and (f) a combination of any such methods of sale. In effecting sales, brokers or dealers engaged by the Selling Shareholders may arrange for other brokers or dealers to participate. Brokers or dealers may receive commissions or discounts from Selling Shareholders or from the purchasers in amounts to be negotiated immediately prior to the sale. The Selling Shareholders may also sell such shares in accordance with Rule 144 under the 1933 Act. The Selling Shareholders and any brokers participating in such sales may be deemed to be underwriters within the meaning of the 1933 Act. There can be no assurance that the Selling Shareholders will sell any or all of the shares of Common Stock offered hereunder. All proceeds from such sales will be the property of the Selling Shareholders who will bear the expense of underwriting discounts and selling commissions, if any, and their own legal fees. The Selling Shareholders are not sharing the costs of the registration of the Shares. 37 LEGAL MATTERS The legality of the securities of the Company offered will be passed on for the Company by Krys Boyle Freedman & Sawyer, P.C., 600 17th Street, Suite 2700 South Tower, Denver, Colorado 80202. Jon D. Sawyer, a director of Krys Boyle Freedman & Sawyer, P.C., owns 25,000 shares of the Company's Common Stock. EXPERTS The financial statements of the Company included in this Prospectus, to the extent and for the periods indicated in their report, have been audited by Bianculli, Pascale & Co. P.C., Certified Public Accountants, and are included herein in reliance on the authority of such firm as experts in accounting and auditing in giving such reports. ADDITIONAL INFORMATION A Registration Statement on Form SB-2, including amendments thereto, relating to the securities offered hereby has been filed by the Company with the Securities and Exchange Commission, Washington, D.C. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the securities offered hereby, reference is made to such Registration Statement, exhibits and schedules. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. A copy of the Registration Statement may be inspected without charge at the Commission's principal offices in Washington, D.C., and copies of all or any part thereof may be obtained from the Commission upon the payment of certain fees prescribed by the Commission. The Registration Statement has been filed electronically through the Commission's Electronic Data Gathering, Analysis and Retrieval System and may be obtained through the Commission's Web site (http://www.sec.gov). No person is authorized to give any information or to make any representation other than those contained in this Prospectus, and if given or made such information or representation must not be relied upon as having been authorized. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities offered by this Prospectus or an offer to sell or a solicitation of an offer to buy the securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. 38 INDEX TO FINANCIAL STATEMENTS PAGE 1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF U.S. TRUCKING, INC. AND SUBSIDIARIES AS OF SEPTEMBER 30, 1998 .............................................. F-3 Consolidated Balance Sheet as of September 30, 1998 (Unaudited) .............................................. F-4 Consolidated Statements of Operations for the Nine Months Ended September 30, 1998 and 1997 (Unaudited) .............................................. F-5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997 (Unaudited) ................................................... F-6 Notes to Consolidated Financial Statements .................... F-9 2) AUDITED FINANCIAL STATEMENTS OF U.S. TRUCKING, INC. FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 ............................................ F-10 Report of Independent Certified Public Accountants ............ F-11 Consolidated Balance Sheet as of December 31, 1997 ............ F-12 Consolidated Statement of Operations and Accumulated Deficit for the period from inception (January 30, 1997) to December 31, 1997 ......................................... F-14 Consolidated Statement of Stockholders' Equity for the period from inception (January 30, 1997) to December 31, 1997 ......................................................... F-15 Consolidated Statement of Cash Flows for the period from inception (January 30, 1997) to December 31, 1997 ............ F-16 Notes to the Consolidated Financial Statements ................ F-18 3) AUDITED FINANCIAL STATEMENTS OF GULF NORTHERN TRANSPORT, INC. FOR THE THIRTY DAYS ENDED JANUARY 30, 1997 ...................... F-29 Report of Independent Certified Public Accountants ............ F-30 Balance Sheet as of January 30, 1997 .......................... F-31 Statement of Operations and Accumulated Deficit for the period from January 1, 1997 to January 30, 1997 ...... F-33 Statement of Cash Flows for the period from January 1, 1997 to January 30, 1997 .......................................... F-34 Notes to Financial Statements ................................. F-36 F-1 4) AUDITED FINANCIAL STATEMENTS OF MENCOR, INC. FOR THE THIRTY DAYS ENDED JANUARY 30, 1997 ..................................... F-45 Report of Independent Certified Public Accountants ............ F-46 Balance Sheet as of January 30, 1997 .......................... F-47 Statement of Earnings and Retained Earnings for the period ending January 30, 1997 ............................... F-49 Statement of Cash Flows for the period ending January 30, 1997 ......................................................... F-50 Notes to Financial Statements ................................. F-51 5) AUDITED FINANCIAL STATEMENTS OF MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 ................................................... F-57 Report on Independent Certified Public Accountants ............ F-58 Consolidated Balance Sheets as of December 31, 1996 and 1995... F-59 Consolidated Statements of Operations and Retained Earnings for the years ending December 31, 1996 and 1995 .............. F-61 Consolidated Statements of Cash Flows for the years ending December 31, 1996 and 1995 ................................... F-62 Notes to the Consolidated Financial Statements ................ F-64 6) AUDITED FINANCIAL STATEMENTS OF MENCOR, INC. FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 .......................... F-74 Report on Independent Certified Public Accountants ............ F-75 Balance Sheet as of December 31, 1996 and 1995 ................ F-76 Statements of Earnings and Retained Earnings for the periods ending December 31, 1996 and 1995 .................... F-78 Statements of Cash Flows for the periods ending December 31, 1996 and 1995 ................................................ F-79 Notes to Financial Statements ................................. F-81 F-2 1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF U.S. TRUCKING, INC. AND SUBSIDIARIES AS OF SEPTEMBER 30, 1998 F-3 U.S. TRUCKING, INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED) September 30, 1998 ------------ ASSETS Current Assets: Cash in Banks $ 130,154 Restricted Cash - Reserves on Deposit with Factor 240,824 Restricted Cash - Insurance Premiums 150,000 Accounts Receivable - Trade - net of allowance for doubtful accounts of $88,000 2,610,900 Accounts Receivable - Other 97,267 Parts and supply inventory 167,951 Prepaid Expenses 141,620 ----------- Total Current Assets 3,538,714 Transportation & Other Equipment At cost less accumulated depreciation and amortization of $2,389,205 6,013,068 Other Assets: Restricted Cash - Owner Operators 6,494 Restricted Cash - held as collateral against Letters of Credit 10,000 Security Deposits and other 14,962 Loss Reserve on Captive Insurance 104,118 Intangible Assets - Net of accumulated amortization of $252,788 766,119 ----------- Total Other Assets 901,693 Total Assets $10,453,475 =========== F-4 U.S. TRUCKING, INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED) September 30, 1998 ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable - Trade $ 514,088 Due to Factor 1,737,167 Accruals & Other Current Liabilities 697,062 Current Portion - Sellers' Notes 104,000 Current Portion - Note Payable 42,600 Current Portion - Acquisition Loan Payable 391,046 Current Portion - Equipment Notes Payable 706,415 Current Portion - Obligations under Capital Leases 323,822 ----------- Total Current Liabilities 4,516,200 Other Liabilities: Owner Operator Escrow 35,050 Seller's Notes - Note Payable - net of current portion 25,400 Acquisition Loan - net of current portion 1,236,797 Equipment Notes - net of current portion 925,893 Obligations under Capital Leases - net current portion 140,469 ----------- Total Other Liabilities 2,363,609 Total Liabilities 6,879,809 Stockholders' Equity: Common Stock - No Par Value - 75,000,000 shares authorized 15,381,256 shares issued and outstanding 756,000 Preferred Stock - No Par Value - 10,000,000 shares authorized but unissued - Additional Paid in Capital 4,138,907 Accumulated Deficit (1,321,241) ----------- Total Stockholders' Equity 3,573,666 Total Liabilities & Stockholders' Equity $10,453,475 =========== F-5 U.S. TRUCKING, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Nine Months Ended Nine Months Ended September 30, 1998 September 30, 1997 -------------------- -------------------- Revenue: Company Vehicles $ 9,492,325 60.0% $10,355,384 73.1% Owner-Operator Vehicles 6,334,854 40.0% 3,807,359 26.9% ----------- ----- ----------- ----- Total Revenue 15,827,179 100.0% 14,162,743 100.0% Operating Expenses: Purchased Transportation & Rentals 5,551,324 35.1% 4,643,988 32.8% Salaries, Wages & Benefits 4,004,267 25.3% 4,055,546 28.6% Fuel 1,562,002 9.9% 1,934,962 13.7% Depreciation & Amortization 1,194,541 7.5% 1,176,869 8.3% Operating Supplies & Maintenance 859,398 5.4% 996,968 7.0% Insurance & Claims 417,072 2.6% 687,099 4.9% Miscellaneous Operating Expenses 417,651 2.6% 420,334 3.0% Taxes & Licenses 328,037 2.1% 344,740 2.4% General & Administrative Expenses 622,071 3.9% 471,212 3.3% Occupancy Costs 201,657 1.3% 185,988 1.3% ----------- ----- ----------- ----- Total Operating Expenses 15,158,019 95.8% 14,917,706 105.3% Income from Operations 669,160 4.2% (754,963) -5.3% Other Income (Expense): Other Income 52,511 0.3% 202,834 1.4% Interest Income 1,748 0.0% 1,029 0.0% Interest Expense (513,459) -3.2% (557,079) -3.9% ----------- ----- ----------- ----- Total Other Income & Expense (459,200) -2.9% (353,216) -2.5% Net Income (Loss) before Taxes 209,960 1.3% (1,108,179) -7.8% Taxes - - ----------- ----- ----------- ----- Net Income (Loss) 209,960 1.3% (1,108,179) -7.8% Earnings per common and common equivalent share $0.01 Weighted average number of shares 15,381,256 2,500 Earnings per common share assuming full dilution $0.01 Weighted average number of shares - full dilution 16,881,256 2,500 F-6 U.S. TRUCKING, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED) September 30, September 30, 1998 1997 ------------ ------------ Cash Flows from Operating Activities: Net Income (Loss) 209,960 (1,108,179) Adjustments to Reconcile Net Loss to Net Cash Provided by (Used in) Operating Activities: Depreciation & Amortization 1,186,542 1,176,869 Expenses related to stock-based compensation plan 15,000 - Provision for doubtful amounts receivable - 36,166 Loss on disposal of property and equipment - 12,543 (Increase) Decrease in Assets: Restricted Cash (314,332) (95,666) Accounts Receivable (326,986) (698,523) Parts and supply inventory (15,689) (12,790) Prepaid expenses and other current assets (84,523) (47,484) Increase (decrease) in Liabilities: Accounts payable 129,257 256,628 Accrued expenses and other current liabilities 49,420 (96,091) ----------- ----------- Net Cash Provided by (Used in) Operating Activities 848,649 (576,527) ----------- ----------- Cash Flows from Investing Activities: Issuance of Common Stock 575,000 - Purchase of transportation and other equipment (248,287) (4,128,353) Security deposits (2,309) (4,194) Payment for purchase of subsidiaries in excess of fair market value - - Acquisition costs (161,228) - Payment for refinancing of acquisition debt (55,274) (138,016) Proceeds from additional paid in capital - 3,943,368 ----------- ----------- Net Cash Provided by (Used in) Investing Activities 107,902 (327,195) ----------- ----------- Cash Flows from Financing Activities: Proceeds from long-term debt financing - 1,545,244 Acquisition indebtedness - - Note payable - 54,656 Discount on note payable 13,344 - Principal payments on long-term debt (656,755) (555,393) Principal payments on short-term note - (12,500) Principal payments on capital lease obligations (243,086) (224,265) ----------- ----------- Net Cash Provided by (Used in) Financing Activities (886,497) 807,742 ----------- ----------- F-7 U.S. TRUCKING, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED) (CONTINUED) September 30, September 30, 1998 1997 ------------ ------------ Net (Decrease) Increase in Cash 70,054 (95,980) Cash at Beginning of Year 60,099 138,143 Cash at End of Year 130,153 42,163 =========== =========== Supplemental Disclosure of Cash Flow Information Cash Paid During the Year: Interest expense 503,507 557,080 Income taxes - - F-8 U.S. TRUCKING, INC. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31,1998. 2. SHARE EXCHANGE AGREEMENT On September 4, 1998, the stockholders of Northern Dancer Corporation, a publicly traded shell (EBB : NODC) entered into an agreement with U S Trucking, Inc. whereby U S Trucking, Inc. acquired Northern Dancer in a reverse acquisition. In terms of the transaction, all of the shareholders of U S Trucking agreed to exchange all of their stock on the basis of one share of stock in U S Trucking for one share in Northern Dancer. Northern Dancer subsequently changed its name to U S Trucking, Inc. As a result, the shareholders of the former U S Trucking received 96.1% of the outstanding shares of Northern Dancer. In addition, Northern Dancer assumed the obligations represented by 1,500,000 options granted under U S Trucking's stock option plan and the optionees agreed to accept options of a similar tenor. F-9 2) AUDITED FINANCIAL STATEMENTS OF U.S. TRUCKING, INC. FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 F-10 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Stockholders U.S. Trucking, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheet of U.S. Trucking, Inc. and Subsidiaries as of December 31, 1997 and the related consolidated statement of operations and accumulated deficit and cash flows for the period from inception (January 30, 1997) to December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated balance sheet referred to above, presents fairly, in all material respects, the consolidated financial position of U.S. Trucking, Inc. and Subsidiaries as of December 31, 1997 and the results of its operations and its cash flows for the period from inception (January 30, 1997) to December 31, 1997 in conformity with generally accepted accounting principles. /s/ BIANCULLI, PASCALE & CO. P.C. BIANCULLI, PASCALE & CO. P.C. Garden City, New York June 10, 1998 F-11 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 ASSETS CURRENT ASSETS Cash in banks (Note 14) $ 60,099 Restricted cash-reserves on deposit with factor (Note 15) 184,210 Accounts receivable-net of allowance for doubtful accounts of $88,000 as of December 31, 1997 (Notes 1H, 15 and 16) 2,321,180 Accounts receivable - other 60,000 Parts and supply inventory (Note 1D) 152,262 Prepaid expenses and other current assets 57,097 ----------- Total Current Assets 2,834,848 ----------- TRANSPORTATION AND OTHER EQUIPMENT - at cost, less accumulated depreciation and amortization of $1,334,899 as of December 31, 1997 (Notes 1E, 2, 4, 5 and 7) 6,818,517 ----------- OTHER ASSETS Restricted cash-owner operators (Note 12) 2,894 Restricted cash-cash held as collateral against letters of credit 10,000 Security deposits and other 12,653 Intangible assets - Net of accumulated amortization of $120,552 as of December 31, 1997 (Notes 1I, 2 and 17) 681,853 ----------- Total other assets 707,400 ----------- TOTAL ASSETS $10,360,765 =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-12 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable-trade $ 756,675 Due to factor (Note 15) 1,355,291 Accrued expenses and other 665,592 Current portion - seller's notes 118,273 Current portion - note payable 13,962 Current portion - acquisition loan payable 366,086 Current portion of equipment notes payable 689,432 Current portion of obligations under capital leases 479,093 ----------- Total Current Liabilities 4,444,404 ----------- OTHER LIABILITIES Owner-operator escrow (Note 12) 17,100 Seller's notes (Notes 4 and 5) 17,333 Note payable - (Notes 4 and 13) 40,694 Acquisition loan payable Notes 4 and 5) 1,518,818 Equipment Notes Payable-net of current portion (Note 4) 1,310,964 Obligations under capital leases net of current portion (Note 6) 228,284 ----------- Total Other Liabilities 3,133,193 ----------- TOTAL LIABILITIES 7,577,597 ----------- COMMITMENTS AND CONTINGENCIES (Notes 6, 9 10 and 18) STOCKHOLDERS' EQUITY Common Stock (no par value- 2,500 shares auth- orized, issued and outstanding (Note 2) 1,000 Additional paid in capital 4,313,368 Accumulated deficit (1,531,200) ----------- Total Stockholders' Equity 2,783,168 ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,360,765 =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-13 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 Net Revenues $17,469,281 Operating expenses 16,434,514 ----------- Income from operations 1,034,767 Administrative expenses 1,999,692 ----------- Other income and (expenses) Interest income 1,332 Interest expense (656,826) Other income 101,762 Net (loss) on disposition of assets (12,543) ----------- Total other income and (expenses) (566,275) ----------- Net (loss) before taxes (1,531,200) Income tax (benefit)provision (Notes 1H and 3) -0- ----------- Net (loss) (1,531,200) Retained Earnings - January 30, 1997 -0- ----------- Accumulated deficit - December 31, 1997 $(1,531,200) =========== Net loss per share $ (612.48) =========== Weighted Average Number of Shares (Note 1B) 2,500 =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-14 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997
Common Stock Paid in Accumulated No Par Value Capital Deficit Total ------------ ---------- ------------ ------------ Sale of 2,500 Shares of Common Stock - No Par Value $1,000 $ 1,000 Acquisition of 100% Common Stock of Gulf Northern Transport, Inc. $ 225,000 225,000 Acquisition of 100% Common Stock of Mencor, Inc. 145,000 145,000 Acquisition of assets of Jay and Jay Transportation, Inc. 2,394,860 2,394,860 Acquisition of assets of Translynx, Inc. 100,546 100,546 Payment of expenses by shareholder 46,895 46,895 Advances from U.S. Transportation Systems, Inc. 1,401,067 1,401,067 Net Loss for the period (1,531,200) (1,531,200) ------ ---------- ----------- ---------- Total $1,000 $4,313,368 $(1,531,200) $2,783,168 ====== ========== =========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-15 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net (Loss) $(1,531,200) ADJUSTMENTS TO RECONCILE NET (LOSS) TO NET CASH USED IN OPERATING ACTIVITIES Depreciation & Amortization 1,455,451 Provision for doubtful accounts receivable 36,166 Loss on disposal of property and equipment 12,543 (Increase) Decrease-Assets Restricted Cash (197,104) Accounts Receivable (2,361,180) Parts and supply inventory (152,262) Prepaid expenses and other current assets (57,097) Increase (Decrease)-Liabilities Accounts payable 756,675 Accrued expenses and other current liabilities 2,020,883 ----------- Total Adjustments 1,514,075 Net cash used by operating activities (17,125) ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of transportation and other equipment (8,153,416) Security deposits (12,653) Payment for purchase of subsidiaries in excess of fair market value (664,389) Payment for refinancing of acquisition debt (138,016) Proceeds from additional paid in capital 4,313,368 ----------- Net cash used in investing activities (4,655,106) ----------- Sub Total (4,672,231) ----------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-16 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 Balance Forward $(4,672,231) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt financing 3,561,025 Acquisition indebtedness 2,284,376 Note payable 54,656 Principal payments on long-term debt (877,926) Principal payment of short-term note (12,500) Principal payments on capital lease obligations (277,301) ----------- Net Cash provided by financing activities 4,732,330 ----------- NET INCREASE IN CASH 60,099 CASH AT BEGINNING OF YEAR -0- CASH AT END OF YEAR $ 60,099 =========== Supplemental Disclosure of Cash flow information: Cash Paid during the year Interest expense $ 571,924 =========== Income taxes $ -0- =========== On January 30, 1997, the Company acquired transportation and other equipment totaling $8,153,416 as part of the acquisition of Gulf Northern Transport, Inc. and Mencor, Inc. and the assets of Jay and Jay Transportation, Inc. The Company in the acquisition of this equipment incurred long-term debt totaling $3,561,025. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-17 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 NOTE 1 - General and Summary of Significant Accounting Policies (A) - Nature of Business U.S. Trucking, Inc. (USTI or "the Company") was incorporated in the State of Nevada on March 3, 1997 although USTI's consolidated group was effectively formed on January 30, 1997. From that date through December 31, 1997 the Company operated through two wholly owned subsidiaries: Gulf Northern Transport, Inc., (Gulf Northern) a Wisconsin corporation, operates as an interstate and intrastate motor carrier. Mencor, Inc. operates as a broker for interstate motor carriers. A broker serves the trucking industry by providing return hauls for truckers who have completed their initial delivery. By providing this service, trucking companies and independent contractors are able to cover the cost of returning to their home location. As a broker, Mencor is required to acquire a license which provides the authority to engage in interstate commerce. This license was acquired in April, 1994. USTI was formed by U.S. Transportation Systems, Inc. (USTS) as a wholly owned subsidiary. As part of the transaction to acquire Gulf Northern, 25% of USTI's common stock was transferred to Gulf Northern's parent (Logistics Management, LLC). The remaining 75% was conveyed to Logistics Management during 1998. The Company's corporate headquarters are located in Charleston, South Carolina with terminals and drop stations located in various states. Services are provided to customers located primarily in the central United States but include locations in virtually all 48 contiguous states. (B) - Net (Loss) per Share Net earnings (loss) per share is computed on the basis of the weighted average number of common shares outstanding during each period. Only the weighted average number of shares of common stock outstanding is used to compute loss per share in 1997, as there were no stock options, warrants, or other common stock equivalents in this year. (C) - Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents for financial statement purposes. F-18 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 (D) - Parts and Supply Inventory Inventory consists principally of parts and supplies used in maintaining its motor carrier fleet, skids used in transporting goods, and small tools and are stated at the lower-of-cost or market, determined on a first-in, first-out basis. (E) - Transportation and Other Equipment Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Accelerated methods of depreciation are followed for tax purposes and the straight-line method is used for financial reporting purposes. Transportation equipment, furniture and fixtures, and other equipment are generally depreciated over periods ranging from two to seven years. (F) - Covenants Not to Compete Covenants not to compete are amortized on a straight-line basis over the terms of the agreements. The covenants cover the period from January 1994 to December 1997 and were fully amortized by December 31, 1997. (G) - Income Taxes Taxes are provided on all revenue and expense items included in the Consolidated Statements of Operations, regardless of the period in which such items are recognized for income tax purposes, except for items representing a permanent difference between pretax accounting income and taxable income. (H) - Revenue Recognition The Company recognizes revenues at the time freight is delivered to recipients. (I) - Organization Costs Subsidiary companies, Gulf Northern and Mencor incurred organization costs that are being amortized on a straight-line basis over five years. (J) - Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-19 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 (K) - Basis of Presentation The accompanying consolidated balance sheets and related statements of operations and accumulated deficit and cash flows includes the accounts of U.S. Trucking, Inc. and its wholly owned subsidiaries, Gulf Northern Transport, Inc. and Mencor, Inc. as of December 31, 1997 and for the period from inception (January 30, 1997) to December 31, 1997 gives effect to the acquisition of Gulf Northern and Mencor effective January 30, 1997. Intercompany transactions or balances as of and for the period ended December 31, 1997 have been eliminated. NOTE 2 - Acquisition of Subsidiaries and other Assets On January 30, 1997, the Company completed the following acquisitions: Gulf Northern Transport, Inc. USTI purchased 100% of the common stock of Gulf Northern Transport, Inc. from its stockholder (Logistics Management, LLC) for cash of $225,000 and 25% of the Company's common stock (625 shares). The acquisition was funded by an advance by USTI's parent, U.S. Transportation Systems, Inc. and was subsequently capitalized and is included in paid in capital. The transaction was valued at $790,999 and goodwill in the amount of $565,999 was recognized in the transaction. The goodwill is being amortized over six years. Mencor, Inc. USTI purchased 100% of the common stock of Mencor, Inc. from its stockholders for cash of $70,000 and 37,500 shares of the common stock of U.S. Transportation Systems, Inc. which was valued at $2.00 per share. The acquisition was funded by a cash and stock contribution to the Company by USTS. The transaction was valued at $145,000. Goodwill in the amount of $96,953 was recognized in the transaction and is being amortized over six years. Jay and Jay Transportation, Inc. USTI acquired certain assets (primarily tractors and trailers) and liabilities from USTS which were valued at $2,394,860. The transaction was accomplished by way of a permanent capital contribution by USTS and the net value contributed was included in Paid in capital. Jay and Jay's dispatch office and yard is located in Savannah, New York. Office operations including accounting and management were moved to Charleston, South Carolina. The transaction was recorded as an asset purchase and no goodwill was recognized. Translynx Express, Inc. The Company acquired certain assets and liabilities from USTS that were valued at $100,546. The transaction was accomplished by way of a permanent capital contribution by USTS and the net value contributed is included in Paid in capital. Translynx's operating office is located in Orlando, Florida. Office operations including accounting and management were moved to Charleston, South Carolina. The transaction was recorded as an asset purchase and no goodwill was recognized. F-20 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 NOTE 3 - Income Taxes The Company accounts for income taxes on the liability method, as provided by Statement of Financial Accounting Standards 109, Accounting for Income Taxes (SFAS 109). No federal income taxes were provided for the period ended December 31, 1997. Differing methods of reporting income for tax purposes as compared to financial reporting purposes resulted in net deferred income taxes of approximately -0- as of December 31, 1997. Deferred tax assets and liabilities consist of the following: Deferred tax assets- Allowance for doubtful accounts $ 88,000 Amortization of Goodwill 63,000 ---------- Net operating loss carryovers 2,327,000 2,478,000 Valuation allowance 1,723,000 ---------- $ 755,000 ========== Deferred tax liabilities- Depreciation of transportation and other and equipment $ (755,000) ---------- $ (755,000) ========== The valuation allowance provided in each of the years is based on management's valuation of the likelihood of realization. As required by SFAS 109, deferred taxes are provided based upon the tax rate at which the items of income and expense are expected to be settled in the Company's tax return. The Company has acquired the net operating losses through January 30, 1997 of $940,000 related to the operations of Gulf Northern Transport, Inc. These losses will be available to offset future income for financial reporting purposes expiring in 2012. F-21 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 NOTE 4 - Long-term Notes Payable Long-term notes payable as of December 31, 1997 consists of the following: Equipment loans secured by tractors and trailers payable at $59,848 per month including interest at rates ranging from 9-1/2% to 101/2% per annum with the final installment due April, 2001 $1,998,438 Term loan in settlement with United Acquisition II Corp.- $100,000 non interest bearing, discounted at 8% payable over 36 months beginning April 1, 1998 54,613 Acquisition loan described in Note 5 1,884,904 Seller notes described in Note 5 135,606 ---------- Total 4,073,561 Less: current maturities 1,185,795 ---------- Long-term portion $2,279,215 ========== Aggregate annual scheduled maturities of long-term debt at December 31, 1997 are as follows: 1998 $1,185,795 1999 1,157,730 2000 964,918 2001 765,118 2002 - ---------- Total $4,073,561 ========== NOTE 5 - Acquisition Loan and Seller's Notes On March 28, 1995, Gulf Northern was acquired by Mid America Transporters Group, Inc. The purchase was financed by a loan in the amount of $3,000,000 from ITT Credit Corp. The proceeds of this loan (described as "the acquisition loan") were used to refinance stockholder loans and certain other bank and lease obligations. The loan which was subsequently sold to General Electric Credit Corp., originally was payable in 60 monthly installments of $66,360 at the rate of 11.75% interest per annum with its final maturity on F-22 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 March 31, 2000. On May 25, 1997, the Company renegotiated the loan whereby the monthly payments were reduced to $45,000 with a balloon payment of $396,836 due on September 1, 2001. The interest rate remained at 11.75%. Additional fees of $138,016 were incurred to restructure the loan which were capitalized and are being amortized over the remaining life of the loan. In addition to the acquisition loan, the agreement called for payments to the three former stockholders (described as sellers notes) which included promissory notes totaling $260,000 due in 36 monthly installments totaling $8,017 at 7% due on March 1, 1998 secured by letters of credit and non interest bearing obligations (discounted at 7% per annum) totaling $104,000 payable over a one year period commencing April 1, 1998. NOTE 6 - Lease Commitments The Company leases tractors and trailers under various capital leases with interest rates ranging from 8.1% to 9.1%. Transportation and other equipment includes the following amounts for the tractor and trailer leases which are capitalized as of December 31, 1997: Tractors and trailers $1,760,669 Less: accumulated depreciation and amortization 841,381 ---------- Total $ 919,288 ========== Lease amortization is included in depreciation expense. Future minimum payments, by year and in the aggregate, under the capital leases are as follows: Years ended December 31, Amount ------------------------ ------ 1998 $ 529,647 1999 241,568 2000 - ---------- Total minimum lease payments 772,211 Less: Amount representing interest 64,834 ---------- Present value of minimum lease payments 707,377 Less-Current maturities 479,093 ---------- Long-term obligations under capital leases $ 228,284 ========== F-23 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 NOTE 7 - Transportation and Other Equipment Transportation and other equipment consists of the following as of December 31, 1997: Office equipment $ 79,300 Tractors, trailers and garage equipment 8,072,847 Transportation equipment 1,269 ----------- 8,153,416 Less: Accumulated Depreciation 1,334,899 ----------- Total $ 6,818,517 =========== Depreciation expense amounted to $1,334,899 for the period ended December 31, 1997. $1,315,796 of depreciation was included in operating expenses and $19,103 of depreciation was included in administrative expenses. The fair market value of fixed assets approximates book value. NOTE 8 - Related Party Transaction On December 23, 1996, the Company sold its Wisconsin Rapids facility, which included land, a building and improvements to its majority stockholders. The stockholders leased the property back to the Company for five years commencing January 1, 1997. See Note 10. Management believes the sale was an arms length transaction based on estimated values of the property on the date of sale. NOTE 9 - Retirement Plan The Company maintains a pension plan for eligible employees, which was established under section 401(k) of the Internal Revenue Code. Under the terms of the plan, the Company at the discretion of its Board of Directors may match employee contributions up to 3% of employee compensation. Employee contributions to the plan amounted to $50,153 for the period ended December 31, 1997. The Company's matching contributions amounted to $8,414 of which $5,745 is included in operating expenses and $2,669 is included in administrative expenses. NOTE 10 - Commitments and Contingencies Commencing on January 1, 1997, the Company agreed to rent its Wisconsin Rapids facility from certain stockholders for $7,350 per month for a period of five years under an operating lease. F-24 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 Commencing October 15, 1997, the Company leased its South Carolina corporate offices for $1,728 per month. The lease was subsequently re-negotiated whereby the Company took additional office space in the same building at a cost of $2,800 per month until June 30, 2002. Minimum rental payments under such leases follows for the years ending December 31: 1998 $140,600 1999 121,800 2000 121,800 2001 121,800 2002 33,600 -------- Total minimum payments required $539,600 ======== Rent expense for the period ended December 31, 1997 amounted to $142,013 and is included in general administrative expenses. NOTE 11 - Noncompetition Agreements As of January 3, 1994, one of the Company's subsidiaries entered into a covenant not to compete agreement with its chief executive officer that extends over four years. The agreement called for a prepayment of $115,000 in December 1993, with an additional $46,000, including interest, payable in (18) monthly installments of $2,556 commencing with the date of the agreement. Expenses under this agreement amounted to $39,999 for the period ended December 31, 1997. NOTE 12 - Restricted Cash The Company maintains cash accounts for owner-operators who perform services for the Company. These funds are accumulated, with the owner-operators consent, by withholding part of the payments due to them for services performed. The funds are used to pay for repairs of equipment, which they own directly. Further, the Company has deposited funds with a financing company to cover over the road fuel and other operating expenses for drivers in support of a letter of credit. As of December 31, 1997, the company had letters of credit outstanding totaling $10,000, which guarantee various operating and insurance activities. F-25 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 NOTE 13 - Stock Acquisition Agreement-United Acquisition II Corp. During 1996, the shareholders of Gulf Northern's parent company, Mid America Transporters Group, Inc. entered into an agreement with United Acquisition II Corp. (the acquirer) whereby they would transfer 100% of their common stock in Mid America in exchange for common and preferred stock of the acquirer. In addition, the acquirer agreed to contribute cash and notes totaling $500,000 into Mid America at closing. In January 1997 however, the acquirer conceded that it was not able to complete the transaction as agreed and withdrew from the contract. During the period from the consummation of the contract, the acquirer deposited funds to the Company in the amount of $145,000. The Company agreed to return a total of $100,000 payable in 36 installments beginning April 1, 1998 on a non-interest bearing basis. NOTE 14 - Concentration of Credit Risk - Cash The Company maintains its cash balances in two financial institutions, one located in Wisconsin Rapids, Wisconsin and the other in Charleston, South Carolina. At times, the balances may exceed federally insured limits of $100,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash on deposit. The fair market value of these financial instruments approximates cost. NOTE 15 - Use of Factor In April 1995, the Company entered into an agreement with a factor whereby the factor would accept the Company's receivables with full recourse. Under the agreement, the factor will advance up to 90% of those receivables submitted by the Company. Interest on funds advanced is charged at an average annual effective rate of 14.9% payable monthly. In addition, the Company must maintain funds on deposit with its factor as a reserve against uncollectible receivables. The amount of such funds on deposit as of December 31, 1997 amounted to $184,210. The uncollected balance of such receivables held by the factor amounted to $1,689,400 as of December 31, 1997. The fair market value of these balances approximate book value. F-26 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 NOTE 16 - Economic Dependency The Company's customers consist primarily of high volume shippers that have significant time sensitive and high service level traffic needs. The Company provided services to a customer, which accounted for net revenues in excess of 10% of the Company's total revenues for the period ended December 31, 1997. Consolidated Paper, Inc. accounted for 16.0% of the Company's net revenues for this period. Accounts receivable from this customer amounted to $176,449 as of December 31, 1997. Revenues from the Company's five and ten largest customers accounted for approximately 38.9% and 46.8% respectively of total net revenues for the period ended December 31, 1997. The Company considers its relationship with those major customers to be satisfactory and is committed to expanding its relationship with its other customers. The Company provides services to a number of customers in the meat packing and distribution industry. Revenues from those customers accounted for approximately 10.7% of total revenues for the period ended December 31, 1997. Accounts receivable from those customers amounted to $211,361 as of December 31, 1997. NOTE 17 - Intangible Assets Intangible assets consist of the following items as of December 31, 1997: Original Accumulated Net Book Cost Amortization Value --------- ------------ --------- Goodwill $ 662,952 $ 103,766 $ 559,186 Goodwill $ 662,952 $ 103,766 $ 559,186 Goodwill $ 662,952 $ 103,766 $ 559,186 Goodwill $ 662,952 $ 103,766 $ 559,186 Goodwill $ 662,952 $ 103,766 $ 559,186 Goodwill $ 662,952 $ 103,766 $ 559,186 Goodwill $ 662,952 $ 103,766 $ 559,186 $ 662,952 $ 103,766 $ 559,186 Debt refinancing Costs 138,016 16,237 121,779 Other intangibles 1,437 549 888 --------- ---------- --------- Total $ 802,405 $ 120,552 $ 681,853 ========= ========== ========= Amortization expense amounted to $120,552 for the period ended December 31, 1997. F-27 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO DECEMBER 31, 1997 NOTE 18 - Subsequent Event Effective June 24, 1998, the company underwent a change in its capital structure whereby it is authorized to issue 50,000,000 shares of common stock and 1,000,000 shares of preferred stock. On May 26, 1998, the Company entered into an investment consulting agreement with Joff Pollon & Associates for a period, with extensions, of up to two years. The compensation payable to the consultants under this agreement includes fees, reimbursable expenses and options to purchase up to 1,000,000 shares of the Company's common stock at $.01 per share and further fees and bonuses as determined by the Board of Directors, and is contingent upon a successful merger with a public company. The Company is presently involved with a private placement offering which, if successful, would result in the issuance of 1,000,000 shares of common stock and would raise approximately $720,000 of net-equity capital for the Company. F-28 3) AUDITED FINANCIAL STATEMENTS OF GULF NORTHERN TRANSPORT, INC. FOR THE THIRTY DAYS ENDED JANUARY 30, 1997 F-29 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Stockholder Gulf Northern Transport, Inc. We have audited the accompanying balance sheet of Gulf Northern Transport, Inc. as of January 30, 1997 and the related statement of operations and accumulated deficit and cash flows for the period from January 1, 1997 to January 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the balance sheet referred to above, presents fairly, in all material respects, the financial position of Gulf Northern Transport, Inc. as of January 30, 1997 and the results of its operations and its cash flows for the period then ended in conformity with generally accepted accounting principles. /s/ BIANCULLI, PASCALE & CO. P.C. BIANCULLI, PASCALE & CO. P.C. Garden City, New York June 10, 1998 F-30 GULF NORTHERN TRANSPORT, INC. BALANCE SHEET JANUARY 30, 1997 ASSETS CURRENT ASSETS Cash in banks (Note 14) $ 41,270 Restricted cash-reserves on deposit with factor (Note 15) 97,179 Accounts receivable-net of allowance for for doubtful accounts of $40,000 (Notes 1H, 15 and 16) 1,047,761 Accounts receivable - affiliate (Note 18) 19,930 Accounts receivable - other 3,009 Parts and supply inventory (Note 1D) 139,472 Prepaid insurance 54,745 Prepaid expenses and other 40,929 ---------- Total Current Assets 1,444,295 ---------- PROPERTY, PLANT AND EQUIPMENT-at cost, less accumulated depreciation and amortization of $4,206,596 (Notes 1E, 2, 4, 5 and 7) 4,099,535 ---------- OTHER ASSETS Restricted cash-owner operators (Note 12) 1,760 Restricted cash-cash held as collateral against letters of credit 10,000 Covenants not to compete-net of accumulated amortization of $76,922 (Notes 1F and 11) 36,666 Security deposits and other 7,534 ---------- Total other assets 55,960 ---------- TOTAL ASSETS $5,599,790 ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. F-31 GULF NORTHERN TRANSPORT, INC. BALANCE SHEET JANUARY 30, 1997 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable-trade $ 266,118 Due to factor (Note 15) 804,601 Accrued expenses and other 698,825 Advances from affiliate (Note 19) 23,994 Note Payable - (Note 4) 70,000 Current portion - seller's notes 112,823 Current portion - acquisition loan payable 517,476 Current portion of equipment notes payable 152,439 Current portion of obligations under capital leases 275,526 ---------- Total Current Liabilities 2,921,802 ---------- OTHER LIABILITIES Owner operator escrow (Note 12) 29,672 Seller's notes (Notes 2 and 4) 127,772 Note payable - (Notes 4 and 17) 49,904 Acquisition loan payable (Notes 2 and 4) 1,617,561 Equipment Notes Payable-net of current portion (Note 4) 483,978 Obligations under capital leases net of current portion (Note 6) 710,093 ---------- Total Other Liabilities 3,018,987 ---------- TOTAL LIABILITIES 5,940,789 ---------- COMMITMENTS AND CONTINGENCIES (Notes 2, 6, 9 10 and 17) STOCKHOLDERS' EQUITY Common Stock (no par value-10,000 shares auth- orized, 1,000 issued and outstanding) (Note 2) 100,000 Additional paid in capital 25,000 Accumulated deficit ( 465,999) ---------- Total Stockholders' Equity ( 340,999) ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,599,790 ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-32 GULF NORTHERN TRANSPORT, INC. STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT PERIOD FROM JANUARY 1, 1997 TO JANUARY 30, 1997 Net Revenues $ 854,016 Operating expenses 695,904 Income from operations 158,112 Administrative expenses 198,564 ----------- ( 40,452) Other expenses Interest expense ( 49,540) ----------- Total other expenses ( 49,540) ----------- Net loss before taxes ( 89,992) Income tax provision (Notes 1H and 3) -0- ----------- Net loss ( 89,992) Accumulated Deficit - January 1 ( 376,007) ----------- Accumulated deficit - January 30 $( 465,999) =========== Net loss per share $( 89.99) ============ Weighted Average Number of Shares (Note 1B) 1,000 ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-33 GULF NORTHERN TRANSPORT, INC. STATEMENT OF CASH FLOWS PERIOD FROM JANUARY 1, 1997 TO JANUARY 30, 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ ( 89,992) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES Depreciation & Amortization 79,719 (Increase) Decrease-Assets Restricted Cash 912 Accounts Receivable 261,769 Prepaid expenses and other current assets 6,170 Increase (Decrease)-Liabilities Accounts payable 82,170 Accrued expenses and other liabilities ( 330,196) ---------- Total Adjustments 100,544 Net Cash Provided by Operations 10,552 ---------- CASH FLOWS FROM INVESTING ACTIVITIES Security deposit ( 200) ---------- Net Cash Used in investing activities ( 200) ---------- Sub Total 10,352 ---------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-34 GULF NORTHERN TRANSPORT, INC. STATEMENT OF CASH FLOWS (continued) PERIOD FROM JANUARY 1, 1997 TO JANUARY 30, 1997 Balance Forward $ 10,352 CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt ( 62,682) Proceeds from short-term note 57,500 Principal payments on capital lease obligations ( 24,059) ----------- Net Cash (used in) financing activities ( 29,241) ----------- NET (DECREASE) IN CASH ( 18,889) CASH AT BEGINNING OF YEAR 60,159 ----------- CASH AT END OF YEAR $ 41,270 =========== Supplemental Disclosure of Cash flow information: Cash Paid during the year Interest expense $ 49,840 =========== Income taxes $ -0- =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-35 GULF NORTHERN TRANSPORT, INC. NOTES TO THE FINANCIAL STATEMENTS JANUARY 30, 1997 NOTE 1 - General and Summary of Significant Accounting Policies (A) - Nature of Business Gulf Northern Transport, Inc. (Gulf Northern) a Wisconsin corporation, operates as an interstate and intrastate motor carrier. (See Note 2). The Company's corporate headquarters are located in Charleston, South Carolina with terminals and drop stations located in various states. Services are provided to customers located primarily in the central United States but include locations in virtually all 48 contiguous states. (B) - Net Loss per Share Net loss per share is computed on the basis of the weighted average number of common shares outstanding during each period. Only the weighted average number of shares of common stock outstanding is used to compute earnings or loss per share for the period ended January 30, 1997 as there were no stock options, warrants, or other common stock equivalents during this period. (C) - Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents for financial statement purposes. (D) - Inventory Inventory consists principally of parts and supplies used in maintaining its motor carrier fleet, skids used in transporting goods, and small tools. The items are stated at the lower of cost or market, determined on a first-in, first-out basis. (E) - Property, Plant and Equipment Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Accelerated methods of depreciation are followed for tax purposes and the straight line method is used for financial reporting purposes. Transportation equipment, furniture and fixtures, and other equipment are generally depreciated over periods ranging from two to seven years. (F) - Covenants Not to Compete Covenants not to compete are amortized on a straight line basis over the terms of the agreements. The covenants cover the period from January, 1994 to December, 1997. F-36 GULF NORTHERN TRANSPORT, INC. NOTES TO THE FINANCIAL STATEMENTS JANUARY 30, 1997 (G) - Income Taxes Taxes are provided on all revenue and expense items included in the Consolidated Statements of Operations, regardless of the period in which such items are recognized for income tax purposes, except for items representing a permanent difference between pretax accounting income and taxable income. (H) - Revenue Recognition The Company recognizes revenues at the time freight is delivered to recipients. (I) - Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (J) - Basis of Presentation The accompanying balance sheet and related statements of operations and retained earnings and cash flows includes only the accounts of Gulf Northern as of January 30, 1997. Prior to January 1, 1997, the company was a wholly owned subsidiary of Mid America Transporters Group, Inc. and was included in that consolidated group. Gulf Northern was sold to Logistics Management, LLC effective January 1, 1997. On January 30, 1997, Gulf Northern was sold to U.S. Trucking Company, Inc. and was included in that consolidated group. See Note 2. NOTE 2 - Acquisition by Mid America Transporter's Group Effective January 1, 1995, Gulf Northern was acquired by Mid America Transporters Group for a total purchase price of $2,683,500. This exceeded the net asset value of Gulf Northern by approximately $1,182,000. Accordingly, the basis of certain assets included in property, plant and equipment were increased by that amount as required by purchase accounting and is being amortized over five years. The agreement includes payments to the former stockholders in the form of cash of $2,232,000 which includes the payoff of shareholder loans described in Note 5A; promissory notes totaling $260,000 due in 36 monthly installments totaling $8,017 at 7% due on March 1, 1998 secured by letters of credit in the amount of $150,000; and non interest bearing obligations (discounted at 7% per annum) totaling $104,000 payable over a one year period commencing April 1, 1998. The purchase was financed by a loan in the amount of $3,000,000 from ITT Credit Corp. which is payable in 60 monthly installments of $66,360 and is due on March 31, 2000. The loan was subsequently sold to General Electric Credit Corp and is secured by certain items of equipment. See Note 13 for description of the loan modification agreement. F-37 GULF NORTHERN TRANSPORT, INC. NOTES TO THE FINANCIAL STATEMENTS JANUARY 30, 1997 NOTE 3 - Income Taxes The Company accounts for income taxes on the liability method, as provided by Statement of Financial Accounting Standards 109, Accounting for Income Taxes (SFAS 109). Differing methods of reporting income for tax purposes as compared to financial reporting purposes resulted in deferred income taxes of approximately -0- as of January 30, 1997. Deferred tax assets and liabilities consist of the following: Deferred tax assets- Allowance for doubtful accounts $ 13,600 Net operating loss carryover 158,000 --------- 171,600 Valuation allowance 62,600 --------- $ 109,000 ========= Deferred tax liabilities- Depreciation of property, plant and equipment $(109,000) --------- $(109,000) ========= The valuation allowance provided in each of the years is based on management's valuation of the likelihood of realization. As required by SFAS 109, deferred taxes are provided based upon the tax rate at which the items of income and expense are expected to be settled in the Company's tax return. The Company incurred a net operating loss of $910,000 available to offset future income for financial reporting purposes expiring in 2012. NOTE 4 - Long-term Notes Payable Long-term notes payable consist of the following: Equipment loans secured by ten tractors payable at $15,824 per month including interest at 10% per annum with the final installment due November, 2000 $ 636,417 Non interest bearing demand notes 70,000 Term loan in settlement with United Acquisition II Corp.- $100,000 non interest bearing, discounted at 8% payable over 36 months beginning April 1, 1998 49,904 Acquisition loan described in Note 5 2,135,037 F-38 GULF NORTHERN TRANSPORT, INC. NOTES TO THE FINANCIAL STATEMENTS JANUARY 30, 1997 Seller notes described in Note 2 240,595 ---------- Total 3,131,953 Less: current maturities 852,738 ---------- Long-term portion $2,279,215 ========== Aggregate annual scheduled maturities of long-term debt at January 30, 1997 are as follows: January 30, ----------- 1998 $ 852,738 1999 920,804 2000 917,159 2001 441,252 ---------- Total $3,131,953 ========== NOTE 5 - Debt Restructure In addition to being used to finance the acquisition described in Note 2, proceeds from the $3,000,000 acquisition loan were also used to refinance stockholder loans and certain other bank and lease obligations. As the classification of the acquisition loan is long term, those obligations restructured were also classified as long term. The loan is payable in 60 monthly installments of $66,360 at the rate of 11.75% interest per annum with its final maturity on March 31, 2000. NOTE 6 - Lease Commitments The Company leases tractors and trailers under various capital leases with interest rates ranging from 8.1% to 9.1%. Property, plant and equipment includes the following amounts for the tractor and trailer leases which are capitalized: Tractors and trailers $1,760,669 Less: accumulated amortization 611,433 ---------- Total $1,149,236 ========== Lease amortization is included in depreciation expense. F-39 GULF NORTHERN TRANSPORT, INC. NOTES TO THE FINANCIAL STATEMENTS JANUARY 30, 1997 NOTE 6 - Lease Commitments (continued) Future minimum payments, by year and in the aggregate, under the capital leases are as follows: Years ended January 30, Amount ----------------------- ---------- 1998 $ 405,446 1999 489,233 2000 221,437 ---------- Total minimum lease payments 1,116,116 Less: Amount representing interest 130,497 ---------- Present value of minimum lease payments 985,619 Less-Current maturities 275,526 ---------- Long-term obligations under capital leases $ 710,093 ========== NOTE 7 - Property, Plant and Equipment Property, plant and equipment consists of the following as of January 30, 1997: Office equipment $ 63,273 Tractors, trailers and garage equipment 8,238,378 Transportation equipment 4,480 ---------- 8,306,131 Less: Accumulated Depreciation 4,206,596 ---------- Total property, plant and equipment $4,099,535 ========== Depreciation expense amounted to $76,386 for the period ended January 30, 1997. $75,582 of depreciation was included in operating expenses and $804 of depreciation was included in administrative expenses. The fair market value of fixed assets approximates book value. NOTE 8 - Related Party Transaction On December 23, 1996, the Company sold its Wisconsin Rapids facility which included land, a building and improvements with a book value of $394,517 to its majority stockholders for $346,141 resulting in a net loss of $48,376. The transaction resulted in a gain of $231,000 for income tax purposes. The stockholders leased the property back to the Company for five years commencing January 1, 1997. See Note 10. Management believes the sale was an arms length transaction based on estimated values of the property on the date of sale. F-40 GULF NORTHERN TRANSPORT, INC. NOTES TO THE FINANCIAL STATEMENTS JANUARY 30, 1997 NOTE 9 - Retirement Plan The Company matches employee contributions up to 3% of employee compensation. Contributions to the plan amounted to $5,918 for the period ended January 30, 1997. 401K matching contributions of $1,283 are included in operating expense and $365 and of the aforementioned contributions are included in administrative expenses. NOTE 10 - Commitments and Contingencies Commencing on January 1, 1997, the Company agreed to rent its Wisconsin Rapids facility from certain stockholders for $7,350 per month for a period of five years under an operating lease. Commencing October 15, 1997, the Company leased its South Carolina corporate offices for $1,728 per month. The lease extends for a period of two years. Minimum rental payments under such operating leases follows: Year ending January 30, 1998 $ 94,248 1999 108,936 2000 102,888 2001 88,200 2002 80,850 -------- Total minimum payments required $475,122 ======== NOTE 11 - Noncompetition Agreements As of January 3, 1994, the Company entered into a covenant not to compete agreement with its chief executive officer which extends over four years. The agreement called for a prepayment of $115,000 in December, 1993, with an additional $46,000, including interest, payable in (18) monthly installments of $2,556 commencing with the date of the agreement. Expenses under this agreement amounted to $3,333. See also Note 2 for a description of the covenant not to compete related to the stock purchase agreement. NOTE 12 - Restricted Cash The Company maintains cash accounts for owner-operators who perform services for the Company. These funds are accumulated, with the owner-operators consent, by withholding part of the payments due to them for services performed. The funds are used to pay for repairs of equipment that they own directly. Further, the Company has deposited funds with a financing company to cover over the road fuel and other operating expenses for drivers in support of a letter of credit. As of January 30, 1997, the Company had letters of credit outstanding totaling $10,000 which guarantee various operating and insurance activities. F-41 GULF NORTHERN TRANSPORT, INC. NOTES TO THE FINANCIAL STATEMENTS JANUARY 30, 1997 NOTE 13 - Loan Modification Agreement In connection with the stock purchase agreement described in Note 2, the purchase was financed by a loan in the amount of $3,000,000 payable in monthly installments over five years. The original loan agreement required that the Company hold the common stock of a "small capitalization" company with a market value of at least $1,000,000. As of January 30, 1997, such stock was not held by the Company. On May 25, 1997, the Company agreed to a modification of the original loan whereby current monthly payments were reduced from $66,360 per month to $45,000 per month with a balloon payment of $396,836 due at August 31, 2001. NOTE 14 - Concentration of Credit Risk - Cash The Company maintains its cash balances in two financial institutions, one located in Wisconsin Rapids, Wisconsin and the other in Charleston, South Carolina. At times, the balances may exceed federally insured limits of $100,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash on deposit. The fair market value of these financial instruments approximates cost. NOTE 15 - Use of Factor In April, 1995, the Company entered into an agreement with a factor whereby the factor would accept the Company's receivables with full recourse. Under the agreement, the factor will advance up to 80% of those receivables submitted by the Company. Interest on funds advanced is charged at an average annual effective rate of 14.5% payable monthly. In addition, the Company must maintain funds on deposit with its factor as a reserve against uncollectible receivables. The amount of such funds on deposit as of January 30, 1997 amounted to $97,179. The uncollected balance of such receivables held by the factor amounted to $804,601 as of January 30, 1997. The fair market value of these balances approximate book value. NOTE 16 - Economic Dependency The Company's customers consist primarily of high volume shippers that have significant time sensitive and high service level traffic needs. The Company provided services to two customers which accounted for net revenues in excess of 10% of the Company's total revenues for the period ended January 30, 1997. Consolidated Paper, Inc. and Excel Corporation accounted for 26.4% and 10.7% of the Company's net revenues for the period ended January 30, 1997. Accounts receivable from those customers amounted to $335,513 as of January 30, 1997. Revenues from the Company's five and ten largest customers accounted for approximately 57% and 69% respectively of total net revenues for the period ended January 30, 1997. F-42 GULF NORTHERN TRANSPORT, INC. NOTES TO THE FINANCIAL STATEMENTS JANUARY 30, 1997 NOTE 16 - Economic Dependency (continued) The Company considers its relationship with those major customers to be satisfactory and is committed to expanding its relationship with its other customers. The Company provides services to a significant number of customers in the meat packing and distribution industry. Revenues from those customers accounted for approximately 14.6% of total revenues for the period ended January 30, 1997. Accounts receivable from those customers amounted to $178,700 as of January 30, 1997. NOTE 17 - Stock Acquisition Agreement - United Acquisition II Corp. On June 3, 1996, the shareholders of Mid America entered into an agreement with United Acquisition II Corp. (the acquirer) whereby they would transfer 100% of their common stock in Mid America in exchange for 31,366 shares of convertible preferred stock and 316,666 shares of common stock of the acquirer. In addition, the acquirer agreed to contribute cash and notes totaling $500,000 into Mid America at closing. In January, 1997, the acquirer conceded that it was not able to complete the transaction as agreed and withdrew from the contract. During the period from the consummation of the contract, the acquirer deposited funds to the Company in the amount of $145,000. The Company agreed to return a total of $100,000 payable in 36 installments beginning April 1, 1998 on a non interest bearing basis. NOTE 18 - Accounts Receivable - Affiliate The Company provided freight services on behalf of its affiliate, Mencor, Inc. amounting to $10,785 for the period ended January 30, 1997. The balance receivable from this affiliate as of January 30, 1997 amounted to $19,930. The fair market value of this receivable approximate book value. NOTE 19 - Advances from Affiliate The Company received advances from its affiliate, Mencor, Inc. during the period ended January 30, 1997. Those advances amounted to $23,994 and remained unpaid as of that date, are non interest bearing and are due on demand. The fair market value of these advances approximates book value. NOTE 20 - Subsequent Event - Acquisition Agreement with U.S. Trucking, Inc. On January 30, 1997, the Company entered into an agreement with U.S. Trucking, Inc. (the acquirer) whereby U.S. Trucking would acquire 100% of the common stock of the Company in exchange for 25% of it's common stock. F-43 GULF NORTHERN TRANSPORT, INC. NOTES TO THE FINANCIAL STATEMENTS JANUARY 30, 1997 NOTE 20 - Subsequent Event - Acquisition Agreement with U.S. Trucking, Inc. (continued) As part of this agreement, the Company contracted with Dan Pixler (a former stockholder of the Company) for him to provide services as president and general manager for the five years commencing from January 30, 1997 to January 30, 2002 at an annual salary of $105,000 per year. Mr. Pixler will receive annual options to purchase 12,500 shares of the common stock of the acquirer's parent company, U.S. Transportation Systems, Inc. which will be exercisable until December 31, 2002. Further, during the period of employment and for a period of two years after his termination, Mr. Pixler agreed that he will not participate in an entity which is directly competitive with the Company's present operations. F-44 4) AUDITED FINANCIAL STATEMENTS OF MENCOR, INC. FOR THE THIRTY DAYS ENDED JANUARY 30, 1997 F-45 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Stockholders Mencor, Inc. We have audited the accompanying balance sheet of Mencor, Inc. as of January 30, 1997 and the related statements of earnings and retained earnings and cash flows for the period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of Mencor, Inc. as of January 30, 1997 and the results of its operations and its cash flows for the period then ended in conformity with generally accepted accounting principles. /s/ BIANCULLI, PASCALE & CO. P.C. BIANCULLI, PASCALE & CO. P.C. Garden City, New York June 8, 1998 F-46 MENCOR, INC. BALANCE SHEET January 30, 1997 ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 1C and 2) $ 40,497 Accounts receivable-net of allowance for doubtful accounts of $11,834 (Notes 1F & 12) 189,605 Advances to affiliate (Note 7) 23,994 Refundable income taxes (Note 6) 860 Prepaid expenses 1,002 -------- Total Current Assets 255,958 -------- PROPERTY, PLANT AND EQUIPMENT - at cost, less accumulated depreciation of $3,950 as of January 30, 1997 (Notes 1D and 3) 7,300 -------- OTHER ASSETS Intangible asset - Net of accumulated amortization of $1,067 as of January 30, 1997 (Note 1H) 933 Security deposits 1,125 Deferred tax asset (Notes 1E and 6) 1,920 Organization costs - net of accumulated amortization of $445 at January 30, 1997 (Note 1G) 444 -------- Total other assets 4,422 -------- TOTAL ASSETS $267,680 ======== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-47 MENCOR, INC. BALANCE SHEET January 30, 1997 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES CURRENT LIABILITIES Accounts payable-trade $160,618 Accounts payable-affiliate (Note 8) 19,930 Advances from related party (Note 9) 33,970 Payroll taxes withheld and payable 518 Accrued expenses 2,039 Other taxes payable 1,462 Income taxes payable (Notes 1E and 6) 25 Current Portion of Equipment Notes Payable (Notes 3 and 4) 1,164 -------- Total Current Liabilities 219,726 -------- COMMITMENTS AND CONTINGENCIES (Note 5) OTHER LIABILITIES Equipment Notes Payable-net of current maturities (Notes 3 and 4) 527 -------- TOTAL LIABILITIES 220,253 -------- STOCKHOLDERS' EQUITY Common Stock (no par value-1,000 shares authorized, 300 issued and outstanding (Note 1B) 6,604 Retained Earnings 40,823 -------- Total Stockholders' Equity 47,427 -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $267,680 ======== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-48 MENCOR, INC. STATEMENT OF EARNINGS AND RETAINED EARNINGS Period Ending January 30, 1997 Net Revenues $115,564 Freight settlements 102,649 -------- Income from operations 12,915 General and administrative expenses 13,983 -------- Net (loss) from operations (1,068) Other income and expense -0- -------- Loss before income taxes (1,068) Income taxes (Notes 1E and 6) -0- -------- Net (loss) (1,068) Retained Earnings-Beginning of Period 41,891 -------- Retained Earnings-End of Period $ 40,823 ======== Net (loss) per Share $ (3.56) ======== Weighted Average Number of Shares (Note 1B) 300 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-49 MENCOR, INC. STATEMENT OF CASH FLOWS Period Ending January 30, 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) for the period $ (1,068) ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES (Increase) Decrease-Assets Accounts Receivable-trade 38,502 Advances to affiliate 3,359 Increase (Decrease)-Liabilities Accounts payable-trade (20,391) Accounts payable-affiliate (5,951) Payroll taxes withheld and payable (3,400) Other taxes payable 1,462 -------- Total Adjustments 13,581 Net Cash provided by Operations 12,513 -------- CASH FLOWS FROM FINANCING ACTIVITIES Repayments to related party (50,000) -------- Net Cash (used in) financing activities (50,000) -------- NET (DECREASE) IN CASH (37,487) -------- CASH AT BEGINNING OF PERIOD 77,984 -------- CASH AT END OF PERIOD $ 40,497 ======== Supplemental Disclosure of Cash flow information: Cash paid during the year Interest expense $ -0- Income taxes $ -0- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-50 MENCOR, INC. NOTES TO THE FINANCIAL STATEMENTS January 30, 1997 NOTE 1 - General and Summary of Significant Accounting Policies (A) - Nature of Operations Mencor, Inc. was incorporated in the State of Arkansas on July 6, 1994. The Company operates as a broker for interstate motor carriers. An interstate motor carrier broker serves the trucking industry by providing return hauls for truckers who have completed their initial delivery. By providing this service, trucking companies and independent operators are able to cover the cost of returning to their home location. The Company's corporate headquarters are located in Charleston, South Carolina. As a broker, the Company is required to acquire a license which provides the authority to engage in interstate commerce. This license was acquired in April, 1994. Services are provided to customers located primarily in the central United States but include locations in virtually all 48 contiguous states. (B) - Net Loss per Share Net loss per share is computed on the basis of the weighted average number of common and common equivalent shares outstanding during each period. Only the weighted average number of shares of common stock outstanding is used to compute income per share for the period ended January 30, 1997 as there are no stock options, warrants, or other common stock equivalents in this period. (C) - Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents for financial statement purposes. (D) - Property, Plant and Equipment Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives principally on an accelerated basis. Accelerated methods of depreciation are followed for substantially all assets for both financial reporting and tax purposes. Transportation equipment, furniture and fixtures, and other equipment are generally depreciated over periods ranging from two to seven years. (E) - Income Taxes Income taxes are provided on all revenue and expense items included in the statement of earnings, regardless of the period in which such items are recognized for income tax purposes, except for items representing a permanent difference between pretax accounting income and taxable income. Non current deferred income taxes result from the use of accelerated methods of depreciation for income tax purposes and from the establishment of an allowance for doubtful accounts for financial reporting purposes. F-51 MENCOR, INC. NOTES TO THE FINANCIAL STATEMENTS January 30, 1997 NOTE 1 - General and Summary of Significant Accounting Policies (continued) (F) - Revenue Recognition The Company recognizes revenues at the time the shipment is delivered to recipients. (G) - Organization expense As part of its initial incorporation, the company incurred organization costs amounting to $889 which is being amortized on a straight-line basis over five years. (H) - Intangible Asset As discussed in Note 1A, the Company acquired a license from the Interstate Commerce Commission which is required to allow the Company to do business as an interstate carrier broker. This license, which cost $2,000 is being amortized on a straight-line basis over five years. (I) - Concentration of Credit Risk Virtually all of the Company's customers are in the long haul trucking industry. Further, accounts receivable are uncollateralized and consist of amounts due from that industry. (J) - Offering Costs During 1996, the Company incurred certain expenses related to an equity offering in connection with its affiliate, Mid America Transporters Group, Inc. and Subsidiary. The offering was unsuccessful and, accordingly, the expense was amortized in full during 1996. (K) - Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2 - Cash and Cash Equivalents The Company maintains its cash balances in one financial institution located in Charleston, South Carolina that at times, may exceed federally insured limits. The Company has not experienced any losses in such account and believed it is not exposed to any significant credit risk on cash and cash equivalents. F-52 MENCOR, INC. NOTES TO THE FINANCIAL STATEMENTS January 30, 1997 NOTE 3 - Property, Plant and Equipment Property, plant and equipment consists of the following as of January 30, 1997: Office equipment $ 12,656 Furniture and fixtures 1,406 -------- 11,250 Less: Accumulated Depreciation 3,950 -------- Total property, plant and equipment $ 7,300 ======== No depreciation expense was recorded for the period ended January 30, 1997. NOTE 4 - Notes Payable During 1995, the Company acquired office equipment in the amount of $2,946 which was financed payable in 36 installments of $110 per month including interest at 14% per annum due June, 1998. Total principal $ 1,691 Less: current maturities 1,164 -------- Long-term portion $ 527 ======== Aggregate annual maturities of long-term debt for the five years following January 30, 1997 are as follows: January 30, 1998 $ 1,164 January 30, 1999 527 -------- Total $ 1,691 ======== NOTE 5 - Commitments and Contingencies The Company leases office space for its operating facility in Charleston, South Carolina. The current lease term commenced on May 1, 1995 and concludes on April 30, 1997. Commitments under this lease agreement amounted to $2,757 for the period ended January 30, 1998. Rent expense amounted to $919 for the period ended January 30, 1997 and is included in general and administrative expenses. F-53 MENCOR, INC. NOTES TO THE FINANCIAL STATEMENTS January 30, 1997 NOTE 6 - Income Taxes The Company accounts for income taxes on the liability method, as provided by Statement of Financial Accounting Standards 109, Accounting for Income Taxes (SFAS 109). The provision for income taxes was comprised of the following components as of January 30, 1997: Federal-current $( 160) Federal-deferred ( -0-) State-current ( 50) State-deferred ( -0-) ------- Total $( 210) ======= The income tax provision reconciled to the tax computed at the statutory Federal rate was: Tax at Statutory Rate $( 417) ( 39)% State income taxes 74 7 Effect of graduated brackets 133 12 Other ------- --- $( 210) ( 20)% Deferred tax assets and liabilities at January 30, 1997 consists of the following: Deferred tax assets Allowance for doubtful accounts $11,834 Valuation Allowance (6,679) ------- $ 5,155 ======= Deferred tax liabilities Depreciation of property & equipment $(5,155) ======= The valuation allowance provided is based on management's valuation of the likelihood of realization. Net operating loss carryovers amounting to $1,068 for federal income tax purposes are available through December 31, 2012. NOTE 7 - Advances to Affiliate The Company advanced funds and provided services to its affiliate, Gulf Northern Transport, Inc. during the years prior to the period ended January 30, 1997. Gulf Northern is related to the Company through common ownership and management. No revenues were generated by services provided during the F-54 MENCOR, INC. NOTES TO THE FINANCIAL STATEMENTS January 30, 1997 NOTE 7 - Advances to Affiliate (Continued) period ended January 30, 1997. The amount of such advances which remained unpaid as of January 30, 1997 amounted to $23,994. These advances represent allocations of rent and other administrative costs and freight settlements, are non interest bearing and are due on demand. The fair market value of these advances approximate book value. NOTE 8 - Accounts Payable-Affiliate The Company incurred expenses for freight settlements from its affiliate, Gulf Northern Transport, Inc. which amounted to $10,785 for the period ended January 30, 1997. The remaining balance payable to the affiliate for such expenses as of January 30, 1997 amounted to $19,930. NOTE 9 - Advances from Related Party During 1996, a shareholder advanced funds totaling $123,397 to the Company. Repayments through January 30, 1997 amounted to $89,427 with the remaining balance remitted during February, 1997. The advances were payable on demand with no stated interest. NOTE 10 - Economic Dependency The Company's customers consist primarily of high volume shippers that have significant time sensitive and high service level traffic needs. The Company provided services to three customers which accounted for net revenues in excess of 10% of the Company's total revenues for the period ended January 30, 1997. Tamco Distributors, Vista Corrugated and Continental Sprayers accounted for 33.5%, 24.1% and 10.6% of the Company's net revenues for the period ended January 30, 1997. Accounts receivable from those customers amounted to $104,311 as of January 30, 1997. Revenues from the Company's five and ten largest customers accounted for approximately 83% and 91% respectively of total net revenues for the period ended January 30, 1997. NOTE 11 - Definitive stock sale to U.S. Trucking, Inc. On January 30, 1997, the stockholders sold their interests in Mencor, Inc. to U.S. Trucking, Inc. (the buyer) for $75,000. The transaction was in conjunction with the sale of Gulf Northern Transport, Inc. Also in connection with the sale, the Company agreed to continue the employment of Michael Menor (a former shareholder of Mencor, Inc.) as the president of the Company for the period from the date of enactment to January 30, 2000 at an annual salary of $60,000 per year. Further, during the period of employment and a period of two (2) years after his termination, Mr. Menor agreed that he will not participate in an entity which directly performs truck brokerage services for those customers currently serviced by the Company. F-55 MENCOR, INC. NOTES TO THE FINANCIAL STATEMENTS January 30, 1997 NOTE 11 - Definitive stock sale to U.S. Trucking, Inc. (Continued) Also on the date of enactment, the buyer contracted with Roxanne Pixler, (a former shareholder of Mencor, Inc.) for her to provide consulting services to the Company. Pixler will receive 18,750 shares of U.S. Transportation Systems, Inc. as compensation for her services. The contracted obligation will commence from the date of enactment to December 31, 1998. F-56 5) AUDITED FINANCIAL STATEMENTS OF MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 F-57 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Stockholders Mid America Transporters Group, Inc. and Subsidiary We have audited the accompanying consolidated balance sheets of Mid America Transporters Group, Inc. and Subsidiary as of December 31, 1996 and 1995 and the related consolidated statements of operations and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated balance sheets referred to above, present fairly, in all material respects, the consolidated financial position of Mid America Transporters Group, Inc. and Subsidiary as of December 31, 1996 and 1995 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ BIANCULLI, PASCALE & CO. P.C. BIANCULLI, PASCALE & CO. P.C. Garden City, New York November 7, 1997 F-58 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 1996 1995 ---------- ---------- ASSETS CURRENT ASSETS Cash in banks (Note 14) $ 60,159 $ 311,842 Restricted cash-reserves on deposit with factor (Note 15) 97,179 179,615 Accounts receivable-net of allowance for doubtful accounts of $40,000 and $12,000 as of December 31, 1996 and 1995 respectively (Notes 1H, 15 and 16) 1,309,529 1,295,451 Accounts receivable - affiliate (Note 18) 25,881 14,150 Accounts receivable - other 3,068 34,613 Parts and supply inventory (Note 1D) 139,472 112,464 Prepaid insurance 54,745 53,412 Prepaid expenses and other 41,089 49,106 ---------- ---------- Total Current Assets 1,731,122 2,050,653 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT - at cost, less accumulated depreciation and amortization of $4,130,210 and $3,313,632 as of December 31, 1996 and 1995, respectively (Notes 1E, 2, 4, 5 and 7) 4,175,921 4,697,569 ---------- ---------- OTHER ASSETS Restricted cash-owner operators (Note 12) 2,672 46,332 Restricted cash-cash held as collateral against letters of credit 10,000 88,000 Covenants not to compete-net of accum- ulated amortization of $73,589 and $33,590 as of December 31, 1996 and 1995, respectively (Notes 1F and 11) 39,999 79,998 Security deposits and other 7,334 6,260 Organization costs - net of accumul- ated amortization of $5,000 and $4,000 as of December 31, 1996 and 1995, respectively (Note 1I) - 1,000 ---------- ---------- Total other assets 60,005 221,590 ---------- ---------- TOTAL ASSETS $5,967,048 $6,969,812 ========== ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-59 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 ---------- ---------- CURRENT LIABILITIES Accounts payable-trade $ 207,941 $ 424,283 Due to factor (Note 15) 1,133,731 950,390 Accrued expenses and other 672,545 445,216 Advances from affiliate (Note 19) 27,353 17,910 Note Payable - (Note 4) 12,500 - Current portion - seller's notes 112,823 84,393 Acquisition loan payable (Note 2) 569,329 551,445 Current portion of equipment notes payable (Notes 2 and 4) 163,268 37,973 Current portion of obligations under capital leases (Note 6) 299,585 263,907 ---------- ---------- Total Current Liabilities 3,199,075 2,775,517 ---------- ---------- OTHER LIABILITIES Deferred taxes (Notes 2 and 3) - 388,000 Owner operator escrow (Note 12) 29,672 82,936 Seller's notes (Notes 2 and 4) 127,772 226,117 Note payable - (Notes 4 and 17) 49,904 - Acquisition loan payable (Notes 2 and 4) 1,617,561 2,141,947 Equipment Notes Payable-net of current portion (Note 4) 483,978 319,564 Obligations under capital leases net of current portion (Note 6) 710,093 998,816 ---------- ---------- Total Other Liabilities 3,018,980 4,157,380 ---------- ---------- TOTAL LIABILITIES 6,218,055 6,932,897 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Notes 2, 6, 9 10 and 17) STOCKHOLDERS' EQUITY Common Stock (no par value-10,000 shares authorized, 1,000 issued and outstanding) (Note 2) 100,000 100,000 Additional paid in capital 25,000 - Accumulated deficit ( 376,007) ( 63,085) ---------- ---------- Total Stockholders' Equity ( 251,007) 36,915 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,967,048 $6,969,812 ========== ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-60 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS YEARS ENDING DECEMBER 31, 1996 AND 1995 1996 1995 ----------- ----------- Net Revenues $12,620,435 $12,374,563 Operating expenses 10,966,125 10,505,303 ----------- ----------- Income from operations 1,654,310 1,869,260 Administrative expenses 1,807,186 1,290,716 ----------- ----------- Other income and expenses Interest income 7,046 10,507 Interest expense ( 648,993) ( 665,515) Other income 141,498 4,673 Net gain (loss) on disposition of assets ( 47,597) 9,104 ----------- ----------- Total other income and (expenses) ( 548,046) ( 641,231) ----------- ----------- Net loss before taxes ( 700,922) ( 62,687) Income tax (benefit) provision (Notes 1H and 3) ( 388,000) 398 ----------- ----------- Net loss ( 312,922) ( 63,085) Accumulated Deficit - January 1 ( 63,085) - ----------- ----------- Accumulated deficit - December 31 $( 376,007) $( 63,085) =========== =========== Net loss per share $( 312.92) $( 63.09) =========== =========== Weighted Average Number of Shares (Note 1B) 1,000 1,000 =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-61 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDING DECEMBER 31, 1996 AND 1995 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Earnings (Loss) $ (312,922) $ ( 63,085) ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH USED IN OPERATING ACTIVITIES Depreciation & Amortization 956,717 794,756 Deferred income taxes (388,000) - Loss(Gain) on disposal of property and equipment 47,597 ( 9,104) (Increase) Decrease-Assets Restricted Cash 204,096 - Accounts Receivable ( 22,264) (295,267) Parts and supply inventory ( 27,008) ( 43,955) Prepaid expenses and other current assets 6,610 (255,111) Increase (Decrease)-Liabilities Accounts payable ( 33,001) 27,984 Accrued expenses and other current liabilities 183,508 129,375 ----------- ----------- Total Adjustments 928,255 348,678 Net Cash Provided by Operations 615,333 285,593 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment (787,407) (567,372) Proceeds from disposal of equipment 372,740 81,500 Proceeds from additional paid in capital 25,000 - ----------- ----------- Net Cash Used in investing activities (389,667) (485,872) ----------- ----------- Sub Total 225,666 (200,279) ----------- ----------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-62 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY STATEMENTS OF CASH FLOWS (continued) YEARS ENDING DECEMBER 31, 1996 AND 1995 1996 1995 ----------- ----------- Balance Forward $ 225,666 $( 200,279) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt (1,007,286) (4,707,108) Proceeds from short-term note 12,500 - Proceeds from long-term debt financing 770,482 5,527,017 Principal payments on capital lease obligations (253,045) ( 307,788) ----------- ----------- Net Cash provided by (used in) financing activities (477,349) 512,121 ----------- ----------- NET INCREASE (DECREASE) IN CASH (251,683) 311,842 CASH AT BEGINNING OF YEAR 311,842 - ----------- ----------- CASH AT END OF YEAR $ 60,159 $ 311,842 =========== =========== Supplemental Disclosure of Cash flow information: Cash Paid during the year Interest expense $ 650,158 $ 690,813 =========== =========== Income taxes $ -0- $ 1,845 =========== =========== Capital lease obligations totaling $508,800 for the year ended December 31, 1995 were incurred when the Company entered into leases for new tractors and trailers. Long-term debt totaling $720,578 was incurred by the Company during 1996 when the Company acquired 10 tractors with a total cost of $745,578. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-63 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 1 - General and Summary of Significant Accounting Policies (A) - Nature of Business Mid America Transporters Group, Inc. (Mid America or, "the Company") was incorporated in the State of Arkansas on February 14, 1994. The Company, through its wholly-owned subsidiary, Gulf Northern Transport, Inc., (Gulf Northern) a Wisconsin corporation, operates as an interstate and intrastate motor carrier. (See Note 2). The Company's corporate headquarters are located in Charleston, South Carolina with terminals and drop stations located in various states. Services are provided to customers located primarily in the central United States but include locations in virtually all 48 contiguous states. (B) - Net Earnings (Loss) per Share Net earnings (loss) per share is computed on the basis of the weighted average number of common shares outstanding during each period. Only the weighted average number of shares of common stock outstanding is used to compute earnings or loss per share in 1996 and 1995, as there were no stock options, warrants, or other common stock equivalents in those years. (C) - Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents for financial statement purposes. (D) - Inventory Inventory consists principally of parts and supplies used in maintaining its motor carrier fleet, skids used in transporting goods, and small tools and are stated at the lower-of-cost or market, determined on a first-in, first-out basis. (E) - Property, Plant and Equipment Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Accelerated methods of depreciation are followed for tax purposes and the straight line method is used for financial reporting purposes. Transportation equipment, furniture and fixtures, and other equipment are generally depreciated over periods ranging from two to seven years. The building is depreciated over a thirty year period. A provision has been made for deferred income taxes relating to depreciation temporary differences. See Note 2. (F) - Covenants Not to Compete Covenants not to compete are amortized on a straight line basis over the terms of the agreements. The covenants cover the period from January, 1994 to December, 1997. F-64 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (G) - Income Taxes Taxes are provided on all revenue and expense items included in the Consolidated Statements of Operations, regardless of the period in which such items are recognized for income tax purposes, except for items representing a permanent difference between pretax accounting income and taxable income. (H) - Revenue Recognition The Company recognizes revenues at the time freight is delivered to recipients. (I) - Organization Costs Gulf Northern incurred organization costs of $5,000 in 1992 which is being amortized on a straight line basis over five years. (J) - Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (K) - Basis of Presentation The accompanying consolidated balance sheets and related statements of operations and retained earnings and cash flows includes the accounts of Mid America Transporters Group, Inc. and its wholly owned subsidiary, Gulf Northern Transport, Inc. as of December 31, 1996 and 1995 and gives effect to the acquisition of Gulf Northern by Mid America effective January 1, 1995 pursuant to an agreement dated March 28, 1995, and reflects the acquisition as a purchase as more fully described in Note 2. There were no intercompany transactions or balances as of and for the years ended December 31, 1996 and 1995. NOTE 2 - Definitive Stock Purchase Agreement Effective January 1, 1995 to an agreement dated March 28, 1995, Mid America signed a definitive stock purchase agreement with Gulf Northern and its individual shareholders. Under the terms of the agreement, Mid America purchased all shares of Gulf Northern's common stock for a total purchase price, as finally determined, of $2,683,500 which exceeded the net asset value of Gulf Northern by approximately $1,182,000. The transaction has been accounted for as a purchase effective on December 31, 1994. Note (1K). As discussed in Note 1G and 3, prior to the implementation of this agreement, the Company elected to be an S Corporation for tax purposes. Due to differences in the computation of depreciation for book purposes as compared to tax purposes, taxes were deferred in the amount of $388,000. On the date of this agreement, the Company no longer qualified to file its tax returns as an S Corporation, therefore, deferred taxes were established as an increase to the acquisition cost. F-65 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 2 - Definitive Stock Purchase Agreement (continued) As noted above, the acquisition has been accounted for as a purchase. Purchase accounting requires that the cost of the acquisition be allocated to the net assets acquired up to their fair market value. Accordingly, property, plant and equipment was increased by $1,162,184 to $5,390,503 which is less than its appraised value. No goodwill was recorded by this transaction. In addition, the stockholder's equity section as reported prior to the purchase is eliminated. The agreement includes payments to the former stockholders in the form of cash of $2,232,000 which includes the payoff of shareholder loans described in Note 5A; promissory notes totaling $260,000 due in 36 monthly installments totaling $8,017 at 7% due on March 1, 1998 secured by letters of credit in the amount of $150,000; and non interest bearing obligations (discounted at 7% per annum) totaling $104,000 payable over a one year period commencing April 1, 1998. The purchase was financed by a loan in the amount of $3,000,000 from ITT Credit Corp. which is payable in 60 monthly installments of $66,360 and is due on March 31, 2000. The loan was subsequently sold to General Electric Credit Corp and is secured by certain items of equipment. See Note 13 for description of the loan modification agreement. NOTE 3 - Income Taxes The Company accounts for income taxes on the liability method, as provided by Statement of Financial Accounting Standards 109, Accounting for Income Taxes (SFAS 109). At December 31, 1996 a recovery of prior years deferred taxes of $388,000 was provided. No federal income taxes were provided for the year ended December 31, 1995. Differing methods of reporting income for tax purposes as compared to financial reporting purposes resulted in deferred income taxes of approximately -0- and $388,000 as of December 31, 1996 and 1995, respectively. Deferred tax assets and liabilities consist of the following: 1996 1995 --------- --------- Deferred tax assets- Allowance for doubtful accounts $ 15,600 $ 4,680 Net operating loss carryover 196,000 - --------- --------- 211,600 4,680 Valuation allowance 16,600 - --------- --------- $ 195,000 $ 4,680 ========= ========= Deferred tax liabilities- Depreciation of property, plant and equipment $(195,000) $(392,680) --------- --------- $(195,000) $(392,680) ========= ========= F-66 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 3 - Income Taxes (continued) The valuation allowance provided in each of the years is based on management's valuation of the likelihood of realization. As required by SFAS 109, deferred taxes are provided based upon the tax rate at which the items of income and expense are expected to be settled in the Company's tax return. The Company incurred a net operating loss of $503,000 available to offset future income for financial reporting purposes expiring in 2011. NOTE 4 - Long-term Notes Payable 1996 1995 ---------- ---------- Long-term notes payable as of December 31, 1996 and 1995 consists of the following: Equipment loans secured by ten tractors payable at $15,824 per month including interest at 10% per annum with the final installment due November, 2000 $ 647,246 - Mortgage note, Prime + .5%; (9.0% at December 31, 1995 secured by real estate, payable at $5,000 per month including interest, due March 7, 1995. The bank has committed to renew this note beyond December 31, 1995. - 357,537 Demand note - Sebrite Agency, Inc. - non interest bearing 12,500 - Term loan in settlement with United Acquisition II Corp.- $100,000 non interest bearing, discounted at 8% payable over 36 months beginning April 1, 1998 49,904 - Acquisition loan described in Note 5 2,186,890 2,693,392 Seller notes described in Note 2 240,595 310,510 ---------- ---------- Total 3,137,135 3,361,439 Less: current maturities 857,920 673,811 ---------- ---------- Long-term portion $2,279,215 $2,687,628 ========== ========== F-67 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 4 - Long-term Notes Payable (continued) Aggregate annual scheduled maturities of long-term debt at December 31, 1996 are as follows: 1997 $ 857,920 1998 910,804 1999 917,159 2000 441,791 2001 9,461 ---------- Total $3,137,135 ========== NOTE 5 - Debt Restructure In addition to being used to finance the acquisition described in Note 2, proceeds from the $3,000,000 acquisition loan were also used to refinance stockholder loans and certain other bank and lease obligations. As the classification of the acquisition loan is long term, those obligations restructured were also classified as long term. The loan is payable in 60 monthly installments of $66,360 at the rate of 11.75% interest per annum with its final maturity on March 31, 2000. NOTE 6 - Lease Commitments The Company leases tractors and trailers under various capital leases with interest rates ranging from 8.1% to 9.1%. Property, plant and equipment includes the following amounts for the tractor and trailer leases which are capitalized as of December 31, 1996 and 1995: Tractors and trailers $1,760,669 $1,760,669 Less: accumulated amortization 589,913 331,673 ---------- ---------- Total $1,170,756 $1,428,996 ========== ========== F-68 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 6 - Lease Commitments (continued) Lease amortization is included in depreciation expense. Future minimum payments, by year and in the aggregate, under the capital leases are as follows: Years ended December 31, Amount ------------------------ ------ 1997 $ 394,791 1998 522,657 1999 241,568 2000 - ---------- Total minimum lease payments 1,159,016 Less: Amount representing interest 149,338 ---------- Present value of minimum lease payments 1,009,678 Less-Current maturities 299,585 ---------- Long-term obligations under capital leases $ 710,093 ========== NOTE 7 - Property, Plant and Equipment Property, plant and equipment consists of the following as of December 31: 1996 1995 ---------- ---------- Land $ - $ 127,719 Building - 303,350 Office equipment 63,273 58,576 Tractors, trailers and garage equipment 8,238,378 7,517,076 Transportation equipment 4,480 4,480 ---------- ---------- 8,306,131 8,011,201 Less: Accumulated Depreciation 4,130,210 3,313,632 ---------- ---------- Total property, plant and equipment $4,175,921 $4,697,569 ========== ========== Depreciation expense amounted to $882,797 and $754,130 for the years ended December 31, 1996 and 1995, respectively. $873,148 and $732,921 of depreciation was included in operating expenses for 1996 and 1995, respectively and $9,649 and $21,209 of depreciation was included in administrative expenses for 1996 and 1995, respectively. The fair market value of fixed assets approximates book value. F-69 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 8 - Related Party Transaction On December 23, 1996, the Company sold its Wisconsin Rapids facility which included land, a building and improvements with a book value of $394,517 to its majority stockholders for $346,141 resulting in a net loss of $48,376. The loss is included in other income and expenses. The transaction resulted in a gain of $231,000 for income tax purposes. The stockholders leased the property back to the Company for five years commencing January 1, 1997. See Note 10. Management believes the sale was an arms length transaction based on estimated values of the property on the date of sale. Interest expense at December 31, 1995 includes $6,857 attributable to stockholder loans. The loans were repaid during 1995. NOTE 9 - Retirement Plan The Company matches employee contributions up to 3% of employee compensation. Contributions to the plan amounted to $65,123 and $41,264 for the years ended December 31, 1996 and 1995, respectively. 401K matching contributions of $23,100 and $29,710 are included in operating expenses for 1996 and 1995, respectively and $8,589 and $21,209 of the aforementioned contributions are included in administrative expenses for 1996 and 1995, respectively. NOTE 10 - Commitments and Contingencies Commencing on January 1, 1997, the Company agreed to rent its Wisconsin Rapids facility from certain stockholders for $7,350 per month for a period of five years under an operating lease. Commencing October 15, 1997, the Company leased its South Carolina corporate offices for $1,728 per month. The lease extends for a period of two years. Minimum rental payments under such operating leases follows: Year ending December 31, 1997 $ 92,520 1998 108,936 1999 104,616 2000 88,200 2001 88,200 -------- Total minimum payments required $482,472 ======== F-70 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 11 - Noncompetition Agreements As of January 3, 1994, the Company entered into a covenant not to compete agreement with its chief executive officer which extends over four years. The agreement called for a prepayment of $115,000 in December, 1993, with an additional $46,000, including interest, payable in (18) monthly installments of $2,556 commencing with the date of the agreement. Expenses under this agreement amounted to $39,999 and $39,698 for 1996 and 1995, respectively. See also Note 2 for a description of the covenant not to compete related to the stock purchase agreement. NOTE 12 - Restricted Cash The Company maintains cash accounts for owner-operators who perform services for the Company. These funds are accumulated, with the owner-operators consent, by withholding part of the payments due to them for services performed. The funds are used to pay for repairs of equipment that they own directly. Further, the Company has deposited funds with a financing company to cover over the road fuel and other operating expenses for drivers in support of a letter of credit. As of December 31, 1996 and 1995, the Company had letters of credit outstanding totaling $10,000 and $88,000 respectively which guarantee various operating and insurance activities. NOTE 13 - Loan Modification Agreement In connection with the stock purchase agreement described in Note 2, the purchase was financed by a loan in the amount of $3,000,000 payable in monthly installments over five years. The original loan agreement required that the Company hold the common stock of a "small capitalization" company with a market value of at least $1,000,000. As of December 31, 1996 and 1995, such stock was not held by the Company. On May 25, 1997, the Company agreed to a modification of the original loan whereby current monthly payments were reduced from $66,360 per month to $45,000 per month with a balloon payment of $396,836 due at August 31, 2001. NOTE 14 - Concentration of Credit Risk - Cash The Company maintains its cash balances in two financial institutions, one located in Wisconsin Rapids, Wisconsin and the other in Charleston, South Carolina. At times, the balances may exceed federally insured limits of $100,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash on deposit. The fair market value of these financial instruments approximates cost. F-71 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 15 - Use of Factor In April, 1995, the Company entered into an agreement with a factor whereby the factor would accept the Company's receivables with full recourse. Under the agreement, the factor will advance up to 80% of those receivables submitted by the Company. Interest on funds advanced is charged at an average annual effective rate of 14.5% payable monthly. In addition, the Company must maintain funds on deposit with its factor as a reserve against uncollectible receivables. The amount of such funds on deposit as of December 31, 1996 and 1995 amounted to $97,179 and $179,615 respectively. The uncollected balance of such receivables held by the factor amounted to $1,133,731 and $950,390 as of December 31, 1996 and 1995 respectively. The fair market value of these balances approximate book value. NOTE 16 - Economic Dependency The Company's customers consist primarily of high volume shippers that have significant time sensitive and high service level traffic needs. The Company provided services to three and four customers, respectively which accounted for net revenues in excess of 10% of the Company's total revenues for the years ended December 31, 1996 and 1995. Consolidated Paper, Inc., Land-0-Lakes, Inc., Excel Corporation and Trane Company accounted for 24.6%, 13.8%, and 10.7% of the Company's net revenues for the year ended December 31, 1996. Consolidated Paper, Inc., Land-O-Lakes, Inc., Excel Corporation and Trane Company accounted for 17.8%, 13.5%, 10.7% and 10.2% of the Company's net revenues for the year ended December 31, 1995. Accounts receivable from those customers amounted to $486,873 and $358,319 as of December 31, 1996 and 1995 respectively. Revenues from the Company's five and ten largest customers accounted for approximately 57% and 69% respectively of total net revenues for the year ended December 31, 1996. Revenues from the Company's five and ten largest customers accounted for approximately 57% and 73% respectively of total net revenues for the year ended December 31, 1995. The Company considers its relationship with those major customers to be satisfactory and is committed to expanding its relationship with its other customers. The Company provides services to a significant number of customers in the meat packing and distribution industry. Revenues from those customers accounted for approximately 16.3% of total revenues for the year ended December 31, 1996 and 30% of total revenues for the year ended December 31, 1995. Accounts receivable from those customers amounted to $117,600 and $375,000 as of December 31, 1996 and 1995 respectively. F-72 MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 17 - Stock Acquisition Agreement - United Acquisition II Corp. On June 3, 1996, the shareholders of Mid America entered into an agreement with United Acquisition II Corp. (the acquirer) whereby they would transfer 100% of their common stock in Mid America in exchange for 31,366 shares of convertible preferred stock and 316,666 shares of common stock of the acquirer. In addition, the acquirer agreed to contribute cash and notes totaling $500,000 into Mid America at closing. In January, 1997, the acquirer conceded that it was not able to complete the transaction as agreed and withdrew from the contract. During the period from the consummation of the contract, the acquirer deposited funds to the Company in the amount of $145,000. The Company agreed to return a total of $100,000 payable in 36 installments beginning April 1, 1998 on a non interest bearing basis. The settlement resulted in a gain to the company of $105,096 which is included in other income. NOTE 18 - Accounts Receivable - Affiliate The Company provided freight services on behalf of its affiliate, Mencor, Inc. amounting to $340,822 and $119,045 for the years ended December 31, 1996 and 1995 respectively. The balance receivable from this affiliate as of December 31, 1996 and 1995 amounted to $25,881 and $14,150. The fair market value of this receivable approximate book value. NOTE 19 - Advances from Affiliate The Company received advances from its affiliate, Mencor, Inc. during 1996 and 1995. Those advances which amounted to $27,353 and $17,910 remained unpaid as of December 31, 1996 and 1995, are non interest bearing and are due on demand. The fair market value of these advances approximates book value. NOTE 20 - Subsequent Event - Acquisition Agreement with U.S. Trucking, Inc. On January 30, 1997, the Company entered into an agreement with U.S. Trucking, Inc. (the acquirer) whereby U.S. Trucking would acquire 100% of the common stock of the Company in exchange for 25% of it's common stock. As part of this agreement, the Company contracted with Dan Pixler (a former stockholder of the Company) for him to provide services as president and general manager for the five years commencing from January 30, 1997 to January 30, 2002 at an annual salary of $105,000 per year. Mr. Pixler will receive annual options to purchase 12,500 shares of the common stock of the acquirer's parent company, U.S. Transportation Systems, Inc. which will be exercisable until December 31, 2002. Further, during the period of employment and for a period of two years after his termination, Mr. Pixler agreed that he will not participate in an entity which is directly competitive with the Company's present operations. F-73 6) AUDITED FINANCIAL STATEMENTS OF MENCOR, INC. FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 F-74 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Stockholders Mencor, Inc. We have audited the accompanying balance sheets of Mencor, Inc. as of December 31, 1996 and 1995 and the related statements of earnings and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of Mencor, Inc. as of December 31, 1996 and 1995 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ BIANCULLI, PASCALE & CO. P.C. BIANCULLI, PASCALE & CO. P.C. Farmingdale, New York November 3, 1997 F-75 MENCOR, INC. BALANCE SHEETS December 31, 1996 1995 ---------- ---------- ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 1C and 2) $ 77,984 $ 34,726 Accounts receivable-net of allowance for doubtful accounts of $11,834 as of December 31, 1996 and 1995 (Notes 1F & 12) 228,107 218,219 Advances to affiliate (Note 7) 27,353 17,910 Refundable income taxes (Note 6) 860 Prepaid expenses 1,002 1,078 ---------- ---------- Total Current Assets 335,306 271,933 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT - at cost, less accumulated depreciation of $3,950 and $2,025 as of December 31, 1996 and 1995, respectively (Notes 1D and 3) 7,300 6,552 ---------- ---------- OTHER ASSETS Intangible asset - Net of accumulated amortization of $1,067 and $667 as of December 31, 1996 and 1995, respectively. (Note 1H) 933 1,333 Security deposits 1,125 1,125 Deferred tax asset (Notes 1E and 6) 1,920 1,000 Organization costs - net of accumulated amortization of $445 and $267 at December 31, 1996 and 1995, respectively (Note 1G) 444 622 ---------- ---------- Total other assets 4,422 4,080 ---------- ---------- TOTAL ASSETS $ 347,028 $ 282,565 ========== ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-76 MENCOR, INC. BALANCE SHEETS December 31, 1996 1995 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES CURRENT LIABILITIES Accounts payable-trade $ 181,009 $ 197,015 Accounts payable-affiliate (Note 8) 25,881 14,150 Advances from related party (Note 9) 83,970 Payroll taxes withheld and payable 3,918 Accrued expenses 2,039 Income taxes payable (Notes 1E and 6) 25 14,840 Current Portion of Equipment Notes Payable (Notes 3 and 4) 1,071 878 ---------- ---------- Total Current Liabilities 297,913 226,883 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Note 5) OTHER LIABILITIES Equipment Notes Payable-net of current maturities (Notes 3 and 4) 620 1,691 ---------- ---------- TOTAL LIABILITIES 298,533 228,574 ---------- ---------- STOCKHOLDERS' EQUITY Common Stock (no par value-1,000 shares authorized, 300 issued and outstanding (Note 1B) 6,604 6,604 Retained Earnings 41,891 47,387 ---------- ---------- Total Stockholders' Equity 48,495 53,991 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 347,028 $ 282,565 ========== ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-77 MENCOR, INC. STATEMENTS OF EARNINGS AND RETAINED EARNINGS Periods Ending December 31, 1996 1995 ----------- ---------- Net Revenues $ 2,226,900 $1,486,293 Freight settlements 2,007,651 1,294,550 ----------- ---------- Income from operations 219,249 191,743 General and administrative expenses 225,685 167,598 ----------- ---------- Net income (loss) from operations ( 6,436) 24,145 Other expense Interest expense ( 1,815) ( 279) ----------- ---------- Earnings (loss) before income taxes ( 8,251) 23,866 Income taxes (Notes 1E and 6) 2,755 ( 6,035) ----------- ---------- Net earnings (loss) ( 5,496) 17,831 Retained Earnings-Beginning of Year 47,387 29,556 ----------- ---------- Retained Earnings-End of Year $ 41,891 $ 47,387 =========== ========== Net income (loss) per Share $( 18.32) $ 57.94 =========== ========== Weighted Average Number of Shares 300 300 (Note 1B) THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-78 MENCOR, INC. STATEMENTS OF CASH FLOWS Periods Ending December 31, 1996 1995 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss) $( 5,496) $ 17,831 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES Depreciation & amortization 5,850 1,911 Allowance for doubtful accounts 7,610 Deferred tax benefit ( 920) ( 1,000) (Increase) Decrease-Assets Accounts Receivable-trade ( 9,888) (109,343) Advances to affiliate ( 9,443) ( 17,910) Refundable income taxes ( 860) Prepaid expenses 76 22 Increase (Decrease)-Liabilities Accounts payable-trade ( 16,006) 11,569 Accounts payable-affiliate 11,731 14,150 Payroll taxes withheld and payable 3,918 Accrued expenses 2,039 Income taxes payable ( 14,815) 7,035 ----------- ---------- Total Adjustments ( 28,318) ( 85,956) Net Cash Provided (used) by Operations ( 33,814) ( 68,125) ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Offering costs ( 3,346) Purchases of equipment ( 2,674) ( 620) Security deposits ( 1,125) ----------- ---------- Net Cash Used in Investing Activities ( 6,020) ( 1,745) ----------- ---------- Subtotal $ ( 39,834) $ ( 69,870) ----------- ---------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-79 MENCOR, INC. STATEMENTS OF CASH FLOWS (CONTINUED) Periods Ending December 31, 1996 1995 ----------- ---------- Balance brought forward $ ( 39,834) $ ( 69,870) ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Advances from related party 123,397 Repayments to related party ( 39,427) Principal payments on equipment loan ( 878) ( 377) ----------- ---------- Net Cash provides by (used in) financing activities 83,092 ( 377) ----------- ---------- NET INCREASE (DECREASE) IN CASH 43,258 ( 70,247) ----------- ---------- CASH AT BEGINNING OF PERIOD 34,726 104,973 ----------- ---------- CASH AT END OF PERIOD $ 77,984 $ 34,726 =========== ========== Supplemental Disclosure of Cash flow information: Cash Paid during the year Interest expense $ 1,815 $ 279 Income taxes $ 14,840 $ -0- The Company purchased office equipment during the year ended December 31, 1995. The purchase price of the equipment amounted to $2,946 and was financed through the vendor. See Note 4. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-80 MENCOR, INC. NOTES TO THE FINANCIAL STATEMENTS December 31, 1996 and 1995 NOTE 1 - General and Summary of Significant Accounting Policies (A) - Nature of Operations Mencor, Inc. was incorporated in the State of Arkansas on July 6, 1994. The Company operates as a broker for interstate motor carriers. An interstate motor carrier broker serves the trucking industry by providing return hauls for truckers who have completed their initial delivery. By providing this service, trucking companies and independent operators are able to cover the cost of returning to their home location. The Company's corporate headquarters are located in Charleston, South Carolina. As a broker, the Company is required to acquire a license which provides the authority to engage in interstate commerce. This license was acquired in April, 1994. Services are provided to customers located primarily in the central United States but include locations in virtually all 48 contiguous states. (B) - Net Earnings (Loss) per Share Net earnings per share is computed on the basis of the weighted average number of common and common equivalent shares outstanding during each period. Only the weighted average number of shares of common stock outstanding is used to compute income per share in 1996 and 1995 as there are no stock options, warrants, or other common stock equivalents in these years. (C) - Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents for financial statement purposes. (D) - Property, Plant and Equipment Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives principally on an accelerated basis. Accelerated methods of depreciation are followed for substantially all assets for both financial reporting and tax purposes. Transportation equipment, furniture and fixtures, and other equipment are generally depreciated over periods ranging from two to seven years. (E) - Income Taxes Income taxes are provided on all revenue and expense items included in the statement of earnings, regardless of the period in which such items are recognized for income tax purposes, except for items representing a permanent difference between pretax accounting income and taxable income. Non current deferred income taxes result from the use of accelerated methods of depreciation for income tax purposes and from the establishment of an allowance for doubtful accounts for financial reporting purposes. F-81 MENCOR, INC. NOTES TO THE FINANCIAL STATEMENTS December 31, 1996 and 1995 NOTE 1 - General and Summary of Significant Accounting Policies (continued) (F) - Revenue Recognition The Company recognizes revenues at the time the shipment is delivered to recipients. (G) - Organization expense As part of its initial incorporation, the company incurred organization costs amounting to $889 which is being amortized on a straight-line basis over five years. (H) - Intangible Asset As discussed in Note 1A, the Company acquired a license from the Interstate Commerce Commission which is required to allow the Company to do business as an interstate carrier broker. This license, which cost $2,000 is being amortized on a straight-line basis over five years. (I) - Concentration of Credit Risk Virtually all of the Company's customers are in the long haul trucking industry. Further, accounts receivable are uncollateralized and consist of amounts due from that industry. (J) - Offering Costs During 1996, the Company incurred certain expenses related to an equity offering in connection with its affiliate, Mid America Transporters Group, Inc. and Subsidiary. The offering was unsuccessful and, accordingly, the expense was amortized in full during 1996. (K) - Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2 - Cash and Cash Equivalents The Company maintains its cash balances in one financial institution located in Charleston, South Carolina which at times, may exceed federally insured limits. The Company has not experienced any losses in such account and believed it is not exposed to any significant credit risk on cash and cash equivalents. F-82 MENCOR, INC. NOTES TO THE FINANCIAL STATEMENTS December 31, 1996 and 1995 NOTE 3 - Property, Plant and Equipment Property, plant and equipment consists of the following as of December 31,: 1996 1995 -------- -------- Office equipment $ 12,656 $ 7,171 Furniture and fixtures 1,406 1,406 -------- -------- 11,250 8,577 Less: Accumulated Depreciation 3,950 2,025 -------- -------- Total property, plant and equipment $ 7,300 $ 6,552 ======== ======== Depreciation expense amounted to $1,925 and $1,333 for the years ended December 31, 1996 and 1995, respectively and is included in general and administrative expenses. NOTE 4 - Notes Payable During 1995, the Company acquired office equipment in the amount of $2,946 which was financed payable in 36 installments of $110 per month including interest at 14% per annum due June, 1998. Total principal $ 1,691 Less: current maturities 1,071 -------- Long-term portion $ 620 ======== Aggregate annual maturities of long-term debt for the five years following December 31, 1996 are as follows: 1997 $ 1,071 1998 620 -------- Total $ 1,691 ======== NOTE 5 - Commitments and Contingencies The Company leases office space for its operating facility in Charleston, South Carolina. The current lease term commenced on May 1, 1995 and concludes on April 30, 1997. Commitments under this lease agreement amounted to $3,675 in 1997. Rent expense amounted to $6,000 and $9,440 for the periods ended December 31, 1996 and 1995, respectively and is included in general and administrative expenses. F-83 MENCOR, INC. NOTES TO THE FINANCIAL STATEMENTS December 31, 1996 and 1995 NOTE 6 - Income Taxes The Company accounts for income taxes on the liability method, as provided by Statement of Financial Accounting Standards 109, Accounting for Income Taxes (SFAS 109). The provision for income taxes was comprised of the following components as of December 31. 1996 and 1995: 1996 1995 -------- -------- Federal-current $( 860) $ 5,276 Federal-deferred ( 1,586) (1,000) State-current 25 1,759 State-deferred ( 334) -0- -------- -------- Total $( 2,755) $ 6,035 ======== ======== The income tax provision reconciled to the tax computed at the statutory Federal rate was: 1996 1995 ---------------- ---------------- Tax at Statutory Rate $( 3,218) (39)% $ 9,308 39 % State income taxes 1,759 7 Benefit of graduated brackets 463 6 ( 5,728) (24) Other 696 3 -------- -- -------- -- $( 2,755) (33)% $ 6,035 25 % ======== == ======== == Deferred tax assets and liabilities at December 31, 1996 and 1995 consist of the following: 1996 1995 -------- -------- Deferred tax assets Allowance for doubtful accounts $ 11,834 $ 11,834 Deferred tax liabilities Depreciation of property & equipment ( 5,155) ( 6,545) -------- -------- Net Total $ 6,679 $ 5,289 ======== ======== Net operating loss carryovers amounting to $5,733 for state income tax purposes are available through December 31, 2011. F-84 MENCOR, INC. NOTES TO THE FINANCIAL STATEMENTS December 31, 1996 and 1995 NOTE 7 - Advances to Affiliate The Company advanced funds and provided services to its affiliate, Gulf Northern Transport, Inc. during 1996 and 1995. Gulf Northern is related to the Company through common ownership and management. Total revenues generated by services provided during 1996 and 1995, respectively amounted to $6,465 and $2,601. The amount of such advances which remained unpaid as of December 31, 1996 and 1995 amounted to $27,353 and $17,910, respectively. These advances represent allocations of rent and other administrative costs and freight settlements, are non interest bearing and are due on demand. The fair market value of these advances approximate book value. NOTE 8 - Accounts Payable-Affiliate The Company incurred expenses for freight settlements from its affiliate, Gulf Northern Transport, Inc. which amounted to $340,822 and $119,045 for the years ended December 31, 1996 and 1995. The remaining balance payable to the affiliate for such expenses as of December 31, 1996 and 1995 amounted to $25,881 and $14,150, respectively. NOTE 9 - Advances from Related Party During August and September 1996, a shareholder advanced funds totaling $123,397 to the Company. Repayments during the year amounted to $39,427 with the remaining balance remitted by February, 1997. The advances were payable on demand with no stated interest. NOTE 10 - Economic Dependency The Company's customers consist primarily of high volume shippers that have significant time sensitive and high service level traffic needs. The Company provided services to three and two customers respectively which accounted for net revenues in excess of 10% of the Company's total revenues for the years ended December 31, 1996 and 1995 respectively. Tamco Distributors, OK Grocery and McCrory Stores accounted for 24.8%, 17.1% and 13.8% of the Company's net revenues for the year ended December 31, 1996. Tamco Distributors and OK Grocery accounted for 30.1% and 22.8% of the Company's net revenues for the year ended December 31, 1995. Accounts receivable from those customers amounted to $82,926 and $94,594 as of December 31, 1996 and 1995 respectively. Revenues from the Company's five and ten largest customers accounted for approximately 66% and 81% respectively of total net revenues for the year ended December 31, 1996. Revenues from the Company's five and ten largest customers accounted for approximately 71% and 87% respectively of total net revenues for the year ended December 31, 1995. F-85 MENCOR, INC. NOTES TO THE FINANCIAL STATEMENTS December 31, 1996 and 1995 NOTE 11 - Subsequent Event On January 30, 1997, the stockholders sold their interests in Mencor, Inc. to U.S. Trucking, Inc. (the buyer) for $75,000. The transaction was in conjunction with the sale of Gulf Northern Transport, Inc. Also in connection with the sale, the Company agreed to continue the employment of Michael Menor (a former shareholder of Mencor, Inc.) as the president of the Company for the period from the date of enactment to January 30, 2000 at an annual salary of $60,000 per year. Further, during the period of employment and a period of two (2) years after his termination, Mr. Menor agreed that he will not participate in an entity which directly performs truck brokerage services for those customers currently serviced by the Company. Also on the date of enactment, the buyer contracted with Roxanne Pixler, (a former shareholder of Mencor, Inc.) for her to provide consulting services to the Company. Pixler will receive 18,750 shares of U.S. Transportation Systems, Inc. as compensation for her services. The contracted obligation will commence from the date of enactment to December 31, 1998. F-86 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The only statute, charter provision, bylaw, contract, or other arrangement under which any controlling person, Director or Officer of the Company is insured or indemnified in any manner against any liability which he may incur in his capacity as such, is as follows: (a) The Company has the power under the Colorado Business Corporation Act to indemnify any person who was or is a party or is threatened to be made a party to any action, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a Director, Officer, employee, fiduciary, or agent of the Company or was serving at its request in a similar capacity for another entity, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection therewith if he acted in good faith and in a manner he reasonably believed to be in the best interest of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. In case of an action brought by or in the right of the Company such persons are similarly entitled to indemnification if they acted in good faith and in a manner reasonably believed to be in the best interests of the Company but no indemnification shall be made if such person was adjudged to be liable to the Company for negligence or misconduct in the performance of his duty to the Company unless and to the extent the court in which such action or suit was brought determines upon application that despite the adjudication of liability, in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnification. In such event, indemnification is limited to reasonable expenses. Such indemnification is not deemed exclusive of any other rights to which those indemnified may be entitled under the Articles of Incorporation, Bylaws, agreement, vote of shareholders or disinterested directors, or otherwise. (b) The Articles of Incorporation and Bylaws of the Company generally require indemnification of Officers and Directors to the fullest extent allowed by law. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses of the offering, all of which are to be borne by the Selling Shareholders, are as follows: SEC Filing Fee ................................ $ 1,824.38 Printing Expenses ............................. 1,000.00 Accounting Fees and Expenses .................. 2,500.00 Legal Fees and Expenses ....................... 25,000.00 Blue Sky Fees and Expenses .................... 500.00 Miscellaneous ................................. 4,175.62 ---------- Total .................................... $35,000.00 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. During its past three years, the Registrant issued securities which were not registered under the Securities Act of 1933, as amended (the "Act"), as follows. II-1 Effective September 8, 1998, the Company effected a 1 for 160 reverse split of the outstanding Common Stock. All numbers of shares stated below give retroactive effect to this stock split. On September 8, 1998, the Company completed the acquisition of 100% of the outstanding common stock of U.S. Trucking-Nevada in exchange for 15,877,300 shares of the Company's Common Stock. The shares were exchanged on the basis of one share of the Company's Common Stock for one share of U.S. Trucking-Nevada common stock. The stock issuances were made to the 29 shareholders of U.S. Trucking-Nevada pursuant to an Agreement ("Agreement") between the Company and U.S. Trucking-Nevada. During October 1998, the Company issued an additional 133,333 shares of common stock to five accredited investors who had invested $100,000 in U.S. Trucking-Nevada and who exchanged their shares in U.S. Trucking-Nevada for shares of the Company's common stock on a one-for-one basis. During November 1998, the Company issued 33,334 shares to an accredited investor who invested $25,000 in a private placement. The sales described above were made in reliance on the exemption from registration offered by Section 4(2) of the Securities Act of 1933. The Company had reasonable grounds to believe that these persons (1) were acquiring the shares for investment and not with a view to distribution, and (2) had such knowledge and experience in financial and business matters that they were capable of evaluating the merits and risks of their investment and were able to bear those risks. Such persons had access to pertinent information enabling them to ask informed questions. An appropriate restrictive legend is noted on the certificates representing such shares, and stop-transfer instructions have been noted in the Company's transfer records. ITEM 27. EXHIBITS. The following Exhibits are filed as part of this Registration Statement pursuant to Item 601 of Regulation S-B: EXHIBIT NUMBER DESCRIPTION LOCATION - ------- ----------- -------- 3.1 Articles of Incorporation Incorporated by reference to Exhibit No. 3 to the Company's Registration Statement on Form S-18 (SEC File No. 33-9640-LA) 3.2 Bylaws Incorporated by reference to Exhibit No. 3 to the Company's Registration Statement on Form S-18 (SEC File No. 33-9640-LA) 3.3 Articles of Amendment to Filed herewith electronically Articles of Incorporation effective September 8, 1998 II-2 3.4 Articles of Amendment to Filed herewith electronically Articles of Incorporation dated January 20, 1999 5 Opinion of Krys Boyle Filed herewith electronically Freedman & Sawyer, P.C. regarding the legality of the securities being registered 10.1 1998 Stock Option Plan Incorporated herein by reference to Exhibit No. 4.3 to the Company's Registration Statement on Form S-8 (SEC File No. 333-70353) 10.2 Share Exchange Agreement Incorporated herein by reference to with U.S. Trucking, Inc. Exhibit No. 10 to the Company's Form 8-K dated September 8, 1998 10.3 Employment Agreement with Filed herewith electronically Danny L. Pixler 10.4 Employment Agreement with Filed herewith electronically Anthony Huff 10.5 Employment Agreement with Filed herewith electronically John Ragland 10.6 Lease Agreement dated Filed herewith electronically January 1, 1997, between Gulf Northern Transport, Inc., Dan L. Pixler, and Sebrite Insurance Services, Inc. 10.7 Lease Agreement dated Filed herewith electronically March 5, 1998, between Gulf Northern Transport, Inc. and Dan Pixler for three tractors 10.8 Lease Agreement dated Filed herewith electronically September 23, 1998, between Gulf Northern Transport, Inc. and Thomas Financial Services 10.9 Stock Exchange Agreements Filed herewith electronically between U.S. Trucking and three shareholders dated January 29, 1999. 10.10 Loan and Security Agreement Filed herewith electronically dated as of December 22, 1998 between General Electric Capital Corporation and U.S. Trucking, Inc., et al. II-3 10.11 Management Services Agree- Filed herewith electronically ment dated December 30, 1998, between Mid-Cal Express, Inc. and Gulf Northern Transport, Inc. 21 Subsidiaries of the Filed herewith electronically Registrant 23.1 Consent of Krys Boyle Contained in Exhibit 5 Freedman & Sawyer, P.C. 23.2 Consent of Bianculli, Filed herewith electronically Pascale & Co. P.C. ITEM 28. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned small business issuer will: (1) File, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) Reflect in the prospectus any facts or events which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2, and authorized this Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Louisville, State of Kentucky, on the 5th day of February 1999. U.S. TRUCKING, INC. By:/s/ Danny L. Pixler Danny L. Pixler, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Danny L. Pixler President (Chief Executive February 5, 1999 Danny L. Pixler Officer) and Director /s/ W. Anthony Huff Executive Vice President February 5, 1999 W. Anthony Huff and Director /s/ John Ragland Chief Financial and February 5, 1999 John Ragland Accounting Officer U.S. TRUCKING, INC. FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION LOCATION 3.3 Articles of Amendment to Filed herewith electronically Articles of Incorporation effective September 8, 1998 3.4 Articles of Amendment to Filed herewith electronically Articles of Incorporation dated January 20, 1999 5 Opinion of Krys Boyle Filed herewith electronically Freedman & Sawyer, P.C. regarding the legality of the securities being registered 10.3 Employment Agreement with Filed herewith electronically Danny L. Pixler 10.4 Employment Agreement with Filed herewith electronically Anthony Huff 10.5 Employment Agreement with Filed herewith electronically John Ragland 10.6 Lease Agreement dated Filed herewith electronically January 1, 1997, between Gulf Northern Transport, Inc., Dan L. Pixler, and Sebrite Insurance Services, Inc. 10.7 Lease Agreement dated Filed herewith electronically March 5, 1998, between Gulf Northern Transport, Inc. and Dan Pixler for three tractors 10.8 Lease Agreement dated Filed herewith electronically September 23, 1998, between Gulf Northern Transport, Inc. and Thomas Financial Services 10.9 Stock Exchange Agreements Filed herewith electronically between U.S. Trucking and three shareholders dated January 29, 1999. 10.10 Loan and Security Agreement Filed herewith electronically dated as of December 22, 1998 between General Electric Capital Corporation and U.S. Trucking, Inc., et al. 10.11 Management Services Agree- Filed herewith electronically ment dated December 30, 1998, between Mid-Cal Express, Inc. and Gulf Northern Transport, Inc. 21 Subsidiaries of the Filed herewith electronically Registrant 23.1 Consent of Krys Boyle Contained in Exhibit 5 Freedman & Sawyer, P.C. 23.2 Consent of Bianculli, Filed herewith electronically Pascale & Co. P.C. EX-3.3 2 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF NORTHERN DANCER CORPORATION CHANGING ITS NAME TO U.S. TRUCKING, INC. Pursuant to the provisions of the Colorado Business Corporation Act, the undersigned Corporation adopts the following Articles of Amendment to its Articles of Incorporation: FIRST: The name of the Corporation is NORTHERN DANCER CORPORATION. SECOND: The following amendment was adopted on August 20, 1998, by the Board of Directors, and on September 4, 1998, by a vote of the Shareholders of the Corporation, in the manner prescribed by the Colorado Business Corporation Act. The number of shares voted for the amendment was sufficient for approval. The FIRST Article shall be amended to read as follows: The name of the Corporation shall be U.S. TRUCKING, INC. The first paragraph of the FOURTH Article shall be amended to read as follows: The aggregate number of shares which this Corporation shall have the authority to issue is Seventy-five Million (75,000,000) shares of no par value each, which shares shall be designated "Common Stock"; and Ten Million (10,000,000) shares of no par value each, which shares shall be designated "Preferred Stock" and which may be issued in one or more series at the discretion of the Board of Directors. In establishing a series the Board of Directors shall give to it a distinctive designation so as to distinguish it from the shares of all other series and classes, shall fix the number of shares in such series, and the preferences, rights and restrictions thereof. All shares of any one series shall be alike in every particular except as otherwise provided by these Articles of Incorporation or the Colorado Business Corporation Act. THIRD: The manner, if not set forth in such amendments, in which any exchange, reclassification, or cancellation of issued shares provided for in the amendments shall be effected, is as follows: Not applicable. DATED: September 4, 1998 NORTHERN DANCER CORPORATION (Changing its name to U.S. TRUCKING, INC.) By: /s/ Joseph E. O'Connor Joseph E. O'Connor, President EX-3.4 3 ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF U. S. TRUCKING, INC. (SERIES A PREFERRED STOCK) Pursuant to the requirements of Section 7-106-102 of the Colorado Business Corporation Act, the undersigned Corporation submits the following Articles of Amendment to Articles of Incorporation. FIRST: The name of the Corporation is U. S. Trucking, Inc. SECOND: The Articles of Incorporation of the Corporation are hereby amended as follows: "There is hereby established a series of Preferred Stock of the Corporation designated "Series A Preferred Stock." The number of shares of this series of Preferred Stock shall be 999,000 shares. The powers, designations, preferences and relative, participating, optional or other special rights of the shares of this series of Preferred Stock and the qualifications, limitations and restrictions of such preferences and rights shall be as follows: Section 1. Voting Rights. Except as otherwise expressly provided herein or by law, the holders of shares of Series A Preferred Stock shall be entitled to vote on all matters and shall be entitled to ten votes for each share of Series A Preferred Stock held by such holder, such number of votes to be appropriately adjusted in the event of any split, reverse split or dividend of the common stock. Except as otherwise expressly provided herein or as expressly required by law, the holders of shares of Series A Preferred Stock and common stock shall vote together as a single class on all matters. Section 2. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of shares of Series A Preferred Stock shall be entitled to be paid an amount equal to ten times the amount payable on each share of common stock. As used in this paragraph 2, the term "common stock" shall mean and include the Corporation's authorized common stock, without par value, as constituted on the date of filing of these terms of the Series A Preferred Stock. The consolidation or merger of the Corporation into or with any other entity or entities which results in the exchange of outstanding shares of the Corporation for securities or other consideration issued or paid or caused to be issued or paid by any such entity or affiliate thereof, and the sale or transfer by the Corporation of all or substantially all of its assets, shall be deemed to be a liquidation dissolution or winding up of the Corporation within the meaning of the provisions of this paragraph 2. Section 3. Dividend Provisions. The holders of shares of the Series A Preferred Stock are not entitled to receive any dividends. Section 4. Notices. Any notice required to be given to holders of shares of Series A Preferred Stock shall be deemed given upon deposit in the United States mail, postage prepaid, addressed to such holder of record at his address appearing on the books of the Corporation, or upon personal delivery at the aforementioned address." Section 5. Amendment. The terms of the Series A Preferred Stock shall not be amended without the consent of the holders of not less than a majority of the outstanding Series A Preferred Stock. THIRD: Such Amendment was duly adopted by the Board of Directors of the Corporation on the 15th day of January 1999. IN TESTIMONY WHEREOF, the undersigned Corporation has caused these Articles of Amendment to the Articles of Incorporation to be signed by a duly authorized officer and duly attested by another such officer, to be hereunto affixed this 20th day of January 1999. U. S. TRUCKING, INC. By:/s/ Anthony Huff Anthony Huff, Chairman ATTEST: /s/ Marion Huff Secretary 2 EX-5 4 OPINION OF KRYS BOYLE FREEDMAN & SAWYER, P.C. KRYS BOYLE FREEDMAN & SAWYER, P.C. ATTORNEYS AT LAW Dominion Plaza, Suite 2700 South Tower 600 Seventeenth Street Denver, Colorado 80202 Telephone Facsimile (303) 893-2300 (303) 893-2882 February 5, 1999 U.S. Trucking, Inc. 10602 Timberwood Circle #9 Louisville, Kentucky 40223 Gentlemen: We have acted as counsel to U.S. Trucking, Inc., a Colorado corporation (the "Company"), in connection with the preparation and filing with the Securities and Exchange Commission of a Registration Statement on Form SB-2 (the "Registration Statement"), pursuant to which the Company is registering under the Securities Act of 1933, as amended, a total of 1,166,667 shares (the "Shares") of its Common Stock, no par value (the "Common Stock") being offered for resale by selling shareholders. This opinion is being rendered in connection with the filing of the Registration Statement. All capitalized terms used herein and not otherwise defined shall have the respective meanings given to them in the Registration Statement. In connection with this opinion, we have examined the Company's Articles of Incorporation and Bylaws, both as currently in effect; such other records of the corporate proceedings of the Company and certificates of the Company's officers as we have deemed relevant; and the Registration Statement and the exhibits thereto. In our examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. Based upon the foregoing, and subject to the limitations set forth below, we are of the opinion that the 3,100,000 Shares being offered for resale have been duly and validly authorized by the Company and have been duly and validly issued and are fully paid and non-assessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. We hereby further consent to the reference to us under the caption "Legal Matters" in the prospectus included in the Registration Statement. Very truly yours, KRYS BOYLE FREEDMAN & SAWYER, P.C. By: /s/ Jon D. Sawyer Jon D. Sawyer EX-10.3 5 EMPLOYMENT CONTRACT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made SEPT 9, 1998, by and between U. S. Trucking, Inc., a Colorado corporation, with its general office located at 3125 Ashley Phosphate Road, Suite 128, N. Charleston, SC 29418. and Danny L. Pixler, residing at 1004 Crooked Oak Road, Summerville, SC 29485 (the "Employee"), who hereby agree as follows: 1. Employment Agreement Upon the terms and subject to the conditions contained in this Agreement, the Company hereby employs the Employee, and the Employee hereby accepts employment by the Company. 2. Term of Employment The term of the Employee's employment by the Company under this Agreement shall be for five (5) years commencing on Sept.9, 1998, and ending Sept. 9, 2003. 3. Services The Employee shall be employed as the President and Chief Executive Officer of the Company which is engaged in the operation of a nationwide trucking and property common carrier. The Employee shall also be employed as the President of all the Company's subsidiaries. The Employee shall have full authority, responsibility and control of all day-to-day matters of the Company and its operating subsidiaries and the policies and practices adopted, in good faith and reasonableness, from time to time by the Board of Directors. Employee shall devote his best efforts and his full business and professional time to the faithful fulfillment of his duties hereunder. Employee shall have his principal office located in Charleston, SC. 4. Compensation The Employee shall receive an annual salary of not less than One Hundred and Five Thousand dollars ($105,000) during the term of this Agreement payable in accordance with the Company's general policies for payment of compensation to its salaried personnel. In addition, the Employee shall receive annual increases of not less than 3%. 5. Fringe Benefits and Perquisites The Employee shall be entitled to all fringe benefits and perquisites that may be provided generally for the most senior executive officers of the Company pursuant to policies established from time to time by the Company's Board of Directors, including, but not limited to, a mutually agreeable new car every three (3) years and all vehicle expenses incurred on company business or an auto allowance not to exceed $550.00 per month (at the election of Employee); a cellular phone; annual vacations of not less than two (2) weeks per year; and participation in the the Company family medical plan, pension plan, and profit sharing plan. 6. Reimbursements The Employee shall be reimbursed for all direct and substantiated out-of-pocket expenditures duly made by him on the Company's behalf in the performance of his services under this Agreement, subject to timely reporting requirements imposed from time to time by the Company's Board of Directors. 7. Covenant Not to Compete During the term of this Agreement, Employee shall not directly or indirectly (on his behalf or as an agent, employee, officer, director, partner, shareholder, or other owner), loan money or credit to, own any interest in, engage in, or otherwise participate in a business directly competitive with the Company's operations and business as conducted by the Company prior to the termination of Employee's employment, nor shall Employee interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Company and any customer, client, supplier, consultant or employee of the Company. 8. Termination of Employment by Employer Notwithstanding anything contained in this Agreement to the contrary, this Agreement may be terminated by the Company at any time on or after the occurrence of any of the following events: 8.1 Disability - Employee is unable to perform his duties hereunder for more than sixty (60) consecutive days or ninety (90) days within a consecutive twelve (12) month period as a result of his becoming disabled. "Disabled" shall mean the inability of the Employee, due to mental of physical disability certified by a physician selected by the Company and reasonably satisfactory to the Employee, to substantially perform his duties hereunder. The Employee shall make himself available for examination by such physician upon reasonable request. 8.2 Fraud - Employee is found guilty by a court of competent jurisdiction of fraud or dishonest in the performance of his duties under this Agreement. 8.3 Crime - Employee is convicted of a felony. 8.4 Death - Employee dies 8.5 Substance Abuse - Employee is found intoxicated or under the influence of illegal drugs or other similar substance while performing his duties under this Agreement during regular working hours. 9. Complete Agreement This document contains the entire agreement between the parties and supersedes any prior decision, negotiations, representations or agreements between them respecting employment of the Employee. No alterations, additions or other changes to this Agreement shall be binding unless made in writing and signed by both parties to this Agreement. 2 10. Governing Law This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of South Carolina. Dated: As of September 8, 1998 U.S. TRUCKING, INC. By: /s/ W. Anthony Huff /s/ Danny Pixler Title: Executive Vice President Danny Pixler 3 EX-10.4 6 EMPLOYMENT CONTRACT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made SEPT 9, 1998, by and between U. S. Trucking, Inc., a Colorado corporation, with its general office located at 3125 Ashley Phosphate Road, Suite 128, N. Charleston, SC 29418 and Anthony Huff (the "Employee"), who hereby agree as follows: 1. Employment Agreement Upon the terms and subject to the conditions contained in this Agreement, the Company hereby employs the Employee, and the Employee hereby accepts employment by the Company. 2. Term of Employment The term of the Employee's employment by the Company under this Agreement shall be for five (5) years commencing on Sept.9, 1998, and ending Sept. 9, 2003. 3. Services The Employee shall be employed as Executive Vice President of the Company, responsible for risk management, investor relations, and such other duties as the Board of Directors may determine from time to time. Employee shall devote his best efforts to the faithful fulfillment of his duties hereunder. Employee shall have his principal office located in Louisville, KY. 4. Compensation The Employee shall receive an annual salary of not less than Fifty-two Thousand dollars ($52,000) during the term of this Agreement payable in accordance with the Company's general policies for payment of compensation to its salaried personnel. In addition, the Employee shall receive annual increases of not less than 3%. 5. Reimbursements The Employee shall be reimbursed for all direct and substantiated out-of-pocket expenditures duly made by him on the Company's behalf in the performance of his services under this Agreement, subject to timely reporting requirements imposed from time to time by the Company's Board of Directors. 6. Covenant Not to Compete During the term of this Agreement, Employee shall not directly or indirectly (on his behalf or as an agent, employee, officer, director, partner, shareholder, or other owner), loan money or credit to, own any interest in, engage in, or otherwise participate in a business directly competitive with the Company's operations and business as conducted by the Company prior to the termination of Employee's employment, nor shall Employee interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Company and any customer, client, supplier, consultant or employee of the Company. 7. Termination of Employment by Employer Notwithstanding anything contained in this Agreement to the contrary, this Agreement may be terminated by the Company at any time on or after the occurrence of any of the following events: 7.1 Disability - Employee is unable to perform his duties hereunder for more than sixty (60) consecutive days or ninety (90) days within a consecutive twelve (12) month period as a result of his becoming disabled. "Disabled" shall mean the inability of the Employee, due to mental of physical disability certified by a physician selected by the Company and reasonably satisfactory to the Employee, to substantially perform his duties hereunder. The Employee shall make himself available for examination by such physician upon reasonable request. 7.2 Fraud - Employee is found guilty by a court of competent jurisdiction of fraud or dishonest in the performance of his duties under this Agreement. 7.3 Crime - Employee is convicted of a felony. 7.4 Death - Employee dies 7.5 Substance Abuse - Employee is found intoxicated or under the influence of illegal drugs or other similar substance while performing his duties under this Agreement during regular working hours. 8. Complete Agreement This document contains the entire agreement between the parties and supersedes any prior decision, negotiations, representations or agreements between them respecting employment of the Employee. No alterations, additions or other changes to this Agreement shall be binding unless made in writing and signed by both parties to this Agreement. 9. Governing Law This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of South Carolina. Dated: As of September 8, 1998 U.S. TRUCKING, INC. By: /s/ Danny Pixler /s/ Anthony Huff Title: President Anthony Huff 2 EX-10.5 7 EMPLOYMENT CONTRACT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made SEPT 9, 1998, by and between U. S. Trucking, Inc., a Colorado corporation, with its general office located at 3125 Ashley Phosphate Road, Suite 128, N. Charleston, SC 29418 and John Ragland, residing at 1741 Middle St., Sullivan's Island, SC 29482 (the "Employee"), who hereby agree as follows: 1. Employment Agreement Upon the terms and subject to the conditions contained in this Agreement, the Company hereby employs the Employee, and the Employee hereby accepts employment by the Company. 2. Term of Employment The term of the Employee's employment by the Company under this Agreement shall be for three (3) years commencing on Sept.9, 1998, and ending Sept. 9, 2001. 3. Services The Employee shall be employed as the Chief Financial Officer and Vice President of Finance of the Company. The Employee shall have full authority, responsibility and control of all accounting and financial matters of the Company and its subsidiaries and the policies and practices adopted, in good faith and reasonableness, from time to time by the Board of Directors. Employee shall devote his best efforts and his full business and professional time to the faithful fulfillment of his duties hereunder. Employee shall have his principal office located in Charleston, SC. 4. Compensation The Employee shall receive an annual salary of not less than Seventy-five Thousand dollars ($75,000) during the term of this Agreement payable in accordance with the Company's general policies for payment of compensation to its salaried personnel. In addition, the Employee shall receive annual increases of not less than 3%. 5. Fringe Benefits and Perquisites The Employee shall be entitled to all fringe benefits and perquisites that may be provided generally for the most senior executive officers of the Company pursuant to policies established from time to time by the Company's Board of Directors, including, but not limited to, a company car and all vehicle expenses incurred on company business; annual vacations of not less than two (2) weeks per year; and participation in the Company family medical plan, pension plan, and profit sharing plan. 6. Reimbursements The Employee shall be reimbursed for all direct and substantiated out-of-pocket expenditures duly made by him on the Company's behalf in the performance of his services under this Agreement, subject to timely reporting requirements imposed from time to time by the Company's Board of Directors. The Employee shall be reimbursed for the cost of relocating to the Company's general offices in Charleston, SC. The method of reimbursement shall be monthly at a rate of $134.00 per month starting on Oct. 19, 1998 and for the next consecutive 11 months on the 19th of each month. 7. Covenant Not to Compete During the term of this Agreement, Employee shall not directly or indirectly (on his behalf or as an agent, employee, officer, director, partner, shareholder, or other owner), loan money or credit to, own any interest in, engage in, or otherwise participate in a business directly competitive with the Company's operations and business as conducted by the Company prior to the termination of Employee's employment, nor shall Employee interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Company and any customer, client, supplier, consultant or employee of the Company. 8. Termination of Employment by Employer Notwithstanding anything contained in this Agreement to the contrary, this Agreement may be terminated by the Company at any time on or after the occurrence of any of the following events: 8.1 Disability - Employee is unable to perform his duties hereunder for more than sixty (60) consecutive days or ninety (90) days within a consecutive twelve (12) month period as a result of his becoming disabled. "Disabled" shall mean the inability of the Employee, due to mental of physical disability certified by a physician selected by the Company and reasonably satisfactory to the Employee, to substantially perform his duties hereunder. The Employee shall make himself available for examination by such physician upon reasonable request. 8.2 Fraud - Employee is found guilty by a court of competent jurisdiction of fraud or dishonest in the performance of his duties under this Agreement. 8.3 Crime - Employee is convicted of a felony. 8.4 Death - Employee dies 8.5 Substance Abuse - Employee is found intoxicated or under the influence of illegal drugs or other similar substance while performing his duties under this Agreement during regular working hours. 9. Complete Agreement This document contains the entire agreement between the parties and supersedes any prior decision, negotiations, representations or agreements between them respecting employment of the Employee. No alterations, additions or other changes to this Agreement shall be binding unless made in writing and signed by both parties to this Agreement. 10. Governing Law This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of South Carolina. 2 Dated: As of September 8, 1998 U.S. TRUCKING, INC. By: /s/ Danny Pixler /s/ John Ragland Title: President John Ragland 3 EX-10.6 8 LEASE AGREEMENT THIS LEASE AGREEMENT ("Lease") is made and entered into this 1st day of January, 1997, by and between DAN L. PIXLER, and individual ("Pixler") and SEBRITE INSURANCE SERVICES, INC., a Kentucky Corporation ("Sebrite," who together with Pixler may hereinafter sometimes collectively be referred to as the "Landlord"); and GULF NORTHERN TRANSPORT, INC., a Wisconsin corporation, ("Tenant"). WITNESSETH: Landlord has agreed to lease on a triple net or net-net-net basis, certain property located in Wisconsin Rapids, Wood County, Wisconsin as more particularly described in Exhibit A attached hereto (the "Premises"), and the parties are entering into this Lease in order to document their respective understandings and obligations. NOT, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, Landlord hereby leases to Tenant, and Tenant hereby takes and hires from Landlord, the Premises including without limitation any and all improvements located thereon. TO HAVE AND TO HOLD the Premises and all privileges and appurtenances thereunto belonging unto Tenant on the following terms and conditions: 1. Term. The term of this Lease shall be five (5) years, commencing on January 1, 1998 and ending on January 1, 2002, both dates inclusive unless sooner terminated as hereinafter provided. 2. Delivery of Possession; Possession "AS-IS". If the Landlord for any reason can not deliver possession of the Premises to Tenant at the commencement of the Lease term, this Lease shall not be void or voidable, nor shall the Landlord be liable to Tenant for any loss or damage resulting therefrom, but there shall be an abatement of Rent for the period between the commencement of the lease term and the time when Landlord does deliver possession. If Tenant accepts possession of the Premises before the commencement of this Lease, rental shall commence on such earlier date, and the term of this Lease shall end on the original termination date as provided above. Tenant agrees that the Premises are fit and habitable and consent to take the Premises "AS-IS". 3. Rent. During the term of this Lease, Tenant shall pay rent (the "Rent") equal to the sum of (i) the amount of principal and interest due pursuant to a Note and a Mortgage, each in the original principal amount of $5,000, both from Pixler and W. Anthony Huff (collectively, the "Borrowers") to and in favor of Bell, Brown & Romanski (collectively, the "Lenders"); (ii) $1,500 per month, which shall be escrowed to pay real property taxes on the mortgaged property, pursuant to agreement between the Borrowers and the Lenders; and (iii) $850 per month, which shall be escrowed to pay insurance costs on the mortgaged property, pursuant to an agreement between the Borrowers and the Lenders. All Rent payments shall be made to Landlord at its principal office in Charleston South Carolina, or at such other place as Landlord may designate in writing to Tenant. Any payment of Rent which is made more than ten (10) days after the date when due shall, at the option of the Landlord, be increased by a late charge to compensate Landlord for inconvenience and additional administrative expense in an amount equal to the sum of ten percent (10%) of said Rent payment for each ten-day period for which said Rent payment is past due, and Landlord's entitlement to said late charge shall be in addition to, and not in lieu of or a waiver of, any remedies to which Landlord is entitled hereunder, at law, or in equity, as a result of said late payment of Rent. 4. Use. Tenant shall sue and occupy the Premises solely for commercial purposes. Tenant agrees to keep the Premises and grounds safe, neat, clean and esthetically pleasing; Tenant also agrees to perform at its expense, maintenance functions, such as lawn mowing, snow removal, servicing of appliances and systems, window washing, leaf removal, shrub and plant maintenance, and such other functions normally associated with the care of a house. Tenant agrees to keep the gutters free from leaves, branches or other debris. 5. Quiet Enjoyment. Tenant, upon paying the Rent and other charges herein provided for, and performing all the other terms of this Lease, shall quietly have and enjoy the Premises during the term of this Lease without hindrance or molestation by Landlord or by anyone claiming through Landlord, subject, however, to the reservations and conditions of this Lease, and any easements or encumbrances of record as of the date of this Lease. 6. Repairs and Maintenance. Tenant shall, at its own expense, make any repairs to the structure, roof and concealed systems (plumbing, electrical, heating and air conditioning) within or serving the Premises as may be necessary for safety and tenantability and any such repairs made necessary by the act or neglect of Tenant, its agents or visitors. Tenant shall keep and maintain the Premises in good order and repair during the term of this Lease and shall surrender the same to Landlord at the expiration or earlier termination of this Lease in as good condition as they were when received (or subsequently improved or altered), normal wear and tear excepted. 7. Improvements. All improvements, alterations and additions to the Premises desired by Tenant, shall be made only at Tenant's expense, in good and workmanlike manner and in accordance with plans and specifications which have been previously approved in writing by Landlord, such approval not to be unreasonably withheld. Landlord reserves the right to approve the contractor to perform such improvements, alterations and additions, which approval shall not be unreasonably withheld. All improvements and additions made by Tenant and attached to the Premises, including without limitation all partitions, carpets, lighting fixtures, doors, hardware, shelves, cabinets and ceilings, shall remain in the Premises and shall be surrendered to Landlord at the expiration or earlier termination of this lease, and shall become the property of Landlord. Tenant shall have the right at the termination of the Lease to remove all of its personal property from the Premises. 8. Utilities and Other Services. Tenant shall pay all charges of any utility whatsoever for heat, water, gas, electricity, sewer use, telecommunications, cable television, and any other utility use or consumed on the Premises. 9. Insurance. During the term of this Lease, Tenant shall keep in full force and effect, at its expense, a policy or policies of comprehensive public liability insurance with respect to the Premises, naming Landlord as an additional insured, in which both Landlord and Tenant shall be adequately covered under reasonable Limits of Liability not less than $1,000,000 for injury or death to more than one person, $1,000,000 for any one person injured 2 or killed, and $100,000 with respect to damage to property at the request of Landlord. Tenant shall furnish Landlord with certificates or other evidence acceptable to Landlord that such insurance is in effect which evidence shall state that Landlord shall be notified in writing thirty (30) days prior to cancellation, material change, or non-renewal of such insurance. 10. Taxes and Tax Adjustment. Tenant shall pay, prior to delinquency, all taxes and assessments of every kind and nature which are now or may hereafter be imposed or assessed upon or with respect to the Premises and the remainder of the Building and all taxes and assessments of every kind or nature imposed or assessed upon or with respect to the furnishings, fixtures, equipment and other property of Tenant placed in the Premises. 11. Property of Tenant. So long as Tenant is not in default under this Lease, tenant may, and at the expiration or earlier termination hereof shall, remove all furniture, equipment and other personal property which Tenant shall have placed in the Premises; provided that Tenant shall repair any damage to the Premises caused by such removal. All such property shall, during the term hereof, be at the risk of Tenant only and Landlord shall not be liable for any loss thereof or damage thereto resulting from any cause whatsoever, and each policy of insurance covering such property shall contain a standard waiver of subrogation endorsement. Any such property not removed at the expiration or earlier termination of this Lease shall be deemed abandoned and may be disposed of by Landlord in any manner whatsoever. In the event Tenant is in default under this Lease, Landlord shall have a lien on said furniture, equipment, and other personal property of Tenant as security against loss or damage resulting from such default, and said property may not be removed by Tenant until such default is cured. 12. Assignment and Subletting. Tenant shall not, without the prior written consent of Landlord, assign this Lease. Consent to one assignment shall not constitute a waiver of this provision with respect to subsequent transactions. Each assignee shall be liable to Landlord for all obligations of Tenant, but Tenant shall not be thereby relieved from such obligations. 13. Default and Remedies. In the event of default for a period of ten (10) days after notice of default in the payment of Rent to Landlord, Landlord, without prejudice to any other rights or remedies that it may have, shall have the right, immediately or at any time thereafter, to reenter the Premises and remove all persons and property from the Premises. In the event (I) Tenant shall neglect to keep or perform any other covenant, agreement or condition of this Lease or (ii) Tenant shall file a voluntary petition, or an involuntary petition in shall be filed against Tenant, bankruptcy or any relevant insolvency law, Landlord shall give written notice of such default to Tenant, and in the event such default is not rectified within thirty (30) days from the date of such notice (or is not diligently pursuing a cure if the default cannot be rectified within said thirty (30) days), then Landlord shall have the right to enter the Premises immediately or at any time thereafter and remove Tenant therefrom, without prejudice to any other remedies of Landlord. 14. Notices. All notices provided for in this Lease shall be in writing and shall be deemed to be given when sent by registered or certified mail addressed to Landlord or Tenant at the addresses set forth on the first page of this Lease, and to the holder or holders of any mortgage covering the Premises at such address as such holder or holders may have given by notice as herein provided. Either party hereto, or any such holder, may from time to time, by notice as herein provided, designate a different address to which notices to it shall be sent. 3 15. Surrender of Premises. Tenant will deliver up the Premises at the end of the term or any holdover period in good order and conditions reasonable wear and tear excepted. 16. Holding Over. This tenancy expires at the end of said lease term, but it is expressly understood that if Tenant holds over for another month at the end of said term for any purpose other than the removal of its property, and Landlord accepts Rent for said month, such acceptance shall operate as a renewal of the tenancy for another month and for each additional month for which Landlord accepts Rent. Should Landlord require possession of the Premises, it shall give Tenant thirty (30) days to vacate the said Premises during such holdover period. The monthly rental during the holdover period shall be at a ten percent (10%) increase above the monthly rental paid for the last month of the term as set forth herein. 17. Indemnity. Landlord shall not be liable for loss, expense, or damage to any property or any personal injury. Tenant shall defend, indemnify and hold harmless Landlord from and against any claims, damages or expenses whether due to damage to the Premises, claims for injuries to persons or property or administrative or criminal action by a governmental authority, where such claims, damages or expenses result from the negligence, misconduct or breach of any provision of this Lease by Tenant, its agents, employees or invitees. 18. Waiver. The waiver by Landlord of any breach of any covenant or agreement herein contained shall not be deemed to be a waiver of such covenant or agreement herein contained. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any covenant or agreement of this Lease, other than the failure of Tenant to pay that particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such Rent. 19. Eminent Domain. If the whole of the Premises shall be taken for any public or quasi-public use under any statute or by right of eminent domain, or by purchase in lieu thereof, then this Lease shall automatically terminate as of the date that title shall be taken. If any part of the Premises shall be so taken as to render the remainder thereof unusable for the purposes for which the Premises were leased, then Tenant shall have the right to terminate this Lease by notice to Landlord given within ninety (90) days after the date of such taking. In the event that this Lease shall terminate or be terminated, then rental shall be equitably adjusted as of the date title shall be taken. If any part of the Premises shall be so taken and this Lease shall not terminate or be terminated under the prior paragraph of this Section 19 then the Rent shall be equitably apportioned according to the space so taken. All compensation awarded or paid upon such a total or partial taking of the Premises shall belong to and be the property of Landlord. 20. Subordination. This Lease and Tenant's rights hereunder are subject and subordinate to the following items: a. All present and future agreements securing money paid or to be paid to a lender under mortgages; b. All present and future terms, conditions, renewals, changes of any kind in, and extensions of any mortgages or lender agreements; and 4 c. Any and all matters, present and future, that a search of title to or survey of the Premises would disclose. Tenant agrees that any mortgages or lender agreements shall be automatically superior to this Lease, without the necessity of Tenant to execute any further documents or certificates. However, notwithstanding the foregoing, if Landlord requests any documents or certificates to show that this Lease is subject and subordinate, Tenant agrees to promptly and properly sign any such document or certificates. Tenant appoints Landlord as is attorney-in-fact to execute such documents or certificates in the event Tenant refuses or its unavailable. 21. Memorandum of Lease. This Lease shall not be recorded; however, upon request of either party, the other party agrees to execute a memorandum of this Lease setting forth the essential terms hereof, suitable for recording. 22. Partial invalidity. In the event any provision of this Lease shall be determined to be invalid or unenforceable, the remaining provisions of this Lease shall continue in full force and effect. 23. Counterparts. This Lease may be executed in counterparts, each of which shall be deemed to be an original. 24. Section Headings. Section headings relating to the contents of the particular section have been inserted for the convenience of reference only and shall not be construed as part of the particular sections to which they refer. 25. Governing Law. This Lease shall be governed by and construed in accordance with the laws of the State of Wisconsin. 26. Entire Agreement. This Lease constitutes the entire agreement between Landlord and Tenant, and it supersedes any and all prior understandings or commitments concerning the subject matter of this Lease. 27. Time of the Essence. Time is of the essence with respect to the performance of each of the covenants and agreements under this Lease. 28. Amendments. This Lease shall not be modified or amended except by a written instrument executed by Landlord and tenant. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals, this day and year first written above. "Tenant" GULF NORTHERN TRANSPORT, INC., a Wisconsin corporation By: /s/ Danny Pixler Title: President "Landlord: /s/ Danny Pixler Dan L. Pixler 5 Sebrite Insurance Services, Inc., a Kentucky corporation By: /s/ Anthony Huff Title: Vice President 6 EXHIBIT A Legal Description Lots 1 and 2 of Wood County Certified Survey Map No. 1502, recorded in Volume 6 of Surveys, page 1, Wood County Records, located in the Southwest Quarter of the Northeast Quarter (SW1/2 of NE1/2) of Section 12, Township 22 North, Range 5 East, in the City of Wisconsin Rapids, wood County, Wisconsin. Lots 2 and 3 of Wood County Certified Survey Map No. 2668, recorded in volume 9 of Surveys, page 268, Wood County Records, being a part of the Southwest Quarter of the Northeast Quarter (SW1/2 of NE 1-1/4 of Section 12, Township 22 North, Range 5 east, in the City of Wisconsin Rapids, wood County, Wisconsin. Lot 1 of Wood County Certified Survey Map No. 3136, recorded in Volume 11 of Surveys, page 136, Wood County Records, being a part of the Southwest Quarter of the Northeast Quarter (SW1/4 of NE1/4) of Section 12, Township 22 North, Range 5 East, being Lot 1 of Wood Count Certified Survey Map No. 673 and Lots 1 and 2 of Wood County Certified Survey Map No. 2542, in the City of Wisconsin Rapids, Wood County, Wisconsin. EX-10.7 9 GULF NORTHERN TRANSPORT, INC. LEASE AGREEMENT This lease agreement made and entered into on this 5th day of March 1998, by and between Gulf Northern Transport, Inc., hereinafter referred to as "Carrier/Lessee", and Danny Pixler, hereinafter referred to as "Owner/Lessor", be in full force and effect on the day and date written above. 1. That this lease shall be for a term of one (1) year and extended annually by mutual consent. This lease may be terminated by written notice of either party to the other with no less than 90 day notice being given. If the Company elects to terminate before an annual renewal, the Company will pay to the Owner/Lessor any amounts due on said lease through that years end. 2. That the Carrier/Lessee shall have exclusive possession, control and use of the following equipment to wit: Unit# Year/Make Serial Number ----- --------- ------------- 1. 9526 1995 Volvo 4V1WDBRH1SN686401 2. 9527 1995 Volvo 4V1WDBRH3SN686402 3. 9525 1995 Volvo 4V1WDBRH3SN686407 For the duration of the lease, to be used in transportation of property, for hire, in interstate commerce. 3. That the "Carrier/Lessee" shall have responsible certified drivers for the above equipment for the duration of the lease. 4. That "Carrier/Lessee" shall pay to the "Owner/Lessor" for the use of the above equipment the sum of $4,047 on the 3rd of each month, beginning on April 3, 1998. 5. That the "Carrier/Lessee" shall pay for all maintenance on said equipment; operating expenses; base plates, permits, and license for said equipment and the preparation, filing and any payments due of monthly and quarterly fuel and mileage taxes. That "Carrier/Lessee" will provide the cargo, property, and liability insurance. That "Carrier/Lessee" will provide "Owner/Lessor" with a certificate of insurance on each policy; said certificate to include the name of the insurer, policy number, effective dates of policy, amounts and type of coverage, cost to lessor for each type of coverage, and deductible amount for each type of coverage for which lessor may be liable. That "Carrier/Lessee" shall be liable for all monthly and quarterly fuel taxes. 6. That the "Carrier/Lessee" will provide Bobtail insurance on all of the above-referenced leased equipment. In witness whereof, the parties have signed this agreement on this, the 5th day of March 1998. /s/ Danny Pixler /s/ Danny Pixler Carrier/Lessee Owner/Lessor EX-10.8 10 GULF NORTHERN TRANSPORT, INC. LEASE AGREEMENT This lease agreement made and entered into on this 23rd day of September 1998, by and between Gulf Northern Transport, Inc., hereinafter referred to as "Carrier/Lessee", and Thomas Financial Services (Pixler and Huff), hereinafter referred to as "Owner/Lessor", be in full force and effect on the day and date written above. 1. That this lease shall be for a term of one (1) year and extended annually by mutual consent. This lease may be terminated by written notice of either party to the other with no less than 90 day notice being given. If the Company elects to terminate before an annual renewal, the Company will pay to the Owner/Lessor any amounts due on said lease through that years end. 2. That the Carrier/Lessee shall have exclusive possession, control and use of the following equipment to wit: Unit# Year/Make Serial Number ----- --------- ------------- 1. TH006 1994 Kenworth 1XKAD69X2RS621080 2. TH005 1994 Kenworth IXKAD69X4RS621081 3. TH004 1994 Kenworth IXKAD60X4RS621078 4. TH001 1994 Kenworth IXKAD69X5RS621073 5. TH002 1994 Kenworth IXKAD69X2RS621077 6. TH003 1994 Kenworth IXKAD69X6RS621079 For the duration of the lease, to be used in transportation of property, for hire, in interstate commerce. 3. That the "Carrier/Lessee" shall have responsible certified drivers for the above equipment for the duration of the lease. 4. That "Carrier/Lessee" shall pay to the "Owner/Lessor" for the use of the above equipment the sum of $7,380 (seven thousand three hudred eighty dollars) on the 1st of each month, beginning on November 1, 1998. 5. That the "Carrier/Lessee" shall pay for all maintenance on said equipment; operating expenses; base plates, permits, and license for said equipment and the preparation, filing and any payments due of monthly and quarterly fuel and mileage taxes. That "Carrier/Lessee" will provide the cargo, property, and liability insurance. That "Carrier/Lessee" will provide "Owner/Lessor" with a certificate of insurance on each policy; said certificate to include the name of the insurer, policy number, effective dates of policy, amounts and type of coverage, cost to lessor for each type of coverage, and deductible amount for each type of coverage for which lessor may be liable. That "Carrier/Lessee" shall be liable for all monthly and quarterly fuel taxes. 6. That the "Carrier/Lessee" will provide Bobtail insurance on all of the above-referenced leased equipment. In witness whereof, the parties have signed this agreement on this, the 23rd day of September 1998. /s/ Danny Pixler /s/ Danny Pixler Carrier/Lessee Owner/Lessor EX-10.9 11 STOCK EXCHANGE AGREEMENT AGREEMENT dated as of January 29, 1999, by and between U.S. Trucking, Inc., a Colorado corporation (the "Company") and Logistics Management, LLC (the "Purchaser"). In consideration of the mutual covenants herein contained, and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Exchange of Stock. Company and Seller hereby agree to exchange 9,000,000 shares of Company common stock, without par value (the "Common Shares") owned beneficially and of record by Seller for 900,000 shares of the Series A Preferred Stock (the "Series A Shares") of the Company. The terms of the Series A Shares are set forth in Exhibit A hereto. 2. Representations. Seller represents and warrants to the Company as follows: (a) The Seller is a registered owner of the Common Shares and, assuming the Company purchases the Common Shares for value in good faith and without notice of any adverse claim, will acquire all the rights of the Seller in the Shares free of any adverse claim. (b) Neither the execution and delivery of this Agreement nor the sale of the Series A Shares contemplated hereby will constitute a default under or violate any term or provision of any agreement to which Seller is a party. 3. Exchange. Each Series A Share shall be exchanged for ten Common Shares (subject to an appropriate adjustment in the event of any split, reverse split or dividend of Common Shares) as follows: one-fifth upon the company reporting revenues of $31 million or more for any fiscal year or shorter period in a report on Form 10-KSB, 10-K, 10-QSB, or 10-Q as filed with the Securities and Exchange Commission, an additional one-fifth at or above $41 million revenues, an additional one-fifth at or above $51 million, an additional one-fifth at or above $61 million and the balance at or above $71 million. In addition, the ten-for-one exchange described above shall be effected immediately as to all Series A Shares in the event the holders of the Series A Shares no longer have the voting power to elect a majority of the members of the Board of Directors of the Company. The foregoing exchanges shall be effective immediately without any action on the part of Seller or the Company upon the happening of the event causing the exchange hereunder, whereupon Seller shall surrender the certificate or certificates for Series A Shares so exchanged and the Company shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, a certificate or certificates for the Common Shares issuable upon such exchange. The exchange shall be deemed to have been effected as of the close of business on the date of the exchange event, and at such time the rights of the holder of such exchanged Series A Shares shall cease, and the person or persons in whose name or names any certificate or certificates for Common Shares exchanged therefor shall be issuable upon such exchange shall be deemed to have become the holder or holders of record of the shares represented thereby. 4. Miscellaneous. (a) Governing Law. This Agreement shall in all respects be subject to, and governed by, the internal laws of the state of Colorado. (b) Assignment. This Agreement, together with any amendments to it, shall be binding upon and shall inure to the benefit of the parties and their respective successors, assigns, heirs, and personal representatives, provided that Seller agrees not to transfer any Series A Shares without the prior written consent of the Company, which consent shall not be unreasonably withheld. (c) Amendments. This Agreement may be amended at any time by mutual consent of the parties, with any such amendment to be invalid unless in writing, signed by the parties hereto. (d) Entire Agreement. This Agreement contains the entire agreement and understanding by and between the Company and Seller with respect to the matters covered herein, and no representations, promises, agreements, or understandings, written or oral, relating to the exchange effected hereby not contained in this Agreement shall be of any force or effect. IN WITNESS WHEREOF, Seller and Company have duly executed this Agreement as of the day and year first above written. SELLER: U.S. TRUCKING, INC. LOGISTICS MANAGEMENT, LLC BY: /s/ Anthony Huff BY: /s/ Anthony Huff TITLE: Manager TITLE: Chairman STOCK EXCHANGE AGREEMENT AGREEMENT dated as of January 29, 1999, by and between U.S. Trucking, Inc., a Colorado corporation (the "Company") and Waterways Group, Inc. (the "Purchaser"). In consideration of the mutual covenants herein contained, and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Exchange of Stock. Company and Seller hereby agree to exchange 740,000 shares of Company common stock, without par value (the "Common Shares") owned beneficially and of record by Seller for 74,000 shares of the Series A Preferred Stock (the "Series A Shares") of the Company. The terms of the Series A Shares are set forth in Exhibit A hereto. 2. Representations. Seller represents and warrants to the Company as follows: (a) The Seller is a registered owner of the Common Shares and, assuming the Company purchases the Common Shares for value in good faith and without notice of any adverse claim, will acquire all the rights of the Seller in the Shares free of any adverse claim. (b) Neither the execution and delivery of this Agreement nor the sale of the Series A Shares contemplated hereby will constitute a default under or violate any term or provision of any agreement to which Seller is a party. 3. Exchange. Each Series A Share shall be exchanged for ten Common Shares (subject to an appropriate adjustment in the event of any split, reverse split or dividend of Common Shares) as follows: one-fifth upon the company reporting revenues of $31 million or more for any fiscal year or shorter period in a report on Form 10-KSB, 10-K, 10-QSB, or 10-Q as filed with the Securities and Exchange Commission, an additional one-fifth at or above $41 million revenues, an additional one-fifth at or above $51 million, an additional one-fifth at or above $61 million and the balance at or above $71 million. In addition, the ten-for-one exchange described above shall be effected immediately as to all Series A Shares in the event the holders of the Series A Shares no longer have the voting power to elect a majority of the members of the Board of Directors of the Company. The foregoing exchanges shall be effective immediately without any action on the part of Seller or the Company upon the happening of the event causing the exchange hereunder, whereupon Seller shall surrender the certificate or certificates for Series A Shares so exchanged and the Company shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, a certificate or certificates for the Common Shares issuable upon such exchange. The exchange shall be deemed to have been effected as of the close of business on the date of the exchange event, and at such time the rights of the holder of such exchanged Series A Shares shall cease, and the person or persons in whose name or names any certificate or certificates for Common Shares exchanged therefor shall be issuable upon such exchange shall be deemed to have become the holder or holders of record of the shares represented thereby. 4. Miscellaneous. (a) Governing Law. This Agreement shall in all respects be subject to, and governed by, the internal laws of the state of Colorado. (b) Assignment. This Agreement, together with any amendments to it, shall be binding upon and shall inure to the benefit of the parties and their respective successors, assigns, heirs, and personal representatives, provided that Seller agrees not to transfer any Series A Shares without the prior written consent of the Company, which consent shall not be unreasonably withheld. (c) Amendments. This Agreement may be amended at any time by mutual consent of the parties, with any such amendment to be invalid unless in writing, signed by the parties hereto. (d) Entire Agreement. This Agreement contains the entire agreement and understanding by and between the Company and Seller with respect to the matters covered herein, and no representations, promises, agreements, or understandings, written or oral, relating to the exchange effected hereby not contained in this Agreement shall be of any force or effect. IN WITNESS WHEREOF, Seller and Company have duly executed this Agreement as of the day and year first above written. SELLER: U.S. TRUCKING, INC. WATERWAYS GROUP, INC. BY: /s/ John A. Jacobson BY: /s/ Anthony Huff TITLE: Managing Agent TITLE: Chairman STOCK EXCHANGE AGREEMENT AGREEMENT dated as of January 29, 1999, by and between U.S. Trucking, Inc., a Colorado corporation (the "Company") and Joff Pollon & Associates (the "Purchaser"). In consideration of the mutual covenants herein contained, and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Exchange of Stock. Company and Seller hereby agree to exchange 250,000 shares of Company common stock, without par value (the "Common Shares") owned beneficially and of record by Seller for 25,000 shares of the Series A Preferred Stock (the "Series A Shares") of the Company. The terms of the Series A Shares are set forth in Exhibit A hereto. 2. Representations. Seller represents and warrants to the Company as follows: (a) The Seller is a registered owner of the Common Shares and, assuming the Company purchases the Common Shares for value in good faith and without notice of any adverse claim, will acquire all the rights of the Seller in the Shares free of any adverse claim. (b) Neither the execution and delivery of this Agreement nor the sale of the Series A Shares contemplated hereby will constitute a default under or violate any term or provision of any agreement to which Seller is a party. 3. Exchange. Each Series A Share shall be exchanged for ten Common Shares (subject to an appropriate adjustment in the event of any split, reverse split or dividend of Common Shares) as follows: one-fifth upon the company reporting revenues of $31 million or more for any fiscal year or shorter period in a report on Form 10-KSB, 10-K, 10-QSB, or 10-Q as filed with the Securities and Exchange Commission, an additional one-fifth at or above $41 million revenues, an additional one-fifth at or above $51 million, an additional one-fifth at or above $61 million and the balance at or above $71 million. In addition, the ten-for-one exchange described above shall be effected immediately as to all Series A Shares in the event the holders of the Series A Shares no longer have the voting power to elect a majority of the members of the Board of Directors of the Company. The foregoing exchanges shall be effective immediately without any action on the part of Seller or the Company upon the happening of the event causing the exchange hereunder, whereupon Seller shall surrender the certificate or certificates for Series A Shares so exchanged and the Company shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, a certificate or certificates for the Common Shares issuable upon such exchange. The exchange shall be deemed to have been effected as of the close of business on the date of the exchange event, and at such time the rights of the holder of such exchanged Series A Shares shall cease, and the person or persons in whose name or names any certificate or certificates for Common Shares exchanged therefor shall be issuable upon such exchange shall be deemed to have become the holder or holders of record of the shares represented thereby. 4. Miscellaneous. (a) Governing Law. This Agreement shall in all respects be subject to, and governed by, the internal laws of the state of Colorado. (b) Assignment. This Agreement, together with any amendments to it, shall be binding upon and shall inure to the benefit of the parties and their respective successors, assigns, heirs, and personal representatives, provided that Seller agrees not to transfer any Series A Shares without the prior written consent of the Company, which consent shall not be unreasonably withheld. (c) Amendments. This Agreement may be amended at any time by mutual consent of the parties, with any such amendment to be invalid unless in writing, signed by the parties hereto. (d) Entire Agreement. This Agreement contains the entire agreement and understanding by and between the Company and Seller with respect to the matters covered herein, and no representations, promises, agreements, or understandings, written or oral, relating to the exchange effected hereby not contained in this Agreement shall be of any force or effect. IN WITNESS WHEREOF, Seller and Company have duly executed this Agreement as of the day and year first above written. SELLER: U.S. TRUCKING, INC. JOFF POLLON & ASSOCIATES BY: /s/ Joff Pollon BY: /s/ Anthony Huff TITLE: Managing Director TITLE: Chairman EX-10.10 12 LOAN AND SECURITY AGREEMENT DATED AS OF DECEMBER 22, 1998 BETWEEN GENERAL ELECTRIC CAPITAL CORPORATION AS LENDER AND GULF NORTHERN TRANSPORT, INC. AS BORROWER U.S. TRUCKING, INC. (NEVADA) AS CREDIT PARTY U.S. TRUCKING, INC. (COLORADO) AS CREDIT PARTY MENCOR, INC. AS CREDIT PARTY INDEX OF EXHIBITS AND SCHEDULES Schedule A - Definitions Schedule B - Lender's and Borrower's Addresses for Notices Schedule C - Letters of Credit Schedule D - Cash Management System Schedule E - Fees and Expenses Schedule F - Schedule of Documents Schedule F-1 - Schedule of Real Estate Documents Schedule G - Financial Covenants Disclosure Schedule (3.2) - Chief Executive Office; Corporate Names Disclosure Schedule (3.6) - Real Estate Disclosure Schedule (3.7) - Stock; Affiliates Disclosure Schedule (3.10) - Taxes Disclosure Schedule (3.12) - ERISA Disclosure Schedule (3.13) - Litigation Disclosure Schedule (3.14) - Intellectual Property Disclosure Schedule (3.16) - Environmental Matters Disclosure Schedule (3.17) - Insurance Disclosure Schedule (5(c)) - Indebtedness Disclosure Schedule (5(h)) - Liens Disclosure Schedule (6.1) - Actions to Perfect Liens Exhibit A - Form of Notice of Revolving Credit Advance Exhibit B - Required Reports and Other Information Exhibit C - Form of Borrowing Base Certificate Exhibit D - Form of Accounts Payable Analysis Exhibit E - Form of Daily Accounts Receivable Rollforward Analysis Exhibit E-1 - Form of Unbilled Daily Accounts Receivable Rollforward Analysis Exhibit F - Form of Revolving Credit Note Exhibit G - Form of Mortgage Exhibit H - Form of Secretarial Certificate (Gulf Northern Transport, Inc.) Exhibit H-1 - Form of Secretarial Certificate (Credit Party) Exhibit I - Form of Power of Attorney (Gulf Northern Transport, Inc.) Exhibit I-1 - Form of Power of Attorney (Credit Party) Exhibit J - Form of Certificate of Compliance Exhibit K - Form of Lockbox Account Agreement Exhibit L - Intentionally Omitted Exhibit M - Intentionally Omitted Exhibit N-1-A- Form of Guarantee (U.S. Trucking, Inc.(Nevada)) Exhibit N-1-B- Form of Guarantee (U.S. Trucking, Inc. (Colorado)) Exhibit N-1-C- Form of Guarantee (Mencor, Inc.) Exhibit N-2 - Form of Joint and Several Guarantee Exhibit N-3 - Form of Guarantee (Trust) Exhibit O - Form of Opinion of Counsel to Borrower Exhibit P - Intentionally Omitted Exhibit Q - Form of Standard Payoff Confirmation Letter Exhibit R-1 - Form of U.C.C. Schedule Exhibit R-2 - Form of U.C.C. Schedule Exhibit R-3 - Form of U.C.C. Schedule Exhibit R-4 - Form of U.C.C. Schedule Exhibit S - Form of Payment of Proceeds Letter GE CAPITAL COMMERCIAL FINANCE This LOAN AND SECURITY AGREEMENT is dated as of December 22, 1998, and agreed to by and between Gulf Northern Transport, Inc., a Wisconsin corporation ("Borrower"), any other Credit Party executing this Agreement, and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("Lender"). RECITALS A. The purpose of this Agreement is to provide to Borrower revolving credit loans (including a subfacility for letters of credit) (collectively, the "Loans") having the following general description: TRANSACTION SUMMARY AS OF THE DATE OF THIS AGREEMENT REVOLVING CREDIT LOAN Maximum Amount: $5,000,000 Term: 3 years Revolving Credit Rate: Index Rate plus 4.5% Letter of Credit Subfacility: $250,000 Borrowing Base: (i) 85% (less reserves established by Lender pursuant to Section 1.13) of the value (as determined by Lender) of Borrower's Eligible Accounts (other than Eligible Unbilled Accounts) and (ii) 65% (less reserves established by Lender pursuant to Section 1.13) of the value (as determined by Lender) of Borrower's Eligible Unbilled Accounts subject to a cap in an aggregate amount of $250,000; provided that (1) Lender (without limit- ing its rights to otherwise reduce the foregoing percentage) shall reduce the foregoing percentage by one percentage point for each percentage point that the dilution of Borrower's Accounts (calculated as the average dilution from the Accounts Receivable Roll Forward Analysis over the most recent three months) exceeds 3%, less the unreimbursed face amount of any Letter of Credit Obligations, and (2) Lender reserves the right to adjust the percentage identified in (ii) above in the event it is not satisfied with the environmental condition of the Wisconsin Rapids, Wisconsin real property. FEES Closing Fee: $26,250 Letter of Credit Fee: 1.5% Prepayment Fee: 3% in year one; 2% in year two; and 1% in year three. The Loans described generally here are established and governed by the terms and conditions set forth below in this Agreement and the other Loan Documents, and if there is any conflict between this general description and the express terms and conditions below or elsewhere in the Loan Documents, such other express terms and conditions shall control. B. Borrower desires to obtain the Loans and other financial accommodations from Lender and Lender is willing to provide the Loans and accommodations all in accordance with the terms of this Agreement. C. Capitalized terms used herein shall have the meanings assigned to them in Schedule A and, for purposes of this Agreement and the other Loan Documents, the rules of construction set forth in Schedule A shall govern. All Schedules, Disclosure Schedules, Attachments, Addenda and Exhibits (collectively, "Appendices") hereto, or expressly identified to this Agreement, are incorporated herein by reference, and taken together with this Agreement, constitute but a single agreement. These Recitals shall be construed as part of this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: 1. AMOUNT AND TERMS OF CREDIT 1.1 Loans. (a) Subject to the terms and conditions of this Agreement, from the Closing Date and until the Commitment Termination Date (i) Lender agrees (A) to make available advances (each, a "Revolving Credit Advance") and (B) to incur Letter of Credit Obligations, in an aggregate outstanding amount not to exceed the Borrowing Availability, and (ii) Borrower may at its request from time to time borrow, repay and reborrow, and may cause Lender to incur Letter of Credit Obligations, under this Section 1.1. (b) Borrower shall request each Revolving Credit Advance by written notice to Lender substantially in the form of Exhibit A (each a "Notice of Revolving Credit Advance") given no later than 11:00 A.M. (New York City time) on the Business Day of the proposed Revolving Credit Advance. Lender shall be fully protected under this Agreement in relying upon, and shall be entitled to rely upon, (i) any Notice of Revolving Credit Advance believed by Lender to be genuine, and (ii) the assumption that the Persons making electronic requests or executing and delivering a Notice of Revolving Credit Advance were duly authorized, unless the responsible individual acting thereon for Lender shall have actual knowledge to the contrary. (c) The Revolving Credit Loan shall be evidenced by, and be repayable in accordance with the terms of, the Revolving Credit Note and this Agreement. (d) Borrower agrees that Lender, in making any Revolving Credit Advance or incurring any other Obligation hereunder, shall be entitled to rely upon the most recent Borrowing Base Certificate delivered to Lender by Borrower and other information available to Lender. Borrower further agrees that Lender shall be under no obligation to make any further Revolving Credit Advance or incur any other Obligation if Borrower shall have failed to deliver a Borrowing Base Certificate to Lender by the time specified in Section 4.1(b). (e) Subject to the terms and conditions of this Agreement, including Schedule C, Borrower shall have the right to request, and Lender agrees to incur, the Letter of Credit Obligations for the account of Borrower in accordance with Schedule C. 1.2 Term and Prepayment. (a) The obligation of Lender to make Revolving Credit Advances and extend other financial accommodations shall be in effect from the Closing Date until the Commitment Termination Date. Upon the Commitment Termination Date Borrower shall pay to Lender in full, in cash: (i) all outstanding Revolving Credit Advances and all accrued but unpaid interest thereon; (ii) an amount sufficient to enable Lender to hold cash collateral as specified in Schedule C; and (iii) all other non-contingent Obligations due to or incurred by Lender. Upon payment of the amounts specified in the immediately preceding sentence, Borrower's obligation to pay the Unused Line Fee shall simultaneously terminate. (b) If the Revolving Credit Loan shall at any time exceed the Borrowing Availability, then Borrower shall immediately repay the Revolving Credit Loan in the amount of such excess; any such excess balance outstanding shall nevertheless constitute Obligations that are evidenced by the Revolving Credit Note, secured by the Collateral and entitled to all of the benefits of the Loan Documents. (c) Each Borrower shall have the right, at any time upon 30 days prior written notice to Lender to (i) terminate voluntarily each Borrower's right to receive or benefit from, and Lender's obligation to make and to incur, Revolving Credit Advances and Letter of Credit Obligations and (ii) prepay all of the Obligations. The effective date of termination of the Revolving Credit Loan specified in such notice shall be the Commitment Termination Date. (d) If Borrower exercises its right of termination and prepayment, or if Borrower's right to receive or benefit from, and Lender's obligation to make Loans, are terminated for any reason prior to the Stated Expiry Date (including as a result of the occurrence of a Default), Borrower shall pay to Lender the applicable Prepayment Fee. 1.3 Use of Proceeds. Borrower shall use the proceeds of the Loans to refinance on the Closing Date certain outstanding Indebtedness as provided in Section 2.1(b) and for working capital and other general corporate purposes. 1.4 Single Loan. The Loans and all of the other Obligations of Borrower to Lender shall constitute one general obligation of Borrower secured by all of the Collateral. 1.5 Interest. (a) Borrower shall pay interest to Lender on the aggregate outstanding Revolving Credit Advances at a floating rate equal to the Index Rate plus four and five tenths percent (4.5%) per annum (the "Revolving Credit Rate"). (b) Interest shall be payable on the outstanding Revolving Credit Advances (i) in arrears for the preceding calendar month on the first day of each calendar month, (ii) on the Commitment Termination Date, and (iii) if any interest accrues or remains payable after the Commitment Termination Date, upon demand by Lender. (c) All computations of interest, and all calculations of the Letter of Credit Fee, shall be made by Lender on the basis of a three hundred and sixty (360) day year, in each case for the actual number of days occurring in the period for which such interest or fee is payable. Each determination by Lender of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Effective upon the occurrence of any Event of Default and for so long as any Event of Default shall be continuing, upon notice to the Borrower (except that no notice shall be required upon the occurrence of any Event of Default specified in Sections 7.1(e), (f), (g) or (j)(ii)) the Revolving Credit Rate and the Letter of Credit Fee shall automatically be increased by two percentage points (2%) per annum (such increased rate, the "Default Rate"), and all outstanding Obligations, including unpaid interest and Letter of Credit Fees, shall continue to accrue interest from the date of such Event of Default at the Default Rate applicable to such Obligations. The Default Rate with respect to the Revolving Credit Rate shall be payable upon demand by Lender. (e) If any interest or other payment (including Unused Line Fees, Letter of Credit Fees and Collateral Monitoring Fees) to Lender under this Agreement becomes due and payable on a day other than a Business Day, such payment date shall be extended to the next succeeding Business Day and interest thereon shall be payable at the then applicable rate during such extension. 2 (f) In no event will Lender charge interest at a rate that exceeds the highest rate of interest permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. 1.6 Cash Management System. On or prior to the Closing Date and until the Termination Date, Borrower will establish and maintain the cash management system described in Schedule D. All payments in respect of the Collateral shall be made to or deposited in the blocked or lockbox accounts described in Schedule D in accordance with the terms thereof. 1.7 Fees. As compensation for Lender's costs and efforts incurred and expended in entering into this Agreement and in consideration of Lender's making the Loans available to Borrower, Borrower agrees to pay to Lender the Fees set forth in Schedule E. 1.8 Receipt of Payments. Borrower shall make each payment under this Agreement (not otherwise made pursuant to Section 1.9) without set-off or counterclaim not later than 11:00 A.M. (New York City time) on the day when due in lawful money of the United States of America in immediately available funds to the Collection Account. For purposes of computing interest and Fees, all payments shall be deemed received by Lender 2 Business Days following receipt of good funds in the Collection Account. For purposes of determining the Borrowing Availability, payments shall be deemed received by Lender upon receipt of good funds in the Collection Account. 1.9 Application and Allocation of Payments. Borrower irrevocably agrees that Lender shall have the continuing and exclusive right to apply any and all payments against the then due and payable Obligations in such order as Lender may deem advisable; provided, however, that Lender may charge the Revolving Credit Loan for (i) monthly payments due and owing under the Term Loan, and (ii) capital lease payments due and owing to CAF. Lender is authorized to, and at its option may (without prior notice or precondition and at any time or times), but shall not be obligated to, make or cause to be made Revolving Credit Advances on behalf of Borrower for: (a) payment of all Fees, expenses, indemnities, charges, costs, principal, interest, or other Obligations owing by Borrower under this Agreement or any of the other Loan Documents, (b) the payment, performance or satisfaction of any of Borrower's obligations with respect to preservation of the Collateral or otherwise under this Agreement, or (c) any premium in whole or in part required in respect of any of the policies of insurance required by this Agreement, even if the making of any such Revolving Credit Advance causes the outstanding balance of the Revolving Credit Loan to exceed the Borrowing Availability, and Borrower agrees to repay immediately, in cash, any amount by which the Revolving Credit Loan exceeds the Borrowing Availability. 1.10 Accounting. Lender is authorized to record on its books and records the date and amount of each Loan and each payment of principal thereof and such recordation shall constitute prima facie evidence of the accuracy of the information so recorded. Lender shall provide Borrower on a monthly basis a statement and accounting of such recordations but any failure on the part of the Lender to keep any such recordation (or any errors therein) or to send a statement thereof to Borrower shall not in any manner affect the obligation of Borrower to repay (with applicable interest) the Loans made to Borrower under this Agreement. Except to the extent that Borrower shall, within 30 days after such statement and accounting is sent, notify Lender in writing of any objection Borrower may have thereto (stating with particularity the basis for such objection), such statement and accounting shall be deemed final, binding and conclusive upon Borrower, absent manifest error. 3 1.11 Indemnity. Borrower and each other Credit Party executing this Agreement jointly and severally agree to indemnify and hold Lender and its Affiliates, and their respective employees, attorneys and agents (each, an "Indemnified Person"), harmless from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and expenses of any kind or nature whatsoever (including attorneys' fees and disbursements and other costs of investigation or defense, including those incurred upon any appeal) which may be instituted or asserted against or incurred by any such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents or with respect to the execution, delivery, enforcement, performance and administration of, or in any other way arising out of or relating to, this Agreement and the other Loan Documents or any other documents or transactions contemplated by or referred to herein or therein and any actions or failures to act with respect to any of the foregoing, including any and all product liabilities, Environmental Liabilities and legal costs and expenses arising out of or incurred in connection with disputes between or among any parties to any of the Loan Documents (collectively, "Indemnified Liabilities"), except to the extent that any such Indemnified Liability is finally determined by a court of competent jurisdiction to have resulted solely from such Indemnified Person's gross negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO THE BORROWER OR TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER. 1.12 Taxes. All payments to Lender under any Loan Document shall be made free and clear of, and without deduction for, any Taxes. If Borrower shall be required by law to deduct any Taxes from any payment to Lender under any Loan Document, then the amount payable to Lender shall be increased so that, after making all required deductions (including deductions applicable to additional sums payable under this Section 1.12), Lender receives an amount equal to that which it would have received had no such deductions been made and Borrower shall pay the full amount deducted to the relevant taxing authority, and promptly furnish to Lender tax receipts evidencing such payment. Borrower shall pay and indemnify Lender for the full amount of Taxes (including any Taxes imposed by any jurisdiction on amounts payable under this Section 1.12) paid by Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. 1.13 Borrowing Base; Reserves. The Borrowing Base shall be determined by Lender (including the eligibility of Accounts) based on the most recent Borrowing Base Certificate delivered to Lender in accordance with Section 4.1(b) and such other information available to Lender. Without limiting any other rights and remedies of Lender hereunder or under the other Loan Documents, the Revolving Credit Loan shall be subject to Lender's continuing right to withhold from Borrowing Availability reserves, and to increase and decrease such reserves from time to time, if and to the extent that in Lender's good faith credit judgment such reserves are necessary, including to protect Lender's interest in the Collateral or to protect Lender against possible non-payment of Accounts for any reason by Account Debtors or possible non-payment of any of the Obligations or for any taxes or customs duties or in respect of any state of facts which could constitute a Default. Lender may, 4 at its option, implement reserves by designating as ineligible a sufficient amount of Accounts which would otherwise be Eligible Accounts, so as to reduce the Borrowing Base by the amount of the intended reserves, including (1) a $150,000 payment reserve payable as follows: $37,500 shall be payable on each Monday of each month up to an aggregate of $150,000 for each month, whereupon such reserve shall be reduced to $0, (2) a $50,000 Wisconsin tax reserve, and (3) a $125,000 reserve for registration and licensing fees and related costs, which reserve shall be increased by an additional amount of $20,000 per week beginning on December 25, 1998 through and including February 20, 1999, at which time such reserve shall be applied to the payment of such registration and licensing fees and costs. 2. CONDITIONS PRECEDENT 2.1 Conditions to the Initial Loans. Lender shall not be obligated to make any of the Loans, or to take, fulfill, or perform any other action hereunder, until the following conditions have been satisfied in a manner satisfactory to Lender in its sole discretion, or waived in writing by Lender: (a) the Loan Documents to be delivered on or before the Closing Date shall have been duly executed and delivered by the appropriate parties, all as set forth in the Schedule of Documents (Schedule F); (b) Lender shall have received evidence satisfactory to it that: (i) all of the obligations of Borrower to Transport Clearings under its financing documentation as in effect immediately prior to the Closing Date will be performed and paid in full from the proceeds of the initial Loans; and (ii) all Liens upon any of the property of Borrower or any other Credit Party in favor of Transport Clearings shall have been terminated immediately upon such payment; (c) Lender shall have received evidence satisfactory to it that each Credit Party has obtained all consents and acknowledgments of all Persons and Governmental Authorities whose consents or acknowledgments may be required prior to the execution and delivery of this Agreement and the other Loan Documents (or pursuant to the terms hereof or thereof) and the consummation of the transactions contemplated hereby and thereby and that such consents or acknowledgments remain in full force and effect; (d) Lender shall have received evidence satisfactory to it that the insurance policies provided for in Section 3.17 are in full force and effect, together with appropriate evidence showing loss payable or additional insured clauses or endorsements in favor of Lender as required under such Section; (e) as of the Closing Date Net Borrowing Availability shall be not less than $200,000 after giving effect to the initial Revolving Credit Advance and Letter of Credit Obligations (on a pro forma basis, with trade payables being paid currently, and expenses and liabilities being paid in the ordinary course of business and without acceleration of sales); (f) Lender shall have received an opinion of counsel to the Borrower with respect to the Loan Documents in form and substance satisfactory to Lender; and (g) payment by Borrower of the Closing Fee and all other fees, costs, and expenses payable by Borrower hereunder that have accrued as of the Closing Date. 5 2.2 Further Conditions to the Loans. Lender shall not be obligated to fund any Loan (including the initial Loans), if, as of the date thereof: (a) any representation or warranty by any Credit Party contained herein or in any of the other Loan Documents shall be untrue or incorrect as of such date, except to the extent that any such representation or warranty is expressly stated to relate to a specific earlier date, in which case, such representation and warranty shall be true and correct as of such earlier date; or (b) any event or circumstance which has had or reasonably could be expected to have a Material Adverse Effect shall have occurred since the Closing Date; or (c) any Default shall have occurred and be continuing or would result after giving effect to such Loan; or (d) after giving effect to such Loan the Revolving Credit Loan would exceed the Borrowing Availability; or (e) any action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any Governmental Authority to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of, this Agreement or any other Loan Document or the consummation of any transaction contemplated hereby or thereby and which, in Lender's sole judgment, would make it inadvisable to consummate any transaction contemplated by this Agreement or any other Loan Document. The request and acceptance by Borrower of the proceeds of any Loan shall be deemed to constitute, as of the date of such request and the date of such acceptance, (i) a representation and warranty by Borrower that the conditions in this Section 2.2 have been satisfied and (ii) a reaffirmation by Borrower of the granting and continuance of Lender's Liens pursuant to the Loan Documents. 3. REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS To induce Lender to enter into this Agreement and to make the Loans, Borrower and each other Credit Party executing this Agreement represent and warrant to Lender (each of which representations and warranties shall survive the execution and delivery of this Agreement), and promise to and agree with Lender until the Termination Date as follows: 3.1 Corporate Existence; Compliance with Law. Each Corporate Credit Party: (a) is, as of the Closing Date, and will continue to be (i) a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) duly qualified to do business and in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect, and (iii) in compliance with all Requirements of Law and Contractual Obligations, except to the extent failure to comply therewith could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and (b) has and will continue to have (i) the requisite corporate power and authority and the legal right to execute, deliver and perform its obligations under the Loan Documents, and to own, pledge, mortgage or otherwise encumber and operate its properties, to lease 6 the property it operates under lease, and to conduct its business as now, heretofore or proposed to be conducted, and (ii) all licenses, permits, franchises, rights, powers, consents or approvals from or by all Persons or Governmental Authorities having jurisdiction over such Corporate Credit Party which are necessary or appropriate for the conduct of its business. 3.2 Executive Offices; Corporate or Other Names; Conduct of Business. The location of each Corporate Credit Party's chief executive office, corporate offices, warehouses, other locations of Collateral and locations where records with respect to Collateral are kept (including in each case the county of such locations) are as set forth in Disclosure Schedule (3.2) and, except as set forth in such Disclosure Schedule, such locations have not changed during the preceding twelve months. As of the Closing Date, during the prior five years, except as set forth in Disclosure Schedule (3.2), no Corporate Credit Party has been known as or conducted business in any other name (including trade names). No Corporate Credit Party shall change its (a) name, (b) chief executive office, (c) corporate offices, (d) warehouses or other Collateral locations, or (e) location of its records concerning the Collateral, or acquire, lease or use any real estate after the Closing Date without such Person, in each instance, giving thirty (30) days prior written notice thereof to Lender and taking all actions deemed necessary or appropriate by Lender to continuously protect and perfect Lender's Liens upon the Collateral. 3.3 Corporate Power; Authorization; Enforceable Obligations. The execution, delivery and performance by each Credit Party of the Loan Documents to which it is a party, and the creation of all Liens provided for herein and therein: (a) are and will continue to be within such Credit Party's power and authority; (b) have been and will continue to be duly authorized by all necessary or proper action; (c) are not and will not be in violation of any Requirement of Law or Contractual Obligation of such Credit Party (d) do not and will not result in the creation or imposition of any Lien (other than Permitted Encumbrances) upon any of the Collateral; and (e) do not and will not require the consent or approval of any Governmental Authority or any other Person, except those referred to in Section 2.1(b) (all of which will have been duly obtained, made or complied with on or before the Closing Date and shall be in full force and effect on such date). As of the Closing Date, each Loan Document shall have been duly executed and delivered on behalf of each Credit Party party thereto, and each such Loan Document upon such execution and delivery shall be and will continue to be a legal, valid and binding obligation of such Credit Party, enforceable against it in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency and other similar laws affecting creditors' rights generally, and by general principles of equity. 3.4 Financial Statements and Projections; Books and Records. (a) The Financial Statements delivered by Borrower to Lender for its most recently ended Fiscal Year and Fiscal Month, are true, correct and complete and reflect fairly and accurately the financial condition of Borrower as of the date of each such Financial Statement in accordance with GAAP. The Projections most recently delivered by Borrower to Lender have been prepared in good faith, with care and diligence and use assumptions that are reasonable under the circumstances at the time such Projections were prepared and as of the date delivered to Lender and all such assumptions are disclosed in the Projections. (b) Borrower and each other Corporate Credit Party shall keep adequate Books and Records with respect to the Collateral and its business activities in which proper entries, reflecting all consolidated and consolidating financial transactions, and payments received on any and all credits granted 7 to, and all other dealings with, the Collateral, will be made in accordance with GAAP and all Requirements of Law and on a basis consistent with the Financial Statements. 3.5 Material Adverse Change. Between the date of Borrower's most recently audited Financial Statements delivered to Lender and the Closing Date: (a) no Corporate Credit Party has incurred any obligations, contingent or non-contingent liabilities, or liabilities for Charges, long-term leases or unusual forward or long-term commitments which are not reflected in the Projections delivered on the Closing Date and which could, alone or in the aggregate, reasonably be expected to have a Material Adverse Effect; (b) there has been no material deviation from such Projections; and (c) no events have occurred which alone or in the aggregate has had or could reasonably be expected to have a Material Adverse Effect. No Requirement of Law or Contractual Obligation of any Credit Party has or have had or could reasonably be expected to have a Material Adverse Effect and no Credit Party is in default, and to such Credit Party's knowledge no third party is in default under or with respect to any of its Contractual Obligations, which alone or in the aggregate has had or could reasonably be expected to have a Material Adverse Effect. 3.6 Real Estate; Property. The real estate listed in Disclosure Schedule (3.6) constitutes all of the real property owned, leased, or used by each Corporate Credit Party in its business, and such Credit Party will not execute any material agreement or contract in respect of such real estate after the date of this Agreement without giving Lender prompt written notice thereof. Each Corporate Credit Party holds and will continue to hold good and marketable fee simple title to all of its owned real estate, and good and marketable title to all of its other properties and assets, and valid and insurable leasehold interests in all of its leases (both as lessor and lessee, sublessee or assignee), and none of the properties and assets of any Corporate Credit Party are or will be subject to any Liens, except Permitted Encumbrances. With respect to each of the premises identified in Disclosure Schedule (3.2) on or prior the Closing Date a bailee, landlord or mortgagee agreement acceptable to Lender has been obtained. 3.7 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness. Except as set forth in Disclosure Schedule (3.7), as of the Closing Date no Credit Party has any Subsidiaries, is engaged in any joint venture or partnership with any other Person, or is an Affiliate of any other Person. All of the issued and outstanding Stock of each Corporate Credit Party (including all rights to purchase, options, warrants or similar rights or agreements pursuant to which any Corporate Credit Party may be required to issue, sell, repurchase or redeem any of its Stock) as of the Closing Date is owned by each of the Stockholders (and in the amounts) set forth on Disclosure Schedule (3.7). All outstanding Indebtedness of each Corporate Credit Party as of the Closing Date is described in Disclosure Schedule (5(c)). 3.8 Government Regulation. No Credit Party is subject to or regulated under the Investment Company Act of 1940, the Public Utility Holding Company Act of 1935, the Federal Power Act or any other Federal or state statute, rule or regulation that restricts or limits such Person's ability to incur Indebtedness, pledge its assets, or to perform its obligations under the Loan Documents. The making of the Loans, the application of the proceeds and repayment thereof, and the consummation of the transactions contemplated by the Loan Documents do not and will not violate any provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission. 8 3.9 Margin Regulations. No Credit Party is engaged, nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin security" as such terms are defined in Regulations U or G of the Federal Reserve Board as now and from time to time hereafter in effect (such securities being referred to herein as "Margin Stock"). No Credit Party owns any Margin Stock, and none of the proceeds of the Loans or other extensions of credit under this Agreement will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry any Margin Stock or for any other purpose which might cause any of the Loans or other extensions of credit under this Agreement to be considered a "purpose credit" within the meaning of Regulation G, T, U or X of the Federal Reserve Board. No Credit Party will take or permit to be taken any action which might cause any Loan Document to violate any regulation of the Federal Reserve Board. 3.10 Taxes; Charges. Except as disclosed on Disclosure Schedule (3.10) all tax returns, reports and statements required by any Governmental Authority to be filed by Borrower or any other Credit Party have, as of the Closing Date, been filed and will, until the Termination Date, be filed with the appropriate Governmental Authority and no tax Lien has been filed against any Credit Party or any Credit Party's property. Proper and accurate amounts have been and will be withheld by Borrower and each other Credit Party from their respective employees for all periods in complete compliance with all Requirements of Law and such withholdings have and will be timely paid to the appropriate Governmental Authorities. Disclosure Schedule (3.10) sets forth as of the Closing Date those taxable years for which any Credit Party's tax returns are currently being audited by the IRS or any other applicable Governmental Authority and any assessments or threatened assessments in connection with such audit, or otherwise currently outstanding. Except as described on Disclosure Schedule (3.10), no Credit Party has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges. None of the Credit Parties and their respective predecessors are liable for any Charges: (a) under any agreement (including any tax sharing agreements) or (b) to each Credit Party's knowledge, as a transferee. As of the Closing Date, no Credit Party has agreed or been requested to make any adjustment under IRC Section 481(a), by reason of a change in accounting method or otherwise, which could reasonably be expected to have a Material Adverse Effect. 3.11 Payment of Obligations. Each Credit Party will pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all of its Charges and other obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of such Credit Party and none of the Collateral is or could reasonably be expected to become subject to any Lien or forfeiture or loss as a result of such contest. 3.12 ERISA. (a) Disclosure Schedule (3.12) lists and separately identifies all Title IV Plans, Multiemployer Plans, ESOPs and Retiree Welfare Plans. Copies of all such listed Plans, together with a copy of the latest form 5500 for each such Plan, have been delivered to Lender. Each Qualified Plan has been determined by the IRS to qualify under Section 401 of the IRC, and the trusts created thereunder have been determined to be exempt from tax under the provisions of Section 501 of the IRC, and nothing has occurred which would 9 cause the loss of such qualification or tax-exempt status. Each Plan is in compliance with the applicable provisions of ERISA and the IRC , including the filing of reports required under the IRC or ERISA. No Credit Party or ERISA Affiliate has failed to make any contribution or pay any amount due as required by either Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan. No Credit Party or ERISA Affiliate has engaged in a prohibited transaction, as defined in Section 4975 of the IRC, in connection with any Plan, which would subject any Credit Party to a material tax on prohibited transactions imposed by Section 4975 of the IRC. (b) Except as set forth in Disclosure Schedule (3.12): (i) no Title IV Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event described in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is reasonably expected to occur; (iii) there are no pending, or to the knowledge of any Credit Party, threatened claims (other than claims for benefits in the normal course), sanctions, actions or lawsuits, asserted or instituted against any Plan or any Person as fiduciary or sponsor of any Plan; (iv) no Credit Party or ERISA Affiliate has incurred or reasonably expects to incur any liability as a result of a complete or partial withdrawal from a Multiemployer Plan; (v) within the last five years no Title IV Plan with Unfunded Pension Liabilities has been transferred outside of the "controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of any Credit Party or ERISA Affiliate; and (vi) no liability under any Title IV Plan has been satisfied with the purchase of a contract from an insurance company that is not rated AAA by the Standard & Poor's Corporation or the equivalent by another nationally recognized rating agency. 3.13 Litigation. No Litigation is pending or, to the knowledge of any Credit Party, threatened by or against any Credit Party or against any Credit Party's properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby, or (b) which could reasonably be expected to have a Material Adverse Effect. Except as set forth on Disclosure Schedule (3.13), as of the Closing Date there is no Litigation pending or threatened against any Credit Party which seeks damages in excess of $50,000 or injunctive relief or alleges criminal misconduct of any Credit Party. Each Credit Party shall notify Lender promptly upon learning of the existence or commencement of any Litigation commenced or to the knowledge of any Credit Party threatened against any Credit Party that: (x) may involve an amount in excess of $50,000; (y) could reasonably be expected to have a Material Adverse Effect whether or not determined adversely; or (z) regardless of amount (i) is asserted or instituted, against any Plan, its fiduciaries or its assets, or against any Credit Party or any ERISA Affiliate in connection with any Plan, (ii) includes any demand for injunctive relief, (iii) alleges criminal misconduct by any Credit Party, or (iv) alleges the violation of any law regarding, or seeks remedies in connection with, any Environmental Liabilities. 3.14 Intellectual Property. As of the Closing Date, all material Intellectual Property owned or used by any Credit Party is listed, together with application or registration numbers, where applicable, in Disclosure Schedule (3.14). Each Credit Party owns, or is licensed to use, all Intellectual Property necessary to conduct its business as currently conducted except for such Intellectual Property the failure of which to own or license could not reasonably be expected to have a Material Adverse Effect. 10 3.15 Full Disclosure. No information contained in any Loan Document, the Financial Statements or any written statement furnished by or on behalf of any Credit Party under any Loan Document, or to induce Lender to execute the Loan Documents, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. 3.16 Hazardous Materials. Except as set forth on Disclosure Schedule (3.16), as of the Closing Date, (a) each real property location owned, leased or occupied by each Corporate Credit Party (the "Real Property") is maintained free of contamination from any Hazardous Material, (b) no Corporate Credit Party is subject to any Environmental Liabilities or, to any Credit Party's knowledge, potential Environmental Liabilities, in excess of $50,000 in the aggregate, (c) no notice has been received by any Corporate Credit Party identifying it as a "potentially responsible party" or requesting information under CERCLA or analogous state statutes, and to the knowledge of any Credit Party, there are no facts, circumstances or conditions that may result in any Corporate Credit Party being identified as a "potentially responsible party" under CERCLA or analogous state statutes; and (d) each Corporate Credit Party has provided to Lender copies of all existing environmental reports, reviews and audits and all written information pertaining to actual or potential Environmental Liabilities, in each case relating to any Corporate Credit Party. Each Corporate Credit Party: (i) shall comply in all material respects with all applicable Environmental Laws and Environmental Permits; (ii) shall notify Lender in writing within seven days if and when it becomes aware of any Release, on, at, in, under, above, to, from or about any of its Real Property; and (iii) shall promptly forward to Lender a copy of any order, notice, permit, application, or any communication or report received by it or any other Credit Party in connection with any such Release. 3.17 Insurance. As of the Closing Date, Disclosure Schedule (3.17) lists all insurance of any nature maintained for current occurrences by Borrower and each other Corporate Credit Party, as well as a summary of the terms of such insurance. Each Corporate Credit Party shall deliver to Lender endorsements to all of its and those of its Subsidiaries (a) "All Risk" and business interruption insurance policies naming Lender loss payee, and (b) general liability and other liability policies naming Lender as an additional insured. All policies of insurance on real and personal property will contain an endorsement, in form and substance acceptable to Lender, showing loss payable to Lender (Form 438 BFU or equivalent) and extra expense and business interruption endorsements. Such endorsement, or an independent instrument furnished to Lender, will provide that the insurance companies will give Lender at least 30 days prior written notice before any such policy or policies of insurance shall be altered or canceled and that no act or default of Borrower or any other Person shall affect the right of Lender to recover under such policy or policies of insurance in case of loss or damage. Each Corporate Credit Party shall direct all present and future insurers under its "All Risk" policies of insurance to pay all proceeds payable thereunder directly to Lender. If any insurance proceeds are paid by check, draft or other instrument payable to any Credit Party and Lender jointly, Lender may endorse such Credit Party's name thereon and do such other things as Lender may deem advisable to reduce the same to cash. Lender reserves the right at any time, upon review of each Credit Party's risk profile, to require additional forms and limits of insurance to adequately protect Lender's interests in accordance with Lender's normal practice for similarly situated borrowers. Each Corporate Credit Party shall, on each anniversary of the Closing Date and from time to time at Lender's request, deliver to Lender a 11 report by a reputable insurance broker, satisfactory to Lender, with respect to such Person's insurance policies. 3.18 Deposit and Disbursement Accounts. Attachment I to Schedule D lists all banks and other financial institutions at which Borrower or any other Corporate Credit Party, maintains deposits and/or other accounts, including the Disbursement Account, and such Attachment correctly identifies the name, address and telephone number of each such depository, the name in which the account is held, a description of the purpose of the account, and the complete account number. No Corporate Credit Party will establish any depository or other bank account of any kind with any financial institution (other than the accounts set forth on Attachment 1 to Schedule D) without Lender's prior written consent. 3.19 Accounts. As of the date of each Borrowing Base Certificate delivered to Lender, each Account listed thereon as an Eligible Account shall be an Eligible Account. Borrower has not made, and will not make, any agreement with any Account Debtor for any extension of time for the payment of any Account, any compromise or settlement for less than the full amount thereof, any release of any Account Debtor from liability therefor, or any deduction therefrom except a discount or allowance for prompt or early payment allowed by Borrower in the ordinary course of its business consistent with historical practice and as previously disclosed to Lender in writing. With respect to the Accounts pledged as collateral pursuant to any Loan Document (a) the amounts shown on all invoices, statements and reports which may be delivered to the Lender with respect thereto are actually and absolutely owing to the relevant Credit Party as indicated thereon and are not in any way contingent; (b) no payments have been or shall be made thereon except payments immediately delivered to the applicable Bank Accounts or the Lender as required hereunder; and (c) to Borrower's knowledge all Account Debtors have the capacity to contract. Borrower shall notify Lender promptly of any event or circumstance which to Borrower's knowledge would cause Lender to consider any then existing Account as no longer constituting an Eligible Account. If a Default or an Event of Default shall have occurred and be continuing, Borrower and each other Credit Party shall within 5 days of Lender's request deliver all original Chattel Paper to Lender. 3.20 Intentionally omitted] 3.21 Conduct of Business; Maintenance of Existence. Each Corporate Credit Party (a) shall conduct its business substantially as now conducted or as otherwise permitted hereunder and preserve all of its rights, privileges and franchises necessary and desirable in connection therewith, and (b) shall at all times maintain, preserve and protect all of the Collateral and such Credit Party's other property, used or useful in the conduct of its business and keep the same in good repair, working order and condition (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices. 3.22 Further Assurances. At any time and from time to time, upon the written request of Lender and at the sole expense of Borrower, Borrower and each other Credit Party shall promptly and duly execute and deliver any and all such further instruments and documents and take such further action as Lender may reasonably deem desirable (a) to obtain the full benefits of this Agreement and the other Loan Documents, (b) to protect, preserve and maintain Lender's rights in the Collateral, or any of it, and under this Agreement, or (c) to enable Lender to exercise all or any of the rights and powers herein granted. 12 3.23 Year 2000 Covenants. If not previously delivered to Lender, on or prior to January 31, 1999, each Corporate Credit Party shall complete and deliver to Lender a Year 2000 Assessment, and, if not previously delivered to Lender, on or prior to February 28, 1999, each Corporate Credit Party shall complete and deliver to Lender a Year 2000 Corrective Plan. If not previously implemented as delivered to Lender, on or prior to March 31, 1999, each Corporate Credit Party shall implement Year 2000 Corrective Actions. On or before April 30, 1999, each Corporate Credit Party shall complete Year 2000 Corrective Actions and Year 2000 Implementation Testing. On or before May 31, 1999 each Corporate Credit Party shall eliminate all Year 2000 Problems, except where the failure to correct the same could not reasonably be expected to have a Material Adverse Effect, individually or in the aggregate. 3.24 New Accounting Software System. Borrower shall implement a new accounting software system in form satisfactory to Lender on or prior to January 31, 1999 and all computer applications (including those of its suppliers, vendors and customers) that are material to its or any of its Subsidiaries' business and operations shall on a timely basis be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect or result in a Default or Event of Default. 3.25 Real Estate Documents. Borrower shall deliver executed copies of the documents set forth on Schedule F-1 on or before January 15, 1999, each in form and substance satisfactory to Lender. 3.26 Projections. Within 30 days after the Closing Date, Borrower shall deliver Projections for the next twelve months, starting January 1, 1999, in form and substance satisfactory to the Lender. 3.27 UCC Termination Statements. Within 10 days after the Closing Date, each of the Borrower and any other Credit Party executing this Agreement shall deliver executed copies of UCC termination statements in respect of existing UCC financing statements filed against the Collateral in favor of any Person other than Lender. 3.28 Mortgage. In the event Lender is unable for any reason to obtain a valid and perfected Lien and mortgage on the real property described in the Mortgage, Borrower shall use its best efforts to cause such Lien and mortgage to be granted to Lender. 4. FINANCIAL MATTERS; REPORTS 4.1 Reports and Notices. Borrower represents, agrees and promises that from and after the Closing Date until the Termination Date, Borrower shall deliver to Lender: (a) (i) within 15 days following the end of each Fiscal Month, an Inventory report, in form and substance satisfactory to Lender, and (ii) on July 31 and January 31 of each year, a detailed Inventory report, in form and substance satisfactory to Lender accompanied by supporting documentation as Lender may request in respect of the immediately preceding six months; (b) as frequently as Lender may request and in any event no later than 15 days following the end of each Fiscal Month, a Borrowing Base Certificate in the form of Exhibit C as of the last day of the previous Fiscal Month 13 detailing ineligible Accounts and Inventory for adjustment to the Borrowing Base, certified as true and correct by the Chief Financial Officer of Borrower or such other officer as is acceptable to Lender; (c) within 15 days following the end of each Fiscal Month, an Accounts Payable Analysis in the Form of Exhibit D (together with an accounts payable aging), an Accounts Receivable Roll Forward Analysis in the Form of Exhibit E and an Unbilled Accounts Receivable Roll Forward Analysis in the Form of Exhibit E-1, each certified as true and correct by the Chief Financial Officer of Borrower or such other officer as is acceptable to Lender; (d) within 30 days following the end of each Fiscal Month, the Financial Statements for such Fiscal Month, which shall provide comparisons to budget and actual results for the corresponding period during the prior Fiscal Year, both on a monthly and year-to-date basis, and accompanied by a certification in the form of Exhibit J by the Chief Executive Officer or Chief Financial Officer of Borrower that such Financial Statements are complete and correct, that there was no Default (or specifying those Defaults of which he or she was aware), and showing in reasonable detail the calculations used in determining compliance with the financial covenants hereunder; (e) within 90 days following the close of each Fiscal Year, the Financial Statements for such Fiscal Year certified without qualification by an independent certified accounting firm acceptable to Lender, which shall provide comparisons to actual results to the prior Fiscal Year, on an annual basis, and shall be accompanied by (i) a statement in reasonable detail showing the calculations used in determining compliance with the financial covenants hereunder, (ii) a report from Borrower's accountants to the effect that in connection with their audit examination nothing has come to their attention to cause them to believe that a Default has occurred or specifying those Defaults of which they are aware, and (iii) any management letter that may be issued; (f) not less than 30 days prior to the close of each Fiscal Year, the Projections, which will be prepared by Borrower in good faith, with care and diligence, and using assumptions which are reasonable under the circumstances at the time such Projections are delivered to Lender and disclosed therein when delivered; (g) Within 30 days after the Closing Date, a Phase I environmental report acceptable for commercial real estate purposes with respect to the Wisconsin Rapids, Wisconsin real property subject to the Mortgage, and in the event such Phase I environmental report indicates a need for an additional environmental report, a Phase II environmental report within 10 days of such occurrence, in each case, in form and substance satisfactory to Lender and prepared by a firm acceptable to Lender; and (h) all the reports and other information set forth on Exhibit B in the time frames set forth therein. 4.2 Financial Covenants. Borrower shall not breach any of the financial covenants set forth in Schedule G. 4.3 Other Reports and Information. Borrower shall advise Lender promptly, in reasonable detail, of: (a) any Lien, other than Permitted Encumbrances, attaching to or asserted against any of the Collateral or any occurrence causing a material loss or decline in value of any Collateral and the estimated (or actual, if available) amount of such loss or decline; (b) any 14 material change in the composition of the Collateral; and (c) the occurrence of any Default or other event which has had or could reasonably be expected to have a Material Adverse Effect. Borrower shall, upon request of Lender, furnish to Lender such other reports and information in connection with the affairs, business, financial condition, operations, prospects or management of Borrower or any other Credit Party or the Collateral as Lender may request, all in reasonable detail. 5. NEGATIVE COVENANTS Borrower and each Credit Party executing this Agreement covenants and agrees (for itself and each other Credit Party) that, without Lender's prior written consent, from the Closing Date until the Termination Date, neither Borrower nor any other Corporate Credit Party shall, directly or indirectly, by operation of law or otherwise: (a) merge with, consolidate with, acquire all or substantially all of the assets or capital stock of, or otherwise combine with, any Person or form any Subsidiary; (b) except as otherwise permitted in this Section 5 below, make any investment in, or make or accrue loans or advances of money to, any Person, except that Borrower may hold investments comprised of notes payable, or stock or other securities issued by Account Debtors to Borrower pursuant to negotiated agreements with respect to settlement of such Account Debtors' Accounts in the ordinary course of business, so long as the aggregate amount of such Accounts so settled by Borrower in any Fiscal Quarter does not exceed $50,000 and such notes and securities are delivered to Lender as Collateral; (c) create, incur, assume or permit to exist any Indebtedness, except: (i) the Obligations; (ii) Indebtedness other than the Obligations in an aggregate outstanding amount for all such Credit Parties combined not exceeding $100,000; (iii) deferred taxes; (iv) the Term Loan; and (v) other Indebtedness set forth in Disclosure Schedule 5(c)); (d) enter into any lending, borrowing or other commercial transaction with any of its employees, directors, Affiliates or any other Credit Party (including upstreaming and downstreaming of cash and intercompany advances and payments by a Credit Party on behalf of another Credit Party which are not otherwise permitted hereunder) other than (1) loans or advances to employees in the ordinary course of business in an aggregate outstanding amount not exceeding $50,000 or (2) tractor lease agreements with Dan Pixler, Anthony Huff or their Affiliates providing for aggregate annual payments of not more than $140,000 per annum provided, in either (1) or (2) of this Section 5(d), no Default or Event of Default shall have occurred and be continuing; (e) make any changes in any of its business objectives, purposes, or operations which could reasonably be expected to adversely affect repayment of the Obligations or could reasonably be expected to have a Material Adverse Effect or engage in any business other than that presently engaged in or proposed to be engaged in the Projections delivered to Lender on the Closing Date; (f) amend its charter or by-laws or other organizational documents, other than amendments to designate the terms of (1) the Series A Preferred Stock of Borrower currently subject to a $6.0 million private offering and (2) the Series B Preferred Stock of Borrower proposed to be issued in exchange for 10 million shares of common stock of Borrower; 15 (g) incur any Guaranteed Indebtedness except (i) by endorsement of instruments or items of payment for deposit to the general account of such Credit Party, and (ii) for Guaranteed Indebtedness incurred for the benefit of Borrower if the primary obligation is permitted by this Agreement; (h) create or permit any Lien on any of its properties or assets, except for Permitted Encumbrances; (i) sell, transfer, issue, convey, assign or otherwise dispose of any of its assets or properties, including its Accounts or any shares of its Stock or engage in any sale-leaseback, synthetic lease or similar transaction, provided, however, that the foregoing shall not prohibit the (1) sale of Inventory or obsolete or unnecessary Equipment in the ordinary course of its business or (2) the sale and issuance of (a) the Series A Preferred Stock of US Trucking, Inc. identified in Section 5.1(d) hereof, (b) the Series B Preferred Stock of US Trucking, Inc. identified in Section 5.1(d) hereof, (c) shares of common stock of US Trucking, Inc. to be issued to holders of such Series A and Series B Preferred Stock of US Trucking, Inc. in connection with their respective conversion and exchange rights, and (d) shares of common stock of U.S. Trucking, Inc. issued pursuant to options granted under the U.S. Trucking, Inc. 1998 Stock Option Plan and any successor plan; (j) take any action or omit to take any action, which act or omission would constitute a material default or an event of default pursuant to, or noncompliance with, any of its Contractual Obligations; (k) cancel any debt owing to it, except for cancellation of debt not constituting Accounts for reasonable consideration and in the ordinary course of its business consistent with historical practice; or (l) make or permit any Restricted Payment; or (m) make or permit payment of a brokerage or placement fee on any date after the Closing Date if the average daily excess Borrowing Availability for the immediately preceding 30 days or on such date after giving effect to such payment is less than $200,000. 6. SECURITY INTEREST 6.1 Grant of Security Interest. (a) As collateral security for the prompt and complete payment and performance of the Obligations, each of the Borrower and any other Credit Party executing this Agreement hereby grants to the Lender a security interest in and Lien upon all of its property and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title, or interest, including all of the following property in which it now has or at any time in the future may acquire any right, title or interest: all Accounts; all bank and deposit accounts and all funds on deposit therein; all cash and cash equivalents; all commodity contracts; all investments; all Inventory and Equipment; all Goods; all Chattel Paper, Documents and Instruments; all Books and Records; all General Intangibles (including all Intellectual Property, Stock, contract rights, and choses in action); and to the extent not otherwise included, all Proceeds and products of all and any of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing, but excluding in all events Hazardous Waste (all of the foregoing, together with any other collateral pledged to the Lender pursuant to any other Loan Document, collectively, the "Collateral"). 16 (b) Borrower, Lender and each other Credit Party executing this Agreement agree that this Agreement creates, and is intended to create, valid and continuing Liens upon the Collateral in favor of Lender. Borrower and each other Credit Party executing this Agreement represents, warrants and promises to Lender that: (i) Borrower and each other Credit Party granting a Lien in Collateral is the sole owner of each item of the Collateral upon which it purports to grant a Lien pursuant to the Loan Documents, and has good and marketable title thereto free and clear of any and all Liens or claims of others, other than Permitted Encumbrances; (ii) the security interests granted pursuant to this Agreement, upon completion of the filings and other actions listed on Disclosure Schedule (6.1) (which, in the case of all filings and other documents referred to in said Schedule, have been delivered to the Lender in duly executed form) will constitute valid perfected security interests in all of the Collateral in favor of the Lender as security for the prompt and complete payment and performance of the Obligations, enforceable in accordance with the terms hereof against any and all creditors of and purchasers from any Credit Party (other than purchasers of Inventory in the ordinary course of business) and such security interests are prior to all other Liens on the Collateral in existence on the date hereof except for Permitted Encumbrances which have priority by operation of law; and (iii) no effective security agreement, financing statement, equivalent security or Lien instrument or continuation statement covering all or any part of the Collateral is or will be on file or of record in any public office, except those relating to Permitted Encumbrances. Borrower and each other Credit Party executing this Agreement promise to defend the right, title and interest of Lender in and to the Collateral against the claims and demands of all Persons whomsoever, and each shall take such actions, including (x) the prompt delivery of all original Instruments, Chattel Paper and certificated Stock owned by Borrower and each other Credit Party granting a Lien on Collateral to Lender, (y) notification of Lender's interest in Collateral at Lender's request, and (z) the institution of litigation against third parties as shall be prudent in order to protect and preserve each Credit Party's and Lender's respective and several interests in the Collateral. Borrower (and any other Credit Party granting a Lien in Collateral) shall mark its Books and Records pertaining to the Collateral to evidence the Loan Documents and the Liens granted under the Loan Documents. All Chattel Paper shall be marked with the following legend: "This writing and the obligations evidenced or secured hereby are subject to the security interest of General Electric Capital Corporation." (c) Lender shall release the lien and mortgage on the real property described in the Mortgage on the date when (1) the average daily excess Borrowing Availability for the immediately preceding six months is at least $250,000 and (2) as at the end of each of the immediately preceding four Fiscal Quarters, Borrower has maintained a Fixed Charge Coverage Ratio of not less than 1.25:1.0. 6.2 Lender's Rights. (a) Lender may, (i) at any time in Lender's own name or in the name of Borrower, communicate with Account Debtors, parties to Contracts, and obligors in respect of Instruments, Chattel Paper or other Collateral to verify to Lender's satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper or other Collateral, and (ii) at any time and without prior notice to Borrower or any other Credit Party, notify Account Debtors, parties to Contracts, and obligors in respect of Chattel Paper, Instruments, or other Collateral that the Collateral has been assigned to Lender and that payments shall be made directly to Lender. Upon the request of Lender, Borrower shall so notify such 17 Account Debtors, parties to Contracts, and obligors in respect of Instruments, Chattel Paper or other Collateral. Borrower hereby constitutes Lender or Lender's designee as Borrower's attorney with power to endorse Borrower's name upon any notes, acceptance drafts, money orders or other evidences of payment or Collateral. (b) It is expressly agreed by Borrower that, notwithstanding anything herein to the contrary, Borrower shall remain liable under each Contract, Instrument and License to observe and perform all the conditions and obligations to be observed and performed by it thereunder, and Lender shall have no obligation or liability whatsoever to any Person under any Contract, Instrument or License (between Borrower or any other Credit Party and any Person other than Lender) by reason of or arising out of the execution, delivery or performance of this Agreement, and Lender shall not be required or obligated in any manner (i) to perform or fulfill any of the obligations of Borrower, (ii) to make any payment or inquiry, or (iii) to take any action of any kind to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times under or pursuant to any Contract, Instrument or License. (c) Borrower and each other Credit Party shall, with respect to each owned, leased, or controlled property or facility, during normal business hours and upon reasonable advance notice (unless a Default shall have occurred and be continuing, in which event no notice shall be required and Lender shall have access at any and all times): (i) provide access to such facility or property to Lender and any of its officers, employees and agents, as frequently as Lender determines to be appropriate; (ii) permit Lender and any of its officers, employees and agents to inspect, audit and make extracts from all of Borrower's and such Credit Party's Books and Records; and (iii) permit Lender to inspect, review, evaluate and make physical verifications and appraisals of the Inventory and other Collateral in any manner and through any medium that Lender considers advisable, and Borrower and such Credit Party agree to render to Lender, at Borrower's and such Credit Party's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. Borrower and each other Credit Party shall make available to Lender and its counsel, as quickly as practicable under the circumstances, originals or copies of all Borrower's and such Credit Party's Books and Records and any other instruments and documents which Lender may request. Borrower shall deliver any document or instrument reasonably necessary for Lender, as it may from time to time request, to obtain records from any service bureau or other Person which maintains records for Borrower or any other Credit Party. (d) After the occurrence and during the continuance of a Default, Borrower, at its own expense, shall cause the certified public accountant then engaged by Borrower to prepare and deliver to Lender at any time and from time to time, promptly upon Lender's request, the following reports: (i) a reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) test verifications of such Accounts as Lender may request. Borrower, at its own expense, shall cause its certified independent public accountants to deliver to Lender the results of any physical verifications of all or any portion of the Inventory made or observed by such accountants when and if such verification is conducted. Lender shall be permitted to observe and consult with Borrower's accountants in the performance of these tasks. 6.3 Lender's Appointment as Attorney-in-fact. On the Closing Date, Borrower and each other Credit Party executing this Agreement shall execute and deliver a Power of Attorney in the form attached as Exhibit I. The power of attorney 18 granted pursuant to the Power of Attorney and all powers granted under any Loan Document are powers coupled with an interest and shall be irrevocable until the Termination Date. The powers conferred on Lender under the Power of Attorney are solely to protect Lender's interests in the Collateral and shall not impose any duty upon it to exercise any such powers. Lender agrees and promises that (a) it shall not exercise any power or authority granted under the Power of Attorney unless an Event of Default has occurred and is continuing, (b) Lender shall only exercise the powers granted under the Power of Attorney in respect of Collateral, provided, except as otherwise required by applicable law, Lender shall not have any duty as to any Collateral, and Lender shall be accountable only for amounts that it actually receives as a result of the exercise of such powers. NONE OF LENDER OR ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO BORROWER OR ANY OTHER CREDIT PARTY FOR ANY ACT OR FAILURE TO ACT PURSUANT TO THE POWERS GRANTED UNDER THE POWER OF ATTORNEY OR OTHERWISE, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES. Borrower and each other Credit Party executing this Agreement also hereby authorizes Lender to file any financing or continuation statement without the signature of Borrower or such Credit Party to the extent permitted by applicable law. 6.4 Grant of License to Use Intellectual Property Collateral. For the purpose of enabling Lender to exercise its rights and remedies under the Loan Documents, Borrower and each other Credit Party executing this Agreement hereby grants to Lender an irrevocable, non-exclusive license (exercisable upon the occurrence and during the continuance of an Event of Default without payment of royalty or other compensation to Borrower or such Credit Party) to use, transfer, license or sublicense any Intellectual Property now owned, licensed to, or hereafter acquired by Borrower or such Credit Party, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer and automatic machinery software and programs used for the compilation or printout thereof, and represents, promises and agrees that any such license or sublicense is not and will not be in conflict with the contractual or commercial rights of any third Person; provided, that such license will terminate on the Termination Date. 7. EVENTS OF DEFAULT: RIGHTS AND REMEDIES 7.1 Events of Default. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an "Event of Default" hereunder which shall be deemed to be continuing until waived in writing by Lender in accordance with Section 9.3: (a) Borrower shall fail to make any payment in respect of any Obligations when due and payable or declared due and payable; or (b) Borrower or any other Credit Party shall fail or neglect to perform, keep or observe any of the covenants, promises, agreements, requirements, conditions or other terms or provisions contained in this Agreement or any of the other Loan Documents, regardless of whether such breach involves a covenant, promise, agreement, condition, requirement, term or provision with respect to a Credit Party that has not signed this Agreement; or (c) an event of default shall occur under any Contractual Obligation of the Borrower or any other Credit Party (other than this Agreement and the other Loan Documents), and such event of default (i) involves the failure to make any payment (whether or not such payment is blocked), whether of 19 principal, interest or otherwise, and whether due by scheduled maturity, required prepayment, acceleration, demand or otherwise, in respect of any Indebtedness (other than the Obligations) of such Person in an aggregate amount exceeding the Minimum Actionable Amount, or (ii) causes (or permits any holder of such Indebtedness or a trustee to cause) such Indebtedness, or a portion thereof, in an aggregate amount exceeding the Minimum Actionable Amount to become due prior to its stated maturity or prior to its regularly scheduled dates of payment; or (d) any representation or warranty in this Agreement or any other Loan Document, or in any written statement pursuant hereto or thereto, or in any report, financial statement or certificate made or delivered to Lender by Borrower or any other Credit Party shall be untrue or incorrect as of the date when made, regardless of whether such breach involves a representation or warranty with respect to a Credit Party that has not signed this Agreement; or (e) there shall be commenced against the Borrower or any other Credit Party any Litigation seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which remains unstayed or undismissed for thirty (30) consecutive days; or Borrower or any other Credit Party shall have concealed, removed or permitted to be concealed or removed, any part of its property with intent to hinder, delay or defraud its creditors or any of them or made or suffered a transfer of any of its property or the incurring of an obligation which may be fraudulent under any bankruptcy, fraudulent transfer or other similar law; or (f) a case or proceeding shall have been commenced involuntarily against Borrower or any other Credit Party in a court having competent jurisdiction seeking a decree or order: (i) under the United States Bankruptcy Code or any other applicable Federal, state or foreign bankruptcy or other similar law, and seeking either (x) the appointment of a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for such Person or of any substantial part of its properties, or (y) the reorganization or winding up or liquidation of the affairs of any such Person, and such case or proceeding shall remain undismissed or unstayed for sixty (60) consecutive days or such court shall enter a decree or order granting the relief sought in such case or proceeding; or (ii) invalidating or denying any Person's right, power, or competence to enter into or perform any of its obligations under any Loan Document or invalidating or denying the validity or enforceability of this Agreement or any other Loan Document or any action taken hereunder or thereunder; or (g) Borrower or any other Credit Party shall (i) commence any case, proceeding or other action under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it or seeking appointment of a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for it or any substantial part of its properties, (ii) make a general assignment for the benefit of creditors, (iii) consent to or take any action in furtherance of, or, indicating its consent to, approval of, or acquiescence in, any of the acts set forth in paragraphs (e) or (f) of this Section 7.1 or clauses (i) and (ii) of this paragraph (g), or (iv) shall admit in writing its inability to, or shall be generally unable to, pay its debts as such debts become due; or 20 (h) a final judgment or judgments for the payment of money in excess of the Minimum Actionable Amount in the aggregate shall be rendered against Borrower or any other Credit Party, unless the same shall be (i) fully covered by insurance and the issuer(s) of the applicable policies shall have acknowledged full coverage in writing within fifteen (15) days of judgment, or (ii) vacated, stayed, bonded, paid or discharged within a period of fifteen (15) days from the date of such judgment; or (i) any other event shall have occurred which has had or could reasonably be expected to have a Material Adverse Effect and Lender shall have given Borrower notice thereof; or (j) (i) any material provision of any Loan Document as determined by Lender in its sole discretion shall for any reason cease to be valid, binding and enforceable in accordance with its terms, or (ii) any Lien granted, or intended by the Loan Documents to be granted, to Lender shall cease to be a valid and perfected Lien having the first priority (or a lesser priority if expressly permitted in the Loan Documents) in any of the Collateral; or (k) a Change of Control shall have occurred with respect to any Corporate Credit Party. 7.2 Remedies. (a) If any Default shall have occurred and be continuing, then Lender may terminate or suspend its obligation to make further Revolving Credit Advances and to incur additional Letter of Credit Obligations. In addition, if any Event of Default shall have occurred and be continuing, Lender may, without notice, take any one or more of the following actions: (i) declare all or any portion of the Obligations to be forthwith due and payable, including contingent liabilities with respect to Letter of Credit Obligations, whereupon such Obligations shall become and be due and payable; (ii) require that all Letter of Credit Obligations be fully cash collateralized pursuant to Schedule C; or (iii) exercise any rights and remedies provided to Lender under the Loan Documents or at law or equity, including all remedies provided under the Code; provided, that upon the occurrence of any Event of Default specified in Sections 7.1 (e), (f), (g) or (j) (ii), the Obligations shall become immediately due and payable (and any obligation of Lender to make further Loans, if not previously terminated, shall immediately be terminated) and the Obligations shall automatically begin to accrue interest at the Default Rate, in each case, without declaration, notice or demand by Lender. (b) Without limiting the generality of the foregoing, Borrower and each other Credit Party executing this Agreement expressly agrees that upon the occurrence of any Event of Default, Lender may collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Lender shall have the right upon any such public sale or sales and, to the extent permitted by law, upon any such private sale or sales, to purchase for the benefit of Lender the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption Borrower and each other Credit Party executing this Agreement hereby releases. Such sales may be adjourned, or continued from time to time with or without notice. Lender shall have the right to conduct such sales on any Credit Party's premises or 21 elsewhere and shall have the right to use any Credit Party's premises without rent or other charge for such sales or other action with respect to the Collateral for such time or times as Lender deems necessary or advisable. (c) Borrower and each other Credit Party executing this Agreement further agrees, upon the occurrence and during the continuance of an Event of Default and at Lender's request, to assemble the Collateral and make it available to Lender at places which Lender shall reasonably select, whether at its premises or elsewhere. Until Lender is able to effect a sale, lease, or other disposition of the Collateral, Lender shall have the right to complete, assemble, use or operate the Collateral or any part thereof, to the extent that Lender deems appropriate, for the purpose of preserving such Collateral or its value or for any other purpose. Lender shall have no obligation to any Credit Party to maintain or preserve the rights of any Credit Party as against third parties with respect to any Collateral while such Collateral is in the possession of Lender. Lender may, if it so elects, seek the appointment of a receiver or keeper to take possession of any Collateral and to enforce any of Lender's remedies with respect to such appointment without prior notice or hearing. To the maximum extent permitted by applicable law, Borrower and each other Credit Party executing this Agreement waives all claims, damages, and demands against Lender, its Affiliates, agents, and the officers and employees of any of them arising out of the repossession, retention or sale of any Collateral except such as are determined in a final judgment by a court of competent jurisdiction to have arisen solely out of the gross negligence or willful misconduct of such Person. Borrower and each other Credit Party executing this Agreement agrees that ten (10) days prior notice by Lender to such Credit Party of the time and place of any public sale or of the time after which a private sale may take place is reasonable notification of such matters. Borrower and each other Credit Party shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which Lender is entitled. (d) Lender's rights and remedies under this Agreement shall be cumulative and nonexclusive of any other rights and remedies which Lender may have under any Loan Document or at law or in equity. Recourse to the Collateral shall not be required. All provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited, to the extent necessary, so that they do not render this Agreement invalid or unenforceable, in whole or in part. 7.3 Waivers by Credit Parties. Except as otherwise provided for in this Agreement and to the fullest extent permitted by applicable law, Borrower and each other Credit Party executing this Agreement waives: (a) presentment, demand and protest, and notice of presentment, dishonor, intent to accelerate, acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all Loan Documents, the Notes or any other notes, commercial paper, Accounts, Contracts, Documents, Instruments, Chattel Paper and guaranties at any time held by Lender on which such Credit Party may in any way be liable, and hereby ratifies and confirms whatever Lender may do in this regard; (b) all rights to notice and a hearing prior to Lender's taking possession or control of, or to Lender's replevy, attachment or levy upon, any Collateral or any bond or security which might be required by any court prior to allowing Lender to exercise any of its remedies; and (c) the benefit of all valuation, appraisal and exemption laws. Borrower and each other Credit Party executing this Agreement acknowledges that it has been advised by counsel of its choices and decisions with respect to this Agreement, the other Loan Documents and the transactions evidenced hereby and thereby. 22 7.4 Proceeds. The Proceeds of any sale, disposition or other realization upon any Collateral shall be applied by Lender upon receipt, in the following order of priorities: first, to reimburse or pay in full the actual expenses of Lender incurred in connection with such sale, disposition or other realization, including all other expenses, liabilities and advances incurred or made by Lender in connection therewith; second, to the other Obligations in such order as the Lender may deem advisable; third, to cash collateralize any outstanding Letter of Credit Obligations pursuant to Schedule C; and finally, after the indefeasible payment and satisfaction in full in cash of all of the Obligations, and after the payment by Lender of any other amount required by any provision of law, including Section 9-504(1)(c) of the Code (but only after Lender has received what Lender considers reasonable proof of a subordinate party's security interest), the surplus, if any, to Borrower or its representatives or to whomsoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct. 8. SUCCESSORS AND ASSIGNS Each Loan Document shall be binding on and shall inure to the benefit of Borrower and each other Credit Party executing such Loan Document, Lender, and their respective successors and assigns, except as otherwise provided herein or therein. Neither Borrower nor any other Credit Party may assign, transfer, hypothecate, delegate or otherwise convey its rights, benefits, obligations or duties under any Loan Document without the prior express written consent of Lender. Any such purported assignment, transfer, hypothecation, delegation or other conveyance by Borrower or such Credit Party without the prior express written consent of Lender shall be void. The terms and provisions of this Agreement and the other Loan Documents are for the purpose of defining the relative rights and obligations of Borrower, the other Credit Parties and Lender with respect to the transactions contemplated hereby and thereby, and there shall be no third party beneficiaries of any of the terms and provisions of any of the Loan Documents. Lender reserves the right at any time to create and sell participations in the Loans and the Loan Documents and to sell, transfer or assign any or all of its rights in the Loans and under the Loan Documents. 9. MISCELLANEOUS 9.1 Complete Agreement; Modification of Agreement. This Agreement and the other Loan Documents constitute the complete agreement between the parties with respect to the subject matter hereof and thereof, supersede all prior agreements, commitments, understandings or inducements (oral or written, expressed or implied), and no Loan Document may be modified, altered or amended except by a written agreement signed by Lender, and each other Credit Party a party to such Loan Document. Borrower and each other Credit Party executing this Agreement or any other Loan Document shall have all duties and obligations under this Agreement and such other Loan Documents from the date of its execution and delivery, regardless of whether the initial Loan has been funded at that time. 9.2 Expenses. Borrower agrees to pay or reimburse Lender for all costs and expenses incurred in connection with: (a) the preparation, negotiation, execution, delivery, performance and enforcement of the Loan Documents and the preservation of any rights thereunder; (b) collection (including the fees and expenses of all special counsel, advisors, consultants (including environmental and management consultants) and auditors retained in connection therewith), including deficiency collections; (c) the forwarding to Borrower or any other Person on behalf of Borrower by Lender of the proceeds of any 23 Loan (including a wire transfer fee of $15 per wire transfer); (d) any amendment, extension, modification or waiver of, or consent with respect to any Loan Document or advice in connection with the administration of the Loans or the rights thereunder; (e) any litigation, contest, dispute, suit, proceeding or action (whether instituted by or between any combination of Lender, Borrower or any other Person or Persons), and an appeal or review thereof, in any way relating to the Collateral, any Loan Document, or any action taken or any other agreements to be executed or delivered in connection therewith, whether as a party, witness or otherwise; and (f) any effort (i) to monitor the Loans, (ii) to evaluate, observe or assess Borrower or any other Credit Party or the affairs of such Person, and (iii) to verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of the Collateral including the following with respect to all of the foregoing provisions of this Section 9.2: the fees, costs and expenses of attorneys, accountants, environmental advisors, appraisers, investment bankers, management and other consultants, and paralegals; court costs and expenses; photocopying and duplicating expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection therewith. 9.3 No Waiver. Neither Lender's failure, at any time or times, to require strict performance by Borrower or any other Credit Party of any provision of any Loan Document, nor Lender's failure to exercise, nor any delay in exercising, any right, power or privilege hereunder, (a) shall waive, affect or diminish any right of Lender thereafter to demand strict compliance and performance therewith, or (b) shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or future exercise thereof or the exercise of any other right, power or privilege. Any suspension or waiver of a Default or other provision under the Loan Documents shall not suspend, waive or affect any other Default under any Loan Document, whether the same is prior or subsequent thereto and whether of the same or of a different type, and shall not be construed as a bar to any right or remedy which Lender would otherwise have had on any future occasion. None of the undertakings, indemnities, agreements, warranties, covenants and representations of Borrower or any other Credit Party to Lender contained in any Loan Document and no Default by Borrower or any other Credit Party under any Loan Document shall be deemed to have been suspended or waived by Lender, unless such waiver or suspension is by an instrument in writing signed by an officer or other authorized employee of Lender and directed to Borrower specifying such suspension or waiver (and then such waiver shall be effective only to the extent therein expressly set forth), and Lender shall not, by any act (other than execution of a formal written waiver), delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder. 9.4 Severability. Wherever possible, each provision of the Loan Documents shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of any Loan Document shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of such Loan Document. Except as otherwise expressly provided for in the Loan Documents, no termination or cancellation (regardless of cause or procedure) of any financing arrangement under the Loan Documents shall in any way affect or impair the Obligations, duties, covenants, representations and warranties, indemnities, and liabilities of Borrower or any other Credit Party or the rights of Lender relating to any unpaid Obligation, (due or not due, liquidated, contingent or unliquidated), or any transaction or event occurring prior to such 24 termination, or any transaction or event, the performance of which is not required until after the Commitment Termination Date, all of which shall not terminate or expire, but rather shall survive such termination or cancellation and shall continue in full force and effect until the Termination Date; provided, that all indemnity obligations of the Credit Parties under the Loan Documents shall survive the Termination Date. 9.5 Conflict of Terms. Except as otherwise provided in any Loan Document by specific reference to the applicable provisions of this Agreement, if any provision contained in this Agreement is in conflict with, or inconsistent with, any provision in any other Loan Document, the provision contained in this Agreement shall govern and control. 9.6 Authorized Signature. Until Lender shall be notified in writing by Borrower or any other Credit Party to the contrary, the signature upon any document or instrument delivered pursuant hereto and believed by Lender or any of Lender's officers, agents, or employees to be that of an officer of Borrower or such other Credit Party listed in the Secretarial Certificate in the form of Exhibit H shall bind Borrower and such other Credit Party and be deemed to be the act of Borrower or such other Credit Party affixed pursuant to and in accordance with resolutions duly adopted by Borrower's or such other Credit Party's Board of Directors, and Lender shall be entitled to assume the authority of each signature and authority of the person whose signature it is or appears to be unless the person acting in reliance of such signature shall have actual knowledge of the fact that such signature is false or the person whose signature or purported signature is presented is without authority. 9.7 Notices. Except as otherwise provided herein, whenever any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any party by any other party, or whenever any party desires to give or serve upon any other party any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and three (3) days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 9.7), (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid or (d) when hand-delivered, all of which shall be addressed to the party to be notified and sent to the address or facsimile number indicated in Schedule B or to such other address (or facsimile number) as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any Person (other than Borrower or Lender) designated in Schedule B to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 9.8 Section Titles. The Section titles and Table of Contents contained in any Loan Document are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 25 9.9 Counterparts. Any Loan Document may be executed in any number of separate counterparts by any one or more of the parties thereto, and all of said counterparts taken together shall constitute one and the same instrument. 9.10 Time of the Essence. Time is of the essence for performance of the Obligations under the Loan Documents. 9.11 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS ARISING UNDER THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF New York APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. 9.12 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. (A) BORROWER AND EACH OTHER CREDIT PARTY EXECUTING THIS AGREEMENT HEREBY CONSENT AND AGREE THAT THE STATE OR FEDERAL COURTS LOCATED IN New York SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND SUCH CREDIT PARTY AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT LENDER, BORROWER AND SUCH CREDIT PARTY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF New York; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. BORROWER AND EACH OTHER CREDIT PARTY EXECUTING THIS AGREEMENT EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER AND SUCH CREDIT PARTY HEREBY WAIVE ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER AND EACH OTHER CREDIT PARTY EXECUTING THIS AGREEMENT HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER OR SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN SCHEDULE B OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S OR SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. (B) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LENDER, BORROWER AND ANY CREDIT PARTY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO. 26 9.13 Press Releases. Each Credit Party executing this Agreement agrees that neither it nor its Affiliates will in the future issue any press release or other public disclosure using the name of GE Capital or its affiliates or referring to this Agreement or the other Loan Documents without at least two (2) Business Days' prior notice to GE Capital and without the prior written consent of GE Capital unless (and only to the extent that) such Credit Party or Affiliate is required to do so under law and then, in any event, such Credit Party or Affiliate will consult with GE Capital before issuing such press release or other public disclosure, provided that no such prior consultation shall be required with respect to any such press release or public disclosure made pursuant to the rules promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934 or the Securities Act of 1933. Each Credit Party consents to the publication by Lender of a tombstone or similar advertising material relating to the financing transactions contemplated by this Agreement. 9.14 Reinstatement. This Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time payment of all or any part of the Obligations is rescinded or must otherwise be returned or restored by the Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any other Credit Party, or otherwise, all as though such payments had not been made. IN WITNESS WHEREOF, this Loan and Security Agreement has been duly executed as of the date first written above. GULF NORTHERN TRANSPORT, INC. By:/s/ Danny Pixler Name: Danny Pixler Title: Chief Executive Officer U.S. TRUCKING, INC. (NEVADA) By:/s/ Danny Pixler Name: Danny Pixler Title: President U.S. TRUCKING, INC. (COLORADO) By:/s/ Danny Pixler Name: Danny Pixler Title: President and CEO MENCOR, INC. By:/s/ Danny Pixler Name: Danny Pixler Title: President 27 GENERAL ELECTRIC CAPITAL CORPORATION By:/s/ James DeSantis Name: James DeSantis Title: Duly Authorized Signatory 28 SCHEDULE A - DEFINITIONS Capitalized terms used in this Agreement and the other Loan Documents shall have (unless otherwise provided elsewhere in this Agreement or in the other Loan Documents) the following respective meanings: "Account Debtor" shall mean any Person who is or may become obligated with respect to, or on account of, an Account. "Accounts" shall mean all "accounts," as such term is defined in the Code, now owned or hereafter acquired by any Person, including: (i) all accounts receivable, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments), whether arising out of goods sold or services rendered or from any other transaction (including any such obligations which may be characterized as an account or contract right under the Code); (ii) all of such Person's rights in, to and under all purchase orders or receipts for goods or services; (iii) all of such Person's rights to any goods represented by any of the foregoing (including unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods); (iv) all moneys due or to become due to such Person under all purchase orders and contracts for the sale of goods or the performance of services or both by such Person or in connection with any other transaction (whether or not yet earned by performance on the part of such Person), including the right to receive the proceeds of said purchase orders and contracts; and (v) all collateral security and guarantees of any kind given by any other Person with respect to any of the foregoing. "Accounts Payable Analysis" shall mean a certificate in the form of Exhibit D "Accounts Receivable Roll Forward Analysis" shall mean a certificate in the form of Exhibit E. "Affiliate" shall mean, with respect to any Person: (i) each other Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, five percent (5%) or more of the Stock having ordinary voting power for the election of directors of such Person; (ii) each other Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person; or (iii) each of such Person's officers, directors, joint venturers and partners. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. "Agreement" shall mean this Agreement including all Appendices attached or otherwise identified thereto, restatements and modifications and supplements thereto, and any appendices, exhibits or schedules to any of the foregoing, and shall refer to this Agreement as the same may be in effect at the time such reference becomes operative; provided, that except as specifically set forth in this Agreement, any reference to the Disclosure Schedules to this Agreement shall be deemed a reference to the Disclosure Schedules as in effect on the Closing Date or in a written amendment thereto executed by Borrower and Lender. "Appendices" shall have the meaning assigned to it in the Recitals of this Agreement. A-1 "Bank Account Agreements" shall mean the Lockbox Account Agreements. "Books and Records" shall mean all books, records, board minutes, contracts, licenses, insurance policies, environmental audits, business plans, files, computer files, computer discs and other data and software storage and media devices, accounting books and records, financial statements (actual and pro forma), filings with Governmental Authorities and any and all records and instruments relating to the Collateral. "Borrower" shall mean the Person identified as such in the preamble of this Agreement. "Borrowing Availability" shall mean, at any time, the lesser of (i) the Maximum Amount or (ii) the Borrowing Base, in each case less reserves established by Lender from time to time. "Borrowing Base" shall mean at any time an amount equal to the sum at such time of: (i) eighty five percent (85%) (less reserves established by Lender pursuant to Section 1.13) of the value (as determined by Lender) of Borrower's Eligible Accounts (other than Eligible Unbilled Accounts) and (ii) 65% (less reserves established by Lender pursuant to Section 1.13) of the value (as determined by Lender) of Borrower's Eligible Unbilled Accounts subject to an aggregate amount equal to $250,000; provided that (1) Lender (without limiting its rights to otherwise reduce the foregoing percentage) shall reduce the foregoing percentage by one percentage point for each percentage point that the dilution of Borrower's Accounts (calculated as the average dilution from the Accounts Receivable Roll Forward Analysis over the most recent three months exceeds 3%, less the unreimbursed face amount of any Letter of Credit Obligations, and (2) Lender reserves the right to adjust the percentage identified in (ii) above in the event it determines that it is not satisfied with the environmental condition of the Wisconsin Rapids, Wisconsin, real property. "Borrowing Base Certificate" shall mean a certificate in the form of Exhibit C. "Business Day" shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of New York. "CAF" shall mean Commercial Asset Funding, a division of General Electric Capital Corporation. "Capital Expenditures" shall mean all payments or accruals (including Capital Lease Obligations) for any fixed assets or improvements or for replacements, substitutions or additions thereto, that have a useful life of more than one year and that are required to be capitalized under GAAP. "Capital Lease" shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, either would be required to be classified and accounted for as a capital lease on a balance sheet of such Person or otherwise would be disclosed as such in a note to such balance sheet, other than, in the case of Borrower, any such lease under which Borrower is the lessor. "Capital Lease Obligation" shall mean, with respect to any Capital Lease, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease or otherwise be disclosed in a note to such balance sheet. A-2 "Cash Collateral Account" shall have the meaning assigned to it in Schedule C. "Change of Control" shall mean, with respect to any Person on or after the Closing Date (i) that any Person or "group" shall increase its "beneficial ownership" (as such terms are defined under Section 13d-3 of and Regulation 13D under the Securities Exchange Act of 1934) either directly or indirectly, by more than ten percent (10%) of the outstanding shares of Stock of such Person having the right to vote for the election of directors of such Person under ordinary circumstances, (ii) that any change in the composition of its stockholders as of the Closing Date shall occur which would result in any stockholder or group acquiring 49.9% or more of any class of Stock of such Person, or (iii) that any Person (or group of Persons acting in concert) shall otherwise acquire the power to direct the management or affairs of such Person by obtaining proxies, entering into voting agreements or trusts, acquiring securities or otherwise. "Charges" shall mean all Federal, state, county, city, municipal, local, foreign or other governmental taxes (including taxes owed to PBGC at the time due and payable), levies, assessments, charges, liens, and all additional charges, interest, penalties, expenses, claims or encumbrances upon or relating to (i) the Collateral, (ii) the Obligations, (iii) the employees, payroll, income or gross receipts of any Credit Party, (iv) the ownership or use of any assets by any Credit Party, or (v) any other aspect of any Credit Party's business. "Chattel Paper" shall mean all "chattel paper," as such term is defined in the Code, now owned or hereafter acquired by any Person, wherever located. "Closing Date" shall mean the Business Day on which the conditions precedent set forth in Section 2 have been satisfied or specifically waived in writing by Lender, and the initial Loan has been made. "Closing Fee" shall have the meaning assigned to it in Schedule E. "Code" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of Lender's security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "Code" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions of this Agreement relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. "Collateral" shall have the meaning assigned to it in Section 6.1. "Collection Account" shall mean that certain account of Lender, account number 50-232-854 in the name of GECC CAF Depository at Bankers Trust Company, 1 Bankers Trust Plaza, New York, New York, ABA number 021-001-033. "Commitment Termination Date" shall mean the earliest of (i) the Stated Expiry Date, (ii) the date Lender's obligation to advance funds is terminated pursuant to Section 7.2, and (iii) the date of indefeasible prepayment in full by Borrower of the Obligations in accordance with the provisions of Section 1.2(c). A-3 "Contracts" shall mean all the contracts, undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which any Person may now or hereafter have any right, title or interest, including any agreement relating to the terms of payment or the terms of performance of any Account. "Contractual Obligation" shall mean as to any Person, any provision of any security issued by such Person or of any agreement, instrument, or other undertaking to which such Person is a party or by which it or any of its property is bound. "Copyright License" shall mean rights under any written agreement now owned or hereafter acquired by any Person granting the right to use any Copyright or Copyright registration. "Copyrights" shall mean all of the following now owned or hereafter acquired by any Person: (i) all copyrights in any original work of authorship fixed in any tangible medium of expression, now known or later developed, all registrations and applications for registration of any such copyrights in the United States or any other country, including registrations, recordings and applications, and supplemental registrations, recordings, and applications in the United States Copyright Office; and (ii) all Proceeds of the foregoing, including license royalties and proceeds of infringement suits, the right to sue for past, present and future infringements, all rights corresponding thereto throughout the world and all renewals and extensions thereof. "Corporate Credit Party" shall mean any Credit Party that is a corporation. "Credit Party" shall mean Borrower, and each other Person (other than Lender) that is or may become a party to this Agreement or any other Loan Document. "Default" shall mean any Event of Default or any event which, with the passage of time or notice or both, would, unless cured or waived, become an Event of Default. "Default Rate" shall have the meaning assigned to it in Section 1.5(d). "Documents" shall mean all "documents," as such term is defined in the Code, now owned or hereafter acquired by any Person, wherever located, including all bills of lading, dock warrants, dock receipts, warehouse receipts, and other documents of title, whether negotiable or non-negotiable. "Eligible Accounts" shall mean as at the date of determination, all Accounts of the Borrower except any Account: (a) that does not arise from the sale of goods or the performance of services by Borrower in the ordinary course of Borrower's business; (b) upon which (i) Borrower's right to receive payment is not absolute or is contingent upon the fulfillment of any condition whatsoever or (ii) Borrower is not able to bring suit or otherwise enforce its remedies against the Account Debtor through judicial process; (c) against which any defense, counterclaim or setoff, whether well-founded or otherwise, is asserted or which is a "contra" Account; A-4 (d) that is not a true and correct statement of a bona fide indebtedness incurred in the amount of the Account for merchandise sold or services performed and accepted by the Account Debtor obligated upon such Account; (e) with respect to which an invoice, acceptable to Lender in form and substance, has not been sent; (f) that is not owned by Borrower or is subject to any right, claim, or interest of another Person, other than the Lien in favor of Lender; (g) that arises from a sale to or performance of services for an employee, Affiliate, Subsidiary or Stockholder of Borrower or any other Credit Party, or an entity which has common officers or directors with Borrower or any other Credit Party; (h) that is the obligation of an Account Debtor that is the Federal government or a political subdivision thereof, unless Lender has agreed to the contrary in writing and Borrower has complied with the Federal Assignment of Claims Act of 1940 with respect to such obligation; (i) that is the obligation of an Account Debtor located in a foreign country unless such Account is supported by a letter of credit or credit insurance acceptable to Lender; (j) that is the obligation of an Account Debtor to whom Borrower is or may become liable for goods sold or services rendered by the Account Debtor to Borrower, to the extent of Borrower's liability to such Account Debtor; (k) that arises with respect to goods which are delivered on a cash-on-delivery basis or placed on consignment, guaranteed sale or other terms by reason of which the payment by the Account Debtor may be conditional; (l) that is an obligation for which the total unpaid Accounts of the Account Debtor exceed 20% of the aggregate of all Accounts, to the extent of such excess; (m) that is not paid within 90 days from its invoice date or that are Accounts of an Account Debtor if 50% or more of the Accounts owing from such Account Debtor remain unpaid within such time periods; (n) is an obligation of an Account Debtor that has suspended business, made a general assignment for the benefit of creditors, is unable to pay its debts as they become due or as to which a petition has been filed (voluntary or involuntary) under any law relating to bankruptcy, insolvency, reorganization or relief of debtors; (o) that arises from any bill-and-hold or other sale of goods which remain in Borrower's possession or under Borrower's control; (p) as to which Lender's interest therein is not a first priority perfected security interest; (q) to the extent that such Account exceeds any credit limit established by Lender in Lender's sole discretion; (r) as to which any of Borrower's representations or warranties pertaining to Accounts are untrue; A-5 (s) that represents interest payments or service charges owing to Borrower; or (t) that is not otherwise acceptable in the sole discretion of Lender, provided, that Lender shall have the right to create and adjust eligibility standards and related reserves from time to time in its good faith credit judgment. "Eligible Unbilled Accounts" shall mean Eligible Accounts which have not been billed by Borrower and appear on the Unbilled Daily Accounts Receivable Rollforward Analysis (identified by individual shipping trucking number); provided, however, no such Eligible Unbilled Accounts shall appear on such report in excess of 30 days. "Environmental Laws" shall mean all Federal, state and local laws, statutes, ordinances and regulations, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any applicable judicial or administrative interpretation thereof relating to the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.) ("CERCLA"); the Hazardous Material Transportation Act (49 U.S.C. Section 1801 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et seq.); the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.) ("RCRA"); the Toxic Substance Control Act (15 U.S.C. Section 2601 et seq.); the Clean Air Act (42 U.S.C. Section 740 et seq.); the Federal Water Pollution Control Act (33 U.S.C. Section _1251 et seq.); the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.) ("OSHA"); and the Safe Drinking Water Act (42 U.S.C. Section 300(f) et seq.), and any and all regulations promulgated thereunder, and all analogous state and local counterparts or equivalents and any transfer of ownership notification or approval statutes. "Environmental Liabilities" shall mean all liabilities, obligations, responsibilities, remedial actions, removal costs, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim, suit, action or demand by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law (including any thereof arising under any Environmental Law, permit, order or agreement with any Governmental Authority) and which relate to any health or safety condition regulated under any Environmental Law, Environmental Permits or in connection with any Release, threatened Release, or the presence of a Hazardous Material. "Environmental Permits" shall mean all permits, licenses, authorizations, certificates, approvals, registrations or other written documents required by any Governmental Authority under any Environmental Law. "Equipment" shall mean all "equipment" as such term is defined in the Code, now owned or hereafter acquired by any Person, wherever located, including any and all machinery, apparatus, equipment, fittings, furniture, fixtures, motor vehicles and other tangible personal property (other than Inventory) of every A-6 kind and description which may be now or hereafter used in such Person's operations or which are owned by such Person or in which such Person may have an interest, and all parts, accessories and accessions thereto and substitutions and replacements therefor. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time, and any regulations promulgated thereunder. "ERISA Affiliate" shall mean, with respect to any Credit Party, any trade or business (whether or not incorporated) which together with such Credit Party, are treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the IRC. "ERISA Event" shall mean with respect to any Credit Party or any ERISA Affiliate, (a) any event described in Section 4043(c) of ERISA with respect to a Title IV Plan; (b) the withdrawal of any Credit Party or ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the complete or partial withdrawal of any Credit Party or any ERISA Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to terminate a Title IV Plan or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (e) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Credit Party or ERISA Affiliate to make when due required contributions to a Multiemployer Plan or Title IV Plan unless such failure is cured within 30 days; (g) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or for the imposition of liability under Section 4069 or 4212(c) of ERISA; (h) the termination of a Multiemployer Plan under Section 4041A of ERISA or the reorganization or insolvency of a Multiemployer Plan under Section 4241 of ERISA; or (i) the loss of a Qualified Plan's qualification or tax exempt status. "ESOP" shall mean a Plan which is intended to satisfy the requirements of Section 4975(e)(7) of the IRC. "Event of Default" shall have the meaning assigned to it in Section 7.1. "Fees" shall mean the fees due to Lender as set forth in Schedule E. "Financial Statements" shall mean the consolidated and consolidating income statement, balance sheet and statement of cash flows of Borrower and its Subsidiaries, internally prepared for each Fiscal Month, and audited for each Fiscal Year, prepared in accordance with GAAP. "Fiscal Month" shall mean any of the monthly accounting periods of Borrower. "Fiscal Quarter" shall mean any of the quarterly accounting periods of Borrower. "Fiscal Year" shall mean the 12 month period of Borrower ending December 31 of each year. Subsequent changes of the fiscal year of Borrower shall not change the term "Fiscal Year" unless Lender shall consent in writing to such change. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time, consistently applied. A-7 "GE Capital" shall mean General Electric Capital Corporation, a New York corporation, and its successors and assigns. "General Intangibles" shall mean all "general intangibles," as such term is defined in the Code, now owned or hereafter acquired by any Person, including all right, title and interest which such Person may now or hereafter have in or under any Contract, Intellectual Property, interests in partnerships, joint ventures and other business associations, permits, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials, Books and Records, Goodwill (including the Goodwill associated with any Intellectual Property), all rights and claims in or under insurance policies (including insurance for fire, damage, loss, and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key-person, and business interruption insurance, and all unearned premiums), uncertificated securities, choses in action, deposit accounts, rights to receive tax refunds and other payments and rights of indemnification. "Goods" shall mean all "goods," as such term is defined in the Code, now owned or hereafter acquired by any Person, wherever located, including movables, fixtures, equipment, inventory, or other tangible personal property. "Goodwill" shall mean all goodwill, trade secrets, proprietary or confidential information, technical information, procedures, formulae, quality control standards, designs, operating and training manuals, customer lists, and distribution agreements now owned or hereafter acquired by any Person. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranteed Indebtedness" shall mean, as to any Person, any obligation of such Person guaranteeing any indebtedness, lease, dividend, or other obligation ("primary obligations") of any other Person (the "primary obligor") in any manner, including any obligation or arrangement of such guaranteeing Person (whether or not contingent): (i) to purchase or repurchase any such primary obligation; (ii) to advance or supply funds (a) for the purchase or payment of any such primary obligation or (b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor; (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or (iv) to indemnify the owner of such primary obligation against loss in respect thereof. "Guarantor" shall mean each Person which executes a guaranty or a support, put or other similar agreement in favor of Lender in connection with the transactions contemplated by this Agreement. "Guaranty" shall mean any agreement to perform all or any portion of the Obligations on behalf of Borrower or any other Credit Party, in favor of, and in form and substance satisfactory to, Lender, together with all amendments, modifications and supplements thereto, and shall refer to such Guaranty as the same may be in effect at the time such reference becomes operative. A-8 "Hazardous Material" shall mean any substance, material or waste which is regulated by or forms the basis of liability now or hereafter under, any Environmental Laws, including any material or substance which is (a) defined as a "solid waste," "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste ," "restricted hazardous waste," "pollutant," "contaminant," "hazardous constituent," "special waste," "toxic substance" or other similar term or phrase under any Environmental Laws, (b) petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's), or any radioactive substance. "Hazardous Waste" shall have the meaning ascribed to such term in the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et. seq.). "Indebtedness" of any Person shall mean: (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (including reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured, but not including obligations to trade creditors incurred in the ordinary course of business and not more than 45 days past due); (ii) all obligations evidenced by notes, bonds, debentures or similar instruments; (iii) all indebtedness created or arising under any conditional sale or other title retention agreements with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (iv) all Capital Lease Obligations; (v) all Guaranteed Indebtedness; (vi) all Indebtedness referred to in clauses (i), (ii), (iii), (iv) or (v) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; (vii) the Obligations; and (viii) all liabilities under Title IV of ERISA. "Indemnified Liabilities" shall have the meaning assigned to it in Section 1.11. "Indemnified Person" shall have the meaning assigned to it in Section 1.11. "Index Rate" shall mean the latest rate for 30-day dealer placed commercial paper (which for purposes hereof shall mean high grade unsecured notes sold through dealers by major corporations in multiples of $1,000) which normally is published in the "Money Rates" section of The Wall Street Journal (or if such rate ceases to be so published, as quoted from such other generally available and recognizable source as Lender may select). The Index Rate shall be determined (i) on the first Business Day immediately prior to the Closing Date and (ii) thereafter, on the last Business Day of each calendar month for calculation of interest for the following month. "Instruments" shall mean all "instruments," as such term is defined in the Code, now owned or hereafter acquired by any Person, wherever located, including all certificated securities and all notes and other evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. "Intellectual Property" shall mean any and all Licenses, Patents, Copyrights, Trademarks, trade secrets and customer lists. A-9 "Inventory" shall mean all "inventory," as such term is defined in the Code, now or hereafter owned or acquired by any Person, wherever located, including all inventory, merchandise, goods and other personal property which are held by or on behalf of such Person for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in such Person's business or in the processing, production, packaging, promotion, delivery or shipping of the same, including other supplies. "IRC" shall mean the Internal Revenue Code of 1986, and any successor thereto. "IRS" shall mean the Internal Revenue Service, or any successor thereto. "Lender" shall mean GE Capital and, if at any time GE Capital shall decide to assign or syndicate all or any of the Obligations, such term shall include such assignee or such other members of the syndicate. "Letters of Credit" shall mean any and all commercial or standby letters of credit issued at the request and for the account of Borrower for which Lender has incurred Letter of Credit Obligations. "Letter of Credit Fee" shall have the meaning assigned to it in Schedule E. "Letter of Credit Obligations" shall mean all outstanding obligations incurred by Lender, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance or guarantee, by Lender or another, of Letters of Credit, all as further set forth in Schedule C. The amount of such Letter of Credit Obligations at any time shall equal the maximum amount which may be payable by Lender thereupon or pursuant thereto at such time and shall include all duty, freight, taxes, costs, insurance and any other charges and expenses in connection therewith. "License" shall mean any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by any Person. "Lien" shall mean any mortgage, security deed or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, security title, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Code or comparable law of any jurisdiction). "Litigation" shall mean any claim, lawsuit, litigation, investigation or proceeding of or before any arbitrator or Governmental Authority. "Loan Documents" shall mean this Agreement, the Notes, the Financial Statements, each Guaranty, the Power of Attorney, the Bank Account Agreements, and the other documents and instruments listed in Schedule F, and all security agreements, mortgages and all other documents, instruments, certificates, and notices at any time delivered by any Person (other than Lender) in connection with any of the foregoing. "Loans" shall mean the Revolving Credit Loan including the Letter of Credit Obligations. A-10 "Lock Box Account" shall have the meaning assigned to it in Schedule D. "Lock Box Account Agreement" shall have the meaning assigned to it in Schedule D. "Material Adverse Effect" shall mean: (i) a material adverse effect on (a) the business, assets, operations, prospects or financial or other condition of Borrower or any other Credit Party or the industry within which Borrower or any other Credit Party operates, (b) Borrower's or any other Credit Party's ability to pay or perform the Obligations under the Loan Documents to which such Credit Party is a party in accordance with the terms thereof, (c) the Collateral or Lender's Liens on the Collateral or the priority of any such Lien, or (d) Lender's rights and remedies under this Agreement and the other Loan Documents; or (ii) the incurrence by Borrower or any other Credit Party of any liability (other than Indebtedness permitted by Section 5(c)), contingent or liquidated, which has an actual or estimated incurrence of liability, or dollar exposure or loss, greater than Minimum Actionable Amount to Borrower or any other Credit Party. "Maximum Amount" shall mean the maximum amount of credit to be provided by Lender to or for the benefit of Borrower for aggregate Revolving Credit Advances and Letter of Credit Obligations outstanding at any time, without regard to the Borrowing Base or reserves, which amount, for purposes of this Agreement, is $5,000,000. "Minimum Actionable Amount" shall mean $50,000. "Mortgage" shall mean a second lien mortgage in favor of Lender substantially in the form of Exhibit G. "Multiemployer Plan" shall mean a "multiemployer plan," as defined in Section 4001(a) (3) of ERISA, to which Borrower, any other Credit Party or any ERISA Affiliate is making, is obligated to make, has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them. "Net Borrowing Availability" shall mean at any time the Borrowing Availability less the Revolving Credit Loan. "Notes" shall mean the Revolving Credit Note. "Notice of Revolving Credit Advance" shall have the meaning assigned to it in Section 1.1(b). "Obligations" shall mean all loans, advances, debts, expense reimbursement, fees, liabilities, and obligations for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by Borrower and any other Credit Party to Lender, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, whether arising under any of the Loan Documents or under any other agreement between Borrower, such Credit Party and Lender, and all covenants and duties regarding such amounts. This term includes all principal, interest (including interest accruing at the then applicable rate provided in this Agreement after the maturity of the Loans and interest accruing at the then applicable rate provided in this Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like A-11 proceeding, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), Fees, Charges, expenses, attorneys' fees and any other sum chargeable to Borrower under any of the Loan Documents, and all principal and interest due in respect of the Loans and all obligations and liabilities of any Guarantor under any Guaranty. "Patent License" shall mean rights under any written agreement now owned or hereafter acquired by any Person granting any right with respect to any invention on which a Patent is in existence. "Patents" shall mean all of the following in which any Person now holds or hereafter acquires any interest: (i) all letters patent of the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State or Territory thereof, or any other country; and (ii) all reissues, continuations, continuations-in-part or extensions thereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereto. "Permitted Encumbrances" shall mean the following encumbrances: (i) Liens for taxes or assessments or other governmental Charges or levies, either not yet due and payable or to the extent that nonpayment thereof is permitted by the terms of Section 3.11; (ii) pledges or deposits securing obligations under worker's compensation, unemployment insurance, social security or public liability laws or similar legislation; (iii) pledges or deposits securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which any Credit Party is a party as lessee made in the ordinary course of business; (iv) deposits securing public or statutory obligations of any Credit Party; (v) inchoate and unperfected workers', mechanics', or similar liens arising in the ordinary course of business so long as such Liens attach only to Equipment, fixtures or real estate; (vi) carriers', warehousemans', suppliers' or other similar possessory liens arising in the ordinary course of business and securing indebtedness not yet due and payable in an outstanding aggregate amount not in excess of $25,000 at any time so long as such Liens attach only to Inventory; (vii) deposits of money securing, or in lieu of, surety, appeal or customs bonds in proceedings to which any Credit Party is a party; (viii) zoning restrictions, easements, licenses, or other restrictions on the use of real property or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value, or marketability of such real estate; (ix) Purchase Money Liens securing Purchase Money Indebtedness (or rent) to the extent permitted under Section 5(c)(ii); (x) Liens in existence on the Closing Date as disclosed on Disclosure Schedule 5(h) provided that no such Lien is spread to cover additional property after the Closing Date and the amount of Indebtedness secured thereby is not increased.; and (xi) Liens in favor of Lender securing the Obligations. "Person" shall mean any individual, sole proprietorship, partnership, limited liability partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether Federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof), and shall include such Person's successors and assigns. A-12 "Plan" shall mean, with respect to Borrower or any other Credit Party, at any time, an employee benefit plan, as defined in Section 3(3) of ERISA, which Borrower or any other Credit Party maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Prepayment Fee" shall mean the prepayment fee specified in Schedule E. "Proceeds" shall mean "proceeds," as such term is defined in the Code and, in any event, shall include: (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Borrower or any other Credit Party from time to time with respect to any Collateral; (ii) any and all payments (in any form whatsoever) made or due and payable to Borrower or any other Credit Party from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of any Collateral by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority); (iii) any claim of Borrower or any other Credit Party against third parties (a) for past, present or future infringement of any Intellectual Property or (b) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License; (iv) any recoveries by Borrower or any other Credit Party against third parties with respect to any litigation or dispute concerning any Collateral; and (v) any and all other amounts from time to time paid or payable under or in connection with any Collateral, upon disposition or otherwise. "Projections" shall mean as of any date the consolidated and consolidating balance sheet, statements of income and cash flow for Borrower and its Subsidiaries (including forecasted Capital Expenditures and Net Borrowing Availability) (i) by month for the next Fiscal Year, and (ii) by year for the following three Fiscal Years, in each case prepared in a manner consistent with GAAP and accompanied by senior management's discussion and analysis of such plan. "Purchase Money Indebtedness" shall mean (i) any Indebtedness incurred for the payment of all or any part of the purchase price of any fixed asset, (ii) any Indebtedness incurred for the sole purpose of financing or refinancing all or any part of the purchase price of any fixed asset, and (iii) any renewals, extensions or refinancings thereof (but not any increases in the principal amounts thereof outstanding at that time). "Purchase Money Lien" shall mean any Lien upon any fixed assets which secures the Purchase Money Indebtedness related thereto but only if such Lien shall at all times be confined solely to the asset the purchase price of which was financed or refinanced through the incurrence of the Purchase Money Indebtedness secured by such Lien and only if such Lien secures only such Purchase Money Indebtedness. "Qualified Plan" shall mean a Plan which is intended to be tax-qualified under Section 401(a) of the IRC. "Real Property" shall have the meaning assigned to it in Section 3.16. A-13 "Release" shall mean, as to any Person, any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials in the indoor or outdoor environment by such Person, including the movement of Hazardous Materials through or in the air, soil, surface water, ground water or property. "Requirement of Law" shall mean as to any Person, the Certificate or Articles of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case binding upon such Person or any of its property or to which such Person or any of its property is subject. "Restricted Payment" shall mean: (i) the declaration or payment of any dividend or the incurrence of any liability to make any other payment or distribution of cash or other property or assets on or in respect of Borrower's or any other Credit Party's Stock; (ii) any payment on account of the purchase, redemption, defeasance or other retirement of Borrower's or any other Credit Party's Stock or Indebtedness or any other payment or distribution made in respect of any thereof, either directly or indirectly; other than (a) that arising under this Agreement or (b) interest and principal, when due without acceleration or modification of the amortization as in effect on the Closing Date, under Indebtedness described in Disclosure Schedule (5(c)) or otherwise permitted under Section 5(c)(ii); or (iii) any payment, loan, contribution, or other transfer of funds or other property to any Stockholder of such Person which is not expressly and specifically permitted in this Agreement; provided, that no payment to Lender shall constitute a Restricted Payment. "Retiree Welfare Plan" shall mean, at any time, a Plan that is a "welfare plan" as defined in Section 3(2) of ERISA, that provides for continuing coverage or benefits for any participant or any beneficiary of a participant after such participant's termination of employment, other than continuation coverage provided pursuant to Section 4980B of the IRC and at the sole expense of the participant or the beneficiary of the participant. "Revolving Credit Advance" shall have the meaning assigned to it in Section 1.1(a). "Revolving Credit Loan" shall mean at any time the sum of (i) the aggregate amount of Revolving Credit Advances then outstanding, plus (ii) the total Letter of Credit Obligations incurred by Lender and outstanding at such time, plus (iii) the amount of accrued but unpaid interest thereon and Letter of Credit Fees with respect thereto. "Revolving Credit Note" shall mean the promissory note of Borrower dated the Closing Date, substantially in the form of Exhibit F. "Revolving Credit Rate" shall have the meaning assigned to it in Section 1.5(a). "Schedule of Documents" shall mean the schedule, including all appendices, exhibits or schedules thereto, listing certain documents and information to be delivered in connection with the Loan Documents and the transactions contemplated thereunder, substantially in the form of Schedule F or Schedule F-1, respectively. "Stated Expiry Date" shall mean December 22, 2001. A-14 "Stock" shall mean all certificated and uncertificated shares, options, warrants, general or limited partnership interests, participation or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934). "Stockholder" shall mean each holder of Stock of Borrower or any other Credit Party. "Subsidiary" shall mean, with respect to any Person, (i) any corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of 50% or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (ii) any partnership or limited liability company in which such Person or one or more Subsidiaries of such Person has an equity interest (whether in the form of voting or participation in profits or capital contribution) of more than 50% or of which any such Person is a general partner or may exercise the powers of a general partner. "Taxes" shall mean taxes, levies, imposts, deductions, Charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on or measured by the net income of Lender. "Termination Date" shall mean the date on which the Revolving Credit Loan and any other Obligations under this Agreement are indefeasibly paid in full, in cash (other than amounts in respect of Letter of Credit Obligations if any, then outstanding, provided that Borrower shall have funded such amounts in cash in full into the Cash Collateral Account), and Borrower shall have no further right to borrow any moneys or obtain other credit extensions or financial accommodations under this Agreement. "Term Loan" shall mean the term loan made by CAF to Borrower on the Closing Date. "Third Party Interactives" shall mean all Persons with whom any Corporate Credit Party exchanges data electronically in the ordinary course of business, including, without limitation, customers, suppliers, third-party vendors, subcontractors, processors-converters, shippers and warehousemen. "Title IV Plan" shall mean an "employee pension benefit plan," as defined in Section 3(2) of ERISA (other than a Multiemployer Plan), which is covered by Title IV of ERISA, and which Borrower, any other Credit Party or any ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Trademark License" shall mean rights under any written agreement now owned or hereafter acquired by any Person granting any right to use any Trademark or Trademark registration. A-15 "Trademarks" shall mean all of the following now owned or hereafter acquired by any Person: (i) all trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State or Territory thereof, or any other country or any political subdivision thereof, and (ii) all reissues, extensions or renewals thereof. "Transaction Summary" shall mean the Transaction Summary set forth in the Recitals to this Agreement. "Transport Clearings" shall mean Transport Clearings, LLC. "Unbilled Accounts Receivable Roll Forward Analysis" shall mean a certificate in the form of Exhibit E-1. "Unfunded Pension Liability" shall mean, at any time, the aggregate amount, if any, of the sum of (i) the amount by which the present value of all accrued benefits under each Title IV Plan exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, all determined as of the most recent valuation date for such Title IV Plan determined on the basis of a shutdown of the employees thereunder and using the actuarial assumptions in effect for funding purposes under such Title IV Plan, and (ii) for a period of five (5) years following a transaction which could be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided by Borrower, any other Credit Party or any ERISA Affiliate as a result of such transaction. "Year 2000 Assessment" shall mean a comprehensive written assessment of the nature and extent of each Corporate Credit Party's Year 2000 Problems and Year 2000 Date-Sensitive Systems/Components, including, without limitation, Year 2000 Problems regarding data exchanges with Third Party Interactives. "Year 2000 Corrective Actions" shall mean, as to each Corporate Credit Party, all actions necessary to eliminate such Person's Year 2000 Problems, including, without limitation, computer code enhancements and revisions, upgrades and replacements of Year 2000 Date-Sensitive Systems/Components, and coordination of such enhancements, revisions, upgrades and replacements with Third Party Interactives. "Year 2000 Corrective Plan" shall mean, with respect to each Corporate Credit Party, a comprehensive plan to eliminate all of its Year 2000 Problems on or before May 31, 1999, including without limitation (i) computer code enhancements or revisions, (ii) upgrades or replacements of Year 2000 Date-Sensitive Systems/Components, (iii) test and validation procedures, (iv) an implementation time line and budget and (v) designation of specific employees who will be responsible for planning, coordinating and implementing each phase or subpart of the Year 2000 Corrective Plan. "Year 2000 Date-Sensitive System/Component" shall mean, as to any Person, any system software, network software, applications software, data base, computer file, embedded microchip, firmware or hardware that accepts, creates, manipulates, sorts, sequences, calculates, compares or outputs calendar-related data accurately; such systems and components shall include, A-16 without limitation, mainframe computers, file server/client systems, computer workstations, routers, hubs, other network-related hardware, and other computer-related software, firmware or hardware and information processing and delivery systems of any kind and telecommunications systems and other communications processors, security systems, alarms, elevators and HVAC systems. "Year 2000 Implementation Testing" shall mean, as to each Corporate Credit Party, (i) the performance of test and validation procedures regarding Year 2000 Corrective Actions on a unit basis and on a system-wide basis; (ii) the performance of test and validation procedures regarding data exchanges among the Corporate Credit Parties' Year 2000 Date-Sensitive Systems/Components and data exchanges with Third Party Interactives, and (iii) the design and implementation of additional Corrective Actions, the need for which has been demonstrated by test and validation procedures. "Year 2000 Problems" shall mean, with respect to each Corporate Credit Party, limitations on the capacity or readiness of any such Corporate Credit Party's Year 2000 Date-Sensitive Systems/Components to accurately accept, create, manipulate, sort, sequence, calculate, compare or output calendar date information with respect to calendar year 1999 or any subsequent calendar year beginning on or after January 1, 2000 (including leap year computations), including, without limitation, exchanges of information among Year 2000 Date-Sensitive Systems/Components of the Corporate Credit Parties and exchanges of information among the Corporate Credit Parties and Year 2000 Date-Sensitive Systems/Components of Third Party Interactives and functionality of peripheral interfaces, firmware and embedded microchips. Any accounting term used in this Agreement or the other Loan Documents shall have, unless otherwise specifically provided therein, the meaning customarily given such term in accordance with GAAP, and all financial computations thereunder shall be computed, unless otherwise specifically provided therein, in accordance with GAAP consistently applied; provided, that all financial covenants and calculations in the Loan Documents shall be made in accordance with GAAP as in effect on the Closing Date unless Borrower and Lender shall otherwise specifically agree in writing. That certain items or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. All other undefined terms contained in this Agreement or the other Loan Documents shall, unless the context indicates otherwise, have the meanings provided for by the Code. The words "herein," "hereof" and "hereunder" or other words of similar import refer to this Agreement as a whole, including the exhibits and schedules thereto, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement. For purposes of this Agreement and the other Loan Documents, the following additional rules of construction shall apply, unless specifically indicated to the contrary: (a) wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter; (b) the term "or" is not exclusive; (c) the term "including" (or any form thereof) shall not be limiting or exclusive; (d) all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; (e) all references in this Agreement or in the Schedules to this Agreement to sections, schedules, disclosure schedules, exhibits, and attachments shall refer to the corresponding sections, schedules, disclosure A-17 schedules, exhibits, and attachments of or to this Agreement; and (f) all references to any instruments or agreements, including references to any of the Loan Documents, shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof. A-18 SCHEDULE B LENDER'S AND BORROWER'S ADDRESS FOR NOTICES Lender's Address: Name: General Electric Capital Corporation Address: 40 Old Ridgebury Road Danbury, CT 06810 Attn: Gulf Northern Transport, Inc. Account Manager Telephone: 203-796-5500 Facsimile: 203-796-5536 Borrower's Address: Name: Gulf Northern Transport, Inc. Address: 3125 Ashley Phosphate Road N. Charleston, SC 29418 Attn: Dan Pixler, Chief Executive Officer Telephone: 843-767-9197 Facsimile: 843-767-9198 B-1 SCHEDULE C LETTERS OF CREDIT 1. Lender agrees, subject to the terms and conditions hereinafter set forth, to incur Letter of Credit Obligations in respect of the issuance of Letters of Credit issued on terms acceptable to Lender and supporting obligations of Borrower incurred in the ordinary course of Borrower's business, in order to support the payment of Borrower's inventory purchase obligations, insurance premiums, or utility or other operating expenses and obligations, as Borrower shall request by written notice to Lender that is received by Lender not less than five Business Days prior to the requested date of issuance of any such Letter of Credit; provided, that: (a) that the aggregate amount of all Letter of Credit Obligations at any one time outstanding (whether or not then due and payable) shall not exceed $250,000; (b) no Letter of Credit shall have an expiry date which is later than the Stated Expiry Date or one year following the date of issuance thereof; and (c) Lender shall be under no obligation to incur any Letter of Credit Obligation if after giving effect to the incurrence of such Letter of Credit Obligation, the Net Borrowing Availability would be less than zero. The maximum amount payable in respect of each Letter of Credit requested by Borrower will be guaranteed by Lender in favor of the issuing bank under terms of a separate agreement between Lender and the issuing bank. Borrower will enter into an application and agreement for such Letter of Credit with the issuing bank selected by Lender. The bank that issues any Letter of Credit pursuant to this Agreement shall be determined by Lender in its sole discretion. 2. The notice to be provided to Lender requesting that Lender incur Letter of Credit Obligations shall be in the form of a Letter of Credit application in the form customarily employed by the issuing bank, together with a written request by Borrower and the bank that Lender approve Borrower's application. Upon receipt of such notice Lender shall establish a reserve against the Borrowing Availability in the amount of 100% of the face amount of the Letter of Credit Obligation to be incurred. Approval by Lender in the written form agreed upon between Lender and the issuing bank (a) will authorize the bank to issue the requested Letter of Credit, and (b) will conclusively establish the existence of the Letter of Credit Obligation as of the date of such approval. 3. In the event that Lender shall make any payment on or pursuant to any Letter of Credit Obligation, Borrower shall be unconditionally obligated to reimburse Lender therefor, and such payment shall then be deemed to constitute a Revolving Credit Advance. For purposes of computing interest under Section 1.5, a Revolving Credit Advance made in satisfaction of a Letter of Credit Obligation shall be deemed to have been made as of the date on which the issuer or endorser makes the related payment under the underlying Letter of Credit. 4. In the event that any Letter of Credit Obligations, whether or not then due or payable, shall for any reason be outstanding on the Commitment Termination Date, Borrower will either (a) cause the underlying Letter of Credit to be returned and canceled and each corresponding Letter of Credit Obligation to be terminated, or (b) pay to Lender, in immediately available funds, an amount equal to 105% of the maximum amount then available to be drawn under all Letters of Credit not so returned and canceled to be held by Lender as cash collateral in an account under the exclusive dominion and control of Lender (the "Cash Collateral Account"). C-1 5. In the event that Lender shall incur any Letter of Credit Obligations, Borrower agrees to pay the Letter of Credit Fee to Lender as compensation to Lender for incurring such Letter of Credit Obligations. In addition, Borrower shall reimburse Lender for all fees and charges paid by Lender on account of any such Letters of Credit or Letter of Credit Obligations to the issuing bank. 6. Borrower's Obligations to Lender with respect to any Letter of Credit or Letter of Credit Obligation shall be evidenced by Lender's records and shall be absolute, unconditional and irrevocable and shall not be affected, modified or impaired by (a) any lack of validity or enforceability of the transactions contemplated by or related to such Letter of Credit or Letter of Credit Obligation; (b) any amendment or waiver of or consent to depart from all or any of the terms of the transactions contemplated by or related to such Letter of Credit or Letter of Credit Obligation; (c) the existence of any claim, set-off, defense or other right which Borrower or any other Credit Party may have against Lender, the issuer or beneficiary of such Letter of Credit, or any other Person, whether in connection with this Agreement, any other Loan Document or such Letter of Credit or the transactions contemplated thereby or any unrelated transactions; or (d) the fact that any draft, affidavit, letter, certificate, invoice, bill of lading or other document presented under or delivered in connection with such Letter of Credit or any other Letter of Credit proves to have been forged, fraudulent, invalid or insufficient in any respect or any statement therein proves to have been untrue or incorrect in any respect. 7. In addition to any other indemnity obligations which Borrower may have to Lender under this Agreement and without limiting such other indemnification provisions, Borrower hereby agrees to indemnify Lender from and to hold Lender harmless against any and all claims, liabilities, losses, costs and expenses (including, attorneys' fees and expenses) which Lender may (other than as a result of its own gross negligence or willful misconduct) incur or be subject to as a consequence, directly or indirectly, of (a) the issuance of or payment of or failure to pay under any Letter of Credit or Letter of Credit Obligation or (b) any suit, investigation or proceeding as to which Lender is or may become a party as a consequence, directly or indirectly, of the issuance of any Letter of Credit, the incurring of any Letter of Credit Obligation or any payment of or failure to pay under any Letter of Credit or Letter of Credit Obligation. The obligations of Borrower under this paragraph shall survive any termination of this Agreement and the payment in full of the Obligations. 8. Borrower hereby assumes all risks of the acts, omissions or misuse of each Letter of Credit by the beneficiary or issuer thereof and, in connection therewith, Lender shall not be responsible (a) for the validity, sufficiency, genuineness or legal effect of any document submitted in connection with any drawing under any Letter of Credit even if it should in fact prove in any respect to be invalid, insufficient, inaccurate, untrue, fraudulent or forged; (b) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or any rights or benefits thereunder or any proceeds thereof, in whole or in part, even if it should prove to be invalid or ineffective for any reason; (c) for the failure of any issuer or beneficiary of any Letter of Credit to comply fully with the terms thereof, including the conditions required in order to effect or pay a drawing thereunder; (d) for any errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, telecopy, telex or otherwise; (e) for any loss or delay in the transmission or otherwise of any document or draft required in order to make a drawing under any Letter of Credit; or (f) for any consequences arising from causes beyond the direct control of Lender. C-2 SCHEDULE D - CASH MANAGEMENT Borrower agrees to establish, and to maintain, until the Termination Date, the cash management system described below: 1. No Corporate Credit Party: (i) shall (nor shall it permit any of its Subsidiaries to) open or maintain any deposit, checking, operating or other bank account, or similar money handling account, with any bank or other financial institution except for those accounts identified in Attachment I hereto (to include a petty cash account not to exceed $5,000 during any Fiscal Month, and a payroll account not to exceed an amount equal to one regular payroll at any time); and (ii) shall close or permit to be closed any of the accounts listed in Attachment I hereto, in each case without Lender's prior written consent, and then only after such Credit Party has implemented agreements with such bank or financial institution and Lender acceptable to Lender. 2. Commencing on the Closing Date and until the Termination Date, each Corporate Credit Party shall cause to be deposited directly all cash, checks, notes, drafts or other similar items relating to or constituting proceeds of or payments made in respect of any and all Collateral into lock boxes or lock box accounts in such Credit Party's or Lender's name (collectively, the "Lock Box Accounts") set forth in paragraph 1 of Attachment I hereto. 3. On or before the Closing Date, each bank at which the Lock Box Accounts are held shall have entered into tri-party lock box agreements (the "Lock Box Account Agreements") with Lender and the applicable Credit Party, in form and substance acceptable to Lender. Each such Lock Box Account Agreement shall provide, among other things, that (a) such bank executing such agreement has no rights of setoff or recoupment or any other claim against such Lock Box Account, other than for payment of its service fees and other charges directly related to the administration of such account, and (b) such bank agrees to sweep on a daily basis all amounts in the Lock Box Account to the Collection Account. 4. On the Closing Date, (a) the lock box and blocked account arrangements shall immediately become operative at the banks at which the Lock Box Accounts are maintained, and (b) amounts outstanding under the Revolving Credit Loan (for purposes of the Borrowing Availability) shall be reduced through daily sweeps, by wire transfer, of the Lock Box Accounts into the Collection Account. Borrower acknowledges that it shall have no right to gain access to any of the moneys in the Lock Box Accounts until after the Termination Date. 5. Borrower may maintain, in its name, accounts (the "Disbursement Accounts") at a bank or banks acceptable to Lender into which Lender shall, from time to time, deposit proceeds of Revolving Credit Advances made pursuant to Section 1.1 for use solely in accordance with the provisions of Section 1.3. All of the Disbursement Accounts as of the Closing Date are listed in paragraph 2 of Attachment I hereto. 6. Upon the request of Lender, each Corporate Credit Party shall forward to Lender, on a daily basis, evidence of the deposit of all items of payment received by such Credit Party into the Lock Box Accounts and copies of all such checks and other items, together with a statement showing the application of those items relating to payments on Accounts to outstanding Accounts and a collection report with regard thereto in form and substance satisfactory to Lender. D-1 ATTACHMENT 1 TO SCHEDULE D 1. LOCK BOX ACCOUNTS Bankers Trust Company New York, New York Gulf Northern Transport, Inc. Acct. No. 00381851 2. MAIN OPERATING ACCOUNT Wood County National Bank Wisconsin Rapids, WI Gulf Northern Transport, Inc. - Operating Account Acct. No. 01129-615 OPERATING ACCOUNT FOR AGENTS PROGRAM Wachovia Bank Charleston, S.C. Gulf Northern Transport, Inc. - Agents Program Acct. No. 100669845 OPERATING ACCOUNT FOR BROKERAGE Nations Bank Charleston, S.C. Mencor, Inc. Acct. No. 0729776911 PAYROLL ACCOUNT Nations Bank Charleston, S.C. Gulf Northern Transport, Inc. - Logistics Management Account Acct. No. 759166093 SPECIAL USE ACCOUNT Nations Bank Charleston, S.C. Gulf Northern Transport, Inc. - Permit and Tags Account Acct. No. 0729483337 SCHEDULE E - FEES 1. LETTER OF CREDIT FEE: For each day for which Lender maintains Letter of Credit Obligations outstanding, an amount equal to the amount of the Letter of Credit Obligations outstanding on such day, multiplied by 1.5%, the product of which is then divided by 360. The Letter of Credit Fee incurred for each month is payable at the same time each payment of the Unused Line Fee is due. Notwithstanding the foregoing, any unpaid Letter of Credit Fee is immediately due and payable on the Commitment Termination Date. 2. CLOSING FEE: A non-refundable closing fee of $26,250, payable at closing (the "Closing Fee"). 3. PREPAYMENT FEE: For the Revolving Credit Loan, an amount equal to the Maximum Amount multiplied by: 3% if Lender's obligation to make further Revolving Credit Advances or incur additional Letter of Credit Obligations is terminated (voluntarily by Borrower, upon Default or otherwise) on or after the Closing Date and on or before the first anniversary of the Closing Date, payable on the Commitment Termination Date; 2% if Lender's obligation to make further Revolving Credit Advances or incur additional Letter of Credit Obligations is terminated (voluntarily by Borrower, upon Default or otherwise) after the first anniversary of the Closing Date and on or before the second anniversary of the Closing Date, payable on the Commitment Termination Date; or 1% if Lender's obligation to make further Revolving Credit Advances or incur additional Letter of Credit Obligations is terminated (voluntarily by Borrower, upon Default or otherwise) after the second anniversary of the Closing Date and on or before the third anniversary of the Closing Date, payable on the Commitment Termination Date. Borrower acknowledges and agrees that (i) it would be difficult or impractical to calculate Lender's actual damages from early termination of Lender's obligation to make further Revolving Credit Advances and incur additional Letter of Credit Obligations for any reason pursuant to Section 1.2(c) or Section 7.2, (ii) the Prepayment Fees provided above are intended to be fair and reasonable approximations of such damages, and (iii) the Prepayment Fees are not intended to be penalties. 4. AUDIT FEES: Borrower will reimburse Lender at the rate of $600 per person per day, not to exceed $1,200 in the aggregate per day, plus out-of-pocket expenses, for the audit reviews, field examinations and collateral examinations conducted by Lender. 5. UNUSED LINE FEE: None SCHEDULE F SCHEDULE OF DOCUMENTS 1. Loan and Security Agreement 2. Revolving Credit Note 3. Mortgage 4. Title Insurance Policy 5. Lockbox Agreement 6. Survey of Wisconsin Rapids, Wisconsin Property 7. Financial Statements 8. Powers of Attorney 9. The Guarantees SCHEDULE F-1 SCHEDULE OF REAL ESTATE DOCUMENTS Each of the following will be required in form satisfactory to Lender with respect to the property located at 810 25th Avenue North, Wisconsin Rapids, Wisconsin 54495 (the "Premises") (1) Title Insurance Policy with requested Lender's endorsements in the amount of $5,000,000 based on Pro Forma Policy to be approved (2) ALTA/ACSM Urban Survey (3) All leases for Premises (4) Subordination Nondisturbance and Attornment Agreement for each lease (5) Estoppel Agreement for each lease (6) Complete Phase I and if necessary Phase II Environmental Reports (7) Certificate of Occupancy (8) Zoning Letter (9) Engineering Report SCHEDULE G FINANCIAL COVENANTS 1. Fixed Charge Coverage Ratio. Borrower shall maintain a Fixed Charge Coverage Ratio of not less than 1:1 for each Fiscal Quarter commencing with the Fiscal Quarter ending March 31, 1999. As used in this Agreement (including this Schedule G covenant), the following terms shall have the following meanings: "EBITDA" shall mean, for any period, the Net Income (Loss) of Borrower and its Subsidiaries on a consolidated basis for such period, plus interest expense, tax expense, amortization expense, depreciation expense and extraordinary losses and minus extraordinary gains, in each case, of Borrower and its Subsidiaries on a consolidated basis for such period determined in accordance with GAAP to the extent included in the determination of such Net Income (Loss). "Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of the following for Borrower and its Subsidiaries on a consolidated basis determined in accordance with GAAP: (a) EBITDA for such period less Capital Expenditures for such period which are not financed through the incurrence of any Indebtedness (excluding the Revolving Credit Loan) to (b) the sum of (i) interest expense paid or accrued in respect of any Indebtedness during such period, plus (ii) taxes to the extent accrued or otherwise payable with respect to such period plus (iii) regularly scheduled payments of principal paid or that were required to be paid on Funded Debt (excluding the Revolving Credit Loan) during such period. "Funded Debt" shall mean, for any Person, all of such Person's Indebtedness which by the terms of the agreement governing or instrument evidencing such Indebtedness matures more than one year from, or is directly or indirectly renewable or extendible at the option of such Person under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year from, the date of creation thereof, including current maturities of long-term debt, revolving credit, and short-term debt extendible beyond one year at the option of such Person. "Net Income (Loss)" shall mean with respect to any Person and for any period, the aggregate net income (or loss) after taxes of such Person for such period, determined in accordance with GAAP. 2. Capital Expenditures. Borrower and its Subsidiaries on a consolidated basis shall not make aggregate Capital Expenditures (other than Capital Expenditures financed through the incurrence of Indebtedness (excluding the Revolving Credit Loan))in any Fiscal Year in excess of $100,000. 3. Minimum Net Worth. Borrower shall maintain, as at the end of each Fiscal Quarter set forth below, Net Worth of Borrower and its Subsidiaries on a consolidated basis for each such Fiscal Quarter of not less than the amount of such Fiscal Quarter set forth below: Fiscal Quarter Ending: Minimum Net Worth: March 31, 1999 $3,400,000 and thereafter For purposes of this covenant in Schedule G the following term shall have the meaning set forth below: "Net Worth" shall mean, with respect to any Person, at any date, the total assets minus the total liabilities, in each case, of such Person at such date determined in accordance with GAAP, less any adjustments resulting from any sale-leaseback transaction approved in advance by Lender. DISCLOSURE SCHEDULE (3.2) CHIEF EXECUTIVE OFFICE & CORPORATE NAMES Chief Executive Office County/State Name: Gulf Northern Transport, Inc. Address: 3125 Ashley Phosphate Road Charleston/SC Suite 128 N. Charleston, SC 29418 Name: U.S. Trucking, Inc. (Colorado and Nevada) Address: 3125 Ashley Phosphate Road Charleston/SC Suite 128 N. Charleston, SC 29418 Name: Mencor, Inc. Address: 3125 Ashley Phosphate Road Charleston/SC Suite 128 N. Charleston, SC 29418 DISCLOSURE SCHEDULE (3.6) REAL ESTATE Company owns no real estate. All terminal locations are leased. DISCLOSURE SCHEDULE (3.7) STOCK & AFFILIATES U.S. Trucking, Inc. (Colorado) FEIN 68-0133692 owns 100% of U.S. Trucking, Inc. (Nevada) FEIN 91-1786609 which owns 100% of Mencor, Inc., FEIN 71-0755210 and Gulf Northern Transport, Inc., FEIN 39-1721438. DISCLOSURE SCHEDULE (3.10) TAXES Wisconsin Department of Revenue Withholding Tax = $50,000 DISCLOSURE SCHEDULE (3.12) ERISA 401K Plan - Employee Contribution only Nationwide - Plan Holder Wm. Michels Ltd. - Administrator DISCLOSURE SCHEDULE (3.13) LITIGATION Pending lawsuit against Gulf Northern Transport, Inc. ("Gulf Northern") filed by Fidelity Business Alliance in the Chancery Court for the Thirteenth Judicial District, Shelby County Tennessee and against a host of other entities. Complaint alleged United Acquisition II Corp. ("UACQ") guaranteed certain obligations of Box "G" Ranch Inc. to Fidelity. UACQ had an agreement, never consummated, to buy Box G, and in connection therewith was to guarantee Box G's accounts with Fidelity (after it became a wholly-owned subsidiary). Box G defaulted and Fidelity sued UACQ, among others, for payment. After the Box G transaction failed to close, UACQ reached an agreement to buy Gulf Northern. Gulf Northern was sued under the theory that a corporate subsidiary is liable for its parent's obligations. The sale of Gulf Northern to UACQ was eventually rescinded (to the extent it may have ever been consummated). UACQ went through a Chapter 11 bankruptcy proceeding last year and the case against t hem was settled for a nominal amount. There has been no activity in this action in over a year. We believe the claims for relief are meritless, due to the fact that the guarantee is unenforceable and due to the corporate wall between UACQ and Gulf Northern. DISCLOSURE SCHEDULE (3.14) INTELLECTUAL PROPERTY None. DISCLOSURE SCHEDULE (3.16) ENVIRONMENTAL MATTERS None. DISCLOSURE SCHEDULE (3.17) INSURANCE U.S. Trucking, Inc. has auto liability coverage with Legion Insurance Company at 1,000,000 per occurrence limit. There is a rent-a-captive in place with Mutual Indemnity and the program is 100% reinsured and capitalized. The cargo insurance is with Intercargo with limits of $250,000 per occurrence with a $1,000 deductible. The physical damage insurance is with Adriatic Insurance Company with a $1,000 deductible. U.S. Trucking, Inc. has a package policy with St. Paul Insurance Company for contents, general liability, crime coverage and building coverage. U.S. Trucking, Inc.'s insurance agents are: Transportation Underwriters American Financial 10602 Timberwood Circle 100 Wall Street Suite #9 New York, New York 10005 Louisville, KY 40203 Rep: Dennis O'Conner Rep: David Huff DISCLOSURE SCHEDULE (5(c)) INDEBTEDNESS 1. Wicks-FMW $2,510,200.00 2. Kenworth-Trac 1,165,743.00 3. GECC-Tilden 1,684,758.41 4. GECC-Jay & Jay 428,042.83 5. Associates 500,475.95 6. Associates 515,004.04 7. Navistar 329,898.10 8. ITC-Acceptance 397,928.23 DISCLOSURE SCHEDULE (5(h)) LIENS Wisconsin Department of Revenue - Withholding Tax of $50,000 Gulf Northern Transport, Inc.:
SECURED PARTY: JURISDICTION TYPE: COLLATERAL/OTHER Associates Leasing Inc Sec. of State of Wisconsin Finance Specified Vehicles Associates Leasing Inc Sec. of State of Wisconsin Finance Specified Vehicles Transport Clearings LLC Sec. of State of Wisconsin Amend All present and future accounts ITT Commercial Finance Corp. Sec. of State of Wisconsin Finance Specified Equipment including Proceeds and Product GFC Leasing Div. of Sec. of State of Wisconsin Finance Leased Business Gordon Flesch Co. Inc. Machinery/Equip. Including Proc. Monarch Capital Sec. of State of Wisconsin Finance All equipment pledged Corporation to Debtor pursuant to Financing Agreement Transport Clearings, Woods County, Wisconsin Finance All present and future LLC accounts Bridgestone/Firestone Woods County, Wisconsin Judgement $13,992.82 Inc. William Orr Woods County, Wisconsin Judgement $2231.96 William Orr Woods County, Wisconsin Judgement $1702.59 Bill Willey Woods County, Wisconsin Judgement $17,286.77 Anthem Health&Life Ins. Woods County, Wisconsin Judgement $21,731.90 Co. Harold La Chapelle Woods County, Wisconsin Judgement $3625.00 Newport Communications Woods County, Wisconsin Judgement $1405.50 Div. of HIC Corporation Comdata Network Inc. Woods County, Wisconsin Judgement $1070.82 State of WI Woods County, Wisconsin Judgement $1791.53 Martinovich Trucking Woods County, Wisconsin Judgement $1923.54 Koch Refining Company Woods County, Wisconsin Judgement $7702.75 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $11,635.56 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4325.80 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4299.57 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4275.08 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4248.86 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4220.89 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4194.63 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4056.00 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $3882.35 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $3841.02 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4427.34 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $3483.29 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $4797.33 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $5358.23 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $2693.34 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $2276.68 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $3718.75 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $2522.20 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $3160.38 WI Dept. of Tax Revenue Woods County, Wisconsin Tax Warrant $2683.03 Transport Clearings, Charleston County, South Finance All present and future LLC Carolina accounts Transport Clearings, Sec. of State of South Finance All present and future LLC Carolina accounts Transport Clearings, Sec. of State of South Finance All present and future LLC Carolina accounts AT&T Corp. Charleston County, South Judgement $7000.00 Carolina Inland Detroit Charleston County, South Judgement $4282.47 Carolina Diesel-Allison, Inc Unity Mutual Insurance Charleston County, South a Judgement $7000.00 Co. Carolina Transport Clearings, Sec. of State of Florida Finance All present and future LLC accounts
Mencor, Inc.:
SECURED PARTY: JURISDICTION TYPE: COLLATERAL/OTHER Transport Clearings, Sec. of State of S. Finance All present and future LLC Carolina accounts Transport Clearings, Charleston County, South Finance All present and future LLC Carolina accounts CountyClerk Sec. of State of South Tax $1242.97 Carolina
DISCLOSURE SCHEDULE (6.1) ACTIONS TO PERFECT LIENS UCC Filings: Gulf Northern Transport, Inc. - Secretary of State of South Carolina and Charleston County Mencor, Inc. - Secretary of State of South Carolina and Charleston County U.S. Trucking (Nevada and Colorado)- Secretary of State of South Carolina and Charleston County, Secretary of State of Kentucky and Jefferson County Mortgage Recordings: Wisconsin real property located at 810 25th Avenue North, Wisconsin Rapids, Wisconsin 54495 EX-10.11 13 MANAGEMENT SERVICES AGREEMENT This Management Services Agreement ("Agreement") is made as of this 30th day of December, 1998, by and among Mid-Cal Express, Inc., a California corporation ("Company"); Gulf Northern Transport, Inc., a Wisconsin corporation ("Manager"); and solely as respects matters relating to it in this Agreement, Prime Companies, Inc., a Delaware corporation ("PCI"). RECITALS WHEREAS, Company, a subsidiary of PCI, is engaged in the freight transportation industry primarily through the use of tractor trailer trucks throughout the United States and a terminal facility located at 21496 Main Street, Grand Terrace, CA (the "Terminal"); WHEREAS, Manager, a subsidiary of U.S. Trucking, Inc., a Colorado corporation, is engaged in the business of managing and operating fleets of tractor trailers for the purpose of freight transportation and terminal facilities throughout the United States; WHEREAS, Company wishes to engage Manager for the purpose of managing its freight transportation and terminal operations and Manager wishes to provide such services to Company; NOW, THEREFORE, in consideration of the mutual terms and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. ARTICLE - DEFINITIONS As used herein: 1.1 "Beginning Time" means 12:01 p.m. (Pacific time) on December 30, 1998. 1.2 "Delivery Point" means the end point of a shipment. 1.3 "Existing Trip-In-Transit" means a Trip-In-Transit commencing prior to the Beginning Time and in progress as of the Beginning Time. 1.4 "Pick Up Point" means the beginning point of a shipment. 1.5 "Rolling Stock" means all tractors and trailers owned, operated and/or managed by Company. 1.6 "Shipping Contracts" means all contracts, orders and arrangements of Company with shippers for Company to transport goods and products of shippers from Pick Up Points to Delivery Points. These contracts may be evidenced by invoices, bills of lading, shipping receipts and any and all other forms of understanding by and between a shipper and a transporter. 1.7 "Trip- In-Transit" means a shipment at any point between the Pick Up Point and the Delivery Point. 2. ARTICLE - TERM OF ENGAGEMENT 2.1 Term of Engagement. Manager shall perform the management services provided herein for a term commencing as of the Beginning Time and continuing through 12:01 a.m. (Pacific time) on February 28, 1999 (the "Termination Date"). Manager, at its sole discretion may extend the Termination Date from time to time, provided, however, that in order for the Termination Date to extend beyond June 30, 1999, such extension shall be by a written agreement signed by the Company and the Manager. Manager shall not have the obligation to perform any of the management services provided herein after the Termination Date, as it may be extended as provided in this paragraph 2.1. 3. ARTICLE - SERVICES TO BE RENDERED 3.1 Existing Trips-In-Transit. The Manager's obligation to perform any management services with respect to any Existing Trip-In-Transit shall be determined by the parties on a trip-by-trip basis. 3.1.1 Existing Trips-In-Transit Managed by Manager. In the event that the parties determine that the Manager is to perform management services with respect to a particular Existing Trip-In-Transit, then the following shall apply: (i) the Manager will assume billing and collection responsibility for such Existing Trip-In-Transit, (ii) the Manager will create a new billing code separate and distinct from any initial billing code created for such Existing Trip-In-Transit to reflect the assumption of the responsibilities for such Existing Trip-In-Transit by the Manager, and (iii) the Company will fully cooperate with the Manager in notifying the shipper of the transfer of responsibility for such Trip-in Transit and will assist the Manager in its billing and collection efforts respecting such Existing Trip-In-Transit to the extent requested by the Manager. 3.1.2 Existing Trips-In-Transit Not Managed by Manager. In the event that the parties determine that the Manager is not to perform services with respect to a particular Existing Trip-In-Transit, then the Manager shall have no obligations with respect to or any responsibility for such Existing Trip-In-Transit and all of the Company's responsibilities and obligations with respect to such Existing Trip-In-Transit shall remain with the Company. 3.2 Basic Management Services. With respect to all: (i) Existing Trips-In-Transit for which the parties have agreed that the Manager will perform management services pursuant to paragraph 3.1 above; (ii) Shipping Contracts entered into after the Beginning Time; (iii) all Rolling Stock from and after the Beginning Time; and (iv) the other activities of the Company from and after the Beginning Time, the Manager shall render management services in connection with the day-to-day operations of the Company which shall include, without limitation, rendering advisory services with respect to any: (a) dealings between the Company and any lender, (b) insurance issues, (c) negotiating owner-operator settlements, (d) matters related to the continued employment or severance of Company employees; and (e) other matters as to which to the Company may request advice from the Manager from time to time. 2 3.3 Billing, Collections and Accounting. The Manager shall be responsible for all billings and collections with respect to: (i) all Existing Trips-In-Transit for which the parties have agreed pursuant to paragraph 3.1 above that the Manager will perform management services, Terminal charges; and (iv) all other revenue producing activities related to the Company. The Manager shall receive all such proceeds and, during the term of this Agreement, shall regularly report on such accounts to the Company and/or the Company's creditors, as appropriate. The Manager shall have no responsibility for and will not conduct any billing or collection activities with respect to any account created before the Beginning Time and for which the parties have not agreed pursuant to paragraph 3.1 above that the Manager would have responsibilities with respect thereto unless and until the parties otherwise agree in writing that the Manager shall have such billing and collection responsibilities. 4. ARTICLE - MANAGEMENT FEES AND PAYMENT OF COSTS 4.1 Management Fees. Manager shall be entitled to receive management fees of an amount equal to 2% of all revenues collected pursuant the terms of this Agreement, but in any event not in excess of $40,000. 4.2 Costs Incurred by the Manager. All obligations and costs, including without limitation, to employees, vendors, lenders and lessors, and a proportionate share of professional fees incurred by Manager under the terms of this Agreement, shall be paid as provided in paragraph 4.4 below. 4.3 Costs Incurred by the Company. All obligations and costs, including without limitation, to employees, venders, lenders and lessors (subject to the express provisions of paragraph 4.6.2 below) incurred by the Company prior to the Beginning Time and all costs with respect to the completion of an Existing Trip-In-Transit for which the parties have not agreed pursuant to paragraph 3.1 above that the Manager will have responsibilities with respect thereto shall continue to be the obligations of the Company, and shall be paid by the Company, and the Manager shall have no obligation therefor. 4.4 Use of Proceeds Collected by the Manager. The Manager shall apply the proceeds collected by Manager pursuant to paragraph 3.3 in the following order and priority: (i) first, to the payment of any obligations and costs required to be paid by the Manager pursuant to paragraph 4.2 above, (ii) second, to the payment of any management fees owed to the Manager pursuant to Section 4.1 above, and (iii) thereafter, the balance of such proceeds shall be placed on deposit in a federally insured banking institution for payment to Company or any assignee, receiver or trustee duly appointed with respect to Company's assets or business. 4.5 Manager's Receipt of $100,000 Deposit. The parties acknowledge that prior to the date of this Agreement, PCI delivered to the Manager a $100,000 deposit. The parties further agree that subject to consent of the Steering Committee, the Manager may use all or a portion of this $100,000 deposit to reimburse the Manager for any costs incurred by the Manager pursuant to paragraph 4.2 above and not otherwise reimbursed pursuant to paragraph 4.4 above. 4.6 Funding by Company and PCI. Company or PCI shall advance from time to time as required the amounts as set forth in this paragraph 4.6. 3 4.6.1 Operating Advances. Company or PCI shall advance amounts which will be in the total sum of not in excess of $150,000 to fund any costs of Company incurred during the term of this Agreement in the event that, from time to time, collections of revenues due the Company, including from the collection of accounts receivable, are insufficient to meet Company's operating obligations. Each such advance shall be made by Company or PCI one business day's notice from Manager. Notice may be given by Manager to Company by verbal or written communication to either of the Company's members of the Steering Committee, or such other representative of Company as shall be designated by either such member. Company and PCI shall be reimbursed for any such advance from the collections of Company's accounts receivable collections after other monetary obligations under this Agreement shall have been satisfied. 4.6.2 Lease and Finance Payment Obligations. Company acknowledges that certain installments due under agreements with lenders financing the purchase of Rolling Stock of Company and lessors under leases by the Company of Rolling Stock ("Equipment Financing and Lease Agreements") are past due, causing such agreements to be in default. Manager will use its best efforts to renegotiate such Equipment Financing and Lease Agreements so that to the fullest extent possible such past due installments can be included in the renegotiated terms of such Equipment Financing and Lease Agreements, and the defaults thereunder deemed satisfied by such renegotiated terms. However, Company acknowledges that the renegotiated terms may include the requirement that at least some portion of the installments in default be paid ("Cure Payments") prior to or concurrently with the modification of such agreements. Company and PCI agree that they shall be responsible for the payment of 50% of any required Cure Payment. Manager agrees that it shall assume the responsibility for payment of the remaining 50% of any such Cure Payment. Company or PCI shall pay Company's share of any required Cure Payment upon one business day's notice from Manager. Notice may be given by Manager to Company by verbal or written communication to either of the Company's members of the Steering Committee, or such other representative of Company as shall be designated by either such member. Any portion of a Cure Payment made by Manager shall be subject to reimbursement as a cost incurred by the Manager as provided in paragraphs 4.2 and 4.4 hereinabove. Company or PCI shall be reimbursed for any such Cure Payment from the collections of Company's accounts receivable after other monetary obligations under this Agreement shall have been satisfied, but prior to the satisfaction of any reimbursement to which Company or PCI is entitled under sub-paragraph 4.6.1 above. 5. ARTICLE - MISCELLANEOUS 5.1 Steering Committee. During the term of this Agreement, Irving Pfeffer and David Leflowitz, as representatives of Company, and Anthony Huff and Danny Pixler, as representatives of Manager, shall constitute a Steering Committee. Anthony Huff shall serve as chair of the Steering Committee and may call meetings, which may be telephonic, on 24 hours verbal or written notice, to the members of the Committee. The responsibilities of the Steering Committee shall to be oversee and insure the performance of the responsibilities of the Manager and the Company under this Agreement, and to make such decisions as are assigned to the Steering Committee under this Agreement. 4 5.2 Personnel. Any and all employees and owner/operators independently engaged by the Company prior to the Beginning Time may be employed or engaged by the Manager for the purposes of this Agreement. Commencing as of the Beginning Time through the Termination Date, as it may be extended pursuant to paragraph 2.1, the Manager, and not the Company, shall have the right to fire or otherwise disengage the employment or independent contractor services of any Company personnel which in the Manager's sole judgment are not required or desirable for the continued operations of the Company. The Company shall have no right, under any circumstances, to countermand any personnel decisions by the Manager as provided in this paragraph 5.2. 5.3 Terminal. The Company acknowledges that it has a lease on the Terminal. During the term of this Agreement, the Manager shall have the right to occupy and operate from the Terminal without interference from the Company, and any continued use of the Terminal during this period by the Company shall be subordinate to the occupancy and operational rights of the Manager. 5.4 Facilitation. The parties will fully cooperate with each other in facilitating the intent and purposes of this Agreement, including, without limitation: (i) the delivery by the Company to all of its customers of a letter in form substantially as attached hereto as Exhibit "A" notifying them of this Agreement; and (ii) the execution of appropriate authorizations for the Manager to utilize its operating authority to manage and operate the Company's Rolling Stock as contemplated in this Agreement. 5.5 Further Agreements. Company and Manager intend this Agreement to remain applicable for a limited period of time to enable Company and PCI, on the one hand, and Manager and Manager's parent, U.S. Trucking, Inc., on the other hand, to negotiate in good faith an Agreement whereunder Manager and/or U.S. Trucking, Inc. will acquire substantially all of the operating assets of Company in exchange for which Company shall receive 400,000 shares of U.S. Trucking, Inc., having a market value as of the date on which such Agreement is made not in excess of $5 million. The parties also agree, however, that such a transaction will not be consummated until satisfactory arrangements are in place for the payment of amounts owing to Company's creditors, or other arrangements satisfactory to Company's creditors have been agreed upon. In that regard, during the term of this Agreement, Company hereby agrees not to take any action, including any action which would cause the filing of a case under the United States Bankruptcy Code by Company, or which would cause any creditor of Company to file an involuntary case under the United States Bankruptcy Code, or which could or would result in the appointment of an assignee for the benefit of creditors or a receiver, unless any such action is first agreed to and approved by Manager. 5.6 Pledge of Company Stock. PCI hereby agrees to fully cooperate with Manager and Manager's parent, U.S. Trucking, Inc. in insuring the full and faithful performance by Company of its obligations under this Agreement, and to facilitate the consummation of an agreement as contemplated in paragraph 5.5 hereinabove. In that regard, during the term of this Agreement, PCI hereby agrees not to take any action, including any action which would cause the filing of a case under the United States Bankruptcy Code by Company, or which would cause any creditor of Company to file an involuntary case under the United States Bankruptcy Code, or which could or would result in the appointment of an assignee for the benefit of creditors or a receiver, unless 5 any such action is first agreed to and approved by Manager. As security for the full and faithful performance of the obligations of PCI and Company under this paragraph 5.6, PCI is concurrently executing a pledge and security agreement in the form of Exhibit "B" attached hereto (the "Pledge and Security Agreement), which pledges to Manager all the outstanding capital stock of Company. The Pledge and Security Agreement shall be in full force and effect so long as this Agreement remains in effect; and, if, prior to the termination of this Agreement, Manager shall have commenced enforcement efforts or been required to defend its rights under this Agreement or the Pledge and Security Agreement, as long as necessary thereafter to enable Manager to enforce or protect its rights under the Pledge and Security Agreement. 5.7 Attorneys' Fees. The prevailing party in any litigation commenced to enforce or defend the provisions of this Agreement shall be entitled to an award of reasonable attorneys' fees and costs incurred in such litigation and otherwise incurred in the protection of such party's interests hereunder. 5.8 Governing Law. This Agreement and the application or interpretation hereof shall be governed and construed exclusively by its terms and by the laws of the State of California, without regard to principles of conflict of laws. 5.9 Forum Selection. Each party hereto irrevocably submits to the exclusive jurisdiction of any California State or United States Federal Court sitting in Los Angeles County, California over any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated herein. Each party waives, to the fullest extent permitted by law, any objection that it may have to the laying of venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. 5.10 Severability. Each provision of this Agreement is intended to be severable. If any provision hereof is illegal or invalid, such illegality or invalidity shall not affect the validity of the remainder hereof. THIS AGREEMENT is entered into as of the day and year first written above. MANAGER: GULF NORTHERN TRANSPORT, INC., a Wisconsin corporation By: /s/ Danny Pixler Its: President COMPANY: MID-CAL EXPRESS, INC., a California corporation By: /s/ Irving Phieffer Its: Chairman PCI: [with respect only to those matters relating to PCI under this Agreement] 6 PRIME COMPANIES, INC., a Delaware corporation By: /s/ Irving Phieffer Its: /s/ Chairman 7 EX-21 14 SUBSIDIARIES OF THE REGISTRANT State of Name Incorporation ---- ------------- U.S. Trucking, Inc. Nevada Gulf Northern Transport, Inc. Wisconsin Mencor, Inc. Arkansas EX-23.2 15 CONSENT OF INDEPENDENT AUDITORS We consent to the use in this Registration Statement of U.S. Trucking, Inc. on Form SB-2 of our reports dated June 10, 1998, June 10, 1998, June 8, 1998, November 7, 1997 and November 3, 1997, appearing in the Prospectus, which is a part of this Registration Statement and to the reference to our firm under the heading "Experts" in the Prospectus. /s/ Bianculli, Pascale & Co. P.C. BIANCULLI, PASCALE & CO. P.C. Garden City, New York February 4, 1999 -----END PRIVACY-ENHANCED MESSAGE-----