-----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, NF7BUsLxIcZGd3SOdtezGjzPggCfTcDlOBr5tAxegGo3Q2GesnibfhPPzGR4/9dx 2qdiJ1ROAV0ahTx7LGzaYw== /in/edgar/work/20000828/0000950144-00-010843/0000950144-00-010843.txt : 20000922 0000950144-00-010843.hdr.sgml : 20000922 ACCESSION NUMBER: 0000950144-00-010843 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000828 FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S TRUCKING INC CENTRAL INDEX KEY: 0000820408 STANDARD INDUSTRIAL CLASSIFICATION: [4213 ] IRS NUMBER: 680133692 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 033-16417-LA FILM NUMBER: 710613 BUSINESS ADDRESS: STREET 1: 550 LONG POINT ROAD STREET 2: SUITE C CITY: MT. PLEASANT STATE: SC ZIP: 29464 BUSINESS PHONE: 8439722055 MAIL ADDRESS: STREET 1: 550 LONG POINT ROAD STREET 2: SUITE C CITY: MT. PLEASANT STATE: SC ZIP: 29464 FORMER COMPANY: FORMER CONFORMED NAME: NORTHERN DANCER CORP DATE OF NAME CHANGE: 19930723 10QSB 1 e10qsb.txt U.S. TRUCKING, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Six Months Ended June 30, 2000 Commission File Number: 33-9640-LA U S TRUCKING, INC. (Exact Name of Issuer as Specified in its Charter) COLORADO 68-0133692 (State or Other Jurisdiction (I.R.S. Employer Identification Number) Incorporation or Organization) 550 Long Point Road MT. Pleasant, S.C. 29462 ------------------------------------------------------------------------------ (Address of Principal Executive (Offices) (843) 972-2055 (Registrant's Telephone Number, Including Area Code) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes [ ] No [X] There were 19,727,783 shares of the Registrant's common stock outstanding as of August 25, 2000 2 U.S. TRUCKING, INC. FORM 10-QSB INDEX PART I: FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (UNAUDITED) MARCH 31, 2000 AND DECEMBER 31, 1999 CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2000 AND 1999 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2000 AND 1999 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ITEM 2. CHANGES IN SECURITIES ITEM 3. DEFAULTS UPON SENIOR SECURITIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K 3 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 2000 AND DECEMBER 31, 1999
A S S E T S 2000 1999 - ----------- ------------ ------------ CURRENT ASSETS Cash and cash equivalents $ 1,171,224 1,057,719 Accounts receivable-net of allowance for doubtful accounts of $1,978,665 in 2000 and $303,451 in 1999 17,450,668 8,140,132 Current portion of notes receivable-related parties 3,857,334 4,541,634 Parts and supply inventory 258,405 258,405 Current portion of deferred tax asset -- 400,000 Investment in marketable securities at fair market value 133,572 188,136 Prepaid expenses and other assets 776,279 575,565 ------------ ------------ Total Current Assets 23,647,482 15,161,591 ------------ ------------ TRANSPORTATION AND OTHER EQUIPMENT at cost, less accumulated depreciation and amortization of $668,326 in 2000 and $420,541 in 1999 953,798 887,690 ------------ ------------ OTHER ASSETS Restricted cash 4,070,207 981,704 Notes receivable-related parties 3,169,069 5,407,346 Deferred tax asset - net of current portion 1,141,963 741,963 Due from related party -- 186,023 Due from captive insurer 1,040,943 705,321 Other assets 64,397 375,700 Intangible assets - net of accumulated amortization of $1,178,235 in 2000 and $879,565 in 1999 7,706,067 5,501,756 ------------ ------------ Total Other Assets 17,192,646 13,899,813 ------------ ------------ TOTAL ASSETS $ 41,793,926 $ 29,949,094 ============ ============
1 4 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 2000 AND DECEMBER 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 - ------------------------------------ ------------ ------------ CURRENT LIABILITIES Accounts payable-trade $ 1,613,060 $ 2,027,819 Revolving loan payable 15,941,953 6,736,536 Accrued expenses and other 5,341,528 1,818,902 Current portion - long term debt 1,583,187 3,210,916 ------------ ------------ Total Current Liabilities 24,479,728 13,794,173 ------------ ------------ OTHER LIABILITIES Owner operator escrow accounts 91,270 122,865 Long term debt - net of current portion 818,195 1,486,954 Convertible debentures 8,010,296 1,450,000 ------------ ------------ Total Other Liabilities 8,919,761 3,059,819 ------------ ------------ TOTAL LIABILITIES 33,399,489 16,853,992 ------------ ------------ STOCKHOLDERS' EQUITY Preferred Stock (no par value - 10,000,000 shares authorized) Series A (99,000 shares outstanding) 76 762 Series B (2,000 shares outstanding 2,000,000 2,000,000 Series C (50,000 shares outstanding) 15,000 15,000 Series D (950 shares outstanding) 950,000 950,000 Series E (2,300 shares outstanding) 2,300,000 2,300,000 Common Stock (no par value-75,000,000 shares authorized, 18,229,461 shares issued and outstanding in 2000; 50,000,000 shares authorized, 8,844,461 shares issued and outstanding in 1999) 7,649,010 6,445,199 Additional paid-in capital 3,605,580 3,605,580 Accumulated (deficit) (7,151,901) (1,302,675) Accumulated other comprehensive (loss) (66,540) (11,976) Subscriptions receivable (906,788) (906,788) ------------ ------------ Total Stockholders' Equity 8,394,437 13,095,102 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 41,793,926 $ 29,949,094 ============ ============
2 5 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
2000 1999 ------------ ------------ Net Revenues $ 40,366,390 $ 17,824,169 Operating expenses Transportation and rentals 33,798,574 7,087,882 Operating supplies and maintenance 32,367 625,508 Other operating costs 415,527 300,831 Fuel -- 1,457,324 Insurance and claims 2,271,910 1,051,940 Depreciation and amortization 546,455 1,146,717 Taxes and licenses 94,506 235,013 Salaries, wages and benefits 1,939,611 4,137,873 Occupancy costs 175,884 172,032 Administrative expenses 1,674,351 1,069,171 ------------ ------------ Total operating expenses 40,949,184 17,284,291 ------------ ------------ Operating income (loss) (582,794) 539,878 ------------ ------------ Other income and expenses Interest income 22,247 2,425 Interest expense (829,300) (378,472) Other income 391,818 25,899 Gain on disposition of assets -- 124,114 ------------ ------------ Total other income and (expenses) (415,235) (226,034) ------------ ------------ Net income (loss) before income taxes (998,029) 313,834 Provision for income taxes -- -- ------------ ------------ Net income from continuing operations (998,029) 313,834 ------------ ------------ Loss from discontinued operations (4,851,197) -- ------------ ------------ Net Income (loss) $ (5,849,226) $ 313,834 ============ ============ Basic earnings (loss) per common share $ (.58) $ .03 ============ ============ Weighted average number of common shares 10,101,544 8,925,676 ============ ============
3 6 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
2000 1999 ------------ ------------ Net Revenues $ 22,303,450 $ 10,162,797 Operating expenses Transportation and rentals 19,460,755 4,417,867 Operating supplies and maintenance 10,469 303,321 Other operating costs 261,230 99,044 Fuel -- 742,225 Insurance and claims 774,457 557,376 Depreciation and amortization 342,299 596,082 Taxes and licenses -- 119,520 Salaries, wages and benefits 984,274 2,082,744 Occupancy costs 82,422 87,002 Administrative expenses 985,223 696,425 ------------ ------------ Total operating expenses 22,901,127 9,701,606 ------------ ------------ Operating income (loss) (597,677) 461,191 ------------ ------------ Other income and expenses Interest income 944 2,383 Interest expense (466,141) (269,676) Other income 5,113 -- ------------ ------------ Total other income and (expenses) (460,084) (267,293) ------------ ------------ Net income (loss) before income taxes (1,057,761) 193,898 Provision for income taxes -- -- ------------ ------------ Net income from continuing operations (1,057,761) 193,898 ------------ ------------ Loss from discontinued operations (4,851,197) -- ------------ ------------ Net Income (loss) $ (5,908,957) $ 193,898 ============ ============ Basic earnings (loss) per common share $ (.58) $ .02 ============ ============ Weighted average number of common shares 10,101,544 6,988,351 ============ ============
4 7 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2000
Common Stock Preferred Stock No Par Value Shares Amount Shares Amount ---------- ---------- --------- ----------- Opening balance - January 1, 2000 8,844,461 $6,445,199 1,054,250 $ 5,265,762 Issuance of Common Stock- Checkmate Acquisition 385,000 1,203,125 -- -- Series A Preferred stock exchanged for common stock 9,000,000 686 (900,000) (686) Other Comprehensive Loss: Net Loss for the six months ended June 30, 2000 -- -- -- -- Change in unrealized loss on available-for-sale investments -- -- -- -- ---------- ---------- --------- ----------- Closing balance - June 30, 2000 18,229,461 $7,649,010 154,250 $ 5,265,076 ========== ========== ========= ===========
Accumulated Additional Other Paid in Accumulated Comprehensive Subscriptions Capital Deficit (Loss) Receivable Total ---------- ----------- -------- ---------- ------------ Opening balance - January 1, 2000 $3,605,580 $(1,302,675) $(11,976) $(906,788) $ 13,095,102 Issuance of Common Stock- Checkmate Acquisition -- -- -- -- 1,203,125 Series A Preferred stock exchanged for common stock -- -- -- -- -- Other Comprehensive Loss: Net Loss for the six months ended June 30, 2000 -- (5,849,226) -- -- (5,849,226) Change in unrealized loss on available-for-sale investments -- -- (54,564) -- (54,564) ---------- ----------- -------- --------- ------------ Closing balance - June 30, 2000 $3,605,580 $(7,151,901) $(66,540) $(906,788) $ 8,078,564 ========== =========== ======== ========= ============
5 8 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1999
Common Stock Preferred Stock No Par Value Shares Amount Shares Amount ---------- ---------- --------- ----------- Opening balance - January 1, 1999 16,074,591 $2,796,000 -- $ -- Issuance of Common Stock upon Exercise of options 1,759,870 449,961 -- -- Capital contributed -- -- -- -- Issuance of Common Stock- Excalibur Acquisition - Note 3 200,000 650,000 -- -- Issuance of Common Stock-Prostar Acquisition - Note 3 200,000 500,000 -- -- Common Stock exchanged for Series A Preferred Stock - Note 8 (9,990,000) (762) 999,000 762 Issuance of Series B Preferred Stock Note 8 -- -- 2,000 2,000,000 Issuance of Series C Preferred Stock Note 8 -- -- 50,000 15,000 Issuance of Series D Preferred Stock Note 8 -- -- 950 950,000 Issuance of Series E Preferred Stock Note 8 -- -- 2,300 2,300,000 Proceeds from sale of Common Stock 600,000 2,050,000 -- -- Other Comprehensive Income: Net Income for the year ended December 31, 1999 -- -- -- -- Change in unrealized loss on available-for-sale investments -- -- -- -- December 31, 1999 -- -- -- -- ---------- ---------- --------- ----------- Closing balance - December 31, 1999 8,844,461 $6,445,199 1,054,250 $ 5,265,762 ========== ========== ========= ===========
Accumulated Additional Other Paid in Accumulated Comprehensive Subscriptions Capital Deficit (Loss) Receivable Total ---------- ----------- -------- ---------- ------------ Opening balance - January 1, 1999 $3,821,812 $(1,409,433) -- $(120,000) $ 5,088,379 Issuance of Common Stock upon Exercise of options -- -- -- (436,788) 13,173 Capital contributed 401,668 -- -- -- 401,668 Issuance of Common Stock- Excalibur Acquisition - Note 3 -- -- -- -- 650,000 Issuance of Common Stock-Prostar Acquisition - Note 3 -- -- -- -- 500,000 Common Stock exchanged for Series A Preferred Stock - Note 8 -- -- -- -- -- Issuance of Series B Preferred Stock Note 8 (185,000) -- -- -- 1,815,000 Issuance of Series C Preferred Stock Note 8 -- -- -- -- 15,000 Issuance of Series D Preferred Stock Note 8 (150,000) -- -- -- 800,000 Issuance of Series E Preferred Stock Note 8 (282,900) -- -- -- 2,017,100 Proceeds from sale of Common Stock -- -- -- (350,000) 1,700,000 Other Comprehensive Income: Net Income for the year ended December 31, 1999 -- 106,758 -- -- 106,758 Change in unrealized loss on available-for-sale investments -- (11,976) -- -- (11,976) December 31, 1999 -- -- -- -- 106,758 ---------- ----------- -------- --------- ------------ Closing balance - December 31, 1999 $3,605,580 $(1,302,675) $(11,976) $(906,788) $ 13,095,102 ========== =========== ======== ========= ============
6 9 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss) from continuing operations $ (998,029) $ 313,844 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES Depreciation & amortization 546,455 1,146,717 Provision for doubtful accounts 1,675,414 -- Deferred taxes -- -- Gain on disposal of equipment -- (124,114) (Increase) Decrease-Assets Restricted cash (3,088,503) (445,436) Accounts receivable (7,674,807) (2,571,741) Parts and Supplies inventory -- (30,111) Prepaid expenses and other assets 110,589 (378,376) Intangible assets 103,144 -- Due from captive insurer (335,622) -- Increase (Decrease)-Liabilities Accounts payable - trade (414,759) -- Revolving loan 9,205,417 1,751,612 Accrued expenses and other current liabilities (908,618) 540,034 ----------- ----------- Total Adjustments (781,290) (111,415) ----------- ----------- Net cash provided (used) by continuing operations (1,779,019) 202,429 ----------- ----------- Discontinued operations (4,851,197) -- ----------- ----------- Subtotal (6,630,516) 202,429 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES (Increase) in security deposit -- (1,433) Purchase of equipment and software development (93,689) (244,673) Cash paid for businesses acquired (534,698) (340,000) Proceeds from disposition of assets -- 1,104,114 ----------- ----------- Net cash (used) by investing activities (628,387) 518,008 ----------- ----------- Subtotal $(7,258,903) $ 720,437 ----------- -----------
7 10 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
2000 1999 ----------- ----------- Balance Forward $(7,258,903) $ 720,437 CASH FLOWS FROM FINANCING ACTIVITIES Due from related parties 186,023 Notes receivable 3,554,671 -- Repayments of notes receivable (632,094) -- Proceeds from sale of common stock and additional paid in capital -- 1,883,732 Issuance of convertible debentures 6,560,296 -- Principal payments on long-term debt (2,296,488) (1,838,093) ----------- ----------- Net cash (used) provided by financing activities 7,372,408 45,639 ----------- ----------- NET INCREASE (DECREASE) IN CASH 113,505 766,076 CASH AT BEGINNING OF PERIOD 1,057,719 22,976 ----------- ----------- CASH AT END OF PERIOD $ 1,171,224 $ 789,052 =========== =========== Supplemental Disclosure of Cash flow information: Cash Paid during the year Interest expense $ 749,101 $ 305,123 =========== =========== Income taxes $ -- $ -- =========== ===========
8 11 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 Non Cash Investing and Financing Activities During the first quarter of year 2000, U.S. Trucking acquired the business operations of Checkmate Truck Brokerage, Inc. and Maverick Truck Brokerage, Inc. Fair Value of assets acquired $3,531,347 Fair Value of liabilities assumed 4,399,649 Goodwill recognized 2,606,125 Cash paid 534,698 Value of Common Stock issued 1,203,125
Effective June 1999, U.S. Trucking acquired the intermodal business of Excalibur Express, Inc. Fair Value of assets acquired $ -- Fair Value of liabilities assumed 76,410 Goodwill recognized 1,026,410 Cash paid 300,000 Value of Common Stock issued 650,000
In April 1999 U.S. Trucking acquired the freight brokerage business of Prostar, Inc. Fair Value of assets acquired $ -- Fair Value of liabilities assumed 229,312 Goodwill recognized 1,444,312 Cash paid 715,000 Value of Common Stock issued 500,000
9 12 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 NOTE 1 - General and Summary of Significant Accounting Policies (A) - Nature of Business The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. They have been prepared in accordance with paragraph 228.310 of Regulation S-B and accordingly, do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All adjustments considered necessary for a fair presentation have been included. U.S. Trucking is in the mid to long-haul trucking, brokerage-logistics services, agent and auto liability insurance businesses. Corporate headquarters are located in Mt. Pleasant, South Carolina with regional terminals located in various states. Services are provided to customers throughout the 48 contiguous states. (B) - Basis of Presentation The accompanying consolidated balance sheets and related statements of operations, stockholders' equity and cash flows includes the accounts of U.S. Trucking, Inc. and its wholly owned subsidiaries, Gulf Northern Transport, Inc., Mencor, Inc., Prostar, Inc. and UST Logistics, Inc. as of June 30, 2000 and Gulf Northern Transport, Inc. and Mencor, Inc. as of June 30, 1999. Significant intercompany transactions or balances as of and for the periods ended June 30, 2000 and 1999 have been eliminated. (C) - Net Income per Common Share Basic net income per share is computed on the basis of the weighted average number of common shares outstanding during each period. Diluted net income per share is calculated by combining weighted average number of common shares outstanding and potentially dilutive common share equivalents (D) - Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with maturities of six months or less to be cash equivalents for financial statement purposes. 10 13 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (E) - Parts and Supply Inventory Inventory consists principally of parts and supplies used in maintaining its motor carrier fleet, skids used in transporting goods, and small tools and are stated at the lower-of-cost or market, determined on a first-in, first-out basis. (F) - Transportation and Other Equipment Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Accelerated methods of depreciation are followed for tax purposes and the straight-line method is used for financial reporting purposes. Transportation equipment, furniture and fixtures, and other equipment are generally depreciated over periods ranging from two to seven years. (G) - Intangible Assets Intangible assets include goodwill which is amortized on a straight-line basis over periods ranging from six to twenty years and deferred financing, debt issuance costs and trade-in costs which are amortized on a straight-line basis over periods ranging from three to five years. (H) - Management In January 2000, U.S. Trucking subsidiary Gulf Northern Transport, Inc. entered into a master agent agreement with Carolina Global, Inc. to manage Gulf Northern's container operations. Carolina Global is owned 90% by Logistics Management, LLC and 10% by an officer of U.S. Trucking. Under the terms of the agreement, Gulf Northern will pay 90% of revenues generated by its container operations to Carolina Global in exchange for the operational services provided. Also in January 2000, Gulf Northern entered into a master agent agreement with One-Way Logistics, Inc. to manage Gulf Northern's over the road operations. One-Way is owned 90% by Logistics Management, LLC and 10% by an officer of U.S. Trucking. Under the terms of the agreement, Gulf Northern will pay 90% of revenues generated by its over the road operations to One-Way in exchange for the operational services provided. 11 14 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (I) - Income Taxes U.S. Trucking accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting or Income Taxes" which requires the use of the "liability method" of accounting for income taxes. Accordingly, deferred tax liabilities and assts are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Current income taxes are based on the respective periods' taxable income for federal, state and local income tax reporting purposes. (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) - Revenue Recognition During 1999, U.S. Trucking changed its revenue recognition policy to record revenue at the time freight is picked up at the customer's site. Prior to 1999, the Company recognized revenues at the time freight was delivered to recipients. This change in accounting policy resulted in an insignificant difference in net income for the periods reported. Accordingly, these financial statements were not restated to reflect this change. Liability insurance revenue is recognized on a written premium basis. All other revenue is recognized at the time services are provided. (L) - 1999 Reclassifications Certain reclassifications have been made to the 1999 figures to conform them to the current year's presentation. 12 15 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 NOTE 2 - Earnings (Loss) Per Common Share Basic earnings (loss) per common share was calculated using the weighted average number of shares outstanding for the periods presented, after giving effect to the conversion of 9,990,000 shares of common stock into series A preferred stock in February 1999 and the conversion of 900,000 shares Series A preferred stock back to 9,000,000 shares of common stock as of June 30, 2000. The resulting weighted average number of common shares outstanding was 10,010,544 in 2000 and 8,925,676 in 1999. With respect to 1999, diluted earnings per common share were calculated assuming the issuance of potentially dilutive securities such as the convertible preferred stock and convertible debentures and options and warrants. NOTE 3 - Acquisition of Subsidiaries and Other Assets and Liabilities On February 7, 2000, U.S. Trucking consummated a merger agreement to acquire Checkmate Truck Brokerage, Inc. and Maverick Truck Brokerage, Inc., for a purchase price of $2,606,125. Under the terms of the agreement, the purchase price consists of 385,000 shares of common stock that were valued at $1,203,125 and $886,961 payable to the principals of which 500,000 has been paid as of June 30, 2000. Further, the contract includes a stock adjustment agreement whereby the issuance of the common stock included in the agreement will be adjusted pending the outcome of certain performance parameters. An allocation of the purchase price follows:
Checkmate/ Maverick ---------- Assets Accounts receivable $3,311,143 Transportation and other equipment 220,204 Goodwill 2,606,125 ---------- Total $6,137,472 ========== Liabilities Assumed and Equity Liabilities assumed $3,962,688 Liability to sellers 971,659 Common stock 1,203,125 ---------- Total $6,137,472 ==========
13 16 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 NOTE 3 - Acquisition of Subsidiaries and Other Assets and Liabilities (Continued) In April 1999, U.S. Trucking acquired the common stock of Pro Star, Inc. a truck brokerage company based in Charleston, SC for $1,444,312 consisting of 200,000 shares of common stock, cash of $715,000 and the assumption of liabilities of $229,312. In June 1999, the Company acquired the intermodal business of Excalibur Express, Inc., also a Charleston, SC based company for $1,026,410 consisting of 200,000 shares of common stock and $300,000 in cash. An allocation of the purchase prices follow:
Excalibur Prostar, Inc. Express Total ------------- ---------- ---------- Assets ------ Goodwill $1,444,312 $1,026,410 $2,470,722 ---------- ---------- ---------- Total $1,444,312 $1,026,410 $2,470,722 ========== ========== ========== Liabilities Assumed and Equity ------------------------------ Liabilities assumed and debt to sellers $ 944,312 $ 376,410 $1,320,722 Common stock 500,000 650,000 1,150,000 ---------- ---------- ---------- Total $1,444,312 $1,026,410 $2,470,722 ========== ========== ==========
14 17 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 NOTE 4 - Income Taxes The deferred tax asset of $1,141,963 represents the tax benefit from net operating losses generated in prior years reduced by a valuation allowance amounting to $2,159,000 as of June 30, 2000. The valuation allowance provided is based on management's valuation of the likelihood of realization of the benefit of the net operating loss carryovers. Management believes it is more likely than not that U.S. Trucking will realize the benefit of the recorded deferred tax assets. As required by SFAS 109, deferred taxes are provided based upon the tax rate at which the items of income and expense are expected to be settled in the Company's tax return. The expected tax rate used is 37.3% for each of the years. U.S. Trucking has net operating losses through June 30, 2000 of $8,850,000. These losses will be available to offset future taxable income and begin to expire in 2010. There is no tax effect related to the component of the other comprehensive loss since no future capital gain can be anticipated. 15 18 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 NOTE 5 - Convertible Debentures During the six months ended June 30, 2000, U.S. Trucking issued convertible debentures in the amount of $7,100,000. Debt issuance costs amounted to $84,000 which are being amortized over the life of the debentures. The debentures include a stated interest rate of 10% per annum and mature during 2003. The Company also retired $539,704 of debentures during the six months ended June 30, 2000. Related debt issuance costs of $44,000 was expensed and is included in amortization expenses in the accompanying financial statements. During the six months ended June 30, 1999 the Company issued $2,250,000 of 10% convertible debentures due May 31, 2002 with related debt issuance costs amounting to $208,000. The Company subsequently retired $800,000 of those debentures. Related debt issuance costs of $78,180 was expensed and is included in amortization expenses in the accompanying financial statements. The holders of the debentures are entitled, at their option, to convert at any time, all or any part of the principal amount of the debentures into U.S. Trucking's common stock plus accrued interest. The price per share of common stock into which the debentures are convertible is the lower of $1.50 or 80% of the average closing bid price of the Common Stock quoted on the OTC Bulletin board for three trading days preceding the conversion date. NOTE 6 - Captive Insurance Program The company recorded in the accompanying financial statements $1,040,943 of amounts due from the captive insurer of which $ 2,252,990 and $ 937,214 is reflected in revenues in the six months ended June 30, 2000 and 1999, respectively. These amounts represent the estimated "program-to date profit" at June 30, 2000 and 1999. 16 19 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 NOTE 7 - Industry Segment Information U.S. Trucking has three major business segments: long-haul trucking, interstate truck brokerage and liability insurance for the long haul trucking industry. During the fourth quarter of 1998, the company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). The adoption of SFAS 131 requires the presentation of descriptive information about reportable segments which is consistent with that made available to the management of U.S. Trucking to assess performance. As a result of this change, the company now reports segment performance on an after-tax basis and separately reports information on its truck brokerage operation. In addition, during 1998, the company added the liability insurance business and reports that segment's performance similarly. In determining the net income of each segment of the company, 100% of the interest expense is allocated to long-haul trucking and effective tax rates are determined for each business segment. SIX MONTHS ENDED JUNE 30, 2000
Long-haul Truck Liability Trucking Brokerage Insurance Intersegment Total ------------ ------------ ---------- ------------ ------------ Sales $ 21,400,939 $ 17,270,618 $2,285,729 $(590,896) $ 40,366,390 Operating income (loss) (1,084,098) 192,395 308,909 -- (582,794) Net interest (764,279) (42,774) -- -- (807,053) Pretax income (loss) (1,456,579) 149,641 308,909 -- (998,029) Loss from discontinued operations (4,851,197) -- -- -- (4,851,197) Net income (loss) (6,307,776) 149,641 308,909 -- (5,849,226) Assets 31,474,181 8,242,069 2,077,676 -- 41,793,926 Depreciation & Amortization 351,240 171,033 24,182 -- 546,455 Additions to long- lived assets 226,799 383,232 -- -- 610,031
17 20 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 NOTE 7 - Industry Segment Information (continued) THREE MONTHS ENDED JUNE 30, 2000
Long-haul Truck Liability Trucking Brokerage Insurance Intersegment Total ------------ ------------ ---------- ------------ ------------ Sales $ 10,739,848 $11,250,649 $ 661,189 $(242,660) $22,303,450 Operating income (loss) (970,849) 119,929 253,243 -- (597,677) Net interest (461,989) (3,208) -- -- (465,197) Pretax income (loss) (1,436,316) 125,312 253,243 -- (1,057,761) Loss from discontinued Operations (4,851,197) (4,851,197) Net income (loss) (6,295,071) 134,386 274,007 -- (5,886,678) Assets 31,474,181 8,242,069 2,077,676 -- 41,793,926 Depreciation & Amortization 207,596 126,316 8,387 -- 342,299 Additions to long- lived assets 98,104 178,934 -- -- 277,038
SIX MONTHS ENDED JUNE 30, 1999
Long-haul Truck Liability Trucking Brokerage Insurance Intersegment Total ------------ ------------ ---------- ------------ ------------ Sales $ 14,712,520 $ 2,513,413 $ 937,214 $(338,978) $ 17,824,169 Operating income 484,353 27,375 28,150 -- 539,878 Net interest (371,222) (7,250) -- -- (378,472) Pretax income (loss) 121,933 90,490 101,421 -- 313,844 Net income 121,933 90,490 101,421 -- 313,844 Assets 17,412,698 949,767 1,489,159 -- 19,851,624 Depreciation & Amortization 1,133,808 12,909 -- -- 1,146,717 Additions to long- lived assets 244,673 -- -- -- 244,673
18 21 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 NOTE 7 - Industry Segment Information (continued) THREE MONTHS ENDED JUNE 30, 1999
Long-haul Truck Liability Trucking Brokerage Insurance Intersegment Total ------------ ------------ ---------- ------------ ------------ Sales $ 7,691,441 $ 2,168,294 $ 458,215 $(155,153) $ 10,162,797 Operating Income (loss) 286,649 107,101 67,441 461,191 Net interest (262,382) (7,294) -- -- (269,676) Pretax income (loss) 26,712 99,807 67,441 193,898 Net income (loss) 26,712 99,807 67,441 193,898 Assets 17,412,698 949,767 1,489,159 -- 19,851,624 Depreciation & Amortization 583,473 12,609 -- -- 596,082 Additions to long- lived assets 244,673 -- -- -- 244,673
NOTE 8 - Commitments and Contingencies During 1999, U.S. Trucking issued a total of 6,497,297 shares of common stock to several companies and individuals as collateral in connection with contingent transactions. Of these shares, 5,100,000 were issued with the understanding that they could be recalled at any time, at the discretion of the Company, prior to any transaction taking place. The remaining 1,397,297 shares are used as collateral for the other contingent transactions. Accordingly, these shares were not included in the total shares issued and outstanding as of December 31, 1999, and therefore, were not considered in the calculation of earnings per share. 19 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion in conjunction with the Consolidated Financial Statements, including the footnotes, and understand that this discussion is qualified in its entirety by the foregoing and other more detailed financial information appearing elsewhere herein. Historical results of operations and the percentage relationships among any amounts included in the Consolidated Statement of Operations, and any trends which may appear to be inferable therefrom, should not be taken as being necessarily indicative of trends of operations or results of operations for any future periods. These and other statements, which are not historical facts, are based largely on current expectations and assumptions of management and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements. Assumptions and risks related to forward-looking statements, include that we are pursuing a growth strategy that relies in part on the completion of acquisitions of companies in the trucking, logistics and intermodal segments of the transportation industry. Assumptions relating to forward-looking statements involve judgements with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many which are beyond our control. When used in this Quarterly Report, the words "estimates", "projects", and "expect" and similar expressions are intended to identify forward-looking statements. Although we believe that assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in the forward-looking information will be realized. Management decisions are subjective in many respects and susceptible to interpretations and periodic revisions based on actual experience and business developments, the impacts of which may cause us to alter our business strategy, which may in turn, affect our results of operations. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as our representation that statements contained in this Quarterly Report speak only as of the date of this Quarterly Report, and we do not have any obligation to publicly update or revise any of these forward-looking statements. Such statements may include, but are not limited to, projections of revenues, income, or loss, capital expenditures, plans for future operations, financing needs or plans, the impact of inflation and plans relating to the foregoing. Statements in the Company's Form 10-QSB, including Notes to the Consolidated Financial Results of Operations, describe factors, among others, that could contribute to or cause such differences. Tax Benefit. During 1999, because of acquisitions made by the company, it became more likely than not that the net operating loss carryovers generated from 1995 to 1999 20 23 would be fully used by the time the loss utilization periods expired. Accordingly, the income tax benefit was included in income during 1999. Prior to 1999, US Trucking incurred net operating losses for tax purposes. Because it did not appear likely that the benefit of such losses would be used before their expiration dates, we had limited the income tax benefit recognized in the financial statements for those net operating losses by establishing a valuation allowance for deferred tax assets. The Emerging Issues Task Force addressed the accounting for decreases in deferred tax asset valuation allowances established in a purchase business combination as a result of a change in tax regulations and reached a consensus that the change in the valuation amount should be recognized through the statement of operations. GENERAL U.S. Trucking, Inc. was established in January of 1997 by combining under U S Trucking-Nevada the operations of Gulf Northern Transport, a mid-to-long-haul truckload carrier and Mencor, Inc. a third party logististics (brokerage) company. During 1999, we acquired Prostar, Inc. (a brokerage company) and merged Mencor, Inc. into Prostar, Inc. U.S. Trucking, Inc. operating results are driven by the results of Gulf Northern Transport, Inc. the companies trucking operation including over the road and intermodal, our Captive auto liability insurance program, it's brokerage operations (ProStar Inc. and VST logistics Inc.). The Company reported a loss for the period ending June 30, 2000 and a profit for period ending June 30, 1999. On December 31, 1999, we effected a plan to transfer the over the road truckload operations to One-Way Logistics, Inc. a company owned 90% by Logistics Management, LLC which owns a significant portion of stock in our company and is controlled by our Chairman of the Board and the President-CEO). The container/intermodal operations were transferred to Carolina Global, Inc. also a company owned 90% by Logistics Management, LLC. Both agency programs work similar in that U.S. Trucking, Inc. will pay out 90% agent settlements to One-Way Logistics, Inc. and Carolina Global, Inc. and they will be responsible for paying all costs related to the operations of their respective operations. For U.S. Trucking. Inc., the 10% margin created from these transactions will be used to provide Auto-Liability & Cargo insurance coverage, paying for receivable financing interest and any overhead expense involved with managing the billing and collecting of accounts receivables and the processing of the agents settlements. After implementation of these procedures, our comparatives from one period to another occurring in 1999 and 2000 will change dramatically, in that our purchased transportation 21 24 costs will increase significantly while other operating expenses and administrative costs will be reduced materially. During second quarter of 2000, we effected a plan to discontinue the agency portion of our truckload segment excluding inter-modal. The decision resulted in us having to record certain adjustments to the related assets and liabilities of that business segment as well as provision to cover the estimated operating losses expected during the period we estimate it will take to totally discontinue the operation. In addition, we accrued our expected losses on the disposal of assets. Such adjustments total $4,851,197 for the six months ended June 30, 2000. The loss from discontinued operations has been reflected in accordance with Accounting Principles Board No. 30 "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions" as a disposal of a segment. The June 30, 2000 consolidated balance sheet and the consolidated statements of operations and cash flows for the six months then ended have been restated to separately reflect the financial position, results of operations, and cash flows of the discontinued operations. RESULTS OF OPERATIONS The following tables sets forth items in the Consolidated Statement of Operations for the six and three months ending June 30, 2000 and 1999 as a percentage of operating revenues.
6 MOS. ENDING 6 MOS. ENDING 30-JUN-00 30-JUN-99 ------------------------------ OPERATING REVENUES 100.0% 100.0% PURCHASED TRANSPORTATION & RENTALS 83.7% 39.8% OPERATING SUPPLIES AND MAINTENANCE 0.1% 3.5% FUEL 0.0% 8.2% MISCELLANEOUS OPERATING EXPENSES 1.0% 1.7% INSURANCE AND CLAIMS 5.6% 5.9% DEPRECIATION AND AMORTIZATION 1.4% 6.4% TAXES AND LICENSES 0.2% 1.3% OCCUPANCY COSTS 0.4% 1.0% SALARIES, WAGES AND BENEFITS 4.8% 23.2% ADMINISTRATIVE EXPENSES 4.2% 6.0% TOTAL EXPENSES 101.4% 97.0% OPERATING INCOME (1.4)% 3.0% INTEREST EXPENSE (2.1)% (2.1)% GAIN ON SALE OF EQUIPMENT 0.9% 0.7% INTEREST INCOME 0.1% 0.0% OTHER INCOME 0.1% 0.1% INCOME (LOSS) BEFORE INCOME TAXES (2.4)% 1.7% PROVISION FOR INCOME TAXES (0.1)% 0.0% NET INCOME FROM CONTINUING OPERATIONS (2.5)% 1.7% LOSS FROM DISCONTINUED OPERATIONS (12.0)% 0.0% NET INCOME (LOSS) (14.5)% 1.7%
22 25
3 MOS. ENDING 3 MOS. ENDING 30-JUN-00 30-JUN-99 ------------------------------ OPERATING REVENUES 100.0% 100.0% PURCHASED TRANSPORTATION & RENTALS 87.3% 43.5% OPERATING SUPPLIES AND MAINTENANCE 0.0% 3.0% FUEL 0.0% 7.3% MISCELLANEOUS OPERATING EXPENSES 1.2% 1.0% INSURANCE AND CLAIMS 3.5% 5.5% DEPRECIATION AND AMORTIZATION 1.5% 5.9% TAXES AND LICENSES (0.1)% 1.2% OCCUPANCY COSTS 0.4% 0.9% SALARIES, WAGES AND BENEFITS 4.4% 20.5% ADMINISTRATIVE EXPENSES 4.5% 6.9% TOTAL EXPENSES 102.7% 95.7% OPERATING INCOME (2.7)% 4.3% INTEREST EXPENSE (2.1)% (2.7)% GAIN ON SALE OF EQUIPMENT 0.0% 0.0% INTEREST INCOME 0.0% 0.0% OTHER INCOME 0.0% 0.0% INCOME (LOSS) BEFORE INCOME TAXES (4.8)% 1.6% PROVISION FOR INCOME TAXES 0.0% 0.0% NET INCOME FROM CONTINUING OPERATIONS (4.8)% 1.6% LOSS FROM DISCONTINUED OPERATIONS (21.8)% 0.0% NET INCOME (LOSS) (26.6)% 1.6%
Three months ended June 30, 2000 compared to June 30, 1999 Operating revenues. Total operating revenue increased from $10.2 million for the three months ended June 30, 1999 to $22.3 million, or 118.6% for the three months ended June 30, 2000. The reasons for this increase are the acquisitions of Excalibur Express, Inc., and Fulmer Transport, Inc. in the second and third quarters of 1999, and the acquisition of Checkmate/Maverick truck brokerage completed in February 2000 as well as the opening of a new container division in March 2000. Operating revenues as a result from the Excalibur acquisition and the opening of a new container division increased 23 26 $3.96 million. Operating revenues as a result from the Fulmer acquisition increased $2.83 million. Operating revenues as a result from the Checkmate/Maverick acquisition increased $8.70 million. In addition, revenues from the Captive Insurance Program increased from $460 thousand for the three months ended June 30, 1999 to $628 thousand for the three months ended June 30, 2000. Purchased transportation and rentals. Purchased transportation and rentals increased from $4.42 million for the three months ended June 30, 1999 to $19.46 million or 340.5% for the three months ended June 30, 2000. As a percentage of operating revenue, purchased transportation and rentals increased from 43.5% for the three months ended June 30, 1999 to 87.3% for the three months ended June 30, 2000. Changes from converting the truckload and intermodal operations to agency programs and the acquisition of Prostar, Inc.(a brokerage company) and Checkmate/Maverick Truck Brokerage resulted in the increase in purchase transportation as a percentage of sales. Freight settlements from brokerage operations increased from $3.27 million for the three months ended June 30, 1999 to $10.48 million for the three months ended June 30, 2000. Agent settlements from truckload and container operations increased from $73 thousand for the three months ended June 30, 1999 to $9.67 million for the three months ended June 30, 2000. Salaries, wages and benefits. Salaries, wages and benefits decreased from $2.08 million for the three months ended June 30, 1999 to $984 thousand or 52.7% for the three months ended June 30, 2000. Salaries, wages and benefits as a percentage of total operating revenue decreased from 20.5% for the three months ended June 30, 1999 to 4.4% for the three months ended June 30, 2000. The decrease as a percentage of operating revenue is attributed to the change in revenue mix discussed in the preceding paragraph which caused company driver payroll to decrease from $1.24 million for the three months ended June 30, 1999 to zero for the three months ended June 30, 2000. Fuel. Fuel expense decreased from $742 thousand for the three months ended June 30, 1999 to zero for the three months ended June 30, 2000. The decrease is attributed to the conversion of truckload operations to a agency program in which most operating costs other than agents settlements are eliminated. Fuel expense from company owned tractors decreased from $729 thousand for the three months ended June 30, 1999 to zero for the three months ended June 30, 2000. Operating supplies and maintenance. Operating supplies and maintenance decreased from $303 thousand for the three months ended June 30, 1999 to $10 thousand for the three months ended June 30, 2000. The decrease is attributed to the change in mix of revenues mentioned in previous paragraphs. By converting the truckload operations to a agency program maintenance on all company equipment was eliminated. Insurance and claims. Insurance and claims increased from $557 thousand for the three months ended June 30, 1999 to $774 thousand or 38.9% for the three months ended June 30, 2000. Insurance and claims as a percentage of total operating revenue decreased from 5.48% for the three months ended June 30, 1999 to 3.47% for the three months ended June 30, 2000. The decrease as a percentage of operating revenue can be attributed to 24 27 increased revenues from our brokerage divisions, which have much lower insurance costs as percentage of revenue associated with them. Taxes and licenses. Taxes and licenses decreased from $119 thousand for the three months ended June 30, 1999 to zero for the three months ended June 30, 2000. The decrease is attributed to the conversion of truckload and intermodal operations to a agency program. Depreciation and amortization. Depreciation and amortization decreased from $596 thousand for the three months ended June 30, 1999 to $343 thousand or 42.5% for the three months ended June 30, 2000. Depreciation and amortization as a percentage of total operating revenue decreased from 5.87% for the three months ended June 30, 1999 to 1.53% for the three months ended June 30, 2000. The decrease as a percentage of total operating revenue is attributed to the change of truckload and intermodal operations to a agency program and the fact that Gulf Northern Transport, Inc. sold all depreciable assets that was revenue equipment to One-Way Logistics, Inc. in December 1999. Depreciation expense decreased from $490 thousand for the three months ended June 30, 1999 to $58 thousand for the three months ended June 30, 2000. Amortization expense increased from $106 thousand for the three months ended June 30, 1999 to $284 thousand for the three months ended June 30, 2000. The reason for the increase is from the goodwill created from the Mid-Cal, Prostar, Excalibur Express, Fulmer Transport and Checkmate/Maverick acquisitions. General and administrative. General and administrative expenses increased from $696 thousand for the three months ended June 30, 1999 to $1.01 million or 45.1% for the three months ended June 30, 2000. General and administrative as a percentage of total operating revenue decreased from 6.85% for the three months ended June 30, 1999 to 4.53% for the three months ended June 30, 2000. The decrease as a percentage of operating revenue can be attributed to the economies of scale as revenues have increased through acquisitions some fixed costs have remained constant therefore have decreased as a percentage of operating revenue. Operating income (loss). Operating income decreased from $461 thousand or 4.54% of total operating revenues for the three months ended June 30, 1999 to a operating loss of $598 thousand or (2.68)% of total operating revenue for the three months ended June 30, 2000. This decrease as a percentage of total operating revenue can be attributed to the various factors discussed above. Management anticipates as revenues increase, the margin created from purchased transportation will justify enough margin to create profitability going forward but there can no assurance that this will happen. Interest. Interest expense increased from $269 thousand for the three months ended June 30, 1999 to $466 thousand or 72.8% for the three months ended June 30, 2000. Interest expense as a percentage of total operating revenue decreased from 2.65% for the three 25 28 months ended June 30, 1999 to 2.09% for the three months ended June 30, 2000. The primary reason for the increase in total is interest paid in relation to our revolving credit line facility, which has increased from a loan balance of $3.19 million on June 30, 1999 to $15.94 million on June 30, 2000. Discontinued Operations. We recognized losses from discontinuing our agency truckload segment: The loss is discussed earlier and totaled 4,851,197. Net income decreased from $194 thousand for the three months ended June 30, 1999 to a net loss of $5.91 million for the three months June 30, 2000. The primary factors that caused the loss is the discontinued operations and reduction in operating income discussed previously. Six months ended June 30, 2000 compared to June 30, 1999 Operating revenues. Total operating revenue increased from $17.82 million for the six months ended June 30, 1999 to $40.37 million, or 126.5% for the six months ended June 30, 2000. The reasons for this increase are the acquisitions of Prostar, Inc., a line of intermodal business from Excalibur Express, Inc. and Fulmer Transport, Inc. in the second and third quarters of 1999, and the acquisition of Checkmate/Maverick truck brokerage completed in February 2000 as well as the opening of a new container division in March 2000. Operating revenues as a result of the Prostar acquisition increased $409 thousand. Operating revenues as a result from the Excalibur acquisition and the opening of a new container division increased $6.3 million. Operating revenues as result from the Fulmer acquisition increased $6.89 million. Operating revenues as result from the Checkmate/Maverick acquisition increased $13.24 million. In addition, revenues from the Captive Insurance Program increased from $934 thousand for the six months ended June 30, 1999 to $2.25 million for the six months ended June 30, 2000. Purchased transportation and rentals. Purchased transportation and rentals increased from $7.09 million for the six months ended June 30, 1999 to $33.80 million or 376.9% for the six months ended June 30, 2000. As a percentage of operating revenue, purchased transportation and rentals increased from 39.8% for the six months ended June 30, 1999 to 83.7% for the six months ended June 30, 2000. Changes from converting the truckload and intermodal operations to agency programs and the acquisition of Prostar, Inc. (a brokerage company) and Checkmate/Maverick Truck Brokerage resulted in the increase in purchase transportation as a percentage of sales. Freight settlements from brokerage operations increased from $3.58 million for the six months ended June 30, 1999 to $15.30 million for the six months ended June 30, 2000. Agent settlements from truckload and container operations increased from $125 thousand for the six months ended June 30, 1999 to $18.81 million for the six months ended June 30, 2000. Salaries, wages and benefits. Salaries, wages and benefits decreased from $4.14 million for the six months ended June 30, 1999 to $1.94 million or 53.1% for the six months 26 29 ended June 30, 2000. Salaries, wages and benefits as a percentage of total operating revenue decreased from 23.2% for the six months ended June 30, 1999 to 4.8% for the six months ended June 30, 2000. The decrease as a percentage of operating revenue is attributed to the change in revenue mix discussed in the preceding paragraph which caused company driver payroll to decrease from $2.40 million for the six months ended June 30, 1999 to zero for the six months ended June 30, 2000. Fuel. Fuel expense decreased from $1.46 million for the six months ended June 30, 1999 to zero for the six months ended June 30, 2000. The decrease is attributed to the conversion of truckload operations to a agency program in which most operating costs other than agents settlements are eliminated. Fuel expense from company owned tractors decreased from $1.43 million for the six months ended June 30, 1999 to zero for the six months ended June 30, 2000. Operating supplies and maintenance. Operating supplies and maintenance decreased from $626 thousand for the six months ended June 30, 1999 to $32 thousand for the six months ended June 30, 2000. The decrease is attributed to the change in mix of revenues mentioned in previous paragraphs. By converting the truckload operations to a agency program maintenance on all company equipment was eliminated. Insurance and claims. Insurance and claims increased from $1.05 million for the six months ended June 30, 1999 to $2.27 million or 116.0% for the six months ended June 30, 2000. Insurance and claims as a percentage of total operating revenue decreased from 5.9% for the six months ended June 30, 1999 to 5.6% for the six months ended June 30, 2000. The decrease as a percentage of operating revenue can be attributed to increased revenues from our brokerage divisions, which have much lower insurance costs as percentage of revenue associated with them. Miscellaneous operating expenses. Miscellaneous operating expenses increased from $301 thousand for the six months ended June 30, 1999 to $416 thousand or 38.1% for the six months ended June 30, 2000. Miscellaneous operating expenses as a percentage of revenue decreased from 1.7% for six months ended June 30, 1999 to 1.0% for the six months ended June 30, 2000. The decrease as a percentage of revenue is attributed to the conversion of truckload and intermodal operations to agency programs discussed in preceding paragraphs. Taxes and licenses. Taxes and licenses decreased from $235 thousand for the six months ended June 30, 1999 to $94 thousand or 59.8% for the six months ended June 30, 2000. Taxes and licenses as a percentage of total operating revenue decreased from 1.32% for the six months ended June 30, 1999 to 0.2% for the six months ended June 30, 2000. The decrease as a percentage of total operating revenue is attributed to the conversion of truckload and intermodal operations to a agency program. Depreciation and amortization. Depreciation and amortization decreased from $1.15 million for the six months ended June 30, 1999 to $546 thousand or 52.3% for the six months ended June 30, 2000. Depreciation and amortization as a percentage of total 27 30 operating revenue decreased from 6.4% for the six months ended June 30, 1999 to 1.4% for the six months ended June 30, 2000. The decrease as a percentage of total operating revenue is attributed to the change of truckload and intermodal operations to a agency program and the fact that Gulf Northern Transport, Inc. sold all depreciable assets that was revenue equipment to One-Way Logistics, Inc. in December 1999. Depreciation expense decreased from $971 thousand for the six months ended June 30, 1999 to $116 thousand for the six months ended June 30, 2000. Amortization expense increased from $170 thousand for the six months ended June 30, 1999 to $430 thousand for the six months ended June 30, 2000. The reason for the increase is from the goodwill created from the Mid-Cal, Prostar, Excalibur Express, Fulmer Transport and Checkmate/Maverick acquisitions. General and administrative. General and administrative expenses increased from $1.07 million for the six months ended June 30, 1999 to $1.70 million or 74.9% for the six months ended June 30, 2000. General and administrative as a percentage of total operating revenue decreased from 6.0% for the six months ended June 30, 1999 to 4.2% for the six months ended June 30, 2000. The decrease as a percentage of operating revenue can be attributed to the economies of scale as revenues have increased through acquisitions some fixed costs have remained constant therefore have decreased as a percentage of operating revenue. Operating income (loss). Operating income (loss) decreased from $540 thousand or 3.0% of total operating revenues for the six months ended June 30, 1999 to $(583) thousand or (1.4)% of total operating revenue for the six months ended June 30, 2000. This decrease as a percentage of total operating revenue can be attributed to the various factors discussed above. Again, management anticipates as revenues increase, the margin created from purchased transportation will justify enough to create profitability going forward. There can be no assurance that will happen. Interest. Interest expense increased from $378 thousand for the six months ended June 30, 1999 to $829 thousand or 119.1% for the six months ended June 30, 2000. Interest expense as a percentage of total operating revenue decreased from 2.1% for the six months ended June 30, 1999 to 2.0% for the six months ended June 30, 2000. The primary reason for the increase in total is the interest paid in relation to our revolving credit line facility which has increased from a loan balance of $3.19 million on June 30, 1999 to $15.94 million on June 30, 2000. Discontinued Operations -- We recognized losses from discontinuing our agency truckload segment. The loss is discussed earlier and totaled 4,851,197. Net income decreased from $314 thousand for the six months ended June 30, 1999 to a net loss of $5.85 million for the six months June 30, 2000. The primary factors that produced our profit for the six months ended June 30, 2000, was the loss from discontinued operations and the reduction in operating income mentioned the preceding paragraphs. 28 31 LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000, we had a working capital deficit of $832,246 as compared to a working capital surplus of $1,367,418 at December 31, 1999 or a net change of $2,200,000. Working capital declined due to a number of factors as follows: Working capital declined because our accounts payable, accrued expenses and current portion of long term debt increased approximately $1,500,000 on a net basis and notes receivable-related parties and current deferred taxes declined approximately $1,100,000. These working capital declinations were offset by an increase of $105,000 in accounts receivable over and above our revolving loan payable, and an increase of $314,000 in cash and prepaid expenses and other current assets. In order to provide for working capital and to support our continuing acquisition program, we increased our revolving working capital line of credit with our major lender from $8,000,000 to $16,000,000. Continuing with our acquisition program, we acquired Checkmate Truck Brokerage, Inc. and Maverick Truck Brokerage, Inc. through a merger effective February 7, 2000. The acquisition required a cash payment of $500,000 to the sellers. During the second quarter of fiscal 2000, we raised an additional $6,000,000 through the issuance of 11.5% three-year convertible debentures. A portion of the net raised was used to fund our increase in restricted cash at ended June 30, 2000 and the balance was used to bolster our working capital. Net cash used by continuing operations amounted to $1,779,019 for the six months ended June 30, 2000 as compared to net cash of $202,429 provided by continuing operating activities for the six months ended June 30, 1999. The loss for the six months (5,849,226) was mostly attributed to our decision to discontinue the agency truck-load segment of our transportation business excluding intermodal. This decision resulted in us having to record certain adjustments to the related assets and liabilities of that business segment and we recorded a provision to cover the estimated operating losses expected during the period we estimate it will take to totally discontinue the operation. Further, to the extent we could estimate, we accrued our expected losses on the disposal of assets. Such adjustments amounted to $4,851,197 for the six months ended June 30, 2000. Net cash used by investing activities amounted to $628,387 for the six months ended June 30, 2000 as compared to net cash provided of $518,008 for the six months ended June 30, 1999. The net use of cash from investing activities was mainly attributable to our acquisition during the first quarter of 2000 amounting to approximately $534,000. Net cash flows provided by financing activities amounted to $7,372,408 for the six months ended June 30, 2000 as compared to net cash provided of $45,639 for the six months ended June 30, 1999. The net increase in cash flows from financing activities was mainly attributable to the fact that we issued $6,560,296 in convertible debentures, received $3,554,671 from notes receivable and was offset by payments made on long-term debt of $2,296,488. We expect to continue to acquire transportation companies that meet our cash flow and profitability criteria. We expect to fund any potential acquisitions by sale of common stock, preferred stock or the issuance of additional convertible debentures. There is no assurance that we will find additional suitable acquisitions candidates or that we can raise the required funds to complete such acquisitions. Management believes that it will be able to finance its needs for working capital, facilities improvements, and software development with cash flows from operations, borrowings under the line of credit, and the sale of debt or equity securities. Over the long term, we expect it will be required to make capital improvements that may require us to seek additional debt financing or equity capital. The availability of debt financing or equity capital will depend upon our financial condition and the results of operations as well as the prevailing market conditions, the market price of our common stock and other factors over which we have little control. 29 32 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES. In June, 2000, we issued 9,000,000 shares of common stock to Logistics Management, LLC in connection with the exchange of 900,000 shares of Series A Preferred Stock. The exchange described above was made in reliance on the exemption from registration offered by Section 4(2) of the Securities Act of 1933. We 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 our transfer records. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits have been filed with this report: 10.1 Securities Purchase Agreement with Augusta/L.O.F., LLC 10.2 $6.0 million Subordinated Convertible Debenture 10.3 Warrant to purchase 580,000 shares 10.4 Agreement relating to conversion of Series A shares 10.5 $1.7 million Promissory Note 21 Subsidiaries of the Registrant Exhibit 27 - Financial Data Schedule (b) None. 33 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. U.S. TRUCKING --------------------------------------------- Registrant August 28, 2000 By \s\ Danny L. Pixler ------------------------------------------ Danny L. Pixler Chief Executive Officer By \s\ John Ragland ------------------------------------------ John Ragland Chief Financial Officer EX-10.1 2 ex10-1.txt SECURITIES PURCHASE AGREEMENT 1 EXHIBIT 10.1 ================================================================================ SECURITIES PURCHASE AGREEMENT DATED AS OF MAY 17, 2000 BY AND BETWEEN AUGUSTA/L.O.F., LLC AND US TRUCKING, INC. ================================================================================ 2 TABLE OF CONTENTS
ARTICLE I PURCHASE AND SALE OF DEBENTURE AND WARRANT...........................1 SECTION 1.1 PURCHASE OF DEBENTURE AND WARRANT................................1 SECTION 1.2 CLOSING DATE.....................................................2 SECTION 1.3 FORM OF PAYMENT..................................................2 ARTICLE II BUYER'S REPRESENTATIONS AND WARRANTIES..............................2 SECTION 2.1 INVESTMENT PURPOSE...............................................2 SECTION 2.2 ACCREDITED INVESTOR STATUS.......................................2 SECTION 2.3 RELIANCE ON EXEMPTIONS...........................................3 SECTION 2.4 INFORMATION......................................................3 SECTION 2.5 NO GOVERNMENTAL REVIEW...........................................3 SECTION 2.6 TRANSFER OR RESALE...............................................3 SECTION 2.7 LEGENDS..........................................................4 SECTION 2.8 VALIDITY; ENFORCEMENT............................................4 SECTION 2.9 RESIDENCY........................................................4 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................5 SECTION 3.1 ORGANIZATION AND QUALIFICATION...................................5 SECTION 3.2 AUTHORIZATION; ENFORCEMENT; VALIDITY.............................5 SECTION 3.3 CAPITALIZATION...................................................5 SECTION 3.4 ISSUANCE OF SECURITIES...........................................6 SECTION 3.5 NO CONFLICTS.....................................................7 SECTION 3.6 FINANCIAL STATEMENTS.............................................7 SECTION 3.7 ABSENCE OF CERTAIN CHANGES.......................................8 SECTION 3.8 ABSENCE OF LITIGATION............................................8 SECTION 3.9 ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF SECURITIES..........8 SECTION 3.10 NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES....................................................8 SECTION 3.11 NO GENERAL SOLICITATION..........................................9 SECTION 3.12 NO INTEGRATED OFFERING...........................................9 SECTION 3.13 DILUTIVE EFFECT..................................................9 SECTION 3.14 EMPLOYEE RELATIONS...............................................9 SECTION 3.15 INTELLECTUAL PROPERTY RIGHTS....................................10 SECTION 3.16 ENVIRONMENTAL LAWS..............................................10 SECTION 3.17 TITLE; LIENS....................................................10 SECTION 3.18 INSURANCE.......................................................11 SECTION 3.19 REGULATORY PERMITS..............................................11 SECTION 3.20 INTERNAL ACCOUNTING CONTROLS....................................11 SECTION 3.21 NO MATERIALLY ADVERSE CONTRACTS, ETC............................11 SECTION 3.22 TAX STATUS......................................................11 SECTION 3.23 TRANSACTIONS WITH AFFILIATES....................................12 SECTION 3.24 APPLICATION OF TAKEOVER PROTECTIONS.............................12 SECTION 3.25 RIGHTS AGREEMENT................................................12 SECTION 3.26 FOREIGN CORRUPT PRACTICES.......................................12
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SECTION 3.27 YEAR 2000 COMPLIANCE............................................13 ARTICLE IV COVENANTS..........................................................13 SECTION 4.1 BEST EFFORTS...................................................13 SECTION 4.2 FORM D AND BLUE SKY............................................13 SECTION 4.3 REGISTRATION STATEMENT.........................................13 SECTION 4.4 REPORTING STATUS...............................................13 SECTION 4.5 USE OF PROCEEDS................................................14 SECTION 4.6 FINANCIAL INFORMATION..........................................14 SECTION 4.7 RESERVATION OF SHARES..........................................14 SECTION 4.8 ADDITIONAL FINANCING; RIGHT OF FIRST REFUSAL...................14 SECTION 4.9 LISTING........................................................15 SECTION 4.10 EXPENSES.......................................................15 SECTION 4.11 TRANSACTIONS WITH AFFILIATES...................................15 SECTION 4.12 LIMITATION ON FILING REGISTRATION STATEMENTS...................16 SECTION 4.13 LETTERS OF CREDIT..............................................16 SECTION 4.14 SECURING OF NASDAQ LISTING. ...................................16 ARTICLE V TRANSFER AGENT INSTRUCTIONS.........................................17 ARTICLE VI CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.....................17 SECTION 6.1 DELIVERY OF DOCUMENTS...........................................18 SECTION 6.2 PURCHASE PRICE..................................................18 SECTION 6.3 REPRESENTATIONS AND WARRANTIES..................................18 ARTICLE VII CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE......................18 SECTION 7.1 DELIVERY OF DOCUMENTS...........................................18 SECTION 7.2 TRADING OF COMMON STOCK.........................................18 SECTION 7.3 REPRESENTATIONS AND WARRANTIES..................................18 SECTION 7.4 OPINION.........................................................19 SECTION 7.5 DEBENTURE/WARRANT...............................................19 SECTION 7.6 BOARD APPROVAL..................................................19 SECTION 7.7 RESERVATION OF SHARES...........................................19 SECTION 7.8 TRANSFER AGENT..................................................19 SECTION 7.9 GOOD STANDING...................................................19 SECTION 7.10 OFFICER'S CERTIFICATE...........................................19 SECTION 7.11 SECURITIES LAWS.................................................19 SECTION 7.12 OTHER...........................................................20 ARTICLE VIII INDEMNIFICATION..................................................20 ARTICLE IX GOVERNING LAW; MISCELLANEOUS.......................................22 SECTION 9.1 GOVERNING LAW; JURISDICTION; JURY TRIAL........................22 SECTION 9.2 COUNTERPARTS...................................................23 SECTION 9.3 HEADINGS.......................................................23
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SECTION 9.4 SEVERABILITY...................................................23 SECTION 9.5 ENTIRE AGREEMENT; AMENDMENTS...................................23 SECTION 9.6 NOTICES........................................................23 SECTION 9.7 SUCCESSORS AND ASSIGNS.........................................25 SECTION 9.8 NO THIRD PARTY BENEFICIARIES...................................25 SECTION 9.9 SURVIVAL.......................................................25 SECTION 9.10 PUBLICITY......................................................25 SECTION 9.11 FURTHER ASSURANCES.............................................25 SECTION 9.12 TERMINATION....................................................26 SECTION 9.13 KNOWLEDGE......................................................26 SECTION 9.14 NO STRICT CONSTRUCTION.........................................26 SECTION 9.15 REMEDIES.......................................................26 SECTION 9.16 PAYMENT SET ASIDE..............................................26
SCHEDULES SCHEDULE 3.1 Subsidiaries SCHEDULE 3.3 Capitalization SCHEDULE 3.3(i) Preemptive Rights SCHEDULE 3.3(ii) Debt Securities SCHEDULE 3.3(iii) Convertible Securities and Warrants Outstanding SCHEDULE 3.3(iv) Registration Rights SCHEDULE 3.3(v) Securities Subject to Redemption SCHEDULE 3.3(vi) Anti-Dilution Triggered SCHEDULE 3.3(vii) SAR and Phantom Stock Rights SCHEDULE 3.5 Conflicts SCHEDULE 3.7 Material Changes SCHEDULE 3.8 Litigation SCHEDULE 3.15 Intellectual Property SCHEDULE 3.17 Title; Liens SCHEDULE 3.23 Transactions with Affiliates SCHEDULE 4.8 Additional Financing; Right of First Refusal SCHEDULE 4.11 Transactions With Affiliates EXHIBITS EXHIBIT A Form of Debenture EXHIBIT B Form of Warrant EXHIBIT C Form of Registration Rights Agreement EXHIBIT D Form of Letter of Credit EXHIBIT E Form of Officer's Certificate EXHIBIT F Form of Company Counsel Opinion EXHIBIT G Form of Irrevocable Transfer Agent Instructions 5 GLOSSARY OF DEFINED TERMS
1933 Act....................................................................1 Affiliate..................................................................16 Agreement...................................................................1 Business Day................................................................2 Buyer Indemnified Parties..................................................20 Buyer Losses...............................................................20 By-laws.....................................................................6 Certificate of Incorporation................................................6 Closing.....................................................................1 Closing Date................................................................2 Common Stock................................................................1 Company Indemnified Parties................................................20 Company Losses.............................................................21 Control....................................................................16 Conversion Shares...........................................................1 Debenture...................................................................1 Environmental Laws.........................................................10 Financial Statements........................................................7 GAAP........................................................................7 Indemnified Parties........................................................20 Indemnifying Party.........................................................21 Irrevocable Transfer Agent Instructions....................................17 knowledge..................................................................26 Losses.....................................................................21 Material Adverse Effect.....................................................5 Principal Market...........................................................15 Purchase Price..............................................................2 Registration Period........................................................14 Registration Rights Agreement...............................................1 Regulation D................................................................1 Related Party..............................................................15 Rule 144....................................................................3 SEC.........................................................................1 Securities..................................................................2 Subsidiaries................................................................5 Transaction Documents.......................................................5 Warrant.....................................................................1 Warrant Shares..............................................................1
6 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of May 17, 2000, by and between AUGUSTA/L.O.F., LLC, A Cayman Islands limited liability company (the "Buyer") and US TRUCKING, INC., a Colorado corporation, with its principal executive office located at 10602 Timberwood Circle #9 Louisville, KY 40223, (the "Company"). RECITALS WHEREAS, the Company and Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended and the rules and regulations of the SEC promulgated thereunder (the "1933 Act"); WHEREAS, the Company has authorized the issuance of a $6,000,000 11.5% Subordinated Convertible Debenture, which shall be convertible into shares of the Company's common stock, no par value per share (the "Common Stock") (as converted, the "Conversion Shares"), in accordance with the terms of the Subordinated Convertible Debenture, substantially in the form attached hereto as EXHIBIT A (the "Debenture"); WHEREAS, the Company has authorized the issuance of stock purchase warrants, in substantially the form attached hereto as EXHIBIT B (the "Warrant"), to purchase an aggregate of up to 580,000 shares of Common Stock at certain exercise prices as described therein (as exercised, collectively, the "Warrant Shares"); and WHEREAS, Buyer desires to purchase, and the Company desires to issue and deliver to Buyer, the Debenture and the Warrant, all upon the terms and conditions stated in this Agreement; WHEREAS, upon the closing of the transactions contemplated by this Agreement, the parties hereto will execute and deliver a Registration Rights Agreement, in substantially the form attached hereto as EXHIBIT C (the "Registration Rights Agreement") pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act and applicable state securities laws. NOW THEREFORE, in consideration of the mutual covenants of the parties set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Buyer hereby agree as follows: ARTICLE I PURCHASE AND SALE OF DEBENTURE AND WARRANT SECTION 1.1 PURCHASE OF DEBENTURE AND WARRANT. Subject to the satisfaction (or waiver) of the conditions set forth in Article 6 and Article 7 below, the Company shall issue and sell to Buyer, and Buyer agrees to purchase from the Company, the Debenture and the Warrant at the Closing (the "Closing"). The aggregate 7 purchase price (the "Purchase Price") for the Debenture and the Warrant at the Closing shall be $6,000,000. SECTION 1.2 CLOSING DATE. The date and time of the Closing (the "Closing Date") shall occur, subject to notification of satisfaction (or waiver) of the conditions to the Closing set forth in Article 6 and Article 7 hereof, on March 20, 2000 or such other date as is mutually agreed to by the Company and the Buyer. The Closing shall occur on the Closing Date at the offices of [US Trucking in Louisville, KY]. SECTION 1.3 FORM OF PAYMENT. On the Closing Date, (i) Buyer shall pay the Purchase Price to the Company for the Debenture and the Warrant, less costs and expenses as described in SECTION 4.10, by wire transfer of immediately available funds in accordance with the Company's written wire instructions, as delivered to the Buyer within two Business Days prior to the Closing, and (ii) the Company shall deliver to Buyer, the Debenture and the Warrant hereunder, duly executed on behalf of the Company and registered in the name of Buyer or its designee. "Business Day" shall mean any day other than a Saturday or Sunday or a day on which commercial banks in the City of Chicago, Illinois are authorized or required by law or executive order to remain closed. ARTICLE II BUYER'S REPRESENTATIONS AND WARRANTIES Buyer hereby represents and warrants to the Company that: SECTION 2.1 INVESTMENT PURPOSE. Buyer (i) is acquiring the Debenture and the Warrant, (ii) upon conversion of the Debenture, will acquire the Conversion Shares then issuable, and (iii) upon exercise of the Warrant, will acquire the Warrant Shares issuable upon exercise thereof (the Debenture, the Conversion Shares, the Warrant and the Warrant Shares collectively are referred to herein as the "Securities"), for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by making the representations herein, Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. SECTION 2.2 ACCREDITED INVESTOR STATUS. Buyer is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D. 2 8 SECTION 2.3 RELIANCE ON EXEMPTIONS. Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of Buyer to acquire such Securities. SECTION 2.4 INFORMATION. Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by Buyer. Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigations conducted by Buyer or its advisors, if any, or its representatives shall modify, amend or affect Buyer's right to rely on the Company's representations and warranties as set forth herein. Buyer understands that its investment in the Securities involves a high degree of risk. Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. SECTION 2.5 NO GOVERNMENTAL REVIEW. Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. SECTION 2.6 TRANSFER OR RESALE. Buyer understands that except as provided in the Registration Rights Agreement: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) Buyer shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) Buyer provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act, as amended (or a successor rule thereto) ("Rule 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. 3 9 SECTION 2.7 LEGENDS. Buyer understands that the certificates or other instruments representing the Debenture and the Warrant and, until such time as the sale of the Conversion Shares and the Warrant Shares have been registered under the 1933 Act as contemplated by the Registration Rights Agreement, the stock certificates representing the Conversion Shares and the Warrant Shares, except as set forth below, shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Securities upon which it is stamped, if, unless otherwise required by state securities laws, (i) such Securities are registered for sale under the 1933 Act, (ii) in connection with a sale transaction, such holder provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment or transfer of the Securities may be made without registration under the 1933 Act, or (iii) such holder provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144. SECTION 2.8 VALIDITY; ENFORCEMENT. This Agreement has been duly and validly authorized, executed and delivered on behalf of Buyer and is a valid and binding agreement of Buyer enforceable against Buyer in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. SECTION 2.9 RESIDENCY. Buyer is a resident of Cayman Islands. 4 10 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Buyer that: SECTION 3.1 ORGANIZATION AND QUALIFICATION. The Company and each of its "Subsidiaries" (which for purposes of this Agreement means any entity in which the Company, directly or indirectly, owns capital stock or holds an equity or similar interest) are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power and authorization to own their properties and to carry on their business as now being conducted. Each of the Company and its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, "Material Adverse Effect" means any material adverse effect on the business, properties, assets, operations, results or operations, financial condition or prospects of the Company and any of its Subsidiaries, taken as a whole, or on the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith, or on the authority or ability of the Company to perform its obligations under the Transaction Documents (as defined below). The Company has no Subsidiaries except as set forth on SCHEDULE 3.1. SECTION 3.2 AUTHORIZATION; ENFORCEMENT; VALIDITY. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Debenture, the Warrant, the Registration Rights Agreement, its obligations pursuant to the Irrevocable Transfer Agent Instructions (as defined in Article 5), and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement (collectively, the "Transaction Documents"), and to issue the Securities in accordance with the terms hereof and thereof; (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including, without limitation the issuance of the Debenture and the Warrant, and the reservation for issuance and the issuance of the Conversion Shares and the Warrant Shares issuable upon conversion or exercise thereof, have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders; (iii) the Transaction Documents have been duly executed and delivered by the Company; and (iv) the Transaction Documents constitute the valid and binding obligation of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. SECTION 3.3 CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company consists of (i) 75,000,000 shares of Common Stock, of which as of the date hereof, 17,280,058 shares are issued 5 11 and outstanding, 7,997,297 shares of which are contingently issued in connection with loans, 2,500,000 shares are reserved for issuance pursuant to the Company's stock option and purchase plans and (ii) 10,000,000 shares of preferred stock, of which as of the date hereof, 999,000 shares designated as Series A Preferred, 2,000 Series B Preferred, 50,000 shares Series C Preferred, 950 shares Series D Preferred, and 2,300 shares Series E Preferred. All of such outstanding shares have been, or upon issuance will be, validly issued and are fully paid and nonassessable. Except as disclosed on SCHEDULE 3.3, (i) no shares of the Company's capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company, (ii) there are no outstanding debt securities, (iii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, (iv) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except the Registration Rights Agreement), (v) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries, (vi) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities as described in this Agreement, and (vii) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement. The Company has furnished to the Buyer true and correct copies of the Company's Certificate of Incorporation, as amended and as in effect on the date hereof (the "Certificate of Incorporation"), and the Company's By-laws, as amended and as in effect on the date hereof (the "By-laws"), and the terms of all securities convertible into or exercisable for Common Stock and the rights of the holders thereof in respect thereto. SECTION 3.4 ISSUANCE OF SECURITIES. Upon issuance, the Debenture and the Warrant will be, and upon conversion or exercise in accordance with the Debenture or the Warrant, as the case may be, the Conversion Shares and the Warrant Shares will be, validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. At least 3,853,000 shares of Common Stock (subject to adjustment pursuant to the Company's covenant set forth in SECTION 4.6 below) have been duly authorized and reserved for issuance upon conversion of the Debenture and upon exercise of the Warrant. Provided that the representations and warranties of the Buyer set forth in Sections 2.1 and 2.2 are true and correct when made and as of the Closing, issuance by the Company of the Securities will be and is exempt from registration under the provisions of Rule 506 as promulgated under the 1933 Act. 6 12 SECTION 3.5 NO CONFLICTS. Except as disclosed on SCHEDULE 3.5, the execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the reservation for issuance and issuance of the Conversion Shares and the Warrant Shares) will not (i) result in a violation of the Certificate of Incorporation or the By-laws or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Except as disclosed on SCHEDULE 3.5, neither the Company nor its Subsidiaries is in violation of any term of or in default under its Certificate of Incorporation or By-laws or organizational charter. Except as disclosed on SCHEDULE 3.5, neither the Company nor any of its Subsidiaries is in violation of any material term of or in default under any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to Company or its Subsidiaries. The business of the Company and its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law, ordinance, regulation of any governmental entity except where such violation would not have a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the 1933 Act or applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement or any other of the Transaction Documents, in each case in accordance with the terms hereof or thereof. Except as disclosed on SCHEDULE 3.5, all consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. SECTION 3.6 FINANCIAL STATEMENTS. The Company's balance sheet and statements of income and cash flows for the fiscal years ended December 31, 1999 and 1998, and the Company's balance sheet as of December 31, 1999 and the related statement of income for the period then ended (all such financial statements being hereinafter referred to as the "Financial Statements") each of which has been previously delivered to the Buyer, have been prepared in accordance with United States generally accepted accounting principles, consistently applied ("GAAP"), during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes, may be condensed or summary statements or may be subject to normal year-end adjustments or accruals consistent with past practice) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments or accruals consistent with past practice). No other 7 13 information provided by or on behalf of the Company to the Buyer which is not included in the Financial Statements, including, without limitation, information referred to in SECTION 2.4 of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. SECTION 3.7 ABSENCE OF CERTAIN CHANGES. Except as disclosed on SCHEDULE 3.7, since December 31, 1999 there has been no Material Adverse change and no Material Adverse development in the business, properties, operations, financial condition, results of operations or prospects of the Company or its Subsidiaries. The Board of Directors of the Company has not discussed, and the Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings. SECTION 3.8 ABSENCE OF LITIGATION. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company, the Common Stock or any of the Company's Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or directors in their capacities as such, except as set forth in SCHEDULE 3.8. SECTION 3.9 ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF SECURITIES. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm's length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby and any advice given by Buyer or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to Buyer's purchase of the Securities. The Company further represents to Buyer that the Company's decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives. SECTION 3.10 NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. No event, liability, development or circumstance has occurred or exists, or is contemplated to occur, with respect to the Company or its Subsidiaries or their respective business, properties, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced. 8 14 SECTION 3.11 NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities. SECTION 3.12 NO INTEGRATED OFFERING. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated, nor will the Company or any of its Subsidiaries take any action or steps that would require registration of any of the Securities under the 1933 Act or cause the offering of the Securities to be integrated with other offerings that would require such registration. SECTION 3.13 DILUTIVE EFFECT. The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Debenture or Warrant Shares issuable upon exercise of the Warrant will increase in certain circumstances. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Debenture in accordance with this Agreement and the Debenture and its obligation to issue the Warrant Shares upon exercise of the Warrant in accordance with this Agreement and the Warrant, is, in each case, absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. SECTION 3.14 EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened. None of the Company's or its Subsidiaries' employees is a member of a union, neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relations with their employees are good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer's employment with the Company. No executive officer, to the best knowledge of the Company and its Subsidiaries, is, or is now expected to be, in violation of any term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. 9 15 SECTION 3.15 INTELLECTUAL PROPERTY RIGHTS. To the knowledge of the Company and its Subsidiaries, the Company and its Subsidiaries own or possess adequate rights or licenses to use all material trademarks, trade names, service names, service marks, service mark registrations, service names, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted except as set forth on SCHEDULE 3.15. Except as set forth on SCHEDULE 3.15, none of the Company's material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights have expired or terminated, or are expected to expire or terminate within two years from the date of this Agreement. The Company and its Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and, except as set forth on SCHEDULE 3.15, there is no claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its Subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement, and the Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. SECTION 3.16 ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval where, in each of the three foregoing cases, the failure to so comply would have, individually or in the aggregate, a Material Adverse Effect. SECTION 3.17 TITLE; LIENS. The Company and its Subsidiaries have good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in SCHEDULE 3.17 or such as do not have a Material Adverse effect on the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries. The Company and its Subsidiaries do not own any real property. Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries. 10 16 SECTION 3.18 INSURANCE. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse effect on the condition, financial or otherwise, or the earnings, business or operations of the Company and its Subsidiaries, taken as a whole. SECTION 3.19 REGULATORY PERMITS. The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. SECTION 3.20 INTERNAL ACCOUNTING CONTROLS. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. SECTION 3.21 NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company's officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company's officers has or is expected to have a Material Adverse Effect. SECTION 3.22 TAX STATUS. The Company and each of its Subsidiaries has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books reserves reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except 11 17 those being contested in good faith and has set aside on its books reserves reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. SECTION 3.23 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE 3.23 and other than the grant of stock options disclosed on SCHEDULE 3.3, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for the rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. SECTION 3.24 APPLICATION OF TAKEOVER PROTECTIONS. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation or the laws of the state of the Company's incorporation and such other state, to the extent allowed under such state law, if any, where the Company conducts its principal operation which is or could become applicable to the Buyer as a result of the transactions contemplated by this Agreement, including, without limitation, the Company's issuance of the Securities and Buyer's ownership of the Securities. SECTION 3.25 RIGHTS AGREEMENT. The Company has not adopted a shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company. SECTION 3.26 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company or any of its Subsidiaries used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. 12 18 SECTION 3.27 YEAR 2000 COMPLIANCE. The Company has initiated a review and assessment of all areas within its and each Subsidiaries' business and operations that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by the Company or any of the Subsidiaries may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to, and any date after, December 31, 1999). Based on the foregoing, the Company believes that all of its and its Subsidiaries' computer applications are reasonably expected to 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 would not reasonably be expected to have a Material Adverse Effect. ARTICLE IV COVENANTS SECTION 4.1 BEST EFFORTS. Each party to this Agreement shall use its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Article 6 and Article 7 of this Agreement. SECTION 4.2 FORM D AND BLUE SKY. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Securities for sale to the Buyer at the Closing pursuant to this Agreement under applicable securities or "Blue Sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the Buyer on or prior to the Closing Date. The Company shall make all filings and reports relating the offer and sale of the Securities required under applicable securities or "Blue Sky" laws of the states of the United States following the Closing Date. SECTION 4.3 REGISTRATION STATEMENT. As soon as practicable but in no event later than sixty (60) days after the Closing Date, the Company shall prepare, and file with the SEC a Registration Statement or Registration Statements (as is necessary) on Form SB-2 covering the resale of the conversion Shares and the Warrant Shares. SECTION 4.4 REPORTING STATUS. Until the earlier of (i) the date which is one year after the date as of which the Investors (as that term is defined in the Registration Rights Agreement) may sell all of the Conversion Shares and the Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto), or (ii) the date on which (A) the Investors shall have sold all the Conversion Shares and the Warrant Shares and (B) no amounts under the Debenture are due and owing and no Warrants are outstanding (the "Registration Period"), the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company 13 19 shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act would otherwise permit such termination. SECTION 4.5 USE OF PROCEEDS. The Company will use the proceeds from the sale of the Debenture and the related Warrant for repayment of certain indebtedness to [GE CAPTIAL], and the balance for general corporate purposes, as determined by the Company. SECTION 4.6 FINANCIAL INFORMATION. The Company agrees to send the following to each Buyer (and their permitted transferees, if any) during the Registration Period: (i) within two (2) days after the filing thereof with the SEC, a notice of filing its Annual Report on Form 10-KSB (or other required form), its Quarterly Reports on Form 10-QSB (or other required form), any Current Reports on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act; provided, that if any such report is not filed with the SEC through EDGAR then the Company shall deliver a copy of such report to Buyer by facsimile within two days after such report is filed with the SEC; and (ii) copies of any notices and other information made available or given to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders. SECTION 4.7 RESERVATION OF SHARES. At the Closing, the Company shall take all action necessary to have authorized, and reserved for the purpose of issuance, no less than 150% of the number of shares of Common Stock needed to provide for the issuance of the shares of Common Stock upon conversion of the Debenture and 100% of the number of shares of Common Stock needed to provide for the issuance of the shares of Common Stock upon exercise of the entire Warrant. Following the Closing Date, the Company shall take all actions necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 130% of the number of shares of Common Stock needed to provide for the issuance of the shares of Common Stock upon conversion of the Debenture and 100% of the shares of Common Stock needed to provide for the issuance of the shares of Common Stock upon exercise of the entire Warrant. SECTION 4.8 ADDITIONAL FINANCING; RIGHT OF FIRST REFUSAL. (a) Except for the debentures issued to Thomson Kernaghan & Co., Ltd, as nominee, under a letter agreement dated May 9, 1999, any debt secured by receivables, and any debt incurred with an acquisition or merger, the Company agrees that during the period beginning on the date hereof and ending on the date that no amounts are due and owing under the Debenture, neither the Company nor its Subsidiaries will authorize, create, issue, negotiate or contract with any party to issue (i) any variable-priced debt financing with an equity component, or (ii) any form of variable priced securities convertible into or exchangeable for or having option rights to purchase, any shares of stock of the Company or any Subsidiary. (b) While there is a principal amount outstanding on the Debenture, Company shall not create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, 14 20 assume or suffer to exist, any debt other than (i) the Debenture, (ii) debt secured by purchase money encumbrances and (iii) additional debt not to exceed $500,000 in the aggregate. (c) The Holder shall have a right of first refusal for a period 24 months from the purchase of the Debenture, to participate, in whole or in part, in all financings of the Company, through wither equity or debt, excluding any underwritten offering conducted by [OPCO]. (d) The Buyer has the unilateral right, and any time, to provide the funds necessary to prepay the DeepHaven Private Placement Trading Co.'s Promissory Note dated October 20, 1999 according and subject to its terms, by purchasing a new debenture on terms substantially similar to those of this Debenture. SECTION 4.9 LISTING. The Company shall use its best efforts to promptly secure the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) on the NASDAQ Small Cap Market or other comparable national exchange or trading market (the "Principal Market") (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Registrable Securities from time to time issuable under the terms of the Transaction Documents. The Company shall promptly solicit stockholder approval of the Company's issuance of all of the Securities described in this Agreement, if such approval will facilitate prompt listing of the Registrable Securities on the Principal Market. Upon such listing on the Principal Market neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market. The Company shall promptly, and in no event later than the following Business Day, provide to Buyer copies of any notices it receives from the Principal Market regarding any continued eligibility of the Common Stock for listing on such automated quotation system or securities exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this SECTION 4.9. SECTION 4.10 EXPENSES. At the Closing, the Company shall pay to JE Matthew, LLC, a fee equal to $75,000, net of any previous deposits made by Company. SECTION 4.11 TRANSACTIONS WITH AFFILIATES. So long as any amounts under the Debenture are outstanding (but no later than such time as all amounts have become convertible), the Company shall not, and shall cause each of its subsidiaries not to, enter into, amend, modify or supplement, or permit any subsidiary to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement with any of its or any subsidiary's officers, directors, persons who were officers or directors at any time during the previous two years, stockholders who beneficially own 5% or more of the Common Stock, or affiliates or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such entity or individual owns a 5% or more beneficial interest (each a "Related Party"), except for (a) customary employment arrangements and benefit programs on reasonable terms; (b) any agreement, transaction, commitment or arrangement on an arms-length basis on terms no less favorable than terms 15 21 which would have been obtainable from a person other than such Related Party; (c) any agreement, transaction, commitment or arrangement which is approved by a majority of the disinterested directors of the Company; (d) existing agreements identified on SCHEDULE 4.11 or (e) transactions involving payments or amounts individually not in excess of $100,000 or in the aggregate in excess of $500,000 in any one-year period. For purposes hereof, any director who is also an officer of the Company or any subsidiary of the Company shall not be a disinterested director with respect to any such agreement, transaction, commitment or arrangement. "Affiliate" or "affiliate" for purposes hereof means, with respect to any person or entity, another person or entity that, directly or indirectly, (i) has a 5% or more equity interest in that person or entity, (ii) has 5% or more common ownership with that person or entity, (iii) controls that person or entity, or (iv) shares common control with that person or entity. "Control" or "controls" for purposes hereof means that a person or entity has the power, direct or indirect, to conduct or govern the policies of another person or entity. SECTION 4.12 LIMITATION ON FILING REGISTRATION STATEMENTS. Except in connection with existing registration obligations set forth on SCHEDULE 3.3(iv), registration obligations set forth herein or in the Registration Rights Agreement, or with respect to any private common equity or warrants offerings conducted by [OPCO], the Company shall not file a registration statement (other than the Registration Statement (as defined in the Registration Rights Agreement) or a registration statement on Form S-4 or Form S-8) covering the sale or resale of shares of Common Stock with the SEC during the term of the Debenture. SECTION 4.13 LETTERS OF CREDIT. The Company covenants and agrees that so long as any amounts are outstanding under the Debenture, it will procure an irrevocable Letter of Credit in an amount equal to $3,000,000 and maintain an irrevocable Letter of Credit in an amount equal to the lesser of $3,000,000 or 50% of the outstanding principal balance of the Debenture, as calculated from time to time, for the benefit of Buyer, and which Letter of Credit has been issued by a bank satisfactory to Buyer in its sole discretion and in the form attached hereto as EXHIBIT D. The Letter of Credit shall be maintained thereafter in an amount equal to 50% of the principal balance of the Debenture. The Company further covenants and agrees that upon any Event of Default (as defined in the Debenture) under the Debenture, Buyer shall be permitted to pursue any and all remedies available to Buyer as the beneficiary of such Letter of Credit, without regard to amounts and penalties which may otherwise be due and owing to Buyer under the terms of such Debenture, or any other remedies available to Buyer as a result of such Event of Default, whether pursuant to such Debenture, this Agreement or otherwise. In the event of a Prepayment under the Debenture, the Company shall be entitled to apply the balance under the Letter of Credit. SECTION 4.14 SECURING OF NASDAQ LISTING The Company shall be required to qualify for and obtain a listing of its Common Stock on the NASDAQ Small Cap Market within 180 days of the purchase of the Debenture. If the Company is unsuccessful in obtaining such a listing within the stated period, the Hoder shall immediately receive an additional 100,000 warrants (the "Penalty Warrants") a form of which is included in Exhibit B. 16 22 ARTICLE V TRANSFER AGENT INSTRUCTIONS The Company shall issue irrevocable instructions to its transfer agent, and any subsequent transfer agent, to issue certificates, registered in the name of Buyer or its respective nominee(s), for the Conversion Shares and the Warrant Shares in such amounts as specified from time to time by the Buyer to the Company upon conversion of amounts outstanding under the Debenture or exercise of the Warrant (the "Irrevocable Transfer Agent Instructions"). Prior to registration of the Conversion Shares and the Warrant Shares under the 1933 Act, all such certificates shall bear the restrictive legend specified in SECTION 2.7 of this Agreement. Upon such registration of the Common Shares and the Warrant Shares under the 1933 Act, the Company shall promptly notify the transfer agent that any Common Shares and Warrant Shares issued and subject to resale pursuant to the Registration Statement after the effective date of such Registration Statement shall be issued without such restrictive legend. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Article 5, and stop transfer instructions to give effect to SECTION 2.6 hereof (in the case of the Conversion Shares and the Warrant Shares, prior to registration of the Conversion Shares and the Warrant Shares under the 1933 Act) will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement. Nothing in this Article 5 shall affect in any way the Buyer's obligations and agreements set forth in SECTION 2.7 to comply with all applicable prospectus delivery requirements, if any, upon resale of the Securities. If the Buyer provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment or transfer of the Securities may be made without registration under the 1933 Act or the Buyer provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Conversion Shares and the Warrant Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by Buyer and without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Article 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Article 5, that the Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. ARTICLE VI CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL The obligation of the Company hereunder to issue and sell the Debenture and the Warrant to the Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing Buyer with prior written notice thereof: 17 23 SECTION 6.1 DELIVERY OF DOCUMENTS. The Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company. SECTION 6.2 PURCHASE PRICE. The Buyer shall have delivered to the Company the Purchase Price for the Debenture and the Warrant being purchased by the Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company. SECTION 6.3 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer on or prior to the Closing Date. ARTICLE VII CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE The obligation of the Buyer hereunder to purchase the Debenture and the Warrant at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for Buyer's sole benefit and may be waived by the Buyer at any time in its sole discretion by providing the Company with prior written notice thereof: SECTION 7.1 DELIVERY OF DOCUMENTS. The Company shall have executed each of the Transaction Documents and delivered the same to the Buyer. SECTION 7.2 TRADING OF COMMON STOCK. The Common Stock shall be quoted on the OTC Bulletin Board. SECTION 7.3 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company on or prior to the Closing Date. The Buyer shall have received a certificate, executed by each of the Chief Executive Officer and the Chief Financial Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the 18 24 Buyer including, without limitation, an update as of the Closing Date regarding the representation contained in SECTION 3.3 above, in the form attached hereto as EXHIBIT E. SECTION 7.4 OPINION. The Buyer shall have received the opinion of the Company's counsel dated as of the Closing Date, in form, scope and substance reasonably satisfactory to the Buyer and in substantially the form of EXHIBIT F attached hereto. SECTION 7.5 DEBENTURE/WARRANT. The Company shall have executed and delivered to the Buyer the Debenture and the Warrant being purchased by the Buyer at the Closing. SECTION 7.6 BOARD APPROVAL. The Board of Directors of the Company shall have adopted resolutions consistent with SECTION 3.2 above and in a form reasonably acceptable to the Buyer. SECTION 7.7 RESERVATION OF SHARES. As of the Closing Date, the Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Debenture and the exercise of the Warrant, at least 3,853,000 shares of Common Stock. SECTION 7.8 TRANSFER AGENT. The Irrevocable Transfer Agent Instructions, in the form of EXHIBIT G attached hereto, shall have been delivered to and acknowledged in writing by the Company's transfer agent. SECTION 7.9 GOOD STANDING. The Company shall have delivered to the Buyer a certified copy of the Certificate of Incorporation and a certificate of good standing of the Company and each Subsidiary, in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within 10 days of the Closing Date. SECTION 7.10 OFFICER'S CERTIFICATE. The Company shall have delivered to the Buyer a secretary's certificate, dated as the Closing Date, as to (i) the resolutions described in SECTION 7.6, and (ii) the Bylaws, each as in effect at the Closing. SECTION 7.11 SECURITIES LAWS. The Company shall have made all filings under all applicable federal and state securities laws necessary to consummate the issuance of the Securities pursuant to this Agreement in compliance with such laws. 19 25 SECTION 7.12 OTHER. The Company shall have delivered to the Buyer such other documents relating to the transactions contemplated by this Agreement as the Buyer or its counsel may reasonably request. ARTICLE VIII INDEMNIFICATION (a) In consideration of the Buyer's execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company's other obligations under the Transaction Documents, and in addition to any other rights the Buyer may have at law or in equity, the Company shall defend, protect, indemnify and hold harmless the Buyer each subsequent holder of the Securities, and their respective affiliates, stockholders, officers, directors, employees, direct or indirect investors and any of the foregoing persons' agents, representatives, successors and permitted assigns (including, without limitation, those retained in connection with the transactions contemplated by this Agreement (collectively, the "Buyer Indemnified Parties")from and against any and all actions, causes of action, suits, claims, losses (including, without limitation, diminutions in value), costs, penalties, deficiencies, fees, liabilities, expenses and damages, and expenses in connection therewith (irrespective of whether any such Buyer Indemnified Party is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "Buyer Losses"), incurred by any Buyer Indemnified Party as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) without duplication of clause (a), any misrepresentation in or omission from any of the representations or warranties contained in the Transaction Documents, or any of the Schedules thereto, or any of the certificates or other documents furnished to the Buyer by the Company and contemplated by the Transaction Documents; (c) any nonfulfillment or breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby; (c) any action, demand, proceeding, investigation or claim by any third party (including, without limitation, governmental agencies) against or affecting the Company and/or its Affiliates or Subsidiaries which, if successful, would give rise to or evidence the existence of or relate to a breach of (A) any of the representations or warranties at the time made or (B) covenants of the Company; (d) any cause of action, suit or claim brought or made against such Indemnified Party and arising out of or resulting from the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby; (e) any transaction financed or to be financed, in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities or (f) the status of the Buyer or such other holder of the Securities as an investor in the Company. (b) The Buyer shall defend, protect, indemnify and hold harmless the Company and its Subsidiaries (collectively, the "Company Indemnified Parties" and together with the Buyer Indemnified Parties, the "Indemnified Parties")from and against any and all actions, causes of action, suits, claims, losses (including, without limitation, diminutions in value), costs, 20 26 penalties, deficiencies, fees, liabilities, expenses and damages, and expenses in connection therewith (irrespective of whether any such Company Indemnified Party is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "Company Losses", and together with the Buyer Losses, the "Losses"), incurred by any Company Indemnified Party as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Buyer in ARTICLE II hereof, or (b) any nonfulfillment or breach of any covenant, agreement or obligation of the Buyer contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (c) Notwithstanding the foregoing, and subject to the following sentence, upon judicial determination, which is final and no longer appealable, that the act or omission giving rise to the indemnification hereinabove provided resulted primarily out of or was based primarily upon an Indemnified Party's gross negligence, fraud or willful misconduct (unless such action was based upon such Indemnified Party's reliance in good faith upon any of the representations, warranties, covenants or promises made by the other party herein) by such Indemnified Party, the party being required to indemnify the Indemnified Party (such indemnifying party, the "Indemnifying Party") shall not be responsible for any Indemnified Liabilities sought to be indemnified in connection therewith, and the Indemnifying Party shall be entitled to recover from the Indemnified Party all amounts previously paid in full or partial satisfaction of such indemnity, together with all costs and expenses of the Indemnifying Party reasonably incurred in effecting such recovery, if any. (d) All indemnification rights hereunder shall survive the execution and delivery of the Transaction Documents and the consummation of the transactions contemplated herein and therein indefinitely, regardless of any investigation, inquiry or examination made for or on behalf of, or any knowledge of the Buyer and/or any of the other Indemnified Parties or the acceptance by the Buyer of any certificate or opinion. (e) If for any reason the indemnity provided for in this ARTICLE VIII is unavailable to any Indemnified Party or is insufficient to hold each such Indemnified Party harmless from all such Indemnified Liabilities arising with respect to the transactions contemplated by the Transaction Documents, then the Indemnifying Party and the Indemnified Party shall each contribute to the amount paid or payable by such Indemnified Liability in such proportion as is appropriate to reflect not only the relative benefits received by the Indemnifying Party on the one hand and such Indemnified Party on the other but also the relative fault of the Indemnifying Party and the Indemnified Party as well as any relevant equitable considerations. In addition, the Indemnifying Party agrees to reimburse any Indemnified Party upon demand for all reasonable expenses (including legal counsel fees) incurred by such Indemnified Party or any such other person in connection with investigating, preparing or defending any such action or claim. The indemnity, contribution and expense reimbursement obligations that the Indemnifying Party has under this ARTICLE VIII shall be in addition to any liability that the Indemnifying Party may otherwise have. The parties further agree that the indemnification and reimbursement commitments set forth in this Agreement shall apply whether or not the Indemnified Party is a formal party to any such lawsuits, claims or other proceedings. 21 27 (f) Any indemnification of any Indemnified Party pursuant to this ARTICLE VIII shall be effected by wire transfer of immediately available funds from the Indemnifying Party to an account designated by the Indemnified Party within [fifteen (15)] days after the determination thereof. (g) An Indemnifying Party shall be liable to the Indemnified Party for any Losses only if the Indemnified Party delivers to the Indemnifying Party written notice, setting forth in reasonable detail the identity, nature and amount of Losses related to such claim or claims no later than [ninety (90)] days after any such Loss has arisen, in which case the Indemnifying Party shall be obligated to indemnify the Indemnified Party. An Indemnified Party's failure to provide the detail required by the preceding sentence shall not constitute either a breach of this Agreement by the Indemnified Party or any basis for the Indemnifying Party to assert that the Indemnified Party did not comply with the terms of this ARTICLE VIII sufficient to cause the Indemnified Party to have waived its rights under this ARTICLE VIII, unless the Indemnifying Party demonstrates that its ability to defend against any claims with respect thereto has been materially adversely affected. ARTICLE IX GOVERNING LAW; MISCELLANEOUS SECTION 9.1 GOVERNING LAW; JURISDICTION; JURY TRIAL. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the City of Chicago, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. 22 28 SECTION 9.2 COUNTERPARTS. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. SECTION 9.3 HEADINGS. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. SECTION 9.4 SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. SECTION 9.5 ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior oral or written agreements between the Buyer, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Buyer, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. SECTION 9.6 NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon actual receipt, when delivered personally; (ii) upon actual receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: US TRUCKING, INC. 10602 Timberwood Circle, #9 Louisville, KY 40223 Telephone: 502.334.4000 Facsimile: 502.412.8200 23 29 Attention: Anthony Huff With a copy to: Jud Wagenseller 2107 Bainbridge Row Dr. Louisville, KY 40207 Telephone: 502.899.5108 Facsimile: 502.899 5109 Attention: Jud Wagenseller If to the Transfer Agent: Corporate Stock Transfer 3200 Cherry Creek Dr. South Suite 430, Burton, CO 80209 Telephone: 303.282.4800 Facsimile: 303.282.5800 Attention: Carylyn Bell If to the Buyer: Augusta/L.O.F., LLC 600 Central Avenue Suite 214 Highland Park, Illinois 60035 Telephone: (847)681-8600 Facsimile: (847)681-1541 Attention: Howard Spivack With a copy to: Pedersen & Houpt 161 N Clark St Suite 3100 Chicago, IL 60601-3224 Telephone: (312) 261-2112 Facsimile: (312) 641-6895 Attention: John Muehlstein, Esq. or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five days prior to the effectiveness of such change. 24 30 SECTION 9.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Buyer (if Buyer has not assigned all of its rights hereunder) and Buyer's permitted assigns, if any, including by merger, consolidation or reorganization, except pursuant to a Special Event, merger, consolidation or reorganization (as defined in SECTION 2(b)(ii) of the Debenture) with respect to which the Company has satisfied its obligations under SECTION 2 of the Debenture. Buyer may assign all or any part of its rights hereunder to any affiliate of Buyer or to any lender used by Buyer to finance the transactions contemplated hereby, without the consent of the Company; provided, however, that any such assignment shall not release the Buyer from its obligations hereunder unless such obligations are assumed by such assignee and the Company has consented to such assignment and assumption. Notwithstanding anything to the contrary contained in the Transaction Documents, Buyer shall be entitled to pledge the Securities in connection with a bona fide margin account or to any lender used by Buyer to finance the transactions contemplated hereby. SECTION 9.8 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. SECTION 9.9 SURVIVAL. Unless this Agreement is terminated under SECTION 9.12, the representations and warranties of the Company and the Buyer contained in Articles 2 and 3, the agreements and covenants set forth in Article 9, and the indemnification provisions set forth in Article 8 shall survive the Closing for the period that the Debenture remains outstanding, and the agreements and covenants set forth in Articles 4 and 5 shall survive the Closing for the longer of the period that Buyer holds any Securities, or such time as such agreements and covenants are no longer enforceable under applicable statutes of limitations. SECTION 9.10 PUBLICITY. Each of the parties hereto shall have the right to approve before issuance any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the parties shall each be entitled, without the prior approval of the other, to make any press release or other public disclosure with respect to such transactions as is required by applicable law and regulations (although such party shall consult the other in connection with any such press release or other public disclosure prior to its release and shall be provided with a copy thereof). SECTION 9.11 FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, 25 31 instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. SECTION 9.12 TERMINATION. In the event that the Closing shall not have occurred on or before ten (10) business days from the date hereof due to the Company's or the Buyer's failure to satisfy the conditions set forth in Articles 6 and 7 above (and the nonbreaching party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party; provided, however, that if this Agreement is terminated pursuant to this SECTION 9.12, the Company shall remain obligated to reimburse the nonbreaching Buyer for the expenses described in SECTION 4.9 above. SECTION 9.13 KNOWLEDGE. As used herein "knowledge" shall mean, with respect to a person, information that is possessed, or should have been possessed after due inquiry, by such person. SECTION 9.14 NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. SECTION 9.15 REMEDIES. The Buyer and each holder of the Securities shall have all rights and remedies set forth in the Transaction Documents and the Debenture and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. SECTION 9.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment or payments to the Buyer hereunder or pursuant to the Debenture or Warrant or the Buyer enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 26 32 IN WITNESS WHEREOF, the Buyer and the Company have caused this Agreement to be duly executed and delivered as of the date first written above. COMPANY: US TRUCKING, INC. By: ------------------------------- [Name] [Title] BUYER: AUGUSTA/L.O.F., LLC By: ------------------------------- an authorized signatory 33 IN WITNESS WHEREOF, the Buyer and the Company have caused this Agreement to be duly executed and delivered as of the date first written above. COMPANY: US TRUCKING, INC. By: ------------------------------- [Name] [Title] BUYER: AUGUSTA/L.O.F., LLC By: ------------------------------- an authorized signatory 34 EXHIBIT A FORM OF DEBENTURE 35 EXHIBIT B FORM OF WARRANT 36 EXHIBIT C FORM OF REGISTRATION RIGHTS AGREEMENT 37 EXHIBIT D FORM OF LETTER OF CREDIT 38 EXHIBIT E FORM OF OFFICER'S CERTIFICATE 39 EXHIBIT F FORM OF COMPANY COUNSEL OPINION 40 EXHIBIT G FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS 41 U. S. TRUCKING, INC. 10602 TIMBERWOOD CIRCLE, SUITE 9 LOUISVILLE, KENTUCKY 40223 August 10, 2000. Thomson Kernaghan & Co. Limited 365 Bay Street, Tenth Floor Toronto, Ontario M5H 2V2, Canada Attention: Ms. Michelle McKinnon Reference: U.S. Trucking, Inc. 10% Convertible Debentures Due May 31, 2002 Ladies and gentlemen: This letter shall constitute an amendment to the engagement letter dated May 13, 1999 (the "Engagement Letter") between U.S. Trucking, Inc. (the "Company") and Thomson Kernaghan & Co. Limited as the Company's placement agent (the "Agent") for the issuance and sale of up to an aggregate of US$5 Million of the Company's 10% Convertible Debentures Due May 31, 2002 (the "Debentures"). The Company hereby acknowledges its obligation to comply with the registration requirements set forth in paragraph 5 of the Engagement Letter, and its obligation to pay liquidated damages for its failure to comply with those requirements. The Company hereby undertakes to comply with those requirements as soon as possible. The Company shall issue Debenture No. 7 in the principal amount of US$550,000. The Company acknowledges and confirms that, in consideration of the Agent's agreement to place Debenture No. 7, the Company and the Agent have agreed that the $1.50 minimum conversion price per share of Common Stock shall not apply to the conversion of all Debentures, including previously issued Debentures numbered 1 through 6, as well as to all subsequently issued Debentures. To further evidence that agreement, the Company and the Agent have agreed that the last sentence of paragraph 4 of Debentures numbered 1 through 6, which reads: 42 Thomson Kernaghan & Co. Limited August 10, 2000 Page 2 Reference: U.S. Trucking, Inc. 10% Convertible Debentures Due May 31, 2002 "The price per share of Common Stock into which this Debenture is convertible (the `Conversion Price') shall be the higher of (i) US$1.50, or (ii) the lower of 80% of the average closing bid price of the Common Stock quoted on the OTC Bulletin Board for the three trading days preceding (x) the Initial Closing Date, or (y) the conversion date; i.e., in no event shall the Conversion Price be less that US$1.50 per share of Common Stock." is hereby amended to read: "The price per share of Common Stock into which this Debenture is convertible (the `Conversion Price') shall be the lower of 80% of the average closing bid price of the Common Stock quoted on the OTC Bulletin Board for the three trading days preceding (x) the Initial Closing Date (80% of which equals $2.37), or (y) the conversion date." Except as may be modified by this letter, all of the terms and conditions of the Engagement Letter (as modified by previous letter agreements between us) are and shall remain in full force and effect. Please indicate your acceptance of the terms set forth in this letter by executing a copy hereof in the space provided below, and returning an executed copy to us. Sincerely yours, U. S. TRUCKING, INC. Accepted and agreed: THOMSON KERNAGHAN & CO. LIMITED By ------------------------------- W. Anthony Huff, Executive Vice President and Chairman By -------------------------------- Name ------------------------------ Title ----------------------------- Date signed ----------------------- EX-10.2 3 ex10-2.txt CONVERTIBLE DEBENTURE 1 EXHIBIT 10.2 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. ANY TRANSFEREE OF THIS DEBENTURE SHOULD CAREFULLY REVIEW THE TERMS OF THIS DEBENTURE, INCLUDING SECTION 2(E)(VI) HEREOF. THE PRINCIPAL AMOUNT AND THE INTEREST THEREON REPRESENTED BY THIS DEBENTURE MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(E)(VI) OF THIS DEBENTURE. SUBORDINATED CONVERTIBLE DEBENTURE New York, New York ______________, 2000 $6,000,000 FOR VALUE RECEIVED, US TRUCKING, INC., a Colorado corporation (the "Company"), hereby promises to pay to the order of Augusta/L.O.F., LLC, a Cayman Islands limited liability company, or registered assigns in accordance with Section 20 hereof ("Holder") the principal amount of Six Million Dollars ($6,000,000), on May 17, 2003, (the "Maturity Date"), and to pay interest on the unpaid principal balance hereof until payment in full thereof at the rate of 11.5% per annum from the date hereof (the "Issuance Date") until the same becomes due and payable, whether at maturity or upon acceleration or by conversion or redemption in accordance with the terms hereof or otherwise. Interest on this Debenture shall commence accruing on the Issuance Date and shall be computed on the basis of a 365-day year and actual days elapsed and shall be payable in cash, at the Company's option, on each Due Date or at the time of optional or mandatory redemption or conversion of principal in accordance with Section 1 hereof; as applicable; provided, that until the Registration Statement contemplated by the Securities Purchase Agreement dated as of the date hereof between the Company and Holder (the "Securities Purchase Agreement") and Registration Rights Agreement (as defined in the Securities Purchase Agreement) is declared effective by the Securities and Exchange Commission, such interest shall be payable in accordance with the last sentence of Section 1 hereof. Any amount of this Debenture which is not paid when due shall bear interest at the rate of 2.5% per month (prorated for partial months) (rather than at the rate set forth above) until the same is paid in full ("Default Interest"). 1. PAYMENTS OF PRINCIPAL AND INTEREST. All payments of principal and interest on this Debenture (to the extent such principal and/or interest is not converted into Common Stock in accordance with the terms hereof) shall be made in lawful money of the United States of America by wire transfer of immediately available funds as follows: American National Bank and Trust, 120 South LaSalle Street, Chicago, IL 60603, ABA 071000770, FBO Augusta/L.O.F., LLC, A/C 5330255686, or to such 2 other account as Holder may from time to time designate by written notice in accordance with the provisions of this Debenture. Whenever any amount expressed to be due by the terms of this Debenture is due on any day which is not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a Business Day and, in the case of any interest payment date which is not the date on which this Debenture is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. For purposes of this Debenture, "Business Day" shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the City of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in the Securities Purchase Agreement. Notwithstanding anything to the contrary set forth herein, interest shall be payable on a monthly basis in cash by wire transfer of immediately available funds to the account designated above in this Section 1 until such time as the Registration Statement contemplated by the Securities Purchase Agreement and Registration Rights Agreement is declared effective by the Securities and Exchange Commission. 2. CONVERSION OF DEBENTURE. This Debenture shall be convertible into shares of the Company's common stock, no par value per share (the "Common Stock"), on the terms and conditions set forth in this Section 2. (a) Certain Defined Terms. For purposes of this Debenture, the following terms shall have the following meanings (i) "Conversion Amount" means the sum of (A) the principal amount of this Debenture to be converted, redeemed or otherwise with respect to which this determination is being made, and (B) all accrued and unpaid interest (other than Default Interest), calculated as the outstanding principal amount of the Debenture times .115 times (N/365) and (C) Default Interest, if any. (ii) "Conversion Price" means, as of any Conversion Date (as defined below) or other date of determination and subject to adjustment as provided herein, a price equal to the lesser of (A) the Fixed Conversion Price (as defined below) and (B) the Variable Conversion Price (as defined below). (iii) "Due Date" means the Issuance Date and each monthly anniversary after the Issuance Date. (iv) "Fixed Conversion Price" means a price equal to $ 4.00, subject to adjustment as provided herein. (v) "Interest Date" means the day on which the outstanding interest on the Debenture is effected either through cash payment, redemption or conversion (Conversion Date) as appropriate. 2 3 (vi) "Issuance Date" means the date of issuance of this Debenture. (vii) "N" means the number of days from, but excluding, the most recent Interest Date through and including the Conversion Date for any portion of this Debenture for which conversion is being elected. (viii) "Person" means a natural person, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental or any department, agency or political subdivision thereof. (ix) "Principal Market" means OTC Bulletin Board. (x) "Variable Conversion Price" means a price equal to 100% of the average of the three lowest daily trading prices of the Common Stock (as reported by Bloomberg) for the twenty (20) consecutive trading days ending on the trading day immediately preceding the date of submission of a Conversion Notice by Holder. (b) Holder's Monthly Conversion Right; Conversion Upon Special Event. Holder shall have the right, at Holder's option, to convert the outstanding and unpaid principal amount of this Debenture into shares of the Company's Common Stock, on the following terms and conditions: (i) Monthly Payment Amount. Subject to the provisions of Section 2(d) and Section 3 below, on the Issuance Date and each Due Date thereafter, Holder shall be entitled to convert $250,000 of the outstanding and unpaid principal amount of this Debenture (together with all accrued and unpaid interest of the Debenture) into fully paid and nonassessable shares of Common Stock in accordance with Section 2(e), at the Conversion Rate (as defined below) (the "Monthly Payment Amount"). Delivery of such shares in accordance with Section 2(e)(ii) shall be considered payment in full of that portion of the Debenture. (ii) Conversions Upon Special Event. Notwithstanding Holder's option to convert the Monthly Payment Amount described in item (i) above and in addition to all other rights of Holder contained herein, upon the occurrence of any Special Event (as described below), 100% of the remaining principal balance hereunder, plus accrued and unpaid interest thereon, shall become subject to conversion, at the option of Holder, upon delivery of a Conversion Notice (as defined below) without any restriction or limitation. A "Special Event" shall be deemed to have occurred at such time as any of the following events: (A) the consolidation, merger or other business combination of the Company with or into another Person (other than solely pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company and except for a merger in which the Company is the surviving entity); (B) the sale or transfer of 50% or more of the Company's assets; 3 4 (C) a purchase, tender or exchange offer made to holders of more than 30% of the outstanding shares of Common Stock; or (D) any event constituting an Event of Default pursuant to Section 9(a) hereof. (iii) Fractional Shares. The Company shall not issue any fraction of a share of Common Stock upon any conversion. All shares of Common Stock (including fractions thereof) issuable upon conversion of this Debenture by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of a fraction of a share of Common Stock. If, after the aforementioned aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up or down to the nearest whole share. (c) Conversion Rate. The number of shares of Common Stock issuable upon conversion of a Conversion Amount of this Debenture pursuant to Section 2(b) shall be determined according to the following formula (the "Conversion Rate"): Conversion Rate = Conversion Amount ----------------- Conversion Price (d) Limitation on Beneficial Ownership. The Company shall not effect any conversion of this Debenture and Holder shall not have the right to convert any portion of this Debenture pursuant to Section 2(b)(i) to the extent that after giving effect to such conversion such Person (together with such Person's affiliates) would beneficially own in excess of 4.99% of the outstanding shares of the Common Stock following such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by a Person and its affiliates or acquired by a Person and its affiliates, as the case may be, shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted portion of this Debenture beneficially owned by such Person and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by such Person and its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary contained herein, each Conversion Notice (as defined below) shall constitute a representation by Holder that, after giving effect to such Conversion Notice, Holder will not beneficially own (as determined in accordance with this Section 2(d)) a number of shares of Common Stock in excess of 4.99% of the outstanding shares of Common Stock (1) as reflected in the Company's most recent shareholder list, which list shall be provided to Holder by the Company on a quarterly basis and certified by the Company as true, complete and accurate as of the date thereof, or (2) at such time as the Company is a Reporting Company under the Securities Exchange Act of 1934, as reflected in the Company's most recent Form 10-Q or Form 10-K, as the case may be, or more 4 5 recent public press release by the Company or other notice by the Company to Holder setting forth the number of shares of Common Stock outstanding, but after giving effect to conversions of this Debenture (including the conversion with respect this determination is being made) by Holder since the date as of which such number of outstanding shares of Common Stock was disclosed. (e) Mechanics of Conversion. The conversion of this Debenture shall be conducted in the following manner: (i) Holder's Delivery Requirements. To convert this Debenture into shares of Common Stock on any date (the "Conversion Date"), Holder hereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., Eastern Time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit A (the "Conversion Notice") to the Company and (B), subject to Section 2(e)(vi), surrender to a common carrier for delivery to the Transfer Agent as soon as practicable following such date the original Debenture being converted (or an indemnification undertaking with respect to such Debenture in the case of its loss, theft or destruction). (ii) Company's Response. Upon receipt by the Company of a copy of a Conversion Notice, the Company shall as soon as practicable, but in no event later than one (1) Business Days after receipt of such Conversion Notice, send, via facsimile, a confirmation of receipt of such Conversion Notice to Holder and the Transfer Agent, which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein. Upon receipt by the Transfer Agent of a copy of the executed Conversion Notice, the Transfer Agent shall, no later than the 2nd trading day following the date of receipt by it of the Conversion Notice, (A) issue and surrender to a common carrier for overnight delivery to Holder's brokerage account #70215 (the "Augusta Brokerage Account") with Credit Suisse First Boston (the "Broker"), a certificate, registered in the name of Holder or its designee, for the number of shares of Common Stock to which Holder shall be entitled, or (B) in the event the Transfer Agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of Holder, credit such aggregate number of shares of Common Stock to which Holder shall be entitled to the Broker's balance account with DTC through its Deposit Withdrawal Agent Commission system to be further credited to the Augusta Brokerage Account by the Broker. Subject to Section 2(e)(vi), if less than the principal amount of this Debenture is submitted for conversion, then the Company shall, as soon as practicable and in no event later than three Business Days after receipt of this Debenture and at its own expense, issue and deliver to Holder or its designee a new Debenture for the outstanding principal amount not converted. (iii) Dispute Resolution. In the case of a dispute as to the determination of the Conversion Price or the arithmetic calculation of the Conversion Rate, the Company shall instruct the Transfer Agent to issue to Holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to Holder via facsimile within one (1) Business Day of receipt of Holder's Conversion Notice. If Holder and the Company are unable to agree upon the 5 6 determination of the Conversion Price or arithmetic calculation of the Conversion Rate within one (1) Business Days of such disputed determination or arithmetic calculation being submitted to Holder, then the Company shall within one (1) Business Days submit via facsimile (A) the disputed determination of the Conversion Price to an independent, reputable investment bank selected by the Company and approved by Holder or (B) the disputed arithmetic calculation of the Conversion Rate to the Company's independent, outside accountant. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and Holder of the results no later than the third (3rd) day after the date it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent manifest error. (iv) Record Holder. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of this Debenture shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. (v) Company's Failure to Timely Convert. (A) Cash Damages. If within five (5) Business Days after Holder's delivery of the Conversion Notice (subject to extension in accordance with Section 2(e)(iii) for a good faith dispute made in accordance with the terms of Section 2(e)(iii)) (the "Share Delivery Period") the Transfer Agent shall fail to issue a certificate to Holder or credit Holder's balance account with The Depository Trust Company for the number of shares of Common Stock to which Holder is entitled upon Holder's conversion of this Debenture (a "Conversion Failure"), in addition to all other available remedies which Holder may pursue hereunder and under the Securities Purchase Agreement (including indemnification pursuant to Article 8 thereof), the Company shall pay additional damages to Holder on each day after such fifth (5th) Business Day such conversion is not timely effected and/or such Debenture is not delivered in an amount equal to 2.0% of such principal amount of this Debenture submitted for conversion by Holder. (B) Void Conversion Notice; Adjustment to Conversion Price. If for any reason Holder has not received all of the shares of Common Stock prior to the tenth (10th) Business Day after the expiration of the Share Delivery Period with respect to a conversion of this Debenture, then Holder, upon written notice to the Company, with a copy to the Transfer Agent, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any principal amount of this Debenture that has not been converted pursuant to Holder's Conversion Notice; provided, that the voiding of Holder's Conversion Notice shall not affect the Company's obligations to make any payments which have accrued prior to the date of such notice pursuant to Section 2(e)(v)(A) or otherwise. Thereafter, the Fixed Conversion Price of the principal amount of this Debenture returned or retained by Holder for failure to timely convert shall be adjusted to the lesser of (I) the Conversion Price as in effect on the date on which Holder submitted the Conversion Notice and (II) the lowest trade price for the Common Stock during the period beginning on the Conversion Date and ending on the date Holder voided the Conversion Notice. 6 7 (vi) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Debenture in accordance with the terms hereof, Holder shall not be required to physically surrender this Debenture to the Company unless the full Conversion Amount represented by this Debenture is being converted. Holder and the Company shall maintain records showing the Conversion Amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to Holder and the Company, so as not to require physical surrender of this Debenture upon each such conversion. In the event of any dispute or discrepancy, such records of the Company shall be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if this Debenture is converted as aforesaid, Holder may not transfer this Debenture unless Holder first physically surrenders this Debenture to the Company, whereupon the Company will forthwith issue and deliver upon the order of Holder a new Debenture of like tenor, registered as Holder may request, representing in the aggregate the remaining Conversion Amount represented by this Debenture. Holder and any assignee, by acceptance of this Debenture or such new Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of any portion of this Debenture, the Conversion Amount (including the principal of this Debenture) represented by this Debenture may be less than the principal amount and the accrued interest set forth on the face hereof. (f) Taxes. The Company shall pay any and all transfer taxes (but not income taxes) that may be payable with respect to the issuance and delivery of Common Stock upon the conversion of this Debenture. 3. ANTI-DILUTION. (a) Certain Defined Terms. For purposes of this Section, the following terms shall have the following meanings: (i) "Common Stock" shall mean the Common Stock, no par value, of the Company as constituted on the date of this Debenture and any stock into which such Common Stock shall have been changed or any stock resulting from any reclassification of such Common Stock. (ii) "Convertible Securities" shall mean evidences of indebtedness, shares (including, without limitation, Preferred Shares) of stock or other securities which are convertible into or exchangeable for, with or without payment of additional consideration, shares of Common Stock, either immediately or upon the arrival of a specified date or the happening of a specified event. (iii) "Preferred Shares," as applied to any Person, shall mean shares of such Person which shall be entitled to preference or priority over any other shares of such Person in respect of either the payment of dividends or the distribution of assets upon liquidation. (iv) "Stock Purchase Rights" shall mean any warrants, options or other rights to subscribe for, purchase or otherwise acquire any shares of Common Stock or 7 8 any Convertible Securities, either immediately or upon the arrival of a specified date or the happening of a specified event. (b) Except as otherwise provided in Section 3(b)(vii)) below, the Fixed Conversion Price shall be subject to adjustment from time to time as set forth in this Section 3. (i) Issuance of Additional Common Stock. If and whenever the Company shall issue or sell any shares of its Common Stock for a consideration per share less than the Fixed Conversion Price in effect immediately prior to the time of such issuance or sale, then, upon such issuance or sale, the Fixed Conversion Price shall be adjusted to that price equal to the fraction (i) the numerator of which shall be equal to (A) (x) the Fixed Conversion Price in effect immediately prior to such event multiplied by (y) the total number of outstanding shares of Common Stock immediately prior to such event plus (B) the consideration received by the Company upon such issuance, and (ii) the denominator of which shall be the total number of outstanding shares of Common Stock immediately after such event, treating as outstanding all shares of Common Stock issuable upon conversions or exchanges of Convertible Securities (including any Debentures held by Holder) and exercises of Stock Purchase Rights (including any Warrants held by Holder) provided that, no adjustment shall be made with respect to the issuance of shares of Common Stock issued upon conversion of debentures or Preferred Shares or exercise of warrants or options outstanding on the date hereof and disclosed to Holder in a Schedule attached to the Securities Purchase Agreement delivered in connection with this Debenture, or in connection with the exercise of options which may be granted after the date hereof under the Company's 1998 Stock Option Plan, or as consideration in connection with arms-length transactions involving the acquisition of other companies or lines of business in the transportation industry, including non-competition covenants. (ii) Stock Dividends, Subdivisions and Combinations. If and whenever the Company subsequent to the date hereof: (A) declares a dividend upon, or makes any distribution in respect of, any of its capital stock, payable in shares of Common Stock, Convertible Securities or Stock Purchase Rights, (B) subdivides its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (C) combines its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the Fixed Conversion Price shall be adjusted to that price determined by multiplying the Fixed Conversion Price in effect immediately prior to such event by a fraction (A) the numerator of which shall be the total number of outstanding shares of Common Stock immediately prior to such event, and (B) the denominator of which shall be the total number of outstanding shares of Common Stock immediately after such event, treating as outstanding all shares of Common Stock issuable upon conversions or exchanges of Convertible Securities (including any 8 9 Debentures held by Holder) and exercises of Stock Purchase Rights (including any Warrants held by Holder). (iii) Issuance of Convertible Securities or Stock Purchase Rights. If and whenever the Company shall issue or sell any Convertible Securities or Stock Purchase Rights (other than the granting of Stock Purchase Rights to officers, employees, directors and consultants of the Company pursuant to any qualified or non-qualified stock option plan or employee stock ownership plan (ESOP)) under which a consideration per share for which shares of Common Stock may at any time thereafter be issuable upon exercise thereof (or, in the case of Stock Purchase Rights exercisable for the purchase of Convertible Securities, upon the subsequent conversion or exchange of such Convertible Securities) shall be less than the Conversion Price in effect immediately prior to the time of such issuance or sale, then upon such issuance or sale the Conversion Price shall be adjusted as provided in Section 4(a) on the basis that the maximum number of shares of Common Stock ever issuable upon exercise of such Convertible Securities or Stock Purchase Rights (or upon conversion or exchange of such Convertible Securities following such exercise) shall be deemed to have been issued as of the date of the determination of the Fixed Conversion Price, provided that , no adjustment shall be made with respect to the issuance of shares of Common Stock issued upon conversion of debentures or Preferred Shares or exercise of warrants or options outstanding on the date hereof and disclosed to Holder in a Schedule attached to the Securities Purchase Agreement delivered in connection with this Debenture, or in connection with the exercise of options which may be granted after the date hereof under the Company's 1998 Stock Option Plan, or as consideration in connection with arms-length transactions involving the acquisition of other companies or lines of business in the transportation industry, including non-competition covenants. (iv) Readjustment of Conversion Price. Upon (i) each change in the purchase price payable for any Stock Purchase Rights or Convertible Securities referred to in Section 3(b)(iii) each change in the consideration, if any, payable upon exercise of such Stock Purchase Rights or upon the conversion or exchange of such Convertible Securities, (iii) each change in the number of shares of Common Stock issuable upon the exercise of such Stock Purchase Rights or the rate at which such Convertible Securities are convertible into or exchangeable for shares of Common Stock or (iv) the expiration of any Stock Purchase Rights not exercised or of any right to convert or exchange under any Convertible Securities not exercised, the Fixed Conversion Price in effect at the time of such event shall forthwith be readjusted to the Fixed Conversion Price which would have been in effect at such time had such Stock Purchase Rights or Convertible Securities provided for such change or expiration, as applicable. (v) Reorganization, Reclassification or Recapitalization of the Company. In the event that the Company effects (i) any reorganization or reclassification or recapitalization of the capital stock of the Company (other than in the cases referred to in Section 4(b)), (ii) any consolidation or merger of the Company with or into another Person, (iii) the sale, transfer or other disposition of the property, assets or business of the Company as an entirety or substantially as an entirety or (iv) any other transaction or event as a result of which holders of Common Stock become entitled to receive any 9 10 shares of stock or other securities and/or property (including, without limitation, cash, but excluding any cash dividend that is paid out of the earnings or surplus of the Company legally available therefor) with respect to or in exchange for the Common Stock of the Company, there shall thereafter be deliverable upon the conversion of this Debenture or any portion thereof (in lieu of or in addition to the Common Stock theretofore deliverable, as appropriate) the highest number of shares of stock or other securities and/or the greatest amount of property (including, without limitation, cash) to which the holder of the number of shares of Common Stock which would otherwise have been deliverable upon the conversion of this Debenture or any portion thereof at the time would have been entitled upon such transaction or event. (vi) Other Dilutive Events. If the Company takes any other action, or if any other event occurs to which the other provisions of this Section 3 are not strictly applicable, but which could result in an adjustment the Conversion Price or to any of the other terms of this Debenture that would not fairly protect the conversion rights and other rights represented by this Debenture in accordance with the essential intent and principles hereof, an appropriate adjustment in such purchase rights comparable to the adjustments described in (a) and (b) above shall be made by the Company. (vii) Maximum Conversion Price. At no time shall the Fixed Conversion Price exceed the initial Conversion Price set forth in Section 2(a) hereof except as a result of an adjustment thereto pursuant to Section 3(b). (viii) Application. All subdivisions of this Section 3 are intended to operate independently of one another. If a transaction or an event occurs that requires the application of more than one subsection, all applicable subdivisions shall be given independent effect. (ix) Waiver. In the event that Holder consents in writing to limit, or waive in its entirety, any anti-dilution adjustment to which it would otherwise be entitled hereunder, the Company shall not be required to make any adjustment whatsoever with respect to this Debenture in excess of such limit or at all, as the terms of such consent may dictate. (x) Notice of Adjustments to Fixed Conversion Price. As promptly as practicable after the occurrence of any event requiring any adjustment under this Section 3 to the Conversion Price (or to the number or kind of securities or other property deliverable upon the conversion of this Debenture), the Company shall, at its expense, mail to Holder a certificate of an officer of the Company setting forth in reasonable detail the events requiring the adjustment and the method by which such adjustment was calculated and specifying the adjusted Fixed Conversion Price and the number of shares of Common Stock issuable upon conversion of this Debenture after giving effect to such adjustment. (xi) Anti-Dilution Provisions in Other Securities. If the Company issues any Stock Purchase Rights or Convertible Securities or other securities containing provisions protecting the holder or holders thereof against dilution in any manner more favorable to such holder or holders thereof than those set forth in this Debenture, such provisions 10 11 (or any more favorable portion thereof) shall be deemed to be incorporated herein as if fully set forth in this Debenture and, to the extent inconsistent with any provision of this Debenture, shall be deemed to be substituted therefor. 4. REDEMPTION. This Debenture shall be subject to mandatory redemption upon the occurrence of certain events and optional redemption at the option of the Company, each as discussed below. (a) Mandatory Monthly Redemption. Upon the occurrence of a Mandatory Redemption Event, and on each month anniversary thereafter until such Mandatory Redemption Event shall have been cured, if any, the Company will be required to redeem the Monthly Payment Amount for such month, on the Due Date, at a price equal to 120% of such Monthly Payment Amount, including all accrued and unpaid interest on the Debenture (the "Mandatory Redemption Price"). For purposes of this Debenture, "Mandatory Redemption Event" means any of the following events: (i) the failure of the Company to satisfy any listing criteria of its Principal Market necessary to maintain the continued listing of the Common Stock, without regard to any grace period or other timing issues, (ii) the suspension of the Common Stock from trading for three (3) consecutive trading days or for a total of ten (10) trading days out of the preceding 365 days; (iii) if for any reason pursuant to the registration statement (the "Registration Statement") covering the resale of shares of Common Stock issuable upon conversion of this Debenture and the exercise of the Warrants required to be filed by the Company pursuant to the Registration Rights Agreement between the Company and Holder (the "Registration Rights Agreement") sales cannot be made following the date such Registration Statement has been declared effective by the SEC (whether because of a failure to keep the Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to the Registration Statement, to register sufficient shares of Common Stock, or otherwise) for three (3) consecutive trading days or for a total of ten (10) trading days out of the preceding 365 days unless due to the failure for a Registration Statement to become effective, or the suspension of an effective Registration Statement (provided such suspension is required by applicable law) if the Company is required under the Securities Exchange of 1934 to file financial statements of the acquired business and proforma financial statements and such financial statements are not readily available at the time the Company would have otherwise been obligated to file the Registration Statement, but only for up to thirty days with respect to any one acquisition and an aggregate of forty-five days in a twelve month period. The Company shall use all commercially reasonable efforts to file such financial statements at the earliest practicable date. (b) Optional Monthly Redemption. 11 12 (i) At any time during the five (5) trading days prior to each Due Date (other than the Issuance Date), if the Closing Bid Price of the Common Stock on each such trading day is less than the Fixed Conversion Price on such day then the Company shall have the option to redeem (the "Optional Monthly Redemption Right") the Monthly Payment Amount for such month at a price equal to 100% of the Monthly Payment Amount, including all accrued and unpaid interest. (ii) In each month that the Company elects to exercise its Optional Redemption rights, Buyer shall vest 7,500 Redemption Warrants. (c) Mechanics of Company Redemption. Within one (1) day after the occurrence of a Mandatory Redemption Event, or upon a determination by the Company to exercise its Optional Monthly Redemption Right, the Company shall deliver a written notice thereof via facsimile and overnight courier ("Notice of Redemption") to Holder, which notice shall specify the type of redemption (and the nature of event with respect to any Mandatory Redemption). The Company shall pay the Redemption Price to Holder in cash upon the next Due Date by wire transfer delivered to Holder as follows: American National Bank and Trust, 120 South LaSalle Street, Chicago, IL 60603, ABA 071000770, FBO Augusta/L.O.F., LLC, A/C 5330255686, or to such other account or accounts as Holder may designate in writing to the Company from time to time. (d) Void Redemption. In the event that the Company does not pay the Mandatory Full Redemption Price to Holder on a timely basis as described in this Section 3, in addition to any remedy otherwise available to Holder hereunder or under the Securities Purchase Agreement, such unpaid amount shall bear interest at the Default Rate until paid in full. In the event that the Company does not pay the Applicable Optional Redemption Price within the time period set forth in Section 3(c), at any time thereafter and until the Company pays such unpaid Applicable Optional Redemption Price in full, Holder shall have the option (the "Void Optional Redemption Option") to, in lieu of redemption, require the Company to rescind the Notice of Redemption for that portion of the Debenture for which the Applicable Optional Redemption Price (together with any interest thereon) has not been paid, by sending written notice thereof to the Company via facsimile (the "Void Optional Redemption Notice"). Upon the Company's receipt of such Void Optional Redemption Notice, (i) the Notice of Redemption pursuant to the Company's optional redemption rights as described in Section 3(c), shall be null and void with respect to that portion of the Debenture subject to the Void Optional Redemption Notice, (ii) the Company shall immediately rescind such Redemption Notice, and (iii) the Conversion Price of that portion of the Debenture returned shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the Void Optional Redemption Notice is delivered to the Company and (B) the lowest trade price for the Common Stock (as reported by Bloomberg) during the period beginning on the date on which the Notice of Redemption is delivered to Holder and ending on the date on which the Void Optional Redemption Notice is delivered to the Company. (e) Disputes; Miscellaneous. In the event of a dispute as to the determination of the lowest trade price or the arithmetic calculation of the Redemption Price, such dispute shall be resolved pursuant to Section 2(e)(iii) above with the term "lowest trade price" being substituted for the term "Conversion Price" and the term "Redemption Price" being substituted for the term "Conversion Rate." Holder's delivery of a Void Optional Redemption Notice and 12 13 exercise of its rights following such notice shall not affect the Company's obligations to make any payments which have accrued prior to the date of such notice. In the event of a redemption pursuant to this Section 3 of less than all of the principal amount and interest of this Debenture and subject to Section 2(e)(vi), the Company shall promptly cause to be issued and delivered to Holder a new Debenture representing the remaining unpaid principal amount which has not been redeemed. 5. PREPAYMENT. (a) At any time during the term of this Debenture, the Company may prepay the Debenture at a price equal to (A)(x) the outstanding principal balance on the Debenture plus (y) accrued interest multiplied by (B) the 110%. (b) Should the Company exercise its right to prepay the Debenture, the Investor shall immediately vest into all Warrants not theretofore vested by the Investor, provided, however, that the Penalty Warrants shall not become vested if the Company has timely complied with its obligation under Section 4.14 of the Securities Purchase Agreement. 6. OTHER RIGHTS OF HOLDER. (a) Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "Organic Change." Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "Acquiring Entity") a written agreement (in form and substance satisfactory to Holder) to deliver to Holder in exchange for this Debenture, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Debenture, and satisfactory to Holder. Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to Holder) to insure that Holder will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of Holder's Debenture such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable upon the conversion of Holder's Debenture as of the date of such Organic Change (without taking into account any limitations or restrictions on the convertibility of the Debenture). (b) Purchase Rights. If at any time the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "Purchase Rights"), then Holder 13 14 will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which Holder could have acquired if Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Debenture (without taking into account any limitations or restrictions on the convertibility of the Debenture) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. 7. RESERVATION OF SHARES. The Company shall, so long as any principal amount of the Debenture is outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Debenture, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the principal amount of the Debenture then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than 140% of the number of shares of Common Stock for which the principal amount of the Debenture are at any time convertible. 8. VOTING RIGHTS. Holder shall have no voting rights, except as required by law, including but not limited to the Business Corporations Act of the State of Colorado-, and as expressly provided in this Debenture. 9. RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. Until all of the outstanding principal amount of this Debenture has been converted, redeemed or otherwise satisfied as provided herein, the Company shall not, directly or indirectly, redeem, or declare or pay any cash dividend or distribution on, the Common Stock without the prior express written consent of Holder. 10. REISSUANCE OF DEBENTURE. Subject to Section 2(e)(vi) in the event of a conversion or redemption pursuant to this Debenture of less than all of the Conversion Amount represented by this Debenture, the Company shall promptly cause to be issued and delivered to Holder, upon tender by Holder of the Debenture converted or redeemed, a new debenture of like tenor representing the remaining principal amount of this Debenture which has not been so converted or redeemed. 11. DEFAULTS AND REMEDIES. (a) Events of Default. An "Event of Default" is: (i) failure of the Company's Registration Statement to be declared effective within 210 days following the Issuance Date, (ii) default in payment of principal, interest or Default Interest on this Debenture when and as due; (iii) failure by the Company (A) for thirty (30) days after notice to it to comply with any other material provision of this Debenture except for delivery of a replacement Debenture within four (4) Business Days as described in Section 2(e)(ii); or (B) for six (6) Business Days after notice to it to comply with the replacement Debenture delivery requirement set forth in Section 2(e)(ii); (iv) 14 15 any default under or acceleration prior to maturity of any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company or for money borrowed the repayment of which is guaranteed by the Company, whether such indebtedness or guarantee now exists or shall be created hereafter in principal amount greater than $10,000; (v) a closing price of the common stock which is less than $0.10;, (vi) if the Company pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for all or substantially all of its property; (D) makes a general assignment for the benefit of its creditors; or (E) admits in writing that it is generally unable to pay its debts as the same become due; or (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (1) is for relief against the Company in an involuntary case; (2) appoints a Custodian of the Company or for all or substantially all of its property; or (3) orders the liquidation of the Company or any subsidiary, and the order or decree remains unstayed and in effect for ninety (90) days. The term "Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal or State Law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. (b) Remedies. If an Event of Default occurs and is continuing, Holder notify the Company that it is declaring all of this Debenture, including any interest and Default Interest and other amounts due, to be due and payable immediately, except that in the case of an Event of Default arising from events described in clauses (iv), (vi) and (vii) of Section 11(a), this Debenture shall become due and payable without further action or notice by Holder. The Holder may not enforce the agreements contained in this Debenture except as provided herein. In addition to any remedy Holder may have under this Debenture and the Securities Purchase Agreement, such unpaid amount shall bear interest at the Default Rate until paid in full. 12. VOTE TO CHANGE THE TERMS OF THIS DEBENTURE. This Debenture and any provision hereof may only be amended by an instrument in writing signed by the Company and Holder. The term "Debenture" and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented. 13. LOST OR STOLEN DEBENTURE. Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Debenture, and, in the case of loss, theft or destruction, of an indemnification undertaking by the holder to the Company in a form reasonably acceptable to the Company and, in the case of mutilation, upon surrender and cancellation of the Debenture, the Company shall execute and deliver a new debenture of like tenor and date; provided, however, the Company shall not be obligated to re-issue the Debenture if Holder contemporaneously requests the Company to convert such remaining principal amount into Common Stock. 15 16 14. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If: (i) this Debenture is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding; or (ii) an attorney is retained to represent Holder of this Debenture in any bankruptcy, reorganization, receivership or other proceedings affecting creditors' rights and involving a claim under this Debenture; or (iii) an attorney is retained to represent Holder of this Debenture in any other proceedings whatsoever in connection with this Debenture, then the Company shall pay to Holder all reasonable attorneys' fees, costs and expenses incurred in connection therewith, in addition to all other amounts due hereunder. 15. CANCELLATION. After all principal and accrued interest at any time owed on this Debenture has been paid in full, this Debenture shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued. 16. DEBENTURE EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Debenture is exchangeable, upon the surrender hereof by Holder at the principal office of the Company, for a new Debenture or Debenture (in principal amounts of at least $1,000) containing the same terms and conditions and representing in the aggregate the principal amount of this Debenture, and each such new Debenture will represent such portion of such principal amount as is designated by Holder at the time of such surrender. The date the Company initially issues this Debenture will be deemed to be the "Issuance Date" hereof regardless of the number of times a new Debenture shall be issued. 17. WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Debenture and the Securities Purchase Agreement. 18. GOVERNING LAW. This Debenture shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Debenture shall be governed by, the laws of the State of Illinois, without giving effect to provisions thereof regarding conflict of laws. 19. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit Holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Debenture. The Company covenants to Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the 16 17 computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. 20. SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific provision contained in this Debenture shall limit or modify any more general provision contained herein. This Debenture shall be deemed to be jointly drafted by the Company and Holder and shall not be construed against any person as the drafter hereof. 21. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of this Debenture in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. 22. TRANSFER. This Debenture and the rights granted to Holder are transferable without the consent of the Company in whole or in part, upon notice and surrender of this Debenture to the Company. The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to Holder), a register for this Debenture, in which the Company shall record the name and address of the person in whose name this Debenture has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name the Debenture is registered on the register as the owner and Holder for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Debenture. 17 18 IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed and delivered as of the 17th day of _______________, 2000. US TRUCKING, INC. By: ____________________________________ [Name] [Title] 19 EXHIBIT A ISSUER CONVERSION NOTICE Reference is made to the Debenture issued by US TRUCKING, INC. (the "Debenture"). In accordance with and pursuant to the Debenture, the undersigned hereby elects to convert the principal amount of the Debenture, indicated below into shares of common stock, no par value per share (the "Common Stock"), of the Company, by tendering the Debenture amount specified below as of the date specified below. - -------------------------------------------------------------------------------- DATE ______________________________________ - -------------------------------------------------------------------------------- CURRENTLY OUTSTANDING PRINCIPAL ______________________________________ - -------------------------------------------------------------------------------- CURRENT VALUE OF LETTER OF CREDIT ______________________________________ - -------------------------------------------------------------------------------- ACCRUED BUT UNPAID INTEREST ______________________________________ - -------------------------------------------------------------------------------- CONVERSION AMOUNT ______________________________________ - -------------------------------------------------------------------------------- (divided by) CONVERSION PRICE ______________________________________ - -------------------------------------------------------------------------------- (equals) CONVERSION SHARES ______________________________________ - -------------------------------------------------------------------------------- ACCRUED INTEREST CONVERTED ______________________________________ - -------------------------------------------------------------------------------- PRINCIPAL CONVERTED ______________________________________ - -------------------------------------------------------------------------------- (times) LETTER OF CREDIT RATIO ______________________________________ - -------------------------------------------------------------------------------- (equals) LETTER OF CREDIT REDUCTION ______________________________________ - -------------------------------------------------------------------------------- NEW OUTSTANDING PRINCIPAL ______________________________________ - -------------------------------------------------------------------------------- NEW LETTER OF CREDIT AMOUNT ______________________________________ - -------------------------------------------------------------------------------- AGREED TO: [-----------------] US TRUCKING, INC. - -------------------------------------- -------------------------------------- - -------------------------------------------------------------------------------- 20 Addendum to Subordinated Convertible Debentures The Huff Grandchildrens Trust hereby acknowledges and agrees that it is a co-borrower under the Subordinated Convertible Debenture between U.S. Trucking, Inc. ("UST") and Augusta/L.O.F., L.L.C. dated as of May 17, 2000 (the "Debenture") and that it is obligated jointly and severally with UST as the "Company" under the preamble and Sections 1, 12, 14, and 17-22, inclusive, of the Debenture. Dated: As of May 17, 2000 THE HUFF GRANDCHILDRENS TRUST BY: /s/ Anthony Huff ------------------------- Anthony Huff, a Trustee EX-10.3 4 ex10-3.txt WARRANT TO PURCHASE 580,000 SHARES 1 EXHIBIT 10.3 THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. ANY SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH THE APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT. US TRUCKING, INC. WARRANT TO PURCHASE COMMON STOCK WARRANT NO.: J-1 NUMBER OF SHARES: 580,000 Date of Issuance: May 17, 2000 US TRUCKING, INC., a Colorado corporation (the "Company"), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, AUGUSTA/L.O.F., LLC, a Cayman Islands limited liability company, the registered holder hereof or its permitted assigns, is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant, at any time or times on or after the date hereof, but not after 11:59 P.M. Eastern Time on the appropriate Expiration Date (as defined herein), an aggregate of up to 580,000 fully paid nonassessable shares of Common Stock (as defined herein) of the Company (the "Warrant Shares") at the purchase prices per share provided in SECTION 1(b) below; provided, however, this Warrant shall be exercisable for 300,000 shares of Common Stock as of the date hereof, and thereafter, in connection with each of the Company's elections to exercise its Monthly Optional Redemption right (pursuant to the Debenture dated as of the date hereof), this Warrant shall be exercisable for an additional 7,500 shares; and provided, further, however that this Warrant shall be exercisable for an additional 100,000 shares of Common Stock on and after the one hundred and eightieth day (180th) after the date hereof if the Company has not caused its Common Stock to be listed on the Nasdaq Small-Cap Market, pursuant to Section 4.14 of the Securities Purchase Agreement. Notwithstanding the foregoing, in no event shall the holder be entitled to exercise this Warrant to the extent that after giving effect to such exercise such holder (together with such person's affiliates) would beneficially own in excess of 4.99% of the outstanding shares of the Common Stock following such exercise. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by a holder and its affiliates or acquired by such holder and its affiliates, as the case may be, shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination of beneficial ownership is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by such holder and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the 2 Company (including, without limitation, any convertible notes) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by such holder and its affiliates. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary contained herein, each Exercise Notice (as defined below) shall constitute a representation by the holder submitting such Exercise Notice that, after giving effect to such Exercise Notice, (A) the holder will not beneficially own (as determined in accordance with this paragraph) in excess of 4.99% of the outstanding shares of Common Stock and (B) the holder will not have acquired, through exercise of this Warrant or otherwise, a number of shares of Common Stock which, when added to the number of shares of Common Stock beneficially owned at the beginning of the 60-day period ending on and including the applicable date of exercise of this Warrant, is in excess of 4.99% of the outstanding shares of the Common Stock following such exercise during the 60-day period ending on and including such date of exercise and the Company shall have no liability for any exercise in reliance on any such Exercise Notice. For purposes of this paragraph, in determining the number of the outstanding shares of Common Stock the holder of this Warrant may rely on the number of outstanding shares of Common Stock (1) as reflected in the Company's most recent shareholder list, which list shall be provided to Holder by the Company on a quarterly basis and certified by the Company as true, complete and accurate as of the date thereof, or (2) at such time as the Company is a Reporting Company under the Securities Exchange Act of 1934, as reflected in the Company's most recent Form 10-QSB or Form 10-KSB, as the case may be, or a more recent public announcement by the Company or other notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to exercises of this Warrant (including the exercise with respect this determination is being made) by the holder since the date as of which such number of outstanding shares of Common Stock was disclosed or reported. SECTION 1. DEFINITIONS. (a) Securities Purchase Agreement. This Warrant has been issued pursuant to the terms of that certain Securities Purchase Agreement dated as of May 17, 2000, between the Company and the Buyer referred to therein (the "Securities Purchase Agreement"). (b) Definitions. The following words and terms as used in this Warrant shall have the following meanings: (i) "Approved Stock Plan" shall mean any employee benefit plan which has been approved by the Board of Directors of the Company, pursuant to which the Company's securities may be issued to any employee, officer, director or consultant for services provided to the Company. (ii) "Closing Bid Price" means, for any security as of any date, the last closing bid price for such security on the Principal Market (as defined below) as reported by Bloomberg Financial Markets ("Bloomberg"), or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, 2 3 the last closing bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no last closing bid price is reported for such security by Bloomberg, the last closing trade price for such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and Holder. If the Company and Holder are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to SECTION 2(A) below with the term "Closing Bid Price" being substituted for the term "Market Price." All such determinations to be appropriately adjusted for any stock dividend, stock split or other similar transaction during such period. (iii) "Common Stock" means (i) the Company's common stock, no par value, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock. (iv) "Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable for Common Stock, other than the Debenture. (v) "Debenture" means the Convertible Subordinated Debenture issued pursuant to the Securities Purchase Agreement. (vi) "Expiration Date" means the date which is five (5) years from the date of this Warrant; provided, if any such date falls on a Saturday, Sunday or other day on which banks are required or authorized to be closed in the City of Chicago or the State of Illinois or on which trading does not take place on the principal exchange or automated quotation system on which the Common Stock is traded (a "Holiday"), the next date that is not a Holiday. (vii) "Options" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. (viii) "Other Securities" means (i) those warrants of the Company issued prior to, and outstanding on, the date of issuance of this Warrant, (ii) the Debenture and (iii) the shares of Common Stock issued upon conversion of the Debenture. (ix) "Person" means a natural person, a partnership, a corporation, a limited liability company, an association or a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental agency or any department, or agency or political subdivision thereof. (x) "Principal Market" means OTC Bulletin Board or other comparable national exchange or trading market. 3 4 (xi) "Securities Act" means the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder. (xii) "Warrant" means this Warrant, and all warrants issued in exchange, transfer or replacement of any thereof. (xiii) "Warrant Exercise Price" means $3.04, [120% of the average of the Closing Bid of the common stock for the 10 days prior to the date of closing], subject to adjustment as provided in SECTION 2(E) and SECTION 3. Capitalized terms used herein not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement. SECTION 2. EXERCISE OF WARRANT. (a) Subject to the terms and conditions hereof, this Warrant may be exercised by the holder hereof then registered on the books of the Company, in whole or in part, at any time on any business day on or after the opening of business on the date hereof and prior to 11:59 P.M. Eastern Time on the Expiration Date by (i) delivery of a written notice, in the form of the subscription notice attached as EXHIBIT A hereto (the "Exercise Notice"), of such holder's election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased (ii) payment to the Company of an amount equal to the appropriate Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (plus any applicable issue or transfer taxes) (the "Aggregate Exercise Price") in cash or by check or wire transfer and (iii) the surrender to a common carrier for delivery to the Company as soon as practicable following such date, this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction); provided, that if such Warrant Shares are to be issued in any name other than that of the registered holder of this Warrant, such issuance shall be deemed a transfer and the provisions of SECTION 8 shall be applicable. In the event of any exercise of the rights represented by this Warrant in compliance with this SECTION 2(A), a certificate or certificates for the Warrant Shares so purchased, in such denominations as may be requested by the holder hereof and registered in the name of, or as directed by, the holder, shall be delivered at the Company's expense to, or as directed by, such holder as soon as practicable, and in no event later than two business days, after the Company's receipt of the Exercise Notice, the Aggregate Exercise Price and this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction). Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in clause (ii)(A) above or notification to the Company of a Cashless Exercise referred to in SECTION 2(F), the holder of this Warrant shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares. In the case of a dispute as to the determination of the Warrant Exercise Price, the Closing Bid Price, the 4 5 last reported sale price (as reported by Bloomberg) or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via facsimile within one business day of receipt of the holder's subscription notice. If the holder and the Company are unable to agree upon the determination of the Warrant Exercise Price, the Closing Bid Price, the last reported sale price (as reported by Bloomberg) or arithmetic calculation of the Warrant Shares within three business days of such disputed determination or arithmetic calculation being submitted to the holder, then the Company shall within two business days submit via facsimile (i) the disputed determination of the Warrant Exercise Price, the Closing Bid Price, or the last reported sale price (as reported by Bloomberg) to an independent, reputable investment banking firm or (ii) the disputed arithmetic calculation of the Warrant Shares to its independent, outside accountant. The Company shall use all commercially reasonable efforts to require the investment banking firm or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations. Such investment banking firm's or accountant's determination or calculation, as the case may be, shall be deemed conclusive absent manifest error. (b) Unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than five (5) business days after any exercise and at its own expense, issue a new Warrant identical in all respects to this Warrant except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which such Warrant is exercised. (c) No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number. (d) If the Company shall fail for any reason or for no reason to issue (subject to extension in accordance with SECTION 2(A) for a good faith dispute made in accordance with SECTION 2(A) to the holder (i) within five (5) business days after the Company's receipt of the Exercise Notice, the Aggregate Exercise Price and this Warrant, a certificate for the number of shares of Common Stock to which the holder is entitled upon the holder's exercise of this Warrant or (ii) if this Warrant is being exercised for less than all of the number of shares of Common Stock covered by this Warrant, within ten (10) business days after the Company's receipt of the Exercise Notice, the Aggregate Exercise Price and this Warrant, a new Warrant for the number of shares of Common Stock to which such holder is entitled pursuant to SECTION 2(B) hereof, the Company shall, in addition to any other remedies under this Warrant or the Securities Purchase Agreement or otherwise available to such holder, including any indemnification under Section 8 of the Securities Purchase Agreement, pay as additional damages in cash to such holder on each day such fifth (5th) business day such exercise is not timely effected and/or after the tenth (10th) business day such new Warrant is not delivered, as the case may be, an amount equal to 0.5% of the product of (A) the sum of the number of shares of Common Stock not issued to the holder on a timely basis and to which the holder is entitled and/or, the number of shares represented by the portion of this Warrant which is not being converted, as the case may be, and (B) the average of the Closing Bid Prices of the Common Stock for the three consecutive trading days immediately preceding the last possible date which the Company could have issued such Common Stock or Warrant, as the case may be, to the holder without violating this SECTION 2. (e) If the registration statement (the "Registration Statement") covering the resale of the Warrant Shares issuable upon conversion of this Warrant required to be filed by the 5 6 Company pursuant to the Registration Rights Agreement between the Company and the original purchaser of this Warrant (the "Registration Rights Agreement") is not (A) filed with the Securities and Exchange Commission (the "SEC") on or before the Filing Deadline (as defined in the Registration Rights Agreement), or (B) if after the Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to the Registration Statement whether because of a failure to keep the Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to the Registration Statement, to register sufficient shares of Common Stock or otherwise, unless due to the failure for a Registration Statement to become effective, or the suspension of an effective Registration Statement (provided such suspension is required by applicable law) if the Company is required under the Securities Exchange of 1934 to file financial statements of the acquired business and proforma financial statements and such financial statements are not readily available at the time the Company would have otherwise been obligated to file the Registration Statement, but only for up to thirty days with respect to any one acquisition and an aggregate of forty-five days in a twelve month period. The Company shall use all commercially reasonable efforts to file such financial statements at the earliest practicable date. In that event, as partial relief for the damages to the holder of this Warrant by reason of any such delay in or reduction of its ability to sell the underlying shares of Common Stock (which remedy shall not be exclusive of any other remedies available at law or in equity), the Warrant Exercise Prices shall be adjusted as follows: each Warrant Exercise Price in effect at such time shall be reduced by an amount equal to the product of (A) the Warrant Exercise Price in effect as of the original issuance date of this Warrant and (B) the sum of (I) with respect to the first 30 Registration Default Days (as defined below), the product of (x) .00167 multiplied by (y) the sum of the (i) the number of days after the Filing Deadline that the relevant Registration Statement has not been filed with the SEC, (ii) the number of days after the Effectiveness Deadline that the Registration Statement has not been declared effective by the SEC and (iii) the number of days that sales cannot be made pursuant to the Registration Statement in accordance with the Registration Rights Agreement after the Registration Statement has been declared effective (the days set forth in the preceding clauses (I), (II) and (III) collectively are referred to herein as "Registration Default Days"), plus (II) the product of .0025 and the number of Registration Default Days in excess of 30. (f) Notwithstanding anything contained herein to the contrary, the holder of this Warrant may, at its election exercised in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"): Net Number = (A x B) - (A x C) ----------------- B For purposes of the foregoing formula: A= the total number of shares with respect to which this Warrant is being exercised. 6 7 B= the last reported sale price (as reported by Bloomberg) of the Common Stock on the date immediately preceding the date of the subscription notice. C= the Warrant Exercise Price(s) then in effect at the time of such exercise. SECTION 3. ADJUSTMENT. The Warrant Exercise Price shall be subject to adjustment from time to time as hereinafter provided in this SECTION 3: (a) Issuance of Additional Common Stock. If and whenever the Company shall issue or sell any shares of its Common Stock for a consideration per share less than the Warrant Exercise Price in effect immediately prior to the time of such issuance or sale, then, upon such issuance or sale the Warrant Exercise Price shall be adjusted to that price equal to the fraction (i) the numerator of which shall be equal to (A) (x) the Warrant Exercise Price in effect immediately prior to such event multiplied by (y) the total number of outstanding shares of Common Stock immediately prior to such event plus (B) the consideration received by the Corporation upon such issuance, and (ii) the denominator of which shall be the total number of outstanding shares of Common Stock immediately after such event, treating as outstanding all shares of Common Stock issuable upon conversions or exchanges of Convertible Securities (including any Notes held by the Holder) and exercises of Stock Purchase Rights (including any Warrants held by the Holder) provided that, no adjustment shall be made with respect to the issuance of shares of Common Stock issued upon conversion of debentures or Preferred Shares or exercise of warrants or options outstanding on the date hereof and disclosed to Holder in a Schedule attached to the Securities Purchase Agreement delivered in connection with this Debenture, or in connection with the exercise of options which may be granted after the date hereof under the Company's 1998 Stock Option Plan, subject to the maximum reservation of shares defined in Section 3.3(i) of the Securities Purchase Agreement, or as consideration in connection with arms-length transactions involving the acquisition of other companies or lines of business in the transportation industry, including non-competition covenants. (b) Stock Dividends, Subdivisions and Combinations. If and whenever the Company subsequent to the date hereof: (i) declares a dividend upon, or makes any distribution in respect of, any of its capital stock, payable in shares of Common Stock, Convertible Securities or Stock Purchase Rights, (ii) subdivides its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (iii) combines its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the Warrant Exercise Price shall be adjusted to that price determined by multiplying the Warrant Exercise Price in effect immediately prior to such event by a fraction (A) the numerator of which shall be the total number of outstanding shares of Common Stock immediately prior to such event, and (B) the denominator of which shall be the total number of outstanding shares of Common Stock immediately after such event, treating as outstanding all shares of Common Stock issuable upon conversions or exchanges of Convertible Securities (including any Notes 7 8 held by the Holder) and exercises of Stock Purchase Rights (including any Warrants held by the Holder). (c) Issuance of Convertible Securities or Stock Purchase Rights. If and whenever the Company shall issue or sell any Convertible Securities or Stock Purchase Rights (other than the granting of Stock Purchase Rights to officers, employees, directors and consultants of the Company pursuant to any qualified or non-qualified stock option plan or employee stock ownership plan (ESOP)) under which a consideration per share for which shares of Common Stock may at any time thereafter be issuable upon exercise thereof (or, in the case of Stock Purchase Rights exercisable for the purchase of Convertible Securities, upon the subsequent conversion or exchange of such Convertible Securities) shall be less than the Warrant Exercise Price in effect immediately prior to the time of such issuance or sale, then upon such issuance or sale the Warrant Exercise Price shall be adjusted as provided in Section 3(a) on the basis that the maximum number of shares of Common Stock ever issuable upon exercise of such Convertible Securities or Stock Purchase Rights (or upon conversion or exchange of such Convertible Securities following such exercise) shall be deemed to have been issued as of the date of the determination of the Warrant Exercise Price, provided that, no adjustment shall be made with respect to the issuance of shares of Common Stock issued upon conversion of debentures or Preferred Shares or exercise of warrants or options outstanding on the date hereof and disclosed to Holder in a Schedule attached to the Securities Purchase Agreement delivered in connection with this Debenture, or in connection with the exercise of options which may be granted after the date hereof under the Company's 1998 Stock Option Plan, or as consideration in connection with arms-length transactions involving the acquisition of other companies or lines of business in the transportation industry, including non-competition covenants. (d) Readjustment of Warrant Exercise Price. Upon (i) each change in the purchase price payable for any Stock Purchase Rights or Convertible Securities referred to in Section 3(c) (ii) each change in the consideration, if any, payable upon exercise of such Stock Purchase Rights or upon the conversion or exchange of such Convertible Securities, (iii) each change in the number of shares of Common Stock issuable upon the exercise of such Stock Purchase Rights or the rate at which such Convertible Securities are convertible into or exchangeable for shares of Common Stock or (iv) the expiration of any Stock Purchase Rights not exercised or of any right to convert or exchange under any Convertible Securities not exercised, the Warrant Exercise Price in effect at the time of such event shall forthwith be readjusted to the Warrant Exercise Price which would have been in effect at such time had such Stock Purchase Rights or Convertible Securities provided for such change or expiration, as applicable. (e) Reorganization, Reclassification or Recapitalization of the Company. In the event that the Company effects (i) any reorganization or reclassification or recapitalization of the capital stock of the Company (other than in the cases referred to in Section 3(b)), (ii) any consolidation or merger of the Company with or into another Person, (iii) the sale, transfer or other disposition of the property, assets or business of the Company as an entirety or substantially as an entirety or (iv) any other transaction or event as a result of which holders of Common Stock become entitled to receive any shares of stock or other securities and/or property (including, without limitation, cash, but excluding any cash dividend that is paid out of the earnings or surplus of the Company legally available therefor) with respect to or in exchange for the Common Stock of the Company, there shall thereafter be deliverable upon the 8 9 exercise of this Warrant or any portion thereof (in lieu of or in addition to the Common Stock theretofore deliverable, as appropriate) the highest number of shares of stock or other securities and/or the greatest amount of property (including, without limitation, cash) to which the holder of the number of shares of Common Stock which would otherwise have been deliverable upon the exercise of this Warrant or any portion thereof at the time would have been entitled upon such transaction or event. (f) Other Dilutive Events. If the Company takes any other action, or if any other event occurs to which the other provisions of this Section 3 are not strictly applicable, but which could result in an adjustment the Warrant Exercise Price or to any of the other terms of this Warrant that would not fairly protect the exercise rights and other rights represented by this Warrant in accordance with the essential intent and principles hereof, an appropriate adjustment in such purchase rights comparable to the adjustments described in (a) and (b) above shall be made by the Company. (g) Maximum Warrant Exercise Price. At no time shall the Warrant Exercise Price exceed the initial Warrant Exercise Price set forth in Section 3(a) hereof except as a result of an adjustment thereto pursuant to Section 3(b)(iii). (h) Application. All subdivisions of this Section 3 are intended to operate independently of one another. If a transaction or an event occurs that requires the application of more than one subsection, all applicable subdivisions shall be given independent effect. (i) Waiver. In the event that the Holder consents in writing to limit, or waive in its entirety, any anti-dilution adjustment to which it would otherwise be entitled hereunder, the Company shall not be required to make any adjustment whatsoever with respect to this Warrant or any other Warrant in excess of such limit or at all, as the terms of such consent may dictate. (j) Notice of Adjustments to Warrant Exercise Price. As promptly as practicable after the occurrence of any event requiring any adjustment under this SECTION 3 to the Warrant Exercise Price (or to the number or kind of securities or other property deliverable upon the exercise of this Warrant), the Company shall, at its expense, mail to the Holder a certificate of an officer of the Company setting forth in reasonable detail the events requiring the adjustment and the method by which such adjustment was calculated and specifying the adjusted Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant after giving effect to such adjustment. (k) Anti-Dilution Provisions in Other Securities. If the Company issues any Stock Purchase Rights or Convertible Securities or other securities containing provisions protecting the holder or holders thereof against dilution in any manner more favorable to such holder or holders thereof than those set forth in this Warrant, such provisions (or any more favorable portion thereof) shall be deemed to be incorporated herein as if fully set forth in this Warrant and, to the extent inconsistent with any provision of this Warrant, shall be deemed to be substituted therefor. 9 10 SECTION 4. COVENANTS AS TO COMMON STOCK. The Company hereby covenants and agrees as follows: (a) This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued. (b) All Warrant Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. (c) During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least 100% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant and the par value of said shares will at all times be less than or equal to the applicable Warrant Exercise Price. (d) The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of this Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. (e) The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant. The Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above any Warrant Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. (f) This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. SECTION 5. TAXES. The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant. 10 11 SECTION 6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, no holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the holder of this Warrant of the Warrant Shares which he or she is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on such holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this SECTION 6, the Company will provide the holder of this Warrant with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders. SECTION 7. REPRESENTATIONS OF HOLDER. The holder of this Warrant, by the acceptance hereof, represents that it is acquiring this Warrant and the Warrant Shares for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. The holder of this Warrant further represents, by acceptance hereof, that, as of this date, such holder is an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act (an "Accredited Investor"). Upon exercise of this Warrant, the holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the Warrant Shares so purchased are being acquired solely for the holder's own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale and that such holder is an Accredited Investor. If such holder cannot make such representations because they would be factually incorrect, it shall be a condition to such holder's exercise of this Warrant that the Company receive such other representations as the Company considers reasonably necessary to assure the Company that the issuance of its securities upon exercise of this Warrant shall not violate any United States or state securities laws. SECTION 8. OWNERSHIP AND TRANSFER. (a) The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name any Warrant is registered on the register as 11 12 the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant. (b) This Warrant and the rights granted to the holder hereof are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed warrant power in the form of EXHIBIT B attached hereto; provided, however, that any transfer or assignment shall be subject to the conditions set forth in SECTION 8(C) below. (c) The holder of this Warrant understands that this Warrant has not been and is not expected to be, registered under the Securities Act or any applicable securities laws, and may not be offered for sale, sold, assigned or transferred unless (a) subsequently registered thereunder, or (b) such holder shall have delivered to the Company an opinion of counsel, in generally acceptable form, to the effect that the securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration; provided that (i) any sale of such securities made in reliance on Rule 144 promulgated under the Securities Act may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act; and (ii) neither the Company nor any other person is under any obligation to register this Warrant under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. (d) The Company is obligated to register the Warrant Shares for resale under the Securities Act pursuant to the Registration Rights Agreement and the initial holder of this Warrant (and certain assignees thereof) is entitled to the registration rights in respect of the Warrant Shares as set forth in the Registration Rights Agreement. SECTION 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. (a) In addition to any adjustments pursuant to SECTION 3 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "Purchase Rights"), then the holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (b) Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "Organic Change." Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring 12 13 Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "Acquiring Entity") written agreement (in form and substance satisfactory to the holder of this Warrant) to deliver to such holder, in exchange for such Warrant, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the holder hereof (including, an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the Warrant, if the value so reflected is less than the Warrant Exercise Prices in effect immediately prior to such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the holder of this Warrant) to insure that the holder hereof will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of such holder's Warrant, such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable upon the exercise of this Warrant as of the date of such Organic Change (without taking into account any limitations or restrictions on the exercise ability of this Warrant). SECTION 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an indemnification undertaking, issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed. SECTION 11. NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: US TRUCKING, INC. 10602 Timberwood Circle, #9 Louisville, KY 40223 Telephone: 502.334.4000 Facsimile: 502.412.8200 Attention: Mr. Anthony Huff With a copy to: 13 14 Jud Wagenseller 2107 Bainbridge Row Dr. Louisville, KY 40207 Telephone: 502.889.5108 Facsimile: 502.889.5109 Attention: Jud Wagenseller If to the Buyer: AUGUSTA/L.O.F., LLC C/O JE Matthew, LLC 600 Central Avenue Suite 214 Highland Park, Illinois 60035 Telephone: (847)681-8600 Facsimile: (847)681-1541 Attention: Howard Spivack With a copy to: Pedersen & Houpt 161 N Clark St Suite 3100 Chicago, IL 60601-3224 Telephone: (312) 261-2112 Facsimile: (312) 641-6895 Attention: John Muehlstein, Esq. or to such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by prior written notice given to each other party five days prior to the effective date of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. SECTION 12. DATE. The date of this Warrant is May 17, 2000. This Warrant, in all events, shall be wholly void and of no effect after the close of business on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of SECTION 8 shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant. 14 15 SECTION 13. AMENDMENT AND WAIVER. The provisions of this Warrant may only be amended upon a written instrument executed by the Company and the holders hereof. SECTION 14. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive headings of the several Sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. SECTION 15. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of this Warrant. The Company shall not assign this Warrant or any rights or obligations hereunder without the prior written consent of the holder of this Warrant, including by merger, consolidation or reorganization, except pursuant to a Special Event (as defined in SECTION 2(b)(ii) of the Debenture) consolidation or reorganization with respect to which the Company has satisfied its obligations under SECTION 2 of the Debenture and SECTION 9(B). The holder of this Warrant may assign some or all of its rights hereunder to (i) without the consent of the Company, any person or entity who, immediately prior to such assignment, is an affiliate of such holder (a "Permitted Assignee") and (ii) with the prior written consent of the Company, which consent shall not be unreasonably withheld, to any person or entity which is not a Permitted Assignee; provided, however, that any such assignment shall not release the holder of this Warrant from its obligations hereunder unless such obligations are assumed by such assignee and the Company has consented to such assignment and assumption, which consent shall not be unreasonably 15 16 withheld. Notwithstanding anything to the contrary contained herein, the holder of this Warrant shall be entitled to pledge the this Warrant and the shares of Common Stock issuable upon exercise of this Warrant in connection with a bona fide margin account. 16 17 US TRUCKING, INC. By: /s/ Anthony Huff ------------------------------------- [Name] [Title] 18 EXHIBIT A TO WARRANT SUBSCRIPTION FORM TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT US TRUCKING, INC. The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of US TRUCKING, INC., a Colorado corporation (the "Company"), evidenced by the attached Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant. 1. Type of Warrants. The aggregate number of Warrants exercised pursuant to this Subscription Form shall be comprised of one (1) Warrant. 2. Form of Warrant Exercise Price. The Holder intends that payment of the Warrant Exercise Price shall be made as: ____________ a CASH EXERCISE, and/or ____________ a CASHLESS EXERCISE (to the extent permitted by the terms of the Warrant). 3. Payment of Warrant Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the sum of $___________________ to the Company in accordance with the terms of the Warrant. 4. Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of the Warrant. Date: ------------------- ---, ----- Name of Registered Holder By: ---------------------------------- Name: Title: 19 EXHIBIT B TO WARRANT FORM OF WARRANT POWER FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to ________________, Federal Identification No. __________, a warrant to purchase ____________ shares of the capital stock of US TRUCKING, INC., a Colorado corporation, represented by warrant certificate no. _____, standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint ______________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises. Dated: -----------, ---- ------------------------------------ By: --------------------------------- Its: -------------------------------- EX-10.4 5 ex10-4.txt AGREEMENT RELATING TO CONVERSION OF SERIES A SHARE 1 EXHIBIT 10.4 AGREEMENT The undersigned parties to the Stock Exchange Agreement between them dated January 28, 1999 (the "Agreement") hereby agree that in consideration of the continuing guaranties of Logistics Management, LLC in behalf of U.S. Trucking, Inc. the Agreement is hereby amended to immediately allow the full exchange of Series A shares provided in Section 3 of the Agreement. Dated: As of June 6, 2000 LOGISTICS MANAGEMENT, LLC U.S. TRUCKING, INC. By: /s/ Anthony Huff By: /s/ Danny Pixler ----------------------- ----------------------- Anthony Huff, a Manager Danny Pixler, President EX-10.5 6 ex10-5.txt PROMISSORY NOTE 1 EXHIBIT 10.5 PROMISSORY NOTE $1,700,000.00 AUGUST 16, 2000 FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, U.S. Trucking, Inc., a Colorado corporation ("BORROWER"), promises to pay to the order of Zanett Lombardier Master Fund, L.P., having an address at 135 E. 57th Street, 15th Street, New York, New York 10022 ("LENDER"), the principal sum of One Million Seven Hundred Thousand Dollars ($1,700,000.00) (the "LOAN AMOUNT"), together with interest as set forth below, until the date on which the Loan Amount is paid in full, payable in lawful money of the United States of America in accordance with the terms of this Promissory Note (this "NOTE"). 1. USE OF PROCEEDS. Borrower shall use the proceeds of the loan evidenced in accordance with its agreement with Lender to make payments on a line of credit Borrower has outstanding with G.E. Capital. 2. INTEREST. a. In the absence of an Event of Default (as defined hereinafter), interest shall not be charged on the outstanding principal amount hereunder. b. Upon and after the occurrence of an Event of Default, the unpaid principal balance hereunder shall accrue interest at the greater of (i) Eighteen Percent (18%) per annum and, (ii) the highest rate permitted under applicable law. c. Interest shall be calculated hereunder for the actual number of days that the principal is outstanding upon and after the occurrence of an Event of Default, based on a three hundred sixty (360) day year. Interest shall continue to accrue on the principal balance, unpaid interest, and other charges and amounts due and owing hereunder, at the then-applicable rate of interest specified in this Note, notwithstanding any demand for payment, acceleration and/or the entry of any judgment against Borrower, until all principal, unpaid interest, and other charges and amounts due and owing hereunder is paid in full. d. If at any time, the rate of interest applicable hereunder shall be finally determined by any court of competent jurisdiction, governmental agency or tribunal to exceed the maximum rate of interest permitted by any applicable law, then for such time as such rate would be deemed excessive, application thereof shall be suspended and there shall be charged in lieu thereof the maximum rate of interest permissible under such law. 3. PAYMENT. Beginning on the date which is one (1) week from the date hereof, principal payments in the amount of Twenty Thousand Dollars ($20,000.00), shall be paid by Borrower to Lender in seventeen (17) successive weekly installments. Such payments shall be due on the same weekday each week. All remaining 2 principal, interest and other charges and amounts due and owing in connection with this Note shall be due and payable on the date which is one hundred twenty (120) days from the date hereof (the "MATURITY DATE"). 4. EVENTS OF DEFAULT. Each of the following shall constitute an "EVENT OF DEFAULT" hereunder: a. Borrower fails to make, in full, any payment of interest or principal when due; b. The breach by Borrower of any covenant contained herein or the discovery by Lender of any false or misleading representation made by Borrower in any information submitted to Lender by Borrower; c. Borrower makes an assignment for the benefit of its creditors, becomes insolvent, or files or has filed against it any petition, action, case or proceeding, voluntary or involuntary, under any state or federal law regarding Bankruptcy, insolvency, reorganization, receivership or dissolution, including the United States Bankruptcy Code; d. The dissolution of Borrower; e. A writ or warrant of attachment, garnishment, execution, distraint or similar process shall have been issued against Borrower or any of Borrower's properties which shall have remained undischarged and unstayed for a period of thirty (30) consecutive days; or f. A material adverse change in the business, operations or condition, financial or otherwise, of Borrower shall have occurred. 5. LENDER'S RIGHTS UPON DEFAULT. a. Upon the occurrence of any Event of Default and without the necessity of giving any prior written notice to Borrower, Lender may (i) accelerate the maturity of this Note and all amounts payable hereunder and demand immediate payment thereof and (ii) exercise all of Lender's rights and remedies under this Note or any other document, instrument or agreement executed in connection therewith or available at law. b. In addition to the rights of Lender set forth above, for each seven (7) day period that there exists an Event of Default, the Borrower shall issue to Lender a warrant in the form attached hereto as Exhibit A for 35,000 shares of the Borrower's common stock (the "Common Stock"). The Borrower shall be obligated to issue such warrant as of 5:00 p.m. New York City time on the seventh day of each seven (7) day period an Event of Default exists. The exercise price for any and all warrants issued pursuant to this Section 5(b) shall be the lower of (i) $1.46, and (ii) eighty percent (80%) of the Closing 2 3 Bid Price (as defined below) on the date on which the Lender becomes obligated to issue such warrant. For purposes of this Section 5(b), "CLOSING BID PRICE" means (x) the Closing Bid Price of the Common Stock, as reported on The Nasdaq Over-the-Counter Bulletin Board (the "BULLETIN BOARD") by Bloomberg Financial Markets ("BLOOMBERG") on such date, or (y) if the Bulletin Board is not the principal trading market for the Common Stock, the Closing Bid Price as reported by Bloomberg on the principal trading market for the Common Stock on such date, or, if there is no sale price for such period, the last reported bid price as reported by Bloomberg, or (z) if market value cannot be calculated as of such date on any of the foregoing bases, the Closing Bid Price shall be the average fair market value as reasonably determined by an investment banking firm selected by the Borrower and reasonably acceptable to the Lender, with the costs of the appraisal to be borne by the Borrower. The shares of Common Stock in which the Lender shall receive upon exercise of any and all warrants issued pursuant to this Section 5(b) are referred to herein as the "SHARES." 6. NO FIVE PERCENT HOLDERS. Unless Zanett delivers a waiver in accordance with the last sentence of this Paragraph 6, in no event shall Zanett be entitled to receive Shares, to the extent that the sum of (a) the number of shares of Common Stock beneficially owned by Zanett and its affiliates, and (b) the number of Shares into which the warrants, issuable pursuant to Section 5(b) hereof, are exercisable would result in beneficial ownership by Zanett and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of this subparagraph, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder. Except as provided in the immediately succeeding sentence, the restriction contained in this Paragraph 6 shall not be altered, amended, deleted or changed in any manner whatsoever unless Zanett shall approve such alteration, amendment, deletion or change. Notwithstanding the foregoing, Zanett may, by providing written notice to the Company, (x) adjust the restriction set forth in this Paragraph 6 so that the limitations on beneficial ownership of 4.99% of the outstanding shares of Common Stock referred to above shall not be applicable to Zanett, which adjustment shall not take effect until the 61st day after the date of such notice and (y) irrevocably waive the right to deliver a waiver in accordance with clause (x) of this sentence; provided, however, that if such adjustment would result in beneficial ownership greater than 9.99% of the outstanding shares of Common Stock by Zanett and its affiliates then such adjustment shall not take effect until the 75th day after the date of such notice. 7. APPLICATION OF FUNDS. All sums realized by Lender on account of this Note, from whatever source received, shall be applied first to any fees, costs and expenses (including attorney's fees) incurred by Lender, second to accrued and unpaid interest, and then to principal. 8. ATTORNEY'S FEES AND COSTS. In the event that Lender engages an attorney to represent it in connection with (a) any alleged default by Borrower under this Note, 3 4 (b) any potential and/or actual bankruptcy or other insolvency proceedings commenced by or against Borrower and/or (c) any potential and/or actual litigation arising out of or related to any of the foregoing, then Borrower shall be liable to and shall reimburse Lender on demand for all attorneys' fees, costs and expenses incurred by Lender in connection with any of the foregoing. 9. WAIVER OF RIGHT TO JURY TRIAL. BORROWER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF LENDER. 10. GOVERNING LAW. This Note shall be governed by the internal laws of the State of New York without regard to conflicts of laws principles. 11. MISCELLANEOUS. a. Borrower hereby waives protest, notice of protest, presentment, dishonor, notice of dishonor and demand. To the extent permitted by law, Borrower hereby waives and releases all errors, defects and imperfections in any proceedings instituted by Lender under the terms of this Note. b. The rights and privileges of Lender under this Note shall inure to the benefit of its successors and assigns. All representations, warranties and agreements of Borrower made in connection with this Note shall bind Borrower's successors and assigns. c. If any provision of this Note shall for any reason be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, but this Note shall be construed as if such invalid or unenforceable provision had never been contained herein. d. The waiver of any Event of Default or the failure of Lender to exercise any right or remedy to which it may be entitled shall not be deemed to be a waiver of any subsequent Event of Default or of Lender's right to exercise that or any other right or remedy to which Lender is entitled. e. The rights and remedies of Lender under this Note shall be in addition to any other rights and remedies available to Lender at law or in equity, all of which may be exercised singly or concurrently. f. Lender shall have the right, without the prior consent of Borrower, to assign to an affiliate of Lender all of Lender's rights and obligations hereunder. 4 5 IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note the day and year first above written and has hereunto set hand and seal. U.S. TRUCKING, INC. By: _____________________________ Name: Title: 5 EX-21 7 ex21.txt SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21 -- Subsidiaries of the Registrant Name State of Incorporation - ---- ---------------------- Gulf Northern Transport, Inc. Wisconsin Mencor, Inc. Arkansas UST Logistics, Inc. Florida Prostar, Inc. South Carolina EX-27 8 ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM U.S. TRUCKING, INC. REVIEWED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 1,171,224 138,572 19,429,333 (1,978,665) 258,405 23,647,482 1,622,124 (668,326) 41,793,926 24,479,728 8,010,296 0 5,265,076 7,649,010 (4,519,649) 41,793,926 40,366,390 40,366,390 40,949,184 40,949,184 (414,065) 0 829,300 (998,029) 0 (998,029) (4,851,197) 0 0 (5,849,226) 0 0
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