Attached files
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EX-32.2 - US 1 INDUSTRIES INC | v202733_ex32-2.htm |
EX-32.1 - US 1 INDUSTRIES INC | v202733_ex32-1.htm |
EX-31.1 - US 1 INDUSTRIES INC | v202733_ex31-1.htm |
EX-31.2 - US 1 INDUSTRIES INC | v202733_ex31-2.htm |
FORM
10-Q
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
QUARTERLY
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended September 30, 2010.
Commission
File No. 1-8129.
US 1 INDUSTRIES,
INC.
(Exact
name of registrant as specified in its charter)
Indiana
|
95-3585609
|
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification
No.)
|
336 W. US 30, Valparaiso,
Indiana
|
46385
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant's
telephone number, including area code: (219)476-1300
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “accelerated filer, large accelerated filer”,
and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
Accelerated filer o
Non-accelerated filer þ Smaller reporting
company
(Do
not check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
As of
November 1, 2010 there were 14,243,409 shares of registrant’s common stock
outstanding.
US
1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
SEPTEMBER
30, 2010 (UNAUDITED) AND DECEMBER 31, 2009
Part
I FINANCIAL INFORMATION
Item
1. FINANCIAL STATEMENTS.
ASSETS
September 30, 2010
|
December 31, 2009
|
|||||||
(Unaudited)
|
||||||||
Accounts
receivable-trade, less allowances for doubtful accounts of $1,158,000 and
$1,147,000, respectively
|
$ | 34,167,279 | $ | 26,614,970 | ||||
Other
receivables, including receivables due from affiliated entities of
$305,000 and $861,000, respectively
|
4,401,413 | 4,427,027 | ||||||
Prepaid
expenses and other current assets
|
1,856,322 | 1,623,808 | ||||||
Current
deferred income tax asset
|
975,178 | 975,178 | ||||||
Total
current assets
|
41,400,192 | 33,640,983 | ||||||
FIXED
ASSETS:
|
||||||||
Land
|
195,347 | 195,347 | ||||||
Equipment
|
1,800,936 | 2,748,270 | ||||||
Less
accumulated depreciation and amortization
|
(928,803 | ) | (1,353,102 | ) | ||||
Net
property and equipment
|
1,067,480 | 1,590,515 | ||||||
Non-current
deferred income tax asset
|
1,107,575 | 1,107,575 | ||||||
Notes
receivable - long term
|
761,799 | 833,651 | ||||||
Intangible
assets, net
|
2,237,691 | 2,812,672 | ||||||
Goodwill
|
1,391,741 | 1,780,639 | ||||||
Other
assets
|
126,461 | 126,461 | ||||||
Total
Assets
|
$ | 48,092,939 | $ | 41,892,496 |
The
accompanying notes are an integral part of the consolidated financial
statements.
2
US
1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
SEPTEMBER
30, 2010 (UNAUDITED) AND DECEMBER 31, 2009
LIABILITIES
AND SHAREHOLDERS' EQUITY
September 30, 2010
|
December 31, 2009
|
|||||||
(Unaudited)
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Revolving
line of credit
|
$ | 8,793,398 | $ | 9,592,474 | ||||
Bank
overdraft
|
3,605,624 | 1,628,383 | ||||||
Current
portion of capital lease obligation
|
- | 30,246 | ||||||
Current
portion of long-term debt
|
19,996 | 642,413 | ||||||
Accounts
payable
|
11,665,633 | 9,538,918 | ||||||
Insurance
and claims
|
1,688,345 | 1,435,924 | ||||||
Other
accrued expenses
|
2,615,885 | 1,410,098 | ||||||
Total
current liabilities
|
28,388,881 | 24,278,456 | ||||||
LONG-TERM
DEBT, less current portion
|
39,241 | 146,878 | ||||||
CAPITAL
LEASE, less current portion
|
- | 56,241 | ||||||
SHAREHOLDERS'
EQUITY:
|
||||||||
Common
stock, authorized 20,000,000 shares: no par value; 14,838,657 shares
issued at September 30, 2010 and December 31, 2009,
respectively
|
46,985,607 | 46,978,349 | ||||||
Treasury
stock, 595,248 shares at both September 30, 2010 and December 31, 2009,
respectively
|
(952,513 | ) | (952,513 | ) | ||||
Accumulated
deficit
|
(27,297,735 | ) | (28,835,952 | ) | ||||
Total
US 1 Industries, Inc. shareholders' equity
|
18,735,359 | 17,189,884 | ||||||
Noncontrolling
Interests
|
929,458 | 221,037 | ||||||
Total
equity
|
19,664,817 | 17,410,921 | ||||||
Total
liabilities and shareholders' equity
|
$ | 48,092,939 | $ | 41,892,496 |
The
accompanying notes are an integral part of the consolidated financial
statements.
3
US
1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
Three Months Ended
|
Nine Months ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
OPERATING
REVENUES
|
$ | 56,381,475 | $ | 44,725,926 | $ | 156,446,559 | $ | 132,423,418 | ||||||||
OPERATING
EXPENSES:
|
||||||||||||||||
Purchased
transportation
|
38,614,481 | 30,582,663 | 107,859,220 | 91,615,476 | ||||||||||||
Commissions
|
8,496,843 | 6,612,716 | 23,415,543 | 18,938,513 | ||||||||||||
Insurance
and claims
|
1,500,879 | 1,186,977 | 4,512,748 | 3,911,391 | ||||||||||||
Salaries,
wages and other
|
3,206,290 | 3,224,944 | 9,261,334 | 9,900,745 | ||||||||||||
Other
operating expenses
|
2,537,182 | 2,679,477 | 7,185,977 | 8,245,813 | ||||||||||||
Total
operating expenses
|
54,355,675 | 44,286,777 | 152,234,822 | 132,611,938 | ||||||||||||
OPERATING
INCOME (LOSS)
|
2,025,800 | 439,149 | 4,211,737 | (188,520 | ) | |||||||||||
NON-OPERATING
INCOME (EXPENSE)
|
||||||||||||||||
Interest
income
|
12,977 | 3,534 | 58,008 | 49,089 | ||||||||||||
Interest
expense
|
(107,612 | ) | (127,727 | ) | (439,389 | ) | (559,049 | ) | ||||||||
Other
income (expense)
|
45,670 | 44,349 | 126,696 | 160,131 | ||||||||||||
Total
non operating (expense) income
|
(48,965 | ) | (79,844 | ) | (254,685 | ) | (349,829 | ) | ||||||||
NET
INCOME (LOSS) BEFORE INCOME TAXES
|
$ | 1,976,835 | $ | 359,305 | $ | 3,957,052 | $ | (538,349 | ) | |||||||
Income
tax expense
|
408,428 | 54,616 | 906,870 | 198,546 | ||||||||||||
NET
INCOME (LOSS) BEFORE NONCONTROLLING INTEREST
|
$ | 1,568,407 | $ | 304,689 | $ | 3,050,182 | $ | (736,895 | ) | |||||||
Income
attributable to noncontrolling interest
|
741,358 | 73,155 | 1,612,893 | (240,643 | ) | |||||||||||
NET
INCOME (LOSS) AVAILABLE TO COMMON SHARES
|
$ | 827,049 | $ | 231,534 | $ | 1,437,289 | $ | (496,252 | ) | |||||||
Basic
Net Income (Loss) Per Common Shares
|
$ | 0.06 | $ | 0.02 | $ | 0.10 | $ | (0.03 | ) | |||||||
Diluted
Net Income (Loss) Per Common Shares
|
$ | 0.06 | $ | 0.02 | $ | 0.10 | $ | (0.03 | ) | |||||||
Weighted
Average Shares Outstanding - Basic
|
14,243,409 | 14,243,409 | 14,243,409 | 14,243,409 | ||||||||||||
Weighted
Average Shares Outstanding - Diluted
|
14,302,845 | 14,243,409 | 14,294,540 | 14,243,409 |
The
accompanying notes are an integral part of the consolidated financial
statements.
4
US
1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010
Total
|
||||||||||||||||||||||||||||
US1 Industries, Inc.
|
||||||||||||||||||||||||||||
Common Stock
|
Treasury
|
Accumulated
|
Stockholders'
|
Noncontrolling
|
||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Deficit
|
Equity
|
Interests
|
||||||||||||||||||||||
Balance
at January 1, 2010
|
14,838,657 | $ | 46,978,349 | (595,248 | ) | $ | (952,513 | ) | $ | (28,835,952 | ) | $ | 17,189,884 | $ | 221,037 | |||||||||||||
Stock
Compensation Expense
|
- | 7,258 | - | - | - | 7,258 | - | |||||||||||||||||||||
Deconsolidation
of Stoops Ferry
|
100,928 | 100,928 | 55,528 | |||||||||||||||||||||||||
Net
income for the nine months ended September 30, 2010
|
- | - | - | - | 1,437,289 | 1,437,289 | 1,612,893 | |||||||||||||||||||||
Distribution
to noncontrolling interests
|
- | - | - | - | - | - | (960,000 | ) | ||||||||||||||||||||
Balance
at September 30, 2010
|
14,838,657 | $ | 46,985,607 | (595,248 | ) | $ | (952,513 | ) | $ | (27,297,735 | ) | $ | 18,735,359 | $ | 929,458 |
The
accompanying notes are in integral part of the consolidated financial
statements.
5
US
1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
SEPTEMBER
30, 2010 AND SEPTEMBER 30, 2009 (UNAUDITED)
Nine
Months
|
||||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
Income (Loss)
|
1,437,289 | (496,252 | ) | |||||
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities
|
||||||||
Depreciation
and amortization
|
710,753 | 1,164,631 | ||||||
(Gain)
Loss on disposal of assets
|
(3,412 | ) | 32,132 | |||||
Stock
compensation expense
|
7,258 | 55,643 | ||||||
Provision
for bad debts
|
706,214 | 992,614 | ||||||
Noncontrolling
interest
|
1,612,893 | (240,643 | ) | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable - trade
|
(8,284,486 | ) | 2,467,984 | |||||
Other
receivables
|
194,769 | (43,311 | ) | |||||
Notes
receivable
|
71,852 | 566,129 | ||||||
Prepaid
expenses and other current assets
|
(268,069 | ) | 284,769 | |||||
Accounts
payable
|
2,515,275 | 1,789,664 | ||||||
Insurance
and claims
|
252,421 | (342,156 | ) | |||||
Other
accrued expenses
|
1,205,787 | (669,884 | ) | |||||
Net
cash provided by operating activities
|
158,544 | 5,561,320 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Additions
to equipment
|
(112,608 | ) | (231,443 | ) | ||||
Goodwill
purchase accounting adjustment
|
- | (40,192 | ) | |||||
Proceeds
from sales of fixed assets
|
38,000 | 8,150 | ||||||
Net
cash used in investing activities
|
(74,608 | ) | (263,485 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Net
repayments under the line of credit
|
(799,076 | ) | (2,478,453 | ) | ||||
Change
in bank overdraft
|
1,952,550 | (1,217,461 | ) | |||||
Capital
lease payments
|
- | (71,062 | ) | |||||
Principal
payments of long term debts
|
(277,410 | ) | (860,500 | ) | ||||
Distributions
to noncontrolling interests
|
(960,000 | ) | (670,359 | ) | ||||
Net
cash used in financing activities
|
(83,936 | ) | (5,297,835 | ) | ||||
NET
CHANGE IN CASH
|
- | - | ||||||
CASH,
BEGINNING OF PERIOD
|
- | - | ||||||
CASH,
END OF PERIOD
|
$ | - | $ | - | ||||
Cash
paid for interest
|
$ | 451,179 | $ | 536,448 | ||||
Cash
paid for income taxes
|
$ | 198,873 | $ | 503,923 |
The
accompanying notes are an integral part of the consolidated financial
statements.
6
US
1 INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE
MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
1.
BASIS OF PRESENTATION
The accompanying consolidated balance
sheet as of September 30, 2010,the consolidated statements of income for the
three and nine month periods ended September 30, 2010 and 2009, the statements
of cash flow for the nine month periods ended September 30, 2010 and 2009, and
the statement of shareholders’ equity for the nine months ended September 30,
2010 are unaudited, but, in the opinion of management, include all adjustments
(consisting of normal, recurring accruals) necessary for a fair presentation of
the financial position and the results of operations at such date and for such
periods. The year-end balance sheet data was derived from audited
financial statements. These statements should be read in conjunction with
US 1 Industries, Inc. and Subsidiaries (“the Company”) audited consolidated
financial statements for the year ended December 31, 2009, and the notes thereto
included in the Company's Annual Report on Form 10-K. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted, as
permitted by the requirements of the Securities and Exchange Commission,
although the Company believes that the disclosures included in these financial
statements are adequate to make the information not misleading. The
results of operations for the three and nine months ended September 30, 2010 and
2009 are not necessarily indicative of the results for a full
year.
2.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Accounting
Standards Codification (“ASC”) 605-25—In October 2009, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2009-13 for updated revenue recognition guidance under the provisions
of ASC 605-25, “Multiple-Element Arrangements”. The previous guidance has been
retained for criteria to determine when delivered items in a
multiple-deliverable arrangements should be considered separate units of
accounting, however the updated guidance removes the previous separation
criterion that objective and reliable evidence of fair value of any undelivered
items must exist for the delivered items to be considered a separate unit or
separate units of accounting. This guidance is effective for fiscal years
beginning on or after June 15, 2010. The Company does not expect that the
adoption of this guidance will have a material effect on the Company’s
consolidated results of operations, financial position or cash
flows.
ASC
815—In March 2010, the FASB issued ASU 2010-11, “Scope Exception Related to
Embedded Credit Derivatives” to address questions that have been raised in
practice about the intended breadth of the embedded credit derivative scope
exception in paragraphs 815-15-15-8 through 815-15-15-9 of ASC 815, “Derivatives
and Hedging”. The amended guidance clarifies that the scope exception
applies to contracts that contain an embedded credit derivative that is only in
the form of subordination of one financial instrument to another. This guidance
is effective on July 1, 2010 for the Company. The adoption of this
guidance is not expected to have a material impact on the Company’s consolidated
financial position, results of operations or cash flows.
ASC 810— On January 1, 2010 the Company
adopted the provisions of ASU No. 2009-17, Consolidations: Improvements to
Financial Reporting by Enterprises Involved with Variable Interest Entities,
which requires reporting entities to evaluate former qualifying special purpose
entities for consolidation, changes the approach to determining a VIE’s primary
beneficiary from a quantitative assessment to a qualitative assessment designed
to identify a controlling financial interest, and increases the frequency of
required reassessments to determine whether a company is the primary beneficiary
of a VIE. It also clarifies, but does not significantly change, the
characteristics that identify a VIE. As a result, the Company concluded that
Stoops Ferry, LLC no longer qualifies for consolidation into ARL; the net
assets, including goodwill, and retain earnings were removed from the Company’s
financial statements accordingly. The impact of this deconsolidation was
not material to the Company’s financial statements.
7
3.
RECLASSIFICATIONS
Certain
reclassifications have been made to the previously reported 2009 financial
statements to conform to the 2010 presentation.
4.
EARNINGS PER SHARE
The
Company calculates earnings per share (“EPS”) in accordance with SFAS No. 128,
which was primarily codified into ASC 260-10. Following is the
reconciliation of the numerators and denominators of basic and diluted
EPS.
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Numerator
|
||||||||||||||||
Net
income (loss) available to common shareholders for basic and diluted
EPS
|
$ | 827,049 | $ | 231,534 | $ | 1,437,289 | $ | (496,252 | ) | |||||||
Denominator
|
||||||||||||||||
Weighted
average common shares outstanding for basic EPS
|
14,243,409 | 14,243,409 | 14,243,409 | 14,243,409 | ||||||||||||
Weighted
average common shares outstanding for diluted EPS
|
14,302,845 | 14,243,409 | 14,294,540 | 14,243,409 |
The
Company has no other options or warrants to purchase common stock
outstanding.
5.
REVENUE RECOGNITION
Revenue
for freight is recognized upon delivery. The Company accounts for its revenue in
accordance with Emerging Issues Task Force (“EITF”) 99-19, “Reporting Revenue
Gross as a Principal Versus Net as an Agent,” which was primarily codified into
ASC topic 605. Amounts payable for purchased transportation, commissions and
insurance are accrued when incurred. The Company follows guidance of this
standard and records revenues at the gross amount billed to customers because
the Company (1) determined it operates as the primary obligor, (2) typically is
responsible for damages to goods and (3) bears the credit risk.
6.
BANK LINE OF CREDIT
The
Company and its subsidiaries have a $17.5 million line of credit that was
amended on September 28, 2010. The amendment included (1) an extension of
the maturity date from October 1, 2010 to October 1, 2011, (2) a modification of
the interest rate to LIBOR plus 3.35%, (3) a modification of the provision for
the minimum debt service ratio to deduct nonrecurring and non-cash gains from
the numerator, and, (4) the deletion of Unity Logistics Services Inc. (“Unity”)
and ERX, Inc. (“ERX”) as part of the borrowing entity. This line of credit
matures on October 1, 2011. Historically the revolving line of credit has
been extended prior to maturity and management anticipates that this will occur
in 2011. Advances under this revolving line of credit are limited to 75%
of eligible accounts receivable. Unused availability under the amended
line of credit was $8.7 million at September 30, 2010. As of
September 30, 2010, the interest rate on this line of credit was 3.663%.
The Company’s accounts receivable, property, and other assets are collateral
under the agreement. Borrowings up to $3.0 million are guaranteed by the
Chief Executive Officer and Chief Financial Officer of the Company. At September
30, 2010, the outstanding borrowings on this line of credit were $8.8
million.
8
This line of credit is subject to
termination upon various events of default, including failure to remit timely
payments of interest, fees and principal, any adverse change in the business of
the Company or failure to meet certain financial covenants. As of
September 30, 2010, financial covenants include: minimum debt service ratio,
maximum total debt service coverage ratio, limits on capital expenditures,
prohibition of dividends and distributions that would put the Company out of
compliance, and prohibition of additional indebtedness without prior
authorization. At September 30, 2010, the Company, and its subsidiaries
were in compliance with these financial covenants.
On
January 15, 2009, the Company and its subsidiaries entered into a no cost
Interest Rate Swap Agreement with U.S. Bank effective February 2, 2009 through
February 1, 2012. This agreement is in the notional amount of $10.0
million from February 2, 2009 through January 31, 2010, then $7.0 million from
February 1, 2010 through January 31, 2011, then $4.0 million from February 1,
2011 to February 1, 2012. The agreement provides for the Company to pay
interest at an annual rate of 1.64% times the notional amount of the swap
agreement, and U.S. Bank pay interest at the LIBOR rate times the notional
amount of the swap. The Company did not enter into this agreement for
speculative purposes. The Company recorded the fair value of the interest
rate swap resulting in interest expense of approximately $0.08 million for the
nine months ended September 30, 2010. The fair value of the interest rate
swap was minimal at December 31, 2009.
7.
EQUITY TRANSACTIONS
In
December 2008, as part of the acquisition of ARL, the Company granted two
employees a total of 300,000 options to purchase shares of common stock at an
exercise price of $0.80 per share. These options vest over 4 years,
however 150,000 options vested early in 2009 due to one employee’s
termination. All options expire by December 18, 2018. The fair value
of these options of $0.1 million was calculated using a Black Scholes
Model. During 2009, the Company recorded stock compensation expense of
$0.06 million and the remainder is to be recorded through 2012. The
Company has no other options or warrants to purchase common stock outstanding as
of September 30, 2010.
8.
LEGAL PROCEEDINGS
The
Company and its subsidiaries are involved in certain litigation matters in the
normal course of its business. Management intends to vigorously defend these
cases. In the opinion of management, any negative outcome from litigation now
pending will not have a material adverse affect on the consolidated financial
statements of the Company.
9.
INCOME TAXES
The
Company files a consolidated US income tax return and tax returns in various
states and local jurisdictions. Income tax expense increased $0.7 million
for the nine months ended September 30, 2010 to $0.9 million, an effective tax
rate of 39.0%, for the nine months ended September 30, 2010 from $0.2
million for the nine months ended September 30, 2009. In 2009, income tax
expense is related to state and local taxes, as each subsidiary of the Company
is required to file stand-alone state tax returns and pay taxes based on certain
apportionment factors. As such, each subsidiary was not able to obtain
state tax benefits for the losses generated by the consolidated entity, and was
required to pay quarterly state taxes. The Company is also required to
file in certain states that use a gross margin tax as opposed to an income
tax. As a result, the effective tax rate in both 2010 and 2009 will vary
from the statutory rate because the state tax does not necessarily bear a
direct relationship to net income.
9
Item
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
Results
of Operations
You
should read the following discussion regarding the Company and its subsidiaries
along with the Company’s consolidated financial statements and related notes
included in this quarterly report. The following discussion contains
forward-looking statements that are subject to risks, uncertainties and
assumptions. The Company’s actual results, performance and achievements in
2010 and beyond may differ materially from those expressed in, or implied by,
these forward-looking statements.
The
financial statements and related notes contained elsewhere in this Form 10-Q as
of and for the three months and nine months ended September 30, 2010 and 2009
and in the Company’s Form 10-K for its fiscal year ended December 31, 2009, are
essential to an understanding of the comparisons and are incorporated by
reference into the discussion that follows.
Purchased
transportation represents the amount an independent contractor is paid to haul
freight and is primarily based on a contractually agreed-upon percentage of
revenue generated by the haul for truck capacity provided by independent
contractors. Because the Operating Subsidiaries generally do not own their
own trucks, purchased transportation is the largest component of the Company’s
operating expenses and increases or decreases in proportion to the revenue
generated through independent contractors. Commissions to agents and
brokers are similarly based on contractually agreed-upon percentages of
revenue.
A
majority of the Company’s insurance expense, through its subsidiaries, is based
on a percentage of revenue and, as a result, will increase or decrease with the
Company’s revenue. Potential liability associated with accidents in the
trucking industry is severe and occurrences are unpredictable. A material
increase in the frequency or severity of accidents or the unfavorable
development of existing claims could adversely affect the Company’s operating
income.
Historically
salaries, wages, fringe benefits, and other operating expenses had been
principally non-variable expenses and remained relatively fixed with slight
changes in relationship to revenue. However, since the Company, through
its subsidiaries, has added certain operations, which utilize employees rather
than independent agents, these non-variable expenses may not be directly
comparable.
Nine
months ended September 30, 2010 compared to the nine months ended September 30,
2009
The
following table sets forth the percentage relationships of expense items to
revenue for the nine months ended September 30, 2010 and September 30,
2009:
2010
|
2009
|
|||||||
Revenue
|
100.0 | % | 100.0 | % | ||||
Operating
expenses:
|
||||||||
Purchased
transportation
|
68.9 | % | 69.2 | % | ||||
Commissions
|
15.0 | % | 14.3 | % | ||||
Insurance
and claims
|
2.9 | % | 2.9 | % | ||||
Salaries,
wages and other
|
5.9 | % | 7.5 | % | ||||
Other
operating expenses
|
4.6 | % | 6.2 | % | ||||
Total
operating expenses
|
97.3 | % | 100.1 | % | ||||
Operating
income (loss)
|
2.7 | % | -0.1 | % |
10
Nine
months ended September 30, 2010 compared to the nine months ended September 30,
2009 (continued)
The
Company's operating revenues increased by $24.0 million, to $156.4 million for
the nine months ended September 30, 2010 from $132.4 million for the same period
in 2009. This is an increase of 18.1%. The increase is primarily
attributable to the increase of load activity. The Company’s majority
owned operations saw revenues increase by $24.2 million to $100.1 million for
the nine months ended September 31, 2010 from $75.9 million for the same period
in 2009. This is an increase of 31.9%. This increase is primarily
attributable to an increase in load activity at several of the majority owned
operations, locations, as well as several new offices.
Purchased
transportation and commission expense generally increase or decrease in
proportion to the revenue generated through independent contractors. Many
agents negotiate a combined percentage payable for purchased transportation and
commission. Purchased transportation and commission together increased
0.4% as a percentage of revenue for the nine months ended September 30, 2010
from the same period of time in 2009. Purchased transportation expense
decreased 0.3% as a percentage of operating revenue from 69.2% for the nine
months ended September 30, 2009 to 68.9% for the nine months ended September 30,
2010. The mix between the amounts of purchased transportation paid versus
commissions paid may vary slightly based on agent negotiations with independent
owner operators. In addition, pay on certain types of revenue may be
higher than for other types of revenue. Thus a change in the mix of
revenue can cause some variation in the percent paid out for purchased
transportation and commission. However, in total, commissions and
purchased transportation would typically be expected to remain relatively
consistent as a percentage of revenue. Commission
expense increased 0.7% as a percentage of operating revenue from 14.3% for the
nine months ended September 30, 2009 to 15.0% for the nine months ended
September 30, 2010. The increase in purchased transportation and
commissions is the result of increased brokerage activity at several of the
Company’s operations. Brokered loads pay a higher percentage of purchased
transportation and commission as carriers are responsible for paying their own
liability insurance. Purchased transportation and commissions at the
Company’s majority owned subsidiaries increased by $20.7 million which accounts
for 97.3% of the total increase. The increase is related to the increased
revenues at these majority owned subsidiaries. Purchased transportation and
commission expense at the Company’s majority owned operations decreased from
87.2% of operation revenue to 86.2% for the nine months ended September 30, 2009
and 2010, respectively.
Salaries expense is not directly
variable with revenue and has decreased $0.6 million for the nine months ended
September 30, 2010 compared to the same period of time in 2009. This
decrease in salaries expense is primarily attributable to the Company’s majority
owned subsidiaries that have restructured the workloads in order to cut
costs. Salaries expense decreased 1.6% as a percentage of operating
revenue from 7.5% for the nine months ended September 30, 2009 to 5.9% for the
nine months ended September 30, 2010.
Insurance
and claims remained consistent at 2.9% of operating revenue for the nine months
ended September 30, 2010 and for the same period of time in 2009. A
majority of the insurance and claims expense is based on a percentage of revenue
and, as a result, will increase or decrease on a consolidated basis with the
Company’s revenue. Potential liability associated with accidents in the
trucking industry is severe and occurrences are unpredictable. A material
increase in the frequency or severity of accidents or the unfavorable
development of existing claims could adversely affect the Company’s operating
income.
Other
operating expenses decreased to 4.6% of revenue for the nine months ended
September 30, 2010 from 6.2% of revenue for the nine months ended September 30,
2009. The Company experienced a defalcation related to accounts receivable
which resulted in an increase in the Company’s bad debt expense of approximately
$0.7 million during the first nine months of 2009. There was no such defalcation
related expenses during the first nine months of 2010. In addition, the
Company experienced a decrease in depreciation and amortization expense for the
first nine months of 2010 related to the deconsolidation of Stoops Ferry, an
office that was formerly consolidated as part of one of the Company’s majority
owned subsidiaries. The Company experienced a decrease in rent expense
related to the expiration of certain leases. The defalcation, decrease in
depreciation and amortization, and a portion of the decrease in rent expense
noted above were reflected in the performance of the Companies majority owned
subsidiaries which is a partial reflection of the improved operating performance
of those subsidiaries.
11
Interest
expense decreased $0.2 million from $0.6 million for the nine months ended
September 30, 2009 to $0.4 million for the nine months ended September 30,
2010. This decrease is primarily attributable to decreased notes payable
and borrowings against the Company’s line of credit and decreased interest rates
on the line of credit. The Company’s interest being charged on the line of
credit decreased from 4.600% as of September 30, 2009 to 3.663% as of September
30, 2010. Under the amended line of credit agreement, the Company’s
interest rate is based upon certain financial covenants and may range from “One
Month LIBOR” plus 3.35%.
Other
income includes income from rental property, storage and equipment usage fees
and other administrative fee income. Other income decreased $0.04 million
from $0.16 million for the nine months ended September 30, 2009 to $0.12 million
for the nine months ended September 30, 2010. This decrease in other
income is the result of the Company experiencing a decrease in administrative
fee income for the nine months ended September 30, 2010.
The
Company also recognized noncontrolling interest expense of $1.6 million for the
nine months ended September 30, 2010 compared to noncontrolling interest income
of ($0.2 million) for the nine months ended September 30, 2009 relating to the
minority shareholders’ portion of income or loss generated by our majority owned
subsidiaries, ARL Transport, LLC, Carolina National Transportation, LLC and US1
Logistics, LLC. This increase in noncontrolling interest expense is a
result of increased net income of the subsidiaries who have minority
shareholders.
Income
tax expense increased $0.7 million for the nine months ended September 30, 2010
to $0.9 million, an effective tax rate of 39.0% from $0.2 million for the nine
months ended September 30, 2009. In 2009, income tax expense is related to
state and local taxes, as each subsidiary of the Company is required to file
stand-alone state tax returns and pay taxes based on certain apportionment
factors. As such, each subsidiary was not able to obtain state tax
benefits for the losses generated by the consolidated entity, and was required
to pay quarterly state taxes. The Company is also required to file in
certain states that use a gross margin tax as opposed to an income tax. As
a result, the effective tax rate will vary in both 2010 and 2009 from the
statutory rate because the state tax does not necessarily bear a direct
relationship to net income.
As a
result of the factors outlined above, net income attributed to US 1 Industries,
Inc. for the nine months ended September 30, 2010 was $1.4 million compared to a
net loss attributed to US 1 Industries, Inc. of ($0.5 million) for the nine
months ended September 30, 2009.
12
Three
months ended September 30, 2010 compared to the three months ended September 30,
2009.
The
following table sets forth the percentage relationships of expense items to
revenue for the three months ended September 30, 2010 and September 30,
2009:
2010
|
2009
|
|||||||
Revenue
|
100.0 | % | 100.0 | % | ||||
Operating
expenses:
|
||||||||
Purchased
transportation
|
68.5 | % | 68.4 | % | ||||
Commissions
|
15.0 | % | 14.8 | % | ||||
Insurance
and claims
|
2.7 | % | 2.6 | % | ||||
Salaries,
wages and other
|
5.7 | % | 7.2 | % | ||||
Other
operating expenses
|
4.5 | % | 6.0 | % | ||||
Total
operating expenses
|
96.4 | % | 99.0 | % | ||||
Operating
income (loss)
|
3.6 | % | 1.0 | % |
The
Company's operating revenues increased by $11.7 million to $56.4 million for the
three months ended September 30, 2010 from $44.7 million for the same period in
2009. This is an increase of 26.1%. This increase is primarily
attributable to the increase of load activity. The Company’s majority
owned operations saw revenues increase by $12.3 million to $37.4 million for the
three months ended September 30, 2010 from $25.1 million for the same period of
time in 2009. This is an increase of 48.8%. This increase is
primarily attributable to an increase in load activity at several of the
majority owned operations, locations, as well as several new
offices.
Purchased
transportation and commission expense generally increase or decrease in
proportion to the revenue generated through independent agents. Many
agents negotiate a combined percentage payable for purchased transportation and
commission. Purchased transportation and commission together increased
0.3% as a percentage of revenue for the three months ended September 30, 2010
from the same period of time in 2009. Purchased transportation expense
increased 0.1% as a percentage of operating revenue from $30.6 million for the
three months ended September 30, 2009 to $38.6 million for the three months
ended September 30, 2010. The mix between the amounts of purchased
transportation paid versus commissions paid may vary slightly based on agent
negotiations with independent owner operators. In addition, pay on certain
types of revenue may be higher than for other types of revenue. Thus a
change in the mix of revenue can cause some variation in the percent paid out
for purchased transportation and commission. However, in total,
commissions and purchased transportation would typically be expected to remain
relatively consistent as a percentage of revenue. Commission expense
increased by 0.2% as a percentage of revenue for the three months ended
September 30, 2010 from $6.6 million for the three months ended September 30,
2009 to $8.5 million for the same period in 2010. This increase in
purchased transportation and commissions is the result of increased brokerage
activity at several of the Company’s operations. Brokered loads pay a
higher percentage of purchased transportation and commission as carriers are
responsible for paying their own liability insurance. Purchased
transportation and commissions at majority owned subsidiaries increased by $10.1
million. Purchased transportation and commission expense at the Company’s
majority owned operations decreased from 87.2% of operation revenue to 85.6% for
the three months ended September 30, 2009 and 2010,
respectively.
13
Three
months ended September 30, 2010 compared to the three months ended September 30,
2009 (continued)
Salaries
expense is not directly variable with revenue and decreased approximately $0.01
million or 1.5% as a percentage of operating revenue for the three months ended
September 30, 2010 compared to the same period of time in 2009. Salaries
expense remained relatively consistent at $3.2 million for the three months
ended September 30, 2009 and 2010. Because salaries are not variable, the
increase in revenue will not directly result in an increase in salaries
expense. This decrease in salaries expense is primarily attributable to
subsidiaries of the company that have closed offices and restructured the
workloads in order to cut costs.
Insurance
and claims increased by $0.3 million for the three months ended September 30,
2010 from $1.2 million for the three months ended September 30, 2009 to $1.5
million for the three months ended September 30, 2010. As a percentage of
revenue, insurance and claims remained relatively consistent at to 2.7% of
operating revenue for the three months ended September 30, 2009 and 2.6% for the
same period of time in 2010. A majority of the insurance and claims
expense is based on a percentage of revenue and, as a result, will increase or
decrease on a consolidated basis with the Company’s revenue. Potential
liability associated with accidents in the trucking industry is severe and
occurrences are unpredictable. A material increase in the frequency or
severity of accidents or the unfavorable development of existing claims could
adversely affect the Company’s operating income.
Other
operating expenses decreased to 4.5% as a percentage of revenue for the three
months ended September 30, 2010 from 6.0% as a percentage of revenue for the
three months ended September 30, 2009. The actual dollar amount decreased
to approximately $2.5 million for the three months ended September 30, 2010 from
approximately $2.7 million for the three months ended September 30, 2009.
The decrease is largely attributable to the deconsolidation of Stoops Ferry,
reduced rent expense due to expired leases at facilities that are no longer in
use, and a decrease in bad debt expense.
Interest
expense remained relatively consistent at $0.1 million for the three months
ended September 30, 2009 and 2010. Under the amended line of credit
agreement, the interest rate is based upon certain financial covenants and may
range from “One Month LIBOR” plus 3.35%. The Company’s interest rate as of
September 30, 2010 was 3.663% compared to 4.600% at September 30,
2009.
Other
income includes income from rental property, storage and equipment usage fees
and other administrative fee income. In 2009, other income was reduced by
expenses related to Stoops Ferry. In the first quarter 2010, Stoops Ferry
was deconsolidated. Other income remained consistent for the third quarter
2010 compared to the third quarter 2009.
The
Company also recognized noncontrolling interest expense of $0.7 million for the
three months ended September 30, 2010 compared to $0.07 million for the three
months ended September 30, 2009 relating to the minority shareholders’ portion
of income or (loss) generated by our majority owned subsidiaries, ARL Transport,
LLC, Carolina National Transportation, LLC and US1 Logistics, LLC.
This increase in noncontrolling interest expense is a result of increased net
income of the subsidiaries that have minority shareholders.
The
Company files a consolidated US income tax return and tax returns in various
states and local jurisdictions. Federal Income tax expense is approximately $0.4
million, an effective tax rate of 34.0%, for the three months ended September
30, 2010 compared to $0.05 million for the three months ended September 30,
2009. State tax is approximately $0.04 million for the three months ended
September 30, 2010 and 2009 respectively. Each subsidiary of the Company
is required to file stand-alone state tax returns and pay taxes based on certain
apportionment factors. As such, each subsidiary was not able to obtain
state tax benefits for the losses generated by the consolidated entity, and was
required to pay quarterly state taxes. The Company is also required to
file in certain states that use a gross margin tax as opposed to an income
tax. As a result, the effective tax rate will vary from the statutory rate
because the state tax does not necessarily bear a direct relationship to
net income.
14
As a result of the factors outlined
above, the Company experienced net income in the amount of $0.8 million for the
three months ended September 30, 2010 compared to net income of $0.2 million for
the three months ended September 30, 2009.
Liquidity
and Capital Resources
During the nine months ended September
30, 2010, the Company’s financial position improved. The Company had total
shareholders’ equity of $18.7 million at September 30, 2010 compared with $17.2
million at December 31, 2009.
Net cash
provided by operating activities decreased $5.4 million from providing cash of
$5.6 million for the nine months ended September 30, 2009 to $0.2 million for
the nine months ended September 30, 2010. Working capital needs used cash
of $4.3 million during the nine months ended September 30, 2010. For the
nine months ended September 30, 2009, working capital needs provided cash of
$4.1 million.
The
Company experienced an increase in accounts receivable for the nine months ended
September 30, 2010 of $8.3 million due to an increase in revenues which was
partially offset by an increase in customer payments for the nine months ended
September 30, 2010.
Other
receivables provided cash for the nine months ended September 30, 2010 in the
amount of $0.2 million compared to cash used of $0.04 million for the same
period in 2009. The largest contributor to this change is a decrease in owner
operator advances associated with the daily operations of the Company. The
Company, through its subsidiaries, makes advances reported under Other
Receivable to owner operators and agents in the normal course of business.
Generally the largest contributor to change in other receivables is owner
operator advances associated with the daily operations of the Company.
These advances typically are collected each week during the settlement process.
Owner operator settlements are the weekly process of paying for the loads that
have been completed. The advances do not earn interest. The balance
of these advances was $4.3 million and $4.4 million at September 30, 2010 and
December 31, 2009, respectively.
Notes
receivable provided cash for the nine months ended September 30, 2010 in the
amount of $0.1 million compared to providing cash of $0.6 million in the same
period in 2009. The decrease in cash provided was primarily a result of
additional notes to agents as well as lower repayments. The Company, through its
subsidiaries, periodically makes advances under notes receivable to certain
agents and owner operators in the normal course of business. Notes may be
issued for a number of reasons, but typically to provide capital for business
expansion and this is the main reason for material changes in the balance of
notes receivable.
Accounts
Payable provided $2.5 million in cash for the nine months ended September 30,
2010 compared to $1.8 million for the same period in 2009. This increase
in cash provided from accounts payable during the nine months ended September
30, 2010 is attributable to the timing of payables made to owner operators and
increased load activity at some of the company’s operations.
Net cash
used in investing activities was $0.1 million for the nine months ended
September 30, 2010 compared to $0.3 million for the same period in 2009.
The net cash used in investing activities is primarily due to the purchase
of fixed assets.
Net cash
used by financing activities was $0.1 million for the nine months ended
September 30, 2009 compared to net cash used in financing activities of $5.3
million for the nine months ended September 30, 2010. This is an increase
of $5.2 million. For the nine months ended September 30, 2010, net
repayments under the line of credit were $0.8 million compared to repayments of
$2.5 million for the nine months ended September 30, 2009. For the nine
months ended September 30, 2010, the Company distributed $1.0 million to
minority shareholders of the Company’s majority owned subsidiaries compared to
$0.7 million for the nine months ended September 30, 2009. Net cash used
in repayments of long term debt was $0.3 million and $0.9 million for the nine
months ended September 30, 2010 and 2009 respectively. The increase in
bank overdraft provided net cash of $2.0 million for the nine months ended
September 30, 2010 compare to using net cash of $1.2 million for the nine months
ended September 30, 2009.
15
The
Company and its subsidiaries have a $17.5 million line of credit that was
amended on September 28, 2010. The amendment included (1) an extension of
the maturity date from October 1, 2010 to October 1, 2011, (2) a modification of
the interest rate to LIBOR plus 3.35%, (3) a modification of the provision for
the minimum debt service ratio to deduct nonrecurring and non-cash gains from
the numerator, and, (4) the deletion of Unity Logistics Services Inc. (“Unity”)
and ERX, Inc. (“ERX”) as part of the borrowing entity. This line of credit
matures on October 1, 2011. Historically the revolving line of credit has
been extended prior to maturity and management anticipates that this will occur
in 2011. Advances under this revolving line of credit are limited to 75%
of eligible accounts receivable. Unused availability under the amended
line of credit was $8.7 million at September 30, 2010. As of
September 30, 2010, the interest rate on this line of credit was 3.663%.
The Company’s accounts receivable, property, and other assets are collateral
under the agreement. Borrowings up to $3.0 million are guaranteed by the
Chief Executive Officer and Chief Financial Officer of the Company. At September
30, 2010, the outstanding borrowings on this line of credit were $8.8
million.
This line of credit is subject to
termination upon various events of default, including failure to remit timely
payments of interest, fees and principal, any adverse change in the business of
the Company or failure to meet certain financial covenants. As of
September 30, 2010, financial covenants include: minimum debt service ratio,
maximum total debt service coverage ratio, limits on capital expenditures,
prohibition of dividends and distributions that would put the Company out of
compliance, and prohibition of additional indebtedness without prior
authorization. At September 30, 2010, the Company, and its subsidiaries
were in compliance with these financial covenants.
On
January 15, 2009, the Company and its subsidiaries entered into a no cost
Interest Rate Swap Agreement with U.S. Bank effective February 2, 2009 through
February 1, 2012. This agreement is in the notional amount of $10.0
million from February 2, 2009 through January 31, 2010, then $7.0 million from
February 1, 2010 through January 31, 2011, then $4.0 million from February 1,
2011 to February 1, 2012. The agreement provides for the Company to pay
interest at an annual rate of 1.64% times the notional amount of the swap
agreement, and U.S. Bank pay interest at the LIBOR rate times the notional
amount of the swap. The Company did not enter into this agreement for
speculative purposes. The Company recorded the fair value of the interest
rate swap resulting in interest expense of approximately $0.08 million for the
nine months ended September 30, 2010. The fair value of the interest rate
swap was minimal at December 31, 2009.
The
Company’s primary sources of liquidity consist of cash on hand generated through
operations and availability under the line of credit agreement. The
Company believes these sources are sufficient to operate its business and meet
its obligations.
Certain
Relationships and Related Transactions.
One of the Company’s subsidiaries
provides safety, management, and accounting services to companies controlled by
the Chief Executive Officer and Chief Financial Officer of the Company.
These services are priced to cover the cost of the employees providing the
services and the overhead.
The Company has approximately $0.3
million of other accounts receivable due from entities that could be deemed to
be under common control as of September 30, 2010.
16
The
primary auto liability insurance provider for the Company’s subsidiaries, which
also provides some cargo insurance coverage, is American Inter-Fidelity Exchange
(AIFE). AIFE also provides insurance coverage to various other entities in
which the Company’s two largest shareholders have interests. AIFE is a
“reciprocal” insurance company regulated by the Indiana Department of
Insurance. As a reciprocal, if AIFE incurs a net loss, the loss may be
allocated to the various policyholders based on each policyholder’s premium as a
percentage of the total premiums of AIFE for the applicable period. There
was no such loss assessment for any of the three years in the period ended
December 31, 2009 or the three or nine months ended September 30, 2010. If
AIFE incurs a profit, profits may be allocated based on the underwriting profit
that AIFE earns. AIFE’s underwriting profit from US1 business is generally
is less than 20% of the total profit. Also as a reciprocal, AIFE
does not have any equity owners and is managed pursuant to an attorney-in-fact
arrangement and subscriber agreements with policyholders. The
attorney-in-fact is American Inter-Fidelity Company, which is, and has been for
many years, owned by three of the Company’s directors and managed by one of
those directors.
The Company has premium deposits of
$126,461 with AIFE, which it treats as an investment for accounting
purposes. For the three months ended September 30, 2010, the Company and
its subsidiaries paid AIFE approximately $1.0 million and $3.2 million for the
nine months ended September 30, 2010 for insurance premiums and deductibles,
respectively. For the years ended December 31, 2009 and 2008, the Company
and its subsidiaries paid AIFE approximately $3.9 million and $4.9 million for
insurance premiums and deductibles, respectively. Approximately one-half
of those premiums were premiums collected from leased owner operators insurance
programs and not a direct obligation of the Company.
The Company accounts for its investment
in AIFE (the premium deposits referenced above) under the cost method as the
Company does not have, and has never exercised, control over AIFE. Under
the cost method, the investment in AIFE is reflected at its original amount and
income is recognized only to the extent of dividends paid by the investee.
AIFE did not pay any dividends to the Company or its subsidiaries during the
three or nine months ended September 30, 2010 and 2009, nor has it paid any
dividends previously. Moreover, the payment of dividends would require
regulatory approval. The Company has concluded that It is doubtful that
sufficient control exists for the Company to consider consolidating the
financial results of AIFE into the Company’s financial statements.
Mr.
Kibler, the Chief Executive Officer and a director of the Company, Mr. Antonson,
the Chief Financial Officer and a director of the Company, as well as Mr.
Venditti, a director of the Company, are the sole shareholders of American
Inter-Fidelity Corporation (“AIFC”), which serves as the attorney in fact of
AIFE. AIFC is entitled to receive a management fee from AIFE. AIFE
incurred management fees of approximately $0.5 million for the years ended
December 31, 2009 and 2008, respectively. These management fees are
available to be paid as dividends to these officers and directors of the
Company.
Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest
Rate Risk
The
Company has a revolving line of credit with US Bank which currently bears
interest at the “One Month LIBOR” plus 3.35% (at September 30, 2010 the
interest rate was 3.663%). The interest rate was based on certain
financial covenants. A one percentage point change in the LIBOR rate would
result in approximately $0.1 million in additional expense
annually.
On
January 15, 2009, the Company and its subsidiaries entered into a no cost
Interest Rate Swap Agreement with U.S. Bank effective February 2, 2009 through
February 1, 2012. This agreement is in the notional amount of $10.0
million from February 2, 2009 through January 31, 2010, then $7.0 million from
February 1, 2010 through January 31, 2011, then $4.0 million from February 1,
2011 to February 1, 2012. The agreement provides for the Company to pay
interest at an annual rate of 1.64% times the notional amount of the swap
agreement, and U.S. Bank pay interest at the LIBOR rate times the notional
amount of the swap. The Company did not enter into this agreement for
speculative purposes. The Company recorded the fair value of the interest
rate swap resulting in interest expense of approximately $0.08 million for the
nine months ended September 30, 2010. The fair value of the interest rate
swap was minimal at December 31, 2009.
17
Item
4. CONTROLS AND PROCEDURES
The
Company and its subsidiaries maintain disclosure controls and procedures that
are designed to ensure that information required to be disclosed in the
Company's Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms, and that such
information is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As
required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and the Company's Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures as of the end of the period covered by this report.
Based on the foregoing, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective at the reasonable assurance level.
Item
4T. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There
were no changes in the Company’s internal control over financial reports (as
such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred
during the quarterly period ended September 30, 2010 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
Part
II OTHER INFORMATION
Item
6. EXHIBITS
The following exhibits, numbered in
accordance with Item 601 of Regulation S-K, are filed as part of this
report:
Exhibit
10.8
|
Eighth Amendment to Amended
and Restated Loan Agreement (“Amendment”), dated as of September
28, 2010 is between GULF LINE TRANSPORT LLC., an Indiana limited liability
company, formerly known as Gulf Line Transport, Inc. (“Gulf Line”); FIVE
STAR TRANSPORT, LLC., an Indiana limited liability company, formerly known
as Five Star Transport, Inc. (“Five Star”); CAM TRANSPORT, INC., an
Indiana corporation (“CAM”); FRIENDLY TRANSPORT, LLC, an Indiana limited
liability company, formerly known as Friendly Transport, Inc.
(“Friendly”); TRANSPORT LEASING, INC., an Arkansas corporation (“Transport
Leasing”); KEYSTONE LINES, a California corporation (“Keystone Lines”);
HARBOR BRIDGE INTERMODAL, INC., an Indiana corporation (“Harbor”); PATRIOT
LOGISTICS, INC., an Indiana corporation (“Patriot”); LIBERTY TRANSPORT,
INC., an Indiana corporation (“Liberty”); KEYSTONE LINES CORP., an Indiana
corporation, formerly known as Keystone Lines Corporation (“Keystone”), TC
SERVICES, INC., an Indiana corporation (“TC Services”); KEYSTONE
LOGISTICS, INC., an Indiana corporation ("Keystone Logistics"); CAROLINA
NATIONAL TRANSPORTATION LLC, an Indiana limited liability company
("Carolina National"); CAROLINA NATIONAL LOGISTICS, INC., an Indiana
corporation (“Carolina Logistics”); FREEDOM 1 LLC, an Indiana limited
liability company, formerly known as Freedom Logistics, LLC ("Freedom");
THUNDERBIRD LOGISTICS, LLC, an Indiana limited liability company
("Thunderbird Logistics"); THUNDERBIRD MOTOR EXPRESS, LLC, an Indiana
limited liability company ("Thunderbird Motor"); BLUE & GREY TRANSPORT
COMPANY, INC., an Indiana corporation, ("Blue & Grey"); FREIGHTMASTER
USA, LLC, an Indiana limited liability company ("Freightmaster"); US 1
CORP., an Indiana corporation ("US 1"); ANTLER TRANSPORT, LLC, an Indiana
limited liability company ("Antler"); RISK INSURANCE SERVICES OF INDIANA
LLC, an Indiana limited liability company ("Risk"); BRUIN EXPRESS
INTERMODAL LLC, an Indiana limited liability company ("Bruin"); US 1
LOGISTICS, LLC, an Indiana limited liability company ("US 1 Logistics")
US 1 INDUSTRIES, INC., an Indiana corporation (“Industries”), TC
ADMINISTRATIVE SERVICES, INC., a California corporation ("TC"); ARL
TRANSPORT LLC, a Delaware limited liability company (“ARL”) and AFT
TRANSPORT LLC, a Delaware limited liability company (“AFT”). (Gulf
Line, Five Star, CAM, Risk, Bruin, Friendly, Transport Leasing, Keystone
Lines, Harbor, Patriot, Liberty, Keystone, TC Services, Keystone
Logistics, Carolina National, Carolina Logistics, Freedom, Thunderbird
Logistics, Thunderbird Motor, Blue & Grey, Freightmaster, US 1,
Antler, Risk, Bruin, US 1 Logistics, Industries, TC, ARL and AFT are
hereinafter each referred to each as a “Borrower Entity”, and collectively
as the “Borrower”); and U.S. BANK, a national banking association
(“Lender”).
|
18
Exhibit
31.1 Certification 302 of Chief Executive Officer
Exhibit
31.2 Certification 302 of Chief Financial Officer
Exhibit
32.1 Certification 906 of Chief Executive Officer
Exhibit
32.2 Certification 906 of Chief Financial Officer
(b)(1)
Reports on Form 8-K
None
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
US 1
Industries, Inc.
Michael
E. Kibler
Chief
Executive Officer
Harold E.
Antonson
Chief
Financial Officer
November
15, 2010
19
EIGHTH AMENDMENT
TO
AMENDED AND RESTATED LOAN
AGREEMENT
This
Eighth Amendment to Amended
and Restated Loan Agreement (“Amendment”), dated as of September 28, 2010
is between GULF LINE TRANSPORT
LLC., an Indiana limited liability company, formerly known as Gulf Line
Transport, Inc. (“Gulf Line”); FIVE STAR TRANSPORT, LLC., an
Indiana limited liability company, formerly known as Five Star Transport, Inc.
(“Five Star”); CAM TRANSPORT,
INC., an Indiana corporation (“CAM”); FRIENDLY TRANSPORT, LLC, an
Indiana limited liability company, formerly known as Friendly Transport, Inc.
(“Friendly”); TRANSPORT
LEASING, INC., an Arkansas corporation (“Transport Leasing”); KEYSTONE LINES, a California
corporation (“Keystone Lines”); HARBOR BRIDGE INTERMODAL,
INC., an Indiana corporation (“Harbor”); PATRIOT
LOGISTICS, INC., an Indiana corporation (“Patriot”); LIBERTY
TRANSPORT, INC., an Indiana
corporation (“Liberty”); KEYSTONE
LINES CORP., an Indiana corporation, formerly known as Keystone Lines
Corporation (“Keystone”), TC
SERVICES, INC., an Indiana corporation (“TC Services”); KEYSTONE LOGISTICS, INC., an
Indiana corporation ("Keystone Logistics"); CAROLINA NATIONAL TRANSPORTATION
LLC, an Indiana limited liability company ("Carolina National"); CAROLINA NATIONAL LOGISTICS,
INC., an Indiana corporation (“Carolina Logistics”); FREEDOM 1 LLC, an Indiana
limited liability company, formerly known as Freedom Logistics, LLC ("Freedom");
THUNDERBIRD LOGISTICS,
LLC, an Indiana limited liability company ("Thunderbird Logistics");
THUNDERBIRD MOTOR EXPRESS,
LLC, an Indiana limited liability company ("Thunderbird Motor"); BLUE & GREY TRANSPORT COMPANY,
INC., an Indiana corporation, ("Blue & Grey"); FREIGHTMASTER USA, LLC, an
Indiana limited liability company ("Freightmaster"); US 1 CORP., an Indiana
corporation ("US 1"); ANTLER
TRANSPORT, LLC, an Indiana limited liability company ("Antler"); RISK INSURANCE SERVICES OF INDIANA
LLC, an Indiana limited liability company ("Risk"); BRUIN EXPRESS INTERMODAL LLC,
an Indiana limited liability company ("Bruin"); US 1 LOGISTICS, LLC, an
Indiana limited liability company ("US 1 Logistics") US 1 INDUSTRIES, INC., an
Indiana corporation (“Industries”), TC ADMINISTRATIVE SERVICES, INC.,
a California corporation ("TC"); ARL TRANSPORT LLC, a Delaware
limited liability company (“ARL”) and AFT TRANSPORT LLC, a Delaware
limited liability company (“AFT”). (Gulf Line, Five Star, CAM, Risk,
Bruin, Friendly, Transport Leasing, Keystone Lines, Harbor, Patriot, Liberty,
Keystone, TC Services, Keystone Logistics, Carolina National, Carolina
Logistics, Freedom, Thunderbird Logistics, Thunderbird Motor, Blue & Grey,
Freightmaster, US 1, Antler, Risk, Bruin, US 1 Logistics, Industries, TC, ARL
and AFT are hereinafter each referred to each as a “Borrower Entity”, and
collectively as the “Borrower”); and U.S. BANK, a national banking
association (“Lender”). Capitalized terms not defined herein have the
meanings ascribed to them in the Existing Loan Agreement, as that term is
defined herein.
PRELIMINARY STATEMENT:
All
Borrower Entities have previously entered into an Amended and Restated Loan
Agreement with Lender dated as of March 10, 2005, as amended by (i) that
certain Amendment to Amended
and Restated Loan Agreement dated as of May 5, 2005, (ii) that certain
Second Amendment to Amended
and Restated Loan Agreement dated as of September 30, 2005, (iii) that
certain Third Amendment to
Amended and Restated Loan Agreement dated July 12, 2007, (iv) that
certain Fourth Amendment to
Amended and Restated Loan Agreement dated March 25, 2008, (v) that
certain Fifth Amendment to
Amended and Restated Loan Agreement dated December 18, 2008, (vi) that
certain Sixth Amendment to
Amended and Restated Loan Agreement dated July 24, 2009, and (vii) that
certain Seventh Amendment to
Amended and Restated Loan Agreement dated March 11, 2010 (the Amended and
Restated Loan Agreement as so amended, the “Existing Loan Agreement,” and, as
amended by this Amendment, the “Loan Agreement”).
20
Lender
has agreed to amend the Existing Loan Agreement to do the following: (i) extend
the Maturity Date from October 1, 2010 to October 1, 2011, (ii) modify the
interest rate to be LIBOR plus 3.35%, (iii) modify the provision for the minimum
debt service ratio to deduct nonrecurring and non-cash gains from the numerator,
and (iv) delete Unity Logistics Services Inc. ("Unity") and ERX, Inc. ("ERX") as
a Borrower Entity.
NOW
THEREFORE, it is hereby agreed as follows:
All
capitalized terms used herein but not defined herein shall have the same meaning
as ascribed to such terms in the Loan Agreement.
The
definition of Borrower in Section 1.1 of the Existing Loan Agreement is hereby
amended to delete Unity and ERX from the entities comprising
Borrower.
The
following definitions in Section 1.1 of the Existing Loan Agreement is amended
and restated in their entirety as follows:
“Revolving Loan
Maturity Date: the earlier of (i) October 1, 2011 or (ii) the date on
which Borrower’s Obligations are accelerated pursuant to the Loan
Agreement.”
“Revolving Loan
Note” the
promissory note executed by Borrower payable to the order of Lender in the face
amount of $22,000,000, which by amendment has been reduced to $17,500,000, dated
as of April 18, 2000, and as amended and restated as of June 12, 2000, December
7, 2000, October 15, 2001, May 1, 2002, August 1, 2002, March 21, 2003, October
1, 2003, July 12, 2007, March 25, 2008, and December 18, 2008.”
Section
2.3.1 of the Existing Loan Agreement is hereby amended and restated in its
entirety to read as follows:
"Borrower's
Obligations, including without limitation the Principal Balance of the Revolving
Loan, shall bear interest from October 1, 2010, at a rate equal to One Month
LIBOR in effect form time to time, plus 3.35%, provided, however, that during a
Default Rate Period, Borrower's Obligations shall bear interest at the
applicable Default Rate."
21
Section
7.20 of the Loan Agreement is hereby amended and restated in its entirety to
read as follows:
“Fail to
maintain a minimum debt service ratio for US 1 Industries, Inc. (“Industries”)
and its subsidiaries (on a consolidated basis) of 1.15:1 based on a rolling four
(4) quarter average, to be calculated as follows: (1) the sum of: (x) Net Income
before (i) taxes, (ii) minority interest expense, (iii) depreciation and (iv)
amortization expense, (v) cash payment of interest, (vi) rent and lease expense
(vii) loss from the sale of assets, and (vii) any one time non-cash loss
approved by Lender less (y) CapEx, taxes paid, distributions made, gain on the
sale of assets, any non-recurring and non-cash gains and cash dividends paid
divided by (2) the sum of: (i) mandatory principal payments over the preceding
12 months on Indebtedness from Borrowed Money (excluding principal payments on
the Revolving Loan), (ii) cash payment of interest, and (iii) rent and lease
expense. For purposes of this Section 7.20, CapEx shall mean 50% of
depreciation expense for Industries and its subsidiaries (on a consolidated
basis). For the purposes of testing the minimum debt service ratio, “rent
and lease expense” shall mean all amounts payable to any landlords and lessors
by any Borrower Entity for the use of any real or personal
property.”
Each
Borrower Entity represents and warrants that no Event of Default or Incipient
Default (as defined in the Loan Agreement) exists or will occur as a result of
the execution of and performance under this Amendment and that each of their
representations and warranties set forth in the Loan Instruments is true and
correct as of the date hereof, except to the extent that any such
representations or warranties speak exclusively to an earlier date. Each
Borrower Entity hereby acknowledges and agrees that it is bound jointly and
severally to the Loan Agreement and to the obligations of Borrower therein and
to the obligations of Maker under the Revolving Loan Note. By execution of
this Amendment, each Borrower Entity ratifies all prior amendments to the
Existing Loan Agreement whether or not such Borrower Entity previously signed
such amendment.
By
their execution hereof, Harold Antonson and Michael Kibler hereby reaffirm their
Limited Guaranties of the Revolving Loan and other obligations under the Loan
Agreement and Revolving Loan Note.
Each
Borrower Entity, by execution of this Amendment, agrees and confirms that
“Borrower's Obligations” for purposes of the Security Agreements it has entered
into with Lender are Borrowers' Obligations as defined in the Existing Loan
Agreement, as modified by this Amendment.
Simultaneously
with the execution hereof, Borrower shall deliver to Lender the following, duly
executed by the parties thereto other than Lender:
Certified
Resolutions of the Board of Directors of Borrower Entity authorizing the
execution and delivery and performance of this Amendment;
An
opinion letter from Borrower's legal counsel in a form reasonably satisfactory
to Lender's counsel regarding authorization, execution and delivery of this
Amendment and the documents referenced herein;
Certificates
of Good Standing for each Borrower Entity certified by the Secretary of State
for the state in which such Borrower Entity is incorporated or organized;
and
A
Security Agreements in the form attached hereto as Exhibit A signed by
Industries
Except
as expressly amended hereby, the terms and conditions of the Loan Agreement as
originally set forth therein shall remain in full force and
effect.
22
All
references to the “Loan Agreement” and other terms defined in the Existing Loan
Agreement shall be deemed to take account of the Existing Loan Agreement, as
amended by this Amendment.
Borrower
shall reimburse Lender for all of Lender’s out-of-pocket costs related to the
transaction contemplated herein, including, without limitation, public record
searches ordered by Lender or its counsel both prior and subsequent to the
closing of the transactions contemplated herein, as well as legal fees incurred
by Lender in connection with the preparation of documents, due diligence review
or closing regarding the transaction contemplated herein, or the enforcement of
the terms hereof or of any of the Loan Instruments.
From
time to time, Borrowers shall execute and deliver to Lender such additional
documents as Lender reasonably may require to carry out the purposes of this
Amendment and the Loan Instruments and to protect Lender’s rights hereunder and
thereunder, and shall not take any action inconsistent with the purposes of the
Loan Instruments.
Except
as expressly amended hereby, the terms and conditions of the Existing Loan
Agreement shall remain in full force and effect.
IN
WITNESS WHEREOF, the undersigned Borrower and Lender has signed this Eighth
Amendment to Amended and Restated Loan Agreement as of the date first above
written.
CAROLINA
NATIONAL LOGISTICS, INC.
|
|||
an
Indiana corporation
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
GULF LINE TRANSPORT
LLC,
|
|||
an
Indiana limited liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
FIVE STAR TRANSPORT,
LLC,
|
|||
an
Indiana limited liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
23
CAM TRANSPORT,
INC.,
|
|||
an
Indiana corporation
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
FRIENDLY TRANSPORT,
LLC,
|
|||
an
Indiana limited liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
TRANSPORT LEASING,
INC.,
|
|||
an
Arkansas corporation
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
HARBOR BRIDGE INTERMODAL,
INC.,
|
|||
an
Indiana corporation
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
KEYSTONE
LINES,
|
|||
a
California corporation
|
|||
By:
|
|||
Name:
|
|||
Title:
|
24
PATRIOT LOGISTICS,
INC.,
|
|||
an
Indiana corporation
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
LIBERTY TRANSPORT,
INC.,
|
|||
an
Indiana corporation
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
KEYSTONE LINES
CORP.,
|
|||
an
Indiana corporation
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
TC SERVICES,
INC.,
|
|||
an
Indiana corporation
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
KEYSTONE LOGISTICS,
INC.,
|
|||
an
Indiana corporation
|
|||
By:
|
|||
Name:
|
|||
Title:
|
25
CAROLINA NATIONAL
TRANSPORTATION LLC, an Indiana
|
|||
limited
liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
FREEDOM 1,
LLC,
|
|||
an
Indiana limited liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
THUNDERBIRD LOGISTICS,
LLC,
|
|||
an
Indiana limited liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
THUNDERBIRD MOTOR EXPRESS,
LLC,
|
|||
an
Indiana limited liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
BLUE
& GREY TRANSPORT COMPANY, INC.,
|
|||
an
Indiana limited liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
26
FREIGHTMASTER
USA, LLC,
|
|||
an
Indiana limited liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
US
1 CORP.,
|
|||
an
Indiana corporation
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
ANTLER
TRANSPORT, LLC,
|
|||
an
Indiana limited liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
RISK INSURANCE SERVICES OF
INDIANA LLC.,
|
|||
an
Indiana limited liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
BRUIN
EXPRESS INTERMODAL LLC,
|
|||
an
Indiana limited liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
27
US 1 LOGISTICS,
LLC,
|
|||
an
Indiana limited liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
US 1 INDUSTRIES,
INC.,
|
|||
an
Indiana corporation
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
ARL TRANSPORT
LLC,
|
|||
a
Delaware limited liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
|||
AFT
TRANSPORT LLC,
|
|||
a
Delaware limited liability company
|
|||
By:
|
|||
Name:
|
|||
Title:
|
Harold
Antonson
|
||
Michael
Kibler
|
U.S.
BANK
|
|||
a
national banking association
|
|||
By:
|
|||
Name:
Ben Coscarart
|
|||
Title:
Vice President
|
28
EXHIBIT
A
SECURITY
AGREEMENT
This SECURITY AGREEMENT, dated
as of September ____, 2010, is between US 1 INDUSTRIES, INC., a
Indiana corporation (“Borrower”), and US BANK, a national banking
association (“Lender”).
Preliminary Statement:
A. Borrower,
CAROLINA NATIONAL
TRANSPORTATION LLC, CAROLINA NATIONAL LOGISTICS, INC.,
GULF LINE TRANSPORT LLC,
CAM TRANSPORT, INC., FRIENDLY TRANSPORT, LLC, TRANSPORT
LEASING, INC., HARBOR
BRIDGE INTERNATIONAL, INC., PATRIOT LOGISTICS, INC., LIBERTY TRANSPORT, INC.,
KEYSTONE LINES CORP., TC SERVICES, INC., KEYSTONE LOGISTICS, INC., FREEDOM 1,
LLC, THUNDERBIRD LOGISTICS, LLC, THUNDERBIRD MOTOR EXPRESS, LLC, US 1 LOGISTICS,
LLC, KEYSTONE LINES, BLUE & GREY TRANSPORT COMPANY, INC., FREIGHTMASTER USA, LLC, US 1 CORP., ANTLER TRANSPORT, LLC, BRUIN EXPRESS INTERMODAL, LLC,
RISK INSURANCE SERVICES OF
INDIANA, LLC, TC
ADMINISTRATIVE SERVICES, INC., ARL TRANSPORT LLC, and AFT TRANSPORT, LLC (“Other Borrowers”), and Lender have entered
into a Fifth Amendment to Amended and Restated Loan Agreement of even date
herewith (as the same may be amended, modified, supplemented or restated from
time to time, the “Loan Agreement”), pursuant and subject to the terms and
conditions of which Lender has agreed to make loans and other financial
accommodations to Borrower and Other Borrowers.
B. One
of the conditions precedent to Lender’s obligations under the Loan Agreement is
that Borrower shall have executed and delivered this Security Agreement to
secure the payment and performance of Borrowers’ Obligations.
NOW, THEREFORE, in order to
induce Lender to make Advances, and for other good and valuable consideration,
the receipt and sufficiency of which hereby are acknowledged, the parties hereto
hereby agree as follows:
1. Definitions.
All terms used herein which are defined in the Illinois Uniform Commercial Code
(the “Code”) shall have the same meaning herein as in the Code unless the
context in which such terms are used herein indicates otherwise. All capitalized
terms used but not elsewhere defined in this Security Agreement shall have the
respective meanings ascribed to such terms in the Loan Agreement. As
used herein, the following terms shall have the following meanings:
Corporate
Changes: any change in Borrower’s place of organization, form of
organization, or name, including but not limited to changes resulting from
mergers, acquisitions, divestitures, and reorganizations.
Intellectual
Property Collateral: collectively, the Patent Collateral and the
Trademark Collateral.
Patent
Collateral: shall mean all (i) letters patent and applications for
letters patent of Borrower throughout the world, including all patent
applications of Borrower in preparation for filing anywhere in the world, (ii)
patent licenses of Borrower, (iii) reissues, divisions, continuations,
continuations-in-part, extensions, renewals and reexaminations of any Patent
Collateral and (iv) all proceeds of, and rights associated with, the foregoing
(including licenses, royalties and proceeds of infringement suits), the right of
Borrower to sue third parties for past, present and future infringements of any
patent or patent application, and for breach or enforcement of any patent
license of Borrower, and all rights corresponding thereto throughout the
world.
29
Trademark
Collateral: shall mean all (i) trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade dress, service
marks, certification marks, collective marks, logos, other sources of business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of a like nature of Borrower (each of
the foregoing items referred to as a “Trademark”), now existing anywhere in the
world or hereafter adopted or acquired, whether currently in use or not, all
registrations and recordings thereof and all applications in connection
therewith, whether pending or in preparation for filing, including
registrations, recordings and applications in the United States Patent and
Trademark Office and any foreign country, (ii) all Trademark licenses of
Borrower, (iii) all reissues, extensions or renewals of any of the items
described in clauses (i) and (ii) above, (iv) all of the goodwill of the
business connected with the use of, and symbolized by the items described in
clauses (i) and (ii) above, and (v) all proceeds of, and rights associated with,
the foregoing, including any claim by Borrower against third parties for past,
present or future infringement or dilution of any Trademark, Trademark
registration or Trademark license, or for any injury to the goodwill associated
with the use of any such Trademark or for breach or enforcement of any Trademark
license.
2. Security
Interests. In
order to secure Borrowers’ Obligations, Borrower hereby grants to Lender a
security interest in all Property of Borrower, whether now owned or hereafter
acquired, and all additions and accessions thereto, including, without
limitation, the Property described below:
2.1 Goods,
Machinery, Equipment and Inventory. All of Borrower’s goods,
machinery, equipment and inventory, wherever located, and all additions and
accessions thereto or replacements thereof, including, but not limited to, all
machinery, inventory and equipment of any and every kind and description
comprising, belonging to or used in connection with the operation of the
business of Borrower (collectively, the “Tangible
Collateral”);
2.2 Accounts,
General Intangibles.
All of Borrower’s accounts, contract rights, chattel paper, instruments,
investment property, deposit accounts, documents, and general intangibles, and
all additions and accessions thereto and replacements thereof, including, but
not limited to, all licenses, franchises, permits and authorizations heretofore
or hereafter granted or issued to Borrower under federal, state or local laws
(excluding, however, any licenses, franchises, permits and authorizations issued
by any Governmental Body to the extent, and only to the extent, it is unlawful
to grant a security interest in such licenses, franchises, permits and
authorizations, but including, without limitation, the right to receive all
proceeds derived or arising from or in connection with the sale or assignment of
such licenses, franchises, permits and authorizations) which permit or pertain
to the operation of the business of Borrower, and all of Borrower’s Intellectual
Property Collateral, Operating Agreements, income tax refunds, copyrights,
patents, trademarks, trade names, trade styles, goodwill, going concern value,
franchise, supply and distributorship agreements, non-competition agreements and
employment contracts (collectively, the “Intangible
Collateral”).
2.3 Proceeds. All proceeds (including
proceeds of insurance, eminent domain and other governmental taking and tort
claims) and products of the Property described in Sections 2.1 and 2.2 above;
and
2.4 Books and
Records. All of
the books and records pertaining to the Property described in Sections 2.1, 2.2
and 2.3 above.
All of
the Property described above hereinafter is referred to collectively as the
“Collateral.” The security interest of Lender in the Collateral shall be
superior and prior to all other Liens except Permitted Prior Liens.
3. Representations
and Warranties.
Borrower hereby represents and warrants to Lender as follows:
3.1 Ownership
of Collateral. It
is the owner of all of the Collateral free from any Lien except for Permitted
Liens, except the portion thereof consisting of after acquired Property, and
Borrower will be the owner of such after acquired Property, free from any Lien
except for Permitted Liens.
3.2 Places of
Business. There
is listed on Exhibit 1 hereto the location of the chief executive office of
Borrower, all of the other places of business of Borrower and all locations
where the Tangible Collateral and the books and records of Borrower are kept.
Except as described in Exhibit 1, none of the Collateral is in the possession of
any consignee, bailee, warehouseman, agent or possessor.
30
3.3 Trade or
Assumed Names.
Borrower has not used any trade or assumed names during the six years
preceding the date hereof.
3.4 Financing
Statements.
Except for the financing statements of Lender and the financing
statements pertaining to the Permitted Senior Indebtedness Liens, if any, no
financing statement covering any Collateral or any portion or proceeds thereof
is on file in any public office.
3.5 Intangible
Collateral. The
Intangible Collateral hereunder represents bona fide and existing indebtedness,
obligations, liabilities, rights and privileges owed or belonging to Borrower to
which, to the best of Borrower’s knowledge, as of the date of this Security
Agreement, there is no valid defense, set-off or counterclaim against Borrower
and in connection with which there is no default with respect to any material
payment or material performance on the part of Borrower, or, to the best of
Borrower’s knowledge, any other party. With respect to any Intellectual Property
Collateral of Borrower the loss, impairment or infringement of which singly or
in the aggregate could reasonably be expected to have a Material Adverse Effect:
(i) such Intellectual Property Collateral is subsisting and has not been
adjudged invalid or unenforceable, in whole or in part, (ii) such Intellectual
Property Collateral is valid and enforceable, (iii) Borrower has made all
filings and recordations necessary in the exercise of reasonable and prudent
business judgment to protect its interest in such Intellectual Property
Collateral in the United States Patent and Trademark Office, the United States
Copyright Office and in corresponding offices throughout the world, as
appropriate, (iv) Borrower is the owner of the entire and unencumbered right,
title and interest in and to such Intellectual Property Collateral and no claim
has been made that the use of such Intellectual Property Collateral does or may
violate the asserted rights of any third party, and (v) Borrower has performed
and will continue to perform all acts and has paid and will continue to pay all
required fees and taxes to maintain each and every item of such Intellectual
Property Collateral in full force and effect throughout the world, as
applicable. Borrower owns directly, or is entitled to use by license or
otherwise, all Intellectual Property Collateral of any Person used in, necessary
for or material to the conduct of Borrower’s businesses. Except as set forth in
the Loan Agreement, no litigation is pending or, to the best knowledge of
Borrower, threatened which contains allegations respecting the validity,
enforceability, infringement or ownership of any of the Intellectual Property
Collateral of Borrower.
3.6 Tangible
Collateral-Personal Property. All Tangible Collateral at
all times shall be considered personal property.
3.7 Accounts. Each existing Account
constitutes, and each hereafter arising Account will constitute, to the best of
Borrower’s knowledge, the legally valid and binding obligation of the account
debtor obligated to pay the same. The amount represented by Borrower to Lender
as owing by each account debtor is, or will be, the correct amount actually and
unconditionally owing, except for normal cash discounts and allowances where
applicable. To the best of Borrower’s knowledge, no account debtor has any
defense, set-off, claim or counterclaim against Borrower that can be asserted
against Lender, whether in any proceeding to enforce Lender’s rights in the
Collateral or otherwise. None of the Accounts is, nor will any hereafter arising
Account be, evidenced by a promissory note or other instrument other than a
check, unless delivered to Lender with appropriate endorsements.
3.8 Inventory. No Inventory is subject to
any licensing, patent, trademark, trade name or copyright agreement with any
Person that restricts Borrower’s ability to manufacture and/or sell the
Inventory other than territorial restrictions not materially adverse to the
Borrower or its business.
4. Affirmative
Covenants. Until
all of Borrowers’ Obligations are paid and performed in full and the Loan
Agreement shall have been terminated, Borrower agrees that it will:
4.1 Corporate
Changes. Inform
Lender within ten (10) days of any Corporate Change.
4.2 Taxes. Pay promptly when due all
taxes, levies, assessments and governmental charges upon and relating to any of
the Property, income or receipts of Borrower or otherwise for which Borrower is
or may be liable, except to the extent that the failure to pay any of such
taxes, levies, assessments or charges is permitted by the Loan
Agreement.
31
4.3 Insurance. At its sole expense, keep
the Collateral insured against loss or damage by insurance policies which shall
be in such form, with such companies and in such amounts as may be reasonably
satisfactory to Lender and otherwise comply with the provisions of Section 6.6
of the Loan Agreement.
4.4 Tangible
Collateral.
4.4.1 Good
Repair. Keep the
Tangible Collateral in good working order and repair and make all necessary
replacements thereof and renewals thereto so that the value and operating
efficiency thereof at all times shall be maintained and preserved.
4.4.2 Insurance
Requirements.
Maintain the Tangible Collateral at all times in accordance with the
requirements of all insurance carriers which provide insurance with respect to
such Tangible Collateral so that such insurance shall remain in full force and
effect.
4.4.3 Certificates
of Title. Upon
the request of Lender (i) promptly deliver to Lender all certificates of title
pertaining to the Tangible Collateral and (ii) take all actions reasonably
requested by Lender to cause the Lien granted to Lender hereunder to be noted on
such certificates of title.
4.4.4 Use of
Collateral. Use
the Tangible Collateral in material compliance with all statutes, regulations,
ordinances, requirements and regulations and all judgments, orders, injunctions
and decrees applicable thereto, and all other federal, state and local
laws.
4.5 Intangible
Collateral.
4.5.1 Payments. Make all payments and
perform all acts reasonably necessary to maintain and preserve the Intangible
Collateral, including, without limitation, filing of documents, renewals or
other information with any Governmental Body or any other Person.
4.5.2 Delivery
of Instruments and Letters of Credit. Upon the request of Lender,
promptly deliver to Lender the original executed copies of all instruments and
letters of credit which constitute part of the Intangible Collateral, together
with such endorsements, assignments and other agreements as Lender may request
in order to perfect the Security Interests.
4.5.3 Accurate
Records. At all
times keep accurate and complete records of payment and performance by Borrower
and other Persons of their respective obligations with respect to the Intangible
Collateral and permit Lender or any of its agents to call at Borrower’s place of
business without hindrance or delay to inspect, audit, check or make extracts
from the books, records, correspondence or other data relating to the Intangible
Collateral in accordance with the provisions of the Loan Agreement.
4.5.4 Verification
of Indebtedness.
Upon request of Lender after the occurrence and during the continuation of an
Event of Default, permit Lender itself, at any time, in the name of Lender or
Borrower, to verify directly with the obligors the indebtedness due Borrower on
any account or other item of Intangible Collateral.
4.5.5 Defaults,
Other Claims.
Immediately inform Lender of any default in payment or performance by Borrower
or any other Person of any obligation with respect to the Intangible Collateral
or of claims made by others in regard to the Intangible Collateral, if either of
which could have a Material Adverse Effect.
32
4.5.6 Ownership
of Intellectual Property Collateral. Notify Lender immediately if it
knows, or has reason to know, that any application or registration relating to
any material item of its Intellectual Property Collateral may become abandoned
or dedicated to the public or placed in the public domain or invalid or
unenforceable, or of any adverse determination or development (including the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office, the United States Copyright
Office or any foreign counterpart thereof or any court) regarding Borrower’s
ownership of any of its Intellectual Property Collateral, its right to register
the same or to keep and maintain and enforce the same.
4.5.7 Maintenance
of Intellectual Property Collateral. Take all necessary steps,
including in any proceeding before the United States Patent and Trademark
Office, the United States Copyright Office or any similar office or agency in
any country or any political subdivision thereof, to maintain and pursue any
application (and to obtain the relevant registration) filed with respect to, and
to maintain any registration of, its Intellectual Property Collateral, including
the filing of applications for renewal, affidavits of use, affidavits of
incontestability and opposition, interference and cancellation proceedings and
the payment of fees and taxes.
4.6 Collection
of Proceeds. Use
commercially reasonable efforts to collect the proceeds of indebtedness owing to
Borrower by any Person under any instrument or by any Account Debtor with
respect to any account, contract right, chattel paper or general
intangible.
4.7 Financing
Statements, Further Assurances. Concurrently with the
execution of this Security Agreement, Lender will file such financing
statements, continuation statements, termination statements, amendments to any
of the foregoing and other documents as it deems appropriate, and as Lender may
require to perfect and continue in effect the Security Interests, to carry out
the purposes of this Security Agreement and to protect Lender’s rights
hereunder. Borrower, upon demand, shall pay the cost of filing all such
financing statements, continuation statements, termination statements,
amendments to any of the foregoing and other documents.
5. Negative
Covenants. Until
all of Borrower’s Obligations are paid and performed in full and the Loan
Agreement shall have been terminated, Borrower agrees that it will
not:
5.1 Sales and
Transfer of Collateral. Sell, lease, assign, license
or otherwise dispose of any of the Collateral, except as may be permitted by and
in accordance with the applicable provisions the Loan Agreement.
5.2 Places of
Business.
Borrower shall not change the location of (i) Borrower’s (A) chief executive
office or (B) books and records or (ii) any Tangible Collateral, in each case
without first giving Lender at least 30 days’ advance written notice thereof and
having taken any and all action reasonably requested by Lender to maintain and
preserve the first perfected Lien in favor of Lender on all Property thereof
free and clear of any Lien whatsoever except for Permitted Liens.
5.3 Installation
of Tangible Collateral. Permit any of the Tangible
Collateral to be installed, affixed or attached to the real estate of Borrower
or any other Person so as to become a part thereof or become in any sense a
fixture not otherwise pledged to Lender.
5.4 Bailees. Permit any Collateral to be
in the possession or control of any warehouseman, bailee or processor without
Lender’s prior written consent and unless Lender has received warehouse receipts
or bailee letters satisfactory to Lender prior to such possession or
control.
5.5 Licenses
of Intellectual Property. Sell, transfer, assign or
grant any exclusive license with respect to the Intellectual Property Collateral
to an Affiliate of Borrower or otherwise take any action with respect to its
Intellectual Property Collateral in violation of any term or provision of the
Loan Agreement.
33
5.6 Trademark
Collateral.
Permit, and permit any of its licensees to, unless Borrower shall either (i)
reasonably and in good faith determine that any of its Trademark Collateral is
of negligible economic value to Borrower or (ii) have a valid business purpose
to do otherwise: (A) fail to continue to use any of its Trademark Collateral in
order to maintain all of its Trademark Collateral in full force free from any
claim of abandonment for non-use, (B) fail to maintain as in the past the
quality of products and services offered under all of its Trademark Collateral,
(C) fail to employ all of its Trademark Collateral registered with any federal,
state or foreign authority with an appropriate notice of such registration, (D)
adopt or use any trademark which is confusingly similar or a colorable imitation
of any of its Trademark Collateral except in compliance with applicable law, (E)
use any of its Trademark Collateral registered with any federal, state or
foreign authority except for the uses for which registration or application for
registration of such Trademark Collateral has been made except in compliance
with applicable law or (F) do or permit any act or knowingly omit to do any act
whereby any of its Trademark Collateral may lapse or become invalid or
unenforceable.
5.7 Patent
Collateral.
Unless Borrower shall either (i) reasonably and in good faith determine
that any of its Patent Collateral is of negligible economic value to Borrower or
(ii) have a valid business purpose to do otherwise, do any act, or omit to do
any act, whereby any of Borrower’s Patent Collateral may lapse or become
abandoned or dedicated to the public or unenforceable.
6. Protection
of Collateral. In
the event of any failure of Borrower to (i) maintain in force and pay for any
insurance or bond which Borrower is required to provide pursuant to this
Security Agreement or the other Loan Instruments, (ii) keep the Tangible
Collateral in good repair and operating condition, (iii) keep the Collateral
free from all Liens except for Permitted Liens, (iv) pay when due all taxes,
levies and assessments on or in respect of the Collateral, except as permitted
pursuant to the terms of Section 4.1 above, (v) make all payments and perform
all acts on the part of Borrower to be paid or performed with respect to any of
the Collateral, including, without limitation, all expenses of protecting,
storing, warehousing, insuring, handling and maintaining the Collateral or (vi)
keep fully and perform promptly any other of the obligations of Borrower under
this Security Agreement or the other Loan Instruments, Lender, at its option,
may (but shall not be required to) procure and pay for such insurance, place
such Collateral in good repair and operating condition, pay or contest or settle
such Liens or taxes or any judgments based thereon or otherwise make good any
other aforesaid failure of Borrower. Borrower shall reimburse Lender immediately
upon demand for all sums paid or advanced on behalf of Borrower for any such
purpose, together with all costs, expenses and attorneys’ fees paid or incurred
by Lender in connection therewith and interest at the Default Rate on all sums
so paid or advanced from the date of such payment or advancement until repaid to
Lender. All such sums paid or advanced by Lender, with interest thereon,
immediately upon payment or advancement thereof, shall be deemed to be part of
Borrower’s Obligations secured hereby.
7. Event of
Default. Borrower
shall be in default under this Security Agreement upon the occurrence of an
Event of Default under the Loan Agreement.
8. Right of
Lender to Contact Account Debtors. Lender shall have
the right, from time to time, at Lender’s discretion, to contact account debtors
of Borrower to verify that Accounts are valid and not subject to setoff or
counterclaim and to verify the creditworthiness of the account
debtor.
9. Remedies
Upon Default.
Upon the occurrence and during the continuation of an Event of
Default:
9.1 Rights of
Lender. Lender shall have all of the rights and remedies of a secured
party under the Code and all other rights and remedies accorded to Lender at
equity or law, including, without limitation, the right to apply for and have a
receiver appointed by a court of competent jurisdiction to manage, protect and
preserve the Collateral, to continue operating the business of Borrower and to
collect all revenues and profits thereof. Any notice of sale or other
disposition of Collateral given not less than ten (10) days prior to such
proposed action shall constitute reasonable and fair notice of such action.
Lender may postpone or adjourn any such sale from time to time by announcement
at the time and place of sale stated in the notice of sale or by announcement of
any adjourned sale, without being required to give a further notice of sale. Any
such sale may be for cash or, unless prohibited by applicable law, upon such
credit or installment terms as Lender shall determine. Borrower shall be
credited with the net proceeds of such sale only when such proceeds actually are
received by Lender in Good Funds. Despite the consummation of any such sale,
Borrower shall remain liable for any deficiency on Borrower’s Obligations which
remains outstanding following any such sale. All net proceeds received pursuant
to a sale shall be applied in the manner set forth in Section 8.4 of the Loan
Agreement.
9.2 Assembly
of Collateral.
Upon the request of Lender, Borrower shall assemble and make the
Collateral available to Lender at a place designated by Lender.
34
9.3 Proceeds. Borrower shall hold all
proceeds of the Collateral collected by Borrower in trust for Lender, and, after
Borrower receives notice from Lender, promptly after the receipt of the proceeds
of Collateral, turn over such proceeds to Lender in the exact form in which they
were received.
9.4 Other
Rights. Lender,
at its election, and without notice to Borrower, may:
9.4.1 Terminate
Right of Collection.
Terminate the rights of Borrower to collect the proceeds described in
Section 8.3.
9.4.2 Notification. Notify the obligors under
any instruments and the Account Debtors of any account, contract right, chattel
paper or general intangible to make all payments directly to
Lender.
9.4.3 Collection
of Payments.
Demand, sue for, collect or receive, in the name of Borrower or Lender, any
money or Property payable or receivable on any item of Collateral.
9.4.4 Settlement. Settle, release, compromise,
adjust, sue upon or otherwise enforce any item of Collateral as Lender may
determine.
9.4.5 Mail of
Borrower; Endorsement of Checks. For the purpose of enforcing
Lender’s rights under this Security Agreement, receive and open mail addressed
to Borrower, and endorse notes, checks, drafts, money orders, documents of title
or other forms of payment on behalf and in the name of Borrower.
All
monies received by Lender pursuant to this Section 9 shall be applied by
Lender in accordance with the applicable provisions of Section 8.4 of the Loan
Agreement.
10.
Power of
Attorney. To
effectuate the rights and remedies of Lender under this Security Agreement,
Borrower hereby irrevocably appoints Lender as its attorney-in-fact, in the name
of Borrower or in the name of Lender, (i) to execute and file from time to time
financing statements, continuation statements, termination statements and
amendments thereto, covering the Collateral, in form satisfactory to Lender and
(ii) take all action and execute all documents referred to in Section 9.4 above.
The power of attorney granted pursuant to this Section 10 is coupled with an
interest and shall be irrevocable until all of Borrower’s Obligations have been
paid and performed in full and the Loan Agreement shall have been
terminated.
11.
Certain Agreements of
Borrower.
11.1 Waiver of
Notice. Borrower
hereby waives notice of the acceptance of this Security Agreement and, except as
otherwise specifically provided in Section 9.1 and 9.3 above or in the Loan
Agreement, all other notices, demands or protests to which Borrower otherwise
might be entitled by law (and which lawfully may be waived) with respect to this
Security Agreement, Borrower’s Obligations and the Collateral.
11.2 Rights of
Lender. Borrower
agrees that Lender (i) shall have no duty as to the collection or protection of
the Collateral or any income thereon, (ii) may exercise the rights and remedies
of Lender with respect to the Collateral without resort or regard to other
security or sources for payment and (iii) shall not be deemed to have waived any
of the rights or remedies granted to Lender hereunder unless such waiver shall
be in writing and shall be signed by Lender. Borrower and Lender acknowledge
their intent that, upon the occurrence of an Event of Default, Lender shall
receive, to the fullest extent permitted by law and governmental policy, all
rights necessary or desirable to obtain, use or sell the Collateral, and to
exercise all remedies available to Lender under the Loan Instruments, the Code
or other applicable law. Borrower and Lender further acknowledge and agree that,
in the event of changes in law or governmental policy occurring subsequent to
the date hereof that affect in any manner Lender’s rights of access to, or use
or sale of, the Collateral, or the procedures necessary to enable Lender to
obtain such rights of access, use or sale, Lender and Borrower shall amend the
Loan Instruments, in such manner as Lender shall request, in order to provide
Lender such rights to the greatest extent possible consistent with then
applicable law and governmental policy.
35
11.3 No Delay,
Single or Partial Exercise Permitted. No delay or omission on the
part of Lender in exercising any rights or remedies contained herein shall
operate as a waiver of such right or remedy or of any other right or remedy, and
no single or partial exercise of any right or remedy shall preclude any other or
further exercise thereof, or the exercise of any other right or remedy. A waiver
of any right or remedy on any one occasion shall not be construed as a bar or
waiver of any right or remedy on future occasions, and no delay, omission,
waiver or single or partial exercise of any right or remedy shall be deemed to
establish a custom or course of dealing or performance between the parties
hereto.
11.4 Borrower
to Remain Liable.
Borrower hereby expressly agrees that, anything herein to the contrary
notwithstanding, Borrower shall remain liable under each contract, agreement,
interest or obligation assigned by Borrower to Lender hereunder to observe and
perform all of the conditions and obligations to be observed and performed by
Borrower thereunder, all in accordance with and pursuant to the terms and
provisions thereof. The exercise by Lender of any of the rights assigned
hereunder shall not release Borrower from any of its duties or obligations under
any such contract, agreement, interest or obligation. Lender shall have no duty,
responsibility, obligation or liability under any such contract, agreement,
interest or obligation by reason of or arising out of the assignment thereof to
Lender or the granting to Lender of a Security Interest therein or the receipt
by Lender of any payment relating to any such contract, agreement, interest or
obligation pursuant hereto, nor shall Lender be required or obligated in any
manner to perform or fulfill any of the obligations of Borrower thereunder or
pursuant thereto, or to make any payment, or to make any inquiry as to the
nature or sufficiency of any payment received by Lender or the sufficiency of
any performance of any party under any such contract, agreement, interest or
obligation, or to present or file any claim, or to take any action to collect or
enforce any performance of the payment of any amounts which may have been
assigned to Lender, in which Lender may have been granted a Security Interest or
to which Lender may be entitled at any time or times.
11.5 Grant of
License to Use Intellectual Property Collateral. Borrower hereby grants to
Lender, after the occurrence and during the continuance of an Event of Default,
an irrevocable, nonexclusive license (exercisable without payment of royalty or
other compensation to Borrower) to use, assign, license or sublicense any
Intellectual Property Collateral, now owned or hereafter acquired by Borrower,
and wherever the same may be located, including in such license reasonable
access as to all media in which any of the licensed items may be recorded or
stored and to all computer programs and used for the compilation or printout
thereof.
12. Rights
Cumulative. All
rights and remedies of Lender pursuant to this Security Agreement, the Loan
Agreement or otherwise, shall be cumulative and non-exclusive, and may be
exercised singularly or concurrently.
13. Severability. In the event that any
provision of this Security Agreement is deemed to be invalid by reason of the
operation of any law or by reason of the interpretation placed thereon by any
court or any other Governmental Body, this Security Agreement shall be construed
as not containing such provision and the invalidity of such provision shall not
affect the validity of any other provisions hereof, and any and all other
provisions hereof which otherwise are lawful and valid shall remain in full
force and effect.
14. Notices. All notices and
communications under this Security Agreement shall be in writing and delivered
in the manner set forth in the Loan Agreement.
15. Successors
and Assigns. This
Security Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of Lender and
Borrower.
16. Captions. The headings in this
Security Agreement are for purposes of reference only and shall not limit or
otherwise affect the meaning hereof.
17. Counterparts. This Security Agreement may
be executed in one or more counterparts, each of which shall be deemed to be an
original, but all of which, when taken together, shall be one and the same
instrument.
18. Survival
of Security Agreement; Termination. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of the Loan Agreement and shall continue in fall force and effect until
Borrower’s Obligations are paid and performed in full and the Loan Agreement
shall have been terminated.
36
19. Governing Law. This
Security Agreement shall be construed in accordance with and governed by the
laws and decisions of the State of Illinois, without regard to conflict of laws
principles.
20. Jurisdiction and
Venue. Borrower hereby agrees that all actions or proceedings initiated
by Borrower and arising directly or indirectly out of this Security Agreement
shall be litigated in either the Circuit Court of Cook County, Illinois or in
the United States District Court for the Northern District of Illinois, or, if
Lender initiates such action, in addition to the foregoing courts, any other
court in which Lender shall initiate or to which Lender shall remove such
action, to the extent such court has jurisdiction. Borrower hereby expressly
submits and consents in advance to such jurisdiction in any action or proceeding
commenced by Lender in or removed by Lender to any of such courts, and hereby
agrees that personal service of the summons and complaint, or other process or
papers issued therein may be served in the manner provided for notices herein,
and agrees that service of such summons and complaint or other process or papers
may be made by registered or certified mail addressed to Borrower at the address
to which notices are to be sent pursuant to Section 11.1 of the Loan Agreement.
Borrower waives any claim that either the Circuit Court of Cook County, Illinois
or the United States District Court for the Northern District of Illinois is an
inconvenient forum or an improper forum based on lack of venue. To the extent
provided by law, should Borrower, after being so served, fail to appear or
answer to any summons, complaint, process or papers so served within the number
of days prescribed by law after the mailing thereof, Borrower shall be deemed in
default and an order and/or judgment may be entered by the court against
Borrower as demanded or prayed for in such summons, complaint, process or
papers. The exclusive choice of forum for Borrower set forth in this Section 19
shall not be deemed to preclude the enforcement by Lender of any judgment
obtained in any other forum or the taking by Lender of any action to enforce the
same in any other appropriate jurisdiction, and Borrower hereby waives the right
to collaterally attack any such judgment or action.
21. Waiver of Right to Jury
Trial. Borrower acknowledges and agrees that any controversy which may
arise under any of the Loan Instruments or with respect to the transactions
contemplated thereby would be based upon difficult and complex issues and,
therefore, the parties agree that any lawsuit arising out of any such
controversy will be tried in a court of competent jurisdiction by a judge
sitting without a jury.
22. Time of the Essence.
Time for the performance of Borrower’s Obligations under this Security Agreement
is of the essence.
23. Termination. This Security Agreement and
the Liens and security interests granted hereunder shall not terminate until the
full and complete performance and payment and satisfaction of Borrower’s
Obligations and the Loan Agreement shall have terminated, whereupon Lender shall
release all such Liens and security interests in favor of Lender affecting the
Collateral.
[remainder
of this page intentionally left blank]
37
IN WITNESS WHEREOF, this
Security Agreement has been executed and delivered by the parties hereto by a
duly authorized officer of each such party on the date first set forth
above.
Address:
|
US
1 INDUSTRIES, INC.,
|
336
W. US Highway 30
|
an
Indiana corporation
|
Valparaiso,
IN 46385
|
By:
|
|||
Name:
|
|||
Title:
|
Address:
|
US BANK , a national
banking association
|
209
S. LaSalle Street
|
|
Suite
410
|
Chicago,
IL 60604
|
By:
|
||
Name:
Ben Coscarart
|
|||
Title:
Vice President
|
38
EXHIBIT
1
Location
of Chief Executive Office,
Location
of other Places of Business,
Location
of Books and Records and
Locations
of All Tangible Collateral
Location
of Chief Executive Office
336 W. US
Highway 30
Valparaiso,
IN 46385
Location
of Other Places of Business
NONE
Location
of Books and Records
336 W. US
Highway 30
Valparaiso,
IN 46385
Locations
of All Tangible Collateral
336 W. US
Highway 30
Valparaiso,
IN 46385
39