<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Emons Transportation Group, Inc.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Emons Transportation Group, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (check the appropriate box):
[_] No Fee Required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
$.14 Series A Cumulative Convertible Preferred Stock
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
1,485,543
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
Value on March 4, 1999 was $1.43763 per share
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$2,135,661
- --------------------------------------------------------------------------------
(5) Total fee paid:
$427.13
- --------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
EMONS TRANSPORTATION GROUP, INC.
96 SOUTH GEORGE STREET
YORK, PENNSYLVANIA 17401
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend a
Special Meeting of Stockholders of Emons Transportation Group, Inc. (the
"Company") to be held at 9:00 a.m., local time, on ____________, 1999 at The
Yorktowne Hotel, 48 East Market Street, York, Pennsylvania 17401 (the "Special
Meeting").
I look forward to greeting you personally. The accompanying Proxy
Statement describes the matter to be acted upon at the Special Meeting, and I
urge you to read it carefully.
At the Special Meeting, your Board of Directors is recommending the merger
of ETG Merger Corporation ("Newco"), a newly-formed, wholly-owned subsidiary of
the Company, with and into the Company. Your Board of Directors believes that
the merger of Newco with and into the Company is in the best interests of the
Company and all of its stockholders and recommends that you vote FOR approval of
the proposal.
It is important that your shares be represented at the Special Meeting
regardless of the number of shares you may hold. In order for your vote to be
counted, you must sign, date and return the enclosed proxy card or attend the
meeting in person. I urge you to sign and return the enclosed proxy card
promptly.
Sincerely,
Robert Grossman
Chairman, President
and Chief Executive Officer
York, Pennsylvania
___________, 1999
<PAGE>
Preliminary Copy
EMONS TRANSPORTATION GROUP, INC.
96 SOUTH GEORGE STREET
YORK, PENNSYLVANIA 17401
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _______________, 1999
TO THE STOCKHOLDERS OF EMONS TRANSPORTATION GROUP, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Special Meeting") of
the holders (the "Stockholders") of Emons Transportation Group, Inc. (the
"Company") will be held on ____________, ____________, 1999, at 9:00 a.m. local
time, at The Yorktowne Hotel, 48 East Market Street, York, Pennsylvania 17401,
for the following purpose:
To approve the merger of ETG Merger Corporation, a newly-formed, wholly-
owned subsidiary of the Company, with and into the Company (the "Merger").
As a result of the Merger (i) each outstanding share of $.14 Series A
Cumulative Convertible Preferred Stock ("Convertible Preferred Stock"), par
value $.01 per share (other than shares owned by holders exercising
appraisal rights under the Delaware General Corporation Law, as amended)
will be exchanged for 1.1 shares of Common Stock, par value $.01 per share
("Common Stock") (except that cash shall be paid in lieu of any fractional
shares) and (ii) all shares of Common Stock will remain outstanding,
unaffected by the Merger.
Provision is made on the enclosed proxy card(s) for your direction as to
the matter set forth above.
Only holders of the Company's Common Stock and Convertible Preferred Stock
of record at the close of business on _________________, 1999 are entitled to
receive notice of and to vote at the Special Meeting and at all adjournments
thereof.
A copy of the Company's Proxy Statement is enclosed herewith.
You are cordially invited to attend the Special Meeting in person. If you
would like to attend the Special Meeting and your shares are held by a broker,
bank or other nominee, you must bring to the Special Meeting a recent brokerage
statement or a letter from the nominee confirming your beneficial ownership of
your shares. You must also bring a form of personal identification. Whether
you plan to attend the Special Meeting or not, please sign and date the enclosed
proxy and return it promptly by mail in the enclosed envelope. No postage is
required if mailed in the United States. If you attend the Special Meeting, you
may vote either in person or by proxy.
By Order of the Board of Directors
Scott F. Ziegler
Secretary
York, Pennsylvania
____________, 1999
<PAGE>
Preliminary Copy
PROXY STATEMENT
OF
EMONS TRANSPORTATION GROUP, INC.
FOR THE
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [__________, 1999]
INTRODUCTION
------------
Solicitation
- ------------
This Solicitation Statement is furnished in connection with the
solicitation by the Board of Directors (sometimes hereinafter referred to as the
"Board") of Emons Transportation Group, Inc., a Delaware corporation (the
"Company"), of proxies to be voted at a special meeting (the "Special Meeting")
of holders ("Stockholders") of the Company's Common Stock, par value $.01 per
share ("Common Stock") and $.14 Series A Cumulative Convertible Preferred Stock,
par value $.01 per share ("Convertible Preferred Stock"), to be held on [ ],
at 9:00 a.m., local time, at The Yorktowne Hotel, 48 East Market Street, York,
Pennsylvania 17401 and any postponement or adjournments thereof.
This Solicitation Statement and the enclosed proxy forms are being
sent to holders of the Company's Common Stock and Convertible Preferred Stock
commencing on or about [ ], 1999. The principal executive offices
of the Company are located at 96 South George Street, York, Pennsylvania 17401,
telephone (717) 771-1700.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATIONS TO THE CONTRARY ARE UNLAWFUL.
Solicitation will be primarily by mail but may also be made by
personal interview, by telephone, or by facsimile transmission, in each case by
officers and employees of the Company who will not be additionally compensated
therefor. The Company will request persons such as brokers, nominees and
fiduciaries, holding stock in their names for others, or holding stock for
others who have the right to give voting instructions, to forward solicitation
material to their principals and request authority for the execution of the
proxy or consent, as the case may be. The total cost of this solicitation will
be borne by the Company. The Company will not engage a proxy solicitation firm
to assist it in this solicitation.
-1-
<PAGE>
Purpose of this Solicitation
- ----------------------------
The Stockholders are being asked to consider and to vote upon or
consent to the proposal described below, which has been approved by the
Company's Board of Directors:
Merger Proposal. The Board is soliciting proxies from the
---------------
holders of the outstanding shares of Common Stock and Convertible
Preferred Stock to approve an Agreement of Merger dated as of [ ],
1999 (the "Merger Agreement") between the Company and ETG Merger
Corporation, a Delaware corporation which is a newly-formed, wholly-
owned subsidiary of the Company ("Newco") (the "Merger Proposal"). The
Merger Agreement provides for the merger of Newco into the Company,
with the Company being the surviving corporation in the merger (the
"Merger"). As a result of the Merger (i) each outstanding share of
Convertible Preferred Stock (other than shares owned by holders
exercising appraisal rights under the Delaware General Corporation
Law, as amended (the "DGCL")) will be exchanged for 1.1 shares of
Common Stock (except that cash will be paid in lieu of any fractional
shares) and (ii) all shares of Common Stock will remain outstanding,
unaffected by the Merger. See "MERGER PROPOSAL". The Company
anticipates that the Merger will be consummated as promptly as
possible after the Special Meeting, provided all conditions to the
Merger have been satisfied or waived. Approval of (i) the holders of a
majority of the outstanding Common Stock and Convertible Preferred
Stock, voting together as a single class and (ii) the holders of a
majority of the outstanding Convertible Preferred Stock, voting as a
separate class, is required to approve the Merger Proposal. The
Company may withdraw the Merger Proposal if the holders of more than
5% of the outstanding Convertible Preferred Stock have properly
exercised appraisal rights in accordance with Section 262 of the DGCL.
See "MERGER PROPOSAL". The Merger Agreement is attached to this
Solicitation Statement as Annex [A].
Forward-Looking Information
- ---------------------------
This Proxy Statement contains certain forward-looking statements
(within the meaning of the Private Securities Litigation Reform Act of 1995)
that involve substantial risks and uncertainties. When used in this Proxy
Statement, the words "believe," "expect," and "intend" and similar expressions
as they relate to the Company or its management are intended to identify such
forward-looking statements. A number of important factors could cause the
Company's actual results, performance or achievements for fiscal 1999 and beyond
to differ materially from those expressed in such forward-looking statements.
These factors include, without limitation, failure to achieve anticipated
synergies, charges and costs related to acquisitions, environmental liabilities,
attraction and retention of key personnel, general economic and business
conditions and enhanced competition and new competitors.
-2-
<PAGE>
VOTING
------
Voting Rights and Proxy and Written Consent Information
- -------------------------------------------------------
Record Date. Holders of record of Common Stock and holders of record
-----------
of Convertible Preferred Stock at the close of business on [date must be after
Board meeting setting date and between 10 and 60 days prior to Stockholders'
meeting] (the "Record Date), will be entitled to vote at the Special Meeting.
On the Record Date, there were [6,095,786] shares of Common Stock and
[1,485,543] shares of Convertible Preferred Stock outstanding. Each of such
shares will be entitled to one vote at the meeting on the Merger Proposal and
any other proposal considered at the meeting on which they are entitled to vote.
Stockholders are not entitled to cumulate their votes on any matter to be
considered at the meeting.
Quorum. The presence at the Special Meeting, in person or by proxy,
------
of the holders of a majority of the total number of shares of Common Stock and
Convertible Preferred Stock, taken together as a single class, outstanding on
the Record Date is required for the transaction of any business requiring the
approval of both such classes at the Special Meeting. At the Special Meeting,
abstentions and broker non-votes (as hereinafter defined) will be counted as
present for the purpose of determining the presence of a quorum.
Vote Required. Approval of the Merger Proposal requires the
-------------
affirmative vote of the holders of at least a majority of the outstanding Common
Stock and Convertible Preferred Stock, voting together as a single class.
Additionally, although there is no statutory requirement for the holders of
Convertible Preferred Stock voting as a separate class to approve the Merger
Proposal, the Board has determined that the Company will not consummate the
Merger unless the holders of at least a majority of the outstanding Convertible
Preferred Stock, voting as a separate class, vote to approve the Merger
Proposal. For the purpose of computing the vote required for approval of
matters to be voted on at the Special Meeting, shares held by Stockholders who
abstain from voting will be treated as being "present" and "entitled to vote" on
the matter and, thus, an abstention has the same legal effect as a vote against
the matter. However, in the case of a broker non-vote as to a particular
matter, such shares will not be treated as "present" and "entitled to vote" on
the matter and, thus, a broker non-vote will have no effect on the outcome of
the vote on the matter, except that, in the case of any matter which requires
the affirmative vote of a majority of the outstanding stock entitled to vote, a
broker non-vote will have the same legal effect as a vote against the matter. A
"broker non-vote" refers to shares represented at the Special Meeting in person
or by proxy by a broker or nominee where such broker or nominee (i) has not
received voting instructions on a particular matter from the beneficial owners
or persons entitled to vote and (ii) the broker or nominee does not have the
discretionary voting power on such matter. The Company may withdraw the Merger
Proposal if the holders of more than 5% of the outstanding Convertible Preferred
Stock have properly exercised appraisal rights in accordance with Section 262 of
the DGCL.
Vote of Directors and Officers. The Company's directors and executive
------------------------------
officers, and their affiliates, all of whom have informed the Company that they
intend to vote for approval of the Merger Proposal, had, as of the Record Date,
sole or shared voting
-3-
<PAGE>
power with respect to approximately [859,414] shares (or [14%]) of the total
outstanding Common Stock. None of the directors or executive officers of the
Company, or any of their affiliates, owns any Convertible Preferred Stock.
Vote of Escrow Agent. The holder of 1,295,484 shares of Common Stock
--------------------
(or approximately [21%] of the outstanding Common Stock) and of 572,199 shares
of Convertible Preferred Stock (or approximately [39%] of the outstanding
Convertible Preferred Stock) has advised the Company that it intends to vote
such shares, in person or by proxy, proportionally in accordance with the votes
cast on each matter by the other holders of the outstanding Common Stock and
Convertible Preferred Stock. The holder holds such shares as escrow agent
("Escrow Agent") for and on behalf of (i) holders of claims against and
interests in Emons Industries, Inc. ("Industries") pursuant to the Second
Amended and Restated Joint Plan of Reorganization of Industries and ET Railcar
Corporation dated November 10, 1986 (the "Industries Reorganization Plan") and
(ii) holders of claims against The Maryland and Pennsylvania Railroad Company, a
wholly-owned subsidiary of the Company ("MPA"), pursuant to a Settlement
Agreement dated as of December 19, 1986 among MPA and certain secured creditors
of MPA. In such capacity the Escrow Agent has the right to vote such shares.
See "PRINCIPAL STOCKHOLDERS".
Right to Adjourn Special Meeting. If at any time prior to the date of
--------------------------------
the Special Meeting the Company has not obtained a sufficient number of votes to
approve the proposal to be presented at the Special Meeting, the Company may
postpone the Special Meeting to provide the Company with additional time to
solicit proxies. Additionally, in the event that a quorum is not present at the
time the Special Meeting is convened, or if for any other reason the Company
believes that additional time should be allowed for the solicitation of proxies,
the Chairman of the meeting may adjourn the Special Meeting, but only upon a
vote of the majority of Stockholders of Common Stock and Convertible Preferred
Stock present at the meeting, voting together as a single class. In addition to
the other matters specifically enumerated in the proxy, the enclosed form of
proxy includes, as a separate item with respect to which Stockholders may grant
or withhold authority, a request that the persons named in the proxy be granted
the authority to vote on "any adjournment of the Special Meeting".
Consequently, if the Company proposes to adjourn the Special Meeting by a vote
of the Stockholders and if authority to vote in their discretion on such matter
has been granted to the persons named in the proxy, the persons named in the
enclosed form of proxy will have the discretion to vote all shares of Common
Stock and all shares of Convertible Preferred Stock for which they have voting
authority in favor of such adjournment.
Proxies. Proxies in the enclosed form are solicited by the Board of
-------
Directors of the Company in order to provide every Stockholder an opportunity to
vote on all matters scheduled to come before the Special Meeting, whether or not
the Stockholder attends in person. If proxies in the enclosed form are properly
executed and returned, the shares represented thereby will be voted at the
meeting in accordance with the Stockholder's directions. IN THE ABSENCE OF
SPECIFIC DIRECTIONS, PROPERLY EXECUTED PROXIES WILL BE VOTED "FOR" THE MERGER
PROPOSAL. A STOCKHOLDER WHO SUBMITS A PROXY MAY REVOKE IT AT ANY TIME PRIOR TO
THE VOTING
-4-
<PAGE>
OF THE PROXY BY WRITTEN NOTICE TO THE SECRETARY OF THE COMPANY, BY ATTENDING THE
MEETING AND VOTING SUCH STOCKHOLDER'S SHARES IN PERSON OR BY EXECUTING AND
DELIVERING A LATER-DATED PROXY PRIOR TO THE SPECIAL MEETING.
SECURITY OWNERSHIP OF MANAGEMENT
--------------------------------
The following table sets forth information concerning beneficial
ownership of the Company's Common Stock as of February 10, 1999 by (a) each
director individually, (b) each executive officer required to be named in the
Summary Compensation Table contained in the Company's Annual Report on Form 10-
K, as amended, and (c) all nine directors and executive officers as a group. No
director or executive officer of the Company owns any Convertible Preferred
Stock. Each non-employee director and all executive officers of the Company
have been granted options to purchase Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS NAME OF BENEFICIAL OWNER/+/ BENEFICIAL OWNERSHIP OF CLASS
- ---------------------- --------------------------- -------------------- ---------
<S> <C> <C> <C>
Common Stock Robert Grossman 521,814/1/ 8.17%
Common Stock Michael J. Blake 416,100/2/ 6.82%
Common Stock Scott F. Ziegler 96,000/3/ 1.56%
Common Stock Robert J. Smallacombe 60,000/4/ *
Common Stock Alfred P. Smith 51,500/5/ *
Common Stock Dean H. Wise 41,666/6/ *
Common Stock Matthew C. Jacobson 50,000/7/ *
Common Stock Kimberly A. Madigan 22,666/8/ *
Common Stock All directors and officers 1,325,746/9/ 20.20%
as a group, (9 persons)
</TABLE>
None of the officers and directors of the Company engaged in securities
transactions for which they have failed to file, or failed to file on a timely
basis, Forms 4 or 5 with the Securities and Exchange Commission.
None of the current officers and directors of the Company failed to file,
or failed to file on a timely basis, a Form 3 with the Securities and Exchange
Commission stating that they have assumed the responsibilities of such
respective office.
___________________
* Percentage of shares beneficially owned does not exceed one percent of Common
Stock outstanding.
-5-
<PAGE>
/+/ The address for all directors and executive officers is c/o Emons
Transportation Group, Inc., 96 South George Street, York, Pennsylvania 17401-
1436.
/1/ Includes (i) 1,000 shares owned by Mr. Grossman's wife, as to which Mr.
Grossman disclaims beneficial ownership; (ii) 37,500 shares of Restricted Common
Stock which have not vested as of February 10, 1999 and are subject to risk of
forfeiture; and (iii) options to purchase 50,000 shares of Common Stock at a
price of $.906 per share, 225,000 shares of Common Stock at a price of $1.0625
per share and 20,000 shares of Common Stock at a price of $3.25 per share which
are currently exercisable or will become exercisable within 60 days. Does not
include unvested options to purchase 75,000 shares of Common Stock at a price of
$1.0625 per share and 30,000 shares of Common Stock at a price of $3.25 per
share.
/2/ Includes options to purchase 5,000 shares of Common Stock at a price of
$3.2188 per share which are currently exercisable. Does not include unvested
options to purchase 10,000 shares of Common Stock at a price of $3.2188 per
share.
/3/ Includes (i) 17,500 shares of Restricted Common Stock which have not vested
as of February 10, 1999 and are subject to risk of forfeiture; and (ii) options
to purchase 25,000 shares of Common Stock at a price of $.8125 per share, 15,000
shares of Common Stock at a price of $1.0625 per share and 20,000 shares of
Common Stock at a price of $3.25 per share which are currently exercisable or
will become exercisable within 60 days. Does not include unvested options to
purchase 10,000 shares of Common Stock at a price of $1.0625 per share, 30,000
shares of Common Stock at a price of $3.25 per share, and 15,000 shares of
Common Stock at a price of $2.875 per share.
/4/ Includes currently exercisable options to purchase 10,000 shares of Common
Stock at a price of $.906 per share, 15,000 shares of Common Stock at a price of
$1.0625 per share and 5,000 shares of Common Stock at a price of $2.2813 per
share. Does not include unvested options to purchase 10,000 shares of Common
Stock at a price of $2.2813 per share.
/5/ Includes options to purchase 5,000 shares of Common Stock at a price of
$3.2188 per share which are currently exercisable. Does not include unvested
options to purchase 10,000 shares of Common Stock at a price of $3.1288 per
share.
/6/ Includes options to purchase 15,000 shares of Common Stock at a price of
$1.6875 per share and 6,666 shares of Common Stock at a price of $3.25 per share
which are currently exercisable or will become exercisable within 60 days. Does
not include unvested options to purchase 3,334 shares of Common Stock at a price
of $3.25 per share.
/7/ Includes (i) 28,000 shares of Restricted Common Stock which have not vested
as of February 10, 1999 and are subject to risk of forfeiture, and (ii) options
to purchase 6,000 shares of Common Stock at a price of $1.25 per share, 4,000
shares of Common Stock at a price of $3.25 per share and 5,000 shares of Common
Stock at a price of $1.875 per share which are currently exercisable or will
become exercisable within 60 days. Does not include unvested options to
purchase 9,000 shares of Common Stock at a price of $1.25 per share, 6,000
shares of Common Stock at a price of $3.25 per share, 20,000 shares of Common
Stock at a price of $1.875 per share and 15,000 shares of Common Stock at a
price of $2.875 per share.
/8/ Includes currently exercisable options to purchase 15,000 shares of Common
Stock at a price of $2.4375 per share and 6,666 shares of Common Stock at a
price of $1.375 per share. Does not include unvested options to purchase 3,334
shares of Common Stock at a price of $1.375 per share.
/9/ See notes 1 through 8 above.
-6-
<PAGE>
PRINCIPAL STOCKHOLDERS
----------------------
The following table sets forth certain information regarding ownership
of (i) the Company's equity securities as of February 10, 1999 by each person
who is known to the Company to own beneficially more than 5% of its equity
securities and (ii) equity securities of the surviving corporation projected to
be owned beneficially assuming consummation of the Merger:
<TABLE>
<CAPTION>
PRE-MERGER POST-MERGER
----------------------- ---------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS OWNERSHIP OF CLASS
- -------------- ------------------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Common Stock IBJ Schroder Bank & 1,295,484/1/ 21.25% 1,924,902 24.90%
Trust Company
One State Street
New York, New York
10004
Convertible IBJ Schroder Bank & 572,199/1/ 38.52% - -
Preferred Stock Trust Company
One State Street
New York, New York
10004
Common Stock Robert Grossman 521,814 8.17% 521,814 6.50%
96 South George Street
York, Pennsylvania 17401
Common Stock Chase Manhattan Bank 382,063 6.27% 554,868 7.18%
One Chase Manhattan Plaza
10th Floor
New York, New York
10051
Convertible Chase Manhattan Bank 157,096 10.57% - -
Preferred Stock One Chase Manhattan Plaza
10th Floor
New York, New York
10051
Common Stock First Union National Bank 270,312 4.43% 358,697 4.64%
123 Broad Street
Philadelphia, PA 19109
Convertible First Union National Bank 80,350 5.41% - -
Preferred Stock 123 Broad Street
Philadelphia, PA 19109
Common Stock Michael J. Blake 416,100 6.82% 416,100 5.38%
412 South Fourth Street
Suite 1200
Minneapolis, Minnesota
55415
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
PRE-MERGER POST-MERGER
----------------------- ---------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS OWNERSHIP OF CLASS
- -------------- ------------------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Common Stock Reliance Insurance Company 255,567 4.19% 371,321 4.80%
55 East 52nd Street
Park Avenue Plaza
New York, New York
10055
Convertible Reliance Insurance Company 105,231 7.08% - -
Preferred Stock 55 East 52nd Street
Park Avenue Plaza
New York, New York
10055
Common Stock State of Michigan 235,954 3.87% 385,448 4.99%
Retirement Systems
P.O. Box 30117
Treasury Building
Lansing, Michigan 48909
Convertible State of Michigan 135,904 9.15% - -
Preferred Stock Retirement Systems
P.O. Box 30117
Treasury Building
Lansing, Michigan 48909
</TABLE>
______________
/1/ The Shares owned of record by IBJ Schroder Bank & Trust Company are owned
by it in its capacity as escrow agent (the "Escrow Agent") acting for and on
behalf of certain holders of claims and interests in Emons Industries, Inc., a
direct wholly-owned subsidiary of the Company ("Industries") pursuant to the
Second Amended and Restated Joint Plan of Reorganization of Industries and ET
Railcar Corporation dated November 10, 1986, which shares shall be distributed
from time to time pro rata to holders of certain allowed claims under the Plan.
The Escrow Agent, as record owner of those shares, has the power to vote those
shares and has expressed its intention to vote such shares, in person or by
proxy, proportionally in accordance with the votes cast on each matter by the
other holders of the outstanding Common Stock and Convertible Preferred Stock.
The number of shares of Common Stock or Convertible Preferred Stock to be
distributed to any one holder of claims depends upon the resolution of certain
contingent liabilities of Industries. It is not possible to determine at this
time either the manner in which those contingent liabilities will be resolved or
the resulting disposition of the shares of Common Stock or Convertible Preferred
Stock currently held by the Escrow Agent. The Company knows of no individual
holder, other than the Escrow Agent, Robert Grossman, Chase Manhattan Bank,
First Union National Bank, Michael J. Blake, Reliance Insurance Company and
State of Michigan Retirement Systems who beneficially owns more than 5% of the
Common Stock or Convertible Preferred Stock.
To the knowledge of the Company, none of the beneficial owners of more than 10%
of the Company's equity securities engaged in securities transactions for which
they have failed to file, or failed to file on a timely basis, Forms 4 or 5 with
the Securities and Exchange Commission.
-8-
<PAGE>
SPECIAL FACTORS
---------------
Rationale for the Merger Proposal
- ---------------------------------
As of February 10, 1999, the Company had [1,485,543] shares of
Convertible Preferred Stock outstanding with a total liquidation preference of
$4,738,882, including accumulated undeclared dividends as of February 10, 1999
of $1,767,796. The Company believes that the existence of the Convertible
Preferred Stock and its accumulated undeclared dividends creates a significant
obstacle to the Company's ability to raise the additional equity capital that
will be needed for it to achieve its strategic business plan. A primary goal of
the Company's current business plan is the development, by acquisition and
otherwise, of new businesses which will provide operational, geographical or
managerial synergies related to its existing business of rail freight
transportation and distribution services. See "BUSINESS OF THE COMPANY" and
"SPECIAL FACTORS - The Company's Strategic Business Plan". For this reason, the
Company has had to fund recent acquisitions with internally generated funds and
debt. The resulting current debt level of the Company may make it difficult for
the Company to raise additional debt on favorable terms.
Alternatives Considered
- -----------------------
The Company examined possible ways to eliminate the burden that the
Convertible Preferred Stock and its accumulated undeclared dividends have placed
on the Company's capital structure. The Company considered ways to redeem the
Convertible Preferred Stock in accordance with the redemption provisions of the
Convertible Preferred Stock Terms. Under the redemption provisions of the
Convertible Preferred Stock Terms the Company has the right, at its sole option,
to redeem all outstanding shares of Convertible Preferred Stock for an aggregate
price, as of February 10, 1999, of $4,738,882 (or $2.00 per share plus $1.19 per
share in accumulated undeclared dividends) (the "Redemption Price"). See
"DESCRIPTION OF SECURITIES -Convertible Preferred Stock" for additional
information regarding the Convertible Preferred Stock Terms. Based upon its
assessment of the Company's ability to raise new capital and the amount of
internally-generated funds which the Company could apply to this purpose, the
Company concluded that at this time and in the foreseeable future the Company
would most likely not be able to fund a total redemption of the Convertible
Preferred Stock at the Redemption Price without seriously jeopardizing the
Company's ability to continue as a going concern or without materially diluting
existing holders of Common Stock.
The Company also believes that the payment of cash consideration to
the holders of Convertible Preferred Stock, instead of the proposed exchange of
shares of Common Stock for the shares of Convertible Preferred Stock, would
significantly limit the Company's ability to invest internally generated funds
for the continued growth of the Company and would prevent the Company from being
able to fully pursue its strategic goals. Accordingly, the Company did not
consider that conducting a full cash offer for the Convertible Preferred Stock
would be in the best interests of the Company and its Stockholders.
-9-
<PAGE>
Background of the Merger Proposal
- ---------------------------------
At a regular meeting of the Board held on September 18, 1997,
management discussed with the Board the possible recapitalization of the Company
involving an exchange of shares of Common Stock for the shares of Convertible
Preferred Stock. The Board authorized management to engage the investment firm
of Ferris, Baker Watts, Incorporated ("FBW") to evaluate the fairness of a
possible recapitalization proposal. Subsequent to the September 1997 meeting,
the Board authorized management to initiate discussions with a limited number of
institutional holders of the Convertible Preferred Stock to determine whether
those holders would consider favorably a recapitalization of the Convertible
Preferred Stock. The Company had such discussions with six of the institutional
holders of significant amounts of the Convertible Preferred Stock, including
Chase Manhattan Bank, Bank of America, Bankers Trust Company, Reliance Insurance
Company, State of Michigan Retirement Systems and First Union National Bank.
Based upon those discussions, management was uncertain as to whether a
recapitalization transaction would be successful at that time.
In numerous subsequent Board meetings and telephone conferences during
late 1997 and early 1998, management discussed the general structure and terms
of a possible recapitalization of the Convertible Preferred Stock, and at the
November 19, 1998 Board meeting, the Board requested the Company's management to
evaluate a recapitalization transaction with an exchange ratio of up to 1.1
shares of Common Stock for each share of Convertible Preferred Stock or 1 share
of Common Stock plus $0.14 in cash (the amount of the accumulated undeclared
dividend for one year) for each share of Convertible Preferred Stock. At a
meeting on February 22, 1999, the Company's management reported to the Board
that it would be in the Company's best interest to propose an exchange
transaction at a ratio of 1.1 shares of Common Stock for each share of
Convertible Preferred Stock, and the terms of the Merger Proposal were presented
to, and unanimously approved by, the Board. See "SPECIAL FACTORS -
Recommendation of the Board of Directors; Fairness". Accordingly, the Merger
Proposal is now being submitted to the Company's Stockholders for approval.
1989 Merger Transaction
- -----------------------
In 1989, the Company engaged in a merger transaction (the "1989
Merger") that was similar in structure and purpose to the proposed Merger. In
the 1989 Merger, the Stockholders approved an agreement of merger dated as of
May 8, 1989 between the Company and its wholly-owned subsidiary, Emons Merger
Corporation. The 1989 Merger was consummated on September 27, 1989 and resulted
in the issuance of the existing Convertible Preferred Stock to holders of the
Company's Senior Preferred Stock, par value $.01 per share, in exchange for such
shares of Senior Preferred Stock. The purpose of the 1989 Merger was to relieve
the Company of the Senior Preferred Stock's uncommon and burdensome terms,
including variable dividend requirements and highly restrictive financial and
operational covenants. The Company had determined that such Senior Preferred
Stock had a negative influence on the Company's ability to conduct its business,
and it restricted the Company's ability to access new capital sources. At the
time of the 1989 Merger, the
-10-
<PAGE>
Company believed it would be able to pay the dividends on the Convertible
Preferred Stock from internally generated funds without hampering the Company's
ability to pursue its strategic goals. However, due to an unforeseen economic
downturn in New England, where a large part of the Company's business has been
focused, and a downturn in the paper industry which constituted a large part of
the Company's business, the Company has not declared dividends on the
Convertible Preferred Stock since July 1990. Although such economic conditions
have improved and the Company's business base has expanded, the Company's
ability to continue growing and investing in profit-enhancing projects would be
hampered if the Company were to pay the undeclared dividends that have
accumulated on the Convertible Preferred Stock since July 1990 or any dividends
that would accrue in the foreseeable future.
Effects of Merger Proposal
- --------------------------
The principal effects of the adoption of the Merger Proposal will be
the exchange of all outstanding shares of Convertible Preferred Stock into
shares of Common Stock and the elimination of the burden that the accumulated
undeclared dividends on the Convertible Preferred Stock are placing on the
Company's capital structure. This will allow the Company to continue investing
internally generated funds in the Company's growth. The Company believes, for
the reasons stated below, that the consummation of the Merger Proposal will
benefit the holders of Common Stock, the holders of Convertible Preferred Stock
and the Company as a whole.
Benefits to the Company as a Whole. The Board believes that the
----------------------------------
Convertible Preferred Stock Terms and the existence of the accumulated
undeclared dividends significantly limit the Company's ability to raise
additional capital on favorable terms. The adoption of the Merger Proposal will
benefit the Company financially and will give the Company needed flexibility in
attempting to raise capital in the future.
Benefits to Holders of Convertible Preferred Stock. Since the
--------------------------------------------------
Company's Common Stock has historically traded significantly more actively than
the Company's Convertible Preferred Stock, holders of the Convertible Preferred
Stock may get the benefit of increased liquidity in their investment in the
Company as a direct result of the adoption of the Merger Proposal. The Common
Stock is listed on the NASDAQ SmallCap Market, and the Company intends to
continue that listing subsequent to the adoption of the Merger Proposal.
Holders of Convertible Preferred Stock may also benefit by exchanging their
shares at a ratio of 1.1 shares of Common Stock for each share of Convertible
Preferred Stock, since this ratio exceeds the conversion ratio provided for by
the Convertible Preferred Stock Terms of .9 shares of Common Stock for each
share of Convertible Preferred Stock. Additionally, the Board believes that the
strategic and organizational benefits which are expected to accrue to the
Company as a result of adoption of the Merger Proposal will benefit the holders
of Convertible Preferred Stock as holders, after the Merger, of the Company's
Common Stock.
Benefits to Holders of Common Stock. The Board believes that holders
-----------------------------------
of Common Stock, like the holders of Convertible Preferred Stock, will directly
experience the
-11-
<PAGE>
benefits accruing to the Company as a whole from adoption of the Merger
Proposal. Adoption of the Merger Proposal will give the Company needed
flexibility in attempting to raise capital in the future.
Pro Forma Financial Information
- -------------------------------
The pro forma earnings applicable to holders of Common Stock and the
pro forma consolidated balance sheets of the Company, assuming the consummation
of the Merger, are shown below.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998 JUNE 30, 1998
-------------------------------------------- ----------------------------------------
PRO FORMA/(1)/ PRO FORMA /(1)/
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
(UNAUDITED) (UNAUDITED) (UNAUDITED) HISTORICAL (UNAUDITED) (UNAUDITED)
----------- -------------- ----------- ---------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 721,886 $ - $ 721,886 $4,917,622 $ - $4,917,622
Convertible Preferred Stock
dividend requirements 105,041 637,731 742,772 218,275 545,841 764,116
---------- ---------- ---------- ---------- ---------- ----------
Income applicable to
Common Stockholders $ 616,845 $ (637,731) $ (20,886) $4,699,347 $ (545,841) $4,153,506
========== ========== ========== ========== ========== ==========
Weighted average number of
Common Stock shares
Basic 6,072,374 1,634,097 7,706,471 5,953,586 1,681,054 7,634,640
========== ========== ========== ========== ========== ==========
Diluted 7,833,000 283,572 8,116,572 7,829,379 277,860 8,107,239
========== ========== ========== ========== ========== ==========
Earnings per Common Stock
share
Basic $ 0.10 $ (0.10) $ 0.00 $ 0.79 $ (0.25) $ 0.54
========== ========== ========== ========== ========== ==========
Diluted $ 0.09 $ (0.09) $ 0.00 $ 0.63 $ (0.12) $ 0.51
========== ========== ========== ========== ========== ==========
</TABLE>
(1) Adjustment assumes that the Convertible Preferred Stock outstanding at the
end of the period was converted into Common Stock at the beginning of the
period at a rate of 1.1 shares of Common Stock for each share of
Convertible Preferred Stock. Convertible Preferred Stock dividend
requirements include a charge equal to .2 times the number of Convertible
Preferred Stock outstanding at the end of the period times $2.50 (assumed
fair market value of the Common Stock on the conversion date for purposes
of this pro forma computation) as a result of the inducement of .2 shares
of Common Stock.
-12-
<PAGE>
EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
(UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ---------------- -------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,845,351 $(250,000)/(1)/ $ 1,595,351
Accounts receivable, materials and
supplies, and prepaid expenses 3,243,926 3,243,926
Deferred income taxes 476,000 476,000
------------ --------- ------------
Total current assets 5,565,277 (250,000) 5,315,277
------------ --------- ------------
Property, plant and equipment, net 26,334,283 26,334,283
Deferred expenses and other assets 771,798 771,798
Deferred income taxes 911,000 911,000
------------ --------- ------------
TOTAL ASSETS $ 33,582,358 $(250,000) $ 33,332,358
============ ========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 661,520 $ $ 661,520
Accounts payable and accrued expenses 4,308,283 4,308,283
------------ --------- ------------
Total current liabilities 4,969,803 4,969,803
Long-term debt 15,443,480 15,443,480
Other Liabilities 781,990 781,990
------------ --------- ------------
Total Liabilities 21,195,273 21,195,273
------------ --------- ------------
Stockholders' Equity:
Cumulative Convertible Preferred Stock 14,855 (14,855)/(2)/
Common Stock 60,958 16,341/(2)/ 77,299
Additional paid-in capital 23,790,800 (251,486)/(3)/ 23,539,314
Deficit (11,149,613) (11,149,613)
------------ --------- ------------
12,717,000 (250,000) 12,467,000
Comprehensive income (1,000) (1,000)
Unearned compensation-restricted stock awards (328,915) (328,915)
------------ --------- ------------
Total Stockholders' Equity 12,387,085 (250,000) 12,137,085
------------ --------- ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 33,582,358 $(250,000) $ 33,332,358
============ ========= ============
</TABLE>
(1) Adjustment represents the anticipated costs to complete the Merger
Proposal.
(2) Adjustment represents the conversion of Convertible Preferred Stock into
Common Stock at a rate of 1.1 shares of Common Stock for each share of
Convertible Preferred Stock.
(3) Adjustment represents the anticipated costs to complete the proposed Merger
transaction and the difference between the par value of the Convertible
Preferred Stock exchanged and the par value of the Common Stock received.
Possible Detrimental Effects of the Merger Proposal
- ---------------------------------------------------
Although the Board believes that the adoption of the Merger Proposal
would be in the best interests of the Company and all of its Stockholders, the
Board recognizes that under some circumstances the adoption of the Merger
Proposal could turn out to be disadvantageous for some of its Stockholders.
-13-
<PAGE>
Dilution of Existing Common Stockholders. The Merger Proposal will
----------------------------------------
have the effect of diluting the interests of holders of Common Stock. At
December 31, 1998, the Company's Common Stockholders' Equity (or "book value"
attributable to Common Stock) was $10,251,423, or $1.68 per share of Common
Stock outstanding on such date (without giving effect to shares issuable upon
exercise of outstanding options). At June 30, 1998, the Company's book value
attributable to Common Stock was $9,436,929 or $1.56 per share of Common Stock
outstanding on such date (without giving effect to shares issuable upon exercise
of outstanding options). Assuming consummation of the Merger Proposal and the
issuance of shares of Common Stock to holders of Convertible Preferred Stock at
a rate of 1.1 shares of Common Stock for each share of Convertible Preferred
Stock in the Merger and assuming a charge of $250,000 to equity for expenses
associated with this transaction, the Company's Common Stockholders' Equity
would have been $12,137,085 or $1.57 per share of Common Stock outstanding at
December 31, 1998 and $11,383,960 or $1.47 per share of Common Stock outstanding
at June 30, 1998. See "SPECIAL FACTORS - Pro Forma Financial Information" for
pro forma earnings per share information.
Convertible Preferred Stockholders. The adoption of the Merger
----------------------------------
Proposal will deprive holders of Convertible Preferred Stock of their right to
receive a fixed dividend, if declared, and of their right to receive a
liquidation preference in the amount of $2 per share in any liquidation of the
Company. Additionally, the holders of Convertible Preferred Stock will forgo
accumulated undeclared dividends in the amount of $1.19 per share, as of
February 10, 1999.
Future Issuances of Preferred Stock. Under the Convertible Preferred
-----------------------------------
Stock Terms, so long as any shares of Convertible Preferred Stock are
outstanding, the Company may not create any class or series of stock ranking
prior to the Convertible Preferred Stock as to payment of dividends or as to
liquidation preferences. Although the Company does not have a present intention
of reissuing the Convertible Preferred Stock or of issuing additional series or
classes of preferred stock, the Company will have the ability to do so after the
adoption of the Merger Proposal. The holders of any shares of preferred stock
that may be issued in the future may have the right to receive a liquidation
preference and an accumulated dividend preference prior to any rights of the
holders of Common Stock.
Reasons for Proposed Structure
- ------------------------------
The Company believes that although there may be other structures and
kinds of transactions which, individually or in combination, could be used to
achieve some or all of the goals of the Merger Proposal, the Merger Proposal is
the most attractive way for the Company to achieve all such goals.
As stated above, the Company initially examined possible ways to
repurchase the outstanding shares of Convertible Preferred Stock, either
pursuant to the redemption provisions of the Convertible Preferred Stock Terms
or pursuant to a voluntary exchange offer made by the Company to all holders of
Convertible Preferred Stock. The Company chose not to attempt a redemption
pursuant to the Convertible Preferred Stock Terms since the Redemption Price
exceeded the amount that the Company could apply to that purpose at this time.
An offer by the Company to repurchase the Convertible Preferred Stock outside
the redemption provisions of the Convertible Preferred Stock Terms was also
considered but was rejected because, in the Board's view, such an offer would be
likely to be less advantageous to the Company than the proposed recapitalization
and because, whatever the price offered by the Company, the Company could not be
assured that it would be able to repurchase all outstanding shares in such a
transaction. See "SPECIAL FACTORS - Background of the Merger Proposal and
Alternatives Considered".
-14-
<PAGE>
After considering the alternatives referred to above, the Board has
concluded that a transaction structured as a recapitalization through a
statutory merger would be beneficial to the Company and, assuming the necessary
approvals are obtained, would be achievable by the Company both as a financial
and mechanical matter.
Timing of Transaction
- ---------------------
The existence of accumulated undeclared dividends has limited the
Company's ability to raise new equity. The Company financed four acquisitions
in the period from November 1997 to December 1998 with internally generated
funds and debt because the Company was not able to raise equity capital on what
it believed to be favorable terms. The Company's current debt level may make it
difficult for the Company to obtain additional debt on favorable terms. The
Company therefore believes it may be necessary to finance future growth and
profit enhancing projects with additional equity, but the Company believes it
will not be possible to raise such equity on terms acceptable to the Company as
long as the accumulated undeclared dividends on the Convertible Preferred Stock
remains in existence.
Recommendation of the Board of Directors; Fairness
- --------------------------------------------------
The Board of Directors, by unanimous vote of the directors at a
meeting held on February 22, 1999, has approved the Merger Proposal and believes
that the Merger Proposal and the process by which the proposal was determined,
are fair to the Stockholders. Each member of the Board and each executive
officer of the Company has advised the Company that he or she intends to vote
all Common Stock over which he or she exercises voting power in favor of the
Merger Proposal. See "VOTING -Voting Rights and Proxy Information".
The Board considered the matters described in this Solicitation
Statement at the Board meeting held on February 22, 1999, at which time a
presentation was made by FBW and certain officers of the Company and FBW
delivered its fairness opinion.
The Board's recommendation of the Merger Proposal to Stockholders, and
its belief that the proposal is fair to Stockholders, are based upon (i) the
Board's evaluation of the relative values of the Convertible Preferred Stock,
(ii) its assessment of the impact of the Merger Proposal upon holders of Common
Stock and (iii) the oral advice and written opinion of FBW that, based upon the
matters described in such opinion, as of the date of such opinion, the
consideration to be received by holders of Convertible Preferred Stock pursuant
to the merger and the effect on holders of Common Stock is, in each case, fair.
The Board did not assign relative weights to the various factors
considered by it, and individual directors may have weighed each factor
differently.
The Board did not ask FBW, in evaluating the fairness of the Merger
Proposal, to consider whether any transactions other than the Merger Proposal
would also be fair to the holders of Common Stock and Convertible Preferred
Stock and achieve the Company's objectives.
-15-
<PAGE>
No representative has been engaged by members of the Board who are not
officers of the Company to act solely on behalf of unaffiliated Stockholders for
purposes of negotiating the terms of the Merger Proposal.
Opinion of Financial Advisor
- ----------------------------
FBW, a Washington, DC-based investment banking firm, was retained by
the Company to act as its financial advisor generally in May 1998, and was
specifically engaged by the Company in connection with the Merger in December
1998 pursuant to an engagement letter dated December 7, 1998 (the "FBW
Engagement Letter"). Specifically, FBW was asked to advise the Board of
Directors of the Company as to the fairness to holders of Convertible Preferred
Stock and holders of Common Stock, from a financial point of view, of the
consideration to be received by the holders of Convertible Preferred Stock in
connection with the Merger. The Board did not ask FBW to, and FBW did not,
consider the fairness of any form of transaction other than the Merger Proposal
or the fairness of conducting the proposed exchange on any terms other than the
terms of the Proposed Merger, including any transaction involving partial or
full cash consideration.
At a meeting of the Company's Board of Directors on February 22, 1999,
FBW rendered its oral opinion and delivered a written copy of its opinion dated
as of such date. FBW subsequently delivered an opinion in writing to the Board
dated as of [March __, 1999], based upon and subject to the various assumptions,
qualifications and limitations set forth in the opinion, that the consideration
to be received by the holders of Convertible Preferred Stock is fair to the
holders of Common Stock and Convertible Preferred Stock. At a telephonic Board
meeting held on [March __, 1999], the Board [set the record date for the vote by
Stockholders of the Merger Proposal and set the date for the Special Meeting.]
The full text of the written opinions of FBW dated as of February 22,
1999 and [March] __, 1999 and the supporting analysis, assumptions made,
procedures followed, matters considered and limitations on the scope of the
review undertaken by FBW in rendering its opinions, are attached as Annexes [B-
1], [B-2] and [B-3] hereto. Stockholders are urged to, and should, read the
opinions and the supporting analysis therefor, carefully and in their entirety
in conjunction with this Solicitation Statement. FBW'S OPINIONS WERE PREPARED
AT THE REQUEST OF THE COMPANY'S BOARD OF DIRECTORS AND DO NOT CONSTITUTE A
RECOMMENDATION AS TO HOW A STOCKHOLDER SHOULD VOTE ON MATTERS ASSOCIATED WITH
THE MERGER. The following summarizes all of the material provisions of the
opinions of FBW that are attached hereto in their entirety. The following does
not purport to be complete and is subject to, and is qualified by reference to,
the full text of such opinions.
In connection with the opinions, FBW reviewed, among other things, (i)
the proposed Merger Agreement, (ii) Annual Reports and Form 10-K's for fiscal
years ended June 30, 1996, 1997, 1998, (iii) Quarterly Reports on Form 10-Q for
the periods ended September 30, 1998 and December 31, 1998, (iv) internal, non-
public budgets and projections for fiscal years 1999, 2000 and 2001, (v)
publicly available financial data of regional railroad companies which FBW
deemed comparable to the Company, and (vi) Notice of Special Meeting of
Stockholders and Proxy Statement, dated August 23, 1989. FBW also held
discussions with management of the Company regarding its past and current
business operations, financial condition and future prospects. FBW also held
discussions with the Company's accountants and counsel and performed such other
investigations as it deemed necessary.
-16-
<PAGE>
FBW assumed and relied upon the accuracy and completeness of all
financial and other information reviewed by it for the purposes of the opinions
whether publicly available or provided to FBW by the Company, and FBW has not
assumed, and does not assume, any responsibility for independent verification of
such information. FBW has further assumed that the financial budgets and
projections provided to FBW by the Company have been reasonably determined
reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company.
FBW expressed no view as to such budgets or projections or the assumptions on
which they were based.
FBW's final opinions are based on economic, market and other
considerations as in effect on, and other information made available to FBW as
of, February 22, 1999, and up-dated information as of [March __, 1999].
Subsequent events may affect the conclusions reached in the opinions, and FBW
neither has, nor does it assume any obligation to update, revise or reaffirm the
opinions which speak solely as of February 22, 1999 and [March] __, 1999,
respectively, with respect to matters contained therein.
As consideration for the Merger, the holders of Convertible Preferred
Stock shall exchange their shares for shares of Common Stock at a ratio of 1.1
shares of Common Stock for each share of Convertible Preferred Stock (except
that cash shall be paid in lieu of any fractional shares). Since there is no
current mechanism for the holders of Convertible Preferred Stock to force the
Company to pay dividends or redeem the Convertible Preferred Stock and
accumulated undeclared dividends for cash, FBW determined that the exchange of
shares at the aforementioned ratio is fair to the holders of Convertible
Preferred Stock. Additionally, FBW determined that any ratio that results in
consideration equal to or less than $4,946,854, the expected present value of
the Convertible Preferred Stock, is fair to the holders of Common Stock. The
expected present value of the Convertible Preferred Stock is calculated as (i)
the existing redemption value of the Convertible Preferred Stock plus (ii) the
present value of future dividends, discounted at a rate of 10% (the preferred
dividend rate on comparable securities) and further multiplied by 10% to provide
for the low likelihood of payment. The following is a brief summary of the
analysis performed by FBW in connection with the preparation of the opinion
letters dated February 22, 1999 and March __, 1999.
Discounted Free Cash Flow Analysis
- ----------------------------------
FBW performed a discounted free cash flow analysis based on the
Company's internal projections for fiscal years 1999 through 2001. The analysis
aggregated: (i) the present value of the projected free cash flows (defined as
net operating profit after tax less investment in fixed assets and working
capital) and (ii) the present value of a terminal value (the hypothetical value
of selling the enterprise in its entirety) in the year 2002. The Company's free
cash flow and terminal value were discounted to present values using a weighted
average cost of capital range of 9.80% and 10.37%. The weighted average cost of
capital is based upon a number of factors, including the cost of equity and debt
capital, the capitalization of the Company, the required rate of return to
investors and risks attributable to the uncertainty of achieving the projected
cash flows. Based on this analysis, the fully-diluted per share value for the
Company ranged from $2.37 to $2.80 after giving effect to the proposed Merger.
This per share price range implies that the holders of Convertible Preferred
Stock would receive between $3,873,000 and $4,575,000. This aggregate
consideration is between $584,000 and $684,000 more than the aggregate
consideration that would be received if the Convertible Preferred Stock were
converted in accordance with
-17-
<PAGE>
its stated terms into .9 shares of Common Stock per share of Convertible
Preferred Stock. This consideration is less than the expected present value of
the Convertible Preferred Stock of $4,946,854.
Comparable Public Company Analysis
- ----------------------------------
FBW performed a comparable analysis applying the average and median
multiples of similar publicly traded companies to the Company's last twelve
month and estimated future financial results. FBW selected comparable micro-cap
companies (with public market capitalizations of under $250 million) that
generally own and operate short-line railroads. Companies reviewed by FBW
include Providence and Worcester Railroad Company, RailTex, Inc., Genesee &
Wyoming, Inc., RailAmerica, Inc. and Pioneer Railcorp (collectively, the
"Selected Public Companies").
The average and median multiples are derived from ratios commonly used
by the securities industry to determine valuation such as: (i) net market
capital to earnings before interest and taxes ("EBIT"), (ii) price to earnings,
(iii) price to forward earnings, and (iv) net market capital to revenue. For
purposes of the opinion, FBW used the resulting multiples from the publicly
traded comparable company analysis to estimate an expected price range for the
Company's stock over the next eighteen months of $.96 to $1.91. This per share
price range implies that the holders of Convertible Preferred Stock would
receive between $1,569,000 and $3,121,000. This aggregate consideration is
between $245,000 and $474,000 more than the aggregate consideration that would
be received if the Convertible Preferred Stock were converted in accordance with
its stated terms. This consideration is less than the expected present value of
the Convertible Preferred Stock of $4,946,854.
None of the Selected Public Companies are identical to the Company.
Accordingly, a complete analysis of the results of the foregoing multiples
cannot be limited to a quantitative review of such results and involves
considerations and judgments concerning differences in characteristics of the
Selected Public Companies as well as that of the Company.
FBW performed a variety of financial and comparative analyses for
purposes of determining the fairness of the exchange ratio. In performing its
analysis, FBW made assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of the Company. Any estimates contained herein are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than those suggested by such estimates. The analyses
performed were prepared solely as part of FBW's analysis of the fairness of the
consideration to be received by the holders of Convertible Preferred Stock and
were conducted in connection with the delivery of FBW's opinion.
The Board of Directors of the Company retained FBW based upon FBW's
qualifications, experience and expertise. FBW, as part of its investment
banking business, is regularly engaged in the valuation of businesses in
connection with mergers and acquisitions, public offerings and private
placements and valuations for corporate and other purposes.
Pursuant to the FBW Engagement Letter, FBW provided advisory services
and a financial opinion in connection with the consideration to be received by
the holders of Convertible Preferred Stock. The Company has paid FBW $40,000
for the advisory services and financial opinion and has agreed to reimburse FBW
for reasonable out-of-pocket expenses incurred. The Company has also paid FBW
$10,000
-18-
<PAGE>
for determining the value of the Convertible Preferred Stock as of the date of
its initial issuance in 1989 for purposes of determining the tax treatment of
the Merger Proposal. See "MERGER PROPOSAL -Consequences to Holders of
Convertible Preferred Stock." In addition, the Company has agreed to indemnify
FBW, its directors, officers, agents and employees against certain liabilities
and expenses, including certain liabilities under the federal securities laws,
related to FBW's engagement.
The Company's Strategic Business Plan
- -------------------------------------
One of the Company's primary strategic business goals is the
development, by acquisition or otherwise, of new businesses which will provide
operational, geographical or managerial synergies relating to its existing
business of rail freight transportation and distribution services. The Company
intends, in particular, to continue to pursue acquisition opportunities in the
regional and short-line railroad industry and to expand its rail/truck transload
capabilities. The Company hopes that, by developing those businesses, it will
be able to utilize its existing managerial and administrative capabilities and
realize the benefits of some of its favorable tax attributes (which consist of
approximately $44 million of federal income tax net operating loss
carryforwards). The Company's ability to achieve its goal of developing related
businesses will be dependent upon a number of factors, including the Company's
ability to find attractive acquisition or business development prospects and to
structure and finance the acquisition or development of the prospects which it
finds.
MERGER PROPOSAL
The following discussion summarizes certain aspects of the Merger
Proposal. This summary is not intended to be complete and is qualified in its
entirety by reference to the Merger Agreement, attached hereto as Annex [A].
The Company's Board of Directors has unanimously approved, and
recommends that the Stockholders approve, the Merger Proposal. For information
regarding the basis for the Board's approval of the Merger Proposal and the
reasons why the Board believes the Merger Proposal to be in the best interests
of the Stockholders, see "SPECIAL FACTORS".
The Merger Proposal
- -------------------
The Merger Agreement provides for the merger of Newco into the
Company, with the Company being the surviving corporation in the Merger. As a
result of the Merger, each share of the Common Stock outstanding immediately
prior to the Merger will remain outstanding, unaffected by the Merger, and each
share of the Convertible Preferred Stock (other than Convertible Preferred Stock
as to which dissenters' rights of appraisal have been perfected under the DGCL),
will be exchanged for 1.1 fully-paid and nonassessable shares of Common Stock
(except that cash will be paid in lieu of any fractional shares). On the Record
Date, there were [6,095,786] shares of Common Stock outstanding and [1,485,543]
shares of Convertible Preferred Stock outstanding.
Consummation of the Merger is subject to certain conditions, including
approval by (i) the holders of at least a majority of the outstanding Common
Stock and Convertible Preferred Stock voting together as a single class and (ii)
the holders of at least a majority of the outstanding Convertible Preferred
Stock, voting as a separate class. As a further condition to the consummation
of the Merger, the Company
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<PAGE>
will require that Stockholders holding more than 5% of the outstanding
Convertible Preferred Stock shall not have exercised appraisal rights granted
under applicable Delaware law. See "MERGER PROPOSAL -Conditions".
The Merger Agreement
- --------------------
The Merger Agreement provides that as soon as practicable following
the satisfaction or waiver of certain conditions to closing under the Merger
Agreement, Newco will be merged into the Company, with the Company being the
surviving corporation. In the Merger, among other things, each share of Common
Stock outstanding immediately prior to the Merger will remain outstanding, and
each share of Convertible Preferred Stock outstanding immediately prior to the
Merger (other than Convertible Preferred Stock as to which dissenters' rights of
appraisal have been perfected under the DGCL) will be exchanged for 1.1 fully-
paid and nonassessable shares of Common Stock (except that cash will be paid in
lieu of any fractional shares).
Material Differences Between Old and New Securities
- ---------------------------------------------------
If the Merger Proposal is approved, approximately [7,729,883] shares
of Common Stock will be outstanding after the 1-for-1.1 exchange to be effected
pursuant to the Merger. The material differences between the Convertible
Preferred Stock and the Common Stock are set forth below. References to section
numbers in this paragraph are to the relevant sections in the terms of the
Convertible Preferred Stock. The brief summaries set forth in this paragraph do
not purport to be complete and are qualified in their entirety by reference to
the full text of the Convertible Preferred Stock Terms (which is attached hereto
as Annex [C]).
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
------------------------------ -----------------------------------
<S> <C> <C>
a. Liquidation: Liquidation value is $2.00 in the event of liquidation of the
----------- per share (Section (c)) Company, holders of Common
Stock will share equally in the
balance of the corporate assets
available for distribution to them
after the payment in full of all
creditors and the payment of any
liquidation preferences to the
holders of any preferred stock
issued after the date hereof, if
any
b. Dividends: cumulative at a rate of $.14 holders of Common Stock are
--------- per share, per annum, entitled to receive dividends as
payable semi-annually and when declared by the Board
(Section (b)) out of funds legally available
therefor
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
------------------------------ -----------------------------------
<S> <C> <C>
c. Redemption: may be redeemed, in whole not redeemable
---------- or in part, at the option of
the Company for a
redemption price per share
equal to $2.00 plus the value
of all undeclared
accumulated dividends
(Section (e))
d. Voting: right to vote (on a one vote one vote per share; no cumulative
------ per share basis) as a class voting rights
with holders of Common
Stock on all matters,
including elections to the
Board of Directors of the
Company;(Section (d))
e. Conversation each share will be no conversion rights
------------ convertible into .9 shares of
Rate: Common Stock at any time
---- after issuance (Section (f))
f. Transferability: shares are freely tradeable shares are freely tradeable and
--------------- and quoted on the OTC are listed on the
Bulletin Board under the Nasdaq/SmallCap Market under
symbol "EMONP" the symbol "EMON"
</TABLE>
See "SPECIAL FACTORS - Risk Factors" for a discussion of potential
detrimental effects of the proposed exchange.
Dividends on Convertible Preferred Stock. As of February 10, 1999 the
----------------------------------------
amount of accumulated undeclared dividends on the Convertible Preferred Stock
was $1.19 per share or $1,767,796 in the aggregate.
Effective Time
- --------------
The Merger Agreement will become effective at the time of filing of a
certificate of merger by the Company with the Secretary of State of the State of
Delaware (the "Effective Time"). It is currently anticipated that the filing of
a certificate of merger will be made as promptly as practicable after the
Special Meeting. Such filing will be made, however, only upon satisfaction or,
where permissible, the waiver of all conditions contained in the Merger
Agreement and provided that the Merger Agreement has not been terminated. See
"MERGER PROPOSAL-Conditions".
Exchange of Certificates Representing Convertible Preferred Stock
- -----------------------------------------------------------------
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<PAGE>
As soon as practicable after the Effective Time, an exchange agent
which will be selected by the Company (the "Exchange Agent") will mail a notice
and letter of transmittal to each record holder of Convertible Preferred Stock
as of the Effective Time to be used to transmit certificates that immediately
prior to the Effective Time represented Convertible Preferred Stock (the
"Convertible Preferred Certificates") to the Exchange Agent. It is also
expected that letters of transmittal will be available at the office of the
Exchange Agent no later than the first business day following the Effective
Time. Holders of Convertible Preferred Stock should surrender Convertible
Preferred Certificates only with a letter of transmittal. HOLDERS OF
CONVERTIBLE PREFERRED STOCK SHOULD NOT SEND ANY CONVERTIBLE PREFERRED
CERTIFICATES WITH THE PROXY CARD.
Upon receipt of such a Convertible Preferred Certificate or
Certificates with a duly executed and completed letter of transmittal and any
other required documents, the Exchange Agent will, as soon as practicable after
the Effective Time, arrange for issuance and delivery of a certificate or
certificates representing Common Stock to the persons entitled thereto.
Accounting Treatment of Merger
- ------------------------------
The Merger is between a wholly-owned subsidiary and its parent and is
therefore not accounted for as a business combination under generally accepted
accounting principles. The assets and liabilities of Newco will be transferred
at historical cost in a manner similar to that in pooling of interest
accounting. The existing conversion terms of the Convertible Preferred Stock
are .9 shares of Common Stock for each share of Convertible Preferred Stock
converted. The consideration for the Merger Proposal of 1.1 shares of Common
Stock for each share of Convertible Preferred Stock represents an inducement of
.2 shares of Common Stock. Accordingly, if the Merger Proposal is approved, at
the time of the Merger, an amount equal to .2 multiplied by the fair market
value of the Common Stock will be charged to Convertible Preferred Stock
dividend requirements in the calculation of earnings per share available to
Stockholders of Common Stock.
Federal Income Tax Consequences of Merger
- -----------------------------------------
The following general discussion considers certain Federal income tax
consequences of the Merger to the Company and to Stockholders of the Company,
based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, and rulings promulgated thereunder and existing judicial decisions,
all of which are subject to change, possibly with retroactive effect. The
discussion does not consider all of the Federal income tax issues that may be
relevant to a particular Stockholder (including potential application of the
alternative minimum tax), to holders of options to acquire stock of the Company,
or to certain types of Stockholders which are subject to special tax treatment
(for example, life insurance companies, tax-exempt organizations, foreign
taxpayers, trusts and the beneficiaries thereof), and does not discuss any
aspects of state, local or foreign tax laws. Uncertainties exist with respect
to certain tax consequences of the Merger. Since no ruling has been or will be
requested from the Internal Revenue Service (the "Service") on any matter
relating to the Merger, no assurances can be given as to the Federal income tax
consequences of the Merger. IN ANY EVENT, THE FEDERAL INCOME TAX CONSEQUENCES
OF THE PROPOSED MERGER ARE COMPLEX AND, IN SOME RESPECTS, UNCERTAIN. THE
FOLLOWING DESCRIPTION IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY AND IS NOT
INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING. ACCORDINGLY, EACH
STOCKHOLDER SHOULD CONSULT SUCH
-22-
<PAGE>
STOCKHOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO
SUCH STOCKHOLDER, INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME
AND OTHER TAX LAWS.
Consequences to Holders of Convertible Preferred Stock
------------------------------------------------------
Reorganization Treatment. The Company believes that the Merger should
------------------------
be treated for Federal income tax purposes as a tax-free "recapitalization"
pursuant to section 368(a)(1)(E) of the Code. Accordingly, subject to
discussion of section 305 of the Code below, the Company believes that, in
general: (i) no gain or loss will be recognized to a Stockholder upon the
exchange of Convertible Preferred Stock for Common Stock (except with respect to
cash received in lieu of any fractional shares), (ii) the basis of the Common
Stock received by an exchanging Stockholder will be the same as the
Stockholder's basis in the Convertible Preferred Stock surrendered in exchange
therefor, and (iii) the holding period of the Common Stock received by an
exchanging Stockholder will include such Stockholder's holding period for the
Convertible Preferred Stock surrendered in exchange therefor, provided that each
share of the Convertible Preferred Stock held on the date of the exchange is a
capital asset as defined in section 1221 of the Code.
Code Section 305 Considerations. Pursuant to Treasury regulations
-------------------------------
issued under section 305 of the Code, where a Stockholder owning preferred stock
(such as the Convertible Preferred Stock) with dividends in arrears exchanges
his stock for other stock (such as the Common Stock) and the fair market value
of the stock received in the exchange exceeds the "issue price" of the preferred
stock, then a distribution treated as a dividend pursuant to sections 305(c) and
301 of the Code (to the extent of current or accumulated earnings and profits of
the corporate issuer) will result in an amount equal to the lesser of (i) the
amount by which the fair market value of the stock received in the exchange
exceeds the "issue price" of the preferred stock exchanged or (ii) the amount of
the dividends in arrears. The Company intends to take the position that the
exchange of shares of Common Stock for shares of the Convertible Preferred Stock
will not result in a deemed distribution to Stockholders under sections 301 and
305(c) of the Code. This position is based on the Company's belief that the
"issue price" of the Convertible Preferred Stock should equal or exceed the fair
market value of the Common Stock exchanged therefor. The "issue price" of the
Convertible Preferred Stock should be based on its fair market value determined
at the date of its issuance in 1989. The Company has received a valuation of
the Convertible Preferred Stock as of such date from FBW supporting the
Company's belief about the "issue price". A copy of such valuation is attached
hereto as Annex [D]. However, any such valuation is not binding on the Service
or the courts and, as a result, no assurance can be given that the Service would
not ultimately be successful if it challenged the Company's valuation. If
successful, an amount not exceeding an exchanging Stockholder's dividends in
arrears could be treated as a dividend taxed as ordinary income, as described
above. In such a case, a corporate Stockholder would ordinarily be entitled to
the 70% dividends received deduction provided by section 243 of the Code
(subject, in the case of a corporate Stockholder which has not held its
Convertible Preferred Stock for at least two years prior to any dividend
announcement date, to possible application of the basis-reduction rules of
section 1059 of the Code). If any gain or other income were required to be
recognized as a result of the application of sections 301 and 305, the tax basis
of the Common Stock and the holding period thereof would also be affected.
Consequences to Holders of Existing Common Stock
------------------------------------------------
-23-
<PAGE>
The Company believes that in connection with the Merger, in general:
(i) no gain or loss will be recognized by a Stockholder as a result of its
ownership of Common Stock, and (ii) such Stockholder's basis and holding period
for the Common Stock will not be affected.
Consequences of Exercising Appraisal Rights
-------------------------------------------
A Stockholder who exercises appraisal rights with respect to all of
the stock owned by such Stockholder (and who is not considered to continue to
own stock of the Company under the constructive ownership rules of section 318
of the Code) will recognize gain or loss to the extent the amount of cash
received in exchange for the shares held by such Stockholder exceeds or is less
than, respectively, the basis of such Stockholder in the shares of Convertible
Preferred Stock. A Stockholder who exercises appraisal rights with respect to
some but not all of the shares of stock in the Company owned by such Stockholder
(directly or constructively) may recognize gain or loss or ordinary income,
depending upon the facts and circumstances of the particular case.
Consequences to the Company
---------------------------
The Company believes that no gain or loss will be recognized to it in
connection with the Merger and the transactions contemplated thereby.
Conditions
- ----------
The consummation of the Merger is dependent upon the satisfaction of
certain conditions in the Merger Agreement, including approval of the Merger
Proposal by the affirmative vote of (i) holders of a majority of Common Stock
and Convertible Preferred Stock, voting together as single class and (ii)
holders of a majority of the outstanding Convertible Preferred Stock, voting as
a separate class. As a further condition to the consummation of the Merger, the
Company will require that Stockholders holding more than 5% of the outstanding
Convertible Preferred Stock shall not have exercised appraisal rights granted
under applicable Delaware law.
THE BOARD OF DIRECTORS HAS APPROVED THE MERGER PROPOSAL AND RECOMMENDS THAT YOU
VOTE "FOR" THE PROPOSAL. PROXIES RECEIVED BY THE BOARD OF DIRECTORS WILL BE
VOTED "FOR" THE PROPOSAL IF NO VOTE IS INDICATED. A VOTE TO "ABSTAIN" OR
FAILURE TO SUBMIT A PROXY WILL HAVE THE EFFECT OF VOTING "AGAINST" THE PROPOSAL.
-24-
<PAGE>
DESCRIPTION OF SECURITIES
-------------------------
Common Stock
- ------------
The Company is authorized to issue 15,000,000 shares of Common Stock,
of which [6,095,786] were outstanding as of the Record Date. The holders of
Common Stock are entitled to one vote per share. There are no cumulative voting
rights. Shares of Common Stock are not redeemable, have no conversion or
preemptive rights and are not subject to further calls or assessments by the
Company. There are no redemption or sinking fund provisions applicable to the
Common Stock. In the event of a liquidation of the Company, the holders of
Common Stock will share equally in the balance of the corporate assets available
for distribution to them after the payment in full of all creditors, if any.
The holders of Common Stock are entitled to receive dividends as and when
declared by the Board of Directors out of funds legally available therefor.
Convertible Preferred Stock
- ---------------------------
The Company is authorized to issue 3,000,000 shares of Convertible
Preferred Stock, of which [1,485,543] shares were outstanding as of the Record
Date. The principal terms of the Convertible Preferred Stock are as follows:
a. Liquidation value is $2.00 per share.
b. Dividends, when and as declared by the Board of Directors, are
cumulative and payable semi-annually on January 1 and July 1 each year at a rate
of $.14 per share per annum.
c. The Convertible Preferred Stock may be redeemed, in whole or in
part, at the option of the Company at any time for $2.00 per share plus the
amount of undeclared accrued dividends.
d. Holders of the Convertible Preferred Stock have the right to vote
(on a one vote per share basis) as a class together with the holders of Common
Stock on all matters.
e. Each share of Convertible Preferred Stock is convertible, at any
time, into .9 shares of Common Stock.
Warrants/Options
- ----------------
As of February 10, 1999, the Company had options outstanding to
purchase up to 915,000 shares of Common Stock at prices ranging from $.8125 to
$3.9063 per share, and had warrants outstanding to purchase up to 210,000 shares
of Common Stock at prices ranging from $1.00 to $2.75 per share.
-25-
<PAGE>
CERTAIN INFORMATION REGARDING NEWCO
-----------------------------------
Newco is a newly-formed Delaware corporation and a wholly-owned
subsidiary of the Company organized for the purpose of effecting the Merger. It
is anticipated that Newco will not have any significant assets or liabilities
(other than its rights and obligations under the Merger Agreement) or engage in
any activities other than those incidental to its formation and the Merger.
Because Newco is newly incorporated and has minimal assets, no meaningful
financial information is available.
As of the date hereof, the authorized capital stock of Newco consists
of 1,000 shares of common stock, par value $.01 per share, 100 shares of which
have been issued to the Company.
Robert Grossman and Scott F. Ziegler are the directors of Newco and
serve as President, and Vice President, Secretary and Treasurer, respectively.
None of the directors and officers owns any equity securities of Newco.
The principal executive offices of Newco are located at 96 South
George Street, York, Pennsylvania 17401.
The Board of Directors of Newco has unanimously approved and adopted
the Merger Agreement, and the Company as the sole Stockholder of Newco has
approved and adopted the Merger Agreement.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
-------------------------------------------
If the Merger is consummated, holders of shares of Convertible
Preferred Stock are entitled to appraisal rights under Section 262 of the
Delaware General Corporation Law ("Section 262"), provided that they comply with
the conditions established by Section 262. If the holders of more than 5% of
the outstanding shares of Convertible Preferred Stock have properly exercised
appraisal rights in accordance with Section 262 of the DGCL, then the Company
may withdraw the Merger Proposal.
Section 262 is reprinted in its entirety as Annex [E] to this
Solicitation Statement. The following discussion is not a complete statement of
the law relating to appraisal rights and is qualified in its entirety by
reference to Annex [E]. This discussion and Annex [E] should be reviewed
carefully by any holder who wishes to exercise statutory appraisal rights or who
wishes to preserve the right to do so, as failure to comply with the procedures
set forth herein or therein will result in the loss of appraisal rights.
A record holder of shares of Convertible Preferred Stock who makes the
demand described below with respect to such shares, who continuously is the
record holder of such shares through the effective time of the Merger (the
"Effective Time"), who otherwise complies with the statutory requirements of
Section 262 and who neither votes in favor of the Merger nor consents thereto in
writing will be entitled to an appraisal by the Delaware Court of Chancery (the
"Delaware Court") of the fair value of his or her shares of Convertible
Preferred Stock. All references in this summary of appraisal rights to a
"Stockholder" or "holders of shares of Convertible Preferred Stock" are to the
record holder or holders of shares of Convertible Preferred Stock. Except as
set forth herein, Stockholders of the Company will not be entitled to appraisal
rights in connection with the Merger.
-26-
<PAGE>
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, such as the Special Meeting, not less than 20 days
prior to the meeting a constituent corporation must notify each of the holders
of its stock for whom appraisal rights are available that such appraisal rights
are available and include in each such notice a copy of Section 262. This
Solicitation Statement shall constitute such notice to the record holders of
Convertible Preferred Stock.
Holders of shares of Convertible Preferred Stock who desire to
exercise their appraisal rights must not vote in favor the Merger and must
deliver a separate written demand for appraisal to the Company prior to the vote
by the Stockholders of the Company on the Merger. A demand for appraisal must
be executed by or on behalf of the Stockholder of record and must reasonably
inform the Company of the identity of the Stockholder of record and that such
Stockholder intends thereby to demand appraisal of the Convertible Preferred
Stock. A proxy or vote against the Merger will not by itself constitute such a
demand. Within ten days after the Effective Time the Company must provide
notice of the Effective Time to all Stockholders who have complied with Section
262.
A Stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to:
Emons Transportation Group, Inc.
96 South George Street
York, PA 17401
Attn: Scott F. Ziegler
A person having a beneficial interest in shares of Convertible
Preferred Stock that are held of record in the name of another person, such as a
broker, fiduciary, depositary or other nominee, must act promptly to cause the
record holder to follow the steps summarized herein properly and in a timely
manner to perfect appraisal rights. If the shares of Convertible Preferred
Stock are owned of record by a person other than the beneficial owner, including
a broker, fiduciary (such as a trustee, guardian or custodian), depositary or
other nominee, such demand must be executed by or for the record owner. If the
shares of Convertible Preferred Stock are owned of record by more than one
person, as in a joint tenancy or tenancy in common, such demand must be executed
by or for all joint owners. An authorized agent, including an agent for two or
more joint owners, may execute the demand for appraisal for a Stockholder of
record; however, the agent must identify the record owner and expressly disclose
the fact that, in exercising the demand, such person is acting as agent for the
record owner. If a Stockholder holds shares of Convertible Preferred Stock
through a broker who in turn holds the shares through a central securities
depository nominee such as Cede & Co., a demand for appraisal of such shares
must be made by or on behalf of the depository nominee and must identify the
depository nominee as record holder.
A record holder, such as a broker, fiduciary, depository or other
nominee, who holds shares of Convertible Preferred Stock as a nominee for
others, may exercise appraisal rights with respect to the shares held for all or
less than all beneficial owners of shares as to which such person is the record
owner. In such case, the written demand must set forth the number of shares
covered by such demand. Where the number of shares is not expressly stated, the
demand will be presumed to cover all shares of Convertible Preferred Stock
outstanding in the name of such record owner.
-27-
<PAGE>
Within 120 days after the Effective Time, either the Company or any
Stockholder who has complied with the required conditions of Section 262 may
file a petition in the Delaware Court, with a copy served on the Company in the
case of a petition filed by a Stockholder, demanding a determination of the fair
value of the shares of all dissenting Stockholders. There is no present intent
on the part of the Company to file an appraisal petition and Stockholders
seeking to exercise appraisal rights should not assume that the Company will
file such a petition or that the Company will initiate any negotiations with
respect to the fair value of such shares. Accordingly, holders of Convertible
Preferred Stock who desire to have their shares appraised should initiate any
petitions necessary for the perfection of their appraisal rights within the time
periods and in the manner prescribed in Section 262. Within 120 days after the
Effective Time, any Stockholder who has theretofore complied with the applicable
provisions of Section 262 will be entitled, upon written request, to receive
from the Company a statement setting forth the aggregate number of shares of
Convertible Preferred Stock not voting in favor of the Merger and with respect
to which demands for appraisal were received by the Company and the number of
holders of such shares. Such statement must be mailed within 10 days after the
written request therefor has been received by the Company.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which Stockholders are entitled to
appraisal rights. The Delaware Court may require the Stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
Stockholder fails to comply with such direction, the Delaware Court may dismiss
the proceedings as to such Stockholder. Where proceedings are not dismissed,
the Delaware Court will appraise the shares of Convertible Preferred Stock owned
by such Stockholders, determining the fair value of such shares exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value.
Although the Company believes that the consideration to be paid
pursuant to the terms of the Merger (the "Merger Consideration") is fair, no
representation is made as to the outcome of the appraisal of fair value as
determined by the Court and Stockholders should recognize that such an appraisal
could result in a determination of a value higher or lower than, or the same as,
such Merger Consideration. Moreover, the Company does not anticipate offering
more than the Merger Consideration to any Stockholder exercising appraisal
rights and reserves the right to assert, in any appraisal proceeding, that, for
purposes of Section 262, the "fair value" of a share of Convertible Preferred
Stock is less than the Merger Consideration. In determining "fair value", the
Delaware Court is required to take into account all relevant factors. In
Weinberger v. UOP, Inc. the Delaware Supreme Court discussed the factors that
- -----------------------
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered and that "[f]air price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court has stated that in making this determination of fair
value the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts which could be
ascertained as of the date of the merger which throw any light on future
prospects of the merged corporation. Section 262 provides that fair value is to
be "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In Cede & Co. v. Technicolor, Inc., the Delaware
-------------------------------
Supreme Court stated that such exclusion is a "narrow exclusion [that] does not
encompass known elements of value," but which
-28-
<PAGE>
rather applies only to the speculative elements of value arising from such
accomplishment or expectation. In Weinberger, the Delaware Supreme Court
----------
construed Section 262 to mean that "elements of future value, including the
nature of the enterprise, which are known or susceptible of proof as of the date
of the merger and not the product of speculation, may be considered." In
addition, Delaware courts have decided that the statutory appraisal remedy,
depending on the factual circumstances, may or may not be a stockholder's
exclusive remedy in connection with transactions such as the merger.
Holders of shares of Convertible Preferred Stock considering seeking
appraisal should recognize that the fair value of their shares determined under
Section 262 could be more than, the same as or less than the consideration they
are entitled to receive pursuant to the Merger Agreement if they do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware
Court deems equitable in the circumstances. However, costs do not include
attorneys' and expert witness fees. Each dissenting Stockholder is responsible
for his or her attorneys' and expert witness expenses, although, upon
application of a dissenting Stockholder of the Company, the Delaware Court may
order that all or a portion of the expenses incurred by any dissenting
Stockholder in connection with the appraisal proceeding, including without
limitation, reasonable attorneys' fees and the fees and expenses of experts, be
charged pro rata against the value of all shares of stock entitled to appraisal.
Any holder of shares of Convertible Preferred Stock who has duly
demanded appraisal in compliance with Section 262 will not, after the Effective
Time, be entitled to vote for any purpose any shares subject to such demand or
to receive payment of dividends or other distributions on such shares, except
for dividends or distributions payable to Stockholders of record at a date prior
to the Effective Time.
At any time within 60 days after the Effective Time, any Stockholder
will have the right to withdraw such demand for appraisal and to accept the
terms offered in the Merger; after this period, the Stockholder may withdraw
such demand for appraisal only with the consent of the Company. If no petition
for appraisal is filed with the Delaware Court within 120 days after the
Effective Time, Stockholders' rights to appraisal shall cease, and all holders
of shares of Convertible Preferred Stock will be entitled to receive the
consideration offered pursuant to the Merger Agreement. Inasmuch as the Company
has no obligation to file such a petition, and the Company has no present
intention to do so, any holder of shares of Convertible Preferred Stock who
desires such a petition to be filed is advised to file it on a timely basis.
Any Stockholder may withdraw such Stockholder's demand for appraisal by
delivering to the Company a written withdrawal of his or her demand for
appraisal and acceptance of the Merger Consideration, except (i) that any such
attempt to withdraw made more than 60 days after the Effective Time will require
written approval of the Company and (ii) that no appraisal proceeding in the
Delaware Court shall be dismissed as to any Stockholder without the approval of
the Delaware Court, and such approval may be conditioned upon such terms as the
Delaware Court deems just.
BUSINESS OF THE COMPANY
-----------------------
The Company is a rail freight transportation and distribution services
company serving the Mid-Atlantic and Northeast regions of the United States and
Quebec, Canada. The Company owns five short line railroads, operates rail/truck
transload facilities and a rail intermodal terminal, and provides customers with
logistics services for the movement and storage of freight. Emons
Transportation Group, Inc. was organized in December 1986, and is the owner of
all of the outstanding capital stock of Emons
-29-
<PAGE>
Industries, Inc. ("Industries"), Emons Finance Corp. ("EFC"), the Maryland and
Pennsylvania Railroad Company ("MPA"), Emons Logistics Services, Inc.
("Logistics"), Maine Intermodal Transportation, Inc. ("MIT") and Emons Railroad
Group, Inc. ("Railroad Group"), which owns all of the outstanding capital stock
of Yorkrail, Inc. ("YKR"), Penn Eastern Rail Lines, Inc. ("PRL"), the St.
Lawrence & Atlantic Railroad Company ("SLR") and the St. Lawrence & Atlantic
Railroad (Quebec) Inc. ("SLQ"). SLR owns all of the outstanding capital stock
of SLR Leasing Corp. ("SLRL"). Prior to the formation of Emons Transportation
Group, Inc. in December 1986, Industries, which was formed in 1955, was the
parent company. For information regarding the formation of Emons Transportation
Group, see "Industries' Reorganization" below.
Description of Operations
- -------------------------
The Company owns and operates five short line railroads, MPA, YKR,
PRL, SLR and SLQ. The combined revenues from these railroad operations,
excluding SLQ which was acquired in the second quarter of fiscal 1999, accounted
for 91%, 87% and 86% of the Company's total operating revenues in fiscal 1998,
1997 and 1996, respectively. The Company also owns and operates a logistics
services business in York, Pennsylvania and operates a rail intermodal terminal
in Auburn, Maine. These operations are intended to increase the Company's rail
traffic by providing a wide variety of value added services, including
rail/truck transfer, warehousing and other distribution services, and options to
businesses located both on and off of the Company's rail lines.
The Company operates in two geographic regions, Pennsylvania, and New
England/Quebec. Pennsylvania operations consist of MPA, YKR, PRL and Logistics,
located in south-central and south-eastern Pennsylvania. New England/Quebec
operations consist of SLR and SLQ, which extend from Portland, Maine, through
New Hampshire and Vermont to Ste. Rosalie, Quebec, and MIT, which commenced rail
intermodal operations on SLR in Auburn, Maine, in September 1994. Local
management teams are responsible for the operations in each region.
The Company's four largest rail operations, MPA, YKR, SLR and SLQ, all
have connections, directly or indirectly, with multiple Class I railroads, which
are classified by the U.S. Code of Federal Regulations as railroad carriers
having annual revenues of approximately $250 million or more ("Class I
railroads"). The Company's right to interchange rail traffic with Class I
railroads is based upon applicable federal regulations. Multiple Class I
railroad connections make these railroads ideal places for industry to locate
and build new facilities because of competitive service and pricing from the
competing Class I railroad connecting carriers. In addition, as discussed
further below, two Class I railroad mergers that are currently in progress, the
split up and acquisition of Consolidated Rail Corporation ("Conrail") by the
Norfolk Southern Railroad ("NS") and CSX Corporation ("CSX"), and the
acquisition of Illinois Central Railroad ("IC") by the Canadian National Railway
("CN"), provide the Company's railroad operations with additional long term
opportunities. The merger of these railroads will open up new markets for the
Company's customers as a result of single line rail service to more regions by
these merged Class I railroads.
In July 1998, CSX and NS received formal written approval from the
Surface Transportation Board ("STB") to divide Conrail's assets between the two
Class I railroads. Based upon management's review of publicly available
information regarding the division of Conrail, all of the Company's railroads
that have dual connections with Class I railroads will continue to maintain
their dual connections. In
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<PAGE>
addition, YKR and MPA will obtain access to a third Class I railroad carrier,
Canadian Pacific Railway. Furthermore, one of PRL's rail lines in Bristol,
Pennsylvania will obtain dual access, which it does not currently have, with CSX
and NS. NS and CSX intend to commence operating their respective portions of
Conrail on June 1, 1999, but NS and CSX may change such commencement date.
While the impact of the merger on future traffic patterns and the resultant
effect on the Company's railroad operations are uncertain at this time, the
Company does not anticipate any significant negative impact as a result of the
merger, and believes that the merger may create additional rail business for the
Company's Pennsylvania rail operations as a result of longer Class I railroad
single line rail service on competitive routes.
In February 1998, CN announced plans to acquire IC, and in July 1998
filed a formal application with the STB seeking regulatory approval for the
acquisition and integration of rail operations. The merger would provide CN
with a single "Y" shaped network connecting the Pacific and Atlantic Coasts in
Canada, and the U.S. Gulf coast in New Orleans, with the joining of the
railroads in Chicago. Prior to the merger, SLR could only access most markets
in the midwest and south through multiple carriers. Single line access is
generally more competitive than access through multiple carriers for two primary
reasons. First, single line access generally provides for shorter transit times
since railcars do not have to be interchanged with other rail carriers. Second,
single line access is generally more cost effective since only one railroad
handles the traffic and receives revenues for providing rail services. In
addition, in April 1998, CN and IC entered into a 15 year marketing agreement
with the Kansas City Southern Railway ("KCSR") which provides access to key
southern and southwestern markets, and access to Mexico's largest rail system
through KCSR's affiliate, the Texas Mexican Railway. While the impact of the
proposed merger on future traffic patterns and the resultant effect on the
Company's railroad operations are uncertain at this time, the Company believes
that CN's acquisition of IC will provide SLR with single line access to many
points in the midwest and south, and that the combination of single line access
to KCSR (and its affiliates) and the marketing agreement between CN and IC, and
KCSR may provide SLR with more cost competitive and shorter transit time access
to Mexico which may open up commercial opportunities for SLR in Mexico.
Significant Customers
- ---------------------
Crown Paper Co. and New England Public Warehouse each accounted for
approximately 10% of the Company's fiscal 1998 consolidated operating revenues.
Employees
- ---------
At December 31, 1998 the Company employed a total of 162 active
persons, 101 of which were represented by various labor organizations. The
Company has labor agreements with unions which represent certain MPA and all SLR
and SLQ non-management employees. Currently, all MPA, SLR and SLQ unionized
employees are covered by collective bargaining agreements which expire in
December 2000, May 2000, and November and December 2002, respectively.
Additionally, on March 2, 1999, nine employees of YKR elected to join with the
International Brotherhood of Teamsters. Employees of the remainder of the
Company's operations are not represented by labor organizations. The Company
has not experienced any work stoppages and considers its employee relations to
be satisfactory.
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<PAGE>
Regulation
- ----------
The Company's U.S. rail subsidiaries are subject to the regulatory
jurisdiction of the Surface Transportation Board ("STB"), a federal agency that
is the successor to the Interstate Commerce Commission. The STB has
jurisdiction over, among other things, the rates charged, the issuance of
securities and the extension or abandonment of rail lines, routes or service by
common carriers, and the consolidation, merger and acquisition of control of and
by such carriers. The Company's U.S. rail subsidiaries are also subject to
regulation by the United States Federal Railroad Administration as to safety
requirements and operating practices, and are subject to regulations by the
governmental authorities of the United States, Pennsylvania, Maine, New
Hampshire and Vermont.
The Company's Canadian rail subsidiary is subject to the regulatory
jurisdiction of the Canadian Transportation Agency ("CTA"), a Canadian federal
agency. The CTA is responsible for the economic regulation of transportation
under federal jurisdiction and for the protection of consumers and carriers
through the administration of, among other things, rail certificates of fitness.
The Company's Canadian rail subsidiary is also subject to regulation by
Transport Canada as to safety requirements.
The Company does not believe that compliance with U.S. or Canadian,
federal, state, provincial and local environmental regulations has or will have
a material effect upon capital expenditures, competitive position, or earnings
of the Company. The Company did not make any material investment in capital
expenditures for environmental control facilities during fiscal 1998 and does
not anticipate making any such expenditures in fiscal 1999.
Competition
- -----------
For customers located directly on line, which constitute the majority
of the Company's freight business, the Company's railroads are the only rail
carriers directly serving their respective customers. The Company's rail
operations in New England and Quebec also include a significant portion of
overhead traffic which is subject to competition from alternative rail routes.
All of the Company's railroads experience significant competition from other
modes of freight transportation, particularly highway motor carriers. Factors
such as the nature of the commodity transported, freight rates, distance,
transit time, quality and reliability of service, and market conditions are
considered in determining the mode of transportation utilized. The Company's
ability to compete in these areas is, to a large extent, dependent upon the
performance of its connecting rail carriers.
Industries' Reorganization
- --------------------------
Prior to 1986, the Company provided management, leasing and brokerage
services for rail transportation equipment. In response to a severe decline in
the boxcar leasing business, in March 1984 Industries filed a petition for
reorganization under chapter 11 of the United States Bankruptcy Code. In
December 1986, the Bankruptcy Court of the Southern District of New York (the
"Bankruptcy Court") confirmed Industries' Reorganization Plan (the "Plan") and
Emons Transportation Group became the parent of Industries and MPA.
Under the Plan, each unsecured creditor received an initial
distribution of cash, Common Stock and Senior Preferred Stock, par value $.01
per share ("Senior Preferred Stock") for its claim. In
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1989, the Company's Senior Preferred Stock was exchanged for the Convertible
Preferred Stock in connection with the merger into the Company of its wholly-
owned subsidiary, Emons Merger Corporation. Since numerous disputed claims
remained at the time of consummation of the Plan, an escrow agent, appointed in
connection with the Plan, was instructed to distribute additional amounts of
cash and securities to holders of allowed claims on a quarterly basis in each
quarter that disputed claims are reduced by litigation or settlement. The
Bankruptcy Court postponed the distribution of any cash and securities in 1989
until it could determine whether certain other potential unsecured claims should
be included in the bankruptcy proceeding. In July and August 1997, upon
approval from the Bankruptcy Court for a partial distribution, the escrow agent
distributed 1,434,922 shares of the Company's Common Stock and 589,461 shares of
the Company's Convertible Preferred Stock. In November 1997, the Bankruptcy
Court also approved a motion to allow distributions to be made to new claimants.
The escrow agent currently holds 1,295,484 shares of Common Stock and 572,199
shares of Convertible Preferred Stock. The escrow agent has the right to vote
the shares held by it and has expressed its intention generally to vote such
shares proportionally in accordance with the vote cast by the other holders of
the outstanding Common Stock and Convertible Preferred Stock.
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<PAGE>
PROPERTY OF THE COMPANY
-----------------------
Approximate
Square Feet
Address of Space Use
- --------------------------------------------------------------------------
96 South George Street 5,900 Executive and administrative
York, PA (1) offices and Pennsylvania
administrative offices
Princess Street 15,000 Locomotive repair facility
York, PA
Queen and Hay Streets 80,000 Rail/truck transfer and 15,000
York, PA square foot warehouse facility for
canned goods and various building
products
East Princess Street 70,000 Rail/truck transfer and storage
York, PA facility
North George Street 85,000 Agricultural bulk products
York, PA (2) transfer facility
Arch Street 7,500 Rail/truck transfer facility for
York, PA aggregates and fertilizer
Lewiston Junction Road 4,000 New England administrative
Auburn, ME (1) offices
Lewiston Junction Road 106,700 Locomotive repair facility
Auburn, ME (3)
Island Pond, VT (2) 295,000 Rail/truck transfer, storage and
distribution facility for lumber
Richmond, Quebec 2,500 Operating headquarters
(1) Leased from a third party.
(2) Leased to a third party.
(3) Land portion leased from a third party.
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<PAGE>
Acreage or
Approximate
Address Distance Use
- ----------------------------------------------------------------------------
York, PA to Hanover, PA 26 miles Main line railroad track plus
rail yards and related facilities
York, PA to Porters 16 miles Main line railroad track plus
Sideling, PA rail yards and related facilities
Emmaus, PA to East 15.8 miles Main line track plus rail yards
Greenville, PA (1)
Boyertown, PA to 8.5 miles Main line track plus rail yards
Pottstown, PA (1)
Kutztown, PA to Topton, 4.4 miles Main line railroad track
PA (1)
Manheim, PA (1) .6 miles Main line railroad track
Denver, PA to Sinking 12 miles Main line railroad track plus
Springs, PA rail yards
Bridgeport, PA 2.1 miles Main line railroad track
Bristol, PA (1) 1 mile Main line railroad track
Lincoln Yard 25 acres Rail/truck transfer and storage
West Market Street facility for bulk food grade
West York, PA products, chemicals and non-
food bulk products, and steel,
aggregates and other products
Portland, ME to 165 miles Main line railroad track plus
Stanhope, Quebec rail yards and related facilities
Norway to South Paris, .5 miles Branch railroad track
ME (1)
Auburn, ME (1) 4 miles Branch railroad track
Berlin, NH (1) 11 miles Branch railroad track and
customer sidings
Lewiston Junction Road 42 acres Rail intermodal terminal
Auburn, ME (1)
Stanhope, Quebec to Ste. 94 miles Main line railroad track plus
Rosalie, Quebec rail yards and related facilities
(1) Leased from a third party.
(2) Leased to a third party.
(3) Land portion leased from a third party.
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<PAGE>
The Company's primary lender, LaSalle National Bank, holds a security
interest in all of the Company's assets, including, without limitation, all of
the owned properties identified above.
LEGAL PROCEEDINGS
-----------------
Certain subsidiaries of the Company are currently subject to a number
of claims and legal actions that arise in the ordinary course of business,
including claims under the Federal Employers' Liability Act, a fault based
system under which injuries to and deaths of railroad employees are settled by
negotiations or litigation based upon comparative negligence. The Company
believes that it has adequate insurance coverage and has provided adequate
reserves for any liabilities which may arise as a result of these claims, and
that such claims will not have a material impact on the Company's results of
operations or financial position.
Product Liability Actions
- -------------------------
Prior to March 1971, under previous management, Emons Industries, Inc.
("Industries") (then known as Amfre-Grant, Inc.) was engaged in the business of
distributing (but not manufacturing) various generic and prescription drugs.
Industries sold and discontinued these business activities in March 1971 and
commenced its railcar leasing and railroad operations in October 1971. One of
the drugs which had been distributed was diethylstilbestrol ("DES"), which was
taken by women during pregnancy to prevent miscarriage.
As of December 31, 1998, Industries was one of numerous defendants
(including many of the largest pharmaceutical manufacturers) in 674 lawsuits in
which the plaintiffs allege that DES caused adenosis, infertility, cancer or
birth defects in the offspring or grandchildren of women who ingested DES during
pregnancy. In these actions, liability is premised on the defendant's
participation in the market for DES, and liability is several and limited to the
defendant's share of the market. Of these lawsuits, 669 were commenced after
the confirmation by the United States Bankruptcy Court for the Southern District
of New York (the "Bankruptcy Court") of Industries' Reorganization Plan in
December 1986 (the "Plan"), while the remaining five lawsuits are claims which
will be treated under the Plan. These actions are currently in various stages
of litigation.
On April 16, 1998, the Bankruptcy Court granted Industries' motion for
summary judgment declaring that the post-confirmation lawsuits represent claims
which should be asserted against Industries' Chapter 11 estate and are not post-
reorganization liabilities. A formal judgment was entered by the court on May
6, 1998. In September 1998, one counsel representing multiple DES claimants
appealed the Bankruptcy Court's judgment to the United States District Court.
Industries has product liability insurance and defense coverage for
nearly all the claims which fall within the policy period 1948 to 1970 up to
varying limits by individual and in the aggregate for each policy year. To
date, Industries has not exhausted insurance coverage in any policy year.
During the period July 1, 1998 to December 31, 1998, 10 new actions were
commenced in which Industries was named as a defendant and 16 lawsuits were
settled or dismissed at no liability to Industries. As of December 31, 1998
there were 289 cases pending in the state court in Ohio. On June 29, 1998, the
Ohio Supreme Court ruled that Ohio law would not permit DES cases in which the
plaintiff could not identify the
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<PAGE>
manufacturer of DES allegedly ingested by mothers of DES plaintiffs. As a
result, all 289 Ohio DES cases against the Company are subject to dismissal.
Counsel for these plaintiffs filed motions for reargument and to stay
implementation of the decision.
The following table sets forth the states and courts in which DES
cases were pending, and the number of DES cases pending against the Company in
each jurisdiction as of December 31, 1998:
<TABLE>
<CAPTION>
========================================================
State Court Number of Cases
- -------------- ----------------------- ---------------
<S> <C> <C>
California Los Angeles County 1
San Francisco County 4
New York New York County 369
Ohio Cuyahoga County 114
Summit County 80
Federal Court, Northern
District of Ohio 95
Pennsylvania Philadelphia County 10
Texas Travis County 1
========================================================
</TABLE>
These cases seek, as relief, compensation for injuries that plaintiffs
allegedly have sustained as a result of in utero DES exposure, and punitive
damages. The amounts sought are not specified.
Management intends to vigorously defend all of these actions. In the
event that the Bankruptcy Court's decision referred to above is reversed by the
appellate court, it is possible that Industries could ultimately have liability
in these actions in excess of its product liability insurance coverage described
above. However, based upon Industries' experience in prior DES litigation,
including the proceedings before the Bankruptcy Court, and its current knowledge
of pending cases, the Company believes that it is unlikely that Industries'
ultimate liability in the pending cases, if any, in excess of insurance coverage
and existing reserves, will be in an amount sufficient to have a material
adverse effect upon the Company's consolidated financial position or results of
operations.
Environmental Liability
- -----------------------
During fiscal 1994, the Company's Maryland and Pennsylvania Railroad
("MPA") discovered a diesel fuel oil spill at its locomotive maintenance
facility in York, Pennsylvania, resulting from the fueling of its locomotives.
MPA is currently performing additional testing and is working with the
Pennsylvania Department of Environmental Protection ("PADEP") to investigate
and, to the extent necessary, remediate the contaminated area. In January 1997,
as a result of these testing activities, MPA discovered free product in some of
its monitoring wells. The Company estimates that the cost to remediate the free
product could potentially range from $100,000 to $200,000, although the final
costs have not yet been determined. The Company has provided sufficient
reserves for the anticipated remediation costs. PADEP could also potentially
require further investigation and, to the extent necessary, remediation of
ground water and/or soils at this facility at some point in the future.
However, the Company cannot determine at this time whether PADEP will require
further investigation and remediation, or what the
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<PAGE>
ultimate costs of addressing this matter may be or what effect, if any, they
could have upon the Company's consolidated financial position or results of
operations.
YEAR 2000 COMPLIANCE ISSUES
---------------------------
The Company has evaluated its risks with respect to year 2000
compliance issues and the impact on its information systems and operations. The
significant risk areas identified include third party software utilized in house
by the Company on its own information systems, value added networks, outside
service providers and information systems utilized by the Company's primary
connecting rail carriers. The Company does not utilize any internally developed
software that is significant to its operations. The Company has investigated
the potential impact of the year 2000 with respect to each significant risk area
identified, and has determined that all significant software either is year
2000, compliant is in the process of being modified by the respective parties to
accommodate the year 2000, or is replaceable by alternative software options at
a reasonable cost.
Risk of the Company's Year 2000 Issues
--------------------------------------
The Company's key risk with respect to the year 2000 is its reliance
upon third party vendors, value added networks, outside service providers and
connecting rail carriers to become year 2000 compliant. Since year 2000
compliance by these parties is outside of the Company's control, there can be no
assurance that the systems critical to the Company's operations will be
compliant by the year 2000. If any of these parties do not successfully achieve
year 2000 compliance, the Company's operations may be adversely affected. The
status of the Company's critical risk areas is as follows:
1. Third Party Software - The Company's critical third party software
--------------------
utilized in house consists of its railcar accounting, interline
settlement and general ledger systems. The Company's vendor for its
railcar accounting system has indicated that the year 2000 compliant
version is currently scheduled for release during the spring of 1999.
The vendor contracted by the Association of American Railroads to
develop and maintain the PC-based interline settlement system utilized
by the Company has indicated that the year 2000 compliant version has
been substantially completed and is scheduled to be released by March
31, 1999. The Company's general ledger accounting software vendor has
indicated that its general ledger system is year 2000 compliant. The
Company plans to test each system for year 2000 compliance as a part
of its year 2000 compliance plan.
2. Value Added Networks - The Company's primary value added network
--------------------
utilized in EDI communications with other rail carriers has indicated
that its software is already year 2000 compliant. The Company plans
to test this system for year 2000 compliance as a part of its year
2000 compliance plan.
3. Outside Service Providers - The Company utilizes outside service
-------------------------
providers for certain critical railroad accounting functions including
car hire accounting and rail communications through Railinc. The
provider of car hire accounting services has indicated that it is in
the process of modifying its system to be year 2000 compliant and that
the year 2000 compliant version is scheduled to be completed by early
summer 1999. The Company plans to test this
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<PAGE>
system for year 2000 compliance as a part of its year 2000 compliance
plan. Railinc provides a variety of central system services for the
North American rail industry, including railroads, rail equipment
owners, other rail suppliers, rail customers and others, and has
indicated that some of its system services are already year 2000
compliant and that all remaining system services are scheduled to be
year 2000 compliant by June 30, 1999.
4. Connecting Rail Carriers - Each of the Company's primary connecting
------------------------
rail carriers has indicated that it is in the process of modifying its
systems to be year 2000 compliant, and will be completed in time for
the year 2000. The Company plans to test these systems for year 2000
compliance when they are completed as a part of its year 2000
compliance plan.
Company's State of Readiness
----------------------------
As noted above, the Company has completed its evaluation of its
significant risk areas with respect to the year 2000, and has determined that
its successful transition into the year 2000 is heavily dependent upon its third
party vendors, value added networks, outside service providers and connecting
rail carriers becoming year 2000 compliant, which is largely outside the
Company's control. The Company engaged the services of an outside consultant to
prepare a year 2000 compliance plan, and received the consultant's report in
December 1998. The Company is currently in the preliminary stages of
implementing those portions of its compliance plan which it can control and is
carefully monitoring the status of those systems it cannot control.
Costs to Address Year 2000 Issues
---------------------------------
The Company does not anticipate that the cost of becoming year 2000
compliant, will be material to its results of operations.
Contingency Plans
-----------------
The Company's contingency plans are segregated into two groups of
software, including industry specific software and all other software. With
respect to industry specific software, which includes third party software
utilized in house by the Company, software provided by outside service
providers, and software utilized by the Company's primary connecting rail
carriers, the Company does not have a variety of alternatives available. As a
result, the Company is heavily reliant upon these vendors, service providers and
connecting rail carriers to meet their year 2000 compliance commitments. The
Company does not currently have any contingency plans with respect to this
software, and will closely monitor the progress of these vendors, service
providers and connecting rail carriers. With respect to all other software, the
Company believes there are sufficient alternatives available at a reasonable
cost should existing software not be made year 2000 compliant. The Company
believes that it will receive year 2000 compliance upgrades for most, if not
all, other software. Should upgrades not be available, the Company will acquire
year 2000 compliant software with sufficient lead time to implement such
software.
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<PAGE>
MARKET FOR COMPANY'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
-------------------------------
The Company's Common Stock is traded on the Nasdaq/SmallCap Market
under the symbol "EMON". The table below sets forth, for the periods indicated,
the high and low bids for the Common Stock as reported on the Nasdaq/SmallCap
Market.
<TABLE>
<CAPTION>
COMMON STOCK PRICE RANGE
-----------------------------------
Fiscal Year Fiscal Quarter High Bid Low Bid Total Volume
- ----------- ------------------------------------------------------
<S> <C> <C> <C> <C>
1999 First $3.4375 $ 2.125 618,303
Second 2.8125 2.25 240,040
1998 First $ 3.875 $ 1.375 402,647
Second 3.625 2.375 235,488
Third 4.0625 2.625 449,658
Fourth 3.25 2.625 228,857
1997 First $3.1875 $1.5625 1,292,871
Second 5.375 2.75 980,965
Third 3.5625 2.75 210,989
Fourth 2.75 1.875 118,870
</TABLE>
As of February 10, 1999, the Company had 6,095,786 shares of Common
Stock issued and outstanding which were held by approximately 1,748 Stockholders
of record. No cash dividends have been paid on the Common Stock and no cash
dividends are expected to be paid on the Common Stock in the foreseeable future.
The Company's Loan and Security Agreement with its primary lender prohibits the
payment of cash dividends and certain other distributions without the prior
consent of the lender.
The Convertible Preferred Stock is quoted on the OTC Bulletin Board.
The table below sets forth, for the periods indicated, the high and low bids for
the Convertible Preferred Stock as quoted on the OTC Bulletin Board.
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<PAGE>
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK PRICE RANGE
-------------------------------------
Fiscal Year Fiscal Quarter High Bid Low Bid Total Volume
- ----------- ---------------------------------------------------
<S> <C> <C> <C> <C>
1999 First $ 4.00 $ 2.436 8,500
Second 3.125 2.625 17,100
1998 First 3.00 1.50 33,952
Second 2.80 2.25 27,683
Third 3.50 2.50 22,700
Fourth 3.25 2.50 44,700
1997 First 2.75 1.7492 3,936
Second 2.50 0.75 20,164
Third 2.00 1.75 69
Fourth 2.00 2.00 210
</TABLE>
As of February 10, 1999, 1,485,543 shares of Convertible Preferred
Stock were issued and outstanding which were held by approximately 648
Stockholders of record. The holders of the Convertible Preferred Stock are
entitled to a dividend of $.14 per share per annum, when declared, which is to
be paid semi-annually. The Board of Directors voted to omit the regular semi-
annual dividend which would have been payable from the period January 2, 1991
through January 4, 1999. Dividends in arrears as of February 10, 1999
aggregated $1,767,796. These shares are quoted on the OTC Bulletin Board.
VOTE OF STOCKHOLDERS
--------------------
Approval of the Merger Proposal requires the affirmative vote of the (i)
holders of at least a majority of the outstanding Common Stock and the
Convertible Preferred Stock, voting together as a single class and (ii) holders
of at least a majority of the outstanding Convertible Preferred Stock, voting as
a separate class.
DISCRETIONARY AUTHORITY
-----------------------
It is not intended to bring before the Special Meeting any matters except
the Merger Proposal or any possible adjournment of the Special Meeting.
Management is not aware at this time that any other matters are to be presented
for action, If, however, any other matters properly come before the Special
Meeting, the persons named as proxies in the enclosed form of proxy intend to
vote in accordance with their judgment on the matters presented.
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
----------------------------------------
Stockholder proposals intended to be presented at the 1999 Annual
Meeting of Stockholders of the Company must be received by the Company for
inclusion in the Company's Proxy Statement and form(s) of proxy relating to such
meeting no later than June 12, 1999. Proposals may be mailed to the Company, to
the attention of the Secretary, 96 South George Street, York, PA 17401. In
order to curtail controversy as to the date on which a proposal was received by
the Company, proponents should submit
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<PAGE>
their proposals by Certified Mail-Return Receipt Requested. Timely receipt of a
Stockholder's proposal, however, will satisfy only one of various requirements
for inclusion in the Company's proxy materials.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
-----------------------------------------------
The Financial Statements of the Company and Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
following documents, are incorporated herein by this reference and made a part
hereof:
(a) The Company's annual report on Form 10-K for the fiscal year ended June
30, 1998.
(b) The Company's quarterly reports on Form 10-Q for the fiscal quarters
ended September 30, 1998 and December 31, 1998.
(c) The Company's current report on Form 8-K dated December 23, 1998.
INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------
The consolidated financial statements of the Company incorporated in
this Proxy Statement by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1998, have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their report. The Company
anticipates that the representatives of Arthur Andersen LLP will attend the
Special Meeting, may make a statement if they desire to do so and also will be
available to respond to appropriate questions.
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<PAGE>
OTHER MATTERS
-------------
On written request, the Company will provide without charge to each record
or beneficial holder of the Company's Common Stock and Convertible Preferred
Stock as of [ ], a copy of (i) the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1998, (ii) the Company's quarterly reports on
Form 10-Q for the fiscal quarters ended September 30, 1998 and December 31,
1998, and (iii) the Company's current report on Form 8-K dated December 23,
1998, in each case as filed with the Securities and Exchange Commission.
Requests should be addressed to Ms. Kimberly B., Smith, Assistant Secretary,
Emons Transportation Group, Inc., 96 South George Street, York, PA 17401.
By Order of the Board of Directors
Scott F. Ziegler
Secretary
Date: March 9, 1999
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<PAGE>
ANNEX A
-------
AGREEMENT OF MERGER
AGREEMENT OF MERGER dated as of March ___, 1999 (the "Agreement"),
between EMONS TRANSPORTATION GROUP, INC., a Delaware corporation ("ETG"), with
---
its principal place of business located at 96 South George Street, York, PA
17401 and ETG Merger Corporation, a Delaware corporation ("NEWCO"), with its
-----
principal place of business located at 96 South George Street, York, PA 17401.
NEWCO is a corporation duly organized and existing under the laws of
the State of Delaware, and has an authorized capital stock consisting solely of
1,000 shares of common stock, par value $.01 per share (the "NEWCO Common
------------
Stock"), of which 100 shares are issued and outstanding. NEWCO is a wholly-
owned subsidiary of ETG.
The Boards of Directors of NEWCO and ETG, deeming is desirable that
NEWCO be merged with and into ETG as permitted by the Delaware General
Corporation Law, as amended (the "DGCL"), under and pursuant to the terms and
----
conditions hereinafter set forth, have by resolutions duly approved and adopted
this Agreement and have directed that this Agreement be submitted to their
respective stockholders for approval and adoption.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto do agree as
follows:
ARTICLE I
THE MERGER, THE SURVIVING CORPORATION
AND THE EFFECTIVE DATE
1.1 The Merger. In accordance with the provisions of the DGCL, on
----------
the Effective Date (as hereinafter defined), NEWCO shall be merged with and into
ETG (the "Merger"), which shall be, and is herein sometimes referred to as, the
------
"Surviving Corporation." Upon the Effective Date, the name of the Surviving
---------------------
Corporation shall be "Emons Transportation Group, Inc." NEWCO and ETG are
herein sometimes referred to as the "Constituent Corporations."
------------------------
1.2 The Surviving Corporation. From and after the Effective Date,
-------------------------
the corporate existence of ETG, with all its rights, privileges, immunities,
powers and purposes, shall continue unaffected and unimpaired by the Merger, and
the corporate existence of NEWCO, with all its rights, privileges and
immunities, shall be merged into ETG and ETG shall, as the Surviving
Corporation, be fully vested therewith in accordance with the applicable laws of
the State of Delaware. The separate existence and corporate organization of
NEWCO, except insofar as they may be continued by statute, shall cease on the
Effective Date.
1.3 Closing and Effective Date. The closing of the transactions
--------------------------
contemplated by this Agreement shall take place at the offices of ETG, 96 South
George Street, York, Pennsylvania 17401 on March __, 1999 or on such later date
as is agreed to by the parties (except as otherwise provided herein).
-1-
<PAGE>
The Merger shall become effective at the close of business on the date of the
filing of a Certificate of Merger in accordance with the DGCL. The date on which
the Merger shall become effective is herein called the "Effective Date."
--------------
ARTICLE II
CERTIFICATE OF INCORPORATION
BY-LAWS, BOARD OF DIRECTORS AND
OFFICERS OF SURVIVING CORPORATION
2.1 Certificate of Incorporation. From and after the Effective Date,
----------------------------
the Certificate of Incorporation of ETG shall be the certificate of
incorporation of the Surviving Corporation, until altered, amended or repealed
in accordance with the provisions thereof and of applicable law.
2.2 By-Laws. The by-laws of ETG, in effect at the Effective Date,
-------
shall be the by-laws of the Surviving Corporation, until altered, amended or
repealed in accordance with the provisions thereof, of the certificate of
incorporation and of applicable law.
2.3 Board of Directors and Officers. The directors and officers of
-------------------------------
ETG on the Effective Date shall be the directors and officers of the Surviving
Corporation as of the Effective Date. Such directors and officers shall serve
until their respective successors are duly elected and qualified.
ARTICLE III
TREATMENT OF SHARES OF EACH
CONSTITUENT CORPORATION
3.1 Common Stock of NEWCO. On the Effective Date, each share of
---------------------
NEWCO Common Stock outstanding immediately prior to the Merger shall be
canceled.
3.2 Common Stock of ETG. On the Effective Date, each share of ETG
-------------------
common stock, par value $.01 per share, outstanding immediately prior to the
Merger ("ETG Common Stock") shall remain outstanding and each Share of $.14
----------------
Series A Cumulative Convertible Preferred Stock, par value $.01 per share
("Convertible Preferred Stock") (other than Convertible Preferred Stock as to
- -----------------------------
which dissenters' rights of appraisal have been perfected under the DGCL) will
be exchanged for 1.1 fully-paid and nonassessable shares of ETG Common Stock.
3.3 Sole Rights. From and after the Effective Date, the holders of
-----------
certificates evidencing ownership of shares of NEWCO Common Stock outstanding
immediately prior thereto shall cease to have any rights with respect to such
stock except as otherwise provided herein or by law.
-2-
<PAGE>
ARTICLE IV
TRANSFER OF ASSETS AND LIABILITIES
4.1 Certain Effects of Merger. At the Effective Date, all rights,
-------------------------
privileges, powers and franchises, of a public as well as of a private nature,
of each of the Constituent Corporations shall be possessed by the Surviving
Corporation, subject to all the restrictions, disabilities and duties of each of
the Constituent Corporations; and all the rights, privileges, powers and
franchises of each of the Constituent Corporations, and all property, real,
personal and mixed, and all debts due to either of the Constituent Corporations
on whatever account, as well for stock subscriptions as all other things in
action or belonging to each of the Constituent Corporations, shall be vested in
the Surviving Corporation, and all property, rights, privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the respective
Constituent Corporations, and the title to any real estate vested by deed or
otherwise under the laws of the State of Delaware or otherwise in either of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger; but all rights of creditors and all liens upon any property of
either of the Constituent Corporations shall be preserved unimpaired, and all
debts, liabilities and duties of the respective Constituent Corporations shall
at the Effective Date attach to the Surviving Corporation, and may be enforced
against it to the same extent as if such debts, liabilities and duties had been
incurred or contracted by it.
4.2 Supplementary Action. If at any time after the Effective Date
--------------------
any further assignments or assurances in law or any other things are necessary
or desirable to vest or to perfect or confirm or record in the Surviving
Corporation the title to any property or rights of either of the Constituent
Corporations, or otherwise to carry out the provisions of the Agreement, the
proper officers and directors of the respective Constituent Corporations as of
the Effective Date shall execute and deliver any and all proper deeds,
assignments and assurances in law, and do all things necessary or proper to vest
or to perfect or confirm title to such property or rights in the Surviving
Corporation, and otherwise to carry out the purposes and provisions of this
Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NEWCO
NEWCO represents and warrants to ETG as follows:
5.1 Organization and Existence. NEWCO is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware.
5.2 Capitalization. The authorized capital stock of NEWCO consists
--------------
of 1,000 shares of NEWCO Common Stock, of which 100 shares are issued and
outstanding on the date hereof. Each outstanding share of NEWCO Common Stock is
duly and validly issued, fully paid and nonassessable, and has not been issued
in violation of any preemptive right of stockholders.
5.3 Subsidiaries and Affiliates. NEWCO does not directly or
---------------------------
indirectly own more than 50% of the outstanding capital stock of any other
corporation.
-3-
<PAGE>
5.4 Stock Options and Conversion Rights. NEWCO does not have
-----------------------------------
outstanding any stock, other security, option or warrant, nor does there exist
any other legal or contractual right, which entitles the holder thereof to
purchase or otherwise acquire any capital stock or other security of or other
interest in NEWCO or to convert the same into any capital stock or other
security of or other interest in NEWCO.
5.5 Authority and Approval. NEWCO has full corporate power and
----------------------
authority to execute, deliver and perform this Agreement, and, upon the
requisite approval thereof by ETG, its sole stockholder, all corporate action of
NEWCO necessary for such execution, delivery and performance will have been duly
taken. Such execution, delivery and performance do not require any action or
consent of, or any registration with, any governmental regulatory body or other
authority or of any other party under any contract, agreement or other
undertaking, or under any order or decree to which NEWCO or any subsidiary or
affiliate is a party to which any of their properties or assets are subject and
will not conflict with or entitle any party to terminate or call a default
under, any such contract, agreement, undertaking, order or decree.
5.6 Litigation. There is no action, suit or other litigation or
----------
proceeding or governmental investigation pending, or to the knowledge of the
officers of NEWCO, threatened or in prospect with respect to its businesses,
properties or assets, which, if adversely determined, would have a material
adverse effect upon the assets or business of NEWCO.
5.7 Material Contracts. NEWCO is not a party to any material
------------------
contract, instrument or undertaking.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF ETG
ETG represents and warrants to NEWCO as follows:
6.1 Organization and Existence. ETG is a corporation duly organized,
--------------------------
validly existing and in good standing under the laws of the State of Delaware.
All the issued and outstanding shares of capital stock of ETG have been duly
authorized by all necessary corporate action, and are validly issued, fully paid
and nonassessable.
6.2 Authority and Approvals. ETG has full corporate power and
-----------------------
authority to execute, deliver and perform this Agreement and, upon the requisite
approval thereof by its stockholders, all corporate action of ETG necessary for
such execution, delivery and performance does not require any action or consent
of, or any registration with, any governmental regulatory body or other
authority or of any other party under any contract, agreement or other
undertaking or under any order or decree to which ETG is a party or to which any
of its properties or assets are subject and will not conflict with, or entitle
any party to terminate or call a default under, any such contract, agreement
undertaking, order or decree.
-4-
<PAGE>
ARTICLE VII
COVENANTS OF ETG
7.1 Stockholders' Meeting. ETG will call a special meeting of its
---------------------
stockholders (the "ETG Special Stockholders Meeting") to be held on
--------------------------------
______________, 1999 (or such later date upon which the parties shall agree) to
submit this Agreement and the transaction contemplated hereby for their
approval.
7.2 ETG Proxy Statement. ETG will prepare and send to its
-------------------
stockholders, for purposes of considering and voting upon this Agreement at the
ETG Special Stockholders' Meeting, a proxy statement satisfying the applicable
requirements of Delaware law and complying as to form in all material respects
with all applicable state and federal law and the rules and regulations
thereunder (such proxy statement in the form mailed by ETG to its stockholders,
together with any and all amendments and supplements thereto, herein referred to
as the "ETG Proxy Statement").
-------------------
ARTICLE VIII
COVENANTS OF NEWCO AND ETG
8.1 Certain other Covenants. Prior to the Effective Date, NEWCO and
-----------------------
ETG will make every reasonable effort to obtain such written consents,
approvals, authorizations, modifications, rulings and opinions from third
parties or take such measures and actions as may be necessary or appropriate to
allow the consummation of the transactions contemplated hereby.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF ETG
The obligations of ETG to effect the transactions contemplated hereby
are subject to the satisfaction of the condition set forth in Section 8.1 and,
at its option, the satisfaction or waiver of the following other conditions:
9.1 ETG Stockholders' Approval. The requisite approval of this
--------------------------
Agreement shall have been given by the stockholders of ETG.
9.2 Consents, Approvals, Authorizations, Modifications and Rulings.
--------------------------------------------------------------
All consents, approvals, authorizations, modifications and rulings required or,
in the opinion of ETG, necessary in connection with the execution, delivery and
performance of this Agreement and the consummation of the Merger and related
transactions shall have been obtained (whether from government authorities or
other persons) and shall be in form and substance satisfactory to ETG.
9.3 Representations, Warranties and Agreements of NEWCO. All
---------------------------------------------------
representations and warranties made herein by NEWCO shall be true in all
material respects as of the date made and as of the Effective Date; NEWCO shall
have performed in all material respects the obligations and agreements
-5-
<PAGE>
undertaken by NEWCO herein to be performed at or prior to the Effective Date;
and NEWCO shall have delivered to ETG a certificate to such effect, dated the
Effective Date, signed by the President and the Treasurer or Secretary of NEWCO.
9.4 Absence of Litigation. No claim, action, suit or proceeding
---------------------
shall be pending or threatened against any of the parties hereto or any of their
affiliates which, if adversely determined, would prevent or hinder consummation
of the Merger contemplated by this Agreement, result in the payment of
substantial damages as a result of such Merger and the transactions contemplated
hereby or otherwise impair the benefits contemplated hereby.
ARTICLE X
CONDITIONS TO OBLIGATIONS OF NEWCO
The obligation of NEWCO to effect the transactions contemplated hereby
are subject to the satisfaction of the condition set forth in Section 8.1 and,
at its option, the satisfaction or waiver of the following other conditions.
10.1 NEWCO Stockholders' Approval. The requisite approval of this
----------------------------
Agreement shall have been given by the stockholder of NEWCO.
10.2 Consents, Approvals, Authorizations, Modifications and Rulings.
--------------------------------------------------------------
All consents, approvals, authorizations, modifications and rulings required or,
in the opinion of NEWCO, necessary in connection with the execution, delivery
and performance of this Agreement and the consummation of the Merger and related
transactions shall have been obtained (whether from governmental authorities or
other persons) and shall be in form and substance satisfactory to NEWCO.
10.3 Representations, Warranties and Agreements of ETG. All
-------------------------------------------------
representations and warranties made herein by ETG shall be true in all material
respects as of the date made and as of the Effective Date; ETG shall have
performed in all material respects the obligations and agreements undertaken by
ETG herein to be performed at or prior to the Effective Date; and ETG shall have
delivered to NEWCO a certificate to such effect, dated the Effective Date,
signed by an executive officer thereof.
10.4 Absence of Litigation. No claim, action, suit or proceeding
---------------------
shall be pending or threatened against any of the parties hereto or any of their
affiliates which, if adversely determined, might prevent or hinder consummation
of the Merger contemplated by this Agreement, result in the payment of
substantial damages as a result of such Merger and the transactions contemplated
hereby or otherwise impair the benefits contemplated hereby.
-6-
<PAGE>
ARTICLE XI
CONDITIONS TO OBLIGATIONS OF ETG AND NEWCO
The obligations of ETG and NEWCO to effect the transactions
contemplated hereby are subject to the satisfaction or waiver of the conditions
set forth as follows:
11.1 Stockholder Approval. This Agreement shall have been approved
--------------------
and adopted by the stockholders of both of the Constituent Corporations in
accordance with Delaware Law.
11.2 No Prohibition. No provision of any applicable law or regulation
--------------
and no judgment, injunction, order or decree shall prohibit the consummation of
the Merger.
ARTICLE XII
TERMINATION
12.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Effective Date, notwithstanding approval of the Agreement by the NEWCO
Stockholder, by mutual written consent of the Boards of Directors of NEWCO and
ETG; or
12.2 Effect of Termination. In the event that this Agreement is
---------------------
terminated, this Agreement shall forthwith become void and of no further force
or effect and there shall be no obligation on the part of NEWCO, ETG or their
respective officers, directors or stockholders.
ARTICLE XIII
MISCELLANEOUS
13.1 Non-Survival of Representations and Warranties. The
----------------------------------------------
representation and warranties contained herein shall expire at the Effective
Date.
13.2 Tax Treatment. It is expressly understood and agreed that ETG
-------------
and NEWCO and their respective officers and agents have not made any warranty or
agreement express or implied as to the tax consequences of this transaction.
13.3 Notices. Any notice hereunder to a party shall be deemed to be
-------
properly served if in writing and delivered or mailed to (with a contemporaneous
copy by telex or facsimile transmission), in the case of ETG:
Emons Transportation Group, Inc.
96 South George Street
York, PA 17401
Attn: Mr. Scott Ziegler
-7-
<PAGE>
and, in the case of NEWCO:
ETG Merger Corporation
96 South George Street
York, PA 17401
Attn: Mr. Scott Ziegler
or to such other address as may have been furnished in writing by such party to
the other party to this Agreement, and shall be deemed to have been given as of
the time delivered or mailed registered or certified mail, postage paid, except
that notice of termination pursuant hereto shall be effective only upon receipt.
13.4 Prior Agreements; Modifications; Waivers. This Agreement shall
----------------------------------------
supersede all other prior agreements, documents or other instruments with
respect to the matters covered hereby. This Agreement may be amended or
modified at any time prior to the Effective Date by written agreement of the
Board of Directors of the parties hereto, or officers authorized by such Boards,
at any time before or after approval thereof by the stockholders of either or
both Constituent Corporations.
13.5 Captions. The captions in this Agreement are for convenience
--------
only and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
13.6 Governing Law. The terms of this Agreement shall be governed by,
-------------
and interpreted and construed in accordance with the provisions of, the laws of
the State of Delaware.
13.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed shall constitute an original copy
hereof.
[SIGNATURE PAGE TO FOLLOW]
-8-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed by its duly authorized officers as of the date first
above written.
Attest: EMONS TRANSPORTATION GROUP, INC.
By: ________________________ By: ________________________________
Title: Title:
Attest: ETG MERGER CORPORATION
By: ________________________ By: ________________________________
Title: Title:
-9-
<PAGE>
ANNEX B-1
---------
February 22, 1999
Board of Directors
Emons Transportation Group, Inc.
96 South George Street
York, PA 17401
Ladies and Gentlemen:
Emons Transportation Group, Inc. ("Emons" or the "Company") has requested
an opinion as to the fairness, from a financial point of view, that the exchange
of one (1.0) share of $0.14 Series A Cumulative Convertible Preferred Stock
("Convertible Preferred Stock") for one and one-tenth (1.1) shares of common
stock ("Common Stock") is fair to the holders of Convertible Preferred Stock and
the holders of Common Stock. The terms of the transaction are provided in the
Agreement of Merger (the "Merger Agreement") between the Company and Newco, a
Delaware corporation ("Newco"), which is a newly-formed, wholly-owned subsidiary
of the Company (the "Merger Proposal"). We were retained by the Company and
commenced our investigation on December 11, 1998.
The Merger Agreement provides for the merger of Newco into the Company,
with the Company being the surviving corporation in the merger (the "Merger").
As a result of the Merger (i) each outstanding share of Convertible Preferred
Stock will be exchanged for 1.1 shares of Common Stock and (ii) all current
shares of Common Stock will remain outstanding, unaffected by the Merger.
Approval of (i) the holders of a majority of the outstanding Common Stock and
Convertible Preferred Stock, voting together as a single class and (ii) the
holders of a majority of the Convertible Preferred Stock, voting as a separate
class, is required to approve the Merger Proposal. The Company may withdraw the
Merger Proposal if the holders of more than 5% of the outstanding Convertible
Preferred Stock have properly exercised appraisal rights in accordance with
Section 262 of the Delaware General Corporation Law.
In connection with the opinion, we have reviewed, among other things, (i)
the proposed Merger Agreement, (ii) Draft Proxy Statement of Emons
Transportation Group, Inc. for the Special Meeting of Stockholders, dated
February 18, 1999, (iii) Annual Reports and Form 10-K's for fiscal years ended
June 30, 1996, 1997 and 1998, (iv) Quarterly Reports on Form 10-Q for the
periods ended September 30, 1998 and December 31, 1998, (v) internal, non-public
budgets and projections for fiscal years 1999, 2000 and 2001, (vi) publicly
available financial data of regional railroad companies which FBW deemed
comparable to the Company, and (vii) Notice of Special Meeting of Stockholders
and Proxy Statement, dated August 23, 1989. FBW also held various discussions
with management of the Company regarding its past and current business
operations, financial condition and future prospects. FBW also held discussions
with the Company's accountants and counsel and performed such other
investigations as it deemed necessary.
Ferris, Baker Watts, Inc. is providing the Company with a valuation of the
Convertible Preferred Stock as of September 27, 1989 (the "Valuation"). Ferris,
Baker Watts, Inc. has no current investment banking
-1-
<PAGE>
relationship with the Company except for the Valuation and our review of the
fairness to the holders of Convertible Preferred Stock and holders of Common
Stock of the Company of the consideration to be provided to the holders of
Convertible Preferred Stock in the proposed Merger.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information reviewed by us for the
purposes of this opinion whether publicly available or provided to us by the
Company, and we have not assumed any responsibility for independent verification
of such information. FBW has further assumed that the financial budgets and
projections provided to FBW by the Company have been reasonably determined
reflecting the best currently available estimates and judgements of the
management of the Company as to the future financial performance of the Company.
FBW expressed no view as to such budgets or projections or the assumptions on
which they were based. We express no opinion as to the consideration to be
received by holders of Convertible Preferred Stock who may perfect dissenters'
statutory fair appraisal rights. Based upon the foregoing and based upon other
such matters that we consider relevant, it is our opinion that, as of the date
of this letter, the consideration to be received by the holders of Convertible
Preferred Stock in the proposed Merger is fair to the holders of Convertible
Preferred Stock and holders of Common Stock from a financial point of view as of
the date hereof.
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date of
this letter. Our opinion was prepared at the request of the Board of Directors
and does not constitute a recommendation as to how a shareholder should vote on
matters associated with the proposed Merger. Subsequent events may affect the
conclusions reached in this opinion, and we neither have nor do we assume any
obligation to update, revise or reaffirm this opinion which speaks solely as of
this date and with respect to matters contained herein.
Very truly yours,
/s/ Ferris, Baker Watts, Inc.
FERRIS, BAKER WATTS, INC.
-2-
<PAGE>
ANNEX B-2
---------
FERRIS, BAKER WATTS, INC., MARCH ___, 1999 OPINION
[TO BE DELIVERED]
-1-
<PAGE>
ANNEX B-3
---------
EMONS TRANSPORTATION GROUP, INC.
Supplemental Information for
Emons Transportation Group, Inc. Board Members
Ferris, Baker Watts, Incorporated
Investment Banking
100 Light Street
Baltimore, Maryland 21202
February 22, 1999
<PAGE>
EMONS TRANSPORTATION GROUP, INC.
This document is based on information provided by Emons Transportation Group,
Inc. as well as other sources deemed to be reliable. The information set forth
in this document is intended solely for the use by the Board of Directors of
Emons Transportation Group, Inc. (the "Client"). Possession of this document,
or a copy thereof, does not carry with it the right of publication of all or a
part of it, nor may it be used for any purpose by any party but the Client
without the previous written consent of Ferris, Baker Watts, Inc. ("FBW") or the
Client, and in any event only with proper attribution. The compensation
received by FBW from this engagement is not dependent on the findings of this
opinion. FBW has no other financial interest in Emons Transportation Group,
Inc., or any related party.
Charles W. Place
Vice President
(410) 659-4657
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
Executive Summary 1
$0.14 Series A Cumulative Convertible Preferred Stock 2
Due Diligence Review 2
Valuation Methodology 3
Summary Valuation 5
Summary and Conclusion 6
EXHIBITS
Emons Transportation Projected Financial Statements and Free Cash Flow Analysis
Publicly Traded Comparable Company Analysis
Information Reviewed
<PAGE>
EXECUTIVE SUMMARY
Ferris, Baker Watts, Incorporated ("FBW") has been retained by the Board of
Directors of Emons Transportation Group, Inc. ("Emons" or the "Company") to
provide a fairness opinion that the exchange of one (1.0) share of $0.14 Series
A Cumulative Convertible Preferred Stock (the "Convertible Preferred Stock") for
one and one-tenth (1.1) shares of common stock ("Common Stock") is fair, from a
financial point of view, to the holders of Common Stock and the holders of
Convertible Preferred Stock. The terms of the transaction are provided in the
Agreement of Merger (the "Merger Agreement") between the Company and Newco, a
Delaware corporation, which is a newly-formed, wholly-owned subsidiary of the
Company ("Newco") (the "Merger Proposal"). The Merger Agreement provides for
the merger of Newco into the Company, with the Company being the surviving
corporation in the merger (the "Merger"). As a result of the Merger (i) each
outstanding share of Convertible Preferred Stock will be exchanged for 1.1
shares of Common Stock and (ii) all shares of current Common Stock will remain
outstanding, unaffected by the Merger. As of February 10, 1999, there were
1,485,543 shares of Convertible Preferred Stock outstanding. FBW has reviewed
selected public and internal information of Emons as well as public information
relating to other companies in the railroad industry. FBW has also held several
discussions with the senior management of the Company.
The face value of the Convertible Preferred Stock plus accumulated
undeclared dividends totaled $4,738,882 on February 10, 1999, or $3.19 per
share. To realize this value, the holders of Convertible Preferred Stock would
either (1) have to be redeemed by the Company, (2) sell shares of Convertible
Preferred Stock on the OTC Bulletin Board at a price greater than $3.19, or (3)
convert to Common Stock and sell the shares when the market bid price is greater
than $3.54 per share. The Convertible Preferred Stock has no mandatory
redemption provision and the holders have no right to elect a majority of the
Board of Directors to force a redemption. The trading market for the
Convertible Preferred Stock is highly illiquid, with average annual volumes of
less than 100,000 shares for the last three years. The Company's cash flow
cannot support additional debt to finance a cash redemption and Emon's ability
to raise additional equity capital, that is not at a significant discount to its
current market price, is minimal given the current public market environment for
micro cap stocks. The only practical course of action for the holders of
Convertible Preferred Stock to realize value from their investment is to convert
to Common Stock and sell their shares in the market.
To induce the holders of Convertible Preferred Stock to convert their
shares to Common Stock, and thereby eliminate the class of Convertible Preferred
Stock from its capital structure, the Company is proposing to exchange each
share of Convertible Preferred Stock for 1.1 shares of Common Stock. The
increase in consideration received by the holders of Convertible Preferred Stock
(0.2 shares of Common Stock) in the proposed Merger reduces their current break-
even selling price from $3.54 to $2.90 per share. In addition, as holders of
Common Stock, they should benefit from the Company's ability to raise equity
capital in the future to fund growth opportunities, including potential
strategic acquisitions, which result in an increase in profitability and the
overall value of the Company.
By inducing the holders of Preferred Stock to convert at the proposed
exchange ratio, the Company simplifies its capital structure and eliminates a
claim senior to the holders of Common Stock at a value less than the present
value of that claim. By using Common Stock to remove the Convertible Preferred
Stock from its capital structure, the Company preserves cash in the short-term
that can be used to fund current operations and pay down debt. Additionally,
with the elimination of the Convertible Preferred Stock from its capital
structure, the Company will be positioned to raise equity capital in the future
to fund future growth opportunities,
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<PAGE>
including potential strategic acquisitions, which result in an increase in
profitability and the overall value of the Company.
Based on our analysis, the aggregate consideration given to the holders of
Convertible Preferred Stock in the proposed Merger is greater than the
consideration they would receive under the current convertible terms and less
than the present value of their claim of approximately $4.9 million. While the
additional shares of consideration results in short-term dilution to the
existing holders of Common Stock, the Company is preserving cash that can be
invested in growing the business and improving its capital structure.
Therefore, in FBW's opinion, the exchange ratio in the proposed Merger is fair
to the holders of Preferred Stock and the holders of Common Stock from a
financial point of view.
$0.14 SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Convertible Preferred Stock was issued in September 1989 as a result of
a merger between Emons Holdings, Inc. and Emons Merger Corporation. As a result
of the merger, holders of the then existing Senior Preferred Stock received
shares of the Convertible Preferred Stock in a one share for one share exchange.
The significant terms of the Convertible Preferred Stock are as follows: (i)
liquidation preference of $2.00 per share plus all accumulated undeclared
dividends; (ii) dividends of $0.14 per share, per annum, payable semi-annually;
(iii) redemption price of $2.00 per share (after September 27, 1997) plus all
accumulated undeclared dividends; (iv) right to vote as a class (one vote per
share) with holders of Common Stock on all matters; (v) convertible into 0.9
shares of Common Stock; and (vi) both Convertible Preferred Stock and Common
Stock issuable upon conversion are freely tradeable.
The Company has not declared or paid a dividend on the Convertible
Preferred Stock since July 1990. As of February 10, 1999, there were 1,485,543
shares of Convertible Preferred Stock outstanding. The current redemption price
of the Convertible Preferred Stock equals $2.00 per share plus $1.19 per share
of accumulated undeclared dividends for a total of $4,738,882.
The Convertible Preferred Stock has no mandatory redemption provision and
the holders do not have the right to elect a majority of the Board of Directors
to force a redemption. To realize the value of their investment, the holders of
Convertible Preferred Stock have to either (1) be redeemed by the Company, (2)
sell shares of Convertible Preferred Stock on the OTC Bulletin Board at a price
greater than $3.19, or (2) convert each share of Convertible Preferred Stock for
0.9 shares of Common Stock and sell the shares when the market bid price is
greater than $3.54 per share.
DUE DILIGENCE REVIEW
As an integral part of the effort to determine the fairness of the proposed
Merger, FBW conducted an extensive review of the information provided by the
Company. Please refer to Exhibit C for a listing of information reviewed by
FBW. Charles W. Place, Vice President of FBW, also conducted several interviews
with management of Emons and participated in conversations with the Company's
counsel and accountants with respect to the proposed Merger. In general, FBW's
discussions centered on the following areas:
. The historical operating results and the outlook for growing Emons'
business.
-2-
<PAGE>
. The qualitative benefits of the proposed Merger to the holders of
Convertible Preferred Stock and holders of Common Stock.
. The quantitative benefits of the proposed Merger to the holders of
Convertible Preferred Stock and holders of Common Stock.
VALUATION METHODOLOGY
FBW considered several methods in evaluating the effect of the Merger on
the holders of Convertible Preferred Stock and the holders of Common Stock. In
the proposed Merger, the holders of Convertible Preferred Stock will receive
additional consideration of 0.2 shares of Common Stock in exchange for each
share of Convertible Preferred Stock. FBW's analysis focused on determining the
Company's intrinsic value. From the Company's intrinsic value we subtracted
debt obligations and other senior claims to arrive at the Company's intrinsic
equity value. Multiplying the number of shares of Common Stock received by the
holders of Convertible Preferred Stock in the proposed Merger by the Company's
intrinsic equity value per share equals the aggregate value received by the
holders of Convertible Preferred Stock in the Merger. As long as this value is
greater than the value the they would receive under the current convertible
provisions, the Merger is attractive to holders of Convertible Preferred Stock.
As long as this value is less than the present value claim of $4.9 million, the
Merger is attractive to the holders of Common Stock. To determine the Company's
intrinsic value, FBW employed the following valuation methods: (i) a discounted
future free cash flow analysis; and (ii) a comparable public company multiple
analysis.
Discounted Future Free Cash Flows
This methodology is premised on the assumption that a buyer purchases a
series of free cash flows that are generated by the assets of a business. This
analysis separates and ascribes value only to the cash flows that can ultimately
be taken out of the business. Cash that is generated but used to sustain the
business (such as increases in working capital and capital expenditures) creates
no incremental value to the buyer in and of itself. These free cash flows are
then discounted to the present at the Company's weighted-average cost of
capital. The weighted average cost of capital can be described as the average
price a company must pay to attract both debt and equity to properly capitalize
the firm's growth. It is this series or free cash flows that, when discounted
to the present, and after subtracting claims by debt holders and others,
represents the economic value of a firm to its shareholders.
FBW used 8,140,000 shares outstanding for the purposes of determining the
Company's intrinsic equity value per share, which consists of 6,095,786 current
shares outstanding, 1,634,097 shares issued in the proposed Merger and 410,101
options and warrants. In addition, we considered discount rates of between
9.80% and 10.73%. The accuracy of this method of valuation depends largely on
the integrity of the projections provided by management, which are outlined in
Exhibit A.
Publicly Traded Comparable Companies
FBW compared the value of the Company to the relative value of publicly
traded companies that can be considered comparable to Emons. The purpose of
this analysis is to apply industry multiples to the Company's recent financial
results to derive a market-based estimate of the Company's intrinsic equity
value per share. For this analysis, FBW also used 8,140,000 shares outstanding
for the purposes of determining the
-3-
<PAGE>
Company's intrinsic equity value per share. The Comparable companies used in
this analysis include Providence & Worcester Railroad Company, RailTex, Inc.,
Genesee & Wyoming, Inc., RailAmerica, Inc. and Pioneer Railcorp. See Exhibit B
for the detailed comparable public company analysis. The pertinent performance
measures are as follows:
. The Net Market Capital to Revenue ratio measures the enterprise value the
market is willing to pay per dollar of revenue. Among comparable
companies, this ratio can reflect and assign value to each company's
relative market position. In addition, for companies that are experiencing
rapid growth, either internally or through acquisition, the price to
revenue ratio can also be interpreted as a means to value this growth.
This ratio is far less consistent among comparable companies than ratios
that measure value in relation to some measure of earnings.
. The Net Market Capital to Earnings Before Interest and Taxes (EBIT) ratio
measures the enterprise value of the net operating assets as a multiple of
the company's operating income before interest and taxes. By focusing on
EBIT instead of net income, it is possible to decrease distortions among
comparable companies that are due to different levels of debt in the
capital structures, extraordinary items, varying tax rates, and other line
items that occur below the operating profit line. EBIT is calculated to
represent the pre-tax cash flow that would have resulted had the company
been financed on a total equity basis.
. The Price/Earnings (P/E) ratio is the most commonly utilized valuation
ratio. It can be understood as representative of what price the investor
will pay for a given amount of earnings that is available to the common
equity holder. The counter to this line of reasoning is that net income is
often a poor approximation of an actual cash flow theoretically available
to common shareholders. Before arriving at net income, companies in the
same industry may have numerous idiosyncratic accounting differences that
make their net income numbers less comparable.
. The Forward P/E ratio is similar to the P/E ratio mentioned above, however,
the Forward P/E ratio uses estimates of earnings for future fiscal years
versus the trailing twelve month earnings results and therefore provides an
indication of how the company is expected to perform in the future.
-4-
<PAGE>
SUMMARY VALUATION
The following table summarizes, for each relevant valuation methodology,
the intrinsic equity value per share and the aggregate consideration the holders
of Convertible Preferred Stock would receive in the proposed Merger relative to
the present value of their current claim of approximately $4.9 million. All data
is in thousands except for per share data.
<TABLE>
<CAPTION>
EQUITY AGGREGATE
VALUE EXCHANGED VALUE OF CURRENT
VALUATION METHODOLOGY PER SHARE SHARES CONSIDERATION CLAIM DISCOUNT
- --------------------- --------- ------ ------------- ------ --------
<S> <C> <C> <C> <C> <C>
Current Stock Price $2.44 1,634 $3,987 $4,947 ($960)
Discounted Cash Flow:
WACC of 10.73% $2.37 1,634 $3,873 $4,947 ($1,074)
WACC of 9.80% $2.80 1,634 $4,575 $4,947 ($372)
Comparable Public Multiples:
Revenue $1.91 1,634 $3,121 $4,947 ($1,826)
EBIT $0.96 1,634 $1,569 $4,947 ($3,378)
P/E $1.62 1,634 $2,647 $4,947 ($2,300)
Forward P/E $1.86 1,634 $3,039 $4,947 ($1,909)
</TABLE>
The following table summarizes, for each relevant valuation methodology,
the intrinsic equity value per share and the aggregate consideration the holders
of Convertible Preferred Stock would receive under the current convertible
provisions compared to the aggregate consideration received through the proposed
Merger. All data is in thousands except for per share data.
-5-
<PAGE>
<TABLE>
<CAPTION>
EQUITY CURRENT POST MERGER
VALUE EXCHANGED AGGREGATE AGGREGATE ADDITIONAL
VALUATION METHODOLOGY PER SHARE SHARES CONSIDERATION CONSIDERATION CONSIDERATION
- --------------------- --------- ------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Current Stock Price $2.44 1,337 $3,262 $3,987 $725
Discounted Cash Flow:
WACC of 10.73% $2.46 1,337 $3,289 $3,873 $584
WACC of 9.80% $2.91 1,337 $3,891 $4,575 $684
Comparable Public Multiples:
Revenue $1.98 1,337 $2,647 $3,121 $474
EBIT $0.99 1,337 $1,324 $1,569 $245
P/E $1.68 1,337 $2,246 $2,647 $401
Forward P/E $1.93 1,337 $2,580 $3,039 $459
</TABLE>
SUMMARY AND CONCLUSION
. The only practical course of action the holders of Convertible Preferred
Stock can take to realize the value of their investment is to convert to
Common Stock and sell shares in the market.
. The Company is fully leveraged and cannot pursue attractive investment
opportunities without the ability to raise equity capital.
. The proposed Merger is fair to the holders of Convertible Preferred Stock,
in that they are receiving additional consideration that lowers their
current break-even point from $3.54 to $2.90.
. The proposed Merger is fair to the holders of Common Stock, in that a
senior claim is being removed from the Company's capital structure at a
cost that is less than the present value of the claim.
-6-
<PAGE>
FAIRNESS OPINION OF FBW
DISCOUNTED CASH FLOW ANALYSIS -- INCOME STATEMENT
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS
FORECAST FORECAST FORECAST
1995 1996 1997 1998 1999 2000 2001
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues 13,997 14,917 16,058 17,445 20,890 24,177 25,264
Operating Expenses 11,923 13,290 14,132 15,248 17,857 20,273 21,155
------- ------- ------- ------- ------- ------- -------
NET OPERATING PROFIT 2,074 1,627 1,926 2,197 3,033 3,904 4,109
Interest Expense, net 1,000 868 755 710 770 934 815
------- ------- ------- ------- ------- ------- -------
INCOME BEFORE TAXES 1,074 759 1,171 1,487 2,263 2,970 3,294
Income Tax Provision 308 289 397 (3,430) 705 954 1,075
------- ------- ------- ------- ------- ------- -------
Net Income $ 766 $ 470 $ 774 $ 4,917 $ 1,558 $ 2,016 $ 2,219
====================================================================================================
Fully diluted EPS $ 0.20 $ 0.26 $ 0.28
Fully diluted EPS - Pro forma $ 0.19 $ 0.25 $ 0.27
Fully diluted shares 7,843 7,843 7,843
Fully diluted shares - Pro forma 8,140 8,140 8,140
</TABLE>
-7-
<PAGE>
FAIRNESS OPINION OF FBW
DISCOUNTED CASH FLOW ANALYSIS - BALANCE SHEET - ASSETS
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS
FORECAST FORECAST FORECAST
1995 1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash & Marketable Securities 1,233 1,265 1,515 1,315 3,566 4,594 5,984
Accounts Receivable 1,771 2,405 2,405 2,211 2,589 2,709 2,831
Prepaid Expenses 285 340 339 375 425 430 437
Other Current Assets 409 284 157 668 854 862 872
------ ------ ------ ------ ------ ------ -------
TOTAL CURRENT ASSETS 3,698 4,294 4,416 4,569 7,434 8,595 10,124
Property & Equipment 24,235 26,743 29,042 37,951 39,550 41,436 43,330
Accum Depreciation 7,550 8,491 9,649 11,566 12,434 14,261 16,184
------ ------ ------ ------ ------ ------ ------
NET PROP PLANT & EQUIP 16,685 18,252 19,393 26,385 27,116 27,175 27,146
Intangible and Other Assets 362 244 493 737 525 273 220
Deferred Taxes 0 0 0 945 703 0 0
----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 20,745 22,790 24,302 32,636 35,778 36,043 37,490
================================================================================================================
</TABLE>
-8-
<PAGE>
FAIRNESS OPINION OF FBW
DISCOUNTED CASH FLOW ANALYSIS - BALANCE SHEET - LIABILITIES AND STOCKHOLDERS
EQUITY
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS
FORECAST FORECAST FORECAST
1995 1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Current Portion LTD 819 968 888 662 1,859 1,826 2,074
Accounts Payable and Accrued Expenses 2,875 3,971 3,390 4,139 4,098 4,110 4,277
------ ------ ------ ------ ------- ------ ------
TOTAL CURRENT LIABS 3,694 4,939 4,278 4,801 5,957 5,936 6,351
Senior Long-Term Debt 10,043 10,118 10,976 15,443 15,807 13,960 11,886
Other Senior Liabs 602 601 814 758 758 758 758
------ ------ ------ ------ ------- ------ ------
TOTAL SENIOR LIABS 10,645 10,719 11,790 16,201 16,565 14,718 12,644
TOTAL LIABILITIES 14,339 15,658 16,068 21,002 22,522 20,654 18,995
Deferred Income Taxes 1,290 1,513 1,794 0 0 53 877
Convertible Preferred 4,663 4,771 4,920 0 0 0 0
Common Equity 453 858 1,520 11,634 13,256 15,336 17,618
------ ------ ------ ------ ------ ------ ------
NET WORTH 5,116 5,629 6,440 11,634 13,256 15,336 17,618
- -------------------------------------------------------------------------------------------------------------
TOTAL LIAB & NET WORTH 20,745 22,800 24,302 32,636 35,778 36,043 37,490
=============================================================================================================
</TABLE>
-9-
<PAGE>
FAIRNESS OPINION OF FBW
DISCOUNTED CASH FLOW ANALYSIS - NOPAT
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS
FORECAST FORECAST FORECAST
1995 1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues 13,997 14,917 16,058 17,445 20,890 24,177 25,264
Operating Expenses 11,923 13,290 14,132 15,248 17,857 20,273 21,155
Amortization (120) (127) (130) (154) (144) (123) (116)
------ ------ ------ ------ ------ ------ ------
Total Operating Expenses N/A 13,163 14,002 15,094 17,713 20,150 21,039
------ ------ ------ ------ ------ ------ ------
ADJUSTED EBIT N/A 1,754 2,056 2,351 3,177 4,027 4,225
CASH OPERATING TAX N/A 96 107 115 119 183 199
- -------------------------------------------------------------------------------------------------------
NOPAT N/A 1,658 1,949 2,236 3,058 3,844 4,026
=======================================================================================================
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
FARINESS OPINION OF FBW
DISCOUNTED CASH FLOW ANALYSIS - CAPITAL
DOLLARS IN THOUSANDS
FORECAST FORECAST FORECAST
1995 1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Current Operating Assets 3,648 4,215 4,346 4,093 5,481 5,943 6,190
NIBCLs 2,875 3,971 3,390 4,139 4,098 4,110 4,277
------- ------ ------ ------ ------- ------ -------
Net Working Capital 773 244 956 (46) 1,383 1,833 1,913
Net Prop Plant & Equip 16,685 18,252 19,393 26,385 27,116 27,175 27,146
Accumulated Goodwill 120 247 377 531 675 798 914
Intangible and Other Assets 362 244 493 737 525 273 220
- -----------------------------------------------------------------------------------------------
Capital 17,940 18,987 21,219 27,607 29,699 30,079 30,193
===============================================================================================
</TABLE>
-11-
<PAGE>
FAIRNESS OPINION OF FBW
DISCOUNTED CASH FLOW ANALYSIS - WEIGHTED AVERAGE COST OF CAPITAL
= Weighted Average + Weighted Average
Cost of Debt Cost of Equity
= Incremental Borrowing + Risk Free + Equity Risk + Small Cap.
Cost X (1-Tax Rate) Rate Premium Premium
= (8.00% X (1-36.0%)) + 5.36% + (7.8% X 0.88) + 5.36%
= 5.12% X % of Debt + 17.58% X % of Equity
Debt Equity
Weighting = 55.0% Weighting = 45.0%
= 2.82% + 7.91%
= 10.73%
-12-
<PAGE>
FAIRNESS OPINION OF FBW
DISCOUNTED CASH FLOW ANALYSIS - INTRINSIC VALUE PER SHARE
<TABLE>
<CAPTION>
Dollars in Thousands
PV Factor x FCF
NOPAT - Inv /1/ Present Value
YEAR NOPAT INVESTMENT FCF PV FACTOR OF FCF
- ---------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
1999 3,058 2,092 966 0.9503 918
2000 3,844 379 3,464 0.8582 2,973
2001 4,026 115 3,911 0.7751 3,032
2002 & Beyond 4,041/3/ 0 4,041/2/ 7.2246 29,196
-----------------
Intrinsic Total Value 36,119
Total Debt 16,105
Other Liabilities 758
-----------------
Intrinsic Common Equity Value 19,256
Number of Shares Outstanding - Pro forma 8,140
Intrinsic Share Value - Pro Forma $ 2.37
Number of Shares Outstanding - Current 7,843
Intrinsic Share Value - Current $ 2.46
</TABLE>
- ----------------------------
(1) Cash flows discounted from mid-year
(2) Present Value of $1 in perpetuity beginning in 2002
(3) NOPAT increases by $15.3 based on a return of 13.38% on
2001 investment of $114.6
-13-
<PAGE>
FAIRNESS OPINION OF FBW
DISCOUNTED CASH FLOW ANALYSIS - WEIGHTED AVERAGE COST OF CAPITAL
= Weighted Average + Weighted Average
Cost of Debt Cost of Equity
= Incremental Borrowing + Risk Free + Equity Risk + Small Cap.
Cost X (1-Tax Rate) Rate Premium Premium
= (8.00% X (1-36.0%)) + 5.36% + (7.8% X 0.88) + 3.30%
= 5.12% X % of Debt + 15.52% X % of Equity
Debt Equity
Weighting = 55.0% Weighting = 45.0%
= 2.82% + 6.98%
= 9.80%
-14-
<PAGE>
FAIRNESS OPINION OF FBW
DISCOUNTED CASH FLOW ANALYSIS - INTRINSIC VALUE PER SHARE
<TABLE>
<CAPTION>
Dollars in Thousands
PV Factor x FCF
NOPAT - Inv /1/ Present Value
YEAR NOPAT INVESTMENT FCF PV FACTOR OF FCF
- ---------------- ----------------- ----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
1999 3,058 2,092 966 0.9543 922
2000 3,844 379 3,464 0.8691 3,011
2001 4,026 115 3,911 0.7915 3,096
2002 & Beyond 4,041/3/ 0 4,041/2/ 8.0755 32,635
----------------
Intrinsic Total Value 39,664
Total Debt 16,105
Other Liabilities 758
----------------
Intrinsic Common Equity Value 22,801
Number of Shares Outstanding 8,140
Intrinsic Share Value $ 2.80
Number of Shares Outstanding - Current 7,843
Intrinsic Share Value - Current $ 2.91
</TABLE>
- ------------------------------
(1) Cash flows discounted from mid-year.
(2) Present Value of $1 in perpetuity beginning in 2002
(3) NOPAT increases by $15.3 based on a return of 13.38% on
2001 investment of $114.6.
-15-
<PAGE>
EMONS TRANSPORTATION GROUP
- --------------------------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS
<TABLE>
<CAPTION>
MARKET DATA
Fiscal Four Stock Shares Market
Year Quarters Price Out Value
Ticker End Ended 2/17/99 (000's) ($000's)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Genesee & Wyoming, Inc. GNWR Dec 09/30/98 $13.38 4,105 54,904
Pioneer Railcorp PRRR Dec 09/30/98 $1.56 4,610 7,203
Providence & Worcester RR PWX Dec 09/30/98 $10.88 4,225 45,947
RailAmerica, Inc. RAIL Dec 09/30/98 $9.13 9,688 88,403
RailTex, Inc. RTEX Dec 09/30/98 $11.13 9,209 102,450
- --------------------------------------------------------------------------------
Emons Transportation
Group(4) EMON June 12/31/98 $ 2.50 8,140 20,350
- --------------------------------------------------------------------------------
Financial Data
(Trailing Four Quarters, in $ thousands)
Net Earnings Total Total Common Total
Revenues EBIT(1) Income Per Share Assets Debt(2) Equity Capital(3)
- -------------------------------------------------------------------------------------------------------------------------------
Genesee & Wyoming, Inc. 141,920 18,118 7,100 1.35 220,440 77,936 71,950 182,343
Pioneer Railcorp 13,500 2,210 486 0.12 24,940 13,418 4,215 19,883
Providence & Worcester RR 23,140 5,500 4,000 1.32 76,627 2,952 56,069 74,899
RailAmerica, Inc. 69,570 11,851 4,104 0.42 135,096 66,555 34,241 117,216
RailTex, Inc. 156,860 24,910 11,680 1.27 352,150 150,595 141,050 324,995
- -------------------------------------------------------------------------------------------------------------------------------
Emons Transportation
Group(4) 19,527 2,568 1,023 0.13 33,582 16,105 12,387 29,274
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Earnings Before Interest and Taxes.
(2) Total Debt includes Current Portion of Long Term Debt.
(3) Includes Total Debt, Common and Preferred Equity, Other Liabilities and
Deferred Taxes.
(4) Net income has been adjusted to eliminate tax benefit of $3.4 million and
applying an effective tax rate of 36% to pre-tax earnings.
-16-
<PAGE>
<TABLE>
<CAPTION>
EMONS TRANSPORTATION GROUP
- -----------------------------------------------------------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS
Margin Analysis Profitability Liquidity & Leverage
Ratios
Total Total
Return on Return on Debt/ Debt/
EBIT Net Common Total Current Common Total
Company Margin Margin Equity Assets Ratio Equity Capital
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Genesee & Wyoming, Inc. 12.8% 5.0% 9.9% 3.2% 1.6 108.3% 42.7%
Pioneer Railcorp 16.4% 3.6% 11.5% 1.9% 0.7 318.3% 67.5%
Providence & Worcester RR 23.8% 17.3% 7.1% 5.2% 1.8 5.3% 3.9%
RailAmerica, Inc. 17.0% 5.9% 12.0% 3.0% 1.5 194.4% 56.8%
RailTex, Inc. 15.9% 7.4% 8.3% 3.3% 0.9 106.8% 46.3%
- -----------------------------------------------------------------------------------------------------------------
Average 17.2% 7.8% 9.8% 3.3% 1.3 146.6% 43.5%
- -----------------------------------------------------------------------------------------------------------------
Median 16.4% 5.9% 9.9% 3.2% 1.5 108.3% 46.3%
- -----------------------------------------------------------------------------------------------------------------
Emons Transportation Group 13.2% 5.2% 8.3% 3.0% 1.1 130.0% 55.0%
- -----------------------------------------------------------------------------------------------------------------
Valuation Ratios
Mkt. Val. Mkt. Val
Net Mkt. Mkt. Val. to Forward to Book Net Mkt. Cap(5)
Caotial(5) to Earnings Earnings Value to
to EBIT (P/E) (Forward P/E) (Equity) Revenues
- -----------------------------------------------------------------------------------------------------------------
Genesee & Wyoming, Inc. 5.9 7.7 7.1 0.8 0.76
Pioneer Railcorp 9.0 14.8 N/A 1.7 1.47
Providence & Worcester RR 8.6 11.5 10.0 0.8 2.04
RailAmerica, Inc. 12.9 21.5 13.6 2.6 2.21
RailTex, Inc. 10.1 8.8 8.2 0.7 1.60
- -----------------------------------------------------------------------------------------------------------------
Average 9.3 12.9 9.7 1.3 1.62
- -----------------------------------------------------------------------------------------------------------------
Median 9.0 11.5 9.1 0.8 1.60
- -----------------------------------------------------------------------------------------------------------------
Emons Transportation Group 13.5 19.9 13.2 1.6 1.77
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(5) Market Value Common and Preferred Equity plus Debt less Cash.
-17-
<PAGE>
Pro Forma Multiple Analysis
. Net Market Captial to Revenues
<TABLE>
<CAPTION>
LTM Average Implied Implied Per
Company Industry Intrinsic Less Equity Share
Revenues Multiple Value Debt Value Value
- -------- -------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$19,527 1.62 $31,634 $16,105 $15,529 $1.91
</TABLE>
. Net Market Captial to EBIT
<TABLE>
<CAPTION>
LTM Average Implied Implied Per
Company Industry Intrinsic Less Equity Share
EBIT Multiple Value Debt Value Value
- -------- -------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$2,568 9.3 $23,882 $16,105 $7,777 $0.96
</TABLE>
-18-
<PAGE>
Pro Forma Multiple Analysis
. Market Value to Earnings
<TABLE>
<CAPTION>
LTM Average Implied Per
Company Industry Equity Share
Earnings(1) Multiple Value Value
----------- -------- ------- -------
<S> <C> <C> <C>
$1,023 12.9 $13,197 $1.62
</TABLE>
(1) Earnings have been adjusted to eliminate tax benefit of $3.4 million
and an effective tax rate of 36% has been applied to pre-tax earnings.
. Market Value to Forward Earnings
<TABLE>
<CAPTION>
Forward Average Implied Per
Company Industry Equity Share
Earnings Multiple Value Value
-------- -------- ------- -----
<S> <C> <C> <C>
$1,558 9.7 $15,113 $1.86
</TABLE>
-19-
<PAGE>
Current Multiple Analysis
. Net Market Capital to Revenues
<TABLE>
<CAPTION>
LTM Average Implied Implied Per
Company Industry Intrinsic Less Equity Share
Revenues Multiple Value Debt Value Value
- -------- -------- --------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
$19,527 1.62 $31,634 $16,105 $15,529 $1.98
</TABLE>
. Net Market Capital to EBIT
<TABLE>
<CAPTION>
LTM Average Implied Implied Per
Company Industry Intrinsic Less Equity Share
EBIT Multiple Value Debt Value Value
- -------- -------- --------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
$2,568 9.3 $23,882 $16,105 $7,777 $0.99
</TABLE>
-20-
<PAGE>
Current Multiple Analysis
. Market Value to Earnings
<TABLE>
<CAPTION>
LTM Average Implied Per
Company Industry Equity Share
Earnings(1) Multiple Value Value
----------- -------- ------- -------
<S> <C> <C> <C>
$1,023 12.9 $13,197 $1.68
</TABLE>
(1) Earnings have been adjusted to eliminate tax benefit of $3.4 million
and an effective tax rate of 36% has been applied to pre-tax earnings.
. Market Value to Forward Earnings
<TABLE>
<CAPTION>
Forward Average Implied Per
Company Industry Equity Share
Earnings(1) Multiple Value Value
----------- -------- ------- -------
<S> <C> <C> <C>
$1,558 9.7 $15,113 $1.93
</TABLE>
-21-
<PAGE>
LIST OF INFORMATION REVIEWED
. Annual Reports and 10-K's for the fiscal years ended June 30, 1996, 1997
and 1998.
. Quarterly Reports on Form 10-Q for the periods ended September 30, 1998 and
December 31, 1998.
. Internal, non-public budgets and projections for fiscal years 1999, 2000
and 2001.
. Publicly available financial data of regional railroad companies which FBW
deemed to be comparable to the Company.
. Notice of Special Meeting of Stockholders and Proxy Statement, dated August
23, 1989.
. Draft Proxy Statement for the Special Meeting of Stockholders, dated
February 11, 1999.
. Historical stock price for the Company
. Company press releases for last twelve months
. The 1998 yearbook for Stocks Bonds Bills and Inflation, authored by
Ibbotson Associates.
-22-
<PAGE>
ANNEX C
-------
TERMS OF $.14 SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
(ARTICLE FOURTH, SECTION 4, OF THE CERTIFICATE OF INCORPORATION OF
EMONS TRANSPORTATION GROUP, INC.)
(a) Designation of Series. 2,300,000 shares of the series of Preferred
---------------------
Stock authorized by this Article FOURTH are hereby designated as $.14
Series A Cumulative Convertible Preferred Stock (hereinafter called the
"Series A Preferred Stock"), having the voting powers, designations,
preferences and rights and qualifications, limitations and restrictions set
forth herein. The shares of the Series A Preferred Stock shall be fully-
paid and non-assessable. All shares of Series A Preferred Stock redeemed,
and all shares of Series A Preferred Stock otherwise purchased or acquired
by the Corporation (including shares of Series A Preferred Stock that shall
be converted) shall have the status of authorized but unissued shares of
preferred stock and any such shares may be reissued as shares of the Series
A Preferred Stock or of any other series.
The number of shares of Series A Preferred Stock may be decreased (but
not below the number of such shares then outstanding) but not increased by
a certificate executed, acknowledged, filed, and recorded in accordance
with Section 103 of the General Corporation Law of the State of Delaware
setting forth a statement that a specified decrease therein had been
authorized and directed by a resolution or resolutions adopted by the Board
of Directors pursuant to authority expressly vested in it by the provisions
of the Certificate of Incorporation.
(b) Dividends. The holders of Series A Preferred Stock shall be
---------
entitled to receive, when and as declared by the Board of Directors out of
funds legally available for the purpose, dividends in cash at the rate of
$.14 per share per annum, and no more, payable semi-annually at the rate of
$.07 per share (except for the initial dividend, which shall be payable at
a rate per share (rounded to the nearest cent) equal to the amount accrued
per share at the annual rate for the number of days in the period between
the date of original issuance of the Series A Preferred Stock and the date
the first semi-annual dividend is payable) on the first day of January and
July in each year for the semi-annual (except for the initial dividend)
dividend periods ending respectively on the dates immediately preceding
such dates, commencing on the first of such dates occurring after 45 days
after the date of original issuance of the Series A Preferred Stock.
Dividends on the Series A Preferred Stock shall be cumulative from and
after the date of original issuance, whether or not earned or declared and
whether or not there shall be funds of the Corporation legally available
for the payment of such dividends. Accruals and accumulations of dividends
shall not bear interest. The date of original issuance of the shares of
Series A Preferred Stock issued upon the effectiveness of the Merger
between the Corporation and Emons Merger Corporation (the "Merger") shall
be the effective date of the Merger.
So long as any shares of Series A Preferred Stock shall be
outstanding, the Corporation shall not declare or pay, or set apart for
payment, any dividends or make any distribution in cash or other property
(other than dividends or distributions in shares of any class or series of
stock of the Corporation ranking junior to Series A Preferred Stock with
respect to dividends) on any class or series of stock of the Corporation
ranking junior to Series A Preferred Stock with respect
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<PAGE>
to dividends and shall not redeem, purchase, or otherwise acquire, directly
or indirectly (other than (x) through exchange for, or out of net cash
proceeds received by the Corporation or any of its subsidiaries after the
original date of issuance of the Series A Preferred Stock from the sale of
shares of, any class or series of stock of the Corporation ranking junior
to Series A Preferred Stock with respect to liquidation preference or (y)
upon the conversion of shares of stock of the Corporation), any shares of
any class or series of stock of the Corporation ranking junior to Series A
Preferred Stock with respect to liquidation preference, if at the time of
making such declaration, payment, setting apart, distribution, redemption,
purchase, or acquisition, full cumulative dividends upon all outstanding
shares of Series A Preferred Stock to the end of the last completed
dividend period shall not have been paid or declared and set apart for
payment. So long as any shares of Series A Preferred Stock shall be
outstanding, the Corporation shall not declare, with respect to any
dividend period, any dividends on any class or series of stock of the
Corporation ranking on a parity with the Series A Preferred Stock with
respect to dividends, unless the Corporation shall have likewise declared
dividends on the Series A Preferred Stock for all dividend periods
coinciding with or ending before such dividend period, ratably in
proportion to the respective annual dividend rates for Series A Preferred
Stock and for such other class or series.
(c) Liquidation Rights. In the event of any liquidation, dissolution,
------------------
or winding up of the Corporation, whether voluntary or involuntary, the
holders of Series A Preferred Stock shall be entitled to receive or to have
set apart for them, before any payment or distribution of the assets of the
Corporation shall be made to or set apart for any class or series of stock
of the Corporation ranking junior to the Series A Preferred Stock with
respect to liquidation preference, an amount equal to $2.00 per share, plus
an amount equal to all dividends accrued, accumulated, and unpaid thereon
to the date of final distribution to such holders; but they shall be
entitled to no further payment. If the assets of the Corporation
distributable to shares of the Series A Preferred Stock and to shares of
any class or series of stock of the Corporation ranking on a parity with
the Series A Preferred Stock with respect to liquidation preference shall
be insufficient to provide for full payment of the preferential amounts to
which the holders thereof are respectively entitled, the Corporation shall
make payments on shares of the Series A Preferred Stock and on shares of
any such class or series ratably in accordance with the preferential
amounts to which such shares are respectively entitled.
For the purposes of this section (c), no sale, conveyance, exchange,
or transfer (for cash, shares of stock, securities, or other consideration)
of all or substantially all of the property or assets of the Corporation,
no reorganization of the Corporation, and no consolidation or merger of the
Corporation with one or more corporations shall be deemed to be a
liquidation, dissolution, or winding up, voluntary or involuntary,
(d) Voting. The holders of Series A Preferred Stock shall be entitled to
------
vote, together with holders of Common Stock, par value $.01 per share
("Common Stock") as a single class (on the basis of one vote per share), at
any election of directors or on any other matter submitted to stockholders
of the Corporation.
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<PAGE>
So long as any shares of Series A Preferred Stock shall be
outstanding, the Corporation shall not create any class or series of stock
ranking, either as to payment of dividends or as to liquidation preference,
prior to the Series A Preferred Stock.
(e) Redemption and Purchase of Series A Preferred Stock. The Series A
---------------------------------------------------
Preferred Stock may be redeemed at the option of the Corporation, in whole
at any time or in part from time to time, out of funds legally available
therefor, on or after the second anniversary of the date of original
issuance of the Series A Preferred Stock, upon the notice hereinafter
provided for, by the payment therefor in cash of an amount per share
(rounded, in the case of any fraction of a cent, to the next highest cent)
equal to the following redemption prices, plus an amount per share (rounded
to the nearest cent) equal to the amount accrued per share at the annual
dividend rate for the number of days in the period between (i) the end of
the last completed dividend period as to which dividends have been or are
paid on the shares to be redeemed, and (ii) the date of the notice
hereinafter provided for:
<TABLE>
<CAPTION>
If Redeemed During the 12
Months Beginning October 1 Per Share Redemption Price
-------------------------- --------------------------
<S> <C>
1991 $2.25 per share
1992 2.20
1993 2.15
1994 2.10
1995 2.05
1996 and thereafter 2.00
</TABLE>
Notwithstanding the foregoing, no shares of Series A Preferred Stock
or of any other series of Preferred Stock shall be redeemed unless, on the
date fixed for redemption, full cumulative dividends upon all outstanding
shares of Series A Preferred Stock and all other series of Preferred Stock
of the Corporation to the end of their respective last completed dividend
period shall have been paid or declared and set apart for payment.
If at any time less than all of the shares of Series A Preferred Stock
then outstanding shall be called for redemption, the shares to be redeemed
shall be selected by lot in a manner determined by the Board of Directors
of the Corporation.
Notice of any proposed redemption of Series A Preferred Stock shall be
given by the Corporation by first class mail, postage prepaid, not more
than 60 nor less than 15 days prior to the date of redemption, to the
holders of record of the shares to be redeemed at their respective
addresses then appearing on the records of the Corporation. Such notice
shall set forth the date of redemption, the place for surrender of
certificates for shares to be redeemed; and a statement of or reference to
the conversion right set forth in section (f) below, including the period
within which the conversion right may be exercised and the applicable
conversion rate.
On or before the redemption date, the Corporation shall deposit in
trust with any transfer agent or other agent, or set aside in trust, out of
funds legally available therefor, separate and
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<PAGE>
apart from the other funds of the Corporation, for the account of the
holders of the shares of Series A Preferred Stock to be redeemed, the
moneys necessary for such redemption. Upon (i) the depositing or setting
aside of such moneys (whether on or before the date of redemption) and (ii)
the mailing, as hereinabove provided, of the notice of such redemption, all
shares of Series A Preferred Stock with respect to the redemption of which
such deposit or setting aside shall have been made and such mailing
effected shall, whether or not the certificates for such shares shall have
been surrendered for cancellation, be deemed to be no longer outstanding
and all rights with respect to such shares shall thereupon cease and
terminate, except for the right of the holders of the certificates for such
shares to receive out of the moneys so deposited or set aside in trust,
from and after the redemption date and upon actual surrender of the
Corporation, or, in the event of such deposit, to the transfer agent or
other agent with which such deposit shall be made, of such certificates,
duly endorsed or assigned for transfer (unless such endorsement or
assignment be waived by the Corporation), the amount payable upon the
redemption thereof, without interest, and except for the right of the
holders of certificates for such shares to convert such shares as provided
in the third paragraph of section (f). Notwithstanding anything to the
contrary contained in this section (e), moneys deposited or set aside in
trust for the redemption of shares of Series A Preferred Stock converted
subsequent to the making of such deposit or such setting aside shall be
repaid to the Corporation, or shall become unrestricted moneys by the
Corporation, as the case may be, forthwith upon the conversion of such
shares. At the expiration of two years after the redemption date (or prior
to any earlier date on which such moneys would otherwise escheat to or
become the property of any governmental unit or agency thereof), any such
moneys then remaining on deposit with such transfer agent or other agent
shall be paid over to the Corporation, free of trust and any such moneys
then set apart by the Corporation shall become unrestricted moneys of the
Corporation, free of trust, and thereafter the holders of the certificates
for such shares of Series A Preferred Stock shall have no claims against
such transfer agent or other agent, but only claims as unsecured creditors
against the Corporation for amounts equal to their pro rata portions of the
moneys so paid over, without interest. Interest, if any, accrued on moneys
deposited or set aside pursuant to the foregoing provisions shall belong to
the Corporation.
The Corporation may also from time to time purchase or otherwise
acquire shares of Series A Preferred Stock or of any other series of
Preferred Stock theretofore issued and at the time outstanding, except that
whenever full cumulative dividends upon all outstanding shares of Series A
Preferred Stock and all other series of Preferred Stock to the end of their
respective last completed dividend periods shall not have been paid or
declared and set aside for payment, then until full cumulative dividends
upon all outstanding shares of Series A Preferred Stock and all other
series of Preferred Stock to the end of their respective last completed
dividend periods shall have been paid or declared and set aside for
payment, the Corporation shall not purchase or otherwise acquire any shares
of Series A Preferred Stock or of any other series of Preferred Stock other
than (x) in accordance with a tender offer or purchase offer made by the
Corporation to all holders of record of all series of Preferred Stock
providing for the purchase of shares at a stated price or prices and upon
stated terms or (y) upon the conversion of the shares of Series A Preferred
Stock or of any other series of Preferred Stock.
In case less than all the shares of Series A Preferred Stock
represented by any certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
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<PAGE>
The shares of the Series A Preferred Stock shall not be entitled to
the benefit of any sinking fund or purchase fund.
(f) Conversion. The shares of the Series A Preferred Stock shall be
----------
convertible at the option of the holders thereof into fully paid and non-
assessable shares of the Common Stock, par value $.01 per share, of the
Corporation (the "Common Stock") at the rate of .9 shares of the Common
Stock for each share of the Series A Preferred Stock.
Each holder of Series A Preferred Stock desiring to exercise his right
of conversion shall deliver written notice of his election to convert
Series A Preferred Stock, stating the names and addresses of the persons to
whom the Common Stock is to be issued, and shall surrender the certificate
for such shares of Series A Preferred Stock, duly endorsed or assigned for
transfer (unless such endorsement or assignment be waived by the
Corporation), to the Corporation at the office of the transfer agent for
the Series A Preferred Stock. In case less than all the shares of Series A
Preferred Stock represented by any certificate are converted, such notice
shall also state the number of shares to be converted, and a new
certificate shall be issued representing the unconverted shares. Upon
receipt by the Corporation of any notice of election to convert Series A
Preferred Stock and upon surrender of the certificate therefor, the
Corporation shall execute and deliver, as soon as practicable, to the
converting holder of Series A Preferred Stock, a certificate or
certificates for the number of shares of Common Stock resulting from such
conversion, together with any cash adjustment in lieu of fractional shares.
For all purposes, the rights of a converting holder of Series A Preferred
Stock as such shall cease as to the shares converted, and the person or
persons in whose name or names the certificates for Common Stock issuable
upon such conversion are to be issued shall be deemed to have become the
record holder or holders of such Common Stock, at the close of business on
the day on which delivery of such notice or the surrender of the
certificate for such shares (whichever shall last occur) shall be made.
The Corporation shall pay all issue and transfer taxes, if any, incurred in
respect of the Common Stock delivered on the conversion; provided, however,
that the Corporation shall not be required to pay any transfer or other
taxes, if any, incurred by reason of the issuance or delivery of such
Common Stock in names other than those in which the Series A Preferred
Stock surrendered for conversion is registered, and no such issuance or
delivery shall be made unless and until there has been paid to the
Corporation the amount of any such taxes, or there shall have been
established to the satisfaction of the Corporation that such taxes have
been paid.
In case of the Corporation's redemption of any shares of the Series A
Preferred Stock, such right of conversion shall end, as to the shares
called for redemption, at the later of (i) the close of business on the
fifth business day prior to the date fixed for redemption and (ii) the
close of business fifteen days after the day notice of redemption shall be
given by the Corporation to the holders of record of the shares to be
redeemed, unless default shall be made in the payment of the redemption
price, in which case the right of conversion shall be deemed to continue
until such default is cured. In the event of the liquidation, dissolution,
or winding up of the Corporation, such right of conversion shall end at the
close of business on the tenth business day prior to the date fixed for the
first distribution of the assets of the Corporation to the holders of
Series A Preferred Stock. Upon conversion, the Corporation shall make no
payment or adjustment on account of dividends accrued, accumulated, and
unpaid (other than dividends
-5-
<PAGE>
payable to holders of Series A Preferred Stock
as of a record date prior to such conversion) on the shares of Series A
Preferred Stock surrendered for conversion.
The number of shares of the Common Stock into which each share of the
Series A Preferred Stock is convertible shall be subject to the following
adjustments from time to time and after the happening of each of the
following events only as follows:
(A) In case the Corporation shall (1) pay a dividend or make a
distribution on the outstanding shares of the Common Stock payable in
shares of the Common Stock, (2) subdivide the outstanding shares of
the Common Stock into a larger number of shares, (3) combine the
outstanding shares of the Common Stock into a smaller number of
shares, or (4) issue by reclassification of the Common Stock any
shares of the Corporation, each holder shall thereafter be entitled
upon a conversion to receive for each share of the Series A Preferred
Stock held by him the number of shares of the Corporation which he
would have owned or have been entitled to receive after the happening
of any of the events described above in this subsection (A) which
shall have happened had such share of the Series A Preferred Stock
been converted immediately prior to the happening of such event. Such
adjustment shall become effective on the day next following (x) the
record date of such dividend or distribution or (y) the day upon which
subdivision, combination or reclassification shall become effective.
(B) In case the Corporation shall consolidate or merge into or
with another corporation, or in case the Corporation shall sell or
convey to any other person or persons all or substantially all the
property of the Corporation, each holder of the Series A Preferred
Stock then outstanding shall have the right thereafter to convert each
share of Series A Preferred Stock held by him into the kind and amount
of shares of stock, other securities, cash, and property receivable
upon such consolidation, merger, sale, or conveyance by a holder of
the number of shares of Common Stock into which such share might have
been converted immediately prior to such consolidation, merger, sale,
or conveyance, and shall have no other conversion rights. In any
event, effective provision shall be made, in the certificate or
articles of incorporation of the resulting or surviving corporation or
otherwise or in any contract of sale and conveyance so that, so far as
appropriate and as nearly as reasonably may be, the provisions set
forth herein for the protection of the conversion rights of the shares
of the Series A Preferred Stock shall thereafter be made applicable.
(C) In case the Corporation shall issue rights or warrants to the
holders of the Common Stock entitling them (for a period expiring
within 45 days after the record date mentioned in the next sentence)
to subscribe for or purchase shares of the Common Stock at a price per
share less than the current market price per share of the Common Stock
(as defined in subsection (E) below) at such record date, the number
of shares of the Common Stock into which each share of the Series A
Preferred Stock shall thereafter be convertible shall be determined by
multiplying the number of shares of the Common Stock into which such
share of
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<PAGE>
the Series A Preferred Stock was theretofore convertible by a
fraction, of which the numerator shall be the number of shares of the
Common Stock outstanding at the opening of business on such record
date plus the number of additional shares of the Common Stock offered
for subscription or purchase, and of which the denominator shall be
the number of shares of the Common Stock outstanding at the opening of
business on such record date plus the number of shares of the Common
Stock which could be purchased at such current market price using the
aggregate exercise price of all such rights or warrants as the
purchase price for such shares. Such adjustment shall become effective
on the day next following the record date for the determination of
stockholders entitled to receive such rights or warrants.
(D) In case the Corporation shall distribute to all holders of
its Common Stock, and not to the holders of Series A Preferred Stock,
any assets or evidences of indebtedness of the Corporation of a value
per share in excess of 5% of the current market price per share of the
Common Stock (as defined in subsection (E) below) at the record date
mentioned below in any consecutive 12-month period (excluding
dividends paid in, or distributions of, cash), then the number of
shares of Common Stock into which each such share of Series A
Preferred Stock shall be convertible on the day next following the
record date for such distribution shall be determined by multiplying
the number of shares of Common Stock into which such share of Series A
Preferred Stock was theretofore convertible by a fraction, of which
the numerator shall be the current market price per share of the
Common Stock (as defined in subsection (E) below) at such record date
and of which the denominator shall be the current market price per
share of the Common Stock at such record date less the value at such
record date of the portion of the assets or evidences of indebtedness
so distributed applicable to one of the outstanding shares of Common
Stock. Such value shall be determined by the Board of Directors of the
Corporation, whose determination shall be conclusive and shall be
described in a statement filed with the transfer agent or transfer
agents for the Series A Preferred Stock and for the Common Stock. Such
adjustment shall become effective on the day next following such
record date.
(E) For the purpose of any computation under subsections (C) and
(D) above, the current market price per share of the Common Stock at
any record date shall be deemed to be the average of the daily closing
prices for thirty consecutive business days commencing not more than
forty-five business days before such record date, such consecutive day
period to be determined by the Board of Directors, and if not
determined by the Board of Directors, such consecutive day period
shall be deemed to have commenced on the fortieth business day before
the record date. The closing price for each day shall be the mean of
the closing dealer "bid" and "ask" prices for a share of Common Stock
in the over-the-counter market as reported by the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") or if the
Common Stock is listed on a recognized stock exchange, the last
reported sales price regular way of such stock on such exchange (or,
if the Common Stock is listed on more than one recognized stock
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<PAGE>
exchange, the average of the last reported sales price regular way of
the Common Stock on all such exchanges) or such other method of
determining current market price as the Board of Directors shall from
time to time deem to be fair (and such other method shall be
conclusive). The term "business day" as used in this subsection (E)
and subsection (F) means any day on which the applicable exchange or
NASDAQ shall be open for trading.
(F) No fractional share of the Common Stock shall be issued upon
any conversion but, in lieu thereof, there shall be paid to each
holder of shares of the Series A Preferred Stock surrendered for
conversion who but for the provisions of this subsection (F) would be
entitled to receive a fraction of a share on such conversion, as soon
as practicable after the date such shares are surrendered for
conversion, an amount in cash equal to the same fraction of the market
value of a full share of the Common Stock. For the purpose of this
subsection (F), the market value of a share of the Common Stock shall
be the closing price (determined in accordance with subsection (E)
above) on the business day (as defined in subsection (E) above)
immediately preceding the date upon which shares are surrendered for
conversion, or such other method of determining market value as the
Board of Directors shall from time to time deem to be fair (and such
other method shall be conclusive).
(G) No adjustment in the number of shares of the Common Stock
into which each share of the Series A Preferred Stock is convertible
shall be required unless such adjustment would require an increase or
decrease of more than 1/34 of a share in the number of shares of the
Common Stock into which such share is then convertible, provided,
however, that any adjustments which by reason of this subsection (G)
are not required to be made shall be carried forward cumulatively and
taken into account in any subsequent calculation.
(H) Whenever any adjustment is required in the shares into which
each share of the Series A Preferred Stock is convertible, the
Corporation shall keep available at its principal office and the
principal office of each of the transfer agent or transfer agents for
the Series A Preferred Stock and the Common Stock a statement
describing in reasonable detail the adjustment and the method of
calculation used.
Shares of the Common Stock held in the treasury of the Corporation may
in its discretion be delivered upon any conversion of shares of the Series
A Preferred Stock.
In case cash, property, or securities other than Common Stock shall be
payable, deliverable, or issuable by the Corporation upon conversion as
aforesaid, then references to Common Stock in this section (f) shall be
deemed to apply, so far as appropriate and as nearly as may be, to such
cash, property, or other securities.
-8-
<PAGE>
ANNEX D
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VALUATION OF
$0.14 SERIES A CUMULATIVE CONVERTIBLE
PREFERRED STOCK
FOR
EMONS TRANSPORTATION GROUP, INC.
Ferris, Baker Watts, Incorporated
100 Light Street
Baltimore, Maryland 21202
(410) 659-4657
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C>
Executive Summary 1
Due Diligence Review 1
Business 1
History of the Company 2
Operations in September 1989 3
Financial Review 4
Valuation of the Fair market Value of the
Convertible Preferred Stock 5
Valuation Summary 5
Summary and Conclusion 6
</TABLE>
Exhibits
History of Common Stock Price A
<PAGE>
Executive Summary
Ferris, Baker Watts, Incorporated ("FBW") has been retained by Emons
Transportation Group, Inc. (together with its predecessor companies, "Emons" or
the "Company") to establish the fair market value of the $0.14 Series A
Cumulative Convertible Preferred Stock (the "Convertible Preferred Stock) as of
the original issue date of September 27, 1989 (the "Valuation"). The Company
requires an independent Valuation of the Convertible Preferred Stock as of
September 27, 1989 for the purpose of determining the tax implications, if any,
resulting from the proposed exchange of Convertible Preferred Stock for Common
Stock currently being contemplated.
The term "fair market value", as used herein, is the price at which a
hypothetical willing buyer and a hypothetical willing seller would conclude a
transaction, neither being under the compulsion to conclude a transaction, and
both parties having reasonable knowledge of the relevant facts.
DUE DILIGENCE REVIEW
As an integral part of determining the fair market value of the Convertible
Preferred Stock at the issue date of September 27, 1989, FBW conducted an
extensive review of the material provided by the Company, including its
historical stock price and financial results. In addition, FBW conducted
interviews with management. In general, our discussions centered on the
following issues:
. The history of the business.
. The historical common stock price of the Company.
. The terms of the Convertible Preferred Stock.
. The financial condition of the Company as of the September 27, 1989
Valuation date.
. The financial outlook and prospects of Emons as of the September 27, 1989
Valuation date.
BUSINESS
In September 1989, Emons Holdings, Inc., the predecessor company, was a
transportation management and services company headquartered in York,
Pennsylvania, that had two primary business groups: the Transportation Equipment
Services Group which managed, leased, brokered and repaired transportation
equipment; and the Railroad Group which operated three short-line railroads.
The Company's objective was to be an integrated, full service provider of
transportation and distribution services to the North American market. The
Company's strategy to achieve this objective was to pursue selective acquisition
opportunities and/or develop new businesses which would complement its existing
operations.
HISTORY OF THE COMPANY
The Company's origins date to May 1971 when Gromar Planning and Development
Corp. acquired 50% ownership in Amfre-Grant, Inc., formerly a pharmaceutical
marketing company. In October 1971, Amfre-Grant acquired the Maryland and
Pennsylvania Railroad ("MPA"), a short-line railroad headquartered in York
Pennsylvania, along with a fleet of 300 boxcars. Shortly thereafter, the
company changed its name to Emons Industries, Inc.
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<PAGE>
Throughout the 1970's, the Company concentrated on providing rail
transportation equipment (primarily boxcars) to the railroad industry. In its
capacity as the owner/lessor of railcars financed by third parties, the Company
generally supplied this equipment to railroads under short-term operating leases
which included daily utilization charges. Between 1972 and 1980, the Company's
operating revenues grew from $1.4 million to over $16.5 million. During this
same period assets under management grew from $600,000 to over $80 million and
included a fleet of 3,560 railcars.
In 1981, the Company began experiencing severe financial difficulties due
to significant oversupply of boxcars in the railroad market. The oversupply
problem was primarily a result of three factors: (i) the overbuilding of boxcars
due to the generous tax benefits available to the owners of such cars; (ii) the
sharp downturn in general business activity in the early 1980's; and (iii) the
tendency for traditional rail shippers to utilize alternative modes of
transportation, such as trucks and intermodal containers, for their shipping
needs which caused a major reduction in annual boxcar loadings from 1973 to
1983. Consequently, the values of boxcars and their rental rates declined
significantly while the Company's fixed charges remained constant. In March
1984, the Company filed a voluntary petition for reorganization under Chapter 11
of the Federal bankruptcy Code.
Under the terms of its Chapter 11 reorganization in December 1986, the
secured creditors of the Company became the owners of the railcars which they
had previously financed, subject to agreements under which the Company retained
management control over these cars. Consequently, all revenues and expenses
generated by the railcars flowed through the secured creditors and the Company
received a fee for its car management services. Furthermore, the former
creditors of the Company (including product liability claimants associated with
the operations of Amfre-Grant) became effective owners of approximately 97% of
Emons Common Stock and 100% owners of a new issue of Emons Senior Preferred
Stock ("Senior Preferred Stock").
In July 1988, the Company's Board of Directors retained Prescott, Ball &
Turben, Inc. ("PBT") as the Company's financial advisor to assist the Company in
evaluating ways to enhance shareholders value and improve the Company's ability
to pursue strategic acquisitions. After analyzing the Company's financial
structure and reviewing the terms of the Senior Preferred Stock, PBT concluded
that the Senior Preferred Stock seriously limited the Company's ability to raise
new debt and equity capital. In addition, the Company concluded that various
provisions of the Senior Preferred Stock have a significant, and often negative
influence upon the Company's decisions on how the Company conducts its existing
business and how it pursues future business opportunities. The Company and PBT
explored ways in which the Company could redeem the Senior Preferred Stock
according to the existing terms and at a significant discount, and how it would
finance such a redemption. They concluded that under the existing terms, the
Company could not raise sufficient capital to fund a redemption and that a
redemption at a significant discount would be unattractive to the holders of
Senior Preferred Stock.
In April 1989, the Company's management developed the general terms for a
merger in which one share of Senior Preferred Stock would be exchanged for one
share of Convertible Preferred Stock (the "1989 Merger"). The Convertible
Preferred Stock would pay annual dividends of $0.14 per share, have an initial
redemption price of $2.25 per share, full voting rights equal to rights of
Common Stock and each share would be convertible into 0.9 shares of Common
Stock. On May 1, 1989, the specific terms of the Convertible Preferred Stock
and terms of the Merger were unanimously approved by the Company's Board of
Directors. On August 23, 1989, a proxy statement that included the terms of the
Merger was sent to all holders of Common
-2-
<PAGE>
Stock and Senior Preferred Stock. On September 26, 1989, the Merger was approved
by written consent of at least 66.6% of the holders of Senior Preferred Stock,
voting as a single class, and a majority of the holders of Common Stock and
Senior Preferred Stock, voting together as a single class.
OPERATIONS IN SEPTEMBER 1989
During the fall of 1989, the Company was in the process of transitioning
from primarily being in the railcar management business to owning and operating
short-line railroads.
Transportation Equipment Services Group
Marketing and Management Services. The Company marketed and managed rail
----------------------------------
transportation equipment on behalf of financial institutions and other owners to
railroads and shippers. As of June 30, 1989, the Company managed approximately
3,800 railcars on behalf of sixteen railcar owners, of which 2,200 were owned by
a single financial services company, Chrysler Rail Transportation Corporation.
For the fiscal year ended June 1989, revenues from marketing and management
services were $3.9 million and represented approximately 42% of the Company's
total revenues.
Railcar Repair Operations. The Company had two railcar repair facilities,
--------------------------
that were both capable of light, medium and heavy repairs of general service
railcars. The facilities were located in York, Pennsylvania and Dyersburg,
Tennessee. The Dyersburg facility was opened in August 1988, and replaced the
Company's facility previously located in Greenville, Mississippi. The Company's
repair facilities serviced over 1,100 railcars in fiscal 1989. Revenues
generated by the railcar repair operations in fiscal 1989 were $746,000 or 8% of
the Company's total revenues.
RAILROAD GROUP
The Company owned and operated three short-line railroads, the MPA,
Yorkrail, Inc. ("YKR") and the St. Lawrence & Atlantic Railroad Company ("SLR").
At this time the Company was pursuing additional acquisitions of short-line and
regional railroad properties.
MPA. Located in York, Pennsylvania, MPA owned 26 miles of track. There
----
were approximately 30 shippers that utilized MPA's freight service for in-bound
and out-bound loadings. MPA interchanges with the Consolidated Rail Corporation
("Conrail"), CSX Transportation, Inc. ("CSX") and with YKR.
YKR. The Company acquired YKR from CSX on February 17, 1989. YKR consists
----
of 16 miles of track in and around York, Pennsylvania. YKR served 23 shippers
and had interchanges with CSX and the MPA.
SLR. The Company acquired SLR from Canadian National Railways on May 19,
----
1989. SLA consists of 163 miles of trackage between Portland, Maine and Norton,
Vermont. SLR has interchanges with Canadian National Railway, Maine Central
Railroad and the Boston and Maine Railroad. SLA served shippers in the paper,
agricultural and distribution service industries.
-3-
<PAGE>
The railroad group generated revenues in fiscal 1989 of $3.0 million or
approximately 32% of the Company's total revenues.
-4-
<PAGE>
FINANCIAL REVIEW
As of September 27, 1989, the Company had audited financial results for its
fiscal year ended June 30, 1989. The following table highlights selected
financial results for the fiscal year ended June 30, 1989.
SELECTED FINANCIAL DATA
FISCAL YEAR ENDED JUNE 30, 1989
<TABLE>
<CAPTION>
$ IN THOUSANDS % OF REVENUE
-------------- ------------
<S> <C> <C>
Revenues $7,965
Operating income 1,017 12.8
Gain on sale of assets 893
Interest income, net 215
Income before taxes 2,125 26.7
Income tax 71
Net income 2,054 25.8
Senior preferred dividend 46
Net income available to holders of Common 2,008 25.2
</TABLE>
During this period, the Company paid a dividend on the Senior Preferred
Stock of approximately $20,000. The Company's effective tax rate in 1989 was
3.4% due to the tax benefit of net operating loss carryforwards. Cash generated
from operations was retained to fund the working capital needs of the business.
The table below highlights selected balance sheet data as of June 30, 1989.
During the course of the year, the Company made three acquisitions that were
financed from existing operations, the sale of assets and the raising of capital
through bank borrowings.
SELECTED BALANCE SHEET DATA
AS OF JUNE 30, 1989
<TABLE>
<CAPTION>
$ IN THOUSANDS
--------------
<S> <C>
Cash $ 3,140
Current assets 5,405
Fixed assets, net 17,010
Total assets 23,528
Current liabilities 3,125
Total debt 13,501
Shareholders' equity 7,535
Working capital 2,280
</TABLE>
-5-
<PAGE>
VALUATION OF THE FAIR MARKET VALUE OF THE CONVERTIBLE PREFERRED STOCK
FBW has considered several methods to evaluate the fair market value of the
Company's Convertible Preferred Stock at its issuance on September 27, 1989.
Fair market value is the price at which a willing buyer and a willing seller
would conclude a transaction, neither being under the compulsion to conclude a
transaction, and both parties having reasonable knowledge of the relevant facts.
The holders of 100% of the Senior Preferred Stock also own the majority of
Common Stock. After reviewing the Company's proxy, which was mailed on August
23, 1989, at least 66.6% of the holders of Senior Preferred Stock provided
written consent approving the exchange of their existing shares of Senior
Preferred Stock for shares of Convertible Preferred Stock on a one for one
basis. Therefore, FBW determined that the 1989 Merger represented a willing
buyer and a willing seller transaction, and that both parties had reasonable
knowledge of the relevant facts. To determine fair market value we considered
the terms of the Convertible Preferred Stock, specifically the conversion terms,
and reviewed the Company's historical Common Stock price to calculate the fair
market value at issuance (see Exhibit A).
Recognizing that stock prices may fluctuate daily, FBW also considered the
valuation methodology of capitalizing the annual dividend and adding it to the
Convertible Preferred Stock redemption value, to support the above analysis.
VALUATION SUMMARY
The vote to approve the 1989 Merger occurred during the afternoon of
September 26, 1989. The closing share price of the Company's Common Stock on
September 26, 1989 was $4.5625. Since there was no trading restrictions placed
on the Convertible Preferred Stock or the underlying Common Stock issuable upon
conversion in the 1989 Merger, the holders of Convertible Preferred Stock could
have immediately converted to Common Stock and sold shares in the market the
following day. Using the conversion ratio of 0.9 shares of Common Stock for
each share of Convertible Preferred Stock, indicates that the market value at
issuance was $4.11.
In support of the above analysis, FBW also considered a valuation
methodology of capitalizing the annual dividend and adding it to the Convertible
Preferred Stock redemption value. According to the terms of the 1989 Merger,
there were 2,033,333 shares of Convertible Preferred Stock issued to the holders
of Senior Preferred Stock, with an annual dividend of $0.14 per share and an
initial redemption price of $2.25 per share that would decline by $0.05 per year
starting in year four and ending in year eight at a redemption price of $2.00
thereafter. Assuming that the agreed upon long-term dividend yield resulting
from the 1989 Merger was the market yield for this type of security, FBW
capitalized the annual dividend by 7.0%. By adding the long-term redemption
value of the Convertible Preferred Stock ($2.00 after September 27, 1997 or
approximately $4.1 million) to the value of the capitalized dividends
(approximately $4.1 million) and dividing this sum by the Convertible Preferred
Stock shares issued, results in a per share value of $4.00 on September 27,
1989.
-6-
<PAGE>
SUMMARY AND CONCLUSION
. The 1989 Merger represented a transaction in which a willing buyer and a
willing seller entered into a transaction, with both parties having
reasonable knowledge of the relevant facts.
. There were no trading restrictions placed on the Convertible Preferred
Stock or the underlying Common Stock issuable upon conversion that would
warrant a market discount at issuance.
. The fair market value of a share of Convertible Preferred Stock at issuance
was equal to 0.9 shares of Common Stock times the closing Common Stock
share price on September 26, 1989 or $4.11 per share.
. This value is consistent with the Company's historical stock price thirty
days before and after the issue date and is supported by the capitalized
dividend valuation method.
-7-
<PAGE>
<TABLE>
<CAPTION>
Exhibit A
Emons Historical Stock Price
Date Volume High Low Close
<S> <C> <C> <C> <C>
28-Aug-89 NA 4.1250 3.8750 4.0000
29-Aug-89 500 4.1250 3.8750 4.0000
30-Aug-89 200 4.1250 3.8750 4.0000
31-Aug-89 2200 4.2500 3.8750 4.0625
01-Sep-89 2000 4.3750 4.0000 4.1875
05-Sep-89 5100 4.5000 4.2500 4.3750
06-Sep-89 200 4.5000 4.2500 4.3750
07-Sep-89 100 4.5000 4.2500 4.3750
08-Sep-89 1 4.5000 4.2500 4.3750
11-Sep-89 200 4.5000 4.2500 4.3750
12-Sep-89 4500 4.5000 4.2500 4.3750
13-Sep-89 200 4.6250 4.2500 4.4375
14-Sep-89 300 4.6250 4.2500 4.4375
15-Sep-89 NA 4.6250 4.2500 4.4375
18-Sep-89 NA 4.6250 4.2500 4.4375
19-Sep-89 300 4.6250 4.2500 4.4375
20-Sep-89 21 4.6250 4.2500 4.4375
21-Sep-89 6000 4.6250 4.3750 4.5000
22-Sep-89 300 4.7500 4.3750 4.5625
25-Sep-89 600 4.7500 4.3750 4.5625
26-Sep-89 NA 4.7500 4.3750 4.5625
27-Sep-89 400 4.6250 4.3750 4.5000
28-Sep-89 1100 4.7500 4.3750 4.5625
29-Sep-89 200 4.7500 4.3750 4.5625
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <S> <S> <S>
02-Oct-89 NA 4.7500 4.3750 4.5625
03-Oct-89 NA 4.7500 4.3750 4.5625
04-Oct-89 300 4.7500 4.3750 4.5625
05-Oct-89 400 4.7500 4.3750 4.5625
06-Oct-89 NA 4.7500 4.3750 4.5625
09-Oct-89 NA 4.7500 4.3750 4.5625
10-Oct-89 400 4.7500 4.3750 4.5625
11-Oct-89 98 4.7500 4.3750 4.5625
12-Oct-89 NA 4.7500 4.3750 4.5625
13-Oct-89 NA 4.7500 4.3750 4.5625
16-Oct-89 3 4.7500 4.2500 4.5000
17-Oct-89 65 4.6250 4.2500 4.4375
18-Oct-89 200 4.6250 4.2500 4.4375
19-Oct-89 1100 4.6250 4.2500 4.4375
20-Oct-89 NA 4.6250 4.2500 4.4375
23-Oct-89 200 4.6250 4.2500 4.4375
24-Oct-89 NA 4.6250 4.2500 4.4375
25-Oct-89 NA 4.6250 4.2500 4.4375
26-Oct-89 1400 4.6250 4.2500 4.4375
27-Oct-89 NA 4.6250 4.2500 4.4375
=========================================================
</TABLE>
<PAGE>
ANNEX E
-------
DELAWARE GENERAL CORPORATION LAW (S)262 - APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to (S)228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251 (other than a merger effected pursuant to (S)251(g)
of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of this title:
(1)Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000
stockholders; and further provided that no appraisal rights shall be available
for any shares of stock of the constituent corporation surviving a merger if the
merger did not require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to (S)251, (S)252, (S)254,
(S)257, (S)258, (S)263 and (S)264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from such merger
or consolidation or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect
thereof, which shares of stock (or depository receipts in respect thereof) or
depository receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a national
market system security on an
-1-
<PAGE>
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in lieu
of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a. b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party to
a merger effected under (S)253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy
or vote against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or (2) If the merger or consolidation was approved pursuant to (S)228 or (S)253
of this title, each constituent corporation, either before the effective date of
the merger or consolidation or within 10 days thereafter, shall notify each of
the holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or consolidation
and that appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in such
notice a copy of this section; provided that, if the notice is given on or after
the effective date of the
-2-
<PAGE>
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such notice may,
and, if given on or after the effective date of the merger or consolidation,
shall, also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of the notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
this shares. If such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such constituent corporation shall
send a second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the effective
date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall not be more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights
may file a petition in the Court of Chancery demanding a determination of the
value of the stock of all such stockholders. Notwithstanding the foregoing, at
any time within 60 days after the effective date of the merger or consolidation,
any stockholder shall have the right to withdraw such stockholder's demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement
shall be mailed to the stockholder within 10 days after such stockholder's
written request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington,
-3-
<PAGE>
Delaware or such publication as the Court deems advisable. The forms of the
notices by mail and by publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted such stockholder's certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings until
it is finally determined that such stockholder is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within
-4-
<PAGE>
60 days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
-5-
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF EMONS TRANSPORTATION GROUP, INC.
APPROVAL OF PROPOSALS - The Board of Directors recommends a vote "FOR" item 1.
<TABLE>
<S> <C>
1. Approval of the Agreement of Merger dated ___, 1999 between the Company and ETG Merger Corporation, as described more fully in
the Statement Soliciting Proxies dated ________, 1999
[_] FOR the Agreement of [_] AGAINST the Agreement [_] ABSTAIN from Voting on the
Merger of Merger the Agreement of Merger
AUTHORIZATION FOR DISCRETIONARY VOTE BY APPOINTED PERSONS UPON ANY ADJOURNMENT
OF SPECIAL MEETING
- ------------------------------------------------------------------------------------------------------------------------------------
2. Authorization to vote in their discretion upon any adjournment of the Special
Meeting.
[_] FOR authorization to vote in [_] AGAINST authorization to vote in [_] ABSTAIN from granting authorization
their discretion upon any their discretion upon any to vote in their discretion
adjournment of the adjournment of the upon any adjournment of the
Special Meeting Special Meeting Special Meeting
DISCRETIONARY VOTE UPON OTHER BUSINESS
- ------------------------------------------------------------------------------------------------------------------------------------
3. In their discretion upon such other business that may properly come before
the Special Meeting (other than upon any adjournment of such Special
Meeting).
</TABLE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED IN
ACCORDANCE WITH THE SHAREHOLDER'S SPECIFICATIONS HEREON. IN THE ABSENCE OF SUCH
SPECIFICATION, THE PROXY WILL BE VOTED "FOR" EACH ITEM 1 AND 2 AND THE AUTHORITY
PROVIDED BY ITEM 3 WILL BE DEEMED GRANTED.
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE>
EMONS TRANSPORTATION GROUP, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
[_________, 1999]
The undersigned hereby appoints Robert Grossman and Scott F. Ziegler, or either
of them, with power of substitution, attorneys and proxies to represent the
undersigned at the Special Meeting of Stockholders of EMONS TRANSPORTATION
GROUP, INC., to be held on ___________, 1999, or at any adjournment thereof, to
vote all shares of Common Stock as designated below and upon such other business
that may properly come before the meeting.
<TABLE>
<S> <C>
Date:___________________________, 1999
______________________________________
Signature
______________________________________
Signature if held jointly
Please sign exactly as your name appears herein.
When shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation,
please sign in full corporate name by
President or other authorized officer.
If a partnership, please sign in the
partnership name by authorized person.
</TABLE>
<PAGE>
EMONS TRANSPORTATION GROUP, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
[_________, 1999]
The undersigned hereby appoints Robert Grossman and Scott F. Ziegler, or either
of them, with power of substitution, attorneys and proxies to represent the
undersigned at the Special Meeting of Stockholders of EMONS TRANSPORTATION
GROUP, INC., to be held on ___________, 1999, or at any adjournment thereof, to
vote all shares of Preferred Stock as designated below and upon such other
business that may properly come before the meeting.
<TABLE>
<S> <C>
Date:___________________________, 1999
______________________________________
Signature
______________________________________
Signature if held jointly
Please sign exactly as your name appears herein.
When shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation,
please sign in full corporate name by
President or other authorized officer.
If a partnership, please sign in the
partnership name by authorized person.
</TABLE>
